Loans

12 Months Ended

Dec. 31, 2015

Note E

Loans

Information relating to portfolio, purchase credit impaired (“PCI”), and purchase unimpaired (“PUL”) loans at December 31 is summarized as follows:

	2015
	Portfolio Loans		PCI Loans		PUL's		Total
	(In thousands)
Construction and land development	$	97,629	$	114	$	11,044	$	108,787
Commercial real estate		776,875		9,990		222,513		1,009,378
Residential real estate		678,131		922		44,732		723,785
Commerical and financial		188,013		1,083		39,421		228,517
Consumer		82,717		0		2,639		85,356
Other		507		0		0		507
NET LOAN BALANCES (1)	$	1,823,872	$	12,109	$	320,349	$	2,156,330

	2014
	(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)	$	1,488,005	$	7,814	$	326,066	$	1,821,885

(1)

Net loan balances at December 31, 2015 and 2014 are net of deferred costs of $7,652,000 and $3,645,000, 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 discount 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.

July 17, 2015	PCI		PULs		Total
	(In thousands)
Contractually required principal and interest	$	12,552	$	108,945	$	121,497
Non-accretable difference		(4,249)		0		(4,249)
Cash flows expected to be collected		8,303		108,945		117,248
Accretable yield		(702)		(5,254)		(5,956)
Total Acquired loans	$	7,601	$	103,691	$	111,292

October 1, 2014	PCI		PULs		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 at December 31, 2015 and 2014:

	December 31, 2015						December 31, 2014
	PCI		PULs		Total		PCI		PULs		Total
	(In thousands)						(In thousands)
Construction and land development	$	114	$	11,045	$	11,159	$	1,557	$	19,583	$	21,140
Commercial real estate		9,990		222,513		232,503		4,092		222,192		226,284
Residential real estate		922		44,732		45,654		851		46,618		47,469
Commercial and financial		1,083		39,420		40,503		1,312		35,321		36,633
Consumer		0		2,639		2,639		2		2,352		2,354
Other		0		0		0		0		0		0
Carrying value of acquired loans	$	12,109	$	320,349	$	332,458	$	7,814	$	326,066	$	333,880

Carrying value, net of allowance of $137 for 2015 and $64 for 2014	$	12,109	$	320,212	$	332,321	$	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 twelve months ended December 31, 2015, and 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 twelve month period ending December 31, 2015	12/31/2014		Additions		Net Deletions		Accretion		nonaccretable difference		12/31/2015
					(In thousands)
Contractually required principal and interest	$	14,831	$	12,552	$	(7,417)	$	0	$	0	$	19,966
Non-accretable difference		(5,825)		(4,249)		3,153		0		1,674		(5,247)
Cash flows expected to be collected		9,006		8,303		(4,264)		0		1,674		14,719
Accretable yield		(1,192)		(702)		357		601		(1,674)		(2,610)
Carrying value of acquired loans		7,814		7,601		(3,907)		601		0		12,109
Allowance for loan losses		(64)										0
Carrying value less allowance for loan losses	$	7,750									$	12,109

									Reclassifications
									from
Activity during the three month period ending December 31, 2014	9/30/2014		Additions		Net Deletions		Accretion		nonaccretable difference		12/31/2014
					(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										(64)
Carrying value less allowance for loan losses	$	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 $4,008,000 and $4,514,000 at December 31, 2015 and 2014, respectively. During 2015 new loans totaling $850,000 were made and reductions totaled $1,356,000.

At December 31, 2015 and 2014 loans pledged as collateral for borrowings totaled $50 million and $130 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, 2015 and 2014:

					Accruing
	Accruing		Accruing		Greater						Total
	30-59 Days		60-89 Days		Than						Financing
December 31, 2015	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables
					(In thousands)
Portfolio Loans
Construction and land development	$	665	$	-	$	-	$	269	$	96,695	$	97,629
Commercial real estate		810		-		-		2,301		773,764		776,875
Residential real estate		141		-		-		9,941		668,049		678,131
Commerical and financial		59		-		-		-		187,954		188,013
Consumer		430		-		-		247		82,040		82,717
Other		-		-		-		-		507		507
Total	$	2,105	$	-	$	-	$	12,758	$	1,809,009	$	1,823,872

Purchased Unimpaired Loans
Construction and land development	$	-	$	-	$	-	$	40	$	11,004	$	11,044
Commercial real estate		179		-		-		2,294		220,040		222,513
Residential real estate		66		-		-		-		44,666		44,732
Commerical and financial		39		-		-		130		39,252		39,421
Consumer		39		-		-		-		2,600		2,639
Other		-		-		-		-		-		-
Total	$	323	$	-	$	-	$	2,464	$	317,562	$	320,349

Purchased Impaired Loans
Construction and land development	$	-	$	-	$	-	$	-	$	114	$	114
Commercial real estate		132		-		-		1,816		8,042		9,990
Residential real estate		-		-		-		348		574		922
Commerical and financial		-		-		-		-		1,083		1,083
Consumer		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total	$	132	$	-	$	-	$	2,164	$	9,813	$	12,109

Total Loans	$	2,560	$	-	$	-	$	17,386	$	2,136,384	$	2,156,330

					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

Nonaccrual loans and loans past due ninety days or more were $17.4 million and $21.1 million at December 31, 2015 and 2014, respectively. The reduction in interest income associated with loans on nonaccrual status was approximately $0.6 million, $1.9 million, and $1.0 million, for the years ended December 31, 2015, 2014, and 2013, 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. 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, 2015 and 2014:

	Construction						Commercial
	& Land		Commercial		Residential		and
December 31, 2015	Development		Real Estate		Real Estate		Financial		Consumer		Total
					(In thousands)
Pass	$	100,186	$	973,942	$	697,907	$	226,391	$	83,786	$	2,082,212
Special mention		3,377		12,599		629		1,209		1,392		19,206
Substandard		4,242		9,278		3,197		769		70		17,556
Doubtful		0		0		0		0		0		0
Nonaccrual		309		6,410		10,290		130		247		17,386
Pass-Troubled debt restructures		58		5,893		0		18		0		5,969
Troubled debt restructures		615		1,256		11,762		0		368		14,001
	$	108,787	$	1,009,378	$	723,785	$	228,517	$	85,863	$	2,156,330

	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