Loans | Note 4 - Loans Loans consist of the following: December 31, (Dollars in thousands) 2019 2018 Loans held for sale $ 64,837 $ 52,210 Loans held for investment: Loans secured by real estate: Commercial real estate $ 1,296,847 $ 1,228,402 Construction/land/land development 517,688 429,660 Residential real estate 689,555 629,714 Total real estate 2,504,090 2,287,776 Commercial and industrial 1,343,475 1,272,566 Mortgage warehouse lines of credit 274,659 207,871 Consumer 20,971 20,892 Total loans held for investment (1) 4,143,195 3,789,105 Less: Allowance for loan losses 37,520 34,203 Net loans held for investment $ 4,105,675 $ 3,754,902 ____________________________ (1) Includes net deferred loan fees of $3.6 million and $3.2 million at December 31, 2019 and 2018, respectively. Included in total loans held for investment were $17.7 million and $18.6 million of commercial real estate loans for which the fair value option was elected as of December 31, 2019 and 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 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. Loans held for investment by credit quality indicator at December 31, 2019 and 2018 , were as follows: (Dollars in thousands) December 31, 2019 Loans secured by real estate: Pass Special Mention Substandard Doubtful Loss Total Commercial real estate $ 1,269,493 $ 12,479 $ 14,875 $ — $ — $ 1,296,847 Construction/land/land development 512,901 149 4,638 — — 517,688 Residential real estate 680,046 1,558 7,951 — — 689,555 Total real estate 2,462,440 14,186 27,464 — — 2,504,090 Commercial and industrial 1,277,564 28,478 37,433 — — 1,343,475 Mortgage warehouse lines of credit 274,659 — — — — 274,659 Consumer 20,808 — 163 — — 20,971 Total loans held for investment $ 4,035,471 $ 42,664 $ 65,060 $ — $ — $ 4,143,195 (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 The following tables present the Company's loan portfolio aging analysis at the dates indicated: (Dollars in thousands) December 31, 2019 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 $ 917 $ — $ 5,891 $ 6,808 $ 1,290,039 $ 1,296,847 $ — Construction/land/land development 3,569 133 56 3,758 513,930 517,688 — Residential real estate 2,174 1,918 913 5,005 684,550 689,555 — Total real estate 6,660 2,051 6,860 15,571 2,488,519 2,504,090 — Commercial and industrial 1,588 1,037 11,545 14,170 1,329,305 1,343,475 — Mortgage warehouse lines of credit — — — — 274,659 274,659 — Consumer 164 35 40 239 20,732 20,971 — Total loans held for investment $ 8,412 $ 3,123 $ 18,445 $ 29,980 $ 4,113,215 $ 4,143,195 $ — (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 $ — 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, 2019 Loans secured by real estate: Beginning Balance Charge-offs Recoveries Provision (Benefit) (1) Ending Balance Commercial real estate $ 8,999 $ 1,420 $ 341 $ 2,093 $ 10,013 Construction/land/land development 3,331 38 40 378 3,711 Residential real estate 5,705 265 185 707 6,332 Commercial and industrial 15,616 8,231 3,627 5,948 16,960 Mortgage warehouse lines of credit 316 29 — (25 ) 262 Consumer 236 148 48 106 242 Total $ 34,203 $ 10,131 $ 4,241 $ 9,207 $ 37,520 ____________________________ (1) The $9.6 provision for credit losses on the consolidated statements of income includes a $9.2 million net loan loss provision and a $361,000 provision for off-balance sheet commitments for the year ended December 31, 2019 . (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 an $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 loan loss provision and a $117,000 provision for off-balance sheet commitments for the year ended December 31, 2017. The following tables present the balance of loans receivable by method of impairment evaluation at the dates indicated: (Dollars in thousands) December 31, 2019 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 $ 3 $ 10,010 $ 7,446 $ 1,271,731 Construction/land/land development 3 3,708 4,329 513,359 Residential real estate 21 6,311 4,937 684,618 Commercial and industrial 168 16,792 15,662 1,327,813 Mortgage warehouse lines of credit — 262 — 274,659 Consumer 4 238 100 20,871 Total $ 199 $ 37,321 $ 32,474 $ 4,093,051 ____________________________ (1) Excludes $17.7 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, 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. The following tables present impaired loans at the dates indicated. No mortgage warehouse lines of credit were impaired at either December 31, 2019 or 2018. (Dollars in thousands) December 31, 2019 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 $ 10,788 $ 7,375 $ 71 $ 7,446 $ 3 Construction/land/land development 4,692 4,256 73 4,329 3 Residential real estate 5,846 4,407 530 4,937 21 Total real estate 21,326 16,038 674 16,712 27 Commercial and industrial 22,857 14,385 1,277 15,662 168 Consumer 110 — 100 100 4 Total impaired loans $ 44,293 $ 30,423 $ 2,051 $ 32,474 $ 199 (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 The average recorded investment and interest income recognized on impaired loans while classified as impaired for the years ended December 31, 2019 , 2018 and 2017 , were as follows: Years Ended December 31, (Dollars in thousands) 2019 2018 2017 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 $ 8,842 $ 21 $ 9,901 $ 67 $ 7,046 $ 165 Construction/land/land development 1,266 8 1,401 16 1,053 10 Residential real estate 5,090 22 7,529 60 9,398 75 Total real estate 15,198 51 18,831 143 17,497 250 Commercial and industrial 16,449 49 14,814 199 40,316 375 Consumer 150 3 251 5 244 7 Total impaired loans $ 31,797 $ 103 $ 33,896 $ 347 $ 58,057 $ 632 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. TDRs are included in certain loan categories within impaired loans. At December 31, 2019 , there were no unfunded commitments to advance on impaired loans. Non-performing (nonaccrual) loans held for investment were as follows: (Dollars in thousands) December 31, Loans secured by real estate: 2019 2018 Commercial real estate $ 6,994 $ 8,281 Construction/land/land development 4,337 935 Residential real estate 5,132 6,668 Total real estate 16,463 15,884 Commercial and industrial 14,520 15,792 Consumer 163 180 Total nonaccrual loans $ 31,146 $ 31,856 For the years ended December 31, 2019 , 2018 and 2017 , gross interest income that would have been recorded had the nonaccruing loans been current in accordance with their original terms was $1.5 million , $1.4 million and $1.3 million , respectively. No interest income was recorded on these loans while they were considered nonaccrual during the years ended December 31, 2019 , 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 in accordance with U.S. GAAP. The Company had $927,000 of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at December 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 December 31, 2019 , or December 31, 2018 . The following is a summary of loans classified as TDRs. (Dollars in thousands) December 31, TDRs 2019 2018 Nonaccrual TDRs $ 6,609 $ 5,793 Performing TDRs 1,843 2,054 Total $ 8,452 $ 7,847 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, 2019 Loans secured by real estate: Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination Total Modifications Construction/land/land development 1 $ 361 $ — $ — $ 343 $ 343 Residential real estate 2 2,516 — — 2,410 2,410 Total real estate 3 2,877 — — 2,753 2,753 Commercial and industrial 5 1,314 852 — — 852 Consumer 1 11 9 — — 9 Total 9 $ 4,202 $ 861 $ — $ 2,753 $ 3,614 (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 During the year ended December 31, 2019 , two loans with a combined outstanding principal balance of $117,000 defaulted after having been modified as a TDR within the previous 12 months. 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. 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, 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 each loan. |