LOANS

The loan portfolio is comprised of loans originated by the Company and loans 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 ("PCI") loans.

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



(in thousands)	September 30, 2018		December 31, 2017
Loans accounted for at amortized cost	$	4,218,341	$	4,022,896
Loans accounted for as PCI	49,089		74,154
Total loans	$	4,267,430	$	4,097,050

The following tables refer to loans accounted for at amortized cost.

Below is a summary of loans by category at September 30, 2018 and December 31, 2017:



(in thousands)	September 30, 2018			December 31, 2017
Commercial and industrial	$	2,032,929		$	1,918,720
Real estate:
Commercial - investor owned	826,447			769,275
Commercial - owner occupied	589,045			554,589
Construction and land development	326,858			303,091
Residential	308,385			341,312
Total real estate loans	2,050,735			1,968,267
Consumer and other	136,025			137,234
Loans, before unearned loan fees	4,219,689			4,024,221
Unearned loan fees, net	(1,348		)	(1,325		)
Loans, including unearned loan fees	$	4,218,341		$	4,022,896

A summary of the activity in the allowance for loan losses and the recorded investment in loans by class and category based on impairment methodology through September 30, 2018, and at December 31, 2017, 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
Allowance for loan losses:
Balance at December 31, 2017	$	26,406		$	3,890	$	3,308		$	1,487		$	2,237		$	838		$	38,166
Provision (provision reversal) for loan losses	780			648		190			35			259			(41		)	1,871
Losses charged off	(732		)	—		—			—			(254		)	(49		)	(1,035		)
Recoveries	956			8		4			206			73			14			1,261
Balance at March 31, 2018	$	27,410		$	4,546	$	3,502		$	1,728		$	2,315		$	762		$	40,263
Provision (provision reversal) for loan losses	2,852			5		340			(206		)	(573		)	(33		)	2,385
Losses charged off	(956		)	—		—			—			(38		)	(33		)	(1,027		)
Recoveries	118			10		3			168			59			28			386
Balance at June 30, 2018	$	29,424		$	4,561	$	3,845		$	1,690		$	1,763		$	724		$	42,007
Provision (provision reversal) for loan losses	2,569			3		(197		)	154			(187		)	(10		)	2,332
Losses charged off	(2,405		)	—		(22		)	—			(122		)	(46		)	(2,595		)
Recoveries	2			8		4			21			88			25			148
Balance at September 30, 2018	$	29,590		$	4,572	$	3,630		$	1,865		$	1,542		$	693		$	41,892



(in thousands)	Commercial and industrial		CRE - investor owned		CRE - owner occupied		Construction and land development		Residential real estate		Consumer and other		Total
Balance September 30, 2018
Allowance for loan losses - Ending balance:
Individually evaluated for impairment	$	4,128	$	—	$	177	$	—	$	9	$	—	$	4,314
Collectively evaluated for impairment	25,462		4,572		3,453		1,865		1,533		693		37,578
Total	$	29,590	$	4,572	$	3,630	$	1,865	$	1,542	$	693	$	41,892
Loans - Ending balance:
Individually evaluated for impairment	$	12,197	$	770	$	2,655	$	—	$	2,477	$	312	$	18,411
Collectively evaluated for impairment	2,020,732		825,677		586,390		326,858		305,908		134,365		4,199,930
Total	$	2,032,929	$	826,447	$	589,045	$	326,858	$	308,385	$	134,677	$	4,218,341

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

A summary of nonperforming loans individually evaluated for impairment by category at September 30, 2018 and December 31, 2017, and the income recognized on impaired loans is as follows:



	September 30, 2018
(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	$	20,938	$	3,266	$	8,931	$	12,197	$	4,128	$	10,414
Real estate:
Commercial - investor owned	1,039		770		—		770		—		657
Commercial - owner occupied	1,328		826		462		1,288		177		1,074
Construction and land development	—		—		—		—		—		—
Residential	2,600		2,008		469		2,477		9		2,410
Consumer and other	329		312		—		312		—		334
Total	$	26,234	$	7,182	$	9,862	$	17,044	$	4,314	$	14,889



	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



	Three months ended September 30,				Nine months ended September 30,
(in thousands)	2018		2017		2018		2017
Total interest income that would have been recognized under original terms	$	614	$	306	$	1,615	$	961
Total cash received and recognized as interest income on non-accrual loans	68		117		157		156
Total interest income recognized on accruing, impaired loans	110		8		133		55

The recorded investment in nonperforming loans by category at September 30, 2018 and December 31, 2017, is as follows:



	September 30, 2018
(in thousands)	Non-accrual		Restructured, not on non-accrual		Loans over 90 days past due and still accruing interest		Total
Commercial and industrial	$	10,088	$	820	$	1,289	$	12,197
Real estate:
Commercial - investor owned	770		—		—		770
Commercial - owner occupied	1,288		—		—		1,288
Construction and land development	—		—		—		—
Residential	2,477		—		—		2,477
Consumer and other	312		—		—		312
Total	$	14,935	$	820	$	1,289	$	17,044



	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

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

The recorded investment by category for the portfolio loans that have been restructured during the three and nine months ended September 30, 2018 and 2017, is as follows:



	Three months ended September 30, 2018					Three months ended September 30, 2017
(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	$	187	$	187	—	$	—	$	—
Total	1	$	187	$	187	—	$	—	$	—



	Nine months ended September 30, 2018					Nine months ended September 30, 2017
(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	$	187	$	187	1	$	676	$	676
Total	1	$	187	$	187	1	$	676	$	676

As of September 30, 2018, the Company had $2.6 million in specific reserves allocated to $8.0 million of loans that have been restructured. During the three and nine months ended September 30, 2018 and 2017, there were no portfolio loans that subsequently defaulted.

The aging of the recorded investment in past due loans by portfolio class and category at September 30, 2018 and December 31, 2017, is shown below.



	September 30, 2018
(in thousands)	30-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total
Commercial and industrial	$	11,213	$	6,020	$	17,233	$	2,015,696	$	2,032,929
Real estate:
Commercial - investor owned	1,362		129		1,491		824,956		826,447
Commercial - owner occupied	258		808		1,066		587,979		589,045
Construction and land development	—		—		—		326,858		326,858
Residential	864		1,156		2,020		306,365		308,385
Consumer and other	—		—		—		134,677		134,677
Total	$	13,697	$	8,113	$	21,810	$	4,196,531	$	4,218,341



	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

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, 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 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 September 30, 2018, which is based upon the most recent analysis performed, and December 31, 2017, is as follows:



	September 30, 2018
(in thousands)	Pass (1-6)		Watch (7)		Classified (8 & 9)		Total
Commercial and industrial	$	1,835,230	$	142,768	$	54,931	$	2,032,929
Real estate:
Commercial - investor owned	798,116		22,275		6,056		826,447
Commercial - owner occupied	540,961		43,399		4,685		589,045
Construction and land development	315,022		11,775		61		326,858
Residential	298,076		3,058		7,251		308,385
Consumer and other	134,359		7		311		134,677
Total	$	3,921,764	$	223,282	$	73,295	$	4,218,341



	December 31, 2017
(in thousands)	Pass (1-6)		Watch (7)		Classified (8 & 9)		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