| Loans and Asset Quality Information | Note 7 – Loans and Asset Quality
Information Certain loans and foreclosed real estate
that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the CompanyÂ’s
banking subsidiary, First Bank, which afford First Bank significant loss protection - see Note 2 to the financial statements included
in the CompanyÂ’s 2011 Annual Report on Form 10-K for detailed information regarding these transactions. Because of the loss
protection provided by the FDIC, the risk of the loans and foreclosed real estate that are covered by loss share agreements are
significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately
loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject
to the loss share agreements as “non-covered loans.” On July 1, 2014, the loss share provisions
associated with non-single family assets associated with the 2009 failed bank acquisition of Cooperative Bank expired, and the
associated assets were reclassified as non-covered. On April 1, 2016, the loss share provisions of another agreement expired, which
related to the non-single family assets of The Bank of Asheville, a failed bank acquisition from January 2011. Accordingly, the
remaining balances associated with those loans and foreclosed real estate were reclassified from the covered portfolio to the non-covered
portfolio on April 1, 2016. The Company bears all future losses on this portfolio of loans and foreclosed real estate. Immediately
prior to the transfer to non-covered status, the loans in this portfolio had a carrying value of $17.7 million and the foreclosed
real estate in this portfolio had a carrying value of $1.2 million. Of the $17.7 million in loans that lost loss share protection,
approximately $2.8 million were on nonaccrual status as of April 1, 2016. Additionally, approximately $0.3 million in allowance
for loan losses associated with this portfolio of loans was transferred to the allowance for loan losses for non-covered loans
on April 1, 2016. The following is a summary of the major
categories of total loans outstanding:
($ in thousands) June 30, 2016 December 31, 2015 June 30, 2015
Amount Percentage Amount Percentage Amount Percentage
All loans (non-covered and covered):
Commercial, financial, and agricultural $ 244,862 9% $ 202,671 8% $ 179,909 7%
Real estate – construction, land development & other land loans 310,993 12% 308,969 12% 282,262 12%
Real estate – mortgage – residential (1-4 family) first mortgages 751,446 29% 768,559 31% 777,515 32%
Real estate – mortgage – home equity loans / lines of credit 238,794 9% 232,601 9% 220,534 9%
Real estate – mortgage – commercial and other 1,000,578 39% 957,587 38% 904,496 38%
Installment loans to individuals 50,387 2% 47,666 2% 47,244 2%
Subtotal 2,597,060 100% 2,518,053 100% 2,411,960 100%
Unamortized net deferred loan costs 1,074 873 819
Total loans $ 2,598,134 $ 2,518,926 $ 2,412,779 The following is a summary of the major
categories of non-covered loans outstanding:
($ in thousands) June 30, 2016 December 31, 2015 June 30, 2015
Amount Percentage Amount Percentage Amount Percentage
Non-covered loans:
Commercial, financial, and agricultural $ 244,862 10% $ 201,798 8% $ 178,756 8%
Real estate – construction, land development & other land loans 310,832 12% 305,228 13% 278,406 12%
Real estate – mortgage – residential (1-4 family) first mortgages 683,367 27% 692,902 29% 694,794 30%
Real estate – mortgage – home equity loans / lines of credit 228,906 9% 221,995 9% 208,778 9%
Real estate – mortgage – commercial and other 1,000,319 40% 945,823 39% 890,158 39%
Installment loans to individuals 50,387 2% 47,666 2% 47,244 2%
Subtotal 2,518,673 100% 2,415,412 100% 2,298,136 100%
Unamortized net deferred loan costs 1,074 873 819
Total non-covered loans $ 2,519,747 $ 2,416,285 $ 2,298,955 The carrying amount of the covered loans
at June 30, 2016 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:
($ in thousands) Impaired Purchased Loans – Carrying Value Impaired Purchased Loans – Unpaid Principal Balance Nonimpaired Purchased Loans – Carrying Value Nonimpaired Purchased Loans - Unpaid Principal Balance Total Covered Loans – Carrying Value Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural $ — — — — — —
Real estate – construction, land development & other land loans — — 161 162 161 162
Real estate – mortgage – residential (1-4 family) first mortgages — 33 68,079 78,940 68,079 78,973
Real estate – mortgage – home equity loans / lines of credit 6 14 9,882 11,140 9,888 11,154
Real estate – mortgage – commercial and other — — 259 294 259 294
Installment loans to individuals — — — — — —
Total $ 6 47 78,381 90,536 78,387 90,583 The carrying amount of the covered loans
at December 31, 2015 consisted of impaired and nonimpaired purchased loans (as determined on the date of the acquisition), as follows:
($ in thousands) Impaired Purchased Loans – Carrying Value Impaired Purchased Loans – Unpaid Principal Balance Nonimpaired Purchased Loans – Carrying Value Nonimpaired Purchased Loans - Unpaid Principal Balance Total Covered Loans – Carrying Value Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural $ — — 873 886 873 886
Real estate – construction, land development & other land loans 277 365 3,464 3,457 3,741 3,822
Real estate – mortgage – residential (1-4 family) first mortgages 102 633 75,555 88,434 75,657 89,067
Real estate – mortgage – home equity loans / lines of credit 7 14 10,599 12,099 10,606 12,113
Real estate – mortgage – commercial and other 1,003 3,136 10,761 11,458 11,764 14,594
Total $ 1,389 4,148 101,252 116,334 102,641 120,482 The following table presents information
regarding covered purchased nonimpaired loans since December 31, 2014. The amounts include principal only and do not reflect accrued
interest as of the date of the acquisition or beyond.
($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2014 $ 125,644
Principal repayments (30,238 )
Transfers to foreclosed real estate (1,211 )
Net loan (charge-offs) / recoveries 2,306
Accretion of loan discount 4,751
Carrying amount of nonimpaired covered loans at December 31, 2015 101,252
Principal repayments (7,997 )
Transfers to foreclosed real estate (1,036 )
Transfer to non-covered loans due to expiration of loss-share agreement (17,530 )
Net loan (charge-offs) / recoveries 1,784
Accretion of loan discount 1,908
Carrying amount of nonimpaired covered loans at June 30, 2016 $ 78,381 As reflected in the table above, the
Company accreted $1,908,000 of the loan discount on covered purchased nonimpaired loans into interest income during the first six
months of 2016. As of June 30, 2016, there was remaining loan discount of $11,179,000 related to covered purchased accruing loans.
If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income
over the covered lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset
will be recorded amounting to approximately 80% of the loan discount accretion, which reduces noninterest income. At June 30, 2016,
the Company also had $581,000 of loan discount related to covered purchased nonaccruing loans. It is not expected that a significant
amount of this discount will be accreted, as it represents estimated losses on these loans. Also, the Company accreted $43,000 of
loan discount on non-covered purchased nonimpaired loans into interest income during the first six months of 2016. As of June 30,
2016, there was a remaining loan discount of $208,000 related to non-covered purchased accruing loans, which will be accreted into
interest income over the lives of the respective loans. At June 30, 2016, the Company also had $391,000 of loan discount related
to non-covered purchased nonaccruing loans, which the Company does not expect will be accreted into income. The following table presents information
regarding all purchased impaired loans since December 31, 2014, the majority of which are covered loans. The Company has applied
the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the
timing of expected cash flows, as reflected in the following table.
($ in thousands) Purchased Impaired Loans Contractual Principal Receivable Fair Market Value Adjustment – Write Down (Nonaccretable Difference) Carrying Amount
Balance at December 31, 2014 $ 5,859 3,262 2,597
Change due to payments received (634 ) (102 ) (532 )
Transfer to foreclosed real estate (431 ) (336 ) (95 )
Other (3 ) (3 ) —
Balance at December 31, 2015 $ 4,791 2,821 1,970
Change due to payments received (3,392 ) (2,253 ) (1,139 )
Change due to loan charge-off (394 ) (324 ) (70 )
Balance at June 30, 2016 $ 1,005 244 761 Because of the uncertainty of the expected
cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments
are applied to principal. Thus, there is no accretable yield associated with the above loans. During the three months ended 2016,
the Company received $1,062,000 in payments that exceeded the carrying amount of the related purchased impaired loans, of which
$741,000 was recognized as discount accretion loan interest income and $321,000 was recorded as additional loan interest income.
For the six month period ended June 30, 2016, the Company received $1,108,000 in payments that exceeded the carrying amount of
the related purchased impaired loans, of which $780,000 was recognized as discount accretion loan interest income and $328,000
was recorded as additional loan interest income. No such excess payments were received in the first six months of 2015. Nonperforming assets are defined as
nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, nonperforming loans held for
sale, and foreclosed real estate. Nonperforming assets are summarized as follows:
ASSET QUALITY DATA ($
in thousands) June 30, 2016 December 31, 2015 June 30, 2015
Non-covered nonperforming assets
Nonaccrual loans $ 33,781 $ 39,994 $ 44,123
Restructured loans - accruing 25,826 28,011 32,059
Accruing loans > 90 days past due — — —
Total non-covered nonperforming loans 59,607 68,005 76,182
Foreclosed real estate 10,221 9,188 9,954
Total non-covered nonperforming assets $ 69,828 $ 77,193 $ 86,136
Covered nonperforming assets
Nonaccrual loans (1) $ 4,194 $ 7,816 $ 7,378
Restructured loans - accruing 3,445 3,478 3,910
Accruing loans > 90 days past due — — —
Total covered nonperforming loans 7,639 11,294 11,288
Foreclosed real estate 385 806 1,945
Total covered nonperforming assets $ 8,024 $ 12,100 $ 13,233
Total nonperforming assets $ 77,852 $ 89,293 $ 99,369 (1) At
June 30, 2016, December 31, 2015, and June 30, 2015, the contractual balance of the nonaccrual loans covered by FDIC loss share
agreements was $5.0 million, $12.3 million, and $12.7 million, respectively. At June 30, 2016 and 2015, the Company
had $1.8 million and $5.1 million in residential mortgage loans in process of foreclosure, respectively. The following table presents the CompanyÂ’s
nonaccrual loans as of June 30, 2016.
($ in thousands) Non-covered Covered Total
Commercial, financial, and agricultural $ 2,870 — 2,870
Real estate – construction, land development & other land loans 4,154 — 4,154
Real estate – mortgage – residential (1-4 family) first mortgages 17,315 3,841 21,156
Real estate – mortgage – home equity loans / lines of credit 2,406 353 2,759
Real estate – mortgage – commercial and other 6,821 — 6,821
Installment loans to individuals 215 — 215
Total $ 33,781 4,194 37,975
The following table presents the CompanyÂ’s
nonaccrual loans as of December 31, 2015.
($ in thousands) Non-covered Covered Total
Commercial, financial, and agricultural $ 2,964 — 2,964
Real estate – construction, land development & other land loans 4,652 52 4,704
Real estate – mortgage – residential (1-4 family) first mortgages 18,822 5,007 23,829
Real estate – mortgage – home equity loans / lines of credit 3,142 383 3,525
Real estate – mortgage – commercial and other 10,197 2,374 12,571
Installment loans to individuals 217 — 217
Total $ 39,994 7,816 47,810
The following table presents an analysis
of the payment status of the CompanyÂ’s loans as of June 30, 2016.
($ in thousands) 30-59 Days Past Due 60-89 Days Past Due Nonaccrual Loans Current Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural $ 195 1,643 2,870 240,154 244,862
Real estate – construction, land development & other land loans 961 203 4,154 305,514 310,832
Real estate – mortgage – residential (1-4 family) first mortgages 2,574 763 17,315 662,715 683,367
Real estate – mortgage – home equity loans / lines of credit 765 221 2,406 225,514 228,906
Real estate – mortgage – commercial and other 1,998 373 6,821 991,127 1,000,319
Installment loans to individuals 368 253 215 49,551 50,387
Total non-covered $ 6,861 3,456 33,781 2,474,575 2,518,673
Unamortized net deferred loan costs 1,074
Total non-covered loans $ 2,519,747
Covered loans $ 172 1,473 4,194 72,548 78,387
Total loans $ 7,033 4,929 37,975 2,547,123 2,598,134 The Company had no non-covered or covered
loans that were past due greater than 90 days and accruing interest at June 30, 2016. The following table presents an analysis
of the payment status of the CompanyÂ’s loans as of December 31, 2015.
($ in thousands) 30-59 Days Past Due 60-89 Days Past Due Nonaccrual Loans Current Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural $ 999 127 2,964 197,708 201,798
Real estate – construction, land development & other land loans 1,512 429 4,652 298,635 305,228
Real estate – mortgage – residential (1-4 family) first mortgages 12,130 3,212 18,822 658,738 692,902
Real estate – mortgage – home equity loans / lines of credit 1,276 105 3,142 217,472 221,995
Real estate – mortgage – commercial and other 5,591 864 10,197 929,171 945,823
Installment loans to individuals 278 255 217 46,916 47,666
Total non-covered $ 21,786 4,992 39,994 2,348,640 2,415,412
Unamortized net deferred loan costs 873
Total non-covered loans $ 2,416,285
Covered loans $ 3,313 402 7,816 91,110 102,641
Total loans $ 25,099 5,394 47,810 2,439,750 2,518,926 The Company had no non-covered or covered
loans that were past due greater than 90 days and accruing interest at December 31, 2015. The following table presents the activity
in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2016.
($ 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 Installment Loans to Individuals Unallo- cated Total
As of and for the three months ended June 30, 2016
Beginning balance $ 4,679 3,345 7,374 2,267 5,940 1,202 442 25,249
Charge-offs (57 ) (137 ) (740 ) (285 ) (396 ) (238 ) — (1,853 )
Recoveries 216 121 61 64 155 140 — 757
Transfer from covered category 56 62 51 12 126 — — 307
Provisions (612 ) (492 ) 1,114 227 (254 ) 376 130 489
Ending balance $ 4,282 2,899 7,860 2,285 5,571 1,480 572 24,949
As of and for the six months ended June 30, 2016
Beginning balance $ 4,742 3,754 7,832 2,893 5,816 1,051 696 26,784
Charge-offs (734 ) (477 ) (2,691 ) (734 ) (562 ) (518 ) — (5,716 )
Recoveries 302 211 295 119 285 253 — 1,465
Transfer from covered category 56 62 51 12 126 — — 307
Provisions (84 ) (651 ) 2,373 (5 ) (94 ) 694 (124 ) 2,109
Ending balance $ 4,282 2,899 7,860 2,285 5,571 1,480 572 24,949
Ending balances as of June 30, 2016: Allowance for loan losses
Individually evaluated for impairment $ 14 172 1,263 11 478 70 — 2,008
Collectively evaluated for impairment $ 4,268 2,727 6,597 2,274 5,093 1,410 572 22,941
Loans acquired with deteriorated credit quality $ — — — — — — — —
Loans receivable as of June 30, 2016:
Ending balance – total $ 244,862 310,832 683,367 228,906 1,000,319 50,387 — 2,518,673
Unamortized net deferred loan costs 1,074
Total non-covered loans $ 2,519,747
Ending balances as of June 30, 2016: Loans
Individually evaluated for impairment $ 859 4,614 20,201 383 12,845 72 — 38,974
Collectively evaluated for impairment $ 244,003 306,218 662,959 228,523 986,926 50,315 — 2,478,944
Loans acquired with deteriorated credit quality $ — — 207 — 548 — — 755 The following table presents the activity
in the allowance for loan losses for non-covered loans for the year ended December 31, 2015.
($ 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 Installment Loans to Individuals Unallo- cated Total
As of and for the year ended December 31, 2015
Beginning balance $ 6,769 8,158 10,136 4,753 6,466 1,916 147 38,345
Charge-offs (2,908 ) (3,034 ) (4,904 ) (1,054 ) (2,804 ) (2,411 ) — (17,115 )
Recoveries 831 998 279 121 904 413 — 3,546
Provisions 50 (2,368 ) 2,321 (927 ) 1,250 1,133 549 2,008
Ending balance $ 4,742 3,754 7,832 2,893 5,816 1,051 696 26,784
Ending balances as of December 31, 2015: Allowance for loan losses
Individually evaluated for impairment $ 304 241 1,440 321 336 45 — 2,687
Collectively evaluated for impairment $ 4,438 3,513 6,392 2,572 5,480 1,006 696 24,097
Loans acquired with deteriorated credit quality $ — — — — — — — —
Loans receivable as of December 31, 2015:
Ending balance – total $ 201,798 305,228 692,902 221,995 945,823 47,666 — 2,415,412
Unamortized net deferred loan costs 873
Total non-covered loans $ 2,416,285
Ending balances as of December 31, 2015: Loans
Individually evaluated for impairment $ 992 4,898 21,325 758 16,605 76 — 44,654
Collectively evaluated for impairment $ 200,806 300,330 671,577 221,237 928,637 47,590 — 2,370,177
Loans acquired with deteriorated credit quality $ — — — — 581 — — 581 The following table presents the activity
in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2015.
($ 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 Installment Loans to Individuals Unallo- cated Total
As of and for the three months ended June 30, 2015
Beginning balance $ 5,738 7,144 9,327 3,983 5,709 1,565 304 33,770
Charge-offs (1,407 ) (702 ) (818 ) (522 ) (1,026 ) (928 ) — (5,403 )
Recoveries 256 52 146 37 193 103 — 787
Provisions 800 (1,067 ) (573 ) (115 ) 788 376 792 1,001
Ending balance $ 5,387 5,427 8,082 3,383 5,664 1,116 1,096 30,155
As of and for the six months ended June 30, 2015
Beginning balance $ 6,769 8,158 10,136 4,753 6,466 1,916 147 38,345
Charge-offs (2,301 ) (2,008 ) (2,257 ) (597 ) (2,022 ) (1,578 ) — (10,763 )
Recoveries 343 318 159 58 395 195 — 1,468
Provisions 576 (1,041 ) 44 (831 ) 825 583 949 1,105
Ending balance $ 5,387 5,427 8,082 3,383 5,664 1,116 1,096 30,155
Ending balances as of June 30, 2015: Allowance for loan losses
Individually evaluated for impairment $ 88 393 1,458 75 560 46 — 2,620
Collectively evaluated for impairment $ 5,299 5,034 6,624 3,308 5,104 1,070 1,096 27,535
Loans acquired with deteriorated credit quality $ — — — — — — — —
Loans receivable as of June 30, 2015:
Ending balance – total $ 178,756 278,406 694,794 208,778 890,158 47,244 — 2,298,136
Unamortized net deferred loan costs 819
Total non-covered loans $ 2,298,955
Ending balances as of June 30, 2015: Loans
Individually evaluated for impairment $ 686 5,377 19,847 527 20,454 79 — 46,970
Collectively evaluated for impairment $ 178,070 273,029 674,947 208,251 869,090 47,165 — 2,250,552
Loans acquired with deteriorated credit quality $ — — — — 614 — — 614 The following table presents the activity
in the allowance for loan losses for covered loans for the three and six months ended June 30, 2016.
($ in thousands) Covered Loans
As of and for the three months ended June 30, 2016
Beginning balance $ 1,399
Charge-offs (4 )
Recoveries 756
Transferred to non-covered (307 )
Provisions (reversal) for loan losses (770 )
Ending balance $ 1,074
As of and for the six months ended June 30, 2016
Beginning balance $ 1,799
Charge-offs (245 )
Recoveries 1,959
Transferred to non-covered (307 )
Provisions (reversal) for loan losses (2,132 )
Ending balance $ 1,074
Ending balances as of June 30, 2016: Allowance for loan losses
Individually evaluated for impairment $ 443
Collectively evaluated for impairment 631
Loans acquired with deteriorated credit quality —
Loans receivable as of June 30, 2016:
Ending balance – total $ 78,387
Ending balances as of June 30, 2016: Loans
Individually evaluated for impairment $ 5,500
Collectively evaluated for impairment 72,881
Loans acquired with deteriorated credit quality 6 The following table presents the activity
in the allowance for loan losses for covered loans for the year ended December 31, 2015.
($ in thousands) Covered Loans
As of and for the year ended December 31, 2015
Beginning balance $ 2,281
Charge-offs (1,316 )
Recoveries 3,622
Provision (reversal) for loan losses (2,788 )
Ending balance $ 1,799
Ending balances as of December 31, 2015: Allowance for loan losses
Individually evaluated for impairment $ 554
Collectively evaluated for impairment 1,175
Loans acquired with deteriorated credit quality 70
Loans receivable as of December 31, 2015:
Ending balance – total $ 102,641
Ending balances as of December 31, 2015: Loans
Individually evaluated for impairment $ 7,055
Collectively evaluated for impairment 94,197
Loans acquired with deteriorated credit quality 1,389 The following table presents the activity
in the allowance for loan losses for covered loans for the three and six months ended June 30, 2015.
($ in thousands) Covered Loans
As of and for the three months ended June 30, 2015
Beginning balance $ 2,226
Charge-offs (676 )
Recoveries 545
Provisions (reversal) for loan losses (160 )
Ending balance $ 1,935
As of and for the six months ended June 30, 2015
Beginning balance $ 2,281
Charge-offs (1,116 )
Recoveries 1,198
Provisions (reversal) for loan losses (428 )
Ending balance $ 1,935
Ending balances as of June 30, 2015: Allowance for loan losses
Individually evaluated for impairment $ 455
Collectively evaluated for impairment 1,434
Loans acquired with deteriorated credit quality 46
Loans receivable as of June 30, 2015:
Ending balance – total $ 113,824
Ending balances as of June 30, 2015: Loans
Individually evaluated for impairment $ 6,763
Collectively evaluated for impairment 105,290
Loans acquired with deteriorated credit quality 1,771 The following table presents loans individually
evaluated for impairment as of June 30, 2016.
($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural $ 766 845 — 604
Real estate – mortgage – construction, land development & other land loans 3,764 7,420 — 3,863
Real estate – mortgage – residential (1-4 family) first mortgages 9,137 10,634 — 8,690
Real estate – mortgage –home equity loans / lines of credit 145 203 — 139
Real estate – mortgage –commercial and other 8,536 9,717 — 9,669
Installment loans to individuals 2 3 — 2
Total non-covered impaired loans with no allowance $ 22,350 28,822 — 22,967
Total covered impaired loans with no allowance $ 3,000 3,361 — 3,991
Total impaired loans with no allowance recorded $ 25,350 32,183 — 26,958
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural $ 93 111 14 286
Real estate – mortgage – construction, land development & other land loans 850 873 172 886
Real estate – mortgage – residential (1-4 family) first mortgages 11,271 11,447 1,263 12,196
Real estate – mortgage –home equity loans / lines of credit 238 238 11 420
Real estate – mortgage –commercial and other 4,857 5,036 478 5,490
Installment loans to individuals 70 80 70 82
Total non-covered impaired loans with allowance $ 17,379 17,785 2,008 19,360
Total covered impaired loans with allowance $ 2,506 2,665 443 2,750
Total impaired loans with an allowance recorded $ 19,885 20,450 2,451 22,110 Interest income recorded on non-covered
and covered impaired loans during the six months ended June 30, 2016 was insignificant. The following table presents loans individually
evaluated for impairment by class of loans as of December 31, 2015.
($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural $ 360 422 — 194
Real estate – mortgage – construction, land development & other land loans 3,944 7,421 — 4,636
Real estate – mortgage – residential (1-4 family) first mortgages 8,713 9,803 — 7,309
Real estate – mortgage –home equity loans / lines of credit 114 161 — 425
Real estate – mortgage –commercial and other 11,565 13,144 — 16,590
Installment loans to individuals 3 4 — 5
Total non-covered impaired loans with no allowance $ 24,699 30,955 — 29,159
Total covered impaired loans with no allowance $ 5,231 8,529 — 5,607
Total impaired loans with no allowance recorded $ 29,930 39,484 — 34,766
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural $ 632 662 304 607
Real estate – mortgage – construction, land development & other land loans 954 976 241 1,585
Real estate – mortgage – residential (1-4 family) first mortgages 12,612 12,768 1,440 12,931
Real estate – mortgage –home equity loans / lines of credit 644 645 321 430
Real estate – mortgage –commercial and other 5,621 5,806 336 4,353
Installment loans to individuals 73 80 45 75
Total non-covered impaired loans with allowance $ 20,536 20,937 2,687 19,981
Total covered impaired loans with allowance $ 3,213 3,476 624 3,742
Total impaired loans with an allowance recorded $ 23,749 24,413 3,311 23,723 Interest income recorded on non-covered
and covered impaired loans during the year ended December 31, 2015 was insignificant. 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 borrowerÂ’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 borrowerÂ’s financial status, and changes in collateral value.
Loans can be downgraded or upgraded depending on managementÂ’s evaluation of these factors. Internal risk-grading policies
are consistent throughout each loan type. The following describes the CompanyÂ’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 Existing loans that meet the guidelines for a Risk Graded 6 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.
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. In the second quarter of 2016, the Company
made nonsubstantive changes to the numerical scale of risk grades. Previously, the description for grade 5 noted above was assigned
a grade of 9. As a result of the change, most grade 9 loans were assigned a grade of 5 and the numerical grade assignments for
the previous grades of 5 and below were moved one row lower in the descriptions. In the tables below, prior periods have been adjusted
to be consistent with the presentation for June 30, 2016. Also during the second quarter of 2016,
the Company introduced a pass/fail grade system for smaller balance consumer loans (balances less than $500,000), primarily residential
home loans and installment consumer loans. Accordingly, all such consumer loans are no longer graded on a scale of 1-9, but instead
are assigned a rating of “pass” or “fail”, with “fail” loans being considered as classified
loans. Substantially all of the $25.4 million of non-covered consumer loans and $4.3 million of covered consumer loans that had
previously been assigned a grade of “special mention” were assigned a rating of “pass”, which impacts the
comparability of the June 30, 2016 table below to prior periods. The changes noted above had no significant
impact on the CompanyÂ’s allowance for loan loss calculation. The June 30, 2016 table below also reflects
the impact of the previously discussed reclassification of approximately $17.7 million of loans from the covered category to the
non-covered category upon the expiration of the loss-share provisions with the FDIC. Approximately $3.8 million of these loans
had “classified” grades. The following table presents the Company’s
recorded investment in loans by credit quality indicators as of June 30, 2016.
($ in thousands)
Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total
Non-covered loans:
Commercial, financial, and agricultural $ 235,000 2,855 4,137 2,870 244,862
Real estate – construction, land development & other land loans 288,017 9,781 8,880 4,154 310,832
Real estate – mortgage – residential (1-4 family) first mortgages 620,516 17,020 28,516 17,315 683,367
Real estate – mortgage – home equity loans / lines of credit 220,230 1,373 4,897 2,406 228,906
Real estate – mortgage – commercial and other 948,844 29,744 14,910 6,821 1,000,319
Installment loans to individuals 49,583 352 237 215 50,387
Total $ 2,362,190 61,125 61,577 33,781 2,518,673
Unamortized net deferred loan costs 1,074
Total non-covered loans $ 2,519,747
Total covered loans $ 58,153 1,745 14,295 4,194 $ 78,387
Total loans $ 2,420,343 62,870 75,872 37,975 $ 2,598,134 The following table presents the CompanyÂ’s
recorded investment in loans by credit quality indicators as of December 31, 2015.
($ in thousands)
Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total
Non-covered loans:
Commercial, financial, and agricultural $ 191,905 3,453 3,476 2,964 201,798
Real estate – construction, land d |
