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Loans and Asset Quality Information
 3 Months Ended
Mar. 31, 2014
Loans And Asset Quality Information  
Loans and Asset Quality Information Part I

Note 7 – Loans and Asset Quality Information

 

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection - see Note 2 to the financial statements included in the Company’s 2011 Annual Report on Form 10-K for detailed information regarding these transactions. Because of the loss protection provided by the FDIC, the risk of the loans and foreclosed real estate that are covered by loss share agreements are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

 

 

($ in thousands)

  March 31, 2014   December 31, 2013   March 31, 2013 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
All loans (non-covered and covered):                              
                               
Commercial, financial, and agricultural  $170,209    7%   $168,469    7%   $162,074    7% 
Real estate – construction, land development & other land loans   296,141    12%    305,246    12%    293,918    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   829,671    34%    838,862    34%    831,467    35% 
Real estate – mortgage – home equity loans / lines of credit   229,167    9%    227,907    9%    236,222    10% 
Real estate – mortgage – commercial and other   857,327    35%    855,249    35%    803,875    33% 
Installment loans to individuals   64,003    3%    66,533    3%    67,272    3% 
    Subtotal   2,446,518    100%    2,462,266    100%    2,394,828    100% 
Unamortized net deferred loan costs   759         928         1,323      
    Total loans  $2,447,277        $2,463,194        $2,396,151      

 

As of March 31, 2014, December 31, 2013 and March 31, 2013, net loans include unamortized premiums of $49,000, $98,000, and $368,000, respectively, related to acquired loans.

 

The following is a summary of the major categories of non-covered loans outstanding:

 

 

($ in thousands)

  March 31, 2014   December 31, 2013   March 31, 2013 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
Non-covered loans:                              
                               
Commercial, financial, and agricultural  $167,443    7%   $164,195    7%   $157,235    7% 
Real estate – construction, land development & other land loans   269,216    12%    273,412    12%    253,275    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   729,080    32%    730,712    32%    700,429    33% 
Real estate – mortgage – home equity loans / lines of credit   215,128    10%    213,016    10%    217,567    10% 
Real estate – mortgage – commercial and other   811,612    36%    804,621    36%    736,314    35% 
Installment loans to individuals   63,488    3%    66,001    3%    66,540    3% 
    Subtotal   2,255,967    100%    2,251,957    100%    2,131,360    100% 
Unamortized net deferred loan costs   759         928         1,323      
    Total non-covered loans  $2,256,726        $2,252,885        $2,132,683      

 

The carrying amount of the covered loans at March 31, 2014 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:

 



($ in thousands)		  Impaired
Purchased
Loans –
Carrying
Value		   Impaired
Purchased
Loans –
Unpaid
Principal
Balance		   Nonimpaired
Purchased
Loans –
Carrying
Value		   Nonimpaired
Purchased
Loans -
Unpaid
Principal
Balance		   Total
Covered
Loans –
Carrying
Value		   Total
Covered
Loans –
Unpaid
Principal
Balance		 
Covered loans:                              
Commercial, financial, and agricultural  $72    133    2,694    4,435    2,766    4,568 
Real estate – construction, land development & other land loans   329    555    26,596    36,520    26,925    37,075 
Real estate – mortgage – residential (1-4 family) first mortgages   480    1,336    100,111    117,875    100,591    119,211 
Real estate – mortgage – home equity loans / lines of credit   13    20    14,026    16,923    14,039    16,943 
Real estate – mortgage – commercial and other   2,394    4,147    43,321    55,179    45,715    59,326 
Installment loans to individuals   —    —    515    518    515    518 
     Total  $3,288    6,191    187,263    231,450    190,551    237,641 

 

The carrying amount of the covered loans at December 31, 2013 consisted of impaired and nonimpaired purchased loans (as determined on the date of the acquisition), as follows:

 



($ in thousands)		  Impaired
Purchased
Loans –
Carrying
Value		   Impaired
Purchased
Loans –
Unpaid
Principal
Balance		   Nonimpaired
Purchased
Loans –
Carrying
Value		   Nonimpaired
Purchased
Loans -
Unpaid
Principal
Balance		   Total
Covered
Loans –
Carrying
Value		   Total
Covered
Loans –
Unpaid
Principal
Balance		 
Covered loans:                              
Commercial, financial, and agricultural  $75    136    4,199    5,268    4,274    5,404 
Real estate – construction, land development & other land loans   325    564    31,509    47,792    31,834    48,356 
Real estate – mortgage – residential (1-4 family) first mortgages   575    1,500    107,575    126,882    108,150    128,382 
Real estate – mortgage – home equity loans / lines of credit   14    21    14,877    18,318    14,891    18,339 
Real estate – mortgage – commercial and other   2,153    4,042    48,475    62,630    50,628    66,672 
Installment loans to individuals   —    —    532    607    532    607 
     Total  $3,142    6,263    207,167    261,497    210,309    267,760 

 

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2012. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

 

($ in thousands)
 		    
Carrying amount of nonimpaired covered loans at December 31, 2012  $277,489 
Principal repayments   (63,588)
Transfers to foreclosed real estate   (13,977)
Loan charge-offs   (12,957)
Accretion of loan discount   20,200 
Carrying amount of nonimpaired covered loans at December 31, 2013   207,167 
Principal repayments   (21,393)
Transfers to foreclosed real estate   (1,971)
Loan charge-offs   (2,948)
Accretion of loan discount   6,408 
Carrying amount of nonimpaired covered loans at March 31, 2014  $187,263 

 

As reflected in the table above, the Company accreted $6,408,000 of the loan discount on purchased nonimpaired loans into interest income during the first quarter of 2014. As of March 31, 2014, there was remaining loan discount of $26,461,000 related to purchased accruing loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the estimated lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income. At March 31, 2014, the Company also had $4,779,000 of loan discount related to purchased nonperforming loans. It is not expected that a significant amount of this discount will be accreted, as it represents estimated losses on these loans.

The following table presents information regarding all purchased impaired loans since December 31, 2012, all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

 

 

($ in thousands)

 

 

 

Purchased Impaired Loans

  Contractual
Principal
Receivable		   Fair Market
Value
Adjustment –
Write Down
(Nonaccretable
Difference)		   Carrying
Amount		 
Balance at December 31, 2012   8,815    3,990    4,825 
Change due to payments received   (301)   (31)   (270)
Transfer to foreclosed real estate   (2,100)   (784)   (1,316)
Change due to loan charge-off   (150)   (54)   (96)
Other   (1)    —    (1)
Balance at December 31, 2013  $6,263    3,121    3,142 
Change due to payments received   (269)   (103)   (166)
Other   197    (115)   312 
Balance at March 31, 2014  $6,191    2,903    3,288 

 

Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first quarter of 2014 and 2013, the Company received $179,000 and $0, respectively, in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

 

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, nonperforming loans held for sale, and foreclosed real estate. Nonperforming assets are summarized as follows:

 

ASSET QUALITY DATA ($ in thousands)

  March 31,
2014		   December 31,
2013		   March 31,
2013		 
                
Non-covered nonperforming assets               
Nonaccrual loans  $44,129   $41,938   $38,917 
Restructured loans - accruing   26,335    27,776    24,378 
Accruing loans > 90 days past due   —    —    — 
     Total non-covered nonperforming loans   70,464    69,714    63,295 
Foreclosed real estate   11,740    12,251    20,115 
Total non-covered nonperforming assets  $82,204   $81,965   $83,410 
                
Covered nonperforming assets               
Nonaccrual loans (1)  $31,986   $37,217   $51,221 
Restructured loans - accruing   7,429    8,909    10,582 
Accruing loans > 90 days past due   —    —    — 
     Total covered nonperforming loans   39,415    46,126    61,803 
Foreclosed real estate   19,504    24,497    30,156 
Total covered nonperforming assets  $58,919   $70,623   $91,959 
                
     Total nonperforming assets  $141,123   $152,588   $175,369 

 

(1) At March 31, 2014, December 31, 2013, and March 31, 2013, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $49.3 million, $60.4 million, and $94.8 million, respectively.

 

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

 

The following table presents the Company’s nonaccrual loans as of March 31, 2014.

 

($ in thousands)  Non-covered   Covered   Total 
Commercial, financial, and agricultural:               
Commercial – unsecured  $281    113    394 
Commercial – secured   4,037    111    4,148 
Secured by inventory and accounts receivable   963    175    1,138 
                
Real estate – construction, land development & other land loans   8,550    11,026    19,576 
                
Real estate – residential, farmland and multi-family   18,648    9,843    28,491 
                
Real estate – home equity lines of credit   2,295    351    2,646 
                
Real estate – commercial   8,885    10,367    19,252 
                
Consumer   470    —    470 
  Total  $44,129    31,986    76,115 
                

 

The following table presents the Company’s nonaccrual loans as of December 31, 2013.

 

($ in thousands)  Non-covered   Covered   Total 
Commercial, financial, and agricultural:               
Commercial – unsecured  $222    38    260 
Commercial – secured   2,662    114    2,776 
Secured by inventory and accounts receivable   545    782    1,327 
                
Real estate – construction, land development & other land loans   8,055    13,502    21,557 
                
Real estate – residential, farmland and multi-family   17,814    12,344    30,158 
                
Real estate – home equity lines of credit   2,200    335    2,535 
                
Real estate – commercial   10,115    10,099    20,214 
                
Consumer   325    3    328 
  Total  $41,938    37,217    79,155 
                

 

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2014.

 

($ in thousands)  30-59
Days Past
Due		   60-89 Days
Past Due		   Nonaccrual
Loans		   Current   Total Loans
Receivable		 
Non-covered loans                         
Commercial, financial, and agricultural:                         
Commercial - unsecured  $218    59    281    34,338    34,896 
Commercial - secured   1,478    257    4,037    122,958    128,730 
Secured by inventory and accounts receivable   198    —    963    19,681    20,842 
                          
Real estate – construction, land development & other land loans   1,478    1,100    8,550    230,182    241,310 
                          
Real estate – residential, farmland, and multi-family   11,401    1,655    18,648    838,650    870,354 
                          
Real estate – home equity lines of credit   413    277    2,295    197,872    200,857 
                          
Real estate - commercial   4,550    399    8,885    698,675    712,509 
                          
Consumer   374    165    470    45,460    46,469 
              Total non-covered  $20,110    3,912    44,129    2,187,816    2,255,967 
Unamortized net deferred loan costs                       759 
           Total non-covered loans                      $2,256,726 
                          
Covered loans  $6,140    163    31,986    152,262    190,551 
                          
                Total loans  $26,250    4,075    76,115    2,340,078    2,447,277 

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at March 31, 2014.

 

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2013.

 

($ in thousands)  30-59
Days Past
Due		   60-89 Days
Past Due		   Nonaccrual
Loans		   Current   Total Loans
Receivable		 
Non-covered loans                         
Commercial, financial, and agricultural:                         
Commercial - unsecured  $347    94    222    36,352    37,015 
Commercial - secured   1,233    462    2,662    117,923    122,280 
Secured by inventory and accounts receivable   438    767    545    19,426    21,176 
                          
Real estate – construction, land development & other land loans   2,304    1,391    8,055    232,920    244,670 
                          
Real estate – residential, farmland, and multi-family   11,682    2,631    17,814    837,260    869,387 
                          
Real estate – home equity lines of credit   1,465    305    2,200    194,157    198,127 
                          
Real estate - commercial   3,196    214    10,115    696,081    709,606 
                          
Consumer   494    187    325    48,690    49,696 
              Total non-covered  $21,159    6,051    41,938    2,182,809    2,251,957 
Unamortized net deferred loan costs                       928 
           Total non-covered loans                      $2,252,885 
                          
Covered loans  $5,179    768    37,217    167,145    210,309 
                          
                Total loans  $26,338    6,819    79,155    2,349,954    2,463,194 

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2013.

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2014.

 

($ in thousands)  Commercial,
Financial, and
Agricultural		   Real Estate –
Construction,
Land
Development, &
Other Land
Loans		   Real Estate –
Residential,
Farmland,
and Multi-
family		   Real
Estate –
Home
Equity
Lines of
Credit		   Real Estate –
Commercial
and Other		   Consumer   Unallo-
cated		   Total 
                                 
As of and for the three months ended March 31, 2014
                                         
Beginning balance  $7,432    12,966    15,142    1,838    5,524    1,513    (152)   44,263 
Charge-offs   (625)   (927)   (770)   (106)   (612)   (428)   —    (3,468)
Recoveries   28    236    65    5    95    117    —    546 
Provisions   2,054    (3,625)   (1,704)   1,925    4,368    (172)   519    3,365 
Ending balance  $8,889    8,650    12,733    3,662    9,375    1,030    367    44,706 
                                         
Ending balances as of March 31, 2014:  Allowance for loan losses
                                            
Individually evaluated for impairment  $197    466    2,285    —    571    —    —    3,519 
                                         
Collectively evaluated for impairment  $8,692    8,184    10,448    3,662    8,804    1,030    367    41,187 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 
                                         
Loans receivable as of March 31, 2014:
                                         
Ending balance – total  $184,468    241,310    870,354    200,857    712,509    46,469    —    2,255,967 
                                         
Ending balances as of March 31, 2014: Loans
                                         
Individually evaluated for impairment  $1,093    7,411    21,110    499    16,050    11    —    46,174 
                                         
Collectively evaluated for impairment  $183,375    233,899    849,244    200,358    696,459    46,458    —    2,209,793 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2013.

 

($ in thousands)  Commercial,
Financial, and
Agricultural		   Real Estate –
Construction,
Land
Development, &
Other Land
Loans		   Real Estate –
Residential,
Farmland, and
Multi-family		   Real
Estate –
Home
Equity
Lines of
Credit		   Real Estate –
Commercial
and Other		   Consumer   Unallo-
cated		   Total 
                                 
As of and for the year ended December 31, 2013
                                         
Beginning balance  $4,687    12,856    14,082    1,884    5,247    1,939    948    41,643 
Charge-offs   (4,418)   (2,739)   (3,732)   (1,314)   (4,346)   (2,174)   (660)   (19,383)
Recoveries   299    743    753    87    1,381    474    —    3,737 
Provisions   6,864    2,106    4,039    1,181    3,242    1,274    (440)   18,266 
Ending balance  $7,432    12,966    15,142    1,838    5,524    1,513    (152)   44,263 
                                         
Ending balances as of December 31, 2013:  Allowance for loan losses
                                            
Individually evaluated for impairment  $202    544    1,162    1    649    1    —    2,559 
                                         
Collectively evaluated for impairment  $7,230    12,422    13,980    1,837    4,875    1,512    (152)   41,704 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 
                                         
Loans receivable as of December 31, 2013:
                                         
Ending balance – total  $180,471    244,670    869,387    198,127    709,606    49,696    —    2,251,957 
                                         
Ending balances as of December 31, 2013: Loans
                                         
Individually evaluated for impairment  $582    8,027    19,111    22    16,894    13    —    44,649 
                                         
Collectively evaluated for impairment  $179,889    236,643    850,276    198,105    692,712    49,683    —    2,207,308 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2013.

 

($ in thousands)  Commercial,
Financial, and
Agricultural		   Real Estate –
Construction,
Land
Development, &
Other Land
Loans		   Real Estate –
Residential,
Farmland,
and Multi-
family		   Real
Estate –
Home
Equity
Lines of
Credit		   Real Estate –
Commercial
and Other		   Consumer   Unallo-
cated		   Total 
                                         
As of and for the three months ended March 31, 2013
                                         
Beginning balance  $4,687    12,856    14,082    1,884    5,247    1,939    948    41,643 
Charge-offs   (824)   (823)   (797)   (624)   (540)   (528)   (659)   (4,795)
Recoveries   19    593    546    58    789    137    —    2,142 
Provisions   1,067    2,231    1,454    722    218    243    (164)   5,771 
Ending balance  $4,949    14,857    15,285    2,040    5,714    1,791    125    44,761 
                                         
Ending balances as of March 31, 2013:  Allowance for loan losses
                                            
Individually evaluated for impairment  $192    1,085    1,664    1    1,271    2    —    4,215 
                                         
Collectively evaluated for impairment  $4,757    13,772    13,621    2,039    4,443    1,789    125    40,546 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 
                                         
Loans receivable as of March 31, 2013:
                                         
Ending balance – total  $171,721    220,702    838,273    200,136    648,732    51,796    —    2,131,360 
                                         
Ending balances as of March 31, 2013: Loans
                                         
Individually evaluated for impairment  $1,098    7,001    19,725    22    21,375    14    —    49,235 
                                         
Collectively evaluated for impairment  $170,623    213,701    818,548    200,114    627,357    51,782    —    2,082,125 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 
Loans and Asset Quality Information Part II

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2014.

 

($ in thousands)  Covered Loans 
     
As of and for the three months ended March 31, 2014
Beginning balance  $4,242 
Charge-offs   (2,948)
Recoveries   1,917 
Provisions   210 
Ending balance  $3,421 
      
Ending balances as of March 31, 2014:  Allowance for loan losses
 
Individually evaluated for impairment  $629 
Collectively evaluated for impairment   2,792 
Loans acquired with deteriorated credit quality   12 
      
Loans receivable as of March 31, 2014:
      
Ending balance – total  $190,551 
      
Ending balances as of March 31, 2014: Loans
      
Individually evaluated for impairment  $31,547 
Collectively evaluated for impairment   159,004 
Loans acquired with deteriorated credit quality   3,288 

 

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2013.

 

($ in thousands)  Covered Loans 
     
As of and for the year ended December 31, 2013
Beginning balance  $4,759 
Charge-offs   (13,053)
Recoveries   186 
Provisions   12,350 
Ending balance  $4,242 
      
Ending balances as of December 31, 2013:  Allowance for loan losses
 
Individually evaluated for impairment  $3,133 
Collectively evaluated for impairment   1,109 
Loans acquired with deteriorated credit quality   25 
      
Loans receivable as of December 31, 2013:
      
Ending balance – total  $210,309 
      
Ending balances as of December 31, 2013: Loans
      
Individually evaluated for impairment  $46,126 
Collectively evaluated for impairment   164,183 
Loans acquired with deteriorated credit quality   3,142 

 

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2013.

 

($ in thousands)  Covered Loans 
     
As of and for the three months ended March 31, 2013
Beginning balance  $4,759 
Charge-offs   (5,109)
Recoveries   — 
Provisions   5,378 
Ending balance  $5,028 
      
Ending balances as of March 31, 2013:  Allowance for loan losses
 
Individually evaluated for impairment  $3,862 
Collectively evaluated for impairment   1,166 
Loans acquired with deteriorated credit quality   17 
      
Loans receivable as of March 31, 2013:
      
Ending balance – total  $263,468 
      
Ending balances as of March 31, 2013: Loans
      
Individually evaluated for impairment  $61,803 
Collectively evaluated for impairment   201,665 
Loans acquired with deteriorated credit quality   4,726 

 

The following table presents the Company’s impaired loans as of March 31, 2014.

 

($ in thousands)  Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		 
Non-covered loans with no related allowance recorded:                       
Commercial, financial, and agricultural:                    
Commercial - unsecured  $65    65    —    33 
Commercial - secured   332    334    —    166 
Secured by inventory and accounts receivable   —    —    —    — 
                     
Real estate – construction, land development & other land loans   5,848    6,715    —    6,123 
                     
Real estate – residential, farmland, and multi-family   6,884    7,736    —    5,384 
                     
Real estate – home equity lines of credit   499    499    —    250 
                     
Real estate – commercial   8,647    10,485    —    7,986 
                     
Consumer   11    13    —    6 
Total non-covered impaired loans with no allowance  $22,286    25,847    —    19,948 
                     
Total covered impaired loans with no allowance  $26,074    40,664    —    27,566 
                     
Total impaired loans with no allowance recorded  $48,360    66,511    —    47,514 
                     
Non-covered  loans with an allowance recorded:               
Commercial, financial, and agricultural:                    
Commercial - unsecured  $115    116    115    115 
Commercial - secured   581    581    82    487 
Secured by inventory and accounts receivable   —    —    —    38 
                     
Real estate – construction, land development & other land loans   1,563    1,787    466    1,596 
                     
Real estate – residential, farmland, and multi-family   14,226    14,408    2,285    14,727 
                     
Real estate – home equity lines of credit   —    —    —    11 
                     
Real estate – commercial   7,403    7,811    571    8,487 
                     
Consumer   —    —    —    7 
Total non-covered impaired loans with allowance  $23,888    24,703    3,519    25,468 
                     
Total covered impaired loans with allowance  $5,473    6,080    629    11,271 
                     
Total impaired loans with an allowance recorded  $29,361    30,783    4,148    36,739 

 

Interest income recorded on non-covered and covered impaired loans during the three months ended March 31, 2014 is considered insignificant.

The following table presents the Company’s impaired loans as of December 31, 2013.

 

($ in thousands)  Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		 
Non-covered loans with no related allowance recorded:                       
Commercial, financial, and agricultural:                    
Commercial - unsecured  $—    —    —    — 
Commercial - secured   —    —    —    334 
Secured by inventory and accounts receivable   —    —    —    — 
                     
Real estate – construction, land development & other land loans   6,398    6,907    —    5,005 
                     
Real estate – residential, farmland, and multi-family   3,883    4,429    —    2,329 
                     
Real estate – home equity lines of credit   —    —    —    — 
                     
Real estate – commercial   7,324    9,008    —    9,981 
                     
Consumer   —    —    —    — 
Total non-covered impaired loans with no allowance  $17,605    20,344    —    17,649 
                     
Total covered impaired loans with no allowance  $29,058    48,785    —    39,215 
                     
Total impaired loans with no allowance recorded  $46,663    69,129    —    56,864 
                     
Non-covered  loans with an allowance recorded:               
Commercial, financial, and agricultural:                    
Commercial - unsecured  $115    115    63    72 
Commercial - secured   392    394    64    1,081 
Secured by inventory and accounts receivable   75    75    75    80 
                     
Real estate – construction, land development & other land loans   1,629    2,148    544    2,339 
                     
Real estate – residential, farmland, and multi-family   15,228    15,642    1,162    13,417 
                     
Real estate – home equity lines of credit   22    22    1    637 
                     
Real estate – commercial   9,570    10,873    649    5,914 
                     
Consumer   13    35    1    466 
Total non-covered impaired loans with allowance  $27,044    29,304    2,559    24,006 
                     
Total covered impaired loans with allowance  $17,068    22,367    3,133    14,343 
                     
Total impaired loans with an allowance recorded  $44,112    51,671    5,692    38,349 

 

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2013 was insignificant.

 

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

 

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

 

  Numerical Risk Grade Description
Pass:  
  1 Cash secured loans.
  2 Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
  3 Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:  
  4 Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:  
  9 Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:  
  5 Existing loans with major exceptions that cannot be mitigated.
Classified:  
  6 Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
  7 Loans that have a well-defined weakness that make the collection or liquidation improbable.
  8 Loans that are considered uncollectible and are in the process of being charged-off.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2014.

 

($ in thousands)  Credit Quality Indicator (Grouped by Internally Assigned Grade) 
   Pass
(Grades 1, 2,
& 3)		   Weak Pass
(Grade 4)		   Watch or
Standard
Loans
(Grade 9)		   Special
Mention
Loans
(Grade 5)		   Classified
Loans
(Grades
6, 7, & 8)		   Nonaccrual
Loans		   Total 
Non-covered loans:                                   
Commercial, financial, and agricultural:                                   
Commercial - unsecured  $9,173    21,607    7    1,563    2,265    281    34,896 
Commercial - secured   33,729    80,771    98    4,512    5,583    4,037    128,730 
Secured by inventory and accounts receivable   5,306    12,189    —    1,108    1,276    963    20,842 
                                    
Real estate – construction, land development & other land loans   46,739    161,944    2,309    11,135    10,633    8,550    241,310 
                                    
Real estate – residential, farmland, and multi-family   224,433    540,190    5,343    41,802    39,938    18,648    870,354 
                                    
Real estate – home equity lines of credit   122,366    63,737    1,492    5,223    5,744    2,295    200,857 
                                    
Real estate - commercial   122,674    527,655    8,944    28,457    15,894    8,885    712,509 
                                    
Consumer   24,389    19,836    54    663    1,057    470    46,469 
     Total  $588,809    1,427,929    18,247    94,463    82,390    44,129    2,255,967 
Unamortized net deferred loan costs                                 759 
          Total non-covered  loans                                $2,256,726 
                                    
Total covered loans  $18,501    98,742    —    12,209    29,113    31,986    190,551 
                                    
               Total loans  $607,310    1,526,671    18,247    106,672    111,503    76,115    2,447,277 

 

At March 31, 2014, there was an insignificant amount of loans that were graded “8” with an accruing status.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2013.

 

($ in thousands)  Credit Quality Indicator (Grouped by Internally Assigned Grade) 
   Pass
(Grades 1, 2,
& 3)		   Weak Pass
(Grade 4)		   Watch or
Standard
Loans
(Grade 9)		   Special
Mention
Loans
(Grade 5)		   Classified
Loans
(Grades
6, 7, & 8)		   Nonaccrual
Loans		   Total 
Non-covered loans:                                   
Commercial, financial, and agricultural:                                   
Commercial - unsecured  $8,495    24,415    7    1,509    2,367    222    37,015 
Commercial - secured   31,494    77,441    100    5,597    4,986    2,662    122,280 
Secured by inventory and accounts receivable   4,098    12,800    —    2,022    1,711    545    21,176 
                                    
Real estate – construction, land development & other land loans   31,221    181,050    2,365    11,646    10,333    8,055    244,670 
                                    
Real estate – residential, farmland, and multi-family   227,053    540,349    5,062    41,583    37,526    17,814    869,387 
                                    
Real estate – home equity lines of credit   120,205    63,400    1,499    5,699    5,124    2,200    198,127 
                                    
Real estate - commercial   115,397    533,680    10,014    24,557    15,843    10,115    709,606 
                                    
Consumer   25,703    21,790    54    829    995    325    49,696 
     Total  $563,666    1,454,925    19,101    93,442    78,885    41,938    2,251,957 
Unamortized net deferred loan costs                                 928 
          Total non-covered  loans                                $2,252,885 
                                    
Total covered loans  $25,078    92,147    —    8,857    47,010    37,217    210,309 
                                    
               Total loans  $588,744    1,547,072    19,101    102,299    125,895    79,155    2,463,194 

 

At December 31, 2013, there was an insignificant amount of loans that were graded “8” with an accruing status.

 

Troubled Debt Restructurings

 

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

 

The vast majority of the Company’s troubled debt restructurings modified during the periods ended March 31, 2014 and 2013 related to interest rate reductions combined with restructured amortization schedules. The Company does not generally grant principal forgiveness.

 

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

The following table presents information related to loans modified in a troubled debt restructuring during the three months ended March 31, 2014 and 2013.

 

($ in thousands)  For the three months ended March 31, 2014 
   Number of
Contracts		   Pre-Modification
Restructured
Balances		   Post-Modification
Restructured
Balances		 
Non-covered TDRs – Accruing               
Real estate – residential, farmland, and multi-family   1   $266   $266 
                
Non-covered TDRs - Nonaccrual               
Real estate – residential, farmland, and multi-family   2    106    106 
                
Total non-covered TDRs arising during period   3    372    372 
                
Total covered TDRs arising during period– Accruing   —   $—   $— 
Total covered TDRs arising during period – Nonaccrual   5    710    682 
                
Total TDRs arising during period   8   $1,082   $1,054 

 

 

($ in thousands)  For the three months ended March 31, 2013 
   Number of
Contracts		   Pre-Modification
Restructured
Balances		   Post-Modification
Restructured
Balances		 
Non-covered TDRs – Accruing               
Real estate – residential, farmland, and multi-family   6   $508   $508 
Real estate – commercial   1    61    61 
Consumer   1    14    14 
                
Non-covered TDRs - Nonaccrual               
Real estate – residential, farmland, and multi-family   3    209    209 
                
Total non-covered TDRs arising during period   11    792    792 
                
Total covered TDRs arising during period– Accruing   1   $47   $40 
Total covered TDRs arising during period – Nonaccrual   —    —    — 
                
Total TDRs arising during period   12   $839   $832 

 

 

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended March 31, 2014 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

 

($ in thousands)  For the three months ended
March 31, 2014		 
   Number of
Contracts		   Recorded
Investment		 
Non-covered accruing TDRs that subsequently defaulted          
Real estate – construction, land development & other land loans   1   $5 
Real estate – commercial   1    71 
           
Total non-covered TDRs that subsequently defaulted   2   $76 
           
Total accruing covered TDRs that subsequently defaulted   —   $— 
           
      Total accruing TDRs that subsequently defaulted   2   $76 

 

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended March 31, 2013 are presented in the table below.

 

($ in thousands)  For the three months ended
March 31, 2013		 
   Number of
Contracts		   Recorded
Investment		 
Non-covered accruing TDRs that subsequently defaulted          
Real estate – residential, farmland, and multi-family   1   $252 
           
Total non-covered TDRs that subsequently defaulted   1   $252 
           
Total accruing covered TDRs that subsequently defaulted   1   $3,501 
           
      Total accruing TDRs that subsequently defaulted   2   $3,753