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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
 
DC
 
20549
 
___________________________________
 
FORM
10-K
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
 
Capital City Bank Group, Inc.
(Exact name of Registrant as specified in its charter)
 
Florida
0-13358
59-2273542
(State of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
217 North Monroe Street
,
Tallahassee
,
Florida
32301
(Address of principal executive offices)
(Zip Code)
(
850
)
402-7821
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
 
CCBG
 
The
Nasdaq Stock Market
 
LLC
 
Securities registered pursuant to Section 12(g) of the Act:
 
None
 
Indicate
 
by check
 
mark if
 
the registrant
 
is a well-known
 
seasoned
 
issuer,
 
as defined
 
in Rule
 
405 of
 
the Securities
 
Act. Yes
No
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
 
No
 
 
 
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
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
 
a non-accelerated filer, a smaller reporting company,
or an emerging growth company.
 
See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting
 
company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
 
 
If an emerging
 
growth company, indicate
 
by check mark
 
if the registrant has
 
elected not to use
 
the extended transition period
 
for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
 
Indicate
 
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
 
of the Exchange Act). Yes
No
 
 
The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2020,
the last business day of the registrant’s most recently completed second fiscal quarter,
 
was approximately $
277,245,803
 
(based on the closing sales
price of the registrant’s common stock on that date). Shares of the registrant’s
 
common stock held by each officer and director and each person
known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such
 
persons may be
deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
 
Class
Outstanding at February 25, 2021
Common Stock, $0.01 par value per share
16,840,267
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 27, 2021, are incorporated by reference in Part III.
 
3
INTRODUCTORY NOTE
 
This Annual Report on Form 10-K contains “forward-looking
 
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include,
 
among others, statements about our beliefs, plans, objectives,
goals,
 
expectations, estimates and intentions that are subject to significant
 
risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control.
 
The words “may,”
 
“could,” “should,” “would,” “believe,”
“anticipate,”
 
“estimate,” “expect,” “intend,” “plan,” “target,” “vision,”
 
“goal,” and similar expressions are intended to identify
forward-looking statements.
 
All forward-looking statements, by their nature, are subject
 
to risks and uncertainties.
 
Our actual future results may differ
materially
 
from those set forth in our forward-looking statements.
 
In addition to those risks discussed in this Annual Report
 
under Item 1A Risk Factors, factors that could cause our actual results
to differ materially from those in the forward
 
-looking statements, include, without limitation:
 
 
the magnitude and duration of the ongoing COVID-19 pandemic
 
and its impact on the global and local economies and
financial market conditions and our business, results of operations
 
and financial condition, including the impact of our
participation in government programs related to COVID-19;
 
our ability to successfully manage credit risk, interest rate risk,
 
liquidity risk, and other risks inherent to our industry;
 
legislative or regulatory changes;
 
changes in monetary and fiscal policies of the U.S. Government
 
;
 
inflation, interest rate, market and monetary fluctuations;
 
the effects of security breaches and com
 
puter viruses that may affect our computer systems or
 
fraud related to debit card
products;
 
the accuracy of our financial statement estimates and assumptions,
 
including the estimates used for our loan loss reserve,
deferred tax asset valuation and pension plan;
 
changes in accounting principles, policies, practices or
 
guidelines;
 
the frequency and magnitude of foreclosure of our loans;
 
the effects of our lack of a diversified loan portfolio,
 
including the risks of geographic and industry concentrations;
 
the strength of the United States economy in general and the strength
 
of the local economies in which we conduct
operations;
 
 
our ability to declare and pay dividends, the payment of which
 
is subject to our capital requirements;
 
changes in the securities and real estate markets;
 
structural changes in the markets for origination, sale and servicing
 
of residential mortgages;
 
uncertainty in the pricing of residential mortgage loans that
 
we sell, as well as competition for the mortgage servicing
rights related to these loans and related interest rate risk
 
or price risk resulting from retaining mortgage servicing
 
rights
and the potential effects of higher interest rates
 
on our loan origination volumes
 
the effect of corporate restructuring, acquisitions
 
or dispositions, including the actual restructuring and
 
other related
charges and the failure to achieve the expected
 
gains, revenue growth or expense savings from such corporate
restructuring, acquisitions or dispositions;
 
the effects of natural disasters, harsh weather
 
conditions (including hurricanes), widespread health emergencies,
 
military
conflict, terrorism, civil unrest or other geopolitical events;
 
our ability to comply with the extensive laws and regulations
 
to which we are subject, including the laws for each
jurisdiction where we operate;
 
the willingness of clients to accept third-party products and
 
services rather than our products and services and vice versa;
 
increased competition and its effect on pricing;
 
technological changes;
 
negative publicity and the impact on our reputation;
 
changes in consumer spending and saving habits;
 
growth and profitability of our noninterest income;
 
the limited trading activity of our common stock;
 
the concentration of ownership of our common stock;
 
anti-takeover provisions under federal and state law as well as our
 
Articles of Incorporation and our Bylaws;
 
other risks described from time to time in our filings with
 
the Securities and Exchange Commission; and
 
our ability to manage the risks involved in the foregoing.
 
However, other factors besides those
 
listed in
Item 1A Risk Factors
 
or discussed in this Annual Report also could adversely affect
our results, and you should not consider any such
 
list of factors to be a complete set of all potential risks or
 
uncertainties.
 
Any
forward-looking statements made by us or on our behalf
 
speak only as of the date they are made.
 
We do not undertake
 
to update
any forward-looking statement, except as required by applicable
 
law.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
PART
 
I
 
Item 1.
 
Business
 
About Us
 
General
 
Capital City Bank Group, Inc. (“CCBG”) is a financial
 
holding company headquartered in Tallahassee,
 
Florida. CCBG was
incorporated under Florida law on December 13, 1982,
 
to acquire five national banks and one state bank that all subsequently
became part of CCBG’s bank
 
subsidiary, Capital City
 
Bank (“CCB” or the “Bank”). The Bank commenced
 
operations in 1895. In
this report, the terms “Company,”
 
“we,” “us,” or “our” mean CCBG and all subsidiaries included
 
in our consolidated financial
statements.
We provide
 
traditional deposit and credit services, mortgage banking, asset management,
 
trust, merchant services, bank cards,
data processing, and securities brokerage services through
 
57 banking offices in Florida, Georgia, and
 
Alabama operated by CCB.
 
Through Capital City Home Loans, LLC, a Georgia
 
limited liability company (“CCHL”), we have 29 additional offices
 
for our
mortgage banking business in the Southeast.
 
The majority of the revenue from Core CCBG (excludes CCHL),
 
approximately
88%, is derived from our Florida market areas while approximately
 
11%
 
and 1% of the revenue is derived from our Georgia
 
and
other market areas, respectively.
 
Approximately 61% of the revenue from CCHL is derived from
 
our Georgia market areas while
approximately 32% and 7% is derived from our Florida
 
and other market areas, respectively.
Below is a summary of our financial condition and results of operations
 
for the past three years, which we believe is a sufficient
period for understanding our general business development.
 
Our financial condition and results of operations are more
 
fully
discussed in our Management’s
 
Discussion and Analysis on page 33 and our consolidated
 
financial statements on page 67.
 
Dollars in millions
Year
 
Ended
December 31,
 
Assets
Deposits
Shareowners’
Equity
Revenue
(1)
Net Income
2020
$3,798.1
 
$3,217.6
 
$320.8
 
$217.4
 
$31.6
 
2019
$3,089.0
 
$2,645.5
 
$327.0
 
$165.9
 
$30.8
 
2018
$2,959.2
 
$2,531.9
 
$302.6
 
$151.0
 
$26.2
 
(1)
Revenue represents interest income plus noninterest income
 
Dividends and management fees received from the
 
Bank are CCBG’s primary source
 
of income. Dividend payments by the Bank
to CCBG depend on the capitalization, earnings and
 
projected growth of the Bank, and are limited by various regulatory
restrictions, including compliance with a minimum Common
 
Equity Tier 1 Capital conservation buffer.
 
See the section entitled
“Regulatory Considerations”
 
in this
Item 1
 
and Note 17 in the Notes to Consolidated Financial Statements for
 
a discussion of the
restrictions.
 
Item 6 contains other financial and statistical information
 
about us.
 
Subsidiaries of CCBG
 
CCBG’s principal asset is the capital
 
stock of CCB, our wholly owned banking subsidiary,
 
which accounted for nearly 100% of
consolidated assets and net income attributable to CCBG at December
 
31, 2020.
 
In addition to our banking subsidiary,
 
CCB has
two primary subsidiaries, which are wholly owned, Capital
 
City Trust Company and Capital City Investments,
 
Inc.
 
We also
maintain a 51% membership interest in a consolidated
 
subsidiary, CCHL, which we
 
acquired on March 1, 2020.
 
Refer to Note 1
– Significant Accounting Policies/Business Combination
 
in our Consolidated Financial Statements for additional information
 
on
this strategic alliance.
 
The nature of these subsidiaries is provided below.
 
 
Operating Segment
 
We have one
 
reportable segment with three principal services: Banking Services (CCB), Trust
 
and Asset Management Services
(Capital City Trust Company), and
 
Brokerage Services (Capital City Investments, Inc.).
 
Revenues from each of these principal
services for the year ended 2020 totaled approximately
 
94.7%, 2.7%, and 2.41% of our total revenue, respectively.
 
In 2019 and
2018, Banking Services (CCB) revenue was approximately
 
95.3% and 95.6% of our total revenue for each respective
 
year.
 
 
 
5
Capital City Bank
 
CCB is a Florida-chartered full-service bank engaged
 
in the commercial and retail banking business. Significant services
 
offered
by CCB include:
 
 
Business Banking
 
– We provide banking
 
services to corporations and other business clients. Credit products
 
are available
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
 
– We provide
 
a wide range of products to meet the financing needs of commercial
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
 
– We provide
 
products through our strategic alliance with CCHL and its existing
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
 
– We provide
 
a full-range of loan products to meet the needs of consumers,
 
including personal loans,
automobile loans, boat/RV
 
loans, home equity loans, and through a marketing alliance with ELAN,
 
we offer credit card
programs.
 
 
Institutional Banking –
We provide
 
banking services to meet the needs of state and local governments,
 
public schools
and colleges, charities, membership and not-for-profit
 
associations including customized checking and savings accounts,
cash management systems, tax-exempt loans, lines of
 
credit, and term loans.
 
 
Retail Banking
– We provide
 
a full-range of consumer banking services, including checking
 
accounts, savings programs,
interactive/automated teller machines (ITMs/ATMs),
 
debit/credit cards, night deposit services, safe deposit facilities,
online banking, and mobile banking.
 
Capital City Trust Company
 
Capital City Trust Company,
 
or the Trust Company,
 
provides asset management for individuals through agency,
 
personal trust,
IRA, and personal investment management accounts.
 
Associations, endowments, and other nonprofit entities hire the
 
Trust
Company to manage their investment portfolios.
 
Additionally, a staff
 
of well-trained professionals serves individuals requiring
 
the
services of a trustee, personal representative, or a guardian.
 
The market value of trust assets under discretionary
 
management
exceeded $985.6 million at December 31, 2020
 
with total assets under administration exceeding $999.5 million.
 
Capital City Investments, Inc.
 
We offer
 
our customers access to retail investment products through
 
LPL Financial pursuant to which retail investment products
would be offered through LPL. LPL offers
 
a full line of retail securities products, including U.S. Government
 
bonds, tax-free
municipal bonds, stocks, mutual funds, unit investment
 
trusts, annuities, life insurance and long-term health care. Non-deposit
investment and insurance products are: (i) not FDIC
 
insured; (ii) not deposits, obligations, or guarantees by
 
any bank; and (iii)
subject to investment risk, including the possible loss of
 
principal amount invested.
 
Lending Activities
 
One of our core goals is to support the communities in which
 
we operate. We
 
seek loans from within our primary market area,
which is defined as the counties in which our banking
 
offices are located.
 
We will also originate
 
loans within our secondary
market area, defined as counties adjacent to those in
 
which we have banking offices.
 
There may also be occasions when we will
have opportunities to make loans that are out of both
 
the primary and secondary market areas, including participation
 
loans.
These loans are generally only approved if the applicant is known
 
to us, underwriting is consistent with our criteria, and the
applicant’s primary business is
 
in or near our primary or secondary market area.
 
Approval of all loans is subject to our policies
and standards described in more detail below.
 
We have adopted
 
comprehensive lending policies, underwriting standards
 
and loan review procedures. Management and our
Board of Directors reviews and approves these policies and
 
procedures on a regular basis (at least annually).
 
6
 
Management has also implemented reporting systems
 
designed to monitor loan originations, loan quality,
 
concentrations of
credit, loan delinquencies, nonperforming loans, and potential
 
problem loans. Our management and the Credit Risk Oversight
Committee periodically review our lines of business to
 
monitor asset quality trends and the appropriateness of
 
credit policies. In
addition, total borrower exposure limits are established and
 
concentration risk is monitored. As part of this process,
 
the overall
composition of the portfolio is reviewed to gauge
 
diversification of risk, client concentrations, industry group,
 
loan type,
geographic area, or other relevant classifications of loans.
 
Specific segments of the portfolio are monitored and reported
 
to our
Board on a quarterly basis and we have strategic plans
 
in place to supplement Board approved credit policies governing
 
exposure
limits and underwriting standards. We
 
recognize that exceptions to the below-listed policy guidelines
 
may occasionally occur and
have established procedures for approving exceptions to
 
these policy guidelines.
 
Residential Real Estate Loans
 
 
We originate
 
1-4 family, owner-occupied
 
residential real estate loans at CCHL for sale in the secondary market.
 
A vast majority
of residential loan originations are fixed-rate loans
 
which are sold in the secondary market on a non-recourse basis.
 
We will
frequently sell loans and retain the servicing rights.
 
Note 4 – Mortgage Banking Activities in the Notes to Our Consolidated
Financial Statements provides additional information
 
on our servicing portfolio.
 
 
CCB also maintains a portfolio of residential loans held
 
for investment and will periodically purchase newly originated
 
1-4
family secured adjustable rate loans from CCHL for
 
that portfolio.
 
Residential loans held for investment are generally
underwritten in accordance with secondary market
 
guidelines in effect at the time of origination, including
 
loan-to-value, or LTV,
and documentation requirements.
 
 
 
Residential real estate loans also include home equity
 
lines of credit, or HELOCs, and home equity loans. Our home
 
equity
portfolio includes revolving open-ended equity loans
 
with interest-only or minimal monthly principal payments and
 
closed-end
amortizing loans. Open-ended equity loans typically
 
have an interest only 10-year draw period followed by a five-year
 
repayment
period of 0.75% of principal balance monthly and balloon
 
payment at maturity.
 
As of December 31, 2020,
 
approximately 68%
 
of
our residential home equity loan portfolio consisted of
 
first mortgages.
 
Interest rates may be fixed or adjustable.
 
Adjustable-rate
loans are tied to the Prime Rate with a typical margin
 
of 1.0% or more.
 
Commercial Loans
 
Our policy sets forth guidelines for debt service coverage
 
ratios, LTV
 
ratios and documentation standards. Commercial loans are
primarily made based on identified cash flows of
 
the borrower with consideration given to underlying collateral
 
and personal or
other guarantees. We
 
have established debt service coverage ratio limits that require
 
a borrower’s cash flow to be sufficient to
cover principal and interest payments on all new
 
and existing debt. The majority of our commercial loans are secured
 
by the
assets being financed or other business assets such as accounts receivable
 
or inventory.
 
Many of the loans in the commercial
portfolio have variable interest rates tied to the Prime
 
Rate or U.S. Treasury indices.
 
Commercial Real Estate Loans
 
We have adopted
 
guidelines for debt service coverage ratios, LTV
 
ratios and documentation standards for commercial real estate
loans. These loans are primarily made based on identified
 
cash flows of the borrower with consideration given to underlying
 
real
estate collateral and personal guarantees. Our policy
 
establishes a maximum LTV
 
specific to property type and minimum debt
service coverage ratio limits that require a borrower’s
 
cash flow to be sufficient to cover principal and
 
interest payments on all
new and existing debt. Commercial real
 
estate loans may be fixed or variable-rate loans with interest rates
 
tied to the Prime Rate
or U.S. Treasury indices. We
 
require appraisals for loans in excess of $250,000 that
 
are secured by real property.
 
 
Consumer Loans
 
Our consumer loan portfolio includes personal installment loans,
 
direct and indirect automobile financing, and overdraft lines of
credit. The majority of the consumer loan portfolio consists of
 
indirect and direct automobile loans. The majority of our
 
consumer
loans are short-term and have fixed rates of interest that
 
are priced based on current market interest rates and the financial
strength of the borrower.
 
Our policy establishes maximum debt-to-income ratios,
 
minimum credit scores, and includes guidelines
for verification of applicants’ income and receipt
 
of credit reports.
 
 
7
Lending Limits and Extensions of Additional Credit
 
We have established
 
an internal lending limit of $10 million for the total aggregate
 
amount of credit that will be extended to a
client and any related entities within our Board approved
 
policies. This compares to our legal lending limit of approximately
 
$76
million.
 
 
Loan Modification and Restructuring
 
In the normal course of business, we receive requests from
 
our clients to renew,
 
extend, refinance, or otherwise modify their
current loan obligations. In most cases, this may be the result of
 
a balloon maturity that is common in most commercial loan
agreements, a request to refinance to obtain current market
 
rates of interest, competitive reasons, or the conversion of
 
a
construction loan to a permanent financing structure
 
at the completion or stabilization of the property.
 
In these cases, the request
is held to the normal underwriting standards and pricing
 
strategies as any other loan request, whether new or renewal.
 
In other cases, we may modify a loan because of a
 
reduction in debt service capacity experienced by the client
 
(i.e., a potentially
troubled loan whereby the client may be experiencing
 
financial difficulties). To
 
maximize the collection of loan balances, we
evaluate troubled loans on a case-by-case basis to determine
 
if a loan modification would be appropriate. We
 
pursue loan
modifications when there is a reasonable chance that an
 
appropriate modification would allow our client to continue servicing
 
the
debt.
 
 
The CARES Act permitted banks to suspend
 
requirements under GAAP for loan
 
modifications to borrowers affected by COVID-
19 that would otherwise be characterized
 
as Troubled Debt Restructurings
 
and suspend any determination related
 
thereto if (i) the
loan modification was made between March
 
1, 2020 and the earlier of December
 
31, 2020 or 60 days after the end of
 
the COVID-
19 emergency declaration, and (ii) the applicable
 
loan was not more than 30 days past
 
due as of December 31, 2019.
 
The federal
banking agencies also issued guidance
 
to encourage banks to make loan
 
modifications for borrowers affected
 
by COVID-19 and to
assure banks that they would not
 
be criticized by examiners for
 
doing so.
 
We applied this guidance to qualifying loan
modifications.
 
Expansion of Business
 
See MD&A (Business Overview) for disclosures regarding
 
the expansion of our Business.
 
Competition
 
We operate
 
in a highly competitive environment, especially with respect to
 
services and pricing, that has undergone significant
changes since the recent financial crisis. Since January
 
1, 2009, over 500 financial institutions have failed in the
 
U.S., including
85 in Georgia and 70 in Florida. Nearly all
 
of the failed banks were community banks. The assets and deposits
 
of many of these
failed community banks were acquired mostly by larger
 
financial institutions. The banking industry has also experienced
significant consolidation through mergers and
 
acquisition, which we expect will continue during 2021. However,
 
we believe that
the larger financial institutions acquiring banks
 
in our market areas are less familiar with the markets in
 
which we operate and
typically target a different client base.
 
We also believe
 
clients who bank at community banks tend to prefer the relationship
 
style
service of community banks compared to larger
 
banks.
 
As a result, we expect to be able to effectively
 
compete in our markets with larger financial institutions through
 
providing
superior client service and leveraging our knowledge
 
and experience in providing banking products and services in
 
our market
areas. Thus, a further reduction of the number of community
 
banks could continue
 
to enhance our competitive position and
opportunities in many of our markets. However,
 
larger financial institutions can benefit from economies of
 
scale. Therefore, these
larger institutions may be able to offer
 
banking products and services at more competitive prices than
 
us. Additionally, these
larger financial institutions may offer
 
financial products that we do not offer.
 
We may also
 
begin to see competition from new banks that are being
 
formed. In late 2016, the first
de novo
 
bank charter since the
downturn was approved for a Florida-based bank and one
 
new Florida charter was approved in 2019. While the
 
number of new
bank formations has not returned to pre-downturn
 
levels, increased
de novo
 
bank 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 38% of
 
our consolidated
deposits at December 31, 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
The table below depicts our market share percentage within
 
each county,
 
based on commercial bank deposits within the county.
Market Share as of June 30,
(1)
County
2020
2019
2018
Florida
 
Alachua
4.5%
4.5%
4.7%
 
Bay
0.0%
N/A
N/A
 
Bradford
30.6%
40.2%
41.9%
 
Citrus
3.6%
3.4%
3.4%
 
Clay
2.0%
2.1%
2.1%
 
Dixie
18.7%
19.4%
20.8%
 
Gadsden
80.8%
81.6%
79.6%
 
Gilchrist
38.7%
39.7%
46.3%
 
Gulf
12.8%
12.6%
14.8%
 
Hernando
3.5%
2.9%
2.5%
 
Jefferson
23.0%
21.9%
19.7%
 
Leon
13.3%
13.1%
12.8%
 
Levy
24.2%
25.0%
26.8%
 
Madison
14.0%
13.7%
13.6%
 
Putnam
20.7%
20.8%
22.0%
 
St. Johns
0.6%
0.6%
0.8%
 
Suwannee
7.1%
6.7%
7.4%
 
Taylor
72.4%
23.0%
23.5%
 
Wakulla
8.3%
9.3%
8.9%
 
Washington
11.0%
13.1%
12.0%
Georgia
 
Bibb
3.2%
2.7%
2.9%
 
Grady
14.0%
13.0%
14.2%
 
Laurens
8.4%
8.3%
8.6%
 
Troup
6.5%
6.3%
5.5%
Alabama
 
Chambers
9.6%
8.7%
9.2%
(1)
Obtained from the FDIC Summary of Deposits Report for the year indicated.
 
Seasonality
 
We believe our
 
commercial banking operations are not generally seasonal in
 
nature; however, public deposits tend
 
to increase
with tax collections in the fourth and first quarters of
 
each year and decline as a result of governmental spending
 
thereafter.
 
Human Capital
 
 
We are dedicated
 
to creating personal relationships with our customers and
 
implementing solutions that are right for them. Our
associates (our employees) are critical to achieving this mission,
 
and it is crucial that we continue to attract and retain experienced
associates. As part of these efforts, we strive
 
to offer a competitive compensation and benefits program,
 
foster a community
where everyone feels included and empowered to do to
 
their best work, and give associates the opportunity to
 
give back to their
communities and make a social impact.
 
At February 9, 2021, we had approximately 773 associates,
 
which included approximately 727 full-time associates and
approximately 46 part-time associates.
 
None of our associates are represented by a labor
 
union or covered by a collective
bargaining agreement.
 
At February 9, 2021, approximately 74% of our current
 
workforce was female while 26% was male, and
the average tenure of our associates was approximately 11
 
years.
 
 
 
9
Compensation and Benefits Program
. Our compensation program is designed to attract and reward
 
talented individuals who
possess the skills necessary to support our business objectives,
 
assist in the achievement of our strategic goals and create
 
long-
term value for our shareowners. We
 
provide our associates with compensation packages
 
that include base salary, annual
 
incentive
bonuses, and equity awards tied to the value of our stock
 
price. We believe
 
that a compensation program with both short-term and
long-term awards provides fair and competitive
 
compensation and aligns associate and shareowner interests,
 
including by
incentivizing business and individual performance (pay
 
for performance), motivating based on long-term company
 
performance
and integrating compensation with our business plans. In
 
addition to cash and equity compensation, we also offer
 
associates
benefits such as life and health (medical, dental &
 
vision) insurance, paid time off, paid parental leave,
 
a 401(k) plan, and a
pension plan.
 
Diversity and Inclusion
. We believe that
 
an equitable and inclusive environment with diverse teams produces
 
more creative
solutions, results in better services and is crucial to our
 
efforts to attract and retain key talent. We
 
strive to promote inclusion
through our corporate values of integrity,
 
advocacy, partnership, relationships,
 
community, and exceptional
 
service. We are
focused on building an inclusive culture through
 
a variety of diversity and inclusion initiatives, including related to
 
internal
promotions and hiring practices. Our associate resource groups
 
also help to build an inclusive culture through company
 
events,
participation in our recruitment efforts,
 
and input into our hiring strategies.
 
Community Involvement
. We aim to give
 
back to the communities where we live and work, and
 
believe that this commitment
helps in our efforts to attract and retain associates.
 
Community involvement is a hallmark for our organization,
 
and it comes
naturally to our associates. We
 
encourage our associates to volunteer their hours with
 
service organizations and philanthropic
groups in the communities we serve.
 
Health and Safety
. The success of our business is fundamentally connected
 
to the well-being of our people. Accordingly,
 
we are
committed to the health, safety and wellness of our associates.
 
We provide
 
our associates and their families with access to a
variety of flexible and convenient health and welfare
 
programs, including benefits that support their physical and mental
 
health by
providing tools and resources to help them improve
 
or maintain their health status; and that offer choice
 
where possible so they
can customize their benefits to meet their needs and the
 
needs of their families. In response to the COVID-19 pandemic,
 
we
implemented significant operating environment
 
changes that we determined were in the best interest of our associates,
 
as well as
the communities in which we operate, and which comply
 
with government regulations. This includes having the majority
 
of our
associates work from home, while implementing additional
 
safety measures for associates continuing critical on-site work.
 
Regulatory Considerations
We must comply
 
with state and federal banking laws and regulations
 
that control virtually all aspects of our
 
operations. These
laws and regulations generally aim
 
to protect our depositors, not necessarily
 
our shareowners or our creditors.
 
Any changes in
applicable laws or regulations may
 
materially affect our business and prospects.
 
Proposed legislative or regulatory
 
changes may
also affect our operations. The following description
 
summarizes some of the laws and regulations
 
to which we are subject.
References to applicable statutes and
 
regulations are brief summaries,
 
do not purport to be complete, and are
 
qualified in their
entirety by reference
 
to such statutes and regulations.
 
 
Capital City Bank Group, Inc.
 
We are registered
 
with the Board of Governors of the Federal Reserve as a financial
 
holding company under the Bank Holding
Company Act of 1956. As a result, we are subject to
 
supervisory regulation and examination by the Federal Reserve.
 
The Gramm-
Leach-Bliley Act, the Bank Holding Company Act, or BHC Act,
 
and other federal laws subject financial holding companies to
particular restrictions on the types of activities in which
 
they may engage, and to a range of supervisory requirements and
activities, including regulatory enforcement actions
 
for violations of laws and regulations.
 
 
Permitted Activities
 
The Gramm-Leach-Bliley Act modernized the U.S.
 
banking system by: (i) allowing bank holding companies
 
that qualify as
“financial holding companies,” such as CCBG, to engage
 
in a broad range of financial and related activities; (ii) allowing insurers
and other financial service companies to acquire banks; (iii)
 
removing restrictions that applied to bank holding company
ownership of securities firms and mutual fund advisory
 
companies; and (iv) establishing the overall regulatory scheme applicable
to bank holding companies that also engage in insurance
 
and securities operations. The general effect of the law
 
was to establish a
comprehensive framework to permit affiliations
 
among commercial banks, insurance companies, securities firms, and
 
other
financial service providers. Activities that are financial
 
in nature are broadly defined to include not only banking,
 
insurance, and
securities activities, but also merchant banking and additional
 
activities that the Federal Reserve, in consultation with
 
the
Secretary of the Treasury,
 
determines to be financial in nature, incidental to such financial activities,
 
or complementary activities
that do not pose a substantial risk to the safety and soundness
 
of depository institutions or the financial system generally.
 
 
 
10
In contrast to financial holding companies, bank holding
 
companies are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and
 
engaging in other activities that the Federal Reserve determines by
regulation or order to be so closely related to banking
 
or managing or controlling banks as to be a proper incident thereto.
 
In
determining whether a particular activity is permissible, the
 
Federal Reserve must consider whether the performance of
 
such an
activity reasonably can be expected to produce benefits
 
to the public that outweigh possible adverse effects.
 
Possible benefits
include greater convenience, increased competition,
 
and gains in efficiency.
 
Possible adverse effects include undue concentration
of resources, decreased or unfair competition, conflicts of
 
interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries
 
to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve
 
has reasonable cause to believe that a serious risk to the financial
 
safety,
soundness or stability of any bank subsidiary of that
 
bank holding company may result from such an activity.
 
Changes in Control
 
Subject to certain exceptions, the BHC Act and the Change
 
in Bank Control Act, or CBCA, together with the applicable
regulations, require Federal Reserve approval (or,
 
depending on the circumstances, no notice of disapproval)
 
prior to any
acquisition of  “control” of a bank or bank holding company.
 
Under the BHC Act, a company (a broadly defined
 
term that
includes partnerships among other things) that acquires
 
the power, directly or indirectly,
 
to direct the management or policies of
an insured depository institution or to vote 25% or more
 
of any class of voting securities of any insured depository
 
institution is
deemed to control the institution and to be a bank holding
 
company. A company
 
that acquires less than 5% of any class of voting
security (and that does not exhibit the other control
 
factors) is presumed not to have control. For ownership levels
 
between the 5%
and 25% thresholds, the Federal Reserve has developed an
 
extensive body of law on the circumstances in which control may
 
or
may not exist.
 
Further, on January 30, 2020, the
 
Federal Reserve finalized a rule that simplifies and increases the
 
transparency of
its rules for determining when one company controls another
 
company for purposes of the BHC Act.
 
The rule became effective
September 30, 2020. The rule has and will likely continue
 
to have a meaningful impact on control determinations related
 
to
investments in banks and bank holding companies and
 
investments by bank holding companies in nonbank companies.
 
Under the CBCA, if an individual or a company that
 
acquires 10% or more of any class of voting securities of an
 
insured
depository institution or its holding company and
 
either that institution or company has registered securities under
 
Section 12 of
the Exchange Act, or no other person will own a
 
greater percentage of that class of voting securities immediately
 
after the
acquisition, then that investor is presumed to have control
 
and may be required to file a change in bank control notice
 
with the
institution’s or the holding
 
company’s primary federal
 
regulator. Our common
 
stock is registered under Section 12 of the
Exchange Act.
 
As a financial holding company,
 
we are required to obtain prior approval from the Federal
 
Reserve before (i) acquiring all or
substantially all of the assets of a bank or bank holding
 
company, (ii) acquiring direct
 
or indirect ownership or control of more
than 5% of the outstanding voting stock of any bank or
 
bank holding company (unless we own a majority of
 
such bank’s voting
shares), or (iii) acquiring, merging or consolidating
 
with any other bank or bank holding company.
 
In determining whether to
approve a proposed bank acquisition, federal bank
 
regulators will consider, among other factors,
 
the effect of the acquisition on
competition, the public benefits expected to be received
 
from the acquisition, the projected capital ratios and levels on a post-
acquisition basis, and the companies’ records of addressing
 
the credit needs of the communities they serve, including
 
the needs of
low and moderate income neighborhoods, consistent with
 
the safe and sound operation of the bank, under the Community
Reinvestment Act of 1977.
 
Under Florida law,
 
a person or entity proposing to directly or indirectly acquire control
 
of a Florida bank must also obtain
permission from the Florida Office of Financial
 
Regulation. Florida statutes define “control” as either (i) indirectly or
 
directly
owning, controlling or having power to vote 25% or more
 
of the voting securities of a bank; (ii) controlling the election of a
majority of directors of a bank; (iii) owning, controlling,
 
or having power to vote 10% or more of the voting securities
 
as well as
directly or indirectly exercising a controlling influence
 
over management or policies of a bank; or (iv) as
 
determined by the
Florida Office of Financial Regulation. These requirements
 
will affect us because the Bank is chartered
 
under Florida law and
changes in control of CCBG are indirect
 
changes in control of CCB.
 
Prohibitions Against Tying Arrangements
 
Banks are subject to the prohibitions of 12 U.S.C. Section
 
1972 on certain tying arrangements.
 
We are prohibited,
 
subject to
some exceptions, from extending credit to or offering
 
any other service, or fixing or varying the consideration for such
 
extension
of credit or service, on the condition that the customer
 
obtain some additional service from the institution or its affiliates
 
or not
obtain services of a competitor of the institution.
 
 
 
11
Capital; Dividends; Source of Strength
 
The Federal Reserve imposes certain capital requirements
 
on financial holding companies under the BHC Act, including
 
a
minimum leverage ratio and a minimum ratio
 
of “qualifying” capital to risk-weighted assets. These requirements
 
are described
below under “Capital Regulations.” Subject to its capita
 
l
 
requirements and certain other restrictions, we are generally
 
able to
borrow money to make a capital contribution to CCB, and
 
such loans may be repaid from dividends paid from CCB to us.
 
We are
also able to raise capital for contributions to CCB by issuing
 
securities without having to receive regulatory approval,
 
subject to
compliance with federal and state securities laws.
 
It is the Federal Reserve’s policy
 
that bank holding companies should generally pay dividends
 
on common stock only out of
income available over the past year,
 
and only if prospective earnings retention is consistent with the
 
organization’s
 
expected
future needs and financial condition. It is also the Federal
 
Reserve’s policy that bank holding
 
companies should not maintain
dividend levels that undermine their ability to be a source
 
of strength to its banking subsidiaries. Additionally,
 
the Federal
Reserve has indicated that bank holding companies
 
should carefully review their dividend policies and has discouraged
 
payment
ratios that are at maximum allowable levels unless both
 
asset quality and capital are very strong. The Federal Reserve
 
possesses
enforcement powers over bank holding companies and their
 
non-bank subsidiaries to prevent or remedy actions that
 
represent
unsafe or unsound practices or violations of applicable
 
statutes and regulations. Among these powers is the ability to proscribe
 
the
payment of dividends by banks and bank holding companies.
 
 
Bank holding companies are expected to consult with the
 
Federal Reserve before redeeming any equity or other capital instrument
included in Tier 1 or Tier
 
2 capital prior to stated maturity,
 
if such redemption could have a material effect on
 
the level or
composition of the organization’s
 
capital base. In addition, a bank holding company may not repurchase
 
shares equal to 10% or
more of its net worth if it would not be well-capitalized (as
 
defined by the Federal Reserve) after giving effect
 
to such repurchase.
Bank holding companies experiencing financial weaknesses,
 
or that are at significant risk of developing financial
 
weaknesses,
must consult with the Federal Reserve before redeeming
 
or repurchasing common stock or other regulatory capital instruments.
 
In accordance with Federal Reserve policy,
 
which has been codified by the Dodd-Frank Act, we are expected to
 
act as a source of
financial strength to CCB and to commit resources to support
 
CCB in circumstances in which we might not otherwise do
 
so. In
furtherance of this policy,
 
the Federal Reserve may require a financial holding company to
 
terminate any activity or relinquish
control of a nonbank subsidiary (other than a nonbank
 
subsidiary of a bank) upon the Federal Reserve’s
 
determination that such
activity or control constitutes a serious risk to the financial
 
soundness or stability of any subsidiary depository institution
 
of the
financial holding company.
 
Further, federal bank regulatory authorities
 
have additional discretion to require a financial holding
company to divest itself of any bank or nonbank subsidiary
 
if the agency determines that divestiture may aid the depository
institution’s financial condition.
 
 
Safe and Sound Banking Practices
 
Bank holding companies and their nonbanking subsidiaries
 
are prohibited from engaging in activities that represent unsafe and
unsound banking practices or that constitute a violation of
 
law or regulations. Under certain conditions the Federal Reserve may
conclude that some actions of a bank holding company,
 
such as a payment of a cash dividend, would constitute an
 
unsafe and
unsound banking practice. The Federal Reserve also has
 
the authority to regulate the debt of bank holding companies,
 
including
the authority to impose interest rate ceilings and reserve
 
requirements on such debt. The Federal Reserve may also require a bank
holding company to file written notice and obtain its approval
 
prior to purchasing or redeeming its equity securities,
 
unless certain
conditions are met.
 
 
Capital City Bank
 
Capital City Bank is a state-chartered commercial banking
 
institution that is chartered by and headquartered in the State of
Florida, and is subject to supervision and regulation by
 
the Florida Office of Financial Regulation. The Florida
 
Office of Financial
Regulation supervises and regulates all areas of our
 
operations including, without limitation, the making of loans,
 
the issuance of
securities, the conduct of our corporate affairs,
 
the satisfaction of capital adequacy requirements, the payment
 
of dividends, and
the establishment or closing of banking centers. We
 
are also a member bank of the Federal Reserve System, which makes
 
our
operations subject to broad federal regulation and oversight
 
by the Federal Reserve. In addition, our deposit accounts
 
are insured
by the FDIC up to the maximum extent permitted by law,
 
and the FDIC has certain supervisory enforcement powers
 
over us.
 
 
 
12
As a state-chartered bank in the State of Florida, we
 
are empowered by statute, subject to the limitations contained
 
in those
statutes, to take and pay interest on, savings and time deposits,
 
to accept demand deposits, to make loans on residential and
 
other
real estate, to make consumer and commercial loans,
 
to invest, with certain limitations, in equity securities and
 
in debt obligations
of banks and corporations and to provide various other banking
 
services for the benefit of our clients. Various
 
consumer laws and
regulations also affect our operations, including
 
state usury laws, laws relating to fiduciaries, consumer credit and
 
equal credit
opportunity laws, and fair credit reporting. In addition,
 
the Federal Deposit Insurance Corporation Improvement
 
Act of 1991, or
FDICIA, prohibits insured state chartered institutions from
 
conducting activities as principal that are not permitted for national
banks. A bank, however, may
 
engage in an otherwise prohibited activity if it meets its minimum
 
capital requirements and the
FDIC determines that the activity does not present a
 
significant risk to the Deposit Insurance Fund.
 
Safety and Soundness Standards / Risk Management
 
 
The federal banking agencies have adopted guidelines
 
establishing operational and managerial standards to promote
 
the safety
and soundness of federally insured depository institutions. The
 
guidelines set forth standards for internal controls, information
systems, internal audit systems, loan documentation, credit
 
underwriting, interest rate exposure, asset growth, compensation,
 
fees
and benefits, asset quality and earnings.
 
In general, the safety and soundness guidelines prescribe
 
the goals to be achieved in each area, and each institution is responsible
for establishing its own procedures to achieve those goals.
 
If an institution fails to comply with any of the standards set forth
 
in
the guidelines, the financial institution’s
 
primary federal regulator may require the institution to
 
submit a plan for achieving and
maintaining compliance. If a financial institution fails to
 
submit an acceptable compliance plan, or fails in any mater
 
ial respect to
implement a compliance plan that has been accepted by its primary
 
federal regulator, the regulator is required
 
to issue an order
directing the institution to cure the deficiency.
 
Until the deficiency cited in the regulator’s order
 
is cured, the regulator may
restrict the financial institution’s
 
rate of growth, require the financial institution to increase its capital,
 
restrict the rates the
institution pays on deposits or require the institution to
 
take any action the regulator deems appropriate under
 
the circumstances.
Noncompliance with the standards established by the
 
safety and soundness guidelines may also constitute grounds for
 
other
enforcement action by the federal bank regulatory agencies,
 
including cease and desist orders and civil money
 
penalty
assessments.
 
 
During the past decade, the bank regulatory agencies have
 
increasingly emphasized the importance of sound risk management
processes and strong internal controls when evaluating
 
the activities of the financial institutions they supervise. Properly
managing risks has been identified as critical to the conduct
 
of safe and sound banking activities and has become even
 
more
important as new technologies, product innovation and
 
the size and speed of financial transactions have changed the nature
 
of
banking markets. The agencies have identified a spectrum
 
of risks facing a banking institution including, but not limited
 
to, credit,
market, liquidity,
 
operational, legal and reputational risk. In particular,
 
recent regulatory pronouncements have focused on
operational risk, which arises from the potential that inadequate
 
information systems, operational problems, breaches in internal
controls, fraud or unforeseen catastrophes will result in
 
unexpected losses. New products and services, third party
 
risk
management and cybersecurity are critical sources of operational
 
risk that financial institutions are expected to address in the
current environment. The Bank is expected to have active board
 
and senior management oversight; adequate policies, procedures
and limits; adequate risk measurement, monitoring and
 
management information systems; and comprehensive
 
internal controls.
 
Reserves
 
The Federal Reserve requires all depository institutions
 
to maintain reserves against transaction accounts (noninterest bearing
 
and
NOW checking accounts). The balances maintained
 
to meet the reserve requirements imposed by the Federal Reserve may be
used to satisfy liquidity requirements. An institution may
 
borrow from the Federal Reserve Bank “discount window”
 
as a
secondary source of funds, provided that the institution
 
meets the Federal Reserve Bank’s
 
credit standards.
 
Dividends
 
CCB is subject to legal limitations on the frequency
 
and amount of dividends that can be paid to CCBG. The Federal
 
Reserve may
restrict the ability of CCB to pay dividends if such
 
payments would constitute an unsafe or unsound banking
 
practice.
Additionally, as
 
of January 1, 2019, financial institutions are required to
 
maintain a capital conservation buffer of at least 2.5%
 
of
risk-weighted assets in order to avoid restrictions on
 
capital distributions and other payments. If a financial institution’s
 
capital
conservation buffer falls below the minimum
 
requirement, its maximum payout amount for capital distributions
 
and discretionary
payments declines to a set percentage of eligible retained
 
income based on the size of the buffer.
 
See “Capital Regulations,”
below for additional details on this new capital requirement.
 
 
13
In addition, Florida law and Federal regulation place
 
restrictions on the declaration of dividends from state chartered
 
banks to
their holding companies. Pursuant to the Florida Financial
 
Institutions Code, the board of directors of state-chartered banks,
 
after
charging off bad debts, depreciation and
 
other worthless assets, if any,
 
and making provisions for reasonably anticipated future
losses on loans and other assets, may quarterly,
 
semi-annually or annually declare a dividend of up to the aggregate
 
net profits of
that period combined with the bank’s
 
retained net profits for the preceding two years and, with the approval
 
of the Florida Office
of Financial Regulation and Federal Reserve, declare
 
a dividend from retained net profits which accrued prior to the
 
preceding
two years. Before declaring such dividends, 20% of the
 
net profits for the preceding period as is covered by the
 
dividend must be
transferred to the surplus fund of the bank until this fund
 
becomes equal to the amount of the bank’s
 
common stock then issued
and outstanding. A state-chartered bank may not
 
declare any dividend if (i) its net income (loss) from the
 
current year combined
with the retained net income (loss) for the preceding
 
two years aggregates a loss or (ii) the payment of such
 
dividend would cause
the capital account of the bank to fall below the minimum amount
 
required by law, regulation
 
,
 
order or any written agreement
with the Florida Office of Financial Regulation
 
or a federal regulatory agency.
 
Under Federal Reserve regulations, a state member
bank may, without
 
the prior approval of the Federal Reserve, pay a dividend in
 
an amount that, when taken together with all
dividends declared during the calendar year,
 
does not exceed the sum of the bank’s
 
net income during the current calendar year
and the retained net income of the prior two calendar years.
 
The Federal Reserve may approve greater amounts.
 
Insurance of Accounts and Other Assessments
 
 
Deposits at U.S. domiciled banks are insured by the FDIC, subject
 
to limits and conditions of applicable laws and regulations.
Our deposit accounts are insured by the Deposit Insurance
 
Fund, or DIF,
 
generally up to a maximum of $250,000 per separately
insured depositor. In order
 
to fund the DIF, all
 
insured depository institutions are required to pay quarterly
 
assessments to the
FDIC that are based on an institutions assignment to one
 
of four risk categories based on supervisory evaluations,
 
regulatory
capital levels and certain other factors.
 
The FDIC has the discretion to adjust an institution’s
 
risk rating and may terminate its
insurance of deposits upon a finding that the institution
 
engaged or is engaging in unsafe and unsound practices, is in an
 
unsafe or
unsound condition to continue operations, or violated
 
any applicable law, regulation,
 
rule, order or condition imposed by the
FDIC or written agreement entered into with the FDIC. The
 
FDIC may also prohibit any FDIC-insured institution from
 
engaging
in any activity it determines to pose a serious risk to
 
the DIF.
 
 
Transactions With Affiliates
 
and Insiders
 
Pursuant to Sections 23A and 23B of the Federal Reserve
 
Act and Regulation W,
 
the authority of CCB to engage in transactions
with related parties or “affiliates” or to make
 
loans to insiders is limited. Loan transactions with an affiliate
 
generally must be
collateralized and certain transactions between CCB and its affiliates,
 
including the sale of assets, the payment of money or the
provision of services, must be on terms and conditions that
 
are substantially the same, or at least as favorable to CCB, as those
prevailing for comparable nonaffiliated transactions.
 
In addition, CCB generally may not purchase securities issued or
underwritten by affiliates.
 
 
Loans to executive officers and directors of an
 
insured depository institution or any of its affiliates or to
 
any person who directly
or indirectly, or
 
acting through or in concert with one or more persons, owns, controls
 
or has the power to vote more than 10% of
any class of voting securities of a bank, which we refer
 
to as “10% Shareowners,” or to any political or campaign
 
committee the
funds or services of which will benefit those executive
 
officers, directors, or 10% Shareowners or which is controlled
 
by those
executive officers, directors or 10% Shareowners,
 
are subject to Sections 22(g) and 22(h) of the Federal Reserve
 
Act and the
corresponding regulations (Regulation O) and Section
 
13(k) of the Exchange Act relating to the prohibition on
 
personal loans to
executives (which exempts financial institutions in compliance
 
with the insider lending restrictions of Section 22(h) of
 
the Federal
Reserve Act). Among other things, these loans must be
 
made on terms substantially the same as those prevailing on transactions
made to unaffiliated
 
individuals and certain extensions of credit to those persons must
 
first be approved in advance by a
disinterested majority of the entire board of directors.
 
Section 22(h) of the Federal Reserve Act prohibits loans to
 
any of those
individuals where the aggregate amount exceeds an
 
amount equal to 15% of an institution’s
 
unimpaired capital and surplus plus
an additional 10% of unimpaired capital and surplus in
 
the case of loans that are fully secured by readily marketable
 
collateral, or
when the aggregate amount on all of the extensions of
 
credit outstanding to all of these persons would exceed our unimpaired
capital and unimpaired surplus. Section 22(g) identifies
 
limited circumstances in which we are permitted to extend
 
credit to
executive officers.
 
 
 
14
Community Reinvestment Act
 
The Community Reinvestment Act and its corresponding
 
regulations are intended to encourage banks to help meet
 
the credit
needs of the communities they serve, including low and
 
moderate income neighborhoods, consistent with safe and sound
 
banking
practices. These regulations provide for regulatory assessment
 
of a bank’s record in meeting
 
the credit needs of its market area.
Federal banking agencies are required to publicly disclose
 
each bank’s rating
 
under the Community Reinvestment Act. The
Federal Reserve considers a bank’s
 
Community Reinvestment Act rating when the bank submits an
 
application to establish bank
branches, merge with another bank, or
 
acquire the assets and assume the liabilities of another bank. In
 
the case of a financial
holding company,
 
the Community Reinvestment Act performance record of all banks involved
 
in a merger or acquisition are
reviewed in connection with the application to acquire
 
ownership or control of shares or assets of a bank or to
 
merge with another
bank or bank holding company.
 
An unsatisfactory record can substantially delay or block the transaction.
 
We received a
satisfactory rating on our most recent Community Reinvestment
 
Act assessment.
 
 
Capital Regulations
 
The federal banking regulators have adopted risk-based,
 
capital adequacy guidelines for financial holding companies
 
and their
subsidiary banks based on the Basel III standards. Under
 
these guidelines, assets and off-balance sheet items are assigned
 
to
specific risk categories each with designated risk weightings. The
 
new risk-based capital guidelines are designed to make
regulatory capital requirements more sensitive to diffe
 
rences in risk profiles among banks and bank holding companies,
 
to
account for off-balance sheet exposure, to minimize
 
disincentives for holding liquid assets, and to achieve
 
greater consistency in
evaluating the capital adequacy of major banks throughout
 
the world. The resulting capital ratios represent capital as a
 
percentage
of total risk-weighted assets and off-balance
 
sheet items. Final rules implementing the capital adequacy guidelines
 
became
effective, with various phase-in periods, on
 
January 1, 2015 for community banks. All of the rules were fully
 
phased in as of
January 1, 2019. These final rules represent a significant
 
change to the prior general risk-based capital rules and are designed
 
to
substantially conform to the Basel III international
 
standards.
 
 
In computing total risk-weighted assets, bank and bank holding
 
company assets are given risk-weights of 0%, 20%, 50%, 100%
and 150%. In addition, certain off-balance
 
sheet items are given similar credit conversion factors to convert
 
them to asset
equivalent amounts to which an appropriate risk-weight will
 
apply. Most loans
 
will be assigned to the 100% risk category,
 
except
for performing first mortgage loans fully secured by 1-to-4
 
family and certain multi-family residential property,
 
which carry a
50% risk rating. Most investment securities (including,
 
primarily, general obligation
 
claims on states or other political
subdivisions of the United States) will be assigned to the
 
20% category, except
 
for municipal or state revenue bonds, which have
a 50% risk-weight, and direct obligations of the U.S. Treasury
 
or obligations backed by the full faith and credit of the
 
U.S.
Government, which have a 0% risk-weight. In covering off-balance
 
sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial
 
obligations, are given a 100% conversion factor.
 
Transaction-related
contingencies such as bid bonds, standby letters of credit
 
backing nonfinancial obligations, and undrawn commitments
 
(including
commercial credit lines with an initial maturity of more
 
than one year) have a 50% conversion factor.
 
Short-term commercial
letters of credit are converted at 20% and certain short
 
-term unconditionally cancelable commitments have a 0% factor.
 
 
Under the final rules, minimum requirements increased
 
for both the quality and quantity of capital held by banking organizations.
 
In this respect, the final rules implement strict eligibility criteria
 
for regulatory capital instruments and improve the methodology
for
 
calculating risk-weighted assets to enhance risk sensitivity.
 
Consistent with the international Basel III framework, the rules
include a new minimum ratio of Common Equity Tier
 
1 Capital to Risk-Weighted
 
Assets of 4.5%. The rules also create a
Common Equity Tier 1 Capital conservation
 
buffer of 2.5% of risk-weighted assets. This buffer
 
is added to each of the three risk-
based capital ratios to determine whether an institution
 
has established the buffer.
 
The rules raise the minimum ratio of Tier 1
Capital to Risk-Weighted
 
Assets from 4% to 6% and include a minimum leverage
 
ratio of 4% for all banking organizations. If a
financial institution’s capital
 
conservation buffer falls below 2.5% (e.g., if the institution’s
 
Common Equity Tier 1 Capital to
Risk-Weighted Assets
 
is less than 7.0%) then capital distributions and discretionary
 
payments will be limited or prohibited based
on the size of the institution’s
 
buffer. The
 
types of payments subject to this limitation include dividends, share
 
buybacks,
discretionary payments on Tier 1 instruments,
 
and discretionary bonus payments.
 
The capital regulations may also impact
 
the treatment of accumulated other comprehensive income,
 
or AOCI, for regulatory
capital purposes. Under the recently implemented rules,
 
AOCI generally flows through to regulatory capital, however,
 
community
banks and their holding companies may make a
 
one-time irrevocable opt-out election to continue to treat AOCI
 
the same as under
the old regulations for regulatory capital purposes. This
 
election was required to be made on the first call report
 
or bank holding
company annual report (on form FR Y-9C)
 
filed after January 1, 2015. We
 
made the opt-out election. Additionally,
 
the new rules
also permit community banks with less than $15 billion in
 
total assets to continue to count certain non-qualifying
 
capital
instruments issued prior to May 19, 2010 as Tier
 
1 capital, including trust preferred securities and cumulative
 
perpetual preferred
stock (subject to a limit of 25% of Tier
 
1 capital). However, non-qualifying capital
 
instruments issued on or after May 19, 2010
do not qualify for Tier 1 capital treatment.
 
 
 
15
In February 2019, the federal bank regulatory agencies issued
 
a final rule (the “2019 CECL Rule”) that revised certain
 
capital
regulations to account for changes to credit loss accounting
 
under accounting principles generally accepted in the
 
United States
("GAAP").
 
The 2019 CECL Rule included a transition option that
 
allows banking organizations to phase in, over
 
a three-year
period, the day-one adverse effects of adopting
 
the new accounting standard related to the measurement of current
 
expected credit
losses (“CECL”) on their regulatory capital ratios (three-year
 
transition option).
 
In March 2020, the federal bank regulatory
agencies issued an interim final rule that maintains
 
the three-year transition option of the 2019 CECL Rule and also
 
provides
banking organizations that were required under
 
GAAP to implement CECL before the end of 2020 the option
 
to delay for two
years an estimate of the effect of CECL on regulatory
 
capital, relative to the incurred loss methodology’s
 
effect on regulatory
capital, followed by a three-year transition period (five-year
 
transition option). We
 
adopted CECL on January 1, 2020 and have
elected to utilize the three-year transition option.
 
Commercial Real Estate Concentration Guidelines
 
 
The federal banking regulators have implemented guidelines to
 
address increased concentrations in commercial real estate loans.
These
 
guidelines describe the criteria regulatory agencies will use as indicators
 
to identify institutions potentially exposed to
commercial real estate concentration risk. An institution
 
that has (i) experienced rapid growth in commercial real estate lending,
(ii) notable exposure to a specific type of
 
commercial real estate, (iii) total reported loans for construction,
 
land development, and
other land representing 100% or more of total risk-based
 
capital, or (iv) total commercial real estate (including construction)
 
loans
representing 300% or more of total risk-based capital
 
and the outstanding balance of the institutions commercial real
 
estate
portfolio has increased by 50% or more in the prior 36
 
months, may be identified for further supervisory analysis of
 
a potential
concentration risk.
 
 
At December 31, 2020, CCB’s ratio
 
of construction, land development and other land loans to
 
total risk-based capital was 65%,
its ratio of total commercial real estate loans to total risk-based
 
capital was 196% and, therefore, CCB was under the 100% and
300% thresholds, respectively,
 
set forth in clauses (iii) and (iv) above.
 
As a result, we are not deemed to have a concentration in
commercial real estate lending under applicable regulatory
 
guidelines.
 
Prompt Corrective Action
 
Federal law and regulations
 
establish a capital-based regulatory scheme designed
 
to promote early intervention for troubled banks
and require the FDIC to choose the least expensive resolution
 
of bank failures. The capital-based regulatory framework
 
contains
five categories of compliance with regulatory capital requirements,
 
including “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and
 
“critically undercapitalized.” To
 
qualify as a “well-capitalized”
institution under the rules in effect as of
 
January 1, 2015, a bank must have a leverage ratio of not less than
 
5%, a Tier 1 Common
Equity ratio of not less than 6.5%, a Tier
 
1 Capital ratio of not less than 8%, and a total risk-based capital
 
ratio of not less than
10%, and the bank must not be under any order or
 
directive from the appropriate regulatory agency to meet
 
and maintain a
specific capital level.
 
 
Under the regulations, the applicable agency can treat
 
an institution as if it were in the next lower category if the
 
agency
determines (after notice and an opportunity for hearing)
 
that the institution is in an unsafe or unsound condition or is engaging
 
in
an unsafe or unsound practice. The degree of regulatory
 
scrutiny of a financial institution will increase, and the permissible
activities of the institution will decrease, as it moves downward
 
through the capital categories.
 
Immediately upon becoming undercapitalized, a depository
 
institution becomes subject to the provisions of Section 38
 
of the
Federal Deposit Insurance Act which: (i) restrict payment
 
of capital distributions and management fees; (ii) require that
 
the
appropriate federal banking agency monitor the condition
 
of the institution and its efforts to restore its capital; (iii)
 
require
submission of a capital restoration plan; (iv) restrict the
 
growth of the institution’s assets; and
 
(v) require prior approval of certain
expansion proposals. The appropriate federal banking
 
agency for an undercapitalized institution also may take any number of
discretionary supervisory actions if the agency determines
 
that any of these actions is necessary to resolve the problems of
 
the
institution at the least possible long-term cost to the
 
deposit insurance fund, subject in certain cases to specified procedures.
 
These
discretionary supervisory actions include: (i) requiring
 
the institution to raise additional capital; (ii) restricting transactions
 
with
affiliates; (iii) requiring divestiture of the institution
 
or the sale of the institution to a willing purchaser; and (iv)
 
any other
supervisory action that the agency deems appropriate. These
 
and additional mandatory and permissive supervisory
 
actions may be
taken with respect to significantly undercapitalized
 
and critically undercapitalized institutions.
 
 
 
16
In 2019, the federal banking regulators published final
 
rules implementing a simplified measure of capital adequacy for
 
certain
banking organizations that have less than $10
 
billion in total consolidated assets. Under the final rules,
 
which went into effect on
January 1, 2020, depository institutions and depository institution
 
holding companies that have less than $10 billion in total
consolidated assets and meet other qualifying criteria, including
 
a leverage ratio of greater than 9%, off-balance-sheet
 
exposures
of 25% or less of total consolidated assets and trading
 
assets plus trading liabilities of 5% or less of total consolidated
 
assets, are
deemed “qualifying community banking organizations”
 
and are eligible to opt into the “community bank leverage
 
ratio
framework.” A qualifying community banking organizati
 
on that elects to use the community bank leverage ratio framework
 
and
that maintains a leverage ratio of greater than 9% is considered
 
to have satisfied the generally applicable risk-based and
 
leverage
capital requirements under the Basel III capital rules and,
 
if applicable, is considered to have met the “well capitalized” ratio
requirements for purposes of its primary federal regulator’s
 
prompt corrective action rules, discussed above. The
 
final rules
include a two-quarter grace period during which a qualifying community
 
banking organization that temporarily fails to meet
 
any
of the qualifying criteria, including the greater-than-9%
 
leverage capital ratio requirement, is generally still deemed “well
capitalized” so long as the banking organization
 
maintains
 
a leverage capital ratio greater than 8%. A banking organization
 
that
fails to maintain a leverage capital ratio greater than 8%
 
is not permitted to use the grace period and must comply with
 
the
generally applicable requirements under the Basel III capital
 
rules and file the appropriate regulatory reports.
 
 
Pursuant to the Coronavirus Aid, Relief, and Economic
 
Security Act, or CARES Act, the federal banking agencies authorities
adopted a final rule, effective November
 
9, 2020, that (i) reduced the minimum community bank leverage
 
ratio to be deemed
“well capitalized” from 9% to 8% through calendar year 2020,
 
(ii) set the ratio at 8.5% for calendar year 2021, (iii) sets the ratio
back at 9% for 2022 and thereafter,
 
and (ii) gave community banks two-quarter grace period to
 
satisfy the ratio if the ratio falls
out of compliance by no more than 1%. We
 
have not elected to comply with the community bank leverage
 
ratio framework and
will remain subject to the Basel III capital requirements.
 
At December 31, 2020, we exceeded the requirements contained
 
in the applicable regulations, policies and directives pertaining
 
to
capital adequacy to be classified as “well capitalized” and
 
are unaware of any material violation or alleged violation of
 
these
regulations, policies or directives (see table below). Rapid
 
growth, poor loan portfolio performance, or poor earnings
performance, or a combination of these factors, could
 
change our capital position in a relatively short period of
 
time, making
additional capital infusions necessary.
 
Our capital ratios can be found in Note 17 to the Notes to our
 
Consolidated Financial
Statements.
 
Interstate Banking and Branching
 
The Dodd-Frank Act relaxed interstate branching restrictions by
 
modifying the federal statute governing de novo interstate
branching by state member banks. Consequently,
 
a state member bank may open its initial branch in a state
 
outside of the bank’s
home state by way of an interstate bank branch, so long as a
 
bank chartered under the laws of that state would be permitted
 
to
open a branch at that location.
 
 
Anti-money Laundering
 
The USA PATRIOT
 
Act, provides the federal government with additional
 
powers to address terrorist threats through enhanced
domestic security measures, expanded surveillance
 
powers, increased information sharing and broadened anti-money
 
laundering
requirements. By way of amendments to the Bank Secrecy
 
Act, or BSA, the USA PATRIOT
 
Act puts in place measures intended
to encourage information sharing among bank regulatory
 
and law enforcement agencies. In addition, certain provisions
 
of the
USA PATRIOT
 
Act impose affirmative obligations on a broad range
 
of financial institutions.
 
The USA PATRIOT
 
Act and the related Federal Reserve regulations require
 
banks to establish anti-money laundering programs
that include, at a minimum:
 
 
internal policies, procedures and controls designed
 
to implement and maintain the savings association’s
 
compliance with
all of the requirements of the USA PATRIOT
 
Act, the BSA and related laws and regulations;
 
systems and procedures for monitoring and reporting of suspicious
 
transactions and activities;
 
a designated compliance officer;
 
employee training;
 
an independent audit function to test the anti-money laundering
 
program;
 
procedures to verify the identity of each client upon the
 
opening of accounts; and
 
heightened due diligence policies, procedures and
 
controls applicable to certain foreign accounts and relationships.
 
 
17
Additionally, the
 
USA PATRIOT
 
Act requires each financial institution to develop a client identification
 
program, or CIP as part
of its anti-money laundering program. The key components
 
of the CIP are identification, verification, government
 
list
comparison, notice and record retention. The purpose
 
of the CIP is to enable the financial institution to determine
 
the true identity
and anticipated account activity of each client. To
 
make this determination, among other things, the financial institution
 
must
collect certain information from clients at the time they
 
enter into the client relationship with the financial institution.
 
This
information must be verified within a reasonable
 
time. Furthermore, all clients must be screened against any
 
CIP-related
government lists of known or suspected terrorists. In 2018,
 
the U.S. Treasury’s
 
Financial Crimes Enforcement Network issued a
final rule under the BSA requiring banks to identify and verify
 
the identity of the natural persons behind their clients that are legal
entities – the beneficial owners. We
 
and our affiliates have adopted policies, procedures
 
and controls designed to comply with the
BSA and the USA PATRIOT
 
Act.
 
Regulatory Enforcement Authority
 
Federal and state banking laws grant substantial regulatory
 
authority and enforcement powers to federal and state banking
regulators. This authority permits bank regulatory
 
agencies to assess civil money penalties, to issue cease and desist or
 
removal
orders, and to initiate injunctive actions against banking
 
organizations and institution-affiliated parties.
 
In general, these
enforcement actions may be initiated for either violations
 
of laws or regulations or for unsafe or unsound practices.
 
Other actions
or inactions may provide the basis for enforcement action,
 
including misleading or untimely reports filed with regulatory
authorities.
 
 
Privacy
 
A variety of federal and state privacy laws govern the collection,
 
safeguarding, sharing and use of customer information, and
require that financial institutions have policies regarding information
 
privacy and security. The
 
Gramm-Leach-Bliley Act and
related regulations require banks and their affiliated
 
companies to adopt and disclose privacy policies, including
 
policies
regarding the sharing of personal information with
 
third-parties. Some state laws also protect the privacy of information
 
of state
residents and require adequate security of such data,
 
and certain state laws may, in
 
some circumstances, require us to notify
affected individuals of security breaches
 
of computer databases that contain their personal information.
 
These laws may also
require us to notify law enforcement, regulators or consumer
 
reporting agencies in the event of a data breach, as well as
businesses and governmental agencies that own data.
 
Overdraft Fee Regulation
 
 
The Electronic Fund Transfer Act prohibits
 
financial institutions from charging consumers fees for
 
paying overdrafts on
automated teller machines, or ATM,
 
and one-time debit card transactions, unless a consumer consents,
 
or opts in, to the overdraft
service for those type of transactions.
 
If a consumer does not opt in, any ATM
 
transaction or debit that overdraws the consumer’s
account will be denied.
 
Overdrafts on the payment of checks and regular electronic bill
 
payments are not covered by this new
rule.
 
Before opting in, the consumer must be provided a notice that explains
 
the financial institution’s overdraft
 
services,
including the fees associated with the service, and the
 
consumer’s choices.
 
Financial institutions must provide consumers who do
not opt in with the same account terms,
 
conditions and features (including pricing) that they provide
 
to consumers who do opt in.
 
 
Consumer Laws and Regulations
 
CCB is also subject to other federal and state consumer
 
laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below
 
is not
 
exhaustive, these laws and regulations include the Truth
 
in Lending
Act, the Truth in Savings Act, the Electronic
 
Fund Transfer Act, the Expedited Funds Availability
 
Act, the Check Clearing for the
21st Century Act, the Fair Credit Reporting Act, the
 
Fair Debt Collection Practices Act, the Equal Credit Opportunity Act,
 
the
Fair Housing Act, the Home Mortgage Disclosure
 
Act, the Fair and Accurate Credit Transactions Act,
 
the Mortgage Disclosure
Improvement Act, and the Real Estate Settlement Procedures
 
Act, among others. These laws and regulations mandate
 
certain
disclosure requirements and regulate the manner
 
in which financial institutions must deal with clients when taking
 
deposits or
making loans to such clients. CCB must comply with the
 
applicable provisions of these consumer protection laws and
 
regulations
as part of its ongoing client relations.
 
 
In addition, the Consumer Financial Protection Bureau
 
issues regulations and standards under these federal consumer protection
laws that affect our consumer businesses. These include
 
regulations setting “ability to repay” standards for residential
 
mortgage
loans and mortgage loan servicing and originator compensation
 
standards, which generally require creditors to make a reasonable,
good faith determination of a consumer’s
 
ability to repay any consumer credit transaction secured by a dwelling
 
(excluding an
open-end credit plan, timeshare plan, reverse mortgage,
 
or temporary loan) and establishes certain protections from
 
liability under
this requirement for loans that meet the requirements of the
 
“qualified mortgage” safe harbor.
 
Also, in, 2015, the new TILA-
RESPA Integrated
 
Disclosure, or TRID, rules for mortgage closings took
 
effect for new loan applications. The new TRID rules
were further amended in 2017. These new rules, including
 
the new required loan forms, generally increased the time
 
it takes to
approve mortgage loans.
 
18
 
Future Legislative Developments
 
 
Various
 
bills are from time to time introduced in Congress and the
 
Florida legislature. This legislation may change banking and
tax statutes and the environment in which our banking
 
subsidiary and we operate in substantial and unpredictable ways. We
cannot determine the ultimate effect that
 
potential legislation, if enacted, or implementing regulations with
 
respect thereto, would
have upon our financial condition or results of operations
 
or that of our banking subsidiary.
 
COVID-19 and the Coronavirus Aid, Relief, and
 
Economic Security Act
 
In response to the COVID-19 pandemic,
 
the CARES Act was signed into law
 
on March 27, 2020 to provide national
 
emergency
economic relief measures. Many of the
 
CARES Act’s programs are dependent upon the direct
 
involvement of U.S. financial
institutions, such as the Company
 
and the Bank, and have been implemented
 
through rules and guidance adopted
 
by federal
departments and agencies, including
 
the U.S. Department of Treasury,
 
the Federal Reserve and other federal
 
banking agencies,
including those with direct supervisory
 
jurisdiction over the Company and
 
the Bank. Furthermore, as the on-going
 
COVID-19
pandemic evolves, federal regulatory
 
authorities continue to issue additional
 
guidance with respect to the implementation,
 
lifecycle,
and eligibility requirements for
 
the various CARES Act programs as well
 
as industry-specific recovery
 
procedures for COVID-19.
In addition, it is likely that
 
Congress will enact supplementary
 
COVID-19 response legislation,
 
including amendments to the
CARES Act or new bills comparable
 
in scope to the CARES Act. The Company
 
continues to assess the impact
 
of the CARES Act
and other statues, regulations and
 
supervisory guidance related to
 
the COVID-19 pandemic.
 
Paycheck Protection Program
. The CARES Act amended the SBA’s loan program, in which the Bank participates, to create
 
a
guaranteed, unsecured loan program, the
 
PPP, to fund operational costs of eligible businesses, organizations
 
and self-employed
persons during COVID-19. In June 2020,
 
the Paycheck Protection Program
 
Flexibility Act was enacted, which
 
among other things,
gave borrowers additional time and
 
flexibility to use PPP loan proceeds.
 
On June 5, 2020, the Paycheck Protection
 
Program
Flexibility Act (the “Flexibility
 
Act”) was signed into law, and made significant changes
 
to the PPP to provide additional relief
 
for
small businesses. The Flexibility
 
Act increased flexibility for small
 
businesses that have been unable to
 
rehire employees due to
lack of employee availability, or have been unable to
 
operate as normal due to COVID-19
 
related restrictions, extended the
 
period
that businesses have to use PPP
 
funds to qualify for loan forgiveness
 
to 24 weeks, up from 8 weeks under
 
the original rules, and
relaxed the requirements that loan
 
recipients must adhere to in order
 
to qualify for loan forgiveness. In
 
addition, the Flexibility Act
extended the payment deferral period
 
for PPP loans until the date when
 
the amount of loan forgiveness is
 
determined and remitted
to the lender.
 
For PPP recipients who do not apply
 
for forgiveness, the loan deferral
 
period is 10 months after the applicable
forgiveness period ends. On July 4,
 
2020, Congress enacted a new law
 
to extend the deadline for applying
 
for a PPP loan to August
8, 2020. The program was re-opened
 
on January 11, 2021 with updated guidance outlining
 
program changes to enhance its
effectiveness and accessibility. This round of the PPP will
 
serve new borrowers, as well
 
as allow certain existing PPP
 
borrowers to
apply for a second draw PPP Loan
 
and make a request to modify their
 
first draw PPP loan. As a participating
 
lender in the PPP, the
Bank continues to monitor legislative,
 
regulatory, and supervisory developments related thereto.
 
Troubled Debt Restructuring and Loan Modifications for Affected Borrower
s. The CARES Act permitted banks
 
to suspend
requirements under GAAP for loan modifications
 
to borrowers affected by COVID-19 that would
 
otherwise be characterized as
TDRs and suspend any determination related
 
thereto if (i) the loan modification
 
was made between March 1, 2020
 
and the earlier
of December 31, 2020 or 60 days
 
after the end of the COVID-19 emergency
 
declaration, and (ii) the applicable
 
loan was not more
than 30 days past due as of December
 
31, 2019. The federal banking agencies
 
also issued guidance to encourage
 
banks to make
loan modifications for borrowers
 
affected by COVID-19 and to assure banks
 
that they would not be criticized
 
by examiners for
doing so. We applied this guidance to qualifying loan modifications.
 
Main Street Lending Program.
 
The CARES Act encouraged the Federal
 
Reserve, in coordination with
 
the Secretary of the
Treasury, to establish or implement various programs to help
 
midsize businesses, nonprofits,
 
and municipalities. On April 9, 2020,
the Federal Reserve proposed the creation
 
of the Main Street Lending Program
 
(“MSLP”) to implement certain of these
recommendations. The MSLP supports lending
 
to small and medium-sized businesses
 
that were in sound financial condition
 
before
the onset of the COVID-19 pandemic. The
 
MSLP operates through five facilities:
 
the Main Street New Loan Facility, the Main
Street Priority Loan Facility, the Main Street Expanded
 
Loan Facility, the Nonprofit Organization New Loan Facility, and the
Nonprofit Organization Expanded Loan Facility. The Bank continues
 
to monitor developments related thereto.
 
 
19
C
urrent Expected Credit Loss Accounting
 
Standard
 
In 2016, the Financial Accounting Standards Board, or
 
FASB, issued a new current
 
expected credit loss rule, or CECL, which
required
 
banks to record, at the time of origination, credit losses expected
 
throughout the life of loans held for investment and
held-to-maturity securities, compared to the current practice
 
of recording
 
losses when it is probable that a loss event has occurred.
The update also amended the accounting for credit
 
losses on available-for-sale debt securities and financial
 
assets purchased with
credit deterioration.
 
We adopted this accounting
 
standard effective January 1, 2020.
 
See Note 1 – Significant Accounting
Policies/Adoption of New Accounting Standard for additional
 
information on this standard and its impact on our financial
statements.
 
Effect of Governmental Monetary Policies
 
The commercial banking business is affected not
 
only by general economic conditions, but also by the monetary policies
 
of the
Federal Reserve. Changes in the discount rate on member
 
bank borrowing, availability of borrowing at the “discount
 
window,”
open market operations, changes in the Fed Funds target
 
interest rate, changes in interest rates payable on reserve
 
accounts, the
imposition of changes in reserve requirements against member
 
banks’ deposits and assets of foreign banking centers and
 
the
imposition of and changes in reserve requirements against certain
 
borrowings by banks and their affiliates are some
 
of the
instruments of monetary policy available to the Federal
 
Reserve. These monetary policies are used in varying combinations
 
to
influence overall growth and distributions of bank loans,
 
investments and deposits, which may affect interest
 
rates charged on
loans or paid on deposits. The monetary policies of
 
the Federal Reserve have had a significant effect on the
 
operating results of
commercial banks and are expected to continue to
 
do so in the future. The Federal Reserve’s
 
policies are primarily influenced by
its dual mandate of price stability and full employment,
 
and to a lesser degree by short-term and long-term changes in the
international trade balance and in the fiscal policies of the
 
U.S. Government. Future changes in monetary policy and
 
the effect of
such changes on our business and earnings in the future cannot
 
be predicted.
 
London Inter-Bank Offered Rate (LIBOR)
 
 
We have contracts,
 
including loan agreements, which are currently indexed
 
to LIBOR. The use of LIBOR as a reference rate in
the banking industry is beginning to decline. In 2014,
 
a committee of private-market derivative participants and their
 
regulators,
the Alternative Reference Rate Committee, or ARRC, was convened
 
by the Federal Reserve to identify an alternative reference
interest rate to replace LIBOR.
 
In June 2017, the ARRC announced the Secured Overnight Funding
 
Rate, or SOFR, a broad
measure of the cost of borrowing cash overnight collateralized
 
by Treasury securities, as its preferred
 
alternative to LIBOR.
 
In
July 2017, the Chief Executive of the United Kingdom
 
Financial Conduct Authority,
 
which regulates LIBOR, announced its
intention to stop persuading or compelling banks to submit
 
rates for the calculation of LIBOR to the administrator of LIBOR after
2021.
 
In April 2018, the Federal Reserve Bank of New York
 
began to publish SOFR rates on a daily basis.
 
The International
Swaps and Derivatives Association, Inc. provided guidance
 
on fallback contract language related to derivative transactions
 
in late
2019.
 
The administrator of LIBOR has proposed to extend publication
 
of the most commonly used U.S. Dollar LIBOR settings to
June 30, 2023, and to cease publishing other LIBOR settings on
 
December 31, 2021.
 
The U.S. federal banking agencies have
issued guidance strongly encouraging banking organizations
 
to cease using U.S. dollar LIBOR as a reference rate
 
in new
contracts as soon as practicable and in any event by December
 
31, 2021.
 
It is not possible to know whether LIBOR will continue
to be viewed as an acceptable market benchmark, what
 
rate or rates may become accepted alternatives to LIBOR or what the
effect of any such changes in views or alternatives
 
may have on the financial markets for LIBOR-linked financial
 
instruments.
 
We are working
 
to ensure that our technology systems are prepared for the
 
transition, our loan documents that reference LIBOR-
based rates have been appropriately amended to reference
 
other methods of interest rate determination, and internal and
 
external
stakeholders are apprised of the transition.
 
Website Access to Company’s
 
Reports
 
Our Internet website is www.ccbg.com.
 
Our annual reports on Form 10-K, quarterly reports on Form
 
10-Q, current reports on
Form 8-K, including any amendments to those reports filed
 
or furnished pursuant to section 13(a) or 15(d), and
 
reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange
 
Act are available free of charge through our website
 
as soon as
reasonably practicable after they are electronically filed
 
with, or furnished to, the Securities and Exchange Commission.
 
The
information on our website is not incorporated by referenc
 
e
 
into this report.
 
 
 
20
Item 1A.
 
Risk Factors
 
An investment in our common stock contains a high
 
degree of risk. You
 
should consider carefully the following
 
risk factors before
deciding whether to invest in our common stock.
 
Our business, including our operating results and
 
financial condition, could be
harmed by any of these risks. Additional risks and uncertainties not
 
currently known to us or that we currently
 
deem to be
immaterial also may materially and adversely affect our
 
business. The trading price of our common stock could decline
 
due to
any of these risks, and you may lose all or part of your investment.
 
In assessing these risks, you should also refer
 
to the other
information contained in our filings with the SEC, including
 
our financial statements and related
 
notes.
 
Macroeconomic Risks
 
The impact of the COVID-19 pandemic on our customers, associates
 
and business operations has had, and will likely
continue to have, a significant adverse effect
 
on our business, results of operations and financial condition.
 
The COVID-19 pandemic created a global public
 
-health crisis that resulted in challenging economic conditions for
 
households
and businesses.
 
The economic impact of the COVID-19 pandemic impacted
 
a broad range of industries.
 
There is increasing
concern about the longer lasting impact on local business resulting
 
from the COVID-19 pandemic.
 
 
The Federal Reserve returned to a zero-interest rate policy
 
in March 2020 and the U.S. government enacted several fiscal stimulus
measures to counteract the economic disruption caused
 
by the COVID-19 pandemic and provide economic
 
assistance to
businesses and households. The dramatic lowering of
 
market interest rates in a short period of time had an adverse
 
effect on the
Company's asset yields.
 
The majority of the fiscal assistance provided
 
by the federal government to businesses and households
tapered off by December 31, 2020, which could
 
adversely impact the ability of borrowers to repay their loans. The
 
Company's
financial performance is dependent upon the ability of
 
borrowers to repay their loans.
 
 
The COVID-19 pandemic resulted in changes to our business operations
 
during the current year and could continue to result in
changes to operations in future periods.
 
Depending on the severity and length of the COVID-19 pandemic, which
 
is impossible to
predict, we could experience significant disruptions in our
 
business operations if key personnel or a significant number of
employees were to become unavailable due to the effects
 
of, and restrictions resulting from, the COVID-19 pandemic,
 
as well as
decreased demand for our products and services.
 
 
There is pervasive uncertainty surrounding the future
 
economic conditions that will emerge in the months and
 
years following the
start of the COVID-19 pandemic.
 
As a result, management is confronted with a significant degree
 
of uncertainty in estimating the
impact of the pandemic on credit quality,
 
revenues and asset values.
 
Asset quality may deteriorate and the amount of our
allowance for loan losses may not be sufficient
 
for future loan losses we may experience.
 
This could require us to increase our
reserves and recognize more expense in future periods.
 
The changes in market rates of interest and the impact
 
that has on our
ability to price our products may reduce our net interest income
 
in the future or negatively impact the demand for our products.
 
There is some risk that operational costs could further increase as we
 
maintain existing facilities in accordance with health
guidelines as well as have associates continue to work
 
remotely.
 
 
The extent to which the COVID-19 pandemic impacts our
 
business, results of operations and financial condition, as well as
 
our
regulatory capital and liquidity ratios, will depend on future developments,
 
which are highly uncertain and cannot be predicted,
including the scope and duration of the COVID-19 pandemic
 
and actions taken by governmental authorities and other
 
third
parties in response to the pandemic.
 
 
We may incur losses if we are
 
unable to successfully manage interest rate
 
risk.
 
Our profitability depends to a large extent
 
on Capital City Bank’s net
 
interest income, which is the difference between
 
income on
interest-earning assets, such as loans and investment securities,
 
and expense on interest-bearing liabilities such as deposits and
borrowings. We
 
are unable to predict changes in market interest rates, which are
 
affected by many factors beyond our control,
including inflation, recession, unemployment, federal funds
 
target rate, money supply,
 
domestic and international events and
changes in the United States and other financial markets.
 
Our net interest income may be reduced if: (i) more interest-earning
assets than interest-bearing liabilities reprice or mature
 
during a time when interest rates are declining or (ii) more
 
interest-bearing
liabilities than interest-earning assets reprice or mature
 
during a time when interest rates are rising.
 
 
 
21
Changes in the difference between short
 
-term and long-term interest rates may also harm our
 
business. We generally
 
use short-
term deposits to fund longer-term assets. When
 
interest rates change, assets and liabilities with shorter terms
 
reprice more quickly
than those with longer terms, which could have
 
a material adverse effect on our net interest margin.
 
If market interest rates rise
rapidly, interest rate
 
adjustment caps may also limit increases in the interest rates on
 
adjustable rate loans, which could further
reduce our net interest income. Additionally,
 
we believe that due to the recent historical low interest rate environment,
 
the effects
of the repeal of Regulation Q, which previously had prohibited
 
the payment of interest on demand deposits by member
 
banks of
the Federal Reserve System, have not been realized. The
 
increased price competition for deposits that may result upon
 
the return
to a historically normal interest rate environment could
 
adversely affect net interest margins of community
 
banks.
 
Although we continuously monitor interest rates and
 
have a number of tools to manage our interest rate risk
 
exposure, changes in
market assumptions regarding future interest rates could
 
significantly impact our interest rate risk strategy,
 
our financial position
and results of operations. If we do not properly monitor
 
our interest rate risk management strategies, these activities may not
effectively mitigate our interest rate sensitivity or
 
have the desired impact on our results of operations or financial
 
condition.
 
Interest rates and economic conditions affect
 
consumer demand for housing and can create volatility in the mortgage
 
industry.
 
These risk can have a material impact on the volume of mortgage
 
originations and refinancings, adversely affecting
 
our mortgage
banking revenues and the profitability of our mortgage
 
banking business.
 
 
We may be adversely
 
affected by changes in the method of determining LIBOR, or
 
the replacement of LIBOR with an
alternative reference rate.
 
 
Our business relies upon loans and other financial instruments that
 
are directly or indirectly dependent on LIBOR to establish
their interest rate and/or value. The administrator of LIBOR has
 
proposed to extend publication of the most commonly
 
used U.S.
Dollar LIBOR settings to June 30, 2023 and to cease
 
publishing other LIBOR settings on December 31, 2021.
 
The U.S. federal
banking agencies have issued guidance strongly encouraging
 
banking organizations to cease using U.S. dollar
 
LIBOR as a
reference rate in new contracts as soon as practicable
 
and in any event by December 31, 2021. We
 
do not know whether LIBOR
will continue to be viewed as an acceptable market benchmark,
 
what rate or rates may become accepted alternatives to LIBOR, or
what the effect of any such changes in views
 
or alternatives may have on the financial markets for LIBOR-linked
 
financial
instruments. The transition from LIBOR may cause us to
 
incur increased costs and face additional risks. Uncertainty
 
as to the
nature of alternative reference rates and as to potential
 
changes in or other reforms to LIBOR may adversely affect
 
LIBOR rates
and the value of LIBOR-based loans originated prior
 
to 2021. If LIBOR rates are no longer available, any successor or
replacement interest rates may perform differently,
 
which may affect our net interest income, change
 
our market risk profile and
require changes to our strategies. Any failure to adequately
 
manage this transition could adversely impact our
 
reputation.
 
Risks Related to Lending Activities
 
Our loan portfolio includes loans with a higher risk of
 
loss which could lead to higher loan losses and nonperforming
assets.
 
 
We originate
 
commercial real estate loans, commercial loans, construction loans,
 
vacant land loans, consumer loans, and
residential mortgage loans primarily within our market
 
area. Commercial real estate, commercial, construction, vacant
 
land, and
consumer loans may expose a lender to greater credit risk
 
than traditional fixed-rate fully amortizing loans secured
 
by single-
family residential real estate because the collateral securin
 
g
 
these loans may not be sold as easily as single-family residential real
estate. In addition, these loan types tend to involve larger
 
loan balances to a single borrower or groups of related borrowers and
are more susceptible to a risk of loss during a downturn
 
in the business cycle. These loans also have historically had
 
greater credit
risk than other loans for the following reasons:
 
 
Commercial Real Estate Loans
. Repayment is dependent on income being generated
 
in amounts sufficient to cover
operating expenses and debt service. These loans also involve
 
greater risk because they are generally not fully amortizing
over the loan period, but rather have a balloon payment due
 
at maturity. A borrower’s
 
ability to make a balloon payment
typically will depend on the borrower’s ability
 
to either refinance the loan or timely sell the underlying property.
 
At
December 31, 2020,
 
commercial mortgage loans comprised approximately 32.3% of
 
our total loan portfolio.
 
 
Commercial Loans
. Repayment is generally dependent upon the successful
 
operation of the borrower’s business. In
addition, the collateral securing the loans may depreciate
 
over time, be difficult to appraise, be illiquid,
 
or fluctuate in
value based on the success of the business. At December
 
31, 2020, commercial loans comprised approximately 19.6% of
our total loan portfolio.
 
 
22
 
Construction Loans
. The risk of loss is largely dependent
 
on our initial estimate of whether the property’s
 
value at
completion equals or exceeds the cost of property construction
 
and the availability of take-out financing. During the
construction phase, a number of factors can result in delays or
 
cost overruns. If our estimate is inaccurate or if actual
construction costs exceed estimates, the value of the property
 
securing our loan may be insufficient to ensure
 
full
repayment when completed through a permanent
 
loan, sale of the property,
 
or by seizure of collateral.
 
At December 31,
2020 construction loans comprised approximately 6.8% of
 
our total loan portfolio.
 
 
Vacant
 
Land Loans
. Because vacant or unimproved land is generally
 
held by the borrower for investment purposes or
future use, payments on loans secured by vacant or unimproved
 
land will typically rank lower in priority to the borrower
than a loan the borrower may have on their primary
 
residence or business. These loans are susceptible to adverse
conditions in the real estate market and local economy.
 
At December 31, 2020,
 
vacant land loans comprised
approximately 2.7% of our total loan portfolio.
 
 
HELOCs
. Our open-ended home equity loans have an interest-only
 
draw period followed by a five-year repayment
period of 0.75% of the principal balance monthly and a
 
balloon payment at maturity.
 
Upon the commencement of the
repayment period, the monthly payment can increase significantly,
 
thus, there is a heightened risk that the borrower will
be unable to pay the increased payment. Further,
 
these loans also involve greater risk because they are generally
 
not fully
amortizing over the loan period, but rather have a balloon
 
payment due at maturity.
 
A borrower’s ability to make a
balloon payment may depend on the borrower’s
 
ability to either refinance the loan or timely sell the underlying
 
property.
 
At December 31, 2020 HELOCs comprised approximately
 
10.2%
 
of our total loan portfolio.
 
 
Consumer Loans
. Consumer loans (such as automobile loans and
 
personal lines of credit) are collateralized, if at all,
with assets that may not provide an adequate source of
 
payment of the loan due to depreciation, damage, or
 
loss. At
December 31, 2020,
 
consumer loans comprised approximately 13.5%
 
of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately
 
90.4% of the total balance.
 
The increased risks associated with these types of
 
loans result in a correspondingly higher probability of
 
default on such loans (as
compared to fixed-rate fully amortizing single-family
 
real estate loans). Loan defaults would likely increase our loan
 
losses and
nonperforming assets and could adversely affect
 
our allowance for loan losses and our results of operations
 
.
 
Our loan portfolio is heavily concentrated in mortgage
 
loans secured by properties in Florida and Georgia
 
which causes
our risk of loss to be higher than if we had a more
 
geographically diversified portfolio.
 
Our interest-earning assets are heavily concentrated in mortgage
 
loans secured by real estate, particularly real estate located in
Florida and Georgia.
 
At December 31, 2020, approximately 67%
 
of our loans included real estate as a primary,
 
secondary, or
tertiary component of collateral. The real estate collateral
 
in each case provides an alternate source of repayment in
 
the event of
default by the borrower; however,
 
the value of the collateral may decline during the time the credit
 
is extended. If we are required
to liquidate the collateral securing a loan during
 
a period of reduced real estate values to satisfy the debt, our earnings
 
and capital
could be adversely affected.
 
Additionally, at
 
December 31, 2020, substantially all of our loans secured by real
 
estate are secured by commercial and residential
properties located in Northern Florida and Middle Georgia.
 
The concentration of our loans in these areas subjects us to
 
risk that a
downturn in the economy or recession in these areas could
 
result in a decrease in loan originations and increases in delinquencies
and foreclosures, which would more greatly affect
 
us than if our lending were more geographically diversified.
 
In addition, since
a large portion of our portfolio is secured by
 
properties located in Florida and Georgia, the
 
occurrence of a natural disaster, such
as a hurricane, or a man-made disaster could result in
 
a decline in loan originations, a decline in the value or destruction
 
of
mortgaged properties and an increase in the risk of delinquencies,
 
foreclosures or loss on loans originated by us. We
 
may suffer
further losses due to the decline in the value of the properties
 
underlying our mortgage loans, which would have an adverse
impact on our results of operations and financial condition.
 
Our concentration in loans secured by real
 
estate may increase our credit losses, which
 
would negatively affect our
financial results.
 
Due to the lack of diversified industry within the markets
 
served by CCB and the relatively close proximity of our geographic
markets, we have both geographic concentrations as well as concentrations
 
in the types of loans funded. Specifically,
 
due to the
nature of our markets, a significant portion of the portfolio
 
has historically been secured with real estate. At December
 
31, 2020,
approximately 32%
 
and 28% of our $2.006 billion loan portfolio was secured by commercial
 
real estate and residential real estate,
respectively. As of
 
this same date, approximately 7% was secured by property under
 
construction.
 
 
23
In the event we are required to foreclose on a property securing
 
one of our mortgage loans or otherwise pursue our remedies in
order to protect our investment, we may be unable
 
to recover funds in an amount equal to our projected return
 
on our investment
or in an amount sufficient to prevent a loss to
 
us due to prevailing economic conditions, real estate values and
 
other factors
associated with the ownership of real property.
 
As a result, the market value of the real estate or other collateral
 
underlying our
loans may not, at any given time, be sufficient
 
to satisfy the outstanding principal amount of the loans, and consequently,
 
we
would sustain loan losses.
 
An inadequate allowance for credit losses would
 
reduce our earnings.
 
We are exposed
 
to the risk that our clients may be unable to repay their loans
 
according to their terms and that any collateral
securing the payment of their loans may not be sufficient
 
to assure full repayment. This could result in credit losses that are
inherent in the lending business. We
 
evaluate the collectability of our loan portfolio
 
and provide an allowance for credit losses
that we believe is adequate based upon such factors as:
 
 
the risk characteristics of various classifications of loans;
 
previous loan loss experience;
 
specific loans that have loss potential;
 
delinquency trends;
 
estimated fair market value of the collateral;
 
current and future economic conditions; and
 
geographic and industry loan concentrations.
 
At December 31, 2020, our allowance for credit losses was $23.8
 
million, which represented approximately 1.19%
 
of our total
loans held for investment.
 
We had $5.9
 
million in nonaccruing loans at December 31, 2020.
 
The allowance is based on
management’s reasonable
 
estimate and may not prove sufficient to cover future
 
loan losses.
 
Although management uses the best
information available to make determinations with respect
 
to the allowance for credit losses, future adjustments may be
 
necessary
if economic conditions differ substantially from
 
the assumptions used or adverse developments arise with respect to our
nonperforming or performing loans.
 
In addition, regulatory agencies, as an integral part of their
 
examination process, periodically
review our estimated losses on loans.
 
Our regulators may require us to recognize additional losses based
 
on their judgments about
information available to them at the time of their examination.
 
Accordingly, the allowance
 
for credit losses may not be adequate
to cover all future loan losses and significant increases to
 
the allowance may be required in the future if, for
 
example, economic
conditions worsen.
 
A material increase in our allowance for credit losses would adversely
 
impact our net income and capital in
future periods, while having the effect
 
of overstating our current period earnings.
 
Liquidity risk could impair our ability to fund operations and
 
jeopardize our financial condition.
 
 
Effective liquidity management is essential for the
 
operation of our business. We
 
require sufficient liquidity to meet client loan
requests, client deposit maturities and withdrawals, payments
 
on our debt obligations as they come due and other cash
commitments under both normal operating conditions and
 
other unpredictable circumstances causing industry or
 
general financial
market stress. If we are unable to raise funds through
 
deposits, borrowings, earnings and other sources,
 
it could have a substantial
negative effect on our liquidity.
 
In particular, a majority of our liabilities
 
during 2020 were checking accounts and other liquid
deposits, which are generally payable on demand
 
or upon short notice. By comparison, a substantial majority
 
of our assets were
loans, which cannot generally be called or sold in the
 
same time frame. Although we have historically been able to replace
maturing deposits and advances as necessary,
 
we might not be able to replace such funds in the future,
 
especially if a large
number of our depositors seek to withdraw their accounts
 
at the same time, regardless of the reason. Our access to funding
sources in amounts adequate to finance our activities on
 
terms that are acceptable to us could be impaired by factors that
 
affect us
specifically or the financial services industry or economy
 
in general. Factors that could negatively impact our access
 
to liquidity
sources include a decrease in the level of our business activity
 
as a result of a downturn in the markets in which our loans
 
are
concentrated, adverse regulatory action against us, or
 
our inability to attract and retain deposits. Our ability to borrow
 
could also
be impaired by factors that are not specific to us, such
 
as a disruption in the financial markets or negative views and
 
expectations
about the prospects for the financial services industry.
 
If we are unable to maintain adequate liquidity,
 
it could materially and
adversely affect our business, results of operations
 
or financial condition.
 
We may incur significant
 
costs associated with the ownership of real property
 
as a result of foreclosures, which could
reduce our net income.
 
Since we originate loans secured by real estate, we may
 
have to foreclose on the collateral property to protect our investment
 
and
may thereafter own and operate such property,
 
in which case we would be exposed to the risks inherent
 
in the ownership of real
estate.
 
 
 
 
24
The amount that we, as a mortgagee, may realize after
 
a foreclosure is dependent upon factors outside
 
of our control, including,
but not limited to:
 
 
general or local economic conditions;
 
environmental cleanup liability;
 
neighborhood values;
 
interest rates;
 
real estate tax rates;
 
operating expenses of the mortgaged properties;
 
supply of and demand for rental units or properties;
 
ability to obtain and maintain adequate occupancy of the
 
properties;
 
zoning laws;
 
governmental rules, regulations and fiscal policies; and
 
acts of God.
 
Certain expenditures associated with the ownership
 
of real estate, including real estate taxes, insurance and maintenance
 
costs,
may adversely affect the income from the real
 
estate. Furthermore, we may need to advance funds to continue
 
to operate or to
protect these assets. As a result, the cost of operating
 
real property assets may exceed the rental income earned
 
from such
properties or we may be required to dispose of the real property
 
at a loss.
 
Cybersecurity and Technology
 
Risks
 
We process, maintain,
 
and transmit confidential client information through
 
our information technology systems, such as
our online banking service.
 
Cybersecurity issues, such as security breaches and computer
 
viruses, affecting our
information technology systems or fraud related
 
to our debit card products could disrupt our business, result
 
in the
unintended disclosure or misuse of confidential or
 
proprietary information, damage our reputation,
 
increase our costs,
and cause losses.
 
We collect and
 
store sensitive data, including our proprietary business information
 
and that of our clients, and personally
identifiable information of our clients and employees, in
 
our
information technology systems
.
We also provide
 
our clients the
ability to bank online.
The secure processing, maintenance, and transmission of
 
this information is critical to our operations.
 
Our
network, or those of our clients, could be vulnerable to
 
unauthorized access, computer viruses, phishing schemes and
 
other
security problems.
 
Financial institutions and companies engaged in data processing
 
have increasingly reported breaches in the
security of their websites or other systems, some of which
 
have involved sophisticated and targeted attacks intended
 
to obtain
unauthorized access to confidential information, destroy
 
data, disrupt or degrade service, sabotage systems or cause
 
other damage.
 
We may be
 
required to spend significant capital and other resources to
 
protect against the threat of security breaches and
computer viruses or to alleviate problems caused by
 
security breaches or viruses.
 
Security breaches and viruses could expose us to
claims, litigation and other possible liabilities. Any inability
 
to prevent security breaches or computer viruses could
 
also cause
existing clients to lose confidence in our systems and
 
could adversely affect our reputation and our ability
 
to generate deposits.
 
Additionally, fraud
 
losses related to debit and credit cards have risen in recent years due
 
in large part to growing and evolving
schemes to illegally use cards or steal consumer credit card
 
information despite risk management practices employed
 
by the debit
and credit card industries. Many issuers of debit and
 
credit cards have suffered significant losses in recent years due
 
to the theft of
cardholder data that has been illegally exploited for
 
personal gain.
 
The potential for debit and credit card fraud against us or
 
our clients and our third-party service providers is a serious
 
issue. Debit
and credit card fraud is pervasive and the risks of
 
cybercrime are complex and continue to evolve. In view
 
of the recent high-
profile retail data breaches involving client personal and
 
financial information, the potential impact on us and any exposure
 
to
consumer losses and the cost of technology investments
 
to improve security could cause losses to us or our clients,
 
damage to our
brand, and an increase in our costs.
 
Investment Risks
 
The fair value of our investments could decline which would cause
 
a reduction in shareowners’ equity.
 
A large portion of our investment securities portfolio
 
at December 31, 2020 has been designated as available-for-sale
 
pursuant to
U.S. generally accepted accounting principles relating
 
to accounting for investments. Such principles require that
 
unrealized gains
and losses in the estimated value of the available-for-sale
 
portfolio be “marked to market” and reflected as a separate
 
item in
shareowners’ equity (net of tax) as accumulated
 
other comprehensive income/losses. Shareowners’ equity will
 
continue to reflect
the unrealized gains and losses (net of tax) of these investments.
 
The fair value of our investment portfolio may decline, causing
 
a
corresponding decline in shareowners’ equity.
 
 
25
 
Management believes that several factors will affect
 
the fair values of our investment portfolio. These include, but are
 
not limited
to, changes in interest rates or expectations of changes
 
in interest rates, the degree of volatility in the securities markets,
 
inflation
rates or expectations of inflation and the slope of the
 
interest rate yield curve (the yield curve refers to the differences
 
between
short-term and long-term interest rates; a positively sloped yield
 
curve means short-term rates are lower than long-term rates).
These and other factors may impact specific categories
 
of the portfolio differently,
 
and we cannot predict the effect these factors
may have on any specific category.
 
Regulatory and Legislative Risks
 
We are subject to
 
extensive regulation, which could restrict
 
our activities and impose financial requirements
 
or limitations
on the conduct of our business.
 
We are subject
 
to extensive regulation, supervision and examination
 
by our regulators, including the Florida Office
 
of Financial
Regulation, the Federal Reserve, and the FDIC. Our
 
compliance with these industry regulations is costly and restricts
 
certain of
our activities, including payment of dividends, mergers
 
and acquisitions, investments, lending and interest rates charged
 
on loans,
interest rates paid on deposits, access to capital and brokered
 
deposits and locations of banking offices. If
 
we are unable to meet
these regulatory requirements, our financial condition,
 
liquidity and results of operations would be materially and adversely
affected.
 
Our activities are also regulated under consumer protection
 
laws applicable to our lending, deposit and other activities. Many
 
of
these regulations are intended primarily for the
 
protection of our depositors and the Deposit Insurance
 
Fund and not for the
benefit of our shareowners. In addition to the regulations
 
of the bank regulatory agencies, as a member of the Federal
 
Home Loan
Bank, we must also comply with applicable regulations
 
of the Federal Housing Finance Agency and the Federal Home Loan
Bank.
 
Our failure to comply with these laws and regulations
 
could subject us to restrictions on our business activities, fines and
 
other
penalties, any of which could adversely affect
 
our results of operations, capital base and the price of our
 
securities. Further, any
new laws, rules and regulations could make compliance
 
more difficult or expensive or otherwise adversely
 
affect our business and
financial condition. Please refer to the Section entitled “Business
 
– Regulatory Considerations” on page 9.
 
U.S. federal banking agencies may require
 
us to increase our regulatory capital,
 
long-term debt or liquidity requirements,
which could result in the need to issue additional qualifying
 
securities or to take other actions, such as to sell company
assets.
 
We are subject
 
to U.S. regulatory capital and liquidity rules. These rules,
 
among other things, establish minimum requirements to
qualify as a well-capitalized institution. If CCB fails to maintain
 
its status as well capitalized under the applicable regulatory
capital rules, the Federal Reserve will require us to agree
 
to bring the bank back to well-capitalized status. For the duration
 
of
such an agreement, the Federal Reserve may impose restrictions
 
on our activities. If we were to fail to enter into or comply with
such an agreement, or fail to comply with the terms of
 
such agreement, the Federal Reserve may impose more severe restrictions
on our activities, including requiring us to cease and
 
desist activities permitted under the Bank Holding Company
 
Act of 1956.
 
Capital and liquidity requirements are frequently introduced
 
and amended. It is possible that regulators may increase
 
regulatory
capital requirements, change how regulatory capital is calculated
 
or increase liquidity requirements.
 
 
In 2013, the Federal Reserve Board released its final rules
 
which implement in the United States the Basel III regulatory
 
capital
reforms from the Basel Committee on Banking Supervision
 
and certain changes required by the Dodd-Frank Act. Under
 
the final
rule, minimum requirements increased for both the quality
 
and quantity of capital held by banking organizations.
 
Consistent with
the international Basel framework, the rule includes a new
 
minimum ratio of Common Equity Tier
 
1 Capital, or CET1, to Risk-
Weighted Assets, or
 
RWA,
 
of 4.5% and a CET1 conservation buffer
 
of 2.5% of RWA
 
(which was fully phased-in in 2019) that
apply to all supervised financial institutions.
 
The CET1 conservation buffer requirement
 
requires us to hold additional CET1
capital in excess of the minimum required to meet the CET1 to
 
RWA
 
ratio requirement. The rule also, among other
 
things, raised
the minimum ratio of Tier 1 Capital to
 
RWA
 
from 4% to 6% and included a minimum leverage ratio
 
of 4% for all banking
organizations. The impact of the new capital
 
rules requires us to maintain higher levels of capital, which
 
we expect will lower our
return on equity.
 
Additionally, if our CET1
 
to RWA
 
ratio does not exceed the minimum required plus the additional
 
CET1
conservation buffer,
 
we may be restricted in our ability to pay dividends or make other
 
distributions of capital to our shareowners.
 
Further changes to and compliance with the regulatory
 
capital and liquidity requirements may impact our operations
 
by requiring
us to liquidate assets, increase borrowings, issue additional
 
equity or other securities, cease or alter certain operations, sell
company assets or hold highly liquid assets, which may
 
adversely affect our results of operations. We
 
may be prohibited from
taking capital actions such as paying or increasing dividends
 
or repurchasing securities.
 
 
 
26
Changes in accounting standards or assumptions in applying
 
accounting policies could adversely affect us.
 
Our accounting policies and methods are fundamental to
 
how we record and report our financial condition and results of
operations. Some of these policies require use of estimates and
 
assumptions that may affect the reported value of
 
our assets or
liabilities and results of operations and are critical because
 
they require management to make difficult, subjective
 
and complex
judgments about matters that are inherently uncertain.
 
If those assumptions, estimates or judgments were incorrectly
 
made, we
could be required to correct and restate prior-period financial
 
statements. Accounting standard-setters and those who
 
interpret the
accounting standards, the SEC, banking regulators and our
 
independent registered public accounting firm may also amend or
 
even
reverse their previous interpretations or positions on how
 
various standards should be applied. These changes may be difficult
 
to
predict and could impact how we prepare and report
 
our financial statements. In some cases, we could be
 
required to apply a new
or revised standard retrospectively,
 
resulting in us revising prior-period financial statements.
 
 
Florida financial institutions, such as CCB, face a
 
higher risk of noncompliance and enforcement actions with
 
the Bank
Secrecy Act and other anti-money laundering
 
statutes and regulations.
 
 
Since September 11, 2001, banking
 
regulators have intensified their focus on anti-money laundering
 
and Bank Secrecy Act
compliance requirements, particularly the anti-money laundering
 
provisions of the USA PATRIOT
 
Act. There is also increased
scrutiny of compliance with the rules enforced by the
 
Office of Foreign Assets Control, or OFAC.
 
Since 2004, federal banking
regulators and examiners have been extremely aggressive
 
in their supervision and examination of financial institutions located
 
in
the State of Florida with respect to the institution’s
 
Bank Secrecy Act/anti-money laundering compliance. Consequently,
numerous formal enforcement actions have been instituted
 
against financial institutions. If CCB’s po
 
licies, procedures and
systems are deemed deficient or the policies, procedures
 
and systems of the financial institutions that it has already
 
acquired or
may acquire in the future are deficient, CCB would be subject
 
to liability, including
 
fines and regulatory actions such as
restrictions on its ability to pay dividends and the necessity
 
to obtain regulatory approvals to proceed with certain
 
aspects of its
business plan, including its acquisition plans.
 
Structural and Organizational Risks
 
Our directors, executive officers, and principal
 
shareowners, if acting together,
 
have substantial control over all matters
requiring shareowner approval,
 
including changes of control. Because Mr.
 
William G. Smith, Jr.
 
is a principal
shareowner and our Chairman, President,
 
and Chief Executive Officer and Chairman of CCB, he
 
has substantial control
over all matters on a day to day basis.
 
Our directors, executive officers, and principal
 
shareowners beneficially owned approximately 20.1% of the
 
outstanding shares of
our common stock at December 31, 2020.
 
William G. Smith, Jr.,
 
our Chairman, President and Chief Executive Officer
beneficially owned 17.1% of our shares as of that date.
 
Accordingly, these directors,
 
executive officers, and principal
shareowners, if acting together,
 
may be able to influence or control matters requiring approval
 
by our shareowners, including the
election of directors and the approval of mergers,
 
acquisitions or other extraordinary transactions. Moreover,
 
because William G.
Smith, Jr. is the Chairman,
 
President, and Chief Executive Officer of CCBG and Chairman
 
of CCB, he has substantial control
over all matters on a day-to-day basis, including the
 
nomination and election of directors.
 
These directors, executive officers, and
 
principal shareowners may also have interests that differ
 
from yours and may vote in a
way with which you disagree and which may be adverse
 
to your interests. The concentration of ownership may have the effect
 
of
delaying, preventing or deterring a change of control
 
of our company, could deprive
 
our shareowners of an opportunity to receive
a premium for their common stock as part of a sale of
 
our Company and might ultimately affect the
 
market price of our common
stock. You
 
may also have difficulty changing management, the composition
 
of the Board of Directors, or the general direction of
our Company.
 
Our Articles of Incorporation, Bylaws, and certain laws and
 
regulations may prevent or delay
 
transactions you might
favor,
 
including a sale or merger of CCBG.
 
CCBG is registered with the Federal Reserve as a financial
 
holding company under the Bank Holding Company Act, or
 
BHC Act.
As a result, we are subject to supervisory regulation
 
and examination by the Federal Reserve. The Gramm-Leach-Bliley Act,
 
the
BHC Act, and other federal laws subject financial holding
 
companies to particular restrictions on the types of activities in
 
which
they may engage, and to a range of supervisory requirements and
 
activities, including regulatory enforcement actions for
violations of laws and regulations.
 
Provisions of our Articles of Incorporation, Bylaws, certain
 
laws and regulations and various other factors may make
 
it more
difficult and expensive for companies or persons
 
to acquire control of us without the consent of our Board of
 
Directors. It is
possible, however, that you would
 
want a takeover attempt to succeed because, for example, a potential
 
buyer could offer a
premium over the then prevailing price of our common
 
stock.
 
 
 
27
For example, our Articles of Incorporation permit our
 
Board of Directors to issue preferred stock without shareowner
 
action. The
ability to issue preferred stock could discourage a company
 
from attempting to obtain control of us by means of a tender
 
offer,
merger, proxy contest or
 
otherwise. Additionally, although
 
there is a proposal to declassify our Board of Directors that
 
is to be
voted upon and potentially implemented at our 2021 annual
 
meeting of shareowners, our Articles of Incorporation
 
and Bylaws
currently divide our Board of Directors into three classes, as nearly
 
equal in size as possible, with staggered three-year terms. One
class is elected each year.
 
The classification of our Board of Directors could make it more
 
difficult for a company to acquire
control of us. We
 
are also subject to certain provisions of the Florida Business Corporation
 
Act and our Articles of Incorporation
that relate to business combinations with interested shareowners.
 
Other provisions in our Articles of Incorporation or
 
Bylaws that
may discourage takeover attempts or make them more
 
difficult include:
 
 
Supermajority voting requirements to remove a director from office;
 
 
Provisions regarding the timing and content of shareowner
 
proposals and nominations;
 
Supermajority voting requirements to amend Articles of Incorporation
 
unless approval is received by a majority of
“disinterested directors”;
 
Absence of cumulative voting; and
 
Inability for shareowners to take action by written consent.
 
 
General Risks
 
 
Risk of Pandemic.
 
In recent years the outbreak of a number of diseases including
 
COVID-19, Avian
 
Bird Flu, H1N1, and various other "super bugs"
have increased the risk of a pandemic. As seen with the
 
ongoing COVID-19 pandemic and prior pandemics, global
 
events like
these could impact interest rates, energy
 
prices, the value of financial assets and ultimately economic
 
activity in our markets.
 
The
adverse effect of these events may include narrowing
 
of the spread between interest income and expense, a
 
reduction in fee
income, an increase in credit losses, and a decrease in
 
demand for loans and other products and services.
 
We may be unable to
 
pay dividends in the future.
 
In 2020, our Board of Directors declared four quarterly
 
cash dividends. Declarations of any future dividends will be contingent
 
on
our ability to earn sufficient profits and
 
to remain well capitalized, including our ability to hold and generate
 
sufficient capital to
comply with the CET1 conservation buffer
 
requirement. In addition, due to our contractual obligations
 
with the holders of our
trust preferred securities, if we defer the payment of accrued
 
interest owed to the holders of our trust preferred securities,
 
we may
not make dividend payments to our shareowners.
 
Further, under applicable statutes and
 
regulations, CCB’s board
 
of directors, after charging-off bad debts,
 
depreciation and other
worthless assets, if any,
 
and making provisions for reasonably anticipated future losses on
 
loans and other assets, may quarterly,
semi-annually,
 
or annually declare and pay dividends to CCBG of up
 
to the aggregate net income of that period combined with
the CCB’s retained net
 
income for the preceding two years and, with the approval
 
of the Florida Office of Financial Regulation
and Federal Reserve, declare a dividend from retained net
 
income which accrued prior to the preceding
 
two years.
 
Additional
state laws generally applicable to Florida corporations may
 
also limit our ability to declare and pay dividends. Thus, our ability to
fund future dividends may be restricted by state and
 
federal laws and regulations.
 
 
 
28
Our future success is dependent on our ability
 
to compete effectively in the highly competitive banking
 
industry.
 
We face vigorous
 
competition for deposits, loans and other financial services in
 
our market area from other banks and financial
institutions, including savings and loan associations, savings
 
banks, finance companies and credit unions. A number
 
of our
competitors
 
are significantly larger than we are and have greater access
 
to capital and other resources. Many of our competitors
also have higher lending limits, more expansive branch
 
networks, and offer a wider array of financial
 
products and services. To
 
a
lesser extent, we also compete with other providers of
 
financial services, such as money market mutual funds, brokerage
 
firms,
consumer finance companies, insurance companies and
 
governmental organizations, which may offer
 
financial products and
services on more favorable terms than we are able
 
to. Many of our non-bank competitors are not subject to the same extensive
regulations that govern our activities. As a result, these non
 
-bank competitors have advantages over us in providing certain
services. The effect of this competition may
 
reduce or limit our margins or our market share and
 
may adversely affect our results
of operations and financial condition.
 
Limited trading activity for shares of our common
 
stock may contribute to price volatility.
 
While our common stock is listed and traded on the
 
Nasdaq Global Select Market, there has historically been limited
 
trading
activity in our common stock.
 
The average daily trading volume of our common stock
 
over the 12-month period ending
December 31, 2020 was approximately 35,125 shares. Due
 
to the limited trading activity of our common stock, relativity small
trades may have a significant impact on the price of
 
our common stock.
 
Securities analysts may not initiate coverage or continue to
 
cover our common stock, and this may have a negative impact
on its market price.
 
The trading market for our common stock will depend
 
in part on the research and reports that securities analysts publish
 
about us
and our business. We
 
do not have any control over securities analysts and
 
they may not initiate coverage or continue to cover our
common stock. If securities analysts do not cover our
 
common stock, the lack of research coverage may adversely
 
affect its
market price. If we are covered by securities analysts, and
 
our common stock is the subject of an unfavorable report, our stock
price would likely decline. If one or more of these
 
analysts ceases to cover our Company or fails to publish regular reports on
 
us,
we could lose visibility in the financial markets,
 
which may cause our stock price or trading volume to decline.
 
Shares of our common stock are not
 
an insured deposit and may lose value.
 
 
The shares of our common stock are not a bank deposit and
 
will not be insured or guaranteed by the FDIC or any
 
other
government agency.
 
Your
 
investment will be subject to investment risk, and you must be capable
 
of affording the loss of your
entire investment.
 
Item 1B.
 
Unresolved Staff Comments
 
 
None.
 
Item 2.
 
Properties
 
 
We are headquartered
 
in Tallahassee, Florida.
 
Our executive office is in the Capital City Bank building
 
located on the corner of
Tennessee and
 
Monroe Streets in downtown Tallahassee.
 
The building is owned by CCB, but is located on land
 
leased under a
long-term agreement.
 
At December 31, 2020,
 
Capital City Bank had 57 banking offices.
 
Of the 57 locations, we lease the land, buildings, or both
 
at six
locations and own the land and buildings at the remaining
 
51.
 
In addition, CCHL had 29 loan production offices,
 
all of which
were leased.
 
 
Item 3.
 
Legal Proceedings
 
 
We are party
 
to lawsuits and claims arising out of the normal course of
 
business. In management’s opinion,
 
there are no known
pending claims or litigation, the outcome of which
 
would, individually or in the aggregate, have a material effect
 
on our
consolidated results of operations, financial position, or
 
cash flows.
 
Item 4
.
Mine Safety Disclosure
 
 
Not applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
PART
 
II
 
 
Item 5.
 
Market for the Registrant's Common Equity,
 
Related Shareowner Matters, and Issuer Purchases of
 
Equity
Securities
 
 
Common Stock Market Prices and Dividends
 
 
Our common stock trades on the Nasdaq Global Select
 
Market under the symbol “CCBG.”
 
We had a
 
total of 1,201 shareowners
of record at February 25, 2021.
 
The following table presents the range of high and low
 
closing sales prices reported on the Nasdaq Global Select Market and
 
cash
dividends declared for each quarter during the past two
 
years.
 
 
2020
2019
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
 
$
26.35
$
21.71
$
23.99
$
30.62
$
30.95
$
28.00
$
25.00
$
25.87
Low
 
18.14
17.55
16.16
15.61
25.75
23.70
21.57
21.04
Close
 
24.58
18.79
20.95
20.12
30.50
27.45
24.85
21.78
Cash dividends per share
 
0.15
0.14
0.14
0.14
0.13
0.13
0.11
0.11
 
Florida law and Federal regulations impose restrictions on
 
our ability to pay dividends and limitations on the amount
 
of dividends
that the Bank can pay annually to us.
 
See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends”
 
in the Business
section on page 11 and 12, Item 1A.
 
“Investment Risks” in the Risk Factors section on page 24,
 
Item 7. “Liquidity and Capital
Resources – Dividends” – in Management's Discussion and Analysis
 
of Financial Condition and Operating Results on page
 
58
and Note 17 in the Notes to Consolidated Financial Statements.
 
Performance Graph
 
 
This performance graph compares the cumulative
 
total shareowner return on our common stock with the cumulative
 
total
shareholder return of the Nasdaq Composite Index
 
and the SNL Financial LC $1B-$5B Bank Index for the past five
 
years.
 
The
graph assumes that $100 was invested on December
 
31, 2015 in our common stock and each of the above indices,
 
and that all
dividends were reinvested.
 
The shareowner return shown below represents past performance
 
and should not be considered
indicative of future performance.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ccbg20201231p30i0.jpg
 
 
 
 
 
 
 
 
 
 
30
 
 
 
Period Ending
Index
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Capital City Bank Group, Inc.
 
$
100.00
$
134.86
$
152.76
$
156.54
$
209.68
$
173.24
Nasdaq Composite
 
100.00
108.87
141.13
137.12
187.44
271.64
SNL $1B-$5B Bank Index
 
100.00
143.87
153.37
134.37
163.35
138.81
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
Item 6.
 
Selected Financial Data
 
 
 
(Dollars in Thousands, Except Per Share Data)
2020
2019
2018
2017
2016
Interest Income
$
106,197
$
112,836
$
99,395
$
86,930
$
81,154
Net Interest Income
101,326
103,343
92,504
82,982
77,965
Provision for Credit Losses
9,645
2,027
2,921
2,215
819
Noninterest Income
(1)
111,165
53,053
51,565
51,746
53,681
Noninterest Expense
149,962
113,609
111,503
109,447
113,213
Income Attributable to Noncontrolling Interests
(2)
(11,078)
-
-
-
-
Net Income Attributable to CCBG
(3)
31,576
30,807
26,224
10,863
11,746
Per Common Share:
Basic Net Income
$
1.88
$
1.84
$
1.54
$
0.64
$
0.69
Diluted Net Income
1.88
1.83
1.54
0.64
0.69
Cash Dividends Declared
0.57
0.48
0.32
0.24
0.17
Diluted Book Value
19.05
19.40
18.00
16.65
16.23
Diluted Tangible Book Value
(4)
13.76
14.37
12.96
11.68
11.23
Performance Ratios:
Return on Average Assets
0.93
%
1.03
%
0.92
%
0.39
%
0.43
%
Return on Average Equity
9.36
9.72
8.89
3.83
4.22
Net Interest Margin (FTE)
3.30
3.85
3.64
3.37
3.25
Noninterest Income as % of Operating Revenues
52.32
33.92
35.79
38.41
40.78
Efficiency Ratio
70.43
72.40
77.05
80.50
85.34
Asset Quality:
Allowance for Credit Losses ("ACL")
$
23,816
$
13,905
$
14,210
$
13,307
$
13,431
ACL to Loans Held for Investment ("HFI")
1.19
%
0.75
%
0.80
%
0.80
%
0.86
%
Nonperforming Assets ("NPAs")
6,679
5,425
9,101
11,100
19,171
NPAs to Total
 
Assets
0.18
0.18
0.31
0.38
0.67
NPAs to Loans HFI plus OREO
0.33
0.29
0.51
0.67
1.21
ACL to Non-Performing Loans
405.66
310.99
206.79
185.87
157.40
Net Charge-Offs to Average
 
Loans HFI
0.12
0.13
0.12
0.14
0.09
Capital Ratios:
Tier 1 Capital
16.19
%
17.16
%
16.36
%
16.33
%
15.51
%
Total Capital
17.30
17.90
17.13
17.10
16.28
Common Equity Tier 1 Capital
13.71
14.47
13.58
13.42
12.61
Tangible Common Equity
(4)
6.25
8.06
7.58
7.09
6.90
Leverage
9.33
11.25
10.89
10.47
10.23
Equity to Assets
8.45
10.59
10.23
9.80
9.67
Dividend Pay-Out
30.32
26.23
20.78
37.50
24.64
Averages for the Year:
Loans Held for Investment
$
1,957,576
$
1,811,738
$
1,711,635
$
1,610,127
$
1,530,260
Earning Assets
3,083,675
2,697,098
2,561,884
2,502,231
2,432,392
Total Assets
3,391,071
2,987,056
2,857,148
2,816,096
2,752,309
Deposits
2,844,347
2,537,489
2,422,973
2,371,871
2,282,785
Shareowners’ Equity
337,313
317,072
294,864
283,404
278,335
Year-End
 
Balances:
Loans Held for Investment
$
2,006,427
$
1,835,929
$
1,774,225
$
1,653,492
$
1,561,289
Earning Assets
3,475,904
2,806,913
2,658,539
2,582,922
2,520,053
Total Assets
3,798,071
3,088,953
2,959,183
2,898,794
2,845,197
Deposits
3,217,560
2,645,454
2,531,856
2,469,877
2,412,286
Shareowners’ Equity
320,837
327,016
302,587
284,210
275,168
Other Data:
Basic Average Shares Outstanding
16,784,711
16,769,507
17,029,420
16,951,663
16,988,747
Diluted Average Shares Outstanding
16,821,950
16,827,413
17,072,329
17,012,637
17,061,186
Shareowners of Record
(5)
1,201
1,243
1,312
1,389
1,489
Banking Locations
(5)
57
57
59
59
60
Full-Time Equivalent Associates
(5)(6)
954
796
801
789
820
(1)
 
Includes $2.5 million gain from sale of trust preferred securities in 2016.
(2)
 
Acquired 51% membership interest in Brand Mortgage Group, LLC , re-named as Capital City Home Loans, on March 1, 2020 - fully consolidated
(3)
 
For 2017, includes $4.1 million, or $0.24 per diluted share, income tax expense
 
adjustment related to the Tax
 
Cuts and Jobs Act of 2017.
 
For 2018, includes $3.3 million, or $0.19 per diluted share, income tax benefit for
 
2017 plan year pension contributions made in 2018.
(4)
 
Diluted tangible book value and tangible common equity ratio are non-GAAP financial measures. For additional
 
information, including a reconciliation
 
to GAAP, refer
 
to page 32
(5)
 
As of February 25th of the following year.
(6)
 
Reflects 756 full-time equivalent associates at Core CCBG and 198 full-time
 
equivalent associates at CCHL.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
NON-GAAP FINANCIAL MEASURES
We present a
 
tangible common equity ratio and a tangible book value per
 
diluted share that, in each case, removes the effect of
goodwill that resulted from merger and acquisition
 
activity. We
 
believe these measures
 
are useful to investors because it allows
investors to more easily compare our capital adequacy
 
to other companies in the industry.
 
The GAAP to non-GAAP
reconciliation for selected year-to-date
 
financial data and quarterly financial data is provided below.
 
Non-GAAP Reconciliation - Selected Financial Data
(Dollars in Thousands, except per share data)
2020
2019
2018
2017
2016
Shareowners' Equity (GAAP)
$
320,837
$
327,016
$
302,587
$
284,210
$
275,168
Less: Goodwill (GAAP)
89,095
84,811
84,811
84,811
84,811
Tangible Shareowners' Equity (non-GAAP)
A
231,742
242,205
217,776
199,399
190,357
Total Assets (GAAP)
3,798,071
3,088,953
2,959,183
2,898,794
2,845,197
Less: Goodwill (GAAP)
89,095
84,811
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,708,976
$
3,004,142
$
2,874,372
$
2,813,983
$
2,760,386
Tangible Common Equity Ratio (non-GAAP)
A/B
6.25%
8.06%
7.58%
7.09%
6.90%
Actual Diluted Shares Outstanding (GAAP)
C
16,844,997
16,855,161
16,808,542
17,071,107
16,949,359
Tangible Book Value
 
per Diluted Share
 
(non-GAAP)
A/C
13.76
14.37
12.96
11.68
11.23
 
Non-GAAP Reconciliation - Quarterly Financial Data
(Dollars in Thousands, except
per share data)
2020
2019
Fourth
Third
Second
First
Fourth
Third
Second
First
Shareowners' Equity (GAAP)
$
320,837
$
339,425
$
335,057
$
328,507
$
327,016
$
321,562
$
314,595
$
308,986
Less: Goodwill (GAAP)
89,095
89,095
89,095
89,275
84,811
84,811
84,811
84,811
Tangible Shareowners' Equity
(non-GAAP)
A
231,742
250,330
245,962
239,232
242,205
236,751
229,784
224,175
Total Assets (GAAP)
3,798,071
3,587,041
3,499,524
3,086,523
3,088,953
2,934,513
3,017,654
3,052,051
Less: Goodwill (GAAP)
89,095
89,095
89,095
89,275
84,811
84,811
84,811
84,811
Tangible Assets (non-GAAP)
B
$
3,708,976
$
3,497,946
$
3,410,429
$
2,997,248
$
3,004,142
$
2,849,702
$
2,932,843
$
2,967,240
Tangible Common Equity
Ratio (non-GAAP)
A/B
6.25%
7.16%
7.21%
7.98%
8.06%
8.31%
7.83%
7.56%
Actual Diluted Shares
Outstanding (GAAP)
C
16,844,997
16,800,563
16,821,743
16,845,462
16,855,161
16,797,241
16,773,449
16,840,496
Tangible Book Value per
Diluted Share (non-GAAP)
A/C
13.76
14.90
14.62
14.20
14.37
14.09
13.70
13.31
 
33
Item 7.
 
Management's Discussion and Analysis of Financial Condition
 
and Results of Operations
 
 
Management’s discussion
 
and analysis (“MD&A”) provides supplemental information,
 
which sets forth the major factors that
have affected our financial condition and results
 
of operations and should be read in conjunction with the
 
Consolidated Financial
Statements and related notes included in the Annual Report
 
on Form 10-K.
 
The MD&A is divided into subsections entitled
“Business Overview,” “Executive
 
Overview,” “Results of
 
Operations,” “Financial Condition,” “Liquidity and Capital Resources,”
“Off-Balance Sheet Arrangements,” “Fourth
 
Quarter, 2020 Financial Results,” and “Accounting
 
Policies.”
 
The following
information should provide a better understanding
 
of the major factors and trends that affect our earnings
 
performance and
financial condition, and how our performance during
 
2020 compares with prior years.
 
Throughout this section, Capital City Bank
Group, Inc., and its subsidiaries, collectively,
 
are referred to as “CCBG,” “Company,”
 
“we,” “us,” or “our.”
 
CAUTION CONCERNING FORWARD
 
-LOOKING STATEMENTS
 
 
This Annual Report on Form 10-K, including this MD&A section,
 
contains “forward-looking statements” within the meaning
 
of
the Private Securities Litigation Reform Act of 1995.
 
These forward-looking statements include, among others, statements about
our beliefs, plans, objectives, goals, expectations, estimates
 
and intentions that are subject to significant risks and
 
uncertainties
and are subject to
 
change based on various factors, many of which are beyond
 
our control. The words “may,”
 
“could,” “should,”
“would,” “believe,” “anticipate,” “estimate,” “expect,”
 
“intend,” “plan,” “target,” “vision,” “goal,” and similar
 
expressions are
intended to identify forward-looking statements.
 
All forward-looking statements, by their nature, are subject
 
to risks and uncertainties.
 
Our actual future results may differ
materially from those set forth in our forward-looking
 
statements.
 
Please see the Introductory Note and
Item 1A Risk Factors
 
of
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
 
or discussed in this Annual Report also could adversely affect
our results, and you should not consider any such
 
list of factors to be a complete set of all potential risks or
 
uncertainties.
 
Any
forward-looking statements made by us or on our behalf
 
speak only as of the date they are made.
 
We do not undertake
 
to update
any forward-looking statement, except as required by applicable
 
law.
 
BUSINESS OVERVIEW
 
Our Business
 
We are a financial
 
holding company headquartered in Tallahassee,
 
Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the “Bank” or “CCB”).
 
We offer
 
a broad array of products and services, including commercial
 
and retail
banking services, trust and asset management, and retail securities
 
brokerage through a total of 57 banking offices
 
and 86
ATMs/ITMs
 
located in Florida, Georgia, and Alabama.
 
Please see the section captioned “About Us” beginning
 
on page 4 for
more detailed information about our business.
 
Our profitability,
 
like most financial institutions, is dependent to a large
 
extent upon net interest income, which is the difference
between the interest and fees received on interest earning
 
assets, such as loans and securities, and the interest paid on
 
interest-
bearing liabilities, principally deposits and borrowings.
 
Results of operations are also affected by the provision
 
for credit losses,
operating expenses such as salaries and employee benefits,
 
occupancy and other operating expenses including income taxes,
 
and
noninterest income such as mortgage banking revenues,
 
wealth management fees, deposit fees, and bank card fees.
 
 
Strategic Review
 
Operating Philosophy
.
 
Our philosophy is to build long-term client relationships based
 
on quality service, high ethical standards,
and safe and sound banking practices.
 
We maintain a
 
locally oriented, community-based focus, which is augmented
 
by
experienced, centralized support in select specialized areas.
 
Our local market orientation is reflected in our network of
 
banking
office locations, experienced community executives
 
with a dedicated President for each market, and community
 
boards which
support our focus on responding to local banking needs.
 
We strive to offer
 
a broad array of sophisticated products and to provide
quality service by empowering associates to make decisions
 
in their local markets.
 
 
Strategic Initiatives
.
 
In 2020, we celebrated
 
our 125
th
 
anniversary and reflected on our past history and what has fostered
 
our
longevity – client relationships, community service,
 
and our people have allowed us to evolve, change,
 
and thrive over time.
 
In
2020, we completed a five year strategic plan “Vision
 
2020” and initiated a new five year strategic plan “2025 In
 
Focus” that will
guide us in the areas of client experience, channel optimization,
 
market expansion, and culture.
 
As part of 2025 In Focus, we will
aim to take our brand of relationship banking to the
 
next level, further deepen relationships within our communities,
 
expand into
new higher growth markets, diversify our revenue
 
sources, invest in new technology that will support the expansion
 
of client
relationships and scale within our lines of business and
 
drive higher profitability.
 
 
34
 
Markets
.
 
We maintain a
 
blend of large and small markets in Florida
 
and Georgia all in close proximity to major interstate
thoroughfares such as Interstates I-10 and I-75.
 
Our larger markets include Tallahassee
 
(Leon County, Florida),
 
Gainesville
(Alachua County,
 
Florida), Macon (Bibb County,
 
Georgia),
 
and Seacoast (Hernando/Pasco/Citrus, Florida).
 
The larger
employers in these markets are state and local governments,
 
healthcare providers, educational institutions, and small
 
businesses,
providing stability and good growth dynamics that have
 
historically grown in excess of the national average.
 
We serve an
additional fifteen smaller, less competitive,
 
rural markets located on the outskirts of and centered between
 
our larger markets
where we are positioned as a market leader.
 
In 12 of 18 markets in Florida and two of four Georgia
 
markets, we frequently rank
within the top four banks in terms of deposit market
 
share.
 
Furthermore, in the counties in which we operate, we maintain
 
an
8.3%
 
deposit market share in the Florida counties and 2.4%
 
in the Georgia counties.
 
Our markets provide for a strong core
deposit funding base, a key differentiator
 
and driver of our profitability and franchise value.
 
 
Acquisitions/Expansion Focus
.
 
Prior to 2005, we were an active acquirer of banks which
 
is reflected in the strong core deposit
franchise we enjoy today.
 
During the Great Recession, we navigated this historical period
 
in our industry focused on protecting
shareowner value and resolved our problem assets without
 
raising capital.
 
We also pivoted to
 
an intense focus on organic growth
and operational improvements.
 
While we have not completed a whole bank transaction since 2005,
 
we have completed a total of
nine whole bank acquisitions and this component
 
of our strategy is still in place.
 
The focus of potential acquisition opportunities
(including management lift-outs) will be in Florida, Georgia,
 
and Alabama with a particular focus on financial institutions
 
located
in markets on the outskirts of larger,
 
metropolitan areas, including Alachua, Marion, Hernando/Pasco counties
 
in Florida, the
western panhandle of Florida, Bibb and surrounding
 
counties in central Georgia and the northern arc of
 
Atlanta, leveraging the
presence of our recent strategic alliance with CCHL.
 
Our focus on some of these markets may change as we
 
continue to evaluate
our strategy and the economic conditions and demographics
 
of any individual market.
 
We will also continue
 
to evaluate de novo
banking office expansion opportunities in attractive
 
new markets where acquisition opportunities are not feasible
 
,
 
and expansion
opportunities in asset management, insurance, mortgage
 
banking, and other financial businesses that are closely aligned with
 
the
business of banking.
 
Embedded in our acquisition and expansion strategy is our desire
 
to partner with institutions that are
culturally similar, have experienced
 
management and possess either established market presence
 
or have potential for improved
profitability through growth, economies of scale, or
 
expanded services.
 
Generally, these potential target
 
institutions will range in
asset size from
 
$100 million to $600 million.
 
 
Recent Acquisition/Expansion Activity
.
 
In 2020 we began our expansion into the western panhandle
 
area of Florida by opening a
full-service banking office in Bay County,
 
Florida and a loan production office in Walton
 
County with plans to open a full-service
banking office in Walton
 
County in late 2021.
 
Further, we will expand our presence and
 
commitment to our Gainesville market,
opening a third full-service banking office in late
 
2021 to early 2022.
 
On March 1, 2020, CCB completed its acquisition of
 
a 51% membership interest in Brand Mortgage Group, LLC (“Brand”)
which is now operated as a Capital City Home Loans
 
(“CCHL”) – Refer to Note 1 – Significant Accounting Policies/Business
Combination for additional information on this transaction.
 
The primary reasons for the strategic alliance with Brand
 
were to
scale our mortgage banking business, gain access to an expanded
 
residential mortgage product line-up and investor base
(including mandatory delivery channel for loan sales),
 
to hedge our net interest income business and to generate
 
other operational
synergies and cost savings.
 
We realized
 
significant benefits from this transaction in 2020.
 
The strategic alliance with CCHL and
its strong presence and leadership within the Northern Arc
 
area (Gwinnett and Cobb counties) of Atlanta positions us to
 
further
evaluate expansion of our traditional banking services to
 
this area via de-novo banking office expansion
 
,
 
whole bank acquisition,
or the recruitment/hiring of banking teams
 
in the area as opportunities arise.
 
 
EXECUTIVE OVERVIEW
 
 
For 2020, we realized net income of $31.6 million,
 
or $1.88 per diluted share, compared to $30.8 million, or $1.83
 
per diluted
share for 2019.
 
The increase in net income for 2020 was attributable
 
to higher noninterest income of $58.1 million, partially
 
offset by higher
noninterest expense of $36.4 million, a $7.6 million
 
increase in the provision for credit losses, lower net interest income
 
of $2.0
million, and higher income taxes of $0.2 million.
 
For reporting purposes, CCHL is fully consolidated in CCBG’s
 
financial
statements and, for the full year 2020,
 
net income included an $11.1 million deduction
 
to record the 49% non-controlling interest
in the earnings of CCHL.
 
 
Below are summary highlights that impacted our performance
 
for the year:
 
 
Operating revenues (excluding mortgage
 
fees) held firm as unfavorable asset re-pricing
 
was offset by SBA PPP loan fees
and higher other fee revenues
 
 
Loan balances buoyed by SBA PPP
 
loan originations which totaled $190 million
-
 
Core loan balances (excluding SBA
 
PPP) held firm due to stronger loan production
 
in the fourth quarter
 
35
 
Reserve build of $6.6 million (loan HFI provision
 
of $9.0 million less net charge-offs of $2.4 million)
 
in response to potential
credit losses related
 
to the pandemic
-
 
Allowance coverage ratio (excluding SBA PPP) was 1.30%
 
at year-end
 
Deposits grew $572 million (period-end)
 
and $307 million (average) and reflected
 
stimulus inflows as well as strong core
deposit growth
 
Acquired 51% ownership in Brand
 
Mortgage, LLC on March 1, 2020 (renamed
 
CCHL) – contributed $0.52 per share
 
 
In 2020,
 
despite pressure from the economic effects of the
 
COVID-19 pandemic and a 150 basis point emergency
 
Federal Open
Market Committee rate reduction in March, our earnings
 
held firm and came in slightly above 2019.
 
Our strategic alliance with
CCHL was timely and those earnings provided a hedge
 
against our net interest income.
 
 
Period-end loans grew $170 million, or 9.3%, in 2020 aided
 
by our involvement in the SBA PPP loan program as we
 
generated
$190 million in loans ($178 million balance at December
 
31, 2020) to support our clients during this unprecedented
 
time.
 
Core
loan balances held firm despite the stressed economy buoyed
 
by our relationship with CCHL and the larger
 
pool of loan purchase
opportunities that strategic alliance provides us.
 
We also generated
 
a total of $5.0 million in net SBA PPP loan fees of which $1.8
million was recognized in 2020.
 
Our deposit balances saw unprecedented growth in
 
2020 as average balances grew $307 million, or 12% driven
 
by the stimulus
provided by various government programs throughout
 
the year as well as core deposit growth as our clients
 
sought a flight to
safety.
 
2020 continued our seventh consecutive year of deposit growth
 
which has averaged 4.1% per year.
 
 
Noninterest income was very strong in 2020 driven by higher
 
mortgage banking revenues attributable to the strategic alliance
with CCHL, and a very robust mortgage market.
 
Other fee revenues held firm despite pressure on our deposit
 
fees attributable to
the pandemic.
 
Wealth management
 
fees and bank card fees grew 4.5%
 
and 8.3%, respectively in 2020.
 
 
Expenses at our core bank (excluding CCHL) declined
 
by $3.6 million in 2020,
 
primarily attributable to lower pension plan
expense.
 
We continued
 
our ongoing commitment to expense management as a component
 
of improving our efficiency ratio and
elevated our commitment in 2020 by allocating dedicated
 
resources focused on identifying opportunities to reduce
 
the cost of our
banking office network and occupancy costs.
 
In 2020, we continued our multi-year investment in ITM/SATM
 
technology and
enhancements to our electronic banking platform which
 
greatly benefited our ability to improve service quality
 
for our clients
during the pandemic.
 
 
The pandemic provided significant challenges on the credit
 
front in 2020.
 
We supported
 
our clients, providing short-term loan
extensions for loan balances totaling $333 million, of
 
which $324 million had returned to normal scheduled payments by year-
end.
 
Despite the stressed environment for our borrowers, our credit quality
 
metrics remained very stable throughout the year with
minimal defaults and credit losses of 12 basis points of
 
average loans held for investment (“HFI”).
 
In response to the great
uncertainty regarding potential loan defaults related to the
 
stressed economy, we built
 
significant credit loss reserves in response
during 2020,
 
and continued to carry those reserves through year-end.
 
 
Key components of our 2020 financial performance are
 
summarized below:
 
 
Results of Operations
 
Net Interest Income.
 
For 2020, tax-equivalent net interest income totaled $101.8
 
million,
 
a $2.1 million, or 2.0%, decrease from
2019 driven primarily by lower rates for most of the
 
year, which negatively impacted
 
our variable and adjustable rate earning
assets. Partially offsetting this decline was a lower
 
cost of funds.
 
Provision and Allowance for Credit
 
Losses.
 
For 2020, our provision for credit losses was $9.6
 
million compared to $2.0 million
for 2019.
 
The higher provision in 2020 reflected expected potential losses due
 
to deterioration in economic conditions related to
the COVID-19 pandemic.
 
Net loan losses for 2020 totaled $2.4 million, or 0.12% of average loans
 
held for investment compared
to $2.3 million, or 0.13%, in 2019.
 
At December 31, 2020, excluding SBA PPP loans (100% government
 
guaranteed),
 
the
allowance represented 1.30% of loans held for investment.
 
 
Noninterest Income and Noninterest
 
Expense
.
 
The consolidation of CCHL’s
 
mortgage banking operations on March 1, 2020
impacted our noninterest income and noninterest expense
 
comparisons for 2020 versus 2019.
 
To better understand the
 
impact, we
provide an analysis of Noninterest Income and Noninterest
 
Expense for CCBG excluding CCHL (“Core CCBG”) and
 
CCHL
under those respective headings below (Pages 39 and
 
41).
 
CCHL operations contributed $8.7 million, or $0.52 per
 
diluted share,
to our earnings for 2020 driven by robust mortgage production
 
and efficiencies gained with the strategic alliance
 
.
 
 
 
36
At Core CCBG, deposit fees declined $1.7 million
 
in 2020 primarily due to the impact of government stimulus in
 
the second
quarter related to the COVID-19 pandemic, but increased
 
for the second half of the year as the economy and consumer
 
spending
improved.
 
Strong debit card fee growth
 
of $1.0 million and a $0.6 million increase in wealth management
 
fees substantially
offset the aforementioned decline in deposit fees.
 
Core CCBG noninterest expense decreased $3.6 million and
 
reflected lower
compensation expense of $2.5 million, ORE expense
 
of $0.4 million, and other expense of $2.2 million, partially
 
offset by higher
occupancy expense of $1.5 million.
 
 
Financial Condition
 
Earning Assets
.
 
Average earning
 
assets were $3.391 billion for 2020, an increase of $404.0 million,
 
or 13.5%, over 2019.
 
The
increase was primarily driven by higher deposit balances
 
and reflected strong core deposit growth and funding retained
 
at the
bank from SBA PPP loans and various other government
 
stimulus programs.
 
Loans
.
 
In 2020, average loans HFI totaled $1.993 billion, an increase
 
of $159.4 million, or 8.0% over 2019 and reflected growth
in all loan categories except institutional loans, home
 
equity loans, and consumer loans.
 
During 2020, we originated SBA PPP
loans which averaged $128 million in 2020 and totaled
 
$178 million at December 31, 2020.
 
SBA PPP loan fees totaled
approximately $1.8 million in 2020.
 
At December 31, 2020 we had $3.2 million (net) in deferred
 
SBA PPP loan fees.
 
Credit Quality
.
 
Nonaccrual loans totaled $5.9 million (0.29% of HFI loans)
 
at December 31, 2020 compared to $4.5 million
(0.24% of HFI loans) at December 31, 2019.
 
Classified loans totaled $17.6 million and $20.8 million at the
 
same respective
periods.
 
We continue to
 
closely monitor borrowers and loan portfolio segments impacted
 
by the pandemic.
 
Of the $333 million
in loans extended in 2020, approximately $9 million was
 
still on extension at December 31, 2020, none of which were
 
classified.
 
Of the $324 million in loans extended in 2020, that have
 
resumed payments, loan balances totaling $3.5 million
 
were over 30
days delinquent and an additional $0.4 million was on
 
nonaccrual status at December 31, 2020.
 
 
Deposits
.
 
Average total
 
deposits for 2020 were $2.844 billion, an increase of $306.9
 
million, or 12.1%, over 2019.
 
We realized
increases in all
deposit types except certificates of deposit, with the largest
 
increases occurring in noninterest bearing and savings
accounts.
 
The strong deposit growth that
occurred during the year reflected inflows from various government
 
stimulus programs
as well as strong core deposit growth.
 
 
Capital
.
 
At December 31, 2020, we were well-capitalized with a total risk-based
 
capital ratio of 17.30% and a tangible common
equity ratio (a non-GAAP financial measure) of 6.25
 
%
 
compared to 17.90% and 8.06%, respectively,
 
at December 31, 2019.
 
At
December 31, 2020, all of our regulatory capital ratios
 
exceeded the threshold to be well-capitalized under the Basel III
 
capital
standards.
 
Our tangible common equity ratio was unfavorably impacted
 
at December 31, 2020 by the annual adjustment to the
other comprehensive loss for our pension plan, which
 
was negatively impacted due to the lower discount rate used to
 
calculate the
present value of the pension obligation.
 
The lower discount rate reflected the significant decline in long-term
 
interest rates in
2020.
 
The pension plan, on an actuarial basis, continues to be sufficiently
 
funded in accordance with IRS regulation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
RESULTS
 
OF OPERATIONS
 
 
A condensed earnings summary for the last three
 
years is presented in Table
 
1 below:
 
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share
 
Data)
2020
2019
2018
Interest Income
$
106,197
$
112,836
$
99,395
Taxable Equivalent
 
Adjustments
430
526
654
Total Interest Income
 
(FTE)
106,627
113,362
100,049
Interest Expense
4,871
9,493
6,891
Net Interest Income (FTE)
101,756
103,869
93,158
Provision for Credit Losses
9,645
2,027
2,921
Taxable Equivalent
 
Adjustments
430
526
654
Net Interest Income After Provision for Credit Losses
91,681
101,316
89,583
Noninterest Income
111,165
53,053
51,565
Noninterest Expense
149,962
113,609
111,503
Income Before Income Taxes
52,884
40,760
29,645
Income Tax Expense
 
10,230
9,953
3,421
Pre-Tax Income
 
Attributable to Noncontrolling Interests
(11,078)
-
-
Net Income Attributable to Common Shareowners
$
31,576
$
30,807
$
26,224
Basic Net Income Per Share
$
1.88
$
1.84
$
1.54
Diluted Net Income Per Share
$
1.88
$
1.83
$
1.54
 
Net Interest Income
 
 
Net interest income represents our single largest
 
source of earnings and is equal to interest income and fees
 
generated by earning
assets, less interest expense paid on interest bearing
 
liabilities.
 
We provide
 
an analysis of our net interest income, including
average yields and rates in Tables
 
2 and 3 below.
 
We provide this
 
information on a "taxable equivalent" basis to reflect the
 
tax-
exempt status of income earned on certain loans and
 
investments.
 
 
For 2020, our taxable equivalent net interest income
 
decreased $2.1 million, or 2.0%. This follows an increase of $10.7
 
million, or
11.5%
 
in 2019.
 
The decrease in 2020 was driven primarily by lower rates for most of
 
the year, which negatively impacted our
variable and adjustable rate earning assets.
 
Partially offsetting this decline was a lower
 
cost of funds.
 
The increase in 2019 was
due to generally higher rates which continued to
 
migrate through the earning asset portfolios.
 
 
For 2020, taxable equivalent interest income decreased
 
$6.7 million, or 5.9%, from 2019.
 
For 2019, taxable equivalent interest
income increased $13.3 million, or 13.3%, over 2018.
 
The decline in 2020 was primarily due to lower rates on earning
 
assets.
The increase for 2019 was primarily due to higher
 
loan balances coupled with higher interest rates.
 
 
For 2020, interest expense decreased $4.6 million, or
 
48.7%, from 2019.
 
For 2019, interest expense increased $2.6 million, or
37.8%, over 2018.
 
The decline in 2020 was primarily due to lower rates on our negotiated
 
rate deposits which are tied to an
adjustable rate index, whereas the increase for 2019 primarily
 
reflected increases to our negotiated rate deposits.
 
Our cost of
funds decreased 19 basis points to 16 basis points in 2020,
 
and increased eight basis points to 35 basis points in 2019.
 
The
decrease in 2020 was primarily due to lower interest
 
rates paid on our negotiated rate products.
 
The increase in 2019 was
primarily due to higher interest rates paid on our
 
negotiated rate products due to the average increase in interest rates
 
over the
period.
 
 
 
Our interest rate spread (defined as the taxable-equivalent
 
yield on average earning assets less the average rate
 
paid on interest
bearing liabilities) decreased 43 basis points in 2020 and
 
increased 15 basis points in 2019.
 
Our net interest margin (defined as
taxable-equivalent interest income less interest expense divided
 
by average earning assets) of 3.30%
 
in 2020 was a 55 basis point
decrease from 2019.
 
The net interest margin of 3.85%
 
in 2019 was a 21 basis point increase over 2018.
 
The decline in the
interest rate spread and net interest margin
 
in 2020 was primarily due to lower yielding earning assets due
 
to lower rates, in
addition to strong growth in lower yielding overnight funds.
 
The increase in the interest rate spread and net interest margin
 
in
2019 was attributable to rising rates and an improving
 
mix of earning assets driven by loan growth.