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IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
 9 Months Ended
Sep. 30, 2016
Loans And Leases Receivable Allowances [Abstract]  
Impaired Loans and Allowance for Loan Losses
NOTE F — IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
 
During the nine months ending September 30, 2016 and 2015, the total of newly identified Troubled Debt Restructurings (“TDRs”) totaled $1.7 million and $2.0 million, respectively.
 
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, 2016:
 
 
 
 
 
 
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
 
 
6
 
$
1,660
 
$
1,489
 
$
0
 
$
171
 
 
 
 
6
 
$
1,660
 
$
1,489
 
$
0
 
$
171
 
 
The following table presents loans that were modified within the nine months ending 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 estae
 
 
1
 
$
26
 
$
25
 
$
0
 
$
1
 
Commercial real estate
 
 
3
 
 
1,881
 
 
1,787
 
 
0
 
 
94
 
Consumer
 
 
4
 
 
48
 
 
45
 
 
0
 
 
3
 
 
 
 
8
 
$
1,955
 
$
1,857
 
$
0
 
$
98
 
 
No accruing loans that were restructured within the twelve months preceding September 30, 2016 defaulted during the nine months ended September 30, 2016, and no loans restructured within the twelve months preceding September 30, 2015 defaulted during the twelve months ended September 30, 2015. 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. 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, 2016 and December 31, 2015, the Company’s recorded investment in impaired loans and the related valuation allowance were as follows:
 
 
 
September 30, 2016
 
 
 
 
 
 
Unpaid
 
Related
 
 
 
Recorded
 
Principal
 
Valuation
 
(Dollars in thousands)
 
Investment
 
Balance
 
Allowance
 
Impaired Loans with No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
211
 
$
297
 
$
0
 
Commercial real estate
 
 
1,421
 
 
2,889
 
 
0
 
Residential real estate
 
 
9,258
 
 
13,609
 
 
0
 
Commercial and financial
 
 
19
 
 
19
 
 
0
 
Consumer
 
 
136
 
 
229
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
585
 
 
595
 
 
42
 
Commercial real estate
 
 
5,966
 
 
5,966
 
 
346
 
Residential real estate
 
 
11,727
 
 
12,025
 
 
1,608
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
392
 
 
392
 
 
49
 
Total:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
796
 
 
892
 
 
42
 
Commercial real estate
 
 
7,387
 
 
8,855
 
 
346
 
Residential real estate
 
 
20,985
 
 
25,634
 
 
1,608
 
Commercial and financial
 
 
19
 
 
19
 
 
0
 
Consumer
 
 
528
 
 
621
 
 
49
 
 
 
$
29,715
 
$
36,021
 
$
2,045
 
 
 
 
December 31, 2015
 
 
 
 
 
 
Unpaid
 
Related
 
 
 
Recorded
 
Principal
 
Valuation
 
(Dollars in thousands)
 
Investment
 
Balance
 
Allowance
 
Impaired Loans with No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
107
 
$
255
 
$
0
 
Commercial real estate
 
 
2,363
 
 
3,911
 
 
0
 
Residential real estate
 
 
9,256
 
 
13,707
 
 
0
 
Commercial and financial
 
 
17
 
 
17
 
 
0
 
Consumer
 
 
264
 
 
349
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
835
 
 
870
 
 
84
 
Commercial real estate
 
 
7,087
 
 
7,087
 
 
429
 
Residential real estate
 
 
12,447
 
 
12,803
 
 
1,964
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
351
 
 
351
 
 
40
 
Total:
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
942
 
 
1,125
 
 
84
 
Commercial real estate
 
 
9,450
 
 
10,998
 
 
429
 
Residential real estate
 
 
21,703
 
 
26,510
 
 
1,964
 
Commercial and financial
 
 
17
 
 
17
 
 
0
 
Consumer
 
 
615
 
 
700
 
 
40
 
 
 
$
32,727
 
$
39,350
 
$
2,517
 
 
For the three months ended September 30, 2016 and 2015, the Company’s average recorded investments in impaired loans and related interest income were as follows:
 
 
 
Three Months Ended
 
Three Months Ended
 
 
 
September 30, 2016
 
September 30, 2015
 
 
 
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
 
$
208
 
$
3
 
$
1,216
 
$
2
 
Commercial real estate
 
 
1,437
 
 
31
 
 
3,138
 
 
7
 
Residential real estate
 
 
9,346
 
 
138
 
 
9,700
 
 
35
 
Commercial and financial
 
 
16
 
 
0
 
 
83
 
 
0
 
Consumer
 
 
157
 
 
3
 
 
152
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
609
 
 
7
 
 
1,070
 
 
23
 
Commercial real estate
 
 
6,565
 
 
64
 
 
6,638
 
 
78
 
Residential real estate
 
 
12,038
 
 
102
 
 
14,762
 
 
89
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
383
 
 
4
 
 
490
 
 
7
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
817
 
 
10
 
 
2,286
 
 
25
 
Commercial real estate
 
 
8,002
 
 
95
 
 
9,776
 
 
85
 
Residential real estate
 
 
21,384
 
 
240
 
 
24,462
 
 
124
 
Commercial and financial
 
 
16
 
 
0
 
 
83
 
 
0
 
Consumer
 
 
540
 
 
7
 
 
642
 
 
7
 
 
 
$
30,759
 
$
352
 
$
37,249
 
$
241
 
 
For the nine months ended September 30, 2016 and 2015, the Company’s average recorded investments in impaired loans and related interest income were as follows:
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
 
September 30, 2016
 
September 30, 2015
 
 
 
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
 
$
188
 
$
11
 
$
1,632
 
$
7
 
Commercial real estate
 
 
1,854
 
 
97
 
 
3,012
 
 
13
 
Residential real estate
 
 
9,444
 
 
406
 
 
10,745
 
 
103
 
Commercial and financial
 
 
16
 
 
0
 
 
106
 
 
1
 
Consumer
 
 
193
 
 
10
 
 
126
 
 
0
 
Impaired Loans with an Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
671
 
 
20
 
 
912
 
 
39
 
Commercial real estate
 
 
6,835
 
 
193
 
 
7,312
 
 
223
 
Residential real estate
 
 
12,098
 
 
322
 
 
15,658
 
 
270
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
363
 
 
14
 
 
507
 
 
17
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction & land development
 
 
859
 
 
31
 
 
2,544
 
 
46
 
Commercial real estate
 
 
8,689
 
 
290
 
 
10,324
 
 
236
 
Residential real estate
 
 
21,542
 
 
728
 
 
26,403
 
 
373
 
Commercial and financial
 
 
16
 
 
0
 
 
106
 
 
1
 
Consumer
 
 
556
 
 
24
 
 
633
 
 
17
 
 
 
$
31,662
 
$
1,073
 
$
40,010
 
$
673
 
 
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, 2016 and at December 31, 2015, accruing TDRs totaled $19.3 million and $20.0 million, respectively.
 
The impaired loans are measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan’s effective 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.
 
Nonaccrual loans and accruing loans past due 90 days or more (excluding purchased loans) totaled $10.6 million and $0, respectively, at September 30, 2016, and $12.8 million and $0 at December 31, 2015, respectively. Purchased nonaccrual and accruing loans past due 90 days or more were $7.9 million and $0 at September 30, 2016, and $4.6 million and $0 at December 31, 2015.
 
Activity in the allowance for loan losses (excluding PCI loans) for the three-month period ended and nine-month period ended September 30, 2016 is summarized as follows:
 
 
 
Allowance for Loan Losses for the Three Months Ended September 30, 2016
 
 
 
 
 
 
Provision
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
 
Net
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
Construction & land development
 
$
1,160
 
$
48
 
$
0
 
$
25
 
$
25
 
$
1,233
 
Commercial real estate
 
 
7,192
 
 
1,450
 
 
(78)
 
 
169
 
 
91
 
 
8,733
 
Residential real estate
 
 
8,299
 
 
(662)
 
 
0
 
 
272
 
 
272
 
 
7,909
 
Commercial and financial
 
 
2,591
 
 
(550)
 
 
(283)
 
 
1,278
 
 
995
 
 
3,036
 
Consumer
 
 
1,483
 
 
264
 
 
(18)
 
 
44
 
 
26
 
 
1,773
 
 
 
$
20,725
 
$
550
 
$
(379)
 
$
1,788
 
$
1,409
 
$
22,684
 
 
 
 
Allowance for Loan Losses for the Nine Months Ended September 30, 2016
 
 
 
 
 
 
Provision
 
 
 
 
 
 
 
Net
 
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
(Charge-Offs)
 
Ending
 
(Dollars in thousands)
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
Construction & land development
 
$
1,151
 
$
(132)
 
$
0
 
$
214
 
$
214
 
$
1,233
 
Commercial real estate
 
 
6,756
 
 
1,960
 
 
(254)
 
 
271
 
 
17
 
 
8,733
 
Residential real estate
 
 
8,057
 
 
(672)
 
 
(145)
 
 
669
 
 
524
 
 
7,909
 
Commercial and financial
 
 
2,042
 
 
(403)
 
 
(376)
 
 
1,773
 
 
1,397
 
 
3,036
 
Consumer
 
 
1,122
 
 
658
 
 
(98)
 
 
91
 
 
(7)
 
 
1,773
 
 
 
$
19,128
 
$
1,411
 
$
(873)
 
$
3,018
 
$
2,145
 
$
22,684
 
 
Activity in the allowance for loan losses (excluding PCI loans) for the three-month period and nine-month period 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
 
 
0
 
 
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
 
 
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, 2016 and December 31, 2015 is shown in the following tables:
 
 
 
At September 30, 2016
 
 
 
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
 
$
796
 
$
42
 
$
152,991
 
$
1,191
 
$
153,787
 
$
1,233
 
Commercial real estate
 
 
7,387
 
 
346
 
 
1,274,844
 
 
8,387
 
 
1,282,231
 
 
8,733
 
Residential real estate
 
 
20,985
 
 
1,608
 
 
811,743
 
 
6,301
 
 
832,728
 
 
7,909
 
Commercial and financial
 
 
19
 
 
0
 
 
341,505
 
 
3,036
 
 
341,524
 
 
3,036
 
Consumer
 
 
528
 
 
49
 
 
145,483
 
 
1,724
 
 
146,011
 
 
1,773
 
 
 
$
29,715
 
$
2,045
 
$
2,726,566
 
$
20,639
 
$
2,756,281
 
$
22,684
 
 
 
 
At December 31, 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
 
$
942
 
$
84
 
$
107,731
 
$
1,067
 
$
108,673
 
$
1,151
 
Commercial real estate
 
 
9,450
 
 
429
 
 
989,938
 
 
6,327
 
 
999,388
 
 
6,756
 
Residential real estate
 
 
21,703
 
 
1,964
 
 
701,160
 
 
6,093
 
 
722,863
 
 
8,057
 
Commercial and financial
 
 
17
 
 
0
 
 
227,417
 
 
2,042
 
 
227,434
 
 
2,042
 
Consumer
 
 
615
 
 
40
 
 
85,248
 
 
1,082
 
 
85,863
 
 
1,122
 
 
 
$
32,727
 
$
2,517
 
$
2,111,494
 
$
16,611
 
$
2,144,221
 
$
19,128
 
 
Loans collectively evaluated for impairment at December 31, 2015 included loans acquired from BANKshares on October 1, 2014 and Grand Bankshares on July 17, 2015 that are not PCI loans, and loans at September 30, 2016 included loans acquired from Floridian and BMO Harris as well 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, 2016.
 
The table below summarizes PCI loans that were individually evaluated for impairment based on expected cash flows at September 30, 2016 and December 31, 2015:
 
 
 
PCI Loans Individually Evaluated for Impairment
 
 
 
September 30, 2016
 
December 31, 2015
 
 
 
Carrying
 
Associated
 
Carrying
 
Associated
 
(Dollars in thousands)
 
Value
 
Allowance
 
Value
 
Allowance
 
Construction & land development
 
$
114
 
$
0
 
$
114
 
$
0
 
Commercial real estate
 
 
11,281
 
 
0
 
 
9,990
 
 
0
 
Residential real estate
 
 
685
 
 
0
 
 
922
 
 
0
 
Commercial and financial
 
 
977
 
 
0
 
 
1,083
 
 
0
 
Consumer
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
$
13,057
 
$
0
 
$
12,109
 
$
0