CAPITAL CITY BANK GROUP INC
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC
20549
___________________________________
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year
December 31
, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
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,
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes
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reports pursuant to Section 13 or Section 15(d) of
the Exchange Act. Yes
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preceding 12 months (or for such shorter period that the registrant
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to such filing requirements for the past
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electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-
T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required
to submit such files). Yes
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Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company.
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12b-2 of the
Exchange Act
Large accelerated filer
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indicate by check mark if the registrant
has elected not to use the
extended transition period for complying with any new
or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
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report on and attestation to its management’s assessment of the effectiveness of its internal control
over
financial reporting under Section 404(b) of the Sarbanes-Oxley
Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit
report.
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements
of the registrant included in the filing reflect
the correction of an error to previously issued financial statements
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Indicate by check mark whether any of those error corrections
are restatements that required a recovery analysis of
incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
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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, 2024, 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, 2025
Common Stock, $0.01 par value per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the Annual Meeting of Shareowners held on April 22, 2025, are incorporated by reference in Part III.
2
CAPITAL CITY BANK
GROUP,
INC.
ANNUAL REPORT FOR 2024 ON FORM 10-K
TABLE OF CONTENTS
PART
I
PAGE
Item 1.
5
Item 1A.
22
Item 1B.
37
Item 1C.
37
Item 2.
37
Item 3.
37
Item 4.
PART
II
Item 5.
39
Item 6.
41
Item 7.
43
Item 7A.
68
Item 8.
69
Item 9.
127
Item 9A.
127
Item 9B.
129
PART
III
Item 10.
130
Item 11.
130
Item 12.
130
Item 13.
Certain Relationships and Related Transactions,
and Director Independence
130
Item 14.
Principal Accountant Fees and Services
130
PART
IV
Item 15.
131
Item 16.
132
133
3
INTRODUCTORY NOTE
This Annual Report on Form 10-K contains “forward-looking statements” within
the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, among others,
statements about our beliefs, plans, objectives,
goals, expectations, estimates and intentions that are subject to significant
risks and uncertainties and are subject to change based
on various factors, many of which are beyond our control.
The words “may,” “could,”
“should,” “would,” “believe,”
“anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “vision,”
“goal,” and similar expressions are intended to identify
forward-looking statements.
All forward-looking statements, by their nature, are subject to risks and uncertainties.
Our actual future results may differ
materially from those set forth in our forward-looking statements.
In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors
that could cause our actual results
to differ materially from those in the forward-looking
statements, include, without limitation:
●
The effects of and changes in trade and monetary and fiscal policies and
laws, including the interest rate policies of the
Federal Reserve Board;
●
Inflation, interest rate, market and monetary fluctuations;
●
Local, regional, national, and international economic conditions and
the impact they may have on us and our clients
and our assessment of that impact;
●
The costs and effects of legal and regulatory developments, the
outcomes of legal proceedings or regulatory or other
governmental inquiries, the results of regulatory examinations or
reviews and the ability to obtain required regulatory
approvals;
●
The effect of changes in laws and regulations (including
laws and regulations concerning taxes, banking, securities,
and insurance) and their application with which we and our subsidiaries must comply;
●
The effect of changes in accounting policies and practices, as may
be adopted by the regulatory agencies, as well as
other accounting standard setters;
●
The accuracy of our financial statement estimates and assumptions;
●
Changes in the financial performance and/or condition of our borrowers;
●
Changes in the mix of loan geographies, sectors and types or the level of non-performing
assets and charge-offs;
●
Changes in estimates of future credit loss reserve requirements based upon
the periodic review thereof under relevant
regulatory and accounting requirements;
●
Changes in our liquidity position;
●
The timely development and acceptance of new products and services and
perceived overall value of these products
and services by users;
●
Changes in consumer spending, borrowing, and saving habits;
●
Greater than expected costs or difficulties related to the
integration of new products and lines of business;
●
Technological changes;
●
The cost and effects of cyber incidents or other failures, interruptions,
or security breaches of our systems or those of
our customers or third-party providers;
●
Acquisitions and integration of acquired businesses;
●
Impairment of our goodwill or other intangible assets;
●
Changes in the reliability of our vendors, internal control systems, or information
systems;
●
Our ability to increase market share and control expenses;
●
Our ability to attract and retain qualified employees;
●
Changes in our organization, compensation, and benefit
plans;
●
The soundness of other financial institutions;
●
Volatility
and disruption in national and international financial and commodity
markets;
●
Changes in the competitive environment in our markets and among banking
organizations and other financial service
providers;
●
Government intervention in the U.S. financial system;
●
The effects of natural disasters (including hurricanes),
widespread health emergencies (including pandemics), military
conflict, terrorism, civil unrest, climate change or other geopolitical events;
●
Our ability to declare and pay dividends;
●
Structural changes in the markets for origination, sale and servicing of residential
mortgages;
●
Any inability to implement and maintain effective internal
control over financial reporting and/or disclosure control;
●
Negative publicity and the impact on our reputation; and
●
The limited trading activity and concentration of ownership of our common
stock.
4
However, other factors besides those listed in Item
1A Risk Factors or discussed in this Annual Report and our other filings with
the Securities and Exchange Commission (the “SEC”) also could adversely
affect our results, and you should not consider any
such list of factors to be a complete set of all potential risks or uncertainties.
Any forward-looking statements made by us or on
our behalf speak only as of the date they are made.
We do not undertake
to update any forward-looking statement, except as
required by applicable law.
5
PART
I
Item 1.
Business
About Us
General
Capital City Bank Group, Inc. (“CCBG”) is a financial holding company
headquartered in Tallahassee,
Florida. CCBG was
incorporated under Florida law on December 13, 1982, to acquire five national banks
and one state bank that all subsequently
became part of CCBG’s bank subsidiary,
Capital City Bank (“CCB” or the “Bank”). The Bank commenced operations
in 1895. In
this report, the terms “Company,”
“we,” “us,” or “our” mean CCBG and all subsidiaries included in our consolidated
financial
statements.
CCBG is one of the largest publicly traded financial
holding companies headquartered in Florida and has approximately $4.3
billion in assets.
We
provide a full range of banking services, including traditional deposit and
credit services, mortgage banking,
asset management, trust, merchant services, bankcards, securities brokerage
services and financial advisory services, including the
sale of life insurance, risk management and asset protection services. The
Bank has 62 banking offices and 104 ATMs/ITMs
in
Florida, Georgia, and Alabama.
Through Capital City Home Loans, LLC (“CCHL”), we have 27 additional
offices in the
Southeast for our mortgage banking business.
The majority of the revenue (excluding CCHL), approximately 85%,
is derived
from our Florida market areas while approximately 14% and 1% of
the revenue is derived from our Georgia and other market
areas, respectively.
Approximately 55% of the revenue from CCHL is derived from our Georgia
market areas while
approximately 33% and 12% 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 43 and our consolidated financial statements on
page 72.
Dollars in millions
Year
Ended
December 31,
Assets
Deposits
Shareowners’
Equity
Revenue
(1)
Net Income
2024
$4,324.9
$3,672.0
$495.3
$270.6
$52.9
2023
$4,304.5
$3,701.8
$440.6
$252.7
$52.3
2022
$4,519.2
$3,939.3
$387.3
$207.1
$33.4
(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,
2024.
CCBG also maintains an insurance subsidiary,
Capital City Strategic Wealth,
LLC.
CCB has three primary subsidiaries, Capital City Trust Company
and Capital City Banc
Investments, Inc. which are wholly owned, and CCHL which became wholly
owned effective January 1, 2025.
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 divisions (Capital City Trust
Company,
Capital City Investments, and Capital City Strategic Wealth,
LLC).
Revenues from these principal services for the year ended
2024 totaled approximately 92.6% and 7.4% of our total revenue, respectively.
In 2023 and 2022, Banking Services (CCB)
revenue was approximately 93.5% and 90.3% of our total revenue for
each respective year.
6
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
home financing needs of consumers, including conventional permanent and
construction-to-permanent (fixed, adjustable,
or variable rate) financing arrangements as well as FHA, VA
and USDA rural development loan products.
CCHL also
offers both fixed and adjustable-rate residential mortgage
(ARM) loans.
CCHL offers these products through its network
of locations.
We do not offer 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 $1.234 billion at December 31, 2024, with total assets under administration
exceeding $1.244 billion.
Capital City Investments
We offer
our customers retail investment products through LPL Financial. 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.
7
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.
Historically, 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, 2024, approximately 48% 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.
8
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 $500,000 that are secured by real property
unless we deem
the real property used as security to be a complex property type, in
which case we require appraisals for loans in excess of
$250,000. For loans secured by real property that fall beneath the
applicable thresholds above, we will generally use a third-party
evaluation to assess the value of the real property used as security.
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 Item 7.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the section captioned
“Business Overview” for discussion related to the expansion of our
Business.
Competition
We face significant
competition in our market areas. 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, insurance agencies and
companies, securities firms, brokerage firms,
financial technology firms, finance companies and other types of financial
institutions. Some of our competitors are larger
financial institutions with greater resources and, as such, may have higher
lending limits and may offer other services that are not
provided by us. However, we believe that the
larger financial institutions 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 and
financial services companies.
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. See Item 1A. Risk Factors under the section captioned “Our future success is dependent
on our ability to compete
effectively in the highly competitive banking and financial
services industry” for further discussion related to the competitive
environment in which we operate.
Our primary market area consists of 21 counties in Florida, six counties in Georgia,
and one county in Alabama. Most of Florida’s
major banking concerns have a presence in Leon County,
where our main office is located.
Our Leon County deposits totaled
$1.200 billion, or 32.7% of our consolidated deposits at December 31, 2024.
9
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
2024
2023
2022
Florida
4.9%
5.1%
4.9%
0.2%
0.3%
0.3%
34.3%
37.1%
34.9%
4.3%
4.4%
4.7%
2.2%
2.4%
2.3%
21.5%
17.5%
19.8%
81.8%
81.9%
82.1%
41.6%
42.2%
41.2%
11.2%
12.4%
14.8%
5.2%
4.9%
5.0%
24.6%
28.3%
24.8%
15.5%
16.9%
15.4%
26.4%
26.4%
25.4%
13.5%
13.5%
14.0%
28.3%
34.4%
26.4%
0.7%
0.8%
0.7%
6.4%
6.6%
7.0%
73.7%
75.0%
73.8%
8.4%
8.4%
10.0%
0.6%
0.3%
-
7.8%
9.2%
11.2%
Georgia
3.1%
2.9%
3.2%
0.1%
0.1%
0.0%
(2)
0.0%
0.0%
-
14.0%
13.8%
16.3%
6.0%
6.7%
7.8%
5.4%
5.6%
6.4%
Alabama
9.0%
8.6%
9.3%
(1)
Obtained from the FDIC Summary of Deposits Report for the year indicated.
(2)
Bank office opened in the second quarter of 2023.
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
Our culture distinguishes us from our competitors and is the driving force
behind our continued success. Our leadership is
committed to a culture that values people alongside results.
Our brand promise (“More than your bank. Your
banker.”)
and purpose (“We
empower our clients’ financial wellness and help
them build secure futures”), together with our core values statement (“Do
the Right Thing, Build Relationships & Loyalty,
Embrace Individuality & Value
Others, Promote Career Growth, Be Committed to Community,
and Represent the Star (our bank)
Proudly”), are the foundation on which our culture is built.
10
The bank has grown significantly since its beginnings in 1895. Our commitment
to fostering a culture that values our associates
across our entire footprint remains unwavering. We
have a Chief Culture Officer and a Chief Inclusion Officer
who make it a
priority to ensure our culture is maintained and associates exemplify our values.
At December 31, 2024, we had approximately 940 full-time associates and
approximately 29 part-time associates. At December
31, 2024, approximately 68% of our workforce was female, 32% was male,
and approximately 21% was ethnic minorities. None
of our associates are represented by a labor union or covered by a collective bargaining
agreement.
Our commitment to people and being an employer with integrity and heart has
earned us numerous accolades including:
one of
the “Best Companies to Work
for in Florida” by Florida Trend for 13 consecutive
years, a “Best Bank to Work
For” by American
Bankers for 12 consecutive years and being named by Forbes in 2023 and 2024
as one of “America’s Best-in-State Banks,
a
selection made from direct consumer feedback and online reviews.
The average tenure of our associates is approximately 9.4 years, and
the average tenure of our management team is 23.9 years.
Tenure statistics support
these accolades and further demonstrate that associates enjoy working
for CCBG.
Compensation and Benefits Program
. To attract and retain experienced
associates we offer a competitive compensation and
benefits program, foster a culture 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.
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 and
annual incentive bonuses, and certain associates can
receive equity awards tied to the Company’s
performance.
Experience has taught us that a compensation program with both
short-
and long-term awards provides fair and competitive
compensation and aligns associate and shareowner interests by incentivizing
business and individual performance. This dual
approach also encourages long-term company performance and integrates compensation
with our business plans.
In addition to cash and equity compensation, we offer associates benefits
including life and health (medical, dental & vision)
insurance, paid time off, an associate stock purchase plan, and a
401(k) plan. Associates hired prior to 2020 are eligible to
participate in a pension plan.
A core value is providing associates the ability to “grow a career.”
To that end, we support and encourage
associates to develop a
life-long habit of continuous learning that focuses on personal and professional
development through higher education. We
offer
an educational Tuition Assistance Plan to help eligible
associates continue or begin post-high school education, develop skills,
increase knowledge and aid in career development.
We have invested
in tools and capabilities that allow our team members to work remotely as appropriate.
Inclusion.
Integral to our culture and values is a commitment to an equitable, diverse, and inclusive work
environment whereby
respect, acceptance and belonging are practiced and experienced by all.
Our associates are our most valuable assets, and our differences make
us stronger. The individual perspectives,
life experiences,
capabilities and talents, which our associates invest in their work, represent a
significant part of our culture, reputation and
collective achievements.
The Chief Inclusion Officer and the Inclusion Council, which comprises
diverse associates from various levels and offices
throughout our organization, connect the company’s
diversity and inclusion initiatives with our broader business strategies.
A
diverse team produces more creative solutions, offers better client
service and is vital to attracting and retaining talent—key
factors that contribute to our success. We
continue to build an inclusive culture through a variety of inclusion initiatives
for
internal promotions and hiring practices.
Health and Safety
. Our business success is fundamentally connected to our associates’ well-being.
We make available to our
associates a voluntary wellness program,
StarFit that provides associates with resources and good-health opportunities through
exercise, diet and preventive care.
In response to emerging workplace practices, we made changes to our
flex–work program to assist our associates in maintaining a
work/life balance consistent with their professional and personal goals.
11
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
9,542 community service hours in 2024, and 10,526, and 9,508 hours in 2023 and 2022,
respectively. Additionally,
the CCBG Foundation donated approximately $0.3 million in 2024 and 2023
and approximately $0.2 million in 2022 to various
non-profit organizations in the communities we serve.
Since 2015, we have annually supported the United Way
of the Big Bend in analyzing financial information for its annual grant
review process. Many of these grants are provided to low-moderate income
communities in the Big Bend area.
Access, affordability,
and financial inclusion.
Our community commitment to further financial literacy in the markets we service
remains an ongoing focus. In 2024, the CCBG Foundation made grants totaling
$167,000 to Community Reinvestment Act of
1977 (“CRA”) eligible organizations in our market
area. 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 2023, we partnered with Habitat for Humanity and Warrick
Dunn
Charities to build and furnish four homes.
Further, we continue to originate loans under the Habitat for
Humanity loan program
and community development loans under various affordable
housing, community service, and revitalization projects.
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 $60,000 or less,
persons with disabilities, the elderly,
and limited English-speaking taxpayers who need assistance in preparing their
own tax
returns.
Environmental Matters
We recognize
the value of environmental stewardship and seek opportunities to reduce our carbon
footprint and incorporate
energy efficiency products into business operations.
We have implemented
company-wide recycling programs and have
converted exterior lighting to LED at 58 offices. Further reducing
our environmental impact, our office model design is reduced
from an average 5,500 square feet to 3,300 square feet. As we renovate or build
new facilities, we employ energy efficient
equipment such as HVAC
systems and lighting controls in offices.
In 2022 through 2024, we made commitments for a $7 million investment in SOLCAP 2022
-1, LLC, a $7 million investment in
SOLCAP 2023-1, LLC, and an $9.1 million investment in SOLCAP 2024-1, LLC. Each of these funds
were formed to make solar
tax equity investments in renewable solar energy projects and
provided us with tax credits and other tax benefits. These projects
will produce approximately 31,778,716 kw hours of clean power each
year. The clean power produced is equivalent
to removing
approximately 21,350 metric tons of greenhouse gas emissions. We
plan to continue to review these kinds of investment
opportunities as they arise.
We work to ensure
lending activities do not encourage business activities that could cause irreparable
damage to our reputation or
the environment. 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.
To prepare for any climate-related
occurrences, we have a business continuity plan that addresses how to maintain
business
operations in the event of a disastrous event. We
also offer disaster assistance to our associates, which includes
accommodation/shelter reimbursement in case of evacuations or sustained
power outages.
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.
12
Capital City Bank Group, Inc.
We are registered
with the Board of Governors of the Federal Reserve System (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 “Dodd-Frank Act”),
the Gramm-Leach-Bliley Financial Modernization Act (the
“GLBA”), 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.
Permitted Activities
The GLBA reformed the U.S. banking system by: (i) allowing bank holding
companies (“BHCs”) 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.
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 Securities Exchange Act of 1934, as amended (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 CRA.
13
Under Florida law,
a person or entity proposing to directly or indirectly acquire control of a Florida chartered
bank must also
obtain permission from the Florida Office of Financial
Regulation (the “Florida OFR”). 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 OFR. 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 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.
14
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 OFR. The Florida OFR 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 Federal Deposit Insurance Corporation (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 (“DIF”).
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. A particular area of focus for regulators
has been 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.
15
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 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 OFR 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 OFR 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 DIF generally up to a maximum of
$250,000 per separately insured depositor.
In order to
fund the DIF,
all insured depository institutions are required to pay quarterly assessments to
the FDIC that are based on an
institutions assignment to one of four risk categories based on supervisory
evaluations, regulatory capital levels and certain other
factors. The FDIC has the discretion to adjust an institution’s
risk rating and may terminate its insurance of deposits upon a
finding that the institution engaged or is engaging in unsafe and unsound practices,
is in an unsafe or unsound condition to
continue operations, or violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or written
agreement entered into with the FDIC. The FDIC may also prohibit any FDIC-insured
institution from engaging in any activity it
determines to pose a serious risk to the DIF.
In October 2022, the FDIC finalized a 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 intended to improve the
likelihood that the DIF reserve ratio would reach the statutory minimum of 1.35%
by the statutory deadline of September 30,
2028 prescribed under the FDIC’s amended
restoration plan. In November 2023, the FDIC adopted a final rule with respect to a
special assessment to recover the costs associated with protecting uninsured
depositors following the closures of Silicon Valley
Bank and Signature Bank. The final rule does not apply to any banking organization
with less than $5 billion in total consolidated
assets and therefore the special assessment did not directly impact the Company.
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.
16
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 CRA 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 (“LMI”) 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 CRA. The Federal Reserve considers a bank’s
CRA 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 CRA 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 CRA assessment.
In 2023, the Federal Reserve, along with the FDIC and OCC, issued a joint final
rule that made significant amendments to the
regulations implementing the CRA to “strengthen and modernize” those
regulations, including by creating rigorous data-driven
performance tests and growing the geographic areas in which a bank’s
CRA performance may be evaluated. The final rules were
intended to achieve the following key goals, among others:
●
strengthen the achievement of the core purpose of the CRA;
●
encourage banks to expand access to credit, investment, and banking services
in LMI communities;
●
adapt to changes in the banking industry,
including internet and mobile banking;
●
provide greater clarity and consistency in the application of the CRA regulations;
and
●
tailor CRA evaluations and data collection to bank size and type.
The compliance date for a majority of the rule’s
provisions is January 1, 2026. The remaining requirements, including
the data
reporting requirements, will be applicable on January 1, 2027. We
are planning for compliance with the final rules and continue to
evaluate the impact of the final rules to our financial condition, results of operations,
and liquidity, which cannot
be predicted at
this time.
Capital Regulations
The federal banking regulators have adopted rules implementing
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.
17
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.
The rules implement strict eligibility criteria for regulatory capital instruments
and improve the methodology for calculating risk-
weighted assets to enhance risk sensitivity.
Consistent with the international Basel III framework, the rules include
a minimum
ratio of Common Equity Tier 1 Capital to Risk-Weighted
Assets of 4.5%. The rules provide for 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 provide for a minimum ratio of Tier 1 Capital to
Risk-Weighted Assets
of 6% and include a minimum leverage ratio of 4% for all banking organizations.
If a financial institution’s capital conservation
buffer falls below 2.5% (e.g., if the institution’s
Common Equity Tier 1 Capital to Risk-Weighted
Assets is less than 7.0%), then
capital distributions and discretionary payments will be limited
or prohibited based on the size of the institution’s
buffer. The
types of payments subject to this limitation include dividends, share buybacks,
discretionary payments on Tier 1 instruments, and
discretionary bonus payments.
The capital regulations may also impact the treatment of accumulated
other comprehensive income (“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, 2024, CCB’s ratio
of construction, land development and other land loans to total risk-based
capital was 78%,
its ratio of total commercial real estate loans to total risk-based capital was 212%
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.
18
Prompt Corrective Action
The federal banking agencies are required to take “prompt corrective
action” with respect to financial institutions that do not meet
minimum capital requirements. The law establishes five categories
for this purpose: “well-capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”
To be considered “well-capitalized,”
an
insured depository institution must maintain minimum capital ratios and
must not be subject to any order or written directive to
meet and maintain a specific capital level for any capital measure. An institution
that fails to remain well-capitalized becomes
subject to a series of restrictions that increase in severity as its capital condition weakens.
Such restrictions may include a
prohibition on capital distributions, restrictions on asset growth or
restrictions on the ability to receive regulatory approval of
applications. The regulations apply only to banks and not to BHCs. However,
the Federal Reserve is authorized to take
appropriate action at the holding company level based on the undercapitalized
status of the holding company’s
subsidiary banking
institutions. In certain instances relating to an undercapitalized banking
institution, the BHC would be required to guarantee the
performance of the undercapitalized subsidiary’s
capital restoration plan and could be liable for civil money damages for failure
to fulfill those guarantee commitments.
In addition, failure to meet capital requirements may cause an institution
to be directed to raise additional capital. Federal law
further mandates that the agencies adopt safety and soundness standards generally
relating to operations and management, asset
quality and executive compensation, and authorizes administrative action
against an institution that fails to meet such standards.
Failure to meet capital guidelines may subject a banking organization
to a variety of other enforcement remedies, including
additional substantial restrictions on its operations and activities, termination
of deposit insurance by the FDIC and, under certain
conditions, the appointment of a conservator or receiver.
At December 31, 2024, 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 (the “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, BSA, 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 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.
19
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 GLBA
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.
Cybersecurity
The federal banking regulators regularly issue new guidance and standards,
and update existing guidance and standards, regarding
cybersecurity intended to enhance cyber risk management among financial
institutions. Financial institutions are expected to
comply with such guidance and standards and to accordingly develop appropriate
security controls and risk management
processes. If we fail to observe such regulatory guidance or standards, we
could be subject to various regulatory sanctions,
including financial penalties. In 2023, the SEC issued a final rule that requires
disclosure of material cybersecurity incidents, as
well as cybersecurity risk management, strategy and governance. Under
this rule, banking organizations that are SEC registrants
must generally disclose information about a material cybersecurity incident
within four business days of determining it is material
with periodic updates as to the status of the incident in subsequent filings,
as necessary.
Banking organizations are also required to notify their primary
banking regulator within 36 hours of determining that a
“computer-security incident” has materially disrupted or degraded,
or is reasonably likely to materially disrupt or degrade, the
banking organization’s
ability to carry out banking operations or deliver banking products and services
to a material portion of its
customer base, its businesses and operations that would result in material loss, or its operations
that would impact the stability of
the United States.
State regulators have also been increasingly active in implementing privacy
and cybersecurity standards and regulations.
Recently, several states have
adopted regulations requiring certain financial institutions to implement
cybersecurity programs and
many states have also recently implemented or modified their data breach
notification, information security and data privacy
requirements. We
expect this trend of state-level activity in those areas to continue and are continually
monitoring developments
in the states in which our customers are located.
Risks and exposures related to cybersecurity attacks, including litigation
and enforcement risks, are expected to be elevated for
the foreseeable future due to the rapidly evolving nature and sophistication of
these threats, as well as due to the expanding use of
internet banking, mobile banking, and other technology-based products
and services by us and our customers.
See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity
and Item 1C. Cybersecurity for a further
discussion of risk management strategies and governance processes related to
cybersecurity.
20
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. These laws and regulations, among other things, mandate
certain disclosures and regulate the manner in
which financial institutions must deal with clients when taking deposits or making
loans to clients, provide substantive consumer
rights, prohibit discrimination in credit transactions, regulate the use of
credit report information, provide financial privacy
protections, prohibit unfair, deceptive and
abusive practices, restrict our ability to raise interest rates, and subject us to
substantial
regulatory oversight. CCB must comply with these consumer protection
laws and regulations as part of its ongoing client
relations. Violations of
applicable consumer protection laws can result in significant potential liability from
litigation brought by
customers, including actual damages, restitution and attorneys’ fees. Federal
bank regulators, state attorneys general and state and
local consumer protection agencies may also seek to enforce consumer protection
requirements and obtain these and other
remedies, including regulatory sanctions, customer rescission rights,
action by the state and local attorneys general in each
jurisdiction in which we operate and civil money penalties. Failure to
comply with consumer protection requirements may also
result in our failure to obtain any required bank regulatory approval
for merger or acquisition transactions we may wish to pursue
or our prohibition from engaging in such transactions even if approval is not required.
In addition, the Consumer Financial Protection Bureau (“CFPB”) issues regulations
and standards under these federal consumer
protection laws that affect our consumer businesses. Although
the CFPB has jurisdiction over banks with $10 billion or greater in
assets, the regulations and standards issued by the CFPB may also impact
CCB or its subsidiaries by virtue of the adoption of the
same or similar regulations and standards by the Federal Reserve or FDIC.
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 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.
In 2022, certain members of Congress and the leadership of the CFPB 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 indicated, at the time, that it intended to pursue enforcement
actions against banking organizations, and their executives,
that oversee overdraft practices that were deemed to be unlawful, and
indeed took action against a large bank for charging “surprise”
overdraft fees known as authorized positive fees. 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 December 2024, the CFPB issued a final rule that, among other things, will require
financial institutions with more than $10
billion in assets to offer overdraft protection services to
either provide customers that receive such services with loan disclosures
required under the TILA and Regulation Z, or cap any charges associated with the
provision of such services at $5 or an amount
that would allow the institution to cover its costs and losses with respect to the overdraft
credit transaction. The CFPB’s final
rule
on overdraft credit is currently scheduled to take effect on October
1, 2025. However, the rule is subject to legal challenges
and
continued implementation of the final rule under the new leadership
of the CFPB is uncertain. While this new rule would not
impose direct obligations on CCB, it would directly impact some of CCB’s
competitors and therefore may influence CCB’s
policies and practices relating to overdraft protection services.
See Item 1A. Risk Factors under the section captioned “Fee revenues from overdraft
protection programs constitute a significant
portion of our noninterest income and may continue to be subject to increased
supervisory scrutiny” for further discussion related
to the impacts of increased scrutiny of overdraft fees on us.
Future Legislative Developments
Various
bills are from time to time introduced in the U.S. 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.
21
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 SEC.
The information on our website is not
incorporated by reference into this report.
22
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 and 2023, the
Federal Reserve raised the federal funds rate 11
times for a cumulative increase of 5.25%. In 2024, the Federal Reserve began
lowering the federal funds rate and lowered it three times during the year for a cumulative
decrease of 1.00%. In December 2024,
the Federal Reserve released its economic projections suggesting that it will reduce
the federal funds rate twice in 2025 for a
cumulative decrease of 0.50% for the year, but
there is no guarantee that the Federal Reserve will further reduce the federal funds
rate in the near-term and could maintain the rate at the current level or
even increase it.
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.
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
eased but remained elevated throughout 2023 and 2024. Small to medium
-sized businesses may be impacted more during periods
of high inflation as they are not able to leverage economies 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 increase 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.
23
Our profitability depends significantly on economic
conditions in the States of Florida and Georgia.
Our profitability and the success of our business depends substantially on the
general economic conditions of the States of Florida
and, to a lesser extent, Georgia, as well as the specific local markets in
which we operate. Unlike larger national or other regional
banks that are more geographically diversified, we provide banking
and financial services primarily to customers across northern
Florida and Georgia. The local economic conditions in
these areas have a significant impact on the demand for our products and
services as well as the ability of our customers to repay loans, the value of the
collateral securing loans and the stability of our
deposit funding sources. As a result, a significant decline in general economic
conditions in Florida or Georgia, whether caused
by recession, inflation, unemployment, in-flows and out-flows of residents,
shifts in political landscape, changes in securities
markets, acts of terrorism, pandemics, natural disasters, climate change,
outbreak of hostilities or other occurrences or other
factors could have a material adverse effect on our business, financial
condition and results of operations.
Changes in customer behavior may have a negative impact on our business, financial
condition, and results of operations.
Individual,
economic,
political, industry
-specific
conditions and
other factors
outside of
our
control,
such as
fuel prices,
energy
costs,
real
estate
values,
inflation,
taxes
or
other
factors
that
affect
customer
income
levels,
could
alter
anticipated
customer
behavior,
including
borrowing,
repayment,
investment
and
deposit
practices.
Such
a
change
in
these
practices
could
materially
adversely affect
our ability
to anticipate
business needs
and meet
regulatory requirements.
Further,
difficult economic
conditions
may negatively
affect consumer
confidence levels.
A decrease in
consumer confidence
levels would
likely aggravate
the adverse
effects of these difficult market conditions
on us and our customers.
The fair value of our investments could decline which would cause a reduction
in shareowners’ equity.
A portion of our investment securities portfolio (41.5%) at December 31,
2024 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.
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, 2024 was approximately 31,390 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. Similarly,
significant sales of our common stock, or the
expectation of these sales, could cause our stock prices to fall.
24
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 any securities analysts covering our common stock publishes
an unfavorable report, our stock price would
likely decline. If one or more of analysts covering our common stock ceases to cover
our Company or fails to publish regular
reports on us, the lack of research coverage and lose of visibility in the financial
markets may cause our stock price or trading
volume to decline.
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 residential
real estate because the collateral securing these loans may not be sold as easily as 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.
Further,
these loans generally are more affected by adverse conditions in the
economy. Because payments
on loans secured by
commercial real estate often depend upon the successful operation and
management of the properties and the businesses
which operate from within them, repayment of such loans may be affected
by factors outside the borrower’s control,
such as adverse conditions in the real estate market or the economy or changes
in government regulations.
At December
31, 2024, commercial mortgage loans comprised approximately 29.4%
of our total loan portfolio.
●
Commercial Loans
. Repayment is generally dependent upon the successful operation
of the borrower’s business. In
addition, the collateral securing the loans may depreciate over time, be
difficult to appraise, be illiquid, or fluctuate in
value based on the success of the business. At December 31, 2024, commercial
loans comprised approximately 7.1% 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,
2024, construction loans comprised approximately 8.3% 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, 2024, vacant land loans comprised
approximately 3.7% of our total loan portfolio.
●
HELOCs
. Our open-ended home equity loans have an interest-only draw period
followed by a five-year repayment
period of 0.75% of the principal balance monthly and a balloon payment
at maturity. Upon the commencement
of the
repayment period, the monthly payment can increase significantly,
thus, there is a heightened risk that the borrower will
be unable to pay the increased payment. Further,
these loans also involve greater risk because they are generally not fully
amortizing over the loan period, but rather have a balloon payment due
at maturity.
A borrower’s ability to make a
balloon payment may depend on the borrower’s ability
to either refinance the loan or timely sell the underlying property.
At December 31, 2024, HELOCs comprised approximately 8.3% of
our total loan portfolio.
25
●
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, 2024, consumer loans comprised approximately 7.6%
of our total loan portfolio, with indirect auto loans
making up a majority of this portfolio at approximately 87.9% 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 credit 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, 2024, approximately 85.3% 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, 2024, 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, 2024, approximately 29.4% and 47.6% of our $2.652 billion loan
portfolio was secured by commercial real estate and
residential real estate, respectively.
As of this same date, approximately 8.3% was secured by property under construction.
Due to
the exposure in these concentrations, disruptions in markets, economic
conditions, changes in laws or regulations or other events
could cause a significant impact on the ability of borrowers to repay and may
have a material adverse effect on our business,
financial condition and results of operations.
In weak economies, or in areas where real estate market conditions are distressed,
we may experience a higher than normal level
of nonperforming real estate loans. The collateral value of the portfolio and the revenue stream
from those loans could come
under stress, and additional provisions for the allowance for credit losses could
be necessitated. 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;
26
●
current and future economic conditions; and
●
geographic and industry loan concentrations.
At December 31, 2024, our allowance for credit losses for loans held for investment
was $29.3 million, which represented
approximately 1.10% of our total loans held for investment.
We had $6.3
million in nonaccruing loans at December 31, 2024.
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.
Failures in the analytical
and forecasting models
relied upon for our
accounting estimates and risk
management processes
could have a material adverse effect on our business, financial condition, and results
of operations.
The processes
we use
to estimate
our expected
credit losses and
to measure
the fair value
of financial
instruments, as
well as
the
processes used
to estimate
the effects
of changing
interest rates
and other
market measures
on our
financial condition
and results
of
operations,
depends
upon
the
use
of
analytical
and
forecasting
models.
These
models
reflect
assumptions
that
may
not
be
accurate,
particularly
in
times
of
market
stress
or
other
unforeseen
circumstances.
Even
if
these
assumptions
are
adequate,
the
models may
prove to
be inadequate
or inaccurate
because of
other flaws
in their
design or
their implementation,
including flaws
caused by failures in controls, data management, human error
or from the reliance on technology.
If the models we use for interest
rate
risk
and
asset-liability
management
are
inadequate,
we
may
incur
increased
or
unexpected
losses
upon
changes
in
market
interest
rates
or
other
market
measures.
If
the
models
we
use
for
estimating
our
expected
credit
losses
are
inadequate,
the
allowance for
credit losses
may not
be sufficient
to support
future charge-offs.
If the
models we
use to
measure the
fair value
of
financial
instruments
are
inadequate,
the
fair
value
of
such
financial
instruments
may
fluctuate
unexpectedly
or
may
not
accurately reflect
what we
could realize
upon sale
or settlement
of such
financial instruments.
Any such
failure in
our analytical
or forecasting models could have a material adverse effect
on our business, financial condition, and results of operations.
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.
27
Reliance on inaccurate or misleading financial statements, credit
reports, or other financial information could have a
material adverse impact on our business, financial condition,
and results of operations.
In deciding whether to extend credit or enter into other transactions, we
rely on information furnished by or on behalf of
customers and counterparties, including financial statements, credit
reports, and other financial information. We
also rely on
representations of those customers, counterparties, or other third parties, such
as independent auditors, as to the accuracy and
completeness of that information. Reliance on inaccurate or misleading
financial statements, credit reports, or other financial
information could have a material adverse impact on our business, financial condition,
and results of operations.
Liquidity and Capital 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 2024
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.
A
significant
decrease
in
our
public
fund
deposit
balances
as
a
result
of
increased
competition
in
the
current
higher
interest-rate environment and seasonal nature
of these deposits could materially and adversely affect our liquidity.
The Company has many long-standing relationships with municipal
entities throughout its markets and the deposits held by these
customers have provided a relatively attractive and stable (although seasonal)
funding source for the Company over an extended
period of time. Public fund deposits from local government entities such as universities,
counties, school districts, and other
municipalities generally have higher average balances and historically been
more volatile than nonpublic deposits because they
are heavily impacted by the seasonality of tax collection, changes in competitive
and market forces, and fiscal spending patterns,
as well as the longer-term financial position of local government entities, which
can change from year to year. Such public
fund
deposits are often subject to competitive bidding and in many cases must be secured
by pledging a portion of our investment
securities.
The Company’s inability to
retain public fund deposit balances due to increased competition in the current higher
interest-rate environment and seasonal nature of these deposits could materially
and adversely affect our liquidity or result in the
use of higher-cost funding sources, which, in turn, could
materially and adversely affect our business, results of operations or
financial condition.
28
Unrealized losses in our securities portfolio could materially
and adversely affect our liquidity.
We have experienced
significant unrealized losses on our available-for-sale securities portfolio
as a result of increases in market
interest rates. Unrealized losses related to available-for-sale
securities are reflected in accumulated other comprehensive income
in our consolidated statements of financial condition and reduce the level of our
book capital and tangible common equity.
However, such unrealized losses do not
affect our regulatory capital ratios. We
actively monitor our available-for-sale securities
portfolio and we do not currently anticipate the need to realize material losses from
the sale of securities for liquidity purposes.
Furthermore, we believe it is unlikely that we would be required to sell any such securities
before recovery of their amortized cost
bases, which may be at maturity.
Nonetheless, our access to liquidity sources could be affected by unrealized
losses if securities
must be sold at a loss, tangible capital ratios decline from an increase in unrealized
losses or realized credit losses, the Federal
Home Loan Bank of Atlanta (“FHLB”) or other funding sources reduce capacity,
or bank regulators impose restrictions on us that
impact the level of interest rates we may pay on deposits or our ability to access federal
funds lines or brokered deposits.
Additionally, significant
unrealized losses could negatively impact market and customer perceptions
of the Company, which
could lead to a loss of depositor confidence and an increase in deposit withdrawals,
particularly among those with uninsured
deposits.
We may need to raise additional capital
in the future, and such capital may not be available on acceptable terms or at all.
We
may
need
to
raise
additional
capital
in
the
future
to
provide
us
with
sufficient
capital
resources
and
liquidity
to
meet
our
commitments and business
needs, particularly if our
asset quality or earnings
were to deteriorate significantly.
Our ability to raise
additional capital,
if needed, will
depend on, among
other things, conditions
in the capital
markets at that
time, which are
outside
of our
control, and
our financial
condition. Economic
conditions and
the loss of
confidence in
financial institutions
may increase
our
cost
of
funding
and
limit
access
to
certain
customary
sources
of
capital,
including
inter-bank
borrowings,
repurchase
agreements and borrowings from the discount window of the Federal Reserve.
Further, as a result of our failure to timely file our
Quarterly Report on Form 10-Q for the three-month period ended March 31,
2024, we are currently ineligible to file new short form registration statements
on Form S-3 and, absent a waiver of the Form S-3
eligibility requirements, we are not currently permitted to use our existing registration
statement on Form S-3D. If we seek to
access the capital markets through a registered offering during the
period of time that we are unable to use Form S-3, we may be
required to publicly disclose the proposed offering and the material
terms thereof before the offering commences and we will be
required to use a registration statement on Form S-1 to register securities with
the SEC, which would hinder our ability to act
quickly in raising capital to take advantage of market conditions in our capital
raising activities and would increase our cost of
raising capital.
As a result, we may be unable to raise capital on terms favorable to us, in a timely manner
or at all, which could materially and
adversely affect our liquidity,
business, results of operations, or financial condition. Moreover,
if we need to raise capital in the
future, we may have to do so when many other financial institutions are also seeking
to raise capital and would have to compete
with those institutions for investors.
We may be unable to pay dividends in the future.
In 2024, 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 (“CET1”)
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 OFR, declare a dividend from
retained net income which accrued prior to the preceding two years. The prior
approval of the Federal Reserve is required if the
total of all dividends declared by a state-chartered member bank in any calendar
year would exceed the sum of the bank’s net
income for that year and its retained net income for the preceding two calendar
years, less any required transfers to surplus or to
fund the retirement of preferred stock. Additional state laws generally
applicable to Florida corporations and guidelines of the
Federal Reserve 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.
29
We are subject to
extensive regulation, supervision and examination by our regulators, including
the Florida OFR, 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, the fees we can charge for certain products or transactions, 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, the DIF,
and the banking system as a whole, and not
for the benefit of our shareowners. In addition to the regulations of the bank regulatory
agencies, as a member of the FHLB of
Atlanta, we must also comply with applicable regulations of the Federal
Housing Finance Agency and the Federal Home Loan
Bank.
Regulators have continued to focus on compliance with AMLA and BSA obligations
and the rules enforced by OFAC.
If our
policies, procedures and systems are deemed deficient or the policies, procedures
are deficient, we would be subject to liability,
including fines and regulatory actions such as restrictions on our
ability to pay dividends and the necessity to obtain regulatory
approvals to proceed with certain aspects of our business plan, including any acquisition
plans.
Our failure to comply with these laws and regulations could subject us to the loss of
FDIC insurance, reputational damage, the
revocation of our banking charter,
enforcement actions, sanctions, or other legal actions by regulatory agencies, 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. Changes to any new laws, rules, regulations, policies,
and supervisory guidance (including changes in
interpretation and implementation) have and could make compliance
more difficult or expensive and could otherwise adversely
affect our business and financial condition.
Government authorities, including the bank regulatory agencies, are pursuing
aggressive enforcement actions with respect to
compliance and other legal matters involving financial activities, which heightens
the risks associated with actual and perceived
compliance failures. Directives issued to enforce such actions may be
confidential and thus, in some instances, we are not
permitted to publicly disclose these actions. Litigation challenging actions or
regulations by federal or state authorities could,
depending on the outcome, significantly affect the regulatory
and supervisory framework affecting our operations.
Any of the
foregoing could have a material adverse effect on our
business, financial condition, and results of operations.
In addition, we face increased regulatory scrutiny,
in the course of routine examinations and otherwise, and new regulations
in
response to negative developments in the banking industry,
which may increase our cost of doing business and reduce our
profitability. Among
other things, there may be increased focus by both regulators and investors on
deposit composition, the level
of uninsured deposits, brokered deposits, unrealized losses in securities portfolios,
liquidity, commercial real estate loan
composition and concentrations, and capital as well as general oversight
and control of the foregoing. We
could face increased
scrutiny or be viewed as higher risk by regulators and the investor community,
which could have a material adverse effect on our
business, financial condition, and results of operations.
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.
Additionally, if our
CET1 to Risk Weighted Assets 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.
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. Requirements to maintain
higher levels of capital may lower our return on equity.
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.
30
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.
We are subject to
government regulation and oversight relating to
data and privacy protection.
Our business requires the collection and retention of large
volumes of customer data, including personally identifiable information
in various information systems that we maintain and in those maintained
by third parties with whom we contract. We
also
maintain important internal company data such as personally identifiable information
about our associates and information
relating to our operations. The integrity and protection of that customer and company
data is important to us.
We are subject to
complex and evolving laws and regulations relating to the privacy of the information
of our customers,
associates and others, and any failure to comply with these laws and regulations,
or any misuse or mismanagement of such
information, could expose us to liability and reputational damage, which could
adversely affect our financial condition and results
of operations. As new privacy-related laws and regulations are implemented,
the time and resources needed for us to comply with
such laws and regulations, as well as our potential liability for non-compliance
and reporting obligations in the case of data
breaches, may significantly increase. 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.
Fee revenues from overdraft protection
programs constitute a significant portion of our noninterest income
and may
continue to 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 2024, the Company collected
approximately $9.5 million in net consumer
overdraft transaction fees.
In response to increased congressional and regulatory scrutiny (See
Item 1. Business under the section captioned “Consumer
Laws and Regulations”), 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, lowering their overdraft transaction
fees, and amending their payment priority policies
and procedures. 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 associates in our day-to-day
operations; and
31
●
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 associates 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 associates to managing
risk, our business could be impacted adversely.
We are subject to
certain operational risks, including, but not limited to
risk arising from failure or circumvention
of our
controls and procedures.
Our internal controls, including fraud detection and controls, disclosure controls
and procedures, and corporate governance
procedures are based in part on certain assumptions and can provide only reasonable,
not absolute, assurances that the objectives
of the controls and procedures are met. Notwithstanding the proliferation of
technology and technology-based risk and control
systems, we rely on the ability of our associates and systems to process a high number
of transactions, and we are subject to the
risk that our associates may make mistakes or engage in violations of applicable
policies, laws, rules, or procedures that in the
past have not, and in the future may not, always be prevented by our technological
processes or by our controls and other
procedures intended to prevent and detect such errors or violations. Any
failure or circumvention of our controls and procedures,
failure to comply with regulations related to controls and procedures, failure to comply
with our corporate governance procedures,
fraud by associates or persons outside our Company,
the execution of unauthorized transactions by associates, or errors relating to
transaction processing and technology could have a material adverse effect
on our reputation, business, financial condition and
results of operations, including subjecting us to litigation, customer attrition,
regulatory fines, penalties, or other sanctions.
Insurance coverage may not be available for losses relating to such event,
or where available, such losses may exceed insurance
limits.
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.
Cybersecurity
incidents,
including
security
breaches
and
failures
of
our
information
systems
could
significantly
disrupt
our
business,
result
in
the
unintended
disclosure
or
misuse
of
confidential
or
proprietary
information,
damage
our
reputation, increase our costs, and cause losses.
In the ordinary course of business, we rely on electronic communications
and information systems to conduct our operations and
to store sensitive data
, including our proprietary business information and that of our clients, and personally
identifiable
information of our clients and associates. The secure processing, maintenance,
and transmission of this information is critical to
our operations.
breaches of information systems, attempts to access information, including
customer and company information, malicious code,
computer viruses and denial of service attacks that could result in unauthorized
access, theft, misuse, loss, release, or destruction
of data (including confidential customer information), account takeovers, unavailability
of service, or other events. These types of
threats may derive from human error, fraud, or
malice on the part of external or internal parties or may result from accidental
technological failure. Further, these types of
threats may be exacerbated by recent developments in artificial intelligence and
its
increased use to produce sophisticated malware, phishing schemes, and
other fraudulent activities. Any failure, interruption, or
breach in security of these systems could result in significant disruption
to our operations.
32
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. Our technologies,
systems, networks, and software have been and continue to be subject to cybersecurity
threats and attacks, which range from
uncoordinated individual attempts to sophisticated and targeted
measures directed at us. Our customers, associates, and third
parties that we do business with have been, and will likely continue to be,
targeted in cybersecurity-related incidents by parties
using fraudulent e-mails, artificial intelligence, and other communications
in attempts to misappropriate passwords, bank account
information, or other personal information or to introduce viruses or other
malware programs to our information systems, the
information systems of our third-party service providers and our customers’
personal devices, which are beyond our security
control systems. Though we endeavor to mitigate these threats through product
improvements, use of encryption and
authentication technology and customer and employee education, such cyber-attacks
against us, our third-party service providers
and our customers remain a serious issue and have been successful in the past.
We may be required
to spend significant capital and other resources to protect against the threat of
cybersecurity-related incidents
or to alleviate problems caused by such incidents. Any failures related to
upgrades and maintenance of our technology and
information systems could increase our information and system security
risk. Our increased use of cloud and other technologies,
such as remote work technologies, and the increased connectivity of third parties
and electronic devices to our systems also
increases our risk of being subject to a cyber-related incident. The risk of a cybersecurity
-related incident has increased as the
number, intensity,
and sophistication of attempted attacks and intrusions from around the world have increased.
A cybersecurity-
related incident or other significant disruption of our information systems or
those of our customers or third-party vendors could
(i) disrupt the proper functioning of our networks and systems and therefore
our operations and those of our customers; (ii) result
in the unauthorized access to, and destruction, loss, theft, misappropriation,
or release of confidential, sensitive, or otherwise
valuable information of ours or our customers; (iii) result in a violation
of applicable privacy, data
protection, and other laws,
subjecting us to additional regulatory scrutiny and exposing us to civil litigation,
enforcement actions, governmental fines, and
possible financial liability; (iv) require significant management attention
and resources to remedy the damages that result; or (v)
harm our reputation or cause a decrease in the number of customers that choose
to do business with us, damaging our ability to
generate deposits. The occurrence of any of the foregoing could have a material adverse
effect on our business, financial
condition, and results of operations. Furthermore, in the event of a cyber-related
incident, we may be delayed in identifying or
responding to the incident, which could increase the negative impact of the incident on our
business, financial condition, and
results of operations. While we maintain “cyber” insurance coverage, which
would apply in the event of certain cyber-related
incidents, the amount of coverage may not be adequate depending on
the magnitude of the incident. Furthermore, because cyber-
related incidents are inherently difficult to predict and can take many forms,
some incidents may not be covered under our cyber
insurance coverage.
Increased fraudulent activity may cause losses to us or our clients, damage
to our brand, and increases in our costs, in
turn, materially and adversely affecting our business, financial condition,
and results of operations.
Additionally, fraud
losses have risen in recent years due in large part to growing and evolving schemes.
Fraudulent activity has
taken many forms, ranging from wire fraud, debit card fraud, credit card fraud,
check fraud, mechanical devices attached to
ATMs,
social engineering, and phishing attacks to obtain personal information, business
email compromise, or impersonation of
clients through the use of falsified or stolen credentials. Many financial
institutions 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,
as well as check fraud, against us or our clients and our third-party
service providers is a serious issue. Debit and credit card fraud
and check fraud are pervasive, and the risks of cybercrime are complex
and continue to evolve. While we have policies and
procedures, as well as fraud detection tools, designed to prevent fraud losses, such
policies, procedures, and tools may be
insufficient to accurately detect and prevent fraud. A significant increase
in fraudulent activities could lead us to take additional
steps to reduce fraud risk, which could increase our costs. Fraud losses
could cause losses to us or our clients, damage to our
brand, and an increase in our costs, in turn, materially and adversely affecting
our business, financial condition, and results of
operations.
We may not be able to attract and
retain skilled people, which may have a negative impact on
our business and
operations.
Our success depends, in large part, on our ability to attract and retain
key people. Competition for the best people in many
activities engaged in by us is intense, including with respect to compensation
and emerging workplace practices and
accommodations, and, as a result, we may not be able to sufficiently
hire or to retain key people. We
do not currently have
employment agreements or non-competition agreements with any of our senior officers.
The unexpected loss of service of key
personnel could have a material adverse impact on our business, financial
condition, and results of operations because of their
customer relationships, skills, knowledge of our market, years of industry
experience, and the difficulty of promptly finding
qualified replacement personnel. In addition, the scope and content of U.S. banking
regulators’ policies on incentive
compensation, as well as changes to these policies, could adversely affect
our ability to hire, retain, and motivate our key
associates.
33
Issues we encounter with respect to external vendors upon which we rely
could have a material adverse effect on our
business and, in turn, our financial condition and results of operations.
We rely on
certain external vendors to provide products and services necessary to maintain our day-to-day
operations. These
third-party vendors are sources of operational, cybersecurity and informational
security risk to us, including risks associated with
operational errors, coding errors, information system failures, interruptions
or breaches, and unauthorized disclosures of sensitive
or confidential client or customer information. If we encounter any of these
issues in connection with our external vendors, or if
we have difficulty communicating with these vendors, we
could be exposed to disruption of operations, loss of service, or
connectivity to customers, reputational damage, and litigation risk that could
have a material adverse effect on our business and,
in turn, our financial condition and results of operations.
In addition, our operations are exposed to risk that these vendors will not perform in
accordance with the contracted arrangements
under service level agreements. Although we have selected these external vendors
carefully, we do not control their actions.
The
failure of an external vendor to perform in accordance with the contracted
arrangements under service level agreements could be
disruptive to our operations, which could have a material adverse effect
on our business and, in turn, our financial condition and
results of operations. Replacing these external vendors could also entail
significant delay and expense.
Severe weather,
natural disasters, global climate change, widespread health emergencies
(including pandemics), acts of
terrorism and global conflicts may have a negative impact
on our business and operations.
Severe weather, natural disasters, global
climate change, widespread health emergencies (including pandemics),
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, such events could affect the stability of our deposit base,
impair the ability of borrowers to repay outstanding loans,
impair the value of collateral securing loans, cause significant property damage,
result in loss of revenue, cause us to incur
additional expenses, and impact economic growth negatively.
If any of these risks materialized, they 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.
Litigation may adversely affect our results.
We are subject to
litigation in the ordinary course of business. Claims and legal actions, including
claims pertaining to our
performance of our fiduciary responsibilities as well as 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.
If
we
fail
to
maintain
an
effective
system
of
internal
control
over
financial
reporting,
we
may
not
be
able
to accurately
report our
financial results,
prevent fraud,
or file
our periodic
reports in
a timely
manner,
which may
cause investors
to
lose confidence in our reported financial information and may lead
to a decline in our stock price.
As a public
company,
we are required
to maintain internal
control over financial
reporting and to
report any material
weaknesses
in such internal control.
Section 404 of the Sarbanes
-Oxley Act requires that
we furnish a report
by management on, among
other
things,
the
effectiveness
of
our
internal
control
over
financial
reporting.
This
assessment
requires
disclosure
of
any
material
weaknesses
identified
by
our
management
in
our
internal
control
over
financial
reporting.
Our
independent
registered
public
accounting firm
also needs
to attest to
the effectiveness
of our
internal control
over financial
reporting. Effective
internal control
over financial reporting is necessary for us to provide reliable financial
reports and, together with adequate disclosure controls and
procedures,
is
designed
to
prevent
fraud.
Any
failure
to
maintain
or
implement
required
new
or
improved
controls
(as
we
had
recently
discussed
in
Item
9A),
or
difficulties
encountered
in
implementation
could
cause
us
to
fail
to
meet
our
reporting
obligations,
which
could
subject
the
Company
to
litigation,
investigations,
or
breach
of
contract
claims,
require
management
resources, increase costs, negatively affect investor confidence,
and adversely impact its stock price.
34
Strategic Risks
Our future success is dependent on our ability to compete effectively
in the highly competitive banking and financial
services 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.
We also compete
with other non-bank providers of financial services, such as money market mutual
funds, brokerage firms,
consumer finance companies, insurance companies, governmental
organizations, and non-bank financial technology providers,
including digital asset service providers. 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, including the
ability to offer financial products and services on more favorable
terms than we are able to offer.
Technology and other
changes
have lowered barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks.
In particular, the activity of financial technology
companies has grown significantly over recent years and is expected to continue
to grow. The emergence,
adoption and evolution of new technologies that do not require intermediation,
including distributed
ledgers such as digital assets and blockchain, as well as advances in robotic process
automation, could significantly affect the
competition for financial services.
The effect of this competition may reduce or limit our net income,
margins or our market share and may adversely affect our
results of operations and financial condition. Further,
the process of eliminating banks as intermediaries for financial transactions
could result in the loss of fee income, as well as the loss of customer deposits and the related
income generated from those
deposits. The foregoing could have a material adverse effect
on our financial condition and results of operations. Increased
competition may negatively affect our earnings by creating
pressure to lower prices or credit standards on our products and
services requiring additional investment to improve the quality and
delivery of our technology, reducing
our market share, or
affecting the willingness of our clients to do business with us.
Our inability to adapt our business strategies, products, and services could
harm our business.
We rely on
a diversified mix of financial products and services through multiple distribution channels.
Our success depends on
our and our third-party providers’ of products and services abilities to adapt our
business strategies, products, and services and
their respective features in a timely manner,
including available payment processing services and technology to rapidly
evolving
industry standards and consumer preferences.
The widespread adoption and rapid evolution of emerging
technologies in the financial services industry,
including artificial
intelligence, analytic capabilities, cloud technologies, self-service
digital trading platforms and automated trading markets,
internet services, and digital assets, such as central bank digital currencies,
cryptocurrencies (including stablecoins and
memecoins), tokens, and other cryptoassets that utilize blockchain and distributed
ledger technology (DLT),
as well as DLT in
payment, clearing, and settlement processes creates additional risks, could
negatively impact our ability to compete, and require
substantial expenditures to the extent we were to modify or adapt our existing
products and services to keep pace with such new
technologies.
We may not
be timely or successful in developing or introducing new products and services, integrating
new products or services
into our existing offerings, responding, managing, or adapting
to changes in consumer behavior, preferences, spending,
investing
and saving habits, achieving market acceptance of our products and services,
or reducing costs in response to pressures to deliver
products and services at lower prices. There are substantial risks and uncertainties
associated with these efforts, particularly in
instances where the markets are not fully developed. In developing
and marketing new products and services, we invest
significant time and resources. Initial timetables for the introduction and development
of new products or services may not be
achieved, and price and profitability targets may not prove
feasible. External factors, such as compliance with regulations,
competitive alternatives, and shifting market preferences, may also impact
the successful implementation of new products or
services. The Company’s, or
its third-party providers’, inability or resistance to timely innovate or adapt its operations, products,
and services to evolving industry standards and consumer preferences could result
in service disruptions and harm our business,
and materially and adversely affect our results of operations, financial
condition, and reputation.
Furthermore, our implementation of new products, services, or technology
could have unintended negative consequences,
including a significant impact on the effectiveness of
our system of internal controls. Failure to successfully manage these risks in
the development and implementation of new products or services could
have a material adverse effect on our business, financial
condition, and results of operations.
35
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 19.5% of the outstanding shares of
our common stock at December 31, 2024.
William G. Smith, Jr.,
our Chairman, President and Chief Executive Officer
beneficially owned 17.3% 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 GLBA, the Dodd-Frank 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.
Potential acquisitions by us, or our inability to complete acquisitions, may
have a material adverse effect on our business,
financial condition, and results of operations.
We may seek to
acquire other banks, businesses, or branches, which involves various risks, including,
among other things, (i)
potential exposure to unknown or contingent liabilities of the target company;
(ii) exposure to potential asset quality issues of the
target company; (iii) potential disruption to our business; (iv) potential
diversion of our management’s time
and attention; (v) the
possible loss of key employees and customers of the target
company; (vi) difficulty in estimating the value of the target
company;
and (vii) potential changes in banking or tax laws or regulations that may
affect the target company.
36
Acquisitions by financial institutions, including us, are subject to approval by a variety
of regulatory agencies and, therefore,
dependent on the regulators' views at the time as to, among other things, our capital
levels, quality of management, compliance
with laws, and overall condition, in addition to their assessment of a variety of
other factors. Regulatory approvals could be
delayed, impeded, restrictively conditioned, or denied due to existing or new
regulatory issues we have, or may have, with
regulatory agencies. We
may fail to pursue, evaluate or complete strategic and competitively significant
acquisition opportunities
as a result of our inability, or perceived
or anticipated inability, to obtain
regulatory approvals in a timely manner,
under
reasonable conditions or at all. Difficulties associated with potential
acquisitions that may result from these and other factors
could have a material adverse effect on our business, financial condition
and results of operations.
Acquisitions typically involve the payment of a premium over book and market
values, and, therefore, some dilution of our
tangible book value and net income per common share may occur in
connection with any future transaction. Acquisitions may
also result in potential dilution to existing shareowners of our earnings per share
if we issue common stock in connection with the
acquisition. Furthermore, failure to realize the expected revenue increases,
cost savings, increases in geographic or product
presence, and/or other projected benefits from an acquisition could have
a material adverse effect on our business, financial
condition and results of operations.
Reputational Risks
Damage to our reputation could harm our businesses, including our
competitive position and business prospects.
Reputation risk, or the risk to our earnings, liquidity,
and capital from negative public opinion, is inherent in our business.
Negative public opinion could adversely affect our ability to attract
and retain customers, clients, investors and associates and
expose us to adverse legal and regulatory consequences. Negative public
opinion could result from our actual or alleged conduct
and can arise from various sources, including (a) officer,
director or associate fraud, misconduct, and unethical behavior; (b)
security breaches; (c) litigation or regulatory outcomes; (d) compensation
practices; (e) lending practices; (f) branching strategy;
(g) the suitability or reasonableness of recommending particular trading or
investment strategies, including the reliability of our
research and models; (h) prohibiting clients from engaging in certain transactions;
(h) associate sales practices; (i) failure to
deliver products and services; (j) subpar standards of service and quality expected
by our customers, clients, and the community;
(k) compliance failures; (l) mergers and acquisitions; (m) the inability
to manage technology change or maintain effective data
management; (n) cyber incidents; (o) internal and external fraud (including
check fraud and debit card and credit card fraud); (p)
inadequacy of responsiveness to internal controls; (q) unintended
disclosure of personal, proprietary or confidential information;
(r) failure (or perceived failure) to identify and manage actual and potential conflicts
of interest; (s) breach of fiduciary
obligations; (t) the handling of health emergencies or pandemics, (u)
the activities of our clients, customers, counterparties, and
third parties, including vendors; (v) our environmental, social, and
governance practices and disclosures, including practices and
disclosures related to climate change; (w) our response (or lack of response)
to social and sustainability concerns; and (x) actions
by the financial services industry generally or by certain members or individuals
in the industry.
There has been an increased focus by investors and other stakeholders on topics related
to corporate policies and approaches
regarding ESG and diversity,
equity and inclusion matters. Due to divergent stakeholder
views on these matters, we are at
increased risk that any action, or lack thereof, concerning these matters will be perceived
negatively by some stakeholders, which
could negatively affect our business and reputation. In
addition, adverse publicity or negative information posted on social media
by associates, the media or otherwise, whether or not factually correct, may
adversely impact our reputation or future prospects.
Harm to our reputation may adversely and materially affect our
competitive position, business prospects, and financial results.
Further, events that result in damage to our
reputation may also increase our litigation risk, increase regulatory scrutiny,
affect our
ability to attract and retain customers and employees and have other consequences
that we may not be able to predict.
Tax Risks
Changes in the Federal, State or Local Tax
Laws May Negatively Impact Our Financial Performance and We
are Subject
to Examinations and Challenges by Tax
Authorities
We are subject
to federal and applicable state tax laws and regulations. Changes in these
tax laws and regulations, some of which
may be retroactive to previous periods, could increase our effective
tax rates and, as a result, could negatively affect our current
and future financial performance. Furthermore, tax laws and regulations are often
complex and require interpretation. In the
normal course of business, we are routinely subject to examinations and challenges
from federal and applicable state tax
authorities regarding the amount of taxes due in connection with investments we
have made and the businesses in which we have
engaged. Recently,
federal and state taxing authorities have become increasingly been aggressive in challenging
tax positions
taken by financial institutions. These tax positions may relate to tax compliance,
sales and use, franchise, gross receipts, payroll,
property and income tax issues, including tax base, apportionment and tax
credit planning. The challenges made by tax authorities
may result in adjustments to the timing or amount of taxable income or deductions
or the allocation of income among tax
jurisdictions. If any such challenges are made and are not resolved in our
favor, they could have a material adverse effect
on our
business, financial condition and results of operations.
37
Item 1B.
Unresolved Staff Comments
None.
Item 1C.
Cybersecurity
Our enterprise risk management program is designed to identify,
assess, and mitigate risks across various aspects of our
Company, including
financial, operational, market, regulatory,
technology, legal, and reputational.
Cybersecurity risk is a critical
component of our technology risk management program, specifically our
information security program given the increasing
reliance on technology and potential of cyber risk threats.
responsible for coordinating the various aspects of the information security
program with cross-functional support teams.
The
Chief Operating Officer (“COO”), management risk committees,
and the Board of Directors provide oversight of the program and
its activities.
Our objective for managing cybersecurity risk is to avoid or minimize the impacts
of external threat events or other efforts to
penetrate, disrupt or misuse systems or information.
Our cybersecurity risk management infrastructure is designed around
regulatory guidance, other industry standards and the National Institute of
Standards and Technology
(“NIST”) Cybersecurity
Framework, although this does not imply that we meet all technical standards,
specification, or requirements under the NIST.
Our
CISO and Information Security Officer (“ISO”) along
with key members of their respective teams, regularly collaborate with peer
banks, industry groups, and policymakers to discuss cybersecurity trends and
issues and identify best practices.
Our information
security program and cyber risk management policies and procedures are periodically
reviewed by the CISO and ISO with the
goal of addressing changing threats and conditions.
The parts of our information security program relating to cybersecurity are built
on a multi-layered and integrated defense model
and include the following processes:
◾
Risk-based controls for information systems and information
on our networks:
processes designed to identify,
assess, and manage cybersecurity risks associated with external service
providers and the
services we provide to our clients. We
leverage people, processes, and technology as part of our efforts
to manage and
maintain cybersecurity controls. We
also employ a variety of preventative and detective tools designed
to monitor, block,
and provide alerts regarding suspicious activity,
as well as to report on suspected advanced persistent threats. We
seek to
maintain a risk management infrastructure that implements physical, administrative
and technical controls that are
designed, based on risk, to protect our information systems and the information
stored on our networks, including personal
information, intellectual property and proprietary information of our
Company and our clients.
◾
Incident response program:
We have an
incident response program and dedicated teams to respond to cybersecurity,
physical and administrative incidents. When a cybersecurity incident occurs,
we have cross-functional teams that are
responsible for leading the initial assessment of priority and severity and
communicating material cybersecurity incidents
to the appropriate members of management and the Board of Directors.
◾
Training and testing:
We have
established processes and systems designed to mitigate cybersecurity risk, including
regular and on-going education and training for associates, preparedness simulations
and tabletop exercises, and recovery
and resilience tests. We
also actively monitor our email gateways for malicious phishing
email campaigns and monitor
remote connections.
◾
Internal and external risk assessments:
network architecture using internal experts and
partners will periodically
program, to assess their design and operating effectiveness and
make recommendations to strengthen our risk management
processes.
Notwithstanding our defensive measures and processes, the threat posed
by cyber-attacks is severe.
Our internal systems,
processes, and controls are designed to mitigate loss from cyber-attacks
and, while we have experienced cybersecurity incidents
in the past, to date, risks from cybersecurity threats have
from cybersecurity threats, see Item 1A. Risk Factors under the section captioned
“Cybersecurity incidents, including security
breaches and failures of our information systems could significantly disrupt our
business, result in the unintended disclosure or
misuse of confidential or proprietary information, damage our reputation,
increase our costs, and cause losses.”
38
Governance
Our CISO is responsible for managing our Corporate Security Department
and overseeing our information security program,
including cybersecurity risks.
The CISO reports the day-to-day status of the program to the
President.
On a quarterly basis, and as needed, the CISO reports the status of the program, notable
threats or incidents, and other
developments related to information security and cybersecurity risks to our Operations
Risk Oversight Committee (“OROC”) and
to our Enterprise Risk Oversight Committee (“ROC”).
on the status of the information security program and risks, notable threats and
incidents, and other developments related to
cybersecurity. In
addition, the CISO provides more frequent reports to the Audit Committee on the
aforementioned activities,
including remediation efforts and the status of incident
response, as needed.
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, 2024, Capital City Bank had 62 banking offices.
Of these locations, we lease the land, buildings, or both at 11
locations and own the land and buildings at the remaining 51. CCHL had
27 loan production offices, 26 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.
39
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
1,027 shareowners
of record at January 31, 2025.
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.
2024
2023
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Common stock price:
High
$
40.86
$
36.67
$
28.58
$
31.34
$
32.56
$
33.44
$
34.16
$
36.86
Low
33.00
26.72
25.45
26.59
26.12
28.64
28.03
28.18
Close
36.65
35.29
28.44
27.7
29.43
29.83
30.64
29.31
Cash dividends per share
0.23
0.23
0.21
0.21
0.20
0.20
0.18
0.18
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 14 and 16, Item 1A. “Market Risks” in the Risk Factors section on
page 22, Item 7. “Liquidity and Capital
Resources – Dividends” – in Management’s
Discussion and Analysis of Financial Condition and Operating Results on page
66
and Note 17 in the Notes to Consolidated Financial Statements.
40
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, 2019 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.
Period Ending
Index
12/31/19
12/31/20
12/31/21
12/31/22
12/31/23
12/31/24
Capital City Bank Group, Inc.
$
100.00
$
82.66
$
90.84
$
114.42
$
106.25
$
136.06
Nasdaq Composite
100.00
144.92
177.06
119.45
172.77
223.87
SNL $1B-$5B Bank Index
100.00
90.82
126.43
111.47
112.03
132.44
41
Item 6.
Selected Financial Data
(Dollars in Thousands, Except Per Share Data)
2024
2023
2022
Interest Income
$
194,657
$
181,068
$
131,910
Net Interest Income
158,938
158,988
125,022
Provision for Credit Losses
4,031
9,714
7,494
Noninterest Income
75,976
71,610
75,181
Noninterest Expense
(1)
165,315
157,023
151,634
Pre-Tax Loss Attributable to Noncontrolling Interests
(2)
1,271
1,437
135
Net Income Attributable to Common Shareowners
52,915
52,258
33,412
Per Common Share:
Basic Net Income
$
3.12
$
3.08
$
1.97
Diluted Net Income
3.12
3.07
1.97
Cash Dividends Declared
0.88
0.76
0.66
Diluted Book Value
29.11
25.92
22.73
Diluted Tangible Book Value
(3)
23.65
20.45
17.27
Performance Ratios:
Return on Average Assets
1.25
%
1.22
%
0.77
%
Return on Average Equity
11.18
12.40
8.81
Net Interest Margin (FTE)
4.08
4.05
3.14
Noninterest Income as % of Operating Revenues
32.34
31.05
37.55
Efficiency Ratio
70.30
67.99
75.62
Asset Quality:
Allowance for Credit Losses ("ACL")
$
29,251
$
29,941
$
25,068
ACL to Loans Held for Investment ("HFI")
1.10
%
1.10
%
0.98
%
Nonperforming Assets ("NPAs")
6,669
6,243
2,728
NPAs to Total
Assets
0.15
0.15
0.06
NPAs to Loans HFI plus OREO
0.25
0.23
0.11
ACL to Non-Performing Loans
464.14
479.70
1091.33
Net Charge-Offs to Average Loans HFI
0.21
0.18
0.18
Capital Ratios:
Tier 1 Capital
17.46
%
15.37
%
14.27
%
Total Capital
18.64
16.57
15.30
Common Equity Tier 1 Capital
15.54
13.52
12.38
Tangible Common Equity
(3)
9.51
8.26
6.65
Leverage
11.05
10.30
8.91
Equity to Assets
11.45
10.24
8.57
Dividend Pay-Out
28.21
24.76
33.50
Averages for the Year:
Loans Held for Investment
$
2,706,461
$
2,656,394
$
2,189,440
Earning Assets
3,897,580
3,933,800
3,989,248
Total Assets
4,234,603
4,278,686
4,332,302
Deposits
3,597,438
3,669,612
3,763,336
Shareowners’ Equity
473,216
421,482
379,290
Year
-End Balances:
Loans Held for Investment
$
2,651,550
$
2,733,918
$
2,547,685
Earning Assets
3,974,431
3,957,452
4,177,177
Total Assets
4,324,932
4,304,477
4,519,223
Deposits
3,671,977
3,701,822
3,939,317
Shareowners’ Equity
495,317
440,625
387,281
Other Data:
Basic Average Shares Outstanding
16,942,788
16,987,167
16,950,810
Diluted Average Shares Outstanding
16,968,623
17,022,922
16,984,740
Shareowners of Record
(4)
1,027
1,080
1,124
Banking Locations
(4)
63
63
59
Full-Time Equivalent Associates
(5)
940
970
992
(1)
(2)
(3)
(4)
(5)
42
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)
2024
2023
2022
Shareowners' Equity (GAAP)
$
495,317
$
440,625
$
387,281
Less: Goodwill and Other Intangibles (GAAP)
92,773
92,933
93,093
Tangible Shareowners' Equity (non-GAAP)
A
402,544
347,692
294,188
Total Assets (GAAP)
4,324,932
4,304,477
4,519,223
Less: Goodwill and Other Intangibles (GAAP)
92,773
92,933
93,093
Tangible Assets (non-GAAP)
B
$
4,232,159
$
4,211,544
$
4,426,130
Tangible Common Equity Ratio (non-GAAP)
A/B
9.51%
8.26%
6.65%
Actual Diluted Shares Outstanding (GAAP)
C
17,018,122
17,000,758
17,039,401
Tangible Book Value
per Diluted Share (non-GAAP)
A/C
23.65
20.45
17.27
43
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
2024 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 62 banking
offices and 104 ATMs/ITMs
in Florida, Georgia and Alabama.
Through Capital City Home Loans, LLC (“CCHL”), we have 27
additional offices in the Southeast for our mortgage
banking business.
Please see the section captioned “About Us” beginning on
page 6 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.
44
Strategic Initiatives
.
Our five-year strategic plan “2025 In Focus” guides
us in the areas of client experience, channel
optimization, market expansion, and culture.
As part of the strategic plan, 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.
We have implemented
initiatives in support of the strategic plan, including the implementation of an
integrated marketing software aimed at deepening client relationships,
the continuation of our comprehensive review of our
banking office network,
and expansion into new markets and further diversification of revenues by expanding
our residential
mortgage banking and wealth businesses.
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 15 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 7 of 12 markets in Florida and one of three Georgia markets
(excluding Northern Arc of
Atlanta markets entered into in 2022 and 2023),
we frequently rank within the top three banks in terms of deposit market share.
Furthermore, in the counties in which we operate, we maintain an 8.3% deposit
market share in the Florida counties and 5.2% in
the Georgia counties (excluding Northern Arc of
Atlanta).
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 expanded
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 second quarter of 2023.
Additionally,
we expanded our presence in the Florida Panhandle by opening a full-service office
s
in Watersound,
Florida in the first quarter of
2023, Panama City, Florida
(Lynn Haven) in the first quarter of 2024, and
Panama City, Florida (West
Bay) in the first quarter of
2025.
To expand our presence and
commitment to our Gainesville market, we opened a third full-service banking
office in the
area in early 2023.
During 2022 and 2023, 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 reside in the Northern
Arc and Walton County
offices.
On March 1, 2020, CCB acquired from BMGBMG, LLC (“BMG”) an initial 51% membership
interest in CCHL (formerly
known as Brand Mortgage Group, LLC), which became a consolidated entity
in the Company’s financial statements. As part of
the transaction, CCHL’s
operating agreement included put and call options for CCB to purchase from
BMG the remaining 49% of
CCHL’s
membership interests (the “49% Interest”).
On November 15, 2024, CCB entered into an agreement with BMG to
transfer the 49% Interest to CCB, effective January 1, 2025.
BMG initiated the buyout by exercising its put option in CCHL’s
operating agreement.
EXECUTIVE OVERVIEW
For 2024, net income attributable to common shareowners totaled $52.
9
million, or $3.12 per diluted share, compared to net
income of $52.3 million, or $3.07 per diluted share, for 2023, and $33.4
million, or $1.97 per diluted share, for 2022.
For 2024, the increase in net income attributable to common shareowners
reflected a $5.7 million decrease in provision for credit
losses and a $4.4 million increase in noninterest income, that were partially
offset by a $8.3 million increase in noninterest
expense,
a $0.9 million increase in income taxes, and a $0.1 million decrease in net
interest income.
Net income attributable to
common shareowners included a $0.2 million decrease in the deduction
to record the non-controlling interest in the earnings of
CCHL.
For 2023, the increase in net income attributable to common shareowners
reflected a $34 million increase in net interest income
that was partially offset by a $5.4 million increase in noninterest expense
,
a $5.2 million increase in income taxes, a $3.6 million
decrease in noninterest income of $3.6 million, and a $2.2 million increase
in the provision for credit losses.
Net income
attributable to common shareowners included a $1.3 million increase
in the deduction to record the 49% non-controlling interest in
the earnings of CCHL.
Below are
Summary Highlights
Income Statement
◾
Tax-equivalent
net interest income totaled $159.2 million for 2024 compared
to $159.4 million for 2023 driven by higher
yields across our earning assets, partially offset by higher
deposit cost which was well controlled at 89 basis points
for the
year – net interest margin
was 4.08% for 2024 compared to 4.05% for 2023
◾
Credit quality metrics remained
strong throughout
the year – allowance coverage ratio remained stable at 1.10%
- net loan
charge-offs were 21
basis points of average loans for 2024 versus 18 basis points for 2023
◾
Noninterest income increased
$4.4 million, or 6.1%, driven by higher mortgage banking revenues
and wealth management
fees
45
◾
Noninterest expense increased
$8.3 million, or 5.3%, primarily due to higher compensation expense reflective
of higher
incentive compensation, merit raises, and higher health insurance costs
Balance Sheet
◾
Loan balances increased $50.1 million, or 1.9% (average),
and decreased $82.4 million, or 3.0% (end
of period)
◾
Deposit balances decreased $72.2
million, or 2.0% (average), and decreased $29.8 million,
or 0.8% (end of period)
◾
Tangible
book value per share increased $3.20,
or 15.6%, driven by strong earnings and favorable investment
security and
pension plan accumulated other comprehensive
loss adjustments
For more detailed information, refer to the following additional sections of
the MD&A “Results of Operations” and “Financial
Condition”.
46
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)
2024
2023
2022
Interest Income
$
194,657
$
181,068
$
131,910
Taxable Equivalent
Adjustments
241
367
325
Total Interest Income
(FTE)
194,898
181,435
132,235
Interest Expense
35,719
22,080
6,888
Net Interest Income (FTE)
159,179
159,355
125,347
Provision for Credit Losses
4,031
9,714
7,494
Taxable Equivalent
Adjustments
241
367
325
Net Interest Income After Provision for Credit Losses
154,907
149,274
117,528
Noninterest Income
75,976
71,610
75,181
Noninterest Expense
165,315
157,023
151,634
Income Before Income Taxes
65,568
63,861
41,075
Income Tax Expense
13,924
13,040
7,798
Pre-Tax Loss Attributable
to Noncontrolling Interests
1,271
1,437
135
Net Income Attributable to Common Shareowners
$
52,915
$
52,258
$
33,412
Basic Net Income Per Share
$
3.12
$
3.08
$
1.97
Diluted Net Income Per Share
$
3.12
$
3.07
$
1.97
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 2024, our taxable equivalent net interest income totaled $159.
2
million compared to $159.4 million for 2023 and $125.3
million for 2022.
The $0.2 million, or 0.1%, decrease in 2024 was primarily attributable to higher deposit
interest expense, which
was substantially offset by higher loan interest income
and to a lesser extent higher overnight funds interest income.
The $34.1
million, or 27.2%, increase in 2023
reflected loan growth and higher interest rates across a majority of our earning
assets, partially
offset by higher deposit interest expense.
For 2024, our taxable equivalent interest income totaled $194.9
million compared to $181.4 million in 2023
and $132.2 million in
2022.
The $13.5 million, or 7.4%, increase in 2024 was primarily attributable
to loan growth and favorable loan repricing.
The
$49.2 million, or 37.2%, increase in 2023
reflected an overall improved earning asset mix driven by loan growth, and higher
interest rates on earning assets.
For 2024, interest expense totaled $35.7 million compared to $22.1 million
for 2023 and $6.9 million for 2022.
The $13.6
million, or 61.5% increase in 2024
was primarily attributable to increased deposit interest expense,
including a $6.3 million
increase attributable to money market accounts, a $4.5 million increase
attributable to NOW accounts, and a $3.7 million increase
attributable to certificates of deposit, all reflective of a shift in balances from
noninterest bearing to interest bearing products
driven by the higher interest rate environment and clients seeking higher
yield deposit products.
The $15.2 million, or 220.3%,
increase in 2023 was also driven by increased deposit interest expense,
primarily a $9.6 million increase attributable to NOW
accounts
and a $3.5 million increase attributable to money market accounts.
The increase in NOW account expense reflected
higher interest rates for our commercial accounts that have a managed
rate that were increased during the year.
A
shift in
balances from the noninterest bearing to NOW product also contributed
to the increase.
The increase in the expense for money
market accounts reflected adjustments to our board and managed rates for this product
also reflective of higher interest rates.
Our cost of interest bearing deposits was 142 basis points for 2024, 81 basis points
for 2023, and 17 basis points for 2022.
Our
total cost of deposits (including noninterest bearing accounts) was 89
basis points for 2024, 48 basis points for 2023, and 9 basis
points for 2022.
Our total cost of funds (interest expense/average earning assets) was 92 basis points for 2024,
56 basis points for
2023, and 17 basis points for 2022.
47
Our net interest margin (defined as taxable-equivalent interest income
less interest expense divided by average earning assets)
was 4.08% for 2024, 4.05% for 2023, and 3.14% for 2022.
The increase in the net interest margin for 2024
and 2023 reflected a
combination of earning assets repricing at higher interest rates and an
improved earning asset mix driven by loan growth, partially
offset by a higher, but well controlled
cost of deposits.
The Federal Open Market Committee decreased the Federal Funds Rate during
2024.
The Federal Funds Rate is currently in a
target range of 4.25% to 4.50%, with the Effective
Federal Funds Rate at 4.33% at December 31, 2024, and 5.33% at
December 31, 2023. Management actively manages its balance sheet
mix and volume and will make loan and deposit product
pricing changes to help mitigate interest rate risk.
See section titled “Financial Condition - Market Risk and Interest Rate
Sensitivity” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations for additional
information regarding this risk.
48
Table 2
AVERAGE
BALANCES AND INTEREST RATES
2024
2023
2022
(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
$
27,306
$
2,776
6.72
%
$
55,510
$
3,232
5.82
%
$
48,502
$
2,175
4.49
%
Loans Held for Investment
(1)(2)
2,706,461
162,385
6.03
2,656,394
149,366
5.62
2,189,440
104,578
4.78
Investment Securities
923,253
17,073
1.85
1,016,550
18,652
1.83
1,098,876
15,917
1.45
(2)
848
37
4.34
2,199
59
2.68
2,668
54
2.03
Total Investment Securities
924,101
17,110
1.85
1,018,749
18,711
1.83
1,101,544
15,971
1.45
Fed Funds Sold & Int Bearing Dep
239,712
12,627
5.27
203,147
10,126
4.98
649,762
9,511
1.46
Total Earning Assets
3,897,580
194,898
5.00
%
3,933,800
181,435
4.61
%
3,989,248
132,235
3.32
%
Cash & Due From Banks
73,881
75,786
76,929
Allowance for Credit Losses
(29,902)
(28,190)
(21,688)
Other Assets
293,044
297,290
287,813
TOTAL ASSETS
$
4,234,603
$
4,278,686
$
4,332,302
LIABILITIES
Noninterest Bearing Deposits
$
1,336,601
$
1,507,657
$
1,691,132
NOW Accounts
1,183,962
16,835
1.42
%
1,172,861
12,375
1.06
%
1,065,838
2,799
0.26
%
Money Market Accounts
400,664
9,957
2.49
299,581
3,670
1.22
283,407
203
0.07
Savings Accounts
518,869
723
0.14
592,033
598
0.10
628,313
309
0.05
Time Deposits
157,342
4,647
2.95
97,480
939
0.96
94,646
133
0.14
Total Interest Bearing Deposits
2,260,837
32,162
1.42
%
2,161,955
17,582
0.81
%
2,072,204
3,444
0.17
%
Total Deposits
3,597,438
32,162
0.89
3,669,612
17,582
0.48
3,763,336
3,444
0.09
Repurchase Agreements
26,970
838
3.11
19,917
513
2.57
8,095
14
0.17
Short-Term Borrowings
4,882
242
4.94
24,146
1,538
6.37
32,388
1,747
5.40
Subordinated Notes Payable
52,887
2,449
4.56
52,887
2,427
4.53
52,887
1,652
3.08
Other Long-Term Borrowings
534
28
5.31
408
20
4.77
665
31
4.62
Total Interest Bearing Liabilities
2,346,110
35,719
1.52
%
2,259,313
22,080
0.98
%
2,166,239
6,888
0.32
%
Other Liabilities
71,964
81,842
85,684
TOTAL LIABILITIES
3,754,675
3,848,812
3,943,055
Temporary Equity
6,712
8,392
9,957
TOTAL SHAREOWNERS’
EQUITY
473,216
421,482
379,290
TOTAL LIABILITIES,
TEMPORARY EQUITY AND
SHAREOWNERS’ EQUITY
$
4,234,603
$
4,278,686
$
4,332,302
Interest Rate Spread
3.47
%
3.63
%
3.00
%
Net Interest Income
$
159,179
$
159,355
$
125,347
Net Interest Margin
(3)
4.08
%
4.05
%
3.14
%
(1)
(2)
(3)
49
Table 3
RATE/VOLUME
ANALYSIS
(1)
2024 vs. 2023
2023 vs. 2022
(Taxable Equivalent Basis -
Dollars in Thousands)
Increase (Decrease) Due to Change In
Increase (Decrease) Due to Change
In
Total
Calendar
Volume
Rate
Total
Volume
Rate
Earnings Assets:
Loans Held for Sale
(2)
$
(456)
9
$
(1,651)
$
1,186
$
1,057
$
$
315
$
742
Loans Held for Investment
(2)
13,019
409
2,406
10,204
44,788
22,304
22,484
Taxable Investment Securities
(1,579)
51
(1,763)
133
2,735
(1,192)
3,927
Tax-Exempt Investment Securities
(2)
(22)
-
(36)
14
5
(10)
15
Funds Sold
2,501
28
1,795
678
615
(6,537)
7,152
Total
$
13,463
497
$
751
$
12,215
49,200
$
$
14,880
$
34,320
Interest Bearing Liabilities:
NOW Accounts
$
4,460
34
$
83
$
4,343
9,576
$
$
281
$
9,295
Money Market Accounts
6,287
10
1,228
5,049
3,467
12
3,455
Savings Accounts
125
2.00
(76)
199
289
(18)
307
Time Deposits
3,708
3
574
3,131
806
4
802
Short-Term Borrowings
(971)
6
(574)
(403)
290
156
134
Subordinated Notes Payable
22
7
(7)
22
775
-
775
Other Long-Term Borrowings
8
-
6
2
(11)
(12)
1
Total
$
13,639
62
$
1,234
$
12,343
15,192
$
$
423
$
14,769
Changes in Net Interest Income
$
(176)
435
$
(483)
$
(128)
$
34,008
$
$
14,457
$
19,551
(1)
(2)
(3)
Reflects one extra calendar day in 2024.
Provision for Credit Losses
For 2024, we recorded a provision for credit loss expense of $4.0 million ($5.0
million expense for loans held for investment
(“HFI”) and $1.0 million benefit for unfunded loan commitments) compared
to a provision expense of $9.7 million for 2023
($9.5
million expense for loans HFI and $0.2 million expense for unfunded
loan commitments), and a provision expense of $7.5 million
for 2022 ($7.4 million expense for loans HFI and $0.1 million expense for
unfunded loan commitments).
The decrease in the
provision for loans HFI in 2024 was primarily due to lower new loan volume and loan
balances in 2024 and favorable loan grade
migration.
The decrease in the provision for unfunded loan commitments reflected a
lower level of loan commitments.
The
increased provision in 2023 was driven by loan growth.
We discuss the various
factors that have impacted our provision expense
in more detail under the heading Allowance for Credit Losses.
Noninterest Income
For 2024, noninterest income totaled $76.0 million, a $4.4 million, or 6.1%
,
increase over 2023, primarily attributable to a $3.9
million increase in mortgage banking revenues and a $2.8 million increase in
wealth management fees, partially offset by a $2.2
million decrease in other income.
The increase in mortgage banking revenues was due to a higher gain on sale margin.
The
increase in wealth management fees was primarily driven by higher retail brokerage
fees and to a lesser extent trust fees,
primarily attributable to both new account growth and higher account
values driven by higher market returns.
The decrease in
other income was primarily attributable to a $1.4 million gain from the
sale of mortgage servicing rights in 2023, and to a lesser
extent a decrease in vendor bonus income and miscellaneous income.
50
For 2023, noninterest income totaled $71.6 million, a $3.6 million, or 4.7%,
decrease from 2022 and reflected decreases in wealth
management fees of $1.7 million, mortgage banking revenues of $1.5
million, deposit fees of $0.8 million, and bank card fees of
$0.5 million, partially offset by a $0.9 million increase in other
income.
The decrease in wealth management fees reflected lower
insurance commissions of $2.7 million due to the sale of large policies
in 2022 and was partially offset by higher trust fees of $0.5
million and retail brokerage fees of $0.5 million.
The decrease in mortgage banking revenues was primarily driven by lower
production volume in 2023, reflective of the rapid increase in interest rates and
lower market driven gain on sale margins.
Steady
best efforts adjustable-rate production by CCHL during
2023 contributed to the Bank’s loan growth
and earnings.
The decline in
deposit fees reflected lower commercial account analysis fees and account
service charge fees, and the reduction in bank card fees
was generally due to lower card volume reflective of slower consumer spending.
The increase in other income was primarily due
to a $1.4 million gain from the sale of mortgage servicing rights that was partially offset
by lower loan servicing income.
Noninterest income as a percent of total operating revenues (net interest income plus
noninterest income) was 32.34% in 2024,
31.05% in 2023, and 37.55% in 2022.
The variance in 2024 was primarily attributable to higher mortgage banking revenues and
wealth management fees.
The variances
for both 2023 and 2022 reflected strong growth in net interest income and lower
mortgage banking revenues.
The table below reflects the major components of noninterest income.
Table 4
NONINTEREST INCOME
(Dollars in Thousands)
2024
2023
2022
Deposit Fees
$
21,346
$
21,325
$
22,121
Bank Card Fees
14,707
14,918
15,401
Wealth Management
Fees
19,113
16,337
18,059
Mortgage Banking Revenues
14,343
10,400
11,909
Other
6,467
8,630
7,691
Total Noninterest
Income
$
75,976
$
71,610
$
75,181
Significant components of noninterest income are discussed in more
detail below.
Deposit Fees
.
For 2024, deposit fees (service charge fees, insufficient
fund/overdraft fees, and business account analysis fees)
totaled $21.3 million compared to $21.3 million in 2023
and $22.1 million in 2022.
Deposit fees for 2024 reflected a $0.2 million
increase in commercial account analysis fees that was offset by
a $0.2 million decrease in overdraft fees.
A lower earnings credit
rate and increased transaction volume drove the increase in commercial
account analysis fees and the decrease in overdraft fees
generally reflected lower consumer spend.
The $0.8 million, or 3.6%, decrease in 2023 was attributable to lower commercial
account analysis fees of $0.5 million and account service charge
fees of $0.3 million.
The reduction in commercial account
analysis fees reflected a higher earnings credit rate for commercial deposit
accounts.
The decrease in account service charge fees
was attributable to higher debit card utilization which allows the client to forego
the service charge fee if a certain number of
debit card transactions is achieved.
Bank Card Fees
.
Bank card fees totaled $14.7 million in 2024 compared to $14.9 million in 2023
and $15.4 million in 2022.
The
decreases
in 2024 and 2023 were generally due to lower card volume reflective of overall slower
consumer spending.
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 $19.1 million in 2024
compared to
$16.3 million in 2023 and $18.1 million in 2022.
The increase in 2024 was attributable to a $2.1 million increase in retail
brokerage fees and a $0.9 million increase in trust fees, that were partially offset
by a $0.3 million decrease in insurance
commission revenue.
The increase in retail brokerage fees was driven by increased fixed income and annuity
product sales and
new account growth, and the increase in trust fees reflected new account growth
,
higher account values reflective of improved
market returns, and a mid-year fee increase.
The decrease in 2023 reflected lower insurance revenues of $2.7 million that was
partially offset by a $0.5 million decrease in trust fees and $0.5 million
decrease in retail brokerage fees.
The sale of large
policies in 2022 drove the decline in insurance revenues.
At December 31, 2024, total assets under management (“AUM”) were
approximately $3.049 billion compared to $2.588 billion
at December 31, 2023 and $2.273 billion at December 31, 2022.
The
increases
in AUM in 2024 and 2023 reflected a combination of new account growth
and higher account values due to improved
market returns.
51
Mortgage Banking Revenues
.
Mortgage banking revenues totaled $14.3 million in 2024 compared
to $10.4 million in 2023 and
$11.9 million in 2022.
The increase in 2024 was attributable to a higher gain on sale margin which
reflected a higher percentage
of secondary market/mandatory delivery loan sales.
The decrease in 2023 was primarily driven by lower production volume
reflective of the rapid increase in interest rates and lower market driven gain on sale margins
which were under pressure in 2023.
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.
Other
.
Other noninterest income totaled $6.5 million in 2024 compared to $8.6 million
in 2023 and $7.7 million in 2022.
The
decrease in 2024 was primarily attributable to a $1.4 million gain from
the sale of mortgage servicing rights realized in 2023, and
to a lesser extent a decrease in vendor bonus income and miscellaneous income.
The $0.9 million increase in 2023 was due to a
$1.4 million gain from the sale of mortgage servicing rights that was partially
offset by lower loan servicing income which
reflected the aforementioned sale.
Noninterest Expense
For 2024, noninterest expense totaled $165.3 million, a $8.3 million,
or 5.3%, increase over 2023, primarily attributable to
increases in compensation expense of $6.9 million, occupancy expense of
$0.3 million, and other expense of $1.1 million.
The
increase in compensation reflected a $5.3 million increase in salary expense
and a $1.6 million increase in other associate benefit
expense.
The increase in salary expense was primarily due to a decrease of $3.1 million in realized loan
cost (credit offset to
salary expense - lower new loan volume in 2024), a $2.2 million increase
in base salary expense (primarily annual merit raises),
and a $1.2 million increase in cash incentive compensation that were
partially offset by a decrease of $1.4 million in commission
expense (lower residential mortgage volume).
The unfavorable variance in other associate benefit expense was due to a $0.9
million increase in associate insurance cost and a $0.6 million increase in stock compensation
expense.
The increase in
occupancy expense was attributable to increases in software license and
maintenance agreement expenses.
The increase in other
expense was driven by a $1.1 million increase in other real estate expense and
a $1.4 million increase in processing expense that
were partially offset by a $1.4 million decrease in miscellaneous
expense.
The increase in other real estate expense reflected a
lower level of gains from the sale of banking offices in 2024.
The increase in processing expense reflected both inflationary
increases on contract renewals and the outsourcing of our core processing
system.
The decrease in miscellaneous expense was
attributable to lower pension plan expense for the non-service related component
of the plan.
For 2023, noninterest expense totaled $157.0 million, a $5.4 million,
or 3.5%, increase over 2022 and reflected increases in
occupancy expense of $3.1 million and compensation expense of $2.3 million.
The increase in occupancy expense was primarily
driven by the addition of four new banking offices in mid-to-late 2022 and
early 2023, and, to a lesser extent, higher expense for
property insurance (increased premiums) and maintenance agreements
(network and security upgrades).
The increase in
compensation expense reflected a $4.7 million increase in salary expense
that was partially offset by a $2.4 million decrease in
associate benefit expense.
The increase in salary expense was primarily due to a $3.6 million increase in base salaries (primarily
the addition of staffing in new markets and annual merit),
a $3.0 million decrease in realized cost (credit offset to salary
expense -
lower new residential loan originations in 2023), and a $1.2 million increase
in incentive expense that were partially offset by a
$3.3 million decrease in commission expense (lower residential loan originations
and insurance policy sales in 2023).
The
decrease in associate benefit expense reflected a $2.9 million decrease in pension
plan service cost expense that was partially
offset by a $0.5 million increase in associate insurance expense (higher
premiums).
The net variance in other expense was
primarily due to a $1.6 million decrease in other real estate expense (gain from
the sale of a banking office in 2023) and a $1.2
million decrease in miscellaneous expense (lower mortgage servicing
asset amortization of $1.0 million due to mid-2023 sale of
servicing rights).
Further, there was no pension settlement expense
in 2023 whereas we realized $2.3 million in total pension
settlement expense in 2022.
These favorable variances were partially offset by increases in pension
– other expense (non-service
component) of $3.0 million, professional fees of $0.8 million (one
-time consulting expense related to our core processor
outsourcing contract negotiation),
insurance – other (FDIC insurance fees) of $0.7 million, processing fees of $0.
5
million, and
legal fees of $0.3 million.
For comparison purposes, the service cost component of our pension plan expense
is reflected in
associate benefit expense and the non-service component plus any settlement
expenses are reflected in other expense.
For 2023,
our total pension expense was $3.3 million compared to $5.7 million in
2022 which included $2.3 million in pension settlement
expense due to a higher level of retirements.
Our operating efficiency ratio (expressed as noninterest
expense as a percent of taxable equivalent net interest income plus
noninterest income) was 70.30%, 67.99% and 75.62% in 2024, 2023 and 2022,
respectively. The increase
in this metric for 2024
was attributable to a higher level of noninterest expense and the decrease
in this metric for 2023
was primarily driven by higher
taxable equivalent net interest income (refer to caption headed Net Interest
Income and Margin).
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.
52
Table 5
NONINTEREST EXPENSE
(Dollars in Thousands)
2024
2023
2022
Salaries
$
84,639
$
79,278
$
74,590
Associate Benefits
16,082
14,509
16,929
Total Compensation
100,721
93,787
91,519
Premises
12,593
13,033
11,184
Equipment
15,389
14,627
13,390
Total Occupancy,
net
27,982
27,660
24,574
Legal Fees
1,724
1,721
1,413
Professional Fees
6,311
6,245
5,437
Processing Services
8,411
6,984
6,534
Advertising
3,111
3,349
3,208
Travel and Entertainment
1,795
1,896
1,815
Telephone
2,857
2,729
2,851
Insurance – Other
3,137
3,120
2,409
Pension - Other
(1,675)
76
(3,043)
Pension Settlement (Gain) Charge
-
(291)
2,321
Other Real Estate, Net
(868)
(1,969)
(337)
Miscellaneous
11,809
11,716
12,933
Total Other Expense
36,612
35,576
35,541
Total Noninterest
Expense
$
165,315
$
157,023
$
151,634
Significant components of noninterest expense are discussed in more detail
below.
Compensation
.
Compensation expense totaled $100.7 million in 2024 compared to $93.8 million
in 2023, and $91.5 million in
2022.
For 2024, the $6.9 million, or 7.4%, net increase reflected a $5.3
million increase in salary expense and a $1.6 million
increase in associate benefit expense.
The increase in salary expense was primarily due to a $3.1 million decrease in realized loan
cost which is a credit offset to salary expense and reflected
lower new loan volume and a $2.2 million increase in base salary
expense,
primarily annual merit raises, which were partially offset by
a $1.4 million decrease in commission expense driven by
lower residential mortgage volume.
The unfavorable variance in other associate benefit expense was due to a $0.9 million
increase in associate insurance cost due to higher health insurance cost
and a $0.6 million increase in stock compensation expense
attributable to a higher incentive pay-out.
For 2023, the $2.3 million, or 2.5%, net increase reflected an increase in
salary expense of $4.7 million that was partially offset by
a decrease in associate benefit expense of $2.4 million.
The increase in salary expense was primarily due to a $3.6 million
increase in base salaries, primarily the addition of staffing in new
markets and annual merit, a $3.0 million decrease in realized
cost, and a $1.2 million increase in incentive expense, that were partially
offset by a $3.3 million decrease in commission expense
which reflected lower residential loan originations and insurance policy
sales in 2023.
The decrease in associate benefit expense
reflected a $2.9 million decrease in pension plan service cost expense that was partially
offset by a $0.5 million increase in
associate insurance expense attributable to higher premiums.
Occupancy
.
Occupancy expense (including premises and equipment) totaled $28.0
million for 2024
compared to $27.7 million
for 2023, and $24.5 million for 2022.
For 2024, the $0.3 million, or 1.2%, increase was attributable to an increase in maintenance
agreement expense, primarily for security upgrades and addition
of interactive teller machines.
For 2023, the $3.1 million, or 12.6%, increase was primarily driven by
the addition of four new banking offices in mid-to-late
2022 and early 2023, and, to a lesser extent higher expense for property insurance
(increased premiums) and maintenance
agreements (network and security upgrades).
Other
.
Other noninterest expense totaled $36.6 million in 2024 compared
to $35.6 million in 2023
and $35.5 million in 2022.
53
For 2024, the $1.0 million variance in other expense was driven by a $1.1
million increase in other real estate expense and a $1.4
million increase in processing expense that were partially offset by
a $1.4 million decrease in miscellaneous expense.
The
increase in other real estate expense reflected a lower level of gains from the sale of banking
offices in 2024.
The increase in
processing expense reflected both inflationary increases on contract renewals
and the outsourcing of our core processing system.
The decrease in miscellaneous expense was attributable to lower pension
plan expense for the non-service related component of
the plan.
For 2023, the $0.1 million variance in other expense was primarily due
to a $1.6 million decrease in other real estate expense
(gain from the sale of a banking office in 2023) and a $1.2 million decrease
in miscellaneous expense (lower mortgage servicing
asset amortization of $1.0 million due to mid-2023 sale of servicing rights).
Further, there was no pension settlement expense in
2023 whereas we realized $2.3 million in total pension settlement expense in
2022.
These favorable variances were partially
offset by increases in pension – other expense (non-service
component) of $2.8 million, professional fees of $0.8 million (one-
time consulting expense related to our core processor outsourcing contract negotiation),
insurance – other (FDIC insurance fees)
of $0.7 million, processing fees of $0.5 million, and legal fees of $0.3 million.
54
Income Taxes
For 2024, we realized income tax expense of $13.9 million (effective
rate of 21.2%) compared to $13.0 million (effective rate of
20.4%) for 2023 and $7.8 million (effective rate of 19.0%)
for 2022.
The increase in our effective tax rate in 2024 was primarily
attributable to a higher than projected Internal Revenue Code Section 162(m)
limitation related to current and future
compensation and lower tax-exempt interest income.
The increase in our effective tax rate in 2023 was attributable to a higher
level of consolidated income.
The effective rate was further increased due to a lower level of
pre-tax income from CCHL, in
relation to our consolidated income as the non-controlling interest adjustment
for CCHL is accounted for as a permanent tax
adjustment.
However, these increases were offset
by additional solar tax credits earned in 2023.
Absent discrete items or new tax credit investments, we expect our annual effective
tax rate to approximate 24% for 2025.
FINANCIAL CONDITION
Average assets totaled
approximately $4.235 billion for 2024, a decrease of $44.1
million, or 1.0%, from 2023.
Average earning
assets were approximately $3.898 billion for 2024, a decrease of $36.2 million,
or 0.9%, from 2023.
Compared to 2023, the
change in earning assets was primarily attributable to a $94.6 million
decrease in investment securities that was partially offset by
a $50.1 million increase in loans HFI.
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.
Loans
For 2024, average loans HFI increased $50.1 million, or 1.9%, compared
to an increase of $467.0 million, or 21.3%, in 2023.
Compared to 2023, the growth in average loans was primarily driven
by increases in residential real estate loans of $146.6 million
and to a lesser degree, commercial mortgage real estate loans of $7.2 million,
and HELOCs of $7.7 million, partially offset by
declines in other loan categories, with the largest decline occurring
in consumer,
primarily indirect auto loans, with a decrease of
$63.4 million.
Total loans HFI at December
31, 2024 totaled $2.652 billion, an $82.4 million decrease from December
31, 2023
that was largely
attributable to decreases in consumer,
primarily indirect auto loans of $72.8 million, commercial mortgage real estate loans
of
$46.4 million, and commercial loans of $36.0 million, partially offset
by increases in residential real estate loans of $38.3 million,
construction real estate loans of $23.9 million, and HELOCs of $9.1
million.
During 2024, indirect auto balances declined
gradually as we focused on reducing exposure to this loan segment which
totaled $175.1 million at December 31, 2024 and
$248.0 million at December 31, 2023.
As part of our overall strategy,
we will originate 1-4 family real estate secured adjustable-rate loans through
CCHL, which
provides us a larger pool of loan origination opportunities,
and in large part drove the aforementioned growth
in residential real
estate loans.
This loan volume can vary according to the direction of residential mortgage
interest rates, and we expect that this
volume will remain relatively stable compared to 2024.
Expansion into the Northern Arc of Atlanta, Georgia (Cobb and
Gwinnett Counties) and Walton
County, Florida drove
incremental loan growth of approximately $34 million in 2024.
In 2024, average loans held for sale (“HFS”) decreased $28.2 million,
or 50.8%, from 2023.
Loans HFI and HFS as a percentage
of average earning assets increased to 70.1% in 2024 compared to
68.9% in 2023, primarily attributable to growth in loans HFI.
55
Table 6
SOURCES OF EARNING ASSET GROWTH
2023 to
Percentage
Components of
2024
of Total
Average
Earning Assets
(Average Balances – Dollars In Thousands)
Change
Change
2024
2023
2022
Loans:
Loans HFS
$
(28,204)
(77.9)
%
0.7
%
1.4
%
1.2
%
Loans HFI:
Commercial, Financial, and Agricultural
(25,337)
(70.0)
5.3
5.9
6.0
Real Estate – Construction
(21,849)
(60.3)
5.3
5.8
5.4
Real Estate – Commercial Mortgage
7,167
19.8
21.0
20.7
17.6
Real Estate – Residential
144,028
397.6
26.3
22.5
12.3
Real Estate – Home Equity
7,723
21.3
5.5
5.2
4.9
Consumer
(61,665)
(170.3)
6.0
7.6
8.7
Total HFI Loans
50,067
138.2
69.4
67.7
54.9
Total Loans HFS and
HFI
$
21,863
60.3
70.1
69.1
56.1
%
Investment Securities:
Taxable
$
(93,297)
(257.6)
%
23.7
%
25.8
%
27.5
%
Tax-Exempt
(1,351)
(3.7)
-
0.1
0.1
Total Securities
$
(94,648)
(261.3)
%
23.7
%
25.9
%
27.6
%
Federal Funds Sold and Interest Bearing Deposits
36,565
101.0
6.2
5.0
16.3
Total Earning Assets
$
(36,220)
100
%
100
%
100
%
100
%
Our average total loans (HFS and HFI)-to-deposit ratio was 76.0%
in 2024, 73.9% in 2023, and 59.5% in 2022.
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, 2024, by maturity period.
As a percentage of the HFI loan portfolio, loans with fixed
interest rates represented 25.3% at December 31, 2024 compared to 29.1% at December
31, 2023.
Higher residential real estate
adjustable-rate loan balances and lower commercial real estate mortgage
adjustable-rate loan balances at December 31, 2024
drove the decrease in the percentage.
Table 7
LOANS HFI BY CATEGORY
(Dollars in Thousands)
2024
2023
2022
Commercial, Financial and Agricultural
$
189,208
$
225,190
$
247,362
Real Estate – Construction
219,994
196,091
234,519
Real Estate – Commercial Mortgage
779,095
825,456
782,557
Real Estate – Residential
1,042,504
1,004,219
749,513
Real Estate – Home Equity
220,064
210,920
208,217
Consumer
200,685
272,042
325,517
Total Loans HFI, Net
of Unearned Income
$
2,651,550
$
2,733,918
$
2,547,685
56
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
$
26,853
$
125,574
$
33,748
$
3,033
$
189,208
Real Estate – Construction
133,469
56,927
2,187
27,411
219,994
Real Estate – Commercial Mortgage
52,388
110,989
330,684
285,034
779,095
Real Estate – Residential
26,847
17,967
124,374
873,316
1,042,504
Real Estate – Home Equity
1,667
9,244
45,964
163,189
220,064
Consumer
(1)
5,796
154,291
40,316
282
200,685
Total
$
247,020
$
474,992
$
577,273
$
1,352,265
$
2,651,550
Total Loans HFI with
Fixed Rates
$
96,292
$
354,785
$
177,610
$
43,366
$
672,053
Total Loans HFI with
Floating or Adjustable-Rates
150,728
120,207
399,663
1,308,899
1,979,497
Total
$
247,020
$
474,992
$
577,273
$
1,352,265
$
2,651,550
(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 for the
last three fiscal years.
Information regarding our accounting policies related to nonaccruals, past due
loans, and financial
difficulty modifications is provided in Note 3 – Loans
Held for Investment and Allowance for Credit Losses.
Nonperforming assets (nonaccrual loans and other real estate) totaled $6.7
million at December 31, 2024 compared to $6.2
million at December 31, 2023.
At December 31, 2024 and December 31, 2023, nonperforming assets as a percent of
total assets
equaled 0.15%.
Nonaccrual loans totaled $6.3 million at December 31, 2024, a $0.1 million increase over
December 31, 2023.
Further, classified loans totaled $19.9 million at December
31, 2024, a $2.3 million decrease from December 31, 2023.
Table 9
CREDIT QUALITY
(Dollars in Thousands)
2024
2023
2022
Nonaccruing Loans:
Commercial, Financial and Agricultural
$
37
$
311
$
41
Real Estate – Construction
-
322
17
Real Estate – Commercial Mortgage
566
909
645
Real Estate – Residential
3,127
2,990
239
Real Estate – Home Equity
1,782
999
771
Consumer
790
711
584
Total Nonaccruing
Loans
6,302
6,242
2,297
Other Real Estate Owned
367
1
431
Total Nonperforming
Assets
$
6,669
$
6,243
$
2,728
Past Due Loans 30 – 89 Days
$
4,311
$
6,855
$
7,829
Classified Loans
$
19,896
$
22,203
$
19,342
Nonaccruing Loans/Loans
0.24
%
0.23
%
0.09
%
Nonperforming Assets/Total
Assets
0.15
0.15
0.06
Nonperforming Assets/Loans Plus OREO
0.25
0.23
0.11
Allowance/Nonaccruing Loans
464.14
%
479.70
%
1091.33
%
57
Nonaccrual Loans
.
Nonaccrual loans totaled $6.3 million at December 31, 2024, a $0.1 million increase
over December 31,
2023.
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 2024 had been recognized on a fully accruing basis,
we would have recorded an additional $0.3 million of
interest income for the year ended December 31, 2024.
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, 2024 versus $1,000
at December 31, 2023.
During 2024, we added properties
totaling $1.0 million and sold properties totaling $0.6 million.
For 2023, we added properties totaling $1.5 million and sold
properties totaling $1.9 million.
Modifications to Borrowers Experiencing
Financial Difficulty
.
Occasionally, we will modify
loans to borrowers who are
experiencing financial difficulty.
Loan modifications to borrowers in financial difficulty are loans in
which we will grant an
economic concession to the borrower that we would not otherwise consider.
In these instances, as part of a work-out alternative,
we will make concessions including the extension of the loan term, a principal
moratorium, a reduction in the interest rate, or a
combination thereof.
A modified loan 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, 2024, we maintained one
loan for $0.3 million that we modified due to the borrower experiencing financial difficulty.
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, 2024 totaled $4.3 million compared to $6.9 million
at December 31, 2023.
Indirect
auto loans represented a large portion of the past due balances representing
56% and 76%, respectively,
of the total dollars past
due at December 31, 2024 and December 31, 2023, respectively.
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, 2024, we had $2.8 million in
loans of this type which were not included in either of the nonaccrual or
90 days past due loan categories compared to $3.4
million at December 31, 2023.
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 our 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 85% at December 31,
2024 and 82% at December 31, 2023, with the increase driven by lower loan volume
in 2024 for commercial and consumer
(indirect auto) loans and a higher volume of 1-4 family residential real estate loans
originated in 2023 in comparison to other loan
types.
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
$101 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.
58
Table 10
REAL ESTATE
LOANS BY PROPERTY TYPE
2024
2023
(Dollars in Thousands)
Investor Real
Estate
Owner
Occupied
Investor Real
Estate
Owner
Occupied
Vacant
Land, Construction, and Land
Development
$
317,881
14.1
%
-
-
$
294,751
13.3
%
-
-
Improved Property
542,858
24.2
$
1,386,912
61.7
%
604,993
27.2
$
1,333,981
59.5
%
$
860,739
38.3
%
61.7
%
$
899,744
40.5
%
59.5
%
A major portion of our real estate loan segment is centered in the owner occupied
category which carries a lower risk of non-
collection than certain segments of the investor category.
The owner occupied category was approximately 62% of total real
estate loans at December 31, 2024 and 60% of total real estate loans at December 31, 2023.
Further, investor real estate totaled
38% and 41% of total real estate loans at December 31, 2024 and December
31, 2023, respectively.
The table below further segments the investor real estate category for improved
property.
Table 11
REAL ESTATE
LOANS IMPROVED PROPERTY
DISTRIBUTION
(Dollars in Thousands)
2024
2023
Hotel/Motel
$
74,400
13.7
%
$
83,108
13.7
%
Gas Station/C-Store
7,628
1.4
9,640
1.6
Industrial/Warehouse
30,427
5.6
31,710
5.3
Multi-Family
49,295
9.1
72,677
12.0
Office
45,541
8.4
49,245
8.1
Retail & Shopping Centers
116,402
21.4
119,873
19.8
Commercial Condos
867
0.2
2,204
0.4
Other
32,022
5.9
35,766
5.9
Total Improved
Property
356,582
65.7
404,223
66.8
Non-Owner Occupied 1-4 Residential
$
186,276
34.3
%
$
200,770
33.2
%
Total Investor
Real Estate Improved Property
$
542,858
100
%
$
604,993
100
%
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.
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.
59
At December 31, 2024, the allowance for credit losses for HFI loans totaled
$29.2 million compared to $29.9 million at December
31, 2023 and $25.1 million at December 31, 2022.
The $0.7 million decrease in the allowance in 2024 reflected a credit loss
provision of $5.0 million and net loan charge-offs
of $5.7 million.
The $4.8 million increase in the allowance in 2023 reflected a
credit loss provision of $9.6 million and net loan charge
-offs of $4.7 million.
The decrease in the allowance in 2024 was
primarily attributable to lower new loan volume and loan balances and
favorable loan migration.
The increase in the allowance in
2023 was primarily attributable to incremental allowance related to loan growth,
primarily residential real estate, and slower
prepayment speeds (due to higher interest rates).
For 2024, we realized net loan charge-offs
of $5.7 million, or 0.21%, of average HFI loans, compared to net loan charge
-offs of
$4.7 million, or 0.18%, for 2023, and net loan recoveries of $3.9
million, or 0.18%, for 2022.
Consumer (indirect auto) net loan
charge-offs represented 62%, 76%, and
43% of total net loan charge-offs for the same respective
years.
Further, indirect auto net
loan charge-offs represented approximately
1.68% of average indirect auto loans in 2024, 1.31% in 2023, and 0.53% in 2022
.
Beginning in 2022 we began reducing our exposure to this loan segment.
At December 31, 2024, the allowance for credit losses represented 1.10%
of HFI loans and provided coverage of 464% of
nonperforming loans compared to 1.10% and 480%, respectively,
at December 31, 2023 and 0.98% and 1,091%, respectively,
at
December 31, 2022.
Table 11
further segments the allocation of allowance for credit losses at December 31
for each of the last three fiscal years.
Table 11
ALLOCATION OF
ALLOWANCE
FOR CREDIT LOSSES
2024
2023
2022
(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
$
1,514
7.1
%
$
1,482
8.2
%
$
1,506
9.7
%
Real Estate:
Construction
2,384
8.3
2,502
7.2
2,654
9.2
Commercial
5,867
29.4
5,782
30.2
4,815
30.7
Residential
14,568
39.3
15,056
36.7
10,741
29.4
Home Equity
1,952
8.3
1,818
7.7
1,864
8.2
Consumer
2,966
7.6
3,301
10.0
3,488
12.8
Total
$
29,251
100
%
$
29,941
100
%
$
25,068
100
%
Investment Securities
Our average investment portfolio balance was $924 million
in 2024, $1.019 billion in 2023, and $1.102 billion in 2022.
As a
percentage of average earning assets, our investment portfolio
represented 23.7% in 2024, compared to 25.9% in 2023,
and 27.6%
in 2022.
For both year-over-year comparisons, the decline in the investment portfolio
was attributable to a portion of our
investment cash flow not being reinvested to support loan growth.
In, 2025, we plan to reinvest cash flow from the investment
portfolio as appropriate given loan demand and other liquidity management
strategies.
For 2024, average taxable investments decreased $93.3 million, or 9.2%,
while tax-exempt investments decreased $1.4 million, or
61.4%.
Both taxable and non-taxable bonds decreased as part of our overall investment
strategy to allow a majority of our
investments to run off in order to fund loan growth.
At December 31, 2024, municipal securities (taxable and non-taxable)
comprised 4.0% of the portfolio.
60
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-to-Maturity (“HTM”).
For 2024
and 2023, we maintained securities under both the AFS and HTM
designations.
At December 31, 2024, $403.3 million, or 41.5%, of our investment portfolio
was classified as AFS, with $567.2
million, or 58.3%, classified as HTM, and $2.4 million, or 0.2%, classified as equity
securities.
At December 31, 2023, $337.9
million, or 35.1%, of our investment portfolio was classified as AFS, with $625.0
million, or 64.7%, classified as HTM and $3.5
million, or 0.2%, classified as equity securities.
In 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, 2024, $1.3 million was remaining in
unrealized losses for these securities.
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
2024
2023
2022
(Dollars in Thousands)
Carrying
Amount
Percent
Carrying
Amount
Percent
Carrying
Amount
Percent
Available for
Sale
U.S. Government Treasury
$
105,801
10.9
%
$
24,679
2.6
%
$
22,050
2.1
%
U.S. Government Agency
143,127
14.8
145,034
15.0
186,052
17.3
States and Political Subdivisions
39,382
4.0
39,083
4.0
40,329
3.8
Mortgage-Backed Securities
55,477
5.7
63,303
6.6
69,405
6.5
Corporate Debt Securities
51,462
5.3
57,552
6.0
88,236
8.2
Other Securities
8,096
0.8
8,251
0.9
7,222
0.6
Total
403,345
41.5
337,902
35.1
413,294
38.5
Held to Maturity
U.S. Government Treasury
368,005
37.8
457,681
47.4
457,374
42.6
Mortgage-Backed Securities
199,150
20.5
167,341
17.3
203,370
18.9
Total
567,155
58.3
625,022
64.7
660,744
61.5
Other Equity Securities
2,399
0.2
3,450
0.2
10
-
Total Investment
Securities
$
972,899
100
%
$
966,374
100
%
$
1,074,048
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 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, 2024, there were 856 positions (combined AFS and HTM)
with pre-tax unrealized losses totaling $48.4 million.
The Government National Mortgage Association mortgage-backed
securities, U.S. Treasuries, and SBA securities held carry
the
full faith and credit guarantee of the U.S. Government and are deemed
to be 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,
2024, 48 corporate bond positions had a total allowance for credit loss of $64,000
and 31 municipal bond positions had a total
allowance for credit loss of $3,000.
All of these positions maintain an overall rating of at least “BBB+”, and all are expected
to
mature at par.
61
The average maturity of our investment portfolio at December 31,
2024 was 2.54 years, with a duration of 2.19 compared to 2.91
years and 2.53, respectively,
at December 31, 2023. The average life of our investment portfolio decreased
primarily due to the
natural aging of the portfolio in conjunction with a portion of the cash flow
from the investment portfolio not being reinvested in
order to fund loan growth.
The weighted average taxable equivalent yield of our investment portfolio
at December 31, 2024 was 2.41% versus 2.02% in
2023.
This increase in yield reflected a favorable reinvestment rate on securities purchased
in 2024. 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, 2024.
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.
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
$
11,776
1.73
%
$
94,025
3.80
%
$
-
-
%
$
-
-
%
$
105,801
3.65
%
U.S. Government
Agency
15,894
0.98
114,961
3.06
12,272
5.41
-
-
143,127
3.03
States and Political
Subdivisions
6,463
0.92
23,248
1.51
9,671
1.97
-
-
39,382
1.54
Mortgage-Backed
Securities
(1)
1
3.83
10,735
1.49
44,741
2.43
-
-
55,477
2.26
Corporate Debt
Securities
3,645
1.49
35,370
1.76
12,447
2.01
-
-
51,462
1.81
Other Securities
(2)
-
-
-
-
-
-
8,096
6.51
8,096
6.51
Total
$
37,779
1.48
%
$
278,339
2.98
%
$
79,131
2.77
%
$
8,096
6.51
%
$
403,345
2.83
%
Held to Maturity
U.S. Government
Treasury
$
238,506
1.68
%
$
129,499
1.79
%
$
-
-
%
$
-
-
%
$
368,005
1.72
%
Mortgage-Backed
Securities
(1)
3,574
2.54
171,426
2.68
24,150
3.97
-
-
199,150
2.84
Total
$
242,080
1.69
%
$
300,925
2.30
%
$
24,150
3.97
%
$
-
-
%
$
567,155
2.11
%
Equity Securities
$
-
-
%
$
-
-
%
$
-
-
%
$
2,399
0.35
%
$
2,399
0.35
%
Total Investment
Securities
$
279,859
1.66
%
$
579,264
2.63
%
$
103,281
3.05
%
$
10,495
6.51
%
$
972,899
2.41
%
(1)
(2)
(3)
Deposits
Average total
deposits for 2024 were $3.597 billion, a decrease of $72.2 million, or 2.0%, from
2023.
Average deposits
decreased $93.7 million, or 2.5%, in 2023.
deposits and savings accounts, partially offset by increases in
balances of NOW accounts, money market accounts and certificates
of deposit.
Our public funds balances have historically realized
growth in the fourth quarter of the year when municipalities
collect tax receipts and will be at a seasonal low in the third quarter.
At December 31, 2024, public funds balances totaled $660.9
million and at December 31, 2023, totaled $709.8 million.
62
At December 31, 2024, total deposits were $3.672 billion, a decrease of $29.8 million,
or 0.8%, from December 31, 2023.
The
decrease from December 31, 2023 was driven by lower noninterest bearing,
NOW, and savings
account balances that were
partially offset by higher money market accounts and certificate of
deposit balances which reflected the re-mix in balances during
2024.
Core deposit balances (total deposits less public funds) increased $21.9 million over
December 31, 2023.
Although the overnight funds rate was lowered in the second half of 2024 by
100 basis points to a target range of 4.25%-4.50%,
the overall rate environment remains higher than early 2022 when the overnight
funds rate was 0.00%-0.25%.
As a result in
2024, we continued to see a shift in mix out of noninterest bearing accounts into
interest bearing accounts, primarily money
market accounts and certificates of deposit.
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.
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, 2024.
For 2024, noninterest bearing deposits represented 37.2%
of total average deposits.
This compares to 41.1% in 2023 and 44.9% in 2022.
Table 14
SOURCES OF DEPOSIT GROWTH
2023 to
Percentage
Components of
2024
of Total
Total
Deposits
(Average Balances - Dollars in Thousands)
Change
Change
2024
2023
2022
Noninterest Bearing Deposits
$
(171,056)
(237.0)
%
37.2
%
41.1
%
44.9
%
NOW Accounts
11,101
15.4
32.9
32.0
28.3
Money Market Accounts
101,083
140.1
11.1
8.2
7.5
Savings Accounts
(73,164)
(101.4)
14.4
16.1
16.7
Time Deposits
59,862
82.9
4.4
2.6
2.6
Total Deposits
$
(72,174)
100
%
100
%
100
%
100
%
Table 15
MATURITY DISTRIBUTION
OF CERTIFICATES
OF DEPOSITS GREATER
THAN $250,000
2024
(Dollars in Thousands)
of Deposit
Percent
Three months or less
$
26,846
51.3
%
Over three through six months
15,141
28.9
Over six through 12 months
2,658
5.1
Over 12 months
7,677
14.7
Total
$
52,322
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.
63
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.
We augment
our interest rate shock analysis with alternative interest
rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening
or steepening of the yield curve (non-
parallel shift).
In addition, more frequent forecasts may be produced when interest rates are particularly
uncertain or when other
business conditions so dictate.
Our goal is to structure the statement of financial condition so that net interest earnings at risk over
12-month and 24-month
periods and the economic value of equity at risk do not exceed policy guidelines
at the various interest rate shock levels.
We
attempt to achieve this goal by balancing, within policy limits, the volume
of floating-rate liabilities with a similar volume of
floating-rate assets, by keeping the average maturity of fixed-rate asset and liability
contracts reasonably matched, by managing
the mix of our core deposits, and by adjusting our rates to market conditions on
a continuing basis.
Analysis.
Measures of net interest income at risk produced by simulation analysis are
indicators of an institution’s short-term
performance in alternative rate environments.
These measures are typically based upon a relatively brief period, and do not
necessarily indicate the long-term prospects or economic value of the institution.
Table 16
ESTIMATED CHANGES
IN NET INTEREST INCOME
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, 2024
15.4
%
11.5
%
7.6
%
3.9
%
-4.3
%
-9.0
%
-14.3
%
-19.9
%
December 31, 2023
3.0
%
2.1
%
1.3
%
0.7
%
-1.2
%
-3.6
%
-7.5
%
-12.8
%
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, 2024
40.8
%
32.9
%
24.8
%
17.1
%
0.1
%
-9.8
%
-20.9
%
-31.6
%
December 31, 2023
29.5
%
24.4
%
19.3
%
14.8
%
4.1
%
-3.5
%
-12.9
%
-23.6
%
The Net Interest Income at risk position was more favorable at December 31,
2024 compared to December 31, 2023 for the 12-
month and 24-month shocks for the rising rate scenarios and less favorable
in the falling rate scenarios.
Further, we are slightly
more asset sensitive at December 31, 2024 as compared to December 31, 2023
due to a higher level of variable rate overnight
funds and slightly lower loan balances.
Net Interest Income at risk is within our prescribed policy limits over both
the 12-month and 24-month periods for all rate
scenarios with the exception of the down 300 bps and down 400 bps scenario
primarily due to our limited ability to lower our
deposit rates relative to the decline in market rate for those scenarios.
Given that our average nonmaturity deposit rate is less than
1.00%, a shock down 300 bps or down 400 bps scenario is more impactful to asset yields than
deposit rates.
The measures of equity value at risk indicate our ongoing economic value
by considering the effects of changes in interest rates
on all of our cash flows by discounting the cash flows to estimate the present value of
assets and liabilities. The difference
between these discounted values of the assets and liabilities is the economic value
of equity, which in theory
approximates the fair
value of our net assets.
64
Table 17
ESTIMATED CHANGES
IN ECONOMIC VALUE
OF EQUITY
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, 2024
30.7
%
24.4
%
17.0
%
9.0
%
-17.2
%
-23.7
%
-35.1
%
-42.2
%
December 31, 2023
12.9
%
10.7
%
7.8
%
4.4
%
-6.4
%
-14.0
%
-23.6
%
-27.8
%
EVE Ratio (policy minimum 5.0%)
30.6
%
28.6
%
26.5
%
24.3
%
17.8
%
16.2
%
13.5
%
11.9
%
At December 31, 2024, the economic value of equity was favorable in all rising
rate scenarios and unfavorable in the falling rate
scenarios.
EVE was within prescribed tolerance levels as the EVE ratio (EVE/EVA)
in all rate scenarios is greater than 5.0%.
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.
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 2024
and 2023, 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, 2024, we had the ability to generate approximately $1.535
billion (excludes overnight funds position of $321
million) in additional liquidity through various sources,
including various Federal Home Loan Bank borrowings, the Federal
Reserve Discount Window,
federal funds purchased lines, and 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.
At December 31, 2024, the weighted-average maturity
and duration of our portfolio were 2.54 years and 2.19, respectively,
and the AFS portfolio had a net unrealized tax-effected loss
of $19.2 million.
Our average net overnight funds sold position (defined as funds sold plus interes
t-bearing deposits with other banks less funds
purchased) was $239.7 million in 2024 compared to an average net overnight
funds sold position of $203.1 million in 2023.
The
increase was primarily attributable to a decline in investment security balance
.
We expect capital
expenditures over the next 12 months to be approximately $10.0 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.
65
Borrowings
Average short
-term borrowings decreased $12.2 million compared to 2023
primarily attributable to a $19.2 million decrease in
warehouse line of credit borrowings, which reflected lower utilization of
our line to support loans held for sale which was
partially offset by a $7.1 million increase in repurchase agreement
balances (business deposit accounts classified as repurchase
agreements).
Additional detail on these warehouse borrowings is provided in Note 4 – Mortgage
Banking Activities in the
Consolidated Financial Statements.
At December 31, 2024, advances from the FHLB totaled $0.1 million comprised
of one note.
FHLB advances 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, of which $10 million was retired in April 2016.
The
second note for $32.0 million was issued to CCBG Capital Trust
II in May 2005.
The interest payment for the CCBG Capital
Trust I borrowing is due quarterly and adjusts quarterly
to a variable rate of three-month CME Term
SOFR (secured overnight
financing rate) plus a margin of 1.90%.
This note matures on December 31, 2034.
The interest payment for the CCBG Capital
Trust II borrowing is due quarterly and adjusts quarterly
to a variable interest rate based on three-month CME Term
SOFR plus a
margin of 1.80%.
This note matures on June 15, 2035.
The proceeds from these borrowings were used to partially fund
acquisitions.
Under the terms of each junior subordinated deferrable interest note, in the event of
default or if we elect to defer
interest on the note, we may not, with certain exceptions, declare or pay dividends
or make distributions on our capital stock or
purchase or acquire any of our capital stock.
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).
Under the swap arrangement, CCBG will
pay a fixed interest rate of 2.50% and receive a variable interest rate based on three-month
CME Term SOFR.
Additional detail
on the interest rate swap agreement is provided in Note 5 – Derivatives in the Consolidated
Financial Statements.
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, 2024. 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 $495.3 million at December 31, 2024
compared to $440.6 million at December 31, 2023.
For 2024,
shareowners’ equity was positively impacted by net income attributable
to common shareowners of $52.9 million, a net $15.7
million decrease in the accumulated other comprehensive loss, the issuance of
stock of $3.1 million, and stock compensation
accretion of $1.9 million.
The net favorable change in accumulated other comprehensive loss reflected a $10.1
million decrease
in the pension plan loss from the year-end re-measurement of the
plan and a $5.6 million decrease in the investment securities
loss.
Shareowners’ equity was reduced by common stock dividends of $14.9
million ($0.88 per share), the repurchase of stock of
$2.3 million (82,540 shares), net adjustments totaling $1.4 million
related to transactions under our stock compensation plans, and
a $0.3 million reclassification from temporary equity.
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, 2024 was
11.45% compared to 10.24% at December
31, 2023.
Further, our tangible common equity ratio was 9.51%
(non-GAAP financial
measure) at December 31, 2024 compared to 8.26% at December 31, 2023.
If our unrealized HTM securities losses of $16.0
million (after-tax) were recognized in accumulated other comprehensive
loss, our adjusted tangible capital ratio would be 9.14%.
The improvement in the ratios in 2024
was primarily attributable to strong earnings and decreases in the unrealized
loss on AFS
securities and the unfunded pension liability,
both of which are recognized in accumulated other comprehensive loss.
66
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, 2024, our total risk-based capital ratio was 18.64% compared
to 16.57% at
December 31, 2023.
Our common equity tier 1 capital ratio was 15.54% and 13.52%, respectively,
on these dates.
Our leverage
ratio was 11.05% and 10.30%, respectively,
on these dates.
For a detailed discussion of our regulatory capital requirements, refer
to the “Regulatory Considerations – Capital Regulations” section
on page 17.
See Note 17 in the Notes to Consolidated Financial
Statements for additional information as to our capital adequacy.
At December 31, 2024, our common stock had a book value of $29.11
per diluted share compared to $25.92 at December 31,
2023.
Book value is impacted by the net unrealized gains and losses on investment
securities.
At December 31, 2024, the net
unrealized loss was $20.2 million compared to an unrealized loss of $25.7
million at December 31, 2023.
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, 2024, the net pension asset reflected in accumulated other comprehensive
loss was $9.7 million compared to a net pension liability of $0.4 million
at December 31, 2023.
The favorable adjustment for the
pension plan was primarily attributable to a higher than estimated return
on plan assets in 2024 and a higher discount rate used to
determine
the plan liability at December 31, 2024.
In January 2024, our Board of Directors authorized the Capital City Bank Group,
Inc. Share Repurchase Program (“the
Program”), effective February 1, 2024, which authorizes
the repurchase of up to 750,000 shares of our outstanding common stock
over a five-year period.
Under the Program, shares may be repurchased by the Company from time to time
in the open market or
in privately negotiated transactions,
as market conditions warrant; however, the
Program does not obligate the Company to
repurchase any specified number of shares.
We purchased (i) 73,349
shares under the Program in 2024 at an average price of
$28.03 per share and (ii) 9,101 shares in January 2024 at an average price of $29.47
per share under a substantially similar
repurchase plan that was authorized in 2019 and expired in 2024. There are
676,561 shares remaining for purchase under the
Program.
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.
67
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 managemen
t’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.
Accounting Standards Update 2017-04, Intangibles – Goodwill and
Other (Topic 350):
Simplifying Accounting for Goodwill Impairment 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 2024, 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 a portion of our associates.
On December 30,
2019, the plan was amended to remove plan eligibility for new associates hired after
December 31, 2019.
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 2024 was 5.29%.
The estimated impact
to 2024 pension expense of a 25 basis point increase or decrease in the discount
rate would have been an approximate $0.6
million decrease or increase, respectively.
We anticipate using
a 5.82% discount rate in 2025.
Based on the balances at the December 31, 2024 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 $3.1
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
$0.9 million (after-tax) decrease/increase,
respectively.
68
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 2024 was 6.75%.
The estimated impact to 2024 pension expense of a 25 basis point
increase or decrease in the rate of return would have been an approximate
$0.3 million decrease or increase, respectively.
We
anticipate using a rate of return on plan assets of 6.75% for 2025.
The assumed rate of annual compensation increases of 4.75% for 2024
was based on an experience study performed for the plan
in 2022.
It is anticipated that this compensation increase assumption may change based on updates
to the actual plan participants
remaining in the plan at the end of each plan year.
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.
69
Item 8.
Financial Statements and Supplementary Data
2024 Report of Independent Registered Public Accounting Firm (PCAOB ID
)
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED FINANCIAL
STATEMENTS
PAGE
70
Report of Independent Registered Public Accounting Firm
72
Consolidated Statements of Financial Condition
73
Consolidated Statements of Income
74
Consolidated Statements of Comprehensive Income
75
Consolidated Statements of Changes in Shareowners’ Equity
76
Consolidated Statements of Cash Flows
77
Notes to Consolidated Financial Statements
70
Report of Independent Registered Public Accounting Firm
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. (Company) as
of December 31,
2024 and 2023,
the related consolidated
statements of income,
comprehensive income,
changes in shareowners’
equity,
and cash flows for
each of the years
in the three-year period
ended December 31, 2024,
and the related notes
(collectively
referred
to
as
the
“consolidated
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, 2024 and 2023, and the results
of
its
operations
and
its
cash
flows
for
each
of
the
years
in
the
three-year
period
ended
December
31,
2024,
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,
2024,
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 11,
2025, expressed an unqualified opinion.
Basis for Opinion
These consolidated
financial statements
are the
responsibility of
the Company’s
management. Our
responsibility is
to express
an
opinion on the Company’s consolidated
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
consolidated
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
consolidated 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
consolidated
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 consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
71
Critical Audit Matter
The
critical
audit matter
communicated
below
arises from
the
current-period
audit of
the consolidated
financial
statements that
were communicated or
required to be communicated
to the audit committee
and that: (1) relate
to accounts or
disclosures that are
material to
the consolidated
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 consolidated
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
$2.65 billion
as of
December 31,
2024, and
the allowance
for credit
losses on
loans held
for investment
was $29.2
million. As
more fully
described in
Notes 1
and 3
to the
Company’s
consolidated
financial statements,
the Company
estimates its exposure
to expected
credit losses as
of the
statement of
financial condition
date
for existing financial instruments held at amortized cost.
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
process
for
establishing
the
qualitative
factors
at
December
31,
2024
as
a
critical
audit
matter.
Auditing
the
qualitative factors involved a high degree of subjectivity in evaluating
management’s estimates.
The primary procedures we performed as of December 31, 2024 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 over the establishment of qualitative
adjustments.
●
Evaluated
the qualitative
adjustments to
the ACL,
including assessing
the basis
for adjustments
and the
reasonableness
of the significant assumptions.
●
Evaluated
the
overall
reasonableness
of
assumptions
used
by
management
considering
trends
identified
within
peer
groups.
●
Evaluated credit quality trends in delinquencies, non-accruals, charge
-offs, and loan risk ratings.
We have served as the Company’s
auditor since 2021.
March 11, 2025
72
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
As of December 31,
(Dollars in Thousands)
2024
2023
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
(
29,251
)
(
29,941
)
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, 2024 and 2023, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
(
6,486
)
(
22,146
)
Total Shareowners’
Equity
Total Liabilities, Temporary
Equity, and Shareowners’ Equity
$
$
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
73
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
For the Years
Ended December 31,
(Dollars in Thousands, Except Per Share
Data)
2024
2023
2022
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
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 Attributable to Noncontrolling Interests
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.
74
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
For the Years
Ended December 31,
(Dollars in Thousands)
2024
2023
2022
NET INCOME ATTRIBUTABLE
TO COMMON SHAREOWNERS
$
$
$
Other comprehensive income (loss), before
tax:
Investment Securities:
Net unrealized gain (loss) on securities available-for-sale
(
35,814
)
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
(
878
)
Benefit Plans:
Reclassification adjustment for amortization of prior service cost
(
239
)
Reclassification adjustment for amortization of net loss
(
116
)
Defined benefit plan settlement (gain) charge
(
291
)
Current year actuarial gain
Total Benefit Plans
Other comprehensive income (loss), before
tax:
(
27,995
)
Deferred tax (expense) benefit related to other comprehensive income
(
5,268
)
(
4,476
)
Other comprehensive income (loss), net of tax
(
21,015
)
TOTAL COMPREHENSIVE
INCOME
$
$
$
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
75
CAPITAL CITY BANK
GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREOWNERS' EQUITY
Accumulated
Other
Comprehensive
Loss,
Net of Taxes
(Dollars in Thousands, Except Share Data)
Shares
Outstanding
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Total
Balance, January 1, 2022
$
$
$
$
(
16,214
)
$
Net Income Attributable to Common Shareowners
-
Other Comprehensive Income, 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
)
Net Income Attributable to Common Shareowners
-
Reclassification to Temporary Equity
(1)
-
(
87
)
(
87
)
Other Comprehensive Loss, Net of Tax
-
Cash Dividends ($
-
(
12,905
)
(
12,905
)
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Repurchase of Common Stock
(
122,538
)
-
(
3,710
)
-
-
(
3,710
)
Balance, December 31, 2023
(
22,146
)
Net Income Attributable to Common Shareowners
-
Reclassification to Temporary Equity
(1)
-
(
751
)
(
751
)
Reclassification from Temporary Equity
(2)
-
Other Comprehensive Income, Net of Tax
-
Cash Dividends ($
-
(
14,906
)
(
14,906
)
Stock Based Compensation
-
Stock Compensation Plan Transactions, net
Repurchase of Common Stock
(
82,540
)
-
(
2,330
)
-
-
(
2,330
)
Balance, December 31, 2024
$
$
$
$
(
6,486
)
$
(1)
Adjustments to redemption value for non-controlling interest in CCHL
(2)
Adjustment reflects the difference between the fair value and the book value of the non-controlling interest in CCHL
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
76
CAPITAL CITY BANK GROUP,
INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Years Ended
December 31,
(Dollars in Thousands)
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income Attributable to Common Shareowners
$
$
$
Adjustments to Reconcile Net Income to Cash From Operating Activities:
(
291
)
(
485,901
)
(
406,803
)
(
390,191
)
(
14,343
)
(
10,400
)
(
11,909
)
(
102
)
(
5
)
(
48
)
(
27
)
(
1,032
)
(
483
)
(
3,870
)
(
108
)
(
979
)
(
2,053
)
(
422
)
(
12,024
)
(
1,029
)
(
8,636
)
(
4,452
)
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
(
64,031
)
(
1,483
)
(
219,865
)
Securities Available for Sale:
(
126,783
)
(
8,379
)
(
52,238
)
Equity Securities:
(
9,164
)
(
13,566
)
Purchases of Loans Held for Investment
(
848
)
(
2,488
)
(
16,753
)
Net Decrease (Increase) in Loans Held for Investment
(
226,896
)
(
720,670
)
Proceeds from Sales of Loans
Proceeds From Sales of Other Real Estate Owned
Purchases of Premises and Equipment, net
(
8,688
)
(
7,046
)
(
6,322
)
Noncontrolling Interest Contributions
Net Cash Provided By (Used In) Investing Activities
(
68,541
)
(
765,825
)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (Decrease) Increase in Deposits
(
29,845
)
(
237,495
)
Net (Decrease) Increase in Short-Term Borrowings
(
7,236
)
(
21,452
)
Repayment of Other Long-Term Borrowings
(
116
)
(
199
)
(
249
)
Net Increase in Other Long-Term Borrowings
Dividends Paid
(
14,906
)
(
12,905
)
(
11,191
)
Payments to Repurchase Common Stock
(
2,330
)
(
3,710
)
Issuance of Common Stock Under Compensation Plans
Net Cash (Used in) Provided By Financing Activities
(
52,138
)
(
274,824
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(
288,583
)
(
434,704
)
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
$
$
$
Supplemental Cash Flow Disclosures:
$
$
$
$
$
$
Supplemental Noncash Items:
$
$
$
$
$
$
Transfer of Temporary Equity to Other Liabilities
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
77
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 (“CCSW”).
CCB has two primary subsidiaries, which are wholly owned, Capital City Trust
Company and Capital City Investments. On March 1, 2020, CCB acquired
a
% membership interest in Brand Mortgage Group,
LLC (“Brand”) which is now operated as Capital City Home Loans, LLC
(“CCHL”), a consolidated entity in the Company’s
financial statements. As part of the transaction, CCHL’s
operating agreement included put and call options for CCB to purchase
from BMG the remaining
% of CCHL’s
membership interests (the “
% Interest”).
On November 15, 2024, CCB entered into
an agreement with BMG to transfer the
% Interest to CCB, effective January 1, 2025.
BMG initiated the buyout by exercising
its put option in CCHL’s
operating agreement.
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.
See Note 24 – Segment Reporting for additional information.
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 (“VIEs”) 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. All material inter-
company transactions and accounts have been eliminated in consolidation.
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.
78
Significant Accounting Principles
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 maintains certain cash balances that are restricted under
warehouse lines of credit and master repurchase
agreements.
The restricted cash balance at December 31, 2024 and 2023 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 HTM 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, the Company further segment
s
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 AFS 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 AFS to HTM 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 loss (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 HTM 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.
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.
79
Impairment - Available
-for-Sale Securities
.
Unrealized gains on AFS securities are excluded from earnings and
reported, net of tax, in other comprehensive income.
For AFS
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 AFS 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 HTM 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. See Note 2 – Investment Securities for
additional information.
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 accrued interest 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. See Note 3 – Loans Held for Investment
and Allowance for Credit Losses for
additional information.
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.
80
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 (Individually
Analyzed)
Loans that do not share similar risk characteristics are evaluated on an individual
basis.
Loans deemed to be collateral dependent
have differing risk characteristics and are individually
analyzed to estimate the expected credit loss.
A loan is collateral
dependent when the borrower is experiencing financial difficulty
and repayment of the loan is dependent on the liquidation and
sale of the underlying collateral.
For collateral dependent loans where foreclosure is probable, the expected
credit loss is
measured based on the difference between the fair
value of the collateral (less selling cost) and the amortized cost basis of the
asset.
For collateral dependent loans where foreclosure is not probable,
the Company has elected the practical expedient allowed
by 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.
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.
81
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. See Note 21 – Commitments
and Contingencies for additional information.
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 (“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.
82
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. See Note 4 –
Mortgage Banking Activities for additional information.
83
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. See Note 5 – Derivatives for additional information.
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 leases 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 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 Consolidated 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.
84
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. See Note 9 – Other Real Estate for additional
information.
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, 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 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.
Concurrent with the agreement
to assign the minority membership interest (49%) in CCHL, temporary equity
was reclassified to other liabilities and recorded at
the fair value of the minority interest of $
85
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. See Note
13 – Income Taxes
for additional information.
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.
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 AFS, 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.
See Note 14 – Stock-based Compensation for additional information.
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.
86
Wealth Management
- trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth
management clients
as consideration for managing the client’s
assets. Trust services include custody of assets, investment
management, fees for trust
services and similar fiduciary activities. Revenue is recognized when
the Company’s performance obligation
is completed each
month or quarter, which is the time that payment
is received. Also, retail brokerage fees are received from a third-party broker-
dealer, for which the Company acts as an agent,
as part of a revenue-sharing agreement for fees earned from
customers that are
referred to the third party.
These fees are for transactional and advisory services and are paid by the third party on
a monthly
basis and recognized ratably throughout the quarter as the Company’s
performance obligation is satisfied.
Bank Card Fees – bank card related fees primarily includes interchange
income from client use of consumer and business debit
cards.
Interchange income is a fee paid by a merchant bank to the card-issuing bank through
the interchange network.
Interchange fees are set by the credit card associations and are based on cardholder
purchase volumes.
The Company records
interchange income as transactions occur.
Gains and Losses from the Sale of Bank Owned Property – the performance
obligation in the sale of other real estate owned
typically will be the delivery of control over the property to the buyer.
If the Company is not providing the financing of the sale,
the transaction price is typically identified in the purchase and sale agreement.
However, if the Company provides seller
financing, the Company must determine a transaction price, depending
on if the sale contract is at market terms and taking into
account the credit risk inherent in the arrangement.
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, which is the time that payment is received.
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.
Recently Adopted Accounting Pronouncements
ASU No.
2023-01, “Leases (Topic
842):
Common Control Arrangements.” ASU 2023-01 requires entities to amortize leasehold
improvements associated with common control leases over the useful
life to the common control group. ASU 2023-01 also
provides certain practical expedients applicable to private companies
and not-for-profit organizations. The
standard became
effective for the Company on January 1, 2024. As the Company
does not have any such common control leases, adoption of this
standard did not have any immediate impact on its consolidated financial
statements and related disclosures.
ASU No.
2023-02, “Investments—Equity Method and Joint Ventures
(Topic
323): Accounting for Investments in Tax
Credit
Structures Using the Proportional
Amortization Method.”
ASU 2023-02 is intended to improve the accounting and disclosures
for investments in tax credit structures. ASU 2023-02 allows entities to elect to
account for qualifying tax equity investments
using the proportional amortization method, regardless of the program
giving rise to the related income tax credits. Previously,
this method was only available for qualifying tax equity investments in low-income
housing tax credit structures. The standard
became effective for the Company on January 1, 2024.
As the Company does not have any such investments in tax credit
structures that are accounted for using the proportional amortization method,
adoption of this standard did not have any
immediate impact on its consolidated financial statements or disclosures.
ASU 2023-07, “Improvements to Reportable
Segment Disclosures.”
ASU 2023-07 requires disclosure of significant segment
expenses and other segment items on an interim and annual basis. The standard
became effective for the Company on January 1,
2024. The adoption of the standard did not have a material impact on its consolidated
financial statements. Refer to Note 24 –
Segment Reporting.
Issued But Not Yet
Effective Accounting Standards
87
ASU No. 2023-06, “Disclosure Improvements:
Codification Amendments in Response to the SEC’s
Disclosure Update and
Simplification Initiative.”
ASU 2023-06 is intended to clarify or improve disclosure and presentation
requirements of a variety of
topics, which will allow users to more easily compare entities subject to the
SEC’s existing disclosures with those entities
that
were not previously subject to the requirements and align the requirements in
the FASB accounting standard
codification with the
SEC’s regulations. ASU 2023
-06 is to be applied prospectively,
and early adoption is prohibited. For reporting entities subject to
the SEC’s existing disclosure requirements,
the effective dates of ASU 2023-06 will be the date on which the SEC’s
removal of
that related disclosure requirement from Regulation S-X or Regulation
S-K becomes effective. If by June 30, 2027, the SEC has
not removed the applicable requirement from Regulation S-X or Regulation
S-K, the pending content of the related amendment
will be removed from the Codification and will not become effective
for any entities. The Company is currently evaluating the
provisions of the amendments and the impact on its future consolidated
statements.
ASU No. 2023-09, “Income Taxes
(Topic
740): Improvements to Income Tax
Disclosures.”
ASU 2023-09 is intended to enhance
transparency and decision usefulness of income tax disclosures. The ASU addresses
investor requests for more transparency about
income tax information through improvements to income tax disclosures,
primarily related to the rate reconciliation and income
taxes paid information. Retrospective application in all prior periods is permitted.
ASU 2023-09 will be effective for the company
on January 1, 2025. The Company is currently evaluating the impact of
the incremental income taxes information that will be
required to be disclosed as well as the impact to Note 13- Income Taxes.
88
Note 2
INVESTMENT SECURITIES
Investment Portfolio Composition
.
The following tables summarize the amortized cost and related fair value of investment
securities AFS and securities HTM, 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, 2024
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(
3
)
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(
64
)
Other Securities
(2)
Total
$
$
$
$
(
67
)
$
December 31, 2023
U.S. Government Treasury
$
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
(
8
)
Mortgage-Backed Securities
(1)
Corporate Debt Securities
(
17
)
Other Securities
(2)
Total
$
$
$
$
(
25
)
$
Held to Maturity
Amortized
Unrealized
Unrealized
Fair
(Dollars in Thousands)
Cost
Gains
Losses
Value
December 31, 2024
U.S. Government Treasury
$
$
$
$
Mortgage-Backed Securities
Total
$
$
$
$
December 31, 2023
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, 2024, and 2023, 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, 2024 and 2023, there were
agencies, in an amount greater than 10% of shareowners’ equity.
89
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 totaled $
million and $
comprehensive loss over the remaining life of the underlying securities as an adjustment
of the yield on those securities.
Investment Sales
. During 2023, the Company sold $
investment securities during 2024 and 2022
.
Maturity Distribution
.
The following table shows the Company’s
AFS and HTM investment securities maturity distribution
based on contractual maturity at December 31, 2024.
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
$
$
$
$
90
Unrealized Losses
. The following table summarizes the investment securities with unrealized
losses at December 31, aggregated
by major security type and length of time in a continuous unrealized loss position:
Less Than 12 Months
Greater Than 12 Months
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in Thousands)
Value
Losses
Value
Losses
Value
Losses
December 31, 2024
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, 2023
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
$
$
$
$
$
$
At December 31, 2024, there were
$
losses totaling $
of the U.S. Government.
government sponsored entities.
We believe the
long history of
expectation of nonpayment of the amortized cost basis is
.
The remaining
bonds) have a credit component.
At December 31, 2024, 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,
2024, 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, 2024.
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
t 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.
91
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)
2024
2023
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 $
$
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. These loan purchases totaled $
respectively, and were
not credit impaired.
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.
92
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
2024
Beginning Balance
$
$
$
$
$
$
$
(
74
)
(
173
)
(
603
)
(
1,512
)
(
47
)
(
3
)
(
61
)
(
132
)
(
7,627
)
(
9,382
)
(
1,133
)
(
44
)
(
4,866
)
(
5,665
)
Ending Balance
$
$
$
$
$
$
$
2023
Beginning Balance
$
$
$
$
$
$
$
(
154
)
(
233
)
(
511
)
(
120
)
(
79
)
(
39
)
(
8,543
)
(
9,292
)
(
234
)
(
68
)
(
4,783
)
(
4,722
)
Ending Balance
$
$
$
$
$
$
$
2022
Beginning Balance
$
$
$
$
$
$
$
(
658
)
(
746
)
(
422
)
(
1,308
)
(
355
)
(
193
)
(
6,050
)
(
7,906
)
(
1,001
)
(
249
)
(
10
)
(
2,969
)
(
3,935
)
Ending Balance
$
$
$
$
$
$
$
The $
charge-offs of $
and net loan charge-offs of $
loan balances and favorable loan grade migration.
The increase in the allowance for 2023 was primarily attributable to
incremental allowance related to loan growth, primarily residential real
estate, and slower prepayment speeds (due to higher
interest rates). 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.
93
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
2024
Commercial, Financial and Agricultural
$
$
$
$
$
$
$
Real Estate – Construction
Real Estate – Commercial Mortgage
Real Estate – Residential
Real Estate – Home Equity
Consumer
Total
$
$
$
$
$
$
$
2023
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,
2024
and 2023.
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.
2024
2023
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
$
$
$
$
$
$
94
Collateral Dependent Loans
.
The following table presents the amortized cost basis of collateral dependent loans
at December 31:
2024
2023
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, 2024 and 2023, the Company had $
family residential real estate loans for which formal foreclosure proceedings
were in process.
Modifications to Borrowers Experiencing
Financial Difficulty
.
Occasionally, the Company
may modify loans to borrowers who
are experiencing financial difficulty.
Loan modifications to borrowers in financial difficulty are loans
in which 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 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 modified loan 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.
The financial effects of the loan modifications made to borrowers during
the 12 months ended December 31, 2024 were not
significant. At December 31, 2024, the Company maintained
financial difficulty.
The balance of the loan at December 31, 2024 was $
December 31, 2024 and did not have a payment delay as of December 31, 2024.
The Company reduced the interest rate on the
loan by
% in addition to extending the term of the loan from
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 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.
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.
95
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.
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.
96
The following tables summarize gross loans held for investment at December
31, 2024
and December 31, 2023 and current period
gross write-offs for each of the 12 month periods ended
December 31, 2024 and December 31 2023 by years of origination and
internally assigned credit risk ratings (refer to Credit Risk Management section
for detail on risk rating system).
(Dollars in Thousands)
Term Loans by Origination Year
Revolving
As of December 31, 2024
2024
2023
2022
2021
2020
Prior
Loans
Total
Commercial, Financial,
Agricultural:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Construction:
Pass
$
$
$
$
$
$
$
$
Special Mention
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Commercial
Mortgage:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Residential:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Home
Equity:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Consumer:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
97
(Dollars in Thousands)
Term Loans by Origination Year
Revolving
As of December 31, 2023
2023
2022
2021
2020
2019
Prior
Loans
Total
Commercial, Financial,
Agricultural:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Construction:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Commercial
Mortgage:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Residential:
Pass
$
$
$
$
$
$
$
$
Special Mention
Substandard
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Real Estate - Home
Equity:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
Consumer:
Performing
$
$
$
$
$
$
$
$
Nonperforming
Total
$
$
$
$
$
$
$
$
Current-Period Gross
Writeoffs
$
$
$
$
$
$
$
$
98
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, 2024
December 31, 2023
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)
$
$
(1)
Recorded in other assets at fair value
(2)
Recorded in other assets and other liabilities at fair value
at December 31, 2024 and 2023, respectively
At December 31, 2024, the Company had
At December 31, 2023, the Company had
loans were on nonaccrual status.
Mortgage banking revenues for the year ended December 31, was as follows:
(Dollars in Thousands)
2024
2023
2022
Net realized gain on sales of mortgage loans
$
$
$
Net change in unrealized gain on mortgage loans held for sale
(
384
)
(
252
)
(
1,164
)
Net change in the fair value of mortgage loan commitments
(
275
)
(
296
)
(
439
)
Net change in the fair value of forward sales contracts
(
395
)
Pair-Offs on net settlement of forward
sales contracts
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.
99
The following represents a summary of mortgage servicing rights.
(Dollars in Thousands)
2024
2023
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
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, 2024, 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.
At December 31, 2024 and 2023, the Company did
t have delinquent residential mortgage loans currently in GNMA pools
serviced by the Company.
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.
The Company had
the 12 months ended December 31, 2024, and $
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)
2024
2023
2022
Beginning balance
$
$
$
Additions due to loans sold with servicing retained
Deletions and amortization
(
201
)
(
232
)
(
1,291
)
Sale of Servicing Rights
(1)
(
2,187
)
(
449
)
Ending balance
$
$
$
(1)
In 2023, the Company sold an MSR portfolio with an unpaid principal balance of
$
recognizing a $
2022, the Company sold an MSR portfolio with an unpaid principal balance
of $
recognizing a $
The Company did
t record any permanent impairment losses on mortgage servicing rights for the
years ended December 31,
2024
and 2023.
The key unobservable inputs used in determining the fair value of the Company’s
mortgage servicing rights at December 31, was
as follows:
2024
2023
Minimum
Maximum
Minimum
Maximum
Discount rates
Annual prepayment speeds
Cost of servicing (per loan)
$
$
100
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, 2024 and
% at December 31, 2023.
Warehouse
Line Borrowings
The Company has the following warehouse lines of credit and master repurchase
agreements with various financial institutions at
December 31, 2024:
Amounts
(Dollars in Thousands)
Outstanding
$
, with a floor rate of
.
A cash pledge deposit of $
required by the lender.
$
$
March 2025
.
Interest is at the SOFR plus
.
$
Warehouse
line borrowings are classified as short-term borrowings.
At December 31, 2023, warehouse line borrowings totaled
$
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,
2024.
The Company intends to renew the warehouse lines of credit and master repurchase
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, 2024 and December 31,
2023 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 $
hedge for 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 CME Term
SOFR (secured overnight financing rate).
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 loss (“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 loss related to
derivatives will be reclassified to interest expense as interest payments are
made on the Company’s variable-rate
subordinated
debt.
101
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, 2024
Other Assets
$
$
December 31, 2023
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).
Amount of Gain
Amount of Gain
(Loss) Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
December 31, 2024
Interest Expense
$
$
December 31, 2023
Interest Expense
$
$
December 31, 2022
Interest Expense
$
$
The Company estimates there will be approximately $
months.
At December 31, 2024 and 2023, 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)
2024
2023
Land
$
$
Buildings
Fixtures and Equipment
Total Premises and Equipment
Accumulated Depreciation
(
116,140
)
(
112,650
)
Premises and Equipment, Net
$
$
Depreciation expense for the above premises and equipment was approximately
$
. million, $
2024, 2023, and 2022, respectively
.
102
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
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, 2024, the operating lease ROU assets and liabilities were $
million and $
and $
31, 2024 for a lease that terminated in February 2025. The Company does not have any
finance leases.
The table below summarizes our lease expense and other information at
December 31, related to the Company’s
operating leases:
(Dollars in Thousands)
2024
2023
2022
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, 2024
2025
$
2026
2027
2028
2029
2030 and thereafter
Total
$
Less: Interest
(
7,056
)
Present Value
of Lease Liability
$
A related party is the lessor in an operating lease with the Company.
The terms of this lease agreement are further described in
Note 19 – Related Party Transactions.
In December 2024, the Company entered into a sale leaseback agreement related
to the sale of an office location.
This agreement
contained a
two-year
resulted in a gain on sale of $
103
Note 8
GOODWILL AND OTHER INTANGIBLES
At December 31, 2024 and 2023, 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 Strategic Wealth
Group, LLC (“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
offering wealth management services and comprehensive
risk management and asset protection services for individuals and
businesses.
CCBG paid $
intangible asset (
million in each of 2024 and 2023.
The intangible asset balance as of December 31, 2024 and December 31, 2023
was $
million and $
million per year.
During the fourth quarter of 2024, the Company performed its annual goodwill
impairment testing and determined that
goodwill impairment existed at December 31, 2024 and
will continue to evaluate goodwill for impairment as defined by ASC Topic
350.
Note 9
OTHER REAL ESTATE
OWNED
The following table presents other real estate owned activity at December 31,
(Dollars in Thousands)
2024
2023
2022
Beginning Balance
$
$
$
Additions
Valuation
Write-Downs
(
16
)
(
11
)
Sales
(
613
)
(
1,926
)
(
1,973
)
Ending Balance
$
$
$
Net expenses applicable to other real estate owned for the three years ended December
31, was as follows:
(Dollars in Thousands)
2024
2023
2022
Gains from the Sale of Properties
$
(
980
)
$
(
2,072
)
$
(
480
)
Losses from the Sale of Properties
Rental Income from Properties
(
5
)
(
21
)
Property Carrying Costs
Valuation
Adjustments
Total
$
(
868
)
$
(
1,969
)
$
(
337
)
Note 10
DEPOSITS
The composition of the Company’s
interest bearing deposits at December 31 was as follows:
(Dollars in Thousands)
2024
2023
NOW Accounts
$
$
Money Market Accounts
Savings Deposits
Time Deposits
Total Interest Bearing
Deposits
$
$
At December 31, 2024 and 2023, $
respectively.
104
The amount of time deposits that meet or exceed the FDIC insurance limit of $250,000
totaled $
December 31, 2024 and 2023, respectively.
At December 31, the scheduled maturities of time deposits were as follows:
(Dollars in Thousands)
2024
2025
$
2026
2027
2028
2029
Total
$
Interest expense on deposits for the three years ended December 31, was as follows:
(Dollars in Thousands)
2024
2023
2022
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)
2024
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
%
%
%
2023
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
%
%
%
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
%
%
%
(1)
Balances are fully collateralized by government treasury or agency securities held in the Company's investment portfolio.
(2)
Comprised of warehouse lines of credit totaling $
105
Note 12
LONG-TERM BORROWINGS
Federal Home Loan Bank Advances.
The Company had one FHLB long-term advance for $
This outstanding balance was reclassified to Short-Term
Borrowings in 2024,
advances are collateralized by a floating lien on certain 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.
Long-term Notes Payable
.
During 2024, the Company entered into
vendor for its retail brokerage platform.
The notes mature in 2031 and accrue interest at the minimum federal rate per
annum
published by the Internal Revenue Service.
The notes are forgivable in annual installments commencing
issuance date.
Junior Subordinated Deferrable Interest
Notes.
The Company has issued
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 and adjust quarterly to a variable rate of
margin of
%.
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
$
securities were used to purchase a $
terms similar to the trust preferred securities.
On April 12, 2016, the Company retired $
securities that were auctioned as part of a liquidation of a pooled collateralized
debt obligation fund.
The trust preferred securities
were originally issued through CCBG Capital Trust I.
In May 2005, CCBG Capital Trust II issued
$
trust.
The interest payments are due quarterly and adjust quarterly to a variable rate of
of
%.
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 $
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 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, 2024, 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.
106
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)
2024
2023
2022
Current:
Federal
$
$
$
State
Deferred:
Federal
(
877
)
(
391
)
(
2,994
)
State
(
116
)
(
351
)
(
899
)
Change in Valuation
Allowance
(
39
)
(
1,032
)
(
483
)
(
3,870
)
Total:
Federal
State
Change in Valuation
Allowance
(
39
)
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)
2024
2023
2022
Tax Expense at Federal
Statutory Rate
$
$
$
Increases (Decreases) Resulting From:
Tax-Exempt Interest
Income
(
161
)
(
259
)
(
248
)
Other
(
929
)
(
1,695
)
(
546
)
State Taxes, Net of Federal
Benefit
Change in Valuation
Allowance
(
39
)
Tax-Exempt Cash Surrender
Value
Life Insurance Benefit
(
201
)
(
187
)
(
175
)
Noncontrolling Interest
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.
107
The net deferred tax asset and the temporary differences comprising
that balance at December 31, 2024 and 2023 are as follows:
(Dollars in Thousands)
2024
2023
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
Investment in Partnership
Total Deferred
Tax Assets
$
$
Deferred Tax Liabilities
Attributable to:
Depreciation on Premises and Equipment
$
$
Deferred Loan Fees and Costs
Intangible Assets
Accrued Pension/SERP
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 $
2024, the Company had state loss and tax credit carry-forwards of approximately
$
2025
2037
.
The following table presents a reconciliation of the beginning and ending amount
of unrecognized tax benefits:.
(Dollars in Thousands)
2024
2023
2022
Balance at January 1,
$
$
$
Additions Based on Tax
Positions Related to Current Year
Balance at December 31
$
$
$
Of this total, $
effective tax rate in future periods. The Company does not
expect the total amount of unrecognized tax benefits to significantly
increase or decrease in the next 12 months.
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, 2024, 2023,
and 2022.
There were
Consolidated Statements of Financial Condition for penalties and interest
as of December 31, 2024 and 2023.
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 generally no longer subject to
U.S. federal or state tax examinations for years before 2021.
108
Note 14
STOCK-BASED COMPENSATION
At December 31, 2024, 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 the years ended December 31, 2024, 2023 and 2022
was $
million, $
AIP.
there were
AIP,
will create an annual incentive plan (“Plan”), under which all participants are
eligible to earn performance shares.
Awards
to
associates under the 2021 Plan were tied to internally established goals.
At base level targets, the grant-date fair value of the
shares eligible to be awarded in 2024 was approximately $
issuance, but additional shares could be earned if performance exceeded
established goals.
A total of
for 2024 that were issued in January 2025.
For the years ended December 31, 2024, 2023 and 2022, Directors earned
,
million for the years ended December 31, 2024, 2023 and 2022, 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.
and
Thomas A. Barron, the President of CCB 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 $
December 31, 2024, 2023 and 2022, respectively.
Shares issued under the plan were
,
, and
December 31, 2024, 2023 and 2022, respectively.
A total of
After deducting the shares earned, but not issued, in 2024 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 each of the years ended December 31, 2024,
2023
and 2022.
The Company issued shares under the
DSPP totaling
,
2024, 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 $
of the years ended December 31, 2024, 2023 and 2022, respectively.
The Company issued shares under the ASPP totaling
,
shares 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:
2024
2023
2022
Dividend yield
%
%
%
Expected volatility
%
%
%
Risk-free interest rate
%
%
%
Expected life (in years)
109
Note 15
EMPLOYEE BENEFIT PLANS
Pension Plan
The Company sponsors a noncontributory pension plan covering
a portion of its associates.
On December 30, 2019, the plan was
amended to remove plan eligibility for new associates hired after December 31,
2019. There were no amendments to the Plan in
2020 or 2021. The Plan was also amended in December 2022, effective
January 1, 2020, increasing the required minimum
distribution age to
, per the SECURE Act 1.0. During 2023 and effective January 1, 2023, the Plan
was amended increasing the
required minimum distribution age to
, per the SECURE Act 2.0. Benefits under this plan generally are based on the associate’s
total years of service and average of the
five
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.
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.
110
(Dollars in Thousands)
2024
2023
2022
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
$
$
Service Cost
Interest Cost
Actuarial (Gain) Loss
(
1,974
)
(
39,962
)
Benefits Paid
(
4,829
)
(
3,843
)
(
2,139
)
Expenses Paid
(
277
)
(
276
)
(
416
)
Settlements
(
32,794
)
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
(
4,829
)
(
3,843
)
(
2,139
)
Expenses Paid
(
277
)
(
276
)
(
416
)
Settlements
(
32,794
)
Fair Value
of Plan Assets at End of Year
$
$
$
Funded Status of Plan and Accrued Liability Recognized at End of Year:
Other (Assets) Liabilities
$
(
17,458
)
$
(
5,008
)
$
Accumulated Benefit Obligation at End of Year
$
$
$
Components of Net Periodic Benefit Costs:
Service Cost
$
$
$
Interest Cost
Expected Return on Plan Assets
(
8,117
)
(
6,805
)
(
10,701
)
Amortization of Prior Service Costs
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
12/31/24
12/31/23
12/31/22
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 Loss:
Net Actuarial Gain
$
(
14,145
)
$
(
5,397
)
$
(
3,612
)
Prior Service Cost
(
5
)
(
15
)
Net Loss
(
165
)
(
934
)
(
4,034
)
Deferred Tax Expense
Other Comprehensive Gain, net of tax
$
(
10,682
)
$
(
4,730
)
$
(
5,719
)
Amounts Recognized in Accumulated Other Comprehensive (Gain) Loss:
Net Actuarial (Gain) Loss
$
(
12,988
)
$
$
Prior Service Cost
Deferred Tax Expense
(Benefit)
(
335
)
(
1,941
)
Accumulated Other Comprehensive (Gain) Loss, net of tax
$
(
9,695
)
$
$
(1)
During 2022, lump sum payments made under the Company’s
defined benefit pension plan triggered settlement accounting,
which resulted in $
benefit plans.
The Company recorded
111
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, 2024 as a component of net periodic benefit cost during 202
5.
Plan Assets.
The Company’s pension
plan asset allocation at December 31, 2024 and 2023, and the target
asset allocation for
2024 are as follows:
Target
Percentage of Plan
Allocation
Assets at December 31
(1)
2025
2024
2023
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)
2024
2023
Level 1:
U.S. Treasury Securities
$
$
Mutual Funds
Cash and Cash Equivalents
Level 2:
Corporate Notes/Bonds
Total Fair Value
of Plan Assets
$
$
Expected Benefit Payments.
follows:
(Dollars in Thousands)
2024
2025
$
2026
2027
2028
2029
2030 through 2034
Total
$
112
Contributions.
The following table details the amounts contributed to the pension plan in 2024
and 2023, and the expected
amount to be contributed in 2025.
Expected
Contribution
(Dollars in Thousands)
2023
2024
2025
(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.
113
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.
(Dollars in Thousands)
2024
2023
2022
Change in Projected Benefit Obligation:
Benefit Obligation at Beginning of Year
$
$
$
Service Cost
Interest Cost
Actuarial (Gain) Loss
(
2,932
)
Plan Amendments
Net Settlements
(
2,464
)
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
(
281
)
(
531
)
Net Gain Settlements
(
291
)
Net Periodic Benefit Cost
$
$
(
152
)
$
Weighted-Average
Assumptions Used to Determine Benefit Obligation:
Discount Rate
Rate of Compensation Increase
(1)
Measurement Date
12/31/24
12/31/23
12/31/22
Weighted-Average
Assumptions Used to Determine Benefit Cost:
Discount Rate
Rate of Compensation Increase
(1)
Amortization Amounts from Accumulated Other Comprehensive Loss:
Net Actuarial Loss (Gain)
$
$
$
(
2,932
)
Prior Service (Benefit) Cost
(
151
)
(
277
)
Net Gain (Loss)
(
718
)
Settlement Gain
Deferred Tax (Benefit)
Expense
(
183
)
(
222
)
Other Comprehensive Loss (Gain), net of tax
$
$
$
(
2,932
)
Amounts Recognized in Accumulated Other Comprehensive Gain:
Net Actuarial Gain
$
(
275
)
$
(
753
)
$
(
1,775
)
Prior Service Cost
Deferred Tax Benefit
Accumulated Other Comprehensive Gain, net of tax
$
(
27
)
$
(
562
)
$
(
1,212
)
(1)
The Company expects to recognize approximately $
loss at December 31, 2024 as a component of net periodic benefit cost during
2025.
In June 2023, lump sum retirement distributions to two plan participants
required the application of settlement accounting.
The
amount of the settlement gain was $
114
Expected Benefit Payments
. As of December 31, expected benefit payments related to the SERP were as follows:
(Dollars in Thousands)
2024
2025
$
2026
2027
2028
2029
2030 through 2034
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 2024, 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 2024, 2023, and 2022,
matching contributions were made by CCHL up to
% of eligible participant’s
compensation totaling $
respective year.
Other Plans
The Company has an Amended and Restated Dividend Reinvestment Plan (the
“DRIP”). The DRIP is an “Open Market Only”
plan, which means that shares that participants receive under the DRIP will only
be purchased by the plan agent in the open
market. The Company did
t issue any new shares under the DRIP in 2024, 2023 and 2022.
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)
2024
2023
2022
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
$
$
$
115
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 17.
Management believes, at December 31, 2024 and 2023, that the Company
and the Bank meet all capital adequacy requirements to
which they are subject.
At December 31, 2024, 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, 2024 and 2023 are
presented in the following table.
116
To Be Well
-
Capitalized Under
Required
Prompt
For Capital
Corrective
Actual
Adequacy Purposes
Action Provisions
(Dollars in Thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
2024
Common Equity Tier 1:
CCBG
$
$
*
*
CCB
$
Tier 1 Capital:
CCBG
*
*
CCB
Total Capital:
CCBG
*
*
CCB
Tier 1 Leverage:
CCBG
*
*
CCB
2023
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 2025, the bank subsidiary may declare dividends without regulatory approval
of
$
dividend declaration.
117
Note 18
ACCUMULATED OTHER
COMPREHENSIVE 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 loss.
Accumulated
Securities
Other
Available
Interest Rate
Retirement
Comprehensive
for Sale
Swap
Plans
Loss
Balance as of January 1, 2024
$
(
25,691
)
$
$
(
425
)
$
(
22,146
)
Other comprehensive income during the period
Balance as of December 31, 2024
$
(
20,179
)
$
$
$
(
6,486
)
Balance as of January 1, 2023
$
(
37,349
)
$
$
(
4,505
)
$
(
37,229
)
Other comprehensive income (loss) during the period
(
655
)
Balance as of December 31, 2023
$
(
25,691
)
$
$
(
425
)
$
(
22,146
)
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
)
Note 19
RELATED PARTY
TRANSACTIONS
At December 31, 2024 and 2023, certain officers and directors were indebted
to the Bank in the aggregate amount of $
and $
repayments totaled $
Deposits from certain directors, executive officers, and
their related interests totaled $
31, 2024 and 2023, respectively.
The Company leases land from a partnership (Smith Interests General
Partnership L.L.P.)
in which William G. Smith, Jr.
has an
interest.
The Company made lease payments totaling $
payments adjusted to $
under the lease agreement provide for annual lease payments of approximately
$
and thereafter, increase by
% every
parcel rental value.
The Company then has
% at each extension. Further, in accordance
with this lease agreement, the Company made a $
to the lessor as reimbursement for a portion of the costs related to the development
of subject property to support the construction
of a new banking office by the Company.
William G. Smith, III, the son of our Chairman,
President and Chief Executive Officer,
William G. Smith, Jr.,
is employed as
Chief Lending Officer at Capital City Bank.
In 2024, 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.
118
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)
2024
2023
2022
Legal Fees
$
$
$
Professional Fees
Telephone
Advertising
Processing Services
Insurance – Other
Pension – Other
(
1,675
)
(
3,043
)
Pension – Settlement
(
291
)
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:
2024
2023
(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.
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.
119
(Dollars in Thousands)
2024
2023
2022
Beginning Balance
$
$
$
Provision for Credit Losses
(
1,036
)
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.
The Company has an outstanding commitment of up to $
funding technology solutions for community banks. At December 31,
2024, the amount remaining to be funded for the bank tech
venture capital commitment was $
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.
Quarterly fixed
payments totaled $
million in 2024 due to a revision to the share conversion rate related to
additional funding by VISA of the merchant litigation
reserve.
At December 31, 2024 and December 31, 2023, there was
December 31, 2022.
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.
120
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 AFS 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.
Equity Securities.
Investments securities classified as equity securities are carried at cost and the share of
earnings or losses is
reported through net income as an adjustment to the investment balance.
These securities are not readily marketable and therefore
are classified as a Level 3 input within the fair value hierarchy.
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.
There were
121
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
2024
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
States and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Equity Securities
Loans Held for Sale
Interest Rate Swap Derivative
Forward Sales Contracts
Residential Mortgage Loan Commitments ("IRLC")
2023
ASSETS:
Securities Available for
Sale:
U.S. Government Treasury
$
$
$
$
U.S. Government Agency
State and Political Subdivisions
Mortgage-Backed Securities
Corporate Debt Securities
Equity Securities
Loans Held for Sale
Interest Rate Swap Derivative
Residential Mortgage Loan Commitments ("IRLC")
LIABILITIES:
Forward Sales Contracts
$
$
$
$
Mortgage Banking Activities.
The Company had Level 3 issuances and transfers related to mortgage
banking activities of $
million and $
transfers related to mortgage banking activities of $
2023.
Issuances are valued based on the 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 $
$
$
122
Other Real Estate Owned
.
During 2024 and 2023, 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, 2024 and 2023, 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, 2024 and 2023, there was
allowance for mortgage servicing rights.
Other Fair Value
Disclosures
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”.
Other Equity Securities.
Other equity securities are accounted for under the equity method (Topic
323) and recorded at cost.
These securities are not readily marketable securities and are reflected in
Other Assets on the Statement of Financial Condition.
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.
123
A summary of estimated fair values of significant financial instruments at December
31 consisted of the following:
2024
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Fed Funds Sold and Interest Bearing Deposits
Investment Securities, Held to Maturity
Other Equity Securities
(1)
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term
Borrowings
Subordinated Notes Payable
Long-Term Borrowings
2023
(Dollars in Thousands)
Carrying
Level 1
Level 2
Level 3
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
$
$
$
Short-Term Investments
Investment Securities, Held to Maturity
Other Equity Securities
(1)
Mortgage Servicing Rights
Loans, Net of Allowance for Credit Losses
LIABILITIES:
Deposits
$
$
$
$
Short-Term
Borrowings
Subordinated Notes Payable
Long-Term Borrowings
(1)
Accounted for under the equity method – not readily
marketable securities – reflected in other assets.
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.
124
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)
2024
2023
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, $
shares issued and outstanding at December 31, 2024 and 2023, respectively
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
(
6,486
)
(
22,146
)
Total Shareowners’
Equity
Total Liabilities and Shareowners’
Equity
$
$
125
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)
2024
2023
2022
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
(
828
)
(
650
)
(
661
)
Earnings Before Equity in Undistributed Earnings of Subsidiary Bank
Equity in Undistributed Earnings of Subsidiary Bank
Net Income Attributable to Common Shareowners
$
$
$
126
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)
2024
2023
2022
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
(
22,867
)
(
24,898
)
(
14,192
)
Stock Compensation
Amortization of Intangible Asset
Increase in Other Assets
(
117
)
(
336
)
Increase in Other Liabilities
(
6,191
)
(
1,557
)
Net Cash Provided By Operating Activities
$
$
$
CASH FROM INVESTING ACTIVITIES:
Purchase of Equity Securities
$
(
52
)
$
(
369
)
$
(
79
)
Decrease (Increase) in Investment in Subsidiaries
Net Cash (Used in) Provided by Investing Activities
$
(
52
)
$
(
369
)
$
CASH FROM FINANCING ACTIVITIES:
Dividends Paid
(
14,906
)
(
12,905
)
(
11,191
)
Issuance of Common Stock Under Compensation Plans
Payments to Repurchase Common Stock
(
2,330
)
(
3,710
)
Net Cash Used In Financing Activities
$
(
15,735
)
$
(
15,678
)
$
(
9,891
)
Net Increase in Cash and Due from Subsidiary Bank
Cash and Due from Subsidiary Bank at Beginning of Year
Cash and Due from Subsidiary Bank at End of Year
$
$
$
Note 24
SEGMENT REPORTING
The Company operates a single reportable business segment that is comprised
of commercial banking within the states of Florida,
Georgia, and Alabama.
The Company’s CEO is deemed
the Chief Operating Decision Maker (“CODM”). The CODM evaluates
the financial performance of the Company by evaluating revenue streams, significant
expenses, and budget to actual results in
assessing the Company’s
single reporting segment and in the determination of allocating resources. The CODM uses consolidated
net income to benchmark the Company against peers and to evaluate performance
and allocate resources.
Significant revenue and
expense categories evaluated by the CODM are consistent with the presentation
of the Consolidated Statement of Income and
components of other noninterest expense as presented in Note 20.
Note 25
SUBSEQUENT EVENT
On January 1, 2025, CCB completed its acquisition from BMG of the remaining
% membership interest in CCHL, and CCHL
became a wholly owned subsidiary of CCB (See Note 1 – Significant Accounting
Policies). CCHL has been consolidated into
CCBG’s financial statements since
March 1, 2020. In accordance with the Assignment of Membership
Interests, dated November
15, 2024, CCB paid $
three-year
127
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
for 2024.
At December 31, 2024, 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 our disclosure controls
and procedures were effective as of December 31, 2024.
Management’s
Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and
maintaining effective internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934).
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 that our internal control over financial
reporting, as such term is defined in Exchange
Act Rule 13a-15(f), was effective as of December 31, 2024.
Forvis Mazars, LLP,
an independent registered public accounting firm, has audited our consolidated
financial statements as of and
for the year ended December 31, 2024, and opined as to the effectiveness
of internal control over financial reporting at December
31, 2024, as stated in its report, which is included herein on page 129.
Remediation of Previously Reported Material Weakness
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such
that there is
a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be
prevented or detected on a timely basis. As reported in our Annual Report on
Form 10-K for the year ended December 31, 2023,
as amended (the “2023 Form 10-K”), we did not maintain effective
internal control over financial reporting as of December 31,
2023 as a result of a material weakness in our internal control over financial
reporting for the review of significant inter-company
mortgage loan sales and servicing transactions was not designed effectively.
Further, financial information obtained for certain
construction/permanent loan activity was not in sufficient detail to appropriately
classify this activity within the Statements of
Cash Flows. For more information regarding the previously identified material
weakness, please see Item 9A in the 2023 Form
10-K under the section captioned “Existence of Material Weakness
as of December 31, 2023.”
With oversight from the Audit Committee and
input from the Board of Directors, we devoted substantial resources to implement
the controls as previously disclosed in the 2023 Form 10-K under the caption
“Remediation Plan.” We
have implemented and
completed our testing of the operating effectiveness of
the Remediation Plan controls and have concluded that the material
weakness was remediated as of December 31, 2024.
Change in 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.
128
Report of Independent Registered Public Accounting Firm
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 (Company) internal
control over financial reporting as of December 31, 2024
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, 2024, based
on criteria established in
Internal Control – Integrated
Framework: (2023)
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, 2024 and 2023, and for each of the three
years in the period ended December 31, 2024, and our report dated March 11,
2025 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 consolidated
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 consolidated 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 Mazars, LLP
Little Rock, Arkansas
March 11, 2025
129
Item 9B.
Other Information
Exchange Act) adopted or
intended to satisfy the affirmative defense conditions of
Rule 10b5-1(c) under the Exchange Act or
arrangement” as defined in Item 408(c) of Regulation S-K.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
130
Part III
Item 10.
Directors, Executive Officers, and Corporate Governance
The information required by this item is incorporated herein by
reference to the Proxy Statement for the Registrant’s
2025 Annual
Meeting of Shareowners, which will be filed with the SEC no later than 120 days
after December 31, 2024.
Item 11.
Executive Compensation
The information required by this item is incorporated herein by reference
to the Proxy Statement for the Registrant’s
2025 Annual
Meeting of Shareowners, which will be filed with the SEC no later than 120 days
after December 31, 2024.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Shareowners Matters.
The information required by this item is incorporated herein by
reference to the Proxy Statement for the Registrant’s
2025 Annual
Meeting of Shareowners, which will be filed with the SEC no later than 120
days after December 31, 2024.
Item 13.
Certain Relationships and Related Transactions,
and Director Independence
The information required by this item is incorporated herein by reference
to the Proxy Statement for the Registrant’s
2025 Annual
Meeting of Shareowners, which will be filed with the SEC no later than 120 days
after December 31, 2024.
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference
to the Proxy Statement for the Registrant’s
2025 Annual
Meeting of Shareowners, which will be filed with the SEC no later than 120 days
after December 31, 2024.
131
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
2024, 2023, and 2022
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
10.4
10.5
132
10.6
19
21
23
31.1
31.2
32.1
32.2
97
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)
*
Filed electronically herewith.
Item 16.
Form 10-K Summary
None.
133
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 11, 2025, 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 11, 2025 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)
134
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 11, 2025, on
its behalf by the undersigned, thereunto duly authorized.
Directors:
/s/ Robert Antoine
/s/ Bonnie J. Davenport
/s/ Thomas A. Barron
/s/ William Eric Grant
William Eric Grant
/s/ William F.
Butler
/s/ Laura L. Johnson
/s/ Stanley W. Connally,
Jr.
/s/ John G. Sample, Jr.
/s/ Marshall M. Criser III
/s/ William G. Smith, Jr.
/s/ Kimberly A. Crowell
/s/ Ashbel C. Williams
TABLE OF CONTENTS
Part IItem 1. BusinessItem 6 Contains Other Financial and Statistical Information About UsItem 1A. Risk FactorsItem 2. PropertiesPart IIItem 1A Risk FactorsNote 3 Loans Held For Investment and Allowance For Credit Losses in The Consolidated Financial Statements Provides TheNote 1 Significant Accounting PoliciesNote 6 Premises and Equipmentthe Composition Of The Company S Premises and Equipment At December 31 Was As Follows:Note 19 Related Party TransactionsNote 9 Other Real Estate Owned The Following Table Presents Other Real Estate Owned Activity At December 31,Note 10 Depositsthe Composition Of The Company S Interest Bearing Deposits At December 31 Was As Follows:Note 11 Short-term Borrowingsshort-term Borrowings Included The Following:Note 16 Earnings Per Sharethe Following Table Sets Forth The Computation Of Basic and Diluted Earnings Per Share:Item 9A. Controls and ProceduresItem 9B. Other InformationItem 9C. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsPart IIIItem 10. Directors, Executive Officers, and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareowners MattersPart IVItem 15. Exhibits and Financial Statement SchedulesItem No. Description Of ExhibitItem 16. Form 10-k Summary