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Impaired Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2014
Loans and Leases Receivable, Allowance [Abstract]  
Impaired Loans and Allowance for Loan Losses
Note F    Impaired Loans and Allowance for Loan Losses
 
During the twelve months ended December 31, 2014, the total of newly identified TDRs was $5.5 million, of which $4.3 million were accruing commercial real estate loans, $0.7 million were accruing residential real estate mortgage loans and $0.1 million were accruing construction and land development loans.
 
The following table presents loans that were modified within the twelve months ending December 31, 2014:
 
 
 
 
 
 
Pre-
 
Post-
 
 
 
 
 
 
 
 
 
 
Modification
 
Modification
 
 
 
 
 
 
 
Number
 
Outstanding
 
Outstanding
 
Specific
 
Valuation
 
 
 
of
 
Recorded
 
Recorded
 
Reserve
 
Allowance
 
 
 
Contracts
 
Investment
 
Investment
 
Recorded
 
Recorded
 
 
 
(In thousands)
 
Construction and land
 development
 
$
1
 
$
72
 
$
71
 
$
0
 
$
1
 
Residential real estate
 
 
6
 
 
687
 
 
638
 
 
0
 
 
49
 
Commercial real estate
 
 
1
 
 
4,300
 
 
3,975
 
 
0
 
 
325
 
 
 
 
8
 
$
5,059
 
$
4,684
 
$
0
 
$
375
 
 
No accruing loans that were restructured within the twelve months ending December 31, 2014 defaulted during the twelve months ended December 31, 2014. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to non-accrual status or has been transferred to other real estate owned.
 
At December 31, 2014 and 2013, the Company's recorded investment in impaired loans (excluding purchased loans) and related valuation allowance was as follows:
 
 
 
Impaired Loans
 
 
 
for the Year Ended December 31, 2014
 
 
 
 
 
 
Unpaid
 
Related
 
Average
 
Interest
 
 
 
Recorded
 
Principal
 
Valuation
 
Recorded
 
Income
 
 
 
Investment
 
Balance
 
Allowance
 
Investment
 
Recognized
 
 
 
( In thousands )
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,824
 
$
2,239
 
$
0
 
$
2,080
 
$
106
 
Commercial real estate
 
 
3,087
 
 
4,600
 
 
0
 
 
2,713
 
 
20
 
Residential real estate
 
 
11,898
 
 
16,562
 
 
0
 
 
11,366
 
 
198
 
Commercial and financial
 
 
120
 
 
120
 
 
0
 
 
110
 
 
8
 
Consumer
 
 
65
 
 
93
 
 
0
 
 
291
 
 
1
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
886
 
 
931
 
 
159
 
 
1,213
 
 
81
 
Commercial real estate
 
 
8,359
 
 
8,469
 
 
529
 
 
10,446
 
 
461
 
Residential real estate
 
 
16,804
 
 
17,693
 
 
2,741
 
 
20,793
 
 
445
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
 
47
 
 
0
 
Consumer
 
 
534
 
 
562
 
 
112
 
 
543
 
 
25
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
2,710
 
 
3,170
 
 
159
 
 
3,293
 
 
187
 
Commercial real estate
 
 
11,446
 
 
13,069
 
 
529
 
 
13,159
 
 
481
 
Residential real estate
 
 
28,702
 
 
34,255
 
 
2,741
 
 
32,159
 
 
643
 
Commercial and financial
 
 
120
 
 
120
 
 
0
 
 
157
 
 
8
 
Consumer
 
 
599
 
 
655
 
 
112
 
 
834
 
 
26
 
 
 
$
43,577
 
$
51,269
 
$
3,541
 
$
49,602
 
$
1,345
 
 
 
 
Impaired Loans
 
 
 
for the Year Ended December 31, 2013
 
 
 
 
 
 
Unpaid
 
Related
 
Average
 
Interest
 
 
 
Recorded
 
Principal
 
Valuation
 
Recorded
 
Income
 
 
 
Investment
 
Balance
 
Allowance
 
Investment
 
Recognized
 
 
 
( In thousands )
 
 
 
 
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
2,561
 
$
3,180
 
$
0
 
$
2,446
 
$
102
 
Commercial real estate
 
 
4,481
 
 
6,577
 
 
0
 
 
7,382
 
 
28
 
Residential real estate
 
 
12,366
 
 
17,372
 
 
0
 
 
14,512
 
 
81
 
Commercial and financial
 
 
153
 
 
153
 
 
0
 
 
19
 
 
9
 
Consumer
 
 
425
 
 
569
 
 
0
 
 
162
 
 
19
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
1,120
 
 
1,197
 
 
149
 
 
1,347
 
 
36
 
Commercial real estate
 
 
7,937
 
 
8,046
 
 
638
 
 
17,264
 
 
395
 
Residential real estate
 
 
23,365
 
 
24,766
 
 
4,528
 
 
22,899
 
 
566
 
Commercial and financial
 
 
13
 
 
13
 
 
13
 
 
1
 
 
1
 
Consumer
 
 
548
 
 
573
 
 
118
 
 
571
 
 
23
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
3,681
 
 
4,377
 
 
149
 
 
3,793
 
 
138
 
Commercial real estate
 
 
12,418
 
 
14,623
 
 
638
 
 
24,646
 
 
423
 
Residential real estate
 
 
35,731
 
 
42,138
 
 
4,528
 
 
37,411
 
 
647
 
Commercial and financial
 
 
166
 
 
166
 
 
13
 
 
20
 
 
10
 
Consumer
 
 
973
 
 
1,142
 
 
118
 
 
733
 
 
42
 
 
 
$
52,969
 
$
62,446
 
$
5,446
 
$
66,603
 
$
1,260
 
 
Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted. At December 31, 2014 and 2013, accruing TDRs totaled $25.0 million and $25.1 million, respectively.
 
The average recorded investment in impaired loans for the years ended December 31, 2014, 2013 and 2012 was $49,602,000, $66,603,000 and $96,439,000, respectively. The impaired loans were measured or impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan's effective interest rate. The valuation allowance is included in the allowance for loan losses.
 
Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the years ended December 31, 2014, 2013 and 2012, the Company recorded $1,345,000, $1,260,000 and $3,054,000, respectively, in interest income on impaired loans.
 
For impaired loans whose impairment is measured based on the present value of expected future cash flows a total of $456,000, $1.1 million and $1.0 million, respectively, for 2014, 2013 and 2012 was included in interest income and represents the change in present value attributable to the passage of time.
 
The nonaccrual loans and accruing loans past due 90 days or more (excluding purchased loans) were $18,563,000 and $17,000, respectively, at December 31, 2014, $27,672,000 and $160,000, respectively at the end of 2013, and were $40,955,000 and $1,000, respectively, at year-end 2012.
 
The purchased nonaccrual loans and accruing loans past due 90 days or more were $2,576,000 and $323,000, respectively, at December 31, 2014. There were no purchased loans prior to 2014.
 
Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31, 2014, 2013 and 2012 are summarized as follows:
 
 
 
Beginning
Balance
 
Provision
for Loan
Losses
 
Charge-
Offs
 
Recoveries
 
Net
(Charge-
Offs)
Recoveries
 
Ending
Balance
 
 
 
(In thousands)
 
December 31 , 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
808
 
$
139
 
$
(640)
 
$
415
 
$
(225)
 
$
722
 
Commercial real estate
 
 
6,160
 
 
(2,917)
 
 
(398)
 
 
1,683
 
 
1,285
 
 
4,528
 
Residential real estate
 
 
11,659
 
 
(1,651)
 
 
(1,126)
 
 
902
 
 
(224)
 
 
9,784
 
Commercial and financial
 
 
710
 
 
697
 
 
(398)
 
 
170
 
 
(228)
 
 
1,179
 
Consumer
 
 
731
 
 
182
 
 
(193)
 
 
74
 
 
(119)
 
 
794
 
 
 
$
20,068
 
$
(3,550)
 
$
(2,755)
 
$
3,244
 
$
489
 
$
17,007
 
December 31 , 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,134
 
$
66
 
$
(604)
 
$
212
 
$
(392)
 
$
808
 
Commercial real estate
 
 
8,849
 
 
(522)
 
 
(2,714)
 
 
547
 
 
(2,167)
 
 
6,160
 
Residential real estate
 
 
11,090
 
 
3,273
 
 
(3,153)
 
 
449
 
 
(2,704)
 
 
11,659
 
Commercial and financial
 
 
468
 
 
(24)
 
 
(60)
 
 
326
 
 
266
 
 
710
 
Consumer
 
 
563
 
 
395
 
 
(253)
 
 
26
 
 
(227)
 
 
731
 
 
 
$
22,104
 
$
3,188
 
$
(6,784)
 
$
1,560
 
$
(5,224)
 
$
20,068
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,883
 
$
(478)
 
$
(612)
 
$
341
 
$
(271)
 
$
1,134
 
Commercial real estate
 
 
11,477
 
 
3,209
 
 
(8,539)
 
 
2,702
 
 
(5,837)
 
 
8,849
 
Residential real estate
 
 
10,966
 
 
7,767
 
 
(8,381)
 
 
738
 
 
(7,643)
 
 
11,090
 
Commercial and financial
 
 
402
 
 
283
 
 
(346)
 
 
129
 
 
(217)
 
 
468
 
Consumer
 
 
837
 
 
15
 
 
(410)
 
 
121
 
 
(289)
 
 
563
 
 
 
$
25,565
 
$
10,796
 
$
(18,288)
 
$
4,031
 
$
(14,257)
 
$
22,104
 
 
As discussed in Note A, "Significant Accounting Policies," the allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio (excluding PCI loans) and related allowance at December 31, 2014 and 2013 is shown in the following tables.
 
 
 
Individually Evaluated for
Impairment
 
Collectively Evaluated for
Impairment
 
Total
 
December 31, 2014
 
Carrying
Value
 
Associated
Allowance
 
Carrying
Value
 
Associated
Allowance
 
Carrying
Value
 
Associated
Allowance
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
2,710
 
$
159
 
$
82,769
 
$
563
 
$
85,479
 
$
722
 
Commercial real estate
 
 
11,446
 
 
529
 
 
821,609
 
 
3,999
 
 
833,055
 
 
4,528
 
Residential real estate
 
 
28,702
 
 
2,741
 
 
657,344
 
 
7,043
 
 
686,046
 
 
9,784
 
Commercial and financial
 
 
120
 
 
0
 
 
155,964
 
 
1,179
 
 
156,084
 
 
1,179
 
Consumer
 
 
599
 
 
112
 
 
52,808
 
 
682
 
 
53,407
 
 
794
 
 
 
$
43,577
 
$
3,541
 
$
1,770,494
 
$
13,466
 
$
1,814,071
 
$
17,007
 
 
 
 
Individually Evaluated for
 
Collectively Evaluated for
 
 
 
 
 
 
 
 
 
Impairment
 
Impairment
 
Total
 
 
 
 
December 31, 2013
 
Carrying
Value
 
Associated
Allowance
 
Carrying
Value
 
Associated
Allowance
 
Carrying
Value
 
Associated
Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
3,681
 
$
149
 
$
63,769
 
$
659
 
$
67,450
 
$
808
 
Commercial real estate
 
 
12,418
 
 
638
 
 
507,964
 
 
5,522
 
 
520,382
 
 
6,160
 
Residential real estate
 
 
35,731
 
 
4,528
 
 
557,015
 
 
7,131
 
 
592,746
 
 
11,659
 
Commercial and financial
 
 
166
 
 
13
 
 
78,470
 
 
697
 
 
78,636
 
 
710
 
Consumer
 
 
973
 
 
118
 
 
44,020
 
 
613
 
 
44,993
 
 
731
 
 
 
$
52,969
 
$
5,446
 
$
1,251,238
 
$
14,622
 
$
1,304,207
 
$
20,068
 
 
Loans collectively evaluated for impairment reported at December 31, 2014 included loans acquired from BANKshares on October 1, 2014 that are not PCI loans. These loans are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment for loans acquired from BANKshares at the acquisition date was approximately $11.2 million, or approximately 3.56% of the outstanding aggregate loan balances. This amount, which represents the total fair value discount of each PUL, is accreted into interest income over the remaining lives of the related loans on a level yield basis, and remains adequate at December 31,2014, and therefore no provision for loan loss was recorded related to these loans at December 31, 2014. The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows.
 
 
 
PCI Loans Individually
Evaluated for Impairment
 
December 31, 2014
 
Carrying
Value
 
Associated Allowance
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,557
 
$
43
 
Commercial real estate
 
 
4,092
 
 
3
 
Residential real estate
 
 
851
 
 
18
 
Commercial and financial
 
 
1,312
 
 
0
 
Consumer
 
 
2
 
 
0
 
 
 
$
7,814
 
$
64