Loans | (4) Loans Major categories of loans included in the loan portfolio as of December 31, 2015 and 2014 are: December 31, 2015 2014 Loans excluding PCI loans Real estate loans Residential $ 647,496 $ 589,068 Commercial 1,254,782 1,132,933 Land, development and construction 105,276 79,002 Total real estate 2,007,554 1,801,003 Commercial 307,321 294,493 Consumer and other loans 67,500 56,334 Loans before unearned fees and deferred cost 2,382,375 2,151,830 Net unearned fees and costs 873 929 Total loans excluding PCI loans 2,383,248 2,152,759 PCI loans (note 1) Real estate loans Residential 86,104 102,009 Commercial 105,629 140,977 Land, development and construction 15,548 24,032 Total real estate 207,281 267,018 Commercial 2,771 8,953 Consumer and other loans 476 795 Total PCI loans 210,528 276,766 Total loans 2,593,776 2,429,525 Allowance for loan losses for loans that are not PCI loans (22,143 ) (19,384 ) Allowance for loan losses for PCI loans (121 ) (514 ) Total loans, net of allowance for loan losses $ 2,571,512 $ 2,409,627 note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30. The following sets forth the covered FDIC loans included in the table above. December 31, 2015 2014 FDIC covered loans that are not PCI loans Real estate loans Residential $ 3,126 $ 3,895 Commercial 22,401 33,606 Land, development and construction 627 866 Total real estate 26,154 38,367 Commercial 828 1,253 FDIC covered loans, excluding PCI loans 26,982 39,620 FDIC covered PCI loans (note 1) Real estate loans Residential 79,398 98,075 Commercial 58,692 116,457 Land, development and construction 10,161 15,395 Total real estate 148,251 229,927 Commercial 2,087 4,974 Total FDIC covered PCI loans 150,338 234,901 Total FDIC covered loans 177,320 274,521 Allowance for loan losses for FDIC covered loans that are not PCI loans (72 ) - Allowance for loans losses for FDIC covered PCI loans (107 ) (514 ) Total covered loans, net of allowance for loan losses $ 177,141 $ 274,007 note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30. The Company acquired FDIC covered loans that are not PCI loans pursuant to the acquisition of FSB on June 1, 2014. Prior to the FSB acquisition, the Company’s FDIC covered loans were all PCI loans. Changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2015, 2014 and 2013, are below. Real Estate Loans Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses for loans that are not PCI loans: Twelve months ended December 31, 2015 Beginning of the period $ 6,743 $ 8,269 $ 752 $ 2,330 $ 1,290 $ 19,384 Charge-offs (1,283 ) (173 ) (461 ) (1,121 ) (853 ) (3,891 ) Recoveries 901 485 5 344 156 1,891 Provision for loan losses (346 ) 1,978 640 1,659 828 4,759 Balance at end of period $ 6,015 $ 10,559 $ 936 $ 3,212 $ 1,421 $ 22,143 Twelve months ended December 31, 2014 Beginning of the period $ 8,785 $ 6,441 $ 3,069 $ 510 $ 889 $ 19,694 Charge-offs (1,382 ) (353 ) (124 ) (699 ) (879 ) (3,437 ) Recoveries 1,018 763 106 85 184 2,156 Provision for loan losses (1,678 ) 1,418 (2,299 ) 2,434 1,096 971 Balance at end of period $ 6,743 $ 8,269 $ 752 $ 2,330 $ 1,290 $ 19,384 Twelve months ended December 31, 2013 Beginning of the period $ 6,831 $ 8,272 $ 6,211 $ 1,745 $ 974 $ 24,033 Charge-offs (3,701 ) (1,144 ) (310 ) (120 ) (903 ) (6,178 ) Recoveries 432 417 193 51 181 1,274 Provision for loan losses 5,223 (1,104 ) (3,025 ) (1,166 ) 637 565 Balance at end of period $ 8,785 $ 6,441 $ 3,069 $ 510 $ 889 $ 19,694 Allowance for loan losses for loans that are PCI loans: Twelve months ended December 31, 2015 Beginning of the period $ - $ 372 $ 6 $ 136 $ - $ 514 Charge-offs - (77 ) - - (50 ) (127 ) Recoveries - - - - - - Provision for loan losses - (192 ) (5 ) (133 ) 64 (266 ) Balance at end of period $ - $ 103 $ 1 $ 3 $ 14 $ 121 Twelve months ended December 31, 2014 Beginning of the period $ - $ 138 $ 89 $ 533 $ - $ 760 Charge-offs - - - (101 ) - (101 ) Recoveries - - - - - - Provision for loan losses - 234 (83 ) (296 ) - (145 ) Balance at end of period $ - $ 372 $ 6 $ 136 $ - $ 514 Twelve months ended December 31, 2013 Beginning of the period $ - $ 2,335 $ - $ 314 $ - $ 2,649 Charge-offs - (1,248 ) - - - (1,248 ) Recoveries - - - - - - Provision for loan losses - (949 ) 89 219 - (641 ) Balance at end of period $ - $ 138 $ 89 $ 533 $ - $ 760 The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2015 and 2014. Accrued interest receivable and unearned fees/costs are not included in the recorded investment because they are not material. Real Estate Loans As of December 31, 2015 Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 402 $ 478 $ 164 $ 7 $ 29 $ 1,080 Collectively evaluated for impairment 5,613 10,081 772 3,205 1,392 21,063 Purchased credit impaired - 103 1 3 14 121 Total ending allowance balance $ 6,015 $ 10,662 $ 937 $ 3,215 $ 1,435 $ 22,264 Loans: Individually evaluated for impairment $ 8,096 $ 11,482 $ 2,267 $ 1,057 $ 273 $ 23,175 Collectively evaluated for impairment 639,400 1,243,300 103,009 306,264 67,227 2,359,200 Purchased credit impaired 86,104 105,629 15,548 2,771 476 210,528 Total ending loan balances $ 733,600 $ 1,360,411 $ 120,824 $ 310,092 $ 67,976 $ 2,592,903 Real Estate Loans As of December 31, 2014 Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 419 $ 403 $ 272 $ 4 $ 17 $ 1,115 Collectively evaluated for impairment 6,324 7,866 480 2,326 1,273 18,269 Purchased credit impaired — 372 6 136 - 514 Total ending allowance balance $ 6,743 $ 8,641 $ 758 $ 2,466 $ 1,290 $ 19,898 Loans: Individually evaluated for impairment $ 9,980 $ 10,902 $ 2,748 $ 1,365 $ 255 $ 25,250 Collectively evaluated for impairment 579,088 1,122,031 76,254 293,128 56,079 2,126,580 Purchased credit impaired 102,009 140,977 24,032 8,953 795 276,766 Total ending loan balance $ 691,077 $ 1,273,910 $ 103,034 $ 303,446 $ 57,129 $ 2,428,596 Loans collectively evaluated for impairment reported at December 31, 2015 include loans acquired from FSB on June 1, 2014 and from GSB on January 17, 2014 that are not PCI loans. These loans were performing loans recorded at estimated fair value at the acquisition date. The aggregate fair value adjustment for these loans at their respective acquisition dates was approximately $17,761, or approximately 2.1% of the aggregate acquisition date balances. The amount is accreted into interest income over the remaining lives of the related loans on a level yield basis. The aggregate unamortized acquisition date fair value adjustment was approximately $9,354 and $13,074, which represents approximately 1.59% and 1.82% of the remaining outstanding balance of these acquired loans at December 31, 2015 and 2014, respectively. Management has also estimated probable incurred losses based on performance since the respective acquisition dates, and based on these estimates, has included $2,712 in the Company’s general loan allowance with respect to these acquired loans. Management believes the Company’s allowance for loan losses is adequate at December 31, 2015. The following is a summary of information regarding impaired loans at December 31, 2015 and 2014: December 31, 2015 2014 Performing TDRs (these are not included in nonperforming loans (“NPLs”)) $ 10,254 $ 11,418 Nonperforming TDRs (these are included in NPLs) 4,873 3,648 Total TDRs (these are included in impaired loans) 15,127 15,066 Impaired loans that are not TDRs 8,048 10,184 Total impaired loans $ 23,175 $ 25,250 Troubled Debt Restructurings: In certain circumstances it may be beneficial to modify or restructure the terms of a loan (i.e. troubled debt restructure or “TDR”) and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in an unfavorable real estate market. When the Company modifies the terms of a loan, it usually either reduces the monthly payment and/or interest rate for generally twelve to twenty-four months. The Company has not forgiven any material principal amounts on any loan modifications to date. The Company has $15,127 of TDRs. Of this amount $10,254 are performing pursuant to their modified terms, and $4,873 are not performing and have been placed on non-accrual status and included in our nonperforming loans (“NPLs”). TDRs as of December 31, 2015 and 2014 quantified by loan type classified separately as accrual (performing loans) and non-accrual (nonperforming loans) are presented in the table below. As of December 31, 2015 Accruing Non Accrual Total Real estate loans: Residential $ 5,987 $ 2,108 $ 8,095 Commercial 2,458 2,558 5,016 Land, development, construction 593 93 686 Total real estate loans 9,038 4,759 13,797 Commercial 991 66 1,057 Consumer and other 225 48 273 Total TDRs $ 10,254 $ 4,873 $ 15,127 As of December 31, 2014 Accruing Non-Accrual Total Real estate loans: Residential $ 7,201 $ 1,523 $ 8,724 Commercial 2,762 1,794 4,556 Land, development, construction 547 241 788 Total real estate loans 10,510 3,558 14,068 Commercial 706 37 743 Consumer and other 202 53 255 Total TDRs $ 11,418 $ 3,648 $ 15,066 The Company’s policy is to return non-accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. The Company’s policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of $350, $422 and $890 and partial charge offs of $272, $251 and $449 on TDR loans during the periods ending December 31, 2015, 2014 and 2013, respectively. Loans are modified to minimize loan losses when management believes the modification will improve the borrower’s financial condition and ability to repay the loan. The Company typically does not forgive principal. The Company generally either reduces interest rates or decreases monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. The Company may also extend maturities, convert balloon loans to longer term amortizing loans, or vice versa, or change interest rates between variable and fixed rate. Each borrower and situation is unique and management tries to accommodate the borrower and minimize the Company’s potential losses. Approximately 68% of the Company’s TDRs are current pursuant to their modified terms, and $4,873, or approximately 32% of the Company’s total TDRs are not performing pursuant to their modified terms. There does not appear to be any significant difference in success rates with one type of concession versus another. Loans modified as TDRs during the twelve month periods ending December 31, 2015, 2014 and 2013 were $4,442, $3,518 and $5,864. The Company recorded a loan loss provision of $221, $200 and $656 for loans modified during the twelve month periods ending December 31, 2015, 2014 and 2013. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the years ending December 31, 2015, 2014 and 2013. Year Ending Year Ending Year Ending December 31, 2015 December 31, 2014 December 31, 2013 Number Recorded Number Recorded Number Recorded of loans investment of loans investment of loans investment Residential 3 $ 588 1 $ 188 3 $ 562 Commercial real estate 3 1,341 5 747 5 1,662 Land, development, construction - - 2 241 — — Commercial and Industrial 1 66 — — 1 25 Consumer and other - - 2 36 1 18 Total 7 $ 1,995 10 1,212 10 $ 2,267 The Company recorded $152, $97 and $574 in provision for loan loss expense and $153, $65 and $197 in partial charge offs on TDR loans that subsequently defaulted as described above during the years ending December 31, 2015, 2014 and 2013, respectively. The Company has allocated $720 and $779 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2015 and 2014. The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings. The following tables present loans individually evaluated for impairment by class of loans as of December 31, 2015 and 2014 excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30. The recorded investment is less than the unpaid principal balance primarily due to partial charge-offs. As of December 31, 2015 Unpaid principal Recorded investment Allowance for loan losses allocated With no related allowance recorded: Residential real estate $ 5,784 $ 5,465 $ - Commercial real estate 9,595 9,202 - Land, development, construction 1,869 1,229 - Commercial and industrial 585 577 - Consumer, other 109 103 - With an allowance recorded: Residential real estate 2,682 2,631 402 Commercial real estate 2,538 2,280 478 Land, development, construction 1,065 1,038 164 Commercial and industrial 484 480 7 Consumer, other 179 170 29 Total $ 24,890 $ 23,175 $ 1,080 As of December 31, 2014 Unpaid principal balance Recorded investment Allowance for loan losses allocated With no related allowance recorded: Residential real estate $ 6,797 $ 6,672 $ - Commercial real estate 8,208 8,059 - Land, development, construction 2,234 1,606 - Commercial and industrial 1,132 1,129 - Consumer, other - - With an allowance recorded: Residential real estate 3,451 3,308 419 Commercial real estate 3,024 2,843 403 Land, development, construction 1,187 1,142 272 Commercial and industrial 283 236 4 Consumer, other 267 255 17 Total $ 26,583 $ 25,250 $ 1,115 December 31, 2015 Average of impaired loans Interest income recognized during Cash basis interest income Real estate loans: Residential $ 8,623 $ 241 $ - Commercial 10,874 259 - Land, development, construction 1,998 31 - Total real estate loans 21,495 531 - Commercial and industrial 946 39 - Consumer and other loans 329 14 - Total $ 22,770 $ 584 $ - December 31, 2014 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 9,584 $ 318 $ - Commercial 12,282 145 - Land, development, construction 2,138 37 - Total real estate loans 24,004 500 - Commercial and industrial 2,001 67 - Consumer and other loans 296 12 - Total $ 26,301 $ 579 $ - December 31, 2013 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 8,968 $ 290 $ - Commercial 26,060 870 - Land, development, construction 1,405 17 - Total real estate loans 36,433 1,177 - Commercial and industrial 1,878 35 - Consumer and other loans 363 11 - Total $ 38,674 $ 1,223 $ - The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of December 31, 2015 and 2014 excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30: As of December 31, 2015 Nonaccrual Loans past due over 90 days still accruing Residential real estate $ 9,540 $ - Commercial real estate 9,145 - Land, development, construction 1,608 - Commercial 187 - Consumer, other 353 - Total $ 20,833 $ - As of December 31, 2014 Nonaccrual Loans past due over 90 days still accruing Residential real estate $ 11,901 $ - Commercial real estate 8,470 - Land, development, construction 2,374 - Commercial 2,475 - Consumer, other 375 - Total $ 25,595 $ - The following tables present the aging of the recorded investment in past due loans as of December 31, 2015 and 2014, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30: Accruing Loans Total 30 - 59 days past due 60 - 89 days past due Greater than 90 days past due Total Past Due Loans Not Past Due Nonaccrual Loans As of December 31, 2015 Residential real estate $ 647,496 $ 2,118 $ 3,089 $ - $ 5,207 $ 632,749 $ 9,540 Commercial real estate 1,254,782 4,647 2,170 - 6,817 1,238,820 9,145 Land/dev/construction 105,276 280 595 - 875 102,793 1,608 Commercial 307,321 1,101 348 - 1,449 305,685 187 Consumer 67,500 285 90 - 375 66,772 353 $ 2,382,375 $ 8,431 $ 6,292 $ - $ 14,723 $ 2,346,819 $ 20,833 Accruing Loans Total 30 - 59 days past due 60 - 89 days past due Greater than 90 days past due Total Past Due Loans Not Past Due Nonaccrual Loans As of December 31, 2014 Residential real estate $ 589,068 $ 2,162 $ 1,451 $ - $ 3,613 $ 573,554 $ 11,901 Commercial real estate 1,132,933 1,840 3,394 - 5,234 1,119,229 8,470 Land/dev/construction 79,002 378 404 - 782 75,846 2,374 Commercial 294,493 1,427 1,492 - 2,919 289,099 2,475 Consumer 56,334 411 149 - 560 55,399 375 $ 2,151,830 $ 6,218 $ 6,890 $ - $ 13,108 $ 2,113,127 $ 25,595 Credit Quality Indicators: The Company categorizes loans into 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, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’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 the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. 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 liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2015 and 2014, and based on the most recent analysis performed, the risk category of loans by class of loans, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30, is as follows: As of December 31, 2015 Loan Category Pass Special Mention Substandard Doubtful Residential real estate $ 620,735 $ 9,585 $ 17,598 $ - Commercial real estate 1,194,368 47,885 31,907 - Land/dev/construction 96,629 5,896 3,495 - Commercial 301,838 4,077 3,502 - Consumer 66,798 297 520 - Total $ 2,280,368 $ 67,740 $ 57,022 $ - As of December 31, 2014 Loan Category Pass Special Mention Substandard Doubtful Residential real estate $ 558,312 $ 7,053 $ 23,703 $ - Commercial real estate 1,063,979 34,953 34,001 - Land/dev/construction 65,216 9,731 4,055 - Commercial 285,549 4,419 4,525 - Consumer 55,590 278 466 - Total $ 2,028,646 $ 56,434 $ 66,750 $ - The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30, based on payment activity as of December 31, 2015 and 2014: As of December 31, 2015 Residential Consumer Performing $ 637,956 $ 67,147 Nonperforming 9,540 353 Total $ 647,496 $ 67,500 As of December 31, 2014 Residential Consumer Performing $ 577,167 $ 55,959 Nonperforming 11,901 375 Total $ 589,068 $ 56,334 Purchased Credit Impaired (“PCI”) Loans: Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of December 31, 2015, 2014 and 2013. Contractually required principal and interest payments have been adjusted for estimated prepayments. December 31, 2015 2014 2013 Contractually required principal and interest $ 332,570 $ 460,836 $ 389,537 Non-accretable difference (19,452 ) (68,757 ) (55,304 ) Cash flows expected to be collected 313,118 392,079 334,233 Accretable yield (102,590 ) (115,313 ) (102,812 ) Carrying value of acquired loans 210,528 276,766 231,421 Allowance for loan losses (121 ) (514 ) (760 ) Carrying value less allowance for loan losses $ 210,407 $ 276,252 $ 230,661 The Company recorded $(266), $(145) and $(641) in loan loss provision expense on PCI loans during the years ending December 31, 2015, 2014 and 2013, respectively. There were no reversals in the loan loss allowance for recoveries in 2015, 2014 and 2013, respectively. The Company adjusted its estimates of future expected losses, cash flows and renewal assumptions during the current year. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. The Company reclassified approximately $28,394, $14,892 and $41,454 from non-accretable difference to accretable yield during the twelve month periods ending December 31, 2015, 2014 and 2013, respectively, to reflect the adjusted estimates of future expected cash flows. The Company recognized approximately $40,645 of accretion income during the twelve month period ending December 31, 2015. The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans during the periods ending December 31, 2015, 2014 and 2013. income all other December 31, 2014 accretion adjustments December 31, 2015 Contractually required principal and interest $ 460,836 $ - $ (128,266 ) $ 332,570 Non-accretable difference (68,757 ) - 49,305 (19,452 ) Cash flows expected to be collected 392,079 - (78,961 ) 313,118 Accretable yield (115,313 ) 40,645 (27,922 ) (102,590 ) Carry value of acquired loans $ 276,766 $ 40,645 $ (106,883 ) $ 210,528 Effect of income all other December 31, 2013 acquisitions accretion adjustments December 31, 2014 Contractually required principal and interest $ 389,537 $ 229,249 $ - $ (157,950 ) $ 460,836 Non-accretable difference (55,304 ) (45,293 ) - 31,840 (68,757 ) Cash flows expected to be collected 334,233 183,956 - (126,110 ) 392,079 Accretable yield (102,812 ) (32,204 ) 34,168 (14,465 ) (115,313 ) Carry value of acquired loans $ 231,421 $ 151,752 $ 34,168 $ (140,575 ) $ 276,766 income accretion all other adjustments December 31, 2012 December 31, 2013 Contractually required principal and interest $ 534,989 $ - $ (145,452 ) $ 389,537 Non-accretable difference (142,855 ) - 87,551 (55,304 ) Cash flows expected to be collected 392,134 - (57,901 ) 334,233 Accretable yield (93,107 ) 32,725 (42,430 ) (102,812 ) Carry value of acquired loans $ 299,027 $ 32,725 $ (100,331 ) $ 231,421 |