Capital City Bank Group, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly filing covers the three and six months ended June 30, 2023. The Florida-based bank holding company provides banking and related services through 62 offices in Florida, Georgia, and Alabama.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net interest income | $40.0 million | $28.3 million | $80.4 million | $53.0 million |
| Provision for credit losses | $2.2 million | $1.5 million | $5.3 million | $1.5 million |
| Noninterest income | $22.9 million | $24.9 million | $45.1 million | $50.7 million |
| Noninterest expense | $42.5 million | $40.5 million | $83.0 million | $79.7 million |
| Net income attributable to common shareowners | $14.6 million | $8.7 million | $29.5 million | $17.2 million |
| Diluted earnings per share | $0.85 | $0.51 | $1.73 | $1.01 |
- Q2 tax-equivalent net interest income was $40.1 million; net interest margin was 4.05%, compared with 2.87% in Q2 2022. The cost of deposits, including noninterest-bearing accounts, was 0.43%, up from 0.03% a year earlier.
- At June 30, assets were $4.40 billion, down from $4.53 billion at year-end 2022. Loans held for investment were $2.67 billion, up from $2.53 billion; deposits were $3.79 billion, down from $3.94 billion.
- Cash and cash equivalents totaled $368.8 million, versus $600.7 million at December 31, 2022. First-half operating cash flow was $31.6 million, investing cash flow was negative $99.1 million, and financing cash flow was negative $164.3 million; cash declined $231.8 million.
- Short-term borrowings were $50.7 million, subordinated notes were $52.9 million, and other long-term borrowings were $0.4 million. Shareowners’ equity was $420.8 million.
- Capital remained above regulatory well-capitalized thresholds: total risk-based capital was 15.95%, common equity tier 1 was 13.02%, and leverage was 9.74%. Tangible common equity was 7.61% (a non-GAAP measure).
- Q2 return on average assets was 1.35%, return on average equity was 13.94%, and the efficiency ratio was 67.55%.
Material changes versus comparable periods
- First-half net income rose to $29.5 million from $17.2 million, primarily reflecting higher interest income from loan growth and higher rates. Deposit interest expense increased substantially, from $0.5 million to $6.5 million for the first half.
- First-half noninterest income fell $5.6 million, mainly because mortgage banking revenue declined $5.2 million and wealth management fees declined $2.4 million. Mortgage revenue was pressured by lower rate-lock volume and gain-on-sale margins.
- First-half noninterest expense increased $3.3 million, including higher occupancy and other expenses. The company cited new offices, higher insurance and FDIC costs, loan servicing costs, and consulting expense.
- Deposits fell $150.5 million from year-end. Management attributed pressure on noninterest-bearing and savings balances to client spending, tax payments, migration to interest-bearing products, and movement of some funds to external investments. June 30 deposits included a $103 million short-term municipal deposit received late in June.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance was provided. Management expects a 2023 annual effective tax rate of approximately 20%–21%, absent discrete items, and approximately $8 million of capital expenditures over the next 12 months.
- Management said liquidity was sufficient at quarter-end and reported approximately $1.506 billion of additional potential liquidity sources, excluding the $285 million overnight funds position. It also described continued monitoring of deposit costs and mix.
- Interest-rate sensitivity simulations showed policy-limit breaches in falling-rate scenarios: the 12-month net-interest-income impact at a 400-basis-point decline was negative 15.3%; 24-month impacts at declines of 300 and 400 basis points were negative 15.1% and 25.6%. EVE measures remained within policy limits.
- Investment securities had $84.2 million of total unrealized losses at June 30, including $46.2 million on held-to-maturity securities. Management said most positions were government or agency securities; credit-loss allowances were $19,000 for corporate debt and $5,000 for municipal securities. The filing notes that recognizing after-tax HTM losses would reduce the tangible capital ratio to 6.91%.
- Nonperforming assets increased to $6.6 million from $2.7 million at year-end; the increase included a $1.1 million residential loan placed on nonaccrual. The allowance for credit losses was $28.0 million, or 1.05% of held-for-investment loans, and management attributed its increase primarily to loan growth.
- Q2 included a $1.4 million gain on sale of mortgage servicing rights and $0.8 million of consulting expense related to negotiating a core-processing outsourcing contract. First-quarter results included a $1.8 million gain on sale of a banking office. A $0.3 million SERP settlement gain was recorded in Q2.
- Management identified deposit competition and funding costs, interest-rate and liquidity risk, credit quality, regional economic conditions, technology and cybersecurity, regulation, and litigation as risks. It reported no known pending litigation expected to have a material financial effect and stated disclosure controls were effective.
Important facts for investors to verify
- Deposit trends and retention, including the duration and concentration implications of the $103 million municipal deposit, and the pace of deposit-cost increases.
- Loan growth, portfolio concentrations, delinquencies, nonaccruals, charge-offs, and whether the allowance remains adequate as credit conditions evolve.
- Interest-rate exposure and the disclosed policy-limit breaches in falling-rate simulations; assess the impact of rates on net interest margin and economic value.
- Liquidity availability and the market-value sensitivity of the securities portfolio, particularly unrealized HTM losses and potential effects on capital.
- Whether mortgage banking and wealth management income stabilize, and the continuing effects of lower mortgage production and the servicing-rights portfolio sale.
- Regulatory capital and tangible capital measures, noting that tangible common equity is non-GAAP and that the filing’s adjusted ratio assumes recognition of HTM losses.