LOANS

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

LOANS

NOTE 3 – LOANS, NET

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

(Dollars in Thousands)	2013		2012
Commercial, Financial and Agricultural	$	126,607	$	139,850
Real Estate – Construction		31,012		37,512
Real Estate – Commercial Mortgage		533,871		613,625
Real Estate– Residential(1)		309,692		321,986
Real Estate – Home Equity		227,922		236,263
Consumer		159,500		157,877
Loans, Net of Unearned Income	$	1,388,604	$	1,507,113

⁽¹⁾ Includes loans in process with outstanding balances of $6.8 million and $11.9 million for 2013 and 2012, respectively.

Net deferred fees included in loans were $1.5 million and $1.6 million at December 31, 2013 and December 31, 2012, respectively.

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:

	2013				2012
(Dollars in Thousands)	Nonaccrual		90 + Days		Nonaccrual		90 + Days
Commercial, Financial and Agricultural	$	188		—	$	1,069		—
Real Estate – Construction		426		—		4,071		—
Real Estate – Commercial Mortgage		25,227		—		41,045		—
Real Estate– Residential		6,440		—		13,429		—
Real Estate – Home Equity		4,084		—		4,034		—
Consumer		599		—		574		—
Total Nonaccrual Loans	$	36,964		—	$	64,222		—

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,

(Dollars in Thousands)	30-59 DPD		60-89 DPD		90 + DPD		Total Past Due		Total Current		Total Loans
2013
Commercial, Financial and Agricultural	$	258	$	100	$	—	$	358	$	126,062	$	126,607
Real Estate – Construction		—		—		—		—		30,587		31,012
Real Estate – Commercial Mortgage		1,548		672		—		2,220		506,424		533,871
Real Estate – Residential		1,647		1,090		—		2,737		300,514		309,692
Real Estate – Home Equity		848		212		—		1,060		222,778		227,922
Consumer		1,127		244		—		1,371		157,529		159,500
Total Past Due Loans	$	5,428	$	2,318	$	—	$	7,746	$	1,343,894	$	1,388,604
2012
Commercial, Financial and Agricultural	$	302	$	314	$	—	$	616	$	138,165	$	139,850
Real Estate – Construction		375		—		—		375		33,066		37,512
Real Estate – Commercial Mortgage		1,090		583		—		1,673		570,907		613,625
Real Estate – Residential		2,788		1,199		—		3,987		304,570		321,986
Real Estate – Home Equity		711		487		—		1,198		231,031		236,263
Consumer		1,693		392		—		2,085		155,218		157,877
Total Past Due Loans	$	6,959	$	2,975	$	—	$	9,934	$	1,432,957	$	1,507,113

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, 2013 and 2012. 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
2013
Beginning Balance	$	1,253		$	2,856		$	11,081		$	8,678		$	2,945		$	1,327		$	1,027		$	29,167
Provision for Loan Losses		(15	)		(207	)		(83	)		3,392			971			441			(1,027	)		3,472
Charge-Offs		(748	)		(1,070	)		(3,651	)		(3,835	)		(1,159	)		(1,751	)		—			(12,214	)
Recoveries		209			1			363			838			294			965			—			2,670
Net Charge-Offs		(539	)		(1,069	)		(3,288	)		(2,997	)		(865	)		(786	)		—			(9,544	)
Ending Balance	$	699		$	1,580		$	7,710		$	9,073		$	3,051		$	982		$	—		$	23,095
2012
Beginning Balance	$	1,534		$	1,133		$	10,660		$	12,518		$	2,392		$	1,887		$	911		$	31,035
Provision for Loan Losses		251			2,309			5,770			4,588			3,050			82			116			16,166
Charge-Offs		(822	)		(629	)		(6,031	)		(9,719	)		(2,896	)		(2,125	)		—			(22,222	)
Recoveries		290			43			682			1,291			399			1,483			—			4,188
Net Charge-Offs		(532	)		(586	)		(5,349	)		(8,428	)		(2,497	)		(642	)		—			(18,034	)
Ending Balance	$	1,253		$	2,856		$	11,081		$	8,678		$	2,945		$	1,327		$	1,027		$	29,167
2011
Beginning Balance	$	1,544		$	2,060		$	8,645		$	17,046		$	2,522		$	2,612		$	1,007		$	35,436
Provision for Loan Losses		1,446			(827	)		8,477			6,864			2,383			749			(96	)		18,996
Charge-Offs		(1,843	)		(114	)		(6,713	)		(11,870	)		(2,727	)		(2,924	)		—			(26,191	)
Recoveries		387			14			251			478			214			1,450			—			2,794
Net Charge-Offs		(1,456	)		(100	)		(6,462	)		(11,392	)		(2,513	)		(1,474	)		—			(23,397	)
Ending Balance	$	1,534		$	1,133		$	10,660		$	12,518		$	2,392		$	1,887		$	911		$	31,035

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.

(Dollars in Thousands)	Commercial, Financial, Agricultural		Real Estate Construction		Real Estate Commercial Mortgage		Real Estate Residential		Real Estate Home Equity		Consumer		Unallocated		Total
2013
Period-end amount
Allocated to:
Loans Individually Evaluated for Impairment	$	75	$	66	$	4,336	$	2,047	$	682	$	23	$	—	$	7,229
Loans Collectively Evaluated for Impairment		624		1,514		3,374		7,026		2,369		959		—		15,866
Ending Balance	$	699	$	1,580	$	7,710	$	9,073	$	3,051	$	982	$	—	$	23,095
2012
Period-end amount
Allocated to:
Loans Individually Evaluated for Impairment	$	210	$	714	$	6,641	$	2,778	$	546	$	32	$	—	$	10,921
Loans Collectively Evaluated for Impairment		1,043		2,142		4,440		5,900		2,399		1,295		1,027		18,246
Ending Balance	$	1,253	$	2,856	$	11,081	$	8,678	$	2,945	$	1,327	$	1,027	$	29,167
2011
Period-end amount
Allocated to:
Loans Individually Evaluated for Impairment	$	311	$	68	$	5,828	$	4,702	$	239	$	26	$	—	$	11,174
Loans Collectively Evaluated for Impairment		1,223		1,065		4,832		7,816		2,153		1,861		911		19,861
Ending Balance	$	1,534	$	1,133	$	10,660	$	12,518	$	2,392	$	1,887	$	911	$	31,035

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:

(Dollars in Thousands)	Commercial, Financial, Agricultural		Real Estate Construction		Real Estate   Commercial Mortgage		Real Estate Residential		Real Estate Home Equity		Consumer		Unallocated		Total
2013
Individually Evaluated for Impairment	$	1,580	$	557	$	49,973	$	20,470	$	3,359	$	355	$	—	$	76,294
Collectively Evaluated for Impairment		125,027		30,455		483,898		289,222		224,563		159,145		—		1,312,310
Total	$	126,607	$	31,012	$	533,871	$	309,692	$	227,922	$	159,500	$	—	$	1,388,604
2012
Individually Evaluated for Impairment	$	2,325	$	4,232	$	74,650	$	23,030	$	3,858	$	687	$	—	$	108,782
Collectively Evaluated for Impairment		137,525		33,280		538,975		298,956		232,405		157,190		—		1,398,331
Total	$	139,850	$	37,512	$	613,625	$	321,986	$	236,263	$	157,877	$	—	$	1,507,113
2011
Individually Evaluated for Impairment	$	1,653	$	511	$	65,624	$	36,324	$	3,527	$	143	$	—	$	107,782
Collectively Evaluated for Impairment		129,226		18,381		573,516		349,297		240,736		188,520		—		1,499,676
Total	$	130,879	$	18,892	$	639,140	$	385,621	$	244,263	$	188,663	$	—	$	1,607,458

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:

(Dollars in Thousands)	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
2013
Commercial, Financial and Agricultural	$	1,580	$	443	$	1,137	$	75
Real Estate – Construction		557		—		557		66
Real Estate – Commercial Mortgage		49,973		19,860		30,113		4,336
Real Estate– Residential		20,470		4,330		16,140		2,047
Real Estate – Home Equity		3,359		646		2,713		682
Consumer		355		90		265		23
Total	$	76,294	$	25,369	$	50,925	$	7,229
2012
Commercial, Financial and Agricultural	$	2,325	$	527	$	1,797	$	210
Real Estate – Construction		4,232		—		4,232		714
Real Estate – Commercial Mortgage		74,650		22,594		52,056		6,641
Real Estate – Residential		23,030		2,635		20,395		2,778
Real Estate – Home Equity		3,858		890		2,968		546
Consumer		687		123		565		32
Total	$	108,782	$	26,769	$	82,013	$	10,921

The following table summarizes the average recorded investment and interest income recognized for 2013, 2012, and 2011 by class of impaired loans:

	2013				2012				2011
(Dollars in Thousands)	Average Recorded Investment		Total Interest Income		Average Recorded Investment		Total Interest Income		Average Recorded Investment		Total Interest Income
Commercial, Financial and Agricultural	$	2,861	$	140	$	2,018	$	81	$	1,554	$	62
Real Estate – Construction		1,181		7		4,443		70		1,775		36
Real Estate – Commercial Mortgage		60,043		2,062		70,701		2,113		50,706		1,285
Real Estate– Residential		21,238		860		28,680		853		30,988		667
Real Estate – Home Equity		4,037		72		3,540		95		2,743		61
Consumer		501		10		229		3		90		3
Total	$	89,861	$	3,151	$	109,611	$	3,215	$	87,856	$	2,114

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:

(Dollars in Thousands)	Commercial, Financial, Agriculture		Real Estate		Consumer		Total Criticized Loans
2013
Special Mention	$	3,656	$	45,870	$	115	$	49,641
Substandard		4,243		108,990		1,496		114,729
Doubtful		—		900		—		900
Total Criticized Loans	$	7,899	$	155,760	$	1,611	$	165,270
2012
Special Mention	$	4,380	$	54,938	$	142	$	59,460
Substandard		10,863		177,277		1,624		189,764
Doubtful		158		1,515		—		1,673
Total Criticized Loans	$	15,401	$	233,730	$	1,766	$	250,897

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 at December 31:

	2013				2012
(Dollars in Thousands)	Accruing		Nonaccruing		Accruing		Nonaccruing
Commercial, Financial and Agricultural	$	1,511	$	—	$	1,462	$	508
Real Estate – Construction		156		—		161		—
Real Estate – Commercial Mortgage		24,735		10,308		29,870		8,425
Real Estate– Residential		16,441		458		13,824		936
Real Estate – Home Equity		1,576		241		1,587		—
Consumer		345		—		570		10
Total TDRs	$	44,764	$	11,007	$	47,474	$	9,879

Loans classified as TDRs during 2013, 2012, and 2011 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.

	2013				2012				2011
(Dollars in Thousands)	Number of Contracts		Recorded Investment(1)		Number of Contracts		Recorded Investment(1)		Number of Contracts		Recorded Investment(1)
Commercial, Financial and Agricultural		4	$	337		12	$	1,857		7	$	547
Real Estate – Construction		—		—		6		976		5		3,752
Real Estate – Commercial Mortgage		13		9,653		54		16,011		46		16,311
Real Estate– Residential		18		2,073		68		6,955		79		15,487
Real Estate – Home Equity		9		587		19		731		9		660
Consumer		6		93		60		656		2		23
Total TDRs		50	$	12,743		219	$	27,186		148	$	36,780

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

Loans classified as TDRs during 2013, 2012, and 2011 that have subsequently defaulted during the twelve months ended December 31, 2013, 2012 and 2011 are presented in the table below.

	2013				2012				2011
(Dollars in Thousands)	Number of Contracts		Recorded Investment(1)		Number of Contracts		Recorded Investment(1)		Number of Contracts		Recorded Investment(1)
Commercial, Financial and Agricultural		—	$	—		—	$	—		2	$	218
Real Estate – Construction		—		—		4		713		1		2,327
Real Estate – Commercial Mortgage		1		73		3		1,001		12		5,221
Real Estate– Residential		—		—		7		1,906		7		1,424
Real Estate – Home Equity		1		50		—		—		—		—
Consumer		—		—		1		2		—		—
Total TDRs		2	$	123		15	$	3,622		22	$	9,190

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