LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. During 2015 and 2016, the Bank purchased residential mortgage loan pools collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of December 31, 2017 and 2016, the net carrying value of these consumer installment home improvement loans was approximately $273.7 million and $60.8 million, respectively, and such loans are reported in the consumer installment loan category. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began a division to originate, administer and service these types of loans. As of December 31, 2017 and 2016, the net carrying value of commercial insurance premium finance loans was approximately $482.5 million and $353.9 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category. The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio.

A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. In addition, a substantial portion of the OREO is located in those same markets. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of OREO are susceptible to changes in real estate conditions in the Bank’s primary market area.

Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, commercial insurance premium finance and other business purposes. Commercial, financial and agricultural loans also include SBA loans and municipal loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.

Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail, farmland and warehouse space. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company's residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.

Consumer installment loans and other loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and both secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans.



	December 31,
(dollars in thousands)	2017		2016
Commercial, financial and agricultural	$	1,362,508	$	967,138
Real estate – construction and development	624,595		363,045
Real estate – commercial and farmland	1,535,439		1,406,219
Real estate – residential	1,009,461		781,018
Consumer installment	309,194		96,915
Other	15,317		12,486
	$	4,856,514	$	3,626,821

Included in the commercial, financial and agricultural category in the table above are direct financing leases collateralized by a secured interest in commercial equipment and in certain circumstances, additional collateral and/or guarantees. Theses commercial equipment direct financing leases are presented in the following table as of December 31, 2017 and 2016.



(dollars in thousands)	2017			2016
Minimum lease payments receivable	$	60,365		$	—
Residuals	7,205			—
Unearned income	(4,207		)	—
Deferred lease origination costs	69			—
Direct financing leases, net of unearned income	63,432			—
Allowance for lease losses	(317		)	—
Direct financing leases, net	$	63,115		$	—

The following is a schedule of future minimum lease payments to be received on the commercial equipment direct financing leases at December 31, 2017.



(dollars in thousands)
2018	$	19,487
2019	19,494
2020	16,465
2021	3,482
2022	502
Thereafter	935
	$	60,365

Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the FDIC. Purchased loans totaling $861.6 million and $1.07 billion at December 31, 2017 and 2016, respectively, are not included in the above schedule.

The carrying value of purchased loans are shown below according to major loan type as of the end of the years shown.



(dollars in thousands)	2017		2016
Commercial, financial and agricultural	$	74,378	$	96,537
Real estate – construction and development	65,513		81,368
Real estate – commercial and farmland	468,246		576,355
Real estate – residential	250,539		310,277
Consumer installment	2,919		4,654
	$	861,595	$	1,069,191

A rollforward of purchased loans for the years ended December 31, 2017 and 2016 is shown below.



(dollars in thousands)	2017			2016
Balance, January 1	$	1,069,191		$	909,083
Charge-offs	(3,411		)	(3,576		)
Additions due to acquisitions	—			401,638
Accretion	11,308			16,637
Transfers to purchased other real estate owned	(5,023		)	(7,229		)
Payments received	(210,470		)	(247,452		)
Other	—			90
Ending balance	$	861,595		$	1,069,191

The following is a summary of changes in the accretable discounts of purchased loans during years ended December 31, 2017 and 2016:



(dollars in thousands)	2017			2016
Balance, January 1	$	30,624		$	33,848
Additions due to acquisitions	—			11,295
Accretion	(11,308		)	(16,637		)
Accretable discounts removed due to charge-offs	(17		)	(161		)
Transfers between non-accretable and accretable discounts, net	893			2,279
Ending balance	$	20,192		$	30,624

Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of December 31, 2017, purchased loan pools totaled $328.2 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $324.4 million and $3.8 million of remaining purchase premium paid at acquisition. At December 31, 2017, the Company had allocated $1.1 million of allowance for loan losses for the purchased loan pools. As of December 31, 2016, purchased loan pools totaled $568.3 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $559.4 million and $8.9 million of purchase premium paid at acquisition. At December 31, 2017 and 2016, one loan in the purchased loan pools with a principal balance of $904,000 and $925,000, respectively, was classified as a troubled debt restructuring and risk-rated grade 40, while all other loans included in the purchased loan pools were performing current loans, risk-rated grade 20. During the second quarter of 2017, this troubled debt restructuring defaulted on its restructured terms and was placed on nonaccrual status. At December 31, 2017, this troubled debt restructuring had returned to accrual status. At December 31, 2017 and 2016, the Company had allocated $1.1 million and $1.8 million, respectively, of allowance for loan losses for the purchased loan pools. As part of the due diligence process prior to purchasing an individual mortgage pool, a complete re-underwrite of the individual loan files was conducted. The underwriting process included a review of all income, asset, credit and property related documentation that was used to originate the loan. Underwriters utilized the originating lender’s program guidelines, as well as general prudent mortgage lending standards to assess each individual loan file. Additional research was conducted in order to assess the real estate market conditions and market expectations in the geographic areas where a collateral concentration existed. As part of this review, an automated valuation model was employed to provide current collateral valuations and to support individual loan-to-value ratios. Additionally, a sample of site inspections were completed to provide further assurance. The results of the due diligence review were evaluated by officers of the Company in order to determine overall conformance to the Bank’s credit and lending policies.

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Past due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

The following table presents an analysis of loans accounted for on a nonaccrual basis, excluding purchased loans.



(dollars in thousands)	2017		2016
Commercial, financial and agricultural	$	1,306	$	1,814
Real estate – construction and development	554		547
Real estate – commercial and farmland	2,665		8,757
Real estate – residential	9,194		6,401
Consumer installment	483		595
	$	14,202	$	18,114

The following table presents an analysis of purchased loans accounted for on a nonaccrual basis.



(dollars in thousands)	2017		2016
Commercial, financial and agricultural	$	813	$	692
Real estate – construction and development	3,139		2,611
Real estate – commercial and farmland	5,685		10,174
Real estate – residential	5,743		9,476
Consumer installment	48		13
	$	15,428	$	22,966

The following table presents an analysis of past due loans, excluding purchased loans as of December 31, 2017 and 2016.



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
As of December 31, 2017
Commercial, financial and agricultural	$	8,124	$	3,285	$	6,978	$	18,387	$	1,344,121	$	1,362,508	$	5,991
Real estate – construction and development	810		23		288		1,121		623,474		624,595		—
Real estate – commercial and farmland	869		787		1,940		3,596		1,531,843		1,535,439		—
Real estate – residential	8,772		2,941		7,041		18,754		990,707		1,009,461		—
Consumer installment	1,556		472		329		2,357		306,837		309,194		—
Other	—		—		—		—		15,317		15,317		—
Total	$	20,131	$	7,508	$	16,576	$	44,215	$	4,812,299	$	4,856,514	$	5,991



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
As of December 31, 2016
Commercial, financial and agricultural	$	565	$	82	$	1,293	$	1,940	$	965,198	$	967,138	$	—
Real estate – construction and development	908		446		439		1,793		361,252		363,045		—
Real estate – commercial and farmland	6,329		1,711		6,945		14,985		1,391,234		1,406,219		—
Real estate – residential	6,354		1,282		5,302		12,938		768,080		781,018		—
Consumer installment	624		263		350		1,237		95,678		96,915		—
Other	—		—		—		—		12,486		12,486		—
Total	$	14,780	$	3,784	$	14,329	$	32,893	$	3,593,928	$	3,626,821	$	—

The following table presents an analysis of purchased past due loans as of December 31, 2017 and 2016.



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
As of December 31, 2017
Commercial, financial and agricultural	$	—	$	33	$	760	$	793	$	73,585	$	74,378	$	—
Real estate – construction and development	87		31		2,517		2,635		62,878		65,513		—
Real estate – commercial and farmland	1,190		701		2,724		4,615		463,631		468,246		—
Real estate – residential	2,722		1,585		2,320		6,627		243,912		250,539		—
Consumer installment	57		4		43		104		2,815		2,919		—
Total	$	4,056	$	2,354	$	8,364	$	14,774	$	846,821	$	861,595	$	—



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
As of December 31, 2016
Commercial, financial and agricultural	$	113	$	18	$	593	$	724	$	95,813	$	96,537	$	—
Real estate – construction and development	161		11		2,518		2,690		78,678		81,368		—
Real estate – commercial and farmland	2,034		326		7,152		9,512		566,843		576,355		—
Real estate – residential	4,566		698		6,835		12,099		298,178		310,277		—
Consumer installment	22		—		13		35		4,619		4,654		—
Total	$	6,896	$	1,053	$	17,111	$	25,060	$	1,044,131	$	1,069,191	$	—

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assesses for impairment all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000 (including all troubled debt restructurings, whether or not currently classified as such). The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

The following is a summary of information pertaining to impaired loans, excluding purchased loans:



	As of and For the Years Ended December 31,
(dollars in thousands)	2017		2016		2015
Nonaccrual loans	$	14,202	$	18,114	$	16,860
Troubled debt restructurings not included above	13,599		14,209		14,418
Total impaired loans	$	27,801	$	32,323	$	31,278

Interest income recognized on impaired loans	$	1,867	$	1,033	$	909
Foregone interest income on impaired loans	$	950	$	977	$	1,204

The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of December 31, 2017 and 2016.



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2017
Commercial, financial and agricultural	$	1,453	$	734	$	613	$	1,347	$	145	$	2,173
Real estate – construction and development	1,467		471		500		971		48		1,122
Real estate – commercial and farmland	10,646		729		8,873		9,602		1,047		11,053
Real estate – residential	17,416		4,828		10,565		15,393		1,005		14,930
Consumer installment	523		488		—		488		—		541
Total	$	31,505	$	7,250	$	20,551	$	27,801	$	2,245	$	29,819



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2016
Commercial, financial and agricultural	$	3,068	$	204	$	1,656	$	1,860	$	134	$	1,684
Real estate – construction and development	2,047		—		1,233		1,233		273		2,018
Real estate – commercial and farmland	13,906		6,811		6,065		12,876		1,503		12,845
Real estate – residential	15,482		2,238		13,503		15,741		3,080		14,453
Consumer installment	671		—		613		613		5		506
Total	$	35,174	$	9,253	$	23,070	$	32,323	$	4,995	$	31,506

The following is a summary of information pertaining to purchased impaired loans:



	As of and For the Years Ended December 31,
(dollars in thousands)	2017		2016		2015
Nonaccrual loans	$	15,428	$	22,966	$	26,568
Troubled debt restructurings not included above	20,472		23,543		22,656
Total impaired loans	$	35,900	$	46,509	$	49,224

Interest income recognized on impaired loans	$	1,625	$	2,755	$	1,671
Foregone interest income on impaired loans	$	1,239	$	1,637	$	2,961

The following table presents an analysis of information pertaining to purchased impaired loans as of December 31, 2017 and 2016.



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2017
Commercial, financial and agricultural	$	4,170	$	70	$	744	$	814	$	400	$	827
Real estate – construction and development	9,060		282		3,875		4,157		1,114		3,877
Real estate – commercial and farmland	14,596		1,224		11,173		12,397		906		15,329
Real estate – residential	20,867		6,574		11,910		18,484		821		20,743
Consumer installment	57		48		—		48		—		41
Total	$	48,750	$	8,198	$	27,702	$	35,900	$	3,241	$	40,817



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2016
Commercial, financial and agricultural	$	5,031	$	370	$	322	$	692	$	—	$	2,206
Real estate – construction and development	24,566		493		3,477		3,970		153		4,279
Real estate – commercial and farmland	36,174		3,598		15,036		18,634		385		19,872
Real estate – residential	27,022		7,883		15,306		23,189		1,088		23,163
Consumer installment	37		24		—		24		—		96
Total	$	92,830	$	12,368	$	34,141	$	46,509	$	1,626	$	49,616

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. Following is a description of the general characteristics of the grades:

Grade 10 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.

Grade 15 – Good Credit – This grade includes loans that exhibit one or more characteristics better than that of a Satisfactory Credit. Generally, debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.

Grade 20 – Satisfactory Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 23 – Performing, Under-Collateralized Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity, but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

Grade 25 – Minimum Acceptable Credit – This grade includes loans which exhibit all the characteristics of a Satisfactory Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage, interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire, divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.

Grade 30 – Other Asset Especially Mentioned – This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Grade 40 – Substandard – This grade represents loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.

Grade 50 – Doubtful – This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.

Grade 60 – Loss – This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loss has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.

The following table presents the loan portfolio, excluding purchased loans, by risk grade as of December 31, 2017 and 2016 (in thousands).

As of December 31, 2017



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Other		Total
10	$	539,899	$	—	$	5,790	$	47	$	9,243	$	—	$	554,979
15	568,557		1,005		68,507		49,742		670		—		688,481
20	125,740		59,318		966,391		843,178		24,035		15,317		2,033,979
23	330		4,474		6,408		5,781		3		—		16,996
25	117,358		552,918		454,506		88,537		274,462		—		1,487,781
30	5,236		4,207		15,108		5,339		185		—		30,075
40	5,381		2,673		18,729		16,837		596		—		44,216
50	7		—		—		—		—		—		7
60	—		—		—		—		—		—		—
Total	$	1,362,508	$	624,595	$	1,535,439	$	1,009,461	$	309,194	$	15,317	$	4,856,514

As of December 31, 2016



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Other		Total
10	$	397,093	$	—	$	8,814	$	125	$	8,532	$	—	$	414,564
15	376,323		5,390		102,893		54,136		405		—		539,147
20	97,057		36,307		889,539		609,583		25,026		12,486		1,669,998
23	366		6,803		8,533		7,470		14		—		23,186
25	92,066		307,903		357,151		88,370		62,098		—		907,588
30	144		719		22,986		5,197		126		—		29,172
40	4,089		5,923		16,303		16,038		714		—		43,067
50	—		—		—		99		—		—		99
60	—		—		—		—		—		—		—
Total	$	967,138	$	363,045	$	1,406,219	$	781,018	$	96,915	$	12,486	$	3,626,821

The following table presents the purchased loan portfolio by risk grade as of December 31, 2017 and 2016 (in thousands).

As of December 31, 2017



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Other		Total
10	$	3,358	$	—	$	—	$	—	$	606	$	—	$	3,964
15	4,541		—		5,047		91,270		240		—		101,098
20	8,517		13,014		186,187		50,988		1,166		—		259,872
23	—		2,306		6,081		11,349		—		—		19,736
25	43,085		39,877		230,570		70,837		711		—		385,080
30	13,718		4,076		13,637		5,637		53		—		37,121
40	1,159		6,240		26,724		20,458		143		—		54,724
50	—		—		—		—		—		—		—
60	—		—		—		—		—		—		—
Total	$	74,378	$	65,513	$	468,246	$	250,539	$	2,919	$	—	$	861,595

As of December 31, 2016



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Other		Total
10	$	5,722	$	—	$	—	$	—	$	814	$	—	$	6,536
15	1,266		—		7,619		31,331		570		—		40,786
20	16,204		10,686		194,168		111,712		1,583		—		334,353
23	22		3,643		9,019		14,791		—		—		27,475
25	67,123		56,006		323,242		121,379		1,276		—		569,026
30	5,072		7,271		15,039		7,605		45		—		35,032
40	1,128		3,762		27,268		23,459		366		—		55,983
50	—		—		—		—		—		—		—
60	—		—		—		—		—		—		—
Total	$	96,537	$	81,368	$	576,355	$	310,277	$	4,654	$	—	$	1,069,191

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 Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.

The Company’s policy states in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time that the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment, approved by the Company’s Chief Credit Officer.

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in 2017 and 2016 totaling $103.0 million and $69.4 million, respectively, under such parameters.

As of December 31, 2017 and 2016, the Company had a balance of $15.6 million and $18.2 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $2.8 million and $1.2 million in previous charge-offs on such loans at December 31, 2017 and 2016, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $1.4 million and $3.1 million at December 31, 2017 and 2016, respectively. At December 31, 2017, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the year ending December 31, 2017 and 2016, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $4.2 million and $4.5 million, respectively, and these modifications did not have a material impact on the Company's allowance for loan losses. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the year ending December 31, 2017 and 2016.



	December 31, 2017			December 31, 2016
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	2	$	7	6	$	58
Real estate – construction and development	—	—		2	250
Real estate – commercial and farmland	7	3,516		4	1,656
Real estate – residential	12	656		34	2,495
Consumer installment	11	33		12	63
Total	32	$	4,212	58	$	4,522

Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $1.6 million and $3.5 million at December 31, 2016 and 2015 defaulted during the year ended December 31, 2017 and 2016, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the year ending December 31, 2017 and 2016.



	December 31, 2017			December 31, 2016
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	2	$	47	5	$	51
Real estate – construction and development	2	261		1	5
Real estate – commercial and farmland	4	419		5	2,970
Real estate – residential	12	838		5	460
Consumer installment	7	22		6	38
Total	27	$	1,587	22	$	3,524

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and non-accrual at December 31, 2017 and 2016.



As of December 31, 2017	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	41	12	$	120
Real estate – construction and development	6	417		2	34
Real estate – commercial and farmland	17	6,937		5	204
Real estate – residential	74	6,199		18	1,508
Consumer installment	4	5		33	98
Total	105	$	13,599	70	$	1,964



As of December 31, 2016	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	47	15	$	114
Real estate – construction and development	8	686		2	34
Real estate – commercial and farmland	16	4,119		5	2,970
Real estate – residential	82	9,340		15	739
Consumer installment	7	17		32	130
Total	117	$	14,209	69	$	3,987

As of December 31, 2017 and 2016, the Company had a balance of $24.9 million and $28.1 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.2 million and $1.5 million, respectively, in previous charge-offs on such loans at December 31, 2017 and 2016. At December 31, 2017, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the year ending December 31, 2017 and 2016, the Company modified purchased loans as troubled debt restructurings, with principal balances of $3.6 million and $6.0 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan losses. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the year ending December 31, 2017 and 2016.



	December 31, 2017			December 31, 2016
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	5	1	$	76
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	4	1,311		6	2,789
Real estate – residential	18	2,319		28	3,091
Consumer installment	—	—		—	—
Total	23	$	3,635	35	$	5,956

Troubled debt restructurings included in purchased loans with an outstanding balance of $742,000 and $1.0 million defaulted during the years ended December 31, 2017 and 2016, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the year ending December 31, 2017 and 2016.



	December 31, 2017			December 31, 2016
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	5	2	$	76
Real estate – construction and development	—	—		1	9
Real estate – commercial and farmland	2	282		—	—
Real estate – residential	9	452		18	910
Consumer installment	1	3		—	—
Total	13	$	742	21	$	995

The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and non-accrual at December 31, 2017 and 2016.



As of December 31, 2017	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	3	$	16
Real estate – construction and development	3	1,018		6	340
Real estate – commercial and farmland	14	6,713		10	2,582
Real estate – residential	117	12,741		25	1,462
Consumer installment	—	—		2	5
Total	134	$	20,472	46	$	4,405



As of December 31, 2016	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	1	4	$	91
Real estate – construction and development	6	1,358		3	30
Real estate – commercial and farmland	20	8,460		5	2,402
Real estate – residential	123	13,713		33	2,077
Consumer installment	3	11		1	—
Total	153	$	23,543	46	$	4,600

During 2016, the Company modified one loan in the purchased loan pools with a balance of $925,000. As of December 31, 2017 and 2016 this modified loan had a balance of $904,000 and $925,000, respectively. The loan was on accrual status as of December 31, 2017 and 2016. The modification did not have a material impact on the Company’s allowance for loan losses. There are no other troubled debt restructurings included in the purchased loan pools.

Related Party Loans

In the ordinary course of business, the Company has granted loans to certain directors and their affiliates. Company policy prohibits loans to executive officers. Changes in related party loans are summarized as follows:



	December 31,
(dollars in thousands)	2017			2016
Balance, January 1	$	3,167		$	3,818
Advances	654			78
Repayments	(1,676		)	(729		)
Transactions due to changes in related parties	—			—
Ending balance	$	2,145		$	3,167

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the periods indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate - Residential			Consumer Installment and Other			Purchased Loans			Purchased Loan Pools			Total
Twelve months ended December 31, 2017
Balance, January 1, 2017	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837		$	23,920
Provision for loan losses	3,019			488			508			(86		)	2,591			2,606			(762		)	8,364
Loans charged off	(2,850		)	(95		)	(853		)	(2,151		)	(1,618		)	(2,900		)	—			(10,467		)
Recoveries of loans previously charged off	1,270			246			184			237			116			1,921			—			3,974
Balance, December 31, 2017	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	465		$	48		$	1,047		$	1,028		$	—		$	3,253		$	177		$	6,018
Loans collectively evaluated for impairment	3,166			3,581			6,454			3,758			1,916			—			898			19,773
Ending balance	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791

Loans:
Individually evaluated for impairment⁽¹⁾	$	2,971		$	500		$	8,873		$	10,818		$	—		$	28,165		$	904		$	52,231
Collectively evaluated for impairment	1,359,537			624,095			1,526,566			998,643			324,511			718,447			327,342			5,879,141
Acquired with deteriorated credit quality	—			—			—			—			—			114,983			—			114,983
Ending balance	$	1,362,508		$	624,595		$	1,535,439		$	1,009,461		$	324,511		$	861,595		$	328,246		$	6,046,355


(1)	At December 31, 2017, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate - Residential			Consumer Installment and Other			Purchased Loans			Purchased Loan Pools		Total
Twelve months ended December 31, 2016
Balance, January 1, 2016	$	1,144		$	5,009		$	7,994		$	4,760		$	1,574		$	—		$	581	$	21,062
Provision for loan losses	2,647			(1,921		)	107			2,757			(523		)	(232		)	1,256		4,091
Loans charged off	(1,999		)	(588		)	(708		)	(1,122		)	(351		)	(1,559		)	—		(6,327		)
Recoveries of loans previously charged off	400			490			269			391			127			3,417			—		5,094
Balance, December 31, 2016	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837	$	23,920

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	120		$	266		$	1,502		$	2,893		$	—		$	1,626		$	—	$	6,407
Loans collectively evaluated for impairment	2,072			2,724			6,160			3,893			827			—			1,837		17,513
Ending balance	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837	$	23,920

Loans:
Individually evaluated for impairment⁽¹⁾	$	501		$	659		$	12,423		$	12,697		$	—		$	34,141		$	—	$	60,421
Collectively evaluated for impairment	966,637			362,386			1,393,796			768,321			109,401			886,516			568,314		5,055,371
Acquired with deteriorated credit quality	—			—			—			—			—			148,534			—		148,534
Ending balance	$	967,138		$	363,045		$	1,406,219		$	781,018		$	109,401		$	1,069,191		$	568,314	$	5,264,326


(1)	At December 31, 2016, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate - Residential			Consumer Installment and Other			Purchased Loans			Purchased Loan Pools		Total
Twelve months ended December 31, 2015
Balance, January 1, 2015	$	2,004		$	5,030		$	8,823		$	4,129		$	1,171		$	—		$	—	$	21,157
Provision for loan losses	(73		)	278			1,221			2,067			676			514			581		5,264
Loans charged off	(1,438		)	(622		)	(2,367		)	(1,587		)	(410		)	(2,709		)	—		(9,133		)
Recoveries of loans previously charged off	651			323			317			151			137			2,195			—		3,774
Balance, December 31, 2015	$	1,144		$	5,009		$	7,994		$	4,760		$	1,574		$	—		$	581	$	21,062

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	126		$	759		$	1,074		$	2,172		$	—		$	—		$	—	$	4,131
Loans collectively evaluated for impairment	1,018			4,250			6,920			2,588			1,574			—			581		16,931
Ending balance	$	1,144		$	5,009		$	7,994		$	4,760		$	1,574		$	—		$	581	$	21,062

Loans:
Individually evaluated for impairment⁽¹⁾	$	323		$	1,958		$	11,877		$	9,554		$	—		$	44,989		$	—	$	68,701
Collectively evaluated for impairment	449,300			242,735			1,093,114			560,876			37,140			721,309			592,963		3,697,437
Acquired with deteriorated credit quality	—			—			—			—			—			142,785			—		142,785
Ending balance	$	449,623		$	244,693		$	1,104,991		$	570,430		$	37,140		$	909,083		$	592,963	$	3,908,923


(1)	At December 31, 2015, loans individually evaluated for impairment includes all nonaccrual loans greater than $200,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.