Loans | Note 4 - Loans Loans consisted of the following: (Dollars in thousands) March 31, 2019 December 31, 2018 Loans held for sale $ 42,265 $ 52,210 Loans held for investment: Loans secured by real estate: Commercial real estate $ 1,202,269 $ 1,228,402 Construction/land/land development 488,167 429,660 Residential real estate 638,064 629,714 Total real estate 2,328,500 2,287,776 Commercial and industrial 1,287,300 1,272,566 Mortgage warehouse lines of credit 202,744 207,871 Consumer 19,799 20,892 Total loans held for investment (1) 3,838,343 3,789,105 Less: Allowance for loan losses 35,578 34,203 Net loans held for investment $ 3,802,765 $ 3,754,902 ____________________________ (1) Includes net deferred loan fees of $3.3 million and $3.2 million at March 31, 2019 , and December 31, 2018 , respectively. Included in total loans held for investment were $18.4 million and $18.6 million of commercial real estate loans for which the fair value option was elected as of March 31, 2019 , and December 31, 2018 , respectively. 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 has 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 March 31, 2019 , and December 31, 2018 , excluding loans held for sale, were as follows: March 31, 2019 (Dollars in thousands) Pass Special Mention Substandard Doubtful Loss Total Loans secured by real estate: Commercial real estate $ 1,169,170 $ 14,272 $ 18,827 $ — $ — $ 1,202,269 Construction/land/land development 484,912 1,004 2,251 — — 488,167 Residential real estate 628,612 1,132 8,320 — — 638,064 Total real estate 2,282,694 16,408 29,398 — — 2,328,500 Commercial and industrial 1,217,732 25,253 44,315 — — 1,287,300 Mortgage warehouse lines of credit 202,744 — — — — 202,744 Consumer 19,593 — 206 — — 19,799 Total loans held for investment $ 3,722,763 $ 41,661 $ 73,919 $ — $ — $ 3,838,343 December 31, 2018 (Dollars in thousands) Pass Special Mention Substandard Doubtful Loss Total Loans secured by real estate: 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 The following tables present the Company's loan portfolio aging analysis at the dates indicated: March 31, 2019 (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 $ 3,079 $ — $ 8,370 $ 11,449 $ 1,190,820 $ 1,202,269 $ — Construction/land/land development 572 612 56 1,240 486,927 488,167 — Residential real estate 2,424 317 2,988 5,729 632,335 638,064 — Total real estate 6,075 929 11,414 18,418 2,310,082 2,328,500 — Commercial and industrial 5,143 145 14,021 19,309 1,267,991 1,287,300 — Mortgage warehouse lines of credit — — — — 202,744 202,744 — Consumer 73 36 5 114 19,685 19,799 — Total loans held for investment $ 11,291 $ 1,110 $ 25,440 $ 37,841 $ 3,800,502 $ 3,838,343 $ — December 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 $ 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 $ — 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, 2019 (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Benefit) (1) Ending Balance Loans secured by real estate: Commercial real estate $ 8,999 $ 89 $ 51 $ 297 $ 9,258 Construction/land/land development 3,331 — 1 347 3,679 Residential real estate 5,705 — 27 (155 ) 5,577 Commercial and industrial 15,616 511 1,074 296 16,475 Mortgage warehouse lines of credit 316 — — 49 365 Consumer 236 8 7 (11 ) 224 Total $ 34,203 $ 608 $ 1,160 $ 823 $ 35,578 ____________________________ (1) The $1.0 million provision for credit losses on the condensed consolidated statements of income includes a $823,000 net loan loss provision and a $182,000 provision for off-balance sheet commitments for the three months ended March 31, 2019 . 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 condensed 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 . The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated: March 31, 2019 (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 $ — $ 9,258 $ 9,099 $ 1,174,783 Construction/land/land development 1 3,678 1,002 487,165 Residential real estate 15 5,562 4,867 633,197 Commercial and industrial 183 16,292 15,728 1,271,572 Mortgage warehouse lines of credit — 365 — 202,744 Consumer 1 223 168 19,631 Total $ 200 $ 35,378 $ 30,864 $ 3,789,092 ____________________________ (1) Excludes $18.4 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. December 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 End Loan Balance Collectively Evaluated for Impairment (1) Loans secured by real estate: 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. The following tables present impaired loans at the dates indicated. No mortgage warehouse lines of credit were impaired at either March 31, 2019 , or December 31, 2018 . March 31, 2019 (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 $ 11,318 $ 9,052 $ 47 $ 9,099 $ — Construction/land/land development 1,320 876 126 1,002 1 Residential real estate 5,764 4,165 702 4,867 15 Total real estate 18,402 14,093 875 14,968 16 Commercial and industrial 18,304 15,278 450 15,728 183 Consumer 185 — 168 168 1 Total impaired loans $ 36,891 $ 29,371 $ 1,493 $ 30,864 $ 200 December 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 $ 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 The average recorded investment and interest recognized on impaired loans while classified as impaired for the three months ended March 31, 2019 and 2018 , were as follows: Three Months Ended March 31, 2019 2018 (Dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Loans secured by real estate: Commercial real estate $ 9,076 $ 5 $ 9,864 $ 27 Construction/land/land development 1,013 2 1,847 9 Residential real estate 5,953 7 7,665 24 Total real estate 16,042 14 19,376 60 Commercial and industrial 16,191 6 17,717 88 Consumer 178 1 256 3 Total impaired loans $ 32,411 $ 21 $ 37,349 $ 151 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 March 31, 2019 , the Company had no funding commitments in connection with impaired loans. Non-performing (nonaccrual) loans held for investment were as follows: (Dollars in thousands) March 31, 2019 December 31, 2018 Loans secured by real estate: Commercial real estate $ 8,622 $ 8,281 Construction/land/land development 922 935 Residential real estate 5,196 6,668 Total real estate 14,740 15,884 Commercial and industrial 15,309 15,792 Consumer 206 180 Total nonaccrual loans $ 30,255 $ 31,856 For the three months ended March 31, 2019 and 2018 , gross interest income that would have been recorded if the nonaccruing loans had been current in accordance with their original terms was $355,000 and $430,000 , respectively. No interest income was recorded on these loans while they were considered nonaccrual during the three months ended March 31, 2019 or 2018 . 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 $1.4 million of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at March 31, 2019 , and $741,000 at December 31, 2018 . There were no nonaccrual loans held for investment that were recorded using the fair value option election at March 31, 2019 , or December 31, 2018 . The following is a summary of loans classified as TDRs. (Dollars in thousands) March 31, 2019 December 31, 2018 TDRs Nonaccrual TDRs $ 6,082 $ 5,793 Performing TDRs 1,270 2,054 Total $ 7,352 $ 7,847 The following table presents the pre-modification balance of TDR modifications that occurred during the periods indicated and the ending balances by concession type as of the period presented. Three Months Ended March 31, 2019 (Dollars in thousands) Number of Loans Restructured Pre-modification Recorded Balance Term Concessions Combination Total Modifications Loans secured by real estate: Construction/land/land development 1 $ 361 $ — $ 360 $ 360 Commercial and industrial 1 19 18 — 18 Total 2 $ 380 $ 18 $ 360 $ 378 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, 2019 and 2018 , no loan defaulted after having been modified as a TDR 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 months ended March 31, 2019 , 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 the loan. |