CAPITAL CITY BANK GROUP INC
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
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Jun 30, 2024 · Filed Aug 1, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
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Item 2. Results of Operations
Performance Summary.
Net income attributable to common shareowners totaled $14.2
million, or $0.83 per diluted share, for the
second quarter of 2024 compared to $12.6 million, or $0.74 per diluted
share, for the first quarter of 2024, and $14.2 million, or $0.83
per diluted share, for the second quarter of 2023.
For the first six months of 2024, net income attributable to common shareowners
totaled $26.7 million, or $1.57 per diluted share, compared to net income of $27.9
million, or $1.64 per diluted share, for the same
period of 2023.
Net Interest Income.
Tax-equivalent net
interest income for the second quarter of 2024 totaled $39.3 million, compared
to $38.4
million for the first quarter of 2024, and $40.2 million for the second quarter of 2023.
Compared to the first quarter of 2024, the
increase was primarily due to higher overnight funds and loan interest income
that was partially offset by higher deposit interest
expense.
Compared to the second quarter of 2023, the $0.9 million decrease was generally
driven by higher deposit interest expense
and lower overnight funds and investment interest income which outpaced
an increase in loan interest income.
For the first six months
of 2024, tax-equivalent net interest income totaled $77.8 million compared to $80.7
million for the same period of 2023.
The decrease
was primarily driven by the same aforementioned trends.
Provision and Allowance for Credit
Losses.
We recorded
a provision for credit losses of $1.2 million for the second quarter of 2024
compared to $0.9 million for the first quarter of 2024 and $2.2 million
for the second quarter of 2023.
Compared to the first quarter of
2024, the increase in the provision was primarily due to loan grade migration and
slightly higher loss rates partially offset by lower
loan balances.
For the first six months of 2024, we recorded a provision for credit losses of $2.1 million
compared to $5.3 million for
the same period of 2023 with the decrease driven primarily by lower new
loan volume in 2024.
At June 30, 2024, the allowance
represented 1.09% of loans held for investment (“HFI”) compared
to 1.07% at March 31, 2024, and 1.10% at December 31, 2023.
.
Noninterest income for the second quarter of 2024 totaled $19.6 million compared
to $18.1 million for the first
quarter of 2024 and $20.0 million for the second quarter of 2023.
The $1.5 million increase over the first quarter of 2024 was due to
an increase in mortgage banking revenues.
Compared to the second quarter of 2023, the $0.4 million decrease was primarily
attributable to a $1.7 million decrease in other income which reflected
a $1.4 million gain from the sale of mortgage servicing rights in
the second quarter of 2023, partially offset by a $1.0 million increase
in mortgage banking revenues and a $0.3 million increase in
wealth management fees.
For the first six months of 2024, noninterest income totaled $37.7 million, which is comparable
to the same
period of 2023 and reflected a $2.0 million decrease in other income
that was partially offset by a $1.0 million increase in wealth
management fees and a $1.0 million increase in mortgage banking revenues.
Noninterest Expense.
Noninterest expense for the second quarter of 2024 totaled $40.4 million
compared to $40.2 million for the first
quarter of 2024 and $40.3 million for the second quarter of 2023.
The $0.2 million increase over the first quarter of 2024 reflected a
$0.2 million increase in other expense which included the write-off
of obsolete assets from the remodeling of an office site and a core
system migration in the second quarter of 2024.
Compared to the second quarter of 2023, the $0.1 million increase reflected
a $1.0
million increase in compensation expense and a $0.1 million increase in
occupancy expense that was partially offset by a $1.0 million
decrease in other expense.
For the first six months of 2024, noninterest expense totaled $80.6 million compared to $78.0 million
for
the same period of 2023 with the $2.6 million increase attributable to increases in compensation
expense of $1.8 million, occupancy
expense of $0.4 million, and other expense of $0.4 million.
Other expense for 2023 included a $1.8 million gain from the sale of a
banking office in the first quarter of 2023.
Financial Condition
Earning Assets.
Average earning
assets totaled $3.935 billion for the second quarter of 2024, an increase of $85.7 million,
or 2.2%,
over the first quarter of 2024, and an increase of $111.3
million, or 2.9%, over the fourth quarter of 2023.
The variance for both prior
period comparisons was driven by an increase in deposit balances, resulting
in higher levels of overnight funds sold.
Compared to the
fourth quarter of 2023, the change in the earning asset mix reflected a $162.7 million
increase in overnight funds and a $15.5 million
increase in loans HFI that was partially offset by lower
investment securities of $43.4 million, and loans held for sale of $23.5 million.
Loans.
Average loans HFI decreased
$1.9 million, or 0.1%, from the first quarter of 2024 and increased $15.5 million, or
0.6%, over
the fourth quarter of 2023.
Period end loans HFI decreased $40.9 million, or 1.5%, from the first quarter of 2024
and decreased $43.7
million, or 1.6%, from the fourth quarter of 2023.
Credit Quality
. Nonperforming assets (nonaccrual loans and other real estate) totaled
$6.2 million at June 30, 2024 compared to $6.8
million at March 31, 2024 and $6.2 million at December 31, 2023.
At June 30, 2024, nonperforming assets as a percent of total assets
equaled 0.15%, compared to 0.16% at March 31, 2024 and 0.15% at December
Nonaccrual loans totaled $5.5 million at
June 30, 2024, a $1.3 million increase over March 31, 2024 and a $0.7 million decrease
from December 31, 2024.
Further, classified
loans totaled $25.6 million at June 30, 2024, a $3.3 million increase over
March 31, 2024 and a $3.4 million increase over December
. Average total
deposits were $3.641 billion for the second quarter of 2024, an increase of $64.5
million, or 1.8%, over the
first quarter of 2024 and an increase of $92.5 million, or 2.6%, over the fourth quarter
of 2023.
At June 30, 2024, total deposits were
$3.609 billion, decreases of $46.2 million, or 1.3%, from March 31, 2024,
and $93.3 million, or 2.5%, from December 31, 2023.
Capital
. At June 30, 2024, we were “well-capitalized”
with a total risk-based capital ratio of 17.50% and a tangible common equity
ratio (a non-GAAP financial measure) of 8.91% compared to 16.84%
and 8.53%, respectively,
at March 31, 2024 and 16.57% and
8.26%, respectively,
At June 30, 2024, all of our regulatory capital ratios exceeded the threshold to be
“well-
capitalized”
under the Basel III capital standards.
RESULTS
OF OPERATIONS
The following table provides a condensed summary of our results of operations
- a discussion of the various components are discussed
in further detail below.
(Dollars in Thousands, except per share data)
Interest Income
$
48,766
$
46,820
$
45,205
$
95,586
$
89,131
Taxable Equivalent Adjustments
Total Interest Income (FTE)
48,831
46,900
45,292
95,731
89,319
Interest Expense
9,497
8,465
5,068
17,962
8,594
Net Interest Income (FTE)
39,334
38,435
40,224
77,769
80,725
1,204
2,197
2,124
5,296
Taxable Equivalent Adjustments
Net Interest Income After Provision for Credit Losses
38,065
37,435
37,940
75,500
75,241
19,606
18,097
19,967
37,703
37,725
40,441
40,171
40,285
80,612
77,961
Income Before Income Taxes
17,230
15,361
17,622
32,591
35,005
3,189
3,536
3,417
6,725
7,126
Pre-Tax (Income) Loss Attributable to Noncontrolling
(31)
$
14,150
$
12,557
$
14,174
$
26,707
$
27,883
Basic Net Income Per Share
$
0.84
$
0.74
$
0.83
$
1.58
$
1.64
Diluted Net Income Per Share
$
0.83
$
0.74
$
0.83
$
1.57
$
1.64
Net interest income represents our single largest source of earnings
and is equal to interest income and fees generated by earning
assets less interest expense paid on interest bearing liabilities.
This information is provided on a “taxable equivalent” basis to reflect
the tax-exempt status of income earned on certain loans and state and local
government debt obligations.
We provide an analysis of
our net interest income including average yields and rates in Table
I, “Average Balances
& Interest Rates,” on page 47.
Tax-equivalent net
interest income for the second quarter of 2024 totaled $39.3 million, compared
to $38.4 million for the first quarter
of 2024, and $40.2 million for the second quarter of 2023.
Compared to the first quarter of 2024, the increase was primarily due
to
higher overnight funds and loan interest income that was partially offset
by higher deposit interest expense.
The increase in overnight
funds interest income reflected higher average deposit balances and the increase
in loan interest income reflected existing loans re-
pricing at higher rates and new loan volume at higher rates.
The increase in deposit interest expense was attributable to higher
average
money market account (“MMA”) balances and to a lesser extent certificates
of deposit (“CD”) balances and reflected a combination of
re-mix from other deposit categories and higher rates for certain products.
Compared to the second quarter of 2023, the $0.9 million decrease was generally
driven by higher deposit interest expense and lower
overnight funds and investment interest income which outpaced an increase
in loan interest income.
For the first six months of 2024,
tax-equivalent net interest income totaled $77.8 million compared
to $80.7 million for the same period of 2023.
The decrease was
primarily driven by the same aforementioned trends.
Our net interest margin for the second quarter of 2024 was 4.02%,
an increase of one basis point over the first quarter of 2024 and a
decrease of four basis points from the second quarter of 2023.
For the month of June 2024, our net interest margin was 4.04%.
For the
first six months of 2024, our net interest margin was 4.01% compared
to 4.05% for the same period of 2023.
quarter of 2024, the slight increase was primarily due to the favorable
loan repricing that was partially offset by higher deposit cost.
The decrease from both prior year periods reflected higher deposit cost related
to re-mix within the deposit base and higher rates paid
on deposits, partially offset by higher yields from new loan volume
and existing loans repricing at higher rates.
For the second quarter
of 2024, our cost of funds was 97 basis points, an increase of nine basis points
over the first quarter of 2024 and an increase of 46 basis
points over the second quarter of 2023.
Our cost of deposits (including noninterest bearing accounts) was 95 basis points, 85
basis
points, and 43 basis points, respectively,
for the same periods.
We recorded
a provision for credit losses of $1.2 million for the second quarter of 2024 compared
to $0.9 million for the first quarter
of 2024 and $2.2 million for the second quarter of 2023.
Compared to the first quarter of 2024, the increase in the provision was
primarily due to loan grade migration and slightly higher loss rates partially offset
by lower loan balances.
For the first six months of
2024, we recorded a provision for credit losses of $2.1 million compared
to $5.3 million for the same period of 2023 with the decrease
driven primarily by lower new loan volume in 2024.
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 in the Notes to Consolidated
Financial Statements.
Noninterest income for the second quarter of 2024 totaled $19.6 million
compared to $18.1 million for the first quarter of 2024 and
$20.0 million for the second quarter of 2023.
The $1.5 million increase over the first quarter of 2024 was due to an increase in
mortgage banking revenues driven by higher production.
Compared to the second quarter of 2023, the $0.4 million decrease was
primarily attributable to a $1.7 million decrease in other income which
reflected a $1.4 million gain from the sale of mortgage
servicing rights in the second quarter of 2023, partially offset
by a $1.0 million increase in mortgage banking revenues driven
by a
higher gain on sale margin, and a $0.3 million increase in wealth management
fees.
For the first six months of 2024, noninterest income totaled $37.7 million,
which is comparable to the same period of 2023 and
reflected a $2.0 million decrease in other income that was partially offset
by a $1.0 million increase in wealth management fees and a
$1.0 million increase in mortgage banking revenues.
The decrease in other income was primarily attributable to the aforementioned
$1.4 million gain from the sale of mortgage servicing rights in 2023.
A decrease in vendor bonus income and miscellaneous income
also contributed to the decrease.
The increase in wealth management fees was primarily driven by higher retail
brokerage fees and to
a lesser extent trust fees.
The increase in mortgage banking revenues was due to a higher gain on sale margin.
Noninterest income represented 33.3% of operating revenues (net
interest income plus noninterest income) in the second quarter of
2024 compared to 32.0% in the first quarter of 2024 and 33.2% in the second
quarter of 2023.
For the first six months of 2024,
noninterest income represented 32.7% of operating revenues compared
to 31.9% for the same period of 2023.
The table below reflects the major components of noninterest income.
$
5,377
$
5,250
$
5,326
$
10,627
$
10,565
3,766
3,620
3,795
7,386
7,521
Wealth Management
Fees
4,439
4,682
4,149
9,121
8,077
4,381
2,878
3,363
7,259
6,234
Other
1,643
1,667
3,334
3,310
5,328
Total
$
19,606
$
18,097
$
19,967
$
37,703
$
37,725
Significant components of noninterest income are discussed in more
detail below.
.
Deposit fees for the second quarter of 2024
totaled $5.4
million, an increase of $0.1 million, or 2.4%, over the first
quarter of 2024, and an increase of $0.1
million, or 1.0%, over the second quarter of 2023.
For the first six months of 2024, deposit
fees totaled $10.6 million, an increase an increase of $0.1 million, or 0.6%,
over the same period of 2023.
quarter of 2024, the increase was primarily attributable to an increase in
commercial account analysis fee income.
The increase over
both prior year periods was also driven by higher commercial account
analysis fee income.
.
Bank card fees for the second quarter of 2024 totaled $3.8
million, an increase of $0.1 million, or 4.1%, over the
first quarter of 2024, and comparable to the second quarter of 2023.
For the first six months of 2024, bank card fees totaled $7.4
million, a decrease of $0.1 million, or 1.8%, from the same period of 2023.
The slight change in fees between all periods reflected
variance in debit card utilization as consumer spending patterns normalize.
Wealth
Management Fees
.
Wealth management fees
include trust fees through Capital City Trust (i.e., managed
accounts and
trusts/estates), retail brokerage fees through Capital City Investments (i.e.,
investment, insurance products, and retirement accounts),
and financial advisory fees through Capital City Strategic Wealth
(i.e., including the sale of life insurance, risk management and asset
protection services).
Wealth management
fees for the second quarter of 2024 totaled $4.4
million, a decrease of $0.2 million, or 5.2%
from the first quarter of 2024, and an increase of $0.3 million,
or 7.0% over the second quarter of 2023.
For the first six months of
2024, wealth management fees totaled $9.1 million, an increase of $1.0
million, or 12.9%, over the same period of 2023, and reflected
an $0.8 million increase in retail brokerage fees and a $0.4 million increase in
trust fees that was partially offset by a $0.2 million
decrease in insurance commission revenue.
The increase in retail brokerage assets was driven by increased fixed income and
annuity
product sales and the increase in trust fees reflected both new account
growth and higher account values/returns reflective of the
improved market returns.
At June 30, 2024, total assets under management were approximately $2.770
billion compared to $2.686
billion at March 31, 2024 and $2.588 billion at December 31, 2023.
Mortgage Banking Revenues.
Mortgage banking revenues totaled $4.4 million for the second quarter
of 2024, an increase of $1.5
million, or 52.2%, over the first quarter of 2024
and an increase of $1.0 million, or 30.3%, over the second quarter of 2023.
For the
first six months of 2024, revenues totaled $7.3 million compared to
$6.2 million for the same period of 2023.
quarter of 2024, the increase was driven by higher production.
Compared to both prior year periods, the increase was attributable to a
higher gain on sale margin which reflected a higher percentage
of secondary market/mandatory delivery loan sales.
We provide a
detailed overview of our mortgage banking operation, including
a detailed break-down of mortgage banking revenues, mortgage
servicing activity,
and warehouse funding within Note 4 – Mortgage Banking Activities in the Notes
to Consolidated Financial
Statements.
Other
.
Other income totaled $1.6 million for the second quarter of 2024,
comparable to the first quarter of 2024 and a decrease of
$1.7 million, or 50.7%, from the third quarter of 2023.
For the first six months of 2024, other income totaled $3.3 million compared
to $5.3 million for the same period of 2023.
The decrease from both prior year periods was primarily due to a $1.4 million
gain from
the sale of mortgage servicing rights realized in the second quarter of 2023.
Decreases in miscellaneous income of $0.3 million and
vendor dividend income of $0.2 million contributed to the decrease for the six-month
period.
Noninterest expense for the second quarter of 2024 totaled $40.4 million
compared to $40.2 million for the first quarter of 2024 and
$40.3 million for the second quarter of 2023.
The $0.2 million increase over the first quarter of 2024 reflected a $0.2 million increase
in other expense which included the write-off of obsolete
assets from the remodeling of an office site and a core system migration
in
the second quarter of 2024.
Compared to the second quarter of 2023, the $0.1 million increase reflected a $1.0 million
increase in
compensation expense and a $0.1 million increase in occupancy expense
that was partially offset by a $1.0 million decrease in other
expense.
The increase in compensation expense reflected a $0.7 million increase in salary expense
and a $0.3 million increase in
associate benefit expense.
The increase in salary expense was primarily due to lower realized loan cost (credit offset
to salary
expense) of $0.5 million (lower new loan volume) and higher base salary expense of $0.3
The increase in associate benefit
expense was attributable to higher expense for associate insurance.
The increase in occupancy expense was due to higher expense for
maintenance agreements (security upgrades).
The decrease in other expense was due to a one-time payment for $0.8 million in the
second quarter of 2023 related to a consulting engagement for the negotiation
of a new core processing agreement.
For the first six months of 2024, noninterest expense totaled $80.6 million compared
to $78.0 million for the same period of 2023 with
the $2.6 million increase attributable to increases in compensation expense of
$1.8 million, occupancy expense of $0.4 million, and
other expense of $0.4 million.
The increase in compensation expense was primarily due to a lower level of realized
loan cost (credit
offset to salary expense) of $2.0 million (lower new loan volume)
and higher base salary expense of $0.8 million (primarily annual
merit raises), partially offset by lower commission expense of
$1.1 million.
The increase in occupancy was driven by an increase in
expense for maintenance agreements (security upgrades and addition of
interactive teller machines).
The increase in other expense
reflected a $1.8 million gain from the sale of a banking office in the first
quarter of 2023 that was partially offset by lower pension
plan expense of $0.6 million and the favorable impact of the aforementioned
one-time consulting expense of $0.8 million in 2023.
The table below reflects the major components of noninterest expense.
Salaries
$
20,754
$
20,604
$
20,044
$
41,358
$
39,561
Associate Benefits
3,652
3,803
3,394
7,455
7,401
Total Compensation
24,406
24,407
23,438
48,813
46,962
Premises
3,043
3,173
3,170
6,216
6,414
Equipment
3,954
3,821
3,650
7,775
7,168
Total Occupancy
6,997
6,994
6,820
13,991
13,582
Legal Fees
Professional Fees
1,340
1,258
2,039
2,598
3,363
Processing Services
1,938
1,833
1,872
3,771
3,614
Advertising
1,666
1,833
Telephone
1,427
1,385
Insurance – Other
1,664
1,703
Other Real Estate Owned, net
(28)
(1,855)
Pension - Other
(419)
(419)
(838)
Pension Settlement (Gain) Charge
(291)
(291)
Miscellaneous
3,412
3,206
3,500
6,618
6,871
Total Other
9,038
8,770
10,027
17,808
17,417
Total
$
40,441
$
40,171
$
40,285
$
80,612
$
77,961
Significant components of noninterest expense are discussed in more detail
below.
Compensation
.
Compensation expense totaled $24.4 million for the second quarter of 2024,
comparable to the first quarter of 2024
and a $1.0 million increase from the second quarter of 2023.
The increase in compensation expense reflected a $0.7 million increase
in salary expense and a $0.3 million increase in associate benefit expense.
The increase in salary expense was primarily due to lower
realized loan cost (credit offset to salary expense) of $0.5 million (lower
new loan volume) and higher base salary expense of $0.3
The increase in associate benefit expense was attributable to higher expense for
associate insurance.
For the first six months
of 2023, compensation expense totaled $48.8 million compared
to $47.0 million for the same period of 2023
with the $1.8 million
increase attributable to a $1.8 million increase in salary expense which reflected
a $2.0 million reduction in realized loan cost (credit
offset to salary expense) driven by lower new loan volume,
and higher base salary expense of $0.8 million (primarily annual merit
raises), partially offset by lower commission expense of $1.1 million.
Occupancy
.
Occupancy expense totaled $7.0 million for the second quarter of 2024, comparable
to the first quarter of 2024 and a $0.2
million increase from the second quarter of 2023.
For the first six months of 2024, occupancy expense totaled $14.0 million compared
to $13.6 million for the same period of 2023.
Compared to both prior year periods,
the increase in occupancy expense was due to
higher expense for maintenance agreements (security upgrades).
Other
.
Other expense totaled $9.0 million for the second quarter of 2024
compared to $8.8 million for the first quarter of 2024
and
$10.0 million for the second quarter of 2023.
For the first six months of 2024, other expense totaled $17.8 million compared to $17.4
million for the same period of 2023.
Compared to the first quarter of 2024, the $0.2 million increase was attributable to
the write-off
of obsolete assets from the remodeling of an office site and a core
system migration in the second quarter of 2024.
Compared to the
second quarter of 2023, the decrease was primarily due to a one-time payment
for $0.8 million in the second quarter of 2023 related to
a consulting engagement for the negotiation of a new core processing agreement.
For the six-month period, the increase was primarily
due to a $1.8 million gain from the sale of a banking office in the first quarter
of 2023 that was partially offset by lower pension plan
expense of $0.6
million and the favorable impact of the aforementioned one-time consulting
expense of $0.8 million in 2023.
Our operating efficiency ratio (expressed as noninterest
expense as a percentage of the sum of taxable-equivalent net interest income
plus noninterest income) was 68.61%
for the second quarter of 2024 compared to 71.06% for the first quarter of 202
and 66.93% for
the second quarter of 2023.
For the first six months of 2024, this ratio was 69.81% compared to 65.82% for
the same period of 2023.
Income Taxes
We realized income
tax expense of $3.2 million (effective rate of 18.5%) for the second
quarter of 2024 compared to $3.5 million
(effective rate of 23.0%) for the first quarter of 2024 and $3.4
million (effective rate of 19.4%) for the second quarter of 2023.
For the
first six months of 2024, we realized income tax expense of $6.7 million (effective
rate of 20.6%) compared to $7.1 million (effective
rate of 20.4%) for the same period of 2023.
The decrease in our effective tax rate for the second quarter of
2024 was primarily due to
a higher level of tax benefit accrued from a new investment in a solar tax credit equity fund.
Absent discrete items, we expect our
annual effective tax rate to approximate 20-21% for 2024.
FINANCIAL CONDITION
Average earning
assets totaled $3.935 billion for the second quarter of 2024, an increase of $85.7 million, or
2.2%, over the first
quarter of 2024, and an increase of $111.3
million, or 2.9%, over the fourth quarter of 2023.
The variance for both prior period
comparisons was driven by an increase in deposit balances (see below –
), resulting in higher levels of overnight funds sold.
Compared to the fourth quarter of 2023, the change in the earning asset mix reflected
a $162.7 million increase in overnight funds and
a $15.5 million increase in loans HFI that was partially offset by lower
investment securities of $43.4 million, and loans held for sale
of $23.5 million.
Investment Securities
Average investments
decreased $33.4 million, or 3.5%, from the first quarter of 2024
and $43.4 million, or 4.5%,
from the fourth
quarter of 2023. Our investment portfolio represented 23.4% of our average
earning assets for the second quarter of 2024 compared to
24.8% for the first quarter of 2024 and 25.2% for the fourth quarter of
For the remainder of 2024, we will continue to monitor
our overall liquidity position and market conditions to determine if
cash flow from the investment portfolio should be reinvested or
allowed to run-off into overnight funds.
The investment portfolio is a significant component of our operations and, as such,
it functions as a key element of liquidity and
asset/liability management.
Two types of classifications are approved
for investment securities which are Available
-for-Sale (“AFS”)
and Held-to-Maturity (“HTM”).
At June 30, 2024, $583.0 million, or 65.0%, of the investment portfolio was classified as HTM and
$310.9 million, or 34.7%, was classified as AFS. The average maturity
of our total portfolio at June 30, 2024 was 2.67 compared to
2.76 years at March 31, 2024 and 2.91 years at December 31, 2023.
The duration of our investment portfolio at June 30, 2024 was
2.16 years compared to 2.39 years at March 31, 2024 and 2.91 years
Additional information on unrealized
gains/losses in the AFS and HTM portfolios is provided in Note 2 – Investment
Securities.
We determine
the classification of a security at the time of acquisition based on how the purchase will affect
our asset/liability strategy
and future business plans and opportunities.
We consider multiple
factors in determining classification, including regulatory capital
requirements, volatility in earnings or other comprehensive income,
and liquidity needs.
Securities in the AFS portfolio are recorded
at fair value with unrealized gains and losses associated with these securities recorded
net of tax, in the accumulated other
comprehensive income component of shareowners’ equity.
HTM securities are acquired or owned with the intent of holding them
to
maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment
securities for the purpose of recognizing gains and therefore we do not maintain
a trading portfolio.
At June 30, 2024, there were 856 positions (combined AFS and HTM) with
unrealized losses totaling $62.0 million. 82 of these
positions are U.S. Treasuries and carry the full faith
and credit of the U.S. Government.
673 were U.S. government agency securities
issued by U.S. government sponsored entities. The remaining 101 positions
(municipal securities and corporate bonds) have a credit
component.
At June 30, 2024, corporate debt securities had an allowance for credit losses of $135,000
and municipal securities had
an allowance of $5,000.
At June 30, 2024, all collateralized mortgage obligation securities, mortgage
-backed securities,
Small
Business Administration securities,
U.S. Agency, and
U.S. Treasury bonds held were AAA rated.
Loans HFI
Average loans
HFI decreased $1.9 million, or 0.1%, from the first quarter of 2024 and increased $15.5 million,
or 0.6%, over the
fourth quarter of 2023.
Compared to the first quarter of 2024, the slight decrease was driven by a decline
in the consumer loans
(primarily indirect auto) of $19.0 million, partially offset by increases
in residential real estate loans of $10.1 million and commercial
real estate loans of $8.0 million.
Compared to the fourth quarter of 2023, the increase was primarily attributable to a $51.8
million
increase in residential real estate loans that was partially offset by
a decrease of $35.0 million in consumer loans (primarily indirect
auto).
Period end loans HFI decreased $40.9 million, or 1.5%, from the first quarter of 2024
and decreased $43.7 million, or 1.6%, from the
fourth quarter of 2023.
Compared to the first quarter of 2024, the decline reflected a $20.0 million decrease
in consumer loans
(primarily indirect auto) and a $13.3 million decrease in commercial loans
(primarily tax-exempt loans).
The decrease from the fourth
quarter of 2023 was primarily attributable to a $36.8 million decrease
in consumer loans (primarily indirect auto) and commercial
loans of $20.2 million (primarily tax-exempt loans) that was partially offset
by a $11.3 million increase in residential real estate loans.
Without compromising our credit standards
,
changing our underwriting standards, or taking on inordinate interest rate risk,
we
continue to closely monitor our markets and make minor adjustments as necessary.
Credit Quality
Nonperforming assets (nonaccrual loans and other real estate) totaled $6.2
million at June 30, 2024 compared to $6.8 million at March
31, 2024 and $6.2 million at December 31, 2023.
At June 30, 2024, nonperforming assets as a percent of total assets equaled 0.15%,
compared to 0.16% at March 31, 2024 and 0.15% at December 31, 2023.
Nonaccrual loans totaled $5.5 million at June 30, 2024, a
$1.3 million decrease from March 31, 2024 and a $0.7 million decrease
from December 31, 2024.
Further, classified loans totaled
$25.6 million at June 30, 2024, a $3.3 million increase over March 31, 2024
and a $3.4 million increase over December 31, 2023.
The allowance for credit losses is a valuation account that is deducted from the
loans’ amortized cost basis to present the net amount
expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision which is reported in
earnings and reduced by the charge-off of loan amounts
(net of recoveries).
Loans are charged off against the allowance when
management believes the uncollectability of a loan balance is confirmed.
Expected recoveries do not exceed the aggregate of amounts
previously charged-off and expected to be charged
-off.
Expected credit loss inherent in non-cancellable off-balance sheet credit
exposures is provided through the credit loss provision but recorded as a separate
liability included in other liabilities.
Management estimates the allowance balance using relevant available information,
from internal and external sources relating to past
events, current conditions, and reasonable and supportable forecasts.
Historical loan default and loss experience provides the basis for
the estimation of expected credit losses.
Adjustments to historical loss information incorporate management’s
view of current
conditions and forecasts.
At June 30, 2024, the allowance for credit losses for loans HFI totaled $29.2
million compared to $29.3 million at March 31, 2024 and
$29.9 million at December 31, 2023.
Activity within the allowance is provided in Note 3 – Loans Held for Investment
and Allowance
for Credit Losses in the Consolidated Financial Statements.
The slight decrease in the allowance from March 31, 2024 reflected a
lower level of net charge-offs (18 basis points
for the second quarter of 2024 versus 22 basis points for the first quarter of 2024) that
was offset by a higher credit loss provision (see above –
).
The decrease in the allowance from December
31, 2023 was primarily due to lower loan balances.
At June 30, 2024, the allowance represented 1.09% of loans HFI compared
to
1.07% at March 30, 2024, and 1.10% at December 31, 2023.
At June 30, 2024, the allowance for credit losses for unfunded commitments
totaled $3.1 million compared to $3.1
million and $3.2
million at March 31, 2024 and December 31, 2023, respectively.
The allowance for unfunded commitments is recorded in other
liabilities.
Average total
deposits were $3.641 billion for the second quarter of 2024, an increase of $64.5 million, or 1.8%,
over the first quarter
of 2024 and an increase of $92.5 million, or 2.6%, over the fourth quarter
of 2023.
Compared to both prior periods, growth occurred
in both money market and CD balances which reflected a combination of balances
migrating from savings, and to a lesser extent
noninterest bearing accounts, in addition to receiving new deposits from existing
and new clients via various deposit strategies.
In
addition, compared to the fourth quarter of 2023, the increase in NOW balances reflected
higher average public funds balances as
municipal tax receipts are received/deposited by those clients starting in late November.
To a lesser extent, we have realized
NOW
account inflows from new and existing business accounts which reflected
our bankers focus on deposit gathering initiatives.
At June 30, 2024, total deposits were $3.609 billion, decreases of $46.2 million,
or 1.3%, from March 31, 2024, and $93.3 million, or
2.5%,
from December 31, 2023.
The decrease from both prior periods was primarily due to lower NOW account
balances, partially
offset by the aforementioned growth in money market
and CD balances from both new and existing clients.
The decline in NOW
accounts primarily reflects seasonal public fund balance activity.
Total public funds balances were
$575.0 million at June 30, 2024,
$615.0 million at March 31, 2024, and $709.8 million at December 31,
Business deposit transaction accounts classified as repurchase agreements
averaged $27.0 million for the second quarter of 2024, an
increase of $1.3 million over the first quarter of 2024 and an increase of $0.2 million
over the fourth quarter of 2023. At June 30,
2024, repurchase agreement balances were $22.5 million compared
to $23.5 million at March 31, 2024 and $27.0 million at December
We continue
to closely monitor our cost of deposits and deposit mix as we manage through the current rate
environment.
MARKET RISK AND INTEREST RATE
SENSITIVITY
Market Risk and Interest Rate Sensitivity
Overview.
Market risk arises from changes in interest rates, exchange rates,
commodity prices, and equity prices.
We have risk
management policies designed to monitor and limit exposure to market
risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or
equity prices.
In asset and liability management activities, our
policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
Our net income is largely dependent on net interest income.
Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature
or reprice on a different basis than interest-earning assets.
When
interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in
market rates of interest could adversely affect net interest
income.
Similarly, when interest-earning
assets mature or reprice more
quickly than interest-bearing liabilities, falling market interest rates could
result in a decrease in net interest income.
Net interest
income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by
other sources of funds, such as noninterest-bearing deposits and shareowners’
equity.
We have established
what we believe to be a comprehensive interest rate risk management policy,
which is administered by
management’s Asset Liability Management
Committee (“ALCO”).
The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net
interest income at risk) and the fair value of equity capital
(a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change
in interest rates for maturities from one
day to 30 years.
We measure the potential
adverse impacts that changing interest rates may have on our short-term
earnings, long-
term value, and liquidity by employing simulation analysis through the use of
computer modeling.
The simulation model captures
optionality factors such as call features and interest rate caps and floors imbedded
in investment and loan portfolio contracts.
As with
any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by
us.
When interest rates change, actual movements in different categories
of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate significantly
from assumptions used in the model.
Finally, the
methodology does not measure or reflect the impact that higher rates may have
on adjustable-rate loan clients’ ability to service their
debts, or the impact of rate changes on demand for loan and deposit products.
The statement of financial condition is subject to testing for interest rate shock
possibilities to indicate the inherent interest rate risk.
We apply instantaneous,
parallel rate shocks to the base case in 100 basis point (bp) increments ranging from down
400bp to up
400bps at least once per quarter, with the
analysis reported to ALCO, our Market Risk Oversight Committee (“MROC”),
our
Enterprise Risk Oversight Committee (“EROC”) and the Board of Directors.
We augment our interest rate
shock analysis with
alternative interest rate scenarios on a quarterly basis that may include ramps,
and a flattening or steepening of the yield curve (non-
parallel shift).
In addition, more frequent forecasts may be produced when interest rates are particularly
uncertain or when other
business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over
12-month and 24-month periods
and the economic value of equity at risk do not exceed policy guidelines
at the various interest rate shock levels. We
attempt to
achieve this goal by balancing, within policy limits, the volume of floating-rate
liabilities with a similar volume of floating-rate assets,
by keeping the average maturity of fixed-rate asset and liability contracts
reasonably matched, by managing the mix of our core
deposits, and by adjusting our rates to market conditions on a continuing
basis.
Analysis.
Measures of net interest income at risk produced by simulation analysis are
indicators of an institution’s short-term
performance in alternative rate environments.
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
ESTIMATED CHANGES
IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
-15.0%
-12.5%
-10.0%
-7.5%
-7.5%
-10.0%
-12.5%
-15.0%
15.0%
11.2%
7.3%
3.8%
-4.1%
-8.5%
-13.4%
-18.3%
10.0%
7.5%
4.8%
2.5%
-3.1%
-6.5%
-10.5%
-15.1%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
-17.5%
-15.0%
-12.5%
-10.0%
-10.0%
-12.5%
-15.0%
-17.5%
41.8%
33.9%
26.0%
18.6%
2.2%
-7.4%
-18.1%
-28.6%
38.2%
31.3%
24.4%
18.0%
3.5%
-5.4%
-15.4%
-26.0%
The Net Interest Income (“NII”) at Risk position of an instantaneous,
parallel rate shock indicates that in the short-term (over the next
12 months), all rising rate environments will positively impact the net interest
margin of the Company,
while declining rate
environments
will have a negative impact on the net interest margin. Compared
to the first quarter of 2024, these metrics generally
became more favorable in the rising rate scenarios and less favorable
in the falling rate scenarios primarily attributable to the growth
in variable rate overnight funds which made the Bank more asset sensitive.
The instantaneous,
parallel rate shock results over the next
12-month and 24-month periods are outside of policy in the rates down
300 bps and 400 bps scenario primarily due to the
aforementioned increase in overnight funds.
The measures of equity value at risk indicate our ongoing economic value
by considering the effects of changes in interest rates on all
of our cash flows by discounting the cash flows to estimate the present value of
assets and liabilities. The difference between these
discounted values of the assets and liabilities is the economic value of equity,
which in theory approximates the fair value of our net
assets.
ESTIMATED CHANGES
IN ECONOMIC VALUE
OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
-30.0%
-25.0%
-20.0%
-15.0%
-15.0%
-20.0%
-25.0%
-30.0%
20.2%
16.5%
11.7%
6.1%
-9.5%
-19.0%
-26.1%
-28.8%
19.5%
15.3%
10.4%
5.4%
-8.7%
-17.8%
-24.9%
-28.4%
EVE Ratio (policy minimum 5.0%)
21.8%
20.7%
19.5%
18.2%
15.0%
13.2%
11.9%
11.3%
At June 30, 2024, the economic value of equity was favorable in all rising
rate environments and unfavorable in the falling rate
environments. Compared to the first quarter of 2024, EVE metrics were slightly
more favorable in the rising rate environment and less
favorable in falling rate environments.
EVE is currently in compliance with policy in all rate scenarios as the EVE ratio
exceeds the
policy minimum of 5.0% in each shock scenario.
As the interest rate environment and the dynamics of the economy continue to change,
additional simulations will be analyzed to
address not only the changing rate environment, but also the change
in mix of our financial assets and liabilities, measured over
multiple years, to help assess the risk to the Company.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our
cash needs.
Our objective in managing our liquidity is to
maintain our ability to meet loan commitments, purchase securities or repay deposits and
other liabilities in accordance with their
terms, without an adverse impact on our current or future earnings.
Our liquidity strategy is guided by policies that are formulated and
monitored by our ALCO and senior management, which take into account
the marketability of assets, the sources and stability of
funding and the level of unfunded commitments.
We regularly evaluate
all of our various funding sources with an emphasis on
accessibility, stability,
reliability and cost-effectiveness.
Our principal source of funding has been our client deposits, supplemented
by our short-term and long-term borrowings, primarily from securities sold under
repurchase agreements, federal funds purchased and
FHLB borrowings.
We believe that the cash
generated from operations, our borrowing capacity and our access to capital resources
are
sufficient to meet our future operating capital and funding requirements.
At June 30, 2024, we had the ability to generate approximately $1.500 billion
(excludes overnight funds position of $273 million) in
additional liquidity through various sources including various federal funds
purchased lines, Federal Home Loan Bank borrowings, the
Federal Reserve Discount Window,
and brokered deposits.
We recognize
the importance of maintaining liquidity and have developed
a Contingent Liquidity Plan, which addresses various liquidity stress levels and
our response and action based on the level of severity.
We periodically
test our credit facilities for access to the funds, but also understand that as the severity
of the liquidity level increases
that certain credit facilities may no longer be available.
We conduct
a liquidity stress test on a quarterly basis based on events that
could potentially occur at the Bank and report results to our ALCO, MROC
,
EROC, and Board of Directors.
At June 30, 2024, we
believe the liquidity available to us was sufficient to meet our on-going
needs and execute our business strategy.
We also view our
investment portfolio as a liquidity source and have the option to pledge securities in our
portfolio as collateral for
borrowings or deposits, and/or to sell selected securities.
Additional information on our investment portfolio is provided within
Note
2 – Investment Securities.
The Bank maintained an average net overnight funds (deposits with banks plus
FED funds sold less FED funds purchased) sold
position of $262.4 million in the second quarter of 2024 compared
to $140.5 million in the first quarter of 2024 and $99.8 million in
the fourth quarter of 2023.
Compared to both prior periods, the increase was primarily driven by higher average
deposits and
investment portfolio cash flow run-off.
We expect our
capital expenditures will be approximately $12.0 million over the next 12 months,
which will primarily consist of
construction of new offices, office remodeling,
office equipment/furniture, and technology purchases.
Management expects that these
capital expenditures will be funded with existing resources without impairing
our ability to meet our on-going obligations.
Average short
-term borrowings totaled $33.6 million for the second quarter of 2024 compared
to $29.5 million for the first quarter of
and $43.8 million for the fourth quarter of 2023.
Compared to the first quarter of 2024, the increase was primarily attributable to
a higher balance maintained on CCHL’s
warehouse line. Compared to the fourth quarter of 2023, the decrease
was attributable to a
lower balance maintained on CCHL’s
warehouse line.
Additional detail on these warehouse borrowings is provided in Note 4 –
Mortgage Banking Activities in the Consolidated Financial Statements.
We have issued two
junior subordinated deferrable interest notes to our wholly owned
Delaware statutory trusts.
The first note for
$30.9 million was issued to CCBG Capital Trust I in
November 2004, of which $10 million was retired in April 2016.
The second
note for $32.0 million was issued to CCBG Capital Trust II
in May 2005.
The interest payment for the CCBG Capital Trust I
borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
CME Term SOFR (secured overnight
financing rate)
plus a margin of 1.90%.
This note matures on December 31, 2034.
The interest payment for the CCBG Capital Trust II borrowing
is
due quarterly and adjusts quarterly to a variable interest rate based on three-month
CME Term SOFR plus a margin
of 1.80%.
This
note matures on June 15, 2035.
The proceeds from these borrowings were used to partially fund acquisitions.
Under the terms of each
junior subordinated deferrable interest note, in the event of default or
if we elect to defer interest on the note, we may not, with certain
exceptions, declare or pay dividends or make distributions on our capital
stock or purchase or acquire any of our capital stock.
During the second quarter of 2020, we entered into a derivative cash
flow hedge of our interest rate risk related to our subordinated
debt.
The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust
I borrowing and $20 million of the
CCBG Capital Trust II borrowing).
The interest rate swap agreement requires CCBG to pay fixed and receive variable (three-month
CME Term SOFR plus spread)
and has an average all-in fixed rate of 2.50% for 10 years.
Additional detail on the interest rate swap
agreement is provided in Note 5 – Derivatives in the Consolidated Financial
Statements.
Capital
Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 34.
At June 30, 2024, our regulatory capital
ratios exceeded the threshold to be designated as “well-capitalized”
under the Basel III capital standards.
Shareowners’ equity was $461.0 million at June 30, 2024 compared to
$448.3 million at March 31, 2024 and $440.6 million at
December 31, 2023.
For the first six months of 2024, shareowners’ equity was positively impacted by net income
attributable to
shareowners of $26.7 million, a $1.2 million decrease in the net unrealized
loss on available for sale securities, net adjustments
totaling $0.8
million related to transactions under our stock compensation plans, stock
compensation accretion of $0.7 million, a $0.3
million increase in the fair value of the interest rate swap related to subordinated debt
,
and a $0.1 million reclassification to temporary
equity.
Shareowners’ equity was reduced by a common stock dividend of $7.1 million ($0.42
per share) and the repurchase of
common stock of $2.3 million (82,540 shares).
At June 30, 2024, our total risk-based capital ratio was 17.50% compared to 16.84% at March
31, 2024 and 16.57% at December 31,
Our common equity tier 1 capital ratio was 14.44%, 13.82%, and 13.52%, respectively,
on these dates.
Our leverage ratio was
10.51%, 10.45%, and 10.30%, respectively,
on these dates.
At June 30, 2024, all our regulatory capital ratios exceeded the thresholds
to be designated as “well-capitalized” under the Basel III capital standards.
Further, our tangible common equity
ratio (non-GAAP
financial measure) was 8.91% at June 30, 2024 compared to 8.53% and 8.26% at March
31, 2024 and December 31, 2023,
respectively.
If our unrealized held-to-maturity securities losses of $21.7 million (after-tax)
were recognized in accumulated other
comprehensive loss, our adjusted tangible capital ratio would be 8.38%.
Our tangible capital ratio is also impacted by the recording of our unfunded pension
liability through other comprehensive income in
accordance with Accounting Standards Codification
Topic 715.
At June 30, 2024, the net pension liability reflected in other
comprehensive loss was $0.4 million compared to $0.4 million
at March 31, 2024 and December 31, 2023.
This liability is re-
measured annually on December 31
st
based on an actuarial calculation of our pension liability.
Significant assumptions used in
calculating the liability include the weighted average discount rate used to measure
the present value of the pension liability,
the
weighted average expected long-term rate of return on pension
plan assets, and the assumed rate of annual compensation increases, all
of which will vary when re-measured.
The discount rate assumption used to calculate the pension liability is subject to long-term
corporate bond rates at December 31
st
.
These assumptions and sensitivities are discussed in the section entitled “Critical
Accounting
Policies and Estimates” in Part II, Item7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
of
our 2023 Form 10-K/A.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party
to financial instruments with off-balance sheet risks in the normal
course of business to meet the financing needs of our
clients.
At June 30, 2024, we had $734.5 million in commitments to extend credit
and $6.2 million in standby letters of credit.
Commitments
to extend credit are agreements to lend to a client so long as there is no violation of any
condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee.
Since many of the
commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future
cash requirements.
Standby letters of credit are conditional commitments issued by us to guarantee the performance
of a client to a
third party.
We use the same credit policies
in establishing commitments and issuing letters of credit as we do for on-balance
sheet
instruments.
If commitments arising from these financial instruments continue to require
funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet our on-going
obligations.
In the event these commitments
require funding in excess of historical levels, management believes current
liquidity, advances available from the
FHLB and the
Federal Reserve, and investment security maturities provide a sufficient
source of funds to meet these commitments.
Certain agreements provide that the commitments are unconditionally
cancellable by the bank and for those agreements no allowance
for credit losses has been recorded.
We have recorded
an allowance for credit losses on loan commitments that are not
unconditionally cancellable by the Bank, which is included in other
liabilities on the Consolidated Statements of Financial Condition
and totaled $3.1 million at June 30, 2024.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 to the Consolidated
Financial Statements included in our 2023 Form 10-
K/A.
The preparation of our Consolidated Financial Statements
in accordance with GAAP and reporting practices applicable to the
banking industry requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and
expenses, and to disclose contingent assets and liabilities.
Actual results could differ from those estimates.
We have identified
accounting for (i) the allowance for credit losses, (ii) goodwill,
(iii) pension assumptions, and (iv) income taxes as
our most critical accounting policies and estimates in that they are important
to the portrayal of our financial condition and results, and
they require our subjective and complex judgment as a result of the need to make estimates about
the effects of matters that are
inherently uncertain.
These accounting policies, including the nature of the estimates and types of assumptions
used, are described
throughout this Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, and
Part II, Item 7,
Management’s Discussion and Analysis
of Financial Condition and Results of Operations included
in our 2023 Form 10-K/A.
TABLE I
AVERAGE BALANCES & INTEREST RATES (UNAUDITED)
Average
Average
Average
Average
Average
Average
Average
Average
Rate
Rate
Rate
Rate
Assets:
$
26,281
$
5.26
%
$
54,350
$
5.90
%
$
26,797
$
1,080
5.62
%
$
54,728
$
1,445
5.32
%
(1)(2)
2,726,748
40,683
6.03
2,657,693
36,890
5.55
2,727,688
80,879
5.99
2,620,252
71,232
5.48
Taxable Securities
918,989
3,998
1.74
1,041,202
4,803
1.84
935,658
8,237
1.76
1,051,232
9,716
1.85
Tax-Exempt Securities
(2)
4.36
2,656
2.47
4.35
2,747
2.41
Federal Funds Sold and Interest Bearing
262,419
3,624
5.56
218,902
2,782
5.10
201,454
5,517
5.51
289,543
6,893
4.80
Total Earning Assets
3,935,280
48,831
4.99
%
3,974,803
45,292
4.57
%
3,892,447
95,731
4.94
%
4,018,502
89,319
4.48
%
Cash & Due From Banks
74,803
75,854
75,283
75,250
Allowance For Credit Losses
(29,564)
(27,893)
(29,797)
(26,771)
291,669
297,837
293,473
298,999
TOTAL ASSETS
$
$
$
4,231,406
$
4,365,980
Liabilities:
Noninterest Bearing Deposits
1,346,546
1,539,877
1,345,367
1,570,642
NOW Accounts
$
1,207,643
$
4,425
1.47
%
$
1,200,400
$
3,038
1.01
%
$
1,204,337
$
8,922
1.49
%
$
1,214,585
$
5,190
0.86
%
Money Market Accounts
407,387
2,752
2.72
288,466
1.04
380,489
4,737
2.50
278,077
0.69
Savings Accounts
519,374
0.14
602,848
0.08
529,374
0.14
616,045
0.06
Other Time Deposits
160,078
1,226
3.08
87,973
0.47
149,203
2,150
2.90
88,819
0.35
Total Interest Bearing Deposits
2,294,482
8,579
1.50
2,179,687
4,008
0.74
2,263,403
16,173
1.44
2,197,526
6,496
0.60
Total Deposits
3,641,028
8,579
0.95
3,719,564
4,008
0.43
3,608,770
16,173
0.90
3,768,168
6,496
0.35
Repurchase Agreements
26,999
3.24
17,888
2.58
26,362
3.19
13,639
1.83
Other Short-Term Borrowings
6,592
4.16
17,834
7.54
5,176
4.16
27,745
5.73
52,887
4.71
52,887
4.52
52,887
1,258
4.70
52,887
1,175
4.42
Other Long-Term Borrowings
4.31
4.80
4.56
4.80
Total Interest Bearing Liabilities
2,381,218
9,497
1.60
%
2,268,727
5,068
0.90
%
2,348,098
17,962
1.54
%
2,292,252
8,594
0.76
%
Other Liabilities
72,634
84,305
70,464
82,765
TOTAL LIABILITIES
3,800,398
3,892,909
3,763,929
3,945,659
Temporary Equity
6,493
8,935
6,821
8,869
TOTAL SHAREOWNERS’ EQUITY
465,297
418,757
460,656
411,452
TOTAL LIABILITIES, TEMPORARY
AND SHAREOWNERS’ EQUITY
$
$
$
4,231,406
$
4,365,980
Interest Rate Spread
3.38
%
3.67
%
3.40
%
3.73
%
$
39,334
$
40,224
$
77,769
$
80,725
Net Interest Margin
(3)
4.02
%
4.06
%
4.01
%
4.05
%
(1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loan costs of $0.2 million and
$0.3 million for the three and six months ended June
30, 2024, and net loan
fees of $0.1 million and $0.4 million for the three
and six month periods ended June 30, 2023.
(2)
Interest income includes the effects of taxable equivalent adjustments
using a 21% Federal tax rate.
(3)
Taxable equivalent net interest income divided by average earning assets.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
See “Market Risk and Interest Rate Sensitivity” in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, above, which is incorporated herein by reference.
Management has determined that no additional disclosures are
necessary to assess changes in information about market risk that have occurred
since December 31, 2023.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
At June 30, 2024, the end of the period covered by this Form 10-Q, our management,
including our Chief Executive Officer and Chief
Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the
Securities Exchange Act of 1934).
Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded
that, as of the end of the period covered by this report our disclosure controls and procedures
were ineffective due to the identification
of the material weakness discussed below.
Previously Reported Material Weakness
in Internal Control Over Financial Reporting
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such
that there is a
reasonable possibility that a material misstatement of the Company’s
annual interim financial statements will not be prevented or
detected on a timely basis.
As reported in our 2023 Form 10-K/A, we did not maintain effective
internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934) as of December 31, 2023 as a result of
a material weakness in our internal control over financial reporting for the review of
significant inter-company mortgage loan sales
and servicing transactions was not designed effectively.
Specifically, management’s
review control over the completeness and
accuracy of elimination entries in the consolidation process was not designed
effectively, as the review
was not sufficiently precise to
identify all the necessary elimination entries between CCB and its subsidiary,
CCHL. The Company determined inter-company
transactions related to the sale of residential mortgage loans were not properly eliminated
and net loan fees were not properly
recorded. Further, financial information obtained
from CCHL for certain construction/permanent loan activity was not in sufficient
detail to appropriately classify this activity within the Statement of Cash Flows.
Specifically, management’s
review control over the
completeness, accuracy and review of financial information provided
from CCHL related to the Statement of Cash Flows was not
designed effectively as the review was not sufficiently
precise to identify all errors in financial reporting. Refer to our 2023 Form 10-
K/A for further information on the material weakness.
Remediation Plan
Since identifying the material weakness described above, management,
with oversight from the Audit Committee and input from the
Board of Directors, has devoted substantial resources to the ongoing
implementation of remediation efforts. These remediation
efforts,
summarized below are intended to address both the identified material weakness
and to enhance the Company’s overall
internal
control over financial reporting and disclosure controls and procedures.
Based on additional procedures and post-closing review,
management concluded that the consolidated financial statements
included in this report present fairly,
in all material respects, our
financial position, results of operations, and cash flows for the periods presented,
in conformity with GAAP.
The internal control and procedural enhancements and remedial actions that
have been implemented include:
Enhance the precision level review of activity within existing accounts that are
subject to elimination during consolidation, to
ensure appropriate elimination;
Enhance review procedures to identify new inter-company
accounts and activities subject to elimination during
consolidation;
Increase the granularity of general ledger mapping for inter-company
accounts subject to elimination during consolidation;
Enhance financial close checklist and pre-close meeting agenda to assist the reviewer
identifying and assessing inter-
company activities that are subject to elimination in a timely manner; and
Enhance the detail of review procedures of financial information obtained
from a subsidiary
to identify, assess and validate
appropriate classification when preparing the consolidated financial statements,
including when reviewing items in the
operating, investing or financing activity sections within the Statement of
Cash Flow.
To remediate
the material weakness, the Company implemented the internal control and procedural enhancements
noted above in
items 1-4 during the fourth quarter of 2023 and implemented the enhancement
noted above in item 5 during the first quarter of 2024.
The material weakness cannot be considered remediated until the applicable
controls have operated for a sufficient period of time and
management has concluded, through testing, that these controls are designed
and operating effectively.
Accordingly, management
will
continue to monitor and evaluate the effectiveness of our
internal control over financial reporting and the disclosure controls and
procedures.
Change in Internal Control
Except as identified above with respect to remediation of the material weakness,
there have been no significant changes in our internal
control over financial reporting during our most recently completed fiscal
quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART
II.
OTHER INFORMATION
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.
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider
the factors discussed in Part I,
quarterly reports. The risks described in our 2023
Form 10-K/A and our subsequent quarterly reports are not the only risks facing
us. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition and/or
operating results.
Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Defaults Upon Senior Securities
None.
Mine Safety Disclosure
Not Applicable.
Other Information
(c) Rule 10b5-1 Trading Plans
During the three months ended June 30, 2024, none of our directors or
officers (as defined in Rule 16a-1(f) under the Exchange Act)
adopted
or
terminated
any contract, instruction or written plan for the purchase or sale of our securities that was intended
to satisfy the
affirmative defense conditions of Rule 10b5-1(c) under
the Exchange Act or any “
non-Rule
10b5-1
trading arrangement” as defined in
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.