Loans | NOTE 6: Loans The following table sets forth information concerning the loan portfolio by collateral types as of the dates indicated. September 30, 2017 December 31, 2016 Loans excluding PCI loans Real estate loans Residential $ 1,027,248 $ 816,304 Commercial 2,512,130 1,755,922 Land, development and construction 241,130 142,044 Total real estate 3,780,508 2,714,270 Commercial 633,209 439,540 Consumer and other loans 103,087 89,538 Loans before unearned fees and deferred cost 4,516,804 3,243,348 Net unearned fees and costs 788 475 Total loans excluding PCI loans 4,517,592 3,243,823 PCI loans (note 1) Real estate loans Residential 63,227 72,179 Commercial 88,543 99,566 Land, development and construction 7,612 9,944 Total real estate 159,382 181,689 Commercial 4,267 3,825 Consumer and other loans 326 410 Total PCI loans 163,975 185,924 Total loans 4,681,567 3,429,747 Allowance for loan losses for loans that are not PCI loans (31,543 ) (26,569 ) Allowance for loan losses for PCI loans (285 ) (472 ) Total loans, net of allowance for loan losses $ 4,649,739 $ 3,402,706 note 1: Purchased credit impaired (“PCI”) loans are being accounted for pursuant to ASC Topic 310-30. The table below set forth the activity in the allowance for loan losses for the periods presented. Allowance for loan losses for loans that are not PCI loans Allowance for loan losses on PCI loans Total Three months ended September 30, 2017 Balance at beginning of period $ 29,769 $ 363 $ 30,132 Loans charged-off (472 ) — (472 ) Recoveries of loans previously charged-off 1,072 — 1,072 Net recoveries 600 — 600 Provision for loan losses 1,174 (78 ) 1,096 Balance at end of period $ 31,543 $ 285 $ 31,828 Three months ended September 30, 2016 Balance at beginning of period $ 24,066 $ 106 $ 24,172 Loans charged-off (821 ) (66 ) (887 ) Recoveries of loans previously charged-off 939 — 939 Net recoveries (charge-offs) 118 (66 ) 52 Provision for loan losses 1,090 185 1,275 Balance at end of period $ 25,274 $ 225 $ 25,499 Allowance for loan losses for loans that are not PCI loans Allowance for loan losses on PCI loans Total Nine months ended September 30, 2017 Balance at beginning of period $ 26,569 472 $ 27,041 Loans charged-off (1,722 ) — (1,722 ) Recoveries of loans previously charged-off 2,454 65 2,519 Net recoveries 732 65 797 Provision for loan losses 4,242 (252 ) 3,990 Balance at end of period $ 31,543 285 $ 31,828 Nine months ended September 30, 2016 Balance at beginning of period $ 22,143 $ 121 $ 22,264 Loans charged-off (1,642 ) (66 ) (1,708 ) Recoveries of loans previously charged-off 2,247 — 2,247 Net recoveries (charge-offs) 605 (66 ) 539 Provision for loan losses 2,526 170 2,696 Balance at end of period $ 25,274 $ 225 $ 25,499 The following tables present the activity in the allowance for loan losses by portfolio segment for the periods presented. Real Estate Loans Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses for loans that are not PCI loans: Three months ended September 30, 2017 Beginning of the period $ 6,134 $ 17,238 $ 1,175 $ 3,590 $ 1,632 $ 29,769 Charge-offs (108 ) (8 ) — (140 ) (216 ) (472 ) Recoveries 290 320 353 82 27 1,072 Provision for loan losses (292 ) 1,074 (393 ) 458 327 1,174 Balance at end of period $ 6,024 $ 18,624 $ 1,135 $ 3,990 $ 1,770 $ 31,543 Three months ended September 30, 2016 Beginning of the period $ 5,909 $ 12,454 $ 799 $ 3,497 $ 1,407 $ 24,066 Charge-offs (93 ) (155 ) (198 ) (138 ) (237 ) $ (821 ) Recoveries 496 293 15 91 44 $ 939 Provision for loan losses (453 ) 924 133 194 292 $ 1,090 Balance at end of period $ 5,859 $ 13,516 $ 749 $ 3,644 $ 1,506 $ 25,274 Real Estate Loans Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses for loans that are PCI loans: Three months ended September 30, 2017 Beginning of the period $ 50 $ 123 $ 176 $ — $ 14 $ 363 Charge-offs — — — — — — Recoveries — — — — — — Provision for loan losses (50 ) (65 ) 37 — — (78 ) Balance at end of period $ — $ 58 $ 213 $ — $ 14 $ 285 Three months ended September 30, 2016 Beginning of the period $ — $ 92 $ — $ — $ 14 $ 106 Charge-offs — — (66 ) — — (66 ) Recoveries — — — — — — Provision for loan losses 61 — 124 — — 185 Balance at end of period $ 61 $ 92 $ 58 $ — $ 14 $ 225 Real Estate Loans Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses for loans that are not PCI loans: Nine months ended September 30, 2017 Beginning of the period $ 5,640 $ 14,713 $ 883 $ 3,785 $ 1,548 $ 26,569 Charge-offs (250 ) (72 ) — (677 ) (723 ) (1,722 ) Recoveries 816 626 596 254 162 2,454 Provision for loan losses (182 ) 3,357 (344 ) 628 783 4,242 Balance at end of period $ 6,024 $ 18,624 $ 1,135 $ 3,990 $ 1,770 $ 31,543 Nine months ended September 30, 2016 Beginning of the period $ 6,015 $ 10,559 $ 936 $ 3,212 $ 1,421 $ 22,143 Charge-offs (226 ) (421 ) (232 ) (161 ) (602 ) (1,642 ) Recoveries 1,056 590 250 210 141 2,247 Provision for loan losses (986 ) 2,788 (205 ) 383 546 2,526 Balance at end of period $ 5,859 $ 13,516 $ 749 $ 3,644 $ 1,506 $ 25,274 Real Estate Loans Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses for loans that are PCI loans: Nine months ended September 30, 2017 Beginning of the period $ 54 $ 92 $ 312 $ — $ 14 $ 472 Charge-offs — — — — — — Recoveries — 65 — — — 65 Provision for loan losses (54 ) (99 ) (99 ) — — (252 ) Balance at end of period $ — $ 58 $ 213 $ — $ 14 $ 285 Nine months ended September 30, 2016 Beginning of the period $ — $ 103 $ 1 $ 3 $ 14 $ 121 Charge-offs — — (66 ) — — (66 ) Recoveries — — — — — — Provision for loan losses 61 (11 ) 123 (3 ) — 170 Balance at end of period $ 61 $ 92 $ 58 $ — $ 14 $ 225 The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016. Accrued interest receivable and unearned loan fees and costs are not included in the recorded investment because they are not material. Real Estate Loans As of September 30, 2017 Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 510 $ 97 $ 5 $ 207 $ 24 $ 843 Collectively evaluated for impairment 5,514 18,527 1,130 3,783 1,746 30,700 Purchased credit impaired — 58 213 — 14 285 Total ending allowance balance $ 6,024 $ 18,682 $ 1,348 $ 3,990 $ 1,784 $ 31,828 Loans: Individually evaluated for impairment $ 7,143 $ 9,557 $ 338 $ 2,016 $ 253 $ 19,307 Collectively evaluated for impairment 1,020,105 2,502,573 240,792 631,193 102,834 4,497,497 Purchased credit impaired 63,227 88,543 7,612 4,267 326 163,975 Total ending loan balances $ 1,090,475 $ 2,600,673 $ 248,742 $ 637,476 $ 103,413 $ 4,680,779 Real Estate Loans As of December 31, 2016 Residential Commercial Land, develop., constr. Comm. & industrial Consumer & other Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 653 $ — $ 10 $ 7 $ 25 $ 695 Collectively evaluated for impairment 4,987 14,713 873 3,778 1,523 25,874 Purchased credit impaired 54 92 312 — 14 472 Total ending allowance balance $ 5,694 $ 14,805 $ 1,195 $ 3,785 $ 1,562 $ 27,041 Loans: Individually evaluated for impairment $ 8,237 $ 9,017 $ 1,059 $ 1,710 $ 230 $ 20,253 Collectively evaluated for impairment 808,067 1,746,905 140,985 437,830 89,308 3,223,095 Purchased credit impaired 72,179 99,566 9,944 3,825 410 185,924 Total ending loan balance $ 888,483 $ 1,855,488 $ 151,988 $ 443,365 $ 89,948 $ 3,429,272 The table below summarizes impaired loan data for the periods presented. Sept. 30, 2017 Dec. 31, 2016 Performing TDRs (these are not included in nonperforming loans ("NPLs")) $ 11,491 $ 11,030 Nonperforming TDRs (these are included in NPLs) 1,220 2,075 Total TDRs (these are included in impaired loans) 12,711 13,105 Impaired loans that are not TDRs 6,596 7,148 Total impaired loans $ 19,307 $ 20,253 In certain situations it is common to restructure or modify the terms of troubled loans (i.e. troubled debt restructure or “TDRs”). In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in a distressed sale. When the terms of a loan have been modified, usually the monthly payment and/or interest rate is reduced for generally twelve to twenty-four months. Material principal amounts on any loan modifications have not been forgiven to date. TDRs as of September 30, 2017 and December 31, 2016 quantified by loan type classified separately as accrual (performing loans) and non-accrual (non performing loans) are presented in the tables below. As of September 30, 2017 Accruing Non Accrual Total Real estate loans: Residential $ 7,496 $ 444 $ 7,940 Commercial 2,892 749 3,641 Land, development, construction 338 — 338 Total real estate loans 10,726 1,193 11,919 Commercial 539 — 539 Consumer and other 226 27 253 Total TDRs $ 11,491 $ 1,220 $ 12,711 As of December 31, 2016 Accruing Non-Accrual Total Real estate loans: Residential $ 7,358 $ 879 $ 8,237 Commercial 2,442 1,082 3,524 Land, development, construction 281 84 365 Total real estate loans 10,081 2,045 12,126 Commercial 749 — 749 Consumer and other 200 30 230 Total TDRs $ 11,030 $ 2,075 $ 13,105 Our policy is to return non accrual TDR loans to accrual status when all the principal and interest amounts contractually due, pursuant to its modified terms, are brought current and future payments are reasonably assured. Our policy also considers the payment history of the borrower, but is not dependent upon a specific number of payments. The Company recorded a provision for loan loss expense of $20 and $264 and partial charge offs of $13 and $55 on the TDR loans described above during the three and nine month periods ending September 30, 2017. The Company recorded a provision Loans are modified to minimize loan losses when we believe the modification will improve the borrower’s financial condition and ability to repay the loan. We typically do not forgive principal. We generally either reduce interest rates or decrease monthly payments for a temporary period of time and those reductions of cash flows are capitalized into the loan balance. We may also extend maturities, convert balloon loans to longer term amortizing loans, or vice versa, or change interest rates between variable and fixed rate . Each borrower and situation is unique and we try to accommodate the borrower and minimize the Company’s potential losses. Approximately 90% of our TDRs are current pursuant to their modified terms, and $1,220, or approximately 10% of Loans modified as TDRs during the three and nine month periods ending September 30, 2017 were $85 and $784. The provision of $0 and $8 for loans modified The following table presents loans by class modified and for which there was a payment default within twelve months following the modification during the periods ending September 30, 2017 and 2016. Period ending Period ending September 30, 2017 September 30, 2016 Number Recorded Number Recorded of loans investment of loans investment Residential 1 $ 72 2 $ 170 Commercial real estate 2 616 2 948 Land, development, construction — — — — Commercial and Industrial — — — — Consumer and other — — — — Total 3 $ 688 4 $ 1,118 The Company recorded a provision for loan loss expense of $8 and $24 and partial charge offs of $8 and $24 on TDR loans that subsequently defaulted as described above during the three and nine month periods ending of $12 and $86 and partial charge offs of $20 and $73 on TDR loans that subsequently defaulted as described above during the three and nine month periods ending The following tables present loans individually evaluated for impairment by class of loans as of September 30, 2017 and December 31, 2016, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30. The recorded investment is less than the unpaid principal balance due to partial charge-offs. As of September 30, 2017 Unpaid principal balance Recorded investment Allowance for loan losses allocated With no related allowance recorded: Residential real estate $ 4,084 $ 3,961 $ — Commercial real estate 9,830 9,126 — Land, development, construction 265 215 — Commercial and industrial 1,876 1,478 — Consumer, other 144 138 — With an allowance recorded: Residential real estate 3,283 3,182 510 Commercial real estate 472 431 97 Land, development, construction 141 123 5 Commercial and industrial 539 538 207 Consumer, other 131 115 24 Total $ 20,765 $ 19,307 $ 843 As of December 31, 2016 Unpaid principal balance Recorded investment Allowance for loan losses allocated With no related allowance recorded: Residential real estate $ 3,950 $ 3,847 $ — Commercial real estate 10,288 9,017 — Land, development, construction 1,064 874 — Commercial and industrial 1,493 1,448 — Consumer, other 87 83 — With an allowance recorded: Residential real estate 4,592 4,390 653 Commercial real estate — — — Land, development, construction 212 185 10 Commercial and industrial 263 262 7 Consumer, other 165 147 25 Total $ 22,114 $ 20,253 $ 695 Three months ended September 30, 2017 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 7,536 $ 70 $ — Commercial 9,200 35 — Land, development, construction 343 5 — Total real estate loans 17,079 110 — Commercial and industrial 1,859 7 — Consumer and other loans 262 3 — Total $ 19,200 $ 120 $ — Nine months ended September 30, 2017 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 7,767 $ 207 $ — Commercial 8,979 104 — Land, development, construction 465 13 — Total real estate loans 17,211 324 — Commercial and industrial 1,702 22 — Consumer and other loans 245 8 — Total $ 19,158 $ 354 $ — Three months ended September 30, 2016 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 8,356 $ 67 $ — Commercial 10,530 24 — Land, development, construction 1,148 4 — Total real estate loans 20,034 95 — Commercial and industrial 1,923 12 — Consumer and other loans 243 3 — Total $ 22,200 $ 110 $ — Nine months ended September 30, 2016 Average of impaired loans Interest income recognized during impairment Cash basis interest income recognized Real estate loans: Residential $ 8,447 $ 185 $ — Commercial 12,744 101 — Land, development, construction 1,650 20 — Total real estate loans 22,841 306 — Commercial and industrial 1,806 35 — Consumer and other loans 260 8 — Total $ 24,907 $ 349 $ — Nonperforming loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30. Nonperforming loans were as follows: Sept. 30, 2017 Dec. 31, 2016 Non accrual loans $ 19,319 $ 19,003 Loans past due over 90 days and still accruing interest — — Total non performing loans $ 19,319 $ 19,003 The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still on accrual by class of loans as of September 30, 2017 and December 31, 2016, excluding purchased credit impaired loans: As of September 30, 2017 Nonaccrual Loans past due over 90 days still accruing Residential real estate $ 7,989 $ — Commercial real estate 8,568 — Land, development, construction 169 — Commercial 2,188 — Consumer, other 405 — Total $ 19,319 $ — As of December 31, 2016 Nonaccrual Loans past due over 90 days still accruing Residential real estate $ 7,068 $ — Commercial real estate 9,116 — Land, development, construction 1,060 — Commercial 1,421 — Consumer, other 338 — Total $ 19,003 $ — The following table presents the aging of the recorded investment in past due loans as of September 30, 2017 and December 31, 2016, excluding purchased credit impaired loans: Accruing Loans Total 30 - 59 days past due 60 - 89 days past due Greater than 90 days past due Total Past Due Loans Not Past Due Nonaccrual Loans As of September 30, 2017 Residential real estate $ 1,027,248 $ 4,293 $ 2,421 $ — $ 6,714 $ 1,012,545 $ 7,989 Commercial real estate 2,512,130 3,396 8,764 — 12,160 2,491,402 8,568 Land/dev/construction 241,130 1,202 437 — 1,639 239,322 169 Commercial 633,209 1,638 1,153 — 2,791 628,230 2,188 Consumer 103,087 659 275 — 934 101,748 405 $ 4,516,804 $ 11,188 $ 13,050 $ — $ 24,238 $ 4,473,247 $ 19,319 Accruing Loans Total 30 - 59 days past due 60 - 89 days past due Greater than 90 days past due Total Past Due Loans Not Past Due Nonaccrual Loans As of December 31, 2016 Residential real estate $ 816,304 $ 3,739 $ 4,561 $ — $ 8,300 $ 800,936 $ 7,068 Commercial real estate 1,755,922 3,580 1,179 — 4,759 1,742,047 9,116 Land/dev/construction 142,044 2,111 71 — 2,182 138,802 1,060 Commercial 439,540 2,584 322 — 2,906 435,213 1,421 Consumer 89,538 501 178 — 679 88,521 338 $ 3,243,348 $ 12,515 $ 6,311 $ — $ 18,826 $ 3,205,519 $ 19,003 Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on at least an annual basis. The Company uses the following definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following table presents the risk category of loans by class of loans based on the most recent analysis performed, excluding purchased credit impaired loans accounted for pursuant to ASC Topic 310-30, as of September 30, 2017 and December 31, 2016. The increase in loans categorized as special mention between the periods presented is due to the acquisitions of Platinum and Gateway on April 1, 2017 and May 1, 2017, respectively. As of September 30, 2017 Loan Category Pass Special Mention Substandard Doubtful Residential real estate $ 992,544 $ 17,340 $ 17,364 $ — Commercial real estate 2,365,247 126,646 20,237 — Land/dev/construction 223,695 16,351 1,084 — Commercial 614,611 15,419 3,179 — Consumer 102,153 239 695 — Total $ 4,298,250 $ 175,995 $ 42,559 $ — As of December 31, 2016 Loan Category Pass Special Mention Substandard Doubtful Residential real estate $ 784,491 $ 13,820 $ 17,993 $ — Commercial real estate 1,636,473 94,897 24,552 — Land/dev/construction 129,781 10,278 1,985 — Commercial 426,894 9,570 3,076 — Consumer 88,714 270 554 — Total $ 3,066,353 $ 128,835 $ 48,160 $ — The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans, excluding purchased credit impaired loans, based on payment activity as of September 30, 2017 and December 31, 2016: As of September 30, 2017 Residential Consumer Performing $ 1,019,259 $ 102,682 Nonperforming 7,989 405 Total $ 1,027,248 $ 103,087 As of December 31, 2016 Residential Consumer Performing $ 809,236 $ 89,200 Nonperforming 7,068 338 Total $ 816,304 $ 89,538 Purchased Credit Impaired (“PCI”) loans: Income is recognized on PCI loans pursuant to ASC Topic 310-30. A portion of the fair value discount has been ascribed as an accretable yield that is accreted into interest income over the estimated remaining life of the loans. The remaining non-accretable difference represents cash flows not expected to be collected. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the loans as of September 30, 2017 and December 31, 2016. Contractually required principal and interest payments have been adjusted for estimated prepayments. Sept. 30, 2017 Dec. 31, 2016 Contractually required principal and interest $ 258,338 $ 297,821 Non-accretable difference (12,899 ) (18,372 ) Cash flows expected to be collected 245,439 279,449 Accretable yield (81,464 ) (93,525 ) Carrying value of acquired loans 163,975 185,924 Allowance for loan losses (285 ) (472 ) Carrying value less allowance for loan losses $ 163,690 $ 185,452 The Company adjusted its estimates of future expected losses, cash flows and renewal assumptions during the current quarter. These adjustments resulted in an increase in expected cash flows and accretable yield, and a decrease in the non-accretable difference. The Company reclassified non-accretable non-accretable Activity during the Effect of income all other three month period ending September 30, 2017 Jun. 30, 2017 acquisitions accretion adjustments Sept. 30, 2017 Contractually required principal and interest $ 280,114 $ — $ — $ (21,776 ) $ 258,338 Non-accretable difference (14,047 ) — — 1,148 (12,899 ) Cash flows expected to be collected 266,067 — — (20,628 ) 245,439 Accretable yield (86,703 ) — 7,696 (2,457 ) (81,464 ) Carry value of acquired loans $ 179,364 $ — $ 7,696 $ (23,085 ) $ 163,975 Activity during the Effect of income all other nine month period ending September 30, 2017 Dec. 31, 2016 acquisitions accretion adjustments Sept. 30, 2017 Contractually required principal and interest $ 297,821 $ 20,729 $ — $ (60,212 ) $ 258,338 Non-accretable difference (18,372 ) (6,347 ) — 11,820 (12,899 ) Cash flows expected to be collected 279,449 14,382 — (48,392 ) 245,439 Accretable yield (93,525 ) (3,266 ) 24,780 (9,453 ) (81,464 ) Carry value of acquired loans $ 185,924 $ 11,116 $ 24,780 $ (57,845 ) $ 163,975 Activity during the Effect of income all other three month period ending September 30, 2016 Jun. 30, 2016 acquisitions accretion adjustments Sep. 30, 2016 Contractually required principal and interest $ 344,464 $ — $ — $ (27,797 ) $ 316,667 Non-accretable difference (20,462 ) — — 1,172 (19,290 ) Cash flows expected to be collected 324,002 — — (26,625 ) 297,377 Accretable yield (107,143 ) — 7,795 (741 ) (100,089 ) Carry value of acquired loans $ 216,859 $ — $ 7,795 $ (27,366 ) $ 197,288 Activity during the Effect of income all other nine month period ending September 30, 2016 Dec. 31, 2015 acquisitions accretion adjustments Sep. 30, 2016 Contractually required principal and interest $ 332,570 $ 73,005 $ — $ (88,908 ) $ 316,667 Non-accretable difference (19,452 ) (9,295 ) — 9,457 (19,290 ) Cash flows expected to be collected 313,118 63,710 — (79,451 ) 297,377 Accretable yield (102,590 ) (18,585 ) 24,750 (3,664 ) (100,089 ) Carry value of acquired loans $ 210,528 $ 45,125 $ 24,750 $ (83,115 ) $ 197,288 |