LOANS AND LEASES

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

LOANS AND LEASES

4. LOANS

Loans, excluding loans held for sale, net of ACL under ASC 326 as of December 31, 2021 and December 31, 2020 consisted of the following:

	December 31,
(Dollars in thousands)	2021		2020
Commercial, financial and agricultural:
Small Business Administration Paycheck Protection Program ("SBA PPP")	$	94,850	$	425,993
Other	530,383		545,136
Real estate:
Construction	123,351		125,625
Residential mortgage	1,875,200		1,687,251
Home equity	635,721		550,216
Commercial mortgage	1,222,138		1,158,203
Consumer	624,115		479,580
Subtotal	5,105,758		4,972,004
Net deferred fees	(4,109)		(7,891)
Total loans	$	5,101,649	$	4,964,113

There are different types of risk characteristics for the loans in each portfolio segment. The construction and real estate segment's predominant risk characteristics are the collateral and the geographic location of the property collateralizing the loan, as well as the operating cash flow for the commercial real estate properties. The commercial, financial and agricultural segment's predominant risk characteristics are the cash flows of the business we lend to, the global cash flows and liquidity of the guarantors of such losses, as well as economic and market conditions. The consumer segment's predominant risk characteristics are employment and income levels as they relate to the consumer.

The bank is a Small Business Administration ("SBA") approved lender and actively participated in assisting customers with loan applications for the SBA’s Paycheck Protection Program, or PPP, which was part of the CARES Act. PPP loans have a two or five-year term and earn interest at 1%. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan, which the Company is recognizing over the life of the loan.

The SBA began accepting submissions for the initial round of PPP loans on April 3, 2020. In April 2020, the Paycheck Protection Program and Health Care Enhancement Act added an additional round of funding for the PPP. In June 2020, the Paycheck Protection Program Flexibility Act of 2020 was enacted, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Through the end of the second round in August 2020, the Company funded over 7,200 PPP loans totaling $558.9 million and received gross processing fees of $21.2 million. In December 2020, the Consolidated Appropriations Act, 2021 was passed which among other things, included a third round of funding and a new simplified forgiveness procedure for PPP loans of $150,000 or less. During 2021, the Company funded over 4,600 loans totaling $320.9 million in the third round, which ended on May 31, 2021, and received additional gross processing fees of $18.4 million.

The Company received forgiveness payments from the SBA and repayments from borrowers totaling $784.9 million as of December 31, 2021. A total outstanding balance of $94.9 million and net deferred fees of $3.5 million as of December 31,

2021. Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program, there could be risks and liabilities by the Company that cannot be determined at this time.

We did not transfer any loans to the held-for-sale category during the year ended December 31, 2021. We transferred three loans totaling $6.6 million to the held-for-sale category during the year ended December 31, 2020, which were sold at a loss of less than $0.1 million.

The Company has purchased loan portfolios, none of which were credit deteriorated at the time of purchase.

The following table presents loan purchases by class for the periods presented:

(Dollars in thousands)	Consumer - Unsecured		Consumer - Automobile		Total
Year Ended December 31, 2021
Purchases:
Outstanding balance	$	199,813	$	71,432	$	271,245
Purchase (discount) premium	(9,613)		5,080		(4,533)
Purchase price	$	190,200	$	76,512	$	266,712
Year Ended December 31, 2020
Purchases:
Outstanding balance	$	54,777	$	—	$	54,777
Purchase discount	(1,619)		—		(1,619)
Purchase price	$	53,158	$	—	$	53,158

In the normal course of business, our bank makes loans to certain directors, executive officers and their affiliates. These loans are made in the ordinary course of business at normal credit terms. As of December 31, 2021 and December 31, 2020, related party loan balances were $36.4 million and $42.3 million, respectively.

Collateral-Dependent Loans

In accordance with ASC 326, a loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the amortized cost basis of collateral-dependent loans by class, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of December 31, 2021 and December 31, 2020:

	December 31, 2021
(Dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Secured by Real Estate and Business  Assets		Total		Allocated ACL
Commercial, financial and agricultural - Other	$	—	$	—	$	—	$	—	$	—
Real estate:
Residential mortgage	8,391		—		—		8,391		—
Home equity	786		—		—		786		—
Commercial mortgage	—		—		—		—		—
Total	$	9,177	$	—	$	—	$	9,177	$	—

	December 31, 2020
(Dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Secured by Real Estate and Business  Assets		Total		Allocated ACL
Commercial, financial and agricultural - Other	$	—	$	—	$	676	$	676	$	209
Real estate:
Residential mortgage	9,833		—		—		9,833		—
Home equity	524		—		—		524		—
Commercial mortgage	—		626		—		626		—
Total	$	10,357	$	626	$	676	$	11,659	$	209

Foreclosure Proceedings

The Company had $0.7 million and $1.6 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, we did not foreclose on any loans. During the year ended December 31, 2020, we foreclosed on one portfolio loan with a carrying value of $0.1 million and had no gain or loss on the transfer.

We did not sell any foreclosed properties during the year ended December 31, 2021. We sold two foreclosed properties totaling $0.2 million during the year ended December 31, 2020 at a loss of $15 thousand.

Nonaccrual and Past Due Loans

For all loan types, the Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The following tables present by class, the aging of the recorded investment in past due loans as of December 31, 2021 and 2020:

	December 31, 2021
(Dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+  Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans and Leases Not Past Due		Total		Nonaccrual Loans with No ACL
Commercial, financial and agricultural:
SBA PPP	$	—	$	—	$	—	$	—	$	—	$	91,327	$	91,327	$	—
Other	970		604		945		183		2,702		527,419		530,121		—
Real estate:
Construction	638		—		—		—		638		122,229		122,867		—
Residential mortgage	5,315		—		—		4,623		9,938		1,866,042		1,875,980		4,623
Home equity	234		—		44		786		1,064		636,185		637,249		786
Commercial mortgage	—		—		—		—		—		1,220,204		1,220,204		—
Consumer	2,444		712		374		289		3,819		620,082		623,901		—
Total	$	9,601	$	1,316	$	1,363	$	5,881	$	18,161	$	5,083,488	$	5,101,649	$	5,409

	December 31, 2020
(Dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+  Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans and Leases Not Past Due		Total		Nonaccrual Loans with No ACL
Commercial, financial and agricultural:
SBA PPP	$	—	$	—	$	—	$	—	$	—	$	416,375	$	416,375	$	—
Other	613		350		—		1,461		2,424		542,667		545,091		—
Real estate:
Construction	—		—		—		—		—		125,407		125,407		—
Residential mortgage	2,832		689		567		4,115		8,203		1,682,009		1,690,212		4,115
Home equity	273		3		—		524		800		550,466		551,266		524
Commercial mortgage	—		—		—		—		—		1,156,328		1,156,328		—
Consumer	2,725		906		240		92		3,963		475,471		479,434		—
Total	$	6,443	$	1,948	$	807	$	6,192	$	15,390	$	4,948,723	$	4,964,113	$	4,639

Interest income totaling $0.8 million, $0.4 million, and $3.1 million was recognized on nonaccrual loans, including loans held for sale, in 2021, 2020 and 2019, respectively. Additional interest income of $0.3 million, $0.2 million, and $0.3 million would have been recognized in 2021, 2020 and 2019, respectively, had these loans been accruing interest throughout those periods. Additionally, interest income of $0.3 million, $0.2 million, and $0.3 million was collected and recognized on charged-off loans in 2021, 2020 and 2019, respectively.

In accordance with the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" issued in April 2020, loans with deferrals granted because of COVID-19 are not considered past due and/or reported as nonaccrual if deemed collectible during the deferral period.

Modifications

TDRs included in nonperforming assets at December 31, 2021 consisted of four Hawaii residential mortgage loans with a combined principal balance of $0.4 million. At December 31, 2020, TDRs included in nonperforming assets consisted of two loans with a principal balance of $0.3 million.

There were $4.9 million of TDRs still accruing interest at December 31, 2021, none of which were more than 90 days delinquent. At December 31, 2020, there were $7.8 million of TDRs still accruing interest, none of which were more than 90 days delinquent.

The Company offers various types of concessions when modifying a loan. Concessions made to the original contractual terms of the loan typically consists of the deferral of interest and/or principal payments due to deterioration in the borrowers' financial condition. In these cases, the principal balance on the TDR had matured and/or was in default at the time of restructure, and there were no commitments to lend additional funds to the borrower during the year ended December 31, 2021 and 2020. The loans modified in a TDR did not have a material effect on our Provision and ACL during the years ended December 31, 2021 and 2020.

As discussed in Note 1 to these financial statements, Section 4013 of CARES Act and the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" provided banks an optional TDR election for certain loan modifications related to COVID-19 as long as the borrowers were not more than 30 days past due as of December 31, 2019 or at the time of modification program implementation, respectively, and meets other applicable criteria. The Company did not identify any loans as of December 31, 2021 that were modified and did not meet the criteria under Section 4013 of CARES Act or the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)". The Company had active loan deferrals with outstanding balances of approximately $0.4 million and $120.2 million resulting from the COVID-19 pandemic as of December 31, 2021 and 2020, respectively of which $0.4 million and $119.3 million were not classified as a TDR under the CARES Act or the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)".

The following table presents by class, information related to loans modified in a TDR during the years ended December 31, 2021, 2020 and 2019:

	Year Ended December 31, 2021
(Dollars in thousands)	Number of Loans	Recorded Investment (as of period end)		Increase in the ACL
Real estate: Residential mortgage	1	$	48	$	—
Total	1	$	48	$	—
	Year Ended December 31, 2020
(Dollars in thousands)	Number of Loans	Recorded Investment (as of period end)		Increase in the ACL
Real estate: Residential mortgage	1	$	677	$	—
Real estate: Commercial mortgage	1	276		—
Consumer	11	207		—
Total	13	$	1,160	$	—
	Year Ended December 31, 2019
(Dollars in thousands)	Number of Loans	Recorded Investment (as of period end)		Increase in the ACL
Real estate: Residential mortgage	1	$	104	$	—
Total	1	$	104	$	—

No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the years ended December 31, 2021, 2020 and 2019.

Credit Quality Indicators

The Company 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 experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans by credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk rating of loans. Loans not meeting the following criteria that are analyzed individually as part of the described process are considered to be pass-rated loans.

Special Mention. Loans classified as special mention, while still adequately protected by the borrower's capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management's close attention so as to avoid becoming undue or unwarranted credit exposures.

Substandard. Loans classified as substandard are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.

Loss. Loans classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

Loans not meeting the criteria above are considered to be pass rated loans.

The following table presents the amortized cost basis, net of deferred (fees) costs of the Company's loans by class, credit quality indicator and origination year as of December 31, 2021. Revolving loans converted to term as of and during the year ended ended December 31, 2021 were not material to the total loan portfolio.

	Amortized Cost of Term Loans by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Amortized Cost of Revolving Loans		Total
December 31, 2021
Commercial, financial and agricultural - SBA PPP:
Risk Rating
Pass	$	84,254	$	7,073	$	—	$	—	$	—	$	—	$	—	$	91,327
Subtotal	84,254		7,073		—		—		—		—		—		91,327
Commercial, financial and agricultural - Other:
Risk Rating
Pass	122,729		68,021		56,531		52,375		31,817		93,957		79,131		504,561
Special Mention	1,441		1,278		2,443		96		8,671		354		—		14,283
Substandard	—		982		393		682		6,623		1,847		750		11,277
Subtotal	124,170		70,281		59,367		53,153		47,111		96,158		79,881		530,121
Construction:
Risk Rating
Pass	35,236		25,430		3,196		28,333		288		20,090		9,376		121,949
Substandard	—		—		—		918		—		—		—		918
Subtotal	35,236		25,430		3,196		29,251		288		20,090		9,376		122,867
Residential mortgage:
Risk Rating
Pass	670,011		478,891		180,687		75,820		92,394		372,539		42		1,870,384
Special Mention	—		973		—		—		—		—		—		973
Substandard	—		—		—		577		881		3,165		—		4,623
Subtotal	670,011		479,864		180,687		76,397		93,275		375,704		42		1,875,980
Home equity:
Risk Rating
Pass	26,479		13,008		10,329		10,593		480		7,743		567,600		636,232
Special Mention	—		—		—		—		—		—		187		187
Substandard	—		176		—		79		—		575		—		830
Subtotal	26,479		13,184		10,329		10,672		480		8,318		567,787		637,249
Commercial mortgage:
Risk Rating
Pass	229,108		126,169		146,584		126,014		153,041		387,751		9,472		1,178,139
Special Mention	—		—		3,106		3,219		283		9,455		—		16,063
Substandard	—		—		1,760		8,050		1,784		14,408		—		26,002
Subtotal	229,108		126,169		151,450		137,283		155,108		411,614		9,472		1,220,204
Consumer:
Risk Rating
Pass	308,326		96,066		91,194		41,995		20,719		9,446		55,311		623,057
Special Mention	—		—		181		—		10		7		—		198
Substandard	10		35		128		80		19		221		—		493
Loss	—		—		—		—		—		153		—		153
Subtotal	308,336		96,101		91,503		42,075		20,748		9,827		55,311		623,901
Total	$	1,477,594	$	818,102	$	496,532	$	348,831	$	317,010	$	921,711	$	721,869	$	5,101,649

The following tables present by class and credit indicator, the recorded investment in the Company's loans as of December 31, 2021 and 2020:

(Dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred (Fees) Costs		Total
December 31, 2021
Commercial, financial and agricultural:
SBA PPP	$	94,850	$	—	$	—	$	—	$	94,850	$	(3,523)	$	91,327
Other	504,823		14,283		11,277		—		530,383		(262)		530,121
Real estate:
Construction	122,433		—		918		—		123,351		(484)		122,867
Residential mortgage	1,869,604		973		4,623		—		1,875,200		780		1,875,980
Home equity	634,704		187		830		—		635,721		1,528		637,249
Commercial mortgage	1,180,074		16,062		26,002		—		1,222,138		(1,934)		1,220,204
Consumer	623,271		181		510		153		624,115		(214)		623,901
Total	$	5,029,759	$	31,686	$	44,160	$	153	$	5,105,758	$	(4,109)	$	5,101,649

(Dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred (Fees) Costs		Total
December 31, 2020
Commercial, financial and agricultural:
SBA PPP	$	425,993	$	—	$	—	$	—	$	425,993	$	(9,618)	$	416,375
Other	471,085		67,177		6,874		—		545,136		(45)		545,091
Real estate:
Construction	122,782		2,843		—		—		125,625		(218)		125,407
Residential mortgage	1,680,762		1,736		4,753		—		1,687,251		2,961		1,690,212
Home equity	548,985		707		524		—		550,216		1,050		551,266
Commercial mortgage	1,051,122		69,786		37,295		—		1,158,203		(1,875)		1,156,328
Consumer	478,998		250		284		48		479,580		(146)		479,434
Total	$	4,779,727	$	142,499	$	49,730	$	48	$	4,972,004	$	(7,891)	$	4,964,113