Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2021
Significant accounting policies [Abstract]  
Note 1
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 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 reporting
practices applicable to the banking industry.
The principles which materially affect the financial position, results of
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.
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
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”)
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 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
Business Combination
On April 30, 2021, a newly formed subsidiary of CCBG, Capital City Strategic Wealth,
LLC (“CCSW”) acquired substantially all
of the assets of Strategic Wealth
Group, LLC and certain related businesses (“SWG”), including advisory,
service, and insurance
carrier agreements, and the assignment of all related revenues thereof.
Under the terms of the purchase agreement, SWG
principles became officers of CCSW and will continue the operation
of their five offices in South Georgia offering
management services and comprehensive risk management and
asset protection services for individuals and businesses.
paid $
million in cash consideration and recorded goodwill of $
million and a customer relationship intangible asset of $
On March 1, 2020, CCB completed its acquisition of a
% membership interest in Brand Mortgage Group, LLC (“Brand”),
which is now operated as Capital City Home Loans (“CCHL”).
CCHL was consolidated into CCBG’s financia
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 a
mandatory delivery channel for loan sales), to hedge our net interest income
business and to generate other operational synergies
and cost savings.
CCB made a $
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.
Recently Adopted Accounting Pronouncements
On January 1, 2020, the Company adopted ASU 2016-13
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 instruments).
In addition, Accounting Standards Codification (“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
The Company adopted ASC 326 using the
modified retrospective method for all financial assets measured at amortized
cost and off-balance sheet credit exposures.
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 ($
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.
Refer to Note 3 and to the accounting policies disclosed in Note 1 of the Consolidated
Financial Statements included
in the 2020 Form 10-K for additional information regarding the impact
of the adoption of ASC 326 (“CECL”).
The Company also adopted ASU 2019-12 “
Income Taxes
(Topic 740):
Simplifying the Accounting for Income Taxes,”
2020-01 “
Investments – Equity Securities (Topic
321) and Investments – Equity Method and Joint Ventures
2020-08 “
Codification Improvements to Subtopic 310-20, Receivables
– Nonrefundable Fees and Other Costs”,
and ASU 2020-
09 “
Debt (Topic
470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762”
with no material impact on its
financial statements.
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
The Company maintains certain cash balances that are restricted under
warehouse lines of credit and master repurchase
The restricted cash balance at December 31, 2021 was $
Investment Securities
Investment securities are classified as held-to-maturity (“HTM”) and
carried at amortized cost when the Company has the positive
intent and ability to hold them until maturity.
Investment securities not classified as held-to-maturity or trading
securities are
classified as available-for-sale (“AFS”) and carried at fair value.
Investment securities classified as equity securities that do not
have readily determinable fair values, are measured at cost and remeasured
to fair value when impaired or upon observable
transaction prices.
The Company determines the appropriate classification of securities at the time of purchase.
For reporting and
risk management purposes, we further segment investment securities by
the issuer of the security which correlates to its risk
profile: U.S. government treasury,
U.S. government agency, state and
political subdivisions, mortgage-backed securities,
corporate debt securities.
Certain equity securities with limited marketability,
such as stock in the Federal Reserve Bank and the
Federal Home Loan Bank, are classified as available-for-sale and carried
at cost.
Interest income includes amortization and accretion of purchase premiums
and discounts.
Realized gains and losses are derived
from the amortized cost of the security sold.
Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method.
Securities transferred from available-for-sale to held-to-maturity
recorded at amortized cost plus or minus any unrealized gain or loss at the time
of transfer.
Any existing unrecognized gain or
loss continues to be reported in accumulated other comprehensive income
(net of tax) and amortized as an adjustment to interest
income over the remaining life of the security.
Any existing allowance for credit loss is reversed at the time of transfer.
Subsequent to transfer, the allowance
for credit losses on the transferred security is evaluated in accordance with the accounting
policy for held-to-maturity securities.
Additionally, any allowance
amounts reversed or established as part of the transfer are
presented on a gross basis in the consolidated statement of income.
The accrual of interest is generally suspended on securities more than
90 days past due with respect to principal or interest.
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 available-for-sale securities are excluded from
earnings and reported, net of tax, in other comprehensive
For available-for-sale securities that are in an unrealized loss position, the
Company first assesses whether it intends to
sell, or whether it is more likely than not it will be required to sell the security before
recovery of its amortized cost basis.
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,
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
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
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 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.
accrual of interest is generally suspended on loans more than 90 days past
due with respect to principal or interest.
When a loan is
placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income and thus a policy
election has been made to not include in the estimate of credit losses.
Interest income on nonaccrual loans is recognized when the
ultimate collectability is no longer considered doubtful.
Loans are returned to accrual status when the principal and interest
amounts contractually due are brought current or when future payments
are reasonably assured.
Loan charge-offs on commercial and
investor real estate loans are recorded when the facts and circumstances of the
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, underwritin
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 accounted for as a separate liability
included in other liabilities.
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
starting 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
Loans that do not share similar risk characteristics are evaluated on an individual
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
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 (“DCF”) 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/pol
itical 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
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 (AOT) or other
mandatory delivery commitment prices. The Company bases loans
committed to Agency investors based on the Agency’s
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
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 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
the changes in the fair value of mortgage loans held for sale, and the realized
and unrealized gains and losses from derivative
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
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 Financial Accounting Standards Board
(“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 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
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
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
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 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
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, 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.
The Company has entered into various operating leases, primarily for
banking offices.
Generally, these leases have initial
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 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
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
Leases with an initial term of 12 months or
less are not recorded on the Statement of Financial Condition.
For these short-term leases, lease expense is recognized on a
straight-line basis over the lease term.
The Company has no leases classified as finance leases.
See Note 7 – Leases for
additional information.
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 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
Revenue and
expenses from operations and changes in value are included in noninterest
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary
course of business are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. See Note 21 – Commitments and
Contingencies for additional information.
Noncontrolling Interest
To the extent
the Company’s interest in a consolidated
entity represents less than 100% of the entity’s
equity, the Company
recognizes noncontrolling interests in subsidiaries.
In the case of the CCHL acquisition (previously noted under Business
Combination), the noncontrolling interest represents equity which is redeemable
or convertible for cash at the option of the equity
holder and is classified within temporary equity in the mezzanine
section of the Consolidated Statements of Financial Condition.
The call/put option is redeemable at the option of either CCBG (call) or the
noncontrolling interest holder (put) on or after
January 1, 2025, and therefore, not entirely within CCBG’s
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
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
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
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
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
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
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 as
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
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
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
The Company has made no significant judgments in applying the revenue
guidance prescribed in ASC 606 that affects the
determination of the amount and timing of revenue from the above-described
contracts with clients.
Accounting Standard Updates
ASU 2020-04, "Reference Rate Reform (Topic
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 numerous
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
prospectively for all eligible contract modifications for that Topic
or Industry Subtopic.
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 fees/costs.
The Company believes the adoption of this guidance will not have a
material impact on its consolidated financial statements.
ASU 2021-01, “Reference Rate Reform (Topic
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 believes the adoption of this guidance will not have a material
impact on its consolidated financial statements.