Loans | Note 5 - Loans Loans consist of the following: (Dollars in thousands) September 30, 2018 December 31, 2017 Loans held for sale $ 50,658 $ 65,343 Loans held for investment: Loans secured by real estate: Commercial real estate $ 1,162,274 $ 1,083,275 Construction/land/land development 406,249 322,404 Residential real estate 585,931 570,583 Total real estate 2,154,454 1,976,262 Commercial and industrial 1,193,035 989,220 Mortgage warehouse lines of credit 233,325 255,044 Consumer 20,267 20,505 Total loans held for investment (1) 3,601,081 3,241,031 Less: Allowance for loan losses 35,727 37,083 Net loans held for investment $ 3,565,354 $ 3,203,948 ____________________________ (1) Includes net deferred loan fees of $2.9 million and $1.0 million at September 30, 2018 , and December 31, 2017 , respectively. Included in total loans held for investment as of September 30, 2018, were $19.7 million and $739,000 of commercial real estate loans and commercial and industrial loans, respectively, for which the fair value option was elected as of that date. 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 6 - 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. Loan risk ratings are the primary indicator of credit quality for the loan portfolio and are continually evaluated to ensure they are appropriate based on currently available information. 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 September 30, 2018 , and December 31, 2017 , excluding loans held for sale, were as follows: September 30, 2018 (Dollars in thousands) Pass Special Mention Substandard Doubtful Loss Total Loans secured by real estate: Commercial real estate $ 1,139,571 $ 8,440 $ 14,263 $ — $ — $ 1,162,274 Construction/land/land development 403,159 160 2,930 — — 406,249 Residential real estate 574,728 28 11,175 — — 585,931 Total real estate 2,117,458 8,628 28,368 — — 2,154,454 Commercial and industrial 1,112,473 32,050 48,512 — — 1,193,035 Mortgage warehouse lines of credit 233,325 — — — — 233,325 Consumer 20,028 — 239 — — 20,267 Total loans held for investment $ 3,483,284 $ 40,678 $ 77,119 $ — $ — $ 3,601,081 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: September 30, 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 $ 414 $ 7,512 $ 976 $ 8,902 $ 1,153,372 $ 1,162,274 $ — Construction/land/land development 25 — 465 490 405,759 406,249 — Residential real estate 2,507 196 3,621 6,324 579,607 585,931 — Total real estate 2,946 7,708 5,062 15,716 2,138,738 2,154,454 — Commercial and industrial 434 738 7,842 9,014 1,184,021 1,193,035 — Mortgage warehouse lines of credit — — — — 233,325 233,325 — Consumer 81 35 — 116 20,151 20,267 — Total loans held for investment $ 3,461 $ 8,481 $ 12,904 $ 24,846 $ 3,576,235 $ 3,601,081 $ — 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 September 30, 2018 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (Benefit) (1) Ending balance Loans secured by real estate: Commercial real estate $ 9,768 $ 42 $ 7 $ (4 ) $ 9,729 Construction/land/land development 3,153 228 5 238 3,168 Residential real estate 5,468 398 68 206 5,344 Commercial and industrial 15,299 290 1,370 606 16,985 Mortgage warehouse lines of credit 203 — — 65 268 Consumer 260 51 22 2 233 Total $ 34,151 $ 1,009 $ 1,472 $ 1,113 $ 35,727 ____________________________ (1) The $504,000 provision for credit losses on the consolidated statements of income includes a $1.1 million net loan loss provision and a $609,000 release of provision for off-balance sheet commitments for the three months ended September 30, 2018 . Nine months ended September 30, 2018 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (Benefit) (1) Ending balance Loans secured by real estate: Commercial real estate $ 8,998 $ 51 $ 223 $ 559 $ 9,729 Construction/land/land development 2,950 228 6 440 3,168 Residential real estate 5,807 407 117 (173 ) 5,344 Commercial and industrial 18,831 2,759 2,090 (1,177 ) 16,985 Mortgage warehouse lines of credit 214 — — 54 268 Consumer 283 96 54 (8 ) 233 Total $ 37,083 $ 3,541 $ 2,490 $ (305 ) $ 35,727 ____________________________ (1) The $709,000 benefit for credit losses on the consolidated statements of income includes a $305,000 net loan loss benefit and a $404,000 release of provision for off-balance sheet commitments for the nine months ended September 30, 2018 . Three months ended September 30, 2017 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (Benefit) (1) Ending balance Loans secured by real estate: Commercial real estate $ 9,201 $ 272 $ 12 $ 133 $ 9,074 Construction/land/land development 3,086 — 1 346 3,433 Residential real estate 7,363 1,306 21 (176 ) 5,902 Commercial and industrial 21,347 4,629 271 3,532 20,521 Mortgage warehouse lines of credit 303 — — (79 ) 224 Consumer 334 89 26 20 291 Total $ 41,634 $ 6,296 $ 331 $ 3,776 $ 39,445 ____________________________ (1) The $3.3 million provision for credit losses on the consolidated statements of income includes a $3.8 million net loan loss provision offset by a $449,000 release of provision for off-balance sheet commitments for the three months ended September 30, 2017 . Nine months ended September 30, 2017 (Dollars in thousands) Beginning balance Charge-offs Recoveries Provision (1) Ending balance Loans secured by real estate: Commercial real estate $ 8,718 $ 272 $ 88 $ 540 $ 9,074 Construction/land/land development 2,805 — 4 624 3,433 Residential real estate 5,003 1,326 98 2,127 5,902 Commercial and industrial 33,590 17,962 670 4,223 20,521 Mortgage warehouse lines of credit 139 — — 85 224 Consumer 276 137 36 116 291 Total $ 50,531 $ 19,697 $ 896 $ 7,715 $ 39,445 ____________________________ (1) The $8.1 million provision for credit losses on the consolidated statements of income includes a $7.7 million net loan loss provision and an $379,000 provision for off-balance sheet commitments for the nine months ended September 30, 2017 . The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated: September 30, 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 end loan balance collectively evaluated for impairment (1) Loans secured by real estate: Commercial real estate $ 1,193 $ 8,536 $ 10,078 $ 1,132,491 Construction/land/land development 19 3,149 1,044 405,205 Residential real estate 70 5,274 7,558 578,373 Commercial and industrial 2,029 14,956 13,381 1,178,915 Mortgage warehouse lines of credit — 268 — 233,325 Consumer 23 210 230 20,037 Total $ 3,334 $ 32,393 $ 32,291 $ 3,548,346 ____________________________ (1) Excludes $19.7 million and $739,000 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 6 - 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 end 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 6 - 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 September 30, 2018 , or December 31, 2017 . September 30, 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 $ 10,950 $ 2,304 $ 7,774 $ 10,078 $ 1,193 Construction/land/land development 1,344 737 307 1,044 19 Residential real estate 8,533 6,626 932 7,558 70 Total real estate 20,827 9,667 9,013 18,680 1,282 Commercial and industrial 13,894 5,541 7,840 13,381 2,029 Consumer 251 — 230 230 23 Total impaired loans $ 34,972 $ 15,208 $ 17,083 $ 32,291 $ 3,334 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 and nine months ended September 30, 2018 and 2017 , were as follows: Three months ended September 30, 2018 2017 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Loans secured by real estate: Commercial real estate $ 10,070 $ 14 $ 6,894 $ 41 Construction/land/land development 1,228 2 846 2 Residential real estate 7,741 12 9,439 16 Total real estate 19,039 28 17,179 59 Commercial and industrial 12,891 54 30,545 95 Consumer 263 1 253 2 Total impaired loans $ 32,193 $ 83 $ 47,977 $ 156 Nine months ended September 30, 2018 2017 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Loans secured by real estate: Commercial real estate $ 9,983 $ 57 $ 7,454 $ 127 Construction/land/land development 1,515 14 924 7 Residential real estate 7,631 48 9,777 57 Total real estate 19,129 119 18,155 191 Commercial and industrial 14,932 158 45,536 250 Consumer 264 4 242 5 Total impaired loans $ 34,325 $ 281 $ 63,933 $ 446 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 ("TDRs") are included in certain loan categories within impaired loans. At September 30, 2018 , the Company has committed to advance $15,000 in connection with impaired loans. Non-performing (nonaccrual) loans held for investment were as follows: (Dollars in thousands) September 30, 2018 December 31, 2017 Loans secured by real estate: Commercial real estate $ 8,851 $ 1,745 Construction/land/land development 960 1,097 Residential real estate 7,220 7,166 Total real estate 17,031 10,008 Commercial and industrial 9,285 13,512 Consumer 238 282 Total nonaccrual loans $ 26,554 $ 23,802 For the nine months ended September 30, 2018 and 2017 , gross interest income which would have been recorded had the nonaccruing loans been current in accordance with their original terms was $997,000 and $2.4 million, respectively. No interest income was recorded on these loans while they were considered nonaccrual during the nine months ended September 30, 2018 or 2017 . The Company elects the fair value option for recording residential mortgage loans held for sale, as well as certain commercial real estate and commercial and industrial loans, in accordance with US GAAP. The Company had $1.4 million of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at September 30, 2018 , and zero at December 31, 2017 . There were no nonaccrual loans held for investment that were recorded using the fair value option election at September 30, 2018, or December 31, 2017. The following is a summary of loans classified as TDRs. (Dollars in thousands) September 30, 2018 December 31, 2017 TDRs Nonaccrual TDRs $ 2,040 $ 2,622 Performing TDRs 5,862 14,234 Total $ 7,902 $ 16,856 The following table presents the pre-modification balance of TDR modifications that occurred during the three and nine months ended September 30, 2018 , and September 30, 2017 , and the ending balances by concession type as of each period presented. At and for the three months ended September 30, 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: Commercial real estate 1 $ 252 $ 150 $ — $ — $ 150 Commercial and industrial 3 199 182 — 15 197 Total 4 $ 451 $ 332 $ — $ 15 $ 347 At and for the nine months ended September 30, 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: Commercial real estate 1 $ 252 $ 150 $ — $ — $ 150 Residential real estate 5 187 49 21 102 172 Total real estate 6 439 199 21 102 322 Commercial and industrial 3 198 182 — 15 197 Consumer 1 33 — — 31 31 Total 10 $ 670 $ 381 $ 21 $ 148 $ 550 At and for the three months ended September 30, 2017 (Dollars in thousands) Number of loans restructured Pre-modification recorded balance Term Concessions Interest Rate Concessions Combination Total Modifications Loans secured by real estate: Commercial real estate — $ — $ — $ — $ — $ — Residential real estate 2 130 40 — 206 246 Total real estate 2 130 40 — 206 246 Commercial and industrial 1 42 — — 44 44 Consumer 1 49 47 — — 47 Total 4 $ 221 $ 87 $ — $ 250 $ 337 At and for the nine months ended September 30, 2017 (Dollars in thousands) Number of loans restructured Pre-modification recorded balance Term Concessions Interest Rate Concessions Combination Total Modifications Loans secured by real estate: Commercial real estate 3 $ 2,643 $ 2,001 $ — $ — $ 2,001 Residential real estate 4 171 79 — 206 285 Total real estate 7 2,814 2,080 — 206 2,286 Commercial and industrial 7 8,295 7,392 — 44 7,436 Consumer 1 49 47 — — 47 Total 15 $ 11,158 $ 9,519 $ — $ 250 $ 9,769 During the nine months ended September 30, 2018 , one loan with an outstanding principal balance of $26,000 defaulted after having been modified as a TDR within the previous 12 months. During the nine months ended September 30, 2017, there were no payment defaults for loans restructured as TDR's within the previous 12 months. A payment default is defined as a loan that was 90 or more days past due. The modifications made during the three and nine months ended September 30, 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. |