Quarterly report pursuant to Section 13 or 15(d)

LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES

v3.22.1
LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES
 3 Months Ended
Mar. 31, 2022
Loans Held For Investment And Allowance For Credit Losses [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 held for investment (“HFI”) loan portfolio was as follows:
(Dollars in Thousands)
March 31, 2022
 
December 31, 2021
Commercial, Financial and Agricultural
$
230,213
 
$
223,086
Real Estate – Construction
 
174,293
 
 
174,394
Real Estate – Commercial Mortgage
 
669,110
 
 
663,550
Real Estate – Residential
(1)
 
374,712
 
 
360,021
Real Estate – Home Equity
 
188,174
 
 
187,821
Consumer
(2)
 
349,007
 
 
322,593
Loans Held For Investment, Net of Unearned Income
$
1,985,509
 
$
1,931,465
(1)
Includes loans in process balances of $
6.7
 
million and $
13.6
 
million at March 31, 2022 and December 31, 2021,
 
respectively.
(2)
Includes overdraft balances of $
1.2
 
million and $
1.1
 
million at March 31, 2022 and December 31, 2021,
 
respectively.
Net deferred loan costs, which include premiums on purchased loans,
 
included in loans were $
4.4
 
million at March 31, 2022 and $
3.9
million at December 31, 2021.
Accrued interest receivable on loans which is excluded from amortized
 
cost totaled $
5.8
 
million at March 31, 2022 and $
5.3
 
million at
December 31, 2021, and is reported separately in Other Assets.
The Company has pledged a blanket floating lien on all 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 Purchase and Sales
.
 
The Company will periodically purchase newly originated 1-4 family real
 
estate secured adjustable rate
loans from Capital City Home Loans (“CCHL”), a related party.
 
Residential loan purchases from CCHL totaled $
26.3
 
million and
$
22.2
 
million for the three months ended March 31, 2022 and March 31, 2021, respectively,
 
and were not credit impaired.
Allowance for Credit Losses
.
 
The methodology for estimating the amount of credit losses reported in
 
the allowance for credit losses
(“ACL”) has two basic components: first, an asset-specific component
 
involving loans that do not share risk characteristics and the
measurement of expected credit losses for such individual loans; and second,
 
a pooled component for expected credit losses for pools
of loans that share similar risk characteristics.
 
This allowance methodology is discussed further in Note 1 – Significant
 
Accounting
Policies in the Company’s 2021 Form
 
10-K.
 
The following table details the activity in the allowance for credit losses by
 
portfolio segment.
 
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
Three Months Ended
March 31, 2022
Beginning Balance
$
2,191
$
3,302
$
5,810
$
4,129
$
2,296
$
3,878
$
21,606
Provision for Credit Losses
(161)
(714)
(181)
314
(405)
1,068
(79)
Charge-Offs
(73)
-
(266)
-
(33)
(1,402)
(1,774)
Recoveries
 
165
8
29
27
58
716
1,003
Net (Charge-Offs) Recoveries
92
8
(237)
27
25
(686)
(771)
Ending Balance
$
2,122
$
2,596
$
5,392
$
4,470
$
1,916
$
4,260
$
20,756
Three Months Ended
March 31, 2021
Beginning Balance
$
2,204
$
2,479
$
7,029
$
5,440
$
3,111
$
3,553
$
23,816
Provision for Credit Losses
(314)
(225)
(718)
(305)
(655)
(95)
(2,312)
Charge-Offs
(69)
-
-
(6)
(5)
(1,056)
(1,136)
Recoveries
 
136
-
645
75
124
678
1,658
Net (Charge-Offs) Recoveries
67
-
645
69
119
(378)
522
Ending Balance
$
1,957
$
2,254
$
6,956
$
5,204
$
2,575
$
3,080
$
22,026
For the three months ended March 31, 2022, the allowance decreased
 
by $
0.9
 
million and reflected a provision benefit of $
0.1
 
million
and net loan charge-offs of $
0.8
 
million. For the three months ended March 31, 2021, the allowance decreased
 
$
1.8
 
million which
reflected a provision benefit of $
2.3
 
million and net loan recoveries of $
0.5
 
million.
 
The provision benefit for the three months ended
March 31, 2022 and March 31, 2021 reflected improvement in the
 
forecasted level of unemployment and its potential effect on rates
of default.
 
Three unemployment rate forecast scenarios were utilized to estimate probability
 
of default and were weighted based on
management’s estimate of probability.
 
See Note 8 – Commitments and Contingencies for information on the allowance for
 
off-
balance sheet credit 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.
30-59
 
60-89
 
90 +
 
Total
Total
Nonaccrual
Total
(Dollars in Thousands)
DPD
DPD
DPD
Past Due
Current
Loans
Loans
March 31, 2022
Commercial, Financial and Agricultural
$
205
$
79
$
-
$
284
$
229,898
$
31
$
230,213
Real Estate – Construction
 
-
-
-
-
174,293
-
174,293
Real Estate – Commercial Mortgage
 
502
-
-
502
668,186
422
669,110
Real Estate – Residential
 
474
29
-
503
373,005
1,204
374,712
Real Estate – Home Equity
 
47
-
-
47
187,283
844
188,174
Consumer
 
1,152
632
-
1,784
346,996
227
349,007
Total
$
2,380
$
740
$
-
$
3,120
$
1,979,661
$
2,728
$
1,985,509
December 31, 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
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 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.
March 31, 2022
December 31, 2021
Nonaccrual
Nonaccrual
Nonaccrual
Nonaccrual
With No
With
90 + Days
With No
With
90 + Days
(Dollars in Thousands)
ACL
ACL
Still Accruing
ACL
ACL
Still Accruing
Commercial, Financial and Agricultural
$
-
$
31
$
-
$
67
$
23
$
-
Real Estate – Construction
 
-
 
-
-
-
-
-
Real Estate – Commercial Mortgage
 
-
 
422
-
-
604
-
Real Estate – Residential
 
728
 
476
-
928
1,169
-
Real Estate – Home Equity
 
-
 
844
-
463
856
-
Consumer
 
-
 
227
-
-
212
-
Total Nonaccrual
 
Loans
$
728
$
2,000
$
-
$
1,458
$
2,864
$
-
Collateral Dependent Loans.
The following table presents the amortized cost basis of collateral-dependent
 
loans.
March 31, 2022
December 31, 2021
Real Estate
Non Real Estate
Real Estate
Non Real Estate
(Dollars in Thousands)
Secured
Secured
Secured
Secured
Commercial, Financial and Agricultural
$
-
$
-
$
-
$
67
Real Estate – Construction
-
-
-
-
Real Estate – Commercial Mortgage
-
-
455
-
Real Estate – Residential
855
-
1,645
-
Real Estate – Home Equity
 
601
 
-
 
649
 
-
Consumer
 
-
 
-
 
-
 
-
Total Collateral Dependent
 
Loans
$
1,456
$
-
$
2,749
$
67
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 March 31, 2022 and December 31, 2021, the Company had $
0.9
 
million
and $
0.9
 
million, respectively, in 1-4 family
 
residential real estate loans for which formal foreclosure proceedings were in process.
Troubled
 
Debt Restructurings (“TDRs”).
 
At March 31, 2022, the Company had $
7.5
 
million in TDRs, of which $
7.3
 
million were
performing in accordance with the modified terms.
 
At December 31, 2021 the Company had $
8.0
 
million in TDRs, of which $
7.6
million were performing in accordance with modified terms.
 
For TDRs, the Company estimated $
0.3
 
million and $
0.3
 
million of
credit loss reserves at March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 there were
no
 
loans modified.
 
For the three months ended
March 31, 2021, there were
two
 
loans modified with a recorded investment of $
0.4
 
million.
 
For the three months ended March 31,
2022 and March 31, 2021, 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 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 consideration 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 portfolio includes personal installment loans,
 
direct and indirect automobile financing, and overdraft
lines of credit.
 
The majority of the consumer loan category consists of direct and indirect 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
 
March 31, 2022
 
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)
2022
2021
2020
2019
2018
Prior
Loans
Total
Commercial, Financial,
Agriculture:
Pass
$
22,526
$
60,369
$
27,910
$
26,368
$
18,565
$
18,863
$
54,707
$
229,308
Special Mention
-
100
187
268
16
24
-
595
Substandard
 
-
 
-
 
58
 
-
 
184
 
68
 
-
 
310
Total
$
22,526
$
60,469
$
28,155
$
26,636
$
18,765
$
18,955
$
54,707
$
230,213
Real Estate -
Construction:
Pass
$
11,641
$
109,459
$
42,522
$
8,684
$
-
$
129
$
1,858
$
174,293
Total
$
11,641
$
109,459
$
42,522
$
8,684
$
-
$
129
$
1,858
$
174,293
Real Estate -
Commercial Mortgage:
Pass
$
50,302
$
165,574
$
123,213
$
73,444
$
73,824
$
131,407
$
26,092
$
643,856
Special Mention
-
-
410
1,750
2,615
5,761
1,250
11,786
Substandard
 
-
 
10,055
 
405
 
640
 
-
 
2,298
 
70
 
13,468
Total
$
50,302
$
175,629
$
124,028
$
75,834
$
76,439
$
139,466
$
27,412
$
669,110
Real Estate - Residential:
Pass
$
46,698
$
117,058
$
55,670
$
34,111
$
23,957
$
81,162
$
6,255
$
364,911
Special Mention
61
-
132
18
60
570
1,348
2,189
Substandard
 
74
 
576
 
1,007
 
1,085
 
971
 
3,899
 
-
 
7,612
Total
 
$
46,833
$
117,634
$
56,809
$
35,214
$
24,988
$
85,631
$
7,603
$
374,712
Real Estate - Home
Equity:
Performing
$
-
$
146
$
13
$
255
$
130
$
2,191
$
184,595
$
187,330
Nonperforming
 
-
 
-
 
-
 
17
 
-
 
-
 
827
 
844
Total
 
$
-
$
146
$
13
$
272
$
130
$
2,191
$
185,422
$
188,174
Consumer:
Performing
$
61,883
$
159,135
$
56,232
$
33,402
$
22,026
$
10,370
$
5,731
$
348,779
Nonperforming
-
58
59
22
58
31
-
228
Total
$
61,883
$
159,193
$
56,291
$
33,424
$
22,084
$
10,401
$
5,731
$
349,007