Credit Quality | Note 4. Credit Quality The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed to be impaired. The following table presents the recorded investment and related information for loans considered to be impaired, excluding PCI loans, as of the periods indicated: June 30, 2015 December 31, 2014 (Amounts in thousands) Recorded Unpaid Related Recorded Unpaid Related Impaired loans with no related allowance: Commercial loans Single family non-owner occupied $ 463 $ 463 $ — $ 466 $ 466 $ — Non-farm, non-residential 8,831 9,211 — 5,705 6,049 — Consumer real estate loans Single family owner occupied 2,733 2,808 — 3,397 3,494 — Owner occupied construction 356 357 — — — — Total impaired loans with no allowance 12,383 12,839 — 9,568 10,009 — Impaired loans with a related allowance: Commercial loans Single family non-owner occupied 686 686 41 367 367 45 Non-farm, non-residential 5,396 5,411 1,657 3,772 3,772 1,000 Consumer real estate loans Single family owner occupied 3,044 3,046 543 2,341 2,512 437 Total impaired loans with an allowance 9,126 9,143 2,241 6,480 6,651 1,482 Total impaired loans $ 21,509 $ 21,982 $ 2,241 $ 16,048 $ 16,660 $ 1,482 The following tables present the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, in the periods indicated: Three Months Ended June 30, 2015 2014 (Amounts in thousands) Average Interest Average Interest Impaired loans with no related allowance: Commercial loans Commercial and industrial $ — $ — $ 293 $ 17 Single family non-owner occupied 463 — — — Non-farm, non-residential 8,831 60 6,379 89 Farmland — — 360 11 Consumer real estate loans Home equity lines — — — — Single family owner occupied 2,741 — 1,556 42 Owner occupied construction 352 — — — Total impaired loans with no allowance 12,387 60 8,588 159 Impaired loans with a related allowance: Commercial loans Commercial and industrial — — 3,640 3 Multi-family residential — — 5,586 21 Single family non-owner occupied 684 20 369 1 Non-farm, non-residential 4,738 17 4,427 25 Consumer real estate loans Home equity lines — — — — Single family owner occupied 2,754 3 2,541 10 Total impaired loans with an allowance 8,176 40 16,563 60 Total impaired loans $ 20,563 $ 100 $ 25,151 $ 219 Six Months Ended June 30, 2015 2014 (Amounts in thousands) Average Interest Average Interest Impaired loans with no related allowance: Commercial loans Commercial and industrial $ — $ — $ 293 $ 29 Single family non-owner occupied 461 1 210 1 Non-farm, non-residential 8,812 223 6,149 125 Farmland — — 362 22 Consumer real estate loans Home equity lines — — 133 2 Single family owner occupied 3,190 100 1,829 93 Owner occupied construction 176 — — — Total impaired loans with no allowance 12,639 324 8,976 272 Impaired loans with a related allowance: Commercial loans Commercial and industrial — — 4,399 50 Multi-family residential — — 5,595 43 Single family non-owner occupied 523 22 371 2 Non-farm, non-residential 4,401 36 4,413 50 Consumer real estate loans Home equity lines — — 115 1 Single family owner occupied 2,564 13 3,561 44 Total impaired loans with an allowance 7,488 71 18,454 190 Total impaired loans $ 20,127 $ 395 $ 27,430 $ 462 The Company determined that two of the six open PCI loan pools were impaired as of June 30, 2015, compared to two of seven impaired pools as of December 31, 2014. The following tables present additional information related to the impaired loan pools as of the dates, and in the periods, indicated: June 30, 2015 December 31, 2014 (Amounts in thousands) Recorded investment $ 3,125 $ 14,607 Unpaid principal balance 4,077 31,169 Allowance for loan losses 114 58 Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 (Amounts in thousands) Interest income recognized $ 87 $ 1,290 $ 177 $ 2,072 Average recorded investment 3,462 55,024 3,677 52,166 As part of the ongoing monitoring of the Company’s loan portfolio, management tracks certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally analyzes all commercial loan relationships greater than $4.0 million annually and at various times during the year. Smaller commercial and retail loans are sampled for review during the year. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. The general characteristics of each risk grade are as follows: • Pass — This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity leverage, and industry conditions. • Special Mention — This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen. • Substandard — This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. In order to meet repayment terms, these loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business. • Doubtful — This grade is assigned to loans on nonaccrual status. These loans have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is extremely unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined. • Loss — This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are determined to be uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately in the following credit quality discussion. PCI loan pools are disaggregated and included in their applicable loan class in the following discussion. PCI loans are generally not classified as nonaccrual or nonperforming due to the accrual of interest income under the accretion method of accounting. The following tables present loans held for investment, by internal credit risk grade, as of the periods indicated: June 30, 2015 (Amounts in thousands) Pass Special Substandard Doubtful Loss Total Non-covered loans Commercial loans Construction, development, and other land $ 37,659 $ 463 $ 1,732 $ — $ — $ 39,854 Commercial and industrial 80,195 536 1,390 — — 82,121 Multi-family residential 88,256 6,946 1,033 — — 96,235 Single family non-owner occupied 135,530 3,696 5,413 — — 144,639 Non-farm, non-residential 429,895 9,203 19,227 — — 458,325 Agricultural 1,859 — 4 — — 1,863 Farmland 25,974 1,347 624 — — 27,945 Consumer real estate loans Home equity lines 105,153 1,371 1,437 — — 107,961 Single family owner occupied 460,973 6,634 21,105 — — 488,712 Owner occupied construction 36,833 — 601 — — 37,434 Consumer and other loans Consumer loans 71,799 90 205 — — 72,094 Other 7,472 — — — — 7,472 Total non-covered loans 1,481,598 30,286 52,771 — — 1,564,655 Covered loans Commercial loans Construction, development, and other land 5,303 2,220 1,477 — — 9,000 Commercial and industrial 1,396 22 31 — — 1,449 Multi-family residential 500 — 348 — — 848 Single family non-owner occupied 2,175 1,040 923 — — 4,138 Non-farm, non-residential 11,450 2,582 7,372 — — 21,404 Agricultural 35 — — — — 35 Farmland 384 — 287 — — 671 Consumer real estate loans Home equity lines 19,423 34,276 866 — — 54,565 Single family owner occupied 6,497 1,714 2,042 — — 10,253 Owner occupied construction — 85 101 — — 186 Consumer and other loans Consumer loans 85 — — — — 85 Other — — — — — — Total covered loans 47,248 41,939 13,447 — — 102,634 Total loans $ 1,528,846 $ 72,225 $ 66,218 $ — $ — $ 1,667,289 December 31, 2014 (Amounts in thousands) Pass Special Substandard Doubtful Loss Total Non-covered loans Commercial loans Construction, development, and other land $ 38,858 $ 1,384 $ 1,029 $ — $ — $ 41,271 Commercial and industrial 81,196 616 1,287 — — 83,099 Multi-family residential 89,503 7,007 970 — — 97,480 Single family non-owner occupied 126,155 3,333 5,683 — — 135,171 Non-farm, non-residential 441,385 13,028 19,493 — — 473,906 Agricultural 1,589 — 10 — — 1,599 Farmland 26,876 1,432 1,209 — — 29,517 Consumer real estate loans Home equity lines 107,688 1,606 1,663 — — 110,957 Single family owner occupied 454,833 8,884 21,758 — — 485,475 Owner occupied construction 32,551 — 248 — — 32,799 Consumer and other loans Consumer loans 68,592 520 235 — — 69,347 Other 6,555 — — — — 6,555 Total non-covered loans 1,475,781 37,810 53,585 — — 1,567,176 Covered loans Commercial loans Construction, development, and other land 7,598 3,227 2,275 — — 13,100 Commercial and industrial 2,528 82 52 — — 2,662 Multi-family residential 1,400 — 184 — — 1,584 Single family non-owner occupied 2,703 2,059 1,156 — — 5,918 Non-farm, non-residential 12,672 4,341 8,304 — — 25,317 Agricultural 43 — — — — 43 Farmland 420 — 296 — — 716 Consumer real estate loans Home equity lines 21,295 38,296 800 — — 60,391 Single family owner occupied 7,094 2,040 2,834 — — 11,968 Owner occupied construction 84 264 105 — — 453 Consumer and other loans Consumer loans 88 — — — — 88 Other — — — — — — Total covered loans 55,925 50,309 16,006 — — 122,240 Total loans $ 1,531,706 $ 88,119 $ 69,591 $ — $ — $ 1,689,416 The following table presents nonaccrual loans, by loan class, as of the dates indicated: June 30, 2015 December 31, 2014 (Amounts in thousands) Non-covered Covered Total Non-covered Covered Total Commercial loans Construction, development, and other land $ — $ 69 $ 69 $ — $ 18 $ 18 Commercial and industrial 113 17 130 123 34 157 Multi-family residential 182 — 182 245 — 245 Single family non-owner occupied 1,328 77 1,405 601 77 678 Non-farm, non-residential 6,804 124 6,928 2,334 1,317 3,651 Agricultural — — — 4 — 4 Farmland 57 — 57 — — — Consumer real estate loans Home equity lines 423 459 882 792 204 996 Single family owner occupied 6,583 316 6,899 6,389 682 7,071 Owner occupied construction 356 — 356 — 106 106 Consumer and other loans Consumer loans 90 — 90 68 — 68 Total nonaccrual loans $ 15,936 $ 1,062 $ 16,998 $ 10,556 $ 2,438 $ 12,994 The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. There were no non-covered or covered accruing loans contractually past due 90 days or more as of June 30, 2015, or as of December 31, 2014. June 30, 2015 (Amounts in thousands) 30 - 59 Days 60 - 89 Days 90+ Days Total Current Total Loans Non-covered loans Commercial loans Construction, development, and other land $ 139 $ 56 $ — $ 195 $ 39,659 $ 39,854 Commercial and industrial 30 36 95 161 81,960 82,121 Multi-family residential 78 — 182 260 95,975 96,235 Single family non-owner occupied 708 687 818 2,213 142,426 144,639 Non-farm, non-residential 1,246 59 5,818 7,123 451,202 458,325 Agricultural 4 — — 4 1,859 1,863 Farmland 174 — 57 231 27,714 27,945 Consumer real estate loans Home equity lines 74 116 346 536 107,425 107,961 Single family owner occupied 2,760 1,489 3,473 7,722 480,990 488,712 Owner occupied construction — — — — 37,434 37,434 Consumer and other loans Consumer loans 170 42 38 250 71,844 72,094 Other — — — — 7,472 7,472 Total non-covered loans 5,383 2,485 10,827 18,695 1,545,960 1,564,655 Covered loans Commercial loans Construction, development, and other land 94 — 42 136 8,864 9,000 Commercial and industrial — 31 — 31 1,418 1,449 Multi-family residential — — — — 848 848 Single family non-owner occupied 10 4 77 91 4,047 4,138 Non-farm, non-residential 258 39 85 382 21,022 21,404 Agricultural — — — — 35 35 Farmland — — — — 671 671 Consumer real estate loans Home equity lines 327 127 96 550 54,015 54,565 Single family owner occupied 26 85 78 189 10,064 10,253 Owner occupied construction — — — — 186 186 Consumer and other loans Consumer loans — — — — 85 85 Other — — — — — — Total covered loans 715 286 378 1,379 101,255 102,634 Total loans $ 6,098 $ 2,771 $ 11,205 $ 20,074 $ 1,647,215 $ 1,667,289 December 31, 2014 (Amounts in thousands) 30 - 59 Days 60 - 89 Days 90+ Days Total Current Total Loans Non-covered loans Commercial loans Construction, development, and other land $ 39 $ 46 $ — $ 85 $ 41,186 $ 41,271 Commercial and industrial 285 6 103 394 82,705 83,099 Multi-family residential 81 110 — 191 97,289 97,480 Single family non-owner occupied 914 513 425 1,852 133,319 135,171 Non-farm, non-residential 1,075 783 1,984 3,842 470,064 473,906 Agricultural — — 4 4 1,595 1,599 Farmland 89 — — 89 29,428 29,517 Consumer real estate loans Home equity lines 492 103 571 1,166 109,791 110,957 Single family owner occupied 5,436 1,931 4,564 11,931 473,544 485,475 Owner occupied construction — — — — 32,799 32,799 Consumer and other loans Consumer loans 544 84 26 654 68,693 69,347 Other — — — — 6,555 6,555 Total non-covered loans 8,955 3,576 7,677 20,208 1,546,968 1,567,176 Covered loans Commercial loans Construction, development, and other land 120 17 — 137 12,963 13,100 Commercial and industrial 84 12 34 130 2,532 2,662 Multi-family residential — — — — 1,584 1,584 Single family non-owner occupied 122 — 77 199 5,719 5,918 Non-farm, non-residential 124 140 1,258 1,522 23,795 25,317 Agricultural — — — — 43 43 Farmland 3 — — 3 713 716 Consumer real estate loans Home equity lines 858 318 168 1,344 59,047 60,391 Single family owner occupied 134 34 415 583 11,385 11,968 Owner occupied construction — — — — 453 453 Consumer and other loans — Consumer loans — — — — 88 88 Other — — — — — — Total covered loans 1,445 521 1,952 3,918 118,322 122,240 Total loans $ 10,400 $ 4,097 $ 9,629 $ 24,126 $ 1,665,290 $ 1,689,416 The Company may make concessions in interest rates, loan terms, and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Specific reserves in the allowance for loan losses attributed to troubled debt restructurings (“TDRs”) totaled $478 thousand as of June 30, 2015, and $475 thousand as of December 31, 2014. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. The following table presents interest income related to TDRs in the periods, indicated: Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 (Amounts in thousands) Interest income recognized $ 160 $ 129 $ 308 $ 278 Loans acquired with credit deterioration, with a discount, are generally not considered TDRs as long as the loans remain in the assigned loan pool. There were no covered loans recorded as TDRs as of June 30, 2015, or December 31, 2014. The following table presents loans modified as TDRs, by loan class, segregated by accrual status, as of the dates indicated: June 30, 2015 December 31, 2014 (Amounts in thousands) Nonaccrual (1) Accruing Total Nonaccrual (1) Accruing Total Commercial loans Single family non-owner occupied $ — $ 826 $ 826 $ — $ 1,088 $ 1,088 Non-farm, non-residential — 4,670 4,670 83 4,743 4,826 Consumer real estate loans Home equity lines — 45 45 — 47 47 Single family owner occupied 312 8,055 8,367 471 8,412 8,883 Owner occupied construction 356 245 601 — 244 244 Total TDRs $ 668 $ 13,841 $ 14,509 $ 554 $ 14,534 $ 15,088 (1) TDRs on nonaccrual status are included in the total nonaccrual loan balance disclosed in the table above. The following table presents loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated. The post-modification recorded investment represents the loan balance immediately following modification. Three Months Ended June 30, 2015 2014 (Amounts in thousands) Total Pre-Modification Post-Modification Total Pre-Modification Post-Modification Below market interest rate and extended payment term Single family owner occupied 1 $ 35 $ 35 1 $ 137 $ 137 Total 1 $ 35 $ 35 1 $ 137 $ 137 Six Months Ended June 30, 2015 2014 (Amounts in thousands) Total Pre-Modification Post-Modification Total Pre-Modification Post-Modification Below market interest rate Owner occupied construction — $ — $ — 1 $ 245 $ 245 Total — — — 1 245 245 Extended payment term Single family non-owner occupied — — — 1 303 303 Non-farm, non-residential — — — 1 134 134 Total — — — 2 437 437 Below market interest rate and extended payment term Single family owner occupied 1 35 35 3 403 403 Total 1 $ 35 $ 35 6 $ 1,085 $ 1,085 The following tables present loans modified as TDRs, by loan class, that were restructured within the previous 12 months, for which there was a payment default during the periods indicated: Three Months Ended June 30, 2015 2014 (Amounts in thousands) Total Pre-Modification Recorded Investment Total Contracts Pre-Modification Commercial loans Non-farm, non-residential — $ — 1 $ 510 Consumer real estate loans Single family owner occupied 1 163 1 135 Owner occupied construction 1 353 — — Total 2 $ 516 2 $ 645 Six Months Ended June 30, 2015 2014 (Amounts in thousands) Total Pre-Modification Total Contracts Pre-Modification Commercial loans Non-farm, non-residential — $ — 1 $ 510 Consumer real estate loans Single family owner occupied 1 163 1 135 Owner occupied construction 1 353 — — Total 2 $ 516 2 $ 645 Other real estate owned (“OREO”) consists of properties acquired through foreclosure. The following table presents information related to OREO as of the dates indicated: June 30, 2015 December 31, 2014 (Amounts in thousands) Non-covered OREO $ 7,434 $ 6,638 Covered OREO 5,382 6,324 Total OREO $ 12,816 $ 12,962 Non-covered OREO secured by residential real estate $ 3,533 $ 6,155 Residential real estate loans in the foreclosure process (1) 2,731 4,561 (1) The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction. |