Quarterly report pursuant to Section 13 or 15(d)

LOANS, NET

v3.7.0.1
LOANS, NET
6 Months Ended
Jun. 30, 2017
Receivables [Abstract]  
LOANS, NET

NOTE 3 – LOANS, NET

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

(Dollars in Thousands) June 30, 2017   December 31, 2016
Commercial, Financial and Agricultural $ 213,544   $ 216,404
Real Estate – Construction   67,331     58,443
Real Estate – Commercial Mortgage   519,140     503,978
Real Estate – Residential(1)   319,129     281,509
Real Estate – Home Equity   230,995     236,512
Consumer   271,057     264,443
Loans, Net of Unearned Income $ 1,621,196   $ 1,561,289

(1) Includes loans in process with outstanding balances of $18.6 million and $9.6 million at June 30, 2017 and December 31, 2016, respectively.

Net deferred costs included in loans were $0.7 million at June 30, 2017 and $0.5 million at December 31, 2016.

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.

June 30, 2017   December 31, 2016
(Dollars in Thousands) Nonaccrual   90 + Days Nonaccrual 90 + Days
Commercial, Financial and Agricultural $ 455 $ - $ 468 $ -
Real Estate – Construction   363 - 311 -
Real Estate – Commercial Mortgage   2,984 - 3,410 -
Real Estate – Residential   2,485 - 2,330 -
Real Estate – Home Equity   1,496 - 1,774 -
Consumer   183 - 240 -
Total Nonaccrual Loans $ 7,966 $ - $ 8,533 $ -

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.

30-59 60-89 90 + Total Total Total
(Dollars in Thousands) DPD DPD DPD Past Due Current Loans(1)
June 30, 2017
Commercial, Financial and Agricultural $ 54 $ 51 $ - $ 105 $ 212,984 $ 213,544
Real Estate – Construction   435 - - 435 66,533 67,331
Real Estate – Commercial Mortgage   262 28 - 290 515,866 519,140
Real Estate – Residential   262 585 - 847 315,797 319,129
Real Estate – Home Equity   757 40 - 797 228,702 230,995
Consumer   1,002 313 - 1,315 269,559 271,057
Total Past Due Loans $ 2,772 $ 1,017 $ - $ 3,789 $ 1,609,441 $ 1,621,196
December 31, 2016
Commercial, Financial and Agricultural $ 209 $ 48 $ - $ 257 $ 215,679 $ 216,404
Real Estate – Construction   949 282 - 1,231 56,901 58,443
Real Estate – Commercial Mortgage   835 1 - 836 499,732 503,978
Real Estate – Residential   1,199 490 - 1,689 277,490 281,509
Real Estate – Home Equity   577 51 - 628 234,110 236,512
Consumer   1,516 281 - 1,797 262,406 264,443
Total Past Due Loans $ 5,285 $ 1,153 $ - $ 6,438 $ 1,546,318 $ 1,561,289
(1) Total Loans include nonaccrual loans

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 incurred 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.

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, 2017
Beginning Balance $ 1,150 $ 100 $ 4,080 $ 3,376 $ 2,522 $ 2,107 $ 13,335
Provision for Loan Losses 229 14 165 (150) (37) 368 589
Charge-Offs (324) - (478) (44) - (537) (1,383)
Recoveries 40 - 58 202 39 362 701
Net Charge-Offs (284) - (420) 158 39 (175) (682)
Ending Balance $ 1,095 $ 114 $ 3,825 $ 3,384 $ 2,524 $ 2,300 $ 13,242
Six Months Ended
June 30, 2017
Beginning Balance $ 1,198 $ 168 $ 4,315 $ 3,445 $ 2,297 $ 2,008 $ 13,431
Provision for Loan Losses 193 (54) (22) (316) 251 847 899
Charge-Offs (417) - (549) (160) (92) (1,161) (2,379)
Recoveries 121 - 81 415 68 606 1,291
Net Charge-Offs (296) - (468) 255 (24) (555) (1,088)
Ending Balance $ 1,095 $ 114 $ 3,825 $ 3,384 $ 2,524 $ 2,300 $ 13,242
Three Months Ended
June 30, 2016
Beginning Balance $ 883 $ 101 $ 4,349 $ 4,137 $ 2,435 $ 1,708 $ 13,613
Provision for Loan Losses 420 25 (197) (676) 21 310 (97)
Charge-Offs (304) - - (205) (146) (438) (1,093)
Recoveries 49 - 237 579 81 308 1,254
Net Charge-Offs (255) - 237 374 (65) (130) 161
Ending Balance $ 1,048 $ 126 $ 4,389 $ 3,835 $ 2,391 $ 1,888 $ 13,677
Six Months Ended
June 30, 2016
Beginning Balance $ 905 $ 101 $ 4,498 $ 4,409 $ 2,473 $ 1,567 $ 13,953
Provision for Loan Losses 396 25 (153) (706) 139 654 355
Charge-Offs (341) - (274) (683) (361) (877) (2,536)
Recoveries 88 - 318 815 140 544 1,905
Net Charge-Offs (253) - 44 132 (221) (333) (631)
Ending Balance $ 1,048 $ 126 $ 4,389 $ 3,835 $ 2,391 $ 1,888 $ 13,677

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.

Commercial, Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
(Dollars in Thousands Agricultural Construction Mortgage Residential Home Equity Consumer Total
June 30, 2017
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 82 $ 4 $ 1,685 $ 1,405 $ 408 $ 3 $ 3,587
Loans Collectively
Evaluated for Impairment 1,013 110 2,140 1,979 2,116 2,297 9,655
Ending Balance $ 1,095 $ 114 $ 3,825 $ 3,384 $ 2,524 $ 2,300 $ 13,242
December 31, 2016
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 80 $ - $ 2,038 $ 1,561 $ 335 $ 6 $ 4,020
Loans Collectively
Evaluated for Impairment 1,118 168 2,277 1,884 1,962 2,002 9,411
Ending Balance $ 1,198 $ 168 $ 4,315 $ 3,445 $ 2,297 $ 2,008 $ 13,431
June 30, 2016
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 69 $ - $ 1,953 $ 1,868 $ 318 $ 9 $ 4,217
Loans Collectively
Evaluated for Impairment 979 126 2,436 1,967 2,073 1,879 9,460
Ending Balance $ 1,048 $ 126 $ 4,389 $ 3,835 $ 2,391 $ 1,888 $ 13,677

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:

Commercial, Real Estate
Financial, Real Estate Commercial Real Estate Real Estate
(Dollars in Thousands) Agricultural Construction Mortgage Residential Home Equity Consumer Total
June 30, 2017
Individually Evaluated for
Impairment $ 1,078 $ 363 $ 21,502 $ 14,879 $ 3,314 $ 140 $ 41,276
Collectively Evaluated for
Impairment 212,466 66,968 497,638 304,250 227,681 270,917 1,579,920
Total $ 213,544 $ 67,331 $ 519,140 $ 319,129 $ 230,995 $ 271,057 $ 1,621,196
December 31, 2016
Individually Evaluated for
Impairment $ 1,042 $ 247 $ 23,855 $ 15,596 $ 3,375 $ 174 $ 44,289
Collectively Evaluated for
Impairment 215,362 58,196 480,123 265,913 233,137 264,269 1,517,000
Total $ 216,404 $ 58,443 $ 503,978 $ 281,509 $ 236,512 $ 264,443 $ 1,561,289
June 30, 2016
Individually Evaluated for
Impairment $ 793 $ - $ 20,589 $ 17,725 $ 2,872 $ 206 $ 42,185
Collectively Evaluated for
Impairment 206,312 46,930 464,740 273,467 232,522 254,318 1,478,289
Total $ 207,105 $ 46,930 $ 485,329 $ 291,192 $ 235,394 $ 254,524 $ 1,520,474

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.

Unpaid Recorded Recorded
Principal Investment Investment Related
(Dollars in Thousands) Balance With No Allowance With Allowance Allowance
June 30, 2017
Commercial, Financial and Agricultural $ 1,078 $ 351 $ 727 $ 82
Real Estate – Construction 363 298 65 4
Real Estate – Commercial Mortgage 21,502 7,378 14,124 1,685
Real Estate – Residential 14,879 2,547 12,332 1,405
Real Estate – Home Equity 3,314 1,538 1,776 408
Consumer 140 82 58 3
Total $ 41,276 $ 12,194 $ 29,082 $ 3,587
December 31, 2016
Commercial, Financial and Agricultural $ 1,042 $ 565 $ 477 $ 80
Real Estate – Construction 247 - 247 -
Real Estate – Commercial Mortgage 23,855 8,954 14,901 2,038
Real Estate – Residential 15,596 2,509 13,087 1,561
Real Estate – Home Equity 3,375 1,871 1,504 335
Consumer 174 65 109 6
Total $ 44,289 $ 13,964 $ 30,325 $ 4,020

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

Three Months Ended June 30, Six Months Ended June 30,
  2017   2016   2017 2016
Average Total Average Total Average Total Average Total
Recorded Interest Recorded Interest Recorded Interest Recorded Interest
 (Dollars in Thousands) Investment Income Investment Income Investment Income Investment Income
Commercial, Financial and
Agricultural $ 1,158 $ 11 $ 802 $ 12   $ 1,119 $ 23 $ 813 $ 25
Real Estate – Construction   363 1   - -     324 2   32 -
Real Estate – Commercial Mortgage 22,281 220 20,694 216 22,806 443 20,745 455
Real Estate – Residential   14,789 174   17,973 196     15,058 353   18,172 405
Real Estate – Home Equity   3,414 27   3,042 29     3,401 54   3,076 56
Consumer   142 2   206 2     153 4   224 4
Total $ 42,147 $ 435 $ 42,717 $ 455   $ 42,861 $ 879 $ 43,062 $ 945

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 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.

Commercial,
Financial, Total Criticized
(Dollars in Thousands) Agriculture Real Estate Consumer Loans
June 30, 2017
Special Mention $ 9,637 $ 16,630 $ 230 $ 26,497
Substandard   1,737   39,066   519   41,322
Doubtful   -   -   -   -
Total Criticized Loans $ 11,374 $ 55,696 $ 749 $ 67,819
December 31, 2016
Special Mention $ 3,300 $ 23,183 $ 216 $ 26,699
Substandard   1,158   39,800   549   41,507
Doubtful   -   -   -   -
Total Criticized Loans $ 4,458 $ 62,983 $ 765 $ 68,206

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.

June 30, 2017 December 31, 2016
(Dollars in Thousands) Accruing Nonaccruing Accruing   Nonaccruing
Commercial, Financial and Agricultural $ 848 $ - $ 772 $ 40
Real Estate – Construction - 66   - -
Real Estate – Commercial Mortgage 18,834 1,430   20,673 1,259
Real Estate – Residential 13,110 905   13,969 444
Real Estate – Home Equity 2,505 80   2,647 -
Consumer 139 -   172 -
Total TDRs $ 35,436 $ 2,481 $ 38,233 $ 1,743

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, an interest rate adjustment, or a principal moratorium, and the financial impact of these modifications was not material.

  Three Months Ended June 30,   Six Months Ended June 30,
2017 2017
Pre- Post- Pre- Post-
Number Modified Modified   Number Modified Modified
of Recorded Recorded of Recorded Recorded
(Dollars in Thousands) Contracts Investment Investment Contracts Investment Investment
Commercial, Financial and Agricultural - $ - $ -   -   $ -   $ -
Real Estate – Construction - - -   1     64     65
Real Estate Commercial Mortgage - - -   -     -     -
Real Estate Residential 1 215 182   1     215     182
Real Estate – Home Equity - - -   1     56     55
Consumer - - -   -     -     -
Total TDRs 1 $ 215  $ 182   3   $ 335   $ 302
  Three Months Ended June 30,   Six Months Ended June 30,
2016 2016
Pre- Post- Pre- Post-
Number Modified Modified   Number   Modified   Modified
of Recorded Recorded of Recorded Recorded
(Dollars in Thousands) Contracts Investment Investment Contracts Investment Investment
Commercial, Financial and Agricultural - $ - $ -   -   $ -   $ -
Real Estate – Construction - - -   -     -     -
Real Estate Commercial Mortgage - - -   1     332     332
Real Estate Residential 1 90 90   6     589     590
Real Estate – Home Equity - - -   4     188     189
Consumer - - -   -     -     -
Total TDRs 1 $ 90  $ 90   11   $ 1,109   $ 1,111

For the three and six months ended June 30, 2017, there were no loans modified as TDRs within the previous 12 months that have substantially defaulted. For the three and six months ended June 30, 2016, loans modified as TDRs within the previous 12 months that have substantially defaulted during periods indicated are presented in the table below.

  Three Months Ended June 30,   Six Months Ended June 30,
2017 2017
Number Post-Modified   Number   Post-Modified
of Recorded of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1)
Commercial, Financial and Agricultural - $ -   -   $ -
Real Estate – Construction - -   -     -
Real Estate Commercial Mortgage - -   -     -
Real Estate Residential - -   -     -
Real Estate – Home Equity - -   -     -
Consumer - -   -     -
Total TDRs - $ -   -   $ -

  Three Months Ended June 30,   Six Months Ended June 30,
2016 2016
Number Post-Modified   Number   Post-Modified  
of Recorded of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1)
Commercial, Financial and Agricultural - $ -   -   $ -  
Real Estate – Construction - -   -     -  
Real Estate Commercial Mortgage - -   -     -  
Real Estate Residential 1 98   1     98  
Real Estate – Home Equity - -   1     3  
Consumer - -   1     35  
Total TDRs 1 $ 98   3   $ 136  

(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 indicated.

  Three Months Ended June 30,   Six Months Ended June 30,
2017 2017
Number of Recorded Number of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1)
Extended amortization - $ -   -   $ -
Interest rate adjustment 1 182   3     302
Extended amortization and interest rate adjustment - -   -     -
Total TDRs 1 $ 182   3   $ 302

  Three Months Ended June 30,   Six Months Ended June 30,
2016 2016
Number of Recorded Number of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1)
Extended amortization 1 $ 90   1   $ 90
Interest rate adjustment - -   -     -
Extended amortization and interest rate adjustment - -   10     1,021
Total TDRs 1 $ 90   11   $ 1,111

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