LOANS AND ALLOWANCE FOR LOAN LOSSES

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. During 2015 and 2016, the Bank purchased residential mortgage loan pools 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 December 31, 2018 and 2017, the net carrying value of these consumer installment home improvement loans was approximately $399.9 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 a division to originate, administer and service these types of loans. As of December 31, 2018 and 2017, the net carrying value of commercial insurance premium finance loans was approximately $413.5 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, farmland and warehouse space. 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 and other loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and both 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.



	December 31,
(dollars in thousands)	2018		2017
Commercial, financial and agricultural	$	1,316,359	$	1,362,508
Real estate – construction and development	671,198		624,595
Real estate – commercial and farmland	1,814,529		1,535,439
Real estate – residential	1,403,000		1,009,461
Consumer installment	455,371		324,511
	$	5,660,457	$	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 FDIC. Purchased loans totaling $2.59 billion and $861.6 million at December 31, 2018 and 2017, respectively, are not included in the above schedule.

The carrying value of purchased loans are shown below according to major loan type as of the end of the years shown.



(dollars in thousands)	2018		2017
Commercial, financial and agricultural	$	372,686	$	74,378
Real estate – construction and development	227,900		65,513
Real estate – commercial and farmland	1,337,859		468,246
Real estate – residential	623,199		250,539
Consumer installment	27,188		2,919
	$	2,588,832	$	861,595

A rollforward of purchased loans for the years ended December 31, 2018 and 2017 is shown below.



(dollars in thousands)	2018			2017
Balance, January 1	$	861,595		$	1,069,191
Charge-offs	(1,803		)	(3,411		)
Additions due to acquisitions	2,053,744			—
Accretion	11,918			11,308
Transfers to purchased other real estate owned	(6,396		)	(5,023		)
Payments received	(330,226		)	(210,470		)
Ending balance	$	2,588,832		$	861,595

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



(dollars in thousands)	2018			2017
Balance, January 1	$	20,192		$	30,624
Additions due to acquisitions	30,037			—
Accretion	(11,918		)	(11,308		)
Accretable discounts removed due to charge-offs	(42		)	(17		)
Transfers between non-accretable and accretable discounts, net	2,227			893
Ending balance	$	40,496		$	20,192

Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of December 31, 2018, purchased loan pools totaled $262.6 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $260.5 million and $2.1 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 purchase premium paid at acquisition.

As of December 31, 2018, all loans in purchased loan pools were performing current loans risk-rated 3 (Good Credit). As of December 31, 2018, purchased pool loans had no loans on nonaccrual status and had no loans classified as troubled debt restructurings.

As of December 31, 2017, purchased loan pools included principal balance of $904,000 risk-rated (Substandard), while all other loans included in purchased loan pools were performing current loans risk-rated 3 (Good Credit). As of December 31, 2017, purchased pool loans had no loans on nonaccrual status and had one loan classified as an accruing troubled debt restructuring with a principal balance of $904,000.

At December 31, 2018 and 2017, the Company had allocated $732,000 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 in order 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 to 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)	2018		2017
Commercial, financial and agricultural	$	1,412	$	1,306
Real estate – construction and development	892		554
Real estate – commercial and farmland	4,654		2,665
Real estate – residential	10,465		9,194
Consumer installment	529		483
	$	17,952	$	14,202

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



(dollars in thousands)	2018		2017
Commercial, financial and agricultural	$	1,199	$	813
Real estate – construction and development	6,119		3,139
Real estate – commercial and farmland	5,534		5,685
Real estate – residential	10,769		5,743
Consumer installment	486		48
	$	24,107	$	15,428

The following table presents an analysis of past due loans, excluding purchased loans as of December 31, 2018 and 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
As of December 31, 2018
Commercial, financial and agricultural	$	6,479	$	5,295	$	4,763	$	16,537	$	1,299,822	$	1,316,359	$	3,808
Real estate – construction and development	1,218		481		725		2,424		668,774		671,198		—
Real estate – commercial and farmland	1,625		530		3,645		5,800		1,808,729		1,814,529		—
Real estate – residential	11,423		4,631		8,923		24,977		1,378,023		1,403,000		—
Consumer installment	2,344		1,167		735		4,246		451,125		455,371		414
Total	$	23,089	$	12,104	$	18,791	$	53,984	$	5,606,473	$	5,660,457	$	4,222



(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
As of 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 December 31, 2018 and 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
As of December 31, 2018
Commercial, financial and agricultural	$	421	$	416	$	1,015	$	1,852	$	370,834	$	372,686	$	—
Real estate – construction and development	627		370		5,273		6,270		221,630		227,900		—
Real estate – commercial and farmland	1,935		736		1,698		4,369		1,333,490		1,337,859		—
Real estate – residential	12,531		2,407		7,005		21,943		601,256		623,199		—
Consumer installment	679		237		249		1,165		26,023		27,188		—
Total	$	16,193	$	4,166	$	15,240	$	35,599	$	2,553,233	$	2,588,832	$	—



(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
As of 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 Years Ended December 31,
(dollars in thousands)	2018		2017		2016
Nonaccrual loans	$	17,952	$	14,202	$	18,114
Troubled debt restructurings not included above	9,323		13,599		14,209
Total impaired loans	$	27,275	$	27,801	$	32,323

Interest income recognized on impaired loans	$	827	$	1,867	$	1,033
Foregone interest income on impaired loans	$	853	$	950	$	977

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



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2018
Commercial, financial and agricultural	$	1,902	$	1,155	$	513	$	1,668	$	4	$	1,637
Real estate – construction and development	1,378		613		424		1,037		3		984
Real estate – commercial and farmland	8,950		867		6,649		7,516		1,591		7,879
Real estate – residential	16,885		5,144		11,365		16,509		867		15,029
Consumer installment	561		545		—		545		—		534
Total	$	29,676	$	8,324	$	18,951	$	27,275	$	2,465	$	26,063



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2017
Commercial, financial and agricultural	$	1,453	$	734	$	613	$	1,347	$	145	$	2,173
Real estate – construction and development	1,467		471		500		971		48		1,122
Real estate – commercial and farmland	10,646		729		8,873		9,602		1,047		11,053
Real estate – residential	17,416		4,828		10,565		15,393		1,005		14,930
Consumer installment	523		488		—		488		—		541
Total	$	31,505	$	7,250	$	20,551	$	27,801	$	2,245	$	29,819

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



	As of and For the Years Ended December 31,
(dollars in thousands)	2018		2017		2016
Nonaccrual loans	$	24,107	$	15,428	$	22,966
Troubled debt restructurings not included above	18,740		20,472		23,543
Total impaired loans	$	42,847	$	35,900	$	46,509

Interest income recognized on impaired loans	$	2,203	$	1,625	$	2,755
Foregone interest income on impaired loans	$	1,483	$	1,239	$	1,637

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



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2018
Commercial, financial and agricultural	$	5,717	$	473	$	757	$	1,230	$	—	$	836
Real estate – construction and development	13,714		623		6,511		7,134		476		5,712
Real estate – commercial and farmland	14,766		1,115		10,581		11,696		684		12,349
Real estate – residential	24,839		8,185		14,116		22,301		773		21,433
Consumer installment	526		486		—		486		—		229
Total	$	59,562	$	10,882	$	31,965	$	42,847	$	1,933	$	40,559



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
As of December 31, 2017
Commercial, financial and agricultural	$	4,170	$	70	$	744	$	814	$	400	$	827
Real estate – construction and development	9,060		282		3,875		4,157		1,114		3,877
Real estate – commercial and farmland	14,596		1,224		11,173		12,397		906		15,329
Real estate – residential	20,867		6,574		11,910		18,484		821		20,743
Consumer installment	57		48		—		48		—		41
Total	$	48,750	$	8,198	$	27,702	$	35,900	$	3,241	$	40,817

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 December 31, 2018 and 2017 (in thousands).

As of December 31, 2018



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
1 - Prime credit	$	530,864	$	40	$	500	$	16	$	10,744	$	542,164
2 - Strong credit	452,250		681		37,079		33,043		48		523,101
3 - Good credit	174,811		74,657		888,433		1,246,383		23,844		2,408,128
4 - Satisfactory credit	137,038		582,456		814,068		94,143		419,983		2,047,688
5 - Fair credit	13,714		6,264		30,364		8,634		78		59,054
6 - Other assets especially mentioned	5,130		4,091		20,959		4,881		57		35,118
7 - Substandard	2,552		3,009		23,126		15,900		617		45,204
8 - Doubtful	—		—		—		—		—		—
9 - Loss	—		—		—		—		—		—
Total	$	1,316,359	$	671,198	$	1,814,529	$	1,403,000	$	455,371	$	5,660,457

As of December 31, 2017



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
1 - Prime credit	$	539,899	$	—	$	5,790	$	47	$	9,243	$	554,979
2 - Strong credit	568,557		1,005		68,507		49,742		670		688,481
3 - Good credit	125,740		59,318		966,391		843,178		39,352		2,033,979
4 - Satisfactory credit	117,358		552,918		454,506		88,537		274,462		1,487,781
5 - Fair credit	330		4,474		6,408		5,781		3		16,996
6 - Other assets especially mentioned	5,236		4,207		15,108		5,339		185		30,075
7 - Substandard	5,381		2,673		18,729		16,837		596		44,216
8 - Doubtful	7		—		—		—		—		7
9 - Loss	—		—		—		—		—		—
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 December 31, 2018 and 2017 (in thousands).

As of December 31, 2018



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
1 - Prime credit	$	90,205	$	—	$	—	$	—	$	570	$	90,775
2 - Strong credit	2,648		—		7,407		74,398		164		84,617
3 - Good credit	20,489		18,022		230,089		385,279		2,410		656,289
4 - Satisfactory credit	215,096		195,079		1,034,943		118,082		23,177		1,586,377
5 - Fair credit	14,445		2,728		29,468		16,937		35		63,613
6 - Other assets especially mentioned	11,601		1,459		10,063		7,231		94		30,448
7 - Substandard	18,202		10,612		25,889		21,272		738		76,713
8 - Doubtful	—		—		—		—		—		—
9 - Loss	—		—		—		—		—		—
Total	$	372,686	$	227,900	$	1,337,859	$	623,199	$	27,188	$	2,588,832

As of December 31, 2017



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
1 - Prime credit	$	3,358	$	—	$	—	$	—	$	606	$	3,964
2 - Strong credit	4,541		—		5,047		91,270		240		101,098
3 - Good credit	8,517		13,014		186,187		50,988		1,166		259,872
4 - Satisfactory credit	43,085		39,877		230,570		70,837		711		385,080
5 - Fair credit	—		2,306		6,081		11,349		—		19,736
6 - Other assets especially mentioned	13,718		4,076		13,637		5,637		53		37,121
7 - Substandard	1,159		6,240		26,724		20,458		143		54,724
8 - Doubtful	—		—		—		—		—		—
9 - Loss	—		—		—		—		—		—
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 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 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 that 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, 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 2018 and 2017 totaling $111.7 million and $103.0 million, respectively, under such parameters.

As of December 31, 2018 and 2017, the Company had a balance of $11.0 million and $15.6 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $890,000 and $2.8 million in previous charge-offs on such loans at December 31, 2018 and 2017, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $820,000 and $1.4 million at December 31, 2018 and 2017, respectively. At December 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 year ending December 31, 2018 and 2017, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $2.3 million and $4.2 million, respectively, and these modifications did not have a material impact on the Company's allowance for loan losses. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the year ending December 31, 2018 and 2017.



	December 31, 2018			December 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	11	$	348	2	$	7
Real estate – construction and development	1	3		—	—
Real estate – commercial and farmland	2	440		7	3,516
Real estate – residential	13	1,430		12	656
Consumer installment	6	35		11	33
Total	33	$	2,256	32	$	4,212

Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $1.3 million and $1.6 million at December 31, 2017 and 2016 defaulted during the year ended December 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 the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the year ending December 31, 2018 and 2017.



	December 31, 2018			December 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	8	$	107	2	$	47
Real estate – construction and development	1	—		2	261
Real estate – commercial and farmland	1	246		4	419
Real estate – residential	16	911		12	838
Consumer installment	7	34		7	22
Total	33	$	1,298	27	$	1,587

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



As of December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	5	$	256	14	$	138
Real estate – construction and development	5	145		1	2
Real estate – commercial and farmland	12	2,863		3	426
Real estate – residential	71	6,043		20	1,119
Consumer installment	6	16		24	69
Total	99	$	9,323	62	$	1,754



As of 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 December 31, 2018 and 2017, the Company had a balance of $22.2 million and $24.9 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $940,000 and $1.2 million, respectively, in previous charge-offs on such loans at December 31, 2018 and 2017. At December 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 year ending December 31, 2018 and 2017, the Company modified purchased loans as troubled debt restructurings, with principal balances of $2.5 million and $3.6 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan losses. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the year ending December 31, 2018 and 2017.



	December 31, 2018			December 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	63	1	$	5
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	1	71		4	1,311
Real estate – residential	27	2,351		18	2,319
Consumer installment	2	14		—	—
Total	34	$	2,499	23	$	3,635

Troubled debt restructurings included in purchased loans with an outstanding balance of $2.5 million and $742,000 defaulted during the years ended December 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 the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the year ending December 31, 2018 and 2017.



	December 31, 2018			December 31, 2017
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	1	$	5
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	1	71		2	282
Real estate – residential	25	2,400		9	452
Consumer installment	—	—		1	3
Total	26	$	2,471	13	$	742

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



As of December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	31	3	$	32
Real estate – construction and development	4	1,015		5	293
Real estate – commercial and farmland	12	6,162		7	1,685
Real estate – residential	115	11,532		24	1,424
Consumer installment	—	—		4	17
Total	132	$	18,740	43	$	3,451



As of 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

As of December 31, 2018, there were no loans in purchased loan pools that had been modified as troubled debt restructurings. As of December 31, 2017, the Company had one loan in purchased loan pools that had been modified as a troubled debt restructuring. As of December 31, 2017, this modified loan had a balance of $904,000 and was on accrual status.

Related Party Loans

In the ordinary course of business, the Company has granted loans to certain directors and their affiliates. Company policy prohibits loans to executive officers. Changes in related party loans are summarized as follows:



	December 31,
(dollars in thousands)	2018			2017
Balance, January 1	$	2,145		$	3,167
Advances	257			654
Repayments	(944		)	(1,676		)
Transactions due to changes in related parties	—			—
Ending balance	$	1,458		$	2,145

Allowance for Loan Losses

The following table details activity in the allowance for loan losses by portfolio segment for the periods indicated. 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
Twelve months ended December 31, 2018
Balance, January 1, 2018	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791
Provision for loan losses	10,690			277			1,636			1,002			5,569			(2,164		)	(343		)	16,667
Loans charged off	(13,803		)	(292		)	(338		)	(771		)	(4,189		)	(1,738		)	—			(21,131		)
Recoveries of loans previously charged off	3,769			120			176			346			499			2,582			—			7,492
Balance, December 31, 2018	$	4,287		$	3,734		$	8,975		$	5,363		$	3,795		$	1,933		$	732		$	28,819

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	570		$	3		$	1,591		$	867		$	—		$	1,933		$	—		$	4,964
Loans collectively evaluated for impairment	3,717			3,731			7,384			4,496			3,795			—			732			23,855
Ending balance	$	4,287		$	3,734		$	8,975		$	5,363		$	3,795		$	1,933		$	732		$	28,819

Loans:
Individually evaluated for impairment⁽¹⁾	$	3,211		$	424		$	6,649		$	11,364		$	—		$	32,244		$	—		$	53,892
Collectively evaluated for impairment	1,313,148			670,774			1,807,880			1,391,636			455,371			2,468,996			262,625			8,370,430
Acquired with deteriorated credit quality	—			—			—			—			—			87,592			—			87,592
Ending balance	$	1,316,359		$	671,198		$	1,814,529		$	1,403,000		$	455,371		$	2,588,832		$	262,625		$	8,511,914


(1)	At December 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 amount allocated to:
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
Twelve months ended December 31, 2016
Balance, January 1, 2016	$	1,144		$	5,009		$	7,994		$	4,760		$	1,574		$	—		$	581	$	21,062
Provision for loan losses	2,647			(1,921		)	107			2,757			(523		)	(232		)	1,256		4,091
Loans charged off	(1,999		)	(588		)	(708		)	(1,122		)	(351		)	(1,559		)	—		(6,327		)
Recoveries of loans previously charged off	400			490			269			391			127			3,417			—		5,094
Balance, December 31, 2016	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837	$	23,920

Period-end amount allocated to:
Loans individually evaluated for impairment⁽¹⁾	$	120		$	266		$	1,502		$	2,893		$	—		$	1,626		$	—	$	6,407
Loans collectively evaluated for impairment	2,072			2,724			6,160			3,893			827			—			1,837		17,513
Ending balance	$	2,192		$	2,990		$	7,662		$	6,786		$	827		$	1,626		$	1,837	$	23,920

Loans:
Individually evaluated for impairment⁽¹⁾	$	501		$	659		$	12,423		$	12,697		$	—		$	34,141		$	—	$	60,421
Collectively evaluated for impairment	966,637			362,386			1,393,796			768,321			109,401			886,516			568,314		5,055,371
Acquired with deteriorated credit quality	—			—			—			—			—			148,534			—		148,534
Ending balance	$	967,138		$	363,045		$	1,406,219		$	781,018		$	109,401		$	1,069,191		$	568,314	$	5,264,326


(1)	At December 31, 2016, 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.