Business context and reporting period
Capital City Bank Group, Inc. (CCBG) filed this Form 10-K for the fiscal year ended December 31, 2022. The Tallahassee-based financial holding company operates primarily through Capital City Bank in Florida, Georgia, and Alabama, with mortgage banking and wealth management businesses. It reported one operating segment.
Financial performance and condition
- Profit and revenue: Net income attributable to common shareholders was $40.1 million, or $2.36 per diluted share, versus $33.4 million, or $1.98 per share, in 2021. Interest income plus noninterest income was approximately $226.0 million, up from $213.9 million. GAAP net interest income was $124.5 million, compared with $102.9 million.
- Net interest and margins: Taxable-equivalent net interest margin improved to 3.13% from 2.83%; return on average assets was 0.93% versus 0.84%, and return on average equity was 10.58% versus 9.92%. The efficiency ratio was 71.47% on the MD&A taxable-equivalent basis.
- Revenue mix and expenses: Noninterest income fell 12.0% to $94.6 million, chiefly as mortgage banking revenue declined to $30.6 million from $52.4 million. Noninterest expense decreased slightly to $161.8 million and included a $2.3 million pension settlement charge.
- Credit: Provision for credit losses was $7.2 million, compared with a $1.6 million provision benefit in 2021. Net charge-offs were $3.9 million, or 0.18% of average loans, versus net recoveries in 2021. Nonperforming assets declined to $2.7 million from $4.3 million; the allowance was $24.7 million, or 0.98% of loans held for investment.
- Balance sheet and liquidity: Year-end assets were $4.526 billion, deposits $3.939 billion, and loans held for investment $2.525 billion. Loans grew 30.7% and deposits grew 6.1% year over year. Cash and cash equivalents were $600.7 million, down from $1.035 billion; management reported approximately $1.354 billion of additional liquidity available beyond overnight funds sold.
- Cash flow: Operating activities provided $60.6 million; investing activities used $733.7 million, principally reflecting securities and loan investment; financing activities provided $238.4 million. Cash and cash equivalents decreased by $434.7 million.
- Debt and capital: Year-end short-term borrowings were $56.8 million, subordinated notes $52.9 million, and other long-term borrowings $0.5 million. The company reported a 12.64% CET1 ratio, 15.52% total risk-based capital ratio, and 9.06% leverage ratio; the Bank was classified as well capitalized.
Material changes versus 2021
- Earnings increased as net interest income rose 20.9% on a taxable-equivalent basis, supported by loan growth, higher rates, and asset-mix changes. The Federal Reserve raised rates by a cumulative 425 basis points in 2022.
- Mortgage banking revenue decreased $21.8 million amid lower refinancing and purchase activity and pressured gain-on-sale margins. Mortgage production fell to $1.02 billion from $1.52 billion; refinancing represented 13% of production versus 30%.
- Average deposits grew 10.5%, while rate-sensitive deposit migration and some runoff began in the fourth quarter. Average interest-bearing deposit cost rose to 0.17% from 0.04%.
- The investment portfolio grew to $1.074 billion. Pretax unrealized losses across available-for-sale and held-to-maturity securities totaled $90.0 million at year-end; the available-for-sale portfolio had a $41.9 million pretax unrealized loss. The company transferred $168.4 million of Treasury securities from available-for-sale to held-to-maturity during the third quarter.
- Shareowners’ equity rose to $394.0 million, but the after-tax accumulated other comprehensive loss widened to $37.2 million, largely reflecting securities valuation losses. The company paid $11.2 million in dividends, or $0.66 per share.
Outlook, risks, and notable items
- No specific earnings or revenue guidance was provided. Management expected a 2023 effective tax rate of approximately 21%–22%, excluding discrete items, and capital expenditures of about $8 million over the next 12 months. It expected seasonal public-deposit balances to decline during 2023 and planned to let some investment-portfolio cash flows run off while monitoring liquidity.
- Management’s five-year “2025 In Focus” strategy emphasizes client experience, channel optimization, market expansion, culture, technology investment, revenue diversification, and profitability. Expansion included new offices in Georgia and Florida and planned additional Gainesville presence.
- Key risks include rapidly changing rates and deposit competition, inflation and weaker economic conditions, concentration in Florida and Georgia real estate lending, commercial real estate and consumer credit exposure, and lower mortgage activity. The company also highlighted scrutiny of overdraft programs; it collected $10.6 million in net consumer overdraft transaction fees in 2022.
- LIBOR-linked exposures at year-end included $71 million in loans, $33 million in floating-rate securities, $53 million in subordinated notes, and a $30 million interest-rate swap. The notes and swap were expected to transition to SOFR in 2023; the company was still evaluating fallback language for investment securities.
- Other notable items: a $7 million commitment to a solar tax-credit fund, of which $1 million had been contributed by year-end; $781.1 million of unfunded loan commitments and standby letters of credit; and no known pending litigation expected by management to have a material financial effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether rising deposit costs, deposit migration, and seasonal public-fund runoff affect net interest margin and liquidity.
- Whether the large increase in loans—particularly real estate and residential lending—changes credit quality, charge-offs, or allowance needs.
- How continued mortgage-market weakness affects CCHL earnings and noninterest income, and whether wealth and deposit fees offset the decline.
- The scale and duration of securities valuation losses, related capital effects, and the implications of the available-for-sale-to-held-to-maturity transfer.
- Progress on the LIBOR-to-SOFR transition, planned expansion, and the company’s $7 million solar-fund commitment.