Loans and Asset Quality Information | Note 7 – Loans and Asset Quality Information The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company's banking subsidiary, First Bank, which afford First Bank significant loss protection - see Note 2 to the financial statements included in the Company's 2011 Annual Report on Form 10-K for detailed information regarding these transactions. Because of the loss protection provided by the FDIC, the risk of the loans and foreclosed real estate that are covered by loss share agreements are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.” On July 1, 2014, one of the Company's loss share agreements with the FDIC expired. The agreement that expired related to the non-single family assets of Cooperative Bank, a failed bank acquisition from June 2009. Accordingly, the remaining balances associated with these loans and foreclosed real estate were transferred from the covered portfolio to the non-covered portfolio on July 1, 2014. The Company will bear all future losses on this portfolio of loans and foreclosed real estate. Immediately prior to the transfer to non-covered status, the loans in this portfolio had a carrying value of $ 39.7 3.0 39.7 9.7 2.1 1.7 The following is a summary of the major categories of total loans outstanding: ($ in thousands) June 30, 2015 December 31, 2014 June 30, 2014 Amount Percentage Amount Percentage Amount Percentage All loans (non-covered and covered): Commercial, financial, and agricultural $ 179,909 7 $ 160,878 7 $ 165,021 7 Real estate – construction, land development & other land loans 282,262 12 288,148 12 295,868 12 Real estate – mortgage – residential (1-4 family) first mortgages 777,515 32 789,871 33 814,712 33 Real estate – mortgage – home equity loans / lines of credit 220,534 9 223,500 9 227,381 9 Real estate – mortgage – commercial and other 904,496 38 882,127 37 868,599 36 Installment loans to individuals 47,244 2 50,704 2 62,153 3 Subtotal 2,411,960 100 2,395,228 100 2,433,734 100 Unamortized net deferred loan costs 819 946 651 Total loans $ 2,412,779 $ 2,396,174 $ 2,434,385 The following is a summary of the major categories of non-covered loans outstanding: ($ in thousands) June 30, 2015 December 31, 2014 June 30, 2014 Amount Percentage Amount Percentage Amount Percentage Non-covered loans: Commercial, financial, and agricultural $ 178,756 8 $ 159,195 7 $ 162,303 7 Real estate – construction, land development & other land loans 278,406 12 282,604 13 274,975 12 Real estate – mortgage – residential (1-4 family) first mortgages 694,794 30 700,101 31 718,962 32 Real estate – mortgage – home equity loans / lines of credit 208,778 9 210,697 9 213,542 9 Real estate – mortgage – commercial and other 890,158 39 864,333 38 825,450 37 Installment loans to individuals 47,244 2 50,704 2 61,647 3 Subtotal 2,298,136 100 2,267,634 100 2,256,879 100 Unamortized net deferred loan costs 819 946 651 Total non-covered loans $ 2,298,955 $ 2,268,580 $ 2,257,530 The carrying amount of the covered loans at June 30, 2015 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows: ($ in thousands) Impaired Loans – Carrying Value Impaired Purchased Loans – Unpaid Principal Balance Nonimpaired Purchased Loans – Carrying Nonimpaired Purchased Unpaid Principal Balance Total Covered Loans – Carrying Total Covered loans: Commercial, financial, and agricultural $ 60 118 1,093 1,132 1,153 1,250 Real estate – construction, land development & other land loans 301 526 3,555 3,962 3,856 4,488 Real estate – mortgage – residential (1-4 family) first mortgages 310 1,275 82,411 96,461 82,721 97,736 Real estate – mortgage – home equity loans / lines of credit 8 15 11,748 13,635 11,756 13,650 Real estate – mortgage – commercial and other 1,092 3,162 13,246 14,111 14,338 17,273 Total $ 1,771 5,096 112,053 129,301 113,824 134,397 The carrying amount of the covered loans at December 31, 2014 consisted of impaired and nonimpaired purchased loans (as determined on the date of the acquisition), as follows: ($ in thousands) Impaired Loans – Impaired Nonimpaired Purchased Nonimpaired Purchased Total Total Loans – Covered loans: Commercial, financial, and agricultural $ 66 123 1,617 1,661 1,683 1,784 Real estate – construction, land development & other land loans 309 534 5,235 6,471 5,544 7,005 Real estate – mortgage – residential (1-4 family) first mortgages 362 1,298 89,408 104,678 89,770 105,976 Real estate – mortgage – home equity loans / lines of credit 12 19 12,791 15,099 12,803 15,118 Real estate – mortgage – commercial and other 1,201 3,209 16,593 17,789 17,794 20,998 Total $ 1,950 5,183 125,644 145,698 127,594 150,881 The following table presents information regarding covered purchased nonimpaired loans since December 31, 2013. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond. ($ in thousands) Carrying amount of nonimpaired covered loans at December 31, 2013 $ 207,167 Principal repayments (50,183 ) Transfers to foreclosed real estate (5,061 ) Transfers to non-covered loans due to expiration of loss-share agreement (38,987 ) Net loan (charge-offs) / recoveries (3,301 ) Accretion of loan discount 16,009 Carrying amount of nonimpaired covered loans at December 31, 2014 125,644 Principal repayments (15,709 ) Transfers to foreclosed real estate (656 ) Net loan (charge-offs) / recoveries 82 Accretion of loan discount 2,692 Carrying amount of nonimpaired covered loans at June 30, 2015 $ 112,053 As reflected in the table above, the Company accreted $ 2,692,000 15,072,000 related to purchased accruing loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the covered lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to approximately 80 015, the Company also had $ 2,560,000 of loan discount related to purchased nonaccruing loans. It is not expected that a significant amount of this discount will be accreted, as it represents estimated losses on these loans. The following table presents information regarding all purchased impaired lo ans since December 31, 2013, the majority of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table. ($ in thousands) Purchased Impaired Loans Contractual Fair Market Carrying Balance at December 31, 2013 $ 6,263 3,121 3,142 Change due to payments received (599 227 (826 Change due to loan charge-off (2 29 (31 Other 197 (115 312 Balance at December 31, 2014 5,859 3,262 2,597 Change due to payments received (99 112 (211 Other (3 (3 ï€ Balance at June 30, 2015 $ 5,757 3,371 2,386 Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first six months of 2015 and 2014, the Company received $ 0 179,000 Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, nonperforming loans held for sale, and foreclosed real estate. Nonperforming assets are summarized as follows: ASSET QUALITY DATA ($ in thousands) June 30, 2015 December 31, 2014 June 30, 2014 Non-covered nonperforming assets Nonaccrual loans $ 44,123 $ 50,066 $ 47,533 Restructured loans - accruing 32,059 35,493 27,250 Accruing loans > 90 days past due - — — Total non-covered nonperforming loans 76,182 85,559 74,783 Foreclosed real estate 9,954 9,771 9,346 Total non-covered nonperforming assets $ 86,136 $ 95,330 $ 84,129 Covered nonperforming assets Nonaccrual loans (1) $ 7,378 $ 10,508 $ 20,938 Restructured loans - accruing 3,910 5,823 8,193 Accruing loans > 90 days past due - — — Total covered nonperforming loans 11,288 16,331 29,131 Foreclosed real estate 1,945 2,350 9,934 Total covered nonperforming assets $ 13,233 $ 18,681 $ 39,065 Total nonperforming assets $ 99,369 $ 114,011 $ 123,194 ( ) At June 30, 2015, December 31, 2014, and June 30, 2014, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $ 12.7 16.0 34.3 At June 30, 2015, the Company had $ 5.1 les previously presented. The following table presents the Company's nonaccrual loans as of June 30, 2015. ($ in thousands) Non-covered Covered Total Commercial, financial, and agricultural: Commercial – unsecured $ 210 22 232 Commercial – secured 2,727 — 2,727 Secured by inventory and accounts receivable 86 34 120 Real estate – construction, land development & other land loans 6,387 96 6,483 Real estate – residential, farmland and multi-family 23,347 4,756 28,103 Real estate – home equity lines of credit 2,235 431 2,666 Real estate – commercial 8,663 2,039 10,702 Consumer 468 — 468 Total $ 44,123 7,378 51,501 The following table presents the Company's nonaccrual loans as of Decemb er 31, 2014. ($ in thousands) Non-covered Covered Total Commercial, financial, and agricultural: Commercial – unsecured $ 187 1 188 Commercial – secured 2,927 — 2,927 Secured by inventory and accounts receivable 454 103 557 Real estate – construction, land development & other land loans 7,891 1,140 9,031 Real estate – residential, farmland and multi-family 24,459 7,785 32,244 Real estate – home equity lines of credit 2,573 278 2,851 Real estate – commercial 11,070 1,201 12,271 Consumer 505 — 505 Total $ 50,066 10,508 60,574 The following table presents an analysis of the payment status of the Company's loans as of June 30, 2015. ($ in thousands) 30-59 60-89 Days Nonaccrual Loans Current Total Loans Receivable Non-covered loans Commercial, financial, and agricultural: Commercial - unsecured $ 196 1 210 41,667 42,074 Commercial - secured 495 478 2,727 113,920 117,620 Secured by inventory and accounts receivable — — 86 23,241 23,327 Real estate – construction, land development & other land loans 445 98 6,387 249,505 256,435 Real estate – residential, farmland, and multi-family 4,452 2,406 23,347 818,158 848,363 Real estate – home equity lines of credit 806 69 2,235 195,235 198,345 Real estate - commercial 3,216 371 8,663 756,743 768,993 Consumer 331 266 468 41,914 42,979 Total non-covered $ 9,941 3,689 44,123 2,240,383 2,298,136 Unamortized net deferred loan costs 819 Total non-covered loans $ 2,298,955 Covered loans $ 632 653 7,378 105,161 113,824 Total loans $ 10,573 4,342 51,501 2,345,544 2,412,779 The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at June 30, 2015. The following table presents an analysis of the payment status of the Company's loans as of December 31, 2014. ($ in thousands) 30-59 Due 60-89 Days Nonaccrual Current Total Loans Receivable Non-covered loans Commercial, financial, and agricultural: Commercial - unsecured $ 191 35 187 36,871 37,284 Commercial - secured 1,003 373 2,927 102,671 106,974 Secured by inventory and accounts receivable 30 225 454 21,761 22,470 Real estate – construction, land development & other land loans 1,950 139 7,891 247,535 257,515 Real estate – residential, farmland, and multi-family 11,272 3,218 24,459 807,884 846,833 Real estate – home equity lines of credit 1,585 352 2,573 194,067 198,577 Real estate - commercial 3,738 996 11,070 738,981 754,785 Consumer 695 131 505 41,865 43,196 Total non-covered $ 20,464 5,469 50,066 2,191,635 2,267,634 Unamortized net deferred loan costs 946 Total non-covered loans $ 2,268,580 Covered loans $ 4,385 964 10,508 111,737 127,594 Total loans $ 24,849 6,433 60,574 2,303,372 2,396,174 The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2014. The following table presents the activity in the allowance for loan losses for non-covered loans for the three and six months ended June 30, 2015. ($ in thousands) Commercial, Financial, Real Estate – Construction, Land Development, & Other Land Loans Real Estate – Residential, Farmland, Real Real Estate – Commercial and Other Consumer Unallo- Total As of and for the three months ended June 30, 2015 Beginning balance 5,757 6,006 10,826 4,163 5,919 795 304 33,770 Charge-offs (2,083 ) (702 ) (844 ) (496 ) (1,026 ) (252 ) - (5,403 Recoveries 260 50 156 28 193 100 - 787 Provisions 1,630 (338 ) (497 ) (528 ) (363 ) 305 792 1,001 Ending balance 5,564 5,016 9,641 3,167 4,723 948 1,096 30,155 As of and for the six months ended June 30, 2015 Beginning balance $ 8,391 6,470 9,720 3,731 9,045 841 147 38,345 Charge-offs (3,027 ) (1,958 ) (2,413 ) (563 ) (1,949 ) (853 ) − (10,763 Recoveries 348 317 172 45 395 191 − 1,468 Provisions (148 ) 187 2,162 (46 ) (2,768 ) 769 949 1,105 Ending balance $ 5,564 5,016 9,641 3,167 4,723 948 1,096 30,155 Ending balances as of June 30, 2015: Allowance for loan losses Individually evaluated for impairment $ 134 364 1,794 — 328 — — 2,620 Collectively evaluated for impairment $ 5,430 4,652 7,847 3,167 4,395 948 1,096 27,535 Loans acquired with deteriorated credit quality $ — — — — — — — — Loans receivable as of June 30, 2015: Ending balance - total $ 183,021 256,435 848,363 198,345 768,993 42,979 − 2,298,136 Unamortized net deferred loan costs 819 Total non-covered loans $ 2,298,955 Ending balances as of June 30, 2015: Loans Individually evaluated for impairment $ 764 4,920 23,833 — 17,453 — — 46,970 Collectively evaluated for impairment $ 182,257 251,515 824,530 198,345 750,926 42,979 — 2,250,552 Loans acquired with deteriorated credit quality $ — — — — 614 — — 614 The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2014 . ($ in thousands) Commercial, Financial, Real Estate – Construction, Land Development, & Other Land Loans Real Estate – Residential, Farmland, Real Credit Real Estate – Commercial and Other Consumer Unallo- Total As of and for the year ended December 31, 2014 Beginning balance $ 7,432 12,966 15,142 1,838 5,524 1,513 (152 ) 44,263 Charge-offs (4,039 ) (2,148 ) (4,417 ) (912 ) (3,048 ) (1,724 ) — (16,288 ) Recoveries 140 398 331 45 181 451 — 1,546 Transfer from covered category 36 813 51 — 833 4 — 1,737 Provisions 4,822 (5,559 ) (1,387 ) 2,760 5,555 597 299 7,087 Ending balance $ 8,391 6,470 9,720 3,731 9,045 841 147 38,345 Endi ng balances as of December 31, 2014: Allowance for loan losses Individually evaluated for impairment $ 211 415 1,686 — 165 — — 2,477 Collectively evaluated for impairment $ 8,180 6,055 8,034 3,731 8,880 841 147 35,868 Loans acquired with deteriorated credit quality $ — — — — — — — — Loans receivable as of December 31, 2014: Ending balance - total $ 166,728 257,515 846,833 198,577 754,785 43,196 — 2,267,634 Unamortized net deferred loan costs 946 Total non-covered loans $ 2,268,580 Ending balances as of December 31, 2014: Loans Individually evaluated for impairment $ 784 7,991 24,010 476 20,910 7 — 53,531 Collectively evaluated for impairment $ 165,944 249,524 822,823 198,101 733,228 43,189 — 2,213,456 Loans acquired with deteriorated credit quality $ — — — — 647 — — 647 The following table presents the activity in the all owance for loan losses for non-covered loans for the three and six months ended June 30, 2014. ($ in thousands) Commercial, Financial, and Agricultural Real Estate – Construction, Land Development, & Other Land Loans Real Estate – Residential, Farmland, Real Equity Real Estate – Commercial and Other Consumer Unallo- Total As of and for the three months ended June 30, 2014 Beginning balance 8,889 8,650 12,733 3,662 9,375 1,030 367 44,706 Charge-offs (2,041) (307) (861) (397) (277) (371) - (4,254) Recoveries 21 73 114 6 26 116 - 356 Provisions 2,079 (1,002) (854) 484 88 131 232 1,158 Ending balance 8,948 7,414 11,132 3,755 9,212 906 599 41,966 As of and for the six months ended June 30, 2014 Beginning balance $ 7,432 12,966 15,142 1,838 5,524 1,513 (152 ) 44,263 Charge-offs (2,666 ) (1,234) (1,631 ) (503 ) (889 ) (799 ) − (7,722 ) Recoveries 49 309 179 11 121 233 − 902 Provisions 4,133 (4,627 ) (2,558 ) 2,409 4,456 (41) 751 4,523 Ending balance $ 8,948 7,414 11,132 3,755 9,212 906 599 41,966 Endi ng balances as of June 30, 2014: Allowance for loan losses Individually evaluated for impairment $ 290 818 2,016 — 528 — — 3,652 Collectively evaluated for impairment $ 8,658 6,596 9,116 3,755 8,684 906 599 38,314 Loans acquired with deteriorated credit quality $ — — — — — — — — Loans receivable as of June 30, 2014: Ending balance - total $ 178,670 247,369 867,175 200,510 717,905 45,250 — 2,256,879 Unamortized net deferred loan costs 651 Total non-covered loans 2,257,530 Ending balances as of June 30, 2014: Loans Individually evaluated for impairment $ 679 7,541 22,505 483 17,009 10 — 48,227 Collectively evaluated for impairment $ 177,991 239,828 844,670 200,027 700,896 45,240 — 2,208,652 Loans acquired with deteriorated credit quality $ — — — — — — — — The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2015. ($ in thousands) Covered Loans As of and for the three months ended June 30, 2015 Beginning balance $ 2,226 Charge-offs (676 ) Recoveries 545 Provisions (160 ) Ending balance $ 1,935 As of and for the six months ended June 30, 2015 Beginning balance $ 2,281 Charge-offs (1,116 ) Recoveries 1,198 Provisions (428 ) Ending balance $ 1,935 Ending balances as of June 30, 2015: Allowance for loan losses Individually evaluated for impairment $ 455 Collectively evaluated for impairment 1,434 Loans acquired with deteriorated credit quality 46 Loans receivable as of June 30, 2015: Ending balance – total $ 113,824 Ending balances as of June 30, 2015: Loans Individually evaluated for impairment $ 6,763 Collectively evaluated for impairment 105,290 Loans acquired with deteriorated credit quality 1,771 The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2014. ($ in thousands) Covered Loans As of and for the year ended December 31, 2014 Beginning balance $ 4,242 Charge-offs (6,948 ) Recoveries 3,616 Transferred to non-covered (1,737 ) Provisions 3,108 Ending balance $ 2,281 Ending balances as of December 31, 2014: Allowance for loan losses Individually evaluated for impairment $ 1,161 Collectively evaluated for impairment 1,046 Loans acquired with deteriorated credit quality 74 Loans receivable as of December 31, 2014: Ending balance – total $ 127,594 Ending balances as of December 31, 2014: Loans Individually evaluated for impairment $ 11,484 Collectively evaluated for impairment 114,160 Loans acquired with deteriorated credit quality 1,950 The following table presents the activity in the allowance for loan losses for covered loans for the three and six months ended June 30, 2014. ($ in thousands) Covered Loans As of and for the three months ended June 30, 2014 Beginning balance $ 3,421 Charge-offs (2,722 ) Recoveries 630 Provisions 2,501 Ending balance $ 3,830 As of and for the six months ended June 30, 2014 Beginning balance $ 4,242 Charge-offs (5,670 ) Recoveries 2,547 Provisions 2,711 Ending balance $ 3,830 Ending balances as of June 30, 2014: Allowance for loan losses Individually evaluated for impairment $ 1,312 Collectively evaluated for impairment 2,472 Loans acquired with deteriorated credit quality 46 Loans receivable as of June 30, 2014: Ending balance – total $ 176,855 Ending balances as of June 30, 2014: Loans Individually evaluated for impairment $ 20,615 Collectively evaluated for impairment 153,357 Loans acquired with deteriorated credit quality 2,883 The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015. ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Non-covered loans with no related allowance recorded: Commercial, financial, and agricultural: Commercial - unsecured $ 70 84 − 45 Commercial - secured 108 109 − 44 Secured by inventory and accounts receivable − − − − Real estate – construction, land development & other land loans 3,483 4,540 − 5,045 Real estate – residential, farmland, and multi-family 9,788 11,017 − 9,575 Real estate – home equity lines of credit − − − 159 Real estate – commercial 15,164 17,279 − 16,800 Consumer − − − 2 Total non-covered impaired loans with no allowance $ 28,613 33,029 − 31,670 Total covered impaired loans with no allowance $ 5,698 10,040 − 6,354 Total impaired loans with no allowance recorded $ 34,311 43,069 − 38,024 Non-covered loans with an allowance recorded: Commercial, financial, and agricultural: Commercial - unsecured $ 101 107 46 136 Commercial - secured 485 502 88 558 Secured by inventory and accounts receivable − − − − Real estate – construction, land development & other land loans 1,437 3,601 364 1,499 Real estate – residential, farmland, and multi-family 14,045 14,547 1,794 14,215 Real estate – home equity lines of credit − − − − Real estate – commercial 2,903 3,008 328 3,237 Consumer − − − − Total non-covered impaired loans with allowance $ 18,971 21,765 2,620 19,645 Total covered impaired loans with allowance $ 2,836 3,109 501 4,173 Total impaired loans with an allowance recorded $ 21,807 24,874 3,121 23,818 Interest income recorded on non-covered and covered impaired loans during the year ended June 30, 2015 was insignificant. The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014. ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Non-covered loans with no related allowance recorded: Commercial, financial, and agricultural: Commercial - unsecured $ 33 35 − 20 Commercial - secured 5 6 − 95 Secured by inventory and accounts receivable − − − − Real estate – construction, land development & other land loans 6,877 7,944 − 6,430 Real estate – residential, farmland, and multi-family 9,165 10,225 − 7,776 Real estate – home equity lines of credit 476 498 − 388 Real estate – commercial 17,409 20,786 − 11,911 Consumer 7 10 − 7 Total non-covered impaired loans with no allowance $ 33,972 39,504 − 26,627 Total covered impaired loans with no allowance $ 8,097 12,081 − 16,986 Total impaired loans with no allowance recorded $ 42,069 51,585 − 43,613 Non-covered loans with an allowance recorded: Commercial, financial, and agricultural: Commercial - unsecured $ 140 143 47 142 Commercial - secured 606 612 164 550 Secured by inventory and accounts receivable − − − 15 Real estate – construction, land development & other land loans 1,114 3,243 415 1,487 Real estate – residential, farmland, and multi-family 14,845 15,257 1,686 14,418 Real estate – home equity lines of credit − − − 4 Real estate – commercial 3,501 3,530 165 6,420 Consumer − − − 8 Total non-covered impaired loans with allowance $ 20,206 22,785 2,477 23,044 Total covered impaired loans with allowance $ 5,220 5,719 1,229 8,513 Total impaired loans with an allowance recorded $ 25,426 28,504 3,706 31,557 Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2014 was insignificant. The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower's credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower's financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management's evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. The following describes the Company's internal risk grades in ascending order of likelihood of loss: Numerical Risk Grade Description Pass: 1 Loans with virtually no risk, including cash secured loans. 2 Loans with documented significant overall financial strength, including non-cash secured or unsecured loans that have no minor or major exceptions to the lending guidelines. 3 Loans with documented satisfactory overall financial strength, including non-cash secured or unsecured loans that have no major exceptions to the lending guidelines. If unsecured, loans would include support of a strong guarantor or co-maker. 4 Loans to borrowers with acceptable financial condition, including non-cash secured or unsecured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated. Primary or secondary source of repayment is sufficient and if secured, loan would include the support of a satisfactory guarantor or co-maker. Watch or Standard: 9 Existing loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances. Special Mention: 5 Existing loans with major exceptions that cannot be mitigated. Potential for loss is possible. Classified: 6 Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected. Loss is not only possible, but probable. 7 Loans that have a well-defined weakness that make the collection or liquidation improbable. Loss appears imminent, but the exact amount and timing is uncertain. 8 Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. The following table presents the Company's recorded investment in loans by credit quality indicators as of June 30, 2015. ($ in thousands) Credit Quality Indicator (Grouped by Internally Assigned Grade) Pass Pass – Acceptable/ Average Watch or Standard Special Classified Loans Nonaccrual Loans Total Non-covered loans: Commercial, financial, and agricultural: Commercial - unsecured $ 19,718 20,202 5 1,170 769 210 42,074 Commercial - secured 51,546 57,399 60 3,241 2,647 2,727 117,620 Secured by inventory and accounts receivable 7,721 14,587 − 292 641 86 23,327 Real estate – construction, land development & other land loans 94,263 132,055 723 13,738 9,269 6,387 256,435 Real estate – residential, farmland, and multi-family 215,193 529,845 4,862 40,743 34,373 23,347 848,363 Real estate – home equity lines of credit 125,505 59,684 1,525 5,043 4,353 2,235 198,345 Real estate - commercial 263,746 445,742 8,240 30,392 12,210 8,663 768,993 Consumer 27,913 13,568 53 436 541 468 42,979 Total $ 805,605 1,273,082 15,468 95,055 64,803 44,123 2,298,136 Unamortized net deferred loan costs 819 Total non-covered loans $ 2,298,955 Total covered loans $ 12,014 64,847 323 10,109 19,153 7,378 113,824 Total loans $ 817,619 1,337,929 15,791 105,164 83,956 51,501 2,412,779 At June 30, 2015, there was an insignificant amount of loans that were graded “8” with an accruing status. The following table presents the Company's recorded investment in loans by credit quality indicators as of December 31, 2014. ($ in thousands) Credit Quality Indicator (Grouped by Internally Assigned Grade) Pass Pass – Acceptable / Average Watch or Standard Special Classified Loans Nonaccrual Loans Total Non-covered loans: Commercial, financial, and agricultural: Commercial - unsecured $ 17,856 15,649 5 1,356 2,231 187 37,284 Commercial - secured 32,812 62,361 62 4,481 4,331 2,927 106,974 Secured by inventory and accounts receivable 10,815 9,928 − 767 506 454 22,470 Real estate – construction, land development & other land loans 87,806 135,072 771 13,066 12,909 7,891 257,515 Real estate – residential, farmland, and multi-family 221,581 520,790 4,536 40,993 34,474 24,459 846,833 Real estate – home equity lines of credit 122,528 62,642 1,135 5,166 4,533 2,573 198,577 Real estate - commercial 223,197 465,395 9,057 30,318 15,748 11,070 754,785 Consumer 25,520 15,614 54 855 648 505 43,196 Total $ 742,115 1,287,451 15,620 97,002 75,380 50,066 2,267,634 Unamortized net deferred loan costs 946 Total non-covered loans $ 2,268,580 Total covered loans $ 14,349 70,989 632 10,503 20,613 10,508 127,594 Total loans $ 756,464 1,358,440 16,252 107,505 95,993 60,574 2,396,174 At December 31, 2014, there was an insignificant amount of loans that were graded “8” with an accruing status. Troubled Debt Restructurings The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The vast majority of the Company's troubled debt restructurings modified during the periods ended June 30, 2015 and 2014 related to interest rate reductions combined with restructured amortization schedules. The Company does not generally grant principal forgiveness. All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company's troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan's payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously. The following table presents information related to loans modified in a troubled debt restructuring during the three months ended June 30, 2015 and 2014. ($ in thousands) For the three months ended For the three months ended June 30, 2015 June 30, 2014 Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances Non-covered TDRs – Accruing Commercial, financial, and agricultural: Commercial – unsecured 1 $ 8 $ 8 — $ — $ — Commercial – secured — — — — — — Secured by inventory and accounts receivable — — — — — — Real estate – construction, land development & other land loans — — — — — — Real estate – residential, farmland, and multi-family 1 152 152 5 411 411 Real estate – home equity lines of credit — — — — — — Real estate – commercial — — — — — — Consumer — — — — — — Non-covered TDRs – Nonaccrual Commercial, financial, and agricultural: Commercial – unsecured — — — — — — Commercial – secured — — — — — — Secured by inventory and accounts receivable — — — — — — Real estate – construction, land development & other land loans — — — — — — Real estate – residential, farmland, and multi-family — — — 2 332 332 Real estate – home equity lines of credit — — — — — — Real estate – commercial — — — — — — Consumer — — — — — — Total non-covered TDRs arising during period 2 160 160 7 743 743 Total covered TDRs arising during period – Accruing — $ — $ — 2 $ 248 $ 245 Total covered TDRs arising during period – Nonaccrual — — — — — — Total TDRs arising during period 2 $ 160 $ 160 9 $ 991 $ 988 The following table presents information related to loans modified in a troubled debt restructuring during the six months ended June 30, 2015 and 2014. ($ in thousands) For the six months ended For the six months ended Number of Pre- Post- Number of Pre- Post- Non-covered TDRs – Accruing Commercial, financial, and agricultural: Commercial – unsecured 1 $ 8 $ 8 — $ — $ — Commercial – secured — — — — — — Secured by inventory and accounts receivable — — — — — — Real estate – construction, land development & other land loans — — — — — — Real estate – residential, farmland, and multi-family 2 265 265 7 748 748 Real estate – home equity lines of credit — — — — — — Real estate – commercial 1 51 51 — — — Consumer — — — — — — Non-covered TDRs – Nonaccrual Commercial, financial, and agricultural: Commercial – unsecured — — — — — — Commercial – secured — — — — — — Secured by inventory and accounts receivable — — — — — — Real estate – con |