Annual report pursuant to Section 13 and 15(d)

LOANS, NET

v3.19.3.a.u2
LOANS, NET
12 Months Ended
Dec. 31, 2019
Loans, net [Abstract]  
LOANS, NET

Note 3

LOANS, NET

Loan Portfolio Composition. The composition of the loan portfolio at December 31 was as follows:

(Dollars in Thousands) 2019 2018
Commercial, Financial and Agricultural $ 255,365   $ 233,689
Real Estate – Construction   115,018     89,527
Real Estate – Commercial Mortgage   625,556     602,061
Real Estate – Residential(1)   361,450     342,215
Real Estate – Home Equity   197,360     210,111
Consumer(2)   281,180     296,622
Loans, Net of Unearned Income $ 1,835,929   $ 1,774,225

(1) Includes loans in process with outstanding balances of $8.3 million and $9.2 million for 2019 and 2018, respectively.

(2) Includes overdraft balances of $1.6 million for 2019 and 2018.

Net deferred costs included in loans were $1.8 million at December 31, 2019 and $1.5 million at December 31, 2018.

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.

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 recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans at December 31:

2019   2018
(Dollars in Thousands) Nonaccrual   90 + Days Nonaccrual 90 + Days
Commercial, Financial and Agricultural $ 446 $ - $ 267 $ -
Real Estate – Construction   - - 722 -
Real Estate – Commercial Mortgage   1,434 - 2,860 -
Real Estate – Residential   1,392 - 2,119 -
Real Estate – Home Equity   797 - 584 -
Consumer   403 - 320 -
Total Nonaccrual Loans $ 4,472 $ - $ 6,872 $ -

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 recorded investment in past due loans by class of loans at December 31,

30-59 60-89 90 + Total Total Total
(Dollars in Thousands) DPD DPD DPD Past Due Current Loans(1)
2019
Commercial, Financial and Agricultural $ 489 $ 191 $ - $ 680 $ 254,239 $ 255,365
Real Estate – Construction   300 10 - 310 114,708 115,018
Real Estate – Commercial Mortgage   148 84 - 232 623,890 625,556
Real Estate – Residential   629 196 - 825 359,233 361,450
Real Estate – Home Equity   155 20 - 175 196,388 197,360
Consumer   2,000 649 - 2,649 278,128 281,180
Total Past Due Loans $ 3,721 $ 1,150 $ - $ 4,871 $ 1,826,586 $ 1,835,929
2018
Commercial, Financial and Agricultural $ 104 $ 58 $ - $ 162 $ 233,260 $ 233,689
Real Estate – Construction   489 - - 489 88,316 89,527
Real Estate – Commercial Mortgage   124 - - 124 599,077 602,061
Real Estate – Residential   745 627 - 1,372 338,724 342,215
Real Estate – Home Equity   512 124 - 636 208,891 210,111
Consumer   1,661 313 - 1,974 294,328 296,622
Total Past Due Loans $ 3,635 $ 1,122 $ - $ 4,757 $ 1,762,596 $ 1,774,225
(1) Total Loans include nonaccrual loans of $4.5 million for 2019 and $6.9 million for 2018.

Allowance for Loan Losses. The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses within the existing portfolio of loans.  Loans are charged-off to the allowance when losses are deemed to be probable and reasonably quantifiable.

The following table details the activity in the allowance for loan losses by portfolio class for the years ended December 31. 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
2019
Beginning Balance $ 1,434 $ 280 $ 4,181 $ 3,400 $ 2,301 $ 2,614 $ 14,210
Provision for Loan Losses 664 371 (1,129) (301) 178 2,244 2,027
Charge-Offs (768) (281) (214) (400) (430) (2,878) (4,971)
Recoveries 345 - 578 429 175 1,112 2,639
Net Charge-Offs (423) (281) 364 29 (255) (1,766) (2,332)
Ending Balance $ 1,675 $ 370 $ 3,416 $ 3,128 $ 2,224 $ 3,092 $ 13,905
2018
Beginning Balance $ 1,191 $ 122 $ 4,346 $ 3,206 $ 2,506 $ 1,936 $ 13,307
Provision for Loan Losses 428 139 (223) 331 137 2,109 2,921
Charge-Offs (644) (7) (315) (780) (533) (2,395) (4,674)
Recoveries 459 26 373 643 191 964 2,656
Net Charge-Offs (185) 19 58 (137) (342) (1,431) (2,018)
Ending Balance $ 1,434 $ 280 $ 4,181 $ 3,400 $ 2,301 $ 2,614 $ 14,210
2017
Beginning Balance $ 1,198 $ 168 $ 4,315 $ 3,445 $ 2,297 $ 2,008 $ 13,431
Provision for Loan Losses 1,037 (96) 542 (444) 180 996 2,215
Charge-Offs (1,357) - (685) (411) (190) (2,193) (4,836)
Recoveries 313 50 174 616 219 1,125 2,497
Net Charge-Offs (1,044) 50 (511) 205 29 (1,068) (2,339)
Ending Balance $ 1,191 $ 122 $ 4,346 $ 3,206 $ 2,506 $ 1,936 $ 13,307

The following table details the amount of the allowance for loan losses by portfolio class at December 31, disaggregated on the basis of the Company’s impairment methodology:

Commercial, Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
(Dollars in Thousands) Agricultural Construction Mortgage Residential Home Equity Consumer Total
2019
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 121 $ - $ 533 $ 678 $ 378 $ 2 $ 1,712
Loans Collectively
Evaluated for Impairment 1,554 370 2,883 2,450 1,846 3,090 12,193
Ending Balance $ 1,675 $ 370 $ 3,416 $ 3,128 $ 2,224 $ 3,092 $ 13,905
2018
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 118 $ 52 $ 1,026 $ 919 $ 289 $ 1 $ 2,405
Loans Collectively
Evaluated for Impairment 1,316 228 3,155 2,481 2,012 2,613 11,805
Ending Balance $ 1,434 $ 280 $ 4,181 $ 3,400 $ 2,301 $ 2,614 $ 14,210
2017
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 215 $ 1 $ 2,165 $ 1,220 $ 515 $ 1 $ 4,117
Loans Collectively
Evaluated for Impairment 976 121 2,181 1,986 1,991 1,935 9,190
Ending Balance $ 1,191 $ 122 $ 4,346 $ 3,206 $ 2,506 $ 1,936 $ 13,307

The Company’s recorded investment in loans as of December 31 related to each balance in the allowance for loan losses by portfolio class and disaggregated on the basis of the Company’s impairment methodology was as follows:

Commercial, Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
(Dollars in Thousands) Agricultural Construction Mortgage Residential Home Equity Consumer Total
2019
Individually Evaluated
for Impairment $ 727 $ - $ 11,957 $ 8,633 $ 1,673 $ 71 $ 23,061
Collectively Evaluated
for Impairment 254,638 115,018 613,599 352,817 195,687 281,109 1,812,868
Total $ 255,365 $ 115,018 $ 625,556 $ 361,450 $ 197,360 $ 281,180 $ 1,835,929
2018
Individually Evaluated
for Impairment $ 873 $ 781 $ 12,650 $ 10,593 $ 2,210 $ 88 $ 27,195
Collectively Evaluated
for Impairment 232,816 88,746 589,411 331,622 207,901 296,534 1,747,030
Total $ 233,689 $ 89,527 $ 602,061 $ 342,215 $ 210,111 $ 296,622 $ 1,774,225
2017
Individually Evaluated
for Impairment $ 1,378 $ 361 $ 19,280 $ 12,871 $ 3,332 $ 113 $ 37,335
Collectively Evaluated
for Impairment 216,788 77,605 516,427 299,035 226,181 280,121 1,616,157
Total $ 218,166 $ 77,966 $ 535,707 $ 311,906 $ 229,513 $ 280,234 $ 1,653,492

Impaired Loans. Loans are deemed to be impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due (principal and interest payments), according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

The following table presents loans individually evaluated for impairment by class of loans at December 31:

Unpaid Recorded Recorded
Principal Investment Investment Related
(Dollars in Thousands) Balance With No Allowance With Allowance Allowance
2019
Commercial, Financial and Agricultural $ 727 $ 146 $ 581 $ 121
Real Estate – Construction - - - -
Real Estate – Commercial Mortgage 11,957 4,735 7,222 533
Real Estate – Residential 8,633 1,764 6,869 678
Real Estate – Home Equity 1,673 255 1,418 378
Consumer 71 36 35 2
Total $ 23,061 $ 6,936 $ 16,125 $ 1,712
2018
Commercial, Financial and Agricultural $ 873 $ 101 $ 772 $ 118
Real Estate – Construction 781 459 322 52
Real Estate – Commercial Mortgage 12,650 2,384 10,266 1,026
Real Estate – Residential 10,593 1,482 9,111 919
Real Estate – Home Equity 2,210 855 1,355 289
Consumer 88 49 39 1
Total $ 27,195 $ 5,330 $ 21,865 $ 2,405

Nonaccrual loans include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans. Therefore, the sum of nonaccrual loans and accruing troubled debt restructurings will differ from the total individually classified impaired amount.

The following table summarizes the average recorded investment and interest income recognized for each of the last three years by class of impaired loans:

  2019   2018   2017
Average Total Average Total Average Total
Recorded Interest Recorded Interest Recorded Interest
 (Dollars in Thousands) Investment Income Investment Income Investment Income
Commercial, Financial and Agricultural $ 975 $ 65 $ 1,123 $ 87   $ 1,117 $ 48
Real Estate – Construction   340 1   729 3     339 4
Real Estate – Commercial Mortgage 12,536 550 17,463 653 21,682 911
Real Estate – Residential   9,296 495   11,890 550     14,261 683
Real Estate – Home Equity   2,131 78   2,714 98     3,290 108
Consumer   80 7   99 7     141 8
Total $ 25,358 $ 1,196 $ 34,018 $ 1,398   $ 40,830 $ 1,762

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 have been implemented 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/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 for the Special Mention, Substandard, or Doubtful categories 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.

The following table presents the risk category of loans by segment at December 31:

Commercial,
Financial, Total
(Dollars in Thousands) Agriculture Real Estate Consumer Loans
2019
Pass $ 254,434 $ 1,267,555 $ 280,121 $ 1,802,110
Special Mention 218 12,753 - 12,971
Substandard   713   19,076   1,059   20,848
Doubtful   -   -   -   -
Total Loans $ 255,365 $ 1,299,384 $ 281,180 $ 1,835,929
2018
Pass $ 232,417 $ 1,211,451 $ 295,888 $ 1,739,756
Special Mention 479 11,048 54 11,581
Substandard   793   21,415   680   22,888
Doubtful   -   -   -   -
Total Loans $ 233,689 $ 1,243,914 $ 296,622 $ 1,774,225

Troubled Debt Restructurings (“TDRs”). TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower that it would not otherwise consider. In these instances, as part of a work-out alternative, the Company will make concessions including the extension of the loan term, a principal moratorium, a reduction in the interest rate, or a combination thereof. The impact of the TDR modifications and defaults are factored into the allowance for loan losses on a loan-by-loan basis as all TDRs are, by definition, impaired loans.  Thus, specific reserves are established based upon the results of either a discounted cash flow analysis or the underlying collateral value, if the loan is deemed to be collateral dependent. A TDR classification can be removed if the borrower’s financial condition improves such that the borrower is no longer in financial difficulty, the loan has not had any forgiveness of principal or interest, and the loan is subsequently refinanced or restructured at market terms and qualifies as a new loan.

The following table presents loans classified as TDRs at December 31:

2019 2018
(Dollars in Thousands) Accruing Nonaccruing Accruing   Nonaccruing
Commercial, Financial and Agricultural $ 495 $ 55 $ 873 $ -
Real Estate – Construction - -   59 -
Real Estate – Commercial Mortgage 7,787 176   9,910 1,239
Real Estate – Residential 7,083 379   9,234 1,222
Real Estate – Home Equity 1,452 105   1,920 179
Consumer 71 -   88 -
Total TDRs $ 16,888 $ 715 $ 22,084 $ 2,640

For TDRs, the Company estimated $1.5 million and $2.3 million of impaired loan loss reserves for these loans at December 31, 2019 and December 31, 2018, respectively.

Loans classified as TDRs during 2019, 2018, and 2017 are presented in the table below. The modifications made during the reporting period involved either an extension of the loan term, a principal moratorium, a reduction in the interest rate, or a combination thereof. The financial impact of these modifications was not material.

2019 2018 2017
Number Number Number
of Recorded of Recorded of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1) Contracts Investment(1)
Commercial, Financial and Agricultural 1 $ 58 1 $ 230 1   $ 22
Real Estate – Construction - - - - 1     65
Real Estate Commercial Mortgage 2 218 1 228 1     70
Real Estate Residential 2 162 2 108 2     283
Real Estate – Home Equity 2 56 2 110 4     203
Consumer - - - - -     -
Total TDRs 7 $ 494 6 $ 676 9   $ 643
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.

The following table provides information on how TDRs were modified during the periods included.

2019 2018 2017
Number Post-Modified Number Post-Modified Number Post-Modified
of Recorded of Recorded of Recorded
(Dollars in Thousands) Contracts Investment Contracts Investment Contracts Investment
Extended amortization - $ - 2 $ 303   1   $ 70
Interest rate adjustment 1 25 1 33   3     302
Extended amortization and
interest rate adjustment 6 469 1 27   4     249
Principal Moratorium - - 2 313   -     -
Other - - - -   1     22
Total TDRs 7 $ 494 6 $ 676   9   $ 643

The following table presents loans classified as TDRs for which there was a payment default and the loans were modified within the twelve months prior to default.

2019 2018 2017
Number Number   Number  
of Recorded of Recorded of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1) Contracts Investment(1)
Commercial, Financial and Agricultural - $ - - $ -   -   $ -
Real Estate – Construction - - - -   -     -
Real Estate Commercial Mortgage - - - -   -     -
Real Estate Residential - - 1 76   -     -
Total TDRs - $ - 1 $ 76   -   $ -
(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.