10-Q 1 form10q-16327_fbnc.htm 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

 

 

Commission File Number 0-15572

 

                           FIRST BANCORP                           

(Exact Name of Registrant as Specified in its Charter)

 

North Carolina   56-1421916
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)
     
300 SW Broad St., Southern Pines, North Carolina   28387
(Address of Principal Executive Offices)   (Zip Code)
     
(Registrant's telephone number, including area code)   (910)   246-2500

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x YES          o NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   x YES           o NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

o Large Accelerated Filer           x Accelerated Filer           o Non-Accelerated Filer           o Smaller Reporting Company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o YES           x NO

 

The number of shares of the registrant's Common Stock outstanding on July 31, 2016 was 20,087,942.

 

 

 

 

 

INDEX

FIRST BANCORP AND SUBSIDIARIES

 

 

  Page
   
Part I.  Financial Information  
   
Item 1 - Financial Statements  
   
Consolidated Balance Sheets - June 30, 2016 and June 30, 2015 (With Comparative Amounts at December 31, 2015) 4
   
Consolidated Statements of Income - For the Periods Ended June 30, 2016 and 2015 5
   
Consolidated Statements of Comprehensive Income - For the Periods Ended June 30, 2016 and 2015 6
   
Consolidated Statements of Shareholders’ Equity - For the Periods Ended June 30, 2016 and 2015 7
   
Consolidated Statements of Cash Flows -  For the Periods Ended June 30, 2016 and 2015 8
   
Notes to Consolidated Financial Statements 9
   
Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition 42
   
Item 3 – Quantitative and Qualitative Disclosures About Market Risk 66
   
Item 4 – Controls and Procedures 68
   
Part II.  Other Information  
   
Item 1 – Legal Proceedings 68
   
Item 1A – Risk Factors 68
   
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 68
   
Item 6 – Exhibits 69
   
Signatures 71

 

Page 2 

FORWARD-LOOKING STATEMENTS

 

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Further, forward-looking statements are intended to speak only as of the date made. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 2015 Annual Report on Form 10-K.

Page 3 

 

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets

 

($ in thousands-unaudited)  June 30,
2016
   December 31,
2015 (audited)
   June 30,
2015
 
ASSETS               
Cash and due from banks, noninterest-bearing  $58,956    53,285    75,151 
Due from banks, interest-bearing   189,404    213,426    102,567 
Federal funds sold   143    557    674 
     Total cash and cash equivalents   248,503    267,268    178,392 
                
Securities available for sale   219,762    165,614    214,450 
Securities held to maturity (fair values of $146,099, $157,146, and $167,759)   142,073    154,610    165,245 
                
Presold mortgages in process of settlement   4,104    4,323    4,934 
                
Loans – non-covered   2,519,747    2,416,285    2,298,955 
Loans – covered by FDIC loss share agreement   78,387    102,641    113,824 
   Total loans   2,598,134    2,518,926    2,412,779 
Allowance for loan losses – non-covered   (24,949)   (26,784)   (30,155)
Allowance for loan losses – covered   (1,074)   (1,799)   (1,935)
   Total allowance for loan losses   (26,023)   (28,583)   (32,090)
   Net loans   2,572,111    2,490,343    2,380,689 
                
Premises and equipment   76,991    74,559    75,087 
Accrued interest receivable   9,152    9,166    9,134 
FDIC indemnification asset   5,157    8,439    11,982 
Goodwill   73,541    65,835    65,835 
Other intangible assets   3,612    1,336    1,697 
Foreclosed real estate – non-covered   10,221    9,188    9,954 
Foreclosed real estate – covered   385    806    1,945 
Bank-owned life insurance   73,098    72,086    56,175 
Other assets   27,836    38,492    36,000 
        Total assets  $3,466,546    3,362,065    3,211,519 
                
LIABILITIES               
Deposits:   Noninterest bearing checking accounts  $709,887    659,038    614,619 
Interest bearing checking accounts   636,316    626,878    553,918 
Money market accounts   639,849    639,189    578,405 
Savings accounts   197,445    186,616    184,786 
Time deposits of $100,000 or more   412,564    403,545    398,348 
Other time deposits   275,959    296,019    323,051 
     Total deposits   2,872,020    2,811,285    2,653,127 
Borrowings   206,394    186,394    176,394 
Accrued interest payable   586    585    625 
Other liabilities   25,932    21,611    15,984 
     Total liabilities   3,104,932    3,019,875    2,846,130 
                
Commitments and contingencies               
                
SHAREHOLDERS’ EQUITY               
Preferred stock, no par value per share.  Authorized: 5,000,000 shares               
     Series B issued & outstanding:  None, None, and 31,500 shares           31,500 
     Series C, convertible, issued & outstanding:  728,706, 728,706, and 728,706 shares   7,287    7,287    7,287 
Common stock, no par value per share.  Authorized: 40,000,000 shares               
     Issued & outstanding:  20,087,942, 19,747,509, and 19,780,017 shares   139,832    133,393    133,061 
Retained earnings   216,223    205,060    194,600 
Accumulated other comprehensive income (loss)   (1,728)   (3,550)   (1,059)
     Total shareholders’ equity   361,614    342,190    365,389 
          Total liabilities and shareholders’ equity  $3,466,546    3,362,065    3,211,519 

 

See accompanying notes to consolidated financial statements.

Page 4 

 

First Bancorp and Subsidiaries

Consolidated Statements of Income

 

($ in thousands, except share data-unaudited)  Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2016   2015   2016   2015 
INTEREST INCOME                    
Interest and fees on loans  $30,809    28,953    60,382    58,394 
Interest on investment securities:                    
     Taxable interest income   1,961    1,664    3,784    3,023 
     Tax-exempt interest income   432    457    877    920 
Other, principally overnight investments   177    186    399    381 
     Total interest income   33,379    31,260    65,442    62,718 
                     
INTEREST EXPENSE                    
Savings, checking and money market accounts   409    281    803    550 
Time deposits of $100,000 or more   622    732    1,274    1,579 
Other time deposits   255    327    529    669 
Borrowings   555    315    1,103    612 
     Total interest expense   1,841    1,655    3,709    3,410 
                     
Net interest income   31,538    29,605    61,733    59,308 
Provision for loan losses – non-covered   489    1,001    2,109    1,105 
Provision (reversal) for loan losses – covered   (770)   (160)   (2,132)   (428)
Total provision (reversal) for loan losses   (281)   841    (23)   677 
Net interest income after provision (reversal) for loan losses   31,819    28,764    61,756    58,631 
                     
NONINTEREST INCOME                    
Service charges on deposit accounts   2,565    2,881    5,250    5,773 
Other service charges, commissions and fees   3,043    2,771    5,873    5,313 
Fees from presold mortgage loans   410    731    781    1,539 
Commissions from sales of insurance and financial products   937    665    1,875    1,226 
SBA consulting fees   720        720     
Bank-owned life insurance income   504    383    1,012    754 
Foreclosed property gains (losses) – non-covered   (556)   (580)   (793)   (1,075)
Foreclosed property gains (losses) – covered   423    254    870    492 
FDIC indemnification asset income (expense), net   (2,178)   (1,828)   (4,544)   (4,220)
Securities gains           3     
Other gains (losses)   51    (273)   (126)   (269)
     Total noninterest income   5,919    5,004    10,921    9,533 
                     
NONINTEREST EXPENSES                    
Salaries   12,560    11,581    24,035    23,078 
Employee benefits   2,578    2,298    5,284    4,481 
   Total personnel expense   15,138    13,879    29,319    27,559 
Net occupancy expense   1,843    1,812    3,786    3,681 
Equipment related expenses   919    949    1,789    1,905 
Merger and acquisition expenses   485        686     
Intangibles amortization   261    180    447    360 
Other operating expenses   7,501    7,480    14,893    14,509 
     Total noninterest expenses   26,147    24,300    50,920    48,014 
                     
Income before income taxes   11,591    9,468    21,757    20,150 
Income tax expense   3,952    3,224    7,281    6,918 
                     
Net income   7,639    6,244    14,476    13,232 
                     
Preferred stock dividends   (59)   (212)   (117)   (429)
                     
Net income available to common shareholders  $7,580    6,032    14,359    12,803 
                     
Earnings per common share:                    
     Basic  $0.38    0.30    0.72    0.65 
     Diluted   0.37    0.30    0.70    0.63 
                     
Dividends declared per common share  $0.08    0.08    0.16    0.16 
                     
Weighted average common shares outstanding:                    
     Basic   19,921,413    19,778,640    19,852,580    19,750,316 
     Diluted   20,693,644    20,508,955    20,627,012    20,481,466 

 

See accompanying notes to consolidated financial statements.

Page 5 

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

 

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
($ in thousands-unaudited)  2016   2015   2016   2015 
                 
Net income  $7,639    6,244    14,476    13,232 
Other comprehensive income (loss):                    
   Unrealized gains (losses) on securities available for sale:                    
Unrealized holding gains (losses) arising during the period, pretax   2,071    (990)   2,888    (743)
      Tax (expense) benefit   (807)   386    (1,126)   291 
Reclassification to realized gains           (3)    
      Tax expense           1     
Postretirement Plans:                    
Amortization of unrecognized net actuarial (gain) loss   51    (16)   102    (47)
       Tax expense (benefit)   (20)   6    (40)   18 
Other comprehensive income (loss)   1,295    (614)   1,822    (481)
                     
Comprehensive income  $8,934    5,630    16,298    12,751 
                     

 

See accompanying notes to consolidated financial statements.

Page 6 

 

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

 

 

 

 

(In thousands, except per share - unaudited)

  Preferred   Common Stock   Retained   Accumulated
Other
Comprehensive
   Total
Share-
holders’
 
   Stock   Shares   Amount   Earnings   Income (Loss)   Equity 
                         
Balances, January 1, 2015  $70,787    19,710   $132,532    184,958    (578)   387,699 
                               
Net income                  13,232         13,232 
Preferred stock redeemed (Series B)   (32,000)                       (32,000)
Stock option exercises        2    32              32 
Cash dividends declared ($0.16 per common share)                  (3,161)        (3,161)
Preferred dividends                  (429)        (429)
Stock-based compensation        68    497              497 
Other comprehensive income (loss)                       (481)   (481)
                               
Balances, June 30, 2015  $38,787    19,780   $133,061    194,600    (1,059)   365,389 
                               
                               
Balances, January 1, 2016  $7,287    19,748   $133,393    205,060    (3,550)   342,190 
                               
Net income                  14,476         14,476 
Cash dividends declared ($0.16 per common share)                  (3,196)        (3,196)
Preferred dividends                  (117)        (117)
Equity issued pursuant to acquisitions        279    5,509              5,509 
Stock option exercises        23    375              375 
Stock-based compensation        38    555              555 
Other comprehensive income (loss)                       1,822    1,822 
                               
Balances, June 30, 2016  $7,287    20,088   $139,832    216,223    (1,728)   361,614 

 

See accompanying notes to consolidated financial statements.

 

Page 7 

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

 

   Six Months Ended
June 30,
 
($ in thousands-unaudited)  2016   2015 
Cash Flows From Operating Activities          
Net income  $14,476    13,232 
Reconciliation of net income  to net cash provided by operating activities:          
     Provision (reversal) for loan losses   (23)   677 
     Net security premium amortization   1,523    1,612 
     Purchase accounting accretion and amortization, net   1,289    983 
     Foreclosed property losses and write-downs (gains), net   (77)   583 
     Gain on securities available for sale   (3)    
     Other losses (gains)   126    269 
     Decrease (increase) in net deferred loan costs   (201)   127 
     Depreciation of premises and equipment   2,244    2,255 
     Stock-based compensation expense   380    404 
     Amortization of intangible assets   447    360 
     Origination of presold mortgages in process of settlement   (32,046)   (56,744)
     Proceeds from sales of presold mortgages in process of settlement   32,300    57,759 
     Decrease (increase) in accrued interest receivable   14    (214)
     Decrease (increase) in other assets   11,116    (2,193)
     Increase (decrease) in accrued interest payable   1    (61)
     Decrease in other liabilities   (651)   (1,595)
          Net cash provided by operating activities   30,915    17,454 
           
Cash Flows From Investing Activities          
     Purchases of securities available for sale   (99,896)   (83,313)
     Purchases of securities held to maturity       (2,003)
     Proceeds from maturities/issuer calls of securities available for sale   47,846    25,515 
     Proceeds from maturities/issuer calls of securities held to maturity   11,796    14,458 
     Proceeds from sales of securities available for sale   8     
     Proceeds (purchases) of Federal Reserve and Federal Home Loan Bank stock, net   (988)   (9,582)
     Net increase in loans   (82,723)   (27,549)
     Proceeds (payments) related to FDIC loss share agreements   (738)   6,912 
     Proceeds from sales of foreclosed real estate   3,375    3,935 
     Purchases of premises and equipment   (3,695)   (2,956)
     Proceeds from sales of premises and equipment   21    847 
     Net cash paid in acquisition   (2,519)    
          Net cash used by investing activities   (127,513)   (73,736)
           
Cash Flows From Financing Activities          
     Net increase (decrease) in deposits   60,735    (42,779)
     Net increase in borrowings   20,000    60,000 
     Cash dividends paid – common stock   (3,160)   (3,154)
     Cash dividends paid – preferred stock   (117)   (509)
     Redemption of preferred stock       (32,000)
     Proceeds from stock option exercises   375    32 
          Net cash provided (used) by financing activities   77,833    (18,410)
           
Decrease in cash and cash equivalents   (18,765)   (74,692)
Cash and cash equivalents, beginning of period   267,268    253,084 
           
Cash and cash equivalents, end of period  $248,503    178,392 
           
Supplemental Disclosures of Cash Flow Information:          
Cash paid (received) during the period for:          
     Interest  $3,708    3,471 
     Income taxes   (933)   9,093 
Non-cash transactions:          
     Unrealized gain (loss) on securities available for sale, net of taxes   1,760    (452)
     Foreclosed loans transferred to other real estate   3,910    4,296 

 

See accompanying notes to consolidated financial statements.

Page 8 

 

First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

 

 

(unaudited) For the Periods Ended June 30, 2016 and 2015  

 

Note 1 - Basis of Presentation

 

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of June 30, 2016 and 2015 and the consolidated results of operations and consolidated cash flows for the periods ended June 30, 2016 and 2015. All such adjustments were of a normal, recurring nature. Reference is made to the 2015 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended June 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

 

Note 2 – Accounting Policies

 

Note 1 to the 2015 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.

 

In June 2014, the Financial Accounting Standards Board (“FASB”) issued guidance which clarifies that performance targets associated with stock compensation should be treated as a performance condition and should not be reflected in the grant date fair value of the stock award. The amendments were effective for the Company on January 1, 2016. The Company will apply the guidance to all stock awards granted or modified after January 1, 2016. The Company’s adoption of these amendments did not have a material effect on its financial statements.

 

In January 2015, the FASB issued guidance to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments were effective for the Company on January 1, 2016, and did not have a material effect on its financial statements.

 

In February 2015, the FASB issued guidance which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. The amendments were expected to result in the deconsolidation of many entities. The amendments were effective for the Company on January 1, 2016. The adoption of these amendments did not have a material effect on the Company’s financial statements.

 

In April 2015, the FASB issued guidance that will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This update affects disclosures related to debt issuance costs but does not affect existing recognition and measurement guidance for these items. The amendments were effective for the Company on January 1, 2016. The Company’s adoption of these amendments did not have a material effect on its financial statements.

 

In April 2015, the FASB issued guidance which provides a practical expedient that permits the Company to measure defined benefit plan assets and obligations using the month-end that is closest to the Company’s fiscal year-end. The amendments were effective for the Company on January 1, 2016. The Company’s adoption of these amendments did not have a material effect on its financial statements.

 

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification, correct unintended application of guidance, and make minor improvements that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that were subject to transition guidance were effective for the Company on January 1, 2016. The adoption of this guidance did not have a material effect on the Company’s financial statements.

 

Page 9 

In September 2015, the FASB amended the Business Combinations topic of the Accounting Standards Codification to simplify the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted for financial statements that have not been issued. All entities are required to apply the amendments prospectively to adjustments to provisional amounts that occur after the effective date. The amendment was effective for the Company on January 1, 2016 and these amendments did not have a material effect on its financial statements.

 

In February 2016, the FASB issued new guidance on accounting for leases, which generally requires all leases to be recognized in the statement of financial position. The provisions of this guidance are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. These provisions are to be applied using a modified retrospective approach. The Company is evaluating the effect that this new guidance will have on our consolidated financial statements, but does not expect it will have a material effect on its financial statements.

 

In March 2016, the FASB amended the Liabilities topic of the Accounting Standards Codification to address the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. The amendments will be effective for financial statements issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective to each period presented. The Company does not expect these amendments to have a material effect on its financial statements.

 

In March 2016, the FASB amended the Investments—Equity Method and Joint Ventures topic of the Accounting Standards Codification to eliminate the requirement to retroactively adopt the equity method of accounting. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company will apply the guidance prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The Company does not expect these amendments to have a material effect on its financial statements

 

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not expect these amendments to have a material effect on its financial statements.

 

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

 

Page 10 

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

Note 3 – Reclassifications

 

Certain amounts reported in the period ended June 30, 2015 have been reclassified to conform to the presentation for June 30, 2016. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.

 

Note 4 – Equity-Based Compensation Plans

 

The Company recorded total stock-based compensation expense of $258,000 and $277,000 for the three months ended June 30, 2016 and 2015, respectively, and $380,000 and $404,000 for the six months ended June 30, 2016 and 2015, respectively. Of the $380,000 in expense that was recorded in 2016, approximately $129,000 related to the June 1, 2016 director grants, which is classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $251,000 in expense relates to the employee grants discussed below and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized $148,000 and $157,500 of income tax benefits related to stock based compensation expense in the income statement for the six months ended June 30, 2016 and 2015, respectively.

 

At June 30, 2016, the Company had the following equity-based compensation plans: the First Bancorp 2014 Equity Plan, the First Bancorp 2007 Equity Plan, and the First Bancorp 2004 Stock Option Plan. The Company’s shareholders approved all equity-based compensation plans. The First Bancorp 2014 Equity Plan became effective upon the approval of shareholders on May 8, 2014. As of June 30, 2016, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were 881,797 shares remaining available for grant.

 

The First Bancorp 2014 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2014 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

 

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. The Company issues new shares of common stock when options are exercised.

 

Certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all awards granted without performance conditions will become vested.

 

As it relates to director equity grants, the Company grants common shares, valued at approximately $16,000 to each non-employee director (currently eight in total) in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions. On June 1, 2016, the Company granted 6,584 shares of common stock to non-employee directors (823 shares per director), at a fair market value of $19.56 per share, which was the closing price of the Company’s common stock on that date. On June 1, 2015, the Company granted 8,176 shares of common stock to non-employee directors (1,022 shares per director), at a fair market value of $15.75 per share, which was the closing price of the Company’s common stock on that date.

 

Page 11 

Based on the Company’s performance in 2013, the Company granted long-term 15,657 restricted shares of common stock to the chief executive officer on February 11, 2014 with a two-year vesting period. The total compensation expense associated with the grant was $278,200. The Company recorded $46,000 in compensation expense related to this grant during the six months ended June 30, 2015.

 

In 2014, the Company’s Compensation Committee determined that seven of the Company’s senior officers would receive their annual bonus earned under the Company’s annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. Previously, awards under this plan were paid solely in cash. Accordingly, in February 2015 and February 2016, a total of 40,914 shares of restricted stock were granted related to performance in the preceding fiscal year. Total compensation expense associated with those grants was $742,000 and is being recognized over the vesting period. For the three and six months ended June 30, 2016, total compensation expense related to these grants was $55,000 and $111,000, respectively compared to $67,000 and $134,000 for the three and six months ended June 30, 2015, respectively.

 

In 2015 and 2016, the Compensation Committee also granted 56,002 shares of stock to various employees of the Company to promote retention. The total value associated with these grants amounted to $976,000, which is being recorded as expense over their three year vesting periods. For the three and six months ended June 30, 2016, total compensation expense related to these grants was $69,000 and $139,000, respectively compared to $101,000 and $182,000 for the three and six months ended June 30, 2015, respectively.

 

Based on the vesting schedules of the shares of restricted stock currently outstanding, the Company expects to record $255,000 in stock-based compensation expense over the remainder of 2016.

 

Under the terms of the predecessor plans and the First Bancorp 2014 Equity Plan, stock options can have a term of no longer than ten years. In a change in control (as defined in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

 

At June 30, 2016, there were 59,948 stock options outstanding related to the three First Bancorp plans, with exercise prices ranging from $14.35 to $21.80.

 

The following table presents information regarding the activity for the first six months of 2016 related to the Company’s stock options outstanding:

 

   Options Outstanding 
   Number of
Shares
   Weighted-
Average
Exercise
Price
   Weighted-
Average
Contractual
Term (years)
   Aggregate
Intrinsic
Value
 
                 
Balance at January 1, 2016   117,408   $18.12           
                     
   Granted                  
   Exercised   (23,710)   15.84        $81,894 
   Forfeited                  
   Expired   (33,750)   21.39           
                     
Outstanding at June 30, 2016   59,948   $17.18    1.9   $57,084 
                     
Exercisable at June 30, 2016   59,948   $17.18    1.9   $57,084 

 

During the three and six months ended June 30, 2016, the Company received $248,000 and $375,000, respectively, as a result of stock option exercises and recorded insignificant tax benefits from the exercise of nonqualified options during the period. During the three and six months ended June 30, 2015, the Company received $32,000 as a result of stock option exercises.

Page 12 

 

The following table presents information regarding the activity for the first six months of 2016 related to the Company’s outstanding restricted stock:

 

   Long-Term Restricted Stock 
   Number of Units   Weighted-Average
Grant-Date Fair Value
 
         
Nonvested at January 1, 2016   55,329   $17.31 
           
Granted during the period   31,298    18.65 
Vested during the period   (5,219)   17.77 
Forfeited or expired during the period        
           
Nonvested at June 30, 2016   81,408   $17.80 

 

 

Note 5 – Earnings Per Common Share

 

Basic Earnings Per Common Share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, with nonvested restricted stock excluded from the calculation. Diluted Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. The Company’s potentially dilutive common stock issuances relate to grants of stock options and nonvested restricted stock under the Company’s equity-based compensation plans and the Company’s Series C Preferred Stock, which is convertible into common stock on a one-for-one ratio.

 

In computing Diluted Earnings Per Common Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows. As it relates to stock options, it is assumed that all dilutive stock options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used by the Company to buy back stock in the open market at the average market price in effect during the reporting period. The difference between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive securities. As it relates to nonvested restricted stock, cash equal to the average amount of compensation cost attributable to future services and not yet recognized as expense is assumed to be used by the Company to buy back stock in the open market and are deducted from the total number of nonvested restricted stock that is included in the denominator of the calculation. As it relates to the Series C Preferred Stock, it is assumed that the preferred stock was converted to common stock during the reporting period. Dividends on the preferred stock are added back to net income and the shares assumed to be converted are included in the number of shares outstanding.

 

If any of the potentially dilutive common stock issuances have an anti-dilutive effect, the potentially dilutive common stock issuance is disregarded.

 

The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share:

 

   For the Three Months Ended June 30, 
   2016   2015 
($ in thousands except per share amounts)  Income
(Numer-
ator)
   Shares
(Denom-
inator)
   Per Share
Amount
   Income
(Numer-
ator)
   Shares
(Denom-
inator)
   Per Share
Amount
 
                         
Basic EPS                              
Net income available to common shareholders  $7,580    19,921,413   $0.38   $6,032    19,778,640   $0.30 
                               
Effect of Dilutive Securities   59    772,231         58    730,315      
                               
Diluted EPS per common share  $7,639    20,693,644   $0.37   $6,090    20,508,955   $0.30 

Page 13 

 

   For the Six Months Ended June 30, 
   2016   2015 
($ in thousands except per share amounts)  Income
(Numer-
ator)
   Shares
(Denom-
inator)
   Per Share
Amount
   Income
(Numer- ator)
   Shares
(Denom-
inator)
   Per Share
Amount
 
                         
Basic EPS                              
Net income available to
common shareholders
  $14,359    19,852,580   $0.72   $12,803    19,750,316   $0.65 
                               
Effect of Dilutive Securities   117    774,432         117    731,150      
                               
Diluted EPS per common share  $14,476    20,627,012   $0.70   $12,920    20,481,466   $0.63 

 

For both the three and six months ended June 30, 2016, there were 16,250 options that were antidilutive because the exercise price exceeded the average market price for the period, and thus are not included in the calculation to determine the effect of dilutive securities. For the three and six months ended June 30, 2015, there were 108,214 options and 52,500 options, respectively, that were antidilutive.

 

Note 6 – Securities

 

The book values and approximate fair values of investment securities at June 30, 2016 and December 31, 2015 are summarized as follows:

 

   June 30, 2016   December 31, 2015 
   Amortized   Fair   Unrealized   Amortized   Fair   Unrealized 
($ in thousands)  Cost   Value   Gains   (Losses)   Cost   Value   Gains   (Losses) 
                                 
Securities available for sale:                                        
  Government-sponsored enterprise securities  $16,000    15,992    2    (10)   19,000    18,972    1    (29)
  Mortgage-backed securities   168,103    169,256    1,437    (284)   122,474    121,553    348    (1,269)
  Corporate bonds   33,853    34,381    598    (70)   25,216    24,946        (270)
  Equity securities   83    133    58    (8)   88    143    64    (9)
Total available for sale  $218,039    219,762    2,095    (372)   166,778    165,614    413    (1,577)
                                         
Securities held to maturity:                                        
  Mortgage-backed securities  $92,675    93,444    769        102,509    101,767        (742)
  State and local governments   49,398    52,655    3,257        52,101    55,379    3,284    (6)
Total held to maturity  $142,073    146,099    4,026        154,610    157,146    3,284    (748)

 

All of the Company’s mortgage-backed securities were issued by government-sponsored corporations.

 

The following table presents information regarding securities with unrealized losses at June 30, 2016:

 

 ($ in thousands)  Securities in an Unrealized
Loss Position for
Less than 12 Months
   Securities in an Unrealized
Loss Position for
More than 12 Months
   Total 
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
  Government-sponsored enterprise securities  $9,992    7    2,997    3    12,989    10 
  Mortgage-backed securities   5,917    22    20,242    262    26,159    284 
  Corporate bonds           930    70    930    70 
  Equity securities           17    8    17    8 
  State and local governments                        
      Total temporarily impaired securities  $15,909    29    24,186    343    40,095    372 

 

Page 14 

The following table presents information regarding securities with unrealized losses at December 31, 2015:

 

 ($ in thousands)  Securities in an Unrealized
Loss Position for
Less than 12 Months
   Securities in an Unrealized
Loss Position for
More than 12 Months
   Total 
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
  Government-sponsored enterprise securities  $5,993    7    2,978    22    8,971    29 
  Mortgage-backed securities   150,853    1,148    27,460    863    178,313    2,011 
  Corporate bonds   24,006    210    940    60    24,946    270 
  Equity securities           17    9    17    9 
  State and local governments   840    6            840    6 
      Total temporarily impaired securities  $181,692    1,371    31,395    954    213,087    2,325 

 

In the above tables, all of the non-equity securities that were in an unrealized loss position at June 30, 2016 and December 31, 2015 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns. The Company has evaluated the collectability of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost.

 

The Company has also concluded that each of the equity securities in an unrealized loss position at June 30, 2016 and December 31, 2015 was in such a position due to temporary fluctuations in the market prices of the securities. The Company’s policy is to record an impairment charge for any of these equity securities that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.

 

The book values and approximate fair values of investment securities at June 30, 2016, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

   Securities Available for Sale   Securities Held to Maturity 
   Amortized   Fair   Amortized   Fair 
($ in thousands)  Cost   Value   Cost   Value 
                 
Debt securities                    
Due within one year  $        1,307    1,330 
Due after one year but within five years   3,000    2,997    15,795    16,590 
Due after five years but within ten years   41,853    42,366    31,127    33,552 
Due after ten years   5,000    5,010    1,169    1,183 
Mortgage-backed securities   168,103    169,256    92,675    93,444 
Total debt securities   217,956    219,629    142,073    146,099 
                     
Equity securities   83    133         
Total securities  $218,039    219,762    142,073    146,099 

 

At June 30, 2016 and December 31, 2015 investment securities with carrying values of $141,155,000 and $141,379,000, respectively, were pledged as collateral for public deposits.

 

In the first half of 2016, the Company received proceeds from sales of securities of $8,000 and recorded $3,000 in gains from the sales. The Company recorded no gains or losses on securities during the first half of 2015.

 

The aggregate carrying amount of cost-method investments was $16,881,000 and $15,453,000 at June 30, 2016 and 2015, respectively, which is recorded within the line item “other assets” on the Company’s Consolidated Balance Sheets. These investments are comprised of Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank of Richmond (“FRB”) stock. The FHLB stock had a cost and fair value of $9,825,000 and $8,421,000 at June 30, 2016 and 2015, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system. The FRB stock had a cost and fair value of $7,056,000 and $7,032,000 at June 30, 2016 and 2015, respectively. Periodically, both the FHLB and FRB recalculate the Company’s required level of holdings, and the Company either buys more stock or the redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.

 

Page 15 

Note 7 – Loans and Asset Quality Information

 

Certain 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 provisions associated with non-single family assets associated with the 2009 failed bank acquisition of Cooperative Bank expired, and the associated assets were reclassified as non-covered. On April 1, 2016, the loss share provisions of another agreement expired, which related to the non-single family assets of The Bank of Asheville, a failed bank acquisition from January 2011. Accordingly, the remaining balances associated with those loans and foreclosed real estate were reclassified from the covered portfolio to the non-covered portfolio on April 1, 2016. The Company bears all future losses on this portfolio of loans and foreclosed real estate. Immediately prior to the transfer to non-covered status, the loans in this portfolio had a carrying value of $17.7 million and the foreclosed real estate in this portfolio had a carrying value of $1.2 million. Of the $17.7 million in loans that lost loss share protection, approximately $2.8 million were on nonaccrual status as of April 1, 2016. Additionally, approximately $0.3 million in allowance for loan losses associated with this portfolio of loans was transferred to the allowance for loan losses for non-covered loans on April 1, 2016.

 

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

 

 ($ in thousands)  June 30, 2016   December 31, 2015   June 30, 2015 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
All  loans (non-covered and covered):                        
                         
Commercial, financial, and agricultural  $244,862    9%   $202,671    8%   $179,909    7% 
Real estate – construction, land development & other land loans   310,993    12%    308,969    12%    282,262    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   751,446    29%    768,559    31%    777,515    32% 
Real estate – mortgage – home equity loans / lines of credit   238,794    9%    232,601    9%    220,534    9% 
Real estate – mortgage – commercial and other   1,000,578    39%    957,587    38%    904,496    38% 
Installment loans to individuals   50,387    2%    47,666    2%    47,244    2% 
    Subtotal   2,597,060    100%    2,518,053    100%    2,411,960    100% 
Unamortized net deferred loan costs   1,074         873         819      
    Total loans  $2,598,134        $2,518,926        $2,412,779      

 

 

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

 

($ in thousands)  June 30, 2016   December 31, 2015   June 30, 2015 
   Amount   Percentage   Amount   Percentage   Amount   Percentage 
Non-covered loans:                        
                         
Commercial, financial, and agricultural  $244,862    10%   $201,798    8%   $178,756    8% 
Real estate – construction, land development & other land loans   310,832    12%    305,228    13%    278,406    12% 
Real estate – mortgage – residential (1-4 family) first mortgages   683,367    27%    692,902    29%    694,794    30% 
Real estate – mortgage – home equity loans / lines of credit   228,906    9%    221,995    9%    208,778    9% 
Real estate – mortgage – commercial and other   1,000,319    40%    945,823    39%    890,158    39% 
Installment loans to individuals   50,387    2%    47,666    2%    47,244    2% 
    Subtotal   2,518,673    100%    2,415,412    100%    2,298,136    100% 
Unamortized net deferred loan costs   1,074         873         819      
    Total non-covered loans  $2,519,747        $2,416,285        $2,298,955      

 

 

Page 16 

The carrying amount of the covered loans at June 30, 2016 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  $                     
Real estate – construction, land development & other land loans           161    162    161    162 
Real estate – mortgage – residential (1-4 family) first mortgages       33    68,079    78,940    68,079    78,973 
Real estate – mortgage – home equity loans / lines of credit   6    14    9,882    11,140    9,888    11,154 
Real estate – mortgage – commercial and other           259    294    259    294 
Installment loans to individuals                        
     Total  $6    47    78,381    90,536    78,387    90,583 

 

The carrying amount of the covered loans at December 31, 2015 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  $        873    886    873    886 
Real estate – construction, land development & other land loans   277    365    3,464    3,457    3,741    3,822 
Real estate – mortgage – residential (1-4 family) first mortgages   102    633    75,555    88,434    75,657    89,067 
Real estate – mortgage – home equity loans / lines of credit   7    14    10,599    12,099    10,606    12,113 
Real estate – mortgage – commercial and other   1,003    3,136    10,761    11,458    11,764    14,594 
     Total  $1,389    4,148    101,252    116,334    102,641    120,482 

 

 

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2014. 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, 2014  $125,644 
Principal repayments   (30,238)
Transfers to foreclosed real estate   (1,211)
Net loan (charge-offs) / recoveries   2,306 
Accretion of loan discount   4,751 
Carrying amount of nonimpaired covered loans at December 31, 2015   101,252 
Principal repayments   (7,997)
Transfers to foreclosed real estate   (1,036)
Transfer to non-covered loans due to expiration of loss-share agreement   (17,530)
Net loan (charge-offs) / recoveries   1,784 
Accretion of loan discount   1,908 
Carrying amount of nonimpaired covered loans at June 30, 2016  $78,381 

 

Page 17 

As reflected in the table above, the Company accreted $1,908,000 of the loan discount on covered purchased nonimpaired loans into interest income during the first six months of 2016. As of June 30, 2016, there was remaining loan discount of $11,179,000 related to covered 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 covered lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to approximately 80% of the loan discount accretion, which reduces noninterest income. At June 30, 2016, the Company also had $581,000 of loan discount related to covered purchased nonaccruing loans. It is not expected that a significant amount of this discount will be accreted, as it represents estimated losses on these loans.

 

Also, the Company accreted $43,000 of loan discount on non-covered purchased nonimpaired loans into interest income during the first six months of 2016. As of June 30, 2016, there was a remaining loan discount of $208,000 related to non-covered purchased accruing loans, which will be accreted into interest income over the lives of the respective loans. At June 30, 2016, the Company also had $391,000 of loan discount related to non-covered purchased nonaccruing loans, which the Company does not expect will be accreted into income.

 

The following table presents information regarding all purchased impaired loans since December 31, 2014, the majority 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, 2014  $5,859    3,262    2,597 
Change due to payments received   (634)   (102)   (532)
Transfer to foreclosed real estate   (431)   (336)   (95)
Other   (3)   (3)    
Balance at December 31, 2015  $4,791    2,821    1,970 
Change due to payments received   (3,392)   (2,253)   (1,139)
Change due to loan charge-off   (394)   (324)   (70)
Balance at June 30, 2016  $1,005    244    761 

 

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 three months ended 2016, the Company received $1,062,000 in payments that exceeded the carrying amount of the related purchased impaired loans, of which $741,000 was recognized as discount accretion loan interest income and $321,000 was recorded as additional loan interest income. For the six month period ended June 30, 2016, the Company received $1,108,000 in payments that exceeded the carrying amount of the related purchased impaired loans, of which $780,000 was recognized as discount accretion loan interest income and $328,000 was recorded as additional loan interest income. No such excess payments were received in the first six months of 2015.

 

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:

 

Page 18 

 

ASSET QUALITY DATA ($ in thousands)

  June 30,
2016
   December 31,
2015
   June 30,
2015
 
             
Non-covered nonperforming assets               
Nonaccrual loans  $33,781   $39,994   $44,123 
Restructured loans - accruing   25,826    28,011    32,059 
Accruing loans > 90 days past due            
     Total non-covered nonperforming loans   59,607    68,005    76,182 
Foreclosed real estate   10,221    9,188    9,954 
Total non-covered nonperforming assets  $69,828   $77,193   $86,136 
                
Covered nonperforming assets               
Nonaccrual loans (1)  $4,194   $7,816   $7,378 
Restructured loans - accruing   3,445    3,478    3,910 
Accruing loans > 90 days past due            
     Total covered nonperforming loans   7,639    11,294    11,288 
Foreclosed real estate   385    806    1,945 
Total covered nonperforming assets  $8,024   $12,100   $13,233 
                
     Total nonperforming assets  $77,852   $89,293   $99,369 

 

(1) At June 30, 2016, December 31, 2015, and June 30, 2015, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $5.0 million, $12.3 million, and $12.7 million, respectively.

 

At June 30, 2016 and 2015, the Company had $1.8 million and $5.1 million in residential mortgage loans in process of foreclosure, respectively.

 

The following table presents the Company’s nonaccrual loans as of June 30, 2016.

 

($ in thousands)  Non-covered   Covered   Total 
Commercial, financial, and agricultural  $2,870        2,870 
Real estate – construction, land development & other land loans   4,154        4,154 
Real estate – mortgage – residential (1-4 family) first mortgages   17,315    3,841    21,156 
Real estate – mortgage – home equity loans / lines of credit   2,406    353    2,759 
Real estate – mortgage – commercial and other   6,821        6,821 
Installment loans to individuals   215        215 
  Total  $33,781    4,194    37,975 
                

 

The following table presents the Company’s nonaccrual loans as of December 31, 2015.

 

($ in thousands)  Non-covered   Covered   Total 
Commercial, financial, and agricultural  $2,964        2,964 
Real estate – construction, land development & other land loans   4,652    52    4,704 
Real estate – mortgage – residential (1-4 family) first mortgages   18,822    5,007    23,829 
Real estate – mortgage – home equity loans / lines of credit   3,142    383    3,525 
Real estate – mortgage – commercial and other   10,197    2,374    12,571 
Installment loans to individuals   217        217 
  Total  $39,994    7,816    47,810 
                

 

Page 19 

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2016.

 

($ 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  $195    1,643    2,870    240,154    244,862 
Real estate – construction, land development & other land loans   961    203    4,154    305,514    310,832 
Real estate – mortgage – residential (1-4 family) first mortgages   2,574    763    17,315    662,715    683,367 
Real estate – mortgage – home equity loans / lines of credit   765    221    2,406    225,514    228,906 
Real estate – mortgage – commercial and other   1,998    373    6,821    991,127    1,000,319 
Installment loans to individuals   368    253    215    49,551    50,387 
  Total non-covered  $6,861    3,456    33,781    2,474,575    2,518,673 
Unamortized net deferred loan costs                       1,074 
           Total non-covered loans                      $2,519,747 
                          
Covered loans  $172    1,473    4,194    72,548    78,387 
                          
                Total loans  $7,033    4,929    37,975    2,547,123    2,598,134 

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2016.

 

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2015.

 

($ 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  $999    127    2,964    197,708    201,798 
Real estate – construction, land development & other land loans   1,512    429    4,652    298,635    305,228 
Real estate – mortgage – residential (1-4 family) first mortgages   12,130    3,212    18,822    658,738    692,902 
Real estate – mortgage – home equity loans / lines of credit   1,276    105    3,142    217,472    221,995 
Real estate – mortgage – commercial and other   5,591    864    10,197    929,171    945,823 
Installment loans to individuals   278    255    217    46,916    47,666 
  Total non-covered  $21,786    4,992    39,994    2,348,640    2,415,412 
Unamortized net deferred loan costs                       873 
           Total non-covered loans                      $2,416,285 
                          
Covered loans  $3,313    402    7,816    91,110    102,641 
                          
                Total loans  $25,099    5,394    47,810    2,439,750    2,518,926 

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2015.

Page 20 

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, 2016.

 

($ in thousands)  Commercial,
Financial, and
Agricultural
   Real Estate –
Construction,
Land
Development, &
Other Land
Loans
   Real Estate
– Residential
(1-4 Family)
First
Mortgages
   Real Estate –
Mortgage
– Home
Equity
Lines of
Credit
   Real Estate –
Mortgage –
Commercial
and Other
   Installment
Loans to
Individuals
   Unallo-
cated
   Total 
                                 
As of and for the three months ended June 30, 2016
                                         
Beginning balance  $4,679    3,345    7,374    2,267    5,940    1,202    442    25,249 
Charge-offs   (57)   (137)   (740)   (285)   (396)   (238)       (1,853)
Recoveries   216    121    61    64    155    140        757 
Transfer from covered category   56    62    51    12    126            307 
Provisions   (612)   (492)   1,114    227    (254)   376    130    489 
Ending balance  $4,282    2,899    7,860    2,285    5,571    1,480    572    24,949 
                                         
As of and for the six months ended June 30, 2016
                                         
Beginning balance  $4,742    3,754    7,832    2,893    5,816    1,051    696    26,784 
Charge-offs   (734)   (477)   (2,691)   (734)   (562)   (518)       (5,716)
Recoveries   302    211    295    119    285    253        1,465 
Transfer from covered category   56    62    51    12    126            307 
Provisions   (84)   (651)   2,373    (5)   (94)   694    (124)   2,109 
Ending balance  $4,282    2,899    7,860    2,285    5,571    1,480    572    24,949 
                                         
Ending balances as of June 30, 2016:  Allowance for loan losses
                                         
Individually evaluated for impairment  $14    172    1,263    11    478    70        2,008 
                                         
Collectively evaluated for impairment  $4,268    2,727    6,597    2,274    5,093    1,410    572    22,941 
                                         
Loans acquired with deteriorated credit quality  $                             
                                         
Loans receivable as of June 30, 2016:
                                         
Ending balance – total  $244,862    310,832    683,367    228,906    1,000,319    50,387        2,518,673 
Unamortized net deferred loan costs                                      1,074 
Total non-covered loans                                     $2,519,747 
                                         
Ending balances as of June 30, 2016: Loans
                                         
Individually evaluated for impairment  $859    4,614    20,201    383    12,845    72        38,974 
                                         
Collectively evaluated for impairment  $244,003    306,218    662,959    228,523    986,926    50,315        2,478,944 
                                         
Loans acquired with deteriorated credit quality  $        207        548            755 

 

Page 21 

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2015.

 

 

($ in thousands)  Commercial,
Financial, and
Agricultural
   Real Estate –
Construction,
Land
Development, &
Other Land
Loans
   Real Estate
– Residential
(1-4 Family)
First
Mortgages
   Real
Estate –
Mortgage
– Home
Equity
Lines of
Credit
   Real Estate –
Mortgage –
Commercial
and Other
   Installment
Loans to
Individuals
   Unallo-
cated
   Total 
                                 
As of and for the year ended December 31, 2015
                                         
Beginning balance  $6,769    8,158    10,136    4,753    6,466    1,916    147    38,345 
Charge-offs   (2,908)   (3,034)   (4,904)   (1,054)   (2,804)   (2,411)       (17,115)
Recoveries   831    998    279    121    904    413        3,546 
Provisions   50    (2,368)   2,321    (927)   1,250    1,133    549    2,008 
Ending balance  $4,742    3,754    7,832    2,893    5,816    1,051    696    26,784 
                                         
Ending balances as of December 31, 2015:  Allowance for loan losses
                                         
Individually evaluated for impairment  $304    241    1,440    321    336    45        2,687 
                                         
Collectively evaluated for impairment  $4,438    3,513    6,392    2,572    5,480    1,006    696    24,097 
                                         
Loans acquired with deteriorated credit quality  $                             
                                         
Loans receivable as of December 31, 2015:
                                         
Ending balance – total  $201,798    305,228    692,902    221,995    945,823    47,666        2,415,412 
Unamortized net deferred loan costs                                      873 
Total non-covered loans                                     $2,416,285 
                                         
Ending balances as of December 31, 2015: Loans
                                         
Individually evaluated for impairment  $992    4,898    21,325    758    16,605    76        44,654 
                                         
Collectively evaluated for impairment  $200,806    300,330    671,577    221,237    928,637    47,590        2,370,177 
                                         
Loans acquired with deteriorated credit quality  $                581            581 

 

Page 22 

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, 2015.

 

($ in thousands)  Commercial,
Financial, and
Agricultural
   Real Estate –
Construction,
Land
Development, &
Other Land
Loans
   Real Estate
– Residential
(1-4 Family)
First
Mortgages
   Real
Estate –
Mortgage
– Home
Equity
Lines of
Credit
   Real Estate –
Mortgage –
Commercial
and Other
   Installment
Loans to
Individuals
   Unallo-
cated
   Total 
                                 
As of and for the three months ended June 30, 2015
                                         
Beginning balance  $5,738    7,144    9,327    3,983    5,709    1,565    304    33,770 
Charge-offs   (1,407)   (702)   (818)   (522)   (1,026)   (928)       (5,403)
Recoveries   256    52    146    37    193    103        787 
Provisions   800    (1,067)   (573)   (115)   788    376    792    1,001 
Ending balance  $5,387    5,427    8,082    3,383    5,664    1,116    1,096    30,155 
                                         
As of and for the six months ended June 30, 2015
                                         
Beginning balance  $6,769    8,158    10,136    4,753    6,466    1,916    147    38,345 
Charge-offs   (2,301)   (2,008)   (2,257)   (597)   (2,022)   (1,578)       (10,763)
Recoveries   343    318    159    58    395    195        1,468 
Provisions   576    (1,041)   44    (831)   825    583    949    1,105 
Ending balance  $5,387    5,427    8,082    3,383    5,664    1,116    1,096    30,155 
                                         
Ending balances as of June 30, 2015:  Allowance for loan losses
                                         
Individually evaluated for impairment  $88    393    1,458    75    560    46        2,620 
                                         
Collectively evaluated for impairment  $5,299    5,034    6,624    3,308    5,104    1,070    1,096    27,535 
                                         
Loans acquired with deteriorated credit quality  $                             
                                         
Loans receivable as of June 30, 2015:
                                         
Ending balance – total  $178,756    278,406    694,794    208,778    890,158    47,244        2,298,136 
Unamortized net deferred loan costs                                      819 
Total non-covered loans                                     $2,298,955 
                                         
Ending balances as of June 30, 2015: Loans
                                         
Individually evaluated for impairment  $686    5,377    19,847    527    20,454    79        46,970 
                                         
Collectively evaluated for impairment  $178,070    273,029    674,947    208,251    869,090    47,165        2,250,552 
                                         
Loans acquired with deteriorated credit quality  $                614            614 

 

Page 23 

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2016.

 

($ in thousands)  Covered Loans 
     
As of and for the three months ended June 30, 2016
Beginning balance  $1,399 
Charge-offs   (4)
Recoveries   756 
Transferred to non-covered   (307)
Provisions (reversal) for loan losses   (770)
Ending balance  $1,074 
      
As of and for the six months ended June 30, 2016     
Beginning balance  $1,799 
Charge-offs   (245)
Recoveries   1,959 
Transferred to non-covered   (307)
Provisions (reversal) for loan losses   (2,132)
Ending balance  $1,074 
      
Ending balances as of June 30, 2016:  Allowance for loan losses
 
Individually evaluated for impairment  $443 
Collectively evaluated for impairment   631 
Loans acquired with deteriorated credit quality    
      
Loans receivable as of June 30, 2016:
      
Ending balance – total  $78,387 
      
Ending balances as of June 30, 2016: Loans
      
Individually evaluated for impairment  $5,500 
Collectively evaluated for impairment   72,881 
Loans acquired with deteriorated credit quality   6 

 

 

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2015.

 

($ in thousands)  Covered Loans 
     
As of and for the year ended December 31, 2015
Beginning balance  $2,281 
Charge-offs   (1,316)
Recoveries   3,622 
Provision (reversal) for loan losses   (2,788)
Ending balance  $1,799 
 
Ending balances as of December 31, 2015: Allowance for loan losses
 
Individually evaluated for impairment  $554 
Collectively evaluated for impairment   1,175 
Loans acquired with deteriorated credit quality   70 
      
Loans receivable as of December 31, 2015:
      
Ending balance – total  $102,641 
      
Ending balances as of December 31, 2015: Loans
      
Individually evaluated for impairment  $7,055 
Collectively evaluated for impairment   94,197 
Loans acquired with deteriorated credit quality   1,389 

 

Page 24 

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2015.

 

($ in thousands)  Covered Loans 
     
As of and for the three months ended June 30, 2015
Beginning balance  $2,226 
Charge-offs   (676)
Recoveries   545 
Provisions (reversal) for loan losses   (160)
Ending balance  $1,935 
      
As of and for the six months ended June 30, 2015
Beginning balance  $2,281 
Charge-offs   (1,116)
Recoveries   1,198 
Provisions (reversal) for loan losses   (428)
Ending balance  $1,935 
 
Ending balances as of June 30, 2015: Allowance for loan losses
 
Individually evaluated for impairment  $455 
Collectively evaluated for impairment   1,434 
Loans acquired with deteriorated credit quality   46 
      
Loans receivable as of June 30, 2015:
      
Ending balance – total  $113,824 
      
Ending balances as of June 30, 2015: Loans
      
Individually evaluated for impairment  $6,763 
Collectively evaluated for impairment   105,290 
Loans acquired with deteriorated credit quality   1,771 

 

Page 25 

The following table presents loans individually evaluated for impairment as of June 30, 2016.

 

 

($ in thousands)

 
  Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average
Recorded
Investment
 
Non-covered loans with no related allowance recorded:                    
                     
Commercial, financial, and agricultural  $766    845        604 
                     
Real estate – mortgage – construction, land development & other land loans   3,764    7,420        3,863 
                     
Real estate – mortgage – residential (1-4 family) first mortgages   9,137    10,634        8,690 
                     
Real estate – mortgage –home equity loans / lines of credit   145    203        139 
                     
Real estate – mortgage –commercial and other   8,536    9,717        9,669 
                     
Installment loans to individuals   2    3        2 
Total non-covered impaired loans with no allowance  $22,350    28,822        22,967 
                     
Total covered impaired loans with no allowance  $3,000    3,361        3,991 
                     
Total impaired loans with no allowance recorded  $25,350    32,183        26,958 
                     
Non-covered  loans with an allowance recorded:                    
                     
Commercial, financial, and agricultural  $93    111    14    286 
                     
Real estate – mortgage – construction, land development & other land loans   850    873    172    886 
                     
Real estate – mortgage – residential (1-4 family) first mortgages   11,271    11,447    1,263    12,196 
                     
Real estate – mortgage –home equity loans / lines of credit   238    238    11    420 
                     
Real estate – mortgage –commercial and other   4,857    5,036    478    5,490 
                     
Installment loans to individuals   70    80    70    82 
Total non-covered impaired loans with allowance  $17,379    17,785    2,008    19,360 
                     
Total covered impaired loans with allowance  $2,506    2,665    443    2,750 
                     
Total impaired loans with an allowance recorded  $19,885    20,450    2,451    22,110 

 

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 2016 was insignificant.

Page 26 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2015.

 

 

($ in thousands)

 
  Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Average
Recorded
Investment
 
Non-covered loans with no related allowance recorded:                    
                     
Commercial, financial, and agricultural  $360    422        194 
                     
Real estate – mortgage – construction, land development & other land loans   3,944    7,421        4,636 
                     
Real estate – mortgage – residential (1-4 family) first mortgages   8,713    9,803        7,309 
                     
Real estate – mortgage –home equity loans / lines of credit   114    161        425 
                     
Real estate – mortgage –commercial and other   11,565    13,144        16,590 
                     
Installment loans to individuals   3    4        5 
Total non-covered impaired loans with no allowance  $24,699    30,955        29,159 
                     
Total covered impaired loans with no allowance  $5,231    8,529        5,607 
                     
Total impaired loans with no allowance recorded  $29,930    39,484        34,766 
                     
Non-covered  loans with an allowance recorded:                    
                     
Commercial, financial, and agricultural  $632    662    304    607 
                     
Real estate – mortgage – construction, land development & other land loans   954    976    241    1,585 
                     
Real estate – mortgage – residential (1-4 family) first mortgages   12,612    12,768    1,440    12,931 
                     
Real estate – mortgage –home equity loans / lines of credit   644    645    321    430 
                     
Real estate – mortgage –commercial and other   5,621    5,806    336    4,353 
                     
Installment loans to individuals   73    80    45    75 
Total non-covered impaired loans with allowance  $20,536    20,937    2,687    19,981 
                     
Total covered impaired loans with allowance  $3,213    3,476    624    3,742 
                     
Total impaired loans with an allowance recorded  $23,749    24,413    3,311    23,723 

 

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2015 was insignificant.

Page 27 

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 regularly 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:

 

  Risk Grade Description
Pass:  
  1 Loans with virtually no risk, including cash secured loans.
  2 Loans with documented significant overall financial strength.  These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
  3 Loans with documented satisfactory overall financial strength.  These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
  4 Loans to borrowers with acceptable financial condition.  These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.  
  5 Existing loans that meet the guidelines for a Risk Graded 6 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  
 

P

(Pass)

Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels.  These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.  
Special Mention:  
  6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:  
  7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any.  These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
  8 Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable.  Loss appears imminent, but the exact amount and timing is uncertain.
  9 Loans that are considered uncollectible and are in the process of being charged-off.  This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.
 

F

(Fail)

Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.  

 

In the second quarter of 2016, the Company made nonsubstantive changes to the numerical scale of risk grades. Previously, the description for grade 5 noted above was assigned a grade of 9. As a result of the change, most grade 9 loans were assigned a grade of 5 and the numerical grade assignments for the previous grades of 5 and below were moved one row lower in the descriptions. In the tables below, prior periods have been adjusted to be consistent with the presentation for June 30, 2016.

 

Also during the second quarter of 2016, the Company introduced a pass/fail grade system for smaller balance consumer loans (balances less than $500,000), primarily residential home loans and installment consumer loans. Accordingly, all such consumer loans are no longer graded on a scale of 1-9, but instead are assigned a rating of “pass” or “fail”, with “fail” loans being considered as classified loans. Substantially all of the $25.4 million of non-covered consumer loans and $4.3 million of covered consumer loans that had previously been assigned a grade of “special mention” were assigned a rating of “pass”, which impacts the comparability of the June 30, 2016 table below to prior periods.

 

The changes noted above had no significant impact on the Company’s allowance for loan loss calculation.

 

The June 30, 2016 table below also reflects the impact of the previously discussed reclassification of approximately $17.7 million of loans from the covered category to the non-covered category upon the expiration of the loss-share provisions with the FDIC. Approximately $3.8 million of these loans had “classified” grades.

Page 28 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2016.

 

($ in thousands)    
   Pass   Special
Mention Loans
   Classified
Accruing Loans
   Classified
Nonaccrual
Loans
   Total 
Non-covered loans:                         
Commercial, financial, and agricultural  $235,000    2,855    4,137    2,870    244,862 
Real estate – construction, land development & other land loans   288,017    9,781    8,880    4,154    310,832 
Real estate – mortgage – residential (1-4 family) first mortgages   620,516    17,020    28,516    17,315    683,367 
Real estate – mortgage – home equity loans / lines of credit   220,230    1,373    4,897    2,406    228,906 
Real estate – mortgage – commercial and other   948,844    29,744    14,910    6,821    1,000,319 
Installment loans to individuals   49,583    352    237    215    50,387 
  Total  $2,362,190    61,125    61,577    33,781    2,518,673 
Unamortized net deferred loan costs                       1,074 
Total non-covered  loans                      $2,519,747 
                          
Total covered loans  $58,153    1,745    14,295    4,194   $78,387 
                          
               Total loans  $2,420,343    62,870    75,872    37,975   $2,598,134 

 

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2015.

 

($ in thousands)    
   Pass   Special
Mention Loans
   Classified
Accruing Loans
   Classified
Nonaccrual
Loans
   Total 
Non-covered loans:                         
Commercial, financial, and agricultural  $191,905    3,453    3,476    2,964    201,798 
Real estate – construction, land development & other land loans   277,300    13,296    9,980    4,652    305,228 
Real estate – mortgage – residential (1-4 family) first mortgages   609,880    34,407    29,793    18,822    692,902 
Real estate – mortgage – home equity loans / lines of credit   207,335    7,045    4,473    3,142    221,995 
Real estate – mortgage – commercial and other   889,871    32,022    13,733    10,197    945,823 
Installment loans to individuals   46,209    776    464    217    47,666 
  Total  $2,222,500    90,999    61,919    39,994    2,415,412 
Unamortized net deferred loan costs                       873 
Total non-covered  loans                      $2,416,285 
                          
Total covered loans  $71,398    7,423    16,004    7,816   $102,641 
                          
               Total loans  $2,293,898    98,422    77,923    47,810   $2,518,926 

 

 

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 related to interest rate reductions combined with restructured amortization schedules. The Company does not generally grant principal forgiveness.

 

Page 29 

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 June 30, 2016 and 2015.

 

($ in thousands)  For the three months ended
June 30, 2016
   For the three months ended
June 30, 2015
 
   Number of
Contracts
   Pre-
Modification
Restructured
Balances
   Post-
Modification
Restructured
Balances
   Number of
Contracts
   Pre-
Modification
Restructured
Balances
   Post-
Modification
Restructured
Balances
 
Non-covered TDRs – Accruing                              
Commercial, financial, and agricultural      $   $    1    8    8 
Real estate – construction, land development & other land loans                        
Real estate – mortgage – residential (1-4 family) first mortgages               1    152    152 
Real estate – mortgage – home equity loans / lines of credit                        
Real estate – mortgage – commercial and other                        
Installment loans to individuals                        
                               
Non-covered TDRs – Nonaccrual                              
Commercial, financial, and agricultural                        
Real estate – construction, land development & other land loans                        
Real estate – mortgage – residential (1-4 family) first mortgages                        
Real estate – mortgage – home equity loans / lines of credit                        
Real estate – mortgage – commercial and other                        
Installment loans to individuals                        
Total non-covered TDRs arising during period               2    160    160 
                               
Total covered TDRs arising during period– Accruing      $   $       $   $ 
Total covered TDRs arising during period – Nonaccrual                        
Total TDRs arising during period      $   $    2   $160   $160 

 

Page 30 

 

The following table presents information related to loans modified in a troubled debt restructuring during the six months ended June 30, 2016 and 2015.

 

($ in thousands)  For the six months ended
June 30, 2016
   For the six months ended
June 30, 2015
 
   Number of
Contracts
   Pre-
Modification
Restructured
Balances
   Post-
Modification
Restructured
Balances
   Number of
Contracts
   Pre-
Modification
Restructured
Balances
   Post-
Modification
Restructured
Balances
 
Non-covered TDRs – Accruing                              
Commercial, financial, and agricultural      $   $    1   $8   $8 
Real estate – construction, land development & other land loans                        
Real estate – mortgage – residential (1-4 family) first mortgages               2    265    265 
Real estate – mortgage – home equity loans / lines of credit                        
Real estate – mortgage – commercial and other               1    51    51 
Installment loans to individuals                        
                               
Non-covered TDRs – Nonaccrual                              
Commercial, financial, and agricultural                        
Real estate – construction, land development & other land loans               1    1    1 
Real estate – mortgage – residential (1-4 family) first mortgages               3    304    304 
Real estate – mortgage – home equity loans / lines of credit                        
Real estate – mortgage – commercial and other                        
Installment loans to individuals                        
Total non-covered TDRs arising during period               8    629    629 
                               
Total covered TDRs arising during period– Accruing      $   $    2   $139   $139 
Total covered TDRs arising during period – Nonaccrual                        
Total TDRs arising during period      $   $    10   $768   $768 

 

 

Page 31 

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended June 30, 2016 and 2015 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, 2016
   For the three months ended
June 30, 2015
 
   Number of
Contracts
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
 
                 
Non-covered accruing TDRs that subsequently defaulted                    
Commercial, financial, and agricultural      $    1   $7 
                     
Total non-covered TDRs that subsequently defaulted      $    1   $7 
                     
Total accruing covered TDRs that subsequently defaulted      $       $ 
                     
Total accruing TDRs that subsequently defaulted      $    1   $7 

 

 

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the six months ended June 30, 2016 and 2015 are presented in the table below.

 

($ in thousands)  For the six months ended
June 30, 2016
   For the six months ended
June 30, 2015
 
   Number of
Contracts
   Recorded
Investment
   Number of
Contracts
   Recorded
Investment
 
                 
Non-covered accruing TDRs that subsequently defaulted                    
Commercial, financial, and agricultural      $    1   $7 
Real estate – mortgage – residential (1–4 family first mortgages)            1    34 
Real estate – mortgage – commercial and other   1    21         
                     
Total non-covered TDRs that subsequently defaulted   1   $21    2   $41 
                     
Total accruing covered TDRs that subsequently defaulted   1   $44       $ 
                     
Total accruing TDRs that subsequently defaulted   2   $65    2   $41 

 

Page 32 

Note 8 – Deferred Loan Costs

 

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan costs of approximately $1,074,000, $873,000, and $819,000 at June 30, 2016, December 31, 2015, and June 30, 2015, respectively.

 

Note 9 – FDIC Indemnification Asset

 

The FDIC indemnification asset is the estimated amount that the Company will receive from the FDIC under loss share agreements associated with two FDIC-assisted failed bank acquisitions. See page 42 of the Company’s 2015 Annual Report on Form 10-K for a detailed explanation of this asset.

 

The FDIC indemnification asset was comprised of the following components as of the dates shown:

 

($ in thousands)  June 30,
2016
   December 31,
2015
   June 30,
2015
 
Receivable (payable) related to loss claims incurred (recoveries), not yet received (paid), net  $(1,542)   (633)   265 
Receivable related to estimated future claims on loans   6,383    8,675    11,003 
Receivable related to estimated future claims on foreclosed real estate   316    397    714 
     FDIC indemnification asset  $5,157    8,439    11,982 

 

The following presents a rollforward of the FDIC indemnification asset since December 31, 2015.

 

($ in thousands)    
Balance at December 31, 2015  $8,439 
Decrease related to favorable changes in loss estimates   (2,246)
Increase related to reimbursable expenses   205 
Cash paid (received)   738 
Amortization associated with accretion of loan discount   (2,005)
Other   26 
Balance at June 30, 2016  $5,157 
      

 

Note 10 – Goodwill and Other Intangible Assets

 

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of June 30, 2016, December 31, 2015, and June 30, 2015 and the carrying amount of unamortized intangible assets as of those same dates. In connection with the January 1, 2016 acquisition of Bankingport, Inc., an insurance agency located in Sanford, North Carolina, the Company recorded $1,693,000 in goodwill, $591,000 in a customer list intangible, and $92,000 in other amortizable intangible assets. In connection with the May 4, 2016 acquisition of SBA Complete, Inc., a SBA loan consulting firm, the Company recorded $6,013,000 in goodwill, $1,100,000 in a customer list intangible, and $940,000 in other amortizable intangible assets.

 

   June 30, 2016   December 31, 2015   June 30, 2015 
($ in thousands)  Gross Carrying
Amount
   Accumulated
Amortization
   Gross Carrying
Amount
   Accumulated
Amortization
   Gross Carrying
Amount
   Accumulated
Amortization
 
Amortizable intangible assets:                              
   Customer lists  $2,369    624    678    550    678    528 
   Core deposit premiums   8,560    7,660    8,560    7,352    8,560    7,013 
   Other   1,032    65                 
        Total  $11,961    8,349    9,238    7,902    9,238    7,541 
                               
Unamortizable intangible assets:                              
   Goodwill  $73,541         65,835