UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
(Exact name of Registrant as specified in its charter)
(State of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
,
,
(Address of principal executive offices)
(Zip Code)
(
)
(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
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
☐
☒
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
☐
☒
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
☐
☒
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
☐
☒
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, 2021,
the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $
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, 2022
Common Stock, $0.01 par value per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 26, 2022, are incorporated by reference in Part III.
2
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2021 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1.
4
Item 1A.
19
Item 1B.
30
Item 2.
30
Item 3.
30
Item 4.
PART II
Item 5.
31
Item 6.
33
Item 7.
35
Item 7A.
57
Item 9.
113
Item 9A.
113
Item 9B.
113
PART III
Item 10.
115
Item 11.
115
Item 12.
115
Item 13.
115
Item 14.
115
PART IV
Item 15.
116
Item 16.
117
118
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 computer 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 allowance for
credit losses, 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.
CCBG is one of the largest publicly traded financial holding companies headquartered in Florida and has approximately $4.3
billion in assets. We provide a full range of banking services, including traditional deposit and credit services, mortgage banking,
asset management, trust, merchant services, bankcards, securities brokerage services and financial advisory services, including the
sale of life insurance, risk management and asset protection services. The Bank has 57 banking offices and 86 ATMs/ITMs in
Florida, Georgia and Alabama. Through Capital City Home Loans, LLC, a Georgia limited liability company (“CCHL”), we
have 26 additional offices in the Southeast for our mortgage banking business. 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 54% of the revenue from CCHL is derived from
our Georgia market areas while approximately 38% and 8% 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 35 and our consolidated financial statements on page 62.
Dollars in millions
Year Ended
December 31,
Assets
Deposits
Shareowners’
Equity
Revenue
(1)
Net Income
2021
$4,263.8
$3,712.9
$383.2
$213.9
$33.4
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
(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, 2021. CCBG also maintains an insurance subsidiary,
Capital City Strategic Wealth, Inc. CCB has two primary subsidiaries, which are wholly owned, Capital City Trust Company and
Capital City Investments, Inc. CCB 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 two principal services: Banking Services and Wealth Management Services. Banking
Services are operated at CCB and Wealth Management Services are operated under three separate subsidiaries (Capital City Trust
Company, Capital City Investments, Inc., and Capital City Strategic Wealth, Inc.). Revenues from these principal services for the
year ended 2021 totaled approximately 93.2% and 6.8% of our total revenue, respectively. In 2020 and 2019, Banking Services
(CCB) revenue was approximately 94.7% and 95.3% 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 (ATMs/ITMs), 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 $1.080 billion at December 31, 2021 with total assets under administration exceeding $1.098 billion.
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.
6
Capital City Strategic Wealth, Inc.
We provide a multi-disciplinary strategic planning approach that requires examining all facets of our clients’ financial lives
through our business, estate, financial, insurance and business planning, tax planning, and asset protection advisory services.
Insurance sales within this division include life, health, disability, long-term care, and annuity solutions.
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).
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, 2021, approximately 65% 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.
7
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.
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
many in Florida and Georgia. 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 2022. 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
2007-2009 downturn was approved for a Florida-based bank and additional Florida chartered banks have been approved
subsequently. While the number of new bank formations has not returned to pre-downturn levels, increased
de novo
applications could signal additional competition 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 37% of our consolidated
deposits at December 31, 2021.
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
2021
2020
2019
Florida
4.6%
4.5%
4.5%
0.2%
0.0%
N/A
32.4%
30.6%
40.2%
4.1%
3.6%
3.4%
2.8%
2.0%
2.1%
18.9%
18.7%
19.4%
81.1%
80.8%
81.6%
39.6%
38.7%
39.7%
14.6%
12.8%
12.6%
3.9%
3.5%
2.9%
24.4%
23.0%
21.9%
11.9%
13.3%
13.1%
26.4%
24.2%
25.0%
14.5%
14.0%
13.7%
23.2%
20.7%
20.8%
0.7%
0.6%
0.6%
6.8%
7.1%
6.7%
73.2%
72.4%
23.0%
10.5%
8.3%
9.3%
11.2%
11.0%
13.1%
Georgia
3.3%
3.2%
2.7%
14.8%
14.0%
13.0%
7.9%
8.4%
8.3%
6.1%
6.5%
6.3%
Alabama
9.3%
9.6%
8.7%
(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 Matters
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 14, 2022, we had approximately 751 associates, which included approximately 718 full-time associates and
approximately 33 part-time associates. None of our associates are represented by a labor union or covered by a collective
bargaining agreement. At February 14, 2022, approximately 73% of our current workforce was female while 27% was male, and
approximately 20% are ethnic minorities. The average tenure of our associates was approximately 10 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. In 2021, we
formed the Diversity, Equity and Inclusion (DE&I) Charter and formed the DE&I Council. Our DE&I Council consists of a
diverse group of members from all levels of the organization. The Council’s focus is on diversity and inclusion in our workforce,
workplace, and community. They are responsible for connecting our diversity and inclusion activities with our broader business
strategies. Additionally, we created a Chief Diversity Officer position to provide direction and leadership as we build processes,
initiatives, and special programs aimed at DE&I. Additionally during 2021, we partnered with a third party DE&I firm whose
mission is to embed equity and inclusion into work systems and culture, enhancing outcomes for employees and customers. Our
partnership will further develop and enhance our DE&I plan and includes development of focus group conversations, interviews
with Senior Leadership, research of existing policies and documentation and outline of gaps in existing policies. All associates
receive DE&I education, awareness and training each year. In January 2022, we added four new directors to our CCBG Board of
Directors. Of these four directors 50% are white males, 25% minority female and 25% non-minority female. The CCBG outside
directors are made up of 11 non-shareowner individuals. Of the 11 individuals, 27% are female and 18% are ethnic minority. We
continue to focus 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. Our commitment to help our community starts with our 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. We recorded 8,697, 8,169, and
15,034 community service hours in 2021, 2020 and 2019, respectively. Furthermore, our Foundation donated $0.2 million each
year, for the years 2019-2021, to various non -profit organizations in the communities we serve. Our community commitment to
further financial literacy in our market remains an ongoing goal and focus for our associates and directors. We continue to focus
on ways to better our communities in which we operate through monetary resources and volunteer hours.
Access, affordability, and financial inclusion.
In 2021, our foundation made grants totaling approximately $0.1 million to
Community Reinvestment Act eligible organizations in our market area. Working with CCHL, we are committed to providing
educational outreach regarding home ownership and financial access for minorities. We are a long-time supporter of Habitat for
Humanity, with our associates providing volunteer hours on home builds. In late 2020, we partnered with Habitat for Humanity,
Warrick Dunn Charities, and Capital City Home Loans to build and furnish a home in early 2021. During tax season, we provide
locations for community residents to access Volunteer Income Tax Assistance (VITA) services. VITA is a nationwide IRS
program that offers free tax preparation assistance to people who generally make $54,000 or less, persons with disabilities, the
elderly, and limited English speaking taxpayers who need assistance in preparing their own tax returns.
Small Business Lending.
We are focused on supporting small businesses throughout our communities. The global pandemic
exposed the challenges of small business. Capital City Bank is proud to have participated in the Paycheck Protection Program
(PPP), originating 3,508 loans totaling more than $263 million. During the pandemic, our company financially supported locally-
owned restaurants to provide meals and gift cards for our associates.
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. We also offer choices to our associates
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 included having
the option for our non-critical on site associates to work from home, while implementing additional safety measures for associates
continuing critical on-site work. We continue to follow local and federal guidance, including guidance prescribed by the Centers
for Disease Control and Prevention (“CDC”), regarding COVID-19 precautions and health measures.
10
Environmental Matters
We are responsible for protecting our planet and understand that reducing our business’s carbon footprint is key to a sustainable
future. We are committed to measuring and minimizing our collective impact on the environment while contributing to
environmental stewardship and responsible business operations. We strive to embed environmental sustainability throughout our
products, services, operations, and culture to drive efficiencies and responsible resource use while creating comfortable, safe, and
healthy workplaces for our associates.
As part of our corporate responsibility, we continue to focus our efforts on sustainability
within our business and our community.
We are focused on sustainability and resource conservation and, as a result, seek to reduce resource consumption through
efficiency initiatives in our branches and offices. We do this through company-wide recycling programs, the implementation of
LED lighting in our workplaces, and working to reduce our reliance on disposable products. As we renovate or build new
facilities, we try to leverage renewable sources for power and HVAC through the employment of solar panels. During 2021 we
purchased renewable energy certificates to offset our energy usage during the year and plan on continuing this practice in 2022.
We have also invested in tools and capabilities that allow our team members to work remotely as appropriate. We work hard to
ensure that our lending activities do not encourage business activities that could cause irreparable damage to our reputation or the
environment. As a result, we try to conduct business responsibly and actively work with shareowners to best serve our various
constituents. We monitor the environmental, social, and human rights risks of our customers along with credit risks. This process
involves management and Board oversight and controls such as enhanced due diligence and a reputation risk review. In general,
we evaluate each credit or transaction on its individual merits, with larger deals receiving more attention and deeper analysis.
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 bank holding company under the Bank Holding
Company Act of 1956 (“BHC Act”) and have also elected to be a financial holding company. As a result, we are subject to
supervisory regulation and examination by the Federal Reserve. The BHC Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Gramm-Leach-Bliley Financial Modernization 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 reformed 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.
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.
11
Changes in Control
Subject to certain exceptions, the BHC Act and the Change in Bank Control Act (“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. It 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 so we are subject to these rules.
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. The 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. 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.
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 these capital 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.
12
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 their 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 regulatio ns. 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.
As a Florida state-chartered bank, 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 certain 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.
13
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 material 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.
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, financial institutions are now 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.
In addition, Florida law and Federal regulation place restrictions on the declaration of dividends from state chartered banks to
their holding companies. Under the Florida Financial Institutions Code, the board of directors of a state-chartered bank, after it
charges off bad debts, depreciation and other worthless assets, if any, and makes 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. In addition, with the approval of the Florida
Office of Financial Regulation and Federal Reserve, the bank’s board of directors may 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. However, a Florida 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.
14
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 affili ates, 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.
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.
In September 2020, the Federal Reserve issued an Advance Notice of Proposed Rulemaking ("ANPR") that invited public
comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to
reflect the current banking landscape and better meet the core purpose of the CRA. The ANPR sought feedback on ways to
evaluate how banks meet the needs of low- and moderate -income communities and address inequities in credit access. We
continue to evaluate the impact of any CRA changes and their impact to our financial condition, results of operations, and
liquidity, which cannot be predicted at this time.
15
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. These risk-based capital guidelines were designed to make
regulatory capital requirements more sensitive to differences 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.
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 implemented strict eligibility criteria for regulatory capital instruments and improved the
methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel III
framework, the rules included a new minimum ratio of Common Equity Tier 1 Capital to Risk-Weighted Assets of 4.5%. The
rules also created 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 raised the
minimum ratio of Tier 1 Capital to Risk-Weighted Assets from 4% to 6% and included 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. AOCI generally flows through to regulatory capital, however, community banks and their holding companies
were allowed 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 rules also permitted 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 would not qualify for Tier 1
capital treatment.
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, 2021, CCB’s ratio of construction, land development and other land loans to total risk-based capital was 71%,
its ratio of total commercial real estate loans to total risk-based capital was 188% 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.
16
Prompt Corrective Action
The federal banking agencies are required to take "prompt corrective action" with respect to financial institutions that do not meet
minimum capital requirements. The law establishes five categories for this purpose: "well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically undercapitalized." To be considered "well-capitalized," an
insured depository institution must maintain minimum capital ratios and must not be subject to any order or written directive to
meet and maintain a specific capital level for any capital measure. An institution that fails to remain well-capitalized becomes
subject to a series of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a
prohibition on capital distributions, restrictions on asset growth or restrictions on the ability to receive regulatory approval of
applications. The regulations apply only to banks and not to BHCs. However, the Federal Reserve is authorized to take
appropriate action at the holding company level, based on the undercapitalized status of the holding company's subsidiary banking
institutions. In certain instances relating to an undercapitalized banking institution, the BHC would be required to guarantee the
performance of the undercapitalized subsidiary's capital restoration plan and could be liable for civil money damages for failure to
fulfill those guarantee commitments.
In addition, failure to meet capital requirements may cause an institution to be directed to raise additional capital. Federal law
further mandates that the agencies adopt safety and soundness standards generally relating to operations and management, asset
quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.
Failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including
additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain
conditions, the appointment of a conservator or receiver.
At December 31, 2021, 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 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (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 BSA Acts and the related federal regulations require banks to establish anti-money laundering
programs that include policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and
to verify the identity of their customers and of beneficial owners of their legal entity customers.
The Anti-Money Laundering Act ("AMLA"), which amends the BSA, was enacted in early 2021. The AMLA is intended to be a
comprehensive reform and modernization of U.S. bank secrecy and anti-money laundering laws. In particular, it codifies a risk-
based approach to anti-money laundering compliance for financial institutions, requires the U.S. Department of the Treasury to
promulgate priorities for anti-money laundering and countering the financing of terrorism policy, requires the development of
standards for testing technology and internal processes for BSA compliance, expands enforcement- and investigation-related
authority (including increasing available sanctions for certain BSA violations), and expands BSA whistleblower incentives and
protections.
Many AMLA provisions will require additional rulemakings, reports and other measures, and the impact of the AMLA will
depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement
Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the
financing of terrorism policy required under the AMLA. The priorities include corruption, cybercrime, terrorist financing, fraud,
transnational crime, drug trafficking, human trafficking and proliferation financing.
17
There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Office of
Foreign Assets Control of the U.S. Department of Treasury, or “OFAC.” OFAC administers and enforces economic and trade
sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities
related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of
the United States, based on U.S. foreign policy and national security goals. OFAC issues regulations that restrict transactions by
U.S. persons or entities (including banks), located in the U.S. or abroad, with certain foreign countries, their nationals or
“specially designated nationals.” OFAC regularly publishes listings of foreign countries and designated nationals that are
prohibited from conducting business with any U.S. entity or individual. While OFAC is responsible for promulgating, developing
and administering these controls and sanctions, all of the bank regulatory agencies are responsible for ensuring that financial
institutions comply with these regulations.
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 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
disclosures and regulate the manner in which financial institutions must deal with clients when taking deposits or making loans to
clients. CCB must comply with 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, the more recent TILA-
RESPA Integrated Disclosure, or TRID, rules for mortgage closings have impacted our loan applications. These rules, including
the required loan forms, generally increased the time it takes to approve mortgage loans.
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.
18
Legislative and Regulatory Responses to the COVID-19 Pandemic
The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of
individuals throughout the world. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act,
was signed into law. The CARES Act was a $2.2 trillion economic stimulus bill that was intended to provide relief in response to
the COVID-19 pandemic. There have also been a number of regulatory actions intended to help mitigate the adverse economic
impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring
financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.
The bank regulatory agencies ensured that adequate flexibility will be given to financial institutions that work with borrowers
affected by the COVID-19 pandemic and further indicated that the regulators would not criticize institutions that do so in a safe and
sound manner. Further, the bank regulatory agencies have encouraged financial institutions to report accurate information to credit
bureaus regarding relief provided to borrowers and have urged the importance of financial institutions to continue assisting those
borrowers impacted by the COVID-19 pandemic. In 2020, the bank regulatory agencies also issued a joint policy statement to
facilitate mortgage servicers’ ability to place consumers in short-term payment forbearance programs. This policy statement was
followed by an interim final rule that makes it easier for consumers to transition out of financial hardship caused by the COVID-19
pandemic. The rule makes it clear that servicers do not violate Regulation X (which places restrictions and requirements upon
lenders, mortgage brokers, or servicers of home loans related to consumers when they apply for and receive mortgage loans) by
offering certain COVID-19-related loss mitigation options based on an evaluation of limited application information collected from
the borrower. A final rule issued by the bank regulatory agencies on June 28, 2021 permits servicers to also offer certain COVID-
19 related loan modification options based on the evaluation of an incomplete application. Federal and state moratoria on evictions
and foreclosures that were implemented during 2020 in response to COVID-19 were extended late into 2021. Although these
programs generally have expired, governmental authorities may take additional actions in the future to limit the adverse impact of
COVID-19 on borrowers and tenants.
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. The PPP
authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations.
These loans carry an interest rate of 1% per annum and a maturity of two years for loans originated prior to June 5, 2020 and five
years for loans originated on or after June 5, 2020. The PPP provides that such loans may be forgiven if the borrowers meet certain
requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is
originated. The initial phase of the PPP, after being extended multiple times by Congress, expired on August 8, 2020. However, on
January 11, 2021, the SBA reopened the PPP for First Draw PPP loans to small businesses and non-profit organizations that did not
receive a loan through the initial PPP phase. Further, on January 13, 2021, the SBA reopened the PPP for Second Draw PPP loans
to small businesses and non-profit organizations that did receive a loan through the initial PPP phase. Maximum loan amounts were
also increased for accommodation and food service businesses. Although the PPP ended in accordance with its terms on May 31,
2021, outstanding PPP loans continue to go through the process of either obtaining forgiveness from the SBA or pursuing claims
under the SBA guaranty.
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.
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 reference into this report.
19
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.
Market Risks
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.
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 current 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 risks can have a material impact on the volume of mortgage originations and refinancings, adversely affecting mortgage
banking revenues and the profitability of our mortgage banking business.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned
“Net Interest Income” and “Market Risk and Interest Rate Sensitivity” elsewhere in this report for further discussion related to
interest rate sensitivity and our management of interest rate risk.
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, 2021 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.
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.
20
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.
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, 2021 was approximately 29,919 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.
We may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the
most commonly used U.S. dollar London Interbank Offered Rate (“LIBOR”) settings will cease to be published or cease to be
representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published as of December 31, 2021.
Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into
new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they
will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use
LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. Prior to December 31, 2021, we
discontinued originating LIBOR-based loans.
At December 31, 2021, we have 108 loans totaling approximately $77 million that are indexed to LIBOR. We believe our current
portfolio of LIBOR based loan contracts contain the necessary fallback langu age, however, the timing and manner in which each
customer’s contract transitions to a replacement index will vary on a case-by-case basis. We also have $34 million in floating rate
investment securities that are indexed to LIBOR. We are currently evaluating fallback language for each investment security.
Lastly, we have two floating rate subordinated debenture notes totaling $53 million and a related interest rate swap contract for
$30 million that are indexed to LIBOR (Refer to Note 12 – Long Term Borrowings and Note 5 – Derivatives in our Consolidated
Financial Statements). The subordinated debenture notes do not contain fallback language allowing for a replacement rate, but
will convert to a fixed rate (LIBOR plus margin) at the time of LIBOR cessation. The interest rate swap contract adheres to ISDA
protocol which requires conversion to the fallback SOFR rate at the time of LIBOR cessation. There continues to be substantial
uncertainty as to the ultimate effects of the LIBOR transition, including with respect to the acceptance and use of other
benchmark rates. Since replacement rates are calculated differently, payments under contracts referencing new rates will differ
from those referencing LIBOR, which may lead to increased volatility as compared to LIBOR.
COVID-19 Risks
The ongoing global COVID-19 outbreak could harm our business and results of operations. The magnitude and duration
of the pandemic’s impact will depend on future developments, which are highly uncertain and are difficult to predict.
The COVID-19 pandemic continues to negatively impact economic and commercial activity and financial markets, both globally
and within the United States. Stay-at-home orders, travel restrictions and closure of non-essential businesses and similar orders
imposed across the United States to restrict the spread of COVID-19 in 2021 resulted in significant business and operational
disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Although local jurisdictions
were not subject to stay-at-home orders, worker shortages, vaccine and testing requirements, new variants of COVID-19 and
other health and safety recommendations have impacted the ability of businesses to return to pre-pandemic levels of activity and
employment.
21
The COVID-19 pandemic has had a specific impact on our business, including: (1) causing some of our borrowers to be unable to
meet existing payment obligations, particularly borrowers disproportionately affected by business shutdowns and travel
restrictions; (2) requiring us to increase our allowance for loan losses; and (3) affecting consumer and business spending,
borrowing and savings habits. The ultimate risk posed by the COVID-19 pandemic remains highly uncertain; however, COVID-
19 poses a material risk to our business, financial condition and results of operations. Other factors likely to have an adverse
effect on our results of operations include:
●
risks to the capital markets due to the volatility in financial markets that may impact the performance of our investment
securities portfolio;
●
effects on key employees, including operational management personnel and those charged with preparing, monitoring
and evaluating our financial reporting and internal controls;
●
declines in demand for loans and other banking services and products, as well as increases in our non-performing loans,
owing to the effects of COVID-19 in the markets served by the Bank and on the business of borrowers of the Bank;
●
declines in demand resulting from adverse impacts of the virus on businesses deemed to be “non-essential” by
governments in the markets served by the Bank;
●
reduced fees as we waive certain fees for our customers impacted by the COVID-19 pandemic; and
●
higher operating costs, increased cybersecurity risks and potential loss of productivity while some of our associates work
remotely.
Lastly, our commercial real estate and multi-family loans are dependent on the profitable operation and mana gement of the
properties securing such loans. The longer the pandemic persists, the stronger the likelihood that COVID-19 could have a
significant adverse impact by reducing the revenue and cash flows of our borrowers, impacting the borrowers’ ability to repay
their loans, increasing the risk of delinquencies and defaults, and reducing the collateral value underlying the loans.
The extent to which the COVID-19 pandemic will ultimately affect our financial condition and results of operations is unknown
and will depend, among other things, on the duration of the pandemic, the actions undertaken by national, state and local
governments and health officials to contain the virus or mitigate its effects, the safety and effectiveness of the vaccines that have
been developed and the ability of pharmaceutical companies and governments to continue to manufacture and distribute those
vaccines, changes to interest rates, and how quickly and to what extent economic conditions improve and normal business and
operating conditions resume. Any one or a combination of these factors could negatively impact our business, financial condition
and results of operations and prospects.
Credit Risks
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 securing 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, 2021, commercial mortgage loans comprised approximately 34.4% 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, 2021, commercial loans comprised approximately 11.6% 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,
2021, construction loans comprised approximately 9.0% 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, 2021, vacant land loans comprised
approximately 3.42% 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, 2021, HELOCs comprised approximately 9.7% 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, 2021, consumer loans comprised approximately 16.7 % of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately 93.1% 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, 2021, approximately 72% 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, 2021, 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, 2021,
approximately 38% and 34% of our $1.931 billion loan portfolio was secured by commercial real estate and residential real estate,
respectively. As of this same date, approximately 9% 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, 2021, our allowance for credit losses for loans held for investment was $21.6 million, which represented
approximately 1.12% of our total loans held for investment. We had $4.3 million in nonaccruing loans at December 31, 2021.
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.
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.
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.
24
Liquidity Risks
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 2021 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 be unable to pay dividends in the future.
In 2021, 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.
Regulatory and Compliance 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 10.
25
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.
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 policies, 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.
26
Fee revenues from overdraft protection programs constitute a significant portion of our noninterest income and may be
subject to increased supervisory scrutiny.
Revenues derived from transaction fees associated with overdraft protection programs offered to our customers represent a
significant portion of our noninterest income. In 2021, the Company collected approximately $9.9 million in net overdraft
transaction fees. In recent months, certain members of Congress and the leadership of the CFPB have expressed a heightened
interest in bank overdraft protection programs. In December 2021, the CFPB published a report providing data on banks’
overdraft and non-sufficient funds fee revenues as well as observations regarding consumer protection issues relating to
participation in such programs. The CFPB has indicated that it intends to pursue enforcement actions against banking
organizations, and their executives, that oversee overdraft practices that are deemed to be unlawful. In addition, the Comptroller
of the Currency has identified potential options for reform of national bank overdraft protection practices, including providing a
grace period before the imposition of a fee, refraining from charging multiple fees in a single day and eliminating fees altogether.
In response to this increased congressional and regulatory scrutiny, and in anticipation of enhanced supervision and enforcement
of overdraft protection practices in the future, certain banking organizations have begun to modify their overdraft protection
programs, including by discontinuing the imposition of overdraft transaction fees. These competitive pressures from our peers, as
well as any adoption by our regulators of new rules or supervisory guidance or more aggressive examination and enforcement
policies in respect of banks’ overdraft protection practices, could cause us to modify our program and practices in ways that may
have a negative impact on our revenue and earnings, which, in turn, could have an adverse effect on our financial condition and
results of operations. In addition, as supervisory expectations and industry practices regarding overdraft
Operational Risks
Many types of operational risks can affect our earnings negatively.
We regularly assess and monitor operational risk in our businesses. Despite our efforts to assess and monitor operational risk, our
risk management framework may not be effective in all cases. Factors that can impact operations and expose us to risks varying in
size, scale and scope include:
●
failures of technological systems or breaches of security measures, including, but not limited to, those resulting from
computer viruses or cyber-attacks;
●
unsuccessful or difficult implementation of computer systems upgrades;
●
human errors or omissions, including failures to comply with applicable laws or corporate policies and procedures;
●
theft, fraud or misappropriation of assets, whether arising from the intentional actions of internal personnel or external
third parties;
●
breakdowns in processes, breakdowns in internal controls or failures of the systems and facilities that support our
operations;
●
deficiencies in services or service delivery;
●
negative developments in relationships with key counterparties, third-party vendors, or employees in our day-to-day
operations; and
●
external events that are wholly or partially beyond our control, such as pandemics, geopolitical events, political unrest,
natural disasters or acts of terrorism.
While we have in place many controls and business continuity plans designed to address these factors and others, these plans may
not operate successfully to mitigate these risks effectively. If our controls and business continuity plans do not mitigate the
associated risks successfully, such factors may have a negative impact on our business, financial condition or results of
operations. In addition, an important aspect of managing our operational risk is creating a risk culture in which all employees
fully understand that there is risk in every aspect of our business and the importance of managing risk as it relates to their job
functions. We continue to enhance our risk management program to support our risk culture. Nonetheless, if we fail to provide the
appropriate environment that sensitizes all of our employees to managing risk, our business could be impacted adversely.
27
We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud and
data processing system failures and errors.
We rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss
resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the
execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our
internal control systems and compliance requirements. Insurance coverage may not be available for such losses, or where
available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a
result of operational deficiencies or as a result of non-compliance with applicable regulatory standards, adverse business decisions
or their implementation, or customer attrition due to potential negative publicity. In the event of a breakdown in our internal
control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory
action, and/or suffer damage to our reputation.
Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on
our business and operations.
Pandemics, including the continuing COVID-19 pandemic, natural disasters, global climate change, acts of terrorism, global
conflicts or other similar events have in the past, and may in the future have, a negative impact on our business and operations.
These events impact us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or
disruptions in general economic activity in the United States or abroad, or in financial market settlement functions. In addition,
these or similar events may impact economic growth negatively, which could have an adverse effect on our business and
operations and may have other adverse effects on us in ways that we are unable to predict.
Our business operations could be disrupted if significant portions of our workforce were unable to work effectively, including
because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. Further, work-from-
home and other modified business practices may introduce additional operational risks, including cybersecurity and execution
risks, which may result in inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business
activities. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in
declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and
deposit availability.
Litigation may adversely affect our results.
We are subject to litigation in the ordinary course of business. Claims and legal actions, including supervisory actions by our
regulators, could involve large monetary claims and significant defense costs. The outcome of litigation and regulatory matters as
well as the timing of ultimate resolution are inherently difficult to predict.
Actual legal and other costs of resolving claims may be greater than our legal reserves. The ultimate resolution of a pending legal
proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial
condition.
In addition, governmental authorities have, at times, sought criminal penalties against companies in the financial services sector
for violations, and, at times, have required an admission of wrongdoing from financial institutions in connection with resolving
such matters. Criminal convictions or admissions of wrongdoing in a settlement with the government can lead to greater exposure
in civil litigation and reputational harm.
Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause
significant reputational harm, which adversely impact our business prospects. Further, we may be exposed to substantial
uninsured liabilities, which could adversely affect our results of operations and financial condition.
28
Strategic Risks
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 gov ernmental 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.
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 23.7% of the outstanding shares of
our common stock at December 31, 2021. William G. Smith, Jr., our Chairman, President and Chief Executive Officer
beneficially owned 17.2% 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.
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. 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.
29
Reputational Risks
Damage to our reputation could harm our businesses, including our competitive position and business prospects.
Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. Harm to our reputation
can arise from various sources, including officer, director or employee fraud, misconduct and unethical behavior, security
breaches, litigation or regulatory outcomes, compensation practices, lending practices, the suitability or reasonableness of
recommending particular trading or investment strategies, including the reliability of our research and models, prohibiting clients
from engaging in certain transactions and employee sales practices. Additionally, our reputation may be harmed by failing to
deliver products, subpar standards of service and quality expected by our customers, clients and the community, compliance
failures, the inability to manage technology change or maintain effective data management, cyber incidents, internal and external
fraud, inadequacy of responsiveness to internal controls, unintended disclosure of personal, proprietary or confidential
information, conflicts of interest and breach of fiduciary obligations, the handling of health emergencies or pandemics, and the
activities of our clients, customers, counterparties and third parties, including vendors. Our reputation may also be negatively
impacted by our environmental, social, and governance practices and disclosures, our businesses and our customers, including
practices and disclosures related to climate change. Actions by the financial services industry generally or by certain members or
individuals in the industry also can adversely affect our reputation. In addition, adverse publicity or negative information posted
on social media by employees, the media or otherwise, whether or not factually correct, may adversely impact our business
prospects or financial results.
We are subject to complex and evolving laws and regulations regarding privacy, know-your-customer requirements, data
protection, cross-border data movement and other matters. Principles concerning the appropriate scope of consumer and
commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition
and scope of consumer and commercial privacy may remain fluid. It is possible that these laws may be interpreted and applied by
various jurisdictions in a manner inconsistent with our current or future practices, or that is inconsistent with one another. If
personal, confidential or proprietary information of customers or clients in our possession, or in the possession of third parties
(including their downstream service providers) or financial data aggregators, is mishandled, misused or mismanaged, or if we do
not timely or adequately address such information, we may face regulatory, reputational and operational risks which could
adversely affect our financial condition and results of operations.
We could suffer reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of
potential conflicts of interest has become increasingly complex as we expand our business activities through more numerous
transactions, obligations and interests with and among our clients. The failure to adequately address, or the perceived failure to
adequately address, conflicts of interest could affect the willingness of clients to use our products and services, or give rise to
litigation or enforcement actions, which could adversely affect our business.
Our actual or perceived failure to address these and other issues, such as operational risks, gives rise to reputational risk that could
harm us and our business prospects. Failure to appropriately address any of these issues could also give rise to additional
regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number
of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties, and cause us to incur related
costs and expenses.
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.
30
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.
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, 2021, Capital City Bank had 57 banking offices. Of these locations, we lease the land, buildings, or both at six
locations and own the land and buildings at the remaining 51. CCHL had 26 loan production offices, all of which were leased.
Capital City Strategic Wealth, Inc. maintained five 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.
31
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 1,157 shareowners
of record at February 25, 2022.
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.
2021
2020
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
$
29.00
$
26.10
$
27.39
$
28.98
$
26.35
$
21.71
$
23.99
$
30.62
Low
24.77
22.02
24.55
21.42
18.14
17.55
16.16
15.61
Close
26.40
24.74
25.79
26.02
24.58
18.79
20.95
20.12
Cash dividends per share
0.16
0.16
0.15
0.15
0.15
0.14
0.14
0.14
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 13, Item 1A. “Market Risks” in the Risk Factors section on page 19, Item 7. “Liquidity and Capital
Resources – Dividends” – in Management's Discussion and Analysis of Financial Condition and Operating Results on page 55
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
shareowner return of the Nasdaq Composite Index and the S&P U.S. Small Cap Banks Index for the past five years. The graph
assumes that $100 was invested on December 31, 2016 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.
32
Period Ending
Index
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
Capital City Bank Group, Inc.
$
100.00
$
113.28
$
116.11
$
155.53
$
128.55
$
141.44
Nasdaq Composite
100.00
129.64
125.96
172.18
249.51
304.85
SNL $1B-$5B Bank Index
100.00
104.33
87.06
109.22
99.19
138.09
33
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
2021
2020
2019
Interest Income
$
106,351
$
106,197
$
112,836
Net Interest Income
102,861
101,326
103,343
Provision for Credit Losses
(1,553)
9,645
2,027
Noninterest Income
107,545
111,165
53,053
Noninterest Expense
(1)
162,508
149,962
113,609
Income Attributable to Noncontrolling Interests
(2)
(6,220)
(11,078)
-
Net Income Attributable to CCBG
33,396
31,576
30,807
Per Common Share:
Basic Net Income
$
1.98
$
1.88
$
1.84
Diluted Net Income
1.98
1.88
1.83
Cash Dividends Declared
0.62
0.57
0.48
Diluted Book Value
22.63
19.05
19.40
Diluted Tangible Book Value
(3)
17.12
13.76
14.37
Performance Ratios:
Return on Average Assets
0.84
%
0.93
%
1.03
%
Return on Average Equity
9.92
9.36
9.72
Net Interest Margin (FTE)
2.83
3.30
3.85
Noninterest Income as % of Operating Revenues
51.11
52.32
33.92
Efficiency Ratio
77.11
70.43
72.40
Asset Quality:
Allowance for Credit Losses ("ACL")
$
21,606
$
23,816
$
13,905
ACL to Loans Held for Investment ("HFI")
1.12
%
1.19
%
0.75
%
Nonperforming Assets ("NPAs")
4,339
6,679
5,425
NPAs to Total Assets
0.10
0.18
0.18
NPAs to Loans HFI plus OREO
0.22
0.33
0.29
ACL to Non-Performing Loans
499.93
405.66
310.99
Net Charge-Offs to Average Loans HFI
(0.03)
0.12
0.13
Capital Ratios:
Tier 1 Capital
16.14
%
16.19
%
17.16
%
Total Capital
17.15
17.30
17.90
Common Equity Tier 1 Capital
13.86
13.71
14.47
Tangible Common Equity
(3)
6.95
6.25
8.06
Leverage
8.95
9.33
11.25
Equity to Assets
8.99
8.45
10.59
Dividend Pay-Out
31.31
30.32
26.23
Averages for the Year:
Loans Held for Investment
$
2,000,563
$
1,957,576
$
1,811,738
Earning Assets
3,652,486
3,083,675
2,697,098
Total Assets
3,984,064
3,391,071
2,987,056
Deposits
3,406,886
2,844,347
2,537,489
Shareowners’ Equity
336,821
337,313
317,072
Year -End Balances:
Loans Held for Investment
$
1,931,465
$
2,006,426
$
1,835,929
Earning Assets
3,949,111
3,475,904
2,806,913
Total Assets
4,263,849
3,798,071
3,088,953
Deposits
3,712,862
3,217,560
2,645,454
Shareowners’ Equity
383,166
320,837
327,016
Other Data:
Basic Average Shares Outstanding
16,862,932
16,784,711
16,769,507
Diluted Average Shares Outstanding
16,892,947
16,821,950
16,827,413
Shareowners of Record
(4)
1,157
1,201
1,243
Banking Locations
(4)
57
57
57
Full-Time Equivalent Associates
(4)(5)
954
954
796
(1)
(2)
(3)
(4)
(5)
34
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 generally accepted accounting
principles (“GAAP”) to non-GAAP reconciliation for selected year-to-date financial data is provided below.
Non-GAAP Reconciliation - Selected Financial Data
(Dollars in Thousands, except per share data)
2021
2020
2019
Shareowners' Equity (GAAP)
$
383,166
$
320,837
$
327,016
Less: Goodwill and Other Intangibles (GAAP)
93,253
89,095
84,811
Tangible Shareowners' Equity (non-GAAP)
A
289,913
231,742
242,205
Total Assets (GAAP)
4,263,849
3,798,071
3,088,953
Less: Goodwill and Other Intangibles (GAAP)
93,253
89,095
84,811
Tangible Assets (non-GAAP)
B
$
4,170,596
$
3,708,976
$
3,004,142
Tangible Common Equity Ratio (non-GAAP)
A/B
6.95%
6.25%
8.06%
Actual Diluted Shares Outstanding (GAAP)
C
16,935,389
16,844,997
16,855,161
Tangible Book Value per Diluted Share (non-GAAP)
A/C
17.12
13.76
14.37
35
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,” 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
2021 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 provide a full range of banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and financial
advisory services, including the sale of life insurance, risk management and asset protection services. The Bank has 57 banking
offices and 86 ATMs/ITMs in Florida, Georgia and Alabama. Through Capital City Home Loans, LLC, a Georgia limited
liability company (“CCHL”), we have 26 additional offices in the Southeast for our mortgage banking business. 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.
36
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
2021, we 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 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.
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 Suncoast (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.
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 2022. In 2021, we began our expansion plans into the Northern Arc of Atlanta (Gwinne tt
and Cobb counties) with plans for opening a full-service office in Gwinnett in late 2022. Further, we will expand our presence
and commitment to our Gainesville market, opening a third full-service banking office in early 2023. Significant progress was
made in 2021 in hiring leadership and banking teams in the Northern Arc and Walton markets.
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.
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic Wealth, LLC (“CCSW”) acquired substantially all
of the assets of Strategic Wealth Group, LLC and certain related businesses (“SWG”) – Refer to Note 1 – Significant Accounting
Policies/Business Combination for additional information on this transaction.
EXECUTIVE OVERVIEW
For 2021, net income attributable to common shareowners totaled $33.4 million, or $1.98 per diluted share, compared to net
income of $31.6 million, or $1.88 per diluted share for 2020 and $30.8 million, or $1.83 per diluted share, for 2019.
The increase in net income attributable to common shareowners for 2021 was attributable to a decrease in the provision for credit
losses of $11.2 million, higher net interest income of $1.5 million and lower income taxes of $0.4 million, partially offset by
higher noninterest expense of $12.5 million and lower noninterest income of $3.6 million. Net income attributable to common
shareowners included a $4.9 million decrease in the deduction to record the 49% non-controlling interest in the earnings of CCHL.
The increase in net income attributable to common shareowners for 2020 reflected 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. Net income attributable to common shareowners
included an $11.1 million deduction to record the 49% non-controlling interest in the earnings of CCHL which was fully
consolidated in CCBG’s financial statements on March 1, 2020.
Below are
Summary Highlights
●
2021 net income attributable to common shareowners totaled $33.4 million, a record year
●
Operating revenues (excluding mortgage revenues and SBA PPP loan income) improved 1.4%
●
CCHL contributed $0.23 per share versus $0.52 per share in 2020
●
Average loans, excluding PPP loans, grew $76 million and average investment securities increased $203 million
●
Negative credit loss provision of $1.6 million
●
Noninterest expense included pension settlement charges totaling $3.1 million or $0.15 per share
●
Average Deposits grew $563 million, or 19.8%, reflective of government stimulus related inflows
●
Capital growth of $62.3 million ($3.69 per share), or 19.4%, reflective of strong earnings and a favorable adjustment of
$34.1 million related to our year-end pension plan re-measurement
For more detailed information, refer to the following additional sections of the MD&A “Results of Operations” and “Financial
Condition”.
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)
2021
2020
2019
Interest Income
$
106,351
$
106,197
$
112,836
Taxable Equivalent Adjustments
349
430
526
Total Interest Income (FTE)
106,700
106,627
113,362
Interest Expense
3,490
4,871
9,493
Net Interest Income (FTE)
103,210
101,756
103,869
Provision for Credit Losses
(1,553)
9,645
2,027
Taxable Equivalent Adjustments
349
430
526
Net Interest Income After Provision for Credit Losses
104,414
91,681
101,316
Noninterest Income
107,545
111,165
53,053
Noninterest Expense
162,508
149,962
113,609
Income Before Income Taxes
49,451
52,884
40,760
Income Tax Expense
9,835
10,230
9,953
Income Attributable to Noncontrolling Interests
(6,220)
(11,078)
-
Net Income Attributable to Common Shareowners
$
33,396
$
31,576
$
30,807
Basic Net Income Per Share
$
1.98
$
1.88
$
1.84
Diluted Net Income Per Share
$
1.98
$
1.88
$
1.83
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 2021, our taxable equivalent net interest income increased $1.5 million, or 1.4%. This follows a decrease of $2.1 million, or
2.0% in 2020. The increase in 2021 was primarily due to higher small business (“SBA PPP”) loan income combined with a lower
cost of funds, partially offset by lower income from the investment portfolio due to lower reinvestment rates. 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.
For 2021, taxable equivalent interest income increased $0.1 million, or 0.1%, over 2020. For 2020, taxable equivalent interest
income decreased $6.7 million, or 5.9%, from 2019. The increase in 2021 was primarily due to fee income on SBA PPP loans
partially offset by lower rates on earning assets. The decline in 2020 was primarily due to lower rates on earning assets.
For 2021, interest expense decreased $1.4 million, or 28.4%, from 2020. For 2020, interest expense decreased $4.6 million, or
48.7%, from 2019. The decline in both years was primarily due to lower rates on our negotiated rate deposits which are tied to an
adjustable rate index. Our cost of funds decreased six basis points to 10 basis points in 2021 and decreased 19 basis points to 16
basis points in 2020. The decrease in both years was primarily due to lower interest rates paid on our negotiated rate products.
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 2021 and decreased 43 basis points in 2020. Our net interest margin (defined as
taxable-equivalent interest income less interest expense divided by average earning assets) of 2.83% in 2021 was a 47 basis point
decrease from 2020. The net interest margin of 3.30% in 2020 was a 55 basis point decrease from 2019. The decline in the
interest rate spread and net interest margin in both years was primarily due to lower yielding earning assets due to lower rates, in
addition to strong growth in lower yielding overnight funds.