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Loans and Asset Quality Information
 12 Months Ended
Dec. 31, 2011
Loans And Asset Quality Information  
Loans and Asset Quality Information

Note 4. Loans and Asset Quality Information

 

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection. (See Note 2 above for more information regarding these transactions.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

 

The following is a summary of the major categories of total loans outstanding:

 

($ in thousands)   December 31, 2011   December 31, 2010
    Amount   Percentage   Amount   Percentage
All  loans (non-covered and covered):                                
                                 
Commercial, financial, and agricultural   $ 162,099       7 %   $ 155,016       6 %
Real estate – construction, land development & other land loans     363,079       15 %     437,700       18 %
Real estate – mortgage – residential (1-4 family) first mortgages     805,542       33 %     802,658       33 %
Real estate – mortgage – home equity loans / lines of credit     256,509       11 %     263,529       11 %
Real estate – mortgage – commercial and other     762,895       31 %     710,337       29 %
Installment loans to individuals     78,982       3 %     83,919       3 %
Subtotal     2,429,106       100 %     2,453,159       100 %
Unamortized net deferred loan costs     1,280               973          
Total loans   $ 2,430,386             $ 2,454,132          

 

As of December 31, 2011 and 2010, net loans include an unamortized premium of $949,000 and $687,000, respectively, related to acquired loans.

 

Loans in the amounts of $2,074,148,000 and $1,708,642,000 as of December 31, 2011 and 2010, respectively, are pledged as collateral for certain borrowings (see Note 10).

 

The loans above also include loans to executive officers and directors serving the Company at December 31, 2011 and to their associates, totaling approximately $6,004,000 and $5,097,000 at December 31, 2011 and 2010, respectively. During 2011, additions to such loans were approximately $1,253,000 and repayments totaled approximately $346,000. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related borrowers. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

 

The following is a summary of the major categories of non-covered loans outstanding:

 

($ in thousands)   December 31, 2011   December 31, 2010
    Amount   Percentage   Amount   Percentage
Non-covered loans:                                
                                 
Commercial, financial, and agricultural   $ 152,627       8 %   $ 150,545       7 %
Real estate – construction, land development & other land loans     290,983       14 %     344,939       17 %
Real estate – mortgage – residential (1-4 family) first mortgages     646,616       31 %     622,353       30 %
Real estate – mortgage – home equity loans / lines of credit     233,171       11 %     246,418       12 %
Real estate – mortgage – commercial and other     666,882       32 %     636,197       30 %
Installment loans to individuals     77,593       4 %     81,579       4 %
Subtotal     2,067,872       100 %     2,082,031       100 %
Unamortized net deferred loan costs     1,280               973          
Total non-covered loans   $ 2,069,152             $ 2,083,004          

 

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

 

($ in thousands)   Impaired Purchased Loans – Carrying Value   Impaired Purchased Loans – Unpaid Principal Balance   Nonimpaired Purchased Loans – Carrying Value   Nonimpaired Purchased Loans - Unpaid Principal Balance   Total Covered Loans – Carrying Value   Total Covered Loans – Unpaid Principal Balance
Covered loans:                                                
Commercial, financial, and agricultural   $ 69       319       9,403       11,736       9,472       12,055  
Real estate – construction, land development & other land loans     3,865       8,505       68,231       115,489       72,096       123,994  
Real estate – mortgage – residential (1-4 family) first mortgages     1,214       2,639       157,712       189,436       158,926       192,075  
Real estate – mortgage – home equity loans / lines of credit     127       577       23,211       29,249       23,338       29,826  
Real estate – mortgage – commercial and other     2,585       4,986       93,428       125,450       96,013       130,436  
Installment loans to individuals     4       6       1,385       1,583       1,389       1589  
Total   $ 7,864       17,032       353,370       472,943       361,234       489,975  

 

The carrying amount of the covered loans at December 31, 2010 consisted of impaired and nonimpaired purchased loans, as follows:

 

($ in thousands)   Impaired Purchased Loans – Carrying Value   Impaired Purchased Loans – Unpaid Principal Balance   Nonimpaired Purchased Loans – Carrying Value   Nonimpaired Purchased Loans - Unpaid Principal Balance   Total Covered Loans – Carrying Value   Total Covered Loans – Unpaid Principal Balance
Covered loans:                                                
Commercial, financial, and agricultural   $ —       —       4,471       5,272       4,471       5,272  
Real estate – construction, land development & other land loans     1,898       3,328       90,863       147,615       92,761       150,943  
Real estate – mortgage – residential (1-4 family) first mortgages     —       —       180,305       212,826       180,305       212,826  
Real estate – mortgage – home equity loans / lines of credit     —       —       17,111       20,332       17,111       20,332  
Real estate – mortgage – commercial and other     2,709       3,594       71,431       93,490       74,140       97,084  
Installment loans to individuals     —       —       2,340       2,595       2,340       2,595  
Total   $ 4,607       6,922       366,521       482,130       371,128       489,052  

 

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2009. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

 

($ in thousands)

Carrying amount of nonimpaired Cooperative Bank loans at December 31, 2009   $ 485,572  
Principal repayments     (43,801 )
Transfers to foreclosed real estate     (75,121 )
Loan charge-offs     (7,736 )
Accretion of loan discount     7,607  
Carrying amount of nonimpaired Cooperative Bank loans at December 31, 2010     366,521  
Additions due to acquisition of The Bank of Asheville (at fair value)     84,623  
Principal repayments     (40,576 )
Transfers to foreclosed real estate     (53,999 )
Loan charge-offs     (14,797 )
Accretion of loan discount     11,598  
Carrying amount of nonimpaired covered loans at December 31, 2011   $ 353,370  

 

As reflected in the table above, the Company accreted $11,598,000 and $7,607,000 of the loan discount on purchased nonimpaired loans into interest income during 2011 and 2010, respectively. As of December 31, 2011, there was remaining loan discount of $89,837,000 related to purchased nonimpaired loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income.

 

The following table presents information regarding all purchased impaired loans since December 31, 2009, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

 

($ in thousands)


Purchased Impaired Loans		   Contractual Principal Receivable   Fair Market Value Adjustment – Write Down (Nonaccretable Difference)   Carrying Amount
Balance at December 31, 2009   $ 39,293       3,242       36,051  
Change due to payments received     (685 )     2       (687 )
Transfer to foreclosed real estate     (27,569 )     (225 )     (27,344 )
Change due to loan charge-off     (3,149 )     (625 )     (2,524 )
Other     190       (65 )     255  
Balance at December 31, 2010     8,080       2,329       5,751  
Additions due to acquisition of The Bank of Asheville     38,452       20,807       17,645  
Change due to payments received     (1,620 )     (327 )     (1,293 )
Transfer to foreclosed real estate     (19,881 )     (9,308 )     (10,573 )
Change due to loan charge-off     (7,522 )     (4,193 )     (3,329 )
Other     807       224       583  
Balance at December 31, 2011   $ 18,316       9,532       8,784  

 

Each of the purchased impaired loans are on nonaccrual status and considered to be impaired. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During 2011 and 2010, the Company received $0 and $67,000, respectively, in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

  

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

 

ASSET QUALITY DATA ($ in thousands)   December 31, 2011   December 31, 2010
         
Non-covered nonperforming assets        
Nonaccrual loans   $ 73,566       62,326  
Restructured loans – accruing     11,720       33,677  
Accruing loans > 90 days past due     —       —  
Total non-covered nonperforming loans     85,286       96,003  
Other real estate     37,023       21,081  
Total non-covered nonperforming assets   $ 122,309       117,084  
                 
Covered nonperforming assets                
Nonaccrual loans (1)   $ 41,472       58,466  
Restructured loans – accruing     14,218       14,359  
Accruing loans > 90 days past due     —       —  
Total covered nonperforming loans     55,690       72,825  
Other real estate     85,272       94,891  
Total covered nonperforming assets   $ 140,962       167,716  
                 
Total nonperforming assets   $ 263,271       284,800  

 

(1) At December 31, 2011 and December 31, 2010, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $69.0 million and $86.2 million, respectively.

 

If the nonaccrual and restructured loans as of December 31, 2011, 2010, and 2009 had been current in accordance with their original terms and had been outstanding throughout the period (or since origination if held for part of the period), gross interest income in the amounts of approximately $8,724,000, $8,136,000 and $9,800,000 for nonaccrual loans and $1,873,000, $1,943,000 and $1,200,000 for restructured loans would have been recorded for 2011, 2010, and 2009, respectively. Interest income on such loans that was actually collected and included in net income in 2011, 2010, and 2009 amounted to approximately $2,578,000, $3,195,000 and $2,147,000 for nonaccrual loans (prior to their being placed on nonaccrual status), and $1,351,000, $1,342,000, and $866,000 for restructured loans, respectively. At December 31, 2011 and 2010, the Company had no commitments to lend additional funds to debtors whose loans were nonperforming.

 

The following table presents information related to the Company’s impaired loans.

 

($ in thousands)   As of /for the year ended December 31, 2011   As of /for the year ended December 31, 2010   As of /for the year ended December 31, 2009
Impaired loans at period end                        
Non-covered   $ 85,286       96,003       55,574  
Covered     55,690       72,825       94,746  
Total impaired loans at period end   $ 140,976       168,828       150,320  
                         
Average amount of impaired loans for period                        
Non-covered   $ 89,023       89,751       36,171  
Covered     63,289       95,373       34,161  
Average amount of impaired loans for period – total   $ 152,312       185,124       70,332  
                         
Allowance for loan losses related to impaired loans at period end                        
Non-covered   $ 5,804       7,613       9,717  
Covered     5,106       11,155       —  
Allowance for loan losses related to impaired loans - total   $ 10,910       18,768       9,717  
                         
Amount of impaired loans with no related allowance at period end                        
Non-covered   $ 35,721       42,874       30,236  
Covered     43,702       49,991       94,746  
Total impaired loans with no related allowance at period end   $ 79,423       92,865       124,982  

 

 All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table on previous page for balances).

 

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

 

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

 

($ in thousands)   Non-covered   Covered   Total
Commercial, financial, and agricultural:                        
Commercial - unsecured   $ 452       —       452  
Commercial - secured     2,190       358       2,548  
Secured by inventory and accounts receivable     588       102       690  
                         
Real estate – construction, land development & other land loans     22,772       21,204       43,976  
                         
Real estate – residential, farmland and multi-family     25,430       11,050       36,480  
                         
Real estate – home equity lines of credit     3,161       1,068       4,229  
                         
Real estate - commercial     16,203       7,459       23,662  
                         
Consumer     2,770       231       3,001  
Total   $ 73,566       41,472       115,038  

 

The following table presents the Company’s nonaccrual loans as of December 31, 2010.

 

($ in thousands)   Non-covered   Covered   Total
Commercial, financial, and agricultural:                        
Commercial - unsecured   $ 64       160       224  
Commercial - secured     1,566       3       1,569  
Secured by inventory and accounts receivable     802       —       802  
                         
Real estate – construction, land development & other land loans     22,654       30,847       53,501  
                         
Real estate – residential, farmland and multi-family     27,055       19,716       46,771  
                         
Real estate – home equity lines of credit     2,201       685       2,886  
                         
Real estate - commercial     7,461       7,039       14,500  
                         
Consumer     523       16       539  
Total   $ 62,326       58,466       120,792  

 

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

 

($ in thousands)   30-59 Days Past Due   60-89 Days Past Due   Nonaccrual Loans   Current   Total Loans Receivable
Non-covered loans                                        
Commercial, financial, and agricultural:                                        
Commercial - unsecured   $ 67       591       452       37,668       38,778  
Commercial - secured     672       207       2,190       108,682       111,751  
Secured by inventory and accounts receivable     247       —       588       20,993       21,828  
                                         
Real estate – construction, land development & other land loans     1,250       1,411       22,772       221,372       246,805  
                                         
Real estate – residential, farmland, and multi-family     9,751       4,259       25,430       756,215       795,655  
                                         
Real estate – home equity lines of credit     1,126       237       3,161       202,912       207,436  
                                         
Real estate - commercial     2,620       1,006       16,203       567,354       587,183  
                                         
Consumer     657       286       2,770       54,723       58,436  
Total non-covered   $ 16,390       7,997       73,566       1,969,919       2,067,872  
Unamortized net deferred loan costs                                     1,280  
Total non-covered loans                                   $ 2,069,152  
                                         
Covered loans   $ 6,511       3,388       41,472       309,863       361,234  
                                         
Total loans   $ 22,901       11,385       115,038       2,279,782       2,430,386  

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2011.

 

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2010.

 

($ in thousands)   30-59 Days Past Due   60-89 Days Past Due   Nonaccrual Loans   Current   Total Loans Receivable
Non-covered loans                                        
Commercial, financial, and agricultural:                                        
Commercial - unsecured   $ 225       92       64       41,564       41,945  
Commercial - secured     1,165       195       1,566       102,657       105,583  
Secured by inventory and accounts receivable     100       —       802       21,369       22,271  
                                         
Real estate – construction, land development & other land loans     2,951       7,022       22,654       270,892       303,519  
                                         
Real estate – residential, farmland, and multi-family     10,290       2,942       27,055       726,456       766,743  
                                         
Real estate – home equity lines of credit     496       253       2,201       213,984       216,934  
                                         
Real estate - commercial     2,581       1,193       7,461       552,020       563,255  
                                         
Consumer     595       297       523       60,366       61,781  
Total non-covered   $ 18,403       11,994       62,326       1,989,308       2,082,031  
Unamortized net deferred loan costs                                     973  
Total non-covered loans                                   $ 2,083,004  
                                         
Total covered loans   $ 6,713       4,127       58,466       301,822       371,128  
                                         
Total loans   $ 25,116       16,121       120,792       2,291,130       2,454,132  

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2010.

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

 

($ in thousands)   Commercial, Financial, and Agricultural   Real
Estate – Construction, Land Development, & Other Land Loans		   Real
Estate – Residential, Farmland, and Multi-family		   Real
Estate – Home Equity Lines of Credit		   Real
Estate – Commercial and Other		   Consumer   Unallo-
cated		   Total
                                                                 
As of and for the year ended December 31, 2011
                                                                 
Beginning balance   $ 4,731       12,520       11,283       3,634       3,972       1,961       174       38,275  
Charge-offs     (2,703 )     (16,240 )     (9,045 )     (1,147 )     (3,355 )     (845 )     (524 )     (33,859 )
Recoveries     389       1,142       719       107       37       182       93       2,669  
Provisions     1,363       13,884       10,575       (904 )     2,760       574       273       28,525  
Ending balance   $ 3,780       11,306       13,532       1,690       3,414       1,872       16       35,610  
                                                                 
Ending balances as of December 31, 2011:  Allowance for loan losses
                                                         
Individually evaluated for impairment   $ 60       607       150       —       200       —       —       1,017  
                                                                 
Collectively evaluated for impairment   $ 3,720       10,699       13,382       1,690       3,214       1,872       16       34,593  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable as of December 31, 2011:
                                                                 
Ending balance – total   $ 172,357       246,805       795,655       207,436       587,183       58,436       —       2,067,872  
                                                                 
Ending balances as of December 31, 2011: Loans
 
Individually evaluated for impairment   $ 2,526       34,750       11,880       527       30,846       12       —       80,541  
                                                                 
Collectively evaluated for impairment   $ 169,831       212,055       783,775       206,909       556,337       58,424       —       1,987,331  
                                                                 
Loans acquired with deteriorated credit quality   $ —       920       —       —       —       —       —       920  

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2010.

 

($ in thousands)   Commercial, Financial, and Agricultural   Real
Estate – Construction, Land Development, & Other Land Loans		   Real
Estate – Residential, Farmland, and Multi-family		   Real
Estate – Home Equity Lines of Credit		   Real
Estate – Commercial and Other		   Consumer   Unallo-
cated		   Total
                                                                 
As of and for the year ended December 31, 2010
                                                                 
Beginning balance   $ 4,992       9,286       10,779       3,228       6,839       1,610       609       37,343  
Charge-offs     (4,691 )     (15,721 )     (6,962 )     (2,490 )     (2,354 )     (1,587 )     —       (33,805 )
Recoveries     145       130       548       59       38       171       —       1,091  
Provisions     4,285       18,825       6,918       2,837       (551 )     1,767       (435 )     33,646  
Ending balance   $ 4,731       12,520       11,283       3,634       3,972       1,961       174       38,275  
                                                                 
Ending balances as of December 31, 2010:  Allowance for loan losses
                                                         
Individually evaluated for impairment   $ 867       3,740       1,070       269       611       —       —       6,557  
                                                                 
Collectively evaluated for impairment   $ 3,864       8,780       10,213       3,365       3,361       1,961       174       31,718  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable as of December 31, 2010:
                                                                 
Ending balance – total   $ 169,799       303,519       766,743       216,934       563,255       61,781       —       2,082,031  
                                                                 
Ending balances as of December 31, 2010: Loans
                                                                 
Individually evaluated for impairment   $ 3,487       64,549       15,786       1,223       25,213       28       —       110,286  
                                                                 
Collectively evaluated for impairment   $ 166,312       238,970       750,957       215,711       538,042       61,753       —       1,971,745  
                                                                 
Loans acquired with deteriorated credit quality   $ —       1,144       —       —       —       —       —       1,144  

 

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

 

($ in thousands)   Covered Loans
         
As of and for the year ended December 31, 2011
Beginning balance   $ 11,155  
Charge-offs     (18,123 )
Recoveries     —  
Provisions     12,776  
Ending balance   $ 5,808  
         
Ending balances as of December 31, 2011:  Allowance for loan losses
 
Individually evaluated for impairment   $ 5,481  
Collectively evaluated for impairment     —  
Loans acquired with deteriorated credit quality     327  
         
Loans receivable as of December 31, 2011:
         
Ending balance – total   $ 361,234  
         
Ending balances as of December 31, 2011: Loans
         
Individually evaluated for impairment   $ 44,723  
Collectively evaluated for impairment     316,511  
Loans acquired with deteriorated credit quality     7,864  

 

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2010.

 

($ in thousands)   Covered Loans
         
As of and for the year ended December 31, 2010
         
Beginning balance   $ —  
Charge-offs     (9,761 )
Recoveries     —  
Provisions     20,916  
Ending balance   $ 11,155  
         
Ending balances as of December 31, 2010:  Allowance for loan losses
 
Individually evaluated for impairment   $ 11,155  
Collectively evaluated for impairment     —  
Loans acquired with deteriorated credit quality     —  
         
Loans receivable as of December 31, 2010:
         
Ending balance – total   $ 371,128  
         
Ending balances as of December 31, 2010: Loans
         
Individually evaluated for impairment   $ 72,690  
Collectively evaluated for impairment     298,438  
Loans acquired with deteriorated credit quality     4,607  

 

The following table presents the Company’s impaired loans as of December 31, 2011.

 

($ in thousands)   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ —       —       —       —  
Commercial - secured     295       478       —       504  
Secured by inventory and accounts receivable     27       493       —       124  
                                 
Real estate – construction, land development & other land loans     15,105       20,941       —       17,876  
                                 
Real estate – residential, farmland, and multi-family     3,442       4,741       —       5,278  
                                 
Real estate – home equity lines of credit     46       300       —       79  
                                 
Real estate – commercial     16,794       18,817       —       13,359  
                                 
Consumer     12       39       —       15  
Total non-covered impaired loans with no allowance   $ 35,721       45,809       —       37,235  
                                 
Total covered impaired loans with no allowance   $ 43,702       78,578       —       49,030  
                                 
Total impaired loans with no allowance recorded   $ 79,423       124,387       —       86,265  
                                 
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ 452       454       59       226  
Commercial - secured     1,895       1,899       295       1,427  
Secured by inventory and accounts receivable     561       571       156       391  
                                 
Real estate – construction, land development & other land loans     10,360       12,606       2,244       15,782  
                                 
Real estate – residential, farmland, and multi-family     24,460       26,153       2,169       22,487  
                                 
Real estate – home equity lines of credit     3,115       3,141       117       2,544  
                                 
Real estate – commercial     5,965       6,421       283       6,602  
                                 
Consumer     2,757       2,759       481       2,329  
Total non-covered impaired loans with allowance   $ 49,565       54,004       5,804       51,788  
                                 
Total covered impaired loans with allowance   $ 11,988       15,670       5,106       14,259  
                                 
Total impaired loans with an allowance recorded   $ 61,553       69,674       10,910       66,047  

 

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2011 is considered insignificant.

 

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

 
The following table presents the Company’s impaired loans as of December 31, 2010.

 

($ in thousands)   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment
Non-covered loans:
With no related allowance recorded:                        
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ —       —       —       138  
Commercial - secured     902       967       —       758  
Secured by inventory and accounts receivable     240       650       —       186  
                                 
Real estate – construction, land development & other land loans     22,026       26,012       —       15,639  
                                 
Real estate – residential, farmland, and multi-family     8,269       9,447       —       7,437  
                                 
Real estate – home equity lines of credit     302       502       —       381  
                                 
Real estate – commercial     11,115       11,321       —       7,284  
                                 
Consumer     20       40       —       46  
Total non-covered impaired loans with no allowance   $ 42,874       48,939       —       31,869  
                                 
Total covered impaired loans with no allowance   $ 49,991       77,321       —       83,955  
                                 
Total impaired loans with no allowance recorded   $ 92,865       126,260       —       115,824  
                                 
Non-covered  loans:
With an allowance recorded:                        
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ 124       124       24       243  
Commercial - secured     579       579       88       1,385  
Secured by inventory and accounts receivable     1,026       1,026       609       613  
                                 
Real estate – construction, land development & other land loans     17,540       19,926       3,932       21,362  
                                 
Real estate – residential, farmland, and multi-family     23,012       23,012       1,820       22,166  
                                 
Real estate – home equity lines of credit     2,148       2,223       357       1,928  
                                 
Real estate – commercial     8,013       8,088       497       9,275  
                                 
Consumer     687       687       286       910  
Total non-covered impaired loans with allowance   $ 53,129       55,665       7,613       57,882  
                                 
Total covered impaired loans with allowance   $ 22,834       27,105       11,155       11,418  
                                 
Total impaired loans with an allowance recorded   $ 75,963       82,770       18,768       69,300  

 

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2010 is considered insignificant.

 

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

 

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

 

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

 

  Numerical Risk Grade Description
Pass:  
  1 Cash secured loans.
  2 Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
  3 Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:  
  4 Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:  
  9 Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:  
  5 Existing loans with major exceptions that cannot be mitigated.
Classified:  
  6 Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
  7 Loans that have a well-defined weakness that make the collection or liquidation improbable.
  8 Loans that are considered uncollectible and are in the process of being charged-off.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

 

($ in thousands)   Credit Quality Indicator (Grouped by Internally Assigned Grade)
    Pass (Grades 1, 2, & 3)   Weak Pass (Grade 4)   Watch or Standard Loans (Grade 9)   Special Mention Loans (Grade 5)   Classified Loans (Grades
6, 7, & 8)		   Nonaccrual Loans   Total
Non-covered loans:    
Commercial, financial, and agricultural:                                                        
Commercial - unsecured   $ 13,516       23,735       13       217       845       452       38,778  
Commercial - secured     36,587       66,105       1,912       2,196       2,761       2,190       111,751  
Secured by inventory and accounts receivable     3,756       16,197       282       756       249       588       21,828  
                                                         
Real estate – construction, land development & other land loans     37,596       156,651       6,490       9,903       13,393       22,772       246,805  
                                                         
Real estate – residential, farmland, and multi-family     257,163       456,188       10,248       17,687       28,939       25,430       795,655  
                                                         
Real estate – home equity lines of credit     130,913       67,606       2,422       1,868       1,466       3,161       207,436  
                                                         
Real estate - commercial     140,577       372,614       30,722       11,502       15,565       16,203       587,183  
                                                         
Consumer     30,693       23,550       67       368       988       2,770       58,436  
Total   $ 650,801       1,182,646       52,156       44,497       64,206       73,566       2,067,872  
Unamortized net deferred loan costs                                                     1,280  
Total non-covered  loans                                                   $ 2,069,152  
                                                         
Total covered loans   $ 62,052       161,508       —       8,033       88,169       41,472       361,234  
                                                         
Total loans   $ 712,853       1,344,154       52,156       52,530       152,375       115,038       2,430,386  

 

At December 31, 2011, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At December 31, 2011, there were no covered loans that were graded “8” with an accruing status.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2010.

 

 

($ in thousands)   Credit Quality Indicator (Grouped by Internally Assigned Grade)
    Pass (Grades 1, 2, & 3)   Weak Pass (Grade 4)   Watch or Standard Loans (Grade 9)   Special Mention Loans (Grade 5)   Classified Loans (Grades
6, 7, & 8)		   Nonaccrual Loans   Total
Non-covered loans:    
Commercial, financial, and agricultural:                                                        
Commercial – unsecured   $ 14,850       25,992       —       332       707       64       41,945  
Commercial – secured     40,995       55,918       2,100       2,774       2,230       1,566       105,583  
Secured by inventory and accounts receivable     6,364       14,165       —       873       67       802       22,271  
                                                         
Real estate – construction, land development & other land loans     66,321       162,147       7,649       13,971       30,777       22,654       303,519  
                                                         
Real estate – residential, farmland, and multi-family     302,594       376,187       15,808       22,196       22,903       27,055       766,743  
                                                         
Real estate – home equity lines of credit     137,674       68,876       3,001       3,060       2,122       2,201       216,934  
                                                         
Real estate – commercial     190,284       301,828       33,706       11,915       18,061       7,461       563,255  
                                                         
Consumer     34,600       24,783       140       408       1,327       523       61,781  
Total   $ 793,682       1,029,896       62,404       55,529       78,194       62,326       2,082,031  
Unamortized net deferred loan costs                                                     973  
Total  non-covered loans                                                   $ 2,083,004  
                                                         
Total covered loans   $ 37,973       187,526       —       7,461       79,702       58,466       371,128  
                                                         
Total loans   $ 831,655       1,217,422       62,404       62,990       157,896       120,792       2,454,132  

  

At December 31, 2010, there was an insignificant amount of non-covered and covered loans that were graded “8” with an accruing status.

 

Troubled Debt Restructurings

 

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

 

The vast majority of the Company’s troubled debt restructurings modified during the year ended December 31, 2011 related to interest rate reductions combined with restructured amortization schedules. The Company does not grant principal forgiveness.

 

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

 

The following table presents information related to loans modified in a troubled debt restructuring during the year ended December 31, 2011.

 

($ in thousands)   For the year ended December 31, 2011
    Number of Contracts   Restructured Balances
Non-covered TDRs – Accruing                
Real estate – construction, land development & other land loans     2     $ 543  
                 
Real estate – residential, farmland, and multi-family     5       1,645  
                 
Real estate - commercial     4       1,871  
                 
Non-covered TDRs - Nonaccrual                
Real estate – construction, land development & other land loans     1       357  
                 
Real estate – residential, farmland, and multi-family     3       438  
                 
Real estate - commercial     4       1,408  
                 
Total non-covered TDRs arising during period     19     $ 6,262  
                 
Total covered TDRs arising during period– Accruing     37     $ 6,528  
Total covered TDRs arising during period – Nonaccrual     8       1,472  
                 
Total TDRs arising during period     64     $ 14,262  

 

Accruing restructured loans that defaulted during the year ended December 31, 2011 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

 

($ in thousands)   For the year ended December 31, 2011
    Number of Contracts   Recorded Investment
Non-covered accruing TDRs that subsequently defaulted                
Real estate – construction, land development & other land loans     8     $ 13,688  
                 
Real estate – residential, farmland, and multi-family     5       1,281  
                 
Real estate - commercial     10       7,005  
                 
Total non-covered TDRs that subsequently defaulted     23     $ 21,974  
                 
Total accruing covered TDRs that subsequently defaulted     40     $ 18,203  
                 
Total accruing TDRs that subsequently defaulted     63     $ 40,177