Annual report pursuant to Section 13 and 15(d)

LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES

v3.22.0.1
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
12 Months Ended
Dec. 31, 2021
Loans, net [Abstract]  
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
Note 3
LOANS HELD FOR INVESTMENT AND ALLOWANCE
 
FOR CREDIT LOSSES
Loan Portfolio Composition
.
 
The composition of the HFI loan portfolio at December 31 was as follows:
(Dollars in Thousands)
2021
2020
Commercial, Financial and Agricultural
(1)
$
223,086
 
$
393,930
Real Estate – Construction
 
174,394
 
 
135,831
Real Estate – Commercial Mortgage
 
663,550
 
 
648,393
Real Estate – Residential
(2)
 
360,021
 
 
352,543
Real Estate – Home Equity
 
187,821
 
 
205,479
Consumer
(3)
 
322,593
 
 
270,250
Loans Held for Investment, Net of Unearned Income
$
1,931,465
 
$
2,006,426
(1)
 
Includes SBA PPP loan balance of $
0.1
 
million and $
175.3
 
million for 2021 and 2020, respectively.
 
(2)
 
Includes loans in process with outstanding balances
 
of $
13.6
 
million and $
10.9
 
million for 2021 and 2020, respectively.
(3)
 
Includes overdraft balances of $
1.1
 
million and $
0.7
 
million for December 31, 2021 and 2020, respectively.
Net deferred costs, which include premiums on purchased loans, included
 
in loans were $
3.9
 
million at December 31, 2021 and
net deferred fees were $
0.1
 
million at December 31, 2020.
 
Net deferred fees at December 31, 2020 included $
3.2
 
million in net
fees for SBA PPP loans.
Accrued interest receivable on loans which is excluded from amortized
 
cost totaled $
5.3
 
million at December 31, 2021 and $
6.9
million at December 31, 2020, and is reported separately in Other Assets.
 
The Company has pledged a floating lien on certain 1-4 family residential
 
mortgage loans, commercial real estate mortgage loans,
and home equity loans to support available borrowing capacity at the FHLB of Atlanta
 
and has pledged a blanket floating lien on
all consumer loans, commercial loans, and construction loans to support
 
available borrowing capacity at the Federal Reserve
Bank of Atlanta.
 
Loan Purchases
.
 
The Company will periodically purchase newly originated 1-4 family real estate secured
 
adjustable rate loans
from CCHL, a related party effective on March 1, 2020 (see Note
 
1 – Significant Accounting Policies). These loan purchases
totaled $
97.5
 
million and $
48.4
 
million for the years ended December 31, 2021 and 2020, respectively,
 
and were not credit
impaired.
 
In addition, during 2021, the Company purchased $
17.4
 
million of commercial real estate loans from a third party that
were not credit impaired.
 
The Company transferred $
9.4
 
million of home equity loan from HFI to HFS during 2021.
 
There were
no
 
transfers during 2020.
Allowance for Credit Losses
.
 
The methodology for estimating the amount of credit losses reported in
 
the allowance for credit
losses (“ACL”) has two basic components: first, an asset-specific component
 
involving loans that do not share risk characteristics
and the measurement of expected credit losses for such individual loans;
 
and second, a pooled component for expected credit
losses for pools of loans that share similar risk characteristics.
 
This methodology is discussed further in Note 1 – Significant
Accounting Policies.
 
The following table details the activity in the allowance for credit losses by portfolio
 
segment for the years ended December 31.
 
Allocation of a portion of the allowance to one category of loans does not
 
preclude its availability to absorb losses in other
categories.
Commercial,
Real Estate
Financial,
 
Real Estate
Commercial
 
Real Estate
Real Estate
(Dollars in Thousands)
Agricultural
Construction
Mortgage
Residential
Home Equity
Consumer
Total
2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
 
Provision for Credit Losses
(227)
813
(1,679)
(1,956)
(1,125)
1,332
(2,842)
 
Charge-Offs
(239)
-
(405)
(108)
(103)
(3,972)
(4,827)
 
Recoveries
 
453
10
865
753
413
2,965
5,459
 
Net (Charge-Offs) Recoveries
214
10
460
645
310
(1,007)
632
Ending Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
2020
Beginning Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
 
Impact of Adopting ASC 326
488
302
1,458
1,243
374
(596)
3,269
 
Provision for Credit Losses
578
1,757
1,865
940
486
3,409
9,035
 
Charge-Offs
(789)
-
(28)
(150)
(151)
(5,042)
(6,160)
 
Recoveries
252
50
318
279
178
2,690
3,767
 
Net (Charge-Offs) Recoveries
(537)
50
290
129
27
(2,352)
(2,393)
Ending Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
2019
Beginning Balance
$
1,434
$
280
$
4,181
$
3,400
$
2,301
$
2,614
$
14,210
 
Provision for Credit Losses
664
371
(1,129)
(301)
178
2,244
2,027
 
Charge-Offs
(768)
(281)
(214)
(400)
(430)
(2,878)
(4,971)
 
Recoveries
345
-
578
429
175
1,112
2,639
 
Net (Charge-Offs) Recoveries
(423)
(281)
364
29
(255)
(1,766)
(2,332)
Ending Balance
$
1,675
$
370
$
3,416
$
3,128
$
2,224
$
3,092
$
13,905
The $
2.8
 
million decrease in the allowance for credit losses in 2021 reflected improvements in
 
forecasted economic conditions,
favorable loan migration and net loan recoveries totaling $
0.6
 
million, partially offset by incremental reserves needed for loan
growth (excluding SBA PPP).
 
The $
9.9
 
million increase in the allowance for credit losses in 2020 was attributable to the build of
reserves attributable to a deterioration in economic conditions, primarily
 
a higher rate of unemployment due to the COVID-19
pandemic and its potential effect on rates of default.
 
Three unemployment rate forecast scenarios continue to be utilized to
estimate probability of default and are weighted based on management’s
 
estimate of probability.
 
The mitigating impact of the
unprecedented fiscal stimulus, including direct payments
 
to individuals, increased unemployment benefits, as well as various
government sponsored loan programs, was also considered.
 
See Note 1 – Significant accounting policies for more on the
calculation of the provision for credit losses.
 
See Note 21 – Commitments and Contingencies for information on
 
the provision for
credit losses related to off-balance sheet commitments.
Loan Portfolio Aging.
 
A loan is defined as a past due loan when one full payment is past due or a contractual maturity
 
is over 30
days past due (“DPD”).
The following table presents the aging of the amortized cost basis in accruing
 
past due loans by class of loans at December 31,
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
2021
Commercial, Financial and Agricultural
$
100
$
23
$
-
$
123
$
222,873
$
90
$
223,086
Real Estate – Construction
 
-
-
-
-
174,394
-
174,394
Real Estate – Commercial Mortgage
 
151
-
-
151
662,795
604
663,550
Real Estate – Residential
 
365
151
-
516
357,408
2,097
360,021
Real Estate – Home Equity
 
210
-
-
210
186,292
1,319
187,821
Consumer
 
1,964
636
-
2,600
319,781
212
322,593
Total
$
2,790
$
810
$
-
$
3,600
$
1,923,543
$
4,322
$
1,931,465
2020
Commercial, Financial and Agricultural
$
194
$
124
$
-
$
318
$
393,451
$
161
$
393,930
Real Estate – Construction
 
-
717
-
717
134,935
179
135,831
Real Estate – Commercial Mortgage
 
293
-
-
293
646,688
1,412
648,393
Real Estate – Residential
 
375
530
-
905
348,508
3,130
352,543
Real Estate – Home Equity
 
325
138
-
463
204,321
695
205,479
Consumer
 
1,556
342
-
1,898
268,058
294
270,250
Total
$
2,743
$
1,851
$
-
$
4,594
$
1,995,961
$
5,871
$
2,006,426
Nonaccrual Loans
.
 
Loans are generally placed on nonaccrual status if principal or interest payments
 
become 90 days past due
and/or management deems the collectability of the principal and/or
 
interest to be doubtful.
 
Loans are returned to accrual status
when the principal and interest amounts contractually due are brought
 
current or when future payments are reasonably assured.
 
The Company did not recognize a significant amount of interest income
 
on nonaccrual loans for the years ended December 31,
2021 and 2020.
 
The following table presents the amortized cost basis of loans in nonaccrual
 
status and loans past due over 90 days and still on
accrual by class of loans.
2021
2020
Nonaccrual
Nonaccrual
90 + Days
Nonaccrual
Nonaccrual
90 + Days
With No
With
Still
With No
With
Still
(Dollars in Thousands)
ACL
ACL
Accruing
ACL
ACL
Accruing
Commercial, Financial and Agricultural
$
67
$
23
$
-
$
-
$
161
$
-
Real Estate – Construction
 
-
-
-
-
179
-
Real Estate – Commercial Mortgage
 
-
604
-
1,075
337
-
Real Estate – Residential
 
928
1,169
-
1,513
1,617
-
Real Estate – Home Equity
 
463
856
-
-
695
-
Consumer
 
-
212
-
-
294
-
Total
 
$
1,458
$
2,864
$
-
$
2,588
$
3,283
$
-
Collateral Dependent Loans
.
 
The following table presents the amortized cost basis of collateral dependent loans
 
at December 31:
2021
2020
Real Estate
Non Real
Estate
Real Estate
Non Real
Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
67
$
-
$
-
Real Estate – Commercial Mortgage
455
-
3,900
-
Real Estate – Residential
1,645
-
3,022
-
Real Estate – Home Equity
649
-
219
-
Consumer
-
-
-
29
Total
$
2,749
$
67
$
7,141
$
29
A loan is collateral dependent when the borrower is experiencing financial
 
difficulty and repayment of the loan is dependent on
the sale or operation of the underlying collateral.
 
The Bank’s collateral dependent
 
loan portfolio is comprised primarily of real estate secured loans, collateralized
 
by either
residential or commercial collateral types.
 
The loans are carried at fair value based on current values determined by either
independent appraisals or internal evaluations, adjusted for selling costs or
 
other amounts to be deducted when estimating
expected net sales proceeds.
 
Residential Real Estate Loans In Process of Foreclosure
.
 
At December 31, 2021 and 2020, the Company had $
0.9
 
million and
$
1.6
 
million, respectively, in 1-4 family
 
residential real estate loans for which formal foreclosure proceedings were
 
in process.
Troubled
 
Debt Restructurings (“TDRs”)
.
 
TDRs are loans in which the borrower is experiencing financial difficulty
 
and the
Company has granted an economic concession to the borrower that it would not
 
otherwise consider.
 
In these instances, as part of
a work-out alternative, the Company will make concessions including the extension
 
of the loan term, a principal moratorium, a
reduction in the interest rate, or a combination thereof.
 
The impact of the TDR modifications and defaults are factored into the
allowance for credit losses on a loan-by-loan basis.
 
Thus, specific reserves are established based upon the results of either a
discounted cash flow analysis or the underlying collateral value, if the
 
loan is deemed to be collateral dependent.
 
A TDR
classification can be removed if the borrower’s
 
financial condition improves such that the borrower is no longer in financial
difficulty,
 
the loan has not had any forgiveness of principal or interest, and the loan
 
is subsequently refinanced or restructured at
market terms and qualifies as a new loan.
At December 31, 2021, the Company had $
8.0
 
million in TDRs, of which $
7.6
 
million were performing in accordance with the
modified terms.
 
At December 31, 2020 the Company had $
14.3
 
million in TDRs, of which $
13.9
 
million were performing in
accordance with modified terms.
 
For TDRs, the Company estimated $
0.3
 
million and $
0.6
 
million of credit loss reserves at
December 31, 2021 and 2020, respectively.
The modifications made to TDRs involved either an extension of the loan term,
 
a principal
 
moratorium, a reduction in the interest
rate, or a combination thereof.
 
For the year ended December 31, 2021, there were
three
 
loans modified with a recorded
investment of $
0.6
 
million.
 
For the year ended December 31, 2020, there were
three
 
loans modified with a recorded investment
of $
0.2
 
million.
 
For the year ended December 31, 2019, there were
seven
 
loans modified with a recorded investment of $
0.5
million.
 
The financial impact of these modifications was not material.
 
For the years ended December 31, 2021 and 2020, there were
no
 
loans classified as TDRs, for which there was a payment default
and the loans were modified within the 12 months prior to default.
Credit Risk Management
.
 
The Company has adopted comprehensive lending policies, underwriting standards
 
and loan review
procedures designed to maximize loan income within an acceptable
 
level of risk.
 
Management and the Board of Directors review
and approve these policies and procedures on a regular basis (at least annually).
 
Reporting systems are used to monitor loan originations, loan quality,
 
concentrations of credit, loan delinquencies and
nonperforming loans and potential problem loans.
 
Management and the Credit Risk Oversight Committee periodically review
our lines of business to monitor asset quality trends and the appropriateness
 
of credit policies.
 
In addition, total borrower
exposure limits are established and concentration risk is monitored.
 
As part of this process, the overall composition of the loan
portfolio is reviewed to gauge diversification of risk, client concentrations,
 
industry group, loan type, geographic area, or other
relevant classifications of loans.
 
Specific segments of the loan portfolio are monitored and reported to
 
the Board on a quarterly
basis and have strategic plans in place to supplement Board approved
 
credit policies governing exposure limits and underwriting
standards.
 
Detailed below are the types of loans within the Company’s
 
loan portfolio and risk characteristics unique to each.
 
Commercial, Financial, and Agricultural – Loans in this category
 
are primarily made based on identified cash flows of the
borrower with consideration given to underlying collateral and
 
personal or other guarantees.
 
Lending policy establishes debt
service coverage ratio limits that require a borrower’s cash flow to
 
be sufficient to cover principal and interest payments on all
new and existing debt.
 
The majority of these loans are secured by the assets being financed or other
 
business assets such as
accounts receivable, inventory,
 
or equipment.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established policy guidelines.
 
Real Estate Construction – Loans in this category consist of short-term
 
construction loans, revolving and non-revolving credit
lines and construction/permanent loans made to individuals
 
and investors to finance the acquisition, development, construction or
rehabilitation of real property.
 
These loans are primarily made based on identified cash flows of the
 
borrower or project and
generally secured by the property being financed, including 1-4
 
family residential properties and commercial properties that are
either owner-occupied or investment in nature.
 
These properties may include either vacant or improved property.
 
Construction
loans are generally based upon estimates of costs and value associated with
 
the completed project.
 
Collateral values are
determined based upon third party appraisals and evaluations.
 
Loan to value ratios at origination are governed by established
policy guidelines.
 
The disbursement of funds for construction loans is made in relation to the progress
 
of the project and as such
these loans are closely monitored by on-site inspections.
 
Real Estate Commercial Mortgage – Loans in this category consists of commercial
 
mortgage loans secured by property that is
either owner-occupied or investment in nature.
 
These loans are primarily made based on identified cash flows of the borrower
 
or
project with consideration given to underlying real estate collateral and
 
personal guarantees.
 
Lending policy establishes debt
service coverage ratios and loan to value ratios specific to the property type.
 
Collateral values are determined based upon third
party appraisals and evaluations.
 
Real Estate Residential – Residential mortgage loans held in the Company’s
 
loan portfolio are made to borrowers that
demonstrate the ability to make scheduled payments with full conside
 
ration to underwriting factors such as current income,
employment status, current assets, and other financial resources, credit
 
history, and the value of the collateral.
 
Collateral consists
of mortgage liens on 1-4 family residential properties.
 
Collateral values are determined based upon third party appraisals and
evaluations.
 
The Company does not originate sub-prime loans.
 
Real Estate Home Equity – Home equity loans and lines are made to qualified
 
individuals for legitimate purposes generally
secured by senior or junior mortgage liens on owner-occupied
 
1-4 family homes or vacation homes.
 
Borrower qualifications
include favorable credit history combined with supportive income
 
and debt ratio requirements and combined loan to value ratios
within established policy guidelines.
 
Collateral values are determined based upon third party appraisals and evaluations.
 
Consumer Loans – This loan category includes personal installment loans,
 
direct and indirect automobile financing, and overdraft
lines of credit.
 
The majority of the consumer loan category consists of indirect and direct automobile
 
loans.
 
Lending policy
establishes maximum debt to income ratios, minimum credit scores, and
 
includes guidelines for verification of applicants’ income
and receipt of credit reports.
Credit Quality Indicators
.
 
As part of the ongoing monitoring of the Company’s
 
loan portfolio quality, management
 
categorizes
loans into risk categories based on relevant information about the
 
ability of borrowers to service their debt such as: current
financial information, historical payment performance, credit documentation,
 
and current economic and market trends, among
other factors.
 
Risk ratings are assigned to each loan and revised as needed through established monitoring
 
procedures for
individual loan relationships over a predetermined amount
 
and review of smaller balance homogenous loan pools.
 
The Company
uses the definitions noted below for categorizing and managing its criticized
 
loans.
 
Loans categorized as “Pass” do not meet the
criteria set forth below and are not considered criticized.
Special Mention – Loans in this category are presently protected from loss, but
 
weaknesses are apparent which, if not corrected,
could cause future problems.
 
Loans in this category may not meet required underwriting criteria and
 
have no mitigating
factors.
 
More than the ordinary amount of attention is warranted for these loans.
Substandard – Loans in this category exhibit well-defined weaknesses that would
 
typically bring normal repayment into jeopardy.
These loans are no longer adequately protected due to well-defined
 
weaknesses that affect the repayment capacity of the
borrower.
 
The possibility of loss is much more evident and above average supervision is required
 
for these loans.
Doubtful – Loans in this category have all the weaknesses inherent in a loan categorized
 
as Substandard, with the characteristic
that the weaknesses make collection or liquidation in full, on the basis of currently
 
existing facts, conditions, and values, highly
questionable and improbable.
Performing/Nonperforming – Loans within certain homogenous
 
loan pools (home equity and consumer) are not individually
reviewed, but are monitored for credit quality via the aging status of the loan
 
and by payment activity.
 
The performing or
nonperforming status is updated on an on-going basis dependent upon
 
improvement and deterioration in credit quality.
The following table summarizes gross loans held for investment at December
 
31, 2021
 
by years of origination and internally
assigned credit risk ratings (refer to Credit Risk Management section for detail
 
on risk rating system).
Term Loans by Origination Year
Revolving
(Dollars in Thousands)
2021
2020
2019
2018
2017
Prior
Loans
Total
Commercial, Financial,
Agricultural:
Pass
$
69,531
$
31,335
$
30,084
$
20,276
$
9,578
$
11,836
$
50,030
$
222,670
Special Mention
-
-
3
6
-
25
-
34
Substandard
 
35
 
10
 
67
 
178
 
46
 
46
 
-
 
382
Total
$
69,566
$
31,345
$
30,154
$
20,460
$
9,624
$
11,907
$
50,030
$
223,086
Real Estate -
Construction:
Pass
$
95,457
$
56,875
$
15,770
$
453
$
130
$
-
$
5,709
$
174,394
Total
$
95,457
$
56,875
$
15,770
$
453
$
130
$
-
$
5,709
$
174,394
Real Estate - Commercial
Mortgage:
Pass
$
173,502
$
134,418
$
79,969
$
79,575
$
55,417
$
91,938
$
21,508
$
636,327
Special Mention
7,004
-
1,760
2,639
426
5,374
1,000
18,203
Substandard
 
1,483
 
1,034
 
4,083
 
-
 
1,236
 
1,111
 
73
 
9,020
Total
$
181,989
$
135,452
$
85,812
$
82,214
$
57,079
$
98,423
$
22,581
$
663,550
Real Estate - Residential:
Pass
$
130,424
$
62,509
$
38,617
$
27,332
$
26,829
$
60,467
$
6,600
$
352,778
Special Mention
-
134
20
121
167
412
-
854
Substandard
 
1,651
 
-
 
1,038
 
806
 
218
 
2,676
 
-
 
6,389
Total
 
$
132,075
$
62,643
$
39,675
$
28,259
$
27,214
$
63,555
$
6,600
$
360,021
Real Estate - Home
Equity:
Performing
$
137
$
53
$
257
$
130
$
743
$
1,510
$
183,672
$
186,502
Nonperforming
-
-
18
-
-
78
1,223
1,319
Total
 
$
137
 
53
 
275
 
130
 
743
 
1,588
 
184,895
 
187,821
Consumer:
Performing
$
173,031
$
64,805
$
39,045
$
26,383
$
10,759
$
3,138
$
5,220
$
322,381
Nonperforming
58
44
37
66
1
6
-
212
Total
 
$
173,089
 
64,849
 
39,082
 
26,449
 
10,760
 
3,144
 
5,220
 
322,593