Toggle SGML Header (+)


Section 1: 10-Q (FORM 10-Q)

Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

Commission file number 000-19297

 

 

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada   55-0694814

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

P.O. Box 989

Bluefield, Virginia

  24605-0989
(Address of principal executive offices)   (Zip Code)

(276) 326-9000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every

Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class – Common Stock, $1.00 Par Value; 16,989,383 shares outstanding as of October 28, 2016

 

 

 


FIRST COMMUNITY BANCSHARES, INC.

FORM 10-Q

For the quarter ended September 30, 2016

INDEX

 

       

Page

PART I.   FINANCIAL INFORMATION    

Item 1.

 

Financial Statements

 
 

Condensed Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015

  3
 

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited)

  4
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited)

  5
 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)

  6
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)

  7
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

  8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  41

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  58

Item 4.

 

Controls and Procedures

  59

PART II.

 

OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

  60

Item 1A.

 

Risk Factors

  60

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  60

Item 3.

 

Defaults Upon Senior Securities

  61

Item 4.

 

Mine Safety Disclosures

  61

Item 5.

 

Other Information

  61

Item 6.

 

Exhibits

  61

SIGNATURES

  64

EXHIBIT INDEX

  65

 

2


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 30,     December 31,  
     2016     2015  
(Amounts in thousands, except share and per share data)    (Unaudited)        

Assets

    

Cash and due from banks

   $ 43,686      $ 37,383   

Federal funds sold

     21,298        13,498   

Interest-bearing deposits in banks

     945        906   
  

 

 

   

 

 

 

Total cash and cash equivalents

     65,929        51,787   

Securities available for sale

     220,856        366,173   

Securities held to maturity

     72,182        72,541   

Loans held for investment, net of unearned income

    

Non-covered

     1,774,547        1,623,506   

Covered

     61,837        83,035   

Less allowance for loan losses

     (19,633     (20,233
  

 

 

   

 

 

 

Loans held for investment, net

     1,816,751        1,686,308   

FDIC indemnification asset

     14,332        20,844   

Premises and equipment, net

     50,564        52,756   

Other real estate owned, non-covered

     4,052        4,873   

Other real estate owned, covered

     2,437        4,034   

Interest receivable

     5,498        6,007   

Goodwill

     101,776        100,486   

Other intangible assets

     7,964        5,243   

Other assets

     87,932        91,224   
  

 

 

   

 

 

 

Total assets

   $ 2,450,273      $ 2,462,276   
  

 

 

   

 

 

 

Liabilities

    

Deposits

    

Noninterest-bearing

   $ 473,509      $ 451,511   

Interest-bearing

     1,388,390        1,421,748   
  

 

 

   

 

 

 

Total deposits

     1,861,899        1,873,259   

Interest, taxes, and other liabilities

     26,599        26,630   

Securities sold under agreements to repurchase

     118,532        138,614   

FHLB borrowings

     90,000        65,000   

Other borrowings

     15,707        15,756   
  

 

 

   

 

 

 

Total liabilities

     2,112,737        2,119,259   

Stockholders’ equity

    

Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; no shares outstanding at September 30, 2016, and December 31, 2015

     —          —     

Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at September 30, 2016, and December 31, 2015; 4,392,807 and 3,283,638 shares in treasury at September 30, 2016, and December 31, 2015, respectively

     21,382        21,382   

Additional paid-in capital

     227,884        227,692   

Retained earnings

     166,689        155,647   

Treasury stock, at cost

     (78,789     (56,457

Accumulated other comprehensive income (loss)

     370        (5,247
  

 

 

   

 

 

 

Total stockholders’ equity

     337,536        343,017   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,450,273      $ 2,462,276   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.    

 

3


FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
(Amounts in thousands, except share and per share data)    2016     2015     2016     2015  

Interest income

        

Interest and fees on loans

   $ 21,952      $ 22,259      $ 65,762      $ 65,999   

Interest on securities — taxable

     738        1,062        2,729        3,167   

Interest on securities — tax-exempt

     905        994        2,762        3,013   

Interest on deposits in banks

     26        33        55        246   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     23,621        24,348        71,308        72,425   

Interest expense

        

Interest on deposits

     1,133        1,384        3,334        4,676   

Interest on short-term borrowings

     548        497        1,613        1,486   

Interest on long-term debt

     819        798        2,438        2,685   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     2,500        2,679        7,385        8,847   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     21,121        21,669        63,923        63,578   

(Recovery of) provision for loan losses

     (1,154     381        755        1,757   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after (recovery of) provision for loan losses

     22,275        21,288        63,168        61,821   

Noninterest income

        

Wealth management

     653        790        2,147        2,231   

Service charges on deposits

     3,494        3,744        10,146        10,154   

Other service charges and fees

     2,024        1,974        6,088        5,987   

Insurance commissions

     1,592        1,650        5,383        5,336   

Impairment losses on securities

     (4,635     —          (4,646     —     

Portion of loss recognized in other comprehensive income

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net impairment losses recognized in earnings

     (4,635     —          (4,646     —     

Net gain (loss) on sale of securities

     25        (39     (53     151   

Net FDIC indemnification asset amortization

     (1,369     (1,768     (3,856     (5,179

Net gain on divestitures

     3,065        —          3,065        —     

Other operating income

     1,046        723        2,554        3,367   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     5,895        7,074        20,828        22,047   

Noninterest expense

        

Salaries and employee benefits

     9,828        9,971        30,501        29,357   

Occupancy expense

     1,249        1,443        4,139        4,404   

Furniture and equipment expense

     1,066        1,259        3,271        3,854   

Amortization of intangibles

     316        281        871        837   

FDIC premiums and assessments

     363        377        1,109        1,181   

FHLB debt prepayment fees

     —          —          —          1,702   

Merger, acquisition, and divestiture expense

     226        —          675        86   

Other operating expense

     5,509        5,688        15,527        15,667   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     18,557        19,019        56,093        57,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,613        9,343        27,903        26,780   

Income tax expense

     3,230        3,084        9,181        8,388   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     6,383        6,259        18,722        18,392   

Dividends on preferred stock

     —          —          —          105   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 6,383      $ 6,259      $ 18,722      $ 18,287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share

        

Basic

   $ 0.37      $ 0.34      $ 1.07      $ 0.98   

Diluted

     0.37        0.34        1.07        0.97   

Cash dividends per common share

     0.16        0.14        0.44        0.40   

Weighted average shares outstanding

        

Basic

     17,031,074        18,470,348        17,433,406        18,644,679   

Diluted

     17,083,526        18,500,975        17,475,211        18,895,909   

See Notes to Consolidated Financial Statements.    

 

4


FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
(Amounts in thousands)    2016     2015     2016     2015  

Net income

   $ 6,383      $ 6,259      $ 18,722      $ 18,392   

Other comprehensive income, before tax

        

Available-for-sale securities:

        

Change in net unrealized gains on securities without other-than-temporary impairment

     744        3,816        4,141        2,993   

Reclassification adjustment for net (gains) losses recognized in net income

     (25     39        53        (151

Reclassification adjustment for other-than-temporary impairment losses recognized in net income

     4,635        —          4,646        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains on available-for-sale securities

     5,354        3,855        8,840        2,842   

Employee benefit plans:

        

Net actuarial loss

     (2     (1     (56     (98

Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income

     69        82        205        245   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net unrealized gains on employee benefit plans

     67        81        149        147   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     5,421        3,936        8,989        2,989   

Income tax expense

     (2,034     (1,476     (3,372     (1,122
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     3,387        2,460        5,617        1,867   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 9,770      $ 8,719      $ 24,339      $ 20,259   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.    

 

5


FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

(Amounts in thousands, except share and per share data)    Preferred
Stock
    Common
Stock
     Additional
Paid-in
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balance January 1, 2015

   $ 15,151      $ 20,500       $ 215,873      $ 141,206      $ (35,751   $ (5,605   $ 351,374   

Net income

     —          —           —          18,392        —          —          18,392   

Other comprehensive income

     —          —           —          —          —          1,867        1,867   

Common dividends declared — $0.40 per share

     —          —           —          (7,447     —          —          (7,447

Preferred dividends declared — $15.00 per share

     —          —           —          (105     —          —          (105

Preferred stock converted to common stock — 882,096 shares

     (12,784     882         11,902        —          —          —          —     

Redemption of preferred stock — 2,367 shares

     (2,367     —           —          —          —          —          (2,367

Equity-based compensation expense

     —          —           43        —          —          —          43   

Common stock options exercised — 3,000 shares

     —          —           (10     —          51        —          41   

Restricted stock awards — 22,561 shares

     —          —           (192     —          383        —          191   

Issuance of treasury stock to 401(k) plan — 18,275 shares

     —          —           5        —          311        —          316   

Purchase of treasury shares — 1,018,726 shares at $17.13 per share

     —          —           —          —          (17,478     —          (17,478
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance September 30, 2015

   $ —        $ 21,382       $ 227,621      $ 152,046      $ (52,484   $ (3,738   $ 344,827   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance January 1, 2016

   $ —        $ 21,382       $ 227,692      $ 155,647      $ (56,457   $ (5,247   $ 343,017   

Net income

     —          —           —          18,722        —          —          18,722   

Other comprehensive income

     —          —           —          —          —          5,617        5,617   

Common dividends declared — $0.44 per share

     —          —           —          (7,680     —          —          (7,680

Equity-based compensation expense

     —          —           144        —          —          —          144   

Common stock options exercised — 11,730 shares

     —          —           (23     —          205        —          182   

Restricted stock awards — 15,587 shares

     —          —           26        —          270        —          296   

Issuance of treasury stock to 401(k) plan — 16,290 shares

     —          —           45        —          287        —          332   

Purchase of treasury shares — 1,152,776 shares at $20.00 per share

     —          —           —          —          (23,094     —          (23,094
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance September 30, 2016

   $ —        $ 21,382       $ 227,884      $ 166,689      $ (78,789   $ 370      $ 337,536   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

6


FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     Nine Months Ended  
     September 30,  
(Amounts in thousands)    2016     2015  

Operating activities

    

Net income

   $ 18,722      $ 18,392   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     755        1,757   

Depreciation and amortization of property, plant, and equipment

     2,707        3,143   

Amortization of premiums on investments, net

     2,758        5,872   

Amortization of FDIC indemnification asset, net

     3,856        5,179   

Amortization of intangible assets

     871        837   

Accretion on acquired loans

     (3,893     (5,439

Gain on divestiture, net

     (3,065     —     

Gain on sale of loans, net

     —          (439

Equity-based compensation expense

     144        43   

Restricted stock awards

     296        191   

Issuance of treasury stock to 401(k) plan

     332        316   

Loss on sale of property, plant, and equipment, net

     271        26   

Loss on sale of other real estate

     1,487        2,538   

Loss (gain) on sale of securities

     53        (151

Net impairment losses recognized in earnings

     4,646        —     

FHLB debt prepayment fees

     —          1,702   

Proceeds from sale of mortgage loans

     —          18,531   

Originations of mortgage loans

     —          (16,823

Decrease in accrued interest receivable

     509        405   

Decrease in other operating activities

     4,341        12,701   
  

 

 

   

 

 

 

Net cash provided by operating activities

     34,790        48,781   

Investing activities

    

Proceeds from sale of securities available for sale

     70,530        266   

Proceeds from maturities, prepayments, and calls of securities available for sale

     77,395        22,350   

Proceeds from maturities and calls of securities held to maturity

     190        190   

Payments to acquire securities available for sale

     (1,174     (81,540

Payments to acquire securities held to maturity

     —          (15,003

Originations of loans, net

     (138,984     (6,994

(Payments for) proceeds from FHLB stock, net

     (933     1,279   

Cash proceeds from (paid in) mergers, acquisitions, and divestitures, net

     24,816        (88

Proceeds from the FDIC

     3,639        2,411   

Payments to acquire property, plant, and equipment, net

     (448     (919

Proceeds from sale of other real estate

     4,541        5,365   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     39,572        (72,683

Financing activities

    

Increase in noninterest-bearing deposits, net

     28,322        24,292   

Decrease in interest-bearing deposits, net

     (62,819     (122,149

(Repayments of) proceeds from securities sold under agreements to repurchase, net

     (20,082     2,334   

Proceeds from (repayments of) FHLB and other borrowings, net

     24,951        (28,746

Redemption of preferred stock

     —          (2,367

Proceeds from stock options exercised

     182        41   

Excess tax benefit from equity-based compensation

     —          5   

Payments for repurchase of treasury stock

     (23,094     (17,478

Payments of common dividends

     (7,680     (7,447

Payments of preferred dividends

     —          (219
  

 

 

   

 

 

 

Net cash used in financing activities

     (60,220     (151,734
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     14,142        (175,636

Cash and cash equivalents at beginning of period

     51,787        237,660   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 65,929      $ 62,024   
  

 

 

   

 

 

 

Supplemental transactions — noncash items

    

Transfer of loans to other real estate

   $ 3,652      $ 4,139   

Loans originated to finance other real estate

     42        37   

Supplemental disclosure — cash flow information

    

Cash paid for interest

     7,394        9,167   

Cash paid for income taxes

     6,488        6,900   

See Notes to Consolidated Financial Statements.

 

7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Basis of Presentation

General

First Community Bancshares, Inc. (the “Company”) is a financial holding company headquartered in Bluefield, Virginia that provides banking products and services to individuals and commercial customers through its wholly-owned subsidiary, First Community Bank (the “Bank”), a Virginia-chartered banking institution. The Bank operates 45 branches in 4 states as First Community Bank in Virginia, West Virginia, and North Carolina and under the trade name People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank offers personal and commercial insurance products and services from certain branch locations through First Community Insurance Services (“FCIS”) in Virginia and West Virginia. The Bank offers wealth management services and investment advice through its Trust Division and wholly-owned subsidiary First Community Wealth Management (“FCWM”). The Trust Division and FCWM managed $767 million in combined assets as of September 30, 2016. These assets are not assets of the Company, but are managed under various fee-based arrangements as fiduciary or agent. The Company reported consolidated assets of $2.45 billion as of September 30, 2016. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services. Unless the context suggests otherwise, the term “Company” refers to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity.

The Company prepared the accompanying unaudited condensed consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The Company eliminated all significant intercompany balances and transactions in consolidation and, in management’s option, made all adjustments, including normal recurring accruals, necessary for a fair presentation. Assets held in an agency or fiduciary capacity are not assets of the Company and are not included in the Company’s consolidated balance sheets. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full calendar year.

The condensed consolidated balance sheet as of December 31, 2015, has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K (the “2015 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2016. Certain information and footnote disclosures normally included in annual consolidated financial statements were omitted in accordance with standards for the preparation of interim consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s 2015 Form 10-K.

Significant Accounting Policies

A complete and detailed description of the Company’s significant accounting policies is included in Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 2015 Form 10-K. A discussion of the Company’s application of critical accounting estimates is included in “Critical Accounting Estimates” in Item 2 of this report.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The update will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The update should be applied on a retrospective basis unless it is impracticable to apply, in which case the update would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact that ASU 2016-15 will have on its financial position, results of operations, and cash flows.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new guidance is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The new guidance requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020. The Company is currently evaluating the impact that ASU 2016-13 will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The new guidance is intended to simplify several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-09 will have on its financial position, results of operations, and cash flows and does not expect this guidance to have a material effect on its financial statements.

 

8


In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The new guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of operations, and cash flows and does not expect this guidance to have a material effect on its financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The update amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the new guidance retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted for certain changes. The Company is currently evaluating the impact that ASU 2016-01 will have on its financial position, results of operations, and cash flows.

The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.

Reclassifications and Corrections

Certain amounts reported in prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or cash flow.

Note 2. Acquisitions and Divestitures

First Bank

On July 15, 2016, the Company completed the previously announced branch exchange with First Bank, North Carolina, pursuant to which the Bank exchanged a portion of its North Carolina branch network for First Bank’s Virginia branch network. Under the agreements, the Bank simultaneously sold six branches in the Winston-Salem and Mooresville areas of North Carolina and acquired seven branches in Southwestern Virginia. The branch acquisition complements the Company’s 2014 acquisition of seven branches from Bank of America by expanding the Company’s existing presence in Southwest Virginia and affords the opportunity to realize certain operating cost savings. The Company incurred expenses related to the First Bank transaction of $226 thousand for the three months ended September 30, 2016, and $675 thousand for the nine months ended September 30, 2016. The estimated fair values, including identifiable intangible assets, are preliminary and subject to refinement for up to one year after the closing date of the acquisition. See “Acquisition” and “Divestiture” below for additional transaction details.

Acquisition

On July 15, 2016, the Company completed the acquisition of seven branches in Southwestern Virginia from First Bank. The consideration transferred included the net fair value of certain assets and liabilities divested, see “Divestiture” below, plus a premium paid of $3.84 million. The Company did not acquire any purchased credit-impaired loans as a result of the branch acquisition.

The following table summarizes the fair value of assets purchased and liabilities assumed:

 

(Amounts in thousands)       

Assets

  

Loans receivable

   $ 149,122   

Premises and equipment

     4,829   

Goodwill and other intangible assets

     6,288   

Other assets

     448   
  

 

 

 

Total assets purchased

   $ 160,687   
  

 

 

 

Liabilities

  

Deposits

   $ 134,307   

Other liabilities

     75   
  

 

 

 

Total liabilities assumed

   $ 134,382   
  

 

 

 

Divestiture

On July 15, 2016, the Company completed the exchange of six branches in the Winston-Salem and Mooresville areas of North Carolina to First Bank. At closing, the Company divested certain assets and liabilities at fair value and received a premium of $4.07 million. The Company recorded a net gain of $3.07 million in connection with the divestiture and reversed $1.35 million in the allowance for loan losses related to divested loans. The Company received $24.82 million in cash in connection with the First Bank transaction.

The following table summarizes the fair value of assets and liabilities divested:

 

(Amounts in thousands)       

Assets

  

Loans receivable

   $ 155,538   

Premises and equipment

     3,861   

Goodwill and other intangible assets

     2,326   

Other assets

     443   
  

 

 

 

Total assets divested

   $ 162,168   
  

 

 

 

Liabilities

  

Deposits

   $ 111,019   

Other liabilities

     28   
  

 

 

 

Total liabilities divested

   $ 111,047   
  

 

 

 

 

9


Note 3. Investment Securities

The following tables present the amortized cost and aggregate fair value of available-for-sale securities, including gross unrealized gains and losses, as of the dates indicated:

 

     September 30, 2016  
     Amortized      Unrealized      Unrealized      Fair  
(Amounts in thousands)    Cost      Gains      Losses      Value  

U.S. Agency securities

   $ 1,371       $ 4       $ —         $ 1,375   

Municipal securities

     116,910         5,171         (7      122,074   

Single issue trust preferred securities

     51,292         —           (2,772      48,520   

Corporate securities

     15,027         —           (5      15,022   

Mortgage-backed Agency securities

     33,578         294         (80      33,792   

Equity securities

     55         18         —           73   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 218,233       $ 5,487       $ (2,864    $ 220,856   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  
     Amortized      Unrealized      Unrealized      Fair  
(Amounts in thousands)    Cost      Gains      Losses      Value  

U.S. Agency securities

   $ 31,414       $ 39       $ (751    $ 30,702   

Municipal securities

     124,880         4,155         (357      128,678   

Single issue trust preferred securities

     55,882         —           (8,050      47,832   

Corporate securities

     70,571         —           (238      70,333   

Certificates of deposit

     5,000         —           —           5,000   

Mortgage-backed Agency securities

     84,576         155         (1,175      83,556   

Equity securities

     66         6         —           72   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 372,389       $ 4,355       $ (10,571    $ 366,173   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables present the amortized cost and aggregate fair value of held-to-maturity securities, including gross unrealized gains and losses, as of the dates indicated:

 

     September 30, 2016  
     Amortized      Unrealized      Unrealized      Fair  
(Amounts in thousands)    Cost      Gains      Losses      Value  

U.S. Agency securities

   $ 61,766       $ 317       $ —         $ 62,083   

Corporate securities

     10,416         108         —           10,524   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 72,182       $ 425       $ —         $ 72,607   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2015  
     Amortized      Unrealized      Unrealized      Fair  
(Amounts in thousands)    Cost      Gains      Losses      Value  

U.S. Agency securities

   $ 61,863       $ 75       $ (106    $ 61,832   

Municipal securities

     190         3         —           193   

Corporate securities

     10,488         —           (23      10,465   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities held to maturity

   $ 72,541       $ 78       $ (129    $ 72,490   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


The following table presents the amortized cost and aggregate fair value of available-for-sale securities and held-to-maturity securities, by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

 

     September 30, 2016  
     Amortized         
(Amounts in thousands)    Cost      Fair Value  

Available-for-sale securities

     

Due within one year

   $ 16,747       $ 16,753   

Due after one year but within five years

     2,131         2,178   

Due after five years but within ten years

     87,281         91,586   

Due after ten years

     78,441         76,474   
  

 

 

    

 

 

 
     184,600         186,991   

Mortgage-backed securities

     33,578         33,792   

Equity securities

     55         73   
  

 

 

    

 

 

 

Total securities available for sale

   $ 218,233       $ 220,856   
  

 

 

    

 

 

 

Held-to-maturity securities

     

Due within one year

   $ 46,867       $ 46,909   

Due after one year but within five years

     25,315         25,698   

Due after five years but within ten years

     —           —     

Due after ten years

     —           —     
  

 

 

    

 

 

 

Total securities held to maturity

   $ 72,182       $ 72,607   
  

 

 

    

 

 

 

The following tables present the fair values and unrealized losses for available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

 

     September 30, 2016  
     Less than 12 Months     12 Months or Longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
(Amounts in thousands)    Value      Losses     Value      Losses     Value      Losses  

U.S. Agency securities

   $ —         $ —        $ —         $ —        $ —         $ —     

Municipal securities

     —           —          767         (7     767         (7

Single issue trust preferred securities

     —           —          19,323         (2,772     19,323         (2,772

Corporate securities

     —           —          15,022         (5     15,022         (5

Mortgage-backed Agency securities

     1,167         (1     13,589         (79     14,756         (80
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 1,167       $ (1   $ 48,701       $ (2,863   $ 49,868       $ (2,864
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     December 31, 2015  
     Less than 12 Months     12 Months or Longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
(Amounts in thousands)    Value      Losses     Value      Losses     Value      Losses  

U.S. Agency securities

   $ 4,441       $ (5   $ 23,922       $ (746   $ 28,363       $ (751

Municipal securities

     8,126         (48     10,393         (309     18,519         (357

Single issue trust preferred securities

     —           —          47,832         (8,050     47,832         (8,050

Corporate securities

     70,333         (238     —           —          70,333         (238

Mortgage-backed Agency securities

     27,050         (253     37,291         (922     64,341         (1,175
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 109,950       $ (544   $ 119,438       $ (10,027   $ 229,388       $ (10,571
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

11


There were no unrealized losses on held-to-maturity securities as of September 30, 2016. The following table presents the fair values and unrealized losses for held-to-maturity securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of December 31, 2015.

 

     December 31, 2015  
     Less than 12 Months     12 Months or Longer      Total  
     Fair      Unrealized     Fair      Unrealized      Fair      Unrealized  
(Amounts in thousands)    Value      Losses     Value      Losses      Value      Losses  

U.S. Agency securities

   $ 43,723       $ (106   $ —         $ —         $ 43,723       $ (106

Corporate securities

     6,851         (23     —           —           6,851         (23
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 50,574       $ (129   $ —         $ —         $ 50,574       $ (129
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

There were 20 individual securities in an unrealized loss position as of September 30, 2016, and their combined depreciation in value represented 0.98% of the investment securities portfolio. There were 107 individual securities in an unrealized loss position as of December 31, 2015, and their combined depreciation in value represented 2.44% of the investment securities portfolio.

The following table presents gross realized gains and losses from the sale of available-for-sale securities for the periods indicated:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
(Amounts in thousands)    2016      2015      2016      2015  

Gross realized gains

   $ 203       $ 26       $ 344       $ 292   

Gross realized losses

     (178      (65      (397      (141
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gain (loss) on sale of securities

   $ 25       $ (39    $ (53    $ 151   
  

 

 

    

 

 

    

 

 

    

 

 

 

The carrying amount of securities pledged for various purposes totaled $151.82 million as of September 30, 2016, and $236.73 million as of December 31, 2015.

The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”). Debt securities owned by the Company include securities issued from the U.S. Department of the Treasury (“Treasury”), municipal securities, single issue trust preferred securities, corporate securities, and certificates of deposit. For debt securities owned, the Company analyzes factors such as the impairment’s severity and duration, adverse conditions within the issuing industry, prospects for the issuer, ability to hold until recovery, security performance, changes in rating by rating agencies, and other qualitative factors to determine if the impairment will be recovered. If the evaluation suggests that the impairment will not be recovered, OTTI is recorded as a charge to earnings through noninterest income. Temporary impairment on these securities is primarily due to changes in benchmark interest rates, changes in pricing in the credit markets, destabilization in foreign markets, and other current economic factors. During the three and nine months ended September 30, 2016, the Company incurred OTTI charges on debt securities owned of $4.64 million related to the Company’s change in intent to hold certain securities to recovery. The intent was changed to sell specific trust preferred securities in the Company’s investment portfolio primarily to reduce credit concentrations with two issuers. During the three and nine months ended September 30, 2015, the Company incurred no OTTI charges on debt securities owned.

For equity securities, the Company considers its intent to hold or sell the security before recovery, the severity and duration of the decline in fair value of the security below its cost, the financial condition and near-term prospects of the issuer, and whether the decline appears related to issuer, general market, or industry conditions to determine if the impairment will be recovered. If the Company deems the impairment other-than-temporary in nature, the security is written down to its current present value and the OTTI loss is charged to earnings. During the three months ended September 30, 2016, the Company incurred no OTTI charges related to certain equity holdings. During the nine months ended September 30, 2016, the Company incurred OTTI charges related to certain equity holdings of $11 thousand. During the three and nine months ended September 30, 2015, the Company incurred no OTTI charges on equity holdings.

 

12


Note 4. Loans

The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are covered by loss share agreements. The following table presents loans, net of unearned income and disaggregated by class, as of the periods indicated:

 

     September 30, 2016     December 31, 2015  
(Amounts in thousands)    Amount      Percent     Amount      Percent  

Non-covered loans held for investment

          

Commercial loans

          

Construction, development, and other land

   $ 49,799         2.71   $ 48,896         2.86

Commercial and industrial

     90,362         4.92     88,903         5.21

Multi-family residential

     127,468         6.94     95,026         5.57

Single family non-owner occupied

     144,023         7.84     149,351         8.75

Non-farm, non-residential

     596,015         32.46     485,460         28.45

Agricultural

     5,786         0.32     2,911         0.17

Farmland

     31,974         1.74     27,540         1.61
  

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial loans

     1,045,427         56.93     898,087         52.62

Consumer real estate loans

          

Home equity lines

     108,108         5.89     107,367         6.29

Single family owner occupied

     497,695         27.10     495,209         29.02

Owner occupied construction

     43,925         2.39     43,505         2.55
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer real estate loans

     649,728         35.38     646,081         37.86

Consumer and other loans

          

Consumer loans

     76,363         4.16     72,000         4.22

Other

     3,029         0.16     7,338         0.43
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer and other loans

     79,392         4.32     79,338         4.65
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-covered loans

     1,774,547         96.63     1,623,506         95.13

Total covered loans

     61,837         3.37     83,035         4.87
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans held for investment, net of unearned income

   $ 1,836,384         100.00   $ 1,706,541         100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

Customer overdrafts reclassified as loans totaled $1.18 million as of September 30, 2016, and $1.24 million as of December 31, 2015. Deferred loan fees totaled $5.29 million as of September 30, 2016, and $3.78 million as of December 31, 2015. For information concerning off-balance sheet financing, see Note 14, “Litigation, Commitments and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

 

13


The following table presents the covered loan portfolio, disaggregated by class, as of the dates indicated:

 

(Amounts in thousands)    September 30, 2016      December 31, 2015  

Commercial loans

     

Construction, development, and other land

   $ 4,699       $ 6,303   

Commercial and industrial

     941         1,170   

Multi-family residential

     43         640   

Single family non-owner occupied

     1,328         2,674   

Non-farm, non-residential

     8,312         14,065   

Agricultural

     26         34   

Farmland

     412         643   
  

 

 

    

 

 

 

Total commercial loans

     15,761         25,529   

Consumer real estate loans

     

Home equity lines

     38,737         48,565   

Single family owner occupied

     7,058         8,595   

Owner occupied construction

     201         262   
  

 

 

    

 

 

 

Total consumer real estate loans

     45,996         57,422   

Consumer and other loans

     

Consumer loans

     80         84   
  

 

 

    

 

 

 

Total covered loans

   $  61,837       $ 83,035   
  

 

 

    

 

 

 

The Company identifies certain purchased loans as impaired when fair values are established at acquisition and aggregates purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest. The following table presents the carrying and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:

 

     September 30, 2016      December 31, 2015  
(Amounts in thousands)    Carrying
Balance
     Unpaid Principal
Balance
     Carrying
Balance
     Unpaid Principal
Balance
 

Peoples Bank of Virginia

   $ 5,798       $ 9,762       $ 6,681       $ 11,249   

Waccamaw Bank

     24,877         48,642         34,707         63,151   

Other acquired

     1,121         1,147         1,254         1,297   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total PCI Loans

   $ 31,796       $ 59,551       $ 42,642       $ 75,697   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


The following tables present the activity in the accretable yield on PCI loans, by acquisition, for the periods indicated:

 

     Nine Months Ended September 30, 2016  
(Amounts in thousands)    Peoples      Waccamaw      Total  

Beginning balance

   $ 3,589       $ 26,109       $ 29,698   

Accretion

     (982      (4,408      (5,390

Reclassifications from nonaccretable difference

     231         848         1,079   

Removals, extensions, and other events, net

     1,774         4         1,778   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 4,612       $ 22,553       $ 27,165   
  

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2015  
(Amounts in thousands)    Peoples      Waccamaw      Total  

Beginning balance

   $ 4,745       $ 19,048       $ 23,793   

Additions

     —           2         2   

Accretion

     (1,906      (5,069      (6,975

Reclassifications from nonaccretable difference

     583         3,225         3,808   

Removals, extensions, and other events, net

     (27      5,203         5,176   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 3,395       $ 22,409       $ 25,804   
  

 

 

    

 

 

    

 

 

 

Note 5. Credit Quality

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. 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. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

 

    Doubtful — This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is 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 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.

 

15


The following tables present the recorded investment of the loan portfolio, disaggregated by class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.

 

     September 30, 2016  
            Special                              
(Amounts in thousands)    Pass      Mention      Substandard      Doubtful      Loss      Total  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 48,015       $ 992       $ 792       $ —         $ —         $ 49,799   

Commercial and industrial

     85,440         3,687         1,235         —           —           90,362   

Multi-family residential

     118,153         8,528         787         —           —           127,468   

Single family non-owner occupied

     133,550         4,644         5,829         —           —           144,023   

Non-farm, non-residential

     568,766         16,044         10,495         710         —           596,015   

Agricultural

     5,711         75         —           —           —           5,786   

Farmland

     29,653         1,820         501         —           —           31,974   

Consumer real estate loans

                 

Home equity lines

     106,086         733         1,289         —           —           108,108   

Single family owner occupied

     471,389         5,725         20,102         479         —           497,695   

Owner occupied construction

     43,216         —           709         —           —           43,925   

Consumer and other loans

                 

Consumer loans

     76,086         23         248         —           6         76,363   

Other

     3,029         —           —           —           —           3,029   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     1,689,094         42,271         41,987         1,189         6         1,774,547   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     2,830         872         997         —           —           4,699   

Commercial and industrial

     926         —           15         —           —           941   

Multi-family residential

     —           —           43         —           —           43   

Single family non-owner occupied

     1,056         65         207         —           —           1,328   

Non-farm, non-residential

     7,038         616         658         —           —           8,312   

Agricultural

     26         —           —           —           —           26   

Farmland

     143         —           269         —           —           412   

Consumer real estate loans

                 

Home equity lines

     15,092         22,867         778         —           —           38,737   

Single family owner occupied

     4,810         945         1,303         —           —           7,058   

Owner occupied construction

     105         —           96         —           —           201   

Consumer and other loans

                 

Consumer loans

     80         —           —           —           —           80   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     32,106         25,365         4,366         —           —           61,837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,721,200       $ 67,636       $ 46,353       $ 1,189       $ 6       $ 1,836,384   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


     December 31, 2015  
            Special                              
(Amounts in thousands)    Pass      Mention      Substandard      Doubtful      Loss      Total  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 46,816       $ 974       $ 1,106       $ —         $ —         $ 48,896   

Commercial and industrial

     87,223         663         1,017         —           —           88,903   

Multi-family residential

     81,168         12,969         889         —           —           95,026   

Single family non-owner occupied

     139,680         3,976         5,695         —           —           149,351   

Non-farm, non-residential

     454,906         15,170         15,384         —           —           485,460   

Agricultural

     2,886         25         —           —           —           2,911   

Farmland

     25,855         1,427         258         —           —           27,540   

Consumer real estate loans

                 

Home equity lines

     104,897         1,083         1,387         —           —           107,367   

Single family owner occupied

     468,155         6,686         20,368         —           —           495,209   

Owner occupied construction

     42,783         —           722         —           —           43,505   

Consumer and other loans

                 

Consumer loans

     71,685         61         254         —           —           72,000   

Other

     7,338         —           —           —           —           7,338   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     1,533,392         43,034         47,080         —           —           1,623,506   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     3,908         1,261         1,134         —           —           6,303   

Commercial and industrial

     1,144         4         22         —           —           1,170   

Multi-family residential

     460         —           180         —           —           640   

Single family non-owner occupied

     1,808         457         409         —           —           2,674   

Non-farm, non-residential

     9,192         2,044         2,829         —           —           14,065   

Agricultural

     34         —           —           —           —           34   

Farmland

     364         —           279         —           —           643   

Consumer real estate loans

                 

Home equity lines

     17,893         29,823         849         —           —           48,565   

Single family owner occupied

     5,102         1,963         1,530         —           —           8,595   

Owner occupied construction

     112         51         99         —           —           262   

Consumer and other loans

                 

Consumer loans

     84         —           —           —           —           84   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     40,101         35,603         7,331         —           —           83,035   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,573,493       $ 78,637       $ 54,411       $ —         $ —         $ 1,706,541   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 impaired.

 

17


The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the periods indicated:

 

     September 30, 2016      December 31, 2015  
            Unpaid                    Unpaid         
     Recorded      Principal      Related      Recorded      Principal      Related  
(Amounts in thousands)    Investment      Balance      Allowance      Investment      Balance      Allowance  

Impaired loans with no related allowance

                 

Commercial loans

                 

Multi-family residential

   $ 292       $ 297       $ —         $ —         $ —         $ —     

Single family non-owner occupied

     455         455         —           782         783         —     

Non-farm, non-residential

     5,210         5,352         —           8,427         8,427         —     

Consumer real estate loans

                 

Single family owner occupied

     1,137         1,195         —           1,975         2,067         —     

Owner occupied construction

     342         353         —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with no allowance

     7,436         7,652         —           11,184         11,277         —     

Impaired loans with a related allowance

                 

Commercial loans

                 

Single family non-owner occupied

     676         677         107         619         623         124   

Non-farm, non-residential

     4,599         4,636         1,843         5,667         5,673         1,568   

Consumer real estate loans

                 

Single family owner occupied

     4,083         4,129         853         4,899         4,907         672   

Owner occupied construction

     —           —           —           349         355         7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with an allowance

     9,358         9,442         2,803         11,534         11,558         2,371   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 16,794       $ 17,094       $  2,803       $ 22,718       $ 22,835       $ 2,371   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2016     2015     2016     2015  
    Average     Interest     Average     Interest     Average     Interest     Average     Interest  
    Recorded     Income     Recorded     Income     Recorded     Income     Recorded     Income  
(Amounts in thousands)   Investment     Recognized     Investment     Recognized     Investment     Recognized     Investment     Recognized  

Impaired loans with no related allowance

               

Commercial loans

               

Multi-family residential

  $ 298      $ 15      $ —        $ —        $ 99      $ 15      $ —        $ —     

Single family non-owner occupied

    460        7        792        27        565        22        571        28   

Non-farm, non-residential

    5,404        60        8,878        72        6,051        181        8,834        295   

Consumer real estate loans

               

Single family owner occupied

    1,159        13        1,353        —          829        13        2,578        100   

Owner occupied construction

    344        —          —          —          229        —          117        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with no allowance

    7,665        95        11,023        99        7,773        231        12,100        423   

Impaired loans with a related allowance

               

Commercial loans

               

Single family non-owner occupied

    682        5        629        —          572        18        558        22   

Non-farm, non-residential

    4,658        45        5,417        15        5,108        215        4,740        51   

Consumer real estate loans

               

Single family owner occupied

    4,130        24        4,847        13        4,547        91        3,325        26   

Owner occupied construction

    —          —          357        1        115        —          119        1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with an allowance

    9,470        74        11,250        29        10,342        324        8,742        100   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 17,135      $ 169      $ 22,273      $ 128      $ 18,115      $ 555      $ 20,842      $ 523   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


The following tables present information on impaired PCI loan pools as of the dates, and for the periods, indicated:

 

(Amounts in thousands, except impaired pools)    September 30, 2016      December 31, 2015  

Unpaid principal balance

   $ 1,104       $ 3,759   

Recorded investment

     1,104         2,834   

Allowance for loan losses related to PCI loan pools

     12         54   

Impaired PCI loan pools

     1         2   

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(Amounts in thousands)    2016      2015      2016      2015  

Interest income recognized

   $ 12       $ 96       $ 130       $ 273   

Average recorded investment

     1,139         3,045         2,195         3,464   

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

 

     September 30, 2016      December 31, 2015  
(Amounts in thousands)    Non-covered      Covered      Total      Non-covered      Covered      Total  

Commercial loans

                 

Construction, development, and other land

   $ 70       $ 39       $ 109       $ 39       $ 54       $ 93   

Commercial and industrial

     405         14         419         —           16         16   

Multi-family residential

     306         —           306         84         —           84   

Single family non-owner occupied

     1,158         25         1,183         1,850         29         1,879   

Non-farm, non-residential

     7,075         34         7,109         7,150         39         7,189   

Farmland

     135         —           135         234         —           234   

Consumer real estate loans

                 

Home equity lines

     527         440         967         825         413         1,238   

Single family owner occupied

     7,403         136         7,539         7,245         96         7,341   

Owner occupied construction

     342         —           342         349         —           349   

Consumer and other loans

                 

Consumer loans

     66         —           66         71         —           71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

   $ 17,487       $ 688       $ 18,175       $ 17,847       $ 647       $ 18,494   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


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. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. Non-covered accruing loans contractually past due 90 days or more totaled $62 thousand as of September 30, 2016. No non-covered accruing loans were contractually past due 90 days or more as of December 31, 2015.

 

     September 30, 2016  
     30 - 59 Days      60 - 89 Days      90+ Days      Total      Current      Total  
(Amounts in thousands)    Past Due      Past Due      Past Due      Past Due      Loans      Loans  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 5       $ 64       $ 53       $ 122       $ 49,677       $ 49,799   

Commercial and industrial

     121         31         171         323         90,039         90,362   

Multi-family residential

     283         71         306         660         126,808         127,468   

Single family non-owner occupied

     110         305         780         1,195         142,828         144,023   

Non-farm, non-residential

     4,726         277         2,451         7,454         588,561         596,015   

Agricultural

     255         —           —           255         5,531         5,786   

Farmland

     72         576         —           648         31,326         31,974   

Consumer real estate loans

                 

Home equity lines

     377         169         394         940         107,168         108,108   

Single family owner occupied

     4,123         1,875         2,950         8,948         488,747         497,695   

Owner occupied construction

     251         —           342         593         43,332         43,925   

Consumer and other loans

                 

Consumer loans

     576         114         32         722         75,641         76,363   

Other

     —           —           —           —           3,029         3,029   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     10,899         3,482         7,479         21,860         1,752,687         1,774,547   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     105         —           39         144         4,555         4,699   

Commercial and industrial

     —           —           —           —           941         941   

Multi-family residential

     —           —           —           —           43         43   

Single family non-owner occupied

     25         —           —           25         1,303         1,328   

Non-farm, non-residential

     —           —           —           —           8,312         8,312   

Agricultural

     —           —           —           —           26         26   

Farmland

     —           —           —           —           412         412   

Consumer real estate loans

                 

Home equity lines

     333         43         24         400         38,337         38,737   

Single family owner occupied

     232         26         92         350         6,708         7,058   

Owner occupied construction

     —           —           —           —           201         201   

Consumer and other loans

                 

Consumer loans

     —           —           —           —           80         80   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     695         69         155         919         60,918         61,837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 11,594       $ 3,551       $ 7,634       $ 22,779       $ 1,813,605       $ 1,836,384   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


     December 31, 2015  
     30 - 59 Days      60 - 89 Days      90+ Days      Total      Current      Total  
(Amounts in thousands)    Past Due      Past Due      Past Due      Past Due      Loans      Loans  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ —         $ —         $ 39       $ 39       $ 48,857       $ 48,896   

Commercial and industrial

     281         66         —           347         88,556         88,903   

Multi-family residential

     302         76         84         462         94,564         95,026   

Single family non-owner occupied

     748         120         929         1,797         147,554         149,351   

Non-farm, non-residential

     347         676         4,940         5,963         479,497         485,460   

Agricultural

     —           —           —           —           2,911         2,911   

Farmland

     585         11         234         830         26,710         27,540   

Consumer real estate loans

                 

Home equity lines

     668         195         468         1,331         106,036         107,367   

Single family owner occupied

     6,122         1,943         3,191         11,256         483,953         495,209   

Owner occupied construction

     —           —           —           —           43,505         43,505   

Consumer and other loans

                 

Consumer loans

     278         71         23         372         71,628         72,000   

Other

     —           —           —           —           7,338         7,338   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     9,331         3,158         9,908         22,397         1,601,109         1,623,506   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     96         —           42         138         6,165         6,303   

Commercial and industrial

     —           —           16         16         1,154         1,170   

Multi-family residential

     —           —           —           —           640         640   

Single family non-owner occupied

     1,422         —           —           1,422         1,252         2,674   

Non-farm, non-residential

     —           —           39         39         14,026         14,065   

Agricultural

     —           —           —           —           34         34   

Farmland

     —           —           —           —           643         643   

Consumer real estate loans

                 

Home equity lines

     489         37         225         751         47,814         48,565   

Single family owner occupied

     274         —           42         316         8,279         8,595   

Owner occupied construction

     —           —           —           —           262         262   

Consumer and other loans

                 

Consumer loans

     —           —           —           —           84         84   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     2,281         37         364         2,682         80,353         83,035   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 11,612       $ 3,195       $ 10,272       $ 25,079       $ 1,681,462       $ 1,706,541   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain troubled debt restructurings (“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. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of September 30, 2016, or December 31, 2015.

 

21


The following table presents loans modified as TDRs, by loan class, segregated by accrual status, as of the dates indicated:

 

    September 30, 2016     December 31, 2015  
(Amounts in thousands)   Nonaccrual(1)     Accrual     Total     Nonaccrual(1)     Accrual     Total  

Commercial loans

           

Single family non-owner occupied

  $ 39      $ 898      $ 937      $ 130      $ 820      $ 950   

Non-farm, non-residential

    —          4,205        4,205        —          4,600        4,600   

Consumer real estate loans

           

Home equity lines

    —          162        162        127        43        170   

Single family owner occupied

    929        7,947        8,876        733        8,256        8,989   

Owner occupied construction

    343        239        582        349        243        592   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total TDRs

  $ 1,311      $ 13,451      $  14,762      $ 1,339      $ 13,962      $ 15,301   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for loan losses related to TDRs

      $ 552          $ 590   
     

 

 

       

 

 

 

 

(1) Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

The following table presents interest income recognized on TDRs for the periods indicated:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
(Amounts in thousands)    2016      2015      2016      2015  

Interest income recognized

   $ 143       $ 148       $ 296       $ 456   

The following tables present 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 September 30,  
    2016     2015  
(Amounts in thousands)   Total
Contracts
    Pre-modification
Recorded Investment
    Post-modification
Recorded Investment
    Total
Contracts
    Pre-modification
Recorded Investment
    Post-modification
Recorded Investment
 

Below market interest rate and extended payment term Single family owner occupied

    —        $ —        $ —          4      $ 307      $ 307   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —        $ —        $ —          4      $ 307      $ 307   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Nine Months Ended September 30,  
    2016     2015  
(Amounts in thousands)   Total
Contracts
    Pre-modification
Recorded Investment
    Post-modification
Recorded Investment
    Total
Contracts
    Pre-modification
Recorded Investment
    Post-modification
Recorded Investment
 

Below market interest rate and extended payment term Single family owner occupied

    1      $ 115      $ 115        5      $ 342      $ 342   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    1      $ 115      $ 115        5      $ 342      $ 342   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents 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 September 30,  
     2016      2015  
(Amounts in thousands)    Total
Contracts
     Post-modification
Recorded Investment
     Total
Contracts
     Post-modification
Recorded Investment
 

Commercial loans

           

Single family non-owner occupied

     —         $ —           1       $ 78   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —         $ —           1       $ 78   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22


    Nine Months Ended September 30,  
    2016     2015  
(Amounts in thousands)   Total
Contracts
    Post-modification
Recorded Investment
    Total
Contracts
    Post-modification
Recorded Investment
 

Commercial loans

       

Single family non-owner occupied

    —        $ —          1      $ 78   

Consumer real estate loans

       

Owner occupied construction

    —          —          1        353   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —        $ —          2      $ 431   
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents information for other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:

 

(Amounts in thousands)    September 30, 2016      December 31, 2015  

Non-covered OREO

   $ 4,052       $ 4,873   

Covered OREO

     2,437         4,034   
  

 

 

    

 

 

 

Total OREO

   $ 6,489       $ 8,907   
  

 

 

    

 

 

 

Non-covered OREO secured by residential real estate

   $ 1,688       $ 2,677   

Residential real estate loans in the foreclosure process(1)

     3,639         2,727   

 

(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

Note 6. Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems adequate to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by provisions charged to operations and reduced by net charge-offs. While management uses its best judgment and information available, the allowance’s ultimate adequacy is dependent on a variety of factors that may be beyond the Company’s control: the performance of the Company’s loan portfolio, the economy, changes in interest rates, the view of regulatory authorities towards loan classifications, and other factors. These uncertainties may result in a material change to the allowance for loan losses in the near term; however, the amount of the change cannot reasonably be estimated.

The Company’s allowance consists of specific reserves on loans individually evaluated, including credit relationships, and general reserves on loans not individually evaluated, which are segmented into groups with similar risk characteristics based on an internal risk grading matrix. General reserve allocations are based on management’s judgments of qualitative and quantitative factors about macro and micro economic conditions reflected within the loan portfolio and the economy. Loans acquired in business combinations that are deemed impaired at acquisition are grouped into pools and evaluated separately from the non-PCI portfolio. The PCI loan provision is offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion, 80%, of the post-acquisition exposure. While allocations are made to various portfolio segments, the allowance for loan losses is available for use against any loan loss management deems appropriate, excluding reserves allocated to specific loans and PCI loan pools. Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of September 30, 2016.

 

23


The following tables present the activity in the allowance for loan losses, by loan segment, for the periods indicated:

 

     Three Months Ended September 30, 2016  
(Amounts in thousands)    Commercial      Consumer Real
Estate
     Consumer and
Other
     Total
Allowance
 

Allowance, excluding PCI

           

Beginning balance

   $ 13,689       $ 6,625       $ 773       $ 21,087   

(Recovery of) provision for loan losses charged to operations

     (726      (575      147         (1,154

Charge-offs

     (272      (207      (293      (772

Recoveries

     295         89         76         460   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     23         (118      (217      (312
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,986       $ 5,932       $ 703       $ 19,621   
  

 

 

    

 

 

    

 

 

    

 

 

 

PCI allowance

           

Beginning balance

   $ —         $ 12       $ —         $ 12   

Recovery of loan losses

     —           —           —           —     

Benefit attributable to the FDIC indemnification asset

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     —           —           —           —     

Recovery of loan losses recorded through the FDIC indemnification asset

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 12       $ —         $ 12   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance

           

Beginning balance

   $ 13,689       $ 6,637       $ 773       $ 21,099   

(Recovery of) provision for loan losses

     (726      (575      147         (1,154

Benefit attributable to the FDIC indemnification asset

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

(Recovery of) provision for loan losses charged to operations

     (726      (575      147         (1,154

Recovery of loan losses recorded through the FDIC indemnification asset

     —           —           —           —     

Charge-offs

     (272      (207      (293      (772

Recoveries

     295         89         76         460   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     23         (118      (217      (312
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,986       $ 5,944       $ 703       $ 19,633   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


     Three Months Ended September 30, 2015  
(Amounts in thousands)    Commercial      Consumer Real
Estate
     Consumer and
Other
     Total
Allowance
 

Allowance, excluding PCI

           

Beginning balance

   $ 12,995       $ 6,468       $ 681       $ 20,144   

Provision for loan losses charged to operations

     6         20         374         400   

Charge-offs

     (150      (130      (409      (689

Recoveries

     102         86         64         252   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (48      (44      (345      (437
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,953       $ 6,444       $ 710       $ 20,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

PCI allowance

           

Beginning balance

   $ —         $ 114       $ —         $ 114   

Recovery of loan losses

     —           (94      —           (94

Benefit attributable to the FDIC indemnification asset

     —           75         —           75   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     —           (19      —           (19

Recovery of loan losses recorded through the FDIC indemnification asset

     —           (75      —           (75
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 20       $ —         $ 20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance

           

Beginning balance

   $ 12,995       $ 6,582       $ 681       $ 20,258   

Provision for (recovery of) loan losses

     6         (74      374         306   

Benefit attributable to the FDIC indemnification asset

     —           75         —           75   
  

 

 

    

 

 

    

 

 

    

 

 

 

Provision for loan losses charged to operations

     6         1         374         381   

Recovery of loan losses recorded through the FDIC indemnification asset

     —           (75      —           (75

Charge-offs

     (150      (130      (409      (689

Recoveries

     102         86         64         252   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (48      (44      (345      (437
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,953       $ 6,464       $ 710       $ 20,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25


     Nine Months Ended September 30, 2016  
(Amounts in thousands)    Commercial      Consumer Real
Estate
     Consumer and
Other
     Total
Allowance
 

Allowance, excluding PCI

           

Beginning balance

   $ 13,133       $ 6,356       $ 690       $ 20,179   

(Recovery of) provision for loan losses charged to operations

     (200      436         560         796   

Charge-offs

     (747      (1,135      (809      (2,691

Recoveries

     800         275         262         1,337   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     53         (860      (547      (1,354
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,986       $ 5,932       $ 703       $ 19,621   
  

 

 

    

 

 

    

 

 

    

 

 

 

PCI allowance

           

Beginning balance

   $ —         $ 54       $ —         $ 54   

Recovery of loan losses

     —           (42      —           (42

Benefit attributable to the FDIC indemnification asset

     —           1         —           1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     —           (41      —           (41

Recovery of loan losses recorded through the FDIC indemnification asset

     —           (1      —           (1
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 12       $ —         $ 12   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance

           

Beginning balance

   $ 13,133       $ 6,410       $ 690       $ 20,233   

(Recovery of) provision for loan losses

     (200      394         560         754   

Benefit attributable to the FDIC indemnification asset

     —           1         —           1   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Recovery of) provision for loan losses charged to operations

     (200      395         560         755   

Recovery of loan losses recorded through the FDIC indemnification asset

     —           (1      —           (1

Charge-offs

     (747      (1,135      (809      (2,691

Recoveries

     800         275         262         1,337   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     53         (860      (547      (1,354
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,986       $ 5,944       $ 703       $ 19,633   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


     Nine Months Ended September 30, 2015  
(Amounts in thousands)    Commercial      Consumer Real
Estate
     Consumer and
Other
     Total
Allowance
 

Allowance, excluding PCI

           

Beginning balance

   $ 13,010       $ 6,489       $ 670       $ 20,169   

Provision for loan losses charged to operations

     754         136         876         1,766   

Charge-offs

     (1,111      (622      (1,207      (2,940

Recoveries

     300         441         371         1,112   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (811      (181      (836      (1,828
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,953       $ 6,444       $ 710       $ 20,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

PCI allowance

           

Beginning balance

   $ 37       $ 21       $ —         $ 58   

Recovery of loan losses

     (37      (1      —           (38

Benefit attributable to the FDIC indemnification asset

     30         (1      —           29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     (7      (2      —           (9

(Recovery of) provision for loan losses recorded through the FDIC indemnification asset

     (30      1         —           (29
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 20       $ —         $ 20   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total allowance

           

Beginning balance

   $ 13,047       $ 6,510       $ 670       $ 20,227   

Provision for loan losses

     717         135         876         1,728   

Benefit attributable to the FDIC indemnification asset

     30         (1      —           29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Provision for loan losses charged to operations

     747         134         876         1,757   

(Recovery of) provision for loan losses recorded through the FDIC indemnification asset

     (30      1         —           (29

Charge-offs

     (1,111      (622      (1,207      (2,940

Recoveries

     300         441         371         1,112   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (811      (181      (836      (1,828
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 12,953       $ 6,464       $ 710       $ 20,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27


The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:

 

     September 30, 2016  
(Amounts in thousands)    Loans Individually
Evaluated for
Impairment
     Allowance for Loans
Individually
Evaluated
     Loans Collectively
Evaluated for
Impairment
     Allowance for Loans
Collectively
Evaluated
 

Commercial loans

           

Construction, development, and other land

   $ —         $ —         $ 53,181       $ 813   

Commercial and industrial

     —           —           91,274         473   

Multi-family residential

     292         —           127,176         1,259   

Single family non-owner occupied

     1,131         107         141,624         2,553   

Non-farm, non-residential

     9,809         1,843         589,975         5,706   

Agricultural

     —           —           5,812         41   

Farmland

     —           —           32,386         191   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     11,232         1,950         1,041,428         11,036   

Consumer real estate loans

           

Home equity lines

     —           —           124,589         967   

Single family owner occupied

     5,220         853         498,561         3,766   

Owner occupied construction

     342         —           43,744         346   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     5,562         853         666,894         5,079   

Consumer and other loans

           

Consumer loans

     —           —           76,443         703   

Other

     —           —           3,029         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer and other loans

     —           —           79,472         703   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, excluding PCI loans

   $ 16,794       $ 2,803       $ 1,787,794       $ 16,818   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2015  
(Amounts in thousands)    Loans Individually
Evaluated for
Impairment
     Allowance for Loans
Individually
Evaluated
     Loans Collectively
Evaluated for
Impairment
     Allowance for Loans
Collectively
Evaluated
 

Commercial loans

           

Construction, development, and other land

   $ —         $ —         $ 53,437       $ 1,119   

Commercial and industrial

     —           —           89,885         504   

Multi-family residential

     —           —           95,486         1,535   

Single family non-owner occupied

     1,401         124         147,209         3,245   

Non-farm, non-residential

     14,094         1,568         478,839         4,825   

Agricultural

     —           —           2,945         22   

Farmland

     —           —           28,183         190   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     15,495         1,692         895,984         11,440   

Consumer real estate loans

           

Home equity lines

     —           —           126,691         1,091   

Single family owner occupied

     6,874         672         495,761         4,297   

Owner occupied construction

     349         7         43,323         290   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     7,223         679         665,775         5,678   

Consumer and other loans

           

Consumer loans

     —           —           72,084         690   

Other

     —           —           7,338         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer and other loans

     —           —           79,422         690   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, excluding PCI loans

   $ 22,718       $ 2,371       $ 1,641,181       $ 17,808   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

28


The following table presents the allowance for loan losses on PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:

 

     September 30, 2016      December 31, 2015  
(Amounts in thousands)    Recorded
Investment
     Allowance for Loan
Pools With
Impairment
     Recorded
Investment
     Allowance for Loan
Pools With
Impairment
 

Commercial loans

           

Waccamaw commercial

   $ 1,208       $ —         $ 3,788       $ —     

Peoples commercial

     4,694         —           5,525         —     

Other

     1,121         —           1,254         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     7,023         —           10,567         —     

Consumer real estate loans

           

Waccamaw serviced home equity lines

     22,256         —           29,241         —     

Waccamaw residential

     1,413         —           1,678         1   

Peoples residential

     1,104         12         1,156         53   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     24,773         12         32,075         54