UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
 
D.C.
 
20549
FORM
10-Q
☒
QUARTERLY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
June 30, 2022March 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida
 
59-2273542
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
 
32301
(Address of principal executive office)
 
(Zip Code)
(
850
)
402-7821
(Registrant'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 August 1, 2022,April 28, 2023,
16,959,28017,021,748
 
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 PERIODTHREE MONTHS ENDED JUNE 30, 2022MARCH 31, 2023
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
 
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – June 30, 2022March 31, 2023 and December 31, 20212022
4
Consolidated Statements of Income – Three and Six Months Ended June 30,March 31, 2023 and 2022 and 2021
5
Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30,March 31, 2023 and 2022 and 2021
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended June 30,March 31, 2023 and 2022 and 2021
7
Consolidated Statements of Cash Flows – SixThree Months Ended June 30,March 31, 2023 and 2022 and 2021
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
4645
 
 
Item 4.
Controls and Procedures
4645
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
4645
 
 
Item 1A.
Risk Factors
4645
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4645
 
 
Item 3.
Defaults Upon Senior Securities
46
Item 4.
Mine Safety Disclosure
46
Item 5.
Other Information
46
 
 
Item 6.
Exhibits
47
 
 
Signatures
 
48
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of
which are beyond our control.
 
The words “may,” “could,” “should,” “would,” “believe,”
 
“anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially from
those set forth in our forward-looking statements.
Our ability to
 
achieve our financial objectives
 
could be adversely affected
 
by the factors discussed
 
in detail in Part
 
I, Item 2. “Management’s
Discussion and
 
Analysis of Financial
 
Condition and
 
Results of Operations”
 
and Part II,
 
Item 1A. “Risk
 
Factors” in this
 
Quarterly Report
on
Form 10-Q and
 
the following sections
 
of our Annual
 
Report on Form
 
10-K for the
 
year ended December
 
31, 20212022
 
(the “2021“2022 Form
 
10-K”):
(a) “Introductory
 
Note” in
 
Part I,
 
Item 1.
 
“Business”; (b)
 
“Risk Factors”
 
in Part
 
I, Item
 
1A, as
 
updated in
 
our subsequent
 
quarterly reports
filed on Form 10-Q; and (c)
 
“Introduction” in “Management’s
 
Discussion and Analysis of Financial Condition
 
and Results of Operations,” in
Part II, Item 7, as well as:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
the impact of legislative or regulatory changes;
●
adverse developments in the financial services industry generally, such as the recent bank failures and any related impact on depositor
behavior;
●
the effects of changes in the level of checking or savings account deposits and the competition for deposits on our business;funding costs, net
interest margin and ability to replace maturing deposits and advances, as necessary;
●
the effects of actions taken by governmental agencies to stabilize the recent volatility in the financial system and the effectiveness of such
actions;
●
changes in monetary and fiscal policies of the U.S. Government;
●
the impact of inflation, interest rate, market and monetary fluctuations on our loan origination volumes and deposit portfolio;
●
changes in consumer spending and saving habits;fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,
deferred tax asset valuation and pension plan;
●
changes in our liquidity position;
●
changes in accounting principles, policies, practices or guidelines;
●
the frequency and magnitude of foreclosure of our loans;
●
the effects of our lack of a diversified loan portfolio, including the risks of loan segments, geographic and industry concentrations;
●
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
 
●
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
these loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights;rights and the potential effects of higher interest
rates on our loan origination volumes
●
the magnitudeeffect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and duration ofother related charges and the ongoing COVID-19 pandemic and its impact onfailure
to achieve the global economy and financial market conditions
and our business;expected gains, revenue growth or expense savings from such corporate restructuring, acquisitions or dispositions;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies (including pandemics, such
as the COVID-19 pandemic), military conflict,
terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we
we operate;
●
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
●
increased competition and its effect on pricing;
●
technological changes;
●
the outcomes of litigation or regulatory proceedings;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
 
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake to update any forward-looking
statement, except as required by applicable law.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
June 30,March 31,
December 31,
(Dollars in Thousands, Except Par Value)
20222023
 
20212022
ASSETS
 
 
Cash and Due From Banks
$
91,20984,549
$
65,31372,114
Federal Funds Sold and Interest Bearing Deposits
 
603,315303,403
 
970,041528,536
Total Cash and Cash Equivalents
 
694,524387,952
 
1,035,354600,650
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
643,679438,068
 
and $
660,732455,232
)
 
601,405402,943
 
654,611413,294
Investment Securities, Held to Maturity (fair value of $
498,963612,200
 
and $
339,699612,701
)
 
528,258651,755
 
339,601660,744
Equity Securities
9001,883
 
86110
Total Investment
 
Securities
 
1,130,5631,056,581
 
995,0731,074,048
 
Loans Held For Sale, at fair value
48,70855,118
 
52,53254,635
 
Loans Held for Investment
2,213,6532,636,884
 
1,931,4652,525,180
Allowance for Credit Losses
 
(21,281)(26,507)
 
(21,606)(24,736)
Loans Held for Investment, Net
 
2,192,3722,610,377
 
1,909,8592,500,444
 
 
Premises and Equipment, Net
 
82,93282,055
 
83,41282,138
Goodwill and Other Intangibles
 
93,17393,053
 
93,25393,093
Other Real Estate Owned
9013
17431
Other Assets
 
111,935124,593
 
94,349120,519
Total Assets
$
4,354,2974,409,742
$
4,263,8494,525,958
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,724,6711,601,388
$
1,668,9121,653,620
Interest Bearing Deposits
 
2,061,5872,222,532
 
2,043,9502,285,697
Total Deposits
 
3,786,2583,823,920
 
3,712,8623,939,317
 
 
Short-Term
 
Borrowings
 
39,46326,632
34,55756,793
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
612463
884513
Other Liabilities
 
93,31985,878
67,73573,675
Total Liabilities
3,989,780
3,972,539
3,868,9254,123,185
Temporary Equity
10,0838,722
11,7588,757
 
 
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;
16,959,28017,021,748
 
and
16,892,06016,986,785
 
shares issued and outstanding at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively
170
169170
Additional Paid-In Capital
 
35,73837,512
34,42337,331
Retained Earnings
 
376,532405,634
364,788393,744
Accumulated Other Comprehensive Loss, net of tax
 
(40,765)(32,076)
(16,214)(37,229)
Total Shareowners’
Equity
 
371,675411,240
383,166394,016
Total Liabilities, Temporary
 
Equity, and Shareowners'Shareowners’ Equity
$
4,354,2974,409,742
4,263,849$
4,525,958
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30, March 31,
(Dollars in Thousands, Except Per Share
 
Data)
2022
20212023
2022
2021
INTEREST INCOME
Loans, including Fees
$
24,07234,880
$
24,582
$
46,205
$
47,93222,133
Investment Securities:
Taxable Securities
3,8334,912
2,036
6,723
3,8992,890
Tax Exempt Securities
712
186
13
38
Federal Funds Sold
and Interest Bearing Deposits
1,4084,111
200
1,817
413409
Total Interest Income
29,32043,915
26,836
54,758
52,28225,438
INTEREST EXPENSE
Deposits
2662,488
208
490
416224
Short-Term
 
Borrowings
343461
324
535
736192
Subordinated Notes Payable
370571
308
687
615317
Other Long-Term
 
Borrowings
86
16
17
379
Total Interest Expense
9873,526
856
1,729
1,804742
NET INTEREST INCOME
28,33340,389
25,980
53,029
50,47824,696
Provision for Credit Losses
1,5423,130
(571)
1,542
(1,553)-
Net Interest Income After Provision Forfor Credit Losses
26,79137,259
26,551
51,487
52,03124,696
NONINTEREST INCOME
Deposit Fees
5,4475,239
4,236
10,638
8,5075,191
Bank Card Fees
4,0343,726
3,998
7,797
7,6163,763
Wealth Management
 
Fees
4,4033,928
3,274
10,473
6,3646,070
Mortgage Banking Revenues
9,0656,995
13,217
18,011
30,3428,946
Other
1,9542,360
1,748
3,802
3,4701,848
Total Noninterest
 
Income
24,90322,248
26,473
50,721
56,29925,818
NONINTEREST EXPENSE
Compensation
25,38325,636
25,378
50,239
51,44224,856
Occupancy, Net
6,0756,762
5,973
12,168
11,940
Other Real Estate Owned, Net
(29)
(270)
(4)
(388)
Pension Settlement
169
2,000
378
2,0006,093
Other
8,9008,057
9,042
16,950
17,6058,284
Total Noninterest
 
Expense
40,49840,455
42,123
79,731
82,59939,233
INCOME BEFORE INCOME TAXES
11,19619,052
10,901
22,477
25,73111,281
Income Tax Expense
2,1774,133
2,059
4,412
4,8462,235
NET INCOME
9,019$
8,84214,919
18,065$
20,8859,046
IncomeLoss (Income) Attributable to Noncontrolling Interests
(306)35
(1,415)
(897)
(3,952)(591)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
8,71314,954
$
7,427
$
17,168
$
16,9338,455
BASIC NET INCOME PER SHARE
$
0.510.88
$
0.44
$
1.01
$
1.000.50
DILUTED NET INCOME PER SHARE
$
0.510.88
$
0.440.50
Average Basic Shares
Outstanding
17,016
16,931
Average Diluted
Shares Outstanding
17,045
16,946
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
6
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
(Dollars in Thousands)
2023
2022
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
1.0114,954
$
1.008,455
Average CommonOther comprehensive income (loss), before
 
Basic Shares Outstandingtax:
16,949Investment Securities:
16,858Change in net unrealized gain (loss) on securities available for sale
16,9406,808
16,848(25,448)
Average CommonAmortization of unrealized losses on securities transferred from available
 
Diluted Shares Outstandingfor sale to held to maturity
16,971865
16,8853
16,958Derivative:
16,874Change in net unrealized (loss) gain on effective cash flow
derivative
(801)
1,836
Benefit Plans:
Pension Settlement
-
209
Total Benefit Plans
-
209
Other comprehensive income (loss), before
tax
6,872
(23,400)
Deferred tax expense (benefit) related to other comprehensive income
1,719
(5,871)
Other comprehensive income (loss), net of tax
5,153
(17,529)
TOTAL COMPREHENSIVE
INCOME (LOSS)
$
20,107
$
(9,074)
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
7
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOMECHANGES IN SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
 
(Unaudited)Other
Three Months EndedAdditional
Six Months EndedComprehensive
June 30,
June 30,Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars in Thousands)In Thousands, Except Share Data)
2022Outstanding
2021Stock
2022Capital
2021Earnings
NET INCOME ATTRIBUTABLENet of Taxes
Total
TO COMMON SHAREOWNERS
Balance, January 1, 2023
16,986,785
$
8,713170
$
7,42737,331
$
17,168393,744
$
16,933(37,229)
$
394,016
Net Income Attributable to Common Shareowners
-
-
-
14,954
-
14,954
Other comprehensive (loss) income, before
tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(10,714)
(481)
(36,158)
(2,434)
Derivative:
Change in net unrealized gain on effective cash flow
derivative
1,161
(919)
2,997
1,206
Benefit Plans:
Reclassification adjustment for service cost
0
0
0
24
Actuarial gain
0
0
0
166
Defined benefit plan settlement
169
2,000
378
2,000
Total Benefit Plans
169
2,000
378
2,190
Other comprehensive (loss) income, before
tax
(9,384)
600
(32,783)
962
Deferred tax (benefit) expense related to other comprehensive income
(2,362)
152
(8,232)
243
Other comprehensive (loss) income,Comprehensive Income, net of tax
(7,022)-
448-
(24,551)-
719-
TOTAL COMPREHENSIVE5,153
5,153
Cash Dividends ($
0.1800
 
INCOME (LOSS)per share)
-
-
-
(3,064)
-
(3,064)
Repurchase of Common Stock
(25,241)
-
(819)
-
-
(819)
Stock Based Compensation
-
-
536
-
-
536
Stock Compensation Plan Transactions, net
60,204
-
464
-
-
464
Balance, March 31, 2023
17,021,748
$
1,691170
$
7,87537,512
$
(7,383)405,634
$
17,652(32,076)
$
411,240
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
-
-
8,455
-
8,455
Other Comprehensive Loss, net of tax
-
-
-
-
(17,529)
(17,529)
Cash Dividends ($
0.1600
per share)
-
-
-
(2,712)
-
(2,712)
Stock Based Compensation
-
-
245
-
-
245
Stock Compensation Plan Transactions, net
55,542
-
520
-
-
520
Balance, March 31, 2022
16,947,602
$
169
$
35,188
$
370,531
$
(33,743)
$
372,145
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
8
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
(Dollars in Thousands)
2023
2022
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
14,954
$
8,455
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Credit Losses
3,130
-
Depreciation
1,969
1,907
Amortization of Premiums, Discounts and Fees, net
1,080
2,907
Amortization of Intangible Asset
40
40
Pension Plan Settlement Charge
-
209
Originations of Loans Held-for-Sale
(212,085)
(246,887)
Proceeds From Sales of Loans Held-for-Sale
218,597
257,550
Mortgage Banking Revenues
(6,995)
(8,946)
Net Additions for Capitalized Mortgage Servicing Rights
(633)
227
Stock Compensation
536
245
Net Tax Benefit From Stock-Based
Compensation
-
(19)
Deferred Income Taxes
(747)
(6,167)
Net Change in Operating Leases
(3)
(27)
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,858)
-
Net Decrease (Increase) in Other Assets
(4,349)
1,441
Net Increase in Other Liabilities
12,471
7,036
Net Cash Provided By Operating Activities
26,107
17,971
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
-
(194,448)
Proceeds from Payments, Maturities, and Calls
8,820
14,441
Securities Available for
Sale:
Purchases
(2,017)
(25,139)
Proceeds from Sale of Securities
-
3,365
Proceeds from Payments, Maturities, and Calls
16,559
24,824
Purchases of Loans Held for Investment
(121,029)
(26,713)
Net Decrease (Increase) in Loans Held for Investment
7,376
(28,405)
Proceeds From Sales of Other Real Estate Owned
2,699
-
Purchases of Premises and Equipment
(1,886)
(1,013)
Noncontrolling Interest Contributions
-
1,838
Net Cash Used In Investing Activities
(89,478)
(231,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits
(115,397)
52,645
Net Decrease in Short-Term
Borrowings
(30,161)
(3,692)
Repayment of Other Long-Term
Borrowings
(50)
(78)
Dividends Paid
(3,064)
(2,712)
Payments to Repurchase Common Stock
(819)
-
Proceeds from Issuance of Common Stock Under Purchase Plans
164
190
Net Cash (Used In) Provided by Financing Activities
(149,327)
46,353
NET DECREASE IN CASH AND CASH EQUIVALENTS
(212,698)
(166,926)
Cash and Cash Equivalents at Beginning of Period
600,650
1,035,354
Cash and Cash Equivalents at End of Period
$
387,952
$
868,428
Supplemental Cash Flow Disclosures:
Interest Paid
$
3,723
$
715
Income Taxes Paid
$
7,466
$
20
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
$
423
$
-
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of
banking and banking-
related services to individual and corporate clients through its subsidiary,
Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama.
The Company is subject to competition from other financial institutions, is subject to
regulation by certain
government agencies and undergoes periodic examinations
by those regulatory authorities.
Basis of Presentation
.
The consolidated financial statements in this Quarterly Report on Form
10-Q include the accounts of CCBG
and its wholly owned subsidiary,
Capital City Bank (“CCB” or the “Bank”).
All material inter-company transactions and accounts
have been eliminated.
Certain previously reported amounts have been reclassified to conform to the current year’s
presentation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X.
Accordingly,
they do not include all of the information and notes required by generally accepted
accounting principles for complete financial
statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included.
The Consolidated Statement of Financial Condition at December
31, 2022 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and notes
required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated financial statements and notes
thereto included in the
Company’s annual report
on Form 10-K for the year ended December 31, 2022.
Accounting Standards Updates
Adoption of New Accounting Standard,
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2022-02,
“Financial Instruments – Credit Losses (Topic
326), Troubled Debt Restructurings and Vintage
Disclosures.” ASU 2022-02 eliminates
the accounting guidance for troubled debt restructurings in Accounting
Standards Codification (“ASC”) 310-40, “Receivables -
Troubled Debt Restructurings by Creditors
”
for entities that have adopted the current expected credit loss model introduced
by ASU
2016-13, “Financial Instruments – Credit Losses (Topic
326), Measurement of Credit Losses on Financial Instruments.”
ASU 2022-
02 also requires that public business entities disclose current-period
gross charge-offs by year of origination for financing receivables
and net investments in leases within the scope of Subtopic 326-20, “Financial
Instruments—Credit Losses—Measured at Amortized
Cost.”
Proposed Accounting Standards
,
ASU
2023-01, “Leases (Topic
842)
:
Common Control Arrangements.” ASU 2023-01 requires
entities to amortize leasehold improvements associated with common control
leases over the useful life to the common control group.
ASU 2023-01 also provides certain practical expedients applicable to private
companies and not-for-profit organizations. ASU 2023-
01 will be effective for us on January 1, 2024, though early adoption
is permitted. The Company is evaluating the effect that ASU
2023-01 will have on its consolidated financial statements and related disclosures.
ASU No.
2023-02, “Investments—Equity Method and Joint Ventures
(Topic
323)
: Accounting for Investments in Tax
Credit
Structures Using the Proportional Amortization Method.” ASU 2023-02
is intended to improve the accounting and disclosures for
investments in tax credit structures. ASU 2023-02 allows entities to elect to account
for qualifying tax equity investments using the
proportional amortization method, regardless of the program giving
rise to the related income tax credits. Previously,
this method was
only available for qualifying tax equity investments in low-income
housing tax credit structures. ASU 2023-02 will be effective for us
on January 1, 2024, though early adoption is permitted.
The Company is evaluating the effect that ASU 2023-02 will have on its
consolidated financial statements and related disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Accumulated
Other
Additional
Comprehensiv
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, April 1, 2022
16,947,602
$
169
$
35,188
$
370,531
$
(33,743)
$
372,145
Net Income Attributable to Common Shareowners
-
0
0
8,713
0
8,713
Other Comprehensive Loss, net of tax
-
0
0
0
(7,022)
(7,022)
Cash Dividends ($
0.1600
per share)
-
0
0
(2,712)
0
(2,712)
Stock Based Compensation
-
0
244
0
0
244
Stock Compensation Plan Transactions, net
11,678
1
306
0
0
307
Balance, June 30, 2022
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
Balance, April 1, 2021
16,851,878
$
169
$
32,804
$
335,324
$
(43,871)
$
324,426
Net Income Attributable to Common Shareowners
-
0
0
7,427
0
7,427
Reclassification to Temporary Equity
(1)
-
0
0
5,353
0
5,353
Other Comprehensive Income, net of tax
-
0
0
0
448
448
Cash Dividends ($
0.1500
per share)
-
0
0
(2,530)
0
(2,530)
Stock Based Compensation
-
0
219
0
0
219
Stock Compensation Plan Transactions, net
22,401
0
537
0
0
537
Balance, June 30, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
0
0
17,168
0
17,168
Other Comprehensive Loss, net of tax
-
0
0
0
(24,551)
(24,551)
Cash Dividends ($
0.3200
per share)
-
0
0
(5,424)
0
(5,424)
Stock Based Compensation
-
0
489
0
0
489
Stock Compensation Plan Transactions, net
67,220
1
826
0
0
827
Balance, June 30, 2022
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income Attributable to Common Shareowners
-
0
0
16,933
0
16,933
Reclassification to Temporary Equity
(1)
-
0
0
1,171
0
1,171
Other Comprehensive Income, net of tax
-
0
0
0
719
719
Cash Dividends ($
0.3000
per share)
-
0
0
(5,058)
0
(5,058)
Stock Based Compensation
-
0
438
0
0
438
Stock Compensation Plan Transactions, net
83,706
1
839
0
0
840
Balance, June 30, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
(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)
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income Attributable to Common Shareowners
$
17,168
$
16,933
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Provision for Credit Losses
1,542
(1,553)
Depreciation
3,802
3,782
Amortization of Premiums, Discounts and Fees, net
5,545
5,946
Amortization of Intangible Asset
80
40
Pension Plan Settlement Charge
378
2,000
Originations of Loans Held-for-Sale
(573,239)
(877,613)
Proceeds From Sales of Loans Held-for-Sale
595,074
941,173
Mortgage Banking Revenues
(18,011)
(30,342)
Net Additions for Capitalized Mortgage Servicing Rights
1,358
(8)
Change in Valuation
Provision for Mortgage Servicing Rights
0
(250)
Stock Compensation
489
438
Net Tax Benefit From Stock-Based
Compensation
(19)
(4)
Deferred Income Taxes
(8,879)
(469)
Net Change in Operating Leases
(72)
(81)
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(26)
(507)
Net Decrease (Increase) in Other Assets
845
(9,789)
Net Increase in Other Liabilities
22,040
2,472
Net Cash Provided By Operating Activities
48,075
52,168
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
Purchases
(218,548)
(201,308)
Payments, Maturities, and Calls
28,111
44,238
Securities Available for
Sale:
Purchases
(37,044)
(255,379)
Proceeds from Sale or Securities
3,365
0
Payments, Maturities, and Calls
47,413
94,911
Purchases of Loans Held for Investment
(174,779)
(70,043)
Net (Increase) Decrease in Loans Held for Investment
(109,806)
64,708
Proceeds From Sales of Other Real Estate Owned
30
1,121
Purchases of Premises and Equipment
(3,322)
(3,215)
Noncontrolling Interest Contributions
2,573
3,464
Net Cash Used In Investing Activities
(462,007)
(325,985)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
73,396
229,361
Net Increase (Decrease) in Short-Term
Borrowings
4,784
(32,668)
Repayment of Other Long-Term
Borrowings
(150)
(1,123)
Dividends Paid
(5,424)
(5,058)
Issuance of Common Stock Under Purchase Plans
496
570
Net Cash Provided By Financing Activities
73,102
191,082
NET DECREASE IN CASH AND CASH EQUIVALENTS
(340,830)
(82,735)
Cash and Cash Equivalents at Beginning of Period
1,035,354
928,549
Cash and Cash Equivalents at End of Period
$
694,524
845,814
Supplemental Cash Flow Disclosures:
Interest Paid
$
1,617
1,877
Income Taxes Paid
$
3,765
9,369
Noncash Investing and Financing Activities:
Loans Transferred to Other Real Estate Owned
$
77
$
998
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
9
CAPITAL CITY BANK
GROUP,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of
banking and banking-
related services to individual and corporate clients through its subsidiary,
Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama.
The Company is subject to competition from other financial institutions, is subject
to regulation by certain
government agencies and undergoes periodic examinations
by those regulatory authorities.
Basis of Presentation
.
The consolidated financial statements in this Quarterly Report on Form
10-Q include the accounts of CCBG
and its wholly owned subsidiary,
Capital City Bank (“CCB” or the “Bank”).
All material inter-company transactions and accounts
have been eliminated.
Certain previously reported amounts have been reclassified to conform to the current year’s
presentation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.
Accordingly,
they do not include all of the information and notes required by generally accepted
accounting principles for complete financial
statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included.
The Consolidated Statement of Financial Condition at December
31, 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
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
5
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, “Financial Instruments – Credit Losses (Topic
326)
.
In March 2022, the Financial
Accounting Standards Board issued ASU 2022-02, "Financial Instruments
– Credit Losses (Topic 326),
Troubled Debt Restructurings
and Vintage Disclosures".
ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings
("TDRs") in Accounting
Standards Codification (“ASC”) 310-40, "Receivables - Troubled
Debt Restructurings by Creditors" for entities that have adopted the
current expected credit loss model introduced by ASU 2016-13,
“Financial Instruments – Credit Losses (Topic
326): Measurement of
Credit Losses on Financial Instruments”.
ASU 2022-02 also requires that public business entities disclose current-period
gross
charge-offs
by year of origination for financing receivables and net investments in leases within
the scope of Subtopic 326-20,
"Financial Instruments—Credit Losses—Measured at Amortized
Cost".
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 that ASU 2022-02 will have on its consolidated
financial statements and related disclosures.
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”)
and the corresponding
amounts of gross
unrealized gains and losses.
Available for
 
Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
June 30,March 31, 2023
U.S. Government Treasury
$
23,984
$
-
$
1,611
$
-
$
22,373
U.S. Government Agency
184,294
127
10,131
-
174,290
States and Political Subdivisions
47,143
7
5,663
(8)
41,479
Mortgage-Backed Securities
(1)
79,148
3
10,137
-
69,014
Corporate Debt Securities
96,144
34
7,718
(28)
88,432
Other Securities
(2)
7,355
-
-
-
7,355
Total
$
438,068
$
171
$
35,260
$
(36)
$
402,943
December 31, 2022
U.S. Government Treasury
$
189,68623,977
$
01
$
11,7911,928
$
0-
$
177,89522,050
U.S. Government Agency
219,936198,888
33627
9,58812,863
0-
210,684186,052
States and Political Subdivisions
47,62647,197
9-
5,2696,855
(9)(13)
42,35740,329
Mortgage-Backed Securities
(1)
86,16880,829
82
8,35511,426
0-
77,82169,405
Corporate Debt Securities
92,93697,119
019
7,5938,874
(22)(28)
85,32188,236
Other Securities
(2)
7,3277,222
0-
0-
0-
7,3277,222
Total
 
$
643,679455,232
$
35349
$
42,59641,946
$
(31)(41)
$
601,405
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)
$
654,611413,294
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
June 30,March 31, 2023
U.S. Government Treasury
$
457,446
$
-
$
20,272
$
437,174
Mortgage-Backed Securities
(1)
194,309
19
19,302
175,026
Total
$
651,755
$
19
$
39,574
$
612,200
December 31, 2022
U.S. Government Treasury
$
303,379457,374
$
0-
$
13,67125,641
$
289,708431,733
Mortgage-Backed Securities
(1)
224,879203,370
668
15,69022,410
209,255180,968
Total
 
$
528,258660,744
$
668
$
29,36148,051
$
498,963
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
$
339,699612,701
(1)
 
Comprised of residential mortgage-backed
 
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
 
recorded at cost of $
2.3
 
million and $
5.1
 
million,
respectively,
 
at June 30, 2022March 31, 2023 and $
2.02.1
 
million and $
5.1
 
million, respectively,
 
at December 31, 2021.2022.
At June 30,March 31, 2023 and December 31, 2022, the investment portfolio had $
0.91.9
 
million and $
0.01
million, respectively in equity
securities. These securities do not have a readily determinable
fair value
and were not credit impaired.
 
Securities with an amortized cost of $
375.2660.1
 
million and $
463.8656.1
 
million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively,
 
were
pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required
 
to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB
 
advances.
 
FHLB stock, which is included in
other securities,
 
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March
31, 2023 totaled $
7.1
million.
This amount will continue to be
amortized out of accumulated other comprehensive loss over the remaining
life of the underlying securities as an adjustment of the
yield on those securities.
Investment Sales.
There were no significant sales of investment securities for the three or six months ended
 
March 31, 2023 and $
3.4
million
in sales of investment securities for the three months ended June 30, 2022 or June 30,
2021.March 31, 2022.
Maturity Distribution
.
 
At June 30, 2022,March 31, 2023, the Company's Company’s
investment securities had the following maturity distribution based
 
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
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
$
34,03136,233
 
$
31,93335,696
 
$
0-
 
$
0-
Due after one year through five years
 
316,240159,994
 
 
296,327147,344
 
 
303,379457,446
 
 
289,708437,174
Due after five year through ten years
 
59,47450,961
 
 
51,32342,970
 
 
0-
 
 
0-
Mortgage-Backed Securities
86,16879,148
77,82169,014
224,879194,309
209,255175,026
U.S. Government Agency
 
140,439104,377
 
 
136,674100,564
 
 
0-
 
 
0-
EquityOther Securities
 
7,3277,355
 
 
7,3277,355
 
 
0-
 
 
0-
Total
 
$
643,679438,068
 
$
601,405402,943
 
$
528,258651,755
 
$
498,963612,200
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
June 30, 2022March 31, 2023
Available for
 
Sale
U.S. Government Treasury
$
115,930994
 
$
7,757-
 
$
61,96519,481
 
$
4,0341,611
 
$
177,89520,475
 
$
11,7911,611
U.S. Government Agency
129,67529,035
7,137354
43,349133,057
2,4519,777
173,024162,092
9,58810,131
States and Political Subdivisions
40,323-
 
5,229-
 
43739,905
 
405,663
 
40,76039,905
 
5,2695,663
Mortgage-Backed Securities
73,829-
 
7,909-
 
3,80168,892
 
44610,137
 
77,63068,892
 
8,35510,137
Corporate Debt Securities
82,15110,009
 
7,285215
 
3,19274,472
 
3087,503
 
85,34384,481
 
7,5937,718
Total
 
441,908$
40,038
 
35,317$
569
 
112,744$
335,807
 
7,279$
34,691
 
554,652$
375,845
 
42,596$
35,260
 
Held to Maturity
U.S. Government Treasury
 
284,7894,827
 
13,375106
 
 
4,919432,346
 
29620,166
 
 
289,708437,173
 
 
13,67120,272
Mortgage-Backed Securities
195,3289,360
 
14,395297
 
9,659164,217
 
1,29519,005
 
204,987173,577
 
15,69019,302
Total
 
$
480,11714,187
 
$
27,770403
 
$
14,578596,563
 
$
1,59139,171
 
$
494,695610,750
 
$
29,36139,574
December 31, 20212022
Available for
 
Sale
 
U.S. Government Treasury
$
172,206983
 
$
2,606-
 
$
019,189
 
$
01,928
 
$
172,20620,172
 
$
2,6061,928
U.S. Government Agency
127,48463,112
1,7862,572
17,986113,004
35510,291
145,470176,116
2,14112,863
States and Political Subdivisions
 
42,1221,425
 
 
8112
 
 
038,760
 
 
06,853
 
 
42,12240,185
 
 
8116,855
Mortgage-Backed Securities
81,8326,594
598959
060,458
010,467
81,83267,052
59811,426
Corporate Debt Securities
69,35426,959
1,304878
058,601
07,996
69,35485,560
1,3048,874
Total
 
$
492,99899,073
 
$
7,1054,411
 
$
17,986290,012
 
$
35537,535
 
$
510,984389,085
 
$
7,46041,946
 
Held to Maturity
U.S. Government Treasury
 
113,877177,552
 
 
1,62211,018
 
 
0254,181
 
 
014,623
 
 
113,877431,733
 
 
1,62225,641
Mortgage-Backed Securities
115,01588,723
1,0996,814
091,462
015,596
115,015180,185
1,09922,410
Total
 
$
228,892266,275
 
$
2,72117,832
 
$
0345,643
 
$
030,219
 
$
228,892611,918
 
$
2,72148,051
At June 30, 2022,March 31, 2023, there were
833896
 
positions (combined AFS and HTM) with unrealized losses totaling $
72.074.8
 
million (see Note 2 –
Investment Securities in the Notes to Consolidated Financial Statements for
detail by category).million.
 
87
 
of these
positions are U.S.
Treasury bonds and carry
the full faith and
credit of the U.S. Government.
 
621684
 
are U.S. government agency
securities issued by U.S.
government sponsored entities.
 
We believe the
 
the long history of no credit losses on government securities
indicates that the expectation
of nonpayment of the amortized cost basis is effectively
zero.
 
The remaining
125
 
positions (Municipal (municipal
securities and corporate bonds) have a
credit component.
 
At June 30, 2022,March 31, 2023, all CMO,collateralized mortgage obligation securities
(“CMO”), MBS, SBA,Small Business Administration securities (“SBA”), U.S. Agency,
 
and U.S. Treasury bonds held were AAA rated.
 
At June 30,
2022,March 31, 2023, corporate debt securities had an allowance for credit losses of
$
22,00028,000
 
and municipal securities had an allowance of
$
9,0008,000
.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
 
various risk management procedures, including the
monitoring of credit ratings.
 
A majority of the debt securities in the Company’s
 
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
 
by the U.S. government.
 
The Company believes the
long history of no credit losses on these securities indicates that the expectation
 
of nonpayment of the amortized cost basis is
effectively zero,
even if the U.S. government were
to technically default.
 
Further, certain municipal securities held by the Company
have been pre-
refundedpre-refunded and secured by government guaranteed treasuries.
 
Therefore, for the aforementioned securities, the Company does not
does
no
t assess or record expected credit losses due to the zero loss assumption.
 
The Company monitors the credit quality of its
municipal and
corporate securities portfolio via credit ratings
 
which are updated on a quarterly basis.
 
On a quarterly basis, municipal
and corporate
securities in an unrealized loss position are evaluated to determine
if the
loss is attributable to credit related factors and
if an allowance
for credit loss is needed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
 
FOR CREDIT LOSSES
Loan Portfolio Composition
.
 
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
June 30, 2022March 31, 2023
 
December 31, 20212022
Commercial, Financial and Agricultural
$
247,902236,263
 
$
223,086247,362
Real Estate – Construction
 
225,664253,903
 
 
174,394234,519
Real Estate – Commercial Mortgage
 
699,093798,438
 
 
663,550782,557
Real Estate – Residential
(1)
 
484,975834,784
 
 
360,021727,105
Real Estate – Home Equity
 
194,658207,241
 
 
187,821208,120
Consumer
(2)
 
361,361306,255
 
 
322,593325,517
Loans Held For Investment, Net of Unearned Income
$
2,213,6532,636,884
 
$
1,931,4652,525,180
(1)
Includes loans in process balances of $
7.28.5
 
million and $
13.66.1
 
million at June 30, 2022March 31, 2023 and December 31, 2021,
2022, respectively.
(2)
Includes overdraft balances of $
1.50.9
 
million and $
1.1
 
million at June 30, 2022March 31, 2023 and December 31, 2021, 2022,
respectively.
 
Net deferred loan costs, which include premiums on purchased loans,
 
included in loans were $
7.012.5
 
million at June 30, 2022March 31, 2023 and
$
3.910.8
million at December 31, 2021.2022.
Accrued interest receivable on loans which is excluded from amortized
 
cost totaled $
6.38.6
 
million at June 30, 2022March 31, 2023 and $
5.38.0
 
million at
December 31, 2021,2022, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage
 
loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of
 
Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available
 
borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
.
 
The Company will periodically purchase newly originated 1-4 family real
 
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
 
Residential loan purchases from CCHL totaled $
158.8120.1
 
million and
$
51.126.3
 
million for the sixthree months ended June 30,March 31, 2023 and March 31, 2022, and June 30, 2021, respectively,
 
and were not credit impaired.
In addition, the
Company acquired commercial real estate loans that were not credit impaired
from a third party bank totaling $
15.0
 
million and $
17.4
million for the three months ended June 30, 2022 and June 30, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
Allowance for Credit Losses
.
 
The methodology for estimating the amount of credit losses reported in the
 
allowance for credit losses
(“ACL”) has two basic components: first, an asset-specific component
 
involving loans that do not share risk characteristics and the
measurement of expected credit losses for such individual loans; and second,
 
a pooled component for expected credit losses for pools
of loans that share similar risk characteristics.
 
This allowance methodology is discussed further in Note 1 – Significant
 
Accounting
Policies in the Company’s 20212022 Form
 
10-K.
 
The following table details the activity in the allowance for credit losses by portfolio
 
portfolio segment.
 
Allocation of a portion of the
allowance to one category of loans does not preclude its availability to
 
to absorb losses in other categories.
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
June 30, 2022March 31, 2023
Beginning Balance
$
2,1221,506
$
2,5962,654
$
5,3924,815
$
4,47010,409
$
1,9161,864
$
4,2603,488
$
20,75624,736
Provision for Credit Losses
56478
542704
(396)7
1,0601,183
(223)(10)
1231,329
1,6703,291
Charge-Offs
(1,104)(164)
0-
0(120)
0-
0-
(1,193)(2,366)
(2,297)(2,650)
Recoveries
 
5995
01
568
11557
6725
855944
1,1521,130
Net (Charge-Offs) Recoveries
(1,045)(69)
01
56(112)
11557
6725
(338)(1,422)
(1,145)(1,520)
Ending Balance
$
1,6411,515
$
3,1383,359
$
5,0524,710
$
5,64511,649
$
1,7601,879
$
4,0453,395
$
21,28126,507
SixThree Months Ended
June 30,March 31, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
403(161)
(172)(714)
(577)(181)
1,374314
(628)(405)
1,1911,068
1,591(79)
Charge-Offs
(1,177)(73)
0-
(266)
0-
(33)
(2,595)(1,402)
(4,071)(1,774)
Recoveries
224165
8
8529
14227
12558
1,571716
2,1551,003
Net (Charge-Offs) Recoveries
(953)92
8
(181)(237)
14227
9225
(1,024)(686)
(1,916)(771)
Ending Balance
$
1,6412,122
$
3,1382,596
$
5,0525,392
$
5,6454,470
$
1,7601,916
$
4,0454,260
$
21,281
Three Months Ended
June 30, 2021
Beginning Balance
$
1,957
$
2,254
$
6,956
$
5,204
$
2,575
$
3,080
$
22,026
Provision for Credit Losses
(56)
505
587
(1,030)
(114)
(76)
(184)
Charge-Offs
(32)
0
0
(65)
(74)
(670)
(841)
Recoveries
103
0
26
244
70
731
1,174
Net Charge-Offs
71
0
26
179
(4)
61
333
Ending Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
Six Months Ended
June 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(370)
280
(131)
(1,335)
(769)
(171)
(2,496)
Charge-Offs
(101)
0
0
(71)
(79)
(1,726)
(1,977)
Recoveries
239
0
671
319
194
1,409
2,832
Net Charge-Offs
138
0
671
248
115
(317)
855
Ending Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,17520,756
For the sixthree months ended June 30, 2022,March 31, 2023, the allowance for HFI loans decreased
 
increased by $
0.31.8
 
million and reflected a provision expense of
of $
1.63.3
 
million and net loan charge-offs of $
1.91.5
 
million.
 
The decreaseincrease was primarily driven by the release ofincremental reserves heldneeded for pandemic relatedloan
losses that have not materialized to the extent projected partially offsetgrowth.
 
by growth in reserves for strong new loan origination volume.
For the sixthree months ended June 30, 2021,March 31, 2022, the allowance decreased by $
1.60.9
 
million and reflected a provision benefit of
$
2.50.1
 
million and net
loan recoveriescharge-offs of $
0.90.8
 
million.
 
The decrease generally reflected improving economic conditions, primarily
a lower rateimprovement in the forecasted level of unemployment
unemployment and its potential effect on rates of default,default.
 
and strong net loan recoveries totaling $
0.9
million.
UnemploymentFour unemployment forecast
scenarios arewere utilized to estimate probability
of default and
are weighted
based on management’s
estimate of
probability.
 
See Note 8 –
Commitments and Contingencies for information on the
allowance for off-balance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Loan Portfolio Aging.
 
A loan is defined as a past due loan when one full payment is past due or a contractual maturity
 
is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing
 
past due loans by class of loans.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
June 30, 2022March 31, 2023
Commercial, Financial and Agricultural
$
166248
$
274
$
0-
$
193252
$
247,638235,999
$
7112
$
247,902236,263
Real Estate – Construction
 
01,137
0-
0-
01,137
225,664252,766
0-
225,664253,903
Real Estate – Commercial Mortgage
 
35864
066
0-
358130
698,305795,747
4302,561
699,093798,438
Real Estate – Residential
(1)
 
2361,040
0-
0-
2361,040
483,064832,978
1,675766
484,975834,784
Real Estate – Home Equity
 
22554
0-
0-
22554
193,700206,505
733682
194,658207,241
Consumer
 
1,9062,175
636273
0-
2,5422,448
358,587303,239
232568
361,361306,255
Total
$
2,8914,718
$
663343
$
0-
$
3,5545,061
$
2,206,9582,627,234
$
3,1414,589
$
2,213,6532,636,884
December 31, 20212022
Commercial, Financial and Agricultural
$
100109
$
23126
$
0-
$
123235
$
222,873247,086
$
9041
$
223,086247,362
Real Estate – Construction
 
0359
0-
0-
0359
174,394234,143
017
174,394234,519
Real Estate – Commercial Mortgage
 
151158
0149
0-
151307
662,795781,605
604645
663,550782,557
Real Estate – Residential
 
365845
151530
0-
5161,375
357,408725,491
2,097239
360,021727,105
Real Estate – Home Equity
 
210-
035
0-
21035
186,292207,314
1,319771
187,821208,120
Consumer
 
1,9643,666
6361,852
0-
2,6005,518
319,781319,415
212584
322,593325,517
Total
 
$
2,7905,137
$
8102,692
$
0-
$
3,6007,829
$
1,923,5432,515,054
$
4,3222,297
$
1,931,4652,525,180
(1)
Includes $
0.3
million of Loans Held for Sale in nonaccrual status as of March 31, 2023.
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
become 90 days past due and/or
management deems the collectability of the principal and/or interest to
 
be doubtful.
 
Loans are returned to accrual status when the
principal and interest amounts contractually due are brought current
 
or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
status and loans past due over 90 days and still on accrual
by class of loans.
June 30, 2022March 31, 2023
December 31, 20212022
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-
$
7112
$
0-
$
67-
$
2341
$
0-
Real Estate – Construction
 
0-
 
0-
0-
0-
017
0-
Real Estate – Commercial Mortgage
 
02,438
 
430123
0-
0389
604256
0-
Real Estate – Residential
 
1,508-
 
167766
0-
928-
1,169239
0-
Real Estate – Home Equity
 
0-
 
733682
0-
463-
856771
0-
Consumer
 
0-
 
232568
0-
0-
212584
0-
Total Nonaccrual
 
Loans
$
1,5082,438
$
1,6332,151
$
0-
$
1,458389
$
2,8641,908
$
0-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
Collateral Dependent Loans.
The following table presents
the amortized cost basis of collateral-dependent
loans.
June 30, 2022March 31, 2023
December 31, 20212022
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
02,207
0-
455389
0-
Real Estate – Residential
697-
0-
1,645160
0-
Real Estate – Home Equity
 
598231
 
0-
 
649130
 
0-
Consumer
 
0-
 
0-
 
021
 
0-
Total Collateral Dependent
 
Loans
$
1,2952,438
$
0-
$
2,749700
$
67-
A loan is collateral dependent when the borrower is experiencing financial
 
financial difficulty and repayment of the loan is dependent on
 
the
sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
either independent appraisals
or internal evaluations, adjusted for selling costs or other amounts to be deducted
 
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process of Foreclosure
.
 
At June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had $
0.80.4
 
million
and $
0.90.6
 
million, respectively, in 1-4 family
 
residential real estate loans for which formal foreclosure proceedings were in process.
For the three-month period ended March 31, 2023, the Company
did
no
t modify any loans made to borrowers experiencing financial
difficulty.
Troubled
Debt Restructurings (“TDRs”).
At June 30, 2022, the Company had $
6.7
million in TDRs, all of which 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 of credit loss reserves at June 30,
2022 and December 31, 2021.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium,
a reduction in the interest rate,
or a combination thereof.
For the three and six months ended June 30, 2022, there were
0
loans modified.
For the three and six
months ended June 30, 2021, there was
1
loan modified with a recorded investment of $
0.1
million and
3
loans modified with a
recorded investment of $
0.6
million, respectively.
For the six month periods ended June 30, 2022 and June 30, 2021, there were
0
loans classified as TDRs, for which there was a payment default and
the loans were modified within the 12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards and
 
standards and loan review
procedures designed to maximize loan income within an acceptable level
 
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
 
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
 
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
 
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
 
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
 
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
 
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
 
and as such these loans are closely monitored by on-
site inspections.
 
17
Real Estate Commercial Mortgage – Loans in this category consists of commercial
 
mortgage loans secured by property that is either
owner-occupied or investment in nature.
 
These loans are primarily made based on identified cash flows of the borrower or
 
project
with consideration given to underlying real estate collateral and
 
personal guarantees.
 
Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type.
 
Collateral values are determined based upon third party
appraisals and evaluations.
 
Real Estate Residential – Residential mortgage loans held in the Company’s
 
loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting
 
factors such as current income, employment status, current
assets, and other financial resources, credit history,
 
and the value of the collateral.
 
Collateral consists of mortgage liens on 1-4 family
residential properties.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
The Company does not
originate sub-prime loans.
 
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals
 
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
 
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
 
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
 
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
 
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
The following table summarizes gross loans held for investment atand
 
June 30, 2022current period gross write-offs at March 31, 2023 by years of
origination and internally assigned credit
risk ratings (refer to Credit Risk Management
section for detail on risk rating
system).
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2023
2022
2021
2020
2019
2018
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
49,8879,753
$
54,07986,415
$
25,43940,206
$
21,04117,534
$
15,00412,291
$
15,21815,965
$
66,82849,582
$
247,496231,746
Special Mention
01,200
0-
0748
971
02
2347
1172,322
1494,390
Substandard
 
0-
 
080
 
8-
 
0-
 
1224
43
-
 
127
0
257
Total
$
49,88710,953
$
54,07986,495
$
25,44740,954
$
21,05017,605
$
15,12612,297
$
15,36816,055
$
66,94551,904
$
247,902236,263
Current-Period Gross
Writeoffs
$
-
$
105
$
22
$
14
$
-
$
10
$
13
$
164
Real Estate -
Construction:
Pass
$
57,64334,114
$
107,385149,982
$
48,43252,697
$
8,4827,275
$
0397
$
126123
$
2,9056,881
$
224,973251,469
Special Mention
0-
0-
691859
025
0453
0-
0-
6911,337
Substandard
-
-
-
1,097
-
-
-
1,097
Total
$
57,64334,114
$
107,385149,982
$
49,12353,556
$
8,4828,397
$
0850
$
126123
$
2,9056,881
$
225,664253,903
Real Estate -
Commercial Mortgage:
Pass
$
124,92734,848
$
155,769245,205
$
116,218159,795
$
66,400131,444
$
67,02251,973
$
119,767137,449
$
25,11526,056
$
675,218786,770
Special Mention
224995
1,133339
235992
1,740240
7421,402
6,8622,819
1,493300
12,4297,087
Substandard
 
7,510-
 
1,788822
 
402966
 
631753
 
0642
 
1,047763
 
68635
 
11,4464,581
Total
$
132,66135,843
$
158,690246,366
$
116,855161,753
$
68,771132,437
$
67,76454,017
$
127,676141,031
$
26,67626,991
$
699,093798,438
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
120
$
-
$
120
Real Estate - Residential:
Pass
$
183,113133,468
$
106,587436,089
$
51,21092,988
$
31,92544,541
$
22,14228,365
$
74,10480,711
$
7,5089,109
$
476,589825,271
Special Mention
59-
093
130356
17525
59-
562632
0-
8271,606
Substandard
 
119-
 
1,0761,042
 
9761,133
 
9351,725
 
895953
 
3,5583,054
 
0-
 
7,5597,907
Total
 
$
183,291133,468
$
107,663437,224
$
52,31694,477
$
32,87746,791
$
23,09629,318
$
78,22484,397
$
7,5089,109
$
484,975834,784
Real Estate - Home
Equity:
Performing
$
29-
$
51
$
133
$
1312
$
299387
$
1541,192
$
2,101204,784
$
191,196
$
193,925206,559
Nonperforming
 
0-
 
0-
 
0-
 
16-
 
014
 
076
 
717592
 
733682
Total
 
$
29-
$
51
$
133
$
1312
$
315401
$
1541,268
$
2,101205,376
$
191,913
$
194,658207,241
Consumer:
Performing
$
112,54915,735
$
139,965122,092
$
48,931100,617
$
28,71532,203
$
18,00517,726
$
7,54412,242
$
5,4205,072
$
361,129305,687
Nonperforming
22-
56269
56170
4719
3884
1326
0-
232568
Total
$
112,57115,735
$
140,021122,361
$
48,987100,787
$
28,76232,222
$
18,04317,810
$
7,55712,268
$
5,4205,072
$
361,361306,255
Current-Period Gross
Writeoffs
$
646
$
915
$
488
$
110
$
113
$
47
$
47
$
2,366
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities include mandatory delivery loan sales, forward sales contracts used
 
to manage residential
loan pipeline price risk, utilization of warehouse lines to fund secondary
 
market residential loan closings, and residential mortgage
servicing.
 
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and
 
government-sponsored residential mortgage loans.
 
Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary
 
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
 
mortgage-backed-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
 
notional amounts of derivative contracts related to residential
mortgage loan commitments and forward contract sales and their related fair values
 
fair values are set- forth below.
June 30, 2022March 31, 2023
December 31, 20212022
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
47,80554,442
$
48,70855,118
$
50,73354,488
$
52,53254,635
Residential Mortgage Loan Commitments ("IRLCs")
(1)
62,20151,984
9341,346
51,88336,535
1,258819
Forward Sales Contracts
(2)
31,50034,000
(45)(216)
48,00015,500
(7)187
$
49,59756,248
$
53,78355,641
(1)
Recorded in other assets at fair value
(2)
Recorded in other assetsliabilities and other liabilitiesassets at fair value
 
at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively
TheAt March 31, 2023, the Company had $
00.3
 
million in residential mortgage loans held for sale that30-89 days past due and $
0.3
million of
loans were 90 days or more outstanding or on nonaccrual status. At December 31, 2022, the Company had
 
nonaccrual at June 30,$
2022, and0.6
million of residential mortgage loans held for sale that were 30-6930-
89 days outstanding totaledpast due and $
0.20.1
 
million at December 31, 2021.of loans were on nonaccrual status.
 
Mortgage banking revenue was as follows:
Three Months Ended
June 30,
Six Months Ended June March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Net realized gains on sales of mortgage loans
$
4,8003,192
$
13,534
$
9,935
$
27,9585,136
Net change in unrealized gain on mortgage loans held for sale
79529
532
(895)
(1,499)(975)
Net change in the fair value of mortgage loan commitments
(183)(IRLCs)
(458)527
(324)
(2,301)(141)
Net change in the fair value of forward sales contracts
(896)(402)
(1,446)
(38)
817857
Pair-Offs on net settlement of forward sales contracts
1,954(1)
(476)
4,209
2,8352,255
Mortgage servicing rights additions
1,4571,034
453
2,088
640632
Net origination fees
1,8542,116
1,078
3,036
1,8921,182
Total mortgage banking
 
revenues
$
9,0656,995
$
13,217
$
18,011
$
30,3428,946
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
 
sold.
 
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
June 30, 2022March 31, 2023
December 31, 20212022
Number of residential mortgage loans serviced for others
2,5553,232
2,1062,975
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
703,5371,011,366
$
532,967895,145
Weighted average
 
interest rate
3.70%4.33%
3.59%4.19%
Remaining contractual term (in months)
323339
317345
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
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 June 30, 2022,
March 31, 2023, the servicing portfolio balance consisted of the following
 
loan types: FNMA (
5048
%),
GNMA (
71
%), and private
investor (
4351
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance.
 
The Company had $
0.4no
 
million and $
2.0
million in delinquent residential mortgage loans currently in GNMA pools
serviced by the Company
at March 31, 2023 and $
Company 0.3
at June 30, 2022 and
December 31, 2021,2022, respectively.
 
The right to repurchase these loans and the corresponding liability
has been
recorded in other assets
and other liabilities, respectively,
 
in the Consolidated Statement of Financial Condition.
 
For the
three and six months ended June 30,March 31, 2023
and March 31, 2022, the Company repurchased
$
0.60.9
 
million and $
1.00.4
 
million in delinquent residential loans
currently in from the GNMA pools.
 
For the three and six months ended June 30, 2021, the Company repurchased $
0.7
million and $
2.2
million, respectively,
in delinquent residential
loans in GNMA pools.
When delinquent residential loans are repurchased, the
Company has
the intention to modify their terms and include the loans in new
new GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Beginning balance
$
4,001
$
3,5836,067
$
3,774
$
3,452
Additions due to loans sold with servicing retained
1,4571,135
453
2,088
640632
Deletions and amortization
(372)(401)
(326)
(776)
(632)
Valuation
allowance reversal
0
0
0
250(405)
Ending balance
$
5,0866,801
$
3,710
$
5,086
$
3,7104,001
At March 31, 2023, we recorded the sale of $
334
million (unpaid principal balance) in FNMA mortgage servicing rights that
is
pending FNMA approval.
The book value of the mortgage servicing rights of $
2.3
million and the pending gain on sale of $
1.38
million were recorded as a secured borrowing in Other Liabilities within the Consolidated
Financial Statement of Condition.
Subsequent to March 31, 2023, FNMA approval was obtained.
The Company did
0no
t record any permanent impairment losses on mortgage servicing rights for the
 
three months ended June 30, 2022March 31,
and June 30, 2021.2023 or 2022.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
mortgage servicing rights were as follows:
June 30, 2022March 31, 2023
December 31, 20212022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.00%9.51%
11.00%12.00%
11.00%9.50%
15.00%12.00%
Annual prepayment speeds
9.46%7.12%
11.54%19.55%
11.98%12.33%
23.79%20.45%
Cost of servicing (per loan)
$
6585
$
13895
$
6085
$
7395
21
Changes in residential mortgage interest rates directly affect
 
the prepayment speeds used in valuing the Company’s
 
mortgage
servicing rights.
 
A separate third party model is used to estimate prepayment speeds based on interest rates, housing
 
turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant factors.
 
The weighted average annual prepayment speed was
10.4821.20
% at June 30, 2022March 31, 2023 and
15.8517.22
% at December 31, 2021.2022.
 
21
Warehouse
 
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
 
agreements with various financial institutions at June
30, 2022.March 31, 2023.
 
Amounts
(Dollars in Thousands)
Outstanding
$
75
 
million master repurchase agreement without defined expiration.
 
Interest is at the PrimeSOFR rate minus
1.00%
to plus
1.00%2.00%
to
3.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
12,6578,309
$
7560
 
million warehouse line of credit agreement expiring in
November 2022December 2023
.
 
Interest is at the SOFR plus
2.25%
,
to
3.25%
.
22,33313,864
Total Warehouse
 
Borrowings
$
34,99022,173
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2021,2022, warehouse line borrowings totaled $
29.050.2
million. At June 30, 2022,March 31, 2023, the Company had residential mortgage loans
 
loans held for sale and construction
loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase
 
agreements.
 
The above agreements also contain
covenants which include certain financial requirements, including
 
maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements.
 
The Company was in compliance with all significant debt
covenants at June 30, 2022.March 31, 2023.
 
The Company has extended a $
50
 
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
 
Balances and
transactions under this line of credit are eliminated in the Company’s
 
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
 
Financial Condition.
 
The balance of this line of credit at June 30,March
202231, 2023 and December 31, 20212022 was $
13.332.8
 
million and $
14.822.9
 
million, respectively.
NOTE 5 – DERIVATIVES
 
The Company enters into derivative financial instruments to manage exposures
 
that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of
 
which are determined by interest rates.
 
The Company’s
derivative financial instruments are used to manage differences in
 
the amount, timing, and duration of the Company’s
 
known or
expected cash receipts and its known or expected cash payments principally
 
related to the Company’s subordinated
 
debt.
 
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
 
million at June 30, 2022March 31, 2023 were designed as a cash flow hedge for subordinated
debt.
 
Under the swap arrangement, the Company will pay a fixed interest rate of
2.50
% and receive a variable interest rate based on
three-month LIBOR plus a weighted average margin of
1.83
%.
For derivatives designated and that qualify as cash flow hedges of interest rate risk,
 
risk, the gain or loss on the derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently
 
reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings. Amounts
 
reported in accumulated other comprehensive income related to derivatives
will be reclassified to interest expense as interest payments are made on the
 
Company’s variable-rate subordinated
 
debt.
The following table reflects the cash flow hedges included in the consolidated
 
statements of financial condition
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
 
Maturity (Years)
June 30,March 31, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,394
7.3
December 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,0466,195
8.0
December 31, 2021
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
2,050
8.57.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 six months ended June 30, 2022 and
June 30, 2021.March 31, 2023.
Amount of Gain(Loss)
Amount of Gain
(Loss)Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended June 30, 2022March 31, 2023
Interest expense
$
867
(598)
$
26309
 
Three months ended June 30, 2021
Interest expense
(686)
(37)
Six months ended June 30,March 31, 2022
Interest expense
$
2,2371,370
 
$
(2)
Six months ended June 30, 2021
Interest expense
900
(70)(28)
The Company estimates there will be approximately $
0.71.2
 
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
5.35.4
 
million and $
2.05.8
 
million at June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
 
lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
 
on its Consolidated Statement of Financial Condition.
 
The Company’s operating
 
leases primarily relate to banking offices with remaining lease terms
 
from
1
 
to
43
 
years.
 
The Company’s
leases are not complex and do not contain residual value guarantees, variable
 
lease payments, or significant assumptions or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
 
At June 30, 2022,March 31, 2023, the operating lease ROU assets and liabilities were $
11.924.7
 
million and $
12.525.1
 
million, respectively. At December
31,
2021,31, 2022, ROU assets and liabilities were $
11.522.3
 
million and $
12.222.7
 
million, respectively.
 
The Company does not have any finance leases
leases or any significant lessor agreements.
The table below summarizes our lease expense and other information related
 
to the Company’s operating leases.
Three Months Ended
Six Months Ended
June 30,
June 30,March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Operating lease expense
$
391700
$
362
$
775
$
706384
Short-term lease expense
159139
170
337
310179
Total
lease expense
$
550839
$
532
$
1,112
$
1,016563
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
435706
$
402
$
864
$
786429
Right-of-use assets obtained in exchange for new operating lease liabilities
6002,906
440
1,192
515592
Weighted average
 
remaining lease term — operating leases (in years)
24.518.6
25.1
24.5
25.124.9
Weighted average
 
discount rate — operating leases
2.2%3.3%
2.0%
2.2%
2.0%
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
March 31, 2023
2023
$
2,354
2024
2,666
2025
2,438
2026
2,320
2027
2,245
2028 and thereafter
21,045
Total
$
33,068
Less: Interest
(8,002)
Present Value
of Lease liability
$
25,066
At March 31, 2023, the Company had
no
additional operating lease obligations for banking offices
that have not yet commenced.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
June 30, 2022
2022
$
1,717
2023
1,715
2024
1,470
2025
1,249
2026
1,122
2027 and thereafter
11,731
Total
$
19,004
Less: Interest
(6,503)
Present Value
of Lease liability
$
12,501
At June 30, 2022, the Company had three additional operating lease obligations
for banking offices (to be constructed) that have not
yet commenced. These leases have payments totaling $
9.3
million based on the initial contract terms of
15 years
.
Payments for the
banking offices are expected to commence after the construction periods end, which are each expected to occur during the fourth
quarter of 2022 and the 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 2024,2052, for an aggregate remaining obligation of $
0.52.4
 
million at June 30, 2022.March 31, 2023.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all full-time
 
and eligible part-time associates and a
Supplemental Executive Retirement Plan (“SERP”) and a Supplemental
 
Executive Retirement Plan II (“SERP II”) covering its
executive officers.
 
The defined benefit plan was amended in December 2019 to remove plan eligibility
 
for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers that
were not covered by the SERP.
 
The components of the net periodic benefit cost for the Company's qualifiedCompany’s
 
qualified benefit pension plan were as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Service Cost
$
1,572872
$
1,743
$
3,145
$
3,4861,572
Interest Cost
1,1661,458
1,221
2,333
2,4421,166
Expected Return on Plan Assets
(2,675)(1,701)
(2,787)
(5,351)
(5,574)(2,675)
Prior Service Cost Amortization
41
4
8
8
Net Loss Amortization
428234
1,691
857
3,382428
Pension Settlement
169-
2,000
378
2,000209
Net Periodic Benefit Cost
$
664864
$
3,872
$
1,370
$
5,744704
Discount Rate Used for Benefit Cost
5.63%
3.11%
2.88%
3.11%
2.88%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
The components of the net periodic benefit cost for the Company's SERP and SERP II
plans were as follows:
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Service Cost
$
84
$
9
$
16
$
188
Interest Cost
79130
61
158
12079
Prior Service Cost Amortization
6938
69
138
88
Net Loss Amortization
180(155)
243
360
441180
Net Periodic Benefit Cost
$
33617
$
382
$
672
$
667336
Discount Rate Used for Benefit Cost
5.45%
2.80%
2.38%
2.80%
2.38%
24
The service cost component of net periodic benefit cost is reflected in
 
compensation expense in the accompanying statements of
income.
 
The other components of net periodic cost are included in “other” within the noninterest
 
expense category in the statements
of income.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lending Commitments
.
 
The Company is a party to financial instruments with off-balance
 
sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend credit and standby
 
letters of
credit.
24
The Company’s maximum exposure
 
to credit loss under standby letters of credit and commitments to extend credit is represented
 
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
June 30, 2022March 31, 2023
December 31, 20212022
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
215,601248,660
$
515,886577,180
$
731,487825,840
$
217,531243,614
$
505,897531,873
$
723,428775,487
Standby Letters of Credit
 
6,1965,677
 
0-
 
6,1965,677
5,2055,619
 
0-
 
5,2055,619
Total
$
221,797254,337
$
515,886577,180
$
737,683831,517
$
222,736249,233
$
505,897531,873
$
728,633781,106
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
loan commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn upon,
 
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
 
of participating in these types of transactions.
 
However, any
potential losses arising from such transactions are reserved for in the same manner
 
as management reserves for its other credit
facilities.
For both on- and off-balance sheet financial instruments, the Company
 
requires collateral to support such instruments when it is
deemed necessary.
 
The Company evaluates each client’s
 
creditworthiness on a case-by-case basis.
 
The amount of collateral
obtained upon extension of credit is based on management’s
 
credit evaluation of the counterparty.
 
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
 
securities; other marketable securities; real estate; accounts receivable;
property, plant and
 
equipment; and inventory.
The allowance for credit losses for off-balance sheet credit commitments
 
that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities.
 
The following table shows the activity in the
allowance.
Three Months Ended June 30,
Six Months Ended June 30,March 31,
(Dollars in Thousands)
2022
20212023
2022
2021
Beginning Balance
$
2,9762,989
$
2,974
$
2,897
$
1,644
Provision for Credit Losses
(123)(156)
(387)
(44)
94379
Ending Balance
$
2,8532,833
$
2,587
$
2,853
$
2,5872,976
Other Commitments.
In the normal course of business, the Company enters into
lease commitments
which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the
 
Company’s operating lease commitments.
 
Furthermore,
the Company has an outstanding commitment of up to $
1.0
 
million in a bank tech venture capital fund focused on finding and funding
technology solutions for community banks. banks and a commitment of up to $
7.0
million in a solar tax credit equity fund.
At June 30,March 31,
2023, the Company had contributed $
0.3
million of the bank tech commitment and $
2.8
million of the solar fund commitment.
At
December 31, 2022, the Company
had contributed $
0.2
 
million and at December 31, 2021,
of the Company had contributedbank tech commitment and $
0.11.0
 
million of the solar fund
commitment.
Contingencies
.
 
The Company is a party to lawsuits and claims arising out of the normal course of business.
 
In management's opinion,
there are
no
known pending claims or litigation, the outcome of which would, individually or
 
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
 
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.
 
In the second quarter of 2022, Visa,
Inc. funded the litigation reserve and the
share conversion ratio was reduced and a $
0.2
million swap liability was recorded.
Conversion ratio payments and ongoing fixed
quarterly charges
are reflected in
earnings in the period
incurred.
 
Fixed charges included in the swap liability are payable quarterly
until the litigation reserve is fully
liquidated and at which time the aforementioned
swap contract will be terminated.
 
Quarterly fixed
payments approximate $
0.20.3
million.
 
NOTE 9 – FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid
 
to transfer that liability in an orderly
transaction occurring in the principal market (or most advantageous market in
 
the absence of a principal market) for such asset or
liability.
 
In estimating fair value, the Company utilizes valuation techniques that are consistent with
 
the market approach, the income
approach and/or the cost approach.
 
Such valuation techniques are consistently applied.
 
Inputs to valuation techniques include the
assumptions that market participants would use in pricing an asset or liability.
 
ASC Topic 820
 
establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets
 
for identical assets or liabilities and the lowest
priority to unobservable inputs.
 
The fair value hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting
 
entity has the
ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices
included in Level 1 that are observable for the asset or liability,
 
either directly
or indirectly. These might
 
include quoted prices for similar assets or liabilities in active markets, quoted prices
 
for identical
or similar assets or liabilities in markets that are not active, inputs other
 
than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.)
 
or inputs that are derived principally from, or
corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect
 
an entity'sentity’s own
assumptions about the assumptions that market participants would
 
use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis
Securities Available for Sale.
 
U.S. Treasury securities are reported at fair value
 
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,
 
quotes, market
spreads, cash flows, the U.S. Treasury yield curve,
 
live trading levels, trade execution data, credit information and the bond’s
 
terms
and conditions, among other things.
In general, the Company does not purchase securities that have a complicated
structure.
 
The Company’s entire portfolio consists
of
traditional investments, nearly all of which are U.S. Treasury
 
obligations, federal agency bullet or mortgage pass-through securities,
 
securities, or
general obligation or revenue-based municipal bonds.
 
Pricing for such instruments is easily obtained.
 
At least annually,
the Company
will validate prices supplied by the independent pricing service by compari
 
ng them to prices obtained from an independent third-party
source.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
 
that loan, which would be used by other market
participants.
 
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
 
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
 
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated
costs to originate
the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments
is based on
observable market pricing for similar instruments and are therefore
 
classified as Level 2 within the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Interest Rate Swap.
The Company’s derivative positions
 
are classified as Level 2 within the fair value hierarchy and are valued
using
models generally accepted in the financial services industry and that
 
that use actively quoted or observable market input values from
external market data providers.
 
The fair value derivatives are determined using discounted cash flow
models.
 
Fair Value
 
Swap
.
 
The Company entered into a stand-alone derivative contract with the purchaser of
 
its Visa Class B shares.
 
The
valuation represents the amount due and payable to the counterparty based upon
 
the revised share conversion rate, if any,
 
during the
period. At June 30, 2022,March 31, 2023, there was $were
0.2no
 
millionamounts payable and at December 31, 2021,2022, there was a $
0.1
 
million payable.
A summary of fair values for assets and liabilities recorded at fair
value on a recurring basis consisted of the following:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
June 30,March 31, 2023
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
22,373
$
-
$
-
$
22,373
U.S. Government Agency
-
174,290
-
174,290
States and Political Subdivisions
-
41,479
-
41,479
Mortgage-Backed Securities
-
69,014
-
69,014
Corporate Debt Securities
-
88,432
-
88,432
Loans Held for Sale
-
55,118
-
55,118
Interest Rate Swap Derivative
-
5,394
-
5,394
Mortgage Banking IRLC Derivative
-
-
1,346
1,346
LIABILITIES:
Mortgage Banking Hedge Derivative
$
-
$
216
$
-
$
216
December 31, 2022
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
177,89522,050
$
0-
$
0-
$
177,89522,050
U.S. Government Agency
0-
210,684186,052
0-
210,684186,052
States and Political Subdivisions
0-
42,35740,329
0-
42,35740,329
Mortgage-Backed Securities
0-
77,82169,405
0-
77,82169,405
Corporate Debt Securities
0-
85,32188,236
0-
85,321
Other Securities
0
7,327
0
7,32788,236
Loans Held for Sale
0-
48,70854,635
0-
48,70854,635
Interest Rate Swap Derivative
0-
5,0466,195
0-
5,0466,195
Mortgage Banking Hedge Derivative
-
187
-
187
Mortgage Banking IRLC Derivative
0-
0-
934819
934
Mortgage Servicing Rights
0
0
9,336
9,336
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
45
$
0
$
45
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
$
7819
27
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage
 
banking activities of $
7.74.3
 
million
and $
16.86.7
 
million, respectively, for the three
 
six months ended June 30, 2022March 31, 2023, and $
27.44.3
 
million and $
19.313.6
 
million, respectively, for the
six
three months
ended June 30, 2021.March 31, 2022.
 
Issuances are valued based on the change in fair value of the underlying mortgage
 
mortgage loan from inception
inception of the IRLC to the Consolidated Statement of Financial Condition date,
 
date, adjusted for pull-through rates and costs to originate.
 
IRLCs
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 $
1.32.4
 
million with a
no
valuation allowance at March 31, 2023 and a
carrying value of less than$
0.7
million and a $
0.1
 
million at June
30, 2022 and $
2.8
million and $
0.2
million, respectively,valuation allowance at December
31, 2021.2022.
Other Real Estate Owned
.
 
During the first sixthree months of 2022,2023, certain foreclosed assets, upon initial recognition,
 
were measured and
and reported at fair value through a charge-off
 
to the allowance for credit losses based on the fair value of the foreclosed asset less
estimated cost to sell.
 
The fair value of the foreclosed asset is determined by an independent valuation or
 
professional appraisal in
conformance with banking regulations.
 
On an ongoing basis, we obtain updated appraisals on foreclosed assets and
realize valuation
adjustments as necessary.
 
The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment
 
and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
.
 
Residential mortgage loan servicing rights are evaluated for impairment
 
at each reporting period based
upon the fair value of the rights as compared to the carrying amount.
 
Fair value is determined by a third party valuation model using
estimated prepayment speeds of the underlying mortgage loans serviced and
 
stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest rate).
 
The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and the cost of loan
 
servicing.
 
Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities.
 
At each of June 30, 2022March 31, 2023 and December 31, 2021,2022, there was
0no
 
valuation
allowance for loan servicing rights.
 
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
 
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
 
methodologies used for those assets and liabilities.
Cash and Short-Term
 
Investments.
 
The carrying amount of cash and short-term investments is used to approximate
 
fair value, given
the short time frame to maturity and as such assets do not present unanticipated
 
credit concerns.
 
Securities Held to Maturity
.
 
Securities held to maturity are valued in accordance with the methodology previously
 
noted in the
caption “Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis – Securities Available
 
for Sale”.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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
A summary of estimated fair values of significant financial instruments consistednot
 
recorded at fair value consisted of the following:
 
March 31, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
84,549
$
84,549
$
-
$
-
Short-Term Investments
303,403
303,403
-
-
Investment Securities, Held to Maturity
651,755
437,174
175,026
-
Equity Securities
(1)
1,883
-
1,883
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
6,801
-
-
9,541
Loans, Net of Allowance for Credit Losses
2,610,377
-
-
2,464,688
LIABILITIES:
Deposits
$
3,823,920
$
-
$
3,284,249
$
-
Short-Term
Borrowings
26,632
-
26,632
-
Subordinated Notes Payable
52,887
-
45,365
-
Long-Term Borrowings
463
-
464
-
 
June 30,December 31, 2022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
91,20972,114
$
91,20972,114
$
0-
$
0-
Short-Term Investments
603,315528,536
603,315528,536
0-
0
Investment Securities, Available
for Sale
601,405
177,895
423,510
0-
Investment Securities, Held to Maturity
528,258660,774
289,708431,733
209,255180,968
0-
Equity Securities
(1)
90010
0-
90010
0
Loans Held for Sale
48,708
0
48,708
0-
Other Equity Securities
(2)
2,848
0-
2,848
0
Interest Rate Swap Derivative
5,046
0
5,046
0-
Mortgage Servicing Rights
5,0866,067
0-
0-
9,336
Mortgage Banking IRLC Derivative
934
0
0
9348,503
Loans, Net of Allowance for Credit Losses
2,192,3722,500,444
0-
0-
2,127,1172,357,533
LIABILITIES:
Deposits
$
3,786,2583,939,317
$
0-
$
3,335,1753,310,383
$
0-
Short-Term
 
Borrowings
39,46356,793
0-
39,46256,793
0-
Subordinated Notes Payable
52,887
0-
46,12145,763
0-
Long-Term Borrowings
612513
0-
627513
0
Mortgage Banking Hedge Derivative
45
0
45
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
 
(loss) are presented in the table below.
 
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
 
for Sale
 
Swap
 
Plans
 
 
(Loss) Income
Balance as of January 1, 2023
$
(37,349)
$
4,625
$
(4,505)
$
(37,229)
Other comprehensive income (loss) during the period
5,751
(598)
-
5,153
Balance as of March 31, 2023
$
(31,598)
$
4,027
$
(4,505)
$
(32,076)
Balance as of January 1, 2022
$
(4,588)
 
$
1,530
 
$
(13,156)
 
$
(16,214)
Other comprehensive (loss) income during the period
 
(27,071)(19,055)
 
2,2371,370
 
283156
 
(24,551)(17,529)
Balance as of June 30,March 31, 2022
$
(31,659)(23,643)
 
$
3,7672,900
 
$
(12,873)(13,000)
 
$
(40,765)
Balance as of January 1, 2021
$
2,700
(33,743)
$
428
$
(47,270)
$
(44,142)
Other comprehensive (loss) income during the period
(1,816)
900
1,635
719
Balance as of June 30, 2021
$
884
$
1,328
$
(45,635)
$
(43,423)
NOTE 11 – SUBSEQUENT
EVENT
Subsequent to June 30, 2022 and effective August 1, 2022,
a total of
33
investment securities with an amortized cost basis and fair
value of $
168.4
million and $
159.0
million, respectively, were transferred
from the available-for-sale (“AFS”) to held-to-maturity
(“HTM”) classification. These securities had a net unrealized loss of $
9.4
million, with no immediate impact to net income on the
transfer date. The net unrealized loss at the date of transfer will remain in
accumulated other comprehensive income (“AOCI”) and be
amortized into net interest income over the remaining life of the securities. The
amortization of amounts retained in AOCI will offset
the effect on net interest income of the accretion of the discount
resulting from transferring securities at fair value.
30
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 20222023 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 of this quarterly report on Form 10-Q
as well
as the Introductory Note and
Item 1A. Risk Factors
 
of our 2021
2022 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
 
our results,
and you should not consider any such list of factors to be a complete set of all potential risks or
 
uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake to
 
to update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial
 
holding company headquartered in Tallahassee,
 
Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the "Bank"“Bank” or "CCB"“CCB”).
 
We offer
 
a broad array of products and services through a total of 5760 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
 
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 20212022 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
We present a tangible
 
common equity ratio and a tangible book value per diluted share that, in each case, removes the
 
effect of
goodwill and other intangibles that resulted from merger
 
and acquisition activity. We
 
believe these measures are useful to investors
because it allows investors to more easily compare our capital adequacy to
 
other companies in the industry.
 
The generally accepted
accounting principles (“GAAP”) to non-GAAP reconciliation for
 
each quarter presented is provided below.
312023
2022
2021
(Dollars in Thousands, except per share data)
Second
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
411,240
$
394,016
$
373,165
$
371,675
$
372,145
$
383,166
$
348,868
$
335,880
$
324,426
Less: Goodwill and Other Intangibles (GAAP)
93,053
93,093
93,133
93,173
93,213
93,253
93,293
93,333
89,095
Tangible Shareowners' Equity (non-GAAP)
A
318,187
300,923
280,032
278,502
278,932
289,913
255,575
242,547
235,331
Total Assets (GAAP)
4,409,742
4,525,958
4,332,671
4,354,297
4,310,045
4,263,849
4,048,733
4,011,459
3,929,884
Less: Goodwill and Other Intangibles (GAAP)
93,053
93,093
93,133
93,173
93,213
93,253
93,293
93,333
89,095
Tangible Assets (non-GAAP)
B
$
4,316,689
$
4,432,865
$
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
6.54%7.37%
6.79%
6.61%
6.95%6.54%
6.46%
6.19%
6.13%6.61%
Actual Diluted Shares Outstanding (GAAP)
C
17,049,913
17,039,401
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
18.66
17.66
16.47
16.40
16.44
17.12
15.11
14.35
13.94
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
2023
2022
(Dollars in Thousands, Except
2022
2021
Per Share Data)
Second
First
Fourth
Third
Second
First
Summary of Operations
:
Interest Income
$
43,915
$
41,226
$
35,364
$
29,320
$
25,438
$
25,549
$
28,520
$
26,836
$
25,446
Interest Expense
3,526
3,122
2,037
987
742
838
848
856
948
Net Interest Income
40,389
38,104
33,327
28,333
24,696
24,711
27,672
25,980
24,498
Provision for Credit Losses
3,130
3,521
2,099
1,542
-
-
-
(571)
(982)
Net Interest Income After
 
Provision for Credit Losses
37,259
34,583
31,228
26,791
24,696
24,711
27,672
26,551
25,480
Noninterest Income
22,248
20,972
22,934
24,903
25,818
24,672
26,574
26,473
29,826
Noninterest Expense
40,455
42,287
39,810
40,498
39,233
40,207
39,702
42,123
40,476
Income
Before
Income Taxes
19,052
13,268
14,352
11,196
11,281
9,176
14,544
10,901
14,830
Income Tax Expense
4,133
2,599
3,074
2,177
2,235
2,040
2,949
2,059
2,787
Income Attributable to NCI
35
995
37
(306)
(591)
(764)
(1,504)
(1,415)
(2,537)
Net Income Attributable to CCBG
14,954
11,664
11,315
8,713
8,455
6,372
10,091
7,427
9,506
Net Interest Income (FTE)
(1)
40,489
38,192
33,410
28,409
24,774
24,790
27,750
26,064
24,606
 
Per Common Share
:
Net Income Basic
$
0.88
$
0.69
$
0.67
$
0.51
$
0.50
$
0.38
$
0.60
$
0.44
$
0.56
Net Income Diluted
0.88
0.68
0.67
0.51
0.50
0.38
0.60
0.44
0.56
Cash Dividends Declared
0.160.18
0.17
0.17
0.16
0.16
0.16
0.15
0.15
Diluted Book Value
24.12
23.12
21.95
21.89
21.94
22.63
20.63
19.87
19.22
Diluted Tangible Book Value
(1)(2)
18.66
17.66
16.47
16.40
16.44
17.12
15.11
14.35
13.94
Market Price:
 
High
36.86
36.23
33.93
28.55
28.88
29.00
26.10
27.39
28.98
 
Low
28.18
31.14
27.41
24.43
25.96
24.77
22.02
24.55
21.42
 
Close
29.31
32.50
31.11
27.89
26.36
26.40
24.74
25.79
26.02
 
Selected Average Balances
:
Investment Securities
$
1,064,212
$
1,081,092
$
1,120,728
$
1,144,757
$
1,059,145
Loans Held for Investment
$2,582,395
2,439,379
2,264,075
2,084,679
$
1,963,578
$
1,948,324
$
1,974,132
$
2,036,781
$
2,044,363
Earning Assets
4,062,688
4,032,733
4,009,951
3,974,221
3,938,824
3,791,313
3,693,123
3,623,910
3,497,929
Total Assets
4,411,865
4,381,825
4,357,678
4,321,388
4,266,775
4,127,937Deposits
4,026,6133,817,314
3,956,3493,803,042
3,821,521
Deposits3,769,864
3,765,329
3,714,062
3,549,145
3,447,688
3,387,352
3,239,508
Shareowners’ Equity
404,067
380,570
379,305
373,365
383,956
350,140
341,460
329,040
326,330
Common Equivalent Average Shares:
 
Basic
17,016
16,963
16,960
16,949
16,931
16,880
16,875
16,858
16,838
 
Diluted
17,045
17,016
16,996
16,971
16,946
16,923
16,909
16,885
16,862
Performance Ratios:
Return on Average Assets
 
1.37
%
1.06
%
1.03
%
0.81
%
0.80
%
0.61
%
0.99
%
0.75
%
1.01
%
Return on Average Equity
15.01
12.16
11.83
9.36
8.93
7.22
11.72
9.05
11.81
Net Interest Margin (FTE)
4.04
3.76
3.31
2.87
2.55
2.60
2.98
2.89
2.85
Noninterest Income as % of
Operating Revenue
35.52
35.50
40.76
46.78
51.11
49.96
48.99
50.47
54.90
Efficiency Ratio
64.48
71.47
70.66
75.96
77.55
81.29
73.09
80.18
74.36
 
Asset Quality:
Allowance for Credit Losses ("ACL"(“ACL”)
$
26,507
$
24,736
$
22,510
$
21,281
$
20,756
$Nonperforming Assets (“NPAs”)
21,6064,602
$2,728
21,5002,422
$3,231
22,175
$
22,0262,745
ACL to Loans HFI
1.01
%
0.98
%
0.96
%
0.96
%
1.05
%
1.12
%
1.11
%
1.10
%
1.07
%
Nonperforming Assets (“NPAs”)
3,231
2,745
4,339
3,218
6,302
5,472
NPAs to Total
 
Assets
0.070.10
0.06
0.100.06
0.080.07
0.16
0.140.06
NPAs to Loans HFI plus OREO
0.17
0.11
0.10
0.15
0.14
0.22
0.17
0.31
0.27
ACL to Non-Performing Loans
577.63
1,076.89
934.53
677.57
760.83
499.93
710.39
433.93
410.78
Net Charge-Offs to Average
Loans HFI
0.24
0.21
0.12
0.22
0.16
0.02
0.03
(0.07)
(0.10)
Capital Ratios:
Tier 1 Capital
14.51
%
14.53
%
14.80
%
15.13
%
15.98
%
16.14
%
15.69
%
15.44
%
16.08
%
Total Capital
15.53
15.52
15.75
16.07
16.98
17.15
16.70
16.48
17.20
Common Equity Tier 1
12.68
12.64
12.83
13.07
13.77
13.86Leverage
13.459.28
13.149.06
13.63
Leverage8.91
8.77
8.78
8.95
9.05
8.84
8.97
Tangible Common Equity
(1)(2)
7.37
6.79
6.61
6.54
6.61
6.95(1)
6.46Fully Tax Equivalent
6.19
6.13
(1)(2)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 31.
33
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.Summary
.
 
Net income attributable to common shareowners of $8.7$15.0 million, or $0.51$0.88 per
 
diluted share, for the first
quarter of 2023 compared to $11.7 million,
or $0.68 per diluted share, for the second
fourth quarter of 2022, compared to net income ofand $8.5 million,
or $0.50 per diluted
 
per
diluted share, for the first quarter of 2022, and $7.4 million, or
$0.44 per diluted share, for the second quarter of 2021.
For the first six months of 2022, net income attributable to common
shareowners totaled $17.2 million, or $1.01 per diluted share, compared to net income
of $16.9 million, or $1.00 per diluted share, for
the same period of 2021.2022.
 
Net Interest Income.Income
.
 
Tax-equivalent net
 
interest income for the secondfirst quarter of 2023
totaled $40.5 million, compared to $38.2 million
for the fourth quarter of 2022, totaled $28.4 million, compared
toand $24.8
million for the first quarter of 2022, and $26.1 million for the second quarter
 
of 2021.
For the first six months of 2022, tax-equivalent
net interest income totaled $53.2 million compared to $50.7 million for
the same period of 2021.2022.
 
Compared to the referencedboth prior
periods, the increase reflected
strong loan growth and higher interest rates strong loan growth,across a majority of our
 
andearning assets, partially offset by higher investment balances.deposit costs.
Provision and Allowance for Credit
 
Losses.
 
We recorded
 
a provision for credit losses of $1.5$3.1 million for the secondfirst quarter of 20222023
compared to $3.5 million for the fourth quarter of 2022 and no provision in
for the first quarter of 2022.
Compared to the fourth quarter
of 2022, the decrease reflected a lower level of loan growth.
The lack of provision for the first quarter of 2022 and a provision benefit
of $0.6 million for the second quarter of 2021.
For thereflected lower
first six months of 2022, the provision was $1.5 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 loan loss provision in 2021 was
also favorably impacted by strong net loan recoveries. We
discuss the allowance for credit losses further below.
required reserves needed post-pandemic.
Noninterest Income.Income
.
 
Noninterest income for the secondfirst quarter of 2023 totaled $22.2 million, an increase
of $1.2 million, or 6.1%, over
the fourth quarter of 2022 totaled $24.9and a decrease of $3.6 million, or 13.8%, from
 
compared to $25.8 million for the first quarter of 2022.
The increase over the fourth
quarter of 2022 was primarily due to higher mortgage banking revenues
(higher rate locks and $26.5 million for the second quarter of 2021.gain on sale margin) partially offset
by
lower deposit fees (two less processing days).
 
The $0.9 million decrease from the first quarter of 2022 was
primarily attributable to driven by lower wealth management fees of $1.7 million,
which reflecteddue to lower insurance revenues at CCSW of $1.9
million that were partially offset by higher retail brokerage
fees of $0.3 million.
For the first six months of 2022, noninterest income
totaled $50.7 million compared to $56.3 million for the same period of 2021
with the $5.6 million decrease largely driven by lower
mortgage banking fees of $12.3 million, partially offset
by higher deposit fees of $2.1 million and wealth management fees of $4.1
million (insurance commissions of $3.4 million and retail brokerage
fees of $0.7 million).
We discuss noninterest
income in further
detail below.
Noninterest Expense.
Noninterest expense for the second quarter of 2022 totaled $40.5 million compared
to $39.2 million for the first
quarter of 2022 and $42.1 million for the second quarter of 2021.
The $1.3 million increase over- the first quarter of 2022 was drivenhigher
than normal due to closing of several large insurance
policies.
Lower mortgage revenues (lower rate locks and gain on sale margin)
also contributed to the decrease, but was partially offset
by a $0.9 millionan increase in other expense and higher compensation of $0.5income (loan servicing fees).
 
million.
Noninterest Expense
.
 
ForNoninterest expense for the first six monthsquarter of 2022, noninterest
expense2023 totaled $79.7$40.5 million compared to $82.6 $42.3
million for the same periodfourth
quarter of 2022 and $39.2 million for the first quarter of 2022.
 
Compared to the fourth quarter of 2021 with2022, the $2.9$1.8 million decrease primarilywas
primarily attributable to lower pension settlementa $2.4 million decrease in other expense due
to a decrease in other real estate expense of $1.6 million and lowerdue to a
gain from the sale of a banking office.
Further, pension expense (non-service-related
component) for the first quarter of 2023 totaled
$0.2 million compared to $1.1 million for the fourth quarter of 2022 which included
a $1.8 million pension settlement charge.
Compared to the first quarter of 2022, the $1.3 million increase reflected increases in
 
compensation expense of $1.2$0.8 million primarily lowerand
commissions at CCHL.occupancy expense of $0.7 million that were partially off by a decrease
 
We discuss noninterestin other expense of $0.2 million.
 
expenseThe addition of banking
offices and staffing in further detail below.new markets drove the variance
 
in salary and occupancy expenses.
Further, compensation expense reflected
a
$0.7 million decrease in pension service cost that was partially offset
by an increase in stock-based compensation expense of $0.4
million.
Financial Condition
Earning Assets.
 
Average earning assets totaled
 
$3.9744.063 billion for the secondfirst quarter of 2022,2023, an increase of $35.4$30.0 million,
or 0.9%0.7%, over
over the firstfourth quarter of 2022, and an increase of $182.9$123.9 million, or 4.8%3.1%, over the
 
over the fourthfirst quarter of 2021.2022.
 
The increase over both prior
prior periods was primarily driven by higher deposits which funded
loan growth.deposit balances.
 
The mix of earningsearning assets continues to improve
driven by strong loan growth and further deployment of liquidity into
the investment portfolio which has increased $135 million in
2022.growth.
 
Loans
.Loans.
 
Average loans held for investment
 
(“HFI”) increased $121.1$143.0 million, or 6.2%5.9%, over the fourth quarter of 202
2
and increased
$618.8 million, or 31.5%, over the first quarter of 2022 and2022.
Period end loans increased $111.7
$136.4 million, or 7.0%4.4%, over the fourth quarter of 2021.
2022 and $651.4 million, or 32.8%, over the first quarter of 2022.
 
TheCompared to the fourth quarter of 2022, a majority of the increase
was realized in the residential real estate category,
and to a lesser extent, the construction and commercial real estate mortgage
categories.
Compared to the first quarter of 2022, loan growth in 2022 has beenwas broad based, with increases realized in all loan
categories, more significantly,
 
residential mortgage, residential construction, and all categories except
consumer (indirectloans.
 
auto) with strong growth in
commercial mortgageThe slowdown in the second quarter.secondary market residential loan sales has allowed us to book
 
Duringa steady flow of CCHL’s
adjustable-rate production in our loan portfolio throughout 2022 we have purchased a higher level of residential mortgage
 
loans from CCHL
driven by higher demand for portfolio/adjustable rate product.
and the first quarter of 2023.
Credit Quality
.
 
Overall credit quality remains strong.stable.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $3.2$4.6
million at June 30, 2022 compared to $2.8 million at March 31, 2022
and $4.32023 compared to $2.7 million at December 31, 2021.2022, and
$2.7 million at March 31, 2022.
 
At June 30, 2022,March 31, 2023,
nonperforming assets as a percentagepercent of total assets totaled 0.07%0.10% compared
 
to 0.06% at MarchDecember 31, 2022 and 0.10%0.06% at DecemberMarch 31,
2021.2022.
 
Nonaccrual loans totaled $3.1$4.6 million at June 30, 2022,March 31, 2023, a $0.4$2.3 million decrease from Marchincrease
 
over December 31, 2022, and a $1.2$1.9 million
decrease from Decemberincrease over March 31, 2021.2022. At March 31, 2023, the increase was primarily
 
Deposits
.
Average total
deposits were $3.765 billion for the second quarter of 2022, an increase of $51.3 million,
or 1.4%, over the
first quarter of 2022 and $216.2 million, or 6.1%, over the fourth quarter of 2021.
Growth over the first quarter of 2022 was primarily
attributable to an increase in noninterest bearing accounts and savings accounts,
partially offset by a decline in seasonal public fund
deposits. Compareddue to the fourth quarter 2021, strong growth occurredaddition of one large business loan
relationship totaling $1.8 million to nonaccrual status – it is in our noninterestthe process of
 
bearing deposits, NOW accounts,collection and is adequately secured and reserved for.
savings account balances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
Deposits
.
 
Average total
 
deposits were $3.817 billion for the first quarter of 2023, an increase of $14.3 million,
 
or 0.4%, over the
fourth quarter of 2022 and $103.3 million, or 2.8%, over the first quarter
 
of 2022.
 
Growth over
 
the fourth quarter of 2022 was
primarily attributable to an increase in NOW account balances, primarily
 
due to a seasonal increase in our public fund deposits that
occurred late in the fourth quarter.
 
Compared to the first quarter of 2022, we had strong growth in our NOW accounts
 
and, to a lesser
extent, our savings account balances.
 
34
Capital
.
 
At June 30, 2022,March 31, 2023, we were well-capitalized with a total risk-based capital ratio
 
ratio of 16.07%
15.53% and a tangible common equity
ratio (a non-GAAP financial measure) of 6.54%7.37% compared to 16.98%15.52%
 
and 6.79%, respectively at December 31, 2022 and 16.98% and
6.61%, respectively, at March 31, 2022 and 17.15% and
6.95%, respectively, at
 
December 31, 2021.2022.
 
At June 30, 2022,March 31, 2023, all of our regulatory capital ratios exceeded the threshold to
be well-
capitalized under the Basel III capital standards.
 
RESULTS
 
OF OPERATIONS
The following table provides a condensed summary of our results of operations
 
- a discussion of the various components are discussed
in further detail below.
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands, except per share data)
March 31, 2023
December 31, 2022
March 31, 2022
2021
2022
2021
Interest Income
$
29,32043,915
$
41,226
$
25,438
$
26,836
$
54,758
$
52,282
Taxable Equivalent Adjustments
76100
88
78
84
154
193
Total Interest Income (FTE)
29,39644,015
41,314
25,516
26,920
54,912
52,475
Interest Expense
9873,526
3,122
742
856
1,729
1,804
Net Interest Income (FTE)
28,40940,489
38,192
24,774
26,064
53,183
50,671
Provision for Credit Losses
1,5423,130
3,521
-
(571)
1,542
(1,553)
Taxable Equivalent Adjustments
76100
88
78
84
154
193
Net Interest Income After Provision for Credit Losses
26,79137,259
34,583
24,696
26,551
51,487
52,031
Noninterest Income
24,90322,248
20,972
25,818
26,473
50,721
56,299
Noninterest Expense
40,49840,455
42,287
39,233
42,123
79,731
82,599
Income Before Income Taxes
11,19619,052
13,268
11,281
10,901
22,477
25,731
Income Tax Expense
2,1774,133
2,599
2,235
2,059
4,412
4,846
Pre-Tax Income Attributable to Noncontrolling
Interest Interests
(306)35
995
(591)
(1,415)
(897)
(3,952)
Net Income Attributable to Common Shareowners
$
8,71314,954
$
11,664
$
8,455
$
7,427
$
17,168
$
16,933
 
Basic Net Income Per Share
$
0.510.88
$
0.69
$
0.50
$
0.44
$
1.01
$
1.00
Diluted Net Income Per Share
$
0.510.88
$
0.68
$
0.50
$
0.44
$
1.01
$
1.00
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
 
government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
I on page 45.44.
Tax-equivalent net
 
interest income for the secondfirst quarter of 2022 2023
totaled $28.4$40.5 million, compared to $38.2 million for the fourth quarter
toof 2022, and $24.8 million for the first quarter
of 2022, and $26.1 million for the second quarter of 2021.
For the first six months of 2022, tax-equivalent net interest income totaled
$53.2 million compared to $50.7 million for the same period of 2021.2022.
 
Compared to the referencedboth prior periods, the increase reflected
higher interest rates, strong loan growth and
higher investment balances.rates across a majority of our earning assets, partially offset
by higher deposit costs.
Our net interest margin for the secondfirst quarter of 2023 was 4.04%, an increase
of 28 basis points over the fourth quarter of 2022 was 2.87%,and 149
an increase of 32 basis points over the first quarter of 2022,
primarily attributable to both driven by higher interest rates and
an overall improved earning
asset mix.
 
For the
month of June 2022,March 2023, our net interest
margin was 3.05%4.07%.
Excluding the impact of overnight funds in excess of $200 million, our net interest
margin for the second quarter
of 2022 was 3.24%.
Compared to the three and six month periods of 2021, the net interest margin
decreased two and 16 basis points,
respectively, primarily
due to growth in earning assets (driven by higher deposit balances), which
drove net interest income dollars
higher, but negatively impacted the
margin percentage.
Provision for Credit Losses
We recorded
a provision for credit losses of $1.5 million for the second quarter of 2022 compared
to no provision in the first quarter
of 2022 and a provision benefit of $0.6 million for the second quarter of
2021.
 
For the first six monthsquarter of 2023, our cost of funds was 35 basis points, an
increase of four basis points over the fourth quarter of 2022 and 27 basis points
over the provisionfirst quarter of 2022.
Our cost of interest-
bearing deposits was 46 basis points, 35 basis points, and 4 basis points, respectively,
$1.5 million compared to a benefit of $1.6 million for the same period of 2021.periods.
 
The higher level of provision compared to all prior
periods was primarily attributable to strong loan growth.Our total cost
 
The loan loss provision in 2021of deposits
(including noninterest bearing accounts) was also favorably impacted by strong net
loan recoveries.26 basis points, 20 basis points,
 
We discuss the allowanceand 2 basis points, respectively,
 
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.the same periods.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Provision for Credit Losses
We recorded
 
a provision for credit losses of $3.1 million for the first quarter of 2023 compared to $3.5 million for
 
the fourth quarter of
2022 and no provision for the first quarter of 2022.
 
The decrease in the provision compared to the fourth quarter of 2022 was
primarily attributable to a lower level of loan growth.
 
The credit loss provision for the first quarter of 2022 generally reflected
 
lower
required reserves needed post-pandemic.
 
We discuss the allowance
 
35for credit losses further below.
Noninterest Income
Noninterest income for the secondfirst quarter of 2023 totaled $22.2 million compared
to $21.0 million for the fourth quarter of 2022 totaled $24.9 millionand
compared to $25.8$25.8 million for the first quarter of 2022 and
$26.5 million for the second quarter of 2021.2022.
 
The $0.9$1.2 million decrease fromincrease over the firstfourth quarter of 2022 was primarily attributable
 
to
higher mortgage banking revenues at CCHL of $1.5 million partially offset
by lower deposit fees $0.3 million.
The increase in
mortgage banking revenues reflected a higher level of rate locks and
gain on sale margin.
The decrease in deposit fees was partially
attributable to two less processing days in the first quarter.
Compared to the first quarter of 2022, the $3.6 million decrease reflected
lower wealth management fees of $1.7 million (primarily lower insurance
revenues at CCSW) that was partially offset by higher
combined deposit and bank card fees of $0.5
$2.1 million and mortgage banking revenues of $0.1 million.
 
Compared to the second quarter
of 2021, the $1.6$1.9 million, decrease was primarily attributable to lower mortgage
banking revenues of $4.2 million that were partially
offset by higher deposit fees of $1.2 million and wealth
management fees of $1.1 million (insurance revenues of $0.7 million and
retail brokerage fees of $0.4 million).
For the first six months of 2022, noninterest income totaled $50.7 million
compared to $56.3
million for the same period of 2021 with the $5.6 million decrease largely
driven by lower mortgage banking fees of $12.3 million
partially offset by higher deposit fees other income
of $2.1 million and wealth management$0.5 million.
 
fees of $4.1 million (insurance revenues of $3.4 million
and retail brokerage fees of $0.7 million).
Lower mortgage banking revenues for 2022 reflected lower production volume driven
by
higher interest rates as well as overall tightening of secondary market
loan sale margins.
Further, the higher level ofThe decrease in wealth
management fees over both prior year periodswas due to lower insurance commission revenues
which reflected higher insurance
revenues
at CCSW (acquired in May 2021).
For 2022,
CCHL contributed $0.6 million ($0.03 per diluted share) to earnings versus
$2.5 million ($0.14 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.
Noninterest income represented 46.8% of operatingthan normal revenues (net
interest income plus noninterest income) in the second quarter of
2022
compared to 51.1% in the first quarter of 2022 and 50.5% inrelated to the second quarterclosing of 2021.several large
 
For the first six monthsinsurance policies.
The decline in mortgage
banking revenues was attributable to a lower level of 2022,rate locks and gain on sale margin.
The increase in other income was primarily
noninterestdue to higher loan servicing income and miscellaneous income.
Noninterest income represented 48.9%35.52% of operating revenues compared(net interest
 
to 52.7%income plus noninterest income) for the same periodfirst quarter of 2021.
2023 compared to 35.50% for the fourth quarter of 2022 and 51.11%
 
for the first quarter of 2022.
The table below reflects the major components of noninterest income.
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
March 31, 2023
December 31, 2022
March 31, 2022
2021
2022
2021
Deposit Fees
$
5,4475,239
$
5,536
$
5,191
$
4,236
$
10,638
$
8,507
Bank Card Fees
4,0343,726
3,744
3,763
3,998
7,797
7,616
Wealth Management
 
Fees
4,4033,928
3,649
6,070
3,274
10,473
6,364
Mortgage Banking Revenues
9,0656,995
5,497
8,946
13,217
18,011
30,342
Other
1,9542,360
2,546
1,848
1,748
3,802
3,470
Total
 
Noninterest Income
$
24,90322,248
$
20,972
$
25,818
$
26,473
$
50,721
$
56,299
Significant components of noninterest income are discussed in more
 
detail below.
Mortgage Banking Revenues.Deposit Fees
Mortgage banking revenues totaled $9.1 million for the second quarter.
 
of 2022 compared to $8.9
millionDeposit fees for the first quarter of 2022 and $13.22023 totaled $5.2 million, for the second quartera decrease of $0.3
 
of 2021.
For the six months of 2022, revenues totaled
$18.0 million compared to $30.3 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 both governmental loan product originations and
mandatory delivery loan sales (both of which provide a higher gain
percentage).
Strong best efforts (portfolio product) origination
volume and continued stability in our construction/permanent loan program
have partially offset the slowdown in secondary market
originations.
Deposit Fees
. Deposit fees for the second quarter of 2022 totaled $5.4 million, an increase of
$0.3 million, or 4.9%5.4%, overfrom the firstfourth
quarter of 2022 and an increase of $1.2 million, or 28.6%, overcomparable to the
second quarter of 2021.
For the first six months of 2022, deposit
fees totaled $10.6 million, an increase of $2.1 million, or 25.0%, over the same period
of 2021.
Compared to first quarter of 2022, the
increase reflected higher overdraft fees.2022.
 
The increase over both prior year periods was attributable to higher monthly
service chargedecline from the fourth quarter of 2022 reflected two less days of
fees and overdraft fees.
The conversion of our 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 spiked in 2020/2021 due to the high level
of governmental stimulus during the pandemic.
processing.
 
Bank Card Fees
.
 
Bank card fees for the secondfirst quarter of 20222023 totaled $4.0$3.7 million, a $0.3 million,comparable to the
 
or 7.2%, increase over the first
fourth quarter of 2022 and comparable toa
decrease of $0.1 million, or 1.0%, from the secondfirst quarter of 2021.2022.
 
ForThe decline from the first six monthsquarter of 2022 bank card fees totaled $7.8 million,
an increase of $0.2 million, or 2.4%, over the same period of 2021.
The increase over the prior year periods was primarily attributable
to growth in checking accounts.lower debit card usage and reflected lower consumer spending.
36
Wealth
 
Management Fees
.
 
Wealth management fees,
 
which include both trust fees through Capital City Trust (i.e., managed
accounts and
trusts/estates), retail
retail brokerage fees through Capital City Investments (i.e., investment,
,
 
insurance products, and retirement accounts),
and financial advisory fees through Capital City Strategic Wealthinsurance commission
 
(i.e., including the sale of life insurance, risk management and asset
protection services).revenues,
 
Wealth managementtotaled $3.9
feesmillion for the secondfirst quarter of 2023, an increase of $0.3 million, or 7.7%, over the
fourth quarter of 2022 totaled $4.4 million,and a $1.7 decrease of $2.1
million, or 27.5%35.3%, from the first quarter of 2022.
 
decreaseThe increase over the fourth quarter of 2022 was primarily attributable to higher
retail brokerage fees.
The decrease from the first quarter of 2022 which reflected lower insurance
revenues of $1.9 million and trust fees of $0.1 million partially offset
by higher retail brokerage fees of $0.3 million.
The decrease in insurance revenues was due to a very stronglower insurance commission
revenues which reflected
higher than normal revenues in the first quarter and reflected
of 2022 related to the closing of
several very large insurance policy sales.
Compared to the second quarter of 2021, the $1.1 million, or 34.5%, increase
reflected
higher insurance revenues of $0.7 million and retail brokerage fees of $0.4 million.
For the first six months of 2022, wealth
management fees increased
$4.1 million, or 64.6%, due to higher insurance revenues of $3.4 million and retail
brokerage fees of $0.7
million.
The higher level of insurance revenues reflected the acquisition of Capital City Strategic
Wealth in May 2021.policies.
 
At June 30,March 31, 2023,
2022, total assets under management were approximately $2.201$2.330 billion
 
billion compared to $2.273 billion at December 31, 2022 and $2.329
billion at March 31, 2022.
Mortgage Banking Revenues
.
Mortgage banking revenues totaled $7.0 million for the first quarter of
2023, an increase of $1.5
million, or 27.3%, over the fourth quarter of 2022 and $2.324a decrease of $1.9
million, or 21.8% from the first quarter of 2022.
Compared
billion at December 31, 2021.to the fourth quarter of 2022, the increase reflected a higher level of rate locks and
gain on sale margin.
The decrease from the first
quarter of 2022 was attributable to lower rate lock volume and gain on sale margin.
We provide a detailed
overview of our mortgage
banking operation, including a detailed break-down of mortgage banking
revenues, mortgage servicing activity,
and warehouse
funding within Note 4 - Mortgage Banking Activities in the Notes to Consolidated
Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
Other
.
 
37
Noninterest Expense
Noninterest expense for the second quarter of 2022Other income totaled $40.5
million compared to $39.2$2.4 million for the first quarter of 2023, a decrease of $0.2
million, or 7.3%, from the fourth quarter of
2022 and
$42.1 an increase of $0.5 million, for the second quarter of 2021.
The $1.3 million increaseor 27.7%, over the first quarter of 2022.
Compared to the first quarter of 2022, the increase was driven by
primarily attributable to higher loan servicing income and miscellaneous income.
Noninterest Expense
Noninterest expense for the first quarter of 2023 totaled $40.5 million compared
to $42.3 million for the fourth quarter of 2022 and
$39.2 million for the first quarter of 2022.
Compared to the fourth quarter of 2022, the $1.8 million decrease reflected
 
a $0.9 milliondecrease in
increase in other expense and higher compensation of $0.5 million.
Higher expense for advertising ($0.2 million), processing ($0.1
million) and travel/entertainment ($0.1 million) drove the increase in
other expense.
Additionally, other expense reflects a
$0.2
$2.4 million expense for our VISA share swap agreement that is triggered when
VISA funds their merchant litigation reserve which
happens infrequently.
The $0.5 million increase in compensation was driven by higher salary expense of $0.8
million (CCHL
commissions, annual merit, and staffing additions in new markets)
that was partially offset by lower associate benefitan increase
in occupancy expense of
$0.3
million.
Compared to the second quarter of 2021, the $1.6 million decrease was primarily
attributable to lower pension settlement
expense of $1.8 million.
For the first six months of 2022, noninterest expense totaled $79.7 million
compared to $82.6 million for the
same period of 2021 with the $2.9 million decrease primarily attributable
to lower pension settlement expense of $1.6 $0.5 million and
lower compensation expense
of $1.2$0.1 million.
 
The decrease in other expense was primarily attributable to lower other real estate expense
of $1.6 million due to a
gain on the sale of a banking office.
Compared to the first quarter of 2022, the $1.3 million increase reflected an increase of $0.8
million in compensation expense reflected lower salaryand $0.7 million in occupancy expense of $1.4that were
 
partially off by a decrease of $0.2 million in other
partially offset by higher associate benefit expense ofexpense.
 
$0.2 million.The addition of three banking offices and staffing in new markets
 
Lower performance based compensation (commissions/incentives)
at CCHL partially offset by higher performance based compensation
at CCSW and lower realized loan cost (credit offset by salary
expense) at the Bank drove the variance in salary expense.
We expect additional
pension settlement expense for the remainder ofcompensation and occupancy
2022 based on our current estimate of lump sum pension pay-outs to
retirees.
expenses.
To date, the
impact of inflation and higher prices on our cost structure has not been significant.
While operating in a very tight labor
market, 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 certain premises and
processing contracts reflective of inflationary pressures. We
will
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
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
March 31, 2023
December 31, 2022
March 31, 2022
2021
2022
2021
Salaries
$
21,46121,629
$
21,113
 
$
20,664
$
21,117
$
42,125
$
43,564
Associate Benefits
3,9224,007
4,452
4,192
4,261
8,114
7,878
Total Compensation
 
25,38325,636
25,565
24,856
25,378
50,239
51,442
 
Premises
2,7343,245
2,907
2,759
2,714
5,493
5,473
Equipment
3,3413,517
3,346
3,334
3,259
6,675
6,467
Total Occupancy
6,0756,762
6,253
6,093
5,973
12,168
11,940
 
Legal Fees
316362
390
349
321
665
879
Professional Fees
1,4061,324
1,441
1,332
1,406
2,738
2,736
Processing Services
1,7521,742
1,368
1,637
1,794
3,389
3,339
Advertising
980874
729
773
631
1,753
1,381
Telephone
703706
690
728
754
1,431
1,508
Insurance - Other
593831
649
510
545
1,103
1,046
Other Real Estate Owned, net
 
(29)(1,827)
(241)
25
(270)Pension - Other
(4)7
(388)(761)
(761)
Pension Settlement
169-
1,841
209
2,000
378
2,000
Miscellaneous
3,1504,038
2,7214,363
3,591
5,871
6,7163,482
Total Other
 
9,0408,057
10,469
8,284
10,772
17,324
19,217
Total
 
Noninterest Expense
 
$
40,49840,455
$
42,287
$
39,233
$
42,123
$
79,731
$
82,599
38
Significant components of noninterest expense are discussed in
more detail
below.
Compensation
.
 
Compensation expense totaled $25.4$25.6 million for the secondfirst quarter of 2022 compared2023, an increase
 
to $24.9of $0.1 million, for or 0.3%, over
the first
fourth quarter of 2022 and $25.4an increase of $0.8 million, for or 3.1%, over
the secondfirst quarter of 2021.2022.
Compared to the fourth quarter of
2022, the $0.1 million increase in compensation expense reflected an increase
in salary expense of $0.5 million that was partially
offset by a decrease in associate benefits expense of $0.4
million.
The increase in salary expense was primarily attributable to an
increase in payroll tax expense which reflected the annual re-set of this tax as well as payroll
taxes related to a high level of cash/stock
incentives paid in the first quarter.
The decrease in associate benefit expense reflected a decrease of $0.7 million
in pension service
cost that was partially offset by increases in stock compensation (higher
expected pay-out for long-term incentive plan), associate
insurance, and other associate benefit expense (annual sales/service awards event).
 
Compared to the first quarter of 2022, the $0.5 million increase
reflected higher salary expense of $0.8$1.0 million partially offset by
 
by lower associate benefit expense of $0.3 $0.2
million.
 
The increase in
salary expense was attributabledue to higher performance based compensationthe addition of banking offices
 
(CCHL commissions), annual merit raises, and staffing
additions in new markets.
 
Lower associate insurance and associate appreciation event related expenses drove
the decline in other
associate benefits expense.
Compared to the second quarter of 2021, higher salary expense of $0.3 million (lower
CCHL performance
compensation of $1.3 million and base salaries of $0.2 million less higher
CCSW performance compensation of $0.8 million and core
bank base salaries of $0.5 million) was offset by lower associate benefit
expense of $0.3 million (associate insurance and stock based
compensation).
For the first six months of 2022, compensation expense totaled $50.2 million compared
to $51.4 million for the same
period of 2021 with the $1.2 million decrease attributable to lower
salary expense of $1.4 million partially offset by higher associate
benefit expense of $0.2 million.
The decrease in salary expense was primarily attributable to lower performance
based compensation
(commissions/incentives) of $4.5 million at CCHL partially offset
by higher performance based compensation at CCSW of $1.6
million and lower realized loan cost of $1.1 million (credit offset
by salary expense) at the Bank and overtime of $0.3 million (related
to the second round of the Paycheck Protection Program in 2021)
.
The increase in other associate benefit expense was driven by
higher associate insurance expense as we released self –insurance reservesprimarily due to a decrease in pension service cost of $0.7 million that was partially
 
offset by an increase in 2021.stock-based compensation
Occupancyexpense of $0.4 million.
.
37
Occupancy.
 
Occupancy expense (including premises and equipment) totaled $6.1 million for the second quarter of 2022, comparable$6.8
 
to the first quarter of 2022, and $6.0
million for the second quarter of 2021.
For the first six months of 2022, occupancy expense totaled $12.2 million compared
to $11.9
million for the same period of 2021.
The increase over both prior year periods was primarily related to software
additions for certain
risk management and strategic initiatives.
Other
.
Other expense totaled $9.0 million for the second quarter of 2022 compared
to $8.3 million for the first quarter of 2023, an increase of
$0.5
million, or 8.1% over the fourth quarter of 2022 and an increase of $0.7 million,
or 11.0%, over the first quarter of 2022.
The
$10.8increase over both prior periods was primarily attributable
to the three recently opened full-service offices and the re-location of one
office.
Other
.
Other noninterest expense totaled $8.1 million for the secondfirst quarter of 2021.
2023, a decrease of $2.4 million, or 23.0%, from the
fourth quarter of 2022 and a decrease of $0.2 million, or 2.7%, from
the first quarter of 2022.
The decrease from the fourth quarter of
2022
was primarily attributable a decrease in other real estate expense of $1.6 million due to a gain
from the sale of a banking office
and lower pension settlement expense of $1.8 million, partially offset
by higher pension expense (non-service-related component) of
$0.8 million.
 
Compared to the first quarter of 2022, the $0.7 million increase was driven by higher
expense for advertising expense ($0.2 million), processing ($0.1
million), and travel/entertainment ($0.2 million).
In addition, other
expense reflects a $0.2 million expense for our VISA share swap agreement
that is triggered when VISA funds their merchant
litigation reserve which happens infrequently.
Compared to the second quarter of 2021, the $1.7
million decrease was primarily due
todriven by lower pension settlementother real
estate expense of $1.8 million.
For the first six months of 2022, other expense totaled $17.3 million compareddue to
$19.2 million for the same period of 2021 with the $1.9 million decrease
driven by lower pension settlement expense of $1.6 million
and legal fees of $0.2 million.
Additionally, we realized
higher a gain in other real estate expensefrom the sale of $0.4 million and advertising expensea banking office
 
of
$0.4 million that were offset by lower miscellaneous expense of $0.8
million.
The variance in miscellaneous expense was primarily
attributable to lower expense for our base pension plan service cost of
$2.4 million that was partially offset by higher pension expense for(non-
travel/entertainmentservice-related component) of $0.8
million and higher FDIC assessments of $0.3 million, mortgage servicing right (“MSR”)
amortization of $0.1
million, other losses of $0.2 million, and
miscellaneous of $0.3 million, the reversal of $0.3 million in MSR valuation reserve
in 2021, and other variable expenses totaling $0.2
million related to loan production.
million.
Our operating efficiency ratio (expressed as noninterest
 
expense as a percentagepercent of the sum of taxable-equivalent net interest income plus
plus noninterest income) was 75.96%
for the second quarter of 2022 compared to 77.55%64.48% for the first quarter of 20222023 compared
 
and 80.18%to 71.47% for
the secondfourth quarter of 2021.2022 and 77.55% for the
first quarter of 2022.
 
For the first six months of 2022, this ratio was 76.73% compared to 77.22% for
the same period of 2021.
The improvement over both prior periods reflected higher net interest income.
 
Income Taxes
We realized income
 
tax expense of $2.2$4.1 million (effective rate of 19.4%21.7%) for the first quarter of
 
second2023 compared to $2.6 million
(effective rate of 19.6%) for the fourth quarter of 2022 comparable to the first quarter
of 2022 and $2.1 $2.2
million (effective rate of 18.9%19.8%) for
the secondfirst quarter of 2021.2022.
 
For the first six months of 2022, we realizedA
income tax expense of $4.4 million (effective rate of 19.6%)
compared to $4.8 million (effective rate of 18.8%) for
the same period of
2021.
For the second quarter of 2022, we realized a favorable discrete tax item for $0.3
of $0.4 million related to stateour SERP plan favorably impacted
the effective tax rate for the fourth quarter of Florida tax refunds.2022.
 
Absent discrete items, we expect our annual effective tax rate to approximate
 
20-21%21%-22% in 2022.2023.
The increase in the effective tax rate
for 2023 reflects a lower level of pre-tax income from CCHL in relation
to our consolidated income as the non-controlling interest
adjustment for CCHL is accounted for as a permanent tax adjustment.
 
FINANCIAL CONDITION
Average earning
 
assets totaled $3.974$4.063 billion for the secondfirst quarter of 2022,2023, an increase of $35.4$30.0 million, or 0.7%, over
 
0.9%, over the firstfourth
quarter of 2022, and an increase of $182.9$123.9 million, or 4.8%3.1%, over
 
the fourthfirst quarter of 2021.2022.
 
The increase over both prior periods was
primarily driven by higher deposit balances (see below –
Deposits
).
 
The mix of earning assets continues to improve driven by strong
loan growth and further deployment of liquidity into the investment portfolio
which has increased $135 million in 2022.
39growth.
Investment Securities
Average investment
 
s
 
increased $85.6decreased $16.9 million, or 8.1% over1.6%, from the firstfourth quarter of 2022 and increased $153.7
 
$5.1 million, or 15.5%0.5%, over the
fourthfirst quarter of 2021.2022.
 
Our investment portfolio represented 28.8%26.2% of our average earning assets for the second
 
first quarter of 2023 compared
to 26.8% for the fourth quarter of 2022
compared to and 26.9% for the first quarter of 2022 and 26.1%
for the fourth quarter of 2021.2022.
 
For the remainder of 2022,2023, we will continue to
to monitor our overall liquidity position and dependent on market conditions,allow cash flow from the
 
look for opportunitiesinvestment portfolio to reinvest proceeds and/or
purchase additional securities that align with our overall investment strategy.run-off to overnight funds.
 
The investment portfolio is a significant component of our operations and, as such,
 
it functions as a key element of liquidity and
asset/liability management.
 
Two types of classifications are approved
 
for investment securities which are Available
 
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
 
During the second quarter of 2022, we purchased securities under both
the AFS and HTM
designations.
At June 30, 2022, $601.4March 31, 2023, $402.9 million, or 53.2%38.1%, of our investment portfolio
 
was classified as AFS,
and $528.3$651.8 million, or
46.8% 61.8%, classified as HTM.
 
The average maturity of our total portfolio at June 30, 2022 was 3.51 years comparedMarch 31, 2023
 
was 3.34 years
compared to 3.633.57 years at
March December 31, 2022 and 3.63 years at December 31, 2021.March
 
31, 2022.
The duration of our investment portfolio at March
31, 2023 was 2.99 years.
In the third quarter of 2022, to mitigate risk to accumulated other comprehensive income due
to higher
interest rates, we reclassified 33 U.S. Treasury obligations
totaling $168.4 million with unrealized losses of $9.4 million from AFS to
HTM.
At March 31, 2023, $7.1 million was remaining in unrealized losses relating to
these securities.
We determine
 
the classification of a security at the time of acquisition based on how the purchase will affect
 
our asset/liability strategy
and future business plans and opportunities.
 
We consider multiple
 
factors in determining classification, including regulatory
capital
requirements, volatility in earnings or other comprehensive income,
 
and liquidity needs.
 
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
 
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
 
HTM securities are acquired or owned with the intent of holding
 
them to
maturity.
 
HTM investments are measured at amortized cost.
 
We do not
 
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maintmaintain
 
ain a trading portfolio.
38
At June 30, 2022,March 31, 2023, there were 833896 positions (combined AFS and HTM) with
 
withpre-tax unrealized losses totaling $72.0$74.8 million (see
Note 2 –
Investment Securities in the Notes to Consolidated Financial Statements for
 
detail by category).
 
87 of these positions are U.S.
U.S. Treasury bonds and carry the full faith and credit of
 
credit of the U.S. Government.
 
621684 are U.S. government agency securities issued by U.S.
U.S. government sponsored entities.
 
We believe the
 
long history of no credit losses on government securities indicates that
the expectation
expectation of nonpayment of the amortized cost basis is effectively
zero.
 
The remaining 125 positions (Municipal securities and
corporate bonds) have
a
credit component.
 
At June 30, 2022,March 31, 2023, corporate debt securities had an allowance for credit losses of
$28,000
and municipal securities had an allowance of $8,000.
At March 31, 2023, all CMO, MBS, SBA, U.S. Agency,
 
and U.S. Treasury
bonds held were AAA rated.
At June 30,
2022, corporate debt securities had an allowance for credit losses of $22,000
and municipal securities had an allowance of $9,000.
Loans HFI
Average loans
 
held for investment (“HFI”) increased $121.1$143.0 million, or 6.2%5.9%, over the fourth quarter of 2022
and $618.8 million, or
31.5%, over the first quarter of 20222022.
 
andPeriod end loans increased $136.4$111.7
million, or 7.0%4.4%, over the fourth quarter of 2021.2022 and $651.4
Period end loans increased $228.1 million, or 11.5%32.8%, over the first quarter of 2022.
 
Compared to the fourth quarter of 2022, a majority of the increase was realized in
the
residential real estate category,
and to a lesser extent, the construction and commercial real estate mortgage
categories.
Compared to
the first quarter of 2022,
and $282.2 million, or 14.6%, over the fourth quarter of 2022.
The loan growth in 2022 has beenwas broad based, with increases realized in all
loan categories more significantly,
 
residential mortgage, residential construction, andexcept consumer (indirect auto)loans.
 
with strong growth in
commercial mortgage in the second quarter.
The increase in residential mortgage reflected a higher level of loan purchases (second
quarter - $132 million, first quarter - $26 million) from CCHL driven by higher
demand for portfolio/adjustable rate product.
In
addition, the increase in commercial mortgage reflected a loan pool purchase
(7 loans for $15 million).
Without compromising our credit standards
 
,
 
changing our underwriting standards, or taking on inordinate interest rate risk,
 
we
continue to closely monitor our markets and make minor adjustments as necessary.
Credit Quality
Overall credit quality remains strong.stable.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $3.2$4.6
 
million at June 30,March 31,
20222023 compared to $2.8$2.7 million at December 31, 2022 and $2.7 million
at March 31, 2022 and $4.3 million at December
31, 2021.2022.
 
At June 30, 2022,March 31, 2023, the increase was
primarily due to the addition of one large business loan relationship
totaling $1.8 million to nonaccrual status is in the process of
collection and is adequately secured and reserved for.
At March 31, 2023, nonperforming assets as
a percentage of total assets totaled 0.07%
0.10% compared to 0.06% at March
December 31, 2022 and 0.10%0.06% at DecemberMarch 31, 2021.202
2.
 
Nonaccrual loans
totaled $3.1$4.6 million at June 30, 2022,March 31,
2023, a $0.4$2.3 million increase over December 31, 2022 and a $1.9 million increase
over March 31, 2022.
Further, classified loans
totaled $12.2 million at March 31, 2023, a $7.2 million decrease from December
 
31, 2022 and a $1.2$10.2 million decrease from December 31,March
2021.31, 2022.
 
Further, classified loans decreased $2.7 million
from the first quarter of 2022 to $19.6 million.
40
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the
 
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,
 
information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts.
 
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
 
Adjustments to historical loss information incorporate management’s
 
view of current
conditions and forecasts.
 
At June 30, 2022,March 31, 2023, the allowance for credit losses for HFI loans totaled $21.3
 
$26.5 million compared to $24.7 million at December 31,
2022 and $20.8 million at March 31, 2022 and2022.
$21.6 million at December 31, 2021. Activity within the allowance is detailed
provided in Note 3 to the consolidated financial
statements.
 
The
$0.5 million increase in the allowance forover the second quarterprior periods was primarily driven by
 
by strong new loan origination volume that was partially
offset by the release of reserves held for pandemic related losses that have
not materialized to the extent projected.
Further, net
charge-offs increased $0.4 million to $1.1
million for the second quarter and reflected one large commercial charge
-off for $0.8
million related to a work-out resolved during the quarter.growth.
 
At June 30,March 31, 2023, net charge-
offs totaled $1.5 million, an increase of $0.2 million over
the fourth quarter of 2022, and $0.7 million over the first quarter of 2022.
At March 31, 2023, the allowance represented 0.96%1.01% of
HFI loans and
provided coverage of 678%578% of nonperforming loans compared
to
1.05% 0.98% and 761%, respectively, at March
31, 2022, and 1.12% and
500%1,077%, respectively,
 
at December 31, 2021.2022, and 1.05% and 761%, respectively,
at March 31, 2022.
 
At June 30, 2022,March 31, 2023, the allowance for credit losses for unfunded commitments
 
totaled $2.9$2.8 million compared to $3.0 million at
December 31, 2022 and $3.0 million at March 31, 2022
and $2.9 million at December 31, 2021.2022. The allowance
for unfunded
commitments is recorded in other liabilities.
39
Deposits
Average total
 
deposits were $3.765$3.817 billion for the secondfirst quarter of 2022,2023, an increase of $51.3$14.3 million, or 1.4%,
 
or 0.4%, over the firstfourth quarter
of 2022 and $216.2$103.3 million, or 6.1%2.8%, over the fourthfirst quarter of 2021.2022.
 
Compared to the firstfourth quarter of 2022, the increase reflected
higher NOW account balances, primarily due to a seasonal increase in our
public fund deposits that occurred late in the fourth quarter.
Compared to the first quarter of 2022, we experienced strong growth in our
NOW accounts, and to a lesser degree, our savings
accounts.
Period end total deposits declined $115.4 million
from the fourth quarter of 2022, and reflected lower balances in
noninterest bearing accounts, NOW accounts, and savings accounts, partially
offset by slight growth in money market accounts and
certificates of deposit
Noninterest bearing accounts decreased $52.2 million from the fourth quarter
of 2022, largely due to the
migration of two commercial clients into interest bearing NOW accounts, in addition
to clients seeking a higher yielding investment
account at Capital City Investments (approximately $30 million,
which is predominantly attributable to clients with higher balances).
Interest bearing deposits decreased $63.2 million from the fourth quarter
of 2022, including a $47.8 million decline in the NOW
account balance that was largely driven by an anticipated seasonal
decline in public fund balances of $66 million, partially offset
 
by a decline in seasonal public fund balances.
Compared to the fourth
quarterpreviously mentioned migration of 2021, strong growth occurred in ourtwo clients from noninterest bearing
 
deposits, NOW accounts, and savingsaccounts.
Savings account balances.
Over thebalances decreased $20.1
past few years, we have experienced strong core deposit growth, in addition
to growth related to multiple government stimulus
programs in response tomillion from the Covid-19 pandemic, such as those under
the CARES Act and the American Rescue Plan Act.
Given these
increases, the potential exists for our deposit levels to be volatile for the
remainderfourth quarter of 2022, primarily attributable to clients
seeking higher yielding investment products outside of the
Bank.
Money market account balances increased $4.5 million over the fourth quarter
of 2022 (also due to the uncertain timing of the outflowssome migration from
of the stimulus related balances,noninterest bearing accounts), in addition to the frequency and degree togrowth in our new markets which
 
which the Federal Open Market Committee (FOMC) raises
the overnight fundsoffered a promotional rate. It is anticipated that liquidity levels will remain
strong given our current level of overnight funds. The Bank
continues to strategically consider ways to safely deploy a portion of this liquidity.
 
We monitorcontinue
 
to closely monitor our cost of deposits and deposit rates on an ongoing basis and adjust, if necessary,mix as we manage through the current
 
as a prudent pricing discipline remains the key to managing our
mix of deposits.
rising rate environment.
 
MARKET RISK AND INTEREST RATE
 
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
 
Market risk arises from changes in interest rates, exchange rates,
 
commodity prices, and equity prices.
 
We have risk
management policies designed to monitor and limit exposure to market
 
risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or
 
equity prices.
 
In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
 
Our net income is largely dependent on net interest income.
 
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing
 
liabilities mature or reprice on a different basis than interest-earning
 
assets.
 
When
interest-bearing liabilities mature or reprice more quickly
 
than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest
 
income.
 
Similarly, when interest-earning
 
assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could
 
result in a decrease in net interest income.
 
Net interest
income is also affected by changes in the portion of interest-earning
 
assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’
 
equity.
41
We have established
 
what we believe to be a comprehensive interest rate risk management policy,
 
which is administered by
management’s Asset Liability Management
 
Committee (“ALCO”).
 
The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net
 
interest income at risk) and the fair value of equity capital
(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change
 
in interest rates for maturities from one
day to 30 years.
 
We measure the potential
 
adverse impacts that changing interest rates may have on our short-term
 
earnings, long-
term value, and liquidity by employing simulation analysis through the use of
 
computer modeling.
 
The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded
 
in investment and loan portfolio contracts.
 
As with
any method of gauging interest rate risk, there are certain shortcomings
 
inherent in the interest rate modeling methodology used by
us.
 
When interest rates change, actual movements in different categories
 
of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate significantly
 
from assumptions used in the model.
 
Finally, the
methodology does not measure or reflect the impact that higher rates may have
 
on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
The statement of financial condition is subject to testing for interest rate shock
 
possibilities to indicate the inherent interest rate risk.
 
We prepare
 
a current base case and several alternative interest rate simulations (-200, (-400, -300, -200,
-100,+100,
+200, +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
Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors.
 
(The -200bp-400bp rate scenario was reintroduced into the model
model beginning in the secondfourth quarter of 2022 due to the higher interest rate environment)
 
.rate environment. We
 
We augment our interest rate
shock analysis with
with alternative interest rate scenarios on a quarterly basis that may include ramps,
 
parallel shifts, and a flattening or steepening of the yield
yield curve (non-parallel shift).
 
In addition, more frequent forecasts may be produced when interest rates are particularly
 
particularly uncertain or when
when other business conditions so dictate.
40
Our goal is to structure the statement of financial condition so that net interest earnings
at risk over
12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines
 
at the various interest rate shock levels. We
 
attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate
 
liabilities with a similar volume of floating-rate assets,
by keeping the average
maturity of fixed-rate asset and liability contracts
reasonably matched, by managing
the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing
 
basis.
 
 
Analysis.
 
Measures of net interest income at risk produced by simulation analysis are
 
indicators of an institution’s short-term
performance in alternative rate environments.
 
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
June 30, 2022-12.5%
19.3%
14.5%
9.6%
4.9%
-10.3%
-17.6%-15.0%
March 31, 2023
7.1%
5.2%
3.4%
1.8%
-3.3%
-8.8%
-15.5%
-21.2%
December 31, 2022
27.0%11.3%
20.1%8.4%
13.2%5.5%
6.4%2.8%
-7.4%-5.0%
n/a-12.3%
-20.0%
-27.1%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
-12.5%
June 30, 2022-15.0%
39.3%
30.3%
21.3%
12.6%
-11.5%
-22.6%-17.5%
March 31, 2023
28.0%
22.7%
17.2%
12.2%
-0.5%
-10.9%
-22.5%
-31.2%
December 31, 2022
46.8%31.3%
35.3%25.2%
23.9%19.0%
12.8%13.1%
-9.9%-2.0%
n/a-13.8%
-25.7%
-36.3%
The Net Interest Income (“NII”) at Risk position indicates
 
that in the short-term, all rising rate environments will positively impact
 
the
net interest margin of the Company,
 
while declining rate environments
 
will have a negative impact on the net interest margin. These
Compared to the fourth quarter of 2022, these metrics became less favorable
in allthe rising rate scenarios compared to the
prior quarter as the NII base increasedprimarily due to higher ratesloan growth,
which reduced our level of overnight funds and nowmade us slightly less asset sensitive.
The converse is applicable in the down rate
hasscenarios where the metrics became more roomfavorable due to fall. loan growth which
increased asset duration and therefore protection against
falling rates.
The percent change over both a 12-month and 24-month
shock are outside of policy
in athe rates down 100300 bps and 400
and down 200 bps scenario scenarios
due to our limited ability to lower our deposit rates relative
to the decline
in market rate.
 
The measures of equity value at risk indicate our ongoing economic value
 
by considering the effects of changes in interest rates on all
of our cash flows by discounting the cash flows to estimate the present value of
 
assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity,
 
which in theory approximates the fair value of our net
assets.
42
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
June 30, 2022
-25.0%
14.4%
11.7%
8.3%
4.7%
-11.7%
-25.4%-30.0%
March 31, 2023
11.6%
9.6%
7.0%
4.0%
-7.1%
-17.9%
-31.3%
-35.7%
December 31, 2022
20.2%11.0%
16.2%9.0%
11.5%6.4%
6.3%3.6%
-14.7%-7.4%
n/a-18.8%
-30.9%
-40.1%
EVE Ratio (policy minimum 5.0%)
19.7%20.6%
18.9%19.9%
18.0%19.0%
17.1%18.2%
13.9%15.6%
11.6%13.5%
11.2%
10.3%
(1) Down 300, andThe down 400 bp rate scenarios have been excluded due to the
current interest rate environment.
A down 200 bp rate
scenario was added in the secondfourth quarter of 2022.
At June 30, 2022,March 31, 2023, the economic value of equity was favorable in
 
all rising rate environments and unfavorable in the falling rate
environments. Compared to the firstfourth quarter of 2022, EVE metrics became
 
lessslightly more favorable in a risingall rate environments except
the down 300 environment, primarily due to
the use of cash to fund loan growth and became more favorable a change in the ratesshape and position
 
down scenario as loan growth extended our asset duration.of the yield curve, along with seasonal outflows of
some rate sensitive funding sources (public funds).
 
EVE is currently in compliance with policy in all rate scenarios as the EVE ratio
in
each rate scenario exceeds 5.0%.
As the interest rate environment and the dynamics of the economy continue to change,
 
additional simulations will be analyzed to
address not only the changing rate environment, but also the change
 
in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
41
LIQUIDITY AND CAPITAL
 
RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our
 
cash needs.
 
Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and
 
other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings.
 
Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, which take into account
 
the marketability of assets, the sources and stability of
funding and the level of unfunded commitments.
 
We regularly evaluate
 
all of our various funding sources with an emphasis on
accessibility, stability,
 
reliability and cost-effectiveness.
 
Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under
 
repurchase agreements, federal funds purchased and
FHLB borrowings.
 
We believe that the cash
 
generated from operations, our borrowing capacity and our access to
 
capital resources are
sufficient to meet our future operating capital and funding requirements.
 
At June 30, 2022,March 31, 2023, we had the ability to generate $1.589$1.428 billion in additional
 
in additional liquidity through all of our available resources (this
excludes $603$303.4 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned above, we also have
 
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Window and through brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
Liquidity Plan, which addresses various liquidity stress
levels and our response and action based on the level of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level increases that certain credit facilities may
 
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on events that could potentially occur
 
occur at the Bank and report results to ALCO, our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At June 30, 2022,March 31, 2023, we believe the liquidity
liquidity available to us was sufficient to meet our on-going needs
and execute our
business strategy.
 
 
We also view our
 
investment portfolio primarily as a liquidity source of liquidity and have the option to pledge the portfoliosecurities in our
 
portfolio as collateral for
borrowings or deposits, and/or to sell selected securities.
 
TheOur portfolio primarily consists of debt issued by the U.S. Treasury,
 
U.S.
governmental and federal agencies, municipal governments, and corporate entities.
 
corporate bonds,At March 31, 2023, the weighted-average life and asset-backed securities.duration of
our portfolio were 3.34 years and 2.99 years, respectively,
 
The weighted average life
ofand the portfolio was approximately 3.51 years at June 30, 2022, and the
available for saleavailable-for-sale portfolio had a net unrealized pre-tax loss of
$42.235.0 million.
We maintained
 
an average net overnight funds (deposits(interest deposits with banks plus FED funds sold less FED funds
 
purchased) sold
position of
$691.9 million in the second quarter of 2022 compared to $873.1 $361.0 million in the first quarter of 2023
 
of 2022 and $789.1compared to $469.4 million in the fourth
quarter of 2021.2022 and $873.1 million in
the first quarter of 2022.
 
The decrease compared to both prior period was primarily due todeclining overnight funds position reflects growth in both
the loan and investment portfolios.average loans.
We expect our
 
capital expenditures will be approximately $8.0 million over the next 12 months, which
 
will primarily consist of
construction of new offices, office remodeling,
 
office equipment/furniture, and technology purchases.
 
Management expects that these
capital expenditures will be funded with existing resources without impairing
 
our ability to meet our on-going obligations.
43
Borrowings
Average short
 
term-term borrowings totaled $31.8 million for the second quarter of 2022 compared to
$32.4$47.1 million for the first quarter of 2023 compared to $50.8
2022 and $46.4 million for the fourth quarter of 2021.
2022 and $32.4 million for the first quarter of 2022. The variance compared
 
to both prior periods was primarily attributable to loweran
warehouse borrowing needs to supportincrease in short-term repurchase agreements and the fluctuation in CCHL’s
 
loans held for sale.warehouse line.
 
Additional detail on these borrowings is
provided in Note 4 –
Mortgage Banking Activities in the Consolidated
Financial Statements.
We have issued two
 
junior subordinated deferrable interest notes to our wholly owned
 
Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
November 2004, of which $10 million was retired in April 2016.
 
The second
note for $32.0 million was issued to CCBG Capital Trust II in
 
in May 2005.
 
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
 
LIBOR plus a margin of 1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II borrowing is due
 
quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin of 1.80%.
 
This note matures on June 15, 2035.
 
Effective June 30, 2023, in
accordance with the trust agreements
and the Adjustable Interest Rate (LIBOR) Act of 2021, LIBOR will be replaced
with 3-month
CME Term SOFR (secured
overnight financing rate) as the interest rate index.
The proceeds from these
borrowings were used to
partially fund acquisitions.
 
Under the terms of each junior subordinated deferrable interest note,
in the event
of default or if we elect
to defer interest on the note, we may not, with certain
exceptions, declare or pay dividends or
make
distributions on our capital stock
or purchase or acquire any of our capital
stock.
 
We continue to evaluate
the impact of the expected
discontinuation of LIBOR on our two junior subordinated deferrable
interest notes.
42
During the second quarter of 2020, we entered into a derivative cash
 
flow hedge of our interest rate risk related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust
 
I borrowing and $20 million of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed and receive variable (Libor
 
plus
spread) and has an average all-in fixed rate of 2.50% for 10 years.
 
Additional detail on the interest rate swap agreement is provided in
Note 5 – Derivatives in the Consolidated Financial Statements.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
 
table on page 32.
 
At June 30, 2022,March 31, 2023, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized” under
 
under the Basel III capital standards.
Shareowners’ equity was $371.7$411.2 million at June 30, 2022 compared
 
to $372.1 million at March 31, 2023 compared to $394.0 million at December 31, 2022 and $383.2$372.1 million
at
DecemberMarch 31, 2021.2022.
 
For the first sixthree months of 2022,2023, shareowners’ equity was positively impacted by net
 
income attributable to
common shareowners of $17.2$15.0 million, a $2.2 $5.8
million increasedecrease in the fairunrealized loss on investment securities, the issuance of stock of
$1.8 million, and stock compensation accretion of $0.5 million.
 
Shareowners’ equity was reduced by common stock dividends of $3.1
million ($0.18 per share), the repurchase of stock of $0.8 million (25,241
shares), net adjustments totaling $1.4
million related to
transactions under our stock compensation plans, and a $0.6 million decrease
in the fair value of the interest rate swap related to
subordinated debt,
net adjustments totaling $0.8 million related to transactions under
our stock compensation plans, stock compensation accretion of $0.5
million, and a $0.3 million decrease in the accumulated other comprehensive
loss for our pension plan. Shareowners’ equity was
reduced by common stock dividends of $5.4 million ($0.32 per share)
and a $27.1 million increase in the unrealized loss on
investment securities.debt.
 
At June 30, 2022,March 31, 2023, our common stock had a book value of $21.89 pertotal risk-based capital ratio was 15.53% compared
 
diluted share compared to $21.9415.52% at MarchDecember 31, 2022 and $22.6316.98% at March 31,
2022.
Our common equity tier 1 capital ratio was 12.68%, 12.64%, and 13.77%, respectively,
on those dates.
Our leverage ratio was
9.28%, 9.06%, and 8.78%, respectively,
on those dates.
At March 31, 2023, all our regulatory capital ratios exceeded the threshold to
be designated as “well-capitalized” under the Basel III capital standards.
Further, our tangible common equity ratio was 7.37%
at
March 31, 2023 compared to 6.79% and 6.61% at December 31, 2021.2022 and March
 
Book value is impacted by the net after-tax unrealized gains and losses on AFS investment
securities.
At June
30, 2022, the net loss was $31.7 million compared to a net loss of $23.6 million
at March 31, 2022, and $4.6respectively.
 
If our unrealized HTM
securities losses of $29.5 million at December 31,
2021.(after-tax) were recognized in accumulated
 
Book valueother comprehensive loss, our adjusted tangible capital
ratio would be 6.69%.
Our tangible capital ratio is also impacted by the recording of our unfunded pension liability
 
liability through other comprehensive income in
accordance with Accounting Standards CodificationASC Topic
 
715.
 
At June 30, 2022,March 31, 2023, the net pension liability reflected in other
comprehensive loss was $12.9 $4.5
million
compared to $13.0 million
at March 31, 2022 and $13.2$4.5 million at December 31, 2021.2022 and $13.0 million at March
31, 2022. This
liability is re-measured annually on
December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions
used in calculating the liability 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
 
the weighted average expected
long-term rate of return on
pension plan assets, and the assumed rate of annual compensation increases,
 
increases, all of which will vary when
re-measured.
 
The discount
rate assumption used to calculate the pension liability is subject to long-termlong
-term corporate bond
rates at
December 31
st
.
 
The estimated
impact to the pension liability based on a 25-basis point increase or decreaseThese assumptions are sensitivities are discussed in our 2022 Form 10-K “Critical Accounting
 
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.
Policies”.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
course of business to meet the financing needs of our
clients.
 
44
At June 30, 2022,March 31, 2023, we had $731.5$825.8 million in commitments to extend credit and
 
$6.2
and $5.7 million in standby letters of credit.
 
Commitments
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any
 
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
 
policies in establishing commitments and issuing letters of credit as we do for on-balance
sheeton-
balance sheet instruments.
If commitments arising from these financial instruments continue to require
 
funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going
 
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 $2.9$2.8 million at June 30, 2022.March 31, 2023.
43
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
 
Financial Statements included
in our 20212022 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, assumptions, 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
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 20212022 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
44
TABLE I
AVERAGE
 
BALANCES & INTEREST RATES
Three Months Ended
 
March 31, 2023
December 31, 2022
March 31, 2022
 
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
55,110
$
 
644
4.74
%
$
 
42,910
$
 
581
5.38
%
$
 
43,004
$
 
397
3.19
%
Loans Held for Investment
(1)(2)
2,582,395
34,331
5.39
2,439,379
31,418
5.11
1,963,578
21,811
4.52
Taxable Securities
1,061,372
4,912
1.86
1,078,265
4,835
1.78
1,056,736
2,889
1.10
Tax-Exempt Securities
(2)
2,840
17
2.36
2,827
17
2.36
2,409
10
1.60
Federal Funds Sold and Interest Bearing
Deposits
360,971
4,111
4.62
469,352
4,463
3.77
873,097
409
0.19
Total Earning Assets
4,062,688
44,015
4.39
%
4,032,733
41,314
4.07
%
3,938,824
25,516
2.63
%
Cash & Due From Banks
74,639
74,178
74,253
Allowance For Credit Losses
(25,637)
(22,596)
(21,655)
Other Assets
300,175
297,510
275,353
TOTAL ASSETS
$
 
4,411,865
$
 
4,381,825
$
 
4,266,775
 
Liabilities:
NOW Accounts
$
 
1,228,928
$
2,152
0.71
%
$
1,133,733
$
1,725
0.60
%
$
1,079,906
$
86
0.03
%
Money Market Accounts
267,573
208
0.31
273,328
63
0.09
285,406
33
0.05
Savings Accounts
629,388
76
0.05
641,153
80
0.05
599,359
72
0.05
Other Time Deposits
89,675
52
0.24
92,385
34
0.15
97,054
33
0.14
Total Interest Bearing Deposits
2,215,564
2,488
0.46
2,140,599
1,902
0.35
2,061,725
224
0.04
Short-Term Borrowings
47,109
461
3.97
50,844
690
5.38
32,353
192
2.40
Subordinated Notes Payable
52,887
571
4.32
52,887
522
3.86
52,887
317
2.40
Other Long-Term Borrowings
480
6
4.80
530
8
4.80
833
9
4.49
Total Interest Bearing Liabilities
2,316,040
3,526
0.62
%
2,244,860
3,122
0.55
%
2,147,798
742
0.14
%
Noninterest Bearing Deposits
1,601,750
1,662,443
1,652,337
Other Liabilities
81,206
84,585
72,166
TOTAL LIABILITIES
3,998,996
3,991,888
3,872,301
Temporary Equity
8,802
9,367
10,518
TOTAL SHAREOWNERS’ EQUITY
404,067
380,570
383,956
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,411,865
$
4,381,825
$
4,266,775
Interest Rate Spread
3.77
%
3.52
%
2.49
%
Net Interest Income
$
40,489
$
38,192
$
24,774
Net Interest Margin
(3)
4.04
%
3.76
%
2.55
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loan fees of $0.3 million, $0.3
million and $0.2 million for
the three months ended March 31, 2023, December 31,
2022 and March 31, 2022, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
using a 21% tax rate.
(3)
Taxable equivalent net interest income divided by average earnings assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
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
$
52,860
$
711
5.39
%
$
77,101
$
566
2.94
%
$
47,959
$
1,108
4.66
%
$
91,591
$
1,536
3.38
%
Loans Held for Investment
(1)(2)
2,084,679
23,433
4.51
2,036,781
24,095
4.74
2,024,463
45,244
4.51
2,040,551
46,578
4.71
Taxable Securities
1,142,269
3,834
1.34
687,882
2,036
1.18
1,099,739
6,723
1.22
608,801
3,899
1.28
Tax-Exempt Securities
(2)
2,488
10
1.73
3,530
23
2.58
2,449
20
1.67
3,686
48
2.60
Funds Sold
691,925
1,408
0.82
818,616
200
0.10
782,011
1,817
0.47
816,638
414
0.10
Total Earning Assets
3,974,221
29,396
2.97
%
3,623,910
26,920
2.98
%
3,956,621
54,912
2.80
%
3,561,267
52,475
2.97
%
Cash & Due From Banks
79,730
74,076
77,007
71,541
Allowance For Credit Losses
(20,984)
(22,794)
(21,318)
(23,457)
Other Assets
288,421
281,157
281,922
279,956
TOTAL ASSETS
$
4,321,388
$
3,956,349
$
4,294,232
$
3,889,307
Liabilities:
NOW Accounts
$
1,033,190
$
120
0.05
%
$
966,649
$
74
0.03
%
$
1,056,419
$
206
0.04
%
$
976,031
$
150
0.03
%
Money Market Accounts
286,210
36
0.05
272,138
33
0.05
285,810
69
0.05
270,990
66
0.05
Savings Accounts
628,472
77
0.05
529,844
64
0.05
613,996
149
0.05
511,152
124
0.05
Other Time Deposits
95,132
33
0.14
102,995
37
0.15
96,088
66
0.14
102,544
76
0.15
Total Interest Bearing Deposits
2,043,004
266
0.05
1,871,626
208
0.04
2,052,313
490
0.05
1,860,717
416
0.05
Short-Term Borrowings
31,782
343
4.33
51,152
324
2.54
32,066
535
3.36
59,049
736
2.51
Subordinated Notes Payable
52,887
370
2.76
52,887
308
2.30
52,887
687
2.58
52,887
615
2.31
Other Long-Term Borrowings
722
8
4.54
1,762
16
3.38
777
17
4.51
2,246
37
3.26
Total Interest Bearing Liabilities
2,128,395
987
0.19
%
1,977,427
856
0.17
%
2,138,043
1,729
0.16
%
1,974,899
1,804
0.18
%
Noninterest Bearing Deposits
1,722,325
1,515,726
1,687,524
1,453,121
Other Liabilities
87,207
107,801
79,728
109,417
TOTAL LIABILITIES
3,937,927
3,600,954
3,905,295
3,537,437
Temporary Equity
10,096
26,355
10,306
24,178
TOTAL SHAREOWNERS’ EQUITY
373,365
329,040
378,631
327,692
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,321,388
$
3,956,349
$
4,294,232
$
3,889,307
Interest Rate Spread
2.78
%
2.81
%
2.64
%
2.79
%
Net Interest Income
$
28,409
$
26,064
$
53,183
$
50,671
Net Interest Margin
(3)
2.87
%
2.89
%
2.71
%
2.87
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loans fees of $0.4 million
and $1.9 million for the three month periods ended June 30,
2022 and
2021, respectively, and $0.5 million and $3.1 million for the six month periods ended
June 30, 2022 and 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 earning assets.
46
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, 2021.2022.
Item 4.
 
CONTROLS AND PROCEDURES
At June 30, 2022,March 31, 2023, the end of the period covered by this Form 10-Q, our management,
 
management, including our Chief Executive Officer and Chief
Chief Financial Officer, evaluated
 
evaluated the effectiveness of our disclosure controls and procedures (as defined
 
(as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
 
Based upon that evaluation, the Chief Executive Officer and Chief Financial
 
Officer concluded
that, as of the end of the period covered by this report these disclosure controls and procedures
 
were effective.
Our management, including our Chief Executive Officer
 
and Chief Financial Officer, has reviewed
 
our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
 
Act of 1934).
 
During the quarter ended on June 30, 2022, thereMarch 31, 2023,
there have been no significant changes in our internal control over
financial reporting
during our most recently completed fiscal
quarter that
have materially affected, or are reasonably likely to materially
 
materially affect, our internal control over financial reporting.
 
PART
 
II.
 
OTHER INFORMATION
Item 1.
 
Legal Proceedings
We are party
 
to lawsuits arising out of the normal course of business.
 
In management's opinion, there is no known pending litigation,
the outcome of which would, individually or in the aggregate, have a material effect
 
on our consolidated results of operations,
financial position, or cash flows.
Item 1A.
 
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider
 
the factors discussed in Part I,
Item 1A. “Risk Factors” in our 20212022 Form 10-K, as updated in our subsequent
 
quarterly reports. The risks described in our 20212022 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
 
our business, financial condition and/or operating
results.
Item 2.
 
Unregistered Sales of Equity Securities and Use of
 
Proceeds
None.Purchases of Equity Securities by the Issuer and
 
Affiliated Purchasers
The following table contains information about all purchases made by,
or on behalf of, us and any affiliated purchaser (as defined
in
Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of
our equity securities that is registered pursuant to
Section 12 of the Exchange Act.
Total
number
Average
Total
number of shares
Maximum Number of shares
of shares
price paid
purchased under our
remaining for purchase under
Period
purchased
per share
share repurchase program
(1)
our share repurchase program
January 1, 2023 to
January 31, 2023
25,000
$32.39
25,000
548,048
February 1, 2023 to
February 28, 2023
-
-
-
548,048
March 1, 2023 to
March 31, 2023
241
32.65
241
547,807
Total
25,241
$32.39
25,241
547,807
46
(1)
This amount represents the number of shares that were repurchased during
the first quarter of 2023 through the Capital City Bank
Group, Inc. Share Repurchase Program (the “Program”), which was approved
on January 31, 2019 for a five-year period, under
which we were authorized to repurchase up to 750,000 shares of our common
stock.
The Program is flexible and shares are
acquired from the public markets and other sources using free cash flow.
No shares are repurchased outside of the Program.
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosure
Not Applicable.
 
Item 5.
 
Other Information
None.
 
 
48
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 DavisJeptha E. Larkin
 
J. Kimbrough DavisJeptha E. Larkin
Executive Vice President
 
and Chief Financial Officer
(Mr. DavisLarkin is the Principal FinancialPrincipa
 
l
Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: August 4, 2022May 1, 2023