| Credit Quality of Loans and Allowance for Loan Losses | Credit Quality of Loans and Allowance for Loan Losses The loan portfolio consisted of the following (in thousands): June 30, 2015 December 31, 2014 Commercial, financial and agricultural $ 471,397 $ 467,147 Real estate - construction 79,176 68,577 Real estate – commercial 469,022 467,172 Real estate – residential 153,820 154,602 Installment loans to individuals 113,626 119,328 Lease financing receivable 5,561 4,857 Other 1,790 2,748 1,294,392 1,284,431 Less allowance for loan losses (16,048 ) (11,226 ) $ 1,278,344 $ 1,273,205 The Company monitors loan concentrations and evaluates individual customer and aggregate industry leverage, profitability, risk rating distributions, and liquidity for each major standard industry classification segment. At June 30, 2015 , one industry segment concentration, the oil and gas industry, constituted more than 10% of the loan portfolio. The Company’s exposure in the oil and gas industry, including related service and manufacturing industries, totaled approximately $266.4 million , or 20.6% of total loans. Additionally, the Company’s exposure to loans secured by commercial real estate is monitored. At June 30, 2015 , loans secured by commercial real estate (including commercial construction, farmland and multifamily loans) totaled approximately $526.6 million . Of the $526.6 million , $469.0 million represent CRE loans, 53% of which are secured by owner-occupied commercial properties. Of the $526.6 million in loans secured by commercial real estate, $18.5 million , or 3.5% , were on nonaccrual status at June 30, 2015 . Allowance for Loan Losses The allowance for loan losses is a valuation account available to absorb probable losses on loans. All losses are charged to the allowance for loan losses when the loss actually occurs or when a determination is made that a loss is likely to occur. Recoveries are credited to the allowance for loan losses at the time of recovery. Quarterly, the probable level of losses in the existing portfolio is estimated through consideration of various factors. Based on these estimates, the allowance for loan losses is increased by charges to earnings and decreased by charge‑offs (net of recoveries). The allowance is composed of general reserves and specific reserves. General reserves are determined by applying loss percentages to segments of the portfolio. The loss percentages are based on each segment’s historical loss experience, generally over the past twelve to eighteen months, and adjustment factors derived from conditions in the Company’s internal and external environment. All loans considered to be impaired are evaluated on an individual basis to determine specific reserve allocations in accordance with GAAP. Loans for which specific reserves are provided are excluded from the calculation of general reserves. Loans acquired in business combinations are initially recorded at fair value, which includes an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses is recorded for these loans at acquisition. Methods utilized to estimate any subsequently required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance and then compared to any remaining unaccreted purchase discount. To the extent that the calculated loss is greater than the remaining unaccreted purchase discount, an allowance is recorded for such difference. The Company has an internal loan review department that is independent of the lending function to challenge and corroborate the loan grade assigned by the lender and to provide additional analysis in determining the adequacy of the allowance for loan losses. A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the six months ended June 30, 2015 and 2014 is as follows (in thousands): June 30, 2015 Real Estate Coml, Fin, and Agric Constru-ction Commercial Residential Installment loans to individuals Lease financing receivable Other Total Allowance for loan losses: Beginning balance $ 5,729 $ 954 $ 2,402 $ 810 $ 1,311 $ 16 $ 4 $ 11,226 Charge-offs (1,855 ) (6 ) (48 ) (37 ) (537 ) — — (2,483 ) Recoveries 144 — 14 5 42 — — 205 Provision 5,074 20 1,560 608 (173 ) 9 2 7,100 Ending balance $ 9,092 $ 968 $ 3,928 $ 1,386 $ 643 $ 25 $ 6 $ 16,048 Ending balance: individually evaluated for impairment $ 889 $ — $ 1,123 $ 107 $ 156 $ — $ — $ 2,275 Ending balance: collectively evaluated for impairment $ 8,203 $ 968 $ 2,805 $ 1,279 $ 487 $ 25 $ 6 $ 13,773 Loans: Ending balance $ 471,397 $ 79,176 $ 469,022 $ 153,820 $ 113,626 $ 5,561 $ 1,790 $ 1,294,392 Ending balance: individually evaluated for impairment $ 23,750 $ 531 $ 18,423 $ 1,823 $ 324 $ — $ — $ 44,851 Ending balance: collectively evaluated for impairment $ 447,647 $ 78,645 $ 449,957 $ 151,912 $ 113,302 $ 5,561 $ 1,790 $ 1,248,814 Ending balance: loans acquired with deteriorated credit quality $ — $ — $ 642 $ 85 $ — $ — $ — $ 727 June 30, 2014 Real Estate Coml, Fin, and Agric Constr-uction Commercial Residential Installment loans to individuals Lease financing receivable Other Total Allowance for loan losses: Beginning balance $ 3,906 $ 1,046 $ 1,389 $ 1,141 $ 1,273 $ 21 $ 3 $ 8,779 Charge-offs (1,135 ) — (17 ) (176 ) (350 ) — — (1,678 ) Recoveries 42 — 42 39 101 — — 224 Provision 1,970 (53 ) (23 ) (325 ) 184 (4 ) 1 1,750 Ending balance $ 4,783 $ 993 $ 1,391 $ 679 $ 1,208 $ 17 $ 4 $ 9,075 Ending balance: individually evaluated for impairment $ 208 $ 3 $ 55 $ 152 $ 145 $ — $ — $ 563 Ending balance: collectively evaluated for impairment $ 4,575 $ 990 $ 1,336 $ 527 $ 1,063 $ 17 $ 4 $ 8,512 Loans: Ending balance $ 454,310 $ 86,238 $ 413,565 $ 153,082 $ 108,581 $ 4,750 $ 3,656 $ 1,224,182 Ending balance: individually evaluated for impairment $ 1,793 $ 152 $ 3,234 $ 1,214 $ 340 $ — $ — $ 6,733 Ending balance: collectively evaluated for impairment $ 452,517 $ 86,086 $ 409,631 $ 151,763 $ 108,241 $ 4,750 $ 3,656 $ 1,216,644 Ending balance: loans acquired with deteriorated credit quality $ — $ — $ 700 $ 105 $ — $ — $ — $ 805 Non-Accrual and Past Due Loans Loans are considered past due if the required principal and interest payment have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the probability of collection of interest is deemed insufficient to warrant further accrual. For loans placed on non-accrual status, the accrual of interest is discontinued and subsequent payments received are applied to the principal balance. Interest income is recorded after principal has been satisfied and as payments are received. Non-accrual loans may be returned to accrual status if all principal and interest amounts contractually owed are reasonably assured of repayment within a reasonable period and there is a period of at least six months to one year of repayment performance by the borrower depending on the contractual payment terms. An age analysis of past due loans (including both accruing and non-accruing loans) is as follows (in thousands): June 30, 2015 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 days and Accruing Commercial, financial, and agricultural $ 1,710 $ 592 $ 2,999 $ 5,301 $ 466,096 $ 471,397 $ 501 Commercial real estate - construction 364 — 13 377 57,151 57,528 — Commercial real estate - other 13,681 361 4,994 19,036 449,986 469,022 — Residential - construction — — 490 490 21,158 21,648 — Residential - prime 523 449 1,378 2,350 151,470 153,820 — Consumer - credit card 29 29 13 71 5,749 5,820 13 Consumer - other 1,065 264 324 1,653 106,153 107,806 95 Lease financing receivable — — — — 5,561 5,561 — Other loans 100 — — 100 1,690 1,790 — $ 17,472 $ 1,695 $ 10,211 $ 29,378 $ 1,265,014 $ 1,294,392 $ 609 December 31, 2014 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 days and Accruing Commercial, financial, and agricultural $ 2,179 $ 654 $ 2,556 $ 5,389 $ 461,758 $ 467,147 $ 26 Commercial real estate - construction 15 — 105 120 43,390 43,510 97 Commercial real estate - other 4,989 270 2,464 7,723 459,449 467,172 — Residential - construction 431 — — 431 24,636 25,067 — Residential - prime 1,843 523 704 3,070 151,532 154,602 — Consumer - credit card 5 19 18 42 5,970 6,012 18 Consumer - other 671 392 107 1,170 112,146 113,316 46 Lease financing receivable — — — — 4,857 4,857 — Other loans 134 — — 134 2,614 2,748 — $ 10,267 $ 1,858 $ 5,954 $ 18,079 $ 1,266,352 $ 1,284,431 $ 187 Non-accrual loans are as follows (in thousands): June 30, 2015 December 31, 2014 Commercial, financial, and agricultural $ 2,636 $ 2,642 Commercial real estate – construction 41 54 Commercial real estate - other 18,452 6,429 Residential - construction 490 — Residential - prime 1,930 1,194 Consumer - credit card — — Consumer - other 324 382 Lease financing receivable — — Other — — $ 23,873 $ 10,701 The amount of interest that would have been recorded on non-accrual loans, had the loans not been classified as non-accrual, totaled approximately $851,000 and $275,000 for the six months ended June 30, 2015 and 2014 , respectively. Interest actually received on non-accrual loans at June 30, 2015 and 2014 was $13,000 and $91,000 , respectively. Impaired Loans Loans are considered impaired when, based upon current information, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans classified as special mention, substandard, or doubtful, based on credit risk rating factors, are reviewed to determine whether impairment testing is appropriate. An allowance for each impaired loan is calculated based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collaterally dependent. All impaired loans are reviewed, at a minimum, on a quarterly basis. Existing valuations are reviewed to determine if additional discounts or new appraisals are required. After this review, when comparing the resulting collateral valuation to the outstanding loan balance, if the discounted collateral value exceeds the loan balance no specific allocation is reserved. Acquired impaired loans are generally not subject to individual evaluation for impairment and are not reported with impaired loans or troubled debt restructurings, even if they would otherwise qualify for such treatment. Loans that are individually evaluated for impairment are as follows (in thousands): June 30, 2015 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial, financial, and agricultural $ 21,578 $ 21,842 $ — $ 10,993 $ 507 Commercial real estate – construction 41 41 — 42 — Commercial real estate – other 7,048 7,048 — 5,450 33 Residential – prime 1,278 1,298 — 1,167 9 Residential – construction 490 490 — 462 1 Consumer – other 36 36 — 46 — Subtotal: 30,471 30,755 — 18,160 550 With an allowance recorded: Commercial, financial, and agricultural 2,172 2,172 889 2,096 18 Commercial real estate – other 11,375 11,375 1,123 7,750 — Residential – prime 545 545 107 480 6 Consumer – other 288 302 156 318 1 Subtotal: 14,380 14,394 2,275 10,644 25 Totals: Commercial 42,214 42,478 2,012 26,331 558 Residential 2,313 2,333 107 2,109 16 Consumer 324 338 156 364 1 Grand total: $ 44,851 $ 45,149 $ 2,275 $ 28,804 $ 575 December 31, 2014 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded: Commercial, financial, and agricultural $ 438 $ 521 $ — $ 554 $ — Commercial real estate – construction 54 54 — 58 — Commercial real estate – other 1,921 1,921 — 1,885 17 Residential – prime 543 543 — 534 15 Consumer – other 78 78 — 72 — Subtotal: 3,034 3,117 — 3,103 32 With an allowance recorded: Commercial, financial, and agricultural 2,218 2,333 1,010 1,394 35 Commercial real estate – construction — — — 19 — Commercial real estate – other 4,467 4,467 1,484 2,416 220 Residential – prime 529 548 68 452 3 Consumer – other 299 313 179 252 4 Subtotal: 7,513 7,661 2,741 4,533 262 Totals: Commercial 9,098 9,296 2,494 6,326 272 Residential 1,072 1,091 68 986 18 Consumer 377 391 179 324 4 Grand total: $ 10,547 $ 10,778 $ 2,741 $ 7,636 $ 294 Credit Quality The Company manages credit risk by observing written underwriting standards and lending policy established by the Board of Directors and management to govern all lending activities. The risk management program requires that each individual loan officer review his or her portfolio on a quarterly basis and assign recommended credit ratings on each loan. These efforts are supplemented by independent reviews performed by a loan review officer and other validations performed by the internal audit department. The results of the reviews are reported directly to the Audit Committee of the Board of Directors. Loans can be classified into the following three risk rating grades: pass, special mention, and substandard/doubtful. Factors considered in determining a risk rating grade include debt service capacity, capital structure/liquidity, management, collateral quality, industry risk, company trends/operating performance, repayment source, revenue diversification/customer concentration, quality of financial information, and financing alternatives. Pass grade signifies the highest quality of loans to loans with reasonable credit risk, which may include borrowers with marginally adequate financial performance, but have the ability to repay the debt. Special mention loans have potential weaknesses that warrant extra attention from the loan officer and other management personnel, but still have the ability to repay the debt. Substandard classification includes loans with well-defined weaknesses with risk of potential loss. Loans classified as doubtful are considered to have little recovery value and are charged off. The following tables present the classes of loans by risk rating (in thousands): June 30, 2015 Commercial Credit Exposure Credit Risk Profile by Creditworthiness Category Commercial, financial, and agricultural Commercial real estate - construction Commercial real estate - other Total % of Total Pass $ 418,761 $ 57,361 $ 421,359 $ 897,481 89.93 % Special mention 19,477 126 14,039 33,642 3.37 % Substandard 32,812 41 33,624 66,477 6.66 % Doubtful 347 — — 347 0.04 % $ 471,397 $ 57,528 $ 469,022 $ 997,947 100.00 % Residential Credit Exposure Credit Risk Profile by Creditworthiness Category Residential - construction Residential - prime Total % of Total Pass $ 20,666 $ 149,209 $ 169,875 96.81 % Special mention 492 1,320 1,812 1.03 % Substandard 490 3,291 3,781 2.16 % $ 21,648 $ 153,820 $ 175,468 100.00 % Consumer and Commercial Credit Exposure Credit Risk Profile Based on Payment Activity Consumer - credit card Consumer - other Lease financing receivable Other Total % of Total Performing $ 5,817 $ 107,809 $ 5,561 $ 1,790 $ 120,977 100.00 % Nonperforming — — — — — — % $ 5,817 $ 107,809 $ 5,561 $ 1,790 $ 120,977 100.00 % December 31, 2014 Commercial Credit Exposure Credit Risk Profile by Creditworthiness Category Commercial, financial, and agricultural Commercial real estate - construction Commercial real estate - other Total % of Total Pass $ 456,221 $ 43,320 $ 440,281 $ 939,822 96.11 % Special mention 4,861 132 7,120 12,113 1.24 % Substandard 5,541 58 19,771 25,370 2.60 % Doubtful 524 — — 524 0.05 % $ 467,147 $ 43,510 $ 467,172 $ 977,829 100.00 % Residential Credit Exposure Credit Risk Profile by Creditworthiness Category Residential - construction Residential - prime Total % of Total Pass $ 25,067 $ 150,664 $ 175,731 97.81 % Special mention — 1,184 1,184 0.66 % Substandard — 2,754 2,754 1.53 % $ 25,067 $ 154,602 $ 179,669 100.00 % Consumer and Commercial Credit Exposure Credit Risk Profile Based on Payment Activity Consumer - credit card Consumer - other Lease financing receivable Other Total % of Total Performing $ 5,995 $ 112,893 $ 4,857 $ 2,748 $ 126,493 99.65 % Nonperforming 17 423 — — 440 0.35 % $ 6,012 $ 113,316 $ 4,857 $ 2,748 $ 126,933 100.00 % Troubled Debt Restructurings A troubled debt restructuring (“TDR”) is a restructuring of a debt made by the Company to a debtor for economic or legal reasons related to the debtor’s financial difficulties that it would not otherwise consider. The Company grants the concession in an attempt to protect as much of its investment as possible. Information about the Company’s TDRs is as follows (in thousands): June 30, 2015 Current Past Due Greater Than 30 Days Nonaccrual TDRs Total TDRs Commercial, financial and agricultural $ 21,377 $ — $ 234 $ 21,611 Real estate - commercial 152 — — 152 $ 21,529 $ — $ 234 $ 21,763 December 31, 2014 Current Past Due Greater Than 30 Days Nonaccrual TDRs Total TDRs Commercial, financial and agricultural $ 21 $ — $ 234 $ 255 Real estate - commercial 155 — — 155 $ 176 $ — $ 234 $ 410 During the three months ended June 30, 2015 , there was one loan relationship with a pre-modification balance of $21.4 million identified as a TDR after conversion of the loans to interest only for a limited amount of time, and there were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the three months ended June 30, 2014 , there were no loans identified as a TDR, and there were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the six months ended June 30, 2015 , there was one loan relationship with a pre-modification balance of $21.4 million identified as a TDR after conversion of the loans to interest only for a limited amount of time, and there were no defaults on any loans that were modified as TDRs during the preceding twelve months. During the six months ended June 30, 2014 , there was one loan relationship with a pre-modification balance of $1.2 million identified as a TDR through a modification of the original loan terms, and there were no defaults on any loans that were modified as TDRs during the preceding twelve months. For purposes of the determination of an allowance for loan losses on these TDRs, as an identified TDR, the Company considers a loss probable on the loan and, as a result is reviewed for specific impairment in accordance with the Company’s allowance for loan loss methodology. If it is determined losses are probable on such TDRs, either because of delinquency or other credit quality indicator, the Company establishes specific reserves for these loans. As of June 30, 2015 , there were no commitments to lend additional funds to debtors owing sums to the Company whose terms have been modified in TDRs. |
