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Loans and the Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2014
Receivables [Abstract]  
Loans and the Allowance for Loan Losses
Loans and the Allowance for Loan Losses
(In Thousands, Except Number of Loans)
The following is a summary of loans as of the dates presented:
 
 
March 31,
2014
 
December 31, 2013
Commercial, financial, agricultural
$
440,116

 
$
468,963

Lease financing
623

 
53

Real estate – construction
155,900

 
161,436

Real estate – 1-4 family mortgage
1,211,260

 
1,208,233

Real estate – commercial mortgage
1,968,158

 
1,950,572

Installment loans to individuals
91,382

 
91,762

Gross loans
3,867,439

 
3,881,019

Unearned income
(11
)
 
(1
)
Loans, net of unearned income
3,867,428

 
3,881,018

Allowance for loan losses
(48,048
)
 
(47,665
)
Net loans
$
3,819,380

 
$
3,833,353



Past Due and Nonaccrual Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, the recognition of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Consumer and other retail loans are typically charged-off no later than the time the loan is 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Loans may be placed on nonaccrual regardless of whether or not such loans are considered past due. All interest accrued for the current year, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
The following table provides an aging of past due and nonaccrual loans, segregated by class, as of the dates presented:
 
 
Accruing Loans
 
Nonaccruing Loans
 
 
 
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Current
Loans
 
Total
Loans
 
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Current
Loans
 
Total
Loans
 
Total
Loans
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
1,565

 
$
354

 
$
435,597

 
$
437,516

 
$
36

 
$
1,207

 
$
1,357

 
$
2,600

 
$
440,116

Lease financing
—

 
—

 
623

 
623

 
—

 
—

 
—

 
—

 
623

Real estate – construction
265

 
—

 
153,987

 
154,252

 
—

 
1,648

 
—

 
1,648

 
155,900

Real estate – 1-4 family mortgage
11,884

 
1,727

 
1,182,749

 
1,196,360

 
550

 
7,722

 
6,628

 
14,900

 
1,211,260

Real estate – commercial mortgage
7,712

 
1,041

 
1,907,796

 
1,916,549

 
2,939

 
37,035

 
11,635

 
51,609

 
1,968,158

Installment loans to individuals
366

 
154

 
90,783

 
91,303

 
—

 
71

 
8

 
79

 
91,382

Unearned income
—

 
—

 
(11
)
 
(11
)
 
—

 
—

 
—

 
—

 
(11
)
Total
$
21,792

 
$
3,276

 
$
3,771,524

 
$
3,796,592

 
$
3,525

 
$
47,683

 
$
19,628

 
$
70,836

 
$
3,867,428

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
2,067

 
$
607

 
$
463,521

 
$
466,195

 
$
138

 
$
1,959

 
$
671

 
$
2,768

 
$
468,963

Lease financing
—

 
—

 
53

 
53

 
—

 
—

 
—

 
—

 
53

Real estate – construction
664

 
—

 
159,124

 
159,788

 
—

 
1,648

 
—

 
1,648

 
161,436

Real estate – 1-4 family mortgage
10,168

 
2,206

 
1,179,703

 
1,192,077

 
1,203

 
6,041

 
8,912

 
16,156

 
1,208,233

Real estate – commercial mortgage
8,870

 
1,286

 
1,888,745

 
1,898,901

 
966

 
37,439

 
13,266

 
51,671

 
1,950,572

Installment loans to individuals
706

 
88

 
90,880

 
91,674

 
—

 
80

 
8

 
88

 
91,762

Unearned income
—

 
—

 
(1
)
 
(1
)
 
—

 
—

 
—

 
—

 
(1
)
Total
$
22,475

 
$
4,187

 
$
3,782,025

 
$
3,808,687

 
$
2,307

 
$
47,167

 
$
22,857

 
$
72,331

 
$
3,881,018



There were no restructured loans contractually 90 days past due or more at March 31, 2014 or December 31, 2013. The outstanding balance of restructured loans on nonaccrual status was $9,696 and $10,078 at March 31, 2014 and December 31, 2013, respectively.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan-by-loan basis for commercial, consumer and construction loans above a minimum dollar amount threshold by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are evaluated collectively for impairment. When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged-off. For impaired loans, a specific reserve is established to adjust the carrying value of the loan to its estimated net realizable value.
Impaired loans recognized in conformity with Financial Accounting Standards Board Accounting Standards Codification Topic ("ASC") 310, “Receivables” (“ASC 310”), segregated by class, were as follows as of the dates presented:
 
 
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With
Allowance
 
Recorded
Investment
With No
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
March 31, 2014
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
9,534

 
$
723

 
$
4,761

 
$
5,484

 
$
253

Lease financing
—

 
—

 
—

 
—

 
—

Real estate – construction
2,834

 
—

 
1,882

 
1,882

 
—

Real estate – 1-4 family mortgage
32,727

 
21,831

 
4,481

 
26,312

 
7,285

Real estate – commercial mortgage
123,870

 
32,529

 
46,960

 
79,489

 
7,724

Installment loans to individuals
—

 
—

 
—

 
—

 
—

Total
$
168,965

 
$
55,083

 
$
58,084

 
$
113,167

 
$
15,262

December 31, 2013
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
6,575

 
$
743

 
$
2,043

 
$
2,786

 
$
260

Lease financing
—

 
—

 
—

 
—

 
—

Real estate – construction
2,447

 
—

 
1,648

 
1,648

 
—

Real estate – 1-4 family mortgage
42,868

 
25,374

 
8,542

 
33,916

 
7,353

Real estate – commercial mortgage
108,963

 
30,624

 
38,517

 
69,141

 
7,036

Installment loans to individuals
620

 
183

 
77

 
260

 
1

Totals
$
161,473

 
$
56,924

 
$
50,827

 
$
107,751

 
$
14,650



The following table presents the average recorded investment and interest income recognized on impaired loans for the periods presented:
 
 
Three Months Ended
 
Three Months Ended
 
March 31, 2014
 
March 31, 2013
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized(1)
Commercial, financial, agricultural
$
7,745

 
$
5

 
$
3,758

 
$
—

Lease financing
—

 
—

 
—

 
—

Real estate – construction
2,037

 
2

 
1,650

 
—

Real estate – 1-4 family mortgage
27,754

 
34

 
43,097

 
183

Real estate – commercial mortgage
91,277

 
64

 
79,940

 
343

Installment loans to individuals
—

 
—

 
—

 
—

Total
$
128,813

 
$
105

 
$
128,445

 
$
526

 
(1)
Includes interest income recognized using the cash-basis method of income recognition of $0. The Company recognized $289 interest income using the cash-basis method of income recognition during the three months ended March 31, 2014.

 
 
 
 
 
 
 
 

Restructured Loans
Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition and which are performing in accordance with the new terms. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans. The following table presents restructured loans segregated by class as of the dates presented:
 
 
Number of
Loans
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
March 31, 2014
 
 
 
 
 
Commercial, financial, agricultural
—

 
$
—

 
$
—

Lease financing
—

 
—

 
—

Real estate – construction
—

 
—

 
—

Real estate – 1-4 family mortgage
22

 
19,042

 
9,061

Real estate – commercial mortgage
16

 
12,785

 
10,741

Installment loans to individuals
—

 
—

 
—

Total
38

 
$
31,827

 
$
19,802

December 31, 2013
 
 
 
 
 
Commercial, financial, agricultural
1

 
$
20

 
$
19

Lease financing
—

 
—

 
—

Real estate – construction
—

 
—

 
—

Real estate – 1-4 family mortgage
23

 
19,371

 
10,354

Real estate – commercial mortgage
16

 
12,785

 
10,934

Installment loans to individuals
1

 
182

 
171

Total
41

 
$
32,358

 
$
21,478



Changes in the Company’s restructured loans are set forth in the table below:
 
 
Number of
Loans
 
Recorded
Investment
Totals at January 1, 2014
41

 
$
21,478

Additional loans with concessions
—

 
—

Reductions due to:
 
 
 
Reclassified as nonperforming
(1
)
 
(331
)
Paid in full
(2
)
 
(190
)
Charge-offs
—

 
—

Transfer to other real estate owned
—

 
—

Principal paydowns
 
 
(1,155
)
Lapse of concession period
—

 
—

Totals at March 31, 2014
38

 
$
19,802



The allocated allowance for loan losses attributable to restructured loans was $3,137 and $2,984 at March 31, 2014 and December 31, 2013, respectively. The Company had $0 and $93 in remaining availability under commitments to lend additional funds on these restructured loans at March 31, 2014 and December 31, 2013, respectively.
Credit Quality
For loans originated for commercial purposes, internal risk-rating grades are assigned by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances of these loans. Loan grades range between 1 and 9, with 1 being loans with the least credit risk. Loans that migrate toward the “Pass” grade (those with a risk rating between 1 and 4) or within the “Pass” grade generally have a lower risk of loss and therefore a lower risk factor. The “Watch” grade (those with a risk rating of 5) is utilized on a temporary basis for “Pass” grade loans where a significant adverse risk-modifying action is anticipated in the near term. Loans that migrate toward the “Substandard” grade (those with a risk rating between 6 and 9) generally have a higher risk of loss and therefore a higher risk factor applied to those related loan balances. The following table presents the Company’s loan portfolio by risk-rating grades as of the dates presented:
 
 
Pass
 
Watch
 
Substandard
 
Total
March 31, 2014
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
318,388

 
$
7,083

 
$
3,011

 
$
328,482

Real estate – construction
109,808

 
840

 
—

 
110,648

Real estate – 1-4 family mortgage
130,472

 
11,822

 
21,875

 
164,169

Real estate – commercial mortgage
1,368,897

 
31,823

 
35,142

 
1,435,862

Installment loans to individuals
1,691

 
—

 
—

 
1,691

Total
$
1,929,256

 
$
51,568

 
$
60,028

 
$
2,040,852

December 31, 2013
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
328,959

 
$
10,588

 
$
4,266

 
$
343,813

Real estate – construction
114,428

 
588

 
—

 
115,016

Real estate – 1-4 family mortgage
126,916

 
13,864

 
23,370

 
164,150

Real estate – commercial mortgage
1,338,340

 
32,892

 
35,121

 
1,406,353

Installment loans to individuals
19

 
—

 
—

 
19

Total
$
1,908,662

 
$
57,932

 
$
62,757

 
$
2,029,351



For portfolio balances of consumer, consumer mortgage and certain other loans originated for other than commercial purposes, allowance factors are determined based on historical loss ratios by portfolio for the preceding eight quarters and may be adjusted by other qualitative criteria. The following table presents the performing status of the Company’s loan portfolio not subject to risk rating as of the dates presented:
 
 
Performing
 
Non-
Performing
 
Total
March 31, 2014
 
 
 
 
 
Commercial, financial, agricultural
$
80,738

 
$
50

 
$
80,788

Lease financing
623

 
—

 
623

Real estate – construction
42,480

 
—

 
42,480

Real estate – 1-4 family mortgage
946,404

 
2,358

 
948,762

Real estate – commercial mortgage
244,863

 
177

 
245,040

Installment loans to individuals
83,382

 
143

 
83,525

Total
$
1,398,490

 
$
2,728

 
$
1,401,218

December 31, 2013
 
 
 
 
 
Commercial, financial, agricultural
$
89,490

 
$
176

 
$
89,666

Lease financing
53

 
—

 
53

Real estate – construction
43,535

 
—

 
43,535

Real estate – 1-4 family mortgage
938,994

 
2,527

 
941,521

Real estate – commercial mortgage
242,363

 
666

 
243,029

Installment loans to individuals
84,855

 
79

 
84,934

Total
$
1,399,290

 
$
3,448

 
$
1,402,738



Loans Acquired with Deteriorated Credit Quality
Loans acquired in business combinations that exhibited, at the date of acquisition, evidence of deterioration of the credit quality since origination, such that it was probable that all contractually required payments would not be collected, were as follows as of the dates presented:
 
 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
March 31, 2014
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
—

 
$
8,283

 
$
22,563

 
$
30,846

Lease financing
—

 
—

 
—

 
—

Real estate – construction
—

 
1,648

 
1,124

 
2,772

Real estate – 1-4 family mortgage
835

 
51,417

 
46,077

 
98,329

Real estate – commercial mortgage
23,164

 
88,173

 
175,919

 
287,256

Installment loans to individuals
—

 
25

 
6,141

 
6,166

Total
$
23,999

 
$
149,546

 
$
251,824

 
$
425,369

December 31, 2013
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
—

 
$
9,546

 
$
25,938

 
$
35,484

Lease financing
—

 
—

 
—

 
—

Real estate – construction
—

 
1,648

 
1,237

 
2,885

Real estate – 1-4 family mortgage
835

 
53,631

 
48,096

 
102,562

Real estate – commercial mortgage
23,684

 
92,302

 
185,204

 
301,190

Installment loans to individuals
—

 
28

 
6,781

 
6,809

Total
$
24,519

 
$
157,155

 
$
267,256

 
$
448,930



The references in the table above and elsewhere in these Notes to "covered loans" and "not covered loans" (as well as to "covered OREO" and "not covered OREO") refer to loans (or OREO, as applicable) covered and not covered, respectively, by loss-share agreements with the FDIC. See Note E, "FDIC Loss-Share Indemnification Asset," below for more information.

The following table presents the fair value of loans determined to be impaired at the time of acquisition and determined not to be impaired at the time of acquisition at March 31, 2014:
 
 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
Contractually-required principal and interest
$
66,318

 
$
191,885

 
$
337,443

 
$
595,646

Nonaccretable difference(1)
(42,318
)
 
(39,131
)
 
(50,645
)
 
(132,094
)
Cash flows expected to be collected
24,000

 
152,754

 
286,798

 
463,552

Accretable yield(2)
(1
)
 
(3,208
)
 
(34,974
)
 
(38,183
)
Fair value
$
23,999

 
$
149,546

 
$
251,824

 
$
425,369

 
(1)
Represents contractual principal and interest cash flows of $582,714 and $12,932, respectively, not expected to be collected.
(2)
Represents contractual interest payments of $3,352 expected to be collected and purchase discount of $34,888.
Changes in the accretable yield of loans acquired with deteriorated credit quality were as follows:
 
 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
Balance at January 1, 2014
$
(13
)
 
$
(6,705
)
 
$
(1,129
)
 
$
(7,847
)
Reclasses from nonaccretable difference
(17
)
 
1,419

 
(37,489
)
 
(36,087
)
Accretion
29

 
2,078

 
3,587

 
5,694

Balance at March 31, 2014
$
(1
)
 
$
(3,208
)
 
$
(35,031
)
 
$
(38,240
)


Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by management to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under ASC 450, “Contingencies”. Collective impairment is calculated based on loans grouped by grade. Another component of the allowance is losses on loans assessed as impaired under ASC 310. The balance of these loans and their related allowance is included in management’s estimation and analysis of the allowance for loan losses. Management and the internal loan review staff evaluate the adequacy of the allowance for loan losses quarterly. The allowance for loan losses is evaluated based on a continuing assessment of problem loans, the types of loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories and other factors, including its risk rating system, regulatory guidance and economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance for loan losses is established through a provision for loan losses charged to earnings resulting from measurements of inherent credit risk in the loan portfolio and estimates of probable losses or impairments of individual loans. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The following table provides a roll forward of the allowance for loan losses and a breakdown of the ending balance of the allowance based on the Company’s impairment methodology for the periods presented:
 
 
Commercial
 
Real Estate -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,090

 
$
1,091

 
$
18,629

 
$
23,688

 
$
1,167

 
$
47,665

Charge-offs
(119
)
 
—

 
(887
)
 
(60
)
 
(231
)
 
(1,297
)
Recoveries
37

 
5

 
151

 
30

 
7

 
230

Net (charge-offs) recoveries
(82
)
 
5

 
(736
)
 
(30
)
 
(224
)
 
(1,067
)
Provision for loan losses
183

 
13

 
496

 
480

 
243

 
1,415

Benefit attributable to FDIC loss-share agreements
(68
)
 
—

 
(69
)
 
5

 
—

 
(132
)
Recoveries payable to FDIC
5

 
—

 
158

 
4

 
—

 
167

Provision for loan losses charged to operations
120

 
13

 
585

 
489

 
243

 
1,450

Ending balance
$
3,128

 
$
1,109

 
$
18,478

 
$
24,147

 
$
1,186

 
$
48,048

Period-End Amount Allocated to:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
253

 
$
—

 
$
7,285

 
$
7,724

 
$
—

 
$
15,262

Collectively evaluated for impairment
2,875

 
1,109

 
11,193

 
16,423

 
1,186

 
32,786

Acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

Ending balance
$
3,128

 
$
1,109

 
$
18,478

 
$
24,147

 
$
1,186

 
$
48,048

 
 
Commercial
 
Real Estate -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,307

 
$
711

 
$
18,347

 
$
21,416

 
$
566

 
$
44,347

Charge-offs
(234
)
 
—

 
(614
)
 
(593
)
 
(64
)
 
(1,505
)
Recoveries
157

 
16

 
339

 
91

 
10

 
613

Net (charge-offs) recoveries
(77
)
 
16

 
(275
)
 
(502
)
 
(54
)
 
(892
)
Provision for loan losses
(53
)
 
(52
)
 
1,197

 
1,825

 
542

 
3,459

Benefit attributable to FDIC loss-share agreements
(247
)
 
—

 
(261
)
 
(661
)
 
—

 
(1,169
)
Recoveries payable to FDIC
12

 
1

 
729

 
18

 
—

 
760

Provision for loan losses charged to operations
(288
)
 
(51
)
 
1,665

 
1,182

 
542

 
3,050

Ending balance
$
2,942

 
$
676

 
$
19,737

 
$
22,096

 
$
1,054

 
$
46,505

Period-End Amount Allocated to:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
699

 
$
—

 
$
8,641

 
$
8,194

 
$
—

 
$
17,534

Collectively evaluated for impairment
2,243

 
676

 
11,096

 
13,902

 
1,054

 
28,971

Acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

Ending balance
$
2,942

 
$
676

 
$
19,737

 
$
22,096

 
$
1,054

 
$
46,505


(1)
Includes lease financing receivables.The following table provides the recorded investment in loans, net of unearned income, based on the Company’s impairment methodology as of the dates presented:
 
 
Commercial
 
Real Estate  -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
723

 
$
—

 
$
21,831

 
$
32,523

 
$
—

 
$
55,077

Collectively evaluated for impairment
408,547

 
153,128

 
1,091,100

 
1,648,379

 
85,828

 
3,386,982

Acquired with deteriorated credit quality
30,846

 
2,772

 
98,329

 
287,256

 
6,166

 
425,369

Ending balance
$
440,116

 
$
155,900

 
$
1,211,260

 
$
1,968,158

 
$
91,994

 
$
3,867,428

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
743

 
$
—

 
$
25,374

 
$
30,624

 
$
183

 
$
56,924

Collectively evaluated for impairment
432,736

 
158,551

 
1,080,297

 
1,618,758

 
84,822

 
3,375,164

Acquired with deteriorated credit quality
35,484

 
2,885

 
102,562

 
301,190

 
6,809

 
448,930

Ending balance
$
468,963

 
$
161,436

 
$
1,208,233

 
$
1,950,572

 
$
91,814

 
$
3,881,018

 
(1)
Includes lease financing receivables.