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IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
 9 Months Ended
Sep. 30, 2015
Loans and Leases Receivable, Allowance [Abstract]  
Impaired Loans and Allowance for Loan Losses [Text Block]
NOTE F — IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
 
During the nine months ending September 30, 2015 and 2014, newly identified troubled debt restructurings (“TDRs”) totaled $2.2 million and $5.4 million, respectively. Loans that are modified, but where full collection under the modified terms is doubtful are classified as nonaccrual loans from the date of modification.
 
The Company’s TDR concessions granted generally do not include forgiveness of principal balances. 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.
 
When a loan is modified as a TDR, there is not a direct, material impact on the loans within the Consolidated Balance Sheet, as principal balances are generally not forgiven. Most loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with Company policy.
 
The following table presents loans that were modified within the nine months ending September 30, 2015:
 
Nine months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-
 
Post-
 
 
 
 
 
 
 
 
 
 
Modification
 
Modification
 
 
 
 
 
 
 
Number
 
Outstanding
 
Outstanding
 
Specific
 
Valuation
 
 
 
of
 
Recorded
 
Recorded
 
Reserve
 
Allowance
 
(Dollars in thousands)
 
Contracts
 
Investment
 
Investment
 
Recorded
 
Recorded
 
Residential real estate
 
 
1
 
$
26
 
$
25
 
$
0
 
$
1
 
Commercial real estate
 
 
3
 
 
1,881
 
 
1,787
 
 
0
 
 
94
 
Consumer
 
 
1
 
 
48
 
 
45
 
 
0
 
 
3
 
 
 
 
5
 
$
1,955
 
$
1,857
 
$
0
 
$
98
 
 
  The following table presents loans that were modified within the nine months ending September 30, 2014:
 
Nine months ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre-
 
Post-
 
 
 
 
 
 
 
 
 
 
Modification
 
Modification
 
 
 
 
 
 
 
Number
 
Outstanding
 
Outstanding
 
Specific
 
Valuation
 
 
 
of
 
Recorded
 
Recorded
 
Reserve
 
Allowance
 
(Dollars in thousands)
 
Contracts
 
Investment
 
Investment
 
Recorded
 
Recorded
 
Residential real estate
 
 
5
 
$
669
 
$
621
 
$
0
 
$
48
 
Commercial real estate
 
 
1
 
 
4,300
 
 
3,975
 
 
0
 
 
325
 
 
 
 
6
 
$
4,969
 
$
4,596
 
$
0
 
$
373
 
 
Only 1 contract with a pre-modification and post-modification outstanding recorded investment of $1.0 million and $0.9 million, respectively, were modified during the three month period ended September 30, 2015, compared to 2 contracts with a pre-modification and post-modification outstanding recorded investment that was nominal for each, respectively, for the three month period ended September 30, 2014.
 
No accruing loans that were restructured within the twelve months preceding September 30, 2015 and September 30, 2014, defaulted during the nine months ended September 30, 2015 and 2014, respectively. The Company considers a loan to have defaulted when it becomes 60 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company’s policy.
 
As of September 30, 2015 and December 31, 2014, the Company’s recorded investment in impaired loans and the related valuation allowance were as follows:
 
 
 
September 30, 2015
 
 
 
 
 
Unpaid
 
Related
 
 
 
Recorded
 
Principal
 
Valuation
 
(Dollars in thousands)
 
Investment
 
Balance
 
Allowance
 
Impaired Loans with No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
123
 
$
375
 
$
0
 
Commercial real estate
 
 
2,545
 
 
4,015
 
 
0
 
Residential real estate
 
 
8,571
 
 
12,846
 
 
0
 
Commercial and financial
 
 
18
 
 
18
 
 
0
 
Consumer
 
 
143
 
 
207
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
1,401
 
 
1,439
 
 
235
 
Commercial real estate
 
 
7,232
 
 
7,305
 
 
432
 
Residential real estate
 
 
14,130
 
 
14,568
 
 
2,335
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
511
 
 
527
 
 
74
 
Total:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
1,524
 
 
1,814
 
 
235
 
Commercial real estate
 
 
9,777
 
 
11,320
 
 
432
 
Residential real estate
 
 
22,701
 
 
27,414
 
 
2,335
 
Commercial and financial
 
 
18
 
 
18
 
 
0
 
Consumer
 
 
654
 
 
734
 
 
74
 
 
 
$
34,674
 
$
41,300
 
$
3,076
 
 
 
 
December 31, 2014
 
 
 
 
 
Unpaid
 
Related
 
 
 
Recorded
 
Principal
 
Valuation
 
(Dollars in thousands)
 
Investment
 
Balance
 
Allowance
 
Impaired Loans with No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,824
 
$
2,239
 
$
0
 
Commercial real estate
 
 
3,087
 
 
4,600
 
 
0
 
Residential real estate
 
 
11,898
 
 
16,562
 
 
0
 
Commercial and financial
 
 
120
 
 
120
 
 
0
 
Consumer
 
 
65
 
 
93
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
886
 
 
931
 
 
159
 
Commercial real estate
 
 
8,359
 
 
8,469
 
 
529
 
Residential real estate
 
 
16,804
 
 
17,693
 
 
2,741
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
534
 
 
562
 
 
112
 
Total:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
2,710
 
 
3,170
 
 
159
 
Commercial real estate
 
 
11,446
 
 
13,069
 
 
529
 
Residential real estate
 
 
28,702
 
 
34,255
 
 
2,741
 
Commercial and financial
 
 
120
 
 
120
 
 
0
 
Consumer
 
 
599
 
 
655
 
 
112
 
 
 
$
43,577
 
$
51,269
 
$
3,541
 
 
For the three months ended September 30, 2015 and 2014, the Company’s average recorded investments in impaired loans and related interest income were as follows:
 
 
 
Three Months Ended
 
Three Months Ended
 
 
 
September 30, 2015
 
September 30, 2014
 
 
 
Average
 
Interest
 
Average
 
Interest
 
 
 
Recorded
 
Income
 
Recorded
 
Income
 
(Dollars in thousands)
 
Investment
 
Recognized
 
Investment
 
Recognized
 
Impaired Loans with No Related Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
$
1,216
 
$
2
 
$
2,088
 
$
29
 
Commercial real estate
 
 
3,138
 
 
7
 
 
3,067
 
 
3
 
Residential real estate
 
 
9,700
 
 
35
 
 
10,066
 
 
98
 
Commercial and financial
 
 
83
 
 
0
 
 
150
 
 
2
 
Consumer
 
 
152
 
 
0
 
 
276
 
 
1
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
1,070
 
 
23
 
 
1,110
 
 
6
 
Commercial real estate
 
 
6,638
 
 
78
 
 
11,801
 
 
124
 
Residential real estate
 
 
14,762
 
 
89
 
 
20,125
 
 
121
 
Commercial and financial
 
 
0
 
 
0
 
 
9
 
 
0
 
Consumer
 
 
490
 
 
7
 
 
546
 
 
8
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
2,286
 
 
25
 
 
3,198
 
 
35
 
Commercial real estate
 
 
9,776
 
 
85
 
 
14,868
 
 
127
 
Residential real estate
 
 
24,462
 
 
124
 
 
30,191
 
 
219
 
Commercial and financial
 
 
83
 
 
0
 
 
159
 
 
2
 
Consumer
 
 
642
 
 
7
 
 
822
 
 
9
 
 
 
$
37,249
 
$
241
 
$
49,238
 
$
392
 
 
For the nine months ended September 30, 2015 and 2014, the Company’s average recorded investments in impaired loans and related interest income were as follows:
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
 
September 30, 2015
 
September 30, 2014
 
 
 
Average
 
Interest
 
Average
 
Interest
 
 
 
Recorded
 
Income
 
Recorded
 
Income
 
(Dollars in thousands)
 
Investment
 
Recognized
 
Investment
 
Recognized
 
Impaired Loans with No Related Allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
$
1,632
 
$
7
 
$
2,160
 
$
80
 
Commercial real estate
 
 
3,012
 
 
13
 
 
2,618
 
 
10
 
Residential real estate
 
 
10,745
 
 
103
 
 
11,578
 
 
114
 
Commercial and financial
 
 
106
 
 
1
 
 
101
 
 
7
 
Consumer
 
 
126
 
 
0
 
 
322
 
 
1
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
912
 
 
39
 
 
1,244
 
 
18
 
Commercial real estate
 
 
7,312
 
 
223
 
 
10,502
 
 
485
 
Residential real estate
 
 
15,658
 
 
270
 
 
21,518
 
 
370
 
Commercial and financial
 
 
0
 
 
0
 
 
61
 
 
0
 
Consumer
 
 
507
 
 
17
 
 
543
 
 
18
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
2,544
 
 
46
 
 
3,404
 
 
98
 
Commercial real estate
 
 
10,324
 
 
236
 
 
13,120
 
 
495
 
Residential real estate
 
 
26,403
 
 
373
 
 
33,096
 
 
484
 
Commercial and financial
 
 
106
 
 
1
 
 
162
 
 
7
 
Consumer
 
 
633
 
 
17
 
 
865
 
 
19
 
 
 
$
40,010
 
$
673
 
$
50,647
 
$
1,103
 
 
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 September 30, 2015 and December 31, 2014, accruing TDRs totaled $20.5 million and $25.0 million, respectively.
 
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 nine months ended September 30, 2015 and 2014, the Company recorded $673,000 and $1,103,000, 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 $235,000 and $305,000, respectively, was included in interest income for the nine months ended September 30, 2015 and 2014, and represents the change in present value attributable to the passage of time.
 
Activity in the allowance for loan losses (excluding PCI loans) for the three-month and nine-month periods ended September 30, 2015 is summarized as follows:
 
 
 
Allowance for Loan Losses for the Three Months Ended September 30, 2015
 
 
 
 
 
Provision
 
 
 
 
 
Net
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
(Charge-Offs)
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
Construction & land development
 
$
887
 
$
891
 
$
(859)
 
$
109
 
$
(750)
 
$
1,028
 
Commercial real estate
 
 
5,278
 
 
925
 
 
(128)
 
 
315
 
 
187
 
 
6,390
 
Residential real estate
 
 
9,686
 
 
(686)
 
 
(193)
 
 
359
 
 
166
 
 
9,166
 
Commercial and financial
 
 
945
 
 
193
 
 
(160)
 
 
107
 
 
(53)
 
 
1,085
 
Consumer
 
 
1,783
 
 
(173)
 
 
(22)
 
 
22
 
 
-
 
 
1,610
 
 
 
$
18,579
 
$
1,150
 
$
(1,362)
 
$
912
 
$
(450)
 
$
19,279
 
 
 
 
Allowance for Loan Losses for the Nine Months Ended September 30, 2015
 
 
 
 
 
Provision
 
 
 
 
 
Net
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
(Charge-Offs)
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
Construction & land development
 
$
722
 
$
910
 
$
(925)
 
$
321
 
$
(604)
 
$
1,028
 
Commercial real estate
 
 
4,528
 
 
1,690
 
 
(430)
 
 
602
 
 
172
 
 
6,390
 
Residential real estate
 
 
9,784
 
 
(1,235)
 
 
(515)
 
 
1,132
 
 
617
 
 
9,166
 
Commercial and financial
 
 
1,179
 
 
(245)
 
 
(284)
 
 
435
 
 
151
 
 
1,085
 
Consumer
 
 
794
 
 
1,020
 
 
(276)
 
 
72
 
 
(204)
 
 
1,610
 
 
 
$
17,007
 
$
2,140
 
$
(2,430)
 
$
2,562
 
$
132
 
$
19,279
 
 
Activity in the allowance for loan losses for the three-month and nine-month periods ended September 30, 2014 is summarized as follows:
 
 
 
Allowance for Loan Losses for the Three Months Ended September 30, 2014
 
 
 
 
 
Provision
 
 
 
 
 
Net
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
(Charge-Offs)
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
Construction & land development
 
$
867
 
$
(26)
 
$
(68)
 
$
141
 
$
73
 
$
914
 
Commercial real estate
 
 
5,193
 
 
(1,913)
 
 
(130)
 
 
1,341
 
 
1,211
 
 
4,491
 
Residential real estate
 
 
10,631
 
 
167
 
 
(359)
 
 
159
 
 
(200)
 
 
10,598
 
Commercial and financial
 
 
709
 
 
244
 
 
(229)
 
 
71
 
 
(158)
 
 
795
 
Consumer
 
 
740
 
 
103
 
 
(80)
 
 
10
 
 
(70)
 
 
773
 
 
 
$
18,140
 
$
(1,425)
 
$
(866)
 
$
1,722
 
$
856
 
$
17,571
 
 
 
 
Allowance for Loan Losses for the Nine Months Ended September 30, 2014
 
 
 
 
 
Provision
 
 
 
 
 
Net
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
Charge-
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Offs
 
Balance
 
Construction & land development
 
$
808
 
$
178
 
$
(267)
 
$
195
 
$
(72)
 
$
914
 
Commercial real estate
 
 
6,160
 
 
(3,000)
 
 
(264)
 
 
1,595
 
 
1,331
 
 
4,491
 
Residential real estate
 
 
11,659
 
 
(1,243)
 
 
(566)
 
 
748
 
 
182
 
 
10,598
 
Commercial and financial
 
 
710
 
 
297
 
 
(337)
 
 
125
 
 
(212)
 
 
795
 
Consumer
 
 
731
 
 
164
 
 
(177)
 
 
55
 
 
(122)
 
 
773
 
 
 
$
20,068
 
$
(3,604)
 
$
(1,611)
 
$
2,718
 
$
1,107
 
$
17,571
 
 
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 September 30, 2015 and December 31, 2014 is shown in the following tables:
 
 
 
At September 30, 2015
 
 
 
Individually Evaluated for
 
Collectively Evaluated for
 
 
 
 
 
 
 
Impairment
 
Impairment
 
Total
 
 
 
Carrying
 
Associated
 
Carrying
 
Associated
 
Carrying
 
Associated
 
(Dollars in thousands)
 
Value
 
Allowance
 
Value
 
Allowance
 
Value
 
Allowance
 
Construction & land development
 
$
1,524
 
$
235
 
$
94,050
 
$
793
 
$
95,574
 
$
1,028
 
Commercial real estate
 
 
9,777
 
 
432
 
 
971,339
 
 
5,958
 
 
981,116
 
 
6,390
 
Residential real estate
 
 
22,701
 
 
2,335
 
 
699,224
 
 
6,831
 
 
721,925
 
 
9,166
 
Commercial and financial
 
 
18
 
 
0
 
 
209,185
 
 
1,085
 
 
209,203
 
 
1,159
 
Consumer
 
 
654
 
 
74
 
 
78,302
 
 
1,536
 
 
78,956
 
 
1,536
 
 
 
$
34,674
 
$
3,076
 
$
2,052,100
 
$
16,203
 
$
2,086,774
 
$
19,279
 
 
 
 
At December 31, 2014
 
 
 
Individually Evaluated for
 
Collectively Evaluated for
 
 
 
 
 
 
 
Impairment
 
Impairment
 
Total
 
 
 
Carrying
 
Associated
 
Carrying
 
Associated
 
Carrying
 
Associated
 
(Dollars in thousands)
 
Value
 
Allowance
 
Value
 
Allowance
 
Value
 
Allowance
 
Construction & 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
 
 
Loans collectively evaluated for impairment at September 30, 2015 and December 31, 2014 included loans acquired from BANKshares on October 1, 2014 and Grand Bankshares on July 17, 2015 that are not PCI loans. These loans are performing loans recorded at estimated fair value at the acquisition date. The fair value adjustment 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 remained adequate at September 30, 2015.
 
The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows at September 30, 2015 and December 31, 2014:
 
 
 
PCI Loans Individually Evaluated for Impairment
 
 
 
September 30, 2015
 
December 31, 2014
 
 
 
Carrying
 
Associated
 
Carrying
 
Associated
 
(Dollars in thousands)
 
Value
 
Allowance
 
Value
 
Allowance
 
Construction & land development
 
$
462
 
$
49
 
$
1,557
 
$
43
 
Commercial real estate
 
 
10,071
 
 
0
 
 
4,092
 
 
3
 
Residential real estate
 
 
1,008
 
 
0
 
 
851
 
 
18
 
Commercial and financial
 
 
1,132
 
 
0
 
 
1,312
 
 
0
 
Consumer
 
 
0
 
 
0
 
 
2
 
 
0
 
 
 
$
12,673
 
$
49
 
$
7,814
 
$
64