Quarterly report pursuant to Section 13 or 15(d)

LOANS, NET

v2.4.1.9
LOANS, NET
3 Months Ended
Mar. 31, 2015
Receivables [Abstract]  
LOANS, NET

NOTE 3 – LOANS, NET

 

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

 

(Dollars in Thousands)   March 31, 2015        December 31, 2014  
Commercial, Financial and Agricultural   $ 143,951     $ 136,925  
Real Estate – Construction     41,595       41,596  
Real Estate – Commercial Mortgage     507,681       510,120  
Real Estate – Residential(1)     296,724       295,969  
Real Estate – Home Equity     228,171       229,572  
Consumer     233,332       217,192  
Loans, Net of Unearned Income   $ 1,451,454     $ 1,431,374  

 

  (1) Includes loans in process with outstanding balances of $10.2 million and $7.4 million at March 31, 2015 and December 31, 2014, respectively.

 

Net deferred fees included in loans were $1.5 million at March 31, 2015 and December 31, 2014.

 

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.

 

    March 31, 2015     December 31, 2014  
(Dollars in Thousands)   Nonaccrual     90 + Days     Nonaccrual     90 + Days  
Commercial, Financial and Agricultural   $ 626       —     $ 507       —  
Real Estate – Construction     423       —       424       —  
Real Estate – Commercial Mortgage     6,909       —       5,806       —  
Real Estate – Residential     6,123       —       6,737       —  
Real Estate – Home Equity     2,254       —       2,544       —  
Consumer     455       —       751       —  
Total Nonaccrual Loans   $ 16,790       —     $ 16,769       —  

 

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.

 

 

(Dollars in Thousands)

  30-59
DPD
    60-89
DPD
    90 +
DPD
    Total
Past Due
    Total
Current
    Total
Loans
 
March 31, 2015                                                
Commercial, Financial and Agricultural   $ 285     $ —     $ —     $ 285     $ 143,040     $ 143,951  
Real Estate – Construction     595       —       —       595       40,577       41,595  
Real Estate – Commercial Mortgage     497       —       —       497       500,275       507,681  
Real Estate – Residential     1,277       235       —       1,512       289,089       296,724  
Real Estate – Home Equity     226       —       —       226       225,691       228,171  
Consumer     522       52       —       574       232,303       233,332  
Total Past Due Loans   $ 3,402     $ 287     $ —     $ 3,689     $   1,430,975     $   1,451,454  
                                                 
December 31, 2014                                                
Commercial, Financial and Agricultural   $ 352     $ 155     $ —     $ 507     $ 135,911     $ 136,925  
Real Estate – Construction     690       —       —       690       40,482       41,596  
Real Estate – Commercial Mortgage     1,701       569       —       2,270       502,044       510,120  
Real Estate – Residential     682       1,147       —       1,829       287,403       295,969  
Real Estate – Home Equity     689       85       —       774       226,254       229,572  
Consumer     625       97       —       722       215,719       217,192  
Total Past Due Loans   $ 4,739     $ 2,053     $ —     $ 6,792     $ 1,407,813     $ 1,431,374  
                                                 

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. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

(Dollars in Thousands)   Commercial,
Financial,
Agricultural
    Real Estate
Construction
    Real Estate
Commercial
Mortgage
    Real Estate
Residential
    Real Estate
Home Equity
    Consumer     Total  
Three Months Ended                                                        
March  31, 2015                                                        
Beginning Balance   $ 784     $ 843     $ 5,287     $ 6,520     $ 2,882     $ 1,223     $ 17,539  
Provision for Loan Losses     354       (269 )     88       (68 )     (177 )     365       293  
Charge-Offs     (290 )     —       (904 )     (305 )     (182 )     (576 )     (2,257 )
Recoveries     55       —       30       48       24       358       515  
Net Charge-Offs     (235 )     —       (874 )     (257 )     (158 )     (218 )     (1,742 )
Ending Balance   $ 903     $ 574     $ 4,501     $ 6,195     $ 2,547     $ 1,370     $ 16,090  
                                                         
Three Months Ended                                                        
March 31, 2014                                                        
Beginning Balance   $ 699     $ 1,580     $ 7,710     $ 9,073     $ 3,051     $ 982     $ 23,095  
Provision for Loan Losses     (130 )     258       (63 )     105       194       (5 )     359  
Charge-Offs     (11 )     —       (594 )     (731 )     (403 )     (405 )     (2,144 )
Recoveries     75       4       27       395       11       288       800  
Net Charge-Offs     64       4       (567 )     (336 )     (392 )     (117 )     (1,344 )
Ending Balance   $ 633     $ 1,842     $ 7,080     $ 8,842     $ 2,853     $ 860     $ 22,110  

 

The following table details the amount of the allowance for loan losses by portfolio class disaggregated on the basis of the Company’s impairment methodology.

(Dollars in Thousands)   Commercial,
Financial,
Agricultural
    Real Estate
Construction
    Real Estate
Commercial
Mortgage
    Real Estate
Residential
    Real Estate
Home
Equity
    Consumer     Total  
March 31, 2015                                                        
Period-end amount Allocated to:                                                        
Loans Individually Evaluated for Impairment   $ 334     $ —     $ 2,349     $ 2,294     $ 557     $ 15     $ 5,549  
Loans Collectively Evaluated for Impairment     569       574       2,152       3,901       1,990       1,355       10,541  
Ending Balance   $ 903     $ 574     $ 4,501     $ 6,195     $ 2,547     $ 1,370     $ 16,090  
                                                         
December 31, 2014                                                        
Period-end amount Allocated to:                                                        
Loans Individually Evaluated for Impairment   $ 293     $ —     $ 2,733     $ 2,113     $ 638     $ 5     $ 5,782  
Loans Collectively Evaluated for Impairment     491       843       2,554       4,407       2,244       1,218       11,757  
Ending Balance   $ 784     $ 843     $ 5,287     $ 6,520     $ 2,882     $ 1,223     $ 17,539  
                                                         
March 31, 2014                                                        
Period-end amount Allocated to:                                                        
Loans Individually Evaluated for Impairment   $ 102     $ 89     $ 4,205     $ 2,281     $ 508     $ 32     $ 7,217  
Loans Collectively Evaluated for Impairment     531       1,753       2,875       6,561       2,345       828       14,893  
Ending Balance   $ 633     $ 1,842     $ 7,080     $ 8,842     $ 2,853     $ 860     $ 22,110  
                                                         

The Company’s recorded investment in loans 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:

 

 

(Dollars in Thousands)

  Commercial,
Financial,
Agricultural
    Real Estate
Construction
    Real Estate
 Commercial
Mortgage
    Real Estate
Residential
    Real Estate
Home
Equity
    Consumer     Total  
March 31, 2015                                                        
Individually Evaluated for Impairment   $ 1,252     $ 401     $ 31,213     $ 19,840     $ 3,123     $ 197     $ 56,026  
Collectively Evaluated for Impairment     142,699       41,194       476,468       276,884       225,048       233,135       1,395,428  
Total   $ 143,951     $ 41,595     $ 507,681     $ 296,724     $ 228,171     $ 233,332     $ 1,451,454  
                                                         
December 31, 2014                                                        
Individually Evaluated for Impairment   $ 1,040     $ 401     $ 32,242     $ 20,120     $ 3,074     $ 216     $ 57,093  
Collectively Evaluated for Impairment     135,885       41,195       477,878       275,849       226,498       216,976       1,374,281  
Total   $ 136,925     $ 41,596     $ 510,120     $ 295,969     $ 229,572     $ 217,192     $ 1,431,374  
                                                         
March 31, 2014                                                        
Individually Evaluated for Impairment   $ 1,585     $ 556     $ 49,914     $ 20,844     $ 2,973     $ 361     $ 76,233  
Collectively Evaluated for Impairment     137,079       35,898       472,105       284,268       223,438       165,756       1,318,544  
Total   $ 138,664     $ 36,454     $ 522,019     $ 305,112     $ 226,411     $ 166,117     $ 1,394,777  

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.

 

 

(Dollars in Thousands)

  Unpaid
Principal
Balance
    Recorded
Investment
With No
Allowance
    Recorded
Investment
With Allowance
    Related
Allowance
 
March 31, 2015                                
Commercial, Financial and Agricultural   $ 1,252     $ 182     $ 1,070     $ 334  
Real Estate – Construction     401       401       —       —  
Real Estate – Commercial Mortgage     31,213       13,012       18,201       2,349  
Real Estate – Residential     19,840       4,841       14,999       2,294  
Real Estate – Home Equity     3,123       799       2,324       557  
Consumer     196       2       194       15  
Total   $ 56,025     $ 19,237     $ 36,788     $ 5,549  
                                 
December 31, 2014                                
Commercial, Financial and Agricultural   $ 1,040     $ 189     $ 851     $ 293  
Real Estate – Construction     401       401       —       —  
Real Estate – Commercial Mortgage     32,242       11,984       20,258       2,733  
Real Estate – Residential     20,120       5,492       14,628       2,113  
Real Estate – Home Equity     3,074       758       2,316       638  
Consumer     216       3       213       5  
Total   $ 57,093     $ 18,827     $ 38,266     $ 5,782  

 

The following table summarizes the average recorded investment and interest income recognized by class of impaired loans.

 

    For Three Months Ended March 31,  
    2015     2014  
(Dollars in Thousands)   Average
Recorded
Investment
    Total
Interest
Income
    Average
Recorded
Investment
    Total
Interest
Income
 
Commercial, Financial and Agricultural   $ 1,252     $ 11     $ 1,582     $ 19  
Real Estate - Construction     401       —       557       1  
Real Estate - Commercial Mortgage     31,213       261       49,943       529  
Real Estate - Residential     19,840       197       20,656       209  
Real Estate - Home Equity     3,123       21       3,166       17  
Consumer     196       2       360       2  
Total   $ 56,025     $ 492     $ 76,264     $ 777  

 

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 and are 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.

 

 

(Dollars in Thousands)   Commercial,
 Financial,
 Agriculture
    Real Estate     Consumer     Total Criticized
Loans
 
March 31, 2015                                
Special Mention   $ 10,454     $ 48,027     $ 124     $ 58,605  
Substandard     2,101       71,305       841       74,247  
Doubtful     —       —       —       —  
Total Criticized Loans   $ 12,555     $ 119,332     $ 965     $ 132,852  
                                 
December 31, 2014                                
Special Mention   $ 8,059     $ 51,060     $ 114     $ 59,233  
Substandard     2,817       79,167       1,153       83,137  
Doubtful     —       —       —       —  
Total Criticized Loans   $ 10,876     $ 130,227     $ 1,267     $ 142,370  
                                 

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. In the limited circumstances that a loan is removed from TDR classification it is the Company’s policy to also remove it from the impaired loan category, but to continue to individually evaluate loan impairment based on the contractual terms specified by the loan agreement.

The following table presents loans classified as TDRs.

 

    March 31, 2015     December 31, 2014  
(Dollars in Thousands)   Accruing     Nonaccruing     Accruing     Nonaccruing  
Commercial, Financial and Agricultural   $ 803     $ 261     $ 838     $ 266  
Real Estate – Construction     —       —       —       —  
Real Estate – Commercial Mortgage     24,062       457       26,565       —  
Real Estate – Residential     15,537       1,235       14,940       1,622  
Real Estate – Home Equity     1,993       150       1,856       356  
Consumer     195       —       211       —  
Total TDRs   $ 42,590     $ 2,103     $ 44,410     $ 2,244  

 

Loans classified as TDRs during the periods indicated are presented in the table below. The modifications made during the reporting period involved either an extension of the loan term or a principal moratorium and the financial impact of these modifications was not material.

 

    Three Months Ended March 31,
2015
    Three Months Ended March 31,
2014
 
(Dollars in Thousands)   Number
of
Contracts
    Pre-Modified
Recorded
Investment
    Post-Modified
Recorded
Investment
    Number
of Contracts
    Pre-Modified
Recorded
Investment
    Post-Modified
Recorded
Investment
 
Commercial, Financial and Agricultural     —     $ —     $ —       1     $ 52     $ 54  
Real Estate - Construction     —       —       —       —       —       —  
Real Estate - Commercial Mortgage     1       457       457       1       584       584  
Real Estate - Residential     4       464       437       3       836       890  
Real Estate - Home Equity     —       —       —       3       248       248  
Consumer     —       —       —       1       34       34  
Total TDRs     5     $ 921     $ 894       9     $ 1,754     $ 1,810  

For the three months ended March 31, 2015 and March 31, 2014, there were no TDR defaults for loans that had been modified within the previous 12 months.

 

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

 

    Three Months Ended March 31,
2015
    Three Months Ended March 31,
2014
 
(Dollars in Thousands)   Number of
Contracts
    Recorded
Investment(1)
    Number of
Contracts
    Recorded
Investment(1)
 
Extended amortization     1     $ 118       3     $ 1,262  
Interest rate adjustment     1       156       1       156  
Extended amortization and interest rate adjustment     3       620       2       197  
Other     —       —       3       195  
Total TDRs     5     $ 894       9     $ 1,810  

 

(1) Recorded investment reflects charge-offs and additional funds advanced at time of restructure, if applicable.