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. 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, and other business purposes. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Company 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, construction of one-to-four family 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.

Consumer installment loans and other loans include 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:


	December 31,
	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	319,654	$	244,373
Real estate – construction & development		161,507		146,371
Real estate – commercial & farmland		907,524		808,323
Real estate – residential		456,106		351,886
Consumer installment		30,782		34,249
Other		14,308		33,252

		1,889,881		1,618,454
Allowance for loan losses		21,157		22,377

Loans, net	$	1,868,724	$	1,596,077

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. Purchased non-covered loans totaling $674.2 million and $448.8 million at December 31, 2014 and 2013, respectively, are not included in the above schedule.

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


	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	38,041	$	32,141
Real estate – construction & development		58,362		31,176
Real estate – commercial & farmland		306,706		179,898
Real estate – residential		266,342		200,851
Consumer installment loans		4,788		4,687

	$	674,239	$	448,753

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 $271.3 million and $390.2 million at December 31, 2014 and 2013, respectively, are not included in the above schedule.

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


	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	21,467	$	26,550
Real estate – construction & development		23,447		43,179
Real estate – commercial & farmland		147,627		224,451
Real estate – residential		78,520		95,173
Consumer installment loans		218		884

	$	271,279	$	390,237

Nonaccrual and Past Due Loans

A loan is placed on non-accrual 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 non-accrual is subsequently recognized only to the extent cash payments are received 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 90 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. Loans on nonaccrual status, excluding purchased non-covered and covered loans, amounted to approximately $21.7 million, $29.2 million and $38.9 million at December 31, 2014, 2013 and 2012, respectively. Purchased non-covered loans on nonaccrual status amounted to approximately $18.2 million and $6.7 million at December 31, 2014 and 2013, respectively.

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


	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	1,672	$	4,103
Real estate – construction & development		3,774		3,971
Real estate – commercial & farmland		8,141		8,566
Real estate – residential		7,663		12,152
Consumer installment loans		478		411

	$	21,728	$	29,203

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


	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	175	$	11
Real estate – construction & development		1,119		325
Real estate – commercial & farmland		10,242		1,653
Real estate – residential		6,644		4,658
Consumer installment loans		69		12

	$	18,249	$	6,659

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


	2014		2013
	(Dollars in Thousands)
Commercial, financial & agricultural	$	8,541	$	7,257
Real estate – construction & development		7,601		14,781
Real estate – commercial & farmland		12,584		33,495
Real estate – residential		6,595		13,278
Consumer installment loans		91		341

	$	35,412	$	69,152

The following table presents an analysis of loans, excluding purchased non-covered and covered past due loans as of December 31, 2014 and 2013.


	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, 2014:
Commercial, financial & agricultural	$	900	$	233	$	1,577	$	2,710	$	316,944	$	319,654	$	-
Real estate – construction & development		1,382		286		3,367		5,035		156,472		161,507		-
Real estate – commercial & farmland		2,859		635		7,668		11,162		896,362		907,524		-
Real estate – residential		3,953		2,334		6,755		13,042		443,064		456,106		-
Consumer installment loans		634		158		366		1,158		29,624		30,782		1
Other		-		-		-		-		14,308		14,308		-

Total	$	9,728	$	3,646	$	19,733	$	33,107	$	1,856,774	$	1,889,881	$	1


	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, 2013:
Commercial, financial & agricultural	$	10,893	$	272	$	4,081	$	15,246	$	229,127	$	244,373	$	-
Real estate – construction & development		1,026		69		3,935		5,030		141,341		146,371		-
Real estate – commercial & farmland		3,981		1,388		7,751		13,120		795,203		808,323		-
Real estate – residential		5,422		1,735		11,587		18,744		333,142		351,886		-
Consumer installment loans		568		197		305		1,070		33,179		34,249		-
Other		-		-		-		-		33,252		33,252		-

Total	$	21,890	$	3,661	$	27,659	$	53,210	$	1,565,244	$	1,618,454	$	-

The following table presents an analysis of purchased non-covered past due loans as of December 31, 2014 and 2013.


	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 30, 2014:
Commercial, financial & agricultural	$	461	$	90	$	175	$	726	$	37,315	$	38,041	$	-
Real estate – construction & development		790		1,735		1,117		3,642		54,720		58,362		-
Real estate – commercial & farmland		2,107		1,194		9,529		12,830		293,876		306,706		-
Real estate – residential		6,907		1,401		6,369		14,677		251,665		266,342		-
Consumer installment loans		82		-		65		147		4,641		4,788		-

Total	$	10,347	$	4,420	$	17,255	$	32,022	$	642,217	$	674,239	$	-


	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 30, 2013:
Commercial, financial & agricultural	$	370	$	70	$	11	$	451	$	31,690	$	32,141	$	-
Real estate – construction & development		1,008		89		325		1,422		29,754		31,176		-
Real estate – commercial & farmland		6,851		2,064		1,516		10,431		169,467		179,898		-
Real estate – residential		4,667		1,074		3,428		9,169		191,682		200,851		-
Consumer installment loans		7		17		9		33		4,654		4,687		-

Total	$	12,903	$	3,314	$	5,289	$	21,506	$	427,247	$	448,753	$	-

The following table presents an analysis of covered past due loans as of December 31, 2014 and 2013:


	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 30, 2014:
Commercial, financial & agricultural	$	451	$	136	$	1,878	$	2,465	$	19,002	$	21,467	$	-
Real estate – construction & development		238		226		6,703		7,167		16,280		23,447		-
Real estate – commercial & farmland		4,371		1,486		7,711		13,568		134,059		147,627		714
Real estate – residential		3,464		962		5,656		10,082		68,438		78,520		-
Consumer installment loans		10		-		91		101		117		218		-

Total	$	8,534	$	2,810	$	22,039	$	33,383	$	237,896	$	271,279	$	714


	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, 2013:
Commercial, financial & agricultural	$	3,966	$	12	$	6,165	$	10,143	$	16,407	$	26,550	$	-
Real estate – construction & development		843		144		14,055		15,042		28,137		43,179		-
Real estate – commercial & farmland		8,482		4,350		26,428		39,260		185,191		224,451		346
Real estate – residential		7,648		1,914		10,244		19,806		75,367		95,173		-
Consumer installment loans		51		14		305		370		514		884		-

Total	$	20,990	$	6,434	$	57,197	$	84,621	$	305,616	$	390,237	$	346

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. Impaired loans include loans on nonaccrual status and troubled debt restructurings. The Company individually assesses for impairment all nonaccrual loans greater than $200,000 and rated substandard or worse and all troubled debt restructurings greater than $100,000. 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,
	2014		2013		2012
	(Dollars in Thousands)
Nonaccrual loans	$	21,728	$	29,203	$	38,885
Troubled debt restructurings not included above		12,759		17,214		18,744

Total impaired loans	$	34,487	$	46,417	$	57,629


Interest income recognized on impaired loans	$	1,170	$	522	$	495

Foregone interest income on impaired loans	$	155	$	418	$	718

The following table presents an analysis of information pertaining to impaired loans, excluding purchased non-covered and covered loans as of December 31, 2014 and 2013.


	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, 2014:
Commercial, financial & agricultural	$	3,387	$	6	$	1,956	$	1,962	$	395	$	3,021
Real estate – construction & development		8,325		448		4,005		4,453		771		5,368
Real estate – commercial & farmland		17,514		4,967		9,651		14,618		1,859		15,972
Real estate – residential		15,571		3,514		9,407		12,921		974		16,317
Consumer installment loans		618		-		533		533		9		519

Total	$	45,415	$	8,935	$	25,552	$	34,487	$	4,008	$	41,197


	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, 2013:
Commercial, financial & agricultural	$	6,240	$	-	$	4,618	$	4,618	$	435	$	4,844
Real estate – construction & development		11,363		-		5,867		5,867		512		8,341
Real estate – commercial & farmland		18,456		-		15,479		15,479		1,443		17,559
Real estate – residential		24,342		-		19,970		19,970		1,472		20,335
Consumer installment loans		623		-		483		483		9		642

Total	$	61,024	$	-	$	46,417	$	46,417	$	3,871	$	51,721

During 2014, 2013 and 2012, the Company recorded provision for loan loss expense of $843,000, $1.5 million and $2.6 million, 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 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 Company did not record a provision for loan loss expense to account for losses where the initial estimate of cash flows was revised downward based on new information on purchased, non-covered loans during 2013 and 2012. The allowance for loan losses allocated to 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-share agreements.

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


	As of and For the Years Ended December 31,
	2014		2013		2012
	(Dollars in Thousands)
Nonaccrual loans	$	18,249	$	6,659	$	-
Troubled debt restructurings not included above		1,212		5,938		-

Total impaired loans	$	19,461	$	12,597	$	-


Interest income recognized on impaired loans	$	109	$	-	$	-

Foregone interest income on impaired loans	$	237	$	-	$	-

The following table presents an analysis of information pertaining to purchased non-covered impaired loans as of December 31, 2014 and 2013.


	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, 2014:
Commercial, financial & agricultural	$	499	$	175	$	-	$	175	$	-	$	165
Real estate – construction & development		2,210		1,436		-		1,436		-		1,643
Real estate – commercial & farmland		13,520		10,588		-		10,588		-		7,484
Real estate – residential		10,487		7,191		-		7,191		-		7,084
Consumer installment loans		169		71		-		71		-		68

Total	$	26,885	$	19,461	$	-	$	19,461	$	-	$	16,444


	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, 2013:
Commercial, financial & agricultural	$	19	$	11	$	-	$	11	$	-	$	-
Real estate – construction & development		5,719		3,690		-		3,690		-		71
Real estate – commercial & farmland		4,563		2,881		-		2,881		-		55
Real estate – residential		9,612		5,978		-		5,978		-		115
Consumer installment loans		57		37		-		37		-		1

Total	$	19,970	$	12,597	$	-	$	12,597	$	-	$	242

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


	As of and For the Years Ended December 31,
	2014		2013		2012
	(Dollars in Thousands)
Nonaccrual loans	$	35,412	$	69,152	$	115,712
Troubled debt restructurings not included above		22,619		22,243		17,090

Total impaired loans	$	58,031	$	91,395	$	132,802


Interest income recognized on impaired loans	$	1,134	$	968	$	849

Foregone interest income on impaired loans	$	109	$	330	$	491

The following table presents an analysis of information pertaining to covered impaired loans as of December 31, 2014 and 2013.


	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, 2014:
Commercial, financial & agricultural	$	10,845	$	8,582	$	-	$	8,582	$	-	$	9,777
Real estate – construction & development		11,621		10,638		-		10,638		-		14,132
Real estate – commercial & farmland		23,349		20,663		-		20,663		-		28,594
Real estate – residential		19,629		18,054		-		18,054		-		21,091
Consumer installment loans		111		94		-		94		-		163

Total	$	65,555	$	58,031	$	-	$	58,031	$	-	$	73,757


	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, 2013:
Commercial, financial & agricultural	$	9,680	$	7,270	$	-	$	7,270	$	-	$	8,696
Real estate – construction & development		20,915		18,037		-		18,037		-		21,794
Real estate – commercial & farmland		46,612		40,749		-		40,749		-		51,584
Real estate – residential		29,089		24,998		-		24,998		-		28,452
Consumer installment loans		394		341		-		341		-		304

Total	$	106,690	$	91,395	$	-	$	91,395	$	-	$	110,830

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 sound worth 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, 2014 and 2013.

As of December 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	121,355	$	268	$	155	$	226	$	6,573	$	-	$	128,577
15		25,318		4,010		128,170		59,301		1,005		-		217,804
20		100,599		47,541		511,198		256,758		17,544		14,308		947,948
23		56		8,933		10,507		9,672		37		-		29,205
25		62,519		93,514		224,464		102,998		4,692		-		488,187
30		3,758		1,474		13,035		7,459		257		-		25,983
40		6,049		5,767		19,995		19,692		673		-		52,176
50		-		-		-		-		1		-		1
60		-		-		-		-		-		-		-

Total	$	319,654	$	161,507	$	907,524	$	456,106	$	30,782	$	14,308	$	1,889,881

As of December 31, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	66,983	$	-	$	265	$	419	$	6,714	$	-	$	74,381
15		24,789		4,655		147,157		52,335		1,276		-		230,212
20		93,852		45,195		431,790		150,343		18,619		33,252		773,051
23		127		8,343		10,219		12,641		274		-		31,604
25		50,373		78,736		181,645		103,427		6,310		-		420,491
30		2,111		2,876		11,849		13,558		197		-		30,591
40		6,011		6,566		25,398		19,153		859		-		57,987
50		127		-		-		10		-		-		137
60		-		-		-		-		-		-		-

Total	$	244,373	$	146,371	$	808,323	$	351,886	$	34,249	$	33,252	$	1,618,454

The following table presents the purchased non-covered loan portfolio by risk grade as of December 31, 2014 and 2013.

As of December 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	6,624	$	-	$	-	$	290	$	480	$	-	$	7,394
15		1,376		522		13,277		14,051		501		-		29,727
20		13,657		12,991		116,308		64,083		1,647		-		208,686
23		73		-		3,207		3,298		-		-		6,578
25		13,753		36,230		144,293		164,959		1,920		-		361,155
30		1,618		4,365		12,279		7,444		41		-		25,747
40		910		4,254		17,342		12,184		199		-		34,889
50		30		-		-		33		-		-		63
60		-		-		-		-		-		-		-

Total	$	38,041	$	58,362	$	306,706	$	266,342	$	4,788	$	-	$	674,239

As of December 31, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	1,865	$	-	$	-	$	289	$	451	$	-	$	2,605
15		4,606		7		12,998		16,160		703		-		34,474
20		5,172		3,960		43,802		34,576		1,383		-		88,893
23		-		-		-		-		-		-		-
25		19,638		20,733		102,260		129,923		1,888		-		274,442
30		576		1,760		9,554		10,878		194		-		22,962
40		284		4,716		11,284		9,025		68		-		25,377
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-

Total	$	32,141	$	31,176	$	179,898	$	200,851	$	4,687	$	-	$	448,753

The following table presents the covered loan portfolio by risk grade as of December 31, 2014 and 2013.

As of December 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	-	$	-	$	-	$	-	$	-	$	-	$
15		-		1		761		525		-		-		1,287
20		917		3,184		23,167		14,089		77		-		41,434
23		164		537		11,404		6,642		-		-		18,747
25		5,181		9,406		80,334		33,124		37		-		128,082
30		4,808		2,753		5,302		8,050		-		-		20,913
40		10,397		7,566		26,659		16,090		104		-		60,816
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-

Total	$	21,467	$	23,447	$	147,627	$	78,520	$	218	$	-	$	271,279

As of December 31, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	-	$	-	$	-	$	-	$	-	$	-	$	-
15		-		16		1,048		638		-		-		1,702
20		2,184		8,549		34,674		21,363		193		-		66,963
23		134		1,085		17,037		4,748		51		-		23,055
25		7,508		9,611		101,657		38,427		235		-		157,438
30		5,125		2,006		21,297		6,979		17		-		35,424
40		11,599		21,912		48,738		23,018		388		-		105,655
50		-		-		-		-		-		-		-
60		-		-		-		-		-		-		-

Total	$	26,550	$	43,179	$	224,451	$	95,173	$	884	$	-	$	390,237

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) when 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 2014 and 2013 totaling $29.1 million and $30.4 million, respectively, under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

As of December 31, 2014 and 2013, the Company had a balance of $15.3 million and $20.9 million, respectively, in troubled debt restructurings, excluding purchased non-covered and covered loans. The Company has recorded $2.2 million and $2.1 million in previous charge-offs on such loans at December 31, 2014 and 2013, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $231,000 and $432,000 at December 31, 2014 and 2013, respectively. At December 31, 2014, 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, 2014, the Company modified loans as troubled debt restructurings with principal balances of $3.1 million. These modifications impacted the Company’s allowance for loan losses by $232,000 for the year ended December 31, 2014. The following table presents the loans by class modified as troubled debt restructurings that occurred during the year ending December 31, 2014 and 2013.


	December 31, 2014			December 31, 2013
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	6	$	100	2	$	255
Real estate – construction & development	5		264	5		270
Real estate – commercial & farmland	5		1,082	4		1,084
Real estate – residential	20		1,309	18		1,548
Consumer installment	16		67	9		92

Total	52	$	2,822	38	$	3,249

Troubled debt restructurings with an outstanding balance of $1.2 million at December 31, 2013 defaulted during the year ended December 31, 2014 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 during the year ending December 31, 2014 and 2013.


	December 31, 2014			December 31, 2013
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	1	$	236	3	$	525
Real estate – construction & development	1		33	1		29
Real estate – commercial & farmland	2		570	3		2,197
Real estate – residential	6		314	3		639
Consumer installment	4		61	-		-

Total	14	$	1,214	10	$	3,390

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, 2014 and 2013.


As of December 31, 2014	Accruing Loans			Non-Accruing Loans
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	6	$	290	2	$	13
Real estate – construction & development	9		679	5		228
Real estate – commercial & farmland	19		6,477	3		724
Real estate – residential	47		5,258	11		1,485
Consumer installment	11		55	11		73

Total	92	$	12,759	32	$	2,523


As of December 31, 2013	Accruing Loans			Non-Accruing Loans
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	4	$	515	3	$	525
Real estate – construction & development	8		1,896	2		32
Real estate – commercial & farmland	17		6,913	4		2,273
Real estate – residential	37		7,818	8		834
Consumer installment	6		72	3		19

Total	72	$	17,214	20	$	3,683

As of December 31, 2014, the Company had a balance of $1.2 million in troubled debt restructurings included in purchased non-covered loans. The Company did not have any troubled debt restructurings included in purchased non-covered loans at December 31, 2013. The Company has recorded $29,000 in charge-offs on such loans at December 31, 2014. At December 31, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

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, 2014.


As of December 31, 2014	Accruing Loans			Non-Accruing Loans
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	-	$	-	-	$	-
Real estate – construction & development	1		317	-		-
Real estate – commercial & farmland	1		346	-		-
Real estate – residential	6		547	1		25
Consumer installment	1		2	-		-

Total	9	$	1,212	1	$	25

As of December 31, 2014 and 2013, the Company had a balance of $24.6 million and $27.3 million, respectively, in troubled debt restructurings included in covered loans. The Company has recorded $1.8 million and $1.6 million in previous charge-offs on such loans at December 31, 2014 and 2013, respectively. At December 31, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

The following table presents the amount of troubled debt restructurings by loan class of covered loans, classified separately as accrual and non-accrual at December 31, 2014 and 2013.


As of December 31, 2014	Accruing Loans			Non-Accruing Loans
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	2	$	40	2	$	-
Real estate – construction & development	4		3,037	2		29
Real estate – commercial & farmland	14		8,079	5		1,082
Real estate – residential	96		11,460	8		831
Consumer installment	1		3	-		-

Total	117	$	22,619	17	$	1,942


As of December 31, 2013	Accruing Loans			Non-Accruing Loans
Loan class:	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial & agricultural	1	$	13	5	$	71
Real estate – construction & development	3		3,256	4		52
Real estate – commercial & farmland	13		7,255	5		3,946
Real estate – residential	83		11,719	8		942
Consumer installment	-		-	2		10

Total	100	$	22,243	24	$	5,021

Related Party Loans and Deposits

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,
	2014			2013
	(Dollars in Thousands)
Balance, beginning of year	$	5,565		$	1,392
Advances		78			813
Repayments		(1,240	)		(923	)
Transactions due to changes in related parties		-			4,283

Balance, end of year	$	4,403		$	5,565

Deposits from principal officers, directors, and their affiliates at December 31, 2014 and 2013 were $6,018,000 and $5,994,000, respectively.

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 & agricultural		Real estate – construction & development		Real estate – commercial & farmland		Real estate - residential		Consumer installment loans and Other		Purchased non-covered loans		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	$	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	$	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


	Commercial, financial & agricultural		Real estate – construction & development		Real estate – commercial & farmland		Real estate - residential		Consumer installment loans and Other		Purchased non-covered loans		Covered loans		Total
	(Dollars in Thousands)
Twelve months ended December 31, 2013:
Balance, January 1, 2013	$	2,439	$	5,343	$	9,157	$	5,898	$	756	$	-	$	-	$	23,593
Provision for loan losses		711		1,742		2,777		4,463		254		-		1,539		11,486
Loans charged off		(1,759)		(2,020)		(3,571)		(5,215)		(719)		-		(1,539)		(14,823)
Recoveries of loans previously charged off		432		473		30		888		298		-		-		2,121

Balance, December 31, 2013	$	1,823	$	5,538	$	8,393	$	6,034	$	589	$	-	$	-	$	22,377

Period-end amount allocated to:
Loans individually evaluated for impairment	$	356	$	407	$	1,427	$	1,395	$	-	$	-	$	-	$	3,585
Loans collectively evaluated for impairment		1,467		5,131		6,966		4,639		589		-		-		18,792

Ending balance	$	1,823	$	5,538	$	8,393	$	6,034	$	589	$	-	$	-	$	22,377

Loans:
Individually evaluated for impairment	$	3,457	$	3,581	$	15,240	$	16,925	$	-	$	-	$	-	$	39,203
Collectively evaluated for impairment		240,916		142,790		793,083		349,957		52,505		381,588		173,190		2,134,029
Acquired with deteriorated credit quality		-		-		-		-		-		67,165		217,047		284,212

Ending balance	$	244,373	$	146,371	$	808,323	$	366,882	$	52,505	$	448,753	$	390,237	$	2,457,444


	Commercial, financial & agricultural		Real estate – construction & development		Real estate – commercial & farmland		Real estate - residential		Consumer installment loans and Other		Purchased non-covered loans		Covered loans		Total
	(Dollars in Thousands)
Twelve months ended December 31, 2012:
Balance, January 1, 2012	$	2,918	$	9,438	$	14,226	$	8,128	$	446	$	-	$	-	$	35,156
Provision for loan losses		815		5,245		15,000		6,267		1,124		-		2,638		31,089
Loans charged off		(1,451)		(9,380)		(20,551)		(8,722)		(1,059)		-		(2,638)		(43,801)
Recoveries of loans previously charged off		157		40		482		225		245		-		-		1,149

Balance, December 31, 2012	$	2,439	$	5,343	$	9,157	$	5,898	$	756	$	-	$	-	$	23,593


Period-end amount allocated to:
Loans individually evaluated for impairment	$	659	$	611	$	2,228	$	1,056	$	-	$	-	$	-	$	4,554
Loans collectively evaluated for impairment		1,780		4,732		6,929		4,842		756		-		-		19,039

Ending balance	$	2,439	$	5,343	$	9,157	$	5,898	$	756	$	-	$	-	$	23,593


Loans:
Individually evaluated for impairment	$	3,351	$	7,617	$	21,332	$	13,020	$	-	$	-	$	-	$	45,320
Collectively evaluated for impairment		170,866		106,582		710,990		333,460		83,417		-		224,975		1,630,290
Acquired with deteriorated credit quality		-		-		-		-		-		-		282,737		282,737

Ending balance	$	174,217	$	114,199	$	732,322	$	346,480	$	83,417	$	-	$	507,712	$	1,958,347