Loans | Note 4 - Loans Loans consist of the following: (Dollars in thousands) March 31, 2018 December 31, 2017 Loans held for sale $ 48,988 $ 65,343 Loans held for investment: Loans secured by real estate: Commercial real estate $ 1,096,948 $ 1,083,275 Construction/land/land development 340,684 322,404 Residential real estate 583,461 570,583 Total real estate 2,021,093 1,976,262 Commercial and industrial 1,012,760 989,220 Mortgage warehouse lines of credit 191,154 255,044 Consumer 20,985 20,505 Total loans held for investment (1) 3,245,992 3,241,031 Less: Allowance for loan losses 34,132 37,083 Net loans held for investment $ 3,211,860 $ 3,203,948 ____________________________ (1) Presented net of net deferred loan fees of $1.5 million and $1.0 million at March 31, 2018 and December 31, 2017, respectively. Included in total loans held for investment are $20.4 million and $5.5 million of commercial real estate loans and commercial and industrial loans, respectively, for which the fair value option has been elected at March 31, 2018. At December 31, 2017, the Company held $21.0 million and $5.6 million of commercial real estate loans and commercial and industrial loans, respectively, at fair value. The Company mitigates the interest rate component of fair value risk on loans at fair value by entering into derivative interest rate contracts. See Note 5 - Fair Value of Financial Instruments for more information on loans for which the fair value option has been elected. Credit quality indicators . As part of the Company's commitment to manage the credit quality of its loan portfolio, management annually updates and evaluates certain credit quality indicators, which include but are not limited to (i) weighted-average risk rating of the loan portfolio, (ii) net charge-offs, (iii) level of non-performing loans, (iv) level of classified loans, and (v) the general economic conditions in the states in which the Company operates. The Company maintains an internal risk rating system where ratings are assigned to individual loans based on assessed risk. Risk ratings are continually evaluated to ensure they are appropriate based on currently available information. These risk ratings are the primary indicator of credit quality for its loan portfolio. The following is a summary description of the Company's internal risk ratings: • Pass (1-6) Loans within this risk rating are further categorized as follows: Minimal risk (1) Well-collateralized by cash equivalent instruments held by the Bank. Moderate risk (2) Borrowers with excellent asset quality and liquidity. Borrowers' capitalization and liquidity exceed industry norms. Borrowers in this category have significant levels of liquid assets and have a low level of leverage. Better than average risk (3) Borrowers with strong financial strength and excellent liquidity that consistently demonstrate strong operating performance. Borrowers in this category generally have a sizable net worth that can be converted into liquid assets within 12 months. Average risk (4) Borrowers with sound credit quality and financial performance, including liquidity. Borrowers are supported by sufficient cash flow coverage generated through operations across the full business cycle. Marginally acceptable risk (5) Loans generally meet minimum requirements for an acceptable loan in accordance with lending policy, but possess one or more attributes that cause the overall risk profile to be higher than the majority of newly approved loans. Watch (6) A passing loan with one or more factors that identify a potential weakness in the overall ability of the borrower to repay the loan. These weaknesses are generally mitigated by other factors that reduce the risk of delinquency or loss. • Special Mention (7) This grade is intended to be temporary and includes borrowers whose credit quality have deteriorated and is at risk of further decline. • Substandard (8) This grade includes "Substandard" loans, in accordance with regulatory guidelines. Substandard loans exhibit a well-defined weakness that jeopardizes debt repayment in accordance with contractual agreements, even though the loan may be performing. These obligations are characterized by the distinct possibility that a loss may be incurred if these weaknesses are not corrected and repayment may be dependent upon collateral liquidation or secondary source of repayment. • Doubtful (9) This grade includes "Doubtful" loans, in accordance with regulatory guidelines. Such loans are placed on nonaccrual status and repayment may be dependent upon collateral with no readily determinable valuation or valuations that are highly subjective in nature. Repayment for these loans is considered improbable based on currently existing facts and circumstances. • Loss (0) This grade includes "Loss" loans in accordance with regulatory guidelines. Loss loans are charged-off or written-down when repayment is not expected. The recorded investment in loans by credit quality indicator at March 31, 2018 and December 31, 2017, excluding loans held for sale, were as follows: March 31, 2018 (Dollars in thousands) Pass Special mention Substandard Doubtful Loss Total Loans secured by real estate: Commercial real estate $ 1,070,984 $ 5,348 $ 20,616 $ — $ — $ 1,096,948 Construction/land/land development 337,148 165 3,371 — — 340,684 Residential real estate 574,470 33 8,958 — — 583,461 Total real estate 1,982,602 5,546 32,945 — — 2,021,093 Commercial and industrial 945,417 9,652 57,691 — — 1,012,760 Mortgage warehouse lines of credit 191,154 — — — — 191,154 Consumer 20,636 — 349 — — 20,985 Total loans held for investment $ 3,139,809 $ 15,198 $ 90,985 $ — $ — $ 3,245,992 December 31, 2017 (Dollars in thousands) Pass Special mention Substandard Doubtful Loss Total Loans secured by real estate: Commercial real estate $ 1,055,911 $ 7,798 $ 19,566 $ — $ — $ 1,083,275 Construction/land/land development 318,488 170 3,746 — — 322,404 Residential real estate 560,945 778 8,860 — — 570,583 Total real estate 1,935,344 8,746 32,172 — — 1,976,262 Commercial and industrial 915,111 15,332 58,777 — — 989,220 Mortgage warehouse lines of credit 255,044 — — — — 255,044 Consumer 20,223 — 279 3 — 20,505 Total loans held for investment $ 3,125,722 $ 24,078 $ 91,228 $ 3 $ — $ 3,241,031 The following tables present the Company’s loan portfolio aging analysis at the dates indicated: March 31, 2018 (Dollars in thousands) 30-59 Days past due 60-89 Days past due Loans past due 90 days or more Total past due Current loans Total loans receivable Accruing loans 90 or more days past due Loans secured by real estate: Commercial real estate $ 8,940 $ — $ 844 $ 9,784 $ 1,087,164 $ 1,096,948 $ — Construction/land/land development 1,534 — 558 2,092 338,592 340,684 — Residential real estate 2,917 653 3,428 6,998 576,463 583,461 — Total real estate 13,391 653 4,830 18,874 2,002,219 2,021,093 — Commercial and industrial 1,877 355 7,905 10,137 1,002,623 1,012,760 — Mortgage warehouse lines of credit — — — — 191,154 191,154 — Consumer 136 64 68 268 20,717 20,985 — Total loans held for investment $ 15,404 $ 1,072 $ 12,803 $ 29,279 $ 3,216,713 $ 3,245,992 $ — December 31, 2017 (Dollars in thousands) 30-59 Days past due 60-89 Days past due Loans past due 90 days or more Total past due Current loans Total loans receivable Accruing loans 90 or more days past due Loans secured by real estate: Commercial real estate $ 8,427 $ 2,791 $ 1,150 $ 12,368 $ 1,070,907 $ 1,083,275 $ — Construction/land/land development 1,488 172 464 2,124 320,280 322,404 — Residential real estate 2,630 347 3,910 6,887 563,696 570,583 — Total real estate 12,545 3,310 5,524 21,379 1,954,883 1,976,262 — Commercial and industrial 1,517 9,922 8,074 19,513 969,707 989,220 — Mortgage warehouse lines of credit — — — — 255,044 255,044 — Consumer 178 128 74 380 20,125 20,505 — Total loans held for investment $ 14,240 $ 13,360 $ 13,672 $ 41,272 $ 3,199,759 $ 3,241,031 $ — The following tables detail activity in the allowance for loan losses by portfolio segment. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Three months ended March 31, 2018 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (Benefit) (1) Ending balance Loans secured by real estate: Commercial real estate $ 8,998 $ 9 $ 127 $ 1,028 $ 10,144 Construction/land/land development 2,950 — 1 (244 ) 2,707 Residential real estate 5,807 9 19 (346 ) 5,471 Commercial and industrial 18,831 1,703 174 (1,965 ) 15,337 Mortgage warehouse lines of credit 214 — — (56 ) 158 Consumer 283 17 24 25 315 Total $ 37,083 $ 1,738 $ 345 $ (1,558 ) $ 34,132 ____________________________ (1) The $1.5 million benefit for credit losses on the consolidated statements of income includes a $1.6 million net loan loss benefit and a $34,000 provision for off-balance sheet commitments for the three months ended March 31, 2018. Three months ended March 31, 2017 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (Benefit) (1) Ending balance Loans secured by real estate: Commercial real estate $ 8,718 $ — $ 2 $ 250 $ 8,970 Construction/land/land development 2,805 — 1 (320 ) 2,486 Residential real estate 5,003 13 37 856 5,883 Commercial and industrial 33,590 813 149 878 33,804 Mortgage warehouse lines of credit 139 — — (11 ) 128 Consumer 276 22 6 84 344 Total $ 50,531 $ 848 $ 195 $ 1,737 $ 51,615 ____________________________ (1) The $2.8 million provision for credit losses on the consolidated statements of income includes a $1.7 million net loan loss provision and a $1.1 million provision for off-balance sheet commitments for the three months ended March 31, 2017. The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated: March 31, 2018 (Dollars in thousands) Period end allowance allocated to loans individually evaluated for impairment Period end allowance allocated to loans collectively evaluated for impairment Period end loan balance individually evaluated for impairment Period ended loan balance collectively evaluated for impairment (1) Loans secured by real estate: Commercial real estate $ 1,448 $ 8,696 $ 10,236 $ 1,066,284 Construction/land/land development 4 2,703 1,421 339,263 Residential real estate 28 5,443 7,498 575,963 Commercial and industrial 1,680 13,657 13,349 993,905 Mortgage warehouse lines of credit — 158 — 191,154 Consumer 97 218 264 20,721 Total $ 3,257 $ 30,875 $ 32,768 $ 3,187,290 ____________________________ (1) Excludes $20.4 million and $5.5 million of commercial real estate loans and commercial and industrial loans, respectively, at fair value, which are not evaluated for impairment due to the fair value option election. See Note 5 - Fair Value of Financial Instruments for more information. December 31, 2017 (Dollars in thousands) Period end allowance allocated to loans individually evaluated for impairment Period end allowance allocated to loans collectively evaluated for impairment Period end loan balance individually evaluated for impairment Period ended loan balance collectively evaluated for impairment (1) Loans secured by real estate: Commercial real estate $ 312 $ 8,686 $ 4,945 $ 1,057,330 Construction/land/land development 4 2,946 1,963 320,441 Residential real estate 72 5,735 7,915 562,668 Commercial and industrial 4,356 14,475 24,598 959,011 Mortgage warehouse lines of credit — 214 — 255,044 Consumer 63 220 237 20,268 Total $ 4,807 $ 32,276 $ 39,658 $ 3,174,762 ____________________________ (1) Excludes $21.0 million and $5.6 million of commercial real estate loans and commercial and industrial loans, respectively, at fair value, which are not evaluated for impairment due to the fair value option election. See Note 5 - Fair Value of Financial Instruments for more information. The following tables present impaired loans at the dates indicated. No mortgage warehouse lines of credit were impaired at either March 31, 2018 or December 31, 2017. March 31, 2018 (Dollars in thousands) Unpaid contractual principal balance Recorded investment with no allowance Recorded investment with an allowance Total recorded investment Allocation of allowance for loan losses Loans secured by real estate: Commercial real estate $ 11,166 $ 1,973 $ 8,263 $ 10,236 $ 1,448 Construction/land/land development 1,740 1,272 149 1,421 4 Residential real estate 9,656 6,636 862 7,498 28 Total real estate 22,562 9,881 9,274 19,155 1,480 Commercial and industrial 13,815 5,587 7,762 13,349 1,680 Consumer 289 123 141 264 97 Total impaired loans $ 36,666 $ 15,591 $ 17,177 $ 32,768 $ 3,257 December 31, 2017 (Dollars in thousands) Unpaid contractual principal balance Recorded investment with no allowance Recorded investment with an allowance Total recorded investment Allocation of allowance for loan losses Loans secured by real estate: Commercial real estate $ 6,047 $ 1,782 $ 3,163 $ 4,945 $ 312 Construction/land/land development 2,268 1,813 150 1,963 4 Residential real estate 10,024 6,750 1,165 7,915 72 Total real estate 18,339 10,345 4,478 14,823 388 Commercial and industrial 25,212 6,161 18,437 24,598 4,356 Consumer 259 141 96 237 63 Total impaired loans $ 43,810 $ 16,647 $ 23,011 $ 39,658 $ 4,807 The average recorded investment and interest recognized on impaired loans while classified as impaired for the three months ended March 31, 2018 and 2017 were as follows: March 31, 2018 March 31, 2017 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Loans secured by real estate: Commercial real estate $ 9,864 $ 27 $ 6,377 $ 33 Construction/land/land development 1,847 9 1,032 3 Residential real estate 7,665 24 10,065 20 Total real estate 19,376 60 17,474 56 Commercial and industrial 17,717 88 61,183 14 Consumer 256 3 251 2 Total impaired loans $ 37,349 $ 151 $ 78,908 $ 72 All interest accrued but not received for loans placed on nonaccrual status is reversed against interest income. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Troubled debt restructurings are included in certain loan categories within impaired loans. At March 31, 2018, the Company has committed to advance $423,000 in connection with impaired loans. Non-performing (nonaccrual) loans held for investment were as follows: (Dollars in thousands) March 31, 2018 December 31, 2017 Loans secured by real estate: Commercial real estate $ 8,851 $ 1,745 Construction/land/land development 1,272 1,097 Residential real estate 7,226 7,166 Total real estate 17,349 10,008 Commercial and industrial 9,312 13,512 Consumer 349 282 Total nonaccrual loans $ 27,010 $ 23,802 For the three months ended March 31, 2018 and 2017, gross interest income which would have been recorded had the nonaccruing loans been current in accordance with their original terms was $430,000 and $904,000 , respectively. No interest income was recorded on these loans while they were considered nonaccrual during the three months ended March 31, 2018 or 2017. The Company elects the fair value option for recording residential mortgage loans held for sale, and certain commercial real estate and commercial and industrial loans, in accordance with US GAAP. The Company had no loans on nonaccrual that were recorded using the fair value option election at March 31, 2018 or December 31, 2017. The following is a summary of loans classified as troubled debt restructurings ("TDRs"). (Dollars in thousands) March 31, 2018 December 31, 2017 TDRs Nonaccrual TDRs $ 2,158 $ 2,622 Performing TDRs 6,051 14,234 Total $ 8,209 $ 16,856 The following table presents the pre and post-modification balances of TDR modifications that occurred during the March 31, 2018 period. There were no loans modified as a TDR during the three months ended March 31, 2017. Three months ended March 31, 2018 (Dollars in thousands) Number of loans restructured Pre-modification recorded balance Term Concessions Interest Rate Concessions Combination Total Modifications Loans secured by real estate: Residential real estate 1 $ 94 $ — $ — $ 91 $ 91 During the three months ended March 31, 2018 and 2017, there were no payment defaults for loans restructured as TDR's within the previous 12 months, respectively. A payment default is defined as a loan that was 90 or more days past due. The modifications made during the three months ended March 31, 2018 did not significantly impact the Company's determination of the allowance for loan losses. On an ongoing basis, the Company monitors the performance of the modified loans to their restructured terms. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan. |