LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of March 31, 2018 and December 31, 2017, the net carrying value of these consumer installment home improvement loans was approximately $280.3 million and $273.7 million, respectively, and such loans are reported in the consumer installment loan category. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began to originate, administer and service these types of loans. As of March 31, 2018 and December 31, 2017, the net carrying value of commercial insurance premium loans was approximately $501.9 million and $482.5 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category.

The Bank concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond the Company’s control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. A substantial portion of the Bank’s loans are secured by real estate in the Bank’s primary market area. In addition, a substantial portion of the OREO is located in those same markets. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of a substantial portion of the carrying amount of OREO are susceptible to changes in real estate conditions in the Bank’s primary market area.

Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, commercial insurance premium finance, and other business purposes. Commercial, financial and agricultural loans also include SBA loans and municipal loans. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Bank evaluates the financial strength, cash flow, management, credit history of the borrower and the quality of the collateral securing the loan. The Bank often requires personal guarantees and secondary sources of repayment on commercial, financial and agricultural loans.

Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail and warehouse space as well as farmland. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.

Consumer installment loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:



(dollars in thousands)	March 31, 2018		December 31, 2017
Commercial, financial and agricultural	$	1,387,437	$	1,362,508
Real estate – construction and development	631,504		624,595
Real estate – commercial and farmland	1,636,654		1,535,439
Real estate – residential	1,080,028		1,009,461
Consumer installment	316,363		324,511
	$	5,051,986	$	4,856,514

Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the Federal Deposit Insurance Corporation (the “FDIC”). Purchased loans totaling $818.6 million and $861.6 million at March 31, 2018 and December 31, 2017, respectively, are not included in the above schedule.

Purchased loans are shown below according to major loan type as of the end of the periods shown:



(dollars in thousands)	March 31, 2018		December 31, 2017
Commercial, financial and agricultural	$	64,612	$	74,378
Real estate – construction and development	48,940		65,513
Real estate – commercial and farmland	465,870		468,246
Real estate – residential	236,453		250,539
Consumer installment	2,712		2,919
	$	818,587	$	861,595

A rollforward of purchased loans for the three months ended March 31, 2018 and 2017 is shown below:



(dollars in thousands)	March 31, 2018			March 31, 2017
Balance, January 1	$	861,595		$	1,069,191
Charge-offs, net of recoveries	(151		)	(803		)
Accretion	1,571			3,097
Transfers to purchased other real estate owned	(457		)	(1,489		)
Payments received	(43,971		)	(63,061		)
Ending balance	$	818,587		$	1,006,935

The following is a summary of changes in the accretable discounts of purchased loans during the three months ended March 31, 2018 and 2017:



(dollars in thousands)	March 31, 2018			March 31, 2017
Balance, January 1	$	20,192		$	30,624
Accretion	(1,571		)	(3,097		)
Accretable discounts removed due to charge-offs	—			(13		)
Transfers between non-accretable and accretable discounts, net	146			(659		)
Ending balance	$	18,767		$	26,855

Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of March 31, 2018, purchased loan pools totaled $319.6 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $316.2 million and $3.4 million of remaining purchase premium paid at acquisition. As of December 31, 2017, purchased loan pools totaled $328.2 million with principal balances totaling $324.4 million and $3.8 million of remaining purchase premium paid at acquisition. At March 31, 2018 and December 31, 2017, one loan in the purchased loan pools with a principal balance of $902,000 and $904,000, respectively, was classified as a troubled debt restructuring and risk-rated grade 7, while all other loans included in the purchased loan pools were performing current loans risk-rated grade 3. During the second quarter of 2017, this troubled debt restructuring defaulted on its restructured terms and was placed on nonaccrual status. During the fourth quarter of 2017, this troubled debt restructuring was returned to accrual status. At March 31, 2018 and December 31, 2017, the Company had allocated $1.0 million and $1.1 million, respectively, of allowance for loan losses for the purchased loan pools. As part of the due diligence process prior to purchasing an individual mortgage pool, a complete re-underwrite of the individual loan files was conducted. The underwriting process included a review of all income, asset, credit and property related documentation that was used to originate the loan. Underwriters utilized the originating lender’s program guidelines, as well as general prudent mortgage lending standards, to assess each individual loan file. Additional research was conducted to assess the real estate market conditions and market expectations in the geographic areas where a collateral concentration existed. As part of this review, an automated valuation model was employed to provide current collateral valuations and to support individual loan-to-value ratios. Additionally, a sample of site inspections was completed to provide further assurance. The results of the due diligence review were evaluated by officers of the Company in order to determine overall conformance to the Bank’s credit and lending policies.

Nonaccrual and Past-Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income. Interest on loans that are classified as nonaccrual is subsequently applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Past-due loans are loans whose principal or interest is past due 30 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

The following table presents an analysis of loans accounted for on a nonaccrual basis, excluding purchased loans:



(dollars in thousands)	March 31, 2018		December 31, 2017
Commercial, financial and agricultural	$	1,548	$	1,306
Real estate – construction and development	518		554
Real estate – commercial and farmland	3,555		2,665
Real estate – residential	8,311		9,194
Consumer installment	488		483
	$	14,420	$	14,202

The following table presents an analysis of purchased loans accounted for on a nonaccrual basis:



(dollars in thousands)	March 31, 2018		December 31, 2017
Commercial, financial and agricultural	$	796	$	813
Real estate – construction and development	3,112		3,139
Real estate – commercial and farmland	4,347		5,685
Real estate – residential	7,648		5,743
Consumer installment	37		48
	$	15,940	$	15,428

The following table presents an analysis of past-due loans, excluding purchased past-due loans as of March 31, 2018 and December 31, 2017:



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 2018
Commercial, financial and agricultural	$	10,081	$	5,750	$	3,430	$	19,261	$	1,368,176	$	1,387,437	$	2,383
Real estate – construction and development	1,202		168		166		1,536		629,968		631,504		—
Real estate – commercial and farmland	4,189		590		1,288		6,067		1,630,587		1,636,654		—
Real estate – residential	11,907		3,058		7,207		22,172		1,057,856		1,080,028		—
Consumer installment	1,033		639		413		2,085		314,278		316,363		114
Total	$	28,412	$	10,205	$	12,504	$	51,121	$	5,000,865	$	5,051,986	$	2,497

December 31, 2017
Commercial, financial and agricultural	$	8,124	$	3,285	$	6,978	$	18,387	$	1,344,121	$	1,362,508	$	5,991
Real estate – construction and development	810		23		288		1,121		623,474		624,595		—
Real estate – commercial and farmland	869		787		1,940		3,596		1,531,843		1,535,439		—
Real estate – residential	8,772		2,941		7,041		18,754		990,707		1,009,461		—
Consumer installment	1,556		472		329		2,357		322,154		324,511		—
Total	$	20,131	$	7,508	$	16,576	$	44,215	$	4,812,299	$	4,856,514	$	5,991

The following table presents an analysis of purchased past-due loans as of March 31, 2018 and December 31, 2017:



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 2018
Commercial, financial and agricultural	$	103	$	—	$	778	$	881	$	63,731	$	64,612	$	—
Real estate – construction and development	473		31		2,561		3,065		45,875		48,940		—
Real estate – commercial and farmland	1,589		1,022		1,515		4,126		461,744		465,870		—
Real estate – residential	4,228		591		5,594		10,413		226,040		236,453		—
Consumer installment	20		—		33		53		2,659		2,712		—
Total	$	6,413	$	1,644	$	10,481	$	18,538	$	800,049	$	818,587	$	—

December 31, 2017
Commercial, financial and agricultural	$	—	$	33	$	760	$	793	$	73,585	$	74,378	$	—
Real estate – construction and development	87		31		2,517		2,635		62,878		65,513		—
Real estate – commercial and farmland	1,190		701		2,724		4,615		463,631		468,246		—
Real estate – residential	2,722		1,585		2,320		6,627		243,912		250,539		—
Consumer installment	57		4		43		104		2,815		2,919		—
Total	$	4,056	$	2,354	$	8,364	$	14,774	$	846,821	$	861,595	$	—

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assesses for impairment all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000 (including all troubled debt restructurings, whether or not currently classified as such). The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

The following is a summary of information pertaining to impaired loans, excluding purchased loans:



	As of and for the Period Ended
(dollars in thousands)	March 31, 2018		December 31, 2017		March 31, 2017
Nonaccrual loans	$	14,420	$	14,202	$	18,281
Troubled debt restructurings not included above	11,375		13,599		13,659
Total impaired loans	$	25,795	$	27,801	$	31,940

Interest income recognized on impaired loans	$	239	$	1,010	$	240
Foregone interest income on impaired loans	$	190	$	197	$	274

The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of March 31, 2018, December 31, 2017 and March 31, 2017:



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2018
Commercial, financial and agricultural	$	1,874	$	985	$	602	$	1,587	$	136	$	1,467
Real estate – construction and development	746		567		127		694		1		833
Real estate – commercial and farmland	9,515		522		7,639		8,161		1,216		7,753
Real estate – residential	14,908		4,912		9,946		14,858		980		14,891
Consumer installment	526		495		—		495		—		492
Total	$	27,569	$	7,481	$	18,314	$	25,795	$	2,333	$	25,436



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2017
Commercial, financial and agricultural	$	1,453	$	734	$	613	$	1,347	$	145	$	1,900
Real estate – construction and development	1,467		471		500		971		48		1,065
Real estate – commercial and farmland	10,646		729		8,873		9,602		1,047		8,910
Real estate – residential	17,416		4,828		10,565		15,393		1,005		14,294
Consumer installment	523		488		—		488		—		493
Total	$	31,505	$	7,250	$	20,551	$	27,801	$	2,245	$	26,662



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2017
Commercial, financial and agricultural	$	3,891	$	202	$	2,503	$	2,705	$	637	$	2,283
Real estate – construction and development	1,875		—		1,048		1,048		356		1,140
Real estate – commercial and farmland	12,450		5,655		5,795		11,450		1,572		12,163
Real estate – residential	14,344		2,422		13,727		16,149		2,645		16,866
Consumer installment	666		—		588		588		6		601
Total	$	33,226	$	8,279	$	23,661	$	31,940	$	5,216	$	33,053

The following is a summary of information pertaining to purchased impaired loans:



	As of and for the Period Ended
(dollars in thousands)	March 31, 2018		December 31, 2017		March 31, 2017
Nonaccrual loans	$	15,940	$	15,428	$	23,606
Troubled debt restructurings not included above	20,649		20,472		20,448
Total impaired loans	$	36,589	$	35,900	$	44,054

Interest income recognized on impaired loans	$	696	$	379	$	379
Foregone interest income on impaired loans	$	245	$	281	$	337

The following table presents an analysis of information pertaining to purchased impaired loans as of March 31, 2018, December 31, 2017 and March 31, 2017:



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2018
Commercial, financial and agricultural	$	4,050	$	52	$	744	$	796	$	396	$	805
Real estate – construction and development	9,012		426		3,720		4,146		913		4,152
Real estate – commercial and farmland	12,590		861		10,230		11,091		767		11,744
Real estate – residential	22,820		8,426		12,093		20,519		745		19,502
Consumer installment	46		37		—		37		—		43
Total	$	48,518	$	9,802	$	26,787	$	36,589	$	2,821	$	36,246



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2017
Commercial, financial and agricultural	$	4,170	$	70	$	744	$	814	$	400	$	1,450
Real estate – construction and development	9,060		282		3,875		4,157		1,114		4,218
Real estate – commercial and farmland	14,596		1,224		11,173		12,397		906		12,840
Real estate – residential	20,867		6,574		11,910		18,484		821		19,002
Consumer installment	57		48		—		48		—		68
Total	$	48,750	$	8,198	$	27,702	$	35,900	$	3,241	$	37,578



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2017
Commercial, financial and agricultural	$	2,806	$	151	$	225	$	376	$	—	$	534
Real estate – construction and development	25,748		287		3,203		3,490		250		3,730
Real estate – commercial and farmland	30,419		768		17,532		18,300		855		18,467
Real estate – residential	25,855		7,155		14,713		21,868		1,091		22,529
Consumer installment	34		20		—		20		—		22
Total	$	84,862	$	8,381	$	35,673	$	44,054	$	2,196	$	45,282

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The following is a description of the general characteristics of the grades:

Grade 1 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.

Grade 2 – Strong Credit – This grade includes loans that exhibit one or more characteristics better than that of a Good Credit. Generally, the debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.

Grade 3 – Good Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 4 – Satisfactory Credit – This grade includes loans which exhibit all the characteristics of a Good Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage and interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire and divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.

Grade 5 – Fair Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

Grade 6 – Other Assets Especially Mentioned – This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Grade 7 – Substandard – This grade represents loans which are inadequately protected by the current credit worthiness and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.

Grade 8 – Doubtful – This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.

Grade 9 – Loss – This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.

The following table presents the loan portfolio, excluding purchased loans, by risk grade as of March 31, 2018 and December 31, 2017 (in thousands):



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
March 31, 2018
1	$	542,520	$	—	$	5,234	$	47	$	9,824	$	557,625
2	568,129		969		55,823		48,554		116		673,591
3	133,302		57,386		917,751		918,086		24,192		2,050,717
4	132,154		561,624		614,291		86,689		281,550		1,676,308
5	333		4,490		6,494		6,180		2		17,499
6	5,728		4,435		24,099		5,385		148		39,795
7	5,264		2,600		12,962		15,087		531		36,444
8	7		—		—		—		—		7
9	—		—		—		—		—		—
Total	$	1,387,437	$	631,504	$	1,636,654	$	1,080,028	$	316,363	$	5,051,986

December 31, 2017
1	$	539,899	$	—	$	5,790	$	47	$	9,243	$	554,979
2	568,557		1,005		68,507		49,742		670		688,481
3	125,740		59,318		966,391		843,178		39,352		2,033,979
4	117,358		552,918		454,506		88,537		274,462		1,487,781
5	330		4,474		6,408		5,781		3		16,996
6	5,236		4,207		15,108		5,339		185		30,075
7	5,381		2,673		18,729		16,837		596		44,216
8	7		—		—		—		—		7
9	—		—		—		—		—		—
Total	$	1,362,508	$	624,595	$	1,535,439	$	1,009,461	$	324,511	$	4,856,514

The following table presents the purchased loan portfolio by risk grade as of March 31, 2018 and December 31, 2017 (in thousands):



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
March 31, 2018
1	$	3,191	$	—	$	—	$	—	$	617	$	3,808
2	4,301		—		4,855		88,081		211		97,448
3	8,018		5,579		181,551		47,508		1,074		243,730
4	38,530		32,528		232,240		64,055		644		367,997
5	—		1,941		6,027		12,044		—		20,012
6	9,439		4,112		14,481		5,623		50		33,705
7	1,133		4,780		26,716		19,142		116		51,887
8	—		—		—		—		—		—
9	—		—		—		—		—		—
Total	$	64,612	$	48,940	$	465,870	$	236,453	$	2,712	$	818,587

December 31, 2017
1	$	3,358	$	—	$	—	$	—	$	606	$	3,964
2	4,541		—		5,047		91,270		240		101,098
3	8,517		13,014		186,187		50,988		1,166		259,872
4	43,085		39,877		230,570		70,837		711		385,080
5	—		2,306		6,081		11,349		—		19,736
6	13,718		4,076		13,637		5,637		53		37,121
7	1,159		6,240		26,724		20,458		143		54,724
8	—		—		—		—		—		—
9	—		—		—		—		—		—
Total	$	74,378	$	65,513	$	468,246	$	250,539	$	2,919	$	861,595

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 Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.

The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment and approved by the Company’s Chief Credit Officer.

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first three months of 2018 and 2017 totaling $28.6 million and $16.2 million, respectively, under such parameters.

As of March 31, 2018 and December 31, 2017, the Company had a balance of $14.7 million and $15.6 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $1.1 million and $2.8 million in previous charge-offs on such loans at March 31, 2018 and December 31, 2017, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $1.5 million and $1.4 million at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the three months ended March 31, 2018 and 2017, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $1.2 million and $93,000, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the three months ended March 31, 2018 and 2017:



	March 31, 2018			March 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	2	$	125	—	$	—
Real estate – construction and development	1	4		—	—
Real estate – commercial and farmland	1	303		—	—
Real estate – residential	2	710		1	77
Consumer installment	2	13		4	16
Total	8	$	1,155	5	$	93

Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $3.0 million and $1.6 million defaulted during the three months ended March 31, 2018 and 2017, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents for loans, excluding purchased loans, the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ended March 31, 2018 and 2017:



	March 31, 2018			March 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	3	$	55
Real estate – construction and development	—	—		1	26
Real estate – commercial and farmland	2	1,971		3	150
Real estate – residential	17	1,047		18	1,380
Consumer installment	—	—		8	21
Total	19	$	3,018	33	$	1,632

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at March 31, 2018 and December 31, 2017:



March 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	39	13	$	224
Real estate – construction and development	5	176		2	8
Real estate – commercial and farmland	16	4,606		6	2,127
Real estate – residential	72	6,547		19	838
Consumer installment	3	7		32	93
Total	100	$	11,375	72	$	3,290



December 31, 2017	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	41	12	$	120
Real estate – construction and development	6	417		2	34
Real estate – commercial and farmland	17	6,937		5	204
Real estate – residential	74	6,199		18	1,508
Consumer installment	4	5		33	98
Total	105	$	13,599	70	$	1,964

As of March 31, 2018 and December 31, 2017, the Company had a balance of $24.5 million and $24.9 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.7 million and $1.2 million in previous charge-offs on such loans at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the three months ended March 31, 2018 and 2017, the Company modified purchased loans as troubled debt restructurings, with principal balances of $186,000 and $355,000, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the three months ended March 31, 2018 and 2017:



	March 31, 2018			March 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	7	—	$	—
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	—	—		1	231
Real estate – residential	2	179		1	124
Consumer installment	—	—		—	—
Total	3	$	186	2	$	355

Troubled debt restructurings included in purchased loans with an outstanding balance of $906,000 and $2.1 million defaulted during the three months ended March 31, 2018 and 2017, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss.

The following table presents purchased loan troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ended March 31, 2018 and 2017:



	March 31, 2018			March 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	—	$	—
Real estate – construction and development	—	—		2	336
Real estate – commercial and farmland	1	351		3	1,149
Real estate – residential	8	555		8	565
Consumer installment	—	—		—	—
Total	9	$	906	13	$	2,050

The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at March 31, 2018 and December 31, 2017.



March 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	4	$	23
Real estate – construction and development	4	1,034		6	316
Real estate – commercial and farmland	14	6,745		8	2,234
Real estate – residential	120	12,871		21	1,281
Consumer installment	—	—		2	4
Total	138	$	20,650	41	$	3,858



December 31, 2017	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	3	$	16
Real estate – construction and development	3	1,018		6	340
Real estate – commercial and farmland	14	6,713		10	2,582
Real estate – residential	117	12,741		25	1,462
Consumer installment	—	—		2	5
Total	134	$	20,472	46	$	4,405

Allowance for Loan Losses

The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past-due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on current loan quality trends, current economic conditions and other factors in the markets where the Company operates. Factors considered include, among others, current valuations of real estate in the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.

The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio. Commercial insurance premium finance loans, overdraft protection loans, and certain residential mortgage loans and consumer loans serviced by outside processors are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. The Bank’s independent internal loan review department reviews on an annual basis a sample of relationships in excess of $1,000,000, as well as selective sampling of loans below this threshold. Sampling is based on a number of factors unique to the Bank’s portfolio risks, including, but not limited to, lending divisions, industry, risk grades, and new originations. As a result of these loan reviews, certain loans may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past-due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged-off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged-off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged-off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged-off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 9 (Loss per the regulatory guidance), the uncollectible portion is charged-off.

The following tables detail activity in the allowance for loan losses by portfolio segment for the three-month period ended March 31, 2018, the year ended December 31, 2017 and the three-month period ended March 31, 2017. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools			Total
Three Months Ended March 31, 2018
Balance, December 31, 2017	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791
Provision for loan losses	783			(171		)	689			177			1,151			(747		)	(81		)	1,801
Loans charged off	(1,449		)	—			(142		)	(198		)	(962		)	(121		)	—			(2,872		)
Recoveries of loans previously charged off	656			114			24			182			67			437			—			1,480
Balance, March 31, 2018	$	3,621		$	3,572		$	8,072		$	4,947		$	2,172		$	2,822		$	994		$	26,200

Period-end allocation:
Loans individually evaluated for impairment ⁽¹⁾	$	533		$	1		$	1,216		$	980		$	—		$	2,822		$	176		$	5,728
Loans collectively evaluated for impairment	3,088			3,571			6,856			3,967			2,172			—			818			20,472
Ending balance	$	3,621		$	3,572		$	8,072		$	4,947		$	2,172		$	2,822		$	994		$	26,200

Loans:
Individually evaluated for impairment⁽¹⁾	$	2,147		$	126		$	7,639		$	9,946		$	—		$	28,167		$	902		$	48,927
Collectively evaluated for impairment	1,385,290			631,378			1,629,015			1,070,082			316,363			683,784			318,696			6,034,608
Acquired with deteriorated credit quality	—			—			—			—			—			106,636			—			106,636
Ending balance	$	1,387,437		$	631,504		$	1,636,654		$	1,080,028		$	316,363		$	818,587		$	319,598		$	6,190,171

(1) At March 31, 2018, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools			Total
Twelve Months Ended December 31, 2017
Balance, January 1, 2017	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837		$	23,920
Provision for loan losses	3,019			488			508			(86		)	2,591			2,606			(762		)	8,364
Loans charged off	(2,850		)	(95		)	(853		)	(2,151		)	(1,618		)	(2,900		)	—			(10,467		)
Recoveries of loans previously charged off	1,270			246			184			237			116			1,921			—			3,974
Balance, December 31, 2017	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791

Period-end allocation:
Loans individually evaluated for impairment⁽¹⁾	$	465		$	48		$	1,047		$	1,028		$	—		$	3,253		$	177		$	6,018
Loans collectively evaluated for impairment	3,166			3,581			6,454			3,758			1,916			—			898			19,773
Ending balance	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791

Loans:
Individually evaluated for impairment ⁽¹⁾	$	2,971		$	500		$	8,873		$	10,818		$	—		$	28,165		$	904		$	52,231
Collectively evaluated for impairment	1,359,537			624,095			1,526,566			998,643			324,511			718,447			327,342			5,879,141
Acquired with deteriorated credit quality	—			—			—			—			—			114,983			—			114,983
Ending balance	$	1,362,508		$	624,595		$	1,535,439		$	1,009,461		$	324,511		$	861,595		$	328,246		$	6,046,355

(1) At December 31, 2017, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools		Total
Three Months Ended March 31, 2017
Balance, December 31, 2016	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837	$	23,920
Provision for loan losses	641			640			217			(791		)	174			706			249		1,836
Loans charged off	(104		)	(53		)	(9		)	(216		)	(164		)	(556		)	—		(1,102		)
Recoveries of loans previously charged off	69			20			9			61			17			420			—		596
Balance, March 31, 2017	$	2,798		$	3,597		$	7,879		$	5,840		$	854		$	2,196		$	2,086	$	25,250

Period-end allocation:
Loans individually evaluated for impairment⁽¹⁾	$	626		$	354		$	1,574		$	2,538		$	—		$	2,196		$	376	$	7,664
Loans collectively evaluated for impairment	2,172			3,243			6,305			3,302			854			—			1,710		17,586
Ending balance	$	2,798		$	3,597		$	7,879		$	5,840		$	854		$	2,196		$	2,086	$	25,250

Loans:
Individually evaluated for impairment ⁽¹⁾	$	1,937		$	843		$	11,260		$	9,630		$	—		$	35,673		$	3,446	$	62,789
Collectively evaluated for impairment	1,059,662			414,186			1,446,850			717,165			123,947			836,146			525,653		5,123,609
Acquired with deteriorated credit quality	—			—			—			—			—			135,116			—		135,116
Ending balance	$	1,061,599		$	415,029		$	1,458,110		$	726,795		$	123,947		$	1,006,935		$	529,099	$	5,321,514

(1) At March 31, 2017, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.