UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
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:
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
,
,
(Address of principal executive office)
(Zip Code)
(
)
(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
, 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes [
X
] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☒
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 [ ]
At June 28, 2024,
2
CAPITAL CITY BANK GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2024
TABLE OF CONTENTS
PART I – Financial Information
Page
Item 1.
Consolidated Statements of Financial Condition – March 31, 2024 and December 31, 2023
5
Consolidated Statements of Income – Three Months Ended March 31, 2024 and 2023
6
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2024 and 2023
7
Consolidated Statements of Changes in Shareowners’ Equity – Three Months Ended March 31, 2024 and 2023
8
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2024 and 2023
9
Notes to Consolidated Financial Statements
10
Item 2.
33
Item 3.
48
Item 4.
48
PART II – Other Information
Item 1.
Legal Proceedings
49
Item 1A.
Risk Factors
49
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
49
Item 3.
Defaults Upon Senior Securities
49
Item 4.
Mine Safety Disclosure
50
Item 5.
Other Information
50
Item 6.
Exhibits
51
Signatures
52
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of
which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “vision,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from
those set forth in our forward-looking statements.
Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part II, Item 1A. “Risk
Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K/A for the year
ended December 31, 2023 (the “2023 Form 10-K/A”), as updated in our subsequent quarterly reports filed on Form 10-Q, as well as, among
other factors:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
adverse developments in the financial services industry generally, such as 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;
●
changes in monetary and fiscal policies of the U.S. Government;
●
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;
●
our ability to retain key personnel;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies (including pandemics, such
as the COVID-19 pandemic), military conflict, terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we
operate;
●
the impact of the restatement of our previously issued consolidated statements of cash flows for the years ended December 31, 2021, 2022
and 2023 and for each of the three month periods ended March 31, 2022 and 2023, six month periods ended June 30, 2022 and 2023 and
nine month periods ended September 30, 2022 and 2023;
●
any deficiencies in the processes undertaken to effect such restatements and to identify and correct all errors in our historical financial
statements that may require restatement;
●
any inability to implement and maintain effective internal control over financial reporting and/or disclosure control or inability to
remediate our existing material weaknesses in our internal controls deemed ineffective;
●
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
●
increased competition and its effect on pricing;
●
technological changes;
●
the cost and effects of cybersecurity incidents or other failures, interruptions, or security breaches of our systems of those of our customers
or third-party providers;
●
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
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.
5
PART I.
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31,
December 31,
(Dollars in Thousands, Except Par Value)
2024
2023
ASSETS
Cash and Due From Banks
$
$
Federal Funds Sold and Interest Bearing Deposits
Total Cash and Cash Equivalents
Investment Securities, Available for Sale, at fair value (amortized cost of $
)
Investment Securities, Held to Maturity (fair value of $
)
Equity Securities
Total Investment Securities
Loans Held For Sale, at fair value
Loans Held for Investment
Allowance for Credit Losses
(29,329 )
(29,941 )
Loans Held for Investment, Net
Premises and Equipment, Net
Goodwill and Other Intangibles
Other Real Estate Owned
Other Assets
Total Assets
$
$
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
$
Interest Bearing Deposits
Total Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Other Liabilities
Total Liabilities
Temporary Equity
SHAREOWNERS’ EQUITY
Preferred Stock, $
-
-
Common Stock, $
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, net of tax
(22,080 )
(22,146 )
Total Shareowners’
Equity
Total Liabilities, Temporary Equity, and Shareowners’ Equity
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
(Dollars in Thousands, Except Per Share Data)
2024
2023
INTEREST INCOME
Loans, including Fees
$
$
Investment Securities:
Taxable Securities
Tax Exempt Securities
Federal Funds Sold and Interest Bearing Deposits
Total Interest Income
INTEREST EXPENSE
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Interest Expense
NET INTEREST INCOME
Provision for Credit Losses
Net Interest Income After Provision for Credit Losses
NONINTEREST INCOME
Deposit Fees
Bank Card Fees
Wealth Management Fees
Mortgage Banking Revenues
Other
Total Noninterest Income
NONINTEREST EXPENSE
Compensation
Occupancy, Net
Other
Total Noninterest Expense
INCOME BEFORE INCOME TAXES
Income Tax Expense
NET INCOME
$
$
Loss Attributable to Noncontrolling Interests
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
$
BASIC NET INCOME PER SHARE
$
$
DILUTED NET INCOME PER SHARE
$
$
Average Basic Shares Outstanding
Average Diluted Shares Outstanding
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
March 31,
(Dollars in Thousands)
2024
2023
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
$
Other comprehensive income, before tax:
Investment Securities:
Change in net unrealized loss on securities available for sale
(1,175 )
Amortization of unrealized losses on securities transferred from available for sale to held to maturity
Derivative:
Change in net unrealized gain on effective cash flow derivative
(801 )
Other comprehensive income, before tax
Deferred tax expense related to other comprehensive income
Other comprehensive income, net of tax
TOTAL COMPREHENSIVE INCOME
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
8
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS’ EQUITY
(Unaudited)
Accumulated
Additional
Comprehensive
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, January 1, 2024
$
$
$
$
(22,146 )
$
Net Income Attributable to Common Shareowners
-
Reclassification to Temporary Equity
(1)
-
Other Comprehensive Income, net of tax
-
Cash Dividends ($
-
(3,555 )
(3,555 )
Repurchase of Common Stock
(82,540 )
(1 )
(2,329 )
(2,330 )
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Balance, March 31, 2024
$
$
$
$
(22,080 )
$
Balance, January 1, 2023
$
$
$
$
(37,229 )
$
Net Income Attributable to Common Shareowners
-
Other Comprehensive Income, net of tax
-
Cash Dividends ($
-
(3,064 )
(3,064 )
Repurchase of Common Stock
(25,241 )
(819 )
(819 )
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Balance, March 31, 2023
$
$
$
$
(32,076 )
$
(1)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
9
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Dollars in Thousands)
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Attributable to Common Shareowners
$
$
Adjustments to Reconcile Net Income to
(105,717 )
(75,626 )
(2,878 )
(2,871 )
(88 )
(91 )
(5 )
(1,799 )
(1,170 )
(3 )
(1,858 )
(4,349 )
(1,497 )
Net Cash Provided By Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
(1,277 )
Securities Available for Sale:
(1,100 )
(2,017 )
Equity Securities:
Purchases of Loans Held for Investment
(302 )
(923 )
Proceeds from Sales of Loans
Net Increase in Loans Held for Investment
(6,830 )
(127,336 )
Proceeds From Sales of Other Real Estate Owned
Purchases of Premises and Equipment
(2,237 )
(1,886 )
Net Cash Provided by (Used In) Investing Activities
(84,000 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits
(47,021 )
(115,397 )
Net Decrease in Short-Term Borrowings
(3,455 )
(30,161 )
Repayment of Other Long-Term Borrowings
(50 )
(50 )
Dividends Paid
(3,555 )
(3,064 )
Payments to Repurchase Common Stock
(2,330 )
(819 )
Proceeds from Issuance of Common Stock Under Purchase Plans
Net Cash Used In by Financing Activities
(56,239 )
(149,327 )
NET DECREASE IN CASH AND CASH EQUIVALENTS
(7,378 )
(212,698 )
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period
$
Supplemental Cash Flow Disclosures:
$
$
$
$
Supplemental Noncash Items:
$
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
10
CAPITAL CITY BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
. Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of banking and banking-
related services to individual and corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama. The Company is subject to competition from other financial institutions, is subject to regulation by certain
government agencies and undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of CCBG
and its wholly owned subsidiary, Capital City Bank (“CCB” or the “Bank”). All material inter-company transactions and accounts
have been eliminated. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and notes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
The Consolidated Statement of Financial Condition at December 31, 2023 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and notes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the
Company’s 2023 Form 10-K/A.
Accounting Standards Updates
Adoption of New Accounting Standard,
“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. The standard
is effective for the Company on January 1, 2024. As the Company does not have any such common control leases, adoption of this
standard will not have any immediate impact 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. The standard is effective for the
Company on January 1, 2024. As the Company does not have any such investments in tax credit structures that are accounted for
using the proportional amortization method, adoption of this standard will not have any immediate impact on its consolidated financial
statements or disclosures.
ASU No. 2023-06, “Disclosure Improvements : Codification Amendments in Response to the SEC’s Disclosure Update and
Simplification Initiative.”
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.
11
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale (“AFS”) and securities held-to-maturity (“HTM”) and the corresponding amounts of gross
unrealized gains and losses.
Available for Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
March 31, 2024
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(39 )
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(43 )
Other Securities
(2)
Total
$
$
$
$
(82 )
$
December 31, 2023
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(8 )
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(17 )
Other Securities
(2)
Total
$
$
$
$
(25 )
$
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
March 31, 2024
U.S. Government Treasury
$
$
$
$
Mortgage-Backed Securities
(1)
Total
$
$
$
$
December 31, 2023
U.S. Government Treasury
$
$
$
$
Mortgage-Backed Securities
(1)
Total
$
$
$
$
(1)
(2)
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded at cost of $
respectively, at March 31, 2024 and $
At March 31, 2024 and December 31, 2023, the investment portfolio had $
securities. These securities do not have a readily determinable fair value and were not credit impaired.
Securities with an amortized cost of $
pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB advances. FHLB stock, which is included in
other securities, is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
12
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.
Investment Sales.
There were
Maturity Distribution
. At March 31, 2024, the Company’s investment securities had the following maturity distribution based on
contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or
prepay obligations. Mortgage-backed securities (“MBS”) and certain amortizing U.S. government agency securities are shown
separately because they are not due at a certain maturity date.
Available for Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
$
$
$
Due after one year through five years
Due after five year through ten years
Mortgage-Backed Securities
U.S. Government Agency
Other Securities
Total
$
$
$
$
13
Unrealized Losses on Investment Securities.
unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31, 2024
Available for Sale
U.S. Government Treasury
$
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Total
$
$
$
$
$
$
Held to Maturity
U.S. Government Treasury
Mortgage-Backed Securities
Total
$
$
$
$
$
$
December 31, 2023
Available for Sale
U.S. Government Treasury
$
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Total
$
$
$
$
$
$
Held to Maturity
U.S. Government Treasury
Mortgage-Backed Securities
Total
$
$
$
$
$
$
At March 31, 2024, there were
positions are U.S. Treasury bonds and carry the full faith and credit of the U.S. Government.
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
securities and corporate bonds) have a credit component. At March 31, 2024, all collateralized mortgage obligation securities,
mortgage-backed securities, Small Business Administration securities, U.S. Agency, and U.S. Treasury bonds held were AAA rated.
At March 31, 2024, corporate debt securities had an allowance for credit losses of $
of $
.
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
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.
14
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio Composition
. The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
March 31, 2024
December 31, 2023
Commercial, Financial and Agricultural
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
(1)
Real Estate – Home Equity
Consumer
(2)
Loans Held For Investment, Net of Unearned Income
$
$
(1)
Includes loans in process balances of $
(2)
Includes overdraft balances of $
Net deferred loan costs, which include premiums on purchased loans, included in loans were $
million at December 31, 2023.
Accrued interest receivable on loans which is excluded from amortized cost totaled $
at December 31, 2023, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
. The Company will periodically purchase newly originated 1-4 family real estate secured adjustable-rate
loans from CCHL, a related party. Residential loan purchases from CCHL totaled $
months ended March 31, 2024 and March 31, 2023, respectively, and were not credit impaired.
15
Allowance for Credit Losses
. The methodology for estimating the amount of credit losses reported in the allowance for credit losses
(“ACL”) has two basic components: first, an asset-specific component involving loans that do not share risk characteristics and the
measurement of expected credit losses for such individual loans; and second, a pooled component for expected credit losses for pools
of loans that share similar risk characteristics. This allowance methodology is discussed further in Note 1 – Significant Accounting
Policies in the Company’s 2023 Form 10-K/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.
Commercial,
Real Estate
Financial,
Real Estate
Commercial
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
March 31, 2024
Beginning Balance
$
$
$
$
$
$
$
Provision for Credit Losses
(633 )
(39 )
(248 )
Charge-Offs
(282 )
(17 )
(76 )
(2,188 )
(2,563 )
Recoveries
Net (Charge-Offs) Recoveries
(241 )
(52 )
(1,425 )
(1,494 )
Ending Balance
$
$
$
$
$
$
$
Three Months Ended
March 31, 2023
Beginning Balance
$
$
$
$
$
$
$
Provision for Credit Losses
(10 )
Charge-Offs
(164 )
(120 )
(2,366 )
(2,650 )
Recoveries
Net (Charge-Offs) Recoveries
(69 )
(112 )
(1,422 )
(1,520 )
Ending Balance
$
$
$
$
$
$
$
For the three months ended March 31, 2024, the allowance for HFI loans decreased by $
of $
rates, and a combination of lower loan balances and shift in mix within the portfolio. For the three months ended March 31, 2023, the
allowance for HFI loans increased by $
million. The increase was primarily driven by incremental reserves needed for loan growth. 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.
16
Loan Portfolio Aging.
A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing past due loans by class of loans.
30-59
60-89
90 +
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
March 31, 2024
Commercial, Financial and Agricultural
$
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
$
$
$
$
$
$
$
December 31, 2023
Commercial, Financial and Agricultural
$
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
$
$
$
$
$
$
$
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.
March 31, 2024
December 31, 2023
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Nonaccrual Loans
$
$
$
$
$
$
17
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent loans.
March 31, 2024
December 31, 2023
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Collateral Dependent Loans
$
$
$
$
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on the
sale or operation of the underlying collateral.
The Bank’s collateral dependent loan portfolio is comprised primarily of real estate secured loans, collateralized by either residential
or commercial collateral types. The loans are carried at fair value based on current values determined by either independent appraisals
or internal evaluations, adjusted for selling costs or other amounts to be deducted when estimating expected net sales proceeds.
Residential Real Estate Loans In Process of Foreclosure
. At March 31, 2024 and December 31, 2023, the Company had $
and $
Modifications to Borrowers Experiencing Financial Difficulty.
Occasionally, the Company may modify loans to borrowers who are
experiencing financial difficulty. Loan modifications to borrowers in financial difficulty are loans in which the Company has granted
an economic concession to the borrower that it would not otherwise consider. In these instances, as part of a work-out alternative, the
Company will make concessions including the extension of the loan term, a principal moratorium, a reduction in the interest rate, or a
combination thereof. The impact of the modifications and defaults are factored into the allowance for credit losses on a loan-by-loan
basis. Thus specific reserves are established based upon the results of either a discounted cash flow analysis or the underlying
collateral value, if the loan is deemed to be collateral dependent. A modified loan classification can be removed if the borrower’s
financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of
principal or interest, and the loan is subsequently refinanced or restructured at market terms and qualifies as a new loan.
At March 31, 2024, and December 31, 2023, the Company did
t have any modified loans made to borrowers due to the borrower
experiencing financial difficulty.
Credit Risk Management
. The Company has adopted comprehensive lending policies, underwriting standards and loan review
procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review and
approve these policies and procedures on a regular basis (at least annually).
Reporting systems are used to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming
loans and potential problem loans. Management and the Credit Risk Oversight Committee periodically review our lines of business to
monitor asset quality trends and the appropriateness of credit policies. In addition, total borrower exposure limits are established and
concentration risk is monitored. As part of this process, the overall composition of the portfolio is reviewed to gauge diversification
of risk, client concentrations, industry group, loan type, geographic area, or other relevant classifications of loans. Specific segments
of the loan portfolio are monitored and reported to the Board on a quarterly basis and have strategic plans in place to supplement
Board approved credit policies governing exposure limits and underwriting standards. Detailed below are the types of loans within
the Company’s loan portfolio and risk characteristics unique to each.
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt service coverage
ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all new and existing debt.
The majority of these loans are secured by the assets being financed or other business assets such as accounts receivable, inventory, or
equipment. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are
governed by established policy guidelines.
18
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or
rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and generally
secured by the property being financed, including 1-4 family residential properties and commercial properties that are either owner-
occupied or investment in nature. These properties may include either vacant or improved property. Construction loans are generally
based upon estimates of costs and value associated with the completed project. Collateral values are determined based upon third
party appraisals and evaluations. Loan to value ratios at origination are governed by established policy guidelines. The disbursement
of funds for construction loans is made in relation to the progress of the project and as such these loans are closely monitored by on-
site inspections.
Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that is either
owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the borrower or project
with consideration given to underlying real estate collateral and personal guarantees. Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type. Collateral values are determined based upon third party
appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting factors such as current income, employment status, current
assets, and other financial resources, credit history, and the value of the collateral. Collateral consists of mortgage liens on 1-4 family
residential properties. Collateral values are determined based upon third party appraisals and evaluations. The Company does not
originate sub-prime loans.
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally secured
by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications include
favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios within
established policy guidelines. Collateral values are determined based upon third party appraisals and evaluations.
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft
lines of credit. The majority of the consumer loan category consists of direct and indirect automobile loans. Lending policy
establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income and
receipt of credit reports.
Credit Quality Indicators
. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes loans
into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial
information, historical payment performance, credit documentation, and current economic and market trends, among other
factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for individual loan
relationships over a predetermined amount and review of smaller balance homogenous loan pools. The Company uses the definitions
noted below for categorizing and managing its criticized loans. Loans categorized as “Pass” do not meet the criteria set forth below
and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could
cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than
the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the
borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous loan pools (home equity and consumer) are not individually reviewed,
but are monitored for credit quality via the aging status of the loan and by payment activity. The performing or nonperforming status
is updated on an on-going basis dependent upon improvement and deterioration in credit quality.
19
The following tables summarize gross loans held for investment at March 31, 2024 and December 31, 2023 and current period gross
write-offs for the three months ended March 31, 2024 and twelve months ended December 31, 2023 by years of origination and
internally assigned credit risk ratings (refer to Credit Risk Management section for detail on risk rating system).
(Dollars in Thousands)
Term Loans by Origination Year
Revolving
As of March 31, 2024
2024
2023
2022
2021
2020
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate -
Construction:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate -
Commercial Mortgage:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate - Residential:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Home
Equity:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Consumer:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
20
(Dollars in Thousands)
Term Loans by Origination Year
Revolving
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Construction:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate - Commercial
Mortgage:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Residential:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Home
Equity:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Consumer:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
21
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.
March 31, 2024
December 31, 2023
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
$
$
$
Residential Mortgage Loan Commitments ("IRLCs")
(1)
Forward Sales Contracts
(2)
$
$
(1)
Recorded in other assets at fair value
(2)
Recorded in other liabilities at fair value
At March 31, 2024, the Company had $
loans were on nonaccrual status. At December 31, 2023, the Company had
due and $
Mortgage banking revenue was as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2024
2023
Net realized gains on sales of mortgage loans
$
$
Net change in unrealized gain on mortgage loans held for sale
Net change in the fair value of mortgage loan commitments
Net change in the fair value of forward sales contracts
(402 )
Pair-Offs on net settlement of forward sales contracts
(1 )
Mortgage servicing rights additions
Net origination fees
Total mortgage banking revenues
$
$
22
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans sold. The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
March 31, 2024
December 31, 2023
Number of residential mortgage loans serviced for others
Outstanding principal balance of residential mortgage loans serviced for others
$
$
Weighted average interest rate
Remaining contractual term (in months)
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
March 31, 2024, the servicing portfolio balance consisted of the following loan types: FNMA (
%), GNMA (
%), and private
investor (
%). FNMA and private investor loans are structured as actual/actual payment remittance.
The Company had
December 31, 2023, respectively. The right to repurchase these loans and the corresponding liability has been recorded in other assets
and other liabilities, respectively, in the Consolidated Statement of Financial Condition. The Company had
three months ended March 31, 2024, and $
residential loans from the GNMA pools. When delinquent residential loans are repurchased, the Company has the intention to modify
their terms and include the loans in new GNMA pools.
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended
March 31,
(Dollars in Thousands)
2024
2023
Beginning balance
$
$
Additions due to loans sold with servicing retained
Deletions and amortization
(62 )
(99 )
Sale of servicing rights
Ending balance
$
$
The Company did
t record any permanent impairment losses on mortgage servicing rights for the three months ended March 31,
2024 or 2023.
The key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights were as follows:
March 31, 2024
December 31, 2023
Minimum
Maximum
Minimum
Maximum
Discount rates
Annual prepayment speeds
Cost of servicing (per loan)
$
$
$
$
23
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
% at March 31, 2024 and
% at December 31, 2023.
Warehouse Line Borrowings
The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at
March 31, 2024.
Amounts
(Dollars in Thousands)
Outstanding
$
, with a floor rate of
. A cash pledge deposit of $
$
$
December 2024
. Interest is at the SOFR plus
,
to
.
Total Warehouse Borrowings
$
Warehouse line borrowings are classified as short-term borrowings. At March 31, 2024, warehouse line borrowings totaled $
million. At March 31, 2024, the Company had residential mortgage loans held for sale pledged as collateral under the above
warehouse lines of credit and master repurchase agreements. The above agreements also contain covenants which include certain
financial requirements, including maintenance of minimum tangible net worth, minimum liquid assets, and maximum debt to net
worth ratio, as defined in the agreements. The Company was in compliance with all significant debt covenants at March 31, 2024.
The Company has extended a $
% owned subsidiary entity. Balances and
transactions under this line of credit are eliminated in the Company’s consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of Financial Condition. The balance of this line of credit was $
million at March 31, 2024 and December 31, 2023, respectively.
NOTE 5 – DERIVATIVES
The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s
derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or
expected cash receipts and its known or expected cash payments principally related to the Company’s subordinated debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
debt. Under the swap arrangement, the Company will pay a fixed interest rate of
% and receive a variable interest rate based on
three-month CME Term SOFR (secured overnight financing rate).
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives
will be reclassified to interest expense as interest payments are made on the Company’s variable-rate subordinated debt.
The following table reflects the cash flow hedges included in the consolidated statements of financial condition
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
March 31, 2024
Interest rate swaps related to subordinated debt
Other Assets
$
$
December 31, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
$
24
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 months ended March 31, 2024.
Amount of (Loss)
Amount of Gain
Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended March 31, 2024
Interest expense
$
$
Three months ended March 31, 2023
Interest expense
(598 )
The Company estimates there will be approximately $
months.
The Company had a collateral liability of $
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
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.
At March 31, 2024, the operating lease ROU assets and liabilities were $
31, 2023, ROU assets and liabilities were $
leases or any significant lessor agreements.
The table below summarizes our lease expense and other information related to the Company’s operating leases.
Three Months Ended
March 31,
(Dollars in Thousands)
2024
2023
Operating lease expense
$
$
Short-term lease expense
Total lease expense
$
$
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
$
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted average remaining lease term — operating leases (in years)
Weighted average discount rate — operating leases
25
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
March 31, 2024
2024
$
2025
2026
2027
2028
2029 and thereafter
Total
$
Less: Interest
(7,951 )
Present Value of Lease liability
$
At March 31, 2024, the Company had
commenced. The lease has payments totaling $
office are expected to commence after the construction period ends, which is expected to occur during the fourth quarter of 2024.
A related party is the lessor in a land lease with the Company. The payments under the lease agreement provide for annual lease
payments of approximately $
% every
which time the rent amount will adjust based on reappraisal of the parcel rental value. The Company then has
to extend the lease for
totaled $
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 March 31,
(Dollars in Thousands)
2024
2023
Service Cost
$
$
Interest Cost
Expected Return on Plan Assets
(2,029 )
(1,701 )
Prior Service Cost Amortization
Net Loss Amortization
Net Periodic Benefit Cost
$
$
Discount Rate Used for Benefit Cost
Long-term Rate of Return on Assets
26
The components of the net periodic benefit cost for the Company's SERP plans were as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2024
2023
Service Cost
$
$
Interest Cost
Prior Service Cost Amortization
Net Loss Amortization
(70 )
(155 )
Net Periodic Benefit Cost
$
$
Discount Rate Used for Benefit Cost
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:
March 31, 2024
December 31, 2023
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
$
$
$
$
$
$
Standby Letters of Credit
Total
$
$
$
$
$
$
(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.
27
Three Months Ended March 31,
(Dollars in Thousands)
2024
2023
Beginning Balance
$
$
Provision for Credit Losses
(70 )
(156 )
Ending Balance
$
$
Other Commitments.
In the normal course of business, the Company enters into lease commitments which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the Company’s operating lease commitments.
The Company has an outstanding commitment of up to $
funding technology solutions for community banks. At March 31, 2024, the amount remaining to be funded for the commitment was
$
Contingencies
. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's opinion,
there are
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 $
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, 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.
28
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.
through net income as an adjustment to the investment balance. These securities are not readily marketable and therefore are classified
as a Level 3 input within the fair value hierarchy.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined, when possible,
using either quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market
participants. The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics, commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy. The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are classified as Level 2 within the fair value hierarchy and are valued using
models generally accepted in the financial services industry and that use actively quoted or observable market input values from
external market data providers. The fair value derivatives are determined using discounted cash flow models.
Fair Value Swap
. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The
valuation represents the amount due and payable to the counterparty based upon the revised share conversion rate, if any, during the
period. At March 31, 2024 and December 31, 2023, there were
29
A summary of fair values for assets and liabilities recorded at fair value on a recurring basis consisted of the following:
Level 1
Level 2
Level 3
Total Fair
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
March 31, 2024
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Equity Securities
Loans Held for Sale
Residential Mortgage Loan Commitments
Interest Rate Swap Derivative
LIABILITIES:
Forward Sales Contracts
December 31, 2023
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Equity Securities
Loans Held for Sale
Residential Mortgage Loan Commitments
Interest Rate Swap Derivative
LIABILITIES:
Forward Sales Contracts
Mortgage Banking Activities
. The Company had Level 3 issuances and transfers related to mortgage banking activities of $
and $
three months ended March 31, 2023. Issuances are valued based on the change in fair value of the underlying mortgage loan from
inception of the IRLC to the Consolidated Statement of Financial Condition date, adjusted for pull-through rates and costs to originate.
IRLCs transferred out of Level 3 represent IRLCs that were funded and moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of impairment.
The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Collateral Dependent Loans
. Impairment for collateral dependent loans is measured using the fair value of the collateral less selling
costs. The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with banking
regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the judgment and
estimation involved in the real estate appraisal process. Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly. Valuation techniques are consistent with those techniques applied in prior
periods. Collateral-dependent loans had a carrying value of $
2024 and a carrying value of $
30
Other Real Estate Owned
. During the first three months of 2024, certain foreclosed assets, upon initial recognition, were measured
and reported at fair value through a charge-off to the allowance for credit losses based on the fair value of the foreclosed asset less
estimated cost to sell. The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in
conformance with banking regulations. On an ongoing basis, we obtain updated appraisals on foreclosed assets and realize valuation
adjustments as necessary. The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment and estimation
involved in the real estate valuation process.
Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment at each reporting period based
upon the fair value of the rights as compared to the carrying amount. Fair value is determined by a third party valuation model using
estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the
underlying loans (predominantly loan type and note interest rate). The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and the cost of loan servicing. Further detail on the key inputs utilized are
provided in Note 4 – Mortgage Banking Activities. At each of March 31, 2024 and December 31, 2023, there was
allowance for loan servicing rights.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation methodologies used for those assets and liabilities.
Cash and Short-Term Investments.
The carrying amount of cash and short-term investments is used to approximate fair value, given
the short time frame to maturity and as such assets do not present unanticipated credit concerns.
Securities Held to Maturity
. Securities held to maturity are valued in accordance with the methodology previously noted in the
caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale.”
Other Equity Securities.
securities are not readily marketable securities and are reflected in Other Assets on the Statement of Financial Condition.
Loans.
techniques based upon projected cash flows and estimated discount rates. The values reported reflect the incorporation of a liquidity
discount to meet the objective of “exit price” valuation.
Deposits.
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.
flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings.
projected cash flows and estimated discount rates as well as rates being offered for similar debt.
31
A summary of estimated fair values of significant financial instruments not recorded at fair value consisted of the following:
March 31, 2024
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Fed Funds Sold and Interest Bearing Deposits
Investment Securities, Held to Maturity
Other Equity Securities
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
December 31, 2023
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Fed Funds Sold and Interest Bearing Deposits
Investment Securities, Held to Maturity
Other Equity Securities
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
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.
32
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)
Swap
Plans
Balance as of January 1, 2024
$
(25,691 )
$
$
(425 )
$
(22,146 )
Other comprehensive (loss) income during the period
(260 )
Balance as of March 31, 2024
$
(25,951 )
$
$
(425 )
$
(22,080 )
Balance as of January 1, 2023
$
(37,349 )
$
$
(4,505 )
$
(37,229 )
Other comprehensive income (loss) during the period
(598 )
Balance as of March 31, 2023
$
(31,598 )
$
$
(4,505 )
$
(32,076 )
33
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have
affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes. The following information should provide a better understanding of the major factors and trends that
affect our earnings performance and financial condition, and how our performance during the first quarter of 2024 compares with prior
periods. Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively, is referred to as “CCBG,” “Company,”
“we,” “us,” or “our.”
CAUTION CONCERNING FORWARD -LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including this MD&A section, contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our
beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are
subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,”
“believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “vision,” “goal,” and similar expressions are intended to
identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially
from those set forth in our forward-looking statements. Please see the Introductory Note of this quarterly report on Form 10-Q as well
as the Introductory Note and
Item 1A. Risk Factors
Form 10-Q, and in our other filings made from time to time with the SEC after the date of this report.
However, other factors besides those listed in our Quarterly Report or in our Annual Report also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking
statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the “Bank” or “CCB”). We offer a broad array of products and services through a total of 63 full-service offices
and 104 ATMs/ITMs located in Florida, Georgia, and Alabama. Through Capital City Home Loans, LLC (“CCHL”), we have 29
additional offices in the Southeast for our mortgage banking business. We provide a full range of banking services, including
traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage
services and financial advisory services, including life insurance products , risk management and asset protection services.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference
between the interest and fees received on interest earning assets, such as loans and securities, and the interest paid on interest-bearing
liabilities, principally deposits and borrowings. Results of operations are also affected by the provision for credit losses, operating
expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest
income such as mortgage banking revenues, wealth management fees, deposit fees, and bank card fees.
We have included a detailed discussion of the economic conditions in our markets and our long-term strategic objectives as part of the
MD&A section of our 2023 Form 10-K/A.
34
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
We present a tangible common equity ratio and a tangible book value per diluted share that, in each case, removes the effect of
goodwill and other intangibles that resulted from merger and acquisition activity. We believe these measures are useful to investors
because it allows investors to more easily compare our capital adequacy to other companies in the industry. The generally accepted
accounting principles (“GAAP”) to non-GAAP reconciliation for each quarter presented is provided below.
2024
2023
(Dollars in Thousands, except per share data)
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
448,314
$
440,625
$
419,706
$
412,422
$
403,260
Less: Goodwill and Other Intangibles (GAAP)
92,893
92,933
92,973
93,013
93,053
Tangible Shareowners' Equity (non-GAAP)
A
355,421
347,692
326,733
319,409
310,207
Total Assets (GAAP)
4,259,922
4,304,477
4,138,287
4,391,206
4,401,762
Less: Goodwill and Other Intangibles (GAAP)
92,893
92,933
92,973
93,013
93,053
Tangible Assets (non-GAAP)
B
$
4,167,029
$
4,211,544
$
4,045,314
$
4,298,193
$
4,308,709
Tangible Common Equity Ratio (non-GAAP)
A/B
8.53%
8.26%
8.08%
7.43%
7.20%
Actual Diluted Shares Outstanding (GAAP)
C
16,947,204
17,000,758
16,997,886
17,025,023
17,049,913
Tangible Book Value per Diluted Share (non-GAAP)
A/C
20.97
20.45
19.22
18.76
18.19
35
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
2024
2023
(Dollars in Thousands, Except Per Share Data)
First
Fourth
Third
Second
First
Summary of Operations
:
Interest Income
$
46,820
$
46,184
$
45,753
$
45,205
$
43,926
Interest Expense
8,465
7,013
6,473
5,068
3,526
Net Interest Income
38,355
39,171
39,280
40,137
40,400
Provision for Credit Losses
920
2,025
2,393
2,197
3,099
Net Interest Income After
37,435
37,146
36,887
37,940
37,301
Noninterest Income
18,097
17,157
16,728
19,967
17,758
Noninterest Expense
40,171
39,958
39,105
40,285
37,675
Income Before Income Taxes
15,361
14,345
14,510
17,622
17,384
Income Tax Expense
3,536
2,909
3,004
3,417
3,710
Loss (Income) Attributable to NCI
732
284
1,149
(31)
35
Net Income Attributable to CCBG
12,557
11,720
12,655
14,174
13,709
Net Interest Income (FTE)
(1)
38,435
39,264
39,367
40,224
40,500
Per Common Share
:
Net Income Basic
$
0.74
$
0.69
$
0.75
$
0.83
$
0.81
Net Income Diluted
0.74
0.70
0.74
0.83
0.80
Cash Dividends Declared
0.21
0.20
0.20
0.18
0.18
Diluted Book Value
26.45
25.92
24.69
24.21
23.65
Diluted Tangible Book Value
(2)
20.97
20.45
19.22
18.76
18.19
Market Price:
31.34
32.56
33.44
34.16
36.86
26.59
26.12
28.64
28.03
28.18
27.70
29.43
29.83
30.64
29.31
Selected Average Balances
:
Investment Securities
$
953,184
$
963,184
$
1,005,003
$
1,043,858
$
1,064,212
Loans Held for Investment
2,728,629
2,711,243
2,672,653
2,657,693
2,582,395
Earning Assets
3,849,615
3,823,980
3,876,980
3,974,803
4,062,688
Total Assets
4,190,623
4,166,777
4,218,855
4,320,601
4,411,865
Deposits
3,576,513
3,548,506
3,596,816
3,719,564
3,817,314
Shareowners’ Equity
456,014
435,116
427,580
418,757
404,067
Common Equivalent Average Shares:
16,951
16,947
16,985
17,002
17,016
16,969
16,997
17,025
17,035
17,045
Performance Ratios:
Return on Average Assets (annualized)
1.21
%
1.12
%
1.19
%
1.32
%
1.26
%
Return on Average Equity (annualized)
11.07
10.69
11.74
13.58
13.76
Net Interest Margin (FTE)
4.01
4.07
4.03
4.06
4.04
Noninterest Income as % of Operating Revenue
32.06
30.46
29.87
33.22
30.53
Efficiency Ratio
71.06
70.82
69.88
66.93
64.67
Asset Quality:
Allowance for Credit Losses (“ACL”)
$
29,329
$
29,941
29,083
$
28,243
$
26,808
Nonperforming Assets (“NPAs”)
6,799
6,243
4,695
6,624
4,602
ACL to Loans HFI
1.07
%
1.10
%
1.08
%
1.05
%
1.01
%
NPAs to Total Assets
0.16
0.15
0.11
0.15
0.10
NPAs to Loans HFI plus OREO
0.25
0.23
0.17
0.25
0.17
ACL to Non-Performing Loans
431.46
479.70
619.58
426.44
584.18
Net Charge-Offs to Average Loans HFI
0.22
0.23
0.17
0.07
0.24
Capital Ratios:
Tier 1 Capital
15.67
%
15.37
%
15.11
%
14.56
%
14.23
%
Total Capital
16.84
16.57
16.30
15.68
15.29
Common Equity Tier 1
13.82
13.52
13.26
12.73
12.40
Leverage
10.45
10.30
9.98
9.54
9.09
Tangible Common Equity
(2)
8.53
8.26
8.08
7.43
7.20
(1)
Fully Tax Equivalent
(2)
Non-GAAP financial measure. See non-GAAP reconciliation on page 34.
36
FINANCIAL OVERVIEW
Results of Operations
Performance Summary
. Net income attributable to common shareowners totaled $12.6 million, or $0.74 per diluted share, for the first
quarter of 2024 compared to $11.7 million, or $0.70 per diluted share, for the fourth quarter of 2023, and $13.7 million, or $0.80 per
diluted share, for the first quarter of 2023.
Net Interest Income
. Tax-equivalent net interest income for the first quarter of 2024 totaled $38.4 million compared to $39.3 million
for the fourth quarter of 2023, and $40.5 million for the first quarter of 2023. Compared to both prior periods, the decline was
primarily attributable to an increase in deposit interest expense, partially offset by higher loan interest income. Our net interest margin
for the first quarter of 2024 was 4.01%, a decrease of six basis points from the fourth quarter of 2023 and a decrease of three basis
points from the first quarter of 2023.
Provision and Allowance for Credit Losses.
compared to $2.0 million for the fourth quarter of 2023 and $3.1 million for the first quarter of 2023. The decrease in the provision
compared to the fourth quarter of 2023 was primarily attributable to a lower level of reserves required for new loans, favorable loan
grade migration, and lower loss rates. Compared to the first quarter of 2023, the decrease was driven by lower new loan growth in the
first quarter of 2024.
Noninterest Income
. Noninterest income for the first quarter of 2024 totaled $18.1 million compared to $17.2 million for the fourth
quarter of 2023 and $17.8 million for the first quarter of 2023. The $0.9 million increase over the fourth quarter of 2023 was due to a
$0.5 million increase in mortgage banking revenues and a $0.4 million increase in wealth management fees. Compared to the first
quarter of 2023, the $0.3 million increase was primarily attributable to higher wealth management fees of $0.7 million partially offset
by lower other income of $0.3 million.
Noninterest Expense
. Noninterest expense for the first quarter of 2024 totaled $40.2 million compared to $40.0 million for the fourth
quarter of 2023 and $37.7 million for the first quarter of 2023. The $0.2 million increase over the fourth quarter of 2023 reflected a
$0.6 million increase in compensation expense that was partially offset by decreases in occupancy expense of $0.1 million and other
expense of $0.3 million. Compared to the first quarter of 2023, the $2.5 million increase reflected higher other expense as we realized
a $1.8 million gain from the sale of other real estate (banking office) in the first quarter of 2023. Further, compensation expense was
$0.9 million higher primarily due to a lower level of realized loan cost (credit offset to salary expense) due to decreased new loan
production.
Financial Condition
Earning Assets.
Average earning assets totaled $3.850 billion for the first quarter of 2024, an increase of $25.6 million, or 0.7%, over
the fourth quarter of 2023, and a decrease of $213.1 million, or 5.2%, from the first quarter of 2023. The variance for both prior
period comparisons was driven by change in deposit balances. Compared to both prior periods, the mix of earning assets improved as
overnight funds were utilized to fund loan growth.
Loans.
Average loans held for investment (“HFI”) increased $17.4 million, or 0.6%, over the fourth quarter of 2023 and $146.2
million, or 5.7%, over the first quarter of 2023. Compared to both prior periods, the increase was primarily due to an increase in
residential loans partially offset by a decline in consumer loans (primarily auto). Period end loans decreased $2.7 million, or 0.1%,
from the fourth quarter of 2023 and increased $74.0 million, or 2.8%, over the first quarter of 2023. Compared to the first quarter of
2023, the increase reflected growth in residential loans and to a lesser extent commercial real estate loans partially offset by lower
consumer (auto) loan balances.
Credit Quality
. Overall credit quality remained stable. Nonperforming assets (nonaccrual loans and other real estate) totaled $6.8
million at March 31, 2024 compared to $6.2 million at December 31, 2023 and $4.6 million at March 31, 2023. At March 31, 2024,
nonperforming assets as a percent of total assets equaled 0.16% compared to 0.15% at December 31, 2023 and 0.10% at March 31,
2023. Nonaccrual loans totaled $6.8 million at March 31, 2024, a $0.6 million increase over December 31, 2023 and a $2.2 million
increase over March 31, 2023. Further, classified loans totaled $22.3 million at March 31, 2024, a $0.1 million increase over
December 31, 2023 and a $10.1 million increase over March 31, 2023.
37
Deposits
. Average total deposits were $3.577 billion for the first quarter of 2024, an increase of $28.0 million, or 0.8%, over the fourth
quarter of 2023 and a decrease of $240.8 million, or 6.3%, from the first quarter of 2023. Compared to the fourth quarter of 2023, the
increase reflected a higher average balance for public funds (municipal clients - primarily NOW accounts) which typically peak late in
the fourth quarter. Further, we realized growth in both our money market and certificates of deposit (“CD”) balances which reflected
a combination of balances migrating from noninterest bearing and savings accounts, in addition to receiving new deposits from
existing and new clients. Compared to the first quarter of 2023, the decrease was primarily attributable to lower noninterest bearing
and savings accounts, partially offset by increases in money market and CD balances. The decrease in noninterest bearing and savings
accounts reflected a combination of consumer/business spend of pandemic related stimulus funds and rate sensitive clients seeking
higher yields, partially offset by the aforementioned migration to higher rate deposit products (money market and CD).
Capital
. At March 31, 2024, we were “well-capitalized” with a total risk-based capital ratio of 16.84% and a tangible common equity
ratio (a non-GAAP financial measure) of 8.53% compared to 16.57% and 8.26%, respectively, at December 31, 2023 and 15.29% and
7.20%, respectively, at March 31, 2023. At March 31, 2024, all of our regulatory capital ratios exceeded the threshold to be “well-
capitalized” under the Basel III capital standards.
RESULTS OF OPERATIONS
The following table provides a condensed summary of our results of operations - a discussion of the various components are discussed
in further detail below.
Three Months Ended
(Dollars in Thousands, except per share data)
March 31, 2024
December 31, 2023
March 31, 2023
Interest Income
$
46,820
$
46,184
$
43,926
Taxable Equivalent Adjustments
80
93
100
Total Interest Income (FTE)
46,900
46,277
44,026
Interest Expense
8,465
7,013
3,526
Net Interest Income (FTE)
38,435
39,264
40,500
Provision for Credit Losses
920
2,025
3,099
Taxable Equivalent Adjustments
80
93
100
Net Interest Income After Provision for Credit Losses
37,435
37,146
37,301
Noninterest Income
18,097
17,157
17,758
Noninterest Expense
40,171
39,958
37,675
Income Before Income Taxes
15,361
14,345
17,384
Income Tax Expense
3,536
2,909
3,710
Loss Attributable to Noncontrolling Interests
732
284
35
Net Income Attributable to Common Shareowners
$
12,557
$
11,720
$
13,709
Basic Net Income Per Share
$
0.74
$
0.69
$
0.81
Diluted Net Income Per Share
$
0.74
$
0.70
$
0.80
Net Interest Income
Net interest income represents our single largest source of earnings and is equal to interest income and fees generated by earning
assets less interest expense paid on interest bearing liabilities. This information is provided on a “taxable equivalent” basis to reflect
the tax-exempt status of income earned on certain loans and state and local government debt obligations. We provide an analysis of
our net interest income including average yields and rates in Table I, “Average Balances & Interest Rates,” on page 47.
Tax-equivalent net interest income for the first quarter of 2024 totaled $38.4 million compared to $39.3 million for the fourth quarter
of 2023, and $40.5 million for the first quarter of 2023. Compared to both prior periods, the decline was primarily attributable to an
increase in deposit interest expense, partially offset by higher loan interest income. The increase in deposit interest expense was
primarily attributable to higher average money market balances and to a lesser extent CD balances and reflected a combination of re-
mix from other deposit categories and higher rates for these products. The increase in loan interest income reflected existing loans re-
pricing at higher rates and new loan volume at higher rates. Further, the first quarter of 2024 had one less calendar day compared to
the fourth quarter of 2023 and one additional calendar day compared to the first quarter of 2023.
38
Our net interest margin for the first quarter of 2024 was 4.01%, a decrease of six basis points from the fourth quarter of 2023 and a
decrease of three basis points from the first quarter of 2023. For the month of March, our net interest margin was 4.02%. The decrease
compared to both prior periods primarily reflected higher deposit cost related to re-mix within the deposit base and higher rates paid
on deposits, partially offset by higher yields from new loan volume and loan repricing at higher rates. For the first quarter of 2024, our
cost of funds was 88 basis points, an increase of 15 basis points over the fourth quarter of 2023 and an increase of 53 basis points over
the first quarter of 2023. Our cost of deposits (including noninterest bearing accounts) was 85 basis points, 66 basis points, and 26
basis points, respectively, for the same periods.
Provision for Credit Losses
We recorded a provision for credit losses of $0.9 million for the first quarter of 2024 compared to $2.0 million for the fourth quarter of
2023 and $3.1 million for the first quarter of 2023. The decrease in the provision compared to the fourth quarter of 2023 was
primarily attributable to a lower level of reserves required for new loans, favorable loan grade migration, and lower loss rates.
Compared to the first quarter of 2023, the decrease was driven by lower new loan growth in the first quarter of 2024. We discuss the
allowance for credit losses further below.
Noninterest Income
Noninterest income for the first quarter of 2024 totaled $18.1 million compared to $17.2 million for the fourth quarter of 2023 and
$17.8 million for the first quarter of 2023. The $0.9 million increase over the fourth quarter of 2023 was due to a $0.5 million
increase in mortgage banking revenues and a $0.4 million increase in wealth management fees. Compared to the first quarter of 2023,
the $0.3 million increase was primarily attributable to higher wealth management fees of $0.7 million partially offset by lower other
income of $0.3 million. For both prior period comparisons, the increase in mortgage banking revenues reflected a higher volume of
rate locks and third-party loan sales. A combination of higher trust fees, retail brokerage fees, and insurance commissions drove the
increase in wealth management fees over the fourth quarter of 2023. Higher retail brokerage fees of $0.4 million and trust fees of $0.2
million drove the increase over the first quarter of 2023. The decrease in other income was primarily due to lower loan servicing
income and miscellaneous income.
Noninterest income represented 32.06% of operating revenues (net interest income plus noninterest income) for the first quarter of
2024 compared to 30.46% for the fourth quarter of 2023 and 30.53% for the first quarter of 2023.
The table below reflects the major components of noninterest income.
(Dollars in Thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Deposit Fees
5,250
5,304
5,239
Bank Card Fees
3,620
3,713
3,726
Wealth Management Fees
4,682
4,276
3,928
Mortgage Banking Revenues
2,878
2,327
2,871
Other
1,667
1,537
1,994
Total Noninterest Income
18,097
17,157
17,758
Significant components of noninterest income are discussed in more detail below.
Deposit Fees
. Deposit fees for the first quarter of 2024 totaled $5.2 million, comparable to the fourth quarter of 2023 and the first
quarter of 2023. Compared to the fourth quarter of 2023, a $0.1 million increase in commercial account analysis fees was offset by a
$0.1 million decrease in overdraft fees. Compared to the first quarter of 2023, a $0.1 million increase in overdraft fees was offset by a
$0.1 million decrease in account maintenance fees.
Bank Card Fees
. Bank card fees for the first quarter of 2024 totaled $3.6 million, a $0.1 million decrease from both the fourth quarter
of 2023 and first quarter of 2023 and reflected lower debit card usage related to a decline in consumer spending.
39
Wealth Management Fees
. Wealth management fees, which include both trust fees (i.e., managed accounts and trusts/estates), retail
brokerage fees (i.e., investment, insurance products, and retirement accounts), and insurance commission revenues, totaled $4.7
million for the first quarter of 2024, an increase of $0.4 million, or 9.5%, over the fourth quarter of 2023 and an increase of $0.8
million, or 19.2%, over the first quarter of 2023. Compared to the fourth quarter of 2023, the increase reflected a combination of
higher trust fees and retail brokerage fees due to growth in assets under management, and higher insurance commission revenues. The
increase over the first quarter of 2023 was primarily attributable to higher retail brokerage fees reflective of increased assets under
management, and to a lesser extent higher trust fees and insurance commission revenues. At March 31, 2024, total assets under
management were approximately $2.686 billion compared to $2.588 billion at December 31, 2023 and $2.330 billion at March 31,
2023. Compared to December 31, 2023, the increase was primarily attributable to growth in trust assets and the growth over March
31, 2023 was primarily in retail brokerage assets reflecting increases in investments in fixed income and annuity products, and higher
account values/returns reflective of the improved market returns.
Mortgage Banking Revenues
. Mortgage banking revenues totaled $2.9 million for the first quarter of 2024, an increase of $0.5
million, or 23.7%, over the fourth quarter of 2023 and comparable to the first quarter of 2023. Compared to the fourth quarter of
2023, the increase reflected a higher level of rate locks and third-party loan sales. We provide a detailed overview of our mortgage
banking operation, including a detailed break-down of mortgage banking revenues, mortgage servicing activity, and warehouse
funding within Note 4 - Mortgage Banking Activities in the Notes to Consolidated Financial Statements.
Other
. Other income totaled $1.7 million for the first quarter of 2024, a decrease of $0.1 million, or 8.5%, from the fourth quarter of
2023 and a decrease of $0.3 million, or 16.4%, from the first quarter of 2023. Compared to the first quarter of 2023, the decrease was
primarily attributable to lower loan servicing income (due to sale of mortgage servicing rights) and miscellaneous income.
Noninterest Expense
Noninterest expense for the first quarter of 2024 totaled $40.2 million compared to $40.0 million for the fourth quarter of 2023 and
$37.7 million for the first quarter of 2023. The $0.2 million increase over the fourth quarter of 2023 reflected a $0.6 million increase
in compensation expense that was partially offset by decreases in occupancy expense of $0.1 million and other expense of $0.3
million. The increase in compensation expense was primarily attributable to higher payroll taxes (annual re-set) and 401k plan
matching expense. Compared to the first quarter of 2023, the $2.5 million increase reflected higher other expense as we realized a
$1.8 million gain from the sale of other real estate (banking office) in the first quarter of 2023. Further, compensation expense was
$0.9 million higher primarily due to a lower level of realized loan cost (credit offset to salary expense) due to decreased new loan
production.
The table below reflects the major components of noninterest expense.
(Dollars in Thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Salaries
$
20,604
20,258
19,517
Associate Benefits
3,803
3,564
4,007
Total Compensation
24,407
23,822
23,524
Premises
3,173
3,402
3,245
Equipment
3,821
3,696
3,517
Total Occupancy
6,994
7,098
6,762
Legal Fees
435
573
362
Professional Fees
1,258
1,629
1,324
Processing Services
1,833
1,497
1,742
Advertising
815
759
874
Telephone
709
686
706
Insurance - Other
915
713
831
Other Real Estate Owned, net
18
(123)
(1,827)
Pension - Other
(419)
32
7
Miscellaneous
3,206
3,272
3,370
Total Other
8,770
9,038
7,389
Total Noninterest Expense
$
40,171
$
39,958
$
37,675
40
Significant components of noninterest expense are discussed in more detail below.
Compensation
. Compensation expense totaled $24.4 million for the first quarter of 2024, an increase of $0.6 million, or 2.5%, over
the fourth quarter of 2023 and an increase of $0.9 million, or 3.8%, over the first quarter of 2023. Compared to the fourth quarter of
2023, the increase reflected an increase in salary expense of $0.3 million and associate benefit expense of $0.3 million. The increase in
salary expense was primarily attributable to an increase in payroll tax expense which reflected the annual re-set of this tax as well as
payroll taxes related to a high level of cash/stock incentives paid in the first quarter. The increase in associate benefit expense reflected
increases in stock compensation expense (higher expected pay-out for incentive plan) and other associate benefit expense (annual
sales/service awards event). Compared to the first quarter of 2023, the increase reflected an increase in salary expense of $1.1 million
partially offset by a $0.2 million decrease in associate benefit expense. The increase in salary expense was primarily due to a lower
level of realized loan cost (credit offset to salary expense) due to decreased new loan production and to a lesser extent base salaries
(annual merit) that was partially offset by lower commission expense at CCHL. Lower stock compensation expense drove the
decrease in associate benefit expense and reflected a higher pay-out for the prior year long-term incentive plan.
Occupancy.
$0.1 million, or 1.5% from the fourth quarter of 2023 and an increase of $0.2 million, or 3.4%, over the first quarter of 2023. The
decrease from the fourth quarter of 2023 was due to lower building maintenance, and the increase over the first quarter of 2023
reflected higher FF&E depreciation and maintenance agreement expense partially attributable to new offices opened in 2023.
Other
. Other noninterest expense totaled $8.8 million for the first quarter of 2024, a decrease of $0.3 million, or 2.9%, from the fourth
quarter of 2023 and an increase of $1.4 million, or 18.7%, from the first quarter of 2023. The decrease from the fourth quarter was
primarily due to lower pension-other expense (non-service component ) of $0.4 million and professional fees of $0.4 million that was
partially offset by higher processing fees of $0.3 million and insurance -other of $0.2 million. The increase over the first quarter of
2023 was primarily due to a $1.8 million increase in other real estate expense as we realized a $1.8 million gain from the sale of a
banking office in the first quarter of 2023. A $0.4 million decrease in pension-other expense was partially offsetting.
Our operating efficiency ratio (expressed as noninterest expense as a percent of the sum of taxable-equivalent net interest income plus
noninterest income) was 71.06% for the first quarter of 2024 compared to 70.82% for the fourth quarter of 2023 and 64.67% for the
first quarter of 2023. The decrease from the first quarter of 2023 was primarily attributable to lower noninterest expense which
included a $1.8 million gain from the sale of a banking office, and to a lesser extent lower net interest income.
Income Taxes
We realized income tax expense of $3.5 million (effective rate of 23.0%) for the first quarter of 2024 compared to $2.9 million
(effective rate of 20.3%) for the fourth quarter of 2023 and $3.7 million (effective rate of 21.3%) for the first quarter of 2023. The
increase in our effective tax rate for the first quarter of 2024 compared to both prior periods was primarily due to a lower level of tax
benefit accrued from an investment in a solar tax credit equity fund. Absent discrete items or new tax credit investments, we expect
our annual effective tax rate to approximate 23% for 2024.
FINANCIAL CONDITION
Average earning assets totaled $3.850 billion for the first quarter of 2024, an increase of $25.6 million, or 0.7%, over the fourth
quarter of 2023, and a decrease of $213.1 million, or 5.2%, from the first quarter of 2023. The variance for both prior period
comparisons was driven by change in deposit balances (see below – Deposits). Compared to both prior periods, the mix of earning
assets improved as overnight funds were utilized to fund loan growth.
Investment Securities
Average investments decreased $10.0 million, or 1.0%, from the fourth quarter of 2023. Our investment portfolio represented 24.8%
of our average earning assets for the first quarter of 2024 compared to 25.2% for the fourth quarter of 2023. For the remainder of
2024, we will continue to monitor our overall liquidity position and market conditions to determine if cash flow from the investment
portfolio should be reinvested or allowed to run-off into overnight funds.
The investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and
asset/liability management. Two types of classifications are approved for investment securities which are Available -for-Sale (“AFS”)
and Held-to-Maturity (“HTM”). At March 31, 2024, $603.4 million, or 64.6%, of the investment portfolio was classified as HTM
and $330.7 million, or 35.4% was classified as AFS. The average maturity of our total portfolio at March 31, 2024 was 2.76 years
compared to 2.91 years at December 31, 2023. The duration of our investment portfolio at March 31, 2024 and December 31, 2023
was 2.39 years and 2.91 years, respectively. Additional information on unrealized gains/losses in the AFS and HTM portfolios is
provided in Note 2 – Investment Securities.
41
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 March 31, 2024, there were 876 positions (combined AFS and HTM) with unrealized losses totaling $64.8 million. 85 of these
positions are U.S. Treasuries and carry the full faith and credit of the U.S. Government. 690 were U.S. government agency securities
issued by U.S. government sponsored entities. The remaining 101 positions (municipal securities and corporate bonds) have a credit
component. At March 31, 2024, corporate debt securities had an allowance for credit losses of $43,000 and municipal securities had
an allowance of $39,000. At March 31, 2024, all collateralized mortgage obligation securities, mortgage -backed securities, Small
Business Administration securities, U.S. Agency, and U.S. Treasury bonds held were AAA rated.
Loans HFI
Average loans HFI increased $17.4 million, or 0.6%, over the fourth quarter of 2023 and $146.2 million, or 5.7%, over the first quarter
of 2023. Compared to both prior periods, the increase was primarily due to an increase in residential loans partially offset by a decline
in consumer loans (primarily auto). Period end loans decreased $2.7 million, or 0.1%, from the fourth quarter of 2023 and increased
$74.0 million, or 2.8%, over the first quarter of 2023. The decrease from the fourth quarter of 2023 was primarily due to lower
consumer (auto) loan portfolio balances partially offset by growth in residential loans. Compared to the first quarter of 2023, the
increase reflected growth in residential loans and to a lesser extent commercial real estate loans partially offset by lower consumer
(auto) 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
Overall credit quality remained stable. Nonperforming assets (nonaccrual loans and other real estate) totaled $6.8 million at March
31, 2024 compared to $6.2 million at December 31, 2023 and $4.6 million at March 31, 2023. At March 31, 2024, nonperforming
assets as a percent of total assets equaled 0.16% compared to 0.15% at December 31, 2023 and 0.10% at March 31, 2023. Nonaccrual
loans totaled $6.8 million at March 31, 2024, a $0.6 million increase over December 31, 2023 and a $2.2 million increase over March
31, 2023. Further, classified loans totaled $22.3 million at March 31, 2024, a $0.1 million increase over December 31, 2023 and a
$10.1 million increase over March 31, 2023.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount
expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings and reduced by the charge-off of loan amounts (net of recoveries). Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged -off. Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision but recorded as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for
the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current
conditions and forecasts.
At March 31, 2024, the allowance for credit losses for HFI loans totaled $29.3 million compared to $29.9 million at December 31,
2023 and $26.8 million at March 31, 2023. Activity within the allowance is provided in Note 3 – Loans Held for Investment and
Allowance for Credit Losses in the Consolidated Financial Statements. The decrease in the allowance from December 31, 2023 was
primarily due to favorable loan grade migration, lower loss rates, and a combination of lower loan balances and shift in mix within the
portfolio. Compared to March 31, 2023, the increase was primarily driven by loan growth. At March 31, 2024, the allowance
represented 1.07% of HFI loans compared to 1.10% at December 31, 2023, and 1.01% at March 31, 2023.
At March 31, 2024, the allowance for credit losses for unfunded commitments totaled $3.1 million compared to $3.2 million at
December 31, 2023 and $2.8 million at March 31, 2023. The allowance for unfunded commitments is recorded in other liabilities.
42
Deposits
Average total deposits were $3.577 billion for the first quarter of 2024, an increase of $28.0 million, or 0.8%, over the fourth quarter
of 2023 and a decrease of $240.8 million, or 6.3%, from the first quarter of 2023. Compared to the fourth quarter of 2023, the
increase reflected a higher average balance for public funds (municipal clients - primarily NOW accounts) which typically peak late in
the fourth quarter. Further, we realized growth in both our money market and CD balances which reflected a combination of balances
migrating from noninterest bearing and savings accounts, in addition to receiving new deposits from existing and new clients.
Compared to the first quarter of 2023, the decrease was primarily attributable to lower noninterest bearing and savings accounts,
partially offset by increases in money market and CD balances. The decrease in noninterest bearing and savings accounts reflected a
combination of consumer/business spend of pandemic related stimulus funds and rate sensitive clients seeking higher yields, partially
offset by the aforementioned migration to higher rate deposit products (money market and CD).
At March 31, 2024, total deposits were $3.654 billion, a decrease of $47.0 million, or 1.3%, from December 31, 2023 and $169.1
million, or 4.4% from March 31, 2023. The decrease from December 31, 2023 was primarily attributable to lower public funds
(municipal clients - primarily NOW accounts) partially offset by higher money market balances and to a lesser extent CD balances.
The decrease from March 31, 2023 was due to the same aforementioned factors driving the average variance. Total public funds
balances were $615.0 million at March 31, 2024, $709.8 million December 31, 2023, and $637.8 million at March 31, 2023.
Business deposit transaction accounts classified as repurchase agreements averaged $25.7 million for the first quarter of 2024, a
decrease of $1.1 million from the fourth quarter of 2023 and an increase of $16.4 million over the first quarter of 2023. At March 31,
2024, repurchase agreement balances were $23.5 million compared to $27.0 million at December 31, 2023 and $4.4 million at March
31, 2023.
We continue to closely monitor our cost of deposits and deposit mix as we manage through the current rate environment.
MARKET RISK AND INTEREST RATE SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk
management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
Our net income is largely dependent on net interest income. Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning assets. When
interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest income. Net interest
income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’ equity.
We have established what we believe to be a comprehensive interest rate risk management policy, which is administered by
management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital
(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for maturities from one
day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-
term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with
any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by
us. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the
methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
43
The statement of financial condition is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk.
We apply instantaneous, parallel rate shocks to the base case in 100 basis point (bp) increments ranging from down 400bp to up
400bps at least once per quarter, with the analysis reported to ALCO, our Market Risk Oversight Committee (“MROC”), our
Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors. We augment our interest rate shock analysis with
alternative interest rate scenarios on a quarterly basis that may include ramps, and a flattening or steepening of the yield curve (non-
parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or when other
business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over 12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. We attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing basis.
Analysis.
Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term
performance in alternative rate environments. These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
-12.5%
-15.0%
March 31, 2024
10.0%
7.5%
4.8%
2.5%
-3.1%
-6.5%
-10.5%
-15.1%
December 31, 2023
3.0%
2.1%
1.3%
0.7%
-1.2%
-3.6%
-7.5%
-12.8%
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%
March 31, 2024
38.2%
31.3%
24.4%
18.0%
3.5%
-5.4%
-15.4%
-26.0%
December 31, 2023
29.5%
24.4%
19.3%
14.8%
4.1%
-3.5%
-12.9%
-23.6%
The Net Interest Income (“NII”) at Risk position of an instantaneous, parallel rate shock indicates that in the short-term (over the next
12 months), all rising rate environments will positively impact the net interest margin of the Company, while declining rate
environments will have a negative impact on the net interest margin. Compared to the fourth quarter of 2023, these metrics became
more favorable in the rising rate scenarios and less favorable in the falling rate scenarios primarily attributable to the update of our
deposit beta assumptions which will vary depending on the rate shock. The instantaneous, parallel rate shock results over the next 12-
months are slightly outside of policy in the rates down 400 bps scenario and outside of policy over 24 months in the rates down 300
bps and 400 bps scenarios primarily due to change in our deposit beta assumptions discussed above.
The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates on all
of our cash flows by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity, which in theory approximates the fair value of our net
assets.
ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
-25.0%
-30.0%
March 31, 2024
19.5%
15.3%
10.4%
5.4%
-8.7%
-17.8%
-24.9%
-28.4%
December 31, 2023
12.9%
10.7%
7.8%
4.4%
-6.4%
-14.0%
-23.6%
-27.8%
EVE Ratio (policy minimum 5.0%)
20.6%
19.5%
18.4%
17.2%
14.4%
12.7%
11.4%
10.8%
44
At March 31, 2024, the economic value of equity was favorable in all rising rate environments and unfavorable in the falling rate
environments. Compared to the fourth quarter of 2023, EVE metrics were slightly more favorable in the rising rate environment and
less favorable in falling rate environments. EVE is currently in compliance with policy in all rate scenarios, and the EVE ratio
exceeds 5.0% in each shock scenario.
As the interest rate environment and the dynamics of the economy continue to change, additional simulations will be analyzed to
address not only the changing rate environment, but also the change in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, which take into account the marketability of assets, the sources and stability of
funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on
accessibility, stability, reliability and cost-effectiveness. Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under repurchase agreements, federal funds purchased and
FHLB borrowings. We believe that the cash generated from operations, our borrowing capacity and our access to capital resources are
sufficient to meet our future operating capital and funding requirements.
At March 31, 2024, we had the ability to generate approximately $1.542 billion (excludes overnight funds position of $231 million) in
additional liquidity through various sources including various federal funds purchased lines, Federal Home Loan Bank borrowings, the
Federal Reserve Discount Window, and brokered deposits. We recognize the importance of maintaining liquidity and have developed
a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity.
We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases
that certain credit facilities may no longer be available. We conduct a liquidity stress test on a quarterly basis based on events that
could potentially occur at the Bank and report results to our ALCO, MROC , EROC, and Board of Directors. At March 31, 2024, we
believe the liquidity available to us was sufficient to meet our on-going needs and execute our business strategy.
We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for
borrowings or deposits, and/or to sell selected securities. Additional information on our investment portfolio is provided within Note
2 – Investment Securities.
The Bank maintained an average net overnight funds (deposits with banks plus FED funds sold less FED funds purchased) sold
position of $140.5 million in the first quarter of 2024 compared to $99.8 million in the fourth quarter of 2023 and $361.0 million in
the first quarter of 2023. Compared to the fourth quarter of 2023, the increase was driven by average deposit growth and investment
portfolio run-off, partially offset by average loan growth. Compared to the first quarter of 2023, the decrease was attributable to lower
average deposit balances and growth in our loan portfolio, partially offset by investment portfolio run-off.
We expect our capital expenditures will be approximately $12.0 million over the next 12 months, which will primarily consist of
construction of new offices, office remodeling, office equipment/furniture, and technology purchases. Management expects that these
capital expenditures will be funded with existing resources without impairing our ability to meet our on-going obligations.
Borrowings
Average short -term borrowings totaled $29.5 million for the first quarter of 2024 compared to $43.8 million for the fourth quarter of
2023 and $47.1 million for the first quarter of 2023. Compared to both prior periods, the decrease was attributable to a lower balance
maintained on CCHL’s warehouse line. Additional detail on these warehouse borrowings is provided in Note 4 – Mortgage Banking
Activities in the Consolidated Financial Statements.
45
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 35. At March 31, 2024, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized” under the Basel III capital standards.
Shareowners’ equity was $448.3 million at March 31, 2024 compared to $440.6 million at December 31, 2023 and $403.3 million at
March 31, 2023. For the first three months of 2024, shareowners’ equity was positively impacted by net income attributable to
shareowners of $12.6 million, net adjustments totaling $0.5 million related to transactions under our stock compensation plans, stock
compensation accretion of $0.4 million, and a $0.3 million increase in the fair value of the interest rate swap related to subordinated
debt. Shareowners’ equity was reduced by a common stock dividend of $3.6 million ($0.21 per share), the repurchase of stock of $2.3
million (82,540 shares), and a $0.2 million increase in the net unrealized loss on available for sale securities.
At March 31, 2024, our total risk-based capital ratio was 16.84% compared to 16.57% at December 31, 2023 and 15.29% at March 31,
2023. Our common equity tier 1 capital ratio was 13.82%, 13.52%, and 12.40%, respectively, on these dates. Our leverage ratio was
10.45%, 10.30%, and 9.09%, respectively, on these dates. At March 31, 2024, all our regulatory capital ratios exceeded the thresholds
to be designated as “well-capitalized” under the Basel III capital standards. Further, our tangible common equity ratio (non-GAAP
financial measure) was 8.53% at March 31, 2024 compared to 8.26% and 7.20% at December 31, 2023 and March 31, 2023,
respectively. If our unrealized held-to-maturity securities losses of $21.6 million (after-tax) were recognized in accumulated other
comprehensive loss, our adjusted tangible capital ratio would be 8.01%.
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 March 31, 2024, the net pension liability reflected in other comprehensive loss was $0.4 million
compared to $0.4 million at December 31, 2023 and $4.5 million at March 31, 2023. This liability is re-measured annually on
December 31
st
include the weighted average discount rate used to measure the present value of the pension liability, the weighted average expected
long-term rate of return on pension plan assets, and the assumed rate of annual compensation increases, all of which will vary when
re-measured. The discount rate assumption used to calculate the pension liability is subject to long -term corporate bond rates at
December 31
st
. These assumptions and sensitivities are discussed in the section entitled “Critical Accounting Policies and Estimates”
in Part II, Item7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our 2023 Form 10-K/A.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our
clients.
At March 31, 2024, we had $753.5 million in commitments to extend credit and $6.3 million in standby letters of credit.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance
of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-
balance sheet instruments.
46
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 million at March 31, 2024.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in our 2023 Form 10-
K/A. The preparation of our Consolidated Financial Statements in accordance with GAAP and reporting practices applicable to the
banking industry requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses, and to disclose contingent assets and liabilities. Actual results could differ from those estimates.
We have identified accounting for (i) the allowance for credit losses, (ii) goodwill, (iii) pension assumptions, and (iv) income taxes as
our most critical accounting policies and estimates in that they are important to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to make estimates about the effects of matters that are
inherently uncertain. These accounting policies, including the nature of the estimates and types of assumptions used, are described
throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K/A.
47
TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended
March 31, 2024
December 31, 2023
March 31, 2023
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
27,314
$
563
5.99
%
$
49,790
$
817
6.50
%
$
55,110
$
644
4.74
%
Loans Held for Investment
(1)(2)
2,728,629
40,196
5.95
2,711,243
39,679
5.81
2,582,395
34,342
5.39
Taxable Securities
952,328
4,238
1.78
962,322
4,389
1.81
1,061,372
4,912
1.86
Tax-Exempt Securities
(2)
856
10
4.34
862
7
4.32
2,840
17
2.36
Interest Bearing Deposits
140,488
1,893
5.42
99,763
1,385
5.51
360,971
4,111
4.62
Total Earning Assets
3,849,615
46,900
4.90
%
3,823,980
46,277
4.80
%
4,062,688
44,026
4.39
%
Cash & Due From Banks
75,763
76,681
74,639
Allowance For Credit Losses
(30,030)
(29,998)
(25,637)
Other Assets
295,275
296,114
300,175
TOTAL ASSETS
$
4,190,623
$
4,166,777
$
4,411,865
Liabilities:
Noninterest Bearing Deposits
$
1,344,188
$
-
-
%
$
1,416,825
$
-
-
%
$
1,601,750
$
-
-
%
NOW Accounts
1,201,032
4,497
1.51
1,138,461
3,696
1.29
1,228,928
2,152
0.71
Money Market Accounts
353,591
1,985
2.26
318,844
1,421
1.77
267,573
208
0.31
Savings Accounts
539,374
188
0.14
557,579
202
0.14
629,388
76
0.05
Other Time Deposits
138,328
924
2.69
116,797
553
1.88
89,675
52
0.24
Total Interest Bearing Deposits
2,232,325
7,594
1.37
2,131,681
5,872
1.09
2,215,564
2,488
0.46
Total Deposits
3,576,513
7,594
0.85
3,548,506
5,872
0.66
3,817,314
2,488
0.26
Repurchase Agreements
25,725
201
3.14
26,831
199
2.94
9,343
9
0.37
Short-Term Borrowings
3,758
39
4.16
16,906
310
7.29
37,766
452
4.86
Subordinated Notes Payable
52,887
628
4.70
52,887
627
4.64
52,887
571
4.32
Other Long-Term Borrowings
281
3
4.80
336
5
4.72
480
6
4.80
Total Interest Bearing Liabilities
2,314,976
8,465
1.47
%
2,228,641
7,013
1.25
%
2,316,040
3,526
0.62
%
Other Liabilities
68,295
78,772
81,206
TOTAL LIABILITIES
3,727,459
3,724,238
3,998,996
Temporary Equity
7,150
7,423
8,802
TOTAL SHAREOWNERS’ EQUITY
456,014
435,116
404,067
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
4,190,623
$
4,166,777
$
4,411,865
Interest Rate Spread
3.43
%
3.55
%
3.77
%
Net Interest Income
$
38,435
$
39,264
$
40,500
Net Interest Margin
(3)
4.01
%
4.07
%
4.04
%
(1)
March 31, 2024 and December 31, 2023, and net loan fees of $0.1 million for the three months ended March 31, 2023.
(2)
(3)
48
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial Condition and Results of
Operations, above, which is incorporated herein by reference. Management has determined that no additional disclosures are
necessary to assess changes in information about market risk that have occurred since December 31, 2023.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At March 31, 2024, the end of the period covered by this Form 10-Q, our management, including our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report our disclosure controls and procedures were ineffective due to the identification
of the material weakness discussed below.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s annual interim financial statements will not be prevented or
detected on a timely basis. As reported in our 2023 Form 10-K/A, we did not maintain effective internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) as of December 31, 2023 as a result of
a material weakness in our internal control over financial reporting for the review of significant inter-company mortgage loan sales
and servicing transactions was not designed effectively. Specifically, management’s review control over the completeness and
accuracy of elimination entries in the consolidation process was not designed effectively, as the review was not sufficiently precise to
identify all the necessary elimination entries between CCB and its subsidiary, CCHL. The Company determined inter-company
transactions related to the sale of residential mortgage loans were not properly eliminated and net loan fees were not properly
recorded. Further, financial information obtained from CCHL for certain construction/permanent loan activity was not in sufficient
detail to appropriately classify this activity within the Statement of Cash Flows. Specifically, management’s review control over the
completeness, accuracy and review of financial information provided from CCHL related to the Statement of Cash Flows was not
designed effectively as the review was not sufficiently precise to identify all errors in financial reporting. Refer to our 2023 Form 10-
K/A for a description of our material weakness.
Remediation Plan
Since identifying the material weakness described above, management, with oversight from the Audit Committee and input from the
Board of Directors, has devoted substantial resources to the ongoing implementation of remediation efforts. These remediation efforts,
summarized below are intended to address both the identified material weakness and to enhance the Company’s overall internal
control over financial reporting and disclosure controls and procedures. Based on additional procedures and post-closing review,
management concluded that the consolidated financial statements included in this report present fairly, in all material respects, our
financial position, results of operations, and cash flows for the periods presented, in conformity with GAAP.
The internal control and procedural enhancements and remedial actions that have been implemented include:
1.
Enhance the precision level review of activity within existing accounts that are subject to elimination during consolidation, to
ensure appropriate elimination;
2.
Enhance review procedures to identify new inter-company accounts and activities subject to elimination during
consolidation;
3.
Increase the granularity of general ledger mapping for inter-company accounts subject to elimination during consolidation;
4.
Enhance financial close checklist and pre-close meeting agenda to assist the reviewer identifying and assessing inter-
company activities that are subject to elimination in a timely manner; and
5.
Enhance the detail of review procedures of financial information obtained from a subsidiary to identify, assess and validate
appropriate classification when preparing the consolidated financial statements, including when reviewing items in the
operating, investing or financing activity sections within the Statement of Cash Flows.
To remediate the material weakness, the Company implemented the internal control and procedural enhancements noted above in
items 1-4 during the fourth quarter of 2023 and implemented the enhancement noted above in item 5 during the first quarter of 2024.
The material weakness cannot be considered remediated until the applicable controls have operated for a sufficient period of time and
management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, management will
continue to monitor and evaluate the effectiveness of our internal control over financial reporting and the disclosure controls and
procedures.
49
Change in Internal Control
Except as identified above with respect to remediation of the material weakness, there have been no significant changes in our internal
control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are party to lawsuits arising out of the normal course of business. In management's opinion, there is no known pending litigation,
the outcome of which would, individually or in the aggregate, have a material effect on our consolidated results of operations,
financial position, or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I,
Item 1A. “Risk Factors” in our 2023 Form 10-K/A, as updated in our subsequent quarterly reports. The risks described in our 2023
Form 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 our business, financial condition and/or
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 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
our share repurchase program
January 1, 2024 to
January 31, 2024
9,101
$29.49
9,101
441,409
February 1, 2024 to
February 29, 2024
63,162
28.01
63,162
686,838
March 1, 2024 to
March 31, 2024
10,277
28.21
10,277
676,561
Total
82,540
$28.19
82,540
(1)
The information reported in this row relates to shares that were repurchased during the first quarter of 2024 through the
Company’s predecessor share repurchase program that was approved on January 31, 2019 and was set to expire in 2024, under
which we were authorized to repurchase up to 750,000 shares of our common stock. The predecessor share repurchase program
was terminated in January 2024.
(2)
The information reported in this row relates to shares that were repurchased during the first quarter of 2024 through the Capital
City Bank Group, Inc. Share Repurchase Program (“the Program”), effective February 1, 2024, that was publicly announced on
February 2, 2024 and that expires on February 1, 2029, under which we were authorized to repurchase up to 750,000 shares of
our common stock. Under the Program, shares may be repurchased by the Company from time to time in the open market or
through private transactions, as market conditions warrant. The program does not obligate the Company to repurchase any
specified number of shares of its common stock. No shares are repurchased outside of the Program.
Item 3. Defaults Upon Senior Securities
None.
50
Item 4. Mine Safety Disclosure
Not Applicable.
Item 5. Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “
Item 408(c) of Regulation S-K.
51
Item 6. Exhibits
(A) Exhibits
31.1
31.2
32.1
32.2
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ Jeptha E. Larkin
Jeptha E. Larkin
Executive Vice President and Chief Financial Officer
(Mr. Larkin is the Principal Financial Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: July 12, 2024