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Loans and Asset Quality Information

3 Months Ended

Mar. 31, 2017

Loans and Asset Quality Information [Abstract]

Note 8 – Loans and Asset Quality Information

Prior to September 22, 2016, the Company’s banking subsidiary, First Bank, had certain loans and foreclosed real estate that were covered by loss share agreements between the FDIC and First Bank which afforded 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 FDIC-assisted purchase transactions. On September 22, 2016, the Company terminated all of the loss share agreements with the FDIC, such that all future losses and recoveries on loans and foreclosed real estate associated with the failed banks acquired through FDIC-assisted transactions will be borne solely by First Bank.

In the information presented below, the term “covered” is used to describe assets that were subject to FDIC loss share agreements, while the term “non-covered” refers to the Company’s legacy assets, which were not included in any type of loss share arrangement. As discussed previously, all loss share agreements were terminated during 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.

On March 3, 2017, the Company acquired Carolina Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $497.4 million. Of those loans, $19.3 million were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan.

The following table relates to Carolina Bank PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.

($ in thousands)	Carolina Bank Acquisition on March 3, 2017
Contractually required payments	$	27,108
Nonaccretable difference		(4,237	)
Cash flows expected to be collected at acquisition		22,871
Accretable yield		(3,617	)
Fair value of PCI loans at acquisition date	$	19,254

The following table relates to acquired Carolina Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.

($ in thousands)	Carolina Bank Acquisition on March 3, 2017
Contractually required payments	$	569,980
Fair value of acquired loans at acquisition date		478,122
Contractual cash flows not expected to be collected		3,650

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

($ in thousands)	March 31, 2017					December 31, 2016					March 31, 2016
	Amount			Percentage		Amount			Percentage		Amount		Percentage
All loans (non-covered and covered):

Commercial, financial, and agricultural	$	363,219			11%	$	261,813			9%	$	228,867		9%
Real estate – construction, land development & other land loans		424,539			13%		354,667			13%		302,052		12%
Real estate – mortgage – residential (1-4 family) first mortgages		792,791			24%		750,679			28%		757,696		30%
Real estate – mortgage – home equity loans / lines of credit		317,336			10%		239,105			9%		235,380		9%
Real estate – mortgage – commercial and other		1,335,924			40%		1,049,460			39%		966,937		38%
Installment loans to individuals		56,250			2%		55,037			2%		47,163		2%
Subtotal		3,290,059			100%		2,710,761			100%		2,538,095		100%
Unamortized net deferred loan costs (fees)		(704	)				(49	)				1,258
Total loans	$	3,289,355				$	2,710,712				$	2,539,353

The following is a summary of the major categories of loans outstanding allocated to the non-covered and covered loan portfolios for periods when the FDIC loss share agreements were in effect at March 31, 2016. There were no covered loans at March 31, 2017 or December 31, 2016.

($ in thousands)	March 31, 2016
	Non-covered		Covered		Total

Commercial, financial, and agricultural	$	228,124		743	$	228,867
Real estate – construction, land development & other land loans		298,410		3,642		302,052
Real estate – mortgage – residential (1-4 family) first mortgages		684,085		73,611		757,696
Real estate – mortgage – home equity loans / lines of credit		225,245		10,135		235,380
Real estate – mortgage – commercial and other		955,550		11,387		966,937
Installment loans to individuals		47,158		5		47,163
Subtotal		2,438,572		99,523		2,538,095
Unamortized net deferred loan costs		1,258		—		1,258
Total	$	2,439,830		99,523	$	2,539,353

The following presents the carrying amount of the covered loans at March 31, 2016 detailed by purchased credit impaired and purchased non-impaired loans (as determined on the date of the acquisition). There were no covered loans at March 31, 2017 or December 31, 2016.

($ in thousands)	Purchased Credit Impaired Loans – Carrying Value		Purchased Credit Impaired Loans – Unpaid Principal Balance		Non-impaired Purchased Loans – Carrying Value		Non-impaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	—		—		743		748		743		748
Real estate – construction, land development & other land loans		207		332		3,435		3,384		3,642		3,716
Real estate – mortgage – residential (1-4 family) first mortgages		80		564		73,531		85,962		73,611		86,526
Real estate – mortgage – home equity loans / lines of credit		7		14		10,128		11,516		10,135		11,530
Real estate – mortgage – commercial and other		873		1,973		10,514		11,105		11,387		13,078
Installment loans to individuals		—		—		5		35		5		35
Total	$	1,167		2,883		98,356		112,750		99,523		115,633

The following table presents information regarding covered purchased non-impaired loans since December 31, 2015. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond. All balances of covered loans were transferred to non-covered as of the termination of the loss share agreements.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2015	$	101,252
Principal repayments		(7,997	)
Transfers to foreclosed real estate		(1,036	)
Net loan recoveries		1,784
Accretion of loan discount		1,908
Transfer to non-covered loans due to expiration of loss-share agreement, April 1, 2016		(17,530	)
Transfer to non-covered loans due to termination of loss-share agreements, September 22, 2016		(78,381	)
Carrying amount of nonimpaired covered loans at December 31, 2016	$	—

During the first quarter of 2017, the Company accreted $1,360,000 into interest income of loan discount on non-covered non-impaired purchased loans.

As of March 31, 2017, there was a remaining loan discount of $18,410,000 related to purchased accruing loans, which is expected to be accreted into interest income over the lives of the respective loans. At March 31, 2017, the Company also had $402,000 of loan discount related to purchased nonaccruing loans, which the Company does not expect will be accreted into income.

The following table presents information regarding all PCI loans since December 31, 2015.

($ in thousands) Purchased Credit Impaired Loans	Accretable Yield			Carrying Amount
Balance at December 31, 2015	$	—			1,970
Change due to payments received		—			(1,386	)
Change due to loan charge-off		—			(70	)
Balance at December 31, 2016	$	—			514
Additions due to acquisition of Carolina Bank		3,617			19,254
Accretion		(85	)		85
Change due to payments received		—			(126	)
Transfer to foreclosed real estate		—			(69	)
Other		—			7
Balance at March 31, 2017	$	3,532			19,665

The remaining accretable yield associated with PCI loans at March 31, 2017 and 2016 was $3.5 million and $0, respectively. Accretable yield recognized during the three months ended March 31, 2017 and 2016 was $85,000 and $0, respectively. Also, during the first quarter of 2016, the Company received $46,000 in payments that exceeded the carrying amount of the related purchased credit impaired loans, of which $39,000 was recognized as loan discount accretion income and $7,000 was recorded as additional loan 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)	March 31, 2017		December 31, 2016		March 31, 2016

Nonperforming assets
Nonaccrual loans	$	25,684		27,468		41,411
Restructured loans - accruing		21,559		22,138		30,514
Accruing loans > 90 days past due		—		—		—
Total nonperforming loans		47,243		49,606		71,925
Foreclosed real estate		12,789		9,532		10,336
Total nonperforming assets	$	60,032		59,138		82,261

Total covered nonperforming assets included above (1)	$	—		—		10,698
Purchased credit impaired loans not included above (2)	$	19,167		—		—

(1) All FDIC loss share agreements were terminated effective September 22, 2016 and, accordingly, assets previously covered under those agreements become non-covered on that date.

(2) In the March 3, 2017 acquisition of Carolina Bank Holdings, Inc., the Company acquired $19.3 million in purchased credit impaired loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from nonperforming loans, including $1.7 million in purchased credit impaired loans at March 31, 2017 that are contractually past due 90 days or more.

At March 31, 2017 and December 31, 2016, the Company had $1.6 million and $1.7 million in residential mortgage loans in process of foreclosure, respectively.

The following is a summary of the Company’s nonaccrual loans by major categories.

($ in thousands)	March 31, 2017		December 31, 2016
Commercial, financial, and agricultural	$	1,368		1,842
Real estate – construction, land development & other land loans		1,607		2,945
Real estate – mortgage – residential (1-4 family) first mortgages		15,833		16,017
Real estate – mortgage – home equity loans / lines of credit		2,238		2,355
Real estate – mortgage – commercial and other		4,577		4,208
Installment loans to individuals		61		101
Total	$	25,684		27,468

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2017.

($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90 Days or More Past Due		Nonaccrual Loans		Accruing Current		Total Loans Receivable

Commercial, financial, and agricultural	$	519		416		—		1,368		360,633		362,936
Real estate – construction, land development & other land loans		1,309		166		—		1,607		421,003		424,085
Real estate – mortgage – residential (1-4 family) first mortgages		11,794		591		—		15,833		760,896		789,114
Real estate – mortgage – home equity loans / lines of credit		586		243		—		2,238		313,526		316,593
Real estate – mortgage – commercial and other		3,123		78		—		4,577		1,313,638		1,321,416
Installment loans to individuals		192		144		—		61		55,853		56,250
Purchased credit impaired		323		62		1,744		—		17,536		19,665
Total	$	17,846		1,700		1,744		25,684		3,243,085		3,290,059
Unamortized net deferred loan fees												(704	)
Total loans											$	3,289,355

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2016.

($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90 Days or More Past Due		Nonaccrual Loans		Accruing Current		Total Loans Receivable

Commercial, financial, and agricultural	$	92		—		—		1,842		259,879		261,813
Real estate – construction, land development & other land loans		473		168		—		2,945		351,081		354,667
Real estate – mortgage – residential (1-4 family) first mortgages		4,487		443		—		16,017		729,732		750,679
Real estate – mortgage – home equity loans / lines of credit		1,751		178		—		2,355		234,821		239,105
Real estate – mortgage – commercial and other		1,482		449		—		4,208		1,042,807		1,048,946
Installment loans to individuals		186		193		—		101		54,557		55,037
Purchased credit impaired		—		—		—		—		514		514
Total	$	8,471		1,431		—		27,468		2,673,391		2,710,761
Unamortized net deferred loan fees												(49	)
Total loans											$	2,710,712

The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2017.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated			Total

As of and for the three months ended March 31, 2017
Beginning balance	$	3,829			2,691			7,704			2,420			5,098			1,145			894			23,781
Charge-offs		(390	)		(177	)		(894	)		(231	)		(326	)		(187	)		—			(2,205	)
Recoveries		298			490			196			65			143			55			—			1,247
Provisions		55			(240	)		370			(116	)		1,064			54			(464	)		723
Ending balance	$	3,792			2,764			7,376			2,138			5,979			1,067			430			23,546

Ending balances as of March 31, 2017: Allowance for loan losses
Individually evaluated for impairment	$	205			180			1,351			8			310			—			—			2,054
Collectively evaluated for impairment	$	3,587			2,584			6,025			2,130			5,669			1,067			430			21,492
Purchased credit impaired	$	—			—			—			—			—			—			—			—

Loans receivable as of March 31, 2017:
Ending balance – total	$	363,219			424,539			792,791			317,336			1,335,924			56,250			—			3,290,059
Unamortized net deferred loan fees																							(704	)
Total loans																						$	3,289,355

Ending balances as of March 31, 2017: Loans
Individually evaluated for impairment	$	504			3,445			18,047			223			9,074			2			—			31,295
Collectively evaluated for impairment	$	362,433			420,640			771,067			316,370			1,312,341			56,248			—			3,239,099
Purchased credit impaired	$	282			454			3,677			743			14,509			—			—			19,665

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2016. There were no covered loans at December 31, 2016 and all reserves associated with previously covered loans have been transferred to the non-covered allowance.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated		Covered			Total

As of and for the year ended December 31, 2016
Beginning balance	$	4,742			3,754			7,832			2,893			5,816			1,051			696		1,799			28,583
Charge-offs		(2,271	)		(1,101	)		(3,815	)		(969	)		(1,005	)		(1,008	)		(1)		(244	)		(10,414	)
Recoveries		805			1,422			1,060			250			836			354			—		1,958			6,685
Transfer from covered status		56			65			839			293			127			—			1		(1,381	)		—
Removed due to branch loan sale		(263	)		(39	)		(347	)		(110	)		(228	)		(63	)		—		—			(1,050	)
Provisions		760			(1,410	)		2,135			63			(448	)		811			198		(2,132	)		(23	)
Ending balance	$	3,829			2,691			7,704			2,420			5,098			1,145			894		—			23,781

Ending balances as of December 31, 2016: Allowance for loan losses
Individually evaluated for impairment	$	7			184			1,339			5			105			—			—		—			1,640
Collectively evaluated for impairment	$	3,822			2,507			6,365			2,415			4,993			1,145			894		—			22,141
Purchased credit impaired	$	—			—			—			—			—			—			—		—			—

Loans receivable as of December 31, 2016:
Ending balance – total	$	261,813			354,667			750,679			239,105			1,049,460			55,037			—		—			2,710,761
Unamortized net deferred loan fees																									(49	)
Total loans																								$	2,710,712

Ending balances as of December 31, 2016: Loans
Individually evaluated for impairment	$	644			4,001			20,807			280			6,494			—			—		—			32,226
Collectively evaluated for impairment	$	261,169			350,666			729,872			238,825			1,042,452			55,037			—		—			2,678,021
Purchased credit impaired	$	—			—			—			—			514			—			—		—			514

The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2016.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated			Covered			Total

As of and for the three month ended March 31, 2016
Beginning balance	$	4,742			3,754			7,832			2,893			5,816			1,051			696			1,799			28,583
Charge-offs		(677	)		(340	)		(1,951	)		(449	)		(166	)		(280	)		—			(241	)		(4,104	)
Recoveries		86			90			233			55			130			113			—			1,204			1,911
Provisions		528			(159	)		1,260			(232	)		160			318			(254	)		(1,363	)		258
Ending balance	$	4,679			3,345			7,374			2,267			5,940			1,202			442			1,399			26,648

Ending balances as of March 31, 2016: Allowance for loan losses
Individually evaluated for impairment	$	43			214			1,280			111			559			75			—			438			2,720
Collectively evaluated for impairment	$	4,636			3,131			6,094			2,156			5,381			1,127			442			961			23,928
Purchased credit impaired	$	—			—			—			—			—			—			—			—			—

Loans receivable as of March 31, 2016:
Ending balance – total	$	228,124			298,410			684,085			225,245			955,550			47,158			—			99,523			2,538,095
Unamortized net deferred loan costs																										1,258
Total loans																									$	2,539,353

Ending balances as of March 31, 2016: Loans
Individually evaluated for impairment	$	818			4,735			20,925			538			14,334			104			—			5,105			46,559
Collectively evaluated for impairment	$	227,306			293,675			663,160			224,707			940,652			47,054			—			93,250			2,489,804
Purchased credit impaired	$	—			—			—			—			564			—			—			1,168			1,732

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of March 31, 2017.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance recorded:

Commercial, financial, and agricultural	$	230		281		—		412
Real estate – mortgage – construction, land development & other land loans		2,716		3,903		—		2,969
Real estate – mortgage – residential (1-4 family) first mortgages		6,954		7,676		—		8,495
Real estate – mortgage –home equity loans / lines of credit		59		83		—		86
Real estate – mortgage –commercial and other		3,589		3,845		—		4,093
Installment loans to individuals		2		2		—		1
Total impaired loans with no allowance	$	13,550		15,790		—		16,056


Impaired loans with an allowance recorded:

Commercial, financial, and agricultural	$	274		288		205		163
Real estate – mortgage – construction, land development & other land loans		729		777		180		754
Real estate – mortgage – residential (1-4 family) first mortgages		11,093		11,401		1,351		10,933
Real estate – mortgage –home equity loans / lines of credit		164		164		8		165
Real estate – mortgage –commercial and other		5,485		5,496		310		3,690
Installment loans to individuals		—		—		—		—
Total impaired loans with allowance	$	17,745		18,126		2,054		15,705

The Company recorded interest income of $295,000 and discount accretion of $443,000 on impaired loans during the three months ended March 31, 2017 related to an impaired loan relationship that was resolved during the quarter.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2016.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance recorded:

Commercial, financial, and agricultural	$	593		706		—		816
Real estate – mortgage – construction, land development & other land loans		3,221		4,558		—		3,641
Real estate – mortgage – residential (1-4 family) first mortgages		10,035		12,220		—		11,008
Real estate – mortgage –home equity loans / lines of credit		114		146		—		139
Real estate – mortgage –commercial and other		5,112		5,722		—		8,713
Installment loans to individuals		—		2		—		1
Total impaired loans with no allowance	$	19,075		23,354		—		24,318


Impaired loans with an allowance recorded:

Commercial, financial, and agricultural	$	51		51		7		202
Real estate – mortgage – construction, land development & other land loans		780		798		184		844
Real estate – mortgage – residential (1-4 family) first mortgages		10,772		11,007		1,339		13,314
Real estate – mortgage –home equity loans / lines of credit		166		166		5		324
Real estate – mortgage –commercial and other		1,896		1,929		105		4,912
Installment loans to individuals		—		—		—		49
Total impaired loans with allowance	$	13,665		13,951		1,640		19,645

Interest income recorded on impaired loans during the year ended December 31, 2016 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 regularly 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:

	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.
	5	Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory.
	P (Pass)	Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.
Special Mention:
	6	Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:
	7	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.
	8	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.
	9	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.
	F (Fail)	Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2017.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total

Commercial, financial, and agricultural	$	350,286		9,366		1,917		1,368		362,937
Real estate – construction, land development & other land loans		407,155		7,759		7,564		1,607		424,085
Real estate – mortgage – residential (1-4 family) first mortgages		721,622		15,978		35,681		15,833		789,114
Real estate – mortgage – home equity loans / lines of credit		304,093		1,413		8,849		2,238		316,593
Real estate – mortgage – commercial and other		1,281,368		23,748		11,722		4,577		1,321,415
Installment loans to individuals		55,727		253		209		61		56,250
Purchased credit impaired		7,337		8,159		4,169		—		19,665
Total	$	3,127,588		66,676		70,111		25,684		3,290,059
Unamortized net deferred loan fees										(704	)
Total loans										3,289,355

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2016.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total

Commercial, financial, and agricultural	$	247,451		10,560		1,960		1,842		261,813
Real estate – construction, land development & other land loans		335,068		8,762		7,892		2,945		354,667
Real estate – mortgage – residential (1-4 family) first mortgages		678,878		16,998		38,786		16,017		750,679
Real estate – mortgage – home equity loans / lines of credit		226,159		1,436		9,155		2,355		239,105
Real estate – mortgage – commercial and other		1,005,687		26,032		13,019		4,208		1,048,946
Installment loans to individuals		54,421		256		259		101		55,037
Purchased credit impaired		—		514		—		—		514
Total	$	2,547,664		64,558		71,071		27,468		2,710,761
Unamortized net deferred loan fees										(49	)
Total loans										2,710,712

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 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 March 31, 2017 and 2016.

($ in thousands)	For three months ended March 31, 2017						For the three months ended March 31, 2016
	Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing
Commercial, financial, and agricultural		—	$	—	$	—		—	$	—	$	—
Real estate – construction, land development & other land loans		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		—		—		—		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		2		2,550		2,525		—		—		—
Installment loans to individuals		—		—		—		—		—		—

TDRs – Nonaccrual
Commercial, financial, and agricultural		—		—		—		—		—		—
Real estate – construction, land development & other land loans		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		—		—		—		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—

Total TDRs arising during period		2	$	2,550	$	2,525		—	$	—	$	—

Total covered TDRs arising during period included above		—	$	—	$	—		—	$	—	$	—

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended March 31, 2017 and 2016 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 three months ended March 31, 2017				For the three months ended March 31, 2016
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural		—	$	—		1	$	44
Real estate – mortgage – residential (1-4 family first mortgages)		1		626		—		—
Real estate – mortgage – commercial and other		—		—		1		21

Total accruing TDRs that subsequently defaulted		1	$	626		2	$	65
Total covered accruing TDRs that subsequently defaulted included above		—	$	—		1	$	44