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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
 
D.C.
 
20549
FORM
10-Q
QUARTERLY REPORT
 
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number:
0-13358
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida
 
59-2273542
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
 
32301
(Address of principal executive office)
 
(Zip Code)
(
850
)
402-7821
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par value $0.01
CCBG
Nasdaq Stock Market
, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
Yes
 
[X] No [
 
]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
 
Yes [
X
] No [
 
]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
 
or
an emerging growth company.
 
See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [
 
]
No
 
[X]
At August 1, 2022,
16,959,280
 
shares of the Registrant's Common Stock, $.01 par value, were outstanding.
2
CAPITAL CITY BANK
 
GROUP,
 
INC.
QUARTERLY
 
REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2022
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
 
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – June 30, 2022 and December 31, 2021
4
Consolidated Statements of Income – Three and Six Months Ended June 30, 2022 and 2021
5
Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2022 and 2021
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Six Months Ended June 30, 2022 and 2021
7
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2022 and 2021
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
46
 
 
Item 4.
Controls and Procedures
46
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
46
 
 
Item 1A.
Risk Factors
46
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
46
 
 
Item 3.
Defaults Upon Senior Securities
46
Item 4.
Mine Safety Disclosure
46
Item 5.
Other Information
46
 
 
Item 6.
Exhibits
47
 
 
Signatures
 
48
3
INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of
which are beyond our control.
 
The words “may,” “could,” “should,” “would,” “believe,”
 
“anticipate,” “estimate,” “expect,” “intend,” “plan,”
“target,” “goal,” and similar expressions are intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
 
Our actual future results may differ materially from
those set forth in our forward-looking statements.
Our ability to
 
achieve our financial objectives
 
could be adversely affected
 
by the factors discussed
 
in detail in Part
 
I, Item 2. “Management’s
Discussion and
 
Analysis of Financial
 
Condition and
 
Results of Operations”
 
and Part II,
 
Item 1A. “Risk
 
Factors” in this
 
Quarterly Report
 
on
Form 10-Q and
 
the following sections
 
of our Annual
 
Report on Form
 
10-K for the
 
year ended December
 
31, 2021
 
(the “2021 Form
 
10-K”):
(a) “Introductory
 
Note” in
 
Part I,
 
Item 1.
 
“Business”; (b)
 
“Risk Factors”
 
in Part
 
I, Item
 
1A, as
 
updated in
 
our subsequent
 
quarterly reports
filed on Form 10-Q; and (c)
 
“Introduction” in “Management’s
 
Discussion and Analysis of Financial Condition
 
and Results of Operations,” in
Part II, Item 7, as well as:
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
the impact of legislative or regulatory changes on our business;
changes in monetary and fiscal policies of the U.S. Government;
the impact of inflation, interest rate, market and monetary fluctuations on our loan origination volumes and deposit portfolio;
changes in consumer spending and saving habits;
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card products;
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,
deferred tax asset valuation and pension plan;
changes in accounting principles, policies, practices or guidelines;
the frequency and magnitude of foreclosure of our loans;
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
 
climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could
significantly impact our business;
our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
changes in the securities and real estate markets;
structural changes in the markets for origination, sale and servicing of residential mortgages;
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to
these loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights;
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global economy and financial market conditions
and our business;
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies,
 
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 willingness of clients to accept third-party products and services rather than our products and services and vice versa;
increased competition and its effect on pricing;
technological changes;
negative publicity and the impact on our reputation;
growth and profitability of our noninterest income;
the limited trading activity of our common stock;
the concentration of ownership of our common stock;
other risks described from time to time in our filings with the Securities and Exchange Commission; and
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
 
or discussed in this Form 10-Q also could adversely affect our results,
and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake to update any forward-looking
statement, except as required by applicable law.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I.
 
FINANCIAL INFORMATION
Item 1.
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF FINANCIAL CONDITION
(Unaudited)
June 30,
December 31,
(Dollars in Thousands, Except Par Value)
2022
 
2021
ASSETS
 
 
Cash and Due From Banks
$
91,209
$
65,313
Federal Funds Sold and Interest Bearing Deposits
 
603,315
 
970,041
Total Cash and Cash Equivalents
 
694,524
 
1,035,354
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
643,679
 
and $
660,732
)
 
601,405
 
654,611
Investment Securities, Held to Maturity (fair value of $
498,963
 
and $
339,699
)
 
528,258
 
339,601
Equity Securities
900
 
861
Total Investment
 
Securities
 
1,130,563
 
995,073
 
Loans Held For Sale, at fair value
48,708
 
52,532
 
Loans Held for Investment
2,213,653
 
1,931,465
Allowance for Credit Losses
 
(21,281)
 
(21,606)
Loans Held for Investment, Net
 
2,192,372
 
1,909,859
 
 
Premises and Equipment, Net
 
82,932
 
83,412
Goodwill and Other Intangibles
 
93,173
 
93,253
Other Real Estate Owned
90
17
Other Assets
 
111,935
 
94,349
Total Assets
$
4,354,297
$
4,263,849
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,724,671
$
1,668,912
Interest Bearing Deposits
 
2,061,587
 
2,043,950
Total Deposits
 
3,786,258
 
3,712,862
 
 
Short-Term
 
Borrowings
 
39,463
34,557
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
612
884
Other Liabilities
 
93,319
67,735
Total Liabilities
 
3,972,539
3,868,925
Temporary Equity
10,083
11,758
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
no
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,959,280
 
and
16,892,060
 
shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
170
169
Additional Paid-In Capital
 
35,738
34,423
Retained Earnings
 
376,532
364,788
Accumulated Other Comprehensive Loss, net of tax
 
(40,765)
(16,214)
Total Shareowners’
 
Equity
 
371,675
383,166
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
4,354,297
4,263,849
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF INCOME
(Unaudited)
Three Months Ended
 
June 30,
Six Months Ended
 
June 30,
(Dollars in Thousands, Except Per Share
 
Data)
2022
2021
2022
2021
INTEREST INCOME
Loans, including Fees
$
24,072
$
24,582
$
46,205
$
47,932
Investment Securities:
Taxable
3,833
2,036
6,723
3,899
Tax Exempt
7
18
13
38
Funds Sold
 
1,408
200
1,817
413
Total Interest Income
29,320
26,836
54,758
52,282
INTEREST EXPENSE
Deposits
266
208
490
416
Short-Term
 
Borrowings
343
324
535
736
Subordinated Notes Payable
370
308
687
615
Other Long-Term
 
Borrowings
8
16
17
37
Total Interest Expense
987
856
1,729
1,804
NET INTEREST INCOME
28,333
25,980
53,029
50,478
Provision for Credit Losses
1,542
(571)
1,542
(1,553)
Net Interest Income After Provision For Credit Losses
26,791
26,551
51,487
52,031
NONINTEREST INCOME
Deposit Fees
5,447
4,236
10,638
8,507
Bank Card Fees
4,034
3,998
7,797
7,616
Wealth Management
 
Fees
4,403
3,274
10,473
6,364
Mortgage Banking Revenues
9,065
13,217
18,011
30,342
Other
1,954
1,748
3,802
3,470
Total Noninterest
 
Income
24,903
26,473
50,721
56,299
NONINTEREST EXPENSE
Compensation
25,383
25,378
50,239
51,442
Occupancy, Net
6,075
5,973
12,168
11,940
Other Real Estate Owned, Net
 
(29)
(270)
(4)
(388)
Pension Settlement
169
2,000
378
2,000
Other
8,900
9,042
16,950
17,605
Total Noninterest
 
Expense
40,498
42,123
79,731
82,599
INCOME BEFORE INCOME TAXES
11,196
10,901
22,477
25,731
Income Tax Expense
2,177
2,059
4,412
4,846
NET INCOME
9,019
8,842
18,065
20,885
Income Attributable to Noncontrolling Interests
(306)
(1,415)
(897)
(3,952)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
8,713
$
7,427
$
17,168
$
16,933
BASIC NET INCOME PER SHARE
$
0.51
$
0.44
$
1.01
$
1.00
DILUTED NET INCOME PER SHARE
$
0.51
$
0.44
$
1.01
$
1.00
Average Common
 
Basic Shares Outstanding
16,949
16,858
16,940
16,848
Average Common
 
Diluted Shares Outstanding
16,971
16,885
16,958
16,874
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
 
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2022
2021
2022
2021
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
8,713
$
7,427
$
17,168
$
16,933
Other comprehensive (loss) income, before
 
tax:
Investment Securities:
Change in net unrealized gain/loss on securities available for sale
(10,714)
(481)
(36,158)
(2,434)
Derivative:
Change in net unrealized gain on effective cash flow
 
derivative
1,161
(919)
2,997
1,206
Benefit Plans:
Reclassification adjustment for service cost
-
-
-
24
Actuarial gain
-
-
-
166
Defined benefit plan settlement
169
2,000
378
2,000
Total Benefit Plans
169
2,000
378
2,190
Other comprehensive (loss) income, before
 
tax
(9,384)
600
(32,783)
962
Deferred tax (benefit) expense related to other comprehensive income
(2,362)
152
(8,232)
243
Other comprehensive (loss) income, net of tax
(7,022)
448
(24,551)
719
TOTAL COMPREHENSIVE
 
INCOME (LOSS)
$
1,691
$
7,875
$
(7,383)
$
17,652
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
CAPITAL CITY BANK
 
GROUP,
 
INC.
 
CONSOLIDATED STATEMENTS
 
OF CHANGES IN SHAREOWNERS' EQUITY
(Unaudited)
Accumulated
 
Other
Additional
Comprehensiv
 
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, April 1, 2022
16,947,602
$
169
$
35,188
$
370,531
$
(33,743)
$
372,145
Net Income Attributable to Common Shareowners
-
-
-
8,713
-
8,713
Other Comprehensive Loss, net of tax
-
-
-
-
(7,022)
(7,022)
Cash Dividends ($
0.1600
 
per share)
-
-
-
(2,712)
-
(2,712)
Stock Based Compensation
-
-
244
-
-
244
Stock Compensation Plan Transactions, net
11,678
1
306
-
-
307
Balance, June 30, 2022
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
Balance, April 1, 2021
16,851,878
$
169
$
32,804
$
335,324
$
(43,871)
$
324,426
Net Income Attributable to Common Shareowners
-
-
-
7,427
-
7,427
Reclassification to Temporary Equity
(1)
-
-
-
5,353
-
5,353
Other Comprehensive Income, net of tax
-
-
-
-
448
448
Cash Dividends ($
0.1500
 
per share)
-
-
-
(2,530)
-
(2,530)
Stock Based Compensation
-
-
219
-
-
219
Stock Compensation Plan Transactions, net
22,401
-
537
-
-
537
Balance, June 30, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
Balance, January 1, 2022
16,892,060
$
169
$
34,423
$
364,788
$
(16,214)
$
383,166
Net Income Attributable to Common Shareowners
-
-
-
17,168
-
17,168
Other Comprehensive Loss, net of tax
-
-
-
-
(24,551)
(24,551)
Cash Dividends ($
0.3200
 
per share)
-
-
-
(5,424)
-
(5,424)
Stock Based Compensation
-
-
489
-
-
489
Stock Compensation Plan Transactions, net
67,220
1
826
-
-
827
Balance, June 30, 2022
16,959,280
$
170
$
35,738
$
376,532
$
(40,765)
$
371,675
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income Attributable to Common Shareowners
-
-
-
16,933
-
16,933
Reclassification to Temporary Equity
(1)
-
-
-
1,171
-
1,171
Other Comprehensive Income, net of tax
-
-
-
-
719
719
Cash Dividends ($
0.3000
 
per share)
-
-
-
(5,058)
-
(5,058)
Stock Based Compensation
-
-
438
-
-
438
Stock Compensation Plan Transactions, net
83,706
1
839
-
-
840
Balance, June 30, 2021
16,874,279
$
169
$
33,560
$
345,574
$
(43,423)
$
335,880
(1)
Adjustment to redemption value for non-controlling interest in Capital City Home Loans.
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
 
(Unaudited)
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income Attributable to Common Shareowners
$
17,168
$
16,933
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
1,542
(1,553)
 
Depreciation
3,802
3,782
 
Amortization of Premiums, Discounts and Fees, net
5,545
5,946
 
Amortization of Intangible Asset
80
40
 
Pension Plan Settlement Charge
378
2,000
 
Originations of Loans Held-for-Sale
(573,239)
(877,613)
 
Proceeds From Sales of Loans Held-for-Sale
595,074
941,173
 
Mortgage Banking Revenues
(18,011)
(30,342)
 
Net Additions for Capitalized Mortgage Servicing Rights
1,358
(8)
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
-
(250)
 
Stock Compensation
489
438
 
Net Tax Benefit From Stock-Based
 
Compensation
(19)
(4)
 
Deferred Income Taxes
(8,879)
(469)
 
Net Change in Operating Leases
(72)
(81)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(26)
(507)
 
Net Decrease (Increase) in Other Assets
845
(9,789)
 
Net Increase in Other Liabilities
22,040
2,472
Net Cash Provided By Operating Activities
48,075
52,168
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(218,548)
(201,308)
 
Payments, Maturities, and Calls
28,111
44,238
Securities Available for
 
Sale:
 
Purchases
(37,044)
(255,379)
 
Proceeds from Sale or Securities
3,365
-
 
Payments, Maturities, and Calls
47,413
94,911
Purchases of Loans Held for Investment
(174,779)
(70,043)
Net (Increase) Decrease in Loans Held for Investment
(109,806)
64,708
Proceeds From Sales of Other Real Estate Owned
30
1,121
Purchases of Premises and Equipment
(3,322)
(3,215)
Noncontrolling Interest Contributions
2,573
3,464
Net Cash Used In Investing Activities
(462,007)
(325,985)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
73,396
229,361
Net Increase (Decrease) in Short-Term
 
Borrowings
4,784
(32,668)
Repayment of Other Long-Term
 
Borrowings
(150)
(1,123)
Dividends Paid
(5,424)
(5,058)
Issuance of Common Stock Under Purchase Plans
496
570
Net Cash Provided By Financing Activities
73,102
191,082
NET DECREASE IN CASH AND CASH EQUIVALENTS
(340,830)
(82,735)
Cash and Cash Equivalents at Beginning of Period
 
1,035,354
928,549
Cash and Cash Equivalents at End of Period
 
$
694,524
845,814
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
1,617
1,877
 
Income Taxes Paid
$
3,765
9,369
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
77
$
998
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
9
CAPITAL CITY BANK
 
GROUP,
 
INC.
NOTES TO CONSOLIDATED
 
FINANCIAL STATEMENTS
NOTE 1 –
BUSINESS AND BASIS OF PRESENTATION
Nature of Operations
.
 
Capital City Bank Group, Inc. (“CCBG” or the “Company”) provides a full range of
 
banking and banking-
related services to individual and corporate clients through its subsidiary,
 
Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama.
 
The Company is subject to competition from other financial institutions, is subject
 
to regulation by certain
government agencies and undergoes periodic examinations
 
by those regulatory authorities.
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report on Form
 
10-Q include the accounts of CCBG
and its wholly owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank”).
 
All material inter-company transactions and accounts
have been eliminated.
 
Certain previously reported amounts have been reclassified to conform to the current year’s
 
presentation.
The accompanying unaudited consolidated financial statements have
 
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
 
Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly,
they do not include all of the information and notes required by generally accepted
 
accounting principles for complete financial
statements.
 
In the opinion of management, all adjustments (consisting of normal
 
recurring accruals) considered necessary for a fair
presentation have been included.
 
The Consolidated Statement of Financial Condition at December
 
31, 2021 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and notes
 
required by generally accepted accounting principles for
complete financial statements.
 
For further information, refer to the consolidated financial statements and notes
 
thereto included in the
Company’s annual report
 
on Form 10-K for the year ended December 31, 2021.
Acquisition.
 
On
April 30, 2021
, a newly formed subsidiary of CCBG, Capital City Strategic Wealth,
 
LLC (“CCSW”) acquired
substantially all of the assets of Strategic Wealth
 
Group, LLC and certain related businesses (“SWG”), including
 
advisory, service,
and insurance carrier agreements, and the assignment of all related revenues
 
thereof.
 
Under the terms of the purchase agreement,
SWG principles became officers of CCSW and will continue
 
the operation of their
five
 
offices in South Georgia offering wealth
management services and comprehensive risk management
 
and asset protection services for individuals and businesses.
 
CCBG paid
$
4.5
 
million in cash consideration and recorded goodwill of $
2.8
 
million and a customer relationship intangible asset of $
1.6
 
million.
Accounting Standards Updates
Accounting Standards Update (“ASU”)
 
2022-02, “Financial Instruments – Credit Losses (Topic
 
326)
.
 
In March 2022, the Financial
Accounting Standards Board issued ASU 2022-02, "Financial Instruments
 
– Credit Losses (Topic 326),
 
Troubled Debt Restructurings
and Vintage Disclosures".
 
ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings
 
("TDRs") in Accounting
Standards Codification (“ASC”) 310-40, "Receivables - Troubled
 
Debt Restructurings by Creditors" for entities that have adopted the
current expected credit loss model introduced by ASU 2016-13,
 
“Financial Instruments – Credit Losses (Topic
 
326): Measurement of
Credit Losses on Financial Instruments”.
 
ASU 2022-02 also requires that public business entities disclose current-period
 
gross
charge-offs
 
by year of origination for financing receivables and net investments in leases within
 
the scope of Subtopic 326-20,
"Financial Instruments—Credit Losses—Measured at Amortized
 
Cost".
 
ASU 2022-02 is effective for the Company for fiscal years
beginning after December 15, 2022, including interim periods within those
 
fiscal years, with early adoption permitted. The Company
is evaluating the effect that ASU 2022-02 will have on its consolidated
 
financial statements and related disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related fair value of investment
securities available-for-sale and securities held-to-maturity and the corresponding
 
amounts of gross unrealized gains and losses.
Available for
 
Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
June 30, 2022
U.S. Government Treasury
$
189,686
$
-
$
11,791
$
-
$
177,895
U.S. Government Agency
219,936
336
9,588
-
210,684
States and Political Subdivisions
47,626
9
5,269
(9)
42,357
Mortgage-Backed Securities
(1)
86,168
8
8,355
-
77,821
Corporate Debt Securities
92,936
-
7,593
(22)
85,321
Other Securities
(2)
7,327
-
-
-
7,327
Total
 
$
643,679
$
353
$
42,596
$
(31)
$
601,405
December 31, 2021
U.S. Government Treasury
$
190,409
$
65
$
2,606
$
-
$
187,868
U.S. Government Agency
238,490
1,229
2,141
-
237,578
States and Political Subdivisions
47,762
44
811
(15)
46,980
Mortgage-Backed Securities
(1)
89,440
27
598
-
88,869
Corporate Debt Securities
87,537
10
1,304
(21)
86,222
Other Securities
(2)
7,094
-
-
-
7,094
Total
 
$
660,732
$
1,375
$
7,460
$
(36)
$
654,611
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
June 30, 2022
U.S. Government Treasury
$
303,379
$
-
$
13,671
$
289,708
Mortgage-Backed Securities
(1)
224,879
66
15,690
209,255
Total
 
$
528,258
$
66
$
29,361
$
498,963
December 31, 2021
U.S. Government Treasury
$
115,499
$
-
$
1,622
$
113,877
Mortgage-Backed Securities
(1)
224,102
2,819
1,099
225,822
Total
 
$
339,601
$
2,819
$
2,721
$
339,699
(1)
 
Comprised of residential mortgage-backed
 
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
 
at cost of $
2.3
 
million and $
5.1
 
million,
respectively,
 
at June 30, 2022 and $
2.0
 
million and $
5.1
 
million, respectively,
 
at December 31, 2021.
At June 30, 2022, the investment portfolio had $
0.9
 
million in equity securities. These securities do not have a readily determinable
fair value and were not credit impaired.
 
Securities with an amortized cost of $
375.2
 
million and $
463.8
 
million at June 30, 2022 and December 31, 2021, respectively,
 
were
pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required
 
to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB
 
advances.
 
FHLB stock, which is included in
other securities,
 
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no quoted fair value; however,
redemption of this stock has historically been at par value.
As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain
 
stock in the Federal Reserve Bank of Atlanta
based on a specified ratio relative to the Bank’s
 
capital.
 
Federal Reserve Bank stock is carried at cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Investment Sales.
There were no significant sales of investment securities for the three or six months
 
ended June 30, 2022 or June 30,
2021.
Maturity Distribution
.
 
At June 30, 2022, the Company's investment securities had the following maturity distribution
 
based on
contractual maturity.
 
Expected maturities may differ from contractual maturities because borrowers
 
may have the right to call or
prepay obligations.
 
Mortgage-backed securities 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
$
34,031
 
$
31,933
 
$
-
 
$
-
Due after one year through five years
 
316,240
 
 
296,327
 
 
303,379
 
 
289,708
Due after five year through ten years
 
59,474
 
 
51,323
 
 
-
 
 
-
Mortgage-Backed Securities
86,168
77,821
224,879
209,255
U.S. Government Agency
 
140,439
 
 
136,674
 
 
-
 
 
-
Equity Securities
 
7,327
 
 
7,327
 
 
-
 
 
-
Total
 
$
643,679
 
$
601,405
 
$
528,258
 
$
498,963
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12
Unrealized Losses on Investment Securities.
 
The following table summarizes the available for sale investment securities with
unrealized losses aggregated by major security type and length of time in a continuous
 
unrealized loss position:
 
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
June 30, 2022
Available for
 
Sale
U.S. Government Treasury
$
115,930
 
$
7,757
 
$
61,965
 
$
4,034
 
$
177,895
 
$
11,791
U.S. Government Agency
129,675
7,137
43,349
2,451
173,024
9,588
States and Political Subdivisions
40,323
 
5,229
 
437
 
40
 
40,760
 
5,269
Mortgage-Backed Securities
73,829
 
7,909
 
3,801
 
446
 
77,630
 
8,355
Corporate Debt Securities
82,151
 
7,285
 
3,192
 
308
 
85,343
 
7,593
Total
 
441,908
 
35,317
 
112,744
 
7,279
 
554,652
 
42,596
 
Held to Maturity
U.S. Government Treasury
 
284,789
 
13,375
 
 
4,919
 
296
 
 
289,708
 
 
13,671
Mortgage-Backed Securities
195,328
 
14,395
 
9,659
 
1,295
 
204,987
 
15,690
Total
 
$
480,117
 
$
27,770
 
$
14,578
 
$
1,591
 
$
494,695
 
$
29,361
December 31, 2021
Available for
 
Sale
 
U.S. Government Treasury
$
172,206
 
$
2,606
 
$
-
 
$
-
 
$
172,206
 
$
2,606
U.S. Government Agency
127,484
1,786
17,986
355
145,470
2,141
States and Political Subdivisions
 
42,122
 
 
811
 
 
-
 
 
-
 
 
42,122
 
 
811
Mortgage-Backed Securities
81,832
598
-
-
81,832
598
Corporate Debt Securities
69,354
1,304
-
-
69,354
1,304
Total
 
$
492,998
 
$
7,105
 
$
17,986
 
$
355
 
$
510,984
 
$
7,460
 
Held to Maturity
U.S. Government Treasury
 
113,877
 
 
1,622
 
 
-
 
 
-
 
 
113,877
 
 
1,622
Mortgage-Backed Securities
115,015
1,099
-
-
115,015
1,099
Total
 
$
228,892
 
$
2,721
 
$
-
 
$
-
 
$
228,892
 
$
2,721
At June 30, 2022, there were
833
 
positions (combined AFS and HTM) with unrealized losses totaling $
72.0
 
million (see Note 2 –
Investment Securities in the Notes to Consolidated Financial Statements for
 
detail by category).
 
87
 
of these positions are U.S.
Treasury bonds and carry the full faith and
 
credit of the U.S. Government.
 
621
 
are U.S. government agency securities issued by U.S.
government sponsored entities.
 
We believe the
 
long history of no credit losses on government securities indicates that the expectation
of nonpayment of the amortized cost basis is zero.
 
The remaining
125
 
positions (Municipal securities and corporate bonds) have a
credit component.
 
At June 30, 2022, all CMO, MBS, SBA, U.S. Agency,
 
and U.S. Treasury bonds held were AAA rated.
 
At June 30,
2022, corporate debt securities had an allowance for credit losses of $
22,000
 
and municipal securities had an allowance of $
9,000
.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
 
various risk management procedures, including the
monitoring of credit ratings.
 
A majority of the debt securities in the Company’s
 
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
 
by the U.S. government.
 
The Company believes the
long history of no credit losses on these securities indicates that the expectation
 
of nonpayment of the amortized cost basis is zero,
even if the U.S. government were to technically default.
 
Further, certain municipal securities held by the Company
 
have been pre-
refunded and secured by government guaranteed treasuries.
 
Therefore, for the aforementioned securities, the Company does not
assess or record expected credit losses due to the zero loss assumption.
 
The Company monitors the credit quality of its municipal and
corporate securities portfolio via credit ratings
 
which are updated on a quarterly basis.
 
On a quarterly basis, municipal and corporate
securities in an unrealized loss position are evaluated to determine if the
 
loss is attributable to credit related factors and if an allowance
for credit loss is needed.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
 
FOR CREDIT LOSSES
Loan Portfolio Composition
.
 
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
June 30, 2022
 
December 31, 2021
Commercial, Financial and Agricultural
$
247,902
 
$
223,086
Real Estate – Construction
 
225,664
 
 
174,394
Real Estate – Commercial Mortgage
 
699,093
 
 
663,550
Real Estate – Residential
(1)
 
484,975
 
 
360,021
Real Estate – Home Equity
 
194,658
 
 
187,821
Consumer
(2)
 
361,361
 
 
322,593
Loans Held For Investment, Net of Unearned Income
$
2,213,653
 
$
1,931,465
(1)
Includes loans in process balances of $
7.2
 
million and $
13.6
 
million at June 30, 2022 and December 31, 2021, respectively.
(2)
Includes overdraft balances of $
1.5
 
million and $
1.1
 
million at June 30, 2022 and December 31, 2021, respectively.
 
Net deferred loan costs, which include premiums on purchased loans,
 
included in loans were $
7.0
 
million at June 30, 2022 and $
3.9
million at December 31, 2021.
Accrued interest receivable on loans which is excluded from amortized
 
cost totaled $
6.3
 
million at June 30, 2022 and $
5.3
 
million at
December 31, 2021, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage
 
loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of
 
Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available
 
borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
.
 
The Company will periodically purchase newly originated 1-4 family real
 
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
 
Residential loan purchases from CCHL totaled $
158.8
 
million and
$
51.1
 
million for the six months ended June 30, 2022 and June 30, 2021, respectively,
 
and were not credit impaired.
 
In addition, the
Company acquired commercial real estate loans that were not credit impaired
 
from a third party bank totaling $
15.0
 
million and $
17.4
million for the three months ended June 30, 2022 and June 30, 2021, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
Allowance for Credit Losses
.
 
The methodology for estimating the amount of credit losses reported in the
 
allowance for credit losses
(“ACL”) has two basic components: first, an asset-specific component
 
involving loans that do not share risk characteristics and the
measurement of expected credit losses for such individual loans; and second,
 
a pooled component for expected credit losses for pools
of loans that share similar risk characteristics.
 
This allowance methodology is discussed further in Note 1 – Significant
 
Accounting
Policies in the Company’s 2021 Form
 
10-K.
 
The following table details the activity in the allowance for credit losses by
 
portfolio segment.
 
Allocation of a portion of the
allowance to one category of loans does not preclude its availability to
 
absorb losses in other categories.
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months Ended
June 30, 2022
Beginning Balance
$
2,122
$
2,596
$
5,392
$
4,470
$
1,916
$
4,260
$
20,756
Provision for Credit Losses
564
542
(396)
1,060
(223)
123
1,670
Charge-Offs
(1,104)
-
-
-
-
(1,193)
(2,297)
Recoveries
 
59
-
56
115
67
855
1,152
Net (Charge-Offs) Recoveries
(1,045)
-
56
115
67
(338)
(1,145)
Ending Balance
$
1,641
$
3,138
$
5,052
$
5,645
$
1,760
$
4,045
$
21,281
Six Months Ended
 
June 30, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
403
(172)
(577)
1,374
(628)
1,191
1,591
Charge-Offs
(1,177)
-
(266)
-
(33)
(2,595)
(4,071)
Recoveries
224
8
85
142
125
1,571
2,155
Net (Charge-Offs) Recoveries
(953)
8
(181)
142
92
(1,024)
(1,916)
Ending Balance
$
1,641
$
3,138
$
5,052
$
5,645
$
1,760
$
4,045
$
21,281
Three Months Ended
June 30, 2021
Beginning Balance
$
1,957
$
2,254
$
6,956
$
5,204
$
2,575
$
3,080
$
22,026
Provision for Credit Losses
(56)
505
587
(1,030)
(114)
(76)
(184)
Charge-Offs
(32)
-
-
(65)
(74)
(670)
(841)
Recoveries
 
103
-
26
244
70
731
1,174
Net Charge-Offs
71
-
26
179
(4)
61
333
Ending Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
Six Months Ended
 
June 30, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(370)
280
(131)
(1,335)
(769)
(171)
(2,496)
Charge-Offs
(101)
-
-
(71)
(79)
(1,726)
(1,977)
Recoveries
239
-
671
319
194
1,409
2,832
Net Charge-Offs
138
-
671
248
115
(317)
855
Ending Balance
$
1,972
$
2,759
$
7,569
$
4,353
$
2,457
$
3,065
$
22,175
For the six months ended June 30, 2022, the allowance for HFI loans decreased
 
by $
0.3
 
million and reflected a provision expense of
$
1.6
 
million and net loan charge-offs of $
1.9
 
million.
 
The decrease was driven by the release of reserves held for pandemic related
losses that have not materialized to the extent projected partially offset
 
by growth in reserves for strong new loan origination volume.
 
For the six months ended June 30, 2021, the allowance decreased $
1.6
 
million and reflected a provision benefit of $
2.5
 
million and net
loan recoveries of $
0.9
 
million.
 
The decrease generally reflected improving economic conditions, primarily
 
a lower rate of
unemployment and its potential effect on rates of default,
 
and strong net loan recoveries totaling $
0.9
 
million.
 
Unemployment forecast
scenarios are utilized to estimate probability of default and are weighted
 
based on management’s estimate of
 
probability.
 
See Note 8 –
Commitments and Contingencies for information on the
 
allowance for off-balance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Loan Portfolio Aging.
 
A loan is defined as a past due loan when one full payment is past due or a contractual maturity
 
is over 30 days
past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing
 
past due loans by class of loans.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
June 30, 2022
Commercial, Financial and Agricultural
$
166
$
27
$
-
$
193
$
247,638
$
71
$
247,902
Real Estate – Construction
 
-
-
-
-
225,664
-
225,664
Real Estate – Commercial Mortgage
 
358
-
-
358
698,305
430
699,093
Real Estate – Residential
 
236
-
-
236
483,064
1,675
484,975
Real Estate – Home Equity
 
225
-
-
225
193,700
733
194,658
Consumer
 
1,906
636
-
2,542
358,587
232
361,361
Total
$
2,891
$
663
$
-
$
3,554
$
2,206,958
$
3,141
$
2,213,653
December 31, 2021
Commercial, Financial and Agricultural
$
100
$
23
$
-
$
123
$
222,873
$
90
$
223,086
Real Estate – Construction
 
-
-
-
-
174,394
-
174,394
Real Estate – Commercial Mortgage
 
151
-
-
151
662,795
604
663,550
Real Estate – Residential
 
365
151
-
516
357,408
2,097
360,021
Real Estate – Home Equity
 
210
-
-
210
186,292
1,319
187,821
Consumer
 
1,964
636
-
2,600
319,781
212
322,593
Total
 
$
2,790
$
810
$
-
$
3,600
$
1,923,543
$
4,322
$
1,931,465
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
become 90 days past due and/or
management deems the collectability of the principal and/or interest to
 
be doubtful.
 
Loans are returned to accrual status when the
principal and interest amounts contractually due are brought current
 
or when future payments are reasonably assured.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
status and loans past due over 90 days and still on accrual
by class of loans.
June 30, 2022
December 31, 2021
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
-
$
71
$
-
$
67
$
23
$
-
Real Estate – Construction
 
-
 
-
-
-
-
-
Real Estate – Commercial Mortgage
 
-
 
430
-
-
604
-
Real Estate – Residential
 
1,508
 
167
-
928
1,169
-
Real Estate – Home Equity
 
-
 
733
-
463
856
-
Consumer
 
-
 
232
-
-
212
-
Total Nonaccrual
 
Loans
$
1,508
$
1,633
$
-
$
1,458
$
2,864
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
Collateral Dependent Loans.
The following table presents
 
the amortized cost basis of collateral-dependent loans.
 
June 30, 2022
December 31, 2021
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
-
$
-
$
67
Real Estate – Construction
-
-
-
-
Real Estate – Commercial Mortgage
-
-
455
-
Real Estate – Residential
697
-
1,645
-
Real Estate – Home Equity
 
598
 
-
 
649
 
-
Consumer
 
-
 
-
 
-
 
-
Total Collateral Dependent
 
Loans
$
1,295
$
-
$
2,749
$
67
A loan is collateral dependent when the borrower is experiencing financial
 
difficulty and repayment of the loan is dependent on
 
the
sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
either independent appraisals
or internal evaluations, adjusted for selling costs or other amounts to be deducted
 
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process of Foreclosure
.
 
At June 30, 2022 and December 31, 2021, the Company had $
0.8
 
million
and $
0.9
 
million, respectively, in 1-4 family
 
residential real estate loans for which formal foreclosure proceedings were in process.
Troubled
 
Debt Restructurings (“TDRs”).
 
At June 30, 2022, the Company had $
6.7
 
million in TDRs, all of which were performing in
accordance with the modified terms.
 
At December 31, 2021, the Company had $
8.0
 
million in TDRs, of which $
7.6
 
million were
performing in accordance with modified terms.
 
For TDRs, the Company estimated $
0.3
 
million of credit loss reserves at June 30,
2022 and December 31, 2021.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium,
 
a reduction in the interest rate,
or a combination thereof.
 
For the three and six months ended June 30, 2022, there were
no
 
loans modified.
 
For the three and six
months ended June 30, 2021, there was
one
 
loan modified with a recorded investment of $
0.1
 
million and
three
 
loans modified with a
recorded investment of $
0.6
 
million, respectively.
 
For the six month periods ended June 30, 2022 and June 30, 2021, there were
no
loans classified as TDRs, for which there was a payment default and
 
the loans were modified within the 12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting
 
standards and loan review
procedures designed to maximize loan income within an acceptable
 
level of risk.
 
Management and the Board of Directors review and
approve these policies and procedures on a regular basis (at least annually).
 
Reporting systems are used to monitor loan originations, loan quality,
 
concentrations of credit, loan delinquencies and nonperforming
loans and potential problem loans.
 
Management and the Credit Risk Oversight Committee periodically
 
review our lines of business to
monitor asset quality trends and the appropriateness of credit policies.
 
In addition, total borrower exposure limits are established and
concentration risk is monitored.
 
As part of this process, the overall composition of the portfolio is reviewed to gauge
 
diversification
of risk, client concentrations, industry group, loan type, geographic
 
area, or other relevant classifications of loans.
 
Specific segments
of the loan portfolio are monitored and reported to the Board on a quarterly
 
basis and have strategic plans in place to supplement
Board approved credit policies governing exposure limits and underwriting
 
standards.
 
Detailed below are the types of loans within
the Company’s loan portfolio
 
and risk characteristics unique to each.
 
Commercial, Financial, and Agricultural – Loans in this category
 
are primarily made based on identified cash flows of the borrower
with consideration given to underlying collateral and personal or
 
other guarantees.
 
Lending policy establishes debt service coverage
ratio limits that require a borrower’s cash flow to be sufficient
 
to cover principal and interest payments on all new and existing debt.
 
The majority of these loans are secured by the assets being financed or other business
 
assets such as accounts receivable, inventory,
 
or
equipment.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Loan to value ratios at origination are
governed by established policy guidelines.
 
 
 
 
 
17
Real Estate Construction – Loans in this category consist of short-term
 
construction loans, revolving and non-revolving credit lines
and construction/permanent loans made to individuals and investors to
 
finance the acquisition, development, construction or
rehabilitation of real property.
 
These loans are primarily made based on identified
 
cash flows of the borrower or project and generally
secured by the property being financed, including 1-4 family residential
 
properties and commercial properties that are either owner-
occupied or investment in nature.
 
These properties may include either vacant or improved property.
 
Construction loans are generally
based upon estimates of costs and value associated with the completed
 
project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy
 
guidelines.
 
The disbursement
of funds for construction loans is made in relation to the progress of the project
 
and as such these loans are closely monitored by on-
site inspections.
 
Real Estate Commercial Mortgage – Loans in this category consists of commercial
 
mortgage loans secured by property that is either
owner-occupied or investment in nature.
 
These loans are primarily made based on identified cash flows of the borrower or
 
project
with consideration given to underlying real estate collateral and
 
personal guarantees.
 
Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type.
 
Collateral values are determined based upon third party
appraisals and evaluations.
 
Real Estate Residential – Residential mortgage loans held in the Company’s
 
loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting
 
factors such as current income, employment status, current
assets, and other financial resources, credit history,
 
and the value of the collateral.
 
Collateral consists of mortgage liens on 1-4 family
residential properties.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
The Company does not
originate sub-prime loans.
 
Real Estate Home Equity – Home equity loans and lines are made to qualified
 
individuals for legitimate purposes generally secured
by senior or junior mortgage liens on owner-occupied
 
1-4 family homes or vacation homes.
 
Borrower qualifications include
favorable credit history combined with supportive income and debt ratio
 
requirements and combined loan to value ratios within
established policy guidelines.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Consumer Loans – This loan portfolio includes personal installment loans,
 
direct and indirect automobile financing, and overdraft
lines of credit.
 
The majority of the consumer loan category consists of direct and indirect automobile
 
loans.
 
Lending policy
establishes maximum debt to income ratios, minimum credit scores, and
 
includes guidelines for verification of applicants’ income and
receipt of credit reports.
Credit Quality Indicators
.
 
As part of the ongoing monitoring of the Company’s
 
loan portfolio quality, management
 
categorizes loans
into risk categories based on relevant information about the ability of borrowers
 
to service their debt such as: current financial
information, historical payment performance, credit documentation,
 
and current economic and market trends, among other
factors.
 
Risk ratings are assigned to each loan and revised as needed through established monitoring
 
procedures for individual loan
relationships over a predetermined amount and review of smaller balance homogenous
 
loan pools.
 
The Company uses the definitions
noted below for categorizing and managing its criticized loans.
 
Loans categorized as “Pass” do not meet the criteria set forth below
and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but
 
weaknesses are apparent which, if not corrected, could
cause future problems.
 
Loans in this category may not meet required underwriting criteria and
 
have no mitigating factors.
 
More than
the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would
 
typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined
 
weaknesses that affect the repayment capacity of the
borrower.
 
The possibility of loss is much more evident and above average supervision is required
 
for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized
 
as Substandard, with the characteristic that
the weaknesses make collection or liquidation in full, on the basis of
 
currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
loan pools (home equity and consumer) are not individually reviewed,
but are monitored for credit quality via the aging status of the loan and by payment
 
activity.
 
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
 
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
The following table summarizes gross loans held for investment at
 
June 30, 2022 by years of origination and internally assigned credit
risk ratings (refer to Credit Risk Management section for detail on risk rating
 
system).
 
Term
 
Loans by Origination Year
Revolving
(Dollars in Thousands)
2022
2021
2020
2019
2018
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
49,887
$
54,079
$
25,439
$
21,041
$
15,004
$
15,218
$
66,828
$
247,496
Special Mention
-
-
-
9
-
23
117
149
Substandard
 
-
 
-
 
8
 
-
 
122
 
127
 
-
 
257
Total
$
49,887
$
54,079
$
25,447
$
21,050
$
15,126
$
15,368
$
66,945
$
247,902
Real Estate -
Construction:
Pass
$
57,643
$
107,385
$
48,432
$
8,482
$
-
$
126
$
2,905
$
224,973
Special Mention
-
-
691
-
-
-
-
691
Total
$
57,643
$
107,385
$
49,123
$
8,482
$
-
$
126
$
2,905
$
225,664
Real Estate -
Commercial Mortgage:
Pass
$
124,927
$
155,769
$
116,218
$
66,400
$
67,022
$
119,767
$
25,115
$
675,218
Special Mention
224
1,133
235
1,740
742
6,862
1,493
12,429
Substandard
 
7,510
 
1,788
 
402
 
631
 
-
 
1,047
 
68
 
11,446
Total
$
132,661
$
158,690
$
116,855
$
68,771
$
67,764
$
127,676
$
26,676
$
699,093
Real Estate - Residential:
Pass
$
183,113
$
106,587
$
51,210
$
31,925
$
22,142
$
74,104
$
7,508
$
476,589
Special Mention
59
-
130
17
59
562
-
827
Substandard
 
119
 
1,076
 
976
 
935
 
895
 
3,558
 
-
 
7,559
Total
 
$
183,291
$
107,663
$
52,316
$
32,877
$
23,096
$
78,224
$
7,508
$
484,975
Real Estate - Home
Equity:
Performing
$
29
$
133
$
13
$
299
$
154
$
2,101
$
191,196
$
193,925
Nonperforming
 
-
 
-
 
-
 
16
 
-
 
-
 
717
 
733
Total
 
$
29
$
133
$
13
$
315
$
154
$
2,101
$
191,913
$
194,658
Consumer:
Performing
$
112,549
$
139,965
$
48,931
$
28,715
$
18,005
$
7,544
$
5,420
$
361,129
Nonperforming
22
56
56
47
38
13
-
232
Total
$
112,571
$
140,021
$
48,987
$
28,762
$
18,043
$
7,557
$
5,420
$
361,361
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities include mandatory delivery loan sales, forward sales contracts used
 
to manage residential
loan pipeline price risk, utilization of warehouse lines to fund secondary
 
market residential loan closings, and residential mortgage
servicing.
 
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and
 
government-sponsored residential mortgage loans.
 
Generally,
conforming fixed rate residential mortgage loans are held for sale in the
 
secondary market and non-conforming and adjustable-rate
residential mortgage loans may be held for investment.
 
The volume of residential mortgage loans originated for sale and secondary
market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30
 
to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed
 
loan is sold to an investor.
 
Residential mortgage loan
commitments are subject to both credit and price risk.
 
Credit risk is managed through underwriting policies and procedures, including
collateral requirements, which are generally accepted by the secondary
 
loan markets.
 
Price risk is primarily related to interest rate
fluctuations and is partially managed through forward sales of residential
 
mortgage-backed securities (primarily to-be announced
securities, or TBAs) or mandatory delivery commitments with investors.
 
The unpaid principal balance of residential mortgage loans held for sale,
 
notional amounts of derivative contracts related to residential
mortgage loan commitments and forward contract sales and their related
 
fair values are set- forth below.
 
June 30, 2022
December 31, 2021
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
47,805
$
48,708
$
50,733
$
52,532
Residential Mortgage Loan Commitments ("IRLCs")
(1)
62,201
934
51,883
1,258
Forward Sales Contracts
(2)
31,500
(45)
48,000
(7)
$
49,597
$
53,783
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
 
at June 30, 2022 and December 31, 2021, respectively
The Company had
no
 
residential mortgage loans held for sale that were 90 days or more outstanding or on
 
nonaccrual at June 30,
2022, and loans held for sale that were 30-69 days outstanding totaled $
0.2
 
million at December 31, 2021.
 
Mortgage banking revenue was as follows:
Three Months Ended
 
June 30,
Six Months Ended June
(Dollars in Thousands)
2022
2021
2022
2021
Net realized gains on sales of mortgage loans
$
4,800
$
13,534
$
9,935
$
27,958
Net change in unrealized gain on mortgage loans held for sale
79
532
(895)
(1,499)
Net change in the fair value of mortgage loan commitments
(183)
(458)
(324)
(2,301)
Net change in the fair value of forward sales contracts
(896)
(1,446)
(38)
817
Pair-Offs on net settlement of forward sales contracts
1,954
(476)
4,209
2,835
Mortgage servicing rights additions
1,457
453
2,088
640
Net origination fees
1,854
1,078
3,036
1,892
Total mortgage banking
 
revenues
$
9,065
$
13,217
$
18,011
$
30,342
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
 
sold.
 
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
 
(Dollars in Thousands)
June 30, 2022
December 31, 2021
Number of residential mortgage loans serviced for others
2,555
2,106
Outstanding principal balance of residential mortgage loans serviced
 
for others
$
703,537
$
532,967
Weighted average
 
interest rate
3.70%
3.59%
Remaining contractual term (in months)
323
317
Conforming conventional loans serviced by the Company are sold to FNMA on
 
a non-recourse basis, whereby foreclosure losses are
generally the responsibility of FNMA and not the Company.
 
The government loans serviced by the Company are secured through
GNMA, whereby the Company is insured against loss by the Federal Housing
 
Administration or partially guaranteed against loss by
the Veterans
 
Administration.
 
At June 30, 2022, the servicing portfolio balance consisted of the following
 
loan types: FNMA (
50
%),
GNMA (
7
%), and private investor (
43
%).
 
FNMA and private investor loans are structured as actual/actual payment remittance.
 
The Company had $
0.4
 
million and $
2.0
 
million in delinquent residential mortgage loans currently in GNMA pools
 
serviced by the
Company at June 30, 2022 and December 31, 2021, respectively.
 
The right to repurchase these loans and the corresponding liability
has been recorded in other assets and other liabilities, respectively,
 
in the Consolidated Statement of Financial Condition.
 
For the
three and six months ended June 30, 2022, the Company repurchased
 
$
0.6
 
million and $
1.0
 
million in delinquent residential loans
currently in GNMA pools.
 
For the three and six months ended June 30, 2021, the Company repurchased $
0.7
 
million and $
2.2
million, respectively,
 
in delinquent residential
 
loans in GNMA pools.
 
When delinquent residential loans are repurchased, the
Company has the intention to modify their terms and include the loans in
 
new GNMA pools.
 
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
2022
2021
Beginning balance
$
4,001
$
3,583
$
3,774
$
3,452
Additions due to loans sold with servicing retained
1,457
453
2,088
640
Deletions and amortization
(372)
(326)
(776)
(632)
Valuation
 
allowance reversal
-
-
-
250
Ending balance
$
5,086
$
3,710
$
5,086
$
3,710
The Company did
no
t record any permanent impairment losses on mortgage servicing rights for the
 
three months ended June 30, 2022
and June 30, 2021.
 
The key unobservable inputs used in determining the fair value of the Company’s
 
mortgage servicing rights were as follows:
June 30, 2022
December 31, 2021
Minimum
Maximum
Minimum
Maximum
Discount rates
9.00%
11.00%
11.00%
15.00%
Annual prepayment speeds
9.46%
11.54%
11.98%
23.79%
Cost of servicing (per loan)
$
65
$
138
$
60
$
73
Changes in residential mortgage interest rates directly affect
 
the prepayment speeds used in valuing the Company’s
 
mortgage
servicing rights.
 
A separate third party model is used to estimate prepayment speeds based on interest rates, housing
 
turnover rates,
estimated loan curtailment, anticipated defaults, and other relevant factors.
 
The weighted average annual prepayment speed was
10.48
% at June 30, 2022 and
15.85
% at December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
21
Warehouse
 
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
 
agreements with various financial institutions at June
30, 2022.
 
Amounts
(Dollars in Thousands)
Outstanding
$
75
 
million master repurchase agreement without defined expiration.
 
Interest is at the Prime rate minus
1.00%
to plus
1.00%
, with a floor rate of
3.25%
.
 
A cash pledge deposit of $
0.5
 
million is required by the lender.
12,657
$
75
 
million warehouse line of credit agreement expiring in
November 2022
.
 
Interest is at the SOFR plus
2.25%
, to
3.25%
.
22,333
Total Warehouse
 
Borrowings
$
34,990
Warehouse
 
line borrowings are classified as short-term borrowings.
 
At December 31, 2021, warehouse line borrowings totaled $
29.0
million. At June 30, 2022, the Company had residential mortgage loans
 
held for sale and construction loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase
 
agreements.
 
The above agreements also contain
covenants which include certain financial requirements, including
 
maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements.
 
The Company was in compliance with all significant debt
covenants at June 30, 2022.
 
The Company has extended a $
50
 
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
 
Balances and
transactions under this line of credit are eliminated in the Company’s
 
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
 
Financial Condition.
 
The balance of this line of credit at June 30,
2022 and December 31, 2021 was $
13.3
 
million and $
14.8
 
million, respectively.
NOTE 5 – DERIVATIVES
 
The Company enters into derivative financial instruments to manage exposures
 
that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of
 
which are determined by interest rates.
 
The Company’s
derivative financial instruments are used to manage differences in
 
the amount, timing, and duration of the Company’s
 
known or
expected cash receipts and its known or expected cash payments principally
 
related to the Company’s subordinated
 
debt.
 
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
 
million at June 30, 2022 were designed as a cash flow hedge for subordinated
debt.
 
Under the swap arrangement, the Company will pay a fixed interest rate of
2.50
% and receive a variable interest rate based on
three-month LIBOR plus a weighted average margin of
1.83
%.
For derivatives designated and that qualify as cash flow hedges of interest rate
 
risk, the gain or loss on the derivative is recorded in
accumulated other comprehensive income (“AOCI”) and subsequently
 
reclassified into interest expense in the same period(s) during
which the hedged transaction affects earnings. Amounts
 
reported in accumulated other comprehensive income related to derivatives
will be reclassified to interest expense as interest payments are made on the
 
Company’s variable-rate subordinated
 
debt.
The following table reflects the cash flow hedges included in the consolidated
 
statements of financial condition
.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
 
Maturity (Years)
June 30, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,046
8.0
December 31, 2021
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
2,050
8.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
22
The following table presents the net gains (losses) recorded in AOCI and the
 
consolidated statements of income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
debt) for the three and six months ended June 30, 2022 and
June 30, 2021.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended June 30, 2022
Interest expense
$
867
 
$
26
 
Three months ended June 30, 2021
Interest expense
(686)
(37)
Six months ended June 30, 2022
Interest expense
$
2,237
 
$
(2)
Six months ended June 30, 2021
Interest expense
900
 
(70)
The Company estimates there will be approximately $
0.7
 
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
5.3
 
million and $
2.0
 
million at June 30, 2022 and December 31, 2021, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
 
lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively,
 
on its Consolidated Statement of Financial Condition.
 
The Company’s operating
 
leases primarily relate to banking offices with remaining lease terms
 
from
1
 
to
43
 
years.
 
The Company’s
leases are not complex and do not contain residual value guarantees, variable
 
lease payments, or significant assumptions or judgments
made in applying the requirements of Topic
 
842.
 
Operating leases with an initial term of 12 months or less are not recorded on the
Consolidated Statement of Financial Condition and the related lease expense is recognized on a straight-line basis over the lease term.
 
At June 30, 2022, the operating lease ROU assets and liabilities were $
11.9
 
million and $
12.5
 
million, respectively. At December
 
31,
2021, ROU assets and liabilities were $
11.5
 
million and $
12.2
 
million, respectively.
 
The Company does not have any finance leases
or any significant lessor agreements.
The table below summarizes our lease expense and other information related
 
to the Company’s operating leases.
Three Months Ended
Six Months Ended
June 30,
June 30,
(Dollars in Thousands)
2022
2021
2022
2021
Operating lease expense
$
391
$
362
$
775
$
706
Short-term lease expense
159
170
337
310
Total
 
lease expense
$
550
$
532
$
1,112
$
1,016
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
435
$
402
$
864
$
786
Right-of-use assets obtained in exchange for new operating lease liabilities
600
440
1,192
515
Weighted average
 
remaining lease term — operating leases (in years)
24.5
25.1
24.5
25.1
Weighted average
 
discount rate — operating leases
2.2%
2.0%
2.2%
2.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
June 30, 2022
2022
$
1,717
2023
1,715
2024
1,470
2025
1,249
2026
1,122
2027 and thereafter
11,731
Total
$
19,004
Less: Interest
(6,503)
Present Value
 
of Lease liability
$
12,501
At June 30, 2022, the Company had three additional operating lease obligations
 
for banking offices (to be constructed) that have not
yet commenced. These leases have payments totaling $
9.3
 
million based on the initial contract terms of
15 years
.
 
Payments for the
banking offices are expected to commence after the construction periods end, which are each expected to occur during the fourth
quarter of 2022 and the first quarter of 2023.
 
A related party is the lessor in an operating lease with the Company.
 
The Company’s minimum payment
 
is $
0.2
 
million annually
through 2024, for an aggregate remaining obligation of $
0.5
 
million at June 30, 2022.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all full-time
 
and eligible part-time associates and a
Supplemental Executive Retirement Plan (“SERP”) and a Supplemental
 
Executive Retirement Plan II (“SERP II”) covering its
executive officers.
 
The defined benefit plan was amended in December 2019 to remove plan eligibility
 
for new associates hired after
December 31, 2019.
 
The SERP II was adopted by the Company’s
 
Board on May 21, 2020 and covers certain executive officers that
were not covered by the SERP.
 
The components of the net periodic benefit cost for the Company's qualified
 
benefit pension plan were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
2022
2021
Service Cost
$
1,572
$
1,743
$
3,145
$
3,486
Interest Cost
1,166
1,221
2,333
2,442
Expected Return on Plan Assets
(2,675)
(2,787)
(5,351)
(5,574)
Prior Service Cost Amortization
4
4
8
8
Net Loss Amortization
428
1,691
857
3,382
Pension Settlement
169
2,000
378
2,000
Net Periodic Benefit Cost
$
664
$
3,872
$
1,370
$
5,744
Discount Rate
3.11%
2.88%
3.11%
2.88%
Long-term Rate of Return on Assets
6.75%
6.75%
6.75%
6.75%
The components of the net periodic benefit cost for the Company's SERP and SERP II
 
were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
2022
2021
Service Cost
$
8
$
9
$
16
$
18
Interest Cost
79
61
158
120
Prior Service Cost Amortization
69
69
138
88
Net Loss Amortization
180
243
360
441
Net Periodic Benefit Cost
$
336
$
382
$
672
$
667
Discount Rate
2.80%
2.38%
2.80%
2.38%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24
The service cost component of net periodic benefit cost is reflected in
 
compensation expense in the accompanying statements of
income.
 
The other components of net periodic cost are included in “other” within the noninterest
 
expense category in the statements
of income.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lending Commitments
.
 
The Company is a party to financial instruments with off-balance
 
sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend credit and standby
 
letters of
credit.
The Company’s maximum exposure
 
to credit loss under standby letters of credit and commitments to extend credit is represented
 
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
June 30, 2022
December 31, 2021
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
215,601
$
515,886
$
731,487
$
217,531
$
505,897
$
723,428
Standby Letters of Credit
 
6,196
 
-
 
6,196
5,205
 
-
 
5,205
Total
$
221,797
$
515,886
$
737,683
$
222,736
$
505,897
$
728,633
(1)
Commitments include unfunded loans, revolving
 
lines of credit, and off-balance sheet residential
 
loan commitments.
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn
 
upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by
 
the Company to guarantee the performance of a client to a third
party.
 
The credit risk involved in issuing letters of credit is essentially the same as that involved
 
in extending loan facilities. In
general, management does not anticipate any material losses as a result
 
of participating in these types of transactions.
 
However, any
potential losses arising from such transactions are reserved for in the same manner
 
as management reserves for its other credit
facilities.
For both on- and off-balance sheet financial instruments, the Company
 
requires collateral to support such instruments when it is
deemed necessary.
 
The Company evaluates each client’s
 
creditworthiness on a case-by-case basis.
 
The amount of collateral
obtained upon extension of credit is based on management’s
 
credit evaluation of the counterparty.
 
Collateral held varies, but may
include deposits held in financial institutions; U.S. Treasury
 
securities; other marketable securities; real estate; accounts receivable;
property, plant and
 
equipment; and inventory.
The allowance for credit losses for off-balance sheet credit commitments
 
that are not unconditionally cancellable by the bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities.
 
The following table shows the activity in the
allowance.
 
 
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2022
2021
2022
2021
Beginning Balance
$
2,976
$
2,974
$
2,897
$
1,644
Provision for Credit Losses
(123)
(387)
(44)
943
Ending Balance
$
2,853
$
2,587
$
2,853
$
2,587
Other Commitments.
In the normal course of business, the Company enters into lease commitments
 
which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the
 
Company’s operating lease commitments.
 
Furthermore,
the Company has an outstanding commitment of up to $
1.0
 
million in a bank tech venture capital fund focused on finding and funding
technology solutions for community banks. At June 30, 2022, the Company
 
had contributed $
0.2
 
million, and at December 31, 2021,
the Company had contributed $
0.1
 
million of the commitment.
Contingencies
.
 
The Company is a party to lawsuits and claims arising out of the normal course of business.
 
In management's opinion,
there are no known pending claims or litigation, the outcome of which would,
 
individually or in the aggregate, have a material effect
on the consolidated results of operations, financial position, or cash flows
 
of the Company.
25
Indemnification Obligation
.
 
The Company is a member of the Visa U.S.A. network.
 
Visa U.S.A member banks are
 
required to
indemnify the Visa U.S.A.
 
network for potential future settlement of certain litigation (the “Covered Litigation”)
 
that relates to several
antitrust lawsuits challenging the practices of Visa
 
and MasterCard International.
 
In 2008, the Company, as a member
 
of the Visa
U.S.A. network, obtained Class B shares of Visa,
 
Inc. upon its initial public offering.
 
Since its initial public offering, Visa,
 
Inc. has
funded a litigation reserve for the Covered Litigation resulting in
 
a reduction in the Class B shares held by the Company.
 
During the
first quarter of 2011, the Company sold its remaining
 
Class B shares.
 
Associated with this sale, the Company entered into a swap
contract with the purchaser of the shares that requires a payment to the
 
counterparty in the event that Visa, Inc. makes
 
subsequent
revisions to the conversion ratio for its Class B shares.
 
In the second quarter of 2022, Visa,
 
Inc. funded the litigation reserve and the
share conversion ratio was reduced and a $
0.2
 
million swap liability was recorded.
 
Conversion ratio payments and ongoing fixed
quarterly charges are reflected in earnings in the period
 
incurred.
 
Fixed charges included in the swap liability are payable quarterly
until the litigation reserve is fully liquidated and at which time the aforementioned
 
swap contract will be terminated.
 
Quarterly fixed
payments approximate $
0.2
 
million.
 
NOTE 9 – FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid
 
to transfer that liability in an orderly
transaction occurring in the principal market (or most advantageous market in
 
the absence of a principal market) for such asset or
liability.
 
In estimating fair value, the Company utilizes valuation techniques that are consistent with
 
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.
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.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
 
that loan, which would be used by other market
participants.
 
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
 
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
 
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated
 
costs to originate the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments
 
is based on
observable market pricing for similar instruments and are therefore
 
classified as Level 2 within the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
Interest Rate Swap.
The Company’s derivative positions
 
are classified as Level 2 within the fair value hierarchy and are valued
 
using
models generally accepted in the financial services industry and
 
that use actively quoted or observable market input values from
external market data providers.
 
The fair value derivatives are determined using discounted cash flow models.
 
Fair Value
 
Swap
.
 
The Company entered into a stand-alone derivative contract with the purchaser of
 
its Visa Class B shares.
 
The
valuation represents the amount due and payable to the counterparty based upon
 
the revised share conversion rate, if any,
 
during the
period. At June 30, 2022, there was $
0.2
 
million payable and at December 31, 2021, there was a $
0.1
 
million payable.
A summary of fair values for assets and liabilities consisted of the following:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
June 30, 2022
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
177,895
$
-
$
-
$
177,895
U.S. Government Agency
-
210,684
-
210,684
States and Political Subdivisions
-
42,357
-
42,357
Mortgage-Backed Securities
-
77,821
-
77,821
Corporate Debt Securities
-
85,321
-
85,321
Other Securities
 
-
7,327
-
7,327
Loans Held for Sale
-
48,708
-
48,708
Interest Rate Swap Derivative
-
5,046
-
5,046
Mortgage Banking IRLC Derivative
-
-
934
934
Mortgage Servicing Rights
-
-
9,336
9,336
LIABILITIES:
Mortgage Banking Hedge Derivative
$
-
$
45
$
-
$
45
December 31, 2021
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
187,868
$
-
$
-
$
187,868
U.S. Government Agency
-
237,578
-
237,578
States and Political Subdivisions
-
46,980
-
46,980
Mortgage-Backed Securities
-
88,869
-
88,869
Corporate Debt Securities
-
86,222
-
86,222
Other Securities
-
7,094
-
7,094
Loans Held for Sale
-
52,532
-
52,532
Interest Rate Swap Derivative
-
2,050
-
2,050
Mortgage Banking IRLC Derivative
-
-
1,258
1,258
Mortgage Servicing Rights
-
-
4,718
4,718
LIABILITIES:
Mortgage Banking Hedge Derivative
$
-
$
7
$
-
$
7
27
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage
 
banking activities of $
7.7
 
million
and $
16.8
 
million, respectively, for the
 
six months ended June 30, 2022 and $
27.4
 
million and $
19.3
 
million, respectively, for the
 
six
months
 
ended June 30, 2021.
 
Issuances are valued based on the change in fair value of the underlying
 
mortgage loan from inception
of the IRLC to the Consolidated Statement of Financial Condition date,
 
adjusted for pull-through rates and costs to originate.
 
IRLCs
transferred out of Level 3 represent IRLCs that were funded and moved
 
to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value
 
on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the
 
assets are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances).
 
An example would be assets exhibiting evidence of impairment.
 
The following is a description of valuation methodologies used for assets measured
 
on a non-recurring basis.
 
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured using the fair
 
value of the collateral less selling
costs.
 
The fair value of collateral is determined by an independent valuation
 
or professional appraisal in conformance with banking
regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,
 
and the judgment and
estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those techniques applied in prior
periods.
 
Collateral-dependent loans had a carrying value of $
1.3
 
million with a valuation allowance of less than $
0.1
 
million at June
30, 2022 and $
2.8
 
million and $
0.2
 
million, respectively, at December
 
31, 2021.
Other Real Estate Owned
.
 
During the first six months of 2022, 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 June 30, 2022 and December 31, 2021, there was
no
 
valuation
allowance for loan servicing rights.
 
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments,
 
both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation
 
methodologies used for those assets and liabilities.
Cash and Short-Term
 
Investments.
 
The carrying amount of cash and short-term investments is used to approximate
 
fair value, given
the short time frame to maturity and as such assets do not present unanticipated
 
credit concerns.
 
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”.
 
Loans.
 
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
 
using present value
techniques based upon projected cash flows and estimated discount
 
rates.
 
Pursuant to the adoption of ASU 2016-01,
Recognition and
Measurement of Financial Assets and Financial
 
Liabilities
, the values reported reflect the incorporation of a liquidity discount to meet
the objective of “exit price” valuation.
 
Deposits.
 
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
 
Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed maturity
 
certificates of deposit is estimated using present
value techniques and rates currently offered for deposits of
 
similar remaining maturities.
Subordinated Notes Payable.
 
The fair value of each note is calculated using present value techniques,
 
based upon projected cash
flows and estimated discount rates as well as rates being offered
 
for similar obligations.
Short-Term
 
and Long-Term
 
Borrowings.
 
The fair value of each note is calculated using present value techniques,
 
based upon
projected cash flows and estimated discount rates as well as rates being offered
 
for similar debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
A summary of estimated fair values of significant financial instruments consisted
 
of the following:
 
 
June 30, 2022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
91,209
$
91,209
$
-
$
-
Short-Term Investments
603,315
603,315
-
-
Investment Securities, Available
 
for Sale
601,405
177,895
423,510
-
Investment Securities, Held to Maturity
528,258
289,708
209,255
-
Equity Securities
(1)
900
-
900
-
Loans Held for Sale
48,708
-
48,708
-
Other Equity Securities
(2)
2,848
-
2,848
-
Interest Rate Swap Derivative
5,046
-
5,046
-
Mortgage Servicing Rights
5,086
-
-
9,336
Mortgage Banking IRLC Derivative
934
-
-
934
Loans, Net of Allowance for Credit Losses
2,192,372
-
-
2,127,117
LIABILITIES:
Deposits
$
3,786,258
$
-
$
3,335,175
$
-
Short-Term
 
Borrowings
39,463
-
39,462
-
Subordinated Notes Payable
52,887
-
46,121
-
Long-Term Borrowings
612
-
627
-
Mortgage Banking Hedge Derivative
45
-
45
-
 
December 31, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
65,313
$
65,313
$
-
$
-
Short-Term Investments
970,041
970,041
-
-
Investment Securities, Available
 
for Sale
654,611
187,868
466,743
-
Investment Securities, Held to Maturity
339,601
113,877
225,822
-
Equity Securities
(1)
861
-
861
-
Loans Held for Sale
52,532
-
52,532
-
Other Equity Securities
(2)
2,848
-
2,848
-
Interest Rate Swap Derivative
2,050
-
2,050
-
Mortgage Servicing Rights
3,774
-
-
4,718
Mortgage Banking IRLC Derivative
1,258
-
-
1,258
Loans, Net of Allowance for Credit Losses
1,909,859
-
-
1,903,640
LIABILITIES:
Deposits
$
3,712,862
$
-
$
3,713,478
$
-
Short-Term
 
Borrowings
34,557
-
34,557
-
Subordinated Notes Payable
52,887
-
42,609
-
Long-Term Borrowings
884
-
938
-
Mortgage Banking Hedge Derivative
7
-
7
-
(1)
Not readily marketable securities - reflected
 
in other assets.
(2)
Accounted for under the equity method – not readily
 
marketable securities – reflected in other assets.
All non-financial instruments are excluded from the above table.
 
The disclosures also do not include goodwill.
 
Accordingly, the
aggregate fair value amounts presented do not represent the underlying
 
value of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
NOTE 10 – ACCUMULATED
 
OTHER COMPREHENSIVE INCOME (LOSS)
The amounts allocated to accumulated other comprehensive income
 
(loss) are presented in the table below.
 
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
(Dollars in Thousands)
 
for Sale
 
Swap
 
Plans
 
 
(Loss) Income
Balance as of January 1, 2022
$
(4,588)
 
$
1,530
 
$
(13,156)
 
$
(16,214)
Other comprehensive (loss) income during the period
 
(27,071)
 
2,237
 
283
 
(24,551)
Balance as of June 30, 2022
$
(31,659)
 
$
3,767
 
$
(12,873)
 
$
(40,765)
Balance as of January 1, 2021
$
2,700
 
$
428
 
$
(47,270)
 
$
(44,142)
Other comprehensive (loss) income during the period
 
(1,816)
 
900
 
1,635
 
719
Balance as of June 30, 2021
$
884
 
$
1,328
 
$
(45,635)
 
$
(43,423)
NOTE 11 – SUBSEQUENT
 
EVENT
Subsequent to June 30, 2022 and effective August 1, 2022,
 
a total of
33
 
investment securities with an amortized cost basis and fair
value of $
168.4
 
million and $
159.0
 
million, respectively, were transferred
 
from the available-for-sale (“AFS”) to held-to-maturity
(“HTM”) classification. These securities had a net unrealized loss of $
9.4
 
million, with no immediate impact to net income on the
transfer date. The net unrealized loss at the date of transfer will remain in
 
accumulated other comprehensive income (“AOCI”) and be
amortized into net interest income over the remaining life of the securities. The
 
amortization of amounts retained in AOCI will offset
the effect on net interest income of the accretion of the discount
 
resulting from transferring securities at fair value.
30
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
 
OF FINANCIAL CONDITION AND RESULTS
 
OF
OPERATIONS
Management’s discussion
 
and analysis ("MD&A") provides supplemental information, which sets forth
 
the major factors that have
affected our financial condition and results of operations
 
and should be read in conjunction with the Consolidated Financial
Statements and related notes.
 
The following information should provide a better understanding of
 
the major factors and trends
 
that
affect our earnings performance and financial condition,
 
and how our performance during 2022 compares with prior years.
 
Throughout this section, Capital City Bank Group, Inc., and subsidiaries, collectively,
 
is referred to as "CCBG," "Company,"
 
"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 and
Item 1A. Risk Factors
 
of our 2021
Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form
 
10-Q, and in our other filings made from time to
time with the SEC after the date of this report.
However, other factors besides those listed in our
 
Quarterly Report or in our Annual Report also could adversely affect
 
our results,
and you should not consider any such list of factors to be a complete set of all potential risks or
 
uncertainties.
 
Any forward-looking
statements made by us or on our behalf speak only as of the date they are made.
 
We do not undertake
 
to update any forward-looking
statement, except as required by applicable law.
BUSINESS OVERVIEW
We are a financial
 
holding company headquartered in Tallahassee,
 
Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the "Bank" or "CCB").
 
We offer
 
a broad array of products and services through a total of 57 full-service offices
located in Florida, Georgia, and Alabama.
 
We provide a full range of
 
banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards,
 
securities brokerage services and financial
advisory services, including life insurance products,
 
risk management and asset protection services.
 
Our profitability, like
 
most financial institutions, is dependent to a large extent upon net
 
interest income, which is the difference
between the interest and fees received on interest earning assets, such as loans and
 
securities, and the interest paid on interest-bearing
liabilities, principally deposits and borrowings.
 
Results of operations are also affected by the provision for credit losses, operating
expenses such as salaries and employee benefits, occupancy and other
 
operating expenses including income taxes, and noninterest
income such as mortgage banking revenues, wealth management fees,
 
deposit fees, and bank card fees.
We have included
 
a detailed discussion of the economic conditions in our markets and our long-term strategic
 
objectives as part of the
MD&A section of our 2021 Form 10-K.
Acquisitions
 
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic
 
Wealth, LLC
 
(“CCSW”), completed its acquisition of
substantially all of the assets of Strategic Wealth
 
Group, LLC and certain related businesses (“SWG”).
 
CCSW was consolidated into
CCBG’s financial statements
 
effective May 1, 2021.
 
A detailed discussion regarding the acquisition of Capital City Strategic Wealth,
LLC is included as part of the MD&A section of our 2021 Form 10-K.
 
NON-GAAP FINANCIAL MEASURES
We present a tangible
 
common equity ratio and a tangible book value per diluted share that, in each case, removes the
 
effect of
goodwill and other intangibles that resulted from merger
 
and acquisition activity. We
 
believe these measures are useful to investors
because it allows investors to more easily compare our capital adequacy to
 
other companies in the industry.
 
The generally accepted
accounting principles (“GAAP”) to non-GAAP reconciliation for
 
each quarter presented is provided below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
2022
2021
(Dollars in Thousands, except per share data)
Second
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
371,675
$
372,145
$
383,166
$
348,868
$
335,880
$
324,426
Less: Goodwill and Other Intangibles (GAAP)
93,173
93,213
93,253
93,293
93,333
89,095
Tangible Shareowners' Equity (non-GAAP)
A
278,502
278,932
289,913
255,575
242,547
235,331
Total Assets (GAAP)
4,354,297
4,310,045
4,263,849
4,048,733
4,011,459
3,929,884
Less: Goodwill and Other Intangibles (GAAP)
93,173
93,213
93,253
93,293
93,333
89,095
Tangible Assets (non-GAAP)
B
$
4,261,124
$
4,216,832
$
4,170,596
$
3,955,440
$
3,918,126
$
3,840,789
Tangible Common
 
Equity Ratio (non-GAAP)
A/B
6.54%
6.61%
6.95%
6.46%
6.19%
6.13%
Actual Diluted Shares Outstanding (GAAP)
C
16,981,614
16,962,362
16,935,389
16,911,715
16,901,375
16,875,719
Tangible Book Value
 
per Diluted Share (non-GAAP)
 
A/C
16.40
16.44
17.12
15.11
14.35
13.94
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
2022
2021
Per Share Data)
Second
First
Fourth
Third
Second
First
Summary of Operations
:
Interest Income
$
29,320
$
25,438
$
25,549
$
28,520
$
26,836
$
25,446
Interest Expense
987
742
838
848
856
948
Net Interest Income
28,333
24,696
24,711
27,672
25,980
24,498
Provision for Credit Losses
1,542
-
-
-
(571)
(982)
Net Interest Income After
 
Provision for Credit Losses
26,791
24,696
24,711
27,672
26,551
25,480
Noninterest Income
24,903
25,818
24,672
26,574
26,473
29,826
Noninterest Expense
40,498
39,233
40,207
39,702
42,123
40,476
Income
 
Before
 
Income Taxes
11,196
11,281
9,176
14,544
10,901
14,830
Income Tax Expense
2,177
2,235
2,040
2,949
2,059
2,787
Income Attributable to NCI
(306)
(591)
(764)
(1,504)
(1,415)
(2,537)
Net Income Attributable to CCBG
8,713
8,455
6,372
10,091
7,427
9,506
Net Interest Income (FTE)
28,409
24,774
24,790
27,750
26,064
24,606
 
Per Common Share
:
Net Income Basic
$
0.51
$
0.50
$
0.38
$
0.60
$
0.44
$
0.56
Net Income Diluted
0.51
0.50
0.38
0.60
0.44
0.56
Cash Dividends Declared
0.16
0.16
0.16
0.16
0.15
0.15
Diluted Book Value
21.89
21.94
22.63
20.63
19.87
19.22
Diluted Tangible Book Value
(1)
16.40
16.44
17.12
15.11
14.35
13.94
Market Price:
 
High
28.55
28.88
29.00
26.10
27.39
28.98
 
Low
24.43
25.96
24.77
22.02
24.55
21.42
 
Close
27.89
26.36
26.40
24.74
25.79
26.02
 
Selected Average Balances
:
Loans Held for Investment
$
2,084,679
$
1,963,578
$
1,948,324
$
1,974,132
$
2,036,781
$
2,044,363
Earning Assets
3,974,221
3,938,824
3,791,313
3,693,123
3,623,910
3,497,929
Total Assets
4,321,388
4,266,775
4,127,937
4,026,613
3,956,349
3,821,521
Deposits
3,765,329
3,714,062
3,549,145
3,447,688
3,387,352
3,239,508
Shareowners’ Equity
373,365
383,956
350,140
341,460
329,040
326,330
Common Equivalent Average Shares:
 
Basic
16,949
16,931
16,880
16,875
16,858
16,838
 
Diluted
16,971
16,946
16,923
16,909
16,885
16,862
Performance Ratios:
Return on Average Assets
 
0.81
%
0.80
%
0.61
%
0.99
%
0.75
%
1.01
%
Return on Average Equity
9.36
8.93
7.22
11.72
9.05
11.81
Net Interest Margin (FTE)
2.87
2.55
2.60
2.98
2.89
2.85
Noninterest Income as % of
 
Operating Revenue
46.78
51.11
49.96
48.99
50.47
54.90
Efficiency Ratio
75.96
77.55
81.29
73.09
80.18
74.36
 
Asset Quality:
Allowance for Credit Losses ("ACL")
$
21,281
$
20,756
 
$
21,606
$
21,500
$
22,175
$
22,026
ACL to Loans HFI
0.96
%
1.05
%
1.12
%
1.11
%
1.10
%
1.07
%
Nonperforming Assets (“NPAs”)
3,231
2,745
4,339
3,218
6,302
5,472
NPAs to Total
 
Assets
0.07
0.06
0.10
0.08
0.16
0.14
NPAs to Loans HFI plus OREO
0.15
0.14
0.22
0.17
0.31
0.27
ACL to Non-Performing Loans
677.57
760.83
499.93
710.39
433.93
410.78
Net Charge-Offs to Average
 
Loans HFI
0.22
0.16
0.02
0.03
(0.07)
(0.10)
Capital Ratios:
Tier 1 Capital
15.13
%
15.98
%
16.14
%
15.69
%
15.44
%
16.08
%
Total Capital
16.07
16.98
17.15
16.70
16.48
17.20
Common Equity Tier 1
13.07
13.77
13.86
13.45
13.14
13.63
Leverage
8.77
8.78
8.95
9.05
8.84
8.97
Tangible Common Equity
(1)
6.54
6.61
6.95
6.46
6.19
6.13
(1)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 31.
33
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.
 
Net income attributable to common shareowners of $8.7 million, or $0.51
 
per diluted share, for the second
quarter of 2022 compared to net income of $8.5 million, or $0.50 per diluted
 
share, for the first quarter of 2022, and $7.4 million, or
$0.44 per diluted share, for the second quarter of 2021.
 
For the first six months of 2022, net income attributable to common
shareowners totaled $17.2 million, or $1.01 per diluted share, compared to net income
 
of $16.9 million, or $1.00 per diluted share, for
the same period of 2021.
 
Net Interest Income.
 
Tax-equivalent net
 
interest income for the second quarter of 2022 totaled $28.4 million, compared
 
to $24.8
million for the first quarter of 2022, and $26.1 million for the second quarter
 
of 2021.
 
For the first six months of 2022, tax-equivalent
net interest income totaled $53.2 million compared to $50.7 million for
 
the same period of 2021.
 
Compared to the referenced prior
periods, the increase reflected higher interest rates, strong loan growth,
 
and higher investment balances.
Provision and Allowance for Credit
 
Losses.
 
We recorded
 
a provision for credit losses of $1.5 million for the second quarter of 2022
compared to no provision in the first quarter of 2022 and a provision benefit
 
of $0.6 million for the second quarter of 2021.
 
For the
first six months of 2022, the provision was $1.5 million compared to a benefit of
 
$1.6 million for the same period of 2021.
 
The higher
level of provision compared to all prior periods was primarily attributable
 
to strong loan growth.
 
The loan loss provision in 2021 was
also favorably impacted by strong net loan recoveries. We
 
discuss the allowance for credit losses further below.
 
Noninterest Income.
 
Noninterest income for the second quarter of 2022 totaled $24.9 million
 
compared to $25.8 million for the first
quarter of 2022 and $26.5 million for the second quarter of 2021.
 
The $0.9 million decrease from the first quarter of 2022 was
primarily attributable to lower wealth management fees of $1.7 million,
 
which reflected lower insurance revenues at CCSW of $1.9
million that were partially offset by higher retail brokerage
 
fees of $0.3 million.
 
For the first six months of 2022, noninterest income
totaled $50.7 million compared to $56.3 million for the same period of 2021
 
with the $5.6 million decrease largely driven by lower
mortgage banking fees of $12.3 million, partially offset
 
by higher deposit fees of $2.1 million and wealth management fees of $4.1
million (insurance commissions of $3.4 million and retail brokerage
 
fees of $0.7 million).
 
We discuss noninterest
 
income in further
detail below.
Noninterest Expense.
 
Noninterest expense for the second quarter of 2022 totaled $40.5 million compared
 
to $39.2 million for the first
quarter of 2022 and $42.1 million for the second quarter of 2021.
 
The $1.3 million increase over the first quarter of 2022 was driven
by a $0.9 million increase in other expense and higher compensation of $0.5
 
million.
 
For the first six months of 2022, noninterest
expense totaled $79.7 million compared to $82.6 million for the same period
 
of 2021 with the $2.9 million decrease primarily
attributable to lower pension settlement expense of $1.6 million and lower
 
compensation expense of $1.2 million, primarily lower
commissions at CCHL.
 
We discuss noninterest
 
expense in further detail below.
 
Financial Condition
Earning Assets.
 
Average earning assets totaled
 
$3.974 billion for the second quarter of 2022, an increase of $35.4 million, or 0.9%,
over the first quarter of 2022, and an increase of $182.9 million, or 4.8%,
 
over the fourth quarter of 2021.
 
The increase over both
prior periods was primarily driven by higher deposits which funded
 
loan growth.
 
The mix of earnings assets continues to improve
driven by strong loan growth and further deployment of liquidity into
 
the investment portfolio which has increased $135 million in
2022.
 
Loans
.
 
Average loans held for investment
 
(“HFI”) increased $121.1 million, or 6.2%, over the first quarter of 2022 and increased
$136.4 million, or 7.0%, over the fourth quarter of 2021.
 
The growth in 2022 has been broad based with increases realized in all loan
categories, more significantly,
 
residential mortgage, residential construction, and consumer (indirect
 
auto) with strong growth in
commercial mortgage in the second quarter.
 
During 2022, we have purchased a higher level of residential mortgage
 
loans from CCHL
driven by higher demand for portfolio/adjustable rate product.
 
Credit Quality
.
 
Overall credit quality remains strong.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $3.2
million at June 30, 2022 compared to $2.8 million at March 31, 2022
 
and $4.3 million at December 31, 2021.
 
At June 30, 2022,
nonperforming assets as a percentage of total assets totaled 0.07% compared
 
to 0.06% at March 31, 2022 and 0.10% at December 31,
2021.
 
Nonaccrual loans totaled $3.1 million at June 30, 2022, a $0.4 million decrease from March
 
31, 2022 and a $1.2 million
decrease from December 31, 2021.
 
Deposits
.
 
Average total
 
deposits were $3.765 billion for the second quarter of 2022, an increase of $51.3 million,
 
or 1.4%, over the
first quarter of 2022 and $216.2 million, or 6.1%, over the fourth quarter of 2021.
 
Growth over the first quarter of 2022 was primarily
attributable to an increase in noninterest bearing accounts and savings accounts,
 
partially offset by a decline in seasonal public fund
deposits. Compared to the fourth quarter 2021, strong growth occurred in our noninterest
 
bearing deposits, NOW accounts, and
savings account balances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34
Capital
.
 
At June 30, 2022, we were well-capitalized with a total risk-based capital
 
ratio of 16.07%
 
and a tangible common equity
ratio (a non-GAAP financial measure) of 6.54% compared to 16.98%
 
and 6.61%, respectively at March 31, 2022 and 17.15% and
6.95%, respectively, at
 
December 31, 2021.
 
At June 30, 2022, all of our regulatory capital ratios exceeded the threshold to
 
be well-
capitalized under the Basel III capital standards.
 
RESULTS
 
OF OPERATIONS
The following table provides a condensed summary of our results of operations
 
- a discussion of the various components are discussed
in further detail below.
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands, except per share data)
2022
2022
2021
2022
2021
Interest Income
$
29,320
$
25,438
$
26,836
$
54,758
$
52,282
Taxable Equivalent Adjustments
76
78
84
154
193
Total Interest Income (FTE)
29,396
25,516
26,920
54,912
52,475
Interest Expense
987
742
856
1,729
1,804
Net Interest Income (FTE)
28,409
24,774
26,064
53,183
50,671
Provision for Credit Losses
1,542
-
(571)
1,542
(1,553)
Taxable Equivalent Adjustments
76
78
84
154
193
Net Interest Income After Provision for Credit Losses
26,791
24,696
26,551
51,487
52,031
Noninterest Income
24,903
25,818
26,473
50,721
56,299
Noninterest Expense
40,498
39,233
42,123
79,731
82,599
Income Before Income Taxes
11,196
11,281
10,901
22,477
25,731
Income Tax Expense
2,177
2,235
2,059
4,412
4,846
Pre-Tax Income Attributable to Noncontrolling
 
Interest
(306)
(591)
(1,415)
(897)
(3,952)
Net Income Attributable to Common Shareowners
$
8,713
$
8,455
$
7,427
$
17,168
$
16,933
 
Basic Net Income Per Share
$
0.51
$
0.50
$
0.44
$
1.01
$
1.00
Diluted Net Income Per Share
$
0.51
$
0.50
$
0.44
$
1.01
$
1.00
Net Interest Income
Net interest income represents our single largest source of earnings
 
and is equal to interest income and fees generated by earning
assets less interest expense paid on interest bearing liabilities.
 
This information is provided on a "taxable equivalent" basis to reflect
the tax-exempt status of income earned on certain loans and state and local
 
government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
I on page 45.
Tax-equivalent net
 
interest income for the second quarter of 2022 totaled $28.4 million, compared
 
to $24.8 million for the first quarter
of 2022, and $26.1 million for the second quarter of 2021.
 
For the first six months of 2022, tax-equivalent net interest income totaled
$53.2 million compared to $50.7 million for the same period of 2021.
 
Compared to the referenced prior periods, the increase reflected
higher interest rates, strong loan growth, and higher investment balances.
Our net interest margin for the second quarter of 2022 was 2.87%,
 
an increase of 32 basis points over the first quarter of 2022
primarily attributable to higher interest rates and an overall improved earning
 
asset mix.
 
For the month of June 2022, our net interest
margin was 3.05%.
 
Excluding the impact of overnight funds in excess of $200 million, our net interest
 
margin for the second quarter
of 2022 was 3.24%.
 
Compared to the three and six month periods of 2021, the net interest margin
 
decreased two and 16 basis points,
respectively, primarily
 
due to growth in earning assets (driven by higher deposit balances), which
 
drove net interest income dollars
higher, but negatively impacted the
 
margin percentage.
 
Provision for Credit Losses
We recorded
 
a provision for credit losses of $1.5 million for the second quarter of 2022 compared
 
to no provision in the first quarter
of 2022 and a provision benefit of $0.6 million for the second quarter of
 
2021.
 
For the first six months of 2022, the provision was
$1.5 million compared to a benefit of $1.6 million for the same period of 2021.
 
The higher level of provision compared to all prior
periods was primarily attributable to strong loan growth.
 
The loan loss provision in 2021 was also favorably impacted by strong net
loan recoveries.
 
We discuss the allowance
 
for credit losses further below.
 
For more information on charge-offs and recoveries,
 
see
Note 3 – Loans Held for Investment and Allowance for Credit Losses.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Noninterest Income
Noninterest income for the second quarter of 2022 totaled $24.9 million
 
compared to $25.8 million for the first quarter of 2022 and
$26.5 million for the second quarter of 2021.
 
The $0.9 million decrease from the first quarter of 2022 was primarily attributable
 
to
lower wealth management fees of $1.7 million (primarily lower insurance
 
revenues at CCSW) that was partially offset by higher
combined deposit and bank card fees of $0.5
 
million and mortgage banking revenues of $0.1 million.
 
Compared to the second quarter
of 2021, the $1.6 million decrease was primarily attributable to lower mortgage
 
banking revenues of $4.2 million that were partially
offset by higher deposit fees of $1.2 million and wealth
 
management fees of $1.1 million (insurance revenues of $0.7 million and
retail brokerage fees of $0.4 million).
 
For the first six months of 2022, noninterest income totaled $50.7 million
 
compared to $56.3
million for the same period of 2021 with the $5.6 million decrease largely
 
driven by lower mortgage banking fees of $12.3 million
partially offset by higher deposit fees of $2.1 million and wealth management
 
fees of $4.1 million (insurance revenues of $3.4 million
and retail brokerage fees of $0.7 million).
 
Lower mortgage banking revenues for 2022 reflected lower production volume driven
 
by
higher interest rates as well as overall tightening of secondary market
 
loan sale margins.
 
Further, the higher level of wealth
management fees over both prior year periods reflected higher insurance
 
revenues
 
at CCSW (acquired in May 2021).
 
For 2022,
CCHL contributed $0.6 million ($0.03 per diluted share) to earnings versus
 
$2.5 million ($0.14 per diluted share) in 2021 which has
largely been offset by a $1.2 million ($0.07
 
per diluted share) contribution to earnings by CCSW.
Noninterest income represented 46.8% of operating revenues (net
 
interest income plus noninterest income) in the second quarter of
2022
 
compared to 51.1% in the first quarter of 2022 and 50.5% in the second quarter of 2021.
 
For the first six months of 2022,
noninterest income represented 48.9% of operating revenues compared
 
to 52.7% for the same period of 2021.
 
The table below reflects the major components of noninterest income.
 
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
2022
2022
2021
2022
2021
Deposit Fees
$
5,447
$
5,191
$
4,236
$
10,638
$
8,507
Bank Card Fees
4,034
3,763
3,998
7,797
7,616
Wealth Management
 
Fees
4,403
6,070
3,274
10,473
6,364
Mortgage Banking Revenues
9,065
8,946
13,217
18,011
30,342
Other
1,954
1,848
1,748
3,802
3,470
Total
 
Noninterest Income
$
24,903
$
25,818
$
26,473
$
50,721
$
56,299
Significant components of noninterest income are discussed in more
 
detail below.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $9.1 million for the second quarter
 
of 2022 compared to $8.9
million for the first quarter of 2022 and $13.2 million for the second quarter
 
of 2021.
 
For the six months of 2022, revenues totaled
$18.0 million compared to $30.3 million for the same period of 2021.
 
Lower mortgage banking revenues for 2022 reflected a
reduction in refinancing activity,
 
and to a lesser degree lower purchase mortgage originations, primarily
 
driven by higher interest
rates.
 
In addition, gain on sale margins have been pressured due
 
to a lower level of both governmental loan product originations and
mandatory delivery loan sales (both of which provide a higher gain
 
percentage).
 
Strong best efforts (portfolio product) origination
volume and continued stability in our construction/permanent loan program
 
have partially offset the slowdown in secondary market
originations.
 
Deposit Fees
. Deposit fees for the second quarter of 2022 totaled $5.4 million, an increase of
 
$0.3 million, or 4.9%, over the first
quarter of 2022, and an increase of $1.2 million, or 28.6%, over the
 
second quarter of 2021.
 
For the first six months of 2022, deposit
fees totaled $10.6 million, an increase of $2.1 million, or 25.0%, over the same period
 
of 2021.
 
Compared to first quarter of 2022, the
increase reflected higher overdraft fees.
 
The increase over both prior year periods was attributable to higher monthly
 
service charge
fees and overdraft fees.
 
The conversion of our remaining free checking accounts to a monthly maintenance
 
fee account type drove the
increase in service charge fees. The increase in overdraft
 
fees was driven by higher utilization of our overdraft service which is closely
correlated (inversely) with the consumer savings rate which has declined
 
noticeably since it spiked in 2020/2021 due to the high level
of governmental stimulus during the pandemic.
 
Bank Card Fees
.
 
Bank card fees for the second quarter of 2022 totaled $4.0 million, a $0.3 million,
 
or 7.2%, increase over the first
quarter of 2022, and comparable to the second quarter of 2021.
 
For the first six months of 2022, bank card fees totaled $7.8 million,
an increase of $0.2 million, or 2.4%, over the same period of 2021.
 
The increase over the prior year periods was primarily attributable
to growth in checking accounts.
36
Wealth
 
Management Fees
.
 
Wealth management fees
 
include trust fees through Capital City Trust (i.e., managed
 
accounts and
trusts/estates),
 
retail brokerage fees through Capital City Investments (i.e., investment
 
,
 
insurance products, and retirement accounts),
and financial advisory fees through Capital City Strategic Wealth
 
(i.e., including the sale of life insurance, risk management and asset
protection services).
 
Wealth management
 
fees for the second quarter of 2022 totaled $4.4 million, a $1.7 million, or 27.5%,
 
decrease
from the first quarter of 2022, which reflected lower insurance
 
revenues of $1.9 million and trust fees of $0.1 million partially offset
by higher retail brokerage fees of $0.3 million.
 
The decrease in insurance revenues was due to a very strong first quarter and reflected
the closing of several very large insurance policy sales.
 
Compared to the second quarter of 2021, the $1.1 million, or 34.5%, increase
reflected
 
higher insurance revenues of $0.7 million and retail brokerage fees of $0.4 million.
 
For the first six months of 2022, wealth
management fees increased
 
$4.1 million, or 64.6%, due to higher insurance revenues of $3.4 million and retail
 
brokerage fees of $0.7
million.
 
The higher level of insurance revenues reflected the acquisition of Capital City Strategic
 
Wealth in May 2021.
 
At June 30,
2022, total assets under management were approximately $2.201
 
billion compared to $2.329 billion at March 31, 2022 and $2.324
billion at December 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Noninterest Expense
 
Noninterest expense for the second quarter of 2022 totaled $40.5
 
million compared to $39.2 million for the first quarter of 2022 and
$42.1 million for the second quarter of 2021.
 
The $1.3 million increase over the first quarter of 2022 was driven by
 
a $0.9 million
increase in other expense and higher compensation of $0.5 million.
 
Higher expense for advertising ($0.2 million), processing ($0.1
million) and travel/entertainment ($0.1 million) drove the increase in
 
other expense.
 
Additionally, other expense reflects a
 
$0.2
million expense for our VISA share swap agreement that is triggered when
 
VISA funds their merchant litigation reserve which
happens infrequently.
 
The $0.5 million increase in compensation was driven by higher salary expense of $0.8
 
million (CCHL
commissions, annual merit, and staffing additions in new markets)
 
that was partially offset by lower associate benefit expense of
 
$0.3
million.
 
Compared to the second quarter of 2021, the $1.6 million decrease was primarily
 
attributable to lower pension settlement
expense of $1.8 million.
 
For the first six months of 2022, noninterest expense totaled $79.7 million
 
compared to $82.6 million for the
same period of 2021 with the $2.9 million decrease primarily attributable
 
to lower pension settlement expense of $1.6 million and
lower compensation expense of $1.2 million.
 
The decrease in compensation expense reflected lower salary expense of $1.4
 
million
partially offset by higher associate benefit expense of
 
$0.2 million.
 
Lower performance based compensation (commissions/incentives)
at CCHL partially offset by higher performance based compensation
 
at CCSW and lower realized loan cost (credit offset by salary
expense) at the Bank drove the variance in salary expense.
 
We expect additional
 
pension settlement expense for the remainder of
2022 based on our current estimate of lump sum pension pay-outs to
 
retirees.
 
To date, the
 
impact of inflation and higher prices on our cost structure has not been significant.
 
While operating in a very tight labor
market, we have mitigated the impact of salary pressures by not replacing
 
certain positions that became vacant.
 
Further, we have
realized higher than historical increases in certain premises and
 
processing contracts reflective of inflationary pressures. We
 
will
continue to focus on opportunities to re-negotiate or replace vendors
 
at periodic renewals.
 
The table below reflects the major components of noninterest expense.
 
 
 
Three Months Ended
Six Months Ended
June 30,
March 31,
June 30,
June 30,
June 30,
(Dollars in Thousands)
2022
2022
2021
2022
2021
Salaries
$
21,461
 
$
20,664
 
$
21,117
 
$
42,125
 
$
43,564
Associate Benefits
3,922
4,192
4,261
8,114
7,878
Total Compensation
 
25,383
24,856
25,378
50,239
51,442
 
Premises
2,734
2,759
2,714
5,493
5,473
Equipment
3,341
3,334
3,259
6,675
6,467
Total Occupancy
6,075
6,093
5,973
12,168
11,940
 
Legal Fees
316
349
321
665
879
Professional Fees
1,406
1,332
1,406
2,738
2,736
Processing Services
1,752
1,637
1,794
3,389
3,339
Advertising
980
773
631
1,753
1,381
Telephone
703
728
754
1,431
1,508
Insurance - Other
593
510
545
1,103
1,046
Other Real Estate Owned, net
 
(29)
25
(270)
(4)
(388)
Pension Settlement
169
209
2,000
378
2,000
Miscellaneous
3,150
2,721
3,591
5,871
6,716
Total Other
 
9,040
8,284
10,772
17,324
19,217
Total
 
Noninterest Expense
 
$
40,498
 
$
39,233
 
$
42,123
 
$
79,731
 
$
82,599
38
Significant components of noninterest expense are discussed in more detail
 
below.
Compensation
.
 
Compensation expense totaled $25.4 million for the second quarter of 2022 compared
 
to $24.9 million for the first
quarter of 2022 and $25.4 million for the second quarter of 2021.
 
Compared to the first quarter of 2022, the $0.5 million increase
reflected higher salary expense of $0.8 million partially offset by
 
lower associate benefit expense of $0.3 million.
 
The increase in
salary expense was attributable to higher performance based compensation
 
(CCHL commissions), annual merit raises, and staffing
additions in new markets.
 
Lower associate insurance and associate appreciation event related expenses drove
 
the decline in other
associate benefits expense.
 
Compared to the second quarter of 2021, higher salary expense of $0.3 million (lower
 
CCHL performance
compensation of $1.3 million and base salaries of $0.2 million less higher
 
CCSW performance compensation of $0.8 million and core
bank base salaries of $0.5 million) was offset by lower associate benefit
 
expense of $0.3 million (associate insurance and stock based
compensation).
 
For the first six months of 2022, compensation expense totaled $50.2 million compared
 
to $51.4 million for the same
period of 2021 with the $1.2 million decrease attributable to lower
 
salary expense of $1.4 million partially offset by higher associate
benefit expense of $0.2 million.
 
The decrease in salary expense was primarily attributable to lower performance
 
based compensation
(commissions/incentives) of $4.5 million at CCHL partially offset
 
by higher performance based compensation at CCSW of $1.6
million and lower realized loan cost of $1.1 million (credit offset
 
by salary expense) at the Bank and overtime of $0.3 million (related
to the second round of the Paycheck Protection Program in 2021)
 
.
 
The increase in other associate benefit expense was driven by
higher associate insurance expense as we released self –insurance reserves
 
in 2021.
Occupancy
.
 
Occupancy expense totaled $6.1 million for the second quarter of 2022, comparable
 
to the first quarter of 2022, and $6.0
million for the second quarter of 2021.
 
For the first six months of 2022, occupancy expense totaled $12.2 million compared
 
to $11.9
million for the same period of 2021.
 
The increase over both prior year periods was primarily related to software
 
additions for certain
risk management and strategic initiatives.
Other
.
 
Other expense totaled $9.0 million for the second quarter of 2022 compared
 
to $8.3 million for the first quarter of 2022 and
$10.8 million for the second quarter of 2021.
 
Compared to the first quarter of 2022, the $0.7 million increase was driven by higher
expense for advertising expense ($0.2 million), processing ($0.1
 
million), and travel/entertainment ($0.2 million).
 
In addition, other
expense reflects a $0.2 million expense for our VISA share swap agreement
 
that is triggered when VISA funds their merchant
litigation reserve which happens infrequently.
 
Compared to the second quarter of 2021, the $1.7
 
million decrease was primarily due
to lower pension settlement expense of $1.8 million.
 
For the first six months of 2022, other expense totaled $17.3 million compared to
$19.2 million for the same period of 2021 with the $1.9 million decrease
 
driven by lower pension settlement expense of $1.6 million
and legal fees of $0.2 million.
 
Additionally, we realized
 
higher other real estate expense of $0.4 million and advertising expense
 
of
$0.4 million that were offset by lower miscellaneous expense of $0.8
 
million.
 
The variance in miscellaneous expense was primarily
attributable to lower expense for our base pension plan service cost of
 
$2.4 million that was partially offset by higher expense for
travel/entertainment of $0.3 million, mortgage servicing right (“MSR”)
 
amortization of $0.1
 
million, other losses of $0.2 million, and
miscellaneous of $0.3 million, the reversal of $0.3 million in MSR valuation reserve
 
in 2021, and other variable expenses totaling $0.2
million related to loan production.
 
Our operating efficiency ratio (expressed as noninterest
 
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 75.96%
 
for the second quarter of 2022 compared to 77.55% for the first quarter of 2022
 
and 80.18% for
the second quarter of 2021.
 
For the first six months of 2022, this ratio was 76.73% compared to 77.22% for
 
the same period of 2021.
 
Income Taxes
We realized income
 
tax expense of $2.2 million (effective rate of 19.4%) for the
 
second quarter of 2022 comparable to the first quarter
of 2022 and $2.1 million (effective rate of 18.9%) for
 
the second quarter of 2021.
 
For the first six months of 2022, we realized
income tax expense of $4.4 million (effective rate of 19.6%)
 
compared to $4.8 million (effective rate of 18.8%) for
 
the same period of
2021.
 
For the second quarter of 2022, we realized a favorable discrete tax item for $0.3
 
million related to state of Florida tax refunds.
 
Absent discrete items, we expect our annual effective tax rate to approximate
 
20-21% in 2022.
 
FINANCIAL CONDITION
Average earning
 
assets totaled $3.974 billion for the second quarter of 2022, an increase of $35.4 million, or
 
0.9%, over the first
quarter of 2022, and an increase of $182.9 million, or 4.8%, over
 
the fourth quarter of 2021.
 
The increase over both prior periods was
primarily driven by higher deposit balances (see below –
Deposits
).
 
The mix of earning assets continues to improve driven by strong
loan growth and further deployment of liquidity into the investment portfolio
 
which has increased $135 million in 2022.
 
39
Investment Securities
Average investment
 
s
 
increased $85.6 million, or 8.1% over the first quarter of 2022 and increased $153.7
 
million, or 15.5%, over the
fourth quarter of 2021.
 
Our investment portfolio represented 28.8% of our average earning assets for the second
 
quarter of 2022
compared to 26.9% for the first quarter of 2022 and 26.1%
 
for the fourth quarter of 2021.
 
For the remainder of 2022, we will continue
to monitor our overall liquidity position and, dependent on market conditions,
 
look for opportunities to reinvest proceeds and/or
purchase additional securities that align with our overall investment strategy.
 
The investment portfolio is a significant component of our operations and, as such,
 
it functions as a key element of liquidity and
asset/liability management.
 
Two types of classifications are approved
 
for investment securities which are Available
 
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
 
During the second quarter of 2022, we purchased securities under both
 
the AFS and HTM
designations.
 
At June 30, 2022, $601.4 million, or 53.2%, of our investment portfolio
 
was classified as AFS, and $528.3 million, or
46.8%, classified as HTM.
 
The average maturity of our total portfolio at June 30, 2022 was 3.51 years compared
 
to 3.63 years at
March 31, 2022 and 3.63 years at December 31, 2021.
 
We determine
 
the classification of a security at the time of acquisition based on how the purchase will affect
 
our asset/liability strategy
and future business plans and opportunities.
 
We consider multiple
 
factors in determining classification, including regulatory
 
capital
requirements, volatility in earnings or other comprehensive income,
 
and liquidity needs.
 
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
 
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
 
HTM securities are acquired or owned with the intent of holding
 
them to
maturity.
 
HTM investments are measured at amortized cost.
 
We do not
 
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maint
 
ain a trading portfolio.
At June 30, 2022, there were 833 positions (combined AFS and HTM)
 
with unrealized losses totaling $72.0 million (see Note 2 –
Investment Securities in the Notes to Consolidated Financial Statements for
 
detail by category).
 
87 of these positions are U.S.
Treasury bonds and carry the full faith and
 
credit of the U.S. Government.
 
621 are U.S. government agency securities issued by U.S.
government sponsored entities.
 
We believe the
 
long history of no credit losses on government securities indicates that the expectation
of nonpayment of the amortized cost basis is zero.
 
The remaining 125 positions (Municipal securities and corporate bonds) have
 
a
credit component.
 
At June 30, 2022, all CMO, MBS, SBA, U.S. Agency,
 
and U.S. Treasury bonds held were AAA rated.
 
At June 30,
2022, corporate debt securities had an allowance for credit losses of $22,000
 
and municipal securities had an allowance of $9,000.
 
Loans HFI
Average loans
 
held for investment (“HFI”) increased $121.1 million, or 6.2%, over the first quarter of 2022
 
and increased $136.4
million, or 7.0%, over the fourth quarter of 2021.
 
Period end loans increased $228.1 million, or 11.5%, over
 
the first quarter of 2022
and $282.2 million, or 14.6%, over the fourth quarter of 2022.
 
The growth in 2022 has been broad based with increases realized in all
loan categories, more significantly,
 
residential mortgage, residential construction, and consumer (indirect auto)
 
with strong growth in
commercial mortgage in the second quarter.
 
The increase in residential mortgage reflected a higher level of loan purchases (second
quarter - $132 million, first quarter - $26 million) from CCHL driven by higher
 
demand for portfolio/adjustable rate product.
 
In
addition, the increase in commercial mortgage reflected a loan pool purchase
 
(7 loans for $15 million).
Without compromising our credit standards
 
,
 
changing our underwriting standards, or taking on inordinate interest rate risk,
 
we
continue to closely monitor our markets and make minor adjustments as necessary.
 
Credit Quality
Overall credit quality remains strong.
 
Nonperforming assets (nonaccrual loans and other real estate) totaled $3.2
 
million at June 30,
2022 compared to $2.8 million at March 31, 2022 and $4.3 million at December
 
31, 2021.
 
At June 30, 2022, nonperforming assets as
a percentage of total assets totaled 0.07% compared to 0.06% at March
 
31, 2022 and 0.10% at December 31, 2021.
 
Nonaccrual loans
totaled $3.1 million at June 30, 2022, a $0.4 million increase over March
 
31, 2022 and a $1.2 million decrease from December 31,
2021.
 
Further, classified loans decreased $2.7 million
 
from the first quarter of 2022 to $19.6 million.
 
 
40
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from
 
the 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 June 30, 2022, the allowance for credit losses for HFI loans totaled $21.3
 
million compared to $20.8 million at March 31, 2022 and
$21.6 million at December 31, 2021. Activity within the allowance is detailed
 
in Note 3 to the consolidated financial statements.
 
The
$0.5 million increase in the allowance for the second quarter was driven
 
by strong new loan origination volume that was partially
offset by the release of reserves held for pandemic related losses that have
 
not materialized to the extent projected.
 
Further, net
charge-offs increased $0.4 million to $1.1
 
million for the second quarter and reflected one large commercial charge
 
-off for $0.8
million related to a work-out resolved during the quarter.
 
At June 30, 2022, the allowance represented 0.96% of HFI loans and
provided coverage of 678% of nonperforming loans compared to
 
1.05% and 761%, respectively, at March
 
31, 2022, and 1.12% and
500%, respectively,
 
at December 31, 2021.
 
At June 30, 2022, the allowance for credit losses for unfunded commitments
 
totaled $2.9 compared to $3.0 million at March 31, 2022
and $2.9 million at December 31, 2021. The allowance for unfunded
 
commitments is recorded in other liabilities.
 
Deposits
Average total
 
deposits were $3.765 billion for the second quarter of 2022, an increase of $51.3 million, or 1.4%,
 
over the first quarter
of 2022 and $216.2 million, or 6.1%, over the fourth quarter of 2021.
 
Compared to the first quarter of 2022, the increase reflected
higher noninterest bearing and savings balances, partially offset
 
by a decline in seasonal public fund balances.
 
Compared to the fourth
quarter of 2021, strong growth occurred in our noninterest bearing
 
deposits, NOW accounts, and savings account balances.
 
Over the
past few years, we have experienced strong core deposit growth, in addition
 
to growth related to multiple government stimulus
programs in response to the Covid-19 pandemic, such as those under
 
the CARES Act and the American Rescue Plan Act.
 
Given these
increases, the potential exists for our deposit levels to be volatile for the
 
remainder of 2022 due to the uncertain timing of the outflows
of the stimulus related balances, in addition to the frequency and degree to
 
which the Federal Open Market Committee (FOMC) raises
the overnight funds rate. It is anticipated that liquidity levels will remain
 
strong given our current level of overnight funds. The Bank
continues to strategically consider ways to safely deploy a portion of this liquidity.
 
We monitor
 
deposit rates on an ongoing basis and adjust, if necessary,
 
as a prudent pricing discipline remains the key to managing our
mix of deposits.
 
MARKET RISK AND INTEREST RATE
 
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
 
Market risk arises from changes in interest rates, exchange rates,
 
commodity prices, and equity prices.
 
We have risk
management policies designed to monitor and limit exposure to market
 
risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or
 
equity prices.
 
In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
 
Our net income is largely dependent on net interest income.
 
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing
 
liabilities mature or reprice on a different basis than interest-earning
 
assets.
 
When
interest-bearing liabilities mature or reprice more quickly
 
than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest
 
income.
 
Similarly, when interest-earning
 
assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could
 
result in a decrease in net interest income.
 
Net interest
income is also affected by changes in the portion of interest-earning
 
assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’
 
equity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
We have established
 
what we believe to be a comprehensive interest rate risk management policy,
 
which is administered by
management’s Asset Liability Management
 
Committee (“ALCO”).
 
The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net
 
interest income at risk) and the fair value of equity capital
(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change
 
in interest rates for maturities from one
day to 30 years.
 
We measure the potential
 
adverse impacts that changing interest rates may have on our short-term
 
earnings, long-
term value, and liquidity by employing simulation analysis through the use of
 
computer modeling.
 
The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded
 
in investment and loan portfolio contracts.
 
As with
any method of gauging interest rate risk, there are certain shortcomings
 
inherent in the interest rate modeling methodology used by
us.
 
When interest rates change, actual movements in different categories
 
of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate significantly
 
from assumptions used in the model.
 
Finally, the
methodology does not measure or reflect the impact that higher rates may have
 
on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
The statement of financial condition is subject to testing for interest rate shock
 
possibilities to indicate the inherent interest rate risk.
 
We prepare
 
a current base case and several alternative interest rate simulations (-200, -100,+100,
 
+200, +300, and +400 basis points
(bp)), at least once per quarter, and report the analysis
 
to ALCO, our Market Risk Oversight Committee (“MROC”), our Enterprise
Risk Oversight Committee (“EROC”) and the Board of Directors.
 
(The -200bp rate scenario was reintroduced into the model
beginning in the second quarter of 2022 due to the higher interest rate environment)
 
.
 
We augment our interest rate
 
shock analysis with
alternative interest rate scenarios on a quarterly basis that may include ramps,
 
parallel shifts, and a flattening or steepening of the yield
curve (non-parallel shift).
 
In addition, more frequent forecasts may be produced when interest rates are particularly
 
uncertain or when
other business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings
 
at risk over 12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines
 
at the various interest rate shock levels. We
 
attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate
 
liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts
 
reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing
 
basis.
 
 
Analysis.
 
Measures of net interest income at risk produced by simulation analysis are
 
indicators of an institution’s short-term
performance in alternative rate environments.
 
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES
 
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
June 30, 2022
19.3%
14.5%
9.6%
4.9%
-10.3%
-17.6%
March 31, 2022
27.0%
20.1%
13.2%
6.4%
-7.4%
n/a
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
-12.5%
June 30, 2022
39.3%
30.3%
21.3%
12.6%
-11.5%
-22.6%
March 31, 2022
46.8%
35.3%
23.9%
12.8%
-9.9%
n/a
The Net Interest Income (“NII”) at Risk position indicates
 
that in the short-term, all rising rate environments will positively impact
 
the
net interest margin of the Company,
 
while declining rate environments
 
will have a negative impact on the net interest margin. These
metrics became less favorable in all rate scenarios compared to the
 
prior quarter as the NII base increased due to higher rates and now
has more room to fall. The percent change over both a 12-month and 24-month
 
shock are outside of policy in a rates down 100 bps
and down 200 bps scenario due to our limited ability to lower our deposit rates relative
 
to the decline in market rate.
 
The measures of equity value at risk indicate our ongoing economic value
 
by considering the effects of changes in interest rates on all
of our cash flows by discounting the cash flows to estimate the present value of
 
assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity,
 
which in theory approximates the fair value of our net
assets.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
June 30, 2022
 
14.4%
11.7%
8.3%
4.7%
-11.7%
-25.4%
March 31, 2022
20.2%
16.2%
11.5%
6.3%
-14.7%
n/a
EVE Ratio (policy minimum 5.0%)
19.7%
18.9%
18.0%
17.1%
13.9%
11.6%
(1) Down 300, and 400 bp rate scenarios have been excluded due to the
 
current interest rate environment.
 
A down 200 bp rate
scenario was added in the second quarter of 2022.
At June 30, 2022, the economic value of equity was favorable in
 
all rising rate environments and unfavorable in the falling rate
environments. Compared to the first quarter of 2022, EVE metrics became
 
less favorable in a rising rate environment primarily due to
the use of cash to fund loan growth and became more favorable in the rates
 
down scenario as loan growth extended our asset duration.
 
EVE is currently in compliance with policy in all rate scenarios as the EVE ratio in
 
each rate scenario exceeds 5.0%.
As the interest rate environment and the dynamics of the economy continue to change,
 
additional simulations will be analyzed to
address not only the changing rate environment, but also the change
 
in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
LIQUIDITY AND CAPITAL
 
RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our
 
cash needs.
 
Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and
 
other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings.
 
Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, which take into account
 
the marketability of assets, the sources and stability of
funding and the level of unfunded commitments.
 
We regularly evaluate
 
all of our various funding sources with an emphasis on
accessibility, stability,
 
reliability and cost-effectiveness.
 
Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under
 
repurchase agreements, federal funds purchased and
FHLB borrowings.
 
We believe that the cash
 
generated from operations, our borrowing capacity and our access to
 
capital resources are
sufficient to meet our future operating capital and funding requirements.
 
At June 30, 2022, we had the ability to generate $1.589 billion
 
in additional liquidity through all of our available resources (this
excludes $603 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned above, we also have
 
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Window and through brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
Liquidity Plan, which addresses various liquidity stress
levels and our response and action based on the level of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level increases that certain credit facilities may
 
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on events that could potentially occur
 
at the Bank and report results to ALCO, our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At June 30, 2022, we believe the liquidity
available to us was sufficient to meet our on-going needs and execute our
 
business strategy.
 
 
We view our
 
investment portfolio primarily as a source of liquidity and have the option to pledge the portfolio
 
as collateral for
borrowings or deposits, and/or sell selected securities.
 
The portfolio primarily consists of debt issued by the U.S. Treasury,
 
U.S.
governmental and federal agencies, municipal governments,
 
corporate bonds, and asset-backed securities.
 
The weighted average life
of the portfolio was approximately 3.51 years at June 30, 2022, and the
 
available for sale portfolio had a net unrealized pre-tax loss of
$42.2 million.
 
We maintained
 
an average net overnight funds (deposits with banks plus FED funds sold less FED funds
 
purchased) sold position of
$691.9 million in the second quarter of 2022 compared to $873.1 million in the first quarter
 
of 2022 and $789.1 million in the fourth
quarter of 2021.
 
The decrease compared to both prior period was primarily due to growth in both
 
the loan and investment portfolios.
We expect our
 
capital expenditures will be approximately $8.0 million over the next 12 months, which
 
will primarily consist of
construction of new offices, office remodeling,
 
office equipment/furniture, and technology purchases.
 
Management expects that these
capital expenditures will be funded with existing resources without impairing
 
our ability to meet our on-going obligations.
43
Borrowings
Average short
 
term borrowings totaled $31.8 million for the second quarter of 2022 compared to
 
$32.4 million for the first quarter of
2022 and $46.4 million for the fourth quarter of 2021. The variance compared
 
to both prior periods was primarily attributable to lower
warehouse borrowing needs to support CCHL’s
 
loans held for sale.
 
Additional detail on these borrowings is provided in Note 4 –
Mortgage Banking Activities in the Consolidated Financial Statements.
We have issued two
 
junior subordinated deferrable interest notes to our wholly owned
 
Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
November 2004, of which $10 million was retired in April 2016.
 
The second
note for $32.0 million was issued to CCBG Capital Trust II in
 
May 2005.
 
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
 
LIBOR plus a margin of 1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II borrowing is due
 
quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin of 1.80%.
 
This note matures on June 15, 2035.
 
The proceeds from these
borrowings were used to partially fund acquisitions.
 
Under the terms of each junior subordinated deferrable interest note, in the event
of default or if we elect to defer interest on the note, we may not, with certain
 
exceptions, declare or pay dividends or make
distributions on our capital stock or purchase or acquire any of our capital
 
stock.
 
We continue to evaluate
 
the impact of the expected
discontinuation of LIBOR on our two junior subordinated deferrable
 
interest notes.
 
During the second quarter of 2020, we entered into a derivative cash
 
flow hedge of our interest rate risk related to our subordinated
debt.
 
The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust
 
I borrowing and $20 million of the
CCBG Capital Trust II borrowing).
 
The interest rate swap agreement requires CCBG to pay fixed and receive variable (Libor
 
plus
spread) and has an average all-in fixed rate of 2.50% for 10 years.
 
Additional detail on the interest rate swap agreement is provided in
Note 5 – Derivatives in the Consolidated Financial Statements.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
 
table on page 32.
 
At June 30, 2022, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized” under
 
the Basel III capital standards.
Shareowners’ equity was $371.7 million at June 30, 2022 compared
 
to $372.1 million at March 31, 2022 and $383.2 million at
December 31, 2021.
 
For the first six months of 2022, shareowners’ equity was positively impacted by net
 
income attributable to
common shareowners of $17.2 million, a $2.2 million increase in the fair
 
value of the interest rate swap related to subordinated debt,
net adjustments totaling $0.8 million related to transactions under
 
our stock compensation plans, stock compensation accretion of $0.5
million, and a $0.3 million decrease in the accumulated other comprehensive
 
loss for our pension plan. Shareowners’ equity was
reduced by common stock dividends of $5.4 million ($0.32 per share)
 
and a $27.1 million increase in the unrealized loss on
investment securities.
 
At June 30, 2022, our common stock had a book value of $21.89 per
 
diluted share compared to $21.94 at March 31, 2022 and $22.63
at December 31, 2021.
 
Book value is impacted by the net after-tax unrealized gains and losses on AFS investment
 
securities.
 
At June
30, 2022, the net loss was $31.7 million compared to a net loss of $23.6 million
 
at March 31, 2022 and $4.6
 
million at December 31,
2021.
 
Book value is also impacted by the recording of our unfunded pension liability
 
through other comprehensive income in
accordance with Accounting Standards Codification Topic
 
715.
 
At June 30, 2022, the net pension liability reflected in other
comprehensive loss was $12.9 million compared to $13.0 million
 
at March 31, 2022 and $13.2 million at December 31, 2021. This
liability is re-measured annually on December 31
st
 
based on an actuarial calculation of our pension liability.
 
Significant assumptions
used in calculating the liability are discussed in our 2021 Form 10-K “Critical Accounting
 
Policies” and include the weighted average
discount rate used to measure the present value of the pension liability,
 
the weighted average expected long-term rate of return on
pension plan assets, and the assumed rate of annual compensation increases,
 
all of which will vary when re-measured.
 
The discount
rate assumption used to calculate the pension liability is subject to long-term corporate bond
 
rates at December 31
st
.
 
The estimated
impact to the pension liability based on a 25-basis point increase or decrease
 
in long-term corporate bond rates used to discount the
pension obligation would decrease or increase the pension liability by approximately
 
$4.6 million (after-tax) using the balances from
the December 31, 2021 measurement date.
 
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
 
to financial instruments with off-balance sheet risks in the normal
 
course of business to meet the financing needs of our
clients.
 
44
At June 30, 2022, we had $731.5 million in commitments to extend credit and
 
$6.2
 
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.
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 $2.9 million at June 30, 2022.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
 
Financial Statements included
 
in our 2021 Form 10-K.
 
The preparation of our Consolidated Financial Statements
 
in accordance with GAAP and reporting practices applicable to the banking
industry requires us to make estimates and assumptions that affect
 
the reported amounts of assets, liabilities, revenues and expenses,
and to disclose contingent assets and liabilities.
 
Actual results could differ from those estimates.
We have identified
 
accounting for (i) the allowance for credit losses, (ii) valuation of goodwill, (iii) pension
 
benefits, and (iv) income
taxes as our most critical accounting policies and estimates in that they
 
are important to the portrayal of our financial condition and
results, and they require our subjective and complex judgment as a result of
 
the need to make estimates about the effects of matters
that are inherently uncertain.
 
These accounting policies, including the nature of the estimates and types of
 
assumptions used, are
described throughout this Item 2, Management’s
 
Discussion and Analysis of Financial Condition and Results of Operations, and
 
Part
II, Item 7, Management’s
 
Discussion and Analysis of Financial Condition and Results of Operations included
 
in our 2021 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
TABLE I
AVERAGE BALANCES & INTEREST RATES
Three Months Ended June 30,
Six Months Ended June 30,
 
2022
2021
2022
2021
 
Average
Average
Average
Average
Average
Average
Average
Average
(Dollars in Thousands)
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Balances
Interest
Rate
Assets:
Loans Held for Sale
$
 
52,860
$
 
711
5.39
%
$
 
77,101
$
 
566
2.94
%
$
 
47,959
$
 
1,108
4.66
%
$
 
91,591
$
 
1,536
3.38
%
Loans Held for Investment
(1)(2)
2,084,679
23,433
4.51
2,036,781
24,095
4.74
2,024,463
45,244
4.51
2,040,551
46,578
4.71
Taxable Securities
1,142,269
3,834
1.34
687,882
2,036
1.18
1,099,739
6,723
1.22
608,801
3,899
1.28
Tax-Exempt Securities
(2)
2,488
10
1.73
3,530
23
2.58
2,449
20
1.67
3,686
48
2.60
Funds Sold
691,925
1,408
0.82
818,616
200
0.10
782,011
1,817
0.47
816,638
414
0.10
Total Earning Assets
3,974,221
29,396
2.97
%
3,623,910
26,920
2.98
%
3,956,621
54,912
2.80
%
3,561,267
52,475
2.97
%
Cash & Due From Banks
79,730
74,076
77,007
71,541
Allowance For Credit Losses
(20,984)
(22,794)
(21,318)
(23,457)
Other Assets
288,421
281,157
281,922
279,956
TOTAL ASSETS
$
 
4,321,388
$
 
3,956,349
$
 
4,294,232
$
 
3,889,307
 
Liabilities:
NOW Accounts
$
 
1,033,190
$
 
120
0.05
%
$
 
966,649
$
 
74
0.03
%
$
 
1,056,419
$
 
206
0.04
%
$
 
976,031
$
 
150
0.03
%
Money Market Accounts
286,210
36
0.05
272,138
33
0.05
285,810
69
0.05
270,990
66
0.05
Savings Accounts
628,472
77
0.05
529,844
64
0.05
613,996
149
0.05
511,152
124
0.05
Other Time Deposits
95,132
33
0.14
102,995
37
0.15
96,088
66
0.14
102,544
76
0.15
Total Interest Bearing Deposits
2,043,004
266
0.05
1,871,626
208
0.04
2,052,313
490
0.05
1,860,717
416
0.05
Short-Term Borrowings
31,782
343
4.33
51,152
324
2.54
32,066
535
3.36
59,049
736
2.51
Subordinated Notes Payable
52,887
370
2.76
52,887
308
2.30
52,887
687
2.58
52,887
615
2.31
Other Long-Term Borrowings
722
8
4.54
1,762
16
3.38
777
17
4.51
2,246
37
3.26
Total Interest Bearing Liabilities
2,128,395
987
0.19
%
1,977,427
856
0.17
%
2,138,043
1,729
0.16
%
1,974,899
1,804
0.18
%
Noninterest Bearing Deposits
1,722,325
1,515,726
1,687,524
1,453,121
Other Liabilities
87,207
107,801
79,728
109,417
TOTAL LIABILITIES
3,937,927
3,600,954
3,905,295
3,537,437
Temporary Equity
10,096
26,355
10,306
24,178
 
TOTAL SHAREOWNERS’ EQUITY
373,365
329,040
378,631
327,692
TOTAL LIABILITIES, TEMPORARY
 
AND SHAREOWNERS’ EQUITY
$
 
4,321,388
$
 
3,956,349
$
 
4,294,232
$
 
3,889,307
 
Interest Rate Spread
2.78
%
2.81
%
2.64
%
2.79
%
Net Interest Income
$
28,409
$
26,064
$
53,183
$
50,671
Net Interest Margin
(3)
2.87
%
2.89
%
2.71
%
2.87
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loans fees of $0.4 million
 
and $1.9 million for the three month periods ended June 30,
 
2022 and
 
2021, respectively, and $0.5 million and $3.1 million for the six month periods ended
 
June 30, 2022 and 2021, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earning assets.
46
Item 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s
 
Discussion and Analysis of Financial Condition and Results of
Operations, above, which is incorporated herein by reference.
 
Management has determined that no additional disclosures are
necessary to assess changes in information about market risk that have occurred
 
since December 31, 2021.
Item 4.
 
CONTROLS AND PROCEDURES
At June 30, 2022, 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, the Chief Executive Officer and Chief Financial
 
Officer concluded
that, as of the end of the period covered by this report these disclosure controls and procedures
 
were effective.
Our management, including our Chief Executive Officer
 
and Chief Financial Officer, has reviewed
 
our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
 
Act of 1934).
 
During the quarter ended on June 30, 2022, 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 2021 Form 10-K, as updated in our subsequent
 
quarterly reports. The risks described in our 2021 Form
10-K and our subsequent quarterly reports are not the only risks facing us. Additional risks
 
and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
 
our business, financial condition and/or operating
results.
Item 2.
 
Unregistered Sales of Equity Securities and Use of
 
Proceeds
None.
 
 
Item 3.
 
Defaults Upon Senior Securities
None.
Item 4.
 
Mine Safety Disclosure
Not Applicable.
 
Item 5.
 
Other Information
None.
 
 
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant
 
has duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly
 
authorized.
CAPITAL CITY
 
BANK GROUP,
 
INC.
 
(Registrant)
/s/ J. Kimbrough Davis
 
J. Kimbrough Davis
Executive Vice President
 
and Chief Financial Officer
(Mr. Davis is the Principal Financial
 
Officer and has
been duly authorized to sign on behalf of the Registrant)
Date: August 4, 2022