Loans

9 Months Ended

Sep. 30, 2019

Information pertaining to portfolio loans, purchased credit impaired (“PCI”) loans, and purchased unimpaired loans (“PUL”) is as follows:



	September 30, 2019
(In thousands)	Portfolio Loans		PCI Loans		PULs		Total
Construction and land development	$	272,915	$	158	$	53,251	$	326,324
Commercial real estate	1,709,227		10,259		590,881		2,310,367
Residential real estate	1,184,579		2,364		223,003		1,409,946
Commercial and financial	635,153		600		86,533		722,286
Consumer	208,425		—		8,941		217,366
Totals¹	$	4,010,299	$	13,381	$	962,609	$	4,986,289



	December 31, 2018
(In thousands)	Portfolio Loans		PCI Loans		PULs		Total
Construction and land development	$	301,473	$	151	$	141,944	$	443,568
Commercial real estate	1,437,989		10,828		683,249		2,132,066
Residential real estate	1,055,525		2,718		266,134		1,324,377
Commercial and financial	603,057		737		118,528		722,322
Consumer	190,207		—		12,674		202,881
Totals¹	$	3,588,251	$	14,434	$	1,222,529	$	4,825,214
¹Net loan balances as of September 30, 2019 and December 31, 2018 include deferred costs of $18.7 million and $16.9 million for each period, respectively.

The following tables present the contractual delinquency of the recorded investment by class of loans as of:



	September 30, 2019
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total Financing Receivables
Portfolio Loans
Construction and land development	$	266,815	$	1,747	$	—	$	—	$	4,353	$	272,915
Commercial real estate	1,702,928		1,271		599		—		4,429		1,709,227
Residential real estate	1,173,158		3,349		182		—		7,890		1,184,579
Commercial and financial	627,056		4,448		—		—		3,649		635,153
Consumer	207,467		572		306		—		80		208,425
Total Portfolio Loans	3,977,424		11,387		1,087		—		20,401		4,010,299

Purchased Unimpaired Loans
Construction and land development	49,682		—		2,995		—		574		53,251
Commercial real estate	587,865		872		848		—		1,296		590,881
Residential real estate	222,383		75		122		—		423		223,003
Commercial and financial	84,614		1,362		—		—		557		86,533
Consumer	8,796		116		—		—		29		8,941
Total PULs	953,340		2,425		3,965		—		2,879		962,609

Purchased Credit Impaired Loans
Construction and land development	145		—		—		—		13		158
Commercial real estate	9,314		—		—		—		945		10,259
Residential real estate	573		—		—		—		1,791		2,364
Commercial and financial	585		—		—		—		15		600
Consumer	—		—		—		—		—		—
Total PCI Loans	10,617		—		—		—		2,764		13,381

Total Loans	$	4,941,381	$	13,812	$	5,052	$	—	$	26,044	$	4,986,289



	December 31, 2018
(In thousands)	Current		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing Greater Than 90 Days		Nonaccrual		Total Financing Receivables
Portfolio Loans
Construction and land development	$	301,348	$	97	$	—	$	—	$	28	$	301,473
Commercial real estate	1,427,413		3,852		97		141		6,486		1,437,989
Residential real estate	1,044,375		2,524		525		295		7,806		1,055,525
Commercial and financial	594,930		5,186		1,661		—		1,280		603,057
Consumer	189,061		637		326		—		183		190,207
Total Portfolio Loans	3,557,127		12,296		2,609		436		15,783		3,588,251

Purchased Unimpaired Loans
Construction and land development	140,013		1,931		—		—		—		141,944
Commercial real estate	680,060		1,846		—		—		1,343		683,249
Residential real estate	260,781		1,523		—		90		3,740		266,134
Commercial and financial	116,173		342		—		—		2,013		118,528
Consumer	12,643		—		31		—		—		12,674
Total PULs	1,209,670		5,642		31		90		7,096		1,222,529

Purchased Credit Impaired Loans
Construction and land development	135		—		—		—		16		151
Commercial real estate	8,403		1,034		—		—		1,391		10,828
Residential real estate	556		—		—		—		2,162		2,718
Commercial and financial	74		635		—		—		28		737
Consumer	—		—		—		—		—		—
Total PCI Loans	9,168		1,669		—		—		3,597		14,434

Total Loans	$	4,775,965	$	19,607	$	2,640	$	526	$	26,476	$	4,825,214

The Company's Credit Risk Management also utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system:


•	Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated.


•	Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention.


•	Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.


•	Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off.

Risk ratings on commercial lending facilities are re-evaluated during the annual review process at a minimum, based on the size of the aggregate exposure, and/or when there is a credit action of the existing credit exposure. The following tables present the risk category of loans by class based on the most recent analysis performed as of:



	September 30, 2019
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Construction and land development	$	316,636	$	4,559	$	5,129	$	—	$	326,324
Commercial real estate	2,260,472		27,838		21,736		321		2,310,367
Residential real estate	1,386,760		3,978		19,208		—		1,409,946
Commercial and financial	703,565		10,436		7,135		1,150		722,286
Consumer	212,955		3,417		994		—		217,366
Totals	$	4,880,388	$	50,228	$	54,202	$	1,471	$	4,986,289



	December 31, 2018
(In thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Construction and land development	$	428,044	$	10,429	$	5,095	$	—	$	443,568
Commercial real estate	2,063,589		41,429		27,048		—		2,132,066
Residential real estate	1,296,634		3,654		24,089		—		1,324,377
Commercial and financial	707,663		8,387		6,247		25		722,322
Consumer	198,367		3,397		1,117		—		202,881
Totals	$	4,694,297	$	67,296	$	63,596	$	25	$	4,825,214

PCI Loans

PCI loans are accounted for pursuant to ASC Topic 310-30. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan in situations where there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference.

The table below summarizes the changes in accretable yield on PCI loans for the periods ended:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
Beginning balance	$	2,344		$	3,189		$	2,822		$	3,699
Additions	—			—			—			—
Deletions	—			—			—			(43		)
Accretion	(287		)	(284		)	(1,336		)	(989		)
Reclassification from non-accretable difference	62			—			633			238
Ending balance	$	2,119		$	2,905		$	2,119		$	2,905

Troubled Debt Restructured Loans

The Company’s Troubled Debt Restructuring (“TDR”) concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructured agreements. Most loans prior to modification were classified as impaired and the allowance for loan losses is determined in accordance with Company policy.

During the three and nine months ended September 30, 2019, there were three loans totaling $1.6 million and seven loans totaling $4.0 million, respectively, modified in a TDR. There were three defaults totaling $2.1 million of loans to a single borrower modified in TDRs within the twelve months preceding September 30, 2019. During the three and nine months ended September 30, 2018 there was one loan totaling $0.1 million modified in a TDR. There was one loan that defaulted which had been modified in a TDR of $0.1 million during the t

welve months preceding September 30, 2018. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and a specific allowance for loan loss is assigned in accordance with the Company’s policy.

Impaired Loans

Loans are considered impaired if they are 90 days or more past due, in nonaccrual status, or are TDRs. As of September 30, 2019 and December 31, 2018, the Company’s recorded investment in impaired loans, excluding PCI loans, the unpaid principal balance and related valuation allowance was as follows:



	September 30, 2019
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	4,972	$	5,169	$	—
Commercial real estate	6,222		7,649		—
Residential real estate	9,727		14,223		—
Commercial and financial	3,407		4,406		—
Consumer	118		131		—
Impaired Loans with an Allowance Recorded:
Construction and land development	98		114		16
Commercial real estate	4,223		4,223		247
Residential real estate	4,888		5,035		517
Commercial and financial	1,948		1,963		727
Consumer	229		245		57
Total Impaired Loans
Construction and land development	5,070		5,283		16
Commercial real estate	10,445		11,872		247
Residential real estate	14,615		19,258		517
Commercial and financial	5,355		6,369		727
Consumer	347		376		57
Totals	$	35,832	$	43,158	$	1,564



	December 31, 2018
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance
Impaired Loans with No Related Allowance Recorded:
Construction and land development	$	15	$	229	$	—
Commercial real estate	3,852		5,138		—
Residential real estate	13,510		18,111		—
Commercial and financial	1,191		1,414		—
Consumer	280		291		—
Impaired Loans with an Allowance Recorded:
Construction and land development	196		211		22
Commercial real estate	9,786		12,967		369
Residential real estate	5,537		5,664		805
Commercial and financial	2,131		2,309		1,498
Consumer	202		211		34
Total Impaired Loans
Construction and land development	211		440		22
Commercial real estate	13,638		18,105		369
Residential real estate	19,047		23,775		805
Commercial and financial	3,322		3,723		1,498
Consumer	482		502		34
Totals	$	36,700	$	46,545	$	2,728

Impaired loans also include TDRs where concessions have been granted to borrowers who have experienced financial difficulty. At September 30, 2019 and at December 31, 2018, accruing TDRs totaled $12.4 million and $13.3 million, respectively.

Average impaired loans for the three months ended September 30, 2019 and 2018 were $35.1 million and $38.1 million, respectively. Average impaired loans for the nine months ended September 30, 2019 and 2018 were $35.5 million and $34.5 million, respectively. The impaired loans were measured for impairment based on the value of underlying collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. The valuation allowance is included in the allowance for loan losses.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful, at which time payments received are recorded as reductions in principal. For the three months ended September 30, 2019 and 2018, the Company recorded interest income on impaired loans of $0.7 million and $0.5 million, respectively. For the nine months ended September 30, 2019 and 2018, the Company recorded interest income on impaired loans of $1.5 million and $1.4 million, respectively.

For impaired loans whose impairment is measured based on the present value of expected future cash flows, interest income represents the change in present value attributable to the passage of time, and totaled $40,000 and $36,000, respectively, for the three months ended September 30, 2019 and 2018, and $102,000 and $157,000, respectively, for the nine months ended September 30, 2019 and 2018.