LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the Company's loans by type.



	September 30, 2014			December 31, 2013
Commercial:
Commercial real estate	$	1,342,532		$	670,293
Commercial and industrial	437,911			230,614
Construction and development	332,461			175,794
Consumer:
Residential real estate	368,974			191,378
Construction and development	30,246			22,520
Home equity	276,651			94,390
Other consumer	39,080			8,332
Gross loans	2,827,855			1,393,321
Less:
Deferred loan fees	(429		)	(488		)
Allowance for loan losses	(7,641		)	(7,043		)
Net loans	$	2,819,785		$	1,385,790

As of September 30, 2014 and December 31, 2013, loans with a recorded investment of $436,841 and $424,414, respectively, were pledged to secure borrowings or available lines of credit with correspondent banks.

Purchased Credit-Impaired Loans

Loans for which it is probable at acquisition that all contractually required payments will not be collected are considered purchased credit-impaired ("PCI") loans. The following table relates to PCI loans acquired in the Yadkin and ECB mergers and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the respective merger date.



	Yadkin Merger July 4, 2014			ECB Merger April 1, 2013

Contractually required payments	$	110,365		$	61,801
Nonaccretable difference	(21,102		)	(11,433		)
Cash flows expected to be collected at acquisition	89,263			50,368
Accretable yield	(8,604		)	(4,242		)
Fair value of PCI loans at acquisition	$	80,659		$	46,126

The following table summarizes changes in accretable yield, or income expected to be collected, related to all of the Company's PCI loans for the periods presented.



	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013

Balance, beginning of period	$	20,209		$	26,088		$	25,349		$	27,632
Loans purchased	8,604			—			8,604			4,242
Accretion of income	(3,831		)	(3,131		)	(9,879		)	(10,467		)
Reclassifications from nonaccretable difference	499			3,858			2,973			6,504
Other, net	878			(773		)	(688		)	(1,869		)
Balance, end of period	$	26,359		$	26,042		$	26,359		$	26,042

The outstanding balance of PCI loans consists of the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loan, owed by the borrower at the reporting date, whether or not currently due and whether or not any such amounts have been written or charged off. The unpaid principal balance of PCI loans was $248,525 and $207,900 as of September 30, 2014 and December 31, 2013, respectively.

Purchased Non-impaired Loans

Purchased non-impaired loans are also recorded at fair value at acquisition, and the related fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan. The following table relates to purchased non-impaired loans acquired in the Yadkin and ECB mergers and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the respective merger date.



	Yadkin Merger July 4, 2014		ECB Merger April 1, 2013

Contractually required payments	$	1,502,793	$	499,963
Fair value of acquired loans at acquisition	1,292,020		406,928
Contractual cash flows not expected to be collected	36,219		10,098

Allowance for Loan Losses

The following tables summarize the activity in the allowance for loan losses for the periods presented.



	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Residential Real Estate			Consumer Construction			Home Equity			Other Consumer			Total
Three months ended September 30, 2014
Beginning balance	$	2,553		$	878		$	1,393		$	1,786		$	181		$	561		$	99		$	7,451
Charge-offs	(113		)	(170		)	(70		)	(251		)	—			(100		)	(78		)	(782		)
Recoveries	13			3			67			49			—			14			10			156
Provision for loan losses	554			188			115			(129		)	4			25			59			816
Ending balance	$	3,007		$	899		$	1,505		$	1,455		$	185		$	500		$	90		$	7,641

Nine months ended September 30, 2014
Beginning balance	$	2,419		$	805		$	1,400		$	1,673		$	187		$	476		$	83		$	7,043
Charge-offs	(355		)	(616		)	(266		)	(458		)	—			(371		)	(210		)	(2,276		)
Recoveries	18			31			69			73			—			90			23			304
Provision for loan losses	925			679			302			167			(2		)	305			194			2,570
Ending balance	$	3,007		$	899		$	1,505		$	1,455		$	185		$	500		$	90		$	7,641

Three months ended September 30, 2013
Beginning balance	$	3,069		$	1,355		$	999		$	852		$	34		$	86		$	30		$	6,425
Charge-offs	—			(64		)	(361		)	(85		)	—			(131		)	(28		)	(669		)
Recoveries	4			7			(38		)	17			—			4			4			(2		)
Provision for loan losses	(98		)	231			559			418			9			130			31			1,280
Ending balance	$	2,975		$	1,529		$	1,159		$	1,202		$	43		$	89		$	37		$	7,034

Nine months ended September 30, 2013
Beginning balance	$	1,524		$	798		$	597		$	940		$	18		$	85		$	36		$	3,998
Charge-offs	(14		)	(141		)	(478		)	(509		)	—			(433		)	(246		)	(1,821		)
Recoveries	22			15			9			79			—			9			11			145
Provision for loan losses	1,443			857			1,031			692			25			428			236			4,712
Ending balance	$	2,975		$	1,529		$	1,159		$	1,202		$	43		$	89		$	37		$	7,034

The following tables summarize the ending allowance for loans losses and the recorded investment in loans by portfolio segment and impairment method.



	September 30, 2014
	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Residential Real Estate		Consumer Construction		Home Equity		Other Consumer		Total
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	28	$	162	$	3	$	—	$	—	$	7	$	—	$	200
Collectively evaluated for impairment	2,142		737		1,401		584		185		453		77		5,579
Purchased credit-impaired	837		—		101		871		—		40		13		1,862
Total	$	3,007	$	899	$	1,505	$	1,455	$	185	$	500	$	90	$	7,641

Loans:
Ending balance:
Individually evaluated for impairment	$	5,359	$	1,815	$	1,284	$	1,382	$	—	$	410	$	—	$	10,250
Collectively evaluated for impairment	1,204,067		419,788		296,098		336,188		28,234		271,860		38,393		2,594,628
Purchased credit-impaired	133,106		16,308		35,079		31,404		2,012		4,381		687		222,977
Total	$	1,342,532	$	437,911	$	332,461	$	368,974	$	30,246	$	276,651	$	39,080	$	2,827,855



	December 31, 2013
	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Residential Real Estate		Consumer Construction		Home Equity		Other Consumer		Total
Allowance for loan losses:
Ending balance:
Individually evaluated for impairment	$	57	$	323	$	—	$	—	$	—	$	270	$	2	$	652
Collectively evaluated for impairment	1,322		482		1,139		688		187		153		59		4,030
Purchased credit-impaired	1,040		—		261		985		—		53		22		2,361
Total	$	2,419	$	805	$	1,400	$	1,673	$	187	$	476	$	83	$	7,043

Loans:
Ending balance:
Individually evaluated for impairment	$	4,590	$	343	$	2,609	$	695	$	242	$	424	$	13	$	8,916
Collectively evaluated for impairment	562,081		219,251		137,911		164,106		20,447		92,592		7,982		1,204,370
Purchased credit-impaired	103,622		11,020		35,274		26,577		1,831		1,374		337		180,035
Total	$	670,293	$	230,614	$	175,794	$	191,378	$	22,520	$	94,390	$	8,332	$	1,393,321

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans according to credit risk. The Company uses the following general definitions for risk ratings:


•	Pass. These loans range from superior quality with minimal credit risk to loans requiring heightened management attention but that are still an acceptable risk and continue to perform as contracted.


•	Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

•

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.


•	Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables summarize the risk category of loans by class of loans.



	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2014
Non-PCI Loans
Commercial:
Real estate	$	1,172,626	$	25,023	$	11,777	$	—	$	1,209,426
Commercial and industrial	411,102		5,465		5,036		—		421,603
Construction and development	292,795		2,644		1,943		—		297,382
Consumer:
Residential real estate	323,963		7,516		6,091		—		337,570
Construction and development	27,144		1,010		80		—		28,234
Home equity	264,393		4,780		3,097		—		272,270
Other consumer	37,924		212		257		—		38,393
Total	$	2,529,947	$	46,650	$	28,281	$	—	$	2,604,878

PCI Loans
Commercial:
Real estate	$	60,073	$	50,807	$	22,226	$	—	$	133,106
Commercial and industrial	6,731		4,618		4,959		—		16,308
Construction and development	7,524		22,130		5,425		—		35,079
Consumer:
Residential real estate	12,164		9,549		9,691		—		31,404
Construction and development	198		760		1,054		—		2,012
Home equity	46		2,660		1,675		—		4,381
Other consumer	2		521		164		—		687
Total	$	86,738	$	91,045	$	45,194	$	—	$	222,977



	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2013
Non-PCI Loans
Commercial:
Real estate	$	532,669	$	24,245	$	9,757	$	—	$	566,671
Commercial and industrial	210,382		5,195		3,993		24		219,594
Construction and development	134,074		3,400		2,847		199		140,520
Consumer:
Residential real estate	153,123		7,812		3,866		—		164,801
Construction and development	19,566		921		202		—		20,689
Home equity	87,891		2,524		2,601		—		93,016
Other consumer	7,773		43		179		—		7,995
Total	$	1,145,478	$	44,140	$	23,445	$	223	$	1,213,286

PCI Loans
Commercial:
Real estate	$	53,900	$	35,399	$	14,323	$	—	$	103,622
Commercial and industrial	7,921		2,382		669		48		11,020
Construction and development	9,666		17,408		7,124		1,076		35,274
Consumer:
Residential real estate	13,794		7,070		5,692		21		26,577
Construction and development	212		510		1,109		—		1,831
Home equity	28		850		496		—		1,374
Other consumer	21		281		35		—		337
Total	$	85,542	$	63,900	$	29,448	$	1,145	$	180,035

The following tables summarize the past due status of the loan portfolio (excluding PCI loans) based on contractual terms.



	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total
September 30, 2014
Non-PCI Loans
Commercial:
Real estate	$	4,930	$	2,297	$	7,227	$	1,202,199	$	1,209,426
Commercial and industrial	2,172		1,671		3,843		417,760		421,603
Construction and development	433		438		871		296,511		297,382
Consumer:
Residential real estate	4,129		2,429		6,558		331,012		337,570
Construction and development	226		84		310		27,924		28,234
Home equity	3,551		538		4,089		268,181		272,270
Other consumer	219		52		271		38,122		38,393
Total	$	15,660	$	7,509	$	23,169	$	2,581,709	$	2,604,878



	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total
December 31, 2013
Non-PCI Loans
Commercial:
Real estate	$	2,419	$	2,142	$	4,561	$	562,110	$	566,671
Commercial and industrial	1,945		505		2,450		217,144		219,594
Construction and development	146		1,316		1,462		139,058		140,520
Consumer:
Residential real estate	5,097		1,365		6,462		158,339		164,801
Construction and development	603		237		840		19,849		20,689
Home equity	990		701		1,691		91,325		93,016
Other Consumer	245		136		381		7,614		7,995
Total	$	11,445	$	6,402	$	17,847	$	1,195,439	$	1,213,286

The following table summarizes the recorded investment of loans on nonaccrual status and loans greater than 90 days past due and accruing (excluding PCI loans) by class.



	September 30, 2014				December 31, 2013
	Nonaccrual		Loans greater than 90 days past due and accruing		Nonaccrual		Loans greater than 90 days past due and accruing
Non-PCI Loans
Commercial:
Commercial real estate	$	5,855	$	—	$	4,747	$	—
Commercial and industrial	3,375		135		2,154		—
Construction and development	1,705		—		2,632		—
Consumer:
Residential real estate	3,662		—		2,450		—
Construction and development	292		—		653		—
Home equity	1,768		—		1,928		—
Other consumer	227		—		164		—
Total	$	16,884	$	135	$	14,728	$	—

The following table provides information on impaired loans, which excludes PCI loans and loans evaluated collectively as a homogeneous group.



	Recorded investment with a recorded allowance		Recorded investment with no recorded allowance		Total		Related allowance		Unpaid principal balance
September 30, 2014
Non-PCI Loans
Commercial:
Commercial real estate	$	201	$	5,157	$	5,358	$	28	$	6,237
Commercial and industrial	759		1,056		1,815		162		1,978
Construction and development	147		1,137		1,284		3		1,776
Consumer:
Residential real estate	—		1,382		1,382		—		3,718
Home equity	65		346		411		7		1,992
Total	$	1,172	$	9,078	$	10,250	$	200	$	15,701

December 31, 2013
Non-PCI Loans
Commercial:
Commercial real estate	$	732	$	3,858	$	4,590	$	57	$	5,257
Commercial and industrial	323		20		343		323		343
Construction and development	—		2,609		2,609		—		3,042
Consumer:
Residential real estate	—		695		695		—		877
Construction and development	—		242		242		—		255
Home equity	334		90		424		270		442
Other consumer	13		—		13		2		13
Total	$	1,402	$	7,514	$	8,916	$	652	$	10,229



	Three months ended September 30, 2014				Three months ended September 30, 2013				Nine months ended September 30, 2014				Nine months ended September 30, 2013
	Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income
Non-PCI Loans
Commercial:
Commercial real estate	$	9,523	$	38	$	3,157	$	—	$	6,932	$	78	$	2,558	$	—
Commercial and industrial	918		—		190		—		726		—		95		—
Construction and development	1,863		—		1,567		—		2,111		—		951		—
Consumer:
Residential real estate	1,423		7		994		—		1,180		10		1,113		—
Construction and development	—		—		—		—		81		—		—		—
Home equity	418		—		1,152		—		420		—		1,373		—
Other consumer	—		—		54		—		4		—		122		—
Total	$	14,145	$	45	$	7,114	$	—	$	11,454	$	88	$	6,212	$	—

The Company may modify certain loans under terms that are below market in order to maximize the amount collected from a borrower that is experiencing financial difficulties. These modifications are considered to be troubled debt restructurings ("TDRs"). TDRs are evaluated individually for impairment based on the collateral value, if the loan is determined to be collateral dependent, or discounted expected cash flows, if the loan is not determined to be collateral dependent. The Company has no commitments to lend additional funds to any borrowers that have had a loan modified in a TDR. The following table provides the number and recorded investment of TDRs outstanding.



	September 30, 2014			December 31, 2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Commercial real estate	$	5,071	8	$	815	2
Commercial and industrial	129		3	20		1
Commercial construction	147		3	161		1
Residential real estate	911		5	133		2
Home equity	86		2	90		2
Consumer	—		—	13		1
Total	$	6,344	21	$	1,232	9

The following tables provide the number and recorded investment of TDRs modified during the three and nine months ended September 30, 2014 and 2013.



	TDRs Modified
	Three months ended September 30, 2014			Three months ended September 30, 2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Below market interest rate modifications:
Commercial real estate	$	634	2	$	—	$	—
Commercial and industrial	58		1	—		—
Commercial construction	417		1	—		—
Residential real estate	424		2	—		—
Home equity	—		—	—		—
Consumer	—		—	—		—
Total	$	1,533	6	$	—	$	—



	TDRs Modified
	Nine months ended September 30, 2014			Nine months ended September 30, 2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Below market interest rate modifications:
Commercial real estate	$	1,896	7	$	558	$	1
Commercial and industrial	62		2	—		—
Commercial construction	417		1	—		—
Residential real estate	424		2	—		—
Home equity	—		—	—		—
Consumer	—		—	—		—
Total	$	2,799	12	$	558	$	1

No TDRs that were modified in the twelve months ended September 30, 2014, subsequently defaulted during the nine months ended September 30, 2014. No TDRs that were modified in the twelve months ended September 30, 2013, subsequently defaulted during the nine months ended September 30, 2013. The Company does not generally forgive principal or unpaid interest as part of when restructuring loans. Therefore, the recorded investment in TDRs during 2014 and 2013 did not change following the modifications.