NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans at September 30, 2016 and December 31, 2015 consisted of the following:

	September 30,			December 31,
(Dollars in thousands)	2016			2015
Commercial real estate	$	420,742		$	291,819
Construction, land development, land		101,169			43,876
1-4 family residential properties		108,721			78,244
Farmland		139,109			33,573
Commercial		777,806			495,356
Factored receivables		213,955			215,088
Consumer		25,602			13,050
Mortgage warehouse		172,751			120,879
Total		1,959,855			1,291,885
Allowance for loan and lease losses		(14,912	)		(12,567	)
	$	1,944,943		$	1,279,318

Total loans include net deferred origination and factoring fees totaling $2,070,000 and $1,218,000 at September 30, 2016 and December 31, 2015, respectively.

Loans with carrying amounts of $470,565,000 and $280,289,000 at September 30, 2016 and December 31, 2015, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity.

During the three and nine months ended September 30, 2016, loans with a carrying amount of $14,394,000 and $18,513,000, respectively, were transferred to loans held for sale at their fair value of $14,642,000 and $18,680,000, respectively, as the Company made the decision to sell the loans. The gains on transfer of loans to loans held for sale of $248,000 and $167,000 for the three and nine months ended September 30, 2016, respectively, were recorded as other noninterest income in the consolidated statements of income. These loans were subsequently sold or are pending final settlement, resulting in proceeds equal to their fair values at the time of transfer. No loan transfers were recorded during the nine months ended September 30, 2015.

Allowance for Loan and Lease Losses

The activity in the allowance for loan and lease losses (“ALLL”) during the three and nine months ended September 30, 2016 and 2015 is as follows:

(Dollars in thousands)	Beginning										Ending
Three months ended September 30, 2016	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	1,792	$	123		$	(4	)	$	1	$	1,912
Construction, land development, land		181		44			—			7		232
1-4 family residential properties		259		(10	)		—			6		255
Farmland		143		(22	)		—			—		121
Commercial		6,697		2,521			(1,615	)		217		7,820
Factored receivables		4,204		(7	)		(285	)		33		3,945
Consumer		293		114			(68	)		29		368
Mortgage warehouse		203		56			—			—		259
	$	13,772	$	2,819		$	(1,972	)	$	293	$	14,912

(Dollars in thousands)	Beginning										Ending
Three months ended September 30, 2015	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	1,214	$	189		$	(9	)	$	1	$	1,395
Construction, land development, land		346		97			—			—		443
1-4 family residential properties		251		44			(20	)		4		279
Farmland		28		1			—			—		29
Commercial		5,064		210			—			34		5,308
Factored receivables		4,135		(475	)		(72	)		21		3,609
Consumer		160		107			(97	)		55		225
Mortgage warehouse		264		(8	)		—			—		256
	$	11,462	$	165		$	(198	)	$	115	$	11,544

(Dollars in thousands)	Beginning										Ending
Nine months ended September 30, 2016	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	1,489	$	413		$	(5	)	$	15	$	1,912
Construction, land development, land		367		(142	)		—			7		232
1-4 family residential properties		274		(38	)		(63	)		82		255
Farmland		134		(13	)		—			—		121
Commercial		5,276		3,680			(1,784	)		648		7,820
Factored receivables		4,509		77			(743	)		102		3,945
Consumer		216		313			(223	)		62		368
Mortgage warehouse		302		(43	)		—			—		259
	$	12,567	$	4,247		$	(2,818	)	$	916	$	14,912

(Dollars in thousands)	Beginning										Ending
Nine months ended September 30, 2015	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	533	$	962		$	(152	)	$	52	$	1,395
Construction, land development, land		333		110			—			—		443
1-4 family residential properties		215		163			(203	)		104		279
Farmland		19		10			—			—		29
Commercial		4,003		1,312			(47	)		40		5,308
Factored receivables		3,462		529			(451	)		69		3,609
Consumer		140		147			(244	)		182		225
Mortgage warehouse		138		118			—			—		256
	$	8,843	$	3,351		$	(1,097	)	$	447	$	11,544

The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective ALLL allocations:

(Dollars in thousands)	Loan Evaluation								ALLL Allocations
September 30, 2016	Individually		Collectively		PCI		Total loans		Individually		Collectively		PCI		Total ALLL
Commercial real estate	$	676	$	405,812	$	14,254	$	420,742	$	100	$	1,371	$	441	$	1,912
Construction, land development, land		276		96,943		3,950		101,169		25		207		—		232
1-4 family residential properties		1,139		105,114		2,468		108,721		1		254		—		255
Farmland		—		139,109		—		139,109		—		121		—		121
Commercial		30,059		738,076		9,671		777,806		2,851		4,969		—		7,820
Factored receivables		3,812		210,143		—		213,955		1,520		2,425		—		3,945
Consumer		55		25,547		—		25,602		—		368		—		368
Mortgage warehouse		—		172,751		—		172,751		—		259		—		259
	$	36,017	$	1,893,495	$	30,343	$	1,959,855	$	4,497	$	9,974	$	441	$	14,912

(Dollars in thousands)	Loan Evaluation								ALLL Allocations
December 31, 2015	Individually		Collectively		PCI		Total loans		Individually		Collectively		PCI		Total ALLL
Commercial real estate	$	724	$	286,006	$	5,089	$	291,819	$	100	$	1,034	$	355	$	1,489
Construction, land development, land		—		42,499		1,377		43,876		—		367		—		367
1-4 family residential properties		618		74,714		2,912		78,244		1		273		—		274
Farmland		—		33,573		—		33,573		—		134		—		134
Commercial		7,916		483,587		3,853		495,356		796		4,480		—		5,276
Factored receivables		3,422		211,666		—		215,088		1,694		2,815		—		4,509
Consumer		—		13,050		—		13,050		—		216		—		216
Mortgage warehouse		—		120,879		—		120,879		—		302		—		302
	$	12,680	$	1,265,974	$	13,231	$	1,291,885	$	2,591	$	9,621	$	355	$	12,567

The following is a summary of information pertaining to impaired loans. Loans included in these tables are non-PCI impaired loans and PCI loans that have deteriorated subsequent to acquisition and as a result have been deemed impaired and an allowance recorded. PCI loans that have not deteriorated subsequent to acquisition are not considered impaired and therefore do not require an allowance and are excluded from these tables.

	Impaired Loans and Purchased Credit						Impaired Loans
	Impaired Loans With a Valuation Allowance						Without a Valuation Allowance
(Dollars in thousands)	Recorded		Unpaid		Related		Recorded		Unpaid
September 30, 2016	Investment		Principal		Allowance		Investment		Principal
Commercial real estate	$	517	$	517	$	100	$	159	$	196
Construction, land development, land		276		276		25		—		—
1-4 family residential properties		9		16		1		1,130		1,295
Farmland		—		—		—		—		—
Commercial		7,029		7,116		2,851		23,030		23,000
Factored receivables		3,015		3,015		1,520		797		797
Consumer		—		—		—		55		55
Mortgage warehouse		—		—		—		—		—
PCI		1,442		1,154		441		—		—
	$	12,288	$	12,094	$	4,938	$	25,171	$	25,343

	Impaired Loans and Purchased Credit						Impaired Loans
	Impaired Loans With a Valuation Allowance						Without a Valuation Allowance
(Dollars in thousands)	Recorded		Unpaid		Related		Recorded		Unpaid
December 31, 2015	Investment		Principal		Allowance		Investment		Principal
Commercial real estate	$	531	$	532	$	100	$	193	$	229
Construction, land development, land		—		—		—		—		—
1-4 family residential properties		14		21		1		604		793
Farmland		—		—		—		—		—
Commercial		1,491		1,520		796		6,425		6,433
Factored receivables		2,850		2,850		1,694		572		572
Consumer		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—
PCI		525		525		355		—		—
	$	5,411	$	5,448	$	2,946	$	7,794	$	8,027

The following table presents average impaired loans and interest recognized on impaired loans for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended				Three Months Ended
	September 30, 2016				September 30, 2015
	Average		Interest		Average		Interest
(Dollars in thousands)	Impaired Loans		Recognized		Impaired Loans		Recognized
Commercial real estate	$	682	$	—	$	1,926	$	1
Construction, land development, land		276		—		—		—
1-4 family residential properties		1,030		1		433		9
Farmland		—		—		—		—
Commercial		21,648		163		4,833		80
Factored receivables		3,509		—		1,957		—
Consumer		43		—		—		—
Mortgage warehouse		—		—		—		—
PCI		1,442		—		721		—
	$	28,630	$	164	$	9,870	$	90

	Nine Months Ended				Nine Months Ended
	September 30, 2016				September 30, 2015
	Average		Interest		Average		Interest
(Dollars in thousands)	Impaired Loans		Recognized		Impaired Loans		Recognized
Commercial real estate	$	700	$	—	$	1,928	$	4
Construction, land development, land		138		2		—		—
1-4 family residential properties		879		9		647		32
Farmland		—		—		—		—
Commercial		18,987		677		4,992		119
Factored receivables		3,617		—		1,958		—
Consumer		26		2		—		—
Mortgage warehouse		—		—		—		—
PCI		983		—		263		—
	$	25,330	$	690	$	9,788	$	155

The following table presents the unpaid principal and recorded investment for loans at September 30, 2016 and December 31, 2015. The difference between the unpaid principal balance and recorded investment is principally associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI) and (2) net deferred origination costs and fees.

(Dollars in thousands)	Recorded		Unpaid
September 30, 2016	Investment		Principal		Difference
Commercial real estate	$	420,742	$	426,843	$	(6,101	)
Construction, land development, land		101,169		104,591		(3,422	)
1-4 family residential properties		108,721		110,729		(2,008	)
Farmland		139,109		140,117		(1,008	)
Commercial		777,806		784,494		(6,688	)
Factored receivables		213,955		215,242		(1,287	)
Consumer		25,602		25,742		(140	)
Mortgage warehouse		172,751		172,751		—
	$	1,959,855	$	1,980,509	$	(20,654	)

	Recorded		Unpaid
December 31, 2015	Investment		Principal		Difference
Commercial	$	291,819	$	299,272	$	(7,453	)
Construction, land development, land		43,876		45,376		(1,500	)
1-4 family residential properties		78,244		81,141		(2,897	)
Farmland		33,573		33,533		40
Commercial		495,356		496,719		(1,363	)
Factored receivables		215,088		216,201		(1,113	)
Consumer		13,050		13,072		(22	)
Mortgage warehouse		120,879		120,879		—
	$	1,291,885	$	1,306,193	$	(14,308	)

At September 30, 2016 and December 31, 2015, the Company had $22,629,000 and $21,188,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

Past Due and Nonaccrual Loans

The following is a summary of contractually past due and nonaccrual loans at September 30, 2016 and December 31, 2015:

			Past Due 90
(Dollars in thousands)	30-89 Days		Days or More
September 30, 2016	Past Due		Still Accruing		Nonaccrual		Total
Commercial real estate	$	625	$	210	$	676	$	1,511
Construction, land development, land		199		156		276		631
1-4 family residential properties		1,043		24		1,083		2,150
Farmland		996		—		—		996
Commercial		18,411		556		25,019		43,986
Factored receivables		10,185		2,063		—		12,248
Consumer		628		45		55		728
Mortgage warehouse		—		—		—		—
PCI		2,127		150		11,101		13,378
	$	34,214	$	3,204	$	38,210	$	75,628

			Past Due 90
(Dollars in thousands)	30-89 Days		Days or More
December 31, 2015	Past Due		Still Accruing		Nonaccrual		Total
Commercial real estate	$	693	$	—	$	673	$	1,366
Construction, land development, land		—		—		—		—
1-4 family residential properties		909		9		533		1,451
Farmland		—		—		—		—
Commercial		3,704		—		2,021		5,725
Factored receivables		12,379		1,931		—		14,310
Consumer		286		—		—		286
Mortgage warehouse		—		—		—		—
PCI		1,092		—		6,867		7,959
	$	19,063	$	1,940	$	10,094	$	31,097

The following table presents information regarding nonperforming loans at the dates indicated:

(Dollars in thousands)	September 30, 2016		December 31, 2015
Nonaccrual loans⁽¹⁾	$	38,210	$	10,094
Factored receivables greater than 90 days past due		2,063		1,931
Troubled debt restructurings accruing interest		3,876		1,330
	$	44,149	$	13,355

⁽¹⁾

Includes troubled debt restructurings of $12,179,000 and $53,000 at September 30, 2016 and December 31, 2015, respectively.

Credit Quality Information

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes every loan and is performed on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings:

Pass:

Loans classified as pass are loans with low to average risk and not otherwise classified as substandard or doubtful.

Substandard:

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful:

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

PCI:

At acquisition, PCI loans had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.

As of September 30, 2016 and December 31, 2015, based on the most recent analysis performed, the risk category of loans is as follows:

(Dollars in thousands)
September 30, 2016	Pass		Substandard		Doubtful		PCI		Total
Commercial real estate	$	400,044	$	6,444	$	—	$	14,254	$	420,742
Construction, land development, land		96,943		276		—		3,950		101,169
1-4 family residential		104,888		1,365		—		2,468		108,721
Farmland		130,687		8,422		—		—		139,109
Commercial		728,675		39,460		—		9,671		777,806
Factored receivables		211,271		1,303		1,381		—		213,955
Consumer		25,545		57		—		—		25,602
Mortgage warehouse		172,751		—		—		—		172,751
	$	1,870,804	$	57,327	$	1,381	$	30,343	$	1,959,855

(Dollars in thousands)
December 31, 2015	Pass		Substandard		Doubtful		PCI		Total
Commercial real estate	$	284,753	$	1,977	$	—	$	5,089	$	291,819
Construction, land development, land		42,499		—		—		1,377		43,876
1-4 family residential		73,838		1,494		—		2,912		78,244
Farmland		33,573		—		—		—		33,573
Commercial		470,208		21,295		—		3,853		495,356
Factored receivables		212,588		1,019		1,481		—		215,088
Consumer		13,050		—		—		—		13,050
Mortgage warehouse		120,879		—		—		—		120,879
	$	1,251,388	$	25,785	$	1,481	$	13,231	$	1,291,885

Troubled Debt Restructurings

The Company had a recorded investment in troubled debt restructurings of $16,055,000 and $1,383,000 as of September 30, 2016 and December 31, 2015, respectively.

The following table presents loans modified as troubled debt restructurings that occurred during the nine months ended September 30, 2016 and 2015:

Pre-Modification

Post-Modification

Outstanding

(Dollars in thousands)

Number of

Recorded

September 30, 2016

Loans

Investment

Commercial

15,663

Pre-Modification

Post-Modification

Outstanding

(Dollars in thousands)

Number of

Recorded

September 30, 2015

Loans

Investment

Commercial

841

As of September 30, 2016, there have been no defaults on any loans that were modified as troubled debt restructurings during the preceding twelve months. Default is determined at 90 or more days past due. The modifications primarily related to extending the amortization periods of the loans. The Company did not grant principal reductions on any restructured loans.

Purchased Credit Impaired Loans

The Company has loans that were acquired, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding contractually required principal and interest and the carrying amount of these loans included in the balance sheet amounts of loans at September 30, 2016 and December 31, 2015, are as follows:

	September 30,		December 31,
	2016		2015
Contractually required principal and interest:
Real estate loans	$	29,571	$	17,800
Commercial loans		11,564		5,335
Outstanding contractually required principal and interest	$	41,135	$	23,135
Gross carrying amount included in loans receivable	$	30,343	$	13,231

The changes in accretable yield during the three and nine months ended September 30, 2016 and 2015 in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accretable yield, beginning balance	$	1,192		$	3,349		$	2,593		$	4,977
Additions		4,124			—			4,124			—
Accretion		(417	)		(1,056	)		(2,451	)		(3,070	)
Reclassification from nonaccretable to accretable yield		—			195			646			780
Disposals		—			—			(13	)		(199	)
Accretable yield, ending balance	$	4,899		$	2,488		$	4,899		$	2,488