Capital City Bank Group, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2022. Capital City Bank Group is a Florida-based financial holding company operating 57 full-service offices in Florida, Georgia, and Alabama, offering banking, mortgage, wealth management, and related services. Unless noted otherwise, amounts below are in millions.
Financial results and condition
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net interest income (tax-equivalent) | $24.8 | $24.6 |
| Net interest margin (tax-equivalent) | 2.55% | 2.85% |
| Noninterest income | $25.8 | $29.8 |
| Noninterest expense | $39.2 | $40.5 |
| Provision for credit losses | $0 | $(1.0) benefit |
| Net income attributable to common shareowners | $8.5 | $9.5 |
| Diluted earnings per share | $0.50 | $0.56 |
| Operating cash flow | $18.0 | $50.9 |
- At March 31, total assets were $4.31 billion, deposits $3.77 billion, and loans held for investment, net, $1.96 billion. Cash and cash equivalents were $868 million, down from $1.04 billion at year-end 2021.
- Quarter-end borrowings included $30.9 million short-term, $52.9 million subordinated notes, and $0.8 million other long-term borrowings. Shareowners’ equity was $372.1 million.
- The allowance for credit losses was $20.8 million, or 1.05% of held-for-investment loans; nonperforming assets were $2.7 million, or 0.06% of total assets. Net charge-offs were $0.8 million.
- Quarter-end regulatory capital ratios included total risk-based capital of 16.98%, Tier 1 capital of 15.98%, and common equity Tier 1 of 13.77%. The company reported that its ratios exceeded well-capitalized thresholds.
Material changes versus comparable periods
- Common-shareowner earnings declined 11% year over year. Income before taxes fell to $11.3 million from $14.8 million, mainly because noninterest income fell $4.0 million, partly offset by lower expenses and slightly higher net interest income.
- Mortgage banking revenue decreased 48% to $8.9 million year over year. Mortgage production was $247 million versus $463 million; refinancing accounted for 21% versus 40% of production.
- Wealth management fees rose 97% to $6.1 million, driven chiefly by insurance commissions. Deposit fees increased 22% to $5.2 million.
- Average deposits rose 14.6% year over year to $3.71 billion. Average held-for-investment loans declined 4.0% to $1.96 billion, but increased 6.0% year over year excluding SBA PPP loans; period-end loans grew $54 million from year-end.
- The investment portfolio grew substantially year over year. Rising market interest rates contributed to $49.9 million of combined unrealized losses on available-for-sale and held-to-maturity securities at quarter-end; management attributed the declines to interest rates rather than credit quality. Accumulated other comprehensive loss widened to $33.7 million from $16.2 million at year-end, largely reflecting securities valuation.
- Net interest margin declined 30 basis points year over year to 2.55%, reflecting earning-asset growth, including deposits held in low-yield overnight funds. Management reported a 3.11% margin excluding overnight funds above $200 million.
Outlook, commentary, risks, and unusual items
- Management gave no specific earnings or revenue guidance. It expected a 19%–20% annual effective tax rate for 2022, excluding discrete items, and approximately $8 million of capital expenditures over the next 12 months.
- Management said liquidity remained robust and reported $1.477 billion of additional available liquidity, excluding $790 million of overnight funds sold. It noted potential deposit volatility as stimulus-related balances run off and as interest rates change.
- Interest-rate simulations showed net interest income increasing in modeled rising-rate scenarios and declining in a 100-basis-point falling-rate scenario; all reported scenarios were within policy limits. Management cautioned that modeling assumptions may differ from actual deposit behavior, prepayments, and customer responses.
- Credit quality was described as strong and improving, though classified loans increased $4.4 million from year-end, primarily due to one relationship in workout that had been reserved. The loan portfolio is exposed to geographic and industry concentrations and broader economic conditions.
- Q1 included a $0.2 million pension settlement charge. The company also reported material unrealized securities valuation losses, which reduced equity but were not described as credit losses.
- Off-balance-sheet commitments to extend credit totaled $763.9 million and standby letters of credit $5.0 million. Management did not expect material losses from these arrangements. Management reported no known pending litigation expected to materially affect results or financial position.
- Other disclosed risks include interest-rate, liquidity, credit, regulatory, cybersecurity, competition, inflation, and economic risks; the filing also identifies uncertainty related to COVID-19 and geopolitical events.
Important facts for investors to verify
- Whether mortgage production and gain-on-sale economics continue to weaken, and how that affects noninterest income.
- Whether deposit growth is sustained or stimulus-related and seasonal balances leave, and the resulting impact on liquidity and margins.
- How rising rates affect the fair value and accumulated losses of securities, capital, and the ability or willingness to sell securities.
- Whether loan growth continues and whether classified loans, charge-offs, and the allowance remain consistent with management’s credit outlook.
- Whether actual interest-rate sensitivity and capital/liquidity conditions remain within the company’s reported policy limits.