Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Note 1
Nature of Operations
Capital City Bank Group, Inc. (“CCBG”) provides
a full range of banking and banking-related services to individual
corporate clients through its subsidiary,
Capital City Bank, with banking offices located in Florida,
Georgia, and Alabama.
Company is subject to competition from other financial
institutions, is subject to regulation by certain government agencies and
undergoes periodic examinations by those regulatory
Basis of Presentation
The consolidated financial statements include the
accounts of CCBG and its wholly owned subsidiary,
Capital City Bank (“CCB”
or the “Bank” and together with CCBG, the “Company
All material inter-company transactions and accounts have
eliminated in consolidation.
The Company, which
operates a single reportable business segment that is comprised
of commercial banking within the states of
Florida, Georgia, and Alabama, follows accounting
principles generally accepted in the United States of America and
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
interest entities are entities in which the total equity investment
at risk is sufficient to enable the entity to finance
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
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
financial statements.
Certain previously reported amounts have been reclassified to
conform to the current year’s presentation.
The Company has
evaluated subsequent events for potential recognition
and/or disclosure through the date the consolidated financial
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 loan losses, pension
income taxes, loss contingencies, valuation of other real
estate owned, and valuation of goodwill and their respective
analysis of
Business Combination
On March 1, 2020, CCB completed its acquisition of
% membership interest in
Brand Mortgage Group, LLC
which is now operated as Capital City Home Loans (“CCHL”).
CCHL was consolidated into CCBG’s financial
effective March 1, 2020.
Assets acquired totaled $
million (consisting primarily of loans held for sale)
and liabilities assumed
totaled $
million (consisting primarily of warehouse line borrowings).
The primary reasons for the acquisition and strategic
alliance with Brand was to gain access to an expanded residential
mortgage product line-up and investor base (including
mandatory delivery channel for loan sales), to hedge
our net interest income business and to generate other
operational synergies
and cost savings.
CCB made a $
million cash payment for its
% membership interest and entered into a buyout agreement
for the remaining
% noncontrolling interest resulting in temporary equity with a fair
value of $
Goodwill totaling
million was recorded in connection with this acquisition.
Factors that contributed to the purchase price resulting in goodwill
include Brand’s strong
management team and expertise in the mortgage industry,
historical record of earnings, and operational
synergies created as part of the strategic alliance.
At December 31, 2020, $
million was reclassified from permanent equity to
temporary equity which reflects the increase in the
redemption value of the
% noncontrolling interest under the terms of the
buyout agreement.
Adoption of New Accounting Standard
On January 1, 2020, the Company adopted ASU 2016
Financial Instruments – Credit Losses (Topic
326): Measurement of
Credit Losses on Financial Instruments
, which replaces the incurred loss methodology
with an expected loss methodology that is
referred to as the current expected credit loss (“CECL”) methodology.
The measurement of expected credit losses under the
CECL methodology is applicable to financial assets measured
at amortized cost, including loan receivables and held-to-maturity
debt securities.
It also applies to off-balance sheet credit exposures not
accounted for as insurance (loan commitments, standby
letters of credit, financial guarantees, and other similar
In addition, ASC 326-30 provides a new credit loss model
for available-for-sale debt securities.
The most significant change requires credit losses to be presented
as an allowance rather
than as a write-down on available-for-sale debt
securities that management does not intend to sell or believes
that it is not more
likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective
method for all
financial assets measured at amortized cost and off
-balance sheet credit exposures.
Our accounting policies changed significantly with the
adoption of CECL on January 1, 2020.
Prior to January 1, 2020,
allowances were based on incurred credit losses in accordance
with accounting policies disclosed in Note 1 of the Consolidated
Financial Statements included in the 2019 Form 10-K.
The adoption of ASC 326 (“CECL”) had an impact of $
million ($
million increase in the allowance for credit losses and
million increase in the allowance for unfunded loan commitments
(liability account)) that was offset by a corresponding
decrease in retained earnings of $
million and $
million increase in
deferred tax assets.
The increase in the allowance for credit losses required
under the ASC 326 generally reflected the impact of
reserves calculated over the life of loan, and more specifically
higher reserves required for longer duration loan portfolios,
and the
utilization of a longer historical look-back period
in the calculation of loan loss rates (loss given default).
Upon analyzing the
debt security portfolios, the Company determined that
no allowance was required as these debt securities are government
guaranteed treasuries or government agency-backed
securities for which the risk of loss was deemed minimal.
Further, certain
municipal debt securities held by the Company have been
pre-refunded and secured by government guaranteed treasuries.
The following table illustrates the impact of adopting
ASC 326 on January 1, 2020.
As Reported
Impact of
Pre-ASC 326
ASC 326
(Dollars in Thousands)
ASC 326
Commercial, Financial and Agricultural
Real Estate - Construction
Real Estate - Commercial Mortgage
Real Estate - Residential
Real Estate - Home Equity
Consumer, Other Loans and
Allowance for Credit Losses on Loans
Other Liabilities:
Allowance for Credit Losses on Off-Balance Sheet
Credit Exposures
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks,
interest-bearing deposits in other banks, and federal
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
average amount of the required reserve balance for
the year ended December 31, 2019 was $
The Company maintains certain cash balances that are
restricted under warehouse lines of credit and master
The restricted cash balance at December 31, 2020 was $
Investment Securities
Investment securities are classified as held-to-maturity
and carried at amortized cost when the Company has the positive
and ability to hold them until maturity.
Investment securities not classified as held-to-maturity or trading securities
are classified
as available-for-sale and carried at fair value.
The Company determines the appropriate classification of securities
at the time of
For reporting and risk management purposes, we further
segment investment securities by the issuer of the security
which correlates to its risk profile: U.S. government treasury,
U.S. government agency,
state and political subdivisions, and
mortgage-backed securities.
Certain equity securities with limited marketability,
such as stock in the Federal Reserve Bank and
the Federal Home Loan Bank, are classified as available
-for-sale and carried at cost.
Interest income includes amortization and accretion
of purchase premiums and discounts.
Realized gains and losses are derived
from the amortized cost of the security sold.
Gains and losses on the sale of securities are recorded on the
trade date and are
determined using the specific identification method.
Securities transferred from available-for-sale to
held-to-maturity are
recorded at amortized cost plus or minus any unrealized
gain or loss at the time of transfer.
Any existing unrecognized gain or
loss continues to be reported in accumulated other
comprehensive income (net of tax) and amortized as an adjustment
to interest
income over the remaining life of the security.
Any existing allowance for credit loss is reversed at the time
of transfer.
Subsequent to transfer, the
allowance for credit losses on the transferred security is evaluated in
accordance with the accounting
policy for held-to-maturity securities.
Additionally, any
allowance amounts reversed or established as part of the transfer
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.
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 an available
-for-sale 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
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
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
Unrealized gains on available-for-sale securities are
excluded from earnings and reported, net of tax, in other
income (“OCI”).
For available-for-sale securities that are in an unrealized loss position,
the Company first assesses whether it
intends to sell, or whether it is more likely than not it will
be required to sell the security before recovery of its amortized
If either of the criteria regarding intent or requirement to
sell is met, the security’s amortized
cost basis is written down to
fair value through income.
For available-for-sale securities that do not meet
the aforementioned criteria or have a zero loss
assumption, the Company evaluates whether the decline
in fair value has resulted from credit losses or other factors.
In making
this assessment, management considers the extent
to which fair value is less than amortized cost, any changes
to the rating of the
security by a rating agency,
and adverse conditions specifically related to the security,
among other factors.
If the assessment
indicates that a credit loss exists, the present value
of cash flows to be collected from the security are compared
to the amortized
cost basis of the security.
If the present value of cash flows expected to be collected
is less than the amortized cost basis, a credit
loss exists and an allowance for credit losses is recorded through
a provision for credit loss expense, limited by the amount that
fair value is less than the amortized cost basis.
Any impairment that has not been recorded through an
allowance for credit losses
is recognized in other comprehensive income.
Allowance for Credit Losses - Held-to-Maturity
Management measures expected credit losses on each
individual held-to-maturity debt security that has not been deemed to
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.
accrual of interest is generally suspended on loans more
than 90 days past due with respect to principal or interest.
When a loan is
placed on nonaccrual status, all previously accrued
and uncollected interest is reversed against current income and thus
a policy
election has been made to not include in the estimate of
credit losses.
Interest income on nonaccrual loans is recognized when
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 (FFIEC)
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
The Company has adopted comprehensive lending policies,
underwriting standards and loan review procedures designed
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 accounted
for as a separate liability included 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
Historical loan default and loss experience provides the
starting basis for the estimation of expected credit losses.
Adjustments to historical loss information incorporate
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
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
For collateral dependent loans where foreclosure is not probable,
the Company has elected the practical expedient allowed
by ASC 326-20 to measure the expected credit loss under
the same approach as those loans where foreclosure is probable.
loans with balances greater than $
the fair value of the collateral is obtained through independent appraisal
of the
underlying collateral.
For loans with balances less than $
, the Company has made a policy election to measure expected
loss for these individual loans utilizing loss rates for similar
loan types.
The aforementioned measurement criteria are applied for
collateral dependent troubled debt restructurings.
Loans That Share Similar Risk Characteristics
(Pooled Loans)
The general steps in determining expected credit losses for
the pooled loan component of the allowance are as follows:
Segment loans into pools according to similar risk characteristics
Develop historical loss rates for each loan pool segment
Incorporate the impact of forecasts
Incorporate the impact of other qualitative factors
Calculate and review pool specific allowance for credit loss estimate
Methodology –
A discounted cash flow (“DCF”) methodology is utilized
to calculate expected cash flows for the life of each individual
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 probabil
ity 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
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.
Forecast Factors –
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
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
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
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.
Qualitative Factors –
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
loan 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
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
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
gain on sale of mortgage loans held for sale on the consolidated
statements of income. The fair value of mortgage loans held
sale committed to investors is calculated using observable
market information such as the investor commitment, assignment of
trade (AOT) or other mandatory delivery commitment prices.
The Company bases loans committed to 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
premium. If the related mortgage loan is sold 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
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
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 balance sheet,
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
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
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
to an investor at a fixed price. If the best effort
IRLC does not fund, there is no obligation to fulfill the investor
The Company considers various factors and strategies in
determining what portion of the IRLCs and uncommitted mortgage
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
recognized in gain on sale of mortgage loans held for
sale 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 gain on sale of mortgage
loans held for sale 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.
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 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
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
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
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 derivative
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
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 balance sheet 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
years, and equipment being
depreciated over a range of
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,
comparing the carrying value to estimated undiscounted
cash flows.
If the asset is deemed impaired, an impairment charge
recorded equal to the carrying value less the fair value.
The Company has entered into various operating
leases, primarily for banking offices.
Generally, these leases have
initial lease
terms from one to ten years.
Many of the leases have one or more lease renewal options.
The exercise of lease renewal options is
at the Company’s sole discretion.
The Company does not consider exercise of any lease renewal options
reasonably certain.
Certain of the lease contain early termination options.
No renewal options or early termination options have been
included in the
calculation of the operating right-of-use assets or operating
lease liabilities.
Certain of the lease agreements provide for periodic
adjustments to rental payments for inflation.
At the commencement date of the lease, the Company recognizes
a lease liability at
the present value of the lease payments not yet paid, discounted
using the discount rate for the lease or the Company’s
incremental borrowing rate.
As the majority of the Company's leases do not provide
an implicit rate, the Company uses its
incremental borrowing rate at the commencement date
in determining the present value of lease payments.
The incremental
borrowing rate is based on the term of the lease.
Incremental borrowing rates on January 1, 2019 were used
for operating leases
that commenced prior to that date.
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 balance sheet.
For these short-term leases, lease expense is recognized
on a straight-line basis over
the lease term.
At December 31, 2020,
the Company had no leases classified as finance leases.
See Note 7 – Leases for
additional information.
Bank Owned Life Insurance (BOLI)
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 balance sheet date, which
is the cash
surrender value adjusted for other charges or
other amounts due that are probable at settlement.
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
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.
See Note 8 – Goodwill 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
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.
Noncontrolling Interest
To the extent
the Company’s interest in a consolidated
entity represents less than 100% of the entity’s
equity, the Company
recognizes noncontrolling interests in subsidiaries.
In the case of the CCHL acquisition (previously noted
under Business
Combination), the noncontrolling interest represents
equity which is redeemable or convertible for cash at the
option of the equity
holder and is classified within temporary equity in the
mezzanine section of the Consolidated Statements of Financial
The call/put option is redeemable at the option of either
CCBG (call) or the noncontrolling interest holder (put) on or
January 1, 2025, and therefore, not entirely within CCBG’s
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
balance sheet 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
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
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
under the market approach.
The estimated fair value is derived from equally weighting the result of
each of the two
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
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 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
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
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 14 — Earnings Per Share.
Comprehensive Income
Comprehensive income includes all changes in shareowners’
equity during a period, except those resulting from transactions
Besides net income, other components of the Company’s
comprehensive income include the after tax effect of
changes in the net unrealized gain/loss on securities available
for sale 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
Accounting Standards Codification ("ASC") 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
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.
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
statements of income as components of non-interest income are
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
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
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
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.
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
The Company has made no significant judgments in applying
the revenue guidance prescribed in ASC 606 that affects
determination of the amount and timing of revenue from the
above-described contracts with clients.
Accounting Standard Updates
ASU 2019-12,
"Income Taxes
740): Simplifying the Accounting for Income Taxes.
ASU 2019-12 simplifies the accounting
for income taxes by eliminating certain exceptions to the
guidance in ASC 740 related to the approach for intra-period
allocation when there is a loss from continuing operations
or a gain from other items and the general methodology for calculating
income taxes in an interim period when a year-to-date
loss exceeds the anticipated loss for the year.
ASU 2019-12 also
simplifies aspects of the accounting for franchise taxes and
enacted changes in tax laws or rates and clarifies the accounting
transactions that result in a step-up in the tax basis of
ASU 2019-12 is effective for the Company
on January 1, 2021
and is not expected to have a material impact on
the Company’s consolidated financial
ASU 2020-01, "Investments - Equity Securities (Topic
321), Investments - Equity Method and Joint Ventures
323), and
Derivatives and Hedging (Topic
ASU 2020-01 clarifies the interaction of the accounting for equity
securities under Topic
321 and investments accounted for under the equity method
of accounting in Topic
323 and the accounting for certain forward
contracts and purchased options accounted for under
Topic 815.
ASU 2020-01 is effective for the Company on
January 1, 2021
and is not expected to have a material impact on
the Company’s consolidated financial
ASU 2020-04, "Reference Rate Reform
ASU 2020-04 provides optional expedients and exceptions for applying
GAAP to loan and lease agreements, derivative contracts,
and other transactions affected by the anticipated
transition away from
LIBOR toward new interest rate benchmarks. For
transactions that are modified because of reference rate reform
and that meet
certain scope guidance (i) modifications of loan agreements
should be accounted for by prospectively adjusting
the effective
interest rate and the modification will be considered "minor"
so that any existing unamortized origination fees/costs would carry
forward and continue to be amortized and (ii) modifications
of lease agreements should be accounted for as a
continuation of the
existing agreement with no reassessments of the lease classification
and the discount rate or re-measurements of lease payments
that otherwise would be required for modifications not
accounted for as separate contracts. ASU 2020-04 also provides
optional expedients for derivative accounting.
ASU 2020-04 is effective March 12, 2020 through
December 31, 2022.
An entity
may elect to apply ASU 2020-04 for contract modifications
as of January 1, 2020, or prospectively from a date
within an interim
period that includes or is subsequent to March 12, 2020,
up to the date that the financial statements are available to
be issued.
Once elected for a Topic
or an Industry Subtopic within the Codification, the amendments
in this ASU must be applied
prospectively for all eligible contract modifications for
that Topic or Industry
It is anticipated this ASU will simplify
any modifications executed between the selected start date
(yet to be determined) and December 31, 2022 that are
directly related
to LIBOR transition by allowing prospective recognition
of the continuation of the contract, rather than extinguishment
of the old
contract resulting in writing off unamortized
ASU 2021-01, “Reference Rate Reform
848): Scope,”
clarifies that certain optional expedients and exceptions
in ASC 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting
transition. ASU 2021-01 also amends the expedients and exceptions
in ASC 848
to capture the incremental consequences of the scope
clarification and to tailor the existing guidance to derivative instruments.
The Company is evaluating the impact of this ASU and
has not yet determined
if this ASU will have material effects on the
Company’s business operations
and consolidated financial statements.
ASU 2020-08, “Codification Improvements
to Subtopic 310-20, Receivables - Nonrefundable
Fees and Other Costs.”
ASU 2020-
08 clarifies the accounting for the amortization
of purchase premiums for callable debt securities with multiple
call dates. ASU
2020-8 will be effective for the Company
on January 1, 2021 and is not expected to have a significant impact
on Company’s
consolidated financial statements.
ASU 2020-09, “Debt (Topic
470): Amendments to SEC Paragraphs Pursuant to SEC Release No.
ASU 2020-9
amends the ASC to reflect the issuance of an SEC rule
related to financial disclosure requirements for subsidiary issuers and
guarantors of registered debt securities and affiliates
whose securities are pledged as collateral for registered
ASU 2020-09 will be effective for the Company
on January 4, 2021, concurrent with the effective date
of the SEC release, and is
not expected to have a significant impact on Company’s
consolidated financial statements.
On March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) was signed into law.
Section 4013
of the CARES Act, “Temporary
Relief From Troubled Debt Restructurings,”
provides banks the option to temporarily suspend
certain requirements under U.S. GAAP related to troubled
debt restructurings (“TDR”) for a limited period of time
to account for
the effects of COVID-19.
To qualify for
Section 4013 of the CARES Act, borrowers must have been current
at December 31,
All modifications are eligible as long as they are executed between
March 1, 2020 and the earlier of (i) December 31,
2020, or (ii) the 60th day after the end of the COVID-19
national emergency declared by the President of
the U.S.
modifications of the same credits are allowed and
there is no cap on the duration of the modification. See MD&A (Credit
Quality/COVID-19 Exposure) for disclosure of the impact
to date.