CAPITAL CITY BANK GROUP INC quarterly report, Q1 FY2022

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

MetricQ1 2022Q1 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.