LOANS

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 5 – 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. The Bank purchased residential mortgage loan pools during 2015 and 2016 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. As of March 31, 2017 and December 31, 2016, the net carrying value of these consumer installment home improvement loans was approximately $80.0 million and $60.8 million, respectively. 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 to originate, administer and service these types of loans. As of March 31, 2017 and December 31, 2016, the net carrying value of commercial insurance premium loans was approximately $425.9 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 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:

(dollars in thousands)	March 31, 2017		December 31, 2016
Commercial, financial and agricultural	$	1,061,599	$	967,138
Real estate – construction and development		415,029		363,045
Real estate – commercial and farmland		1,458,110		1,406,219
Real estate – residential		726,795		781,018
Consumer installment		115,919		96,915
Other		8,028		12,486
	$	3,785,480	$	3,626,821

Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the Federal Deposit Insurance Corporation (the “FDIC”). Purchased loans totaling $1.01 billion and $1.07 billion at March 31, 2017 and December 31, 2016, respectively, are not included in the above schedule.

Purchased loans are shown below according to major loan type as of the end of the periods shown:

(dollars in thousands)	March 31, 2017		December 31, 2016
Commercial, financial and agricultural	$	89,897	$	96,537
Real estate – construction and development		82,378		81,368
Real estate – commercial and farmland		538,046		576,355
Real estate – residential		292,911		310,277
Consumer installment		3,703		4,654
	$	1,006,935	$	1,069,191

Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of March 31, 2017, purchased loan pools totaled $529.1 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $521.3 million and $7.8 million of remaining purchase premium paid at acquisition. 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 March 31, 2017 and December 31, 2016, one loan in the purchased loan pools with a principal balance of $918,000 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. At March 31, 2017 and December 31, 2016, the Company had allocated $2.1 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 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 was 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 against 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)	March 31, 2017		December 31, 2016
Commercial, financial and agricultural	$	2,663	$	1,814
Real estate – construction and development		613		547
Real estate – commercial and farmland		7,506		8,757
Real estate – residential		6,929		6,401
Consumer installment		570		595
	$	18,281	$	18,114

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

(dollars in thousands)	March 31, 2017		December 31, 2016
Commercial, financial and agricultural	$	376	$	692
Real estate – construction and development		2,469		2,611
Real estate – commercial and farmland		11,465		10,174
Real estate – residential		9,276		9,476
Consumer installment		20		13
	$	23,606	$	22,966

The following table presents an analysis of past-due loans, excluding purchased past-due loans as of March 31, 2017 and December 31, 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
March 31, 2017
Commercial, financial & agricultural	$	4,641	$	3,756	$	2,381	$	10,778	$	1,050,821	$	1,061,599	$	933
Real estate – construction & development		799		133		577		1,509		413,520		415,029		-
Real estate – commercial & farmland		2,558		1,526		6,986		11,070		1,447,040		1,458,110		-
Real estate – residential		5,088		1,011		5,945		12,044		714,751		726,795		-
Consumer installment loans		571		252		364		1,187		114,732		115,919		-
Other		-		-		-		-		8,028		8,028		-
Total	$	13,657	$	6,678	$	16,253	$	36,588	$	3,748,892	$	3,785,480	$	933
December 31, 2016
Commercial, financial & agricultural	$	565	$	82	$	1,293	$	1,940	$	965,198	$	967,138	$	-
Real estate – construction & development		908		446		439		1,793		361,252		363,045		-
Real estate – commercial & 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 loans		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 March 31, 2017 and December 31, 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
March 31, 2017
Commercial, financial & agricultural	$	92	$	6	$	349	$	447	$	89,450	$	89,897	$	-
Real estate – construction & development		517		154		1,812		2,483		79,895		82,378		-
Real estate – commercial & farmland		4,220		209		6,938		11,367		526,679		538,046		-
Real estate – residential		6,629		1,315		5,751		13,695		279,216		292,911		-
Consumer installment loans		24		13		12		49		3,654		3,703		-
Total	$	11,482	$	1,697	$	14,862	$	28,041	$	978,894	$	1,006,935	$	-
December 31, 2016
Commercial, financial & agricultural	$	113	$	18	$	593	$	724	$	95,813	$	96,537	$	-
Real estate – construction & development		161		11		2,518		2,690		78,678		81,368		-
Real estate – commercial & 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 loans		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  Three Months Ended
(dollars in thousands)	March 31, 2017		December 31, 2016		March 31, 2016
Nonaccrual loans	$	18,281	$	18,114	$	15,700
Troubled debt restructurings not included above		13,659		14,209		14,385
Total impaired loans	$	31,940	$	32,323	$	30,085
Interest income recognized on impaired loans	$	240	$	225	$	318
Foregone interest income on impaired loans	$	274	$	267	$	242

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

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2017
Commercial, financial & agricultural	$	3,891	$	202	$	2,503	$	2,705	$	637	$	2,283
Real estate – construction & development		1,875		-		1,048		1,048		356		1,140
Real estate – commercial & farmland		12,450		5,655		5,795		11,450		1,572		12,163
Real estate – residential		14,344		2,422		13,727		16,149		2,645		16,866
Consumer installment loans		666		-		588		588		6		601
Total	$	33,226	$	8,279	$	23,661	$	31,940	$	5,216	$	33,053

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2016
Commercial, financial & agricultural	$	3,068	$	204	$	1,656	$	1,860	$	134	$	1,613
Real estate – construction & development		2,047		-		1,233		1,233		273		1,590
Real estate – commercial & farmland		13,906		6,811		6,065		12,876		1,503		12,948
Real estate – residential		15,482		2,238		13,503		15,741		3,080		15,525
Consumer installment loans		671		-		613		613		5		576
Total	$	35,174	$	9,253	$	23,070	$	32,323	$	4,995	$	32,252

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2016
Commercial, financial & agricultural	$	3,150	$	339	$	1,206	$	1,545	$	408	$	1,544
Real estate – construction & development		3,278		230		2,022		2,252		742		2,428
Real estate – commercial & farmland		14,530		5,142		7,870		13,012		874		12,898
Real estate – residential		13,976		1,662		11,177		12,839		2,223		13,345
Consumer installment loans		519		-		437		437		7		466
Total	$	35,453	$	7,373	$	22,712	$	30,085	$	4,254	$	30,681

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

	As of and for the Three Months Ended
(dollars in thousands)	March 31, 2017		December 31, 2016		March 31, 2016
Nonaccrual loans	$	23,606	$	22,966	$	32,518
Troubled debt restructurings not included above		20,448		23,543		21,501
Total impaired loans	$	44,054	$	46,509	$	54,019
Interest income recognized on impaired loans	$	379	$	377	$	542
Foregone interest income on impaired loans	$	337	$	354	$	526

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

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related  Allowance		Three Month Average Recorded Investment
March 31, 2017
Commercial, financial & agricultural	$	2,806	$	151	$	225	$	376	$	-	$	534
Real estate – construction & development		25,748		287		3,203		3,490		250		3,730
Real estate – commercial & farmland		30,419		768		17,532		18,300		855		18,467
Real estate – residential		25,855		7,155		14,713		21,868		1,091		22,529
Consumer installment loans		34		20		-		20		-		22
Total	$	84,862	$	8,381	$	35,673	$	44,054	$	2,196	$	45,282

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2016
Commercial, financial & agricultural	$	5,031	$	370	$	322	$	692	$	-	$	783
Real estate – construction & development		24,566		493		3,477		3,970		153		3,888
Real estate – commercial & farmland		36,174		3,598		15,036		18,634		385		17,806
Real estate – residential		27,022		7,883		15,306		23,189		1,088		23,201
Consumer installment loans		37		24		-		24		-		51
Total	$	92,830	$	12,368	$	34,141	$	46,509	$	1,626	$	45,729

(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2016
Commercial, financial & agricultural	$	7,474	$	236	$	3,533	$	3,769	$	111	$	3,665
Real estate – construction & development		11,946		892		3,591		4,483		86		4,202
Real estate – commercial & farmland		25,622		8,480		15,406		23,886		350		20,943
Real estate – residential		25,231		5,815		15,931		21,746		436		22,682
Consumer installment loans		138		135		-		135		-		130
Total	$	70,411	$	15,558	$	38,461	$	54,019	$	983	$	51,622

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The 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, the 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 and 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 and 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 loan 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 March 31, 2017 and December 31, 2016 (in thousands):

Risk Grade	Commercial, Financial & Agricultural		Real Estate - Construction & Development		Real Estate - Commercial & Farmland		Real Estate - Residential		Consumer Installment Loans		Other		Total
March 31, 2017
10	$	404,968	$	-	$	6,617	$	53	$	9,176	$	-	$	420,814
15		446,942		5,846		83,239		50,805		348		-		587,180
20		101,370		38,618		982,901		563,555		24,277		8,028		1,718,749
23		350		6,673		7,981		5,880		5		-		20,889
25		99,989		360,390		333,232		83,750		81,262		-		958,623
30		3,631		1,829		26,574		5,142		122		-		37,298
40		4,342		1,673		17,566		17,511		729		-		41,821
50		7		-		-		99		-		-		106
60		-		-		-		-		-		-		-
Total	$	1,061,599	$	415,029	$	1,458,110	$	726,795	$	115,919	$	8,028	$	3,785,480
December 31, 2016
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 March 31, 2017 and December 31, 2016 (in thousands):

Risk Grade	Commercial, Financial & Agricultural		Real Estate - Construction & Development		Real Estate - Commercial & Farmland		Real Estate - Residential		Consumer Installment Loans		Other		Total
March 31, 2017
10	$	5,320	$	-	$	-	$	-	$	697	$	-	$	6,017
15		1,314		-		7,403		29,088		374		-		38,179
20		19,926		10,746		216,663		116,681		1,418		-		365,434
23		22		3,493		5,731		12,835		-		-		22,081
25		49,514		56,263		264,504		105,579		1,094		-		476,954
30		11,275		8,457		16,073		7,600		45		-		43,450
40		2,526		3,419		27,672		21,128		75		-		54,820
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-
Total	$	89,897	$	82,378	$	538,046	$	292,911	$	3,703	$	-	$	1,006,935
December 31, 2016
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 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 as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first three months of 2017 and 2016 totaling $16.2 million and $36.8 million, respectively, under such parameters.

 

As of March 31, 2017 and December 31, 2016, the Company had a balance of $16.6 million and $18.2 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $1.2 million previous charge-offs on such loans at both March 31, 2017 and December 31, 2016. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $2.9 million and $3.1 million at March 31, 2017 and December 31, 2016, respectively. At March 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 three months ending March 31, 2017 and 2016, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $93,000 and $1.7 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the three months ending March 31, 2017 and 2016:

	March 31, 2017				March 31, 2016
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		-	$	-		1	$	12
Real estate – construction & development		-		-		-		-
Real estate – commercial & farmland		-		-		2		1,605
Real estate – residential		1		77		1		60
Consumer installment		4		16		-		-
Total		5	$	93		4	$	1,676

Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $1.6 million and $793,000 defaulted during the three months ended March 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 for loans, excluding purchased loans, the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ending March 31, 2017 and 2016:

	March 31, 2017				March 31, 2016
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		3	$	55		2	$	7
Real estate – construction & development		1		26		1		18
Real estate – commercial & farmland		3		150		1		194
Real estate – residential		18		1,380		9		563
Consumer installment		8		21		1		11
Total		33	$	1,632		14	$	793

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

March 31, 2017	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		3	$	43		15	$	142
Real estate – construction & development		7		435		2		34
Real estate – commercial & farmland		14		3,944		5		1,617
Real estate – residential		78		9,220		20		998
Consumer installment		8		18		33		129
Total		110	$	13,660		75	$	2,920

December 31, 2016	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		4	$	47		15	$	114
Real estate – construction & development		8		686		2		34
Real estate – commercial & 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 March 31, 2017 and December 31, 2016, the Company had a balance of $27.4 million and $28.1 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.5 million in previous charge-offs on such loans at both March 31, 2017 and December 31, 2016. At March 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 three months ending March 31, 2017 and 2016, the Company modified purchased loans as troubled debt restructurings, with principal balances of $355,000 and $1.1 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the three months ending March 31, 2017 and 2016:

	March 31, 2017				March 31, 2016
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		-	$	-		1	$	76
Real estate – construction & development		-		-		-		-
Real estate – commercial & farmland		1		231		2		504
Real estate – residential		1		124		2		488
Consumer installment		-		-		-		-
Total		2	$	355		5	$	1,068

Troubled debt restructurings included in purchased loans with an outstanding balance of $2.1 million and $1.1 million defaulted during the three months ended March 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 purchased loan troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ending March 31, 2017 and 2016:

	March 31, 2017				March 31, 2016
			Balance				Balance
Loan Class	#		in thousands)		#		(in thousands)
Commercial, financial & agricultural		-	$	-		-	$	-
Real estate – construction & development		2		336		1		12
Real estate – commercial & farmland		3		1,149		1		613
Real estate – residential		8		565		7		489
Consumer installment		-		-		-		-
Total		13	$	2,050		9	$	1,114

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

March 31, 2017	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		1	$	1		3	$	16
Real estate – construction & development		3		1,020		7		421
Real estate – commercial & farmland		16		6,835		10		3,996
Real estate – residential		120		12,592		34		2,528
Consumer installment		-		-		2		8
Total		140	$	20,448		56	$	6,969

December 31, 2016	Accruing Loans				Non-Accruing Loans
			Balance				Balance
Loan Class	#		(in thousands)		#		(in thousands)
Commercial, financial & agricultural		1	$	1		4	$	91
Real estate – construction & development		6		1,358		3		30
Real estate – commercial & 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

Allowance for Loan Losses

The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past-due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on current loan quality trends, current economic conditions and other factors in the markets where the Company operates. Factors considered include, among others, current valuations of real estate in the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.

The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio. Mortgage warehouse lines of credit, overdraft protection loans, commercial insurance premium finance loans, and certain consumer and mortgage loans serviced by outside processors are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. All relationships greater than $1.0 million and a sample of relationships greater than $250,000 are reviewed annually by the Bank’s independent internal loan review department. As a result of these loan reviews, certain loans may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past-due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.

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 60 (Loss per the regulatory guidance), the uncollectible portion is charged-off.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2017, the year ended December 31, 2016 and the three months ended March 31, 2016. 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 & Agricultural		Real Estate – Construction & Development		Real Estate – Commercial & Farmland		Real Estate – Residential		Consumer Installment Loans and Other		Purchased Loans		Purchased Loan Pools		Total
Three months ended March 31, 2017:
Balance, December 31, 2016	$	2,192	$	2,990	$	7,662	$	6,786	$	827	$	1,626	$	1,837	$	23,920
Provision for loan losses		641		640		217		(791)		174		706		249		1,836
Loans charged off		(104)		(53)		(9)		(216)		(164)		(556)		-		(1,102)
Recoveries of loans previously charged off		69		20		9		61		17		420		-		596
Balance, March 31, 2017	$	2,798	$	3,597	$	7,879	$	5,840	$	854	$	2,196	$	2,086	$	25,250
Period-end allocation:
Loans individually evaluated for impairment (1)	$	626	$	354	$	1,574	$	2,538	$	-	$	2,196	$	376	$	7,664
Loans collectively evaluated for impairment		2,172		3,243		6,305		3,302		854		-		1,710		17,586
Ending balance	$	2,798	$	3,597	$	7,879	$	5,840	$	854	$	2,196	$	2,086	$	25,250
Loans:
Individually evaluated for impairment (1)	$	1,937	$	843	$	11,260	$	9,630	$	-	$	35,673	$	3,446	$	62,789
Collectively evaluated for impairment		1,059,662		414,186		1,446,850		717,165		123,947		836,146		525,653		5,123,609
Acquired with deteriorated credit quality		-		-		-		-		-		135,116		-		135,116
Ending balance	$	1,061,599	$	415,029	$	1,458,110	$	726,795	$	123,947	$	1,006,935	$	529,099	$	5,321,514

(1) At March 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 & Agricultural		Real Estate – Construction & Development		Real Estate – Commercial & Farmland		Real Estate - Residential		Consumer Installment Loans 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 allocation:
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 & Agricultural		Real Estate – Construction & Development		Real Estate – Commercial & Farmland		Real Estate - Residential		Consumer Installment Loans and Other		Purchased Loans		Purchased Loan Pools		Total
Three months ended March 31, 2016:
Balance, December 31, 2015	$	1,144	$	5,009	$	7,994	$	4,760	$	1,574	$	-	$	581	$	21,062
Provision for loan losses		788		(1,051)		(669)		25		399		464		725		681
Loans charged off		(406)		(155)		(347)		(468)		(59)		(379)		-		(1,814)
Recoveries of loans previously charged off		73		122		121		314		25		898		-		1,553
Balance, March 31, 2016	$	1,599	$	3,925	$	7,099	$	4,631	$	1,939	$	983	$	1,306	$	21,482
Period-end allocation:
Loans individually evaluated for impairment (1)	$	400	$	733	$	873	$	2,153	$	-	$	983	$	-	$	5,142
Loans collectively evaluated for impairment		1,199		3,192		6,226		2,478		1,939		-		1,306		16,340
Ending balance	$	1,599	$	3,925	$	7,099	$	4,631	$	1,939	$	983	$	1,306	$	21,482
Loans:
Individually evaluated for impairment (1)	$	799	$	1,604	$	12,050	$	9,540	$	-	$	38,461	$	-	$	62,454
Collectively evaluated for impairment		433,274		263,216		1,142,837		619,598		45,089		1,007,754		656,734		4,168,502
Acquired with deteriorated credit quality		-		-		-		-		-		213,983		-		213,983
Ending balance	$	434,073	$	264,820	$	1,154,887	$	629,138	$	45,089	$	1,260,198	$	656,734	$	4,444,939

(1) At March 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.