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 filed with the SEC 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 bears 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 million and the foreclosed real estate in this portfolio had a carrying value of $3.0 million. Of the $39.7 million in loans that lost loss share protection, approximately $9.7 million were on nonaccrual status and $2.1 million were classified as accruing troubled debt restructurings as of July 1, 2014. Additionally, approximately $1.7 million in allowance for loan losses associated with this portfolio of loans was transferred to the allowance for loan losses for non-covered loans on July 1, 2014.

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

($ in thousands)	December 31, 2015					December 31, 2014
	Amount		Percentage			Amount		Percentage
All loans (non-covered and covered):

Commercial, financial, and agricultural	$	202,671		8	%	$	160,878		7	%
Real estate – construction, land development & other land loans		308,969		12	%		288,148		12	%
Real estate – mortgage – residential (1-4 family) first mortgages		768,559		31	%		789,871		33	%
Real estate – mortgage – home equity loans / lines of credit		232,601		9	%		223,500		9	%
Real estate – mortgage – commercial and other		957,587		38	%		882,127		37	%
Installment loans to individuals		47,666		2	%		50,704		2	%
Subtotal		2,518,053		100	%		2,395,228		100	%
Unamortized net deferred loan costs		873					946
Total loans	$	2,518,926				$	2,396,174

Loans in the amount of $2.0 billion and $1.9 billion were pledged as collateral for certain borrowings as of December 31, 2015 and December 31, 2014, respectively (see Note 10).

The loans above also include loans to executive officers and directors serving the Company at December 31, 2015 and to their associates, totaling approximately $3.4 million and $3.8 million at December 31, 2015 and 2014, respectively. During 2015 additions to such loans were approximately $0.9 million and repayments totaled approximately $1.3 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, 2015					December 31, 2014
	Amount		Percentage			Amount		Percentage
Non-covered loans:

Commercial, financial, and agricultural	$	201,798		8	%	$	159,195		7	%
Real estate – construction, land development & other land loans		305,228		13	%		282,604		13	%
Real estate – mortgage – residential (1-4 family) first mortgages		692,902		29	%		700,101		31	%
Real estate – mortgage – home equity loans / lines of credit		221,995		9	%		210,697		9	%
Real estate – mortgage – commercial and other		945,823		39	%		864,333		38	%
Installment loans to individuals		47,666		2	%		50,704		2	%
Subtotal		2,415,412		100	%		2,267,634		100	%
Unamortized net deferred loan costs		873					946
Total non-covered loans	$	2,416,285				$	2,268,580

The carrying amount of the covered loans at December 31, 2015 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	$	—		—		873		886		873		886
Real estate – construction, land development & other land loans		277		365		3,464		3,457		3,741		3,822
Real estate – mortgage – residential (1-4 family) first mortgages		102		633		75,555		88,434		75,657		89,067
Real estate – mortgage – home equity loans / lines of credit		7		14		10,599		12,099		10,606		12,113
Real estate – mortgage – commercial and other		1,003		3,136		10,761		11,458		11,764		14,594
Total	$	1,389		4,148		101,252		116,334		102,641		120,482

The carrying amount of the covered loans at December 31, 2014 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	$	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		(30,238	)
Transfers to foreclosed real estate		(1,211	)
Net loan (charge-offs) / recoveries		2,306
Accretion of loan discount		4,751
Carrying amount of nonimpaired covered loans at December 31, 2015	$	101,252

As reflected in the table above, the Company accreted $4,751,000 and $16,009,000 of the loan discount on purchased nonimpaired loans into interest income during 2015 and 2014, respectively. As of December 31, 2015, there was remaining loan discount of $13,086,000 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% of the loan discount accretion, which reduces noninterest income. At December 31, 2015, the Company also had $2,174,000 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 loans 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 Principal Receivable			Fair Market Value Adjustment – Write Down (Nonaccretable Difference)			Carrying Amount
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		(634	)		(102	)		(532	)
Transfer to foreclosed real estate		(431	)		(336)			(95	)
Other		(3	)		(3	)		—
Balance at December 31, 2015	$	4,791			2,821			1,970

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 2015 and 2014, the Company received $436,000 and $179,000, respectively, in payments that exceeded the initial carrying amount of the purchased impaired loans, which is included in interest income.

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, 2015		December 31, 2014

Non-covered nonperforming assets
Nonaccrual loans	$	39,994		50,066
Restructured loans – accruing		28,011		35,493
Accruing loans > 90 days past due		—		—
Total non-covered nonperforming loans		68,005		85,559
Foreclosed real estate		9,188		9,771
Total non-covered nonperforming assets	$	77,193		95,330

Covered nonperforming assets
Nonaccrual loans (1)	$	7,816		10,508
Restructured loans – accruing		3,478		5,823
Accruing loans > 90 days past due		—		—
Total covered nonperforming loans		11,294		16,331
Foreclosed real estate		806		2,350
Total covered nonperforming assets	$	12,100		18,681

Total nonperforming assets	$	89,293		114,011

(1)	At December 31, 2015 and December 31, 2014, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $12.3 million and $16.0 million, respectively.

At December 31, 2015 and 2014, the Company had $2.5 million and $6.1 million in residential mortgage loans in process of foreclosure, respectively.

If the nonaccrual and restructured loans as of December 31, 2015, 2014 and 2013 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 $3,213,000, $4,115,000, and $5,262,000 for nonaccrual loans and $2,044,000, $3,045,000, and $2,674,000 for restructured loans would have been recorded for 2015, 2014, and 2013, respectively. Interest income on such loans that was actually collected and included in net income in 2015, 2014 and 2013 amounted to approximately $575,000, $1,176,000, and $1,414,000 for nonaccrual loans (prior to their being placed on nonaccrual status), and $1,392,000, $2,003,000, and $1,681,000 for restructured loans, respectively. At December 31, 2015 and 2014, 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, 2015.

($ in thousands)	Non-covered		Covered		Total
Commercial, financial, and agricultural:
Commercial – unsecured	$	391		22		413
Commercial – secured		2,406		—		2,406
Secured by inventory and accounts receivable		83		—		83

Real estate – construction, land development & other land loans		4,155		52		4,207

Real estate – residential, farmland and multi-family		21,964		5,201		27,165

Real estate – home equity lines of credit		2,431		361		2,792

Real estate – commercial		8,262		2,180		10,442

Consumer		302		—		302
Total	$	39,994		7,816		47,810

The following table presents the Company's nonaccrual loans as of December 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 December 31, 2015.

($ 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	$	632		—		391		50,878		51,901
Commercial - secured		344		127		2,406		111,803		114,680
Secured by inventory and accounts receivable		28		—		83		38,875		38,986

Real estate – construction, land development & other land loans		1,499		379		4,155		284,345		290,378

Real estate – residential, farmland, and multi-family		12,691		3,271		21,964		813,817		851,743

Real estate – home equity lines of credit		920		96		2,431		207,998		211,445

Real estate - commercial		5,399		864		8,262		797,855		812,380

Consumer		273		255		302		43,069		43,899
Total non-covered	$	21,786		4,992		39,994		2,348,640		2,415,412
Unamortized net deferred loan costs										873
Total non-covered loans									$	2,416,285

Covered loans	$	3,313		402		7,816		91,110		102,641

Total loans	$	25,099		5,394		47,810		2,439,750		2,518,926

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 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 Days Past Due		60-89 Days Past Due		Nonaccrual Loans		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 year ended December 31, 2015.

($ 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, 2015

Beginning balance	$	8,391			6,470			9,720			3,731			9,045			841			147		38,345
Charge-offs		(3,684	)		(2,647	)		(5,682	)		(826	)		(2,639	)		(1,637	)		—		(17,115	)
Recoveries		876			993			321			100			888			368			—		3,546
Provisions		(825	)		(1,406	)		4,795			(264	)		(2,307	)		1,466			549		2,008
Ending balance	$	4,758			3,410			9,154			2,741			4,987			1,038			696		26,784

Ending balances as of December 31, 2015: Allowance for loan losses

Individually evaluated for impairment	$	190			213			1,478			313			333			160			—		2,687

Collectively evaluated for impairment	$	4,568			3,197			7,676			2,428			4,654			878			696		24,097

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

Loans receivable as of December 31, 2015:

Ending balance	$	205,567			290,378			851,743			211,445			812,380			43,899			—		2,415,412
Unamortized net deferred loan costs																						873




Total non-covered loans																						2,416,285

Ending balances as of December 31, 2015: Loans

Individually evaluated for impairment	$	907			4,554			23,839			376			14,818			160			—		44,654

Collectively evaluated for impairment	$	204,660			285,824			827,904			211,069			796,981			43,739			—		2,370,177

Loans acquired with deteriorated credit quality	$	—			—			—			—			581			—			—		581

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, 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, 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

Ending 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	$	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			20,263			7			—			53,531

Collectively evaluated for impairment	$	165,944			249,524			822,823			198,101			733,875			43,189			—			2,213,456

Loans acquired with deteriorated credit quality	$	—			—			—			—			647			—			—			647

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2015.

($ in thousands)	Covered Loans

As of and for the year ended December 31, 2015
Beginning balance	$	2,281
Charge-offs		(1,316	)
Recoveries		3,622
Provision (reversal) for loan losses		(2,788	)
Ending balance	$	1,799

Ending balances as of December 31, 2015: Allowance for loan losses

Individually evaluated for impairment	$	554
Collectively evaluated for impairment		1,175
Loans acquired with deteriorated credit quality		70

Loans receivable as of December 31, 2015:

Ending balance – total	$	102,641

Ending balances as of December 31, 2015: Loans

Individually evaluated for impairment	$	7,055
Collectively evaluated for impairment		94,197
Loans acquired with deteriorated credit quality		1,389

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	)
Provision for loan losses		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 loans individually evaluated for impairment by class of loans as of December 31, 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	$	234	276	—	128
Commercial - secured		128	151	—	70
Secured by inventory and accounts receivable		—	—	—	—

Real estate – construction, land development & other land loans		3,922	7,397	—	4,557

Real estate – residential, farmland, and multi-family		10,423	12,109	—	9,723

Real estate – home equity lines of credit		—	—	—	95

Real estate – commercial		9,992	11,022	—	14,585

Consumer		—	—	—	1
Total non-covered impaired loans with no allowance	$	24,699	30,955	—	29,159

Total covered impaired loans with no allowance	$	5,231	8,529	—	5,607

Total impaired loans with no allowance recorded	$	29,930	39,484	—	34,766

Non-covered loans with an allowance recorded:
Commercial, financial, and agricultural:
Commercial - unsecured	$	129	140	77	137
Commercial - secured		416	443	113	513
Secured by inventory and accounts receivable		—	—	—	—

Real estate – construction, land development & other land loans		632	640	213	1,217

Real estate – residential, farmland, and multi-family		13,416	13,586	1,478	14,039

Real estate – home equity lines of credit		376	376	313	75

Real estate – commercial		5,407	5,592	333	3,968

Consumer		160	160	160	32
Total non-covered impaired loans with allowance	$	20,536	20,937	2,687	19,981

Total covered impaired loans with allowance	$	3,213	3,476	624	3,742

Total impaired loans with an allowance recorded	$	23,749	24,413	3,311	23,723

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 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. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
	3	Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
	4	Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.
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 defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:
	6	An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
	7	Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and 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 December 31, 2015.

($ in thousands)	Credit Quality Indicator (Grouped by Internally Assigned Grade)
		Pass (Grades 1, 2, & 3)	Pass – Acceptable/ Average (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	$	26,978	22,276	—	1,196	1,060	391		51,901
Commercial - secured		56,428	51,464	32	2,478	1,872	2,406		114,680
Secured by inventory and accounts receivable		18,955	19,120	—	252	576	83		38,986

Real estate – construction, land development & other land loans		106,881	158,563	578	11,545	8,656	4,155		290,378

Real estate – residential, farmland, and multi-family		216,549	532,859	4,083	43,654	32,634	21,964		851,743

Real estate – home equity lines of credit		135,828	62,638	1,544	5,232	3,772	2,431		211,445

Real estate - commercial		292,433	464,824	7,605	26,339	12,917	8,262		812,380

Consumer		29,617	13,194	51	303	432	302		43,899
Total	$	883,669	1,324,938	13,893	90,999	61,919	39,994		2,415,412
Unamortized net deferred loan costs									873
Total non-covered loans								$	2,416,285

Total covered loans	$	11,537	59,611	250	7,423	16,004	7,816	$	102,641

Total loans	$	895,206	1,384,549	14,143	98,422	77,923	47,810	$	2,518,926

At December 31, 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 (Grades 1, 2, & 3)	Pass – Acceptable/ Average (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	$	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.

As previously discussed, on July 1, 2014, the Company transferred $39.7 million of loans from the covered category to the non-covered category as a result of the scheduled expiration of one of the Company's loss-share agreements with the FDIC. Approximately $2.8 million of those loans were “Special Mention Loans”, $5.5 million were “Classified Loans”, and $9.7 million were “Nonaccrual Loans.”

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, 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 years ended December 31, 2015 and 2014.

($ in thousands)	For the year ended December 31, 2015						For the year ended December 31, 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		1		235		235		—		—		—
Real estate – residential, farmland, and multi-family		3		286		286		11		2,571		2,571
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		2		441		441		2		2,416		2,415
Consumer		—		—		—		—		—		—

Non-covered TDRs – Nonaccrual
Commercial, financial, and agricultural:
Commercial – unsecured		—		—		—		—		—		—
Commercial – secured		1		5		5		1		15		15
Secured by inventory and accounts receivable		—		—		—		—		—		—
Real estate – construction, land development & other land loans		2		495		495		—		—		—
Real estate – residential, farmland, and multi-family		5		400		400		8		770		769
Real estate – home equity lines of credit		—		—		—		—		—		—
Real estate – commercial		—		—		—		2		98		98
Consumer		—		—		—		—		—		—

Total non-covered TDRs arising during period		15		1,870		1,870		24		5,870		5,868

Total covered TDRs arising during period– Accruing		2	$	139	$	139		5	$	944	$	927
Total covered TDRs arising during period – Nonaccrual		—		—		—		8		966		933

Total TDRs arising during period		17	$	2,009	$	2,009		37	$	7,780	$	7,728

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the years ended December 31, 2015 and 2014 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 31, 2015				For the year ended December 31, 2014
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Non-covered accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural:
Commercial - unsecured	1		$	7	—		$	—
Real estate – construction, land development & other land loans		—		—		1		5
Real estate – residential, farmland, and multi-family		4		352		—		—
Real estate – commercial		—		—		1		71

Total non-covered TDRs that subsequently defaulted		5	$	359		2	$	76

Total accruing covered TDRs that subsequently defaulted		—	$	—		1	$	353

Total accruing TDRs that subsequently defaulted		5	$	359		3	$	429