Loans | Note 6—Loans The following table presents the company’s composition of loans, net of capitalized origination costs and unearned income, in dollar amounts and as a percentage of total loans, as of the dates stated: December 31, 2015 December 31, 2014 Amount Percent of Total Amount Percent of Total Commercial and industrial $ 370,612 47.6% $ 359,243 47.9% Commercial real estate 302,814 38.8% 267,489 35.6% Residential real estate 36,190 4.6% 40,859 5.4% Consumer 12,577 1.6% 11,456 1.5% Guaranteed student loans 57,308 7.4% 71,780 9.6% Overdrafts 27 0.0% 46 0.0% Total loans 779,528 100.0% 750,873 100.0% Allowance for loan and lease losses (7,350) (6,247) Total loans, net of allowance $ 772,178 $ 744,626 Total loans include unearned fees, net of capitalized origination costs, of $ 358 thousand and $ 297 thousand, respectively, for the year s ended December 31, 2015 and 2014 . As of December 31, 2015 , $ 279.0 million of loans were pledged as collateral for borrowing capacity. As of December 31, 2015 , the company had $57.3 million of guaranteed student loans recorded as loans held for investment on its consolidated balance sheet. This balance includes premium and acquisition costs of $1.5 million and $ 835 thousand, respectively, which are amortized into interest income on the effective interest method. The guaranteed student loans were originated under the Federal Family Education Loan Program (“FFELP”), authorized by the Higher Education Act of 1965, as amended. Pursuant to the FFELP, these student loans are substantially guaranteed by a guarantee agency and reinsured by the U.S. Department of Education. The purchased loans were also part of the Federal Rehabilitated Loan Program, under which borrowers under defaulted loans have the one-time opportunity to bring their loans current. These loans, which are then owned by an agency guarantor, are brought current and sold to approved lenders. The guaranteed student loans carry an approximate 98% federal government guarantee of principal and accrued interest. The following tables present the company’s loans held for investment by regulatory risk ratings classification and by loan type as of the dates stated. As defined by the Federal Reserve and adopted by the company, “special mention” loans are defined as having potential weaknesses that deserve management’s close attention; “substandard” loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any; and “doubtful” loans have all the weaknesses inherent in substandard loans, with the added characteristic that the weaknesses make collection in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans not categorized as special mention, substandard or doubtful are classified as “pass . ” The company’s risk ratings, which are assigned to loans, are embedded within these categories. December 31, 2015 Pass Special Mention Substandard Doubtful Total Loans Purchased credit-impaired loans: Commercial and industrial $ 616 $ - $ 209 $ - $ 825 Commercial real estate 3,057 371 949 - 4,377 Residential real estate 72 - 705 - 777 Consumer 27 - 61 - 88 Total purchased credit-impaired loans 3,772 371 1,924 - 6,067 Originated and other purchased loans: Commercial and industrial 365,430 2,353 2,004 - 369,787 Commercial real estate 289,338 2,861 6,238 - 298,437 Residential real estate 33,894 259 1,260 - 35,413 Consumer 12,316 12 161 - 12,489 Guaranteed student loans 57,308 - - - 57,308 Overdrafts 27 - - - 27 Total originated and other purchased loans 758,313 5,485 9,663 - 773,461 Total loans $ 762,085 $ 5,856 $ 11,587 $ - $ 779,528 December 31, 2014 Pass Special Mention Substandard Doubtful Total Loans Purchased credit-impaired loans: Commercial and industrial $ 462 $ 150 $ 524 $ - $ 1,136 Commercial real estate 3,636 - 2,648 - 6,284 Residential real estate 126 10 908 - 1,044 Consumer 158 - 56 - 214 Total purchased credit-impaired loans 4,382 160 4,136 - 8,678 Originated and other purchased loans: Commercial and industrial 347,938 6,458 3,711 - 358,107 Commercial real estate 254,540 2,934 3,731 - 261,205 Residential real estate 37,818 765 1,232 - 39,815 Consumer 11,065 36 141 - 11,242 Guaranteed student loans 71,780 - - - 71,780 Overdrafts 46 - - - 46 Total originated and other purchased loans 723,187 10,193 8,815 - 742,195 Total loans $ 727,569 $ 10,353 $ 12,951 $ - $ 750,873 The following table presents the allowance for loan and lease loss activity, by loan category, as of the dates stated: December 31, 2015 December 31, 2014 Balance at beginning of period $ 6,247 $ 5,305 Charge-offs: Commercial and industrial 41 30 Commercial real estate 452 - Residential real estate 72 161 Consumer - 19 Guaranteed student loans 907 1,887 Overdrafts 10 23 Total charge-offs 1,482 2,120 Recoveries: Commercial and industrial - 2 Commercial real estate 81 5 Residential real estate - - Consumer 2 1 Guaranteed student loans - - Overdrafts 7 7 Total recoveries 90 15 Net charge-offs 1,392 2,105 Provision for loan and lease losses 2,599 3,220 Amount for unfunded commitments (58) (107) Other (1) (46) (66) Balance at end of period $ 7,350 $ 6,247 _______________________ (1) Represents the recovery of a purchased credit-impaired loan’s prior period allowance through accretion income. The company charge s off that portion of its guaranteed student loans that are (1) not subject to federal government guarant ee and (2) greater than 120 days past due and ha ve a high probability of loss. Probability of loss is determined by a loss migration analysis. The following tables present the allowance for loan and lease losses, with the amount independently and collectively evaluated for impairment, and loan balances, by loan type, as of the dates stated: December 31, 2015 Individually Evaluated Collectively Evaluated Total Amount for Impairment for Impairment Allowance for loan losses applicable to: Purchased credit-impaired loans Commercial and industrial $ 52 $ 52 $ - Commercial real estate 276 276 - Residential real estate 38 38 - Consumer - - - Total purchased credit-impaired loans 366 366 - Originated and other purchased loans Commercial and industrial 2,043 452 1,591 Commercial real estate 4,715 466 4,249 Residential real estate 167 11 156 Consumer - - - Guaranteed student loans 59 - 59 Total originated and other purchased loans 6,984 929 6,055 Total allowance for loan and lease losses $ 7,350 $ 1,295 $ 6,055 Loan balances applicable to: Purchased credit-impaired loans Commercial and industrial $ 825 $ 802 $ 23 Commercial real estate 4,377 2,646 1,731 Residential real estate 777 302 475 Consumer 88 - 88 Total purchased credit-impaired loans 6,067 3,750 2,317 Originated and other purchased loans Commercial and industrial 369,787 1,745 368,042 Commercial real estate 298,437 5,533 292,904 Residential real estate 35,413 618 34,795 Consumer 12,516 516 12,000 Guaranteed student loans 57,308 - 57,308 Total originated and other purchased loans 773,461 8,412 765,049 Total loans $ 779,528 $ 12,162 $ 767,366 December 31, 2014 Individually Evaluated Collectively Evaluated Total Amount for Impairment for Impairment Allowance for loan losses applicable to: Purchased credit-impaired loans Commercial and industrial $ 34 $ 34 $ - Commercial real estate 182 182 - Residential real estate 36 36 - Consumer - - - Total purchased credit-impaired loans 252 252 - Originated and other purchased loans Commercial and industrial 2,174 326 1,848 Commercial real estate 3,577 123 3,454 Residential real estate 139 22 117 Consumer - - - Guaranteed student loans 105 - 105 Total originated and other purchased loans 5,995 471 5,524 Total allowance for loan and lease losses $ 6,247 $ 723 $ 5,524 Loan balances applicable to: Purchased credit-impaired loans Commercial and industrial $ 1,136 $ 989 $ 147 Commercial real estate 6,284 3,112 3,172 Residential real estate 1,044 554 490 Consumer 214 - 214 Total purchased credit-impaired loans 8,678 4,655 4,023 Originated and other purchased loans Commercial and industrial 358,107 2,690 355,417 Commercial real estate 261,205 2,833 258,372 Residential real estate 39,815 384 39,431 Consumer 11,288 - 11,288 Guaranteed student loans 71,780 - 71,780 Total originated and other purchased loans 742,195 5,907 736,288 Total loans $ 750,873 $ 10,562 $ 740,311 The following table s present loans that were individually evaluated for impairment , by loan type, as of the date stated . The table presents those loans with and without an allowance, and various additional data, for the periods stated. December 31, 2015 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Purchased credit-impaired loans Commercial and industrial $ 145 $ 259 $ - $ 158 $ - Commercial real estate 379 516 - 393 - Residential real estate 226 260 - 241 2 Consumer - - - - - Originated and other purchased loans Commercial and industrial 633 633 - 651 8 Commercial real estate 3,301 3,870 - 3,365 149 Residential real estate 536 543 - 547 15 Consumer 516 577 - 519 - With an allowance recorded: Purchased credit-impaired loans Commercial and industrial 657 646 52 702 37 Commercial real estate 2,267 2,349 276 2,317 153 Residential real estate 76 82 38 80 - Consumer - - - - - Originated and other purchased loans Commercial and industrial 1,112 1,112 452 1,146 - Commercial real estate 2,232 2,240 466 2,651 - Residential real estate 82 82 11 84 - Consumer - - - - - Total loans individually evaluated for impairment $ 12,162 $ 13,169 $ 1,295 $ 12,854 $ 364 December 31, 2014 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Purchased credit-impaired loans Commercial and industrial $ 336 $ 1,439 $ - $ 399 $ - Commercial real estate 855 1,230 - 901 - Residential real estate 181 216 - 188 - Consumer - - - - - Originated and other purchased loans Commercial and industrial 1,492 1,514 - 1,567 26 Commercial real estate 2,648 3,066 - 2,658 61 Residential real estate 173 173 - 177 - Consumer - - - - - With an allowance recorded: Purchased credit-impaired loans Commercial and industrial 653 650 34 691 47 Commercial real estate 2,257 2,365 182 2,310 154 Residential real estate 373 405 36 361 - Consumer - - - - - Originated and other purchased loans Commercial and industrial 1,198 1,198 326 1,247 - Commercial real estate 184 201 123 184 - Residential real estate 212 212 22 216 - Consumer - - - - - Total loans individually evaluated for impairment $ 10,562 $ 12,669 $ 723 $ 10,899 $ 288 Pursuant to the First Bankshares Merger, the Paragon Transaction, the VBB Acquisition and the CVB Acquisition, the acquired loans were adjusted to estimated fair value. The allowance for loan and lease losses does not include the remaining fair value adjustments (discounts) recorded as a result of these transactions. Of the $14.0 million discount recorded on the VBB Acquisition, $12.7 million was related to $40.2 million of purchased credit-impaired loans. Of the $3.0 million discount recorded on the CVB Acquisition, $ 1.1 million was related to $ 4.6 million of purchased credit-impaired loans. The remaining fair value adjustment on the VBB and CVB purchased credit-impaired loans, as of December 31, 2015 , was $554 thousand and $547 thousand, respectively. The carrying value of the VBB and CVB purchased credit-impaired loans, as of December 31, 2015 , was approximately $ 4.1 million and $2.0 million, respectively, which is net of any impairment charges recorded subsequent to acquisition. For purchased credit-impaired loans, the excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and accreted into interest income over the remaining life of the loan using the effective yield method. The difference between contractually required payments due and the cash flows expected to be collected, on an undiscounted basis, is referred to as the nonaccretable difference. The following table presents the accretion activity related to acquired loans as of the dates stated : December 31, 2015 December 31, 2014 Balance at beginning of period $ 5,580 $ 4,441 Additions - 3,046 Accretion (1) (2,222) (1,922) Disposals (2) (42) (51) Other (3) 46 66 Balance at end of period $ 3,362 $ 5,580 _______________________ (1) Accretion amounts are reported in interest income. (2) Disposals represent the reduction of purchase accounting discounts due to the resolution of acquired loans at amounts less than the contractually-owed receivable. Of the 2015 amount, $17 thousand relates to a loan reclassified as OREO. (3) Represents the recovery of a purchased credit-impaired loan's prior period allowance through accretion income. The following table s present the age analysis of loans as of the dates stated: December 31, 2015 30-89 days 90+ days Total Total Current Past Due Past Due Past Due Loans Purchased credit-impaired loans: Commercial and industrial $ 156 $ 161 $ 508 $ 669 $ 825 Commercial real estate 4,187 10 180 190 4,377 Residential real estate 572 96 109 205 777 Consumer 88 - - - 88 Total purchased credit-impaired loans 5,003 267 797 1,064 6,067 Originated and other purchased loans: Commercial and industrial 368,759 36 992 1,028 369,787 Commercial real estate 296,148 1,166 1,123 2,289 298,437 Residential real estate 34,437 377 599 976 35,413 Consumer 11,983 47 486 533 12,516 Guaranteed student loans 38,811 8,248 10,249 18,497 57,308 Total originated and other purchased loans 750,138 9,874 13,449 23,323 773,461 Total loans $ 755,141 $ 10,141 $ 14,246 $ 24,387 $ 779,528 December 31, 2014 30-89 days 90+ days Total Total Current Past Due Past Due Past Due Loans Purchased credit-impaired loans: Commercial and industrial $ 696 $ 222 $ 218 $ 440 $ 1,136 Commercial real estate 5,567 629 88 717 6,284 Residential real estate 668 230 146 376 1,044 Consumer 203 - 11 11 214 Total purchased credit-impaired loans 7,134 1,081 463 1,544 8,678 Originated and other purchased loans: Commercial and industrial 356,511 873 723 1,596 358,107 Commercial real estate 258,975 1,490 740 2,230 261,205 Residential real estate 38,891 702 222 924 39,815 Consumer 11,140 113 35 148 11,288 Guaranteed student loans 46,821 12,025 12,934 24,959 71,780 Total originated and other purchased loans 712,338 15,203 14,654 29,857 742,195 Total loans $ 719,472 $ 16,284 $ 15,117 $ 31,401 $ 750,873 Guaranteed student loans comprised $8.2 million of the total amounts that were past due 30-89 days and $10.2 million of the total amounts that were past due 90 days or greater, as of December 31, 2015 . These loans are nearly 98% guaranteed as to principal and interest. Pursuant to the guarantee , the company may make a claim for payment on a loan after a period of 270 days during which no payment has been made on the loan. The following table presents nonaccrual loans and OREO as of the dates stated. A loan is considered nonaccrual if it is 90 days or greater past due as to principal or interest or when there is serious doubt as to collectability, unless the estimated net realizable value of collateral is sufficient to assure collection of both principal and interest and the loan is in the process of collection . December 31, 2015 December 31, 2014 Purchased credit-impaired loans: Commercial and industrial $ 155 $ 463 Commercial real estate 518 2,105 Residential real estate 413 962 Consumer 7 8 Total purchased credit-impaired loans 1,093 3,538 Originated and other purchased loans: Commercial and industrial 2,004 2,311 Commercial real estate 4,129 930 Residential real estate 898 594 Consumer 150 4 Total originated and other purchased loans 7,181 3,839 Total nonaccrual loans $ 8,274 $ 7,377 Other real estate owned 533 1,140 Total nonperforming assets $ 8,807 $ 8,517 In accordance with Accounting Standards Update (“ASU”) No. 2011-02, “ Receivables: A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” the company assesse s all restructurings for potential identification as troubled debt restructurings (“ TDRs ”) . A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. Modifications of terms for loans that are included as TDRs may involve a change in the interest rate, extension of the term of the loan, or deferral of principal payments, regardless of the period of the modification . For loans classified as TDRs, the company further evaluates the loans as performing or nonperforming. If at the time of restructure the loan is on accrual status, it will be classified as performing and will continue to be classified as performing as long as the borrower continues making payments in accordance with the restructured terms. A modified loan will be classified as nonaccrual if the loan becomes 90 days delinquent. TDRs originally considered nonaccrual will be classified as nonperforming, but may be classified as performing TDRs if subsequent to restructure the loan experiences payment performance according to the restructured terms for a consecutive six-month period and other required conditions are met. The following table presents performing and nonperforming loans identified as TDRs , by loan type, as of the dates stated: December 31, 2015 December 31, 2014 Performing TDRs: Commercial and industrial $ 1,467 $ 2,735 Commercial real estate 2,343 1,913 Residential real estate 2,072 87 Consumer - - Total performing TDRs $ 5,882 $ 4,735 Nonperforming TDRs: Commercial and industrial $ 750 $ - Commercial real estate 74 33 Residential real estate 116 265 Consumer - - Total nonperforming TDRs $ 940 $ 298 Total TDRs $ 6,822 $ 5,033 The following table s present loans classified as TDRs , including the type of modification, number of loans and loan type, as of the dates stated . Restructured loans that had a modification of the loan’s contractual interest rate may also have had an extension of the loan’s contractual maturity date . These loans are included in the rate modification columns below. December 31, 2015 Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total Commercial and industrial 8 $ 601 $ 1,616 $ 2,217 Commercial real estate 7 325 2,092 2,417 Residential real estate 5 237 1,951 2,188 Consumer - - - - Total TDRs 20 $ 1,163 $ 5,659 $ 6,822 December 31, 2014 Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total Commercial and industrial 8 $ 1,149 $ 1,586 $ 2,735 Commercial real estate 5 - 1,946 1,946 Residential real estate 3 87 265 352 Consumer - - - - Total TDRs 16 $ 1,236 $ 3,797 $ 5,033 During the years ended December 31, 2015 and 2014 , the company identified 11 and six loans, respectively, as TDRs, which totaled $ 3.3 million and $2.7 million, respectively, and are included in the tables above. During the years ended December 31, 2015 and 2014 , six and one loan, respectively, totaling $ 940 thousand and $125 thousand, respectively, had not complied with the terms of the restructuring. |