Quarterly report pursuant to Section 13 or 15(d)

LOANS, NET

v3.8.0.1
LOANS, NET
3 Months Ended
Mar. 31, 2018
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, 2018   December 31, 2017
Commercial, Financial and Agricultural $ 198,775   $ 218,166
Real Estate – Construction   80,236     77,966
Real Estate – Commercial Mortgage   551,309     535,707
Real Estate – Residential(1)   322,038     311,906
Real Estate – Home Equity   223,994     229,513
Consumer(2)   285,543     280,234
Loans, Net of Unearned Income $ 1,661,895   $ 1,653,492

(1) Includes loans in process with outstanding balances of $15.9 million and $9.1 million at March 31, 2018 and December 31, 2017, respectively.

Net deferred costs included in loans were $1.4 million at March 31, 2018 and $1.5 million at December 31, 2017.

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, 2018   December 31, 2017
(Dollars in Thousands) Nonaccrual   90 + Days Nonaccrual 90 + Days
Commercial, Financial and Agricultural $ 567 $ - $ 629 $ -
Real Estate – Construction   608 - 297 -
Real Estate – Commercial Mortgage   1,940 - 2,370 -
Real Estate – Residential   2,398 - 1,938 -
Real Estate – Home Equity   1,686 - 1,748 -
Consumer   115 - 177 36
Total Nonaccrual Loans $ 7,314 $ - $ 7,159 $ 36

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 accruing 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)
March 31, 2018
Commercial, Financial and Agricultural $ 125 $ 149 $ - $ 274 $ 197,934 $ 198,775
Real Estate – Construction   162 - - 162 79,466 80,236
Real Estate – Commercial Mortgage   360 917 - 1,277 548,092 551,309
Real Estate – Residential   1,252 33 - 1,285 318,355 322,038
Real Estate – Home Equity   234 1 - 235 222,073 223,994
Consumer   690 345 - 1,035 284,393 285,543
Total Past Due Loans $ 2,823 $ 1,445 $ - $ 4,268 $ 1,650,313 $ 1,661,895
December 31, 2017
Commercial, Financial and Agricultural $ 87 $ 55 $ - $ 142 $ 217,395 $ 218,166
Real Estate – Construction   811 - - 811 76,858 77,966
Real Estate – Commercial Mortgage   437 195 - 632 532,705 535,707
Real Estate – Residential   701 446 - 1,147 308,821 311,906
Real Estate – Home Equity   80 2 - 82 227,683 229,513
Consumer   1,316 413 36 1,765 278,292 280,234
Total Past Due Loans $ 3,432 $ 1,111 $ 36 $ 4,579 $ 1,641,754 $ 1,653,492
(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
March 31, 2018
Beginning Balance $ 1,191 $ 122 $ 4,346 $ 3,206 $ 2,506 $ 1,936 $ 13,307
Provision for Loan Losses (44) 128 (126) 180 (90) 697 745
Charge-Offs (182) (7) (290) (107) (158) (695) (1,439)
Recoveries 166 1 123 84 61 210 645
Net Charge-Offs (16) (6) (167) (23) (97) (485) (794)
Ending Balance $ 1,131 $ 244 $ 4,053 $ 3,363 $ 2,319 $ 2,148 $ 13,258
Three Months Ended
March 31, 2017
Beginning Balance $ 1,198 $ 168 $ 4,315 $ 3,445 $ 2,297 $ 2,008 $ 13,431
Provision for Loan Losses (36) (68) (187) (166) 288 479 310
Charge-Offs (93) - (71) (116) (92) (624) (996)
Recoveries 81 - 23 213 29 244 590
Net Charge-Offs (12) - (48) 97 (63) (380) (406)
Ending Balance $ 1,150 $ 100 $ 4,080 $ 3,376 $ 2,522 $ 2,107 $ 13,335

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
March 31, 2018
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 182 $ 114 $ 1,779 $ 1,412 $ 389 $ 1 $ 3,877
Loans Collectively
Evaluated for Impairment 949 130 2,274 1,951 1,930 2,147 9,381
Ending Balance $ 1,131 $ 244 $ 4,053 $ 3,363 $ 2,319 $ 2,148 $ 13,258
December 31, 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
March 31, 2017
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment $ 94 $ 2 $ 2,027 $ 1,486 $ 445 $ 4 $ 4,058
Loans Collectively
Evaluated for Impairment 1,056 98 2,053 1,890 2,077 2,103 9,277
Ending Balance $ 1,150 $ 100 $ 4,080 $ 3,376 $ 2,522 $ 2,107 $ 13,335

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
March 31, 2018
Individually Evaluated for
Impairment $ 1,283 $ 671 $ 18,445 $ 13,204 $ 3,198 $ 109 $ 36,910
Collectively Evaluated for
Impairment 197,492 79,565 532,864 308,834 220,796 285,434 1,624,985
Total $ 198,775 $ 80,236 $ 551,309 $ 322,038 $ 223,994 $ 285,543 $ 1,661,895
December 31, 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
March 31, 2017
Individually Evaluated for
Impairment $ 1,238 $ 362 $ 23,061 $ 14,699 $ 3,514 $ 145 $ 43,019
Collectively Evaluated for
Impairment 213,357 59,576 480,807 290,293 227,786 270,121 1,541,940
Total $ 214,595 $ 59,938 $ 503,868 $ 304,992 $ 231,300 $ 270,266 $ 1,584,959

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
March 31, 2018
Commercial, Financial and Agricultural $ 1,283 $ 114 $ 1,169 $ 182
Real Estate – Construction 671 - 671 114
Real Estate – Commercial Mortgage 18,445 1,389 17,056 1,779
Real Estate – Residential 13,204 1,773 11,431 1,412
Real Estate – Home Equity 3,198 1,419 1,779 389
Consumer 109 42 67 1
Total $ 36,910 $ 4,737 $ 32,173 $ 3,877
December 31, 2017
Commercial, Financial and Agricultural $ 1,378 $ 118 $ 1,260 $ 215
Real Estate – Construction 361 297 64 1
Real Estate – Commercial Mortgage 19,280 1,763 17,517 2,165
Real Estate – Residential 12,871 1,516 11,355 1,220
Real Estate – Home Equity 3,332 1,157 2,175 515
Consumer 113 45 68 1
Total $ 37,335 $ 4,896 $ 32,439 $ 4,117

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

Three Months Ended March 31,
  2018   2017
Average Total Average Total
Recorded Interest Recorded Interest
 (Dollars in Thousands) Investment Income Investment Income
Commercial, Financial and Agricultural $ 1,330 $ 29 $ 1,140 $ 12
Real Estate – Construction   517 1   305 -
Real Estate – Commercial Mortgage 18,862 175 23,458 223
Real Estate – Residential   13,038 148   15,147 180
Real Estate – Home Equity   3,265 26   3,445 27
Consumer   111 2   159 2
Total $ 37,123 $ 381 $ 43,654 $ 444

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
March 31, 2018
Special Mention $ 3,937 $ 12,779 $ 62 $ 16,778
Substandard   1,050   30,173   486   31,709
Doubtful   -   -   -   -
Total Criticized Loans $ 4,987 $ 42,952 $ 548 $ 48,487
December 31, 2017
Special Mention $ 7,879 $ 13,324 $ 65 $ 21,268
Substandard   1,057   29,291   654   31,002
Doubtful   -   -   -   -
Total Criticized Loans $ 8,936 $ 42,615 $ 719 $ 52,270

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.

March 31, 2018 December 31, 2017
(Dollars in Thousands) Accruing Nonaccruing Accruing   Nonaccruing
Commercial, Financial and Agricultural $ 802 $ 230 $ 822 $ -
Real Estate – Construction 63 -   64 -
Real Estate – Commercial Mortgage 16,712 1,351   17,058 1,636
Real Estate – Residential 11,451 548   11,666 503
Real Estate – Home Equity 2,336 102   2,441 186
Consumer 108 -   113 -
Total TDRs $ 31,472 $ 2,231 $ 32,164 $ 2,325

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 March 31,   Three Months Ended March 31,
2018 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 1 $ 497 $ 230   -   $ -   $ -
Real Estate – Construction - - -   1     64     65
Real Estate Commercial Mortgage 1 228 228   -     -     -
Real Estate – Home Equity - - -   1     56     55
Consumer - - -   -     -     -
Total TDRs 2 $ 725  $ 458   2   $ 120   $ 120

For the three months ended March 31, 2018 and March 31, 2017, there were no loans modified as TDRs within the previous 12 months that have substantially defaulted.

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

  Three Months Ended March 31,   Three Months Ended March 31,
2018 2017
Number of Recorded Number of Recorded
(Dollars in Thousands) Contracts Investment(1) Contracts Investment(1)
Extended amortization 1 $ 228   -   $ -
Interest rate adjustment - -   2     120
Extended amortization and interest rate adjustment - -   -     -
Principal Moratorium 1 230   -     -
Other - -   -     -
Total TDRs 2 $ 458   2   $ 120

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