Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses Loans are carried at their unpaid principal amount outstanding net of unamortized fees and origination costs, partial charge-offs, if any, and in the case of acquired loans, unaccreted fair value or purchase accounting adjustments. All lending decisions are based upon a thorough evaluation of the financial strength and credit history of the borrower and the quality and value of the collateral securing the loan. The Company makes owner-occupied real estate ("OORE") loans, which are secured in part by the real estate that is generally the offices or production facilities of the borrower. In some cases, the real estate is not held by the commercial enterprise, rather it is owned by the principals of the business or an entity controlled by the principals. The Company classifies OORE loans as commercial and industrial, as the primary source of repayment of the loan is generally dependent on the financial performance of the commercial enterprise occupying the property, with the real estate being a secondary source of repayment. All periods presented herein reflect this classification. The Company holds guaranteed student loans ("GSLs"), which were purchased by Legacy Xenith in 2013 and acquired by the Company in the Merger. These loans were originated under the Federal Family Education Loan Program ("FFELP"), authorized by the Higher Education Act of 1965, as amended. Pursuant to the FFELP, the student loans are substantially guaranteed by a guaranty agency and reinsured by the U.S. Department of Education. The purchased loans were also part of the Federal Rehabilitated Loan Program ("FRLP"), under which borrowers on defaulted loans have the one-time opportunity to bring their loans current. These loans, which are then owned by an agency guarantor, are brought current and sold to approved lenders. The Company has an agreement with a third-party servicer of student loans to provide all day-to-day operational requirements for the servicing of the loans. The GSLs carry a nearly 98% guarantee of principal and accrued interest. In allocating the consideration paid in the Merger, the Company recorded a fair value adjustment for GSLs that reduced the carrying amount in the GSLs to approximate the guaranteed portion of the loans. In the three-month period ended March 31, 2017, the Company sold a portion of the GSLs. The proceeds from the sale were $9.9 million , and the gain on the sale was $19 thousand , which is recorded in noninterest income on the Company's consolidated statements of income. The following table presents the Company's composition of loans as of the dates stated: March 31, 2017 December 31, 2016 Commercial & Industrial $ 787,443 $ 895,952 Construction 255,309 257,712 Commercial real estate 591,739 585,727 Residential real estate 391,971 405,291 Consumer 296,781 274,008 Guaranteed student loans 32,533 44,043 Deferred loan fees and related costs 1,032 1,323 Total loans $ 2,356,808 $ 2,464,056 As of March 31, 2017 and December 31, 2016, the Company had $577.8 million and $625.0 million , respectively, of loans pledged to the FRB and the FHLB as collateral for borrowings. Acquired Loans Acquired loans are initially recorded at estimated fair value as of the date of acquisition; therefore, any related allowance for loan losses is not carried over or established at acquisition. The difference between contractually required amounts receivable and the acquisition date fair value of loans that are not deemed credit-impaired at acquisition is accreted (recognized) into income over the life of the loan either on a straight-line basis or based on the underlying principal payments on the loan. Any deterioration in credit quality subsequent to acquisition for these loans is reflected in the allowance for loan losses at such time the remaining purchase accounting adjustment (discount) for the acquired loans is inadequate to cover the allowance needs of these loans. Loans acquired with evidence of credit deterioration since origination and for which it is probable at the date of acquisition that contractually required principal and interest payments will not be collected are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality ("ASC 310-30"). A portion of the loans acquired in the Merger were deemed to be purchased credit-impaired loans qualifying for accounting under ASC 310-30. In applying ASC 310-30 to acquired loans, the Company must estimate the amount and timing of cash flows expected to be collected. The estimation of the amount and timing of expected cash flows to be collected requires significant judgment, including default rates, the amount and timing of prepayments, and the value and timing of the liquidation of underlying collateral, in addition to other factors. ASC 310-30 requires periodic re-evaluation of expected cash flows for purchased credit-impaired loans subsequent to acquisition date. Decreases in expected cash flows attributable to credit will generally result in an impairment charge to earnings such that the accretable yield remains unchanged. Increases in expected cash flows will result in an increase in the accretable yield recognized in income over the remaining period of expected cash flows from the loan. Any impairment charge recorded as a result of a re-evaluation is recorded as an increase in the allowance for loan and lease losses. In the period since the Merger through March 31, 2017, impairment of $9 thousand has been recorded with respect to loans accounted for under ASC 310-30. Acquired loans for which the amount or timing of cash flows cannot be predicted are accounted for under the cost recovery method, whereby principal and interest payments received reduce the carrying value of the loan until such amount has been received. Amounts received in excess of the carrying value are reported in interest income. Allowance for Loan Losses The following table presents the allowance for loan loss activity by loan type for the periods stated: Three Months Ended March 31, 2017 2016 Balance at beginning of period $ 21,940 $ 23,157 Charge-offs: Commercial & Industrial 2,787 258 Construction 55 312 Commercial real estate 720 540 Residential real estate 240 1,603 Consumer 664 19 Guaranteed student loans — — Overdrafts 26 34 Total charge-offs 4,492 2,766 Recoveries: Commercial & Industrial 127 89 Construction 249 268 Commercial real estate 193 222 Residential real estate 221 220 Consumer 28 10 Guaranteed student loans — — Overdrafts — — Total recoveries 818 809 Net charge-offs 3,674 1,957 Provision (benefit) for loan losses 9 (25 ) Balance at end of period $ 18,275 $ 21,175 The Company has no allowance for loan losses on its guaranteed student loan portfolio. In allocating the consideration paid in the Merger, the Company recorded a fair value adjustment for GSLs, which reduced the carrying amount in the portfolio to an amount that approximates the portion of the loans subject to federal guarantee. The following tables present the allowance for loan lease losses, with the amount independently and collectively evaluated for impairment, and loan balances by loan type as of the dates stated: March 31, 2017 Individually Evaluated Collectively Evaluated Total Amount for Impairment for Impairment Allowance for loan losses applicable to: Purchased credit-impaired loans Commercial & Industrial $ — $ — $ — Construction — — — Commercial real estate — — — Residential real estate 9 9 — Consumer — — — Total purchased credit-impaired loans 9 9 — Originated and other purchased loans Commercial & Industrial 4,250 2,324 1,926 Construction 1,130 73 1,057 Commercial real estate 1,747 — 1,747 Residential real estate 4,456 1,445 3,011 Consumer 1,463 40 1,423 Guaranteed student loans — — — Unallocated qualitative 5,220 — 5,220 Total originated and other purchased loans 18,266 3,882 14,384 Total allowance for loan losses $ 18,275 $ 3,891 $ 14,384 Loan balances applicable to: Purchased credit-impaired loans Commercial & Industrial $ 865 $ 865 $ — Construction 978 978 — Commercial real estate 1,050 1,050 — Residential real estate 2,101 2,101 — Consumer 54 54 — Total purchased credit-impaired loans 5,048 5,048 — Originated and other purchased loans Commercial & Industrial 786,578 20,856 765,722 Construction 254,331 7,162 247,169 Commercial real estate 590,689 7,417 583,272 Residential real estate 389,870 12,276 377,594 Consumer 296,727 882 295,845 Guaranteed student loans 32,533 — 32,533 Deferred loan fees and related costs 1,032 — 1,032 Total originated and other purchased loans 2,351,760 48,593 2,303,167 Total loans $ 2,356,808 $ 53,641 $ 2,303,167 December 31, 2016 Individually Evaluated Collectively Evaluated Total Amount for Impairment for Impairment Allowance for loan losses applicable to: Purchased credit-impaired loans Commercial & Industrial $ — $ — $ — Construction — — — Commercial real estate — — — Residential real estate — — — Consumer — — — Total purchased credit-impaired loans — — — Originated and other purchased loans Commercial & Industrial 5,816 3,327 2,489 Construction 1,551 161 1,390 Commercial real estate 2,410 734 1,676 Residential real estate 5,205 1,275 3,930 Consumer 1,967 606 1,361 Guaranteed student loans — — — Unallocated qualitative 4,991 — 4,991 Total originated and other purchased loans 21,940 6,103 15,837 Total allowance for loan losses $ 21,940 $ 6,103 $ 15,837 Loan balances applicable to: Purchased credit-impaired loans Commercial & Industrial $ 897 $ 897 $ — Construction 992 992 — Commercial real estate 1,090 1,090 — Residential real estate 2,122 2,122 — Consumer 55 55 — Total purchased credit-impaired loans 5,156 5,156 — Originated and other purchased loans Commercial & Industrial 895,055 24,052 871,003 Construction 256,720 7,982 248,738 Commercial real estate 584,637 9,184 575,453 Residential real estate 403,169 12,637 390,532 Consumer 273,953 1,551 272,402 Guaranteed student loans 44,043 — 44,043 Deferred loan fees and related costs 1,323 — 1,323 Total originated and other purchased loans 2,458,900 55,406 2,403,494 Total loans $ 2,464,056 $ 60,562 $ 2,403,494 The following tables present the loans that were individually evaluated for impairment as of the dates and for the periods stated. The tables present those loans with and without an allowance and various additional data. March 31, 2017 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Purchased credit-impaired loans Commercial & Industrial $ 865 $ 1,254 $ — Construction 978 1,433 — Commercial real estate 1,050 1,471 — Residential real estate 2,047 2,823 — Consumer 54 90 — Originated and other purchased loans Commercial & Industrial 13,362 14,844 — Construction 6,962 16,370 — Commercial real estate 7,417 10,176 — Residential real estate 6,182 6,874 — Consumer 804 1,342 — With an allowance recorded: Purchased credit-impaired loans Commercial & Industrial — — — Construction — — — Commercial real estate — — — Residential real estate 54 73 9 Consumer — — — Originated and other purchased loans Commercial & Industrial 7,494 7,494 2,324 Construction 200 200 73 Commercial real estate — — — Residential real estate 6,094 6,094 1,445 Consumer 78 78 40 Total loans individually evaluated for impairment $ 53,641 $ 70,616 $ 3,891 December 31, 2016 Recorded Investment Unpaid Principal Balance Related Allowance With no related allowance recorded: Purchased credit-impaired loans Commercial & Industrial $ 897 $ 1,298 $ — Construction 992 1,448 — Commercial real estate 1,090 1,520 — Residential real estate 2,122 2,989 — Consumer 55 92 — Originated and other purchased loans Commercial & Industrial 12,809 14,185 — Construction 7,078 16,327 — Commercial real estate 7,131 9,214 — Residential real estate 7,038 7,816 — Consumer 8 28 — With an allowance recorded: Purchased credit-impaired loans Commercial & Industrial — — — Construction — — — Commercial real estate — — — Residential real estate — — — Consumer — — — Originated and other purchased loans Commercial & Industrial 11,243 16,297 3,327 Construction 904 1,054 161 Commercial real estate 2,053 2,053 734 Residential real estate 5,599 5,631 1,275 Consumer 1,543 1,546 606 Total loans individually evaluated for impairment $ 60,562 $ 81,498 $ 6,103 Three Months Ended March 31, 2017 2016 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance recorded: Purchased credit-impaired loans Commercial & Industrial $ 877 $ — $ — $ — Construction 983 — — — Commercial real estate 1,060 — — — Residential real estate 2,054 10 — — Consumer 54 1 — — Originated and other purchased loans Commercial & Industrial 13,733 81 11,995 88 Construction 7,385 71 840 1 Commercial real estate 7,659 65 4,852 17 Residential real estate 6,862 3 5,419 1 Consumer 815 — 15 — With an allowance recorded: Purchased credit-impaired loans Commercial & Industrial — — — — Construction — — — — Commercial real estate — — — — Residential real estate 55 — — — Consumer — — — — Originated and other purchased loans Commercial & Industrial 7,498 48 11,136 49 Construction 214 — 20,075 49 Commercial real estate — — 4,887 49 Residential real estate 6,170 43 6,480 43 Consumer 84 — 88 — Total loans individually evaluated for impairment $ 55,503 $ 322 $ 65,787 $ 297 The following table presents accretion of acquired loan discounts for the periods stated. The amount of accretion recognized in the periods is dependent on discounts recorded to reflect acquired loans at their estimated fair values as of the date of the Merger. The amount of accretion recognized within a period is based on many factors, including, among other factors, loan prepayments and curtailments; therefore, amounts recognized are subject to volatility. Three Months Ended March 31, 2017 2016 Balance at beginning of period $ 9,030 $ — Additions — — Accretion (1) (1,015 ) — Disposals (2) (300 ) Balance at end of period $ 7,715 $ — _______________________ (1) Accretion amounts are reported in interest income. (2) Disposals represent the reduction of purchase accounting adjustments (loan discounts) due to the resolution of acquired loans at amounts less than the contractually-owed receivable. Of the $12.5 million fair value adjustment recorded as part of the Merger, $3.2 million was related to $9.9 million of purchased credit-impaired loans. The remaining carrying value and fair value adjustment on the purchased credit-impaired loans as of March 31, 2017 were $5.0 million and $2.1 million , respectively. Management believes the Company's allowance for loan losses as of March 31, 2017 is adequate to absorb losses inherent in the portfolio. Although various data and information sources are used to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary, if conditions, circumstances or events are substantially different from the assumptions used in making the assessments. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates. In addition, the allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations. Impaired Loans Total impaired loans were $53.6 million and $60.6 million at March 31, 2017 and December 31, 2016 , respectively. Collateral dependent impaired loans were $43.5 million and $50.2 million at March 31, 2017 and December 31, 2016 , respectively, and are measured at the estimated fair value of the underlying collateral less costs to sell. Impaired loans for which no allowance is provided totaled $39.7 million and $39.2 million at March 31, 2017 and December 31, 2016 , respectively. Loans written down to their estimated fair value of collateral less costs to sell account for $9.7 million and $8.1 million of the impaired loans for which no allowance has been provided as of March 31, 2017 and December 31, 2016 , respectively. Nonperforming Assets Nonperforming assets consist of nonaccrual loans and other real estate owned and repossessed assets. As of March 31, 2017 , the Company had no loans other than GSLs that were past due greater than 90 days and accruing interest. The carrying value and accrued interest receivable of GSLs are substantially fully guaranteed by the federal government. Pursuant to the guarantee, the Company may make a claim for payment on the loan after a period of 270 days during which no payment has been made on the loan. Payments of principal and interest are guaranteed up to the date of payment under the guarantee. The following table presents nonperforming assets as of the dates stated: March 31, 2017 December 31, 2016 Purchased credit-impaired loans: Commercial & Industrial $ 865 $ 897 Construction 978 992 Commercial real estate 1,050 1,090 Residential real estate 1,656 1,549 Consumer 37 39 Total purchased credit-impaired loans 4,586 4,567 Originated and other purchased loans: Commercial & Industrial 8,682 11,805 Construction 2,109 2,830 Commercial real estate 2,326 3,686 Residential real estate 7,592 7,931 Consumer 883 1,551 Total originated and other purchased loans 21,592 27,803 Total nonaccrual loans 26,178 32,370 Other real estate owned 5,185 5,345 Total nonperforming assets $ 31,363 $ 37,715 The following table presents a reconciliation of nonaccrual loans to impaired loans as of the dates stated: March 31, 2017 December 31, 2016 Nonaccrual loans $ 26,178 $ 32,370 TDRs on accrual 27,001 27,603 Impaired loans on accrual 462 589 Total impaired loans $ 53,641 $ 60,562 The following table presents a rollforward of nonaccrual loans for the period stated: Commercial & Industrial Construction Commercial real estate Residential real estate Consumer Total Balance at December 31, 2016 $ 12,702 $ 3,822 $ 4,776 $ 9,480 $ 1,590 $ 32,370 Transfers in 3,957 — — 2,103 126 6,186 Transfers to other real estate owned — (19 ) — (105 ) — (124 ) Charge-offs (2,787 ) (55 ) (720 ) (240 ) (690 ) (4,492 ) Payments (3,577 ) (661 ) (183 ) (594 ) (106 ) (5,121 ) Return to accrual (748 ) — (497 ) (1,396 ) — (2,641 ) Loan type reclassification — — — — — — Balance at March 31, 2017 $ 9,547 $ 3,087 $ 3,376 $ 9,248 $ 920 $ 26,178 Age Analysis of Past Due Loans The following presents an age analysis of loans as of the dates stated: March 31, 2017 30-89 days 90+ days Total Total Current Past Due Past Due Past Due Loans Purchased credit-impaired loans: Commercial & Industrial $ 142 $ — $ 723 $ 723 $ 865 Construction 764 34 180 214 978 Commercial real estate 1,050 — — — 1,050 Residential real estate 1,334 54 713 767 2,101 Consumer 17 — 37 37 54 Total purchased credit-impaired loans 3,307 88 1,653 1,741 5,048 Originated and other purchased loans: Commercial & Industrial 780,470 1,598 4,510 6,108 786,578 Construction 251,988 376 1,967 2,343 254,331 Commercial real estate 586,946 1,417 2,326 3,743 590,689 Residential real estate 380,621 5,733 3,516 9,249 389,870 Consumer 295,853 4 870 874 296,727 Guaranteed student loans 23,495 3,957 5,081 9,038 32,533 Deferred loan fees and related costs 1,032 — — — 1,032 Total originated and other purchased loans 2,320,405 13,085 18,270 31,355 2,351,760 Total loans $ 2,323,712 $ 13,173 $ 19,923 $ 33,096 $ 2,356,808 December 31, 2016 30-89 days 90+ days Total Total Current Past Due Past Due Past Due Loans Purchased credit-impaired loans: Commercial & Industrial $ 145 $ 11 $ 741 $ 752 $ 897 Construction 774 181 37 218 992 Commercial real estate 1,090 — — — 1,090 Residential real estate 1,261 297 564 861 2,122 Consumer 16 — 39 39 55 Total purchased credit-impaired loans 3,286 489 1,381 1,870 5,156 Originated and other purchased loans: Commercial & Industrial 883,531 1,714 9,810 11,524 895,055 Construction 254,058 53 2,609 2,662 256,720 Commercial real estate 580,355 2,911 1,371 4,282 584,637 Residential real estate 395,579 5,124 2,466 7,590 403,169 Consumer 272,147 1,630 176 1,806 273,953 Guaranteed student loans 30,909 5,562 7,572 13,134 44,043 Deferred loan fees and related costs 1,323 — — — 1,323 Total originated and other purchased loans 2,417,902 16,994 24,004 40,998 2,458,900 Total loans $ 2,421,188 $ 17,483 $ 25,385 $ 42,868 $ 2,464,056 Credit Quality The following tables present information about the credit quality of the loan portfolio using the Company's internal rating system as an indicator as of the dates stated: March 31, 2017 Special Pass Substandard Total Purchased credit-impaired loans: Commercial & Industrial $ — $ — $ 865 $ 865 Construction — — 978 978 Commercial real estate — — 1,050 1,050 Residential real estate — — 2,101 2,101 Consumer — — 54 54 Total purchased credit-impaired loans — — 5,048 5,048 Originated and other purchased loans: Commercial & Industrial 764,411 12,874 9,293 786,578 Construction 245,087 6,766 2,478 254,331 Commercial real estate 579,273 4,022 7,394 590,689 Residential real estate 353,192 22,297 14,381 389,870 Consumer 293,695 2,135 897 296,727 Guaranteed student loans 32,533 — — 32,533 Deferred loan fees and related costs 1,032 — — 1,032 Total originated and other purchased loans 2,269,223 48,094 34,443 2,351,760 Total loans $ 2,269,223 $ 48,094 $ 39,491 $ 2,356,808 December 31, 2016 Special Pass Substandard Total Purchased credit-impaired loans: Commercial & Industrial $ — $ — $ 897 $ 897 Construction — — 992 992 Commercial real estate — — 1,090 1,090 Residential real estate — — 2,122 2,122 Consumer — — 55 55 Total purchased credit-impaired loans — — 5,156 5,156 Originated and other purchased loans: Commercial & Industrial 873,180 9,391 12,484 895,055 Construction 247,335 6,460 2,925 256,720 Commercial real estate 571,781 3,689 9,167 584,637 Residential real estate 366,940 21,646 14,583 403,169 Consumer 270,919 1,467 1,567 273,953 Guaranteed student loans 44,043 — — 44,043 Deferred loan fees and related costs 1,323 — — 1,323 Total originated and other purchased loans 2,375,521 42,653 40,726 2,458,900 Total loans $ 2,375,521 $ 42,653 $ 45,882 $ 2,464,056 Troubled Debt Restructuring ("TDRs") Loans meeting the criteria to be classified as TDRs are included in impaired loans. The following table presents the number of and recorded investment in loans classified as TDRs by management as of the dates stated: March 31, 2017 December 31, 2016 Recorded Recorded Number of Contracts Number of Contracts Commercial & Industrial 13 $ 12,979 13 $ 13,067 Construction 4 5,120 5 5,225 Commercial real estate 6 5,091 7 5,498 Residential real estate 12 4,969 14 5,082 Consumer — — — — Total 35 $ 28,159 39 $ 28,872 Of TDRs, amounts totaling $27.0 million were accruing and $1.2 million were nonaccruing at March 31, 2017 , and $27.6 million were accruing and $1.3 million were nonaccruing at December 31, 2016 . Loans classified as TDRs that are on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers whether such loans may return to accrual status. Loans classified as TDRs in nonaccrual status may be returned to accrual status after a period of performance under which the borrower demonstrates the ability and willingness to repay the loan in accordance with the modified terms. For the three months ended March 31, 2017 , none of the nonaccrual TDRs were returned to accrual status. The following table presents a rollforward of accruing and nonaccruing TDRs for the period stated: Accruing Nonaccruing Total Balance at December 31, 2016 $ 27,603 $ 1,269 $ 28,872 Charge-offs — (7 ) (7 ) Payments (602 ) (104 ) (706 ) New TDR designation — — — Release TDR designation — — — Transfer — — — Balance at March 31, 2017 $ 27,001 $ 1,158 $ 28,159 The following table presents performing and nonperforming loans identified as TDRs, by loan type, as of the dates stated: March 31, 2017 December 31, 2016 Performing TDRs: Commercial & Industrial $ 12,174 $ 12,247 Construction 5,052 5,152 Commercial real estate 5,091 5,498 Residential real estate 4,684 4,706 Consumer — — Total performing TDRs 27,001 27,603 Nonperforming TDRs: Commercial & Industrial 805 820 Construction 68 73 Commercial real estate — — Residential real estate 285 376 Consumer — — Total nonperforming TDRs 1,158 1,269 Total TDRs $ 28,159 $ 28,872 The allowance for loan losses allocated to TDRs was $648 thousand and $705 thousand at March 31, 2017 and December 31, 2016 , respectively. TDR balances charged off were $7 thousand in the three months ended March 31, 2017. There were no loans designated as TDRs by management during the three months ended March 31, 2017 and 2016 . For the three months ended March 31, 2017 and 2016 , the Company had no loans for which there was a payment default and subsequent movement to nonaccrual status that were modified as TDRs within the previous 12 months. The Company had no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs at March 31, 2017 and December 31, 2016 . |