CAPITAL CITY BANK GROUP INC - Annual Report: 2020 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
Florida
0-13358
59-2273542
(State of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
32301
(Address of principal executive offices)
(Zip Code)
(
850
)
402-7821
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
CCBG
Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
☐
No
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
☒
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2020,
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $
277,245,803
price of the registrant’s common stock on that date). Shares of the registrant’s common stock held by each officer and director and each person
known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at February 25, 2021
Common Stock, $0.01 par value per share
16,840,267
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 27, 2021, are incorporated by reference in Part III.
2
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2020 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1.
4
Item 1A.
20
Item 1B.
28
Item 2.
28
Item 3.
28
Item 4.
PART II
Item 5.
29
Item 6.
31
Item 7.
33
Item 7A.
61
Item 8.
62
Item 9.
117
Item 9A.
117
Item 9B.
117
PART III
Item 10.
119
Item 11.
119
Item 12.
119
Item 13.
119
Item 14.
119
PART IV
Item 15.
120
Item 16.
121
122
3
INTRODUCTORY NOTE
This Annual Report on Form 10-K 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.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual results
to differ materially from those in the forward -looking statements, include, without limitation:
●
the magnitude and duration of the ongoing COVID-19 pandemic and its impact on the global and local economies and
financial market conditions and our business, results of operations and financial condition, including the impact of our
participation in government programs related to COVID-19;
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
changes in monetary and fiscal policies of the U.S. Government ;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and com puter viruses that may affect our computer systems or fraud related to debit card
products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss reserve,
deferred tax asset valuation and pension plan;
●
changes in accounting principles, policies, practices or guidelines;
●
the frequency and magnitude of foreclosure of our loans;
●
the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;
●
the strength of the United States economy in general and the strength of the local economies in which we conduct
operations;
●
our ability to declare and pay dividends, the payment of which is subject to our capital requirements;
●
changes in the securities and real estate markets;
●
structural changes in the markets for origination, sale and servicing of residential mortgages;
●
uncertainty in the pricing of residential mortgage loans that we sell, as well as competition for the mortgage servicing
rights related to these loans and related interest rate risk or price risk resulting from retaining mortgage servicing rights
and the potential effects of higher interest rates on our loan origination volumes
●
the effect of corporate restructuring, acquisitions or dispositions, including the actual restructuring and other related
charges and the failure to achieve the expected gains, revenue growth or expense savings from such corporate
restructuring, acquisitions or dispositions;
●
the effects of natural disasters, harsh weather conditions (including hurricanes), widespread health emergencies, military
conflict, terrorism, civil unrest or other geopolitical events;
●
our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each
jurisdiction where we operate;
●
the willingness of clients to accept third-party products and services rather than our products and services and vice versa;
●
increased competition and its effect on pricing;
●
technological changes;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
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.
4
PART I
Item 1. Business
About Us
General
Capital City Bank Group, Inc. (“CCBG”) is a financial holding company headquartered in Tallahassee, Florida. CCBG was
incorporated under Florida law on December 13, 1982, to acquire five national banks and one state bank that all subsequently
became part of CCBG’s bank subsidiary, Capital City Bank (“CCB” or the “Bank”). The Bank commenced operations in 1895. In
this report, the terms “Company,” “we,” “us,” or “our” mean CCBG and all subsidiaries included in our consolidated financial
statements.
We provide traditional deposit and credit services, mortgage banking, asset management, trust, merchant services, bank cards,
data processing, and securities brokerage services through 57 banking offices in Florida, Georgia, and Alabama operated by CCB.
Through Capital City Home Loans, LLC, a Georgia limited liability company (“CCHL”), we have 29 additional offices for our
mortgage banking business in the Southeast. The majority of the revenue from Core CCBG (excludes CCHL), approximately
88%, is derived from our Florida market areas while approximately 11% and 1% of the revenue is derived from our Georgia and
other market areas, respectively. Approximately 61% of the revenue from CCHL is derived from our Georgia market areas while
approximately 32% and 7% is derived from our Florida and other market areas, respectively.
Below is a summary of our financial condition and results of operations for the past three years, which we believe is a sufficient
period for understanding our general business development. Our financial condition and results of operations are more fully
discussed in our Management’s Discussion and Analysis on page 33 and our consolidated financial statements on page 67.
Dollars in millions
Year Ended
December 31,
Assets
Deposits
Shareowners’
Equity
Revenue
(1)
Net Income
2020
$3,798.1
$3,217.6
$320.8
$217.4
$31.6
2019
$3,089.0
$2,645.5
$327.0
$165.9
$30.8
2018
$2,959.2
$2,531.9
$302.6
$151.0
$26.2
(1)
Revenue represents interest income plus noninterest income
Dividends and management fees received from the Bank are CCBG’s primary source of income. Dividend payments by the Bank
to CCBG depend on the capitalization, earnings and projected growth of the Bank, and are limited by various regulatory
restrictions, including compliance with a minimum Common Equity Tier 1 Capital conservation buffer. See the section entitled
“Regulatory Considerations” in this
Item 1
restrictions.
Item 6 contains other financial and statistical information about us.
Subsidiaries of CCBG
CCBG’s principal asset is the capital stock of CCB, our wholly owned banking subsidiary, which accounted for nearly 100% of
consolidated assets and net income attributable to CCBG at December 31, 2020. In addition to our banking subsidiary, CCB has
two primary subsidiaries, which are wholly owned, Capital City Trust Company and Capital City Investments, Inc. We also
maintain a 51% membership interest in a consolidated subsidiary, CCHL, which we acquired on March 1, 2020. Refer to Note 1
– Significant Accounting Policies/Business Combination in our Consolidated Financial Statements for additional information on
this strategic alliance. The nature of these subsidiaries is provided below.
Operating Segment
We have one reportable segment with three principal services: Banking Services (CCB), Trust and Asset Management Services
(Capital City Trust Company), and Brokerage Services (Capital City Investments, Inc.). Revenues from each of these principal
services for the year ended 2020 totaled approximately 94.7%, 2.7%, and 2.41% of our total revenue, respectively. In 2019 and
2018, Banking Services (CCB) revenue was approximately 95.3% and 95.6% of our total revenue for each respective year.
5
Capital City Bank
CCB is a Florida-chartered full-service bank engaged in the commercial and retail banking business. Significant services offered
by CCB include:
●
Business Banking
for a wide variety of general business purposes, including financing for commercial business properties, equipment,
inventories and accounts receivable, as well as commercial leasing and letters of credit. We also provide treasury
management services, and, through a marketing alliance with Elavon, Inc., merchant credit card transaction processing
services.
●
Commercial Real Estate Lending
developers and investors, residential builders and developers, and community development. Credit products are available
to purchase land and build structures for business use and for investors who are developing residential or commercial
property.
●
Residential Real Estate Lending
network of locations to help meet the home financing needs of consumers, including conventional permanent and
construction/ permanent (fixed, adjustable, or variable rate) financing arrangements, and FHA/VA /GNMA loan products.
We offer both fixed and adjustable rate residential mortgage (ARM) loans. We offer these products through our existing
network of CCHL locations. We do not originate subprime residential real estate loans.
●
Retail Credit
automobile loans, boat/RV loans, home equity loans, and through a marketing alliance with ELAN, we offer credit card
programs.
●
Institutional Banking –
We provide banking services to meet the needs of state and local governments, public schools
and colleges, charities, membership and not-for-profit associations including customized checking and savings accounts,
cash management systems, tax-exempt loans, lines of credit, and term loans.
●
Retail Banking
– We provide a full-range of consumer banking services, including checking accounts, savings programs,
interactive/automated teller machines (ITMs/ATMs), debit/credit cards, night deposit services, safe deposit facilities,
online banking, and mobile banking.
Capital City Trust Company
Capital City Trust Company, or the Trust Company, provides asset management for individuals through agency, personal trust,
IRA, and personal investment management accounts. Associations, endowments, and other nonprofit entities hire the Trust
Company to manage their investment portfolios. Additionally, a staff of well-trained professionals serves individuals requiring the
services of a trustee, personal representative, or a guardian. The market value of trust assets under discretionary management
exceeded $985.6 million at December 31, 2020 with total assets under administration exceeding $999.5 million.
Capital City Investments, Inc.
We offer our customers access to retail investment products through LPL Financial pursuant to which retail investment products
would be offered through LPL. LPL offers a full line of retail securities products, including U.S. Government bonds, tax-free
municipal bonds, stocks, mutual funds, unit investment trusts, annuities, life insurance and long-term health care. Non-deposit
investment and insurance products are: (i) not FDIC insured; (ii) not deposits, obligations, or guarantees by any bank; and (iii)
subject to investment risk, including the possible loss of principal amount invested.
Lending Activities
One of our core goals is to support the communities in which we operate. We seek loans from within our primary market area,
which is defined as the counties in which our banking offices are located. We will also originate loans within our secondary
market area, defined as counties adjacent to those in which we have banking offices. There may also be occasions when we will
have opportunities to make loans that are out of both the primary and secondary market areas, including participation loans.
These loans are generally only approved if the applicant is known to us, underwriting is consistent with our criteria, and the
applicant’s primary business is in or near our primary or secondary market area. Approval of all loans is subject to our policies
and standards described in more detail below.
We have adopted comprehensive lending policies, underwriting standards and loan review procedures. Management and our
Board of Directors reviews and approves these policies and procedures on a regular basis (at least annually).
6
Management has also implemented reporting systems designed to monitor loan originations, loan quality, concentrations of
credit, loan delinquencies, nonperforming loans, and potential problem loans. Our management and the Credit Risk Oversight
Committee periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies. In
addition, total borrower exposure limits are established and concentration risk is monitored. As part of this process, the overall
composition of the portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type,
geographic area, or other relevant classifications of loans. Specific segments of the portfolio are monitored and reported to our
Board on a quarterly basis and we have strategic plans in place to supplement Board approved credit policies governing exposure
limits and underwriting standards. We recognize that exceptions to the below-listed policy guidelines may occasionally occur and
have established procedures for approving exceptions to these policy guidelines.
Residential Real Estate Loans
We originate 1-4 family, owner-occupied residential real estate loans at CCHL for sale in the secondary market. A vast majority
of residential loan originations are fixed-rate loans which are sold in the secondary market on a non-recourse basis. We will
frequently sell loans and retain the servicing rights. Note 4 – Mortgage Banking Activities in the Notes to Our Consolidated
Financial Statements provides additional information on our servicing portfolio.
CCB also maintains a portfolio of residential loans held for investment and will periodically purchase newly originated 1-4
family secured adjustable rate loans from CCHL for that portfolio. Residential loans held for investment are generally
underwritten in accordance with secondary market guidelines in effect at the time of origination, including loan-to-value, or LTV,
and documentation requirements.
Residential real estate loans also include home equity lines of credit, or HELOCs, and home equity loans. Our home equity
portfolio includes revolving open-ended equity loans with interest-only or minimal monthly principal payments and closed-end
amortizing loans. Open-ended equity loans typically have an interest only 10-year draw period followed by a five-year repayment
period of 0.75% of principal balance monthly and balloon payment at maturity. As of December 31, 2020, approximately 68% of
our residential home equity loan portfolio consisted of first mortgages. Interest rates may be fixed or adjustable. Adjustable-rate
loans are tied to the Prime Rate with a typical margin of 1.0% or more.
Commercial Loans
Our policy sets forth guidelines for debt service coverage ratios, LTV ratios and documentation standards. Commercial loans are
primarily made based on identified cash flows of the borrower with consideration given to underlying collateral and personal or
other guarantees. We have established debt service coverage ratio limits that require a borrower’s cash flow to be sufficient to
cover principal and interest payments on all new and existing debt. The majority of our commercial loans are secured by the
assets being financed or other business assets such as accounts receivable or inventory. Many of the loans in the commercial
portfolio have variable interest rates tied to the Prime Rate or U.S. Treasury indices.
Commercial Real Estate Loans
We have adopted guidelines for debt service coverage ratios, LTV ratios and documentation standards for commercial real estate
loans. These loans are primarily made based on identified cash flows of the borrower with consideration given to underlying real
estate collateral and personal guarantees. Our policy establishes a maximum LTV specific to property type and minimum debt
service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all
new and existing debt. Commercial real estate loans may be fixed or variable-rate loans with interest rates tied to the Prime Rate
or U.S. Treasury indices. We require appraisals for loans in excess of $250,000 that are secured by real property.
Consumer Loans
Our consumer loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft lines of
credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. The majority of our consumer
loans are short-term and have fixed rates of interest that are priced based on current market interest rates and the financial
strength of the borrower. Our policy establishes maximum debt-to-income ratios, minimum credit scores, and includes guidelines
for verification of applicants’ income and receipt of credit reports.
7
Lending Limits and Extensions of Additional Credit
We have established an internal lending limit of $10 million for the total aggregate amount of credit that will be extended to a
client and any related entities within our Board approved policies. This compares to our legal lending limit of approximately $76
million.
Loan Modification and Restructuring
In the normal course of business, we receive requests from our clients to renew, extend, refinance, or otherwise modify their
current loan obligations. In most cases, this may be the result of a balloon maturity that is common in most commercial loan
agreements, a request to refinance to obtain current market rates of interest, competitive reasons, or the conversion of a
construction loan to a permanent financing structure at the completion or stabilization of the property. In these cases, the request
is held to the normal underwriting standards and pricing strategies as any other loan request, whether new or renewal.
In other cases, we may modify a loan because of a reduction in debt service capacity experienced by the client (i.e., a potentially
troubled loan whereby the client may be experiencing financial difficulties). To maximize the collection of loan balances, we
evaluate troubled loans on a case-by-case basis to determine if a loan modification would be appropriate. We pursue loan
modifications when there is a reasonable chance that an appropriate modification would allow our client to continue servicing the
debt.
The CARES Act permitted banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-
19 that would otherwise be characterized as Troubled Debt Restructurings
and suspend any determination related thereto if (i) the
loan modification was made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID-
19 emergency declaration, and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The federal
banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to
assure banks that they would not be criticized by examiners for doing so. We applied this guidance to qualifying loan
modifications.
Expansion of Business
See MD&A (Business Overview) for disclosures regarding the expansion of our Business.
Competition
We operate in a highly competitive environment, especially with respect to services and pricing, that has undergone significant
changes since the recent financial crisis. Since January 1, 2009, over 500 financial institutions have failed in the U.S., including
85 in Georgia and 70 in Florida. Nearly all of the failed banks were community banks. The assets and deposits of many of these
failed community banks were acquired mostly by larger financial institutions. The banking industry has also experienced
significant consolidation through mergers and acquisition, which we expect will continue during 2021. However, we believe that
the larger financial institutions acquiring banks in our market areas are less familiar with the markets in which we operate and
typically target a different client base. We also believe clients who bank at community banks tend to prefer the relationship style
service of community banks compared to larger banks.
As a result, we expect to be able to effectively compete in our markets with larger financial institutions through providing
superior client service and leveraging our knowledge and experience in providing banking products and services in our market
areas. Thus, a further reduction of the number of community banks could continue to enhance our competitive position and
opportunities in many of our markets. However, larger financial institutions can benefit from economies of scale. Therefore, these
larger institutions may be able to offer banking products and services at more competitive prices than us. Additionally, these
larger financial institutions may offer financial products that we do not offer.
We may also begin to see competition from new banks that are being formed. In late 2016, the first
de novo
downturn was approved for a Florida-based bank and one new Florida charter was approved in 2019. While the number of new
bank formations has not returned to pre-downturn levels, increased
de novo
from new community banks.
Our primary market area consists of 20 counties in Florida, four counties in Georgia, and one county in Alabama. In these
markets, we compete against a wide range of banking and nonbanking institutions including banks, savings and loan associations,
credit unions, money market funds, mutual fund advisory companies, mortgage banking companies, investment banking
companies, finance companies and other types of financial institutions. Most of Florida’s major banking concerns have a presence
in Leon County, where our main office is located. Our Leon County deposits totaled $1.232 billion, or 38% of our consolidated
deposits at December 31, 2020.
8
The table below depicts our market share percentage within each county, based on commercial bank deposits within the county.
Market Share as of June 30,
(1)
County
2020
2019
2018
Florida
4.5%
4.5%
4.7%
0.0%
N/A
N/A
30.6%
40.2%
41.9%
3.6%
3.4%
3.4%
2.0%
2.1%
2.1%
18.7%
19.4%
20.8%
80.8%
81.6%
79.6%
38.7%
39.7%
46.3%
12.8%
12.6%
14.8%
3.5%
2.9%
2.5%
23.0%
21.9%
19.7%
13.3%
13.1%
12.8%
24.2%
25.0%
26.8%
14.0%
13.7%
13.6%
20.7%
20.8%
22.0%
0.6%
0.6%
0.8%
7.1%
6.7%
7.4%
72.4%
23.0%
23.5%
8.3%
9.3%
8.9%
11.0%
13.1%
12.0%
Georgia
3.2%
2.7%
2.9%
14.0%
13.0%
14.2%
8.4%
8.3%
8.6%
6.5%
6.3%
5.5%
Alabama
9.6%
8.7%
9.2%
(1)
Obtained from the FDIC Summary of Deposits Report for the year indicated.
Seasonality
We believe our commercial banking operations are not generally seasonal in nature; however, public deposits tend to increase
with tax collections in the fourth and first quarters of each year and decline as a result of governmental spending thereafter.
Human Capital
We are dedicated to creating personal relationships with our customers and implementing solutions that are right for them. Our
associates (our employees) are critical to achieving this mission, and it is crucial that we continue to attract and retain experienced
associates. As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community
where everyone feels included and empowered to do to their best work, and give associates the opportunity to give back to their
communities and make a social impact.
At February 9, 2021, we had approximately 773 associates, which included approximately 727 full-time associates and
approximately 46 part-time associates. None of our associates are represented by a labor union or covered by a collective
bargaining agreement. At February 9, 2021, approximately 74% of our current workforce was female while 26% was male, and
the average tenure of our associates was approximately 11 years.
9
Compensation and Benefits Program
. Our compensation program is designed to attract and reward talented individuals who
possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-
term value for our shareowners. We provide our associates with compensation packages that include base salary, annual incentive
bonuses, and equity awards tied to the value of our stock price. We believe that a compensation program with both short-term and
long-term awards provides fair and competitive compensation and aligns associate and shareowner interests, including by
incentivizing business and individual performance (pay for performance), motivating based on long-term company performance
and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer associates
benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, a 401(k) plan, and a
pension plan.
Diversity and Inclusion
. We believe that an equitable and inclusive environment with diverse teams produces more creative
solutions, results in better services and is crucial to our efforts to attract and retain key talent. We strive to promote inclusion
through our corporate values of integrity, advocacy, partnership, relationships, community, and exceptional service. We are
focused on building an inclusive culture through a variety of diversity and inclusion initiatives, including related to internal
promotions and hiring practices. Our associate resource groups also help to build an inclusive culture through company events,
participation in our recruitment efforts, and input into our hiring strategies.
Community Involvement
. We aim to give back to the communities where we live and work, and believe that this commitment
helps in our efforts to attract and retain associates. Community involvement is a hallmark for our organization, and it comes
naturally to our associates. We encourage our associates to volunteer their hours with service organizations and philanthropic
groups in the communities we serve.
Health and Safety
. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are
committed to the health, safety and wellness of our associates. We provide our associates and their families with access to a
variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by
providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they
can customize their benefits to meet their needs and the needs of their families. In response to the COVID-19 pandemic, we
implemented significant operating environment changes that we determined were in the best interest of our associates, as well as
the communities in which we operate, and which comply with government regulations. This includes having the majority of our
associates work from home, while implementing additional safety measures for associates continuing critical on-site work.
Regulatory Considerations
We must comply with state and federal banking laws and regulations that control virtually all aspects of our operations. These
laws and regulations generally aim to protect our depositors, not necessarily our shareowners or our creditors. Any changes in
applicable laws or regulations may materially affect our business and prospects. Proposed legislative or regulatory changes may
also affect our operations. The following description summarizes some of the laws and regulations to which we are subject.
References to applicable statutes and regulations are brief summaries, do not purport to be complete, and are qualified in their
entirety by reference to such statutes and regulations.
Capital City Bank Group, Inc.
We are registered with the Board of Governors of the Federal Reserve as a financial holding company under the Bank Holding
Company Act of 1956. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-
Leach-Bliley Act, the Bank Holding Company Act, or BHC Act, and other federal laws subject financial holding companies to
particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions for violations of laws and regulations.
Permitted Activities
The Gramm-Leach-Bliley Act modernized the U.S. banking system by: (i) allowing bank holding companies that qualify as
“financial holding companies,” such as CCBG, to engage in a broad range of financial and related activities; (ii) allowing insurers
and other financial service companies to acquire banks; (iii) removing restrictions that applied to bank holding company
ownership of securities firms and mutual fund advisory companies; and (iv) establishing the overall regulatory scheme applicable
to bank holding companies that also engage in insurance and securities operations. The general effect of the law was to establish a
comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other
financial service providers. Activities that are financial in nature are broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.
10
In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by
regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an
activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits
include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration
of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Changes in Control
Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, or CBCA, together with the applicable
regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any
acquisition of “control” of a bank or bank holding company. Under the BHC Act, a company (a broadly defined term that
includes partnerships among other things) that acquires the power, directly or indirectly, to direct the management or policies of
an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution is
deemed to control the institution and to be a bank holding company. A company that acquires less than 5% of any class of voting
security (and that does not exhibit the other control factors) is presumed not to have control. For ownership levels between the 5%
and 25% thresholds, the Federal Reserve has developed an extensive body of law on the circumstances in which control may or
may not exist. Further, on January 30, 2020, the Federal Reserve finalized a rule that simplifies and increases the transparency of
its rules for determining when one company controls another company for purposes of the BHC Act. The rule became effective
September 30, 2020. The rule has and will likely continue to have a meaningful impact on control determinations related to
investments in banks and bank holding companies and investments by bank holding companies in nonbank companies.
Under the CBCA, if an individual or a company that acquires 10% or more of any class of voting securities of an insured
depository institution or its holding company and either that institution or company has registered securities under Section 12 of
the Exchange Act, or no other person will own a greater percentage of that class of voting securities immediately after the
acquisition, then that investor is presumed to have control and may be required to file a change in bank control notice with the
institution’s or the holding company’s primary federal regulator. Our common stock is registered under Section 12 of the
Exchange Act.
As a financial holding company, we are required to obtain prior approval from the Federal Reserve before (i) acquiring all or
substantially all of the assets of a bank or bank holding company, (ii) acquiring direct or indirect ownership or control of more
than 5% of the outstanding voting stock of any bank or bank holding company (unless we own a majority of such bank’s voting
shares), or (iii) acquiring, merging or consolidating with any other bank or bank holding company. In determining whether to
approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on
competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-
acquisition basis, and the companies’ records of addressing the credit needs of the communities they serve, including the needs of
low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community
Reinvestment Act of 1977.
Under Florida law, a person or entity proposing to directly or indirectly acquire control of a Florida bank must also obtain
permission from the Florida Office of Financial Regulation. Florida statutes define “control” as either (i) indirectly or directly
owning, controlling or having power to vote 25% or more of the voting securities of a bank; (ii) controlling the election of a
majority of directors of a bank; (iii) owning, controlling, or having power to vote 10% or more of the voting securities as well as
directly or indirectly exercising a controlling influence over management or policies of a bank; or (iv) as determined by the
Florida Office of Financial Regulation. These requirements will affect us because the Bank is chartered under Florida law and
changes in control of CCBG are indirect changes in control of CCB.
Prohibitions Against Tying Arrangements
Banks are subject to the prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. We are prohibited, subject to
some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension
of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not
obtain services of a competitor of the institution.
11
Capital; Dividends; Source of Strength
The Federal Reserve imposes certain capital requirements on financial holding companies under the BHC Act, including a
minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described
below under “Capital Regulations.” Subject to its capita l requirements and certain other restrictions, we are generally able to
borrow money to make a capital contribution to CCB, and such loans may be repaid from dividends paid from CCB to us. We are
also able to raise capital for contributions to CCB by issuing securities without having to receive regulatory approval, subject to
compliance with federal and state securities laws.
It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of
income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected
future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain
dividend levels that undermine their ability to be a source of strength to its banking subsidiaries. Additionally, the Federal
Reserve has indicated that bank holding companies should carefully review their dividend policies and has discouraged payment
ratios that are at maximum allowable levels unless both asset quality and capital are very strong. The Federal Reserve possesses
enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the
payment of dividends by banks and bank holding companies.
Bank holding companies are expected to consult with the Federal Reserve before redeeming any equity or other capital instrument
included in Tier 1 or Tier 2 capital prior to stated maturity, if such redemption could have a material effect on the level or
composition of the organization’s capital base. In addition, a bank holding company may not repurchase shares equal to 10% or
more of its net worth if it would not be well-capitalized (as defined by the Federal Reserve) after giving effect to such repurchase.
Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses,
must consult with the Federal Reserve before redeeming or repurchasing common stock or other regulatory capital instruments.
In accordance with Federal Reserve policy, which has been codified by the Dodd-Frank Act, we are expected to act as a source of
financial strength to CCB and to commit resources to support CCB in circumstances in which we might not otherwise do so. In
furtherance of this policy, the Federal Reserve may require a financial holding company to terminate any activity or relinquish
control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such
activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the
financial holding company. Further, federal bank regulatory authorities have additional discretion to require a financial holding
company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository
institution’s financial condition.
Safe and Sound Banking Practices
Bank holding companies and their nonbanking subsidiaries are prohibited from engaging in activities that represent unsafe and
unsound banking practices or that constitute a violation of law or regulations. Under certain conditions the Federal Reserve may
conclude that some actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and
unsound banking practice. The Federal Reserve also has the authority to regulate the debt of bank holding companies, including
the authority to impose interest rate ceilings and reserve requirements on such debt. The Federal Reserve may also require a bank
holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain
conditions are met.
Capital City Bank
Capital City Bank is a state-chartered commercial banking institution that is chartered by and headquartered in the State of
Florida, and is subject to supervision and regulation by the Florida Office of Financial Regulation. The Florida Office of Financial
Regulation supervises and regulates all areas of our operations including, without limitation, the making of loans, the issuance of
securities, the conduct of our corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and
the establishment or closing of banking centers. We are also a member bank of the Federal Reserve System, which makes our
operations subject to broad federal regulation and oversight by the Federal Reserve. In addition, our deposit accounts are insured
by the FDIC up to the maximum extent permitted by law, and the FDIC has certain supervisory enforcement powers over us.
12
As a state-chartered bank in the State of Florida, we are empowered by statute, subject to the limitations contained in those
statutes, to take and pay interest on, savings and time deposits, to accept demand deposits, to make loans on residential and other
real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt obligations
of banks and corporations and to provide various other banking services for the benefit of our clients. Various consumer laws and
regulations also affect our operations, including state usury laws, laws relating to fiduciaries, consumer credit and equal credit
opportunity laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991, or
FDICIA, prohibits insured state chartered institutions from conducting activities as principal that are not permitted for national
banks. A bank, however, may engage in an otherwise prohibited activity if it meets its minimum capital requirements and the
FDIC determines that the activity does not present a significant risk to the Deposit Insurance Fund.
Safety and Soundness Standards / Risk Management
The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, asset quality and earnings.
In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible
for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in
the guidelines, the financial institution’s primary federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If a financial institution fails to submit an acceptable compliance plan, or fails in any mater ial respect to
implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order
directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may
restrict the financial institution’s rate of growth, require the financial institution to increase its capital, restrict the rates the
institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other
enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty
assessments.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management
processes and strong internal controls when evaluating the activities of the financial institutions they supervise. Properly
managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more
important as new technologies, product innovation and the size and speed of financial transactions have changed the nature of
banking markets. The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit,
market, liquidity, operational, legal and reputational risk. In particular, recent regulatory pronouncements have focused on
operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal
controls, fraud or unforeseen catastrophes will result in unexpected losses. New products and services, third party risk
management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the
current environment. The Bank is expected to have active board and senior management oversight; adequate policies, procedures
and limits; adequate risk measurement, monitoring and management information systems; and comprehensive internal controls.
Reserves
The Federal Reserve requires all depository institutions to maintain reserves against transaction accounts (noninterest bearing and
NOW checking accounts). The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be
used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve Bank “discount window” as a
secondary source of funds, provided that the institution meets the Federal Reserve Bank’s credit standards.
Dividends
CCB is subject to legal limitations on the frequency and amount of dividends that can be paid to CCBG. The Federal Reserve may
restrict the ability of CCB to pay dividends if such payments would constitute an unsafe or unsound banking practice.
Additionally, as of January 1, 2019, financial institutions are required to maintain a capital conservation buffer of at least 2.5% of
risk-weighted assets in order to avoid restrictions on capital distributions and other payments. If a financial institution’s capital
conservation buffer falls below the minimum requirement, its maximum payout amount for capital distributions and discretionary
payments declines to a set percentage of eligible retained income based on the size of the buffer. See “Capital Regulations,”
below for additional details on this new capital requirement.
13
In addition, Florida law and Federal regulation place restrictions on the declaration of dividends from state chartered banks to
their holding companies. Pursuant to the Florida Financial Institutions Code, the board of directors of state-chartered banks, after
charging off bad debts, depreciation and other worthless assets, if any, and making provisions for reasonably anticipated future
losses on loans and other assets, may quarterly, semi-annually or annually declare a dividend of up to the aggregate net profits of
that period combined with the bank’s retained net profits for the preceding two years and, with the approval of the Florida Office
of Financial Regulation and Federal Reserve, declare a dividend from retained net profits which accrued prior to the preceding
two years. Before declaring such dividends, 20% of the net profits for the preceding period as is covered by the dividend must be
transferred to the surplus fund of the bank until this fund becomes equal to the amount of the bank’s common stock then issued
and outstanding. A state-chartered bank may not declare any dividend if (i) its net income (loss) from the current year combined
with the retained net income (loss) for the preceding two years aggregates a loss or (ii) the payment of such dividend would cause
the capital account of the bank to fall below the minimum amount required by law, regulation , order or any written agreement
with the Florida Office of Financial Regulation or a federal regulatory agency. Under Federal Reserve regulations, a state member
bank may, without the prior approval of the Federal Reserve, pay a dividend in an amount that, when taken together with all
dividends declared during the calendar year, does not exceed the sum of the bank’s net income during the current calendar year
and the retained net income of the prior two calendar years. The Federal Reserve may approve greater amounts.
Insurance of Accounts and Other Assessments
Deposits at U.S. domiciled banks are insured by the FDIC, subject to limits and conditions of applicable laws and regulations.
Our deposit accounts are insured by the Deposit Insurance Fund, or DIF, generally up to a maximum of $250,000 per separately
insured depositor. In order to fund the DIF, all insured depository institutions are required to pay quarterly assessments to the
FDIC that are based on an institutions assignment to one of four risk categories based on supervisory evaluations, regulatory
capital levels and certain other factors. The FDIC has the discretion to adjust an institution’s risk rating and may terminate its
insurance of deposits upon a finding that the institution engaged or is engaging in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or written agreement entered into with the FDIC. The FDIC may also prohibit any FDIC-insured institution from engaging
in any activity it determines to pose a serious risk to the DIF.
Transactions With Affiliates and Insiders
Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of CCB to engage in transactions
with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an affiliate generally must be
collateralized and certain transactions between CCB and its affiliates, including the sale of assets, the payment of money or the
provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to CCB, as those
prevailing for comparable nonaffiliated transactions. In addition, CCB generally may not purchase securities issued or
underwritten by affiliates.
Loans to executive officers and directors of an insured depository institution or any of its affiliates or to any person who directly
or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of
any class of voting securities of a bank, which we refer to as “10% Shareowners,” or to any political or campaign committee the
funds or services of which will benefit those executive officers, directors, or 10% Shareowners or which is controlled by those
executive officers, directors or 10% Shareowners, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and the
corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to
executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal
Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions
made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a
disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those
individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus
an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or
when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed our unimpaired
capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which we are permitted to extend credit to
executive officers.
14
Community Reinvestment Act
The Community Reinvestment Act and its corresponding regulations are intended to encourage banks to help meet the credit
needs of the communities they serve, including low and moderate income neighborhoods, consistent with safe and sound banking
practices. These regulations provide for regulatory assessment of a bank’s record in meeting the credit needs of its market area.
Federal banking agencies are required to publicly disclose each bank’s rating under the Community Reinvestment Act. The
Federal Reserve considers a bank’s Community Reinvestment Act rating when the bank submits an application to establish bank
branches, merge with another bank, or acquire the assets and assume the liabilities of another bank. In the case of a financial
holding company, the Community Reinvestment Act performance record of all banks involved in a merger or acquisition are
reviewed in connection with the application to acquire ownership or control of shares or assets of a bank or to merge with another
bank or bank holding company. An unsatisfactory record can substantially delay or block the transaction. We received a
satisfactory rating on our most recent Community Reinvestment Act assessment.
Capital Regulations
The federal banking regulators have adopted risk-based, capital adequacy guidelines for financial holding companies and their
subsidiary banks based on the Basel III standards. Under these guidelines, assets and off-balance sheet items are assigned to
specific risk categories each with designated risk weightings. The new risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to diffe rences in risk profiles among banks and bank holding companies, to
account for off-balance sheet exposure, to minimize disincentives for holding liquid assets, and to achieve greater consistency in
evaluating the capital adequacy of major banks throughout the world. The resulting capital ratios represent capital as a percentage
of total risk-weighted assets and off-balance sheet items. Final rules implementing the capital adequacy guidelines became
effective, with various phase-in periods, on January 1, 2015 for community banks. All of the rules were fully phased in as of
January 1, 2019. These final rules represent a significant change to the prior general risk-based capital rules and are designed to
substantially conform to the Basel III international standards.
In computing total risk-weighted assets, bank and bank holding company assets are given risk-weights of 0%, 20%, 50%, 100%
and 150%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100% risk category, except
for performing first mortgage loans fully secured by 1-to-4 family and certain multi-family residential property, which carry a
50% risk rating. Most investment securities (including, primarily, general obligation claims on states or other political
subdivisions of the United States) will be assigned to the 20% category, except for municipal or state revenue bonds, which have
a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In covering off-balance sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial obligations, are given a 100% conversion factor. Transaction-related
contingencies such as bid bonds, standby letters of credit backing nonfinancial obligations, and undrawn commitments (including
commercial credit lines with an initial maturity of more than one year) have a 50% conversion factor. Short-term commercial
letters of credit are converted at 20% and certain short -term unconditionally cancelable commitments have a 0% factor.
Under the final rules, minimum requirements increased for both the quality and quantity of capital held by banking organizations.
In this respect, the final rules implement strict eligibility criteria for regulatory capital instruments and improve the methodology
for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel III framework, the rules
include a new minimum ratio of Common Equity Tier 1 Capital to Risk-Weighted Assets of 4.5%. The rules also create a
Common Equity Tier 1 Capital conservation buffer of 2.5% of risk-weighted assets. This buffer is added to each of the three risk-
based capital ratios to determine whether an institution has established the buffer. The rules raise the minimum ratio of Tier 1
Capital to Risk-Weighted Assets from 4% to 6% and include a minimum leverage ratio of 4% for all banking organizations. If a
financial institution’s capital conservation buffer falls below 2.5% (e.g., if the institution’s Common Equity Tier 1 Capital to
Risk-Weighted Assets is less than 7.0%) then capital distributions and discretionary payments will be limited or prohibited based
on the size of the institution’s buffer. The types of payments subject to this limitation include dividends, share buybacks,
discretionary payments on Tier 1 instruments, and discretionary bonus payments.
The capital regulations may also impact the treatment of accumulated other comprehensive income, or AOCI, for regulatory
capital purposes. Under the recently implemented rules, AOCI generally flows through to regulatory capital, however, community
banks and their holding companies may make a one-time irrevocable opt-out election to continue to treat AOCI the same as under
the old regulations for regulatory capital purposes. This election was required to be made on the first call report or bank holding
company annual report (on form FR Y-9C) filed after January 1, 2015. We made the opt-out election. Additionally, the new rules
also permit community banks with less than $15 billion in total assets to continue to count certain non-qualifying capital
instruments issued prior to May 19, 2010 as Tier 1 capital, including trust preferred securities and cumulative perpetual preferred
stock (subject to a limit of 25% of Tier 1 capital). However, non-qualifying capital instruments issued on or after May 19, 2010
do not qualify for Tier 1 capital treatment.
15
In February 2019, the federal bank regulatory agencies issued a final rule (the “2019 CECL Rule”) that revised certain capital
regulations to account for changes to credit loss accounting under accounting principles generally accepted in the United States
("GAAP"). The 2019 CECL Rule included a transition option that allows banking organizations to phase in, over a three-year
period, the day-one adverse effects of adopting the new accounting standard related to the measurement of current expected credit
losses (“CECL”) on their regulatory capital ratios (three-year transition option). In March 2020, the federal bank regulatory
agencies issued an interim final rule that maintains the three-year transition option of the 2019 CECL Rule and also provides
banking organizations that were required under GAAP to implement CECL before the end of 2020 the option to delay for two
years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology’s effect on regulatory
capital, followed by a three-year transition period (five-year transition option). We adopted CECL on January 1, 2020 and have
elected to utilize the three-year transition option.
Commercial Real Estate Concentration Guidelines
The federal banking regulators have implemented guidelines to address increased concentrations in commercial real estate loans.
These guidelines describe the criteria regulatory agencies will use as indicators to identify institutions potentially exposed to
commercial real estate concentration risk. An institution that has (i) experienced rapid growth in commercial real estate lending,
(ii) notable exposure to a specific type of commercial real estate, (iii) total reported loans for construction, land development, and
other land representing 100% or more of total risk-based capital, or (iv) total commercial real estate (including construction) loans
representing 300% or more of total risk-based capital and the outstanding balance of the institutions commercial real estate
portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of a potential
concentration risk.
At December 31, 2020, CCB’s ratio of construction, land development and other land loans to total risk-based capital was 65%,
its ratio of total commercial real estate loans to total risk-based capital was 196% and, therefore, CCB was under the 100% and
300% thresholds, respectively, set forth in clauses (iii) and (iv) above. As a result, we are not deemed to have a concentration in
commercial real estate lending under applicable regulatory guidelines.
Prompt Corrective Action
Federal law and regulations establish a capital-based regulatory scheme designed to promote early intervention for troubled banks
and require the FDIC to choose the least expensive resolution of bank failures. The capital-based regulatory framework contains
five categories of compliance with regulatory capital requirements, including “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” To qualify as a “well-capitalized”
institution under the rules in effect as of January 1, 2015, a bank must have a leverage ratio of not less than 5%, a Tier 1 Common
Equity ratio of not less than 6.5%, a Tier 1 Capital ratio of not less than 8%, and a total risk-based capital ratio of not less than
10%, and the bank must not be under any order or directive from the appropriate regulatory agency to meet and maintain a
specific capital level.
Under the regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency
determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound condition or is engaging in
an unsafe or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible
activities of the institution will decrease, as it moves downward through the capital categories.
Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the
Federal Deposit Insurance Act which: (i) restrict payment of capital distributions and management fees; (ii) require that the
appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require
submission of a capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) require prior approval of certain
expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance fund, subject in certain cases to specified procedures. These
discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with
affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other
supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be
taken with respect to significantly undercapitalized and critically undercapitalized institutions.
16
In 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain
banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on
January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total
consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures
of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are
deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio
framework.” A qualifying community banking organizati on that elects to use the community bank leverage ratio framework and
that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage
capital requirements under the Basel III capital rules and, if applicable, is considered to have met the “well capitalized” ratio
requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed above. The final rules
include a two-quarter grace period during which a qualifying community banking organization that temporarily fails to meet any
of the qualifying criteria, including the greater-than-9% leverage capital ratio requirement, is generally still deemed “well
capitalized” so long as the banking organization maintains a leverage capital ratio greater than 8%. A banking organization that
fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the
generally applicable requirements under the Basel III capital rules and file the appropriate regulatory reports.
Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, the federal banking agencies authorities
adopted a final rule, effective November 9, 2020, that (i) reduced the minimum community bank leverage ratio to be deemed
“well capitalized” from 9% to 8% through calendar year 2020, (ii) set the ratio at 8.5% for calendar year 2021, (iii) sets the ratio
back at 9% for 2022 and thereafter, and (ii) gave community banks two-quarter grace period to satisfy the ratio if the ratio falls
out of compliance by no more than 1%. We have not elected to comply with the community bank leverage ratio framework and
will remain subject to the Basel III capital requirements.
At December 31, 2020, we exceeded the requirements contained in the applicable regulations, policies and directives pertaining to
capital adequacy to be classified as “well capitalized” and are unaware of any material violation or alleged violation of these
regulations, policies or directives (see table below). Rapid growth, poor loan portfolio performance, or poor earnings
performance, or a combination of these factors, could change our capital position in a relatively short period of time, making
additional capital infusions necessary. Our capital ratios can be found in Note 17 to the Notes to our Consolidated Financial
Statements.
Interstate Banking and Branching
The Dodd-Frank Act relaxed interstate branching restrictions by modifying the federal statute governing de novo interstate
branching by state member banks. Consequently, a state member bank may open its initial branch in a state outside of the bank’s
home state by way of an interstate bank branch, so long as a bank chartered under the laws of that state would be permitted to
open a branch at that location.
Anti-money Laundering
The USA PATRIOT Act, provides the federal government with additional powers to address terrorist threats through enhanced
domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering
requirements. By way of amendments to the Bank Secrecy Act, or BSA, the USA PATRIOT Act puts in place measures intended
to encourage information sharing among bank regulatory and law enforcement agencies. In addition, certain provisions of the
USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions.
The USA PATRIOT Act and the related Federal Reserve regulations require banks to establish anti-money laundering programs
that include, at a minimum:
●
internal policies, procedures and controls designed to implement and maintain the savings association’s compliance with
all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations;
●
systems and procedures for monitoring and reporting of suspicious transactions and activities;
●
a designated compliance officer;
●
employee training;
●
an independent audit function to test the anti-money laundering program;
●
procedures to verify the identity of each client upon the opening of accounts; and
●
heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.
17
Additionally, the USA PATRIOT Act requires each financial institution to develop a client identification program, or CIP as part
of its anti-money laundering program. The key components of the CIP are identification, verification, government list
comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the true identity
and anticipated account activity of each client. To make this determination, among other things, the financial institution must
collect certain information from clients at the time they enter into the client relationship with the financial institution. This
information must be verified within a reasonable time. Furthermore, all clients must be screened against any CIP-related
government lists of known or suspected terrorists. In 2018, the U.S. Treasury’s Financial Crimes Enforcement Network issued a
final rule under the BSA requiring banks to identify and verify the identity of the natural persons behind their clients that are legal
entities – the beneficial owners. We and our affiliates have adopted policies, procedures and controls designed to comply with the
BSA and the USA PATRIOT Act.
Regulatory Enforcement Authority
Federal and state banking laws grant substantial regulatory authority and enforcement powers to federal and state banking
regulators. This authority permits bank regulatory agencies to assess civil money penalties, to issue cease and desist or removal
orders, and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these
enforcement actions may be initiated for either violations of laws or regulations or for unsafe or unsound practices. Other actions
or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory
authorities.
Privacy
A variety of federal and state privacy laws govern the collection, safeguarding, sharing and use of customer information, and
require that financial institutions have policies regarding information privacy and security. The Gramm-Leach-Bliley Act and
related regulations require banks and their affiliated companies to adopt and disclose privacy policies, including policies
regarding the sharing of personal information with third-parties. Some state laws also protect the privacy of information of state
residents and require adequate security of such data, and certain state laws may, in some circumstances, require us to notify
affected individuals of security breaches of computer databases that contain their personal information. These laws may also
require us to notify law enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as
businesses and governmental agencies that own data.
Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on
automated teller machines, or ATM, and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft
service for those type of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws the consumer’s
account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not covered by this new
rule. Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services,
including the fees associated with the service, and the consumer’s choices. Financial institutions must provide consumers who do
not opt in with the same account terms, conditions and features (including pricing) that they provide to consumers who do opt in.
Consumer Laws and Regulations
CCB is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in Lending
Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Check Clearing for the
21st Century Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Credit Transactions Act, the Mortgage Disclosure
Improvement Act, and the Real Estate Settlement Procedures Act, among others. These laws and regulations mandate certain
disclosure requirements and regulate the manner in which financial institutions must deal with clients when taking deposits or
making loans to such clients. CCB must comply with the applicable provisions of these consumer protection laws and regulations
as part of its ongoing client relations.
In addition, the Consumer Financial Protection Bureau issues regulations and standards under these federal consumer protection
laws that affect our consumer businesses. These include regulations setting “ability to repay” standards for residential mortgage
loans and mortgage loan servicing and originator compensation standards, which generally require creditors to make a reasonable,
good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an
open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under
this requirement for loans that meet the requirements of the “qualified mortgage” safe harbor. Also, in, 2015, the new TILA-
RESPA Integrated Disclosure, or TRID, rules for mortgage closings took effect for new loan applications. The new TRID rules
were further amended in 2017. These new rules, including the new required loan forms, generally increased the time it takes to
approve mortgage loans.
18
Future Legislative Developments
Various bills are from time to time introduced in Congress and the Florida legislature. This legislation may change banking and
tax statutes and the environment in which our banking subsidiary and we operate in substantial and unpredictable ways. We
cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would
have upon our financial condition or results of operations or that of our banking subsidiary.
COVID-19 and the Coronavirus Aid, Relief, and Economic Security Act
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 to provide national emergency
economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial
institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal
departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal banking agencies,
including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the on-going COVID-19
pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle,
and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.
In addition, it is likely that Congress will enact supplementary COVID-19 response legislation, including amendments to the
CARES Act or new bills comparable in scope to the CARES Act. The Company continues to assess the impact of the CARES Act
and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.
Paycheck Protection Program
. The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a
guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed
persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which among other things,
gave borrowers additional time and flexibility to use PPP loan proceeds. On June 5, 2020, the Paycheck Protection Program
Flexibility Act (the “Flexibility Act”) was signed into law, and made significant changes to the PPP to provide additional relief for
small businesses. The Flexibility Act increased flexibility for small businesses that have been unable to rehire employees due to
lack of employee availability, or have been unable to operate as normal due to COVID-19 related restrictions, extended the period
that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules, and
relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness. In addition, the Flexibility Act
extended the payment deferral period for PPP loans until the date when the amount of loan forgiveness is determined and remitted
to the lender. For PPP recipients who do not apply for forgiveness, the loan deferral period is 10 months after the applicable
forgiveness period ends. On July 4, 2020, Congress enacted a new law to extend the deadline for applying for a PPP loan to August
8, 2020. The program was re-opened on January 11, 2021 with updated guidance outlining program changes to enhance its
effectiveness and accessibility. This round of the PPP will serve new borrowers, as well as allow certain existing PPP borrowers to
apply for a second draw PPP Loan and make a request to modify their first draw PPP loan. As a participating lender in the PPP, the
Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.
Troubled Debt Restructuring and Loan Modifications for Affected Borrower
s. The CARES Act permitted banks to suspend
requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as
TDRs and suspend any determination related thereto if (i) the loan modification was made between March 1, 2020 and the earlier
of December 31, 2020 or 60 days after the end of the COVID-19 emergency declaration, and (ii) the applicable loan was not more
than 30 days past due as of December 31, 2019. The federal banking agencies also issued guidance to encourage banks to make
loan modifications for borrowers affected by COVID-19 and to assure banks that they would not be criticized by examiners for
doing so. We applied this guidance to qualifying loan modifications.
Main Street Lending Program.
Treasury, to establish or implement various programs to help midsize businesses, nonprofits, and municipalities. On April 9, 2020,
the Federal Reserve proposed the creation of the Main Street Lending Program (“MSLP”) to implement certain of these
recommendations. The MSLP supports lending to small and medium-sized businesses that were in sound financial condition before
the onset of the COVID-19 pandemic. The MSLP operates through five facilities: the Main Street New Loan Facility, the Main
Street Priority Loan Facility, the Main Street Expanded Loan Facility, the Nonprofit Organization New Loan Facility, and the
Nonprofit Organization Expanded Loan Facility. The Bank continues to monitor developments related thereto.
19
C
urrent Expected Credit Loss Accounting Standard
In 2016, the Financial Accounting Standards Board, or FASB, issued a new current expected credit loss rule, or CECL, which
required banks to record, at the time of origination, credit losses expected throughout the life of loans held for investment and
held-to-maturity securities, compared to the current practice of recording losses when it is probable that a loss event has occurred.
The update also amended the accounting for credit losses on available-for-sale debt securities and financial assets purchased with
credit deterioration. We adopted this accounting standard effective January 1, 2020. See Note 1 – Significant Accounting
Policies/Adoption of New Accounting Standard for additional information on this standard and its impact on our financial
statements.
Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions, but also by the monetary policies of the
Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,”
open market operations, changes in the Fed Funds target interest rate, changes in interest rates payable on reserve accounts, the
imposition of changes in reserve requirements against member banks’ deposits and assets of foreign banking centers and the
imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to
influence overall growth and distributions of bank loans, investments and deposits, which may affect interest rates charged on
loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The Federal Reserve’s policies are primarily influenced by
its dual mandate of price stability and full employment, and to a lesser degree by short-term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. Government. Future changes in monetary policy and the effect of
such changes on our business and earnings in the future cannot be predicted.
London Inter-Bank Offered Rate (LIBOR)
We have contracts, including loan agreements, which are currently indexed to LIBOR. The use of LIBOR as a reference rate in
the banking industry is beginning to decline. In 2014, a committee of private-market derivative participants and their regulators,
the Alternative Reference Rate Committee, or ARRC, was convened by the Federal Reserve to identify an alternative reference
interest rate to replace LIBOR. In June 2017, the ARRC announced the Secured Overnight Funding Rate, or SOFR, a broad
measure of the cost of borrowing cash overnight collateralized by Treasury securities, as its preferred alternative to LIBOR. In
July 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced its
intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after
2021. In April 2018, the Federal Reserve Bank of New York began to publish SOFR rates on a daily basis. The International
Swaps and Derivatives Association, Inc. provided guidance on fallback contract language related to derivative transactions in late
2019. The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings to
June 30, 2023, and to cease publishing other LIBOR settings on December 31, 2021. The U.S. federal banking agencies have
issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new
contracts as soon as practicable and in any event by December 31, 2021. It is not possible to know whether LIBOR will continue
to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR or what the
effect of any such changes in views or alternatives may have on the financial markets for LIBOR-linked financial instruments.
We are working to ensure that our technology systems are prepared for the transition, our loan documents that reference LIBOR-
based rates have been appropriately amended to reference other methods of interest rate determination, and internal and external
stakeholders are apprised of the transition.
Website Access to Company’s Reports
Our Internet website is www.ccbg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by referenc e into this report.
20
Item 1A. Risk Factors
An investment in our common stock contains a high degree of risk. You should consider carefully the following risk factors before
deciding whether to invest in our common stock. Our business, including our operating results and financial condition, could be
harmed by any of these risks. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially and adversely affect our business. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other
information contained in our filings with the SEC, including our financial statements and related notes.
Macroeconomic Risks
The impact of the COVID-19 pandemic on our customers, associates and business operations has had, and will likely
continue to have, a significant adverse effect on our business, results of operations and financial condition.
The COVID-19 pandemic created a global public -health crisis that resulted in challenging economic conditions for households
and businesses. The economic impact of the COVID-19 pandemic impacted a broad range of industries. There is increasing
concern about the longer lasting impact on local business resulting from the COVID-19 pandemic.
The Federal Reserve returned to a zero-interest rate policy in March 2020 and the U.S. government enacted several fiscal stimulus
measures to counteract the economic disruption caused by the COVID-19 pandemic and provide economic assistance to
businesses and households. The dramatic lowering of market interest rates in a short period of time had an adverse effect on the
Company's asset yields. The majority of the fiscal assistance provided by the federal government to businesses and households
tapered off by December 31, 2020, which could adversely impact the ability of borrowers to repay their loans. The Company's
financial performance is dependent upon the ability of borrowers to repay their loans.
The COVID-19 pandemic resulted in changes to our business operations during the current year and could continue to result in
changes to operations in future periods. Depending on the severity and length of the COVID-19 pandemic, which is impossible to
predict, we could experience significant disruptions in our business operations if key personnel or a significant number of
employees were to become unavailable due to the effects of, and restrictions resulting from, the COVID-19 pandemic, as well as
decreased demand for our products and services.
There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the
start of the COVID-19 pandemic. As a result, management is confronted with a significant degree of uncertainty in estimating the
impact of the pandemic on credit quality, revenues and asset values. Asset quality may deteriorate and the amount of our
allowance for loan losses may not be sufficient for future loan losses we may experience. This could require us to increase our
reserves and recognize more expense in future periods. The changes in market rates of interest and the impact that has on our
ability to price our products may reduce our net interest income in the future or negatively impact the demand for our products.
There is some risk that operational costs could further increase as we maintain existing facilities in accordance with health
guidelines as well as have associates continue to work remotely.
The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition, as well as our
regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted,
including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third
parties in response to the pandemic.
We may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends to a large extent on Capital City Bank’s net interest income, which is the difference between income on
interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and
borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control,
including inflation, recession, unemployment, federal funds target rate, money supply, domestic and international events and
changes in the United States and other financial markets. Our net interest income may be reduced if: (i) more interest-earning
assets than interest-bearing liabilities reprice or mature during a time when interest rates are declining or (ii) more interest-bearing
liabilities than interest-earning assets reprice or mature during a time when interest rates are rising.
21
Changes in the difference between short -term and long-term interest rates may also harm our business. We generally use short-
term deposits to fund longer-term assets. When interest rates change, assets and liabilities with shorter terms reprice more quickly
than those with longer terms, which could have a material adverse effect on our net interest margin. If market interest rates rise
rapidly, interest rate adjustment caps may also limit increases in the interest rates on adjustable rate loans, which could further
reduce our net interest income. Additionally, we believe that due to the recent historical low interest rate environment, the effects
of the repeal of Regulation Q, which previously had prohibited the payment of interest on demand deposits by member banks of
the Federal Reserve System, have not been realized. The increased price competition for deposits that may result upon the return
to a historically normal interest rate environment could adversely affect net interest margins of community banks.
Although we continuously monitor interest rates and have a number of tools to manage our interest rate risk exposure, changes in
market assumptions regarding future interest rates could significantly impact our interest rate risk strategy, our financial position
and results of operations. If we do not properly monitor our interest rate risk management strategies, these activities may not
effectively mitigate our interest rate sensitivity or have the desired impact on our results of operations or financial condition.
Interest rates and economic conditions affect consumer demand for housing and can create volatility in the mortgage industry.
These risk can have a material impact on the volume of mortgage originations and refinancings, adversely affecting our mortgage
banking revenues and the profitability of our mortgage banking business.
We may be adversely affected by changes in the method of determining LIBOR, or the replacement of LIBOR with an
alternative reference rate.
Our business relies upon loans and other financial instruments that are directly or indirectly dependent on LIBOR to establish
their interest rate and/or value. The administrator of LIBOR has proposed to extend publication of the most commonly used U.S.
Dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021. The U.S. federal
banking agencies have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a
reference rate in new contracts as soon as practicable and in any event by December 31, 2021. We do not know whether LIBOR
will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or
what the effect of any such changes in views or alternatives may have on the financial markets for LIBOR-linked financial
instruments. The transition from LIBOR may cause us to incur increased costs and face additional risks. Uncertainty as to the
nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates
and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or
replacement interest rates may perform differently, which may affect our net interest income, change our market risk profile and
require changes to our strategies. Any failure to adequately manage this transition could adversely impact our reputation.
Risks Related to Lending Activities
Our loan portfolio includes loans with a higher risk of loss which could lead to higher loan losses and nonperforming
assets.
We originate commercial real estate loans, commercial loans, construction loans, vacant land loans, consumer loans, and
residential mortgage loans primarily within our market area. Commercial real estate, commercial, construction, vacant land, and
consumer loans may expose a lender to greater credit risk than traditional fixed-rate fully amortizing loans secured by single-
family residential real estate because the collateral securin g these loans may not be sold as easily as single-family residential real
estate. In addition, these loan types tend to involve larger loan balances to a single borrower or groups of related borrowers and
are more susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had greater credit
risk than other loans for the following reasons:
●
Commercial Real Estate Loans
. Repayment is dependent on income being generated in amounts sufficient to cover
operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing
over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment
typically will depend on the borrower’s ability to either refinance the loan or timely sell the underlying property. At
December 31, 2020, commercial mortgage loans comprised approximately 32.3% of our total loan portfolio.
●
Commercial Loans
. Repayment is generally dependent upon the successful operation of the borrower’s business. In
addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in
value based on the success of the business. At December 31, 2020, commercial loans comprised approximately 19.6% of
our total loan portfolio.
22
●
Construction Loans
. The risk of loss is largely dependent on our initial estimate of whether the property’s value at
completion equals or exceeds the cost of property construction and the availability of take-out financing. During the
construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual
construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full
repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. At December 31,
2020 construction loans comprised approximately 6.8% of our total loan portfolio.
●
Vacant Land Loans
. Because vacant or unimproved land is generally held by the borrower for investment purposes or
future use, payments on loans secured by vacant or unimproved land will typically rank lower in priority to the borrower
than a loan the borrower may have on their primary residence or business. These loans are susceptible to adverse
conditions in the real estate market and local economy. At December 31, 2020, vacant land loans comprised
approximately 2.7% of our total loan portfolio.
●
HELOCs
. Our open-ended home equity loans have an interest-only draw period followed by a five-year repayment
period of 0.75% of the principal balance monthly and a balloon payment at maturity. Upon the commencement of the
repayment period, the monthly payment can increase significantly, thus, there is a heightened risk that the borrower will
be unable to pay the increased payment. Further, these loans also involve greater risk because they are generally not fully
amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a
balloon payment may depend on the borrower’s ability to either refinance the loan or timely sell the underlying property.
At December 31, 2020 HELOCs comprised approximately 10.2% of our total loan portfolio.
●
Consumer Loans
. Consumer loans (such as automobile loans and personal lines of credit) are collateralized, if at all,
with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss. At
December 31, 2020, consumer loans comprised approximately 13.5% of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately 90.4% of the total balance.
The increased risks associated with these types of loans result in a correspondingly higher probability of default on such loans (as
compared to fixed-rate fully amortizing single-family real estate loans). Loan defaults would likely increase our loan losses and
nonperforming assets and could adversely affect our allowance for loan losses and our results of operations .
Our loan portfolio is heavily concentrated in mortgage loans secured by properties in Florida and Georgia which causes
our risk of loss to be higher than if we had a more geographically diversified portfolio.
Our interest-earning assets are heavily concentrated in mortgage loans secured by real estate, particularly real estate located in
Florida and Georgia. At December 31, 2020, approximately 67% of our loans included real estate as a primary, secondary, or
tertiary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of
default by the borrower; however, the value of the collateral may decline during the time the credit is extended. If we are required
to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital
could be adversely affected.
Additionally, at December 31, 2020, substantially all of our loans secured by real estate are secured by commercial and residential
properties located in Northern Florida and Middle Georgia. The concentration of our loans in these areas subjects us to risk that a
downturn in the economy or recession in these areas could result in a decrease in loan originations and increases in delinquencies
and foreclosures, which would more greatly affect us than if our lending were more geographically diversified. In addition, since
a large portion of our portfolio is secured by properties located in Florida and Georgia, the occurrence of a natural disaster, such
as a hurricane, or a man-made disaster could result in a decline in loan originations, a decline in the value or destruction of
mortgaged properties and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer
further losses due to the decline in the value of the properties underlying our mortgage loans, which would have an adverse
impact on our results of operations and financial condition.
Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our
financial results.
Due to the lack of diversified industry within the markets served by CCB and the relatively close proximity of our geographic
markets, we have both geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the
nature of our markets, a significant portion of the portfolio has historically been secured with real estate. At December 31, 2020,
approximately 32% and 28% of our $2.006 billion loan portfolio was secured by commercial real estate and residential real estate,
respectively. As of this same date, approximately 7% was secured by property under construction.
23
In the event we are required to foreclose on a property securing one of our mortgage loans or otherwise pursue our remedies in
order to protect our investment, we may be unable to recover funds in an amount equal to our projected return on our investment
or in an amount sufficient to prevent a loss to us due to prevailing economic conditions, real estate values and other factors
associated with the ownership of real property. As a result, the market value of the real estate or other collateral underlying our
loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans, and consequently, we
would sustain loan losses.
An inadequate allowance for credit losses would reduce our earnings.
We are exposed to the risk that our clients may be unable to repay their loans according to their terms and that any collateral
securing the payment of their loans may not be sufficient to assure full repayment. This could result in credit losses that are
inherent in the lending business. We evaluate the collectability of our loan portfolio and provide an allowance for credit losses
that we believe is adequate based upon such factors as:
●
the risk characteristics of various classifications of loans;
●
previous loan loss experience;
●
specific loans that have loss potential;
●
delinquency trends;
●
estimated fair market value of the collateral;
●
current and future economic conditions; and
●
geographic and industry loan concentrations.
At December 31, 2020, our allowance for credit losses was $23.8 million, which represented approximately 1.19% of our total
loans held for investment. We had $5.9 million in nonaccruing loans at December 31, 2020. The allowance is based on
management’s reasonable estimate and may not prove sufficient to cover future loan losses. Although management uses the best
information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary
if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our
nonperforming or performing loans. In addition, regulatory agencies, as an integral part of their examination process, periodically
review our estimated losses on loans. Our regulators may require us to recognize additional losses based on their judgments about
information available to them at the time of their examination. Accordingly, the allowance for credit losses may not be adequate
to cover all future loan losses and significant increases to the allowance may be required in the future if, for example, economic
conditions worsen. A material increase in our allowance for credit losses would adversely impact our net income and capital in
future periods, while having the effect of overstating our current period earnings.
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet client loan
requests, client deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash
commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial
market stress. If we are unable to raise funds through deposits, borrowings, earnings and other sources, it could have a substantial
negative effect on our liquidity. In particular, a majority of our liabilities during 2020 were checking accounts and other liquid
deposits, which are generally payable on demand or upon short notice. By comparison, a substantial majority of our assets were
loans, which cannot generally be called or sold in the same time frame. Although we have historically been able to replace
maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large
number of our depositors seek to withdraw their accounts at the same time, regardless of the reason. Our access to funding
sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us
specifically or the financial services industry or economy in general. Factors that could negatively impact our access to liquidity
sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are
concentrated, adverse regulatory action against us, or our inability to attract and retain deposits. Our ability to borrow could also
be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations
about the prospects for the financial services industry. If we are unable to maintain adequate liquidity, it could materially and
adversely affect our business, results of operations or financial condition.
We may incur significant costs associated with the ownership of real property as a result of foreclosures, which could
reduce our net income.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and
may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real
estate.
24
The amount that we, as a mortgagee, may realize after a foreclosure is dependent upon factors outside of our control, including,
but not limited to:
●
general or local economic conditions;
●
environmental cleanup liability;
●
neighborhood values;
●
interest rates;
●
real estate tax rates;
●
operating expenses of the mortgaged properties;
●
supply of and demand for rental units or properties;
●
ability to obtain and maintain adequate occupancy of the properties;
●
zoning laws;
●
governmental rules, regulations and fiscal policies; and
●
acts of God.
Certain expenditures associated with the ownership of real estate, including real estate taxes, insurance and maintenance costs,
may adversely affect the income from the real estate. Furthermore, we may need to advance funds to continue to operate or to
protect these assets. As a result, the cost of operating real property assets may exceed the rental income earned from such
properties or we may be required to dispose of the real property at a loss.
Cybersecurity and Technology Risks
We process, maintain, and transmit confidential client information through our information technology systems, such as
our online banking service. Cybersecurity issues, such as security breaches and computer viruses, affecting our
information technology systems or fraud related to our debit card products could disrupt our business, result in the
unintended disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs,
and cause losses.
We collect and store sensitive data, including our proprietary business information and that of our clients, and personally
identifiable information of our clients and employees, in our
information technology systems
.
We also provide our clients the
ability to bank online.
The secure processing, maintenance, and transmission of this information is critical to our operations.
network, or those of our clients, could be vulnerable to unauthorized access, computer viruses, phishing schemes and other
security problems. Financial institutions and companies engaged in data processing have increasingly reported breaches in the
security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain
unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage.
We may be required to spend significant capital and other resources to protect against the threat of security breaches and
computer viruses or to alleviate problems caused by security breaches or viruses. Security breaches and viruses could expose us to
claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause
existing clients to lose confidence in our systems and could adversely affect our reputation and our ability to generate deposits.
Additionally, fraud losses related to debit and credit cards have risen in recent years due in large part to growing and evolving
schemes to illegally use cards or steal consumer credit card information despite risk management practices employed by the debit
and credit card industries. Many issuers of debit and credit cards have suffered significant losses in recent years due to the theft of
cardholder data that has been illegally exploited for personal gain.
The potential for debit and credit card fraud against us or our clients and our third-party service providers is a serious issue. Debit
and credit card fraud is pervasive and the risks of cybercrime are complex and continue to evolve. In view of the recent high-
profile retail data breaches involving client personal and financial information, the potential impact on us and any exposure to
consumer losses and the cost of technology investments to improve security could cause losses to us or our clients, damage to our
brand, and an increase in our costs.
Investment Risks
The fair value of our investments could decline which would cause a reduction in shareowners’ equity.
A large portion of our investment securities portfolio at December 31, 2020 has been designated as available-for-sale pursuant to
U.S. generally accepted accounting principles relating to accounting for investments. Such principles require that unrealized gains
and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in
shareowners’ equity (net of tax) as accumulated other comprehensive income/losses. Shareowners’ equity will continue to reflect
the unrealized gains and losses (net of tax) of these investments. The fair value of our investment portfolio may decline, causing a
corresponding decline in shareowners’ equity.
25
Management believes that several factors will affect the fair values of our investment portfolio. These include, but are not limited
to, changes in interest rates or expectations of changes in interest rates, the degree of volatility in the securities markets, inflation
rates or expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between
short-term and long-term interest rates; a positively sloped yield curve means short-term rates are lower than long-term rates).
These and other factors may impact specific categories of the portfolio differently, and we cannot predict the effect these factors
may have on any specific category.
Regulatory and Legislative Risks
We are subject to extensive regulation, which could restrict our activities and impose financial requirements or limitations
on the conduct of our business.
We are subject to extensive regulation, supervision and examination by our regulators, including the Florida Office of Financial
Regulation, the Federal Reserve, and the FDIC. Our compliance with these industry regulations is costly and restricts certain of
our activities, including payment of dividends, mergers and acquisitions, investments, lending and interest rates charged on loans,
interest rates paid on deposits, access to capital and brokered deposits and locations of banking offices. If we are unable to meet
these regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely
affected.
Our activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. Many of
these regulations are intended primarily for the protection of our depositors and the Deposit Insurance Fund and not for the
benefit of our shareowners. In addition to the regulations of the bank regulatory agencies, as a member of the Federal Home Loan
Bank, we must also comply with applicable regulations of the Federal Housing Finance Agency and the Federal Home Loan
Bank.
Our failure to comply with these laws and regulations could subject us to restrictions on our business activities, fines and other
penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any
new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and
financial condition. Please refer to the Section entitled “Business – Regulatory Considerations” on page 9.
U.S. federal banking agencies may require us to increase our regulatory capital, long-term debt or liquidity requirements,
which could result in the need to issue additional qualifying securities or to take other actions, such as to sell company
assets.
We are subject to U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum requirements to
qualify as a well-capitalized institution. If CCB fails to maintain its status as well capitalized under the applicable regulatory
capital rules, the Federal Reserve will require us to agree to bring the bank back to well-capitalized status. For the duration of
such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into or comply with
such an agreement, or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions
on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.
Capital and liquidity requirements are frequently introduced and amended. It is possible that regulators may increase regulatory
capital requirements, change how regulatory capital is calculated or increase liquidity requirements.
In 2013, the Federal Reserve Board released its final rules which implement in the United States the Basel III regulatory capital
reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final
rule, minimum requirements increased for both the quality and quantity of capital held by banking organizations. Consistent with
the international Basel framework, the rule includes a new minimum ratio of Common Equity Tier 1 Capital, or CET1, to Risk-
Weighted Assets, or RWA, of 4.5% and a CET1 conservation buffer of 2.5% of RWA (which was fully phased-in in 2019) that
apply to all supervised financial institutions. The CET1 conservation buffer requirement requires us to hold additional CET1
capital in excess of the minimum required to meet the CET1 to RWA ratio requirement. The rule also, among other things, raised
the minimum ratio of Tier 1 Capital to RWA from 4% to 6% and included a minimum leverage ratio of 4% for all banking
organizations. The impact of the new capital rules requires us to maintain higher levels of capital, which we expect will lower our
return on equity. Additionally, if our CET1 to RWA ratio does not exceed the minimum required plus the additional CET1
conservation buffer, we may be restricted in our ability to pay dividends or make other distributions of capital to our shareowners.
Further changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring
us to liquidate assets, increase borrowings, issue additional equity or other securities, cease or alter certain operations, sell
company assets or hold highly liquid assets, which may adversely affect our results of operations. We may be prohibited from
taking capital actions such as paying or increasing dividends or repurchasing securities.
26
Changes in accounting standards or assumptions in applying accounting policies could adversely affect us.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or
liabilities and results of operations and are critical because they require management to make difficult, subjective and complex
judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we
could be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the
accounting standards, the SEC, banking regulators and our independent registered public accounting firm may also amend or even
reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to
predict and could impact how we prepare and report our financial statements. In some cases, we could be required to apply a new
or revised standard retrospectively, resulting in us revising prior-period financial statements.
Florida financial institutions, such as CCB, face a higher risk of noncompliance and enforcement actions with the Bank
Secrecy Act and other anti-money laundering statutes and regulations.
Since September 11, 2001, banking regulators have intensified their focus on anti-money laundering and Bank Secrecy Act
compliance requirements, particularly the anti-money laundering provisions of the USA PATRIOT Act. There is also increased
scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control, or OFAC. Since 2004, federal banking
regulators and examiners have been extremely aggressive in their supervision and examination of financial institutions located in
the State of Florida with respect to the institution’s Bank Secrecy Act/anti-money laundering compliance. Consequently,
numerous formal enforcement actions have been instituted against financial institutions. If CCB’s po licies, procedures and
systems are deemed deficient or the policies, procedures and systems of the financial institutions that it has already acquired or
may acquire in the future are deficient, CCB would be subject to liability, including fines and regulatory actions such as
restrictions on its ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its
business plan, including its acquisition plans.
Structural and Organizational Risks
Our directors, executive officers, and principal shareowners, if acting together, have substantial control over all matters
requiring shareowner approval, including changes of control. Because Mr. William G. Smith, Jr. is a principal
shareowner and our Chairman, President, and Chief Executive Officer and Chairman of CCB, he has substantial control
over all matters on a day to day basis.
Our directors, executive officers, and principal shareowners beneficially owned approximately 20.1% of the outstanding shares of
our common stock at December 31, 2020. William G. Smith, Jr., our Chairman, President and Chief Executive Officer
beneficially owned 17.1% of our shares as of that date. Accordingly, these directors, executive officers, and principal
shareowners, if acting together, may be able to influence or control matters requiring approval by our shareowners, including the
election of directors and the approval of mergers, acquisitions or other extraordinary transactions. Moreover, because William G.
Smith, Jr. is the Chairman, President, and Chief Executive Officer of CCBG and Chairman of CCB, he has substantial control
over all matters on a day-to-day basis, including the nomination and election of directors.
These directors, executive officers, and principal shareowners may also have interests that differ from yours and may vote in a
way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of
delaying, preventing or deterring a change of control of our company, could deprive our shareowners of an opportunity to receive
a premium for their common stock as part of a sale of our Company and might ultimately affect the market price of our common
stock. You may also have difficulty changing management, the composition of the Board of Directors, or the general direction of
our Company.
Our Articles of Incorporation, Bylaws, and certain laws and regulations may prevent or delay transactions you might
favor, including a sale or merger of CCBG.
CCBG is registered with the Federal Reserve as a financial holding company under the Bank Holding Company Act, or BHC Act.
As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the
BHC Act, and other federal laws subject financial holding companies to particular restrictions on the types of activities in which
they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for
violations of laws and regulations.
Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more
difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is
possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a
premium over the then prevailing price of our common stock.
27
For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareowner action. The
ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer,
merger, proxy contest or otherwise. Additionally, although there is a proposal to declassify our Board of Directors that is to be
voted upon and potentially implemented at our 2021 annual meeting of shareowners, our Articles of Incorporation and Bylaws
currently divide our Board of Directors into three classes, as nearly equal in size as possible, with staggered three-year terms. One
class is elected each year. The classification of our Board of Directors could make it more difficult for a company to acquire
control of us. We are also subject to certain provisions of the Florida Business Corporation Act and our Articles of Incorporation
that relate to business combinations with interested shareowners. Other provisions in our Articles of Incorporation or Bylaws that
may discourage takeover attempts or make them more difficult include:
●
Supermajority voting requirements to remove a director from office;
●
Provisions regarding the timing and content of shareowner proposals and nominations;
●
Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”
●
Absence of cumulative voting; and
●
Inability for shareowners to take action by written consent.
General Risks
Risk of Pandemic.
In recent years the outbreak of a number of diseases including COVID-19, Avian Bird Flu, H1N1, and various other "super bugs"
have increased the risk of a pandemic. As seen with the ongoing COVID-19 pandemic and prior pandemics, global events like
these could impact interest rates, energy prices, the value of financial assets and ultimately economic activity in our markets. The
adverse effect of these events may include narrowing of the spread between interest income and expense, a reduction in fee
income, an increase in credit losses, and a decrease in demand for loans and other products and services.
We may be unable to pay dividends in the future.
In 2020, our Board of Directors declared four quarterly cash dividends. Declarations of any future dividends will be contingent on
our ability to earn sufficient profits and to remain well capitalized, including our ability to hold and generate sufficient capital to
comply with the CET1 conservation buffer requirement. In addition, due to our contractual obligations with the holders of our
trust preferred securities, if we defer the payment of accrued interest owed to the holders of our trust preferred securities, we may
not make dividend payments to our shareowners.
Further, under applicable statutes and regulations, CCB’s board of directors, after charging-off bad debts, depreciation and other
worthless assets, if any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly,
semi-annually, or annually declare and pay dividends to CCBG of up to the aggregate net income of that period combined with
the CCB’s retained net income for the preceding two years and, with the approval of the Florida Office of Financial Regulation
and Federal Reserve, declare a dividend from retained net income which accrued prior to the preceding two years. Additional
state laws generally applicable to Florida corporations may also limit our ability to declare and pay dividends. Thus, our ability to
fund future dividends may be restricted by state and federal laws and regulations.
28
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.
We face vigorous competition for deposits, loans and other financial services in our market area from other banks and financial
institutions, including savings and loan associations, savings banks, finance companies and credit unions. A number of our
competitors are significantly larger than we are and have greater access to capital and other resources. Many of our competitors
also have higher lending limits, more expansive branch networks, and offer a wider array of financial products and services. To a
lesser extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms,
consumer finance companies, insurance companies and governmental organizations, which may offer financial products and
services on more favorable terms than we are able to. Many of our non-bank competitors are not subject to the same extensive
regulations that govern our activities. As a result, these non -bank competitors have advantages over us in providing certain
services. The effect of this competition may reduce or limit our margins or our market share and may adversely affect our results
of operations and financial condition.
Limited trading activity for shares of our common stock may contribute to price volatility.
While our common stock is listed and traded on the Nasdaq Global Select Market, there has historically been limited trading
activity in our common stock. The average daily trading volume of our common stock over the 12-month period ending
December 31, 2020 was approximately 35,125 shares. Due to the limited trading activity of our common stock, relativity small
trades may have a significant impact on the price of our common stock.
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact
on its market price.
The trading market for our common stock will depend in part on the research and reports that securities analysts publish about us
and our business. We do not have any control over securities analysts and they may not initiate coverage or continue to cover our
common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its
market price. If we are covered by securities analysts, and our common stock is the subject of an unfavorable report, our stock
price would likely decline. If one or more of these analysts ceases to cover our Company or fails to publish regular reports on us,
we could lose visibility in the financial markets, which may cause our stock price or trading volume to decline.
Shares of our common stock are not an insured deposit and may lose value.
The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other
government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your
entire investment.
Item 1B.
Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Tallahassee, Florida. Our executive office is in the Capital City Bank building located on the corner of
Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by CCB, but is located on land leased under a
long-term agreement.
At December 31, 2020, Capital City Bank had 57 banking offices. Of the 57 locations, we lease the land, buildings, or both at six
locations and own the land and buildings at the remaining 51. In addition, CCHL had 29 loan production offices, all of which
were leased.
Item 3.
Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are no known
pending claims or 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 4
.
Mine Safety Disclosure
Not applicable.
29
PART II
Item 5.
Market for the Registrant's Common Equity, Related Shareowner Matters, and Issuer Purchases of Equity
Securities
Common Stock Market Prices and Dividends
Our common stock trades on the Nasdaq Global Select Market under the symbol “CCBG.” We had a total of 1,201 shareowners
of record at February 25, 2021.
The following table presents the range of high and low closing sales prices reported on the Nasdaq Global Select Market and cash
dividends declared for each quarter during the past two years.
2020
2019
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
$
26.35
$
21.71
$
23.99
$
30.62
$
30.95
$
28.00
$
25.00
$
25.87
Low
18.14
17.55
16.16
15.61
25.75
23.70
21.57
21.04
Close
24.58
18.79
20.95
20.12
30.50
27.45
24.85
21.78
Cash dividends per share
0.15
0.14
0.14
0.14
0.13
0.13
0.11
0.11
Florida law and Federal regulations impose restrictions on our ability to pay dividends and limitations on the amount of dividends
that the Bank can pay annually to us. See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends” in the Business
section on page 11 and 12, Item 1A. “Investment Risks” in the Risk Factors section on page 24, Item 7. “Liquidity and Capital
Resources – Dividends” – in Management's Discussion and Analysis of Financial Condition and Operating Results on page 58
and Note 17 in the Notes to Consolidated Financial Statements.
Performance Graph
This performance graph compares the cumulative total shareowner return on our common stock with the cumulative total
shareholder return of the Nasdaq Composite Index and the SNL Financial LC $1B-$5B Bank Index for the past five years. The
graph assumes that $100 was invested on December 31, 2015 in our common stock and each of the above indices, and that all
dividends were reinvested. The shareowner return shown below represents past performance and should not be considered
indicative of future performance.
30
Period Ending
Index
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Capital City Bank Group, Inc.
$
100.00
$
134.86
$
152.76
$
156.54
$
209.68
$
173.24
Nasdaq Composite
100.00
108.87
141.13
137.12
187.44
271.64
SNL $1B-$5B Bank Index
100.00
143.87
153.37
134.37
163.35
138.81
31
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
2020
2019
2018
2017
2016
Interest Income
$
106,197
$
112,836
$
99,395
$
86,930
$
81,154
Net Interest Income
101,326
103,343
92,504
82,982
77,965
Provision for Credit Losses
9,645
2,027
2,921
2,215
819
Noninterest Income
(1)
111,165
53,053
51,565
51,746
53,681
Noninterest Expense
149,962
113,609
111,503
109,447
113,213
Income Attributable to Noncontrolling Interests
(2)
(11,078)
-
-
-
-
Net Income Attributable to CCBG
(3)
31,576
30,807
26,224
10,863
11,746
Per Common Share:
Basic Net Income
$
1.88
$
1.84
$
1.54
$
0.64
$
0.69
Diluted Net Income
1.88
1.83
1.54
0.64
0.69
Cash Dividends Declared
0.57
0.48
0.32
0.24
0.17
Diluted Book Value
19.05
19.40
18.00
16.65
16.23
Diluted Tangible Book Value
(4)
13.76
14.37
12.96
11.68
11.23
Performance Ratios:
Return on Average Assets
0.93
%
1.03
%
0.92
%
0.39
%
0.43
%
Return on Average Equity
9.36
9.72
8.89
3.83
4.22
Net Interest Margin (FTE)
3.30
3.85
3.64
3.37
3.25
Noninterest Income as % of Operating Revenues
52.32
33.92
35.79
38.41
40.78
Efficiency Ratio
70.43
72.40
77.05
80.50
85.34
Asset Quality:
Allowance for Credit Losses ("ACL")
$
23,816
$
13,905
$
14,210
$
13,307
$
13,431
ACL to Loans Held for Investment ("HFI")
1.19
%
0.75
%
0.80
%
0.80
%
0.86
%
Nonperforming Assets ("NPAs")
6,679
5,425
9,101
11,100
19,171
NPAs to Total Assets
0.18
0.18
0.31
0.38
0.67
NPAs to Loans HFI plus OREO
0.33
0.29
0.51
0.67
1.21
ACL to Non-Performing Loans
405.66
310.99
206.79
185.87
157.40
Net Charge-Offs to Average Loans HFI
0.12
0.13
0.12
0.14
0.09
Capital Ratios:
Tier 1 Capital
16.19
%
17.16
%
16.36
%
16.33
%
15.51
%
Total Capital
17.30
17.90
17.13
17.10
16.28
Common Equity Tier 1 Capital
13.71
14.47
13.58
13.42
12.61
Tangible Common Equity
(4)
6.25
8.06
7.58
7.09
6.90
Leverage
9.33
11.25
10.89
10.47
10.23
Equity to Assets
8.45
10.59
10.23
9.80
9.67
Dividend Pay-Out
30.32
26.23
20.78
37.50
24.64
Averages for the Year:
Loans Held for Investment
$
1,957,576
$
1,811,738
$
1,711,635
$
1,610,127
$
1,530,260
Earning Assets
3,083,675
2,697,098
2,561,884
2,502,231
2,432,392
Total Assets
3,391,071
2,987,056
2,857,148
2,816,096
2,752,309
Deposits
2,844,347
2,537,489
2,422,973
2,371,871
2,282,785
Shareowners’ Equity
337,313
317,072
294,864
283,404
278,335
Year-End Balances:
Loans Held for Investment
$
2,006,427
$
1,835,929
$
1,774,225
$
1,653,492
$
1,561,289
Earning Assets
3,475,904
2,806,913
2,658,539
2,582,922
2,520,053
Total Assets
3,798,071
3,088,953
2,959,183
2,898,794
2,845,197
Deposits
3,217,560
2,645,454
2,531,856
2,469,877
2,412,286
Shareowners’ Equity
320,837
327,016
302,587
284,210
275,168
Other Data:
Basic Average Shares Outstanding
16,784,711
16,769,507
17,029,420
16,951,663
16,988,747
Diluted Average Shares Outstanding
16,821,950
16,827,413
17,072,329
17,012,637
17,061,186
Shareowners of Record
(5)
1,201
1,243
1,312
1,389
1,489
Banking Locations
(5)
57
57
59
59
60
Full-Time Equivalent Associates
(5)(6)
954
796
801
789
820
(1)
(2)
(3)
(4)
(5)
(6)
32
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 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 GAAP to non-GAAP
reconciliation for selected year-to-date financial data and quarterly financial data is provided below.
Non-GAAP Reconciliation - Selected Financial Data
(Dollars in Thousands, except per share data)
2020
2019
2018
2017
2016
Shareowners' Equity (GAAP)
$
320,837
$
327,016
$
302,587
$
284,210
$
275,168
Less: Goodwill (GAAP)
89,095
84,811
84,811
84,811
84,811
Tangible Shareowners' Equity (non-GAAP)
A
231,742
242,205
217,776
199,399
190,357
Total Assets (GAAP)
3,798,071
3,088,953
2,959,183
2,898,794
2,845,197
Less: Goodwill (GAAP)
89,095
84,811
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,708,976
$
3,004,142
$
2,874,372
$
2,813,983
$
2,760,386
Tangible Common Equity Ratio (non-GAAP)
A/B
6.25%
8.06%
7.58%
7.09%
6.90%
Actual Diluted Shares Outstanding (GAAP)
C
16,844,997
16,855,161
16,808,542
17,071,107
16,949,359
Tangible Book Value per Diluted Share
(non-GAAP)
A/C
13.76
14.37
12.96
11.68
11.23
Non-GAAP Reconciliation - Quarterly Financial Data
(Dollars in Thousands, except
per share data)
2020
2019
Fourth
Third
Second
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
$
314,595
$
308,986
Less: Goodwill (GAAP)
89,095
89,095
89,095
89,275
84,811
84,811
84,811
84,811
Tangible Shareowners' Equity
(non-GAAP)
A
231,742
250,330
245,962
239,232
242,205
236,751
229,784
224,175
Total Assets (GAAP)
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
2,934,513
3,017,654
3,052,051
Less: Goodwill (GAAP)
89,095
89,095
89,095
89,275
84,811
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
$
2,849,702
$
2,932,843
$
2,967,240
Tangible Common Equity
Ratio (non-GAAP)
A/B
6.25%
7.16%
7.21%
7.98%
8.06%
8.31%
7.83%
7.56%
Actual Diluted Shares
Outstanding (GAAP)
C
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
16,797,241
16,773,449
16,840,496
Tangible Book Value per
Diluted Share (non-GAAP)
A/C
13.76
14.90
14.62
14.20
14.37
14.09
13.70
13.31
33
Item 7.
Management's Discussion and Analysis 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 included in the Annual Report on Form 10-K. The MD&A is divided into subsections entitled
“Business Overview,” “Executive Overview,” “Results of Operations,” “Financial Condition,” “Liquidity and Capital Resources,”
“Off-Balance Sheet Arrangements,” “Fourth Quarter, 2020 Financial Results,” and “Accounting Policies.” 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 2020 compares with prior years. Throughout this section, Capital City Bank
Group, Inc., and its subsidiaries, collectively, are referred to as “CCBG,” “Company,” “we,” “us,” or “our.”
CAUTION CONCERNING FORWARD -LOOKING STATEMENTS
This Annual Report on Form 10-K, 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
this Annual Report for a discussion of factors that could cause our actual results to differ materially from those in the forward-
looking statements.
However, other factors besides those listed in
Item 1A Risk Factors
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
Our Business
We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the “Bank” or “CCB”). We offer a broad array of products and services, including commercial and retail
banking services, trust and asset management, and retail securities brokerage through a total of 57 banking offices and 86
ATMs/ITMs located in Florida, Georgia, and Alabama. Please see the section captioned “About Us” beginning on page 4 for
more detailed information about our business.
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.
Strategic Review
Operating Philosophy
. Our philosophy is to build long-term client relationships based on quality service, high ethical standards,
and safe and sound banking practices. We maintain a locally oriented, community-based focus, which is augmented by
experienced, centralized support in select specialized areas. Our local market orientation is reflected in our network of banking
office locations, experienced community executives with a dedicated President for each market, and community boards which
support our focus on responding to local banking needs. We strive to offer a broad array of sophisticated products and to provide
quality service by empowering associates to make decisions in their local markets.
Strategic Initiatives
. In 2020, we celebrated our 125
th
longevity – client relationships, community service, and our people have allowed us to evolve, change, and thrive over time. In
2020, we completed a five year strategic plan “Vision 2020” and initiated a new five year strategic plan “2025 In Focus” that will
guide us in the areas of client experience, channel optimization, market expansion, and culture. As part of 2025 In Focus, we will
aim to take our brand of relationship banking to the next level, further deepen relationships within our communities, expand into
new higher growth markets, diversify our revenue sources, invest in new technology that will support the expansion of client
relationships and scale within our lines of business and drive higher profitability.
34
Markets
. We maintain a blend of large and small markets in Florida and Georgia all in close proximity to major interstate
thoroughfares such as Interstates I-10 and I-75. Our larger markets include Tallahassee (Leon County, Florida), Gainesville
(Alachua County, Florida), Macon (Bibb County, Georgia), and Seacoast (Hernando/Pasco/Citrus, Florida). The larger
employers in these markets are state and local governments, healthcare providers, educational institutions, and small businesses,
providing stability and good growth dynamics that have historically grown in excess of the national average. We serve an
additional fifteen smaller, less competitive, rural markets located on the outskirts of and centered between our larger markets
where we are positioned as a market leader. In 12 of 18 markets in Florida and two of four Georgia markets, we frequently rank
within the top four banks in terms of deposit market share. Furthermore, in the counties in which we operate, we maintain an
8.3% deposit market share in the Florida counties and 2.4% in the Georgia counties. Our markets provide for a strong core
deposit funding base, a key differentiator and driver of our profitability and franchise value.
Acquisitions/Expansion Focus
. Prior to 2005, we were an active acquirer of banks which is reflected in the strong core deposit
franchise we enjoy today. During the Great Recession, we navigated this historical period in our industry focused on protecting
shareowner value and resolved our problem assets without raising capital. We also pivoted to an intense focus on organic growth
and operational improvements. While we have not completed a whole bank transaction since 2005, we have completed a total of
nine whole bank acquisitions and this component of our strategy is still in place. The focus of potential acquisition opportunities
(including management lift-outs) will be in Florida, Georgia, and Alabama with a particular focus on financial institutions located
in markets on the outskirts of larger, metropolitan areas, including Alachua, Marion, Hernando/Pasco counties in Florida, the
western panhandle of Florida, Bibb and surrounding counties in central Georgia and the northern arc of Atlanta, leveraging the
presence of our recent strategic alliance with CCHL. Our focus on some of these markets may change as we continue to evaluate
our strategy and the economic conditions and demographics of any individual market. We will also continue to evaluate de novo
banking office expansion opportunities in attractive new markets where acquisition opportunities are not feasible , and expansion
opportunities in asset management, insurance, mortgage banking, and other financial businesses that are closely aligned with the
business of banking. Embedded in our acquisition and expansion strategy is our desire to partner with institutions that are
culturally similar, have experienced management and possess either established market presence or have potential for improved
profitability through growth, economies of scale, or expanded services. Generally, these potential target institutions will range in
asset size from $100 million to $600 million.
Recent Acquisition/Expansion Activity
. In 2020 we began our expansion into the western panhandle area of Florida by opening a
full-service banking office in Bay County, Florida and a loan production office in Walton County with plans to open a full-service
banking office in Walton County in late 2021. Further, we will expand our presence and commitment to our Gainesville market,
opening a third full-service banking office in late 2021 to early 2022.
On March 1, 2020, CCB completed its acquisition of a 51% membership interest in Brand Mortgage Group, LLC (“Brand”)
which is now operated as a Capital City Home Loans (“CCHL”) – Refer to Note 1 – Significant Accounting Policies/Business
Combination for additional information on this transaction. The primary reasons for the strategic alliance with Brand were to
scale our mortgage banking business, gain access to an expanded residential mortgage product line-up and investor base
(including mandatory delivery channel for loan sales), to hedge our net interest income business and to generate other operational
synergies and cost savings. We realized significant benefits from this transaction in 2020. The strategic alliance with CCHL and
its strong presence and leadership within the Northern Arc area (Gwinnett and Cobb counties) of Atlanta positions us to further
evaluate expansion of our traditional banking services to this area via de-novo banking office expansion , whole bank acquisition,
or the recruitment/hiring of banking teams in the area as opportunities arise.
EXECUTIVE OVERVIEW
For 2020, we realized net income of $31.6 million, or $1.88 per diluted share, compared to $30.8 million, or $1.83 per diluted
share for 2019.
The increase in net income for 2020 was attributable to higher noninterest income of $58.1 million, partially offset by higher
noninterest expense of $36.4 million, a $7.6 million increase in the provision for credit losses, lower net interest income of $2.0
million, and higher income taxes of $0.2 million. For reporting purposes, CCHL is fully consolidated in CCBG’s financial
statements and, for the full year 2020, net income included an $11.1 million deduction to record the 49% non-controlling interest
in the earnings of CCHL.
Below are summary highlights that impacted our performance for the year:
●
Operating revenues (excluding mortgage fees) held firm as unfavorable asset re-pricing was offset by SBA PPP loan fees
and higher other fee revenues
●
Loan balances buoyed by SBA PPP loan originations which totaled $190 million
-
Core loan balances (excluding SBA PPP) held firm due to stronger loan production in the fourth quarter
35
●
Reserve build of $6.6 million (loan HFI provision of $9.0 million less net charge-offs of $2.4 million) in response to potential
credit losses related to the pandemic
-
Allowance coverage ratio (excluding SBA PPP) was 1.30% at year-end
●
Deposits grew $572 million (period-end) and $307 million (average) and reflected stimulus inflows as well as strong core
deposit growth
●
Acquired 51% ownership in Brand Mortgage, LLC on March 1, 2020 (renamed CCHL) – contributed $0.52 per share
In 2020, despite pressure from the economic effects of the COVID-19 pandemic and a 150 basis point emergency Federal Open
Market Committee rate reduction in March, our earnings held firm and came in slightly above 2019. Our strategic alliance with
CCHL was timely and those earnings provided a hedge against our net interest income.
Period-end loans grew $170 million, or 9.3%, in 2020 aided by our involvement in the SBA PPP loan program as we generated
$190 million in loans ($178 million balance at December 31, 2020) to support our clients during this unprecedented time. Core
loan balances held firm despite the stressed economy buoyed by our relationship with CCHL and the larger pool of loan purchase
opportunities that strategic alliance provides us. We also generated a total of $5.0 million in net SBA PPP loan fees of which $1.8
million was recognized in 2020.
Our deposit balances saw unprecedented growth in 2020 as average balances grew $307 million, or 12% driven by the stimulus
provided by various government programs throughout the year as well as core deposit growth as our clients sought a flight to
safety. 2020 continued our seventh consecutive year of deposit growth which has averaged 4.1% per year.
Noninterest income was very strong in 2020 driven by higher mortgage banking revenues attributable to the strategic alliance
with CCHL, and a very robust mortgage market. Other fee revenues held firm despite pressure on our deposit fees attributable to
the pandemic. Wealth management fees and bank card fees grew 4.5% and 8.3%, respectively in 2020.
Expenses at our core bank (excluding CCHL) declined by $3.6 million in 2020, primarily attributable to lower pension plan
expense. We continued our ongoing commitment to expense management as a component of improving our efficiency ratio and
elevated our commitment in 2020 by allocating dedicated resources focused on identifying opportunities to reduce the cost of our
banking office network and occupancy costs. In 2020, we continued our multi-year investment in ITM/SATM technology and
enhancements to our electronic banking platform which greatly benefited our ability to improve service quality for our clients
during the pandemic.
The pandemic provided significant challenges on the credit front in 2020. We supported our clients, providing short-term loan
extensions for loan balances totaling $333 million, of which $324 million had returned to normal scheduled payments by year-
end. Despite the stressed environment for our borrowers, our credit quality metrics remained very stable throughout the year with
minimal defaults and credit losses of 12 basis points of average loans held for investment (“HFI”). In response to the great
uncertainty regarding potential loan defaults related to the stressed economy, we built significant credit loss reserves in response
during 2020, and continued to carry those reserves through year-end.
Key components of our 2020 financial performance are summarized below:
Results of Operations
Net Interest Income.
For 2020, tax-equivalent net interest income totaled $101.8 million, a $2.1 million, or 2.0%, decrease from
2019 driven primarily by lower rates for most of the year, which negatively impacted our variable and adjustable rate earning
assets. Partially offsetting this decline was a lower cost of funds.
Provision and Allowance for Credit Losses.
For 2020, our provision for credit losses was $9.6 million compared to $2.0 million
for 2019. The higher provision in 2020 reflected expected potential losses due to deterioration in economic conditions related to
the COVID-19 pandemic. Net loan losses for 2020 totaled $2.4 million, or 0.12% of average loans held for investment compared
to $2.3 million, or 0.13%, in 2019. At December 31, 2020, excluding SBA PPP loans (100% government guaranteed), the
allowance represented 1.30% of loans held for investment.
Noninterest Income and Noninterest Expense
. The consolidation of CCHL’s mortgage banking operations on March 1, 2020
impacted our noninterest income and noninterest expense comparisons for 2020 versus 2019. To better understand the impact, we
provide an analysis of Noninterest Income and Noninterest Expense for CCBG excluding CCHL (“Core CCBG”) and CCHL
under those respective headings below (Pages 39 and 41). CCHL operations contributed $8.7 million, or $0.52 per diluted share,
to our earnings for 2020 driven by robust mortgage production and efficiencies gained with the strategic alliance .
36
At Core CCBG, deposit fees declined $1.7 million in 2020 primarily due to the impact of government stimulus in the second
quarter related to the COVID-19 pandemic, but increased for the second half of the year as the economy and consumer spending
improved. Strong debit card fee growth of $1.0 million and a $0.6 million increase in wealth management fees substantially
offset the aforementioned decline in deposit fees. Core CCBG noninterest expense decreased $3.6 million and reflected lower
compensation expense of $2.5 million, ORE expense of $0.4 million, and other expense of $2.2 million, partially offset by higher
occupancy expense of $1.5 million.
Financial Condition
Earning Assets
. Average earning assets were $3.391 billion for 2020, an increase of $404.0 million, or 13.5%, over 2019. The
increase was primarily driven by higher deposit balances and reflected strong core deposit growth and funding retained at the
bank from SBA PPP loans and various other government stimulus programs.
Loans
. In 2020, average loans HFI totaled $1.993 billion, an increase of $159.4 million, or 8.0% over 2019 and reflected growth
in all loan categories except institutional loans, home equity loans, and consumer loans. During 2020, we originated SBA PPP
loans which averaged $128 million in 2020 and totaled $178 million at December 31, 2020. SBA PPP loan fees totaled
approximately $1.8 million in 2020. At December 31, 2020 we had $3.2 million (net) in deferred SBA PPP loan fees.
Credit Quality
. Nonaccrual loans totaled $5.9 million (0.29% of HFI loans) at December 31, 2020 compared to $4.5 million
(0.24% of HFI loans) at December 31, 2019. Classified loans totaled $17.6 million and $20.8 million at the same respective
periods. We continue to closely monitor borrowers and loan portfolio segments impacted by the pandemic. Of the $333 million
in loans extended in 2020, approximately $9 million was still on extension at December 31, 2020, none of which were classified.
Of the $324 million in loans extended in 2020, that have resumed payments, loan balances totaling $3.5 million were over 30
days delinquent and an additional $0.4 million was on nonaccrual status at December 31, 2020.
Deposits
. Average total deposits for 2020 were $2.844 billion, an increase of $306.9 million, or 12.1%, over 2019. We realized
increases in all
deposit types except certificates of deposit, with the largest increases occurring in noninterest bearing and savings
accounts. The strong deposit growth that
occurred during the year reflected inflows from various government stimulus programs
as well as strong core deposit growth.
Capital
. At December 31, 2020, we were well-capitalized with a total risk-based capital ratio of 17.30% and a tangible common
equity ratio (a non-GAAP financial measure) of 6.25 % compared to 17.90% and 8.06%, respectively, at December 31, 2019. At
December 31, 2020, all of our regulatory capital ratios exceeded the threshold to be well-capitalized under the Basel III capital
standards. Our tangible common equity ratio was unfavorably impacted at December 31, 2020 by the annual adjustment to the
other comprehensive loss for our pension plan, which was negatively impacted due to the lower discount rate used to calculate the
present value of the pension obligation. The lower discount rate reflected the significant decline in long-term interest rates in
2020. The pension plan, on an actuarial basis, continues to be sufficiently funded in accordance with IRS regulation.
37
RESULTS OF OPERATIONS
A condensed earnings summary for the last three years is presented in Table 1 below:
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)
2020
2019
2018
Interest Income
$
106,197
$
112,836
$
99,395
Taxable Equivalent Adjustments
430
526
654
Total Interest Income (FTE)
106,627
113,362
100,049
Interest Expense
4,871
9,493
6,891
Net Interest Income (FTE)
101,756
103,869
93,158
Provision for Credit Losses
9,645
2,027
2,921
Taxable Equivalent Adjustments
430
526
654
Net Interest Income After Provision for Credit Losses
91,681
101,316
89,583
Noninterest Income
111,165
53,053
51,565
Noninterest Expense
149,962
113,609
111,503
Income Before Income Taxes
52,884
40,760
29,645
Income Tax Expense
10,230
9,953
3,421
Pre-Tax Income Attributable to Noncontrolling Interests
(11,078)
-
-
Net Income Attributable to Common Shareowners
$
31,576
$
30,807
$
26,224
Basic Net Income Per Share
$
1.88
$
1.84
$
1.54
Diluted Net Income Per Share
$
1.88
$
1.83
$
1.54
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. We provide an analysis of our net interest income, including
average yields and rates in Tables 2 and 3 below. We provide this information on a "taxable equivalent" basis to reflect the tax-
exempt status of income earned on certain loans and investments.
For 2020, our taxable equivalent net interest income decreased $2.1 million, or 2.0%. This follows an increase of $10.7 million, or
11.5% in 2019. The decrease in 2020 was driven primarily by lower rates for most of the year, which negatively impacted our
variable and adjustable rate earning assets. Partially offsetting this decline was a lower cost of funds. The increase in 2019 was
due to generally higher rates which continued to migrate through the earning asset portfolios.
For 2020, taxable equivalent interest income decreased $6.7 million, or 5.9%, from 2019. For 2019, taxable equivalent interest
income increased $13.3 million, or 13.3%, over 2018. The decline in 2020 was primarily due to lower rates on earning assets.
The increase for 2019 was primarily due to higher loan balances coupled with higher interest rates.
For 2020, interest expense decreased $4.6 million, or 48.7%, from 2019. For 2019, interest expense increased $2.6 million, or
37.8%, over 2018. The decline in 2020 was primarily due to lower rates on our negotiated rate deposits which are tied to an
adjustable rate index, whereas the increase for 2019 primarily reflected increases to our negotiated rate deposits. Our cost of
funds decreased 19 basis points to 16 basis points in 2020, and increased eight basis points to 35 basis points in 2019. The
decrease in 2020 was primarily due to lower interest rates paid on our negotiated rate products. The increase in 2019 was
primarily due to higher interest rates paid on our negotiated rate products due to the average increase in interest rates over the
period.
Our interest rate spread (defined as the taxable-equivalent yield on average earning assets less the average rate paid on interest
bearing liabilities) decreased 43 basis points in 2020 and increased 15 basis points in 2019. Our net interest margin (defined as
taxable-equivalent interest income less interest expense divided by average earning assets) of 3.30% in 2020 was a 55 basis point
decrease from 2019. The net interest margin of 3.85% in 2019 was a 21 basis point increase over 2018. The decline in the
interest rate spread and net interest margin in 2020 was primarily due to lower yielding earning assets due to lower rates, in
addition to strong growth in lower yielding overnight funds. The increase in the interest rate spread and net interest margin in
2019 was attributable to rising rates and an improving mix of earning assets driven by loan growth.
38
The Federal Open Market Committee (FOMC) decreased the federal funds target rate 150 basis points in March 2020 to a target
rate in the range of 0.00%-0.25%, resulting in lower yields as our variable and adjustable rate earning assets reprice. As we
continue to closely monitor and manage our net interest margin, we review and implement various loan strategies that align with
our overall risk appetite to enhance our performance on an ongoing basis. We continue to maintain relatively short duration
portfolios on both sides of the balance sheet and believe we are well positioned to respond to changing market conditions.
Table 2
AVERAGE BALANCES AND INTEREST RATES
2020
2019
2018
(Taxable Equivalent Basis - Dollars
in Thousands)
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
ASSETS
Loans Held for Sale
(1)(2)
$
81,125
$
2,895
3.57
%
$
10,349
$
471
4.55
%
$
6,713
$
350
5.21
%
Loans Held for Investment
(1)(2)
1,957,576
92,261
4.71
1,811,738
94,191
5.20
1,711,635
84,200
4.92
Taxable Investment Securities
574,199
10,176
1.77
612,541
13,123
2.14
641,120
12,083
1.88
Tax-Exempt Investment Securities
(2)
5,123
124
2.42
24,471
390
1.60
67,037
1,006
1.50
Funds Sold
465,652
1,171
0.25
237,999
5,187
2.18
135,379
2,410
1.78
Total Earning Assets
3,083,675
106,627
3.46
%
2,697,098
113,362
4.20
%
2,561,884
100,049
3.91
%
Cash & Due From Banks
68,386
52,453
51,222
Allowance for Credit Losses
(20,690)
(14,622)
(13,993)
Other Assets
259,700
252,127
258,035
TOTAL ASSETS
$
3,391,071
$
2,987,056
$
2,857,148
LIABILITIES
NOW Accounts
$
826,280
$
930
0.11
%
$
805,134
$
5,502
0.68
%
$
781,026
$
3,152
0.40
%
Money Market Accounts
235,931
223
0.09
235,845
946
0.40
251,175
675
0.27
Savings Accounts
423,529
207
0.05
370,430
182
0.05
351,341
172
0.05
Time Deposits
104,393
188
0.18
113,499
210
0.19
131,860
244
0.18
Total Interest Bearing Deposits
1,590,133
1,548
0.10
%
1,524,908
6,840
0.45
%
1,515,402
4,243
0.29
%
Short-Term Borrowings
69,119
1,690
2.44
9,275
109
1.19
10,992
110
0.99
Subordinated Notes Payable
52,887
1,472
2.74
52,887
2,287
4.26
52,887
2,167
4.04
Other Long-Term Borrowings
5,304
161
3.03
7,393
257
3.48
12,387
371
3.00
Total Interest Bearing Liabilities
1,717,443
4,871
0.28
%
1,594,463
9,493
0.60
%
1,591,668
6,891
0.45
%
Noninterest Bearing Deposits
1,254,214
1,012,581
907,571
Other Liabilities
72,400
62,940
63,045
TOTAL LIABILITIES
3,044,057
2,669,984
2,562,284
Temporary Equity
9,701
-
-
TOTAL SHAREOWNERS’
EQUITY
337,313
317,072
294,864
TOTAL LIABILITIES,
TEMPORARY EQUITY AND
SHAREOWNERS' EQUITY
$
3,391,071
$
2,987,056
$
2,857,148
Interest Rate Spread
3.18
%
3.61
%
3.46
%
Net Interest Income
$
101,756
$
103,869
$
93,158
Net Interest Margin
(3)
3.30
%
3.85
%
3.64
%
(1)
(2)
(3)
39
Table 3
RATE/VOLUME ANALYSIS
(1)
2020 vs. 2019
2019 vs. 2018
(Taxable Equivalent Basis -
Dollars in Thousands)
Increase (Decrease) Due to Change In
Increase (Decrease) Due to Change In
Total
Calendar
(3)
Volume
Rate
Total
Volume
Rate
Earnings Assets:
Loans Held for Sale
(2)
$
2,452
$
1
$
3,222
$
(771)
$
121
$
190
$
(69)
Loans Held for Investment
(2)
$
(1,958)
$
258
$
7,773
$
(9,989)
$
9,991
$
4,914
$
5,077
Taxable
(2,947)
36
(857)
(2,126)
1,040
(539)
1,579
Tax-Exempt
(2)
(266)
1
(309)
42
(616)
(641)
25
Funds Sold
(4,016)
14
4,948
(8,978)
2,777
1,827
950
Total
(6,735)
310
14,777
(21,822)
13,313
5,751
7,562
Interest Bearing Liabilities:
NOW Accounts
(4,572)
15
130
(4,717)
2,350
97
2,253
Money Market Accounts
(723)
3
-
(726)
271
(41)
312
Savings Accounts
25
1
24
-
10
10
-
Time Deposits
(22)
1
(18)
(5)
(34)
(40)
6
Short-Term Borrowings
1,581
1
716
864
(1)
(19)
18
Subordinated Notes Payable
(815)
6
-
(821)
120
-
120
Other Long-Term Borrowings
(96)
1
(73)
(24)
(114)
(150)
36
Total
(4,622)
28
779
(5,429)
2,602
(143)
2,745
Changes in Net Interest Income
$
(2,113)
$
282
$
13,998
$
(16,393)
$
10,711
$
5,894
$
4,817
(1)
(2)
(3)
Provision for Credit Losses
The provision for credit losses for 2020 was $9.6 million ($9.0 million for loans HFI and $0.6 million for unfunded loan
commitments) compared to $2.0 million for 2019 and $2.9 million for 2018. Prior to 2020, the provision for unfunded loan
commitments was recorded in other expense. The higher provision in 2020 reflected expected losses due to deterioration in
economic conditions related to the COVID-19 pandemic . We further discuss the various factors that have impacted our provision
expense for 2020 below under the heading Allowance for Credit Losses.
Noninterest Income
For 2020, noninterest income totaled $111.2 million, a $58.1 million increase over 2019 primarily attributable to higher mortgage
banking revenues of $58.0 million added through the strategic alliance with CCHL. Deposit fees declined $1.7 million primarily
due to the impact of government stimulus in the second quarter related to the COVID-19 pandemic, but improved for the second
half of the year due to higher utilization of our overdraft product. Strong debit card fee growth of $1.0 million and a $0.6 million
increase in wealth management fees significantly offset the aforementioned decline in deposit fees.
For 2019, noninterest income totaled $53.1 million, a $1.5 million, or 2.9%, increase over 2018, and reflected higher wealth
management fees of $1.8 million, mortgage banking revenues of $0.6 million, and bank card fees of $0.6 million, partially offset
by lower deposit fees of $0.6 million and other income of $0.9 million.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 52.32 % in 2020,
33.92% in 2019, and 35.79% in 2018. The addition of CCHL mortgage banking revenues drove the improvement in this metric in
2020. The decline in this metric in 2019 was attributable to growth in net interest income as a component of operating revenues.
40
CCHL’s mortgage banking operations impacted our noninterest income for 2020 and thus, the year over year comparisons reflect
the impact of the CCHL consolidation, which occurred on March 1, 2020. The table below reflects the major components of
noninterest income for Core CCBG and CCHL to help facilitate a better understanding of the 2020 versus 2019 comparison.
2020
2019
2018
(Dollars in Thousands)
Core CCBG
CCHL
CCBG
CCBG
Deposit Fees
$
17,800
$
-
$
19,472
$
20,093
Bank Card Fees
13,044
-
11,994
11,378
Wealth Management Fees
11,035
-
10,480
8,711
Mortgage Banking Revenues
1,889
61,455
5,321
4,735
Other
4,992
950
5,786
6,648
Total Noninterest Income
$
48,760
$
62,405
$
53,053
$
51,565
Significant components of noninterest income are discussed in more detail below.
Deposit Fees
. For 2020, deposit fees (service charge fees, insufficient fund/overdraft fees (“NSF/OD”), and business account
analysis fees) totaled $17.8 million compared to $19.5 million in 2019 and $20.1 million in 2018. The $1.7 million, or 8.6%,
decrease in 2020 was attributable to lower NSF/OD fees and reflected the impact of significant government stimulus in the second
quarter related to the COVID-19 pandemic. For the second quarter of 2020, fees were down $1.3 million compared to the first
quarter of 2020 and reflected lower utilization of our overdraft product as consumer and business demand for this service was
reduced by the impact of the significant cash stimulus provided by the economic impact payments (EIP) and small business loans
(SBA PPP). The decline in fees realized in the second quarter reversed in the third and fourth quarters of 2020 as employment
conditions and economic activity began to recover resulting in higher utilization of our overdraft product. The $0.6 million, or
3.1%, decrease in 2019 reflected lower NSF/OD fees and higher overdraft losses that were partially offset by higher service
charge fees.
Bank Card Fees
. Bank card fees totaled $13.0 million in 2020 compared to $12.0 million in 2019 and $11.4 million in 2018.
Bank card fees in 2020 benefited from the effects of the pandemic and increased on-line spending by our clients. An account
acquisition initiative that began in early 2019 and various debit and credit card promotions contributed to the increases in both
2019 and 2020.
Wealth Management Fees
. Wealth management fees including both trust fees (i.e., managed accounts and trusts/estates) and
retail brokerage fees (i.e., investment, insurance products, and retirement accounts) totaled $11.0 million in 2020 compared to
$10.5 million in 2019 and $8.7 million in 2018. The increase in fees for 2020 was attributable to a $0.3 million increase in retail
brokerage fees and a $0.2 million increase in trust fees. The growth in fees for 2019 reflected a $1.3 million increase in retail
brokerage fees and $0.5 million increase in trust fees. Higher transactions volumes and the addition of new investment advisors
drove the increase in retail brokerage fees in 2019 and 2020. Growth in assets under management contributed to the growth in
trust fees in 2019 and 2020. At December 31, 2020, total assets under management were approximately $1.979 billion compared
to $1.774 billion at December 31, 2019 and $1.500 billion at December 31, 2018.
Mortgage Banking Revenues
. Mortgage banking revenues totaled $63.3 million in 2020 compared to $5.3 million in 2019 and
$4.7 million in 2018. The increase in 2020 reflected revenues added from the strategic alliance with CCHL and the favorable
impact that the lower residential mortgage rate environment had on home purchase, construction, and refinancing activity in our
combined markets. The increase in 2019 was attributable to higher production sold into the secondary market at our legacy
residential mortgage operation versus loans retained and held in the bank’s loan portfolio . 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 in the Notes to Consolidated Financial Statements. To date, the strategic alliance has
significantly exceeded our pro forma expectations and served as a hedge to the pressure on our net interest income in 2020.
Refinancing activity represented 40% of loan production at CCHL in 2020.
Other
. Other noninterest income totaled $5.9 million in 2020 compared to $5.8 million in 2019 and $6.6 million in 2018. The
$0.1 million favorable variance in 2020 reflected higher loan servicing fees added by CCHL substantially offset by lower loan
related activity based fees. The $0.9 million, or 13.0%, decrease in 2019 was primarily due to a miscellaneous recovery in 2018
and lower miscellaneous loan fees.
41
Noninterest Expense
For 2020, noninterest expense totaled $150.0 million, an increase of $36.4 million over 2019 primarily attributable to the addition
of expenses at CCHL, including compensation expense of $32.4 million, occupancy expense of $2.8 million, and other expense of
$4.8 million. Core CCBG noninterest expense decreased $3.6 million and reflected lower compensation expense of $2.5 million,
ORE expense of $0.4 million, and other expense of $2.2 million, partially offset by higher occupancy expense of $1.5 million.
The decrease in compensation expense was primarily attributable to lower commission expense of $2.2 million related to the
transfer of our legacy mortgage production division to CCHL and, to a lesser extent, higher realized loan cost of $0.4 million
related to the aforementioned increase in SBA PPP loan originations. A $1.0 million gain from the sale of a banking office in the
first quarter of 2020 drove the reduction in ORE expense. The decline in other expense was primarily attributable to lower
service cost expense for our pension plan. Higher expense for FF&E depreciation and maintenance agreements (related to
technology investment and upgrades), higher than normal premises maintenance, and pandemic related cleaning/supply costs
drove the increase in occupancy.
For 2019, noninterest expense totaled $113.6 million, an increase of $2.1 million, or 1.9%, over 2018 attributable to higher
compensation expense of $2.4 million that was partially offset by a $0.3 million decrease in other expense. The increase in
compensation expense was attributable to salary expense (primarily merit raises) and commission expense (related to residential
mortgage originations and retail brokerage transactions). The decrease in other expense was primarily due to lower professional
fees and insurance-other expense (primarily FDIC premiums) that was partially offset by higher expense for other real estate
(“OREO”) properties. The increase in OREO was due to lower net gains from property sales in 2019.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus
noninterest income) was 70.43%, 72.40% and 77.05% in 2020, 2019 and 2018, respectively. The improvement in this metric was
primarily attributable to higher noninterest income driven by our strategic alliance with CCHL. Improved operating leverage
primarily attributable to growth in net interest income was the primary driver of improvement in 2019.
Expense management is an important part of our culture and strategic focus. We will continue to review and evaluate
opportunities to optimize our delivery operations and invest in technology that provides favorable returns/scale and/or mitigates
risk.
CCHL’s mortgage banking operations impacted our noninterest expense for 2020 and thus, the year over year comparisons reflect
the impact of the CCHL consolidation, which occurred on March 1, 2020. The table below reflects the major components of
noninterest expense for Core CCBG and CCHL to help facilitate a better understanding of the 2020 versus 2019 comparison.
2020
2019
2018
(Dollars in Thousands)
Core CCBG
CCHL
CCBG
CCBG
Salaries
$
49,072
$
31,774
$
50,688
$
48,087
Associate Benefits
14,789
645
15,664
15,834
Total Compensation
63,861
32,419
66,352
63,921
Premises
9,194
1,318
8,734
8,913
Equipment
10,701
1,446
9,702
9,590
Total Occupancy
19,895
2,764
18,436
18,503
Legal Fees
1,600
(30)
1,722
2,055
Professional Fees
4,261
602
4,345
5,003
Processing Services
5,832
-
5,779
5,978
Advertising
1,970
1,028
2,056
1,611
Travel and Entertainment
580
275
1,045
974
Telephone
2,510
359
2,645
2,224
Insurance – Other
1,607
-
1,007
1,625
Other Real Estate, Net
122
(18)
546
(442)
Miscellaneous
7,743
2,582
9,676
10,051
Total Other Expense
26,225
4,798
28,821
29,079
Total Noninterest Expense
$
109,981
$
39,981
$
113,609
$
111,503
42
Significant components of noninterest expense are discussed in more detail below.
Compensation
. Compensation expense totaled $96.3 million in 2020, $66.4 million in 2019, and $63.9 million in 2018. For
2020, the $29.9 million, or 45.1%, increase in consolidated compensation expense reflected the addition of $32.4 million in
compensation expense from CCHL. Core CCBG compensation expense declined by $2.5 million, primarily attributable to lower
commission expense of $2.2 million (transfer of residential mortgage operations to CCHL), higher realized loan cost (credit offset
to salary expense) of $0.4 million and lower associate benefit expense of $0.9 million (primarily stock compensation and to a
lesser extent associate insurance), partially offset by higher cash incentives of $0.2 million, base salaries of $0.3 million, and
contractual employment of $0.3 million (tax advisory services for CCHL transaction).
For 2019, the $2.4 million, or 3.8%, increase over 2018 was attributable to higher salary expense of $2.6 million, partially offset
by lower associate benefit expense of $0.2 million. Higher base salary expense and commission expense drove the increase. The
increase in base salaries primarily reflected merit raises and the increase in commissions was related to the residential mortgage
and retail securities brokerage businesses.
Occupancy
. Occupancy expense (including premises and equipment) totaled $22.7 million for 2020, $18.4 million for 2019, and
$18.5 million for 2018. For 2020, the $4.3 million, or 23.4%, increase in consolidated occupancy expense reflected the addition
of $2.8 million in occupancy expense from CCHL. Core CCBG occupancy expense increased $1.5 million primarily due to
higher FF&E depreciation and maintenance agreement expense (related to technology investment and upgrades), maintenance for
premises, and pandemic related cleaning/supply costs. Pandemic related costs reflected in occupancy expense for 2020 at Core
CCBG totaled approximately $0.3 million and will phase out over a period of time as the pandemic subsides.
For 2019, the $0.1 million, or 0.4%, decrease from 2018 generally reflected the closing of two offices in 2019.
Other
. Other noninterest expense totaled $31.0 million in 2020 , $28.8 million in 2019, and $29.1 million in 2018. For 2020, the
$2.2 million, or 7.6%, increase in consolidated other expense reflected the addition of $4.8 million in expenses from CCHL
partially offset by a $2.6 million decrease in other expenses at Core CCBG. Lower pension plan expense of $1.9 million (higher
unrealized gain amortization due to a lower discount rate for pension liability), ORE expense of $0.4 million (primarily due to a
$1.0 million gain from the sale of a banking office) , and travel/entertainment expense of $0.4 million (partially due to lower travel
during pandemic) drove the decrease in other expenses at Core CCBG.
For 2019, the $0.3 million, or 0.9%, decrease was primarily attributable to lower professional fees of $0.7 million and insurance-
other expense of $0.6 million, partially offset by higher OREO expense of $1.0 million. The reduction in professional fees
reflected the completion of several consulting projects in the second half of 2018. Lower FDIC insurance premiums drove the
reduction in insurance-other expense as we used the bulk of our premium credits in the third and fourth quarters of 2019. The
increase in OREO expense was due to a lower level of net gains from the sale of properties in 2019.
Income Taxes
For 2020, we realized income tax expense of $10.2 million (effective rate of 19%) compared to $9.9 million (effective rate of
24%) for 2019 and $3.4 million (effective rate of 12%) for 2018. The decrease in our effective tax rate in 2020 reflected the
impact of converting CCHL to a partnership for tax purposes in the second quarter of 2020. In addition, 2020 income taxes
reflected net discrete tax expense items totaling $0.3 million. Excluding discrete items, our effective tax rate was 19% for 2020,
23% for 2019 and 24% for 2018. Absent discrete items, we expect our annual effective tax rate to approximate 18% to 19% in
2021.
In September 2019, Florida enacted a corporate tax rate reduction from 5.5% to 4.5% retroactive to January 1, 2019. As a result,
our deferred tax accounts were re-measured resulting in a discrete tax expense of $0.4 million. Further, our 2019 state tax rate
was adjusted to reflect the one percentage point reduction which will be in effect through the end of 2021 at which time it will
revert back to 5.5%.
On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act reduced our corporate federal tax rate
from 35% to 21% effective January 1, 2018. During 2018, income tax expense included four discrete tax benefit items totaling
$3.6 million resulting from the effect of the Tax Act. Three discrete items totaling $3.3 million related to pension plan
contributions made in 2018 for the plan year 2017. In addition, we realized a discrete tax item for $0.3 million related to a tax
accounting method change for a cost segregation and depreciation analysis for various properties we own which was filed with
the extended 2017 tax return.
43
FINANCIAL CONDITION
Average assets totaled approximately $3.391 billion for 2020, an increase of $404.0 million, or 13.5%, over 2019. Average
earning assets were approximately $3.084 billion for 2020 , an increase of $386.6 million, or 14.3%, over 2019. Compared to
2019, average overnight funds increased $227.7 million, while investment securities decreased $57.7 million and average loans
were higher by $145.8 million. We discuss these variances in more detail below.
Table 2 provides information on average balances and rates, Table 3 provides an analysis of rate and volume variances and Table
4 highlights the changing mix of our interest earning assets over the last three years.
Loans
In 2020, average loans HFI increased $145.8 million, or 8.1%, compared to an increase of $100.1 million, or 5.8%, in 2019.
Compared to 2019, we realized average growth in all categories except institutional loans, home equity loans, and consumer
loans. During 2020, we originated PPP loans which averaged $128 million for the year.
In 2020, average loans held for sale (“HFS”) increased $70.8 million over 2019 due to the addition of loans from our strategic
alliance with CCHL and the robust residential mortgage market in 2020.
Loans HFI and HFS as a percentage of average earning assets decreased to 66.1% in 2020 compared to 67.6% in 2019 and 67.1%
in 2018, primarily attributable to higher levels of overnight funds due to growth in deposits.
We continue to make minor modifications on some of our lending programs to try and mitigate the impact that consumer and
business deleveraging has had on our portfolio. These programs, coupled with economic improvements in our anchor markets
and loan purchases, have helped to increase overall loan growth.
We will periodically purchase newly originated 1-4 family real estate secured adjustable rate loans from CCHL. Loan purchases
totaled $48.4 million and $25.2 million for the years ended December 31, 2020 and December 31, 2019, respectively. The
strategic alliance with CCHL provides us a larger pool of loan purchase opportunities, including participation loans for
construction/perm product.
44
Table 4
SOURCES OF EARNING ASSET GROWTH
2019 to
Percentage
Components of
2020
Total
Average Earning Assets
(Average Balances – Dollars In Thousands)
Change
Change
2020
2019
2018
Loans:
Loans HFS
$
70,776
18.3
%
2.6
%
0.4
%
0.3
%
Loans HFI:
Commercial, Financial, and Agricultural
106,870
27.6
11.7
9.4
8.7
Real Estate – Construction
25,552
6.6
4.0
3.7
3.3
Real Estate – Commercial Mortgage
37,962
9.8
21.1
22.7
22.1
Real Estate – Residential
(3,284)
(0.8)
11.5
13.2
12.9
Real Estate – Home Equity
(5,258)
(1.4)
6.4
7.5
8.5
Consumer
(16,004)
(4.1)
8.8
10.7
11.3
Total Loans HFS and HFI
$
216,614
56.0
%
66.1
%
67.6
%
67.1
%
Investment Securities:
Taxable
$
(38,342)
(9.9)
%
18.6
%
22.7
%
25.0
%
Tax-Exempt
(19,348)
(5.0)
0.2
0.9
2.6
Total Securities
(57,690)
(14.9)
18.8
23.6
27.6
Funds Sold
227,653
58.9
15.1
8.8
5.3
Total Earning Assets
$
386,577
100.0
%
100.0
%
100.0
%
100.0
%
Our average total loans (HFS and HFI)-to-deposit ratio was 71.7% in 2020, 71.8% in 2019, and 70.9% in 2018.
The composition of our HFI loan portfolio at December 31
st
our HFI loan portfolio at December 31, 2020, by maturity period. As a percentage of the HFI loan portfolio, loans with fixed
interest rates represented 42.4% at December 31, 2020 compared to 38.2% at December 31, 2019. Stronger growth occurred in
our fixed rate loans, primarily due to the addition of the PPP loans, which are short-term in nature.
Table 5
LOANS HFI BY CATEGORY
(Dollars in Thousands)
2020
2019
2018
2017
2016
Commercial, Financial and Agricultural
$
393,930
$
255,365
$
233,689
$
218,166
$
216,404
Real Estate – Construction
135,831
115,018
89,527
77,966
58,444
Real Estate – Commercial Mortgage
648,393
625,556
602,061
535,707
503,978
Real Estate – Residential
352,543
361,450
342,215
311,906
281,508
Real Estate – Home Equity
205,479
197,360
210,111
229,513
236,512
Consumer
270,250
281,180
296,622
280,234
264,443
Total Loans HFI , Net of Unearned Income
$
2,006,426
$
1,835,929
$
1,774,225
$
1,653,492
$
1,561,289
45
Table 6
LOANS HFI MATURITIES
Maturity Periods
(Dollars in Thousands)
One Year
Over One
Through Five
Years
(2)
Over
Total
Commercial, Financial and Agricultural
$
38,500
$
309,124
$
46,306
$
393,930
Real Estate – Construction
75,009
33,506
27,316
135,831
Real Estate – Commercial Mortgage
39,333
89,138
519,922
648,393
Real Estate – Residential
20,153
62,853
269,537
352,543
Real Estate – Home Equity
5,165
26,925
173,389
205,479
Consumer
(1)
5,709
217,848
46,693
270,250
Total
$
183,869
$
739,394
$
1,083,163
$
2,006,426
Total Loans HFI with Fixed Rates
$
106,087
$
562,810
$
180,969
$
849,866
Total Loans HFI with Floating or Adjustable Rates
77,782
176,584
902,194
1,156,560
Total
$
183,869
$
739,394
$
1,083,163
$
2,006,426
(1)
Demand loans and overdrafts are reported in the category of one year or less.
(2)
Includes $178 million in fixed rate SBA PPP Loans (commercial)
Risk Element Assets
Risk element assets consist of nonaccrual loans, OREO, troubled debt restructurings (“TDRs”), past due loans, potential problem
loans, and loan concentrations. Table 7 depicts certain categories of our risk element assets as of December 31
st
last five years.
Nonperforming assets (nonaccrual loans and OREO) totaled $6.7 million at December 31, 2020 compared to $5.4 million at
December 31, 2019. Nonaccrual loans totaled $5.9 million at December 31, 2020, a $1.4 million increase over December 31,
2019. The balance of OREO totaled $0.8 million at December 31, 2020, a decrease of $0.1 million decrease from December 31,
2019. Nonperforming assets represented 0.18% of total assets at December 31, 2020 and December 31, 2019 .
46
Table 7
RISK ELEMENT ASSETS
(Dollars in Thousands)
2020
2019
2018
2017
2016
Nonaccruing Loans:
Commercial, Financial and Agricultural
$
161
$
446
$
267
$
629
$
468
Real Estate – Construction
179
-
722
298
311
Real Estate – Commercial Mortgage
1,412
1,434
2,860
2,370
3,410
Real Estate – Residential
3,130
1,392
2,119
1,938
2,330
Real Estate – Home Equity
695
797
584
1,748
1,774
Consumer
294
403
320
176
240
Total Nonaccruing Loans (“NALs”)
(1)
5,871
4,472
6,872
7,159
8,533
Other Real Estate Owned
808
953
2,229
3,941
10,638
Total Nonperforming Assets (“NPAs”)
6,679
5,425
9,101
11,100
19,171
Past Due Loans 30 – 89 Days
4,594
4,871
4,757
4,543
6,438
Past Due Loans 90 Days or More (accruing)
-
-
-
36
-
Performing Troubled Debt Restructurings
13,887
16,888
22,084
32,164
38,233
Classified Loans
$
17,631
$
20,847
$
22,888
$
31,002
$
41,507
Nonaccruing Loans/Loans
0.29
%
0.24
%
0.39
%
0.43
%
0.54
%
Nonperforming Assets/Total Assets
0.18
0.18
0.31
0.38
0.67
Nonperforming Assets/Loans Plus OREO
0.33
0.29
0.51
0.67
1.21
Allowance/Nonaccruing Loans
405.66
%
310.99
%
206.79
%
185.87
%
157.40
%
(1)
Nonaccrual Loans
. Nonaccrual loans totaled $5.9 million at December 31, 2020 , an increase of $1.4 million over December 31,
2019. Gross additions to nonaccrual status during 2020 totaled $11.4 million compared to $9.2 million in 2019.
Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or management deems
the collectability of the principal and interest to be doubtful. Once a loan is placed in nonaccrual status, all previously accrued
and uncollected interest is reversed against interest income. Interest income on nonaccrual loans is recognized when the ultimate
collectability is no longer considered doubtful. Loans are returned to accrual status when the principal and interest amounts
contractually due are brought current or when future payments are reasonably assured. If interest on our loans classified as
nonaccrual during 2020 had been recognized on a fully accruing basis, we would have recorded an additional $0.4 million of
interest income for the year ended December 31, 2020.
Other Real Estate Owned
. OREO represents property acquired as the result of borrower defaults on loans or by receiving a deed
in lieu of foreclosure. OREO is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the time of
foreclosure. Write-downs occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis,
properties are either revalued internally or by a third party appraiser as required by applicable regulations. Subsequent declines in
value are reflected as other noninterest expense. Carrying costs related to maintaining the OREO properties are expensed as
incurred and are also reflected as other noninterest expense.
OREO totaled $0.8 million at December 31, 2020 versus $1.0 million at December 31, 2019. During 2020, we added properties
totaling $2.3 million, sold properties totaling $1.7 million, and recorded valuation adjustments totaling $0.8 million. For 2019,
we added properties totaling $1.3 million, sold properties totaling $2.3 million, and recorded valuation adjustments totaling $0.3
million.
47
The composition of our OREO portfolio as of December 31 is provided in the table below.
Table 8
OTHER REAL ESTATE COMPOSITION
(Dollars in Thousands)
2020
2019
Lots/Land
$
51
$
87
Residential 1-4
49
383
Commercial Building
707
123
Other
1
360
Total OREO
$
808
$
953
Troubled Debt Restructurings.
TDRs are loans on which, due to the deterioration in the borrower’s financial condition, the
original terms have been modified and deemed a concession to the borrower. From time to time we will modify a loan as a
workout alternative. Most of these instances involve an extension of the loan term, an interest rate reduction, or a principal
moratorium. A TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no
longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced
or restructured at market terms and qualifies as a new loan in calendar years after the year in which the restructuring took place.
Loans classified as TDRs at December 31, 2020 totaled $14.3 million compared to $17.6 million at December 31, 2019.
Accruing TDRs made up approximately $13.9 million of our TDR portfolio at December 31, 2020 of which $0.7 million was over
30 days past due. The weighted average rate for the loans within the accruing TDR portfolio was 5.21%. During 2020, we
modified three loan contracts totaling approximately $0.2 million. Our TDR default rate (default balance as a percentage of
average TDRs) in 2020 and 2019 was 2.9% and 3.0%, respectively.
COVID Loan Extensions
. To assist our clients during the COVID-19 pandemic, beginning in March 2020, we began allowing
short term 60 to 90 day loan extensions for affected borrowers. We have extended loans totaling $333 million of which
approximately 75% were for commercial borrowers and 25% were for consumer borrowers. Approximately $324 million, or 97%
of the loan balances associated with these borrowers have resumed making regularly scheduled payments. Of the $9 million in
loans that remain on extension, no loans were classified at December 31, 2020. Of the $324 million in loans where the borrowers
have resumed payments, loan balances totaling $3.5 million were over 30 days delinquent and an additional $0.4 million was on
nonaccrual status at December 31, 2020. Under the applicable regulatory guidance, none of these loans were considered
restructured at December 31, 2020.
We continue to analyze our loan portfolio for segments that have been affected by the stressed economic and business conditions
caused by the pandemic. Certain at-risk segments total 8% of our loan balances at December 31, 2020, including hotel (3%),
restaurant (1%), retail and shopping centers (3%), and other (1%). The other segment includes churches, non-profits, education,
and recreational.
The composition of our TDR portfolio as of December 31 is provided in the table below.
2020
2019
(Dollars in Thousands)
Accruing
Nonaccruing
(1)
Accruing
Nonaccruing
(1)
Commercial, Financial and Agricultural
$
320
$
-
$
495
$
55
Real Estate – Commercial Mortgage
7,021
57
7,787
176
Real Estate – Residential
5,360
369
7,083
379
Real Estate – Home Equity
1,169
-
1,452
105
Consumer
17
29
71
-
Total TDRs
$
13,887
$
455
$
16,888
$
715
(1)
48
Activity within our TDR portfolio is provided in the table below.
(Dollars in Thousands)
2020
2019
TDR Beginning Balance:
$
17,603
$
24,724
Additions
188
494
Charge-Offs
(322)
(364)
Paid Off/Payments
(2,463)
(5,162)
Removal Due to Change in TDR Status
(369)
(1,644)
Transferred to OREO
(295)
(445)
TDR Ending Balance
$
14,342
$
17,603
Past Due Loans
. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days
past due. Past due loans at December 31, 2020 totaled $4.6 million compared to $4.9 million at December 31, 2019.
Potential Problem Loans
. Potential problem loans are defined as those loans which are now current but where management has
doubt as to the borrower’s ability to comply with present loan repayment terms. At December 31, 2020, we had $2.3 million in
loans of this type which were not included in either of the nonaccrual, TDR or 90 day past due loan categories compared to $2.5
million at December 31, 2019. Management monitors these loans closely and reviews their performance on a regular basis.
Loan Concentrations
. Loan concentrations exist when there are amounts loaned to multiple borrowers engaged in similar
activities which cause them to be similarly impacted by economic or other conditions and such amount exceeds 10% of total
loans. Due to the lack of diversified industry within our markets and the relatively close proximity of the markets, we have both
geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the nature of our markets, a
significant portion of our HFI loan portfolio has historically been secured with real estate, approximately 67 % at December 31,
2020 and 71% at December 31, 2019. This percentage declined in 2020 due to the higher allocation in the commercial loan
category which reflected $178 million in SBA PPP loans at December 31, 2020. The primary types of real estate collateral are
commercial properties and 1-4 family residential properties.
The following table summarizes our real estate loan portfolio as segregated by the type of property. Property type concentrations
are stated as a percentage of December 31
st
2020
2019
Investor
Real Estate
Owner
Occupied
Investor
Real Estate
Owner
Occupied
Vacant Land, Construction, and Land Development
14.7
%
-
13.1
%
-
Improved Property
28.5
56.8
%
25.8
61.1
%
Total Real Estate Loans
43.2
%
56.8
%
38.9
%
61.1
%
A major portion of our real estate loan portfolio is centered in the owner occupied category which carries a lower risk of non-
collection than certain segments of the investor category. Approximately 35% of the investor real estate category was secured by
residential real estate at December 31, 2020.
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.
Detailed information regarding the methodology for estimating the amount reported in the allowance for credit losses is provided
in Note 1 – Significant Accounting Policies/Allowance for Credit Losses in the Consolidated Financial Statements.
49
Table 9 analyzes the activity in the allowance over the past five years.
For 2020, our net loan charge-offs totaled $2.4 million, or 0.12%, of average HFI loans, compared to $2.3 million, or 0.13%, for
2019, and $2.0 million, or 0.12%, for 2018. At December 31, 2020, the allowance represented 1.19% of HFI loans and provided
coverage of 406% of nonperforming loans compared to 0.75% and 311%, respectively, at December 31, 2019 and 0.80% and
207%, respectively, at December 31, 2018. At December 31, 2020, excluding SBA PPP loans (100% government guaranteed),
the allowance represented 1.30% of loans held for investment.
Table 10 provides an allocation of the allowance for loan losses to specific loan types for each of the past five years.
At December 31, 2020, the allowance for credit losses totaled $23.8 million compared to $13.9 million at December 31, 2019 and
$14.2 million at December 31, 2018. The adoption of ASC 326 (“CECL”) on January 1, 2020 had an impact of $4.0 million ($3.3
million increase in the allowance for credit losses and $0.7 million increase in the allowance for unfunded loan commitments
(other liability account)). The $6.6 million build (provision of $9.0 million less net charge-offs of $2.4 million) in the allowance
for credit losses in 2020 was attributable to stressed economic conditions related to the COVID-19 pandemic and its potential
effect on rates of default. For 2019, the slight decrease generally reflected improvement in overall credit quality metrics.
50
Table 9
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
(Dollars in Thousands)
2020
2019
2018
2017
2016
Balance at Beginning of Year
$
13,905
$
14,210
$
13,307
$
13,431
$
13,953
Impact of Adopting ASC 326 (CECL)
3,269
-
-
-
-
Charge-Offs:
Commercial, Financial and Agricultural
789
768
644
1,357
861
Real Estate – Construction
-
281
7
-
-
Real Estate – Commercial
28
214
315
685
349
Real Estate – Residential
150
400
780
411
899
Real Estate – Home Equity
151
430
533
190
450
Consumer
2,785
2,878
2,395
2,193
2,127
Overdrafts
(1)
2,257
-
-
-
-
Total Charge -Offs
6,160
4,971
4,674
4,836
4,686
Recoveries:
Commercial, Financial and Agricultural
252
345
459
313
337
Real Estate – Construction
50
-
26
50
-
Real Estate – Commercial
318
578
373
174
408
Real Estate – Residential
279
429
643
616
1,231
Real Estate – Home Equity
178
175
191
219
409
Consumer
1,219
1,112
964
1,125
960
Overdrafts
(1)
1,471
-
-
-
-
Total Recoveries
3,767
2,639
2,656
2,497
3,345
Net Charge-Offs
2,393
2,332
2,018
2,339
1,341
Provision for Credit Losses - HFI
9,035
2,027
2,921
2,215
819
Balance at End of Year - HFI
(2)
$
23,816
$
13,905
$
14,210
$
13,307
$
13,431
Net Charge-Offs to Average Loans HFI
0.12
%
0.13
%
0.12
%
0.14
%
0.09
%
Allowance for Credit Losses as a Percent of
1.19
%
0.75
%
0.80
%
0.80
%
0.86
%
Allowance for Credit Losses as a Multiple of
9.95
x
5.96
x
7.04
x
5.69
x
10.02
x
(1)
Prior to 2020, overdraft losses were reflected in noninterest income (deposit fees)
(2)
Provision of $0.6 million in 2020 for unfunded loan commitments - balance of $1.6 million recorded in other liabilities
51
Table 10
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
2020
2019
2018
2017
2016
(Dollars in Thousands)
ACL
Amount
Percent
of Loans
to Total
Loans
ACL
Amount
Percent
of Loans
to Total
Loans
ACL
Amount
Percent
of Loans
to Total
Loans
ACL
Amount
Percent
of Loans
to Total
Loans
ACL
Amount
Percent
of Loans
to Total
Loans
Commercial, Financial
$
2,204
19.6
%
$
1,675
13.9
%
$
1,434
13.1
%
$
1,191
13.2
%
$
1,198
13.8
%
Real Estate:
Construction
2,479
6.8
370
6.2
280
5.0
122
4.7
168
3.7
Commercial
7,029
32.3
3,416
33.9
4,181
33.8
4,346
32.3
4,315
32.1
Residential
5,440
17.6
3,128
20.1
3,400
19.6
3,206
19.1
3,445
18.6
Home Equity
3,111
10.2
2,224
10.7
2,301
11.8
2,506
13.8
2,297
15.0
Consumer
3,553
13.5
3,092
15.2
2,614
16.7
1,936
16.9
2,008
16.8
Total
$
23,816
100.0
%
$
13,905
100.0
%
$
14,210
100.0
%
$
13,307
100.0
%
$
13,431
100.0
%
Investment Securities
Our average investment portfolio balance decreased $57.7 million, or 9.1%, in 2020 and decreased $71.1 million, or 10.1%, in
2019. As a percentage of average earning assets, our investment portfolio represented 18.8% in 2020, compared to 23.8% in
2019. In 2020, the reduction in the investment portfolio was primarily attributable to the inability to find compelling investments.
We currently believe a relatively short duration investment portfolio offers the flexibility to provide additional liquidity from
maturing bonds, if necessary. In addition, we continue to review various investment strategies to prudently deploy at least a
portion of our excess overnight funds.
In 2020, average taxable investments decreased $38.3 million, or 6.3%, while tax-exempt investments decreased $19.3 million, or
79.1%. Taxable bonds declined as part of our overall investment strategy, and non-taxable investments decreased as the tax-
equivalent yield was generally unattractive throughout 2020 compared to taxable investments. At December 31, 2020, municipal
securities (taxable and non-taxable) comprised 0.7% of the portfolio. We may consider the purchase of municipal issues if the
yields become more attractive compared to taxable securities, or if they are CRA-eligible investments.
Our 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-for-Maturity (“HTM”). In 2019 and 2020, we purchased securities under both the AFS and HTM designations.
At December 31, 2020, $324.9 million, or 65.7% of our investment portfolio was classified as AFS, with the remaining $169.9
million, or 34.3%, classified as HTM. At December 31, 2019, the AFS and HTM portfolio comprised 62.8% and 37.2%,
respectively. Table 11 provides the composition of our investment securities portfolio.
52
Table 11
INVESTMENT SECURITES COMPOSITION
2020
2019
2018
(Dollars in Thousands)
Carrying
Amount
Percent
Carrying
Amount
Percent
Carrying
Amount
Percent
Available for Sale
U.S. Government Treasury
$
104,519
21.1
%
$
232,778
36.2
%
$
261,849
39.5
%
U.S. Government Agency
208,531
42.2
156,078
24.3
133,206
20.1
States and Political Subdivisions
3,632
0.7
6,319
1.0
42,365
6.4
Mortgage-Backed Securities
515
0.1
773
0.1
943
0.1
Equity Securities
7,673
1.6
7,653
1.2
7,794
1.2
Total
324,870
65.7
403,601
62.8
446,157
67.2
Held to Maturity
U.S. Government Treasury
5,001
1.0
20,036
3.1
35,088
5.3
States and Political Subdivisions
-
-
1,376
0.2
6,512
1.0
Mortgage-Backed Securities
164,938
33.3
218,127
33.9
175,720
26.5
Total
169,939
34.3
239,539
37.2
217,320
32.8
Total Investment Securities
$
494,809
100
%
$
643,140
100
%
$
663,477
100
%
The classification of a security is determined upon acquisition based on how the purchase will affect our asset/liability strategy
and future business plans and opportunities. Classification determinations will also factor in regulatory capital requiremen ts,
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 (loss) component of shareowners’ equity. Securities designated as HTM are those acquired or owned with
the intent of holding them to maturity (final payment date). HTM investments are measured at amortized cost. It is neither
management’s current intent nor practice to participate in the trading of investment securities for the purpose of recognizing gains
and therefore we do not maintain a trading portfolio.
At December 31, 2020, there were 47 positions (combined AFS and HTM) with unrealized losses totaling $0.2 million. GNMA
mortgage-backed securities, U.S. Treasuries, and SBA securities carry the full faith and credit guarantee of the U.S. Government,
and are 0% risk-weighted assets. SBA securities float monthly or quarterly with the prime rate and are uncapped. None of these
positions with unrealized losses are considered credit impaired, and all are expected to mature at par. The table below provides a
break-down of our unrealized losses by security type.
Total
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Count
Count
Value
Count
Value
SBA
36
28,266
156
11
4,670
28
47
32,936
184
Total
36
$
28,266
$
156
11
$
4,670
$
28
47
$
32,936
$
184
The average maturity of our investment portfolio at December 31, 2020 was 2.09 years compared to 2.11 years at December 31,
2019. Balances of U.S. Treasuries, GNMA securities, and municipal bonds declined compared to the prior year, and were
partially offset by increases in SBA securities. The average life of our investment portfolio declined slightly as the balance of the
overall portfolio declined, with the existing portfolio rolling down the curve. See Table 12 for a break-down of maturities by
investment type.
The weighted average taxable equivalent yield of our investment portfolio at December 31, 2020 was 1.78% versus 2.23% in
2019. This decrease in yield reflected lower reinvestment rates during most of 2020. Our bond portfolio contained no investments
in obligations, other than U.S. Governments, of any state, municipality, political subdivision or any other issuer that exceeded
10% of our shareowners’ equity at December 31, 2020.
Table 12 and Note 2 in the Notes to Consolidated Financial Statements present a detailed analysis of our investment securities as
to type, maturity and yield at December 31.
53
Table 12
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Within 1 year
1 - 5 years
5 - 10 years
After 10 years
Total
(Dollars in
Thousands)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Available for Sale
U.S. Government
Treasury
$
99,408
2.20
%
$
5,111
1.70
%
$
-
-
%
$
-
-
%
$
104,519
2.19
%
U.S. Government
Agency
8,802
0.52
195,183
1.49
4,546
1.16
-
-
208,531
1.45
States and Political
Subdivisions
1,833
3.01
1,799
3.11
-
-
-
-
3,632
3.06
Mortgage-Backed
Securities
(1)
73
0.61
406
4.96
36
3.46
-
-
515
4.24
Other Securities
(2)
-
-
-
-
-
-
7,673
5.24
7,673
5.24
Total
$
110,116
2.09
%
$
202,499
1.52
%
$
4,582
1.18
%
$
7,673
5.24
%
$
324,870
1.78
%
Held to Maturity
U.S. Government
Treasury
$
5,001
1.90
%
$
-
1.90
%
$
-
-
%
$
-
-
%
$
5,001
1.90
%
Mortgage-Backed
Securities
(1)
4,754
(0.39)
154,558
1.81
5,626
2.92
-
-
164,938
1.79
Total
$
9,755
0.78
%
$
154,558
1.81
%
$
5,626
2.92
%
$
-
-
%
$
169,939
1.79
%
Total Investment
Securities
$
119,871
1.99
%
$
357,057
1.65
%
$
10,208
2.14
%
$
7,673
5.24
%
$
494,809
1.78
%
(1)
(2)
(3)
Deposits and Short Term Borrowings
Average total deposits for 2020 were $2.844 billion, an increase of $306.9 million, or 12.1%, over 2019. Average deposits
increased $114.5 million, or 4.7%, from 2018 to 2019.
deposit, with the largest increases occurring in noninterest bearing and savings accounts. The increase in 2019 occurred in
noninterest bearing deposits, negotiated NOW accounts, and savings accounts, partially offset by declines in money market
accounts and certificates of deposit.
Strong deposit growth occurred during the year reflecting federal stimulus inflows as well as strong core deposit growth. In
addition, the seasonal growth of public funds occurred in the fourth quarter of 2020 and is expected to continue into the first
quarter of 2021. Deposit levels remain strong as we continue to see growth in our non-maturity deposits. Our mix of deposits
continues to improve as certificates of deposit are replaced with noninterest bearing demand accounts.
We continue to closely monitor several metrics such as the sensitivity of our deposit rates, our overall liquidity position, and
competitor rates when pricing deposits. This strategy is consistent with previous rate cycles, and allows us to manage the mix of
our deposits rather than compete on rate. We believe this enabled us to maintain a low cost of funds of 16 basis points for 2020
and 35 basis points for 2019.
Table 2 provides an analysis of our average deposits, by category, and average rates paid thereon for each of the last three years.
Table 13 reflects the shift in our deposit mix over the last year and Table 14 provides a maturity distribution of time deposits in
denominations of $100,000 and over at December 31, 2020.
Average short -term borrowings increased $59.8 million in 2020 due to the addition of warehouse line borrowings of CCHL that
are used to support our held for sale loan portfolio. See Note 11 in the Notes to Consolidated Financial Statements for additional
information on short-term borrowings.
54
We continue to focus on the value of our deposit franchise, which produces a strong base of core deposits with minimal reliance
on wholesale funding.
Table 13
SOURCES OF DEPOSIT GROWTH
2019 to
Percentage
Components of
2020
of Total
Total Deposits
(Average Balances - Dollars in Thousands)
Change
Change
2020
2019
2018
Noninterest Bearing Deposits
$
241,633
78.8
%
44.1
%
39.9
%
37.5
%
NOW Accounts
21,146
6.9
29.0
31.7
32.2
Money Market Accounts
86
-
8.3
9.3
10.4
Savings
53,099
17.3
14.9
14.6
14.5
Time Deposits
(9,106)
(3.0)
3.7
4.5
5.4
Total Deposits
$
306,858
100.0
%
100.0
%
100.0
%
100.0
%
Table 14
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 AND OVER
2020
(Dollars in Thousands)
Time Certificates
of Deposit
Percent
Three months or less
$
7,403
25.4
%
Over three through six months
7,449
25.6
Over six through twelve months
10,557
36.2
Over twelve months
3,741
12.8
Total
$
29,150
100.0
%
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 intere st 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.
55
The balance sheet 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 Market Risk Oversight Committee (“MROC”), our Enterprise Risk
Oversight Committee (“EROC”) and the Board of Directors. (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 balance sheet 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. At December 31, 2019, the instantaneous rate
shock of down 100 bp over 24-months was slightly outside of desired parameters due to limited repricing of deposits relative to
the decline in rates.
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
%
December 31, 2020
39.0
%
28.7
%
18.7
%
9.0
%
-3.0
%
December 31, 2019
13.8
%
10.3
%
6.8
%
3.4
%
-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
%
December 31, 2020
54.2
%
38.3
%
22.6
%
7.6
%
-10.9
%
December 31, 2019
35.5
%
26.4
%
17.2
%
8.2
%
-13.4
%
The Net Interest Income (“NII”) at Risk position was more favorable at December 31, 2020 compared to December 31, 2019 for
the 12-month shock for all rate scenarios. The year-over-year favorable changes were primarily driven by growth in our
noninterest bearing deposits, which have a positive impact on our NII. The model 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 100 bp will
have a negative impact on the net interest margin.
All measures of Net Interest Income at Risk are within our prescribed policy limits over both the 12-month and 24-month periods,
with the exception of rates down 100 bp over 24-months. We are slightly out of compliance in this rates down 100 bp scenario as
we have a limited ability to lower our deposit rates the full 100 bp relative to the decline in market rate. In addition, this analysis
incorporates an instantaneous, parallel shock and assumes we move with market rates and do not lag our deposit rates.
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
%
December 31, 2020 (Base Scenario)
(2)
160.9
%
127.5
%
89.9
%
48.4
%
-90.4
%
December 31, 2019 (Base Scenario)
37.5
%
30.2
%
21.7
%
12.2
%
-22.0
%
December 31, 2020 (Alternate Scenario)
(2)
50.0
%
31.4
%
10.6
%
-3.9
%
-0.6
%
56
At December 31, 2020, the economic value of equity was more favorable in all up-rate scenarios and is within prescribed
tolerance levels, but is less favorable and out of policy in the down 100 basis point EVE scenario. The year-over-year favorable
changes were primarily driven by growth in our noninterest bearing deposits compared to the prior year. EVE became less
favorable in rates down 100bp compared to the prior year as we have limited ability to lower our deposit rates relative to the
decline in market rates. EVE output is extreme given the historically low rate environment, in conjunction with the high
overnight funds sold balance when compared to December 31, 2019. Given the current interest rate environment and the
historically high levels of liquidity, management is monitoring the EVE analysis in light of the economic recovery, but has chosen
not to institute immediate balance sheet changes to address the down 100 basis point scenario. In an alternate EVE scenario
where the value of our nonmaturity deposits are capped at their book value, we are within policy guidelines.
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 changing balance sheet mix, measured over multiple years, to help
assess the risk to the Company.
(1)
Down 200, 300 and 400 bp rate scenarios have been excluded due to the current interest rate environment.
(2)
For the rates down 100 bp scenario, the high negative percentage change is due to a negative value assigned to our
nonmaturity deposits. Since we believe our nonmaturity deposits are highly valued core franchise deposits, we run an
alternate EVE calculation which caps the projected value of our nonmaturity deposits at their book value.
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 fund loan commitments, purchase securities, accommodate deposit withdrawals or repay 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, and 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. For 2020 and 2019, our principal
source of funding was client deposits, supplemented by our short-term and long-term borrowings, primarily from our trust-
preferred securities, 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 December 31, 2020, we had the ability to generate approximately $1.198 billion in additional liquidity through all of our
available resources beyond our overnight funds sold position. 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 certain credit facilities may no
longer be available. We conduct quarterly liquidity stress tests and the results are reported to ALCO, MROC, EROC and the
Board of Directors. We believe the liquidity available to us is sufficient to meet our ongoing needs.
We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral
for borrowings or deposits, and/or sell selected securities. Our portfolio consists of debt issued by the U.S. Treasury, U.S.
governmental agencies, and municipal governments. The weighted-average maturity of our portfolio was 2.09 years at December
31, 2020 and had a net unrealized pre-tax gain of $3.7 million in the AFS portfolio.
Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds
purchased) was $465.7 million in 2020 compared to an average net overnight funds sold position of $238.0 million in 2019. The
increase in this position in 2020 reflected strong deposit growth, primarily related to government stimulus program inflows
(primarily noninterest bearing deposits) and runoff from the investment portfolio, partially offset by higher growth in the loan
portfolio.
We expect capital expenditures over the next 12 months to be approximately $7.0 million, which will consist primarily of
technology purchases for banking offices, business applications, and information technology security needs as well as furniture
and fixtures and banking office remodels. We expect that these capital expenditures will be funded with existing resources
without impairing our ability to meet our ongoing obligations.
57
Long-Term Borrowings
At December 31, 2020, total advances from the FHLB consisted of $2.2 million in outstanding debt comprised of seven notes. In
2020, the Bank made FHLB advance payments totaling $3.2 million. One advance matured, and one was paid off, with no new
fixed rate advances obtained in 2020. The FHLB notes are collateralized by a blanket floating lien on all of our 1-4 family
residential mortgage loans, commercial real estate mortgage loans, and home equity mortgage loans.
We have issued two junior subordinated deferrable interest notes to wholly owned Delaware statutory trusts. The first note for
$30.9 million was issued to CCBG Capital Trust I in November 2004. The second note for $32.0 million was issued to CCBG
Capital Trust II in May 2005.
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 $30 million ($10 million of the CCBG Capital Trust 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.
See Note 12 in the Notes to Consolidated Financial Statements for additional information on long-term borrowings.
Table 15
CONTRACTUAL CASH OBLIGATIONS
Table 15 sets forth certain information about contractual cash obligations at December 31, 2020.
Payments Due By Period
(Dollars in Thousands)
< 1 Yr
> 1 – 3 Yrs
> 3 – 5 Yrs
> 5 Yrs
Total
Warehouse Lines
(1)
$
74,782
$
-
$
-
$
-
$
74,782
Federal Home Loan Bank Advances
733
1,131
314
-
2,178
Note Payable
296
592
12
-
900
Subordinated Notes Payable
-
-
-
52,887
52,887
Operating Lease Obligations
1,707
2,353
1,685
11,129
16,874
Time Deposit Maturities
83,989
14,094
3,511
-
101,594
Total Contractual Cash Obligations
$
86,725
$
18,170
$
5,522
$
64,016
$
174,433
(1)
Capital
Shareowners’ equity was $320.8 million at December 31, 2020 compared to $327.0 million at December 31, 2019. During 2020,
shareowners’ equity was positively impacted by net income of $31.6 million, a $1.8 million increase in the unrealized gain on
investment securities, net adjustments totaling $1.4 million related to transactions under our stock compensation plans, stock
compensation accretion of $0.9 million, and a $0.4 million increase in fair value of the interest rate swap related to subordinated
debt. Shareowners’ equity was reduced by an $18.2 million increase in the accumulated other comprehensive loss for our pension
plan, common stock dividends of $9.6 million ($0.57 per share), a $3.1 million (net of tax) adjustment to retained earnings for the
adoption of CECL, reclassification of $9.4 million to temporary equity to increase the redemption value of the non-controlling
interest in CCHL, and share repurchases of $2.0 million (99,952 shares).
Shareowners' equity as of December 31, for each of the last three years is presented below:
(Dollars in Thousands)
2020
2019
2018
Common Stock
$
168
$
168
$
167
Additional Paid-in Capital
32,283
32,092
31,058
Retained Earnings
332,528
322,937
300,177
Subtotal
364,979
355,197
331,402
Accumulated Other Comprehensive Loss, Net of Tax
(44,142)
(28,181)
(28,815)
Total Shareowners’ Equity
$
320,837
$
327,016
$
302,587
58
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at year-end was 8.45 %, 10.59%,
and 10.23%, in 2019, 2018, and 2018, respectively. Further, our tangible common equity, was 6.25% at December 31, 2020
compared to 8.06% at December 31, 2019, respectively. The reduction in ratios in 2020 primarily reflected the significant growth
in assets during the year.
We are subject to regulatory risk-based capital requirements that measure capital relative to risk-weighted assets and off-balance
sheet financial instruments. At December 31, 2020, our total risk-based capital ratio was 17.30% compared to 17.90% at
December 31, 2019. Our common equity tier 1 capital ratio was 13.71% and 14.47%, respectively, on these dates. Our leverage
ratio was 9.33% and 11.25%, respectively, on these dates. For a detailed discussion of our regulatory capital requirements, refer
to the “Regulatory Considerations – Capital Regulations” section on page 14. See Note 17 in the Notes to Consolidated Financial
Statements for additional information as to our capital adequacy.
At December 31, 2020, our common stock had a book value of $19.05 per diluted share compared to $19.40 at December 31,
2019. Book value is impacted by the net unrealized gains and losses on investment securities. At December 31, 2020, the net
unrealized gain was $2.7 million compared to $0.9 million at December 31, 2019. 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 December 31, 2020, the net pension liability reflected in accumulated other comprehensive loss was $47.3 million
compared to $29.0 million at December 31, 2019. The unfavorable adjustment to our unfunded pension liability was attributable
to the lower discount rate used to calculate the present value of the pension obligation. The lower discount rate reflected the
significant decline in long-term interest rates in 2020. This adjustment also unfavorably impacted our tangible capital ratio.
Further, book value is impacted by the periodic adjustment made to record temporary equity at redemption value. At December
31, 2020, $9.4 million had been reclassified from retained earnings to temporary equity during 2020 to increase the redemption
value of the non-controlling interest in CCHL.
In February 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common stock
over a five-year period. Repurchases may be made in the open market or in privately negotiated transactions; however, we are
not obligated to repurchase any specified number of shares. In January, 2019, the 2014 plan was terminated and our Board of
Directors approved a new share repurchase plan that authorizes the repurchase of up to 750,000 shares of our outstanding
common stock over a five-year period. Terms of this plan are substantially similar to the 2014 plan. 99,952 shares were
repurchased in 2020 at an average price of $20.39 and 77,000 shares were repurchased in 2019 at an average price of $23.40.
Since 2014, a total of 1,361,682 shares of our outstanding common stock have been repurchased at an average price of $17.93
under our stock repurchase plans.
Dividends
Adequate capital and financial strength is paramount to our stability and the stability of our subsidiary bank. Cash dividends
declared and paid should not place unnecessary strain on our capital levels. When determining the level of dividends the
following factors are considered:
●
Compliance with state and federal laws and regulations;
●
Our capital position and our ability to meet our financial obligations;
●
Projected earnings and asset levels; and
●
The ability of the Bank and us to fund dividends.
Inflation
The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total
resources are invested in fixed assets such as property, plant and equipment. Assets and liabilities of financial institutions are
virtually all monetary in nature, and therefore are primarily impacted by interest rates rather than changing prices. While the
general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to
changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of our ability to react to
changing interest rates and are discussed in further detail in the section entitled “Results of Operations.”
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. See Note 19 in the Notes to Consolidated Financial Statements.
59
At December 31, 2020, we had $756.9 million in commitments to extend credit and $6.5 million in standby letters of credit.
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 may expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The increase in commitments to extend credit in 2020 reflected the addition of interest rate
lock commitments for CCHL which are funded through warehouse lines of credit. 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.
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 on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current liquidity, investment security maturities, available
advances from the FHLB and Federal Reserve Bank, and warehouse lines of credit provide a sufficient source of funds to meet
these commitments.
In conjunction with the sale and securitization of loans held for sale and their related servicing rights, we may be exposed to
liability resulting from recourse, repurchase and make-whole agreements. If it is determined subsequent to our sale of a loan or
its related servicing rights that a breach of the representatio ns or warranties made in the applicable sale agreement has occurred,
which may include guarantees that prepayments will not occur within a specified and customary time frame, we may have an
obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest and related advances, (b) indemnify
the purchaser against any loss it suffers or (c) make the purchaser whole for the economic benefits of the loan and its related
servicing rights.
Our repurchase, indemnification and make-whole obligations vary based upon the terms of the applicable agreements, the nature
of the asserted breach and the status of the mortgage loan at the time a claim is made. We establish reserves for estimated losses
of this nature inherent in the origination of mortgage loans by estimating the losses inherent in the population of all loans sold
based on trends in claims and actual loss severities experienced. The reserve will include accruals for probable contingent losses
in addition to those identified in the pipeline of claims received. The estimation process is designed to include amounts based on
actual losses experienced from actual activity.
FOURTH QUARTER, 2020 FINANCIAL RESULTS
Results of Operations
We realized net income of $7.7 million, or $0.46 per diluted share for the fourth quarter of 2020 compared to $10.4 million, or
$0.62 per diluted share for the third quarter of 2020. The decrease in earnings reflected a $4.5 million decrease in noninterest
income, a $1.0 million increase in noninterest expense, and a $0.1 million decrease in net interest income, partially offset by a $2.6
million decrease in the non-controlling interest in earnings from CCHL, and lower income taxes of $0.3 million.
Tax-equivalent net interest income for the fourth quarter of 2020 was $25.1 million compared to $25.2 million for the third quarter
of 2020. The decrease reflected lower rates earned on investment securities and variable/adjustable rate loans. Our net interest
margin for the fourth quarter of 2020 was 3.00%, a decrease of 12 basis points from the third quarter of 2020.
Our net interest margin for the fourth quarter of 2020 was 3.00%, a decrease of 12 basis points from the third quarter of 2020
driven by a higher level of overnight funds reflective of seasonal public fund inflows and continued growth in core deposits. Our
net interest margin for the fourth quarter of 2020, excluding the impact of overnight funds in excess of $200 million, was 3.50%.
The provision for credit losses was $1.3 million for both the third and fourth quarters of 2020. The provision for the fourth
quarter reflected a slight build in additional reserves held for COVID-19 exposure.
Noninterest income for the fourth quarter of 2020 totaled $30.5 million compared to $35.0 million for the third quarter of 2020
with the decrease attributable to lower mortgage banking revenues of $5.3 million, partially offset by higher deposit activity fees
of $0.5 million and wealth management fees of $0.3 million. The decline in mortgage banking revenues reflected a seasonal
slowdown in loan production and a lower gain on sale margin.
Noninterest expense for the fourth quarter of 2020 totaled $41.3 million compared to $40.3 million for the third quarter of 2020
with the increase primarily attributable to higher compensation expense of $0.6 million and other real estate expense of $0.3
million. The increase in compensation reflected higher commission expense of $0.2 million, salary expense of $0.2 million, and
cash incentive expense of $0.2 million. Valuation adjustments totaling $0.5 million for two properties drove the increase in other
real estate expense. In addition, we recognized $0.4 million in expenses during the fourth quarter of 2020 related to additional
funding of our foundation and consulting/legal costs for a strategic initiative.
60
We realized income tax expense of $2.8 million (effective rate of 22%) for the fourth quarter of 2020 compared to $3.2 million
(effective rate of 17%) for the third quarter of 2020. Tax expense for the fourth quarter of 2020 was unfavorably impacted by a
$0.3 million discrete tax expense.
Discussion of Financial Condition
Average earning assets were $3.337 billion for the fourth quarter of 2020, an increase of $113.6 million, or 3.5%, over the third
quarter of 2020 attributable to a higher level of deposits primarily seasonal public fund inflows and growth in core deposits.
Average loans HFI decreased $11.7 million, or 0.6%, from the third quarter of 2020, partially due to SBA PPP loan pay-offs.
Period-end HFI loans increased $8.3 million, or 0.4%, over the third quarter of 2020 and reflected higher home equity,
construction, and residential loan balances. At December 31, 2020, SBA PPP loans of $150,000 or less totaled $69 million. SBA
PPP loan fees totaled approximately $0.8 million for the fourth quarter of 2020 and $0.6 million for the third quarter of 2020. At
December 31, 2020 we had $3.2 million (net) in deferred SBA PPP loan fees.
Nonperforming assets (nonaccrual loans and OREO) totaled $6.7 million at December 31, 2020, comparable to September 30,
2020. Nonaccrual loans totaled $5.9 million at December 31, 2020, a $0.4 million increase over September 30, 2020. The
balance of OREO totaled $0.8 million at December 31, 2020, a decrease of $0.4 million from September 30, 2020.
We continue to analyze our loan portfolio for segments that have been affected by the stressed economic and business conditions
caused by the pandemic. To assist our clients, in mid-March of 2020, we began allowing short term 60 to 90 day loan extensions
for affected borrowers. We have extended loans totaling $333 million of which 75% were for commercial borrowers and 25%
were for consumer borrowers. At December 31, 2020, approximately $324 million, or 97% of the loan balances associated with
these borrowers have resumed making regularly scheduled payments compared to $285 million, or 88% of the loan balances at
September 30, 2020.
Average total deposits were $3.066 billion for the fourth quarter of 2020, an increase of $94.9 million, or 3.2%, over the third
quarter of 2020 and reflected growth in core deposits of $64.9 million and higher public fund balances of $30 million.
ACCOUNTING POLICIES
Critical Accounting Policies
The consolidated financial statements and accompanying Notes to Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the United States of America, which require us to make various estimates and
assumptions (see Note 1 in the Notes to Consolidated Financial Statements). We believe that, of our significant accounting
policies, the following may involve a higher degree of judgment and complexity.
Allowance for Credit Losses
. The amount of the allowance for credit losses represents management's best estimate of current
expected credit losses considering available information, from internal and external sources, relevant to assessing exposure to
credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience,
current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the
estimation of expected credit losses, adjustments to historical loss information may be made for changes in loan risk grades, loss
experience trends, loan prepayment trends, differences in current portfolio-specific risk characteristics, environmental conditions,
future expectations, or other relevant factors. While management utilizes its best judgment and information available, the
ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the
performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward
classification of assets.
Goodwill
. Goodwill represents the excess of the cost of acquired businesses over the fair market value of their identifiable net
assets. We perform an impairment review on an annual basis or more frequently if events or changes in circumstances indicate
that the carrying value may not be recoverable. Adverse changes in the economic environment, declining operations, or other
factors could result in a decline in the estimated implied fair value of goodwill. If the estimated implied fair value of goodwill is
less than the carrying amount, a loss would be recognized to reduce the carrying amount to the estimated implied fair value.
We evaluate goodwill for impairment on an annual basis and in 2017 adopted ASU 2017-04, Intangibles – Goodwill and Other
(Topic 350): Simplifying Accounting for Goodwill Impairment which allows for a qualitative assessment of goodwill impairment
indicators. If the assessment indicates that impairment has more than likely occurred, the Company must compare the estimated
fair value of the reporting unit to its carrying amount. If the carrying amount of the reporting unit exceeds its estimated fair value,
an impairment charge is recorded equal to the excess.
During the fourth quarter, we performed our annual impairment testing. We proceeded with qualitative assessment by evaluating
impairment indicators and concluded there were none that indicated that goodwill impairment had occurred.
61
Pension Assumptions
.
We have a defined benefit pension plan for the benefit of substantially all of our associates. Our funding
policy with respect to the pension plan is to contribute, at a minimum, amounts sufficient to meet minimum funding requirements
as set by law. Pension expense is determined by an external actuarial valuation based on assumptions that are evaluated annually
as of December 31, the measurement date for the pension obligation. The service cost component of pension expense is reflected
as “Compensation Expense” in the Consolidated Statements of Income. All other components of pension expense are reflected as
“Other Expense”.
The Consolidated Statements of Financial Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts. The most significant assumptions used in calculating the pension obligation are the weighted-
average discount rate used to determine the present value of the pension obligation, the weighted-average expected long-term rate
of return on plan assets, and the assumed rate of annual compensation increases. These assumptions are re-evaluated annually
with the external actuaries, taking into consideration both current market conditions and anticipated long-term market conditions.
The discount rate is determined by matching the anticipated defined pension plan cash flows to the spot rates of a corporate Aa-
rated bond index/yield curve and solving for the single equivalent discount rate which would produce the same present value.
This methodology is applied consistently from year-to-year. The discount rate utilized in 2020 was 3.53%. The estimated impact
to 2020 pension expense of a 25 basis point increase or decrease in the discount rate would have been a decrease and increase of
approximately $934,000 and $907,000, respectively. We anticipate using a 2.88% discount rate in 2021.
Based on the balances at the December 31, 2020 measurement date, the estimated impact in accumulated other comprehensive
income of a 25 basis point increase or decrease in the discount rate is a decrease or increase of approximately $6.6 million (after-
tax).
The weighted-average expected long-term rate of return on plan assets is determined based on the current and anticipated future
mix of assets in the plan. The assets currently consist of equity securities, U.S. Government and Government agency debt
securities, and other securities (typically temporary liquid funds awaiting investment). The weighted-average expected long-term
rate of return on plan assets utilized for 2020 was 7.00%. The estimated impact to 2020 pension expense of a 25 basis point
increase or decrease in the rate of return would have been an approximate $393,000 increase or decrease, respectively. We
anticipate using a rate of return on plan assets of 6.75% for 2021.
The assumed rate of annual compensation increases of 4.00% in 2020 reflected expected trends in salaries and the employee
base. We anticipate using a compensation increase of 4.00% for 2021 reflecting current market trends.
Detailed information on the pension plan, the actuarially determined disclosures, and the assumptions used are provided in Note
13 of the Notes to Consolidated Financial Statements.
Income Taxes
.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between
carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded.
We recognize interest and/or penalties related to income tax matters in other expenses.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See “Financial Condition - 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.
62
Item 8.
Financial Statements and Supplementary Data
Table 16
QUARTERLY FINANCIAL DATA (Unaudited)
2020
2019
(Dollars in Thousands, Except
Per Share Data)
Fourth
Third
Second
First
Fourth
Third
Second
First
Summary of Operations:
Interest Income
$
26,154
$
26,166
$
26,512
$
27,365
$
28,008
$
28,441
$
28,665
$
27,722
Interest Expense
1,181
1,044
1,054
1,592
1,754
2,244
2,681
2,814
Net Interest Income
24,973
25,122
25,458
25,773
26,254
26,197
25,984
24,908
Provision for Credit Losses
1,342
1,308
2,005
4,990
(162)
776
646
767
Net Interest Income After
23,631
23,814
23,453
20,783
26,416
25,421
25,338
24,141
Noninterest Income
30,523
34,965
30,199
15,478
13,828
13,903
12,770
12,552
Noninterest Expense
41,348
40,342
37,303
30,969
29,142
27,873
28,396
28,198
Income Before Income Taxes
12,806
18,437
16,349
5,292
11,102
11,451
9,712
8,495
Income Tax Expense
2,833
3,165
2,950
1,282
2,537
2,970
2,387
2,059
(Income) Loss Attributable to NCI
(1)
(2,227)
(4,875)
(4,253)
277
-
-
-
-
Net Income Attributable to CCBG
7,746
10,397
9,146
4,287
8,565
8,481
7,325
6,436
Net Interest Income (Tax Equivalent)
$
25,082
$
25,233
$
25,564
$
25,877
$
26,378
$
26,333
$
26,116
$
25,042
Per Common Share:
Basic Net Income
$
0.46
$
0.62
$
0.55
$
0.25
$
0.51
$
0.51
$
0.44
$
0.38
Diluted Net Income
0.46
0.62
0.55
0.25
0.51
0.50
0.44
0.38
Cash Dividends Declared
0.15
0.14
0.14
0.14
0.13
0.13
0.11
0.11
Diluted Book Value
19.05
20.20
19.92
19.50
19.40
19.14
18.76
18.35
Diluted Tangible Book Value
(2)
13.76
14.90
14.62
14.20
14.37
14.09
13.70
13.31
Market Price:
High
26.35
21.71
23.99
30.62
30.95
28.00
25.00
25.87
Low
18.14
17.55
16.16
15.61
25.75
23.70
21.57
21.04
Close
24.58
18.79
20.95
20.12
30.50
27.45
24.85
21.78
Selected Average Balances:
Loans Held for Investment
$
1,993,470
$
2,005,178
$
1,982,960
$
1,847,780
$
1,834,085
$
1,824,685
$
1,814,401
$
1,772,967
Earning Assets
3,337,409
3,223,838
3,016,772
2,751,880
2,694,700
2,670,081
2,719,217
2,704,802
Total Assets
3,652,436
3,539,332
3,329,226
3,038,788
2,982,204
2,959,310
3,010,662
2,996,511
Deposits
3,066,136
2,971,277
2,783,453
2,552,690
2,524,951
2,495,755
2,565,431
2,564,715
Shareowners’ Equity
343,674
340,073
333,515
331,891
326,904
320,273
313,599
307,262
Common Equivalent Average Shares:
Basic
16,763
16,771
16,797
16,808
16,750
16,747
16,791
16,791
Diluted
16,817
16,810
16,839
16,842
16,834
16,795
16,818
16,819
Performance Ratios:
Return on Average Assets
0.84
%
1.17
%
1.10
%
0.57
%
1.14
%
1.14
%
0.98
%
0.87
%
Return on Average Equity
8.97
12.16
11.03
5.20
10.39
10.51
9.37
8.49
Net Interest Margin (FTE)
3.00
3.12
3.41
3.78
3.89
3.92
3.85
3.75
Noninterest Income as % of Operating Revenue
55.00
58.19
54.26
37.52
34.50
34.67
32.95
33.51
Efficiency Ratio
74.36
67.01
66.90
74.89
72.48
69.27
73.02
75.01
Asset Quality:
Allowance for Credit Losses
$
23,816
$
23,137
$
22,457
$
21,083
$
13,905
$
14,319
$
14,593
$
14,120
Allowance for Credit Losses to Loans HFI
1.19
%
1.16
%
1.11
%
1.13
%
0.75
%
0.78
%
0.79
%
0.78
%
Nonperforming Assets ("NPA's")
6,679
6,732
8,025
6,337
5,425
5,454
6,632
6,949
NPA’s to Total Assets
0.18
0.19
0.23
0.21
0.18
0.19
0.22
0.23
NPA’s to Loans plus ORE
0.33
0.34
0.40
0.34
0.29
0.30
0.36
0.39
Allowance to Non-Performing Loans HFI
405.66
420.30
322.37
432.61
310.99
290.55
259.55
279.77
Net Charge-Offs to Average Loans HFI
0.09
0.11
0.05
0.23
0.05
0.23
0.04
0.20
Capital Ratios:
Tier 1 Capital
16.19
%
16.77
%
16.59
%
16.12
%
17.16
%
16.83
%
16.36
%
16.34
%
Total Capital
17.30
17.88
17.60
17.19
17.90
17.59
17.13
17.09
Common Equity Tier 1 Capital
13.71
14.20
14.01
13.55
14.47
14.13
13.67
13.62
Leverage
9.33
9.64
10.12
10.81
11.25
11.09
10.64
10.53
Tangible Common Equity
(2)
6.25
7.16
7.21
7.98
8.06
8.31
7.83
7.56
(1)
(1)
63
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
64
Report of Independent Registered Public Accounting Firm
67
Consolidated Statements of Financial Condition
68
Consolidated Statements of Income
69
Consolidated Statements of Comprehensive Income
70
Consolidated Statements of Changes in Shareowners’ Equity
71
Consolidated Statements of Cash Flows
72
Notes to Consolidated Financial Statements
64
Report of Independent Registered Public Accounting Firm
To the Shareowners and the Board of Directors of Capital City Bank Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capital City Bank Group, Inc. (the Company) as of December
31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated March 1, 2021
expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1
to the consolidated financial statements, the Company changed its method for accounting for credit losses
in 2020. As explained below, auditin g the Company’s allowance for credit losses, including adoption of the new accounting
guidance related to the estimate of allowance for credit losses, was a critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements ,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit
matters or on the accounts or disclosures to which they relate.
65
Allowance for Credit Losses
Description of
the Matter
The Company’s loans held for investment portfolio totaled $2.0 billion as of December 31,
2020, and the associated ACL was $23.8 million. As discussed above and in Note 1 and Note 3
to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial
Instruments- Credit Losses, also known as Current Expected Credit Losses (“CECL”). Upon
adoption, the Company recorded a pre -tax cumulative -effect transition adjustment increasing
the allowance for credit losses (ACL) on loans by $3.3 million. The ACL is an amount,
established through the use of forecast models, which represents management’s estimate of
current expected credit losses over the contractual life of the loans. The ACL is estimated based
on historical and expected credit loss patterns including the reasonable and supportable forecast
periods. Management applies judgment in the assignment of probabilities to economic scenarios
included within the modeled forecast periods, including the selection of macroeconomic
variables (MEV), the length of the forecast and reversion period, as well as the application of
qualitative adjustments to the model calculation deemed necessary to estimate the ACL.
Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the
judgment involved in management’s determination of the probabilities assigned to the
economic scenarios utilized within the reasonable and supportable forecast peri ods and the
application of qualitative adjustments to the modeled calculations. Management’s judgment of
the future economic conditions and qualitative adjustments to the model calculation could have
a significant impact on the ACL.
How We
Addressed the
Matter in Our
Audit
Our considerations and procedures performed included evaluation of the process utilized by
management to challenge the model results and resulting estimate of the ACL as of the balance
sheet date. We obtained an understanding of the Company’s process for establishing the ACL,
including management’s determination of the probabilities assigned to the economic scenarios
utilized within the reasonable and supportable forecast periods and the qualitative adjustments
applied to the ACL model calculation. We evaluated the design and tested the operating
effectiveness of the controls associated with the ACL process, including controls around the
reliability and accuracy of data used in the model, management’s review and approval of both
the selection of and probabilities assigned to the economic scenarios utilized within the
reasonable and supportable forecast periods and the qualitative adjustments to the model
calculation, the governance of the credit loss methodology, and management’s review and
approval of the ACL.
To test the ACL estimate, our audit procedures included testing the completeness and accuracy
of data used by the Company within the model to estimate the ACL as well as testing the
economic scenarios utilized within the model for the reasonable and supportable forecast
periods by evaluating the probabilities assigned, model results, qualitative model adjustments
applied to the model calculation, and comparing loss history and industry data to actual results.
We involved an internal specialist to assist in assessing the expected credit loss methodology,
evaluating support for key quantitative modeling assumptions such as the MEV, probabilities
assigned to the economic scenarios and forecasting period, and testing the appropriateness of
qualitative adjustments to the model calculation. Within the testing performed, considerations
were given to the assumptions included within each economic scenario and probabilities
assigned and how those assumptions and probabilities compared to key economic variables
available through external sources. Alternative sources and scenarios were also considered. In
addition, we evaluated the Company’s estimate of the ACL giving consideration to the
Company’s borrowers, loan portfolio, and macroeconomic trends, independen tly obtained and
compared such information to comparable financial institutions, and considered whether new or
contrary information existed.
66
Pension Benefit Obligation
Description of
the Matter
The Company’s pension benefit obligation totaled $226 million as of December 31, 2020, and
the fair value of plan assets at year -end was $171.8 million, resulting in an unfunded defined
benefit pension obligation (PBO) of $54.2 million. As discussed in Note 1 and Note 15 to the
consolidated financial statements, the Pension Benefit Obligation (PBO) is an amount which
represents management’s best estimate of future pension benefit liabilities in excess of the
projected return of fund assets based on actuarial assumptions. The Company recognizes the
unfunded pension liability through other comprehensive income in accordance with ASC 715.
Auditing the PBO is complex and required the involvement of actuarial specialists due to the
highly judgmental nature of the actuarial assumptions (e.g. discount rate, expected rate of return
on assets, mortality rate, inflation rate, and future compensation levels) used in the
measurement process. These assumptions have a significant effect on the PBO.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding of the Company’s process for establishing the pension benefit
obligation, including valuation of plan assets. We evaluated the design and tested the operating
effectiveness of the controls and governance over the appropriateness of the estimate and
significant assumptions, including but not limited to discount rates, expected rate of return on
assets, mortality rate, inflation rate, and future compensation levels.
To test the pension benefit obligation, our audit procedures included evaluating the
methodology used, assessing the qualifications of management’s actuarial specialists, and
reviewing the significant actuarial assumptions discussed above and the underlying data used
by the Company. We compared the actuarial assump tions used by management to historical
trends and evaluated the change in the PBO from prior year due to the change in service cost,
interest cost, actuarial gains and losses, benefit payments, contributions and other activities. In
addition, we involved an actuarial specialist to assist with our procedures. For example, we
evaluated management’s methodology for determining the discount rate that reflects the
maturity and duration of the benefit payments and is used to measure the PBO. As part of this
assessment, we compared the projected cash flows to prior year and compared the current year
benefits paid to the prior year projected cash flows. To evaluate future compensation levels, the
mortality rate and the inflation rate, we assessed whether the information is consistent with
publicly available information, and whether any market data adjusted for the entity -specific
adjustments were applied. To evaluate the expected return on plan assets, we assessed whether
management’s assumption is consistent with a range of returns for a portfolio of comparative
investments. We tested the valuation of the pension plan assets as of the balance sheet date by
comparing asset fair values to an independent pricing source based on tolerable variances set by
level of estimation uncertainty. We also tested the completeness and accuracy of the underlying
data, including the participant data provided to management’s actuarial specialists. Lastly, we
performed procedures relating to the application of ASC 715, including review of entries
proposed by management’s actuarial specialist, and footnote supporting detail.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2007.
Tallahassee, Florida
March 1, 2021
67
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of December 31,
(Dollars in Thousands)
2020
2019
ASSETS
Cash and Due From Banks
$
67,919
$
60,087
Federal Funds Sold and Interest Bearing Deposits
860,630
318,336
Total Cash and Cash Equivalents
928,549
378,423
Investment Securities, Available for Sale, at fair value
324,870
403,601
Investment Securities, Held to Maturity (fair value of $
175,175
241,429
)
169,939
239,539
Total Investment Securities
494,809
643,140
Loans Held For Sale, at fair value
114,039
9,509
Loans, Held for Investment
2,006,426
1,835,929
Allowance for Credit Losses
(23,816)
(13,905)
Loans Held for Investment, Net
1,982,610
1,822,024
Premises and Equipment, Net
86,791
84,543
Goodwill
89,095
84,811
Other Real Estate Owned
808
953
Other Assets
101,370
65,550
Total Assets
$
3,798,071
$
3,088,953
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
1,328,809
$
1,044,699
Interest Bearing Deposits
1,888,751
1,600,755
Total Deposits
3,217,560
2,645,454
Short-Term Borrowings
79,654
6,404
Subordinated Notes Payable
52,887
52,887
Other Long-Term Borrowings
3,057
6,514
Other Liabilities
102,076
50,678
Total Liabilities
3,455,234
2,761,937
Temporary Equity
22,000
-
SHAREOWNERS’ EQUITY
Preferred Stock, $
.01
3,000,000
-
-
Common Stock, $
.01
90,000,000
16,790,573
16,771,544
shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
168
168
Additional Paid-In Capital
32,283
32,092
Retained Earnings
332,528
322,937
Accumulated Other Comprehensive Loss, Net of Tax
(44,142)
(28,181)
Total Shareowners’ Equity
320,837
327,016
Total Liabilities, Temporary Equity, and Shareowners’ Equity
$
3,798,071
$
3,088,953
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
68
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(Dollars in Thousands, Except Per Share Data)
2020
2019
2018
INTEREST INCOME
Loans, including Fees
$
94,752
$
94,215
$
84,117
Investment Securities:
Taxable
10,176
13,122
12,081
Tax Exempt
98
312
787
Funds Sold
1,171
5,187
2,410
Total Interest Income
106,197
112,836
99,395
INTEREST EXPENSE
Deposits
1,548
6,840
4,243
Short-Term Borrowings
1,690
109
110
Subordinated Notes Payable
1,472
2,287
2,167
Other Long-Term Borrowings
161
257
371
Total Interest Expense
4,871
9,493
6,891
NET INTEREST INCOME
101,326
103,343
92,504
Provision for Credit Losses
9,645
2,027
2,921
Net Interest Income After Provision for Credit Losses
91,681
101,316
89,583
NONINTEREST INCOME
Deposit Fees
17,800
19,472
20,093
Bank Card Fees
13,044
11,994
11,378
Wealth Management Fees
11,035
10,480
8,711
Mortgage Banking Revenues
63,344
5,321
4,735
Other
5,942
5,786
6,648
Total Noninterest Income
111,165
53,053
51,565
NONINTEREST EXPENSE
Compensation
96,280
66,352
63,921
Occupancy, Net
22,659
18,436
18,503
Other Real Estate Owned, Net
104
546
(442)
Other
30,919
28,275
29,521
Total Noninterest Expense
149,962
113,609
111,503
INCOME BEFORE INCOME TAXES
52,884
40,760
29,645
Income Tax Expense
10,230
9,953
3,421
NET INCOME
$
42,654
$
30,807
$
26,224
Pre-Tax Income Attributable to Noncontrolling Interests
(11,078)
-
-
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
31,576
$
30,807
$
26,224
BASIC NET INCOME PER SHARE
$
1.88
$
1.84
$
1.54
DILUTED NET INCOME PER SHARE
$
1.88
$
1.83
$
1.54
Average Basic Common Shares Outstanding
16,785
16,770
17,029
Average Diluted Common Shares Outstanding
16,822
16,827
17,072
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
69
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
(Dollars in Thousands)
2020
2019
2018
NET INCOME
$
31,576
$
30,807
$
26,224
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
2,437
3,790
(409)
Amortization of unrealized losses on securities transferred from
36
43
55
Total Investment Securities
2,473
3,833
(354)
Derivative:
Change in net unrealized gain (loss) on effective cash flow derivative
574
-
-
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
(880)
15
199
Reclassification adjustment for amortization of net loss
4,391
4,623
5,299
Current year actuarial loss
(27,924)
(7,642)
(815)
Total Benefit Plans
(24,413)
(3,004)
4,683
Other comprehensive (loss) income, before tax:
(21,366)
829
4,329
Deferred tax benefit (expense) related to other comprehensive income
5,405
(195)
(1,100)
Other comprehensive (loss) income, net of tax
(15,961)
634
3,229
TOTAL COMPREHENSIVE INCOME
$
15,615
$
31,441
$
29,453
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
70
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
Accumulated
Other
Comprehensive
(Loss) Income,
Net of Taxes
(Dollars in Thousands, Except
Per Share Data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Total
Balance, January 1, 2018
16,988,951
$
170
$
36,674
$
279,410
$
(32,044)
$
284,210
Net Income
-
-
26,224
-
26,224
Other Comprehensive Loss, Net of Tax
-
-
-
3,229
3,229
Cash Dividends ($
0.32
-
-
(5,457)
-
(5,457)
Stock Based Compensation
-
1,421
-
-
1,421
Stock Compensation Plan Transactions, net
83,061
-
990
-
-
990
Repurchase of Common Stock
(324,441)
(3)
(8,027)
-
-
(8,030)
Balance, December 31, 2018
16,747,571
167
31,058
300,177
(28,815)
302,587
Net Income
-
-
-
30,807
-
30,807
Other Comprehensive Income, Net of Tax
-
-
-
-
634
634
Cash Dividends ($
0.48
-
-
-
(8,047)
-
(8,047)
Stock Based Compensation
-
-
1,569
-
-
1,569
Stock Compensation Plan Transactions, net
100,973
1
1,270
-
-
1,271
Repurchase of Common Stock
(77,000)
-
(1,805)
-
-
(1,805)
Balance, December 31, 2019
16,771,544
168
32,092
322,937
(28,181)
327,016
Impact of Adopting ASC 326 (CECL)
-
-
-
(3,095)
-
(3,095)
Net Income
-
-
-
31,576
-
31,576
Reclassification to Temporary Equity
(1)
-
-
-
(9,323)
-
(9,323)
Other Comprehensive Income, Net of Tax
-
-
-
-
(15,961)
(15,961)
Cash Dividends ($
0.57
-
-
-
(9,567)
-
(9,567)
Stock Based Compensation
-
-
892
-
-
892
Stock Compensation Plan Transactions, net
118,981
1
1,340
-
-
1,341
Repurchase of Common Stock
(99,952)
(1)
(2,041)
-
-
(2,042)
Balance, December 31, 2020
16,790,573
$
168
$
32,283
$
332,528
$
(44,142)
$
320,837
(1)
Adjustments to redemption value for non-controlling interest in CCHL
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
71
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(Dollars in Thousands)
2020
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income
$
31,576
$
30,807
$
26,224
Adjustments to Reconcile Net Income to Cash From Operating Activities:
9,645
2,027
2,921
7,230
6,253
6,453
7,533
5,206
6,698
(606,337)
(232,259)
(177,742)
565,151
234,940
180,425
(63,344)
(5,321)
(4,735)
(2,792)
-
-
250
-
-
892
1,569
1,421
(84)
(14)
(41)
(53)
1,225
4,837
(156)
90
-
(393)
214
(935)
-
-
(1,213)
-
268
-
-
30
87
(38,353)
9,830
7,168
40,624
(1,176)
(16,942)
(48,611)
53,689
34,626
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
(32,250)
(92,186)
(102,428)
99,251
68,185
100,131
Securities Available for Sale:
(108,728)
(119,685)
(132,895)
186,499
162,260
161,332
Purchase of Loans Held for Investment
(43,804)
(25,256)
(26,070)
Net Increase in Loans
(130,020)
(39,608)
(98,068)
Net Cash Paid for Brand Acquisition
(2,405)
-
-
Proceeds From Insurance Claims on Premises
-
814
663
Proceeds From Sales of Other Real Estate Owned
2,835
2,360
4,774
Purchases of Premises and Equipment, net
(9,738)
(3,759)
(1,458)
Noncontrolling Interest Contributions
5,766
-
-
Net Cash Used In Investing Activities
(32,594)
(46,875)
(94,019)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
572,106
113,598
61,979
Net Increase (Decrease) in Short-Term Borrowings
73,156
(7,497)
2,551
Repayment of Other Long-Term Borrowings
(3,363)
(1,694)
(1,889)
Dividends Paid
(9,567)
(8,047)
(5,457)
Payments to Repurchase Common Stock
(2,042)
(1,805)
(8,030)
Issuance of Common Stock Under Compensation Plans
1,041
1,054
797
Net Cash Provided By Financing Activities
631,331
95,609
49,951
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
550,126
102,423
(9,442)
Cash and Cash Equivalents at Beginning of Year
378,423
276,000
285,442
Cash and Cash Equivalents at End of Year
$
928,549
$
378,423
$
276,000
Supplemental Cash Flow Disclosures:
$
4,841
$
9,521
$
6,879
$
9,171
$
6,255
$
157
Noncash Investing and Financing Activities:
$
2,297
$
1,298
$
2,140
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
72
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Capital City Bank Group, Inc. (“CCBG”) provides a full range of banking and banking-related services to individual and
corporate clients through its subsidiary, Capital City Bank, with banking offices located in Florida, Georgia, and Alabama. The
Company is subject to competition from other financial institutions, is subject to regulation by certain government agencies and
undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of CCBG and its wholly owned subsidiary, Capital City Bank (“CCB”
or the “Bank” and together with CCBG, the “Company ”). All material inter-company transactions and accounts have been
eliminated in consolidation.
The Company, which operates a single reportable business segment that is comprised of commercial banking within the states of
Florida, Georgia, and Alabama, follows accounting principles generally accepted in the United States of America and reporting
practices applicable to the banking industry. The principles which materially affect the financial position, results of operations
and cash flows are summarized below.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a
voting interest entity or a variable interest entity under accounting principles generally accepted in the United States of America.
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself
independently and provide the equity holders with the obligation to absorb losses, the right to receive residual returns and the
right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at
least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities (“VIE’s”) are
entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is
present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial
interest, known as the primary beneficiary, consolidates the VIE. Two of CCBG's wholly owned subsidiaries, CCBG Capital
Trust I (established November 1, 2004) and CCBG Capital Trust II (established May 24, 2005) are VIEs for which the Company
is not the primary beneficiary. Accordingly, the accounts of these entities are not included in the Company’s consolidated
financial statements.
Certain previously reported amounts have been reclassified to conform to the current year’s presentation. The Company has
evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements
included in this Annual Report on Form 10-K were filed with the United States Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these estimates. Material estimates that are particularly
susceptible to significant changes in the near-term relate to the determination of the allowance for loan losses, pension expense,
income taxes, loss contingencies, valuation of other real estate owned, and valuation of goodwill and their respective analysis of
impairment.
73
Business Combination
On March 1, 2020, CCB completed its acquisition of a
51
% membership interest in
Brand Mortgage Group, LLC
which is now operated as Capital City Home Loans (“CCHL”). CCHL was consolidated into CCBG’s financial statements
effective March 1, 2020. Assets acquired totaled $
52
totaled $
42
alliance with Brand was to gain access to an expanded residential mortgage product line-up and investor base (including a
mandatory delivery channel for loan sales), to hedge our net interest income business and to generate other operational synergies
and cost savings. CCB made a $
7.1
51
% membership interest and entered into a buyout agreement
for the remaining
49
% noncontrolling interest resulting in temporary equity with a fair value of $
7.4
$
4.3
include Brand’s strong management team and expertise in the mortgage industry, historical record of earnings, and operational
synergies created as part of the strategic alliance. At December 31, 2020, $
9.3
temporary equity which reflects the increase in the redemption value of the
49
% noncontrolling interest under the terms of the
buyout agreement.
Adoption of New Accounting Standard
On January 1, 2020, the Company adopted ASU 2016 -13
Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments
, which replaces the incurred loss methodology with an expected loss methodology that is
referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the
CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity
debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby
letters of credit, financial guarantees, and other similar instruments). In addition, ASC 326-30 provides a new credit loss model
for available-for-sale debt securities. The most significant change requires credit losses to be presented as an allowance rather
than as a write-down on available-for-sale debt securities that management does not intend to sell or believes that it is not more
likely than not they will be required to sell. The Company adopted ASC 326 using the modified retrospective method for all
financial assets measured at amortized cost and off -balance sheet credit exposures.
Our accounting policies changed significantly with the adoption of CECL on January 1, 2020. Prior to January 1, 2020,
allowances were based on incurred credit losses in accordance with accounting policies disclosed in Note 1 of the Consolidated
Financial Statements included in the 2019 Form 10-K. The adoption of ASC 326 (“CECL”) had an impact of $
4.0
3.3
million increase in the allowance for credit losses and $
0.7
(liability account)) that was offset by a corresponding decrease in retained earnings of $
3.1
0.9
deferred tax assets. The increase in the allowance for credit losses required under the ASC 326 generally reflected the impact of
reserves calculated over the life of loan, and more specifically higher reserves required for longer duration loan portfolios, and the
utilization of a longer historical look-back period in the calculation of loan loss rates (loss given default). Upon analyzing the
debt security portfolios, the Company determined that no allowance was required as these debt securities are government
guaranteed treasuries or government agency-backed securities for which the risk of loss was deemed minimal. Further, certain
municipal debt securities held by the Company have been pre-refunded and secured by government guaranteed treasuries.
The following table illustrates the impact of adopting ASC 326 on January 1, 2020.
As Reported
Impact of
Under
Pre-ASC 326
ASC 326
(Dollars in Thousands)
ASC 326
Adoption
Adoption
Loans:
Commercial, Financial and Agricultural
$
2,163
$
1,675
$
488
Real Estate - Construction
672
370
302
Real Estate - Commercial Mortgage
4,874
3,416
1,458
Real Estate - Residential
4,371
3,128
1,243
Real Estate - Home Equity
2,598
2,224
374
Consumer, Other Loans and Overdrafts
2,496
3,092
(596)
Allowance for Credit Losses on Loans
17,174
13,905
3,269
Other Liabilities:
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
$
815
$
157
$
658
74
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods and all other cash equivalents have a maturity of 90
days or less. The Company is required to maintain average reserve balances with the Federal Reserve Bank based upon a
percentage of deposits. On March 26, 2020, the Federal Reserve reduced the amount of the required reserve balance to
zero
. The
average amount of the required reserve balance for the year ended December 31, 2019 was $
29.7
The Company maintains certain cash balances that are restricted under warehouse lines of credit and master repurchase
agreements. The restricted cash balance at December 31, 2020 was $
0.6
Investment Securities
Investment securities are classified as held-to-maturity and carried at amortized cost when the Company has the positive intent
and ability to hold them until maturity. Investment securities not classified as held-to-maturity or trading securities are classified
as available-for-sale and carried at fair value. The Company determines the appropriate classification of securities at the time of
purchase. For reporting and risk management purposes, we further segment investment securities by the issuer of the security
which correlates to its risk profile: U.S. government treasury, U.S. government agency, state and political subdivisions, and
mortgage-backed securities. Certain equity securities with limited marketability, such as stock in the Federal Reserve Bank and
the Federal Home Loan Bank, are classified as available -for-sale and carried at cost.
Interest income includes amortization and accretion of purchase premiums and discounts. Realized gains and losses are derived
from the amortized cost of the security sold. Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method. Securities transferred from available-for-sale to held-to-maturity are
recorded at amortized cost plus or minus any unrealized gain or loss at the time of transfer. Any existing unrecognized gain or
loss continues to be reported in accumulated other comprehensive income (net of tax) and amortized as an adjustment to interest
income over the remaining life of the security. Any existing allowance for credit loss is reversed at the time of transfer.
Subsequent to transfer, the allowance for credit losses on the transferred security is evaluated in accordance with the accounting
policy for held-to-maturity securities. Additionally, any allowance amounts reversed or established as part of the transfer are
presented on a gross basis in the consolidated statement of income.
The accrual of interest is generally suspended on securities more than 90 days past due with respect to principal or interest. When
a security is placed on nonaccrual status, all previously accrued and uncollected interest is reversed against current income and
thus not included in the estimate of credit losses.
Credit losses and changes thereto, are established as an allowance for credit loss through a provision for credit loss expense.
Losses are charged against the allowance when management believes the uncollectability of an available -for-sale security is
confirmed or when either of the criteria regarding intent or requirement to sell is met.
Certain debt securities in the Company’s investment portfolio were issued by a U.S. government entity or agency and are either
explicitly or implicitly guaranteed by the U.S. government. The Company considers the long history of no credit losses on these
securities indicates that the expectation of nonpayment of the amortized cost basis is zero, even if the U.S. government were to
technically default. Further, certain municipal securities held by the Company have been pre-refunded and secured by
government guaranteed treasuries. Therefore, for the aforementioned securities, the Company does not assess or record expected
credit losses due to the zero loss assumption.
Impairment - Available-for-Sale Securities
.
Unrealized gains on available-for-sale securities are excluded from earnings and reported, net of tax, in other comprehensive
income (“OCI”). For available-for-sale securities that are in an unrealized loss position, the Company first assesses whether it
intends to sell, or whether it is more likely than not it will be required to sell the security before recovery of its amortized cost
basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to
fair value through income. For available-for-sale securities that do not meet the aforementioned criteria or have a zero loss
assumption, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making
this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the
security by a rating agency, and adverse conditions specifically related to the security, among other factors. If the assessment
indicates that a credit loss exists, the present value of cash flows to be collected from the security are compared to the amortized
cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit
loss exists and an allowance for credit losses is recorded through a provision for credit loss expense, limited by the amount that
fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses
is recognized in other comprehensive income.
75
Allowance for Credit Losses - Held-to-Maturity Securities.
Management measures expected credit losses on each individual held-to-maturity debt security that has not been deemed to have
a zero assumption. Each security that is not deemed to have zero credit losses is individually measured based on net realizable
value, or the difference between the discounted value of the expected cash flows, based on the original effective rate, and the
recorded amortized basis of the security. To the extent a shortfall is related to credit loss, an allowance for credit loss is recorded
through a provision for credit loss expense.
Loans Held for Investment
Loans held for investment (“HFI”) are stated at amortized cost which includes the principal amount outstanding, net premiums
and discounts, and net deferred loan fees and costs. Accrued interest receivable on loans is reported in other assets and is not
included in the amortized cost basis of loans. Interest income is accrued on the effective yield method based on outstanding
principal balances and includes loan late fees. Fees charged to originate loans and direct loan origination costs are deferred and
amortized over the life of the loan as a yield adjustment.
The Company defines loans as past due when one full payment is past due or a contractual maturity is over 30 days late. The
accrual of interest is generally suspended on loans more than 90 days past due with respect to principal or interest. When a loan is
placed on nonaccrual status, all previously accrued and uncollected interest is reversed against current income and thus a policy
election has been made to not include in the estimate of credit losses. Interest income on nonaccrual loans is recognized when the
ultimate collectability is no longer considered doubtful. Loans are returned to accrual status when the principal and interest
amounts contractually due are brought current or when future payments are reasonably assured.
Loan charge-offs on commercial and investor real estate loans are recorded when the facts and circumstances of the individual
loan confirm the loan is not fully collectible and the loss is reasonably quantifiable. Factors considered in making these
determinations are the borrower’s and any guarantor’s ability and willingness to pay, the status of the account in bankruptcy court
(if applicable), and collateral value. Charge-off decisions for consumer loans are dictated by the Federal Financial Institutions
Examination Council’s (FFIEC) Uniform Retail Credit Classification and Account Management Policy which establishes
standards for the classification and treatment of consumer loans, which generally require charge-off after 120 days of
delinquency.
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures designed to
maximize loan income within an acceptable level of risk. Reporting systems are used to monitor loan originations, loan ratings,
concentrations, loan delinquencies, nonperforming and potential problem loans, and other credit quality metrics. The ongoing
review of loan portfolio quality and trends by Management and the Credit Risk Oversight Committee support the process for
estimating the allowance for credit losses.
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 accounted for 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
starting basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s
view of current conditions and forecasts.
The methodology for estimating the amount of credit losses reported in the allowance for credit losses has two basic components:
first, an asset-specific component involving loans that do not share risk characteristics and the measurement of expected credit
losses for such individual loans; and second, a pooled component for expected credit losses for pools of loans that share similar
risk characteristics.
76
Loans That Do Not Share Risk Characteristics (Individually Analyzed)
Loans that do not share similar risk characteristics are evaluated on an individual basis. Loans deemed to be collateral dependent
have differing risk characteristics and are individually analyzed to estimate the expected credit loss. A loan is collateral
dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on the liquidation and
sale of the underlying collateral. For collateral dependent loans where foreclosure is probable, the expected credit loss is
measured based on the difference between the fair value of the collateral (less selling cost) and the amortized cost basis of the
asset. For collateral dependent loans where foreclosure is not probable, the Company has elected the practical expedient allowed
by ASC 326-20 to measure the expected credit loss under the same approach as those loans where foreclosure is probable. For
loans with balances greater than $
250,000
underlying collateral. For loans with balances less than $
250,000
, the Company has made a policy election to measure expected
loss for these individual loans utilizing loss rates for similar loan types. The aforementioned measurement criteria are applied for
collateral dependent troubled debt restructurings.
Loans That Share Similar Risk Characteristics (Pooled Loans)
The general steps in determining expected credit losses for the pooled loan component of the allowance are as follows:
●
Segment loans into pools according to similar risk characteristics
●
Develop historical loss rates for each loan pool segment
●
Incorporate the impact of forecasts
●
Incorporate the impact of other qualitative factors
●
Calculate and review pool specific allowance for credit loss estimate
Methodology –
A discounted cash flow (“DCF”) methodology is utilized to calculate expected cash flows for the life of each individual loan.
The discounted present value of expected cash flow is then compared to the loan’s amortized cost basis to determine the credit
loss estimate. Individual loan results are aggregated at the pool level in determining total reserves for each loan pool.
The primary inputs used to calculate expected cash flows include historical loss rates which reflect probabil ity of default (“PD”)
and loss given default (“LGD”), and prepayment rates. The historical look-back period is a key factor in the calculation of the PD
rate and is based on management’s assessment of current and forecasted conditions and may vary by loan pool. Loans subject to
the Company’s risk rating process are further sub-segmented by risk rating in the calculation of PD rates. LGD rates generally
reflect the historical average net loss rate by loan pool. Expected cash flows are further adjusted to incorporate the impact of loan
prepayments which will vary by loan segment and interest rate conditions. In general, prepayment rates are based on observed
prepayment rates occurring in the loan portfolio and consideration of forecasted interest rates.
Forecast Factors –
In developing loss rates, adjustments are made to incorporate the impact of forecasted conditions. Certain assumptions are also
applied, including the length of the forecast and reversion periods. The forecast period is the period within which management is
able to make a reasonable and supportable assessment of future conditions. The reversion period is the period beyond which
management believes it can develop a reasonable and supportable forecast, and bridges the gap between the forecast period and
the use of historical default and loss rates. The remainder period reflects the remaining life of the loan. The length of the forecast
and reversion periods are periodically evaluated and based on management’s assessment of current and forecasted conditions and
may vary by loan pool. For purposes of developing a reasonable and supportable assessment of future conditions, management
utilizes established industry and economic data points and sources, including the Federal Open Market Committee forecast, with
the forecasted unemployment rate being a significant factor. PD rates for the forecast period will be adjusted accordingly based
on management’s assessment of future conditions. PD rates for the remainder period will reflect the historical mean PD rate.
Reversion period PD rates reflect the difference between forecast and remainder period PD rates calculated using a straight-line
adjustment over the reversion period.
Qualitative Factors –
Loss rates are further adjusted to account for other risk factors that impact loan defaults and losses. These adjustments are based
on management’s assessment of trends and conditions that impact credit risk and resulting loan losses, more specifically internal
and external factors that are independent of and not reflected in the quantitative loss rate calculations. Risk factors management
considers in this assessment include trends in underwriting standards, nature/volume/terms of loan originations, past due loans,
loan review systems, collateral valuations, concentrations, legal/regulatory/political conditions, and the unforeseen impact of
natural disasters.
77
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which it is exposed to credit risk through a
contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for
credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense and is recorded in other
liabilities. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses
on commitments expected to be funded over its estimated life and applies the same estimated loss rate as determined for current
outstanding loan balances by segment. Off-balance sheet credit exposures are identified and classified in the same categories as
the allowance for credit losses with similar risk characteristics that have been previously mentioned.
Mortgage Banking Activities
Mortgage Loans Held for Sale and Revenue Recognition
Mortgage loans held for sale (“HFS”) are carried at fair value under the fair value option with changes in fair value recorded in
gain on sale of mortgage loans held for sale on the consolidated statements of income. The fair value of mortgage loans held for
sale committed to investors is calculated using observable market information such as the investor commitment, assignment of
trade (AOT) or other mandatory delivery commitment prices. The Company bases loans committed to Agency investors based on
the Agency’s quoted mortgage backed security (MBS) prices. The fair value of mortgage loans held for sale not committed to
investors is based on quoted best execution secondary market prices. If no such quoted price exists, the fair value is determined
using quoted prices for a similar asset or assets, such as MBS prices, adjusted for the specific attributes of that loan, which would
be used by other market participants.
Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales
proceeds and carrying value of the related loans upon sale and are recorded in mortgage banking revenues on the consolidated
statements of income. Sales proceeds reflect the cash received from investors through the sale of the loan and servicing release
premium. If the related mortgage loan is sold servicing retained, the MSR addition is recorded in mortgage banking revenues on
the consolidated statements of income. Mortgage banking revenues also includes the unrealized gains and losses associated with
the changes in the fair value of mortgage loans held for sale, and the realized and unrealized gains and losses from derivative
instruments.
Mortgage loans held for sale are considered sold when the Company surrenders control over the financial assets. Control is
considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the
Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets
through either an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before
their maturity or the ability to unilaterally cause the holder to return specific assets. The Company typically considers the above
criteria to have been met upon acceptance and receipt of sales proceeds from the purchaser.
Government National Mortgage Association (GNMA) optional repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides
servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan
for an amount equal to 100 percent of the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and
Servicing,” this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option
becomes unconditional. When the Company is deemed to have regained effective control over these loans under the
unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet,
regardless of whether there is intent to exercise the buy-back option. These loans are reported in other assets with the offsetting
liability being reported in other liabilities.
Derivative Instruments (IRLC/Forward Commitments)
The Company holds and issues derivative financial instruments such as interest rate lock commitments (IRLCs) and other forward
sale commitments. IRLCs are subject to price risk primarily related to fluctuations in market interest rates. To hedge the interest
rate risk on certain IRLCs, the Company uses forward sale commitments, such as to-be-announced securities (TBAs) or
mandatory delivery commitments with investors. Management expects these forward sale commitments to experience changes in
fair value opposite to the changes in fair value of the IRLCs thereby reducing earnings volatility. Forward sale commitments are
also used to hedge the interest rate risk on mortgage loans held for sale that are not committed to investors and still subject to
price risk. If the mandatory delivery commitments are not fulfilled, the Company pays a pair-off fee. Best effort forward sale
commitments are also executed with investors, whereby certain loans are locked with a borrower and simultaneously committed
to an investor at a fixed price. If the best effort IRLC does not fund, there is no obligation to fulfill the investor commitment.
78
The Company considers various factors and strategies in determining what portion of the IRLCs and uncommitted mortgage loans
held for sale to economically hedge. All derivative instruments are recognized as other assets or other liabilities on the
consolidated statements of financial condition at their fair value. Changes in the fair value of the derivative instruments are
recognized in gain on sale of mortgage loans held for sale on the consolidated statements of income in the period in which they
occur. Gains and losses resulting from the pairing-out of forward sale commitments are recognized in gain on sale of mortgage
loans held for sale on the consolidated statements of income. The Company accounts for all derivative instruments as free-
standing derivative instruments and does not designate any for hedge accounting.
Mortgage Servicing Rights (“MSRs”) and Revenue Recognition
The Company sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Upon
sale, an MSR asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for
performing servicing activities. As the Company has not elected to subsequently measure any class of servicing assets under the
fair value measurement method, the Company follows the amortization method. MSRs are amortized to noninterest income
(other income) in proportion to and over the period of estimated net servicing income, and assessed for impairment at each
reporting date. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair
value, and included in other assets, net, on the consolidated statements of financial condition.
The Company periodically evaluates its MSRs asset for impairment. Impairment is assessed based on fair value at each reporting
date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall,
prepayment speeds are usually faster and the value of the MSRs asset generally decreases, requiring additional valuation reserve.
Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally
increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the
amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the
temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-
temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is
recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is
available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and
valuation allowance, precluding subsequent recoveries.
Derivative/Hedging Activities
At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company's
intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment ("fair value hedge"), (2) a hedge of a forecasted transaction or the
variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), or (3) an instrument
with no hedging designation ("standalone derivative"). For a fair value hedge, the gain or loss on the derivative, as well as the
offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the
gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods
during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivative s that are
not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in
current earnings. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest
expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are
reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the
items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management
objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation
includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. The Company also formally assesses, both at the hedge's inception and on an ongoing
basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the
hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in
offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted
transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no
longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair value of the derivative are
recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for
changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.
When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or
losses that were accumulated in other comprehensive income are amortized into earnings over the same periods, in which the
hedged transactions will affect earnings.
79
Long-Lived Assets
Premises and equipment is stated at cost less accumulated depreciation, computed on the straight-line method over the estimated
useful lives for each type of asset with premises being depreciated over a range of
10
40
depreciated over a range of
3
10
depreciated over the lesser of the useful life or the remaining lease term. Repairs and maintenance are charged to noninterest
expense as incurred.
Long-lived assets are evaluated for impairment if circumstances suggest that their carrying value may not be recoverable, by
comparing the carrying value to estimated undiscounted cash flows. If the asset is deemed impaired, an impairment charge is
recorded equal to the carrying value less the fair value.
Leases
The Company has entered into various operating leases, primarily for banking offices. Generally, these leases have initial lease
terms from one to ten years. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is
at the Company’s sole discretion. The Company does not consider exercise of any lease renewal options reasonably certain.
Certain of the lease contain early termination options. No renewal options or early termination options have been included in the
calculation of the operating right-of-use assets or operating lease liabilities. Certain of the lease agreements provide for periodic
adjustments to rental payments for inflation. At the commencement date of the lease, the Company recognizes a lease liability at
the present value of the lease payments not yet paid, discounted using the discount rate for the lease or the Company’s
incremental borrowing rate. As the majority of the Company's leases do not provide an implicit rate, the Company uses its
incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental
borrowing rate is based on the term of the lease. Incremental borrowing rates on January 1, 2019 were used for operating leases
that commenced prior to that date. At the commencement date, the company also recognizes a right -of-use asset measured at (i)
the initial measurement of the lease liability; (ii) any lease payments made to the lessor at or before the commencement date less
any lease incentives received; and (iii) any initial direct costs incurred by the lessee. Leases with an initial term of 12 months or
less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over
the lease term. At December 31, 2020, the Company had no leases classified as finance leases. See Note 7 – Leases for
additional information.
Bank Owned Life Insurance (BOLI)
The Company, through its subsidiary bank, has purchased life insurance policies on certain key officers. Bank owned life
insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash
surrender value adjusted for other charges or other amounts due that are probable at settlement.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. In accordance
with FASB ASC Topic 350, the Company determined it has one goodwill reporting unit. Goodwill is tested for impairment
annually during the fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its carrying value. See Note 8 – Goodwill for additional information
.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value
less estimated selling costs, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell. The valuation of foreclosed
assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Revenue and
expenses from operations and changes in value are included in noninterest expense.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
80
Noncontrolling Interest
To the extent the Company’s interest in a consolidated entity represents less than 100% of the entity’s equity, the Company
recognizes noncontrolling interests in subsidiaries. In the case of the CCHL acquisition (previously noted under Business
Combination), the noncontrolling interest represents equity which is redeemable or convertible for cash at the option of the equity
holder and is classified within temporary equity in the mezzanine section of the Consolidated Statements of Financial Condition.
The call/put option is redeemable at the option of either CCBG (call) or the noncontrolling interest holder (put) on or after
January 1, 2025, and therefore, not entirely within CCBG’s control. The subsidiary's net income or loss and related dividends are
allocated to CCBG and the noncontrolling interest holder based on their relative ownership percentages. The noncontrolling
interest carrying value is adjusted on a quarterly basis to the higher of the carrying value or current redemption value, at the
balance sheet date, through a corresponding adjustment to retained earnings. The redemption value is calculated quarterly and is
based on the higher of a predetermined book value or pre-tax earnings multiple. To the extent the redemption value exceeds the
fair value of the noncontrolling interest, the Company’s earnings per share attributable to common shareowners is adjusted by that
amount. The Company uses an independent valuation expert to assist in estimating the fair value of the noncontrolling interest
using: 1) the discounted cash flow methodology under the income approach, and (2) the guideline public company methodology
under the market approach. The estimated fair value is derived from equally weighting the result of each of the two
methodologies. The estimation of the fair value includes significant assumptions concerning: (1) projected loan volumes; (2)
projected pre-tax profit margins; (3) tax rates and (4) discount rates.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive
income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the
generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. The income tax effects related
to settlements of share-based payment awards are reported in earnings as an increase or decrease in income tax expense.
The Company files a consolidated federal income tax return and each subsidiary files a separate state income tax return.
Earnings Per Common Share
Basic earnings per common share is based on net income divided by the weighted-average number of common shares outstanding
during the period excluding non-vested stock. Diluted earnings per common share include the dilutive effect of stock options and
non-vested stock awards granted using the treasury stock method. A reconciliation of the weighted-average shares used in
calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per
common share for the reported periods is provided in Note 14 — Earnings Per Share.
Comprehensive Income
Comprehensive income includes all changes in shareowners’ equity during a period, except those resulting from transactions with
shareowners. Besides net income, other components of the Company’s comprehensive income include the after tax effect of
changes in the net unrealized gain/loss on securities available for sale and changes in the funded status of defined benefit and
supplemental executive retirement plans. Comprehensive income is reported in the accompanying Consolidated Statements of
Comprehensive Income and Changes in Shareowners’ Equity.
Stock Based Compensation
Compensation cost is recognized for share-based awards issued to employees, based on the fair value of these awards at the date
of grant. Compensation cost is recognized over the requisite service period, generally defined as the vesting period. The market
price of the Company’s common stock at the date of the grant is used for restricted stock awards. For stock purchase plan awards,
a Black-Scholes model is utilized to estimate the fair value of the award. The impact of forfeitures of share-based awards on
compensation expense is recognized as forfeitures occur.
81
Revenue Recognition
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), establishes principles
for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's
contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the
transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in
exchange for those goods or services recognized as performance obligations are satisfied.
The majority of the Company’s revenue -generating transactions are not subject to ASC 606, including revenue generated from
financial instruments, such as our loans, letters of credit, and investment securities, and revenue related to the sale of residential
mortgages in the secondary market, as these activities are subject to other GAAP discussed elsewhere within our disclosures. The
Company recognizes revenue from these activities as it is earned based on contractual terms, as transactions occur, or as services
are provided and collectability is reasonably assured. Descriptions of the major revenue-generating activities that are within the
scope of ASC 606, which are presented in the accompanying statements of income as components of non-interest income are as
follows:
Deposit Fees - these represent general service fees for monthly account maintenance and activity- or transaction -based fees and
consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-
based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for
account maintenance services or when a transaction has been completed. Payment for such performance obligations are generally
received at the time the performance obligations are satisfied.
Wealth Management - trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth management clients
as consideration for managing the client’s assets. Trust services include custody of assets, investment management, fees for trust
services and similar fiduciary activities. Revenue is recognized when the Company’s performance obligation is completed each
month or quarter, which is the time that payment is received. Also, retail brokerage fees are received from a third party broker-
dealer, for which the Company acts as an agent, as part of a revenue-sharing agreement for fees earned from customers that are
referred to the third party. These fees are for transactional and advisory services and are paid by the third party on a monthly
basis and recognized ratably throughout the quarter as the Company’s performance obligation is satisfied.
Bank Card Fees – bank card related fees primarily includes interchange income from client use of consumer and business debit
cards. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network.
Interchange fees are set by the credit card associations and are based on cardholder purchase volumes. The Company records
interchange income as transactions occur.
Gains and Losses from the Sale of Bank Owned Property – the performance obligation in the sale of other real estate owned
typically will be the delivery of control over the property to the buyer. If the Company is not providing the financing of the sale,
the transaction price is typically identified in the purchase and sale agreement. However, if the Company provides seller
financing, the Company must determine a transaction price, depending on if the sale contract is at market terms and taking into
account the credit risk inherent in the arrangement.
Other non-interest income primarily includes items such as mortgage banking fees (gains from the sale of residential mortgage
loans held for sale), bank-owned life insurance, and safe deposit box fees none of which are subject to the requirements of ASC
606.
The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affects the
determination of the amount and timing of revenue from the above-described contracts with clients.
Accounting Standard Updates
ASU 2019-12,
"Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
ASU 2019-12 simplifies the accounting
for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax
allocation when there is a loss from continuing operations or a gain from other items and the general methodology for calculating
income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also
simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for
transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company on January 1, 2021
and is not expected to have a material impact on the Company’s consolidated financial statements.
82
ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and
Derivatives and Hedging (Topic 815).
ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic
321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward
contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company on January 1, 2021
and is not expected to have a material impact on the Company’s consolidated financial statements.
ASU 2020-04, "Reference Rate Reform (Topic 848).
ASU 2020-04 provides optional expedients and exceptions for applying
GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from
LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet
certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective
interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry
forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the
existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments
that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous
optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity
may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim
period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.
Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied
prospectively for all eligible contract modifications for that Topic or Industry Subtopic. It is anticipated this ASU will simplify
any modifications executed between the selected start date (yet to be determined) and December 31, 2022 that are directly related
to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old
contract resulting in writing off unamortized fees/costs. Further,
ASU 2021-01, “Reference Rate Reform (Topic 848): Scope,”
clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848
to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments.
The Company is evaluating the impact of this ASU and has not yet determined if this ASU will have material effects on the
Company’s business operations and consolidated financial statements.
ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs.”
ASU 2020-
08 clarifies the accounting for the amortization of purchase premiums for callable debt securities with multiple call dates. ASU
2020-8 will be effective for the Company on January 1, 2021 and is not expected to have a significant impact on Company’s
consolidated financial statements.
ASU 2020-09, “Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762.”
ASU 2020-9
amends the ASC to reflect the issuance of an SEC rule related to financial disclosure requirements for subsidiary issuers and
guarantors of registered debt securities and affiliates whose securities are pledged as collateral for registered securities.
ASU 2020-09 will be effective for the Company on January 4, 2021, concurrent with the effective date of the SEC release, and is
not expected to have a significant impact on Company’s consolidated financial statements.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013
of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks the option to temporarily suspend
certain requirements under U.S. GAAP related to troubled debt restructurings (“TDR”) for a limited period of time to account for
the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current at December 31,
2019. All modifications are eligible as long as they are executed between March 1, 2020 and the earlier of (i) December 31,
2020, or (ii) the 60th day after the end of the COVID-19 national emergency declared by the President of the U.S. Multiple
modifications of the same credits are allowed and there is no cap on the duration of the modification. See MD&A (Credit
Quality/COVID-19 Exposure) for disclosure of the impact to date.
83
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following table summarizes the amortized cost and related market value of investment
securities available-for-sale and securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses.
2020
2019
Amortize
d
Unrealize
d
Unrealize
d
Market
Amortize
d
Unrealize
d
Unrealize
d
Market
(Dollars in Thousands)
Cost
Gains
Losses
Value
Cost
Gain
Losses
Value
Available for Sale
U.S. Government Treasury
$
103,547
$
972
$
-
$
104,519
$
231,996
$
849
$
67
$
232,778
U.S. Government Agency
205,972
2,743
184
208,531
155,706
697
325
156,078
States and Political Subdivisions
3,543
89
-
3,632
6,310
9
-
6,319
Mortgage-Backed Securities
456
59
-
515
693
80
-
773
Equity Securities
(1)
7,673
-
-
7,673
7,653
-
-
7,653
Total
$
321,191
$
3,863
$
184
$
324,870
$
402,358
$
1,635
$
392
$
403,601
Held to Maturity
U.S. Government Treasury
$
5,001
$
13
$
-
$
5,014
$
20,036
$
15
$
9
$
20,042
States and Political Subdivisions
-
-
-
-
1,376
-
-
1,376
Mortgage-Backed Securities
164,938
5,223
-
170,161
218,127
2,064
180
220,011
Total
$
169,939
$
5,236
$
-
$
175,175
$
239,539
$
2,079
$
189
$
241,429
Total Investment Securities
$
491,130
$
9,099
$
184
$
500,045
$
641,897
$
3,714
$
581
$
645,030
(1)
Includes Federal Home Loan Bank and Federal Reserve Bank recorded at cost of $
2.9
4.8
Securities with an amortized cost of $
308.2
353.8
respectively, were pledged to secure public deposits and for other purposes.
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans, and FHLB advances. FHLB stock which is included
in other securities is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted market value;
however, redemption of this stock has historically been at par value.
As a member of the Federal Reserve Bank of Atlanta, the Bank is required to maintain stock in the Federal Reserve Bank of
Atlanta based on a specified ratio relative to the Bank’s capital. Federal Reserve Bank stock is carried at cost.
Investment Sales
. There were no sales of investment securities for each of the last three years.
Maturity Distribution
. At December 31, 2020, the Company's investment securities had the following maturity distribution based
on contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call
or prepay obligations. Mortgage-backed securities and certain amortizing U.S. government agency securities are shown
separately since they are not due at a certain maturity date.
84
Available for Sale
Held to Maturity
Amortized
Market
Amortized
Market
(Dollars in Thousands)
Cost
Value
Cost
Value
Due in one year or less
$
104,382
$
105,245
$
5,001
$
5,014
Due after one through five years
28,057
28,269
-
-
Mortgage-Backed Securities
456
515
164,938
170,161
U.S. Government Agency
180,623
183,168
-
-
Equity Securities
7,673
7,673
-
-
Total
$
321,191
$
324,870
$
169,939
$
175,175
Unrealized Losses
. The following table summarizes the investment securities with unrealized losses at December 31, aggregated
by major security type and length of time in a continuous unrealized loss position:
Less Than 12 Months
Greater Than 12 Months
Total
Market
Unrealized
Market
Unrealized
Market
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
December 31, 2020
Available for Sale
U.S. Government Agency
28,266
156
4,670
28
32,936
184
Total
28,266
156
4,670
28
32,936
184
December 31, 2019
Available for Sale
U.S. Government Treasury
$
9,955
$
-
$
93,310
$
67
$
103,265
$
67
U.S. Government Agency
36,361
244
17,364
81
53,725
325
States and Political Subdivisions
578
-
-
-
578
-
Mortgage-Backed Securities
8
-
-
-
8
-
Total
46,902
244
110,674
148
157,576
392
Held to Maturity
U.S. Government Treasury
-
-
15,022
9
15,022
9
States and Political Subdivisions
1,033
-
-
-
1,033
-
Mortgage-Backed Securities
22,581
42
16,027
138
38,608
180
Total
$
23,614
$
42
$
31,049
$
147
$
54,663
$
189
At December 31, 2020, there were
47
0.2
these positions were U.S. government agency securities guaranteed by U.S. government sponsored entities. Because the declines
in the market value of these securities are attributable to changes in interest rates and not credit quality and because the Company
has the present ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the
Company did not record any allowance for credit losses on any investment securities at December 31, 2020. Additionally, none
of the AFS or held-to-maturity securities held by the Company were past due or in nonaccrual status at December 31, 2020.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through various risk management procedures, including the
monitoring of credit ratings. A majority of the debt securities in the Company’s investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed by the U.S. government. The Company believes
the long history of no credit losses on these securities indicates that the expectation of nonpayment of the amortized cost basis is
zero, even if the U.S. government were to technically default. Further, certain municipal securities held by the Company have
been pre-refunded and secured by government guaranteed treasuries. Therefore, for the aforementioned securities, the Company
does not assess or record expected credit losses due to the zero loss assumption. The Company monitors the credit quality of its
municipal securities portfolio via credit ratings which are updated on a quarterly basis. On a quarterly basis, municipal securities
in an unrealized loss position are evaluated to determine if the loss is attributable to credit related factors and if an allowance for
credit loss is needed.
85
Note 3
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio Composition
. The composition of the HFI loan portfolio at December 31 was as follows:
(Dollars in Thousands)
2020
2019
Commercial, Financial and Agricultural
$
393,930
$
255,365
Real Estate – Construction
135,831
115,018
Real Estate – Commercial Mortgage
648,393
625,556
Real Estate – Residential
(1)
352,543
361,450
Real Estate – Home Equity
205,479
197,360
Consumer
(2)
270,250
281,180
Loans Held for Investment, Net of Unearned Income
$
2,006,426
$
1,835,929
(1)
10.9
8.3
(2)
0.7
1.6
Net deferred fees, which include premiums on purchased loans, included in loans were $
0.1
deferred costs were $
1.8
3.2
for SBA PPP loans.
Accrued interest receivable on loans which is excluded from amortized cost totaled $
6.9
5.5
million at December 31, 2019, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 1-4 family residential mortgage loans, commercial real estate mortgage
loans, and home equity loans to support available borrowing capacity at the FHLB of Atlanta and has pledged a blanket floating
lien on all consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal
Reserve Bank of Atlanta.
Loan Purchases
. The Company will periodically purchase newly originated 1-4 family real estate secured adjustable rate loans
from CCHL, a related party effective on March 1, 2020 (see Note 1 – Significant Accounting Policies). Loan purchases totaled
$
48.4
25.2
impaired.
Allowance for Loan Losses
. The methodology for estimating the amount of credit losses reported in the allowance for credit
losses (“ACL”) has two basic components: first, an asset-specific component involving loans that do not share risk characteristics
and the measurement of expected credit losses for such individual loans; and second, a pooled component for expected credit
losses for pools of loans that share similar risk characteristics. This methodology is discussed further in Note 1 – Significant
Accounting Policies.
The following table details the activity in the allowance for credit losses by portfolio segment for the year s ended December 31.
Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other
categories.
86
`
Commercial
,
Real Estate
Financial,
Real Estate
Commercial
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
2020
Beginning Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
Impact of Adopting ASC
326
488
302
1,458
1,243
374
(596)
3,269
Provision for Credit Losses
578
1,757
1,865
940
486
3,409
9,035
Charge-Offs
(789)
-
(28)
(150)
(151)
(5,042)
(6,160)
Recoveries
252
50
318
279
178
2,690
3,767
Net Charge-Offs
(537)
50
290
129
27
(2,352)
(2,393)
Ending Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
2019
Beginning Balance
$
1,434
$
280
$
4,181
$
3,400
$
2,301
$
2,614
$
14,210
Provision for Credit Losses
664
371
(1,129)
(301)
178
2,244
2,027
Charge-Offs
(768)
(281)
(214)
(400)
(430)
(2,878)
(4,971)
Recoveries
345
-
578
429
175
1,112
2,639
Net Charge-Offs
(423)
(281)
364
29
(255)
(1,766)
(2,332)
Ending Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
2018
Beginning Balance
$
1,191
$
122
$
4,346
$
3,206
$
2,506
$
1,936
$
13,307
Provision for Credit Losses
428
139
(223)
331
137
2,109
2,921
Charge-Offs
(644)
(7)
(315)
(780)
(533)
(2,395)
(4,674)
Recoveries
459
26
373
643
191
964
2,656
Net Charge-Offs
(185)
19
58
(137)
(342)
(1,431)
(2,018)
Ending Balance
$
1,434
$
280
$
4,181
$
3,400
$
2,301
$
2,614
$
14,210
On January 1, 2020, we adopted ASC 326 and recorded a pre-tax cumulative effect transition adjustment of $
3.3
adoption of ASC 326 is discussed further in Note 1 – Significant Accounting Policies/Adoption of New Accounting Standards.
For the year ended December 31, 2020, the provision for credit losses totaled $
9.0
loan charge-offs totaled $
2.4
losses related to off-balance sheet commitments. The $
6.6
million) in the allowance for credit losses for 2020 was attributable to a deterioration in economic conditions, primarily a high er
rate of unemployment due to the COVID-19 pandemic and its potential effect on rates of default. Three unemployment rate
forecast scenarios were utilized to estimate probability of default and were weighted based on management’s estimate of
probability. The mitigating impact of the unprecedented fiscal stimulus, including direct payments to individuals, increased
unemployment benefits, as well as various government sponsored loan programs, was also considered.
Loan Portfolio Aging.
A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30
days past due (“DPD”).
87
The following table presents the aging of the amortized cost basis in accruing past due loans by class of loans at December 31,
30-59
60-89
90 +
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
2020
Commercial, Financial and Agricultural
$
194
$
124
$
-
$
318
$
393,451
$
161
$
393,930
Real Estate – Construction
-
717
-
717
134,935
179
135,831
Real Estate – Commercial Mortgage
293
-
-
293
646,688
1,412
648,393
Real Estate – Residential
375
530
-
905
348,508
3,130
352,543
Real Estate – Home Equity
325
138
-
463
204,321
695
205,479
Consumer
1,556
342
-
1,898
268,058
294
270,250
Total Past Due Loans
$
2,743
$
1,851
$
-
$
4,594
$
1,995,961
$
5,871
$
2,006,426
2019
Commercial, Financial and Agricultural
$
489
$
191
$
-
$
680
$
254,239
$
446
$
255,365
Real Estate – Construction
300
10
-
310
114,708
-
115,018
Real Estate – Commercial Mortgage
148
84
-
232
623,890
1,434
625,556
Real Estate – Residential
629
196
-
825
359,233
1,392
361,450
Real Estate – Home Equity
155
20
-
175
196,388
797
197,360
Consumer
2,000
649
-
2,649
278,128
403
281,180
Total Past Due Loans
$
3,721
$
1,150
$
-
$
4,871
$
1,826,586
$
4,472
$
1,835,929
Nonaccrual Loans
. Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status
when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.
The following table presents the amortized cost basis of loans in nonaccrual status and loans past due over 90 days and still on
accrual by class of loans.
2020
2019
Nonaccrual
Nonaccrual
90 + Days
Nonaccrual
Nonaccrual
90 + Days
With No
With
Still
With No
With
Still
(Dollars in Thousands)
ACL
ACL
Accruing
ACL
ACL
Accruing
Commercial, Financial and Agricultural
$
-
$
161
$
-
$
-
$
446
$
-
Real Estate – Construction
-
179
-
-
-
-
Real Estate – Commercial Mortgage
1,075
337
-
958
476
-
Real Estate – Residential
1,513
1,617
-
227
1,165
-
Real Estate – Home Equity
-
695
-
-
797
-
Consumer
-
294
-
-
403
-
Total Nonaccrual Loans
$
2,588
$
3,283
$
-
$
1,185
$
3,287
$
-
The Company recognized $
52,000
35,000
and December 31, 2019, respectively.
88
Collateral Dependent Loans
.
The following table presents the amortized cost basis of collateral dependent loans at December 31:
2020
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Real Estate – Commercial Mortgage
3,900
-
Real Estate – Residential
3,022
-
Real Estate – Home Equity
219
-
Consumer
-
29
Total
$
7,141
$
29
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on
the sale or operation of the underlying collateral.
The Bank’s collateral dependent loan portfolio is comprised primarily of real estate secured loans, collateralized by either
residential or commercial collateral types. The loans are carried at fair value based on current values determined by either
independent appraisals or internal evaluations, adjusted for selling costs or other amounts to be deducted when estimating
expected net sales proceeds.
Residential Real Estate Loans In Process of Foreclosure
. At December 31, 2020 and December 31, 2019, the Company had $
1.6
million and $
1.2
process.
Troubled Debt Restructurings (“TDRs”)
. TDRs are loans in which the borrower is experiencing financial difficulty and the
Company has granted an economic concession to the borrower that it would not otherwise consider. In these instances, as part of
a work-out alternative, the Company will make concessions including the extension of the loan term, a principal moratorium, a
reduction in the interest rate, or a combination thereof. The impact of the TDR modifications and defaults are factored into the
allowance for credit losses on a loan-by-loan basis. Thus, specific reserves are established based upon the results of either a
discounted cash flow analysis or the underlying collateral value, if the loan is deemed to be collateral dependent. A TDR
classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial
difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
At December 31, 2020, the Company had $
14.3
13.9
modified terms. At December 31, 2019 the Company had $
17.6
16.9
accordance with modified terms. For TDRs, the Company estimated $
0.6
1.5
December 31, 2020 and December 31, 2019, respectively.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium, a reduction in the interest
rate, or a combination thereof. For the year ended December 31, 2020, there were
three
investment of $
0.2
seven
of $
0.5
six
0.7
million. The financial impact of these modifications was not material.
For the years ended December 31, 2020 and December 31, 2019, there were
no
payment default and the loans were modified within the 12 months prior to default.
Credit Risk Management
. The Company has adopted comprehensive lending policies, underwriting standards and loan review
procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review
and approve these policies and procedures on a regular basis (at least annually).
89
Reporting systems are used to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and
nonperforming loans and potential problem loans. Management and the Credit Risk Oversight Committee periodically review
our lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition, total borrower
exposure limits are established and concentration risk is monitored. As part of this process, the overall composition of the
portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other
relevant classifications of loans. Specific segments of the loan portfolio are monitored and reported to the Board on a quarterly
basis and have strategic plans in place to supplement Board approved credit policies governing exposure limits and underwriting
standards. Detailed below are the types of loans within the Company’s loan portfolio and risk characteristics unique to each.
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the
borrower with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt
service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all
new and existing debt. The majority of these loans are secured by the assets being financed or other business assets such as
accounts receivable, inventory, or equipment. Collateral values are determined based upon third party appraisals and evaluations.
Loan to value ratios at origination are governed by established policy guidelines.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit
lines and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or
rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and
generally secured by the property being financed, including 1-4 family residential properties and commercial properties that are
either owner-occupied or investment in nature. These properties may include either vacant or improved property. Construction
loans are generally based upon estimates of costs and value associated with the completed project. Collateral values are
determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established
policy guidelines. The disbursement of funds for construction loans is made in relation to the progress of the project and as such
these loans are closely monitored by on-site inspections.
Real Estate Commercial Mortgage – Loans in this category consists of commercial mortgage loans secured by property that is
either owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the borrower or
project with consideration given to underlying real estate collateral and personal guarantees. Lending policy establishes debt
service coverage ratios and loan to value ratios specific to the property type. Collateral values are determined based upon third
party appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that
demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current income,
employment status, current assets, and other financial resources, credit history, and the value of the collateral. Collateral consists
of mortgage liens on 1-4 family residential properties. Collateral values are determined based upon third party appraisals and
evaluations. The Company does not originate sub-prime loans.
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally
secured by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications
include favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios
within established policy guidelines. Collateral values are determined based upon third party appraisals and evaluations.
Consumer Loans – This loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft
lines of credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. Lending policy
establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income
and receipt of credit reports.
Credit Quality Indicators
. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes
loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment performance, credit documentation, and current economic and market trends, among
other factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for
individual loan relationships over a predetermined amount and review of smaller balance homogenous loan pools. The Company
uses the definitions noted below for categorizing and managing its criticized loans. Loans categorized as “Pass” do not meet the
criteria set forth below and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected,
could cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating
factors. More than the ordinary amount of attention is warranted for these loans.
90
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the
borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic
that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous loan pools (home equity and consumer) are not individually
reviewed, but are monitored for credit quality via the aging status of the loan and by payment activity. The performing or
nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality.
The following table summarizes gross loans held for investment at December 31, 2020 by years of origination and internally
assigned credit risk ratings (refer to Credit Risk Management section for detail on risk rating system).
Term Loans by Origination Year
Revolving
(Dollars in Thousands)
2020
2019
2018
2017
2016
Prior
Loans
Total
Commercial, Financial,
Agricultural:
Pass
$
231,805
$
45,651
$
35,866
$
15,212
$
13,321
$
10,051
$
41,214
$
393,120
Special Mention
-
4
28
-
-
58
-
90
Substandard
12
195
289
145
50
20
9
720
Total
$
231,817
$
45,850
$
36,183
$
15,357
$
13,371
$
10,129
$
41,223
$
393,930
Real Estate -
Construction:
Pass
$
71,173
$
51,634
$
7,369
$
1,592
$
-
$
-
$
2,635
$
134,403
Substandard
-
1,428
-
-
-
-
-
1,428
Total
$
71,173
$
53,062
$
7,369
$
1,592
$
-
$
-
$
2,635
$
135,831
Real Estate - Commercial
Mortgage:
Pass
$
156,011
$
93,424
$
131,180
$
78,474
$
45,507
$
88,397
$
19,933
$
612,926
Special Mention
4,165
8,932
9,249
244
379
6,172
397
29,538
Substandard
570
130
137
2,687
28
1,883
494
5,929
Total
$
160,746
$
102,486
$
140,566
$
81,405
$
45,914
$
96,452
$
20,824
$
648,393
Real Estate - Residential:
Pass
$
100,704
$
66,893
$
42,884
$
40,205
$
19,231
$
66,119
$
6,706
$
342,742
Special Mention
141
24
126
175
236
446
-
1,148
Substandard
1,257
1,800
1,377
837
890
2,492
-
8,653
Total
$
102,102
$
68,717
$
44,387
$
41,217
$
20,357
$
69,057
$
6,706
$
352,543
Real Estate - Home
Equity:
Performing
$
1,385
$
313
$
244
$
830
$
183
$
2,238
$
199,591
$
204,784
Nonperforming
-
-
-
-
-
-
695
695
Total
$
1,385
313
244
830
183
2,238
200,286
205,479
Consumer:
Performing
$
105,551
$
69,941
$
51,513
$
24,613
$
10,639
$
2,472
$
5,227
$
269,956
Nonperforming
61
109
49
-
8
67
-
294
Total
$
105,612
70,050
51,562
24,613
10,647
2,539
5,227
270,250
91
Note 4
MORTGAGE BANKING ACTIVITIES
Pursuant to the Brand acquisition on March 1, 2020, the Company’s mortgage banking activities at its subsidiary Capital City
Homes Loans have expanded to include mandatory delivery loan sales, forward sales contracts used to manage residential loan
pipeline price risk, utilization of warehouse lines to fund secondary market residential loan closings, and residential mortgage
servicing. Information provided below reflects CCHL activities post acquisition for the period March 1, 2020 to December 31,
2020 and CCB legacy residential real estate activities for the period January 1, 2020 to March 1, 2020.
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and government-sponsored residential mortgage loans. Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-
rate residential mortgage loans may be held for investment. The volume of residential mortgage loans originated for sale and
secondary market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30 to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan
commitments are subject to both credit and price risk. Credit risk is managed through underwriting policies and procedures,
including collateral requirements, which are generally accepted by the secondary loan markets. Price risk is primarily related to
interest rate fluctuations and is partially managed through forward sales of residential mortgage-backed securities (primarily to-be
announced securities, or TBAs) or mandatory delivery commitments with investors.
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
residential mortgage loan commitments and forward contract sales and their related fair values are set forth below.
December 31, 2020
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
109,831
$
114,039
Residential Mortgage Loan Commitments ("IRLCs")
(1)
147,494
4,825
Forward Sales Contracts
(2)
158,500
(907)
$
117,957
(1)
Recorded in other assets at fair value
(2)
Recorded in other liabilities at fair value
Residential mortgage loans held for sale that were 90 days or more outstanding or on nonaccrual totaled $
0.6
31, 2020.
Mortgage banking revenues for the year ended December 31, was as follows:
(Dollars in Thousands)
2020
Net realized gains on sales of mortgage loans
$
59,709
Net change in unrealized gain on mortgage loans held for sale
2,926
Net change in the fair value of mortgage loan commitments (IRLCs)
2,625
Net change in the fair value of forward sales contracts
284
Pair-Offs on net settlement of forward sales contracts
(9,602)
Mortgage servicing rights additions
3,448
Net origination fees
3,954
Total mortgage banking revenues
$
63,344
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans sold. The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
92
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
2020
Number of residential mortgage loans serviced for others
1,796
Outstanding principal balance of residential mortgage loans serviced for others
$
456,135
Weighted average interest rate
3.64%
Remaining contractual term (in months)
321
Conforming conventional loans serviced by the Company are sold to FNMA on a non-recourse basis, whereby foreclosure losses
are generally the responsibility of FNMA and not the Company. The government loans serviced by the Company are secured
through GNMA, whereby the Company is insured against loss by the Federal Housing Administration or partially guaranteed
against loss by the Veterans Administration. At December 31, 2020, the servicing portfolio balance consisted of the following
loan types: FNMA (
63
%), GNMA (
13
%), and private investor (
24
%). FNMA and private investor loans are structured as
actual/actual payment remittance.
At December 31, 2020, delinquent residential mortgage loans currently in GNMA pools serviced by the Company totaled $
4.9
million. The right to repurchase these loans and the corresponding liability has been recorded in other assets and other liabilities,
respectively, in the Consolidated Statements of Financial Condition.
Activity in the capitalized mortgage servicing rights for the year ended December 31, was as follows:
(Dollars in Thousands)
2020
Beginning balance
$
910
Additions due to loans sold with servicing retained
3,448
Deletions and amortization
(656)
Valuation Provision (temporary impairment)
(250)
Ending balance
$
3,452
The Company had
no
At December 31, 2020, the key unobservable inputs used in determining the fair value of the Company’s mortgage servicing
rights were as follows:
Minimum
Maximum
Discount rates
11.00%
15.00%
Annual prepayment speeds
13.08%
23.64%
Cost of servicing (basis points)
90
110
Changes in residential mortgage interest rates directly affect the prepayment speeds used in valuing the Company’s mortgage
servicing rights. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover
rates, estimated loan curtailment, anticipated defaults, and other relevant factors. The weighted average annual prepayment speed
was
17.10
% at December 31, 2020.
93
Warehouse Line Borrowings
The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at
December 31, 2020.
Amounts
(Dollars in Thousands)
Outstanding
$
25
October 2021
. Interest is at LIBOR plus
2.25%
, with a
floor rate of
3.50%
. A cash pledge deposit of $
0.1
$
11,256
$
50
2.24%
3.00%
, with a floor rate of
3.25%
. A cash pledge deposit of $
0.5
39,985
$
50
September 2021
. Interest is at the LIBOR plus
2.75%
.
23,541
$
74,782
Warehouse line borrowings are classified as short-term borrowings. At December 31, 2020, the Company had mortgage loans
held for sale pledged as collateral under the above warehouse lines of credit and master repurchase agreements. The above
agreements also contain covenants which include certain financial requirements, including maintenance of minimum tangible net
worth, minimum liquid assets, maximum debt to net worth ratio and positive net income, as defined in the agreements. The
Company was in compliance with all significant debt covenants at December 31, 2020.
The Company intends to renew the warehouse lines of credit and master repurchase agreements when they mature .
The Company has extended a $
50
51
% owned subsidiary entity. Balances and
transactions under this line of credit are eliminated in the Company’s consolidated financial statements and thus not included in
the total short term borrowings noted on the consolidated statement of financial condition. The balance of this line of credit at
December 31, 2020 was $
30.0
Note 5
DERIVATIVES
The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The
Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s
known or expected cash receipts and its known or expected cash payments principally related to the Company’s subordinated
debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
30
subordinated debt. Under the swap arrangement, the Company will pay a fixed interest rate of
2.50
% and receive a variable
interest rate based on three-month LIBOR plus a weighted average margin of
1.83
%.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded
in accumulated other comprehensive income (“AOCI”) and subsequently reclassified into interest expense in the same period(s)
during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate subordinated
debt.
The following table reflects the cash flow hedges included in the consolidated statements of financial condition at December 31,
2020.
Notional
Fair
Balance Sheet
Weighted Ave rage
(Dollars in Thousands)
Value
Location
Interest rate swaps related to subordinated debt
$
30,000
$
574
Other Assets
9.5
94
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the consolidated
statements of income related to the cash flow derivative instruments (interest rate swaps related to subordinated debt) for the year
ended December 31, 2020.
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
in AOCI
Category
from AOCI to Income
December 31, 2020
$
428
Interest Expense
$
(64)
The Company estimates there will be approximately $
0.1
months.
At December 31, 2020, the Company had a collateral liability of $
0.5
Note 6
PREMISES AND EQUIPMENT
The composition of the Company's premises and equipment at December 31 was as follows:
(Dollars in Thousands)
2020
2019
Land
$
23,744
$
23,594
Buildings
114,306
110,774
Fixtures and Equipment
55,916
47,814
Total
193,966
182,182
Accumulated Depreciation
(107,175)
(97,639)
Premises and Equipment, Net
$
86,791
$
84,543
Depreciation expense for the above premises and equipment was approximately $
7.0
6.3
6.5
2020, 2019, and 2018, respectively
.
Note 7
LEASES
Operating leases in which the Company is the lessee are recorded as operating lease right of use (“ROU”) assets and operating
liabilities, included in other assets and
liabilities
, respectively, on its consolidated statement of financial condition.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease
liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate
that represents the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is
comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a
straight-line basis over the lease term, and is recorded in occupancy expense in the consolidated statement of income.
The Company’s operating leases primarily relate to banking offices with remaining lease terms from
one
forty-five years
. The
Company’s leases are not complex and do not contain residual value guarantees, variable lease payments, or significant
assumptions or judgments made in applying the requirements of Topic 842. Operating leases with an initial term of 12 months or
less are not recorded on the consolidated statements of financial condition and the related lease expense is recognized on a
straight-line basis over the lease term. At December 31, 2020 ROU assets and liabilities were $
12.0
12.8
respectively. At December 31, 2019, the operating lease ROU assets and liabilities were $
1.7
2.5
respectively. The Company does not have any finance leases or any significant lessor agreements.
95
The table below summarizes our lease expense and other information at December 31, related to the Company’s operating leases:
(Dollars in Thousands)
2020
2019
Operating lease expense
$
1,018
$
325
Short-term lease expense
530
120
Total lease expense
$
1,548
$
445
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
1,174
$
331
Right-of-use assets obtained in exchange for new operating lease liabilities
11,101
1,739
Weighted-average remaining lease term — operating leases (in years)
25.4
6.8
Weighted-average discount rate — operating leases
2.1
%
2.9
%
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
December 31, 2020
2021
$
1,530
2022
1,374
2023
980
2024
930
2025
756
2026 and thereafter
11,129
Total
$
16,699
Less: Interest
(3,899)
Present value of lease liability
$
12,800
At December 31, 2020, the Company had two additional operating lease obligations for banking offices (to be constructed) that
have not yet commenced.
1.9
15
second lease has payments totaling $
2.9
15
are expected to commence after the construction periods end, which are expected to occur during the fourth quarter of 2021 and
first quarter of 2022, respectively.
A related party is the lessor in an operating lease with the Company. The Company’s minimum payment is $
0.2
through 2024, for an aggregate remaining obligation of $
0.8
Note 8
GOODWILL
At December 31, 2020 and December 31, 2019, the Company had goodwill of $
89.1
84.8
Goodwill is tested for impairment on an annual basis, or more often if impairment indicators exist. Testing allows for a
qualitative assessment of goodwill impairment indicators. If the assessment indicates that impairment has more than likely
occurred, the Company must compare the estimated fair value of the reporting unit to its carrying amount. If the carrying amount
of the reporting unit exceeds its estimated fair value, an impairment charge is recorded equal to the excess.
On March 1, 2020, CCB completed its acquisition of a
51
% membership interest in
Brand Mortgage Group, LLC
which is now operated as Capital City Home Loans (“CCHL”). See Note 1 – Significant Accounting Policies/Business
Combination for additional information. CCB made a $
7.1
goodwill totaling $
4.3
During the fourth quarter of 2020, the Company performed its annual goodwill impairment testing and determined that
no
goodwill impairment existed at December 31, 2020. The Company will continue to evaluate goodwill for impairment as defined
by ASC Topic 350.
96
Note 9
OTHER REAL ESTATE OWNED
The following table presents other real estate owned activity at December 31,
(Dollars in Thousands)
2020
2019
2018
Beginning Balance
$
953
$
2,229
$
3,941
Additions
2,297
1,298
2,140
Valuation Write-Downs
(792)
(300)
(1,046)
Sales
(1,650)
(2,274)
(2,793)
Other
-
-
(13)
Ending Balance
$
808
$
953
$
2,229
Net expenses applicable to other real estate owned for the three years ended December 31, was as follows:
(Dollars in Thousands)
2020
2019
2018
Gains from the Sale of Properties
$
(1,218)
$
(244)
$
(2,288)
Losses from the Sale of Properties
33
159
307
Rental Income from Properties
-
(4)
(12)
Property Carrying Costs
497
335
505
Valuation Adjustments
792
300
1,046
Total
$
104
$
546
$
(442)
Note 10
DEPOSITS
The composition of the Company's interest bearing deposits at December 31 was as follows:
(Dollars in Thousands)
2020
2019
NOW Accounts
$
1,046,408
$
902,499
Money Market Accounts
266,649
217,839
Savings Deposits
474,100
374,396
Time Deposits
101,594
106,021
Total Interest Bearing Deposits
$
1,888,751
$
1,600,755
At December 31, 2020 and 2019, $
0.7
1.6
loans.
Time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $
8.5
7.0
2020 and December 31, 2019, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2020
2021
$
83,989
2022
10,282
2023
3,812
2024
1,674
2025 and thereafter
1,837
Total
$
101,594
97
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
2020
2019
2018
NOW Accounts
$
930
$
5,502
$
3,152
Money Market Accounts
223
946
675
Savings Deposits
207
182
172
Time Deposits < $250,000
179
201
234
Time Deposits > $250,000
9
9
10
Total
$
1,548
$
6,840
$
4,243
Note 11
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
Federal Funds
Purchased
Securities
Sold Under
Repurchase
Agreements
(1)
Other
Short-Term
Borrowings
(2)
2020
Balance at December 31
$
-
$
4,851
$
74,803
Maximum indebtedness at any month end
-
5,922
94,071
Daily average indebtedness outstanding
2
5,384
63,733
Average rate paid for the year
2.56
%
0.10
%
4.36
%
Average rate paid on period-end borrowings
-
%
0.04
%
3.00
%
2019
Balance at December 31
$
-
$
6,065
$
339
Maximum indebtedness at any month end
-
9,141
3,746
Daily average indebtedness outstanding
47
6,180
3,047
Average rate paid for the year
2.85
%
0.91
%
1.73
%
Average rate paid on period-end borrowings
-
%
0.46
%
4.11
%
2018
Balance at December 31
$
-
$
10,092
$
3,449
Maximum indebtedness at any month end
-
10,092
10,044
Daily average indebtedness outstanding
20
7,951
3,021
Average rate paid for the year
2.41
%
0.49
%
2.31
%
Average rate paid on period-end borrowings
-
%
0.88
%
1.61
%
(1)
Balances are fully collateralized by government treasury or agency securities held in the Company's investment portfolio.
(2)
Comprised of FHLB advances totaling $
0.1
74.8
Note 12
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances.
FHLB long-term advances totaled $
2.2
5.0
December 31, 2019.
The advances mature at varying dates from 2022 through 2025 and had a weighted-average rate of 3.47%
and 3.13% at December 31, 2020 and 2019, respectively.
1-4 family residential mortgage loans, commercial real estate mortgage loans, and home equity mortgage loans. Interest on the
FHLB advances is paid on a monthly basis.
Note Payable.
Long-term note payable totaled $
0.9
1.5
note matures on
March 30, 2027
. Interest is payable
quarterly
quarterly. A principal payment of $
0.3
98
Scheduled minimum future principal payments on our other long-term borrowings at December 31 were as follows:
(Dollars in Thousands)
2020
2021
$
1,008
2022
1,170
2023
553
2024
210
2025
116
Total
$
3,057
Junior Subordinated Deferrable Interest Notes.
The Company has issued two junior subordinated deferrable interest notes to
wholly owned Delaware statutory trusts. The first note for $
30.9
for $
32.0
Company is not the primary beneficiary. Accordingly, the accounts of the trusts are not included in the Company’s consolidated
financial statements. See Note 1 - Significant Accounting Policies for additional information about the Company’s consolidation
policy. Details of the Company’s transaction with the two trusts are provided below.
In November 2004, CCBG Capital Trust I issued $
30.0
of the trust. The interest payments are due quarterly at
3-month LIBOR
1.90
%, adjusted quarterly. The trust
preferred securities will mature on
December 31, 2034
, and are redeemable upon approval of the Federal Reserve in whole or in
part at the option of the Company at any time after December 31, 2009 and in whole at any time upon occurrence of certain
events affecting their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly on
March 31, June 30, September 30, and December 31 of each year. CCBG Capital Trust I also issued $
928,000
securities to CCBG. The proceeds of the offering of trust preferred securities and common equity securities were used to
purchase a $
30.9
preferred securities. On April 12, 2016, the Company retired $
10
auctioned as part of a liquidation of a pooled collateralized debt obligation fund. The trust preferred securities were originally
issued through CCBG Capital Trust I.
In May 2005, CCBG Capital Trust II issued $
31.0
trust. The interest payments are due quarterly at
3-month LIBOR
1.80
%, adjusted quarterly. The trust preferred
securities will mature on
June 15, 2035
, and are redeemable upon approval of the Federal Reserve in whole or in part at the option
of the Company and in whole at any time upon occurrence of certain events affecting their tax or regulatory capital treatment.
Distributions on the trust preferred securities are payable quarterly on March 15, June 15, September 15, and December 15 of
each year. CCBG Capital Trust II also issued $
959,000
trust preferred securities and common equity securities were used to purchase a $
32.0
interest note issued by the Company, which has terms substantially similar to the trust preferred securities.
The Company has the right to defer payments of interest on the two notes at any time or from time to time for a period of up to
twenty consecutive quarterly interest payment periods. Under the terms of each note, in the event that under certain
circumstances there is an event of default under the note or the Company has elected to defer interest on the note, the Company
may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of
its capital stock. At December 31, 2020, the Company has paid all interest payments in full.
The Company has entered into agreements to guarantee the payments of distributions on the trust preferred securities and
payments of redemption of the trust preferred securities. Under these agreements, the Company also agrees, on a subordinated
basis, to pay expenses and liabilities of the two trusts other than those arising under the trust preferred securities. The obligations
of the Company under the two junior subordinated notes, the trust agreements establishing the two trusts, the guarantee and
agreement as to expenses and liabilities, in aggregate, constitute a full and unconditional guarantee by the Company of the two
trusts' obligations under the two trust preferred security issuances.
Despite the fact that the accounts of CCBG Capital Trust I and CCBG Capital Trust II are not included in the Company’s
consolidated financial statements, the $
20.0
31.0
subsidiary trusts are included in the Tier 1 Capital of Capital City Bank Group, Inc. as allowed by Federal Reserve guidelines.
99
Note 13
INCOME TAXES
The provision for income taxes reflected in the statements of comprehensive income is comprised of the following components:
(Dollars in Thousands)
2020
2019
2018
Current:
Federal
$
8,625
$
8,481
$
(1,617)
State
1,658
247
201
10,283
8,728
(1,416)
Deferred:
Federal
(143)
(680)
3,620
State
130
1,913
1,285
Change in Valuation Allowance
(40)
(8)
(68)
(53)
1,225
4,837
Total:
Federal
8,482
7,801
2,003
State
1,788
2,160
1,486
Change in Valuation Allowance
(40)
(8)
(68)
Total
$
10,230
$
9,953
$
3,421
Income taxes provided were different than the tax expense computed by applying the statutory federal income tax rate of
21
% to
pre-tax income as a result of the following:
(Dollars in Thousands)
2020
2019
2018
Tax Expense at Federal Statutory Rate
$
11,106
$
8,560
$
6,225
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income
(341)
(425)
(494)
2017 Provision to Return - Impact of Federal Tax Reform
-
-
(3,590)
State Taxes, Net of Federal Benefit
1,413
1,342
1,174
Other
601
294
348
Change in Valuation Allowance
(40)
(8)
(68)
Tax-Exempt Cash Surrender Value Life Insurance Benefit
(173)
(175)
(174)
Expense Due to Reduction of Florida Corporate Income Tax Rate
-
365
-
Noncontrolling Interest
(2,336)
-
-
Actual Tax Expense
$
10,230
$
9,953
$
3,421
In connection with filing its 2017 income tax returns, the Company recorded a permanent net income tax benefit of $
3.6
This benefit was a result of deductions claimed on the Company's 2017 income tax returns partially offset by repricing of its
current and deferred income tax position associated with the Tax Cuts and Jobs Act of 2017.
Deferred income tax liabilities and assets result from differences between assets and liabilities measured for financial reporting
purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that
are currently in effect. The net deferred tax asset and the temporary differences comprising that balance at December 31, 2020
and 2019 are as follows:
100
(Dollars in Thousands)
2020
2019
Deferred Tax Assets Attributable to:
Allowance for Loan Losses
$
6,037
$
3,525
Accrued Pension/SERP
16,052
9,863
State Net Operating Loss and Tax Credit Carry-Forwards
2,335
2,834
Other Real Estate Owned
1,066
957
Accrued SERP Liability
2,104
2,094
Lease Liability
2,581
637
Other
2,637
2,485
Total Deferred Tax Assets
$
32,812
$
22,395
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment
$
4,408
$
3,870
Deferred Loan Fees and Costs
2,824
2,445
Intangible Assets
3,290
3,290
Accrued Pension Liability
4,723
4,585
Right of Use Asset
2,411
441
Investments
469
469
Other
1,165
284
Total Deferred Tax Liabilities
19,290
15,384
Valuation Allowance
1,640
1,680
Net Deferred Tax Asset
$
11,882
$
5,331
In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of certain state net
operating loss carry-forwards and certain state tax credit carry-forwards expected to expire prior to utilization, will be realized.
Accordingly, a valuation allowance of $
1.6
state loss and tax credit carry-forwards of approximately $
2.3
2021
2040
.
The Company had no unrecognized tax benefits at December 31, 2020, December 31, 2019, and December 31, 2018.
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective
federal or state income taxes accounts. There were
no
statements of income for the years ended December 31, 2020, 2019, and 2018. There were no amounts accrued in the
consolidated statements of financial condition for penalties and interest as of December 31, 2020 and 2019.
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as file various returns in states where
its banking offices are located. The Company is no longer subject to U.S. federal or state tax examinations for years before 2017.
Note 14
STOCK-BASED COMPENSATION
At December 31, 2020, the Company had three stock-based compensation plans, consisting of the 2011 Associate Incentive Plan
(“AIP”), the 2011 Associate Stock Purchase Plan (“ASPP”), and the 2011 Director Stock Purchase Plan (“DSPP”). These plans,
which were approved by the shareowners in April 2011, replaced substantially similar plans approved by the shareowners in
2004. Total compensation expense associated with these plans for 2018 through 2020 was $
1.9
2.2
1.6
million, respectively.
AIP.
compensation. Under the 2011 AIP there were
875,000
to the terms and conditions of the AIP, will create an annual incentive plan (“Plan”), under which all participants are eligible to
earn performance shares. Awards under the 2020 Plan were tied to internally established performance goals. At base level
targets, the grant-date fair value of the shares eligible to be awarded in 2020 was approximately $
0.9
60
% of the award is in the form of stock and
40
% in the form of a cash bonus. For 2020 a total of
20,230
issuance, but additional shares could be earned if performance exceeded established goals. A total of
21,682
for 2020. The Company recognized expense of $
1.0
0.9
1.1
respectively related to the AIP.
101
Executive Long-Term Incentive Plan (“LTIP”)
. In 2007, the Company established a Performance Share Unit Plan under the
provisions of the AIP that allows William G. Smith, Jr., the Chairman, President, and Chief Executive Officer of CCBG, Inc. to
earn shares based on the compound annual growth rate in diluted earnings per share over a three-year period. At December 31,
2020, there were three LTIP agreements in place for the years 2018-2020. The Company recognized $
0.2
0.6
and $
0.3
entered into similar LTIP agreements with Thomas A. Barron, the President of CCB for the years 2018-2020 that allows shares to
be earned based on the compound annual growth rate in diluted earnings per share over a three-year period. At December 31,
2020, there were three LTIP agreements in place for the years 2018-2020. The Company recognized $
0.1
0.2
, and $
0.2
million in expense for years 2020, 2019 and 2018, respectively. Shares issued under Mr. Barron’s LTIP plans were
7,218
2020,
10,460
9,810
Financial Officer of the Company for the years 2018-2020 that allows shares to be earned based on the compound annual growth
rate in diluted earnings per share. The Company recognized $
0.1
0.4
0.2
ended 2020, 2019 and 2018, respectively, under this agreement. Shares issued under Mr. Davis’s LTIP plan were
7,218
4,812
2,406
After deducting the shares earned in 2020 under the AIP and LTIP,
299,344
AIP.
DSPP.
The Company’s DSPP allows the directors to purchase the Company’s common stock at a price equal to
90
% of the
closing price on the date of purchase. Stock purchases under the DSPP are limited to the amount of the directors' annual retainer
and meeting fees. Under the 2011 DSPP there were
150,000
16,119
shares and recognized approximately $
36,000
15,332
recognized approximately $
38,000
14,470
recognized approximately $
35,000
2,459
issuance under the 2011 DSPP.
ASPP.
Under the Company’s ASPP, substantially all associates may purchase the Company’s common stock through payroll
deductions at a price equal to
90
% of the lower of the fair market value at the beginning or end of each six-month offering
period. Stock purchases under the ASPP are limited to
10
% of an associate's eligible compensation, up to a maximum of $
25,000
(fair market value on each enrollment date) in any plan year. Under the 2011 ASPP there were
593,750
reserved for issuance. For 2020,
33,910
160,000
ASPP. For 2019,
27,304
100,000
2018,
19,503
70,000
December 31, 2020,
242,859
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights
granted under the ASPP was $
5.83
$
3.61
3.57
, respectively. In calculating compensation, the fair value of each stock purchase right was estimated on the date
of grant using the following weighted average assumptions:
2020
2019
2018
Dividend yield
2.4
%
2.0
%
1.4
%
Expected volatility
45.6
%
17.4
%
18.7
%
Risk-free interest rate
0.9
%
2.3
%
1.8
%
Expected life (in years)
0.5
0.5
0.5
Note 15
EMPLOYEE BENEFIT PLANS
Pension Plan
The Company sponsors a noncontributory pension plan covering substantially all of its associates. Benefits under this plan
generally are based on the associate's total years of service and average of the five highest years of compensation during the ten
years immediately preceding their departure. The Company’s general funding policy is to contribute amounts sufficient to meet
minimum funding requirements as set by law and to ensure deductibility for federal income tax purposes. On December 30,
2019, the plan was amended to remove plan eligibility for new associates hired after December 31, 2019.
The following table details on a consolidated basis the changes in benefit obligation, changes in plan assets, the funded status of
the plan, components of pension expense, amounts recognized in the Company's consolidated statements of financial condition,
and major assumptions used to determine these amounts.
102
(Dollars in Thousands)
2020
2019
2018
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
180,830
$
149,347
$
165,084
Service Cost
5,828
6,114
6,884
Interest Cost
5,612
6,178
5,661
Actuarial Loss (Gain)
32,172
25,715
(16,349)
Benefits Paid
(11,677)
(6,255)
(11,686)
Expenses Paid
(260)
(269)
(247)
Special/Contractual Termination Benefits
61
-
-
Projected Benefit Obligation at End of Year
$
212,566
$
180,830
$
149,347
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
$
161,646
$
134,535
$
129,719
Actual Return (Loss) on Plan Assets
17,066
28,635
(6,251)
Employer Contributions
5,000
5,000
23,000
Benefits Paid
(11,677)
(6,255)
(11,686)
Expenses Paid
(260)
(269)
(247)
Fair Value of Plan Assets at End of Year
$
171,775
$
161,646
$
134,535
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities
$
40,791
$
19,184
$
14,812
Accumulated Benefit Obligation at End of Year
$
177,362
$
156,327
$
130,477
Components of Net Periodic Benefit Costs:
Service Cost
$
5,828
$
6,114
$
6,884
Interest Cost
5,612
6,178
5,661
Expected Return on Plan Assets
(10,993)
(9,527)
(9,564)
Amortization of Prior Service Costs
15
15
199
Special/Contractual Termination Benefits
61
-
-
Net Loss Amortization
3,933
3,862
3,673
Net Periodic Benefit Cost
$
4,456
$
6,642
$
6,853
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate
2.88%
3.53%
4.43%
Rate of Compensation Increase
(1)
4.00%
4.00%
4.00%
Measurement Date
12/31/20
12/31/19
12/31/18
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate
3.53%
4.43%
3.71%
Expected Return on Plan Assets
7.00%
7.25%
7.25%
Rate of Compensation Increase
(1)
4.00%
4.00%
3.25%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial Loss (Gain)
$
26,098
$
6,606
$
(533)
Prior Service Cost
(15)
(15)
(199)
Net Loss
(3,933)
(3,862)
(3,673)
Deferred Tax (Benefit) Expense
(5,615)
(694)
1,118
Other Comprehensive Loss (Gain), net of tax
$
16,535
$
2,035
$
(3,287)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses
$
59,400
$
37,235
$
34,491
Prior Service Cost
35
50
66
Deferred Tax Benefit
(15,066)
(9,451)
(8,757)
Accumulated Other Comprehensive Loss, net of tax
$
44,369
$
27,834
$
25,800
(1)
The service cost component of net periodic benefit cost is reflected in compensation expense in the accompanying statements of
income. The other components of net periodic cost are included in “other” within the noninterest expense category in the
statements of income. See Note 1 – Significant Accounting Policies for additional information.
103
The Company expects to recognize $
6.8
December 31, 2020 as a component of net periodic benefit cost during 2021.
Plan Assets.
The Company’s pension plan asset allocation at December 31, 2020 and 2019, and the target asset allocation for
2020 are as follows:
Target
Percentage of Plan
Allocation
Assets at December 31
(1)
2021
2020
2019
Equity Securities
65
%
71
%
72
%
Debt Securities
30
%
21
%
19
%
Cash and Cash Equivalents
5
%
8
%
9
%
Total
100
%
100
%
100
%
(1)
Represents asset allocation at December 31 which may differ from the average target allocation for the year due to the year-
end cash contribution to the plan.
The Company’s pension plan assets are overseen by the CCBG Retirement Committee. Capital City Trust Company acts as the
investment manager for the plan. The investment strategy is to maximize return on investments while minimizing risk. The
Company believes the best way to accomplish this goal is to take a conservative approach to its investment strategy by investing
in mutual funds that include various high-grade equity securities and investment-grade debt issuances with varying investment
strategies. The target asset allocation will periodically be adjusted based on market conditions and will operate within the
following investment policy statement allocation ranges: equity securities ranging from
55
% and
81
%, debt securities ranging
from
17
% and
37
%, and cash and cash equivalents ranging from
0
% and
10
%. The overall expected long-term rate of return on
assets is a weighted-average expectation for the return on plan assets. The Company considers historical performance data and
economic/financial data to arrive at expected long-term rates of return for each asset category.
The major categories of assets in the Company’s pension plan at December 31 are presented in the following table. Assets are
segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure
fair value (see Note 22 – Fair Value Measurements).
(Dollars in Thousands)
2020
2019
Level 1:
U.S. Treasury Securities
$
405
$
907
Mutual Funds
155,192
142,127
Cash and Cash Equivalents
12,789
13,943
Level 2:
U.S. Government Agency
1,555
2,078
Corporate Notes/Bonds
1,834
2,591
Total Fair Value of Plan Assets
$
171,775
$
161,646
Expected Benefit Payments.
follows:
(Dollars in Thousands)
2020
2021
$
16,187
2022
15,728
2023
15,280
2024
15,208
2025
14,818
2026 through 2030
61,861
Total
$
139,082
104
Contributions.
The following table details the amounts contributed to the pension plan in 2020 and 2019, and the expected
amount to be contributed in 2021.
Expected
Contribution
(Dollars in Thousands)
2019
2020
2021
(1)
Actual Contributions
$
5,000
$
5,000
$
5,000
(1)
For 2021, the Company will have the option to make a cash contribution to the plan or utilize pre-funding balances.
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan (“SERP”) and a Supplemental Executive Retirement Plan II
(“SERP II”) covering selected executive officers. Benefits under this plan generally are based on the same service and
compensation as used for the pension plan, except the benefits are calculated without regard to the limits set by the Internal
Revenue Code on compensation and benefits. The net benefit payable from the SERP is the difference between this gross benefit
and the benefit payable by the pension plan. The SERP II was adopted by the Company’s Board on May 21, 2020 and covers
certain executive officers that were not covered by the SERP.
The following table details on a consolidated basis the changes in benefit obligation, the funded status of the plan, components of
pension expense, amounts recognized in the Company's consolida ted statements of financial condition, and major assumptions
used to determine these amounts.
105
(Dollars in Thousands)
2020
2019
2018
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
10,244
$
8,860
$
7,285
Service Cost
31
-
-
Interest Cost
321
349
227
Actuarial Loss
1,826
1,035
1,348
Plan Amendments
980
-
-
Projected Benefit Obligation at End of Year
$
13,402
$
10,244
$
8,860
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities
$
13,402
$
10,244
$
8,860
Accumulated Benefit Obligation at End of Year
$
12,339
$
8,778
$
7,557
Components of Net Periodic Benefit Costs:
Service Cost
$
31
$
-
$
-
Interest Cost
321
349
227
Amortization of Prior Service Cost
327
-
-
Net Loss Amortization
503
761
1,626
Net Periodic Benefit Cost
$
1,182
$
1,110
$
1,853
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate
2.38%
3.16%
4.23%
Rate of Compensation Increase
(1)
4.00%
4.00%
4.00%
Measurement Date
12/31/20
12/31/19
12/31/18
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate
3.16%
4.23%
3.53%
Rate of Compensation Increase
(1)
3.50%
3.50%
3.25%
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial Loss
$
1,826
$
1,035
$
1,348
Prior Service Cost
895
-
-
Net Loss
(458)
(761)
(1,626)
Deferred Tax (Benefit) Expense
(573)
(70)
71
Other Comprehensive Loss (Gain), net of tax
$
1,690
$
204
$
(207)
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Loss
$
2,991
$
1,622
$
1,348
Prior Service Cost
895
-
-
Deferred Tax Benefit
(985)
(411)
(341)
Accumulated Other Comprehensive Loss, net of tax
$
2,901
$
1,211
$
1,007
(1)
The Company expects to recognize approximately $
1.2
comprehensive income at December 31, 2020 as a component of net periodic benefit cost during 2021.
106
Expected Benefit Payments
. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2020
2021
$
5,218
2022
4,679
2023
2,882
2024
613
2025
48
2026 through 2030
254
Total
$
13,694
401(k) Plan
The Company has a 401(k) Plan which enables CCB and CCBG associates to defer a portion of their salary on a pre-tax
basis. The plan covers substantially all associates of the Company who meet minimum age requirements. The plan is designed to
enable participants to contribute any amount, up to the maximum annual limit allowed by the IRS, of their compensation withheld
in any plan year placed in the 401(k) Plan trust account. Matching contributions of
50
% from the Company are made up to
6
% of
the participant's compensation for eligible associates. Further, in addition to the 50% match, all associates hired after December
31, 2019 will receive annually a contribution by the Company equal to
3
% of their compensation. For 2020, the Company made
annual matching contributions of $
0.8
0.7
million and $
0.6
options available to 401(k) participants, including the Company’s common stock. A total of
50,000
stock have been reserved for issuance. Shares issued to participants have historically been purchased in the open market.
CCHL, a
51
% owned subsidiary of the Company has a 401(k) Plan available to all CCHL associates who are employed. The plan
allows participants to contribute any amount, up to the maximum annual limit allowed by the IRS, of their compensation withheld
in any plan year placed in the 401(k) Plan trust account. A discretionary matching contribution is determined annually by CCHL.
For 2020, matching contributions were made by CCHL up to
3
% of eligible participant's compensation totaling $
0.5
Other Plans
The Company has a Dividend Reinvestment and Optional Stock Purchase Plan. A total of
250,000
issuance. In recent years, shares for the Dividend Reinvestment and Optional Stock Purchase Plan have been acquired in the open
market and, thus, the Company did not issue any shares under this plan in 2020, 2019 and 2018.
Note 16
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars and Per Share Data in Thousands)
2020
2019
2018
Numerator:
Net Income
$
31,576
$
30,807
$
26,224
Denominator:
Denominator for Basic Earnings Per Share Weighted -Average Shares
16,785
16,770
17,029
Effects of Dilutive Securities Stock Compensation Plans
37
57
43
Denominator for Diluted Earnings Per Share Adjusted Weighted -Average
16,822
16,827
17,072
Basic Earnings Per Share
$
1.88
$
1.84
$
1.54
Diluted Earnings Per Share
$
1.88
$
1.83
$
1.54
107
Note 17
REGULATORY MATTERS
Regulatory Capital Requirements
. The Company (on a consolidated basis) and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on
the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies. A detailed description of these regulatory
capital requirements is provided in the section captioned “Regulatory Considerations – Capital Regulations” section on page 14.
Management believes, at December 31, 2020 and 2019, that the Company and the Bank meet all capital adequacy requirements to
which they are subject. At December 31, 2020, the most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum common equity Tier 1, total risk-based, Tier 1 risk based and Tier 1 leverage
ratios as set forth in the following tables. There are not conditions or events since the notification that management believes have
changed the Bank’s category. The Company and Bank’s actual capital amounts and ratios at December 31, 2020 and 2019 are
presented in the following table.
108
To Be Well -
Capitalized Under
Required
Prompt
For Capital
Corrective
Actual
Adequacy Purposes
Action Provisions
(Dollars in Thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
2020
Common Equity Tier 1:
CCBG
$
281,494
13.71%
$
92,424
4.50%
*
*
CCB
302,147
14.75%
92,177
4.50%
$
133,145
6.50%
Tier 1 Capital:
CCBG
332,494
16.19%
123,232
6.00%
*
*
CCB
302,147
14.75%
122,903
6.00%
163,870
8.00%
Total Capital:
CCBG
355,338
17.30%
164,310
8.00%
*
*
CCB
324,991
15.87%
163,870
8.00%
204,838
10.00%
Tier 1 Leverage:
CCBG
332,494
9.33%
142,560
4.00%
*
*
CCB
302,147
8.49%
142,280
4.00%
177,850
5.00%
2019
Common Equity Tier 1:
CCBG
$
273,676
14.47%
$
85,131
4.50%
*
*
CCB
304,340
16.14%
84,867
4.50%
$
122,585
6.50%
Tier 1 Capital:
CCBG
324,676
17.16%
113,509
6.00%
*
*
CCB
304,340
16.14%
113,156
6.00%
150,874
8.00%
Total Capital:
CCBG
338,582
17.90%
151,345
8.00%
*
*
CCB
318,245
16.87%
150,874
8.00%
188,593
10.00%
Tier 1 Leverage:
CCBG
324,676
11.25%
115,459
4.00%
*
*
CCB
304,340
10.57%
115,168
4.00%
143,960
5.00%
* Not applicable to bank holding companies.
Dividend Restrictions
. In the ordinary course of business, the Company is dependent upon dividends from its banking subsidiary
to provide funds for the payment of dividends to shareowners and to provide for other cash requirements. Banking regulations
may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends
declared would cause the regulatory capital of the Company’s banking subsidiary to fall below specified minimum levels.
Approval is also required if dividends declared exceed the net profits of the banking subsidiary for that year combined with the
retained net profits for proceeding two years. In 2021, the bank subsidiary may declare dividends without regulatory approval of
$
31.7
dividend declaration.
Note 18
OTHER COMPREHENSIVE INCOME (LOSS)
FASB Topic ASC 220, “Comprehensive Income” requires that certain transactions and other economic events that bypass the
income statement be displayed as other comprehensive income. Total comprehensive income is reported in the consolidated
statements of comprehensive income and changes in shareowners ’ equity.
109
The following table summarizes the tax effects for each component of other comprehensive income (loss) and includes
separately the reclassification adjustment for investment securities and benefit plans:
Before
Tax
Net of
Tax
(Expense)
Tax
(Dollars in Thousands)
Amount
Benefit
Amount
2020
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
$
2,437
$
(628)
$
1,809
Amortization of losses on securities transferred from available for sale to
held to maturity
36
(9)
27
Total Investment Securities
2,473
(637)
1,836
Derivative:
Change in net unrealized gain (loss) on effective cash flow hedge
$
574
$
(146)
$
428
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
(880)
223
(657)
Reclassification adjustment for amortization of net loss
4,391
(1,113)
3,278
Current year actuarial loss
(27,924)
7,078
(20,846)
Total Benefit Plans
(24,413)
6,188
(18,225)
Total Other Comprehensive Loss
$
(21,366)
$
5,405
$
(15,961)
2019
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
$
3,790
$
(950)
$
2,840
Amortization of losses on securities transferred from available for sale to
held to maturity
43
(11)
32
Total Investment Securities
3,833
(961)
2,872
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
15
(4)
11
Reclassification adjustment for amortization of net loss
4,623
(1,170)
3,453
Current year actuarial loss
(7,642)
1,940
(5,702)
Total Benefit Plans
(3,004)
766
(2,238)
Total Other Comprehensive Income
$
829
$
(195)
$
634
2018
Investment Securities:
Change in net unrealized gain (loss) on securities available for sale
$
(409)
$
103
$
(306)
Amortization of losses on securities transferred from available for sale to
held to maturity
55
(14)
41
Total Investment Securities
(354)
89
(265)
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
199
(50)
149
Reclassification adjustment for amortization of net loss
5,299
(1,346)
3,953
Current year actuarial loss
(815)
207
(608)
Total Benefit Plans
4,683
(1,189)
3,494
Total Other Comprehensive Income
$
4,329
$
(1,100)
$
3,229
110
Accumulated other comprehensive loss was comprised of the following components:
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
for Sale
Swap
Plans
Loss
Balance as of January 1, 2020
$
864
$
-
$
(29,045)
$
(28,181)
Other comprehensive income (loss) during the period
1,836
428
(18,225)
(15,961)
Balance as of December 31, 2020
$
2,700
$
428
$
(47,270)
$
(44,142)
Balance as of January 1, 2019
$
(2,008)
$
-
$
(26,807)
$
(28,815)
Other comprehensive income (loss) during the period
2,872
-
(2,238)
634
Balance as of December 31, 2019
$
864
$
-
$
(29,045)
$
(28,181)
Balance as of January 1, 2018
$
(1,743)
$
-
$
(30,301)
$
(32,044)
Other comprehensive (loss) income during the period
(265)
-
3,494
3,229
Balance as of December 31, 2018
$
(2,008)
$
-
$
(26,807)
$
(28,815)
Note 19
RELATED PARTY TRANSACTIONS
At December 31, 2020 and 2019, certain officers and directors were indebted to the Company’s bank subsidiary in the aggregate
amount of $
4.3
7.7
3.3
$
6.7
Deposits from certain directors, executive officers, and their related interests totaled $
41.9
29.7
31, 2020 and 2019, respectively.
Under a lease agreement expiring in 2024, the Bank leases land from a partnership in which William G. Smith, Jr. has an interest.
The lease agreement with Smith Interests General Partnership L.L.P. provides for annual lease payments of approximately
$
212,000
, to be adjusted for inflation in future years.
William G. Smith, III, the son of our Chairman, President and Chief Executive Officer, William G. Smith, Jr., is employed as
President, Leon County at Capital City Bank. In 2020, William G. Smith, III’s total compensation (consisting of annual base
salary, annual bonus, and stock-based compensation) was determined in accordance with the Company’s standard employment
and compensation practices applicable to associates with similar responsibilities and positions.
Note 20
OTHER NONINTEREST EXPENSE
Components of other noninterest expense in excess of 1% of the sum of total interest income and noninterest income, which are
not disclosed separately elsewhere, are presented below for each of the respective years.
(Dollars in Thousands)
2020
2019
2018
Legal Fees
$
1,570
$
1,722
$
2,055
Professional Fees
4,863
4,345
5,003
Telephone
2,869
2,645
2,224
Advertising
2,998
2,056
1,611
Processing Services
5,832
5,779
5,978
Insurance – Other
1,607
1,007
1,625
Pension – Other
(216)
1,642
1,828
Other
11,396
9,079
9,197
Total
$
30,919
$
28,275
$
29,521
111
Note 21
COMMITMENTS AND CONTINGENCIES
Lending Commitments
. The Company is a party to financial instruments with off -balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and
standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing
commitments and issuing letters of credit as it does for on-balance sheet instruments. At December 31, the amounts associated
with the Company’s off-balance sheet obligations were as follows:
2020
2019
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
(1)
$
160,372
$
596,572
$
756,944
$
114,903
$
404,345
$
519,248
Standby Letters of Credit
6,550
-
6,550
5,783
-
5,783
Total
$
166,922
$
596,572
$
763,494
$
120,686
$
404,345
$
525,031
(1)
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 the Company to guarantee the performance of a client to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In
general, management does not anticipate any material losses as a result of participating in these types of transactions. However,
any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other
credit facilities.
For both on- and off-balance sheet financial instruments, the Company requires collateral to support such instruments when it is
deemed necessary. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies, but
may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; real estate; accounts
receivable; property, plant and equipment; and inventory.
Other Commitments
. In the normal course of business, the Company enters into lease commitments which are classified as
operating leases. See Note 7 – Leases for additional information on the maturity of the Company’s operating lease commitments.
Contingencies
. The Company is a party to lawsuits and claims arising out of the normal course of business. In management's
opinion, there are no known pending claims or litigation, the outcome of which would, individually or in the aggregate, have a
material effect on the consolidated results of operations, financial position, or cash flows of the Company.
Indemnification Obligation
. The Company is a member of the Visa U.S.A. network. Visa U.S.A believes that its member banks
are required to indemnify it for potential future settlement of certain litigation (the “Covered Litigation”) that relates to several
antitrust lawsuits challenging the practices of Visa and MasterCard International. In 2008, the Company, as a member of the Visa
U.S.A. network, obtained Class B shares of Visa, Inc. upon its initial public offering. Since its initial public offering, Visa, Inc.
has funded a litigation reserve for the Covered Litigation resulting in a reduction in the Class B shares held by the Company.
During the first quarter of 2011, the Company sold its remaining Class B shares. Associated with this sale, the Company entered
into a swap contract with the purchaser of the shares that requires a payment to the counterparty in the event that Visa, Inc. makes
subsequent revisions to the conversion ratio for its Class B shares. Fixed charges included in the swap liability are payable
quarterly until the litigation reserve is fully liquidated and at which time the aforementioned swap contract will be terminated.
Payments during 2020 totaled $
711,000
. Conversion ratio payments and ongoing fixed quarterly charges are reflected in earnings
in the period incurred.
112
Note 22
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an
orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such
asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach,
the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques
include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820 establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has
the ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
are derived principally from, or corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own
assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale.
U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities
classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, credit
information and the bond’s terms and conditions, among other things.
In general, the Company does not purchase securities that have a complicated structure. The Company’s entire portfolio consists
of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through
securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is easily obtained. At least
annually, the Company will validate prices supplied by the independent pricing service by comparing them to prices obtained
from an independent third-party source.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined, when
possible, using either quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value is
determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used
by other market participants. The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation
models incorporating market pricing for instruments with similar characteristics, commonly referred to as best execution pricing,
or investor commitment prices for best effort IRLCs which have unobservable inputs, such as an estimate of the fair value of the
servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through
rate, and are therefore classified as Level 3 within the fair value hierarchy. The fair value of forward sale commitments is based
on observable market pricing for similar instruments and are therefore classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are classified as level 2 within the fair value hierarchy and are valued
using models generally accepted in the financial services industry and that use actively quoted or observable market input values
from external market data providers. The fair value derivatives are determined using discounted cash flow models.
Fair Value Swap
. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The
valuation represents the amount due and payable to the counterparty based upon the revised share conversion rate, if any, during
the period. At December 31, 2020, there were no amounts payable.
113
A summary of fair values for assets and liabilities at December 31 consisted of the following:
(Dollars in Thousands)
Level 1
Level 2
Level 3
Total Fair
Inputs
Inputs
Inputs
Value
2020
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
104,519
$
-
$
-
$
104,519
U.S. Government Agency
-
208,531
-
208,531
States and Political Subdivisions
-
3,632
-
3,632
Mortgage-Backed Securities
-
515
-
515
Equity Securities
-
7,673
-
7,673
Held for Sale Loans
-
114,039
-
114,039
Interest Rate Swap Derivative Asset
-
574
-
574
Mortgage Banking Derivative Assets
-
-
4,825
4,825
LIABILITIES:
Mortgage Banking Derivative Liabilities
-
907
-
907
2019
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
232,778
$
-
$
-
$
232,778
U.S. Government Agency
-
156,078
-
156,078
State and Political Subdivisions
-
6,319
-
6,319
Mortgage-Backed Securities
-
773
-
773
Equity Securities
-
7,653
-
7,653
Mortgage Banking Activities.
The Company had Level 3 issuances and transfers of $
50.7
56.0
March 1, 2020 to December 31, 2020 related to mortgage banking activities. Issuances are valued based on the change in fair
value of the underlying mortgage loan from inception of the IRLC to the balance sheet date, adjusted for pull -through rates and
costs to originate. IRLCs transferred out of Level 3 represent IRLCs that were funded and moved to mortgage loans held for sale,
at fair value.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of
impairment. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Collateral Dependent Loans
. Impairment for collateral dependent loans is measured using the fair value of the collateral less
selling costs. The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with
banking regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the
judgment and estimation involved in the real estate appraisal process. Collateral dependent loans are reviewed and evaluated on
at least a quarterly basis for additional impairment and adjusted accordingly. Valuation techniques are consistent with those
techniques applied in prior periods. Collateral dependent loans had a carrying value of $
7.1
$
0.1
Other Real Estate Owned
. During 2020 and 2019, certain foreclosed assets, upon initial recognition, were measured and reported
at fair value through a charge-off to the allowance for loan losses based on the fair value of the foreclosed asset less estimated
cost to sell. The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in
conformance with banking regulations. On an ongoing basis, we obtain updated appraisals on foreclosed assets and record
valuation adjustments as necessary. The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment and
estimation involved in the real estate valuation process.
114
Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment at each reporting period
based upon the fair value of the rights as compared to the carrying amount. Fair value is determined by a third party valuation
model using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note interest rate). The fair value is estimated using Level 3
inputs, including a discount rate, weighted average prepayment speed, and the cost of loan servicing. Further detail on the key
inputs utilized are provided in Note 4 – Mortgage Banking Activities. At December 31, 2020, there was a $
250,000
allowance for mortgage servicing rights.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation methodologies used for those assets and liabilities.
Cash and Short-Term Investments.
The carrying amount of cash and short-term investments is used to approximate fair value,
given the short time frame to maturity and as such assets do not present unanticipated credit concerns.
Securities Held to Maturity
. Securities held to maturity are valued in accordance with the methodology previously noted in the
caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale”.
Loans.
techniques based upon projected cash flows and estimated discount rates. Pursuant to the adoption of ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial Liabilities
, the values reported reflect the incorporation of a liquidity
discount to meet the objective of “exit price” valu ation.
Deposits.
the amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using
present value techniques and rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payab le.
flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings.
projected cash flows and estimated discount rates as well as rates being offered for similar debt.
A summary of estimated fair values of significant financial instruments at December 31 consisted of the following:
2020
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
67,919
$
67,919
$
-
$
-
Short-Term Investments
860,630
860,630
-
-
Investment Securities, Available for Sale
324,870
104,519
220,351
-
Investment Securities, Held to Maturity
169,939
5,014
170,161
-
Loans Held for Sale
114,039
-
114,039
-
Other Equity Securities
(1)
3,589
-
3,589
-
Interest Rate Swap Derivative Asset
574
-
574
-
Mortgage Banking Derivative Asset
4,825
-
-
4,825
Mortgage Servicing Rights
3,452
-
-
3,451
Loans, Net of Allowance for Credit Losses
1,982,610
-
-
1,990,740
LIABILITIES:
Deposits
$
3,217,560
$
-
$
3,217,615
$
-
Short-Term Borrowings
79,654
-
79,654
-
Subordinated Notes Payable
52,887
-
43,449
-
Long-Term Borrowings
3,057
-
3,174
-
Mortgage Banking Derivative Liability
907
-
907
-
(1)
115
2019
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
60,087
$
60,087
$
-
$
-
Short-Term Investments
318,336
318,336
-
-
Investment Securities, Available for Sale
403,601
232,778
170,823
-
Investment Securities, Held to Maturity
239,539
20,042
221,387
-
Loans Held for Sale
9,509
-
9,509
-
Other Equity Securities
3,591
-
3,591
-
Loans, Net of Allowance for Credit Losses
1,822,024
-
-
1,804,930
LIABILITIES:
Deposits
$
2,645,454
$
-
$
2,644,430
$
-
Short-Term Borrowings
6,404
-
6,404
-
Subordinated Notes Payable
52,887
-
40,280
-
Long-Term Borrowings
6,514
-
6,623
-
All non-financial instruments are excluded from the above table. The disclosures also do not include goodwill. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of the Company.
Note 23
PARENT COMPANY FINANCIAL INFORMATION
The following are condensed statements of financial condition of the parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands, Except Per Share Data)
2020
2019
ASSETS
Cash and Due From Subsidiary Bank
$
39,718
$
28,924
Investment in Subsidiary Bank
342,958
359,577
Other Assets
6,530
5,884
Total Assets
$
389,206
$
394,385
LIABILITIES
Long-Term Borrowings
$
900
$
1,500
Subordinated Notes Payable
52,887
52,887
Other Liabilities
14,582
12,982
Total Liabilities
68,369
67,369
SHAREOWNERS’ EQUITY
Common Stock, $
.01
90,000,000
16,790,573
16,771,544
issued and outstanding at December 31, 2020 and December 31, 2019, respectively
168
168
Additional Paid-In Capital
32,283
32,092
Retained Earnings
332,528
322,937
Accumulated Other Comprehensive Loss, Net of Tax
(44,142)
(28,181)
Total Shareowners’ Equity
320,837
327,016
Total Liabilities and Shareowners’ Equity
$
389,206
$
394,385
116
The operating results of the parent company for the three years ended December 31 are shown below:
Parent Company Statements of Operations
(Dollars in Thousands)
2020
2019
2018
OPERATING INCOME
Income Received from Subsidiary Bank:
Administrative Fees
$
6,068
$
6,517
$
5,700
Dividends
21,000
19,000
15,000
Other Income
193
203
171
Total Operating Income
27,261
25,720
20,871
OPERATING EXPENSE
Salaries and Associate Benefits
3,418
3,928
3,679
Interest on Subordinated Notes Payable
1,514
2,381
2,286
Professional Fees
1,079
1,196
1,210
Advertising
140
157
106
Legal Fees
456
391
166
Other
1,673
1,711
2,170
Total Operating Expense
8,280
9,764
9,617
Earnings Before Income Taxes and Equity in Undistributed
Earnings of Subsidiary Bank
18,981
15,956
11,254
Income Tax (Benefit) Expense
(406)
(632)
(901)
Earnings Before Equity in Undistributed Earnings of Subsidiary Bank
19,387
16,588
12,155
Equity in Undistributed Earnings of Subsidiary Bank
12,189
14,219
14,069
Net Income
$
31,576
$
30,807
$
26,224
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
2020
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income
$
31,576
$
30,807
$
26,224
Adjustments to Reconcile Net Income to Net Cash Provided By
Equity in Undistributed Earnings of Subsidiary Bank
(12,189)
(14,219)
(14,069)
Stock Compensation
892
1,569
1,421
(Increase) Decrease in Other Assets
(217)
(445)
(327)
Increase in Other Liabilities
1,900
1,557
1,579
Net Cash Provided By Operating Activities
21,962
19,269
14,828
CASH FROM FINANCING ACTIVITIES:
Repayment of Long-Term Borrowings
(600)
(600)
(600)
Dividends Paid
(9,567)
(8,047)
(5,457)
Issuance of Common Stock Under Compensation Plans
1,041
1,054
797
Payments to Repurchase Common Stock
(2,042)
(1,805)
(8,030)
Net Cash Used In Financing Activities
(11,168)
(9,398)
(13,290)
Net Increase in Cash
10,794
9,871
1,538
Cash at Beginning of Year
28,924
19,053
17,515
Cash at End of Year
$
39,718
$
28,924
$
19,053
117
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
. At December 31, 2020, the end of the period covered by this Annual Report
on Form 10-K, 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, our Chief Executive Officer and Chief Financial Officer each concluded that at December 31, 2020, the end of the
period covered by this Annual Report on Form 10-K, we maintained effective disclosure controls and procedures.
Management’s Report on Internal Control Over Financial Reporting.
maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of
its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other
financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity
with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). As allowed for by the SEC under the current year acquisition scope exception,
management’s assessment of the effectiveness of the internal control over financial reporting excluded the evaluation of internal
controls over financial reporting of Capital City Home Loans, LLC, which was acquired on March 1, 2020. As part of this
acquisition, we recorded approximately $52 million in total assets. Based on this evaluation under the framework in Internal
Control - Integrated Framework, our management has concluded we maintained effective internal control over financial reporting,
as such term is defined in Securities Exchange Act of 1934 Rule 13a-15(f), at December 31, 2020.
Ernst & Young LLP, an independent registered public accounting firm, has audited our consolidated financial statements as of
and for the year ended December 31, 2020, and opined as to the effectiveness of internal control over financial reporting at
December 31, 2020, as stated in its attestation report, which is included herein on page 118.
Change in Internal Control
. Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed
our internal control. There have been no changes in our internal control during our most recently completed fiscal quarter that
materially affected, or are likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
118
Report of Independent Registered Public Accounting Firm
To the Shareowners and the Board of Directors of Capital City Bank Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Capital City Bank Group, Inc.’s internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Capital City Bank Group, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the
COSO criteria.
As indicated in the accompanying
Management’s Report on Internal Control over Financial Reporting
, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls
of Capital City Home Loans, LLC, which is included in the 2020 consolidated financial statements of Capital City Bank Group,
Inc. and constituted $52 million in total assets as of March 1, 2020. Our audit of internal control over financial reporting of the
Company also did not include an evaluation of the internal control over financial reporting of Capital City Home Loans, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, changes in shareowners’ equity, and cash flows for each of the three
years in the period ended December 31, 2020, and the related notes of the Company and our report dated March 1, 2021
expressed
an unqualified opinion thereon
.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordan ce with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tallahassee, Florida
March 1, 2021
119
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Incorporated herein by reference to the sections entitled “Proposal No. 1 – Election of Directors”, “Corporate Governance at
Capital City,” “Share Ownership” and “Board Committee Membership” in the Registrant’s Proxy Statement relating to its Annual
Meeting of Shareowners to be held April 27, 2021.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis,” “Executive Compensation”
and “Director Compensation” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April
27, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowners Matters.
Information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the sections
captioned “Share Ownership” and “Equity Compensation Plan Information” in the Registrant’s Proxy Statement relating to its
Annual Meeting of Shareowners to be held April 27, 2021.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to the sections entitled “Transactions With Related Persons” and “Corporate Governance at
Capital City” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 27, 2021.
Item 14.
Principal Accountant Fees and Services
Incorporated herein by reference to the section entitled “Audit Committee Matters” in the Registrant’s Proxy Statement relating to
its Annual Meeting of Shareowners to be held April 27, 2021.
120
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2020, 2019, and 2018
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the
financial statements or the notes thereto.
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
3.1
3.2
4.1 See Exhibits 3.1 and 3.2 for provisions of Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, which define the rights of the Registrant’s shareowners.
4.2
4.3
4.4
4.5 In accordance with Regulation S-K, Item 601(b)(4)(iii)(A) certain instruments defining the rights of
holders of long-term debt of Capital City Bank Group, Inc. not exceeding 10% of the total assets of
Capital City Bank Group, Inc. and its consolidated subsidiaries have been omitted; the Registrant
agrees to furnish a copy of any such instruments to the Commission upon request.
10.1
10.2
10.3
10.6
10.7
121
10.8
11
14
21
**
23.1
**
31.1
**
31.2
**
32.1
**
32.2
**
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
*
Information required to be presented in Exhibit 11 is provided in Note 14 to the consolidated financial statements under
Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting principles.
**
Filed electronically herewith.
Item 16. Form 10-K Summary
None.
122
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 1, 2021, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 1, 2021 by the
following persons in the capacities indicated.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ J. Kimbrough Davis
J. Kimbrough Davis
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
123
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 1, 2021, on its behalf by the undersigned, thereunto duly authorized.
Directors:
/s/ Robert Antoine
/s/ Marshall M. Criser III
/s/ Thomas A. Barron
/s/ J. Everitt Drew
/s/ Allan G. Bense
/s/ Eric Grant
Eric Grant
/s/ Frederick Carroll III
/s/ Laura Johnson
/s/ Stanley W. Connally, Jr.
/s/ John G. Sample, Jr
/s/ Cader B. Cox, III
/s/ William G. Smith, Jr.