Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2021

(4) Loans and Allowance for Loan Losses

Major classifications of loans, by collateral code, at December 31, 2021 and 2020 are summarized as follows: (in thousands)


	December 31, 2021			December 31, 2020
Commercial (secured by real estate)	$	262,704			178,571
Commercial and industrial		152,835			155,554
Paycheck Protection Program loans		17,883			101,749
Construction, land and acquisition & development		16,317			23,571
Residential mortgage 1-4 family		63,065			91,777
Consumer installment		71,580			47,393
		584,384			598,615
Less allowance for loan losses		(8,559	)		(6,361	)
	$	575,825		$	592,254

The Bank grants loans and extensions of credit to individuals and a variety of firms and corporations located primarily in the Atlanta, Georgia MSA. A substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market. The Bank has a specialized expertise in lending to dentists and dental practices, with dental practice loans totaling $179.8 million, or 30.6%, and $170.8 million, or 29.2% of our loan portfolio, as of December 31, 2021 and 2020, respectively. With the acquisition of Affinity Bank, the Bank is a premier lender within professional markets, with a primary focus on the dental industry in Georgia and adjoining states. The majority of these loans are commercial and industrial credits for practice acquisitions and equipment financing with the remainder being owner-occupied real estate.

The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is an economic stimulus bill signed into law on March 27, 2020, in response to the economic fallout of the COVID-19 pandemic in the United States. The creation of the Paycheck Protection Program (PPP) enacted under the CARES Act provides forgivable loans to small businesses for payroll obligations, emergency grants to cover immediate operating costs, and a mechanism for loan forgiveness by the Small Business Administration should all criteria be met. The Bank received SBA authorization for 1,901 PPP loans totaling $196.4 million during 2021 and 2020. These loans are fully guaranteed by the Small Business Administration.

Qualifying loans in the amount of approximately $343.6 million and $309.9 million were pledged to secure the line of credit from the FHLB at December 31, 2021 and 2020, respectively.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2021 and 2020: (in thousands)


December 31, 2021	Commercial (Secured by Real Estate)			Commercial and Industrial			Paycheck Protection Program (1)		Construction, Land and Acquisition & Development			Residential Mortgage			Consumer Installment			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	3,084			1,320			—		224			970			719			44			6,361
Provision		290			1,119			—		(62	)		(541	)		310			(41	)		1,075
Charge-offs		—			(234	)		—		—			—			(76	)		—			(310	)
Recoveries		1,307			37			—		—			73			16			—			1,433
Ending balance	$	4,681			2,242			—		162			502			969			3			8,559
Ending allowance attributable to loans:
Individually evaluated for impairment	$	1			1			—		—			5			—			—			7
Collectively evaluated for impairment		4,680			2,241			—		162			497			969			3			8,552
Total ending allowance	$	4,681		$	2,242		$	—	$	162		$	502		$	969		$	3		$	8,559
Loans:
Individually evaluated for impairment	$	3,482			753			—		—			2,992			1			—			7,228
Collectively evaluated for impairment		259,222			152,082			17,883		16,317			60,073			71,579			—			577,156
Total loans	$	262,704			152,835			17,883		16,317			63,065			71,580			—			584,384
December 31, 2020
Allowance for loan losses:
Beginning balance	$	1,661			1,478			—		153			369			466			7			4,134
Provision		1,207			(194	)		—		71			627			252			37			2,000
Charge-offs		(30	)		-			—		—			(126	)		(29	)		—			(185	)
Recoveries		246			36			—		—			100			30			—			412
Ending balance	$	3,084			1,320			—		224			970			719			44			6,361
Ending allowance attributable to loans:
Individually evaluated for impairment	$	2			35			—		—			14			—			—			51
Collectively evaluated for impairment		3,082			1,285			—		224			956			719			44			6,310
Total ending allowance	$	3,084		$	1,320		$	—	$	224		$	970		$	719		$	44		$	6,361
Loans:
Individually evaluated for impairment	$	2,584			1,085			—		—			3,597			8			—			7,274
Collectively evaluated for impairment		175,987			154,469			101,749		23,571			88,180			47,385			—			591,341
Total loans	$	178,571			155,554			101,749		23,571			91,777			47,393			—			598,615

(1)

Consists of loans that are fully guaranteed by the SBA; thus, no allowance for loan losses has been allocated to these loans.

The Bank individually evaluates all loans for impairment that are on nonaccrual status or are rated substandard (as described below). Additionally, all troubled debt restructurings are evaluated for impairment. A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Interest payments received on impaired loans are applied as a reduction of the outstanding principal balance.

Impaired loans At December 31, 2021 and 2020 were as follows: (in thousands)


December 31, 2021	Recorded Investment		Unpaid Principal Balance		Allocated Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial (secured by real estate)	$	3,294		3,294		—		3,277		51
Commercial and industrial		388		421		—		458		—
Construction, land and acquisition & development		—		—		—		—		—
Residential mortgage		2,052		2,052		—		2,110		31
Consumer installment		1		1		—		3		—
		5,735		5,768		—		5,848		82
With an allowance recorded:
Commercial (secured by real estate)		188		189		1		192		12
Commercial and industrial		365		365		1		379		—
Construction, land and acquisition & development		—		—		—		—		—
Residential mortgage		940		941		5		960		60
Consumer installment		—		—		—		—		—
		1,493		1,495		7		1,531		72
Total impaired loans	$	7,228		7,263		7		7,379		154

December 31, 2020
With no related allowance recorded:
Commercial (secured by real estate)	$	1,136		2,232		—		1,138		42
Commercial and industrial		395		395		—		395		—
Construction, land and acquisition & development		—		—		—		—		—
Residential mortgage		1,986		1,987		—		2,041		9
Consumer installment		8		8		—		9		1
		3,525		4,622		—		3,583		52
With an allowance recorded:
Commercial (secured by real estate)		1,448		1,449		2		—		91
Commercial and industrial		690		690		35		1,481		6
Construction, land and acquisition & development		—		—		—		727		—
Residential mortgage		1,611		1,613		14		—		73
Consumer installment		—		—		—		1,634		—
		3,749		3,752		51		3,842		170
Total impaired loans	$	7,274		8,374		51		7,425		222

The following table presents the aging of the recorded investment in past due loans, as well as the recorded investment in nonaccrual loans, as of December 31, 2021 and 2020 by class of loans: (in thousands)


December 31, 2021	30 -59 Days Past Due		60- 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total		Nonaccrual
Commercial (secured by real estate)	$	—		—		3,200		3,200		259,504		262,704		3,200
Commercial and industrial		338		—		813		1,151		151,684		152,835		813
Paycheck Protection Program		—		—		—		—		17,883		17,883		—
Construction, land and acquisition & development		—		—		—		—		16,317		16,317		—
Residential mortgage		4,094		1,711		321		6,126		56,939		63,065		2,873
Consumer installment		289		45		—		334		71,246		71,580		125
Total	$	4,721		1,756		4,334		10,811		573,573		584,384		7,011
December 31, 2020
Commercial (secured by real estate)	$	3,386		—		1,136		4,522		174,049		178,571		1,157
Commercial and industrial		29		—		1,085		1,114		154,440		155,554		1,085
Paycheck Protection Program		—		—		—		—		101,749		101,749		—
Construction, land and acquisition & development		1,392		—		—		1,392		22,179		23,571		—
Residential mortgage		4,308		1,094		1,444		6,846		84,931		91,777		2,587
Consumer installment		78		—		73		151		47,242		47,393		73
Total	$	9,193		1,094		3,738		14,025		584,590		598,615		4,902

There were no loans past due over 90 days and still accruing interest as of December 31, 2021 and 2020.

The table below presents information on troubled debt restructurings including the number of loan contracts restructured and the pre- and post-modification recorded investment that have occurred during the years ended December 31, 2021 and 2020. Also included in the table are the number of contracts and the recorded investment for those trouble debt restructurings that have subsequently defaulted during the years ended December 31, 2021 and 2020: (in thousands)


			Pre- Modification Outstanding		Post- Modification Outstanding		Troubled Debt Restructurings that have Subsequently Defaulted
December 31, 2021	Number of Contracts		Recorded Investment		Recorded Investment		Number of Contracts		Recorded Investment
Residential mortgage		1	$	71		71		—		—

December 31, 2020
Residential mortgage		1	$	31		31		—		—

The Bank has allocated an allowance for loan losses of approximately $6,000 and $17,000 to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2021 and 2020, respectively.

The CARES Act provides temporary relief from accounting for certain pandemic-related loan modifications as a troubled debt restructuring. During the years ended December 31, 2020 and 2021 the Bank has granted short-term deferrals on 744 loans totaling $189.6 million that were otherwise performing. All of these loans but one has returned to normal performing status as of December 31, 2021. This loan is in nonaccrual status. There were no outstanding modifications that were excluded from TDR classification based on this law as of December 31, 2021.

The Bank 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 Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

Special Mention. Loans have potential weaknesses that may, if not corrected, weaken or inadequately protect the Bank's credit position at some future date. Weaknesses are generally the result of deviation from prudent lending practices, such as over advances on collateral. Credits in this category should, within a 12 month period, move to Pass if improved or drop to Substandard if poor trends continue.

Substandard. Inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans have a well-defined weakness or weaknesses such as primary source of repayment is gone or severely impaired or cash flow is insufficient to reduce debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans have weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable. The likelihood of a loss on an asset or portion of an asset classified Doubtful is high.

Loss. Loans considered uncollectible and of such little value that the continuance as a Bank asset is not warranted. This does not mean that the loan has no recovery or salvage value, but rather the asset should be charged off even though partial recovery may be possible in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. As of December 31, 2021 and 2020, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (in thousands)


December 31, 2021	Pass		Special Mention		Substandard		Doubtful/ Loss		Total
Commercial (secured by real estate)	$	256,541		2,742		3,421		—		262,704
Commercial and industrial		151,983		—		852		—		152,835
Paycheck Protection Program		17,883		—		—		—		17,883
Construction, land and acquisition & development		16,005		312		—		—		16,317
Residential mortgage		59,080		—		3,985		—		63,065
Consumer installment		71,440		—		140		—		71,580
Total	$	572,932		3,054		8,398		—		584,384


December 31, 2020	Pass		Special Mention		Substandard		Doubtful/ Loss		Total
Commercial (secured by real estate)	$	176,629		785		1,157		—		178,571
Commercial and industrial		154,469		—		1,085		—		155,554
Paycheck Protection Program		101,749		—		—		—		101,749
Construction, land and acquisition & development		23,571		—		—		—		23,571
Residential mortgage		87,738		62		3,977		—		91,777
Consumer installment		47,332		—		61		—		47,393
Total	$	591,488		847		6,280		—		598,615