6. Loans

Major classifications of loans at December 31, 2013 and December 31, 2012 were as follows (in thousands):


	December 31, 2013			December 31, 2012
Commercial real estate loans:
Construction	$	203,369		$	159,999
Mortgage⁽¹⁾		1,118,048			983,164

		1,321,417			1,143,163

Consumer real estate loans:
Construction		8,986			7,738
Mortgage		115,307			102,699

		124,293			110,437
Commercial and industrial loans		868,469			622,105
Loans to individuals, excluding real estate		16,345			14,000
Nonaccrual loans		16,396			21,083
Other loans		10,857			11,429

		2,357,777			1,922,217

Less allowance for loan losses		(32,143	)		(26,977	)

Loans, net	$	2,325,634		$	1,895,240

⁽¹⁾	Included in commercial real estate loans, mortgage, are owner-occupied real estate loans, of $364.9 million at December 31, 2013 and $345.4 million at December 31, 2012.

A summary of changes in the allowance for loan losses during the years ended December 31, 2013, 2012, and 2011 is as follows (in thousands):


	2013			2012			2011
Balance, beginning of period	$	26,977		$	18,122		$	12,508
Provision charged to operations		9,800			11,035			8,010
Charge-offs		(4,769	)		(2,561	)		(2,462	)
Recoveries		135			381			66

Balance, end of period	$	32,143		$	26,977		$	18,122

Deferred costs less deferred fees, net of amortization, related to loan origination were $10.6 million and $9.0 million as of December 31, 2013 and 2012, respectively. These amounts are included in the loan balances above.

In addition to loans issued in the normal course of business, the Company considers overdrafts on customer deposit accounts to be loans and reclassifies these overdrafts to loans in the accompanying consolidated balance sheets. At December 31, 2013 and 2012, overdrafts of $0.8 million had been reclassified to loans receivable.

Loans were pledged to secure other borrowings at December 31, 2013 with carrying values of $655.1 million on a blanket lien and $29.4 million which were held in custody. At December 31, 2012, loans with carrying values of $481.8 million on a blanket lien and $49.9 million which were held in custody were pledged to secure other borrowings.

The allowance for loan losses and recorded investment in loans, including loans acquired with deteriorated credit quality as of the dates indicated are as follows (in thousands):


	December 31, 2013
	Construction			Commercial Real Estate			Consumer Real Estate		Commercial and Industrial			Other Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,004		$	10,716		$	2,450	$	11,675		$	132		$	26,977
Charge-offs		(46	)		(292	)		—		(4,229	)		(202	)		(4,769	)
Recoveries		—			19			30		68			18			135
Provision		832			3,337			176		5,163			292			9,800

Ending balance	$	2,790		$	13,780		$	2,656	$	12,677		$	240		$	32,143

Ending balances:
Individually evaluated for impairment	$	42		$	1,639		$	183	$	2,091		$	—		$	3,955

Collectively evaluated for impairment	$	2,748		$	12,141		$	2,473	$	10,586		$	240		$	28,188

Loans receivable:
Ending balance-total	$	212,430		$	1,128,181		$	117,653	$	883,111		$	16,402		$	2,357,777

Ending balances:
Individually evaluated for impairment	$	309		$	9,811		$	2,990	$	4,005		$	—		$	17,115

Collectively evaluated for impairment	$	212,121		$	1,118,370		$	114,663	$	879,106		$	16,402		$	2,340,662


	December 31, 2012
	Construction		Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Other Consumer			Total
Allowance for loan losses:
Beginning balance	$	722	$	9,871		$	1,519		$	5,928		$	82		$	18,122
Charge-offs		—		(1,262	)		(59	)		(1,068	)		(172	)		(2,561	)
Recoveries		16		132			22			153			58			381
Provision		1,266		1,975			968			6,662			164			11,035

Ending balance	$	2,004	$	10,716		$	2,450		$	11,675		$	132		$	26,977

Ending balances:
Individually evaluated for impairment	$	176	$	951		$	362		$	5,453		$	—		$	6,942

Collectively evaluated for impairment	$	1,828	$	9,765		$	2,088		$	6,222		$	132		$	20,035

Loans receivable:
Ending balance-total	$	168,544	$	988,994		$	103,516		$	647,090		$	14,073		$	1,922,217

Ending balances:
Individually evaluated for impairment	$	799	$	5,203		$	1,178		$	14,133		$	—		$	21,313

Collectively evaluated for impairment	$	167,745	$	983,791		$	102,338		$	632,957		$	14,073		$	1,900,904

Credit quality indicators on the Company’s loan portfolio, including loans acquired with deteriorated credit quality, as of the dates indicated were as follows (in thousands):

December 31, 2013

Pass and
Pass/Watch

Special
Mention

Substandard

Doubtful

Total

Construction

197,951

14,475

—

212,430

Commercial real estate

1,073,339

1,720

53,122

—

1,128,181

Consumer real estate

113,037

185

4,431

—

117,653

Commercial and industrial

873,547

9,547

—

883,111

Other consumer

16,251

142

—

16,402

Total loans

2,274,125

1,935

81,717

—

2,357,777


	December 31, 2012
	Pass and Pass/Watch		Special Mention		Substandard		Doubtful		Total
Construction	$	146,748	$	3,258	$	18,538	$	—	$	168,544
Commercial real estate		962,694		1,698		24,602		—		988,994
Consumer real estate		101,334		751		1,431		—		103,516
Commercial and industrial		620,851		18		14,984		11,237		647,090
Other consumer		13,859		13		201		—		14,073

Total loans	$	1,845,486	$	5,738	$	59,756	$	11,237	$	1,922,217

The table above as of December 31, 2013 includes $7.4 million of substandard loans and $1.6 million of special mention loans which are loans acquired with deteriorated credit quality. As of December 31, 2012, included in the above table was $8.9 million of substandard loans and $1.6 million of special mention loans which are loans acquired with deteriorated credit quality.

The above classifications follow regulatory guidelines and can generally be described as follows:

•

Pass and pass/watch loans are of satisfactory quality.

•

Special mention loans have an existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities, and possible reduction in the collateral values.

•

Substandard loans have an existing specific and well-defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts may be experiencing overdrafts. Immediate corrective action is necessary.

•

Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.

Age analysis of past due loans, including loans acquired with deteriorated credit quality, as of the dates indicated were as follows (in thousands):


	December 31, 2013
	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	15	$	75	$	90	$	212,340	$	212,430
Commercial real estate		2,935		7,642		10,577		1,117,604		1,128,181
Consumer real estate		1,260		2,166		3,426		114,227		117,653

Total real estate loans		4,210		9,883		14,093		1,444,171		1,458,264

Other loans:
Commercial and industrial		3,076		1,281		4,357		878,754		883,111
Other consumer		488		207		695		15,707		16,402

Total other loans		3,564		1,488		5,052		894,461		899,513

Total loans	$	7,774	$	11,371	$	19,145	$	2,338,632	$	2,357,777


	December 31, 2012
	Greater Than 30 and Fewer Than 90 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current Loans		Total Loans
Real estate loans:
Construction	$	—	$	751	$	751	$	167,793	$	168,544
Commercial real estate		960		5,914		6,874		982,120		988,994
Consumer real estate		483		651		1,134		102,382		103,516

Total real estate loans		1,443		7,316		8,759		1,252,295		1,261,054

Other loans:
Commercial and industrial		671		2,197		2,868		644,222		647,090
Other consumer		25		54		79		13,994		14,073

Total other loans		696		2,251		2,947		658,216		661,163

Total loans	$	2,139	$	9,567	$	11,706	$	1,910,511	$	1,922,217

The table above includes $0.4 million of other consumer loans past due greater than 30 and fewer than 90 days, and $0.2 million of other consumer loans 90 days and greater past due, as of December 31, 2013. These loans are cash secured and the Company has rights of offset against the guarantors’ deposit accounts when the loans are 120 days past due.

The following is a summary of information pertaining to impaired loans, which consist primarily of nonaccrual loans. This table excludes loans acquired with deteriorated credit quality. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings, even if they would otherwise qualify for such treatment. Impaired loans as of the periods indicated were as follows (in thousands):


	December 31, 2013
	Recorded Investment		Contractual Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Construction	$	—	$	—	$	—	$	24	$	—
Commercial real estate		4,261		4,469		—		3,063		110
Consumer real estate		1,973		1,999		—		1,254		—
Commercial and industrial		1,099		1,116		—		977		40

Total	$	7,333	$	7,584	$	—	$	5,318	$	150

With an allowance recorded:
Construction	$	309	$	309	$	42	$	530	$	23
Commercial real estate		5,550		7,428		1,639		4,445		59
Consumer real estate		1,017		1,046		183		831		21
Commercial and industrial		2,906		2,941		2,091		8,093		10

Total	$	9,782	$	11,724	$	3,955	$	13,899	$	113

Total impaired loans:
Construction	$	309	$	309	$	42	$	554	$	23
Commercial real estate		9,811		11,897		1,639		7,508		169
Consumer real estate		2,990		3,045		183		2,085		21
Commercial and industrial		4,005		4,057		2,091		9,070		50

Total	$	17,115	$	19,308	$	3,955	$	19,217	$	263


	December 31, 2012
	Recorded Investment		Contractual Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Construction	$	48	$	48	$	—	$	1,146	$	3
Commercial real estate		1,864		1,984		—		2,478		30
Consumer real estate		534		534		—		639		2
Commercial and industrial		854		874		—		1,030		54

Total	$	3,300	$	3,440	$	—	$	5,293	$	89

With an allowance recorded:
Construction	$	751	$	751	$	176	$	376	$	14
Commercial real estate		3,339		3,367		548		1,855		47
Consumer real estate		644		644		765		819		9
Commercial and industrial		13,279		13,280		5,453		6,781		389

Total	$	18,013	$	18,042	$	6,942	$	9,831	$	459

Total impaired loans:
Construction	$	799	$	799	$	176	$	1,522	$	17
Commercial real estate		5,203		5,351		548		4,333		77
Consumer real estate		1,178		1,178		765		1,458		11
Commercial and industrial		14,133		14,154		5,453		7,811		443

Total	$	21,313	$	21,482	$	6,942	$	15,124	$	548

Also presented in the above table is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. In the table above, all interest recognized represents cash collected. The average balances are calculated based on the month-end balances of the financing receivables of the period reported.

As of December 31, 2013, there were $0.2 million in cash secured tuition loans which were past due 90 days or more that were still accruing interest and there were no loans past due 90 days or more that were still accruing interest as of December 31, 2012.

A summary of information pertaining to nonaccrual loans as of the periods indicated is as follows (in thousands):


	2013		2012
Nonaccrual loans:
Construction	$	75	$	806
Commercial real estate		10,133		5,831
Consumer real estate		2,347		818
Commercial and industrial		3,784		13,556
Other consumer		57		72

	$	16,396	$	21,083

As of December 31, 2013 and December 31, 2012, the average recorded investment in nonaccrual loans was $17.9 million and $8.2 million, respectively. The amount of interest income that would have been recognized on nonaccrual loans based on contractual terms was $1.0 million and $0.4 million at December 31, 2013 and December 31, 2012, respectively. As of December 31, 2013, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired.

ASC 310-30 Loans

The Company acquired certain loans from the Federal Deposit Insurance Corporation, as receiver for Central Progressive Bank, that are subject to ASC 310-30. ASC 310-30 provides recognition, measurement, and disclosure requirements for acquired loans that have evidence of deterioration of credit quality since origination for which it is probable, at acquisition, that the Company will be unable to collect all contractual amounts owed. The Company’s allowance for loan losses for all acquired loans subject to ASC 310-30 would reflect only those losses incurred after acquisition.

The following is a summary of changes in the accretable yields of acquired loans as of the years ended December 31, 2013 and 2012 (in thousands):


	2013			2012
Balance, beginning of period	$	628		$	1,374
Acquisition		—			—
Net transfers from nonaccretable difference to accretable yield		45			361
Accretion		(503	)		(1,107	)

Balance, end of period	$	170		$	628

Information about the Company’s TDRs as of December 31, 2013 and December 31, 2012, is presented in the following tables (in thousands):


Year Ended December 31, 2013	Current		Greater Than 30 Days Past Due		Nonaccrual TDRs		Total Loans
Real estate loans:
Construction	$	309	$	—	$	—	$	309
Commercial real estate		357		—		102		459
Consumer real estate		625		—		136		761

Total real estate loans		1,291		—		238		1,529

Other loans:
Commercial and industrial		337		—		—		337

Total loans	$	1,628	$	—	$	238	$	1,866


Year Ended December 31, 2012
Real estate loans:
Construction	$	47	$	—	$	—	$	47
Commercial real estate		268		—		982		1,250
Consumer real estate		655		—		—		655

Total real estate loans		970		—		982		1,952

Other loans:
Commercial and industrial		384		—		—		384

Total loans	$	1,354	$	—	$	982	$	2,336

The following table provides information on how the TDRs were modified during the years ended December 31, 2013 and 2012 (in thousands):


	2013		2012
Maturity and interest rate adjustment	$	925	$	609
Movement to or extension of interest rate-only payments		597		1,333
Other concession(s)⁽¹⁾		344		394

Total	$	1,866	$	2,336

(1)	Other concessions include concessions or a combination of concessions, other than maturity extensions and interest rate adjustments.

A summary of information pertaining to modified terms of loans, as of the dates indicated, is as follows (in thousands):


	December 31, 2013
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction		2	$	309	$	309
Commercial real estate		3		459		459
Consumer real estate		3		761		761
Commercial and industrial		1		337		337

		9	$	1,866	$	1,866


	December 31, 2012
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Troubled debt restructuring:
Construction		1	$	47	$	47
Commercial real estate		2		1,250		1,250
Consumer real estate		3		655		655
Commercial and industrial		1		384		384

		7	$	2,336	$	2,336

None of the performing TDRs defaulted subsequent to the restructuring through the date the financial statements were available to be issued.

As of December 31, 2013 and 2012, the Company was not committed to lend additional funds to any customer whose loan was classified as impaired or as a TDR.