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Loans and Asset Quality Information
 6 Months Ended
Jun. 30, 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.”

 

On July 1, 2014, the loss share protection over a substantial portion of First Bank’s covered loans and foreclosed real estate expired. In connection with the expiration of the loss share agreement related to Cooperative Bank’s non-single family assets, the remaining balances associated with these loans and foreclosed real estate were transferred from the covered portfolio to the non-covered portfolio on July 1, 2014. The Company will bear all future losses on this portfolio of loans and foreclosed real estate. At June 30, 2014, these loans and foreclosed properties were classified as covered. At June 30, 2014, the portfolio of loans had a carrying value of $39.7 million and the portfolio of foreclosed real estate had a carrying value of $3.0 million. Of the $39.7 million in loans that are losing loss share protection, approximately $9.7 million of these loans were on nonaccrual status and $2.1 million of these loans were classified as accruing troubled debt restructurings as of June 30, 2014. Additionally, approximately $1.7 million in allowance for loan losses that related to this portfolio of loans were transferred to the allowance for loan losses for non-covered loans on July 1, 2014.

 

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

 

($ in thousands)

  June 30, 2014   December 31, 2013   June 30, 2013 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
All  loans (non-covered and covered):                              
                               
Commercial, financial, and agricultural  $165,021    7%   $168,469    7%   $164,767    7% 
Real estate – construction, land development & other land loans   295,868    12%    305,246    12%    297,390    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   814,712    33%    838,862    34%    832,761    34% 
Real estate – mortgage – home equity loans / lines of credit   227,381    9%    227,907    9%    231,446    10% 
Real estate – mortgage – commercial and other   868,599    36%    855,249    35%    834,554    34% 
Installment loans to individuals   62,153    3%    66,533    3%    68,776    3% 
    Subtotal   2,433,734    100%    2,462,266    100%    2,429,694    100% 
Unamortized net deferred loan costs   651         928         1,168      
    Total loans  $2,434,385        $2,463,194        $2,430,862      

 

As of June 30, 2014, December 31, 2013 and June 30, 2013, net loans include unamortized premiums of $0, $98,000, and $252,000, respectively, related to acquired loans.

 

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

 

($ in thousands)

  June 30, 2014   December 31, 2013   June 30, 2013 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
Non-covered loans:                              
                               
Commercial, financial, and agricultural  $162,303    7%   $164,195    7%   $159,964    7% 
Real estate – construction, land development & other land loans   274,975    12%    273,412    12%    262,397    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   718,962    32%    730,712    32%    712,802    33% 
Real estate – mortgage – home equity loans / lines of credit   213,542    9%    213,016    10%    214,473    10% 
Real estate – mortgage – commercial and other   825,450    37%    804,621    36%    771,711    35% 
Installment loans to individuals   61,647    3%    66,001    3%    68,068    3% 
    Subtotal   2,256,879    100%    2,251,957    100%    2,189,415    100% 
Unamortized net deferred loan costs   651         928         1,168      
    Total non-covered loans  $2,257,530        $2,252,885        $2,190,583      

 

The carrying amount of the covered loans at June 30, 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  $69    129    2,649    3,015    2,718    3,144 
Real estate – construction, land development & other land loans   322    548    20,571    28,878    20,893    29,426 
Real estate – mortgage – residential (1-4 family) first mortgages   429    1,317    95,321    111,278    95,750    112,595 
Real estate – mortgage – home equity loans / lines of credit   13    20    13,826    16,359    13,839    16,379 
Real estate – mortgage – commercial and other   2,050    3,959    41,099    47,359    43,149    51,318 
Installment loans to individuals   —    —    506    507    506    507 
     Total  $2,883    5,973    173,972    207,396    176,855    213,369 

 

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   (36,715)
Transfers to foreclosed real estate   (4,616)
Loan charge-offs   (3,123)
Accretion of loan discount   11,259 
Carrying amount of nonimpaired covered loans at June 30, 2014  $173,972 

 

As reflected in the table above, the Company accreted $11,259,000 of the loan discount on purchased nonimpaired loans into interest income during the first six months of 2014. As of June 30, 2014, there was remaining loan discount of $21,374,000 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 June 30, 2014, the Company also had $4,386,000 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   (487)   84    (571)
Other   197    (115)   312 
Balance at June 30, 2014  $5,973    3,090    2,883 

 

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 six months of 2014 and 2013, the Company received $179,000 and $38,000, 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)

  June 30,
2014		   December 31,
2013		   June 30,
2013		 
             
Non-covered nonperforming assets               
Nonaccrual loans  $47,533   $41,938   $42,338 
Restructured loans - accruing   27,250    27,776    21,333 
Accruing loans > 90 days past due   —    —    — 
     Total non-covered nonperforming loans   74,783    69,714    63,671 
Foreclosed real estate   9,346    12,251    15,425 
Total non-covered nonperforming assets  $84,129   $81,965   $79,096 
                
Covered nonperforming assets               
Nonaccrual loans (1)  $20,938   $37,217   $50,346 
Restructured loans - accruing   8,193    8,909    6,790 
Accruing loans > 90 days past due   —    —    — 
     Total covered nonperforming loans   29,131    46,126    57,136 
Foreclosed real estate   9,934    24,497    32,005 
Total covered nonperforming assets  $39,065   $70,623   $89,141 
                
     Total nonperforming assets  $123,194   $152,588   $168,237 

 

(1) At June 30, 2014, December 31, 2013, and June 30, 2013, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $34.3 million, $60.4 million, and $89.3 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 June 30, 2014.

 

($ in thousands)  Non-covered   Covered   Total 
Commercial, financial, and agricultural:               
Commercial – unsecured  $110    5    115 
Commercial – secured   3,628    277    3,905 
Secured by inventory and accounts receivable   338    —    338 
                
Real estate – construction, land development & other land loans   9,001    5,299    14,300 
                
Real estate – residential, farmland and multi-family   21,168    7,215    28,383 
                
Real estate – home equity lines of credit   2,436    241    2,677 
                
Real estate – commercial   10,297    7,899    18,196 
                
Consumer   555    2    557 
  Total  $47,533    20,938    68,471 

 

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 June 30, 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  $426    7    110    35,534    36,077 
Commercial - secured   1,309    310    3,628    118,854    124,101 
Secured by inventory and accounts receivable   146    64    338    17,944    18,492 
                          
Real estate – construction, land development & other land loans   308    605    9,001    237,455    247,369 
                          
Real estate – residential, farmland, and multi-family   7,867    3,523    21,168    834,617    867,175 
                          
Real estate – home equity lines of credit   1,058    133    2,436    196,883    200,510 
                          
Real estate - commercial   1,758    447    10,297    705,403    717,905 
                          
Consumer   411    139    555    44,145    45,250 
  Total non-covered  $13,283    5,228    47,533    2,190,835    2,256,879 
Unamortized net deferred loan costs                       651 
           Total non-covered loans                      $2,257,530 
                          
Covered loans  $994    1,025    20,938    153,898    176,855 
                          
                Total loans  $14,277    6,253    68,471    2,344,733    2,434,385 

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 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 and six months ended June 30, 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 June 30, 2014
                                 
Beginning balance  $8,889    8,650    12,733    3,662    9,375    1,030    367    44,706 
Charge-offs   (2,041)   (307)   (861)   (397)   (277)   (371)   —    (4,254)
Recoveries   21    73    114    6    26    116    —    356 
Provisions   2,079    (1,002)   (854)   484    88    131    232    1,158 
Ending balance  $8,948    7,414    11,132    3,755    9,212    906    599    41,966 
                                         
                                         
                                         
As of and for the six months ended June 30, 2014
                                         
Beginning balance  $7,432    12,966    15,142    1,838    5,524    1,513    (152)   44,263 
Charge-offs   (2,666)   (1,234)   (1,631)   (503)   (889)   (799)   —    (7,722)
Recoveries   49    309    179    11    121    233    —    902 
Provisions   4,133    (4,627)   (2,558)   2,409    4,456    (41)   751    4,523 
Ending balance  $8,948    7,414    11,132    3,755    9,212    906    599    41,966 
                                         
Ending balances as of June 30, 2014:  Allowance for loan losses
                                         
Individually evaluated for impairment  $290    818    2,016    —    528    —    —    3,652 
                                         
Collectively evaluated for impairment  $8,658    6,596    9,116    3,755    8,684    906    599    38,314 
                                         
Loans acquired with deteriorated credit quality  $—    —    —    —    —    —    —    — 
                                         
Loans receivable as of June 30, 2014:                                        
                                         
Ending balance – total  $178,670    247,369    867,175    200,510    717,905    45,250    —    2,256,879 
                                         
Ending balances as of June 30, 2014: Loans
                                         
Individually evaluated for impairment  $679    7,541    22,505    483    17,009    10    —    48,227 
                                         
Collectively evaluated for impairment  $177,991    239,828    844,670    200,027    700,896    45,240    —    2,208,652 
                                         
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  $—    —    —    —    —    —    —    — 
Loans and Asset Quality Information Part II

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 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 June 30, 2013
                                                                 
Beginning balance   $ 4,949       14,857       15,285       2,040       5,714       1,791       125       44,761  
Charge-offs     (560 )     (394 )     (858 )     (265 )     (1,907 )     (562 )     —       (4,546 )
Recoveries     214       24       117       4       93       106       —       558  
Provisions     1,357       106       417       282       1,339       368       174       4,043  
Ending balance   $ 5,960       14,593       14,961       2,061       5,239       1,703       299       44,816  
                                                                 
As of and for the six months ended June 30, 2013
                                                                 
Beginning balance   $ 4,687       12,856       14,082       1,884       5,247       1,939       948       41,643  
Charge-offs     (1,384 )     (1,217 )     (1,655 )     (889 )     (2,447 )     (1,090 )     (659 )     (9,341 )
Recoveries     233       617       663       62       882       243       —       2,700  
Provisions     2,424       2,337       1,871       1,004       1,557       611       10       9,814  
Ending balance   $ 5,960       14,593       14,961       2,061       5,239       1,703       299       44,816  
                                                                 
Ending balances as of June 30, 2013:  Allowance for loan losses
                                                         
Individually evaluated for impairment   $ 902       480       1,373       1       781       1       —       3,538  
                                                                 
Collectively evaluated for impairment   $ 5,058       14,113       13,588       2,060       4,458       1,702       299       41,278  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable as of June 30, 2013:
                                                                 
Ending balance – total   $ 176,662       232,352       850,060       198,281       680,607       51,453       —       2,189,415  
                                                                 
Ending balances as of June 30, 2013: Loans
                                                                 
Individually evaluated for impairment   $ 1,920       7,596       19,080       22       17,585       14       —       46,217  
                                                                 
Collectively evaluated for impairment   $ 174,742       224,756       830,980       198,259       663,022       51,439       —       2,143,198  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  

 

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2014.

 

($ in thousands)   Covered Loans  
       
As of and for the three months ended June 30, 2014
Beginning balance   $ 3,421  
Charge-offs     (2,722 )
Recoveries     630  
Provisions     2,501  
Ending balance   $ 3,830  
         
As of and for the six months ended June 30, 2014
Beginning balance   $ 4,242  
Charge-offs     (5,670 )
Recoveries     2,547  
Provisions     2,711  
Ending balance   $ 3,830  
 
Ending balances as of June 30, 2014: Allowance for loan losses
 
Individually evaluated for impairment   $ 1,340  
Collectively evaluated for impairment     2,490  
Loans acquired with deteriorated credit quality     46  
         
Loans receivable as of June 30, 2014:
         
Ending balance – total   $ 176,855  
         
Ending balances as of June 30, 2014: Loans
         
Individually evaluated for impairment   $ 23,336  
Collectively evaluated for impairment     153,519  
Loans acquired with deteriorated credit quality     2,883  

 

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 and six months ended June 30, 2013.

 

($ in thousands)   Covered Loans  
       
As of and for the three months ended June 30, 2013
Beginning balance   $ 5,028  
Charge-offs     (541 )
Recoveries     —  
Provisions     1,548  
Ending balance   $ 6,035  
         
As of and for the six months ended June 30, 2013
Beginning balance   $ 4,759  
Charge-offs     (5,650 )
Recoveries     —  
Provisions     6,926  
Ending balance   $ 6,035  
 
Ending balances as of June 30, 2013: Allowance for loan losses
 
Individually evaluated for impairment   $ 4,700  
Collectively evaluated for impairment     1,335  
Loans acquired with deteriorated credit quality     17  
         
Loans receivable as of June 30, 2013:
         
Ending balance – total   $ 240,279  
         
Ending balances as of June 30, 2013: Loans
         
Individually evaluated for impairment   $ 57,136  
Collectively evaluated for impairment     183,143  
Loans acquired with deteriorated credit quality     3,340  

 

The following table presents the Company’s impaired loans as of June 30, 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   $ —       —       —       22  
Commercial - secured     71       74       —       134  
Secured by inventory and accounts receivable     —       —       —       —  
                                 
Real estate – construction, land development & other land loans     5,617       6,116       —       5,954  
                                 
Real estate – residential, farmland, and multi-family     8,646       9,665       —       6,471  
                                 
Real estate – home equity lines of credit     483       498       —       327  
                                 
Real estate – commercial     9,514       11,453       —       8,495  
                                 
Consumer     10       12       —       7  
Total non-covered impaired loans with no allowance   $ 24,341       27,818       —       21,410  
                                 
Total covered impaired loans with no allowance   $ 14,444       25,495       —       23,192  
                                 
Total impaired loans with no allowance recorded   $ 38,785       53,313       —       44,602  
                                 
Non-covered  loans with an allowance recorded:                        
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ 99       100       80       110  
Commercial - secured     509       509       210       494  
Secured by inventory and accounts receivable     —       —       —       25  
                                 
Real estate – construction, land development & other land loans     1,924       1,987       818       1,705  
                                 
Real estate – residential, farmland, and multi-family     13,859       13,969       2,016       14,438  
                                 
Real estate – home equity lines of credit     —       —       —       7  
                                 
Real estate – commercial     7,495       7,588       528       8,156  
                                 
Consumer     —       —       —       4  
Total non-covered impaired loans with allowance   $ 23,886       24,153       3,652       24,939  
                                 
Total covered impaired loans with allowance   $ 8,892       10,106       1,340       10,478  
                                 
Total impaired loans with an allowance recorded   $ 32,778       34,259       4,992       35,417  

 

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 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 June 30, 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   $ 11,722       20,737       7       1,435       2,066       110       36,077  
Commercial - secured     34,642       76,763       93       4,403       4,572       3,628       124,101  
Secured by inventory and accounts receivable     5,863       9,912       —       1,346       1,033       338       18,492  
                                                         
Real estate – construction, land development & other land loans     65,376       149,982       2,118       11,174       9,718       9,001       247,369  
                                                         
Real estate – residential, farmland, and multi-family     222,681       536,597       5,038       45,084       36,607       21,168       867,175  
                                                         
Real estate – home equity lines of credit     122,853       64,446       1,293       4,030       5,452       2,436       200,510  
                                                         
Real estate - commercial     138,088       517,412       8,743       28,269       15,096       10,297       717,905  
                                                         
Consumer     24,700       18,404       54       684       853       555       45,250  
  Total   $ 625,925       1,394,253       17,346       96,425       75,397       47,533       2,256,879  
Unamortized net deferred loan costs                                                     651  
          Total non-covered  loans                                                   $ 2,257,530  
                                                         
Total covered loans   $ 17,850       96,435       82       12,888       28,662       20,938       176,855  
                                                         
               Total loans   $ 643,775       1,490,688       17,428       109,313       104,059       68,471       2,434,385  

 

At June 30, 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 June 30, 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 and six months ended June 30, 2014.

 

($ in thousands)   For the three months ended June 30, 2014  
    Number of
Contracts		     Pre-Modification
Restructured
Balances		     Post-Modification
Restructured
Balances		  
Non-covered TDRs – Accruing                        
Real estate – residential, farmland, and multi-family     5     $ 411     $ 411  
                         
Non-covered TDRs - Nonaccrual                        
Real estate – residential, farmland, and multi-family     2       332       332  
                         
Total non-covered TDRs arising during period     7       743       743  
                         
Total covered TDRs arising during period– Accruing     2     $ 248     $ 245  
Total covered TDRs arising during period – Nonaccrual     —       —       —  
                         
Total TDRs arising during period     9     $ 991     $ 988  

 

 

($ in thousands)   For the six months ended June 30, 2014  
    Number of
Contracts		     Pre-Modification
Restructured
Balances		     Post-Modification
Restructured
Balances		  
Non-covered TDRs – Accruing                        
Real estate – residential, farmland, and multi-family     6     $ 677     $ 677  
                         
Non-covered TDRs - Nonaccrual                        
Real estate – residential, farmland, and multi-family     4       438       438  
                         
Total non-covered TDRs arising during period     10       1,115       1,115  
                         
Total covered TDRs arising during period– Accruing     2     $ 248     $ 245  
Total covered TDRs arising during period – Nonaccrual     5       710       682  
                         
Total TDRs arising during period     17     $ 2,073     $ 2,042  

 

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2013.

 

($ in thousands)   For the three months ended June 30, 2013  
    Number of
Contracts		     Pre-Modification
Restructured
Balances		     Post-Modification
Restructured
Balances		  
Non-covered TDRs – Accruing                        
Real estate – residential, farmland, and multi-family     3     $ 574     $ 576  
Real estate – commercial     1       103       103  
                         
Non-covered TDRs – Nonaccrual     —       —       —  
                         
Total non-covered TDRs arising during period     4       677       679  
                         
Total covered TDRs arising during period– Accruing     3     $ 312     $ 311  
Total covered TDRs arising during period – Nonaccrual     —       —       —  
                         
Total TDRs arising during period     7     $ 989     $ 990  

 

 

($ in thousands)   For the six months ended June 30, 2013  
    Number of
Contracts		     Pre-Modification
Restructured
Balances		     Post-Modification
Restructured
Balances		  
Non-covered TDRs – Accruing                        
Real estate – residential, farmland, and multi-family     9     $ 1,082     $ 1,084  
Real estate – commercial     3       634       634  
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     16       1,939       1,941  
                         
Total covered TDRs arising during period– Accruing     4     $ 359     $ 351  
Total covered TDRs arising during period – Nonaccrual     —       —       —  
                         
Total TDRs arising during period     20     $ 2,298     $ 2,292  

 

 

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three and six months ended June 30, 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
June 30, 2014		     For the six months ended
June 30, 2014		  
    Number of
Contracts		     Recorded
Investment		     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 and six months ended June 30, 2013 are presented in the table below.

 

($ in thousands)   For the three months ended
June 30, 2013		     For the six months ended
June 30, 2013		  
    Number of
Contracts		     Recorded
Investment		     Number of
Contracts		     Recorded
Investment		  
Non-covered accruing TDRs that subsequently defaulted                                
Real estate – construction, land development & other land loans     1     $ 342       1     $ 342  
Real estate – residential, farmland, and multi-family     —       —       1       252  
                                 
Total non-covered TDRs that subsequently defaulted     1     $ 342       2     $ 594  
                                 
Total accruing covered TDRs that subsequently defaulted     —     $ —       1     $ 3,501  
                                 
      Total accruing TDRs that subsequently defaulted     1     $ 342       3     $ 4,095