LOANS

6 Months Ended

Jun. 30, 2020

LOANS

LOANS

NOTE 10 – LOANS

The Company uses four different categories to classify loans in its portfolio based on the underlying collateral securing each loan. The loans grouped together in each category have been determined to share similar risk characteristics with respect to credit quality. Those four categories are commercial, financial and agriculture, commercial real estate, consumer real estate, installment and other;

Commercial, financial and agriculture – Commercial, financial and agriculture loans include loans to business entities issued for commercial, industrial, or other business purposes. This type of commercial loan shares a similar risk characteristic in that unlike commercial real estate loans, repayment is largely dependent on cash flow generated from the operation of the business.

Commercial real estate – Commercial real estate loans are grouped as such because repayment is mainly dependent upon either the sale of the real estate, operation of the business occupying the real estate, or refinance of the debt obligation. This includes both owner-occupied and non-owner occupied CRE secured loans, because they share similar risk characteristics related to these variables.

Consumer real estate – Consumer real estate loans consist primarily of loans secured by 1-4 family residential properties and/or residential lots. This includes loans for the purpose of constructing improvements on the residential property, as well as home equity lines of credit.

Installment and other – Installment and other loans are all loans issued to individuals that are not for any purpose related to operation of a business, and not secured by real estate. Repayment on these loans is mostly dependent on personal income, which may be impacted by general economic conditions.

Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income.  No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

The following tables summarize by class our loans classified as past due in excess of 30 days or more in addition to those loans classified as nonaccrual including PCI loans.

	June 30, 2020
			Past Due
	Past Due		90 Days						Total
	30 to 89		or More						Past Due,
	Days and		and Still		Non				Non accrual		Total
($ in thousands)	Accruing		Accruing		accrual		PCI		and PCI		Loans
Commercial, financial and agriculture (1)	$	2,019	$	48	$	1,918	$	443	$	4,428	$	629,497
Commercial real estate		3,191		378		22,566		3,673		29,808		1,401,079
Consumer real estate		3,679		578		3,204		7,346		14,807		1,078,527
Consumer installment		229		5		47		4		285		42,611
Lease financing receivable		—		—		—		—		—		2,811
Obligations of states and subdivisions		—		—		—		—		—		17,010
Total	$	9,118	$	1,009	$	27,735	$	11,466	$	49,328	$	3,171,535

(1) Total loan balance as of June 30, 2020 includes $259.3 million in PPP loans.

	December 31, 2019
			Past Due
			90 Days						Total
	Past Due		or More						Past Due,
	30 to 89		and Still		Non				Non accrual		Total
($ in thousands)	Days		Accruing		accrual		PCI		and PCI		Loans
Commercial, financial and agriculture	$	515	$	61	$	2,137	$	97	$	2,810	$	332,600
Commercial real estate		2,447		1,046		22,441		3,844		29,778		1,387,207
Consumer real estate		4,569		1,608		1,902		8,148		16,227		814,282
Consumer installment		226		—		260		6		492		42,458
Lease financing receivable		—		—		—		—		—		3,095
Obligations of states and subdivisions		—		—		—		—		—		20,716
Total	$	7,757	$	2,715	$	26,740	$	12,095	$	49,307	$	2,600,358

We acquired loans with deteriorated credit quality in 2014, 2017, 2018, 2019 and 2020. These loans were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan losses.  The acquired loans were segregated as of the acquisition date between those considered to be performing (acquired non-impaired loans) and those with evidence of credit deterioration (PCI loans). Acquired loans are considered to be impaired if it is probable, based on current available information, that the Company will be unable to collect all cash flows as expected.  If expected cash flows cannot reasonably be estimated as to what will be collected, there will not be any interest income recognized on these loans.

The following presents information regarding the contractually required payments receivable, cash flows expected to be collected and the estimated fair value of PCI loans acquired in the acquisitions from 2019 and 2020.

($ in thousands)	FPB		FFB		SWG		Total
Contractually required payments at acquisition	$	4,715	$	947	$	882	$	6,544
Cash flows expected to be collected at acquisition		4,295		955		570		5,820
Fair value of loans at acquisition		3,916		809		526		5,251

Total outstanding PCI loans were $16.8 million and the related purchase accounting discount was $3.9 million as of June 30, 2020, and $14.6 million and $3.3 million as of December 31, 2019, respectively. The outstanding balance of these loans is the undiscounted sum of all amounts, including amounts deemed principal, interest, fees, penalties, and other under the loans, owed at the reporting date, whether or not currently due and whether or not any such amounts have been charged off.

Changes in the carrying amount and accretable yield for purchased credit impaired loans were as follows at June 30, 2020 and 2019 ($ in thousands):

	June 30, 2020		June 30, 2019
	Accretable		Accretable
	Yield		Yield
Balance at beginning of period, January 1	$	3,714	$	3,835
Additions, including transfers from non-accretable		453		355
Accretion		(296)		(476)
Balance at end of period, June 30	$	3,871	$	3,714

The following tables provide detail of impaired loans broken out according to class as of June 30, 2020 and December 31, 2019.  The following tables do not include PCI loans.  The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs.  Recorded investment excludes any insignificant amount of accrued interest receivable on loans 90-days or more past due and still accruing. The unpaid balance represents the recorded balance prior to any partial charge-offs.

June 30, 2020

							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
($ in thousands)	Investment		Balance		Allowance		YTD		YTD
Impaired loans with no related allowance:
Commercial, financial and agriculture	$	270	$	272	$	—	$	266	$	—
Commercial real estate		14,126		14,417		—		13,607		—
Consumer real estate		916		963		—		810		2
Consumer installment		8		8		—		10		—
Total	$	15,320	$	15,660	$	—	$	14,693	$	2
Impaired loans with a related allowance:
Commercial, financial and agriculture	$	1,738	$	1,746	$	1,120	$	1,988	$	1
Commercial real estate		12,253		12,567		4,621		12,130		26
Consumer real estate		775		803		164		729		3
Consumer installment		58		59		19		145		1
Total	$	14,824	$	15,175	$	5,924	$	14,992	$	31
Total impaired loans:
Commercial, financial and agriculture	$	2,008	$	2,018	$	1,120	$	2,254	$	1
Commercial real estate		26,379		26,984		4,621		25,737		26
Consumer real estate		1,691		1,766		164		1,539		5
Consumer installment		66		67		19		155		1
Total Impaired Loans	$	30,144	$	30,835	$	5,924	$	29,685	$	33

As of June 30, 2020, the Company had $640 thousand of foreclosed residential real estate property obtained by physical possession and $2.5 million of consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process according to local jurisdictions.

December 31, 2019

							Average		Interest
							Recorded		Income
	Recorded		Unpaid		Related		Investment		Recognized
($ in thousands)	Investment		Balance		Allowance		YTD		YTD
Impaired loans with no related allowance:
Commercial, financial and agriculture	$	59	$	62	$	—	$	294	$	7
Commercial real estate		13,556		13,671		—		10,473		591
Consumer real estate		542		594		—		2,173		—
Consumer installment		21		21		—		23		—
Total	$	14,178	$	14,348	$	—	$	12,963	$	598
Impaired loans with a related allowance:
Commercial, financial and agriculture	$	2,434	$	2,434	$	1,182	$	2,039	$	13
Commercial real estate		12,428		12,563		3,021		10,026		49
Consumer real estate		639		657		141		560		3
Consumer installment		260		260		80		164		2
Total	$	15,761	$	15,914	$	4,424	$	12,789	$	67
Total impaired loans:
Commercial, financial and agriculture	$	2,493	$	2,496	$	1,182	$	2,333	$	20
Commercial real estate		25,984		26,234		3,021		20,499		640
Consumer real estate		1,181		1,251		141		2,733		3
Consumer installment		281		281		80		187		2
Total Impaired Loans	$	29,939	$	30,262	$	4,424	$	25,752	$	665

The cash basis interest earned in the chart above is materially the same as the interest recognized during impairment for period ended June 30, 2020 and December 31, 2019.

The gross interest income that would have been recorded in the period that ended if the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the three months and six months ended June 30, 2020, was $381 thousand and $758 thousand, respectively. The Company had no loan commitments to borrowers in nonaccrual status at June 30, 2020 and December 31, 2019.

Troubled Debt Restructuring

If the Company grants a concession to a borrower in financial difficulty, the loan is classified as a troubled debt restructuring (“TDR”).

The following table presents loans by class modified as troubled debt restructurings (TDRs) that occurred during the three months and six months ended June 30, 2020 and 2019 ($ in thousands, except for number of loans).

	Three Months Ended June 30,
		Outstanding		Outstanding
		Recorded		Recorded
	Number of	Investment		Investment
2020	Loans	Pre-Modification		Post-Modification
Commercial, financial and agriculture	1	$	35	$	35
Commercial real estate	1		195		195
Residential real estate	—		—		—
Consumer installment	—		—		—
Total	2	$	230	$	230
2019
Commercial, financial and agriculture	1	$	480	$	371
Commercial real estate	—		—		—
Residential real estate	—		—		—
Consumer installment	—		—		—
Total	1	$	480	$	371

The TDRs presented above increased the allowance for loan losses $11 thousand and $206 thousand and resulted in no charge-offs for the three months period ended June 30, 2020 and 2019, respectively.

($ in thousands, except for number of loans)	Six Months Ended June 30,
		Outstanding		Outstanding
		Recorded		Recorded
	Number of	Investment		Investment
2020	Loans	Pre-Modification		Post-Modification
Commercial, financial and agriculture	2	$	47	$	46
Commercial real estate	3		933		928
Residential real estate	—		—		—
Consumer installment	—		—		—
Total	5	$	980	$	974
2019
Commercial, financial and agriculture	1	$	480	$	371
Commercial real estate	—		—		—
Residential real estate	—		—		—
Consumer installment	—		—		—
Total	1	$	480	$	371

The TDRs presented above increased the allowance for loan losses $49 thousand and $206 thousand and resulted in no charge-offs for the six months period ended June 30, 2020 and 2019, respectively.

The balance of TDRs decreased $1.5 million to $30.5 million at June 30, 2020 compared to $32.0 million at December 31, 2019.  As of June 30, 2020, the Company had no additional amount committed on any loan classified as TDR.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification ($ in thousands, except for number of loans).

	Six months ended			Six months ended
	June 30, 2020			June 30, 2019
Troubled Debt Restructurings	Number of	Recorded		Number of	Recorded
That Subsequently Defaulted:	Loans	Investment		Loans	Investment
Commercial, financial and agriculture	2	$	254	3	$	782
Commercial real estate	9		15,083	7		3,735
Consumer real estate	—		—	2		185
Total	11	$	15,337	12	$	4,702

The modifications described above included one of the following or a combination of the following:  maturity date extensions, interest only payments, amortizations were extended beyond what would be available on similar type loans, and payment waiver.  No interest rate concessions were given on these loans nor were any of these loans written down.  The TDRs presented above increased the allowance for loan losses $2.4 million and $143 thousand and resulted in no charge-offs for the six months period ended June 30, 2020 and 2019, respectively.

The following tables represents the Company’s TDRs at June 30, 2020 and December 31, 2019:

					Past Due 90
June 30, 2020	Current		Past Due		days and still
($in thousands)	Loans		30-89		accruing		Nonaccrual		Total
Commercial, financial and agriculture	$	119	$	39	$	—	$	1,667	$	1,825
Commercial real estate		4,425		98		109		19,370		24,002
Consumer real estate		1,844		23		—		2,757		4,624
Consumer installment		29		—		—		—		29
Total	$	6,417	$	160	$	109	$	23,794	$	30,480
Allowance for loan losses	$	110	$	—	$	—	$	3,589	$	3,699

					Past Due 90
December 31, 2019	Current		Past Due		days and still
($in thousands)	Loans		30-89		accruing		Nonaccrual		Total
Commercial, financial and agriculture	$	583	$	64	$	—	$	1,062	$	1,709
Commercial real estate		4,299		809		109		19,991		25,208
Consumer real estate		1,905		112		58		2,940		5,015
Consumer installment		37		—		—		—		37
Total	$	6,824	$	985	$	167	$	23,993	$	31,969
Allowance for loan losses	$	128	$	—	$	—	$	1,997	$	2,125

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance:

Pass:  Loan classified as pass are deemed to possess average to superior credit quality, requiring no more than normal attention.

Special Mention:  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses

that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful:  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

As of June 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans (excluding mortgage loans held for sale) was as follows:

	June 30, 2020
	Commercial,		Commercial		Consumer
	Financial and		Real		Real		Consumer
($ in thousands)	Agriculture		Estate		Estate		Installment		Total
Pass	$	632,701	$	1,842,072	$	547,278	$	43,327	$	3,065,378
Special Mention		2,895		22,980		1,774		26		27,675
Substandard		11,822		62,186		14,621		171		88,800
Doubtful		598		99		—		—		697
Subtotal	$	648,016	$	1,927,337	$	563,673	$	43,524	$	3,182,550
Less:
Unearned Discount		—		11,015		—		—		11,015
Loans, net of unearned discount	$	648,016	$	1,916,322	$	563,673	$	43,524	$	3,171,535

	December 31, 2019
	Commercial,		Commercial		Consumer
	Financial and		Real		Real		Consumer
($ in thousands)	Agriculture		Estate		Estate		Installment		Total
Pass	$	327,205	$	1,645,496	$	499,426	$	41,008	$	2,513,135
Special Mention		3,493		8,876		1,194		21		13,584
Substandard		10,972		50,554		13,244		397		75,167
Doubtful		16		77		—		—		93
Subtotal	$	341,686	$	1,705,003	$	513,864	$	41,426	$	2,601,979
Less:
Unearned Discount		—		1,621		—		—		1,621
Loans, net of unearned discount	$	341,686	$	1,703,382	$	513,864	$	41,426	$	2,600,358

Allowance for Loan Losses

The following table presents the activity in the allowance for loan losses by portfolio segment for the quarter ended June 30, 2020 and 2019:

	Three months ended June 30, 2020
	Commercial,								Paycheck
	Financial and		Commercial		Consumer		Installment		Protection
($ in thousands)	Agriculture		Real Estate		Real Estate		and Other		Program		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	4,466	$	13,095	$	2,840	$	403	$	—	$	—	$	20,804
Provision for loan losses		883		5,202		874		517		130		—		7,606
Loans charged-off		(165)		(63)		(87)		(554)		—		—		(869)
Recoveries		24		292		114		93		—		—		523
Total ending allowance balance	$	5,208	$	18,526	$	3,741	$	459	$	130	$	—	$	28,064

	Six months ended June 30, 2020
	Commercial,		Commercial		Consumer		Installment		Paycheck
	Financial and		Real		Real		and		Protection
($ in thousands)	Agriculture		Estate		Estate		Other		Program		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	3,043	$	8,836	$	1,694	$	296	$	—	$	39	$	13,908
Provision for loan losses		2,329		9,725		1,980		583		130		(39)		14,708
Loans charged-off		(264)		(396)		(96)		(613)		—		—		(1,369)
Recoveries		100		361		163		193		—		—		817
Total ending allowance balance	$	5,208	$	18,526	$	3,741	$	459	$	130	$	—	$	28,064

	Three months ended June 30, 2019
	Commercial,
	Financial and		Commercial		Consumer		Installment
($ in thousands)	Agriculture		Real Estate		Real Estate		and Other		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,579	$	7,271	$	204	$	2,181	$	—	$	11,235
Provision for loan losses		840		657		1,210		(1,964)		48		791
Loans charged-off		(2)		(66)		—		(38)		—		(106)
Recoveries		15		10		75		71		—		171
Total ending allowance balance	$	2,432	$	7,872	$	1,489	$	250	$	48	$	12,091

	Six months ended June 30, 2019
	Commercial,		Commercial		Consumer		Installment
	Financial and		Real		Real		and
($ in thousands)	Agriculture		Estate		Estate		Other		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,060	$	6,258	$	1,743	$	201	$	(197)	$	10,065
Provision for loan losses		351		1,666		(313)		(36)		245		1,913
Loans charged-off		(6)		(66)		(42)		(67)		—		(181)
Recoveries		27		14		101		152		—		294
Total ending allowance balance	$	2,432	$	7,872	$	1,489	$	250	$	48	$	12,091

The following tables provide the ending balances in the Company’s loans (excluding mortgage loans held for sale) and allowance for loan losses, broken down by portfolio segment as of June 30, 2020 and December 31, 2019. The tables also provide additional detail as to the amount of our loans and allowance that correspond to individual versus collective impairment evaluation. The impairment evaluation corresponds to the Company’s systematic methodology for estimating its Allowance for Loan Losses.

June 30, 2020,

	Commercial
	Financial						Installment		Paycheck
	and		Commercial		Consumer		and		Protection
($ in thousands)	Agriculture		Real Estate		Real Estate		Other		Program		Unallocated		Total
Loans
Individually evaluated	$	2,008	$	26,379	$	1,691	$	66	$	—	$	—	$	30,144
Collectively evaluated		645,483		1,983,566		452,121		43,433		—		—		3,124,603
PCI Loans		525		6,369		9,869		25		—		—		16,788
Total	$	648,016	$	2,016,314	$	463,681	$	43,524	$	—	$	—	$	3,171,535
Allowance for Loan Losses
Individually evaluated	$	1,120	$	4,621	$	164	$	19	$	—	$	—	$	5,924
Collectively evaluated		4,088		13,905		3,577		440		130		—		22,140
Total	$	5,208	$	18,526	$	3,741	$	459	$	130	$	—	$	28,064

December 31, 2019,

	Commercial
	Financial						Installment
	and		Commercial		Consumer		and
($ in thousands)	Agriculture		Real Estate		Real Estate		Other		Unallocated		Total
Loans
Individually evaluated	$	2,493	$	25,984	$	1,181	$	281	$	—	$	29,939
Collectively evaluated		339,003		1,773,934		398,471		41,112		—		2,552,520
PCI Loans		191		10,471		7,204		33		—		17,899
Total	$	341,687	$	1,810,389	$	406,856	$	41,426	$	—	$	2,600,358
Allowance for Loan Losses
Individually evaluated	$	1,182	$	3,021	$	141	$	80	$	—	$	4,424
Collectively evaluated		1,861		5,815		1,553		216		39		9,484
Total	$	3,043	$	8,836	$	1,694	$	296	$	39	$	13,908