UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA
54-1598552
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
 
(804) 633-5031
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
 
 
Smaller reporting company
¨
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨ No x

The number of shares of common stock outstanding as of May 3, 2017 was 43,677,935.


UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
 
ITEM
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 






Glossary of Acronyms and Defined Terms
 
AFS
–
Available for sale
ALCO
–
Asset Liability Committee
ALL
–
Allowance for loan losses
ASC
–
Accounting Standards Codification
ASU
–
Accounting Standards Update
ATM
–
Automated teller machine
the Bank
–
Union Bank & Trust
bps
–
Basis points
the Company
–
Union Bankshares Corporation
Dodd-Frank Act
–
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS
–
Earnings per share
Exchange Act
–
Securities Exchange Act of 1934
FASB
–
Financial Accounting Standards Board
FDIC
–
Federal Deposit Insurance Corporation
Federal Reserve
–
Board of Governors of the Federal Reserve System
Federal Reserve Bank
–
Federal Reserve Bank of Richmond
FHLB
–
Federal Home Loan Bank of Atlanta
U.S. GAAP or GAAP
–
Accounting principles generally accepted in the United States
HELOC
–
Home equity line of credit
HTM
–
Held to maturity
LIBOR
–
London Interbank Offered Rate
NPA
–
Nonperforming assets
ODCM
–
Old Dominion Capital Management, Inc.
OREO
–
Other real estate owned
OTTI
–
Other than temporary impairment
PCI
–
Purchased credit impaired
ROA
–
Return on average assets
ROE
–
Return on average common equity
ROTCE
–
Return on average tangible common equity
StellarOne
–
StellarOne Corporation
TDR
–
Troubled debt restructuring
UMG
–
Union Mortgage Group, Inc.



PART I – FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
 
March 31,
2017
 
December 31,
2016
 
(Unaudited)
 
(Audited)
ASSETS
 

 
 

Cash and cash equivalents:
 

 
 

Cash and due from banks
$
120,216

 
$
120,758

Interest-bearing deposits in other banks
62,656

 
58,030

Federal funds sold
947

 
449

Total cash and cash equivalents
183,819

 
179,237

Securities available for sale, at fair value
953,058

 
946,764

Securities held to maturity, at carrying value
203,478

 
201,526

Restricted stock, at cost
65,402

 
60,782

Loans held for sale, at fair value
19,976

 
36,487

Loans held for investment, net of deferred fees and costs
6,554,046

 
6,307,060

Less allowance for loan losses
38,414

 
37,192

Net loans held for investment
6,515,632

 
6,269,868

Premises and equipment, net
122,512

 
122,027

Other real estate owned, net of valuation allowance
9,605

 
10,084

Goodwill
298,191

 
298,191

Amortizable intangibles, net
18,965

 
20,602

Bank owned life insurance
178,774

 
179,318

Other assets
100,508

 
101,907

Total assets
$
8,669,920

 
$
8,426,793

LIABILITIES
 

 
 

Noninterest-bearing demand deposits
$
1,490,799

 
$
1,393,625

Interest-bearing deposits
5,123,396

 
4,985,864

Total deposits
6,614,195

 
6,379,489

Securities sold under agreements to repurchase
44,587

 
59,281

Other short-term borrowings
522,500

 
517,500

Long-term borrowings
413,779

 
413,308

Other liabilities
59,228

 
56,183

Total liabilities
7,654,289

 
7,425,761

Commitments and contingencies (Note 6)


 


STOCKHOLDERS' EQUITY
 

 
 

Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,679,947 shares and 43,609,317 shares, respectively.
57,629

 
57,506

Additional paid-in capital
606,078

 
605,397

Retained earnings
352,335

 
341,938

Accumulated other comprehensive income
(411
)
 
(3,809
)
Total stockholders' equity
1,015,631

 
1,001,032

Total liabilities and stockholders' equity
$
8,669,920

 
$
8,426,793

See accompanying notes to consolidated financial statements.

-2-

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share and per share data)
 
Three Months Ended
 
March 31,
2017
 
March 31,
2016
Interest and dividend income:
 
 
 
Interest and fees on loans
$
68,084

 
$
62,947

Interest on deposits in other banks
71

 
47

Interest and dividends on securities:
 
 
 
Taxable
4,923

 
4,316

Nontaxable
3,562

 
3,439

Total interest and dividend income
76,640

 
70,749

 
 
 
 
Interest expense:
 
 
 
Interest on deposits
5,077

 
4,195

Interest on short-term borrowings
950

 
623

Interest on long-term borrowings
4,046

 
2,200

Total interest expense
10,073

 
7,018

 
 
 
 
Net interest income
66,567

 
63,731

Provision for credit losses
2,122

 
2,604

Net interest income after provision for credit losses
64,445

 
61,127

 
 
 
 
Noninterest income:
 
 
 
Service charges on deposit accounts
4,829

 
4,734

Other service charges and fees
4,408

 
4,156

Fiduciary and asset management fees
2,794

 
2,138

Mortgage banking income, net
2,025

 
2,146

Gains on securities transactions, net
481

 
143

Bank owned life insurance income
2,125

 
1,372

Loan-related interest rate swap fees
1,180

 
662

Other operating income
997

 
563

Total noninterest income
18,839

 
15,914

 
 
 
 
Noninterest expenses:
 
 
 
Salaries and benefits
32,168

 
28,048

Occupancy expenses
4,903

 
4,976

Furniture and equipment expenses
2,603

 
2,636

Printing, postage, and supplies
1,150

 
1,139

Communications expense
910

 
1,089

Technology and data processing
3,900

 
3,814

Professional services
1,658

 
1,989

Marketing and advertising expense
1,740

 
1,938

FDIC assessment premiums and other insurance
706

 
1,362

Other taxes
2,022

 
1,618

Loan-related expenses
1,329

 
878

OREO and credit-related expenses
541

 
569

Amortization of intangible assets
1,637

 
1,880

Training and other personnel costs
969

 
744

Other expenses
1,159

 
1,592

Total noninterest expenses
57,395

 
54,272

 
 
 
 
Income before income taxes
25,889

 
22,769

Income tax expense
6,765

 
5,808

Net income
$
19,124

 
$
16,961

Basic earnings per common share
$
0.44

 
$
0.38

Diluted earnings per common share
$
0.44

 
$
0.38

Dividends declared per common share
$
0.20

 
$
0.19

Basic weighted average number of common shares outstanding
43,654,498

 
44,251,276

Diluted weighted average number of common shares outstanding
43,725,923

 
44,327,229

See accompanying notes to consolidated financial statements.

-3-

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
 
 
Three Months Ended
March 31,
 
2017
 
2016
 
 
 
 
Net income
$
19,124

 
$
16,961

Other comprehensive income (loss):
 

 
 

Cash flow hedges:
 

 
 

Change in fair value of cash flow hedges
(31
)
 
(2,681
)
Reclassification adjustment for losses (gains) included in net income (net of tax, $97 and $76 for the three months ended March 31, 2017 and 2016, respectively)
180

 
141

AFS securities:
 

 
 

Unrealized holding gains (losses) arising during period (net of tax, $1,958 and $1,633 for the three months ended March 31, 2017 and 2016, respectively)
3,637

 
3,032

Reclassification adjustment for losses (gains) included in net income (net of tax, $168 and $50 for the three months ended March 31, 2017 and 2016, respectively)
(313
)
 
(93
)
HTM securities:
 

 
 

Reclassification adjustment for accretion of unrealized gain on AFS securities transferred to HTM (net of tax, $99 and $157 for the three months ended March 31, 2017 and 2016, respectively)
(184
)
 
(292
)
Bank owned life insurance:
 
 
 
  Reclassification adjustment for losses included in net income
109

 
—

Other comprehensive income (loss)
3,398

 
107

Comprehensive income
$
22,522

 
$
17,068

See accompanying notes to consolidated financial statements.

-4-

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Dollars in thousands, except share and per share amounts)
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2015
$
59,159

 
$
631,822

 
$
298,134

 
$
6,252

 
$
995,367

Net income - 2016
 

 
 

 
16,961

 
 

 
16,961

Other comprehensive income (net of taxes of $1,502)
 

 
 

 
 

 
107

 
107

Dividends on common stock ($0.19 per share)
 

 
 

 
(8,410
)
 
 

 
(8,410
)
Stock purchased under stock repurchase plan (1,040,612 shares)
(1,384
)
 
(22,344
)
 
 

 
 

 
(23,728
)
Issuance of common stock under Equity Compensation Plans (21,804 shares)
29

 
288

 
 

 
 

 
317

Issuance of common stock for services rendered (4,400 shares)
6

 
94

 
 

 
 

 
100

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (30,299 shares)
40

 
(417
)
 
 

 
 

 
(377
)
Stock-based compensation expense
 

 
641

 
 

 
 

 
641

Balance - March 31, 2016
$
57,850

 
$
610,084

 
$
306,685

 
$
6,359

 
$
980,978

 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2016
$
57,506

 
$
605,397

 
$
341,938

 
$
(3,809
)
 
$
1,001,032

Net income - 2017
 

 
 

 
19,124

 
 

 
19,124

Other comprehensive income (net of taxes of $1,788)
 

 
 

 
 

 
3,398

 
3,398

Dividends on common stock ($0.20 per share)
 

 
 

 
(8,727
)
 
 

 
(8,727
)
Issuance of common stock under Equity Compensation Plans (29,008 shares)
39

 
489

 
 

 
 

 
528

Issuance of common stock for services rendered (4,856 shares)
6

 
170

 
 

 
 

 
176

Vesting of restricted stock, net of shares held for taxes, under Equity Compensation Plans (58,679 shares)
78

 
(1,126
)
 
 

 
 

 
(1,048
)
Stock-based compensation expense
 

 
1,148

 
 

 
 

 
1,148

Balance - March 31, 2017
$
57,629

 
$
606,078

 
$
352,335

 
$
(411
)
 
$
1,015,631

See accompanying notes to consolidated financial statements.

-5-

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Dollars in thousands)
 
2017
 
2016
Operating activities:
 

 
 

Net income
$
19,124

 
$
16,961

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
 

 
 

Depreciation of premises and equipment
2,645

 
2,511

Writedown of OREO
238

 
126

Amortization, net
3,396

 
3,421

Amortization related to acquisition, net
144

 
734

Provision for credit losses
2,122

 
2,604

Gains on securities transactions, net
(481
)
 
(143
)
Bank owned life insurance income
(2,125
)
 
(1,372
)
Decrease (increase) in loans held for sale, net
16,511

 
10,921

Gains on sales of other real estate owned, net
(36
)
 
(7
)
Losses on sales of premises, net
26

 
45

Stock-based compensation expenses
1,148

 
641

Issuance of common stock for services
176

 
100

Net decrease (increase) in other assets
2,241

 
(14,594
)
Net increase in other liabilities
5,347

 
994

Net cash and cash equivalents provided by (used in) operating activities
50,476

 
22,942

Investing activities:
 

 
 

Purchases of securities available for sale and restricted stock
(53,782
)
 
(83,735
)
Purchases of securities held to maturity
(4,878
)
 
—

Proceeds from sales of securities available for sale and restricted stock
21,306

 
14,532

Proceeds from maturities, calls and paydowns of securities available for sale
26,167

 
29,151

Proceeds from maturities, calls and paydowns of securities held to maturity
1,001

 
—

Net increase in loans held for investment
(246,258
)
 
(110,513
)
Net increase in premises and equipment
(3,156
)
 
(1,885
)
Proceeds from sales of other real estate owned
206

 
1,339

Net cash and cash equivalents provided by (used in) investing activities
(259,394
)
 
(151,111
)
Financing activities:
 

 
 

Net increase (decrease) in noninterest-bearing deposits
97,174

 
(9,694
)
Net increase (decrease) in interest-bearing deposits
137,532

 
(8,260
)
Net increase (decrease) in short-term borrowings
(9,694
)
 
169,000

Cash paid for contingent consideration
(2,265
)
 
—

Cash dividends paid - common stock
(8,727
)
 
(8,410
)
Repurchase of common stock
—

 
(23,728
)
Issuance of common stock
528

 
317

Vesting of restricted stock, net of shares held for taxes
(1,048
)
 
(377
)
Net cash and cash equivalents provided by (used in) financing activities
213,500

 
118,848

Increase (decrease) in cash and cash equivalents
4,582

 
(9,321
)
Cash and cash equivalents at beginning of the period
179,237

 
142,660

Cash and cash equivalents at end of the period
$
183,819

 
$
133,339

Supplemental Disclosure of Cash Flow Information
 

 
 

Cash payments for:
 

 
 

Interest
$
8,141

 
$
6,998

Income taxes
—

 
10,500

Supplemental schedule of noncash investing and financing activities
 

 
 

Transfers between loans and other real estate owned
$
(71
)
 
$
405

See accompanying notes to consolidated financial statements.

-6-

UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.
 
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.
 
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Business Combinations
On May 31, 2016, the Bank completed its acquisition of ODCM, a Charlottesville, Virginia-based registered investment advisor with nearly $300.0 million in assets under management at the time of the acquisition. The acquisition date fair value of consideration transferred totaled $9.1 million, which consisted of $4.1 million in cash, $453,000 in stock, and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of “Other Liabilities” in the Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period. 

In connection with the transaction, the Company recorded $4.7 million in goodwill and $4.5 million of amortizable assets, which primarily relate to the value of customer relationships. The Company is amortizing these intangibles assets over the period of expected benefit, which ranges from 5 to 10 years using a straight-line method. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. In the third quarter of 2016, the Company finalized the valuation of certain amortizable intangible assets which increased the fair value and also impacted the recognized goodwill. The fair values are subject to refinement for up to one year after the closing date of the acquisition.
 
Loans
The Company originates commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability of the Company’s debtors to honor their contracts on such loans is dependent upon the real estate and general economic conditions in those markets, as well as other factors.
 
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
 
Construction and Land Development – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing from the Company, or (b) from the sale of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.
 
Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s

-7-

ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations with any particular customer or geographic region.
 
Commercial Real Estate – Owner Occupied - term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.
 
Commercial Real Estate – Non-Owner Occupied - term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.
 
Residential 1-4 Family – loans generally made to both commercial and residential borrowers. Residential 1-4 Family loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.
 
Multifamily Real Estate – loans made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.
 
Commercial & Industrial – loans generally made to support the Company’s borrowers’ need for equipment/vehicle purchases and short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.
 
HELOC – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, using experienced underwriting, requiring standards for appraisers, and not making subprime loans.
 
Auto – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.
 
Consumer and all other - portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending, neither of which are a material source of business for the Company.
 
Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three months ended March 31, 2017 and March 31, 2016, the Company recognized amortization $223,000 and $130,000, respectively, and tax credits of $309,000 and $210,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. The carrying value of the Company’s investments in these qualified affordable housing projects was $9.7 million and $9.9 million as of March 31, 2017 and December 31, 2016, respectively. At March 31, 2017 and December 31, 2016, the Company's recorded liability totaled $7.1 million for the related unfunded commitments, respectively, which are expected to be paid from 2017 to 2019.
 


-8-

Adoption of New Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted this standard in the first quarter of 2017. The adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This ASU clarifies the definition of a business that appears in ASC 805, Business Combinations. Amendments narrow the definition and provide a framework for making judgments whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company has concluded the adoption of ASU 2017-01 will not have a material impact on its consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings  (SEC Update).” This ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. ASU 2017-03 is effective upon issuance. The Company has concluded the adoption of ASU 2017-03 will not have a material impact on its consolidated financial statements.
 
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU simplifies accounting for goodwill impairments by eliminating step two (the implied fair value to carrying value of goodwill) from the existing goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has concluded the adoption of ASU 2017-04 will not have a material impact on its consolidated financial statements.
 
In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This ASU conforms the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2018. The Company is currently assessing the impact ASU 2017-05 will have on its consolidated financial statements.
 
In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” This ASU focuses on the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. The Company has concluded the adoption of ASU 2017-08 will not have a material impact on its consolidated financial statements.
 

-9-

2. SECURITIES 

Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):
 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
March 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
274,003

 
$
5,910

 
$
(2,064
)
 
$
277,849

Corporate bonds
112,432

 
775

 
(1,161
)
 
112,046

Mortgage-backed securities
548,457

 
4,690

 
(3,792
)
 
549,355

Other securities
13,885

 
—

 
(77
)
 
13,808

Total available for sale securities
$
948,777

 
$
11,375

 
$
(7,094
)
 
$
953,058

 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
274,007

 
$
4,962

 
$
(3,079
)
 
$
275,890

Corporate bonds
123,674

 
892

 
(2,786
)
 
121,780

Mortgage-backed securities
536,031

 
4,626

 
(5,371
)
 
535,286

Other securities
13,885

 
—

 
(77
)
 
13,808

Total available for sale securities
$
947,597

 
$
10,480

 
$
(11,313
)
 
$
946,764

 
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s available for sale securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
63,155

 
$
(2,001
)
 
$
596

 
$
(63
)
 
$
63,751

 
$
(2,064
)
Mortgage-backed securities
277,308

 
(3,414
)
 
38,209

 
(378
)
 
315,517

 
(3,792
)
Corporate bonds and other securities
28,341

 
(581
)
 
40,237

 
(657
)
 
68,578

 
(1,238
)
Total available for sale securities
$
368,804

 
$
(5,996
)
 
$
79,042

 
$
(1,098
)
 
$
447,846

 
$
(7,094
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
108,440

 
$
(3,007
)
 
$
588

 
$
(72
)
 
$
109,028

 
$
(3,079
)
Mortgage-backed securities
316,469

 
(4,979
)
 
42,096

 
(392
)
 
358,565

 
(5,371
)
Corporate bonds and other securities
47,388

 
(1,537
)
 
40,468

 
(1,326
)
 
87,856

 
(2,863
)
Total available for sale securities
$
472,297

 
$
(9,523
)
 
$
83,152

 
$
(1,790
)
 
$
555,449

 
$
(11,313
)
 
As of March 31, 2017, there were $79.0 million, or 30 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.1 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2016, there were $83.2 million, or 30 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.8 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. The Company has determined that these securities are temporarily impaired as of March 31, 2017 and December 31, 2016 for the reasons set out below:
 

-10-

Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
 
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
The following table presents the amortized cost and estimated fair value of available for sale securities as of March 31, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
March 31, 2017
 
December 31, 2016
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
24,906

 
$
24,989

 
$
21,403

 
$
21,517

Due after one year through five years
113,890

 
115,757

 
108,198

 
109,778

Due after five years through ten years
284,017

 
286,918

 
300,552

 
301,888

Due after ten years
525,964

 
525,394

 
517,444

 
513,581

Total securities available for sale
$
948,777

 
$
953,058

 
$
947,597

 
$
946,764

 

For information regarding the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of March 31, 2017 and December 31, 2016, see Note 6 "Commitments and Contingencies".

Held to Maturity
The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains or losses are accreted over the remaining life of the security with no impact on future net income.
 

-11-

The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of March 31, 2017 and December 31, 2016 are summarized as follows (dollars in thousands):
 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value (1)
 
Gains
 
(Losses)
 
Fair Value
March 31, 2017
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
203,478

 
$
2,409

 
$
(276
)
 
$
205,611

 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
201,526

 
$
1,617

 
$
(828
)
 
$
202,315

 
(1) The carrying value includes $4.8 million as of March 31, 2017 and $5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of March 31, 2017 and December 31, 2016. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
34,558

 
$
(244
)
 
$
648

 
$
(32
)
 
$
35,206

 
$
(276
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
92,841

 
$
(747
)
 
$
648

 
$
(81
)
 
$
93,489

 
$
(828
)
 
As of March 31, 2017, there was $648,000, or 1 issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months. This security had an unrealized loss of $32,000, respectively. As of December 31, 2016, there was $648,000, or 1 issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months. This security had an unrealized loss of $81,000. The Company has determined that these securities in a loss position are temporarily impaired as of March 31, 2017 and December 31, 2016 for the reasons set out below:

Obligations of states and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the credit crisis on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.


-12-

The following table presents the amortized cost and estimated fair value of held to maturity securities as of March 31, 2017 and December 31, 2016, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
March 31, 2017
 
December 31, 2016
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value (1)
 
Estimated
Fair Value
Due in one year or less
$
4,108

 
$
4,140

 
$
4,403

 
$
4,440

Due after one year through five years
30,050

 
30,503

 
28,383

 
28,763

Due after five years through ten years
62,127

 
62,485

 
51,730

 
51,522

Due after ten years
107,193

 
108,483

 
117,010

 
117,590

Total securities held to maturity
$
203,478

 
$
205,611

 
$
201,526

 
$
202,315

 
(1) The carrying value includes $4.8 million as of March 31, 2017 and $5.2 million as of December 31, 2016 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
For information regarding the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of March 31, 2017 and December 31, 2016, see Note 6 "Commitments and Contingencies".
 
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At March 31, 2017 and December 31, 2016, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both March 31, 2017 and December 31, 2016. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $27.6 million and $23.8 million for March 31, 2017 and December 31, 2016 and FHLB stock in the amount of $37.8 million and $37.0 million as of March 31, 2017 and December 31, 2016, respectively.
 
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three months ended March 31, 2017, and in accordance with the guidance, no OTTI was recognized.

For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000.  During the quarter ended March 31, 2016, the municipal security was sold.  As a result, the Company recognized an additional loss on sale of the previously written down security.
 

-13-

Realized Gains and Losses
The following table presents the gross realized gains and losses on and the proceeds from the sale of securities during the three months ended March 31, 2017 and 2016 (dollars in thousands).
 
 
Three Months Ended
March 31, 2017
 
Three Months Ended March 31, 2016
Realized gains (losses):
 

 
 

Gross realized gains
$
481

 
$
239

Gross realized losses
—

 
(96
)
Net realized gains
$
481

 
$
143

 
 
 
 
Proceeds from sales of securities
$
21,306

 
$
14,532

 
3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at March 31, 2017 and December 31, 2016 (dollars in thousands):

 
March 31, 2017
 
December 31, 2016
Construction and Land Development
$
770,287

 
$
751,131

Commercial Real Estate - Owner Occupied
870,559

 
857,805

Commercial Real Estate - Non-Owner Occupied
1,631,767

 
1,564,295

Multifamily Real Estate
353,769

 
334,276

Commercial & Industrial
576,567

 
551,526

Residential 1-4 Family
1,057,439

 
1,029,547

Auto
271,466

 
262,071

HELOC
527,863

 
526,884

Consumer and all other
494,329

 
429,525

Total loans held for investment, net(1)
$
6,554,046

 
$
6,307,060

 
(1) Loans, as presented, are net of deferred fees and costs totaling $768,000 and $1.8 million as of March 31, 2017 and December 31, 2016, respectively.
 

-14-

The following table shows the aging of the Company’s loan portfolio, by segment, at March 31, 2017 (dollars in thousands):
 
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
630

 
$
376

 
$
16

 
$
2,776

 
$
6,545

 
$
759,944

 
$
770,287

Commercial Real Estate - Owner Occupied
878

 
—

 
93

 
18,199

 
1,298

 
850,091

 
870,559

Commercial Real Estate - Non-Owner Occupied
1,487

 
—

 
711

 
16,725

 
2,798

 
1,610,046

 
1,631,767

Multifamily Real Estate
—

 
—

 
—

 
2,058

 
—

 
351,711

 
353,769

Commercial & Industrial
453

 
126

 
—

 
733

 
3,245

 
572,010

 
576,567

Residential 1-4 Family
11,615

 
2,104

 
686

 
15,910

 
5,856

 
1,021,268

 
1,057,439

Auto
1,534

 
250

 
11

 
—

 
393

 
269,278

 
271,466

HELOC
1,490

 
365

 
680

 
1,156

 
1,902

 
522,270

 
527,863

Consumer and all other
1,766

 
1,460

 
126

 
213

 
301

 
490,463

 
494,329

Total loans held for investment
$
19,853

 
$
4,681

 
$
2,323

 
$
57,770

 
$
22,338

 
$
6,447,081

 
$
6,554,046

 
The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2016 (dollars in thousands):

 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
1,162

 
$
232

 
$
76

 
$
2,922

 
$
2,037

 
$
744,702

 
$
751,131

Commercial Real Estate - Owner Occupied
1,842

 
109

 
35

 
18,343

 
794

 
836,682

 
857,805

Commercial Real Estate - Non-Owner Occupied
2,369

 
—

 
—

 
17,303

 
—

 
1,544,623

 
1,564,295

Multifamily Real Estate
147

 
—

 
—

 
2,066

 
—

 
332,063

 
334,276

Commercial & Industrial
759

 
858

 
9

 
1,074

 
124

 
548,702

 
551,526

Residential 1-4 Family
7,038

 
534

 
2,048

 
16,200

 
5,279

 
998,448

 
1,029,547

Auto
2,570

 
317

 
111

 
—

 
169

 
258,904

 
262,071

HELOC
1,836

 
1,140

 
635

 
1,161

 
1,279

 
520,833

 
526,884

Consumer and all other
2,522

 
1,431

 
91

 
223

 
291

 
424,967

 
429,525

Total loans held for investment
$
20,245

 
$
4,621

 
$
3,005

 
$
59,292

 
$
9,973

 
$
6,209,924

 
$
6,307,060

 

-15-

The following table shows the PCI loan portfolios, by segment and their delinquency status, at March 31, 2017 (dollars in thousands):
 
 
30-89 Days Past
Due
 
Greater than 90
Days
 
Current
 
Total
Construction and Land Development
$
72

 
$
—

 
$
2,704

 
$
2,776

Commercial Real Estate - Owner Occupied
902

 
317

 
16,980

 
18,199

Commercial Real Estate - Non-Owner Occupied
303

 
1,025

 
15,397

 
16,725

Multifamily Real Estate
—

 
—

 
2,058

 
2,058

Commercial & Industrial
—

 
12

 
721

 
733

Residential 1-4 Family
1,491

 
1,057

 
13,362

 
15,910

HELOC
120

 
114

 
922

 
1,156

Consumer and all other
—

 
—

 
213

 
213

Total
$
2,888

 
$
2,525

 
$
52,357

 
$
57,770

 
The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2016 (dollars in thousands):
 
 
30-89 Days Past
Due
 
Greater than 90
Days
 
Current
 
Total
Construction and Land Development
$
—

 
$
84

 
$
2,838

 
$
2,922

Commercial Real Estate - Owner Occupied
271

 
519

 
17,553

 
18,343

Commercial Real Estate - Non-Owner Occupied
409

 
126

 
16,768

 
17,303

Multifamily Real Estate
—

 
—

 
2,066

 
2,066

Commercial & Industrial
44

 
56

 
974

 
1,074

Residential 1-4 Family
1,298

 
945

 
13,957

 
16,200

HELOC
175

 
121

 
865

 
1,161

Consumer and all other
—

 
—

 
223

 
223

Total
$
2,197

 
$
1,851

 
$
55,244

 
$
59,292

 

-16-

The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment at March 31, 2017 and December 31, 2016 (dollars in thousands):
 
March 31, 2017
 
December 31, 2016
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
Loans without a specific allowance
 

 
 

 
 

 
 

 
 

 
 

Construction and Land Development
$
11,290

 
$
11,775

 
$
—

 
$
13,877

 
$
14,353

 
$
—

Commercial Real Estate - Owner Occupied
6,120

 
6,285

 
—

 
5,886

 
6,042

 
—

Commercial Real Estate - Non-Owner Occupied
2,825

 
2,825

 
—

 
1,399

 
1,399

 
—

Commercial & Industrial
949

 
949

 
—

 
648

 
890

 
—

Residential 1-4 Family
9,541

 
10,515

 
—

 
8,496

 
9,518

 
—

HELOC
1,443

 
1,535

 
—

 
1,017

 
1,094

 
—

Consumer and all other
113

 
223

 
—

 
230

 
427

 
—

Total impaired loans without a specific allowance
$
32,281

 
$
34,107

 
$
—

 
$
31,553

 
$
33,723

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Loans with a specific allowance
 

 
 

 
 

 
 

 
 

 
 

Construction and Land Development
$
6,011

 
$
6,018

 
$
729

 
$
1,395

 
$
1,404

 
$
107

Commercial Real Estate - Owner Occupied
639

 
639

 
3

 
646

 
646

 
4

Commercial Real Estate - Non-Owner Occupied
8,691

 
8,739

 
745

 
2,809

 
2,809

 
474

Commercial & Industrial
5,151

 
5,442

 
617

 
857

 
880

 
14

Residential 1-4 Family
3,243

 
3,414

 
393

 
3,335

 
3,535

 
200

Auto
393

 
506

 
1

 
169

 
235

 
1

HELOC
757

 
881

 
20

 
323

 
433

 
15

Consumer and all other
189

 
516

 
7

 
62

 
298

 
1

Total impaired loans with a specific allowance
$
25,074

 
$
26,155

 
$
2,515

 
$
9,596

 
$
10,240

 
$
816

Total impaired loans
$
57,355

 
$
60,262

 
$
2,515

 
$
41,149

 
$
43,963

 
$
816


The following table shows the average recorded investment and interest income recognized for the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment for the three months ended March 31, 2017 and 2016 (dollars in thousands):
 
Three Months Ended
March 31, 2017
 
Three Months Ended
March 31, 2016
 
Average
Investment
 
Interest Income
Recognized
 
Average
Investment
 
Interest Income
Recognized
Construction and Land Development
$
17,179

 
$
139

 
$
30,569

 
$
484

Commercial Real Estate - Owner Occupied
6,793

 
64

 
16,510

 
157

Commercial Real Estate - Non-Owner Occupied
11,540

 
108

 
4,214

 
41

Multifamily Real Estate
—

 
—

 
3,817

 
60

Commercial & Industrial
6,830

 
36

 
3,663

 
37

Residential 1-4 Family
13,047

 
73

 
15,301

 
106

Auto
477

 
1

 
218

 
—

HELOC
2,366

 
4

 
2,933

 
21

Consumer and all other
303

 
—

 
982

 
6

Total impaired loans
$
58,535

 
$
425

 
$
78,207

 
$
912



-17-

The Company considers TDRs to be impaired loans. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession that it would not otherwise consider to the borrower for economic or legal reasons related to the borrower’s financial difficulties. All loans that are considered to be TDRs are evaluated for impairment in accordance with the Company’s allowance for loan loss methodology and are included in the preceding impaired loan tables. For the three months ended March 31, 2017, the recorded investment in restructured loans prior to modifications was not materially impacted by the modification.

The following table provides a summary, by segment, of TDRs that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of March 31, 2017 and December 31, 2016 (dollars in thousands):
 
March 31, 2017
 
December 31, 2016
 
No. of
Loans
 
Recorded
Investment
 
Outstanding
Commitment
 
No. of
Loans
 
Recorded
Investment
 
Outstanding
Commitment
Performing
 

 
 

 
 

 
 

 
 

 
 

Construction and Land Development
6

 
$
3,422

 
$
—

 
8

 
$
3,793

 
$
—

Commercial Real Estate - Owner Occupied
6

 
2,605

 
—

 
7

 
3,106

 
—

Commercial Real Estate - Non-Owner Occupied
2

 
1,637

 
—

 
2

 
2,390

 
—

Commercial & Industrial
10

 
1,993

 
—

 
3

 
533

 
—

Residential 1-4 Family
31

 
4,668

 
—

 
28

 
4,145

 
—

Total performing
55

 
$
14,325

 
$
—

 
48

 
$
13,967

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Nonperforming
 

 
 

 
 

 
 

 
 

 
 

Construction and Land Development
4

 
$
540

 
$
—

 
2

 
$
215

 
$
—

Commercial Real Estate - Owner Occupied
3

 
624

 
—

 
2

 
156

 
—

Commercial Real Estate - Non-Owner Occupied
2

 
2,390

 
—

 
—

 
—

 
—

Commercial & Industrial
1

 
104

 
—

 
1

 
116

 
—

Residential 1-4 Family
10

 
741

 
—

 
8

 
948

 
—

Total nonperforming
20

 
$
4,399

 
$
—

 
13

 
$
1,435

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Total performing and nonperforming
75

 
$
18,724

 
$
—

 
61

 
$
15,402

 
$
—


The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three months ended March 31, 2017 and 2016, the Company did not identify any TDRs that went into default that had been restructured in the twelve-month period prior to default.


-18-

The following table shows, by segment and modification type, TDRs that occurred during the three months ended March 31, 2017 and 2016 (dollars in thousands):
 
Three Months Ended
March 31, 2017
 
Three Months Ended
March 31, 2016
 
No. of
Loans
 
Recorded 
Investment at
Period End
 
No. of
Loans
 
Recorded 
Investment at
Period End
Modified to interest only, at a market rate
 
 
 
 
 
 
 
Commercial & Industrial
5

 
$
661

 
—

 
$
—

Total interest only at market rate of interest
5

 
$
661