| Loans | Major classifications of loans held for investment
are as follows:
September 30, 2017 December 31, 2016
Legacy (1) Acquired Total Legacy (1) Acquired Total
Commercial Real Estate
Owner Occupied $ 274,369,718 $ 87,103,763 $ 361,473,481 $ 238,220,475 $ 53,850,612 $ 292,071,087
Investment 449,038,012 57,878,673 506,916,685 414,012,709 37,687,804 451,700,513
Hospitality 164,225,752 7,479,763 171,705,515 141,611,858 11,193,427 152,805,285
Land and A&D 57,483,395 9,402,012 66,885,407 51,323,297 6,015,813 57,339,110
Residential Real Estate
First Lien-Investment 82,184,576 22,145,004 104,329,580 72,150,512 23,623,660 95,774,172
First Lien-Owner Occupied 65,465,065 64,885,116 130,350,181 54,732,604 42,443,767 97,176,371
Residential Land and A&D 39,072,030 7,340,894 46,412,924 39,667,222 5,558,232 45,225,454
HELOC and Jr. Liens 21,881,331 16,846,856 38,728,187 24,385,215 2,633,718 27,018,933
Commercial and Industrial 143,734,225 39,174,650 182,908,875 136,259,560 5,733,904 141,993,464
Consumer 7,076,344 53,726,972 60,803,316 4,868,909 139,966 5,008,875
1,304,530,448 365,983,703 1,670,514,151 1,177,232,361 188,880,903 1,366,113,264
Allowance for loan losses (5,634,135 ) (182,052 ) (5,816,187 ) (6,084,478 ) (110,991 ) (6,195,469 )
Deferred loan costs, net 1,807,204 — 1,807,204 1,257,411 — 1,257,411
$ 1,300,703,517 $ 365,801,651 $ 1,666,505,168 $ 1,172,405,294 $ 188,769,912 $ 1,361,175,206
(1) As a result of the acquisitions of Maryland Bankcorp, Inc. (“Maryland Bankcorp”), the parent company of Maryland Bank & Trust Company, N.A. (“MB&T”), in April 2011, WSB Holdings Inc., the parent company of The Washington Savings Bank (“WSB”), in May 2013, Regal Bancorp, Inc. (“Regal”), the parent company of Regal Bank & Trust (“Regal Bank), in December 2015 and DCB, the parent company of Damascus in July 2017, we have segmented the portfolio into two components, “Legacy” loans originated by Old Line Bank and “Acquired” loans acquired from MB&T, WSB, Regal Bank and Damascus. Credit Policies and Administration We have adopted a comprehensive lending policy,
which includes stringent underwriting standards for all types of loans. We have designed our underwriting standards to promote
a complete banking relationship rather than a transactional relationship. In an effort to manage risk, prior to funding, the loan
committee consisting of the Executive Officers and seven members of the Board of Directors must approve by a majority vote all
credit decisions in excess of a lending officer’s lending authority. Management believes that it employs experienced
lending officers, secures appropriate collateral and carefully monitors the financial condition of its borrowers and loan concentrations. In addition to the internal business processes
employed in the credit administration area, Old Line Bank retains an outside independent firm to review the loan portfolio. This
firm performs a detailed annual review and an interim update. We use the results of the firm’s report to validate our internal
ratings and we review the commentary on specific loans and on our loan administration activities in order to improve our operations. Commercial Real Estate Loans We finance commercial real estate for our clients,
for owner occupied and investment properties, hospitality and land acquisition and development. Commercial real estate loans totaled
$1.1 billion and $953.9 million at September 30, 2017 and December 31, 2016, respectively. This lending has involved loans
secured by owner-occupied commercial buildings for office, storage and warehouse space, as well as non-owner occupied commercial
buildings. Our underwriting criteria for commercial real estate loans include maximum loan-to-value ratios, debt coverage ratios,
secondary sources of repayments, guarantor requirements, net worth requirements and quality of cash flows. Loans secured by commercial
real estate may be large in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments
on such loans are often dependent on successful operation or management of the properties. We will generally finance owner occupied
commercial real estate that does not exceed loan to value of 80% and investor real estate at a maximum loan to value of 75%. Commercial real estate lending entails significant
risks. Risks inherent in managing our commercial real estate portfolio relate to sudden or gradual drops in property values as
well as changes in the economic climate that may detrimentally impact the borrower’s ability to repay. We monitor the financial
condition and operating performance of the borrower through a review of annual tax returns and updated financial statements. In
addition, we meet with the borrower and/or perform site visits as required. At September 30, 2017, we had approximately
$171.7 million of commercial real estate loans outstanding to the hospitality industry. An individual review of these loans indicates
that they generally have a low loan to value, more than acceptable existing or projected cash flow, are to experienced operators
and are generally dispersed throughout the region. Residential Real Estate Loans We offer a variety of consumer oriented residential
real estate loans including home equity lines of credit, home improvement loans and first or second mortgages on owner occupied
and investment properties. Our residential loan portfolio amounted to $319.8 million and $265.2 million at September 30, 2017
and December 31, 2016, respectively. Although most of these loans are in our market area, the diversity of the individual loans
in the portfolio reduces our potential risk. Usually, we secure our residential real estate loans with a security interest in the
borrower’s primary or secondary residence with a loan to value not exceeding 85%. Our initial underwriting includes an analysis
of the borrower’s debt/income ratio which generally may not exceed 43%, collateral value, length of employment and prior
credit history. A credit score of 660 is required. We do not originate any subprime residential real estate loans. This segment of our portfolio also consists
of funds advanced for construction of custom single family residences homes (where the home buyer is the borrower) and financing
to builders for the construction of pre-sold homes and multi-family housing. These loans generally have short durations, meaning
maturities typically of twelve months or less. Old Line Bank limits its construction lending risk through adherence to established
underwriting procedures. These loans generally have short durations, meaning maturities typically of twelve months or less. Residential
houses, multi-family dwellings and commercial buildings under construction and the underlying land for which the loan was obtained
secure the construction loans. The vast majority of these loans are concentrated in our market area. Construction lending also entails significant
risk. These risks generally involve larger loan balances concentrated with single borrowers with funds advanced upon the security
of the land or the project under construction. An appraisal of the property estimates the value of the project “as is and
as if” completed. An appraisal of the property estimates the value of the project prior to completion of construction. Thus,
initial funds are advanced based on the current value of the property with the remaining construction funds advanced under a budget
sufficient to successfully complete the project within the “as completed” loan to value. To further mitigate the risks,
we generally limit loan amounts to 80% or less of appraised values and obtain first lien positions on the property. We generally only offer real estate construction
financing only to experienced builders, commercial entities or individuals who have demonstrated the ability to obtain a permanent
loan “take-out” (conversion to a permanent mortgage upon completion of the project). We also perform a complete analysis
of the borrower and the project under construction. This analysis includes a review of the cost to construct, the borrower’s
ability to obtain a permanent “take-out” the cash flow available to support the debt payments and construction costs
in excess of loan proceeds, and the value of the collateral. During construction, we advance funds on these loans on a percentage
of completion basis. We inspect each project as needed prior to advancing funds during the term of the construction loan. We may
provide permanent financing on the same projects for which we have provided the construction financing. We also offer fixed rate home improvement loans.
Our home equity and home improvement loan portfolio gives us a diverse client base. Although most of these loans are in our market
area, the diversity of the individual loans in the portfolio reduces our potential risk. Usually, we secure our home equity loans
and lines of credit with a security interest in the borrower’s primary or secondary residence. Under our loan approval policy, all residential
real estate loans approved must comply with federal regulations. Generally, we will make residential mortgage loans in amounts
up to the limits established by Fannie Mae and Freddie Mac for secondary market resale purposes. Currently this amount for single-family
residential loans currently varies from $424,100 up to a maximum of $636,150 for certain high-cost designated areas. We also make
residential mortgage loans up to limits established by the Federal Housing Administration, which currently is $636,150. The Washington,
D.C. and Baltimore areas are both considered high-cost designated areas. We will, however, make loans in excess of these amounts
if we believe that we can sell the loans in the secondary market or that the loans should be held in our portfolio. For loans sold
in the secondary market, we typically require a credit score or 640, with some exceptions provided we receive an approval recommendation
from FannieMae, FreddieMac or the Federal Housing Administration’s automated underwriting approval system. For Veteran
Administration loans, we require a minimum score of 620. Loans sold in the secondary market are sold to investors on a servicing
released basis and recorded as loans as held-for-sale. The premium is recorded in income on marketable loans in non-interest
income, net of commissions paid to the loan officers. Commercial and Industrial Lending Our commercial and industrial lending consists
of lines of credit, revolving credit facilities, accounts receivable financing, term loans, equipment loans, Small Business Administration
(“SBA”) loans, standby letters of credit and unsecured loans. We originate commercial loans for any business purpose
including the financing of leasehold improvements and equipment, the carrying of accounts receivable, general working capital,
and acquisition activities. We have a diverse client base and we do not have a concentration of these types of loans in any specific
industry segment. We generally secure commercial business loans with accounts receivable, equipment, deeds of trust and other collateral
such as marketable securities, cash value of life insurance and time deposits at Old Line Bank. Commercial business loans have a higher degree
of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the
business. They may also involve high average balances, increased difficulty monitoring and a high risk of default. To help manage
this risk, we typically limit these loans to proven businesses and we generally obtain appropriate collateral and personal guarantees
from the borrower’s principal owners and monitor the financial condition of the business. For loans in excess of $250,000,
monitoring generally includes a review of the borrower’s annual tax returns and updated financial statements. Consumer Installment Lending We offer various types of secured and unsecured
consumer loans. We make consumer loans for personal, family or household purposes as a convenience to our customer base. Consumer
loans, however, are not a focus of our lending activities. The underwriting standards for consumer loans include a determination
of the applicant’s payment history on other debts and an assessment of his or her ability to meet existing obligations and
payments on the proposed loan. As a general guideline, a consumer’s total debt service should not exceed 40% of his or her
gross income. Consumer loans may present greater credit risk
than residential mortgage loans because many consumer loans are unsecured or rapidly depreciating assets secure these loans. Repossessed
collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because
of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower’s continuing
financial stability. If a borrower suffers personal financial difficulties, the consumer may not repay the loan. Also, various
federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans. Concentrations of Credit Most of our lending activity occurs within the
state of Maryland within the suburban Washington, D.C. market area in Anne Arundel, Calvert, Charles, Montgomery, Prince George’s
and St. Mary’s Counties. The majority of our loan portfolio consists of commercial real estate loans and residential
real estate loans. We also have a presence in Baltimore County and Carroll County, Maryland due to the Regal acquisition. Non-Accrual and Past Due Loans We consider loans past due if the borrower has
not paid the required principal and interest payments when due under the original or modified terms of the promissory note and
place a loan on non-accrual status when the payment of principal or interest has become 90 days past due. When we classify
a loan as non-accrual, we no longer accrue interest on such loan and we reverse any interest previously accrued but not collected.
We will generally restore a non-accrual loan to accrual status when the borrower brings delinquent principal and interest payments
current and we expect to collect future monthly principal and interest payments. We recognize interest on non-accrual legacy loans
only when received. We originally recorded purchased, credit-impaired loans at fair value upon acquisition, and an accretable yield
is established and recognized as interest income on purchased loans to the extent subsequent cash flows support the estimated accretable
yield. Purchased, credit-impaired loans that perform consistently with the accretable yield expectations are not reported as non-accrual
or nonperforming. However, purchased, credit-impaired loans that do not continue to perform according to accretable yield expectations
are considered impaired, and presented as non-accrual and nonperforming. Currently, management expects to fully collect the carrying
value of acquired, credit-impaired loans. The table below presents an age analysis of the loans held for investment
portfolio at September 30, 2017 and December 31, 2016. Age Analysis of Past Due Loans
September 30, 2017 December 31, 2016
Legacy Acquired Total Legacy Acquired Total
Current $ 1,299,139,428 $ 360,763,398 $ 1,659,902,826 $ 1,167,380,870 $ 185,631,054 $ 1,353,011,924
Accruing past due loans:
30-89 days past due
Commercial Real Estate:
Owner Occupied 2,768,500 99,545 2,868,045 2,799,802 — 2,799,802
Investment 811,088 757,439 1,568,527 — 794,037 794,037
Residential Real Estate:
First Lien-Investment 576,366 514,381 1,090,747 517,498 397,944 915,442
First Lien-Owner Occupied — 1,229,547 1,229,547 — 879,718 879,718
HELOC and Jr. Liens 167,578 108,092 275,670 99,946 — 99,946
Commercial and Industrial 381,404 12,624 394,028 325,161 — 325,161
Consumer — 1,177,880 1,177,880 — — —
Total 30-89 days past due 4,704,936 3,899,508 8,604,444 3,742,407 2,071,699 5,814,106
90 or more days past due
Commercial Real Estate:
Owner Occupied — — — — 634,290 634,290
Residential Real Estate:
First Lien-Owner Occupied — 76,761 76,761 — 250,000 250,000
Commercial — 8,306 8,306 — — —
Consumer — 21,810 21,810 19,242 — 19,242
Total 90 or more days past due — 106,877 106,877 19,242 884,290 903,532
Total accruing past due loans 4,704,936 4,006,385 8,711,321 3,761,649 2,955,989 6,717,638
Commercial Real Estate:
Owner Occupied — 226,998 226,998 2,370,589 — 2,370,589
Hospitality — — — 1,346,736 — 1,346,736
Land and A&D — 191,202 191,202 77,395 194,567 271,962
Residential Real Estate:
First Lien-Investment 233,759 — 233,759 312,061 99,293 411,354
First Lien-Owner Occupied 452,325 795,720 1,248,045 222,237 — 222,237
Commercial and Industrial — — — 1,760,824 — 1,760,824
Non-accruing loans: 686,084 1,213,920 1,900,004 6,089,842 293,860 6,383,702
Total Loans $ 1,304,530,448 $ 365,983,703 $ 1,670,514,151 $ 1,177,232,361 $ 188,880,903 $ 1,366,113,264 We consider all nonperforming loans and troubled
debt restructurings (“TDRs”) to be impaired. We do not recognize interest income on nonperforming loans during the
time period that the loans are nonperforming. We only recognize interest income on nonperforming loans when we receive payment
in full for all amounts due of all contractually required principle and interest, and the loan is current with its contractual
terms. The tables below present our impaired loans at and for the periods ended September 30, 2017 and December 31, 2016.
Impaired at September 30, 2017
Three Months September 30, 2017 Nine Months September 30, 2017
Unpaid Average Interest Average Interest
Principal Recorded Related Recorded Income Recorded Income
Balance Investment Allowance Investment Recognized Investment Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied $ 1,811,565 $ 1,811,565 $ — $ 1,808,332 $ 19,104 $ 1,917,603 $ 51,535
Investment 1,170,410 1,170,410 — 1,166,385 12,447 1,189,072 38,448
Residential Real Estate:
First Lien-Investment 41,258 41,258 — 41,258 — 41,258 —
First Lien-Owner Occupied 233,443 233,443 — 233,110 5,733 234,617 5,733
Commercial 399,351 399,351 — 395,928 3,582 363,683 26,712
With an allowance recorded:
Commercial Real Estate:
Owner Occupied — — — — —
Investment 597,053 597,053 69,903 597,053 7,676 603,536 23,040
Residential Real Estate:
First Lien-Investment 192,501 192,501 20,263 192,501 — 192,501 —
First Lien-Owner Occupied 218,882 218,882 15,384 222,237 — 222,237
Commercial 96,712 96,712 96,712 96,712 1,648 97,861 4,141
Total legacy impaired 4,761,175 4,761,175 202,262 4,753,516 50,190 4,862,368 149,609
Acquired(1)
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied 253,279 253,279 — 253,385 — 252,872 2,155
Land and A&D 334,271 45,000 — 334,271 — 334,271 —
Residential Real Estate:
First Lien-Owner Occupied 1,304,412 1,192,153 — 1,303,921 5,811 1,310,921 27,659
First Lien-Investment — — — — — — —
Land and A&D — — — — — — —
With an allowance recorded:
Commercial Real Estate:
Land and A&D 149,226 149,226 80,072 155,332 751 155,701 1,574
Residential Real Estate:
First Lien-Investment — — — — —
First Lien-Owner Occupied 250,194 250,194 77,464 273,618 23,424 273,597 23,424
Land and A&D — — — — —
Commercial 73,167 73,167 24,517 72,840 955 74,485 2,856
Total acquired impaired 2,364,549 1,963,019 182,053 2,393,367 30,941 2,401,847 57,668
Total impaired $ 7,125,724 $ 6,724,194 $ 384,315 $ 7,146,883 $ 81,131 $ 7,264,215 $ 207,277
(1) Generally accepted accounting principles require that we record acquired loans at fair value at acquisition, which includes a discount for loans with credit impairment. These purchased credit impaired loans are not performing according to their contractual terms and meet the definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans.
Impaired Loans
December 31, 2016
Unpaid Average Interest
Principal Recorded Related Recorded Income
Balance Investment Allowance Investment Recognized
Legacy
With no related allowance recorded:
Commercial Real Estate:
Owner Occupied $ 566,973 $ 566,973 $ — $ 1,223,360 $ 12,759
Investment 1,212,771 1,212,771 — 1,208,240 54,531
Residential Real Estate:
First Lien-Owner Occupied 222,237 222,237 — 243,699 5,440
Commercial 843,809 843,809 — 3,338,295 3,761
With an allowance recorded:
Commercial Real Estate:
Owner Occupied 2,048,989 2,048,989 443,489 6,605,858 50,348
Investment 610,485 610,485 33,335 610,373 46,550
Hospitality 1,346,736 1,346,736 134,674 4,199,162 20,959
Land and A&D 77,395 77,395 15,860 82,587 4,729
Residential Real Estate:
First Lien-Owner Occupied 312,061 312,061 45,505 547,024 9,348
Commercial 1,016,479 1,016,479 609,152 1,976,689 4,476
Total legacy impaired 8,257,935 8,257,935 1,282,015 20,035,287 212,901
Acquired(1)
With no related allowance recorded:
Commercial Real Estate:
Land and A&D 255,716 91,669 — 255,661 13,686
Residential Real Estate:
First Lien-Owner Occupied 662,835 662,835 — 1,408,689 19,899
First Lien-Investment 292,349 171,348 — 233,133 4,383
Land and A&D 334,271 45,000 — 334,271 —
With an allowance recorded:
Commercial Real Estate:
Land and A&D 151,634 151,634 83,784 161,622 5,264
Commercial 76,243 76,243 27,207 83,049 3,992
Total acquired impaired 1,773,048 1,198,729 110,991 2,476,425 47,224
Total impaired $ 10,030,983 $ 9,456,664 $ 1,393,006 $ 22,511,712 $ 260,125
(1) Generally accepted accounting principles require that we record acquired loans at fair value at acquisition, which includes a discount for loans with credit impairment. These purchased credit impaired loans are not performing according to their contractual terms and meet the definition of an impaired loan. Although we do not accrue interest income at the contractual rate on these loans, we do recognize an accretable yield as interest income to the extent such yield is supported by cash flow analysis of the underlying loans. We consider a loan a TDR when we conclude that
both of the following conditions exist: the restructuring constitutes a concession and the debtor is experiencing financial difficulties.
Restructured loans at September 30, 2017 consisted of seven loans for $2.7 million compared to seven loans at December 31, 2016
for $897 thousand. We had no loan modifications reported as TDR's
for three months ended September 30, 2017 and 2016. The following table includes the recorded investment in and number of modifications
of TDRs for the nine months ended September 30, 2017 and 2016. We report the recorded investment in loans prior to a modification
and also the recorded investment in the loans after the loans were restructured. Reductions in the recorded investment are primarily
due to the partial charge-off of the principal balance prior to the modification. We had no loans that were modified as a TDR that
defaulted within the three and nine month periods ended September 30, 2017 or 2016.
Loans Modified as a TDR for the nine months ended
September 30, 2017 September 30, 2016
Pre- Post Pre- Post
Modification Modification Modification Modification
Outstanding Outstanding Outstanding Outstanding
Troubled Debt Restructurings— # of Recorded Recorded # of Recorded Recorded
(Dollars in thousands) Contracts Investment Investment Contracts Investment Investment
Legacy
1 1,596,740 1,572,976 — — —
Commercial 1 414,324 399,351 — — —
Total legacy TDR's 2 2,011,064 1,972,327 — — —
Acquired
— — — 1 256,669 91,929
Residential Real Estate Non-Owner Occupied — — — 1 136,173 66,453
Total acquired TDR's — — — 2 392,842 158,382
Total Troubled Debt Restructurings 2 $ 2,011,064 $ 1,972,327 2 $ 392,842 $ 158,382 Acquired impaired loans The following table documents changes in the
accretable (premium) discount on acquired impaired loans during the nine months ended September 30, 2017 and 2016, along with the
outstanding balances and related carrying amounts for the beginning and end of those respective periods.
September 30, 2017 September 30, 2016
Balance at beginning of period $ (22,980 ) $ 276,892
Accretion of fair value discounts (83,099 ) (200,353 )
Additions due to DCB acquisition 99,981 —
Reclassification from non-accretable discount (15,428 ) 91,289
Balance at end of period $ (21,526 ) $ 167,828
Contractually
Required Payments
Receivable Carrying Amount
At September 30, 2017 $ 8,301,260 $ 6,611,444
At December 31, 2016 9,597,703 7,558,415
At September 30, 2016 12,457,556 9,924,121
At December 31, 2015 14,875,352 10,675,943 For our acquisition of Damascus on July 28,
2017, we recorded all loans acquired at the estimated fair value on their purchase date with no carryover of the related allowance
for loan losses. On the acquisition date, we segregated the loan portfolio into two loan pools, performing and non-performing. We had an independent third party determine
the net discounted value of cash flows on 5,022 performing loans totaling $218.9 million. The valuation took into consideration
the loans’ underlying characteristics including account types, remaining terms, annual interest rates, interest types, past
delinquencies, timing of principal and interest payments, current market rates, loan-to-value ratios, loss exposures, and remaining
balances. These performing loans were segregated into pools based on loan and payment type and in some cases, risk grade. The effect
of this fair valuation process was a net discount of $158 thousand at acquisition. We then adjusted these values for inherent credit
risk within each pool, which resulted in a total credit adjustment of $2.6 million. We also individually evaluated two impaired
loans totaling $116 thousand to determine their fair value as of the July 28, 2017 measurement date. In determining the fair value
for each individually evaluated impaired loan, we considered a number of factors including the remaining life of the acquired loans,
estimated prepayments, estimated loss ratios, estimated value of the underlying collateral and net present value of cash flows
we expect to receive, among others. We established a credit related non-accretable
difference of $93 thousand relating to these purchased credit impaired loans, reflected in the recorded fair value. We further
estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount
of $2 thousand on the acquisition date relating to those impaired loans. The following table outlines the contractually
required payments receivable, cash flows we expect to receive, non-accretable credit adjustment and the accretable yield for all
Damascus impaired loans as of the acquisition date, July 28, 2017.
Purchased
Credit
Impaired
Contractually required principal at acquisition $ 218,969
Contractual cash flows not expected to be colledted (non-accretable difference) (2,652 )
Expected cash flows at acquisition 216,317
Basis in purchased credit impaired loans at acquisition - estimated fair value (160 )
$ 216,157 Credit Quality Indicators We review the adequacy of the allowance for
loan losses at least quarterly. We base the evaluation of the adequacy of the allowance for loan losses upon loan categories. We
categorize loans as residential real estate loans, commercial real estate loans, commercial loans and consumer loans. We further
divide commercial real estate loans by owner occupied, investment, hospitality and land acquisition and development. We also divide
residential real estate by owner occupied, investment, land acquisition and development and junior liens. All categories are divided
by risk rating and loss factors and weighed by risk rating to determine estimated loss amounts. We evaluate delinquent loans and
loans for which management has knowledge about possible credit problems of the borrower or knowledge of problems with collateral
separately and assign loss amounts based upon the evaluation. We determine loss ratios for all loans based
upon a review of the three year loss ratio for the category and qualitative factors. We charge off loans that management has identified
as losses. We consider suggestions from our external loan review firm and bank examiners when determining which loans to charge
off. We automatically charge off consumer loan accounts based on regulatory requirements. We partially charge off real estate loans
that are collateral dependent based on the value of the collateral. If a loan that was previously rated a pass performing
loan, from our acquisitions, deteriorates subsequent to the acquisition, the subject loan will be assessed for risk and, if necessary,
evaluated for impairment. If the risk assessment rating is adversely changed and the loan is determined to not be impaired, the
loan will be placed in a migration category and the credit mark established for the loan will be compared to the general reserve
allocation that would be applied using the current allowance for loan losses formula for General Reserves. If the credit mark exceeds
the allowance for loan losses formula for General Reserves, there will be no change to the allowance for loan losses. If the credit
mark is less than the current allowance for loan losses formula for General Reserves, the allowance for loan losses will be increased
by the amount of the shortfall by a provision recorded in the income statement. If the loan is deemed impaired, the loan will be
subject to evaluation for loss exposure and a specific reserve. If the estimate of loss exposure exceeds the credit mark, the allowance
for loan losses will be increased by the amount of the excess loss exposure through a provision. If the credit mark exceeds the
estimate of loss exposure there will be no change to the allowance for loan losses. If a loan from the acquired loan portfolio
is carrying a specific credit mark and a current evaluation determines that there has been an increase in loss exposure, the allowance
for loan losses will be increased by the amount of the current loss exposure in excess of the credit mark. The following tables outline the class of loans by risk rating at
September 30, 2017 and December 31, 2016:
September 30, 2017 Legacy Acquired Total
Risk Rating
Pass(1 - 5)
Commercial Real Estate:
Owner Occupied $ 268,553,325 $ 81,831,578 $ 350,384,903
Investment 446,882,439 56,002,393 502,884,832
Hospitality 164,225,752 7,479,763 171,705,515
Land and A&D 55,084,381 9,227,747 64,312,128
Residential Real Estate:
First Lien-Investment 81,189,983 20,751,232 101,941,215
First Lien-Owner Occupied 64,943,780 60,226,991 125,170,771
Land and A&D 36,649,736 6,521,943 43,171,679
HELOC and Jr. Liens 21,881,331 16,846,856 38,728,187
Commercial 140,453,809 38,769,965 179,223,774
Consumer 7,076,344 53,658,133 60,734,477
1,286,940,880 351,316,601 1,638,257,481
Special Mention(6)
Commercial Real Estate:
Owner Occupied 3,207,960 3,494,880 6,702,840
Investment 388,110 1,047,629 1,435,739
Hospitality — — —
Land and A&D 2,399,014 129,265 2,528,279
Residential Real Estate:
First Lien-Investment 487,656 1,045,804 1,533,460
First Lien-Owner Occupied 68,960 1,863,798 1,932,758
Land and A&D 2,422,294 672,749 3,095,043
Commercial 1,405,764 78,678 1,484,442
Consumer — 68,839 68,839
10,379,758 8,401,642 18,781,400
Substandard(7)
Commercial Real Estate:
Owner Occupied 2,608,433 1,777,305 4,385,738
Investment 1,767,463 828,651 2,596,114
Land and A&D — 45,000 45,000
Residential Real Estate:
First Lien-Investment 506,937 347,968 854,905
First Lien-Owner Occupied 452,325 2,794,327 3,246,652
Land and A&D — 146,202 146,202
Commercial 1,874,652 326,007 2,200,659
7,209,810 6,265,460 13,475,270
Doubtful(8) — — —
Loss(9) — — —
Total $ 1,304,530,448 $ 365,983,703 $ 1,670,514,151
At December 31, 2016 Legacy Acquired Total
Risk Rating
Pass(1 - 5)
Commercial Real Estate:
Owner Occupied $ 231,985,682 $ 48,069,046 $ 280,054,728
Investment 408,875,014 35,130,038 444,005,052
Hospitality 140,265,123 9,781,737 150,046,860
Land and A&D 48,817,229 5,815,572 54,632,801
Residential Real Estate:
First Lien-Investment 70,980,640 21,898,603 92,879,243
First Lien-Owner Occupied 54,201,816 39,011,487 93,213,303
Land and A&D 36,910,902 4,299,830 41,210,732
HELOC and Jr. Liens 24,385,215 2,633,718 27,018,933
Commercial 132,518,224 5,460,820 137,979,044
Consumer 4,868,909 139,966 5,008,875
1,153,808,754 172,240,817 1,326,049,571
Special Mention(6)
Commercial Real Estate:
Owner Occupied 2,799,801 4,572,278 7,372,079
Investment 400,228 1,776,837 2,177,065
Hospitality — 1,411,689 1,411,689
Land and A&D 2,506,068 155,241 2,661,309
Residential Real Estate:
First Lien-Investment 577,767 1,248,453 1,826,220
First Lien-Owner Occupied 308,552 1,8 |
