LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2021

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)

September 30, 2021

December 31, 2020

Commercial, Financial and Agricultural

$

218,929

$

393,930

Real Estate – Construction

177,443

135,831

Real Estate – Commercial Mortgage

683,379

648,393

Real Estate – Residential

(1)

362,750

352,543

Real Estate – Home Equity

187,642

205,479

Consumer

(2)

311,282

270,250

Loans HFI, Net of Unearned Income

$

1,941,425

$

2,006,426

(1)

Includes loans in process with outstanding balances of $

7.1

 million and $

10.9

 million at September 30, 2021 and December 31,

2020, respectively.

(2)

Includes overdraft balances of $

1.3

 million and $

0.7

 million at September 30, 2021 and December 31, 2020, respectively.

Net deferred loan costs, which include premiums on purchased loans, included in loans were $

3.7

 million at September 30, 2021 and

net deferred loan fees were $

0.1

 million at December 31, 2020.

Accrued interest receivable on loans which is excluded from amortized cost totaled $

5.6

 million at September 30, 2021 and $

6.9

million at December 31, 2020, 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 $

72.7

 million for the

nine month period ended September 30, 2021, and were not credit impaired. In addition, during the second quarter of 2021, the

Company acquired a pool of

10

 individual commercial real estate loans from a third party bank that totaled $

17.4

 million and were not

credit impaired.

The Company transferred $

9.4

 million of home equity loans from HFI to HFS in the second quarter of 2021.

Allowance for Credit Losses

. The allowance for credit losses is calculated in accordance with the current expected credit loss model,

ASC 326 (“CECL”), which was adopted on January 1, 2020. The allowance 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 – Business and Basis of Presentation/Significant Accounting Policies in the

Company’s 2020 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

September 30, 2021

Beginning Balance

$

1,972

$

2,759

$

7,569

$

4,353

$

2,457

$

3,065

$

22,175

Provision for Credit Losses

178

517

(1,588)

(433)

(131)

911

(546)

Charge-Offs

(37)

-

(405)

(17)

(15)

(1,314)

(1,788)

Recoveries 

66

10

169

401

46

967

1,659

Net (Charge-Offs) Recoveries

29

10

(236)

384

31

(347)

(129)

Ending Balance

$

2,179

$

3,286

$

5,745

$

4,304

$

2,357

$

3,629

$

21,500

Nine Months Ended 

September 30, 2021

Beginning Balance

$

2,204

$

2,479

$

7,029

$

5,440

$

3,111

$

3,553

$

23,816

Provision for Credit Losses

(192)

797

(1,719)

(1,768)

(900)

740

(3,042)

Charge-Offs

(138)

-

(405)

(88)

(94)

(3,040)

(3,765)

Recoveries

305

10

840

720

240

2,376

4,491

Net (Charge-Offs) Recoveries

167

10

435

632

146

(664)

726

Ending Balance

$

2,179

$

3,286

$

5,745

$

4,304

$

2,357

$

3,629

$

21,500

Three Months Ended

September 30, 2020

Beginning Balance

$

2,468

$

1,955

$

6,640

$

5,440

$

2,753

$

3,201

$

22,457

Provision for Credit Losses

(195)

161

616

(344)

196

831

1,265

Charge-Offs

(137)

-

(17)

(1)

(58)

(1,069)

(1,282)

Recoveries 

74

-

30

35

41

517

697

Net Charge-Offs

(63)

-

13

34

(17)

(552)

(585)

Ending Balance

$

2,210

$

2,116

$

7,269

$

5,130

$

2,932

$

3,480

$

23,137

Nine Months Ended 

September 30, 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

544

1,444

2,132

745

337

2,668

7,870

Charge-Offs

(685)

-

(28)

(112)

(141)

(3,810)

(4,776)

Recoveries

188

-

291

126

138

2,126

2,869

Net Charge-Offs

(497)

-

263

14

(3)

(1,684)

(1,907)

Ending Balance

$

2,210

$

2,116

$

7,269

$

5,130

$

2,932

$

3,480

$

23,137

For the nine month period ended September 30, 2021, the allowance for HFI loans decreased by $

2.3

 million and reflected a negative

provision of $

3.0

 million and net loan recoveries of $

0.7

 million. The negative provision generally reflected improving economic

conditions (primarily a lower rate of unemployment and its potential effect on rates of default), favorable problem loan migration, and

strong net loan recoveries. Three unemployment rate forecast scenarios were utilized to estimate probability of default and were

weighted based on management’s estimate of probability. The mitigating impact of the unprecedented fiscal stimulus as well as

various government sponsored loan programs, was also considered. 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

September 30, 2021

Commercial, Financial and Agricultural

$

499

$

36

$

-

$

535

$

218,353

$

41

$

218,929

Real Estate – Construction

-

-

-

-

177,443

-

177,443

Real Estate – Commercial Mortgage

364

-

-

364

683,015

-

683,379

Real Estate – Residential

735

177

-

912

359,861

1,977

362,750

Real Estate – Home Equity

76

19

-

95

186,581

966

187,642

Consumer

1,196

258

-

1,454

309,786

42

311,282

Total

$

2,870

$

490

$

-

$

3,360

$

1,935,039

$

3,026

$

1,941,425

December 31, 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 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.

September 30, 2021

December 31, 2020

Nonaccrual

Nonaccrual

Nonaccrual

Nonaccrual

With

With No

90 + Days

With

With No

90 + Days

(Dollars in Thousands)

ACL

ACL

Still Accruing

ACL

ACL

Still Accruing

Commercial, Financial and Agricultural

$

41

$

-

$

-

$

161

$

-

$

-

Real Estate – Construction

-

-

-

179

-

-

Real Estate – Commercial Mortgage

-

-

-

337

1,075

-

Real Estate – Residential

1,061

916

-

1,617

1,513

-

Real Estate – Home Equity

503

463

-

695

-

-

Consumer

42

-

-

294

-

-

Total Nonaccrual Loans

$

1,647

$

1,379

$

-

$

3,283

$

2,588

$

-

Collateral Dependent Loans.

The following table presents the amortized cost basis of collateral-dependent loans.

September 30, 2021

December 31, 2020

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Secured

Secured

Secured

Commercial, Financial and Agricultural

$

-

$

-

$

-

$

-

Real Estate – Commercial Mortgage

-

-

3,900

-

Real Estate – Residential

1,891

-

3,022

-

Real Estate – Home Equity

665

-

219

-

Consumer

-

-

-

29

Total Collateral Dependent Loans

$

2,556

$

-

$

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 September 30, 2021 and December 31, 2020, the Company had $

1.4

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”).

 At September 30, 2021, the Company had $

8.5

 million in TDRs, of which $

7.9

 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 September 30, 2021 and December 31, 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 three months ended September 30, 2021 and September 30, 2020, there were

no

 loans modified. 

For the nine month period ended September 30, 2021, there were

three

 loans modified with a recorded investment of $

0.6

 million. For

the nine month period ended September 30, 2020, there were

three

 loans modified with a recorded investment of $

0.2

 million. 

For the three and nine month period ended September 30, 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. For the three and nine month period ended

September 30, 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 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 portfolio 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 September 30, 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,

Agriculture:

Pass

$

51,866

$

38,453

$

34,226

$

22,539

$

10,376

$

14,072

$

46,969

$

218,501

Special Mention

-

-

70

12

-

49

-

131

Substandard

-

10

-

204

6

77

-

297

Total

$

51,866

$

38,463

$

34,296

$

22,755

$

10,382

$

14,198

$

46,969

$

218,929

Real Estate -

Construction:

Pass

$

75,222

$

72,664

$

23,588

$

429

$

132

$

-

$

5,408

$

177,443

Total

$

75,222

$

72,664

$

23,588

$

429

$

132

$

-

$

5,408

$

177,443

Real Estate -

Commercial Mortgage:

Pass

$

139,623

$

142,833

$

87,251

$

103,059

$

67,392

$

97,842

$

19,690

$

657,690

Special Mention

-

454

1,552

9,727

431

5,423

-

17,587

Substandard

1,520

585

3,517

-

1,266

990

224

8,102

Total

$

141,143

$

143,872

$

92,320

$

112,786

$

69,089

$

104,255

$

19,914

$

683,379

Real Estate - Residential:

Pass

$

105,611

$

72,091

$

44,393

$

29,792

$

28,447

$

66,748

$

8,538

$

355,620

Special Mention

-

136

20

122

169

419

-

866

Substandard

1,290

441

1,051

812

221

2,373

76

6,264

Total 

$

106,901

$

72,668

$

45,464

$

30,726

$

28,837

$

69,540

$

8,614

$

362,750

Real Estate - Home

Equity:

Performing

$

99

$

56

$

452

$

176

$

749

$

1,756

$

183,388

$

186,676

Nonperforming

-

-

-

-

-

33

933

966

Total 

$

99

$

56

$

452

$

176

$

749

$

1,789

$

184,321

$

187,642

Consumer:

Performing

$

136,780

$

73,778

$

45,252

$

31,530

$

13,377

$

4,666

$

5,857

$

311,240

Nonperforming

-

-

17

24

-

1

-

42

Total

$

136,780

$

73,778

$

45,269

$

31,554

$

13,377

$

4,667

$

5,857

$

311,282