3. LOANS, LEASES AND ALLOWANCE FOR CREDIT LOSSES

The composition of the Company’s held for investment loan portfolio is as follows:



	March 31, 2016			December 31, 2015
	(in thousands)
Commercial and industrial	$	5,240,786		$	5,114,257
Commercial real estate - non-owner occupied	2,290,969			2,283,536
Commercial real estate - owner occupied	2,032,328			2,083,285
Construction and land development	1,179,923			1,133,439
Residential real estate	302,398			322,939
Commercial leases	137,756			148,493
Consumer	33,700			26,905
Loans, net of deferred loan fees and costs	11,217,860			11,112,854
Allowance for credit losses	(119,227		)	(119,068		)
Total loans HFI	$	11,098,633		$	10,993,786

Net deferred loan fees and costs as of March 31, 2016 and December 31, 2015 total $19.8 million and $19.2 million, respectively, which is a reduction in the carrying value of loans. Net unamortized discounts on loans total $7.3 million and $8.2 million as of March 31, 2016 and December 31, 2015, respectively. Total loans held for investment are also net of interest rate and credit marks on acquired loans totaling $33.5 million and $40.5 million as of March 31, 2016 and December 31, 2015, respectively, which is a reduction in the carrying value of acquired loans.

As of March 31, 2016 and December 31, 2015, the Company also had $23.6 million and $23.8 million of HFS loans, respectively.

The following table presents the contractual aging of the recorded investment in past due loans held for investment by class of loans:



	March 31, 2016
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
	(in thousands)
Commercial real estate
Owner occupied	$	2,029,224	$	1,012	$	351	$	1,741	$	3,104	$	2,032,328
Non-owner occupied	2,123,928		634		2,342		642		3,618		2,127,546
Multi-family	163,423		—		—		—		—		163,423
Commercial and industrial
Commercial	5,232,238		455		2,803		5,290		8,548		5,240,786
Leases	137,619		137		—		—		137		137,756
Construction and land development
Construction	681,427		—		—		—		—		681,427
Land	494,935		—		1,861		1,700		3,561		498,496
Residential real estate	297,798		998		1,147		2,455		4,600		302,398
Consumer	33,462		21		—		217		238		33,700
Total loans	$	11,194,054	$	3,257	$	8,504	$	12,045	$	23,806	$	11,217,860



	December 31, 2015
	Current		30-59 Days Past Due		60-89 Days Past Due		Over 90 days Past Due		Total Past Due		Total
	(in thousands)
Commercial real estate
Owner occupied	$	2,078,968	$	445	$	362	$	3,510	$	4,317	$	2,083,285
Non-owner occupied	2,099,274		2,481		—		2,822		5,303		2,104,577
Multi-family	178,959		—		—		—		—		178,959
Commercial and industrial
Commercial	5,066,197		26,358		14,124		7,578		48,060		5,114,257
Leases	145,905		—		—		2,588		2,588		148,493
Construction and land development
Construction	694,527		—		—		—		—		694,527
Land	438,495		—		—		417		417		438,912
Residential real estate	317,677		888		159		4,215		5,262		322,939
Consumer	26,587		12		91		215		318		26,905
Total loans	$	11,046,589	$	30,184	$	14,736	$	21,345	$	66,265	$	11,112,854

The following table presents the recorded investment in non-accrual loans and loans past due ninety days or more and still accruing interest by class of loans:



	March 31, 2016								December 31, 2015
	Non-accrual loans						Loans past due 90 days or more and still accruing		Non-accrual loans						Loans past due 90 days or more and still accruing
	Current		Past Due/ Delinquent		Total Non-accrual		Loans past due 90 days or more and still accruing		Current		Past Due/ Delinquent		Total Non-accrual		Loans past due 90 days or more and still accruing
	(in thousands)
Commercial real estate
Owner occupied	$	954	$	1,942	$	2,896	$	—	$	749	$	3,253	$	4,002	$	339
Non-owner occupied	10,977		—		10,977		642		11,851		2,822		14,673		—
Multi-family	—		—		—		—		—		—		—		—
Commercial and industrial
Commercial	10,150		3,200		13,350		2,543		3,263		15,026		18,289		2,671
Leases	—		—		—		—		—		2,588		2,588		—
Construction and land development
Construction	—		7		7		1,283		—		—		—		—
Land	—		2,278		2,278		—		1,892		417		2,309		—
Residential real estate	1,400		2,698		4,098		—		1,835		4,489		6,324		—
Consumer	—		196		196		20		—		196		196		18
Total	$	23,481	$	10,321	$	33,802	$	4,488	$	19,590	$	28,791	$	48,381	$	3,028

The reduction in interest income associated with loans on non-accrual status was approximately $0.4 million and $0.7 million for three months ended March 31, 2016 and 2015, respectively.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as Special Mention, Substandard, Doubtful, and Loss. Substandard loans include those characterized by well-defined weaknesses and carry the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful, or risk rated eight, have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The final rating of Loss covers loans considered uncollectible and having such little recoverable value that it is not practical to defer writing off the asset. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that warrant management’s close attention, are deemed to be Special Mention. Risk ratings are updated, at a minimum, quarterly.

The following tables present gross loans by risk rating:



	March 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	1,992,070	$	22,399	$	16,153	$	1,706	$	—	$	2,032,328
Non-owner occupied	2,090,216		14,656		22,674		—		—		2,127,546
Multi-family	163,423		—		—		—		—		163,423
Commercial and industrial
Commercial	5,109,308		77,115		54,363		—		—		5,240,786
Leases	135,889		1,403		464		—		—		137,756
Construction and land development
Construction	665,306		16,121		—		—		—		681,427
Land	480,490		512		17,494		—		—		498,496
Residential real estate	291,498		383		10,517		—		—		302,398
Consumer	33,275		169		256		—		—		33,700
Total	$	10,961,475	$	132,758	$	121,921	$	1,706	$	—	$	11,217,860



	March 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Current (up to 29 days past due)	$	10,958,620	$	132,486	$	101,242	$	1,706	$	—	$	11,194,054
Past due 30 - 59 days	854		271		2,132		—		—		3,257
Past due 60 - 89 days	1,999		1		6,504		—		—		8,504
Past due 90 days or more	2		—		12,043		—		—		12,045
Total	$	10,961,475	$	132,758	$	121,921	$	1,706	$	—	$	11,217,860



	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Commercial real estate
Owner occupied	$	2,032,932	$	28,422	$	20,814	$	1,117	$	—	$	2,083,285
Non-owner occupied	2,054,428		14,867		35,282		—		—		2,104,577
Multi-family	178,959		—		—		—		—		178,959
Commercial and industrial
Commercial	4,962,930		76,283		74,294		750		—		5,114,257
Leases	140,531		4,580		794		2,588		—		148,493
Construction and land development
Construction	678,438		16,089		—		—		—		694,527
Land	420,819		362		17,731		—		—		438,912
Residential real estate	310,067		776		12,096		—		—		322,939
Consumer	26,438		209		258		—		—		26,905
Total	$	10,805,542	$	141,588	$	161,269	$	4,455	$	—	$	11,112,854



	December 31, 2015
	Pass		Special Mention		Substandard		Doubtful		Loss		Total
	(in thousands)
Current (up to 29 days past due)	$	10,799,558	$	140,932	$	104,232	$	1,867	$	—	$	11,046,589
Past due 30 - 59 days	1,907		271		28,006		—		—		30,184
Past due 60 - 89 days	4,077		385		10,274		—		—		14,736
Past due 90 days or more	—		—		18,757		2,588		—		21,345
Total	$	10,805,542	$	141,588	$	161,269	$	4,455	$	—	$	11,112,854

The table below reflects the recorded investment in loans classified as impaired:



	March 31, 2016			December 31, 2015
	(in thousands)
Impaired loans with a specific valuation allowance under ASC 310 (1)	$	9,576		$	24,287
Impaired loans without a specific valuation allowance under ASC 310 (2)	97,491			104,587
Total impaired loans	$	107,067		$	128,874
Valuation allowance related to impaired loans (3)	$	(2,630	)	$	(4,658	)


(1)	Includes TDR loans of $6.0 million and $3.0 million at March 31, 2016 and December 31, 2015, respectively.


(2)	Includes TDR loans of $73.8 million and $85.9 million at March 31, 2016 and December 31, 2015, respectively.


(3)	Includes valuation allowance related to TDR loans of $0.7 million and $0.3 million at March 31, 2016 and December 31, 2015, respectively.

The following table presents impaired loans by class:



	March 31, 2016		December 31, 2015
	(in thousands)
Commercial real estate
Owner occupied	$	20,620	$	23,153
Non-owner occupied	31,827		41,081
Multi-family	—		—
Commercial and industrial
Commercial	21,151		26,513
Leases	334		2,896
Construction and land development
Construction	7		—
Land	17,778		18,322
Residential real estate	15,031		16,575
Consumer	319		334
Total	$	107,067	$	128,874

A valuation allowance is established for an impaired loan when the fair value of the loan is less than the recorded investment. In certain cases, portions of impaired loans are charged-off to realizable value instead of establishing a valuation allowance and are included, when applicable, in the table above as “Impaired loans without a specific valuation allowance under ASC 310.” However, before concluding that an impaired loan needs no associated valuation allowance, an assessment is made to consider all available and relevant information for the method used to evaluate impairment and the type of loan being assessed. The valuation allowance disclosed above is included in the allowance for credit losses reported in the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

The following table presents the average investment in impaired loans and income recognized on impaired loans:



	Three Months Ended March 31,
	2016		2015
	(in thousands)
Average balance on impaired loans	$	122,545	$	162,109
Interest income recognized on impaired loans, accrual basis	1,113		1,182
Interest recognized on non-accrual loans, cash basis	172		653

The following table presents average investment in impaired loans by loan class:



	Three Months Ended March 31,
	2016		2015
	(in thousands)
Commercial real estate
Owner occupied	$	21,737	$	42,927
Non-owner occupied	33,033		65,080
Multi-family	—		—
Commercial and industrial
Commercial	31,733		13,269
Leases	2,049		357
Construction and land development
Construction	—		—
Land	17,900		21,212
Residential real estate	15,764		18,911
Consumer	329		353
Total	$	122,545	$	162,109

The average investment in TDR loans included in the average investment in impaired loans table above for the three months ended March 31, 2016 and 2015 was $78.0 million and $126.1 million, respectively.

The following table presents interest income on impaired loans by class:



	Three Months Ended March 31,
	2016		2015
	(in thousands)
Commercial real estate
Owner occupied	$	295	$	420
Non-owner occupied	338		330
Multi-family	—		—
Commercial and industrial
Commercial	108		79
Leases	32		—
Construction and land development
Construction	—		—
Land	207		194
Residential real estate	131		157
Consumer	2		2
Total	$	1,113	$	1,182

The Company is not committed to lend significant additional funds on these impaired loans.

The following table summarizes nonperforming assets:



	March 31, 2016		December 31, 2015
	(in thousands)
Non-accrual loans (1)	$	33,802	$	48,381
Loans past due 90 days or more on accrual status	4,488		3,028
Troubled debt restructured loans (2)	65,713		70,707
Total nonperforming loans	104,003		122,116
Other assets acquired through foreclosure, net	52,776		43,942
Total nonperforming assets	$	156,779	$	166,058


(1)	Includes non-accrual TDR loans of $14.1 million and $18.2 million at March 31, 2016 and December 31, 2015, respectively.


(2)	Includes accruing TDR loans only.

Loans Acquired with Deteriorated Credit Quality

Changes in the accretable yield for loans acquired with deteriorated credit quality are as follows:



	Three Months Ended March 31,
	2016			2015
	(in thousands)
Balance, at beginning of period	$	15,925		$	19,156
Reclassifications from non-accretable to accretable yield (1)	—			430
Accretion to interest income	(782		)	(1,078		)
Reversal of fair value adjustments upon disposition of loans	(1,602		)	(552		)
Balance, at end of period	$	13,541		$	17,956


(1)	The primary drivers of reclassification from non-accretable to accretable yield resulted from changes in estimated cash flows.

Allowance for Credit Losses

The following table summarizes the changes in the allowance for credit losses by portfolio type:



	Three Months Ended March 31,
	Construction and Land Development			Commercial Real Estate			Residential Real Estate			Commercial and Industrial			Consumer			Total
	(in thousands)
2016
Beginning Balance	$	18,976		$	23,160		$	5,278		$	71,181		$	473		$	119,068
Charge-offs	—			410			26			7,491			74			8,001
Recoveries	(95		)	(3,665		)	(257		)	(1,576		)	(67		)	(5,660		)
Provision	354			(3,311		)	(571		)	5,890			138			2,500
Ending balance	$	19,425		$	23,104		$	4,938		$	71,156		$	604		$	119,227
2015
Beginning Balance	$	18,558		$	28,783		$	7,456		$	54,566		$	853		$	110,216
Charge-offs	—			—			400			393			54			847
Recoveries	(157		)	(383		)	(533		)	(916		)	(40		)	(2,029		)
Provision	(716		)	(1,055		)	(923		)	3,562			(168		)	700
Ending balance	$	17,999		$	28,111		$	6,666		$	58,651		$	671		$	112,098

The following table presents impairment method information related to loans and allowance for credit losses by loan portfolio segment:



	Commercial Real Estate-Owner Occupied		Commercial Real Estate-Non-Owner Occupied		Commercial and Industrial		Residential Real Estate		Construction and Land Development		Commercial Leases		Consumer		Total Loans
	(in thousands)
Loans as of March 31, 2016:
Recorded Investment:
Impaired loans with an allowance recorded	$	654	$	5,381	$	3,257	$	264	$	—	$	—	$	20	$	9,576
Impaired loans with no allowance recorded	19,967		26,445		17,895		14,767		17,784		334		299		97,491
Total loans individually evaluated for impairment	20,621		31,826		21,152		15,031		17,784		334		319		107,067
Loans collectively evaluated for impairment	1,998,069		2,204,100		5,217,038		284,540		1,162,139		137,422		33,381		11,036,689
Loans acquired with deteriorated credit quality	13,638		55,043		2,596		2,827		—		—		—		74,104
Total recorded investment	$	2,032,328	$	2,290,969	$	5,240,786	$	302,398	$	1,179,923	$	137,756	$	33,700	$	11,217,860
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	654	$	5,381	$	3,509	$	319	$	—	$	—	$	20	$	9,883
Impaired loans with no allowance recorded	63,301		52,673		84,295		42,811		84,658		2,667		3,909		334,314
Total loans individually evaluated for impairment	63,955		58,054		87,804		43,130		84,658		2,667		3,929		344,197
Loans collectively evaluated for impairment	1,998,069		2,204,100		5,217,038		284,540		1,162,139		137,422		33,381		11,036,689
Loans acquired with deteriorated credit quality	18,070		78,239		9,245		3,345		—		—		—		108,899
Total unpaid principal balance	$	2,080,094	$	2,340,393	$	5,314,087	$	331,015	$	1,246,797	$	140,089	$	37,310	$	11,489,785
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	653	$	480	$	1,422	$	74	$	—	$	—	$	1	$	2,630
Impaired loans with no allowance recorded	—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment	653		480		1,422		74		—		—		1		2,630
Loans collectively evaluated for impairment	10,562		11,409		67,766		4,863		19,425		1,658		604		116,287
Loans acquired with deteriorated credit quality	—		—		310		—		—		—		—		310
Total allowance for credit losses	$	11,215	$	11,889	$	69,498	$	4,937	$	19,425	$	1,658	$	605	$	119,227



	Commercial Real Estate-Owner Occupied		Commercial Real Estate-Non-Owner Occupied		Commercial and Industrial		Residential Real Estate		Construction and Land Development		Commercial Leases		Consumer		Total Loans
	(in thousands)
Loans as of December 31, 2015:
Recorded Investment:
Impaired loans with an allowance recorded	$	2,778	$	2,344	$	18,230	$	914	$	—	$	—	$	21	$	24,287
Impaired loans with no allowance recorded	20,375		38,737		8,283		15,661		18,322		2,896		313		104,587
Total loans individually evaluated for impairment	23,153		41,081		26,513		16,575		18,322		2,896		334		128,874
Loans collectively evaluated for impairment	2,044,934		2,180,250		5,085,299		303,372		1,115,117		145,597		26,571		10,901,140
Loans acquired with deteriorated credit quality	15,198		62,205		2,445		2,992		—		—		—		82,840
Total recorded investment	$	2,083,285	$	2,283,536	$	5,114,257	$	322,939	$	1,133,439	$	148,493	$	26,905	$	11,112,854
Unpaid Principal Balance
Impaired loans with an allowance recorded	$	2,778	$	2,344	$	19,233	$	969	$	—	$	—	$	21	$	25,345
Impaired loans with no allowance recorded	63,709		61,692		71,773		44,142		82,800		5,229		3,923		333,268
Total loans individually evaluated for impairment	66,487		64,036		91,006		45,111		82,800		5,229		3,944		358,613
Loans collectively evaluated for impairment	2,044,934		2,180,250		5,085,299		303,372		1,115,117		145,597		26,571		10,901,140
Loans acquired with deteriorated credit quality	20,227		88,181		7,820		3,536		—		—		—		119,764
Total unpaid principal balance	$	2,131,648	$	2,332,467	$	5,184,125	$	352,019	$	1,197,917	$	150,826	$	30,515	$	11,379,517
Related Allowance for Credit Losses
Impaired loans with an allowance recorded	$	858	$	11	$	3,518	$	270	$	—	$	—	$	1	$	4,658
Impaired loans with no allowance recorded	—		—		—		—		—		—		—		—
Total loans individually evaluated for impairment	858		11		3,518		270		—		—		1		4,658
Loans collectively evaluated for impairment	10,953		11,302		65,806		5,008		18,976		1,857		472		114,374
Loans acquired with deteriorated credit quality	—		36		—		—		—		—		—		36
Total allowance for credit losses	$	11,811	$	11,349	$	69,324	$	5,278	$	18,976	$	1,857	$	473	$	119,068

Troubled Debt Restructurings

A TDR loan is a loan on which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The loan terms that have been modified or restructured due to a borrower’s financial situation include, but are not limited to, a reduction in the stated interest rate, an extension of the maturity or renewal of the loan at an interest rate below current market, a reduction in the face amount of the debt, a reduction in the accrued interest, or deferral of interest payments. The majority of the Company's modifications are extensions in terms or deferral of payments which result in no lost principal or interest followed by reductions in interest rates or accrued interest. A TDR loan is also considered impaired. Consistent with regulatory guidance, a TDR loan that is subsequently modified in another restructuring agreement but has shown sustained performance and classification as a TDR, will be removed from TDR status provided that the modified terms were market-based at the time of modification.

The Company did not have any new TDR loans during the three months ended March 31, 2016 and 2015.

The following table presents TDR loans by class for which there was a payment default during the period:



	Three Months Ended March 31,
	2016			2015
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)
Commercial real estate
Owner occupied	—	$	—	—	$	—
Non-owner occupied	1	5,381		—	—
Multi-family	—	—		—	—
Commercial and industrial
Commercial	—	—		—	—
Leases	—	—		—	—
Construction and land development
Construction	—	—		1	137
Land	—	—		—	—
Residential real estate	—	—		—	—
Consumer	—	—		—	—
Total	1	$	5,381	1	$	137

A TDR loan is deemed to have a payment default when it becomes past due 90 days, goes on non-accrual, or is restructured again. Payment defaults, along with other qualitative indicators, are considered by management in the determination of the allowance for credit losses.

At March 31, 2016 and December 31, 2015, there was $0.1 million in loan commitments outstanding on TDR loans.

Loan Purchases and Sales

For the three months ended March 31, 2016 and 2015, secondary market loan purchases totaled $33.8 million and $18.4 million, respectively. For 2016, these purchased loans consisted of commercial and industrial loans. For 2015, these purchased loans consisted of $11.0 million of commercial and industrial loans, $6.0 million of commercial real estate loans, and $1.4 million in commercial leases.

During the three months ended March 31, 2016, the Company sold loans, which consisted primarily of commercial real estate and commercial and industrial loans, with a carrying value of $23.8 million and recognized a gain of $2.5 million on the sales. During the three months ended March 31, 2015, the Company sold loans with a carrying value of $10.0 million and recognized a gain of $0.2 million.