Loans

3 Months Ended

Mar. 31, 2014

Loans

Loans

(4) Loans

The composition of loans by primary loan portfolio segment follows:

(in thousands)	March 31, 2014		December 31, 2013
Commercial and industrial	$	511,247	$	510,739
Construction and development, excluding undeveloped land	88,108		99,719
Undeveloped land	29,209		29,871
Real estate mortgage	1,066,595		1,046,823
Consumer	33,460		34,198
Total loans	$	1,728,619	$	1,721,350

The following table presents the balance in the recorded investment in loans and allowance for loan losses by portfolio segment and based on impairment evaluation method as of March 31, 2014 and December 31, 2013.

	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
(in thousands)	industrial		land		land		mortgage		Consumer		Total
March 31, 2014
Loans	$	511,247	$	88,108	$	29,209	$	1,066,595	$	33,460	$	1,728,619
Loans individually evaluated for impairment	$	7,653	$	26	$	6,988	$	5,273	$	82	$	20,022
Loans collectively evaluated for impairment	$	502,967	$	87,021	$	22,221	$	1,060,820	$	33,360	$	1,706,389
Loans acquired with deteriorated credit quality	$	627	$	1,061	$	—	$	502	$	18	$	2,208

				Construction
				and development
	Commercial			excluding
	and			undeveloped			Undeveloped			Real estate
	industrial			land			land			mortgage			Consumer			Unallocated		Total
Allowance for loan losses
At December 31, 2013	$	7,644		$	2,555		$	5,376		$	12,604		$	343		$	—	$	28,522
Provision	(145		)	(628		)	925			185			13			—		350
Charge-offs	—			—			(30		)	(294		)	(195		)	—		(519		)
Recoveries	9			—			31			20			178			—		238
At March 31, 2014	$	7,508		$	1,927		$	6,302		$	12,515		$	339		$	—	$	28,591
Allowance for loans individually evaluated for impairment	$	746		$	—		$	—		$	439		$	82				$	1,267
Allowance for loans collectively evaluated for impairment	$	6,762		$	1,927		$	6,302		$	12,076		$	257		$	—	$	27,324
Balance: loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—				$	—

	Type of loan
			Construction
			and development
	Commercial		excluding
	and		undeveloped		Undeveloped		Real estate
(in thousands)	industrial		land		land		mortgage		Consumer		Total
December 31, 2013
Loans	$	510,739	$	99,719	$	29,871	$	1,046,823	$	34,198	$	1,721,350
Loans individually evaluated for impairment	$	7,579	$	26	$	7,340	$	7,478	$	84	$	22,507
Loans collectively evaluated for impairment	$	502,535	$	98,428	$	22,531	$	1,038,824	$	34,095	$	1,696,413
Loans acquired with deteriorated credit quality	$	625	$	1,265	$	—	$	521	$	19	$	2,430

				Construction
				and development
	Commercial			excluding
	and			undeveloped			Undeveloped			Real estate
	industrial			land			land			mortgage			Consumer			Unallocated			Total
Allowance for loan losses
At December 31, 2012	$	5,949		$	4,536		$	—		$	14,288		$	362		$	6,746		$	31,881
Provision	1,583			(2,119		)	13,256			490			86			(6,746		)	6,550
Charge-offs	(457		)	(25		)	(7,961		)	(2,758		)	(763		)	—			(11,964		)
Recoveries	569			163			81			584			658			—			2,055
At December 31, 2013	$	7,644		$	2,555		$	5,376		$	12,604		$	343		$	—		$	28,522
Allowance for loans individually evaluated for impairment	$	762		$	—		$	—		$	606		$	84					$	1,452
Allowance for loans collectively evaluated for impairment	$	6,882		$	2,555		$	5,376		$	11,998		$	259		$	—		$	27,070

Management uses the following portfolio segments of loans when assessing and monitoring the risk and performance of the loan portfolio:

· Commercial and industrial

· Construction and development, excluding undeveloped land

· Undeveloped land

· Real estate mortgage

· Consumer

Bancorp has loans that were acquired in the Oldham acquisition, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is included in the balance sheet amounts of loans at March 31, 2014 and December 31, 2013.

The changes in accretable discount related to credit impaired acquired loans are as follows:

(in thousands)
Balance at December 31, 2012	$	—
Additions due to Oldham acquisition	174
Accretion	(37		)
Reclassifications from (to) non-accretable difference	—
Disposals	—
Balance at December 31, 2013	137
Accretion	(28		)
Reclassifications from (to) non-accretable difference	—
Disposals	—
Balance at March 31, 2014	$	109

The following table presents loans individually evaluated for impairment as of March 31, 2014 and December 31, 2013.

			Unpaid				Average
	Recorded		principal		Related		recorded
(in thousands)	investment		balance		allowance		investment
March 31, 2014
Loans with no related allowance recorded
Commercial and industrial	$	1,244	$	1,387	$	—	$	1,037
Construction and development, excluding undeveloped land	26		151		—		26
Undeveloped land	6,988		9,675		—		7,164
Real estate mortgage	3,396		4,086		—		3,564
Consumer	—		—		—		—
Subtotal	11,654		15,299		—		11,791
Loans with an allowance recorded
Commercial and industrial	$	6,409	$	6,409	$	746	$	6,579
Construction and development, excluding undeveloped land	—		—		—		—
Undeveloped land	—		—		—		—
Real estate mortgage	1,877		1,877		439		2,812
Consumer	82		82		82		83
Subtotal	8,368		8,368		1,267		9,474
Total
Commercial and industrial	$	7,653	$	7,796	$	746	$	7,616
Construction and development, excluding undeveloped land	26		151		—		26
Undeveloped land	6,988		9,675		—		7,164
Real estate mortgage	5,273		5,963		439		6,376
Consumer	82		82		82		83
Total	$	20,022	$	23,667	$	1,267	$	21,265

			Unpaid				Average
	Recorded		principal		Related		recorded
(in thousands)	investment		balance		allowance		investment
December 31, 2013
Loans with no related allowance recorded
Commercial and industrial	$	830	$	974	$	—	$	4,499
Construction and development, excluding undeveloped land	26		151		—		54
Undeveloped land	7,340		9,932		—		3,272
Real estate mortgage	3,731		5,069		—		5,559
Consumer	—		—		—		3
Subtotal	11,927		16,126		—		13,387
Loans with an allowance recorded
Commercial and industrial	$	6,749	$	6,749	$	762	$	3,806
Construction and development, excluding undeveloped land	—		—		—		259
Undeveloped land	—		—		—		7,152
Real estate mortgage	3,747		4,065		606		3,705
Consumer	84		84		84		34
Subtotal	10,580		10,898		1,452		14,956
Total
Commercial and industrial	$	7,579	$	7,723	$	762	$	8,305
Construction and development, excluding undeveloped land	26		151		—		313
Undeveloped land	7,340		9,932		—		10,424
Real estate mortgage	7,478		9,134		606		9,264
Consumer	84		84		84		37
Total	$	22,507	$	27,024	$	1,452	$	28,343

Differences between recorded investment amounts and unpaid principal balance amounts are due to partial charge-offs which have occurred over the life of loans and fair value adjustments recorded for loans acquired.

Impaired loans include non-accrual loans and loans accounted for as troubled debt restructurings (TDR), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over 90 days past due and still accruing interest.  Loans past due more than 90 days or more and still accruing interest amounted to $439,000 at March 31, 2014 and $437,000 at December 31, 2013.

The following table presents the recorded investment in non-accrual loans as of March 31, 2014 and December 31, 2013.

(in thousands)	March 31, 2014		December 31, 2013
Commercial and industrial	$	884	$	846
Construction and development, excluding undeveloped land	26		26
Undeveloped land	6,988		7,340
Real estate mortgage	4,843		7,046
Consumer	—		—
Total	$	12,741	$	15,258

At March 31, 2014 and December 31, 2013, Bancorp had loans classified as TDR of $7.3 million and $7.2 million, respectively.  Bancorp did not modify and classify any loans as TDR during the three months ended March 31, 2014 or March 31, 2013.

The following table presents the recorded investment in loans accounted for as TDR that were restructured and experienced a payment default within the previous 12 months as of March 31, 2014.

	Number of
(dollars in thousands)	Contracts	Recorded Investment
March 31, 2014
Commercial & industrial	1	$	790
Total	1	$	790

Bancorp did not have any loans that were restructured and experience a payment default within the previous 12 months as of March 31, 2013.

Loans accounted for as TDR include modifications from original terms due to bankruptcy proceedings, modifications of amortization periods or temporary suspension of principal payments due to customer financial difficulties.  Loans accounted for as TDR, which have not defaulted, are individually evaluated for impairment and, at March 31, 2014, had a total allowance allocation of $937,000, compared to $942,000 at December 31, 2013.

At March 31, 2014 and December 31, 2013, Bancorp had outstanding commitments to lend additional funds totaling $111,000 and $262,000, respectively, for loans modified as TDR.

The following table presents the aging of loans as of March 31, 2014 and December 31, 2013.

					Greater
					than								Recorded
					90 days								investment
					past due								> 90 days
	30-59 days		60-89 days		(includes		Total				Total		and
(in thousands)	past due		past due		non-accrual)		past due		Current		loans		accruing
March 31, 2014
Commercial and industrial	$	415	$	379	$	917	$	1,711	$	509,536	$	511,247	$	33
Construction and development, excluding undeveloped land	244		—		26		270		87,838		88,108		—
Undeveloped land	—		—		6,988		6,988		22,221		29,209		—
Real estate mortgage	8,077		2,199		5,249		15,525		1,051,070		1,066,595		406
Consumer	105		42		—		147		33,313		33,460		—
Total	$	8,841	$	2,620	$	13,180	$	24,641	$	1,703,978	$	1,728,619	$	439
December 31, 2013
Commercial and industrial	$	808	$	201	$	1,268	$	2,277	$	508,462	$	510,739	$	421
Construction and development, excluding undeveloped land	429		—		26		455		99,264		99,719		—
Undeveloped land	—		—		7,340		7,340		22,531		29,871		—
Real estate mortgage	4,529		1,180		7,062		12,771		1,034,052		1,046,823		16
Consumer	110		—		—		110		34,088		34,198		—
Total	$	5,876	$	1,381	$	15,696	$	22,953	$	1,698,397	$	1,721,350	$	437

Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends.  Pass-rated loans included all risk-rated loans other than those classified as special mention, substandard, and doubtful, which are defined below:

· Special Mention:  Loans classified as special mention have a potential weakness that deserves management’s close attention.  These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp’s credit position at some future date.

· Substandard:  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize repayment of the debt.  They are characterized by the distinct possibility that Bancorp will sustain some loss if the deficiencies are not corrected.

· Substandard non-performing:  Loans classified as substandard-non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings.

· Doubtful:  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

As of March 31, 2014 and December 31, 2013, the risk categories of loans were as follows:

Credit risk profile by internally assigned grade

(in thousands)	Commercial and industrial		Construction and development, excluding undeveloped land		Undeveloped land		Real estate mortgage		Consumer		Total
March 31, 2014
Grade
Pass	$	492,970	$	77,048	$	21,517	$	1,040,582	$	33,296	$	1,665,413
Special mention	7,104		5,944		540		15,099		82		28,769
Substandard	3,025		4,682		164		4,745		—		12,616
Substandard non- performing	8,148		434		6,988		6,169		82		21,821
Doubtful	—		—		—		—		—		—
Total	$	511,247	$	88,108	$	29,209	$	1,066,595	$	33,460	$	1,728,619
December 31, 2013
Grade
Pass	$	486,140	$	87,896	$	22,366	$	1,014,216	$	34,028	$	1,644,646
Special mention	12,983		7,091		—		17,916		86		38,076
Substandard	3,616		4,706		165		7,197		—		15,684
Substandard non- performing	8,000		26		7,340		7,494		84		22,944
Doubtful	—		—		—		—		—		—
Total	$	510,739	$	99,719	$	29,871	$	1,046,823	$	34,198	$	1,721,350