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

6 Months Ended

Jun. 30, 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 June 30, 2020 is in accordance with ASC 326. All loan information presented prior to January 1, 2020 is in accordance with previous applicable GAAP. During March 2020, in response to the economic fallout from the COVID-19 pandemic, the CARES Act was passed by Congress and signed into law by the President along with joint guidance issued by the five federal bank regulatory agencies that provided enhanced guidelines and accounting for COVID-19 related modifications. For further discussion on the CARES Act and the March 22 Joint Guidance and related loan impact refer to Note 1 “Accounting Polices” in this quarterly report. The information included below reflects the impact of the CARES Act and the March 22 Joint Guidance.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consist of the following at June 30, 2020 and December 31, 2019 (dollars in thousands):


	June 30, 2020		December 31, 2019
Construction and Land Development	$	1,247,939	$	1,250,924
Commercial Real Estate - Owner Occupied		2,067,087		2,041,243
Commercial Real Estate - Non-Owner Occupied		3,455,125		3,286,098
Multifamily Real Estate		717,719		633,743
Commercial & Industrial⁽¹⁾		3,555,971		2,114,033
Residential 1-4 Family - Commercial		715,384		724,337
Residential 1-4 Family - Consumer		841,051		890,503
Residential 1-4 Family - Revolving		627,765		659,504
Auto		380,053		350,419
Consumer		311,362		372,853
Other Commercial⁽¹⁾		389,190		287,279
Total loans held for investment, net of deferred fees and costs		14,308,646		12,610,936
Allowance for loan and lease losses		(169,977)		(42,294)
Total loans held for investment, net	$	14,138,669	$	12,568,642

⁽¹⁾Commercial & industrial and other commercial loans include approximately $1.6 billion and $20.3 million, respectively, in new loans from the PPP loan program at June 30, 2020.

The following table shows the aging of the Company’s loan portfolio, by class, at June 30, 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	$	1,241,512	$	1,683	$	294	$	473	$	3,977	$	1,247,939
Commercial Real Estate - Owner Occupied		2,048,203		1,679		430		7,851		8,924		2,067,087
Commercial Real Estate - Non-Owner Occupied		3,451,071		930		369		878		1,877		3,455,125
Multifamily Real Estate		717,320		—		—		366		33		717,719
Commercial & Industrial		3,551,187		1,602		296		178		2,708		3,555,971
Residential 1-4 Family - Commercial		706,437		480		2,105		578		5,784		715,384
Residential 1-4 Family - Consumer		818,877		1,229		3,817		5,099		12,029		841,051
Residential 1-4 Family - Revolving		619,172		1,924		1,048		1,995		3,626		627,765
Auto		377,822		1,176		290		181		584		380,053
Consumer		308,719		844		561		1,157		81		311,362
Other Commercial		388,234		456		—		499		1		389,190
Total loans held for investment	$	14,228,554	$	12,003	$	9,210	$	19,255	$	39,624	$	14,308,646

These balances reflect the impact of the CARES Act and the March 22 Joint Guidance which provides relief for TDR designations and also provides guidance on past due reporting for modified loans.

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 June 30, 2020 (dollars in thousands):


	Nonaccrual
	January 1, 2020		June 30, 2020		Nonaccrual With No ALLL		90 Days and still Accruing
Construction and Land Development	$	4,060	$	3,977	$	1,987	$	473
Commercial Real Estate - Owner Occupied		13,889		8,924		1,990		7,851
Commercial Real Estate - Non-Owner Occupied		1,368		1,877		—		878
Multifamily Real Estate		—		33		—		366
Commercial & Industrial		3,037		2,708		—		178
Residential 1-4 Family - Commercial		6,492		5,784		1,738		578
Residential 1-4 Family - Consumer		13,117		12,029		1,069		5,099
Residential 1-4 Family - Revolving		2,490		3,626		60		1,995
Auto		565		584		—		181
Consumer		88		81		—		1,157
Other Commercial		98		1		—		499
Total loans held for investment	$	45,204	$	39,624	$	6,844	$	19,255

There was no interest income recognized on nonaccrual loans during the three or six months ended June 30, 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

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. As of June 30, 2020, the Company had approximately $1.6 billion in loans still under their modified terms. The Company’s modification program included payment deferrals, interest only, and other forms of modifications. A majority of the modifications were 3-month deferrals.

In addition to the above mentioned modifications, as of June 30, 2020, the Company has TDRs totaling $20.3 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 and six ended June 30, 2020, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

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 June 30, 2020 (dollars in thousands):


	June 30, 2020
	No. of	Recorded		Outstanding
	Loans	Investment		Commitment
Performing
Construction and Land Development	4	$	222	$	—
Commercial Real Estate - Owner Occupied	6		2,218		26
Commercial Real Estate - Non-Owner Occupied	1		1,089		—
Commercial & Industrial	5		1,129		—
Residential 1-4 Family - Commercial	4		214		—
Residential 1-4 Family - Consumer	79		9,886		—
Residential 1-4 Family - Revolving	2		55		—
Consumer	5		34		—
Other Commercial	1		456		—
Total performing	107	$	15,303	$	26
Nonperforming
Commercial Real Estate - Owner Occupied	2	$	165	$	—
Commercial & Industrial	2		128		—
Residential 1-4 Family - Commercial	1		71		—
Residential 1-4 Family - Consumer	21		4,572		—
Residential 1-4 Family - Revolving	3		106		—
Total nonperforming	29	$	5,042	$	—
Total performing and nonperforming	136	$	20,345	$	26

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 and six months ended June 30, 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 and six months ended June 30, 2020 (dollars in thousands):


	All Restructurings
	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		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	4	$	353	4	$	353
Residential 1-4 Family - Consumer	3		326	3		326
Consumer	1		10	1		10
Total loan term extended at a market rate	8	$	689	8	$	689

Term modification, below market rate
Construction and Land Development	—	$	—	1	$	35
Residential 1-4 Family - Consumer	3		172	13		1,937
Residential 1-4 Family - Revolving	1		52	1		52
Total loan term extended at a below market rate	4	$	224	15	$	2,024

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

Total	12	$	913	23	$	2,713

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 and six months ended June 30, 2020 (dollars in thousands):





	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	Commercial		Consumer		Total		Commercial		Consumer		Total
Balance at beginning of period	$	77,843	$	63,200	$	141,043	$	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 adopting ASC 326		—		—		—		6,184		41,300		47,484
Loans charged-off		(1,590)		(3,087)		(4,677)		(4,558)		(7,270)		(11,828)
Recoveries credited to allowance		708		703		1,411		1,862		1,709		3,571
Provision charged to operations		34,993		(2,793)		32,200		77,525		10,931		88,456
Balance at end of period	$	111,954	$	58,023	$	169,977	$	111,954	$	58,023	$	169,977

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 June 30, 2020 (dollars in thousands):


		June 30, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Construction and Land Development
Pass	$	137,981	$	453,779	$	395,935	$	64,529	$	47,982	$	70,524	$	29,060	$	1,199,790
Watch & Special Mention		4,492		6,859		1,061		350		5,759		16,202		2,509		37,232
Substandard		—		1		59		962		2,468		7,427		—		10,917
Total Construction and Land Development	$	142,473	$	460,639	$	397,055	$	65,841	$	56,209	$	94,153	$	31,569	$	1,247,939

Commercial Real Estate - Owner Occupied
Pass	$	144,263	$	384,862	$	290,813	$	258,877	$	147,657	$	658,853	$	23,773	$	1,909,098
Watch & Special Mention		—		10,694		24,683		15,082		28,604		57,783		2,475		139,321
Substandard		—		—		1,106		400		1,123		15,664		375		18,668
Total Commercial Real Estate - Owner Occupied	$	144,263	$	395,556	$	316,602	$	274,359	$	177,384	$	732,300	$	26,623	$	2,067,087

Commercial Real Estate - Non-Owner Occupied
Pass	$	214,340	$	515,046	$	488,913	$	498,462	$	455,214	$	1,121,284	$	50,855	$	3,344,114
Watch & Special Mention		1,265		17,170		14,631		16,585		20,830		33,911		249		104,641
Substandard		—		—		164		—		25		5,981		200		6,370
Total Commercial Real Estate - Non-Owner Occupied	$	215,605	$	532,216	$	503,708	$	515,047	$	476,069	$	1,161,176	$	51,304	$	3,455,125

Commercial & Industrial
Pass	$	1,868,291	$	439,598	$	241,038	$	85,126	$	82,301	$	169,136	$	601,547	$	3,487,037
Watch & Special Mention		1,630		4,963		11,326		2,963		5,536		5,656		27,680		59,754
Substandard		—		484		828		158		826		2,806		4,078		9,180
Total Commercial & Industrial	$	1,869,921	$	445,045	$	253,192	$	88,247	$	88,663	$	177,598	$	633,305	$	3,555,971

Multifamily Real Estate
Pass	$	79,312	$	80,058	$	70,145	$	144,193	$	70,943	$	245,687	$	6,904	$	697,242
Watch & Special Mention		—		653		4,415		8,254		1,137		5,619		—		20,078
Substandard		—		—		—		—		—		399		—		399
Total Multifamily Real Estate	$	79,312	$	80,711	$	74,560	$	152,447	$	72,080	$	251,705	$	6,904	$	717,719

Residential 1-4 Family - Commercial
Pass	$	58,222	$	105,249	$	78,610	$	97,653	$	82,407	$	244,579	$	1,721	$	668,441
Watch & Special Mention		1,214		5,356		8,535		5,022		2,053		14,874		—		37,054
Substandard		—		485		324		630		1,180		6,782		488		9,889
Total Residential 1-4 Family - Commercial	$	59,436	$	111,090	$	87,469	$	103,305	$	85,640	$	266,235	$	2,209	$	715,384

Other Commercial
Pass	$	121,097	$	114,883	$	10,376	$	40,118	$	16,919	$	60,477	$	18,630	$	382,500
Watch & Special Mention		—		—		629		1,324		927		3,251		—		6,131
Substandard		—		—		—		59		—		500		—		559
Total Other Commercial	$	121,097	$	114,883	$	11,005	$	41,501	$	17,846	$	64,228	$	18,630	$	389,190

Total Commercial
Pass	$	2,623,506	$	2,093,475	$	1,575,830	$	1,188,958	$	903,423	$	2,570,540	$	732,490	$	11,688,222
Watch & Special Mention		8,601		45,695		65,280		49,580		64,846		137,296		32,913		404,211
Substandard		—		970		2,481		2,209		5,622		39,559		5,141		55,982
Total Commercial	$	2,632,107	$	2,140,140	$	1,643,591	$	1,240,747	$	973,891	$	2,747,395	$	770,544	$	12,148,415

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 June 30, 2020 (dollars in thousands):


		June 30, 2020
		Term Loans Amortized Cost Basis by Origination Year


	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Residential 1-4 Family - Consumer
Current	$	91,069	$	86,537	$	90,968	$	87,658	$	120,412	$	342,221	$	12	$	818,877
30-59 Days Past Due		37		—		20		90		185		897		—		1,229
60-89 Days Past Due		—		636		109		1,986		250		836		—		3,817
90+ Days Past Due		162		1,756		151		446		223		2,361		—		5,099
Nonaccrual		—		—		718		879		790		9,642		—		12,029
Total Residential 1-4 Family - Consumer	$	91,268	$	88,929	$	91,966	$	91,059	$	121,860	$	355,957	$	12	$	841,051

Residential 1-4 Family - Revolving
Current	$	9,667	$	4,666	$	2,167	$	18	$	—	$	653	$	602,001	$	619,172
30-59 Days Past Due		—		—		—		—		—		—		1,924		1,924
60-89 Days Past Due		—		—		—		—		—		—		1,048		1,048
90+ Days Past Due		—		—		—		—		—		—		1,995		1,995
Nonaccrual		—		—		—		—		—		314		3,312		3,626
Total Residential 1-4 Family - Revolving	$	9,667	$	4,666	$	2,167	$	18	$	—	$	967	$	610,280	$	627,765

Consumer
Current	$	24,807	$	91,712	$	94,273	$	30,170	$	13,211	$	18,930	$	35,616	$	308,719
30-59 Days Past Due		14		261		407		74		61		2		25		844
60-89 Days Past Due		19		198		296		30		6		—		12		561
90+ Days Past Due		—		92		382		85		19		215		364		1,157
Nonaccrual		—		—		—		—		2		79		—		81
Total Consumer	$	24,840	$	92,263	$	95,358	$	30,359	$	13,299	$	19,226	$	36,017	$	311,362

Auto
Current	$	89,044	$	138,532	$	70,484	$	43,386	$	24,536	$	11,840	$	—	$	377,822
30-59 Days Past Due		88		291		247		254		186		110		—		1,176
60-89 Days Past Due		—		90		21		41		84		54		—		290
90+ Days Past Due		—		11		62		58		9		41		—		181
Nonaccrual		—		142		84		112		161		85		—		584
Total Auto	$	89,132	$	139,066	$	70,898	$	43,851	$	24,976	$	12,130	$	—	$	380,053

Total Consumer
Current	$	214,587	$	321,447	$	257,892	$	161,232	$	158,159	$	373,644	$	637,629	$	2,124,590
30-59 Days Past Due		139		552		674		418		432		1,009		1,949		5,173
60-89 Days Past Due		19		924		426		2,057		340		890		1,060		5,716
90+ Days Past Due		162		1,859		595		589		251		2,617		2,359		8,432
Nonaccrual		—		142		802		991		953		10,120		3,312		16,320
Total Consumer	$	214,907	$	324,924	$	260,389	$	165,287	$	160,135	$	388,280	$	646,309	$	2,160,231

The Company did not have any material revolving loans convert to term during the three and six months ended June 30, 2020.

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 June 30, 2020, the amortized cost of the Company’s PCD loans totaled $73.2 million, which had an estimated ALLL of $4.5 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 and six months ended June 30, 2019 (dollars in thousands):


	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			Interest				Interest
	Average		Income		Average		Income
	Investment		Recognized		Investment		Recognized
Construction and Land Development	$	7,811	$	13	$	8,167	$	54
Commercial Real Estate - Owner Occupied		12,002		91		12,030		200
Commercial Real Estate - Non-Owner Occupied		6,931		60		6,944		119
Commercial & Industrial		3,038		27		3,081		59
Residential 1-4 Family - Commercial		6,125		29		5,848		56
Residential 1-4 Family - Consumer		19,830		50		19,939		187
Residential 1-4 Family - Revolving		3,489		38		3,506		78
Auto		493		—		520		1
Consumer		191		2		195		3
Other Commercial		579		7		583		15
Total impaired loans	$	60,489	$	317	$	60,813	$	772

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 and six months ended June 30, 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 and six months ended June 30, 2019 (dollars in thousands):


	All Restructurings
	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
		Recorded			Recorded
	No. of	Investment at		No. of	Investment at
	Loans	Period End		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
Residential 1-4 Family - Commercial	—	$	—	1	$	74
Residential 1-4 Family - Consumer	1		43	3		299
Consumer	—		—	1		9
Total loan term extended at a market rate	1	$	43	5	$	382

Term modification, below market rate
Residential 1-4 Family - Consumer	9	$	483	14	$	1,410
Consumer	—		—	1		6
Total loan term extended at a below market rate	9	$	483	15	$	1,416

Total	10	$	526	20	$	1,798

Allowance for Loan and Lease Losses

The following table shows the ALLL activity by class for the six months ended June 30, 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):


	Six Months Ended June 30, 2019
	Allowance for loan 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	$	97	$	(800)	$	(101)	$	5,999
Commercial Real Estate - Owner Occupied		4,023		54		(231)		235		4,081
Commercial Real Estate - Non-Owner Occupied		8,865		92		—		654		9,611
Multifamily Real Estate		649		85		—		(70)		664
Commercial & Industrial		7,636		681		(1,858)		1,237		7,696
Residential 1-4 Family - Commercial		1,692		127		(267)		66		1,618
Residential 1-4 Family - Consumer		1,492		219		(37)		218		1,892
Residential 1-4 Family - Revolving		1,297		434		(523)		47		1,255
Auto		1,443		339		(703)		334		1,413
Consumer and all other⁽¹⁾		7,145		1,238		(7,454)		7,305		8,234
Total	$	41,045	$	3,366	$	(11,873)	$	9,925	$	42,463

⁽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 June 30, 2019 (dollars in thousands):


	For the Six Months Ended June 30,
	2019
Balance at beginning of period	$	31,201
Additions		2,432
Accretion		(6,510)
Reclass of nonaccretable difference due to improvement in expected cash flows		716
Measurement period adjustment		2,629
Other, net ⁽¹⁾		2,182
Balance at end of period	$	32,650

(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.