Allowance for Loan Losses

(In Thousands, Except Number of Loans)

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



	March 31, 2017			December 31, 2016
Commercial, financial, agricultural	$	741,466		$	717,490
Lease financing	50,462			49,250
Real estate – construction	413,734			552,679
Real estate – 1-4 family mortgage	1,917,567			1,878,177
Real estate – commercial mortgage	3,008,429			2,898,895
Installment loans to individuals	106,793			108,627
Gross loans	6,238,451			6,205,118
Unearned income	(2,646		)	(2,409		)
Loans, net of unearned income	6,235,805			6,202,709
Allowance for loan losses	(42,923		)	(42,737		)
Net loans	$	6,192,882		$	6,159,972

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, 2017
Allowance for loan losses:
Beginning balance	$	5,486		$	2,380		$	14,294		$	19,059		$	1,518		$	42,737
Charge-offs	(832		)	—			(275		)	(227		)	(264		)	(1,598		)
Recoveries	57			31			82			95			19			284
Net (charge-offs) recoveries	(775		)	31			(193		)	(132		)	(245		)	(1,314		)
Provision for loan losses charged to operations ⁽²⁾	401			(292		)	(1,939		)	3,146			184			1,500
Ending balance	$	5,112		$	2,119		$	12,162		$	22,073		$	1,457		$	42,923
Period-End Amount Allocated to:
Individually evaluated for impairment	$	165		$	—		$	1,139		$	2,670		$	3		$	3,977
Collectively evaluated for impairment	4,569			2,119			10,256			17,830			1,453			36,227
Purchased with deteriorated credit quality	378			—			767			1,573			1			2,719
Ending balance	$	5,112		$	2,119		$	12,162		$	22,073		$	1,457		$	42,923



	Commercial			Real Estate - Construction		Real Estate - 1-4 Family Mortgage			Real Estate - Commercial Mortgage			Installment and Other⁽¹⁾			Total
Three Months Ended March 31, 2016
Allowance for loan losses:
Beginning balance	$	4,186		$	1,852	$	13,908		$	21,111		$	1,380		$	42,437
Charge-offs	(657		)	—		(116		)	(1,001		)	(180		)	(1,954		)
Recoveries	53			6		395			92			30			576
Net charge-offs	(604		)	6		279			(909		)	(150		)	(1,378		)
Provision for loan losses	601			85		365			530			198			1,779
Benefit attributable to FDIC loss-share agreements	(15		)	—		(37		)	(118		)	—			(170		)
Recoveries payable to FDIC	3			—		27			161			—			191
Provision for loan losses charged to operations	589			85		355			573			198			1,800
Ending balance	$	4,171		$	1,943	$	14,542		$	20,775		$	1,428		$	42,859
Period-End Amount Allocated to:
Individually evaluated for impairment	$	6		$	—	$	4,311		$	3,082		$	—		$	7,399
Collectively evaluated for impairment	3,743			1,943		9,896			16,429			1,427			33,438
Purchased with deteriorated credit quality	422			—		335			1,264			1			2,022
Ending balance	$	4,171		$	1,943	$	14,542		$	20,775		$	1,428		$	42,859


(1)	Includes lease financing receivables.


(2)	Due to the termination of the loss-share agreements on December 8, 2016, there was no loss-share impact to the provision for loan losses in the first quarter of 2017.

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, 2017
Individually evaluated for impairment	$	2,729	$	—	$	15,859	$	18,122	$	192	$	36,902
Collectively evaluated for impairment	725,709		413,734		1,833,643		2,817,588		152,490		5,943,164
Purchased with deteriorated credit quality	13,028		—		68,065		172,719		1,927		255,739
Ending balance	$	741,466	$	413,734	$	1,917,567	$	3,008,429	$	154,609	$	6,235,805
December 31, 2016
Individually evaluated for impairment	$	1,886	$	662	$	12,088	$	13,079	$	277	$	27,992
Collectively evaluated for impairment	703,610		551,177		1,794,137		2,700,829		153,206		5,902,959
Purchased with deteriorated credit quality	11,994		840		71,952		184,987		1,985		271,758
Ending balance	$	717,490	$	552,679	$	1,878,177	$	2,898,895	$	155,468	$	6,202,709


(1)	Includes lease financing receivables.