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
September 30, 2021March 31, 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 October 28, 2021,May 2, 2022,
16,878,30316,947,627
 
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 PERIODTHREE MONTHS ENDED SEPTEMBER 30, 2021MARCH 31, 2022
TABLE OF CONTENTS
PART I –
 
Financial Information
 
Page
 
Item 1.
Consolidated Financial Statements (Unaudited)
Consolidated Statements of Financial Condition – September 30, 2021March 31, 2022 and December 31, 20202021
4
Consolidated Statements of Income – Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020
5
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020
6
Consolidated Statements of Changes in Shareowners’ Equity – Three and Nine Months Ended September 30,March 31, 2022 and 2021 and 2020
7
Consolidated Statements of Cash Flows – NineThree Months Ended September 30,March 31, 2022 and 2021 and 2020
8
Notes to Consolidated Financial Statements
9
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
2930
 
 
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
4445
 
 
Item 4.
Controls and Procedures
4445
 
 
PART II –
 
Other Information
 
Item 1.
Legal Proceedings
4445
 
 
Item 1A.
Risk Factors
4445
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45
 
 
Item 3.
Defaults Upon Senior Securities
4445
Item 4.
Mine Safety Disclosure
4445
Item 5.
Other Information
45
 
 
Item 6.
Exhibits
46
 
 
Signatures
 
47
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, 20202021
 
(the “2020“2021 Form
 
10-K”):
(a) “Introductory
 
Note” in
 
Part I,
 
Item 1.
 
“Business”; (b)
 
“Risk Factors”
 
in Part
 
I, Item
 
1A, as
 
updated in
 
our subsequent
 
quarterly reports
filed on Form 10-Q; and (c)
 
“Introduction” in “Management’s
 
Discussion and Analysis of Financial Condition
 
Condition and Results of Operations,” in
Part II, Item 7, as well as:
●
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global and local economies and financial market
conditions and our business, results of operations and financial condition, including the impact of our participation in government
programs related to COVID-19;
●
potential attrition due to the recent
U.S. presidential directive to OSHA that requires employers with 100 or more employees to ensure
that their employees are fully vaccinated against COVID-19 or are tested weekly;
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
changes in monetary and fiscal policies
of the U.S. Government;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to
debit card products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for credit losses,
deferred tax asset valuation and pension plan;
●
changes in 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;
 
●
our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
●
changes in the securities and real estate markets;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing rights related to
these loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights and the potential effects of
higher interest rates on our loan origination volumes;
●
the effect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and other related charges
 
and the
failure to achieve the expected gains, revenue growth or expense savings from such corporate restructuring, acquisitions or dispositions;
●
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global economy and financial market conditions
and our business;
●
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;
●
climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could
significantly impact our business;
●
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
●
increased competition and its effect on pricing;
●
technological changes;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; 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)
September 30,March 31,
December 31,
(Dollars in Thousands, Except Par Value)
20212022
 
20202021
ASSETS
 
 
Cash and Due From Banks
$
73,13277,963
$
67,91965,313
Federal Funds Sold and Interest Bearing Deposits
 
708,988790,465
 
860,630970,041
Total Cash and Cash Equivalents
 
782,120868,428
 
928,5491,035,354
 
 
Investment Securities, Available
 
for Sale, at fair value (amortized cost of $
655,927
and $
660,732
)
 
645,844624,361
 
324,870654,611
Investment Securities, Held to Maturity (fair value of $
344,285501,277
 
and $
175,175339,699
)
 
341,228518,678
 
169,939339,601
Equity Securities
855
861
Total Investment
 
Securities
 
987,0721,143,894
 
494,809995,073
 
Loans Held For Sale, at fair value
77,03650,815
 
114,03952,532
 
Loans Held for Investment
1,941,4251,985,509
 
2,006,4261,931,465
Allowance for Credit Losses
 
(21,500)(20,756)
 
(23,816)(21,606)
Loans Held for Investment, Net
 
1,919,9251,964,753
 
1,982,6101,909,859
 
 
Premises and Equipment, Net
 
84,75082,518
 
86,79183,412
Goodwill and Other Intangibles
 
93,29393,213
 
89,09593,253
Other Real Estate Owned
19217
80817
Other Assets
 
104,345106,407
 
101,37094,349
Total Assets
$
4,048,7334,310,045
$
3,798,0714,263,849
 
 
LIABILITIES
 
 
Deposits:
 
 
Noninterest Bearing Deposits
$
1,592,3451,704,329
$
1,328,8091,668,912
Interest Bearing Deposits
 
1,873,6172,061,178
 
1,888,7512,043,950
Total Deposits
 
3,465,9623,765,507
 
3,217,5603,712,862
 
 
Short-Term
 
Borrowings
 
51,41030,865
79,65434,557
Subordinated Notes Payable
 
52,887
52,887
Other Long-Term
 
Borrowings
 
1,610806
3,057884
Other Liabilities
 
113,72077,323
102,07667,735
Total Liabilities
 
3,685,5893,927,388
3,455,2343,868,925
Temporary Equity
14,27610,512
22,00011,758
 
 
SHAREOWNERS’ EQUITY
 
 
Preferred Stock, $
0.01
 
par value;
3,000,000
 
shares authorized;
0
 
shares issued and outstanding
 
-
-
Common Stock, $
0.01
 
par value;
90,000,000
 
shares authorized;
16,878,30316,947,602
 
and
16,790,57316,892,060
 
shares issued and outstanding at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively
169
168169
Additional Paid-In Capital
 
33,87635,188
32,28334,423
Retained Earnings
 
359,550370,531
332,528364,788
Accumulated Other Comprehensive Loss, net of tax
 
(44,727)(33,743)
(44,142)(16,214)
Total Shareowners’
 
Equity
 
348,868372,145
320,837383,166
Total Liabilities, Temporary
 
Equity, and Shareowners' Equity
$
4,048,7334,310,045
$
3,798,0714,263,849
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
September 30,
Nine Months Ended
September 30, March 31,
(Dollars in Thousands, Except Per Share
 
Data)
2021
20202022
2021
2020
INTEREST INCOME
Loans, including Fees
$
25,88522,133
$
23,594
$
73,817
$
70,87423,350
Investment Securities:
Taxable Securities
2,3322,890
2,400
6,231
8,1051,863
Tax Exempt Securities
186
2620
56
73
Federal Funds Sold
and Interest Bearing Deposits
285409
146
698
991213
Total Interest Income
28,52025,438
26,166
80,802
80,04325,446
INTEREST EXPENSE
Deposits
210224
190
626
1,347208
Short-Term
 
Borrowings
317192
498
1,053
1,051412
Subordinated Notes Payable
307317
316
922
1,161307
Other Long-Term
 
Borrowings
149
40
51
13121
Total Interest Expense
848742
1,044
2,652
3,690948
NET INTEREST INCOME
27,67224,696
25,122
78,150
76,35324,498
Provision for Credit Losses
0
1,308
(1,553)
8,303(982)
Net Interest Income After Provision For Credit Losses
27,67224,696
23,814
79,703
68,05025,480
NONINTEREST INCOME
Deposit Fees
5,0755,191
4,316
13,582
13,0874,271
Bank Card Fees
3,7863,763
3,389
11,402
9,5823,618
Wealth Management
 
Fees
3,6236,070
2,808
9,987
7,9663,090
Mortgage Banking Revenues
12,2838,946
22,983
42,625
45,63317,125
Other
1,8071,848
1,469
5,277
4,3741,722
Total Noninterest
 
Income
26,57425,818
34,965
82,873
80,64229,826
NONINTEREST EXPENSE
Compensation
25,24524,856
26,164
76,687
69,55826,064
Occupancy, Net
6,0326,093
5,906
17,972
16,6835,967
Other Real Estate Owned, Net
 
(1,126)25
219
(1,514)
(463)(118)
Pension Settlement
500209
0
2,500
0-
Other
9,0518,050
8,053
26,656
22,8368,563
Total Noninterest
 
Expense
39,70239,233
40,342
122,301
108,61440,476
INCOME BEFORE INCOME TAXES
14,54411,281
18,437
40,275
40,07814,830
Income Tax Expense
2,9492,235
3,165
7,795
7,3972,787
NET INCOME
11,595$
15,2729,046
32,480$
32,68112,043
Pre-Tax Income
Attributable to Noncontrolling Interests
(1,504)(591)
(4,875)
(5,456)
(8,851)(2,537)
NET INCOME ATTRIBUTABLE
 
TO COMMON SHAREOWNERS
$
10,0918,455
$
10,397
$
27,024
$
23,8309,506
BASIC NET INCOME PER SHARE
$
0.600.50
$
0.62
$
1.60
$
1.420.56
DILUTED NET INCOME PER SHARE
$
0.600.50
$
0.62
$
1.60
$
1.420.56
Average CommonBasic Shares
 
Basic Outstanding
16,931
16,838
Average Diluted
Shares Outstanding
16,87516,946
16,771
16,857
16,792
Average Common
Diluted Shares Outstanding
16,909
16,810
16,886
16,82316,862
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
Nine Months Ended
September 30,
September 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
10,0918,455
$
10,397
$
27,024
$
23,8309,506
Other comprehensive (loss) income, before
 
tax:
Investment Securities:
Change in net unrealized gain/loss(loss) gain on securities available for sale
(1,935)(25,445)
(763)
(4,361)
3,217(1,952)
Derivative:
Change in net unrealized gain on effective cash flow
 
derivative
1721,836
157
1,378
522,125
Benefit Plans:
Reclassification adjustment for service cost
0
0
24
0
Actuarial gain
0
0
166
0Pension Settlement
Defined benefit plan settlement
0
0
2,000209
0
Total Benefit Plans
0209
0
2,190
0190
Other comprehensive (loss) income, before
 
tax
(1,763)(23,400)
(606)
(793)
3,269363
Deferred tax (benefit) expense related to other comprehensive income
(459)(5,871)
(149)
(208)
80192
Other comprehensive (loss) income, net of tax
(1,304)(17,529)
(457)
(585)
2,468271
TOTAL COMPREHENSIVE
 
(LOSS) INCOME
$
8,787(9,074)
$
9,940
$
26,439
$
26,2989,777
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
Comprehensive
 
Shares
Common
Paid-In
Retained
(Loss) Income,
(Dollars In Thousands, Except Share Data)
Outstanding
Stock
Capital
Earnings
Net of Taxes
Total
Balance, JulyJanuary 1, 20212022
16,874,27916,892,060
$
169
$
33,56034,423
$
345,574364,788
$
(43,423)(16,214)
$
335,880383,166
Net Income Attributable to Common Shareowners
-
0
0
10,0918,455
0
10,091
Reclassification to Temporary
Equity
(1)
-
0
0
6,585
0
6,5858,455
Other Comprehensive Loss, net of tax
-
0
0
0
(1,304)(17,529)
(1,304)(17,529)
Cash Dividends ($
0.1600
 
per share)
-
0
0
(2,700)(2,712)
0
(2,700)(2,712)
Stock Based Compensation
-
0
219245
0
0
219245
Stock Compensation Plan Transactions, net
4,02455,542
0
97520
0
0
97520
Balance, September 30, 2021March 31, 2022
16,878,30316,947,602
$
169
$
33,87635,188
$
359,550370,531
$
(44,727)(33,743)
$
348,868
Balance, July 1, 2020
16,780,276
$
168
$
31,575
$
328,570
$
(25,256)
$
335,057
Net Income
-
0
0
10,397
0
10,397
Reclassification to Temporary
Equity
(1)
-
0
0
(3,075)
0
(3,075)
Other Comprehensive Loss, net of tax
-
0
0
0
(457)
(457)
Cash Dividends ($
0.1400
per share)
-
0
0
(2,347)
0
(2,347)
Repurchase of Common Stock
(23,000)
0
(472)
0
0
(472)
Stock Based Compensation
-
0
242
0
0
242
Stock Compensation Plan Transactions, net
4,188
0
80
0
0
80
Balance, September 30, 2020
16,761,464
$
168
$
31,425
$
333,545
$
(25,713)
$
339,425372,145
Balance, January 1, 2021
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
Net Income Attributable to Common Shareowners
-
0
0
27,0249,506
0
27,0249,506
Reclassification to Temporary
Equity
(1)
-
0
0
7,756(4,182)
0
7,756
Other Comprehensive Loss, net of tax
-
0
0
0
(585)
(585)
Cash Dividends ($
0.4600
per share)
-
0
0
(7,758)
0
(7,758)
Stock Based Compensation
-
0
657
0
0
657
Stock Compensation Plan Transactions, net
87,730
1
936
0
0
937
Balance, September 30, 2021
16,878,303
$
169
$
33,876
$
359,550
$
(44,727)
$
348,868
Balance, January 1, 2020
16,771,544
$
168
$
32,092
$
322,937
$
(28,181)
$
327,016
Adoption of ASC 326
-
0
0
(3,095)
0
(3,095)
Net Income
-
0
0
23,830
0
23,830
Reclassification to Temporary
Equity
(1)
-
0
0
(3,075)
0
(3,075)(4,182)
Other Comprehensive Income, net of tax
-
0
0
0
2,468271
2,468271
Cash Dividends ($
0.42000.1500
 
per share)
-
0
0
(7,052)(2,528)
0
(7,052)
Repurchase of Common Stock
(99,952)
(1)
(2,042)
0
0
(2,043)(2,528)
Stock Based Compensation
-
0
610219
0
0
610219
Stock Compensation Plan Transactions, net
89,87261,305
1
765302
0
0
766303
Balance, September 30, 2020March 31, 2021
16,761,46416,851,878
$
168169
$
31,42532,804
$
333,545335,324
$
(25,713)(43,871)
$
339,425324,426
(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)
NineThree Months Ended September 30,March 31,
(Dollars in Thousands)
20212022
20202021
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income
Attributable to Common Shareowners
$
27,0248,455
$
23,8309,506
Adjustments to Reconcile Net Income to
 
Cash Provided by Operating Activities:
 
Provision for Credit Losses
(1,553)0
8,303(982)
 
Depreciation
5,6661,907
5,1741,942
 
Amortization of Premiums, Discounts and Fees, net
11,4012,907
5,2562,428
 
Amortization of Intangible Asset
8040
0
 
Pension Plan Settlement ChargesCharge
2,500209
0
 
Originations of Loans Held-for-Sale
(1,247,119)(246,887)
(561,609)(470,248)
 
Proceeds From Sales of Loans Held-for-Sale
1,326,747257,550
500,190519,331
 
Net Gain From Sales of Loans Held-for-SaleMortgage Banking Revenues
(42,625)(8,946)
(45,633)(17,125)
 
Net Additions for Capitalized Mortgage Servicing Rights
138227
0119
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
(250)0
0(250)
 
Stock Compensation
657245
610219
 
Net Tax Benefit From Stock-Based
 
Compensation
(4)(19)
(84)(4)
 
Deferred Income Taxes
(3,085)(6,167)
(1,127)(378)
 
Net Change in Operating Leases
(122)(27)
811(41)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,640)0
(876)(202)
 
Net Decrease (Increase) in Other Assets
701,441
(23,482)(1,370)
 
Net Increase in Other Liabilities
8,2837,036
32,8087,935
Net Cash Provided By (Used In) Operating Activities
86,16817,971
(55,829)50,880
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(235,356)(194,448)
(32,250)(54,382)
 
Payments, Maturities, and Calls
61,67314,441
67,24524,629
Securities Available for
 
Sale:
 
Purchases
(478,000)(25,139)
(77,775)(133,628)
Proceeds from Sale or Securities
3,365
0
 
Payments, Maturities, and Calls
148,96824,824
153,70249,349
Purchases of Loans Held for Investment
(92,336)(26,713)
(29,538)(23,686)
Net Decrease (Increase)Increase in Loans Held for Investment
150,590(28,405)
(134,416)
Net Cash Paid for Acquisitions
(4,482)
(2,405)(29,437)
Proceeds From Sales of Other Real Estate Owned
3,8920
2,5581,084
Purchases of Premises and Equipment
(4,590)(1,013)
(7,842)(1,592)
Noncontrolling Interest Contributions
5,4241,838
2,0911,259
Net Cash Used In Investing Activities
(444,217)(231,250)
(58,630)(166,404)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
248,40252,645
363,992140,548
Net (Decrease) IncreaseDecrease in Short-Term
 
Borrowings
(28,458)(3,692)
84,438(24,181)
Repayment of Other Long-Term
 
Borrowings
(1,233)(78)
(1,152)(1,014)
Dividends Paid
(7,758)(2,712)
(7,052)
Payments to Repurchase Common Stock
0
(2,043)(2,528)
Issuance of Common Stock Under Purchase Plans
667190
46633
Net Cash Provided By Financing Activities
211,62046,353
438,649112,858
NET (DECREASE) INCREASEDECREASE IN CASH AND CASH EQUIVALENTS
(146,429)(166,926)
324,190(2,666)
Cash and Cash Equivalents at Beginning of Period
 
928,5491,035,354
378,423928,549
Cash and Cash Equivalents at End of Period
 
$
782,120868,428
$
702,613925,883
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
2,679715
$
3,6731,009
 
Income Taxes Paid
$
12,75920
$
6,9910
Noncash Investing and Financing Activities:
 
Loans Transferred to Other Real Estate Owned
$
1,6360
$
1,956184
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
 
to regulation by certain
government agencies and undergoes periodic examinations
 
by those regulatory authorities.
Basis of Presentation
.
 
The consolidated financial statements in this Quarterly Report on Form
 
10-Q include the accounts of CCBG
and its wholly owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank”).
 
All material inter-company transactions and accounts
have been eliminated.
 
Certain previously reported amounts have been reclassified to conform to the current year’s
 
presentation.
The accompanying unaudited consolidated financial statements have
 
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
 
Form 10-Q and Article 10 of Regulation S-X.
 
Accordingly,
they do not include all of the information and footnotesnotes 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 statementConsolidated Statement of financial conditionFinancial Condition at December 31,
 
202031, 2021 has been derived from the audited consolidated financial
statements at that date, but does not include all of the information and footnotesnotes
 
required by generally accepted accounting principles for
for complete financial statements.
 
For further information, refer to the consolidated financial statements and
 
footnotesnotes thereto
included in the
Company’s annual report
 
report on Form 10-K for the year ended December 31, 2020.2021.
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
5
offices in South Georgia
offering wealth
management services and comprehensive risk management
 
and asset protection services for individuals and businesses.
 
CCBG paid
$
4.44.5
 
million in cash consideration and recorded goodwill of $
2.8
 
million and a customer relationship intangible asset of $
1.6
 
million.
Accounting Standards Updates
ASU 2020-04, "Reference Rate ReformAccounting Standards Update (“ASU”)
2022-02, “Financial Instruments – Credit Losses (Topic
 
848)326)
.
 
In March 2022, the Financial
ASU 2020-04 provides optional expedients and exceptions for applying GAAP
to loan and lease agreements, derivative contracts, and other transactionsAccounting Standards Board ("FASB")
 
affectedissued 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 ASC 310-40, "Receivables - Troubled Debt
Restructurings by Creditors" for entities that have adopted the anticipated transition away from LIBORcurrent expected credit
toward new interest rate benchmarks. For transactions thatloss model introduced by ASU 2016-13, “Financial Instruments –
 
are modified becauseCredit Losses (Topic 326):
Measurement of reference rate reform and that meet certain scopeCredit Losses on
guidance (i) modifications of loan agreements should be accounted
for by prospectively adjusting the effective interest rate and
the
modification will be considered "minor" so that any existing unamortized
origination fees/costs would carry forward and continue to
be amortized and (ii) modifications of lease agreements should be accounted
for as a continuation of the existing agreement with no
reassessments of the lease classification and the discount rate or re-measurements
of lease payments
that otherwise would be required
for modifications not accounted for as separate contracts. ASU 2020
-04 also provides numerous optional expedients for derivative
accounting.Financial Instruments”.
 
ASU 2020-042022-02 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 March 12, 2020 through Decemberfor the Company for fiscal years beginning
 
31, 2022.after December
15, 2022, including interim periods within those fiscal years, with early
 
An entity may elect to apply ASU 2020-04 for
contract modifications as of January 1, 2020, or prospectively from a
date within an interim period that includes or is subsequent to
March 12, 2020, up to the date that the financial statements are available to
be issued.
Once elected for a Topic or
an Industry
Subtopic within the Codification, the amendments in this ASU must be applied
prospectively for all eligible contract modifications for
that Topic or Industry
Subtopic.
It is anticipated this ASU will simplify any modifications executed between the
selected start date
(yet to be determined) and December 31, 2022 that are directly related to
LIBOR transition by allowing prospective recognition of the
continuation of the contract, rather than extinguishment of the old contract
resulting in writing off unamortized fees/costs.
Further,
ASU 2021-01, “Reference Rate Reform (Topic
848): Scope,”
clarifies that certain optional expedients and exceptions in ASC 848 for
contract modifications and hedge accounting apply to derivatives that are
affected by the discounting transition. ASU 2021-01
also
amends the expedients and exceptions in ASC 848 to capture the incremental
consequences of the scope clarification and to tailor the
existing guidance to derivative instruments.
adoption permitted. The Company is evaluating the impact of this ASU and has not yet determinedeffect
 
if thisthat
ASU 2022-02 will have material effects on the Company’s
business operations andits consolidated financial statements.statements and
related disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
NOTE 2 –
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related marketfair value of investment
securities available-for-sale and securities held-to-maturity and the corresponding
 
amounts of gross unrealized gains and losses.
September 30, 2021Available for
December 31, 2020Sale
Amortized
Unrealized
Unrealized
MarketAllowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
March 31, 2022
U.S. Government Treasury
$
190,049
$
15
$
10,051
$
0
$
180,013
U.S. Government Agency
232,067
547
8,179
0
224,435
States and Political Subdivisions
47,107
11
3,753
(15)
43,350
Mortgage-Backed Securities
(1)
91,169
15
5,121
0
86,063
Corporate Debt Securities
88,208
4
5,018
(21)
83,173
Other Securities
(2)
7,327
0
0
0
7,327
Total
$
655,927
$
592
$
32,122
$
(36)
$
624,361
December 31, 2021
U.S. Government Treasury
$
190,409
$
65
$
2,606
$
0
$
187,868
U.S. Government Agency
238,490
1,229
2,141
0
237,578
States and Political Subdivisions
47,762
44
811
(15)
46,980
Mortgage-Backed Securities
(1)
89,440
27
598
0
88,869
Corporate Debt Securities
87,537
10
1,304
(21)
86,222
Other Securities
(2)
7,094
0
0
0
7,094
Total
$
660,732
$
1,375
$
7,460
$
(36)
$
654,611
Held to Maturity
Amortized
Unrealized
Unrealized
MarketFair
(Dollars in Thousands)
Cost
Gains
Losses
Value
Cost
Gain
Losses
Value
Available for
SaleMarch 31, 2022
U.S. Government Treasury
$
164,806289,237
$
9010
$
8499,355
$
164,047
$
103,547
$
972
$
0
$
104,519
U.S. Government Agency
249,649
1,793
970
250,472
205,972
2,743
184
208,531
States and Political Subdivisions
43,834
69
357
43,546
3,543
89
0
3,632279,892
Mortgage-Backed Securities
(1)
97,131229,441
240414
1648,470
97,207
456
59
0
515
Corporate Debt Securities
84,331
13
567
83,777
0
0
0
0
Equity Securities
(2)
6,795
0
0
6,795
7,673
0
0
7,673221,385
Total
 
$
646,546518,678
$
2,205424
$
2,90717,825
$
645,844501,277
$
321,191
$
3,863
$
184
$
324,870
Held to MaturityDecember 31, 2021
U.S. Government Treasury
$
115,903115,499
$
0
$
3481,622
$
115,555
$
5,001
$
13
$
0
$
5,014113,877
Mortgage-Backed Securities
225,325(1)
3,941224,102
5362,819
228,7301,099
164,938
5,223
0
170,161225,822
Total
 
$
341,228339,601
$
3,9412,819
$
8842,721
$
344,285
$
169,939
$
5,236
$
0
$
175,175
Total Investment
Securities
$
987,774
$
6,146
$
3,791
$
990,129
$
491,130
$
9,099
$
184
$
500,045339,699
(1)
 
Comprised of residential mortgage-backed
 
securities
(2)
 
Includes Federal Home Loan Bank and Federal Reserve Bank stock, recorded
 
at cost of $
2.02.3
 
million and $
4.85.1
 
million,
respectively,
 
at September 30, 2021March 31, 2022 and includes Federal Home Loan Bank and
Federal Reserve Bank stock recorded
at cost of
$
2.92.0
 
million and $
4.85.1
 
million, respectively,
 
at December 31, 2020.2021.
At March 31, 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 $
312.3453.3
 
million and $
308.2463.8
 
million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively,
were
were pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required
 
to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans and FHLB
 
FHLB advances.
 
FHLB stock, which is included in
equityother securities,
 
is pledged to secure FHLB advances.
 
No ready market exists for this stock, and it has no quoted marketfair value; however,
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.
Maturity Distribution
.
At September 30, 2021, 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
Market Value
Amortized Cost
Market Value
Due in one year or less
$
39,614
$
39,423
$
0
$
0
Due after one year through five years
264,747
263,661
115,903
115,555
Due after five year through ten years
66,347
65,614
0
0
Mortgage-Backed Securities
97,131
97,207
225,325
228,730
U.S. Government Agency
171,912
173,144
0
0
Equity Securities
6,795
6,795
0
0
Total
$
646,546
$
645,844
$
341,228
$
344,285
11
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
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
September 30, 2021
Available for
Sale
U.S. Government Treasury
$
143,394
$
849
$
0
$
0
$
143,394
$
849
U.S. Government Agency
118,969
859
12,168
111
131,137
970
States and Political Subdivisions
27,355
357
0
0
27,355
357
Mortgage-Backed Securities
40,012
164
0
0
40,012
164
Corporate Debt Securities
57,304
567
0
0
57,304
567
Total
387,034
2,796
12,168
111
399,202
2,907
Held to Maturity
U.S. Government Treasury
115,555
348
0
0
115,555
348
Mortgage-Backed Securities
93,023
536
0
0
93,023
536
Total
$
208,578
$
884
$
0
$
0
$
208,578
$
884
December 31, 2020
Available for
Sale
U.S. Government Agency
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
Total
$
28,266
$
156
$
4,670
$
28
$
32,936
$
184
At September 30, 2021, there were
288
positions (combined Available-for-Sale
and Held-to-Maturity) with unrealized losses totaling
$
3.8
million.
206
of these positions were U.S. government agency securities issued by U.S. government
sponsored entities.
Municipal
securities totaled
29
positions.
The declines in the market value of these securities were attributable to changes in interest rates and
not credit quality.
The remaining
53
positions were corporate debt securities.
A majority of the decline in the market value of these
securities were attributable to changes in interest rates.
These investment securities had allowance for credit losses totaling $
16,000
at
September 30, 2021.
None of the securities held by the Company were past due or in nonaccrual status at
September 30, 2021.
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
securities portfolio via credit ratings which are updated on a quarterly
basis.
On a quarterly basis, municipal 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.
12
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio Composition
.
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
September 30, 2021
December 31, 2020
Commercial, Financial and Agricultural
$
218,929
$
393,930
Real Estate – Construction
177,443
135,831
Real Estate – Commercial Mortgage
683,379
648,393
Real Estate – Residential
(1)
362,750
352,543
Real Estate – Home Equity
187,642
205,479
Consumer
(2)
311,282
270,250
Loans HFI, Net of Unearned Income
$
1,941,425
$
2,006,426
(1)
Includes loans in process with outstanding balances
of $
7.1
million and $
10.9
million at September 30, 2021 and December 31,
2020,
respectively.
(2)
Includes overdraft balances of $
1.3
million and $
0.7
million at September 30, 2021 and December 31, 2020, respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
3.7
million at September 30, 2021 and
net deferred loan fees were $
0.1
million at December 31, 2020.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
5.6
million at September 30, 2021 and $
6.9
million at December 31, 2020, 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 $
72.7
million for the
nine month period ended September 30, 2021, and were not credit impaired.
In addition, during the second quarter of 2021, the
Company acquired a pool of
10
individual commercial real estate loans from a third party bank that totaled $
17.4
million and were not
credit impaired.
The Company transferred $
9.4
million of home equity loans from HFI to HFS in the second quarter of 2021.
Allowance for Credit Losses
.
The allowance for credit losses is calculated in accordance with the current expected
credit loss model,
ASC 326 (“CECL”), which was adopted on January 1, 2020.
The allowance 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 – Business and
Basis of Presentation/Significant Accounting Policies in the
Company’s 2020 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
11
Investment Sales.
There were sales of investment securities totaling $
3.4
million for the three months ended March 31, 2022. There
were no significant sales of investment securities for the three months ended
December 31, 2021 and March 31, 2021.
Maturity Distribution
.
At March 31, 2022, the Company's investment securities had the following
maturity distribution based on
contractual maturity.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or
prepay obligations.
Mortgage-backed securities and certain amortizing U.S. government
agency securities are shown separately
because they are not due at a certain maturity date.
Available for
Sale
Held to Maturity
(Dollars in Thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
36,321
$
34,519
$
0
$
0
Due after one year through five years
306,432
290,613
289,237
279,892
Due after five year through ten years
62,103
56,445
0
0
Mortgage-Backed Securities
91,169
86,063
229,441
221,385
U.S. Government Agency
152,575
149,394
0
0
Equity Securities
7,327
7,327
0
0
Total
$
655,927
$
624,361
$
518,678
$
501,277
Unrealized Losses on Investment Securities.
The following table summarizes the available for sale investment securities with
unrealized losses aggregated by major security type and length of time in a continuous
unrealized loss position:
Less Than
Greater Than
12 Months
12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
March 31, 2022
Available for
Sale
U.S. Government Treasury
$
117,369
$
6,723
$
57,638
$
3,328
$
175,007
$
10,051
U.S. Government Agency
122,572
5,952
43,637
2,227
166,209
8,179
States and Political Subdivisions
42,181
3,719
444
34
42,625
3,753
Mortgage-Backed Securities
85,848
5,121
0
0
85,848
5,121
Corporate Debt Securities
79,718
5,018
0
0
79,718
5,018
Total
447,688
26,533
101,719
5,589
549,407
32,122
Held to Maturity
U.S. Government Treasury
261,362
9,355
0
0
261,362
9,355
Mortgage-Backed Securities
166,472
7,633
10,496
837
176,968
8,470
Total
$
427,834
$
16,988
$
10,496
$
837
$
438,330
$
17,825
December 31, 2021
Available for
Sale
U.S. Government Treasury
$
172,206
$
2,606
$
0
$
0
$
172,206
$
2,606
U.S. Government Agency
127,484
1,786
17,986
355
145,470
2,141
States and Political Subdivisions
42,122
811
0
0
42,122
811
Mortgage-Backed Securities
81,832
598
0
0
81,832
598
Corporate Debt Securities
69,354
1,304
0
0
69,354
1,304
Total
$
492,998
$
7,105
$
17,986
$
355
$
510,984
$
7,460
Held to Maturity
U.S. Government Treasury
113,877
1,622
0
0
113,877
1,622
Mortgage-Backed Securities
115,015
1,099
0
0
115,015
1,099
Total
$
228,892
$
2,721
$
0
$
0
$
228,892
$
2,721
12
At March 31, 2022, there were
673
positions (combined Available-for-Sale
and Held-to-Maturity) with unrealized losses totaling
$
49.9
million.
553
of these positions were U.S. government agency securities issued by U.S. government
sponsored entities.
Municipal securities totaled
48
positions.
The remaining
72
positions were corporate debt and asset backed securities.
These
investment securities had allowance for credit losses totaling less than $
0.1
million at March 31, 2022.
The declines in the fair values
of these securities were attributable to changes in interest rates and not credit quality.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through
various risk management procedures, including the
monitoring of credit ratings.
A majority of the debt securities in the Company’s
investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed
by the U.S. government.
The Company believes the
long history of no credit losses on these securities indicates that the expectation
of nonpayment of the amortized cost basis is zero,
even if the U.S. government were to technically default.
Further, certain municipal securities held by the Company
have been pre-
refunded and secured by government guaranteed treasuries.
Therefore, for the aforementioned securities, the Company does not
assess or record expected credit losses due to the zero loss assumption.
The Company monitors the credit quality of its municipal and
corporate securities portfolio via credit ratings
which are updated on a quarterly basis.
On a quarterly basis, municipal and corporate
securities in an unrealized loss position are evaluated to determine if the
loss is attributable to credit
related factors and if an allowance
for credit loss is needed.
 
 
 
 
 
 
 
13
NOTE 3 – LOANS HELD FOR INVESTMENT AND ALLOWANCE
FOR CREDIT LOSSES
Loan Portfolio Composition
.
The composition of the held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
March 31, 2022
December 31, 2021
Commercial, Financial and Agricultural
$
230,213
$
223,086
Real Estate – Construction
174,293
174,394
Real Estate – Commercial Mortgage
669,110
663,550
Real Estate – Residential
(1)
374,712
360,021
Real Estate – Home Equity
188,174
187,821
Consumer
(2)
349,007
322,593
Loans Held For Investment, Net of Unearned Income
$
1,985,509
$
1,931,465
(1)
Includes loans in process balances of $
6.7
million and $
13.6
million at March 31, 2022 and December 31, 2021,
respectively.
(2)
Includes overdraft balances of $
1.2
million and $
1.1
million at March 31, 2022 and December 31, 2021,
respectively.
Net deferred loan costs, which include premiums on purchased loans,
included in loans were $
4.4
million at March 31, 2022 and $
3.9
million at December 31, 2021.
Accrued interest receivable on loans which is excluded from amortized
cost totaled $
5.8
million at March 31, 2022 and $
5.3
million at
December 31, 2021, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage
loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of
Atlanta and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available
borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchase and Sales
.
The Company will periodically purchase newly originated 1-4 family real
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
Residential loan purchases from CCHL totaled $
26.3
million and
$
22.2
million for the three months ended March 31, 2022 and March 31, 2021, respectively,
and were not credit impaired.
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.
14
The following table details the activity in the allowance for credit losses by
 
portfolio segment.
 
Allocation of a portion of the
allowance to one category of loans does not preclude its availability to
 
absorb losses in other categories.
 
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
Three Months
Ended
September 30, 2021March 31, 2022
Beginning Balance
$
1,9722,191
$
2,7593,302
$
7,5695,810
$
4,3534,129
$
2,4572,296
$
3,0653,878
$
22,17521,606
Provision for Credit Losses
178(161)
517(714)
(1,588)(181)
(433)314
(131)(405)
9111,068
(546)(79)
Charge-Offs
(37)(73)
0
(405)(266)
(17)0
(15)(33)
(1,314)(1,402)
(1,788)(1,774)
Recoveries
 
66165
108
16929
40127
4658
967716
1,6591,003
Net (Charge-Offs) Recoveries
2992
108
(236)(237)
38427
3125
(347)(686)
(129)(771)
Ending Balance
$
2,1792,122
$
3,2862,596
$
5,7455,392
$
4,3044,470
$
2,3571,916
$
3,6294,260
$
21,50020,756
NineThree Months Ended
September 30,March 31, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(192)(314)
797(225)
(1,719)(718)
(1,768)(305)
(900)(655)
740(95)
(3,042)(2,312)
Charge-Offs
(138)(69)
0
(405)0
(88)(6)
(94)(5)
(3,040)(1,056)
(3,765)(1,136)
Recoveries
305136
100
840645
72075
240124
2,376678
4,4911,658
Net (Charge-Offs) Recoveries
16767
100
435645
63269
146119
(664)(378)
726522
Ending Balance
$
2,1791,957
$
3,2862,254
$
5,7456,956
$
4,3045,204
$
2,3572,575
$
3,6293,080
$
21,500
Three Months Ended
September 30, 2020
Beginning Balance
$
2,468
$
1,955
$
6,640
$
5,440
$
2,753
$
3,201
$
22,457
Provision for Credit Losses
(195)
161
616
(344)
196
831
1,265
Charge-Offs
(137)
0
(17)
(1)
(58)
(1,069)
(1,282)
Recoveries
74
0
30
35
41
517
697
Net Charge-Offs
(63)
0
13
34
(17)
(552)
(585)
Ending Balance
$
2,210
$
2,116
$
7,269
$
5,130
$
2,932
$
3,480
$
23,137
Nine Months Ended
September 30, 2020
Beginning Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
Impact of Adopting ASC 326
488
302
1,458
1,243
374
(596)
3,269
Provision for Credit Losses
544
1,444
2,132
745
337
2,668
7,870
Charge-Offs
(685)
0
(28)
(112)
(141)
(3,810)
(4,776)
Recoveries
188
0
291
126
138
2,126
2,869
Net Charge-Offs
(497)
0
263
14
(3)
(1,684)
(1,907)
Ending Balance
$
2,210
$
2,116
$
7,269
$
5,130
$
2,932
$
3,480
$
23,13722,026
For the nine month periodthree months ended September 30, 2021,March 31, 2022, the allowance fordecreased
 
HFI loans decreased by $
2.30.9
 
million and reflected a negative
provision benefit of $
3.00.1
million
and net loan charge-offs of $
0.8
million. For the three months ended March 31, 2021, the allowance decreased
$
1.8
million which
reflected a provision benefit of $
2.3
 
million and net loan recoveries of $
0.70.5
 
million.
 
The negative provision generallybenefit for the three months ended
March 31, 2022 and March 31, 2021 reflected improving economicimprovement in the
conditions (primarily a lower rateforecasted level of unemployment and its potential effect
on rates
of default), favorable problem loan migration, and
strong net loan recoveries.default.
 
Three unemployment rate forecast scenarios were utilized to estimate probability
 
of default and were
weighted based on
management’s
estimate of probability.
The mitigating impact of the unprecedented fiscal stimulus as well as
various government sponsored loan programs, was also considered.
 
See Note 8 – Commitments and Contingencies for information on
the allowance for off-balance
off-
balance sheet credit commitments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1415
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
September 30, 2021March 31, 2022
Commercial, Financial and Agricultural
$
499205
$
3679
$
0
$
535284
$
218,353229,898
$
4131
$
218,929230,213
Real Estate – Construction
 
0
0
0
0
177,443174,293
0
177,443174,293
Real Estate – Commercial Mortgage
 
364502
0
0
364502
683,015668,186
0422
683,379669,110
Real Estate – Residential
 
735474
17729
0
912503
359,861373,005
1,9771,204
362,750374,712
Real Estate – Home Equity
 
76
1947
0
950
186,58147
966187,283
187,642844
188,174
Consumer
 
1,1961,152
258632
0
1,4541,784
309,786346,996
42227
311,282349,007
Total
$
2,8702,380
$
490740
$
0
$
3,3603,120
$
1,935,0391,979,661
$
3,0262,728
$
1,941,4251,985,509
December 31, 20202021
Commercial, Financial and Agricultural
$
194100
$
12423
$
0
$
318123
$
393,451222,873
$
16190
$
393,930223,086
Real Estate – Construction
 
0
7170
0
7170
134,935174,394
1790
135,831174,394
Real Estate – Commercial Mortgage
 
293151
0
0
293151
646,688662,795
1,412604
648,393663,550
Real Estate – Residential
 
375365
530151
0
905516
348,508357,408
3,1302,097
352,543360,021
Real Estate – Home Equity
 
325
138210
0
4630
204,321210
695186,292
205,4791,319
187,821
Consumer
 
1,5561,964
342636
0
1,8982,600
268,058319,781
294212
270,250322,593
Total
 
$
2,7432,790
$
1,851810
$
0
$
4,5943,600
$
1,995,9611,923,543
$
5,8714,322
$
2,006,4261,931,465
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.
September 30, 2021March 31, 2022
December 31, 20202021
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With No
90 + Days
With No
With No
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
410
$
31
$
0
$
067
$
161
$
023
$
0
Real Estate – Construction
 
0
 
0
0
1790
0
0
Real Estate – Commercial Mortgage
 
0
 
422
0
0
337
1,075604
0
Real Estate – Residential
 
1,061728
 
916476
0
1,617928
1,5131,169
0
Real Estate – Home Equity
 
5030
 
463844
0
695463
0856
0
Consumer
 
420
 
227
0
0
294
0212
0
Total Nonaccrual
 
Loans
$
1,647728
$
1,3792,000
$
0
$
3,2831,458
$
2,5882,864
$
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
16
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
 
September 30, 2021March 31, 2022
December 31, 20202021
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
0
$
0
$
0
$
67
Real Estate – Construction
0
0
0
0
Real Estate – Commercial Mortgage
0
0
3,900455
0
Real Estate – Residential
1,891855
0
3,0221,645
0
Real Estate – Home Equity
 
665601
 
0
 
219649
 
0
Consumer
 
0
 
0
 
0
 
290
Total Collateral Dependent
 
Loans
$
2,5561,456
$
0
$
7,1412,749
$
2967
A loan is collateral dependent when the borrower is experiencing financial
 
financial difficulty and repayment of the loan is dependent on
 
the
sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
by either residential
or commercial collateral types.
 
The loans are carried at fair value based on current values determined by
 
either independent appraisals
or internal evaluations, adjusted for selling costs or other amounts to be deducted
 
when estimating expected net sales proceeds.
 
Residential Real Estate Loans In Process of Foreclosure
.
 
At September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had $
1.40.9
million
and $
1.60.9
 
million, respectively, in 1-4 family
 
1-4 family residential real estate loans for which formal foreclosure proceedings were
in
process.
Troubled
 
Debt Restructurings (“TDRs”).
 
At September 30, 2021,March 31, 2022, the Company had $
8.57.5
 
million in TDRs, of which $
7.97.3
 
million were
performing in accordance with the modified terms.
 
At December 31, 20202021 the Company had $
14.38.0
 
million in TDRs, of which $
13.97.6
million were performing in accordance with modified terms.
 
For TDRs, the Company estimated $
0.3
 
million and $
0.60.3
 
million of
credit loss reserves at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium,
 
moratorium, a reduction in the interest rate,
or a combination thereof.
 
For the three months ended September 30, 2021 and September 30, 2020,March 31, 2022 there
were
0
 
loans modified.
 
For the nine month periodthree months ended September 30,
March 31, 2021, there were
32
 
loans modified with a recorded investment of $
0.60.4
 
million.
 
For
the nine month period ended September 30, 2020, there were
3
loans modified with a recorded investment of $
0.2
million.
For the three months ended March 31,
2022 and nine month period ended September 30,March 31, 2021,
there were
0
loans classified as TDRs, for which there was a
payment default and the loans were modified within the 12 months
prior to default.
For the three and nine month period ended
September 30, 2020, there were
0
 
loans classified as TDRs, for which there was a payment default and the loans
were modified
within the 12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards and
 
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
 
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.
 
 
 
 
 
1617
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
 
properties and commercial properties that are either owner-
occupied or investment in nature.
 
These properties may include either vacant or improved property.
 
Construction loans are generally
based upon estimates of costs and value associated with the completed
 
project.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy
 
guidelines.
 
The disbursement
of funds for construction loans is made in relation to the progress of the project
 
and as such these loans are closely monitored by on-
site inspections.
 
Real Estate Commercial Mortgage – Loans in this category consists of commercial
 
mortgage loans secured by property that is either
owner-occupied or investment in nature.
 
These loans are primarily made based on identified cash flows of the borrower or
 
project
with consideration given to underlying real estate collateral and
 
personal guarantees.
 
Lending policy establishes debt service
coverage ratios and loan to value ratios specific to the property type.
 
Collateral values are determined based upon third party
appraisals and evaluations.
 
Real Estate Residential – Residential mortgage loans held in the Company’s
 
loan portfolio are made to borrowers that demonstrate the
ability to make scheduled payments with full consideration to underwriting
 
factors such as current income, employment status, current
assets, and other financial resources, credit history,
 
and the value of the collateral.
 
Collateral consists of mortgage liens on 1-4 family
residential
properties.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
The Company does not
originate sub-prime loans.
 
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals
 
individuals for legitimate purposes generally secured
by senior or junior mortgage liens on owner-occupied
 
1-4 family homes or vacation homes.
 
Borrower qualifications include
favorable credit history combined
with supportive income and debt ratio
requirements and combined loan to value ratios
within
established policy guidelines.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Consumer Loans – This loan portfolio includes personal installment loans,
 
direct and indirect automobile financing, and overdraft
lines of credit.
 
The majority of the consumer loan portfoliocategory consists of indirectdirect and directindirect 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
 
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
 
by payment activity.
 
The performing or nonperforming status
is updated on an on-going basis dependent upon improvement
 
and deterioration in credit quality.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1718
The following table summarizes gross loans held for investment at September
 
30, 2021March 31, 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
2017
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
51,86622,526
$
38,45360,369
$
34,22627,910
$
22,53926,368
$
10,37618,565
$
14,07218,863
$
46,96954,707
$
218,501229,308
Special Mention
0
0100
70187
12268
16
24
0
49
0
131595
Substandard
 
0
 
100
58
 
0
 
204184
 
6
7768
 
0
 
297310
Total
$
51,86622,526
$
38,46360,469
$
34,29628,155
$
22,75526,636
$
10,38218,765
$
14,19818,955
$
46,96954,707
$
218,929230,213
Real Estate -
Construction:
Pass
$
75,22211,641
$
72,664109,459
$
23,58842,522
$
429
$
1328,684
$
0
$
5,408129
$
177,4431,858
$
174,293
Total
$
75,22211,641
$
72,664109,459
$
23,58842,522
$
429
$
1328,684
$
0
$
5,408129
$
177,4431,858
$
174,293
Real Estate -
Commercial Mortgage:
Pass
$
139,62350,302
$
142,833165,574
$
87,251123,213
$
103,05973,444
$
67,39273,824
$
97,842131,407
$
19,69026,092
$
657,690643,856
Special Mention
0
454
1,552
9,727
431
5,423
0
17,587410
1,750
2,615
5,761
1,250
11,786
Substandard
1,520
585
3,517
 
0
 
1,26610,055
 
990405
 
224640
 
8,1020
2,298
70
13,468
Total
$
141,14350,302
$
143,872175,629
$
92,320124,028
$
112,78675,834
$
69,08976,439
$
104,255139,466
$
19,91427,412
$
683,379669,110
Real Estate - Residential:
Pass
$
105,61146,698
$
72,091117,058
$
44,39355,670
$
29,79234,111
$
28,44723,957
$
66,74881,162
$
8,5386,255
$
355,620364,911
Special Mention
0
136
20
122
169
41961
0
866132
18
60
570
1,348
2,189
Substandard
 
1,29074
 
441576
 
1,0511,007
 
8121,085
 
221971
 
2,3733,899
 
760
 
6,2647,612
Total
 
$
106,90146,833
$
72,668117,634
$
45,46456,809
$
30,72635,214
$
28,83724,988
$
69,54085,631
$
8,6147,603
$
362,750374,712
Real Estate - Home
Equity:
Performing
$
990
$
56146
$
45213
$
176255
$
749130
$
1,7562,191
$
183,388184,595
$
186,676187,330
Nonperforming
 
0
 
0
 
0
 
17
0
 
0
 
33827
 
933
966844
Total
 
$
990
$
56146
$
45213
$
176272
$
749130
$
1,7892,191
$
184,321185,422
$
187,642188,174
Consumer:
Performing
$
136,78061,883
$
73,778159,135
$
45,25256,232
$
31,53033,402
$
13,37722,026
$
4,66610,370
$
5,8575,731
$
311,240348,779
Nonperforming
0
058
1759
2422
58
31
0
1
0
42228
Total
$
136,78061,883
$
73,778159,193
$
45,26956,291
$
31,55433,424
$
13,37722,084
$
4,66710,401
$
5,8575,731
$
311,282349,007
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1819
NOTE 4 – MORTGAGE BANKING ACTIVITIES
The Company’s mortgage
 
banking activities at its subsidiary,
 
CCHL, include mandatory delivery loan sales, forward sales contracts
used to manage residential loan pipeline price risk, utilization of warehouse
 
warehouse lines to fund secondary market residential loan closings,
and residential mortgage servicing.
 
For the nine month period of 2020, information provided below reflects CCHL activities
for the
period March 1, 2020 to September 30, 2020 and CCB legacy residential
real estate activities for the period January 1, 2020 to March
1, 2020.
All quarterly information subsequent to the quarter ended March 31, 2020 includes CCHL activity.
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.
September 30, 2021March 31, 2022
December 31, 20202021
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
74,49149,991
$
77,03650,815
$
109,83150,733
$
114,03952,532
Residential Mortgage Loan Commitments ("IRLCs")
(1)
87,06299,399
1,7171,117
147,49451,883
4,8251,258
Forward Sales Contracts
(2)
102,50055,000
451850
158,50048,000
(907)(7)
$
79,20452,782
$
117,95753,783
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
 
at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively
The Company had
0
 
residential mortgage loans held for sale that were 90 days or more outstanding or on nonaccrual
 
nonaccrual at SeptemberMarch 31,
30, 20212022, and hadloans held for sale that were 30-69 days outstanding totaled $
0.60.2
 
million at December 31, 2020.2021.
 
Mortgage banking revenue was as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30, March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Net realized gains on sales of mortgage loans
$
12,1325,136
$
21,423
$
40,089
$
39,41014,424
Net change
in unrealized gain on mortgage loans held for sale
(165)(975)
1,499
(1,663)
3,329(2,031)
Net change in the fair value of mortgage loan commitments (IRLCs)
(806)(141)
691
(3,108)
3,833(1,843)
Net change in the fair value of forward sales contracts
540857
560
1,358
7912,263
Pair-Offs on net settlement of forward sales contracts
(636)2,255
(3,049)
2,199
(7,445)3,310
Mortgage servicing rights additions
205632
763
845
2,813187
Net origination fees
1,0131,182
1,096
2,905
2,902815
Total mortgage banking
 
revenues
$
12,2838,946
$
22,98317,125
20
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans
sold.
The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
March 31, 2022
December 31, 2021
Number of residential mortgage loans serviced for others
2,224
2,106
Outstanding principal balance of residential mortgage loans serviced
for others
$
42,625577,297
$
45,633532,967
Weighted average
interest rate
3.62%
3.59%
Remaining contractual term (in months)
317
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 March 31, 2022, the servicing portfolio balance consisted of the
following loan types: FNMA (
60
%),
GNMA (
8
%), and private investor (
32
%).
FNMA and private investor loans are structured as actual/actual payment remittance.
The Company had $
1.3
million and $
2.0
million in delinquent residential mortgage loans currently in GNMA pools
serviced by the
Company at March 31, 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 months ended March 31, 2022, the Company repurchased $
0.4
million in delinquent residential loans currently in GNMA pools.
For the three months ended March 31, 2021, the Company repurchased
$
1.5
million of GNMA delinquent or defaulted mortgage loans
with the intention to modify their terms and include the loans in new GNMA
pools.
Activity in the capitalized mortgage servicing rights was as follows:
Three Months Ended March 31,
(Dollars in Thousands)
2022
2021
Beginning balance
$
3,774
$
3,452
Additions due to loans sold with servicing retained
632
187
Deletions and amortization
(405)
(306)
Valuation
allowance reversal
0
250
Ending balance
$
4,001
$
3,583
The Company did
0
t record any permanent impairment losses on mortgage servicing rights for the
three months ended March 31,
2022 and March 31, 2021.
The key unobservable inputs used in determining the fair value of the Company’s
mortgage servicing rights were as follows:
March 31, 2022
December 31, 2021
Minimum
Maximum
Minimum
Maximum
Discount rates
10.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
7.12%
19.55%
11.98%
23.79%
Cost of servicing (per loan)
$
60
$
73
$
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
10.56
% at March 31, 2022 and
15.85
% at December 31, 2021.
21
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
agreements with various financial institutions at
March 31, 2022.
Amounts
(Dollars in Thousands)
Outstanding
$
75
million master repurchase agreement without defined expiration.
Interest is at the Prime rate minus
1.00%
to plus
1.00%
, with a floor rate of
3.25%
.
A cash pledge deposit of $
0.5
million is required by the lender.
6,705
$
75
million warehouse line of credit agreement expiring in
November 2022
.
Interest is at the SOFR plus
2.25%
, to
3.25%
.
19,191
Total Warehouse
Borrowings
$
25,896
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2021, warehouse line borrowings totaled $
29.0
million. At March 31, 2022, the Company had residential mortgage
loans held for sale and construction loans held for investment
pledged as collateral under the above warehouse lines of credit and master repurchase
agreements.
The above agreements also contain
covenants which include certain financial requirements, including
maintenance of minimum tangible net worth, minimum liquid
assets, and maximum debt to net worth ratio, as defined in the agreements.
The Company was in compliance with all significant debt
covenants at March 31, 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
December 31, 2021 and March 31, 2022 was $
14.8
and $
15.3
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 March 31, 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)
March 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
3,886
8.3
December 31, 2021
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
2,050
8.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1922
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 summarytable presents the net gains (losses) recorded in AOCI and the
consolidated statements of mortgage servicing rights.
income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
debt) for the three months ended March 31, 2022.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
September 30, 2021Category
Decemberin AOCI
from AOCI to Income
Three months ended March 31, 20202022
Number of residential mortgage loans serviced for others
2,028
1,796
Outstanding principal balance of residential mortgage loans serviced
for othersInterest expense
$
505,3211,370
$
456,135(28)
Weighted averageThree months ended March 31, 2021
Interest expense
$
1,587
 
interest rate
3.62%
3.64%
Remaining contractual term (in months)
316
321(33)
Conforming conventional loans serviced byThe Company estimates there will be approximately $
0.1
million reclassified as an increase to interest income within the Company are sold to FNMA on
a non-recourse basis, whereby foreclosure losses arenext 12
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 September 30, 2021, the servicing portfolio balance consisted of
the following loan types: FNMA
(
60
%), GNMA (
9
%), and private investor (
31
%).
FNMA and private investor loans are structured as actual/actual payment
remittance.
months.
The Company had a collateral liability of $
3.04.0
 
million and $
4.92.0
 
million in delinquent residential mortgage loans currently in GNMA pools
serviced by the
Company at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
NOTE 6 – LEASES
Operating leases in which the Company is the lessee are recorded as operating
 
Thelease right to repurchase these loansof use (“ROU”) assets and the correspondingoperating
liability has been recordedliabilities, included in other assets and other liabilities, respectively,
 
in theon its Consolidated StatementsStatement of Financial Condition.
 
ForThe Company’s operating
leases primarily relate to banking offices with remaining lease terms
from
1
to
44
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 three month period ended September 30, 2021, the Companyrequirements of Topic
 
did
0
t repurchase any delinquent residential loans currently in
GNMA pools.842.
 
For
Operating leases with an initial term of 12 months or less are not recorded on the nine month period ended September 30, 2021,
Consolidated Statement of Financial Condition and the Company repurchasedrelated lease expense is recognized on a straight-line basis over the lease term.
 
At March 31, 2022, the operating lease ROU assets and liabilities were $
2.211.7
 
million of GNMA delinquent orand $
defaulted mortgage loans with the intention to modify their terms and include12.3
 
the loans in new GNMA pools.million, respectively. At December
31, 2021, ROU assets and liabilities were $
11.5
 
million and $
Activity in12.2
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 capitalized mortgage servicing rights was as follows:Company’s operating leases.
Three Months Ended September 30,
Nine Months Ended September 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Beginning balanceOperating lease expense
$
3,710384
$
2,862344
Short-term lease expense
179
140
Total lease expense
$
3,452563
$
910484
Additions due to loans sold with servicing retainedOther information:
205Cash paid for amounts included in the measurement of lease liabilities:
763
845
2,813
Deletions and amortization
(351)
(277)
(983)
(375)
Valuation
allowance reversal
0
0
250
0
Ending balanceOperating cash flows from operating leases
$
3,564429
$
3,348385
$Right-of-use assets obtained in exchange for new operating lease liabilities
3,564592
$75
3,348Weighted average
remaining lease term — operating leases (in years)
24.9
25.5
Weighted average
discount rate — operating leases
2.0%
2.1%
The Company did
0
t record any permanent impairment losses on mortgage servicing rights for the
three or nine month periods ended
September 30, 2021 and September 30, 2020.
The key unobservable inputs usedtable below summarizes the maturity of remaining lease liabilities:
(Dollars in determining the fair value of the Company’s
mortgage servicing rights were as follows:
Thousands)
September 30, 2021March 31, 2022
December 31, 2020
Minimum
Maximum
Minimum
Maximum
Discount rates
11.00%
15.00%
11.00%
15.00%
Annual prepayment speeds
13.53%
23.82%
13.08%
23.64%
Cost of servicing (per loan)2022
$
901,581
2023
1,190
2024
1,120
2025
977
2026
875
2027 and thereafter
10,341
Total
$
11016,084
Less: Interest
(3,773)
Present Value
of Lease liability
$
9012,311
$
110
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
17.34
% at September 30, 2021 and
17.10
% at December 31, 2020.
 
 
 
20
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
agreements with various financial institutions at
September 30, 2021.
Amounts
(Dollars in Thousands)
Outstanding
$
25
million warehouse line of credit agreement expiring
October 2021
.
Interest is at LIBOR plus
2.25%
, with a
floor rate of
3.50%
.
A cash pledge deposit of $
0.1
million is required by the lender.
(1)
$
6,526
$
75
million master repurchase agreement without defined expiration.
Interest is at the LIBOR plus
2.24%
to
3.00%
, with a floor rate of
3.25%
.
A cash pledge deposit of $
0.5
million is required by the lender.
21,942
$
50
million warehouse line of credit agreement expiring in
September 2021
.
Interest is at the LIBOR plus
2.75%
, with a floor rate of
3.25%
.
(2)
19,376
Total Warehouse
Borrowings
$
47,844
(1)
The Company does not intend to renew when the warehouse line expires.
(2)
In October 2021, the warehouse line was renewed through November 30,
2021.
Warehouse
line borrowings are classified as short-term borrowings.
At September 30, 2021, the Company had mortgage loans held
for sale pledged as collateral under the above warehouse lines of credit and
master repurchase agreements.
The above agreements also
contain covenants which include certain financial requirements, including maintenance
of minimum tangible net worth, minimum
liquid assets, maximum debt to net worth ratio and positive net income,
as defined in the agreements.
The Company was in
compliance with all significant debt covenants
at September 30, 2021.
The Company has extended a $
50
million warehouse line of credit to CCHL, a
51
% owned subsidiary entity.
Balances and
transactions under this line of credit are eliminated in the Company’s
consolidated financial statements and thus not included in the
total short term borrowings noted on the Consolidated Statement of
Financial Condition.
The balance of this line of credit at
September 30, 2021 was $
27.0
million.
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 September 30, 2021 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
.
Notional
Fair
Balance Sheet
Weighted Average
(Dollars in Thousands)
Amount
Value
Location
Maturity (Years)
September 30, 2021
Interest rate swaps related to subordinated debt
$
30,000
$
1,952
Other Assets
8.8
December 31, 2020
Interest rate swaps related to subordinated debt
$
30,000
$
574
Other Assets
9.5
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2123
The following table presentsAt March 31, 2022, the net gains (losses) recorded in AOCI andCompany had four additional operating lease obligations
 
for banking offices (to be constructed) that have not
yet commenced. Three of the consolidated statements of income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
debt) for the three and nine month periods ended September
30, 2021 and September 30, 2020.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
in AOCI
Category
from AOCI to Income
Three months ended September 30, 2021
leases have payments totaling $
128
Interest Expense
$
(41)
Three months ended September 30, 2020
129
Interest Expense
(28)
Nine months ended September 30, 2021
$
1,029
Interest Expense
$
(111)
Nine months ended September 30, 2020
21
Interest Expense
(31)
The Company estimates there will be approximately $
0.29.3
 
million reclassified as an increase to interest expense withinbased on the next 12initial contract terms of
months.15 years
The Company had a collateral liability of $
2.0
million and $
0.5
million at September 30, 2021 and December 31, 2020, 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
44
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
balance sheet, and the related fourth
lease expense is recognized on a straight-line basis over the lease term.
At September 30, 2021, the
operating lease ROU assets and liabilities were $
11.9
million and $
12.5
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
Nine Months Ended
September 30,
September 30,
(Dollars in Thousands)
2021
2020
2021
2020
Operating lease expense
$
369
$
273
$
1,075
$
695
Short-term lease expense
181
145
490
378
Total
lease expense
$
550
$
418
$
1,565
$
1,073
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
410
$
271
$
1,197
$
695
Right-of-use assets obtained in exchange for new operating lease liabilities
269
85
784
5,206
Weighted average
remaining lease term — operating leases (in years)
25.0
15.4
25.0
15.4
Weighted average
discount rate — operating leases
2.0%
2.3%
2.0%
2.3%
22
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
September 30, 2021
2021
$
413
2022
1,499
2023
1,129
2024
1,088
2025
911
2026 and thereafter
11,199
Total
$
16,239
Less: Interest
(3,720)
Present Value
of Lease liability
$
12,519
At September 30, 2021, the Company had additional operating leasehas payments
for
2
banking offices that have not yet commenced
totaling $
4.81.4
 
million based on the initial contract term of
1510 years
.
 
Payments for the banking offices are expected
to commence after
the construction period ends,periods end, which isare each expected to occur during the secondfourth quarter of 2022 and the third first
quarter of 2022.2023.
 
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 $
0.60.5
 
million at September 30, 2021.March 31, 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 September 30,
Nine Months Ended September 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Service Cost
$
1,7431,572
$
1,457
$
5,229
$
4,3711,743
Interest Cost
1,2211,166
1,400
3,664
4,2121,221
Expected Return on Plan Assets
(2,787)(2,675)
(2,748)
(8,361)
(8,245)(2,787)
Prior Service Cost Amortization
4
4
11
11
Net Loss Amortization
428
1,691
974Pension Settlement
5,073
2,959
Settlement Loss
500209
0
2,500
0
Special Termination
Charge
0
0
0
61
Net Periodic Benefit Cost
$
2,372704
$
1,087
$
8,116
$
3,3691,872
Discount Rate Used for Benefit Cost
3.11%
2.88%
3.53%
2.88%
3.53%
Long-term Rate of Return on Assets
6.75%
7.00%
6.75%
7.00%
In the second quarter of 2021, lump sum payments made under the Company’s
defined benefit pension plan triggered settlement
accounting.
In accordance with the applicable accounting guidance for defined benefit plans, the Company
recorded a settlement
losses of $
2.0
million in the second quarter of 2021 and $
0.5
million in the third quarter of 2021.
23
The components of the net periodic benefit cost for the Company's SERP and SERP II
plans were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Service Cost
$
98
$
10
$
27
$
219
Interest Cost
6179
83
183
23859
Prior Service Cost Amortization
69
109
157
21819
Net Loss Amortization
243180
93
683
410198
Net Periodic Benefit Cost
$
382336
$
295
$
1,050
$
887285
Discount Rate Used for Benefit Cost
2.80%
2.38%
3.16%
2.38%
3.16%
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 offoff-balance
 
-balance sheet risks in the normal course of business
to meet the financing needs of its clients.
 
These financial instruments consist of commitments to extend credit and standby
 
letters of
credit.
24
The Company’s maximum exposure
 
to credit loss under standby letters of credit and commitments to extend credit is represented
 
by
the contractual amount of those instruments.
 
The Company uses the same credit policies in establishing commitments
 
and issuing
letters of credit as it does for on-balance sheet instruments.
 
The amounts associated with the Company’s
 
off-balance sheet
obligations were as follows:
September 30, 2021March 31, 2022
December 31, 20202021
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
 
(1)
$
214,666200,236
$
535,695563,634
$
750,361763,870
$
160,372217,531
$
596,572505,897
$
756,944723,428
Standby Letters of Credit
 
5,6525,020
 
0
 
5,6525,020
6,5505,205
 
0
 
6,5505,205
Total
$
220,318205,256
$
535,695563,634
$
756,013768,890
$
166,922222,736
$
596,572505,897
$
763,494728,633
(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.
24
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 September 30,
Nine Months Ended September 30,March 31,
(Dollars in Thousands)
2021
20202022
2021
2020
Beginning Balance
$
2,587
$
1,0332,897
$
1,644
$
157
Impact of Adoption of ASC 326
0
0
0
876
Provision for Credit Losses
53079
434
1,473
4341,330
Ending Balance
$
3,1172,976
$
1,467
$
3,117
$
1,4672,974
Other Commitments.
In the normal course of business, the Company enters into lease commitments
which are classified as operating
leases. See Note 6 – Leases for additional information on the maturity of the
Company’s operating lease commitments.
Furthermore,
the Company has an outstanding commitment of up to $
1.0
million in a bank tech venture capital fund focused on finding and funding
technology solutions for community banks. At March 31, 2022 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,
 
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
 
makes subsequent
revisions to the conversion ratio for its Class B shares.
 
Fixed charges included in the swap liability are payable quarterly
 
quarterly until the
litigation reserve is fully liquidated and at which time the aforementioned
aforementioned swap contract will be terminated.
 
Quarterly fixed payments
approximate $
206,0000.2
.
million.
 
Conversion ratio payments and
ongoing fixed quarterly charges
are reflected in earnings
in the period
incurred.
NOTE 9 – FAIR VALUE
 
MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid
 
to transfer that liability in an orderly
transaction occurring in the principal market (or most advantageous market in
 
the absence of a principal market) for such asset or
liability.
 
In estimating fair value, the Company utilizes valuation techniques that are
consistent with
the market approach, the income
approach and/or the cost approach.
 
Such valuation techniques are consistently applied.
 
Inputs to valuation techniques include the
assumptions that market participants would use in pricing
an asset or liability.
 
ASC Topic 820
 
establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets
 
for identical assets or liabilities and the lowest
priority to unobservable inputs.
 
The fair value hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting
 
entity has the
ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
 
either directly
or indirectly. These might
 
include quoted prices for similar assets or liabilities in active markets, quoted prices
 
for identical
or similar assets or liabilities in markets that are not active, inputs other
 
than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.)
 
or inputs that are derived principally from, or
corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an
 
entity's own
assumptions about the assumptions that market participants would
 
use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value
 
on a Recurring Basis
Securities Available for Sale.
 
U.S. Treasury securities are reported at fair value
 
utilizing Level 1 inputs.
 
Other securities classified as
available for sale are reported at fair value utilizing Level 2 inputs.
 
For these securities, the Company obtains fair value measurements
from an independent pricing service.
 
The fair value measurements consider observable data that may include dealer quotes,
 
quotes, market
spreads, cash flows, the U.S. Treasury yield curve,
 
live trading levels, trade execution data, credit information and the bond’s
 
terms
and conditions, among other things.
25
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. TreasuryTreasur
y
 
obligations, federal agency bullet or mortgage pass-through securities,
 
securities, or
general obligation or revenue-based municipal bonds.
 
Pricing for such instruments is easily obtained.
 
At least annually,
the Company
will validate prices supplied by the independent pricing service by compari
 
ng them to prices obtained from an independent third-party
source.
Loans Held for Sale
.
 
The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined,
 
when possible,
using either quoted secondary-market prices or investor commitments.
 
If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of
 
that loan, which would be used by other market
participants.
 
The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
 
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics,
 
commonly referred to as best execution pricing, or
investor commitment prices for best effort IRLCs which have
 
unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate
 
originate the loans, and the pull-through rate,
and are therefore classified as Level 3 within the fair value hierarchy.
 
The fair value of forward sale commitments is based on
observable market pricing for similar instruments and are therefore
 
classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions
are classified as level 2 within the fair value hierarchy and are valued
using
models generally accepted in the financial services industry and
that use actively quoted or observable market input values from
external market data providers.
The fair value derivatives are determined using discounted cash flow models.
Fair Value
Swap
.
The Company entered into a stand-alone derivative contract with the purchaser of
its Visa Class B shares.
The
valuation represents the amount due and payable to the counterparty based upon
the revised share conversion rate, if any,
during the
period.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 2022,
0
amount was payable. At December 31, 2021, there was a $
0.1
million payable.
A summary of fair values for assets and liabilities consisted of the following:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Fair
 
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
September 30,March 31, 2022
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
180,013
$
0
$
0
$
180,013
U.S. Government Agency
0
224,435
0
224,435
States and Political Subdivisions
0
43,350
0
43,350
Mortgage-Backed Securities
0
86,063
0
86,063
Corporate Debt Securities
0
83,173
0
83,173
Other Securities
0
7,327
0
7,327
Loans Held for Sale
0
50,815
0
50,815
Interest Rate Swap Derivative
0
3,886
0
3,886
Mortgage Banking Hedge Derivative
0
850
0
850
Mortgage Banking IRLC Derivative
0
0
1,117
1,117
Mortgage Servicing Rights
0
0
7,177
7,177
December 31, 2021
ASSETS:
Securities Available for
 
Sale:
U.S. Government Treasury
$
164,047187,868
$
0
$
0
$
164,047187,868
U.S. Government Agency
0
250,472237,578
0
250,472237,578
States and Political Subdivisions
0
43,54646,980
0
43,54646,980
Mortgage-Backed Securities
0
97,20788,869
0
97,20788,869
Corporate Debt Securities
0
83,77786,222
0
83,77786,222
EquityOther Securities
(1)
0
6,7957,094
0
6,7957,094
Loans Held for Sale
0
77,03652,532
0
77,03652,532
Interest Rate Swap Derivative
0
1,9522,050
0
1,952
Mortgage Banking Hedge Derivative
0
451
0
4512,050
Mortgage Banking IRLC Derivative
0
0
1,7171,258
1,7171,258
Mortgage Servicing Rights
0
0
3,8304,718
3,830
December 31, 2020
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
104,519
$
0
$
0
$
104,519
U.S. Government Agency
0
208,531
0
208,531
States and Political Subdivisions
0
3,632
0
3,632
Mortgage-Backed Securities
0
515
0
515
Equity Securities
(1)
0
7,673
0
7,673
Loans Held for Sale
0
114,039
0
114,039
Interest Rate Swap Derivative
0
574
0
574
Mortgage Banking IRLC Derivative
0
0
4,825
4,8254,718
LIABILITIES:
Mortgage Banking Hedge Derivative
$
0
$
9077
$
0
$
907
(1)
Not readily marketable securities - reflected
in other assets.7
Mortgage Banking Activities
.
 
The Company had Level 3 issuances and transfers related to mortgage
 
banking activities of $
26.24.3
million
and $
38.613.6
 
million, respectively, for the
 
for the nine month period ending September 30, 2021three months ended March 31, 2022 and $
34.015.4
 
million and $
40.310.5
 
million,
respectively, for the
periodthree months ended March 1, 2020 to September 30, 2020.31, 2021.
 
Issuances are valued based on the change in fair value of the
underlying mortgage
loan from
inception of the IRLC to the balanceConsolidated Statement of Financial Condition
 
sheet 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
 
assets measured on a non-recurring basis.
 
27
Collateral Dependent Loans
.
 
Impairment for collateral dependent loans is measured using the fair
 
value of the collateral less selling
costs.
 
The fair value of collateral is determined by an independent valuation
 
or professional appraisal in conformance with banking
regulations.
 
Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market,
 
and the judgment and
estimation involved in the real estate appraisal process.
 
Collateral dependent loans are reviewed and evaluated on at least a quarterly
basis for additional impairment and adjusted accordingly.
 
Valuation
 
techniques are consistent with those techniques applied in prior
periods.
 
Collateral-dependent loans had a carrying value of $
2.61.5
 
million with a valuation allowance of $
0.1
 
million at September 30,March 31, 2022
2021 and $
7.12.8
 
million and $
0.10.2
 
million, respectively,
 
at December 31, 2020.2021.
27
Other Real Estate Owned
.
 
During the first ninethree months of 2021,2022, certain foreclosed assets, upon initial recognition,
 
were measured and
and reported at fair value through a charge-off
to the allowance
for credit losses based on the fair value of the foreclosed asset less
estimated cost to sell.
 
The fair value of the foreclosed asset is determined by an independent valuation
 
or 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 September 30, 2021,March 31, 2022, there was
0
 
valuation allowance for loan servicing rights
rights.compared to $
0.3
million valuation allowance at December 31, 2021.
 
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.
A summaryCash and Short-Term
Investments.
The carrying amount of estimated fair values of significant financial instruments consistedcash and short-term investments is used to approximate
 
of fair value, given
the following: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
September 30, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
73,132
$
73,132
$
0
$
0
Short-Term Investments
708,988
708,988
0
0
Investmenton a Recurring Basis – Securities Available
 
for SaleSale”.
645,844
164,047Loans.
481,797
The loan portfolio is segregated into categories and the fair value of each loan category is calculated
using present value
0techniques based upon projected cash flows and estimated discount
rates.
Pursuant to the adoption of ASU 2016-01,
Investment Securities, HeldRecognition and
Measurement of Financial Assets and Financial
Liabilities
, the values reported reflect the incorporation of a liquidity discount to Maturitymeet
341,228the objective of “exit price” valuation.
115,555Deposits.
228,730
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market
Accounts and Savings Accounts are the
0amounts payable on demand at the reporting date. The fair value of fixed maturity
certificates of deposit is estimated using present
Equity Securitiesvalue techniques and rates currently offered for deposits of
similar remaining maturities.
(1)Subordinated Notes Payable.
3,588
The fair value of each note is calculated using present value techniques,
based upon projected cash
0flows and estimated discount rates as well as rates being offered
3,588
0
Loans Held for Sale
77,036
0
77,036
0
Interest Rate Swap Derivative
1,952
0
1,952
0
Mortgage Banking Hedge Derivative
451
0
451
0
Mortgage Banking IRLC Derivative
1,717
0
0
1,717
Mortgage Servicing Rights
3,564
0
0
3,830
Loans, Net of Allowance for Credit Losses
$
1,919,925
$
0
$
0
$
1,919,442
LIABILITIES:
Deposits
$
3,465,962
$
0
$
3,327,728
$
0similar obligations.
Short-Term
 
Borrowingsand Long-Term
Borrowings.
51,410
The fair value of each note is calculated using present value techniques,
based upon
0projected cash flows and estimated discount rates as well as rates being offered
51,410
0
Subordinated Notes Payable
52,887
0
42,359
0
Long-Term Borrowings
1,610
0
1,681
0
for similar debt.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
28
A summary of estimated fair values of significant financial instruments consisted
of the following:
 
DecemberMarch 31, 20202022
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
67,91977,963
$
67,91977,963
$
0
$
0
Short-Term Investments
860,630790,465
860,630790,465
0
0
Investment Securities, Available
 
for Sale
324,870624,361
104,519180,013
220,351444,348
0
Investment Securities, Held to Maturity
169,939518,678
5,014279,892
170,161221,385
0
Equity Securities
(1)
855
0
855
0
Loans Held for Sale
114,03950,815
0
114,03950,815
0
Other Equity Securities
(1)(2)
3,5892,898
0
3,5892,898
0
Interest Rate Swap Derivative
5743,886
0
5743,886
0
Mortgage Banking Hedge Derivative
850
0
850
0
Mortgage Servicing Rights
4,001
0
0
7,177
Mortgage Banking IRLC Derivative
4,8251,117
0
0
4,825
Mortgage Servicing Rights
3,452
0
0
3,4511,117
Loans, Net of Allowance for Credit Losses
1,964,753
0
0
1,934,570
LIABILITIES:
Deposits
$
1,982,6103,765,507
$
0
$
0
$
1,990,740
LIABILITIES:
Deposits
$
3,217,560
$
0
$
3,217,6153,417,626
$
0
Short-Term
 
Borrowings
79,65430,865
0
79,65430,865
0
Subordinated Notes Payable
52,887
0
43,44945,336
0
Long-Term Borrowings
3,057806
0
3,174834
0
December 31, 2021
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
65,313
$
65,313
$
0
$
0
Short-Term Investments
970,041
970,041
0
0
Investment Securities, Available
for Sale
654,611
187,868
466,743
0
Investment Securities, Held to Maturity
339,601
113,877
225,822
0
Equity Securities
(1)
861
0
861
0
Loans Held for Sale
52,532
0
52,532
0
Other Equity Securities
(2)
2,848
0
2,848
0
Interest Rate Swap Derivative
2,050
0
2,050
0
Mortgage Servicing Rights
3,774
0
0
4,718
Mortgage Banking IRLC Derivative
1,258
0
0
1,258
Loans, Net of Allowance for Credit Losses
1,909,859
0
0
1,903,640
LIABILITIES:
Deposits
$
3,712,862
$
0
$
3,713,478
$
0
Short-Term
Borrowings
34,557
0
34,557
0
Subordinated Notes Payable
52,887
0
42,609
0
Long-Term Borrowings
884
0
938
0
Mortgage Banking Hedge Derivative
$
9077
0
$
907
$7
0
(1)
(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(Loss) Income
Balance as of January 1, 2022
$
(4,588)
$
1,530
$
(13,156)
$
(16,214)
Other comprehensive (loss) income during the period
(19,055)
1,370
156
(17,529)
Balance as of March 31, 2022
$
(23,643)
$
2,900
$
(13,000)
$
(33,743)
Balance as of January 1, 2021
$
2,700
 
$
428
 
$
(47,270)
 
$
(44,142)
Other comprehensive (loss) income during the period
 
(3,249)(1,458)
 
1,0291,587
 
1,635142
 
(585)271
Balance as of September 30,March 31, 2021
$
(549)1,242
 
$
1,4572,015
 
$
(45,635)(47,128)
 
$
(44,727)
Balance as of January 1, 2020
$
864
$
0
$
(29,045)
$
(28,181)
Other comprehensive income during the period
2,429
39
0
2,468
Balance as of September 30, 2020
$
3,293
$
39
$
(29,045)
$
(25,713)(43,871)
2930
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 20212022 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,"
 
"goal,vision," "goal," and similar expressions are intended to identify
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 20202021
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
 
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").
 
The Bank offers We offer
a broad array of products and services through
a total of 57 full-service offices
offices located in Florida, Georgia, and Alabama.
 
The Bank offers commercial and retail We provide a full range of
banking services, as well
as trustincluding traditional deposit and assetcredit
management, retail securities brokerage,
and life insurance.
We offer
residentialservices, mortgage banking, asset management, trust, merchant services, through Capital Citybankcards,
securities brokerage services and financial
Home Loans.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,
 
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
 
losses,operating expenses including income taxes, and noninterest
income such as deposit fees,mortgage banking revenues, wealth management fees, mortgage banking fees
 
deposit fees, and bank card fees, and operating expenses such asfees.
salaries and employee benefits, occupancy,We have included
 
and other operating expenses, including income taxes.
Aa detailed discussion regardingof the economic conditions in our markets and
our long-term strategic
objectives is included as part of the
the MD&A section of our 20202021 Form 10-K.
Acquisitions
 
On March 1, 2020, CCB completed its acquisition of a 51% membership
interest in Brand Mortgage Group, LLC (“Brand”) which is
now operated as a Capital City Home Loans (“CCHL”).
CCHL was consolidated into CCBG’s financial
statements effective March
1, 2020.
See Note 1 – Business Combination in the 2020 Form 10-K in the Consolidated Financial Statements.
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.
 
See Note 1 – Business and BasisA detailed discussion regarding the acquisition of Presentation.Capital City Strategic Wealth,
LLC is included as part of the MD&A section of our 2021 Form 10-K.
 
RESPONSE TO COVID-19 PANDEMICNON-GAAP FINANCIAL MEASURES
At this time, all of our banking offices have returned to normal bankingWe present a tangible
 
hourscommon equity ratio and lobby servicesa tangible book value per diluted share that, in each case, removes the
effect of
goodwill and some back-office associates
work remotely while others have returned to an office.other intangibles that resulted from merger
 
Althoughand 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 ongoing global and local responsesindustry.
The generally accepted
accounting principles (“GAAP”) to the COVID-19 pandemic
continue to impact our clients and associates as they adjust to the changing conditionsnon-GAAP reconciliation for
 
each quarter presented by the pandemic, we continue to
closely monitor COVID-19 and adjust our operations, as needed.
In addition, we have set a date (November 22, 2021) to comply with
a recent U.S. presidential directive to OSHA to have associates vaccinated
against COVID-19 or be tested weekly.is provided below.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
30
NON-GAAP FINANCIAL MEASURES
We present a tangible
common equity ratio and a tangible book value per diluted share that, in each case,
reduces shareowners’ equity
and total assets by the amount of goodwill and other identifiable intangi
ble assets resulting 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,
although the manner in which we calculate non-GAAP financial measures may
differ from that of other
companies reporting non-GAAP measures with similar names.
The GAAP to non-GAAP reconciliation for each quarter presented on
page 31 is provided below.2022
2021
2020
2019
(Dollars in Thousands, except per share data)
Third
Second
First
Fourth
Third
Second
First
Fourth
Shareowners' Equity (GAAP)
$
372,145
$
383,166
$
348,868
$
335,880
$
324,426
$Less: Goodwill and Other Intangibles (GAAP)
320,83793,213
$93,253
339,42593,293
$93,333
335,05789,095
$Tangible Shareowners' Equity (non-GAAP)
328,507A
$278,932
327,016289,913
255,575
242,547
235,331
Total Assets (GAAP)
4,310,045
4,263,849
4,048,733
4,011,459
3,929,884
Less: Goodwill and Other Intangibles (GAAP)
93,29393,213
93,333
89,095
89,095
89,095
89,095
89,275
84,811
Tangible Shareowners' Equity (non-GAAP)
A
255,575
242,547
235,331
231,742
250,330
245,962
239,232
242,205
Total Assets (GAAP)
4,048,733
4,011,459
3,929,884
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
Less: Goodwill and Other Intangibles (GAAP)93,253
93,293
93,333
89,095
89,095
89,095
89,095
89,275
84,811
Tangible Assets (non-GAAP)
B
$
4,216,832
$
4,170,596
$
3,955,440
$
3,918,126
$
3,840,789
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
Tangible Common
 
Equity Ratio (non-GAAP)
A/B
6.61%
6.95%
6.46%
6.19%
6.13%
6.25%
7.16%
7.21%
7.98%
8.06%
Actual Diluted Shares Outstanding (GAAP)
C
16,962,362
16,935,389
16,911,715
16,901,375
16,875,719
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
Diluted Tangible Book Value
 
per Diluted Share (non-GAAP)
 
A/C
16.44
17.12
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3132
SELECTED QUARTERLY
 
FINANCIAL DATA
 
(UNAUDITED)
(Dollars in Thousands, Except
20212022
2020
20192021
Per Share Data)
Third
Second
First
Fourth
Third
Second
First
Fourth
Summary of Operations
:
Interest Income
$
25,438
$
25,549
$
28,520
$
26,836
$
25,446
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
Interest Expense
742
838
848
856
948
1,181
1,044
1,054
1,592
1,754
Net Interest Income
24,696
24,711
27,672
25,980
24,498
24,973
25,122
25,458
25,773
26,254
Provision for Credit Losses
-
-
-
(571)
(982)
1,342
1,308
2,005
4,990
(162)
Net Interest Income After
 
Provision for Credit Losses
24,696
24,711
27,672
26,551
25,480
23,631
23,814
23,453
20,783
26,416
Noninterest Income
25,818
24,672
26,574
26,473
29,826
30,523
34,965
30,199
15,478
13,828
Noninterest Expense
(1)39,233
40,207
39,702
42,123
40,476
41,348
40,342
37,303
30,969
29,142
Income
 
Before
 
Income Taxes
11,281
9,176
14,544
10,901
14,830
12,806
18,437
16,349
5,292
11,102
Income Tax Expense
2,235
2,040
2,949
2,059
2,787
2,833
3,165
2,950
1,282
2,537
(Income) LossIncome Attributable to NCI
(591)
(764)
(1,504)
(1,415)
(2,537)
(2,227)
(4,875)
(4,253)
277
-
Net Income Attributable to CCBG
8,455
6,372
10,091
7,427
9,506
7,746
10,397
9,146
4,287
8,565
Net Interest Income (FTE)
$24,774
24,790
27,750
$
26,064
$
24,607
$
25,082
$
25,233
$
25,564
$
25,877
$
26,37824,606
 
Per Common Share
:
Net Income Basic
$
0.50
$
0.38
$
0.60
$
0.44
$
0.56
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
Net Income Diluted
0.50
0.38
0.60
0.44
0.56
0.46
0.62
0.55
0.25
0.51
Cash Dividends Declared
0.16
0.150.16
0.16
0.15
0.15
0.14
0.14
0.14
0.13
Diluted Book Value
21.94
22.63
20.63
19.87
19.22
19.05
20.20
19.92
19.50
19.40
Diluted Tangible Book Value
(2)(1)
16.44
17.12
15.11
14.35
13.94
13.76
14.90
14.62
14.20
14.37
Market Price:
 
High
28.88
29.00
26.10
27.39
28.98
26.35
21.71
23.99
30.62
30.95
 
Low
25.96
24.77
22.02
24.55
21.42
18.14
17.55
16.16
15.61
25.75
 
Close
26.36
26.40
24.74
25.79
26.02
24.58
18.79
20.95
20.12
30.50
 
Selected Average Balances
:
Loans Held for Investment
$
1,963,578
$
1,948,324
$
1,974,132
$
2,036,781
$
2,044,363
$
1,993,470
$
2,005,178
$
1,982,960
$
1,847,780
$
1,834,085
Earning Assets
3,938,824
3,791,313
3,693,123
3,623,910
3,497,929
3,337,409
3,223,838
3,016,772
2,751,880
2,694,700
Total Assets
4,266,775
4,127,937
4,026,613
3,956,349
3,821,521
3,652,436Deposits
3,539,3323,714,062
3,329,226
3,038,788
2,982,204
Deposits3,549,145
3,447,688
3,387,352
3,239,508
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
Shareowners’ Equity
383,956
350,140
341,460
329,040
326,330
343,674
340,073
333,515
331,891
326,904
Common Equivalent Average Shares:
 
Basic
16,931
16,880
16,875
16,858
16,838
16,763
16,771
16,797
16,808
16,750
 
Diluted
16,946
16,923
16,909
16,885
16,862
16,817
16,810
16,839
16,842
16,834
Performance Ratios:
Return on Average Assets
 
0.80
%
0.61
%
0.99
%
0.75
%
1.01
%
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
Return on Average Equity
8.93
7.22
11.72
9.05
11.81
8.97
12.16
11.03
5.20
10.39
Net Interest Margin (FTE)
2.55
2.60
2.98
2.89
2.85
3.00
3.12
3.41
3.78
3.89
Noninterest Income as % of
 
Operating Revenue
51.11
49.96
48.99
50.47
54.90
55.00
58.19
54.26
37.52
34.50
Efficiency Ratio
77.55
81.29
73.09
80.18
74.36
74.36
67.01
66.90
74.89
72.48
 
Asset Quality:
Allowance for Credit Losses ("ACL")
$
20,756
$
21,606
$
21,500
$
22,175
$
22,026
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
ACL to Loans HFI
1.05
%
1.12
%
1.11
%
1.10
%
1.07
%
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
Nonperforming Assets (“NPAs”)
2,745
4,339
3,218
6,302
5,472
6,679
6,732
8,025
6,337
5,425
NPAs to Total
 
Assets
0.06
0.10
0.08
0.16
0.14
0.18
0.19
0.23
0.21
0.18
NPAs to Loans HFI plus OREO
0.14
0.22
0.17
0.31
0.27
0.33
0.34
0.40
0.34
0.29
ACL to Non-Performing Loans
760.83
499.93
710.39
433.93
410.78
405.66
420.30
322.37
432.61
310.99
Net Charge-Offs to Average
 
Loans HFI
0.16
0.02
0.03
(0.07)
(0.10)
0.09
0.11
0.05
0.23
0.05
Capital Ratios:
Tier 1 Capital
15.98
%
16.14
%
15.69
%
15.44
%
16.08
%
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
Total Capital
16.98
17.15
16.70
16.48
17.20
17.30
17.88
17.60
17.19
17.90
Common Equity Tier 1
13.77
13.86
13.45
13.14
13.63
13.71Leverage
14.208.78
14.01
13.55
14.47
Leverage8.95
9.05
8.84
8.97
9.33
9.64
10.12
10.81
11.25
Tangible Common Equity
(2)(1)
6.61
6.95
6.46
6.19
6.13
6.25
7.16
7.21
7.98
8.06
(1)
Includes partial pension settlement charges of
$0.5 million, or $0.02/share, for the third
quarter of 2021 and $2.0 million (pre-tax), or
$0.10/share (after-tax) for the second quarter
of 2021.
(2)
Non-GAAP financial measure.
 
See non-GAAP reconciliation on page 30.31.
3233
FINANCIAL OVERVIEW
Results of Operations
Performance Summary.Summary
.
 
Net income attributable to common shareowners of $10.1$8.5 million, or $0.60
$0.50 per diluted share, for the third first
quarter of 2021
2022 compared to net income
of $7.4$6.4 million, or $0.44$0.38 per diluted share,
for the fourth quarter of 2021, and $9.5 million, or
$0.56 per diluted share, for the secondfirst quarter of 2022021.
 
1, and $10.4 million, or $0.62 per diluted share, for the third
quarter of 2020.
For the first nine months of 2021, net income totaled $27.0 million, or $1.60 per
diluted share, compared to net
income of $23.8 million, or $1.42 per diluted share, for the same period of 2020.
Net income for 2021 included partial pre-tax pension
settlement charges totaling $2.5 million (3Q - $0.5 million
and 2Q - $2.0 million), or $0.12 per diluted share (after tax).
Net Interest Income.Income
.
 
Tax-equivalent net
 
interest income for the thirdfirst quarter of 20212022 totaled $24.8 million, comparable
 
was $27.7 million compared to $26.1 million forthe fourth
the second quarter of 2021, and $25.2$24.6 million for the thirdfirst quarter of 2020.
For the first nine months of 2021, tax-equivalent net
interest income totaled $78.4 million compared to $76.7 million for the
same period of 2020.
Higher SBA PPP fees/interest and a
better earning asset mix drove the improvement over the second quarter
of 2021.
 
ForCompared to the nine month period,fourth quarter of 2021, higher rates on overnight
funds and growth in the increase generallyinvestment portfolio was offset
by two less calendar days during the quarter.
Compared to the first quarter of
reflected higher SBA PPP loan fees/2021, interest and lowerincome grew as a result of our larger investment portfolio,
in addition to a reduction in interest expense, partially offset
offset by lower rates earned on investment securitiesloan fees.
and variable/adjustable rate loans.
Provision and Allowance for Credit
 
Losses.
 
We did not
Arecord a provision for credit losses was not recorded for the thirdfirst quarter of 2021.2022 or
 
This
compares to a negative provision of $0.6 million for the second quarter of 2021
and provision expense of $1.3 million for the thirdfourth
quarter of 2020.
For the first nine months of 2021 weand recorded a negative provision of $1.6$1.0 million for
 
compared
to provision expensethe first quarter of
$8.3 million for the same period of 2020. 2021.
 
The negativelack of provision for the first nine months
quarter of 2021 generally2022 reflected improving
economic conditions,continued strong credit quality and slight improvement
 
favorable loan migration and strong net loan recoveries totaling $0.7 million.
Noninterest Income.in the forecasted level of unemployment.
 
Noninterest Income
.
Noninterest income for the thirdfirst quarter of 2022 totaled $25.8 million, an increase
of $1.1 million, or 4.5%, over
the fourth quarter of 2021 totaled $26.6and a decrease of $4.0 million, comparedor 13.4%, from
 
to $26.5 million for the secondfirst quarter of 2021.
The increase over the fourth
quarter of 2021 was due to higher wealth management fees, primarily
insurance revenues.
The decline from the first quarter 2021 was
driven by lower mortgage banking revenues (largely
attributable to lower loan refinancing activity and $35.0 milliona lower gain on
sale margin)
that were partially offset by higher activity based fees
(deposit and bank card).
Noninterest Expense
.
Noninterest expense for the thirdfirst quarter of 2020.2022 totaled $39.2 million, a decrease of $1.0
million, or 2.4%, from
the fourth quarter of 2021 and a $1.3 million, or 3.1%, decrease from
the first quarter of 2021.
 
The slight increase overdecrease from the second fourth quarter of
2021 was primarily attributable to a decrease in other miscellaneous expense,
primarily pension expense.
The decrease from the first
quarter of 2021 was primarily due
to higher deposit fees of $0.8 million and wealth management fees of
$0.3 million, partially offsetdriven by lower mortgage banking
revenues of $0.9 million. commissions and
 
For the first nine months of 2021, noninterest income totaled $82.9 million
compared to $80.6 million forpension expense. These favorable variances were partially
the same period of 2020 with the increase drivenoffset by higher wealth managementinsurance commissions, associate benefits,
 
fees of $2.0 million, bank card fees of $1.8 million,
deposit fees of $0.5 million,other real estate and other income of $0.9 million (primarily
loan servicing income at CCHL), partially offset by lower
mortgage banking revenues of $3.0 million.miscellaneous expenses.
 
Noninterest Expense.
Noninterest expense for the third quarter of 2021 totaled $39.7 million compared
to $42.1 million for the second
quarter of 2021 and $40.3 million for the third quarter of 2020.
The $2.4 million decrease from the second quarter of 2021 reflected a
pension settlement charge of $2.0 million in the second quarter of
2021 versus $0.5 million in the third quarter of 2021.
In addition,
OREO expense declined by $0.9 million due to a gain on the sale of a banking
office in the third quarter of 2021.
For the first nine
months of 2021, noninterest expense totaled $122.3 million compared
to $108.6 million for the same period of 2020.
The $13.7
million increase was attributable to the addition of expenses at CCHL (acquired
March 1, 2020) of $6.7 million as well as higher
expenses at the core bank totaling $7.0 million driven primarily by
partial pension settlement charges of $2.5 million, annual merit
raises, debit card processing costs (volume related),
and professional fees, and FDIC insurance.
 
Financial Condition
Earning Assets.
 
Average earning assets weretotaled
 
$3.6933.939 billion for the thirdfirst quarter of 2021,2022, an increase of $69.2$147.5 million,
 
or 1.9%3.9%, over
over the secondfourth quarter of 2021, and an increase of $355.7$440.9 million, or 10.7% over
 
12.6%, over the fourthfirst quarter of 2020.2021.
 
The increase over both priorthe
periodsfourth quarter of 2021 was primarily attributable to seasonal growth
in our public fund deposits. The increase compared to the first
quarter of 2021 was primarily driven by higher deposit balances, which funded growth
in the investment portfolio.
Deposit balances increased
as a result of strong core deposit growth, in addition to funding retained
at the bank from SBA PPP loans, and various other stimulus
programs.balances.
 
Loans
.
 
Average loans held for investment
 
(“HFI”) decreased $62.6increased $15.3 million, or 3.1%0.8%, from the second quarter of
2021 and $19.3
million, or 1.0%, fromover the fourth quarter of 2020.2021
 
and decreased
$80.8 million, or 4.0%, from the first quarter of 2021. Excluding small business
(“SBA PPPPPP”) loans, average loans HFI increased $34.9
$18.8 million and $125.2
million and period end loans increased $5.1 million and $102.8
million, respectively, over the
prior periods. Compared to the second
quarter of 2021, the increase in period end loans reflected growth in construction
and indirect loans, partially offset by a decline in
commercial real estate.
Comparedcompared to the fourth quarter of 2020, we realized2021, and increased $115.9
million compared to the first quarter of 2021.
New loan
production strengthened in the latter part of the first quarter of 2022 resulting
in period end loan growth in construction, residential,
commercial realof $54 million over the fourth
estate and indirect loans.quarter of 2021.
 
Credit Quality
.
 
Overall credit quality is strong and continues to improve.
Nonaccrual loans totaled $3.0$2.7 million (0.16% of HFI loans) at September 30, 2021March 31, 2022, a
$1.6
 
compared to $5.1 million (0.25%
of HFI loans) at June 30,decrease from December 31, 2021 and $5.9a $2.7 million (0.29%decrease from March 31, 2021.
At March 31, 2022 and December
31, 2021, nonaccrual loans as a percentage of HFI loans) attotal loans was 0.13% and 0.21%,
 
December 31, 2020.
respectively. Classified loans totaled $16.3increased
$4.4 million
$19.4 million,over the fourth quarter of 2021 and $17.6reflected one loan relationship that
 
millionis in the loan workout process and has been reserved for at the same respective periods.
March 31, 2022.
 
Deposits
.
 
Average total
 
deposits increased $60.3were $3.714 billion for the first quarter of 2022, an increase of $164.9 million,
or 4.6%, over the
fourth quarter of 2021 and $474.6 million, or 1.8%14.6%, over the secondfirst quarter of 2021,
 
andof 2021.
 
$381.6 million, or 12.4%,
Growth over the fourth quarter of 2020.2021 was
primarily attributable to an increase in seasonal public fund deposits. Various
 
Over the past 12 months, multiple government stimulus programs havecontributed to the year
over year increase.
 
been implemented, including
the CARES Act and the American Rescue Plan Act, which are responsibleCapital
.
 
forAt March 31, 2022, we were well-capitalized with a large portiontotal risk-based capital
ratio of this growth.16.98% and a tangible common equity
ratio (a non-GAAP financial measure) of 6.61% compared to 17.15%
and 6.95%, respectively,
at December 31, 2021 and 17.20% and
6.13%, respectively, at March
31, 2021.
At March 31, 2022, all of our regulatory capital ratios exceeded the threshold to be well-
capitalized under the Basel III capital standards.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
33
Capital
.
At September 30, 2021, we were well-capitalized with a total risk-based capital ratio
of 16.70% and a tangible common
equity ratio (a non-GAAP financial measure) of 6.46% compared to
16.48% and 6.19%, respectively,
at June 30, 2021 and 17.30%
and 6.25%, respectively,
at December 31, 2020.
At September 30, 2021, all of our regulatory capital ratios exceeded the threshold
to
be well-capitalized under the Basel III capital standards.
34
RESULTS
 
OF OPERATIONS
The following table providesNet Income
For the first quarter of 2022, we realized net income attributable to common
shareowners of $8.5 million, or $0.50 per diluted share,
compared to net income of $6.4 million, or $0.38 per diluted share, for the fourth quarter
of 2021, and $9.5 million, or $0.56 per
diluted share, for the first quarter of 2021.
For the first quarter of 2022, we realized income before income taxes of
$11.3 million compared to $9.2 million for
the fourth quarter
of 2021 and $14.8 million for the first quarter of 2021. Compared to
the fourth quarter of 2021, the $2.1 million increase was
attributable to a $1.1
million increase in noninterest income and lower noninterest expense of
$1.0 million. Compared to the first
quarter of 2021, the $3.5 million decrease in income before income taxes
was attributable to a $4.0 million decrease in noninterest
income and a $1.0 million increase in the provision for credit losses that was partially offset
by lower noninterest expense of $1.3
million and higher net interest income of $0.2 million.
A condensed earnings summary of each major component of our results of operationsfinancial
 
- a discussion of the various components are discussed
in further detail below.
performance is provided below:
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands, except per share data)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Interest Income
$
28,52025,438
$
26,83625,549
$
26,166
$
80,802
$
80,04325,446
Taxable Equivalent Adjustments
78
8479
111
270
321108
Total Interest Income (FTE)
28,59825,516
26,92025,628
26,277
81,072
80,36425,554
Interest Expense
848742
856838
1,044
2,652
3,690948
Net Interest Income (FTE)
27,75024,774
26,06424,790
25,233
78,420
76,67424,606
Provision for Credit Losses
-
(571)-
1,308
(1,553)
8,303(982)
Taxable Equivalent Adjustments
78
8479
111
270
321108
Net Interest Income After Provision for Credit Losses
27,67224,696
26,55124,711
23,814
79,703
68,05025,480
Noninterest Income
26,57425,818
26,47324,672
34,965
82,873
80,64229,826
Noninterest Expense
39,70239,233
42,12340,207
40,342
122,301
108,61440,476
Income Before Income Taxes
14,54411,281
10,9019,176
18,437
40,275
40,07814,830
Income Tax Expense
2,9492,235
2,0592,040
3,1652,787
7,795
7,397
Pre-Tax Income Attributable to Noncontrolling
Interest Interests
(1,504)(591)
(1,415)(764)
(4,875)
(5,456)
(8,851)(2,537)
Net Income Attributable to Common Shareowners
$
10,0918,455
$
7,4276,372
$
10,397
$
27,024
$
23,8309,506
 
Basic Net Income Per Share
$
0.600.50
$
0.440.38
$
0.62
$
1.60
$
1.420.56
Diluted Net Income Per Share
$
0.600.50
$
0.440.38
$
0.62
$
1.60
$
1.420.56
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
 
local government debt obligations.
 
We provide an analysis of
our net interest income including average yields and rates in Table
 
I on page 43.44.
Tax-equivalent net
 
interest income for the third first quarter of 2022 totaled $24.8 million, comparable to the fourth
quarter of 2021, totaled $27.7 million comparedand
to $26.1$24.6 million for the second quarter
of 2021 and $25.2 million for the thirdfirst quarter of 2020.2021.
 
Compared to the secondfourth quarter of 2021, the increase reflected higher
loan
fees of $1.3 million (SBA PPP loan fees increased $1.0 million) and
higher investment securities income of $0.3 million, which
reflected deployment of excessrates on overnight funds into the investment portfolio.and growth
 
Also, as compared toin the second quarter of 2021, lower
loan interest income from SBA PPP loansinvestment portfolio was offset by loan interesttwo less calendar days during
 
income from growth in non-SBA PPP loans.the quarter.
 
Compared to the
third first quarter of 2020, the increase was primarily attributable to higher SBA PPP loan fees2021, interest income
grew as a result of our larger investment portfolio and a reduction
 
of $2.5
million.
For the first nine months of
2021, tax-equivalent netin interest income totaled $78.4 million compared
to $76.7 million for the same period of 2020.
The increase
generally reflected higher SBA PPP loan fees/interest and lower interest expense,
partially offset by lower rates earned on investmentloan fees.
securities and variable/adjustable rate loans.
Our net interest margin for the thirdfirst quarter of 20212022 was 2.98%2.55%, an increasea decrease
 
of ninefive basis points overfrom the secondfourth quarter of 2021 and a
decrease of 1430 basis points from the thirdfirst quarter of 2020.2021.
 
Compared to the second quarter of 2021, the increase was primarily driven
by higher SBA PPP loan fees/interest.
Compared to the third quarter of 2020,both prior periods, the decrease was primarily attributable to
to growth in
earning assets (driven by deposit inflows), which negatively
impacted our
margin percentage.
For the first nine months of 2021, the
net interest margin decreased 51 basis points to 2.91%,
which generally reflected growth in earning assets.
Our net interest margin
for
the thirdfirst quarter of 2021,2022, excluding the impact of overnight funds
in excess of $200
million, was 3.50%3.11%.
 
Due to highly competitive fixed-rate loan pricing in our markets, we continue
 
to review our loan pricing and make adjustments where
we believe appropriate and prudent.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3435
Provision for Credit Losses
We did not
 
record a provision for credit losses for the thirdfirst quarter of 2022 or the fourth quarter of 2021
and recorded a provision
benefit of $1.0 million for the first quarter of 2021.
 
This compares to a negative provisionThe lack of $0.6 million for
the second quarter of 2021 and provision expense of $1.3 million for the third
quarter of 2020.
For the first nine months of 2021, we
recorded a negative provision of $1.6 million compared to provision
expense of $8.3 million for the same period of 2020.
The negative provision for the first nine monthsquarter of 2022 reflected continued strong
credit
quality and slight improvement in the forecasted level of unemployment.
The provision benefit for the first quarter of 2021 generally
reflected
improving economic conditions and strong net loan
recoveries totaling $0.7a lower level of expected
 
million.losses related to COVID-19.
 
We discuss the allowance
 
for
credit losses further below.
 
For more information on charge-offs and
recoveries, see Note 3 – Loans Held for Investment and Allowance for
Credit Losses.
Noninterest Income
Noninterest income for the thirdfirst quarter of 20212022 totaled $26.6$25.8 million compared
 
to $26.5$24.7 million for the secondfourth quarter of 2021 and
$35.029.8 million for the thirdfirst quarter of 2020.2021.
 
The slight increase over the secondfourth quarter of 2021 was primarily dueattributable to higher depositwealth
fees of $0.8 million and wealth management fees of $0.3$2.1 million that were partially offset by
 
offset by lower mortgage banking revenues of $0.9 million.
 
The increase in
The $8.4 million decrease fromwealth management fees was attributable to higher insurance commission
revenues. Lower loan production and a slightly lower gain
on sale margin drove the thirddecline in mortgage banking
revenues. Compared to the first quarter of 20202021, the decline was primarilydue to lower
mortgage banking revenues attributable to lower mortgage banking revenues at CCHL of
$10.7 million, partially offset by higher deposit feesloan production (primarily
 
of $0.8 million, wealth management fees of $0.8 million,refinancing activity) and bank card
fees of
$0.4 million.
For the first nine months of 2021, noninterest income totaled $82.9 million
compared to $80.6 million for the same
period of 2020 with the increase driven by higher wealth management
fees of $2.0 million, bank card fees of $1.8 million, deposit fees
of $0.5 million, and other income of $0.9 million (primarily loan servicing
income at CCHL), partially offset bya lower mortgage
banking revenues of $3.0 million.gain on sale margin.
 
Noninterest income represented 49.0%51.1% of operating revenues (net interest
 
interest income plus noninterest income) infor the thirdfirst quarter of 20212022
compared to 50.5% in50.0% for the secondfourth quarter of 2021 and 58.2% in the third quarter
of 2020.
For54.9% for the first nine monthsquarter of 2021,
noninterest income represented 51.5% of operating revenues compared
to 51.4% for the same period of 2020.
2021.
The table below reflects the major components of noninterest income.income to help
 
facilitate a better understanding of the period over period
comparison.
 
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Deposit Fees
$
5,0755,191
$
4,2365,300
$
4,316
$
13,582
$
13,0874,271
Bank Card Fees
3,7863,763
3,9983,872
3,389
11,402
9,5823,618
Wealth Management
 
Fees
3,6236,070
3,2743,922
2,808
9,987
7,9663,090
Mortgage Banking Revenues
12,2838,946
13,2179,800
22,983
42,625
45,63317,125
Other
1,8071,848
1,7481,778
1,469
5,277
4,3741,722
Total
 
Noninterest Income
$
26,57425,818
$
26,47324,672
$
34,965
$
82,873
$
80,64229,826
Significant components of noninterest income are discussed in more
 
detail below.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $12.3 million for the third quarter of 2021
compared to $13.2
million for the second quarter of 2021 and $23.0 million for the third
quarter of 2020.
For the nine months of 2021, revenues totaled
$42.6 million compared to $45.6 million for the same period of 2020.
Compared to the second quarter of 2021 and third quarter of
2020, the decrease was attributable to lower production volume and a
lower gain on sale margin.
The decrease from the nine month
period of 2020 was primarily attributable to a lower gain on sale margin.
Additional information on our mortgage banking subsidiary,
CCHL, is provided on page 36.
Deposit Fees
.
Deposit fees for the thirdfirst quarter of 20212022 totaled $5.1$5.2 million, an increasea decrease of $0.1
 
of $0.8 million, or 19.8%2.1%, overfrom the secondfourth
quarter of 2021 and an increase of $0.8$0.9 million, or 17.6%, over the
third quarter of 2020.
For the first nine months of 2021, deposit
fees totaled $13.6 million, an increase of $0.5 million, or 3.8%21.5%, over the same periodfirst quarter of
 
of 2020.2021.
 
Compared to all prior periods,The decline from the fourth quarter of 2021
increase was primarily attributable to higher monthly service chargereflects two less days of processing.
 
The increase over the first quarter of 2021 reflected higher account
maintenance fees which reflectedattributable
to the third quarter 2021 conversion of the remaining free
checking accounts
to a monthly maintenance fee account type.
types.
Bank Card Fees
.
 
Bank card fees for the thirdfirst quarter of 20212022 totaled $3.8 million, a $0.2 decrease of $0.1
million, or 5.3%2.8%,
decrease from the secondfourth
quarter of 2021 and a $0.4 million, or 11.7
%, increase over the third quarter of 2020.
For the first nine months of 2021, bank card
fees totaled $11.4 million, an increase of $1.8
$0.2 million, or 19.0%4.0%, over the same period first quarter
of 2020.2021.
The decline from the fourth quarter of 2021
reflects two less days of processing.
 
The increase over the prior yearfirst quarter of 2021 was primarily attributable
to growth in checking
periods generally reflectedaccounts.
Wealth
Management Fees
.
Wealth management fees,
which include both trust fees (i.e., managed accounts and trusts/estates), retail
brokerage fees (i.e., investment,
insurance products, and retirement accounts), and insurance commission
revenues,
totaled $6.1
million for the first quarter of 2022, an increase in card-not-present debit cardof $2.1 million or 54.8%, over the
 
transactions as well increased consumer spending.fourth quarter of 2021 and an increase of $3.0
million, or 96.5%, over the first quarter of 2021.
Insurance commission revenues was the primary driver of the increase over
both
prior periods.
Higher retail brokerage fees also contributed to the increase over the first quarter of 2021.
At March 31, 2022, total
assets under management were approximately $2.329 billion compared
to $2.324 billion at December 31, 2021 and $2.088 billion at
March 31, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
35
Wealth
Management FeesMortgage Banking Revenues
.
 
Wealth management fees,
which include both trust fees (i.e., managed accounts and trusts/estates) and
retail brokerage fees (i.e., investment,
insurance products, and retirement accounts)
Mortgage banking revenues totaled $3.6$8.9 million for the thirdfirst quarter of 2021, a
$0.3
 
2022, a decrease of $0.9 million,
or 10.7%8.7%, increase overfrom the secondfourth quarter of 2021 and a $0.8decrease of $8.2 million, or 29.0%, increase47.
 
over8% from the thirdfirst quarter of 2020.
For the first nine months of 2021, wealth management fees totaled
$10.0 million, an increase of $2.0 million, or 25.4%, over the same
period of 2020.2021.
 
The favorable variances versus all prior periods reflected higher assets under
management and increased tradingdecrease from
activity by our retail brokerage clients.
At September 30, 2021, total assets under management were approximately
$2.24 billion
compared to $1.979 billion at December 31, 2020 and $1.823 billion
at September 30, 2020.
Other.
Other income for the thirdfourth quarter of 2021 totaled $1.8 million,reflected lower loan production and a $0.1 million, orslightly lower gain on
 
3.4%, increase oversale margin.
Compared to the secondfirst quarter of
2021, the decline was due to lower loan production (largely
refinancing activity),
and $0.3a lower gain on sale margin.
We provide a
detailed overview of our mortgage banking operation, including
a detailed break-down of mortgage banking revenues, mortgage
servicing activity,
and warehouse funding within Note 4 - Mortgage Banking Activities in the Notes to
Consolidated Financial
Statements.
Production volume totaled $247 million or 23.0%, overfor the thirdfirst quarter of 2020.2022,
 
For$294 million for the fourth quarter of 2021,
and
$463 million for the first nine monthsquarter of 2021.
Refinancing activity represented 21% of loan production for the first quarter of 2022,
24%
for the fourth quarter of 2021, other income totaled $5.3 million,
an increaseand 40% for the first quarter of $0.92021.
 
CCHL contributed approximately $0.4 million or 20.6%, overto CCBG
consolidated earnings in the same periodfirst quarter of 2020.2022 compared to $0.5 million in the fourth
 
The increase over both prior year periods was primarilyquarter of 2021, and $1.6 million in the first
attributable to higher loan servicing fees at CCHL.quarter of 2021.
 
Noninterest Expense
Noninterest expense for the thirdfirst quarter of 20212022 totaled $39.7$39.2 million compared
 
compared to $42.1$40.2 million for the secondfourth quarter of 2021 and
$40.340.5 million for the third quarter of 2020.
The $2.4 million decrease from the second quarter of 2021 reflected a pension settlement
charge of $2.0 million in the second quarter of 2021 versus $0.5
million in the thirdfirst quarter of 2021.
 
In addition, OREO expense
declined by $0.9 million due to a gain onThe decrease from the sale of a banking office
in the thirdfourth quarter of 2021.2021 was primarily attributable
to lower other
expense of $1.2 million which included a $1.6 million decrease in pension
expense (reflected in miscellaneous expense).
Salary
expense increased $0.1 million and reflected higher variable commission
expense (higher insurance of $0.7 million partially offset by
lower mortgage banking of $0.6 million).
 
Compared to the thirdfirst quarter of
2020, 2021, the $0.6 million decrease was primarily attributable
to lower compensation
salary expense of $0.9$1.8 million, (primarily incentiveprimarily lower variable commission expense
compensation at CCHL) and OREO expense(lower mortgage banking of $1.3$2.6 million partially offset
offset by higher otherinsurance of $0.8 million).
Associate benefits expense increased by $0.6 million and reflected higher
insurance expense
attributable to utilization of self-insurance reserves in 2021.
Pension expense declined by $1.0 million, and a pension
settlement charge of $0.5 million.but was substantially offset
 
For the first nine months of 2021, noninterest expense totaled $122.3 million
compared to $108.6by
millionhigher expenses for the same period of 2020.other real estate and other miscellaneous.
 
The $13.7 million increase was attributable to the addition of expenses at CCHL of $6.7
milliondecrease in pension expense in 2022 generally reflected a higher
as well as higher expenses at the core bank totaling $7.0 million.
The increase in expenses at the core bank were primarily due to
higher compensation expense of $1.5 million (primarily merit raises), processing
fees of $0.6 million (debit card volume), professional
fees of $0.5 million, occupancy expense of $0.4 million, and FDIC insurance of
$0.4 million (higher asset size), partially offset by
lower OREO expense of $1.1 million (gains from the sale of two banking offices).
In addition, we have realized pension settlement
charges totaling $2.5 million so far in 2021 and other expense
increased $1.5 million which reflected higher expense for our
base
pension plan attributable to the utilization of a lower discount rate used in 2022 for determining plan liabilities and
 
liabilities.strong asset returns in 2021.
The table below reflects the major components of noninterest expense to
help facilitate a better understanding of the year over year
comparison.
The table below reflects the major components of noninterest expense.
 
Three Months Ended
Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(Dollars in Thousands)
March 31, 2022
December 31, 2021
March 31, 2021
2020
2021
2020
Salaries
$
21,06020,664
 
$
21,11720,587
 
$
22,356
$
64,625
$
58,06322,447
Associate Benefits
4,1854,192
4,2614,196
3,808
12,062
11,4953,617
Total Compensation
 
25,24524,856
25,37824,783
26,164
76,687
69,55826,064
 
Premises
2,7362,759
2,7142,671
2,763
8,209
7,7752,759
Equipment
3,2963,334
3,2593,289
3,143
9,763
8,9083,208
Total Occupancy
6,0326,093
5,9735,960
5,906
17,972
16,6835,967
 
Legal Fees
251349
321280
343
1,130
1,224558
Professional Fees
1,4591,332
1,4061,438
1,175
4,195
3,6301,330
Processing Services
1,7751,637
1,7941,455
1,529
5,114
4,5331,545
Advertising
645773
631658
825
2,025
2,208749
Telephone
731728
754736
683
2,239
2,120755
Insurance - Other
509510
545541
434
1,555
1,150501
Other Real Estate Owned, net
 
(1,126)25
(270)26
219
(1,514)
(463)(118)
Pension Settlement
500209
2,000
-
2,500572
-
Miscellaneous
3,6812,721
3,5913,758
3,064
10,398
7,9713,125
Total Other
 
8,4258,284
10,7729,464
8,272
27,642
22,3738,445
Total
 
Noninterest Expense
 
$
39,70239,233
 
$
42,12340,207
 
$
40,342
$
122,301
$
108,614
3640,476
Significant components of noninterest expense are discussed in
more detail below.
below.
37
Compensation
.
 
Compensation expense totaled $25.2$24.9 million for the thirdfirst quarter of 2021 compared2022, an increase
 
to $25.4of $0.1 million, foror less than
1.0%, over the second
fourth quarter of 2021 and $26.2a decrease of $1.2 million, for
or 4.6%, from the thirdfirst quarter of 2020.
For the first nine months of 2021, compensation expense totaled $76.7
million compared to $69.6 million for the same period of 2020.2021.
 
Compared to the third fourth
quarter of 2020,2021, the $1.0$0.1 million decrease isincrease in salary expense was primarily
attributable to higher commission expense of $0.7 million
primarily duerelated to higher insurance revenues that was partially offset
by lower commission expense of $0.6 million related to lower incentive compensation at CCHL.mortgage
banking revenues.
Compared to the first quarter of 2021, the decrease reflected lower salary expense
of $1.8 million partially offset
by higher associate benefit expense of $0.6 million.
 
The $7.1 decline in salary expense reflected lower commission expense of $2.6
million related to mortgage banking revenues partially offset
by higher commission expense of $0.9 million related to insurance
revenues.
The increase for the nine month periodin associate benefits expense was attributable to higher associate insurance expense
compensation expense added through the CCHL acquisition on March–
 
1, 2020.for the first quarter of
2021
 
Core CCBG compensationwe did not recognize expense increased $1.5
million primarily due to merit raises.the utilization of reserves related to our self-insured
 
plan.
OccupancyOccupancy.
.
 
Occupancy expense (including premises and equipment) totaled $6.0 $6.1
million for the thirdfirst quarter of 2022, an increase of
$0.1 million or 2.2% over the fourth quarter of 2021 which was comparand an increase
 
able toof $0.1 million, or 2.1%, over the second quarter of
2021 and $5.9 million for the thirdfirst quarter of 2020.
For the first nine months of 2021, occupancy expense totaled $18.0 million
compared to $16.7 million for the same period of 2020.2021.
 
The
increase for the nine month periodover both prior periods was primarily duerelated to the addition of
CCHL occupancy expense through the CCHL acquisition as well as higher
 
expense at core CCBG reflective of increased FF&E
depreciationsoftware additions related to an increase in technology investment.certain risk management and strategic initiatives.
Other
.
 
Other noninterest expense totaled $8.4 million for the third quarter of 2021
compared to $10.8 million for the second quarter
of 2021 and $8.3 million for the thirdfirst quarter of 2020.
 
For2022, a decrease of $1.2 million, or 12.5%, from the first nine months of 2021, other noninterest expense totaled $27.6
million compared to $22.4 million for the same period of 2020.
Compared to the secondfourth quarter of 2021 and a decrease of $0.2 million, or 1.9%, from
the $2.3 millionfirst quarter of 2021.
The decrease from the fourth quarter of
2021 was primarily attributable to lower pension plan settlement chargemiscellaneous expense (pension
 
sexpense of $1.6 million partially offset by a higher level of
other loss expense of $0.2 million).
 
Compared to the first quarter of $1.5 million and2021, the decrease was primarily driven by lower OREO
miscellaneous
expense (pension expense of $0.9 million due to
the sale of a banking office.
The $5.3 million increase for the nine month period was primarily due to the addition
of CCHL expenses
beginning in March 1, 2020, and to a lesser extent,partially offset by
 
higher expenses at core CCBG, including processing feesother losses of $0.6$0.2 million,
(debit higher MSR amortization of $0.1
card volume), professional feesmillion, hiring expense of $0.5$0.1 million, and FDIC insurancea $0.3 million favorable
 
MSR valuation reserve adjustment in the first quarter of $0.4 million (higher asset size), partially offset by lower
OREO expense of $1.1 million (gains from the sale of two banking offices)2021).
 
In addition, we have realized pension settlement charges
totaling $2.5 million so far in 2021 andThe lower level of pension expense for ourin 2022 generally reflected a higher
 
base pension plan increased $1.5 million attributable to the utilization
of a lower discount rate in 2022 for determining plan liabilities.liabilities and
We anticipate additional
pension settlement expensestrong asset returns in the fourth quarter of 2021.
 
Our operating efficiency ratio (expressed as noninterest
 
expense as a percentagepercent of the sum of taxable-equivalent net interest income plus
plus noninterest income) was 73.09%77.55% for the thirdfirst quarter of 20212022 compared
 
to 80.18%81.29% for the secondfourth quarter of 2021 and 67.01%74.36% for the
the thirdfirst quarter of 2020.2021.
 
For the first nine months of 2021, this ratio was 75.83%
compared to 69.04% for the same period of 2020.
Additional detail on CCHL’s
operations and key performance metrics is provided below.
Three Months Ended
Nine Months Ended
(Dollars in thousands)
Sep 30, 2021
Jun 30, 2021
Sep 30, 2020
Sep 30, 2021
Sep 30, 2020
Net Interest Income
$
(30)
$
19
$
17
$
(165)
$
142
Mortgage Banking Fees
12,293
13,116
22,775
42,255
44,046
Other
455
425
287
1,306
587
Total Noninterest
Income
12,748
13,541
23,062
43,561
44,633
Salaries
7,600
8,538
10,753
26,414
21,376
Other Associate Benefits
215
210
192
646
446
Total Compensation
7,815
8,748
10,945
27,060
21,822
Occupancy, Net
849
854
845
2,564
1,844
Other
1,292
1,359
1,342
3,751
3,048
Total Noninterest
Expense
9,956
10,961
13,132
33,375
26,714
Operating Profit
$
2,762
$
2,599
$
9,947
$
10,021
$
18,061
Key Performance Metrics:
Total Loans Closed
$
360,167
$
406,859
$
526,252
$
1,230,151
$
1,139,681
Total Loans Closed -
Mix
Purchase
71%
76%
60%
69%
59%
Refinance
29%
24%
40%
31%
41%
37
Income Taxes
We realized income
 
tax expense of $2.9$2.2 million (effective rate of 20%) for the thirdfirst quarter of
 
of 20212022 compared to $2.1
$2.0 million
(effective rate of 22%) for the fourth quarter of 2021
and $2.8 million (effective rate of 19%) for the secondfirst quarter of 20212021.
 
and $3.2 million (effective rate of 17%)Tax
expense for the thirdfourth quarter of 2020.2021 was unfavorably impacted by discrete
 
For the
first nine months of 2021, we realized income tax expense of $7.8 million (effective
rate of 19%) compared to $7.4 million (effective
rate of 18%) for the same period of 2020.
$0.1 million. Absent discrete items, we
expect our annual effective tax rate to approximate 19%
 
approximate 18%-19% for
the remainder of 2021.
-20% in 2022.
FINANCIAL CONDITION
Average earning
 
assets totaled $3.693$3.939 billion for the thirdfirst quarter of 2021,2022, an increase of $69.2$147.5 million, or
 
million, or 1.9%3.9%, over the secondfourth
quarter of 2021, and an increase of $355.7$440.9 million, or 10.7%12.6%, over
 
the fourthfirst quarter of 2020.2021.
 
The increase over both prior periodsthe fourth quarter of
2021 was primarily attributable to seasonal growth in our public fund deposits. The
increase compared to the first quarter of 2021 was
primarily driven by higher deposit balances which funded growth in the(see below
 
investment portfolio.– Deposits).
 
Deposit balances increased as a
result of strong core deposit growth, SBA PPP loan proceeds deposited
in client accounts, and various other stimulus programs.
Investment Securities
In the third quarter of 2021, our averageAverage investment portfolio increased
 
$217.9s
increased $68.1 million, or 31.5%, over the second quarter of 2021 and
increased $391.5 million, or 75.6%6.9%, over the fourth quarter of 2020.2021 and increased $526.5
million, or 98.8%, over
the first quarter of 2021.
 
Our investment portfolio represented 24.6%26.9% of our average
earning assets for the thirdfirst
quarter of 2022
compared to 26.1% for the fourth quarter of 2021, compared to 15.5%and 15.2% for the fourth quarterfirst
 
of 2020, and 17.3% for the third quarter of 2020.2021.
 
During the secondfirst quarter of 2021,2022, we
initiated a buy program programs
to add to our
investment portfolio as part of our overall balance sheetStatement of Financial
Condition management,
 
which was
were completed by the end of the thirdfirst quarter 2021.2022.
 
For the remainder of 2021,2022, we will continue to monitor our
overall liquidity
position and, dependent on market conditions, look for opportunities to
reinvest proceeds and/or purchase additional
investment 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 thirdfirst quarter of 2021,2022, we purchased securities under both
 
both the AFS and HTM designations.
 
At September 30, 2021, $645.8March 31, 2022, $624.4 million, or 65.4%54.6%, of our investment portfolio
 
was classified as AFS, and $341.2$518.7 million, or 34.6%45.3%,
classified as HTM.
 
The average maturity of our total portfolio at September 30, 2021 was 3.73March 31, 2022
 
was 3.63 years compared to 3.343.63 years and 2.092.78
years at June 30,December 31, 2021 and DecemberMarch 31, 2020,2021, respectively.
 
38
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 maintainmaint
 
ain a trading portfolio.
At September 30, 2021,March 31, 2022, there were 288673 positions (combined AFS and HTM)
 
with unrealized losses totaling $3.8 million at September
30, 2021.$49.9 million.
 
Of these 288 673
positions, 178 are U.S. government agency securities issued by
U.S. government sponsored entities which
501 of these positions carry the full faith and credit guarantee of the U.S.
Government (US Treasuries, SBA securities, and
 
GNMA
pools) and are 0% risk-weighted assets for regulatory purposes. There were
2852 U.S. government agency positions thatsecurities issued by U.S.
government sponsored entities and carry the implicit guarantee of the
 
of the U.S. Government. We
 
believe the long history of no credit
credit losses on government securities indicates that the expectation of nonpayment
 
nonpayment of the amortized cost basis is zero.
 
Four positionsThe remaining 120
arepositions (municipal securities, corporate bonds, and asset backed securities that carrysecurities)
have a AAA rating.credit component.
 
The remaining 78 positions are corporate or municipal bonds that carry aAt March 31, 2022, all CMO,
minimum credit rating of “A-“.MBS, SBA, US Agencies, and Treasury
 
bonds held were AAA rated. Corporate debt securities had an allowance for
credit losses
totaling $21,000 at March 31, 2022 and municipal securities had an allowance
for credit losses totaling $16,000
at September 30, 2021.$15,000.
 
Loans HFI
Average loans
 
held for investment (HFI) decreased $62.6(“HFI”) increased $15.3 million, or 3.1%0.8%, from the second quarter of
2021 and $19.3 million, or
1.0%, fromover the fourth quarter of 2020.2021
 
and decreased $80.8
million, or 4.0%, from the first quarter of 2021. Excluding SBA PPP loans, average loans increased $34.9 million and $125.2 million
 
andloans HFI increased $18.8 million compared to
period end loansthe fourth quarter of 2021, and increased $5.1 million and $102.8 million, respectively,$115.9
 
overmillion compared to the prior periods. first quarter of 2021.
Compared to the secondfourth quarter of
2021, the increase in average loans (excluding SBA PPP loans) reflected
growth in commercial loans (primarily institutional),
residential loans, HELOCs, and consumer loans (indirect auto). Compared
to the first quarter of 2021, we realized growth in
commercial loans, construction loans, residential mortgages, and consumer
loans (indirect auto).
New loan production strengthened in
the latter part of the first quarter of 2022 resulting in period end loans reflectedloan growth in constructionof $54 million
 
and indirect loans, partially offset by a decline in commercial
real estate.
Compared toover the fourth quarter of 2020, we2021. Period-end
increases were realized growth in construction,most loan categories with the largest growth
 
residential,in commercial real estateloans (primarily institutional) and consumer
indirect loans.
At September 30, 2021, SBA PPP loan balances totaled $7.5 million and remaining deferred
SBA PPP net loan fees
totaled $0.3 million.
SBA PPP loan forgiveness applications are expected to be completed in the fourth
quarter 2021.loans (indirect auto).
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.
38
Credit Quality
Overall credit quality is strong and continues to improve.
Nonperforming assets (nonaccrual loans and OREO, “NPAs”
)
other real estate) totaled $3.2 $2.7
million at September 30,March 31, 2022 compared to $4.3 million at December 31, 2021
and $5.5 million at March 31, 2021.
At March 31, 2022,
nonperforming assets as a $3.1 million decreasepercentage of total assets totaled 0.06% compared
from June 30,to 0.10% at December 31, 2021 and a $3.5 million decrease from December0.14% at March 31, 2020.
2021.
 
Nonaccrual loans totaled $3.0$2.7 million (0.16%at March 31, 2022, a $1.6 million decrease
from December 31, 2021 and a $2.8 million
decrease from March 31, 2021.
The $4.4 million increase in classified loans over the fourth quarter of HFI
loans) at September 30, 2021,
 
compared to $5.1 million (0.25% of HFI loans)reflects one loan
relationship that is in the loan workout process and has been reserved
for at June 30, 2021 and $5.9
million (0.29% of HFI loans)March 31, 2022.
at December 31, 2020.
For additional metrics on NPAs
see the Asset Quality section of the Selected Quarterly Financial Data table.
For more information on nonaccrual loans see Note 3 – Loans Held for
Investment and Allowance for Credit Losses.
The balance of
OREO totaled $0.2 million at September 30, 2021, a decrease of $1.0
million from June 30, 2021
and $0.6
million from December 31,
2020.
 
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
 
be charged-off.-off.
 
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision, but recorded
 
as a separate liability included in other liabilities.
Management estimates the allowance balance using relevant available
 
information, from internal and external sources relating to past
events, current conditions, and reasonable and supportable
forecasts.
 
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
 
Adjustments to historical loss information incorporate management’s
 
view of current
conditions and forecasts.
 
39
At September 30, 2021,March 31, 2022, the allowance for credit losses for HFI loans HFI totaled $20.8
 
$21.5 million compared to $22.2 million at June 30, 2021
and $23.8$21.6 million at December 31, 2020.
2021 and $22.0 million at March 31, 2021.
 
Activity within the allowance is detailed in Note 3 to the consolidated financial statements.
For the first nine months of 2021, the $2.3 million net decrease in the
allowance reflected net loan recoveries of $0.7
million,
favorable problem loan migration, and lower expected losses related to
COVID-19, partially offset by core loan growth (excluding
SBA PPP loans).statements.
 
At September 30, 2021,March 31, 2022, the allowance represented 1.11%1.05% of HFI
 
of loans HFI and provided coverage of 710%761% of nonperforming
nonperforming loans compared to 1.19%1.12% and 406%500%, respectively,
 
at December 31, 2020.2021, and 1.07% and 411%, respectively,
at March 31, 2021.
 
At September 30, 2021,March 31, 2022, the allowance for credit losses for unfunded commitments
 
commitments totaled $3.1$3.0 million compared to $2.6$2.9 million at
June 30,December 31, 2021 and $1.6$3.0 million at DecemberMarch 31, 2020.2021.
 
The allowance for unfunded commitments is recorded in other liabilities.
Deposits
Average total
 
deposits were $3.448$3.714 billion for the thirdfirst quarter of 2021,2022, an increase of $60.3$164.9 million, or
 
1.8%or 4.6%, over the secondfourth quarter
of 2021 and $381.6$474.6 million, or 12.4%14.6%, over the first quarter of 2021.
Growth over the fourth quarter of 2020.2021 was primarily
attributable to an increase in seasonal public fund deposits. Compared to the first quarter 2021,
 
The strongeststrong growth over both comparable periods occurred
in our
noninterest bearing deposits, NOW accounts, and savings account balances. Average
public deposits in the third quarter 2021 decreased slightly
compared to the second quarter of 2021, but increased compared to the fourth
quarter of 2020.
 
Over the past 12 months,few years, we have experienced strong core
deposit growth, in addition to growth related to multiple government
government stimulus programs have been implemented, includingin response to the Covid-19 pandemic, such
as those under the CARES Act and the American Rescue Plan Act,
which are responsible for a large part of the growth in average deposits.Act.
 
Given these increases, the potential exists for our deposit
levels to
be volatile for the remainder of 2021 and into 2022 due to the uncertain timing
of the outflows of the stimulus related
balances and the economic recovery.
 
balances, in addition to the frequency and
degree to which the Federal Open Market Committee (FOMC) raises the overnight
funds rate. It is anticipated that current liquidity
levels will remain robust due to our strong overnight
funds
sold position.
 
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 management arises from changes in interest rates, exchange rates,
 
rates, commodity prices, and equity prices.
 
We
have risk
management policies designed to monitor and limit exposure to interest rate riskmarket
 
risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or
 
equity prices. Our risk
In asset and liability management activities, our
policies are primarily
designed to minimize structural interest rate risk.
Interest Rate Risk Management.
Our net income is largely dependent
on net interest income.
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature
or reprice on a different basis than interest-earning assets.
When
interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest
income.
Similarly, when interest-earning
assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could
result in a decrease in net interest income.
Net interest
income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’
equity.
We have established
what we believe to be a comprehensive interest rate risk management policy,
which is administered by
management’s Asset Liability Management
Committee (“ALCO”).
The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net
interest income at risk) and the fair value of equity capital
(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change
in interest rates for maturities from one
day to 30 years.
We measure the potential
adverse impacts that changing interest rates may have on our short-term
earnings, long-
term value, and liquidity by employing simulation analysis through the use of
computer modeling.
The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded
in investment and loan portfolio contracts.
As with
any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by
us.
When interest rates change, actual movements in different categories
of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate significantly
from assumptions used in the model.
Finally, the
methodology does not measure or reflect the impact that higher rates may have
on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
 
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Interest Rate Risk Management.
Our net income is largely dependent on net interest income.
 
Net interest income
40
The statement of financial condition is susceptiblesubject to
testing for interest rate riskshock
possibilities to indicate the degree that interest-bearing liabilities mature
or re-price on a different basis than interest-earning assets.
When
interest-bearing liabilities mature or re-price 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 re-price more
quickly than interest-bearing liabilities, falling interest rates could result
in a decrease in net interest income.
Net interest income is
also affected by changes in the portion of interest-earning assets that are
funded by interest-bearing liabilities rather than by other
sources of funds, such as noninterest-bearing deposits and shareowners’
equity.
We have established
a comprehensiveinherent interest rate risk management policy,
which is administered by management’s
Asset/Liability
Management Committee (“ALCO”).
The policy establishes risk limits, 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 is designed to capture optionality factors
such as call features and interest rate caps and floors imbedded in investment and loan portfolio
contracts.
As with any method of
analyzing interest rate risk, there are certain shortcomings inherent
in the interest rate modeling methodology that we use.
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 the assumptions that we use in our modeling.
Finally, the methodology
does not measure or reflect the impact that higher rates may have on variable and
adjustable-rate loan
clients’ ability to service their debts, or the impact of rate changes on demand
for loan and deposit products.risk.
 
We prepare
 
a current base case and several alternative interest rate simulations (-100,+100, +200,
+300, and +400 basis points (bp)), at
least once per quarter, and
present report the analysis to
ALCO, with theour Market Risk Oversight Committee (“MROC”), our Enterprise Risk
risk metrics also reported toOversight Committee (“EROC”) and the Board of Directors.
(The -200bp rate scenario was not modeled starting in the second half of
2019 due to the low interest rate environment below 2.00%). 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
particularly uncertain or when other business
conditions so dictate.
Our interest rate risk management goal is to maintain expected changes
in our net interest income and capital levels due to fluctuations
in market interest rates within acceptable limits.
Management attempts to achieve this goal by balancing, within policy limits, the
volume of variable-rate liabilities with a similar volume of variable-rate
assets, by keeping the average maturity of fixed-rate asset and
liability contracts reasonably matched, by maintaining our core deposits as a significant
component of our total funding sources and by
adjusting rates to market conditions on a continuing basis.
We test our balance
sheet using varying interest rate shock scenarios to analyze our interest rate risk. Average
interest rates are
shocked by plus or minus 100, 200, 300,
and 400 basis points (“bp”), although we may elect not to use particular scenarios that we
determined are impractical in a current rate environment.
It is management’s goal to structure the
balance sheet 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.
 
We augment
 
our interest rate shock analysis with alternative external interest rate scenarios
Analysis.
 
on a quarterly basis.
These alternative
interest rate scenarios may include non-parallel rate ramps.
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
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
Policy Limit
 
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
September 30,March 31, 2022
27.0%
20.1%
13.2%
6.4%
-7.4%
December 31, 2021
30.6%36.6%
22.7%27.2%
14.8%17.8%
7.1%8.7%
-5.7%
June 30,2021
33.1%
24.4%
15.8%
7.6%
-4.7%-6.2%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
September 30, 2021March 31, 2022
48.0%46.8%
35.0%35.3%
22.2%23.9%
10.0%12.8%
-9.9%
June 30,2021December 31, 2021
46.0%55.0%
32.5%40.5%
19.1%26.1%
6.5%12.2%
-12.4%
40-11.1%
The Net Interest Income (“NII”) at Risk positions indicate position indicates
that in the short-term,
all rising rate environments will positively impact
the net
net interest incomemargin of the Company,
 
while a declining rate environment of 100 bp100bp will have a negative impact on
the net interest income.
Compared to the prior quarter-end, the 12-month
Net Interest Income at Risk positionmargin. These metrics became less favorable in all rate scenarios
primarily due to lower levels of SBA PPP fee recognition coupled
with asset extension,
partially offset by higher rates.
Compared to
the prior quarter-end, the projected 24-month Net Interest
Income at Risk levels improved in rising rate scenarios
compared to the prior quarter as slightly longer duration assets
were purchased. The percent change in NII became less favorable in the down
rate scenario as the NII base increased due to higher
assumed replacement rates.
The down 100 bp scenario improved duerates and now has more room to longer duration assets purchased over the
last two quarters.
fall. All measures of Net Interest Income at Risk in rising rate and declining environments
scenarios are within our prescribed policy limits over the
next 12-month and 24-month periods.
policy.
 
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 andby discounting the cash flows to estimate the present value of
 
assets and liabilities.
The difference between thethese
aggregated discounted values of the assets and liabilities is the economic
value of equity,
which in
theory approximates the fair value
of our net
assets.
ESTIMATED CHANGES
 
IN ECONOMIC VALUE
 
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
Policy Limit
 
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
September 30, 2021March 31, 2022
 
28.8%20.2%
22.3%16.2%
14.6%11.5%
7.9%6.3%
-16.5%-14.7%
June 30,2021December 31, 2021
47.9%31.5%
38.4%24.6%
27.5%16.5%
15.2%8.2%
-35.2%-19.0%
EVE Ratio (policy minimum 5.0%)
18.9%
18.0%
16.9%
15.9%
12.3%
(1) Down 200, 300, and 400 bp rate scenarios have been excluded due to the
 
to the lowcurrent interest rate environment.
41
At September 30, 2021,March 31, 2022, the economic value of equity results arewas favorable
 
in all rising rate environments and are within prescribedunfavorable in a falling rate
tolerance levels.environment. EVE metrics became less favorable in a rising rate environment
 
Althoughdue to longer duration investments purchased in the EVE
investment portfolio, and became more favorable in the rates down 100 bp
scenario as our nonmaturity deposits became more valuable as
rates rose.
EVE is slightly outsidecurrently in compliance with policy in all rate scenarios.
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 policyfinancial assets and liabilities, measured over
range,multiple years, to be out of compliance, bothhelp assess the
EVE percentage and EVE ratio (EVE/EVA)
must be out of their desired range. Since risk to the EVE ratio was 9.1% in a down 100 bp
scenario, which is above the policy minimum of 5.0%, we are considered
to be within Board policy at September 30, 2021.
The change in EVE in all scenarios reflects longer duration assets purchased
over the last two quarters, primarily due to investment
purchases in the bond portfolio. Given our asset sensitivity,
these longer duration assets resulted in a less favorable EVE in rising rate
scenarios, and more favorable EVE in falling rate scenarios.
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
 
capital resources are
sufficient to meet our future operating capital and funding requirements.
 
At September 30, 2021,March 31, 2022, we had the ability to generate $1.456 billion
 
$1.477 billion in additional liquidity through all of our available resources (this
excludes $709$790 million in overnight funds sold).
 
In addition to the primary borrowing outlets mentioned above, we also have
 
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
 
Window and through brokered deposits.
 
We recognize
the importance of maintaining liquidity and have developed a Contingent
 
Liquidity Plan, which addresses various liquidity stress
levels and our response and action based on the level of severity.
 
We periodically
 
test our credit facilities for access to the funds, but
also understand that as the severity of the liquidity level increases that certain credit facilities may
 
no longer be available.
 
We conduct
a liquidity stress test on a quarterly basis based on events that could potentially occur
 
occur at the Bank and report results to ALCO, our
Market Risk Oversight Committee, Risk Oversight Committee,
 
and the Board of Directors.
 
At September 30, 2021,March 31, 2022, we believe the
liquidity available to us was sufficient to meet our on-going needs
 
and execute our business strategy.
 
 
41
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 3.733.63 years at September 30, 2021,March 31, 2022, and the available
 
the available for sale portfolio had a net unrealized pre-tax loss
loss of $0.7$31.5 million.
 
Our average overnight funds position (defined deposits with banks plus
 
Fed funds sold less Fed funds purchased) was $741.9$873.1 million
in the thirdfirst quarter of 20212022 compared to an average net overnight funds
 
sold position of $818.6 million in the second quarter of 2021
and $705.1$789.1 million in the fourth quarter of 2020.2021
and $814.6 million in the first quarter of 2021.
 
The decrease compared toincrease over the secondfourth quarter of 2021 was primarily due to
growth in our
the investment portfolio.seasonal deposits.
 
The increase compared to the fourthfirst quarter 20202021 was driven by strong core deposit growth,
 
deposit growth, in addition to pandemic
pandemic related stimulus programs.
 
We expect our
 
capital expenditures will be approximately $7.0$8.0 million over the next 12 months, which
 
will primarily consist of 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
 
our on-going obligations.
Borrowings
At September 30, 2021, averageAverage short
term borrowings totaled $49.8$32.4 million for the first quarter of 2022 compared to $46.4
 
million compared to $51.2 million at June 30, for the fourth quarter of
2021 and $95.3
$67.0 million at December 31, 2020.for the first quarter of 2021. The variance over both prior periods
 
periods was primarily attributable to the fluctuation
of residential mortgage
warehouse borrowings at CCHL.
 
Additional detail on these borrowings is provided in Note 4 – Mortgage
Banking
Activities in the
Consolidated Financial Statements.
 
At September 30, 2021, fixed rate credit advances from the FHLB totaled $1.7
million in outstanding debt consisting of five notes.
During the first nine months of 2021, the Bank made FHLB advance payments
totaling approximately $0.5 million, which included
one advance that paid off, and another that matured. We
did not obtain any new FHLB advances during this period. The FHLB notes
are collateralized by a blanket floating lien on all of our 1-4 family residential mortgage
loans, commercial real estate mortgage loans,
and home equity mortgage loans.42
We have issued two
 
junior subordinated deferrable interest notes to our wholly owned
 
Delaware statutory trusts.
 
The first note for
$30.9 million was issued to CCBG Capital Trust I in
 
November 2004, of which $10 million was retired in April 2016.
 
The second
note for $32.0 million was issued to CCBG Capital Trust II in
 
May 2005.
 
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
 
LIBOR plus a margin of 1.90%.
 
This note matures
on December 31, 2034.
 
The interest payment for the CCBG Capital Trust II borrowing is due
 
quarterly and adjusts quarterly to a
variable rate of three-month LIBOR plus a margin of 1.80%.
 
This note matures on June 15, 2035.
 
The proceeds from these
borrowings were used to partially fund acquisitions.
 
Under the terms of each junior subordinated deferrable interest note, in the event
of default or if we elect to defer interest on the note, we may not, with
certain exceptions,
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
 
table on page 31.32.
 
At September 30, 2021,March 31, 2022, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
under the Basel III capital standards.
Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 32.
At March 31, 2022, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
 
under the Basel III capital standards.
Shareowners’ equity was $348.9$372.1 million at September 30, 2021
March 31, 2022 compared to $335.9 $383.2
million at June 30,December 31, 2021 and $320.8$324.4 million at
DecemberMarch 31, 2020.2021.
 
ForDuring the first nine monthsquarter of 2021,2022, shareowners’ equity was positively impacted by net income
 
net income of $27.0$8.5 million, a $0.2
$1.0million decrease in the accumulated other comprehensive loss for our
pension plan, a $1.4 million increase in the fair value of the
interest rate swap related to subordinated
debt, net adjustments totaling $2.2$0.5 million
related to
transactions under our stock
compensation plans, and reclassificationstock compensation accretion of
$7.8 million from temporary equity to decrease the
redemption value of the non-controlling interest in CCHL.
In addition, $1.6 million was reclassified from accumulated other
comprehensive loss to pension expense in conjunction with the partial
pension settlement charge reflected in earnings, therefore,
the
charge had no net effect on equity. $0.2 million.
 
Shareowners’ equity was reduced by common stock dividends
of $7.8$2.7 million ($0.16 per share) and a $19.1 million increase in the
 
($0.46 per share), a
$3.2 million decrease in the unrealized gainloss on investment securities, and
stock compensation of $0.5 million.
42securities.
At September 30, 2021,March 31, 2022, our common stock had a book value of $20.63$21.94 per diluted
 
per diluted share compared to $19.87$22.63 at June 30,December 31, 2021
 
and
$19.0519.22 at DecemberMarch 31, 2020.2021.
 
Book value is impacted by the net after-tax unrealized gains and
losses on AFS investment
securities.
 
At
At September 30, 2021,March 31, 2022, the net loss was $0.5$23.6 million compared to a $0.9 millionnet loss of $4.5
 
net gainmillion at June 30,December 31, 2021 and a $2.7$1.2 million net gain
gain at DecemberMarch 31, 2020.2021.
 
Book value is also impacted by the recording of our unfunded pension liability through other
 
through other comprehensive
income in accordance with Accounting Standards Codification Topic
 
715.
 
At September 30, 2021,March 31, 2022, the net pension liability reflected in
in other comprehensive loss was $45.6$13.0 million compared to $45.6$13.2 million
 
at June 30,December 31, 2021 and $47.2$47.1 million at DecemberMarch 31, 2020.2021.
 
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 20202021 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 $6.6 $4.6
million (after-tax) using the
balances from the December 31, 20202021 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.
 
At September 30, 2021,March 31, 2022, we had $750.4$763.9 million in commitments to extend credit
 
credit and $5.7$5.0 million in standby letters of credit.
 
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
 
any condition established in the
contract.
 
Commitments generally have fixed expiration dates or other termination
 
clauses and may require payment of a fee.
 
Since
many of the commitments are expected to expire without being drawn upon,
 
the total commitment amounts do not necessarily
represent future cash requirements.
 
Standby letters of credit are conditional commitments issued by us to guarantee
 
the performance
of a client to a third party.
 
We use the same credit
 
policies in establishing commitments and issuing letters of credit as we do for on-
balance
sheet instruments.
43
If commitments arising from these financial instruments continue to require
 
require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going
 
obligations.
 
In the event these commitments
require funding in excess of historical levels, management believes current
 
liquidity, advances available from the
 
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
 
are unconditionally cancellable by the bank and for those agreements no allowance
for credit losses has been recorded.
 
We have recorded
 
an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the bank, which is included in other
 
liabilities on the consolidated statements of financial condition and
totaled $3.1$3.0 million at September 30, 2021.March 31, 2022.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
 
Financial Statements included in our 20202021 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, and other(iii) pension
 
identifiable intangible assets,
(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 20202021 Form 10-K.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4344
TABLE I
AVERAGE
BALANCES & INTEREST RATES
Three Months Ended September 30,
Nine Months Ended September 30,
 
March 31, 2022
December 31, 2021
2020
March 31, 2021
2020
 
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
$
 
67,75343,004
$
 
497397
2.913.75
%
$
 
92,52262,809
$
 
671522
3.643.29
%
$
 
83,558106,242
$
 
2,033970
3.24
%
$
67,719
$
1,577
3.503.70
%
Loans Held for Investment
(1)(2)
1,974,1321,963,578
25,45821,811
5.124.50
2,005,1781,948,324
23,02722,296
4.534.54
2,018,1682,044,363
72,03622,483
4.76
1,945,524
69,598
4.774.46
Taxable Securities
904,9621,056,736
2,3332,889
1.031.10
553,395987,700
2,4012,493
1.731.00
708,606528,842
6,2321,863
1.17
594,654
8,104
1.821.41
Tax-Exempt Securities
(2)
4,3322,409
10
1.60
3,380
17
2.07
3,844
25
2.312.61
4,860
32
2.66
3,904
73
2.49
5,338
94
2.34
Federal Funds Sold and Interest Bearing
741,944Deposits
285873,097
409
0.19
789,100
300
0.15
567,883814,638
146213
0.10
791,466
698
0.12
385,245
991
0.340.11
Total Earning Assets
3,693,1233,938,824
28,59825,516
3.072.63
%
3,223,8383,791,313
26,27725,628
3.252.68
%
3,605,7023,497,929
81,07225,554
3.01
%
2,998,480
80,364
3.582.96
%
Cash & Due From Banks
72,77374,253
69,89373,752
71,956
66,51268,978
Allowance For Credit Losses
(22,817)(21,655)
(22,948)(22,127)
(23,241)
(19,672)(24,128)
Other Assets
283,534275,353
268,549284,999
281,162
257,993278,742
TOTAL ASSETS
$
 
4,026,6134,266,775
$
 
3,539,3324,127,937
$
 
3,935,579
$
3,303,3133,821,521
 
Liabilities:
NOW Accounts
$
 
945,7881,079,906
$
86
0.03
%
$
963,778
$
 
72
0.03
%
$
 
826,776985,517
$
 
6176
0.03
%
$
965,839
$
222
0.03
%
$
808,389
$
864
0.14
%
Money Market Accounts
282,860285,406
33
0.05
289,335
34
0.05
247,185269,829
3233
0.05
274,990
100
0.05
227,331
189
0.11
Savings Accounts
551,383599,359
6872
0.05
438,762573,563
5471
0.05
524,710492,252
192
0.05
409,230
15060
0.05
Other Time Deposits
102,76597,054
33
0.14
101,037
36
0.14
104,522102,089
43
0.16
102,619
11239
0.15
104,925
144
0.18
Total Interest Bearing Deposits
1,882,7962,061,725
210224
0.04
1,617,2451,927,713
190
0.05
1,868,158
626213
0.04
1,549,8751,849,687
1,347208
0.120.05
Short-Term Borrowings
49,77332,353
317192
2.532.40
74,55746,355
498307
2.662.63
55,92367,033
1,053412
2.52
60,335
1,051
2.332.49
Subordinated Notes Payable
52,887
307317
2.272.40
52,887
316306
2.342.26
52,887
922307
2.30
52,887
1,161
2.892.32
Other Long-Term Borrowings
1,652833
149
3.374.49
5,4531,414
4012
2.913.50
2,0462,736
5121
3.29
5,842
131
3.003.18
Total Interest Bearing Liabilities
1,987,1082,147,798
848742
0.170.14
%
1,750,1422,028,369
1,044838
0.240.16
%
1,979,0141,972,343
2,652948
0.18
%
1,668,939
3,690
0.300.19
%
Noninterest Bearing Deposits
1,564,8921,652,337
1,354,0321,621,432
1,490,787
1,220,0021,389,821
Other Liabilities
112,70772,166
83,192114,657
110,526
71,661111,050
TOTAL LIABILITIES
3,664,7073,872,301
3,187,3663,764,458
3,580,327
2,960,6023,473,214
Temporary Equity
20,44610,518
11,89313,339
22,920
7,53421,977
 
TOTAL SHAREOWNERS’ EQUITY
341,460383,956
340,073350,140
332,332
335,177326,330
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
 
4,026,6134,266,775
$
 
3,539,3324,127,937
$
 
3,935,579
$
3,303,3133,821,521
 
Interest Rate Spread
2.912.49
%
3.012.52
%
2.83
%
3.292.77
%
Net Interest Income
$
27,75024,774
$
25,23324,790
$
78,420
$
76,67424,606
Net Interest Margin
(3)
2.982.55
%
3.122.60
%
2.91
%
3.422.85
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
 
Interest income includes loansloan fees of $3.2$0.2 million, $0.4
 
million and $0.7$1.2 million for the three month periods ended September
 
30, 2021 and
 
2020, respectively, and $6.3 million and $1.5 million for the nine month periodsthree months ended SeptemberMarch 31, 2022, December 31,
 
30, 2021 and 2020,March 31, 2021, respectively.
(2)
Interest income includes the effects of taxable equivalent adjustments
 
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earningearnings assets.
4445
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, 2020.2021.
Item 4.
 
CONTROLS AND PROCEDURES
At September 30, 2021,March 31, 2022, the end of the period covered by this Form 10-Q, our management,
 
management, including our Chief Executive Officer and
Chief Financial Officer, evaluated
 
the effectiveness of our disclosure controls and procedures (as defined
 
in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
 
Based upon that evaluation, the Chief Executive Officer and Chief Financial
 
Officer concluded
that, as of the end of the period covered by this report these disclosure controls and procedures
 
were effective.
Our management, including our Chief Executive Officer
 
and Chief Financial Officer, has reviewed
 
our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange
 
Act of 1934).
 
During the quarter ended on September 30, 2021,March 31, 2022,
other than the above, 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 20202021 Form 10-K, as updated in our subsequent
 
quarterly reports. The risks described in our 20202021 Form
10-K and our subsequent quarterly reports are not the only risks facing us. Additional risks
 
risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
 
our business, financial condition and/or operating
results.
U.S. presidential directives concerning mandatory
COVID-19 vaccination could have a material adverse impact on our
business and results of operations.
On September 9, 2021, President Biden announced two actions that require
certain companies to ensure their employees are
vaccinated against COVID-19. One order applies to U.S. Government
contractors and the other directive applies to companies with
100 or more employees.
In the second directive, he required the Occupational Safety and Health Administration
(OSHA) to develop
an Emergency Temporary
Standard (ETS) mandating either that employees are fully vaccination against
COVID-19 or are tested
weekly. OSHA has not yet
issued the ETS nor provided any additional information on its contents or requirements.
Although we are not a U.S. Government contractor,
we do have more than 100 employees and will likely be subject to the ETS.
As a
result, we have set November 22, 2021 as the date that all of our associates will need to
comply with the U.S. presidential directive to
OSHA by being vaccinated against COVID-19 or tested weekly.
It is currently not possible to predict with certainty the impact the
OSHA ETS or any similar directives will have on our workforce.
Our implementation of these type of directives may result in
attrition, including attrition of our employees and difficulty
securing future labor needs, which could have a material adverse effect
on
our business, financial condition, and results of operations.
 
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.
 
45
Item 5.
 
Other Information
None.
 
 
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
 
has duly caused this Report to be signed on its
behalf by the undersigned Chief Financial Officer hereunto duly
 
authorized.
CAPITAL CITY
 
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: October 29, 2021May 4, 2022