Note 7 – 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.”

On July 1, 2014, one of the Company's loss share agreements with the FDIC expired. The agreement that expired related to the non-single family assets of Cooperative Bank, a failed bank acquisition in 2009. Accordingly, the remaining balances associated with these loans and foreclosed real estate were transferred from the covered portfolio to the non-covered portfolio on July 1, 2014. The Company will bear all future losses on this portfolio of loans and foreclosed real estate. Immediately prior to the transfer to non-covered status, the loans in this portfolio had a carrying value of $39.7 million and the foreclosed real estate in this portfolio had a carrying value of $3.0 million. Of the $39.7 million in loans that lost loss share protection, approximately $9.7 million were on nonaccrual status and $2.1 million were classified as accruing troubled debt restructurings as of July 1, 2014. Additionally, approximately $1.7 million in allowance for loan losses associated with this portfolio of loans was transferred to the allowance for loan losses for non-covered loans on July 1, 2014.

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

($ in thousands)	September 30, 2015				December 31, 2014				September 30, 2014
	Amount		Percentage		Amount		Percentage		Amount		Percentage
All loans (non-covered and covered):

Commercial, financial, and agricultural	$	199,630		8%	$	160,878		7%	$	165,215		7%
Real estate – construction, land development & other land loans		294,426		12%		288,148		12%		298,091		13%
Real estate – mortgage – residential (1-4 family) first mortgages		770,691		31%		789,871		33%		806,954		33%
Real estate – mortgage – home equity loans / lines of credit		224,639		9%		223,500		9%		224,553		9%
Real estate – mortgage – commercial and other		944,432		38%		882,127		37%		879,122		36%
Installment loans to individuals		47,120		2%		50,704		2%		51,425		2%
Subtotal		2,480,938		100%		2,395,228		100%		2,425,360		100%
Unamortized net deferred loan costs		765				946				730
Total loans	$	2,481,703			$	2,396,174			$	2,426,090

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

($ in thousands)	September 30, 2015				December 31, 2014				September 30, 2014
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Non-covered loans:

Commercial, financial, and agricultural	$	198,624		9%	$	159,195		7%	$	162,994		7%
Real estate – construction, land development & other land loans		290,465		12%		282,604		13%		292,401		13%
Real estate – mortgage – residential (1-4 family) first mortgages		692,431		29%		700,101		31%		714,879		31%
Real estate – mortgage – home equity loans / lines of credit		213,435		9%		210,697		9%		211,477		9%
Real estate – mortgage – commercial and other		932,254		39%		864,333		38%		858,935		38%
Installment loans to individuals		47,120		2%		50,704		2%		51,425		2%
Subtotal		2,374,329		100%		2,267,634		100%		2,292,111		100%
Unamortized net deferred loan costs		765				946				730
Total non-covered loans	$	2,375,094			$	2,268,580			$	2,292,841

The carrying amount of the covered loans at September 30, 2015 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	$	59		116		947		975		1,006		1,091
Real estate – construction, land development & other land loans		297		522		3,664		3,912		3,961		4,434
Real estate – mortgage – residential (1-4 family) first mortgages		109		636		78,151		91,570		78,260		92,206
Real estate – mortgage – home equity loans / lines of credit		8		15		11,196		12,912		11,204		12,927
Real estate – mortgage – commercial and other		1,047		3,154		11,131		11,871		12,178		15,025
Total	$	1,520		4,443		105,089		121,240		106,609		125,683

The carrying amount of the covered loans at December 31, 2014 consisted of impaired and nonimpaired purchased loans (as determined on the date of the 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	$	66		123		1,617		1,661		1,683		1,784
Real estate – construction, land development & other land loans		309		534		5,235		6,471		5,544		7,005
Real estate – mortgage – residential (1-4 family) first mortgages		362		1,298		89,408		104,678		89,770		105,976
Real estate – mortgage – home equity loans / lines of credit		12		19		12,791		15,099		12,803		15,118
Real estate – mortgage – commercial and other		1,201		3,209		16,593		17,789		17,794		20,998
Total	$	1,950		5,183		125,644		145,698		127,594		150,881

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2013. 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, 2013	$	207,167
Principal repayments		(50,183	)
Transfers to foreclosed real estate		(5,061	)
Transfers to non-covered loans due to expiration of loss-share agreement		(38,987	)
Net loan (charge-offs) / recoveries		(3,301	)
Accretion of loan discount		16,009
Carrying amount of nonimpaired covered loans at December 31, 2014		125,644
Principal repayments		(25,051	)
Transfers to foreclosed real estate		(1,129	)
Net loan (charge-offs) / recoveries		1,728
Accretion of loan discount		3,897
Carrying amount of nonimpaired covered loans at September 30, 2015	$	105,089

As reflected in the table above, the Company accreted $3,897,000 of the loan discount on purchased nonimpaired loans into interest income during the first nine months of 2015. As of September 30, 2015, there was remaining loan discount of $14,151,000 related to purchased accruing 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 approximately 80% of the loan discount accretion, which reduces noninterest income. At September 30, 2015, the Company also had $2,043,000 of loan discount related to purchased nonaccruing 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, 2013, the majority 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, 2013	$	6,263			3,121			3,142
Change due to payments received		(599)			227			(826)
Change due to loan charge-off		(2)			29			(31)
Other		197			(115)			312
Balance at December 31, 2014	$	5,859			3,262			2,597
Change due to payments received		(330	)		55			(385)
Transfer to foreclosed real estate		(431	)		(336	)		(95)
Other		(3	)		(3	)		—
Balance at September 30, 2015	$	5,095			2,978			2,117

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 nine months of 2015 and 2014, the Company received $56,000 and $179,000, 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)	September 30, 2015		December 31, 2014		September 30, 2014

Non-covered nonperforming assets
Nonaccrual loans	$	42,347	$	50,066	$	53,620
Restructured loans - accruing		29,250		35,493		31,501
Accruing loans > 90 days past due		—		—		—
Total non-covered nonperforming loans		71,597		85,559		85,121
Foreclosed real estate		9,304		9,771		11,705
Total non-covered nonperforming assets	$	80,901	$	95,330	$	96,826

Covered nonperforming assets
Nonaccrual loans (1)	$	5,373	$	10,508	$	10,478
Restructured loans - accruing		3,825		5,823		6,273
Accruing loans > 90 days past due		—		—		—
Total covered nonperforming loans		9,198		16,331		16,751
Foreclosed real estate		1,569		2,350		3,237
Total covered nonperforming assets	$	10,767	$	18,681	$	19,988

Total nonperforming assets	$	91,668	$	114,011	$	116,814

(1)	At September 30, 2015, December 31, 2014, and September 30, 2014, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $10.1 million, $16.0 million, and $16.3 million, respectively.

At September 30, 2015, the Company had $3.0 million in residential mortgage loans in process of foreclosure.

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 September 30, 2015.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	470		22		492
Commercial – secured		2,253		—		2,253
Secured by inventory and accounts receivable		84		23		107

Real estate – construction, land development & other land loans		5,374		60		5,434

Real estate – residential, farmland and multi-family		21,936		3,270		25,206

Real estate – home equity lines of credit		2,110		362		2,472

Real estate – commercial		9,762		1,636		11,398

Consumer		358		—		358
Total	$	42,347		5,373		47,720

The following table presents the Company's nonaccrual loans as of December 31, 2014.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	187		1		188
Commercial – secured		2,927		—		2,927
Secured by inventory and accounts receivable		454		103		557

Real estate – construction, land development & other land loans		7,891		1,140		9,031

Real estate – residential, farmland and multi-family		24,459		7,785		32,244

Real estate – home equity lines of credit		2,573		278		2,851

Real estate – commercial		11,070		1,201		12,271

Consumer		505		—		505
Total	$	50,066		10,508		60,574

The following table presents an analysis of the payment status of the Company's loans as of September 30, 2015.

($ 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	$	734		—		470		49,325		50,529
Commercial - secured		772		73		2,253		114,989		118,087
Secured by inventory and accounts receivable		366		—		84		33,177		33,627

Real estate – construction, land development & other land loans		938		90		5,374		269,002		275,404

Real estate – residential, farmland, and multi-family		5,404		1,948		21,936		822,084		851,372

Real estate – home equity lines of credit		996		332		2,110		199,180		202,618

Real estate - commercial		4,013		234		9,762		785,182		799,191

Consumer		379		239		358		42,525		43,501
Total non-covered	$	13,602		2,916		42,347		2,315,464		2,374,329
Unamortized net deferred loan costs										765
Total non-covered loans									$	2,375,094

Covered loans	$	340		751		5,373		100,145		106,609

Total loans	$	13,942		3,667		47,720		2,415,609		2,481,703

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at September 30, 2015.

The following table presents an analysis of the payment status of the Company's loans as of December 31, 2014.

($ 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	$	191		35		187		36,871		37,284
Commercial - secured		1,003		373		2,927		102,671		106,974
Secured by inventory and accounts receivable		30		225		454		21,761		22,470

Real estate – construction, land development & other land loans		1,950		139		7,891		247,535		257,515

Real estate – residential, farmland, and multi-family		11,272		3,218		24,459		807,884		846,833

Real estate – home equity lines of credit		1,585		352		2,573		194,067		198,577

Real estate - commercial		3,738		996		11,070		738,981		754,785

Consumer		695		131		505		41,865		43,196
Total non-covered	$	20,464		5,469		50,066		2,191,635		2,267,634
Unamortized net deferred loan costs										946
Total non-covered loans									$	2,268,580

Covered loans	$	4,385		964		10,508		111,737		127,594

Total loans	$	24,849		6,433		60,574		2,303,372		2,396,174

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2014.

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and nine months ended September 30, 2015.

($ 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 September 30, 2015

Beginning balance	$	5,564			5,016			9,641			3,167			4,723			948			1,096		30,155
Charge-offs	(523			)	(574		)	(1,949		)	(31		)	(198		)	(369		)	—		(3,644)
Recoveries	387				625			98			43			140			84			—		1,377
Provisions	(185			)	(1,105		)	1,341			(565		)	249			216			316		267
Ending balance	$	5,243			3,962			9,131			2,614			4,914			879			1,412		28,155

As of and for the nine months ended September 30, 2015

Beginning balance	$		8,391			6,470			9,720			3,731			9,045			841			147		38,345
Charge-offs			(3,550	)		(2,532	)		(4,362	)		(594	)		(2,147	)		(1,222	)		—		(14,407)
Recoveries			735			942			270			88			535			275			—		2,845
Provisions			(333	)		(918	)		3,503			(611	)		(2,519	)		985			1,265		1,372
Ending balance	$		5,243			3,962			9,131			2,614			4,914			879			1,412		28,155

Ending balances as of September 30, 2015: Allowance for loan losses

Individually evaluated for impairment	$		135			250			1,575			—			449			—			—		2,409

Collectively evaluated for impairment	$		5,108			3,712			7,556			2,614			4,465			879			1,412		25,746

Loans acquired with deteriorated credit quality	$		—			—			—			—			—			—			—		—

Loans receivable as of September 30, 2015:

Ending balance - total	$		202,243			275,404			851,372			202,618			799,191			43,501			—		2,374,329
Unamortized net deferred loan costs																							765
Total non-covered loans																						$	2,375,094

Ending balances as of September 30, 2015: Loans

Individually evaluated for impairment	$		986			4,685			23,599			—			16,655			—			—		45,925

Collectively evaluated for impairment	$		201,257			270,719			827,773			202,618			781,939			43,501			—		2,327,807

Loans acquired with deteriorated credit quality	$		—			—			—			—			597			—			—		597

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2014.

($ 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, 2014

Beginning balance	$	7,432		12,966		15,142		1,838		5,524		1,513		(152)		44,263
Charge-offs		(4,039)		(2,148)		(4,417)		(912)		(3,048)		(1,724)		—		(16,288)
Recoveries		140		398		331		45		181		451		—		1,546
Transfer from covered category		36		813		51		—		833		4		—		1,737
Provisions		4,822		(5,559)		(1,387)		2,760		5,555		597		299		7,087
Ending balance	$	8,391		6,470		9,720		3,731		9,045		841		147		38,345

Ending balances as of December 31, 2014: Allowance for loan losses

Individually evaluated for impairment	$	211		415		1,686		—		165		—		—		2,477

Collectively evaluated for impairment	$	8,180		6,055		8,034		3,731		8,880		841		147		35,868

Loans acquired with deteriorated credit quality	$	—		—		—		—		—		—		—		—

Loans receivable as of December 31, 2014:

Ending balance - total	$	166,728		257,515		846,833		198,577		754,785		43,196		—		2,267,634
Unamortized net deferred loan costs																946
Total non-covered loans															$	2,268,580

Ending balances as of December 31, 2014: Loans

Individually evaluated for impairment	$	784		7,991		20,263		476		20,263		7		—		53,531

Collectively evaluated for impairment	$	165,944		249,524		733,875		198,101		733,875		43,189		—		2,213,456

Loans acquired with deteriorated credit quality	$	—		—		—		—		647		—		—		647

The following table presents the activity in the allowance for loan losses for non-covered loans for the three and nine months ended September 30, 2014.

($ 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 September 30, 2014

Beginning balance	$	8,948		7,414		11,132		3,755		9,212		906		599		41,966
Charge-offs	(840)			(470)		(874)		(116)		(987)		(463)		—		(3,750)
Recoveries	32			40		111		7		14		128		—		332
Transfer from covered category	36			813		51		—		833		4		—		1,737
Provisions	1,185			(574)		(194)		49		971		343		(501)		1,279
Ending balance	$		9,361	7,223		10,226		3,695		10,043		918		98		41,564



As of and for the nine months ended September 30, 2014

Beginning balance	$	7,432			12,966		15,142		1,838		5,524		1,513		(152)		44,263
Charge-offs		(3,506)			(1,704)		(2,505)		(619)		(1,876)		(1,262)		—		(11,472)
Recoveries		81			349		290		18		135		361		—		1,234
Transfer from covered category		36			813		51		—		833		4		—		1,737
Provisions		5,318			(5,201)		(2,752)		2,458		5,427		302		250		5,802
Ending balance	$	9,361			7,223		10,226		3,695		10,043		918		98		41,564

Ending balances as of September 30, 2014: Allowance for loan losses

Individually evaluated for impairment	$	381			513		1,771		—		229		20		—		2,914

Collectively evaluated for impairment	$	8,980			6,710		8,455		3,695		9,814		898		98		38,650

Loans acquired with deteriorated credit quality	$	—			—		—		—		—		—		—		—

Loans receivable as of September 30, 2014:

Ending balance - total	$	170,648			266,419		860,218		198,977		752,108		43,741		—		2,292,111
Unamortized net deferred loan costs																	730
Total non-covered loans																$	2,292,841

Ending balances as of September 30, 2014: Loans

Individually evaluated for impairment	$	972			8,613		24,233		481		20,128		34		—		54,461

Collectively evaluated for impairment	$	169,676			257,806		835,985		198,496		731,316		43,707		—		2,236,986

Loans acquired with deteriorated credit quality	$	—			—		—		—		664		—		—		664

The following table presents the activity in the allowance for loan losses for covered loans for the three and nine months ended September 30, 2015.

($ in thousands)	Covered Loans

As of and for the three months ended September 30, 2015
Beginning balance	$	1,935
Charge-offs		(84	)
Recoveries		1,730
Provisions		(1,681	)
Ending balance	$	1,900

As of and for the nine months ended September 30, 2015
Beginning balance	$	2,281
Charge-offs		(1,200	)
Recoveries		2,928
Provisions		(2,109	)
Ending balance	$	1,900

Ending balances as of September 30, 2015: Allowance for loan losses

Individually evaluated for impairment	$	466
Collectively evaluated for impairment		1,391
Loans acquired with deteriorated credit quality		43

Loans receivable as of September 30, 2015:

Ending balance – total	$	106,609

Ending balances as of September 30, 2015: Loans

Individually evaluated for impairment	$	5,197
Collectively evaluated for impairment		99,892
Loans acquired with deteriorated credit quality		1,520

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2014.

($ in thousands)	Covered Loans

As of and for the year ended December 31, 2014
Beginning balance	$	4,242
Charge-offs		(6,948	)
Recoveries		3,616
Transferred to non-covered		(1,737	)
Provisions		3,108
Ending balance	$	2,281

Ending balances as of December 31, 2014: Allowance for loan losses

Individually evaluated for impairment	$	1,161
Collectively evaluated for impairment		1,046
Loans acquired with deteriorated credit quality		74

Loans receivable as of December 31, 2014:

Ending balance – total	$	127,594

Ending balances as of December 31, 2014: Loans

Individually evaluated for impairment	$	11,484
Collectively evaluated for impairment		114,160
Loans acquired with deteriorated credit quality		1,950

The following table presents the activity in the allowance for loan losses for covered loans for the three and nine months ended September 30, 2014.

($ in thousands)	Covered Loans

As of and for the three months ended September 30, 2014
Beginning balance	$	3,830
Charge-offs		(195	)
Recoveries		463
Transferred to non-covered		(1,737	)
Provisions		206
Ending balance	$	2,567

As of and for the nine months ended September 30, 2014
Beginning balance	$	4,242
Charge-offs		(5,865	)
Recoveries		3,010
Transferred to non-covered		(1,737	)
Provisions		2,917
Ending balance	$	2,567

Ending balances as of September 30, 2014: Allowance for loan losses

Individually evaluated for impairment	$	1,537
Collectively evaluated for impairment		1,003
Loans acquired with deteriorated credit quality		27

Loans receivable as of September 30, 2014:

Ending balance – total	$	133,249

Ending balances as of September 30, 2014: Loans

Individually evaluated for impairment	$	11,258
Collectively evaluated for impairment		119,953
Loans acquired with deteriorated credit quality		2,038

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2015.

($ 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	$	271		311		—		102
Commercial - secured		92		95		—		56
Secured by inventory and accounts receivable		—		—		—		—

Real estate – construction, land development & other land loans		3,729		7,090		—		4,716

Real estate – residential, farmland, and multi-family		9,466		10,839		—		9,548

Real estate – home equity lines of credit		—		—		—		119

Real estate – commercial		12,531		14,149		—		15,731

Consumer		—		—		—		2
Total non-covered impaired loans with no allowance	$	26,089		32,484		—		30,274

Total covered impaired loans with no allowance	$	3,742		7,380		—		5,701

Total impaired loans with no allowance recorded	$	29,831		39,864		—		35,975

Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	148		155		43		139
Commercial - secured		475		496		92		538
Secured by inventory and accounts receivable		—		—		—		—

Real estate – construction, land development & other land loans		956		1,002		250		1,363

Real estate – residential, farmland, and multi-family		14,133		14,526		1,575		14,194

Real estate – home equity lines of credit		—		—		—		—

Real estate – commercial		4,721		4,793		449		3,608

Consumer		—		—		—		—
Total non-covered impaired loans with allowance	$	20,433		20,972		2,409		19,842

Total covered impaired loans with allowance	$	2,975		3,268		509		3,874

Total impaired loans with an allowance recorded	$	23,408		24,240		2,918		23,716

Interest income recorded on non-covered and covered impaired loans during the nine months September 30, 2015 was insignificant.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014.

($ 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	$	33		35		—		20
Commercial - secured		5		6		—		95
Secured by inventory and accounts receivable		—		—		—		—

Real estate – construction, land development & other land loans		6,877		7,944		—		6,430

Real estate – residential, farmland, and multi-family		9,165		10,225		—		7,776

Real estate – home equity lines of credit		476		498		—		388

Real estate – commercial		17,409		20,786		—		11,911

Consumer		7		10		—		7
Total non-covered impaired loans with no allowance	$	33,972		39,504		—		26,627

Total covered impaired loans with no allowance	$	8,097		12,081		—		16,986

Total impaired loans with no allowance recorded	$	42,069		51,585		—		43,613

Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	140		143		47		142
Commercial - secured		606		612		164		550
Secured by inventory and accounts receivable		—		—		—		15

Real estate – construction, land development & other land loans		1,114		3,243		415		1,487

Real estate – residential, farmland, and multi-family		14,845		15,257		1,686		14,418

Real estate – home equity lines of credit		—		—		—		4

Real estate – commercial		3,501		3,530		165		6,420

Consumer		—		—		—		8
Total non-covered impaired loans with allowance	$	20,206		22,785		2,477		23,044

Total covered impaired loans with allowance	$	5,220		5,719		1,229		8,513

Total impaired loans with an allowance recorded	$	25,426		28,504		3,706		31,557

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2014 was insignificant.

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	Loans with virtually no risk, including cash secured loans.
	2	Loans with documented significant overall financial strength, including non-cash secured or unsecured loans that have no minor or major exceptions to the lending guidelines.
	3	Loans with documented satisfactory overall financial strength, including non-cash secured or unsecured loans that have no major exceptions to the lending guidelines. If unsecured, loans would include support of a strong guarantor or co-maker.
	4	Loans to borrowers with acceptable financial condition, including non-cash secured or unsecured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated. Primary or secondary source of repayment is sufficient and if secured, loan would include the support of a satisfactory guarantor or co-maker.
Watch or Standard:
	9	Existing 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.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated. Potential for loss is possible.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected. Loss is not only possible, but probable.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable. Loss appears imminent, but the exact amount and timing is uncertain.
	8	Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.

The following table presents the Company's recorded investment in loans by credit quality indicators as of September 30, 2015.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Pass – Acceptable/ Average (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	$	28,490		19,737		—		1,161		671		470		50,529
Commercial - secured		54,927		55,401		32		3,224		2,250		2,253		118,087
Secured by inventory and accounts receivable		13,154		19,525		—		273		591		84		33,627

Real estate – construction, land development & other land loans		96,745		151,784		679		12,355		8,467		5,374		275,404

Real estate – residential, farmland, and multi-family		213,179		535,203		4,420		44,175		32,459		21,936		851,372

Real estate – home equity lines of credit		129,421		60,464		1,412		5,067		4,144		2,110		202,618

Real estate - commercial		281,428		461,060		8,102		26,880		11,959		9,762		799,191

Consumer		29,371		12,841		52		400		479		358		43,501
Total	$	846,715		1,316,015		14,697		93,535		61,020		42,347		2,374,329
Unamortized net deferred loan costs														765
Total non-covered loans													$	2,375,094

Total covered loans	$	12,332		61,065		253		8,505		19,081		5,373		106,609

Total loans	$	859,047		1,377,080		14,950		102,040		80,101		47,720		2,481,703

At September 30, 2015, 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, 2014.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Pass – Acceptable/ Average (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	$	17,856		15,649		5		1,356		2,231		187		37,284
Commercial - secured		32,812		62,361		62		4,481		4,331		2,927		106,974
Secured by inventory and accounts receivable		10,815		9,928		—		767		506		454		22,470

Real estate – construction, land development & other land loans		87,806		135,072		771		13,066		12,909		7,891		257,515

Real estate – residential, farmland, and multi-family		221,581		520,790		4,536		40,993		34,474		24,459		846,833

Real estate – home equity lines of credit		122,528		62,642		1,135		5,166		4,533		2,573		198,577

Real estate - commercial		223,197		465,395		9,057		30,318		15,748		11,070		754,785

Consumer		25,520		15,614		54		855		648		505		43,196
Total	$	742,115		1,287,451		15,620		97,002		75,380		50,066		2,267,634
Unamortized net deferred loan costs														946
Total non-covered loans													$	2,268,580

Total covered loans	$	14,349		70,989		632		10,503		20,613		10,508		127,594

Total loans	$	756,464		1,358,440		16,252		107,505		95,993		60,574		2,396,174

At December 31, 2014, 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 periods ended September 30, 2015 and 2014 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 months ended September 30, 2015 and 2014.

($ in thousands)	For the three months ended						For the three months ended
	September 30, 2015						September 30, 2014
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances		Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Commercial, financial, and agricultural:
Commercial – unsecured		—	$	—	$	—		—	$	—	$	—
Commercial – secured		—		—		—		—		—		—
Secured by inventory and accounts receivable		—		—		—		—		—		—
Real estate – construction, land development & other land loans		1		235		235		—		—		—
Real estate – residential, farmland, and multi-family		1		21		21		1		36		36
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		1		390		390		—		—		—
Consumer		—		—		—		—		—		—

Non-covered TDRs – Nonaccrual
Commercial, financial, and agricultural:
Commercial – unsecured		—		—		—		—		—		—
Commercial – secured		—		—		—		1		15		15
Secured by inventory and accounts receivable		—		—		—		—		—		—
Real estate – construction, land development & other land loans		2		495		495		—		—		—
Real estate – residential, farmland, and multi-family		1		95		95		3		275		275
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total non-covered TDRs arising during period		6		1,236		1,236		5		326		326

Total covered TDRs arising during period – Accruing		—	$	—	$	—		1	$	680	$	667
Total covered TDRs arising during period – Nonaccrual		—		—		—		2		150		145

Total TDRs arising during period		6	$	1,236	$	1,236		8	$	1,156	$	1,138

The following table presents information related to loans modified in a troubled debt restructuring during the nine months ended September 30, 2015 and 2014.

($ in thousands)	For the nine months ended September 30, 2015						For the nine months ended September 30, 2014
	Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances
Non-covered TDRs – Accruing
Commercial, financial, and agricultural:
Commercial – unsecured		1	$	8	$	8		—	$	—	$	—
Commercial – secured		—		—		—		—		—		—
Secured by inventory and accounts receivable		—		—		—		—		—		—
Real estate – construction, land development & other land loans		1		235		235		—		—		—
Real estate – residential, farmland, and multi-family		3		286		286		8		784		784
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		2		441		441		—		—		—
Consumer		—		—		—		—		—		—

Non-covered TDRs – Nonaccrual
Commercial, financial, and agricultural:
Commercial – unsecured		—		—		—		—		—		—
Commercial – secured		—		—		—		1		15		15
Secured by inventory and accounts receivable		—		—		—		—		—		—
Real estate – construction, land development & other land loans		2		495		495		—		—		—
Real estate – residential, farmland, and multi-family		5		400		400		7		713		713
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Total non-covered TDRs arising during period		14		1,865		1,865		16		1,512		1,512

Total covered TDRs arising during period– Accruing		2	$	139	$	139		3	$	928	$	912
Total covered TDRs arising during period – Nonaccrual		—		—		—		7		860		827
Total TDRs arising during period		16	$	2,004	$	2,004		26	$	3,300	$	3,251

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended September 30, 2015 and 2014 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				For the three months ended
	September 30, 2015				September 30, 2014
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial – unsecured		—	$	—		—	$	—
Real estate – construction, land development & other land loans		—		—		—		—
Real estate – residential, farmland, and multi-family		1		152		—		—
Real estate – commercial		—		—		—		—
Total non-covered TDRs that subsequently defaulted		1	$	152		—	$	—

Total accruing covered TDRs that subsequently defaulted		—	$	—		—	$	—
Total accruing TDRs that subsequently defaulted		1	$	152		—	$	—

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the nine months ended September 30, 2015 and 2014 are presented in the table below.

($ in thousands)	For the nine months ended September 30, 2015				For the nine months ended September 30, 2014
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial – unsecured		1	$	7		—	$	—
Real estate – construction, land development & other land loans		—		—		1		5
Real estate – residential, farmland, and multi-family		2		186		—		—
Real estate – commercial		—		—		1		71
Total non-covered TDRs that subsequently defaulted		3	$	193		2	$	76

Total accruing covered TDRs that subsequently defaulted		—	$	—		—	$	—
Total accruing TDRs that subsequently defaulted		3	$	193		2	$	76