Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2022

(3) Loans and Allowance for Loan Losses

Major classifications of loans, by collateral code, at March 31, 2022 and December 31, 2021 are summarized as follows: (in thousands)


	March 31, 2022			December 31, 2021
Commercial (secured by real estate - owner occupied)	$	156,332		$	158,662
Commercial (secured by real estate - non-owner occupied)		119,461			104,042
Commercial and industrial		155,374			152,834
Paycheck Protection Program loans		7,078			17,883
Construction, land and acquisition & development		27,138			16,317
Residential mortgage 1-4 family		56,448			63,065
Consumer installment		79,862			71,580
Total		601,693			584,384
Less allowance for loan losses		(8,806	)		(8,559	)
Total loans, net	$	592,887		$	575,825

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. 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 730 and 1,171 PPP loans totaling $66.1 million and $130.3 million for the years ended December 31, 2021 and 2020, respectively. These loans are fully guaranteed by the Small Business Administration.

Qualifying loans in the amount of $361.0 million and $343.6 million were pledged to secure the line of credit from the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2022 and December 31, 2021, 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 and for the three months ended March 31, 2022 and as of December 31, 2021: (in thousands)


March 31, 2022	Commercial (Secured by Real Estate - Owner Occupied)			Commercial (Secured by Real Estate - Non-Owner Occupied)		Commercial and Industrial			Paycheck Protection Program (1)		Construction, Land and Acquisition & Development			Residential Mortgage			Consumer Installment			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,701		$	1,980	$	2,242		$	—	$	162		$	502		$	969		$	3		$	8,559
Provision		(266	)		240		33			—		174			(89	)		147			11			250
Charge-offs		—			—		(26	)		—		—			—			(25	)		—			(51	)
Recoveries		—			—		3			—		—			38			7			—			48
Ending balance	$	2,435		$	2,220	$	2,252		$	—	$	336		$	451		$	1,098		$	14		$	8,806
Ending allowance attributable to loans:
Individually evaluated for impairment	$	—		$	1	$	—		$	—	$	—		$	5		$	—		$	—		$	6
Collectively evaluated for impairment		2,435			2,219		2,252			—		336			446			1,098			14			8,800
Total ending allowance	$	2,435		$	2,220		2,252		$	—	$	336		$	451		$	1,098		$	14		$	8,806
Loans:
Individually evaluated for impairment	$	93		$	3,374	$	388		$	—	$	—		$	2,705		$	—		$	—		$	6,560
Collectively evaluated for impairment		156,239			116,087		154,986			7,078		27,138			53,743			79,862			—			595,133
Total loans	$	156,332		$	119,461	$	155,374		$	7,078	$	27,138		$	56,448		$	79,862		$	—		$	601,693

December 31, 2021
Allowance for loan losses:
Beginning balance	$	1,913		$	1,171	$	1,320		$	—	$	224		$	970		$	719		$	44		$	6,361
Provision		(519	)		809		1,119			—		(62	)		(541	)		310			(41	)		1,075
Charge-offs		-			-		(234	)		—		—			—			(76	)		—			(310	)
Recoveries		1,307			-		37			—		—			73			16			—			1,433
Ending balance	$	2,701		$	1,980	$	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		2,701			1,979		2,241			—		162			497			969			3			8,552
Total ending allowance	$	2,701		$	1,980	$	2,242		$	—	$	162		$	502		$	969		$	3		$	8,559
Loans:
Individually evaluated for impairment	$	95		$	3,387	$	753		$	—	$	—		$	2,992		$	1		$	—		$	7,228
Collectively evaluated for impairment		158,567			100,655		152,082			17,883		16,317			60,073			71,579			—			577,156
Total loans	$	158,662		$	104,042	$	152,835		$	17,883	$	16,317		$	63,065		$	71,580		$	—		$	584,384

(1)

Includes PPP 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 March 31, 2022 and December 31, 2021 were as follows: (in thousands)


March 31, 2022	Recorded Investment		Unpaid Principal Balance		Allocated Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial (secured by real estate - owner occupied)	$	93	$	93	$	—	$	96	$	1
Commercial (secured by real estate - non-owner occupied)		3,188		3,188		—		3,172		11
Commercial and industrial		388		388		—		418		—
Paycheck Protection Program		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		—
Residential mortgage		1,776		1,776		—		1,836		3
Consumer installment		—		—		—		2		—
		5,445		5,445		—		5,524		15
With an allowance recorded:
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	—
Commercial (secured by real estate - non-owner occupied)		186		186		1		190		3
Commercial and industrial		—		—		—		—		—
Construction, land and acquisition & development		—		—		—		—		—
Residential mortgage		929		929		5		951		13
Consumer installment		—		—		—		—		—
		1,115		1,115		6		1,141		16
Total impaired loans	$	6,560	$	6,560	$	6	$	6,665	$	31


December 31, 2021
With no related allowance recorded:
Commercial (secured by real estate - owner occupied)	$	95	$	95	$	—	$	100	$	6
Commercial (secured by real estate - non-owner occupied)		3,199		3,199		—		3,177		45
Commercial and industrial		388		421		—		458		—
Paycheck Protection Program		—		—		—		—		—
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 - owner occupied)	$	—	$	—	$	—	$	—	$	—
Commercial (secured by real estate - non-owner occupied)		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

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 March 31, 2022 and December 31, 2021 by class of loans: (in thousands)


March 31, 2022	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 - owner occupied)	$	44	$	—	$	—	$	44	$	156,288	$	156,332	$	—
Commercial (secured by real estate - non-owner occupied)		18		5		—		23		119,438		119,461		3,189
Commercial and industrial		—		—		388		388		154,986		155,374		388
Paycheck Protection Program		—		—		—		—		7,078		7,078		—
Construction, land and acquisition & development		—		—		—		—		27,138		27,138		—
Residential mortgage		2,871		97		213		3,181		53,267		56,448		2,683
Consumer installment		355		—		—		355		79,507		79,862		78
Total	$	3,288	$	102	$	601	$	3,991	$	597,702	$	601,693	$	6,338

December 31, 2021
Commercial (secured by real estate - owner occupied)	$	—	$	—	$	—	$	—	$	158,662	$	158,662	$	—
Commercial (secured by real estate - non-owner occupied)		—		—		3,200		3,200		100,842		104,042		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

There were no loans past due 90 days or greater and still accruing interest as of March 31, 2022 and December 31, 2021.

There was no new troubled debt restructuring during the three months ended March 31, 2022 or March 31, 2021. No troubled debt restructurings subsequently defaulted during the three months ended March 31, 2022 or 2021.

The Bank has allocated an allowance for loan losses of approximately $6,000 and $10,000 to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2022 and December 31, 2021, respectively.

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 the same weaknesses as 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 March 31, 2022 and December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows: (in thousands)


March 31, 2022	Pass		Special Mention		Substandard		Doubtful/ Loss		Total
Commercial (secured by real estate - owner occupied)	$	155,949	$	383	$	—	$	—	$	156,332
Commercial (secured by real estate - non-owner occupied)		113,719		2,336		3,406		—		119,461
Commercial and industrial		154,949		—		425		—		155,374
Paycheck Protection Program		7,078		—		—		—		7,078
Construction, land and acquisition & development		27,138		—		—		—		27,138
Residential mortgage		52,728		—		3,720		—		56,448
Consumer installment		79,784		—		78		—		79,862
Total	$	591,345	$	2,719	$	7,629	$	—	$	601,693


December 31, 2021	Pass		Special Mention		Substandard		Doubtful/ Loss		Total
Commercial (secured by real estate - owner occupied)	$	158,272	$	390	$	—	$	—	$	158,662
Commercial (secured by real estate - non-owner occupied)		98,269		2,352		3,421		—		104,042
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