LOANS AND ALLOWANCE FOR LOAN LOSSES

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



	December 31, 2014			December 31, 2013
Commercial:
Commercial real estate	$	1,355,536		$	670,293
Commercial and industrial	468,848			230,614
Construction and development	370,807			175,794
Consumer:
Residential real estate	360,249			191,378
Construction and development	30,061			22,520
Home equity	276,662			94,390
Other consumer	36,874			8,332
Gross loans	2,899,037			1,393,321
Less:
Deferred loan fees	(771		)	(488		)
Allowance for loan losses	(7,817		)	(7,043		)
Net loans	$	2,890,449		$	1,385,790

As of December 31, 2014 and 2013, loans with a recorded investment of $828,365 and $424,414, respectively, were pledged to secure borrowings or available lines of credit with correspondent banks.

The Company has granted loans to certain directors and executive officers of the Company and their related interests. Such loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers and, in management’s opinion, do not involve more than the normal risk of collectability. All loans to directors and executive officers or their related interests are submitted to the Board of Directors for approval. A summary of contractual obligations due from directors and executive officers, and their related interests, follows.



	Year ended December 31,
	2014			2013			2012

Loans to directors and officers at beginning of period	$	26,437		$	29,999		$	30,910
Additions for new directors	5,850			1,232			—
Reductions for retirement of directors	(24,835		)	(1,816		)	—
New advances to directors and officers	1,092			8			1,741
Payoffs and principal reductions	(1,145		)	(2,986		)	(2,652		)
Loans to directors and officers at end of period	$	7,398		$	26,437		$	29,999

The Company completed various sales of loans held for investment to investors during 2014, 2013 and 2012. The proceeds from these loan sales totaled $2,076, $2,595 and $20,497 in 2014, 2013 and 2012, respectively. There was no gain or loss recorded on these loan sales. In the fourth quarter of 2012, the Company purchased commercial and industrial loans from an unrelated third party. These loans were recorded at their estimated fair value of $7,698, which was equal to the purchase price at the date of purchase.

Purchased Credit-Impaired Loans

Loans for which it is probable at acquisition that all contractually required payments will not be collected are considered PCI loans. The following table relates to acquired Yadkin and ECB PCI loans 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.



	Year ended December 31,
	2014			2013			2012

Balance, beginning of period	$	25,349		$	27,632		$	29,645
Loans purchased	8,604			4,242			—
Accretion of income	(13,764		)	(13,640		)	(15,252		)
Reclassifications from nonaccretable difference	4,091			9,595			14,031
Other, net	901			(2,480		)	(792		)
Balance, end of period	$	25,181		$	25,349		$	27,632

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 $228,956 and $203,179 as of December 31, 2014 and 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 acquired Yadkin and ECB purchased non-impaired loans 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
Year ended December 31, 2014
Beginning balance	$	2,419		$	805		$	1,400		$	1,673		$	187		$	476		$	83		$	7,043
Charge-offs	(366		)	(1,034		)	(367		)	(591		)	—			(429		)	(354		)	(3,141		)
Recoveries	46			88			69			131			—			123			45			502
Provision for loan losses	697			1,415			589			24			7			376			305			3,413
Ending balance	$	2,796		$	1,274		$	1,691		$	1,237		$	194		$	546		$	79		$	7,817

Year ended December 31, 2013
Beginning balance	$	1,524		$	798		$	597		$	940		$	18		$	85		$	36		$	3,998
Charge-offs	(20		)	(483		)	(723		)	(672		)	—			(558		)	(265		)	(2,721		)
Recoveries	26			23			47			146			—			39			16			297
Provision for loan losses	889			467			1,479			1,259			169			910			296			5,469
Ending balance	$	2,419		$	805		$	1,400		$	1,673		$	187		$	476		$	83		$	7,043

Year ended December 31, 2012
Beginning balance	$	457		$	197		$	207		$	128		$	28		$	51		$	13		$	1,081
Charge-offs	—			(250		)	(400		)	(341		)	(15		)	(1,596		)	(147		)	(2,749		)
Recoveries	—			19			125			153			—			6			9			312
Provision for loan losses	1,067			832			665			1,000			5			1,624			161			5,354
Ending balance	$	1,524		$	798		$	597		$	940		$	18		$	85		$	36		$	3,998

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



	December 31, 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	$	158	$	229	$	—	$	—	$	—	$	3	$	—	$	390
Collectively evaluated for impairment	2,177		952		1,590		681		194		456		79		6,129
Purchased credit-impaired	461		93		101		556		—		87		—		1,298
Total	$	2,796	$	1,274	$	1,691	$	1,237	$	194	$	546	$	79	$	7,817

Loans:
Ending balance:
Individually evaluated for impairment	$	5,398	$	2,343	$	910	$	928	$	—	$	406	$	—	$	9,985
Collectively evaluated for impairment	1,227,597		452,487		337,540		328,693		28,436		271,928		36,244		2,682,925
Purchased credit-impaired	122,541		14,018		32,357		30,628		1,625		4,328		630		206,127
Total	$	1,355,536	$	468,848	$	370,807	$	360,249	$	30,061	$	276,662	$	36,874	$	2,899,037



	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
December 31, 2014
Non-PCI Loans
Commercial:
Real estate	$	1,187,938	$	32,142	$	12,915	$	—	$	1,232,995
Commercial and industrial	433,093		15,148		6,510		79		454,830
Construction and development	334,213		2,128		2,109		—		338,450
Consumer:
Residential real estate	316,743		4,527		8,351		—		329,621
Construction and development	27,447		735		254		—		28,436
Home equity	264,953		4,238		3,143		—		272,334
Other consumer	35,736		237		269		2		36,244
Total	$	2,600,123	$	59,155	$	33,551	$	81	$	2,692,910

PCI Loans
Commercial:
Real estate	$	57,095	$	45,711	$	19,735	$	—	$	122,541
Commercial and industrial	7,408		2,936		3,674		—		14,018
Construction and development	6,857		16,374		9,126		—		32,357
Consumer:
Residential real estate	12,703		8,206		9,719		—		30,628
Construction and development	189		723		713		—		1,625
Home equity	143		2,827		1,358		—		4,328
Other consumer	2		488		140		—		630
Total	$	84,397	$	77,265	$	44,465	$	—	$	206,127



	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 non-PCI loans based on contractual terms.



	30-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total
December 31, 2014
Non-PCI Loans
Commercial:
Real estate	$	7,971	$	2,383	$	10,354	$	1,222,641	$	1,232,995
Commercial and industrial	5,612		1,707		7,319		447,511		454,830
Construction and development	1,162		369		1,531		336,919		338,450
Consumer:
Residential real estate	4,872		2,210		7,082		322,539		329,621
Construction and development	569		12		581		27,855		28,436
Home equity	3,985		395		4,380		267,954		272,334
Other consumer	797		70		867		35,377		36,244
Total	$	24,968	$	7,146	$	32,114	$	2,660,796	$	2,692,910



	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 non-PCI loans on nonaccrual status and loans greater than 90 days past due and accruing by class.



	December 31, 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	$	5,685	$	—	$	4,747	$	—
Commercial and industrial	4,594		2		2,154		—
Construction and development	1,692		—		2,632		—
Consumer:
Residential real estate	3,755		—		2,450		—
Construction and development	254		—		653		—
Home equity	1,721		—		1,928		—
Other consumer	248		—		164		—
Total	$	17,949	$	2	$	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
December 31, 2014
Non-PCI Loans
Commercial:
Commercial real estate	$	885	$	4,513	$	5,398	$	158	$	5,330
Commercial and industrial	525		1,818		2,343		229		2,718
Construction and development	—		910		910		—		1,971
Consumer:
Residential real estate	—		928		928		—		3,863
Home equity	62		344		406		3		1,920
Total	$	1,472	$	8,513	$	9,985	$	390	$	15,802

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

The following table provides the average balance of impaired loans for each period presented and interest income recognized during the period in which the loans were considered impaired.



	2014				2013				2012
	Average Balance		Interest Income		Average Balance		Interest Income		Average Balance		Interest Income
Non-PCI Loans
Commercial:
Commercial real estate	$	7,399	$	75	$	2,964	$	22	$	1,076	$	—
Commercial and industrial	2,599		1		144		—		—		—
Construction and development	2,509		—		1,282		—		137		—
Consumer:
Residential real estate	2,616		27		1,029		—		766		4
Construction and development	214		—		48		—		—
Home equity	998		—		1,183		—		933		4
Other consumer	99		—		100		—		56		—
Total	$	16,434	$	103	$	6,750	$	22	$	2,968	$	8

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.



	December 31, 2014			December 31, 2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Commercial real estate	$	4,215	7	$	815	2
Commercial and industrial	172		4	20		1
Commercial construction	131		2	161		1
Residential real estate	1,770		6	133		2
Home equity	83		2	90		2
Consumer	—		—	13		1
Total	$	6,371	21	$	1,232	9

The following tables provide the number and recorded investment of TDRs modified and defaulted during the years ended December 31, 2014 and 2013.



	TDRs Modified
	2014			2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Below market interest rate modifications:
Commercial real estate	$	3,460	4	$	534	$	1
Commercial and industrial	105		2	—		—
Commercial construction	—		—	161		1
Residential real estate	1,658		4	47		1
Home equity	—		—	90		2
Consumer	—		—	13		1
Total	$	5,223	10	$	845	$	6



	TDRs Defaulted
	2014			2013
	Recorded Investment		Number	Recorded Investment		Number
TDRs:
Below market interest rate modifications:
Commercial real estate	$	890	3	$	—	$	—
Commercial and industrial	212		2
Commercial construction	—		—	—		—
Residential real estate	—		—	47		1
Home equity	—		—	—		—
Consumer	—		—	13		1
Total	$	1,102	5	$	60	$	2

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.