LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2023

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, 2023

December 31, 2022

Commercial, Financial and Agricultural

$

221,704

$

247,362

Real Estate – Construction

197,526

234,519

Real Estate – Commercial Mortgage

828,234

782,557

Real Estate – Residential

(1)

967,913

749,513

Real Estate – Home Equity

203,606

208,217

Consumer

(2)

286,198

325,517

Loans Held For Investment, Net of Unearned Income

$

2,705,181

$

2,547,685

(1)

Includes loans in process balance of $

2.3

 million and $

6.1

 million at both September 30, 2023 and December 31, 2022.

(2)

Includes overdraft balances of $

1.1

 million at September 30, 2023 and December 31, 2022, respectively.

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

7.2

 million at September 30, 2023 and

$

5.1

 million at December 31, 2022.

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

9.7

 million at September 30, 2023 and $

8.0

million at December 31, 2022, 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 $

293.1

 million and

$

267.0

 million for the nine months ended September 30, 2023 and September 30, 2022, 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 2022 Form 10-K/A. 

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, 2023

Beginning Balance

$

1,446

$

2,848

$

5,453

$

13,388

$

1,783

$

3,325

$

28,243

Provision for Credit Losses

(59)

(536)

84

1,356

(71)

1,219

1,993

Charge-Offs

(76)

-

-

-

-

(1,999)

(2,075)

Recoveries 

28

-

17

30

53

794

922

Net (Charge-Offs) Recoveries

(48)

-

17

30

53

(1,205)

(1,153)

Ending Balance

$

1,339

$

2,312

$

5,554

$

14,774

$

1,765

$

3,339

$

29,083

Nine Months Ended 

September 30, 2023

Beginning Balance

$

1,506

$

2,654

$

4,815

$

10,741

$

1,864

$

3,488

$

25,068

Provision for Credit Losses

(67)

(344)

823

3,814

(269)

3,218

7,175

Charge-Offs

(294)

-

(120)

-

(39)

(6,252)

(6,705)

Recoveries

194

2

36

219

209

2,885

3,545

Net (Charge-Offs) Recoveries

(100)

2

(84)

219

170

(3,367)

(3,160)

Ending Balance

$

1,339

$

2,312

$

5,554

$

14,774

$

1,765

$

3,339

$

29,083

Three Months Ended

September 30, 2022

Beginning Balance

$

1,641

$

3,138

$

5,052

$

5,827

$

1,760

$

4,045

$

21,463

Provision for Credit Losses

(136)

(22)

(120)

1,388

127

749

1,986

Charge-Offs

(2)

-

(1)

-

-

(1,759)

(1,762)

Recoveries 

58

2

8

44

22

926

1,060

Net Charge-Offs

56

2

7

44

22

(833)

(702)

Ending Balance

$

1,561

$

3,118

$

4,939

$

7,259

$

1,909

$

3,961

$

22,747

Nine Months Ended 

September 30, 2022

Beginning Balance

$

2,191

$

3,302

$

5,810

$

4,129

$

2,296

$

3,878

$

21,606

Provision for Credit Losses

267

(194)

(697)

2,944

(501)

1,940

3,759

Charge-Offs

(1,179)

-

(267)

-

(33)

(4,354)

(5,833)

Recoveries

282

10

93

186

147

2,497

3,215

Net Charge-Offs

(897)

10

(174)

186

114

(1,857)

(2,618)

Ending Balance

$

1,561

$

3,118

$

4,939

$

7,259

$

1,909

$

3,961

$

22,747

For the nine months ended September 30, 2023, the allowance for HFI loans increased by $

4.0

 million and reflected a provision

expense of $

7.2

 million and net loan charge-offs of $

3.2

 million. The increase was primarily driven by incremental reserves needed

for loan growth and a higher loss rate for the residential real estate portfolio due to slower prepayment speeds. For the nine months

ended September 30, 2022, the allowance increased by $

1.1

 million and reflected a provision expense of $

3.8

 million and net loan

charge-offs of $

2.6

 million. The increase was driven by incremental reserves needed for loan growth, and to a lesser extent, a higher

projected rate of unemployment and its potential effect on rates of default. Unemployment forecast scenarios were utilized to estimate

probability of default and are 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

September 30, 2023

Commercial, Financial and Agricultural

$

306

$

106

$

-

$

412

$

221,236

$

56

$

221,704

Real Estate – Construction

-

-

-

-

197,251

275

197,526

Real Estate – Commercial Mortgage

393

44

-

437

826,888

909

828,234

Real Estate – Residential

331

117

-

448

965,171

2,294

967,913

Real Estate – Home Equity

420

27

-

447

202,692

467

203,606

Consumer

3,040

793

-

3,833

281,672

693

286,198

Total

$

4,490

$

1,087

$

-

$

5,577

$

2,694,910

$

4,694

$

2,705,181

December 31, 2022

Commercial, Financial and Agricultural

$

109

$

126

$

-

$

235

$

247,086

$

41

$

247,362

Real Estate – Construction

359

-

-

359

234,143

17

234,519

Real Estate – Commercial Mortgage

158

149

-

307

781,605

645

782,557

Real Estate – Residential

845

530

-

1,375

747,899

239

749,513

Real Estate – Home Equity

-

35

-

35

207,411

771

208,217

Consumer

3,666

1,852

-

5,518

319,415

584

325,517

Total 

$

5,137

$

2,692

$

-

$

7,829

$

2,537,559

$

2,297

$

2,547,685

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, 2023

December 31, 2022

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

$

-

$

56

$

-

$

-

$

41

$

-

Real Estate – Construction

-

275

-

-

17

-

Real Estate – Commercial Mortgage

780

129

-

389

256

-

Real Estate – Residential

1,084

1,210

-

-

239

-

Real Estate – Home Equity

-

467

-

-

771

-

Consumer

-

693

-

-

584

-

Total Nonaccrual Loans

$

1,864

$

2,830

$

-

$

389

$

1,908

$

-

Collateral Dependent Loans.

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

September 30, 2023

December 31, 2022

Real Estate

Non Real Estate

Real Estate

Non Real Estate

(Dollars in Thousands)

Secured

Secured

Secured

Secured

Commercial, Financial and Agricultural

$

-

$

-

$

-

$

-

Real Estate – Construction

275

-

-

-

Real Estate – Commercial Mortgage

781

-

389

-

Real Estate – Residential

1,084

-

160

-

Real Estate – Home Equity

-

-

130

-

Consumer

-

-

21

-

Total Collateral Dependent Loans

$

2,140

$

-

$

700

$

-

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, 2023 and December 31, 2022, the Company had $

0.4

million and $

0.6

 million, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in

process.

For the nine-month period ended September 30, 2023, the Company did

no

t modify any loans made to borrowers experiencing

financial difficulty.

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 September 30, 2023 and current period gross write-offs for the nine

months ended September 30, 2023 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)

2023

2022

2021

2020

2019

Prior

Loans

Total

Commercial, Financial,

Agriculture:

Pass

$

40,571

$

72,609

$

32,101

$

12,418

$

8,920

$

9,055

$

44,290

$

219,964

Special Mention

182

461

405

11

13

8

76

1,156

Substandard

-

106

108

82

27

150

111

584

Total

$

40,753

$

73,176

$

32,614

$

12,511

$

8,960

$

9,213

$

44,477

$

221,704

Current-Period Gross

Writeoffs

$

6

$

149

$

48

$

31

$

12

$

10

$

38

$

294

Real Estate -

Construction:

Pass

$

76,755

$

88,831

$

22,609

$

1,214

$

189

$

-

$

5,482

$

195,080

Special Mention

568

-

625

214

-

-

-

1,407

Substandard

-

-

378

661

-

-

-

1,039

Total

$

77,323

$

88,831

$

23,612

$

2,089

$

189

$

-

$

5,482

$

197,526

Real Estate -

Commercial Mortgage:

Pass

$

93,098

$

277,464

$

154,743

$

108,076

$

44,874

$

115,068

$

16,059

$

809,382

Special Mention

3,299

316

-

233

1,373

1,014

-

6,235

Substandard

-

1,250

6,781

1,651

614

1,627

694

12,617

Total

$

96,397

$

279,030

$

161,524

$

109,960

$

46,861

$

117,709

$

16,753

$

828,234

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

120

$

-

$

120

Real Estate - Residential:

Pass

$

294,155

$

434,902

$

86,357

$

39,468

$

26,126

$

71,667

$

8,031

$

960,706

Special Mention

269

90

225

510

-

542

-

1,636

Substandard

790

106

204

479

918

3,074

-

5,571

Total 

$

295,214

$

435,098

$

86,786

$

40,457

$

27,044

$

75,283

$

8,031

$

967,913

Real Estate - Home

Equity:

Performing

$

71

$

145

$

130

$

11

$

388

$

997

$

201,397

$

203,139

Nonperforming

-

-

-

-

-

-

467

467

Total 

$

71

$

145

$

130

$

11

$

388

$

997

$

202,257

$

203,606

Current-Period Gross

Writeoffs

$

-

$

-

$

-

$

-

$

-

$

-

$

39

$

39

Consumer:

Performing

$

57,755

$

99,327

$

79,230

$

24,375

$

12,417

$

6,387

$

6,014

$

285,505

Nonperforming

69

226

202

193

-

3

-

693

Total

$

57,824

$

99,553

$

79,432

$

24,568

$

12,417

$

6,390

$

6,014

$

286,198

Current-Period Gross

Writeoffs

$

2,322

$

2,199

$

1,075

$

228

$

200

$

94

$

134

$

6,252