Annual report pursuant to Section 13 and 15(d)

SIGNIFICANT ACCOUNTING POLICIES

v3.24.0.1
SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2023
Significant Accounting Policies [Abstract]  
SIGNIFICANT ACCOUNTING POLICIES
Note 1
SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Capital City Bank Group, Inc. (“CCBG”) provides a full range of banking
 
and banking-related services to individual and
corporate clients through its wholly-owned subsidiary,
 
Capital City Bank (“CCB” or the “Bank” and together with CCBG, the
“Company”), with banking offices located in Florida,
 
Georgia, and Alabama.
 
The Company is subject to competition from other
financial institutions, is subject to regulation by certain government agencies
 
and undergoes periodic examinations by those
regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of CCBG
 
and CCB.
 
CCBG also maintains an insurance subsidiary,
Capital City Strategic Wealth,
 
LLC.
 
CCB has two primary subsidiaries, which are wholly owned, Capital City Trust
 
Company
and Capital City Investments. On March 1, 2020, CCB acquired a
51
% 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. The terms of the transaction included a buyout call/put option
 
for CCB to purchase the remaining
49
% of the
membership interests in CCHL (“the
49
% Interest”) that are held by BMGBMG, LLC (“BMG”). The option requires 12 months
advance notice to the other party,
 
and under the terms of the option, January 1, 2025 is the earliest date the transfer
 
of the
49
%
Interest may be completed. On December 20, 2023, BMG notified CCB that BMG will exercise
 
its put option and the transfer of
the
49
% Interest will become effective on January 1, 2025.
 
The Company, which operates
 
a single reportable business segment that is comprised of commercial banking
 
within the states of
Florida, Georgia, and Alabama, follows accounting principles generally
 
accepted in the United States of America and reporting
practices applicable to the banking industry.
 
The principles which materially affect the financial position, results of
 
operations
and cash flows are summarized below.
The Company determines whether it has a controlling financial interest in an
 
entity by first evaluating whether the entity is a
voting interest entity or a variable interest entity under accounting principles
 
generally accepted in the United States of America.
Voting
 
interest entities are entities in which the total equity investment at risk is sufficient
 
to enable the entity to finance itself
independently and provide the equity holders with the obligation to absorb losses, the
 
right to receive residual returns and the
right to make decisions about the entity’s
 
activities.
 
The Company consolidates voting interest entities in which it has all, or at
least a majority of, the voting interest.
 
As defined in applicable accounting standards, variable interest entities (“VIE’s”)
 
are
entities that lack one or more of the characteristics of a voting interest entity.
 
A controlling financial interest in an entity is
present when an enterprise has a variable interest, or a combination of variable
 
interests, that will absorb a majority of the entity’s
expected losses, receive a majority of the entity’s
 
expected residual returns, or both.
 
The enterprise with a controlling financial
interest, known as the primary beneficiary,
 
consolidates the VIE.
 
Two of CCBG’s
 
wholly owned subsidiaries, CCBG Capital
Trust I (established November 1, 2004) and
 
CCBG Capital Trust II (established May 24, 2005) are VIEs for
 
which the Company
is not the primary beneficiary.
 
Accordingly, the
 
accounts of these entities are not included in the Company’s
 
consolidated
financial statements.
Certain previously reported amounts have been reclassified to conform
 
to the current year’s presentation. 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.
Restatement of Previously Issued Consolidated Financial
 
Statements
We have restated
 
herein the Company’s Impacted Statements
 
of Cash Flows for the years ended December 31, 2021 and
December 31, 2022 and for each of the three month periods ended March
 
31, 2022 and 2023, six month periods ended June 30,
2022 and 2023 and nine month periods ended September 30, 2022 and 2023.
 
Prior Restatement Background
On December 22, 2023, the Company filed a Form 10-K/A to amend and
 
restate certain items in the 10K for the year ended
December 31, 2022 related to inter-company transactions
 
between its subsidiaries, CCHL and CCB, involving residential
mortgage loan purchases that were not properly recorded. The material impact
 
to Consolidated Statements of Income,
Consolidated Statements of Financial Condition and various key performance
 
indicators resulted in a restatement of the
Company’s financial statements for
 
the year ended December 31, 2022, and the three, six and nine months ended March 31,
 
2022
and 2023, June 30, 2022 and 2023, and September 30, 2022, respectively (collectively,
 
the “Previously Restated Financial
Statements”). As part of the Company’s
 
assessment of the misstatements noted in the Form 10-K/A filed December 22, 2023,
 
it
was concluded that the impact of the inter-company
 
loan sale and participation transactions was immaterial to the consolidated
financial statements for the year ended December 31, 2021.
 
Description of Current Misstatements
In connection with the preparation of the Company’s
 
consolidated financial statements for the year ended December 31, 2023, the
Company concluded that it had not appropriately eliminated intercompany
 
loan sale and participations transactions from the
Consolidated Statements of Cash Flows for the years ended December
 
31, 2022 and 2021 in its Previously Restated Financial
Statements. These errors led to misstatements of the following line items within
 
the Consolidated Statements of Cash Flows:
Within the Cash Flows from Operating Activities
 
section:
An overstatement of Originations of Loans Held for Sale of $
558
 
million and $
279
 
million for the years ended December
31, 2022 and 2021, respectively.
An overstatement of Proceeds from Sales of Loans Held for Sale of $
558
 
million and $
279
 
million for the years ended
December 31, 2022 and 2021, respectively.
As these misstatements offset one another within the Cash Flows from
 
Operating Activities section of the Consolidated Statement
of Cash Flows, there was no impact to the Net Cash Provided By Operating Activities
 
line item.
 
Within the Cash Flows from Investing Activities
 
section:
An overstatement of Purchases of Loans Held for Investment of $
422
 
million and $
95
 
million for the years ended
December 31, 2022 and 2021, respectively.
An understatement of Net (Increase) Decrease in Loans of $
422
 
million and $
95
 
million for the years ended December
31, 2022 and 2021, respectively.
As these misstatements offset one another within the Cash Flows Used In
 
Investing section of the Consolidated Statement of Cash
Flows, there was no impact to the Net Cash Used In Investing Activities line item.
 
The impacts of the restatement for the years ended December 31, 2022 and 2021
 
as described above are reflected in the
Consolidated Statements of Cash Flows and had no impact on the Consolidated
 
Statements of Financial Condition, Consolidated
Statements of Income, Consolidated Statements of Comprehensive Income,
 
Consolidated Statements in Changes in Shareowners’
Equity or the Notes to the Consolidated Financial Statements. The impacts of the restatement
 
for each of the quarterly periods are
presented in Note 24, Restated Quarterly Consolidated Statements of
 
Cash Flows (Unaudited).
Description of Current Restatement Tables
The following tables present the amounts previously reported and a reconciliation
 
of the restatement amounts reported on the
restated Consolidated Statement of Cash Flows for the years ended
 
December 31, 2022 and December 31, 2021. The amounts
previously reported were derived from the Company’s
 
Amended Annual Report on Form 10-K/A for the year ended December
31, 2022 and 2021, filed with the SEC on December 22, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENT
 
OF CASH FLOWS
For the Year
 
Ended December 31, 2022
(Dollars in Thousands)
As Previously
Reported
Restatement
Impact
As Restated
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income Attributable to Common Shareowners
$
33,412
$
-
$
33,412
Adjustments to Reconcile Net Income to
 
Provision for Credit Losses
7,494
-
7,494
 
Depreciation
7,596
-
7,596
 
Amortization of Premiums, Discounts, and Fees, net
7,772
-
7,772
 
Amortization of Intangible Assets
160
-
160
 
Pension Settlement Charge
2,321
-
2,321
 
Originations of Loans Held-for-Sale
(996,312)
558,485
(437,827)
 
Proceeds From Sales of Loans Held-for-Sale
1,033,844
(558,485)
475,359
 
Mortgage Banking Revenues
(11,909)
-
(11,909)
 
Net Additions for Capitalized Mortgage Servicing Rights
726
-
726
 
Stock Compensation
1,630
-
1,630
 
Net Tax Benefit From Stock-Based
 
Compensation
(27)
-
(27)
 
Deferred Income Taxes Benefit
(3,870)
-
(3,870)
 
Net Change in Operating Leases
(108)
-
(108)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(422)
-
(422)
 
Net Increase in Other Assets
(8,636)
-
(8,636)
 
Net Decrease in Other Liabilities
8,837
-
8,837
Net Cash Provided (Used In) By Operating Activities
82,508
-
82,508
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(219,865)
-
(219,865)
 
Payments, Maturities, and Calls
55,314
-
55,314
Securities Available for
 
Sale:
 
Purchases
(52,238)
-
(52,238)
 
Proceeds from Sale of Securities
3,365
-
3,365
 
Payments, Maturities, and Calls
81,596
-
81,596
Purchase of loans held for investment
(438,415)
421,662
(16,753)
Net Increase in Loans Held for Investment
(184,349)
(421,662)
(606,011)
Proceeds From Sales of Other Real Estate Owned
2,406
-
2,406
Purchases of Premises and Equipment, net
(6,322)
-
(6,322)
Noncontrolling interest contributions received
2,867
-
2,867
Net Cash Used In Investing Activities
(755,641)
-
(755,641)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
226,455
-
226,455
Net Increase in Other Short-Term
 
Borrowings
22,114
-
22,114
Repayment of Other Long-Term
 
Borrowings
(249)
-
(249)
Dividends Paid
(11,191)
-
(11,191)
Issuance of Common Stock Under Compensation Plans
1,300
-
1,300
Net Cash Provided By Financing Activities
238,429
-
238,429
NET DECREASE IN CASH AND CASH EQUIVALENTS
(434,704)
-
(434,704)
Cash and Cash Equivalents at Beginning of Period
 
1,035,354
-
1,035,354
Cash and Cash Equivalents at End of Period
 
$
600,650
$
-
$
600,650
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
6,586
$
-
$
6,586
 
Income Taxes Paid
$
7,466
$
-
$
7,466
Noncash Investing and Financing Activities:
 
Loans and Premises Transferred to Other Real Estate Owned
$
2,398
$
-
$
2,398
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL CITY BANK
 
GROUP,
 
INC.
CONSOLIDATED STATEMENT
 
OF CASH FLOWS
For the Year
 
Ended December 31, 2021
(Dollars in Thousands)
As Previously
Reported
Restatement
Impact
As Restated
CASH FLOWS FROM OPERATING
 
ACTIVITIES
Net Income Attributable to Common Shareowners
$
33,396
$
-
$
33,396
Adjustments to Reconcile Net Income to
 
Provision for Credit Losses
(1,553)
-
(1,553)
 
Depreciation
7,607
-
7,607
 
Amortization of Premiums, Discounts, and Fees, net
14,072
-
14,072
 
Amortization of Intangible Assets
107
-
107
 
Pension Settlement Charge
3,072
-
3,072
 
Originations of Loans Held-for-Sale
(1,541,356)
278,610
(1,262,746)
 
Proceeds From Sales of Loans Held-for-Sale
1,655,288
(278,610)
1,376,678
 
Mortgage Banking Revenues
(52,425)
-
(52,425)
 
Net Additions for Capitalized Mortgage Servicing Rights
72
-
72
 
Change in Valuation
 
Provision for Mortgage Servicing Rights
(250)
-
(250)
 
Stock Compensation
843
-
843
 
Net Tax Benefit From Stock-Based
 
Compensation
(4)
-
(4)
 
Deferred Income Taxes Benefit
(4,157)
-
(4,157)
 
Net Change in Operating Leases
(165)
-
(165)
 
Net Gain on Sales and Write-Downs of Other Real Estate Owned
(1,662)
-
(1,662)
 
Net Decrease in Other Assets
10,885
-
10,885
 
Net Decrease in Other Liabilities
(7,846)
-
(7,846)
Net Cash Provided By Operating Activities
115,924
-
115,924
CASH FLOWS FROM INVESTING ACTIVITIES
Securities Held to Maturity:
 
Purchases
(251,525)
-
(251,525)
 
Payments, Maturities, and Calls
78,544
-
78,544
Securities Available for
 
Sale:
 
Purchases
(523,961)
-
(523,961)
 
Proceeds from Sale of Securities
495
-
495
 
Payments, Maturities, and Calls
178,425
-
178,425
Purchase of loans held for investment
(114,913)
94,704
(20,209)
Net Decrease in Loans Held for Investment
183,249
(94,704)
88,545
Net Cash Paid for Acquisitions
(4,482)
-
(4,482)
Proceeds From Sales of Other Real Estate Owned
4,502
-
4,502
Purchases of Premises and Equipment, net
(5,193)
-
(5,193)
Noncontrolling interest contributions received
7,139
-
7,139
Net Cash Used In Investing Activities
(447,720)
-
(447,720)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits
495,302
-
495,302
Net Decrease
 
in Other Short-Term
 
Borrowings
(45,938)
-
(45,938)
Repayment of Other Long-Term
 
Borrowings
(1,332)
-
(1,332)
Dividends Paid
(10,459)
-
(10,459)
Issuance of Common Stock Under Compensation Plans
1,028
-
1,028
Net Cash Provided By Financing Activities
438,601
-
438,601
NET DECREASE IN CASH AND CASH EQUIVALENTS
106,805
-
106,805
Cash and Cash Equivalents at Beginning of Period
 
928,549
-
928,549
Cash and Cash Equivalents at End of Period
 
$
1,035,354
$
-
$
1,035,354
Supplemental Cash Flow Disclosures:
 
Interest Paid
$
3,547
$
-
$
3,547
 
Income Taxes Paid
$
16,339
$
-
$
16,339
Noncash Investing and Financing Activities:
 
Loans and Premises Transferred to Other Real Estate Owned
$
1,717
$
-
$
1,717
The accompanying Notes to Consolidated Financial Statements are
 
an integral part of these statements.
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 is required to maintain average reserve balances with the Federal Reserve Bank
 
based upon a
percentage of deposits.
 
On March 26, 2020, the Federal Reserve reduced the amount of the required reserve balance
 
to
zero
.
 
The Company maintains certain cash balances that are restricted under warehouse
 
lines of credit and master repurchase
agreements.
 
The restricted cash balance at December 31, 2023 was $
0.1
 
million.
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
 
segments
 
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.
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.
 
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.
 
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the
 
loans’ amortized cost basis to present the net
amount expected to be collected on the loans.
 
The allowance for credit losses is adjusted by a credit loss provision which is
reported in earnings, and reduced by the charge-off
 
of loan amounts, net of recoveries.
 
Loans are charged off against the
allowance when management believes the uncollectability of a loan balance
 
is confirmed.
 
Expected recoveries do not exceed the
aggregate of amounts previously charged-off
 
and expected to be charged-off.
 
Expected credit loss inherent in non-cancellable
off-balance sheet credit exposures is provided for through the credit
 
loss provision, but recorded separately in other liabilities.
Management estimates the allowance balance using relevant available information,
 
from internal and external sources, relating to
past events, current conditions, and reasonable and supportable forecasts.
 
Historical loan default and loss experience provides the
basis for the estimation of expected credit losses.
 
Adjustments to historical loss information incorporate management’s
 
view of
current conditions and forecasts.
 
The methodology for estimating the amount of credit losses reported in the
 
allowance for credit losses has two basic components:
first, an asset-specific component involving loans that do not share risk characteristics
 
and the measurement of expected credit
losses for such individual loans; and second, a pooled component for expected
 
credit losses for pools of loans that share similar
risk characteristics.
 
Loans That Do Not Share Risk Characteristics (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.
In developing loss rates, adjustments are made to incorporate the impact of forecasted
 
conditions.
 
Certain assumptions are also
applied, including the length of the forecast and reversion periods.
 
The forecast period is the period within which management is
able to make a reasonable and supportable assessment of future conditions.
 
The reversion period is the period beyond which
management believes it can develop a reasonable and supportable forecast,
 
and bridges the gap between the forecast period and
the use of historical default and loss rates.
 
The remainder period reflects the remaining life of the loan.
 
The length of the forecast
and reversion periods are periodically evaluated and based on management’s
 
assessment of current and forecasted conditions and
may vary by loan pool.
 
For purposes of developing a reasonable and supportable assessment
 
of future conditions, management
utilizes established industry and economic data points and sources,
 
including the Federal Open Market Committee forecast, with
the forecasted unemployment rate being a significant factor.
 
PD rates for the forecast period will be adjusted accordingly based
on management’s assessment of
 
future conditions.
 
PD rates for the remainder period will reflect the historical mean PD rate.
 
Reversion period PD rates reflect the difference between forecast
 
and remainder period PD rates calculated using a straight-line
adjustment over the reversion period.
 
Loss rates are further adjusted to account for other risk factors that impact loan defaults
 
and losses.
 
These adjustments are based
on management’s assessment of
 
trends and conditions that impact credit risk and resulting credit losses, more
 
specifically internal
and external factors that are independent of and not reflected in the quantitative
 
loss rate calculations.
 
Risk factors management
considers in this assessment include trends in underwriting standards,
 
nature/volume/terms of loan originations, past due loans,
loan review systems, collateral valuations, concentrations, legal/regulatory/political
 
conditions, and the unforeseen impact of
natural disasters.
Allowance for Credit Losses on Off-Balance
 
Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period
 
in which it is exposed to credit risk through a
contractual obligation to extend credit, unless that obligation is unconditionally
 
cancellable by the Company.
 
The allowance for
credit losses on off-balance sheet credit exposures is adjusted as a provision
 
for credit loss expense and is recorded in other
liabilities.
 
The estimate includes consideration of the likelihood that funding will occur
 
and an estimate of expected credit losses
on commitments expected to be funded over its estimated life and applies the same
 
estimated loss rate as determined for current
outstanding loan balances by segment.
 
Off-balance sheet credit exposures are identified and classified in the same categories as
the allowance for credit losses with similar risk characteristics that have been previously
 
mentioned.
Mortgage Banking Activities
Mortgage Loans Held for Sale and Revenue Recognition
Mortgage loans held for sale (“HFS”) are carried at fair value under the fair value
 
option with changes in fair value recorded in
mortgage banking revenues on the Consolidated Statements of
 
Income. The fair value of mortgage loans held for sale committed
to investors is calculated using observable market information such
 
as the investor commitment, assignment of trade or other
mandatory delivery commitment prices. The Company bases loans committed
 
to Federal National Mortgage Association
(“FNMA”), Government National Mortgage Association (“GNMA”), and
 
Federal Home Loan Mortgage Corporation
(“FHLMC”) (“Agency”) investors based on the Agency’s
 
quoted mortgage backed security (“MBS”) prices. The fair value of
mortgage loans held for sale not committed to investors is based on quoted best execution
 
secondary market prices. If no such
quoted price exists, the fair value is determined using quoted prices for
 
a similar asset or assets, such as MBS prices, adjusted for
the specific attributes of that loan, which would be used by other market
 
participants.
Gains and losses from the sale of mortgage loans held for sale are recognized based upon
 
the difference between the sales
proceeds and carrying value of the related loans upon sale and are recorded
 
in mortgage banking revenues on the Consolidated
Statements of Income. Sales proceeds reflect the cash received from investors
 
through the sale of the loan and servicing release
premium. If the related mortgage loan is sold with servicing retained, the
 
MSR addition is recorded in mortgage banking revenues
on the Consolidated Statements of Income.
 
Mortgage banking revenues also includes the unrealized gains and losses associated
with the changes in the fair value of mortgage loans held for sale, and the realized and
 
unrealized gains and losses from derivative
instruments.
Mortgage loans held for sale are considered sold when the Company surrenders
 
control over the financial assets. Control is
considered to have been surrendered when the transferred assets have been
 
isolated from the Company, beyond
 
the reach of the
Company and its creditors; the purchaser obtains the right (free of conditions that
 
constrain it from taking advantage of that right)
to pledge or exchange the transferred assets; and the Company does not
 
maintain effective control over the transferred assets
through either an agreement that both entitles and obligates the Company
 
to repurchase or redeem the transferred assets before
their maturity or the ability to unilaterally cause the holder to return specific
 
assets. The Company typically considers the above
criteria to have been met upon acceptance and receipt of sales proceeds
 
from the purchaser.
Government National Mortgage Association (“GNMA”) optional
 
repurchase programs allow financial institutions to buy back
individual delinquent mortgage loans that meet certain criteria from
 
the securitized loan pool for which the institution provides
servicing.
 
At the servicer’s option and without GNMA’s
 
prior authorization, the servicer may repurchase such a delinquent loan
for an amount equal to 100 percent of the remaining principal balance of
 
the loan.
 
Under FASB ASC Topic
 
860, “Transfers and
Servicing,” this buy-back option is considered a conditional option until
 
the delinquency criteria are met, at which time the option
becomes unconditional.
 
When the Company is deemed to have regained effective control over
 
these loans under the
unconditional buy-back option, the loans can no longer be reported
 
as sold and must be brought back onto the Consolidated
Statement of Financial Condition, regardless of whether there is intent to exercise
 
the buy-back option.
 
These loans are reported
in other assets with the offsetting liability being reported
 
in other liabilities.
 
Derivative Instruments (IRLC/Forward Commitments)
The Company holds and issues derivative financial instruments such as interest rate
 
lock commitments (“IRLCs”) and other
forward sale commitments. IRLCs are subject to price risk primarily related
 
to fluctuations in market interest rates. To
 
hedge the
interest rate risk on certain IRLCs, the Company uses forward sale commitments,
 
such as to-be-announced securities (“TBAs”) or
mandatory delivery commitments with investors. Management expects
 
these forward sale commitments to experience changes in
fair value opposite to the changes in fair value of the IRLCs thereby reducing
 
earnings volatility. Forward
 
sale commitments are
also used to hedge the interest rate risk on mortgage loans held for sale that are not
 
committed to investors and still subject to
price risk. If the mandatory delivery commitments are not fulfilled, the Company
 
pays a pair-off fee. Best effort
 
forward sale
commitments are also executed with investors, whereby certain loans
 
are locked with a borrower and simultaneously committed
to an investor at a fixed price. If the best effort IRLC does not fund,
 
there is no obligation to fulfill the investor commitment.
The Company considers various factors and strategies in determining
 
what portion of the IRLCs and uncommitted mortgage loans
held for sale to economically hedge.
 
All derivative instruments are recognized as other assets or other liabilities
 
on the
Consolidated Statements of Financial Condition at their fair value.
 
Changes in the fair value of the derivative instruments are
recognized in mortgage banking revenues on the Consolidated Statements
 
of Income in the period in which they occur.
 
Gains and
losses resulting from the pairing-out of forward sale commitments are recognized
 
in mortgage banking revenues on the
Consolidated Statements of Income. The Company accounts for all derivative
 
instruments as free-standing derivative instruments
and does not designate any for hedge accounting.
Mortgage Servicing Rights (“MSRs”) and Revenue Recognition
 
The Company sells residential mortgage loans in the secondary market and may
 
retain the right to service the loans sold. Upon
sale, an MSR asset is capitalized, which represents the then current fair value of
 
future net cash flows expected to be realized for
performing servicing activities.
 
As the Company has not elected to subsequently measure any class of servicing
 
assets under the
fair value measurement method, the Company follows the amortization method.
 
MSRs are amortized to noninterest income
(other income) in proportion to and over the period of estimated net servicing
 
income, and are assessed for impairment at each
reporting date.
 
MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization,
 
or estimated fair
value, and included in other assets, net, on the Consolidated Statements of
 
Financial Condition.
 
The Company periodically evaluates its MSRs asset for impairment.
 
Impairment is assessed based on fair value at each reporting
date using estimated prepayment speeds of the underlying mortgage
 
loans serviced and stratifications based on the risk
characteristics of the underlying loans (predominantly loan type and note
 
interest rate).
 
As mortgage interest rates fall,
prepayment speeds are usually faster and the value of the MSRs asset generally
 
decreases, requiring additional valuation reserve.
 
Conversely, as mortgage
 
interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally
increases, requiring less valuation reserve.
 
A valuation allowance is established, through a charge to earnings, to
 
the extent the
amortized cost of the MSRs exceeds the estimated fair value by stratification.
 
If it is later determined that all or a portion of the
temporary impairment no longer exists for a stratification, the valuation
 
is reduced through a recovery to earnings.
 
An other-than-
temporary impairment (i.e., recoverability is considered remote when
 
considering interest rates and loan pay off activity) is
recognized as a write-down of the MSRs asset and the related valuation allowance
 
(to the extent a valuation allowance is
available) and then against earnings.
 
A direct write-down permanently reduces the carrying value of the MSRs asset and
valuation allowance, precluding subsequent recoveries.
Derivative/Hedging Activities
At the inception of a derivative contract, the Company designates the derivative
 
as one of three types based on the Company’s
intentions and belief as to the likely effectiveness as a hedge. These three
 
types are (1) a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (“fair value
 
hedge”), (2) a hedge of a forecasted transaction or the
variability of cash flows to be received or paid related to a recognized
 
asset or liability (“cash flow hedge”), or (3) an instrument
with no hedging designation (“standalone derivative”). For a fair value hedge,
 
the gain or loss on the derivative, as well as the
offsetting loss or gain on the hedged item, are recognized
 
in current earnings as fair values change. For a cash flow hedge, the
gain or loss on the derivative is reported in other comprehensive income and is reclassified
 
into earnings in the same periods
during which the hedged transaction affects earnings. For
 
both types of hedges, changes in the fair value of derivatives that are
not highly effective in hedging the changes in fair value or expected
 
cash flows of the hedged item are recognized immediately in
current earnings. Net cash settlements on derivatives that qualify for hedge
 
accounting are recorded in interest income or interest
expense, based on the item being hedged. Net cash settlements on derivatives
 
that do not qualify for hedge accounting are
reported in non-interest income. Cash flows on hedges are classified in the cash flow
 
statement the same as the cash flows of the
items being hedged.
The Company formally documents the relationship between derivatives
 
and hedged items, as well as the risk-management
objective and the strategy for undertaking hedge transactions at the inception
 
of the hedging relationship. This documentation
includes linking fair value or cash flow hedges to specific assets and liabilities on the
 
Consolidated Statement of Financial
Condition or to specific firm commitments or forecasted transactions. The Company
 
also formally assesses, both at the hedge’s
inception and on an ongoing basis, whether the derivative instruments that are used
 
are highly effective in offsetting changes in
fair values or cash flows of the hedged items. The Company discontinues hedge
 
accounting when it determines that the derivative
is no longer effective in offsetting changes in the
 
fair value or cash flows of the hedged item, the derivative is settled or
terminates, a hedged forecasted transaction is no longer probable, a hedged
 
firm commitment is no longer firm, or treatment of the
derivative as a hedge is no longer appropriate or intended. When hedge accounting
 
is discontinued, subsequent changes in fair
value of the derivative are recorded as non-interest income. When a fair
 
value hedge is discontinued, the hedged asset or liability
is no longer adjusted for changes in fair value and the existing basis adjustment is amortized
 
or accreted over the remaining life of
the asset or liability. When
 
a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are
 
still
expected to occur, gains or losses that were accumulated
 
in other comprehensive income are amortized into earnings over the
same periods, in which the hedged transactions will affect earnings.
Long-Lived Assets
Premises and equipment is stated at cost less accumulated depreciation,
 
computed on the straight-line method over the estimated
useful lives for each type of asset with premises being depreciated over
 
a range of
10
 
to
40
 
years, and equipment being
depreciated over a range of
3
 
to
10
 
years.
 
Additions, renovations and leasehold improvements to premises are capitalized and
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.
Bank Owned Life Insurance
 
The Company, through
 
its subsidiary bank, has purchased life insurance policies on certain key officers.
 
Bank owned life
insurance is recorded at the amount that can be realized under the insurance contract
 
at the statement of financial condition date,
which is the cash surrender value adjusted for other charges or
 
other amounts due that are probable at settlement.
Goodwill and Other Intangibles
Goodwill represents the excess of the cost of businesses acquired over the fair
 
value of the net assets acquired.
 
In accordance
with FASB ASC Topic
 
350, the Company determined it has one goodwill reporting unit.
 
Goodwill is tested for impairment
annually during the fourth quarter or on an interim basis if an event occurs
 
or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its carrying value.
 
Other intangible assets relate to customer intangibles
purchased as part of a business acquisition.
 
Intangible assets are tested for impairment at least annually or whenever changes in
circumstances indicate the carrying amount of the assets may not
 
be recoverable from future undiscounted cash flows.
 
See Note 8
– Goodwill and Other Intangibles for additional information
.
 
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are
 
initially recorded at the lower of cost or fair value
less estimated selling costs, establishing a new cost basis.
 
Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair value
 
less cost to sell.
 
The valuation of foreclosed
assets is subjective in nature and may be adjusted in the future because of changes in economic
 
conditions.
 
Revenue and
expenses from operations and changes in value are included in noninterest
 
expense.
 
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary
 
course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
 
See Note 21 – Commitments and
Contingencies for additional information.
Noncontrolling Interest
To the extent
 
the Company’s interest in a consolidated
 
entity represents less than 100% of the entity’s
 
equity, the Company
recognizes noncontrolling interests in subsidiaries.
 
In the case of the CCHL acquisition, the noncontrolling interest represents
equity which is redeemable or convertible for cash at the option of the equity holder
 
and is classified within temporary equity in
the mezzanine section of the Consolidated Statements of Financial
 
Condition.
 
The call/put option is redeemable at the option of
either CCBG (call) or the noncontrolling interest holder (put) on or
 
after January 1, 2025, and therefore, not entirely within
CCBG’s control.
 
The subsidiary’s net income or loss and
 
related dividends are allocated to CCBG and the noncontrolling interest
holder based on their relative ownership percentages.
 
The noncontrolling interest carrying value is adjusted on a quarterly basis
to the higher of the carrying value or current redemption value, at the Statement
 
of Financial Condition date, through a
corresponding adjustment to retained earnings.
 
The redemption value is calculated quarterly and is based on the higher of a
predetermined book value or pre-tax earnings multiple.
 
To the extent the redemption
 
value exceeds the fair value of the
noncontrolling interest, the Company’s
 
earnings per share attributable to common shareowners is adjusted by that
 
amount.
 
The
Company uses an independent valuation expert to assist in estimating the fair value
 
of the noncontrolling interest using: 1) the
discounted cash flow methodology under the income approach, and (2)
 
the guideline public company methodology under the
market approach.
 
The estimated fair value is derived from equally weighting the result of each of the two methodologies.
 
The
estimation of the fair value includes significant assumptions concerning:
 
(1) projected loan volumes; (2) projected pre-tax profit
margins; (3) tax rates and (4) discount rates.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable
 
and the change in deferred tax assets and
liabilities (excluding deferred tax assets and liabilities related to business
 
combinations or components of other comprehensive
income).
 
Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences
 
between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax
 
rates.
 
A valuation allowance, if needed, reduces
deferred tax assets to the expected amount most likely to be realized.
 
Realization of deferred tax assets is dependent upon the
generation of a sufficient level of future taxable income and recoverable
 
taxes paid in prior years.
 
The income tax effects related
to settlements of share-based payment awards are reported in earnings as an
 
increase or decrease in income tax expense.
 
The Company files a consolidated federal income tax return and a separate
 
federal tax return for CCHL. Each subsidiary files a
separate state income tax return.
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.
Revenue Recognition
FASB ASC Topic
 
606, Revenue from Contracts with Customers (“ASC 606”), establishes principles
 
for reporting information
about the nature, amount, timing and uncertainty of revenue and cash flows
 
arising from the entity’s contracts to provide goods
 
or
services to customers. The core principle requires an entity to recognize revenue
 
to depict the transfer of goods or services to
customers in an amount that reflects the consideration that it expects to be entitled
 
to receive in exchange for those goods or
services recognized as performance obligations are satisfied.
The majority of the Company’s revenue
 
-generating transactions are not subject to ASC 606, including revenue generated
 
from
financial instruments, such as our loans, letters of credit, and investment securities,
 
and revenue related to the sale of residential
mortgages in the secondary market, as these activities are subject to other
 
GAAP discussed elsewhere within our disclosures.
 
The
Company recognizes revenue from these activities as it is earned based on
 
contractual terms, as transactions occur, or as services
are provided and collectability is reasonably assured.
 
Descriptions of the major revenue-generating activities that are within the
scope of ASC 606, which are presented in the accompanying Consolidated
 
Statements of Income as components of non-interest
income are as follows:
Deposit Fees - these represent general service fees for monthly account maintenance
 
and activity- or transaction-based fees and
consist of transaction-based revenue, time-based revenue (service period),
 
item-based revenue or some other individual attribute-
based revenue.
 
Revenue is recognized when the Company’s performance
 
obligation is completed which is generally monthly for
account maintenance services or when a transaction has been completed.
 
Payment for such performance obligations are generally
received at the time the performance obligations are satisfied.
Wealth Management
 
- trust fees and retail brokerage fees – trust fees represent monthly fees due from wealth
 
management clients
as consideration for managing the client’s
 
assets. Trust services include custody of assets, investment
 
management, fees for trust
services and similar fiduciary activities. Revenue is recognized when the Company’s
 
performance obligation is completed each
month or quarter, which is the time that payment is received.
 
Also, retail brokerage fees are received from a third-party broker-
dealer, for which the Company acts as an agent,
 
as part of a revenue-sharing agreement for fees earned from
 
customers that are
referred to the third party.
 
These fees are for transactional and advisory services and are paid by the third party on a monthly
basis and recognized ratably throughout the quarter as the Company’s
 
performance obligation is satisfied.
Bank Card Fees – bank card related fees primarily includes interchange
 
income from client use of consumer and business debit
cards.
 
Interchange income is a fee paid by a merchant bank to the card-issuing bank through
 
the interchange network.
 
Interchange fees are set by the credit card associations and are based on cardholder purchase volumes.
 
The Company records
interchange income as transactions occur.
Gains and Losses from the Sale of Bank Owned Property – the performance
 
obligation in the sale of other real estate owned
typically will be the delivery of control over the property to the buyer.
 
If the Company is not providing the financing of the sale,
the transaction price is typically identified in the purchase and sale agreement.
 
However, if the Company provides seller
financing, the Company must determine a transaction price, depending
 
on if the sale contract is at market terms and taking into
account the credit risk inherent in the arrangement.
 
Insurance Commissions – insurance commissions recorded by the
 
Company are received from various insurance carriers based on
contractual agreements to sell policies to customers on behalf of the carriers.
 
The performance obligation for the Company is to
sell life and health insurance policies to customers.
 
This performance obligation is met when a new policy is sold (effective
 
date)
or when an existing policy renews. New policies and renewals generally have
 
a one-year term. In the agreements with the
insurance carriers, a commission rate is agreed upon. The commission is recognized
 
at the time of the sale of the policy (effective
date) or when a policy renews.
 
Insurance commissions are recorded within other noninterest income.
 
Other non-interest income primarily includes items such as mortgage
 
banking fees (gains from the sale of residential mortgage
loans held for sale), bank-owned life insurance, and safe deposit box fees,
 
none of which are subject to the requirements of ASC
606.
The Company has made no significant judgments in applying the revenue guidance
 
prescribed in ASC 606 that affects the
determination of the amount and timing of revenue from the above-described
 
contracts with clients.
Recently Adopted Accounting Pronouncements
Accounting Standards Update (“ASU”)
 
2022-02, “Financial Instruments – Credit Losses
 
(Topic
 
326): Troubled
 
Debt
Restructurings and Vintage
 
Disclosures”.
The amendments eliminate the accounting guidance for troubled debt restructurings
 
by
creditors that have adopted the CECL model and enhance the disclosure requirements
 
for loan modifications and restructurings
made with borrowers experiencing financial difficulty.
 
In addition, the amendments require disclosure of current-period gross
write-offs for financing receivables and net investment
 
in leases by year of origination in the vintage disclosures.
 
The
amendments in this update are for fiscal years beginning after December
 
15, 2022, including interim periods within those fiscal
years.
 
The Company adopted ASU 2022-02 using the prospective approach and the adoption of the standard
 
did not have a
material impact on its consolidated financial statements.
 
Issued But Not Yet
 
Effective Accounting Standards
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. ASU 2023-01 will be
effective for the Company on January 1, 2024, though early adoption
 
is permitted. The Company is evaluating the effect that ASU
2023-02 will have 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. ASU 2023-02
will be effective for the Company on January 1, 2024, though
 
early adoption is permitted. The Company is evaluating the effect
that ASU 2023-02 will have on its consolidated financial statements and related disclosures.
 
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.