LOANS AND ALLOWANCE FOR CREDIT LOSSES | 9 Months Ended |
Sep. 30, 2013 |
Text Block [Abstract] | ' |
LOANS AND ALLOWANCE FOR CREDIT LOSSES | ' |
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES |
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The loan portfolio consists of various types of loans made principally to borrowers located in Texas and Oklahoma and is classified by major type as follows: |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | |
2013 | 2012 | | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Residential mortgage loans held for sale | | $ | 4,892 | | | $ | 10,433 | | | | | | | | | | | | | | | | | | | | | |
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Commercial and industrial | | | 1,028,799 | | | | 771,114 | | | | | | | | | | | | | | | | | | | | | |
Real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | 703,193 | | | | 550,768 | | | | | | | | | | | | | | | | | | | | | |
1-4 family residential (including home equity) | | | 1,710,621 | | | | 1,432,133 | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate (including multi-family residential) | | | 2,304,862 | | | | 1,990,642 | | | | | | | | | | | | | | | | | | | | | |
Farmland | | | 235,049 | | | | 211,156 | | | | | | | | | | | | | | | | | | | | | |
Agriculture | | | 86,469 | | | | 74,481 | | | | | | | | | | | | | | | | | | | | | |
Consumer and other (net of unearned discount) | | | 108,704 | | | | 139,213 | | | | | | | | | | | | | | | | | | | | | |
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Total loans held for investment | | | 6,177,697 | | | | 5,169,507 | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 6,182,589 | | | $ | 5,179,940 | | | | | | | | | | | | | | | | | | | | | |
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(i) Commercial and Industrial Loans. In nearly all cases, the Company’s commercial loans are made in the Company’s market areas and are underwritten on the basis of the borrower’s ability to service the debt from income. As a general practice, the Company takes as collateral a lien on any available real estate, equipment or other assets owned by the borrower and obtains a personal guaranty of the borrower or principal. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these loans. The increased risk also derives from the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans. |
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(ii) Commercial Real Estate. The Company makes commercial real estate related loans collateralized by owner-occupied and non-owner-occupied real estate to finance the purchase of real estate. The Company’s commercial real estate related loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed rates) and amortize over a 15 to 20 year period. Payments on loans secured by such properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the financial condition of the borrower. At September 30, 2013, approximately 38.0% of the outstanding principal balance of the Company’s commercial real estate related loans was secured by owner-occupied properties. |
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(iii) 1-4 Family Residential Loans. The Company originates 1-4 family residential mortgage loans and home equity loans collateralized by owner-occupied residential properties located in the Company’s market areas. The Company offers a variety of mortgage loan products which generally are amortized over five to 25 years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value or have mortgage insurance. The Company requires mortgage title insurance and hazard insurance. The Company has elected to keep all 1-4 family residential loans for its own account rather than selling such loans into the secondary market. By doing so, the Company is able to realize a higher yield on these loans; however, the Company also incurs interest rate risk as well as the risks associated with nonpayments on such loans. |
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(iv) Construction and Land Development Loans. The Company makes loans to finance the construction of residential and, to a lesser extent, nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have floating interest rates. The Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Company’s construction lending activities. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, there is no assurance that the Company will be able to recover all of the unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. While the Company has underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction lending, no assurance can be given that these procedures will prevent losses from the risks described above. |
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(v) Agriculture Loans. The Company provides agriculture loans for short-term crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture borrowers primarily based on their historical profitability, level of experience in their particular agriculture industry, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks. |
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(vi) Consumer Loans. Consumer loans made by the Company include direct credit automobile loans, recreational vehicle loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 120 months and vary based upon the nature of collateral and size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. |
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The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. |
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Concentrations of Credit. Most of the Company’s lending activity occurs within the states of Texas and Oklahoma. The majority of the Company’s loan portfolio consists of commercial and industrial, commercial real estate and 1-4 family residential loans. As of September 30, 2013 and December 31, 2012, there were no concentrations of loans related to any single industry in excess of 10% of total loans. |
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Foreign Loans. The Company has U.S. dollar denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at September 30, 2013 or December 31, 2012. |
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Related Party Loans. As of September 30, 2013 and December 31, 2012, loans outstanding to directors, officers and their affiliates totaled $6.3 million and $6.7 million, respectively. All transactions entered into between the Company and such related parties are done in the ordinary course of business, made on the same terms and conditions as similar transactions with unaffiliated persons. |
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An analysis of activity with respect to these related party loans is as follows: |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | |
2013 | 2012 | | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Beginning balance on January 1 | | $ | 6,682 | | | $ | 9,809 | | | | | | | | | | | | | | | | | | | | | |
New loans and reclassified related loans | | | 306 | | | | 967 | | | | | | | | | | | | | | | | | | | | | |
Repayments | | | (676 | ) | | | (4,094 | ) | | | | | | | | | | | | | | | | | | | | |
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Ending balance | | $ | 6,312 | | | $ | 6,682 | | | | | | | | | | | | | | | | | | | | | |
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Nonaccrual and Past Due Loans. The Company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers and the Company also monitors its delinquency levels for any negative or adverse trends. There can be no assurance, however, that the Company’s loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions. |
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The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. |
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The Company requires appraisals on loans collateralized by real estate. With respect to potential problem loans, an evaluation of the borrower’s overall financial condition is made to determine the need, if any, for possible writedowns or appropriate additions to the allowance for credit losses. |
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An aging analysis of past due loans, segregated by class of loans, is as follows: |
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| | September 30, 2013 | | | | | |
| | Loans Past Due and Still Accruing | | | | | | | | | | | | | | |
| | 30-89 Days | | | 90 or More | | | Total Past | | | Nonaccrual | | | Current | | | Total | | | | | |
Days | Due Loans | Loans | Loans | Loans | | | | |
| | (Dollars in thousands) | | | | | |
Construction and land development | | $ | 3,465 | | | $ | — | | | $ | 3,465 | | | $ | 469 | | | $ | 699,259 | | | $ | 703,193 | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 557 | | | | — | | | | 557 | | | | 23 | | | | 320,938 | | | | 321,518 | | | | | |
1-4 family (includes home equity) (1) | | | 5,655 | | | | 90 | | | | 5,745 | | | | 1,037 | | | | 1,708,731 | | | | 1,715,513 | | | | | |
Commercial real estate (includes multi-family residential) | | | 7,065 | | | | 34 | | | | 7,099 | | | | 2,223 | | | | 2,295,540 | | | | 2,304,862 | | | | | |
Commercial and industrial | | | 9,230 | | | | 148 | | | | 9,378 | | | | 1,069 | | | | 1,018,352 | | | | 1,028,799 | | | | | |
Consumer and other | | | 391 | | | | 11 | | | | 402 | | | | 133 | | | | 108,169 | | | | 108,704 | | | | | |
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Total | | $ | 26,363 | | | $ | 283 | | | $ | 26,646 | | | $ | 4,954 | | | $ | 6,150,989 | | | $ | 6,182,589 | | | | | |
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| | December 31, 2012 | | | | | |
| | Loans Past Due and Still Accruing | | | | | | | | | | | | | | |
| | 30-89 Days | | | 90 or More | | | Total Past | | | Nonaccrual | | | Current | | | Total | | | | | |
Days | Due Loans | Loans | Loans | Loans | | | | |
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Construction and land development | | $ | 3,863 | | | $ | — | | | $ | 3,863 | | | $ | 1,170 | | | $ | 545,735 | | | $ | 550,768 | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 310 | | | | 21 | | | | 331 | | | | 396 | | | | 284,910 | | | | 285,637 | | | | | |
1-4 family (includes home equity) (1) | | | 2,307 | | | | 310 | | | | 2,617 | | | | 1,598 | | | | 1,438,351 | | | | 1,442,566 | | | | | |
Commercial real estate (includes multi-family residential) | | | 9,163 | | | | — | | | | 9,163 | | | | — | | | | 1,981,479 | | | | 1,990,642 | | | | | |
Commercial and industrial | | | 4,843 | | | | — | | | | 4,843 | | | | 1,469 | | | | 764,802 | | | | 771,114 | | | | | |
Consumer and other | | | 856 | | | | — | | | | 856 | | | | 749 | | | | 137,608 | | | | 139,213 | | | | | |
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Total | | $ | 21,342 | | | $ | 331 | | | $ | 21,673 | | | $ | 5,382 | | | $ | 5,152,885 | | | $ | 5,179,940 | | | | | |
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-1 | Includes $4.9 million and $10.4 million of residential mortgage loans held for sale at September 30, 2013 and December 31, 2012, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table presents information regarding past due loans and nonperforming assets as of the dates indicated: |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Nonaccrual loans | | $ | 4,954 | | | $ | 5,382 | | | | | | | | | | | | | | | | | | | | | |
Accruing loans 90 or more days past due | | | 283 | | | | 331 | | | | | | | | | | | | | | | | | | | | | |
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Total nonperforming loans | | | 5,237 | | | | 5,713 | | | | | | | | | | | | | | | | | | | | | |
Repossessed assets | | | 18 | | | | 68 | | | | | | | | | | | | | | | | | | | | | |
Other real estate | | | 7,432 | | | | 7,234 | | | | | | | | | | | | | | | | | | | | | |
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Total nonperforming assets | | $ | 12,687 | | | $ | 13,015 | | | | | | | | | | | | | | | | | | | | | |
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Nonperforming assets to total loans and other real estate | | | 0.2 | % | | | 0.25 | % | | | | | | | | | | | | | | | | | | | | |
The Company believes its conservative lending approach has resulted in sound asset quality. The Company had $12.7 million in nonperforming assets at September 30, 2013 compared with $13.0 million at December 31, 2012. If interest on nonaccrual loans had been accrued under the original loan terms, approximately $341,000 and $252,000 would have been recorded as income for the nine months ended September 30, 2013 and 2012, respectively. |
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Purchased Credit-Impaired (PCI) Loans. In connection with the acquisition of American State Financial Corporation (ASB) on July 1, 2012, Community National Bank on October 1, 2012, East Texas Financial Services, Inc. on January 1, 2013 and Coppermark Bancshares, Inc. on April 1, 2013, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. |
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Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Company would not be able to collect all contractual amounts due were accounted for as PCI. |
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The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at September 30, 2013 and December 31, 2012 were as follows: |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | | | | | | | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
Acquired PCI loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying amount | | $ | 36,204 | | | $ | 22,880 | | | | | | | | | | | | | | | | | | | | | |
Outstanding balance | | | 77,303 | | | | 46,914 | | | | | | | | | | | | | | | | | | | | | |
The outstanding balance represents the total amount owed as of September 30, 2013 and December 31, 2012, including accrued but unpaid interest and any amounts previously charged off. No allowance for loan losses was required on the acquired PCI loans at both September 30, 2013 and December 31, 2012. |
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Changes in the accretable yield for acquired PCI loans for the three and nine month periods ended September 30, 2013 and 2012 were as follows: |
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| | Three Month Periods Ended September 30, | | | Nine Month Periods Ended September 30, | | | | | | | | | | | | | |
| | 2013 | | | 2012 | | | 2013 | | | 2012 | | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 13,011 | | | $ | — | | | $ | 7,459 | | | $ | — | | | | | | | | | | | | | |
Additions | | | 349 | | | | 8,157 | | | | 7,877 | | | | 8,157 | | | | | | | | | | | | | |
Reclassifications from nonaccretable | | | 3,088 | | | | — | | | | 4,343 | | | | — | | | | | | | | | | | | | |
Accretion | | | (5,840 | ) | | | (1,160 | ) | | | (9,071 | ) | | | (1,160 | ) | | | | | | | | | | | | |
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Balance at September 30 | | $ | 10,608 | | | $ | 6,997 | | | $ | 10,608 | | | $ | 6,997 | | | | | | | | | | | | | |
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Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. |
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Impaired loans as of September 30, 2013 are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired. The average recorded investment presented in the table below is reported on a year-to-date basis. |
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| | September 30, 2013 | | | | | | | | | | | | | |
| | Recorded | | | Unpaid | | | Related | | | Average | | | | | | | | | | | | | |
Investment | Principal | Allowance | Recorded | | | | | | | | | | | | |
| Balance | | Investment | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | $ | 257 | | | $ | 265 | | | $ | — | | | $ | 701 | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | — | | | | — | | | | — | | | | 39 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 310 | | | | 279 | | | | — | | | | 401 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 1,213 | | | | 1,237 | | | | — | | | | 832 | | | | | | | | | | | | | |
Commercial and industrial | | | 194 | | | | 54 | | | | — | | | | 141 | | | | | | | | | | | | | |
Consumer and other | | | — | | | | — | | | | — | | | | 5 | | | | | | | | | | | | | |
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Total | | | 1,974 | | | | 1,835 | | | | — | | | | 2,119 | | | | | | | | | | | | | |
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With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 23 | | | | 30 | | | | 20 | | | | 29 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 71 | | | | 96 | | | | 53 | | | | 535 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 17 | | | | 18 | | | | 17 | | | | 1,234 | | | | | | | | | | | | | |
Commercial and industrial | | | 832 | | | | 842 | | | | 741 | | | | 938 | | | | | | | | | | | | | |
Consumer and other | | | 80 | | | | 87 | | | | 69 | | | | 73 | | | | | | | | | | | | | |
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Total | | | 1,023 | | | | 1,073 | | | | 900 | | | | 2,809 | | | | | | | | | | | | | |
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Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | 257 | | | | 265 | | | | — | | | | 701 | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 23 | | | | 30 | | | | 20 | | | | 68 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 381 | | | | 375 | | | | 53 | | | | 936 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 1,230 | | | | 1,255 | | | | 17 | | | | 2,066 | | | | | | | | | | | | | |
Commercial and industrial | | | 1,026 | | | | 896 | | | | 741 | | | | 1,079 | | | | | | | | | | | | | |
Consumer and other | | | 80 | | | | 87 | | | | 69 | | | | 78 | | | | | | | | | | | | | |
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| | $ | 2,997 | | | $ | 2,908 | | | $ | 900 | | | $ | 4,928 | | | | | | | | | | | | | |
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Impaired loans as of December 31, 2012 are set forth in the following tables. No interest income was recognized on impaired loans subsequent to their classification as impaired. The average recorded investment is reported on a year-to-date basis. |
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| | December 31, 2012 | | | | | | | | | | | | | |
| | Recorded | | | Unpaid | | | Related | | | Average | | | | | | | | | | | | | |
Investment | Principal | Allowance | Recorded | | | | | | | | | | | | |
| Balance | | Investment | | | | | | | | | | | | |
| | (Dollars in thousands) | | | | | | | | | | | | | |
With no related allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | $ | 1,144 | | | $ | 1,175 | | | $ | — | | | $ | 368 | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 77 | | | | 77 | | | | — | | | | 34 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 491 | | | | 522 | | | | — | | | | 381 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 450 | | | | 476 | | | | — | | | | 676 | | | | | | | | | | | | | |
Commercial and industrial | | | 87 | | | | 89 | | | | — | | | | 75 | | | | | | | | | | | | | |
Consumer and other | | | 10 | | | | 10 | | | | — | | | | 3 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 2,259 | | | | 2,349 | | | | — | | | | 1,537 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | — | | | | — | | | | — | | | | 451 | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 34 | | | | 41 | | | | 29 | | | | 45 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 999 | | | | 1,017 | | | | 273 | | | | 720 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 2,450 | | | | 2,451 | | | | 610 | | | | 2,725 | | | | | | | | | | | | | |
Commercial and industrial | | | 1,043 | | | | 1,079 | | | | 1,002 | | | | 782 | | | | | | | | | | | | | |
Consumer and other | | | 66 | | | | 81 | | | | 67 | | | | 21 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 4,592 | | | | 4,669 | | | | 1,981 | | | | 4,744 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction and land development | | | 1,144 | | | | 1,175 | | | | — | | | | 819 | | | | | | | | | | | | | |
Agriculture and agriculture real estate (includes farmland) | | | 111 | | | | 118 | | | | 29 | | | | 79 | | | | | | | | | | | | | |
1-4 family (includes home equity) | | | 1,490 | | | | 1,539 | | | | 273 | | | | 1,101 | | | | | | | | | | | | | |
Commercial real estate (includes multi-family residential) | | | 2,900 | | | | 2,927 | | | | 610 | | | | 3,401 | | | | | | | | | | | | | |
Commercial and industrial | | | 1,130 | | | | 1,168 | | | | 1,002 | | | | 857 | | | | | | | | | | | | | |
Consumer and other | | | 76 | | | | 91 | | | | 67 | | | | 24 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,851 | | | $ | 7,018 | | | $ | 1,981 | | | $ | 6,281 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used (1-7): |
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Grade 1 – Credits in this category are of the highest standards of credit quality with virtually no risk of loss. These borrowers would represent top rated companies and individuals with unquestionable financial standing with excellent global cash flow coverage, net worth, liquidity and collateral coverage and/or secured by CD/savings accounts. |
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Grade 2 – Credits in this category are not immune for risk but are well-protected by the collateral and paying capacity of the borrower. These loans may exhibit a minor unfavorable credit factor, but the overall credit is sufficiently strong to minimize the possibility of loss. |
|
|
|
Grade 3 – Credits in this category constitute an undue and unwarranted credit risk, however the factors do not rise to a level of substandard. These credits have potential weaknesses and/or declining trends that, if not corrected, could expose the Company to risk at a future date. Credits graded 3 are monitored on the Company’s internally generated watch list and evaluated on a quarterly basis. |
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Grade 4 – Credits in this category are deemed “substandard” loans in accordance with regulatory guidelines. Loans in this category have well-defined weakness that, if not corrected, could make default of principal and interest possible, but it is not yet certain. Loans in this category are still accruing interest and may be dependent upon secondary sources of repayment and/or collateral liquidation. |
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Grade 5 – Credits in this category are deemed “substandard” and “impaired” pursuant to regulatory guidelines. As such, the Company has determined that it is probable that less than 100% of the principal and interest will be collected. Loans graded 5 are individually evaluated for a specific reserve valuation and will typically have the accrual of interest stopped. |
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Grade 6 – Credits in this category include “doubtful” loans in accordance with regulatory guidance. Such loans are on nonaccrual and factors have indicated a loss is imminent. These loans are also deemed “impaired.” While a specific reserve may be in place while the loan and collateral is being evaluated these loans are typically charged down to an amount the Company deems collectable. |
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Grade 7 – Credits in this category are deemed a “loss” in accordance with regulatory guidelines and charged off or charged down. The Company may continue collection efforts and may have partial recovery in the future. |
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The following table presents risk grades and classified loans by class of loan at September 30, 2013. Classified loans include loans in risk grades 5, 6 and 7. |
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|
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Construction | | | Agriculture and | | | 1-4 Family | | | Commercial | | | Commercial | | | Consumer and | | | Total | |
and Land | Agriculture Real | (includes | Real Estate | and Industrial | Other |
Development | Estate (includes | Home Equity) (1) | (includes Multi- | | |
| Farmland) | | Family Residential) | | |
| | (Dollars in thousands) | |
Grade 1 | | $ | — | | | $ | 4,771 | | | $ | — | | | $ | — | | | $ | 48,879 | | | $ | 31,287 | | | $ | 84,937 | |
Grade 2 | | | 694,446 | | | | 313,890 | | | | 1,701,525 | | | | 2,248,498 | | | | 962,941 | | | | 77,114 | | | | 5,998,414 | |
Grade 3 | | | 3,850 | | | | 1,044 | | | | 4,287 | | | | 12,483 | | | | 7,453 | | | | 133 | | | | 29,250 | |
Grade 4 | | | 1,551 | | | | 1,369 | | | | 6,165 | | | | 15,736 | | | | 5,876 | | | | 90 | | | | 30,787 | |
Grade 5 | | | 257 | | | | 23 | | | | 370 | | | | 1,230 | | | | 1,026 | | | | 80 | | | | 2,986 | |
Grade 6 | | | — | | | | — | | | | 11 | | | | — | | | | — | | | | — | | | | 11 | |
Grade 7 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
PCI Loans (2) | | | 3,089 | | | | 421 | | | | 3,155 | | | | 26,915 | | | | 2,624 | | | | — | | | | 36,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 703,193 | | | $ | 321,518 | | | $ | 1,715,513 | | | $ | 2,304,862 | | | $ | 1,028,799 | | | $ | 108,704 | | | $ | 6,182,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
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-1 | Includes $4.9 million of residential mortgage loans held for sale at September 30, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
-2 | Of the total PCI loans, $24.9 million were classified as substandard at September 30, 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
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The following table presents risk grades and classified loans by class of loan at December 31, 2012. Classified loans include loans in risk grades 5, 6 and 7. |
|
|
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Construction | | | Agriculture and | | | 1-4 Family | | | Commercial | | | Commercial | | | Consumer and | | | Total | |
and Land | Agriculture Real | (includes | Real Estate | and Industrial | Other |
Development | Estate (includes | Home Equity) (1) | (includes Multi- | | |
| Farmland) | | Family Residential) | | |
| | (Dollars in thousands) | |
Grade 1 | | $ | 476 | | | $ | 4,195 | | | $ | 515 | | | $ | — | | | $ | 53,965 | | | $ | 38,789 | | | $ | 97,940 | |
Grade 2 | | | 537,340 | | | | 277,333 | | | | 1,431,095 | | | | 1,945,319 | | | | 702,587 | | | | 100,163 | | | | 4,993,837 | |
Grade 3 | | | 7,250 | | | | 2,024 | | | | 4,947 | | | | 11,760 | | | | 8,926 | | | | — | | | | 34,907 | |
Grade 4 | | | 4,256 | | | | 1,694 | | | | 4,303 | | | | 11,711 | | | | 1,385 | | | | 176 | | | | 23,525 | |
Grade 5 | | | 1,144 | | | | 111 | | | | 1,477 | | | | 2,900 | | | | 1,130 | | | | 76 | | | | 6,838 | |
Grade 6 | | | — | | | | — | | | | 13 | | | | — | | | | — | | | | — | | | | 13 | |
Grade 7 | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
PCI Loans | | | 302 | | | | 280 | | | | 216 | | | | 18,952 | | | | 3,121 | | | | 9 | | | | 22,880 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 550,768 | | | $ | 285,637 | | | $ | 1,442,566 | | | $ | 1,990,642 | | | $ | 771,114 | | | $ | 139,213 | | | $ | 5,179,940 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
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-1 | Includes $10.4 million of residential mortgage loans held for sale at December 31, 2012. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for Credit Losses. The allowance for credit losses is a valuation established through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses which it believes is adequate for estimated losses in the Company’s loan portfolio. The amount of the allowance for credit losses is affected by the following: (i) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (ii) recoveries on loans previously charged off that increase the allowance and (iii) provisions for credit losses charged to earnings that increase the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. |
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The Company’s allowance for credit losses consists of two components: a specific valuation allowance based on probable losses on specifically identified loans and a general valuation allowance based on historical loan loss experience, general economic conditions and other qualitative risk factors both internal and external to the Company. |
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In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the loan portfolio. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For each impaired loan, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan requiring a reserve. The specific reserves are determined on an individual loan basis. Impaired loans are excluded from the general valuation allowance described below. |
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In determining the amount of the general valuation allowance, management considers factors such as historical loan loss experience, industry diversification of the Company’s commercial loan portfolio, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions that may affect the borrower’s ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, general economic conditions and other qualitative risk factors both internal and external to the Company and other relevant factors. |
|
Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any impaired loan. The Company uses this information to establish the amount of the general valuation allowance. |
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|
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In connection with its review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include: |
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|
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| • | | for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of collateral; | | | | | | | | | | | | | | | | | | | | | | | | | |
|
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| • | | for commercial real estate loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | for construction and land development loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio; | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | for agriculture real estate loans, the experience and financial capability of the borrower, projected debt service coverage of the operations of the borrower and loan to value ratio; and | | | | | | | | | | | | | | | | | | | | | | | | | |
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| • | | for non-real estate agriculture loans, the operating results, experience and financial capability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral. | | | | | | | | | | | | | | | | | | | | | | | | | |
In addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors. |
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At September 30, 2013, the allowance for credit losses totaled $59.9 million or 0.97% of total loans. At December 31, 2012, the allowance aggregated $52.6 million or 1.01% of total loans. |
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The following table details the recorded investment in loans and activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Construction | | | Agriculture | | | 1-4 Family | | | Commercial | | | Commercial | | | Consumer | | | Total | |
and Land | and | (includes | Real Estate | and | and Other |
Development | Agriculture | Home | (includes | Industrial | |
| Real Estate | Equity) | Multi-Family | | |
| (includes | | Residential) | | |
| Farmland) | | | | |
| | (Dollars in thousands) | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance June 30, 2013 | | $ | 11,991 | | | $ | 982 | | | $ | 13,435 | | | $ | 22,831 | | | $ | 6,293 | | | $ | 644 | | | $ | 56,176 | |
Provision for credit losses | | | 1,024 | | | | 129 | | | | 1,262 | | | | (658 | ) | | | 1,356 | | | | 912 | | | | 4,025 | |
Charge-offs | | | (14 | ) | | | (23 | ) | | | (20 | ) | | | — | | | | (188 | ) | | | (897 | ) | | | (1,142 | ) |
Recoveries | | | 44 | | | | 10 | | | | 5 | | | | 471 | | | | 69 | | | | 255 | | | | 854 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs | | | 30 | | | | (13 | ) | | | (15 | ) | | | 471 | | | | (119 | ) | | | (642 | ) | | | (288 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2013 | | $ | 13,045 | | | $ | 1,098 | | | $ | 14,682 | | | $ | 22,644 | | | $ | 7,530 | | | $ | 914 | | | $ | 59,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance January 1, 2013 | | $ | 11,909 | | | $ | 764 | | | $ | 13,942 | | | $ | 19,607 | | | $ | 5,777 | | | $ | 565 | | | $ | 52,564 | |
Provision for credit losses | | | 1,173 | | | | 352 | | | | 892 | | | | 3,309 | | | | 2,070 | | | | 1,579 | | | | 9,375 | |
Charge-offs | | | (270 | ) | | | (36 | ) | | | (182 | ) | | | (894 | ) | | | (592 | ) | | | (2,100 | ) | | | (4,074 | ) |
Recoveries | | | 233 | | | | 18 | | | | 30 | | | | 622 | | | | 275 | | | | 870 | | | | 2,048 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs | | | (37 | ) | | | (18 | ) | | | (152 | ) | | | (272 | ) | | | (317 | ) | | | (1,230 | ) | | | (2,026 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2013 | | $ | 13,045 | | | $ | 1,098 | | | $ | 14,682 | | | $ | 22,644 | | | $ | 7,530 | | | $ | 914 | | | $ | 59,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | | $ | 20 | | | $ | 53 | | | $ | 17 | | | $ | 741 | | | $ | 69 | | | $ | 900 | |
Collectively evaluated for impairment | | | 13,045 | | | | 1,078 | | | | 14,629 | | | | 22,627 | | | | 6,789 | | | | 845 | | | | 59,013 | |
PCI loans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total allowance for credit losses | | $ | 13,045 | | | $ | 1,098 | | | $ | 14,682 | | | $ | 22,644 | | | $ | 7,530 | | | $ | 914 | | | $ | 59,913 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recorded investment in loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 257 | | | $ | 23 | | | $ | 381 | | | $ | 1,230 | | | $ | 1,026 | | | $ | 80 | | | $ | 2,997 | |
Collectively evaluated for impairment | | | 699,847 | | | | 321,074 | | | | 1,711,977 | | | | 2,276,717 | | | | 1,025,149 | | | | 108,624 | | | | 6,143,388 | |
PCI loans | | | 3,089 | | | | 421 | | | | 3,155 | | | | 26,915 | | | | 2,624 | | | | — | | | | 36,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total loans evaluated for impairment | | $ | 703,193 | | | $ | 321,518 | | | $ | 1,715,513 | | | $ | 2,304,862 | | | $ | 1,028,799 | | | $ | 108,704 | | | $ | 6,182,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table details the recorded investment in loans and activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. |
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|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Construction | | | Agriculture | | | 1-4 Family | | | Commercial | | | Commercial | | | Consumer | | | Total | |
and Land | and | (includes | Real Estate | and | and Other |
Development | Agriculture | Home | (includes | Industrial | |
| Real Estate | Equity) | Multi-Family | | |
| (includes | | Residential) | | |
| Farmland) | | | | |
| | (Dollars in thousands) | |
Allowance for credit losses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance June 30, 2012 | | $ | 10,065 | | | $ | 742 | | | $ | 13,326 | | | $ | 21,406 | | | $ | 4,238 | | | $ | 605 | | | $ | 50,382 | |
Provision for credit losses | | | 359 | | | | (2 | ) | | | 299 | | | | (509 | ) | | | 660 | | | | 993 | | | | 1,800 | |
Charge-offs | | | (159 | ) | | | — | | | | (327 | ) | | | (909 | ) | | | (55 | ) | | | (1,663 | ) | | | (3,113 | ) |
Recoveries | | | 4 | | | | 30 | | | | 76 | | | | 109 | | | | 565 | | | | 1,074 | | | | 1,858 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs | | | (155 | ) | | | 30 | | | | (251 | ) | | | (800 | ) | | | 510 | | | | (589 | ) | | | (1,255 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2012 | | $ | 10,269 | | | $ | 770 | | | $ | 13,374 | | | $ | 20,097 | | | $ | 5,408 | | | $ | 1,009 | | | $ | 50,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance January 1, 2012 | | $ | 12,094 | | | $ | 511 | | | $ | 12,645 | | | $ | 21,460 | | | $ | 3,826 | | | $ | 1,058 | | | $ | 51,594 | |
Provision for credit losses | | | (469 | ) | | | 226 | | | | 1,121 | | | | (250 | ) | | | 1,237 | | | | 685 | | | | 2,550 | |
Charge-offs | | | (1,368 | ) | | | — | | | | (478 | ) | | | (1,278 | ) | | | (376 | ) | | | (2,101 | ) | | | (5,601 | ) |
Recoveries | | | 12 | | | | 33 | | | | 86 | | | | 165 | | | | 721 | | | | 1,367 | | | | 2,384 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net charge-offs | | | (1,356 | ) | | | 33 | | | | (392 | ) | | | (1,113 | ) | | | 345 | | | | (734 | ) | | | (3,217 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance September 30, 2012 | | $ | 10,269 | | | $ | 770 | | | $ | 13,374 | | | $ | 20,097 | | | $ | 5,408 | | | $ | 1,009 | | | $ | 50,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 26 | | | $ | 61 | | | $ | 336 | | | $ | 567 | | | $ | 1,180 | | | $ | 20 | | | $ | 2,190 | |
Collectively evaluated for impairment | | | 10,243 | | | | 709 | | | | 13,038 | | | | 19,530 | | | | 4,228 | | | | 989 | | | | 48,737 | |
PCI loans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total allowance for credit losses | | $ | 10,269 | | | $ | 770 | | | $ | 13,374 | | | $ | 20,097 | | | $ | 5,408 | | | $ | 1,009 | | | $ | 50,927 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recorded investment in loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | 86 | | | $ | 143 | | | $ | 1,448 | | | $ | 3,170 | | | $ | 1,395 | | | $ | 20 | | | $ | 6,262 | |
Collectively evaluated for impairment | | | 495,005 | | | | 303,913 | | | | 1,396,114 | | | | 1,950,488 | | | | 751,379 | | | | 148,361 | | | | 5,045,260 | |
PCI loans | | | 1,326 | | | | 78 | | | | 155 | | | | 22,454 | | | | 3,568 | | | | — | | | | 27,581 | |
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Total loans evaluated for impairment | | $ | 496,417 | | | $ | 304,134 | | | $ | 1,397,717 | | | $ | 1,976,112 | | | $ | 756,342 | | | $ | 148,381 | | | $ | 5,079,103 | |
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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. |
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During the nine months ended September 30, 2013, a $249,000 loan was restructured. Default is determined at 90 or more days past due. The restructured loans from prior periods are performing and accruing loans. |
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