LOANS

9 Months Ended

Sep. 30, 2016

NOTE E — LOANS

Information relating to portfolio loans, purchased credit impaired (“PCI”) loans, and purchased unimpaired loans (“PUL”) is summarized as follows:

September 30, 2016	Portfolio Loans		PCI Loans		PUL's		Total
	(Dollars in thousands)
Construction and land development	$	129,239	$	114	$	24,548	$	153,901
Commercial real estate		947,612		11,281		334,619		1,293,512
Residential real estate		772,579		685		60,149		833,413
Commercial and financial		278,065		977		63,459		342,501
Consumer		144,291		0		1,231		145,522
Other loans		489		0		0		489
NET LOAN BALANCES (1)	$	2,272,275	$	13,057	$	484,006	$	2,769,338

December 31, 2015	Portfolio Loans		PCI Loans		PUL's		Total
	(Dollars in thousands)
Construction and land development	$	97,629	$	114	$	11,044	$	108,787
Commercial real estate		776,875		9,990		222,513		1,009,378
Residential real estate		678,131		922		44,732		723,785
Commercial and financial		188,013		1,083		39,421		228,517
Consumer		82,717		0		2,639		85,356
Other loans		507		0		0		507
NET LOAN BALANCES (1)	$	1,823,872	$	12,109	$	320,349	$	2,156,330

(1) Net loan balances as of September 30, 2016 and December 31, 2015 include deferred fee/costs (net) and fair value adjustments on acquired loans, aggregating to $12.4 million and $7.7 million for each period, respectively.

Purchased Loans - PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments and the cash flows expected to be collected, considering the impact of prepayments, is referred to as the nonaccretable difference.

We have applied ASC Topic 310-20 accounting treatment to PULs. The unamortized fair value mark established at acquisition on the loans has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans.

The table below summarize the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of PCI loans during the three and nine month periods ended September 30, 2016 and 2015. Contractually required principal and interest payments have been adjusted for estimated prepayments.

Three Months Ended September 30, 2016									Reclassifications from
	June 30, 2016		Additions		Deletions		Accretion		nonaccretable difference		September 30, 2016

	(In thousands)
Contractually required principal and interest	$	24,576	$	0	$	(376)	$	0	$	0	$	24,200
Nonaccretable difference		(6,250)		0		(711)		0		0		(6,961)
Cash flows expected to be collected		18,326		0		(1,087)		0		0		17,239
Accretable yield		(4,674)		0		113		379		0		(4,182)
Carrying value of acquired loans		13,652	$	0	$	(974)	$	379	$	0		13,057
Allowance for loan losses		0										0
Carrying value less allowance for loan losses	$	13,652									$	13,057

Nine Months Ended September 30, 2016									Reclassifications from
	December 31, 2015		Additions		Deletions		Accretion		nonaccretable difference		September 30, 2016

	(In thousands)
Contractually required principal and interest	$	19,966	$	9,148	$	(4,914)	$	0	$	0	$	24,200
Nonaccretable difference		(5,247)		(4,109)		2,395		0		0		(6,961)
Cash flows expected to be collected		14,719		5,039		(2,519)		0		0		17,239
Accretable yield		(2,610)		(1,831)		(1,158)		1,417		0		(4,182)
Carrying value of acquired loans		12,109	$	3,208	$	(3,677)	$	1,417	$	0		13,057
Allowance for loan losses		0										0
Carrying value less allowance for loan losses	$	12,109									$	13,057

Three Months Ended September 30, 2015									Reclassifications from
	June 30, 2015		Additions		Deletions		Accretion		nonaccretable difference		September 30, 2015

	(In thousands)
Contractually required principal and interest	$	11,564	$	12,552	$	(609)	$	0	$	0	$	23,507
Nonaccretable difference		(3,901)		(4,249)		(1,656)		0		152		(9,654)
Cash flows expected to be collected		7,663		8,303		(2,265)		0		152		13,853
Accretable yield		(1,101)		(702)		610		165		(152)		(1,180)
Carrying value of acquired loans		6,562	$	7,601	$	(1,655)	$	165	$	0		12,673
Allowance for loan losses		(212)										(49)
Carrying value less allowance for loan losses	$	6,350									$	12,624

Nine Months Ended September 30, 2015									Reclassifications from
	December 31, 2014		Additions		Deletions		Accretion		nonaccretable difference		September 30, 2015

	(In thousands)
Contractually required principal and interest	$	14,831	$	12,552	$	(3,876)	$	0	$	0	$	23,507
Nonaccretable difference		(5,825)		(4,249)		7		0		413		(9,654)
Cash flows expected to be collected		9,006		8,303		(3,869)		0		413		13,853
Accretable yield		(1,192)		(702)		758		369		(413)		(1,180)
Carrying value of acquired loans		7,814	$	7,601	$	(3,111)	$	369	$	0		12,673
Allowance for loan losses		(64)										(49)
Carrying value less allowance for loan losses	$	7,750									$	12,624

The following tables present the contractual delinquency of the recorded investment in past due loans by class of loans as of September 30, 2016 and December 31, 2015:

					Accruing
	Accruing		Accruing		Greater						Total
September 30, 2016	30-59 Days		60-89 Days		Than						Financing
(Dollars in thousands)	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables

Portfolio Loans
Construction and land development	$	0	$	0	$	0	$	229	$	129,010	$	129,239
Commercial real estate		2,270		1,257		0		1,296		942,789		947,612
Residential real estate		574		361		0		8,730		762,914		772,579
Commercial and financial		399		0		0		137		277,529		278,065
Consumer		66		0		0		169		144,056		144,291
Other		0		0		0		0		489		489
Total		3,309		1,618		0		10,561		2,256,787	$	2,272,275

Purchased Unimpaired Loans
Construction and land development	$	0	$	0	$	0	$	34	$	24,514	$	24,548
Commercial real estate		148		0		0		2,008		332,463		334,619
Residential real estate		0		0		0		1,271		58,878		60,149
Commercial and financial		333		352		0		209		62,565		63,459
Consumer		0		0		0		0		1,231		1,231
Other		0		0		0		0		0		0
Total		481		352		0		3,522		479,651	$	484,006

Purchased Credit Impaired Loans
Construction and land development	$	0	$	0	$	0	$	0	$	114	$	114
Commercial real estate		0		0		0		4,354		6,927		11,281
Residential real estate		182		0		0		0		503		685
Commercial and financial		0		0		0		0		977		977
Consumer		0		0		0		0		0		0
Other		0		0		0		0		0		0
Total		182		0		0		4,354		8,521	$	13,057

Total Loans	$	3,972	$	1,970	$	0	$	18,437	$	2,744,959	$	2,769,338

					Accruing
	Accruing		Accruing		Greater						Total
December 31, 2015	30-59 Days		60-89 Days		Than						Financing
(Dollars in thousands)	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables

Portfolio Loans
Construction and land development	$	665	$	0	$	0	$	269	$	96,695	$	97,629
Commercial real estate		810		0		0		2,301		773,764		776,875
Residential real estate		141		0		0		9,941		668,049		678,131
Commercial and financial		59		0		0		0		187,954		188,013
Consumer		430		0		0		247		82,040		82,717
Other		0		0		0		0		507		507
Total	$	2,105	$	0	$	0	$	12,758	$	1,809,009	$	1,823,872

Purchased Unimpaired Loans
Construction and land development	$	0	$	0	$	0	$	40	$	11,004	$	11,044
Commercial real estate		179		0		0		2,294		220,040		222,513
Residential real estate		66		0		0		0		44,666		44,732
Commercial and financial		39		0		0		130		39,252		39,421
Consumer		39		0		0		0		2,600		2,639
Other		0		0		0		0		0		0
Total	$	323	$	0	$	0	$	2,464	$	317,562	$	320,349

Purchased Impaired Loans
Construction and land development	$	0	$	0	$	0	$	0	$	114	$	114
Commercial real estate		132		0		0		1,816		8,042		9,990
Residential real estate		0		0		0		348		574		922
Commercial and financial		0		0		0		0		1,083		1,083
Consumer		0		0		0		0		0		0
Other		0		0		0		0		0		0
Total	$	132	$	0	$	0	$	2,164	$	9,813	$	12,109

Total Loans	$	2,560	$	0	$	0	$	17,386	$	2,136,384	$	2,156,330

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis. Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful, have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are generally charged off. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.

Loans not meeting the criteria above are considered to be pass-rated loans and risk grades are recalculated at least annually by the loan relationship manager. The following tables present the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2016 and December 31, 2015:

September 30, 2016
	Construction						Commercial
	& Land		Commercial		Residential		and		Consumer
(Dollars in thousands)	Development		Real Estate		Real Estate		Financial		Loans		Total
Pass	$	141,629	$	1,257,999	$	805,997	$	336,238	$	144,253	$	2,686,116
Special mention		5,893		8,335		1,762		3,824		1,129		20,943
Substandard		5,550		13,429		3,398		2,093		100		24,570
Doubtful		0		0		0		0		0		0
Nonaccrual		263		7,658		10,001		346		169		18,437
Pass-Troubled debt restructures		47		5,031		363		0		44		5,485
Troubled debt restructures		519		1,060		11,892		0		316		13,787
	$	153,901	$	1,293,512	$	833,413	$	342,501	$	146,011	$	2,769,338

December 31, 2015
	Construction						Commercial
	& Land		Commercial		Residential		and		Consumer
(Dollars in thousands)	Development		Real Estate		Real Estate		Financial		Loans		Total
Pass	$	100,186	$	973,942	$	697,907	$	226,391	$	83,786	$	2,082,212
Special mention		3,377		12,599		629		1,209		1,392		19,206
Substandard		4,242		9,278		3,197		769		70		17,556
Doubtful		0		0		0		0		0		0
Nonaccrual		309		6,410		10,290		130		247		17,386
Pass-Troubled debt restructures		58		5,893		0		18		0		5,969
Troubled debt restructures		615		1,256		11,762		0		368		14,001
	$	108,787	$	1,009,378	$	723,785	$	228,517	$	85,863	$	2,156,330

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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