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:



	September 30, 2015			December 31, 2014
Commercial, financial, agricultural	$	621,121		$	483,283
Lease financing	25,190			10,427
Real estate – construction	339,370			212,061
Real estate – 1-4 family mortgage	1,662,505			1,236,360
Real estate – commercial mortgage	2,516,889			1,956,914
Installment loans to individuals	113,377			89,142
Gross loans	5,278,452			3,988,187
Unearned income	(492		)	(313		)
Loans, net of unearned income	5,277,960			3,987,874
Allowance for loan losses	(42,051		)	(42,289		)
Net loans	$	5,235,909		$	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 status 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 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.

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
September 30, 2015
Commercial, financial, agricultural	$	928	$	1,146	$	618,263		$	620,337		$	—	$	503	$	281	$	784	$	621,121
Lease financing	—		—		24,771			24,771			—		419		—		419		25,190
Real estate – construction	789		—		338,581			339,370			—		—		—		—		339,370
Real estate – 1-4 family mortgage	8,947		5,789		1,635,107			1,649,843			296		3,618		8,748		12,662		1,662,505
Real estate – commercial mortgage	6,918		6,614		2,483,675			2,497,207			560		9,285		9,837		19,682		2,516,889
Installment loans to individuals	434		65		112,837			113,336			—		34		7		41		113,377
Unearned income	—		—		(492		)	(492		)	—		—		—		—		(492		)
Total	$	18,016	$	13,614	$	5,212,742		$	5,244,372		$	856	$	13,859	$	18,873	$	33,588	$	5,277,960
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 or more 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 September 30, 2015 or December 31, 2014. The outstanding balance of restructured loans on nonaccrual status was $14,200 and $11,392 at September 30, 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
September 30, 2015
Commercial, financial, agricultural	$	8,456	$	6,529	$	49	$	6,578	$	599
Real estate – construction	—		—		—		—		—
Real estate – 1-4 family mortgage	43,363		32,769		6,118		38,887		4,773
Real estate – commercial mortgage	99,819		79,292		9,379		88,671		4,374
Installment loans to individuals	811		499		7		506		1
Total	$	152,449	$	119,089	$	15,553	$	134,642	$	9,747
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
	September 30, 2015				September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial, financial, agricultural	$	6,763	$	10	$	4,167	$	160
Lease financing	—		—		—		—
Real estate – construction	—		—		1,997		96
Real estate – 1-4 family mortgage	40,410		46		26,378		808
Real estate – commercial mortgage	91,323		152		74,648		3,110
Installment loans to individuals	520		1		141		13
Total	$	139,016	$	209	$	107,331	$	4,187



	Nine Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial, financial, agricultural	$	6,519	$	184	$	4,399	$	165
Real estate – construction	—		—		2,023		98
Real estate – 1-4 family mortgage	40,203		917		27,122		843
Real estate – commercial mortgage	93,107		2,764		80,402		3,174
Installment loans to individuals	531		13		147		13
Total	$	140,360	$	3,878	$	114,093	$	4,293

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
September 30, 2015
Commercial, financial, agricultural	2	$	507	$	460
Real estate – construction	—	—		—
Real estate – 1-4 family mortgage	60	6,084		5,563
Real estate – commercial mortgage	25	14,324		12,791
Installment loans to individuals	1	67		67
Total	88	$	20,982	$	18,881
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	53		12,662
Reductions due to:
Reclassified as nonperforming	(3	)	(331		)
Paid in full	(13	)	(4,820		)
Charge-offs	(1	)	(56		)
Transfer to other real estate owned	—		—
Principal paydowns	—		(688		)
Lapse of concession period	—		—
TDR reclassified as performing loan	(1	)	(2,223		)
Totals at September 30, 2015	88		$	18,881

The allocated allowance for loan losses attributable to restructured loans was $1,343 and $1,547 at September 30, 2015 and December 31, 2014, respectively. The Company had $6 remaining availability under commitments to lend additional funds on these restructured loans at September 30, 2015 and none at 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
September 30, 2015
Commercial, financial, agricultural	$	460,425	$	7,583	$	4,159	$	472,167
Lease financing	—		—		419		419
Real estate – construction	256,056		1,692		38		257,786
Real estate – 1-4 family mortgage	250,296		10,736		14,448		275,480
Real estate – commercial mortgage	1,927,091		40,811		25,853		1,993,755
Installment loans to individuals	27		—		—		27
Total	$	2,893,895	$	60,822	$	44,917	$	2,999,634
December 31, 2014
Commercial, financial, agricultural	$	337,998	$	5,255	$	1,451	$	344,704
Lease financing	—		—		—		—
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
September 30, 2015
Commercial, financial, agricultural	$	135,821	$	356	$	136,177
Lease financing	24,279		—		24,279
Real estate – construction	79,970		—		79,970
Real estate – 1-4 family mortgage	1,292,638		2,961		1,295,599
Real estate – commercial mortgage	300,582		1,340		301,922
Installment loans to individuals	110,431		26		110,457
Total	$	1,943,721	$	4,683	$	1,948,404
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
September 30, 2015
Commercial, financial, agricultural	$	1,205	$	415	$	11,157	$	12,777
Lease financing	—		—		—		—
Real estate – construction	—		94		1,520		1,614
Real estate – 1-4 family mortgage	5,895		26,990		58,541		91,426
Real estate – commercial mortgage	13,893		23,323		183,996		221,212
Installment loans to individuals	—		47		2,846		2,893
Total	$	20,993	$	50,869	$	258,060	$	329,922
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 September 30, 2015:



	Impaired Covered Loans			Other Covered Loans			Not Covered Loans			Total
Contractually-required principal and interest	$	22,400		$	67,828		$	383,887		$	474,115
Nonaccretable difference⁽¹⁾	(1,397		)	(11,983		)	(86,891		)	(100,271		)
Cash flows expected to be collected	21,003			55,845			296,996			373,844
Accretable yield⁽²⁾	(10		)	(4,976		)	(38,936		)	(43,922		)
Fair value	$	20,993		$	50,869		$	258,060		$	329,922


(1)	Represents contractual principal and interest cash flows of $100,023 and $249, respectively, not expected to be collected.


(2)	Represents contractual interest payments of $2,329 expected to be collected and purchase discount of $41,594.

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	)
Additions due to acquisition	—			(4,880		)	(15,386		)	(20,266		)
Reclasses from nonaccretable difference	(578		)	977			(4,355		)	(3,956		)
Accretion	569			1,550			9,131			11,250
Charge-offs	—			—			1,483			1,483
Balance at September 30, 2015	$	(10	)	$	(4,976	)	$	(38,936	)	$	(43,922	)

The following table presents the fair value of loans acquired from Heritage Financial Group, Inc. (“Heritage”) as of the July 1, 2015 acquisition date.



At acquisition date:	July 1, 2015
Contractually-required principal and interest	$	1,237,944
Nonaccretable difference	59,408
Cash flows expected to be collected	1,178,536
Accretable yield	66,919
Fair value	$	1,111,617

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 September 30, 2015
Allowance for loan losses:
Beginning balance	$	3,971		$	1,297	$	13,792		$	21,547		$	1,281		$	41,888
Charge-offs	(143		)	—		(251		)	(430		)	(132		)	(956		)
Recoveries	82			3		145			112			27			369
Net charge-offs	(61		)	3		(106		)	(318		)	(105		)	(587		)
Provision for loan losses	(307		)	360		165			53			358			629
Benefit attributable to FDIC loss-share agreements	(10		)	—		(39		)	(231		)	—			(280		)
Recoveries payable to FDIC	20			1		99			277			4			401
Provision for loan losses charged to operations	(297		)	361		225			99			362			750
Ending balance	$	3,613		$	1,661	$	13,911		$	21,328		$	1,538		$	42,051



	Commercial			Real Estate - Construction			Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Nine Months Ended September 30, 2015
Allowance for loan losses:
Beginning balance	$	3,305		$	1,415		$	13,549		$	22,759		$	1,261		$	42,289
Charge-offs	(501		)	(26		)	(1,605		)	(2,287		)	(238		)	(4,657		)
Recoveries	221			16			515			581			86			1,419
Net charge-offs	(280		)	(10		)	(1,090		)	(1,706		)	(152		)	(3,238		)
Provision for loan losses	624			254			653			244			425			2,200
Benefit attributable to FDIC loss-share agreements	(65		)	—			(82		)	(717		)	—			(864		)
Recoveries payable to FDIC	29			2			881			748			4			1,664
Provision for loan losses charged to operations	588			256			1,452			275			429			3,000
Ending balance	$	3,613		$	1,661		$	13,911		$	21,328		$	1,538		$	42,051
Period-End Amount Allocated to:
Individually evaluated for impairment	$	214		$	—		$	4,482		$	3,101		$	—		$	7,797
Collectively evaluated for impairment	3,014			1,661			9,137			16,955			1,537			32,304
Acquired with deteriorated credit quality	385			—			292			1,272			1			1,950
Ending balance	$	3,613		$	1,661		$	13,911		$	21,328		$	1,538		$	42,051



	Commercial			Real Estate - Construction		Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Three Months Ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,264		$	1,267	$	11,797		$	29,771		$	1,205		$	47,304
Charge-offs	(1,206		)	—		(1,271		)	(3,513		)	(112		)	(6,102		)
Recoveries	103			6		751			267			23			1,150
Net (charge-offs) recoveries	(1,103		)	6		(520		)	(3,246		)	(89		)	(4,952		)
Provision for loan losses	1,007			109		(491		)	4,043			107			4,775
Benefit attributable to FDIC loss-share agreements	(19		)	—		(189		)	(3,169		)	—			(3,377		)
Recoveries payable to FDIC	22			—		16			781			—			819
Provision for loan losses charged to operations	1,010			109		(664		)	1,655			107			2,217
Ending balance	$	3,171		$	1,382	$	10,613		$	28,180		$	1,223		$	44,569



	Commercial			Real Estate - Construction		Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Nine Months Ended September 30, 2014
Allowance for loan losses:
Beginning balance	$	3,090		$	1,091	$	18,629		$	23,688		$	1,167		$	47,665
Charge-offs	(1,325		)	—		(4,143		)	(4,056		)	(404		)	(9,928		)
Recoveries	215			14		1,108			325			53			1,715
Net (charge-offs) recoveries	(1,110		)	14		(3,035		)	(3,731		)	(351		)	(8,213		)
Provision for loan losses	1,095			276		(5,182		)	12,045			407			8,641
Benefit attributable to FDIC loss-share agreements	(87		)	—		(324		)	(4,640		)	—			(5,051		)
Recoveries payable to FDIC	183			1		525			818			—			1,527
Provision for loan losses charged to operations	1,191			277		(4,981		)	8,223			407			5,117
Ending balance	$	3,171		$	1,382	$	10,613		$	28,180		$	1,223		$	44,569
Period-End Amount Allocated to:
Individually evaluated for impairment	$	—		$	—	$	1,260		$	6,820		$	—		$	8,080
Collectively evaluated for impairment	3,171			1,382		9,353			21,360			1,223			36,489
Acquired with deteriorated credit quality	—			—		—			—			—			—
Ending balance	$	3,171		$	1,382	$	10,613		$	28,180		$	1,223		$	44,569


(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
September 30, 2015
Individually evaluated for impairment	$	1,265	$	—	$	16,462	$	20,096	$	71	$	37,894
Collectively evaluated for impairment	607,079		337,756		1,554,617		2,275,581		135,111		4,910,144
Acquired with deteriorated credit quality	12,777		1,614		91,426		221,212		2,893		329,922
Ending balance	$	621,121	$	339,370	$	1,662,505	$	2,516,889	$	138,075	$	5,277,960
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.