Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans

The tables below show the aging of the Company’s loan portfolio at December 31, 2017 and 2016:



As of December 31, 2017 (Dollars in thousands)	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Loan Balances:
Commercial
Commercial, industrial and other	$	11,260	$	—	$	3,746	$	13,392	$	4,314,107	$	4,342,505
Franchise	2,447		—		—		—		845,150		847,597
Mortgage warehouse lines of credit	—		—		—		4,000		190,523		194,523
Asset-based lending	1,550		—		283		10,057		968,576		980,466
Leases	439		—		3		1,958		410,772		413,172
PCI - commercial ⁽¹⁾	—		877		186		—		8,351		9,414
Total commercial	$	15,696	$	877	$	4,218	$	29,407	$	6,737,479	$	6,787,677
Commercial real estate:
Construction	3,143		—		—		200		742,171		745,514
Land	188		—		—		5,156		121,140		126,484
Office	2,438		—		—		4,458		887,937		894,833
Industrial	811		—		—		2,412		879,796		883,019
Retail	12,328		—		668		148		938,383		951,527
Multi-family	—		—		—		1,034		914,610		915,644
Mixed use and other	3,140		—		1,423		9,641		1,921,501		1,935,705
PCI - commercial real estate ⁽¹⁾	—		7,135		2,255		6,277		112,225		127,892
Total commercial real estate	$	22,048	$	7,135	$	4,346	$	29,326	$	6,517,763	$	6,580,618
Home equity	8,978		—		518		4,634		648,915		663,045
Residential real estate, including PCI	17,977		5,304		1,303		8,378		799,158		832,120
Premium finance receivables
Commercial insurance loans	12,163		9,242		17,796		15,849		2,579,515		2,634,565
Life insurance loans	—		—		4,837		10,017		3,820,936		3,835,790
PCI - life insurance loans ⁽¹⁾	—		—		—		—		199,269		199,269
Consumer and other, including PCI	740		101		242		727		105,903		107,713
Total loans, net of unearned income	$	77,602	$	22,659	$	33,260	$	98,338	$	21,408,938	$	21,640,797


(1)	PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments. See Note 4, “Loans,” for further discussion of these purchased loans.



As of December 31, 2016 (Dollars in thousands)	Nonaccrual		90+ days and still accruing		60-89 days past due		30-59 days past due		Current		Total Loans
Loan Balances:
Commercial
Commercial, industrial and other	$	13,441	$	174	$	2,341	$	11,779	$	3,716,977	$	3,744,712
Franchise	—		—		—		493		869,228		869,721
Mortgage warehouse lines of credit	—		—		—		—		204,225		204,225
Asset-based lending	1,924		—		135		1,609		871,402		875,070
Leases	510		—		—		1,331		293,073		294,914
PCI - commercial ⁽¹⁾	—		1,689		100		2,428		12,563		16,780
Total commercial	$	15,875	$	1,863	$	2,576	$	17,640	$	5,967,468	$	6,005,422
Commercial real estate
Construction	$	2,408	$	—	$	—	$	1,824	$	606,007	$	610,239
Land	394		—		188		—		104,219		104,801
Office	4,337		—		4,506		1,232		857,599		867,674
Industrial	7,047		—		4,516		2,436		756,602		770,601
Retail	597		—		760		3,364		907,872		912,593
Multi-family	643		—		322		1,347		805,312		807,624
Mixed use and other	6,498		—		1,186		12,632		1,931,859		1,952,175
PCI - commercial real estate ⁽¹⁾	—		16,188		3,775		8,888		141,529		170,380
Total commercial real estate	$	21,924	$	16,188	$	15,253	$	31,723	$	6,110,999	$	6,196,087
Home equity	9,761		—		1,630		6,515		707,887		725,793
Residential real estate, including PCI	12,749		1,309		936		8,271		681,956		705,221
Premium finance receivables
Commercial insurance loans	14,709		7,962		5,646		14,580		2,435,684		2,478,581
Life insurance loans	—		3,717		17,514		16,204		3,182,935		3,220,370
PCI - life insurance loans ⁽¹⁾	—		—		—		—		249,657		249,657
Consumer and other, including PCI	439		207		100		887		120,408		122,041
Total loans, net of unearned income, excluding covered loans	75,457		31,246		43,655		95,820		19,456,994		19,703,172
Covered loans	2,121		2,492		225		1,553		51,754		58,145
Total loans, net of unearned income	77,578		33,738		43,880		97,373		19,508,748		19,761,317


(1)	PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments. See Note 4, “Loans,” for further discussion of these purchased loans.

The Company's ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, the Company operates a credit risk rating system under which credit management personnel assign a credit risk rating (1 to 10 rating) to each loan at the time of origination and review loans on a regular basis.

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including: a borrower’s financial strength, cash flow coverage, collateral protection and guarantees.

The Company’s Problem Loan Reporting system automatically includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible or an impairment reserve may be established. The Company’s impairment analysis utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status, a charge-off or the establishment of a specific impairment reserve. If the Company determines that a loan amount or portion thereof is uncollectible the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses.

If, based on current information and events, it is probable that the Company will be unable to collect all amounts due to it according to the contractual terms of the loan agreement, a specific impairment reserve is established. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

Non-performing loans include all non-accrual loans (8 and 9 risk ratings) as well as loans 90 days past due and still accruing interest, excluding PCI and covered loans. The remainder of the portfolio is considered performing under the contractual terms of the loan agreement. The following table presents the recorded investment based on performance of loans by class, excluding covered loans, per the most recent analysis at December 31, 2017 and 2016:



	Performing				Non-performing				Total
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
(Dollars in thousands)	2017		2016		2017		2016		2017		2016
Loan Balances:
Commercial
Commercial, industrial and other	$	4,331,245	$	3,731,097	$	11,260	$	13,615	$	4,342,505	$	3,744,712
Franchise	845,150		869,721		2,447		—		847,597		869,721
Mortgage warehouse lines of credit	194,523		204,225		—		—		194,523		204,225
Asset-based lending	978,916		873,146		1,550		1,924		980,466		875,070
Leases	412,733		294,404		439		510		413,172		294,914
PCI - commercial ⁽¹⁾	9,414		16,780		—		—		9,414		16,780
Total commercial	$	6,771,981	$	5,989,373	$	15,696	$	16,049	$	6,787,677	$	6,005,422
Commercial real estate
Construction	742,371		607,831		3,143		2,408		745,514		610,239
Land	126,296		104,407		188		394		126,484		104,801
Office	892,395		863,337		2,438		4,337		894,833		867,674
Industrial	882,208		763,554		811		7,047		883,019		770,601
Retail	939,199		911,996		12,328		597		951,527		912,593
Multi-family	915,644		806,981		—		643		915,644		807,624
Mixed use and other	1,932,565		1,945,677		3,140		6,498		1,935,705		1,952,175
PCI - commercial real estate ⁽¹⁾	127,892		170,380		—		—		127,892		170,380
Total commercial real estate	$	6,558,570	$	6,174,163	$	22,048	$	21,924	$	6,580,618	$	6,196,087
Home equity	654,067		716,032		8,978		9,761		663,045		725,793
Residential real estate, including PCI	810,865		692,472		21,255		12,749		832,120		705,221
Premium finance receivables
Commercial insurance loans	2,613,160		2,455,910		21,405		22,671		2,634,565		2,478,581
Life insurance loans	3,835,790		3,216,653		—		3,717		3,835,790		3,220,370
PCI - life insurance loans ⁽¹⁾	199,269		249,657		—		—		199,269		249,657
Consumer and other, including PCI	106,933		121,458		780		583		107,713		122,041
Total loans, net of unearned income, excluding covered loans	$	21,550,635	$	19,615,718	$	90,162	$	87,454	$	21,640,797	$	19,703,172


(1)	PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. See Note 4, “Loans,” for further discussion of these purchased loans.

A summary of the activity in the allowance for credit losses by loan portfolio (excluding covered loans) for the years ended December 31, 2017 and 2016 is as follows:



Year Ended December 31, 2017 (Dollars in thousands)	Commercial			Commercial Real Estate			Home Equity			Residential Real Estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	44,493		$	51,422		$	11,774		$	5,714		$	7,625		$	1,263		$	122,291
Other adjustments ⁽¹⁾	16			(155		)	167			356			138			51			573
Reclassification to/from allowance for unfunded lending-related commitments	500			(431		)	—			—			—			—			69
Charge-offs	(5,159		)	(4,236		)	(3,952		)	(1,284		)	(7,335		)	(729		)	(22,695		)
Recoveries	1,870			2,190			746			452			2,128			299			7,685
Provision for credit losses	16,091			6,437			1,758			1,450			4,290			(44		)	29,982
Allowance for loan losses at period end	$	57,811		$	55,227		$	10,493		$	6,688		$	6,846		$	840		$	137,905
Allowance for unfunded lending-related commitments at period end	—			1,269			—			—			—			—			1,269
Allowance for credit losses at period end	$	57,811		$	56,496		$	10,493		$	6,688		$	6,846		$	840		$	139,174
By measurement method:
Individually evaluated for impairment	4,464			2,177			784			586			—			26			8,037
Collectively evaluated for impairment	52,820			53,938			9,709			5,979			6,846			814			130,106
Loans acquired with deteriorated credit quality	527			381			—			123			—			—			1,031
Loans at period end:
Individually evaluated for impairment	$	35,612		$	38,534		$	9,254		$	21,253		$	—		$	759		$	105,412
Collectively evaluated for impairment	6,742,651			6,414,192			653,791			765,149			6,470,355			104,840			21,150,978
Loans acquired with deteriorated credit quality	9,414			127,892			—			12,001			199,269			2,114			350,690
Loan held at fair value	—			—			—			33,717			—			—			33,717


(1)	Includes $742,000 of allowance for covered loan losses reclassified as a result of the termination of all existing loss share agreements with the FDIC during the fourth quarter of 2017.



Year Ended December 31, 2016 (Dollars in thousands)	Commercial			Commercial Real Estate			Home Equity			Residential Real Estate			Premium Finance Receivable			Consumer and Other			Total, Excluding Covered Loans
Allowance for credit losses
Allowance for loan losses at beginning of period	$	36,135		$	43,758		$	12,012		$	4,734		$	7,233		$	1,528		$	105,400
Other adjustments	(90		)	(154		)	—			(57		)	10			—			(291		)
Reclassification to/from allowance for unfunded lending-related commitments	(500		)	(225		)	—			—			—			—			(725		)
Charge-offs	(7,915		)	(1,930		)	(3,998		)	(1,730		)	(8,193		)	(925		)	(24,691		)
Recoveries	1,594			2,945			484			225			2,374			186			7,808
Provision for credit losses	15,269			7,028			3,276			2,542			6,201			474			34,790
Allowance for loan losses at period end	$	44,493		$	51,422		$	11,774		$	5,714		$	7,625		$	1,263		$	122,291
Allowance for unfunded lending-related commitments at period end	500			1,173			—			—			—			—			1,673
Allowance for credit losses at period end	$	44,993		$	52,595		$	11,774		$	5,714		$	7,625		$	1,263		$	123,964
By measurement method:
Individually evaluated for impairment	1,717			3,004			1,233			849			—			100			6,903
Collectively evaluated for impairment	42,624			49,552			10,541			4,792			7,625			1,162			116,296
Loans acquired with deteriorated credit quality	652			39			—			73			—			1			765
Loans at period end:
Individually evaluated for impairment	$	20,790		$	42,309		$	9,994		$	17,735		$	—		$	495		$	91,323
Collectively evaluated for impairment	5,967,852			5,983,398			715,799			661,045			5,698,951			120,375			19,147,420
Loans acquired with deteriorated credit quality	16,780			170,380			—			4,304			249,657			1,171			442,292
Loan held at fair value	—			—			—			22,137			—			—			22,137

A summary of activity in the allowance for covered loan losses for the years ended December 31, 2017 and 2016 is as follows:



	Years Ended
	December 31,			December 31,
(Dollars in thousands)	2017			2016
Balance at beginning of period	$	1,322		$	3,026
Allowance for covered loan losses transferred to allowance for loan losses subsequent to loss share termination or expiration	(742		)	(156		)
Provision for covered loan losses before benefit attributable to FDIC loss share agreements	(1,063		)	(3,530		)
Benefit attributable to FDIC loss share agreements	1,592			2,949
Net provision for covered loan losses and transfer from allowance for covered loan losses to allowance for loan losses	$	(213	)	$	(737	)
Increase/decrease in FDIC indemnification liability/asset	(1,592		)	(2,949		)
Loans charged-off	(517		)	(1,410		)
Recoveries of loans charged-off	1,000			3,392
Net recoveries	$	483		$	1,982
Balance at end of period	$	—		$	1,322

In conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. Additional expected losses, to the extent such expected losses result in the recognition of an allowance for loan losses, increased the FDIC loss share asset or reduced any FDIC loss share liability. The allowance for loan losses for loans acquired in FDIC-assisted transactions was determined without giving consideration to the amounts recoverable through loss share agreements (since the loss share agreements are separately accounted for and thus presented “gross” on the balance sheet). On the Consolidated Statements of Income, the provision for credit losses was reported net of changes in the amount recoverable under the loss share agreements. Reductions to expected losses, to the extent such reductions to expected losses were the result of an improvement to the actual or expected cash flows from the covered assets, reduced the FDIC loss share asset or increased any FDIC loss share liability. Additions to expected losses required an increase to the allowance for loan losses, and a corresponding increase to the FDIC loss share asset or reduction to any FDIC loss share liability. See “FDIC-Assisted Bank Acquisitions” within Note 7, “Business Combinations,” for more detail.

On October 16, 2017, the Company entered into agreements with the FDIC that terminated all existing loss share agreements with the FDIC. As a result, the allowance for covered loan losses previously measured is included within the allowance for credit losses, excluding covered loans, presented above for subsequent periods. See Note 7, "Business Combinations," for further discussion of the termination of FDIC loss share agreements.

Impaired Loans

A summary of impaired loans, including TDRs, at December 31, 2017 and 2016 is as follows:



(Dollars in thousands)	2017		2016
Impaired loans (included in non-performing and restructured loans):
Impaired loans with an allowance for loan loss required ⁽¹⁾	$	36,084	$	33,146
Impaired loans with no allowance for loan loss required	69,004		57,370
Total impaired loans ⁽²⁾	$	105,088	$	90,516
Allowance for loan losses related to impaired loans	$	8,023	$	6,377
TDRs	49,786		41,708
Reduction of interest income from non-accrual loans	2,373		3,060
Interest income recognized on impaired loans	6,298		5,485


(1)	These impaired loans require an allowance for loan losses because the estimated fair value of the loans or related collateral is less than the recorded investment in the loans.


(2)	Impaired loans are considered by the Company to be non-accrual loans, TDRs or loans with principal and/or interest at risk, even if the loan is current with all payments of principal and interest.

The following tables present impaired loans evaluated for impairment by loan class as of December 31, 2017 and 2016:



	As of						For the Year Ended
December 31, 2017 (Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial, industrial and other	$	6,233	$	7,323	$	3,951	$	7,220	$	452
Franchise	—		—		—		—		—
Asset-based lending	948		949		355		1,302		72
Leases	2,331		2,337		158		2,463		117
Commercial real estate
Construction	3,097		3,897		403		3,690		197
Land	—		—		—		—		—
Office	471		471		5		481		24
Industrial	408		408		40		414		25
Retail	15,599		15,657		1,336		15,736		624
Multi-family	—		—		—		—		—
Mixed use and other	1,567		1,586		379		1,599		77
Home equity	1,606		1,869		784		1,626		81
Residential real estate	3,798		3,910		586		3,790		146
Consumer and other	26		28		26		27		2
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial, industrial and other	$	8,460	$	12,259	$	—	$	10,170	$	683
Franchise	16,256		16,256		—		17,089		780
Asset-based lending	602		602		—		688		40
Leases	782		782		—		845		49
Commercial real estate
Construction	1,367		1,678		—		1,555		84
Land	3,961		4,192		—		4,129		182
Office	2,438		6,140		—		3,484		330
Industrial	403		2,010		—		1,849		174
Retail	2,393		3,538		—		2,486		221
Multi-family	1,231		2,078		—		1,246		76
Mixed use and other	5,275		6,731		—		5,559		351
Home equity	7,648		11,648		—		9,114		603
Residential real estate	17,455		20,327		—		17,926		860
Consumer and other	733		890		—		773		48
Total loans, net of unearned income	$	105,088	$	127,566	$	8,023	$	115,261	$	6,298



	As of						For the Year Ended
December 31, 2016 (Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with a related ASC 310 allowance recorded
Commercial
Commercial, industrial and other	$	2,601	$	2,617	$	1,079	$	2,649	$	134
Franchise	—		—		—		—		—
Asset-based lending	233		235		26		235		10
Leases	2,441		2,443		107		2,561		128
Commercial real estate
Construction	5,302		5,302		86		5,368		164
Land	1,283		1,283		1		1,303		47
Office	2,687		2,697		324		2,797		137
Industrial	5,207		5,843		1,810		7,804		421
Retail	1,750		1,834		170		2,039		101
Multi-family	—		—		—		—		—
Mixed use and other	3,812		4,010		592		4,038		195
Home equity	1,961		1,873		1,233		1,969		75
Residential real estate	5,752		6,327		849		5,816		261
Consumer and other	117		121		100		131		7
Impaired loans with no related ASC 310 allowance recorded
Commercial
Commercial, industrial and other	$	12,534	$	14,704	$	—	$	14,944	$	948
Franchise	—		—		—		—		—
Asset-based lending	1,691		2,550		—		8,467		377
Leases	873		873		—		939		56
Commercial real estate
Construction	4,003		4,003		—		4,161		81
Land	3,034		3,503		—		3,371		142
Office	3,994		5,921		—		4,002		323
Industrial	2,129		2,436		—		2,828		274
Retail	—		—		—		—		—
Multi-family	1,903		1,987		—		1,825		84
Mixed use and other	6,815		7,388		—		6,912		397
Home equity	8,033		10,483		—		8,830		475
Residential real estate	11,983		14,124		—		12,041		622
Consumer and other	378		489		—		393		26
Total loans, net of unearned income	$	90,516	$	103,046	$	6,377	$	105,423	$	5,485

Average recorded investment in impaired loans for the years ended December 31, 2017, 2016, and 2015 were $115.3 million, $105.4 million, and $107.2 million, respectively. Interest income recognized on impaired loans was $6.3 million, $5.5 million and $6.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.

TDRs

At December 31, 2017, the Company had $49.8 million in loans modified in TDRs. The $49.8 million in TDRs represents 80 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay.

The Company’s approach to restructuring loans, excluding PCI loans, is built on its credit risk rating system which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company’s credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for repayment under the revised terms.

A modification of a loan, excluding PCI loans, with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result in a restructured credit risk rating of 6 or worse, must be reviewed for possible TDR classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of these loans is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan, excluding PCI loans, where the credit risk rating is 5 or better both before and after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.

All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has been in compliance with the loan’s modified terms for a period of six months (including over a calendar year-end) and the current interest rate represents a market rate at the time of restructuring. The Managed Assets Division, in consultation with the respective loan officer, determines whether the modified interest rate represented a current market rate at the time of restructuring. Using knowledge of current market conditions and rates, competitive pricing on recent loan originations, and an assessment of various characteristics of the modified loan (including collateral position and payment history), an appropriate market rate for a new borrower with similar risk is determined. If the modified interest rate meets or exceeds this market rate for a new borrower with similar risk, the modified interest rate represents a market rate at the time of restructuring. Additionally, before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and any concerns related to future performance by the borrower is conducted. If concerns exist about the future ability of the borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR classification is not removed from the loan.

TDRs are reviewed at the time of modification and on a quarterly basis to determine if a specific reserve is necessary. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific reserve. The Company, in accordance with ASC 310-10, continues to individually measure impairment of these loans after the TDR classification is removed.

Each TDR was reviewed for impairment at December 31, 2017 and approximately $3.9 million of impairment was present and appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for loan losses. For TDRs in which impairment is calculated by the present value of future cash flows, the Company records interest income representing the decrease in impairment resulting from the passage of time during the respective period, which differs from interest income from contractually required interest on these specific loans. For the years ended December 31, 2017 and 2016, the Company recorded $207,000 and $421,000, respectively, in interest income representing this decrease in impairment.

TDRs may arise in which, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to OREO, which is included within other assets in the Consolidated Statements of Condition. For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. At December 31, 2017, the Company had $9.7 million of foreclosed residential real estate properties included within OREO. Further, the recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $9.8 million at December 31, 2017.

The tables below present a summary of the post-modification balance of loans restructured during the years ended December 31, 2017, 2016, and 2015, which represent TDRs:



Year ended December 31, 2017	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
(Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	5	$	3,775	1	$	95	1	$	2,272	3	$	1,408	—	$	—
Franchise	3	16,256		—	—		—	—		3	16,256		—	—
Leases	—	—		—	—		—	—		—	—		—	—
Commercial real estate
Office	—	—		—	—		—	—		—	—		—	—
Industrial	—	—		—	—		—	—		—	—		—	—
Mixed use and other	1	1,245		1	1,245		—	—		—	—		—	—
Residential real estate and other	12	3,049		10	2,925		8	2,643		1	55		1	69
Total loans	21	$	24,325	12	$	4,265	9	$	4,915	7	$	17,719	1	$	69

Year ended December 31, 2016	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
(Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	3	$	345	3	$	345	—	$	—	—	$	—	1	$	275
Franchise	—	—		—	—		—	—		—	—		—	—
Leases	2	2,949		2	2,949		—	—		—	—		—	—
Commercial real estate
Office	1	450		1	450		—	—		—	—		—	—
Industrial	6	7,921		6	7,921		3	7,196		—	—		—	—
Mixed use and other	2	150		2	150		—	—		—	—		—	—
Residential real estate and other	7	1,082		5	841		6	850		2	470		—	—
Total loans	21	$	12,897	19	$	12,656	9	$	8,046	2	$	470	1	$	275

Year ended December 31, 2015	Total ⁽¹⁾⁽²⁾			Extension at Below Market Terms ⁽²⁾			Reduction of Interest Rate ⁽²⁾			Modification to Interest-only Payments ⁽²⁾			Forgiveness of Debt ⁽²⁾
(Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Franchise	—	—		—	—		—	—		—	—		—	—
Leases	—	—		—	—		—	—		—	—		—	—
Commercial real estate
Office	—	—		—	—		—	—		—	—		—	—
Industrial	1	169		1	169		—	—		1	169		—	—
Mixed use and other	2	201		2	201		—	—		2	201		—	—
Residential real estate and other	9	1,664		9	1,664		5	674		1	50		—	—
Total loans	12	$	2,034	12	$	2,034	5	$	674	4	$	420	—	$	—


(1)	TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.


(2)	Balances represent the recorded investment in the loan at the time of the restructuring.

During the year ended December 31, 2017, $24.3 million, or 21 loans, were determined to be TDRs, compared to $12.9 million, or 21 loans, and $2.0 million, or 12 loans, in the years ended 2016 and 2015, respectively. Of these loans extended at below market terms, the weighted average extension had a term of approximately 35 months in 2017 compared to 19 months in 2016 and 45 months in 2015. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 485 basis points, 34 basis points and 358 basis points during the years ended December 31, 2017, 2016, and 2015, respectively. Interest-only payment terms were approximately eleven months during the year ended 2017 compared to seven months and 17 months for the years ended 2016 and 2015, respectively. Additionally, $73,000 of principal balance were forgiven in 2017 compared to $300,000 of principal balance forgiven during 2016 and no principal balances during 2015.

The tables below present a summary of all loans restructured in TDRs during the years ended December 31, 2017, 2016, and 2015, and such loans which were in payment default under the restructured terms during the respective periods:



	Year Ended December 31, 2017						Year Ended December 31, 2016						Year Ended December 31, 2015
	Total ⁽¹⁾⁽³⁾			Payments in Default⁽²⁾⁽³⁾			Total ⁽¹⁾⁽³⁾			Payments in Default⁽²⁾⁽³⁾			Total ⁽¹⁾⁽³⁾			Payments in Default⁽²⁾⁽³⁾
(Dollars in thousands)	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	5	$	3,775	4	$	3,681	3	$	345	1	$	28	—	$	—	—	$	—
Franchise	3	$	16,256	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—
Leases	—	$	—	—	$	—	2	$	2,949	—	$	—	—	$	—	—	$	—
Commercial real-estate
Office	—	—		—	—		1	450		1	450		—	—		—	—
Industrial	—	—		—	—		6	7,921		5	7,347		1	169		—	—
Mixed use and other	1	1,245		1	1,245		2	150		1	16		2	201		2	201
Residential real estate and other	12	3,049		3	2,052		7	1,082		—	—		9	1,664		4	568
Total loans	21	$	24,325	8	$	6,978	21	$	12,897	8	$	7,841	12	$	2,034	6	$	769


(1)	Total TDRs represent all loans restructured in TDRs during the year indicated.


(2)	TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.


(3)	Balances represent the recorded investment in the loan at the time of the restructuring.