Loans and Asset Quality Information | Loans and Asset Quality Information The following is a summary of the major categories of total loans outstanding: ($ in thousands) March 31, 2020 December 31, 2019 Amount Percentage Amount Percentage All loans: Commercial, financial, and agricultural $ 521,470 12 % $ 504,271 11 % Real estate – construction, land development & other land loans 590,485 13 % 530,866 12 % Real estate – mortgage – residential (1-4 family) first mortgages 1,083,022 24 % 1,105,014 25 % Real estate – mortgage – home equity loans / lines of credit 331,170 7 % 337,922 8 % Real estate – mortgage – commercial and other 1,970,716 43 % 1,917,280 43 % Consumer loans 54,133 1 % 56,172 1 % Subtotal 4,550,996 100 % 4,451,525 100 % Unamortized net deferred loan costs 1,712 1,941 Total loans $ 4,552,708 $ 4,453,466 Included in the table above are the following amounts of SBA loans: ($ in thousands) March 31, December 31, Guaranteed portions of SBA Loans included in table above $ 27,985 54,400 Unguaranteed portions of SBA Loans included in table above 119,857 110,782 Total SBA loans included in the table above $ 147,842 165,182 Sold portions of SBA loans with servicing retained - not included in table above $ 324,231 316,730 At March 31, 2020 and December 31, 2019 , there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $6.8 million and $7.1 million , respectively. The Company has several acquired loan portfolios as a result of merger and acquisition transactions. In these transactions, the Company recorded loans at their fair value as required by applicable accounting guidance. Included in these loan portfolios were purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans were considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan. As of March 31, 2020 and December 31, 2019 , there was a remaining accretable discount of $10.3 million and $11.1 million , respectively, related to purchased non-impaired loans. The discounts are amortized as yield adjustments over the respective lives of the loans, so long as the loans perform. The following table presents changes in the carrying value of PCI loans. PCI loans For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019 Balance at beginning of period $ 12,664 17,393 Change due to payments received and accretion (2,841 ) (1,556 ) Change due to loan charge-offs (10 ) (8 ) Transfers to foreclosed real estate — — Other 26 38 Balance at end of period $ 9,839 15,867 The following table presents changes in the accretable yield for PCI loans. Accretable Yield for PCI loans For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019 Balance at beginning of period $ 4,149 4,750 Accretion (567 ) (392 ) Reclassification from (to) nonaccretable difference 304 237 Other, net (453 ) 550 Balance at end of period $ 3,433 5,145 During the first three months of 2020, the Company received $408,000 in payments that exceeded the carrying amount of the related PCI loans, of which $336,000 was recognized as loan discount accretion income, $58,000 was recorded as additional loan interest income, and $14,000 was recorded as a recovery. During the first three months of 2019, the Company received $133,000 in payments that exceeded the carrying amount of the related PCI loans, of which $112,000 was recognized as loan discount accretion income and $21,000 was recorded as additional loan interest income. Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and foreclosed real estate. Nonperforming assets are summarized as follows. ($ in thousands) March 31, December 31, Nonperforming assets Nonaccrual loans $ 25,066 24,866 Restructured loans - accruing 9,747 9,053 Accruing loans > 90 days past due — — Total nonperforming loans 34,813 33,919 Foreclosed real estate 3,487 3,873 Total nonperforming assets $ 38,300 37,792 Purchased credit impaired loans not included above (1) $ 9,839 12,664 (1) In the March 3, 2017 acquisition of Carolina Bank, and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $19.3 million and $9.9 million , respectively, in PCI loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from nonperforming loans, including $0.7 million and $0.8 million in PCI loans at March 31, 2020 and December 31, 2019 , respectively, that were contractually past due 90 days or more. At March 31, 2020 and December 31, 2019 , the Company had $2.2 million and $0.6 million in residential mortgage loans in process of foreclosure, respectively. The following is a summary of the Company’s nonaccrual loans by major categories. ($ in thousands) March 31, December 31, Commercial, financial, and agricultural $ 3,703 5,518 Real estate – construction, land development & other land loans 958 1,067 Real estate – mortgage – residential (1-4 family) first mortgages 8,581 7,552 Real estate – mortgage – home equity loans / lines of credit 1,874 1,797 Real estate – mortgage – commercial and other 9,837 8,820 Consumer loans 113 112 Total $ 25,066 24,866 The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2020 . Due to the onset of the COVID-19 pandemic not occurring until late in the first quarter of 2020, as well as the Company's COVID-19 deferral program, the past due amounts below were not impacted by the pandemic. ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial, financial, and agricultural $ 2,387 201 — 3,703 514,992 521,283 Real estate – construction, land development & other land loans 1,333 42 — 958 587,989 590,322 Real estate – mortgage – residential (1-4 family) first mortgages 10,829 30 — 8,581 1,058,281 1,077,721 Real estate – mortgage – home equity loans / lines of credit 1,532 155 — 1,874 327,516 331,077 Real estate – mortgage – commercial and other 4,850 7,164 — 9,837 1,944,844 1,966,695 Consumer loans 129 67 — 113 53,750 54,059 Purchased credit impaired 625 15 746 — 8,453 9,839 Total $ 21,685 7,674 746 25,066 4,495,825 4,550,996 Unamortized net deferred loan costs 1,712 Total loans $ 4,552,708 The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2019 . ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial, financial, and agricultural $ 752 — — 5,518 497,788 504,058 Real estate – construction, land development & other land loans 37 152 — 1,067 529,444 530,700 Real estate – mortgage – residential (1-4 family) first mortgages 10,858 5,056 — 7,552 1,076,205 1,099,671 Real estate – mortgage – home equity loans / lines of credit 770 300 — 1,797 334,832 337,699 Real estate – mortgage – commercial and other 4,257 — — 8,820 1,897,573 1,910,650 Consumer loans 344 137 — 112 55,490 56,083 Purchased credit impaired 218 38 762 — 11,646 12,664 Total $ 17,236 5,683 762 24,866 4,402,978 4,451,525 Unamortized net deferred loan costs 1,941 Total loans $ 4,453,466 The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2020 . ($ in thousands) Commercial, Real Estate Real Estate Real Estate Real Estate Consumer Loans Unallocated Total As of and for the three months ended March 31, 2020 Beginning balance $ 4,553 1,976 3,832 1,127 8,938 972 — 21,398 Charge-offs (2,460 ) (40 ) (195 ) (68 ) (263 ) (287 ) — (3,313 ) Recoveries 217 290 91 83 47 95 — 823 Provisions 1,894 373 645 252 2,191 235 — 5,590 Ending balance $ 4,204 2,599 4,373 1,394 10,913 1,015 — 24,498 Ending balance as of March 31, 2020: Allowance for loan losses Individually evaluated for impairment $ 1,093 73 739 90 1,233 — — 3,228 Collectively evaluated for impairment $ 3,069 2,526 3,528 1,304 9,680 1,006 — 21,113 Purchased credit impaired $ 42 — 106 — — 9 — 157 Loans receivable as of March 31, 2020 Ending balance – total $ 521,470 590,485 1,083,022 331,170 1,970,716 54,133 — 4,550,996 Unamortized net deferred loan costs 1,712 Total loans $ 4,552,708 Ending balances as of March 31, 2020: Loans Individually evaluated for impairment $ 3,050 756 9,915 433 11,862 — — 26,016 Collectively evaluated for impairment $ 518,233 589,566 1,067,805 330,644 1,954,834 54,059 — 4,515,141 Purchased credit impaired $ 187 163 5,302 93 4,020 74 — 9,839 The following table presents the activity in the allowance for loan losses for the year ended December 31, 2019 . ($ in thousands) Commercial, Financial, and Agricultural Real Estate – Construction, Land Development & Other Land Loans Real Estate – Residential (1-4 Family) First Mortgages Real Estate – Mortgage – Home Equity Lines of Credit Real Estate – Mortgage – Commercial and Other Consumer Loans Unallocated Total As of and for the year ended December 31, 2019 Beginning balance $ 2,889 2,243 5,197 1,665 7,983 952 110 21,039 Charge-offs (2,473 ) (553 ) (657 ) (307 ) (1,556 ) (757 ) — (6,303 ) Recoveries 980 1,275 705 629 575 235 — 4,399 Provisions 3,157 (989 ) (1,413 ) (860 ) 1,936 542 (110 ) 2,263 Ending balance $ 4,553 1,976 3,832 1,127 8,938 972 — 21,398 Ending balances as of December 31, 2019: Allowance for loan losses Individually evaluated for impairment $ 1,791 50 750 — 983 — — 3,574 Collectively evaluated for impairment $ 2,720 1,926 2,976 1,127 7,931 961 — 17,641 Purchased credit impaired $ 42 — 106 — 24 11 — 183 Loans receivable as of December 31, 2019: Ending balance – total $ 504,271 530,866 1,105,014 337,922 1,917,280 56,172 — 4,451,525 Unamortized net deferred loan costs 1,941 Total loans $ 4,453,466 Ending balances as of December 31, 2019: Loans Individually evaluated for impairment $ 4,957 796 9,546 333 9,570 — — 25,202 Collectively evaluated for impairment $ 499,101 529,904 1,090,125 337,366 1,901,080 56,083 — 4,413,659 Purchased credit impaired $ 213 166 5,343 223 6,630 89 — 12,664 The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2019 . ($ in thousands) Commercial, Real Estate Real Estate Real Estate Real Estate Consumer Loans Unallocated Total As of and for the three months ended March 31, 2019 Beginning balance $ 2,889 2,243 5,197 1,665 7,983 952 110 21,039 Charge-offs (246 ) (264 ) (30 ) (80 ) (836 ) (281 ) — (1,737 ) Recoveries 414 287 160 128 271 33 — 1,293 Provisions 652 18 (817 ) (339 ) 702 302 (18 ) 500 Ending balance $ 3,709 2,284 4,510 1,374 8,120 1,006 92 21,095 Ending balances as of March 31, 2019: Allowance for loan losses Individually evaluated for impairment $ 857 28 858 — 312 — — 2,055 Collectively evaluated for impairment $ 2,852 2,256 3,596 1,362 7,723 990 92 18,871 Purchased credit impaired $ — — 56 12 85 16 — 169 Loans receivable as of March 31, 2019 Ending balance – total $ 468,388 553,760 1,061,049 354,669 1,794,794 69,503 — 4,302,163 Unamortized net deferred loan fees 1,624 Total loans 4,303,787 Ending balances as of March 31, 2019: Loans Individually evaluated for impairment $ 1,044 797 10,891 21 8,396 — — 21,149 Collectively evaluated for impairment $ 467,139 552,788 1,044,104 354,316 1,777,481 69,319 — 4,265,147 Purchased credit impaired $ 205 175 6,054 332 8,917 184 — 15,867 The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of March 31, 2020 . ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Impaired loans with no related allowance recorded: Commercial, financial, and agricultural $ 19 51 — 18 Real estate – mortgage – construction, land development & other land loans 116 168 — 169 Real estate – mortgage – residential (1-4 family) first mortgages 4,901 5,160 — 4,601 Real estate – mortgage –home equity loans / lines of credit 330 358 — 332 Real estate – mortgage –commercial and other 5,471 7,035 — 4,057 Consumer loans — — — — Total impaired loans with no allowance $ 10,837 12,772 — 9,177 Impaired loans with an allowance recorded: Commercial, financial, and agricultural $ 3,031 3,063 1,093 3,986 Real estate – mortgage – construction, land development & other land loans 640 649 73 608 Real estate – mortgage – residential (1-4 family) first mortgages 5,014 5,244 739 5,130 Real estate – mortgage –home equity loans / lines of credit 103 103 90 52 Real estate – mortgage –commercial and other 6,391 6,821 1,233 6,659 Consumer loans — — — — Total impaired loans with allowance $ 15,179 15,880 3,228 16,435 Interest income recorded on impaired loans during the three months ended March 31, 2020 was insignificant, and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing restructured loans. The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2019 . ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Impaired loans with no related allowance recorded: Commercial, financial, and agricultural $ 16 19 — 74 Real estate – mortgage – construction, land development & other land loans 221 263 — 366 Real estate – mortgage – residential (1-4 family) first mortgages 4,300 4,539 — 4,415 Real estate – mortgage –home equity loans / lines of credit 333 357 — 147 Real estate – mortgage –commercial and other 2,643 3,328 — 3,240 Consumer loans — — — — Total impaired loans with no allowance $ 7,513 8,506 — 8,242 Impaired loans with an allowance recorded: Commercial, financial, and agricultural $ 4,941 4,995 1,791 1,681 Real estate – mortgage – construction, land development & other land loans 575 575 50 586 Real estate – mortgage – residential (1-4 family) first mortgages 5,246 5,469 750 6,206 Real estate – mortgage –home equity loans / lines of credit — — — 55 Real estate – mortgage –commercial and other 6,927 7,914 983 5,136 Consumer loans — — — — Total impaired loans with allowance $ 17,689 18,953 3,574 13,664 Interest income recorded on impaired loans during the year ended December 31, 2019 was $1.3 million , and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing restructured loans. The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. The following describes the Company’s internal risk grades in ascending order of likelihood of loss: Risk Grade Description Pass: 1 Loans with virtually no risk, including cash secured loans. 2 Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation. 3 Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances. 4 Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability. 5 Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory. P (Pass) Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines. Special Mention: 6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank. Classified: 7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 8 Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain. 9 Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. F (Fail) Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc. The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2020 . Due to the onset of the COVID-19 pandemic not occurring until late in the first quarter of 2020, the special mention and classified loans levels shown below were not impacted by the pandemic. ($ in thousands) Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total Commercial, financial, and agricultural $ 504,858 7,736 4,986 3,703 521,283 Real estate – construction, land development & other land loans 583,176 4,743 1,445 958 590,322 Real estate – mortgage – residential (1-4 family) first mortgages 1,046,994 8,427 13,719 8,581 1,077,721 Real estate – mortgage – home equity loans / lines of credit 322,000 1,217 5,986 1,874 331,077 Real estate – mortgage – commercial and other 1,920,923 28,557 7,378 9,837 1,966,695 Consumer loans 53,532 207 207 113 54,059 Purchased credit impaired 8,022 87 1,730 — 9,839 Total $ 4,439,505 50,974 35,451 25,066 4,550,996 Unamortized net deferred loan costs 1,712 Total loans 4,552,708 The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2019 . ($ in thousands) Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total Commercial, financial, and agricultural $ 486,081 7,998 4,461 5,518 504,058 Real estate – construction, land development & other land loans 522,767 4,075 2,791 1,067 530,700 Real estate – mortgage – residential (1-4 family) first mortgages 1,063,735 13,187 15,197 7,552 1,099,671 Real estate – mortgage – home equity loans / lines of credit 328,903 1,258 5,741 1,797 337,699 Real estate – mortgage – commercial and other 1,873,594 20,800 7,436 8,820 1,910,650 Consumer loans 55,203 413 355 112 56,083 Purchased credit impaired 8,098 2,590 1,976 — 12,664 Total $ 4,338,381 50,321 37,957 24,866 4,451,525 Unamortized net deferred loan costs 1,941 Total loans 4,453,466 Troubled Debt Restructurings The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses. As previously noted, under the CARES Act and banking regulator guidance, which the Company has applied, modifications deemed to be COVID-19-related are not considered a troubled debt restructuring if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020. Under these terms, as of March 31, 2020, the Company had processed payment deferrals for 315 loans with an aggregate loan balance of $120 million . Through April 30, 2020, the number of deferrals increased to 1,269 with an aggregate loan balance of $647 million . These deferrals were generally no more than 90 days in duration and are not included in the troubled debt restructurings disclosed in this report. The Company continues to accrue interest on these loans during the deferral period. The vast majority of the Company’s troubled debt restructurings modified during the periods ended March 31, 2020 and March 31, 2019 related to interest rate reductions combined with extension of terms. The Company does not generally grant principal forgiveness. All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously. The following table presents information related to loans modified in a troubled debt restructuring during the three months ended March 31, 2020 and 2019 . ($ in thousands) For the three months ended For the three months ended Number of Pre- Post- Number of Pre- Post- TDRs – Accruing Commercial, financial, and agricultural 2 $ 143 $ 143 — $ — $ — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages — — — 2 254 258 Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Consumer loans — — — — — — TDRs – Nonaccrual Commercial, financial, and agricultural — — — — — — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages — — — — — — Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Consumer loans — — — — — — Total TDRs arising during period 2 $ 143 $ 143 2 $ 254 $ 258 Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended March 31, 2020 and 2019 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate. ($ in thousands) For the Three Months Ended March 31, 2020 For the Three Months Ended March 31, 2019 Number of Recorded Number of Recorded Accruing TDRs that subsequently defaulted Real estate – mortgage – residential (1-4 family first mortgages) — $ — 1 $ 93 Real estate – mortgage – commercial and other — — — — Total accruing TDRs that subsequently defaulted — $ — 1 $ 93 |