Capital City Bank Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company is a Florida-based financial holding company operating primarily in Florida and Georgia, with banking, mortgage and wealth-management businesses. Its consolidated assets were $4.30 billion at year-end.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue (interest income plus noninterest income) | $252.7 million | $207.1 million |
| Net interest income | $159.0 million | $125.0 million |
| Net income attributable to common shareowners | $52.3 million | $33.4 million |
| Diluted earnings per share | $3.07 | $1.97 |
| Net interest margin, taxable-equivalent | 4.05% | 3.14% |
| Efficiency ratio | 67.99% | 75.62% |
| Loans held for investment, year-end | $2.734 billion | $2.548 billion |
| Deposits, year-end | $3.702 billion | $3.939 billion |
| Cash and cash equivalents, year-end | $312.1 million | $600.7 million |
| Shareowners’ equity, year-end | $440.6 million | $387.3 million |
- Earnings drivers: Net interest income rose 27.2%, reflecting loan growth and higher asset yields; higher deposit costs partly offset the benefit. Average total deposit cost increased to 0.48% from 0.09%.
- Other income and costs: Noninterest income declined 4.8% to $71.6 million, mainly from lower mortgage banking revenues and insurance commissions. Noninterest expense rose 3.6% to $157.0 million, driven largely by staffing and new-office costs.
- Cash flow: Operating cash flow was $66.4 million; investing cash flow was negative $80.1 million and financing cash flow negative $274.8 million. Cash and cash equivalents fell $288.6 million, primarily amid deposit outflows and loan growth.
- Credit: Provision for credit losses was $9.7 million. The allowance for credit losses was $29.9 million, or 1.10% of loans held for investment. Nonperforming assets increased to $6.2 million from $2.7 million; net charge-offs were 0.18% of average loans in both years. Indirect-auto charge-offs increased, while the company said it was reducing exposure to that segment.
- Capital and debt: CET1 was 13.52%, total risk-based capital 16.57%, and leverage 10.30%; the Bank was classified as well capitalized. Year-end debt included $52.9 million of subordinated notes, $35.3 million of short-term borrowings and $0.3 million of FHLB advances.
- Liquidity and securities: Management reported approximately $1.488 billion of additional potential liquidity, excluding $229 million of overnight funds, and said available liquidity was sufficient for ongoing needs. The securities portfolio had $63.2 million of pretax unrealized losses; the AFS portfolio’s net unrealized loss after tax was $22.3 million.
Material changes versus 2022
- Net income attributable to common shareowners increased 56.4%, and diluted EPS rose from $1.97 to $3.07.
- Average loans held for investment grew 21.3%; year-end loans increased 7.3%. Average deposits declined 2.5%, while year-end deposits fell 6.0%.
- Noninterest income continued to reflect a sharp contraction in mortgage banking from 2021 levels: mortgage banking revenues were $10.4 million in 2023 versus $11.9 million in 2022 and $52.4 million in 2021.
- Shareowners’ equity increased, helped by earnings and improved AOCI. Tangible common equity was 8.26%, up from 6.65%.
Outlook, risks and unusual items
- Management expects a 2024 effective tax rate of approximately 23%–24%, absent discrete items or new tax-credit investments, and capital expenditures of approximately $12 million over the next 12 months. It said purchases of adjustable-rate residential loans from CCHL may slow in 2024. No earnings or revenue guidance was provided.
- The company’s mortgage subsidiary, CCHL, has a 49% noncontrolling interest. The minority owner exercised its put option; the transfer is scheduled to take effect January 1, 2025. The resulting financial impact is not quantified clearly in the filing text.
- Restatements: The filing restated cash-flow statements for 2021, 2022 and specified 2022–2023 interim periods to correct intercompany transaction presentation. The identified cash-flow line-item errors offset within operating and investing activities and did not change net cash from those activities. Separately, the company’s 2022 Form 10-K/A had restated prior financial statements for intercompany mortgage transactions.
- Controls and reporting: Management concluded internal control over financial reporting and disclosure controls were ineffective at December 31, 2023 due to a material weakness in reviewing intercompany mortgage loan sales, servicing transactions and consolidation eliminations. Remediation steps were implemented in Q4, but effectiveness must be demonstrated through testing. The auditor gave an adverse opinion on internal control, while expressing an unqualified opinion on the financial statements.
- The company reported that it failed to timely file its September 2023 Form 10-Q and was consequently ineligible to use Form S-3 at the filing date, potentially making future registered capital raises slower and more costly.
- Key risks include deposit competition and public-fund deposit volatility, rate sensitivity, concentrated real-estate lending in Florida and Georgia, commercial real-estate and indirect-auto credit exposure, securities valuation losses, cybersecurity, regulatory compliance, and the ongoing control remediation. Management reported no known litigation expected to have a material effect.
Important facts for investors to verify
- Review Note 1 and the restated cash-flow statements, and distinguish those corrections from the earlier restatement of 2022 financial statements.
- Track remediation testing and any further reporting delays; confirm the company’s subsequent eligibility to use Form S-3.
- Monitor deposit balances, deposit pricing, uninsured and public-fund concentrations, and the use and availability of contingent liquidity.
- Assess loan quality trends, particularly nonaccruals, classified loans, indirect-auto charge-offs and real-estate collateral concentrations.
- Confirm the timing, valuation terms and earnings/capital consequences of the CCHL 49% put-option transfer in 2025.
- Follow the 2024 tax-rate and capital-spending expectations, and changes in AFS/HTM losses and regulatory capital.