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LOANS HELD FOR INVESTMENT AND ALLOWANCE FOR CREDIT LOSSES | 6 Months Ended
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Jun. 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) June 30, 2023 December 31, 2022 Commercial, Financial and Agricultural $ 227,219 $ 247,362 Real Estate – Construction 226,404 234,519 Real Estate – Commercial Mortgage 831,285 782,557 Real Estate – Residential (1) 882,292 727,105 Real Estate – Home Equity 203,150 208,120 Consumer (2) 296,653 325,517 Loans Held For Investment, Net of Unearned Income $ 2,667,003 $ 2,525,180 (1) Includes loans in process balance of $ 6.1 million at both June 30, 2023 and December 31, 2022. (2) Includes overdraft balances of $ 1.0 million and $ 1.1 million at June 30, 2023 and December 31, 2022, respectively. Net deferred loan costs, which include premiums on purchased loans, included in loans were $ 13.3 million at June 30, 2023 and $ 10.8 million at December 31, 2022. Accrued interest receivable on loans which is excluded from amortized cost totaled $ 9.2 million at June 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 $ 199.5 million and $ 158.8 million for the six months ended June 30, 2023 and June 30, 2022, respectively, and were not credit impaired. For the three months ended June 30, 2022, the Company also acquired commercial real estate loans that were not credit impaired from a third-party bank totaling $ 15.0 million. The Company did no t purchase any commercial real estate loans during the three months ended June 30, 2023. 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. 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 June 30, 2023 Beginning Balance $ 1,515 $ 3,359 $ 4,710 $ 11,649 $ 1,879 $ 3,395 $ 26,507 Provision for Credit Losses (86) (512) 732 1,328 (188) 670 1,944 Charge-Offs (54) - - - (39) (1,887) (1,980) Recoveries 71 1 11 132 131 1,147 1,493 Net (Charge-Offs) Recoveries 17 1 11 132 92 (740) (487) Ending Balance $ 1,446 $ 2,848 $ 5,453 $ 13,109 $ 1,783 $ 3,325 $ 27,964 Six Months Ended June 30, 2023 Beginning Balance $ 1,506 $ 2,654 $ 4,815 $ 10,409 $ 1,864 $ 3,488 $ 24,736 Provision for Credit Losses (8) 192 739 2,511 (198) 1,999 5,235 Charge-Offs (218) - (120) - (39) (4,253) (4,630) Recoveries 166 2 19 189 156 2,091 2,623 Net (Charge-Offs) Recoveries (52) 2 (101) 189 117 (2,162) (2,007) Ending Balance $ 1,446 $ 2,848 $ 5,453 $ 13,109 $ 1,783 $ 3,325 $ 27,964 Three Months Ended June 30, 2022 Beginning Balance $ 2,122 $ 2,596 $ 5,392 $ 4,470 $ 1,916 $ 4,260 $ 20,756 Provision for Credit Losses 564 542 (396) 1,060 (223) 123 1,670 Charge-Offs (1,104) - - - - (1,193) (2,297) Recoveries 59 - 56 115 67 855 1,152 Net Charge-Offs (1,045) - 56 115 67 (338) (1,145) Ending Balance $ 1,641 $ 3,138 $ 5,052 $ 5,645 $ 1,760 $ 4,045 $ 21,281 Six Months Ended June 30, 2022 Beginning Balance $ 2,191 $ 3,302 $ 5,810 $ 4,129 $ 2,296 $ 3,878 $ 21,606 Provision for Credit Losses 403 (172) (577) 1,374 (628) 1,191 1,591 Charge-Offs (1,177) - (266) - (33) (2,595) (4,071) Recoveries 224 8 85 142 125 1,571 2,155 Net Charge-Offs (953) 8 (181) 142 92 (1,024) (1,916) Ending Balance $ 1,641 $ 3,138 $ 5,052 $ 5,645 $ 1,760 $ 4,045 $ 21,281 For the six months ended June 30, 2023, the allowance for HFI loans increased by $ 3.2 million and reflected a provision expense of $ 5.2 million and net loan charge-offs of $ 2.0 million. The increase was primarily driven by incremental reserves needed for loan growth. For the six months ended June 30, 2022, the allowance decreased by $ 0.3 million and reflected a provision expense of $ 1.6 million and net loan charge-offs of $ 1.9 million. The lower provision expense for the six months ended June 30, 2022 was primarily due to the release of reserves held for potential pandemic-related losses that did not materialize to the extent projected, partially offset by growth in reserves for strong new loan origination volume. Four 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 June 30, 2023 Commercial, Financial and Agricultural $ 196 $ 81 $ - $ 277 $ 226,933 $ 9 $ 227,219 Real Estate – Construction - 218 - 218 225,771 415 226,404 Real Estate – Commercial Mortgage 79 45 - 124 828,740 2,421 831,285 Real Estate – Residential 241 128 - 369 880,222 1,701 882,292 Real Estate – Home Equity 68 - - 68 202,326 756 203,150 Consumer 2,409 742 - 3,151 292,181 1,321 296,653 Total $ 2,993 $ 1,214 $ - $ 4,207 $ 2,656,173 $ 6,623 $ 2,667,003 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 - 1,375 725,491 239 727,105 Real Estate – Home Equity - 35 - 35 207,314 771 208,120 Consumer 3,666 1,852 - 5,518 319,415 584 325,517 Total $ 5,137 $ 2,692 $ - $ 7,829 $ 2,515,054 $ 2,297 $ 2,525,180 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. June 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 $ - $ 9 $ - $ - $ 41 $ - Real Estate – Construction 415 - - - 17 - Real Estate – Commercial Mortgage 2,212 209 - 389 256 - Real Estate – Residential 1,172 529 - - 239 - Real Estate – Home Equity 227 529 - - 771 - Consumer - 1,321 - - 584 - Total Nonaccrual Loans $ 4,026 $ 2,597 $ - $ 389 $ 1,908 $ - Collateral Dependent Loans. The following table presents the amortized cost basis of collateral-dependent loans. June 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 415 - - - Real Estate – Commercial Mortgage 2,212 - 389 - Real Estate – Residential 1,098 - 160 - Real Estate – Home Equity 227 - 130 - Consumer - - 21 - Total Collateral Dependent Loans $ 3,952 $ - $ 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 June 30, 2023 and December 31, 2022, the Company had $ 0.7 million and $ 0.6 million, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process. For the six-month period ended June 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 June 30, 2023 and current period gross write-offs for the six months ended June 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 $ 25,879 $ 77,944 $ 36,236 $ 14,631 $ 10,016 $ 10,518 $ 46,644 $ 221,868 Special Mention 1,490 516 986 126 69 149 1,909 5,245 Substandard 6 46 21 17 - 16 - 106 Total $ 27,375 $ 78,506 $ 37,243 $ 14,774 $ 10,085 $ 10,683 $ 48,553 $ 227,219 Current-Period Gross Writeoffs $ - $ 129 $ 40 $ 14 $ 12 $ 10 $ 13 $ 218 Real Estate - Construction: Pass $ 59,976 $ 121,631 $ 32,667 $ 1,807 $ 189 $ 123 $ 7,855 $ 224,248 Special Mention 478 - 375 - - - - 853 Substandard - - 218 1,085 - - - 1,303 Total $ 60,454 $ 121,631 $ 33,260 $ 2,892 $ 189 $ 123 $ 7,855 $ 226,404 Real Estate - Commercial Mortgage: Pass $ 62,928 $ 261,333 $ 165,145 $ 128,342 $ 47,330 $ 130,477 $ 19,554 $ 815,109 Special Mention 4,343 793 948 239 1,483 2,461 439 10,706 Substandard - 806 831 1,920 628 632 653 5,470 Total $ 67,271 $ 262,932 $ 166,924 $ 130,501 $ 49,441 $ 133,570 $ 20,646 $ 831,285 Current-Period Gross Writeoffs $ - $ - $ - $ - $ - $ 120 $ - $ 120 Real Estate - Residential: Pass $ 211,696 $ 418,730 $ 89,049 $ 41,916 $ 26,818 $ 75,872 $ 8,323 $ 872,404 Special Mention 269 92 228 517 - 560 - 1,666 Substandard 70 1,320 1,253 1,571 935 3,073 - 8,222 Total $ 212,035 $ 420,142 $ 90,530 $ 44,004 $ 27,753 $ 79,505 $ 8,323 $ 882,292 Real Estate - Home Equity: Performing $ - $ 50 $ 129 $ 11 $ 392 $ 1,122 $ 200,689 $ 202,393 Nonperforming - - - - - - 757 757 Total $ - $ 50 $ 129 $ 11 $ 392 $ 1,122 $ 201,446 $ 203,150 Current-Period Gross Writeoffs $ - $ - $ - $ - $ - $ - $ 39 $ 39 Consumer: Performing $ 39,592 $ 109,461 $ 88,648 $ 28,133 $ 14,878 $ 8,976 $ 5,645 $ 295,333 Nonperforming - 633 418 179 81 7 2 1,320 Total $ 39,592 $ 110,094 $ 89,066 $ 28,312 $ 14,959 $ 8,983 $ 5,647 $ 296,653 Current-Period Gross Writeoffs $ 1,571 $ 1,486 $ 763 $ 138 $ 143 $ 63 $ 89 $ 4,253

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI https://asc.fasb.org/subtopic&trid=2196772 + Details
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