Loans and Asset Quality Information

3 Months Ended

Mar. 31, 2018

Loans and Asset Quality Information [Abstract]

Loans and Asset Quality Information

Note 8 – Loans and Asset Quality Information

On March 3, 2017, the Company acquired Carolina Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $497.5 million. Of those loans, $19.3 million were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan.

The following table relates to Carolina Bank PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.

($ in thousands)	Carolina Bank Acquisition on March 3, 2017
Contractually required payments	$	27,108
Nonaccretable difference		(4,237	)
Cash flows expected to be collected at acquisition		22,871
Accretable yield		(3,617	)
Fair value of PCI loans at acquisition date	$	19,254

The following table relates to acquired Carolina Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.

($ in thousands)	Carolina Bank Acquisition on March 3, 2017
Contractually required payments	$	569,980
Fair value of acquired loans at acquisition date		478,515
Contractual cash flows not expected to be collected		3,650

On October 1, 2017, the Company acquired Asheville Savings Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $606.2 million. Of those loans, $9.9 million were considered to be PCI loans. The remaining loans were considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan.

The following table relates to acquired Asheville Savings Bank PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.

($ in thousands)	Asheville Savings Bank Acquisition on October 1, 2017
Contractually required payments	$	13,424
Nonaccretable difference		(1,734	)
Cash flows expected to be collected at acquisition		11,690
Accretable yield		(1,804	)
Fair value of PCI loans at acquisition date	$	9,886

The following table relates to acquired Asheville Savings Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.

($ in thousands)	Asheville Savings Bank Acquisition on October 1, 2017
Contractually required payments	$	727,706
Fair value of acquired loans at acquisition date		595,167
Contractual cash flows not expected to be collected		7,000

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

($ in thousands)	March 31, 2018					December 31, 2017					March 31, 2017
	Amount			Percentage		Amount			Percentage		Amount			Percentage
All  loans:
Commercial, financial, and agricultural	$	411,662			10%	$	381,130			10%	$	363,219			11%
Real estate – construction, land development & other land loans		542,960			13%		539,020			13%		424,539			13%
Real estate – mortgage – residential (1-4 family) first mortgages		995,662			24%		972,772			24%		792,791			24%
Real estate – mortgage – home equity loans / lines of credit		373,797			9%		379,978			9%		317,336			10%
Real estate – mortgage – commercial and other		1,718,698			42%		1,696,107			42%		1,335,924			40%
Installment loans to individuals		71,257			2%		74,348			2%		56,250			2%
Subtotal		4,114,036			100%		4,043,355			100%		3,290,059			100%
Unamortized net deferred loan fees		(251	)				(986	)				(704	)
Total loans	$	4,113,785				$	4,042,369				$	3,289,355

The following table presents changes in the carrying value of PCI loans.

($ in thousands) Purchased Credit Impaired Loans	For the Quarter Ended March 31, 2018			For the Year Ended December 31, 2017
Balance at beginning of period	$	23,165			514
Additions due to acquisition of Carolina Bank		—			19,254
Additions due to acquisition of Asheville Savings Bank		—			9,886
Change due to payments received and accretion		(1,023	)		(6,016	)
Change due to loan charge-offs		—			(12	)
Transfers to foreclosed real estate		—			(69	)
Other		5			(392	)
Balance at end of period	$	22,147			23,165

The following table presents changes in the accretable yield for PCI loans.

($ in thousands) Accretable Yield for PCI loans	For the Quarter Ended March 31, 2018			For the Year Ended December 31, 2017
Balance at beginning of period	$	4,688			—
Additions due to acquisition of Carolina Bank		—			3,617
Additions due to acquisition of Asheville Savings Bank		—			1,804
Accretion		(374	)		(1,846	)
Reclassification from (to) nonaccretable difference		155			423
Other, net		(73	)		690
Balance at end of period	$	4,396			4,688

During the first three months of 2018, the Company received $68,000 in payments that exceeded the carrying amount of the related PCI loans, all of which was recognized as loan discount accretion income. During the first three months of 2017, there were no payments received that exceeded the carrying amounts of PCI loans.

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

($ in thousands)	March 31, 2018		December 31, 2017		March 31, 2017
Nonperforming assets
Nonaccrual loans	$	21,849		20,968		25,684
Restructured loans - accruing		18,495		19,834		21,559
Accruing loans > 90 days past due		—		—		—
Total nonperforming loans		40,344		40,802		47,243
Foreclosed real estate		11,307		12,571		12,789
Total nonperforming assets	$	51,651		53,373		60,032
Purchased credit impaired loans not included above (1)	$	22,147		23,165		19,167

(1) In the March 3, 2017 acquisition of Carolina Bank, and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $19.3 million and $9.9 million, respectively, in PCI loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from nonperforming loans, including $0.5 million, $0.6 million, and $1.7 million in PCI loans at March 31, 2018, December 31, 2017, and March 31, 2017, respectively, that were contractually past due 90 days or more.

At March 31, 2018 and December 31, 2017, the Company had $0.7 million and $0.8 million in residential mortgage loans in process of foreclosure, respectively.

The following is a summary of the Company’s nonaccrual loans by major categories.

($ in thousands)	March 31, 2018		December 31, 2017
Commercial, financial, and agricultural	$	801		1,001
Real estate – construction, land development & other land loans		1,766		1,822
Real estate – mortgage – residential (1-4 family) first mortgages		12,073		12,201
Real estate – mortgage – home equity loans / lines of credit		1,980		2,524
Real estate – mortgage – commercial and other		5,119		3,345
Installment loans to individuals		110		75
Total	$	21,849		20,968

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2018.

($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90 Days or More Past Due		Nonaccrual Loans		Accruing Current		Total Loans Receivable
Commercial, financial, and agricultural	$	59		165		—		801		410,223		411,248
Real estate – construction, land development & other land loans		997		95		—		1,766		539,702		542,560
Real estate – mortgage – residential (1-4 family) first mortgages		6,852		415		—		12,073		967,993		987,333
Real estate – mortgage – home equity loans / lines of credit		578		10		—		1,980		370,956		373,524
Real estate – mortgage – commercial and other		2,771		986		—		5,119		1,697,506		1,706,382
Installment loans to individuals		503		61		—		110		70,168		70,842
Purchased credit impaired		583		9		484		—		21,071		22,147
Total	$	12,343		1,741		484		21,849		4,077,619		4,114,036
Unamortized net deferred loan fees												(251	)
Total loans											$	4,113,785

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2017.

($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90 Days or More Past Due		Nonaccrual Loans		Accruing Current		Total Loans Receivable
Commercial, financial, and agricultural	$	89		151		—		1,001		379,241		380,482
Real estate – construction, land development & other land loans		1,154		214		—		1,822		535,423		538,613
Real estate – mortgage – residential (1-4 family) first mortgages		6,777		1,370		—		12,201		943,565		963,913
Real estate – mortgage – home equity loans / lines of credit		1,347		10		—		2,524		375,814		379,695
Real estate – mortgage – commercial and other		1,270		451		—		3,345		1,678,529		1,683,595
Installment loans to individuals		445		95		—		75		73,277		73,892
Purchased credit impaired		821		77		601		—		21,666		23,165
Total	$	11,903		2,368		601		20,968		4,007,515		4,043,355
Unamortized net deferred loan fees												(986	)
Total loans											$	4,042,369

The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2018.

($ 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 March 31, 2018
Beginning balance	$	3,111			2,816			6,147			1,827			6,475			950			1,972		23,298
Charge-offs		(239	)		(2	)		(243	)		(176	)		(41	)		(118	)		—		(819	)
Recoveries		499			3,046			145			153			582			53			—		4,478
Provisions		(835	)		(3,543	)		(157	)		462			(1,025	)		(41	)		1,480		(3,659	)
Ending balance	$	2,536			2,317			5,892			2,266			5,991			844			3,452		23,298
Ending balances as of March 31, 2018:  Allowance for loan losses
Individually evaluated for impairment	$	143			22			1,120			—			398			—			—		1,683
Collectively evaluated for impairment	$	2,391			2,295			4,598			2,225			5,581			844			3,452		21,386
Purchased credit impaired	$	2			—			174			41			12			—			—		229
Loans receivable as of March 31, 2018:
Ending balance – total	$	411,662			542,960			995,662			373,797			1,718,698			71,257			—		4,114,036
Unamortized net deferred loan fees																						(251	)
Total loans																					$	4,113,785
Ending balances as of March 31, 2018: Loans
Individually evaluated for impairment	$	433			3,242			13,783			23			9,063			—			—		26,544
Collectively evaluated for impairment	$	410,816			539,317			973,550			373,501			1,697,319			70,842			—		4,065,345
Purchased credit impaired	$	413			401			8,329			273			12,316			415			—		22,147

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2017.

($ 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, 2017
Beginning balance	$	3,829			2,691			7,704			2,420			5,098			1,145			894		23,781
Charge-offs		(1,622	)		(589	)		(2,641	)		(978	)		(1,182	)		(799	)		—		(7,811	)
Recoveries		1,311			2,579			1,076			333			1,027			279			—		6,605
Provisions		(407	)		(1,865	)		8			52			1,532			325			1,078		723
Ending balance	$	3,111			2,816			6,147			1,827			6,475			950			1,972		23,298
Ending balances as of December 31, 2017:  Allowance for loan losses
Individually evaluated for impairment	$	215			18			1,099			—			232			—			—		1,564
Collectively evaluated for impairment	$	2,896			2,798			4,831			1,788			6,226			950			1,972		21,461
Purchased credit impaired	$	—			—			217			39			17			—			—		273
Loans receivable as of December 31, 2017:
Ending balance – total	$	381,130			539,020			972,772			379,978			1,696,107			74,348			—		4,043,355
Unamortized net deferred loan fees																						(986	)
Total loans																					$	4,042,369
Ending balances as of December 31, 2017: Loans
Individually evaluated for impairment	$	579			2,975			14,800			368			8,493			—			—		27,215
Collectively evaluated for impairment	$	379,903			535,638			949,113			379,327			1,675,102			73,892			—		3,992,975
Purchased credit impaired	$	648			407			8,859			283			12,512			456			—		23,165

The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2017.

($ 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 March 31, 2017
Beginning balance	$	3,829			2,691			7,704			2,420			5,098			1,145			894			23,781
Charge-offs		(390	)		(177	)		(894	)		(231	)		(326	)		(187	)		—			(2,205	)
Recoveries		298			490			196			65			143			55			—			1,247
Provisions		55			(240	)		370			(116	)		1,064			54			(464	)		723
Ending balance	$	3,792			2,764			7,376			2,138			5,979			1,067			430			23,546
Ending balances as of March 31, 2017:  Allowance for loan losses
Individually evaluated for impairment	$	205			180			1,351			8			310			—			—			2,054
Collectively evaluated for impairment	$	3,587			2,584			6,025			2,130			5,669			1,067			430			21,492
Purchased credit impaired	$	—			—			—			—			—			—			—			—
Loans receivable as of March 31, 2017:
Ending balance – total	$	363,219			424,539			792,791			317,336			1,335,924			56,250			—			3,290,059
Unamortized net deferred loan fees																							(704	)
Total loans																						$	3,289,355
Ending balances as of March 31, 2017: Loans
Individually evaluated for impairment	$	504			3,445			18,047			223			9,074			2			—			31,295
Collectively evaluated for impairment	$	362,433			420,640			771,067			316,370			1,312,341			56,248			—			3,239,099
Purchased credit impaired	$	282			454			3,677			743			14,509			—			—			19,665

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of March 31, 2018.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance recorded:
Commercial, financial, and agricultural	$	70		94		—		126
Real estate – mortgage – construction, land development & other land loans		3,011		3,419		—		2,877
Real estate – mortgage – residential (1-4 family) first mortgages		4,937		5,236		—		5,071
Real estate – mortgage –home equity loans / lines of credit		23		32		—		195
Real estate – mortgage –commercial and other		3,762		4,038		—		3,415
Installment loans to individuals		—		—		—		—
Total impaired loans with no allowance	$	11,803		12,819		—		11,684
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural	$	363		364		143		379
Real estate – mortgage – construction, land development & other land loans		231		240		22		232
Real estate – mortgage – residential (1-4 family) first mortgages		8,846		9,100		1,120		9,220
Real estate – mortgage –home equity loans / lines of credit		—		—		—		—
Real estate – mortgage –commercial and other		5,301		5,329		398		5,364
Installment loans to individuals		—		—		—		—
Total impaired loans with allowance	$	14,741		15,033		1,683		15,195

Interest income recorded on impaired loans during the three months ended March 31, 2018 was insignificant.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2017.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance recorded:
Commercial, financial, and agricultural	$	183		425		—		276
Real estate – mortgage – construction, land development & other land loans		2,743		3,941		—		2,846
Real estate – mortgage – residential (1-4 family) first mortgages		5,205		5,728		—		7,067
Real estate – mortgage –home equity loans / lines of credit		368		387		—		129
Real estate – mortgage –commercial and other		3,066		3,321		—		3,143
Installment loans to individuals		—		—		—		—
Total impaired loans with no allowance	$	11,565		13,802		—		13,461
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural	$	396		396		215		214
Real estate – mortgage – construction, land development & other land loans		232		241		18		503
Real estate – mortgage – residential (1-4 family) first mortgages		9,595		9,829		1,099		10,077
Real estate – mortgage –home equity loans / lines of credit		—		—		—		66
Real estate – mortgage –commercial and other		5,427		5,427		232		5,369
Installment loans to individuals		—		—		—		—
Total impaired loans with allowance	$	15,650		15,893		1,564		16,229

Interest income recorded on impaired loans during the year ended December 31, 2017 was insignificant.

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored 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	Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management.  Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances.  Repayment performance is satisfactory.
	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.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2018.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total
Commercial, financial, and agricultural	$	405,159		4,546		742		801		411,248
Real estate – construction, land development & other land loans		527,835		7,538		5,421		1,766		542,560
Real estate – mortgage – residential (1-4 family) first mortgages		932,840		16,243		26,177		12,073		987,333
Real estate – mortgage – home equity loans / lines of credit		360,194		1,884		9,466		1,980		373,524
Real estate – mortgage – commercial and other		1,673,395		20,277		7,591		5,119		1,706,382
Installment loans to individuals		70,286		219		227		110		70,842
Purchased credit impaired		6,459		7,162		8,526		—		22,147
Total	$	3,976,168		57,869		58,150		21,849		4,114,036
Unamortized net deferred loan fees										(251	)
Total loans										4,113,785

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2017.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total
Commercial, financial, and agricultural	$	368,658		9,901		922		1,001		380,482
Real estate – construction, land development & other land loans		523,642		7,129		6,020		1,822		538,613
Real estate – mortgage – residential (1-4 family) first mortgages		905,111		16,235		30,366		12,201		963,913
Real estate – mortgage – home equity loans / lines of credit		365,982		3,784		7,405		2,524		379,695
Real estate – mortgage – commercial and other		1,647,725		23,335		9,190		3,345		1,683,595
Installment loans to individuals 54,421 256 259 101 55,037		73,379		222		216		75		73,892
Purchased credit impaired		6,541		12,309		4,315		—		23,165
Total	$	3,891,038		72,915		58,434		20,968		4,043,355
Unamortized net deferred loan fees										(986	)
Total loans										4,042,369

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.

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

The following table presents information related to loans modified in a troubled debt restructuring during the three months ended March 31, 2018 and 2017.

($ in thousands)	For three months ended March 31, 2018						For the three months ended March 31, 2017
	Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing
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		—		—		—		2		2,550		2,525
Installment loans to individuals		—		—		—		—		—		—
TDRs – Nonaccrual
Commercial, financial, and agricultural		—		—		—		—		—		—
Real estate – construction, land development & other land loans		1		61		61		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		2		254		264		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—
Total TDRs arising during period		3	$	315	$	325		2	$	2,550	$	2,525

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended March 31, 2018 and 2017 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

($ in thousands)	For the three months ended March 31, 2018				For the three months ended March 31, 2017
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Accruing TDRs that subsequently defaulted
Real estate – mortgage – residential (1-4 family first mortgages)		—	$	—		1		626
Real estate – mortgage – commercial and other		1		570		—		—
Total accruing TDRs that subsequently defaulted		1	$	570		1	$	626