Loans

12 Months Ended

Dec. 31, 2014

Note E

Loans

Information relating to loans at December 31 is summarized as follows:

	2014
	Portfolio Loans		PCI Loans		PUL's		Total
	(In thousands)
Construction and land development	$	65,896	$	1,557	$	19,583	$	87,036
Commercial real estate		610,863		4,092		222,192	$	837,147
Residential real estate		639,428		851		46,618	$	686,897
Commerical and financial		120,763		1,312		35,321	$	157,396
Consumer		50,543		2		2,352	$	52,897
Other		512		0		0	$	512
NET LOAN BALANCES	$	1,488,005	$	7,814	$	326,066	$	1,821,885

	2013
	(In thousands)
Construction and land development	$	67,450	$	0	$	0	$	67,450
Commercial real estate		520,382		0		0	$	520,382
Residential real estate		592,746		0		0	$	592,746
Commerical and financial		78,636		0		0	$	78,636
Consumer		44,713		0		0	$	44,713
Other		280		0		0	$	280
NET LOAN BALANCES	$	1,304,207	$	0	$	0	$	1,304,207

(1)

Net loan balances at December 31, 2014 and 2013 include deferred costs of $3,645,000 and $2,618,000, respectively.

Purchased Loans PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.

We have applied ASC Topic 310-20 accounting treatment to PULs. The unamortized credit mark established at acquisition on the loans has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans.

The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date. Contractually required principal and interest payments have been adjusted for estimated prepayments.

October 1, 2014	PCI Loans		PUL's		Total
	(In thousands)
Contractually required principal and interest	$	17,169	$	367,881	$	385,050
Non-accretable difference		(7,196)		0		(7,196)
Cash flows expected to be collected		9,973		367,881		377,854
Accretable yield		(1,256)		(11,235)		(12,491)
Total Acquired loans	$	8,717	$	356,646	$	365,363

The components of purchased loans are as follows:

December 31, 2014	PCI		PULs		Total
	(In thousands)
Construction and land development	$	1,557	$	19,583	$	21,140
Commercial real estate		4,092		222,192		226,284
Residential real estate		851		46,618		47,469
Commercial and financial		1,312		35,321		36,633
Consumer		2		2,352		2,354
Other		0		0		0
Carrying value of acquired loans	$	7,814	$	326,066	$	333,880

Carrying value , net of allowance of $64	$	7,750	$	326,066	$	333,816

We adjusted our estimates of future expected losses, cash flows and renewal assumptions during the current quarter for PCI loans. The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of PCI loans during the three month period ending December 31, 2014. Contractually required principal and interest payments have been adjusted for estimated prepayments.

									Reclassifications from
Activity during the three month period ending									nonaccretable
December 31, 2014	30-Sep-14		Additions		Deletions		Accretion		difference		31-Dec-14
	(In thousands)
Contractually required principal and interest	$	0	$	17,169	$	(2,338)	$	0	$	0	$	14,831
Non-accretable difference		0		(7,196)		1,289		0		82		(5,825)
Cash flows expected to be collected		0		9,973		(1,049)		0		82		9,006
Accretable yield		0		(1,256)		50		96		(82)		(1,192)
Carrying value of acquired loans		0		8,717		(999)		96		0		7,814
Allowance for loan losses		0		0		0		0		0		(64)
Carrying value less allowance for loan losses	$	0	$	8,717	$	(999)	$	96	$	0	$	7,750

One of the sources of the Company's business is loans to directors and executive officers. The aggregate dollar amount of these loans was approximately $4,514,000 and $4,771,000 at December 31, 2014 and 2013, respectively. During 2014 new loans totaling $867,000 were made and reductions totaled $1,173,000.

At December 31, 2014 and 2013 loans pledged as collateral for borrowings totaled $130 million and $50.0 million, respectively.

Loans are made to individuals, as well as, commercial and tax exempt entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower.

Concentrations of Credit All of the Company’s lending activity occurs within the State of Florida, including Orlando in Central Florida and Southeast coastal counties from Brevard County in the north to Palm Beach County in the south, as well as, all of the counties surrounding Lake Okeechobee in the center of the state. The Company’s loan portfolio consists of approximately one half commercial and commercial real estate loans and one half consumer and residential real estate loans.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Construction and Land Development Loans The Company defines construction and land development loans as exposures secured by land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or significant source of repayment is from rental income associated with that property (that is, loans for which 50 percent or more of the source of repayment comes from third party, non-affiliated rental income) or the proceeds of the sale, refinancing, or permanent financing of the property.

Commercial Real Estate Loans The Company’s goal is to create and maintain a high quality portfolio of commercial real estate loans with customers who meet the quality and relationship profitability objectives of the Company. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

Residential Real Estate Loans The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable rates, home equity mortgages and home equity lines. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential mortgage loans from borrowers with original or current FICO credit scores that are less than “prime.”

Commercial and Financial Loans Commercial credit is extended primarily to small to medium sized professional firms, retail and wholesale operators and light industrial and manufacturing concerns. Such credits typically comprise working capital loans, loans for physical asset expansion, asset acquisition and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses’ major owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

Consumer Loans The Company originates consumer loans including installment loans, loans for automobiles, boats, and other personal, family and household purposes. For each loan type several factors including debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower is considered during the underwriting process.

The following tables present the contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2014 and 2013:

					Accruing
	Accruing		Accruing		Greater						Total
	30-59 Days		60-89 Days		Than						Financing
December 31, 2014	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables
					(In thousands)
Portfolio Loans
Construction and land development	$	0	$	0	$	0	$	534	$	65,362	$	65,896
Commercial real estate		764		0		0		3,457		606,642		610,863
Residential real estate		259		159		17		14,381		624,612		639,428
Commerical and financial		232		0		0		0		120,531		120,763
Consumer		256		25		0		191		50,071		50,543
Other		0		0		0		0		512		512
Total	$	1,511	$	184	$	17	$	18,563	$	1,467,730	$	1,488,005

Purchased Unimpaired Loans
Construction and land development	$	303	$	0	$	0	$	0	$	19,280	$	19,583
Commercial real estate		2,318		0		41		0		219,833		222,192
Residential real estate		142		0		39		5		46,432		46,618
Commerical and financial		953		0		0		0		34,368		35,321
Consumer		0		0		0		0		2,352		2,352
Other		0		0		0		0		0		0
Total	$	3,716	$	0	$	80	$	5	$	322,265	$	326,066

Purchased Impaired Loans
Construction and land development	$	0	$	0	$	0	$	1,428	$	129	$	1,557
Commercial real estate		7		359		0		733		2,993		4,092
Residential real estate		88		0		116		411		236		851
Commerical and financial		0		0		0		0		1,312		1,312
Consumer		0		0		0		0		2		2
Other		0		0		0		0		0		0
Total	$	95	$	359	$	116	$	2,572	$	4,672	$	7,814

Total Loans	$	5,322	$	543	$	213	$	21,140	$	1,794,667	$	1,821,885

					Accruing
	Accruing		Accruing		Greater						Total
	30-59 Days		60-89 Days		Than						Financing
December 31, 2013 (2)	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables
	(In thousands)
Construction and land development	$	3	$	0	$	0	$	1,302	$	66,145	$	67,450
Commercial real estate		684		345		0		5,111		514,242		520,382
Residential real estate		974		909		160		20,705		569,998		592,746
Commerical and financial		353		0		0		13		78,270		78,636
Consumer		33		27		0		541		44,112		44,713
Other		0		0		0		0		280		280
Total	$	2,047	$	1,281	$	160	$	27,672	$	1,273,047	$	1,304,207

(2)

All purchased loans disclosed were acquired in 2014 and were therefore not presented as part of this table.

Nonaccrual loans and loans past due ninety days or more were $21.1 million and $27.8 million at December 31, 2014 and 2013, respectively. The reduction in interest income associated with loans on nonaccrual status was approximately $1.9 million, $1.0 million, and $1.9 million, for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis. Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as substandard may require a specific allowance, but generally does not exceed 30% of the principal balance. Loans classified as Doubtful, have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make 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 generally charged off. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.

Loans not meeting the criteria above are considered to be pass-rated loans and risk grades are recalculated at least annually by the loan relationship manager. The following tables present the risk category of loans by class of loans based on the most recent analysis performed as of December 31, 2014 and 2013:

	Construction						Commercial
	& Land		Commercial		Residential		and
December 31, 2014	Development		Real Estate		Real Estate		Financial		Consumer		Total
	(In thousands)
Pass	$	79,397	$	797,934	$	655,518	$	155,281	$	51,764	$	1,739,894
Special mention		1,815		11,709		546		993		590		15,653
Substandard		1,685		15,325		1,733		1,002		456		20,201
Doubtful		0		0		0		0		0		0
Nonaccrual		1,963		4,189		14,797		0		191		21,140
Pass-Troubled debt restructures		1,672		2,332		17		0		0		4,021
Troubled debt restructures		504		5,658		14,286		120		408		20,976
	$	87,036	$	837,147	$	686,897	$	157,396	$	53,409	$	1,821,885

	Construction						Commercial
	& Land		Commercial		Residential		and
December 31, 2013	Development		Real Estate		Real Estate		Financial		Consumer		Total
	(In thousands)
Pass	$	63,186	$	485,268	$	554,681	$	77,840	$	43,267	$	1,224,242
Special mention		583		6,810		824		382		300		8,899
Substandard		0		15,886		1,670		248		453		18,257
Doubtful		0		0		0		0		0		0
Nonaccrual		1,302		5,111		20,705		13		541		27,672
Pass-Troubled debt restructures		1,838		5,584		30		0		0		7,452
Troubled debt restructures		541		1,723		14,836		153		432		17,685
	$	67,450	$	520,382	$	592,746	$	78,636	$	44,993	$	1,304,207

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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