Loans | Note 5 . 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: March 31, 2016 December 31, 2015 Amount Percent of Total Amount Percent of Total Commercial and industrial $ 365,766 46.9% $ 370,612 47.6% Commercial real estate 311,588 40.0% 302,814 38.8% Residential real estate 35,832 4.6% 36,190 4.6% Consumer 12,225 1.6% 12,577 1.6% Guaranteed student loans 53,674 6.9% 57,308 7.4% Overdrafts 31 0.0% 27 0.0% Total loans 779,116 100.0% 779,528 100.0% Allowance for loan and lease losses (7,072) (7,350) Total loans, net of allowance $ 772,044 $ 772,178 Loans, excluding guaranteed student loans, include unearned fees net of capitalized origination costs, of $ 436 thousand and $ 358 thousand, as of March 31, 2016 and December 31, 2015 , respectively. As of March 31, 2016 , $ 294.7 million of loans were pledged to the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank as collateral for borrowing capacity. As of March 31, 2016 , the company had $ 53.7 million of guaranteed student loans, including premium and acquisition costs of $1.4 million and $ 780 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 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, pursuant to 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 student loans carry an approximate 98% federal government guarantee as to the payment of principal and accrued interest. The following table s present the company’s loans 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. March 31, 2016 Pass Special Mention Substandard Doubtful Total Loans Purchased credit-impaired loans: Commercial and industrial $ 595 $ - $ 207 $ - $ 802 Commercial real estate 1,926 1,502 940 - 4,368 Residential real estate 191 - 573 - 764 Consumer 50 - 36 - 86 Total purchased credit-impaired loans 2,762 1,502 1,756 - 6,020 Originated and other purchased loans: Commercial and industrial 360,860 2,956 1,148 - 364,964 Commercial real estate 298,203 2,820 6,197 - 307,220 Residential real estate 33,636 236 1,196 - 35,068 Consumer 12,000 10 160 - 12,170 Guaranteed student loans 53,674 - - - 53,674 Total originated and other purchased loans 758,373 6,022 8,701 - 773,096 Total loans $ 761,135 $ 7,524 $ 10,457 $ - $ 779,116 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 12,343 12 161 - 12,516 Guaranteed student loans 57,308 - - - 57,308 Total originated and other purchased loans 758,313 5,485 9,663 - 773,461 Total loans $ 762,085 $ 5,856 $ 11,587 $ - $ 779,528 Allowance for Loan and Lease Losses The allowance for loan and lease losses consists of (1) a component for collective loan impairment recognized and measured pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 450, “ Contingencies , ” and (2) a component for individual loan impairment recognized pursuant to FASB ASC Topic 310, “ Receivables. ” A loan is impaired when, based on current information and events, it is probable that all amounts due (principal and interest) according to the contractual terms of the loan agreement will not be collected. The allowance for loan and lease losses is determined based on a periodic evaluation of the loan portfolio. This evaluation is a combination of quantitative and qualitative analysis. Quantitative factors include loss history for similar types of loans that are originated by the company. In evaluating the loan portfolio, qualitative factors, such as general economic conditions, nationally and in the company’s target markets, are considered, as well as threats of outlier events, such as the unexpected deterioration of a significant borrower. These quantitative and qualitative factors and estimates may be subject to significant change. Increases to the allowance for loan and lease losses are made by charges to the provision for loan and lease losses, which is reflected in the consolidated statements of income. Loans or portions of loans deemed to be uncollectible are charged against the allowance for loan and lease losses at the time of determination, and recoveries of previously charged-off amounts are credited to the allowance for loan and lease losses. The company’s allowance for loan and lease losses related to guaranteed student loans is based on historical and expected default rates for the loans applied to the portion of carrying value in these loans that is not subject to federal guarantee. The company charges off that portion of its guaranteed student loans that are (1) not subject to federal government guarantee and (2) greater than 120 days past due and have a high probability of default. Probability of default is determined by a loss migration analysis. The following table present s the allowance for loan and lease loss activity, by loan category, for the dates stated: Three Months Ended March 31, 2016 2015 Balance at beginning of period $ 7,350 $ 6,247 Charge-offs: Commercial and industrial 291 2 Commercial real estate - - Residential real estate - - Consumer - - Guaranteed student loans 139 321 Overdrafts 3 4 Total charge-offs 433 327 Recoveries: Commercial and industrial - - Commercial real estate - 1 Residential real estate - - Consumer - 1 Guaranteed student loans - - Overdrafts 2 2 Total recoveries 2 4 Net charge-offs 431 323 Provision for loan and lease losses 190 565 Amount for unfunded commitments (37) - Other (1) - (46) Balance at end of period $ 7,072 $ 6,443 _______________________ (1) Represents the recovery of a credit-impaired loan’s prior period allowance through accretion income. The following table s 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: March 31, 2016 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 1,557 - 1,557 Commercial real estate 4,907 717 4,190 Residential real estate 161 9 152 Consumer - - - Guaranteed student loans 81 - 81 Total originated and other purchased loans 6,706 726 5,980 Total allowance for loan and lease losses $ 7,072 $ 1,092 $ 5,980 Loan balances applicable to: Purchased credit-impaired loans Commercial and industrial $ 802 $ 776 $ 26 Commercial real estate 4,368 2,638 1,730 Residential real estate 764 296 468 Consumer 86 - 86 Total purchased credit-impaired loans 6,020 3,710 2,310 Originated and other purchased loans Commercial and industrial 364,964 840 364,124 Commercial real estate 307,220 5,513 301,707 Residential real estate 35,068 616 34,452 Consumer 12,170 543 11,627 Guaranteed student loans 53,674 - 53,674 Total originated and other purchased loans 773,096 7,512 765,584 Total loans $ 779,116 $ 11,222 $ 767,894 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 The following table s present the loans that were individually evaluated for impairment, by loan type, as of the dates stated. The tables present those loans with and without an allowance and various additional data, as of the dates stated : March 31, 2016 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Purchased credit-impaired loans Commercial and industrial $ 142 $ 256 $ - Commercial real estate 368 507 - Residential real estate 222 256 - Consumer - - - Originated and other purchased loans Commercial and industrial 840 840 - Commercial real estate 2,966 3,531 - Residential real estate 393 398 - Consumer 543 601 - With an allowance recorded: Purchased credit-impaired loans Commercial and industrial 634 624 52 Commercial real estate 2,270 2,324 276 Residential real estate 74 79 38 Consumer - - - Originated and other purchased loans Commercial and industrial - - - Commercial real estate 2,547 2,553 717 Residential real estate 223 223 9 Consumer - - - Total loans individually evaluated for impairment $ 11,222 $ 12,192 $ 1,092 December 31, 2015 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Purchased credit-impaired loans Commercial and industrial $ 145 $ 259 $ - Commercial real estate 379 516 - Residential real estate 226 260 - Consumer - - - Originated and other purchased loans Commercial and industrial 633 633 - Commercial real estate 3,301 3,870 - Residential real estate 536 543 - Consumer 516 577 - With an allowance recorded: Purchased credit-impaired loans Commercial and industrial 657 646 52 Commercial real estate 2,267 2,349 276 Residential real estate 76 82 38 Consumer - - - Originated and other purchased loans Commercial and industrial 1,112 1,112 452 Commercial real estate 2,232 2,240 466 Residential real estate 82 82 11 Consumer - - - Total loans individually evaluated for impairment $ 12,162 $ 13,169 $ 1,295 Three Months Ended March 31, 2016 2015 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Purchased credit-impaired loans Commercial and industrial $ 144 $ - $ 326 $ - Commercial real estate 374 - 517 - Residential real estate 222 1 343 - Consumer - - - - Originated and other purchased loans Commercial and industrial 847 2 1,072 - Commercial real estate 2,971 23 3,213 23 Residential real estate 393 4 313 2 Consumer 544 - - - With an allowance recorded: Purchased credit-impaired loans Commercial and industrial 646 8 634 10 Commercial real estate 2,280 36 1,862 31 Residential real estate 75 - 211 - Consumer - - - - Originated and other purchased loans Commercial and industrial - - 1,181 - Commercial real estate 2,553 - 192 - Residential real estate 224 1 211 - Consumer - - - - Total loans individually evaluated for impairment $ 11,273 $ 75 $ 10,075 $ 66 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 acquisitions. 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 March 31, 2016, was $229 thousand and $534 thousand, respectively. The carrying value of the VBB and CVB purchased credit-impaired loans, as of March 31, 2016, was approximately $3.8 million and $1.9 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 present s accretion activity related to acquired loans for the dates stated: Three Months Ended March 31, 2016 2015 Balance at beginning of period $ 3,362 $ 5,580 Accretion (1) (445) (483) Disposals (2) (135) - Other (3) - 46 Balance at end of period $ 2,782 $ 5,143 _______________________ (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. (3) Represents the recovery of a credit-impaired loan’s prior period allowance through accretion income. The following table s present the age analysis of loans past due as of the dates stated : March 31, 2016 30-89 days 90+ days Total Total Current Past Due Past Due Past Due Loans Purchased credit-impaired loans: Commercial and industrial $ 417 $ 40 $ 345 $ 385 $ 802 Commercial real estate 4,107 - 261 261 4,368 Residential real estate 562 76 126 202 764 Consumer 86 - - - 86 Total purchased credit-impaired loans 5,172 116 732 848 6,020 Originated and other purchased loans: Commercial and industrial 364,807 149 8 157 364,964 Commercial real estate 303,353 2,790 1,077 3,867 307,220 Residential real estate 34,310 366 392 758 35,068 Consumer 11,716 11 443 454 12,170 Guaranteed student loans 38,585 5,567 9,522 15,089 53,674 Total originated and other purchased loans 752,771 8,883 11,442 20,325 773,096 Total loans $ 757,943 $ 8,999 $ 12,174 $ 21,173 $ 779,116 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 Guaranteed student loans comprised $ 5. 6 million of the total amounts tha t were past due 30-89 days and $ 9.5 million of the total amounts that were past due 90 days or greater as of March 31, 2016 . These loans are nearly 98% guaranteed as to principal and accrued 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 other real estate owned (“ OREO ”) as of the dates stated. A loan is considered nonaccrual if it is 90 days or greater past due as to interest and principal or when collectability is in doubt, unless the estimated net realized value of collateral is sufficient to assure collection of principal balance and accrued interest. As of March 31, 2016 , there were no loans, other than guaranteed student loans, past due 90 days or greater for which interest was accruing. Accrued interest on the guaranteed portion of student loans is subject to the guarantee and is payable under the claim, if any, to the time the claim is satisfied. March 31, 2016 December 31, 2015 Purchased credit-impaired loans: Commercial and industrial $ 246 $ 155 Commercial real estate 414 518 Residential real estate 552 413 Consumer 6 7 Total purchased credit-impaired loans 1,218 1,093 Originated and other purchased loans: Commercial and industrial 665 2,004 Commercial real estate 4,897 4,129 Residential real estate 785 898 Consumer 443 150 Total originated and other purchased loans 6,790 7,181 Total nonaccrual loans 8,008 8,274 Other real estate owned 632 533 Total nonperforming assets $ 8,640 $ 8,807 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 assesses all restructurings for potential identification as troubled debt restructurings (“TDR”). 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 either an increase or reduction of 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, or when collectability is in doubt. 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: March 31, 2016 December 31, 2015 Performing TDRs: Commercial and industrial $ 1,468 $ 1,467 Commercial real estate 2,315 2,343 Residential real estate 147 2,072 Consumer - - Total performing TDRs 3,930 5,882 Nonperforming TDRs: Commercial and industrial 27 750 Commercial real estate 1,860 74 Residential real estate 116 116 Consumer - - Total nonperforming TDRs 2,003 940 Total TDRs $ 5,933 $ 6,822 The following tables present loans classified as TDRs, including the type of modification, number of loans and loan type, as of the dates stated: March 31, 2016 Number of Loans Modified Rate Modification Term Extension and/or Other Concessions Total Commercial and industrial 5 $ 434 $ 1,061 $ 1,495 Commercial real estate 8 320 3,855 4,175 Residential real estate 3 116 147 263 Consumer - - - - Total TDRs 16 $ 870 $ 5,063 $ 5,933 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 During the three months ended March 31, 2016 , the re were no loans identified as TDRs. |