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Impaired Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2016
Loans and Leases Receivable Disclosure [Abstract]  
Impaired Loans and Allowance for Loan Losses
Note F Impaired Loans and Allowance for Loan Losses
 
During the twelve months ended December 31, 2016, the total of newly identified TDRs was $2.0 million, of which $1.2 million were accruing residential real estate loans.
 
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 yields of new loan originations with comparable risk and 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 accruing loans that were modified within the twelve months ending December 31, 2016 and 2015:
 
 
 
 
 
Pre-
 
Post-
 
 
 
 
 
 
 
 
 
Modification
 
Modification
 
 
 
 
 
 
 
Number
 
Outstanding
 
Outstanding
 
Specific
 
Valuation
 
 
 
of
 
Recorded
 
Recorded
 
Reserve
 
Allowance
 
 
 
Contracts
 
Investment
 
Investment
 
Recorded
 
Recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land  development
 
 
1
 
$
20
 
$
18
 
$
0
 
$
2
 
Residential real estate
 
 
4
 
 
1,169
 
 
1,019
 
 
0
 
 
150
 
 
 
 
5
 
$
1,189
 
$
1,037
 
$
0
 
$
152
 
2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
2
 
$
220
 
$
218
 
$
0
 
$
2
 
Residential real estate
 
 
1
 
 
27
 
 
26
 
 
0
 
 
1
 
Commercial real estate
 
 
3
 
 
1,881
 
 
1,787
 
 
0
 
 
94
 
Consumer
 
 
1
 
 
48
 
 
45
 
 
0
 
 
3
 
 
 
 
7
 
$
2,176
 
$
2,076
 
$
0
 
$
100
 
 
During the years 2016, 2015 and 2014, there were no payment defaults on loans that had been modified to a TDR within the previous twelve months. 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. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan losses assigned in accordance with the Company's policy.
 
At December 31, 2016 and 2015, the Company's recorded investment in impaired loans (excluding PCI loans) and related valuation allowance was as follows:
 
 
 
Impaired Loans
 
 
 
for the Year Ended December 31, 2016
 
 
 
 
 
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
 
$
226
 
$
321
 
$
0
 
$
193
 
$
17
 
Commercial real estate
 
 
3,267
 
 
4,813
 
 
0
 
 
1,784
 
 
215
 
Residential real estate
 
 
9,706
 
 
14,136
 
 
0
 
 
9,370
 
 
579
 
Commercial and financial
 
 
199
 
 
206
 
 
0
 
 
15
 
 
9
 
Consumer
 
 
0
 
 
0
 
 
0
 
 
168
 
 
0
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
51
 
 
51
 
 
0
 
 
605
 
 
2
 
Commercial real estate
 
 
6,937
 
 
6,949
 
 
395
 
 
6,699
 
 
309
 
Residential real estate
 
 
12,332
 
 
12,681
 
 
2,059
 
 
12,015
 
 
455
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
0
 
 
0
 
 
0
 
 
338
 
 
0
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
277
 
 
372
 
 
0
 
 
798
 
 
19
 
Commercial real estate
 
 
10,204
 
 
11,762
 
 
395
 
 
8,483
 
 
524
 
Residential real estate
 
 
22,038
 
 
26,817
 
 
2,059
 
 
21,385
 
 
1,034
 
Commercial and financial
 
 
199
 
 
206
 
 
0
 
 
15
 
 
9
 
Consumer
 
 
0
 
 
0
 
 
0
 
 
506
 
 
0
 
 
 
$
32,718
 
$
39,157
 
$
2,454
 
$
31,187
 
$
1,586
 
 
 
 
Impaired Loans
 
 
 
for the Year Ended December 31, 2015
 
 
 
 
 
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
 
$
107
 
$
255
 
$
0
 
$
1,252
 
$
6
 
Commercial real estate
 
 
2,363
 
 
3,911
 
 
0
 
 
2,880
 
 
16
 
Residential real estate
 
 
9,256
 
 
13,707
 
 
0
 
 
10,259
 
 
168
 
Commercial and financial
 
 
17
 
 
17
 
 
0
 
 
84
 
 
1
 
Consumer
 
 
264
 
 
349
 
 
0
 
 
141
 
 
3
 
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
835
 
 
870
 
 
84
 
 
987
 
 
29
 
Commercial real estate
 
 
7,087
 
 
7,087
 
 
429
 
 
7,280
 
 
302
 
Residential real estate
 
 
12,447
 
 
12,803
 
 
1,964
 
 
15,136
 
 
337
 
Commercial and financial
 
 
0
 
 
0
 
 
0
 
 
0
 
 
0
 
Consumer
 
 
351
 
 
351
 
 
40
 
 
495
 
 
18
 
Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
 
942
 
 
1,125
 
 
84
 
 
2,239
 
 
35
 
Commercial real estate
 
 
9,450
 
 
10,998
 
 
429
 
 
10,160
 
 
318
 
Residential real estate
 
 
21,703
 
 
26,510
 
 
1,964
 
 
25,395
 
 
505
 
Commercial and financial
 
 
17
 
 
17
 
 
0
 
 
84
 
 
1
 
Consumer
 
 
615
 
 
700
 
 
40
 
 
636
 
 
21
 
 
 
$
32,727
 
$
39,350
 
$
2,517
 
$
38,514
 
$
880
 
 
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, 2016 and 2015, accruing TDRs totaled $17.7 million and $20.0 million, respectively.
 
The average recorded investment in impaired loans for the years ended December 31, 2016, 2015 and 2014 was $31.2 million, $38.5 million and $49.6 million, respectively. The impaired loans were 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 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, 2016, 2015 and 2014, the Company recorded $1,586,000, $880,000 and $1,345,000, 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, $318,000 and $456,000, respectively, for 2016, 2015 and 2014 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 $11,024,000 and $0, respectively, at December 31, 2016, $12,758,000 and $0, respectively at the end of 2015, and were $18,563,000 and $17,000, respectively, at year-end 2014.
 
The purchased nonaccrual loans and accruing loans past due 90 days or more were $2,867,000 and $0 , respectively at December 31, 2016, $4,628,000 and $0, respectively, at December 31, 2015 and $2,577,000 and $196,000, respectively, December 31, 2014.
 
Activity in the allowance for loans losses (excluding PCI loans) for the three years ended December 31, 2016, 2015 and 2014 are summarized as follows:
 
 
 
 
 
Provision
 
 
 
 
 
Net (Charge-
 
 
 
 
 
Beginning
 
for Loan
 
Charge-
 
 
 
Offs)
 
Ending
 
 
 
Balance
 
Losses
 
Offs
 
Recoveries
 
Recoveries
 
Balance
 
 
 
(In thousands)
 
December 31 , 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
1,151
 
$
(158)
 
$
0
 
$
226
 
$
226
 
$
1,219
 
Commercial real estate
 
 
6,756
 
 
2,512
 
 
(301)
 
 
306
 
 
5
 
 
9,273
 
Residential real estate
 
 
8,057
 
 
(1,145)
 
 
(215)
 
 
786
 
 
571
 
 
7,483
 
Commercial and financial
 
 
2,042
 
 
400
 
 
(615)
 
 
1,809
 
 
1,194
 
 
3,636
 
Consumer
 
 
1,122
 
 
802
 
 
(244)
 
 
109
 
 
(135)
 
 
1,789
 
 
 
$
19,128
 
$
2,411
 
$
(1,375)
 
$
3,236
 
$
1,861
 
$
23,400
 
December 31 , 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
722
 
$
1,296
 
$
(1,271)
 
$
404
 
$
(867)
 
$
1,151
 
Commercial real estate
 
 
4,528
 
 
2,010
 
 
(482)
 
 
700
 
 
218
 
 
6,756
 
Residential real estate
 
 
9,784
 
 
(2,208)
 
 
(779)
 
 
1,260
 
 
481
 
 
8,057
 
Commercial and financial
 
 
1,179
 
 
1,058
 
 
(726)
 
 
531
 
 
(195)
 
 
2,042
 
Consumer
 
 
794
 
 
552
 
 
(341)
 
 
117
 
 
(224)
 
 
1,122
 
 
 
$
17,007
 
$
2,708
 
$
(3,599)
 
$
3,012
 
$
(587)
 
$
19,128
 
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
 
 
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, 2016 and 2015 is shown in the following tables.
 
 
 
Individually Evaluated for
 
Collectively Evaluated for
 
 
 
 
 
Impairment
 
Impairment
 
Total
 
 
 
Recorded
 
Associated
 
Recorded
 
Associated
 
Recorded
 
Associated
 
December 31, 2016
 
Investment
 
Allowance
 
Investment
 
Allowance
 
Investment
 
Allowance
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
277
 
$
0
 
$
159,839
 
$
1,219
 
$
160,116
 
$
1,219
 
Commercial real estate
 
 
10,204
 
 
395
 
 
1,335,832
 
 
8,878
 
 
1,346,036
 
 
9,273
 
Residential real estate
 
 
22,038
 
 
2,059
 
 
814,250
 
 
5,424
 
 
836,288
 
 
7,483
 
Commercial and financial
 
 
199
 
 
0
 
 
369,449
 
 
3,636
 
 
369,648
 
 
3,636
 
Consumer
 
 
0
 
 
0
 
 
154,452
 
 
1,789
 
 
154,452
 
 
1,789
 
 
 
$
32,718
 
$
2,454
 
$
2,833,822
 
$
20,946
 
$
2,866,540
 
$
23,400
 
 
 
 
Individually Evaluated for
 
Collectively Evaluated for
 
 
 
 
 
Impairment
 
Impairment
 
Total
 
 
 
Recorded
 
Associated
 
Recorded
 
Associated
 
Recorded
 
Associated
 
December 31, 2015
 
Investment
 
Allowance
 
Investment
 
Allowance
 
Investment
 
Allowance
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction and 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 reported at December 31, 2016 included loans acquired from Floridian on March 11, 2016, BMO on June 3, 2016, Grand on July 17, 2015 and BANKshares on October 1, 2014 that are not PCI loans. At December 31, 2016, the remaining fair value adjustments for loans acquired was approximately $13.7 million, or approximately 3.11% of the outstanding aggregate PUL balances. At December 31, 2015, the remaining fair value adjustments for loans acquired was approximately $14.2 million, or approximately 4.43% of the outstanding aggregate PUL balances.
 
These amounts, which represents the remaining fair value discount of each PUL, are accreted into interest income over the remaining lives of the related loans on a level yield basis. Provisioning for loan losses of $1.3 million and net charge-offs of $1.2 million were recorded for these loans during 2015. No provision for loan losses 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 at December 31, 2016 and 2015.
 
 
 
December 31, 2016
 
December 31, 2015
 
 
 
PCI Loans Individually
 
PCI Loans Individually
 
 
 
Evaluated for Impairment
 
Evaluated for Impairment
 
 
 
Recorded
 
Associated
 
Recorded
 
Associated
 
 
 
Investment
 
Allowance
 
Investment
 
Allowance
 
 
 
 
 
 
 
 
 
 
 
Construction and land development
 
$
114
 
$
0
 
$
114
 
$
0
 
Commercial real estate
 
 
11,257
 
 
0
 
 
9,990
 
 
0
 
Residential real estate
 
 
684
 
 
0
 
 
922
 
 
0
 
Commercial and financial
 
 
941
 
 
0
 
 
1,083
 
 
0
 
Consumer
 
 
0
 
 
0
 
 
0
 
 
0
 
 
 
$
12,996
 
$
0
 
$
12,109
 
$
0