Loans and Asset Quality Information

6 Months Ended

Jun. 30, 2013

Loans And Asset Quality Information

Loans and Asset Quality Information

Note 8 – Loans and Asset Quality Information

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection - see Note 2 to the financial statements included in the Company’s 2011 Annual Report on Form 10-K for detailed information regarding these transactions. Because of the loss protection provided by the FDIC, the risk of the loans and foreclosed real estate that are covered by loss share agreements are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	June 30, 2013				December 31, 2012				June 30, 2012
	Amount		Percentage		Amount		Percentage		Amount		Percentage
All  loans (non-covered and covered):
Commercial, financial, and agricultural	$	164,767		7%		160,790		7%		163,761		7%
Real estate – construction, land development & other land loans		297,390		12%		298,458		13%		343,620		14%
Real estate – mortgage – residential (1-4 family) first mortgages		832,761		34%		815,281		34%		815,605		34%
Real estate – mortgage – home equity loans / lines of credit		231,446		10%		238,925		10%		250,627		10%
Real estate – mortgage – commercial and other		834,554		34%		789,746		33%		789,290		32%
Installment loans to individuals		68,776		3%		71,933		3%		73,522		3%
Subtotal		2,429,694		100%		2,375,133		100%		2,436,425		100%
Unamortized net deferred loan costs		1,168				1,324				1,376
Total loans	$	2,430,862				2,376,457				2,437,801

As of June 30, 2013, December 31, 2012 and June 30, 2012, net loans include unamortized premiums of $252,000, $485,000, and $717,000, respectively, related to acquired loans.

At December 31, 2012, the Company also had $30 million classified as “loans held for sale” that are not included in the loan balances disclosed above or in the disclosures presented in the remainder of Note 8. In the fourth quarter of 2012, the Company identified approximately $68 million of non-covered higher risk loans that it targeted for sale to a third-party investor. Based on an offer to purchase these loans received prior to year-end, the Company wrote the loans down by approximately $38 million to their estimated liquidation value of approximately $30 million and reclassified them as “loans held for sale.” The sale of the loans was completed in January 2013 with the Company receiving sales proceeds of approximately $30 million.

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	June 30, 2013				December 31, 2012				June 30, 2012
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Non-covered loans:
Commercial, financial, and agricultural	$	159,964		7%		155,273		7%		155,879		7%
Real estate – construction, land development & other land loans		262,397		12%		251,569		12%		283,818		13%
Real estate – mortgage – residential (1-4 family) first mortgages		712,802		33%		679,401		33%		669,088		32%
Real estate – mortgage – home equity loans / lines of credit		214,473		10%		219,443		11%		229,415		11%
Real estate – mortgage – commercial and other		771,711		35%		715,973		34%		702,717		33%
Installment loans to individuals		68,068		3%		71,160		3%		72,613		4%
Subtotal		2,189,415		100%		2,092,819		100%		2,113,530		100%
Unamortized net deferred loan costs		1,168				1,324				1,376
Total non-covered loans	$	2,190,583				2,094,143				2,114,906

The carrying amount of the covered loans at June 30, 2013 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	69		142		4,734		6,096		4,803		6,238
Real estate – construction, land development & other land loans		302		579		34,691		60,018		34,993		60,597
Real estate – mortgage – residential (1-4 family) first mortgages		720		1,772		119,239		142,694		119,959		144,466
Real estate – mortgage – home equity loans / lines of credit		15		53		16,958		21,060		16,973		21,113
Real estate – mortgage – commercial and other		2,234		4,081		60,609		81,525		62,843		85,606
Installment loans to individuals		—		—		708		743		708		743
Total	$	3,340		6,627		236,939		312,136		240,279		318,763

The carrying amount of the covered loans at December 31, 2012 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	71		148		5,446		7,009		5,517		7,157
Real estate – construction, land development & other land loans		1,575		2,594		45,314		82,676		46,889		85,270
Real estate – mortgage – residential (1-4 family) first mortgages		794		1,902		135,086		161,416		135,880		163,318
Real estate – mortgage – home equity loans / lines of credit		16		56		19,466		24,431		19,482		24,487
Real estate – mortgage – commercial and other		2,369		4,115		71,404		94,502		73,773		98,617
Installment loans to individuals		—		—		773		828		773		828
Total	$	4,825		8,815		277,489		370,862		282,314		379,677

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2011. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2011	$	353,370
Principal repayments		(51,582	)
Transfers to foreclosed real estate		(30,181	)
Loan charge-offs		(10,584	)
Accretion of loan discount		16,466
Carrying amount of nonimpaired covered loans at December 31, 2012		277,489
Principal repayments		(37,938	)
Transfers to foreclosed real estate		(7,232	)
Loan charge-offs		(5,650	)
Accretion of loan discount		10,270
Carrying amount of nonimpaired covered loans at June 30, 2013	$	236,939

As reflected in the table above, the Company accreted $10,270,000 of the loan discount on purchased nonimpaired loans into interest income during the first six months of 2013. As of June 30, 2013, there was remaining loan discount of $36,068,000 related to purchased performing loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the covered lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income. At June 30, 2013, the Company also had $17,262,000 of loan discount related to purchased nonperforming loans. It is not expected that a significant amount of this discount will be accreted, as it represents estimated losses on these loans.

The following table presents information regarding all purchased impaired loans since December 31, 2011, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

($ in thousands) Purchased Impaired Loans	Contractual Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(355	)		44			(399	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(359	)		(531	)		172
Other		(1,151	)		(1,568	)		417
Balance at December 31, 2012		8,815			3,990			4,825
Change due to payments received		(187	)		27			(214	)
Transfer to foreclosed real estate		(2,000	)		(730	)		(1,270	)
Other		(1	)		—			(1	)
Balance at June 30, 2013	$	6,627			3,287			3,340

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first six months of 2013 and 2012, the Company received $38,000 and $0, respectively, in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, nonperforming loans held for sale, and foreclosed real estate. Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)	June 30, 2013		December 31, 2012		June 30, 2012
Non-covered nonperforming assets
Nonaccrual loans	$	42,338		33,034		73,918
Restructured loans - accruing		21,333		24,848		20,684
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		63,671		57,882		94,602
Nonperforming loans held for sale		—		21,938		—
Foreclosed real estate		15,425		26,285		37,895
Total non-covered nonperforming assets	$	79,096		106,105		132,497
Covered nonperforming assets
Nonaccrual loans (1)	$	50,346		33,491		39,075
Restructured loans - accruing		6,790		15,465		19,054
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		57,136		48,956		58,129
Foreclosed real estate		32,005		47,290		70,850
Total covered nonperforming assets	$	89,141		96,246		128,979
Total nonperforming assets	$	168,237		202,351		261,476

(1) At June 30, 2013, December 31, 2012, and June 30, 2012, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $89.3 million, $64.4 million, and $60.4 million, respectively.

The following table presents information related to the Company’s impaired loans.

($ in thousands)	As of /for the six months ended June 30, 2013		As of /for the year ended December 31, 2012		As of /for the six months ended June 30, 2012
Impaired loans at period end
Non-covered	$	68,445		57,882		94,602
Covered		57,136		48,956		58,129
Total impaired loans at period end	$	125,581		106,838		152,731
Average amount of impaired loans for period
Non-covered	$	63,208		85,198		86,723
Covered		55,965		54,773		56,449
Average amount of impaired loans for period – total	$	119,173		139,971		143,172
Allowance for loan losses related to impaired loans at period end
Non-covered	$	5,960		5,051		11,051
Covered		4,700		3,509		5,158
Allowance for loan losses related to impaired loans - total	$	10,660		8,560		16,209
Amount of impaired loans with no related allowance at period end
Non-covered	$	20,072		12,049		22,235
Covered		43,708		35,196		40,613
Total impaired loans with no related allowance at period end	$	63,780		47,245		62,848

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company’s nonaccrual loans as of June 30, 2013.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	66		101		167
Commercial – secured		2,270		127		2,397
Secured by inventory and accounts receivable		36		826		862
Real estate – construction, land development & other land loans		9,408		20,066		29,474
Real estate – residential, farmland and multi-family		15,840		16,393		32,233
Real estate – home equity lines of credit		1,519		504		2,023
Real estate – commercial		12,427		12,265		24,692
Consumer		772		64		836
Total	$	42,338		50,346		92,684

The following table presents the Company’s nonaccrual loans as of December 31, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	307		150		457
Commercial - secured		2,398		3		2,401
Secured by inventory and accounts receivable		17		59		76
Real estate – construction, land development & other land loans		6,354		11,698		18,052
Real estate – residential, farmland and multi-family		9,629		10,712		20,341
Real estate – home equity lines of credit		1,622		465		2,087
Real estate - commercial		9,885		10,342		20,227
Consumer		2,822		62		2,884
Total	$	33,034		33,491		66,525

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2013.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	158		85		66		35,532		35,841
Commercial - secured		526		536		2,270		116,948		120,280
Secured by inventory and accounts receivable		38		15		36		20,452		20,541
Real estate – construction, land development & other land loans		669		192		9,408		222,083		232,352
Real estate – residential, farmland, and multi-family		7,320		1,043		15,840		825,857		850,060
Real estate – home equity lines of credit		1,363		394		1,519		195,005		198,281
Real estate - commercial		1,441		275		12,427		666,464		680,607
Consumer		372		210		772		50,099		51,453
Total non-covered	$	11,887		2,750		42,338		2,132,440		2,189,415
Unamortized net deferred loan costs										1,168
Total non-covered loans									$	2,190,583
Covered loans	$	2,970		458		50,346		186,505		240,279
Total loans	$	14,857		3,208		92,684		2,318,945		2,430,862

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2013.

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	91		10		307		35,278		35,686
Commercial - secured		1,020		220		2,398		110,074		113,712
Secured by inventory and accounts receivable		52		4		17		21,270		21,343
Real estate – construction, land development & other land loans		490		263		6,354		211,001		218,108
Real estate – residential, farmland, and multi-family		9,673		2,553		9,629		797,584		819,439
Real estate – home equity lines of credit		976		320		1,622		197,962		200,880
Real estate - commercial		4,326		1,131		9,885		612,598		627,940
Consumer		462		219		2,822		52,208		55,711
Total non-covered	$	17,090		4,720		33,034		2,037,975		2,092,819
Unamortized net deferred loan costs										1,324
Total non-covered loans									$	2,094,143
Covered loans	$	6,564		3,417		33,491		238,842		282,314
Total loans	$	23,654		8,137		66,525		2,276,817		2,376,457

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2012.

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2013.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total
As of and for the three months ended June 30, 2013
Beginning balance	$	4,949			14,857			15,285			2,040			5,714			1,791			125			44,761
Charge-offs		(560	)		(394	)		(858	)		(265	)		(1,907	)		(562	)		—			(4,546	)
Recoveries		214			24			117			4			93			106			—			558
Provisions		1,357			106			417			282			1,339			368			174			4,043
Ending balance	$	5,960			14,593			14,961			2,061			5,239			1,703			299			44,816
As of and for the six months ended June 30, 2013
Beginning balance	$	4,687			12,856			14,082			1,884			5,247			1,939			948			41,643
Charge-offs		(1,384	)		(1,217	)		(1,655	)		(889	)		(2,447	)		(1,090	)		(659	)		(9,341	)
Recoveries		233			617			663			62			882			243			—			2,700
Provisions		2,424			2,337			1,871			1,004			1,557			611			10			9,814
Ending balance	$	5,960			14,593			14,961			2,061			5,239			1,703			299			44,816
Ending balances as of June 30, 2013:  Allowance for loan losses
Individually evaluated for impairment	$	901			—			52			—			683			—			—			1,636
Collectively evaluated for impairment	$	5,059			14,593			14,909			2,061			4,556			1,703			299			43,180
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—
Loans receivable as of June 30, 2013:
Ending balance – total	$	176,662			232,352			850,060			198,281			680,607			51,453			—			2,189,415
Ending balances as of June 30, 2013: Loans
Individually evaluated for impairment	$	1,911			5,977			1,739			—			14,040			—			—			23,667
Collectively evaluated for impairment	$	174,751			226,375			848,321			198,281			666,567			51,453			—			2,165,748
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
As of and for the year ended December 31, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(4,912	)		(19,312	)		(20,879	)		(3,287	)		(16,616	)		(1,539	)		—		(66,545	)
Recoveries		354			986			430			209			333			273			—		2,585
Provisions		5,465			19,876			20,999			3,272			18,116			1,333			932		69,993
Ending balance	$	4,687			12,856			14,082			1,884			5,247			1,939			948		41,643
Ending balances as of December 31, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	—			—			50			—			957			—			—		1,007
Collectively evaluated for impairment	$	4,687			12,856			14,032			1,884			4,290			1,939			948		40,636
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of December 31, 2012:
Ending balance – total	$	170,741			218,108			819,439			200,880			627,940			55,711			—		2,092,819
Ending balances as of December 31, 2012: Loans
Individually evaluated for impairment	$	—			4,276			1,705			—			15,040			—			—		21,021
Collectively evaluated for impairment	$	170,741			213,832			817,734			200,880			612,900			55,711			—		2,071,798
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total
As of and for the three months ended June 30, 2012
Beginning balance	$	4,954			16,419			15,369			2,132			5,737			1,826			18		46,455
Charge-offs		(744	)		(174	)		(2,144	)		(281	)		(805	)		(334	)		—		(4,482	)
Recoveries		18			126			60			85			6			62			—		357
Provisions		833			1,448			1,674			210			781			237			10		5,193
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
As of and for the six months ended June 30, 2012
Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(2,062	)		(2,852	)		(4,235	)		(732	)		(2,170	)		(686	)		—		(12,737	)
Recoveries		34			314			254			119			47			132			—		900
Provisions		3,309			9,051			5,408			1,069			4,428			473			12		23,750
Ending balance	$	5,061			17,819			14,959			2,146			5,719			1,791			28		47,523
Ending balances as of June 30, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	869			4,819			635			439			1,480			—			—		8,242
Collectively evaluated for impairment	$	4,192			13,000			14,324			1,707			4,239			1,791			28		39,281
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—
Loans receivable as of June 30, 2012:
Ending balance – total	$	173,676			244,723			810,106			207,686			622,508			54,831			—		2,113,530
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	1,009			23,860			9,508			1,331			21,918			—			—		57,626
Collectively evaluated for impairment	$	172,667			220,863			800,598			206,355			600,590			54,831			—		2,055,904
Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2013.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2013
Beginning balance	$	5,028
Charge-offs		(541	)
Recoveries		—
Provisions		1,548
Ending balance	$	6,035
As of and for the six months ended June 30, 2013
Beginning balance	$	4,759
Charge-offs		(5,650	)
Recoveries		—
Provisions		6,926
Ending balance	$	6,035
Ending balances as of June 30, 2013: Allowance for loan losses
Individually evaluated for impairment	$	5,583
Collectively evaluated for impairment		452
Loans acquired with deteriorated credit quality		17
Loans receivable as of June 30, 2013:
Ending balance – total	$	240,279
Ending balances as of June 30, 2013: Loans
Individually evaluated for impairment	$	74,690
Collectively evaluated for impairment		165,589
Loans acquired with deteriorated credit quality		3,340

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2012.

($ in thousands)	Covered Loans
As of and for the year ended December 31, 2012
Beginning balance	$	5,808
Charge-offs		(10,728	)
Recoveries		—
Provisions		9,679
Ending balance	$	4,759
Ending balances as of December 31, 2012:  Allowance for loan losses
Individually evaluated for impairment	$	4,459
Collectively evaluated for impairment		300
Loans acquired with deteriorated credit quality		17
Loans receivable as of December 31, 2012:
Ending balance – total	$	282,314
Ending balances as of December 31, 2012: Loans
Individually evaluated for impairment	$	74,914
Collectively evaluated for impairment		207,400
Loans acquired with deteriorated credit quality		4,825

The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2012.

($ in thousands)	Covered Loans
As of and for the three months ended June 30, 2012
Beginning balance	$	6,372
Charge-offs		(1,714	)
Recoveries		—
Provisions		1,273
Ending balance	$	5,931
As of and for the six months ended June 30, 2012
Beginning balance	$	5,808
Charge-offs		(4,148	)
Recoveries		—
Provisions		4,271
Ending balance	$	5,931
Ending balances as of June 30, 2012: Allowance for loan losses
Individually evaluated for impairment	$	5,931
Collectively evaluated for impairment		—
Loans acquired with deteriorated credit quality		17
Loans receivable as of June 30, 2012:
Ending balance – total	$	322,895
Ending balances as of June 30, 2012: Loans
Individually evaluated for impairment	$	42,598
Collectively evaluated for impairment		280,297
Loans acquired with deteriorated credit quality		4,819

The following table presents the Company’s impaired loans as of June 30, 2013.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		—
Commercial - secured		844		1,066		—		281
Secured by inventory and accounts receivable		—		—		—		—
Real estate – construction, land development & other land loans		5,977		6,705		—		3,935
Real estate – residential, farmland, and multi-family		1,522		1,605		—		1,040
Real estate – home equity lines of credit		—		—		—		—
Real estate – commercial		11,729		14,730		—		8,309
Consumer		—		—		—		—
Total non-covered impaired loans with no allowance	$	20,072		24,106		—		13,565
Total covered impaired loans with no allowance	$	43,708		82,622		—		41,251
Total impaired loans with no allowance recorded	$	63,780		106,728		—		54,816
Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	66		66		48		133
Commercial - secured		2,924		3,326		819		2,568
Secured by inventory and accounts receivable		405		432		377		148
Real estate – construction, land development & other land loans		5,103		6,969		1,455		5,600
Real estate – residential, farmland, and multi-family		28,728		29,309		2,210		26,974
Real estate – home equity lines of credit		1,519		1,802		89		1,555
Real estate – commercial		8,855		9,557		863		11,163
Consumer		773		1,118		99		1,502
Total non-covered impaired loans with allowance	$	48,373		52,579		5,960		49,643
Total covered impaired loans with allowance	$	13,428		15,494		4,700		14,714
Total impaired loans with an allowance recorded	$	61,801		68,073		10,660		64,357

Interest income recorded on non-covered and covered impaired loans during the six months ended June 30, 2013 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

The following table presents the Company’s impaired loans as of December 31, 2012.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:
Commercial – unsecured	$	—		—		—		—
Commercial - secured		—		—		—		87
Secured by inventory and accounts receivable		—		—		—		5
Real estate – construction, land development & other land loans		4,277		4,305		—		8,600
Real estate – residential, farmland, and multi-family		1,597		1,618		—		2,692
Real estate – home equity lines of credit		—		—		—		64
Real estate – commercial		6,175		6,851		—		12,724
Consumer		—		—		—		2
Total non-covered impaired loans with no allowance	$	12,049		12,774		—		24,174
Total covered impaired loans with no allowance	$	35,196		71,413		—		39,372
Total impaired loans with no allowance recorded	$	47,245		84,187		—		63,546
Non-covered  loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	307		386		58		221
Commercial - secured		2,398		2,762		436		2,304
Secured by inventory and accounts receivable		17		43		4		548
Real estate – construction, land development & other land loans		3,934		5,730		1,213		12,199
Real estate – residential, farmland, and multi-family		23,859		25,844		1,955		27,186
Real estate – home equity lines of credit		1,645		2,120		96		2,901
Real estate – commercial		10,851		13,048		936		12,863
Consumer		2,822		2,858		353		2,802
Total non-covered impaired loans with allowance	$	45,833		52,791		5,051		61,024
Total covered impaired loans with allowance	$	13,760		18,271		3,509		15,401
Total impaired loans with an allowance recorded	$	59,593		71,062		8,560		76,425

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2012 is considered insignificant.

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

Loan and Asset Quality Information Part II

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

	Numerical Risk Grade	Description
Pass:
	1	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances.  This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of June 30, 2013.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	6,585		27,158		10		1,073		949		66		35,841
Commercial - secured		31,523		77,010		535		3,915		5,027		2,270		120,280
Secured by inventory and accounts receivable		2,233		14,147		231		2,228		1,666		36		20,541
Real estate – construction, land development & other land loans		29,496		171,173		2,619		10,453		9,203		9,408		232,352
Real estate – residential, farmland, and multi-family		247,194		517,930		6,198		33,761		29,137		15,840		850,060
Real estate – home equity lines of credit		120,662		66,336		1,408		5,783		2,573		1,519		198,281
Real estate - commercial		100,233		516,284		17,002		22,878		11,783		12,427		680,607
Consumer		25,171		23,680		82		953		795		772		51,453
Total	$	563,097		1,413,718		28,085		81,044		61,133		42,338		2,189,415
Unamortized net deferred loan costs														1,168
Total non-covered  loans													$	2,190,583
Total covered loans	$	31,985		99,378		—		9,968		48,602		50,346		240,279
Total loans	$	595,082		1,513,096		28,085		91,012		109,735		92,684		2,430,862

At June 30, 2013, there was an insignificant amount of loans that were graded “8” with an accruing status.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	10,283		24,031		10		472		583		307		35,686
Commercial - secured		32,196		72,838		1,454		3,676		1,150		2,398		113,712
Secured by inventory and accounts receivable		2,344		18,126		248		491		117		17		21,343
Real estate – construction, land development & other land loans		31,582		163,588		3,830		9,045		3,709		6,354		218,108
Real estate – residential, farmland, and multi-family		249,313		499,922		7,154		29,091		24,330		9,629		819,439
Real estate – home equity lines of credit		125,310		66,412		2,160		3,526		1,850		1,622		200,880
Real estate - commercial		123,814		449,316		21,801		14,050		9,074		9,885		627,940
Consumer		27,826		23,403		77		954		629		2,822		55,711
Total	$	602,668		1,317,636		36,734		61,305		41,442		33,034		2,092,819
Unamortized net deferred loan costs														1,324
Total non-covered  loans													$	2,094,143
Total covered loans	$	42,935		124,451		—		7,569		73,868		33,491		282,314
Total loans	$	645,603		1,442,087		36,734		68,874		115,310		66,525		2,376,457

At December 31, 2012, there was an insignificant amount of loans that were graded “8” with an accruing status.

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 creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

The vast majority of the Company’s troubled debt restructurings modified during the three and six months ended June 30, 2013 related to interest rate reductions combined with restructured amortization schedules. The Company does not generally grant principal forgiveness.

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2013.

($ in thousands)	For the three months ended June 30, 2013
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Real estate – residential, farmland, and multi-family		3	$	574	$	576
Real estate – commercial		1		103		103
Non-covered TDRs – Nonaccrual		—		—		—
Total non-covered TDRs arising during period		4		677		679
Total covered TDRs arising during period– Accruing		3	$	312	$	311
Total covered TDRs arising during period – Nonaccrual		—		—		—
Total TDRs arising during period		7	$	989	$	990

($ in thousands)	For the six months ended June 30, 2013
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Real estate – residential, farmland, and multi-family		9	$	1,082	$	1,084
Real estate – commercial		2		164		164
Consumer		1		14		14
Non-covered TDRs - Nonaccrual
Real estate – residential, farmland, and multi-family		3		209		209
Total non-covered TDRs arising during period		15		1,469		1,471
Total covered TDRs arising during period– Accruing		4	$	359	$	351
Total covered TDRs arising during period – Nonaccrual		—		—		—
Total TDRs arising during period		19	$	1,828	$	1,822

The following table presents information related to loans modified in a troubled debt restructuring during the three and six months ended June 30, 2012.

($ in thousands)	For the three months ended June 30, 2012
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		1	$	300	$	300
Real estate – residential, farmland, and multi-family		1		303		303
Non-covered TDRs – Nonaccrual
Real estate – construction, land development & other land loans		1		238		238
Total non-covered TDRs arising during period		3		841		841
Total covered TDRs arising during period– Accruing		3	$	5,428	$	5,428
Total covered TDRs arising during period – Nonaccrual		—		—		—
Total TDRs arising during period		6	$	6,269	$	6,269

($ in thousands)	For the six months ended June 30, 2012
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		1	$	300	$	300
Real estate – residential, farmland, and multi-family		1		303		303
Non-covered TDRs – Nonaccrual
Real estate – construction, land development & other land loans		1		238		238
Total non-covered TDRs arising during period		3		841		841
Total covered TDRs arising during period– Accruing		6	$	7,526	$	7,526
Total covered TDRs arising during period – Nonaccrual		—		—		—
Total TDRs arising during period		9	$	8,367	$	8,367

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three and six months ended June 30, 2013 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

($ in thousands)	For the three months ended June 30, 2013				For the six months ended June 30, 2013
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		1	$	342		1	$	342
Real estate – residential, farmland, and multi-family		—		—		1		252
Total non-covered TDRs that subsequently defaulted		1	$	342		2	$	594
Total accruing covered TDRs that subsequently defaulted		—	$	—		1	$	3,501
Total accruing TDRs that subsequently defaulted		1	$	342		3	$	4,095

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three and six months ended June 30, 2012 are presented in the table below.

($ in thousands)	For the three months ended June 30, 2012				For the six months ended June 30, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted		—	$	—		—	$	—
Total non-covered TDRs that subsequently defaulted		—	$	—		—	$	—
Total accruing covered TDRs that subsequently defaulted		1	$	439		1	$	439
Total accruing TDRs that subsequently defaulted		1	$	439		1	$	439