Atlantic Union Bankshares Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2020

Loans and Allowance for Loan Losses [Abstract]

4. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

On January 1, 2020, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1 “Accounting Policies” in this Quarterly Report. All loan information presented as of March 31, 2020 is in accordance with ASC 326. All loan information presented prior to March 31, 2020 is in accordance with previous applicable GAAP.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at March 31, 2020 and December 31, 2019 (dollars in thousands):


	March 31, 2020		December 31, 2019
Construction and Land Development	$	1,318,252	$	1,250,924
Commercial Real Estate - Owner Occupied		2,051,904		2,041,243
Commercial Real Estate - Non-Owner Occupied		3,328,012		3,286,098
Multifamily Real Estate		679,390		633,743
Commercial & Industrial		2,177,932		2,114,033
Residential 1-4 Family - Commercial		721,800		724,337
Residential 1-4 Family - Consumer		854,550		890,503
Residential 1-4 Family - Revolving		652,135		659,504
Auto		358,039		350,419
Consumer		352,572		372,853
Other Commercial		274,255		287,279
Total loans held for investment, net	$	12,768,841	$	12,610,936

The following table shows the aging of the Company’s loan portfolio, by class, at March 31, 2020 (dollars in thousands):


					Greater than
			30-59 Days		60-89 Days		90 Days and
	Current		Past Due		Past Due		still Accruing		Nonaccrual		Total Loans
Construction and Land Development	$	1,311,599	$	2,786	$	316	$	317	$	3,234	$	1,318,252
Commercial Real Estate - Owner Occupied		2,026,741		10,779		1,444		1,690		11,250		2,051,904
Commercial Real Estate - Non-Owner Occupied		3,319,481		2,087		2,765		2,037		1,642		3,328,012
Multifamily Real Estate		676,343		623		1,994		377		53		679,390
Commercial & Industrial		2,167,873		4,893		1,218		517		3,431		2,177,932
Residential 1-4 Family - Commercial		708,772		4,145		1,066		777		7,040		721,800
Residential 1-4 Family - Consumer		820,818		15,667		570		4,407		13,088		854,550
Residential 1-4 Family - Revolving		640,989		4,308		1,286		2,005		3,547		652,135
Auto		355,084		1,967		311		127		550		358,039
Consumer		348,953		1,612		1,294		622		91		352,572
Other Commercial		273,090		1		1,068		—		96		274,255
Total loans held for investment	$	12,649,743	$	48,868	$	13,332	$	12,876	$	44,022	$	12,768,841

The following table shows the Company’s amortized cost basis of loans on nonaccrual status as of January 1, 2020 as well as amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of March 31, 2020 (dollars in thousands):


	Nonaccrual
	January 1, 2020		March 31, 2020		Nonaccrual With No ALLL		90 Days and still Accruing
Construction and Land Development	$	4,060	$	3,234	$	1,985	$	317
Commercial Real Estate - Owner Occupied		13,889		11,250		3,591		1,690
Commercial Real Estate - Non-Owner Occupied		1,368		1,642		—		2,037
Multifamily Real Estate		—		53		—		377
Commercial & Industrial		3,037		3,431		93		517
Residential 1-4 Family - Commercial		6,492		7,040		1,739		777
Residential 1-4 Family - Consumer		13,117		13,088		1,069		4,407
Residential 1-4 Family - Revolving		2,490		3,547		60		2,005
Auto		565		550		—		127
Consumer		88		91		—		622
Other Commercial		98		96		—		—
Total loans held for investment	$	45,204	$	44,022	$	8,537	$	12,876

There was no interest income recognized on nonaccrual loans during the three months ended March 31, 2020. See Note 1 “Summary of Significant Accounting Policies” in the Company’s 2019 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

Troubled Debt Restructurings

As of March 31, 2020, the Company has TDRs totaling $20.4 million with an estimated $1.9 million of allowance for those loans for the current period.

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 credit losses in accordance with the Company’s ALLL methodology. For the three months ended March 31, 2020, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The CARES Act permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs. In addition, federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by COVID-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications, nor be required by examiners to automatically categorize COVID-19-related loan modifications as TDRs. During the quarter ended March 31, 2020, the Company had made loan modifications of this nature totaling approximately $75 million.

The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable 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, 2020 (dollars in thousands):


	March 31, 2020
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	226	$	—
Commercial Real Estate - Owner Occupied	6		2,223		—
Commercial Real Estate - Non-Owner Occupied	1		1,089		—
Commercial & Industrial	4		995		—
Residential 1-4 Family - Commercial	5		287		—
Residential 1-4 Family - Consumer	74		9,502		—
Residential 1-4 Family - Revolving	2		55		—
Consumer	4		26		—
Other Commercial	1		462		—
Total performing	101	$	14,865	$	—
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	172	$	—
Commercial & Industrial	1		517		—
Residential 1-4 Family - Consumer	22		4,747		—
Residential 1-4 Family - Revolving	2		55		—
Total nonperforming	27	$	5,491	$	—
Total performing and nonperforming	128	$	20,356	$	—

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, 2020, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

The following table shows, by class and modification type, TDRs that occurred during the three months ended March 31, 2020 (dollars in thousands):


	All Restructurings
	Three Months Ended March 31, 2020
		Recorded
	No. of	Investment at
	Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—

Term modification, at a market rate
Commercial & Industrial	1	$	517
Total loan term extended at a market rate	1	$	517

Term modification, below market rate
Construction and Land Development	1	$	35
Residential 1-4 Family - Consumer	10		1,763
Total loan term extended at a below market rate	11	$	1,798

Interest rate modification, below market rate
Total interest only at below market rate of interest	—	$	—

Total	12	$	2,315

Allowance for Loan and Lease Losses

ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Within each segment, loan classes are further identified based on similar risk characteristics. The Company has identified the following classes within each segment:

●

Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial

●

Consumer: Residential 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer

The following tables show the ALLL activity by segment for the three months ended March 31, 2020 (dollars in thousands):





	Three Months Ended March 31, 2020
	Commercial		Consumer		Total
Balance, beginning of year	$	30,941	$	11,353	$	42,294
Impact of ASC 326 adoption on non-PCD loans		4,432		40,666		45,098
Impact of ASC 326 adoption on PCD loans		1,752		634		2,386
Impact of ASC 326 adoption		6,184		41,300		47,484
Loans charged-off		(2,968)		(4,183)		(7,151)
Recoveries credited to allowance		1,154		1,006		2,160
Provision charged to operations		42,532		13,724		56,256
Balance, end of period	$	77,843	$	63,200	$	141,043

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch & Special Mention, Substandard, and Doubtful. For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual. While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.

Commercial Loans

The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for credit loss; The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

●

Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;

●

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

●

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

●

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

●

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan;

Watch & Special Mention is determined by the following criteria:

●

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

●

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position;

Substandard is determined by the following criteria:

●

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected;

Doubtful is determined by the following criteria:

●

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined;

●

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of March 31, 2020 (dollars in thousands):


		March 31, 2020
		Term Loans Amortized Cost Basis by Origination Year
																	Revolving
																	Loans
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total		Converted to Term
Construction and Land Development
Pass	$	69,552	$	467,635	$	434,210	$	132,703	$	53,894	$	81,829	$	30,573	$	1,270,396	$	—
Watch & Special Mention		1,200		8,607		1,566		865		6,615		15,627		1,848		36,328		—
Substandard		—		—		732		736		2,405		7,655		—		11,528		—
Total Construction and Land Development	$	70,752	$	476,242	$	436,508	$	134,304	$	62,914	$	105,111	$	32,421	$	1,318,252	$	—

Commercial Real Estate - Owner Occupied
Pass	$	79,743	$	391,157	$	312,340	$	266,525	$	147,239	$	681,938	$	37,492	$	1,916,434	$	—
Watch & Special Mention		—		5,726		16,831		15,683		25,211		47,288		3,551		114,290		—
Substandard		—		—		1,115		1,333		2,730		15,628		374		21,180		—
Total Commercial Real Estate - Owner Occupied	$	79,743	$	396,883	$	330,286	$	283,541	$	175,180	$	744,854	$	41,417	$	2,051,904	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	100,998	$	501,212	$	490,930	$	472,440	$	480,363	$	1,159,966	$	44,949	$	3,250,858	$	—
Watch & Special Mention		—		1,061		8,838		13,449		16,707		29,450		838		70,343		—
Substandard		—		—		164		—		25		6,330		200		6,719		—
Doubtful		—		—		—		—		—		—		92		92		—
Total Commercial Real Estate - Non-Owner Occupied	$	100,998	$	502,273	$	499,932	$	485,889	$	497,095	$	1,195,746	$	46,079	$	3,328,012	$	—

Commercial & Industrial
Pass	$	127,407	$	445,967	$	280,399	$	90,466	$	90,219	$	176,554	$	894,146	$	2,105,158	$	353
Watch & Special Mention		457		3,817		7,987		1,520		3,900		4,367		40,039		62,087		49
Substandard		—		505		1,015		253		900		3,222		4,792		10,687		—
Total Commercial & Industrial	$	127,864	$	450,289	$	289,401	$	92,239	$	95,019	$	184,143	$	938,977	$	2,177,932	$	402

Multifamily Real Estate
Pass	$	60,276	$	78,954	$	63,329	$	129,106	$	64,831	$	254,868	$	7,286	$	658,650	$	—
Watch & Special Mention		—		—		—		8,286		1,134		10,551		339		20,310		—
Substandard		—		—		—		—		—		430		—		430		—
Total Multifamily Real Estate	$	60,276	$	78,954	$	63,329	$	137,392	$	65,965	$	265,849	$	7,625	$	679,390	$	—

Residential 1-4 Family - Commercial
Pass	$	29,989	$	112,509	$	79,932	$	104,116	$	86,412	$	264,081	$	1,911	$	678,950	$	810
Watch & Special Mention		880		2,720		8,378		3,617		2,159		13,689		—		31,443		2,762
Substandard		—		—		310		632		1,846		8,002		617		11,407		76
Total Residential 1-4 Family - Commercial	$	30,869	$	115,229	$	88,620	$	108,365	$	90,417	$	285,772	$	2,528	$	721,800	$	3,648

Other Commercial
Pass	$	1,468	$	116,582	$	9,904	$	43,520	$	17,802	$	59,403	$	19,049	$	267,728	$	—
Watch & Special Mention		—		—		636		1,337		—		4,344		54		6,371		—
Substandard		—		—		—		60		—		96		—		156		—
Total Other Commercial	$	1,468	$	116,582	$	10,540	$	44,917	$	17,802	$	63,843	$	19,103	$	274,255	$	—

Total Commercial
Pass	$	469,433	$	2,114,016	$	1,671,044	$	1,238,876	$	940,760	$	2,678,639	$	1,035,406	$	10,148,174	$	1,163
Watch & Special Mention		2,537		21,931		44,236		44,757		55,726		125,316		46,669		341,172		2,811
Substandard		—		505		3,336		3,014		7,906		41,363		5,983		62,107		76
Doubtful		—		—		—		—		—		—		92		92		—
Total Commercial	$	471,970	$	2,136,452	$	1,718,616	$	1,286,647	$	1,004,392	$	2,845,318	$	1,088,150	$	10,551,545	$	4,050

Consumer Loans

For Consumer loans, the Company evaluates credit quality based on the delinquency status of the loan. The following table details the amortized cost of the classes of loans within the Consumer segment based on their delinquency status and year of origination as of March 31, 2020 (dollars in thousands):


		March 31, 2020
		Term Loans Amortized Cost Basis by Origination Year
																	Revolving
																	Loans
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total		Converted to Term
Residential 1-4 Family - Consumer
Current	$	21,273	$	95,266	$	105,226	$	99,655	$	129,032	$	370,353	$	13	$	820,818	$	—
30-59 Days Past Due		—		1,268		1,537		2,566		453		9,843		—		15,667		—
60-89 Days Past Due		—		—		109		77		—		384		—		570		—
90+ Days Past Due		—		728		125		445		276		2,833		—		4,407		—
Nonaccrual		—		—		888		891		797		10,512		—		13,088		—
Total Residential 1-4 Family - Consumer	$	21,273	$	97,262	$	107,885	$	103,634	$	130,558	$	393,925	$	13	$	854,550	$	—

Residential 1-4 Family - Revolving
Current	$	6,463	$	7,732	$	2,641	$	21	$	—	$	661	$	623,471	$	640,989	$	—
30-59 Days Past Due		—		49		—		—		—		—		4,259		4,308		—
60-89 Days Past Due		—		—		—		—		—		—		1,286		1,286		—
90+ Days Past Due		—		—		—		—		—		—		2,005		2,005		—
Nonaccrual		—		—		—		—		—		314		3,233		3,547		—
Total Residential 1-4 Family - Revolving	$	6,463	$	7,781	$	2,641	$	21	$	—	$	975	$	634,254	$	652,135	$	—

Consumer
Current	$	25,016	$	106,175	$	110,825	$	34,857	$	14,995	$	20,293	$	36,792	$	348,953	$	—
30-59 Days Past Due		—		329		692		198		11		342		40		1,612		—
60-89 Days Past Due		—		193		699		84		28		288		2		1,294		—
90+ Days Past Due		—		139		368		94		13		—		8		622		—
Nonaccrual		—		—		—		—		3		88		—		91		—
Total Consumer	$	25,016	$	106,836	$	112,584	$	35,233	$	15,050	$	21,011	$	36,842	$	352,572	$	—

Auto
Current	$	35,381	$	149,149	$	77,698	$	48,701	$	28,777	$	15,378	$	—	$	355,084	$	—
30-59 Days Past Due		—		463		528		447		347		182		—		1,967		—
60-89 Days Past Due		—		63		52		92		40		64		—		311		—
90+ Days Past Due		—		77		24		12		—		14		—		127		—
Nonaccrual		—		117		81		106		148		98		—		550		—
Total Auto	$	35,381	$	149,869	$	78,383	$	49,358	$	29,312	$	15,736	$	—	$	358,039	$	—

Total Consumer
Current	$	88,133	$	358,322	$	296,390	$	183,234	$	172,804	$	406,685	$	660,276	$	2,165,844	$	—
30-59 Days Past Due		—		2,109		2,757		3,211		811		10,367		4,299		23,554		—
60-89 Days Past Due		—		256		860		253		68		736		1,288		3,461		—
90+ Days Past Due		—		944		517		551		289		2,847		2,013		7,161		—
Nonaccrual		—		117		969		997		948		11,012		3,233		17,276		—
Total Consumer	$	88,133	$	361,748	$	301,493	$	188,246	$	174,920	$	431,647	$	671,109	$	2,217,296	$	—

Acquired Loans

The Company has purchased loans that, at the time of acquisition, exhibited more than insignificant credit deterioration since origination. The Company has elected to treat all loans that were previously identified as PCI as PCD. As of March 31, 2020, the amortized cost of the Company’s PCD loans totaled $84.7 million, which had an estimated ALLL of $3.8 million.

Prior to the adoption of ASC 326

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2019 (dollars in thousands):


					Greater than
	30-59 Days		60-89 Days		90 Days and
	Past Due		Past Due		still Accruing		PCI		Nonaccrual		Current		Total Loans
Construction and Land Development	$	4,563	$	482	$	189	$	10,944	$	3,703	$	1,231,043	$	1,250,924
Commercial Real Estate - Owner Occupied		3,482		2,184		1,062		27,438		6,003		2,001,074		2,041,243
Commercial Real Estate - Non-Owner Occupied		457		—		1,451		14,565		381		3,269,244		3,286,098
Multifamily Real Estate		223		—		474		94		—		632,952		633,743
Commercial & Industrial		8,698		1,598		449		1,579		1,735		2,099,974		2,114,033
Residential 1-4 Family - Commercial		1,479		2,207		674		12,205		4,301		703,471		724,337
Residential 1-4 Family - Consumer		16,244		3,072		4,515		14,713		9,292		842,667		890,503
Residential 1-4 Family - Revolving		10,190		1,784		3,357		4,127		2,080		637,966		659,504
Auto		2,525		236		272		4		563		346,819		350,419
Consumer		2,128		1,233		953		668		77		367,794		372,853
Other Commercial		464		—		—		344		97		286,374		287,279
Total loans held for investment	$	50,453	$	12,796	$	13,396	$	86,681	$	28,232	$	12,419,378	$	12,610,936

The following table shows the PCI loan portfolios, by class and their delinquency status, at December 31, 2019 (dollars in thousands):


	30-89 Days		Greater than
	Past Due		90 Days		Current		Total
Construction and Land Development	$	136	$	343	$	10,465	$	10,944
Commercial Real Estate - Owner Occupied		480		6,884		20,074		27,438
Commercial Real Estate - Non-Owner Occupied		848		987		12,730		14,565
Multifamily Real Estate		—		—		94		94
Commercial & Industrial		—		989		590		1,579
Residential 1-4 Family - Commercial		543		1,995		9,667		12,205
Residential 1-4 Family - Consumer		927		1,781		12,005		14,713
Residential 1-4 Family - Revolving		287		205		3,635		4,127
Auto		—		—		4		4
Consumer		—		9		659		668
Other Commercial		—		—		344		344
Total	$	3,221	$	13,193	$	70,267	$	86,681

As of December 31, 2019, the Company measured the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s loans, excluding PCI loans, by class at December 31, 2019 (dollars in thousands):


	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
Loans without a specific allowance
Construction and Land Development	$	5,877	$	7,174	$	—
Commercial Real Estate - Owner Occupied		8,801		9,296		—
Commercial Real Estate - Non-Owner Occupied		3,510		4,059		—
Commercial & Industrial		3,668		3,933		—
Residential 1-4 Family - Commercial		4,047		4,310		—
Residential 1-4 Family - Consumer		8,420		9,018		—
Residential 1-4 Family - Revolving		862		865		—
Total impaired loans without a specific allowance	$	35,185	$	38,655	$	—
Loans with a specific allowance
Construction and Land Development	$	984	$	1,032	$	49
Commercial Real Estate - Owner Occupied		2,820		3,093		146
Commercial Real Estate - Non-Owner Occupied		335		383		2
Commercial & Industrial		2,568		2,590		619
Residential 1-4 Family - Commercial		1,726		1,819		162
Residential 1-4 Family - Consumer		12,026		12,670		1,242
Residential 1-4 Family - Revolving		2,186		2,369		510
Auto		563		879		221
Consumer		168		336		46
Other Commercial		562		567		30
Total impaired loans with a specific allowance	$	23,938	$	25,738	$	3,027
Total impaired loans	$	59,123	$	64,393	$	3,027

The following table shows the average recorded investment and interest income recognized for the Company’s loans, excluding PCI loans, by class for the three months ended March 31, 2019 (dollars in thousands):


	Three Months Ended
	March 31, 2019
			Interest
	Average		Income
	Investment		Recognized
Construction and Land Development	$	9,425	$	39
Commercial Real Estate - Owner Occupied		11,554		105
Commercial Real Estate - Non-Owner Occupied		6,956		59
Commercial & Industrial		2,224		14
Residential 1-4 Family - Commercial		6,475		32
Residential 1-4 Family - Consumer		18,257		114
Residential 1-4 Family - Revolving		3,472		40
Auto		600		—
Consumer		215		2
Other Commercial		588		8
Total impaired loans	$	59,766	$	413

At December 31, 2019, the Company considered 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 credit loss methodology.


	December 31, 2019
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	1,114	$	—
Commercial Real Estate - Owner Occupied	6		2,228		26
Commercial Real Estate - Non-Owner Occupied	1		1,089		—
Commercial & Industrial	4		1,020		—
Residential 1-4 Family - Commercial	5		290		—
Residential 1-4 Family - Consumer	69		9,396		—
Residential 1-4 Family - Revolving	2		56		—
Consumer	4		29		—
Other Commercial	1		464		—
Total performing	96	$	15,686	$	26
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	176	$	—
Commercial & Industrial	1		55		—
Residential 1-4 Family - Consumer	19		3,522		—
Residential 1-4 Family - Revolving	2		57		—
Total nonperforming	24	$	3,810	$	—
Total performing and nonperforming	120	$	19,496	$	26

The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructuring or a foreclosure and repossession of the applicable collateral occurs. During the three months ended March 31, 2019, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

The following table shows, by class and modification type, TDRs that occurred during the three months ended March 31, 2019 (dollars in thousands):


	All Restructurings
	Three Months Ended March 31, 2019
		Recorded
	No. of	Investment at
	Loans	Period End
Modified to interest only, at a market rate
Total interest only at market rate of interest	—	$	—

Term modification, at a market rate
Commercial & Industrial	1	$	441
Residential 1-4 Family - Commercial	1		75
Residential 1-4 Family - Consumer	2		263
Consumer	1		10
Total loan term extended at a market rate	5	$	789

Term modification, below market rate
Residential 1-4 Family - Consumer	5	$	937
Consumer	1		6
Total loan term extended at a below market rate	6	$	943

Total	11	$	1,732

Allowance for Loan and Lease Losses

The following table shows the ALLL activity by class for the three months ended March 31, 2019. The table below includes the provision for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Three Months Ended March 31, 2019
	Allowance for loan and lease losses
	Balance,		Recoveries		Loans		Provision		Balance,
	beginning of		credited to		charged		charged to		end of
	the year		allowance		off		operations		period
Construction and Land Development	$	6,803	$	27	$	(732)	$	126	$	6,224
Commercial Real Estate - Owner Occupied		4,023		25		(47)		29		4,030
Commercial Real Estate - Non-Owner Occupied		8,865		89		—		82		9,036
Multifamily Real Estate		649		85		—		(74)		660
Commercial & Industrial		7,636		360		(980)		395		7,411
Residential 1-4 Family - Commercial		1,692		87		(66)		47		1,760
Residential 1-4 Family - Consumer		1,492		155		(32)		117		1,732
Residential 1-4 Family - Revolving		1,297		87		(216)		238		1,406
Auto		1,443		186		(399)		216		1,446
Consumer and all other⁽¹⁾		7,145		595		(3,467)		2,849		7,122
Total	$	41,045	$	1,696	$	(5,939)	$	4,025	$	40,827

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The following tables show the loan and ALLL balances based on impairment methodology by class as of December 31, 2019 (dollars in thousands):


	December 31, 2019
	Loans individually				Loans collectively				Loans acquired with
	evaluated for				evaluated for				deteriorated credit
	impairment				impairment				quality				Total
	Loans		ALL		Loans		ALL		Loans		ALL		Loans		ALL
Construction and Land Development	$	6,861	$	49	$	1,233,119	$	5,709	$	10,944	$	—	$	1,250,924	$	5,758
Commercial Real Estate - Owner Occupied		11,621		146		2,002,184		3,773		27,438		—		2,041,243		3,919
Commercial Real Estate - Non-Owner Occupied		3,845		2		3,267,688		9,541		14,565		—		3,286,098		9,543
Multifamily Real Estate		—		—		633,649		632		94		—		633,743		632
Commercial & Industrial		6,236		619		2,106,218		7,768		1,579		217		2,114,033		8,604
Residential 1-4 Family - Commercial		5,773		162		706,359		1,203		12,205		—		724,337		1,365
Residential 1-4 Family - Consumer		20,446		1,242		855,344		771		14,713		—		890,503		2,013
Residential 1-4 Family - Revolving		3,048		510		652,329		813		4,127		—		659,504		1,323
Auto		563		221		349,852		1,232		4		—		350,419		1,453
Consumer and all other⁽¹⁾		730		76		658,390		7,608		1,012		—		660,132		7,684
Total loans held for investment, net	$	59,123	$	3,027	$	12,465,132	$	39,050	$	86,681	$	217	$	12,610,936	$	42,294

⁽¹⁾Consumer and Other Commercial are grouped together as Consumer and all other for reporting purposes.

The Company uses a risk rating system and past due status as the primary credit quality indicators for the loan categories. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the allowance for loan loss; The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

●

Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;

●

Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;

●

Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;

●

Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;

●

Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan; or

●

Loans that are not risk rated but that are 0 to 29 days past due.

Watch & Special Mention is determined by the following criteria:

●

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay;

●

Loans that are not risk rated but that are 30 to 89 days past due.

Substandard is determined by the following criteria:

●

Loans that are not risk rated but that are 90 to 149 days past due.

Doubtful is determined by the following criteria:

●

Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted; or

●

Loans that are not risk rated but that are over 149 days past due.

The following table shows the recorded investment in all loans, excluding PCI loans, by segment with their related risk level as of December 31, 2019 (dollars in thousands):


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,197,066	$	37,182	$	5,732	$	—	$	1,239,980
Commercial Real Estate - Owner Occupied		1,916,492		87,004		10,309		—		2,013,805
Commercial Real Estate - Non-Owner Occupied		3,205,463		62,368		3,608		94		3,271,533
Multifamily Real Estate		613,844		19,396		409		—		633,649
Commercial & Industrial		2,043,903		60,495		8,048		8		2,112,454
Residential 1-4 Family - Commercial		680,894		24,864		6,374		—		712,132
Residential 1-4 Family - Consumer		841,408		13,592		20,534		256		875,790
Residential 1-4 Family - Revolving		641,069		6,373		7,935		—		655,377
Auto		345,960		2,630		1,825		—		350,415
Consumer		371,315		550		320		—		372,185
Other Commercial		284,914		1,863		158		—		286,935
Total	$	12,142,328	$	316,317	$	65,252	$	358	$	12,524,255

The following table shows the recorded investment in only PCI loans by segment with their related risk level as of December 31, 2019 (dollars in thousands):


	Pass		Watch & Special Mention		Substandard		Doubtful		Total
Construction and Land Development	$	1,092	$	3,692	$	6,160	$	—	$	10,944
Commercial Real Estate - Owner Occupied		8,264		10,524		8,650		—		27,438
Commercial Real Estate - Non-Owner Occupied		3,826		9,415		1,324		—		14,565
Multifamily Real Estate		—		94		—		—		94
Commercial & Industrial		127		25		1,427		—		1,579
Residential 1-4 Family - Commercial		6,000		2,693		3,512		—		12,205
Residential 1-4 Family - Consumer		9,947		557		4,209		—		14,713
Residential 1-4 Family - Revolving		2,887		707		533		—		4,127
Auto		2		—		2		—		4
Consumer		657		—		11		—		668
Other Commercial		120		224		—		—		344
Total	$	32,922	$	27,931	$	25,828	$	—	$	86,681

Acquired Loans

Loans acquired are originally recorded at fair value, with certain loans being identified as impaired at the date of purchase. The fair values were determined based on the credit quality of the portfolio, expected future cash flows, and timing of those expected future cash flows.

The following shows changes in the accretable yield for loans accounted for under ASC 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, as of March 31, 2019 (dollars in thousands):


	For the Three Months Ended March 31,
	2019
Balance at beginning of period	$	31,201
Additions		2,432
Accretion		(2,385)
Reclass of nonaccretable difference due to improvement in expected cash flows		465
Other, net ⁽¹⁾		1,508
Balance at end of period	$	33,221

(1)	This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate PCI loans, and discounted payoffs that occurred in the quarter.

The carrying value of the Company’s PCI loan portfolio, accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality, totaled $86.7 million at December 31, 2019. The outstanding balance of the Company’s PCI loan portfolio totaled $104.9 million at December 31, 2019. The carrying value of the Company’s acquired performing loan portfolio, accounted for under ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, totaled $3.0 billion at December 31, 2019; the remaining discount on these loans totaled $50.1 million at December 31, 2019.