LOANS

The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. These loans are accounted for using the guidance in the Accounting Standards Codification (ASC) section 310-30 and 310-20. Loans accounted for using ASC 310-30 are sometimes referred to as purchased credit impaired, or PCI, loans.

The table below shows the loan portfolio composition including carrying value by segment of loans accounted for at amortized cost, which includes our originated loans, and loans accounted for as PCI.



(in thousands)	December 31, 2017		December 31, 2016
Loans accounted for at amortized cost	$	4,022,896	$	3,118,392
Loans accounted for as PCI	74,154		39,769
Total loans	$	4,097,050	$	3,158,161

The following tables refer to loans not accounted for as PCI loans.

Below is a summary of loans by category at December 31, 2017 and 2016:



(in thousands)	December 31, 2017			December 31, 2016
Commercial and industrial	$	1,918,720		$	1,632,714
Real estate loans:
Commercial - investor owned	769,275			544,808
Commercial - owner occupied	554,589			350,148
Construction and land development	303,091			194,542
Residential	341,312			240,760
Total real estate loans	1,968,267			1,330,258
Consumer and other	137,234			156,182
Loans, before unearned loan (fees) costs	4,024,221			3,119,154
Unearned loan (fees) costs, net	(1,325		)	(762		)
Loans, including unearned loan fees	$	4,022,896		$	3,118,392

Following is a summary of activity for the years ended December 31, 2017, 2016, and 2015 of loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility.



(in thousands)	December 31, 2017			December 31, 2016			December 31, 2015
Balance at beginning of year	$	15,406		$	4,394		$	13,513
New loans and advances	1,353			11,539			641
Payments and other reductions	(11,410		)	(527		)	(9,760		)
Balance at end of year	$	5,349		$	15,406		$	4,394

A summary of activity in the allowance for loan losses and the recorded investment in loans by class and category based on impairment method for the years ended indicated below is as follows:



(in thousands)	Commercial and industrial			CRE - investor owned			CRE - owner occupied			Construction and land development			Residential real estate			Consumer and other			Total
Balance at December 31, 2017
Allowance for loan losses:
Balance, beginning of year	$	26,996		$	3,420		$	2,890		$	1,304		$	2,023		$	932		$	37,565
Provision (provision reversal)	8,737			456			404			336			797			34			10,764
Losses charged off	(9,872		)	(117		)	(90		)	(254		)	(973		)	(201		)	(11,507		)
Recoveries	545			131			104			101			390			73			1,344
Balance, end of year	$	26,406		$	3,890		$	3,308		$	1,487		$	2,237		$	838		$	38,166

Balance at December 31, 2016
Allowance for loan losses:
Balance, beginning of year	$	22,056		$	3,484		$	2,969		$	1,704		$	1,796		$	1,432		$	33,441
Provision (provision reversal)	6,569			(11		)	(1,202		)	(1,334		)	129			1,400			5,551
Losses charged off	(2,303		)	(95		)	—			—			(25		)	(1,912		)	(4,335		)
Recoveries	674			42			1,123			934			123			12			2,908
Balance, end of year	$	26,996		$	3,420		$	2,890		$	1,304		$	2,023		$	932		$	37,565

Balance at December 31, 2015
Allowance for loan losses:
Balance, beginning of year	$	16,983		$	4,382		$	3,135		$	1,715		$	2,830		$	1,140		$	30,185
Provision (provision reversal)	6,976			(303		)	(1,626		)	(335		)	(58		)	218			4,872
Losses charged off	(3,699		)	(664		)	(38		)	(350		)	(1,313		)	(27		)	(6,091		)
Recoveries	1,796			69			1,498			674			337			101			4,475
Balance, end of year	$	22,056		$	3,484		$	2,969		$	1,704		$	1,796		$	1,432		$	33,441



(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total
Balance December 31, 2017
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,508	$	—	$	71	$	—	$	—	$	—	$	2,579
Collectively evaluated for impairment	23,898		3,890		3,237		1,487		2,237		838		35,587
Total	$	26,406	$	3,890	$	3,308	$	1,487	$	2,237	$	838	$	38,166
Loans - Ending balance:
Individually evaluated for impairment	$	12,665	$	422	$	1,975	$	136	$	1,602	$	375	$	17,175
Collectively evaluated for impairment	1,906,055		768,853		552,614		302,955		339,710		135,534		4,005,721
Total	$	1,918,720	$	769,275	$	554,589	$	303,091	$	341,312	$	135,909	$	4,022,896

Balance December 31, 2016
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	2,909	$	—	$	—	$	155	$	—	$	—	$	3,064
Collectively evaluated for impairment	24,087		3,420		2,890		1,149		2,023		932		34,501
Total	$	26,996	$	3,420	$	2,890	$	1,304	$	2,023	$	932	$	37,565
Loans - Ending balance:
Individually evaluated for impairment	$	12,523	$	430	$	1,854	$	1,903	$	62	$	—	$	16,772
Collectively evaluated for impairment	1,620,191		544,378		348,294		192,639		240,698		155,420		3,101,620
Total	$	1,632,714	$	544,808	$	350,148	$	194,542	$	240,760	$	155,420	$	3,118,392

A summary of nonperforming loans individually evaluated for impairment by category at December 31, 2017 and 2016, and the income recognized on impaired loans is as follows:



	December 31, 2017
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	20,750	$	2,321	$	10,344	$	12,665	$	2,508	$	16,270
Real estate:
Commercial - investor owned	560		422		—		422		—		521
Commercial - owner occupied	487		—		487		487		71		490
Construction and land development	441		136		—		136		—		331
Residential	1,730		1,602		—		1,602		—		1,735
Consumer and other	375		375		—		375		—		375
Total	$	24,343	$	4,856	$	10,831	$	15,687	$	2,579	$	19,722



	December 31, 2016
(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Commercial and industrial	$	12,341	$	566	$	11,791	$	12,357	$	2,909	$	4,489
Real estate:
Commercial - investor owned	525		435		—		435		—		668
Commercial - owner occupied	225		231		—		231		—		227
Construction and land development	1,904		1,947		359		2,306		155		1,918
Residential	62		62		—		62		—		64
Consumer and other	—		—		—		—		—		—
Total	$	15,057	$	3,241	$	12,150	$	15,391	$	3,064	$	7,366



	December 31,
(in thousands)	2017		2016		2015
Total interest income that would have been recognized under original terms on impaired loans	$	1,324	$	1,079	$	1,038
Total cash received and recognized as interest income on impaired loans	643		251		226
Total interest income recognized on impaired loans still accruing	63		155		36

There were no loans over 90 days past due and still accruing interest at December 31, 2017 or 2016.

The recorded investment in nonperforming loans by category at December 31, 2017 and 2016, is as follows:



	December 31, 2017
(in thousands)	Non-accrual		Restructured, not on non-accrual		Total
Commercial and industrial	$	11,946	$	719	$	12,665
Real estate:
Commercial - investor owned	422		—		422
Commercial - owner occupied	487		—		487
Construction and land development	136		—		136
Residential	1,602		—		1,602
Consumer and other	375		—		375
Total	$	14,968	$	719	$	15,687



	December 31, 2016
(in thousands)	Non-accrual		Restructured, not on non-accrual		Total
Commercial and industrial	$	10,046	$	2,311	$	12,357
Real estate:
Commercial - investor owned	435		—		435
Commercial - owner occupied	231		—		231
Construction and land development	2,286		20		2,306
Residential	62		—		62
Consumer and other	—		—		—
Total	$	13,060	$	2,331	$	15,391

The recorded investment by category for the portfolio loans that have been restructured during the years ended December 31, 2017 and 2016, is as follows:



	Year ended December 31, 2017					Year ended December 31, 2016
(in thousands, except for number of loans)	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance		Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Commercial and industrial	1	$	676	$	676	4	$	12,114	$	12,114
Real estate:
Commercial - investor owned	—	—		—		1	248		248
Commercial - owner occupied	—	—		—		1	13		13
Construction and land development	—	—		—		1	20		20
Residential	—	—		—		—	—		—
Consumer and other	—	—		—		—	—		—
Total	1	$	676	$	676	7	$	12,395	$	12,395

The restructured portfolio loans primarily resulted from interest rate concessions and changing the terms of the loans. As of December 31, 2017, the Company allocated no specific reserves to loans that have been restructured.

Portfolio loans restructured that subsequently defaulted during the year ended December 31, 2017, and 2016, are as follows:



	Year ended December 31, 2017		Year ended December 31, 2016
(in thousands, except for number of loans)	Number of Loans	Recorded Balance	Number of Loans	Recorded Balance
Commercial and industrial	2	343	—	—
Real Estate:
Residential	1	5	—	—
Total	3	348	—	—

The aging of the recorded investment in past due portfolio loans by portfolio class and category at December 31, 2017 and 2016 is shown below:



	December 31, 2017
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	7,882	$	1,770	$	9,652	$	1,909,068	$	1,918,720
Real estate:
Commercial - investor owned	934		—		934		768,341		769,275
Commercial - owner occupied	—		—		—		554,589		554,589
Construction and land development	76		—		76		303,015		303,091
Residential	1,529		945		2,474		338,838		341,312
Consumer and other	407		—		407		135,502		135,909
Total	$	10,828	$	2,715	$	13,543	$	4,009,353	$	4,022,896



	December 31, 2016
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	334	$	171	$	505	$	1,632,209	$	1,632,714
Real estate:
Commercial - investor owned	—		175		175		544,633		544,808
Commercial - owner occupied	212		225		437		349,711		350,148
Construction and land development	355		1,528		1,883		192,659		194,542
Residential	91		—		91		240,669		240,760
Consumer and other	7		—		7		155,413		155,420
Total	$	999	$	2,099	$	3,098	$	3,115,294	$	3,118,392

The Company categorizes loans 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, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:


•	Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.


•	Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.


•	Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.


•	Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.


•	Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated, due to strong collateral and/or guarantor support.


•	Grade 8 – Substandard credits will include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.


•	Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on non-accrual.

The recorded investment by risk category of the loans by portfolio class and category at December 31, 2017 and December 31, 2016 is as follows:



	December 31, 2017
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Total
Commercial and industrial	$	1,769,102	$	94,002	$	55,616	$	1,918,720
Real estate:
Commercial - investor owned	754,010		10,840		4,425		769,275
Commercial - owner occupied	514,616		34,440		5,533		554,589
Construction and land development	292,766		9,983		342		303,091
Residential	329,742		3,648		7,922		341,312
Consumer and other	134,704		10		1,195		135,909
Total	$	3,794,940	$	152,923	$	75,033	$	4,022,896



	December 31, 2016
(in thousands)	Pass (1-6)		Watch (7)		Substandard (8)		Total
Commercial and industrial	$	1,499,114	$	57,416	$	76,184	$	1,632,714
Real estate:
Commercial - investor owned	530,494		10,449		3,865		544,808
Commercial - owner occupied	306,658		39,249		4,241		350,148
Construction and land development	185,505		6,575		2,462		194,542
Residential	233,479		2,997		4,284		240,760
Consumer and other	153,984		—		1,436		155,420
Total	$	2,909,234	$	116,686	$	92,472	$	3,118,392