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Loans and Asset Quality Information

12 Months Ended

Dec. 31, 2013

Loans and Asset Quality Information Part I

Note 4. 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.”

The following is a summary of the major categories of total loans outstanding:

($ in thousands)	December 31, 2013				December 31, 2012
	Amount		Percentage		Amount		Percentage
All loans (non-covered and covered):

Commercial, financial, and agricultural	$	168,469		7%	$	160,790		7%
Real estate – construction, land development & other land loans		305,246		12%		298,458		13%
Real estate – mortgage – residential (1-4 family) first mortgages		838,862		34%		815,281		34%
Real estate – mortgage – home equity loans / lines of credit		227,907		9%		238,925		10%
Real estate – mortgage – commercial and other		855,249		35%		789,746		33%
Installment loans to individuals		66,533		3%		71,933		3%
Subtotal		2,462,266		100%		2,375,133		100%
Unamortized net deferred loan costs		928				1,324
Total loans	$	2,463,194			$	2,376,457

As of December 31, 2013 and 2012, net loans include an unamortized premium of $98,000 and $485,000, respectively, related to acquired loans.

At December 31, 2012, the Company also had $30 million classified as “loans held for sale” that are not included in the loan balances disclosed above or in the disclosures presented in the remainder of Note 4. In the fourth quarter of 2012, the Company identified approximately $68 million of non-covered higher-risk loans that it targeted for sale to a third-party investor. Based on an offer to purchase these loans received prior to year-end, the Company wrote the loans down by approximately $38 million to their estimated liquidation value of approximately $30 million and reclassified them as “loans held for sale.” The sale of the loans was completed in January 2013 with the Company receiving sales proceeds of approximately $30 million.

Loans in the amount of $1.8 billion were pledged as collateral for certain borrowings as of both December 31, 2013 and December 31, 2012 (see Note 10).

The loans above also include loans to executive officers and directors serving the Company at December 31, 2013 and to their associates, totaling approximately $5.9 million and $6.1 million at December 31, 2013 and 2012, respectively. During 2013, additions to such loans were approximately $0.9 million and repayments totaled approximately $1.1 million. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related borrowers. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

The following is a summary of the major categories of non-covered loans outstanding:

($ in thousands)	December 31, 2013				December 31, 2012
	Amount		Percentage		Amount		Percentage
Non-covered loans:

Commercial, financial, and agricultural	$	164,195		7%	$	155,273		7%
Real estate – construction, land development & other land loans		273,412		12%		251,569		12%
Real estate – mortgage – residential (1-4 family) first mortgages		730,712		32%		679,401		33%
Real estate – mortgage – home equity loans / lines of credit		213,016		10%		219,443		11%
Real estate – mortgage – commercial and other		804,621		36%		715,973		34%
Installment loans to individuals		66,001		3%		71,160		3%
Subtotal		2,251,957		100%		2,092,819		100%
Unamortized net deferred loan costs		928				1,324
Total non-covered loans	$	2,252,885			$	2,094,143

The carrying amount of the covered loans at December 31, 2013 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	75		136		4,199		5,268		4,274		5,404
Real estate – construction, land development & other land loans		325		564		31,509		47,792		31,834		48,356
Real estate – mortgage – residential (1-4 family) first mortgages		575		1,500		107,575		126,882		108,150		128,382
Real estate – mortgage – home equity loans / lines of credit		14		21		14,877		18,318		14,891		18,339
Real estate – mortgage – commercial and other		2,153		4,042		48,475		62,630		50,628		66,672
Installment loans to individuals		—		—		532		607		532		607
Total	$	3,142		6,263		207,167		261,497		210,309		267,760

The carrying amount of the covered loans at December 31, 2012 consisted of impaired and nonimpaired purchased loans (as determined on the date of acquisition), as follows:

($ in thousands)	Impaired Purchased Loans – Carrying Value		Impaired Purchased Loans – Unpaid Principal Balance		Nonimpaired Purchased Loans – Carrying Value		Nonimpaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	71		148		5,446		7,009		5,517		7,157
Real estate – construction, land development & other land loans		1,575		2,594		45,314		82,676		46,889		85,270
Real estate – mortgage – residential (1-4 family) first mortgages		794		1,902		135,086		161,416		135,880		163,318
Real estate – mortgage – home equity loans / lines of credit		16		56		19,466		24,431		19,482		24,487
Real estate – mortgage – commercial and other		2,369		4,115		71,404		94,502		73,773		98,617
Installment loans to individuals		—		—		773		828		773		828
Total	$	4,825		8,815		277,489		370,862		282,314		379,677

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2011. 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, 2011	$	353,370
Principal repayments		(51,582	)
Transfers to foreclosed real estate		(30,181	)
Loan charge-offs		(10,584	)
Accretion of loan discount		16,466
Carrying amount of nonimpaired covered loans at December 31, 2012		277,489
Principal repayments		(63,588	)
Transfers to foreclosed real estate		(13,977	)
Loan charge-offs		(12,957	)
Accretion of loan discount		20,200
Carrying amount of nonimpaired covered loans at December 31, 2013	$	207,167

As reflected in the table above, the Company accreted $20,200,000 and $16,466,000 of the loan discount on purchased nonimpaired loans into interest income during 2013 and 2012, respectively. As of December 31, 2013, there was remaining loan discount of $31,569,000 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 estimate lives of the respective loans, which are generally consistent with the terms of the respective loss share agreements. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income. At December 31, 2013, the Company also had $8,038,000 of loan discount related to purchased nonperforming loans. It is not expected that a significant amount of this discount will be accreted, as it represents estimated losses on these loans. An additional $15,797,000 in partial charge-offs have been recorded on purchased loans outstanding at December 31, 2013.

The following table presents information regarding all purchased impaired loans since December 31, 2011, substantially all 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 Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
Balance at December 31, 2011	$	18,316			9,532			8,784
Change due to payments received		(355	)		44			(399	)
Transfer to foreclosed real estate		(7,636	)		(3,487	)		(4,149	)
Change due to loan charge-off		(359	)		(531	)		172
Other		(1,151	)		(1,568	)		417
Balance at December 31, 2012		8,815			3,990			4,825
Change due to payments received		(301	)		(31	)		(270	)
Transfer to foreclosed real estate		(2,100	)		(784	)		(1,316	)
Change due to loan charge-off		(150	)		(54	)		(96	)
Other		(1	)		—			(1	)
Balance at December 31, 2013	$	6,263			3,121			3,142

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. 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 2013 and 2012, the Company received $62,000 and $0, respectively, in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in the loan discount accretion amount discussed previously.

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)	December 31, 2013		December 31, 2012

Non-covered nonperforming assets
Nonaccrual loans	$	41,938		33,034
Restructured loans – accruing		27,776		24,848
Accruing loans > 90 days past due		—		—
Total non-covered nonperforming loans		69,714		57,882
Nonperforming loans held for sale		—		21,938
Foreclosed real estate		12,251		26,285
Total non-covered nonperforming assets	$	81,965		106,105

Covered nonperforming assets
Nonaccrual loans (1)	$	37,217		33,491
Restructured loans – accruing		8,909		15,465
Accruing loans > 90 days past due		—		—
Total covered nonperforming loans		46,126		48,956
Foreclosed real estate		24,497		47,290
Total covered nonperforming assets	$	70,623		96,246

Total nonperforming assets	$	152,588		202,351

(1) At December 31, 2013 and December 31, 2012, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $60.4 million and $64.4 million, respectively.

If the nonaccrual and restructured loans as of December 31, 2013, 2012 and 2011 had been current in accordance with their original terms and had been outstanding throughout the period (or since origination if held for part of the period), gross interest income in the amounts of approximately $5,262,000, $7,689,000, and $8,724,000 for nonaccrual loans and $2,674,000, $2,392,000, and $1,873,000 for restructured loans would have been recorded for 2013, 2012, and 2011, respectively. Interest income on such loans that was actually collected and included in net income in 2013, 2012 and 2011 amounted to approximately $1,414,000, $2,824,000, and $2,578,000 for nonaccrual loans (prior to their being placed on nonaccrual status), and $1,681,000, $1,179,000, and $1,351,000 for restructured loans, respectively. At December 31, 2013 and 2012, we had no commitments to lend additional funds to debtors whose loans were nonperforming.

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

The following table presents the Company’s nonaccrual loans as of December 31, 2013.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	222		38		260
Commercial – secured		2,662		114		2,776
Secured by inventory and accounts receivable		545		782		1,327

Real estate – construction, land development & other land loans		8,055		13,502		21,557

Real estate – residential, farmland and multi-family		17,814		12,344		30,158

Real estate – home equity lines of credit		2,200		335		2,535

Real estate – commercial		10,115		10,099		20,214

Consumer		325		3		328
Total	$	41,938		37,217		79,155

The following table presents the Company’s nonaccrual loans as of December 31, 2012.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial - unsecured	$	307		150		457
Commercial - secured		2,398		3		2,401
Secured by inventory and accounts receivable		17		59		76

Real estate – construction, land development & other land loans		6,354		11,698		18,052

Real estate – residential, farmland and multi-family		9,629		10,712		20,341

Real estate – home equity lines of credit		1,622		465		2,087

Real estate - commercial		9,885		10,342		20,227

Consumer		2,822		62		2,884
Total	$	33,034		33,491		66,525

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2013.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	347		94		222		36,352		37,015
Commercial - secured		1,233		462		2,662		117,923		122,280
Secured by inventory and accounts receivable		438		767		545		19,426		21,176

Real estate – construction, land development & other land loans		2,304		1,391		8,055		232,920		244,670

Real estate – residential, farmland, and multi-family		11,682		2,631		17,814		837,260		869,387

Real estate – home equity lines of credit		1,465		305		2,200		194,157		198,127

Real estate - commercial		3,196		214		10,115		696,081		709,606

Consumer		494		187		325		48,690		49,696
Total non-covered	$	21,159		6,051		41,938		2,182,809		2,251,957
Unamortized net deferred loan costs										928
Total non-covered loans									$	2,252,885

Covered loans	$	5,179		768		37,217		167,145		210,309

Total loans	$	26,338		6,819		79,155		2,349,954		2,463,194

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2013.

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2012.

($ in thousands)	30-59 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		Current		Total Loans Receivable
Non-covered loans
Commercial, financial, and agricultural:
Commercial - unsecured	$	91		10		307		35,278		35,686
Commercial - secured		1,020		220		2,398		110,074		113,712
Secured by inventory and accounts receivable		52		4		17		21,270		21,343

Real estate – construction, land development & other land loans		490		263		6,354		211,001		218,108

Real estate – residential, farmland, and multi-family		9,673		2,553		9,629		797,584		819,439

Real estate – home equity lines of credit		976		320		1,622		197,962		200,880

Real estate - commercial		4,326		1,131		9,885		612,598		627,940

Consumer		462		219		2,822		52,208		55,711
Total non-covered	$	17,090		4,720		33,034		2,037,975		2,092,819
Unamortized net deferred loan costs										1,324
Total non-covered loans									$	2,094,143

Covered loans	$	6,564		3,417		33,491		238,842		282,314

Total loans	$	23,654		8,137		66,525		2,276,817		2,376,457

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2012.

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2013.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated			Total

As of and for the year ended December 31, 2013

Beginning balance	$	4,687			12,856			14,082			1,884			5,247			1,939			948			41,643
Charge-offs		(4,418	)		(2,739	)		(3,732	)		(1,314	)		(4,346	)		(2,174	)		(660	)		(19,383	)
Recoveries		299			743			753			87			1,381			474			—			3,737
Provisions		6,864			2,106			4,039			1,181			3,242			1,274			(440	)		18,266
Ending balance	$	7,432			12,966			15,142			1,838			5,524			1,513			(152	)		44,263

Ending balances as of December 31, 2013: Allowance for loan losses

Individually evaluated for impairment	$	202			544			1,162			1			649			1			—			2,559

Collectively evaluated for impairment	$	7,230			12,422			13,980			1,837			4,875			1,512			(152	)		41,704

Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—

Loans receivable as of December 31, 2013:

Ending balance – total	$	180,471			244,670			869,387			198,127			709,606			49,696			—			2,251,957

Ending balances as of December 31, 2013: Loans

Individually evaluated for impairment	$	582			8,027			19,111			22			16,894			13			—			44,649

Collectively evaluated for impairment	$	179,889			236,643			850,276			198,105			692,712			49,683			—			2,207,308

Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—			—

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2012.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential, Farmland, and Multi- family			Real Estate – Home Equity Lines of Credit			Real Estate – Commercial and Other			Consumer			Unallo- cated		Total

As of and for the year ended December 31, 2012

Beginning balance	$	3,780			11,306			13,532			1,690			3,414			1,872			16		35,610
Charge-offs		(4,912	)		(19,312	)		(20,879	)		(3,287	)		(16,616	)		(1,539	)		—		(66,545	)
Recoveries		354			986			430			209			333			273			—		2,585
Provisions		5,465			19,876			20,999			3,272			18,116			1,333			932		69,993
Ending balance	$	4,687			12,856			14,082			1,884			5,247			1,939			948		41,643

Ending balances as of December 31, 2012: Allowance for loan losses

Individually evaluated for impairment	$	2			504			1,419			3			1,036			—			—		2,964

Collectively evaluated for impairment	$	4,685			12,352			12,663			1,881			4,211			1,939			948		38,679

Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Loans receivable as of December 31, 2012:

Ending balance – total	$	170,741			218,108			819,439			200,880			627,940			55,711			—		2,092,819

Ending balances as of December 31, 2012: Loans

Individually evaluated for impairment	$	10			5,949			18,618			43			17,524			—			—		42,144

Collectively evaluated for impairment	$	170,731			212,159			800,821			200,837			610,416			55,711			—		2,050,675

Loans acquired with deteriorated credit quality	$	—			—			—			—			—			—			—		—

Loans and Asset Quality Information Part II

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2013.

($ in thousands)	Covered Loans

As of and for the year ended December 31, 2013
Beginning balance	$	4,759
Charge-offs		(13,053	)
Recoveries		186
Provisions		12,350
Ending balance	$	4,242

Ending balances as of December 31, 2013: Allowance for loan losses

Individually evaluated for impairment	$	3,133
Collectively evaluated for impairment		1,109
Loans acquired with deteriorated credit quality		25

Loans receivable as of December 31, 2013:

Ending balance – total	$	210,309

Ending balances as of December 31, 2013: Loans

Individually evaluated for impairment	$	46,126
Collectively evaluated for impairment		164,183
Loans acquired with deteriorated credit quality		3,142

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2012.

($ in thousands)	Covered Loans

As of and for the year ended December 31, 2012
Beginning balance	$	5,808
Charge-offs		(10,728	)
Recoveries		—
Provisions		9,679
Ending balance	$	4,759

Ending balances as of December 31, 2012: Allowance for loan losses

Individually evaluated for impairment	$	3,509
Collectively evaluated for impairment		1,250
Loans acquired with deteriorated credit quality		17

Loans receivable as of December 31, 2012:

Ending balance – total	$	282,314

Ending balances as of December 31, 2012: Loans

Individually evaluated for impairment	$	48,956
Collectively evaluated for impairment		233,358
Loans acquired with deteriorated credit quality		4,825

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2013.

($ 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	$	—		—		—		—
Commercial - secured		—		—		—		334
Secured by inventory and accounts receivable		—		—		—		—

Real estate – construction, land development & other land loans		6,398		6,907		—		5,005

Real estate – residential, farmland, and multi-family		3,883		4,429		—		2,329

Real estate – home equity lines of credit		—		—		—		—

Real estate – commercial		7,324		9,008		—		9,981

Consumer		—		—		—		—
Total non-covered impaired loans with no allowance	$	17,605		20,344		—		17,649

Total covered impaired loans with no allowance	$	29,058		48,785		—		39,215

Total impaired loans with no allowance recorded	$	46,663		69,129		—		56,864

Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	115		115		63		72
Commercial - secured		392		394		64		1,081
Secured by inventory and accounts receivable		75		75		75		80

Real estate – construction, land development & other land loans		1,629		2,148		544		2,339

Real estate – residential, farmland, and multi-family		15,228		15,642		1,162		13,417

Real estate – home equity lines of credit		22		22		1		637

Real estate – commercial		9,570		10,873		649		5,914

Consumer		13		35		1		466
Total non-covered impaired loans with allowance	$	27,044		29,304		2,559		24,006

Total covered impaired loans with allowance	$	17,068		22,367		3,133		14,343

Total impaired loans with an allowance recorded	$	44,112		51,671		5,692		38,349

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2013 was insignificant.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012.

($ 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	$	—		—		—		—
Commercial - secured		—		—		—		87
Secured by inventory and accounts receivable		—		—		—		5

Real estate – construction, land development & other land loans		4,276		4,305		—		8,600

Real estate – residential, farmland, and multi-family		1,597		1,618		—		2,692

Real estate – home equity lines of credit		—		—		—		64

Real estate – commercial		7,985		8,660		—		16,414

Consumer		—		—		—		2
Total non-covered impaired loans with no allowance	$	13,858		14,583		—		27,864

Total covered impaired loans with no allowance	$	35,196		71,413		—		39,372

Total impaired loans with no allowance recorded	$	49,054		85,996		—		67,236

Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	—		—		—		137
Commercial - secured		10		10		2		1,428
Secured by inventory and accounts receivable		—		—		—		340

Real estate – construction, land development & other land loans		1,673		2,889		504		7,563

Real estate – residential, farmland, and multi-family		17,021		18,866		1,419		16,855

Real estate – home equity lines of credit		43		293		3		1,799

Real estate – commercial		9,539		11,328		1,036		7,975

Consumer		—		31		—		1,737
Total non-covered impaired loans with allowance	$	28,286		33,417		2,964		37,834

Total covered impaired loans with allowance	$	13,760		18,271		3,509		15,401

Total impaired loans with an allowance recorded	$	42,046		51,688		6,473		53,235

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2012 is considered 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	Cash secured loans.
	2	Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
	3	Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:
	4	Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:
	9	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. This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:
	5	Existing loans with major exceptions that cannot be mitigated.
Classified:
	6	Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
	7	Loans that have a well-defined weakness that make the collection or liquidation improbable.
	8	Loans that are considered uncollectible and are in the process of being charged-off.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2013.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	8,495		24,415		7		1,509		2,367		222		37,015
Commercial - secured		31,494		77,441		100		5,597		4,986		2,662		122,280
Secured by inventory and accounts receivable		4,098		12,800		—		2,022		1,711		545		21,176

Real estate – construction, land development & other land loans		31,221		181,050		2,365		11,646		10,333		8,055		244,670

Real estate – residential, farmland, and multi-family		227,053		540,349		5,062		41,583		37,526		17,814		869,387

Real estate – home equity lines of credit		120,205		63,400		1,499		5,699		5,124		2,200		198,127

Real estate - commercial		115,397		533,680		10,014		24,557		15,843		10,115		709,606

Consumer		25,703		21,790		54		829		995		325		49,696
Total	$	563,666		1,454,925		19,101		93,442		78,885		41,938		2,251,957
Unamortized net deferred loan costs														928
Total non-covered loans													$	2,252,885

Total covered loans	$	25,078		92,147		—		8,857		47,010		37,217		210,309

Total loans	$	588,744		1,547,072		19,101		102,299		125,895		79,155		2,463,194

At December 31, 2013, 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, 2012.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
	Pass (Grades 1, 2, & 3)		Weak Pass (Grade 4)		Watch or Standard Loans (Grade 9)		Special Mention Loans (Grade 5)		Classified Loans (Grades 6, 7, & 8)		Nonaccrual Loans		Total
Non-covered loans:
Commercial, financial, and agricultural:
Commercial - unsecured	$	10,283		24,031		10		472		583		307		35,686
Commercial - secured		32,196		72,838		1,454		3,676		1,150		2,398		113,712
Secured by inventory and accounts receivable		2,344		18,126		248		491		117		17		21,343

Real estate – construction, land development & other land loans		31,582		163,588		3,830		9,045		3,709		6,354		218,108

Real estate – residential, farmland, and multi-family		249,313		499,922		7,154		29,091		24,330		9,629		819,439

Real estate – home equity lines of credit		125,310		66,412		2,160		3,526		1,850		1,622		200,880

Real estate - commercial		123,814		449,316		21,801		14,050		9,074		9,885		627,940

Consumer		27,826		23,403		77		954		629		2,822		55,711
Total	$	602,668		1,317,636		36,734		61,305		41,442		33,034		2,092,819
Unamortized net deferred loan costs														1,324
Total non-covered loans													$	2,094,143

Total covered loans	$	42,935		124,451		—		7,569		73,868		33,491		282,314

Total loans	$	645,603		1,442,087		36,734		68,874		115,310		66,525		2,376,457

At December 31, 2012, 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 year ended December 31, 2013 and 2012 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 years ended December 31, 2013 and 2012.

($ in thousands)	For the year ended December 31, 2013
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Commercial, financial, and agricultural:
Commercial - unsecured		1	$	66	$	66
Commercial - secured		6		391		391
Real estate – construction, land development & other land loans		3		1,786		1,786
Real estate – residential, farmland, and multi-family		10		1,256		1,258
Real estate – commercial		8		5,721		5,721
Consumer		1		14		14

Non-covered TDRs – Nonaccrual
Real estate – construction, land development & other land loans		3		800		800
Real estate – residential, farmland, and multi-family		9		878		878
Real estate – commercial		1		398		398

Total non-covered TDRs arising during period		42		11,310		11,312

Total covered TDRs arising during period– Accruing		10	$	1,758	$	1,811
Total covered TDRs arising during period – Nonaccrual		1		187		167
Total TDRs arising during period		53	$	13,255	$	13,290

($ in thousands)	For the year ended December 31, 2012
	Number of Contracts		Pre-Modification Restructured Balances		Post-Modification Restructured Balances
Non-covered TDRs – Accruing
Real estate – construction, land development & other land loans		2	$	642	$	642
Real estate – residential, farmland, and multi-family		8		1,653		1,653
Real estate – commercial		—		—		—

Non-covered TDRs - Nonaccrual
Commercial, financial, and agricultural:
Commercial – secured		1		11		11
Real estate – construction, land development & other land loans		2		332		332
Real estate – residential, farmland, and multi-family		17		3,736		3,736
Real estate – home equity lines of credit		1		123		123
Real estate – commercial		5		1,082		1,082

Total non-covered TDRs arising during period		36		7,579		7,579

Total covered TDRs arising during period– Accruing		6	$	7,526	$	7,526
Total covered TDRs arising during period – Nonaccrual		4		1,230		1,231
Total TDRs arising during period		46	$	16,335	$	16,336

As part of a routine regulatory exam that concluded in the third quarter of 2012, the Company reclassified approximately $30 million of performing loans to TDR status during the second and third quarters of 2012. Because these loans were restructured prior to January 1, 2012 they are not included in the tables above. Also, in connection with an anticipated planned asset disposition, the Company recorded $6 million in charge-offs to write-down the TDRs to their estimated liquidation value at December 31, 2012, and reclassified approximately $5 million of TDRs to the “nonperforming loans held for sale” category as of December 31, 2012.

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the years ended December 31, 2013 and 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

($ in thousands)	For the year ended December, 2013				For the year ended December 31, 2012
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Non-covered accruing TDRs that subsequently defaulted
Real estate – construction, land development & other land loans		1	$	342		—	$	—
Real estate – residential, farmland, and multi-family		1		252		—		—

Total non-covered TDRs that subsequently defaulted		2	$	594		—	$	—

Total accruing covered TDRs that subsequently defaulted		1	$	3,501		3	$	440

Total accruing TDRs that subsequently defaulted		3	$	4,095		—	$	440