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Loans and the Allowance for Loan Losses

9 Months Ended

Sep. 30, 2012

Loans and the Allowance for Loan Losses [Abstract]

Note D – Loans and the Allowance for Loan Losses

(In Thousands, Except Number of Loans)

The following is a summary of loans:


	September 30, 2012			December 31, 2011
Commercial, financial, agricultural	$	311,056		$	278,091
Lease financing		224			343
Real estate – construction		105,454			81,235
Real estate – 1-4 family mortgage		883,396			824,627
Real estate – commercial mortgage		1,440,880			1,336,635
Installment loans to individuals		59,160			60,168

Gross loans		2,800,170			2,581,099
Unearned income		(7	)		(15	)

Loans, net of unearned income		2,800,163			2,581,084
Allowance for loan losses		(44,069	)		(44,340	)

Net loans	$	2,756,094		$	2,536,744

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:


	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
September 30, 2012
Commercial, financial, agricultural	$	287	$	18	$	306,897		$	307,202		$	5	$	3,615	$	234	$	3,854	$	311,056
Lease financing		—		—		224			224			—		—		—		—		224
Real estate – construction		—		—		103,522			103,522			—		1,932		—		1,932		105,454
Real estate – 1-4 family mortgage		11,915		1,325		840,363			853,603			2,627		13,697		13,469		29,793		883,396
Real estate – commercial mortgage		7,787		961		1,374,260			1,383,008			645		50,936		6,291		57,872		1,440,880
Installment loans to individuals		261		54		58,539			58,854			5		276		25		306		59,160
Unearned income		—		—		(7	)		(7	)		—		—		—		—		(7	)

Total	$	20,250	$	2,358	$	2,683,798		$	2,706,406		$	3,282	$	70,456	$	20,019	$	93,757	$	2,800,163

December 31, 2011
Commercial, financial, agricultural	$	2,071	$	165	$	269,078		$	271,314		$	511	$	5,474	$	792	$	6,777	$	278,091
Lease financing		—		—		343			343			—		—		—		—		343
Real estate – construction		—		41		73,670			73,711			—		7,524		—		7,524		81,235
Real estate – 1-4 family mortgage		11,949		2,481		771,596			786,026			1,140		31,457		6,004		38,601		824,627
Real estate – commercial mortgage		6,749		2,044		1,262,068			1,270,861			2,411		62,854		509		65,774		1,336,635
Installment loans to individuals		473		163		59,020			59,656			10		480		22		512		60,168
Unearned income		—		—		(15	)		(15	)		—		—		—		—		(15	)

Total	$	21,242	$	4,894	$	2,435,760		$	2,461,896		$	4,072	$	107,789	$	7,327	$	119,188	$	2,581,084

There were no restructured loans contractually 90 days past due at September 30, 2012 or December 31, 2011, respectively. The outstanding balance of restructured loans on nonaccrual status was $4,011 and $2,295 at September 30, 2012 and December 31, 2011, 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 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 ASC 310, “Receivables” (“ASC 310”), segregated by class, were as follows:


	Unpaid Contractual Principal Balance		Recorded Investment With Allowance		Recorded Investment With No Allowance		Total Recorded Investment		Related Allowance
September 30, 2012
Commercial, financial, agricultural	$	5,587	$	1,641	$	1,750	$	3,391	$	715
Lease financing		—		—		—		—		—
Real estate – construction		2,823		154		1,932		2,086		2
Real estate – 1-4 family mortgage		96,536		35,690		16,789		52,479		10,011
Real estate – commercial mortgage		138,342		38,152		48,975		87,127		8,441
Installment loans to individuals		—		—		—		—		—

Total	$	243,288	$	75,637	$	69,446	$	145,083	$	19,169

December 31, 2011
Commercial, financial, agricultural	$	9,575	$	3,358	$	2,913	$	6,271	$	1,441
Lease financing		—		—		—		—		—
Real estate – construction		18,204		108		7,076		7,184		16
Real estate – 1-4 family mortgage		99,121		27,047		26,785		53,832		6,077
Real estate – commercial mortgage		168,341		35,505		63,900		99,405		7,876
Installment loans to individuals		—		—		—		—		—

Totals	$	295,241	$	66,018	$	100,674	$	166,692	$	15,410

The following table presents the average recorded investment and interest income recognized on impaired loans for the periods presented:


	Three Months Ended September 30, 2012				Three Months Ended September 30, 2011
	Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized⁽¹⁾
Commercial, financial, agricultural	$	3,474	$	25	$	5,006	$	75
Lease financing		—		—		—		—
Real estate – construction		2,086		6		12,909		—
Real estate – 1-4 family mortgage		58,104		917		68,924		331
Real estate – commercial mortgage		89,463		620		117,963		732
Installment loans to individuals		—		—		—		—

Total	$	153,127	$	1,568	$	204,802	$	1,138

⁽¹⁾	Includes interest income recognized using the cash-basis method of income recognition of $814 and $500, respectively.


	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
	Average Recorded Investment		Interest Income Recognized⁽¹⁾		Average Recorded Investment		Interest Income Recognized⁽¹⁾
Commercial, financial, agricultural	$	3,610	$	41	$	4,674	$	100
Lease financing		—		—		—		—
Real estate – construction		2,087		6		13,801		—
Real estate – 1-4 family mortgage		62,320		1,515		67,322		1,248
Real estate – commercial mortgage		95,050		1,696		120,631		2,132
Installment loans to individuals		—		—		—		—

Total	$	163,067	$	3,258	$	206,428	$	3,480

⁽¹⁾	Includes interest income recognized using the cash-basis method of income recognition of $1,128 and $891, respectively.

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 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:


	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
September 30, 2012
Commercial, financial, agricultural		—	$	—	$	—
Lease financing		—		—		—
Real estate – construction		—		—		—
Real estate – 1-4 family mortgage		17		19,924		12,441
Real estate – commercial mortgage		14		18,808		18,301
Installment loans to individuals		1		184		176

Total		32	$	38,916	$	30,918

December 31, 2011
Commercial, financial, agricultural		—	$	—	$	—
Lease financing		—		—		—
Real estate – construction		—		—		—
Real estate – 1-4 family mortgage		18		20,313		18,089
Real estate – commercial mortgage		12		17,853		18,043
Installment loans to individuals		1		184		179

Total		31	$	38,350	$	36,311

Changes in the Company’s restructured loans are set forth in the table below:


	Number of Loans			Recorded Investment
Totals at January 1, 2012		31		$	36,311
Additional loans with concessions		7			4,731
Reductions due to:
Reclassified as nonperforming		(3	)		(5,622	)
Charge-offs					(1,632	)
Transfer to other real estate owned		(1	)		(419	)
Principal paydowns					(1,600	)
Lapse of concession period		(2	)		(851	)

Totals at September 30, 2012		32		$	30,918

The allocated allowance for loan losses attributable to restructured loans was $5,211 and $5,994 at September 30, 2012 and December 31, 2011, respectively. The Company had $288 and $194 in remaining availability under commitments to lend additional funds on these restructured loans at September 30, 2012 and December 31, 2011, respectively.

Credit Quality

For commercial and commercial real estate secured loans, 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 commercial and commercial real estate secured 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 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:


	Pass		Watch		Substandard		Total
September 30, 2012
Commercial, financial, agricultural	$	221,676	$	2,653	$	3,538	$	227,867
Real estate – construction		74,502		902		1,790		77,194
Real estate – 1-4 family mortgage		89,333		22,450		39,352		151,135
Real estate – commercial mortgage		992,805		48,952		39,451		1,081,208
Installment loans to individuals		—		—		—		—

Total	$	1,378,316	$	74,957	$	84,131	$	1,537,404

December 31, 2011
Commercial, financial, agricultural	$	187,550	$	2,929	$	7,292	$	197,771
Real estate – construction		52,593		2,362		108		55,063
Real estate – 1-4 family mortgage		86,858		31,851		35,809		154,518
Real estate – commercial mortgage		873,614		54,949		41,874		970,437
Installment loans to individuals		199		—		—		199

Total	$	1,200,814	$	92,091	$	85,083	$	1,377,988

For portfolio balances of consumer, consumer mortgage and certain other similar loan types, 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:


	Performing		Non-Performing		Total
September 30, 2012
Commercial, financial, agricultural	$	71,361	$	354	$	71,715
Lease financing		224		—		224
Real estate – construction		26,328		—		26,328
Real estate – 1-4 family mortgage		642,450		6,292		648,742
Real estate – commercial mortgage		186,744		965		187,709
Installment loans to individuals		56,325		60		56,385

Total	$	983,432	$	7,671	$	991,103

December 31, 2011
Commercial, financial, agricultural	$	61,864	$	198	$	62,062
Lease financing		343		—		343
Real estate – construction		18,756		340		19,096
Real estate – 1-4 family mortgage		554,702		5,951		560,653
Real estate – commercial mortgage		156,050		756		156,806
Installment loans to individuals		55,356		169		55,525

Total	$	847,071	$	7,414	$	854,485

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 for the periods presented:


	Impaired Covered Loans		Other Covered Loans		Not Covered Loans		Total
September 30, 2012
Commercial, financial, agricultural	$	10	$	11,272	$	192	$	11,474
Lease financing		—		—		—		—
Real estate – construction		—		1,932		—		1,932
Real estate – 1-4 family mortgage		7,047		74,737		1,735		83,519
Real estate – commercial mortgage		35,576		129,918		6,469		171,963
Installment loans to individuals		0		53		2,722		2,775

Total	$	42,633	$	217,912	$	11,118	$	271,663

December 31, 2011
Commercial, financial, agricultural	$	38	$	17,765	$	455	$	18,258
Lease financing		—		—		—		—
Real estate – construction		4,031		3,045		—		7,076
Real estate – 1-4 family mortgage		12,252		95,671		1,533		109,456
Real estate – commercial mortgage		44,994		161,498		2,900		209,392
Installment loans to individuals		—		168		4,276		4,444

Total	$	61,315	$	278,147	$	9,164	$	348,626

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 September 30, 2012:


	Impaired Covered Loans			Other Covered Loans			Not Covered Loans			Total
Contractually-required principal and interest	$	62,369		$	250,161		$	13,484		$	326,014
Nonaccretable difference⁽¹⁾		(19,720	)		(24,298	)		(1,198	)		(45,216	)

Cash flows expected to be collected		42,649			225,863			12,286			280,798
Accretable yield⁽²⁾		(16	)		(7,951	)		(1,168	)		(9,135	)

Fair value	$	42,633		$	217,912		$	11,118		$	271,663

⁽¹⁾	Represents contractual principal and interest cash flows of $33,747 and $11,469, respectively, not expected to be collected.

⁽²⁾	Represents contractual interest payments of $5,362 expected to be collected and purchase discount of $3,773.

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, 2012	$	(40	)	$	(9,757	)	$	(746	)	$	(10,543	)
Reclasses from nonaccretable difference		(844	)		(10,648	)		(1,702	)		(13,194	)
Accretion		868			12,454			1,280			14,602

Balance at September 30, 2012	$	(16	)	$	(7,951	)	$	(1,168	)	$	(9,135	)

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 rollforward 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 September 30, 2012
Allowance for loan losses:
Beginning balance	$	3,235		$	966		$	18,980		$	20,765		$	833		$	44,779
Charge-offs		(2,590	)		—			(2,682	)		(780	)		(118	)		(6,170	)
Recoveries		145			3			648			22			17			835

Net charge-offs		(2,445	)		3			(2,034	)		(758	)		(101	)		(5,335	)
Provision for loan losses		2,795			79			2,269			988			(164	)		5,967
Benefit attributable to FDIC loss-share agreements		(335	)		—			(1,187	)		(60	)		—			(1,582	)
Recoveries payable to FDIC		2			—			162			76			—			240

Provision for loan losses charged to operations		2,462			79			1,244			1,004			(164	)		4,625

Ending balance	$	3,252		$	1,048		$	18,190		$	21,011		$	568		$	44,069

Nine Months Ended September 30, 2012
Allowance for loan losses:
Beginning balance	$	4,197		$	1,073		$	17,191		$	20,979		$	900		$	44,340
Charge-offs		(4,623	)		(42	)		(7,230	)		(3,806	)		(321	)		(16,022	)
Recoveries		323			6			981			247			69			1,626

Net charge-offs		(4,300	)		(36	)		(6,249	)		(3,559	)		(252	)		(14,396	)
Provision for loan losses		4,052			28			10,269			6,640			(84	)		20,905
Benefit attributable to FDIC loss-share agreements		(723	)		(17	)		(3,421	)		(3,592	)		—			(7,753	)
Recoveries payable to FDIC		26			—			400			543			4			973

Provision for loan losses charged to operations		3,355			11			7,248			3,591			(80	)		14,125

Ending balance	$	3,252		$	1,048		$	18,190		$	21,011		$	568		$	44,069

Period-End Amount Allocated to:
Individually evaluated for impairment	$	715		$	2		$	10,011		$	8,441		$	—		$	19,169
Collectively evaluated for impairment		2,537			1,046			8,179			12,570			568			24,900
Acquired with deteriorated credit quality		—			—			—			—			—			—

Ending balance	$	3,252		$	1,048		$	18,190		$	21,011		$	568		$	44,069


	Commercial			Real Estate - Construction			Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Three Months Ended September 30, 2011
Allowance for loan losses:
Beginning balance	$	3,841		$	1,389		$	19,864		$	21,518		$	959		$	47,571
Charge-offs		(210	)		—			(3,281	)		(1,372	)		(105	)		(4,968	)
Recoveries		61			18			245			17			88			429

Net charge-offs		(149	)		18			(3,036	)		(1,355	)		(17	)		(4,539	)
Provision for loan losses		174			(240	)		4,298			1,536			(10	)		5,758
Benefit attributable to FDIC loss-share agreements		(40	)		—			—			(218	)		—			(258	)

Provision for loan losses charged to operations		134			(240	)		4,298			1,318			(10	)		5,500

Ending balance	$	3,826		$	1,167		$	21,126		$	21,481		$	932		$	48,532

Nine Months Ended September 30, 2011
Allowance for loan losses:
Beginning balance	$	2,625		$	2,115		$	20,870		$	18,779		$	1,026		$	45,415
Charge-offs		(1,494	)		(798	)		(9,896	)		(2,746	)		(194	)		(15,128	)
Recoveries		239			49			582			886			139			1,895

Net charge-offs		(1,255	)		(749	)		(9,314	)		(1,860	)		(55	)		(13,233	)
Provision for loan losses		2,496			(199	)		9,570			4,780			(39	)		16,608
Benefit attributable to FDIC loss-share agreements		(40	)		—			—			(218	)		—			(258	)

Provision for loan losses charged to operations		2,456			(199	)		9,570			4,562			(39	)		16,350

Ending balance	$	3,826		$	1,167		$	21,126		$	21,481		$	932		$	48,532

Period-End Amount Allocated to:
Individually evaluated for impairment	$	1,074		$	16		$	9,915		$	8,712		$	—		$	19,717
Collectively evaluated for impairment		2,752			1,151			11,211			12,769			932			28,815
Acquired with deteriorated credit quality		—			—			—			—			—			—

Ending balance	$	3,826		$	1,167		$	21,126		$	21,481		$	932		$	48,532

⁽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
September 30, 2012
Individually evaluated for impairment	$	3,391	$	2,086	$	52,479	$	87,127	$	—	$	145,083
Collectively evaluated for impairment		296,191		101,436		747,398		1,181,790		56,602		2,383,417
Acquired with deteriorated credit quality		11,474		1,932		83,519		171,963		2,775		271,663

Ending balance	$	311,056	$	105,454	$	883,396	$	1,440,880	$	59,377	$	2,800,163

December 31, 2011
Individually evaluated for impairment	$	6,271	$	7,184	$	53,832	$	99,405	$	—	$	166,692
Collectively evaluated for impairment		253,562		66,975		661,339		1,027,838		56,052		2,065,766
Acquired with deteriorated credit quality		18,258		7,076		109,456		209,392		4,444		348,626

Ending balance	$	278,091	$	81,235	$	824,627	$	1,336,635	$	60,496	$	2,581,084

⁽¹⁾	Includes lease financing receivables.