LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2016

NOTE 5. 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 an unrelated third party consumer installment home improvement loans made to borrowers throughout the United States. 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 services these types of loans. As of December 31, 2016, the net carrying value of commercial insurance premium finance loans was approximately $353.9 million 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 non-covered and covered loans:

	December 31,
	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	967,138	$	449,623
Real estate – construction and development		363,045		244,693
Real estate – commercial and farmland		1,406,219		1,104,991
Real estate – residential		781,018		570,430
Consumer installment		96,915		31,125
Other		12,486		6,015
		3,626,821		2,406,877

Purchased non-covered loans totaling $1.01 billion and $771.6 million at December 31, 2016 and 2015, respectively, are not included in the above schedule. Purchased non-covered loans are defined as loans that were acquired in bank acquisitions that are not covered by a loss-sharing agreement with the FDIC. Loans that were previously classified as covered loans where the loss-sharing agreements have expired are also included in purchased non-covered loans. The amount of loans reclassified from covered loans to purchased non-covered loans due to expiration of the loss-sharing agreements was $45.9 million and $50.6 million for the years ending December 31, 2016 and 2015, respectively.

The carrying value of purchased non-covered loans are shown below according to major loan type as of the end of the years shown:

	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	95,743	$	45,462
Real estate – construction and development		78,376		72,080
Real estate – commercial and farmland		563,438		390,755
Real estate – residential		268,888		258,153
Consumer installment		4,586		5,104
	$	1,011,031	$	771,554

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, 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 remaining purchase premium paid at acquisition. At December 31, 2016, one loan in the purchased loan pools with a principal balance of $925,000 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. At December 31, 2016, and the Company had allocated $1.8 million of allowance for loan losses for the purchased loan pools. As of December 31, 2015, purchased loan pools totaled $593.0 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $580.7 million and $12.3 million of purchase premium paid at acquisition. At December 31, 2015, all loans included in the purchased loan pools were performing current loans, all risk-rated grade 20, and the Company had allocated $581,000 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.

Covered loans are defined as loans that were acquired in FDIC-assisted transactions that are covered by a loss-sharing agreement with the FDIC. Covered loans totaling $58.2 million and $137.5 million at December 31, 2016 and 2015, respectively, are not included in the above schedules.

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

	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	794	$	5,546
Real estate – construction and development		2,992		7,612
Real estate – commercial and farmland		12,917		71,226
Real estate – residential		41,389		53,038
Consumer installment		68		107
	$	58,160	$	137,529

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 non-covered and covered loans:

	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	1,814	$	1,302
Real estate – construction and development		547		1,812
Real estate – commercial and farmland		8,757		7,019
Real estate – residential		6,401		6,278
Consumer installment		595		449
	$	18,114	$	16,860

The following table presents an analysis of purchased non-covered loans accounted for on a nonaccrual basis:

	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	564	$	1,064
Real estate – construction and development		2,536		1,106
Real estate – commercial and farmland		8,698		4,920
Real estate – residential		6,609		6,168
Consumer installment		13		72
	$	18,420	$	13,330

The following table presents an analysis of covered loans accounted for on a nonaccrual basis:

	2016		2015
	(dollars in thousands)
Commercial, financial and agricultural	$	128	$	2,803
Real estate – construction and development		75		1,701
Real estate – commercial and farmland		1,476		5,034
Real estate – residential		2,867		3,663
Consumer installment		-		37
	$	4,546	$	13,238

The following table presents an analysis of past due loans, excluding purchased non-covered and covered past due loans as of December 31, 2016 and 2015.

	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
	(dollars in thousands)
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	$	-

	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
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	568	$	271	$	835	$	1,674	$	447,949	$	449,623	$	-
Real estate – construction and development		1,413		261		1,739		3,413		241,280		244,693		-
Real estate – commercial and farmland		1,781		641		6,912		9,334		1,095,657		1,104,991		-
Real estate – residential		3,806		2,120		5,121		11,047		559,383		570,430		-
Consumer installment		374		188		238		800		30,325		31,125		-
Other		-		-		-		-		6,015		6,015		-
Total	$	7,942	$	3,481	$	14,845	$	26,268	$	2,380,609	$	2,406,877	$	-

The following table presents an analysis of purchased non-covered past due loans as of December 31, 2016 and 2015.

	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
	(dollars in thousands)
As of December 31, 2016
Commercial, financial and agricultural	$	113	$	18	$	466	$	597	$	95,146	$	95,743	$	-
Real estate – construction and development		67		10		2,499		2,576		75,800		78,376		-
Real estate – commercial and farmland		1,431		295		6,917		8,643		554,795		563,438		-
Real estate – residential		2,779		670		4,954		8,403		260,485		268,888		-
Consumer installment		22		-		13		35		4,551		4,586		-
Total	$	4,412	$	993	$	14,849	$	20,254	$	990,777	$	1,011,031	$	-

	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
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	248	$	13	$	846	$	1,107	$	44,355	$	45,462	$	-
Real estate – construction and development		416		687		420		1,523		70,557		72,080		-
Real estate – commercial and farmland		2,479		1,629		3,347		7,455		383,300		390,755		-
Real estate – residential		4,965		2,176		4,928		12,069		246,084		258,153		-
Consumer installment		31		9		70		110		4,994		5,104		-
Total	$	8,139	$	4,514	$	9,611	$	22,264	$	749,290	$	771,554	$	-

The following table presents an analysis of covered past due loans as of December 31, 2016 and 2015:

	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
	(dollars in thousands)
As of December 31, 2016
Commercial, financial and agricultural	$	-	$	-	$	127	$	127	$	667	$	794	$	-
Real estate – construction and development		94		1		19		114		2,878		2,992		-
Real estate – commercial and farmland		603		31		235		869		12,048		12,917		-
Real estate – residential		1,787		28		1,881		3,696		37,693		41,389		-
Consumer installment		-		-		-		-		68		68		-
Total	$	2,484	$	60	$	2,262	$	4,806	$	53,354	$	58,160	$	-

	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
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	-	$	-	$	2,802	$	2,802	$	2,744	$	5,546	$	-
Real estate – construction and development		96		-		1,633		1,729		5,883		7,612		-
Real estate – commercial and farmland		170		205		3,064		3,439		67,787		71,226		-
Real estate – residential		2,155		1,001		2,658		5,814		47,224		53,038		-
Consumer installment		-		-		37		37		70		107		-
Total	$	2,421	$	1,206	$	10,194	$	13,821	$	123,708	$	137,529	$	-

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 non-covered and covered loans:

	As of and For the Years Ended December 31,
	2016		2015		2014
	(dollars in thousands)
Nonaccrual loans	$	18,114	$	16,860	$	21,728
Troubled debt restructurings not included above		14,209		14,418		12,759
Total impaired loans	$	32,323	$	31,278	$	34,487

Interest income recognized on impaired loans	$	1,033	$	909	$	1,991
Foregone interest income on impaired loans	$	977	$	1,204	$	1,491

The following table presents an analysis of information pertaining to impaired loans, excluding purchased non-covered and covered loans as of December 31, 2016 and 2015.

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
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

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	3,062	$	158	$	1,385	$	1,543	$	135	$	2,275
Real estate – construction and development		3,581		230		2,374		2,604		774		3,228
Real estate – commercial and farmland		14,385		6,702		6,083		12,785		1,067		15,105
Real estate – residential		15,809		1,621		12,230		13,851		2,224		11,977
Consumer installment		592		-		495		495		9		488
Total	$	37,429	$	8,711	$	22,567	$	31,278	$	4,209	$	33,073

During 2016, the Company recorded a credit to provision for loan loss expense of $957,000 to account for loans where there was an increase in cash flows from the initial estimates on loans acquired in FDIC-assisted transactions. During 2015 and 2014, the Company recorded provision for loan loss expense of $751,000 and $843,000, respectively, to account for losses where there was a decrease in cash flows from the initial estimates on loans acquired in FDIC-assisted transactions. During 2016 and 2015, the Company recorded a net recovery of $657,000 and $237,000, respectively, to account for loans where there was an increase in cash flows from the initial estimates on purchased non-covered loans. During 2014, the Company recorded provision for loan loss expense of $84,000 to account for losses where there was a decrease in cash flows from the initial estimates on purchased non-covered loans. The allowance for loan losses recorded on purchased non-covered loans and covered loans that is immediately charged off is related to the purchased credit-impaired loans. Charge-offs on purchased loans, both covered and non-covered, are recorded when impairment is recorded. Provision expense for covered loans is recorded net of the indemnification by the FDIC loss-sharing agreements.

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

	As of and For the Years Ended December 31,
	2016		2015		2014
	(dollars in thousands)
Nonaccrual loans	$	18,420	$	13,330	$	18,249
Troubled debt restructurings not included above		11,004		9,373		1,212
Total impaired loans	$	29,424	$	22,703	$	19,461

Interest income recognized on impaired loans	$	2,070	$	785	$	109
Foregone interest income on impaired loans	$	1,175	$	1,365	$	1,759

The following table presents an analysis of information pertaining to purchased non-covered impaired loans as of December 31, 2016 and 2015.

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
As of December 31, 2016
Commercial, financial and agricultural	$	4,737	$	242	$	322	$	564	$	-	$	742
Real estate – construction and development		23,581		415		2,662		3,077		151		2,257
Real estate – commercial and farmland		29,104		3,447		11,802		15,249		363		14,035
Real estate – residential		13,280		3,050		7,465		10,515		868		9,433
Consumer installment		30		19		-		19		-		55
Total	$	70,732	$	7,173	$	22,251	$	29,424	$	1,382	$	26,522

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	3,103	$	1,066	$	-	$	1,066	$	-	$	392
Real estate – construction and development		8,987		1,469		-		1,469		-		1,429
Real estate – commercial and farmland		14,999		11,134		-		11,134		-		10,806
Real estate – residential		14,946		8,957		-		8,957		-		8,067
Consumer installment		94		77		-		77		-		65
Total	$	42,129	$	22,703	$	-	$	22,703	$	-	$	20,759

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

	As of and For the Years Ended December 31,
	2016		2015		2014
	(dollars in thousands)
Nonaccrual loans	$	4,546	$	13,238	$	35,412
Troubled debt restructurings not included above		12,539		13,283		22,619
Total impaired loans	$	17,085	$	26,521	$	58,031

Interest income recognized on impaired loans	$	685	$	886	$	1,134
Foregone interest income on impaired loans	$	462	$	1,596	$	3,123

The following table presents an analysis of information pertaining to covered impaired loans as of December 31, 2016 and 2015.

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
As of December 31, 2016
Commercial, financial and agricultural	$	294	$	128	$	-	$	128	$	-	$	1,464
Real estate – construction and development		985		78		815		893		2		2,022
Real estate – commercial and farmland		7,070		151		3,234		3,385		22		5,837
Real estate – residential		13,742		4,833		7,841		12,674		220		13,730
Consumer installment		7		5		-		5		-		41
Total	$	22,098	$	5,195	$	11,890	$	17,085	$	244	$	23,094

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(dollars in thousands)
As of December 31, 2015
Commercial, financial and agricultural	$	5,188	$	2,802	$	-	$	2,802	$	-	$	7,408
Real estate – construction and development		15,119		2,480		-		2,480		-		6,906
Real estate – commercial and farmland		20,508		7,001		-		7,001		-		18,504
Real estate – residential		15,830		14,192		-		14,192		-		16,010
Consumer installment		60		46		-		46		-		86
Total	$	56,705	$	26,521	$	-	$	26,521	$	-	$	48,914

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 non-covered and covered loans, by risk grade as of December 31, 2016 and 2015.

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
	(dollars in thousands)
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

As of December 31, 2015

Risk Grade	Commercial, financial and agricultural		Real estate - construction and development		Real estate - commercial and farmland		Real estate - residential		Consumer installment		Other		Total
	(dollars in thousands)
10	$	241,721	$	294	$	116	$	1,606	$	6,872	$	-	$	250,609
15		28,420		2,074		117,880		78,165		1,191		-		227,730
20		97,142		46,221		685,538		369,624		19,780		6,015		1,224,320
23		559		7,827		13,073		6,112		36		-		27,607
25		77,829		183,512		254,012		91,465		2,595		-		609,413
30		1,492		1,620		13,821		7,347		143		-		24,423
40		2,460		3,145		20,551		16,111		506		-		42,773
50		-		-		-		-		-		-		-
60		-		-		-		-		2		-		2
Total	$	449,623	$	244,693	$	1,104,991	$	570,430	$	31,125	$	6,015	$	2,406,877

The following table presents the purchased non-covered loan portfolio by risk grade as of December 31, 2016 and 2015.

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
	(dollars in thousands)
10	$	5,722	$	-	$	-	$	-	$	814	$	-	$	6,536
15		1,266		-		7,619		31,331		570		-		40,786
20		16,181		10,245		192,173		104,656		1,583		-		324,838
23		-		3,643		9,019		11,151		-		-		23,813
25		66,506		53,910		317,782		101,951		1,259		-		541,408
30		5,072		6,927		13,191		4,416		-		-		29,606
40		996		3,651		23,654		15,383		360		-		44,044
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-
Total	$	95,743	$	78,376	$	563,438	$	268,888	$	4,586	$	-	$	1,011,031

As of December 31, 2015

Risk Grade	Commercial, financial and agricultural		Real estate - construction and development		Real estate - commercial and farmland		Real estate - residential		Consumer installment		Other		Total
	(dollars in thousands)
10	$	8,592	$	-	$	-	$	-	$	1,010	$	-	$	9,602
15		1,186		1,143		10,490		37,808		541		-		51,168
20		10,057		13,678		183,219		128,005		2,031		-		336,990
23		-		438		5,177		6,414		-		-		12,029
25		17,565		47,517		162,253		66,166		1,328		-		294,829
30		6,657		4,185		14,297		5,503		51		-		30,693
40		1,373		5,119		15,319		14,257		143		-		36,211
50		30		-		-		-		-		-		30
60		2		-		-		-		-		-		2
Total	$	45,462	$	72,080	$	390,755	$	258,153	$	5,104	$	-	$	771,554

The following table presents the covered loan portfolio by risk grade as of December 31, 2016 and 2015.

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
	(dollars in thousands)
10	$	-	$	-	$	-	$	-	$	-	$	-	$	-
15		-		-		-		-		-		-		-
20		23		441		1,995		7,056		-		-		9,515
23		22		-		-		3,640		-		-		3,662
25		617		2,096		5,460		19,428		17		-		27,618
30		-		344		1,848		3,189		45		-		5,426
40		132		111		3,614		8,076		6		-		11,939
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-
Total	$	794	$	2,992	$	12,917	$	41,389	$	68	$	-	$	58,160

As of December 31, 2015

Risk Grade	Commercial, financial and agricultural		Real estate - construction and development		Real estate - commercial and farmland		Real estate - residential		Consumer installment		Other		Total
	(dollars in thousands)
10	$	-	$	-	$	-	$	-	$	-	$	-	$	-
15		-		-		-		-		-		-		-
20		93		800		11,698		10,040		-		-		22,631
23		52		-		2,957		5,723		-		-		8,732
25		2,594		3,907		38,741		24,345		11		-		69,598
30		5		828		2,857		4,552		-		-		8,242
40		2,802		2,077		14,973		8,378		96		-		28,326
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-
Total	$	5,546	$	7,612	$	71,226	$	53,038	$	107	$	-	$	137,529

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 2016 and 2015 totaling $69.4 million and $96.5 million, respectively, under such parameters.

As of December 31, 2016 and 2015, the Company had a balance of $19.1 million and $16.4 million, respectively, in troubled debt restructurings, excluding purchased non-covered and covered loans. The Company has recorded $1.2 million and $1.3 million in previous charge-offs on such loans at December 31, 2016 and 2015, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $3.1 million and $2.7 million at December 31, 2016 and 2015, respectively. At December 31, 2016, 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, 2016 and 2015, the Company modified loans as troubled debt restructurings, excluding purchased non-covered and covered loans, with principal balances of $4.5 million and $7.3 million, respectively. These modifications impacted the Company’s allowance for loan losses by $176,000 and $1.4 million for the year ended December 31, 2016 and 2015, respectively. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased non-covered and covered loans, which occurred during the year ending December 31, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		6	$	58		7	$	80
Real estate – construction and development		2		250		2		15
Real estate – commercial and farmland		4		1,656		2		2,121
Real estate – residential		34		2,495		33		4,992
Consumer installment		12		63		16		61
Total		58	$	4,522		60	$	7,269

Troubled debt restructurings, excluding purchased non-covered and covered loans, with an outstanding balance of $3.5 million and $2.2 million at December 31, 2015 and 2014 defaulted during the year ended December 31, 2016 and 2015, 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, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		5	$	51		3	$	37
Real estate – construction and development		1		5		2		33
Real estate – commercial and farmland		5		2,970		3		624
Real estate – residential		5		460		20		1,493
Consumer installment		6		38		9		45
Total		22	$	3,524		37	$	2,232

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased non-covered and covered loans, classified separately as accrual and non-accrual at December 31, 2016 and 2015.

As of December 31, 2016	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(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, 2015	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		4	$	240		10	$	110
Real estate – construction and development		11		792		3		63
Real estate – commercial and farmland		16		5,766		3		596
Real estate – residential		51		7,574		20		1,123
Consumer installment		12		46		23		94
Total		94	$	14,418		59	$	1,986

As of December 31, 2016 and 2015, the Company had a balance of $13.6 million and $10.0 million, respectively, in troubled debt restructurings included in purchased non-covered loans. The Company has recorded $752,000 and $377,000, respectively, in previous charge-offs on such loans at December 31, 2016 and 2015. At December 31, 2016, 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, 2016 and 2015, the Company modified purchased non-covered loans as troubled debt restructurings, with principal balances of $4.5 million and $2.7 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan losses. The Company did not transfer any troubled debt restructurings from the covered loan category to the purchased non-covered loan category during the year ended December 31, 2016 due to the expiration of the loss-sharing agreements. The following table presents the purchased non-covered loans by class modified as troubled debt restructurings, which occurred during the year ending December 31, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		-	$	-		2	$	21
Real estate – construction and development		-		-		2		30
Real estate – commercial and farmland		5		2,321		5		1,051
Real estate – residential		15		2,218		8		1,541
Consumer installment		-		-		3		8
Total		20	$	4,539		20	$	2,651

Troubled debt restructurings included in purchased non-covered loans with an outstanding balance of $88,000 and $883,000 defaulted during the years ended December 31, 2016 and 2015, 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, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		-	$	-		-	$	-
Real estate – construction and development		1		9		2		30
Real estate – commercial and farmland		-		-		2		57
Real estate – residential		1		79		6		795
Consumer installment		-		-		1		1
Total		2	$	88		11	$	883

The following table presents the amount of troubled debt restructurings by loan class of purchased non-covered loans, classified separately as accrual and non-accrual at December 31, 2016 and 2015.

As of December 31, 2016	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		1	$	1		1	$	15
Real estate – construction and development		2		540		3		30
Real estate – commercial and farmland		15		6,551		4		1,844
Real estate – residential		25		3,906		6		662
Consumer installment		2		6		1		-
Total		45	$	11,004		15	$	2,551

As of December 31, 2015	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		1	$	2		2	$	21
Real estate – construction and development		1		363		3		42
Real estate – commercial and farmland		14		6,214		3		412
Real estate – residential		13		2,789		4		180
Consumer installment		2		5		2		3
Total		31	$	9,373		14	$	658

During 2016, the Company modified one loan in the purchased loan pools with a balance of $925,000. The loan was on accrual status as of December 31, 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.

As of December 31, 2015 and 2014, the Company had a balance of $14.6 million and $15.5 million, respectively, in troubled debt restructurings included in covered loans. The Company has recorded $791,000 and $1.2 million in previous charge-offs on such loans at December 31, 2016 and 2015, respectively. At December 31, 2016, 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, 2016 and 2015, the Company modified covered loans as troubled debt restructurings, with principal balances of $1.4 million and $2.2 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan losses. The following table presents the covered loans by class modified as troubled debt restructurings, which occurred during the year ending December 31, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		1	$	76		1	$	1
Real estate – construction and development		-		-		3		334
Real estate – commercial and farmland		1		468		3		1,099
Real estate – residential		13		873		23		745
Consumer installment		-		-		1		8
Total		15	$	1,417		31	$	2,187

Troubled debt restructurings included in covered loans with an outstanding balance of $907,000 and $1.3 million defaulted during the year ended December 31, 2016 and 2015, 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, 2016 and 2015.

	December 31, 2016				December 31, 2015
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		2	$	76		-	$	-
Real estate – construction and development		-		-		-		-
Real estate – commercial and farmland		-		-		2		145
Real estate – residential		17		831		16		1,190
Consumer installment		-		-		-		-
Total		19	$	907		18	$	1,335

The following table presents the amount of troubled debt restructurings by loan class of covered loans, classified separately as accrual and nonaccrual at December 31, 2016 and 2015.

As of December 31, 2016	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		-	$	-		3	$	76
Real estate – construction and development		4		818		-		-
Real estate – commercial and farmland		5		1,909		1		558
Real estate – residential		98		9,807		27		1,415
Consumer installment		1		5		-		-
Total		108	$	12,539		31	$	2,049

As of December 31, 2015	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan class	#		(in thousands)		#		(in thousands)
Commercial, financial and agricultural		-	$	-		2	$	1
Real estate – construction and development		4		779		-		-
Real estate – commercial and farmland		4		1,967		3		1,067
Real estate – residential		97		10,529		26		1,116
Consumer installment		2		8		-		-
Total		107	$	13,283		31	$	2,184

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,
	2016		2015
	(dollars in thousands)

Balance, January 1	$	3,818	$	4,403
Advances		78		162
Repayments		(729)		(674)
Transactions due to changes in related parties		-		(73)
Ending balance	$	3,167	$	3,818

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.

	Commercial, financial and agricultural		Real estate – construction and development		Real estate – commercial and farmland		Real estate - residential		Consumer installment and Other		Purchased non-covered loans, including pools		Covered loans		Total
	(dollars in thousands)
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)		1,981		(957)		4,091
Loans charged off		(1,999)		(588)		(708)		(1,122)		(351)		(1,066)		(493)		(6,327)
Recoveries of loans previously charged off		400		490		269		391		127		1,723		1,694		5,094
Balance, December 31, 2016	$	2,192	$	2,990	$	7,662	$	6,786	$	827	$	3,219	$	244	$	23,920

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	120	$	266	$	1,502	$	2,893	$	-	$	1,382	$	244	$	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	$	3,219	$	244	$	23,920

Loans:
Individually evaluated for impairment⁽¹⁾	$	501	$	659	$	12,423	$	12,697	$	-	$	22,251	$	11,890	$	60,421
Collectively evaluated for impairment		966,637		362,386		1,393,796		768,321		109,401		1,428,680		26,150		5,055,371
Acquired with deteriorated credit quality		-		-		-		-		-		128,414		20,120		148,534
Ending balance	$	967,138	$	363,045	$	1,406,219	$	781,018	$	109,401	$	1,579,345	$	58,160	$	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.

	Commercial, financial and agricultural		Real estate – construction and development		Real estate – commercial and farmland		Real estate - residential		Consumer installment and Other		Purchased non-covered loans, including pools		Covered loans		Total
	(dollars in thousands)
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		344		751		5,264
Loans charged off		(1,438)		(622)		(2,367)		(1,587)		(410)		(950)		(1,759)		(9,133)
Recoveries of loans previously charged off		651		323		317		151		137		1,187		1,008		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	$	-	$	22,672	$	22,317	$	68,701
Collectively evaluated for impairment		449,300		242,735		1,093,114		560,876		37,140		1,261,821		52,451		3,697,437
Acquired with deteriorated credit quality		-		-		-		-		-		80,024		62,761		142,785
Ending balance	$	449,623	$	244,693	$	1,104,991	$	570,430	$	37,140	$	1,364,517	$	137,529	$	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.

	Commercial, financial and agricultural		Real estate – construction and development		Real estate – commercial and farmland		Real estate - residential		Consumer installment and Other		Purchased non-covered loans, including pools		Covered loans		Total
	(dollars in thousands)
Twelve months ended December 31, 2014
Balance, January 1, 2014	$	1,823	$	5,538	$	8,393	$	6,034	$	589	$	-	$	-	$	22,377
Provision for loan losses		1,427		(265)		3,444		(452)		567		84		843		5,648
Loans charged off		(1,567)		(592)		(3,288)		(1,707)		(471)		(84)		(1,851)		(9,560)
Recoveries of loans previously charged off		321		349		274		254		486		-		1,008		2,692

Balance, December 31, 2014	$	2,004	$	5,030	$	8,823	$	4,129	$	1,171	$	-	$	-	$	21,157

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	375	$	743	$	1,861	$	911	$	-	$	-	$	-	$	3,890
Loans collectively evaluated for impairment		1,629		4,287		6,962		3,218		1,171		-		-		17,267

Ending balance	$	2,004	$	5,030	$	8,823	$	4,129	$	1,171	$	-	$	-	$	21,157

Loans:
Individually evaluated for impairment⁽¹⁾	$	490	$	3,709	$	14,546	$	8,904	$	-	$	-	$	-	$	27,649
Collectively evaluated for impairment		319,164		157,798		892,978		447,202		45,090		579,172		122,248		2,563,652
Acquired with deteriorated credit quality		-		-		-		-		-		95,067		149,031		244,098
Ending balance	$	319,654	$	161,507	$	907,524	$	456,106	$	45,090	$	674,239	$	271,279	$	2,835,399

(1)	At December 31, 2014, 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

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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