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LOANS, NET
 12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
LOANS, NET

Note 3

LOANS, NET

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

(Dollars in Thousands)20172016
Commercial, Financial and Agricultural$218,166  $216,404
Real Estate – Construction  77,966    58,443
Real Estate – Commercial Mortgage  535,707    503,978
Real Estate – Residential(1)   311,906    281,509
Real Estate – Home Equity  229,513    236,512
Consumer(2)   280,234    264,443
Loans, Net of Unearned Income$1,653,492  $1,561,289

(1) Includes loans in process with outstanding balances of $9.1 million and $9.6 million for 2017 and 2016, respectively.

(2) Includes overdraft balances of $1.6 million and $1.7 million for 2017 and 2016, respectively.

Net deferred costs included in loans were $1.5 million at December 31, 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 at December 31:

2017  2016
(Dollars in Thousands)Nonaccrual  90 + DaysNonaccrual90 + Days
Commercial, Financial and Agricultural$629$-$468$-
Real Estate – Construction  297-311-
Real Estate – Commercial Mortgage  2,370-3,410-
Real Estate – Residential  1,938-2,330-
Real Estate – Home Equity  1,748-1,774-
Consumer  17736240-
Total Nonaccrual Loans$7,159$36$8,533$-

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 at December 31,

30-59 60-89 90 + TotalTotalTotal
(Dollars in Thousands)DPDDPDDPDPast DueCurrentLoans
2017
Commercial, Financial and Agricultural$87$55$-$142$217,395$218,166
Real Estate – Construction  811--81176,85877,966
Real Estate – Commercial Mortgage  437195-632532,705535,707
Real Estate – Residential  701446-1,147308,821311,906
Real Estate – Home Equity  802-82227,683229,513
Consumer  1,316413361,765278,292280,234
Total Past Due Loans$3,432$1,111$36$4,579$1,641,754$1,653,492
2016
Commercial, Financial and Agricultural$209$48$-$257$215,679$216,404
Real Estate – Construction  949282-1,23156,90158,443
Real Estate – Commercial Mortgage  8351-836499,732503,978
Real Estate – Residential  1,199490-1,689277,490281,509
Real Estate – Home Equity  57751-628234,110236,512
Consumer  1,516281-1,797262,406264,443
Total Past Due Loans$5,285$1,153$-$6,438$1,546,318$1,561,289

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. 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 EstateCommercial Real EstateReal Estate
(Dollars in Thousands)AgriculturalConstructionMortgageResidentialHome EquityConsumerTotal
2017
Beginning Balance$1,198$168$4,315$3,445$2,297$2,008$13,431
Provision for Loan Losses1,037(96)542(444)1809962,215
Charge-Offs(1,357)-(685)(411)(190)(2,193)(4,836)
Recoveries 313501746162191,1252,497
Net Charge-Offs(1,044)50(511)20529(1,068)(2,339)
Ending Balance$1,191$122$4,346$3,206$2,506$1,936$13,307
2016
Beginning Balance$905$101$4,498$4,409$2,473$1,567$13,953
Provision for Loan Losses81767(242)(1,296)(135)1,608819
Charge-Offs(861)-(349)(899)(450)(2,127)(4,686)
Recoveries337-4081,2314099603,345
Net Charge-Offs(524)-59332(41)(1,167)(1,341)
Ending Balance$1,198$168$4,315$3,445$2,297$2,008$13,431
2015
Beginning Balance$784$843$5,287$6,520$2,882$1,223$17,539
Provision for Loan Losses911(742)278(964)8581,2531,594
Charge-Offs(1,029)-(1,250)(1,852)(1,403)(1,901)(7,435)
Recoveries239-1837051369922,255
Net Charge-Offs(790)-(1,067)(1,147)(1,267)(909)(5,180)
Ending Balance$905$101$4,498$4,409$2,473$1,567$13,953

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:

Commercial,Real Estate
Financial, Real EstateCommercial Real EstateReal Estate
(Dollars in Thousands)AgriculturalConstructionMortgageResidentialHome EquityConsumerTotal
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 Impairment9761212,1811,9861,9911,9359,190
Ending Balance$1,191$122$4,346$3,206$2,506$1,936$13,307
2016
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment$80$-$2,038$1,561$335$6$4,020
Loans Collectively
Evaluated for Impairment1,1181682,2771,8841,9622,0029,411
Ending Balance$1,198$168$4,315$3,445$2,297$2,008$13,431
2015
Period-end amount
Allocated to:
Loans Individually
Evaluated for Impairment$77$-$2,049$2,118$384$18$4,646
Loans Collectively
Evaluated for Impairment8281012,4492,2912,0891,5499,307
Ending Balance$905$101$4,498$4,409$2,473$1,567$13,953

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:

Commercial,Real Estate
Financial, Real EstateCommercial Real EstateReal Estate
(Dollars in Thousands)AgriculturalConstructionMortgageResidentialHome EquityConsumerTotal
2017
Individually Evaluated for
Impairment$1,378$361$19,280$12,871$3,332$113$37,335
Collectively Evaluated for
Impairment216,78877,605516,427299,035226,181280,1211,616,157
Total$218,166$77,966$535,707$311,906$229,513$280,234$1,653,492
2016
Individually Evaluated for
Impairment$1,042$247$23,855$15,596$3,375$174$44,289
Collectively Evaluated for
Impairment215,36258,196480,123265,913233,137264,2691,517,000
Total$216,404$58,443$503,978$281,509$236,512$264,443$1,561,289
2015
Individually Evaluated for
Impairment$834$97$20,847$18,569$3,144$261$43,752
Collectively Evaluated for
Impairment178,98246,387478,966272,016230,757241,4151,448,523
Total$179,816$46,484$499,813$290,585$233,901$241,676$1,492,275

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:

UnpaidRecorded Recorded
Principal Investment Investment Related
(Dollars in Thousands)BalanceWith No AllowanceWith AllowanceAllowance
2017
Commercial, Financial and Agricultural$1,378$118$1,260$215
Real Estate – Construction361297641
Real Estate – Commercial Mortgage19,2801,76317,5172,165
Real Estate – Residential12,8711,51611,3551,220
Real Estate – Home Equity3,3321,1572,175515
Consumer11345681
Total$37,335$4,896$32,439$4,117
2016
Commercial, Financial and Agricultural$1,042$565$477$80
Real Estate – Construction247-247-
Real Estate – Commercial Mortgage23,8558,95414,9012,038
Real Estate – Residential15,5962,50913,0871,561
Real Estate – Home Equity3,3751,8711,504335
Consumer174651096
Total$44,289$13,964$30,325$4,020

Nonaccrual loans include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans. Therefore, the sum of nonaccrual loans and accruing troubled debt restructurings will differ from the total impaired amount.

The following table summarizes the average recorded investment and interest income recognized for each of the last three years by class of impaired loans:

  2017  2016  2015
AverageTotalAverageTotalAverageTotal
Recorded InterestRecordedInterestRecordedInterest
 (Dollars in Thousands)Investment Income InvestmentIncome InvestmentIncome
Commercial, Financial and Agricultural$1,117$48$886$49  $1,002$46
Real Estate – Construction  3394  691    335-
Real Estate – Commercial Mortgage21,68291121,37692027,6441,093
Real Estate – Residential  14,261683  17,314786    19,105842
Real Estate – Home Equity  3,290108  3,076115    3,00186
Consumer  1418  2079    2017
Total$40,830$1,762$42,928$1,880  $51,288$2,074

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:

Commercial,Total
Financial,Criticized
(Dollars in Thousands)AgricultureReal EstateConsumerLoans
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
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 at December 31:

20172016
(Dollars in Thousands)Accruing NonaccruingAccruing  Nonaccruing
Commercial, Financial and Agricultural$822$-$772$40
Real Estate – Construction64-  --
Real Estate – Commercial Mortgage17,0581,636  20,6731,259
Real Estate – Residential11,666503  13,969444
Real Estate – Home Equity2,441186  2,647-
Consumer113-  172-
Total TDRs$32,164$2,325$ 38,233$1,743

Loans classified as TDRs during 2017, 2016, and 2015 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.

201720162015
NumberNumberNumber
ofRecordedofRecordedofRecorded
(Dollars in Thousands)ContractsInvestment(1)ContractsInvestment(1)ContractsInvestment(1)
Commercial, Financial and Agricultural1$22-$-1  $40
Real Estate – Construction165---    -
Real Estate – Commercial Mortgage17035,0124    631
Real Estate – Residential2283659014    1,531
Real Estate – Home Equity4203520621    1,005
Consumer----3    110
Total TDRs9$64314$5,80843  $3,317
(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 included.

201720162015
NumberPost-ModifiedNumberPost-ModifiedNumberPost-Modified
ofRecordedofRecordedofRecorded
(Dollars in Thousands)ContractsInvestmentContractsInvestmentContractsInvestment
Extended amortization1$703$4,703  16  $973
Interest rate adjustment3302--  5    284
Extended amortization and
interest rate adjustment4249111,105  22    2,060
Other122--  -    -
Total TDRs9$64314$5,808  43  $3,317

For the years 2017, 2016, 2015, there were no TDRs for which there was a payment default and the loans were modified within the twelve months prior to default.