Loans and the Allowance for Loan Losses

(In Thousands, Except Number of Loans)

The following is a summary of loans as of the dates presented:



	March 31, 2015			December 31, 2014
Commercial, financial, agricultural	$	474,788		$	483,283
Lease financing	11,863			10,427
Real estate – construction	201,449			212,061
Real estate – 1-4 family mortgage	1,239,455			1,236,360
Real estate – commercial mortgage	1,938,994			1,956,914
Installment loans to individuals	87,415			89,142
Gross loans	3,953,964			3,988,187
Unearned income	(303		)	(313		)
Loans, net of unearned income	3,953,661			3,987,874
Allowance for loan losses	(42,302		)	(42,289		)
Net loans	$	3,911,359		$	3,945,585

Past Due and Nonaccrual Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, the recognition of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Consumer and other retail loans are typically charged-off no later than the time the loan is 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Loans may be placed on nonaccrual regardless of whether or not such loans are considered past due. All interest accrued for the current year, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table provides an aging of past due and nonaccrual loans, segregated by class, as of the dates presented:



	Accruing Loans										Nonaccruing Loans
	30-89 Days Past Due		90 Days or More Past Due		Current Loans			Total Loans			30-89 Days Past Due		90 Days or More Past Due		Current Loans		Total Loans		Total Loans
March 31, 2015
Commercial, financial, agricultural	$	684	$	1,506	$	471,674		$	473,864		$	34	$	545	$	345	$	924	$	474,788
Lease financing	—		—		11,441			11,441			—		422		—		422		11,863
Real estate – construction	71		37		201,070			201,178			—		271		—		271		201,449
Real estate – 1-4 family mortgage	7,806		1,852		1,216,794			1,226,452			309		5,244		7,450		13,003		1,239,455
Real estate – commercial mortgage	9,655		7,417		1,899,224			1,916,296			1,063		12,714		8,921		22,698		1,938,994
Installment loans to individuals	366		17		86,964			87,347			—		59		9		68		87,415
Unearned income	—		—		(303		)	(303		)	—		—		—		—		(303		)
Total	$	18,582	$	10,829	$	3,886,864		$	3,916,275		$	1,406	$	19,255	$	16,725	$	37,386	$	3,953,661
December 31, 2014
Commercial, financial, agricultural	$	1,113	$	636	$	480,332		$	482,081		$	16	$	820	$	366	$	1,202	$	483,283
Lease financing	462		—		9,965			10,427			—		—		—		—		10,427
Real estate – construction	—		37		211,860			211,897			—		164		—		164		212,061
Real estate – 1-4 family mortgage	8,398		2,382		1,212,214			1,222,994			355		4,604		8,407		13,366		1,236,360
Real estate – commercial mortgage	6,924		7,637		1,912,758			1,927,319			1,826		16,928		10,841		29,595		1,956,914
Installment loans to individuals	269		21		88,782			89,072			—		59		11		70		89,142
Unearned income	—		—		(313		)	(313		)	—		—		—		—		(313		)
Total	$	17,166	$	10,713	$	3,915,598		$	3,943,477		$	2,197	$	22,575	$	19,625	$	44,397	$	3,987,874

Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans. There were no restructured loans contractually 90 days past due or more and still accruing at March 31, 2015 or December 31, 2014. The outstanding balance of restructured loans on nonaccrual status was $9,484 and $11,392 at March 31, 2015 and December 31, 2014, respectively.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan-by-loan basis for commercial, consumer and construction loans above a minimum dollar amount threshold by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are evaluated collectively for impairment. When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged-off. For impaired loans, a specific reserve is established to adjust the carrying value of the loan to its estimated net realizable value.

Impaired loans recognized in conformity with Financial Accounting Standards Board Accounting Standards Codification Topic ("ASC") 310, “Receivables” (“ASC 310”), segregated by class, were as follows as of the dates presented:



	Unpaid Contractual Principal Balance		Recorded Investment With Allowance		Recorded Investment With No Allowance		Total Recorded Investment		Related Allowance
March 31, 2015
Commercial, financial, agricultural	$	5,722	$	944	$	1,936	$	2,880	$	1,095
Real estate – construction	104		104		—		104		5
Real estate – 1-4 family mortgage	21,043		13,783		3,115		16,898		4,841
Real estate – commercial mortgage	78,688		25,267		24,583		49,850		4,459
Installment loans to individuals	—		—		—		—		—
Total	$	105,557	$	40,098	$	29,634	$	69,732	$	10,400
December 31, 2014
Commercial, financial, agricultural	$	4,871	$	984	$	1,375	$	2,359	$	171
Real estate – construction	164		164		—		164		—
Real estate – 1-4 family mortgage	31,906		18,401		7,295		25,696		4,824
Real estate – commercial mortgage	90,196		29,079		28,784		57,863		5,767
Installment loans to individuals	397		21		51		72		—
Totals	$	127,534	$	48,649	$	37,505	$	86,154	$	10,762

The following table presents the average recorded investment and interest income recognized on impaired loans for the periods presented:



	Three Months Ended				Three Months Ended
	March 31, 2015				March 31, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial, financial, agricultural	$	4,416	$	8	$	7,745	$	5
Real estate – construction	104		—		2,037		2
Real estate – 1-4 family mortgage	17,636		72		27,754		34
Real estate – commercial mortgage	55,420		274		91,277		64
Installment loans to individuals	—		—		—		—
Total	$	77,576	$	354	$	128,813	$	105

Restructured Loans

Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition and which are performing in accordance with the new terms. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest.

The following table presents restructured loans segregated by class as of the dates presented:



	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
March 31, 2015
Commercial, financial, agricultural	2	$	507	$	489
Real estate – construction	—	—		—
Real estate – 1-4 family mortgage	51	6,177		5,402
Real estate – commercial mortgage	23	17,067		15,442
Installment loans to individuals	—	—		—
Total	76	$	23,751	$	21,333
December 31, 2014
Commercial, financial, agricultural	2	$	507	$	507
Real estate – construction	—	—		—
Real estate – 1-4 family mortgage	35	5,212		4,567
Real estate – commercial mortgage	16	10,590		9,263
Installment loans to individuals	—	—		—
Total	53	$	16,309	$	14,337

Changes in the Company’s restructured loans are set forth in the table below:



	Number of Loans		Recorded Investment
Totals at January 1, 2015	53		$	14,337
Additional loans with concessions	25		7,508
Reductions due to:
Reclassified as nonperforming	—		—
Paid in full	(2	)	(411		)
Charge-offs	—		—
Transfer to other real estate owned	—		—
Principal paydowns	—		(101		)
Lapse of concession period	—		—
Totals at March 31, 2015	76		$	21,333

The allocated allowance for loan losses attributable to restructured loans was $1,332 and $1,547 at March 31, 2015 and December 31, 2014, respectively. The Company had no remaining availability under commitments to lend additional funds on these restructured loans at March 31, 2015 or December 31, 2014.

Credit Quality

For loans originated for commercial purposes, internal risk-rating grades are assigned by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances of these loans. Loan grades range between 1 and 9, with 1 being loans with the least credit risk. Loans that migrate toward the “Pass” grade (those with a risk rating between 1 and 4) or within the “Pass” grade generally have a lower risk of loss and therefore a lower risk factor applied to the loan balances. The “Watch” grade (those with a risk rating of 5) is utilized on a temporary basis for “Pass” grade loans where a significant adverse risk-modifying action is anticipated in the near term. Loans that migrate toward the “Substandard” grade (those with a risk rating between 6 and 9) generally have a higher risk of loss and therefore a higher risk factor applied to the related loan balances. The following table presents the Company’s loan portfolio by risk-rating grades as of the dates presented:



	Pass		Watch		Substandard		Total
March 31, 2015
Commercial, financial, agricultural	$	333,160	$	6,731	$	2,259	$	342,150
Real estate – construction	142,470		556		—		143,026
Real estate – 1-4 family mortgage	124,635		3,497		12,981		141,113
Real estate – commercial mortgage	1,396,707		21,748		28,995		1,447,450
Installment loans to individuals	624		—		—		624
Total	$	1,997,596	$	32,532	$	44,235	$	2,074,363
December 31, 2014
Commercial, financial, agricultural	$	337,998	$	5,255	$	1,451	$	344,704
Real estate – construction	150,683		855		—		151,538
Real estate – 1-4 family mortgage	122,608		6,079		11,479		140,166
Real estate – commercial mortgage	1,389,787		31,109		33,554		1,454,450
Installment loans to individuals	1,402		—		—		1,402
Total	$	2,002,478	$	43,298	$	46,484	$	2,092,260

For portfolio balances of consumer, consumer mortgage and certain other loans originated for other than commercial purposes, allowance factors are determined based on historical loss ratios by portfolio for the preceding eight quarters and may be adjusted by other qualitative criteria. The following table presents the performing status of the Company’s loan portfolio not subject to risk rating as of the dates presented:



	Performing		Non- Performing		Total
March 31, 2015
Commercial, financial, agricultural	$	111,612	$	369	$	111,981
Lease financing	11,560		—		11,560
Real estate – construction	58,220		203		58,423
Real estate – 1-4 family mortgage	1,016,755		1,295		1,018,050
Real estate – commercial mortgage	273,285		1,408		274,693
Installment loans to individuals	83,126		39		83,165
Total	$	1,554,558	$	3,314	$	1,557,872
December 31, 2014
Commercial, financial, agricultural	$	114,996	$	179	$	115,175
Lease financing	10,114		—		10,114
Real estate – construction	60,323		200		60,523
Real estate – 1-4 family mortgage	1,010,645		2,730		1,013,375
Real estate – commercial mortgage	266,867		1,352		268,219
Installment loans to individuals	83,744		39		83,783
Total	$	1,546,689	$	4,500	$	1,551,189

Loans Acquired with Deteriorated Credit Quality

Loans acquired in business combinations that exhibited, at the date of acquisition, evidence of deterioration of the credit quality since origination, such that it was probable that all contractually required payments would not be collected, were as follows as of the dates presented:



	Impaired Covered Loans		Other Covered Loans		Not Covered Loans		Total
March 31, 2015
Commercial, financial, agricultural	$	—	$	3,917	$	16,740	$	20,657
Lease financing	—		—		—		—
Real estate – construction	—		—		—		—
Real estate – 1-4 family mortgage	420		42,338		37,534		80,292
Real estate – commercial mortgage	7,376		71,688		137,787		216,851
Installment loans to individuals	—		34		3,592		3,626
Total	$	7,796	$	117,977	$	195,653	$	321,426
December 31, 2014
Commercial, financial, agricultural	$	—	$	6,684	$	16,720	$	23,404
Lease financing	—		—		—		—
Real estate – construction	—		—		—		—
Real estate – 1-4 family mortgage	420		43,597		38,802		82,819
Real estate – commercial mortgage	7,584		84,720		141,941		234,245
Installment loans to individuals	—		36		3,921		3,957
Total	$	8,004	$	135,037	$	201,384	$	344,425

The references in the table above and elsewhere in these Notes to "covered loans" and "not covered loans" (as well as to "covered OREO" and "not covered OREO") refer to loans (or OREO, as applicable) covered and not covered, respectively, by loss-share agreements with the FDIC. See Note E, "FDIC Loss-Share Indemnification Asset," below for more information.

The following table presents the fair value of loans determined to be impaired at the time of acquisition and determined not to be impaired at the time of acquisition at March 31, 2015:



	Impaired Covered Loans			Other Covered Loans			Not Covered Loans			Total
Contractually-required principal and interest	$	29,901		$	141,917		$	275,703		$	447,521
Nonaccretable difference⁽¹⁾	(22,104		)	(21,766		)	(52,137		)	(96,007		)
Cash flows expected to be collected	7,797			120,151			223,566			351,514
Accretable yield⁽²⁾	(1		)	(2,174		)	(27,913		)	(30,088		)
Fair value	$	7,796		$	117,977		$	195,653		$	321,426


(1)	Represents contractual principal and interest cash flows of $90,475 and $5,532, respectively, not expected to be collected.


(2)	Represents contractual interest payments of $2,354 expected to be collected and purchase discount of $27,734.

Changes in the accretable yield of loans acquired with deteriorated credit quality were as follows:



	Impaired Covered Loans			Other Covered Loans			Not Covered Loans			Total
Balance at January 1, 2015	$	(1	)	$	(2,623	)	$	(29,809	)	$	(32,433	)
Reclasses from nonaccretable difference	(23		)	(1,160		)	276			(907		)
Accretion	23			1,609			1,481			3,113
Chargeoff	—			—			139			139
Balance at March 31, 2015	$	(1	)	$	(2,174	)	$	(27,913	)	$	(30,088	)

The following table presents the fair value of loans acquired from First M&F Corporation ("First M&F") as of the September 1, 2013 acquisition date.



At acquisition date:	September 1, 2013
Contractually-required principal and interest	$	1,112,979
Nonaccretable difference	70,334
Cash flows expected to be collected	1,042,645
Accretable yield	143,409
Fair value	$	899,236

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management based on its ongoing analysis of the loan portfolio to absorb probable credit losses inherent in the entire loan portfolio, including collective impairment as recognized under ASC 450, “Contingencies”. Collective impairment is calculated based on loans grouped by grade. Another component of the allowance is losses on loans assessed as impaired under ASC 310. The balance of these loans and their related allowance is included in management’s estimation and analysis of the allowance for loan losses. Management and the internal loan review staff evaluate the adequacy of the allowance for loan losses quarterly. The allowance for loan losses is evaluated based on a continuing assessment of problem loans, the types of loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories and other factors, including its risk rating system, regulatory guidance and economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance for loan losses is established through a provision for loan losses charged to earnings resulting from measurements of inherent credit risk in the loan portfolio and estimates of probable losses or impairments of individual loans. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The following table provides a roll forward of the allowance for loan losses and a breakdown of the ending balance of the allowance based on the Company’s impairment methodology for the periods presented:



	Commercial			Real Estate - Construction			Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Three Months Ended March 31, 2015
Allowance for loan losses:
Beginning balance	$	3,305		$	1,415		$	13,549		$	22,759		$	1,261		$	42,289
Charge-offs	(235		)	—			(485		)	(633		)	(50		)	(1,403		)
Recoveries	35			6			155			112			33			341
Net (charge-offs) recoveries	(200		)	6			(330		)	(521		)	(17		)	(1,062		)
Provision for loan losses	1,027			(63		)	618			(887		)	37			732
Benefit attributable to FDIC loss-share agreements	(25		)	—			—			(101		)	—			(126		)
Recoveries payable to FDIC	2			1			208			258			—			469
Provision for loan losses charged to operations	1,004			(62		)	826			(730		)	37			1,075
Ending balance	$	4,109		$	1,359		$	14,045		$	21,508		$	1,281		$	42,302
Period-End Amount Allocated to:
Individually evaluated for impairment	$	—		$	—		$	4,227		$	2,293		$	—		$	6,520
Collectively evaluated for impairment	2,911			1,359			9,541			18,102			1,280			33,193
Acquired with deteriorated credit quality	1,198			—			277			1,113			1			2,589
Ending balance	$	4,109		$	1,359		$	14,045		$	21,508		$	1,281		$	42,302



	Commercial			Real Estate - Construction		Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Three Months Ended March 31, 2014
Allowance for loan losses:
Beginning balance	$	3,090		$	1,091	$	18,629		$	23,688		$	1,167		$	47,665
Charge-offs	(119		)	—		(887		)	(60		)	(231		)	(1,297		)
Recoveries	37			5		151			30			7			230
Net (charge-offs) recoveries	(82		)	5		(736		)	(30		)	(224		)	(1,067		)
Provision for loan losses	183			13		496			480			243			1,415
Benefit attributable to FDIC loss-share agreements	(68		)	—		(69		)	5			—			(132		)
Recoveries payable to FDIC	5			—		158			4			—			167
Provision for loan losses charged to operations	120			13		585			489			243			1,450
Ending balance	$	3,128		$	1,109	$	18,478		$	24,147		$	1,186		$	48,048
Period-End Amount Allocated to:
Individually evaluated for impairment	$	253		$	—	$	7,285		$	7,724		$	—		$	15,262
Collectively evaluated for impairment	2,665			1,002		10,823			14,133			1,184			29,807
Acquired with deteriorated credit quality	210			107		370			2,290			2			2,979
Ending balance	$	3,128		$	1,109	$	18,478		$	24,147		$	1,186		$	48,048


(1)	Includes lease financing receivables.

The following table provides the recorded investment in loans, net of unearned income, based on the Company’s impairment methodology as of the dates presented:



	Commercial		Real Estate - Construction		Real Estate - 1-4 Family Mortgage		Real Estate - Commercial Mortgage		Installment and Other⁽¹⁾		Total
March 31, 2015
Individually evaluated for impairment	$	944	$	104	$	13,783	$	25,267	$	—	$	40,098
Collectively evaluated for impairment	453,187		201,345		1,145,380		1,696,876		95,349		3,592,137
Acquired with deteriorated credit quality	20,657		—		80,292		216,851		3,626		321,426
Ending balance	$	474,788	$	201,449	$	1,239,455	$	1,938,994	$	98,975	$	3,953,661
December 31, 2014
Individually evaluated for impairment	$	984	$	164	$	18,401	$	29,079	$	21	$	48,649
Collectively evaluated for impairment	458,895		211,897		1,135,140		1,693,590		95,278		3,594,800
Acquired with deteriorated credit quality	23,404		—		82,819		234,245		3,957		344,425
Ending balance	$	483,283	$	212,061	$	1,236,360	$	1,956,914	$	99,256	$	3,987,874


(1)	Includes lease financing receivables.