Loans and Leases and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2018

Receivables [Abstract]

Loans and Leases and Allowance for Credit Losses

Loans and Leases and Allowance for Credit Losses

Major classifications of the loan and lease portfolio (collectively referred to as the “loan portfolio” or “loans”) are summarized as of the dates indicated as follows (in thousands):

	December 31,
	2018			2017
Owner occupied commercial real estate	$	1,647,904		$	1,923,993
Income producing commercial real estate	1,812,420			1,595,174
Commercial & industrial	1,278,347			1,130,990
Commercial construction	796,158			711,936
Equipment financing	564,614			—
Total commercial	6,099,443			5,362,093
Residential mortgage	1,049,232			973,544
Home equity lines of credit	694,010			731,227
Residential construction	211,011			183,019
Consumer direct	122,013			127,504
Indirect auto	207,692			358,185
Total loans	8,383,401			7,735,572
Less allowance for loan losses	(61,203		)	(58,914		)
Loans, net	$	8,322,198		$	7,676,658

At December 31, 2018 and 2017, $1.19 million and $1.28 million, respectively, in overdrawn deposit accounts were reclassified as consumer loans.

At December 31, 2018 and 2017, loans with a carrying value of $3.98 billion and $3.73 billion were pledged as collateral to secure FHLB advances, securitized notes payable and other contingent funding sources.

At December 31, 2018, the carrying value and outstanding balance of PCI loans was $74.4 million and $109 million, respectively. At December 31, 2017, the carrying value and outstanding balance of PCI loans was $98.5 million and $142 million, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the years ended December 31 (in thousands):

	2018			2017
Balance at beginning of period	$	17,686		$	7,981
Additions due to acquisitions	1,977			6,723
Accretion	(13,696		)	(7,451		)
Reclassification from nonaccretable difference	15,326			7,283
Changes in expected cash flows that do not affect nonaccretable difference	5,575			3,150
Balance at end of period	$	26,868		$	17,686

In addition to the accretable yield on PCI loans, the fair value adjustments on purchased loans outside the scope of ASC Topic 310-30 are also accreted to interest income over the life of the loans. At December 31, 2018 and 2017, the remaining accretable fair value discount on loans acquired through a business combination and not accounted for under ASC Topic 310-30 was $4.31 million and $14.7 million, respectively. At December 31, 2018, the net fair value discount included a net premium on loans acquired with NLFC. In addition, indirect auto loans purchased at a premium outside of a business combination had a remaining premium of $3.72 million and $7.84 million, respectively, at December 31, 2018 and 2017. During the year ended December 31, 2017, United purchased $81.7 million of indirect auto loans. United made no purchases of indirect auto loans during 2018.

At December 31, 2018, equipment financing assets included leases of $30.4 million. The components of the net investment in leases are presented below (in thousands). 

	December 31, 2018
Minimum future lease payments receivable	$	31,915
Estimated residual value of leased equipment	3,593
Initial direct costs	827
Security deposits	(1,189		)
Purchase accounting premium	806
Unearned income	(5,568		)
Net investment in leases	$	30,384

Minimum future lease payments expected to be received from lease contracts as of December 31, 2018 are as follows (in thousands): 

Year
2019	$	12,689
2020	9,433
2021	5,641
2022	3,058
2023	1,086
Thereafter	8
Total	$	31,915

In the ordinary course of business, the Bank may grant loans to executive officers and directors of United, including their immediate families and companies with which they are associated. Such loans are made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other customers. The following is a summary of such loans outstanding and the activity in these loans for the years ended December 31 (in thousands):

	2018			2017
Balance at beginning of period	$	2,262		$	2,432
New loans and advances	66			86
Repayments	(1,102		)	(256		)
Change in related party status	(1,179		)	—
Balance at end of period	$	47		$	2,262

Allowance for Credit Losses and Loans Individually Evaluated for Impairment

The allowance for loan losses represents management’s estimate of probable incurred losses in the loan portfolio as of the end of the period. The allowance for unfunded commitments is included in other liabilities in the consolidated balance sheets. Combined, the allowance for loan losses and allowance for unfunded commitments are referred to as the allowance for credit losses. The following table presents the balance and activity in the allowance for credit losses by portfolio segment for the periods indicated (in thousands): 

Year Ended December 31, 2018	Beginning Balance		Charge-Offs			Recoveries		Provision			Ending Balance
Owner occupied commercial real estate	$	14,776	$	(303	)	$	1,227	$	(3,493	)	$	12,207
Income producing commercial real estate	9,381		(3,304		)	1,064		3,932			11,073
Commercial & industrial	3,971		(1,669		)	1,390		1,110			4,802
Commercial construction	10,523		(622		)	734		(298		)	10,337
Equipment financing	—		(1,536		)	460		6,528			5,452
Residential mortgage	10,097		(754		)	336		(1,384		)	8,295
Home equity lines of credit	5,177		(1,194		)	423		346			4,752
Residential construction	2,729		(54		)	376		(618		)	2,433
Consumer direct	710		(2,445		)	807		1,781			853
Indirect auto	1,550		(1,277		)	228		498			999
Total allowance for loan losses	58,914		(13,158		)	7,045		8,402			61,203
Allowance for unfunded commitments	2,312		—			—		1,098			3,410
Total allowance for credit losses	$	61,226	$	(13,158	)	$	7,045	$	9,500		$	64,613

Year Ended December 31, 2017	Beginning Balance		Charge-Offs			Recoveries		Provision			Ending Balance
Owner occupied commercial real estate	$	16,446	$	(406	)	$	980	$	(2,244	)	$	14,776
Income producing commercial real estate	8,843		(2,985		)	178		3,345			9,381
Commercial & industrial	3,810		(1,528		)	1,768		(79		)	3,971
Commercial construction	13,405		(1,023		)	1,018		(2,877		)	10,523
Equipment financing	—		—			—		—			—
Residential mortgage	8,545		(1,473		)	314		2,711			10,097
Home equity lines of credit	4,599		(1,435		)	567		1,446			5,177
Residential construction	3,264		(129		)	178		(584		)	2,729
Consumer direct	708		(1,803		)	917		888			710
Indirect auto	1,802		(1,420		)	284		884			1,550
Total allowance for loan losses	61,422		(12,202		)	6,204		3,490			58,914
Allowance for unfunded commitments	2,002		—			—		310			2,312
Total allowance for credit losses	$	63,424	$	(12,202	)	$	6,204	$	3,800		$	61,226

Year Ended December 31, 2016	Beginning Balance		Charge-Offs			Recoveries		Provision			Ending Balance
Owner occupied commercial real estate	$	18,016	$	(2,029	)	$	706	$	(247	)	$	16,446
Income producing commercial real estate	11,548		(1,433		)	580		(1,852		)	8,843
Commercial & industrial	4,433		(1,830		)	1,689		(482		)	3,810
Commercial construction	9,553		(837		)	821		3,868			13,405
Equipment financing	—		—			—		—			—
Residential mortgage	12,719		(1,151		)	301		(3,324		)	8,545
Home equity lines of credit	5,956		(1,690		)	386		(53		)	4,599
Residential construction	4,002		(533		)	79		(284		)	3,264
Consumer direct	828		(1,459		)	800		539			708
Indirect auto	1,393		(1,399		)	233		1,575			1,802
Total allowance for loan losses	68,448		(12,361		)	5,595		(260		)	61,422
Allowance for unfunded commitments	2,542		—			—		(540		)	2,002
Total allowance for credit losses	$	70,990	$	(12,361	)	$	5,595	$	(800	)	$	63,424

The following table presents the recorded investment in loans by portfolio segment and the balance of the allowance for loan losses assigned to each segment based on the method of evaluating the loans for impairment for the periods indicated (in thousands): 

	Allowance for Credit Losses
	December 31, 2018								December 31, 2017
	Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance
Owner occupied commercial real estate	$	862	$	11,328	$	17	$	12,207	$	1,255	$	13,521	$	—	$	14,776
Income producing commercial real estate	402		10,671		—		11,073		562		8,813		6		9,381
Commercial & industrial	32		4,761		9		4,802		27		3,944		—		3,971
Commercial construction	71		9,974		292		10,337		156		10,367		—		10,523
Equipment financing	—		5,045		407		5,452		—		—		—		—
Residential mortgage	861		7,410		24		8,295		1,174		8,919		4		10,097
Home equity lines of credit	1		4,740		11		4,752		—		5,177		—		5,177
Residential construction	51		2,382		—		2,433		75		2,654		—		2,729
Consumer direct	6		847		—		853		7		700		3		710
Indirect auto	26		973		—		999		—		1,550		—		1,550
Total allowance for loan losses	2,312		58,131		760		61,203		3,256		55,645		13		58,914
Allowance for unfunded commitments	—		3,410		—		3,410		—		2,312		—		2,312
Total allowance for credit losses	$	2,312	$	61,541	$	760	$	64,613	$	3,256	$	57,957	$	13	$	61,226

	Loans Outstanding
	December 31, 2018								December 31, 2017
	Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance		Individually evaluated for impairment		Collectively evaluated for impairment		PCI		Ending Balance
Owner occupied commercial real estate	$	17,602	$	1,620,450	$	9,852	$	1,647,904	$	21,823	$	1,876,411	$	25,759	$	1,923,993
Income producing commercial real estate	16,584		1,757,525		38,311		1,812,420		16,483		1,533,851		44,840		1,595,174
Commercial & industrial	1,621		1,276,318		408		1,278,347		2,654		1,126,894		1,442		1,130,990
Commercial construction	2,491		787,760		5,907		796,158		3,813		699,266		8,857		711,936
Equipment financing	—		556,672		7,942		564,614		—		—		—		—
Residential mortgage	14,220		1,025,862		9,150		1,049,232		14,193		946,210		13,141		973,544
Home equity lines of credit	276		692,122		1,612		694,010		101		728,235		2,891		731,227
Residential construction	1,207		209,070		734		211,011		1,577		180,978		464		183,019
Consumer direct	211		121,269		533		122,013		270		126,114		1,120		127,504
Indirect auto	1,237		206,455		—		207,692		1,396		356,789		—		358,185
Total loans	$	55,449	$	8,253,503	$	74,449	$	8,383,401	$	62,310	$	7,574,748	$	98,514	$	7,735,572

A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the original contractual terms of the loan will not be collected. Management individually evaluates certain impaired loans, including all non-PCI relationships that are on nonaccrual with a balance of $500,000 or greater and all troubled debt restructurings (“TDRs”), regardless of accrual status, for impairment. Impairment is measured based on the present value of expected future cash flows, discounted at the loan’s pre-modification interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. A specific reserve is established for impaired loans for the amount of calculated impairment, if any. Interest payments received on impaired nonaccrual loans are applied as a reduction of the recorded investment in the loan. For impaired loans not on nonaccrual status, interest is accrued according to the terms of the loan agreement. Loans are evaluated for impairment quarterly and specific reserves are established in the allowance for loan losses for any measured impairment.

Each quarter, management prepares an analysis of the allowance for credit losses to determine the appropriate balance that measures and quantifies the amount of probable incurred losses in the loan portfolio. The allowance is comprised of specific reserves on individually impaired loans, which are determined as described above, and general reserves which are determined based on historical loss experience as adjusted for current trends and economic conditions multiplied by a loss emergence period factor.

Management calculates the loss emergence period for each pool of loans based on the weighted average length of time between the date a loan first exceeds 30 days past due and the date the loan is charged off.

On junior lien home equity loans, management has limited ability to monitor the delinquency status of the first lien unless the first lien is also held by United. As a result, management applies the weighted average historical loss factor for this category and appropriately adjusts it to reflect the increased risk of loss from these credits.

Management carefully reviews the resulting loss factors for each category of the loan portfolio and evaluates whether qualitative adjustments are necessary to take into consideration recent credit trends such as increases or decreases in past due, nonaccrual, criticized and classified loans, and other macro environmental factors such as changes in unemployment rates, employment rates, debt per capita, home price indices, and trends in real estate value indices.

Management believes that its method of determining the balance of the allowance for credit losses provides a reasonable and reliable basis for measuring and reporting losses that are incurred in the loan portfolio as of the reporting date.

When a loan officer determines that a loan is uncollectible, he or she is responsible for recommending that the loan be placed on nonaccrual status and evaluated for impairment, which, if necessary, could result in fully or partially charging off the loan or establishing a specific reserve. Full or partial charge-offs may also be recommended by the Collections Department, the Special Assets Department, the Loss Mitigation Department and the Foreclosure/OREO Department. Nonaccrual real estate loans that are collateral dependent are generally charged down to fair value less costs to sell at the time they are placed on nonaccrual status.

Commercial and consumer asset quality committees meet monthly to review charge-offs that have occurred during the previous month. Participants include the Chief Credit Officer, Senior Risk Officers and Senior Credit Officers.

Generally, closed-end retail loans (installment and residential mortgage loans) past due 90 cumulative days are written down to their collateral value less estimated selling costs. Open-end unsecured (revolving) retail loans which are past due 90 cumulative days from their contractual due date are generally charged off.

The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated (in thousands):

	December 31, 2018						December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Owner occupied commercial real estate	$	8,650	$	6,546	$	—	$	1,238	$	1,176	$	—
Income producing commercial real estate	9,986		9,881		—		2,177		2,165		—
Commercial & industrial	525		370		—		1,758		1,471		—
Commercial construction	685		507		—		134		134		—
Equipment financing	—		—		—		—		—		—
Total commercial	19,846		17,304		—		5,307		4,946		—
Residential mortgage	5,787		5,202		—		2,661		2,566		—
Home equity lines of credit	330		234		—		393		101		—
Residential construction	554		428		—		405		330		—
Consumer direct	18		17		—		29		29		—
Indirect auto	294		292		—		1,396		1,396		—
Total with no related allowance recorded	26,829		23,477		—		10,191		9,368		—
With an allowance recorded:
Owner occupied commercial real estate	11,095		11,056		862		21,262		20,647		1,255
Income producing commercial real estate	6,968		6,703		402		14,419		14,318		562
Commercial & industrial	1,652		1,251		32		1,287		1,183		27
Commercial construction	2,130		1,984		71		3,917		3,679		156
Equipment financing	—		—		—		—		—		—
Total commercial	21,845		20,994		1,367		40,885		39,827		2,000
Residential mortgage	9,169		9,018		861		12,086		11,627		1,174
Home equity lines of credit	45		42		1		—		—		—
Residential construction	791		779		51		1,325		1,247		75
Consumer direct	199		194		6		244		241		7
Indirect auto	946		945		26		—		—		—
Total with an allowance recorded	32,995		31,972		2,312		54,540		52,942		3,256
Total	$	59,824	$	55,449	$	2,312	$	64,731	$	62,310	$	3,256

As of December 31, 2018 and 2017, United has allocated $2.31 million and $3.26 million, respectively, of specific reserves to customers whose loan terms have been modified in TDRs. As of December 31, 2017, United committed to lend additional amounts totaling up to $75,000 to customers with outstanding loans classified as TDRs. As of December 31, 2018, there were no commitments to lend additional amounts to customers with outstanding loans classified as TDRs.

The modification of the TDR terms included one or a combination of the following: a reduction of the stated interest rate of the loan or an extension of the amortization period that would not otherwise be considered in the current market for new debt with similar risk characteristics; a restructuring of the borrower’s debt into an “A/B note structure” where the A note would fall within the borrower’s ability to pay and the remainder would be included in the B note; a mandated bankruptcy restructuring; or interest-only payment terms greater than 90 days where the borrower is unable to amortize the loan. Modified PCI loans are not accounted for as TDRs because they are not separated from the pools, and as such are not classified as impaired loans.

Loans modified under the terms of a TDR during the years ended December 31 are presented in the table below. In addition, the following table presents loans modified under the terms of a TDR that defaulted (became 90 days or more delinquent) during the years ended December 31 that were initially restructured within one year prior to default (dollars in thousands):

	New TDRs
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment by Type of Modification								TDRs Modified Within the Year That Have Subsequently Defaulted
Year Ended December 31, 2018				Rate Reduction		Structure		Other		Total		Number of Contracts	Recorded Investment
Owner occupied commercial real estate	5	$	1,438	$	—	$	1,387	$	—	$	1,387	3	$	1,869
Income producing commercial real estate	2	3,753		106		3,637		—		3,743		—	—
Commercial & industrial	2	108		—		32		—		32		1	232
Commercial construction	—	—		—		—		—		—		1	3
Equipment financing	—	—		—		—		—		—		—	—
Total commercial	9	5,299		106		5,056		—		5,162		5	2,104
Residential mortgage	15	1,933		130		1,770		—		1,900		1	101
Home equity lines of credit	1	42		—		—		41		41		—	—
Residential construction	2	47		—		32		13		45		—	—
Consumer direct	2	7		—		—		7		7		—	—
Indirect auto	35	643		—		—		643		643		—	—
Total loans	64	$	7,971	$	236	$	6,858	$	704	$	7,798	6	$	2,205
Year Ended December 31, 2017
Owner occupied commercial real estate	6	$	2,603	$	—	$	2,161	$	108	$	2,269	—	$	—
Income producing commercial real estate	2	257		—		—		252		252		—	—
Commercial & industrial	6	901		—		174		533		707		—	—
Commercial construction	—	—		—		—		—		—		—	—
Equipment financing	—	—		—		—		—		—		—	—
Total commercial	14	3,761		—		2,335		893		3,228		—	—
Residential mortgage	23	2,174		—		2,165		—		2,165		4	852
Home equity lines of credit	1	296		—		—		176		176		—	—
Residential construction	4	135		40		95		—		135		—	—
Consumer direct	2	16		—		16		—		16		—	—
Indirect auto	34	786		—		—		786		786		—	—
Total loans	78	$	7,168	$	40	$	4,611	$	1,855	$	6,506	4	$	852
Year Ended December 31, 2016
Owner occupied commercial real estate	8	$	2,699	$	—	$	2,699	$	—	$	2,699	1	$	252
Income producing commercial real estate	1	257		—		257		—		257		—	—
Commercial & industrial	5	1,012		—		1,012		—		1,012		2	34
Commercial construction	3	458		—		393		65		458		—	—
Equipment financing	—	—		—		—		—		—		—	—
Total commercial	17	4,426		—		4,361		65		4,426		3	286
Residential mortgage	28	3,262		1,992		1,135		40		3,167		1	85
Home equity lines of credit	1	38		38		—		—		38		—	—
Residential construction	7	584		46		376		82		504		—	—
Consumer direct	6	71		13		58		—		71		—	—
Indirect auto	35	966		—		—		966		966		—	—
Total loans	94	$	9,347	$	2,089	$	5,930	$	1,153	$	9,172	4	$	371

Collateral dependent TDRs that subsequently default or are placed on nonaccrual are charged down to the fair value of the collateral consistent with United’s policy for nonaccrual loans. Impairment on TDRs that are not collateral dependent continues to be measured based on discounted cash flows regardless of whether the loan has subsequently defaulted.

The average balances of impaired loans and income recognized on impaired loans while they were considered impaired is presented below for the last three years (in thousands): 

	2018						2017						2016
	Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received		Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received		Average Balance		Interest Revenue Recognized During Impairment		Cash Basis Interest Revenue Received
Owner occupied commercial real estate	$	19,881	$	1,078	$	1,119	$	27,870	$	1,271	$	1,291	$	33,297	$	1,667	$	1,704
Income producing commercial real estate	17,138		893		895		24,765		1,265		1,178		31,661		1,418		1,457
Commercial & industrial	1,777		100		100		2,994		125		127		2,470		123		118
Commercial construction	3,247		176		174		5,102		225		229		5,879		267		264
Equipment financing	—		—		—		—		—		—		—		—		—
Total commercial	42,043		2,247		2,288		60,731		2,886		2,825		73,307		3,475		3,543
Residential mortgage	14,515		641		643		14,257		555		574		14,118		637		633
Home equity lines of credit	284		18		16		248		10		12		93		4		4
Residential construction	1,405		96		95		1,582		95		95		1,677		89		88
Consumer direct	249		18		18		292		22		22		302		22		23
Indirect auto	1,252		64		64		1,244		64		64		928		47		47
Total	$	59,748	$	3,084	$	3,124	$	78,354	$	3,632	$	3,592	$	90,425	$	4,274	$	4,338

Nonaccrual and Past Due Loans

Nonaccrual loans include both homogeneous loans that are collectively evaluated for impairment and individually evaluated impaired loans. United’s policy is to place loans on nonaccrual status, when, in the opinion of management, the principal and interest on a loan is not likely to be repaid in full or when the loan becomes 90 days past due and is not well secured and in the process of collection. When a loan is classified on nonaccrual status, interest previously accrued but not collected is reversed against current interest revenue. Principal and interest payments received on a nonaccrual loan are applied to reduce the loan’s recorded investment.

PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered as performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or future period yield adjustments. No PCI loans were classified as nonaccrual at December 31, 2018 or 2017 as the cash flows of the respective loan or pool of loans were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans.

The gross additional interest revenue that would have been earned if the loans classified as nonaccrual had performed in accordance with the original terms was approximately $1.09 million, $1.11 million, and $975,000 for 2018, 2017, and 2016, respectively.

The following table presents the recorded investment in nonaccrual loans held for investment by loan class as of the dates indicated (in thousands): 

	December 31,
	2018		2017
Owner occupied commercial real estate	$	6,421	$	4,923
Income producing commercial real estate	1,160		3,208
Commercial & industrial	1,417		2,097
Commercial construction	605		758
Equipment financing	2,677		—
Total commercial	12,280		10,986
Residential mortgage	8,035		8,776
Home equity lines of credit	2,360		2,024
Residential construction	288		192
Consumer direct	89		43
Indirect auto	726		1,637
Total	$	23,778	$	23,658

Excluding PCI loans, substantially all loans more than 90 days past due were on nonaccrual status at December 31, 2018 and December 31, 2017. The following table presents the aging of the recorded investment in past due loans by class of loans as of the dates indicated (in thousands):

	Loans Past Due
	30 - 59 Days		60 - 89 Days		> 90 Days		Total		Loans Not Past Due		PCI Loans		Total
As of December 31, 2018
Owner occupied commercial real estate	$	2,542	$	2,897	$	1,011	$	6,450	$	1,631,602	$	9,852	$	1,647,904
Income producing commercial real estate	1,624		291		301		2,216		1,771,893		38,311		1,812,420
Commercial & industrial	7,189		718		400		8,307		1,269,632		408		1,278,347
Commercial construction	267		—		68		335		789,916		5,907		796,158
Equipment financing	1,351		739		2,658		4,748		551,924		7,942		564,614
Total commercial	12,973		4,645		4,438		22,056		6,014,967		62,420		6,099,443
Residential mortgage	5,461		1,788		1,950		9,199		1,030,883		9,150		1,049,232
Home equity lines of credit	2,112		864		902		3,878		688,520		1,612		694,010
Residential construction	509		63		190		762		209,515		734		211,011
Consumer direct	600		82		21		703		120,777		533		122,013
Indirect auto	750		323		633		1,706		205,986		—		207,692
Total loans	$	22,405	$	7,765	$	8,134	$	38,304	$	8,270,648	$	74,449	$	8,383,401
As of December 31, 2017
Owner occupied commercial real estate	$	3,810	$	1,776	$	1,530	$	7,116	$	1,891,118	$	25,759	$	1,923,993
Income producing commercial real estate	1,754		353		1,939		4,046		1,546,288		44,840		1,595,174
Commercial & industrial	2,139		869		1,133		4,141		1,125,407		1,442		1,130,990
Commercial construction	568		132		158		858		702,221		8,857		711,936
Equipment financing	—		—		—		—		—		—		—
Total commercial	8,271		3,130		4,760		16,161		5,265,034		80,898		5,362,093
Residential mortgage	6,717		1,735		3,438		11,890		948,513		13,141		973,544
Home equity lines of credit	3,246		225		578		4,049		724,287		2,891		731,227
Residential construction	885		105		93		1,083		181,472		464		183,019
Consumer direct	739		133		—		872		125,512		1,120		127,504
Indirect auto	1,152		459		1,263		2,874		355,311		—		358,185
Total loans	$	21,010	$	5,787	$	10,132	$	36,929	$	7,600,129	$	98,514	$	7,735,572

Risk Ratings

United categorizes commercial loans, with the exception of equipment financing receivables, into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current industry and economic trends, among other factors. United analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continual basis. United uses the following definitions for its risk ratings:

Watch. Loans in this category are presently protected from apparent loss; however weaknesses exist that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. These loans require more than the ordinary amount of supervision. Collateral values generally afford adequate coverage, but may not be immediately marketable.

Substandard. These loans are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged. Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. There is the distinct possibility that United will sustain some loss if deficiencies are not corrected. If possible, immediate corrective action is taken.

Doubtful. Specific weaknesses characterized as Substandard that are severe enough to make collection in full highly questionable and improbable. There is no reliable secondary source of full repayment.

Loss. Loans categorized as Loss have the same characteristics as Doubtful however probability of loss is certain. Loans classified as Loss are charged off.

Equipment Financing Receivables and Consumer Purpose Loans. United applies a pass / fail grading system to all equipment financing receivables and consumer purpose loans. Under the pass / fail grading system, loans that become past due 90 days or are in bankruptcy are classified as “fail” and all other loans are classified as “pass”. For reporting purposes, loans in these categories that are classified as “fail” are reported in the substandard column and all other loans are reported in the “pass” column.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

As of December 31, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

	Pass		Watch		Substandard		Doubtful / Loss		Total
As of December 31, 2018
Owner occupied commercial real estate	$	1,585,797	$	16,651	$	35,604	$	—	$	1,638,052
Income producing commercial real estate	1,735,456		20,923		17,730		—		1,774,109
Commercial & industrial	1,247,206		8,430		22,303		—		1,277,939
Commercial construction	777,780		4,533		7,938		—		790,251
Equipment financing	553,995		—		2,677		—		556,672
Total commercial	5,900,234		50,537		86,252		—		6,037,023
Residential mortgage	1,028,660		—		11,422		—		1,040,082
Home equity lines of credit	688,493		—		3,905		—		692,398
Residential construction	209,744		—		533		—		210,277
Consumer direct	121,247		19		214		—		121,480
Indirect auto	205,632		—		2,060		—		207,692
Total loans, excluding PCI loans	8,154,010		50,556		104,386		—		8,308,952
Owner occupied commercial real estate	3,352		2,774		3,726		—		9,852
Income producing commercial real estate	23,430		13,403		1,478		—		38,311
Commercial & industrial	266		48		94		—		408
Commercial construction	3,503		188		2,216		—		5,907
Equipment financing	7,725		—		217		—		7,942
Total commercial	38,276		16,413		7,731		—		62,420
Residential mortgage	6,914		—		2,236		—		9,150
Home equity lines of credit	1,492		—		120		—		1,612
Residential construction	687		—		47		—		734
Consumer direct	493		—		40		—		533
Indirect auto	—		—		—		—		—
Total PCI loans	47,862		16,413		10,174		—		74,449
Total loan portfolio	$	8,201,872	$	66,969	$	114,560	$	—	$	8,383,401

As of December 31, 2017
Owner occupied commercial real estate	$	1,833,469	$	33,571	$	31,194	$	—	$	1,898,234
Income producing commercial real estate	1,495,805		30,780		23,749		—		1,550,334
Commercial & industrial	1,097,907		18,052		13,589		—		1,129,548
Commercial construction	693,873		2,947		6,259		—		703,079
Equipment financing	—		—		—		—		—
Total commercial	5,121,054		85,350		74,791		—		5,281,195
Residential mortgage	939,706		—		20,697		—		960,403
Home equity lines of credit	721,142		—		7,194		—		728,336
Residential construction	180,567		—		1,988		—		182,555
Consumer direct	125,860		—		524		—		126,384
Indirect auto	354,788		—		3,397		—		358,185
Total loans, excluding PCI loans	7,443,117		85,350		108,591		—		7,637,058
Owner occupied commercial real estate	2,400		8,163		15,196		—		25,759
Income producing commercial real estate	13,392		21,928		9,520		—		44,840
Commercial & industrial	383		672		387		—		1,442
Commercial construction	3,866		2,228		2,763		—		8,857
Equipment financing	—		—		—		—		—
Total commercial	20,041		32,991		27,866		—		80,898
Residential mortgage	9,566		173		3,402		—		13,141
Home equity lines of credit	1,579		427		885		—		2,891
Residential construction	423		—		41		—		464
Consumer direct	1,076		10		34		—		1,120
Indirect auto	—		—		—		—		—
Total PCI loans	32,685		33,601		32,228		—		98,514
Total loan portfolio	$	7,475,802	$	118,951	$	140,819	$	—	$	7,735,572