Capital City Bank Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results. The Florida-based bank holding company operates 57 full-service offices in Florida, Georgia, and Alabama.
Financial performance
- Q2 net income attributable to common shareholders: $8.7 million, or $0.51 per diluted share, versus $7.4 million, or $0.44, in Q2 2021. First-half net income was $17.2 million, or $1.01 per diluted share, versus $16.9 million, or $1.00, a year earlier.
- Q2 net interest income: $28.3 million; tax-equivalent net interest income was $28.4 million, up from $26.1 million in Q2 2021. Q2 net interest margin was 2.87%, down 2 basis points year over year but up 32 basis points from Q1 2022.
- Credit provision: $1.5 million in Q2 2022, compared with a $0.6 million provision benefit in Q2 2021. First-half provision was $1.5 million, versus a $1.6 million benefit in the first half of 2021; management cited loan growth and fewer recoveries as factors.
- Noninterest income and expense: Q2 income was $24.9 million, down from $26.5 million a year earlier, mainly reflecting lower mortgage banking revenue. Q2 expense was $40.5 million, down from $42.1 million, largely due to lower pension settlement expense. The efficiency ratio improved to 75.96% from 80.18%.
- First-half revenue mix: Noninterest income declined to $50.7 million from $56.3 million, chiefly as mortgage banking revenue fell $12.3 million; higher deposit fees and wealth management fees partly offset the decline. Mortgage banking revenue was $18.0 million versus $30.3 million.
- Cash flow: First-half operating cash flow was $48.1 million, investing cash use was $462.0 million, and financing cash provided was $73.1 million. Cash and cash equivalents declined $340.8 million to $694.5 million, primarily amid investment and loan activity.
Financial position, liquidity and capital
- Total assets were $4.35 billion at June 30, up from $4.26 billion at December 31, 2021. Loans held for investment were $2.21 billion, up from $1.93 billion; total deposits were $3.79 billion, up from $3.71 billion.
- Average Q2 deposits were $3.77 billion, up 1.4% from Q1. Management noted potential volatility in stimulus-related deposit balances and said it expected liquidity to remain strong.
- At quarter end, cash and cash equivalents were $694.5 million, including $603.3 million in federal funds sold and interest-bearing deposits. Management reported $1.589 billion of additional available liquidity, excluding those overnight funds.
- Borrowings included $39.5 million of short-term borrowings, $52.9 million of subordinated notes, and $0.6 million of other long-term borrowings. The company reported compliance with significant warehouse-line covenants.
- The total risk-based capital ratio was 16.07%; Tier 1 capital was 15.13%, common equity Tier 1 was 13.07%, and tangible common equity was 6.54%. Management said regulatory ratios exceeded well-capitalized thresholds.
- Accumulated other comprehensive loss widened to $40.8 million from $16.2 million at year-end, primarily reflecting unrealized investment-security losses. The available-for-sale portfolio had a $42.2 million pretax unrealized loss; total unrealized losses across available-for-sale and held-to-maturity securities were $72.0 million.
Material changes, outlook and risks
- Loan growth was broad-based; period-end loans rose 14.6% from year-end. Management cited residential mortgage, construction, consumer auto, and commercial mortgage growth, including purchases of adjustable-rate residential loans from related-party Capital City Home Loans.
- Credit quality indicators remained relatively low: nonperforming assets were $3.2 million, or 0.07% of assets, and the allowance for credit losses was $21.3 million, equal to 0.96% of held-for-investment loans. Q2 net charge-offs were $1.1 million, including a $0.8 million commercial charge-off.
- Management expected a 2022 annual effective tax rate of approximately 20%–21%, excluding discrete items, and anticipated additional pension settlement expense during the rest of 2022. Planned capital expenditures were approximately $8 million over the next 12 months.
- Interest-rate simulations showed higher rates benefiting modeled net interest income, while falling-rate scenarios were adverse. The 12- and 24-month net-interest-income sensitivity exceeded policy limits in the −100- and −200-basis-point scenarios. Economic value of equity remained within policy limits.
- Effective August 1, 2022, the company transferred $168.4 million amortized cost of securities from available-for-sale to held-to-maturity; the securities’ fair value was $159.0 million. The filing said the transfer had no immediate earnings impact, with the unrealized loss remaining in AOCI and amortized over time.
- Management identified risks including interest-rate and liquidity exposure, credit estimates, deposit outflows, mortgage-market conditions, inflation and labor costs, and economic and regulatory uncertainty. It reported no known litigation expected to have a material effect and stated disclosure controls were effective.
Important facts for investors to verify
- How higher rates affect deposit pricing, net interest margin, and the adverse modeled falling-rate sensitivity.
- Whether loan growth is sustained and whether credit costs, charge-offs, and reserve coverage change as the portfolio expands.
- Mortgage banking revenue trends and the effect of lower refinancing activity and secondary-market margins.
- The scale and duration of unrealized securities losses, their effect on tangible capital, and the accounting implications of the August AFS-to-HTM transfer.
- Deposit stability, liquidity availability, and the company’s ability to maintain capital and dividend levels while funding growth and planned expenditures.