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) June 30, 2019 December 31, 2018 June 30, 2018 Amount Percentage Amount Percentage Amount Percentage All loans: Commercial, financial, and agricultural $ 471,188 11 % $ 457,037 11 % $ 417,366 10 % Real estate – construction, land development & other land loans 456,781 10 % 518,976 12 % 600,031 14 % Real estate – mortgage – residential (1-4 family) first mortgages 1,090,601 25 % 1,054,176 25 % 1,000,189 24 % Real estate – mortgage – home equity loans / lines of credit 349,355 8 % 359,162 8 % 369,875 9 % Real estate – mortgage – commercial and other 1,900,188 44 % 1,787,022 42 % 1,690,175 41 % Installment loans to individuals 69,600 2 % 71,392 2 % 71,823 2 % Subtotal 4,337,713 100 % 4,247,765 100 % 4,149,459 100 % Unamortized net deferred loan costs (fees) 1,784 1,299 (69 ) Total loans $ 4,339,497 $ 4,249,064 $ 4,149,390 Included in the table above are the following amounts of SBA loans: ($ in thousands) June 30, December 31, June 30, Guaranteed portions of SBA Loans included in table above $ 43,157 53,205 20,466 Unguaranteed portions of SBA Loans included in table above 106,154 97,572 98,013 Total SBA loans included in the table above $ 149,311 150,777 118,479 Sold portions of SBA loans with servicing retained - not included in table above $ 288,914 230,424 171,462 At June 30, 2019 and December 31, 2018 , there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $6.9 million and $5.7 million , respectively. As of June 30, 2019 and December 31, 2018 , there was a remaining accretable discount of $13.0 million and $15.0 million , respectively, related to purchased non-impaired loans. Both types of 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 recorded investment of purchased credit impaired (“PCI”) loans. PCI loans For the Six Months Ended June 30, For the Year Ended December 31, Balance at beginning of period $ 17,393 23,165 Change due to payments received and accretion (3,273 ) (5,799 ) Change due to loan charge-offs (11 ) (10 ) Transfers to foreclosed real estate — (4 ) Other 66 41 Balance at end of period $ 14,175 17,393 The following table presents changes in the accretable yield for PCI loans. Accretable Yield for PCI loans For the Six Months Ended June 30, For the Year Ended December 31, Balance at beginning of period $ 4,750 4,688 Accretion (811 ) (2,050 ) Reclassification from (to) nonaccretable difference 502 849 Other, net (89 ) 1,263 Balance at end of period $ 4,352 4,750 During the six months of 2019, the Company received $290,000 in payments that exceeded the carrying amount of the related PCI loans, of which $263,000 was recognized as loan discount accretion income and $27,000 was recorded as additional loan interest income. During the first six months of 2018, the Company received $190,000 in payments that exceeded the carrying amount of the related PCI loans, of which $149,000 was recognized as loan discount accretion income and $41,000 was recorded as additional loan interest income. Nonperforming assets are defined as nonaccrual loans, troubled debt restructured (“TDR”) loans, loans past due 90 or more days and still accruing interest, and foreclosed real estate. Nonperforming assets are summarized as follows. ($ in thousands) June 30, December 31, June 30, Nonperforming assets Nonaccrual loans $ 17,375 22,575 25,494 TDRs- accruing 11,890 13,418 17,386 Accruing loans > 90 days past due — — — Total nonperforming loans 29,265 35,993 42,880 Foreclosed real estate 5,107 7,440 8,296 Total nonperforming assets $ 34,372 43,433 51,176 Purchased credit impaired loans not included above (1) $ 14,175 17,393 20,832 (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 $0.6 million , $0.6 million , and $0.5 million in PCI loans at June 30, 2019 , December 31, 2018 , and June 30, 2018 , respectively, that were contractually past due 90 days or more. At June 30, 2019 and December 31, 2018 , the Company had $1.3 million and $0.7 million in residential mortgage loans in process of foreclosure, respectively. The following is a summary of the Company’s nonaccrual loans by major categories. ($ in thousands) June 30, December 31, Commercial, financial, and agricultural $ 1,490 919 Real estate – construction, land development & other land loans 1,420 2,265 Real estate – mortgage – residential (1-4 family) first mortgages 8,697 10,115 Real estate – mortgage – home equity loans / lines of credit 1,404 1,685 Real estate – mortgage – commercial and other 4,260 7,452 Installment loans to individuals 104 139 Total $ 17,375 22,575 The following table presents an analysis of the payment status of the Company’s loans as of June 30, 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 $ 3,716 606 — 1,490 465,112 470,924 Real estate – construction, land development & other land loans 299 — — 1,420 454,890 456,609 Real estate – mortgage – residential (1-4 family) first mortgages 4,821 101 — 8,697 1,071,040 1,084,659 Real estate – mortgage – home equity loans / lines of credit 856 620 — 1,404 346,265 349,145 Real estate – mortgage – commercial and other 1,007 2,514 — 4,260 1,884,964 1,892,745 Installment loans to individuals 354 77 — 104 68,921 69,456 Purchased credit impaired 167 174 622 — 13,212 14,175 Total $ 11,220 4,092 622 17,375 4,304,404 4,337,713 Unamortized net deferred loan costs 1,784 Total loans $ 4,339,497 The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2018 . ($ 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 $ 191 5 — 919 455,691 456,806 Real estate – construction, land development & other land loans 849 212 — 2,265 515,472 518,798 Real estate – mortgage – residential (1-4 family) first mortgages 14,178 1,369 — 10,115 1,022,262 1,047,924 Real estate – mortgage – home equity loans / lines of credit 1,048 254 — 1,685 355,831 358,818 Real estate – mortgage – commercial and other 709 520 — 7,452 1,768,205 1,776,886 Installment loans to individuals 359 220 — 139 70,422 71,140 Purchased credit impaired 990 138 583 — 15,682 17,393 Total $ 18,324 2,718 583 22,575 4,203,565 4,247,765 Unamortized net deferred loan costs 1,299 Total loans $ 4,249,064 The following table presents the activity in the allowance for loan losses for all loans for the three and six months ended June 30, 2019 . ($ in thousands) Commercial, Real Estate Real Estate Real Estate Real Estate Installment Unallocated Total As of and for the three months ended June 30, 2019 Beginning balance $ 3,709 2,284 4,510 1,374 8,120 1,006 92 21,095 Charge-offs (690 ) (29 ) (155 ) (66 ) (2 ) (155 ) — (1,097 ) Recoveries 191 202 222 327 103 54 — 1,099 Provisions 8 (642 ) (454 ) (364 ) 631 306 207 (308 ) Ending balance $ 3,218 1,815 4,123 1,271 8,852 1,211 299 20,789 As of and for the six months ended June 30, 2019 Beginning balance $ 2,889 2,243 5,197 1,665 7,983 952 110 21,039 Charge-offs (936 ) (293 ) (185 ) (146 ) (838 ) (436 ) — (2,834 ) Recoveries 605 489 382 455 374 87 — 2,392 Provisions 660 (624 ) (1,271 ) (703 ) 1,333 608 189 192 Ending balance $ 3,218 1,815 4,123 1,271 8,852 1,211 299 20,789 Ending balance as of June 30, 2019: Allowance for loan losses Individually evaluated for impairment $ 435 44 770 — 783 — — 2,032 Collectively evaluated for impairment $ 2,776 1,771 3,289 1,271 8,013 1,195 299 18,614 Purchased credit impaired $ 7 — 64 — 56 16 — 143 Loans receivable as of June 30, 2019 Ending balance – total $ 471,188 456,781 1,090,601 349,355 1,900,188 69,600 — 4,337,713 Unamortized net deferred loan costs 1,784 Total loans $ 4,339,497 Ending balances as of June 30, 2019: Loans Individually evaluated for impairment $ 992 1,020 10,334 21 7,451 — — 19,818 Collectively evaluated for impairment $ 469,932 455,589 1,074,325 349,124 1,885,294 69,456 — 4,303,720 Purchased credit impaired $ 264 172 5,942 210 7,443 144 — 14,175 The following table presents the activity in the allowance for loan losses for the year ended December 31, 2018 . ($ 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 Unallocated Total As of and for the year ended December 31, 2018 Beginning balance $ 3,111 2,816 6,147 1,827 6,475 950 1,972 23,298 Charge-offs (2,128 ) (158 ) (1,734 ) (711 ) (1,459 ) (781 ) — (6,971 ) Recoveries 1,195 4,097 833 364 1,503 309 — 8,301 Provisions 711 (4,512 ) (49 ) 185 1,464 474 (1,862 ) (3,589 ) Ending balance $ 2,889 2,243 5,197 1,665 7,983 952 110 21,039 Ending balances as of December 31, 2018: Allowance for loan losses Individually evaluated for impairment $ 226 134 955 48 906 — — 2,269 Collectively evaluated for impairment $ 2,661 2,109 4,143 1,608 7,070 941 110 18,642 Purchased credit impaired $ 2 — 99 9 7 11 — 128 Loans receivable as of December 31, 2018: Ending balance – total $ 457,037 518,976 1,054,176 359,162 1,787,022 71,392 — 4,247,765 Unamortized net deferred loan costs 1,299 Total loans $ 4,249,064 Ending balances as of December 31, 2018: Loans Individually evaluated for impairment $ 696 1,345 12,391 296 9,525 — — 24,253 Collectively evaluated for impairment $ 456,111 517,453 1,035,532 358,522 1,767,361 71,140 — 4,206,119 Purchased credit impaired $ 230 178 6,253 344 10,136 252 — 17,393 The following table presents the activity in the allowance for loan losses for all loans for the three and six months ended June 30, 2018 . ($ in thousands) Commercial, Real Estate Real Estate Real Estate Real Estate Installment Unallocated Total As of and for the three months ended June 30, 2018 Beginning balance $ 2,536 2,317 5,892 2,266 5,991 844 3,452 23,298 Charge-offs (370 ) (30 ) (172 ) (10 ) (271 ) (144 ) — (997 ) Recoveries 313 341 371 90 542 50 — 1,707 Provisions (211 ) 64 968 (96 ) 1,033 147 (2,615 ) (710 ) Ending balance $ 2,268 2,692 7,059 2,250 7,295 897 837 23,298 As of and for the six months ended June 30, 2018 Beginning balance $ 3,111 2,816 6,147 1,827 6,475 950 1,972 23,298 Charge-offs (609 ) (32 ) (415 ) (186 ) (312 ) (262 ) — (1,816 ) Recoveries 812 3,387 516 243 1,124 103 — 6,185 Provisions (1,046 ) (3,479 ) 811 366 8 106 (1,135 ) (4,369 ) Ending balance $ 2,268 2,692 7,059 2,250 7,295 897 837 23,298 Ending balances as of June 30, 2018: Allowance for loan losses Individually evaluated for impairment $ 277 302 2,756 415 1,231 6 — 4,987 Collectively evaluated for impairment $ 1,991 2,390 4,133 1,794 6,052 891 837 18,088 Purchased credit impaired $ — — 170 41 12 — — 223 Loans receivable as of June 30, 2018 Ending balance – total $ 417,366 600,031 1,000,189 369,875 1,690,175 71,823 — 4,149,459 Unamortized net deferred loan fees (69 ) Total loans 4,149,390 Ending balances as of June 30, 2018: Loans Individually evaluated for impairment $ 3,208 3,549 15,247 671 10,333 10 — 33,018 Collectively evaluated for impairment $ 413,889 596,157 977,549 368,831 1,667,700 71,483 — 4,095,609 Purchased credit impaired $ 269 325 7,393 373 12,142 330 — 20,832 The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of June 30, 2019 . ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Impaired loans with no related allowance recorded: Commercial, financial, and agricultural $ — — — 113 Real estate – mortgage – construction, land development & other land loans 439 766 — 461 Real estate – mortgage – residential (1-4 family) first mortgages 4,645 4,972 — 4,687 Real estate – mortgage –home equity loans / lines of credit 21 30 — 21 Real estate – mortgage –commercial and other 3,287 4,276 — 3,593 Installment loans to individuals — — — — Total impaired loans with no allowance $ 8,392 10,044 — 8,875 Impaired loans with an allowance recorded: Commercial, financial, and agricultural $ 992 1,323 435 798 Real estate – mortgage – construction, land development & other land loans 581 581 44 593 Real estate – mortgage – residential (1-4 family) first mortgages 5,689 5,881 770 6,519 Real estate – mortgage –home equity loans / lines of credit — — — 91 Real estate – mortgage –commercial and other 4,164 4,763 783 4,865 Installment loans to individuals — — — — Total impaired loans with allowance $ 11,426 12,548 2,032 12,866 Interest income recorded on impaired loans during the six months ended June 30, 2019 was insignificant. The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2018 . ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Impaired loans with no related allowance recorded: Commercial, financial, and agricultural $ 310 310 — 957 Real estate – mortgage – construction, land development & other land loans 485 803 — 2,366 Real estate – mortgage – residential (1-4 family) first mortgages 4,626 4,948 — 4,804 Real estate – mortgage –home equity loans / lines of credit 22 31 — 91 Real estate – mortgage –commercial and other 3,475 4,237 — 3,670 Installment loans to individuals — — — — Total impaired loans with no allowance $ 8,918 10,329 — 11,888 Impaired loans with an allowance recorded: Commercial, financial, and agricultural $ 386 387 226 422 Real estate – mortgage – construction, land development & other land loans 860 864 134 385 Real estate – mortgage – residential (1-4 family) first mortgages 7,765 7,904 955 8,963 Real estate – mortgage –home equity loans / lines of credit 274 275 48 184 Real estate – mortgage –commercial and other 6,050 6,054 906 5,911 Installment loans to individuals — — — 2 Total impaired loans with allowance $ 15,335 15,484 2,269 15,867 Interest income recorded on impaired loans during the year ended December 31, 2018 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 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 (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc. The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2019 . ($ in thousands) Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total Commercial, financial, and agricultural $ 460,804 7,643 987 1,490 470,924 Real estate – construction, land development & other land loans 447,686 4,680 2,823 1,420 456,609 Real estate – mortgage – residential (1-4 family) first mortgages 1,040,778 16,274 18,910 8,697 1,084,659 Real estate – mortgage – home equity loans / lines of credit 340,085 1,361 6,295 1,404 349,145 Real estate – mortgage – commercial and other 1,857,389 20,539 10,557 4,260 1,892,745 Installment loans to individuals 68,190 223 939 104 69,456 Purchased credit impaired 8,060 2,884 3,231 — 14,175 Total $ 4,222,992 53,604 43,742 17,375 4,337,713 Unamortized net deferred loan costs 1,784 Total loans 4,339,497 The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2018 . ($ in thousands) Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total Commercial, financial, and agricultural $ 452,372 3,056 459 919 456,806 Real estate – construction, land development & other land loans 509,251 5,668 1,614 2,265 518,798 Real estate – mortgage – residential (1-4 family) first mortgages 1,004,458 12,238 21,113 10,115 1,047,924 Real estate – mortgage – home equity loans / lines of credit 348,792 1,688 6,653 1,685 358,818 Real estate – mortgage – commercial and other 1,750,810 14,484 4,140 7,452 1,776,886 Installment loans to individuals 70,357 231 413 139 71,140 Purchased credit impaired 8,355 5,214 3,824 — 17,393 Total $ 4,144,395 42,579 38,216 22,575 4,247,765 Unamortized net deferred loan costs 1,299 Total loans 4,249,064 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, restructuring amortization schedules and other actions intended to minimize potential losses. The vast majority of the Company’s troubled debt restructurings are due to interest rate reductions combined with restructured amortization schedules. 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 June 30, 2019 and 2018 . ($ 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 1 $ 143 $ 143 — $ — $ — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages — — — 1 18 18 Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Installment loans to individuals — — — — — — 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 — — — — — — Installment loans to individuals — — — — — — Total TDRs arising during period 1 $ 143 $ 143 1 $ 18 $ 18 The following table presents information related to loans modified in a troubled debt restructuring during the six months ended June 30, 2019 and 2018 . ($ in thousands) For the six months ended For the six months ended Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances TDRs – Accruing Commercial, financial, and agricultural 1 $ 143 $ 143 — $ — $ — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages 1 55 55 1 18 18 Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Installment loans to individuals — — — — — — TDRs – Nonaccrual Commercial, financial, and agricultural — — — — — — Real estate – construction, land development & other land loans — — — 1 61 61 Real estate – mortgage – residential (1-4 family) first mortgages — — — 2 254 264 Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Installment loans to individuals — — — — — — Total TDRs arising during period 2 $ 198 $ 198 4 $ 333 $ 343 Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended June 30, 2019 and 2018 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 June 30, 2019 For the Three Months Ended June 30, 2018 Number of Recorded Number of Recorded Accruing TDRs that subsequently defaulted Real estate – mortgage – residential (1-4 family first mortgages) — $ — 1 $ 60 Real estate – mortgage – commercial and other — — 2 763 Total accruing TDRs that subsequently defaulted — $ — 3 $ 823 Accruing restructured loans that were modified in the previous 12 months and that defaulted during the six months ended June 30, 2019 and 2018 are presented in the table below. ($ in thousands) For the Six Months Ended June 30, 2019 For the Six Months Ended June 30, 2018 Number of Recorded Number of Recorded Accruing TDRs that subsequently defaulted Real estate – mortgage – residential (1-4 family first mortgages) — $ — 1 $ 60 Real estate – mortgage – commercial and other — — 2 763 Total accruing TDRs that subsequently defaulted — $ — 3 $ 823 |