Quarterly report pursuant to Section 13 or 15(d)

LOANS

v2.4.0.6
LOANS
 3 Months Ended
Mar. 31, 2012
LOANS [Abstract]  
LOANS
NOTE 3 - LOANS, NET

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

(Dollars in Thousands)
  
March 31, 2012
    
December 31, 2011
  
Commercial, Financial and Agricultural
  
$
132,119
    
$
130,879
  
Real Estate-Construction
    
30,238
      
18,892
  
Real Estate-Commercial Mortgage
    
624,528
      
639,140
  
Real Estate-Residential(1)
    
361,433
      
385,621
  
Real Estate-Home Equity
    
240,800
      
244,263
  
Real Estate-Loans Held-for-Sale
    
13,561
      
21,225
  
Consumer
    
176,205
      
188,663
  
Loans, Net of Unearned Income
  
$
1,578,884
    
$
1,628,683
  

(1)  
Includes loans in process with outstanding balances of $6.6 million and $12.5 million for March 31, 2012 and December 31, 2011, respectively.

Net deferred fees included in loans were $1.6 million at March 31, 2012 and December 31, 2011, respectively.

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
    
Over 90
DPD
    
Total
Past Due
    
Total
Current
    
Total
Loans
  
March 31, 2012
                                    
Commercial, Financial and Agricultural
   $ 596     $ 32     $ -     $ 628     $ 130,683     $ 132,119  
Real Estate - Construction
     310       -       -       310       33,302       34,554  
Real Estate - Commercial Mortgage
     1,640       13       -       1,653       580,594       624,528  
Real Estate -  Residential
     3,238       471       12       3,721       334,957       364,123  
Real Estate - Home Equity
     879       245       13       1,137       235,565       240,800  
Consumer
     1,459       310       -       1,769       180,445       182,760  
Total Past Due Loans
   $ 8,122     $ 1,071     $ 25     $ 9,218     $ 1,495,546     $ 1,578,884  

 
(Dollars in Thousands)
  
30-59
DPD
    
60-89
DPD
    
Over 90
DPD
    
Total
Past Due
    
Total
Current
    
Total
Loans
  
December 31, 2011
                                    
Commercial, Financial and Agricultural
   $ 307     $ 49     $ 46     $ 402     $ 129,722     $ 130,879  
Real Estate - Construction
     -       -       -       -       26,034       26,367  
Real Estate - Commercial Mortgage
     3,070       646       -       3,716       592,604       639,140  
Real Estate -  Residential
     7,983       3,031       58       11,072       350,133       386,877  
Real Estate - Home Equity
     1,139       500       95       1,734       238,246       244,263  
Consumer
     2,355       345       25       2,725       197,272       201,157  
Total Past Due Loans
   $ 14,854     $ 4,571     $ 224     $ 19,649     $ 1,534,011     $ 1,628,683  

Nonaccrual Loans.  Loans are generally placed on non-accrual 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, 2012
  
December 31, 2011
(Dollars in Thousands)
Nonaccrual
  
Over 90 Days
  
Nonaccrual
  
Over 90 Days
Commercial, Financial and Agricultural
$
808
  
$
-
  
$
755
  
$
46
Real Estate - Construction
  
943
    
-
    
334
    
-
Real Estate - Commercial Mortgage
  
46,886
    
-
    
42,820
    
-
Real Estate -  Residential
  
25,445
    
12
    
25,671
    
58
Real Estate - Home Equity
  
4,098
    
13
    
4,283
    
95
Consumer
  
546
    
-
    
1,160
    
25
Total Nonaccrual Loans
$
78,726
  
$
25
  
$
75,023
  
$
224

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, 2012:
                        
Commercial, Financial and Agricultural
  
$
1,809
    
$
1,000
    
$
809
    
$
241
  
Real Estate - Construction
    
1,266
      
82
      
1,184
      
123
  
Real Estate - Commercial Mortgage
    
69,898
      
33,982
      
35,916
      
5,543
  
Real Estate -  Residential
    
33,826
      
5,868
      
27,958
      
4,789
  
Real Estate - Home Equity
    
3,355
      
652
      
2,703
      
580
  
Consumer
    
46
      
15
      
31
      
26
  
Total 
  
$
110,200 
    
$
41,599
    
$
68,601 
    
$
11,302 
  
                                 
December 31, 2011:
                                
Commercial, Financial and Agricultural
  
$
1,653
    
$
671
    
$
982
    
$
311
  
Real Estate - Construction
    
511
      
-
      
511
      
68
  
Real Estate - Commercial Mortgage
    
65,624
      
19,987
      
45,637
      
5,828
  
Real Estate -  Residential
    
36,324
      
6,897
      
29,427
      
4,702
  
Real Estate - Home Equity
    
3,527
      
645
      
2,882
      
239
  
Consumer
    
143
      
90
      
53
      
26
  
Total
  
$
107,782 
    
$
28,290 
    
$
79,492 
    
$
11,174 
  
 
The following table summarizes the average recorded investment and interest income recognized by class of impaired loans:

   
Three Months Ended March 31,
  
   
2012
    
2011
  
 
(Dollars in Thousands)
  
Average Recorded Investment
    
Total
Interest Income
    
Average Recorded Investment
   
 Total
Interest Income
  
                         
Commercial, Financial and Agricultural
  
$
1,731
    
$
20
    
$
1,540
    
$
34
  
Real Estate - Construction
    
889
      
4
      
2,561
      
8
  
Real Estate - Commercial Mortgage
    
67,761
      
481
      
46,064
      
315
  
Real Estate -  Residential
    
35,075
      
235
      
34,757
      
288
  
Real Estate - Home Equity
    
3,441
      
25
      
3,308
      
26
  
Consumer
    
95
      
4
      
141
      
14
  
Total
  
$
108,992
    
$
769
    
$
88,371
    
$
685
  

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 defer cash payments required as part of the loan agreement through either a principal moratorium or extension of the loan term.  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. 

The following table presents loans classified as TDRs:

   
March 31, 2012
    
December 31, 2011
(Dollars in Thousands)
  
Accruing
    
Nonaccruing
    
Accruing
     Nonaccruing
 
Commercial, Financial and Agricultural
   $ 956     $ 200     $ 694     $ -
Real Estate - Construction
     323       -       178       -
Real Estate - Commercial Mortgage
     21,199       11,382       20,062       12,029
Real Estate -  Residential
     13,977       1,192       15,553       947
Real Estate - Home Equity
     897       -       1,161       -
Consumer
     21       -       27       -
Total TDRs
   $ 37,373     $ 12,774     $ 37,675     $ 12,976

Loans classified as TDRs during the three months ended March 31, 2012 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.
       
(Dollars in Thousands)
  
Number of Contracts
    
Pre-Modified
Recorded
Investment
    
Post-Modified
Recorded
Investment
  
Commercial, Financial and Agricultural
    
4
    
$
656
    
$
660
  
Real Estate - Construction
    
-
      
-
      
 -
  
Real Estate - Commercial Mortgage
    
13
      
 4,565
      
 4,695
  
Real Estate - Residential
    
8
      
 859
      
 909
  
Real Estate - Home Equity
    
-
      
-
      
 -
  
Consumer
    
-
      
-
      
 -
  
Total TDRs
    
25
    
$
6,080
    
$
6,264
  
 
Loans modified as TDRs within the previous 12 months that have subsequently defaulted during the three months ended March 31, 2012 are presented in the table below.

(Dollars in Thousands)
 
Number of
Contracts
  
Post-Modified
Recorded
Investment
  
Commercial, Financial and Agricultural
-
  
$
-
  
Real Estate - Construction
-
    
-
  
Real Estate - Commercial Mortgage
3
    
1,562
  
Real Estate - Residential
7
    
1,038
  
Real Estate - Home Equity
1
    
157
  
Consumer
-
    
-
  
Total TDRs
11
  
$
2,757
  

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 reviews and approves 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 categories 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/perm 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.  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 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:

 
 
(Dollars in Thousands)
  
Commercial, Financial, Agriculture
    
 
Real Estate
    
 
Consumer
    
 
Total
  
March 31, 2012
                        
Special Mention
   $ 9,835     $ 48,931     $ 54     $ 58,820  
Substandard
     10,300       207,959       1,037       219,296  
Doubtful
     37       6,221       -       6,258  
Total Criticized Loans
   $ 20,172     $ 263,111     $ 1,091     $ 284,374  

 (Dollars in Thousands)
  
Commercial, Financial, Agriculture
    
 
Real Estate
    
 
Consumer
    
 
Total
  
December 31, 2011
                        
Special Mention
   $ 4,883     $ 43,787     $ 79     $ 48,749  
Substandard
     9,804       202,734       1,699       214,237  
Doubtful
     111       7,763       -       7,874  
Total Criticized Loans
   $ 14,798     $ 254,284     $ 1,778     $ 270,860  

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 three months ended March 31, 2012 and 2011.  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
 
 
Unallocated
 
 
Total
March 31, 2012
                                                  
Beginning Balance
  
$
1,534
  
$
1,133
  
$
10,660
  
$
12,518
  
$
2,392
  
$
1,887
  
$
911
  
$
31,035
  
Provision for Loan Losses
    
158
    
628
    
1,166
    
1,511
    
1,207
    
41
    
82
    
4,793
  
Charge-Offs
    
(268
)
  
-
    
(1,532
)
  
(1,967
)
  
(892
)
  
(732
)
  
-
    
(5,391
)
Recoveries
    
69
    
-
    
138
    
163
    
18
    
392
    
-
    
780
  
Net Charge-Offs
    
(199
)
  
-
    
(1,394
)
  
(1,804
)
  
(874
)
  
(340
)
        
(4,611
)
Ending Balance
  
$
1,493
  
$
1,761
  
$
10,432
  
$
12,225
  
$
2,725
  
$
1,588
  
$
993
  
$
31,217
  
                                                   
Period-end amount allocated to:
                                                  
Loans Individually Evaluated for Impairment
  
$
241
  
$
123
  
$
5,543
  
$
4,789
  
$
580
  
$
26
  
$
-
  
$
11,302
  
Loans Collectively Evaluated for Impairment
    
1,252
    
1,638
    
4,889
    
7,436
    
2,145
    
1,562
    
993
    
19,915
  
Ending Balance
  
$
1,493
  
$
1,761
  
$
10,432
  
$
12,225
  
$
2,725
  
$
1,588
  
$
993
  
$
31,217
  
                                                   
March 31, 2011
                                                  
Beginning Balance
  
$
1,544
  
$
2,060
  
$
8,645
  
$
17,046
  
$
2,522
  
$
2,612
  
$
1,007
  
$
35,436
  
Provision for Loan Losses
    
553
    
(566
)
  
1,810
    
1,887
    
1,065
    
(554)
    
(62
)
  
4,133
  
Charge-Offs
    
(721
)
  
-
    
(430
)
  
(3,456
)
  
(989
)
  
(620
)
  
-
    
(6,216
)
Recoveries
    
63
    
9
    
12
    
60
    
36
    
340
    
-
    
520
  
Net Charge-Offs
    
(658
)
  
9
    
(418
)
  
(3,396
)
  
(953
)
  
(280
)
  
-
    
(5,696
)
Ending Balance
  
$
1,439
  
$
1,503
  
$
10,037
  
$
15,537
  
$
2,634
  
$
1,778
  
$
945
  
$
33,873
  
                                                   
Period-end amount allocated to:
                                                  
Loans Individually Evaluated for Impairment
  
$
174
  
$
481
  
$
5,508
  
$
7,165
  
$
1,212
  
$
58
  
$
-
  
$
14,598
  
Loans Collectively Evaluated for Impairment
    
1,265
    
1,022
    
4,529
    
8,372
    
1,422
    
1,720
    
945
    
19,275
  
Ending Balance
  
$
1,439
  
$
1,503
  
$
10,037
  
$
15,537
  
$
2,634
  
$
1,778
  
$
945
  
$
33,873
  
                                                   

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
      
 
 
Unallocated
      
 
 
Total
  
March 31, 2012
                                                  
Individually Evaluated for Impairment
  
$
1,809
  
$
1,266
  
$
69,898
  
$
33,826
  
$
3,355
  
$
46
  
$
-
  
$
110,200
  
Collectively Evaluated for Impairment
    
130,310
    
33,288
    
554,630
    
330,298
    
237,445
    
182,713
    
-
    
1,468,684
  
Total
  
$
132,119
  
$
34,554
  
$
624,528
  
$
364,124
  
$
240,800
  
$
182,759
  
$
-
  
$
1,578,884
  
                                                   
March 31, 2011
                                                  
Individually Evaluated for Impairment
  
$
1,397
  
$
2,589
  
$
49,758
  
$
31,734
  
$
3,338
  
$
138
  
$
-
  
$
88,954
  
Collectively Evaluated for Impairment
    
152,563
    
33,025
    
618,825
    
377,568
    
245,407
    
198,452
    
-
    
1,625,840
  
Total
  
$
153,960
  
$
35,614
  
$
668,583
  
$
409,302
  
$
248,745
  
$
198,590
  
$
-
  
$
1,714,794