LOANS

9 Months Ended

Sep. 30, 2020

The following table presents the loan portfolio by risk grade as of December 31, 2019 (in thousands):


Risk Grade	Commercial, Financial and Agricultural		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Total
1	$	22,396	$	13,184	$	—	$	—	$	552,062	$	—	$	—	$	208	$	27	$	587,877
2	18,937		1,233		18,354		—		2,690		654,069		17,535		35,299		92,255		840,372
3	215,180		33,314		1,033,861		526,369		8,925		—		90,124		1,720,039		2,406,587		6,034,399
4	482,146		449,224		4,009		—		627		—		1,377,674		2,348,083		222,779		4,884,542
5	33,317		208		—		—		—		—		41,759		133,119		24,618		233,021
6	4,901		213		—		—		—		—		17,223		53,941		10,132		86,410
7	25,294		1,191		5,600		—		—		600		4,747		62,350		52,063		151,845
8	—		8		—		—		—		—		—		—		—		8
9	—		2		—		—		—		—		—		—		—		2
Total	$	802,171	$	498,577	$	1,061,824	$	526,369	$	564,304	$	654,669	$	1,549,062	$	4,353,039	$	2,808,461	$	12,818,476

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 the 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 that 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 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 and 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 to be troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2020 and 2019 totaling $313.6 million and $168.6 million, respectively, under such parameters.

As of September 30, 2020 and December 31, 2019, the Company had a balance of $132.9 million and $35.2 million, respectively, in troubled debt restructurings. The Company has recorded $1.2 million and $1.9 million in previous charge-offs on such loans at September 30, 2020 and December 31, 2019, respectively. The Company’s balance in the allowance for credit losses allocated to such troubled debt restructurings was $9.4 million and $3.7 million at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the nine months ended September 30, 2020 and 2019, the Company modified loans as troubled debt restructurings with principal balances of $103.4 million and $6.7 million, respectively, and these modifications did not have a material impact on the Company’s allowance for credit losses. The following table presents the loans by class modified as troubled debt restructurings which occurred during the nine months ended September 30, 2020 and 2019:


	September 30, 2020			September 30, 2019
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	2	$	725	2	$	392
Consumer installment	4	15		11	65
Indirect automobile	530	3,170		—	—


Premium finance	—	—		1	158
Real estate – construction and development	1	19		—	—
Real estate – commercial and farmland	21	86,788		2	224
Real estate – residential	91	12,692		41	5,857
Total	649	$	103,409	57	$	6,696

Troubled debt restructurings with an outstanding balance of $2.8 million and $2.1 million defaulted during the nine months ended September 30, 2020 and 2019, respectively, and these defaults did not have a material impact on the Company’s allowance for credit losses. The following table presents for loans the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the nine months ended September 30, 2020 and 2019:


	September 30, 2020			September 30, 2019
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	198	2	$	4
Consumer installment	4	3		7	37




Real estate – construction and development	3	689		—	—
Real estate – commercial and farmland	3	726		4	666
Real estate – residential	16	1,142		21	1,375
Total	27	$	2,758	34	$	2,082

The following table presents the amount of troubled debt restructurings by loan class classified separately as accrual and nonaccrual at September 30, 2020 and December 31, 2019:


September 30, 2020	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	5	$	459	12	$	1,002
Consumer installment	11	36		22	64
Indirect automobile	481	2,689		49	482



Real estate – construction and development	4	510		5	709
Real estate – commercial and farmland	38	73,763		7	19,942
Real estate – residential	243	28,777		45	4,477
Total	782	$	106,234	140	$	26,676


December 31, 2019	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	5	$	516	17	$	335
Consumer installment	4	8		27	107



Premium finance	1	156		—	—
Real estate – construction and development	6	936		3	253
Real estate – commercial and farmland	21	6,732		8	2,071
Real estate – residential	197	21,261		40	2,857
Total	234	$	29,609	95	$	5,623

COVID-19 Deferrals

In response to the COVID-19 pandemic, the Company offered affected borrowers payment relief under its Disaster Relief Program. These modifications primarily consisted of short-term payment deferrals or interest-only periods to assist customers. Modifications related to the COVID-19 pandemic and qualifying under the provisions of Section 4013 of the CARES Act are not deemed to be troubled debt restructurings. As of September 30, 2020, $648.5 million in loans remained in payment deferral related to COVID-19 pandemic Disaster Relief Program.

The table below presents short-term deferrals related to the COVID-19 pandemic that were not considered TDRs.


(dollars in thousands)	COVID-19 Deferrals		Deferrals as a % of total loans
Commercial, financial and agricultural	$	49,526	2.6	%
Consumer installment	2,421		0.5	%
Indirect automobile	11,042		1.6	%



Real estate – construction and development	42,915		2.6	%
Real estate – commercial and farmland	368,607		7.2	%
Real estate – residential	174,005		6.3	%
	$	648,516	4.3	%

Allowance for Credit Losses

The allowance for credit losses represents an allowance for expected losses over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company reasonably expects to execute a troubled debt restructuring with a borrower. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio.

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 9 (Loss per the regulatory guidance), the uncollectible portion is charged off.

During the three and nine months ended September 30, 2020, the allowance for credit losses increased primarily due to deterioration in forecasted macroeconomic factors resulting from the COVID-19 pandemic. The current forecast reflects, among other things, a decline in GDP and elevated unemployment levels compared to the forecast the time of adoption of ASC 326 on January 1, 2020. During the third quarter of 2020, the Company added additional qualitative factors on its residential real estate, commercial real estate and hotel portfolios based principally on risk rating migrations, level of deferrals in the portfolio and expected collateral values.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine-month periods ended September 30, 2020 and September 30, 2019 and end of period balances by portfolio segment as of September 30, 2020, December 31, 2019 and September 30, 2019. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


Three Months Ended September 30, 2020

(dollars in thousands)	Commercial, Financial and Agricultural		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance
Balance, June 30, 2020	$	7,938	$	20,085	$	3,381	$	1,498	$	507	$	8,198


Provision for loan losses	5,533		(3,693)		322		498		365		(2,316)
Loans charged off	(1,715)		(677)		(697)		—		—		(1,159)
Recoveries of loans previously charged off	470		516		317		—		—		1,224
Balance, September 30, 2020	$	12,226	$	16,231	$	3,323	$	1,996	$	872	$	5,947

	Real Estate – Construction and Development		Real Estate – Commercial and Farmland		Real Estate – Residential		Total
Balance, June 30, 2020	$	54,266	$	83,593	$	29,327	$	208,793


Provision for loan losses	(10,208)		18,419		17,772		26,692
Loans charged off	(9)		(2,977)		(137)		(7,371)
Recoveries of loans previously charged off	182		904		197		3,810
Balance, September 30, 2020	$	44,231	$	99,939	$	47,159	$	231,924

Nine Months Ended September 30, 2020

(dollars in thousands)	Commercial, Financial and Agricultural		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance
Balance, December 31, 2019	$	4,567	$	3,784	$	—	$	640	$	484	$	2,550
Adjustment to allowance for adoption of ASU 2016-13	2,587		8,012		4,109		463		(92)		4,471

Provision for loan losses	8,624		5,943		1,138		893		480		235
Loans charged off	(4,687)		(2,781)		(2,944)		—		—		(3,893)
Recoveries of loans previously charged off	1,135		1,273		1,020		—		—		2,584
Balance, September 30, 2020	$	12,226	$	16,231	$	3,323	$	1,996	$	872	$	5,947

	Real Estate – Construction and Development		Real Estate – Commercial and Farmland		Real Estate – Residential		Total
Balance, December 31, 2019	$	5,995	$	9,666	$	10,503	$	38,189
Adjustment to allowance for adoption of ASU 2016-13	12,248		27,073		19,790		78,661

Provision for loan losses	25,379		72,410		17,086		132,188
Loans charged off	(83)		(10,220)		(762)		(25,370)
Recoveries of loans previously charged off	692		1,010		542		8,256
Balance, September 30, 2020	$	44,231	$	99,939	$	47,159	$	231,924

Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.


(dollars in thousands)	Commercial, Financial and Agricultural		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance






December 31, 2019
Period-end allocation:
Loans individually evaluated for impairment (1)	$	1,543	$	—	$	—	$	—	$	—	$	758
Loans collectively evaluated for impairment	3,024		3,784		—		640		484		1,792
Ending balance	$	4,567	$	3,784	$	—	$	640	$	484	$	2,550

Loans:
Individually evaluated for impairment (1)	$	8,032	$	—	$	—	$	—	$	—	$	6,768
Collectively evaluated for impairment	789,252		498,363		1,056,811		526,369		564,304		647,901
Acquired with deteriorated credit quality	4,887		214		5,013		—		—		—
Ending balance	$	802,171	$	498,577	$	1,061,824	$	526,369	$	564,304	$	654,669

	Real Estate – Construction and Development		Real Estate – Commercial and Farmland		Real Estate – Residential		Total






December 31, 2019
Period-end allocation:
Loans individually evaluated for impairment (1)	$	204	$	953	$	3,704	$	7,162
Loans collectively evaluated for impairment	5,791		8,713		6,799		31,027
Ending balance	$	5,995	$	9,666	$	10,503	$	38,189

Loans:
Individually evaluated for impairment (1)	$	1,605	$	19,759	$	46,311	$	82,475
Collectively evaluated for impairment	1,532,786		4,256,397		2,737,095		12,609,278
Acquired with deteriorated credit quality	14,671		76,883		25,055		126,723
Ending balance	$	1,549,062	$	4,353,039	$	2,808,461	$	12,818,476

(1) At December 31, 2019, 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		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance
Three Months Ended September 30, 2019
Balance, June 30, 2019	$	2,816	$	3,388	$	—	$	640	$	502	$	2,984
Provision for loan losses	831		1,132		580		—		(5)		1,141
Loans charged off	(490)		(1,245)		(965)		—		—		(1,267)
Recoveries of loans previously charged off	300		476		385		—		—		736
Balance, September 30, 2019	$	3,457	$	3,751	$	—	$	640	$	497	$	3,594


(dollars in thousands)	Commercial, Financial and Agricultural		Consumer Installment		Indirect Automobile		Mortgage Warehouse		Municipal		Premium Finance
Nine Months Ended September 30, 2019
Balance, December 31, 2018	$	2,352	$	3,795	$	—	$	640	$	509	$	1,426
Provision for loan losses	1,848		3,289		580		—		(12)		3,224
Loans charged off	(1,647)		(4,313)		(965)		—		—		(3,452)
Recoveries of loans previously charged off	904		980		385		—		—		2,396
Balance, September 30, 2019	$	3,457	$	3,751	$	—	$	640	$	497	$	3,594

Period-end allocation:
Loans individually evaluated for impairment (1)	$	1,022	$	—	$	—	$	—	$	—	$	1,606
Loans collectively evaluated for impairment	2,435		3,751		—		640		497		1,988
Ending balance	$	3,457	$	3,751	$	—	$	640	$	497	$	3,594

Loans:
Individually evaluated for impairment (1)	$	4,176	$	—	$	—	$	—	$	—	$	2,428
Collectively evaluated for impairment	918,162		500,067		1,108,717		562,598		578,267		654,142
Acquired with deteriorated credit quality	9,417		—		3,098		—		—		—
Ending balance	$	931,755	$	500,067	$	1,111,815	$	562,598	$	578,267	$	656,570

	Real Estate – Construction and Development		Real Estate – Commercial and Farmland		Real Estate – Residential		Total
Three Months Ended September 30, 2019
Balance, June 30, 2019	$	4,763	$	8,676	$	8,024	$	31,793
Provision for loan losses	(182)		1,541		951		5,989
Loans charged off	—		(1,315)		(37)		(5,319)
Recoveries of loans previously charged off	930		74		166		3,067
Balance, September 30, 2019	$	5,511	$	8,976	$	9,104	$	35,530

Nine Months Ended September 30, 2019
Balance, December 31, 2018	$	4,210	$	9,659	$	6,228	$	28,819
Provision for loan losses	254		2,283		2,599		14,065
Loans charged off	(268)		(3,158)		(391)		(14,194)
Recoveries of loans previously charged off	1,315		192		668		6,840
Balance, September 30, 2019	$	5,511	$	8,976	$	9,104	$	35,530

Period-end allocation:
Loans individually evaluated for impairment (1)	$	552	$	1,044	$	2,227	$	6,451
Loans collectively evaluated for impairment	4,959		7,932		6,877		29,079
Ending balance	$	5,511	$	8,976	$	9,104	$	35,530

Loans:
Individually evaluated for impairment (1)	$	7,810	$	16,120	$	30,337	$	60,871
Collectively evaluated for impairment	1,441,918		4,090,640		2,727,895		12,582,406
Acquired with deteriorated credit quality	18,968		91,999		59,525		183,007
Ending balance	$	1,468,696	$	4,198,759	$	2,817,757	$	12,826,284

(1) At September 30, 2019, 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.