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Table of Contents

 

 

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, 2015

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.    x  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).    x  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   x
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    x  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; 18,188,022 shares outstanding as of October 30, 2015

 

 

 


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

FORM 10-Q

For the quarter ended September 30, 2015

INDEX

 

         Page  

PART I.

 

FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  
 

Condensed Consolidated Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014

     3   
 

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)

     4   
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)

     5   
 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2015 and 2014 (Unaudited)

     6   
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014 (Unaudited)

     7   
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

     8   

Item 2.

 

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

     44   

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     61   

Item 4.

 

Controls and Procedures

     62   

PART II.

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     63   

Item 1A.

 

Risk Factors

     63   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     63   

Item 3.

 

Defaults Upon Senior Securities

     63   

Item 4.

 

Mine Safety Disclosures

     63   

Item 5.

 

Other Information

     63   

Item 6.

 

Exhibits

     63   

SIGNATURES

     67   

EXHIBIT INDEX

     68   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 30,
2015
    December 31,
2014
 
(Amounts in thousands, except share and per share data)    (Unaudited)        

Assets

    

Cash and due from banks

   $ 33,555      $ 39,450   

Federal funds sold

     27,118        196,873   

Interest-bearing deposits in banks

     1,351        1,337   
  

 

 

   

 

 

 

Total cash and cash equivalents

     62,024        237,660   

Securities available for sale

     382,212        326,117   

Securities held to maturity

     72,596        57,948   

Loans held for sale

     523        1,792   

Loans held for investment, net of unearned income:

    

Covered under loss share agreements

     90,203        122,240   

Not covered under loss share agreements

     1,600,271        1,567,176   

Less allowance for loan losses

     (20,127     (20,227
  

 

 

   

 

 

 

Loans held for investment, net

     1,670,347        1,669,189   

FDIC indemnification asset

     22,049        27,900   

Premises and equipment, net

     53,442        55,844   

Other real estate owned:

    

Covered under loss share agreements

     4,079        6,324   

Not covered under loss share agreements

     5,088        6,638   

Interest receivable

     5,910        6,315   

Goodwill

     100,810        100,722   

Other intangible assets

     5,583        6,421   

Other assets

     93,453        105,066   
  

 

 

   

 

 

 

Total assets

   $ 2,478,116      $ 2,607,936   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 442,021      $ 417,729   

Interest-bearing

     1,460,881        1,583,030   
  

 

 

   

 

 

 

Total deposits

     1,902,902        2,000,759   

Interest, taxes, and other liabilities

     25,356        26,062   

Securities sold under agreements to repurchase

     124,076        121,742   

FHLB borrowings

     65,000        90,000   

Other borrowings

     15,955        17,999   
  

 

 

   

 

 

 

Total liabilities

     2,133,289        2,256,562   

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; 0 and 15,151 shares outstanding at September 30, 2015, and December 31, 2014, respectively

     —          15,151   

Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 and 20,499,683 shares issued at September 30, 2015, and December 31, 2014, respectively; 3,068,354 and 2,093,464 shares in treasury at September 30, 2015, and December 31, 2014, respectively

     21,382        20,500   

Additional paid-in capital

     227,621        215,873   

Retained earnings

     152,046        141,206   

Treasury stock, at cost

     (52,484     (35,751

Accumulated other comprehensive loss

     (3,738     (5,605
  

 

 

   

 

 

 

Total stockholders’ equity

     344,827        351,374   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,478,116      $ 2,607,936   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(Amounts in thousands, except share and per share data)    2015     2014     2015     2014  

Interest income

        

Interest and fees on loans held for investment

   $ 22,259      $ 23,407      $ 65,999      $ 69,651   

Interest on securities — taxable

     1,062        1,196        3,167        4,830   

Interest on securities — nontaxable

     994        1,108        3,013        3,329   

Interest on deposits in banks

     33        40        246        117   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     24,348        25,751        72,425        77,927   

Interest expense

        

Interest on deposits

     1,384        1,782        4,676        5,505   

Interest on short-term borrowings

     497        526        1,486        1,511   

Interest on long-term debt

     798        1,428        2,685        4,803   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     2,679        3,736        8,847        11,819   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     21,669        22,015        63,578        66,108   

Provision for (recovery of) loan losses

     381        (2,439     1,757        633   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     21,288        24,454        61,821        65,475   

Noninterest income

        

Wealth management

     790        670        2,231        2,396   

Service charges on deposit accounts

     3,744        3,606        10,154        10,099   

Other service charges and fees

     1,974        1,852        5,987        5,473   

Insurance commissions

     1,650        1,695        5,336        5,113   

Impairment losses on securities

     —          (219     —          (737

Portion of losses recognized in other comprehensive income

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net impairment losses recognized in earnings

     —          (219     —          (737

Net (loss) gain on sale of securities

     (39     320        151        306   

Net FDIC indemnification asset amortization

     (1,768     (1,096     (5,179     (3,166

Net gain on acquisition

     —          —          —          —     

Other operating income

     723        839        3,367        3,021   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     7,074        7,667        22,047        22,505   

Noninterest expense

        

Salaries and employee benefits

     9,971        9,924        29,357        29,872   

Occupancy expense of bank premises

     1,443        1,469        4,404        4,825   

Furniture and equipment

     1,259        1,212        3,854        3,611   

Amortization of intangible assets

     281        179        837        532   

FDIC premiums and assessments

     377        419        1,181        1,311   

FHLB debt prepayment fees

     —          3,047        1,702        3,047   

Merger, acquisition, and divestiture expense

     —          285        86        285   

Other operating expense

     5,688        4,934        15,667        15,329   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     19,019        21,469        57,088        58,812   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     9,343        10,652        26,780        29,168   

Income tax expense

     3,084        3,609        8,388        9,393   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     6,259        7,043        18,392        19,775   

Dividends on preferred stock

     —          228        105        683   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 6,259      $ 6,815      $ 18,287      $ 19,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.34      $ 0.37      $ 0.98      $ 1.04   

Diluted earnings per common share

     0.34        0.36        0.97        1.02   

Cash dividends per common share

     0.14        0.13        0.40        0.37   

Weighted average basic shares outstanding

     18,470,348        18,402,764        18,644,679        18,407,173   

Weighted average diluted shares outstanding

     18,500,975        19,466,126        18,895,909        19,472,136   

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
(Amounts in thousands, except share and per share data)    2015     2014     2015     2014  

Comprehensive Income

        

Net income

   $ 6,259      $ 7,043      $ 18,392      $ 19,775   

Other comprehensive income, before tax:

        

Available-for-sale securities:

        

Unrealized losses on securities available for sale with other-than-temporary impairment

     —          (346     —          (128

Unrealized gains on securities available for sale without other-than-temporary impairment

     3,815        846        2,993        12,774   

Less: reclassification adjustment for losses (gains) realized in net income

     39        (320     (151     (306

Less: reclassification adjustment for credit-related other-than-temporary impairments recognized in net income

     —          219        —          737   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains on available-for-sale securities

     3,854        399        2,842        13,077   

Employee benefit plans:

        

Net actuarial (loss) gain on pension and other postretirement benefit plans

     (1     (2     (98     29   

Less: reclassification adjustment for amortization of prior service cost and net actuarial loss included in net periodic benefit cost

     82        66        245        195   
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gains on employee benefit plans

     81        64        147        224   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, before tax

     3,935        463        2,989        13,301   

Income tax expense

     (1,475     (174     (1,122     (5,009
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     2,460        289        1,867        8,292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 8,719      $ 7,332      $ 20,259      $ 28,067   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

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

 

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

Balance January 1, 2014

   $ 15,251      $ 20,493       $ 215,663      $ 125,826      $ (33,887   $ (14,740   $ 328,606   

Net income

     —          —           —          19,775        —          —          19,775   

Other comprehensive income

     —          —           —          —          —          8,292        8,292   

Common dividends declared — $0.37 per share

     —          —           —          (6,807     —          —          (6,807

Preferred dividends declared — $45.00 per share

     —          —           —          (683     —          —          (683

Preferred stock converted to common stock — 6,900 shares

     (100     7         93        —          —          —          —     

Equity-based compensation expense

     —          —           175        —          —          —          175   

Common stock options exercised — 554 shares

     —          —           —          —          9        —          9   

Restricted stock awards — 13,933 shares

     —          —           (202     —          238        —          36   

Purchase of treasury shares — 132,773 shares at $16.29 per share

     —          —           —          —          (2,168     —          (2,168
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance September 30, 2014

   $ 15,151      $ 20,500       $ 215,729      $ 138,111      $ (35,808   $ (6,448   $ 347,235   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     Nine Months Ended  
     September 30,  
(Amounts in thousands)    2015     2014  

Operating activities

    

Net income

   $ 18,392      $ 19,775   

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

    

Provision for loan losses

     1,757        633   

Depreciation and amortization of property, plant, and equipment

     3,143        3,286   

Amortization of premiums on investments, net

     5,872        4,509   

Amortization of FDIC indemnification asset, net

     5,179        3,166   

Amortization of intangible assets

     837        532   

Gain on sale of loans

     (439     (536

Equity-based compensation expense

     43        175   

Restricted stock awards

     191        36   

Issuance of treasury stock to 401(k) plan

     316        —     

Loss (gain) on sale of property, plant, and equipment

     26        (64

Loss on sale of other real estate

     2,538        2,407   

Gain on sale of securities

     (151     (306

Net impairment losses recognized in earnings

     —          737   

FHLB debt prepayment fees

     1,702        3,047   

Proceeds from sale of mortgage loans

     18,531        23,237   

Origination of mortgage loans

     (16,823     (22,968

Decrease in accrued interest receivable

     405        1,175   

Decrease in other operating activities

     7,262        2,545   
  

 

 

   

 

 

 

Net cash provided by operating activities

     48,781        41,386   

Investing activities

    

Proceeds from sale of securities available for sale

     266        139,544   

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

     22,350        40,703   

Proceeds from maturities and calls of securities held to maturity

     190        190   

Payments to acquire securities available for sale

     (81,540     (4,311

Payments to acquire securities held to maturity

     (15,003     (30,704

Originations of loans, net

     (6,994     (64,120

Proceeds from the redemption of FHLB stock, net

     1,279        3,224   

Net cash paid in mergers, acquisitions, and divestitures

     (88     (202

Proceeds from the FDIC

     2,411        2,937   

(Payments to acquire) proceeds from sale of property, plant, and equipment, net

     (919     (1,389

Proceeds from sale of other real estate

     5,365        8,169   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (72,683     94,041   

Financing activities

    

Net increase in noninterest-bearing deposits

     24,292        57,843   

Net decrease in interest-bearing deposits

     (122,149     (76,310

Net decrease in federal funds purchased

     —          (16,000

Securities sold under agreements to repurchase, net

     2,334        (3,869

Repayments of FHLB and other borrowings

     (28,746     (38,088

Redemption of preferred stock

     (2,367     —     

Proceeds from stock options exercised

     41        9   

Excess tax benefit from equity-based compensation

     5        1   

Payments for repurchase of treasury stock

     (17,478     (2,168

Payments of common dividends

     (7,447     (6,807

Payments of preferred dividends

     (219     (683
  

 

 

   

 

 

 

Net cash used in financing activities

     (151,734     (86,072
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (175,636     49,355   

Cash and cash equivalents at beginning of period

     237,660        56,567   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 62,024      $ 105,922   
  

 

 

   

 

 

 

Supplemental transactions — noncash items

    

Transfer of loans to other real estate

   $ 4,139      $ 9,631   

Loans originated to finance other real estate

     37        671   

See Notes to Consolidated Financial Statements.

 

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Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. General

First Community Bancshares, Inc. is a financial holding company 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, and personal and commercial insurance products and services through its wholly-owned subsidiary Greenpoint Insurance Group, Inc. (“Greenpoint”). The Bank offers wealth management services and investment advice through its Trust Division and wholly-owned subsidiary First Community Wealth Management (“FCWM”), a registered investment advisory firm. Unless the context suggests otherwise, the use of the term “Company” refers to First Community Bancshares, Inc. (“the Company”) and its subsidiaries as a consolidated entity. The Company operates in one business segment, Community Banking, which consists of commercial and consumer banking, lending activities, wealth management, and insurance services. The Company’s executive office is located at One Community Place, Bluefield, Virginia. As of September 30, 2015, our operations were conducted through 62 locations in 4 states: Virginia, West Virginia, North Carolina, and Tennessee.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared 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. In the opinion of management, all adjustments, including normal recurring accruals, necessary for a fair presentation have been made. All significant intercompany balances and transactions have been eliminated in consolidation. 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, 2014, has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K (the “2014 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2015. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been 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 2014 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 2014 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.

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.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that had, or are likely to have, a material effect on the Company’s financial position or results of operations.

Acquisitions and Divestitures

On December 12, 2014, the Company completed the sale of thirteen branches to CresCom Bank (“CresCom”), Charleston, South Carolina. The divestiture consisted of ten branches in the Southeastern, Coastal region of North Carolina and three branches in South Carolina, all of which were previously acquired in the FDIC-assisted acquisition of Waccamaw Bank (“Waccamaw”). At closing, CresCom assumed total deposits of $215.19 million and total loans of $70.04 million. The transaction excluded loans covered under FDIC loss share agreements. The Company recorded a net gain of $755 thousand in connection with the divestiture, which included a deposit premium received from CresCom of $6.45 million and goodwill allocation of $6.45 million.

On October 24, 2014, the Company completed the acquisition of seven branches from Bank of America, National Association. At acquisition, the branches had total deposits of $318.88 million. The Company assumed the deposits for a premium of $5.79 million. No loans were included in the purchase. Additionally, the Company purchased the real estate or

 

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assumed the leases associated with the branches. The Company recorded goodwill of $1.37 million in connection with the acquisition. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values may become available. The acquisition expanded the Company’s presence by six branches in Southwestern Virginia and one branch in Central North Carolina.

Earnings per Common Share

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of potential common stock that could be issued by the Company. In accordance with the treasury stock method of accounting, potential common stock could be issued for stock options, nonvested restricted stock awards, performance based stock awards, and convertible preferred stock. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period plus the number of dilutive potential common shares. The calculation of diluted earnings per common share excludes potential common shares that have an exercise price greater than the average market value of the Company’s common stock because the effect would be antidilutive. The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2015      2014      2015      2014  
(Amounts in thousands, except share and per share data)                            

Net income

   $ 6,259       $ 7,043       $ 18,392       $ 19,775   

Dividends on preferred stock

     —           228         105         683   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 6,259       $ 6,815       $ 18,287       $ 19,092   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding, basic

     18,470,348         18,402,764         18,644,679         18,407,173   

Dilutive effect of potential common shares from:

           

Stock options

     26,804         17,375         24,938         18,027   

Restricted stock

     3,823         568         3,091         506   

Convertible preferred stock

     —           1,045,419         223,201         1,046,430   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding, diluted

     18,500,975         19,466,126         18,895,909         19,472,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.34       $ 0.37       $ 0.98       $ 1.04   

Diluted earnings per common share

     0.34         0.36         0.97         1.02   

Antidilutive potential common shares:

           

Stock options

     130,382         255,244         130,382         255,244   

During the first quarter of 2015, the Company notified holders of its 6% Series A Noncumulative Convertible Preferred Stock (“Series A Preferred Stock”) of its intent to redeem all of the outstanding shares. Prior to redemption, holders converted 12,784 shares of Series A Preferred Stock with each share convertible into 69 shares of the Company’s common stock. The Company redeemed the remaining 2,367 shares for $2.37 million along with accrued and unpaid dividends of $9 thousand. As a result of the redemption, there were no shares of Series A Preferred Stock outstanding as of September 30, 2015, compared to 15,151 shares as of December 31, 2014 and 15,151 shares as of September 30, 2014.

 

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Note 2. 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, 2015  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 
(Amounts in thousands)                            

U.S. Agency securities

   $ 32,173       $ 80       $ (577    $ 31,676   

Municipal securities

     127,705         4,038         (655      131,088   

Single issue trust preferred securities

     55,867         —           (6,433      49,434   

Corporate securities

     70,798         —           (144      70,654   

Certificates of deposit

     5,000         —           —           5,000   

Mortgage-backed Agency securities

     94,432         427         (734      94,125   

Equity securities

     222         13         —           235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 386,197       $ 4,558       $ (8,543    $ 382,212   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 
(Amounts in thousands)                            

U.S. Agency securities

   $ 34,604       $ 11       $ (1,017    $ 33,598   

Municipal securities

     134,784         4,823         (692      138,915   

Single issue trust preferred securities

     55,822         —           (9,685      46,137   

Corporate securities

     5,000         109         —           5,109   

Mortgage-backed Agency securities

     102,506         470         (857      102,119   

Equity securities

     226         19         (6      239   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 332,942       $ 5,432       $ (12,257    $ 326,117   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

U.S. Agency securities

   $ 61,895       $ 366       $ —         $ 62,261   

Municipal securities

     190         1         —           191   

Corporate securities

     10,511         67         —           10,578   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 72,596       $ 434       $ —         $ 73,030   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 
(Amounts in thousands)                            

U.S. Agency securities

   $ 46,987       $ 22       $ (54    $ 46,955   

Municipal securities

     379         7         —           386   

Corporate securities

     10,582         —           (34      10,548   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57,948       $ 29       $ (88    $ 57,889   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 September 30, 2015. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

 

(Amounts in thousands)    Amortized
Cost
     Fair Value  

Available-for-sale securities

     

Due within one year

   $ 56,044       $ 55,956   

Due after one year but within five years

     20,108         20,137   

Due after five years but within ten years

     75,932         78,955   

Due after ten years

     134,459         127,804   
  

 

 

    

 

 

 
     286,543         282,852   

Mortgage-backed securities

     94,432         94,125   

Certificates of deposit

     5,000         5,000   

Equity securities

     222         235   
  

 

 

    

 

 

 

Total

   $ 386,197       $ 382,212   
  

 

 

    

 

 

 

Held-to-maturity securities

     

Due within one year

   $ 190       $ 191   

Due after one year but within five years

     72,406         72,839   

Due after five years but within ten years

     —           —     

Due after ten years

     —           —     
  

 

 

    

 

 

 

Total

   $ 72,596       $ 73,030   
  

 

 

    

 

 

 

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2015      2014      2015      2014  
(Amounts in thousands)                            

Gross realized gains

   $ 26       $ 746       $ 292       $ 2,257   

Gross realized losses

     (65      (426      (141      (1,951
  

 

 

    

 

 

    

 

 

    

 

 

 

Net gain (loss) on sale of securities

   $ (39    $ 320       $ 151       $ 306   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

U.S. Agency securities

   $ —         $ —        $ 24,670       $ (577   $ 24,670       $ (577

Municipal securities

     13,702         (172     10,222         (483     23,924         (655

Single issue trust preferred securities

     —           —          49,434         (6,433     49,434         (6,433

Corporate securities

     62,257         (144     —           —          62,257         (144

Mortgage-backed Agency securities

     14,367         (99     39,126         (635     53,493         (734
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 90,326       $ (415   $ 123,452       $ (8,128   $ 213,778       $ (8,543
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2014  
     Less than 12 Months     12 Months or longer     Total  
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
(Amounts in thousands)                                        

U.S. Agency securities

   $ —         $ —        $ 29,448       $ (1,017   $ 29,448       $ (1,017

Municipal securities

     1,112         (8     25,007         (684     26,119         (692

Single issue trust preferred securities

     —           —          46,137         (9,685     46,137         (9,685

Mortgage-backed Agency securities

     2,778         (3     45,790         (854     48,568         (857

Equity securities

     150         (6     —           —          150         (6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 4,040       $ (17   $ 146,382       $ (12,240   $ 150,422       $ (12,257
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

There were no unrealized losses related to held-to-maturity securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of September 30, 2015. 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, 2014.

 

     December 31, 2014  
     Less than 12 Months     12 Months or longer      Total  
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
(Amounts in thousands)                                         

U.S. Agency securities

   $ 28,188       $ (54   $ —         $ —         $ 28,188       $ (54

Corporate securities

     10,548         (34     —           —           10,548         (34
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 38,736       $ (88   $ —         $ —         $ 38,736       $ (88
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2015, there were 108 securities in an unrealized loss position, and their combined depreciation in value represented 1.88% of the investment securities portfolio. As of December 31, 2014, there were 97 individual securities in an unrealized loss position, and their combined depreciation in value represented 3.21% of the investment securities portfolio.

The Company reviews its investment portfolio quarterly for indications of OTTI. Debt securities not beneficially 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 not beneficially owned, the Company analyzes factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, 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, the Company calculates the present value of the security to determine the amount of OTTI. The security is then written down to its current present value and the Company calculates and records the amount of the loss due to credit factors in earnings through noninterest income and the amount due to other factors in stockholders’ equity through OCI. Temporary impairment on these securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, destabilization in the Eurozone, and other current economic factors. During the three and nine months ended September 30, 2015 and 2014, the Company incurred no OTTI charges related to debt securities not beneficially owned.

Debt securities beneficially owned by the Company consist of mortgage-backed securities (“MBS”). For debt securities beneficially owned, the Company analyzes the cash flows for each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. If the projected value of cash flows at the current reporting date is less than the present value previously projected, and less than the current book value, an adverse change has occurred. The Company then compares the current present value of cash flows to the current net book value to determine the credit-related portion of the OTTI. The credit-related OTTI is recorded in earnings through noninterest income and any remaining noncredit-related OTTI is recorded in stockholders’ equity through OCI. During the three and nine months ended September 30, 2015, the Company incurred no credit-related OTTI charges related to debt securities beneficially owned. During the three months ended September 30, 2014, the Company incurred credit-related OTTI charges associated with debt securities beneficially owned of $219 thousand. During the nine months ended September 30, 2014, the Company incurred credit-related OTTI charges associated with debt securities beneficially owned of $705 thousand. These charges were associated with a non-Agency MBS that was sold in November 2014.

 

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The following table presents the activity for credit-related losses recognized in earnings on debt securities where a portion of an OTTI was recognized in OCI for the periods indicated:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2015      2014      2015      2014  
(Amounts in thousands)                            

Beginning balance(1)

   $ —         $ 8,284       $ —         $ 7,798   

Additions for credit losses on securities previously recognized

     —           219         —           705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ —         $ 8,503       $ —         $ 8,503   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The beginning balance includes credit related losses included in OTTI charges recognized on debt securities in prior periods.

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 to be 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 and nine months ended September 30, 2015, the Company incurred no OTTI charges related to equity holdings. During the three months ended September 30, 2014, the Company incurred no OTTI charges related to equity holdings. During the nine months ended September 30, 2014, the Company incurred OTTI charges related to certain equity holdings of $32 thousand.

The carrying amount of securities pledged for various purposes totaled $243.75 million as of September 30, 2015, and $268.78 million as of December 31, 2014.

 

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Note 3. Loans

Loan Portfolio

The Company’s loans held for investment are grouped into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are defined as loans acquired in 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, 2015     December 31, 2014  
(Amounts in thousands)    Amount      Percent     Amount      Percent  

Non-covered loans held for investment

       

Commercial loans

       

Construction, development, and other land

   $ 45,930         2.72   $ 41,271         2.44

Commercial and industrial

     85,319         5.05     83,099         4.92

Multi-family residential

     93,356         5.52     97,480         5.77

Single family non-owner occupied

     144,725         8.56     135,171         8.00

Non-farm, non-residential

     479,297         28.35     473,906         28.05

Agricultural

     2,414         0.14     1,599         0.09

Farmland

     27,135         1.61     29,517         1.75
  

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial loans

     878,176         51.95     862,043         51.02

Consumer real estate loans

       

Home equity lines

     107,655         6.37     110,957         6.57

Single family owner occupied

     492,157         29.11     485,475         28.74

Owner occupied construction

     40,141         2.37     32,799         1.94
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer real estate loans

     639,953         37.85     629,231         37.25

Consumer and other loans

       

Consumer loans

     75,084         4.44     69,347         4.10

Other

     7,058         0.42     6,555         0.39
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer and other loans

     82,142         4.86     75,902         4.49
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-covered loans

     1,600,271         94.66     1,567,176         92.76

Total covered loans

     90,203         5.34     122,240         7.24
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans held for investment, net of unearned income

   $ 1,690,474         100.00   $ 1,689,416         100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale

   $ 523         $ 1,792      
  

 

 

      

 

 

    

Deferred loan fees totaled $3.74 million as of September 30, 2015, and $3.39 million as of December 31, 2014. For information concerning unfunded loan commitments, see Note 13, “Litigation, Commitments and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

 

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Table of Contents

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

 

(Amounts in thousands)    September 30, 2015      December 31, 2014  

Covered loans

     

Commercial loans

     

Construction, development, and other land

   $ 7,573       $ 13,100   

Commercial and industrial

     1,326         2,662   

Multi-family residential

     699         1,584   

Single family non-owner occupied

     2,899         5,918   

Non-farm, non-residential

     15,712         25,317   

Agricultural

     35         43   

Farmland

     656         716   
  

 

 

    

 

 

 

Total commercial loans

     28,900         49,340   

Consumer real estate loans

     

Home equity lines

     51,205         60,391   

Single family owner occupied

     9,736         11,968   

Owner occupied construction

     278         453   
  

 

 

    

 

 

 

Total consumer real estate loans

     61,219         72,812   

Consumer and other loans

     

Consumer loans

     84         88   
  

 

 

    

 

 

 

Total covered loans

   $ 90,203       $ 122,240   
  

 

 

    

 

 

 

Purchased Credit Impaired Loans

Certain purchased loans are identified as impaired when fair values are established at acquisition. These purchased credit impaired (“PCI”) loans are aggregated into loan pools that have common risk characteristics. The Company’s loan pools consist of Waccamaw commercial, Waccamaw lines of credit, Waccamaw serviced home equity lines, Waccamaw residential, Peoples Bank of Virginia (“Peoples”) commercial, and Peoples residential. The Company closed the Waccamaw consumer loan pool during the first quarter of 2015 due to an insignificant remaining balance. 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, 2015      December 31, 2014  
(Amounts in thousands)    Carrying
Balance
     Unpaid
Principal
Balance
     Carrying
Balance
     Unpaid
Principal
Balance
 

PCI Loans, by acquisition

           

Peoples Bank of Virginia

   $ 6,277       $ 11,505       $ 7,090       $ 13,669   

Waccamaw Bank

     38,681         67,996         53,835         86,641   

Other acquired

     1,281         1,324         1,358         1,401   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total PCI Loans

   $ 46,239       $ 80,825       $ 62,283       $ 101,711   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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

 

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

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

     (27      5,203         —           5,176   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2014  
     Peoples      Waccamaw      Other      Total  
(Amounts in thousands)                            

Beginning balance

   $ 5,294       $ 10,338       $ 8       $ 15,640   

Additions

     98         24         —           122   

Accretion

     (1,601      (4,540      (29      (6,170

Reclassifications from nonaccretable difference

     1,205         13,968         29         15,202   

Removals, extensions, and other events

     (521      (1,445      —           (1,966
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 4,475       $ 18,345       $ 8       $ 22,828   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 4. Credit Quality

The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed to be impaired. The following table presents the recorded investment and related information for loans considered to be impaired, excluding PCI loans, as of the periods indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)    Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

Impaired loans with no related allowance:

                 

Commercial loans

                 

Single family non-owner occupied

   $ 783       $ 785       $ —         $ 466       $ 466       $ —     

Non-farm, non-residential

     8,772         9,159         —           5,705         6,049         —     

Consumer real estate loans

                 

Single family owner occupied

     1,334         1,404         —           3,397         3,494         —     

Owner occupied construction

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with no allowance

     10,889         11,348         —           9,568         10,009         —     

Impaired loans with a related allowance:

                 

Commercial loans

                 

Single family non-owner occupied

     621         624         117         367         367         45   

Non-farm, non-residential

     5,359         5,374         1,711         3,772         3,772         1,000   

Consumer real estate loans

                 

Single family owner occupied

     4,798         4,817         760         2,341         2,512         437   

Owner occupied construction

     353         356         53         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with an allowance

     11,131         11,171         2,641         6,480         6,651         1,482   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 22,020       $ 22,519       $ 2,641       $ 16,048       $ 16,660       $ 1,482   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables present the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, in the periods indicated:

 

     Three Months Ended September 30,  
     2015      2014  
(Amounts in thousands)    Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Impaired loans with no related allowance:

           

Commercial loans

           

Commercial and industrial

   $ —         $ —         $ 1,258       $ —     

Single family non-owner occupied

     792         27         321         7   

Non-farm, non-residential

     8,878         72         5,971         —     

Farmland

     —           —           —           —     

Consumer real estate loans

           

Single family owner occupied

     1,353         —           2,880         10   

Owner occupied construction

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with no allowance

     11,023         99         10,430         17   

Impaired loans with a related allowance:

           

Commercial loans

           

Multi-family residential

     —           —           5,568         1   

Single family non-owner occupied

     629         —           369         1   

Non-farm, non-residential

     5,417         15         4,386         6   

Consumer real estate loans

           

Single family owner occupied

     4,847         13         2,528         8   

Owner occupied construction

     357         1         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with an allowance

     11,250         29         12,851         16   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 22,273       $ 128       $ 23,281       $ 33   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Nine Months Ended September 30,  
     2015      2014  
(Amounts in thousands)    Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Impaired loans with no related allowance:

           

Commercial loans

           

Commercial and industrial

   $ —         $ —         $ 614       $ 17   

Single family non-owner occupied

     571         28         247         8   

Non-farm, non-residential

     8,834         295         6,089         89   

Farmland

     —           —           241         11   

Consumer real estate loans

           

Home equity lines

     —           —           88         2   

Single family owner occupied

     2,578         100         2,179         61   

Owner occupied construction

     117         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with no allowance

     12,100         423         9,458         188   

Impaired loans with a related allowance:

           

Commercial loans

           

Commercial and industrial

     —           —           2,932         47   

Multi-family residential

     —           —           5,586         23   

Single family non-owner occupied

     558         22         370         2   

Non-farm, non-residential

     4,740         51         4,404         31   

Consumer real estate loans

           

Home equity lines

     —           —           76         1   

Single family owner occupied

     3,325         26         3,216         42   

Owner occupied construction

     119         1         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with an allowance

     8,742         100         16,584         146   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 20,842       $ 523       $ 26,042       $ 334   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company determined that two of the six open PCI loan pools were impaired as of September 30, 2015, compared to two of seven impaired pools as of December 31, 2014. The following tables present additional information related to the impaired loan pools as of the dates, and in the periods, indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)              

Recorded investment

   $ 3,015       $ 14,607   

Unpaid principal balance

     3,978         31,169   

Allowance for loan losses

     20         58   

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2015      2014      2015      2014  
(Amounts in thousands)                            

Interest income recognized

   $ 96       $ 82       $ 273       $ 2,154   

Average recorded investment

     3,045         1,416         3,464         35,063   

As part of the ongoing monitoring of the Company’s loan portfolio, management tracks certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally analyzes all commercial loan relationships greater than $4.0 million annually and at various times during the year. Smaller commercial and retail loans are sampled for review during the year. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process.

 

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Table of Contents

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. The general characteristics of each risk grade are as follows:

 

    Pass — This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity leverage, and industry conditions.

 

    Special Mention — This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

 

    Substandard — This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. In order to meet repayment terms, these loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business.

 

    Doubtful — This grade is assigned to loans on nonaccrual status. These loans have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is extremely unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

 

    Loss — This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are determined to be uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

 

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Table of Contents

Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately in the following credit quality discussion. PCI loan pools are disaggregated and included in their applicable loan class in the following discussion. PCI loans are generally not classified as nonaccrual or nonperforming due to the accrual of interest income under the accretion method of accounting. The following tables present loans held for investment, by internal credit risk grade, as of the periods indicated:

 

     September 30, 2015  
(Amounts in thousands)    Pass      Special
Mention
     Substandard      Doubtful        Loss        Total  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 43,843       $ 684       $ 1,403       $ —         $ —         $ 45,930   

Commercial and industrial

     83,525         555         1,239         —           —           85,319   

Multi-family residential

     79,400         13,044         912         —           —           93,356   

Single family non-owner occupied

     135,722         3,502         5,501         —           —           144,725   

Non-farm, non-residential

     451,724         8,836         18,737         —           —           479,297   

Agricultural

     2,386         25         3         —           —           2,414   

Farmland

     25,229         1,248         658         —           —           27,135   

Consumer real estate loans

                 

Home equity lines

     105,104         1,224         1,327         —           —           107,655   

Single family owner occupied

     464,709         6,865         20,583         —           —           492,157   

Owner occupied construction

     39,413         —           728         —           —           40,141   

Consumer and other loans

                 

Consumer loans

     74,832         64         188         —           —           75,084   

Other

     7,058         —           —           —           —           7,058   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     1,512,945         36,047         51,279         —           —           1,600,271   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     4,189         2,138         1,246         —           —           7,573   

Commercial and industrial

     1,285         16         25         —           —           1,326   

Multi-family residential

     492         —           207         —           —           699   

Single family non-owner occupied

     1,838         576         485         —           —           2,899   

Non-farm, non-residential

     10,223         1,884         3,605         —           —           15,712   

Agricultural

     35         —           —           —           —           35   

Farmland

     373         —           283         —           —           656   

Consumer real estate loans

                 

Home equity lines

     18,508         31,835         862         —           —           51,205   

Single family owner occupied

     6,123         1,693         1,920         —           —           9,736   

Owner occupied construction

     115         63         100         —           —           278   

Consumer and other loans

                 

Consumer loans

     84         —           —           —           —           84   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     43,265         38,205         8,733         —           —           90,203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,556,210       $ 74,252       $ 60,012       $ —         $ —         $ 1,690,474   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2014  
(Amounts in thousands)    Pass      Special
Mention
     Substandard      Doubtful        Loss        Total  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 38,858       $ 1,384       $ 1,029       $ —         $ —         $ 41,271   

Commercial and industrial

     81,196         616         1,287         —           —           83,099   

Multi-family residential

     89,503         7,007         970         —           —           97,480   

Single family non-owner occupied

     126,155         3,333         5,683         —           —           135,171   

Non-farm, non-residential

     441,385         13,028         19,493         —           —           473,906   

Agricultural

     1,589         —           10         —           —           1,599   

Farmland

     26,876         1,432         1,209         —           —           29,517   

Consumer real estate loans

                 

Home equity lines

     107,688         1,606         1,663         —           —           110,957   

Single family owner occupied

     454,833         8,884         21,758         —           —           485,475   

Owner occupied construction

     32,551         —           248         —           —           32,799   

Consumer and other loans

                 

Consumer loans

     68,592         520         235         —           —           69,347   

Other

     6,555         —           —           —           —           6,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     1,475,781         37,810         53,585         —           —           1,567,176   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     7,598         3,227         2,275         —           —           13,100   

Commercial and industrial

     2,528         82         52         —           —           2,662   

Multi-family residential

     1,400         —           184         —           —           1,584   

Single family non-owner occupied

     2,703         2,059         1,156         —           —           5,918   

Non-farm, non-residential

     12,672         4,341         8,304         —           —           25,317   

Agricultural

     43         —           —           —           —           43   

Farmland

     420         —           296         —           —           716   

Consumer real estate loans

                 

Home equity lines

     21,295         38,296         800         —           —           60,391   

Single family owner occupied

     7,094         2,040         2,834         —           —           11,968   

Owner occupied construction

     84         264         105         —           —           453   

Consumer and other loans

                 

Consumer loans

     88         —           —           —           —           88   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     55,925         50,309         16,006         —           —           122,240   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 1,531,706       $ 88,119       $ 69,591       $ —         $ —         $ 1,689,416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

The following table presents nonaccrual loans, by loan class, as of the dates indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)    Non-covered      Covered      Total      Non-covered      Covered      Total  

Commercial loans

                 

Construction, development, and other land

   $ 99       $ 68       $ 167       $ —         $ 18       $ 18   

Commercial and industrial

     72         16         88         123         34         157   

Multi-family residential

     72         —           72         245         —           245   

Single family non-owner occupied

     1,763         —           1,763         601         77         678   

Non-farm, non-residential

     6,872         39         6,911         2,334         1,317         3,651   

Agricultural

     —           —           —           4         —           4   

Farmland

     151         —           151         —           —           —     

Consumer real estate loans

                 

Home equity lines

     544         453         997         792         204         996   

Single family owner occupied

     7,097         239         7,336         6,389         682         7,071   

Owner occupied construction

     353         —           353         —           106         106   

Consumer and other loans

                 

Consumer loans

     77         —           77         68         —           68   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

   $ 17,100       $ 815       $ 17,915       $ 10,556       $ 2,438       $ 12,994   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. There were no non-covered or covered accruing loans contractually past due 90 days or more as of September 30, 2015, or as of December 31, 2014.

 

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

Non-covered loans

           

Commercial loans

           

Construction, development, and other land

  $ 42      $ 11      $ 99      $ 152      $ 45,778      $ 45,930   

Commercial and industrial

    55        —          55        110        85,209        85,319   

Multi-family residential

    72        77        —          149        93,207        93,356   

Single family non-owner occupied

    241        441        1,134        1,816        142,909        144,725   

Non-farm, non-residential

    800        42        5,473        6,315        472,982        479,297   

Agricultural

    —          —          —          —          2,414        2,414   

Farmland

    71        69        151        291        26,844        27,135   

Consumer real estate loans

           

Home equity lines

    320        24        458        802        106,853        107,655   

Single family owner occupied

    2,802        1,743        3,209        7,754        484,403        492,157   

Owner occupied construction

    —          —          —          —          40,141        40,141   

Consumer and other loans

           

Consumer loans

    435        42        25        502        74,582        75,084   

Other

    —          —          —          —          7,058        7,058   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-covered loans

    4,838        2,449        10,604        17,891        1,582,380        1,600,271   

Covered loans

           

Commercial loans

           

Construction, development, and other land

    93        2        42        137        7,436        7,573   

Commercial and industrial

    —          9        16        25        1,301        1,326   

Multi-family residential

    —          —          —          —          699        699   

Single family non-owner occupied

    —          3        —          3        2,896        2,899   

Non-farm, non-residential

    15        108        39        162        15,550        15,712   

Agricultural

    —          —          —          —          35        35   

Farmland

    —          —          —          —          656        656   

Consumer real estate loans

           

Home equity lines

    454        106        8        568        50,637        51,205   

Single family owner occupied

    —          93        14        107        9,629        9,736   

Owner occupied construction

    186        20        —          206        72        278   

Consumer and other loans

           

Consumer loans

    —          —          —          —          84        84   

Other

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total covered loans

    748        341        119        1,208        88,995        90,203   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 5,586      $ 2,790      $ 10,723      $ 19,099      $ 1,671,375      $ 1,690,474   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     December 31, 2014  
(Amounts in thousands)    30 - 59 Days
Past Due
     60 - 89 Days
Past Due
     90+ Days
Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 39       $ 46       $ —         $ 85       $ 41,186       $ 41,271   

Commercial and industrial

     285         6         103         394         82,705         83,099   

Multi-family residential

     81         110         —           191         97,289         97,480   

Single family non-owner occupied

     914         513         425         1,852         133,319         135,171   

Non-farm, non-residential

     1,075         783         1,984         3,842         470,064         473,906   

Agricultural

     —           —           4         4         1,595         1,599   

Farmland

     89         —           —           89         29,428         29,517   

Consumer real estate loans

                 

Home equity lines

     492         103         571         1,166         109,791         110,957   

Single family owner occupied

     5,436         1,931         4,564         11,931         473,544         485,475   

Owner occupied construction

     —           —           —           —           32,799         32,799   

Consumer and other loans

                 

Consumer loans

     544         84         26         654         68,693         69,347   

Other

     —           —           —           —           6,555         6,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

     8,955         3,576         7,677         20,208         1,546,968         1,567,176   

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

     120         17         —           137         12,963         13,100   

Commercial and industrial

     84         12         34         130         2,532         2,662   

Multi-family residential

     —           —           —           —           1,584         1,584   

Single family non-owner occupied

     122         —           77         199         5,719         5,918   

Non-farm, non-residential

     124         140         1,258         1,522         23,795         25,317   

Agricultural

     —           —           —           —           43         43   

Farmland

     3         —           —           3         713         716   

Consumer real estate loans

                 

Home equity lines

     858         318         168         1,344         59,047         60,391   

Single family owner occupied

     134         34         415         583         11,385         11,968   

Owner occupied construction

     —           —           —           —           453         453   

Consumer and other loans

                    —     

Consumer loans

     —           —           —           —           88         88   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

     1,445         521         1,952         3,918         118,322         122,240   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 10,400       $ 4,097       $ 9,629       $ 24,126       $ 1,665,290       $ 1,689,416   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company may make concessions in interest rates, loan terms, and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Specific reserves in the allowance for loan losses attributed to troubled debt restructurings (“TDRs”) totaled $641 thousand as of September 30, 2015, and $475 thousand as of December 31, 2014. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. The following table presents interest income related to TDRs in the periods, indicated:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2015      2014      2015      2014  
(Amounts in thousands)                            

Interest income recognized

   $ 148       $ 188       $ 456       $ 466   

Loans acquired with credit deterioration, with a discount, are generally not considered TDRs as long as the loans remain in the assigned loan pool. There were no covered loans recorded as TDRs as of September 30, 2015, or December 31, 2014.

 

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Table of Contents

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

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)    Nonaccrual(1)      Accruing      Total      Nonaccrual(1)      Accruing      Total  

Commercial loans

                 

Single family non-owner occupied

   $ 132       $ 824       $ 956       $ —         $ 1,088       $ 1,088   

Non-farm, non-residential

     —           4,632         4,632         83         4,743         4,826   

Consumer real estate loans

                 

Home equity lines

     —           44         44         —           47         47   

Single family owner occupied

     338         8,296         8,634         471         8,412         8,883   

Owner occupied construction

     353         243         596         —           244         244   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total TDRs

   $ 823       $ 14,039       $ 14,862       $ 554       $ 14,534       $ 15,088   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) TDRs on nonaccrual status are included in the total nonaccrual loan balance disclosed in the table above.

The following 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,  
    2015     2014  
(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

           

Single family owner occupied

    —        $ —        $ —          3      $ 1,715      $ 1,715   

Extended payment term

           

Single family non-owner occupied

    —          —          —          1        468        468   

Below market interest rate and extended payment term

           

Single family owner occupied

    4        307        307        2        84        84   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    4      $ 307      $ 307        6      $ 2,267      $ 2,267   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Nine Months Ended September 30,  
    2015     2014  
(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

           

Single family owner occupied

    —        $ —        $ —          4      $ 1,850      $ 1,850   

Owner occupied construction

    —          —          —          1        245        245   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —          —          —          5        2,095        2,095   

Extended payment term

           

Single family non-owner occupied

    —          —          —          1        468        468   

Non-farm, non-residential

    —          —          —          1        303        303   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —          —          —          2        771        771   

Below market interest rate and extended payment term

           

Single family owner occupied

    5        342        342        5        487        487   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    5      $ 342      $ 342        12      $ 3,353      $ 3,353   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following tables present loans modified as TDRs, by loan class, that were restructured within the previous 12 months, for which there was a payment default during the periods indicated:

 

     Three Months Ended September 30,  
     2015      2014  
(Amounts in thousands)    Total
Contracts
     Pre-Modification
Recorded Investment
     Total
Contracts
     Pre-Modification
Recorded Investment
 

Commercial loans

           

Single family non-owner occupied

     1       $ 78         —         $ —     

Consumer real estate loans

           

Single family owner occupied

     —           —           2         312   

Owner occupied construction

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1       $ 78         2       $ 312   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30,  
     2015      2014  
(Amounts in thousands)    Total
Contracts
     Pre-Modification
Recorded Investment
     Total
Contracts
     Pre-Modification
Recorded Investment
 

Commercial loans

           

Single family non-owner occupied

     1       $ 78         —         $ —     

Consumer real estate loans

           

Single family owner occupied

     —           —           2         312   

Owner occupied construction

     1         353         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2       $ 431         2       $ 312   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other real estate owned (“OREO”) consists of properties acquired through foreclosure. The following table presents information related to OREO as of the dates indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)              

Non-covered OREO

   $ 5,088       $ 6,638   

Covered OREO

     4,079         6,324   
  

 

 

    

 

 

 

Total OREO

   $ 9,167       $ 12,962   
  

 

 

    

 

 

 

Non-covered OREO secured by residential real estate

   $ 2,280       $ 6,155   

Residential real estate loans in the foreclosure process(1)

     3,138         4,561   

 

(1) The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction.

Note 5. 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 ultimate adequacy of the allowance 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 is comprised of specific reserves related to loans individually evaluated, including credit relationships, and general reserves related to loans not individually evaluated that 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. For loans acquired in a business combination, loans identified as credit impaired at the acquisition date are grouped into pools and evaluated separately from the non-PCI portfolio. The Company aggregates PCI loans into the following pools: Waccamaw commercial, Waccamaw lines of credit, Waccamaw serviced home equity lines, Waccamaw residential, Waccamaw consumer, Peoples commercial, and Peoples residential. The Company closed the Waccamaw consumer loan pool during the first quarter of 2015 due to an insignificant remaining balance. Provisions calculated for PCI loans are offset by an adjustment to the FDIC indemnification asset to reflect the indemnified portion, 80%, of the post-acquisition exposure.

 

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Table of Contents

While allocations are made to various portfolio segments, the allowance for loan losses, excluding reserves allocated to specific loans and PCI loan pools, is available for use against any loan loss management deems appropriate. As of September 30, 2015, management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio.

The following tables present the aggregate activity in the allowance for loan losses in the periods indicated:

 

     Three Months Ended September 30, 2015  
     Allowance Excluding
PCI Loans
     Allowance for PCI
Loans
     Total
Allowance
 
(Amounts in thousands)                     

Beginning balance

   $ 20,144       $ 114       $ 20,258   

Provision for (recovery of) loan losses

     400         (94      306   

Benefit attributable to the FDIC indemnification asset

     —           75         75   
  

 

 

    

 

 

    

 

 

 

Provision for (recovery of) loan losses charged to operations

     400         (19      381   

Recovery of loan losses recorded through the

        

FDIC indemnification asset

     —           (75      (75

Charge-offs

     (689      —           (689

Recoveries

     252         —           252   
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (437      —           (437
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 20,107       $ 20       $ 20,127   
  

 

 

    

 

 

    

 

 

 
     Three Months Ended September 30, 2014  
     Allowance Excluding
PCI Loans
     Allowance for PCI
Loans
     Total
Allowance
 
(Amounts in thousands)                     

Beginning balance

   $ 23,493       $ 418       $ 23,911   

Recovery of loan losses

     (2,335      (214      (2,549

Benefit attributable to the FDIC indemnification asset

     —           110         110   
  

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     (2,335      (104      (2,439

Recovery of loan losses recorded through the

        

FDIC indemnification asset

     —           (110      (110

Charge-offs

     (1,118      —           (1,118

Recoveries

     915         —           915   
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (203      —           (203
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 20,955       $ 204       $ 21,159   
  

 

 

    

 

 

    

 

 

 

 

27


Table of Contents
     Nine Months Ended September 30, 2015  
     Allowance Excluding
PCI Loans
     Allowance for
PCI Loans
     Total
Allowance
 
(Amounts in thousands)                     

Beginning balance

   $ 20,169       $ 58       $ 20,227   

Provision for (recovery of) loan losses

     1,766         (38      1,728   

Benefit attributable to the FDIC indemnification asset

     —           29         29   
  

 

 

    

 

 

    

 

 

 

Provision for (recovery of) loan losses charged to operations

     1,766         (9      1,757   

Recovery of loan losses recorded through the

        

FDIC indemnification asset

     —           (29      (29

Charge-offs

     (2,940      —           (2,940

Recoveries

     1,112         —           1,112   
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (1,828      —           (1,828
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 20,107       $ 20       $ 20,127   
  

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2014  
     Allowance Excluding
PCI Loans
     Allowance for
PCI Loans
     Total
Allowance
 
(Amounts in thousands)                     

Beginning balance

   $ 23,322       $ 755       $ 24,077   

Provision for (recovery of) loan losses

     733         (551      182   

Benefit attributable to the FDIC indemnification asset

     —           451         451   
  

 

 

    

 

 

    

 

 

 

Provision for (recovery of) loan losses charged to operations

     733         (100      633   

Recovery of loan losses recorded through the

        

FDIC indemnification asset

     —           (451      (451

Charge-offs

     (5,119      —           (5,119

Recoveries

     2,019         —           2,019   
  

 

 

    

 

 

    

 

 

 

Net charge-offs

     (3,100      —           (3,100
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ 20,955       $ 204       $ 21,159   
  

 

 

    

 

 

    

 

 

 

The following tables present the components of the activity in the allowance for loan losses, excluding PCI loans, by loan segment, in the periods indicated:

 

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

Beginning balance

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

Provision for (recovery of) loan losses charged to operations

     6         20         374         400   

Loans charged off

     (150      (130      (409      (689

Recoveries credited to allowance

     102         86         64         252   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (48      (44      (345      (437
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

 

 

28


Table of Contents
     Three Months Ended September 30, 2014  
     Commercial      Consumer
Real Estate
     Consumer
and Other
     Total  
(Amounts in thousands)                            

Beginning balance

   $ 16,747       $ 6,123       $ 623       $ 23,493   

(Recovery of) provision for loan losses charged to operations

     (3,131      561         235         (2,335

Loans charged off

     (558      (219      (341      (1,118

Recoveries credited to allowance

     613         192         110         915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net recoveries (charge-offs)

     55         (27      (231      (203
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 13,671       $ 6,657       $ 627       $ 20,955   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

Beginning balance

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

Provision for loan losses charged to operations

     754         136         876         1,766   

Loans charged off

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

Recoveries credited to allowance

     300         441         371         1,112   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (811      (181      (836      (1,828
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

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

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2014  
     Commercial      Consumer
Real Estate
     Consumer
and Other
     Total  
(Amounts in thousands)                            

Beginning balance

   $ 16,090       $ 6,597       $ 635       $ 23,322   

(Recovery of) provision for loan losses charged to operations

     (478      592         619         733   

Loans charged off

     (2,839      (1,184      (1,096      (5,119

Recoveries credited to allowance

     898         652         469         2,019   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net charge-offs

     (1,941      (532      (627      (3,100
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 13,671       $ 6,657       $ 627       $ 20,955   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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

Beginning balance

   $ —         $ 114       $ —         $ 114   

Recovery of PCI loan losses

     —           (94      —           (94

Benefit attributable to 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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents
     Three Months Ended September 30, 2014  
     Commercial      Consumer
Real Estate
     Consumer
and Other
     Total  
(Amounts in thousands)                            

Beginning balance

   $ 16       $ 402       $ —         $ 418   

Recovery of PCI loan losses

     (8      (206      —           (214

Benefit attributable to FDIC indemnification asset

     —           110         —           110   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     (8      (96      —           (104

Recovery of loan losses recorded through the FDIC indemnification asset

     —           (110      —           (110
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 8       $ 196       $ —         $ 204   
  

 

 

    

 

 

    

 

 

    

 

 

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

Beginning balance

   $ 37       $ 21       $ —         $ 58   

Recovery of PCI loan losses

     (37      (1      —           (38

Benefit (provision) attributable to

           

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   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Nine Months Ended September 30, 2014  
     Commercial      Consumer
Real Estate
     Consumer
and Other
     Total  
(Amounts in thousands)                            

Beginning balance

   $ 77       $ 678       $ —         $ 755   

Recovery of PCI loan losses

     (69      (482      —           (551

Benefit attributable to FDIC indemnification asset

     55         396         —           451   
  

 

 

    

 

 

    

 

 

    

 

 

 

Recovery of loan losses charged to operations

     (14      (86      —           (100

Recovery of loan losses recorded through the FDIC indemnification asset

     (55      (396      —           (451
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 8       $ 196       $ —         $ 204   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables present the Company’s 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, 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

   $ —         $ —         $ 51,526       $ 1,087   

Commercial and industrial

     —           —           86,339         516   

Multi-family residential

     —           —           93,848         1,532   

Single family non-owner occupied

     1,404         117         142,509         3,076   

Non-farm, non-residential

     14,131         1,711         473,456         4,702   

Agricultural

     —           —           2,449         18   

Farmland

     —           —           27,791         194   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     15,535         1,828         877,918         11,125   

Consumer real estate loans

           

Home equity lines

     —           —           127,599         1,162   

Single family owner occupied

     6,132         760         494,515         4,205   

Owner occupied construction

     353         53         39,957         264   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     6,485         813         662,071         5,631   

Consumer and other loans

           

Consumer loans

     —           —           75,168         710   

Other

     —           —           7,058         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer and other loans

     —           —           82,226         710   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, excluding PCI loans

   $ 22,020       $ 2,641       $ 1,622,215       $ 17,466   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
(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

   $ —         $ —         $ 51,608       $ 1,151   

Commercial and industrial

     —           —           85,353         690   

Multi-family residential

     —           —           98,880         1,917   

Single family non-owner occupied

     833         45         135,223         3,183   

Non-farm, non-residential

     9,477         1,000         475,353         4,805   

Agricultural

     —           —           1,642         13   

Farmland

     —           —           30,233         206   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     10,310         1,045         878,292         11,965   

Consumer real estate loans

           

Home equity lines

     —           —           134,006         1,330   

Single family owner occupied

     5,738         437         489,820         4,498   

Owner occupied construction

     —           —           32,983         224   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     5,738         437         656,809         6,052   

Consumer and other loans

           

Consumer loans

     —           —           69,429         670   

Other

     —           —           6,555         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer and other loans

     —           —           75,984         670   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans, excluding PCI loans

   $ 16,048       $ 1,482       $ 1,611,085       $ 18,687   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents the Company’s allowance for loan losses related to PCI loans and recorded investment in PCI loans, by loan pool, as of the dates indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)    Loan Pools      Allowance for Loan
Pools With
Impairment
     Loan Pools      Allowance for Loan
Pools With
Impairment
 

Commercial loans

           

Waccamaw commercial

   $ 5,580       $ —         $ 13,392       $ 37   

Waccamaw lines of credit

     —           —           461         —     

Peoples commercial

     5,102         —           5,875         —     

Other

     1,281         —           1,358         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial loans

     11,963         —           21,086         37   

Consumer real estate loans

           

Waccamaw serviced home equity lines

     31,261         —           37,342         —     

Waccamaw residential

     1,840         1         2,638         —     

Peoples residential

     1,175         19         1,215         21   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total consumer real estate loans

     34,276         20         41,195         21   

Consumer and other loans

           

Waccamaw consumer(1)

     —           —           2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total loans

   $ 46,239       $ 20       $ 62,283       $ 58   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Closed during the first quarter of 2015.

Note 6. FDIC Indemnification Asset

The Company entered into loss share agreements with the FDIC in 2012 in connection with the FDIC-assisted acquisition of Waccamaw. Under the loss share agreements, the FDIC agreed to cover 80% of most loan and foreclosed real estate losses. Certain expenses incurred in relation to these covered assets are reimbursable by the FDIC. Estimated reimbursements are netted against the expense on covered assets in the Company’s consolidated statements of income. The following table presents activity in the FDIC indemnification asset in the periods indicated:

 

     Three Months Ended September 30,      Nine Months Ended September 30,  
     2015      2014      2015      2014  
(Amounts in thousands)                            

Beginning balance

   $ 23,653       $ 30,908       $ 27,900       $ 34,691   

Decrease in estimated losses on covered loans

     (75      (110      (29      (451

Increase in estimated losses on covered OREO

     801         674         1,359         1,233   

Reimbursable expenses from the FDIC

     44         88         409         375   

Net amortization

     (1,768      (1,096      (5,179      (3,166

Reimbursements from the FDIC

     (606      (719      (2,411      (2,937
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 22,049       $ 29,745       $ 22,049       $ 29,745   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Note 7. Deposits

The following table presents the components of deposits as of the dates indicated:

 

     September 30, 2015      December 31, 2014  
(Amounts in thousands)              

Noninterest-bearing demand deposits

   $ 442,021       $ 417,729   

Interest-bearing deposits:

     

Interest-bearing demand deposits

     343,303         353,874   

Money market accounts

     216,567         225,196   

Savings deposits

     310,060         300,282   

Certificates of deposit

     452,836         557,352   

Individual retirement accounts

     138,115         146,326   
  

 

 

    

 

 

 

Total interest-bearing deposits

     1,460,881         1,583,030   
  

 

 

    

 

 

 

Total deposits

   $ 1,902,902       $ 2,000,759   
  

 

 

    

 

 

 

Note 8. Borrowings

Short-term borrowings generally consist of federal funds purchased and retail repurchase agreements, which are typically collateralized with agency MBS. Long-term borrowings consist of wholesale repurchase agreements; FHLB borrowings, including convertible and callable advances; and other obligations. The following table presents the composition of borrowings as of the dates indicated:

 

     September 30, 2015     December 31, 2014  
     Balance      Weighted
Average Rate(1)
    Balance      Weighted
Average Rate(1)
 
(Amounts in thousands)                           

Federal funds purchased

   $ —           —        $ —           0.34

Securities sold under agreements to repurchase:

          

Retail

     74,076         0.10     71,742         0.13

Wholesale

     50,000         3.71     50,000         3.71
  

 

 

      

 

 

    

Total securities sold under agreements to repurchase

     124,076           121,742      

FHLB borrowings