Loans

3 Months Ended

Mar. 31, 2020

Loans held for investment are categorized into the following segments:

•

Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property.


•	Commercial real estate - owner occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property.

•

Commercial real estate - non owner occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property.

•

Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable mortgages, home equity mortgage and home equity lines of credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Source of repayments may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property.

•

Commercial and financial: Loan are extended to commercial customers. The purpose of the loans can range from working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower.


•	Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized.

The following tables present net loan balances by segment as of:



	March 31, 2020
(In thousands)	Portfolio Loans		Acquired Non PCD Loans		PCD Loans		Total
Construction and land development	$	257,481	$	34,934	$	2,990	$	295,405
Commercial real estate - owner occupied	824,836		230,517		27,540		1,082,893
Commercial real estate - non owner occupied	1,058,841		310,417		11,838		1,381,096
Residential real estate	1,315,664		233,169		10,921		1,559,754
Commercial and financial	721,380		73,134		1,524		796,038
Consumer	195,176		6,478		368		202,022
Totals	$	4,373,378	$	888,649	$	55,181	$	5,317,208



	December 31, 2019
(In thousands)	Portfolio Loans		PULs		PCI Loans		Total
Construction and land development	$	281,335	$	43,618	$	160	$	325,113
Commercial real estate	1,834,811		533,943		10,217		2,378,971
Residential real estate	1,304,305		201,848		1,710		1,507,863
Commercial and financial	697,301		80,372		579		778,252
Consumer	200,166		8,039		—		208,205
Totals	$	4,317,918	$	867,820	$	12,666	$	5,198,404

In the first quarter of 2020, the Company completed the acquisition of First Bank of the Palm Beaches, adding PCD loans of $43.0 million and Non PCD loans of $103.8 million. See additional discussion in Note L - Business Combinations. The amortized cost

basis of portfolio loans as of March 31, 2020 and December 31, 2019 includes net deferred costs of $20.9 million and $19.9 million, respectively. At March 31, 2020, the remaining fair value adjustments on acquired loans was $32.9 million, or 3.4% of the outstanding acquired loan balances, which consisted of $1.0 million on PCD loans and $31.9 million on acquired non-PCD loans. At December 31, 2019, the remaining fair value adjustments for PUL loans was $34.9 million, or 3.8% of the acquired loan balances. These amounts are accreted into interest income over the remaining lives of the related loans on a level yield basis. Accrued interest receivable is included within Other Assets and was $15.2 million and $14.9 million at March 31, 2020 and December 31, 2019, respectively.

The following tables present the status of net loan balances as of:



	March 31, 2020
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total
Portfolio Loans
Construction and land development	$	257,459	$	—	$	—	$	—	$	22	$	257,481
Commercial real estate - owner occupied	818,726		2,842		—		618		2,650		824,836
Commercial real estate - non owner occupied	1,056,202		542		—		—		2,097		1,058,841
Residential real estate	1,305,898		2,405		998		—		6,363		1,315,664
Commercial and financial	709,028		5,098		1,065		—		6,189		721,380
Consumer	193,141		647		810		1		577		195,176
Total Portfolio Loans	4,340,454		11,534		2,873		619		17,898		4,373,378

Acquired Non PCD Loans
Construction and land development	34,360		—		—		—		574		34,934
Commercial real estate - owner occupied	228,776		1,456		71		—		214		230,517
Commercial real estate - non owner occupied	306,959		2,334		—		—		1,124		310,417
Residential real estate	228,213		3,676		—		—		1,280		233,169
Commercial and financial	70,460		489		46		—		2,139		73,134
Consumer	6,454		24		—		—		—		6,478
Total Acquired Non PCD Loans	875,222		7,979		117		—		5,331		888,649

PCD Loans
Construction and land development	2,980		—		—		—		10		2,990
Commercial real estate - owner occupied	26,462		1,078		—		—		—		27,540
Commercial real estate - non owner occupied	10,784		—		—		—		1,054		11,838
Residential real estate	9,720		—		—		—		1,201		10,921
Commercial and financial	709		727		—		—		88		1,524
Consumer	278		90		—		—		—		368
Total PCD Loans	50,933		1,895		—		—		2,353		55,181

Total Loans	$	5,266,609	$	21,408	$	2,990	$	619	$	25,582	$	5,317,208



	December 31, 2019
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total
Portfolio Loans
Construction and land development	$	276,984	$	—	$	—	$	—	$	4,351	$	281,335
Commercial real estate	1,828,629		1,606		220		—		4,356		1,834,811
Residential real estate	1,294,778		1,564		18		—		7,945		1,304,305
Commercial and financial	690,412		2,553		—		108		4,228		697,301
Consumer	199,424		317		315		—		110		200,166
Total Portfolio Loans	4,290,227		6,040		553		108		20,990		4,317,918

Purchased Unimpaired Loans
Construction and land development	43,044		—		—		—		574		43,618
Commercial real estate	531,325		942		431		—		1,245		533,943
Residential real estate	201,159		277		—		—		412		201,848
Commercial and financial	78,705		—		—		—		1,667		80,372
Consumer	8,039		—		—		—		—		8,039
Total PULs	862,272		1,219		431		—		3,898		867,820

Purchased Credit Impaired Loans
Construction and land development	148		—		—		—		12		160
Commercial real estate	9,298		—		—		—		919		10,217
Residential real estate	587		—		—		—		1,123		1,710
Commercial and financial	566		—		—		—		13		579
Consumer	—		—		—		—		—		—
Total PCI Loans	10,599		—		—		—		2,067		12,666

Total Loans	$	5,163,098	$	7,259	$	984	$	108	$	26,955	$	5,198,404

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cost-recovery method. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. 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 Company recognized $0.3 million in interest income on nonaccrual loans during each of the three months ended March 31, 2020 and 2019. The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of:



	March 31, 2020
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	584	$	22	$	606	$	11
Commercial real estate - owner occupied	1,169		1,695		2,864		251
Commercial real estate - non owner occupied	3,221		1,054		4,275		251
Residential real estate	7,890		954		8,844		928
Commercial and financial	3,571		4,845		8,416		2,624
Consumer	36		541		577		238
Totals	$	16,471	$	9,111	$	25,582	$	4,303



	December 31, 2019
(In thousands)	Nonaccrual Loans With No Related Allowance		Nonaccrual Loans With an Allowance		Total Nonaccrual Loans		Allowance for Credit Losses
Construction and land development	$	4,914	$	23	$	4,937	$	12
Commercial real estate	6,200		320		6,520		149
Residential real estate	8,700		780		9,480		564
Commercial and financial	3,449		2,459		5,908		1,622
Consumer	39		71		110		37
Totals	$	23,301	$	3,654	$	26,955	$	2,384

Collateral Dependent Loans

Loans are considered collateral dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral dependent loans as of:



(In thousands)	March 31, 2020		December 31, 2019
Construction and land development	$	606	$	4,926
Commercial real estate - owner occupied	4,507		2,571
Commercial real estate - non owner occupied	4,274		3,152
Residential real estate	8,932		11,550
Commercial and financial	4,844		4,338
Consumer	581		141
Totals	$	23,744	$	26,678

Loans by Risk Rating

The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system:


•	Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated.


•	Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.


•	Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.


•	Substandard Impaired: Substandard loans, typically placed on nonaccrual and considered to be collateral dependent. Also includes accruing TDRs.


•	Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off.

The following tables present the risk rating of loans by year of origination:



	March 31, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Construction and Land Development
Risk Ratings:
Pass	$	12,458	$	94,108	$	87,137	$	37,337	$	10,678	$	18,562	$	29,733	$	290,013
Special Mention	280		691		1,470		—		—		2,191		—		4,632
Substandard	—		—		—		—		—		32		—		32
Substandard Impaired	—		—		—		—		574		154		—		728
Doubtful	—		—		—		—		—		—		—		—
Total	12,738		94,799		88,607		37,337		11,252		20,939		29,733		295,405
Commercial real estate - owner occupied
Risk Ratings:
Pass	42,888		189,419		162,584		145,468		161,131		339,852		17,011		1,058,353
Special Mention	202		1,633		371		—		4,471		5,147		—		11,824
Substandard	—		—		—		3,805		1,070		3,335		—		8,210
Substandard Impaired	—		—		—		1,451		—		2,735		—		4,186
Doubtful¹	—		—		—		—		320		—		—		320
Total	43,090		191,052		162,955		150,724		166,992		351,069		17,011		1,082,893
Commercial real estate - non owner occupied
Risk Ratings:
Pass	48,094		328,437		229,350		131,409		202,980		390,699		5,493		1,336,462
Special Mention	—		108		5,478		5,288		15,483		6,529		—		32,886
Substandard	—		—		—		—		—		5,345		1,350		6,695
Substandard Impaired	—		—		—		—		126		4,927		—		5,053
Doubtful	—		—		—		—		—		—		—		—
Total	48,094		328,545		234,828		136,697		218,589		407,500		6,843		1,381,096
Residential real estate
Risk Ratings:
Pass	33,704		164,901		281,466		307,018		209,956		223,116		313,101		1,533,262
Special Mention	—		25		1,414		—		1,025		570		805		3,839
Substandard	—		—		—		3,763		—		2,235		1,945		7,943
Substandard Impaired	—		707		—		—		—		11,990		2,013		14,710
Doubtful	—		—		—		—		—		—		—		—
Total	33,704		165,633		282,880		310,781		210,981		237,911		317,864		1,559,754
Commercial and financial
Risk Ratings:
Pass	48,507		158,373		120,271		97,771		49,293		56,869		244,912		775,996
Special Mention	—		1,005		263		530		363		2,505		889		5,555
Substandard	—		310		106		513		675		1,922		2,351		5,877
Substandard Impaired	—		—		1,224		2,076		1,080		1,167		932		6,479
Doubtful¹	—		518		974		293		337		—		9		2,131
Total	48,507		160,206		122,838		101,183		51,748		62,463		249,093		796,038



	March 31, 2020
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Total
Consumer
Risk Ratings:
Pass	12,759		60,062		42,780		28,500		28,195		14,071		10,375		196,742
Special Mention	—		78		307		122		121		97		2,622		3,347
Substandard	—		36		61		131		613		51		262		1,154
Substandard Impaired	—		18		—		8		44		709		—		779
Doubtful	—		—		—		—		—		—		—		—
Total	12,759		60,194		43,148		28,761		28,973		14,928		13,259		202,022
Consolidated
Risk Ratings:
Pass	198,410		995,300		923,588		747,503		662,233		1,043,169		620,625		5,190,828
Special Mention	482		3,540		9,303		5,940		21,463		17,039		4,316		62,083
Substandard	—		346		167		8,212		2,358		12,920		5,908		29,911
Substandard Impaired	—		725		1,224		3,535		1,824		21,682		2,945		31,935
Doubtful¹	—		518		974		293		657		—		9		2,451
Total	$	198,892	$	1,000,429	$	935,256	$	765,483	$	688,535	$	1,094,810	$	633,803	$	5,317,208
¹Loans classified as doubtful are fully reserved as of March 31, 2020.

The following table presents the risk rating of loans as of:



	December 31, 2019
(In thousands)	Pass		Special Mention		Substandard		Doubtful¹		Total
Construction and land development	$	317,765	$	2,235	$	5,113	$	—	$	325,113
Commercial real estate	2,331,725		26,827		20,098		321		2,378,971
Residential real estate	1,482,278		7,364		18,221		—		1,507,863
Commercial and financial	755,957		11,925		9,496		874		778,252
Consumer	203,966		3,209		1,030		—		208,205
Totals	$	5,091,691	$	51,560	$	53,958	$	1,195	$	5,198,404
¹Loans classified as doubtful are fully reserved as of December 31, 2019.

Troubled Debt Restructured Loans

The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

In March 2020, regulatory agencies issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID–19. The agencies confirmed with the staff of the FASB that short–term modifications made on a good faith basis in response to the COVID–19 pandemic to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short–term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant and were made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID–19 national emergency. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In March 2020, the Company processed short-term payment deferrals on loans totaling approximately $512 million to borrowers who were current on payments prior to deferral. None of these payment deferrals have have been classified as TDRs. See additional information in Note M - Subsequent Events.

The following table presents loans that were modified during the three months ended:



	March 31, 2020
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	$	—	$	—
Commercial real estate - owner occupied	—	—		—
Commercial real estate - non owner occupied	—	—		—
Residential real estate	1	45		45
Commercial and financial	4	437		437
Consumer	—	—		—
Totals	5	$	482	$	482

	March 31, 2019
(In thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction and land development	—	—		—
Commercial real estate - owner occupied	1	180		180
Commercial real estate - non owner occupied	—	—		—
Residential real estate	—	—		—
Commercial and financial	1	1,815		1,815
Consumer	—	—		—
Totals	2	1,995		1,995

The TDRs described above resulted in a specific allowance for credit losses of $0.1 million as of March 31, 2020 and no specific allowance for credit losses as of March 31, 2019. During the three months ended March 31, 2020, there were three defaults totaling $1.4 million of loans that had been modified in TDRs within the preceding twelve months. During the three months ended March 31, 2019, there were no payment defaults on loans that had been modified to a TDR within the preceding twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $24,000 and $35,000, respectively, for the three months ended March 31, 2020 and 2019, was included in interest income and represents the change in present value attributable to the passage of time.