Loans and Allowance for Loan and Lease Losses | NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES The following table presents the recorded investment and unpaid principal for loans at June 30, 2017 and December 31, 2016: June 30, 2017 December 31, 2016 Recorded Unpaid Recorded Unpaid (Dollars in thousands) Investment Principal Difference Investment Principal Difference Commercial real estate $ 541,217 $ 546,617 $ (5,400 ) $ 442,237 $ 447,926 $ (5,689 ) Construction, land development, land 120,253 122,119 (1,866 ) 109,812 113,211 (3,399 ) 1-4 family residential properties 101,833 103,366 (1,533 ) 104,974 106,852 (1,878 ) Farmland 136,258 137,307 (1,049 ) 141,615 142,673 (1,058 ) Commercial 842,715 846,091 (3,376 ) 778,643 783,349 (4,706 ) Factored receivables 293,633 295,246 (1,613 ) 238,198 239,432 (1,234 ) Consumer 29,497 29,512 (15 ) 29,764 29,782 (18 ) Mortgage warehouse 229,694 229,694 — 182,381 182,381 — Total 2,295,100 $ 2,309,952 $ (14,852 ) 2,027,624 $ 2,045,606 $ (17,982 ) Allowance for loan and lease losses (19,797 ) (15,405 ) $ 2,275,303 $ 2,012,219 The difference between the recorded investment and the unpaid principal balance is primarily associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI) totaling $11,688,000 and $15,210,000 at June 30, 2017 and December 31, 2016, respectively, and (2) net deferred origination and factoring fees totaling $3,164,000 and $2,772,000 at June 30, 2017 and December 31, 2016, respectively. At June 30, 2017 and December 31, 2016, the Company had $27,751,000 and $23,597,000, 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to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets. Loans with carrying amounts of $486,269,000 and $497,573,000 at June 30, 2017 and December 31, 2016, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity. During the six months ended June 30, 2017, loans with a carrying amount of $1,965,000 were transferred to loans held for sale as the Company made the decision to sell the loans. These loans were subsequently sold resulting in proceeds of $1,919,000 and losses on sale of loans of $46,000, which were recorded as other noninterest income in the consolidated statements of income for the six months ended June 30, 2017. No loans were transferred to loans held for sale during the three months ended June 30, 2017. During the three and six months ended June 30, 2016, loans with a carrying amount of $1,238,000 and $4,119,000, respectively, were transferred to loans held for sale. These loans were subsequently sold resulting in proceeds of $1,233,000 and $4,038,000, respectively, and losses on sale of loans of $5,000 and $81,000, respectively. Allowance for Loan and Lease Losses The activity in the allowance for loan and lease losses (“ALLL”) during the three and six months ended June 30, 2017 and 2016 is as follows: (Dollars in thousands) Beginning Ending Three months ended June 30, 2017 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 2,243 $ 263 $ — $ — $ 2,506 Construction, land development, land 566 512 (163 ) — 915 1-4 family residential properties 160 (25 ) — 14 149 Farmland 214 47 — — 261 Commercial 11,177 (504 ) (226 ) 156 10,603 Factored receivables 4,064 814 (386 ) 15 4,507 Consumer 547 233 (308 ) 155 627 Mortgage warehouse 122 107 — — 229 $ 19,093 $ 1,447 $ (1,083 ) $ 340 $ 19,797 (Dollars in thousands) Beginning Ending Three months ended June 30, 2016 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 1,619 $ 161 $ (1 ) $ 13 $ 1,792 Construction, land development, land 198 (17 ) — — 181 1-4 family residential properties 285 (50 ) (47 ) 71 259 Farmland 133 10 — — 143 Commercial 5,331 1,134 (169 ) 401 6,697 Factored receivables 4,110 524 (450 ) 20 4,204 Consumer 222 169 (112 ) 14 293 Mortgage warehouse 195 8 — — 203 $ 12,093 $ 1,939 $ (779 ) $ 519 $ 13,772 (Dollars in thousands) Beginning Ending Six months ended June 30, 2017 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 1,813 $ 830 $ (137 ) $ — $ 2,506 Construction, land development, land 465 1,025 (582 ) 7 915 1-4 family residential properties 253 (95 ) (28 ) 19 149 Farmland 170 91 — — 261 Commercial 8,014 5,289 (3,078 ) 378 10,603 Factored receivables 4,088 1,333 (966 ) 52 4,507 Consumer 420 605 (607 ) 209 627 Mortgage warehouse 182 47 — — 229 $ 15,405 $ 9,125 $ (5,398 ) $ 665 $ 19,797 (Dollars in thousands) Beginning Ending Six months ended June 30, 2016 Balance Provision Charge-offs Recoveries Balance Commercial real estate $ 1,489 $ 290 $ (1 ) $ 14 $ 1,792 Construction, land development, land 367 (186 ) — — 181 1-4 family residential properties 274 (28 ) (63 ) 76 259 Farmland 134 9 — — 143 Commercial 5,276 1,159 (169 ) 431 6,697 Factored receivables 4,509 84 (458 ) 69 4,204 Consumer 216 199 (155 ) 33 293 Mortgage warehouse 302 (99 ) — — 203 $ 12,567 $ 1,428 $ (846 ) $ 623 $ 13,772 The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective ALLL allocations: (Dollars in thousands) Loan Evaluation ALLL Allocations June 30, 2017 Individually Collectively PCI Total loans Individually Collectively PCI Total ALLL Commercial real estate $ 862 $ 529,803 $ 10,552 $ 541,217 $ 126 $ 2,380 $ — $ 2,506 Construction, land development, land 134 117,220 2,899 120,253 — 915 — 915 1-4 family residential properties 1,710 98,734 1,389 101,833 — 149 — 149 Farmland 3,480 132,537 241 136,258 — 261 — 261 Commercial 22,886 818,667 1,162 842,715 2,387 7,931 285 10,603 Factored receivables 3,295 290,338 — 293,633 1,550 2,957 — 4,507 Consumer 110 29,387 — 29,497 — 627 — 627 Mortgage warehouse — 229,694 — 229,694 — 229 — 229 $ 32,477 $ 2,246,380 $ 16,243 $ 2,295,100 $ 4,063 $ 15,449 $ 285 $ 19,797 (Dollars in thousands) Loan Evaluation ALLL Allocations December 31, 2016 Individually Collectively PCI Total loans Individually Collectively PCI Total ALLL Commercial real estate $ 1,456 $ 427,918 $ 12,863 $ 442,237 $ 100 $ 1,358 $ 355 $ 1,813 Construction, land development, land 362 105,493 3,957 109,812 25 440 — 465 1-4 family residential properties 1,095 101,551 2,328 104,974 1 252 — 253 Farmland 1,333 140,045 237 141,615 — 170 — 170 Commercial 33,033 738,088 7,522 778,643 2,101 5,913 — 8,014 Factored receivables 3,176 235,022 — 238,198 1,546 2,542 — 4,088 Consumer 73 29,691 — 29,764 — 420 — 420 Mortgage warehouse — 182,381 — 182,381 — 182 — 182 $ 40,528 $ 1,960,189 $ 26,907 $ 2,027,624 $ 3,773 $ 11,277 $ 355 $ 15,405 The following is a summary of information pertaining to impaired loans. 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 June 30, 2017 Investment Principal Allowance Investment Principal Commercial real estate $ 169 $ 170 $ 126 $ 693 $ 726 Construction, land development, land — — — 134 134 1-4 family residential properties — — — 1,710 1,834 Farmland — — — 3,480 3,563 Commercial 13,990 14,083 2,387 8,896 8,991 Factored receivables 3,295 3,295 1,550 — — Consumer — — — 110 109 Mortgage warehouse — — — — — PCI 285 1,114 285 — — $ 17,739 $ 18,662 $ 4,348 $ 15,023 $ 15,357 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, 2016 Investment Principal Allowance Investment Principal Commercial real estate $ 517 $ 517 $ 100 $ 939 $ 1,011 Construction, land development, land 277 275 25 85 86 1-4 family residential properties 8 14 1 1,087 1,215 Farmland — — — 1,333 1,364 Commercial 15,022 15,018 2,101 18,011 18,096 Factored receivables 3,176 3,176 1,546 — — Consumer — — — 73 73 Mortgage warehouse — — — — — PCI 525 525 355 — — $ 19,525 $ 19,525 $ 4,128 $ 21,528 $ 21,845 The following table presents average impaired loans and interest recognized on impaired loans for the three and six months ended June 30, 2017 and 2016: Three Months Ended Three Months Ended June 30, 2017 June 30, 2016 Average Interest Average Interest (Dollars in thousands) Impaired Loans Recognized Impaired Loans Recognized Commercial real estate $ 793 $ 1 $ 702 $ — Construction, land development, land 275 — 138 — 1-4 family residential properties 1,488 6 779 — Farmland 3,200 9 — — Commercial 24,023 109 12,769 73 Factored receivables 3,512 — 4,074 — Consumer 122 — 35 — Mortgage warehouse — — — — PCI 1,494 — 1,432 — $ 34,907 $ 125 $ 19,929 $ 73 Six Months Ended Six Months Ended June 30, 2017 June 30, 2016 Average Interest Average Interest (Dollars in thousands) Impaired Loans Recognized Impaired Loans Recognized Commercial real estate $ 1,159 $ 1 $ 706 $ — Construction, land development, land 248 — 138 2 1-4 family residential properties 1,402 7 775 4 Farmland 2,406 18 — — Commercial 27,960 232 10,593 247 Factored receivables 3,235 — 3,309 — Consumer 89 — 16 — Mortgage warehouse — — — — PCI 405 — 983 — $ 36,904 $ 258 $ 16,520 $ 253 Past Due and Nonaccrual Loans The following is a summary of contractually past due and nonaccrual loans at June 30, 2017 and December 31, 2016: Past Due Past Due 90 (Dollars in thousands) 30-89 Days Days or More June 30, 2017 Still Accruing Still Accruing Nonaccrual Total Commercial real estate $ 1,828 $ — $ 862 $ 2,690 Construction, land development, land 543 — 134 677 1-4 family residential properties 1,383 — 1,695 3,078 Farmland 3,553 — 2,688 6,241 Commercial 7,044 65 17,892 25,001 Factored receivables 14,477 1,844 — 16,321 Consumer 747 2 110 859 Mortgage warehouse — — — — PCI 192 122 2,392 2,706 $ 29,767 $ 2,033 $ 25,773 $ 57,573 Past Due Past Due 90 (Dollars in thousands) 30-89 Days Days or More December 31, 2016 Still Accruing Still Accruing Nonaccrual Total Commercial real estate $ 699 $ 144 $ 1,163 $ 2,006 Construction, land development, land 619 — 362 981 1-4 family residential properties 956 — 1,039 1,995 Farmland 3,583 141 541 4,265 Commercial 11,060 1,077 26,619 38,756 Factored receivables 11,921 2,153 — 14,074 Consumer 667 2 73 742 Mortgage warehouse — — — — PCI 2,020 104 8,233 10,357 $ 31,525 $ 3,621 $ 38,030 $ 73,176 The following table presents information regarding nonperforming loans at the dates indicated: (Dollars in thousands) June 30, 2017 December 31, 2016 Nonaccrual loans (1) $ 25,773 $ 38,030 Factored receivables greater than 90 days past due 1,844 2,153 Troubled debt restructurings accruing interest 3,529 5,123 $ 31,146 $ 45,306 (1) Includes troubled debt restructurings of $8,557,000 and $13,263,000 at June 30, 2017 and December 31, 2016, respectively. 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 June 30, 2017 and December 31, 2016, based on the most recent analysis performed, the risk category of loans is as follows: (Dollars in thousands) June 30, 2017 Pass Substandard Doubtful PCI Total Commercial real estate $ 528,842 $ 1,823 $ — $ 10,552 $ 541,217 Construction, land development, land 117,220 134 — 2,899 120,253 1-4 family residential 98,642 1,802 — 1,389 101,833 Farmland 128,067 7,950 — 241 136,258 Commercial 802,068 39,485 — 1,162 842,715 Factored receivables 291,367 795 1,471 — 293,633 Consumer 29,386 111 — — 29,497 Mortgage warehouse 229,694 — — — 229,694 $ 2,225,286 $ 52,100 $ 1,471 $ 16,243 $ 2,295,100 (Dollars in thousands) December 31, 2016 Pass Substandard Doubtful PCI Total Commercial real estate $ 422,423 $ 6,951 $ — $ 12,863 $ 442,237 Construction, land development, land 105,493 362 — 3,957 109,812 1-4 family residential 101,339 1,307 — 2,328 104,974 Farmland 136,474 4,904 — 237 141,615 Commercial 729,634 41,487 — 7,522 778,643 Factored receivables 236,084 1,029 1,085 — 238,198 Consumer 29,688 76 — — 29,764 Mortgage warehouse 182,381 — — — 182,381 $ 1,943,516 $ 56,116 $ 1,085 $ 26,907 $ 2,027,624 Troubled Debt Restructurings The Company had a recorded investment in troubled debt restructurings of $12,086,000 and $18,386,000 as of June 30, 2017 and December 31, 2016, respectively. The Company had allocated specific allowances for these loans of $435,000 and $1,911,000 at June 30, 2017 and December 31, 2016, respectively, and had not committed to lend additional amounts. Troubled debt restructurings are the result of extending amortization periods, reducing contractual interest rates, or a combination thereof. The Company did not grant principal reductions on any restructured loans. The following table presents loans modified as troubled debt restructurings that occurred during the six months ended June 30, 2017 and 2016: Pre-Modification Post-Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded June 30, 2017 Loans Investment Investment Commercial 4 $ 186 $ 186 Pre-Modification Post-Modification Outstanding Outstanding (Dollars in thousands) Number of Recorded Recorded June 30, 2016 Loans Investment Investment Commercial 16 $ 5,730 $ 5,730 During the six months ended June 30, 2017, the Company had three loans modified as troubled debt restructurings with a recorded investment of $2,983,000 for which there were payment defaults within twelve months following the modification. The full recorded investment in one of these loans of $2,702,000 was charged off during the period. During the six months ended June 30, 2016, there were 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. 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 at June 30, 2017 and December 31, 2016, are as follows: June 30, December 31, 2017 2016 Contractually required principal and interest: Real estate loans $ 18,836 $ 25,013 Commercial loans 2,249 9,703 Outstanding contractually required principal and interest $ 21,085 $ 34,716 Gross carrying amount included in loans receivable $ 16,243 $ 26,907 The changes in accretable yield during the three and six months ended June 30, 2017 and 2016 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 June 30, Six Months Ended June 30, 2017 2016 2017 2016 Accretable yield, beginning balance $ 3,432 $ 2,064 $ 4,261 $ 2,593 Additions — — — — Accretion (2,234 ) (1,518 ) (2,706 ) (2,034 ) Reclassification from nonaccretable to accretable yield 1,928 646 2,011 646 Disposals — — (440 ) (13 ) Accretable yield, ending balance $ 3,126 $ 1,192 $ 3,126 $ 1,192 |