UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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, 2022, the last business day
of the registrant’s most recently completed second fiscal quarter, was approximately $
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 28, 2023
Common Stock, $0.01 par value per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners to be held on April 25, 2023, are incorporated by reference in Part III.
2
CAPITAL CITY BANK GROUP, INC.
ANNUAL REPORT FOR 2022 ON FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1.
4
Item 1A.
20
Item 1B.
31
Item 2.
31
Item 3.
31
Item 4.
PART II
Item 5.
32
Item 6.
34
Item 7.
36
Item 7A.
58
Item 9.
116
Item 9A.
116
Item 9B.
118
PART III
Item 10.
119
Item 11.
119
Item 12.
119
Item 13.
119
Item 14.
119
PART IV
Item 15.
120
Item 16.
121
122
3
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives,
goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “vision,” “goal,” and similar expressions are intended to identify
forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual results
to differ materially from those in the forward-looking statements, include, without limitation:
●
our ability to successfully manage credit risk, interest rate risk, liquidity risk, and other risks inherent to our industry;
●
legislative or regulatory changes;
●
changes in monetary and fiscal policies of the U.S. Government;
●
inflation, interest rate, market and monetary fluctuations;
●
the effects of security breaches and computer viruses that may affect our computer systems or fraud related to debit card
products;
●
the accuracy of our financial statement estimates and assumptions, including the estimates used for our allowance for
credit losses, deferred tax asset valuation and pension plan;
●
changes in our liquidity position;
●
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 loan segments, 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
(including pandemics, such as the COVID-19 pandemic), 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;
●
the outcomes of litigation or regulatory proceedings;
●
negative publicity and the impact on our reputation;
●
changes in consumer spending and saving habits;
●
growth and profitability of our noninterest income;
●
the limited trading activity of our common stock;
●
the concentration of ownership of our common stock;
●
anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;
●
other risks described from time to time in our filings with the Securities and Exchange Commission; and
●
our ability to manage the risks involved in the foregoing.
However, other factors besides those listed in
Item 1A Risk Factors
our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any
forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update
any forward-looking statement, except as required by applicable law.
4
PART I
Item 1. Business
About Us
General
Capital City Bank Group, Inc. (“CCBG”) is a financial holding company headquartered in Tallahassee, Florida. CCBG was
incorporated under Florida law on December 13, 1982, to acquire five national banks and one state bank that all subsequently
became part of CCBG’s bank subsidiary, Capital City Bank (“CCB” or the “Bank”). The Bank commenced operations in 1895. In
this report, the terms “Company,” “we,” “us,” or “our” mean CCBG and all subsidiaries included in our consolidated financial
statements.
CCBG is one of the largest publicly traded financial holding companies headquartered in Florida and has approximately $4.5
billion in assets. We provide a full range of banking services, including traditional deposit and credit services, mortgage banking,
asset management, trust, merchant services, bankcards, securities brokerage services and financial advisory services, including the
sale of life insurance, risk management and asset protection services. The Bank has 58 banking offices and 89 ATMs/ITMs in
Florida, Georgia, and Alabama. Through Capital City Home Loans, LLC (“CCHL”), we have 33 additional offices in the
Southeast for our mortgage banking business. The majority of the revenue (excluding CCHL), approximately 86%, is derived
from our Florida market areas while approximately 13% and 1% of the revenue is derived from our Georgia and other market
areas, respectively. Approximately 52% of the revenue from CCHL is derived from our Georgia market areas while
approximately 39% and 9% 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 fiscal 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 36 and our consolidated financial statements on page 63.
Dollars in millions
Year Ended
December 31,
Assets
Deposits
Shareowners’
Equity
Revenue
(1)
Net Income
2022
$4,526.0
$3,939.3
$394.0
$226.0
$40.1
2021
$4,263.8
$3,712.9
$383.2
$213.9
$33.4
2020
$3,798.1
$3,217.6
$320.8
$217.4
$31.6
(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, 2022. CCBG also maintains an insurance subsidiary,
Capital City Strategic Wealth, LLC. CCB has two primary subsidiaries, which are wholly owned, Capital City Trust Company
and Capital City Investments. CCB also maintains a 51% membership interest in a consolidated subsidiary, CCHL, which we
acquired on March 1, 2020. The nature of these subsidiaries is provided below.
Operating Segment
We have one reportable segment with two principal services: Banking Services and Wealth Management Services. Banking
Services are operated at CCB, and Wealth Management Services are operated under three separate subsidiaries (Capital City
Trust Company, Capital City Investments, and Capital City Strategic Wealth, LLC.). Revenues from these principal services for
the year ended 2022 totaled approximately 91.8% and 8.2% of our total revenue, respectively. In 2022 and 2021, Banking
Services (CCB) revenue was approximately 93.2% and 94.7% of our total revenue for each respective year.
5
Capital City Bank
CCB is a Florida-chartered full-service bank engaged in the commercial and retail banking business. Significant services offered
by CCB include:
●
Business Banking
for a wide variety of general business purposes, including financing for commercial business properties, equipment,
inventories and accounts receivable, as well as commercial leasing and letters of credit. We also provide treasury
management services, and, through a marketing alliance with Elavon, Inc., merchant credit card transaction processing
services.
●
Commercial Real Estate Lending
developers and investors, residential builders and developers, and community development. Credit products are available
to purchase land and build structures for business use and for investors who are developing residential or commercial
property.
●
Residential Real Estate Lending
network of locations to help meet the home financing needs of consumers, including conventional permanent and
construction/ permanent (fixed, adjustable, or variable rate) financing arrangements, and FHA/VA/Government National
Mortgage Association (“GNMA”) loan products. We offer both fixed and adjustable rate residential mortgage (ARM)
loans. We offer these products through our existing network of CCHL locations. We do not originate subprime
residential real estate loans.
●
Retail Credit
automobile loans, boat/RV loans, home equity loans, and through a marketing alliance with ELAN, we offer credit card
programs.
●
Institutional Banking –
We provide banking services to meet the needs of state and local governments, public schools
and colleges, charities, membership and not-for-profit associations including customized checking and savings accounts,
cash management systems, tax-exempt loans, lines of credit, and term loans.
●
Retail Banking
– We provide a full-range of consumer banking services, including checking accounts, savings programs,
interactive/automated teller machines (ATMs/ITMs), debit/credit cards, night deposit services, safe deposit facilities,
online banking, and mobile banking.
Capital City Trust Company
Capital City Trust Company, or the Trust Company, provides asset management for individuals through agency, personal trust,
IRA, and personal investment management accounts. Associations, endowments, and other nonprofit entities hire the Trust
Company to manage their investment portfolios. Additionally, a staff of well-trained professionals serves individuals requiring the
services of a trustee, personal representative, or a guardian. The market value of trust assets under discretionary management
exceeded $1.082 billion at December 31, 2022, with total assets under administration exceeding $1.097 billion.
Capital City Investments
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.
Capital City Strategic Wealth, LLC.
We provide a multi-disciplinary strategic planning approach that requires examining all facets of our clients’ financial lives
through our business, estate, financial, insurance and business planning, tax planning, and asset protection advisory services.
Insurance sales within this division include life, health, disability, long-term care, and annuity solutions.
6
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 only approved if the underwriting is consistent with our criteria and generally the project or applicant’s primary
business is in or near our primary or secondary market areas. Approval of all loans is subject to our policies and standards
described in more detail below.
We
have adopted comprehensive lending policies, underwriting standards and loan review procedures. Management and our
Board of Directors reviews and approves these policies and procedures on a regular basis (at least annually).
Management has also implemented reporting systems designed to monitor loan originations, loan quality, concentrations of
credit, loan delinquencies, nonperforming loans, and potential problem loans. Our management and the Credit Risk Oversight
Committee periodically review our lines of business to monitor asset quality trends and the appropriateness of credit policies. In
addition, we establish total borrower exposure limits and monitor concentration risk. 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, 2022, approximately 56% 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.
7
Consumer Loans
Our consumer loan portfolio includes personal installment loans, direct and indirect automobile financing, and overdraft lines of
credit. The majority of the consumer loan portfolio consists of indirect and direct automobile loans. The majority of our consumer
loans are short-term and have fixed rates of interest that are priced based on current market interest rates and the financial
strength of the borrower. Our policy establishes maximum debt-to-income ratios, minimum credit scores, and includes guidelines
for verification of applicants’ income and receipt of credit reports.
Expansion of Business
See MD&A (Business Overview) for disclosures regarding the expansion of our Business.
Competition
We operate in a highly competitive environment, especially with respect to services and pricing, that has undergone significant
changes. Since January 1, 2009, over 500 financial institutions have failed in the U.S., including many in Florida and Georgia.
Nearly all of the failed banks were community banks. The assets and deposits of many of these failed community banks were
acquired mostly by larger financial institutions. The banking industry has also experienced significant consolidation through
mergers and acquisition, which we expect will continue during 2023. 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.
Our primary market area consists of 20 counties in Florida, six 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 $1.489 billion, or 38% of our consolidated deposits
at December 31, 2022.
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
2022
2021
2020
Florida
4.9%
4.6%
4.5%
0.3%
0.2%
0.0%
34.9%
32.4%
30.6%
4.7%
4.1%
3.6%
2.3%
2.8%
2.0%
19.8%
18.9%
18.7%
82.1%
81.1%
80.8%
41.2%
39.6%
38.7%
14.8%
14.6%
12.8%
5.0%
3.9%
3.5%
24.8%
24.4%
23.0%
15.4%
11.9%
13.3%
25.4%
26.4%
24.2%
14.0%
14.5%
14.0%
26.4%
23.2%
20.7%
0.7%
0.7%
0.6%
7.0%
6.8%
7.1%
73.8%
73.2%
72.4%
10.0%
10.5%
8.3%
11.2%
11.2%
11.0%
Georgia
3.2%
3.3%
3.2%
(2)
0.0%
0.0%
0.0%
16.3%
14.8%
14.0%
7.8%
7.9%
8.4%
6.4%
6.1%
6.5%
Alabama
9.3%
9.3%
9.6%
(1)
Obtained from the FDIC Summary of Deposits Report for the year indicated.
(2)
Banking office opened in the fourth quarter of 2022.
Seasonality
We believe our commercial banking operations are not generally seasonal in nature; however, public deposits tend to increase
with tax collections in the fourth and first quarters of each year and decline as a result of governmental spending thereafter.
Human Capital Matters
We are dedicated to creating personal relationships with our customers and implementing solutions that are right for them. Our
associates (our employees) are critical to achieving this mission, and it is crucial that we continue to attract and retain experienced
associates. As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community
where everyone feels included and empowered to do to their best work, and give associates the opportunity to give back to their
communities and make a social impact.
At January 31, 2023, we had approximately 796 associates, which included approximately 763 full-time associates and
approximately 33 part-time associates. None of our associates are represented by a labor union or covered by a collective
bargaining agreement. At January 31, 2023, approximately 72% of our current workforce was female while 28% was male, and
approximately 21% are ethnic minorities. The average tenure of our associates was approximately 9 years.
9
For more than 10 years, Florida Trend has honored us by listing Capital City Bank as a Best Place to Work, and American
Bankers Magazine has recognized us as a Best Bank to Work For. Additionally, Georgia Trend recognized CCB in 2016 and
2017 as a Best Place to Work. Tenure statistics support these accolades and further demonstrate that associates enjoy working for
CCB.
Compensation and Benefits Program
. Our compensation program is designed to attract and reward talented individuals who
possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-
term value for our shareowners. We provide our associates with compensation packages that include base salary, annual incentive
bonuses, and equity awards tied to the value of our stock price. We believe that a compensation program with both short-term and
long-term awards provides fair and competitive compensation and aligns associate and shareowner interests, including by
incentivizing business and individual performance (pay for performance), motivating based on long-term company performance
and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer associates
benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, a 401(k) plan, and a
pension plan.
Diversity and Inclusion
. We believe that an equitable and inclusive environment with diverse teams produces more creative
solutions, results in better services and is crucial to our efforts to attract and retain key talent. We strive to promote inclusion
through our corporate values of integrity, advocacy, partnership, relationships, community, and exceptional service. In 2021, we
formed the Diversity, Equity and Inclusion (DE&I) Charter and formed the DE&I Council. Our DE&I Council consists of a
diverse group of members from all levels of the organization. The Council’s focus is on diversity and inclusion in our workforce,
workplace, and community. They are responsible for connecting our diversity and inclusion activities with our broader business
strategies. Additionally, we created a Chief Diversity Officer position to provide direction and leadership as we build processes,
initiatives, and special programs aimed at DE&I. Additionally during 2021, we partnered with a third-party DE&I firm whose
mission is to embed equity and inclusion into work systems and culture, enhancing outcomes for employees and customers. Our
partnership will further develop and enhance our DE&I plan and includes development of focus group conversations, interviews
with Senior Leadership, research of existing policies and documentation and outline of gaps in existing policies. All associates
receive DE&I education, awareness and training each year. In January 2022, we added four new directors to our CCBG Board of
Directors. Of these four directors 50% are white males, 25% are minority female and 25% are non-minority female. The CCBG
outside directors are made up of 11 non-shareowner individuals. Of the 11 individuals, 27% are female and 18% are ethnic
minority. We continue to focus on building an inclusive culture through a variety of diversity and inclusion initiatives, including
related to internal promotions and hiring practices. As part of these initiatives, we added the new position of Chief Culture Officer
and Head of Recruitment in 2022, and we have associate resource groups help to build an inclusive culture through company
events, participation in our recruitment efforts, and input into our hiring strategies. In addition, in response to emerging workplace
practices, we made changes to our Flex – work/life balance program to assist our associates in maintaining a work/life balance
consistent with their goals and to attract, retain, and motivate key associates.
Health and Safety
. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are
committed to the health, safety and wellness of our associates. We provide our associates and their families with access to a
variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health,
by providing tools and resources to help them improve or maintain their health status. We also offer choices to our associates
where possible so they can customize their benefits to meet their needs and the needs of their families. In response to the COVID-
19 pandemic, we implemented significant operating environment changes that we determined were in the best interest of our
associates, as well as the communities in which we operate, and which comply with government regulations. We have retained
many of these changes as a permanent part of our overall focus on associate and client safety, and we continue to follow local and
federal guidance, including guidance prescribed by the Centers for Disease Control and Prevention (“CDC”), regarding COVID-
19 precautions and health measures.
Social Matters
Community Involvement
. We aim to give back to the communities where we live and work and believe that this commitment
helps in our efforts to attract and retain associates. Our commitment to help our community starts with our associates. Community
involvement is a hallmark for our organization, and it comes naturally to our associates. We encourage our associates to volunteer
their hours with service organizations and philanthropic groups in the communities we serve. We recorded 9,508, 8,697, and
8,169 community service hours in 2022, 2021, and 2020, respectively. Furthermore, the CCBG Foundation donated $0.3 million,
$0.2 million, and $0.3 million to various non-profit organizations in the communities we serve, during 2022, 2021, and 2020,
respectively. Our community commitment to further financial literacy in our market remains an ongoing goal and focus for our
associates and directors. We continue to focus on ways to better our communities in which we operate through monetary
resources and volunteer hours.
10
Access, affordability, and financial inclusion.
In 2022, the CCBG Foundation made grants totaling $150,000 to Community
Reinvestment Act eligible organizations in our market area. Working with CCHL, we are committed to providing educational
outreach regarding home ownership and financial access for minorities. We are a long-time supporter of Habitat for Humanity,
with our associates providing volunteer hours on home builds. During 2020 to 2022, we partnered with Habitat for Humanity,
Warrick Dunn Charities, and Capital City Home Loans, LLC. to build and furnish three homes. During tax season, we provide
locations for community residents to access Volunteer Income Tax Assistance (VITA) services. VITA is a nationwide IRS
program that offers free tax preparation assistance to people who generally make $54,000 or less, persons with disabilities, the
elderly, and limited English-speaking taxpayers who need assistance in preparing their own tax returns. Since 2015, we have
annually supported the United Way of the Big Bend in analyzing financial information for the annual grant review process. Many
of these grants are provided to low-moderate income communities in the Big Bend area.
Small Business Lending.
We are focused on supporting small businesses throughout our communities. The global pandemic
exposed the challenges of small business. Capital City Bank is proud to have participated in the Paycheck Protection Program
(PPP), originating 3,508 loans totaling more than $266 million. During the pandemic, our company financially supported locally
owned restaurants to provide meals and gift cards for our associates.
Environmental Matters
We are responsible for protecting our planet and understand that reducing our business’s carbon footprint is key to a sustainable
future. We are committed to measuring and minimizing our collective impact on the environment while contributing to
environmental stewardship and responsible business operations. We strive to embed environmental sustainability throughout our
products, services, operations, and culture to drive efficiencies and responsible resource use while creating comfortable, safe, and
healthy workplaces for our associates.
As part of our corporate responsibility, we continue to focus our efforts on sustainability
within our business and our community.
We are focused on sustainability and resource conservation and, as a result, seek to reduce resource consumption through
efficiency initiatives in our branches and offices. We do this through company-wide recycling programs, the implementation of
LED lighting in our workplaces, and working to reduce our reliance on disposable products. As we renovate or build new
facilities, we try to leverage renewable sources for power and HVAC through the employment of solar panels. In 2022, we made
a commitment for a $7 million investment in SOLCAP 2022-1, LLC, a fund that was formed to make solar tax equity investments
in renewable solar energy projects that will provide us with tax credits and other tax benefits. We plan to continue to review these
investment opportunities as they arise. We have also invested in tools and capabilities that allow our team members to work
remotely as appropriate. We work hard to ensure that our lending activities do not encourage business activities that could cause
irreparable damage to our reputation or the environment. As a result, we try to conduct business responsibly and actively work
with shareowners to best serve our various constituents. We monitor the environmental, social, and human rights risks of our
customers along with credit risks. This process involves management and Board oversight and controls such as enhanced due
diligence and a reputation risk review which is overseen by our Enterprise Risk Management Committee. In general, we evaluate
each credit or transaction on its individual merits, with larger deals receiving more attention and deeper analysis, including a
review of environmental matters related to certain real estate loans which is overseen by our Credit Risk Oversight Committee.
Regulatory Considerations
We must comply with state and federal banking laws and regulations that control virtually all aspects of our operations. These
laws and regulations generally aim to protect our depositors, not necessarily our shareowners or our creditors. Any changes in
applicable laws or regulations may materially affect our business and prospects. Proposed legislative or regulatory changes may
also affect our operations. The following description summarizes some of the laws and regulations to which we are subject.
References to applicable statutes and regulations are brief summaries, do not purport to be complete, and are qualified in their
entirety by reference to such statutes and regulations.
Capital City Bank Group, Inc.
We are registered with the Board of Governors of the Federal Reserve as a bank holding company under the Bank Holding
Company Act of 1956 (“BHC Act”) and have also elected to be a financial holding company. As a result, we are subject to
supervisory regulation and examination by the Federal Reserve. The BHC Act, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Gramm-Leach-Bliley Financial Modernization Act, and other federal laws subject financial holding
companies to 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.
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Permitted Activities
The Gramm-Leach-Bliley Act reformed the U.S. banking system by: (i) allowing bank holding companies that qualify as
“financial holding companies,” such as CCBG, to engage in a broad range of financial and related activities; (ii) allowing insurers
and other financial service companies to acquire banks; (iii) removing restrictions that applied to bank holding company
ownership of securities firms and mutual fund advisory companies; and (iv) establishing the overall regulatory scheme applicable
to bank holding companies that also engage in insurance and securities operations. The general effect of the law was to establish a
comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other
financial service providers. Activities that are financial in nature are broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.
In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing
services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by
regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an
activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits
include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration
of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the
Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or
control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety,
soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.
Changes in Control
Subject to certain exceptions, the BHC Act and the Change in Bank Control Act (“CBCA”), together with the applicable
regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any
acquisition of “control” of a bank or bank holding company. Under the BHC Act, a company (a broadly defined term that includes
partnerships among other things) that acquires the power, directly or indirectly, to direct the management or policies of an insured
depository institution or to vote 25% or more of any class of voting securities of any insured depository institution is deemed to
control the institution and to be a bank holding company. A company that acquires less than 5% of any class of voting security
(and that does not exhibit the other control factors) is presumed not to have control. For ownership levels between the 5% and
25% thresholds, the Federal Reserve has developed an extensive body of law on the circumstances in which control may or may
not exist. Further, on January 30, 2020, the Federal Reserve finalized a rule that simplifies and increases the transparency of its
rules for determining when one company controls another company for purposes of the BHC Act. The rule became effective
September 30, 2020. It has and will likely continue to have a meaningful impact on control determinations related to investments
in banks and bank holding companies and investments by bank holding companies in nonbank companies.
Under the CBCA, if an individual or a company that acquires 10% or more of any class of voting securities of an insured
depository institution or its holding company and either that institution or company has registered securities under Section 12 of
the Exchange Act, or no other person will own a greater percentage of that class of voting securities immediately after the
acquisition, then that investor is presumed to have control and may be required to file a change in bank control notice with the
institution’s or the holding company’s primary federal regulator. Our common stock is registered under Section 12 of the
Exchange Act so we are subject to these rules.
As a financial holding company, we are required to obtain prior approval from the Federal Reserve before (i) acquiring all or
substantially all of the assets of a bank or bank holding company, (ii) acquiring direct or indirect ownership or control of more
than 5% of the outstanding voting stock of any bank or bank holding company (unless we own a majority of such bank’s voting
shares), or (iii) acquiring, merging or consolidating with any other bank or bank holding company. In determining whether to
approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on
competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-
acquisition basis, and the companies’ records of addressing the credit needs of the communities they serve, including the needs of
low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community
Reinvestment Act of 1977.
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Under Florida law, a person or entity proposing to directly or indirectly acquire control of a Florida bank must also obtain
permission from the Florida Office of Financial Regulation. The Florida Statutes define “control” as either (i) indirectly or
directly owning, controlling or having power to vote 25% or more of the voting securities of a bank; (ii) controlling the election of
a majority of directors of a bank; (iii) owning, controlling, or having power to vote 10% or more of the voting securities as well as
directly or indirectly exercising a controlling influence over management or policies of a bank; or (iv) as determined by the
Florida Office of Financial Regulation. These requirements will affect us because the Bank is chartered under Florida law and
changes in control of CCBG are indirect changes in control of CCB.
Prohibitions Against Tying Arrangements
Banks are subject to the prohibitions of 12 U.S.C. 1972 on certain tying arrangements. We are prohibited, subject to some
exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not
obtain services of a competitor of the institution.
Capital; Dividends; Source of Strength
The Federal Reserve imposes certain capital requirements on financial holding companies under the BHC Act, including a
minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described
below under “Capital Regulations.” Subject to these capital requirements and certain other restrictions, we are generally able to
borrow money to make a capital contribution to CCB, and such loans may be repaid from dividends paid from CCB to us. We are
also able to raise capital for contributions to CCB by issuing securities without having to receive regulatory approval, subject to
compliance with federal and state securities laws.
It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of
income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected
future needs and financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain
dividend levels that undermine their ability to be a source of strength to their banking subsidiaries. Additionally, the Federal
Reserve has indicated that bank holding companies should carefully review their dividend policies and has discouraged payment
ratios that are at maximum allowable levels unless both asset quality and capital are very strong. The Federal Reserve possesses
enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and 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.
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Capital City Bank
Capital City Bank is a state-chartered commercial banking institution that is chartered by and headquartered in the State of Florida
and is subject to supervision and regulation by the Florida Office of Financial Regulation. The Florida Office of Financial
Regulation supervises and regulates all areas of our operations including, without limitation, the making of loans, the issuance of
securities, the conduct of our corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and
the establishment or closing of banking centers. We are also a member bank of the Federal Reserve System, which makes our
operations subject to broad federal regulation and oversight by the Federal Reserve. In addition, our deposit accounts are insured
by the FDIC up to the maximum extent permitted by law, and the FDIC has certain supervisory enforcement powers over us.
As a Florida state-chartered bank, we are empowered by statute, subject to the limitations contained in those statutes, to take and
pay interest on savings and time deposits, to accept demand deposits, to make loans on residential and other real estate, to make
consumer and commercial loans, to invest (with certain limitations) in equity securities and in debt obligations of banks and
corporations and to provide various other banking services for the benefit of our clients. Various consumer laws and regulations
also affect our operations, including state usury laws, laws relating to fiduciaries, consumer credit and equal credit opportunity
laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA,
prohibits insured state-chartered institutions from conducting activities as principal that are not permitted for national banks. A
bank, however, may engage in certain otherwise prohibited activity if it meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the Deposit Insurance Fund.
Safety and Soundness Standards / Risk Management
The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, asset quality and earnings.
In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible
for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in
the guidelines, the financial institution’s primary federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If a financial institution fails to submit an acceptable compliance plan or fails in any material respect to
implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order
directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may
restrict the financial institution’s rate of growth, require the financial institution to increase its capital, restrict the rates the
institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other
enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty
assessments.
The bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong
internal controls when evaluating the activities of the financial institutions they supervise. Properly managing risks has been
identified as critical to the conduct of safe and sound banking activities and has become even more important as new
technologies, product innovation and the size and speed of financial transactions have changed the nature of banking markets. The
agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity,
operational, legal and reputational risk. In particular, recent regulatory pronouncements have focused on operational risk, which
arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud or
unforeseen catastrophes will result in unexpected losses. New products and services, third party risk management and
cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment.
The Bank is expected to have active board and senior management oversight; adequate policies, procedures and limits; adequate
risk measurement, monitoring and management information systems; and comprehensive internal controls.
Reserves
The Federal Reserve requires all depository institutions to maintain reserves against transaction accounts (noninterest bearing and
NOW checking accounts). The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be
used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve Bank “discount window” as a
secondary source of funds, provided that the institution meets the Federal Reserve Bank’s credit standards.
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Dividends
CCB is subject to legal limitations on the frequency and amount of dividends that can be paid to CCBG. The Federal Reserve may
restrict the ability of CCB to pay dividends if such payments would constitute an unsafe or unsound banking practice.
Additionally, financial institutions are now required to maintain a capital conservation buffer of at least 2.5% of risk-weighted
assets in order to avoid restrictions on capital distributions and other payments. If a financial institution’s capital conservation
buffer falls below the minimum requirement, its maximum payout amount for capital distributions and discretionary payments
declines to a set percentage of eligible retained income based on the size of the buffer. See “Capital Regulations,” below for
additional details on this new capital requirement.
In addition, Florida law and Federal regulation place restrictions on the declaration of dividends from state-chartered banks to
their holding companies. Under the Florida Financial Institutions Code, the board of directors of a state-chartered bank, after it
charges off bad debts, depreciation and other worthless assets, if any, and makes provisions for reasonably anticipated future
losses on loans and other assets, may quarterly, semi-annually or annually declare a dividend of up to the aggregate net profits of
that period combined with the bank’s retained net profits for the preceding two years. In addition, with the approval of the Florida
Office of Financial Regulation and Federal Reserve, the bank’s board of directors may declare a dividend from retained net
profits which accrued prior to the preceding two years. Before declaring such dividends, 20% of the net profits for the preceding
period as is covered by the dividend must be transferred to the surplus fund of the bank until this fund becomes equal to the
amount of the bank’s common stock then issued and outstanding. However, a Florida state-chartered bank may not declare any
dividend if (i) its net income (loss) from the current year combined with the retained net income (loss) for the preceding two years
aggregates a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the minimum
amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a federal
regulatory agency. Under Federal Reserve regulations, a state member bank may, without the prior approval of the Federal
Reserve, pay a dividend in an amount that, when taken together with all dividends declared during the calendar year, does not
exceed the sum of the bank’s net income during the current calendar year and the retained net income of the prior two calendar
years. The Federal Reserve may approve greater amounts.
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 Deposit Insurance Fund (“DIF”).
In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules uniformly
by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment is expected to improve
the likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35% by the statutory deadline prescribed under
the FDIC’s amended restoration plan.
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.
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Loans to executive officers and directors of an insured depository institution or any of its affiliates or to any person who directly
or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of
any class of voting securities of a bank, which we refer to as “10% Shareowners,” or to any political or campaign committee the
funds or services of which will benefit those executive officers, directors, or 10% Shareowners or which is controlled by those
executive officers, directors or 10% Shareowners, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and the
corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to
executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal
Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions
made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a
disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those
individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus
an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or
when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed our unimpaired
capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which we are permitted to extend credit to
executive officers.
Community Reinvestment Act
The Community Reinvestment Act and its corresponding regulations are intended to encourage banks to help meet the credit
needs of the communities they serve, including low- and moderate-income neighborhoods, consistent with safe and sound
banking practices. These regulations provide for regulatory assessment of a bank’s record in meeting the credit needs of its
market area. Federal banking agencies are required to publicly disclose each bank’s rating under the Community Reinvestment
Act. The Federal Reserve considers a bank’s Community Reinvestment Act rating when the bank submits an application to
establish bank branches, merge with another bank, or acquire the assets and assume the liabilities of another bank. In the case of a
financial holding company, the Community Reinvestment Act performance record of all banks involved in a merger or
acquisition are reviewed in connection with the application to acquire ownership or control of shares or assets of a bank or to
merge with another bank or bank holding company. An unsatisfactory record can substantially delay or block the transaction. We
received a satisfactory rating on our most recent Community Reinvestment Act assessment.
In 2022, the Federal Reserve, along with the FDIC and OCC, issued a Notice of Proposed Rulemaking (“NPR”) that invited
public comment on an approach to modernize the regulations relating to the Community Reinvestment Act to strengthen the
achievement of the core purpose of the statute, and to adapt to changes in the banking industry, including the expanded role of
mobile and online banking. We continue to evaluate the impact of any changes to the regulations relating to the Community
Reinvestment Act and their impact to our financial condition, results of operations, and liquidity, which cannot be predicted at
this time.
Capital Regulations
The federal banking regulators have adopted risk-based, capital adequacy guidelines for financial holding companies and their
subsidiary banks based on the Basel III standards. Under these guidelines, assets and off -balance sheet items are assigned to
specific risk categories each with designated risk weightings. These risk-based capital guidelines were designed to make
regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to
account for off-balance sheet exposure, to minimize disincentives for holding liquid assets, and to achieve greater consistency in
evaluating the capital adequacy of major banks throughout the world. The resulting capital ratios represent capital as a percentage
of total risk-weighted assets and off-balance sheet items.
In computing total risk-weighted assets, bank and bank holding company assets are given risk-weights of 0%, 20%, 50%, 100%
and 150%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100% risk category, except
for performing first mortgage loans fully secured by 1-to-4 family and certain multi-family residential property, which carry a
50% risk rating. Most investment securities (including, primarily, general obligation claims on states or other political
subdivisions of the United States) will be assigned to the 20% category, except for municipal or state revenue bonds, which have
a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In covering off -balance sheet items, direct credit substitutes, including general
guarantees and standby letters of credit backing financial obligations, are given a 100% conversion factor. Transaction -related
contingencies such as bid bonds, standby letters of credit backing nonfinancial obligations, and undrawn commitments (including
commercial credit lines with an initial maturity of more than one year) have a 50% conversion factor. Short-term commercial
letters of credit are converted at 20% and certain short-term unconditionally cancelable commitments have a 0% factor.
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Under the final rules, minimum requirements increased for both the quality and quantity of capital held by banking organizations.
In this respect, the final rules implemented strict eligibility criteria for regulatory capital instruments and improved the
methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel III
framework, the rules included a new minimum ratio of Common Equity Tier 1 Capital to Risk-Weighted Assets of 4.5%. The
rules also created a Common Equity Tier 1 Capital conservation buffer of 2.5% of risk-weighted assets. This buffer is added to
each of the three risk-based capital ratios to determine whether an institution has established the buffer. The rules raised the
minimum ratio of Tier 1 Capital to Risk-Weighted Assets from 4% to 6% and included a minimum leverage ratio of 4% for all
banking organizations. If a financial institution’s capital conservation buffer falls below 2.5% (e.g., if the institution’s Common
Equity Tier 1 Capital to Risk-Weighted Assets is less than 7.0%), then capital distributions and discretionary payments will be
limited or prohibited based on the size of the institution’s buffer. The types of payments subject to this limitation include
dividends, share buybacks, discretionary payments on Tier 1 instruments, and discretionary bonus payments.
The capital regulations may also impact the treatment of accumulated other comprehensive income, or AOCI, for regulatory
capital purposes. AOCI generally flows through to regulatory capital, however, community banks and their holding companies
were allowed a one-time irrevocable opt-out election to continue to treat AOCI the same as under the old regulations for
regulatory capital purposes. This election was required to be made on the first call report or bank holding company annual report
(on form FR Y-9C) filed after January 1, 2015. We made the opt-out election. Additionally, the rules also permitted community
banks with less than $15 billion in total assets to continue to count certain non -qualifying capital instruments issued prior to May
19, 2010, as Tier 1 capital, including trust preferred securities and cumulative perpetual preferred stock (subject to a limit of 25%
of Tier 1 capital). However, non-qualifying capital instruments issued on or after May 19, 2010, would not qualify for Tier 1
capital treatment.
Commercial Real Estate Concentration Guidelines
The federal banking regulators have implemented guidelines to address increased concentrations in commercial real estate loans.
These guidelines describe the criteria regulatory agencies will use as indicators to identify institutions potentially exposed to
commercial real estate concentration risk. An institution that has (i) experienced rapid growth in commercial real estate lending,
(ii) notable exposure to a specific type of commercial real estate, (iii) total reported loans for construction, land development, and
other land representing 100% or more of total risk-based capital, or (iv) total commercial real estate (including construction) loans
representing 300% or more of total risk-based capital and the outstanding balance of the institutions commercial real estate
portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of a potential
concentration risk.
At December 31, 2022, CCB’s ratio of construction, land development and other land loans to total risk-based capital was 71%,
its ratio of total commercial real estate loans to total risk-based capital was 239% 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
The federal banking agencies are required to take “prompt corrective action” with respect to financial institutions that do not meet
minimum capital requirements. The law establishes five categories for this purpose: “well-capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well-capitalized,” an
insured depository institution must maintain minimum capital ratios and must not be subject to any order or written directive to
meet and maintain a specific capital level for any capital measure. An institution that fails to remain well-capitalized becomes
subject to a series of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a
prohibition on capital distributions, restrictions on asset growth or restrictions on the ability to receive regulatory approval of
applications. The regulations apply only to banks and not to BHCs. However, the Federal Reserve is authorized to take
appropriate action at the holding company level, based on the undercapitalized status of the holding company’s subsidiary
banking institutions. In certain instances relating to an undercapitalized banking institution, the BHC would be required to
guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and could be liable for civil money
damages for failure to fulfill those guarantee commitments.
In addition, failure to meet capital requirements may cause an institution to be directed to raise additional capital. Federal law
further mandates that the agencies adopt safety and soundness standards generally relating to operations and management, asset
quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.
Failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including
additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain
conditions, the appointment of a conservator or receiver.
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At December 31, 2022, we exceeded the requirements contained in the applicable regulations, policies and directives pertaining to
capital adequacy to be classified as “well capitalized” and are unaware of any material violation or alleged violation of these
regulations, policies or directives (see table below). Rapid growth, poor loan portfolio performance, or poor earnings
performance, or a combination of these factors, could change our capital position in a relatively short period of time, making
additional capital infusions necessary. Our capital ratios can be found in Note 17 to the Notes to our Consolidated Financial
Statements.
Interstate Banking and Branching
The Dodd-Frank Act relaxed interstate branching restrictions by modifying the federal statute governing de novo interstate
branching by state member banks. Consequently, a state member bank may open its initial branch in a state outside of the bank’s
home state by way of an interstate bank branch, so long as a bank chartered under the laws of that state would be permitted to
open a branch at that location.
Anti-money Laundering
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (the “USA Patriot Act”), provides the federal government with additional powers to address terrorist threats through
enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, or “BSA,” the USA Patriot Act puts in place measures
intended to encourage information sharing among bank regulatory and law enforcement agencies. In addition, certain provisions
of the USA Patriot Act impose affirmative obligations on a broad range of financial institutions.
The USA Patriot Act, and BSA Acts and the related federal regulations require banks to establish anti-money laundering
programs that include policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and
to verify the identity of their customers and of beneficial owners of their legal entity customers.
The Anti-Money Laundering Act (“AMLA”), which amends the BSA, was enacted in early 2021. The AMLA is intended to be a
comprehensive reform and modernization of U.S. bank secrecy and anti-money laundering laws. In particular, it codifies a risk-
based approach to anti-money laundering compliance for financial institutions, requires the U.S. Department of the Treasury to
promulgate priorities for anti-money laundering and countering the financing of terrorism policy, requires the development of
standards for testing technology and internal processes for BSA compliance, expands enforcement- and investigation-related
authority (including increasing available sanctions for certain BSA violations), and expands BSA whistleblower incentives and
protections.
Many AMLA provisions will require additional rulemakings, reports and other measures, and the impact of the AMLA will
depend on, among other things, rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement
Network, a bureau of the U.S. Department of the Treasury, issued the priorities for anti-money laundering and countering the
financing of terrorism policy required under the AMLA. The priorities include corruption, cybercrime, terrorist financing, fraud,
transnational crime, drug trafficking, human trafficking and proliferation financing.
There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Office of
Foreign Assets Control of the U.S. Department of Treasury, or “OFAC.” OFAC administers and enforces economic and trade
sanctions against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities
related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of
the United States, based on U.S. foreign policy and national security goals. OFAC issues regulations that restrict transactions by
U.S. persons or entities (including banks), located in the U.S. or abroad, with certain foreign countries, their nationals or
“specially designated nationals.” OFAC regularly publishes listings of foreign countries and designated nationals that are
prohibited from conducting business with any U.S. entity or individual. While OFAC is responsible for promulgating, developing
and administering these controls and sanctions, all of the bank regulatory agencies are responsible for ensuring that financial
institutions comply with these regulations.
Privacy
A variety of federal and state privacy laws govern the collection, safeguarding, sharing and use of customer information, and
require that financial institutions have policies regarding information privacy and security. The Gramm-Leach-Bliley Act and
related regulations require banks and their affiliated companies to adopt and disclose privacy policies, including policies
regarding the sharing of personal information with third parties. Some state laws also protect the privacy of information of state
residents and require adequate security of such data, and certain state laws may require us to notify affected individuals of
security breaches of computer databases that contain their personal information. These laws may also require us to notify law
enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses and governmental
agencies that own data.
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Overdraft Fee Regulation
The Electronic Fund Transfer Act prohibits financial institutions from charging consumers fees for paying overdrafts on
automated teller machines, or ATM, and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft
service for those type of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws the consumer’s
account will be denied. Overdrafts on the payment of checks and regular electronic bill payments are not covered by this new
rule. Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services,
including the fees associated with the service, and the consumer’s choices. Financial institutions must provide consumers who do
not opt in with the same account terms, conditions and features (including pricing) that they provide to consumers who do opt in.
Consumer Laws and Regulations
CCB is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in
transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in Lending
Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Check Clearing for the
21st Century Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Credit Transactions Act, the Mortgage Disclosure
Improvement Act, and the Real Estate Settlement Procedures Act, among others. These laws and regulations mandate certain
disclosures and regulate the manner in which financial institutions must deal with clients when taking deposits or making loans to
clients. CCB must comply with these consumer protection laws and regulations as part of its ongoing client relations.
In addition, the Consumer Financial Protection Bureau issues regulations and standards under these federal consumer protection
laws that affect our consumer businesses. These include regulations setting “ability to repay” standards for residential mortgage
loans and mortgage loan servicing and originator compensation standards, which generally require creditors to make a reasonable,
good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an
open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under
this requirement for loans that meet the requirements of the “qualified mortgage” safe harbor. Also, the more recent TILA-
RESPA Integrated Disclosure, or TRID, rules for mortgage closings have impacted our loan applications. These rules, including
the required loan forms, generally increased the time it takes to approve mortgage loans.
Future Legislative Developments
Various bills are from time to time introduced in Congress and the Florida legislature. This legislation may change banking and
tax statutes and the environment in which our banking subsidiary and we operate in substantial and unpredictable ways. We
cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would
have upon our financial condition or results of operations or that of our banking subsidiary.
Legislative and Regulatory Responses to the COVID-19 Pandemic
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which came into law in 2020, was a $2.2 trillion
economic stimulus bill that was intended to provide relief in response to the COVID-19 pandemic. The CARES Act, among other
things, amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program (the
“PPP”) to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. The PPP
authorized financial institutions to make federally guaranteed loans to qualifying small businesses and non-profit organizations.
These loans carry an interest rate of 1% per annum and a maturity of two years for loans originated prior to June 5, 2020 and five
years for loans originated on or after June 5, 2020. The PPP provides that such loans may be forgiven if the borrowers meet certain
requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is
originated. Although the PPP ended in accordance with its terms on May 31, 2021, outstanding PPP loans continue to go through
the process of either obtaining forgiveness from the SBA or pursuing claims under the SBA guaranty.
There have also been a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19
pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work
constructively with borrowers affected by the COVID-19 pandemic. While these programs have generally expired, governmental
authorities may take additional actions in the future to limit the adverse impacts of COVID-19 that may affect the Bank and its
clients.
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Effect of Governmental Monetary Policies
The commercial banking business is affected not only by general economic conditions, but also by the monetary policies of the
Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,”
open market operations, changes in the Fed Funds target interest rate, changes in interest rates payable on reserve accounts, the
imposition of changes in reserve requirements against member banks’ deposits and assets of foreign banking centers and the
imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to
influence overall growth and distributions of bank loans, investments and deposits, which may affect interest rates charged on
loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The Federal Reserve’s policies are primarily influenced by
its dual mandate of price stability and full employment, and to a lesser degree by short -term and long-term changes in the
international trade balance and in the fiscal policies of the U.S. Government. Future changes in monetary policy and the effect of
such changes on our business and earnings in the future cannot be predicted.
Website Access to Company’s Reports
Our Internet website is www.ccbg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed
pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as
reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by reference into this report.
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Item 1A. Risk Factors
An investment in our common stock contains a high degree of risk. You should consider carefully the following risk factors before
deciding whether to invest in our common stock. Our business, including our operating results and financial condition, could be
harmed by any of these risks. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially and adversely affect our business. The trading price of our common stock could decline due to
any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other
information contained in our filings with the SEC, including our financial statements and related notes.
Market Risks
We may incur losses if we are unable to successfully manage interest rate risk.
Our profitability depends to a large extent on Capital City Bank’s net interest income, which is the difference between income on
interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and
borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control,
including inflation, recession, unemployment, federal funds target rate, money supply, domestic and international events and
changes in the United States and other financial markets. Our net interest income may be reduced if: (i) more interest-earning
assets than interest-bearing liabilities reprice or mature during a time when interest rates are declining or (ii) more interest-bearing
liabilities than interest-earning assets reprice or mature during a time when interest rates are rising.
Changes in the difference between short-term and long-term interest rates may also harm our business. We generally use short-
term deposits to fund longer-term assets. When interest rates change, assets and liabilities with shorter terms reprice more quickly
than those with longer terms, which could have a material adverse effect on our net interest margin. During 2022, the Federal
Reserve raised the federal funds rate seven times for a cumulative increase of 4.25% and has signaled that it expects not to reduce
the federal funds rate in the near-term. Prior to 2022, the Federal Reserve had not raised the federal funds rate since December
2018. The increase in the federal funds rate could have an adverse effect on our net interest income and profitability. If market
interest rates continue to 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. Further, increased price competition for deposits resulting from the
return to a historically normal interest rate environment could adversely affect our net interest margin.
Although we continuously monitor interest rates and have a number of tools to manage our interest rate risk exposure, changes in
market assumptions regarding future interest rates could significantly impact our interest rate risk strategy, our financial position
and results of operations. If we do not properly monitor our interest rate risk management strategies, these activities may not
effectively mitigate our interest rate sensitivity or have the desired impact on our results of operations or financial condition.
Interest rates and economic conditions affect consumer demand for housing and can create volatility in the mortgage industry.
These risks can have a material impact on the volume of mortgage originations and refinancings, adversely affecting mortgage
banking revenues and the profitability of our mortgage banking business.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section captioned
“Net Interest Income” and “Market Risk and Interest Rate Sensitivity” elsewhere in this report for further discussion related to
interest rate sensitivity and our management of interest rate risk.
The fair value of our investments could decline which would cause a reduction in shareowners’ equity.
A portion of our investment securities portfolio (38.5%) at December 31, 2022 has been designated as available-for-sale pursuant
to U.S. generally accepted accounting principles relating to accounting for investments. Such principles require that unrealized
gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in
shareowners’ equity (net of tax) as accumulated other comprehensive income/losses. Shareowners’ equity will continue to reflect
the unrealized gains and losses (net of tax) of these investments. The fair value of our investment portfolio may decline, causing a
corresponding decline in shareowners’ equity.
Management believes that several factors will affect the fair values of our investment portfolio. These include, but are not limited
to, changes in interest rates or expectations of changes in interest rates, the degree of volatility in the securities markets, inflation
rates or expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between
short-term and long-term interest rates; a positively sloped yield curve means short -term rates are lower than long-term rates).
These and other factors may impact specific categories of the portfolio differently, and we cannot predict the effect these factors
may have on any specific category.
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Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation rose sharply at the end of 2021 and continued rising in 2022 at levels not seen for over 40 years. Inflationary pressures
are currently expected to remain elevated throughout 2023. Small to medium -sized businesses may be impacted more during
periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger
businesses. Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this
deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a
prolonged period of inflation could cause wages and other costs to further increase which could adversely affect our results of
operations and financial condition. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent
inflationary price pressures, which could push down asset prices and weaken economic activity. A deterioration in economic
conditions in the United States and our markets could result in an increas e in loan delinquencies and non-performing assets,
decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely
affect our business, financial condition and results of operations.
The impact of interest rates on our mortgage banking business can have a significant impact on revenues.
Changes in interest rates can impact our mortgage-related revenues and net revenues associated with our mortgage activities. A
decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to
accelerated payoffs. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a
decline in payoffs. Although we use models to assess the impact of interest rates on mortgage-related revenues, the estimates of
revenues produced by these models are dependent on estimates and assumptions of future loan demand, prepayment speeds and
other factors which may differ from actual subsequent experience.
Shares of our common stock are not an insured deposit and may lose value.
The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other
government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your
entire investment.
Limited trading activity for shares of our common stock may contribute to price volatility.
While our common stock is listed and traded on the Nasdaq Global Select Market, there has historically been limited trading
activity in our common stock. The average daily trading volume of our common stock over the 12-month period ending
December 31, 2022 was approximately 27,987 shares. Due to the limited trading activity of our common stock, relativity small
trades may have a significant impact on the price of our common stock.
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact
on its market price.
The trading market for our common stock will depend in part on the research and reports that securities analysts publish about us
and our business. We do not have any control over securities analysts, and they may not initiate coverage or continue to cover our
common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its
market price. If we are covered by securities analysts, and our common stock is the subject of an unfavorable report, our stock
price would likely decline. If one or more of these analysts ceases to cover our Company or fails to publish regular reports on us,
we could lose visibility in the financial markets, which may cause our stock price or trading volume to decline.
We may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the
most commonly used U.S. dollar London Interbank Offered Rate (“LIBOR”) settings will cease to be published or cease to be
representative after June 30, 2023. The publication of all other LIBOR settings ceased to be published as of December 31, 2021.
Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new
contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will
examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use
LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. Prior to December 31, 2021, we
discontinued originating LIBOR-based loans.
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At December 31, 2022, we have 112 loans totaling approximately $71 million that are indexed to LIBOR. We believe our current
portfolio of LIBOR based loan contracts contain the necessary fallback language, however, the timing and manner in which each
customer’s contract transitions to a replacement index will vary on a case-by-case basis. We also have $33 million in floating rate
investment securities that are indexed to LIBOR. We are currently evaluating fallback language for each investment security.
Lastly, we have two floating rate subordinated debenture notes totaling $53 million and a related interest rate swap contract for
$30 million that are indexed to LIBOR (Refer to Note 12 – Long Term Borrowings and Note 5 – Derivatives in our Consolidated
Financial Statements). Effective June 30, 2023, in accordance with the trust agreement and the Adjustable Interest Rate (LIBOR)
Act of 2021, LIBOR will be replaced with 3-month CME term SOFR (secured overnight financing rate) as the interest rate index
for these notes. The interest rate swap contract adheres to the International Swaps and Derivatives Association’s protocol which
requires conversion to the fallback SOFR rate at the time of LIBOR cessation. Since replacement rates are calculated differently,
payments under contracts referencing new rates will differ from those referencing LIBOR, which may lead to increased volatility
as compared to LIBOR.
Credit Risks
Our loan portfolio includes loans with a higher risk of loss which could lead to higher loan losses and nonperforming
assets.
We originate commercial real estate loans, commercial loans, construction loans, vacant land loans, consumer loans, and
residential mortgage loans primarily within our market area. Commercial real estate, commercial, construction, vacant land, and
consumer loans may expose a lender to greater credit risk than traditional fixed-rate fully amortizing loans secured by single-
family residential real estate because the collateral securing these loans may not be sold as easily as single-family residential real
estate. In addition, these loan types tend to involve larger loan balances to a single borrower or groups of related borrowers and
are more susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had greater credit
risk than other loans for the following reasons:
●
Commercial Real Estate Loans
. Repayment is dependent on income being generated in amounts sufficient to cover
operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing
over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment
typically will depend on the borrower’s ability to either refinance the loan or timely sell the underlying property. At
December 31, 2022, commercial mortgage loans comprised approximately 31.0% 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, 2022, commercial loans comprised approximately 9.8% of
our total loan portfolio.
●
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,
2022, construction loans comprised approximately 9.3% 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, 2022, vacant land loans comprised
approximately 3.28% 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, 2022, HELOCs comprised approximately 8.2% of our total loan portfolio.
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●
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, 2022, consumer loans comprised approximately 12.9% of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately 93.3% 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, 2022, approximately 77% 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, 2022, a significant number of our loans secured by real estate are secured by commercial and
residential properties located in Florida and 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 some of 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, 2022, approximately 33% and 44% of our $2.525 billion loan portfolio was secured by commercial real estate and residential
real estate, respectively. As of this same date, approximately 9% was secured by property under construction.
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.
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At December 31, 2022, our allowance for credit losses for loans held for investment was $24.7 million, which represented
approximately 0.982% of our total loans held for investment. We had $2.3 million in nonaccruing loans at December 31, 2022.
The allowance is based on management’s reasonable estimate and may not prove sufficient to cover future loan losses. Although
management uses the best information available to make determinations with respect to the allowance for credit losses, future
adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments
arise with respect to our nonperforming or performing loans. In addition, regulatory agencies, as an integral part of their
examination process, periodically review our estimated losses on loans. Our regulators may require us to recognize additional
losses based on their judgments about information available to them at the time of their examination. Accordingly, the allowance
for credit losses may not be adequate to cover all future loan losses and significant increases to the allowance may be required in
the future if, for example, economic conditions worsen. A material increase in our allowance for credit losses would adversely
impact our net income and capital in future periods, while having the effect of overstating our current period earnings.
We may incur significant costs associated with the ownership of real property as a result of foreclosures, which could
reduce our net income.
Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and
may thereafter own and operate such property, in which case we would be exposed to the risks inherent in the ownership of real
estate.
The amount that we, as a mortgagee, may realize after a foreclosure is dependent upon factors outside of our control, including,
but not limited to:
●
general or local economic conditions;
●
environmental cleanup liability;
●
neighborhood values;
●
interest rates;
●
real estate tax rates;
●
operating expenses of the mortgaged properties;
●
supply of and demand for rental units or properties;
●
ability to obtain and maintain adequate occupancy of the properties;
●
zoning laws;
●
governmental rules, regulations and fiscal policies; and
●
acts of God.
Certain expenditures associated with the ownership of real estate, including real estate taxes, insurance and maintenance costs,
may adversely affect the income from the real estate. Furthermore, we may need to advance funds to continue to operate or to
protect these assets. As a result, the cost of operating real property assets may exceed the rental income earned from such
properties or we may be required to dispose of the real property at a loss.
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Liquidity Risks
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet client loan
requests, client deposit maturities and withdrawals, payments on our debt obligations as they come due and other cash
commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial
market stress. If we are unable to raise funds through deposits, borrowings, earnings and other sources, it could have a substantial
negative effect on our liquidity. In particular, a majority of our liabilities during 2022 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 access to deposits may be
negatively impacted by, among other factors, periods of low interest rates or high interest rates. Periods of high interest rates
could promote increased competition for deposits, including from new financial technology competitors, or provide customers
with alternative investment options. Our ability to borrow could also be impaired by factors that are not specific to us, such as a
disruption in the financial markets or negative views and expectations about the prospects for the financial services industry. If we
are unable to maintain adequate liquidity, it could materially and adversely affect our business, results of operations or financial
condition.
We may be unable to pay dividends in the future.
In 2022, 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 Common Equity Tier 1 Capital conservation buffer requirement. In addition, due to our contractual obligations
with the holders of our trust preferred securities, if we defer the payment of accrued interest owed to the holders of our trust
preferred securities, we may not make dividend payments to our shareowners.
Further, under applicable statutes and regulations, CCB’s board of directors, after charging-off bad debts, depreciation and other
worthless assets, if any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly,
semi-annually, or annually declare and pay dividends to CCBG of up to the aggregate net income of that period combined with
the CCB’s retained net income for the preceding two years and, with the approval of the Florida Office of Financial Regulation
and Federal Reserve, declare a dividend from retained net income which accrued prior to the preceding two years. Additional
state laws generally applicable to Florida corporations may also limit our ability to declare and pay dividends. Thus, our ability to
fund future dividends may be restricted by state and federal laws and regulations.
Regulatory and Compliance Risks
We are subject to extensive regulation, which could restrict our activities and impose financial requirements or limitations
on the conduct of our business.
We
are subject to extensive regulation, supervision and examination by our regulators, including the Florida Office of Financial
Regulation, the Federal Reserve, and the FDIC. Our compliance with these industry regulations is costly and restricts certain of
our activities, including payment of dividends, mergers and acquisitions, investments, lending and interest rates charged on loans,
interest rates paid on deposits, access to capital and brokered deposits and locations of banking offices. If we are unable to meet
these regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely
affected.
Our activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. Many of
these regulations are intended primarily for the protection of our depositors and the Deposit Insurance Fund and not for the
benefit of our shareowners. In addition to the regulations of the bank regulatory agencies, as a member of the Federal Home Loan
Bank of Atlanta (“FHLB”), we must also comply with applicable regulations of the Federal Housing Finance Agency and the
Federal Home Loan Bank.
26
Our failure to comply with these laws and regulations could subject us to restrictions on our business activities, fines and other
penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any
new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and
financial condition. Please refer to the Section entitled “Business – Regulatory Considerations” on page 10.
U.S. federal banking agencies may require us to increase our regulatory capital, long-term debt or liquidity requirements,
which could result in the need to issue additional qualifying securities or to take other actions, such as to sell company
assets.
We are subject to U.S. regulatory capital and liquidity rules. These rules, among other things, establish minimum requirements to
qualify as a well-capitalized institution. If CCB fails to maintain its status as well capitalized under the applicable regulatory
capital rules, the Federal Reserve will require us to agree to bring the bank back to well-capitalized status. For the duration of
such an agreement, the Federal Reserve may impose restrictions on our activities. If we were to fail to enter into or comply with
such an agreement or fail to comply with the terms of such agreement, the Federal Reserve may impose more severe restrictions
on our activities, including requiring us to cease and desist activities permitted under the Bank Holding Company Act of 1956.
Capital and liquidity requirements are frequently introduced and amended. It is possible that regulators may increase regulatory
capital requirements, change how regulatory capital is calculated or increase liquidity requirements.
In 2013, the Federal Reserve Board released its final rules which implement in the United States the Basel III regulatory capital
reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final
rule, minimum requirements increased for both the quality and quantity of capital held by banking organizations. Consistent with
the international Basel framework, the rule includes a new minimum ratio of Common Equity Tier 1 Capital, or CET1, to Risk-
Weighted Assets, or RWA, of 4.5% and a CET1 conservation buffer of 2.5% of RWA (which was fully phased-in in 2019) that
apply to all supervised financial institutions. The CET1 conservation buffer requirement requires us to hold additional CET1
capital in excess of the minimum required to meet the CET1 to RWA ratio requirement. The rule also, among other things, raised
the minimum ratio of Tier 1 Capital to RWA from 4% to 6% and included a minimum leverage ratio of 4% for all banking
organizations. The impact of the new capital rules requires us to maintain higher levels of capital, which we expect will lower our
return on equity. Additionally, if our CET1 to RWA ratio does not exceed the minimum required plus the additional CET1
conservation buffer, we may be restricted in our ability to pay dividends or make other distributions of capital to our shareowners.
Further changes to and compliance with the regulatory capital and liquidity requirements may impact our operations by requiring
us to liquidate assets, increase borrowings, issue additional equity or other securities, cease or alter certain operations, sell
company assets or hold highly liquid assets, which may adversely affect our results of operations. We may be prohibited from
taking capital actions such as paying or increasing dividends or repurchasing securities.
Changes in accounting standards or assumptions in applying accounting policies could adversely affect us.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or
liabilities and results of operations and are critical because they require management to make difficult, subjective and complex
judgments about matters that are inherently uncertain. If those assumptions, estimates or judgments were incorrectly made, we
could be required to correct and restate prior-period financial statements. Accounting standard-setters and those who interpret the
accounting standards, the SEC, banking regulators and our independent registered public accounting firm may also amend or even
reverse their previous interpretations or positions on how various standards should be applied. These changes may be difficult to
predict and could impact how we prepare and report our financial statements. In some cases, we could be required to apply a new
or revised standard retrospectively, resulting in us revising prior-period financial statements.
Florida financial institutions, such as CCB, face a higher risk of noncompliance and enforcement actions with the Bank
Secrecy Act and other anti-money laundering statutes and regulations.
Since September 11, 2001, banking regulators have intensified their focus on anti-money laundering and Bank Secrecy Act
compliance requirements, particularly the anti-money laundering provisions of the USA PATRIOT Act. There is also increased
scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control, or OFAC. Since 2004, federal banking
regulators and examiners have been extremely aggressive in their supervision and examination of financial institutions located in
the State of Florida with respect to the institution’s Bank Secrecy Act/anti-money laundering compliance. Consequently,
numerous formal enforcement actions have been instituted against financial institutions. If CCB’s policies, procedures and
systems are deemed deficient or the policies, procedures and systems of the financial institutions that it has already acquired or
may acquire in the future are deficient, CCB would be subject to liability, including fines and regulatory actions such as
restrictions on its ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its
business plan, including its acquisition plans.
27
Fee revenues from overdraft protection programs constitute a significant portion of our noninterest income and may be
subject to increased supervisory scrutiny.
Revenues derived from transaction fees associated with overdraft protection programs offered to consumers represent a
significant portion of our noninterest income. In 2022, the Company collected approximately $10.6 million in net consumer
overdraft transaction fees.
In 2022, certain members of Congress and the leadership of the CFPB have expressed a heightened interest in bank consumer
overdraft protection programs. In 2022, the CFPB piloted a supervision effort to collect key metrics from some supervised
institutions regarding the consumer impact of their overdraft and non-sufficient fund practices, with the intent of using this
information to identify institutions for further examination and review. The CFPB has indicated that it intends to pursue
enforcement actions against banking organizations, and their executives, that oversee overdraft practices that are deemed to be
unlawful, and indeed took action against a large bank for charging “surprise” overdraft fees known as authorized positive fee. In
October of 2022, the CFPB issued guidance to help banks avoid charging illegal surprise overdraft fees. In addition, the
Comptroller of the Currency has identified potential options for reform of national bank overdraft protection practices, including
providing a grace period before the imposition of a fee, refraining from charging multiple fees in a single day and eliminating fees
altogether.
In response to this increased congressional and regulatory scrutiny, and in anticipation of enhanced supervision and enforcement
of overdraft protection practices in the future, certain banking organizations have begun to modify their overdraft protection
programs, including by discontinuing the imposition of overdraft transaction fees. These competitive pressures from our peers, as
well as any adoption by our regulators of new rules or supervisory guidance or more aggressive examination and enforcement
policies in respect of banks’ overdraft protection practices, could cause us to modify our program and practices in ways that may
have a negative impact on our revenue and earnings, which, in turn, could have an adverse effect on our financial condition and
results of operations.
Operational Risks
Many types of operational risks can affect our earnings negatively.
We regularly assess and monitor operational risk in our businesses. Despite our efforts to assess and monitor operational risk, our
risk management framework may not be effective in all cases. Factors that can impact operations and expose us to risks varying in
size, scale and scope include:
●
failures of technological systems or breaches of security measures, including, but not limited to, those resulting from
computer viruses or cyber-attacks;
●
unsuccessful or difficult implementation of computer systems upgrades;
●
human errors or omissions, including failures to comply with applicable laws or corporate policies and procedures;
●
theft, fraud or misappropriation of assets, whether arising from the intentional actions of internal personnel or external
third parties;
●
breakdowns in processes, breakdowns in internal controls or failures of the systems and facilities that support our
operations;
●
deficiencies in services or service delivery;
●
negative developments in relationships with key counterparties, third-party vendors, or employees in our day-to-day
operations; and
●
external events that are wholly or partially beyond our control, such as pandemics, geopolitical events, political unrest,
natural disasters or acts of terrorism.
While we have in place many controls and business continuity plans designed to address these factors and others, these plans may
not operate successfully to mitigate these risks effectively. If our controls and business continuity plans do not mitigate the
associated risks successfully, such factors may have a negative impact on our business, financial condition or results of
operations. In addition, an important aspect of managing our operational risk is creating a risk culture in which all employees
fully understand that there is risk in every aspect of our business and the importance of managing risk as it relates to their job
functions. We continue to enhance our risk management program to support our risk culture. Nonetheless, if we fail to provide the
appropriate environment that sensitizes all of our employees to managing risk, our business could be impacted adversely.
28
We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud and
data processing system failures and errors.
We rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss
resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the
execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our
internal control systems and compliance requirements. Insurance coverage may not be available for such losses, or where
available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a
result of operational deficiencies or as a result of non-compliance with applicable regulatory standards, adverse business decisions
or their implementation, or customer attrition due to potential negative publicity. In the event of a breakdown in our internal
control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory
action, and/or suffer damage to our reputation.
We are subject to credit and/or settlement risk arising from the soundness of other financial institutions and
counterparties which may have a material adverse effect on our business, financial condition, and results of operations.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have
exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks, other institutional clients, and certain
vendors. Many of these transactions expose us to credit or settlement risk in the event of a default or other failure to adhere to
contractual obligations by a counterparty or client. In addition, our credit or settlement risk may be exacerbated when any
collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or
derivative exposure due to us. Increased interconnectivity amongst financial institutions also increases the risk of cyber-attacks
and information system failures for financial institutions. Any such losses could have a material adverse effect on our business,
financial condition, and results of operations.
Pandemics, natural disasters, global climate change, acts of terrorism and global conflicts may have a negative impact on
our business and operations.
Pandemics (such as the COVID-19 pandemic), natural disasters, global climate change, acts of terrorism, global conflicts or other
similar events have in the past, and may in the future have, a negative impact on our business and operations. These events impact
us negatively to the extent that they result in reduced capital markets activity, lower asset price levels, or disruptions in general
economic activity in the United States or abroad, or in financial market settlement functions. In addition, these or similar events
may impact economic growth negatively, which could have an adverse effect on our business and operations and may have other
adverse effects on us in ways that we are unable to predict.
Our business operations could be disrupted if significant portions of our workforce were unable to work effectively, including
because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. Further, work-from-
home and other modified business practices may introduce additional operational risks, including cybersecurity and execution
risks, which may result in inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business
activities. Disruptions to our clients could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans.
The escalation of the pandemic may also negatively impact regional economic conditions for a period of time, resulting in
declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and
deposit availability.
Litigation may adversely affect our results.
We are subject to litigation in the ordinary course of business. Claims and legal actions, including supervisory actions by our
regulators, could involve large monetary claims and significant defense costs. The outcome of litigation and regulatory matters as
well as the timing of ultimate resolution are inherently difficult to predict.
Actual legal and other costs of resolving claims may be greater than our legal reserves. The ultimate resolution of a pending legal
proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial
condition.
In addition, governmental authorities have, at times, sought criminal penalties against companies in the financial services sector
for violations, and, at times, have required an admission of wrongdoing from financial institutions in connection with resolving
such matters. Criminal convictions or admissions of wrongdoing in a settlement with the government can lead to greater exposure
in civil litigation and reputational harm.
Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause
significant reputational harm, which adversely impact our business prospects. Further, we may be exposed to substantial
uninsured liabilities, which could adversely affect our results of operations and financial condition.
29
Strategic Risks
Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.
We face vigorous competition for deposits, loans and other financial services in our market area from other banks and financial
institutions, including savings and loan associations, savings banks, finance companies and credit unions. A number of our
competitors are significantly larger than we are and have greater access to capital and other resources. Many of our competitors
also have higher lending limits, more expansive branch networks, and offer a wider array of financial products and services. To a
lesser extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms,
consumer finance companies, insurance companies and 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.
Our directors, executive officers, and principal shareowners, if acting together, have substantial control over all matters
requiring shareowner approval, including changes of control. Because Mr. William G. Smith, Jr. is a principal
shareowner and our Chairman, President, and Chief Executive Officer and Chairman of CCB, he has substantial control
over all matters on a day-to-day basis.
Our directors, executive officers, and principal shareowners beneficially owned approximately 23.3% of the outstanding shares of
our common stock at December 31, 2022. 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 restrictions on the types of activities in which they may
engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws
and regulations.
Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more
difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is
possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a
premium over the then prevailing price of our common stock.
For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareowner action. The
ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer,
merger, proxy contest or otherwise. We are also subject to certain provisions of the Florida Business Corporation Act and our
Articles of Incorporation that relate to business combinations with interested shareowners. Other provisions in our Articles of
Incorporation or Bylaws that may discourage takeover attempts or make them more difficult include:
●
Supermajority voting requirements to remove a director from office;
●
Provisions regarding the timing and content of shareowner proposals and nominations;
●
Supermajority voting requirements to amend Articles of Incorporation unless approval is received by a majority of
“disinterested directors”;
●
Absence of cumulative voting; and
●
Inability for shareowners to take action by written consent.
30
Reputational Risks
Damage to our reputation could harm our businesses, including our competitive position and business prospects.
Our ability to attract and retain customers, clients, investors and employees is impacted by our reputation. Harm to our reputation
can arise from various sources, including officer, director or employee fraud, misconduct and unethical behavior, security
breaches, litigation or regulatory outcomes, compensation practices, lending practices, the suitability or reasonableness of
recommending particular trading or investment strategies, including the reliability of our research and models, prohibiting clients
from engaging in certain transactions and employee sales practices. Additionally, our reputation may be harmed by failing to
deliver products, subpar standards of service and quality expected by our customers, clients and the community, compliance
failures, the inability to manage technology change or maintain effective data management, cyber incidents, internal and external
fraud, inadequacy of responsiveness to internal controls, unintended disclosure of personal, proprietary or confidential
information, conflicts of interest and breach of fiduciary obligations, the handling of health emergencies or pandemics, and the
activities of our clients, customers, counterparties and third parties, including vendors. Our reputation may also be negatively
impacted by our environmental, social, and governance practices and disclosures, our businesses and our customers, including
practices and disclosures related to climate change. Actions by the financial services industry generally or by certain members or
individuals in the industry also can adversely affect our reputation. In addition, adverse publicity or negative information posted
on social media by employees, the media or otherwise, whether or not factually correct, may adversely impact our business
prospects or financial results.
We are subject to complex and evolving laws and regulations regarding privacy, know-your-customer requirements, data
protection, cross-border data movement and other matters. Principles concerning the appropriate scope of consumer and
commercial privacy vary considerably in different jurisdictions, and regulatory and public expectations regarding the definition
and scope of consumer and commercial privacy may remain fluid. It is possible that these laws may be interpreted and applied by
various jurisdictions in a manner inconsistent with our current or future practices, or that is inconsistent with one another. If
personal, confidential or proprietary information of customers or clients in our possession, or in the possession of third parties
(including their downstream service providers) or financial data aggregators, is mishandled, misused or mismanaged, or if we do
not timely or adequately address such information, we may face regulatory, reputational and operational risks which could
adversely affect our financial condition and results of operations.
We could suffer reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of
potential conflicts of interest has become increasingly complex as we expand our business activities through more numerous
transactions, obligations and interests with and among our clients. The failure to adequately address, or the perceived failure to
adequately address, conflicts of interest could affect the willingness of clients to use our products and services, or give rise to
litigation or enforcement actions, which could adversely affect our business.
Our actual or perceived failure to address these and other issues, such as operational risks, gives rise to reputational risk that could
harm us and our business prospects. Failure to appropriately address any of these issues could also give rise to additional
regulatory restrictions, legal risks and reputational harm, which could, among other consequences, increase the size and number
of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties, and cause us to incur related
costs and expenses.
Technology Risks
We process, maintain, and transmit confidential client information through our information technology systems, such as
our online banking service. Cybersecurity issues, such as security breaches and computer viruses, affecting our
information technology systems or fraud related to our debit card products could disrupt our business, result in the
unintended disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs,
and cause losses.
We collect and store sensitive data, including our proprietary business information and that of our clients, and personally
identifiable information of our clients and employees, in our
information technology systems
.
We also provide our clients the
ability to bank online.
The secure processing, maintenance, and transmission of this information is critical to our operations.
network, or those of our clients, could be vulnerable to unauthorized access, computer viruses, phishing schemes and other
security problems. Financial institutions and companies engaged in data processing have increasingly reported breaches in the
security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain
unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage.
31
We may be required to spend significant capital and other resources to protect against the threat of security breaches and
computer viruses or to alleviate problems caused by security breaches or viruses. Security breaches and viruses could expose us to
claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause
existing clients to lose confidence in our systems and could adversely affect our reputation and our ability to generate deposits.
Additionally, fraud losses related to debit and credit cards have risen in recent years due in large part to growing and evolving
schemes to illegally use cards or steal consumer credit card information despite risk management practices employed by the debit
and credit card industries. Many issuers of debit and credit cards have suffered significant losses in recent years due to the theft of
cardholder data that has been illegally exploited for personal gain.
The potential for debit and credit card fraud against us or our clients and our third-party service providers is a serious issue. Debit
and credit card fraud is pervasive, and the risks of cybercrime are complex and continue to evolve. In view of the recent high-
profile retail data breaches involving client personal and financial information, the potential impact on us and any exposure to
consumer losses and the cost of technology investments to improve security could cause losses to us or our clients, damage to our
brand, and an increase in our costs.
Item 1B.
Unresolved Staff Comments
None.
Item 2. Properties
We are headquartered in Tallahassee, Florida. Our executive office is in the Capital City Bank building located on the corner of
Tennessee and Monroe Streets in downtown Tallahassee. The building is owned by CCB, but is located on land leased under a
long-term agreement.
At December 31, 2022, Capital City Bank had 58 banking offices. Of these locations, we lease the land, buildings, or both at
seven locations and own the land and buildings at the remaining 51. CCHL had 33 loan production offices, all of which were
leased. Capital City Strategic Wealth, LLC. maintained five offices, all of which were leased.
Item 3.
Legal Proceedings
We are party to lawsuits and claims arising out of the normal course of business. In management’s opinion, there are no known
pending claims or litigation, the outcome of which would, individually or in the aggregate, have a material effect on our
consolidated results of operations, financial position, or cash flows.
Item 4
.
Mine Safety Disclosure
Not applicable.
32
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 1,124 shareowners
of record at January 31, 2023.
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.
2022
2021
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
$
36.23
$
33.93
$
28.55
$
28.88
$
29.00
$
26.10
$
27.39
$
28.98
Low
31.14
27.41
24.43
25.96
24.77
22.02
24.55
21.42
Close
32.50
31.11
27.89
26.36
26.40
24.74
25.79
26.02
Cash dividends per share
0.17
0.17
0.16
0.16
0.16
0.16
0.15
0.15
Florida law and Federal regulations impose restrictions on our ability to pay dividends and limitations on the amount of dividends
that the Bank can pay annually to us. See Item 1. “Capital; Dividends; Sources of Strength” and “Dividends” in the Business
section on page 11 and 13, Item 1A. “Market Risks” in the Risk Factors section on page 19, Item 7. “Liquidity and Capital
Resources – Dividends” – in Management’s Discussion and Analysis of Financial Condition and Operating Results on page 56
and Note 17 in the Notes to Consolidated Financial Statements.
Performance Graph
This performance graph compares the cumulative total shareowner return on our common stock with the cumulative total
shareowner return of the Nasdaq Composite Index and the S&P U.S. Small Cap Banks Index for the past five years. The graph
assumes that $100 was invested on December 31, 2017 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.
33
Period Ending
Index
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
Capital City Bank Group, Inc.
$
100.00
$
102.49
$
137.30
$
113.48
$
124.86
$
157.09
Nasdaq Composite
100.00
97.16
132.81
192.47
235.15
158.65
SNL $1B-$5B Bank Index
100.00
83.44
104.69
95.08
132.36
116.69
34
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
2022
2021
2020
Interest Income
$
131,348
$
106,351
$
106,197
Net Interest Income
124,460
102,861
101,326
Provision for Credit Losses
7,162
(1,553)
9,645
Noninterest Income
94,627
107,545
111,165
Noninterest Expense
(1)
161,828
162,508
149,962
Pre-Tax Loss (Income) Attributable to Noncontrolling Interests
(2)
135
(6,220)
(11,078)
Net Income Attributable to Common Shareowners
40,147
33,396
31,576
Per Common Share:
Basic Net Income
$
2.37
$
1.98
$
1.88
Diluted Net Income
2.36
1.98
1.88
Cash Dividends Declared
0.66
0.62
0.57
Diluted Book Value
23.12
22.63
19.05
Diluted Tangible Book Value
(3)
17.66
17.12
13.76
Performance Ratios:
Return on Average Assets
0.93
%
0.84
%
0.93
%
Return on Average Equity
10.58
9.92
9.36
Net Interest Margin (FTE)
3.13
2.83
3.30
Noninterest Income as % of Operating Revenues
43.19
51.11
52.32
Efficiency Ratio
73.76
77.11
70.43
Asset Quality:
Allowance for Credit Losses ("ACL")
$
24,736
$
21,606
$
23,816
ACL to Loans Held for Investment ("HFI")
0.98
%
1.12
%
1.19
%
Nonperforming Assets ("NPAs")
2,728
4,339
6,679
NPAs to Total Assets
0.06
0.10
0.18
NPAs to Loans HFI plus OREO
0.11
0.22
0.33
ACL to Non-Performing Loans
1,076.89
499.93
405.66
Net Charge-Offs to Average Loans HFI
0.18
(0.03)
0.12
Capital Ratios:
Tier 1 Capital
14.53
%
16.14
%
16.19
%
Total Capital
15.52
17.15
17.30
Common Equity Tier 1 Capital
12.64
13.86
13.71
Tangible Common Equity
(3)
6.79
6.95
6.25
Leverage
9.06
8.95
9.33
Equity to Assets
8.71
8.99
8.45
Dividend Pay-Out
27.97
31.31
30.32
Averages for the Year:
Loans Held for Investment
$
2,189,440
$
2,000,563
$
1,957,576
Earning Assets
3,989,248
3,652,486
3,083,675
Total Assets
4,332,302
3,984,064
3,391,071
Deposits
3,763,336
3,406,886
2,844,347
Shareowners’ Equity
379,290
336,821
337,313
Year -End Balances:
Loans Held for Investment
$
2,525,180
$
1,931,465
$
2,006,426
Earning Assets
4,182,399
3,949,111
3,475,904
Total Assets
4,525,958
4,263,849
3,798,071
Deposits
3,939,317
3,712,862
3,217,560
Shareowners’ Equity
394,016
383,166
320,837
Other Data:
Basic Average Shares Outstanding
16,950,810
16,862,932
16,784,711
Diluted Average Shares Outstanding
16,984,740
16,892,947
16,821,950
Shareowners of Record
(4)
1,124
1,157
1,201
Banking Locations
(4)
59
57
57
Full-Time Equivalent Associates
(4)(5)
992
954
954
(1)
(2)
(3)
(4)
(5)
35
NON-GAAP FINANCIAL MEASURES
We present a tangible common equity ratio and a tangible book value per diluted share that, in each case, removes the effect of
goodwill that resulted from merger and acquisition activity. We believe these measures are useful to investors because it allows
investors to more easily compare our capital adequacy to other companies in the industry. The generally accepted accounting
principles (“GAAP”) to non-GAAP reconciliation for selected year-to-date financial data is provided below.
Non-GAAP Reconciliation - Selected Financial Data
(Dollars in Thousands, except per share data)
2022
2021
2020
Shareowners' Equity (GAAP)
$
394,016
$
383,166
$
320,837
Less: Goodwill and Other Intangibles (GAAP)
93,093
93,253
89,095
Tangible Shareowners' Equity (non-GAAP)
A
300,923
289,913
231,742
Total Assets (GAAP)
4,525,958
4,263,849
3,798,071
Less: Goodwill and Other Intangibles (GAAP)
93,093
93,253
89,095
Tangible Assets (non-GAAP)
B
$
4,432,865
$
4,170,596
$
3,708,976
Tangible Common Equity Ratio (non-GAAP)
A/B
6.79%
6.95%
6.25%
Actual Diluted Shares Outstanding (GAAP)
C
17,039,401
16,935,389
16,844,997
Tangible Book Value per Diluted Share (non-GAAP)
A/C
17.66
17.12
13.76
36
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that
have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial
Statements and related notes included in the Annual Report on Form 10-K. The MD&A is divided into subsections entitled
“Business Overview,” “Executive Overview,” “Results of Operations,” “Financial Condition,” “Liquidity and Capital Resources,”
“Off-Balance Sheet Arrangements,” and “Accounting Policies.” The following information should provide a better understanding
of the major factors and trends that affect our earnings performance and financial condition, and how our performance during
2022 compares with prior years. Throughout this section, Capital City Bank Group, Inc., and its subsidiaries, collectively, are
referred to as “CCBG,” “Company,” “we,” “us,” or “our.”
CAUTION CONCERNING FORWARD -LOOKING STATEMENTS
This Annual Report on Form 10-K, including this MD&A section, contains “forward -looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about
our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties
and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,”
“would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “vision,” “goal,” and similar expressions are
intended to identify forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ
materially from those set forth in our forward-looking statements. Please see the Introductory Note and
Item 1A Risk Factors
this Annual Report for a discussion of factors that could cause our actual results to differ materially from those in the forward-
looking statements.
However, other factors besides those listed in
Item 1A Risk Factors
our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any
forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update
any forward-looking statement, except as required by applicable law.
BUSINESS OVERVIEW
Our Business
We are a financial holding company headquartered in Tallahassee, Florida, and we are the parent of our wholly owned subsidiary,
Capital City Bank (the “Bank” or “CCB”). We provide a full range of banking services, including traditional deposit and credit
services, mortgage banking, asset management, trust, merchant services, bankcards, securities brokerage services and financial
advisory services, including the sale of life insurance, risk management, and asset protection services. The Bank has 58 banking
offices and 89 ATMs/ITMs in Florida, Georgia and Alabama. Through Capital City Home Loans, LLC (“CCHL”), we have 33
additional offices in the Southeast for our mortgage banking business. Please see the section captioned “About Us” beginning on
page 4 for more detailed information about our business.
Our profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference
between the interest and fees received on interest earning assets, such as loans and securities, and the interest paid on interest-
bearing liabilities, principally deposits and borrowings. Results of operations are also affected by the provision for credit losses,
operating expenses such as salaries and employee benefits, occupancy , and other operating expenses including income taxes, and
noninterest income such as mortgage banking revenues, wealth management fees, deposit fees, and bank card fees.
Strategic Review
Operating Philosophy
. Our philosophy is to build long-term client relationships based on quality service, high ethical standards,
and safe and sound banking practices. We maintain a locally oriented, community-based focus, which is augmented by
experienced, centralized support in select specialized areas. Our local market orientation is reflected in our network of banking
office locations, experienced community executives with a dedicated President for each market, and community boards which
support our focus on responding to local banking needs. We strive to offer a broad array of sophisticated products and to provide
quality service by empowering associates to make decisions in their local markets.
37
Strategic Initiatives
. In 2021, we initiated a new five-year strategic plan “2025 In Focus” that will guide us in the areas of client
experience, channel optimization, market expansion, and culture. As part of 2025 In Focus, we aim to take our brand of
relationship banking to the next level, further deepen relationships within our communities, expand into new higher growth
markets, diversify our revenue sources, invest in new technology that will support the expansion of client relationships, scale
within our lines of business, and drive higher profitability. In 2022, we implemented initiatives in support of the strategic plan,
including the implementation of an integrated marketing software aimed at deepening client relationships, initiation of a
comprehensive review of our banking office network, continued expansion into new markets, and in 2020 and 2021 continued our
efforts to diversify our revenues by expanding our residential mortgage banking and wealth businesses (discussed further below -
Recent Acquisition/Expansion Activity
).
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 10 and 75. Our larger markets include Tallahassee (Leon County, Florida), Gainesville
(Alachua County, Florida), Macon (Bibb County, Georgia), and Suncoast (Hernando/Pasco/Citrus Counties, 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
8.4% deposit market share in the Florida counties and 5.4% in the Georgia counties (excluding Northern Arc markets entered in
2022). Our markets provide for a strong core deposit funding base, a key differentiator and driver of our profitability and
franchise value.
Recent Acquisition/Expansion Activity
. We have continued our expansion into the Northern Arc of Atlanta, Georgia by opening
full-service offices in Marietta (Cobb County) in the fourth quarter of 2022 and Duluth (Gwinnett County) in the first quarter of
2023. Additionally, we expanded our presence in the Florida Panhandle by opening a full-service office in Watersound, Florida
in the fourth quarter of 2022. To expand our presence and commitment to our Gainesville market, we plan to open a third full-
service banking office in the area in early 2023. During 2022, we hired leadership and banking teams in the Northern Arc and
Walton County office markets, including commercial bankers, retail delivery support, private banking, wealth advisors, and
treasury professionals. Further, CCHL loan originators will reside in the Northern Arc and Walton County offices.
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic Wealth, LLC (“CCSW”) acquired substantially all
of the assets of Strategic Wealth Group, LLC and certain related businesses (“SWG”) – Refer to Note 1 – Significant Accounting
Policies/Business Combination for additional information on this transaction.
On March 1, 2020, CCB completed its acquisition of a 51% membership interest in Brand Mortgage Group, LLC (“Brand”)
which is now operated as CCHL – Refer to Note 1 – Significant Accounting Policies/Business Combination for additional
information on this transaction.
EXECUTIVE OVERVIEW
For 2022, net income attributable to common shareowners totaled $40.1 million, or $2.36 per diluted share, compared to net
income of $33.4 million, or $1.98 per diluted share, for 2021 and $31.6 million, or $1.88 per diluted share, for 2020.
The increase in net income attributable to common shareowners for 202 2 was attributable to higher net interest income of $21.6
million and lower noninterest expense of $0.7 million, partially offset by an $8.7 million increase in the provision for credit losses,
lower noninterest income of $12.9 million, and higher income taxes of $0.3 million. Net income attributable to common
shareowners included a $6.4 million decrease in the deduction to record the 49% non-controlling interest in the earnings of CCHL.
The increase in net income attributable to common shareowners for 2021 was attributable to a decrease in the provision for credit
losses of $11.2 million, higher net interest income of $1.5 million and lower income taxes of $0.4 million, partially offset by
higher noninterest expense of $12.5 million and lower noninterest income of $3.6 million. Net income attributable to common
shareowners included a $4.9 million decrease in the deduction to record the 49% non-controlling interest in the earnings of CCHL.
Below are
Summary Highlights
●
Strong growth in net interest income of 21% reflected improved earning asset mix and strength of deposit franchise
●
Loan growth of $594 million, or 30.7% (end of period) and $189 million, or 9.4% (year-to-date average)
●
Average Deposits grew $356 million, or 10.5%
●
CCHL contribution decreased $0.24 per share due to slower secondary market loan sales, but was more than offset by
strong adjustable rate production for our loan portfolio, and higher wealth and deposit fees
●
Noninterest expense included pension settlement charges totaling $2.3 million or $0.11 per share
●
Tangible book value per share increased $0.54, or 3.2%, primarily due to strong earnings and a favorable re-
measurement adjustment for pension plan, partially offset by higher unrealized investment security losses
For more detailed information, refer to the following additional sections of the MD&A “Results of Operations” and “Financial
Condition”.
38
RESULTS OF OPERATIONS
A condensed earnings summary for the last three fiscal years is presented in Table 1 below:
Table 1
CONDENSED SUMMARY OF EARNINGS
(Dollars in Thousands, Except Per Share Data)
2022
2021
2020
Interest Income
$
131,348
$
106,351
$
106,197
Taxable Equivalent Adjustments
325
349
430
Total Interest Income (FTE)
131,673
106,700
106,627
Interest Expense
6,888
3,490
4,871
Net Interest Income (FTE)
124,785
103,210
101,756
Provision for Credit Losses
7,162
(1,553)
9,645
Taxable Equivalent Adjustments
325
349
430
Net Interest Income After Provision for Credit Losses
117,298
104,414
91,681
Noninterest Income
94,627
107,545
111,165
Noninterest Expense
161,828
162,508
149,962
Income Before Income Taxes
50,097
49,451
52,884
Income Tax Expense
10,085
9,835
10,230
Pre-Tax Income Attributable to Noncontrolling Interests
135
(6,220)
(11,078)
Net Income Attributable to Common Shareowners
$
40,147
$
33,396
$
31,576
Basic Net Income Per Share
$
2.37
$
1.98
$
1.88
Diluted Net Income Per Share
$
2.36
$
1.98
$
1.88
Net Interest Income and Margin
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 2022, our taxable equivalent net interest income increased $21.6 million, or 20.9%. This follows an increase of $1.5 million,
or 1.4% in 2021. The increase in 2022 was primarily due to strong loan growth, higher interest rates, and growth in the
investment portfolio. The increase in 2021 was primarily due to higher small business (“SBA PPP”) loan income combined with
lower interest expense, partially offset by lower investment portfolio income due to lower reinvestment rates.
For 2022, taxable equivalent interest income increased $25.0 million, or 23.4%, over 2021. For 2021, taxable equivalent interest
income increased $0.1 million, or 0.1%, over 2020. The increase in 2022 was primarily due to an overall improved earning asset
mix and higher interest rates on earning assets. The increase in 2021 was primarily due to income on SBA PPP loans, partially
offset by lower rates on earning assets.
For 2022, interest expense increased $3.4 million, or 97.4%, over 2021. For 2021, interest expense decreased $1.4 million, or
28.4%, from 2020. The variances for both 2022 and 2021 were related to our negotiated rate deposits, primarily NOW accounts
which were tied to an adjustable rate index until mid-2022. Our cost of interest bearing deposits was 17 basis points in 2022, 4
basis points in 2021, and 10 basis points in 2020. Our total cost of deposits (including noninterest bearing accounts ) was 9 basis
points in 2022, 2 basis points in 2021, and 5 basis points in 2020. To a lesser extent, higher interest expense for our variable rate
short-term borrowings (warehouse line of credit for mortgage banking) and subordinated notes contributed to the increase in
2022. Our total cost of funds (interest expense/average earning assets) was 17 basis points in 2022, 10 basis points in 2021, and
16 basis points in 2020.
39
Our interest rate spread (defined as the taxable-equivalent yield on average earning assets less the average rate paid on interest
bearing liabilities) increased 23 basis points in 2022 and decreased 43 basis points in 2021. Our net interest margin (defined as
taxable-equivalent interest income less interest expense divided by average earning assets) of 3.13% in 2022 reflected a 30 basis
point increase over 2021. The net interest margin of 2.83% in 2021 reflected a 47 basis point decrease from 2020. The increase
in the interest rate spread and net interest margin in 2022 reflected an improved earning asset mix, higher yields across a majority
of our earning assets due to the rapid increase in interest rates, and good control of our deposit cost. The decline in the interest
rate spread and net interest margin in 2021 reflected lower earning asset yields due to lower rates, in addition to a higher level of
lower yielding overnight funds driven by strong deposit growth.
During 2022, the Federal Open Market Committee (“FOMC”) raised interest rates 425 basis points, putting the federal funds
target rate at a range of 4.25%-4.50%, compared to a range of 0.00%-0.25% at the end of 2021. Our asset sensitive position, with
strong core deposit funding and ample liquidity provide benefits in the higher rate environment.
Table 2
AVERAGE BALANCES AND INTEREST RATES
2022
2021
2020
(Taxable Equivalent Basis - Dollars
in Thousands)
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
ASSETS
Loans Held for Sale
(1)(2)
$
48,502
$
2,175
4.49
%
$
78,328
$
2,555
3.24
%
$
81,125
$
2,895
3.57
%
Loans Held for Investment
(1)(2)
2,189,440
104,016
4.75
2,000,563
94,332
4.76
1,957,576
92,261
4.71
Taxable Investment Securities
1,098,876
15,917
1.45
778,953
8,724
1.12
574,199
10,176
1.77
Tax-Exempt Investment Securities
(2)
2,668
54
2.03
3,772
91
2.39
5,123
124
2.42
Fed Funds Sold & Int Bearing Dep
649,762
9,511
1.46
790,870
998
0.13
465,652
1,171
0.25
Total Earning Assets
3,989,248
131,673
3.30
%
3,652,486
106,700
2.92
%
3,083,675
106,627
3.46
%
Cash & Due From Banks
76,929
72,409
68,386
Allowance for Credit Losses
(21,688)
(22,960)
(20,690)
Other Assets
287,813
282,129
259,700
TOTAL ASSETS
$
4,332,302
$
3,984,064
$
3,391,071
LIABILITIES
NOW Accounts
$
1,065,838
$
2,799
0.26
%
$
965,320
$
294
0.03
%
$
826,280
$
930
0.11
%
Money Market Accounts
283,407
203
0.07
278,606
134
0.05
235,931
223
0.09
Savings Accounts
628,313
309
0.05
537,023
263
0.05
423,529
207
0.05
Time Deposits
94,646
133
0.14
102,220
148
0.14
104,393
188
0.18
Total Interest Bearing Deposits
2,072,204
3,444
0.17
%
1,883,169
839
0.04
%
1,590,133
1,548
0.10
%
Short-Term Borrowings
40,483
1,761
4.35
53,511
1,360
2.54
69,119
1,690
2.44
Subordinated Notes Payable
52,887
1,652
3.08
52,887
1,228
2.29
52,887
1,472
2.74
Other Long-Term Borrowings
665
31
4.62
1,887
63
3.33
5,304
161
3.03
Total Interest Bearing Liabilities
2,166,239
6,888
0.32
%
1,991,454
3,490
0.18
%
1,717,443
4,871
0.28
%
Noninterest Bearing Deposits
1,691,132
1,523,717
1,254,214
Other Liabilities
85,684
111,567
72,400
TOTAL LIABILITIES
3,943,055
3,626,738
3,044,057
Temporary Equity
9,957
20,505
9,701
TOTAL SHAREOWNERS’
EQUITY
379,290
336,821
337,313
TOTAL LIABILITIES,
TEMPORARY EQUITY AND
SHAREOWNERS’ EQUITY
$
4,332,302
$
3,984,064
$
3,391,071
Interest Rate Spread
2.98
%
2.75
%
3.18
%
Net Interest Income
$
124,785
$
103,210
$
101,756
Net Interest Margin
(3)
3.13
%
2.83
%
3.30
%
(1)
(2)
(3)
40
Table 3
RATE/VOLUME ANALYSIS
(1)
2022 vs. 2021
2021 vs. 2020
(Taxable Equivalent Basis -
Dollars in Thousands)
Increase (Decrease) Due to Change In
Increase (Decrease) Due to Change In
Total
Volume
Rate
Total
Calendar
(3)
Volume
Rate
Earnings Assets:
Loans Held for Sale
(2)
$
(380)
$
(987)
$
607
$
(340)
$
(8)
$
(100)
$
(232)
Loans Held for Investment
(2)
9,684
9,782
(98)
2,071
(252)
2,092
231
Taxable Investment Securities
7,193
3,583
3,610
(1,451)
(28)
3,657
(5,080)
Tax-Exempt Investment Securities
(2)
(37)
(27)
(10)
(34)
-
(33)
(1)
Funds Sold
8,513
(178)
8,691
(173)
(3)
821
(991)
Total
$
24,973
$
12,173
$
12,800
73
$
(291)
$
6,437
$
(6,073)
Interest Bearing Liabilities:
NOW Accounts
$
2,505
$
31
$
2,474
(636)
$
(3)
$
159
$
(792)
Money Market Accounts
69
2
67
(89)
(1)
44
(132)
Savings Accounts
46
45
1
56
-
56
-
Time Deposits
(15)
(11)
(4)
(40)
(1)
(3)
(36)
Short-Term Borrowings
401
(331)
732
(330)
(4)
(383)
57
Subordinated Notes Payable
424
-
424
(244)
(4)
-
(240)
Other Long-Term Borrowings
(32)
(41)
9
(98)
-
(104)
6
Total
$
3,398
$
(305)
$
3,703
(1,381)
$
(13)
$
(231)
$
(1,137)
Changes in Net Interest Income
$
21,575
$
12,478
$
9,097
$
1,454
$
(278)
$
6,668
$
(4,936)
(1)
(2)
(3)
Provision for Credit Losses
For 2022, we recorded a provision for credit loss expense of $7.2 million ($7.1 million expense for loans HFI and $0.1 million
expense for unfunded loan commitments) compared to a provision benefit of $1.6 million for 2021 ($2.8 million benefit for loans
HFI and $1.2 million expense for unfunded loan commitments), and provision expense of $9.6 million for 2020 ($9.0 million
expense for loans HFI and $0.6 million expense for unfunded loan commitments ). The higher level of provision in 2022 was
primarily attributable to strong loan growth and weaker projected economic conditions, primarily a higher rate of unemployment.
The credit loss provision in 2021 was favorably impacted by strong loan recoveries. We discuss the various factors that have
impacted our provision expense in more detail under the heading Allowance for Credit Losses.
Noninterest Income
For 2022, noninterest income totaled $94.6 million, a $12.9 million decrease from 2021 due to lower mortgage banking revenues
of $21.8 million, partially offset by higher wealth management fees of $4.4 million, deposit fees of $3.2 million, other income of
$1.2 million, and bank card fees of $0.1 million. Lower mortgage banking revenues at CCHL, for 2022 generally reflected a
reduction in refinancing activity and, to a lesser degree, lower purchase mortgage originations primarily driven by higher interest
rates. In addition, gain on sale margins were pressured due to a lower level of governmental loan originations and mandatory
delivery loan sales (both of which provide a higher gain on sale percentage). Strong best efforts adjustable rate production by
CCHL during 2022 contributed to the Bank’s loan growth and earnings.
41
For 2021, noninterest income totaled $107.5 million, a $3.6 million decrease from 2020 primarily attributable to lower mortgage
banking revenues of $10.9 million, partially offset by strong gains in wealth management fees of $2.7 million, bank card fees of
$2.2 million, and deposit fees of $1.1 million. The decline in mortgage banking revenues was driven generally by lower
refinancing activity, a shift in production mix (lower government versus conventional product), and lower market driven gain on
sale margins.
Noninterest income as a percent of total operating revenues (net interest income plus noninterest income) was 43.19% in 2022,
51.11% in 2021, and 52.32% in 2020. In 2022 and 2021, lower mortgage banking revenues drove the decrease in the percentage.
The table below reflects the major components of noninterest income.
Table 4
NONINTEREST INCOME
(Dollars in Thousands)
2022
2021
2020
Deposit Fees
$
22,121
$
$
18,882
$
17,800
Bank Card Fees
15,401
15,274
13,044
Wealth Management Fees
18,059
13,693
11,035
Mortgage Banking Revenues
30,624
52,425
63,344
Other
8,422
7,271
5,942
Total Noninterest Income
$
94,627
$
$
107,545
$
111,165
Significant components of noninterest income are discussed in more detail below.
Deposit Fees
. For 2022, deposit fees (service charge fees, insufficient fund/overdraft fees, and business account analysis fees)
totaled $22.1 million compared to $18.9 million in 2021 and $17.8 million in 2020. The $3.2 million, or 17.2%, increase in 2022
reflected higher monthly service charge fees and overdraft fees. The conversion, in the third quarter of 2021, of our remaining
free checking accounts to a monthly maintenance fee account type drove the increase in service charge fees. The increase in
overdraft fees was driven by higher utilization of our overdraft service which is closely correlated (inversely) with the consumer
savings rate which has declined noticeably since it substantially increased during 2020 and 2021 due to the high level of
governmental stimulus related to the COVID-19 pandemic. The $1.1 million, or 6.1%, increase in 2021 reflected the
aforementioned conversion of the remaining free checking accounts to a monthly maintenance fee account type.
Bank Card Fees
. Bank card fees totaled $15.4 million in 2022 compared to $15.3 million in 2021 and $13.0 million in 2020. The
slight increase in 2022 reflected incremental revenues from growth in new checking accounts that was partially offset by
transaction volume which reflected a slowdown in consumer spending. The favorable variance in 2021 generally reflected an
increase in card-not-present debit card transactions and increased on-line spending by our clients in part due to the pandemic and
significant government stimulus in 2020 and 2021.
Wealth Management Fees
. Wealth management fees including both trust fees (i.e., managed accounts and trusts/estates) and
retail brokerage fees (i.e., investment, insurance products, and retirement accounts) totaled $18.1 million in 2022 compared to
$13.7 million in 2021 and $11.0 million in 2020. The increase in 2022 was primarily due to higher insurance revenues of $3.7
million and retail brokerage fees of $0.6 million. The higher level of insurance revenues reflected the acquisition of CCSW in
2021. The increase in fees for 2021 reflected higher retail brokerage fees of $1.8 million and trust fees of $0.8 million. Higher
retail brokerage transaction volume and advisory accounts added from the acquisition of CCSW drove the increase in retail
brokerage fees. The increase in trust fees was primarily attributable to an increase in assets under management. At December 31,
2022, total assets under management (“AUM”) were approximately $2.273 billion compared to $2.324 billion at December 31,
2021 and $1.979 billion at December 31, 2020. The decrease in AUM in 2022 generally reflected lower account values/returns
reflective of volatile market conditions during the year partially offset by new account growth.
42
Mortgage Banking Revenues
. Mortgage banking revenues totaled $30.6 million in 2022 compared to $52.4 million in 2021 and
$63.3 million in 2020. Lower mortgage banking revenues at CCHL for 2022 reflected a reduction in refinancing activity and, to a
lesser degree, lower purchase mortgage originations primarily driven by higher interest rates. In addition, gain on sale margins
were pressured due to a lower level of governmental loan originations and mandatory delivery loan sales (both of which provide a
higher gain on sale percentage). Throughout 2022, strong best efforts origination volume allowed us to book a steady flow of
adjustable rate residential loans in our portfolio which contributed to loan growth and earnings. In addition, continued stability in
our construction/permanent loan program partially offset the slowdown in secondary market originations. The decrease in 2021
was driven generally by lower refinancing volume, a shift in production mix (lower government versus conventional product),
and lower market driven gain on sale margins. We provide a detailed overview of our mortgage banking operation, including a
detailed break-down of mortgage banking revenues, mortgage servicing activity, and warehouse funding within Note 4 -
Mortgage Banking Activities in the Notes to Consolidated Financial Statements. Production volume totaled $1.02 billion in 2022,
$1.52 billion in 2021, and $1.56 billion in 2020. Refinancing activity represented 13% of loan production in 2022, 30% in 2021,
and 40% in 2020. For 2022, CCHL realized a $0.2 million net loss ($0.01 per diluted share) versus $3.9 million net income
($0.23 per diluted share) in 2021, and $8.7 million net income ($0.52 per diluted share) in 2020.
Other
. Other noninterest income totaled $8.4 million in 2022 compared to $7.3 million in 2021 and $5.9 million in 2020. The
$1.1 million increase in 2022 was primarily attributable to higher loan servicing fees at CCHL of $0.5 and a $0.4 million increase
in miscellaneous income, primarily from a $0.2 million gain on the termination of a lease. The $1.4 million increase in 2021 was
primarily attributable to higher loan servicing fees of $1.0 million at CCHL. The higher level of loan servicing fees at CCHL for
both 2021 and 2022 reflected a higher volume of servicing retained loan sales.
Noninterest Expense
For 2022, noninterest expense totaled $161.8 million, a $0.7 million decrease from 2021 due to a decrease in compensation
expense of $0.9 million and other expense of $0.4 million, partially offset by an increase in occupancy expense of $0.6 million.
The reduction in compensation expense was primarily due to a decrease in salary expense of $1.6 million that was partially offset
by an increase in associate benefit expense of $0.7 million. The variance in salary expense reflected lower variable/performance-
based compensation of $7.7 million and base salaries of $1.3 million at CCHL, partially offset by an increase in salary expense at
the Bank, including variable/performance-based compensation totaling $2.5 million, base salaries (merit and new market staffing
additions) of $3.1 million, and lower realized loan cost of $1.4 million (credit offset to salary expense). The increase in associate
benefit expense was due to an increase in insurance expense (utilized self-insurance reserves in 2021) of $0.6 million and stock
compensation expense of $0.7 million at the Bank. The net decrease in other expense was primarily due to lower pension plan
related costs, including a decrease of $4.9 million for the non-service cost component of our pension plan (reflected in pension –
other) attributable to the utilization of a lower discount rate for plan liabilities and a decrease of $0.8 million for pension plan
settlement expense. These favorable variances were partially offset by an increase in the expense for other real estate expense of
$1.2 million, travel/entertainment and advertising costs of $1.3 million (return to pre-pandemic levels and market expansion),
other losses of $0.9 million (primarily debit card and check fraud), mortgage servicing right amortization of $0.6 million, VISA
share swap conversion ratio payments of $0.4 million, FDIC insurance fees of $0.3 million, and other miscellaneous costs related
to training, hiring, and variable costs related to loan production. Gains from the sale of two banking offices in 2021 drove the
increase in other real estate expense. The increase in occupancy expense is related to lease expense for four new banking offices
added in 2022 and various software purchases, including network security and end of life upgrades.
For 2021, noninterest expense totaled $162.5 million, a $12.5 million increase over 2020 attributable to the addition of expenses
at CCHL (March 1, 2020 acquisition) of $2.3 million and higher expenses at the Bank totaling $10.2 million. The increase in
expenses at the Bank were primarily due to an increase in compensation expense of $3.7 million, including an increase in salary
expense of $3.1 million (merit raises and realized loan cost) and associate benefit expense of $0.6 million (primarily
pension/service cost), occupancy expense of $0.5 million, and other expense of $5.9 million. The increase in occupancy reflected
higher lease expense for two new loan production offices added in 2021 and higher depreciation expense related to technology
investments. The increase in other expense was primarily due to pension plan settlement expense of $3.1 million and higher
expense of $2.1 million for the non-service cost component of our pension plan (reflected in pension – other) attributable to the
utilization of a lower discount rate for plan liabilities. Increases in processing fees of $0.7 million (debit card volume),
professional fees of $0.6 million, and FDIC insurance fees of $0.5 million (higher asset size) that were partially offset by a
decrease in other real estate expense of $1.6 million (gains from the sale of two banking offices in 2021), also contributed to the
increase in other expense.
Our operating efficiency ratio (expressed as noninterest expense as a percent of taxable equivalent net interest income plus
noninterest income) was 71.47%, 77.11% and 70.43% in 2022, 2021 and 2020, respectively. The decrease in this metric for 2022
was primarily driven by higher taxable equivalent net interest income (refer to caption headed Net Interest Income and Margin)
and slightly lower noninterest expense. The increase in this metric for 2021 reflected higher noninterest expense, largely the
aforementioned higher level of pension plan expenses.
43
Expense management is an important part of our culture and strategic focus. We will continue to review and evaluate
opportunities to optimize our delivery operations and invest in technology that provides favorable returns/scale and/or mitigates
risk. The table below reflects the major components of noninterest expense.
Table 5
NONINTEREST EXPENSE
(Dollars in Thousands)
2022
2021
2020
Salaries
$
83,613
$
85,211
$
80,846
Associate Benefits
16,929
16,259
15,434
Total Compensation
100,542
101,470
96,280
Premises
11,184
10,879
10,512
Equipment
13,390
13,053
12,147
Total Occupancy, net
24,574
23,932
22,659
Legal Fees
1,413
1,411
1,570
Professional Fees
5,437
5,633
4,863
Processing Services
6,534
6,569
5,832
Advertising
3,208
2,683
2,998
Travel and Entertainment
1,815
1,063
855
Telephone
2,851
2,975
2,869
Insurance – Other
2,409
2,096
1,607
Pension - Other
(3,043)
1,913
(216)
Pension Settlement
2,321
3,072
-
Other Real Estate, Net
(337)
(1,488)
104
Miscellaneous
14,104
11,179
10,541
Total Other Expense
36,712
37,106
31,023
Total Noninterest Expense
$
161,828
$
162,508
$
149,962
Significant components of noninterest expense are discussed in more detail below.
Compensation
. Compensation expense totaled $100.5 million in 2022 compared to $101.5 million in 2021, and $96.3 million in
2020. For 2022, the $0.9 million, or 0.9%, net decrease reflected a decrease in salary expense of $1.6 million that was partially
offset by an increase in associate benefit expense of $0.7 million. The decrease in salary expense was primarily due to lower
variable/performance-based compensation of $7.7 million and base salaries of $1.3 million at CCHL, partially offset by an
increase in salary expense at the Bank, primarily variable/performance -based compensation totaling $2.5 million, base salaries
(merit and new market staffing additions) of $3.1 million, and a decrease in realized loan cost of $1.4 million (credit offset to
salary expense). Further, the increase in associate benefit expense was primarily due to an increases in expenses at the Bank,
including associate insurance expense (utilized self-insurance reserves in 2021) of $0.6 million and stock compensation expense
of $0.7 million that was partially offset by a decrease in pension plan service cost of $0.5 million.
For 2021, the $5.2 million, or 5.4%, net increase was attributable to increases in salary expense of $4.4 million and associate
benefit expense of $0.8 million. Increases in salary expense of $3.1 million and associate benefit expense of $0.6 million at the
Bank drove a majority of the increase with the addition of CCHL compensation expense for a full 12-month period in 2021 versus
a ten month period in 2020 driving the remaining portion of the variance. The higher level of salary expense at the Bank reflected
an increase in base salaries of $1.8 million, primarily merit raises, and a decrease in realized loan cost of $0.8 million (credit
offset to salary expense). The increase in associate benefit expense at the Bank was attributable to an increase in pension plan
service cost of $1.1 million partially offset by a decrease in associate insurance expense of $0.4 million.
Occupancy
. Occupancy expense (including premises and equipment) totaled $24.5 million for 2022 compared to $23.9 million
for 2021, and $22.7 million for 2020. For 2022, the $0.6 million, or 2.7%, increase was attributable to increases in software
license expense of $0.5 million and banking office lease expense of $0.3 million, partially offset by a decrease in maintenance and
repairs expense of $0.1 million. The increase in software license expense reflected software upgrades for personal computers and
network servers, and additional investment in network security monitoring software.
44
For 2021, the $1.2 million, or 5.3%, increase was attributable to an increase in occupancy expense of $0.5 million at the Bank
primarily related to depreciation and software license expense for additional ATM/ITM investments and other infrastructure
investments for business line support and risk management. The remainder of the variance reflected CCHL occupancy expense
for a full 12-month period versus a ten month period in 2020.
Other
. Other noninterest expense totaled $36.7 million in 2022 compared to $37.1 million in 2021 and $31.0 million in 2020.
For 2022, the $0.4 million, or 1.1%, decrease was due to lower expenses at the Bank, primarily a decrease in pension related
costs, including a decrease of $4.9 million for the non-service cost component of our pension plan (reflected in pension – other)
attributable to the utilization of a lower discount rate for plan liabilities and a decrease of $0.8 million for pension plan settlement
expense. These favorable variances were partially offset by an increase in expenses for other real estate of $1.2 million (lower
gains from the sale of banking offices), travel/entertainment and advertising costs totaling $1.3 million (return to pre -pandemic
levels and market expansion), and insurance – other (FDIC insurance premiums) of $0.3 million. Additional increases were
realized in the following expenses that are reflected in the miscellaneous expense category: other losses of $0.9 million (primarily
debit card and check fraud), mortgage servicing right amortization of $0.6 million (higher level of servicing retained loan sales),
VISA Class B share swap conversion ratio payments of $0.4 million, and other miscellaneous costs for training, hiring, and
variable expenses related to loan production.
For 2021, the $6.1 million, or 19.7%, increase was driven by an increase in other expenses at the Bank of $5.9 million, primarily
an increase in pension related expenses, including higher expense of $2.1 million for the non-service cost component of our
pension plan attributable to the utilization of a lower discount rate for plan liabilities. Additionally, we incurred $3.1 million in
pension settlement charges in 2021 related to a high level of lump sum payments to retirees. Lastly, we realized an increase in
expense for processing fees of $0.7 million (debit card volume), professional fees of $0.6 million (temporary staffing support),
and insurance – other (FDIC insurance premiums) of $0.5 million (larger asset size), that were partially offset by a decrease in
other real estate expense of $1.6 million (higher gains from the sale of banking offices) contributed to the increase.
Income Taxes
For 2022, we realized income tax expense of $10.1 million (effective rate of 20%) compared to $9.8 million (effective rate of
20%) for 2021 and $10.2 million (effective rate of 19%) for 2020. Income tax expense for 2022 and 2021 was unfavorably
impacted due to lower CCHL income. For 2022, income tax expense was favorably impacted by $0.4 million related to tax
benefits accrued via a 2022 investment in a solar tax credit equity fund. Further, 2022 income tax expense was favorably
impacted by discrete tax items totaling $0.7 million related to a favorable deferred tax adjustment for our Supplemental Executive
Retirement Plan and a State of Florida corporate tax refund. Income tax expense for 2021 was unfavorably impacted by net
discrete tax items totaling $0.3 million.
In September 2021, Florida enacted a corporate tax rate reduction from 4.5% to 3.535% retroactive to January 1, 2021, with an
expiration date of December 31, 2021, therefore, there was no material impact to our deferred tax accounts. Our 2021 and 2020
state tax rates were adjusted to reflect the one percentage point (2020) and two percentage point (2021) reductions each year. The
Florida tax rate reverted to 5.5% effective January 1, 2022.
Absent discrete items, we expect our annual effective tax rate to approximate 21%-22% in 2023.
FINANCIAL CONDITION
Average assets totaled approximately $4.332 billion for 2022, an increase of $348.2 million, or 8.7%, over 2021. Average
earning assets were approximately $3.989 billion for 2022, an increase of $336.8 million, or 9.2%, over 2021. Compared to 2021,
average overnight funds decreased $141.1 million, while investment securities increased $318.8 million and average loans held
for investment were higher by $188.9 million. We discuss these variances in more detail below.
Table 2 provides information on average balances and rates, Table 3 provides an analysis of rate and volume variances and Table
6 highlights the changing mix of our interest earning assets over the last three fiscal years.
45
Loans
In 2022, average loans HFI increased $188.9 million, or 9.4%, compared to an increase of $43.0 million, or 2.2%, in 2021.
Compared to 2021, the growth in average loans was broad based with increases realized in most loan categories, more
significantly so in the residential real estate, construction, and consumer (indirect auto) segments. Total loans HFI at December
31, 2022 totaled $2.525 billion, a $594 million increase over December 31, 2021 and primarily reflected higher balances in the
following categories: residential real estate of $375 million, commercial real estate of $119 million, and construction of $60
million. At December 31, 2022, our consumer loans balances reflected direct loans of $22 million and indirect auto loans of $303
million. During 2022, indirect auto balances peaked at $338 million in May, but declined gradually for the remainder of the year
as we focused on reducing exposure to this loan segment which totaled $303 million at December 31, 2022.
As part of our overall strategy, we will purchase newly originated 1-4 family real estate secured adjustable rate loans from CCHL.
The strategic alliance with CCHL provides us a larger pool of loan purchase opportunities, including participation loans for
construction/perm product, which in large part drove the aforementioned increases in residential real estate and construction
loans.
Expansion into new markets in the Northern Arc of Atlanta, Georgia (Cobb and Gwinnett Counties) and Walton County, Florida
drove incremental loan growth of approximately $65 million in 2022 as we added to those banking teams throughout 2022.
In 2022, average loans held for sale (“HFS”) decreased $29.8 million, or 38.1%, from 2021 due to lower loan volume at CCHL.
Loans HFI and HFS as a percentage of average earning assets decreased slightly to 56.1% in 2022 compared to 56.9% in 2021,
primarily attributable to an increase in our investment portfolio.
Table 6
SOURCES OF EARNING ASSET GROWTH
2021 to
Percentage
Components of
2022
Total
Average Earning Assets
(Average Balances – Dollars In Thousands)
Change
Change
2022
2021
2020
Loans:
Loans HFS
$
(29,826)
(8.9)
%
1.2
%
2.1
%
2.6
%
Loans HFI:
Commercial, Financial, and Agricultural
(71,063)
(21.1)
6.0
8.5
11.7
Real Estate – Construction
56,999
16.9
5.4
4.3
4.0
Real Estate – Commercial Mortgage
23,031
6.8
17.6
18.6
21.1
Real Estate – Residential
126,843
37.7
12.3
10.0
11.5
Real Estate – Home Equity
908
0.3
4.9
5.3
6.4
Consumer
52,159
15.5
8.7
8.0
8.8
Total HFI Loans
188,877
56.1
54.9
54.7
63.5
Total Loans HFS and HFI
$
159,051
47.2
56.1
56.8
66.1
%
Investment Securities:
Taxable
$
319,923
95.0
%
27.5
%
21.3
%
18.6
%
Tax-Exempt
(1,104)
(0.3)
0.1
0.1
0.2
Total Securities
$
318,819
94.7
%
27.6
%
21.4
%
18.8
%
Funds Sold
(141,108)
(41.9)
16.3
21.8
15.1
Total Earning Assets
$
336,762
100
%
100
%
100
%
100
%
Our average total loans (HFS and HFI)-to-deposit ratio was 59.5% in 2022, 61.0% in 2021, and 71.7% in 2020.
The composition of our HFI loan portfolio at December 31 for each of the past three years is shown in Table 7. Table 8 arrays
our HFI loan portfolio at December 31, 2022, by maturity period. As a percentage of the HFI loan portfolio, loans with fixed
interest rates represented 33.3% at December 31, 2022 compared to 39.3% at December 31, 2021. A higher level of 1-4 family
real estate secured adjustable rate loan production in 2022 drove the decrease in the percentage.
46
Table 7
LOANS HFI BY CATEGORY
(Dollars in Thousands)
2022
2021
2020
Commercial, Financial and Agricultural
$
247,362
$
223,086
$
393,930
Real Estate – Construction
234,519
174,394
135,831
Real Estate – Commercial Mortgage
782,557
663,550
648,393
Real Estate – Residential
727,105
360,021
352,543
Real Estate – Home Equity
208,120
187,821
205,479
Consumer
325,517
322,593
270,250
Total Loans HFI, Net of Unearned Income
$
2,525,180
$
1,931,465
$
2,006,426
Table 8
LOANS HFI MATURITIES
Maturity Periods
(Dollars in Thousands)
One Year
Over One
Through
Five Years
Through
Fifteen
Years
Over
Fifteen
Years
Total
Commercial, Financial and Agricultural
$
51,514
$
128,783
$
65,957
$
1,108
$
247,362
Real Estate – Construction
113,672
66,238
22,471
32,138
234,519
Real Estate – Commercial Mortgage
46,776
112,180
330,311
293,290
782,557
Real Estate – Residential
16,693
474,020
110,981
125,411
727,105
Real Estate – Home Equity
3,820
10,815
79,532
113,953
208,120
Consumer
(1)
5,835
143,516
176,157
9
325,517
Total
$
238,310
$
935,552
$
785,409
$
565,909
$
2,525,180
Total Loans HFI with Fixed Rates
$
92,179
$
368,970
$
351,765
$
27,226
$
840,140
Total Loans HFI with Floating or Adjustable Rates
146,131
566,582
433,644
538,683
1,685,040
Total
$
238,310
$
935,552
$
785,409
$
565,909
$
2,525,180
(1)
Demand loans and overdrafts are reported in the category of one year or less.
Credit Quality
Table 9 provides the components of nonperforming assets and various other credit quality and risk metrics at December 31
st
the last three fiscal years. Information regarding our accounting policies related to nonaccruals, past due loans, and troubled debt
restructurings is provided in Note 3 – Loans Held for Investment and Allowance for Credit Losses.
Overall credit quality continues to remain strong. Nonperforming assets (nonaccrual loans and other real estate) totaled $2.7
million at December 31, 2022 compared to $4.3 million at December 31, 2021. At December 31, 2022, nonperforming assets as a
percent of total assets was 0.06%, a decrease of four basis points from December 31, 2021.
47
Table 9
CREDIT QUALITY
(Dollars in Thousands)
2022
2021
2020
Nonaccruing Loans:
Commercial, Financial and Agricultural
$
41
$
90
$
161
Real Estate – Construction
17
-
179
Real Estate – Commercial Mortgage
645
604
1,412
Real Estate – Residential
239
2,097
3,130
Real Estate – Home Equity
771
1,319
695
Consumer
584
212
294
Total Nonaccruing Loans
2,297
4,322
5,871
Other Real Estate Owned
431
17
808
Total Nonperforming Assets
$
2,728
$
4,339
$
6,679
Past Due Loans 30 – 89 Days
$
7,829
$
3,600
$
4,594
Performing Troubled Debt Restructurings
5,913
7,643
13,887
Classified Loans
$
19,342
$
17,912
$
17,631
Nonaccruing Loans/Loans
0.09
%
0.22
%
0.29
%
Nonperforming Assets/Total Assets
0.06
0.10
0.18
Nonperforming Assets/Loans Plus OREO
0.11
0.22
0.33
Allowance/Nonaccruing Loans
1,076.89
%
499.93
%
405.66
%
Nonaccrual Loans
. Nonaccrual loans totaled $2.3 million at December 31, 2022, a $2.0 million decrease from December 31,
2021. Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due or management
deems the collectability of the principal and interest to be doubtful. Once a loan is placed in nonaccrual status, all previously
accrued and uncollected interest is reversed against interest income. Interest income on nonaccrual loans is recognized when the
ultimate collectability is no longer considered doubtful. Loans are returned to accrual status when the principal and interest
amounts contractually due are brought current or when future payments are reasonably assured. If interest on our loans classified
as nonaccrual during 2022 had been recognized on a fully accruing basis, we would have recorded an additional $0.2 million of
interest income for the year ended December 31, 2022.
Other Real Estate Owned
. OREO represents property acquired as the result of borrower defaults on loans or by receiving a deed
in lieu of foreclosure. OREO is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the time of
foreclosure. Write-downs occurring at foreclosure are charged against the allowance for credit losses. On an ongoing basis,
properties are either revalued internally or by a third-party appraiser as required by applicable regulations. Subsequent declines in
value are reflected as other noninterest expense. Carrying costs related to maintaining the OREO properties are expensed as
incurred and are also reflected as other noninterest expense.
OREO totaled $0.4 million at December 31, 2022 versus $0.02 million at December 31, 2021. During 2022, we added properties
totaling $2.4 million and sold properties totaling $2.0 million. For 2021, we added properties totaling $1.7 million, sold
properties totaling $2.8 million, and recorded net favorable valuation adjustments totaling $0.3 million.
Troubled Debt Restructurings (“TDRs”).
TDRs are loans on which, due to the deterioration in the borrower’s financial condition,
the original terms have been modified and deemed a concession to the borrower. From time to time we will modify a loan as a
workout alternative. Most of these instances involve an extension of the loan term, an interest rate reduction, or a principal
moratorium. A TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no
longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced
or restructured at market terms and qualifies as a new loan in calendar years after the year in which the restructuring took place.
Loans classified as TDRs at December 31, 2022 totaled $6.1 million compared to $8.0 million at December 31, 2021. Accruing
TDRs made up approximately $5.9 million of our TDR portfolio at December 31, 2022, of which $0.3 million was over 30 days
past due. The weighted average rate for the loans within the accruing TDR portfolio was 5.96%. During 2022, we modified two
loan contracts totaling approximately $0.1 million compared to three loan contracts totaling approximately $0.6 million during
2021. Our TDR default rate (default balance as a percentage of average TDRs) in 2022 and 2021 was 0.0% and 4.1%,
respectively.
48
Past Due Loans
. A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30 days
past due. Past due loans at December 31, 2022 totaled $7.8 million compared to $3.6 million at December 31, 2021. Indirect
auto loans represented a large portion of the increase and at December 31, 2022 reflected 73% of total dollars past due and 72%
of total dollars past due at December 31, 2021.
Potential Problem Loans
. Potential problem loans are defined as those loans which are now current but where management has
doubt as to the borrower’s ability to comply with present loan repayment terms. At December 31, 2022, we had $2.8 million in
loans of this type which were not included in either of the nonaccrual, TDR or 90 day past due loan categories compared to $1.5
million at December 31, 2021. Management monitors these loans closely and reviews their performance on a regular basis.
Loan Concentrations
. Loan concentrations exist when there are amounts loaned to multiple borrowers engaged in similar
activities which cause them to be similarly impacted by economic or other conditions and such amount exceeds 10% of total
loans. Due to the lack of diversified industry within our markets and the relatively close proximity of the markets, we have both
geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the nature of our markets, a
significant portion of our HFI loan portfolio has historically been secured with real estate, approximately 77% at December 31,
2022 and 72% at December 31, 2021 with the increase driven by a higher volume of 1-4 family residential real estate loans
originated in 2022. The primary types of real estate collateral are commercial properties and 1-4 family residential properties.
We review our loan portfolio segments and concentration limits on an ongoing basis and will make adjustments as needed to
mitigate/reduce risk to segments that reflect decline or stress.
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 $91
million.
The following table summarizes our real estate loan category as segregated by the type of property. Property type concentrations
are stated as a percentage of total real estate loans at December 31.
Table 10
REAL ESTATE LOANS BY PROPERTY TYPE
2022
2021
Investor
Real Estate
Owner
Occupied
Investor
Real Estate
Owner
Occupied
Vacant Land, Construction, and Land Development
15.0
%
-
18.1
%
-
Improved Property
27.7
57.3
%
28.4
53.5
%
Total Real Estate Loans
42.7
%
57.3
%
46.5
%
53.5
%
A major portion of our real estate loan category is centered in the owner occupied category which carries a lower risk of non-
collection than certain segments of the investor category. Approximately 42% of the investor real estate category was secured by
residential real estate at December 31, 2022.
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net
amount expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss provision which is
reported in earnings and reduced by the charge-off of loan amounts, net of recoveries. Loans are charged off against the
allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the
aggregate of amounts previously charged-off and expected to be charged-off. Expected credit loss inherent in non-cancellable
off-balance sheet credit exposures is provided through the credit loss provision, but recorded separately in other liabilities.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to
past events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the
basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of
current conditions and forecasts.
Detailed information regarding the methodology for estimating the amount reported in the allowance for credit losses is provided
in Note 1 – Significant Accounting Policies/Allowance for Credit Losses in the Consolidated Financial Statements.
49
Note 3 – Loans Held for Investment and Allowance for Credit Losses in the Consolidated Financial Statements provides the
activity in the allowance and the allocation by loan type for each of the past three fiscal years.
For 2022, we realized net loan charge-offs of $3.9 million, or 0.18%, of average HFI loans, compared to net loan recoveries of
$0.6 million, or 0.03%, for 2021, and net loan charge-offs of $2.4 million, or 0.12%, for 2020. A majority of the increase in 2022
reflected higher commercial loan charge-offs and consumer loan (indirect auto) charge-offs, as well as a significant reduction in
loan recoveries. The increase in commercial loan charge-offs was primarily attributable to one problem loan relationship that was
resolved in the second quarter of 2022.
At December 31, 2022, the allowance for credit losses represented 0.98% of HFI loans and provided coverage of 1,077% of
nonperforming loans compared to 1.12% and 500%, respectively, at December 31, 2021 and 1.19% and 406%, respectively, at
December 31, 2020.
At December 31, 2022, the allowance for credit losses for HFI loans totaled $24.7 million compared to $21.6 million at December
31, 2021 and $23.8 million at December 31, 2020. Incremental allowance related to loan growth, a higher projected rate of
unemployment and its effect on rates of default, and slower prepayment speeds (due to higher interest rates) were all contributing
factors driving the $3.1 million increase in the allowance during 2022. The $2.2 million decrease in the allowance for credit
losses in 2021 reflected improvements in forecasted economic conditions, favorable loan migration and net loan recoveries
totaling $0.6 million, partially offset by incremental reserves needed for loan growth (excluding SBA PPP).
Table 11
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
2022
2021
2020
(Dollars in Thousands)
ACL
Amount
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
Loans to
Total Loans
ACL
Amount
Percent of
Loans to
Total Loans
Commercial, Financial and Agricultural
$
1,506
9.8
%
$
2,191
11.6
%
$
2,204
19.6
%
Real Estate:
Construction
2,654
9.3
3,302
9.0
2,479
6.8
Commercial
4,815
31.0
5,810
34.4
7,029
32.3
Residential
10,409
28.8
4,129
18.6
5,440
17.6
Home Equity
1,864
8.2
2,296
9.7
3,111
10.2
Consumer
3,488
12.9
3,878
16.7
3,553
13.5
Total
$
24,736
100
%
$
21,606
100
%
$
23,816
100
%
Investment Securities
Our average investment portfolio balance increased $318.8 million, or 40.7%, in 2022 and increased $203.4 million, or 35.1%, in
2021. As a percentage of average earning assets, our investment portfolio represented 27.6% in 2022, compared to 21.4% in
2021. In 2022, the growth in the investment portfolio was attributable to an investment purchase program implemented to take
advantage of higher rates and deploy a portion of our excess liquidity , in addition to reinvesting a portion of the portfolio cash
flow during the year. As we continue to monitor our overall liquidity levels throughout 2023, we will allow cash flow from the
investment portfolio to run-off and we will review various investment strategies as appropriate.
In 2022, average taxable investments increased $319.9 million, or 41.1%, while tax-exempt investments decreased $1.1 million,
or 29.3%. Taxable bonds increased as part of our overall investment strategy, and non-taxable investments decreased as the tax-
equivalent yield was generally unattractive throughout 2022 compared to taxable investments. At December 31, 2022, municipal
securities (taxable and non-taxable) comprised 3.8% of the portfolio.
Our investment portfolio is a significant component of our operations and, as such, it functions as a key element of liquidity and
asset/liability management. Two types of classifications are approved for investment securities which are Available -for-Sale
(“AFS”) and Held-for-Maturity (“HTM”). In 2022 and 2021, we purchased securities under both the AFS and HTM designations.
At December 31, 2022, $413.3 million, or 38.5% of our investment portfolio was classified as AFS, with $660.7 million, or
61.5%, classified as HTM. At December 31, 2021, the AFS and HTM portfolio comprised 65.8% and 34.1%, respectively.
During the third quarter of 2022, U.S. Treasury obligations totaling $168.4 million with unrealized losses of $9.4 million were
transferred from AFS to HTM. At December 31, 2022, $7.9 million was remaining in unrealized losses for these securities.
50
Table 12 provides the composition of our investment securities portfolio at December 31 for each of the last three fiscal years.
Table 12
INVESTMENT SECURITIES COMPOSITION
2022
2021
2020
(Dollars in Thousands)
Carrying
Amount
Percent
Carrying
Amount
Percent
Carrying
Amount
Percent
Available for Sale
U.S. Government Treasury
$
22,050
2.1
%
$
187,868
18.9
%
$
104,519
21.1
%
U.S. Government Agency
186,052
17.3
237,578
23.9
208,531
42.2
States and Political Subdivisions
40,329
3.8
46,980
4.7
3,632
0.7
Mortgage-Backed Securities
69,405
6.5
88,869
8.9
515
0.1
Corporate Debt Securities
88,236
8.2
86,222
8.7
-
-
Other Securities
7,222
0.6
7,094
0.7
7,673
1.6
Total
413,294
38.5
654,611
65.8
324,870
65.7
Held to Maturity
U.S. Government Treasury
457,374
42.6
115,499
11.6
5,001
1.0
Mortgage-Backed Securities
203,370
18.9
224,102
22.5
164,938
33.3
Total
660,744
61.5
339,601
34.1
169,939
34.3
Other Equity Securities
10
-
861
0.1
-
-
Total Investment Securities
$
1,074,048
100
%
$
995,073
100
%
$
494,809
100
%
The classification of a security is determined upon acquisition based on how the purchase will affect our asset/liability strategy
and future business plans and opportunities. Classification determinations will also factor in regulatory capital requirements,
volatility in earnings or other comprehensive income, and liquidity needs. Securities in the AFS portfolio are recorded at fair
value with unrealized gains and losses associated with these securities recorded net of tax, in the accumulated other
comprehensive income (loss) component of shareowners’ equity. Securities designated as HTM are those acquired or owned with
the intent of holding them to maturity (final payment date). HTM investments are measured at amortized cost. It is neither
management’s current intent nor practice to participate in the trading of investment securities for the purpose of recognizing gains
and therefore we do not maintain a trading portfolio.
At December 31, 2022, there were 928 positions (combined AFS and HTM) with pre-tax unrealized losses totaling $90.0 million.
The GNMA mortgage-backed securities, U.S. Treasuries, and SBA securities held carry the full faith and credit guarantee of the
U.S. Government, and are 0% risk-weighted assets. Other mortgage-backed securities held (Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation) are issued by U.S. Government sponsored entities. Direct
obligations of U.S. Government agencies (Federal Farm Credit Bank and Federal Home Loan Bank of Atlanta) are also owned.
We believe the long history of no credit losses on government securities indicates that the expectation of nonpayment of the
amortized cost basis is zero. A large portion of the SBA securities float monthly or quarterly with the prime rate and are
uncapped. The remaining positions owned are municipal and corporate bonds. At December 31, 2022, 26 corporate positions
had a total allowance for credit loss of $28,000 and 21 municipal positions had a total allowance for credit loss of $13,000. All of
these positions maintain an overall rating of at least “A-”, and all are expected to mature at par.
The average maturity of our investment portfolio at December 31, 2022 was 3.57 years compared to 3.62 years at December 31,
2021. The average life of our investment portfolio decreased slightly primarily due to the natural aging of the portfolio, partially
offset by a portion of the portfolio being reinvested into short-to-intermediate term securities.
The weighted average taxable equivalent yield of our investment portfolio at December 31, 2022 was 2.03% versus 1.12% in
2021. This increase in yield reflected higher reinvestment rates during 2022. Our bond portfolio contained no investments in
obligations, other than U.S. Governments, of any state, municipality, political subdivision, or any other issuer that exceeded 10%
of our shareowners’ equity at December 31, 2022.
Table 13 and Note 2 in the Notes to Consolidated Financial Statements present a detailed analysis of our investment securities as
to type, maturity, unrealized losses, and yield at December 31.
51
Table 13
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
Within 1 year
1 - 5 years
5 - 10 years
After 10 years
Total
(Dollars in
Thousands)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Amount
WAY
(3)
Available for Sale
U.S. Government
Treasury
$
2,862
4.40
%
$
19,188
0.70
%
$
-
-
%
$
-
-
%
$
22,050
1.18
%
U.S. Government
Agency
40,904
1.39
143,233
2.99
1,915
1.70
-
-
186,052
2.62
States and Political
Subdivisions
4,039
1.42
17,298
1.35
18,992
1.85
-
-
40,329
0.72
Mortgage-Backed
Securities
(1)
1
2.03
4,424
1.26
46,069
2.13
18,911
2.39
69,405
2.14
Corporate Debt
Securities
1,000
5.05
65,554
1.77
21,682
2.18
-
-
88,236
1.91
Other Securities
(2)
-
-
-
-
-
-
7,222
5.79
7,222
5.79
Total
$
48,806
1.64
%
$
249,697
2.35
%
$
88,658
2.07
%
$
26,133
3.33
%
$
413,294
2.23
%
Held to Maturity
U.S. Government
Treasury
$
-
-
%
$
457,374
1.93
%
$
-
-
%
$
-
-
%
$
457,374
1.93
%
Mortgage-Backed
Securities
(1)
2,582
2.59
138,781
1.83
62,007
1.80
-
-
203,370
1.83
Total
$
2,582
2.59
%
$
596,155
1.91
%
$
62,007
1.80
%
$
-
-
%
$
660,744
1.90
%
Equity Securities
$
-
-
%
$
-
-
%
$
-
-
%
$
10
5.63
%
$
10
5.63
%
Total Investment
Securities
$
51,388
1.69
%
$
845,852
2.04
%
$
150,665
1.96
%
$
26,143
3.34
%
$
1,074,048
2.03
%
(1)
(2)
(3)
Deposits and Short-Term Borrowings
Average total deposits for 2022 were $3.763 billion, an increase of $356.5 million, or 10.5%, over 2021. Average deposits
increased $562.5 million, or 19.8%, from 2020 to 2021.
certificates of deposit, with the largest increases occurring in noninterest bearing, NOW accounts, and savings accounts.
Strong deposit growth occurred during 2022 reflecting additional federal stimulus inflows as well as core deposit growth. In
addition, strong seasonal growth of public funds occurred in the fourth quarter of 2022 which is expected to be drawn down over
the course of 2023.
The FOMC has increased their benchmark interest rate aggressively by 425 basis points during 2022. This resulted in a shift in
deposit mix which we began to see in the fourth quarter of 2022, primarily in two large corporate clients totaling approximately
$40 million that migrated from noninterest bearing to interest bearing deposit accounts. Also in the fourth quarter, we began to
realize some run-off of stimulus funds and core deposits from our more rate sensitive clients in favor of higher yielding
investments. We have several strategies in place to protect core deposits and mitigate deposit run-off, and we will continue to
closely monitor several metrics such as the sensitivity of our clients to our deposit rates, our overall liquidity position, and
competitor rates when pricing deposits. This strategy is consistent with previous rate cycles and allows us to manage the mix of
our deposits as well as the overall client relationship rather than competing solely on rate. We believe this enabled us to maintain
a low cost of funds (interest expense/average earning assets) of 17 basis points for 2022 and 10 basis points for 2021.
52
Table 2 provides an analysis of our average deposits, by category, and average rates paid thereon for each of the last three fiscal
years. Table 14 reflects the shift in our deposit mix over the last year and Table 15 provides a maturity distribution of time
deposits in denominations of $250,000 and over at December 31, 2022. For 2022, noninterest bearing deposits represented 44.9%
of total average deposits. This compares to 44.7% in 2021 and 44.1% in 2020.
Average short -term borrowings decreased $13.0 million in 2022 primarily due to the decline in warehouse line borrowings at
CCHL that are used to support our held for sale loan portfolio. See Note 11 in the Notes to Consolidated Financial Statements for
additional information on short-term borrowings.
We continue to focus on the value of our deposit franchise, which produces a strong base of core deposits with minimal reliance
on wholesale funding.
Table 14
SOURCES OF DEPOSIT GROWTH
2021 to
Percentage
Components of
2022
of Total
Total Deposits
(Average Balances - Dollars in Thousands)
Change
Change
2022
2021
2020
Noninterest Bearing Deposits
$
167,415
47.0
%
44.9
%
44.7
%
44.1
%
NOW Accounts
100,518
28.2
28.3
28.3
29.0
Money Market Accounts
4,801
1.3
7.5
8.2
8.3
Savings Accounts
91,290
25.6
16.7
15.8
14.9
Time Deposits
(7,574)
(2.1)
2.6
3.0
3.7
Total Deposits
$
356,450
100
%
100
%
100
%
100
%
Table 15
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSITS GREATER THAN $250,000
2022
(Dollars in Thousands)
of Deposit
Percent
Three months or less
$
1,518
12.2
%
Over three through six months
2,356
18.9
Over six through twelve months
2,527
20.3
Over twelve months
6,048
48.6
Total
$
12,449
100
%
Market Risk and Interest Rate Sensitivity
Overview.
Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk
management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to
significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities,
our policies are designed to minimize structural interest rate risk.
Interest Rate Risk Management.
Our net income is largely dependent on net interest income. Net interest income is susceptible to
interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest-earning
assets. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net interest income. Similarly, when interest-earning assets mature or
reprice more quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest
income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-
bearing liabilities rather than by other sources of funds, such as noninterest -bearing deposits and shareowners’ equity.
53
We have established what we believe to be a comprehensive interest rate risk management policy, which is administered by
management’s Asset Liability Management Committee (“ALCO”). The policy establishes limits of risk, which are quantitative
measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity
capital (a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates for
maturities from one day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our
short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The
simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and
loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest
rate modeling methodology used by us. When interest rates change, actual movements in different categories of interest-earning
assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly
from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have
on adjustable-rate loan clients’ ability to service their debts, or the impact of rate changes on demand for loan and deposit
products.
The statement of financial condition is subject to testing for interest rate shock possibilities to indicate the inherent interest rate
risk. We prepare a current base case and several alternative interest rate simulations (+/- 100, 200, 300, and 400 basis points
(bp)), at least once per quarter, and report the analysis to ALCO, our Market Risk Oversight Committee (“MROC”), our Risk
Oversight Committee (“ROC”) and the Board of Directors. (The -200bp, -300bp, and -400bp rate scenarios were not modeled in
2021 due to the low interest rate environment below 2.00%). We augment our interest rate shock analysis with alternative interest
rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening or steepening of the yield curve (non-
parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or when other
business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over 12-month and 24-month
periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. We
attempt to achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of
floating-rate assets, by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing
the mix of our core deposits, and by adjusting our rates to market conditions on a continuing basis. At December 31, 2022, the
instantaneous rate shock of -200bp, -300bp and -400bp over 12-months and over 24-months was outside of the desired parameters
due to the limited ability to reprice deposits in these respective shock scenarios.
Analysis.
Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term
performance in alternative rate environments. These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
Table 16
ESTIMATED CHANGES IN NET INTEREST INCOME
(1)
Percentage Change (12-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-15.0
%
-12.5
%
-10.0
%
-7.5
%
-7.5
%
-10.0
%
-12.5
%
-15.0
%
December 31, 2022
11.3
%
8.4
%
5.5
%
2.8
%
-5.0
%
-12.3
%
-20.0
%
-27.1
%
December 31, 2021
36.6
%
27.2
%
17.8
%
8.7
%
-6.2
%
n/a
%
n/a
%
n/a
%
Percentage Change (24-month shock)
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
-17.5
%
-15.0
%
-12.5
%
-10.0
%
-10.0
%
-12.5
%
-15.0
%
-17.5
%
December 31, 2022
31.3
%
25.2
%
19.0
%
13.1
%
-2.0
%
-13.8
%
-25.7
%
-36.3
%
December 31, 2021
55.0
%
40.5
%
26.1
%
12.2
%
-11.1
%
n/a
%
n/a
%
n/a
%
The Net Interest Income at risk position was generally less favorable at December 31, 2022 compared to December 31, 2021 for
the 12-month and 24-month shocks for rising rate scenarios. Strong loan growth and a reduction in our overnight funds balance
during the year made us less asset sensitive, which is less favorable in rising rate environments, and more favorable in a falling
rate environment.
Net Interest Income at risk is within our prescribed policy limits over both the 12-month and 24-month periods for all rising rate
scenarios, and the down 100 bps rate scenario. The percent change over both a 12-month and 24-month shock are outside of
policy in a rates down 200 bps, down 300 bps, and down 400 bps scenarios due to our limited ability to lower our deposit rates
relative to the decline in market rate. In addition, this analysis incorporates an instantaneous, parallel shock and assumes we
move with market rates and do not lag our deposit rates.
54
The measures of equity value at risk indicate our ongoing economic value by considering the effects of changes in interest rates
on all of our cash flows by discounting the cash flows to estimate the present value of assets and liabilities. The difference
between these discounted values of the assets and liabilities is the economic value of equity, which in theory approximates the fair
value of our net assets.
Table 17
ESTIMATED CHANGES IN ECONOMIC VALUE OF EQUITY
(1)
Changes in Interest Rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-400 bp
Policy Limit
-30.0
%
-25.0
%
-20.0
%
-15.0
%
-15.0
%
-20.0
%
-25.0
%
-30.0
%
December 31, 2022
11.0
%
9.0
%
6.4
%
3.6
%
-7.4
%
-18.8
%
-30.9
%
-40.1
%
December 31, 2021
31.5
%
24.6
%
16.5
%
8.2
%
-19.0
%
n/a
%
n/a
%
n/a
%
EVE Ratio (policy minimum 5.0%)
21.7
%
21.0
%
20.1
%
19.2
%
16.6
%
14.3
%
12.0
%
10.2
%
(1)
Down 200, 300 and 400 bp rate scenarios have been added due to the current interest rate environment.
At December 31, 2022, the economic value of equity was favorable in all rising rate environments and was within prescribed
tolerance levels. Factors that can impact EVE values include the absolute level of rates, the overall structure of the balance sheet
(including liquidity levels), pre-payment speeds, loan floors, and the change of model assumptions.
Although the change in EVE exceeds policy guidelines in the down 300 bps and down 400 bps rate scenarios, the EVE Ratios
(EVE/EVA) were 12.0% and 10.2%, respectively, at December 31, 2022 and were therefore within policy guidelines. EVE is out
of compliance only if BOTH the EVE and EVE ratio are outside of policy guidelines. Therefore, EVE is currently in compliance
with policy in all rate scenarios.
As the interest rate environment and the dynamics of the economy continue to change, additional simulations will be analyzed to
address not only the changing rate environment, but also the changing statement of financial condition mix, measured over
multiple years, to help assess the risk to the Company.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to
maintain our ability to fund loan commitments, purchase securities, accommodate deposit withdrawals or repay other liabilities in
accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by
policies that are formulated and monitored by our ALCO and senior management, and which take into account the marketability
of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various
funding sources with an emphasis on accessibility, stability, reliability, and cost-effectiveness. For 2022 and 2021, our principal
source of funding was client deposits, supplemented by our short-term and long-term borrowings, primarily from our trust-
preferred securities, securities sold under repurchase agreements, federal funds purchased, and FHLB borrowings. We believe
that the cash generated from operations, our borrowing capacity and our access to capital resources are sufficient to meet our
future operating capital and funding requirements.
At December 31, 2022, we had the ability to generate approximately $1.354 billion in additional liquidity through all of our
available resources beyond our overnight funds sold position. In addition to the primary borrowing outlets mentioned above, we
also have the ability to generate liquidity by borrowing from the Federal Reserve Discount Window and through brokered
deposits. We recognize the importance of maintaining liquidity and have developed a Contingent Liquidity Plan, which addresses
various liquidity stress levels and our response and action based on the level of severity. We periodically test our credit facilities
for access to the funds, but also understand that as the severity of the liquidity level increases certain credit facilities may no
longer be available. We conduct quarterly liquidity stress tests and the results are reported to ALCO, MROC, ROC and the Board
of Directors. We believe the liquidity available to us is sufficient to meet our ongoing needs.
We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral
for borrowings or deposits, and/or to sell selected securities. Our portfolio consists of debt issued by the U.S. Treasury, U.S.
governmental agencies, municipal governments, and corporate entities. The weighted-average maturity of our portfolio was 3.57
years at December 31, 2022 and the available-for-sale portfolio had a net unrealized pre-tax loss of $41.9 million.
55
Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds
purchased) was $649.8 million in 2022 compared to an average net overnight funds sold position of $790.9 million in 2021. The
declining overnight funds position in 2022 reflected strong growth in average loans.
We expect capital expenditures over the next 12 months to be approximately $8.0 million, which will consist primarily of
technology purchases for banking offices, office leasehold improvements, business applications, and information technology
security needs as well as furniture and fixtures and banking office remodels. We expect that these capital expenditures will be
funded with existing resources without impairing our ability to meet our ongoing obligations.
Borrowings
At December 31, 2022, total advances from the FHLB consisted of $0.6 million in outstanding debt comprised of three notes. In
2022, the Bank made FHLB advance payments totaling $0.9 million. Two advances matured, none were paid off, and no new
fixed rate advances were obtained in 2022. The FHLB notes are collateralized by a floating lien on certain 1-4 family residential
mortgage loans, commercial real estate mortgage loans, and home equity mortgage loans.
We have issued two junior subordinated deferrable interest notes to wholly owned Delaware statutory trusts. The first note for
$30.9 million was issued to CCBG Capital Trust I in November 2004. The second note for $32.0 million was issued to CCBG
Capital Trust II in May 2005.
In the second quarter of 2020, we entered into a derivative cash flow hedge of our interest rate risk related to our subordinated
debt. The notional amount of the derivative is $30 million ($10 million of the CCBG Capital Trust I borrowing and $20 million
of the CCBG Capital Trust II borrowing). The interest rate swap agreement requires CCBG to pay fixed and receive variable
(Libor plus spread) and has an average all-in fixed rate of 2.50% for 10 years. Additional detail on the interest rate swap
agreement is provided in Note 5 – Derivatives in the Consolidated Financial Statements.
For 2022, average short-term borrowings, consisting primarily of CCHL warehouse line balances, declined $13.0 million
compared to 2021 due to lower residential loan production volume which reduced short-term borrowing needs.
See Note 11 – Short Term Borrowings and Note 12 – Long Term Borrowings in the Notes to Consolidated Financial Statements
for additional information on borrowings.
In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future
payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing
of such payments as of December 31, 2022. These include payments related to (i) long-term borrowings (Note 12 – Long-Term
Borrowings), (ii) short-term borrowings (Note 11 – Short-Term Borrowings), (iii) operating leases (Note 7 – Leases), (iv) time
deposits with stated maturities (Note 10 – Deposits), and (v) commitments to extend credit and standby letters of credit (Note 21 –
Commitments and Contingencies).
Capital Resources
Shareowners’ equity was $394.0 million at December 31, 2022 compared to $383.2 million at December 31, 2021. For 2022,
shareowners’ equity was positively impacted by net income attributable to common shareowners of $40.1 million, a $3.1 million
increase in the fair value of the interest rate swap related to subordinated debt, stock compensation accretion of $1.3 million, net
adjustments totaling $1.6 million related to transactions under our stock compensation plans, and an $8.7 million decrease in the
accumulated other comprehensive loss for our pension plan. Shareowners’ equity was reduced by common stock dividends of
$11.2 million ($0.66 per share) and a $32.8 million increase in the unrealized loss on investment securities. Additional historical
information on capital changes is provided in the Consolidated Statements of Changes in Shareowners’ Equity in the
Consolidated Financial Statements.
We continue to maintain a strong capital position. The ratio of shareowners' equity to total assets at December 31, 2022 was
8.71% compared to 8.99% at December 31, 2021. Further, our tangible common equity ratio was 6.79 % (non-GAAP financial
measure) at December 31, 2022 compared to 6.95% at December 31, 2021. The decline in the ratios in 2022 was substantially
due to an increase in the unrealized loss on available-for-sale securities.
We are subject to regulatory risk-based capital requirements that measure capital relative to risk-weighted assets and off-balance
sheet financial instruments. At December 31, 2022, our total risk-based capital ratio was 15.52% compared to 17.15% at
December 31, 2021. Our common equity tier 1 capital ratio was 12.64% and 13.86%, respectively, on these dates. Our leverage
ratio was 9.06% and 8.95%, respectively, on these dates. With the exception of the leverage ratio, the decline in our regulatory
capital ratios compared to 2021 was attributable to strong loan growth during 2022. For a detailed discussion of our regulatory
capital requirements, refer to the “Regulatory Considerations – Capital Regulations” section on page 15. See Note 17 in the
Notes to Consolidated Financial Statements for additional information as to our capital adequacy.
56
At December 31, 2022, our common stock had a book value of $23.12 per diluted share compared to $22.63 at December 31,
2021. Book value is impacted by the net unrealized gains and losses on investment securities. At December 31, 2022, the net
unrealized loss was $37.3 million compared to an unrealized loss of $4.6 million at December 31, 2021. Book value is also
impacted by the recording of our unfunded pension liability through other comprehensive income in accordance with Accounting
Standards Codification Topic 715. At December 31, 2022, the net pension liability reflected in accumulated other comprehensive
loss was $4.5 million compared to $13.2 million at December 31, 2021. The favorable adjustment to our unfunded pension
liability reflected a higher discount rate used to calculate the present value of the pension obligation that was partially offset by a
lower than estimated return on plan assets. The higher discount rate reflected the increase in long-term interest rates in 2022.
This adjustment also favorably impacted our tangible capital ratio. Further, book value is impacted by the periodic adjustment
made to record temporary equity at redemption value and there were no adjustments made during 2022.
In February 2014, our Board of Directors authorized the repurchase of up to 1,500,000 shares of our outstanding common stock
over a five-year period. Repurchases under the 2014 plan could be made in the open market or in privately negotiated
transactions; however, we were not obligated to repurchase any specified number of shares. In January 2019, the 2014 plan was
terminated and our Board of Directors approved a new share repurchase plan that authorizes the repurchase of up to 750,000
shares of our outstanding common stock over a five-year period. Terms of this plan are substantially similar to the 2014 plan. No
shares were repurchased in 2022 or 2021. 99,952 shares were repurchased in 2020 at an average price of $20.39 and 77,000
shares were repurchased in 2019 at an average price of $23.40. Since 2014, a total of 1,361,682 shares of our outstanding
common stock have been repurchased at an average price of $17. 93 under our stock repurchase plans. In January 2023, we
repurchased 25,000 shares of our common stock at $32.39 per share.
Dividends
Adequate capital and financial strength are paramount to our stability and the stability of CCB. Cash dividends declared and paid
should not place unnecessary strain on our capital levels. When determining the level of dividends, the following factors are
considered:
●
Compliance with state and federal laws and regulations;
●
Our capital position and our ability to meet our financial obligations;
●
Projected earnings and asset levels; and
●
The ability of the Bank and us to fund dividends.
OFF-BALANCE SHEET ARRANGEMENTS
We are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs
of our clients. See Note 21 in the Notes to Consolidated Financial Statements.
If commitments arising from these financial instruments continue to require funding at historical levels, management does not
anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments
require funding in excess of historical levels, management believes current liquidity, investment security maturities, available
advances from the FHLB and Federal Reserve Bank, and warehouse lines of credit provide a sufficient source of funds to meet
these commitments.
In conjunction with the sale and securitization of loans held for sale and their related servicing rights, we may be exposed to
liability resulting from recourse, repurchase, and make-whole agreements. If it is determined subsequent to our sale of a loan or
its related servicing rights that a breach of the representations or warranties made in the applicable sale agreement has occurred,
which may include guarantees that prepayments will not occur within a specified and customary time frame, we may have an
obligation to either (a) repurchase the loan for the unpaid principal balance, accrued interest, and related advances; (b) indemnify
the purchaser against any loss it suffers; or (c) make the purchaser whole for the economic benefits of the loan and its related
servicing rights.
Our repurchase, indemnification and make-whole obligations vary based upon the terms of the applicable agreements, the nature
of the asserted breach, and the status of the mortgage loan at the time a claim is made. We establish reserves for estimated losses
of this nature inherent in the origination of mortgage loans by estimating the losses inherent in the population of all loans sold
based on trends in claims and actual loss severities experienced. The reserve will include accruals for probable contingent losses
in addition to those identified in the pipeline of claims received. The estimation process is designed to include amounts based on
actual losses experienced from actual activity.
57
ACCOUNTING POLICIES
Critical Accounting Policies and Estimates
The consolidated financial statements and accompanying Notes to Consolidated Financial Statements are prepared in accordance
with accounting principles generally accepted in the United States of America, which require us to make various estimates and
assumptions (see Note 1 in the Notes to Consolidated Financial Statements). We believe that, of our significant accounting
policies, the following may involve a higher degree of judgment and complexity.
Allowance for Credit Losses
. The amount of the allowance for credit losses represents management’s best estimate of current
expected credit losses considering available information, from internal and external sources, relevant to assessing exposure to
credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience,
current conditions, and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the
estimation of expected credit losses, adjustments to historical loss information may be made for changes in loan risk grades, loss
experience trends, loan prepayment trends, differences in current portfolio-specific risk characteristics, environmental conditions,
future expectations, or other relevant factors. While management utilizes its best judgment and information available, the
ultimate adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the
performance of our portfolios, the economy, changes in interest rates, and the view of the regulatory authorities toward
classification of assets. Detailed information on the Allowance for Credit Losses valuation, and the assumptions used are provided
in Note 1 – Significant Accounting Policies of the Notes to Consolidated Financial Statements.
Goodwill
. Goodwill represents the excess of the cost of acquired businesses over the fair value of their identifiable net
assets. We perform an impairment review on an annual basis or more frequently if events or changes in circumstances indicate
that the carrying value may not be recoverable. Adverse changes in the economic environment, declining operations, or other
factors could result in a decline in the estimated implied fair value of goodwill. If the estimated implied fair value of goodwill is
less than the carrying amount, a loss would be recognized to reduce the carrying amount to the estimated implied fair value.
We evaluate goodwill for impairment on an annual basis and in 2017 adopted Accounting Standards Update 2017-04, Intangibles
– Goodwill and Other (Topic 350): Simplifying Accounting for Goodwill Impairment which allows for a qualitative assessment
of goodwill impairment indicators. If the assessment indicates that impairment has more than likely occurred, the Company must
compare the estimated fair value of the reporting unit to its carrying amount. If the carrying amount of the reporting unit exceeds
its estimated fair value, an impairment charge is recorded equal to the excess.
During the fourth quarter of 2022, we performed our annual impairment testing. We proceeded with qualitative assessment by
evaluating impairment indicators and concluded there were none that indicated that goodwill impairment had occurred.
Pension Assumptions
.
We have a defined benefit pension plan for the benefit of substantially all of our associates. Our funding
policy with respect to the pension plan is to contribute, at a minimum, amounts sufficient to meet minimum funding requirements
as set by law. Pension expense is determined by an external actuarial valuation based on assumptions that are evaluated annually
as of December 31, the measurement date for the pension obligation. The service cost component of pension expense is reflected
as “Compensation Expense” in the Consolidated Statements of Income. All other components of pension expense are reflected as
“Other Expense”.
The Consolidated Statements of Financial Condition reflect an accrued pension benefit cost due to funding levels and
unrecognized actuarial amounts. The most significant assumptions used in calculating the pension obligation are the weighted-
average discount rate used to determine the present value of the pension obligation, the weighted-average expected long-term rate
of return on plan assets, and the assumed rate of annual compensation increases. These assumptions are re-evaluated annually
with the external actuaries, taking into consideration both current market conditions and anticipated long-term market conditions.
The discount rate is determined by matching the anticipated defined pension plan cash flows to the spot rates of a corporate AA-
rated bond index/yield curve and solving for the single equivalent discount rate which would produce the same present value.
This methodology is applied consistently from year to year. The discount rate utilized in 2022 was 3.11%. The estimated impact
to 2022 pension expense of a 25 basis point increase or decrease in the discount rate would have been an approximate $0.9
million decrease or increase, respectively. We anticipate using a 5.63% discount rate in 2023.
Based on the balances at the December 31, 2022 measurement date, the estimated impact on accumulated other comprehensive
loss of a 25 basis point increase or decrease in the discount rate would have been a decrease or increase of approximately $2.2
million (after-tax). The estimated impact on accumulated other comprehensive loss of a 1% favorable/unfavorable variance in the
actual rate of return on plan assets versus the assumed rate of return on plan assets of 6.75% would have been an approximate
$1.2 million (after-tax) decrease/increase, respectively.
58
The weighted-average expected long-term rate of return on plan assets is determined based on the current and anticipated future
mix of assets in the plan. The assets currently consist of equity securities, U.S. Government and Government agency debt
securities, and other securities (typically temporary liquid funds awaiting investment). The weighted-average expected long-term
rate of return on plan assets utilized for 2022 was 6.75%. The estimated impact to 2022 pension expense of a 25 basis point
increase or decrease in the rate of return would have been an approximate $0.4 million decrease or increase, respectively. We
anticipate using a rate of return on plan assets of 6.75% for 2023.
The assumed rate of annual compensation increases of 4.40% in 2022 reflected expected trends in salaries and the employee
base. We anticipate using a compensation increase of approximately 5.10% for 2023 reflecting current market trends.
Detailed information on the pension plan, the actuarially determined disclosures, and the assumptions used are provided in Note
15 of the Notes to Consolidated Financial Statements.
Income Taxes
.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between
carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded.
We
recognize interest and/or penalties related to income tax matters in other expenses.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See “Financial Condition - Market Risk and Interest Rate Sensitivity” in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, above, which is incorporated herein by reference.
59
Item 8.
Financial Statements and Supplementary Data
2022 Report of Independent Registered Public Accounting Firm (PCAOB ID
)
2021 Report of Independent Registered Public Accounting Firm (PCAOB ID 42)
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
60
Report of Independent Registered Public Accounting Firm
63
Consolidated Statements of Financial Condition
64
Consolidated Statements of Income
65
Consolidated Statements of Comprehensive Income
66
Consolidated Statements of Changes in Shareowners’ Equity
67
Consolidated Statements of Cash Flows
68
Notes to Consolidated Financial Statements
60
Report of Independent Registered Public Accounting Firm
To the Shareowners, Board of Directors and Audit Committee
Capital City Bank Group, Inc.
Tallahassee, Florida
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Capital City Bank Group, Inc. (the
“Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes
in shareowners’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of
December 31, 2022, based on criteria established in
Internal Control – Integrated Framework: (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below arises from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which it relates.
Allowance for Credit Losses
The Company’s loans held for investment portfolio totaled $2.53 billion as of December 31, 2022, and the allowance for credit
losses on loans held for investment was $24.7 million. The Company’s unfunded loan commitments totaled $781.1 million, with
an allowance for credit loss of $3.0 million. The Company’s available-for-sale securities and held-to-maturity securities
portfolios totaled $1.07 billion as of December 31, 2022, and the allowance for credit losses on securities was $41,000. Together
these allowance amounts represent the allowance for credit losses (ACL).
61
As more fully described in
Notes 1
,
,
21
exposure to expected credit losses as of the statement of financial condition date for existing financial instruments held at
amortized cost and off-balance sheet exposures, such as unfunded loan commitments, lines of credit and other unused
commitments that are not unconditionally cancelable by the Company.
The determination of the ACL requires management to exercise significant judgment and consider numerous subjective factors,
including determining qualitative factors utilized to adjust historical loss rates, loan credit risk grading and identifying loans
requiring individual evaluation among others. As disclosed by management, different assumptions and conditions could result in
a materially different amount for the estimate of the ACL.
We identified the ACL at December 31, 2022, as a critical audit matter. Auditing the ACL involved a high degree of subjectivity
in evaluating management’s estimates, such as evaluating management’s identification of credit quality indicators, grouping of
loans determined to be similar into pools, estimating the remaining life of loans in a pool, assessment of economic conditions and
other environmental factors, evaluating the adequacy of specific allowances associated with individually evaluated loans and
assessing the appropriateness of loan credit risk grades.
The primary procedures we performed as of December 31, 2022, to address this critical audit matter included:
●
Obtained an understanding of the Company’s process for establishing the ACL, including the qualitative factor
adjustments of the ACL
●
Tested the design and operating effectiveness of controls, including those related to technology, over the ACL,
including:
o
loan data completeness and accuracy
o
reconciliation of loan balances accounted for at amortized cost and underlying detail
o
classifications of loans by loan pool
o
historical charge-off data
o
evaluation of appraisals
o
the establishment of qualitative adjustments
o
back testing and stress testing
o
loan credit risk ratings
o
establishment of specific ACL on individually evaluated loan,
o
management’s review and disclosure controls over the ACL
●
Tested the completeness and accuracy of the information utilized in the ACL, including evaluating the relevance and
reliability of such information
●
Tested the ACL model’s computational accuracy
●
Evaluated the qualitative adjustments to the ACL, including assessing the basis for adjustments and the reasonableness
of the significant assumptions
●
Tested the loan review functions and evaluated the reasonableness of loan credit risk ratings
●
Evaluated the reasonableness of specific allowances on individually evaluated loans
●
Evaluated the overall reasonableness of assumptions used by management considering trends identified within peer
groups
●
Evaluated the accuracy and completeness of ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments,
disclosures in the consolidated financial statements
●
Evaluated credit quality trends in delinquencies, non-accruals, charge -offs and loan risk ratings
●
Tested estimated utilization rate of unfunded loan commitments
●
Evaluated documentation prepared to assess the methodology utilized in the ACL calculation for securities for
reasonableness
We have served as the Company’s auditor since 2021.
March 1, 2023
62
Report of Independent Registered Public Accounting Firm
To the Shareowners and the Board of Directors of Capital City Bank Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income
,
flows of Capital City Bank Group, Inc. for the year ended December 31, 2020, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2020, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
We served as the Company’s auditor from 2007 to 2021.
March 1, 2021
63
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of December 31,
(Dollars in Thousands)
2022
2021
ASSETS
Cash and Due From Banks
$
$
Federal Funds Sold and Interest Bearing Deposits
Total Cash and Cash Equivalents
Investment Securities, Available for Sale, at fair value (amortized cost of $
)
Investment Securities, Held to Maturity (fair value of $
)
Equity Securities
Total Investment Securities
Loans Held For Sale, at fair value
Loans, Held for Investment
Allowance for Credit Losses
(24,736 )
(21,606 )
Loans Held for Investment, Net
Premises and Equipment, Net
Goodwill and Other Intangibles
Other Real Estate Owned
Other Assets
Total Assets
$
$
LIABILITIES
Deposits:
Noninterest Bearing Deposits
$
$
Interest Bearing Deposits
Total Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Other Liabilities
Total Liabilities
Temporary Equity
SHAREOWNERS’ EQUITY
Preferred Stock, $
-
-
Common Stock, $
shares issued and outstanding at December 31, 2022 and 2021, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
(37,229 )
(16,214 )
Total Shareowners’ Equity
Total Liabilities, Temporary Equity, and Shareowners’ Equity
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
64
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(Dollars in Thousands, Except Per Share Data)
2022
2021
2020
INTEREST INCOME
Loans, including Fees
$
$
$
Investment Securities:
Taxable
Tax Exempt
Federal Funds Sold and Interest Bearing Deposits
Total Interest Income
INTEREST EXPENSE
Deposits
Short-Term Borrowings
Subordinated Notes Payable
Other Long-Term Borrowings
Total Interest Expense
NET INTEREST INCOME
Provision for Credit Losses
(1,553 )
Net Interest Income After Provision for Credit Losses
NONINTEREST INCOME
Deposit Fees
Bank Card Fees
Wealth Management Fees
Mortgage Banking Revenues
Other
Total Noninterest Income
NONINTEREST EXPENSE
Compensation
Occupancy, Net
Other
Total Noninterest Expense
INCOME BEFORE INCOME TAXES
Income Tax Expense
NET INCOME
$
$
$
Loss (Income) Attributable to Noncontrolling Interests
(6,220 )
(11,078 )
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
$
$
BASIC NET INCOME PER SHARE
$
$
$
DILUTED NET INCOME PER SHARE
$
$
$
Average Basic Common Shares Outstanding
Average Diluted Common Shares Outstanding
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
65
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
(Dollars in Thousands)
2022
2021
2020
NET INCOME ATTRIBUTABLE TO COMMON SHAREOWNERS
$
$
$
Other comprehensive income (loss), before tax:
Investment Securities:
Change in net unrealized (loss) gain on securities available-for-sale
(35,814 )
(9,673 )
Unrealized losses on securities transferred from available-for-sale to
(9,384 )
Amortization of unrealized losses on securities transferred from
Derivative:
Change in net unrealized gain on effective cash flow derivative
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
(880 )
Reclassification adjustment for amortization of net loss
Defined benefit plan settlement
Current year actuarial gain (loss)
(27,924 )
Total Benefit Plans
(24,413 )
Other comprehensive (loss) income, before tax:
(27,995 )
(21,366 )
Deferred tax benefit (expense) related to other comprehensive income
(9,352 )
Other comprehensive (loss) income, net of tax
(21,015 )
(15,961 )
TOTAL COMPREHENSIVE INCOME
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
66
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
Accumulated
Other
Comprehensive
(Loss) Income,
Net of Taxes
(Dollars in Thousands, Except Share Data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Total
Balance, January 1, 2020
$
$
$
$
(28,181 )
$
Impact of Adopting ASC 326 (CECL)
(3,095 )
(3,095 )
Net Income Attributable to Common Shareowners
Reclassification to Temporary Equity
(1)
(9,323 )
(9,323 )
Other Comprehensive Loss, Net of Tax
(15,961 )
(15,961 )
Cash Dividends ($
-
(9,567 )
(9,567 )
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Repurchase of Common Stock
(99,952 )
(1 )
(2,041 )
(2,042 )
Balance, December 31, 2020
(44,142 )
Net Income Attributable to Common Shareowners
-
Reclassification to Temporary Equity
(1)
-
Other Comprehensive Income, Net of Tax
-
Cash Dividends ($
-
(10,459 )
(10,459 )
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Balance, December 31, 2021
(16,214 )
Net Income Attributable to Common Shareowners
-
Other Comprehensive Loss, Net of Tax
-
(21,015 )
(21,015 )
Cash Dividends ($
-
(11,191 )
(11,191 )
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Balance, December 31, 2022
$
$
$
$
(37,229 )
$
(1)
Adjustments to redemption value for non-controlling interest in CCHL
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
67
CAPITAL CITY BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(Dollars in Thousands)
2022
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Attributable to Common Shareowners
$
$
$
Adjustments to Reconcile Net Income to Cash From Operating Activities:
(1,553 )
(1,024,526 )
(1,541,356 )
(606,337 )
(30,624 )
(52,425 )
(63,344 )
(2,742 )
(2,792
(250 )
(27 )
(4 )
(84 )
(1,583 )
(4,157 )
(53 )
(108 )
(165 )
(156 )
(422 )
(1,662 )
(393 )
(8,636 )
(38,353 )
(7,846 )
(48,611 )
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
(219,865 )
(251,525 )
(32,250 )
Securities Available for Sale:
(52,238 )
(523,961 )
(108,728 )
Purchases of Loans Held for Investment
(438,415 )
(114,913 )
(43,804 )
Net (Increase) Decrease in Loans
(162,406 )
(130,020 )
Net Cash Paid for Acquisitions
(4,482 )
(2,405 )
Proceeds From Sales of Other Real Estate Owned
Purchases of Premises and Equipment, net
(6,322 )
(5,193 )
(9,738 )
Noncontrolling Interest Contributions
Net Cash Used In Investing Activities
(733,698 )
(447,720 )
(32,594 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
Net Increase (Decrease) in Short-Term Borrowings
(45,938 )
Repayment of Other Long-Term Borrowings
(249 )
(1,332 )
(3,363 )
Dividends Paid
(11,191 )
(10,459 )
(9,567 )
Payments to Repurchase Common Stock
(2,042 )
Issuance of Common Stock Under Compensation Plans
Net Cash Provided By Financing Activities
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(434,704 )
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
$
$
$
Supplemental Cash Flow Disclosures:
$
$
$
$
$
$
Noncash Investing and Financing Activities:
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
68
Notes to Consolidated Financial Statements
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Capital City Bank Group, Inc. (“CCBG”) provides a full range of banking and banking-related services to individual and
corporate clients through its wholly-owned subsidiary, Capital City Bank (“CCB” or the “Bank” and together with CCBG, the
“Company”), with banking offices located in Florida, Georgia, and Alabama. The Company is subject to competition from other
financial institutions, is subject to regulation by certain government agencies and undergoes periodic examinations by those
regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of CCBG and CCB. CCBG also maintains an insurance subsidiary,
Capital City Strategic Wealth, LLC. CCB has two primary subsidiaries, which are wholly owned, Capital City Trust Company
and Capital City Investments. CCB also maintains a
% membership interest in a consolidated subsidiary, Capital City Home
Loans, LLC. All material inter-company transactions and accounts have been eliminated in consolidation.
The Company, which operates a single reportable business segment that is comprised of commercial banking within the states of
Florida, Georgia, and Alabama, follows accounting principles generally accepted in the United States of America and reporting
practices applicable to the banking industry. The principles which materially affect the financial position, results of operations
and cash flows are summarized below.
The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a
voting interest entity or a variable interest entity under accounting principles generally accepted in the United States of America.
Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself
independently and provide the equity holders with the obligation to absorb losses, the right to receive residual returns and the
right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has all, or at
least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities (“VIE’s”) are
entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in an entity is
present when an enterprise has a variable interest, or a combination of variable interests, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s expected residual returns, or both. The enterprise with a controlling financial
interest, known as the primary beneficiary, consolidates the VIE. Two of CCBG’s wholly owned subsidiaries, CCBG Capital
Trust I (established November 1, 2004) and CCBG Capital Trust II (established May 24, 2005) are VIEs for which the Company
is not the primary beneficiary. Accordingly, the accounts of these entities are not included in the Company’s consolidated
financial statements.
Certain previously reported amounts have been reclassified to conform to the current year’s presentation. The Company has
evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements
included in this Annual Report on Form 10-K were filed with the United States Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from these estimates. Material estimates that are particularly
susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses, pension expense,
income taxes, loss contingencies, valuation of other real estate owned, and valuation of goodwill and their respective analysis of
impairment.
Business Combination
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic Wealth, LLC (“CCSW”) acquired substantially all
of the assets of Strategic Wealth Group, LLC and certain related businesses (“SWG”), including advisory, service, and insurance
carrier agreements, and the assignment of all related revenues thereof. Under the terms of the purchase agreement, SWG
principles became officers of CCSW and will continue the operation of their five offices in South Georgia offering wealth
management services and comprehensive risk management and asset protection services for individuals and businesses.
CCBG
paid $
million.
69
On March 1, 2020, CCB completed its acquisition of a
% membership interest in Brand Mortgage Group, LLC (“Brand”),
which is now operated as Capital City Home Loans, LLC (“CCHL”). CCHL was consolidated into CCBG’s financial statements
effective March 1, 2020. Assets acquired totaled $
totaled $
alliance with Brand was to gain access to an expanded residential mortgage product line-up and investor base (including a
mandatory delivery channel for loan sales), to hedge our net interest income business and to generate other operational synergies
and cost savings. CCB made a $
% membership interest and entered into a buyout agreement
for the remaining
% noncontrolling interest resulting in temporary equity with a fair value of $
$
include Brand’s strong management team and expertise in the mortgage industry, historical record of earnings, and operational
synergies created as part of the strategic alliance.
Recently Adopted Accounting Pronouncements
Since 2019, the Company has adopted ASU 2016-13
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments,
ASU 2019-12 “
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,”
2020-01 “
Investments – Equity Securities (Topic 321) and Investments – Equity Method and Joint Ventures (Topic 323)”,
ASU
2020-04 “
Reference Rate Reform (Topic 848)”,
ASU 2020-08 “
Codification Improvements to Subtopic 310-20, Receivables –
Nonrefundable Fees and Other Costs”,
and ASU 2020-09 “
Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC
Release No. 33-10762”
.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods and all other cash equivalents have a maturity of 90
days or less. The Company is required to maintain average reserve balances with the Federal Reserve Bank based upon a
percentage of deposits. On March 26, 2020, the Federal Reserve reduced the amount of the required reserve balance to
.
The Company maintains certain cash balances that are restricted under warehouse lines of credit and master repurchase
agreements. The restricted cash balance at December 31, 2022 was $
Investment Securities
Investment securities are classified as held-to-maturity (“HTM”) and carried at amortized cost when the Company has the positive
intent and ability to hold them until maturity. Investment securities not classified as held-to-maturity are classified as available-
for-sale (“AFS”) and carried at fair value. The Company does not have trading investment securities. Investment securities
classified as equity securities that do not have readily determinable fair values, are measured at cost and remeasured to fair value
when impaired or upon observable transaction prices. The Company determines the appropriate classification of securities at the
time of purchase. For reporting and risk management purposes, we further segment investment securities by the issuer of the
security which correlates to its risk profile: U.S. government treasury, U.S. government agency, state and political subdivisions,
mortgage-backed securities, and corporate debt securities. Certain equity securities with limited marketability, such as stock in
the Federal Reserve Bank and the Federal Home Loan Bank, are classified as available -for-sale and carried at cost.
Interest income includes amortization and accretion of purchase premiums and discounts. Realized gains and losses are derived
from the amortized cost of the security sold. Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method. Securities transferred from available-for-sale to held-to-maturity are
recorded at amortized cost plus or minus any unrealized gain or loss at the time of transfer. Any existing unrecognized gain or
loss continues to be reported in accumulated other comprehensive income (net of tax) and amortized as an adjustment to interest
income over the remaining life of the security. Any existing allowance for credit loss is reversed at the time of transfer.
Subsequent to transfer, the allowance for credit losses on the transferred security is evaluated in accordance with the accounting
policy for held-to-maturity securities. Additionally, any allowance amounts reversed or established as part of the transfer are
presented on a gross basis in the Consolidated Statement of Income.
The accrual of interest is generally suspended on securities more than 90 days past due with respect to principal or interest. When
a security is placed on nonaccrual status, all previously accrued and uncollected interest is reversed against current income and
thus not included in the estimate of credit losses.
Credit losses and changes thereto, are established as an allowance for credit loss through a provision for credit loss expense.
Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when
either of the criteria regarding intent or requirement to sell is met.
70
Certain debt securities in the Company’s investment portfolio were issued by a U.S. government entity or agency and are either
explicitly or implicitly guaranteed by the U.S. government. The Company considers the long history of no credit losses on these
securities indicates that the expectation of nonpayment of the amortized cost basis is zero, even if the U.S. government were to
technically default. Further, certain municipal securities held by the Company have been pre-refunded and secured by
government guaranteed treasuries. Therefore, for the aforementioned securities, the Company does not assess or record expected
credit losses due to the zero loss assumption.
Impairment - Available -for-Sale Securities
.
Unrealized gains on available-for-sale securities are excluded from earnings and reported, net of tax, in other comprehensive
income. For available-for-sale securities that are in an unrealized loss position, the Company first assesses whether it intends to
sell, or whether it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If
either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value
through income. For available-for-sale securities that do not meet the aforementioned criteria or have a zero loss assumption, the
Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment,
management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a
rating agency, and adverse conditions specifically related to the security, among other factors. If the assessment indicates that a
credit loss exists, the present value of cash flows to be collected from the security are compared to the amortized cost basis of the
security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and
an allowance for credit losses is recorded through a provision for credit loss expense, limited by the amount that fair value is less
than the amortized cost basis. Any impairment that is not credit related is recognized in other comprehensive income.
Allowance for Credit Losses - Held-to-Maturity Securities.
Management measures expected credit losses on each individual held-to-maturity debt security that has not been deemed to have
a zero assumption. Each security that is not deemed to have zero credit losses is individually measured based on net realizable
value, or the difference between the discounted value of the expected cash flows, based on the original effective rate, and the
recorded amortized basis of the security. To the extent a shortfall is related to credit loss, an allowance for credit loss is recorded
through a provision for credit loss expense.
Loans Held for Investment
Loans held for investment (“HFI”) are stated at amortized cost which includes the principal amount outstanding, net premiums
and discounts, and net deferred loan fees and costs. Accrued interest receivable on loans is reported in other assets and is not
included in the amortized cost basis of loans. Interest income is accrued on the effective yield method based on outstanding
principal balances and includes loan late fees. Fees charged to originate loans and direct loan origination costs are deferred and
amortized over the life of the loan as a yield adjustment.
The Company defines loans as past due when one full payment is past due or a contractual maturity is over 30 days late. The
accrual of interest is generally suspended on loans more than 90 days past due with respect to principal or interest. When a loan is
placed on nonaccrual status, all previously accrued and uncollected interest is reversed against current income and thus a policy
election has been made to not include in the estimate of credit losses. Interest income on nonaccrual loans is recognized when the
ultimate collectability is no longer considered doubtful. Loans are returned to accrual status when the principal and interest
amounts contractually due are brought current or when future payments are reasonably assured.
Loan charge-offs on commercial and investor real estate loans are recorded when the facts and circumstances of the individual
loan confirm the loan is not fully collectible and the loss is reasonably quantifiable. Factors considered in making these
determinations are the borrower’s and any guarantor’s ability and willingness to pay, the status of the account in bankruptcy court
(if applicable), and collateral value. Charge-off decisions for consumer loans are dictated by the Federal Financial Institutions
Examination Council’s Uniform Retail Credit Classification and Account Management Policy which establishes standards for the
classification and treatment of consumer loans, which generally require charge-off after 120 days of delinquency.
The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures designed to
maximize loan income within an acceptable level of risk. Reporting systems are used to monitor loan originations, loan ratings,
concentrations, loan delinquencies, nonperforming and potential problem loans, and other credit quality metrics. The ongoing
review of loan portfolio quality and trends by Management and the Credit Risk Oversight Committee support the process for
estimating the allowance for credit losses.
71
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net
amount expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss provision which is
reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries. Loans are charged off against the
allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the
aggregate of amounts previously charged-off and expected to be charged-off. Expected credit loss inherent in non-cancellable
off-balance sheet credit exposures is provided for through the credit loss provision, but recorded separately in other liabilities.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to
past events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the
basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of
current conditions and forecasts.
The methodology for estimating the amount of credit losses reported in the allowance for credit losses has two basic components:
first, an asset-specific component involving loans that do not share risk characteristics and the measurement of expected credit
losses for such individual loans; and second, a pooled component for expected credit losses for pools of loans that share similar
risk characteristics.
Loans That Do Not Share Risk Characteristics (Indivi dually Analyzed)
Loans that do not share similar risk characteristics are evaluated on an individual basis. Loans deemed to be collateral dependent
have differing risk characteristics and are individually analyzed to estimate the expected credit loss. A loan is collateral
dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on the liquidation and
sale of the underlying collateral. For collateral dependent loans where foreclosure is probable, the expected credit loss is
measured based on the difference between the fair value of the collateral (less selling cost) and the amortized cost basis of the
asset. For collateral dependent loans where foreclosure is not probable, the Company has elected the practical expedient allowed
by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 326-20 to measure the
expected credit loss under the same approach as those loans where foreclosure is probable. For loans with balances greater than
$250,000, the fair value of the collateral is obtained through independent appraisal of the underlying collateral. For loans with
balances less than $250,000, the Company has made a policy election to measure expected loss for these individual loans utilizing
loss rates for similar loan types. The aforementioned measurement criteria are applied for collateral dependent troubled debt
restructurings.
Loans That Share Similar Risk Characteristics (Pooled Loans)
The general steps in determining expected credit losses for the pooled loan component of the allowance are as follows:
●
Segment loans into pools according to similar risk characteristics
●
Develop historical loss rates for each loan pool segment
●
Incorporate the impact of forecasts
●
Incorporate the impact of other qualitative factors
●
Calculate and review pool specific allowance for credit loss estimate
A discounted cash flow methodology is utilized to calculate expected cash flows for the life of each individual loan. The
discounted present value of expected cash flow is then compared to the loan’s amortized cost basis to determine the credit loss
estimate. Individual loan results are aggregated at the pool level in determining total reserves for each loan pool.
The primary inputs used to calculate expected cash flows include historical loss rates which reflect probability of default (“PD”)
and loss given default (“LGD”), and prepayment rates. The historical look-back period is a key factor in the calculation of the PD
rate and is based on management’s assessment of current and forecasted conditions and may vary by loan pool. Loans subject to
the Company’s risk rating process are further sub-segmented by risk rating in the calculation of PD rates. LGD rates generally
reflect the historical average net loss rate by loan pool. Expected cash flows are further adjusted to incorporate the impact of loan
prepayments which will vary by loan segment and interest rate conditions. In general, prepayment rates are based on observed
prepayment rates occurring in the loan portfolio and consideration of forecasted interest rates.
72
In developing loss rates, adjustments are made to incorporate the impact of forecasted conditions. Certain assumptions are also
applied, including the length of the forecast and reversion periods. The forecast period is the period within which management is
able to make a reasonable and supportable assessment of future conditions. The reversion period is the period beyond which
management believes it can develop a reasonable and supportable forecast, and bridges the gap between the forecast period and
the use of historical default and loss rates. The remainder period reflects the remaining life of the loan. The length of the forecast
and reversion periods are periodically evaluated and based on management’s assessment of current and forecasted conditions and
may vary by loan pool. For purposes of developing a reasonable and supportable assessment of future conditions, management
utilizes established industry and economic data points and sources, including the Federal Open Market Committee forecast, with
the forecasted unemployment rate being a significant factor. PD rates for the forecast period will be adjusted accordingly based
on management’s assessment of future conditions. PD rates for the remainder period will reflect the historical mean PD rate.
Reversion period PD rates reflect the difference between forecast and remainder period PD rates calculated using a straight-line
adjustment over the reversion period.
Loss rates are further adjusted to account for other risk factors that impact loan defaults and losses. These adjustments are based
on management’s assessment of trends and conditions that impact credit risk and resulting credit losses, more specifically internal
and external factors that are independent of and not reflected in the quantitative loss rate calculations. Risk factors management
considers in this assessment include trends in underwriting standards, nature/volume/terms of loan originations, past due loans,
loan review systems, collateral valuations, concentrations, legal/regulatory/political conditions, and the unforeseen impact of
natural disasters.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which it is exposed to credit risk through a
contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for
credit losses on off-balance sheet credit exposures is adjusted as a provision for credit loss expense and is recorded in other
liabilities. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses
on commitments expected to be funded over its estimated life and applies the same estimated loss rate as determined for current
outstanding loan balances by segment. Off-balance sheet credit exposures are identified and classified in the same categories as
the allowance for credit losses with similar risk characteristics that have been previously mentioned.
Mortgage Banking Activities
Mortgage Loans Held for Sale and Revenue Recognition
Mortgage loans held for sale (“HFS”) are carried at fair value under the fair value option with changes in fair value recorded in
mortgage banking revenues on the Consolidated Statements of Income. The fair value of mortgage loans held for sale committed
to investors is calculated using observable market information such as the investor commitment, assignment of trade or other
mandatory delivery commitment prices. The Company bases loans committed to Federal National Mortgage Association
(“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation
(“FHLMC”) (“Agency”) investors based on the Agency’s quoted mortgage backed security (“MBS”) prices. The fair value of
mortgage loans held for sale not committed to investors is based on quoted best execution secondary market prices. If no such
quoted price exists, the fair value is determined using quoted prices for a similar asset or assets, such as MBS prices, adjusted for
the specific attributes of that loan, which would be used by other market participants.
Gains and losses from the sale of mortgage loans held for sale are recognized based upon the difference between the sales
proceeds and carrying value of the related loans upon sale and are recorded in mortgage banking revenues on the Consolidated
Statements of Income. Sales proceeds reflect the cash received from investors through the sale of the loan and servicing release
premium. If the related mortgage loan is sold with servicing retained, the MSR addition is recorded in mortgage banking revenues
on the Consolidated Statements of Income. Mortgage banking revenues also includes the unrealized gains and losses associated
with the changes in the fair value of mortgage loans held for sale, and the realized and unrealized gains and losses from derivative
instruments.
Mortgage loans held for sale are considered sold when the Company surrenders control over the financial assets. Control is
considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the
Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets
through either an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before
their maturity or the ability to unilaterally cause the holder to return specific assets. The Company typically considers the above
criteria to have been met upon acceptance and receipt of sales proceeds from the purchaser.
73
Government National Mortgage Association (“GNMA”) optional repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides
servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a delinquent loan
for an amount equal to 100 percent of the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and
Servicing,” this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option
becomes unconditional. When the Company is deemed to have regained effective control over these loans under the
unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the Consolidated
Statement of Financial Condition, regardless of whether there is intent to exercise the buy-back option. These loans are reported
in other assets with the offsetting liability being reported in other liabilities.
Derivative Instruments (IRLC/Forward Commitments)
The Company holds and issues derivative financial instruments such as interest rate lock commitments (“IRLCs”) and other
forward sale commitments. IRLCs are subject to price risk primarily related to fluctuations in market interest rates. To hedge the
interest rate risk on certain IRLCs, the Company uses forward sale commitments, such as to-be-announced securities (“TBAs”) or
mandatory delivery commitments with investors. Management expects these forward sale commitments to experience changes in
fair value opposite to the changes in fair value of the IRLCs thereby reducing earnings volatility. Forward sale commitments are
also used to hedge the interest rate risk on mortgage loans held for sale that are not committed to investors and still subject to
price risk. If the mandatory delivery commitments are not fulfilled, the Company pays a pair-off fee. Best effort forward sale
commitments are also executed with investors, whereby certain loans are locked with a borrower and simultaneously committed
to an investor at a fixed price. If the best effort IRLC does not fund, there is no obligation to fulfill the investor commitment.
The Company considers various factors and strategies in determining what portion of the IRLCs and uncommitted mortgage loans
held for sale to economically hedge. All derivative instruments are recognized as other assets or other liabilities on the
Consolidated Statements of Financial Condition at their fair value. Changes in the fair value of the derivative instruments are
recognized in mortgage banking revenues on the Consolidated Statements of Income in the period in which they occur. Gains and
losses resulting from the pairing-out of forward sale commitments are recognized in mortgage banking revenues on the
Consolidated Statements of Income. The Company accounts for all derivative instruments as free-standing derivative instruments
and does not designate any for hedge accounting.
Mortgage Servicing Rights (“MSRs”) and Revenue Recognition
The Company sells residential mortgage loans in the secondary market and may retain the right to service the loans sold. Upon
sale, an MSR asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for
performing servicing activities. As the Company has not elected to subsequently measure any class of servicing assets under the
fair value measurement method, the Company follows the amortization method. MSRs are amortized to noninterest income
(other income) in proportion to and over the period of estimated net servicing income, and are assessed for impairment at each
reporting date. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair
value, and included in other assets, net, on the Consolidated Statements of Financial Condition.
The Company periodically evaluates its MSRs asset for impairment. Impairment is assessed based on fair value at each reporting
date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall,
prepayment speeds are usually faster and the value of the MSRs asset generally decreases, requiring additional valuation reserve.
Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally
increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the
amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the
temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-
temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is
recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is
available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and
valuation allowance, precluding subsequent recoveries.
74
Derivative/Hedging Activities
At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s
intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the
variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument
with no hedging designation (“standalone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the
offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the
gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods
during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are
not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in
current earnings. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest
expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are
reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the
items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management
objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation
includes linking fair value or cash flow hedges to specific assets and liabilities on the Consolidated Statement of Financial
Condition or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s
inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in
fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative
is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or
terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the
derivative as a hedge is no longer appropriate or intended. When hedge accounting is discontinued, subsequent changes in fair
value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability
is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of
the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still
expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the
same periods, in which the hedged transactions will affect earnings.
Long-Lived Assets
Premises and equipment is stated at cost less accumulated depreciation, computed on the straight-line method over the estimated
useful lives for each type of asset with premises being depreciated over a range of
depreciated over a range of
depreciated over the lesser of the useful life or the remaining lease term. Repairs and maintenance are charged to noninterest
expense as incurred.
Long-lived assets are evaluated for impairment if circumstances suggest that their carrying value may not be recoverable, by
comparing the carrying value to estimated undiscounted cash flows. If the asset is deemed impaired, an impairment charge is
recorded equal to the carrying value less the fair value. See Note 6 – Premises and Equipment for additional information.
Leases
The Company has entered into various operating leases, primarily for banking offices. Generally, these leases have initial lease
terms from one to ten years. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is
at the Company’s sole discretion. The Company does not consider exercise of any lease renewal options reasonably certain.
Certain of the lease contain early termination options. No renewal options or early termination options have been included in the
calculation of the operating right-of-use assets or operating lease liabilities. Certain of the lease agreements provide for periodic
adjustments to rental payments for inflation. At the commencement date of the lease, the Company recognizes a lease liability at
the present value of the lease payments not yet paid, discounted using the discount rate for the lease or the Company’s
incremental borrowing rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses its
incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental
borrowing rate is based on the term of the lease. At the commencement date, the Company also recognizes a right-of-use asset
measured at (i) the initial measurement of the lease liability; (ii) any lease payments made to the lessor at or before the
commencement date less any lease incentives received; and (iii) any initial direct costs incurred by the lessee. Leases with an
initial term of 12 months or less are not recorded on the Statement of Financial Condition. For these short-term leases, lease
expense is recognized on a straight-line basis over the lease term. The Company has no leases classified as finance leases. See
Note 7 – Leases for additional information.
75
Bank Owned Life Insurance
The Company, through its subsidiary bank, has purchased life insurance policies on certain key officers. Bank owned life
insurance is recorded at the amount that can be realized under the insurance contract at the statement of financial condition date,
which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Goodwill and Other Intangibles
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. In accordance
with FASB ASC Topic 350, the Company determined it has one goodwill reporting unit. Goodwill is tested for impairment
annually during the fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its carrying value. Other intangible assets relate to customer intangibles
purchased as part of a business acquisition. Intangible assets are tested for impairment at least annually or whenever changes in
circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. See Note 8
– Goodwill and Other Intangibles for additional information
.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value
less estimated selling costs, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value less cost to sell. The valuation of foreclosed
assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Revenue and
expenses from operations and changes in value are included in noninterest expense.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. See Note 21 – Commitments and
Contingencies for additional information.
Noncontrolling Interest
To the extent the Company’s interest in a consolidated entity represents less than 100% of the entity’s equity, the Company
recognizes noncontrolling interests in subsidiaries. In the case of the CCHL acquisition (previously noted under Business
Combination), the noncontrolling interest represents equity which is redeemable or convertible for cash at the option of the equity
holder and is classified within temporary equity in the mezzanine section of the Consolidated Statements of Financial Condition.
The call/put option is redeemable at the option of either CCBG (call) or the noncontrolling interest holder (put) on or after
January 1, 2025, and therefore, not entirely within CCBG’s control. The subsidiary’s net income or loss and related dividends are
allocated to CCBG and the noncontrolling interest holder based on their relative ownership percentages. The noncontrolling
interest carrying value is adjusted on a quarterly basis to the higher of the carrying value or current redemption value, at the
Statement of Financial Condition date, through a corresponding adjustment to retained earnings. The redemption value is
calculated quarterly and is based on the higher of a predetermined book value or pre-tax earnings multiple. To the extent the
redemption value exceeds the fair value of the noncontrolling interest, the Company’s earnings per share attributable to common
shareowners is adjusted by that amount. The Company uses an independent valuation expert to assist in estimating the fair value
of the noncontrolling interest using: 1) the discounted cash flow methodology under the income approach, and (2) the guideline
public company methodology under the market approach. The estimated fair value is derived from equally weighting the result of
each of the two methodologies. The estimation of the fair value includes significant assumptions concerning: (1) projected loan
volumes; (2) projected pre-tax profit margins; (3) tax rates and (4) discount rates.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities (excluding deferred tax assets and liabilities related to business combinations or components of other comprehensive
income). Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the
generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. The income tax effects related
to settlements of share-based payment awards are reported in earnings as an increase or decrease in income tax expense.
The Company files a consolidated federal income tax return and a separate federal tax return for CCHL. Each subsidiary files a
separate state income tax return.
76
Earnings Per Common Share
Basic earnings per common share is based on net income divided by the weighted -average number of common shares outstanding
during the period excluding non-vested stock. Diluted earnings per common share include the dilutive effect of stock options and
non-vested stock awards granted using the treasury stock method. A reconciliation of the weighted-average shares used in
calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per
common share for the reported periods is provided in Note 16 — Earnings Per Share.
Comprehensive Income
Comprehensive income includes all changes in shareowners’ equity during a period, except those resulting from transactions with
shareowners. Besides net income, other components of the Company’s comprehensive income include the after tax effect of
changes in the net unrealized gain/loss on securities available-for-sale, unrealized gain/loss on cash flow derivatives, and changes
in the funded status of defined benefit and supplemental executive retirement plans. Comprehensive income is reported in the
accompanying Consolidated Statements of Comprehensive Income and Changes in Shareowners’ Equity.
Stock Based Compensation
Compensation cost is recognized for share-based awards issued to employees, based on the fair value of these awards at the date
of grant. Compensation cost is recognized over the requisite service period, generally defined as the vesting period. The market
price of the Company’s common stock at the date of the grant is used for restricted stock awards. For stock purchase plan awards,
a Black-Scholes model is utilized to estimate the fair value of the award. The impact of forfeitures of share-based awards on
compensation expense is recognized as forfeitures occur.
Revenue Recognition
FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information
about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or
services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or
services recognized as performance obligations are satisfied.
The majority of the Company’s revenue -generating transactions are not subject to ASC 606, including revenue generated from
financial instruments, such as our loans, letters of credit, and investment securities, and revenue related to the sale of residential
mortgages in the secondary market, as these activities are subject to other GAAP discussed elsewhere within our disclosures. The
Company recognizes revenue from these activities as it is earned based on contractual terms, as transactions occur, or as services
are provided and collectability is reasonably assured. Descriptions of the major revenue-generating activities that are within the
scope of ASC 606, which are presented in the accompanying Consolidated Statements of Income as components of non-interest
income are as follows:
Deposit Fees - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and
consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-
based revenue. Revenue is recognized when the Company’s performance obligation is completed which is generally monthly for
account maintenance services or when a transaction has been completed. Payment for such performance obligations are generally
received at the time the performance obligations are satisfied.
Wealth Management - trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth management clients
as consideration for managing the client’s assets. Trust services include custody of assets, investment management, fees for trust
services and similar fiduciary activities. Revenue is recognized when the Company’s performance obligation is completed each
month or quarter, which is the time that payment is received. Also, retail brokerage fees are received from a third-party broker-
dealer, for which the Company acts as an agent, as part of a revenue-sharing agreement for fees earned from customers that are
referred to the third party. These fees are for transactional and advisory services and are paid by the third party on a monthly
basis and recognized ratably throughout the quarter as the Company’s performance obligation is satisfied.
Bank Card Fees – bank card related fees primarily includes interchange income from client use of consumer and business debit
cards. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network.
Interchange fees are set by the credit card associations and are based on cardholder purchase volumes. The Company records
interchange income as transactions occur.
77
Gains and Losses from the Sale of Bank Owned Property – the performance obligation in the sale of other real estate owned
typically will be the delivery of control over the property to the buyer. If the Company is not providing the financing of the sale,
the transaction price is typically identified in the purchase and sale agreement. However, if the Company provides seller
financing, the Company must determine a transaction price, depending on if the sale contract is at market terms and taking into
account the credit risk inherent in the arrangement.
Insurance Commissions – insurance commissions recorded by the Company are received from various insurance carriers based on
contractual agreements to sell policies to customers on behalf of the carriers. The performance obligation for the Company is to
sell life and health insurance policies to customers. This performance obligation is met when a new policy is sold (effective date)
or when an existing policy renews. New policies and renewals generally have a one-year term. In the agreements with the
insurance carriers, a commission rate is agreed upon. The commission is recognized at the time of the sale of the policy (effective
date) or when a policy renews. Insurance commissions are recorded within other noninterest income.
Other non-interest income primarily includes items such as mortgage banking fees (gains from the sale of residential mortgage
loans held for sale), bank-owned life insurance, and safe deposit box fees, none of which are subject to the requirements of ASC
606.
The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affects the
determination of the amount and timing of revenue from the above-described contracts with clients.
Accounting Standard Updates
ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”.
The
amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model
and enhance the disclosure requirements for loan modifications and restructurings made with borrowers experiencing financial
difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net
investment in leases by year of origination in the vintage disclosures. The amendments in this update are for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of
this guidance will not have a material impact on its consolidated financial statements.
78
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition
. The following tables summarize the amortized cost and related fair value of investment
securities available-for-sale and securities held-to-maturity, the corresponding amounts of gross unrealized gains and losses, and
allowance for credit losses.
Available for Sale
Amortized
Unrealized
Unrealized
Allowance for
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Credit Losses
Value
December 31, 2022
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(13 )
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(28 )
Other Securities
(2)
Total
$
$
$
$
(41 )
$
December 31, 2021
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(15 )
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(21 )
Other Securities
(2)
Total
$
$
$
$
(36 )
$
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
December 31, 2022
U.S. Government Treasury
$
$
$
$
Mortgage-Backed Securities
Total
$
$
$
$
December 31, 2021
U.S. Government Treasury
$
$
$
$
Mortgage-Backed Securities
Total
$
$
$
$
(1)
Comprised of residential mortgage-backed securities.
(2)
Includes Federal Home Loan Bank and Federal Reserve Bank recorded at cost of $
At December 31, 2022, and 2021, the investment portfolio had $
These securities do not have a readily determinable fair value and were not credit impaired.
Securities with an amortized cost of $
pledged to secure public deposits and for other purposes.
At December 31, 2022 and 2021, there were
agencies, in an amount greater than 10% of shareowners’ equity.
79
The Bank, as a member of the Federal Home Loan Bank of Atlanta (“FHLB”), is required to own capital stock in the FHLB based
generally upon the balances of residential and commercial real estate loans, and FHLB advances. FHLB stock which is included
in other securities is pledged to secure FHLB advances. No ready market exists for this stock, and it has no quoted fair value;
however, redemption of this stock has historically been at par value. As a member of the Federal Reserve Bank of Atlanta, the
Bank is required to maintain stock in the Federal Reserve Bank of Atlanta based on a specified ratio relative to the Bank’s capital.
Federal Reserve Bank stock is carried at cost.
During the third quarter of 2022, the Company transferred certain securities from the AFS to HTM classification. Transfers are
made at fair value on the date of the transfer. The
$
in accumulated other comprehensive loss in the accompanying Consolidated Statement of Financial Condition at December 31,
2022 totaled $
the underlying securities as an adjustment of the yield on those securities.
Investment Sales
. There were no significant sales of investment securities for each of the last three fiscal years.
Maturity Distribution
. The following table shows the Company’s AFS and HTM investment securities maturity distribution
based on contractual maturity at December 31, 2022. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations. Mortgage-backed securities and certain amortizing U.S. government
agency securities are shown separately since they are not due at a certain maturity date. Equity securities do not have a
contractual maturity date.
Available for Sale
Held to Maturity
Amortized
Fair
Amortized
Fair
(Dollars in Thousands)
Cost
Value
Cost
Value
Due in one year or less
$
$
$
$
Due after one through five years
Due after five through ten years
-
-
Mortgage-Backed Securities
U.S. Government Agency
-
-
Other Securities
-
-
Total
$
$
$
$
Unrealized Losses
. The following table summarizes the investment securities with unrealized losses at December 31, aggregated
by major security type and length of time in a continuous unrealized loss position:
80
Less Than 12 Months
Greater Than 12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
December 31, 2022
Available for Sale
U.S. Government Treasury
$
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Total
Held to Maturity
U.S. Government Treasury
Mortgage-Backed Securities
Total
$
$
$
$
$
$
December 31, 2021
Available for Sale
U.S. Government Treasury
$
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Equity Securities
Total
Held to Maturity
U.S. Government Treasury
Mortgage-Backed Securities
Total
$
$
$
$
$
$
At December 31, 2022, there were
million. At December 31, 2021 there were
$
Government.
sponsored entities. We believe the long history of
nonpayment of the amortized cost basis is
. The remaining
credit component. At December 31, 2022, all collateralized mortgage obligation securities (“CMO”), MBS, Small Business
Administration securities (“SBA”), U.S. Agency, and U.S. Treasury bonds held were AAA rated. At December 31, 2022,
corporate debt securities had an allowance for credit losses of $
.
ne
of the securities held by the Company were past due or in nonaccrual status at December 31, 2022.
Credit Quality Indicators
The Company monitors the credit quality of its investment securities through various risk management procedures, including the
monitoring of credit ratings. A large portion of the debt securities in the Company’s investment portfolio were issued by a U.S.
government entity or agency and are either explicitly or implicitly guaranteed by the U.S. government. The Company believes
the long history of no credit losses on these securities indicates that the expectation of nonpayment of the amortized cost basis is
zero, even if the U.S. government were to technically default. Further, certain municipal securities held by the Company have
been pre-refunded and secured by government guaranteed treasuries. Therefore, for the aforementioned securities, the Company
does not assess or record expected credit losses due to the zero loss assumption. The Company monitors the credit quality of its
municipal and corporate securities portfolio via credit ratings which are updated on a quarterly basis. On a quarterly basis,
municipal and corporate securities in an unrealized loss position are evaluated to determine if the loss is attributable to credit
related factors and if an allowance for credit loss is needed.
81
Note 3
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
Loan Portfolio Composition
. The composition of the HFI loan portfolio at December 31 was as follows:
(Dollars in Thousands)
2022
2021
Commercial, Financial and Agricultural
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
(1)
Real Estate – Home Equity
Consumer
(2)
Loans Held for Investment, Net of Unearned Income
$
$
(1)
Includes loans in process with outstanding balances of $
(2)
Net deferred costs, which include premiums on purchased loans, included in loans were $
$
Accrued interest receivable on loans which is excluded from amortized cost totaled $
million at December 31, 2021, and is reported separately in Other Assets.
The Company has pledged a floating lien on certain 1-4 family residential mortgage loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB and has pledged a blanket floating lien on all
consumer loans, commercial loans, and construction loans to support available borrowing capacity at the Federal Reserve Bank of
Atlanta.
Loan Purchases and Sales
. The Company will purchase newly originated 1-4 family real estate secured adjustable rate loans
from CCHL, a related party effective on March 1, 2020 (see Note 1 – Significant Accounting Policies). These loan purchases
totaled $
impaired. In addition, the Company purchased commercial real estate loans that were not credit impaired from a third party
totaling $
The Company transferred $
Allowance for Credit Losses
. The methodology for estimating the amount of credit losses reported in the allowance for credit
losses (“ACL”) has two basic components: first, an asset-specific component involving loans that do not share risk characteristics
and the measurement of expected credit losses for such individual loans; and second, a pooled component for expected credit
losses for pools of loans that share similar risk characteristics. This methodology is discussed further in Note 1 – Significant
Accounting Policies.
82
The following table details the activity in the allowance for credit losses by portfolio segment for the years ended December 31.
Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other
categories.
Commercial,
Real Estate
Financial,
Real Estate
Commercial
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
2022
Beginning Balance
$
$
$
$
$
$
$
(658 )
(746 )
(422 )
(1,308 )
(355 )
(193 )
(6,050 )
(7,906 )
(1,001 )
(249 )
(10 )
(2,969 )
(3,935 )
Ending Balance
$
$
$
$
$
$
$
2021
Beginning Balance
$
$
$
$
$
$
$
(227 )
(1,679 )
(1,956 )
(1,125 )
(2,842 )
(239 )
(405 )
(108 )
(103 )
(3,972 )
(4,827 )
(1,007 )
Ending Balance
$
$
$
$
$
$
$
2020
Beginning Balance
$
$
$
$
$
$
$
(596 )
(789 )
(28 )
(150 )
(151 )
(5,042 )
(6,160 )
(537 )
(2,352 )
(2,393 )
Ending Balance
$
$
$
$
$
$
$
The $
higher projected rate of unemployment and its effect on rates of default, and slower prepayment speeds (due to higher interest
rates). The $
conditions, favorable loan migration and net recoveries totaling $
loan growth (excluding Small Business Administration Paycheck Protection Program). Four unemployment rate forecast
scenarios continue to be utilized to estimate probability of default and are weighted based on management’s estimate of
probability. See Note 1 – Significant accounting policies for more on the calculation of the provision for credit losses. See Note
21 – Commitments and Contingencies for information on the provision for credit losses related to off-balance sheet commitments.
83
Loan Portfolio Aging.
A loan is defined as a past due loan when one full payment is past due or a contractual maturity is over 30
days past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing past due loans by class of loans at December 31,
30-59
60-89
90 +
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
2022
Commercial, Financial and Agricultural
$
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
(1)
Real Estate – Home Equity
Consumer
Total
$
$
$
$
$
$
$
2021
Commercial, Financial and Agricultural
$
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
$
$
$
$
$
$
$
Nonaccrual Loans
. Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status
when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured.
The Company did not recognize a significant amount of interest income on nonaccrual loans for the years ended December 31,
2022 and 2021.
The following table presents the amortized cost basis of loans in nonaccrual status and loans past due over 90 days and still on
accrual by class of loans.
2022
2021
Nonaccrual
Nonaccrual
90 + Days
Nonaccrual
Nonaccrual
90 + Days
With No
With
Still
With No
With
Still
(Dollars in Thousands)
ACL
ACL
Accruing
ACL
ACL
Accruing
Commercial, Financial and Agricultural
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total Nonaccrual Loans
$
$
$
$
$
$
84
Collateral Dependent Loans
. The following table presents the amortized cost basis of collateral dependent loans at December 31:
2022
2021
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
$
$
$
$
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on
the sale or operation of the underlying collateral.
The Bank’s collateral dependent loan portfolio is comprised primarily of real estate secured loans, collateralized by either
residential or commercial collateral types. The loans are carried at fair value based on current values determined by either
independent appraisals or internal evaluations, adjusted for selling costs or other amounts to be deducted when estimating
expected net sales proceeds.
Residential Real Estate Loans In Process of Foreclosure
. At December 31, 2022 and 2021, the Company had $
$
Troubled Debt Restructurings (“TDRs”)
. TDRs are loans in which the borrower is experiencing financial difficulty and the
Company has granted an economic concession to the borrower that it would not otherwise consider. In these instances, as part of
a work-out alternative, the Company will make concessions including the extension of the loan term, a principal moratorium, a
reduction in the interest rate, or a combination thereof. The impact of the TDR modifications and defaults are factored into the
allowance for credit losses on a loan-by-loan basis. Thus, specific reserves are established based upon the results of either a
discounted cash flow analysis or the underlying collateral value, if the loan is deemed to be collateral dependent. A TDR
classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial
difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
At December 31, 2022, the Company had $
modified terms. At December 31, 2021, the Company had $
accordance with modified terms. For TDRs, the Company estimated $
December 31, 2022 and 2021, respectively.
The modifications made to TDRs involved either an extension of the loan term, a principal moratorium, a reduction in the interest
rate, or a combination thereof. For the year ended December 31, 2022, there were
of $
million. For the year ended December 31, 2020, there were
financial impact of these modifications was not material.
For the years ended December 31, 2022 and 2021, there were
and the loans were modified within the 12 months prior to default.
Credit Risk Management
. The Company has adopted comprehensive lending policies, underwriting standards and loan review
procedures designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors of the
Company (the “Board”) review and approve these policies and procedures on a regular basis (at least annually).
Reporting systems are used to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and
nonperforming loans and potential problem loans. Management and the Credit Risk Oversight Committee periodically review
our lines of business to monitor asset quality trends and the appropriateness of credit policies. In addition, total borrower
exposure limits are established and concentration risk is monitored. As part of this process, the overall composition of the loan
portfolio is reviewed to gauge diversification of risk, client concentrations, industry group, loan type, geographic area, or other
relevant classifications of loans. Specific segments of the loan portfolio are monitored and reported to the Board on a quarterly
basis and have strategic plans in place to supplement Board-approved credit policies governing exposure limits and underwriting
standards. Detailed below are the types of loans within the Company’s loan portfolio and risk characteristics unique to each.
85
Commercial, Financial, and Agricultural – Loans in this category are primarily made based on identified cash flows of the
borrower with consideration given to underlying collateral and personal or other guarantees. Lending policy establishes debt
service coverage ratio limits that require a borrower’s cash flow to be sufficient to cover principal and interest payments on all
new and existing debt. The majority of these loans are secured by the assets being financed or other business assets such as
accounts receivable, inventory, or equipment. Collateral values are determined based upon third-party appraisals and evaluations.
Loan to value ratios at origination are governed by established policy guidelines.
Real Estate Construction – Loans in this category consist of short-term construction loans, revolving and non-revolving credit
lines and construction/permanent loans made to individuals and investors to finance the acquisition, development, construction or
rehabilitation of real property. These loans are primarily made based on identified cash flows of the borrower or project and
generally secured by the property being financed, including 1-4 family residential properties and commercial properties that are
either owner-occupied or investment in nature. These properties may include either vacant or improved property. Construction
loans are generally based upon estimates of costs and value associated with the completed project. Collateral values are
determined based upon third-party appraisals and evaluations. Loan to value ratios at origination are governed by established
policy guidelines. The disbursement of funds for construction loans is made in relation to the progress of the project and as such
these loans are closely monitored by on-site inspections.
Real Estate Commercial Mortgage – Loans in this category consist of commercial mortgage loans secured by property that is
either owner-occupied or investment in nature. These loans are primarily made based on identified cash flows of the borrower or
project with consideration given to underlying real estate collateral and personal guarantees. Lending policy establishes debt
service coverage ratios and loan to value ratios specific to the property type. Collateral values are determined based upon third-
party appraisals and evaluations.
Real Estate Residential – Residential mortgage loans held in the Company’s loan portfolio are made to borrowers that
demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current income,
employment status, current assets, other financial resources, credit history, and the value of the collateral. Collateral consists of
mortgage liens on 1-4 family residential properties. Collateral values are determined based upon third party appraisals and
evaluations. The Company does not originate sub-prime loans.
Real Estate Home Equity – Home equity loans and lines are made to qualified individuals for legitimate purposes generally
secured by senior or junior mortgage liens on owner-occupied 1-4 family homes or vacation homes. Borrower qualifications
include favorable credit history combined with supportive income and debt ratio requirements and combined loan to value ratios
within established policy guidelines. Collateral values are determined based upon third-party appraisals and evaluations.
Consumer Loans – This loan category includes personal installment loans, direct and indirect automobile financing, and overdraft
lines of credit. The majority of the consumer loan category consists of indirect and direct automobile loans. Lending policy
establishes maximum debt to income ratios, minimum credit scores, and includes guidelines for verification of applicants’ income
and receipt of credit reports.
Credit Quality Indicators
. As part of the ongoing monitoring of the Company’s loan portfolio quality, management categorizes
loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment performance, credit documentation, and current economic and market trends, among
other factors. Risk ratings are assigned to each loan and revised as needed through established monitoring procedures for
individual loan relationships over a predetermined amount and review of smaller balance homogenous loan pools. The Company
uses the definitions noted below for categorizing and managing its criticized loans. Loans categorized as “Pass” do not meet the
criteria set forth below and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected,
could cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating
factors. More than the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the
borrower. The possibility of loss is much more evident and above average supervision is required for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic
that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable.
86
Performing/Nonperforming – Loans within certain homogenous loan pools (home equity and consumer) are not individually
reviewed, but are monitored for credit quality via the aging status of the loan and by payment activity. The performing or
nonperforming status is updated on an on-going basis dependent upon improvement and deterioration in credit quality.
The following table summarizes gross loans held for investment at December 31, 2022 by years of origination and internally
assigned credit risk ratings (refer to Credit Risk Management section for detail on risk rating system).
Term Loans by Origination Year
Revolving
(Dollars in Thousands)
2022
2021
2020
2019
2018
Prior
Loans
Total
Commercial, Financial,
Agricultural:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate -
Construction:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate - Commercial
Mortgage:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate - Residential:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Real Estate - Home
Equity:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
Consumer:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
87
Note 4
MORTGAGE BANKING ACTIVITIES
The Company’s mortgage banking activities include mandatory delivery loan sales, forward sales contracts used to manage
residential loan pipeline price risk, utilization of warehouse lines to fund secondary market residential loan closings, and
residential mortgage servicing.
Residential Mortgage Loan Production
The Company originates, markets, and services conventional and government -sponsored residential mortgage loans. Generally,
conforming fixed rate residential mortgage loans are held for sale in the secondary market and non-conforming and adjustable-
rate residential mortgage loans may be held for investment. The volume of residential mortgage loans originated for sale and
secondary market prices are the primary drivers of origination revenue.
Residential mortgage loan commitments are generally outstanding for 30 to 90 days, which represents the typical period from
commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan
commitments are subject to both credit and price risk. Credit risk is managed through underwriting policies and procedures,
including collateral requirements, which are generally accepted by the secondary loan markets. Price risk is primarily related to
interest rate fluctuations and is partially managed through forward sales of residential mortgage-backed securities (primarily
TBAs) or mandatory delivery commitments with investors.
The unpaid principal balance of residential mortgage loans held for sale, notional amounts of derivative contracts related to
residential mortgage loan commitments and forward contract sales and their related fair values are set forth below.
December 31, 2022
December 31, 2021
Unpaid Principal
Unpaid Principal
(Dollars in Thousands)
Balance/Notional
Fair Value
Balance/Notional
Fair Value
Residential Mortgage Loans Held for Sale
$
$
$
$
Residential Mortgage Loan Commitments
(1)
Forward Sales Contracts
(2)
(7 )
$
$
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and (other liabilities) at fair value
At December 31, 2022, the Company had $
million of loans were on nonaccrual status. At December 31, 2021, the Company had $
held for sale 30-89 days past due and no loans were on nonaccrual status.
Mortgage banking revenues for the year ended December 31, was as follows:
(Dollars in Thousands)
2022
2021
2020
Net realized gain on sales of mortgage loans
$
$
$
Net change in unrealized gain on mortgage loans held for sale
(1,652 )
(2,410 )
Net change in the fair value of mortgage loan commitments
(439 )
(3,567 )
Net change in the fair value of forward sales contracts
Pair-Offs on net settlement of forward sales contracts
(9,602 )
Mortgage servicing rights additions
Net origination fees
Total mortgage banking revenues
$
$
$
Residential Mortgage Servicing
The Company may retain the right to service residential mortgage loans sold. The unpaid principal balance of loans serviced for
others is the primary driver of servicing revenue.
88
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
2022
2021
Number of residential mortgage loans serviced for others
Outstanding principal balance of residential mortgage loans serviced for others
$
$
Weighted average interest rate
Remaining contractual term (in months)
Conforming conventional loans serviced by the Company are sold to the Federal National Mortgage Association (“FNMA”) on a
non-recourse basis, whereby foreclosure losses are generally the responsibility of FNMA and not the Company. The government
loans serviced by the Company are secured through the GNMA, whereby the Company is insured against loss by the Federal
Housing Administration or partially guaranteed against loss by the Veterans Administration. At December 31, 2022, the
servicing portfolio balance consisted of the following loan types: FNMA (
%), GNMA (
%), and private investor (
%).
FNMA and private investor loans are structured as actual/actual payment remittance .
The Company had $
the Company at December 31, 2022 and 2021, respectively. The right to repurchase these loans and the corresponding liability
has been recorded in other assets and other liabilities, respectively, in the Consolidated Statements of Financial Condition. For
the years ended December 31, 2022 and 2021, respectively, the Company repurchased $
delinquent or defaulted mortgage loans with the intention to modify their terms and include the loans in new GNMA pools.
Activity in the capitalized mortgage servicing rights for the year ended December 31, was as follows:
(Dollars in Thousands)
2022
2021
2020
Beginning balance
$
$
$
Additions due to loans sold with servicing retained
Deletions and amortization
(1,732 )
(1,344 )
(656 )
Valuation Allowance reversal
(250 )
Sale of Servicing Rights
(1)
(449 )
Ending balance
$
$
$
(1)
The Company sold an MSR portfolio with an unpaid principal balance of $
The Company did
t record any permanent impairment losses on mortgage servicing rights for the years ended December 31,
2022 and 2021.
The key unobservable inputs used in determining the fair value of the Company’s mortgage servicing rights at December 31, was
as follows:
2022
2021
Minimum
Maximum
Minimum
Maximum
Discount rates
Annual prepayment speeds
Cost of servicing (per loan)
$
$
Changes in residential mortgage interest rates directly affect the prepayment speeds used in valuing the Company’s mortgage
servicing rights. A separate third-party model is used to estimate prepayment speeds based on interest rates, housing turnover
rates, estimated loan curtailment, anticipated defaults, and other relevant factors. The weighted average annual prepayment speed
was
% at December 31, 2022 and
% at December 31, 2021.
Warehouse Line Borrowings
The Company has the following warehouse lines of credit and master repurchase agreements with various financial institutions at
December 31, 2022.
89
Amounts
(Dollars in Thousands)
Outstanding
$
to plus
, with a floor rate of
. A cash pledge deposit of $
$
$
December 2022
. Interest is at the SOFR plus
to
.
$
Warehouse line borrowings are classified as short-term borrowings. At December 31, 2021, warehouse line borrowings totaled
$
as collateral under the above warehouse lines of credit and master repurchase agreements. The above agreements also contain
covenants which include certain financial requirements, including maintenance of minimum tangible net worth, minimum liquid
assets and maximum debt to net worth ratio, as defined in the agreements. The Company was in compliance with all significant
debt covenants at December 31, 2022.
The Company intends to renew the warehouse lines of credit and master repurcha se agreements when they mature.
The Company has extended a $
are eliminated in the Company’s consolidated financial statements and thus not included in the total short-term borrowings noted
on the Consolidated Statement of Financial Condition. The balance of this line of credit at December 31, 2022 and December 31,
2021 was $
Note 5
DERIVATIVES
The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the
receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The
Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s
known or expected cash receipts and its known or expected cash payments principally related to the Company’s subordinated
debt.
Cash Flow Hedges of Interest Rate Risk
Interest rate swaps with notional amounts totaling $
subordinated debt. Under the swap arrangement, the Company will pay a fixed interest rate of
% and receive a variable
interest rate based on three-month LIBOR plus a weighted average margin of
%. Effective June 30, 2023, in accordance with
the swap agreement and the Adjustable Interest Rate (LIBOR) Act of 2021, LIBOR will be replaced with SOFR (secured
overnight financing rate) as the interest rate index.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded
in accumulated other comprehensive income (“AOCI”) and subsequently reclassified into interest expense in the same period(s)
during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to
derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate subordinated
debt.
The following table reflects the cash flow hedges included in the Consolidated Statements of Financial Condition.
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Value
Interest rate swaps related to subordinated debt:
December 31, 2022
Other Assets
$
$
December 31, 2021
Other Assets
$
$
The following table presents the net gains (losses) recorded in AOCI and the Consolidated Statement of Income related to the
cash flow derivative instruments (interest rate swaps related to subordinated debt).
90
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
December 31, 2022
Interest Expense
$
$
December 31, 2021
Interest Expense
$
$
(151 )
December 31, 2020
Interest Expense
$
$
(64 )
The Company estimates there will be approximately $
months.
At December 31, 2022 and 2021, the Company had a collateral liability of $
Note 6
PREMISES AND EQUIPMENT
The composition of the Company’s premises and equipment at December 31 was as follows:
(Dollars in Thousands)
2022
2021
Land
$
$
Buildings
Fixtures and Equipment
Total Premises and Equipment
Accumulated Depreciation
(110,185 )
(107,676 )
Premises and Equipment, Net
$
$
Depreciation expense for the above premises and equipment was approximately $
2022, 2021, and 2020, respectively
.
Note 7
LEASES
Operating leases in which the Company is the lessee are recorded as operating lease right of use (“ROU”) assets and operating
liabilities, included in other assets and liabilities, respectively, on its Consolidated Statement of Financial Condition.
Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease
liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease
liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate
that represents the Company’s incremental borrowing rate at the lease commencement date. Operating lease expense, which is
comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a
straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statement of Income.
The Company’s operating leases primarily relate to banking offices with remaining lease terms from
one
. The
Company’s leases are not complex and do not contain residual value guarantees, variable lease payments, or significant
assumptions or judgments made in applying the requirements of ASC Topic 842. Operating leases with an initial term of 12
months or less are not recorded on the Consolidated Statement of Financial Condition and the related lease expense is recognized
on a straight-line basis over the lease term. At December 31, 2022, ROU assets and liabilities were $
million, respectively. At December 31, 2021, the operating lease ROU assets and liabilities were $
respectively. The Company does not have any finance leases or any significant lessor agreements.
The table below summarizes our lease expense and other information at December 31, related to the Company’s operating leases:
91
(Dollars in Thousands)
2022
2021
2020
Operating lease expense
$
$
$
Short-term lease expense
Total lease expense
$
$
$
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
$
$
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term — operating leases (in years)
Weighted-average discount rate — operating leases
%
%
%
The table below summarizes the maturity of remaining lease liabilities:
(Dollars in Thousands)
December 31, 2022
2022
$
2023
2024
2025
2026
2027 and thereafter
Total
$
Less: Interest
(7,086 )
Present Value of Lease Liability
$
At December 31, 2022, the Company had three additional operating lease obligations for banking offices that have not yet
commenced. The first lease has payments totaling $
payments totaling $
based on the initial contract term of
quarter of 2023.
A related party is the lessor in an operating lease with the Company. The Company’s minimum payment is $
through 2042, and will reprice at annual fair market rental value until 2052, for an aggregate remaining obligation of $
at December 31, 2022.
Note 8
GOODWILL AND OTHER INTANGIBLES
At December 31, 2022 and 2021, the Company had goodwill of $
basis, or more often if impairment indicators exist. Testing allows for a qualitative assessment of goodwill impairment indicators.
If the assessment indicates that impairment has more than likely occurred, the Company must compare the estimated fair value of
the reporting unit to its carrying amount. If the carrying amount of the reporting unit exceeds its estimated fair value, an
impairment charge is recorded equal to the excess.
On April 30, 2021, CCSW acquired substantially all of the assets of SWG, including advisory, service, and insurance carrier
agreements, and the assignment of all related revenues thereof. Under the terms of the purchase agreement, SWG principles
became officers of CCSW and will continue the operation of their five offices in South Georgia offering wealth management
services and comprehensive risk management and asset protection services for individuals and businesses.
CCBG paid $
million in cash consideration and recorded goodwill of $
$
and 2021, respectively. The current intangible asset balance as of December 31, 2022 and December 31, 2021 was $
and $
year.
During the fourth quarter of 2022, the Company performed its annual goodwill impairment testing and determined that
goodwill impairment existed at December 31, 2022 and
will continue to evaluate goodwill for impairment as defined by ASC Topic 350.
92
Note 9
OTHER REAL ESTATE OWNED
The following table presents other real estate owned activity at December 31,
(Dollars in Thousands)
2022
2021
2020
Beginning Balance
$
$
$
Additions
Valuation Write-Downs
(11 )
(31 )
(792 )
Sales
(1,973 )
(2,809 )
(1,650 )
Other
Ending Balance
$
$
$
Net expenses applicable to other real estate owned for the three years ended December 31, was as follows:
(Dollars in Thousands)
2022
2021
2020
Gains from the Sale of Properties
$
(480 )
$
(1,711 )
$
(1,218 )
Losses from the Sale of Properties
Rental Income from Properties
(21 )
Property Carrying Costs
Valuation Adjustments
Total
$
(337 )
$
(1,488 )
$
Note 10
DEPOSITS
The composition of the Company’s interest bearing deposits at December 31 was as follows:
(Dollars in Thousands)
2022
2021
NOW Accounts
$
$
Money Market Accounts
Savings Deposits
Time Deposits
Total Interest Bearing Deposits
$
$
At December 31, 2022 and 2021, $
The amount of time deposits that meet or exceed the FDIC insurance limit of $250,000 totaled $
December 31, 2022 and 2021, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2022
2023
$
2024
2025
2026
2027
Total
$
93
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
2022
2021
2020
NOW Accounts
$
$
$
Money Market Accounts
Savings Deposits
Time Deposits < $250,000
Time Deposits > $250,000
Total Interest Expense
$
$
$
Note 11
SHORT-TERM BORROWINGS
Short-term borrowings included the following:
(Dollars in Thousands)
Federal Funds
Purchased
Securities
Sold Under
Repurchase
Agreements
(1)
Other
Short-Term
Borrowings
(2)
2022
Balance at December 31
$
$
$
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
%
%
%
Average rate paid on period-end borrowings
%
%
%
2021
Balance at December 31
$
$
$
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
%
%
%
Average rate paid on period-end borrowings
%
%
%
2020
Balance at December 31
$
$
$
Maximum indebtedness at any month end
Daily average indebtedness outstanding
Average rate paid for the year
%
%
%
Average rate paid on period-end borrowings
%
%
%
(1)
Balances are fully collateralized by government treasury or agency securities held in the Company's investment portfolio.
(2)
Comprised of FHLB advances totaling $
Note 12
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances.
The Company had one FHLB long-term advance totaling $
2022.
1-4 family residential mortgage loans, commercial real estate mortgage loans, and home equity mortgage loans. Interest on the
FHLB advances is paid on a monthly basis.
94
Scheduled minimum future principal payments on our other long-term borrowings at December 31 were as follows:
(Dollars in Thousands)
2022
2023
$
2024
2025
Total
$
Junior Subordinated Deferrable Interest Notes.
The Company has issued two junior subordinated deferrable interest notes to
wholly owned Delaware statutory trusts. The first note for $
for $
Company is not the primary beneficiary. Accordingly, the accounts of the trusts are not included in the Company’s consolidated
financial statements. See Note 1 - Significant Accounting Policies for additional information about the Company’s consolidation
policy. Details of the Company’s transaction with the two trusts are provided below.
In November 2004, CCBG Capital Trust I issued $
of the trust. The interest payments are due quarterly at
%, adjusted quarterly. Effective
June 30, 2023, in accordance with the trust agreement and the Adjustable Interest Rate (LIBOR) Act of 2021, LIBOR will be
replaced with 3-month CME term SOFR (secured overnight financing rate) as the interest rate index. The trust preferred
securities will mature on
, and are redeemable upon approval of the Federal Reserve in whole or in part at the
option of the Company at any time after December 31, 2009 and in whole at any time upon occurrence of certain events affecting
their tax or regulatory capital treatment. Distributions on the trust preferred securities are payable quarterly on March 31, June 30,
September 30, and December 31 of each year. CCBG Capital Trust I also issued $
CCBG. The proceeds of the offering of trust preferred securities and common equity securities were used to purchase a $
million junior subordinated deferrable interest note issued by the Company, which has terms similar to the trust preferred
securities. On April 12, 2016, the Company retired $
part of a liquidation of a pooled collateralized debt obligation fund. The trust preferred securities were originally issued through
CCBG Capital Trust I.
In May 2005, CCBG Capital Trust II issued $
trust. The interest payments are due quarterly at
%, adjusted quarterly. The trust preferred
securities will mature on
, and are redeemable upon approval of the Federal Reserve in whole or in part at the option
of the Company and in whole at any time upon occurrence of certain events affecting their tax or regulatory capital treatment.
Distributions on the trust preferred securities are payable quarterly on March 15, June 15, September 15, and December 15 of
each year. CCBG Capital Trust II also issued $
of trust preferred securities and common equity securities were used to purchase a $
interest note issued by the Company, which has terms substantially similar to the trust preferred securities.
The Company has the right to defer payments of interest on the two notes at any time or from time to time for a period of up to
twenty consecutive quarterly interest payment periods. Under the terms of each note, in the event that under certain
circumstances there is an event of default under the note or the Company has elected to defer interest on the note, the Company
may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of
its capital stock. At December 31, 2022, the Company has paid all interest payments in full.
The Company has entered into agreements to guarantee the payments of distributions on the trust preferred securities and
payments of redemption of the trust preferred securities. Under these agreements, the Company also agrees, on a subordinated
basis, to pay expenses and liabilities of the two trusts other than those arising under the trust preferred securities. The obligations
of the Company under the two junior subordinated notes, the trust agreements establishing the two trusts, the guarantee and
agreement as to expenses and liabilities, in aggregate, constitute a full and unconditional guarantee by the Company of the two
trusts’ obligations under the two trust preferred security issuances.
Despite the fact that the accounts of CCBG Capital Trust I and CCBG Capital Trust II are not included in the Company’s
consolidated financial statements, the $
subsidiary trusts are included in the Tier 1 Capital of Capital City Bank Group, Inc. as allowed by Federal Reserve guidelines.
95
Note 13
INCOME TAXES
The provision for income taxes reflected in the Consolidated Statements of Comprehensive Income is comprised of the following
components:
(Dollars in Thousands)
2022
2021
2020
Current:
Federal
$
$
$
State
Deferred:
Federal
(1,203 )
(3,246 )
(143 )
State
(403 )
(10 )
Change in Valuation Allowance
(40 )
(1,583 )
(3,248 )
(53 )
Total:
Federal
State
Change in Valuation Allowance
(40 )
Total
$
$
$
Income taxes provided were different than the tax expense computed by applying the statutory federal income tax rate of
% to
pre-tax income as a result of the following:
(Dollars in Thousands)
2022
2021
2020
Tax Expense at Federal Statutory Rate
$
$
$
Increases (Decreases) Resulting From:
Tax-Exempt Interest Income
(248 )
(271 )
(341 )
State Taxes, Net of Federal Benefit
Other
(546 )
Change in Valuation Allowance
(40 )
Tax-Exempt Cash Surrender Value Life Insurance Benefit
(175 )
(173 )
(173 )
Noncontrolling Interest
(1,308 )
(2,336 )
Actual Tax Expense
$
$
$
Deferred income tax liabilities and assets result from differences between assets and liabilities measured for financial reporting
purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that
are currently in effect.
96
The net deferred tax asset and the temporary differences comprising that balance at December 31, 2022 and 2021 are as follows:
(Dollars in Thousands)
2022
2021
Deferred Tax Assets Attributable to:
Allowance for Credit Losses
$
$
Accrued Pension/SERP
State Net Operating Loss and Tax Credit Carry-Forwards
Other Real Estate Owned
Accrued SERP Liability
Lease Liability
Net Unrealized Losses on Investment Securities
Other
Total Deferred Tax Assets
$
$
Deferred Tax Liabilities Attributable to:
Depreciation on Premises and Equipment
$
$
Deferred Loan Fees and Costs
Intangible Assets
Accrued Pension Liability
Right of Use Asset
Investments
Other
Total Deferred Tax Liabilities
Valuation Allowance
Net Deferred Tax Asset
$
$
In the opinion of management, it is more likely than not that all of the deferred tax assets, with the exception of certain state net
operating loss carry-forwards and certain state tax credit carry-forwards expected to expire prior to utilization, will be realized.
Accordingly, a valuation allowance of $
state loss and tax credit carry-forwards of approximately $
2023
2037
.
At December 31, 2022, and December 31, 2021, the Company had
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in their respective
federal or state income taxes accounts. There were
Statements of Income for the years ended December 31, 2022, 2021, and 2020. There were
Consolidated Statements of Financial Condition for penalties and interest as of December 31, 2022 and 2021.
The Company files a consolidated U.S. federal income tax return and a separate U.S. federal income tax return for CCHL. Each
subsidiary files various returns in states where its banking offices are located. The Company is no longer subject to U.S. federal
or state tax examinations for years before 2019.
Note 14
STOCK-BASED COMPENSATION
At December 31, 2022, the Company had three stock-based compensation plans, consisting of the 2021 Associate Incentive Plan
(“AIP”), the 2021 Associate Stock Purchase Plan (“ASPP”), and the 2021 Director Stock Purchase Plan (“DSPP”). These plans,
which were approved by the shareowners in April 2021, replaced substantially similar plans approved by the shareowners in
2011. Total compensation expense associated with these plans for 2020 through 2022 was $
million, respectively.
97
AIP.
there were
AIP, will create an annual incentive plan (“Plan”), under which all participants are eligible to earn performance shares. Awards
for associates under the 2021 Plan were tied to internally established performance goals. At base level targets, the grant-date fair
value of the shares eligible to be awarded in 2022 was approximately $
% of the award is in the
form of stock and
% in the form of a cash bonus. For 2022, a total of
shares could be earned if performance exceeded established goals. A total of
in January 2023. For the years ended December 31, 2022 and 2021, Directors earned
under the Plan. The Company recognized expense of $
31, 2022, 2021 and 2020, respectively, related to the AIP.
Executive Long-Term Incentive Plan (“LTIP”)
. The Company has established a Performance Share Unit Plan under the
provisions of the AIP that allows William G. Smith, Jr., the Chairman, President, and Chief Executive Officer of CCBG, Inc.,
Thomas A. Barron, the President of CCB, and J. Kimbrough Davis, Chief Financial Officer of the Company to earn shares based
on the compound annual growth rate in diluted earnings per share over a three-year period. The Company recognized expense of
$
under the plan were
,
, and
After deducting the shares earned, but not issued, in 2022 under the AIP and LTIP,
under the 2021 AIP.
DSPP.
The Company’s DSPP allows the directors to purchase the Company’s common stock at a price equal to
% of the
closing price on the date of purchase. Stock purchases under the DSPP are limited to the amount of the directors’ annual retainer
and meeting fees. Under the DSPP, there were
expense under the DSPP for the years ended December 31, 2022, 2021 and 2020. The Company issued shares under the DSPP
totaling
,
there were
ASPP.
Under the Company’s ASPP, substantially all associates may purchase the Company’s common stock through payroll
deductions at a price equal to
% of the lower of the fair market value at the beginning or end of each six-month offering
period. Stock purchases under the ASPP are limited to
% of an associate’s eligible compensation, up to a maximum of $
(fair market value on each enrollment date) in any plan year. Under the ASPP, there were
reserved for issuance. The Company recognized $
years ended December 31, 2022, 2021 and 2020, respectively. The Company issued shares under the ASPP totaling
,
remained eligible for issuance under the ASPP.
Based on the Black-Scholes option pricing model, the weighted average estimated fair value of each of the purchase rights
granted under the ASPP was $
$
, respectively. In calculating compensation, the fair value of each stock purchase right was estimated on the date
of grant using the following weighted average assumptions:
2022
2021
2020
Dividend yield
%
%
%
Expected volatility
%
%
%
Risk-free interest rate
%
%
%
Expected life (in years)
98
Note 15
EMPLOYEE BENEFIT PLANS
Pension Plan
The Company sponsors a noncontributory pension plan covering substantially all of its associates. Benefits under this plan
generally are based on the associate’s total years of service and average of the five highest years of compensation during the ten
years immediately preceding their departure. The Company’s general funding policy is to contribute amounts sufficient to meet
minimum funding requirements as set by law and to ensure deductibility for federal income tax purposes. On December 30,
2019, the plan was amended to remove plan eligibility for new associates hired after December 31, 2019.
The following table details on a consolidated basis the changes in benefit obligation, changes in plan assets, the funded status of
the plan, components of pension expense, amounts recognized in the Company’s Consolidated Statements of Financial Condition,
and major assumptions used to determine these amounts.
99
(Dollars in Thousands)
2022
2021
2020
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
$
$
Service Cost
Interest Cost
Actuarial (Gain) Loss
(39,962 )
(14,934 )
Benefits Paid
(2,139 )
(2,087 )
(11,677 )
Expenses Paid
(416 )
(259 )
(260 )
Settlements
(32,794 )
(34,634 )
Special/Contractual Termination Benefits
Projected Benefit Obligation at End of Year
$
$
$
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year
$
$
$
Actual Return on Plan Assets
(25,649 )
Employer Contributions
Benefits Paid
(2,139 )
(2,087 )
(11,677 )
Expenses Paid
(416 )
(259 )
(260 )
Settlements
(32,794 )
(34,634 )
Fair Value of Plan Assets at End of Year
$
$
$
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities
$
$
$
Accumulated Benefit Obligation at End of Year
$
$
$
Components of Net Periodic Benefit Costs:
Service Cost
$
$
$
Interest Cost
Expected Return on Plan Assets
(10,701 )
(11,147 )
(10,993 )
Amortization of Prior Service Costs
Special/Contractual Termination Benefits
Net Loss Amortization
Net Loss Settlements
Net Periodic Benefit Cost
$
$
$
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate
Rate of Compensation Increase
(1)
Measurement Date
12/31/22
12/31/21
12/31/20
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate
Expected Return on Plan Assets
Rate of Compensation Increase
(1)
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial Loss (Gain)
$
(3,612 )
$
(34,265 )
$
Prior Service Cost
(15 )
(15 )
(15 )
Net Loss
(4,034 )
(9,836 )
(3,933 )
Deferred Tax Expense (Benefit)
(5,615 )
Other Comprehensive Loss (Gain), net of tax
$
(5,719 )
$
(32,933 )
$
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Losses
$
$
$
Prior Service Cost
Deferred Tax Benefit
(1,941 )
(3,884 )
(15,066 )
Accumulated Other Comprehensive Loss, net of tax
$
$
$
(1)
100
During 2022 and 2021, lump sum payments made under the Company’s defined benefit pension plan triggered settlement
accounting. In accordance with applicable accounting guidance for defined benefit plans, the Company recorded settlement
losses of $
The service cost component of net periodic benefit cost is reflected in compensation expense in the accompanying Consolidated
Statements of Income. The other components of net periodic cost are included in “other” within the noninterest expense category
in the Consolidated Statements of Income. See Note 1 – Significant Accounting Policies for additional information.
The Company expects to recognize $
December 31, 2022 as a component of net periodic benefit cost during 2023.
Plan Assets.
The Company’s pension plan asset allocation at December 31, 2022 and 2021, and the target asset allocation for
2022 are as follows:
Target
Percentage of Plan
Allocation
Assets at December 31
(1)
2023
2022
2021
Equity Securities
%
%
%
Debt Securities
%
%
%
Cash and Cash Equivalents
%
%
%
Total
%
%
%
(1)
Represents asset allocation at December 31 which may differ from the average target allocation for the year due to the year-
end cash contribution to the plan.
The Company’s pension plan assets are overseen by the CCBG Retirement Committee. Capital City Trust Company acts as the
investment manager for the plan. The investment strategy is to maximize return on investments while minimizing risk. The
Company believes the best way to accomplish this goal is to take a conservative approach to its investment strategy by investing
in mutual funds that include various high-grade equity securities and investment -grade debt issuances with varying investment
strategies. The target asset allocation will periodically be adjusted based on market conditions and will operate within the
following investment policy statement allocation ranges: equity securities ranging from
% and
%, debt securities ranging
from
% and
%, and cash and cash equivalents ranging from
% and
%. The overall expected long-term rate of return on
assets is a weighted-average expectation for the return on plan assets. The Company considers historical performance data and
economic/financial data to arrive at expected long-term rates of return for each asset category.
The major categories of assets in the Company’s pension plan at December 31 are presented in the following table. Assets are
segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure
fair value (see Note 22 – Fair Value Measurements).
(Dollars in Thousands)
2022
2021
Level 1:
U.S. Treasury Securities
$
$
Mutual Funds
Cash and Cash Equivalents
Level 2:
U.S. Government Agency
Corporate Notes/Bonds
Total Fair Value of Plan Assets
$
$
101
Expected Benefit Payments.
follows:
(Dollars in Thousands)
2022
2023
$
2024
2025
2026
2027
2028 through 2032
Total
$
Contributions.
The following table details the amounts contributed to the pension plan in 2022 and 2021, and the expected
amount to be contributed in 2023.
Expected
Contribution
(Dollars in Thousands)
2021
2022
2023
(1)
Actual Contributions
$
$
$
(1)
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan (“SERP”) and a Supplemental Executive Retirement Plan II
(“SERP II”) covering selected executive officers. Benefits under this plan generally are based on the same service and
compensation as used for the pension plan, except the benefits are calculated without regard to the limits set by the Internal
Revenue Code on compensation and benefits. The net benefit payable from the SERP is the difference between this gross benefit
and the benefit payable by the pension plan. The SERP II was adopted by the Company’s Board on May 21, 2020 and covers
certain executive officers that were not covered by the SERP.
The following table details on a consolidated basis the changes in benefit obligation, the funded status of the plan, components of
pension expense, amounts recognized in the Company’s Consolidated Statements of Financial Condition, and major assumptions
used to determine these amounts.
102
(Dollars in Thousands)
2022
2021
2020
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
$
$
Service Cost
Interest Cost
Actuarial (Gain) Loss
(2,932 )
(146 )
Plan Amendments
Projected Benefit Obligation at End of Year
$
$
$
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other Liabilities
$
$
$
Accumulated Benefit Obligation at End of Year
$
$
$
Components of Net Periodic Benefit Costs:
Service Cost
$
$
$
Interest Cost
Amortization of Prior Service Cost
Net Loss Amortization
Net Periodic Benefit Cost
$
$
$
Weighted-Average Assumptions Used to Determine Benefit Obligation:
Discount Rate
Rate of Compensation Increase
(1)
Measurement Date
12/31/22
12/31/21
12/31/20
Weighted-Average Assumptions Used to Determine Benefit Cost:
Discount Rate
Rate of Compensation Increase
(1)
Amortization Amounts from Accumulated Other Comprehensive Income:
Net Actuarial (Gain) Loss
$
(2,932 )
$
(146 )
$
Prior Service (Benefit) Cost
(277 )
(219 )
Net Loss
(718 )
(970 )
(458 )
Deferred Tax Expense (Benefit)
(573 )
Other Comprehensive (Gain) Loss, net of tax
$
(2,932 )
$
(1,181 )
$
Amounts Recognized in Accumulated Other Comprehensive Income:
Net Actuarial Loss
$
(1,775 )
$
$
Prior Service Cost
Deferred Tax Benefit
(584 )
(985 )
Accumulated Other Comprehensive (Loss) Gain, net of tax
$
(1,212 )
$
$
(1)
The Company expects to recognize approximately $
comprehensive income at December 31, 2022 as a component of net periodic benefit cost during 2023.
In June 2023, lump sum retirement distributions to two plan participants will require the application of settlement accounting.
The amount of the settlement charge cannot be determined until the time of cash payment utilizing discount rates at that time.
103
Expected Benefit Payments
. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2022
2023
$
2024
2025
2026
2027
2028 through 2032
Total
$
401(k) Plan
The Company has a 401(k) Plan which enables CCB and CCBG associates to defer a portion of their salary on a pre-tax
basis. The plan covers substantially all associates of the Company who meet minimum age requirements. The plan is designed to
enable participants to contribute any amount, up to the maximum annual limit allowed by the IRS, of their compensation withheld
in any plan year placed in the 401(k) Plan trust account. Matching contributions of
% from the Company are made for up to
% of the participant’s compensation for eligible associates. Further, in addition to the
% match, all associates hired after
December 31, 2019 will receive annually a contribution by the Company equal to
% of their compensation. For 2022, the
Company made annual matching contributions of $
contributions of $
four investment options available to 401(k) participants, including the Company’s common stock. A total of
CCBG common stock have been reserved for issuance. Shares issued to participants have historically been purchased in the open
market.
CCHL has a 401(k) Plan available to all CCHL associates who are employed. The plan allows participants to contribute any
amount, up to the maximum annual limit allowed by the IRS, of their compensation withheld in any plan year placed in the
401(k) Plan trust account. A discretionary matching contribution is determined annually by CCHL. For 2022, 2021, and 2020,
matching contributions were made by CCHL up to
% of eligible participant’s compensation totaling $
and $
Other Plans
The Company has a Dividend Reinvestment and Optional Stock Purchase Plan. A total of
issuance. In recent years, shares for the Dividend Reinvestment and Optional Stock Purchase Plan have been acquired in the open
market and, thus, the Company did not issue any shares under this plan in 2022, 2021 and 2020.
Note 16
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars and Per Share Data in Thousands)
2022
2021
2020
Numerator:
Net Income Attributable to Common Shareowners
$
$
$
Denominator:
Denominator for Basic Earnings Per Share Weighted -Average Shares
Effects of Dilutive Securities Stock Compensation Plans
Denominator for Diluted Earnings Per Share Adjusted Weighted -Average
Basic Earnings Per Share
$
$
$
Diluted Earnings Per Share
$
$
$
104
Note 17
REGULATORY MATTERS
Regulatory Capital Requirements
. The Company (on a consolidated basis) and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on
the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action
,
the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to bank holding companies. A detailed description of these regulatory
capital requirements is provided in the section captioned “Regulatory Considerations – Capital Regulations” section on page 15.
Management believes, at December 31, 2022 and 2021, that the Company and the Bank meet all capital adequacy requirements to
which they are subject. At December 31, 2022, the most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum common equity Tier 1, total risk-based, Tier 1 risk based and Tier 1 leverage
ratios as set forth in the following tables. There are not conditions or events since the notification that management believes have
changed the Bank’s category. The Company and Bank’s actual capital amounts and ratios at December 31, 2022 and 2021 are
presented in the following table.
105
To Be Well -
Capitalized Under
Required
Prompt
For Capital
Corrective
Actual
Adequacy Purposes
Action Provisions
(Dollars in Thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
2022
Common Equity Tier 1:
CCBG
$
$
*
*
CCB
$
Tier 1 Capital:
CCBG
*
*
CCB
Total Capital:
CCBG
*
*
CCB
Tier 1 Leverage:
CCBG
*
*
CCB
2021
Common Equity Tier 1:
CCBG
$
$
*
*
CCB
$
Tier 1 Capital:
CCBG
*
*
CCB
Total Capital:
CCBG
*
*
CCB
Tier 1 Leverage:
CCBG
*
*
CCB
* Not applicable to bank holding companies.
Dividend Restrictions
. In the ordinary course of business, the Company is dependent upon dividends from its banking subsidiary
to provide funds for the payment of dividends to shareowners and to provide for other cash requirements. Banking regulations
may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends
declared would cause the regulatory capital of the Company’s banking subsidiary to fall below specified minimum levels.
Approval is also required if dividends declared exceed the net profits of the banking subsidiary for that year combined with the
retained net profits for proceeding two years. In 2023, the bank subsidiary may declare dividends without regulatory approval of
$
dividend declaration.
106
Note 18
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
FASB Topic ASC 220, “Comprehensive Income” requires that certain transactions and other economic events that bypass the
Consolidated Statements of Income be displayed as other comprehensive income. Total comprehensive income is reported in
the Consolidated Statements of Comprehensive Income (net of tax) and Changes in Shareowners’ Equity (net of tax).
The following table shows the amounts allocated to accumulated other comprehensive income (loss).
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
for Sale
Swap
Plans
(Loss) Income
Balance as of January 1, 2022
$
(4,588 )
$
$
(13,156 )
$
(16,214 )
Other comprehensive (loss) income during the period
(32,761 )
(21,015 )
Balance as of December 31, 2022
$
(37,349 )
$
$
(4,505 )
$
(37,229 )
Balance as of January 1, 2021
$
$
$
(47,270 )
$
(44,142 )
Other comprehensive income (loss) during the period
(7,288 )
Balance as of December 31, 2021
$
(4,588 )
$
$
(13,156 )
$
(16,214 )
Balance as of January 1, 2020
$
$
$
(29,045 )
$
(28,181 )
Other comprehensive income (loss) during the period
(18,225 )
(15,961 )
Balance as of December 31, 2020
$
$
$
(47,270 )
$
(44,142 )
Note 19
RELATED PARTY TRANSACTIONS
At December 31, 2022 and 2021, certain officers and directors were indebted to the Bank in the aggregate amount of $
and $
totaled $
Deposits from certain directors, executive officers, and their related interests totaled $
31, 2022 and 2021, respectively.
Under a lease agreement expiring in
2052
, the Bank leases land from a partnership in which William G. Smith, Jr. has an interest.
The lease agreement with Smith Interests General Partnership L.L.P. provides for annual lease payments of approximately $
million, to be adjusted for inflation in future years.
William G. Smith, III, the son of our Chairman, President and Chief Executive Officer, William G. Smith, Jr., is employed as
President, North Florida Region at Capital City Bank. In 2022, William G. Smith, III’s total compensation (consisting of annual
base salary, annual bonus, and stock-based compensation) was determined in accordance with the Company’s standard
employment and compensation practices applicable to associates with similar responsibilities and positions.
107
Note 20
OTHER NONINTEREST EXPENSE
Components of other noninterest expense in excess of
% of the sum of total interest income and noninterest income, which are
not disclosed separately elsewhere, are presented below for each of the respective years.
(Dollars in Thousands)
2022
2021
2020
Legal Fees
$
$
$
Professional Fees
Telephone
Advertising
Processing Services
Insurance – Other
Pension – Other
(3,043 )
(216 )
Pension – Settlement
Other
Total
$
Note 21
COMMITMENTS AND CONTINGENCIES
Lending Commitments
. The Company is a party to financial instruments with off-balance sheet risks in the normal course of
business to meet the financing needs of its clients. These financial instruments consist of commitments to extend credit and
standby letters of credit.
The Company’s maximum exposure to credit loss under standby letters of credit and commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the same credit policies in establishing
commitments and issuing letters of credit as it does for on-balance sheet instruments. At December 31, the amounts associated
with the Company’s off-balance sheet obligations were as follows:
2022
2021
(Dollars in Thousands)
Fixed
Variable
Total
Fixed
Variable
Total
Commitments to Extend Credit
(1)
$
$
$
$
$
$
Standby Letters of Credit
Total
$
$
$
$
$
$
(1)
Commitments to extend credit are agreements to lend to a client so long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client to a third
party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. In
general, management does not anticipate any material losses as a result of participating in these types of transactions. However,
any potential losses arising from such transactions are reserved for in the same manner as management reserves for its other
credit facilities.
For both on- and off-balance sheet financial instruments, the Company requires collateral to support such instruments when it is
deemed necessary. The Company evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies, but
may include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; real estate; accounts
receivable; property, plant and equipment; and inventory.
108
The allowance for credit losses for off-balance sheet credit commitments that are not unconditionally cancellable by the Bank is
adjusted as a provision for credit loss expense and is recorded in other liabilities. The following table shows the activity in the
allowance.
(Dollars in Thousands)
2022
2021
2020
Beginning Balance
$
$
$
Impact of Adoption of ASC 326
Provision for Credit Losses
Ending Balance
$
$
$
Other Commitments
. In the normal course of business, the Company enters into lease commitments which are classified as
operating leases. See Note 7 – Leases for additional information on the maturity of the Company’s operating lease commitments.
Furthermore, the Company has an outstanding commitment of up to $
finding and funding technology solutions for community banks and a commitment of up to $
fund. At December 31, 2022, the Company had contributed $
solar fund commitment. At December 31, 2021, the Company had contributed $
Contingencies
. The Company is a party to lawsuits and claims arising out of the normal course of business. In management’s
opinion, there are
material effect on the consolidated results of operations, financial position, or cash flows of the Company.
Indemnification Obligation
. The Company is a member of the Visa U.S.A. network. Visa U.S.A believes that its member banks
are required to indemnify it for potential future settlement of certain litigation (the “Covered Litigation”) that relates to several
antitrust lawsuits challenging the practices of Visa and MasterCard International. In 2008, the Company, as a member of the Visa
U.S.A. network, obtained Class B shares of Visa, Inc. upon its initial public offering. Since its initial public offering, Visa, Inc.
has funded a litigation reserve for the Covered Litigation resulting in a reduction in the Class B shares held by the Company.
During the first quarter of 2011, the Company sold its remaining Class B shares. Associated with this sale, the Company entered
into a swap contract with the purchaser of the shares that requires a payment to the counterparty in the event that Visa, Inc. makes
subsequent revisions to the conversion ratio for its Class B shares. Fixed charges included in the swap liability are payable
quarterly until the litigation reserve is fully liquidated and at which time the aforementioned swap contract will be terminated.
Conversion ratio payments and ongoing fixed quarterly charges are reflected in earnings in the period incurred. Payments during
2022 totaled $
December 31, 2022, there was $
Note 22
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the exchange price that would be received were the Bank to sell that asset or paid to
transfer that liability (exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the
absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that
are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are
consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset
or liability. ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has
the ability to access at the measurement date
.
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
are derived principally from, or corroborated, by market data by correlation or other means
.
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own
assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
109
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale.
U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities
classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider observable data that may
include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, credit
information and the bond’s terms and conditions, among other things.
In general, the Company does not purchase securities that have a complicated structure. The Company’s entire portfolio consists
of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through
securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is easily obtained. At least
annually, the Company will validate prices supplied by the independent pricing service by comparing them to prices obtained
from an independent third-party source.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined, when
possible, using either quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value is
determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used
by other market participants. The Company has elected the fair value option accounting for its held for sale loans.
Mortgage Banking Derivative Instruments.
The fair values of IRLCs are derived by valuation models incorporating market
pricing for instruments with similar characteristics, commonly referred to as best execution pricing, or investor commitment
prices for best effort IRLCs which have unobservable inputs, such as an estimate of the fair value of the servicing rights expected
to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through rate, and are therefore
classified as Level 3 within the fair value hierarchy. The fair value of forward sale commitments is based on observable market
pricing for similar instruments and are therefore classified as Level 2 within the fair value hierarchy.
Interest Rate Swap.
The Company’s derivative positions are classified as Level 2 within the fair value hierarchy and are valued
using models generally accepted in the financial services industry and that use actively quoted or observable market input values
from external market data providers. The fair value derivatives are determined using discounted cash flow models.
Fair Value Swap
. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The
valuation represents the amount due and payable to the counterparty based upon the revised share conversion rate, if any, during
the period. At December 31, 2022 and 2021, there was $
110
A summary of fair values for assets and liabilities at December 31 consisted of the following:
(Dollars in Thousands)
Level 1
Level 2
Level 3
Total Fair
Inputs
Inputs
Inputs
Value
2022
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Loans Held for Sale
Interest Rate Swap Derivative
Mortgage Banking Hedge Derivative
Mortgage Banking IRLC Derivative
2021
ASSETS:
Securities Available for Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
State and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Loans Held for Sale
Interest Rate Swap Derivative
Mortgage Banking IRLC Derivative
LIABILITIES:
Mortgage Banking Hedge Derivative
$
$
$
$
Mortgage Banking Activities.
The Company had Level 3 issuances and transfers of $
for the year ended December 31, 2022 related to mortgage banking activities. The Company had Level 3 issuances and transfers
of $
change in fair value of the underlying mortgage loan from inception of the IRLC to the statement of financial condition date,
adjusted for pull-through rates and costs to originate. IRLCs transferred out of Level 3 represent IRLCs that were funded and
moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis (i.e., the assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of
impairment. The following is a description of valuation methodologies used for assets measured on a non-recurring basis.
Collateral Dependent Loans
. Impairment for collateral dependent loans is measured using the fair value of the collateral less
selling costs. The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with
banking regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the
judgment and estimation involved in the real estate appraisal process. Collateral dependent loans are reviewed and evaluated on
at least a quarterly basis for additional impairment and adjusted accordingly. Valuation techniques are consistent with those
techniques applied in prior periods. Collateral dependent loans had a carrying value of $
$
$
111
Other Real Estate Owned
. During 2022 and 2021, certain foreclosed assets, upon initial recognition, were measured and reported
at fair value through a charge-off to the allowance for credit losses based on the fair value of the foreclosed asset less estimated
cost to sell. At December 31, 2022 and 2021, these assets were recorded at fair value, which is determined by an independent
valuation or professional appraisal in conformance with banking regulations. On an ongoing basis, we obtain updated appraisals
on foreclosed assets and record valuation adjustments as necessary. The fair value of foreclosed assets is estimated using Level 3
inputs due to the judgment and estimation involved in the real estate valuation process.
Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment at each reporting period
based upon the fair value of the rights as compared to the carrying amount. Fair value is determined by a third-party valuation
model using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note interest rate). The fair value is estimated using Level 3
inputs, including a discount rate, weighted average prepayment speed, and the cost of loan servicing. Further detail on the key
inputs utilized are provided in Note 4 – Mortgage Banking Activities. At December 31, 2022 and 2021, there was
allowance for mortgage servicing rights.
Assets and Liabilities Disclosed at Fair Value
The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is
practical to estimate fair value and the following is a description of valuation methodologies used for those assets and liabilities.
Cash and Short-Term Investments.
The carrying amount of cash and short-term investments is used to approximate fair value,
given the short time frame to maturity and as such assets do not present unanticipated credit concerns.
Securities Held to Maturity
. Securities held to maturity are valued in accordance with the methodology previously noted in the
caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale”.
Loans.
techniques based upon projected cash flows and estimated discount rates. Pursuant to the adoption of ASU 2016-01,
Recognition
and Measurement of Financial Assets and Financial Liabilities
, the values reported reflect the incorporation of a liquidity
discount to meet the objective of “exit price” valuation.
Deposits.
the amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using
present value techniques and rates currently offered for deposits of similar remaining maturities.
Subordinated Notes Payable.
flows and estimated discount rates as well as rates being offered for similar obligations.
Short-Term and Long-Term Borrowings.
projected cash flows and estimated discount rates as well as rates being offered for similar debt.
112
A summary of estimated fair values of significant financial instruments at December 31 consisted of the following:
2022
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Short-Term Investments
Investment Securities, Held to Maturity
Equity Securities
(1)
Other Equity Securities
(2)
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
2021
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Short-Term Investments
Investment Securities, Held to Maturity
Equity Securities
(1)
Other Equity Securities
(2)
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term Borrowings
Subordinated Notes Payable
Long-Term Borrowings
(1)
(2)
All non-financial instruments are excluded from the above table. The disclosures also do not include goodwill. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of the Company.
113
Note 23
PARENT COMPANY FINANCIAL INFORMATION
The following are condensed statements of financial condition of the parent company at December 31:
Parent Company Statements of Financial Condition
(Dollars in Thousands, Except Per Share Data)
2022
2021
ASSETS
Cash and Due From Subsidiary Bank
$
$
Equity Securities
Investment in Subsidiary Bank
Goodwill and Other Intangibles
Other Assets
Total Assets
$
$
LIABILITIES
Subordinated Notes Payable
Other Liabilities
Total Liabilities
$
$
SHAREOWNERS’ EQUITY
Common Stock, $
issued and outstanding at December 31, 2022 and 2021, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
(37,229 )
(16,214 )
Total Shareowners’ Equity
Total Liabilities and Shareowners’ Equity
$
$
114
The operating results of the parent company for the three years ended December 31 are shown below:
Parent Company Statements of Operations
(Dollars in Thousands)
2022
2021
2020
OPERATING INCOME
Income Received from Subsidiary Bank:
Administrative Fees
$
$
$
Dividends
Other Income
Total Operating Income
OPERATING EXPENSE
Salaries and Associate Benefits
Interest on Subordinated Notes Payable
Professional Fees
Advertising
Legal Fees
Other
Total Operating Expense
Earnings Before Income Taxes and Equity in Undistributed
Earnings of Subsidiary Bank
Income Tax Benefit
(661 )
(717 )
(406 )
Earnings Before Equity in Undistributed Earnings of Subsidiary Bank
Equity in Undistributed Earnings of Subsidiary Bank
Net Income Attributable to Common Shareowners
$
$
$
115
The cash flows for the parent company for the three years ended December 31 were as follows:
Parent Company Statements of Cash Flows
(Dollars in Thousands)
2022
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income Attributable to Common Shareowners
$
$
$
Adjustments to Reconcile Net Income to Net Cash Provided By
Equity in Undistributed Earnings of Subsidiary Bank
(20,927 )
(25,703 )
(12,189 )
Stock Compensation
Amortization of Intangible Asset
Increase in Other Assets
(336 )
(21 )
(217 )
Increase in Other Liabilities
Net Cash Provided By Operating Activities
$
$
$
CASH FROM INVESTING ACTIVITIES:
Purchase of Equity Securities
$
(79 )
$
(120 )
$
Net Cash Paid for Acquisition
(4,482 )
Decrease (Increase) in Investment in Subsidiaries
(10,770 )
Net Cash Provided by (Used in) Investing Activities
$
$
(15,372 )
$
CASH FROM FINANCING ACTIVITIES:
Repayment of Long-Term Borrowings
(900 )
(600 )
Dividends Paid
(11,191 )
(10,459 )
(9,567 )
Issuance of Common Stock Under Compensation Plans
Payments to Repurchase Common Stock
(2,042 )
Net Cash Used In Financing Activities
$
(9,891 )
$
(10,331 )
$
(11,168 )
Net Increase (Decrease) in Cash
(13,950 )
Cash at Beginning of Year
Cash at End of Year
$
$
$
116
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
. At December 31, 2022, the end of the period covered by this Annual Report
on Form 10-K, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that at December 31, 2022, the end of the
period covered by this Annual Report on Form 10-K, we maintained effective disclosure controls and procedures.
Management’s Report on Internal Control Over Financial Reporting.
maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of
its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other
financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity
with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). Based on this evaluation under the framework in Internal Control - Integrated
Framework, our management has concluded we maintained effective internal control over financial reporting, as such term is
defined in Securities Exchange Act of 1934 Rule 13a-15(f), at December 31, 2022.
FORVIS, LLP (f/k/a BKD, LLP), an independent registered public accounting firm, has audited our consolidated financial
statements as of and for the year ended December 31, 2022, and opined as to the effectiveness of internal control over financial
reporting at December 31, 2022, as stated in its report, which is included herein on page 117.
Change in Internal Control
. Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed
our internal control. There have been no changes in our internal control during our most recently completed fiscal quarter that
materially affected, or are likely to materially affect our internal control over financial reporting.
117
Report of Independent Registered Public Accounting Firm
To the Shareowners, Board of Directors and Audit Committee
Capital City Bank Group, Inc.
Tallahassee, Florida
Opinion on the Internal Control over Financial Reporting
We have audited Capital City Bank Group, Inc.’s (the “Company”) internal control over financial reporting as of December 31,
2022, based on criteria established in
Internal Control – Integrated Framework: (2013)
Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated
Framework: (2013)
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the years
in the two-year period ended December 31, 2022, and our report dated March 1, 2023, expressed an unqualified opinion on those
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report
on Internal Control over Financial Reporting
. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
FORVIS, LLP (Formerly, BKD, LLP)
Little Rock, Arkansas
March 1, 2023
118
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
119
Part III
Item 10. Directors, Executive Officers, and Corporate Governance
Incorporated herein by reference to the sections entitled “Proposal No. 1 – Election of Directors”, “Corporate Governance at
Capital City,” “Share Ownership,” and “Board Committee Membership” in the Registrant’s Proxy Statement relating to its
Annual Meeting of Shareowners to be held April 25, 2023.
Item 11. Executive Compensation
Incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis,” “Executive Compensation,”
and “Director Compensation” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April
25, 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowners Matters.
Information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the sections
captioned “Share Ownership” and “Equity Compensation Plan Information” in the Registrant’s Proxy Statement relating to its
Annual Meeting of Shareowners to be held April 25, 2023.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to the sections entitled “Transactions With Related Persons” and “Corporate Governance at
Capital City” in the Registrant’s Proxy Statement relating to its Annual Meeting of Shareowners to be held April 25, 2023.
Item 14.
Principal Accountant Fees and Services
Incorporated herein by reference to the section entitled “Audit Committee Matters” in the Registrant’s Proxy Statement relating to
its Annual Meeting of Shareowners to be held April 25, 2023.
120
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this report
Consolidated Statements of Changes in Shareowners’ Equity for Fiscal Years 2022, 2021, and 2020
Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the
financial statements or the notes thereto.
Reg. S-K
Exhibit
Table
Item No. Description of Exhibit
3.1
3.2
4.1 See Exhibits 3.1 and 3.2 for provisions of Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, which define the rights of the Registrant’s shareowners.
4.2
4.3
4.4
4.5 In accordance with Regulation S-K, Item 601(b)(4)(iii)(A) certain instruments defining the rights of
holders of long-term debt of Capital City Bank Group, Inc. not exceeding 10% of the total assets of
Capital City Bank Group, Inc. and its consolidated subsidiaries have been omitted; the Registrant
agrees to furnish a copy of any such instruments to the Commission upon request.
10.1
10.2
10.3
10.6
14
21
121
23.1
23.2
31.1
31.2
32.1
32.2
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Information required to be presented in Exhibit 11 is provided in Note 14 to the consolidated financial statements under
Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting principles.
**
Filed electronically herewith.
Item 16. Form 10-K Summary
None.
122
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 1, 2023, on its behalf by the undersigned, thereunto duly authorized.
CAPITAL CITY BANK GROUP, INC.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 1, 2023 by the
following persons in the capacities indicated.
/s/ William G. Smith, Jr.
William G. Smith, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Jeptha E. Larkin
Jeptha E. Larkin
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
123
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on March 1, 2023, on its behalf by the undersigned, thereunto duly authorized.
Directors:
/s/ Robert Antoine
/s/ J. Everitt Drew
/s/ Thomas A. Barron
/s/ Eric Grant
Eric Grant
/s/ William Butler
/s/ Laura Johnson
/s/ Stanley W. Connally, Jr.
/s/ John G. Sample, Jr.
/s/ Marshall M. Criser III
/s/ William G. Smith, Jr.
/s/ Kimberly Crowell
/s/ Ashbel C. Williams
/s/ Bonnie Davenport