OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
Management's discussion
and analysis ("MD&A") provides supplemental information, which sets forth
the major factors that have affected our financial condition and results of operations
and should be read in conjunction with the Consolidated Financial Statements and related notes.
The following information should provide a better understanding of
the major factors and trends that affect our earnings performance and financial condition,
and how our performance during 2022 compares with prior years.
Throughout this section,
is referred to as "CCBG," "Company,"
"we," "us," or "our." CAUTION CONCERNING FORWARD -LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including this MD&A section, contains
"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, among others, statements about
our
beliefs, plans, objectives, goals, expectations, estimates and intentions that are
subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond
our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "target,"
"vision," "goal," and similar expressions are intended to identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties.
Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors
of our 2021 Report on Form 10-K, as updated in our subsequent quarterly reports filed on Form
10-Q, and in our other filings made from time to time with theSEC after the date of this report. However, other factors besides those listed in our
Quarterly Report or in our Annual Report also could adversely affect
our results, and you should not consider any such list of factors to be a complete set of all potential risks or
uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made.
We do not undertake to
update any forward-looking statement, except as required by applicable law. BUSINESS OVERVIEW We are a financial
holding company headquartered in
We offer
a broad array of products and services through a total of 57 full-service
offices
located in
We provide a full range of
banking services, including traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bankcards,
securities brokerage services and financial advisory services, including life insurance products,
risk management and asset protection services.
Our profitability, like
most financial institutions, is dependent to a large extent upon net
interest income, which is the difference between the interest and fees received on interest earning assets, such as loans and
securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings.
Results of operations are also affected by the provision for credit losses, operating expenses such as salaries and employee benefits, occupancy and other
operating expenses including income taxes, and noninterest income such as mortgage banking revenues, wealth management fees,
deposit fees, and bank card fees. We have included
a detailed discussion of the economic conditions in our markets and our long-term strategic
objectives as part of the MD&A section of our 2021 Form 10-K. Acquisitions
On
("CCSW"), completed its acquisition of substantially all of the assets of Strategic Wealth
CCSW was consolidated into CCBG's financial statements effectiveMay 1, 2021 .
A detailed discussion regarding the acquisition of
NON-GAAP FINANCIAL MEASURES We present a tangible
common equity ratio and a tangible book value per diluted share that, in each case, removes the
effect of goodwill and other intangibles that resulted from merger
and acquisition activity. We
believe these measures are useful to investors because it allows investors to more easily compare our capital adequacy to
other companies in the industry.
The generally accepted accounting principles ("GAAP") to non-GAAP reconciliation for
each quarter presented is provided below.
31 2022 2021 (Dollars in Thousands, except per share data) First Fourth Third Second First Shareowners' Equity (GAAP)$ 372,145 $ 383,166 $ 348,868 $ 335,880 $ 324,426 Less:Goodwill and Other Intangibles (GAAP) 93,213 93,253 93,293 93,333 89,095 Tangible Shareowners' Equity (non-GAAP) A 278,932 289,913 255,575 242,547 235,331 Total Assets (GAAP) 4,310,045 4,263,849 4,048,733 4,011,459 3,929,884 Less:Goodwill and Other Intangibles (GAAP) 93,213 93,253 93,293 93,333 89,095 Tangible Assets (non-GAAP) B$ 4,216,832 $ 4,170,596 $ 3,955,440 $ 3,918,126 $ 3,840,789 Tangible Common Equity Ratio (non-GAAP) A/B 6.61% 6.95% 6.46% 6.19% 6.13% Actual Diluted Shares Outstanding (GAAP) C 16,962,362 16,935,389 16,911,715 16,901,375 16,875,719 Tangible Book Value per Diluted Share (non-GAAP) A/C 16.44 17.12 15.11 14.35 13.94 32 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Dollars in Thousands, Except 2022 2021 Per Share Data) First Fourth Third Second First Summary of Operations : Interest Income$ 25,438 $ 25,549 $ 28,520 $ 26,836 $ 25,446 Interest Expense 742 838 848 856 948 Net Interest Income 24,696 24,711 27,672 25,980 24,498 Provision for Credit Losses - - - (571) (982) Net Interest Income After Provision for Credit Losses 24,696 24,711 27,672 26,551 25,480 Noninterest Income 25,818 24,672 26,574 26,473 29,826 Noninterest Expense 39,233 40,207 39,702 42,123 40,476 Income Before Income Taxes 11,281 9,176 14,544 10,901 14,830 Income Tax Expense 2,235 2,040 2,949 2,059 2,787 Income Attributable to NCI (591) (764) (1,504) (1,415) (2,537) Net Income Attributable to CCBG 8,455 6,372 10,091 7,427 9,506 Net Interest Income (FTE) 24,774 24,790 27,750 26,064 24,606 Per Common Share : Net Income Basic$ 0.50 $ 0.38 $ 0.60 $ 0.44 $ 0.56 Net Income Diluted 0.50 0.38 0.60 0.44 0.56 Cash Dividends Declared 0.16 0.16 0.16 0.15 0.15 Diluted Book Value 21.94 22.63 20.63 19.87 19.22 Diluted Tangible Book Value (1) 16.44 17.12 15.11 14.35 13.94 Market Price: High 28.88 29.00 26.10 27.39 28.98 Low 25.96 24.77 22.02 24.55 21.42 Close 26.36 26.40 24.74 25.79 26.02 Selected Average Balances : Loans Held for Investment$ 1,963,578 $ 1,948,324 $ 1,974,132 $ 2,036,781 $ 2,044,363 Earning Assets 3,938,824 3,791,313 3,693,123 3,623,910 3,497,929 Total Assets 4,266,775 4,127,937 4,026,613 3,956,349 3,821,521 Deposits 3,714,062 3,549,145 3,447,688 3,387,352 3,239,508 Shareowners' Equity 383,956 350,140 341,460 329,040 326,330 Common Equivalent Average Shares: Basic 16,931 16,880 16,875 16,858 16,838 Diluted 16,946 16,923 16,909 16,885 16,862 Performance Ratios: Return on Average Assets 0.80 % 0.61 % 0.99 % 0.75 % 1.01 Return on Average Equity 8.93 7.22 11.72 9.05 11.81 Net Interest Margin (FTE) 2.55 2.60 2.98 2.89 2.85 Noninterest Income as % of Operating Revenue 51.11 49.96 48.99 50.47 54.90 Efficiency Ratio 77.55 81.29 73.09 80.18 74.36 Asset Quality: Allowance for Credit Losses ("ACL")$ 20,756 $ 21,606 $ 21,500 $ 22,175 $ 22,026 ACL to Loans HFI 1.05 % 1.12 % 1.11 % 1.10 % 1.07 Nonperforming Assets ("NPAs") 2,745 4,339 3,218 6,302 5,472 NPAs to Total Assets 0.06 0.10 0.08 0.16 0.14 NPAs to Loans HFI plus OREO 0.14 0.22 0.17 0.31 0.27 ACL to Non-Performing Loans 760.83 499.93 710.39 433.93 410.78 Net Charge-Offs to Average Loans HFI 0.16 0.02 0.03 (0.07) (0.10) Capital Ratios: Tier 1 Capital 15.98 % 16.14 % 15.69 % 15.44 % 16.08 Total Capital 16.98 17.15 16.70 16.48 17.20 Common Equity Tier 1 13.77 13.86 13.45 13.14 13.63 Leverage 8.78 8.95 9.05 8.84 8.97 Tangible Common Equity (1) 6.61 6.95 6.46 6.19 6.13 (1) Non-GAAP financial measure. See non-GAAP reconciliation on page 31. 33 FINANCIAL OVERVIEW Results of Operations Performance Summary .
Net income attributable to common shareowners of
for the fourth quarter of 2021, and
Net Interest Income . Tax-equivalent net
interest income for the first quarter of 2022 totaled
to the fourth quarter of 2021, and$24.6 million for the first quarter of 2021.
Compared to the fourth quarter of 2021, higher rates on overnight funds and growth in the investment portfolio was offset
by two less calendar days during the quarter.
Compared to the first quarter of 2021, interest income grew as a result of our larger investment portfolio,
in addition to a reduction in interest expense, partially offset by lower loan fees.
Provision and Allowance for Credit
Losses.
We did not
record a provision for credit losses for the first quarter of 2022 or
the fourth quarter of 2021 and recorded a negative provision of$1.0 million for
the first quarter of 2021.
The lack of provision for the first quarter of 2022 reflected continued strong credit quality and slight improvement
in the forecasted level of unemployment.
Noninterest Income .
Noninterest income for the first quarter of 2022 totaled
of$1.1 million , or 4.5%, over the fourth quarter of 2021 and a decrease of$4.0 million , or 13.4%, from
the first quarter of 2021.
The increase over the fourth quarter of 2021 was due to higher wealth management fees, primarily
insurance revenues.
The decline from the first quarter 2021 was driven by lower mortgage banking revenues (largely
attributable to lower loan refinancing activity and a lower gain on
sale margin) that were partially offset by higher activity based fees (deposit and bank card). Noninterest Expense .
Noninterest expense for the first quarter of 2022 totaled
million, or 2.4%, from the fourth quarter of 2021 and a$1.3 million , or 3.1%, decrease from
the first quarter of 2021.
The decrease from the fourth quarter of 2021 was primarily attributable to a decrease in other miscellaneous expense,
primarily pension expense.
The decrease from the first quarter of 2021 was driven by lower mortgage banking commissions and
pension expense. These favorable variances were partially offset by higher insurance commissions, associate benefits,
other real estate and miscellaneous expenses.
Financial Condition Earning Assets.
Average earning assets totaled
or 3.9%, over the fourth quarter of 2021, and an increase of$440.9 million , or
12.6%, over the first quarter of 2021.
The increase over the fourth quarter of 2021 was primarily attributable to seasonal growth
in our public fund deposits. The increase compared to the first quarter of 2021 was primarily driven by higher deposit balances.
Loans
.
Average loans held for investment
("HFI") increased
and decreased$80.8 million , or 4.0%, from the first quarter of 2021. Excluding small business ("SBA PPP") loans, average loans HFI increased$18.8 million compared to the fourth quarter of 2021, and increased$115.9
million compared to the first quarter of 2021.
New loan production strengthened in the latter part of the first quarter of 2022 resulting
in period end loan growth of
Credit Quality .
Overall credit quality is strong and continues to improve.
Nonaccrual loans totaled
million decrease from
AtMarch 31, 2022 andDecember 31, 2021 , nonaccrual loans as a percentage of total loans was 0.13% and 0.21%,
respectively. Classified loans increased
$4.4 million over the fourth quarter of 2021 and reflected one loan relationship that
is in the loan workout process and has been reserved for at
Deposits . Average total
deposits were
or 4.6%, over the fourth quarter of 2021 and$474.6 million , or 14.6%, over the first quarter
of 2021.
Growth over the fourth quarter of 2021 was primarily attributable to an increase in seasonal public fund deposits. Various
government stimulus programs contributed to the year over year increase.
Capital .
At
ratio of 16.98% and a tangible common equity ratio (a non-GAAP financial measure) of 6.61% compared to 17.15%
and 6.95%, respectively,
atDecember 31, 2021 and 17.20% and 6.13%, respectively, at March
31, 2021.
At
34 RESULTS OF OPERATIONSNet Income For the first quarter of 2022, we realized net income attributable to common
shareowners of
of 2021, and$9.5 million , or$0.56 per diluted share, for the first quarter of 2021.
For the first quarter of 2022, we realized income before income taxes of
the fourth quarter of 2021 and$14.8 million for the first quarter of 2021. Compared to
the fourth quarter of 2021, the
million increase in noninterest income and lower noninterest expense of
$1.0 million . Compared to the first quarter of 2021, the$3.5 million decrease in income before income taxes
was attributable to a
by lower noninterest expense of$1.3 million and higher net interest income of$0.2 million .
A condensed earnings summary of each major component of our financial
performance is provided below: Three Months Ended (Dollars in Thousands, except per share data)March 31, 2022 December 31, 2021 March 31, 2021 Interest Income$ 25,438 $ 25,549 $ 25,446 Taxable Equivalent Adjustments 78 79 108 Total Interest Income (FTE) 25,516 25,628 25,554 Interest Expense 742 838 948 Net Interest Income (FTE) 24,774 24,790 24,606 Provision for Credit Losses - - (982) Taxable Equivalent Adjustments 78 79 108 Net Interest Income After Provision for Credit Losses 24,696 24,711 25,480 Noninterest Income 25,818 24,672 29,826 Noninterest Expense 39,233 40,207 40,476 Income Before Income Taxes 11,281 9,176 14,830 Income Tax Expense 2,235 2,040 2,787 Income Attributable to Noncontrolling Interests (591) (764) (2,537) Net Income Attributable to Common Shareowners$ 8,455 $ 6,372 $ 9,506 Basic Net Income Per Share$ 0.50 $ 0.38 $ 0.56 Diluted Net Income Per Share$ 0.50 $ 0.38 $ 0.56 Net Interest Income Net interest income represents our single largest source of earnings
and is equal to interest income and fees generated by earning assets less interest expense paid on interest bearing liabilities.
This information is provided on a "taxable equivalent" basis to reflect the tax-exempt status of income earned on certain loans and state and
local government debt obligations.
We provide an analysis of our net interest income including average yields and rates in Table I on page 44. Tax-equivalent net
interest income for the first quarter of 2022 totaled
quarter of 2021, and$24.6 million for the first quarter of 2021.
Compared to the fourth quarter of 2021, higher rates on overnight funds and growth
in the investment portfolio was offset by two less calendar days during
the quarter.
Compared to the first quarter of 2021, interest income grew as a result of our larger investment portfolio and a reduction
in interest expense, partially offset by lower loan fees.
Our net interest margin for the first quarter of 2022 was 2.55%, a decrease
of five basis points from the fourth quarter of 2021 and a decrease of 30 basis points from the first quarter of 2021.
Compared to both prior periods, the decrease was primarily attributable to growth in earning assets (driven by deposit inflows), which negatively
impacted our margin percentage. Our net interest margin
for
the first quarter of 2022, excluding the impact of overnight funds
in excess of
Due to highly competitive fixed-rate loan pricing in our markets, we continue
to review our loan pricing and make adjustments where we believe appropriate and prudent.
35 Provision for Credit Losses We did not
record a provision for credit losses for the first quarter of 2022 or the fourth quarter of 2021
and recorded a provision benefit of$1.0 million for the first quarter of 2021.
The lack of provision for the first quarter of 2022 reflected continued strong
credit
quality and slight improvement in the forecasted level of unemployment.
The provision benefit for the first quarter of 2021 generally reflected improving economic conditions and a lower level of expected
losses related to COVID-19. We discuss the allowance for credit losses further below. Noninterest Income
Noninterest income for the first quarter of 2022 totaled$25.8 million compared
to
The increase over the fourth quarter of 2021 was primarily attributable to
higher wealth
management fees of
lower mortgage banking revenues of
The increase in wealth management fees was attributable to higher insurance commission
revenues. Lower loan production and a slightly lower gain on sale margin drove the decline in mortgage banking
revenues. Compared to the first quarter of 2021, the decline was due to lower mortgage banking revenues attributable to lower loan production (primarily
refinancing activity) and a lower gain on sale margin.
Noninterest income represented 51.1% of operating revenues (net interest
income plus noninterest income) for the first quarter of 2022 compared to 50.0% for the fourth quarter of 2021 and 54.9% for the first quarter of 2021. The table below reflects the major components of noninterest income to help
facilitate a better understanding of the period over period comparison. Three Months Ended (Dollars in Thousands)March 31, 2022 December 31, 2021 March 31, 2021 Deposit Fees$ 5,191 $ 5,300 $ 4,271 Bank Card Fees 3,763 3,872 3,618 Wealth Management Fees 6,070 3,922 3,090 Mortgage Banking Revenues 8,946 9,800 17,125 Other 1,848 1,778 1,722 Total Noninterest Income$ 25,818 $ 24,672 $ 29,826
Significant components of noninterest income are discussed in more
detail below. Deposit Fees .
Deposit fees for the first quarter of 2022 totaled
million, or 2.1%, from the fourth
quarter of 2021 and an increase of
2021.
The decline from the fourth quarter of 2021 reflects two less days of processing.
The increase over the first quarter of 2021 reflected higher account
maintenance fees attributable to the third quarter 2021 conversion of the remaining free checking accounts to monthly maintenance fee account types.Bank Card Fees .
Bank card fees for the first quarter of 2022 totaled
million, or 2.8%, from the fourth quarter of 2021 and an increase of$0.2 million , or 4.0%, over the first quarter
of 2021.
The decline from the fourth quarter of 2021 reflects two less days of processing.
The increase over the first quarter of 2021 was primarily attributable
to growth in checking accounts. Wealth Management Fees . Wealth management fees,
which include both trust fees (i.e., managed accounts and trusts/estates), retail brokerage fees (i.e., investment,
insurance products, and retirement accounts), and insurance commission
revenues,
totaled
fourth quarter of 2021 and an increase of$3.0 million , or 96.5%, over the first quarter of 2021.
Insurance commission revenues was the primary driver of the increase over
both
prior periods.
Higher retail brokerage fees also contributed to the increase over the first quarter of 2021.
AtMarch 31, 2022 , total assets under management were approximately$2.329 billion compared to$2.324 billion atDecember 31, 2021 and$2.088 billion atMarch 31, 2021 . 36 Mortgage Banking Revenues .
Mortgage banking revenues totaled
2022, a decrease of$0.9 million , or 8.7%, from the fourth quarter of 2021 and a decrease of$8.2 million , or 47.
8% from the first quarter of 2021.
The decrease from the fourth quarter of 2021 reflected lower loan production and a slightly lower gain on
sale margin.
Compared to the first quarter of 2021, the decline was due to lower loan production (largely
refinancing activity),
and a lower gain on sale margin.
We provide a detailed overview of our mortgage banking operation, including
a detailed break-down of mortgage banking revenues, mortgage servicing activity,
and warehouse funding within Note 4 - Mortgage Banking Activities in the Notes to
Consolidated Financial Statements.
Production volume totaled
and
Refinancing activity represented 21% of loan production for the first quarter of 2022,
24%
for the fourth quarter of 2021, and 40% for the first quarter of 2021.
CCHL contributed approximately
quarter of 2021, and$1.6 million in the first quarter of 2021. Noninterest Expense Noninterest expense for the first quarter of 2022 totaled$39.2 million compared
to
The decrease from the fourth quarter of 2021 was primarily attributable
to lower other expense of$1.2 million which included a$1.6 million decrease in pension
expense (reflected in miscellaneous expense).
Salary
expense increased
expense (higher insurance of
Compared to the first quarter of 2021, the decrease was primarily attributable
to lower salary expense of$1.8 million , primarily lower variable commission expense
(lower mortgage banking of
Associate benefits expense increased by
insurance expense attributable to utilization of self-insurance reserves in 2021.
Pension expense declined by
by
higher expenses for other real estate and other miscellaneous.
The decrease in pension expense in 2022 generally reflected a higher discount rate used in 2022 for determining plan liabilities and
strong asset returns in 2021. The table below reflects the major components of noninterest expense to
help facilitate a better understanding of the year over year comparison.
The table below reflects the major components of noninterest expense.
Three Months Ended (Dollars in Thousands)March 31, 2022 December 31, 2021 March 31, 2021 Salaries$ 20,664 $ 20,587 $ 22,447 Associate Benefits 4,192 4,196 3,617 Total Compensation 24,856 24,783 26,064 Premises 2,759 2,671 2,759 Equipment 3,334 3,289 3,208 Total Occupancy 6,093 5,960 5,967 Legal Fees 349 280 558 Professional Fees 1,332 1,438 1,330 Processing Services 1,637 1,455 1,545 Advertising 773 658 749 Telephone 728 736 755 Insurance - Other 510 541 501 Other Real Estate Owned, net 25 26 (118) Pension Settlement 209 572 - Miscellaneous 2,721 3,758 3,125 Total Other 8,284 9,464 8,445 Total Noninterest Expense$ 39,233 $ 40,207 $ 40,476
Significant components of noninterest expense are discussed in
more detail below. 37 Compensation .
Compensation expense totaled
of$0.1 million , or less than 1.0%, over the fourth quarter of 2021 and a decrease of$1.2 million ,
or 4.6%, from the first quarter of 2021.
Compared to the fourth quarter of 2021, the$0.1 million increase in salary expense was primarily
attributable to higher commission expense of
by lower commission expense of
Compared to the first quarter of 2021, the decrease reflected lower salary expense
of$1.8 million partially offset by higher associate benefit expense of$0.6 million .
The decline in salary expense reflected lower commission expense of
by higher commission expense of
The increase in associate benefits expense was attributable to higher associate insurance expense -
for the first quarter of 2021
we did not recognize expense due to the utilization of reserves related to our self-insured
plan. Occupancy.
Occupancy expense (including premises and equipment) totaled
million for the first quarter of 2022, an increase of
of
The
increase over both prior periods was primarily related to
software additions related to certain risk management and strategic initiatives.
Other
.
Other noninterest expense totaled
2022, a decrease of
the first quarter of 2021.
The decrease from the fourth quarter of 2021 was primarily attributable to lower miscellaneous expense (pension
expense of
Compared to the first quarter of 2021, the decrease was primarily driven by lower
miscellaneous
expense (pension expense of
higher other losses of
MSR valuation reserve adjustment in the first quarter of 2021).
The lower level of pension expense in 2022 generally reflected a higher
discount rate in 2022 for determining plan liabilities and strong asset returns in 2021.
Our operating efficiency ratio (expressed as noninterest
expense as a percent of the sum of taxable-equivalent net interest income plus noninterest income) was 77.55% for the first quarter of 2022 compared
to 81.29% for the fourth quarter of 2021 and 74.36% for the first quarter of 2021.
Income Taxes We realized income
tax expense of
2022 compared to$2.0 million (effective rate of 22%) for the fourth quarter of 2021
and
Tax
expense for the fourth quarter of 2021 was unfavorably impacted by discrete
tax expense of
-20% in 2022. FINANCIAL CONDITION Average earning
assets totaled
3.9%, over the fourth quarter of 2021, and an increase of$440.9 million , or 12.6%, over
the first quarter of 2021.
The increase over the fourth quarter of 2021 was primarily attributable to seasonal growth in our public fund deposits. The
increase compared to the first quarter of 2021 was primarily driven by higher deposit balances (see below
- Deposits).Investment Securities Average investment s
increased
million, or 98.8%, over the first quarter of 2021.
Our investment portfolio represented 26.9% of our average earning assets for the first
quarter of 2022 compared to 26.1% for the fourth quarter of 2021, and 15.2% for the first
quarter of 2021.
During the first quarter of 2022, we initiated buy programs to add to our investment portfolio as part of our overall Statement of Financial
Condition management,
which
were completed by the end of the first quarter 2022.
For the remainder of 2022, we will continue to monitor our overall liquidity position and, dependent on market conditions, look for opportunities to
reinvest proceeds and/or purchase additional securities that align with our overall investment strategy.
The investment portfolio is a significant component of our operations and, as such,
it functions as a key element of liquidity and asset/liability management.
Two types of classifications are approved
for investment securities which are Available
-for-Sale ("AFS") and Held-to-Maturity ("HTM").
During the first quarter of 2022, we purchased securities under
both the AFS and HTM designations.
At
was classified as AFS, and
The average maturity of our total portfolio at
was 3.63 years compared to 3.63 years and 2.78 years atDecember 31, 2021 andMarch 31, 2021 , respectively.
38
We determine
the classification of a security at the time of acquisition based on how the purchase will affect
our asset/liability strategy and future business plans and opportunities.
We consider multiple
factors in determining classification, including regulatory
capital
requirements, volatility in earnings or other comprehensive income,
and liquidity needs.
Securities in the AFS portfolio are recorded at fair value with unrealized gains and losses associated with these securities recorded
net of tax, in the accumulated other comprehensive income component of shareowners' equity.
HTM securities are acquired or owned with the intent of holding
them to maturity.
HTM investments are measured at amortized cost.
We do not
trade, nor do we presently intend to begin trading investment securities for the purpose of recognizing gains and therefore we do not maint
ain a trading portfolio. AtMarch 31, 2022 , there were 673 positions (combined AFS and HTM)
with unrealized losses totaling
Of these 673 positions, 501 of these positions carry the full faith and credit of theU.S.
Government (US Treasuries, SBA securities, and
GNMA
pools) and are 0% risk-weighted assets for regulatory purposes. There were
52 U.S. government agency securities issued by
believe the long history of no credit losses on government securities indicates that the expectation of nonpayment
of the amortized cost basis is zero.
The remaining 120 positions (municipal securities, corporate bonds, and asset backed securities)
have a credit component.
AtMarch 31, 2022 , all CMO, MBS, SBA, US Agencies, andTreasury
bonds held were AAA rated. Corporate debt securities had an allowance for
credit losses totaling$21,000 atMarch 31, 2022 and municipal securities had an allowance
for credit losses totaling
Loans HFI Average loans
held for investment ("HFI") increased
and decreased
loans HFI increased$18.8 million compared to the fourth quarter of 2021, and increased$115.9
million compared to the first quarter of 2021.
Compared to the fourth quarter of 2021, the increase in average loans (excluding SBA PPP loans) reflected
growth in commercial loans (primarily institutional), residential loans, HELOCs, and consumer loans (indirect auto). Compared
to the first quarter of 2021, we realized growth in commercial loans, construction loans, residential mortgages, and consumer
loans (indirect auto).
New loan production strengthened in
the latter part of the first quarter of 2022 resulting in period end loan growth
of
over the fourth quarter of 2021. Period-end increases were realized in most loan categories with the largest growth
in commercial loans (primarily institutional) and consumer loans (indirect auto). Without compromising our credit standards
, changing our underwriting standards, or taking on inordinate interest rate risk,
we
continue to closely monitor our markets and make minor adjustments as necessary. Credit Quality Overall credit quality is strong and continues to improve.
Nonperforming assets (nonaccrual loans and other real estate) totaled
and
AtMarch 31, 2022 , nonperforming assets as a percentage of total assets totaled 0.06% compared
to 0.10% at
Nonaccrual loans totaled
fromDecember 31, 2021 and a$2.8 million decrease fromMarch 31, 2021 .
The
reflects one loan relationship that is in the loan workout process and has been reserved
for at
Allowance for Credit Losses The allowance for credit losses is a valuation account that is deducted from
the loans' amortized cost basis to present the net amount expected to be collected on the loans.
The allowance for credit losses is adjusted by a credit loss provision which is reported in earnings, and reduced by the charge-off
of loan amounts (net of recoveries).
Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed.
Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged
-off.
Expected credit loss inherent in non-cancellable off-balance sheet credit exposures is provided through the credit loss provision, but recorded
as a separate liability included in other liabilities. Management estimates the allowance balance using relevant available
information, from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.
Historical loan default and loss experience provides the basis for the estimation of expected credit losses.
Adjustments to historical loss information incorporate management's
view of current conditions and forecasts.
39
At
million compared to$21.6 million atDecember 31, 2021 and$22.0 million atMarch 31, 2021 .
Activity within the allowance is detailed in Note 3 to the consolidated financial statements.
At
loans and provided coverage of 761% of nonperforming loans compared to 1.12% and 500%, respectively,
at
at
At
totaled$3.0 million compared to$2.9 million atDecember 31, 2021 and$3.0 million atMarch 31, 2021 .
The allowance for unfunded commitments is recorded in other liabilities. Deposits Average total
deposits were
or 4.6%, over the fourth quarter of 2021 and$474.6 million , or 14.6%, over the first quarter of 2021.
Growth over the fourth quarter of 2021 was primarily attributable to an increase in seasonal public fund deposits. Compared to the first quarter 2021,
strong growth occurred in our noninterest bearing deposits, NOW accounts, and savings account balances.
Over the past few years, we have experienced strong core deposit growth, in addition to growth related to multiple government
stimulus programs in response to the Covid-19 pandemic, such as those under the CARES Act and the American Rescue Plan Act.
Given these increases, the potential exists for our deposit levels to be volatile into 2022 due to the uncertain timing of the outflows of the stimulus related
balances, in addition to the frequency and degree to which theFederal Open Market Committee (FOMC) raises the overnight
funds rate. It is anticipated that current liquidity levels will remain robust due to our strong overnight funds sold position.
The Bank continues to strategically consider ways to safely deploy a portion of this liquidity.
We monitor
deposit rates on an ongoing basis and adjust, if necessary,
as a prudent pricing discipline remains the key to managing our mix of deposits. MARKET RISK AND INTEREST RATE
SENSITIVITY
Market Risk and Interest Rate Sensitivity Overview.
Market risk arises from changes in interest rates, exchange rates,
commodity prices, and equity prices.
We have risk management policies designed to monitor and limit exposure to market
risk and we do not participate in activities that give rise to significant market risk involving exchange rates, commodity prices, or
equity prices.
In asset and liability management activities, our policies are designed to minimize structural interest rate risk. Interest Rate Risk Management.
Our net income is largely dependent
on net interest income.
Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature
or reprice on a different basis than interest-earning assets.
When
interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest
income.
Similarly, when interest-earning
assets mature or reprice more quickly than interest-bearing liabilities, falling market interest rates could
result in a decrease in net interest income.
Net interest income is also affected by changes in the portion of interest-earning
assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and shareowners'
equity.
We have established
what we believe to be a comprehensive interest rate risk management policy,
which is administered by management's Asset Liability Management
Committee ("ALCO").
The policy establishes limits of risk, which are quantitative measures of the percentage change in net interest income (a measure of net
interest income at risk) and the fair value of equity capital (a measure of economic value of equity ("EVE") at risk) resulting from a hypothetical change
in interest rates for maturities from one day to 30 years.
We measure the potential
adverse impacts that changing interest rates may have on our short-term
earnings, long- term value, and liquidity by employing simulation analysis through the use of
computer modeling.
The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded
in investment and loan portfolio contracts.
As with any method of gauging interest rate risk, there are certain shortcomings
inherent in the interest rate modeling methodology used by us.
When interest rates change, actual movements in different categories
of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly
from assumptions used in the model.
Finally, the methodology does not measure or reflect the impact that higher rates may have
on adjustable-rate loan clients' ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
40
The statement of financial condition is subject to testing for interest rate shock
possibilities to indicate the inherent interest rate risk.
We prepare
a current base case and several alternative interest rate simulations (-100,+100, +200,
+300, and +400 basis points (bp)), at least once per quarter, and report the analysis to
ALCO, our
(The -200bp rate scenario was not modeled starting in the second half of 2019 due to the low interest rate environment below 2.00%). We
augment our interest rate shock analysis with alternative interest rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening
or steepening of the yield curve (non-parallel shift).
In addition, more frequent forecasts may be produced when interest rates are particularly
uncertain or when other business conditions so dictate. Our goal is to structure the statement of financial condition so that net interest earnings at risk over 12-month and 24-month periods and the economic value of equity at risk do not exceed policy guidelines
at the various interest rate shock levels. We
attempt to achieve this goal by balancing, within policy limits, the volume of floating-rate
liabilities with a similar volume of floating-rate assets, by keeping the average maturity of fixed-rate asset and liability contracts
reasonably matched, by managing the mix of our core deposits, and by adjusting our rates to market conditions on a continuing
basis. Analysis.
Measures of net interest income at risk produced by simulation analysis are
indicators of an institution's short-term performance in alternative rate environments.
These measures are typically based upon a relatively brief period, and do not necessarily indicate the long-term prospects or economic value of the institution. ESTIMATED CHANGES
IN NET INTEREST INCOME (1) Percentage Change (12-month shock) +400 bp +300 bp +200 bp +100 bp -100 bp Policy Limit -15.0% -12.5% -10.0% -7.5% -7.5%March 31, 2022 27.0% 20.1% 13.2% 6.4% -7.4%December 31, 2021 36.6% 27.2% 17.8% 8.7% -6.2% Percentage Change (24-month shock) +400 bp +300 bp +200 bp +100 bp -100 bp Policy Limit -17.5% -15.0% -12.5% -10.0% -10.0%March 31, 2022 46.8% 35.3% 23.9% 12.8% -9.9%December 31, 2021 55.0% 40.5% 26.1% 12.2% -11.1% The Net Interest Income ("NII") at Risk position indicates
that in the short-term, all rising rate environments will positively impact
the
net interest margin of the Company,
while a declining rate environment of 100bp will have a negative impact on the net interest margin. These metrics became less favorable in rising rate scenarios
compared to the prior quarter as slightly longer duration assets were purchased. The percent change in NII became less favorable in the down
rate scenario as the NII base increased due to higher rates and now has more room to fall. All scenarios are within policy.
The measures of equity value at risk indicate our ongoing economic value
by considering the effects of changes in interest rates on all of our cash flows by discounting the cash flows to estimate the present value of
assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity,
which in theory approximates the fair value of our net assets. ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY (1) Changes in Interest Rates +400 bp +300 bp +200 bp +100 bp -100 bp Policy Limit -30.0% -25.0% -20.0% -15.0% -15.0%March 31, 2022 20.2% 16.2% 11.5% 6.3% -14.7%December 31, 2021 31.5% 24.6% 16.5% 8.2% -19.0% EVE Ratio (policy minimum 5.0%) 18.9% 18.0% 16.9% 15.9% 12.3% (1) Down 200, 300, and 400 bp rate scenarios have been excluded due to the current interest rate environment. 41
At
in all rising rate environments and unfavorable in a falling rate environment. EVE metrics became less favorable in a rising rate environment
due to longer duration investments purchased in the investment portfolio, and became more favorable in the rates down
scenario as our nonmaturity deposits became more valuable as rates rose.
EVE is currently in compliance with policy in all rate scenarios. As the interest rate environment and the dynamics of the economy continue to change,
additional simulations will be analyzed to address not only the changing rate environment, but also the change
in mix of our financial assets and liabilities, measured over multiple years, to help assess the risk to the Company. LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our
cash needs.
Our objective in managing our liquidity is to maintain our ability to meet loan commitments, purchase securities or repay deposits and
other liabilities in accordance with their terms, without an adverse impact on our current or future earnings.
Our liquidity strategy is guided by policies that are formulated and monitored by our ALCO and senior management, which take into account
the marketability of assets, the sources and stability of funding and the level of unfunded commitments.
We regularly evaluate
all of our various funding sources with an emphasis on accessibility, stability,
reliability and cost-effectiveness.
Our principal source of funding has been our client deposits, supplemented by our short-term and long-term borrowings, primarily from securities sold under
repurchase agreements, federal funds purchased and FHLB borrowings.
We believe that the cash
generated from operations, our borrowing capacity and our access to capital resources
are
sufficient to meet our future operating capital and funding requirements.
At
In addition to the primary borrowing outlets mentioned above, we also have
the
ability to generate liquidity by borrowing from the Federal Reserve Discount
Window and through brokered deposits.
We recognize the importance of maintaining liquidity and have developed a Contingent
Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity.
We periodically
test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases that certain credit facilities may
no longer be available.
We conduct a liquidity stress test on a quarterly basis based on events that could potentially
occur at the Bank and report results to ALCO, ourMarket Risk Oversight Committee ,Risk Oversight Committee ,
and the Board of Directors.
AtMarch 31, 2022 , we believe the liquidity available to us was sufficient to meet our on-going needs
and execute our business strategy.
We view our
investment portfolio primarily as a source of liquidity and have the option to pledge the portfolio
as collateral for borrowings or deposits, and/or sell selected securities.
The portfolio primarily consists of debt issued by the
governmental and federal agencies, municipal governments,
corporate bonds, and asset-backed securities.
The weighted average life
of the portfolio was approximately 3.63 years at
for sale portfolio had a net unrealized pre-tax loss
of
Our average overnight funds position (defined deposits with banks plus
Fed funds sold less Fed funds purchased) was
sold position of
The increase over the fourth quarter of 2021 was primarily due to growth in our seasonal deposits.
The increase compared to the first quarter 2021 was driven by strong core deposit growth,
in addition to pandemic related stimulus programs. We expect our
capital expenditures will be approximately
will primarily consist of office remodeling, office equipment/furniture, and technology
purchases.
Management expects that these capital expenditures will be funded with existing resources without impairing our ability to meet
our on-going obligations. Borrowings Average short
term borrowings totaled
million for the fourth quarter of
2021 and
periods was primarily attributable to the fluctuation of residential mortgage warehouse borrowings at CCHL.
Additional detail on these borrowings is provided in Note 4 - Mortgage Banking Activities in the Consolidated Financial Statements.
42
We have issued two
junior subordinated deferrable interest notes to our wholly owned
The first note for$30.9 million was issued to CCBG Capital Trust I in
The second note for$32.0 million was issued to CCBG Capital Trust II in
The interest payment for the CCBG Capital Trust I borrowing is due quarterly and adjusts quarterly to a variable rate of three-month
LIBOR plus a margin of 1.90%.
This note matures onDecember 31, 2034 .
The interest payment for the CCBG Capital Trust II borrowing is due
quarterly and adjusts quarterly to a variable rate of three-month LIBOR plus a margin of 1.80%.
This note matures on
The proceeds from these borrowings were used to partially fund acquisitions.
Under the terms of each junior subordinated deferrable interest note, in the event of default or if we elect to defer interest on the note, we may not, with
certain exceptions, declare or pay dividends or make distributions on our capital stock or purchase or acquire any of our capital
stock. We continue to evaluate the impact of the expected discontinuation of LIBOR on our two junior subordinated deferrable
interest notes.
During the second quarter of 2020, we entered into a derivative cash
flow hedge of our interest rate risk related to our subordinated debt.
The notional amount of the derivative is
I borrowing and$20 million of the CCBG Capital Trust II borrowing).
The interest rate swap agreement requires CCBG to pay fixed and receive variable (Libor
plus
spread) and has an average all-in fixed rate of 2.50% for 10 years.
Additional detail on the interest rate swap agreement is provided in Note 5 - Derivatives in the Consolidated Financial Statements. Capital Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 32.
AtMarch 31, 2022 , our regulatory capital ratios exceeded the threshold to be designated as "well-capitalized" under the Basel III capital standards. Our capital ratios are presented in the Selected Quarterly Financial Data
table on page 32.
AtMarch 31, 2022 , our regulatory capital ratios exceeded the threshold to be designated as "well-capitalized" under the Basel III capital standards. Shareowners' equity was$372.1 million atMarch 31, 2022 compared to$383.2
million at
During the first quarter of 2022, shareowners' equity was positively impacted by net income
of$8.5 million , a$0.2 million decrease in the accumulated other comprehensive loss for our
pension plan, a
related to transactions under our stock compensation plans, and stock compensation accretion of$0.2 million .
Shareowners' equity was reduced by common stock dividends
of
unrealized loss on investment securities. AtMarch 31, 2022 , our common stock had a book value of$21.94 per diluted
share compared to
and
Book value is impacted by the net after-tax unrealized gains and losses on AFS investment
securities.
At
million at
Book value is also impacted by the recording of our unfunded pension liability through other
comprehensive
income in accordance with Accounting Standards Codification Topic
715.
At
at
This liability is re-measured annually on
based on an actuarial calculation of our pension liability.
Significant
assumptions used in calculating the liability are discussed in our 2021 Form
10-K "Critical Accounting Policies" and include the weighted average discount rate used to measure the present value of the pension
liability, the weighted
average expected long-term rate of return on pension plan assets, and the assumed rate of annual compensation
increases, all of which will vary when re-measured.
The discount rate assumption used to calculate the pension liability is subject to
long-term corporate bond rates atDecember 31 st .
The
estimated impact to the pension liability based on a 25-basis point increase
or decrease in long-term corporate bond rates used to discount the pension obligation would decrease or increase the pension
liability by approximately
million (after-tax) using the balances from theDecember 31, 2021 measurement date. OFF-BALANCE SHEET ARRANGEMENTS We are a party
to financial instruments with off-balance sheet risks in the normal
course of business to meet the financing needs of our clients.
At
and
Commitments to extend credit are agreements to lend to a client so long as there is no violation of
any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee.
Since
many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party.
We use the same credit
policies in establishing commitments and issuing letters of credit as we do for on- balance sheet instruments. 43 If commitments arising from these financial instruments continue to
require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to meet our on-going
obligations.
In the event these commitments require funding in excess of historical levels, management believes current
liquidity, advances available from the
FHLB and theFederal Reserve , and investment security maturities provide a sufficient source of funds to meet these commitments. Certain agreements provide that the commitments are unconditionally
cancellable by the bank and for those agreements no allowance for credit losses has been recorded.
We have recorded
an allowance for credit losses on loan commitments that are not unconditionally cancellable by the bank, which is included in other
liabilities on the consolidated statements of financial condition and totaled$3.0 million atMarch 31, 2022 . CRITICAL ACCOUNTING POLICIES Our significant accounting policies are described in Note 1 to the Consolidated
Financial Statements included in our 2021 Form 10-K.
The preparation of our Consolidated Financial Statements
in accordance with GAAP and reporting practices applicable to the banking industry requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities.
Actual results could differ from those estimates. We have identified
accounting for (i) the allowance for credit losses, (ii) valuation of goodwill, (iii) pension
benefits, and (iv) income taxes as our most critical accounting policies and estimates in that they
are important to the portrayal of our financial condition and results, and they require our subjective and complex judgment as a result of
the need to make estimates about the effects of matters that are inherently uncertain.
These accounting policies, including the nature of the estimates and types of
assumptions used, are described throughout this Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Part
II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K. 44 TABLE I AVERAGE BALANCES & INTEREST RATES Three Months EndedMarch 31, 2022 December 31, 2021 March 31, 2021 Average Average Average Average Average Average (Dollars in Thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate Assets: Loans Held for Sale$ 43,004 $ 397 3.75 %$ 62,809 $ 522 3.29 %$ 106,242 $ 970 3.70 % Loans Held for Investment (1)(2) 1,963,578 21,811 4.50 1,948,324 22,296 4.54 2,044,363 22,483 4.46Taxable Securities 1,056,736 2,889 1.10 987,700 2,493 1.00 528,842 1,863 1.41Tax-Exempt Securities (2) 2,409 10 1.60 3,380 17 2.07 3,844 25 2.61 Federal Funds Sold and Interest Bearing Deposits 873,097 409 0.19 789,100 300 0.15 814,638 213 0.11 Total Earning Assets 3,938,824 25,516 2.63 % 3,791,313 25,628 2.68 % 3,497,929 25,554 2.96 % Cash & Due From Banks 74,253 73,752 68,978 Allowance For Credit Losses (21,655) (22,127) (24,128) Other Assets 275,353 284,999 278,742 TOTAL ASSETS$ 4,266,775 $ 4,127,937 $ 3,821,521 Liabilities: NOW Accounts$ 1,079,906 $ 86 0.03 %$ 963,778 $ 72 0.03 %$ 985,517 $ 76 0.03 % Money Market Accounts 285,406 33 0.05 289,335 34 0.05 269,829 33 0.05 Savings Accounts 599,359 72 0.05 573,563 71 0.05 492,252 60 0.05 Other Time Deposits 97,054 33 0.14 101,037 36 0.14 102,089 39 0.15 Total Interest Bearing Deposits 2,061,725 224 0.04 1,927,713 213 0.04 1,849,687 208 0.05 Short-Term Borrowings 32,353 192 2.40 46,355 307 2.63 67,033 412 2.49 Subordinated Notes Payable 52,887 317 2.40 52,887 306 2.26 52,887 307 2.32 Other Long-Term Borrowings 833 9 4.49 1,414 12 3.50 2,736 21 3.18 Total Interest Bearing Liabilities 2,147,798 742 0.14 % 2,028,369 838 0.16 % 1,972,343 948 0.19 % Noninterest Bearing Deposits 1,652,337 1,621,432 1,389,821 Other Liabilities 72,166 114,657 111,050 TOTAL LIABILITIES 3,872,301 3,764,458 3,473,214 Temporary Equity 10,518 13,339 21,977 TOTAL SHAREOWNERS' EQUITY 383,956 350,140 326,330 TOTAL LIABILITIES, TEMPORARY AND SHAREOWNERS' EQUITY$ 4,266,775 $ 4,127,937 $ 3,821,521 Interest Rate Spread 2.49 % 2.52 % 2.77 % Net Interest Income$ 24,774 $ 24,790 $ 24,606 Net Interest Margin (3) 2.55 % 2.60 % 2.85 % (1)
Average Balances include net loan fees, discounts and premiums and nonaccrual loans.
Interest income includes loan fees of
million and
the three months ended
2021 andMarch 31, 2021 , respectively. (2)
Interest income includes the effects of taxable equivalent adjustments
using a 21% tax rate. (3)
Taxable equivalent net interest income divided by average earnings assets. 45 Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Market Risk and Interest Rate Sensitivity" in Management's
Discussion and Analysis of Financial Condition and Results of Operations, above, which is incorporated herein by reference.
Management has determined that no additional disclosures are necessary to assess changes in information about market risk that have occurred
sinceDecember 31, 2021 . Item 4. CONTROLS AND PROCEDURES AtMarch 31, 2022 , the end of the period covered by this Form 10-Q, our
management, including our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of the period covered by this report these disclosure controls and procedures
were effective. Our management, including our Chief Executive Officer
and Chief Financial Officer, has reviewed
our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934).
During the quarter ended onMarch 31, 2022 , other than the above, there have been no significant changes in our internal
control over financial reporting during our most recently completed fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings We are party
to lawsuits arising out of the normal course of business.
In management's opinion, there is no known pending litigation, the outcome of which would, individually or in the aggregate, have a material effect
on our consolidated results of operations, financial position, or cash flows. Item 1A.
Risk Factors In addition to the other information set forth in this Quarterly Report, you should
carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" in our 2021 Form 10-K, as updated in our subsequent
quarterly reports. The risks described in our 2021 Form 10-K and our subsequent quarterly reports are not the only risks facing us. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition and/or operating results.
Item 2.
Unregistered Sales of
Proceeds
None.
Item 3.
Defaults Upon Senior Securities None. Item 4.
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