Loans | Note 4 - Loans Loans consist of the following: December 31, (Dollars in thousands) 2018 2017 Loans held for sale $ 52,210 $ 65,343 Loans held for investment: Loans secured by real estate: Commercial real estate $ 1,228,402 $ 1,083,275 Construction/land/land development 429,660 322,404 Residential real estate 629,714 570,583 Total real estate 2,287,776 1,976,262 Commercial and industrial 1,272,566 989,220 Mortgage warehouse lines of credit 207,871 255,044 Consumer 20,892 20,505 Total loans held for investment (1) 3,789,105 3,241,031 Less: Allowance for loan losses 34,203 37,083 Net loans held for investment $ 3,754,902 $ 3,203,948 ____________________________ (1) Includes net deferred loan fees of $3.2 million and $1.0 million at December 31, 2018 , and December 31, 2017 , respectively. Included in total loans held for investment were $18.6 million of commercial real estate loans for which the fair value option was elected as of December 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. 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 under 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 under 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 under 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 December 31, 2018 , and December 31, 2017 , excluding loans held for sale, were as follows: (Dollars in thousands) December 31, 2018 Loans secured by real estate: Pass Special Mention Substandard Doubtful Loss Total Commercial real estate $ 1,206,194 $ 3,101 $ 19,107 $ — $ — $ 1,228,402 Construction/land/land development 426,770 157 2,733 — — 429,660 Residential real estate 617,996 1,142 10,576 — — 629,714 Total real estate 2,250,960 4,400 32,416 — — 2,287,776 Commercial and industrial 1,190,718 34,964 46,884 — — 1,272,566 Mortgage warehouse lines of credit 207,871 — — — — 207,871 Consumer 20,712 — 180 — — 20,892 Total loans held for investment $ 3,670,261 $ 39,364 $ 79,480 $ — $ — $ 3,789,105 (Dollars in thousands) December 31, 2017 Loans secured by real estate: Pass Special Mention Substandard Doubtful Loss Total 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: (Dollars in thousands) December 31, 2018 Loans secured by real estate: 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 Commercial real estate $ 458 $ 1,409 $ 7,224 $ 9,091 $ 1,219,311 $ 1,228,402 $ — Construction/land/land development 2,657 — 435 3,092 426,568 429,660 — Residential real estate 2,137 527 4,149 6,813 622,901 629,714 — Total real estate 5,252 1,936 11,808 18,996 2,268,780 2,287,776 — Commercial and industrial 276 8,263 6,157 14,696 1,257,870 1,272,566 — Mortgage warehouse lines of credit — — — — 207,871 207,871 — Consumer 383 8 2 393 20,499 20,892 — Total loans held for investment $ 5,911 $ 10,207 $ 17,967 $ 34,085 $ 3,755,020 $ 3,789,105 $ — (Dollars in thousands) December 31, 2017 Loans secured by real estate: 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 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. (Dollars in thousands) Year Ended December 31, 2018 Loans secured by real estate: Beginning Balance Charge-offs Recoveries Provision (Benefit) (1) Ending Balance Commercial real estate $ 8,998 $ 1,300 $ 226 $ 1,075 $ 8,999 Construction/land/land development 2,950 228 6 603 3,331 Residential real estate 5,807 407 133 172 5,705 Commercial and industrial 18,831 5,068 2,206 (353 ) 15,616 Mortgage warehouse lines of credit 214 — — 102 316 Consumer 283 121 92 (18 ) 236 Total $ 37,083 $ 7,124 $ 2,663 $ 1,581 $ 34,203 ____________________________ (1) The $1.0 million provision for credit losses on the consolidated statements of income includes a $1.6 million net loan loss provision and a $567,000 release of provision for off-balance sheet commitments for the year ended December 31, 2018 . (Dollars in thousands) Year Ended December 31, 2017 Loans secured by real estate: Beginning Balance Charge-offs Recoveries Provision (1) Ending Balance Commercial real estate $ 8,718 $ 463 $ 93 $ 650 $ 8,998 Construction/land/land development 2,805 3 5 143 2,950 Residential real estate 5,003 1,446 125 2,125 5,807 Commercial and industrial 33,590 21,767 1,918 5,090 18,831 Mortgage warehouse lines of credit 139 — — 75 214 Consumer 276 198 69 136 283 Total $ 50,531 $ 23,877 $ 2,210 $ 8,219 $ 37,083 ____________________________ (1) The $8.3 million provision for credit losses on the consolidated statements of income includes a $8.2 million net loan loss provision and an $117,000 provision for off-balance sheet commitments for the year ended December 31, 2017 . (Dollars in thousands) Year Ended December 31, 2016 Loans secured by real estate: Beginning Balance Charge-offs Recoveries Provision (Benefit) (1) Ending Balance Commercial real estate $ 7,451 $ 422 $ 25 $ 1,664 $ 8,718 Construction/land/land development 3,927 24 7 (1,105 ) 2,805 Residential real estate 5,094 505 185 229 5,003 Commercial and industrial 23,648 24,851 4,199 30,594 33,590 Mortgage warehouse lines of credit 761 — — (622 ) 139 Consumer 349 604 126 405 276 Total $ 41,230 $ 26,406 $ 4,542 $ 31,165 $ 50,531 ____________________________ (1) The $30.1 million provision for credit losses on the consolidated statements of income includes a $31.2 million loan loss provision offset by a $1.1 million release of provision for off-balance sheet commitments for the year ended December 31, 2016. The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated: (Dollars in thousands) December 31, 2018 Loans secured by real estate: 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) Commercial real estate $ 5 $ 8,994 $ 8,773 $ 1,201,058 Construction/land/land development 19 3,312 1,017 428,643 Residential real estate 68 5,637 6,876 622,838 Commercial and industrial 255 15,361 16,428 1,256,138 Mortgage warehouse lines of credit — 316 — 207,871 Consumer 19 217 184 20,708 Total $ 366 $ 33,837 $ 33,278 $ 3,737,256 ____________________________ (1) Excludes $18.6 million of commercial real estate loans 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. (Dollars in thousands) December 31, 2017 Loans secured by real estate: 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) 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 December 31, 2018 , or December 31, 2017 . (Dollars in thousands) December 31, 2018 Loans secured by real estate: Unpaid Contractual Principal Balance Recorded Investment with no Allowance Recorded Investment with an Allowance Total Recorded Investment Allocation of Allowance for Loan Losses Commercial real estate $ 10,894 $ 8,725 $ 48 $ 8,773 $ 5 Construction/land/land development 1,329 838 179 1,017 19 Residential real estate 7,815 6,092 784 6,876 68 Total real estate 20,038 15,655 1,011 16,666 92 Commercial and industrial 18,883 15,806 622 16,428 255 Consumer 202 — 184 184 19 Total impaired loans $ 39,123 $ 31,461 $ 1,817 $ 33,278 $ 366 (Dollars in thousands) December 31, 2017 Loans secured by real estate: Unpaid Contractual Principal Balance Recorded Investment with no Allowance Recorded Investment with an Allowance Total Recorded Investment Allocation of Allowance for Loan Losses 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 income recognized on impaired loans while classified as impaired for the years ended December 31, 2018 , 2017 and 2016, were as follows: Years Ended December 31, (Dollars in thousands) 2018 2017 2016 Loans secured by real estate: Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Commercial real estate $ 9,901 $ 67 $ 7,046 $ 165 $ 7,179 $ 273 Construction/land/land development 1,401 16 1,053 10 1,179 55 Residential real estate 7,529 60 9,398 75 11,065 385 Total real estate 18,831 143 17,497 250 19,423 713 Commercial and industrial 14,814 199 40,316 375 94,940 3,139 Consumer 251 5 244 7 308 18 Total impaired loans $ 33,896 $ 347 $ 58,057 $ 632 $ 114,671 $ 3,870 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 December 31, 2018 , the Company has committed to advance $2,000 in connection with impaired loans. Non-performing (nonaccrual) loans held for investment were as follows: (Dollars in thousands) December 31, Loans secured by real estate: 2018 2017 Commercial real estate $ 8,281 $ 1,745 Construction/land/land development 935 1,097 Residential real estate 6,668 7,166 Total real estate 15,884 10,008 Commercial and industrial 15,792 13,512 Consumer 180 282 Total nonaccrual loans $ 31,856 $ 23,802 For the years ended December 31, 2018 , 2017 and 2016 , gross interest income that would have been recorded had the nonaccruing loans been current in accordance with their original terms was $1.4 million , $1.3 million and $1.6 million , respectively. No interest income was recorded on these loans while they were considered nonaccrual during the years ended December 31, 2018 , 2017 or 2016 . 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 U.S. GAAP. The Company had $741,000 of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at December 31, 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 December 31, 2018 , or December 31, 2017 . The following is a summary of loans classified as TDRs. (Dollars in thousands) December 31, TDRs 2018 2017 Nonaccrual TDRs $ 5,793 $ 2,622 Performing TDRs 2,054 14,234 Total $ 7,847 $ 16,856 The following tables present the pre-modification balance of TDR modifications that occurred during the periods indicated and the ending balances by concession type as of each period presented. (Dollars in thousands) Year Ended December 31, 2018 Loans secured by real estate: Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination Total Modifications Commercial real estate 1 $ 252 $ 150 $ — $ — $ 150 Residential real estate 6 428 48 19 331 398 Total real estate 7 680 198 19 331 548 Commercial and industrial 3 198 180 — 14 194 Consumer 1 33 — — 29 29 Total 11 $ 911 $ 378 $ 19 $ 374 $ 771 (Dollars in thousands) Year Ended December 31, 2017 Loans secured by real estate: Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination Total Modifications Commercial real estate 4 $ 2,071 $ 2,057 $ — $ — $ 2,057 Residential real estate 3 133 38 — 210 248 Total real estate 7 2,204 2,095 — 210 2,305 Commercial and industrial 8 10,799 9,882 — 40 9,922 Consumer 1 49 45 — — 45 Total 16 $ 13,052 $ 12,022 $ — $ 250 $ 12,272 (Dollars in thousands) Year Ended December 31, 2016 Loans secured by real estate: Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination Total Modifications Commercial real estate 2 $ 398 $ 94 $ — $ 206 $ 300 Residential real estate 6 129 — — 96 96 Total real estate 8 527 94 — 302 396 Commercial and industrial 10 19,536 9,331 11 7 9,349 Consumer 1 22 21 — — 21 Total 19 $ 20,085 $ 9,446 $ 11 $ 309 $ 9,766 During the year ended December 31, 2018 , no loans defaulted after having been modified as a TDR within the previous 12 months. During the year ended December 31, 2017 , one loan with an outstanding principal balance of $241,000 defaulted after having been modified as a TDR within the previous 12 months. During the year ended December 31, 2016 , four loans with a combined outstanding principal balance of $5.5 million defaulted after having been modified as TDRs 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 year ended December 31, 2018, did not significantly impact the Company's determination of the allowance for loan losses. The Company monitors the performance of the modified loans to their restructured terms on an ongoing basis. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of each loan. |