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
JuneSeptember 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida
 
59-2273542
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
 
32301
(Address of principal executive office)
 
(Zip Code)
(
850
)
402-7821
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par value $0.01
CCBG
Nasdaq Stock Market
, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
Yes
 
[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 [
XYes
]
[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 July 27,October 26, 2023,
16,991,63416,958,056
 
shares of the Registrant’s Common Stock, $.01 par value, were outstanding.
2
CAPITAL CITY BANK
 
GROUP,
 
INC.
QUARTERLY
 
REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNESEPTEMBER 30, 2023
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
 
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – JuneSeptember 30, 2023 and December 31, 2022
45
Consolidated Statements of Income – Three and SixNine Months Ended JuneSeptember 30, 2023 and 2022
56
Consolidated Statements of Comprehensive Income (Loss) – Three and SixNine Months Ended JuneSeptember 30, 2023 and 2022
67
Consolidated Statements of Changes in Shareowners’ Equity – Three and SixNine Months Ended JuneSeptember 30, 2023 and 2022
78
Consolidated Statements of Cash Flows – SixNine Months Ended JuneSeptember 30, 2023 and 2022
89
Notes to Consolidated Financial Statements
910
 
 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3032
 
 
Item 3.
 
Quantitative and Qualitative Disclosure About Market Risk
4648
 
 
Item 4.
 
Controls and Procedures
4648
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
4649
 
 
Item 1A.
Risk Factors
4649
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4649
 
 
Item 3.
Defaults Upon Senior Securities
4749
Item 4.
Mine Safety Disclosure
4749
Item 5.
Other Information
4749
 
 
Item 6.
Exhibits
4851
 
 
Signatures
 
4952
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-K10-K/A for the
 
year ended December
 
31, 2022, filed
 
(the “2022on December 22,
2023 (the
“2022 Form
 
10-K”10-K/A”):
(a) “Introductory
Note” in
Part I,
Item 1.
 
“Business”; (b)
“Risk Factors”Introductory Note”
 
in Part
 
I, Item
 
1A, as1. “Business”;
 
updated(b) “Risk
Factors” in
 
Part I,
Item 1A,
as updated
in
our
subsequent
 
quarterly
reports
filed
filed
on
Form
10-Q;
and
(c)
 
“Introduction”
in “Management’s
“Management’s
 
Discussion and Analysis of Financial Condition
 
and
Analysis
of
Financial
Condition and Results of Operations,” in
Part II, Item 7, as well as:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
adverse developments in the financial services industry generally, such as the recent bank failures and any related impact on depositor
behavior;
 
●
the effects of changes in the level of checking or savings account deposits and the competition for deposits on our funding costs, net
interest margin and ability to replace maturing deposits and advances, as necessary;
 
●
inflation, interest rate, market and monetary fluctuations;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to these
loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights and the potential effects of higher interest
rates on our loan origination volumes;
●
the effects of actions taken by governmental agencies to stabilize the recent volatility in the financial system and the effectiveness of such
actions;
 
●
changes in monetary and fiscal policies of the U.S. Government;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,
deferred tax asset valuation and pension plan;
●
changes in our liquidity position;
●
changes in accounting principles, policies, practices or guidelines;
●
the frequency and magnitude of foreclosure of our loans;
●
the effects of our lack of a diversified loan portfolio, including the risks of loan segments, geographic and industry concentrations;
●
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
 
●
our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
●
changes in the securities and real estate markets;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to these
loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights and the potential effects of higher interest
rates on our loan origination volumes;
●
the effect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and other related charges and the failure
to achieve the expected gains, revenue growth or expense savings from such corporate restructuring, acquisitions or dispositions;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies (including pandemics, such
as the COVID-19 pandemic), military conflict, acts of war, terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we
operate;
●
the impact of the restatement of our previously issued financial statements as of and for the year ended December 31, 2022, the three
months ended March 31, 2022 and 2023, the three and six months ended June 30, 2022 and 2023, and the three and nine months ended
September 30, 2022;
●
any inability to implement and maintain effective internal control over financial reporting or inability to remediate our existing material
weaknesses in our internal controls deemed ineffective;
●
the willingness of clients to accept third-party products and services rather than our products and services 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.
4
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
JuneSeptember 30,
December 31,
(Dollars in Thousands, Except Par Value)
2023
 
2022
ASSETS
 
 
Cash and Due From Banks
$
83,67972,379
$
72,114
Federal Funds Sold and Interest Bearing Deposits
 
285,12995,119
 
528,536
Total Cash and Cash Equivalents
 
368,808167,498
 
600,650
 
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
424,220375,476
 
and $
455,232
)
 
386,220334,052
 
413,294
Investment Securities, Held to Maturity (fair value of $
595,219582,648
 
and $
612,701
)
 
641,398632,076
 
660,744
Equity Securities
1,7033,585
 
10
Total Investment
 
Securities
 
1,029,321969,713
 
1,074,048
 
Loans Held For Sale, at fair value
67,90834,013
 
54,63526,909
 
Loans Held for Investment
2,667,0032,705,181
 
2,525,1802,547,685
Allowance for Credit Losses
 
(27,964)(29,083)
 
(24,736)(25,068)
Loans Held for Investment, Net
 
2,639,0392,676,098
 
2,500,4442,522,617
 
 
 
Premises and Equipment, Net
 
82,06281,677
 
82,138
Goodwill and Other Intangibles
 
93,01392,973
 
93,093
Other Real Estate Owned
1
431
Other Assets
 
119,411116,314
 
120,519119,337
Total Assets
$
4,399,5634,138,287
$
4,525,9584,519,223
 
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,520,1341,472,165
$
1,653,620
Interest Bearing Deposits
 
2,268,7322,068,280
 
2,285,697
Total Deposits
 
3,788,8663,540,445
 
3,939,317
 
 
 
Short-Term
 
Borrowings
 
50,67341,696
56,793
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
414364
513
Other Liabilities
 
77,19275,585
73,675
Total Liabilities
3,970,0323,710,977
4,123,185
Temporary Equity
8,7527,604
8,757
 
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
no
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,991,63416,957,753
 
and
16,986,785
-
 
shares issued and outstanding at JuneSeptember 30, 2023 and December 31, 2022, respectively
170
170
Additional Paid-In Capital
 
36,85336,182
37,331
Retained Earnings
 
417,128418,030
393,744387,009
Accumulated Other Comprehensive Loss, net of tax
 
(33,372)(34,676)
(37,229)
Total Shareowners’
Equity
 
420,779419,706
394,016387,281
Total Liabilities, Temporary
 
Equity, and Shareowners’ Equity
$
4,399,5634,138,287
$
4,525,9584,519,223
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended
 
JuneSeptember 30,
SixNine Months Ended
 
JuneSeptember 30,
(Dollars in Thousands, Except Per Share
 
Data)
2023
2022
2023
2022
INTEREST INCOME
Loans, including Fees
$
37,47739,344
$
24,07227,839
$
72,357111,845
$
46,20574,536
Investment Securities:
Taxable
4,8034,550
3,8334,360
9,71614,265
6,72311,083
Tax Exempt
11
12
735
23
1325
Funds Sold
 
2,7821,848
1,4083,231
6,8938,741
1,8175,048
Total Interest Income
45,07445,753
29,32035,442
88,989134,886
54,75890,692
INTEREST EXPENSE
Deposits
4,0085,214
2661,052
6,49611,710
4901,542
Short-Term
 
Borrowings
451630
343536
9121,542
5351,071
Subordinated Notes Payable
604625
370443
1,1751,800
6871,130
Other Long-Term
 
Borrowings
54
86
1115
1723
Total Interest Expense
5,0686,473
9872,037
8,59415,067
1,7293,766
NET INTEREST INCOME
40,00639,280
28,33333,405
80,395119,819
53,02986,926
Provision for Credit Losses
2,2192,393
1,5422,154
5,3497,689
1,5423,878
Net Interest Income After Provision For Credit Losses
37,78736,887
26,79131,251
75,046112,130
51,48783,048
NONINTEREST INCOME
Deposit Fees
5,3265,456
5,4475,947
10,56516,021
10,63816,585
Bank Card Fees
3,7953,684
4,0343,860
7,52111,205
7,79711,657
Wealth Management
 
Fees
4,1493,984
4,4033,937
8,07712,061
10,47314,410
Mortgage Banking Revenues
5,8371,839
9,0652,895
12,8328,072
18,01111,807
Other
3,7661,765
1,9541,870
6,1267,093
3,8025,426
Total Noninterest
 
Income
22,87316,728
24,90318,509
45,12154,452
50,72159,885
NONINTEREST EXPENSE
Compensation
24,88423,003
25,38322,967
50,52069,965
50,23968,487
Occupancy, Net
6,8206,980
6,0756,153
13,58220,562
12,16818,321
Other
10,8309,122
9,0408,579
18,88726,539
17,32425,564
Total Noninterest
 
Expense
42,53439,105
40,49837,699
82,989117,066
79,731112,372
INCOME BEFORE INCOME TAXES
18,12614,510
11,19612,061
37,17849,516
22,47730,561
Income Tax Expense
3,5443,004
2,1772,493
7,67710,130
4,4125,898
NET INCOME
14,58211,506
9,0199,568
29,50139,386
18,06524,663
Loss (Income) Loss Attributable to Noncontrolling Interests
(31)1,149
(306)37
41,153
(897)(860)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
14,55112,655
$
8,7139,605
$
29,50540,539
$
17,16823,803
BASIC NET INCOME PER SHARE
$
0.860.75
$
0.510.57
$
1.732.38
$
1.011.40
DILUTED NET INCOME PER SHARE
$
0.850.74
$
0.510.57
$
1.732.38
$
1.011.40
Average Common
 
Basic Shares Outstanding
17,00216,985
16,94916,960
17,00917,001
16,94016,947
Average Common
 
Diluted Shares Outstanding
17,03517,025
16,97116,996
17,04017,031
16,95816,973
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 INCOME (LOSS)
 
(Unaudited)
Three Months Ended
SixNine Months Ended
JuneSeptember 30,
JuneSeptember 30,
(Dollars in Thousands)
2023
2022
2023
2022
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
14,55112,655
$
8,7139,605
$
29,50540,539
$
17,16823,803
Other comprehensive (loss) income, before
 
tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(2,887)to held to maturity
(10,718)(3,405)
3,921(2,618)
(36,167)516
(38,778)
Unrealized losses on securities transferred from available for sale
to held to maturity
-
(9,384)
-
(9,384)
Amortization of unrealized losses on securities transferred from
available for sale to held to maturity
876887
4586
1,7412,628
9586
Derivative:
Change in net unrealized gain on effective cash flow
 
derivative
585770
1,1611,407
(217)553
2,9974,403
Benefit Plans:
Pension plan settlement
(217)-
169102
(217)
378480
Total Benefit Plans
(217)-
169102
(217)
378480
Other comprehensive (loss) income, before
 
tax
(1,643)(1,748)
(9,384)(9,907)
5,2283,480
(32,783)(42,693)
Deferred tax (benefit) expense related to other comprehensive income
(347)(444)
(2,362)(2,469)
1,371927
(8,232)(10,704)
Other comprehensive (loss) income, net of tax
(1,296)(1,304)
(7,022)(7,438)
3,8572,553
(24,551)(31,989)
TOTAL COMPREHENSIVE
 
INCOME (LOSS)
$
13,25511,351
$
1,6912,167
$
33,36243,092
$
(7,383)(8,186)
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
CONSOLIDATED STATEMENTS
 
OF CHANGES IN SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
 
Other
Additional
Comprehensive
 
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, AprilJuly 1, 2023
17,021,74816,991,634
$
170
$
37,51236,853
$
405,634408,771
$
(32,076)(33,372)
$
411,240412,422
Net Income Attributable to Common Shareowners
-
-
-
14,55112,655
-
14,55112,655
Other Comprehensive Loss, net of tax
-
-
-
-
(1,296)(1,304)
(1,296)(1,304)
Cash Dividends ($
0.18000.2000
 
per share)
-
-
-
(3,057)(3,396)
-
(3,057)(3,396)
Repurchase of Common Stock
(40,495)(36,411)
-
(1,203)(1,099)
-
-
(1,203)(1,099)
Stock Based Compensation
-
-
228346
-
-
228346
Stock Compensation Plan Transactions, net
10,3812,530
-
31682
-
-
31682
Balance, JuneSeptember 30, 2023
16,991,63416,957,753
$
170
$
36,85336,182
$
417,128418,030
$
(33,372)(34,676)
$
420,779419,706
Balance, AprilJuly 1, 2022
16,947,60216,959,280
$
169170
$
35,18835,738
$
370,531373,562
$
(33,743)(40,765)
$
372,145368,705
Net Income Attributable to Common Shareowners
-
-
-
8,7139,605
-
8,7139,605
Other Comprehensive Loss, net of tax
-
-
-
-
(7,022)(7,438)
(7,022)(7,438)
Cash Dividends ($
0.16000.1700
 
per share)
-
-
-
(2,712)(2,883)
-
(2,712)(2,883)
Stock Based Compensation
-
-
244415
-
-
244415
Stock Compensation Plan Transactions, net
11,6782,532
1-
30681
-
-
30781
Balance, JuneSeptember 30, 2022
16,959,28016,961,812
$
170
$
35,73836,234
$
376,532380,284
$
(40,765)(48,203)
$
371,675368,485
Balance, January 1, 2023
16,986,785
$
170
$
37,331
$
393,744387,009
$
(37,229)
$
394,016387,281
Net Income Attributable to Common Shareowners
-
-
-
29,50540,539
-
29,50540,539
Other Comprehensive Income, net of tax
-
-
-
-
3,8572,553
3,8572,553
Cash Dividends ($
0.36000.5600
 
per share)
-
-
-
(6,121)(9,518)
-
(6,121)(9,518)
Repurchase of Common Stock
(65,736)(102,147)
-
(2,022)(3,121)
-
-
(2,022)(3,121)
Stock Based Compensation
-
-
7641,110
-
-
7641,110
Stock Compensation Plan Transactions, net
70,58573,115
-
780862
-
-
780862
Balance, JuneSeptember 30, 2023
16,991,63416,957,753
$
170
$
36,85336,182
$
417,128418,030
$
(33,372)(34,676)
$
420,779419,706
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
-
-
17,16823,803
-
17,16823,803
Other Comprehensive Loss, net of tax
-
-
-
-
(24,551)(31,989)
(24,551)(31,989)
Cash Dividends ($
0.32000.4900
 
per share)
-
-
-
(5,424)(8,307)
-
(5,424)(8,307)
Stock Based Compensation
-
-
489904
-
-
489904
Stock Compensation Plan Transactions, net
67,22069,752
1
826907
-
-
827908
Balance, JuneSeptember 30, 2022
16,959,28016,961,812
$
170
$
35,73836,234
$
376,532380,284
$
(40,765)(48,203)
$
371,675368,485
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
89
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2023
2022
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income Attributable to Common Shareowners
$
29,50540,539
$
17,16823,803
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
5,3497,689
1,5423,878
 
Depreciation
3,9275,920
3,8025,689
 
Amortization of Premiums, Discounts and Fees, net
2,2603,216
5,5456,618
 
Amortization of Intangible Asset
80120
80120
 
Pension Plan Settlement (Gain) Charge
(291)
378480
 
Originations of Loans Held-for-Sale
(209,775)(222,575)
(573,239)(772,089)
 
Proceeds From Sales of Loans Held-for-Sale
209,334223,543
595,074813,267
 
Mortgage Banking Revenues
(12,832)(8,072)
(18,011)(11,807)
 
Net Additions for Capitalized Mortgage Servicing Rights
(859)(392)
1,358570
 
Stock Compensation
7641,110
489904
 
Net Tax Benefit From Stock-Basedfrom
 
Stock-Based Compensation
-
(19)
 
Deferred Income Taxes
(2,298)(2,464)
(8,879)(12,854)
 
Net Change in Operating Leases
(3)(12)
(72)(83)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,900)(1,915)
(26)(136)
 
Net Decrease in Other Assets
4,4928,207
8453,696
 
Net Increase in Other Liabilities
3,8151,069
22,04012,839
Net Cash Provided By Operating Activities
31,56855,692
48,07574,876
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
-
(218,548)(219,865)
 
Proceeds from Payments, Maturities, and Calls
18,99228,159
28,11140,096
Securities Available for
 
Sale:
 
Purchases
(4,634)(9,399)
(37,044)(41,880)
 
Proceeds from Sale of Securities
-30,420
3,365
 
Proceeds from Payments, Maturities, and Calls
32,49053,045
47,41364,301
Purchases of Loans Held for Investment
(201,000)(295,360)
(174,779)(329,481)
Net Decrease (Increase) in Loans Held for Investment
55,154132,105
(109,806)(113,116)
Proceeds From Sales of Other Real Estate Owned
3,7723,840
301,683
Purchases of Premises and Equipment
(3,851)(5,459)
(3,322)(4,013)
Noncontrolling Interest Contributions
-
2,5732,867
Net Cash Used In Investing Activities
(99,077)(62,649)
(462,007)(596,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits
(150,451)(398,872)
73,39646,516
Net (Decrease) Increase in Short-Term
 
Borrowings
(6,120)(15,097)
4,78417,592
Repayment of Other Long-Term
 
Borrowings
(99)(149)
(150)(200)
Dividends Paid
(6,121)(9,518)
(5,424)(8,307)
Payments to Repurchase Common Stock
(2,022)(3,121)
-
Proceeds from Issuance of Common Stock Under Purchase Plans
480562
496577
Net Cash (Used In) Provided by Financing Activities
(164,333)(426,195)
73,10256,178
NET DECREASE IN CASH AND CASH EQUIVALENTS
(231,842)(433,152)
(340,830)(464,989)
Cash and Cash Equivalents at Beginning of Period
 
600,650
1,035,354
Cash and Cash Equivalents at End of Period
 
$
368,808167,498
$
694,524570,365
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
8,72015,026
$
1,6173,588
 
Income Taxes Paid
$
3,8607,395
$
3,7656,410
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
1,4421,495
$
771,543
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
910
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.
On March 1, 2020, CCB completed its acquisition of
51
% of the membership interests in Brand Mortgage Group, LLC, which is now
operated as Capital City Home Loans, LLC (“CCHL”).
CCHL was consolidated into CCBG’s financial
statements effective upon the
date of the acquisition.
The terms of the transaction included a buyout call/put option for CCB to purchase the remaining
49
% of the
membership interests in CCHL (the “
49
% Interest”) that are held by BMGBMG, LLC (“BMG”).
The option requires 12 months
advance notice to the other party,
and under the terms of the option, January 1, 2025 is the earliest date the transfer
of the
49
% Interest
may be completed. On December 20, 2023, BMG notified CCB that BMG will exercise its
put option and the transfer of the
49
%
Interest will become effective on January 1, 2025.
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-K10-K/A for the year ended December 31, 2022.
Accounting Standards Updates
Adoption of New Accounting Standard,
 
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2022-02,
“Financial Instruments – Credit Losses (Topic
 
326), Troubled Debt Restructurings and Vintage
 
Disclosures.” ASU 2022-02 eliminates
the accounting guidance for troubled debt restructurings in Accounting
 
Standards Codification (“ASC”) 310-40, “Receivables -
Troubled Debt Restructurings by Creditors
 
”
 
for entities that have adopted the current expected credit loss model introduced
 
by ASU
2016-13, “Financial Instruments – Credit Losses (Topic
 
326), Measurement of Credit Losses on Financial Instruments.”
 
ASU 2022-
02 also requires that public business entities disclose current-period
 
gross charge-offs by year of origination for financing receivables
and net investments in leases within the scope of Subtopic 326-20, “Financial
 
Instruments—Credit Losses—Measured at Amortized
Cost.”
Proposed Accounting Standards
,
ASU
 
2023-01, “Leases (Topic
 
842)
:
 
Common Control Arrangements.” ASU 2023-01 requires
entities to amortize leasehold improvements associated with common control
 
leases over the useful life to the common control group.
ASU 2023-01 also provides certain practical expedients applicable to private
 
companies and not-for-profit organizations. ASU 2023-
01 will be effective for the Company on January 1, 2024, though
 
early adoption is permitted. The Company is evaluating the effect
that ASU 2023-01 will have on its consolidated financial statements and related disclosures.
ASU No.
 
2023-02, “Investments—Equity Method and Joint Ventures
 
(Topic
 
323)
: Accounting for Investments in Tax
 
Credit
Structures Using the Proportional Amortization Method.” ASU 2023-02
 
is intended to improve the accounting and disclosures for
investments in tax credit structures. ASU 2023-02 allows entities to elect to account
 
for qualifying tax equity investments using the
proportional amortization method, regardless of the program giving
 
rise to the related income tax credits. Previously,
 
this method was
only available for qualifying tax equity investments in low-income
 
housing tax credit structures. ASU 2023-02 will be effective for the
Company on January 1, 2024, though early adoption is permitted. The
 
Company is evaluating the effect that ASU 2023-02 will have
on its consolidated financial statements and related disclosures.
11
ASU No. 2023-06, “Disclosure Improvements:
Codification Amendments in Response to the SEC’s
Disclosure Update and
Simplification Initiative.”
ASU 2023-06 is intended to clarify or improve disclosure and presentation
requirements of a variety of
topics, which will allow users to more easily compare entities subject to the SEC’s
existing disclosures with those entities that were
not previously subject to the requirements and align the requirements in the
FASB accounting standard
codification with the SEC’s
regulations. The Company is currently evaluating the provisions of
the amendments and the impact on its future consolidated
statements.
12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
JuneSeptember 30, 2023
U.S. Government Treasury
$
22,04722,036
$
-
$
1,7971,727
$
-
$
20,25020,309
U.S. Government Agency
175,515160,275
2815
11,30311,328
-
164,240148,962
States and Political Subdivisions
46,84246,479
-
5,9586,272
(5)(12)
40,87940,195
Mortgage-Backed Securities
(1)
77,144
2
11,01474,556
-
66,13213,954
-
60,602
Corporate Debt Securities
95,31763,871
61-
7,9958,115
(19)(31)
87,36455,725
Other Securities
(2)
7,3558,259
-
-
-
7,3558,259
Total
 
$
424,220375,476
$
9115
$
38,06741,396
$
(24)(43)
$
386,220334,052
December 31, 2022
U.S. Government Treasury
$
23,977
$
1
$
1,928
$
-
$
22,050
U.S. Government Agency
198,888
27
12,863
-
186,052
States and Political Subdivisions
47,197
-
6,855
(13)
40,329
Mortgage-Backed Securities
(1)
80,829
2
11,426
-
69,405
Corporate Debt Securities
97,119
19
8,874
(28)
88,236
Other Securities
(2)
7,222
-
-
-
7,222
Total
 
$
455,232
$
49
$
41,946
$
(41)
$
413,294
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
JuneSeptember 30, 2023
U.S. Government Treasury
$
457,522457,602
$
-
$
25,36524,452
$
432,157433,150
Mortgage-Backed Securities
(1)
183,876174,474
1-
20,81524,976
163,062149,498
Total
 
$
641,398632,076
$
1-
$
46,18049,428
$
595,219582,648
December 31, 2022
U.S. Government Treasury
$
457,374
$
-
$
25,641
$
431,733
Mortgage-Backed Securities
(1)
203,370
8
22,410
180,968
Total
 
$
660,744
$
8
$
48,051
$
612,701
(1)
 
Comprised of residential mortgage-backed
 
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank stock,
 
recorded at cost of $
2.33.2
 
million and $
5.1
 
million,
respectively,
 
at JuneSeptember 30, 2023 and $
2.1
 
million and $
5.1
 
million, respectively,
 
at December 31, 2022.
At JuneSeptember 30, 2023 and December 31, 2022, the investment portfolio
had $
1.73.6
 
million and $
0.01
 
million, respectively in equity
securities. These securities do not have a readily determinable fair value
 
and were not credit impaired.
 
Securities with an amortized cost of $
613.7463.6
 
million and $
656.1
 
million at JuneSeptember 30, 2023 and December 31, 2022, respectively,
were
were pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required
 
to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB
 
FHLB advances.
 
FHLB stock, which is included in
other securities,
 
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
 
 
 
 
13
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 statement of financial condition
at JuneSeptember 30, 2023
totaled $
6.25.3
 
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$
30.4
million in sales of investment securities for the three or sixand nine months ended
 
ended JuneSeptember 30, 2023.
There were
no
significant sales of investment securities for the three months ended September 30, 2022
 
June 30, 2022 and $
3.4
 
million in sales for
the sixnine months
ended JuneSeptember 30, 2022.
Maturity Distribution
.
 
At JuneSeptember 30, 2023, the Company’s investment
 
investment securities had the following maturity distribution based on
contractual maturity.
 
Expected maturities may differ from contractual maturities because borrowers
 
borrowers may have the right to call or
prepay obligations.
 
Mortgage-backed securities (“MBS”) and certain amortizing U.S. government
 
agency securities are shown
separately because they are not due at a certain maturity date.
Available for
 
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
41,68126,628
 
$
41,03025,874
 
$
-
 
$
-
Due after one year through five years
 
153,275132,264
 
 
139,764119,087
 
 
457,522457,602
 
 
432,157433,150
Due after five year through ten years
 
49,67345,924
 
 
41,41037,331
 
 
-
 
 
-
Mortgage-Backed Securities
77,14474,556
66,13260,602
183,876174,474
163,062149,498
U.S. Government Agency
 
95,09287,845
 
 
90,52982,899
 
 
-
 
 
-
Other Securities
 
7,3558,259
 
 
7,3558,259
 
 
-
 
 
-
Total
 
$
424,220375,476
 
$
386,220334,052
 
$
641,398632,076
 
$
595,219582,648
14
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
JuneSeptember 30, 2023
Available for
 
Sale
U.S. Government Treasury
$
-
 
$
-
 
$
19,27119,318
 
$
1,7971,727
 
$
19,27119,318
 
$
1,7971,727
U.S. Government Agency
18,02011,833
19189
122,553134,243
11,11211,239
140,573146,076
11,30311,328
States and Political Subdivisions
1,559835
 
926
 
39,32537,981
 
5,9496,246
 
40,88438,816
 
5,9586,272
Mortgage-Backed Securities
2491
1
60,492
13,953
60,583
13,954
Corporate Debt Securities
-
 
-
 
66,01655,756
 
11,0148,115
 
66,04055,756
 
11,014
Corporate Debt Securities
1,967
8
79,768
7,987
81,735
7,9958,115
Total
 
$
21,57012,759
 
$
208116
 
$
326,933307,790
 
$
37,85941,280
 
$
348,503320,549
 
$
38,06741,396
 
Held to Maturity
U.S. Government Treasury
 
-
 
-
 
 
432,157433,150
 
25,36524,452
 
 
432,157433,150
 
 
25,36524,452
Mortgage-Backed Securities
3,265998
 
14138
 
159,566148,500
 
20,67424,938
 
162,831149,498
 
20,81524,976
Total
 
$
3,265998
 
$
14138
 
$
591,723581,650
 
$
46,03949,390
 
$
594,988582,648
 
$
46,18049,428
December 31, 2022
Available for
 
Sale
 
U.S. Government Treasury
$
983
 
$
-
 
$
19,189
 
$
1,928
 
$
20,172
 
$
1,928
U.S. Government Agency
63,112
2,572
113,004
10,291
176,116
12,863
States and Political Subdivisions
 
1,425
 
 
2
 
 
38,760
 
 
6,853
 
 
40,185
 
 
6,855
Mortgage-Backed Securities
6,594
959
60,458
10,467
67,052
11,426
Corporate Debt Securities
26,959
878
58,601
7,996
85,560
8,874
Total
 
$
99,073
 
$
4,411
 
$
290,012
 
$
37,535
 
$
389,085
 
$
41,946
 
Held to Maturity
U.S. Government Treasury
 
177,552
 
 
11,018
 
 
254,181
 
 
14,623
 
 
431,733
 
 
25,641
Mortgage-Backed Securities
88,723
6,814
91,462
15,596
180,185
22,410
Total
 
$
266,275
 
$
17,832
 
$
345,643
 
$
30,219
 
$
611,918
 
$
48,051
At JuneSeptember 30, 2023, there were
917894
 
positions (combined AFS and HTM) with unrealized losses totaling $
84.290.8
 
million.
 
86
 
of these
positions are U.S. Treasury bonds and carry
 
carry the full faith and credit of the U.S. Government.
 
705
 
are U.S. government agency
securities issued by U.S. government sponsored entities.
 
We believe
 
the long history of no credit losses on government securities
indicates that the expectation of nonpayment of the amortized cost basis is effectively
 
zero.
 
The remaining
126103
 
positions (municipal
securities and corporate bonds) have a credit component.
 
At JuneSeptember 30, 2023, all collateralized mortgage obligation securities
(“CMO”),
MBS, Small Business Administration securities (“SBA”), U.S. Agency,
 
and U.S. Treasury bonds held were AAA rated.
 
At June
September 30,
2023, corporate debt securities had an allowance for credit
losses of $
19,00031,000
 
and municipal securities had an allowance
of $
5,00012,000
.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
 
various risk management procedures, including the
monitoring of credit ratings.
 
A majority of the debt securities in the Company’s
 
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
 
by the U.S. government.
 
The Company believes the
long history of no credit losses on these securities indicates that the expectation
 
of nonpayment of the amortized cost basis is
effectively zero, even if the U.S. government were
 
to technically default.
 
Further, certain municipal securities held by the Company
have been pre-refunded and secured by government guaranteed treasuries.
 
Therefore, for the aforementioned securities, the Company
does
no
t assess or record expected credit losses due to the zero loss assumption.
 
The Company monitors the credit quality of its
municipal and corporate securities portfolio via credit ratings
 
which are updated on a quarterly basis.
 
On a quarterly basis, municipal
and corporate securities in an unrealized loss position are evaluated to determine
 
if the loss is attributable to credit related factors and
if an allowance for credit loss is needed.
 
15
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
JuneSeptember 30, 2023
 
December 31, 2022
Commercial, Financial and Agricultural
$
227,219221,704
 
$
247,362
Real Estate – Construction
 
226,404197,526
 
 
234,519
Real Estate – Commercial Mortgage
 
831,285828,234
 
 
782,557
Real Estate – Residential
(1)
 
882,292967,913
 
 
727,105749,513
Real Estate – Home Equity
 
203,150203,606
 
 
208,120208,217
Consumer
(2)
 
296,653286,198
 
 
325,517
Loans Held For Investment, Net of Unearned Income
$
2,667,0032,705,181
 
$
2,525,1802,547,685
(1)
Includes loans in process balance of $
2.3
million and $
6.1
 
million at both JuneSeptember 30, 2023 and December 31, 2022.
(2)
Includes overdraft balances of $
1.0
million and $
1.1
 
million at JuneSeptember 30, 2023 and December 31, 2022, respectively.
 
Net deferred loan costs, which include premiums on purchased loans,
 
included in loans were $
13.37.2
 
million at JuneSeptember 30, 2023 and
$
10.85.1
million at December 31, 2022.
Accrued interest receivable on loans which is excluded from amortized
 
cost totaled $
9.29.7
 
million at JuneSeptember 30, 2023 and $
8.0
million at
December 31, 2022, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage
 
loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of
 
Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available
 
borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
.
 
The Company will periodically purchase newly originated 1-4 family real
estate secured
adjustable-rate
loans from Capital City Home Loans (“CCHL”), a related party.
 
Residential loan purchases from CCHL totaled $
199.5293.1
 
million and
$
158.8267.0
 
million for the sixnine months ended JuneSeptember 30, 2023 and June September
30, 2022, respectively,
and were not credit impaired.
 
For the threeimpaired.
months ended June 30, 2022, the Company also acquired commercial real
estate loans that were not credit impaired from a third-party
bank totaling $
15.0
million.
The Company did
no
t purchase any commercial real estate loans during the three months ended June 30,
2023.
 
16
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 2022 Form
10-K/A.
The following table details the activity in the allowance for credit losses by portfolio
segment.
Allocation of a portion of the
allowance to one category of loans does not preclude its availability to absorb
losses in other categories.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 2022 Form
10-K.
The following table details the activity in the allowance for credit losses by portfolio
segment.
Allocation of a portion of the
allowance to one category of loans does not preclude its availability to absorb
losses in other categories.
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
JuneSeptember 30, 2023
Beginning Balance
$
1,515
$
3,359
$
4,710
$
11,649
$
1,879
$
3,395
$
26,507
Provision for Credit Losses
(86)
(512)
732
1,328
(188)
670
1,944
Charge-Offs
(54)
-
-
-
(39)
(1,887)
(1,980)
Recoveries
71
1
11
132
131
1,147
1,493
Net (Charge-Offs) Recoveries
17
1
11
132
92
(740)
(487)
Ending Balance
$
1,446
$
2,848
$
5,453
$
13,10913,388
$
1,783
$
3,325
$
27,96428,243
SixProvision for Credit Losses
(59)
(536)
84
1,356
(71)
1,219
1,993
Charge-Offs
(76)
-
-
-
-
(1,999)
(2,075)
Recoveries
28
-
17
30
53
794
922
Net (Charge-Offs) Recoveries
(48)
-
17
30
53
(1,205)
(1,153)
Ending Balance
$
1,339
$
2,312
$
5,554
$
14,774
$
1,765
$
3,339
$
29,083
Nine Months Ended
 
JuneSeptember 30, 2023
Beginning Balance
$
1,506
$
2,654
$
4,815
$
10,40910,741
$
1,864
$
3,488
$
24,73625,068
Provision for Credit Losses
(8)(67)
192(344)
739823
2,5113,814
(198)(269)
1,9993,218
5,2357,175
Charge-Offs
(218)(294)
-
(120)
-
(39)
(4,253)(6,252)
(4,630)(6,705)
Recoveries
166194
2
1936
189219
156209
2,0912,885
2,6233,545
Net (Charge-Offs) Recoveries
(52)(100)
2
(101)(84)
189219
117170
(2,162)(3,367)
(2,007)(3,160)
Ending Balance
$
1,4461,339
$
2,8482,312
$
5,4535,554
$
13,10914,774
$
1,7831,765
$
3,3253,339
$
27,96429,083
Three Months Ended
JuneSeptember 30, 2022
Beginning Balance
$
2,122
$
2,596
$
5,392
$
4,470
$
1,916
$
4,260
$
20,756
Provision for Credit Losses
564
542
(396)
1,060
(223)
123
1,670
Charge-Offs
(1,104)
-
-
-
-
(1,193)
(2,297)
Recoveries
59
-
56
115
67
855
1,152
Net Charge-Offs
(1,045)
-
56
115
67
(338)
(1,145)
Ending Balance
$
1,641
$
3,138
$
5,052
$
5,6455,827
$
1,760
$
4,045
$
21,28121,463
SixProvision for Credit Losses
(136)
(22)
(120)
1,388
127
749
1,986
Charge-Offs
(2)
-
(1)
-
-
(1,759)
(1,762)
Recoveries
58
2
8
44
22
926
1,060
Net Charge-Offs
56
2
7
44
22
(833)
(702)
Ending Balance
$
1,561
$
3,118
$
4,939
$
7,259
$
1,909
$
3,961
$
22,747
Nine Months Ended
 
JuneSeptember 30, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
403267
(172)(194)
(577)(697)
1,3742,944
(628)(501)
1,1911,940
1,5913,759
Charge-Offs
(1,177)(1,179)
-
(266)(267)
-
(33)
(2,595)(4,354)
(4,071)(5,833)
Recoveries
224282
810
8593
142186
125147
1,5712,497
2,1553,215
Net Charge-Offs
(953)(897)
810
(181)(174)
142186
92114
(1,024)(1,857)
(1,916)(2,618)
Ending Balance
$
1,6411,561
$
3,1383,118
$
5,0524,939
$
5,6457,259
$
1,7601,909
$
4,0453,961
$
21,28122,747
For the sixnine months ended JuneSeptember 30, 2023, the allowance for
HFI loans increased
by $
3.24.0
 
million and reflected a provision
expense of
$
5.27.2
 
million and net loan charge-offs of $
2.03.2
 
million.
 
The increase was primarily driven by incremental reserves needed
for loan growth and a higher loss rate for the residential real estate portfolio due
 
loan
growth.to slower prepayment speeds.
 
For the sixnine months
ended JuneSeptember 30, 2022, the allowance decreasedincreased by $
0.31.1
 
million and reflected a provision expense of $
1.63.8
million and net loan
charge-offs of $
1.92.6
 
million. The lower provision expenseincrease was driven by incremental reserves needed for the six months ended June 30, 2022 was primarily
due to the release of reserves held for potential pandemic-related losses that didloan growth, and
 
not materialize to thea lesser extent, a higher
projected partially offset
by growth in reserves for strong new loan origination volume. Fourrate of unemployment and its potential effect on rates of default.
 
Unemployment forecast scenarios were utilized to estimate
probability of default and are weighted based on management’s
 
estimate of probability.
 
See Note 8 – Commitments and
Contingencies for information on the allowance for off-balance
 
sheet credit commitments.
 
17
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
JuneSeptember 30, 2023
Commercial, Financial and Agricultural
$
196306
$
81106
$
-
$
277412
$
226,933221,236
$
956
$
227,219221,704
Real Estate – Construction
 
-
218-
-
218-
225,771197,251
415275
226,404197,526
Real Estate – Commercial Mortgage
 
79393
4544
-
124437
828,740826,888
2,421909
831,285828,234
Real Estate – Residential
 
241331
128117
-
369448
880,222965,171
1,7012,294
882,292967,913
Real Estate – Home Equity
 
68420
27
-
-447
68202,692
202,326467
756
203,150203,606
Consumer
 
2,4093,040
742793
-
3,1513,833
292,181281,672
1,321693
296,653286,198
Total
$
2,9934,490
$
1,2141,087
$
-
$
4,2075,577
$
2,656,1732,694,910
$
6,6234,694
$
2,667,0032,705,181
December 31, 2022
Commercial, Financial and Agricultural
$
109
$
126
$
-
$
235
$
247,086
$
41
$
247,362
Real Estate – Construction
 
359
-
-
359
234,143
17
234,519
Real Estate – Commercial Mortgage
 
158
149
-
307
781,605
645
782,557
Real Estate – Residential
 
845
530
-
1,375
725,491747,899
239
727,105749,513
Real Estate – Home Equity
 
-
35
-
35
207,314207,411
771
208,120208,217
Consumer
 
3,666
1,852
-
5,518
319,415
584
325,517
Total
 
$
5,137
$
2,692
$
-
$
7,829
$
2,515,0542,537,559
$
2,297
$
2,525,1802,547,685
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
become 90 days past due and/or
management deems the collectability of the principal and/or interest to
 
be doubtful.
 
Loans are returned to accrual status when the
principal and interest amounts contractually due are brought current
 
or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
status and loans past due over 90 days and still on accrual
by class of loans.
June 30, 2023
December 31, 2022
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
-
$
9
$
-
$
-
$
41
$
-
Real Estate – Construction
415
-
-
-
17
-
Real Estate – Commercial Mortgage
2,212
209
-
389
256
-
Real Estate – Residential
1,172
529
-
-
239
-
Real Estate – Home Equity
227
529
-
-
771
-
Consumer
-
1,321
-
-
584
-
Total Nonaccrual
Loans
$
4,026
$
2,597
$
-
$
389
$
1,908
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
September 30, 2023
December 31, 2022
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
-
$
56
$
-
$
-
$
41
$
-
Real Estate – Construction
-
275
-
-
17
-
Real Estate – Commercial Mortgage
780
129
-
389
256
-
Real Estate – Residential
1,084
1,210
-
-
239
-
Real Estate – Home Equity
-
467
-
-
771
-
Consumer
-
693
-
-
584
-
Total Nonaccrual
Loans
$
1,864
$
2,830
$
-
$
389
$
1,908
$
-
18
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
June
September 30, 2023
December 31, 2022
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
-
$
-
$
-
Real Estate – Construction
415275
-
-
-
Real Estate – Commercial Mortgage
2,212781
-
389
-
Real Estate – Residential
1,0981,084
-
160
-
Real Estate – Home Equity
 
227-
 
-
 
130
 
-
Consumer
 
-
 
-
 
21
 
-
Total Collateral Dependent
 
Loans
$
3,9522,140
$
-
$
700
$
-
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 JuneSeptember 30, 2023 and December 31, 2022, the Company had $
0.70.4
million
and $
0.6
 
million, respectively, in
1-4 family
residential real estate loans for which formal foreclosure proceedings were
in
process.
For the six-monthnine-month period ended JuneSeptember 30, 2023, the Company did
no
t modify any loans made to borrowers experiencing financial
financial difficulty.
 
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards and
 
loan review
procedures designed to maximize loan income within an acceptable level
 
of risk.
 
Management and the Board of Directors review and
approve these policies and procedures on a regular basis (at least annually).
 
Reporting systems are used to monitor loan originations, loan quality,
 
concentrations of credit, loan delinquencies and nonperforming
loans and potential problem loans.
 
Management and the Credit Risk Oversight Committee periodically review
 
our lines of business to
monitor asset quality trends and the appropriateness of credit policies.
 
In addition, total borrower exposure limits are established and
concentration risk is monitored.
 
As part of this process, the overall composition of the portfolio is reviewed to gauge diversification
of risk, client concentrations, industry group, loan type, geographic area, or other
 
other relevant classifications of loans.
 
Specific segments
of the loan portfolio are monitored and reported to the Board on a quarterly basis and
 
have strategic plans in place to supplement
Board approved credit policies governing exposure limits and underwriting
 
standards.
 
Detailed below are the types of loans within
the Company’s loan portfolio
 
and risk characteristics unique to each.
 
Commercial, Financial, and Agricultural – Loans in this category
 
are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or
 
other guarantees.
 
Lending policy establishes debt service coverage
ratio limits that require a borrower’s cash flow to be sufficient
 
to cover principal and interest payments on all new and existing debt.
 
The majority of these loans are secured by the assets being financed or other business assets such
 
as accounts receivable, inventory,
 
or
equipment.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Loan to value ratios at origination are
governed by established policy guidelines.
 
Real Estate Construction – Loans in this category consist of short-term
 
construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to finance
 
the acquisition, development, construction or
rehabilitation of real property.
 
These loans are primarily made based on identified cash flows of the borrower
 
or project and generally
secured by the property being financed, including 1-4 family residential properties
 
and commercial properties that are either owner-
occupied or investment in nature.
 
These properties may include either vacant or improved property.
 
Construction loans are generally
based upon estimates of costs and value associated with the completed project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy guidelines.
 
The disbursement
of funds for construction loans is made in relation to the progress of the project and
 
as such these loans are closely monitored by on-
site inspections.
 
19
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
 
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
 
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
 
service their debt such as: current financial
information, historical payment performance, credit documentation,
 
and current economic and market trends, among other
factors.
 
Risk ratings are assigned to each loan and revised as needed through established monitoring
 
procedures for individual loan
relationships over a predetermined amount and review of smaller balance homogenous
 
loan pools.
 
The Company uses the definitions
noted below for categorizing and managing its criticized loans.
 
Loans categorized as “Pass” do not meet the criteria set forth below
and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but
 
weaknesses are apparent which, if not corrected, could
cause future problems.
 
Loans in this category may not meet required underwriting criteria and
 
have no mitigating factors.
 
More than
the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would
 
typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined
 
weaknesses that affect the repayment capacity of the
borrower.
 
The possibility of loss is much more evident and above average supervision is required for
 
these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized
 
as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently
 
currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
loan pools (home equity and consumer) are not individually reviewed,
but are monitored for credit quality via the aging status of the loan and by payment
 
activity.
 
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement and
 
deterioration in credit quality.
20
The following table summarizes gross loans held for investment at September
30, 2023 and current period gross write-offs for the nine
months ended September 30, 2023 by years of origination and internally
assigned credit risk ratings (refer to Credit Risk Management
section for detail on risk rating system).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
The following table summarizes gross loans held for investment at June
30, 2023 and current period gross write-offs for the six
months ended June 30, 2023 by years of origination and internally assigned
credit risk ratings (refer to Credit Risk Management
section for detail on risk rating system).
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
25,87940,571
$
77,94472,609
$
36,23632,101
$
14,63112,418
$
10,0168,920
$
10,5189,055
$
46,64444,290
$
221,868219,964
Special Mention
1,490182
516461
986405
12611
6913
1498
1,90976
5,2451,156
Substandard
6
46
21
17
-
16
 
-
 
106
108
82
27
150
111
584
Total
$
27,37540,753
$
78,50673,176
$
37,24332,614
$
14,77412,511
$
10,0858,960
$
10,6839,213
$
48,55344,477
$
227,219221,704
Current-Period Gross
Writeoffs
$
-6
$
129149
$
4048
$
1431
$
12
$
10
$
1338
$
218294
Real Estate -
Construction:
Pass
$
59,97676,755
$
121,63188,831
$
32,66722,609
$
1,8071,214
$
189
$
123-
$
7,8555,482
$
224,248195,080
Special Mention
478568
-
375625
214
-
-
-
-
8531,407
Substandard
 
-
 
-
 
218378
 
1,085661
 
-
 
-
 
-
 
1,3031,039
Total
$
60,45477,323
$
121,63188,831
$
33,26023,612
$
2,8922,089
$
189
$
123-
$
7,8555,482
$
226,404197,526
Real Estate -
Commercial Mortgage:
Pass
$
62,92893,098
$
261,333277,464
$
165,145154,743
$
128,342108,076
$
47,33044,874
$
130,477115,068
$
19,55416,059
$
815,109809,382
Special Mention
4,3433,299
793316
948-
239233
1,4831,373
2,4611,014
439-
10,7066,235
Substandard
 
-
 
8061,250
 
8316,781
 
1,9201,651
 
628614
 
6321,627
 
653694
 
5,47012,617
Total
$
67,27196,397
$
262,932279,030
$
166,924161,524
$
130,501109,960
$
49,44146,861
$
133,570117,709
$
20,64616,753
$
831,285828,234
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
120
$
-
$
120
Real Estate - Residential:
Pass
$
211,696294,155
$
418,730434,902
$
89,04986,357
$
41,91639,468
$
26,81826,126
$
75,87271,667
$
8,3238,031
$
872,404960,706
Special Mention
269
9290
228225
517510
-
560542
-
1,6661,636
Substandard
 
70790
 
1,320106
 
1,253204
 
1,571479
 
935918
 
3,0733,074
 
-
 
8,2225,571
Total
 
$
212,035295,214
$
420,142435,098
$
90,53086,786
$
44,00440,457
$
27,75327,044
$
79,50575,283
$
8,3238,031
$
882,292967,913
Real Estate - Home
Equity:
Performing
$
-71
$
50145
$
129130
$
11
$
392388
$
1,122997
$
200,689201,397
$
202,393203,139
Nonperforming
 
-
 
-
 
-
 
-
 
-
 
-
 
757467
 
757467
Total
 
$
-71
$
50145
$
129130
$
11
$
392388
$
1,122997
$
201,446202,257
$
203,150203,606
Current-Period Gross
Writeoffs
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
39
Consumer:
Performing
$
39,59257,755
$
109,46199,327
$
88,64879,230
$
28,13324,375
$
14,87812,417
$
8,9766,387
$
5,6456,014
$
295,333285,505
Nonperforming
69
226
202
193
-
6333
418-
179
81
7
2
1,320693
Total
$
39,59257,824
$
110,09499,553
$
89,06679,432
$
28,31224,568
$
14,95912,417
$
8,9836,390
$
5,6476,014
$
296,653286,198
Current-Period Gross
Writeoffs
$
1,5712,322
$
1,4862,199
$
7631,075
$
138228
$
143200
$
6394
$
89134
$
4,2536,252
 
 
 
 
 
 
 
 
1921
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities include mandatory delivery loan sales, forward sales contracts used
 
to manage residential
loan pipeline price risk, utilization of warehouse lines to fund secondary
 
market residential loan closings, and residential mortgage
servicing.
 
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and government
 
-sponsored residential mortgage loans.
 
Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary
 
market and non-conforming and adjustable-rate
residential mortgage loans may be held for investment.
 
The volume of residential mortgage loans originated for sale and secondary
market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30
 
to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed
 
loan is sold to an investor.
 
Residential mortgage loan
commitments are subject to both credit and price risk.
 
Credit risk is managed through underwriting policies and procedures,
 
including
collateral requirements, which are generally accepted by the secondary
 
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward sales of residential mortgage
 
-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments with investors.
 
The unpaid principal balance of residential mortgage loans held for
sale, notional
amounts of derivative contracts related to residential
mortgage loan commitments and forward contract sales and their related fair values
 
are set- forth below.
June
September 30, 2023
December 31, 2022
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
68,12735,899
$
67,90834,013
$
54,48826,274
$
54,63526,909
Residential Mortgage Loan Commitments ("IRLCs")
(1)
61,12650,726
1,270859
36,535
819
Forward Sales Contracts
(2)(1)
29,00028,500
100180
15,500
187
$
69,27835,052
$
55,64127,915
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets at fair value at June 30,2023
and December 31, 2022, respectively
At JuneSeptember 30, 2023, the Company had
no
 
residential mortgage loans held for sale 30-89 days past due and $
0.10.6
 
million of loans
were on
nonaccrual status. At December 31, 2022, the Company had $
0.6
 
million of residential mortgage loans held for sale 30-89
days past
due and $
0.1
 
million of loans were on nonaccrual status.
 
Mortgage banking revenue was as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Net realized gains on sales of mortgage loans
$
3,547
$
4,800
$
6,739
$
9,935
Net change in unrealized gain on mortgage loans held for sale
(894)
79
(365)
(895)
Net change in the fair value of mortgage loan commitments (IRLCs)
(75)
(183)
452
(324)
Net change in the fair value of forward sales contracts
316
(896)
(86)
(38)
Pair-Offs on net settlement of forward sales contracts
96
1,954
95
4,209
Mortgage servicing rights additions
632
1,457
1,666
2,088
Net origination fees
2,215
1,854
4,331
3,036
Total mortgage banking
revenues
$
5,837
$
9,065
$
12,832
$
18,011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
September 30,
Nine Months Ended
September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Net realized gains on sales of mortgage loans
$
1,350
$
1,478
$
4,843
$
5,716
Net change in unrealized gain on mortgage loans held for sale
(1,223)
(1,205)
(1,700)
(1,600)
Net change in the fair value of mortgage loan commitments (IRLCs)
(412)
439
39
116
Net change in the fair value of forward sales contracts
80
655
(5)
616
Pair-Offs on net settlement of forward sales contracts
359
637
454
4,846
Mortgage servicing rights additions
184
126
471
449
Net origination fees
1,501
765
3,970
1,664
Total mortgage banking
revenues
$
1,839
$
2,895
$
8,072
$
11,807
 
22
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)
JuneSeptember 30, 2023
December 31, 2022
Number of residential mortgage loans serviced for others
1,956411
2,9751,769
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
735,09197,479
$
895,145410,740
Weighted average
 
interest rate
4.93%5.38%
4.19%3.62%
Remaining contractual term (in months)
351306
345298
Conforming conventional loans serviced by the Company are sold to Federal
 
National Mortgage Association (“FNMA”) on a non-
recourse basis, whereby foreclosure losses are generally
 
the responsibility of FNMA and not the Company.
 
The government loans
serviced by the Company are secured through the Government National
 
Mortgage Association (“GNMA”), whereby the Company is
insured against loss by the Federal Housing Administration or partially
 
guaranteed against loss by the Veterans
 
Administration.
 
At
JuneSeptember 30, 2023, the servicing portfolio balance consisted of
the following
loan types: FNMA (
79
%), GNMA (
1
%), and private investor
investor (
9290
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance.
 
The Company had
no
 
delinquent residential mortgage loans in GNMA pools serviced by the Company
 
at JuneSeptember 30, 2023 and
$
0.3
 
million at
December 31, 2022, respectively.
 
The right to repurchase these loans and the corresponding liability has been
 
been recorded
in other assets
and other liabilities, respectively,
 
in the Consolidated Statement of Financial Condition.
 
For the three and sixnine months
ended JuneSeptember 30,
2023, the Company repurchased $
0.50.8
 
million and $
1.52.2
 
million, respectively, in
 
delinquent residential loans that
were in GNMA pools.
 
For the three and sixnine months ended JuneSeptember 30, 2022, the Company repurchased
$
0.60.3
 
million and $
1.01.3
million, respectively,
 
million, respectively, in delinquent
residential loans from the GNMA pools. When delinquent residential loans
 
loans are repurchased, the
Company has the intention to modify
their terms and include the loans in new
GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended
 
JuneSeptember 30,
SixNine Months Ended
 
JuneSeptember 30,
(Dollars in Thousands)
2023
2022
2023
2022
Beginning balance
$
6,801565
$
4,0013,415
$
6,0672,599
$
3,774
Additions due to loans sold with servicing retained
632184
1,457126
1,767471
2,088449
Deletions and amortization
(406)(45)
(372)(337)
(807)(79)
(776)(1,019)
Sale of servicing rights
(1)
(2,287)-
-
(2,287)
-
Ending balance
$
4,740704
$
5,0863,204
$
4,740704
$
5,0863,204
(1)
The Company sold an MSR portfolio with an unpaid principal balance of $
334
 
million for a sales price of $
4.0
 
million,
recognizing a $
1.38
 
million gain on sale, recorded
 
in other noninterest income on the Consolidated
 
Statement of Income.
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
 
three months ended JuneSeptember 30, 2023
2023 or 2022.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
the Company’s mortgage servicing rights were
as follows:
June 30, 2023
December 31, 2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.51%
12.00%
9.50%
12.00%
Annual prepayment speeds
11.26%
17.07%
12.33%
20.45%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
December 31, 2022
Minimum
Maximum
Minimum
Maximum
Discount rates
9.50%
12.00%
9.50%
12.00%
Annual prepayment speeds
10.58%
16.83%
12.33%
20.23%
Cost of servicing (per loan)
$
85
$
95
$
85
$
95
 
 
23
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
16.4213.81
% at JuneSeptember 30, 2023 and
17.2213.42
% at December 31, 2022.
 
Warehouse
 
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
 
agreements with various financial institutions at June
September 30, 2023.
 
Amounts
(Dollars in Thousands)
Outstanding
$
7550
 
million master repurchase agreement without defined expiration.
 
Interest is at the SOFR rate plus
2.00%
 
to
3.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
11,105$
10,504
$
60
 
million warehouse line of credit agreement expiring in
December 2023
.
 
Interest is at the SOFR plus
2.25%
,
to
3.25%
.
16,9488,282
Total Warehouse
 
Borrowings
$
28,05318,786
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2022, warehouse line borrowings totaled $
50.2
million. At JuneSeptember 30, 2023, the Company had residential mortgage
 
mortgage loans held for sale and construction loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase
 
agreements.
 
The above agreements also contain
covenants which include certain financial requirements, including
 
maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements.
 
The Company was in compliance with all significant debt
covenants at JuneSeptember 30, 2023.
 
The Company has extended a $
50
 
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
 
Balances and
transactions under this line of credit are eliminated in the Company’s
 
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
 
Financial Condition.
 
The balance of this line of credit at June
September 30,
2023 and December 31, 2022 was $
42.838.6
 
million and $
22.9
 
million, respectively.
NOTE 5 – DERIVATIVES
 
The Company enters into derivative financial instruments to manage exposures
 
that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of
 
which are determined by interest rates.
 
The Company’s
derivative financial instruments are used to manage differences in
 
the amount, timing, and duration of the Company’s
 
known or
expected cash receipts and its known or expected cash payments principally
 
related to the Company’s subordinated
 
debt.
 
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
 
million at JuneSeptember 30, 2023 were designed as a cash flow hedge for subordinated
subordinated debt.
 
Under the swap arrangement, the Company will pay a fixed interest rate of
2.50
% and receive a variable interest
rate based on
three-month CME Term
 
SOFR (secured overnight financing rate).
For derivatives designated and that qualify as cash flow hedges of interest rate
 
rate risk, the gain or loss on the derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently
 
reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings. Amounts reported
 
in accumulated other comprehensive income related to derivatives
will be reclassified to interest expense as interest payments are made on the
 
Company’s variable-rate subordinated
 
debt.
The following table reflects the cash flow hedges included in the consolidated
 
statements of financial condition
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
 
Maturity (Years)
JuneSeptember 30, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,9796,748
7.06.8
December 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
6,195
7.5
24
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 sixnine months ended JuneSeptember 30, 2023.
Amount of (Loss)
Amount of Gain
Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended JuneSeptember 30, 2023
Interest expense
$
437574
 
$
332375
 
Three months ended JuneSeptember 30, 2022
Interest expense
8671,050
 
26113
 
SixNine months ended JuneSeptember 30, 2023
Interest expense
$
(161)
$
641413
 
Six$
1,016
Nine months ended JuneSeptember 30, 2022
Interest expense
2,2373,287
 
(2)112
The Company estimates there will be approximately $
1.41.5
 
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
5.97.0
 
million and $
5.8
 
million at JuneSeptember 30, 2023 and December 31, 2022, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
 
lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
 
on its Consolidated Statement of Financial Condition.
 
The Company’s operating
 
leases primarily relate to banking offices with remaining lease terms
 
from
1
 
to
42
 
years.
 
The Company’s
leases are not complex and do not contain residual value guarantees, variable
 
lease payments, or significant assumptions or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
 
At JuneSeptember 30, 2023, the operating lease ROU assets and liabilities were $
24.323.8
 
million and $
24.624.2
 
million, respectively. At December
31,
December 31, 2022, ROU assets and liabilities were $
22.3
 
million and $
22.7
 
million, respectively.
 
The Company does not have any
finance leases
or any significant lessor agreements.
The table below summarizes our lease expense and other information related
 
to the Company’s operating leases.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Operating lease expense
$
705
$
391
$
1,405
$
775
Short-term lease expense
132
159
271
337
Total
lease expense
$
837
$
550
$
1,676
$
1,112
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
706
$
435
$
1,411
$
864
Right-of-use assets obtained in exchange for new operating lease liabilities
87
600
2,993
1,192
Weighted average
remaining lease term — operating leases (in years)
18.5
24.5
18.5
24.5
Weighted average
discount rate — operating leases
3.3%
2.2%
3.3%
2.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Operating lease expense
$
710
$
427
$
2,114
$
1,202
Short-term lease expense
167
158
438
495
Total lease expense
$
877
$
585
$
2,552
$
1,697
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
720
$
439
$
2,131
$
1,303
Right-of-use assets obtained in exchange for new operating lease liabilities
55
2,406
3,048
3,598
Weighted average
remaining lease term — operating leases (in years)
18.4
22.0
18.4
22.0
Weighted average
discount rate — operating leases
3.3%
2.2%
3.3%
2.2%
25
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
JuneSeptember 30, 2023
2023
$
1,664955
2024
2,6972,723
2025
2,4692,487
2026
2,3332,336
2027
2,2452,246
2028 and thereafter
21,045
Total
$
32,45331,792
Less: Interest
(7,808)(7,613)
Present Value
 
of Lease liability
$
24,64524,179
At JuneSeptember 30, 2023, the Company had
noone
 
additional operating lease obligationsobligation for a banking officesoffice that havehas not
 
not yet commenced.
 
A related party is the lessor in an operating lease with the Company.
 
The Company’s minimum
 
payment is $
0.1
 
million annually
through 2052, for an aggregate remaining obligation of $
2.42.3
 
million at JuneSeptember 30, 2023.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all full-time
 
and eligible part-time associates and a
Supplemental Executive Retirement Plan (“SERP”) and a Supplemental
 
Executive Retirement Plan II (“SERP II”) covering its
executive officers.
 
The defined benefit plan was amended in December 2019 to remove plan eligibility
 
for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers that
were not covered by the SERP.
 
The components of the net periodic benefit cost for the Company’s
 
qualified benefit pension plan were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
872
$
1,572
$
1,744
$
3,145
Interest Cost
1,458
1,166
2,916
2,333
Expected Return on Plan Assets
(1,701)
(2,675)
(3,403)
(5,351)
Prior Service Cost Amortization
1
4
3
8
Net Loss Amortization
234
428
467
857
Pension Settlement Charge
-
169
-
378
Net Periodic Benefit Cost
$
864
$
664
$
1,727
$
1,370
Discount Rate
5.63%
3.11%
5.63%
3.11%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
The components of the net periodic benefit cost for the Company’s
SERP and SERP II were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
4
$
8
$
9
$
16
Interest Cost
130
79
261
158
Prior Service Cost Amortization
38
69
76
138
Net Loss Amortization
(155)
180
(309)
360
Pension Settlement Gain
(291)
-
(291)
-
Net Periodic Benefit Cost
$
(274)
$
336
$
(254)
$
672
Discount Rate
5.45%
2.80%
5.45%
2.80%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
872
$
1,572
$
2,616
$
4,717
Interest Cost
1,458
1,166
4,374
3,499
Expected Return on Plan Assets
(1,701)
(2,675)
(5,104)
(8,026)
Prior Service Cost Amortization
1
4
4
11
Net Loss Amortization
234
428
701
1,285
Pension Settlement Charge
-
102
-
480
Net Periodic Benefit Cost
$
864
$
597
$
2,591
$
1,966
Discount Rate
5.63%
3.11%
5.63%
3.11%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The components of the net periodic benefit cost for the Company’s
SERP and SERP II were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(Dollars in Thousands)
2023
2022
2023
2022
Service Cost
$
4
$
8
$
13
$
24
Interest Cost
120
79
381
237
Prior Service Cost Amortization
38
69
114
207
Net Loss Amortization
(111)
180
(420)
540
Pension Settlement Gain
-
-
(291)
-
Net Periodic Benefit Cost
$
51
$
336
$
(203)
$
1,008
Discount Rate
5.33%
2.80%
5.41%
2.80%
26
During the month of June 2023, lump sum payments made under the SERP triggered
 
settlement accounting and remeasurement of the
plan at June 30, 2023.
 
In accordance with applicable accounting guidance for retirement benefit plans,
 
the Company recorded a
settlement gain of $
0.3
 
million in June 2023.
No
settlement gain or loss was recorded during the third quarter of 2023.
The service cost component of net periodic benefit cost is reflected in
 
compensation expense in the accompanying statements of
income.
 
The other components of net periodic cost are included in “other” within the noninterest
 
expense category in the statements
of income.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lending Commitments
.
 
The Company is a party to financial instruments with off-balance
 
sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend credit and standby
 
letters of
credit.
The Company’s maximum exposure
 
to credit loss under standby letters of credit and commitments to extend credit is represented
 
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
June
September 30, 2023
December 31, 2022
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
206,057212,312
$
569,036562,402
$
775,093774,714
$
243,614
$
531,873
$
775,487
Standby Letters of Credit
 
6,2976,796
 
-
 
6,2976,796
5,619
 
-
 
5,619
Total
$
212,354219,108
$
569,036562,402
$
781,390781,510
$
249,233
$
531,873
$
781,106
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
loan commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn upon,
 
the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the
 
Company to guarantee the performance of a client to a third
party.
 
The credit risk involved in issuing letters of credit is essentially the same as that involved
 
in extending loan facilities. In
general, management does not anticipate any material losses as a result of
 
participating in these types of transactions.
 
However, any
potential losses arising from such transactions are reserved for in the same manner
 
as management reserves for its other credit
facilities.
For both on- and off-balance sheet financial instruments, the Company
 
requires collateral to support such instruments when it is
deemed necessary.
 
The Company evaluates each client’s
 
creditworthiness on a case-by-case basis.
 
The amount of collateral
obtained upon extension of credit is based on management’s
 
credit evaluation of the counterparty.
 
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
 
securities; other marketable securities; real estate; accounts receivable;
property, plant and
 
equipment; and inventory.
The allowance for credit losses for off-balance sheet credit commitments
 
that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities.
 
The following table shows the activity in the
allowance.
Three Months Ended JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
(Dollars in Thousands)
2023
2022
2023
2022
Beginning Balance
$
2,8333,120
$
2,9762,853
$
2,989
$
2,897
Provision for Credit Losses
287382
(123)159
131513
(44)115
Ending Balance
$
3,1203,502
$
2,8533,012
$
3,1203,502
$
2,8533,012
2527
Other Commitments.
In the normal course of business, the Company enters into lease commitments
 
which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the
 
Company’s operating lease commitments.
 
Furthermore,
the Company has a commitment of up to $
1.0
 
million in a bank tech venture capital fund focused on finding and funding
 
technology
solutions for community banks and a commitmentcommitments of up to $
7.415
 
million in a for
two
solar tax credit equity fund.fund investments.
 
For the six nine
months ended
June September 30, 2023, the Company had contributed $
0.40.2
 
million of the bank tech commitment and $
2.96.7
 
million of the
solar fund
commitment. commitments.
 
At December 31, 2022, the Company had contributed $
0.2
 
million of the bank tech commitment and $
1.0
million of
one
 
million of the
solar fund commitment.commitments.
 
Contingencies
.
 
The Company is a party to lawsuits and claims arising out of the normal course of business.
 
In management's opinion,
there are
no
 
known pending claims or litigation, the outcome of which would, individually or in
 
the aggregate, have a material effect
on the consolidated results of operations, financial position, or cash flows
 
of the Company.
Indemnification Obligation
.
 
The Company is a member of the Visa U.S.A. network.
 
Visa U.S.A member banks are
 
required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation (the “Covered Litigation”)
 
that relates to several
antitrust lawsuits challenging the practices of Visa
 
and MasterCard International.
 
In 2008, the Company, as a member
 
of the Visa
U.S.A. network, obtained Class B shares of Visa,
 
Inc. upon its initial public offering.
 
Since its initial public offering, Visa,
 
Inc. has
funded a litigation reserve for the Covered Litigation resulting in a reduction
 
in the Class B shares held by the Company.
 
During the
first quarter of 2011, the Company sold its remaining
 
Class B shares.
 
Associated with this sale, the Company entered into a swap
contract with the purchaser of the shares that requires a payment to the
 
counterparty in the event that Visa, Inc. makes
 
subsequent
revisions to the conversion ratio for its Class B shares.
 
Conversion ratio payments and ongoing fixed quarterly charges
 
are reflected in
earnings in the period incurred.
 
Fixed charges included in the swap liability are payable quarterly
 
until the litigation reserve is fully
liquidated and at which time the aforementioned swap contract will be terminated.
 
Quarterly fixed payments approximate $
0.20.3
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’s own
assumptions about the assumptions that market participants would
 
use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis
Securities Available for Sale.
 
U.S. Treasury securities are reported
at fair value
utilizing Level 1 inputs.
 
Other securities classified as
available for sale are reported at fair value utilizing Level 2 inputs.
 
For these securities, the Company obtains fair value measurements
from an independent pricing service.
 
The fair value measurements consider observable data that may include dealer quotes,
 
quotes, market
spreads, cash flows, the U.S. Treasury yield curve,
 
live trading levels, trade execution data, credit information and the bond’s
 
terms
and conditions, among other things.
In general, the Company does not purchase securities that have a complicated structure.
 
The Company’s entire portfolio consists
of
traditional investments, nearly all of which are U.S. Treasury
 
obligations, federal agency bullet or mortgage pass-through
 
securities, or
general obligation or revenue-based municipal bonds.
 
Pricing for such instruments is easily obtained.
 
At least annually, the Company
will validate prices supplied by the independent pricing service by compari
 
ng them to prices obtained from an independent third-party
source.
Equity Securities.
 
Investment securities classified as equity securities are measured at
 
fair value of the investment with changes in fair
value recorded in earnings.
 
28
26
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
 
that loan, which would be used by other market
participants.
 
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
 
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
 
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate
 
the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore
 
classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are
 
classified as Level 2 within the fair value hierarchy and are valued using
models generally accepted in the financial services industry and that
 
use actively quoted or observable market input values from
external market data providers.
 
The fair value derivatives are determined using discounted cash flow models.
 
Fair Value
 
Swap
.
 
The Company entered into a stand-alone derivative contract with the purchaser of
 
its Visa Class B shares.
 
The
valuation represents the amount due and payable to the counterparty based upon
 
the revised share conversion rate, if any,
 
during the
period. At JuneSeptember 30, 2023 there were
no
amounts payable and at December 31, 2022, there was a $
0.1
 
million payable.
A summary of fair values for assets and liabilities recorded at fair
 
value on a recurring basis consisted of the following:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
JuneSeptember 30, 2023
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
20,25020,309
$
-
$
-
$
20,25020,309
U.S. Government Agency
-
164,240148,962
-
164,240148,962
States and Political Subdivisions
-
40,87940,195
-
40,87940,195
Mortgage-Backed Securities
-
66,13260,602
-
66,13260,602
Corporate Debt Securities
-
87,36455,725
-
87,36455,725
Equity Securities
-
460508
-
460508
Loans Held for Sale
-
67,90834,013
-
67,90834,013
Interest Rate Swap Derivative
-
5,9796,748
-
5,9796,748
Mortgage Banking Hedge Derivative
-
100180
-
100180
Mortgage Banking IRLC Derivative
-
-
1,270859
1,270
LIABILITIES:859
December 31, 2022
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
22,050
$
-
$
-
$
22,050
U.S. Government Agency
-
186,052
-
186,052
States and Political Subdivisions
-
40,329
-
40,329
Mortgage-Backed Securities
-
69,405
-
69,405
Corporate Debt Securities
-
88,236
-
88,236
Loans Held for Sale
-
54,63526,909
-
54,63526,909
Interest Rate Swap Derivative
-
6,195
-
6,195
Mortgage Banking Hedge Derivative
-
187
-
187
Mortgage Banking IRLC Derivative
-
-
819
819
2729
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage banking
 
activities of $
7.911.1
million
and $
11.816.3
 
million, respectively,
for the
six nine months ended JuneSeptember 30, 2023, and $
7.711.4
 
million and $
16.823.4
 
million,
respectively, for the
 
six
nine months ended JuneSeptember 30, 2022.
 
Issuances are valued based on the change in fair value of the underlying
mortgage loan from inception
of the IRLC to the Consolidated Statement
of Financial Condition date,
adjusted for pull-through rates
and costs to originate.
 
IRLCs
transferred out of Level 3 represent IRLCs that were funded and moved
 
to mortgage loans held for sale,
at fair value.
Assets Measured at Fair Value
 
on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the
 
the assets are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances).
 
An example would be assets exhibiting evidence of impairment.
 
The following is a description of valuation methodologies used for assets measured
 
on a non-recurring basis.
 
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured using the fair
 
value of the collateral less selling
costs.
 
The fair value of collateral is determined by an independent valuation
 
or professional appraisal in conformance with banking
regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,
 
and the judgment and
estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those techniques applied in prior
periods.
 
Collateral-dependent loans had a carrying value of $
4.02.1
 
million with
no
 
valuation allowance at JuneSeptember 30, 2023 and a carrying
carrying value of $
0.7
 
million and a $
0.1
 
million valuation allowance at December 31, 2022.
Other Real Estate Owned
.
 
During the first sixnine months of 2023, certain foreclosed assets, upon initial recognition,
 
were measured and
reported at fair value through a charge-off
 
to the allowance for credit losses based on the fair value of the foreclosed asset less
estimated cost to sell.
 
The fair value of the foreclosed asset is determined by an independent valuation or
 
professional appraisal in
conformance with banking regulations.
 
On an ongoing basis, we obtain updated appraisals on foreclosed assets and
realize valuation
adjustments as necessary.
 
The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment
 
and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
.
 
Residential mortgage loan servicing rights are evaluated for impairment
 
at each reporting period based
upon the fair value of the rights as compared to the carrying amount.
 
Fair value is determined by a third party valuation model using
estimated prepayment speeds of the underlying mortgage loans serviced and
 
stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest rate).
 
The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and the cost of loan
 
servicing.
 
Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities.
 
At each of JuneSeptember 30, 2023 and December 31, 2022, there was
no
 
valuation
allowance for loan servicing rights.
 
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
 
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
 
methodologies used for those assets and liabilities.
Cash and Short-Term
 
Investments.
 
The carrying amount of cash and short-term investments is used to approximate
 
fair value, given
the short time frame to maturity and as such assets do not present unanticipated
 
credit concerns.
Equity Securities.
 
Investment securities classified as equity securities that do not have readily determinable
 
fair values are measured at
cost and remeasured to fair value when impaired or upon observable transaction
 
prices.
 
Other Equity Securities.
 
Investment securities classified as other equity securities that do not have
 
readily determinable fair values, are
measured at cost, remeasured to fair value when impaired or upon observable
 
transaction prices and accounted for under the equity
method of accounting and reflected in other assets.
 
Securities Held to Maturity
.
 
Securities held to maturity are valued in accordance with the methodology previously
 
previously noted in the
caption “Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis – Securities Available
 
for Sale.”
 
Loans.
 
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
 
using present value
techniques based upon projected cash flows and estimated discount
 
rates.
 
Pursuant to the adoption of ASU 2016-01,
Recognition and
Measurement of Financial Assets and Financial
 
Liabilities
, the values reported reflect the incorporation of a liquidity discount to meet
the objective of “exit price” valuation.
 
30
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.
A summary of estimated fair values of significant financial instruments not
recorded at fair value consisted of the following:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
72,379
$
72,379
$
-
$
-
Short-Term Investments
95,119
95,119
-
-
Investment Securities, Held to Maturity
632,076
433,150
149,498
-
Equity Securities
(1)
3,077
-
3,077
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
704
-
-
1,182
Loans, Net of Allowance for Credit Losses
2,676,098
-
-
2,472,305
LIABILITIES:
Deposits
$
3,540,445
$
-
$
3,081,702
$
-
Short-Term
Borrowings
41,696
-
41,696
-
Subordinated Notes Payable
52,887
-
44,910
-
Long-Term Borrowings
364
-
362
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
Subordinated Notes Payable.
The fair value of each note is calculated using present value techniques,
based upon projected cash
flows and estimated discount rates as well as rates being offered
for similar obligations.
Short-Term
and Long-Term
Borrowings.
The fair value of each note is calculated using present value techniques,
based upon
projected cash flows and estimated discount rates as well as rates being offered
for similar debt.
A summary of estimated fair values of significant financial instruments not
recorded at fair value consisted of the following:
June 30, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
83,679
$
83,679
$
-
$
-
Short-Term Investments
285,129
285,129
-
-
Investment Securities, Held to Maturity
641,398
432,157
163,062
-
Equity Securities
(1)
1,243
-
1,243
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
4,740
-
-
7,053
Loans, Net of Allowance for Credit Losses
2,639,039
-
-
2,462,116
LIABILITIES:
Deposits
$
3,788,866
$
-
$
3,289,733
$
-
Short-Term
Borrowings
50,673
-
50,673
-
Subordinated Notes Payable
52,887
-
45,563
-
Long-Term Borrowings
414
-
412
-
December 31, 2022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
72,114
$
72,114
$
-
$
-
Short-Term Investments
528,536
528,536
-
-
Investment Securities, Held to Maturity
660,774
431,733
180,968
-
Equity Securities
(1)
10
-
10
-
Other Equity Securities
(2)
2,848
-
2,848
-
Mortgage Servicing Rights
6,0672,599
-
-
8,5034,491
Loans, Net of Allowance for Credit Losses
2,500,4442,522,617
-
-
2,357,5332,377,229
LIABILITIES:
Deposits
$
3,939,317
$
-
$
3,310,383
$
-
Short-Term
 
Borrowings
56,793
-
56,793
-
Subordinated Notes Payable
52,887
-
45,763
-
Long-Term Borrowings
513
-
513
-
(1)
Not readily marketable securities - reflected
in other assets.securities.
(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.
31
NOTE 10 – ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
(loss) are presented in the table below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
4,2362,357
 
(162)413
 
(217)
 
3,8572,553
Balance as of JuneSeptember 30, 2023
$
(33,113)(34,992)
 
$
4,4635,038
 
$
(4,722)
 
$
(33,372)(34,676)
Balance as of January 1, 2022
$
(4,588)
 
$
1,530
 
$
(13,156)
 
$
(16,214)
Other comprehensive (loss) income during the period
 
(27,071)(35,634)
 
2,2373,287
 
283358
 
(24,551)(31,989)
Balance as of JuneSeptember 30, 2022
$
(31,659)(40,222)
 
$
3,7674,817
 
$
(12,873)(12,798)
 
$
(40,765)(48,203)
3032
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
 
OF FINANCIAL CONDITION AND RESULTS
 
OF
OPERATIONS
Management’s discussion
 
and analysis (“MD&A”) provides supplemental information, which sets forth
 
the major factors that have
affected our financial condition and results of operations
 
and should be read in conjunction with the Consolidated Financial
Statements and related notes.
 
The following information should provide a better understanding of
 
the major factors and trends
that
affect our earnings performance and financial condition,
 
and how our performance during 2023 compares with prior years.
 
Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,
 
is referred to as “CCBG,” “Company,”
 
“we,”
“us,” or “our.”
CAUTION CONCERNING FORWARD
 
-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains
 
“forward-looking statements”
 
within the meaning of the
Private Securities Litigation Reform Act of 1995.
 
These forward-looking statements include, among others, statements about
 
our
beliefs, plans, objectives, goals, expectations, estimates and intentions that are
 
subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are beyond
 
our control.
 
The words “may,”
 
“could,” “should,” “would,”
“believe,” “anticipate,”
 
“estimate,” “expect,”
 
“intend,” “plan,”
 
“target,”
 
“vision,” “goal,”
 
and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially
from those set forth in our forward-looking statements.
 
Please see the Introductory Note of this quarterly report on Form 10-Q
as well
as the Introductory Note and
Item 1A. Risk Factors
 
of our 2022 Report on Form 10-K,10-K/A, as updated in our subsequent quarterly reports filed
on
filed on Form 10-Q,10-Q/A, and in our other filings made from time to time with the SEC after the
 
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” or “CCB”).
 
We offer
 
a broad array of products and services through a total of 62 full-service offices
located in Florida, Georgia, and Alabama.
 
We provide a full range of
 
banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards,
 
bankcards, securities brokerage services and financial
advisory services, including life insurance products,
 
risk management and asset protection services.
 
Our profitability, like
 
most financial institutions, is dependent to a large extent upon net
 
interest income, which is the difference
between the interest and fees received on interest earning assets, such as loans and
 
securities, and the interest paid on interest-bearing
liabilities, principally deposits and borrowings.
 
Results of operations are also affected by the provision for credit losses, operating
expenses such as salaries and employee benefits, occupancy and other
 
operating expenses including income taxes, and noninterest
income such as mortgage banking revenues, wealth management fees,
 
deposit fees, and bank card fees.
We have included
 
a detailed discussion of the economic conditions in our markets and our long-term strategic
 
strategic objectives as part of the
MD&A section of our 2022 Form 10-K.10-K/A.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3133
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
 
to other companies in the industry.
 
The generally accepted
accounting principles (“GAAP”) to non-GAAP reconciliation for
 
each quarter presented is provided below.
2023
2022
(Dollars in Thousands, except per share data)
Third
Second
First
Fourth
Third
Second
Shareowners' Equity (GAAP)
$
420,779419,706
$
411,240412,422
$
394,016403,260
$
373,165387,281
$
371,675368,485
Less: Goodwill and Other Intangibles (GAAP)
92,973
93,013
93,053
93,093
93,133
93,173
Tangible Shareowners' Equity (non-GAAP)
A
327,766326,733
318,187319,409
300,923310,207
280,032294,188
278,502275,352
Total Assets (GAAP)
4,399,5634,138,287
4,409,7424,391,206
4,525,9584,401,762
4,332,6714,519,223
4,354,2974,327,991
Less: Goodwill and Other Intangibles (GAAP)
92,973
93,013
93,053
93,093
93,133
93,173
Tangible Assets (non-GAAP)
B
$
4,306,5504,045,314
$
4,316,6894,298,193
$
4,432,8654,308,709
$
4,239,5384,426,130
$
4,261,1244,234,858
Tangible Common Equity Ratio (non-GAAP)
A/B
7.61%8.08%
7.37%7.43%
6.79%7.20%
6.61%6.65%
6.54%6.50%
Actual Diluted Shares Outstanding (GAAP)
C
16,997,886
17,025,023
17,049,913
17,039,401
16,998,177
16,981,614
Tangible Book Value
 
per Diluted Share (non-GAAP)
 
A/C
19.2519.22
18.66$
17.6618.76
16.47$
16.4018.19
$
17.27
$
16.20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3234
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
2023
2022
(Dollars in Thousands, Except Per Share Data)
Third
Second
First
Fourth
Third
Second
Summary of Operations
:
Interest Income
$
45,07445,753
$
43,91545,205
$
41,22643,926
$
35,36441,218
$
29,32035,442
Interest Expense
6,473
5,068
3,526
3,122
2,037
987
Net Interest Income
40,00639,280
40,38940,137
38,10440,400
33,32738,096
28,33333,405
Provision for Credit Losses
2,2192,393
3,1302,197
3,5213,099
2,0993,616
1,5422,154
Net Interest Income After
 
Provision for Credit Losses
37,78736,887
37,25937,940
34,58337,301
31,22834,480
26,79131,251
Noninterest Income
22,87316,728
22,24819,967
20,97217,758
22,93415,296
24,90318,509
Noninterest Expense
42,53439,105
40,45540,285
42,28737,675
39,81039,262
40,49837,699
Income Before Income Taxes
18,12614,510
19,05217,622
13,26817,384
14,35210,514
11,19612,061
Income Tax Expense
3,5443,004
4,1333,417
2,5993,710
3,0741,900
2,1772,493
(Income) Loss Attributable to NCI
1,149
(31)
35
995
37
(306)
Net Income Attributable to CCBG
14,55112,655
14,95414,174
11,66413,709
11,3159,609
8,7139,605
Net Interest Income (FTE)
(1)
40,09339,367
40,48940,224
38,19240,500
33,41038,185
28,40933,488
 
Per Common Share
:
Net Income Basic
$
0.860.75
$
0.880.83
$
0.690.81
$
0.670.56
$
0.510.57
Net Income Diluted
0.850.74
0.880.83
0.680.80
0.670.56
0.510.57
Cash Dividends Declared
0.20
0.18
0.18
0.17
0.17
0.16
Diluted Book Value
24.7224.69
24.1224.21
23.1223.65
21.9522.73
21.8921.68
Diluted Tangible Book Value
(2)
19.2519.22
18.6618.76
17.6618.19
16.4717.27
16.4016.20
Market Price:
 
High
33.44
34.16
36.86
36.23
33.93
28.55
 
Low
28.64
28.03
28.18
31.14
27.41
24.43
 
Close
29.83
30.64
29.31
32.50
31.11
27.89
 
Selected Average Balances
:
Investment Securities
$
1,005,003
$
1,043,858
$
1,064,212
$
1,081,092
$
1,120,728
$
1,144,757
Loans Held for Investment
2,672,653
2,657,693
2,582,395
2,439,379
2,264,075
2,084,679
Earning Assets
3,876,980
3,974,803
4,062,688
4,032,733
4,009,951
3,974,221
Total Assets
4,218,855
4,320,601
4,411,865
4,381,825
4,357,678
4,321,388Deposits
Deposits3,596,816
3,719,564
3,817,314
3,803,042
3,769,864
3,765,329
Shareowners’ Equity
427,580
418,757
404,067
380,570
379,305
373,365
Common Equivalent Average Shares:
 
Basic
16,985
17,002
17,016
16,963
16,960
16,949
 
Diluted
17,025
17,035
17,045
17,016
16,996
16,971
Performance Ratios:
Return on Average Assets (annualized)
1.351.19
%
1.371.32
%
1.061.26
%
1.030.87
%
0.810.87
%
Return on Average Equity (annualized)
13.9411.74
15.0113.58
12.1613.76
11.8310.02
9.3610.05
Net Interest Margin (FTE)
4.054.03
4.06
4.04
3.76
3.31
2.873.32
Noninterest Income as % of Operating Revenue
36.3829.87
35.5233.22
35.5030.53
40.7628.65
46.7835.65
Efficiency Ratio
67.5569.88
64.4866.93
71.4764.67
70.6673.41
75.9672.51
 
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
27,96429,083
$
26,50728,243
 
$
24,73626,808
$
22,51025,068
$
21,28122,747
Nonperforming Assets (“NPAs”)
4,695
6,624
4,602
2,728
2,422
3,231
ACL to Loans HFI
1.08
%
1.05
%
1.01
%
0.98
%
0.96
%
0.96
%
NPAs to Total
 
Assets
0.11
0.15
0.10
0.06
0.06
0.07
NPAs to Loans HFI plus OREO
0.17
0.25
0.17
0.11
0.10
0.15
ACL to Non-Performing Loans
422.23619.58
577.63426.44
1,076.89584.18
934.531,091.33
677.57944.36
Net Charge-Offs to Average Loans HFI
0.17
0.07
0.24
0.21
0.12
0.22
Capital Ratios:
Tier 1 Capital
14.8415.11
%
14.5114.56
%
14.5314.23
%
14.8014.27
%
15.1314.59
%
Total Capital
15.9516.30
15.5315.68
15.5215.29
15.7515.30
16.0715.58
Common Equity Tier 1
13.0213.26
12.6812.73
12.6412.40
12.8312.38
13.0712.62
Leverage
9.749.98
9.289.54
9.069.09
8.91
8.778.80
Tangible Common Equity
(2)
7.618.08
7.377.43
6.797.20
6.616.65
6.546.50
(1)
Fully Tax Equivalent
(2)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 31.33.
3335
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
 
Net income attributable to common shareowners of $14.6totaled $12.7 million, or $0.85 $0.74
per diluted
share, for the second
third quarter of 2023 compared to $15.0$14.2 million, or $0.88$0.83 per diluted share, for
 
for the firstsecond quarter of 2023, and $8.7$9.6 million, or $0.51 per$0.57
per diluted share, for the secondthird quarter of 2022.
 
For the first sixnine months of 2023, net income attributable to common shareowners totaled
$29.5totaled $40.5 million, or $1.73$2.38 per diluted share, compared to net income of $17.2$23.8
 
million, or $1.01$1.40 per diluted share, for the same
period of
2022.
Net Interest Income.
 
Tax-equivalent net
 
interest income for the third quarter of 2023 totaled $39.4 million, compared
to $40.2
million
for the second quarter of 2023, totaled $40.1 million, compared
to $40.5
and $33.5 million for the firstthird quarter of 2023, and $28.4 million for the second quarter
of 2022.
 
Compared to the firstsecond quarter of 2023, the decrease
decrease reflected higher deposit interest expense and a lower level of interest income
 
interest income from overnight funds, partially offset by higher loan
loan interest due to loan growth and higher interest rates.
 
For the first sixnine months of 2023, tax-equivalent net interest income totaled
$80.6120.1 million compared to $53.2$87.2 million for the same period of 2022.
 
The increases over both prior year periods were driven by
strong loan growth and higher interest rates across a majority of our
 
earning assets.
Provision and Allowance for Credit
 
Losses.
 
We recorded
 
a provision for credit losses of $2.4 million for the third quarter of 2023
compared to $2.2 million for the second quarter of 2023
compared to $3.1 million for the first quarter of 2023 and $1.5$2.2 million
 
for the secondthird quarter of 2022.
 
The decreaseincrease in the provision
compared to the firstsecond quarter of 2023 was primarily attributable to a lowerloan growth
 
level of loan growth and a decreasean increase in net loan charge-offs.
 
For the first six
nine months of 2023, we recorded a provision for credit losses of $5.3$7.7 million
 
million compared to $1.5$3.9 million for the same period
of 2022.
 
The higher level of provision in 2023 was primarily driven by loan growth
and, also reflected the favorable impact in 2022 of the
release of reserves held for pandemic-relatedpandemic related losses favorably impactedthat did not materialize
 
our provision in 2022. to the extent projected.
At JuneSeptember 30, 2023, the
allowance represented 1.05%1.08% of HFI loans held for investment (“HFI”) compared to 1.01% at March 31, 2023,
 
to 1.05% at June 30, 2023, and 0.98% at December 31,
2022.
Noninterest Income.
 
Noninterest income for the secondthird quarter of 2023 totaled $22.9$16.7 million compared
 
to $22.2$20.0 million for the firstsecond
quarter of 2023 and $24.9$18.5 million for the secondthird quarter of 2022.
 
The $0.7 $3.3
million increase overdecrease from the firstsecond quarter of 2023 reflected ana
increasedecrease in other income of $1.6 million (we realized a $1.4 million gain on
sale of mortgage servicing rights in the second quarter of
2023), mortgage banking revenues of $1.5 million, wealth management
fees of $0.2 million and bank card fees of $0.1 million,
partially offset by an increase in deposit fees of $0.1 million, and bankcard fees of
$0.1 million, partially offset by a decrease in mortgage banking
revenues of $1.1 million.
 
The increase in other income was
attributable to a $1.4 million gain from the sale of mortgage servicing rights.
The decrease in mortgage banking revenues was
attributable to a lower gain on sale margin. For the first sixnine months
of 2023, noninterest income totaled $45.1 $54.5
million compared
to
$50.7 $59.9 million for the same period of 2022 with the $5.6 $5.4
million decrease primarily
attributable to lower mortgage
banking revenues of
$5.2 $3.7 million, and wealth management fees of $2.4 million,
deposit fees of $0.6 million, and bank card fees of $0.4
million, partially offset
by a $2.3$1.7 million increase in other income. The decrease in
mortgage banking revenues was attributable to a lower gain on sale margin.
The decrease in wealth management fees was driven by a
decrease in insurance commissions due to the sale of large policies in 2022.
We discuss noninterest
income in further detail below.
Noninterest Expense.
 
Noninterest expense for the secondthird quarter of 2023 totaled $42.5$39.1 million compared
 
to $40.5$40.3 million for the firstsecond
quarter of 2023 and $40.5$37.7 million for the secondthird quarter of 2022.
 
Compared to the firstsecond quarter of 2023, the $2.1$1.2 million decrease
was due to a $0.9 million decrease in other expense which reflected a $0.8
million non-recurring expense in the second quarter of
2023 related to a consulting engagement.
For the first nine months of 2023, noninterest expense totaled $117.1
million compared to
$112.4 million for the same period of 2022
with the $4.7 million increase wasattributable to increases in occupancy expense of $2.2
million, compensation expense of $1.5 million, and other expense of
$1.0 million.
The increase in occupancy expense reflected the
addition of banking offices in 2022, higher insurance premiums,
and investment in network and security upgrades.
The increase in
compensation expense was primarily driven by higher salary expense
due to anthe addition of staffing in new banking offices added
in
2022. The increase in other expense of $2.8 million that was partially offsetdriven by higher pension plan
 
by a $0.8 million decreaseexpense (non-service related component), the aforementioned
non-recurring consulting expense, and increases in compensation
expense.FDIC insurance fees, partially
 
The unfavorable variance in otheroffset by lower OREO expense reflected aof $1.8 million
related to a gain from the sale of a banking office.
 
office in the first quarter
of 2023.
Further, the second quarter of 2023 includes a non-routine
consulting expense of $0.8
million related to our core processing
system outsourcing contract negotiation.
For the first six months of 2023, noninterest expense totaled $83.0 million compared
to
$79.7 million for the same period of 2022 with the $3.3 million increase
attributable to an increase in other expense of $1.6 million,
occupancy expense of $1.4 million, and compensation expense of $0.3 million.
The increase in other expense over both prior year
periods was primarily related to the previously mentioned consulting payment
of $0.8 million and increases in pension plan expense
(non-service-related component), FDIC insurance fees, and loan servicing (for
residential loans).
We discuss noninterest expense
in
further detail below.
 
Financial Condition
Earning Assets.
 
Average earning assets totaled
 
$3.9753.877 billion for the secondthird quarter of 2023, a decrease of $87.9$97.8 million, or 2.2%2.5%,
from
from the firstsecond quarter of 2023, and a decrease of $57.9$155.8 million, or 1.4%3.9%, from the fourth
 
the fourth quarter of 2022.
 
The decrease from both prior
periods was attributable to lower deposit balances.
 
The mix of earning assets continues to improve as overnight funds are being
utilized to fund loan growth.
 
Loans.
 
Average loans HFI increased“HFI”
 
$75.3increased $15.0 million, or 2.9%0.6%, over the firstsecond quarter of 2023 and $218.3 $233.3
million, or
9.0% 9.6%, over the
fourth quarter of 2022.
 
Period end loans increased $30.1$21.7 million, or 1.1%0.81%, over the firstsecond quarter of 2023
 
and $141.8$157.5 million, or 5.6%,
6.2%, over the fourth quarter of 2022.
Compared to both prior periods, the loan growth was primarily
in the residential real
estate and commercial
real estate categoriescategory and was partially offset by lower indirect auto and construction
 
and home equity loan balances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3436
Credit Quality
.Quality.
 
Credit quality metrics remained strong for the quarter.
 
Nonperforming assets (nonaccrual loans and other real estate)
totaled $6.6$4.7 million at JuneSeptember 30, 2023 compared to $4.6$6.6 million at March 31, 2023June
 
30, 2023 and $2.7 million at December 31, 2022.
 
At June
September 30, 2023, nonperforming assets as a percent of total assets equaled 0.15%0.11%,
 
compared to 0.10%0.15% at March 31,June 30, 2023 and 0.06% at
at December 31, 2022.
 
Nonaccrual loans totaled $6.6$4.7 million at September 30, 2023, a $1.9 million
decrease from June 30, 2023 and
a $2.0 million increase
over March 31, 2023 and a $4.3
$2.4 million increase over December 31, 2022.
 
The increase was primarily due to the addition of one large residential loan
($1.1 million)
to nonaccrual status which was adequately secured and reserved for.
Further, classified loans totaled $15.0$21.8 million at JuneSeptember
 
30, 2023, a $6.8 million
$2.8increase over June 30, 2023 and a $2.5 million increase over March 31, 2023 and a $4.4 million decrease from
December 31, 2022.
 
Deposits
.Deposits.
 
Average total
 
deposits were $3.720$3.597 billion for the secondthird quarter of 2023, a decrease of $97.8 million,$122.7
 
million, or 2.6%3.3%, from the
firstsecond quarter of 2023 and a decrease of $83.5$206.2 million, or 2.2%5.4%,
from the fourth quarter
of 2022.
 
Compared to both prior periods, the
the decreases were primarily attributable to lower noninterest bearing,
savings, and savings
NOW balances, primarily offset by higher money market
market balances.
 
Compared to the firstsecond quarter of 2023, the decrease in NOW account balances reflected thewas primarily
 
seasonal decline in our public
funds balances.
Compareddue to the fourth quarter of 2022, the increaseseasonal
reduction in NOW accounts reflected higher
average public fundsfund balances held by our institutional and municipal clients.
which began to build in December 2022 and affect the
average comparison.Capital.
 
Capital
.
At JuneSeptember 30, 2023, we were well-capitalized with a total risk-based capital ratio
 
of 15.95%16.30% and a tangible common equity
equity ratio (a non-GAAP financial measure) of 7.61%8.08% compared to 15.53%
 
15.68% and 7.37%7.43%, respectively,
 
at March 31,June 30, 2023 and 15.52% and15.30%
6.79%and 6.65%, respectively,
at December
31, 2022.
 
At JuneSeptember 30, 2023, all of our regulatory capital ratios exceeded the threshold to be
 
well-to
capitalizedbe 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
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
2023
2023
2022
2023
2022
Interest Income
$
45,07445,753
$
43,91545,205
$
29,32035,442
$
88,989134,886
$
54,75890,692
Taxable Equivalent Adjustments
87
10087
7683
187274
154237
Total Interest Income (FTE)
45,16145,840
44,01545,292
29,39635,525
89,176135,160
54,91290,929
Interest Expense
6,473
5,068
3,5262,037
98715,067
8,594
1,7293,766
Net Interest Income (FTE)
40,09339,367
40,48940,224
28,40933,488
80,582120,093
53,18387,163
Provision for Credit Losses
2,2192,393
3,1302,197
1,5422,154
5,3497,689
1,5423,878
Taxable Equivalent Adjustments
87
10087
7683
187274
154237
Net Interest Income After Provision for Credit Losses
37,78736,887
37,25937,940
26,79131,251
75,046112,130
51,48783,048
Noninterest Income
22,87316,728
22,24819,967
24,90318,509
45,12154,452
50,72159,885
Noninterest Expense
42,53439,105
40,45540,285
40,49837,699
82,989117,066
79,731112,372
Income Before Income Taxes
18,12614,510
19,05217,622
11,19612,061
37,17849,516
22,47730,561
Income Tax Expense
3,5443,004
4,1333,417
2,1772,493
7,67710,130
4,4125,898
Pre-Tax (Income) Loss Attributable to Noncontrolling
Interest
Interest
1,149
(31)
3537
(306)1,153
4
(897)(860)
Net Income Attributable to Common Shareowners
$
14,55112,655
$
14,95414,174
$
8,7139,605
$
29,50540,539
$
17,16823,803
 
Basic Net Income Per Share
$
0.860.75
$
0.880.83
$
0.510.57
$
1.732.38
$
1.011.40
Diluted Net Income Per Share
$
0.850.74
$
0.880.83
$
0.510.57
$
1.732.38
$
1.011.40
Net Interest Income
Net interest income represents our single largest source of earnings
 
and is equal to interest income and fees generated by earning
assets less interest expense paid on interest bearing liabilities.
 
This information is provided on a “taxable equivalent”
basis to reflect
the tax-exempt status of income earned on certain loans and state and local
 
government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
I on page 45.
37
Tax-equivalent net
 
interest income for the secondthird quarter of 2023 totaled $40.1 $39.4
million, compared
to $40.5$40.2 million for the first quartersecond
quarter of 2023, and $28.4$33.5 million for the secondthird quarter of 2022.
 
Compared to the firstsecond quarter of 2023, the decrease reflected
higher deposit
interest expense and a lower level of interest income from
overnight funds, partially
offset by higher loan interest due to
loan growth
and higher interest rates.
 
For the first sixnine months of 2023, tax-equivalent net interest income totaled $80.6 million
 
$120.1 million
compared to $53.2
$87.2 million for the same period of 2022.
 
The increases over both prior year periods were driven by strong loan growth
and higher interest
rates across a majority of our earning assets.
Our net interest margin for the third quarter of 2023 was 4.03%, a decrease
of three basis points from the second quarter of 2023 and
an increase of 71 basis points over the third quarter of 2022.
For the month of September 2023, our net interest margin was 4.10%.
For the first nine months of 2023, our net interest margin
was 4.04%, an increase of 111
basis points over the same period of 2022.
The increase compared to all prior periods reflected a combination of higher interest
rates and loan growth, partially offset by a higher
cost of deposits.
For the third quarter of 2023, our cost of funds was 66 basis points, an
increase of 15 basis points over the second
quarter of 2023 and an increase of 46 basis points over the third quarter of 2022.
Our total cost of deposits (including noninterest
bearing accounts) was 58 basis points, 43 basis points, and 11
basis points, respectively, for
the same periods.
Provision for Credit Losses
We recorded
a provision for credit losses of $2.4 million for the third quarter of 2023 compared to $2.2
million for the second quarter
of 2023 and $2.2 million for the third quarter of 2022.
The increase in the provision compared to the second quarter of 2023 was
primarily attributable to loan growth and an increase in net loan charge
-offs.
For the first nine months of 2023, we recorded a
provision for credit losses of $7.7 million compared to $3.9
million for the same period of 2022.
The higher level of provision in 2023
was primarily driven by loan growth and also reflected the favorable
impact in 2022 of the release of reserves held for pandemic-
related losses that did not materialize to the extent projected.
We discuss the allowance
for credit losses further below.
For more
information on charge-offs and recoveries,
see Note 3 – Loans Held for Investment and Allowance for Credit Losses.
Noninterest Income
Noninterest income for the third quarter of 2023 totaled $16.7 million compared
to $20.0 million for the second quarter of 2023 and
$18.5 million for the third quarter of 2022.
The $3.3 million decrease from the second quarter of 2023 reflected a decrease
in other
income of $1.6 million, mortgage banking revenues of $1.5 million,
wealth management fees of $0.2 million and bank card fees of
$0.1 million, partially offset by an increase in deposit fees of $0.1
million.
The decrease in other income was attributable to a $1.4
million gain from the sale of mortgage servicing rights realized in the second
quarter of 2023.
The decrease in mortgage banking
revenues was attributable to market driven lower gain on sale margins
and a lower volume of mandatory delivery loan sales which
provide a higher gain on sale percentage.
Compared to the third quarter of 2022, the $1.8 million decrease in noninterest
income reflected decreases in mortgage banking
revenues of $1.0 million, deposit fees of $0.5 million, bank card fees of $0.2 million,
and other income of $0.1
million. For the first
nine months of 2023, noninterest income totaled $54.5 million compared
to $59.9 million for the same period of 2022 with the $5.4
million decrease primarily attributable to lower mortgage banking revenues
of $3.7 million, wealth management fees of $2.4 million,
deposit fees of $0.6 million, and bank card fees of $0.4 million, partially offset
by a $1.7 million increase in other income.
Compared
to both prior year periods, the decrease in mortgage banking revenues was driven
by lower production volume in 2023 reflective of the
rapid increase in interest rates, lower market driven gain on sale margins,
and a lower level of mandatory delivery loan sales.
The
decrease in deposit fees from both prior year periods was primarily attributable
to a higher earnings credit rate for commercial deposit
accounts and lower service charge fees.
For the nine-month period, the decrease in wealth management fees was attributable
to lower
insurance commissions which reflected the sale of large
policies in 2022.
Further, the increase in other income was primarily
due to a
$1.4 million gain from the sale of mortgage servicing rights and
a $0.5 million increase in miscellaneous income.
Noninterest income represented 29.87% of operating revenues (net interest
income plus noninterest income) in the third quarter of
2023 compared to 33.22% in the second quarter of 2023
and 35.65% in the third quarter of 2022.
For the first nine months of 2023,
noninterest income represented 31.25% of operating revenues compared
to 40.79% for the same period of 2022.
The table below reflects the major components of noninterest income.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Our net interest margin for the second quarter of 2023 was 4.05%,
an increase of one basis point over the first quarter of 2023 and an
increase of 118 basis points over the second quarter
of 2022.
For the month of June 2023, our net interest margin was 4.06%.
For the
first six months of 2023, our net interest margin was 4.04%, an increase
of 133 basis points over the same period of 2022.
The
increase compared to all prior periods reflected a combination of higher
interest rates and loan growth, partially offset by a higher cost
of deposits.
For the second quarter of 2023, our cost of funds was 51 basis points, an increase of
16 basis points over the first quarter
of 2023 and 41 basis points over the second quarter of 2022.
Our total cost of deposits (including noninterest bearing accounts)
was
43 basis points, 26 basis points, and 3 basis points, respectively,
for the same periods.
Provision for Credit Losses
We recorded
a provision for credit losses of $2.2 million for the second quarter of 2023 compared
to $3.1 million for the first quarter
of 2023 and $1.5 million for the second quarter of 2022.
The decrease in the provision compared to the first quarter of 2023 was
primarily attributable to a lower level of loan growth and a decrease in net loan
charge-offs.
For the first six months of 2023, we
recorded a provision for credit losses of $5.3 million compared to $1.5 million for
the same period of 2022.
The release of reserves
held for pandemic-related losses favorably impacted our provision in 2022.
We discuss the allowance
for credit losses further
below. For more information
on charge-offs and recoveries, see Note 3 – Loans
Held for Investment and Allowance for Credit Losses.
Noninterest Income
Noninterest income for the second quarter of 2023 totaled $22.9 million
compared to $22.2 million for the first quarter of 2023 and
$24.9 million for the second quarter of 2022.
The $0.7 million increase over the first quarter of 2023 reflected an increase in other
income of $1.4 million, wealth management fees of $0.2 million, deposit fees of
$0.1 million, and bankcard fees of $0.1 million,
partially offset by a decrease in mortgage banking revenues of
$1.1 million.
The increase in other income was attributable to a $1.4
million gain from the sale of mortgage servicing rights.
The decrease in mortgage banking revenues was attributable to a lower
gain
on sale margin. Compared to the second quarter of 2022,
the $2.0 million decrease in noninterest income reflected decreases in
mortgage banking revenues of $3.2 million, wealth management fees of $0.3
million, deposit fees of $0.1 million, and bank card fees
of $0.2 million, partially offset by an increase in other income
of $1.8 million.
The decrease in mortgage banking revenues was
attributable to a lower gain on sale margin.
The increase in other income was primarily related to a $1.4 million gain from
the sale of
mortgage servicing rights.
For the first six months of 2023, noninterest income totaled $45.1 million compared to $50.7 million
for
the same period of 2022 with the $5.6 million decrease primarily attributable
to lower mortgage banking revenues of $5.2 million and
wealth management fees of $2.4 million, partially offset by
a $2.3 million increase in other income.
The decrease in mortgage
banking revenues was attributable to a lower gain on sale margin.
The decrease in wealth management fees was driven by a decrease
in insurance commissions due to the sale of large policies in 2022.
The increase in other income was primarily due to a $1.4 million
gain from the sale of mortgage servicing rights, and increases in miscellaneous income
of $0.4 million, loan servicing fees of $0.2
million, and miscellaneous loan fees of $0.1 million.
Noninterest income represented 36.38% of operating revenues (net interest
income plus noninterest income) in the second quarter of
2023
compared to 35.52% in the first quarter of 2023 and 46.78% in the second quarter of 2022.
For the first six months
of 2023,
noninterest income represented 35.95% of operating revenues compared
to 48.89% for the same period of 2022.
The table below reflects the major components of noninterest income.
38
 
Three Months Ended
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands)
2023
2023
2022
2023
2022
Deposit Fees
$
5,456
$
5,326
$
5,2395,947
$
5,44716,021
$
10,565
$
10,63816,585
Bank Card Fees
3,684
3,795
3,7263,860
4,03411,205
7,521
7,79711,657
Wealth Management
 
Fees
3,984
4,149
3,9283,937
4,40312,061
8,077
10,47314,410
Mortgage Banking Revenues
5,8371,839
6,9953,363
9,0652,895
12,8328,072
18,01111,807
Other
3,7661,765
2,3603,334
1,9541,870
6,1267,093
3,8025,426
Total
 
Noninterest Income
$
22,87316,728
$
22,24819,967
$
24,90318,509
$
45,12154,452
$
50,721
3659,885
Significant components of noninterest income are discussed in more
 
detail below.
Deposit Fees
.
 
Deposit fees for the secondthird quarter of 2023
totaled $5.3
$5.5 million, an increase of $0.1$0.2 million,
or 1.7%2.5%, over the firstsecond
quarter of 2023, and a decrease of $0.1$0.5 million, or 2.2%8.3%, from the secondthird quarter
 
of 2022.
 
For the first sixnine months of 2023, deposit
fees totaled $10.6$16.0 million, a decrease of $0.1$0.6 million, or 0.7%3.4%, from
 
the same period of 2022.
 
Compared to the firstsecond quarter of 2023,
2023, the increase reflected higher overdraft fees.
 
The decrease from both prior year periods was primarily attributable to a higher
earnings credit rate for commercial deposit accounts and lower
service charge and
ATM
 
fees.
Bank Card Fees
.
 
Bank card fees for the secondthird quarter of 2023 totaled $3.8$3.7 million, an increasea decrease of $0.1 million, or
 
million, or 1.8%2.9%, overfrom the
firstsecond quarter of 2023, and a decrease of $0.2 million, or 5.9%4.6%, from the
 
secondthe third quarter of 2022.
 
For the first sixnine months of 2023, bank
bank card fees totaled $7.5$11.2 million, a decrease
of $0.3$0.5
 
million, or 3.5%3.9%, from the same period of 2022.
 
Compared to the first quarter ofall prior
2023,
the increase reflected one more day of processing. Compared to both prior periods, the decline
reflected lower debit card usage related
related to lower consumer spending.
Wealth
 
Management Fees
.
 
Wealth management fees
 
include trust fees through Capital City Trust (i.e., managed
 
accounts and
trusts/estates), retail brokerage fees through Capital City Investments (i.e.,
 
investment, insurance products, and retirement accounts),
and financial advisory fees through Capital City Strategic Wealth
 
(i.e., including the sale of life insurance, risk management and asset
protection services).
 
Wealth management
 
fees for the third quarter of 2023 totaled $4.0 million, a decrease of $0.2
million, or 4.0%
from the second quarter of 2023, totaled $4.1 million, an increase of $0.and comparable to the third quarter
 
2
million, or
5.6%, over the first quarter of 2023, and a decrease of $0.3 million, or 5.8%,
from the second quarter of 2022.
 
For the first sixnine months
of 2023, wealth management
fees totaled $8.1$12.1 million, a decrease of
$2.4 $2.3 million, or 22.9%16.3%, from
the same period of 2022.
The
decrease reflected2022, attributable to lower insurance commission revenues due to
commissions which reflected the sale of large
policies in 2022.
 
At September 30, 2023, total assets under management were
approximately $2.420 billion compared to $2.462 billion at June 30,
2023 and $2.273 billion at December 31, 2022.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $5.8$1.8 million for the secondthird quarter of 2023,
 
a decrease of 2023, compared to $7.0$1.5 million,
million foror 45.3%, from the firstsecond quarter of 2023 and $9.1 million for the second quartera decrease of $1.1
 
million, or 36.5%, from the third quarter of 2022.
 
For the first six nine
months of 2023, revenues totaled
$12.8 $8.1 million compared to $18.0 $11.8
million for the same period of 2022.
 
TheCompared to the second
quarter of 2023, the decrease in mortgage banking revenues compared to all
prior periods was attributable to market driven lower rate lock volume and
gain on sale marginmargins and a lower volume of mandatory delivery
loan sales which provide a higher gain on sale percentage.
 
.Compared to both prior year periods, the decrease was driven by lower
production volume in 2023 reflective of the rapid increase in interest rates, lower
market driven gain on sale margins, and a lower
level of mandatory delivery loan sales.
 
We provide
a detailed
overview of our mortgage
banking operation, including a detailed
break-down of mortgage banking
revenues, mortgage servicing activity,
 
and warehouse
funding within Note 4 – Mortgage Banking
Activities in the Notes to Consolidated
Financial Statements.
 
Other
.
 
Other income totaled $3.8$1.8 million for the secondthird quarter of 2022023, a decrease of
 
3
compared to $2.4$1.6 million, for the first quarter of 2023
and
$2.0 million foror 47.1%, from the second quarter
of 2023 and a decrease of $0.1 million, or 5.6%, from the third quarter
of 2022.
 
For the first sixnine months of 2023, other income
totaled $6.1$7.1 million compared to
$3.8
$5.4 million for the same period of 2022.
 
TheCompared to the second quarter of 2023, the decrease was
attributable to a $1.4 million gain from the sale of mortgage servicing rights
realized in the second quarter of 2023.
For the nine-
month period, the increase over all prior periods was primarily due to a $1.4 million gain from the
 
the sale of
mortgage servicing rights.rights and a $0.5 million
Higherincrease in miscellaneous income of $0.4 million, loan servicing fees of $0.2 million,
and miscellaneous loanincome.
fees of $0.1 million also contributed to the increase for the six-month period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3739
Noninterest Expense
 
Noninterest expense for the secondthird quarter of 2023 totaled $42.5$39.1 million compared
 
compared to $40.5$40.3 million for the firstsecond quarter of 2023 and
$40.537.7 million for the secondthird quarter of 2022.
 
Compared to the firstsecond quarter of 2023, the $2.1$1.2 million increasedecrease was primarily due to an
increase in other expense of $2.8 million that was partially offset by
 
to a $0.8
$0.8 million decreasenon-recurring expense in compensation expense.
The
unfavorable variance in other expense reflected a $1.8 million gain from
the sale of a banking office in the first quarter of 2023.
Further, the second quarter of 2023 related
 
included a $0.8 million expense related to a consulting engagement to assist in negotiating a multi-
year contract for the outsourcing of our core processing system, a higher
expense for advertising and travel/entertainment totaling $0.3
million, and a $0.2 million expense related to our VISA (class B shares) swap.
Partially offsetting these increases was a $0.3 million
gain related to our SERP.
The decrease in compensation expense was primarily attributable to a $0.5
million decrease in stock-based
compensation expense and a $0.2 million decrease in other associate benefit
expense.
system.
Compared to the secondthird quarter of 2022, the $2.0$1.4 million increase in noninterest
 
expense reflected a $1.8 million increasewas primarily due to increases in other
expense of $0.5
million and occupancy expense of $0.7 million, partially offset$0.8 million.
 
The increase in other expense was largely driven by a decrease$0.7 million
increase in compensationpension plan expense (non-service-related component)
and the increase in occupancy reflected the addition of $0.5 million.four new
banking offices in mid-to-late 2022 and higher property/equipment
insurance premiums.
 
For the first
six nine months of 2023,
noninterest expense totaled $83.0$117.1 million compared
 
to $79.7$112.4 million for the same period of 2022 with the $3.3$4.7 million
increase
million increase attributable to an increaseincreases in occupancy expense of $2.2 million, compensation
expense of $1.5 million, and other expense of $1.6 million,$1.0
million. The increase in occupancy expense reflected the addition of $1.4banking
offices in 2022, higher insurance premiums, and
investment in network and security upgrades. The unfavorable variance
in compensation expense reflected a $3.0 million increase in
salary expense (primarily,
the addition of staffing in our new markets and annual merit) that was partially offset
by a $1.5 million
decrease in associate benefit expense.
The variance in associate benefit expense was primarily due to a $2.2 million decrease in
pension plan expense (service cost) that was partially offset by
increases in associate insurance expense of $0.5 million and compensationstock-
expensebased compensation of $0.3$0.1 million.
 
The increase in other expense over both prior year periods was primarily relateddue to a $1.6 million increase in pension
 
toplan
expense (non-service related component), the previously mentionedaforementioned consulting
consulting paymentengagement expense of $0.8 million, madeand a $0.6 million
increase in the second quarter of 2023 and
increases in pension plan expense (non-service-related
component), FDIC insurance fees (rate increase), and loan servicingexpense, partially offset by
 
(for residential loans).
The aforementionedlower OREO expense of $1.8 million related to a gain from the sale of a
a banking office in the first quarter of 2023 partially offsetoffice.
 
these increases for the six-month period comparison.
The addition of four
new banking offices since mid/late 2022 and higher property/equipment
insurance premiums drove the increase in occupancy expense
for both prior period comparisons.
The favorable variance in compensation expense versus the second quarter of 2022
was primarily
due to a $0.7 million decrease in pension plan expense (service cost) that was partially
offset by a $0.3 million increase in associate
insurance expense which reflected an increase in premiums.
The slight unfavorable variance in compensation expense versus the six-
month period of 2022 reflected an increase in salary expense of $1.0
million (primarily the addition of staffing in our new markets),
associate insurance expense of $0.3 million, and stock-based compensation
of $0.3 million that was partially offset by a $1.4 million
decrease in pension plan expense (service cost).
The table below reflects the major components of noninterest expense.
 
 
Three Months Ended
SixNine Months Ended
June 30,
March 31,
JuneSeptember 30,
June 30,
JuneSeptember 30,
September 30,
September 30,
(Dollars in Thousands)
2023
2023
2022
2023
2022
Salaries
$
21,49019,459
 
$
21,62920,044
 
$
21,46118,604
 
$
43,11959,020
 
$
42,12556,010
Associate Benefits
3,544
3,394
4,0074,363
3,92210,945
7,401
8,11412,477
Total Compensation
 
24,88423,003
25,63623,438
25,38322,967
50,52069,965
50,23968,487
 
Premises
3,217
3,170
3,2452,784
2,7349,632
6,414
5,4938,278
Equipment
3,763
3,650
3,5173,369
3,34110,930
7,168
6,67510,043
Total Occupancy
6,980
6,820
6,7626,153
6,07520,562
13,582
12,16818,321
 
Legal Fees
366
419
362357
3161,147
781
6651,022
Professional Fees
1,254
2,039
1,3241,258
1,4064,617
3,363
2,7383,996
Processing Services
1,874
1,872
1,7421,777
1,7525,488
3,614
3,3895,166
Advertising
756
959
874726
9802,590
1,833
1,7532,479
Telephone
658
679
706730
7032,044
1,385
1,4312,162
Insurance – Other
703
872
831656
5932,406
1,703
1,1031,760
Other Real Estate Owned, net
 
9
(28)
(1,827)(92)
(29)(1,846)
(1,855)
(4)(96)
Pension - Other
632
76
(761)
1345
(1,522)(2,283)
Pension Settlement (Gain) Charge
(291)
-
169
(291)
378102
(291)
480
Miscellaneous
4,3033,470
4,0383,500
3,9113,826
8,34110,339
7,39310,878
Total Other
 
10,8309,122
8,05710,027
9,0408,579
18,88726,539
17,32425,564
Total
 
Noninterest Expense
 
$
42,53439,105
 
$
40,45540,285
 
$
40,49837,699
 
$
82,989117,066
 
$
79,731112,372
3840
Significant components of noninterest expense are discussed in more detail
 
below.
Compensation
.
 
Compensation expense totaled $24.9$23.0 million for the secondthird quarter of 2023 compared
 
to $25.6$23.4 million for the firstsecond
quarter of 2023 and $25.4
$23.0 million for the secondthird quarter of 2022.
 
The $0.7$0.4 million decrease from the firstsecond quarter of 2023 reflected a
$0.1 0.6
million decrease in salary expense andpartially offset by a $0.6$0.2 million decrease
increase in associate benefit
expense.
 
The decrease in associate benefitsalary
expense was primarily dueattributable to a decrease in stock-based compensationhigher realized loan cost (which are accounted
 
expense.
Comparedfor as a credit offset to the second quarter of 2022, the $0.5
million decrease was primarily due to a $0.7 million decrease in pension
plan expense (service cost) that was partially offset by a $0.3
million increase in associate insurance expense.
The decline in pension plan expense (service cost) was generally due to asalary expense) and lower
benefit obligation which reflected an increased level of retirements in 2022.payroll taxes.
 
The increase in associate insurancebenefit expense reflected
was due to higher premiums at our annual renewal.stock based compensation
 
expense.
For the first six nine
months of 2023, compensation expense totaled $50.5$70.0 million compared
 
compared to $50.2$68.5 million for the same period of 2022
with the $0.3 $1.5
million increase attributable to an increase in salary expense of $3.0
 
$1.0 million (primarily the addition of staffing in our new markets and
new markets)annual merit) that was partially offset by a $0.3$1.5 million decrease in
associate benefit
expense, primarily pension plan expense (service
cost) due to an increased level of retirements in 2022.
 
Compared to the third quarter of 2022, the same factors above drove the
variances in salary and associate benefit expense.
Occupancy
.
 
Occupancy expense totaled $6.8$7.0 million for the third quarter of 2023 compared
 
to $6.8 million for the second quarter of 2023 compared to $6.8
million for the first quarter of
2023
 
and $6.1$6.2 million for the secondthird quarter of 2022.
 
For the first sixnine months of 2023, occupancy expense totaled $13.6$20.6 million
compared to $12.2$18.3 million for the same period of 2022.
 
The addition of four new banking offices since mid/mid to late 2022, higher
property and equipment insurance premiums,
 
and higher
property/equipment insurance premiumsinvestment in network and security upgrades drove the increase in occupancy
expense for both prior year
comparisons.
 
Other
.
 
Other expense totaled $10.8$9.1 million for the third quarter of 2023 compared to $10.0 million
for the second quarter of 2023 and
compared to $8.1$8.6 million for the firstthird quarter of 2022.
For the first nine months of 2023, andother expense totaled $26.5 million compared
to $25.6
$9.0 million for the second quartersame period of 2022.
 
Compared to the firstsecond quarter of 2023, the $2.7$0.9 million decrease reflectedwas primarily
due to a $0.8
million non-recurring expense in the second quarter of 2023 related to
a consulting engagement to assist in negotiating a multi-year
contract for the outsourcing of our core processing system.
For the nine month period, the $1.0 million increase was primarily
attributable to the aforementioned $0.8 million non-recurring consulting
expense and increases in pension plan expense (non-service-
related component) of $1.6 million, and FDIC insurance fees of
$0.6 million, partially offset by lower OREO expense of $1.7 million
related to a $1.8 million
gain from the sale of a banking office in the first
quarter of 2023.
 
Further,Compared to the secondthird quarter of 2023 included a2022, the
same factors above drove the variance, excluding the $0.8 million non
 
expense
related to a-recurring consulting engagement to assist in negotiating a multi-year
contract for the outsourcing of our core processing system, a
higher expense for advertising and travel/entertainment totaling $0.3
million, and a $0.2 million expense related to our VISA (class B
shares) swap.
Partially offsetting these increases was a $0.3 million gain
related to our SERP.
The increase in other expense over
both prior year periods was primarily related to the previously mentioned consulting
payment of $0.8 million made in the second
quarter of 2023 and increases in pension plan expense (non-service-related
component), FDIC insurance fees, and loan servicing (for
residential loans).
The aforementioned gain from the sale of a banking office in the first quarter
of 2023 partially offset these
increases for the six-month period comparison.
expense.
Our operating efficiency ratio (expressed as noninterest
 
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 67.55%69.88% for the third quarter of 2023 compared
 
to 66.93% for the second quarter of 2023 compared to 64.48% for the first quarter of 2023
and 75.96%72.51% for
the secondthird quarter of 2022.
 
The increase for the third quarter reflected a lower level of profitability from our mortgage
banking
operation.
For the first sixnine months of 2023, this ratio was 66.02%67.07% compared to 76.73%76.42% for
the same period
of 2022.
Income Taxes
We realized income
 
tax expense of $3.5$3.0 million (effective rate of 19.6%20.7%) for the secondthird quarter of
 
quarter of 2023 compared to $4.1$3.4 million
(effective rate of 21.7%) for the first quarter of 2023 and $2.2
million (effective rate of 19.4%) for the second quarter of 2023
and $2.5 million (effective rate of 20.7%) for the third quarter of 2022.
 
For the
the first sixnine months of 2023, we realized income tax expense of $7.7$10.1 million (effective
 
(effective rate of 20.6%20.5%) compared to $4.4$5.9 million (effective
(effective rate of 19.6%19.3%) for the same period of 2022.
The decreaseincrease in our effective
tax rate for the third quarter of 2023 was primarily
due to a lower level of pre-tax income from Capital City Home Loans (“CCHL”)
in relation to our consolidated income as the non-
controlling interest adjustment for CCHL is accounted for as a permanent tax adjustment.
Further, the second quarter of 2023
effective rate reflected a higher level of tax benefit
accrued from an
investment in a solar tax credit equity fund.
Absent discrete items we
or unexpected variance in the timing of the tax benefit accrued from our solar
 
tax credit equity fund investment, we expect our annual
effective tax rate to
approximate 20-21% for 2023.
 
FINANCIAL CONDITION
Average earning
 
assets totaled $3.975$3.877 billion for the secondthird quarter of 2023, a decrease of $87.9$97.8 million, or
 
2.2%2.5%, from the firstsecond
quarter of 2023, and a decrease of $57.9$155.8 million, or 1.4%3.9%, from the fourth
quarter of 2022.
 
The decrease from both prior periods was
attributable to lower deposit balances (see below –
Deposits
).
 
The mix of earning assets continues to improve as overnight funds are
being utilized to fund loan growth.
Investment Securities
Average investments
 
decreased $20.4$38.9 million, or 1.9%3.7%, from the firstsecond quarter of 2023
 
and decreased $37.2$76.1 million, or 3.4%7.0%, from the
the fourth quarter of 2022.
 
Our investment portfolio represented 26.3%25.9% of our average earning
assets for the second
third quarter of 2023
compared to 26.2%26.3% for the firstsecond quarter of 2023 and 26.8% for the fourth
 
fourth quarter of 2022.
 
For the remainder of 2023, we will continue
continue to monitor our overall liquidity position and allow cash flow from
 
the investment portfolio to run-off to overnight funds.
 
3941
The investment portfolio is a significant component of our operations and, as such,
 
it functions as a key element of liquidity and
asset/liability management.
 
Two types of classifications are approved
 
for investment securities which are Available
 
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
 
At JuneSeptember 30, 2023, $386.2$325.8 million, or 37.5%33.6%, of our investment portfolio
was classified
as AFS, and
$641.4and $632.1 million, or 62.3%65.2%, classified as HTM.
 
The average maturity of our total portfolio at JuneSeptember 30, 2023 was 2.90
years
compared to 3.07 years compared
to
3.34 years at March 31,June 30, 2023 and 3.57 years at December 31,
2022.
 
The duration of our investment portfolio at June September
30, 2023 was
2.76 2.61 years.
 
Additional information on unrealized gains/losses in the AFS and HTM portfolios
is provided
in Note 2 – Investment
Investment Securities.
We determine
 
the classification of a security at the time of acquisition based on how the purchase will affect
 
our asset/liability strategy
and future business plans and opportunities.
 
We consider multiple
 
factors in determining classification, including regulatory capital
requirements, volatility in earnings or other comprehensive income,
 
and liquidity needs.
 
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
 
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
 
HTM securities are acquired or owned with the intent of holding them
 
to
maturity.
 
HTM investments are measured at amortized cost.
 
We do not
 
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maintain
 
a trading portfolio.
At JuneSeptember 30, 2023, there were 917894 positions (combined AFS and HTM)
 
with unrealized losses totaling $84.2$90.8 million. 86 of these
positions are U.S. Treasuries and carry the full faith
 
and credit of the U.S. Government.
 
705 were U.S. government agency securities
issued by U.S. government sponsored entities. The remaining 126103 positions
 
(municipal securities and corporate bonds) have a credit
component.
At JuneSeptember 30, 2023,
corporate debt securities had
an allowance for credit losses of $19,000 $31,000
and municipal securities
had an
allowance of $5,000.$12,000.
 
At JuneSeptember 30, 2023, all CMO, MBS, SBA, U.S. Agency,
 
and U.S. Treasury bonds held were AAA
rated.
 
Loans HFI
Average loans
 
HFI increased $75.3$15.0 million, or 2.9%0.6%, over the firstsecond quarter of 2023 and $218.3 million,$233.3
 
million, or 9.0%9.6%, over the fourth quarter
quarter of 2022.
 
Period end loans increased $30.1$21.7 million, or 1.1%0.8%, over the firstsecond quarter of
2023 and
$141.8 $157.5 million, or 5.6%6.2%, over
the fourth
quarter of 2022.
 
Compared to both prior periods, the loan growth was primarily in the residential
real estate
category and commercial real estate
categories and was partially offset by lower indirect auto and construction
 
and home equity loan balances.
 
Without compromising our credit standards
 
,
 
changing our underwriting standards, or taking on inordinate interest rate risk,
 
we
continue to closely monitor our markets and make minor adjustments as necessary.
Credit Quality
Credit quality metrics remained strong for the quarter.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $6.6$4.7
million at JuneSeptember 30, 2023 compared to $4.6$6.6 million at March 31, 2023June 30,
 
2023 and $2.7 million at December 31, 2022.
 
At JuneSeptember 30, 2023,
2023, nonperforming assets as a percent of total assets equaled 0.15%0.11%, compared
 
compared to 0.10%0.15% at March 31,June 30, 2023 and 0.06% at December 31,
31, 2022.
 
Nonaccrual loans totaled $6.6$4.7 million at September 30, 2023, a $1.9 million
decrease from June 30, 2023 and a $2.0$2.4 million
increase over December 31, 2022.
Further, classified loans totaled $21.8 million
at September 30, 2023, a $6.8 million increase over March 31,
June 30, 2023
and a $4.3$2.5 million increase
over December 31, 2022.
 
The increase in the current period was primarily dueattributable to
the additiondowngrade of one large residentialhotel loan
($1.1 million) to nonaccrual
status which was adequately secured and reserved for.
Further, classified loans totaled $15.0 million at June 30,
2023, a $2.8 million
increase over March 31, 2023 and a $4.4 million decrease from December 31,
2022.
that is performing as agreed on scheduled payments.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the
 
loans’ amortized cost basis to present the net amount
expected to be collected on the loans.
 
The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings, and reduced by the charge-off
 
of loan amounts (net of recoveries).
 
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed.
 
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged
 
-off.
 
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision, but recorded
as a separate
liability included in other liabilities.
Management estimates the allowance balance using relevant available information,
 
from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts.
 
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
 
Adjustments to historical loss information incorporate management’s
 
view of current
conditions and forecasts.
 
4042
At JuneSeptember 30, 2023, the allowance for credit losses for HFI loans totaled $28.0$29.1
 
million compared to $26.5$28.2 million at March 31,June 30, 2023 and
$24.7and $25.1 million at December 31, 2022.
 
Activity within the allowance is provided in Note 3 to– Loans Held for Investment and
Allowance for Credit Losses in the consolidated financial statementsConsolidated Financial Statements.
 
.
The increase in the allowance in 2023 hasover both prior periods was
driven primarily been driven by loan growth.
 
Further, the increase from December 31, 2022
reflected a higher loss rate for the residential real
estate portfolio due to slower prepayment speeds.
At September 30, 2023, the allowance represented 1.08% of HFI loans compared
to
1.05% at June 30, 2023, net charge-offs totaled $0.5
million, a decrease of $1.0 million from the first quarter of 2023, and $0.8 million
from the fourth quarter of 2022.
At June 30, 2023,
the allowance represented 1.05% of HFI loans compared to 1.01% at March 31, 2023,
and 0.98% at December 31, 2022.
At JuneSeptember 30, 2023, the allowance for credit losses for unfunded commitments
 
commitments totaled $3.1$3.5 million compared to $2.8$3.1 million at March
31,June 30, 2023 and $3.0 million at December 31, 2022. The allowance for unfunded
 
unfunded commitments is recorded in other liabilities.
Deposits
Average total
 
deposits were $3.720$3.597 billion for the secondthird quarter of 2023, a decrease of $97.8$122.7 million, or 2.6%3.3%,
 
from the firstsecond quarter
of 2023 and a decrease of $83.5$206.2 million, or 2.2%5.4%, from the fourth quarter
 
of 2022.
 
Compared to both prior periods, the decreases were
were primarily attributable to lower noninterest bearing, and savings, balances,and
 
primarilyNOW balances, partially offset by higher money market
balances.
 
Compared to the firstsecond quarter of 2023, the decrease in NOW account balances was primarily
 
reflected the seasonal decline in our public funds
balances.
Compareddue to the fourth quarter of 2022, the increaseseasonal
reduction in NOW accounts reflected higherpublic fund balances held by our institutional and municipal
 
average public funds balances
which began to build in December 2022 and affect the
average comparison.
clients.
At JuneSeptember 30, 2023, total deposits were $3.789$3.540 billion, a decrease of $35.1$248.4
 
million, or 0.9%6.6%, from March 31,June 30, 2023 and $150.5a decrease
of $398.9 million, or
3.8% 10.1%, from December 31, 2022.
 
The Our public fund deposit balances declined $205 million and $245 million from
June 30, 2023 and December 31, 2022, respectively,
and reflected the seasonal decline in those balances which will begin to increase
in the fourth quarter as municipal tax receipts are received.
In addition, the decrease from June 30, 2023 reflected a short-term deposit balance included a
of $103 million short-term deposit (in the NOW
category) made late in June by a municipal client.client
 
Compared to both prior periods,that was subsequently moved in mid-July.
The
remaining portion of the decreases were primarily attributable to lower
noninterest bearing balances, savings balances, and NOW balances (primarilydecrease reflected continued client spend
 
public funds, excluding the previously mentioned large
municipal client deposit), primarily offset by higher
money market balances.
For comparison to the prior periods, both the average and period-end
balance variances in noninterest bearing and savings balances
generally reflected annual tax payments made by clients in April, continued
client spend of stimulus savings the migration (re-mix) of
balances to an interest-bearing product type (primarily money market
accounts), and clients seeking higher yielding investment
products outside of the Bank, includinga portion of which have moved to our wealth division.
Additionally, compared
to both prior periods, we
realized a remix of deposit balances of $32 million and $99 million, respectively,
as noninterest bearing accounts migrated into
interest bearing accounts (primarily NOW and money market accounts).
Business deposit transaction accounts classified as repurchase agreements
averaged $25.4 million for the migrationthird quarter of $132023, an
increase of $7.5 million inover the
second quarter of 2023 and $43$16.9 million for the first six
months of 2023 to our wealth management division.over
 
Repurchase agreement balances averaged $17.9 million for the second quarter
of 2023, an increase of $8.5 million over the first
quarter of 2023 and $9.4 million over the fourth quarter of 2022.
 
At JuneSeptember 30, 2023,
repurchase agreement balances were $22.6$22.9 million
compared to $4.4 $22.6
million at March 31,June 30, 2023 and $6.6 million at December 31, 2022.
These balances consist of client operating
deposit accounts that we have secured by various securities we own and
are reflected in our balance sheet under short-term
borrowings.2022.
 
We continue
 
to closely monitor our cost of deposits and deposit mix as we manage through the current
 
rising rate environment.
 
MARKET RISK AND INTEREST RATE
 
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
 
Market risk arises from changes in interest rates, exchange rates,
 
commodity prices, and equity prices.
 
We have risk
management policies designed to monitor and limit exposure to market
 
risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or
 
equity prices.
 
In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
 
Our net income is largely dependent on net interest income.
 
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature
or reprice
on a different basis than interest-earning assets.
 
When
interest-bearing liabilities mature or reprice more quickly
 
than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest
 
income.
 
Similarly, when interest-earning
 
assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could
 
result in a decrease in net interest income.
 
Net interest
income is also affected by changes in the portion of interest-earning
 
assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’
 
equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4143
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
 
significantly from assumptions used in the model.
 
Finally, the
methodology does not measure or reflect the impact that higher rates may have
 
on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
The statement of financial condition is subject to testing for interest rate shock
 
possibilities to indicate the inherent interest rate risk.
 
We prepare
 
a current base case and several alternative interest rate simulations (-400, -300, -200,
 
-100, +100, +200, +300, and +400
basis points (bp)), at least once per quarter, and
 
report the analysis to ALCO, our Market Risk Oversight Committee (“MROC”), our
Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors.
 
We augment our interest rate
 
shock analysis with
alternative interest rate scenarios on a quarterly basis that may include ramps,
 
parallel shifts, and a flattening or steepening of the yield
curve (non-parallel shift).
 
In addition, more frequent forecasts may be produced when interest rates are particularly
 
uncertain or when
other business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over
 
12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines
 
at the various interest rate shock levels. We
 
attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate
 
liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts
 
reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing
 
basis.
 
 
Analysis.
 
Measures of net interest income at risk produced by simulation analysis are
 
indicators of an institution’s short-term
performance in alternative rate environments.
 
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
-12.5%
-15.0%
September 30, 2023
3.2%
2.3%
1.4%
0.7%
-1.3%
-3.8%
-7.7%
-12.5%
June 30, 2023
4.1%
3.0%
1.9%
1.0%
-1.5%
-4.4%
-9.6%
-15.3%
March 31, 2023
7.1%
5.2%
3.4%
1.8%
-3.3%
-8.8%
-15.5%
-21.2%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
-12.5%
-15.0%
-17.5%
September 30, 2023
30.6%
25.6%
20.4%
15.9%
5.2%
-2.3%
-12.0%
-22.0%
June 30, 2023
28.4%
23.5%
18.4%
13.9%
3.4%
-4.4%
-15.1%
-25.6%
March 31, 2023
28.0%
22.7%
17.2%
12.2%
-0.5%
-10.9%
-22.5%
-31.2%
The Net Interest Income (“NII”) at Risk position indicates
 
that in the short-term (over the next 12 months), all rising rate environments
will positively impact
the
net interest margin of the Company,
 
while declining rate environments
 
will have a negative impact on the
net interest margin.
Compared to the firstsecond quarter of 2023, these
metrics became less favorable in
the rising rate scenarios primarily
due to loan growth,
which reduced our level of overnight funds and made us slightly
less asset sensitive.
 
The converse is applicableapplies in the
down rate
scenarios where the metrics became more favorable due to loan growth which
 
which increased asset duration and therefore
protection against
falling rates.
 
The percent change over the 12-month shock is outside of policy in the down 400 bps
scenario, and the percent change
over the 24-month shock is outside of policy in
the rates down 300 bps and
400 bps scenariosscenario
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4244
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
-25.0%
-30.0%
JuneSeptember 30, 2023
 
9.2%
7.7%
5.6%
3.3%
-5.2%
-12.9%
-21.2%
-31.7%
June 30, 2023
10.7%
9.1%
6.7%
3.9%
-7.1%
-18.0%
-30.2%
-32.6%
March 31, 2023
11.6%
9.6%
7.0%
4.0%
-7.1%
-17.9%
-31.3%
-35.7%
EVE Ratio (policy minimum 5.0%)
18.8%20.9%
18.2%20.2%
17.4%19.4%
16.6%18.6%
14.3%16.4%
12.4%14.7%
10.4%13.1%
9.9%11.2%
(1) The down 400 bp rate scenario was added in the fourth quarter of 2022.
At JuneSeptember 30, 2023, the economic value of equity was favorable
in all rising
rate environments and unfavorable in the falling rate
environments. Compared to the firstsecond quarter of 2023, EVE metrics were slightly
 
moreslightly less favorable in the rising rate environment and declining rate
more favorable in falling rate environments.
 
EVE is currently in compliance with policy in all rate scenarios as the EVE ratio in each
rate scenario
exceeds 5.0%.
As the interest rate environment and the dynamics of the economy continue to change,
 
additional simulations will be analyzed to
address not only the changing rate environment, but also the change
 
in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
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 JuneSeptember 30, 2023, we had the ability to generate approximately $1.506$1.587 billion
 
(excludes overnight funds position of $285$95 million) in
in additional liquidity through various sources including various federal funds
 
purchased lines, Federal Home Loan Bank borrowings, the
the Federal Reserve Discount Window,
 
and through brokered deposits. We
 
We recognize
the importance of maintaining liquidity and have
developed a Contingent Liquidity Plan, which addresses various liquidity
 
stress levels and our response and action based on the level
of severity.
 
We periodically test our credit
 
facilities for access to the funds, but also understand that as the severity of the liquidity
level increases that certain credit facilities may no longer be available.
 
We conduct a liquidity
 
stress test on a quarterly basis based on
events that could potentially occur at the Bank and report results to ALCO, our
 
Market Risk Oversight Committee, Risk Oversight
Committee, and the Board of Directors.
 
At JuneSeptember 30, 2023, we believe the liquidity available to us was sufficient
 
to meet our on-goingon-
going needs and execute our business strategy.
 
 
We also view our
 
investment portfolio as a liquidity source and have the option to pledge securities in our
 
portfolio as collateral for
borrowings or deposits, and/or to sell selected securities.
 
Additional information on our investment portfolio is provided within
 
Note
2 –
Investment Securities
.
The Bank maintained an average net overnight funds (deposits with banks plus
 
plus FED funds sold less FED funds purchased) sold
position of $218.9$136.6 million in the secondthird quarter of 2023 compared to $218.9
 
to $361.0 million in the firstsecond quarter of 2023 and $469.4 million in
the fourth quarter of 2022.
 
The declining overnight funds position reflected growth in average loans and lower
 
average deposit
balances.
We expect our
 
capital expenditures will be approximately $8.0 million over the next 12 months, which
 
will primarily consist of
construction of new offices, office remodeling,
 
office equipment/furniture, and technology purchases.
 
Management expects that these
capital expenditures will be funded with existing resources without impairing
 
our ability to meet our on-going obligations.
4345
Borrowings
Average short
 
-term borrowings totaled $35.7$49.7 million for the secondthird quarter of 2023 compared to
 
$47.135.7 million for the firstsecond quarter of
2023 and $50.8 million for the fourth quarter of 2022.
 
The variance compared to both prior periods was primarily attributable to an
increase in short-term repurchase agreement balances (discussed under
Deposits
)agreements and the fluctuation in warehouse line borrowings that support our
mortgage banking operations.CCHL’s
 
warehouse line. Additional detail on these warehouse
borrowings is provided in Note 4 –
Mortgage Banking Activities
in the Consolidated
Financial Statements.
We have issued two
 
junior subordinated deferrable interest notes to our wholly owned
 
Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
November 2004, of which $10 million was retired in April 2016.
 
The second
note for $32.0 million was issued to CCBG Capital Trust II
 
in May 2005.
 
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
 
CME Term SOFR (secured overnight
 
financing rate)
plus a margin of 1.90%.
 
This note matures on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II borrowing
 
is
due quarterly and adjusts quarterly to a variable interest rate based on three-month
 
CME Term SOFR plus a margin
 
of 1.80%.
 
This
note matures on June 15, 2035.
 
The proceeds from these borrowings were used to partially fund acquisitions.
 
Under the terms of each
junior subordinated deferrable interest note, in the event of default or
 
if we elect to defer interest on the note, we may not, with certain
exceptions, declare or pay dividends or make distributions on our capital
 
stock or purchase or acquire any of our capital stock.
 
During the second quarter of 2020, we entered into a derivative cash
 
flow hedge of our interest rate risk related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust
 
I borrowing and $20 million of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed and receive variable (three-month
CME Term SOFR plus spread)
 
and has an average all-in fixed rate of 2.50% for 10 years.
 
Additional detail on the interest rate swap
agreement is provided in Note 5 – Derivatives in the Consolidated Financial
 
Statements.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
 
table on page 32.34.
 
At JuneSeptember 30, 2023, our regulatory capital
capital ratios exceeded the threshold to be designated as “well-capitalized”
 
under the Basel III capital standards.
Shareowners’ equity was $420.8$419.7 million at September 30, 2023
compared to $412.4 million at June 30, 2023 compared to
$411.2 million at March 31, 2023 and $394.0$387.3 million at
December 31, 2022.
 
For the first sixnine months of 2023, shareowners’ equity was positively impacted by net income
 
income attributable to
common
shareowners of $29.5$40.5 million, a $4.2$2.4 million decrease in the unrealized
loss on investment
securities, the issuance of stock of
$2.12.2 million, and stock compensation accretion of $0.5 million.$1.0 million, and a $0.4 million
increase in the fair value of the interest rate swap
related to subordinated debt.
 
Shareowners’ equity was reduced by common stock dividends of $6.1$9.5
million ($0.360.56 per share), the
repurchase of stock of $2.0$3.1 million (65,736(102,147 shares),
and net adjustments totaling $1.2
$1.5 million related to
transactions under our stock
compensation plans, and a $0.2 million decrease
in the fair value of the interest rate swap related to
subordinated debt.plans.
 
At JuneSeptember 30, 2023, our total risk-based capital ratio was 15.95% 16.30%
compared to 15.53%
15.68% at March 31,June 30, 2023 and 15.52%15.30% at December 31,
31, 2022.
 
Our common equity tier 1 capital ratio was 13.02%13.26%, 12.68%12.73%, and 12.64%12.38%, respectively,
 
on these dates.
 
Our leverage ratio was
9.74%was 9.98%, 9.28%9.54%, and 9.06%8.91%, respectively,
 
on these dates.
 
At JuneSeptember 30, 2023, all our regulatory capital ratios exceeded the
threshold to be
designated as “well-capitalized” under the Basel III capital
standards.
 
Further, our tangible common equity ratio was 7.61%
8.08% at June
September 30, 2023 compared to 7.37%7.43% and 6.79%6.65% at March 31, June 30,
2023 and December
31, 2022, respectively.
 
If our unrealized HTM
held-to-maturity securities
losses of $30.0$33.1 million (after-tax)
were recognized in accumulated other
comprehensive loss, our adjusted
tangible capital ratio would
be 6.91%7.26%.
Our tangible capital ratio is also impacted by the recording of our unfunded pension
 
liability through other comprehensive income in
accordance with ASC Topic
 
715.
 
At JuneSeptember 30, 2023, the net pension liability reflected in other comprehensive loss was $4.7
 
million$4.7
million compared to $4.5$4.7 million at March 31,June 30, 2023
and $4.5 million at December 31,
2022.
 
This liability is re-measured annually on
December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions used in calculating the liability
include the weighted average discount rate used to measure the present
 
value of the pension liability, the
 
weighted average expected
long-term rate of return on pension plan assets, and the assumed rate of annual compensation
 
increases, all of which will vary when
re-measured.
 
The discount rate assumption used to calculate the pension liability is subject to long
 
-term corporate bond rates at
December 31
st
.
 
These assumptions and sensitivities are discussed in our 2022 Form 10-K10-K/A “Critical Accounting
 
Policies and
Estimates”.
 
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
course of business to meet the financing needs of our
clients.
 
4446
At JuneSeptember 30, 2023, we had $775.1$774.7 million in commitments to extend credit
 
credit and $6.3$6.8 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
 
obligations.
 
In the event these commitments
require funding in excess of historical levels, management believes current
 
liquidity, advances available from the
 
FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
 
source of funds to meet these commitments.
Certain agreements provide that the commitments are unconditionally
 
cancellable by the bank and for those agreements no allowance
for credit losses has been recorded.
 
We have recorded
 
an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the bank, which is included in other
 
liabilities on the consolidated statements of financial condition and
totaled $3.1$3.5 million at JuneSeptember 30, 2023.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
 
Financial Statements included in our 2022 Form 10-K.10-
K/A.
 
The preparation of our Consolidated Financial Statements
 
in accordance with GAAP and reporting practices applicable to the banking
banking industry requires us to make estimates and assumptions that affect
 
the reported amounts of assets, liabilities, revenues and expenses,
expenses, and to disclose contingent assets and liabilities.
 
Actual results could differ from those estimates.
We have identified
 
accounting for (i) the allowance for credit losses, (ii) goodwill,
 
(iii) pension assumptions, and (iv) income taxes as
our most critical accounting policies and estimates in that they are important
 
to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to make estimates about
 
the effects of matters that are
inherently uncertain.
 
These accounting policies, including the nature of the estimates and types of assumptions
 
assumptions used, are described
throughout this Item 2, Management’s
 
Discussion and Analysis of Financial Condition and Results of Operations, and
 
Part II, Item 7,
Management’s Discussion and Analysis
 
of Financial Condition and Results of Operations included
 
in our 2022 Form 10-K.10-K/A.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
47
TABLE I
AVERAGE BALANCES & INTEREST RATES (UNAUDITED)
Three Months Ended JuneSeptember 30,
SixNine Months Ended JuneSeptember 30,
 
2023
2022
2023
2022
 
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
54,35062,768
$
 
801971
5.906.14
%
$
 
52,86055,164
$
 
711486
4.443.49
%
$
 
54,72857,438
$
 
1,4452,416
5.325.62
%
$
 
47,95950,387
$
 
1,1081,594
4.664.23
%
Loans Held for Investment
(1)(2)
2,657,6932,672,653
36,75838,455
5.555.71
2,084,6792,264,075
23,43327,432
4.534.81
2,620,2522,637,911
71,089109,688
5.475.56
2,024,4632,105,211
45,24473,168
4.514.65
Taxable Securities
1,041,2021,002,547
4,8044,549
1.80
1,117,789
4,359
1.55
1,034,825
14,265
1.84
1,142,2691,105,822
3,83411,082
1.34
1,051,232
9,716
1.85
1,099,739
6,723
1.22
Tax-Exempt Securities
(2)
2,6562,456
1617
2.472.66
2,4882,939
1017
1.732.30
2,7472,649
3350
2.412.49
2,4492,614
2037
1.671.90
Federal Funds Sold and Interest Bearing
218,902Deposits
2,782136,556
5.101,848
691,9255.37
1,408569,984
0.823,231
289,5432.25
6,893237,987
4.808,741
782,0114.91
1,817710,559
0.475,048
0.95
Total Earning Assets
3,974,8033,876,980
45,16145,840
4.564.69
%
3,974,2214,009,951
29,39635,525
2.973.52
%
4,018,5023,970,810
89,176135,160
4.474.55
%
3,956,6213,974,593
54,91290,929
2.803.06
%
Cash & Due From Banks
75,85475,941
79,73079,527
75,25075,483
77,00777,856
Allowance For Credit Losses
(27,893)(29,172)
(20,984)(21,509)
(26,771)(27,581)
(21,318)(21,382)
Other Assets
297,837295,106
288,421289,709
298,999297,688
281,922284,546
TOTAL ASSETS
$
 
4,320,6014,218,855
$
 
4,321,3884,357,678
$
 
4,365,9804,316,400
$
 
4,294,2324,315,613
 
Liabilities:
Noninterest Bearing Deposits
1,539,8771,474,574
1,722,3251,726,918
1,570,6421,538,268
1,687,5241,700,800
NOW Accounts
$
 
1,200,4001,125,171
$
 
3,0383,489
1.011.23
%
$
 
1,033,1901,016,475
$
 
120868
0.050.34
%
$
 
1,214,5851,184,453
$
 
5,1908,679
0.860.98
%
$
 
1,056,4191,042,958
$
 
2061,074
0.040.14
%
Money Market Accounts
288,466322,623
7471,294
1.041.59
286,210288,758
3671
0.050.10
278,077293,089
9552,249
0.691.03
285,810286,804
69140
0.050.07
Savings Accounts
602,848579,245
120200
0.080.14
628,472643,640
7780
0.05
616,045603,643
196396
0.060.09
613,996623,986
149229
0.05
Other Time Deposits
87,97395,203
103231
0.470.96
95,13294,073
33
0.14
88,81990,970
155386
0.350.57
96,08895,408
6699
0.14
Total Interest Bearing Deposits
2,179,6872,122,242
4,0085,214
0.740.97
2,043,0042,042,946
2661,052
0.050.20
2,197,5262,172,155
6,49611,710
0.600.72
2,052,3132,049,156
4901,542
0.050.10
Total Deposits
3,719,5643,596,816
4,0085,214
0.430.58
3,765,3283,769,864
2661,052
0.030.11
3,768,1683,710,423
6,49611,710
0.350.42
3,739,8373,749,956
4901,542
0.030.05
Repurchase Agreements
17,88825,356
115190
2.582.98
5,06411,665
-5
0.030.18
13,63917,588
124314
1.832.39
6,0937,971
16
0.030.11
Other Short-Term Borrowings
17,83424,306
336440
7.547.17
26,71835,014
343531
5.156.01
27,74526,586
7881,228
5.736.17
25,97329,020
5341,065
4.144.90
Subordinated Notes Payable
52,887
604625
4.524.62
52,887
370443
2.763.28
52,887
1,1751,800
4.424.49
52,887
6871,130
2.582.82
Other Long-Term Borrowings
431387
54
4.804.73
722580
86
4.544.74
455433
1115
4.804.78
777710
1723
4.514.58
Total Interest Bearing Liabilities
2,268,7272,225,178
5,0686,473
0.901.15
%
2,128,3952,143,092
9872,037
0.190.38
%
2,292,2522,269,649
8,59415,067
0.760.89
%
2,138,0432,139,744
1,7293,766
0.160.24
%
Other Liabilities
84,30583,099
87,20798,501
82,76582,877
79,72886,055
TOTAL LIABILITIES
3,892,9093,782,851
3,937,9273,968,511
3,945,6593,890,794
3,905,2953,926,599
Temporary Equity
8,9358,424
10,0969,862
8,8698,719
10,30610,156
 
TOTAL SHAREOWNERS’ EQUITY
418,757427,580
373,365379,305
411,452416,887
378,631378,858
TOTAL LIABILITIES, TEMPORARY
 
AND SHAREOWNERS’ EQUITY
$
 
4,320,6014,218,855
$
 
4,321,3884,357,678
$
 
4,365,9804,316,400
$
 
4,294,2324,315,613
 
Interest Rate Spread
3.54
%
3.14
%
3.66
%
2.78
%
3.72
%
2.642.82
%
Net Interest Income
$
 
40,09339,367
$
 
28,40933,488
$
 
80,582120,093
$
 
53,18387,163
Net Interest Margin
(3)
4.054.03
%
2.873.32
%
4.04
%
2.712.93
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loans fees of $0.3$0.1 million
 
and $0.4less than $0.1 million for the three month periods ended June 30,
 
ended September 30, 2023 and
 
2022, respectively, and $0.6$0.1 million and $0.5$0.6 million for the sixnine month periods ended September
 
June 30, 2023 and 2022, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earning assets.
4648
Item 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s
 
Discussion and Analysis of Financial Condition and Results of
Operations, above, which is incorporated herein by reference.
 
Management has determined that no additional disclosures are
necessary to assess changes in information about market risk that have occurred
 
since December 31, 2022.
Item 4.
 
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At JuneSeptember 30, 2023, the end of the period covered by this Form 10-Q, our management,
 
including our Chief Executive Officer and Chief
Chief Financial Officer, evaluated
 
the effectiveness of our disclosure controls and procedures (as defined
 
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.ineffective as of September 30,
2023 due to the identification of the material weakness discussed below.
Previously Reported Material Weakness
in Internal Control Over Financial Reporting
Our management including our Chief Executive Officeris responsible for establishing and maintaining effective
 
and Chief Financial Officer, has reviewed
our internal control over financial reporting, as such term is
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934).1934. As reported
 
Duringin our 2022 Form 10-K/A, we did not maintain
effective internal control as of December 31, 2022 as a result of
a material weakness in our internal control over financial reporting for
the review of certain inter-company mortgage sales and
servicing. A material weakness is a deficiency,
or a combination of
deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the
Company’s annual interim financial
statements will not be prevented or detected on a timely basis. Refer to our 2022
Form 10-K/A for
a description of our material weakness.
Ongoing Remediation Efforts to Address Material
Weakness
Our material weakness was not remediated as of September 30, 2023.
Since identifying the material weakness described above,
management, with oversight from the Audit Committee and input from the Board
of Directors, has devoted substantial resources to the
ongoing implementation of remediation efforts. These
remediation efforts, summarized below,
which either have already been
implemented or are continuing to be implemented, are intended to
address both the identified material weakness and to enhance the
Company’s overall internal
control over financial reporting and disclosure controls and procedures.
Certain internal control and procedural enhancements and remedial
actions are in the process of completion, including:
●
Enhance the precision level for the review of existing accounts subject to elimination
and confirmation of proper elimination
in consolidation;
●
Enhance the procedures for identifying new inter-company
accounts and activities subject to elimination in consolidation;
●
Increase the granularity of general ledger mapping for inter-company
accounts subject to elimination in consolidation; and
●
Enhance financial close checklist and pre-close meeting agenda to ensure proper
and timely identification of inter-company
activities subject to elimination.
Management believes the foregoing effects will effectively
remediate the material weakness described above. As the Company
continues to evaluate and improve its internal control over financial reporting
and disclosure controls and procedures, management
may determine to take additional measures to improve controls and determine
to modify the remediation plan described above. The
Company is working to remediate the material weakness as efficiently
and effectively as possible. Procedures to implement the
remediation plan have required significant amounts of time, allocation of internal
resources and external costs, and remaining
remediation efforts will continue to place significant demands on
financial and operational resources until this plan is completed.
The material weakness described above cannot be considered remediated until
the applicable controls have operated for a sufficient
period of time and management has concluded, through testing, that
these controls are designed and operating effectively.
Accordingly, management
will continue to monitor and evaluate the effectiveness of our internal control over
financial reporting in
the activities affected by the material weakness described above.
Changes in Internal Control
Except as identified above with respect to remediation of the material weakness,
during the quarter ended on JuneSeptember 30, 2023, there
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.
 
49
PART
 
II.
 
OTHER INFORMATION
Item 1.
 
Legal Proceedings
We are party
 
to lawsuits arising out of the normal course of business.
 
In management's opinion, there is no known pending litigation,
the outcome of which would, individually or in the aggregate, have a material effect
 
on our consolidated results of operations,
financial position, or cash flows.
Item 1A.
 
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider
 
the factors discussed in Part I,
Item 1A. “Risk Factors” in our 2022 Form 10-K,10-K/A, as updated in our subsequent
 
quarterly reports. The risks described in our 2022 Form
10-KForm 10-K/A and our subsequent quarterly reports are not the only risks facing
us. Additional risks
and uncertainties not currently
known to us
or that we currently deem to be immaterial also may materially adversely affect
 
affect our business, financial condition and/or operating
operating results.
Item 2.
 
Unregistered Sales of Equity Securities and Use of
 
Proceeds
Purchases of Equity Securities by the Issuer and
 
Affiliated Purchasers
The following table contains information about all purchases made by,
 
or on behalf of, us and any affiliated purchaser (as defined
 
in
Rule 10b-18(a)(3) under the Exchange Act) of shares or other units of any class of
 
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
AprilJuly 1, 2023 to
April 30, 2023
4,000
$30.49
4,000
543,807
May 1, 2023 to
MayJuly 31, 2023
36,495
29.70
36,495
507,312
June 1, 2023 to
June 30, 2023
-
-
-
507,312
August 1, 2023 to
August 31, 2023
10,697
30.18
10,697
496,615
September 1, 2023 to
September 30, 2023
25,714
30.17
25,714
470,901
Total
40,49536,411
$29.7830.17
40,49536,411
507,312
47470,901
(1)
This amount represents the number of shares that were repurchased during
 
the secondthird 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
(c) Rule 10b5-1 Trading Plans
During the three months ended JuneSeptember 30, 2023, none
of our directors or officers
(as (as defined in Rule 16a-1(f) under the
Exchange
Act)
adopted
or
terminated
any contract, instruction or written plan for
the purchase or sale of our securities that was intended
to
satisfy the
affirmative defense conditions of Rule 10b5-1(c) under
 
under the Exchange Act or any “non-Rule “
non-Rule
10b5-1
trading arrangement” as defined
in
defined in Item 408(c) of Regulation S-K.
 
4850
 
4952
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has
duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly
 
authorized.
CAPITAL CITY
 
BANK GROUP,
 
INC.
 
(Registrant)
/s/ Jeptha E. Larkin
 
Jeptha E. Larkin
Executive Vice President
 
and Chief Financial Officer
(Mr. Larkin is the Principa
lPrincipal
 
Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: July 31,December 22, 2023