Loans and Allowance for Loan and Lease Losses | NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES Loans at March 31, 2016 and December 31, 2015 consisted of the following: March 31, December 31, (Dollars in thousands) 2016 2015 Commercial real estate $ 293,485 $ 291,819 Construction, land development, land 41,622 43,876 1-4 family residential properties 76,973 78,244 Farmland 33,250 33,573 Commercial 509,433 495,356 Factored receivables 199,532 215,088 Consumer 13,530 13,050 Mortgage warehouse 78,015 120,879 Total 1,245,840 1,291,885 Allowance for loan and lease losses (12,093 ) (12,567 ) $ 1,233,747 $ 1,279,318 Total loans include net deferred origination and factoring fees totaling $951,000 and $1,218,000 at March 31, 2016 and December 31, 2015, respectively. Loans with carrying amounts of $263,680,000 and $280,289,000 at March 31, 2016 and December 31, 2015, respectively, were pledged to secure Federal Home Loan Bank advance capacity. During the three months ended March 31, 2016, loans with a carrying amount of $2,881,000 were transferred to Loans held for sale as the Company made the decision to sell the loans. The loans were recorded in Loans held for sale at their fair value of $2,805,000, with the $76,000 decline in fair value recorded as a reduction in other noninterest income in the consolidated statements of income. No loan transfers were recorded during the three months ended March 31, 2015. Allowance for Loan and Lease Losses The activity in the allowance for loan and lease losses (“ALLL”) during the three months ended March 31, 2016 and 2015 is as follows: (Dollars in thousands) Beginning Ending Three months ended March 31, 2016 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 1,489 $ 129 $ — $ 1 $ 1,619 Construction, land development, land 367 (169 ) — — 198 1-4 family residential properties 274 22 (16 ) 5 285 Farmland 134 (1 ) — — 133 Commercial 5,276 25 — 30 5,331 Factored receivables 4,509 (440 ) (8 ) 49 4,110 Consumer 216 30 (43 ) 19 222 Mortgage warehouse 302 (107 ) — — 195 $ 12,567 $ (511 ) $ (67 ) $ 104 $ 12,093 (Dollars in thousands) Beginning Ending Three months ended March 31, 2015 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 533 $ 590 $ (89 ) $ 41 $ 1,075 Construction, land development, land 333 11 — — 344 1-4 family residential properties 215 90 (105 ) 23 223 Farmland 19 7 — — 26 Commercial 4,003 (7 ) (2 ) 2 3,996 Factored receivables 3,462 (45 ) (67 ) 30 3,380 Consumer 140 (21 ) (95 ) 60 84 Mortgage warehouse 138 20 — — 158 $ 8,843 $ 645 $ (358 ) $ 156 $ 9,286 The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective allowance allocations: (Dollars in thousands) Loan Evaluation ALLL Allocations March 31, 2016 Individually Collectively PCI Total loans Individually Collectively PCI Total ALLL Commercial real estate $ 714 $ 287,658 $ 5,113 $ 293,485 $ 100 $ 1,078 $ 441 $ 1,619 Construction, land development, land — 40,463 1,159 41,622 — 198 — 198 1-4 family residential properties 637 73,595 2,741 76,973 1 284 — 285 Farmland — 33,250 — 33,250 — 133 — 133 Commercial 12,302 494,038 3,093 509,433 1,246 4,085 — 5,331 Factored receivables 4,940 194,592 — 199,532 1,574 2,536 — 4,110 Consumer 37 13,493 — 13,530 — 222 — 222 Mortgage warehouse — 78,015 — 78,015 — 195 — 195 $ 18,630 $ 1,215,104 $ 12,106 $ 1,245,840 $ 2,921 $ 8,731 $ 441 $ 12,093 (Dollars in thousands) Loan Evaluation ALLL Allocations December 31, 2015 Individually Collectively PCI Total loans Individually Collectively PCI Total ALLL Commercial real estate $ 724 $ 286,006 $ 5,089 $ 291,819 $ 100 $ 1,034 $ 355 $ 1,489 Construction, land development, land — 42,499 1,377 43,876 — 367 — 367 1-4 family residential properties 618 74,714 2,912 78,244 1 273 — 274 Farmland — 33,573 — 33,573 — 134 — 134 Commercial 7,916 483,587 3,853 495,356 796 4,480 — 5,276 Factored receivables 3,422 211,666 — 215,088 1,694 2,815 — 4,509 Consumer — 13,050 — 13,050 — 216 — 216 Mortgage warehouse — 120,879 — 120,879 — 302 — 302 $ 12,680 $ 1,265,974 $ 13,231 $ 1,291,885 $ 2,591 $ 9,621 $ 355 $ 12,567 The following is a summary of information pertaining to impaired loans. Loans included in these tables are non-PCI impaired loans and PCI loans that have deteriorated subsequent to acquisition and as a result have been deemed impaired and an allowance recorded. PCI loans that have not deteriorated subsequent to acquisition are not considered impaired and therefore do not require an allowance and are excluded from these tables. Impaired Loans and Purchased Credit Impaired Loans Impaired Loans With a Valuation Allowance Without a Valuation Allowance (Dollars in thousands) Recorded Unpaid Related Recorded Unpaid March 31, 2016 Investment Principal Allowance Investment Principal Commercial real estate $ 532 $ 532 $ 100 $ 182 $ 218 Construction, land development, land — — — — — 1-4 family residential properties 13 20 1 624 734 Farmland — — — — — Commercial 5,535 5,563 1,246 6,767 6,776 Factored receivables 4,435 4,435 1,574 505 505 Consumer — — — 37 37 Mortgage warehouse — — — — — PCI 1,423 1,679 441 — — $ 11,938 $ 12,229 $ 3,362 $ 8,115 $ 8,270 Impaired Loans and Purchased Credit Impaired Loans Impaired Loans With a Valuation Allowance Without a Valuation Allowance (Dollars in thousands) Recorded Unpaid Related Recorded Unpaid December 31, 2015 Investment Principal Allowance Investment Principal Commercial real estate $ 531 $ 532 $ 100 $ 193 $ 229 Construction, land development, land — — — — — 1-4 family residential properties 14 21 1 604 793 Farmland — — — — — Commercial 1,491 1,520 796 6,425 6,433 Factored receivables 2,850 2,850 1,694 572 572 Consumer — — — — — Mortgage warehouse — — — — — PCI 525 525 355 — — $ 5,411 $ 5,448 $ 2,946 $ 7,794 $ 8,027 The following table presents average impaired loans and interest recognized on impaired loans for the three months ended March 31, 2016 and 2015: Three Months Ended Three Months Ended March 31, 2016 March 31, 2015 Average Interest Average Interest (Dollars in thousands) Impaired Loans Recognized Impaired Loans Recognized Commercial real estate $ 719 $ — $ 1,931 $ 14 Construction, land development, land — — — — 1-4 family residential properties 628 1 691 28 Farmland — — — — Commercial 10,109 100 7,030 163 Factored receivables 4,181 — 1,271 — Consumer 18 — — — Mortgage warehouse — — — — PCI 974 — 459 — $ 16,629 $ 101 $ 11,382 $ 205 The following table presents the unpaid principal and recorded investment for loans at March 31, 2016 and December 31, 2015. The difference between the unpaid principal balance and recorded investment is principally associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI), (2) net deferred origination costs and fees, and (3) previous charge-offs. (Dollars in thousands) Recorded Unpaid March 31, 2016 Investment Principal Difference Commercial real estate $ 293,485 $ 300,151 $ (6,666 ) Construction, land development, land 41,622 43,111 (1,489 ) 1-4 family residential properties 76,973 79,488 (2,515 ) Farmland 33,250 33,208 42 Commercial 509,433 510,283 (850 ) Factored receivables 199,532 200,621 (1,089 ) Consumer 13,530 13,551 (21 ) Mortgage warehouse 78,015 78,015 — $ 1,245,840 $ 1,258,428 $ (12,588 ) (Dollars in thousands) Recorded Unpaid December 31, 2015 Investment Principal Difference Commercial $ 291,819 $ 299,272 $ (7,453 ) Construction, land development, land 43,876 45,376 (1,500 ) 1-4 family residential properties 78,244 81,141 (2,897 ) Farmland 33,573 33,533 40 Commercial 495,356 496,719 (1,363 ) Factored receivables 215,088 216,201 (1,113 ) Consumer 13,050 13,072 (22 ) Mortgage warehouse 120,879 120,879 — $ 1,291,885 $ 1,306,193 $ (14,308 ) At March 31, 2016 and December 31, 2015, the Company had $21,293,000 and $21,188,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets. Past Due and Nonaccrual Loans The following is a summary of contractually past due and nonaccrual loans at March 31, 2016 and December 31, 2015: Past Due 90 (Dollars in thousands) 30-89 Days Days or More March 31, 2016 Past Due Still Accruing Nonaccrual Total Commercial real estate $ 148 $ — $ 714 $ 862 Construction, land development, land 10,813 — — 10,813 1-4 family residential properties 574 — 615 1,189 Farmland 305 — — 305 Commercial 5,167 — 6,719 11,886 Factored receivables 9,894 2,553 — 12,447 Consumer 247 — 37 284 Mortgage warehouse — — — — PCI 3 — 7,127 7,130 $ 27,151 $ 2,553 $ 15,212 $ 44,916 Past Due 90 (Dollars in thousands) 30-89 Days Days or More December 31, 2015 Past Due Still Accruing Nonaccrual Total Commercial real estate $ 693 $ — $ 673 $ 1,366 Construction, land development, land — — — — 1-4 family residential properties 909 9 533 1,451 Farmland — — — — Commercial 3,704 — 2,021 5,725 Factored receivables 12,379 1,931 — 14,310 Consumer 286 — — 286 Mortgage warehouse — — — — PCI 1,092 — 6,867 7,959 $ 19,063 $ 1,940 $ 10,094 $ 31,097 The following table presents information regarding nonperforming loans at the dates indicated: (Dollars in thousands) March 31, 2016 December 31, 2015 Nonaccrual loans (1) $ 15,212 $ 10,094 Factored receivables greater than 90 days past due 2,553 1,931 Troubled debt restructurings accruing interest 3,465 1,330 $ 21,230 $ 13,355 (1) Credit Quality Information The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and 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 includes every loan and is performed on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings: Pass: Loans classified as pass are loans with low to average risk and not otherwise classified as substandard or doubtful. 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 repayment 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. PCI: At acquisition, PCI loans had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly. As of March 31, 2016 and December 31, 2015, based on the most recent analysis performed, the risk category of loans is as follows: (Dollars in thousands) March 31, 2016 Pass Substandard Doubtful PCI Total Commercial real estate $ 286,997 $ 1,375 $ — $ 5,113 $ 293,485 Construction, land development, land 40,463 — — 1,159 41,622 1-4 family residential 73,608 624 — 2,741 76,973 Farmland 33,250 — — — 33,250 Commercial 478,078 28,262 — 3,093 509,433 Factored receivables 196,164 2,191 1,177 — 199,532 Consumer 13,491 39 — — 13,530 Mortgage warehouse 78,015 — — — 78,015 $ 1,200,066 $ 32,491 $ 1,177 $ 12,106 $ 1,245,840 (Dollars in thousands) December 31, 2015 Pass Substandard Doubtful PCI Total Commercial real estate $ 284,753 $ 1,977 $ — $ 5,089 $ 291,819 Construction, land development, land 42,499 — — 1,377 43,876 1-4 family residential 73,838 1,494 — 2,912 78,244 Farmland 33,573 — — — 33,573 Commercial 470,208 21,295 — 3,853 495,356 Factored receivables 212,588 1,019 1,481 — 215,088 Consumer 13,050 — — — 13,050 Mortgage warehouse 120,879 — — — 120,879 $ 1,251,388 $ 25,785 $ 1,481 $ 13,231 $ 1,291,885 Troubled Debt Restructurings The Company had a recorded investment in troubled debt restructurings of $6,232,000 and $1,383,000 as of March 31, 2016 and December 31, 2015, respectively. The following table presents loans modified as troubled debt restructurings that occurred during the three months ended March 31, 2016. There were no loans modified as troubled debt restructurings during the three months ended March 31, 2015. Pre-Modification Post-Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded March 31, 2016 Loans Investment Investment Commercial 16 $ 5,730 $ 5,730 As of March 31, 2016, there have been no defaults on any loans that were modified as troubled debt restructurings during the preceding twelve months. Default is determined at 90 or more days past due. The modifications primarily related to extending the amortization periods of the loans. The Company did not grant principal reductions on any restructured loans. Purchased Credit Impaired Loans The Company has loans that were acquired for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding contractually required principal and interest and the carrying amount of these loans included in the balance sheet amounts of loans receivable at March 31, 2016 and December 31, 2015, are as follows: March 31, December 31, (Dollars in thousands) 2016 2015 Contractually required principal and interest: Real estate loans $ 17,229 $ 17,800 Commercial loans 4,407 5,335 Outstanding contractually required principal and interest $ 21,636 $ 23,135 Gross carrying amount included in loans receivable $ 12,106 $ 13,231 The changes in accretable yield during the three months ended March 31, 2016 and 2015 in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows: Three Months Ended March 31, (Dollars in thousands) 2016 2015 Accretable yield, beginning balance $ 2,594 $ 4,977 Additions — — Accretion (517 ) (429 ) Reclassification from nonaccretable to accretable yield — — Disposals (13 ) (52 ) Accretable yield, ending balance $ 2,064 $ 4,496 |