Loans | Note 4 - Loans Loans consisted of the following: (Dollars in thousands) March 31, 2020 December 31, 2019 Loans held for sale $ 75,322 $ 64,837 LHFI: Loans secured by real estate: Commercial real estate $ 1,284,931 $ 1,279,177 Construction/land/land development 563,820 517,688 Residential real estate 703,263 689,555 Total real estate 2,552,014 2,486,420 Commercial and industrial 1,455,497 1,343,475 Mortgage warehouse lines of credit 437,257 274,659 Consumer 18,828 20,971 Total loans accounted for at amortized cost 4,463,596 4,125,525 Loan accounted for at fair value 17,589 17,670 Total LHFI (1) 4,481,185 4,143,195 Less: allowance for credit losses 56,063 37,520 Net LHFI $ 4,425,122 $ 4,105,675 ____________________________ (1) Includes net deferred loan fees of $4.0 million and $3.6 million at March 31, 2020 , and December 31, 2019 , respectively. Included in total LHFI were $17.6 million and $17.7 million of commercial real estate loans for which the fair value option was elected as of March 31, 2020 , and December 31, 2019 , 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. In connection with the review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements considered include: • for commercial real estate loans, the debt service coverage ratio, operating results of the owner in the case of owner occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; • for construction, land and land development loans, the perceived feasibility of the project, including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio; • for residential mortgage loans, the borrower's ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral; and • for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower's business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral. The following table reflects recorded investments in loans by credit quality indicator and origination year at March 31, 2020 , excluding loans held for sale and loans accounted for at fair value. The Company had an immaterial amount of revolving loans converted to terms loans at March 31, 2020 . Term Loans Amortized Cost Basis by Origination Year 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total Commercial real estate: (1) Risk rating: Pass $ 101,330 $ 302,613 $ 349,746 $ 193,121 $ 82,816 $ 197,807 $ 23,046 $ 1,250,479 Special mention — — 416 — — 11,907 350 12,673 Classified — 1,019 5,196 13,277 242 1,970 75 21,779 Total commercial real estate loans $ 101,330 $ 303,632 $ 355,358 $ 206,398 $ 83,058 $ 211,684 $ 23,471 $ 1,284,931 Current-period gross writeoffs $ — $ — $ — $ 150 $ — $ 22 $ — $ 172 Current-period recoveries — — — — — 2 — 2 Current period net writeoffs $ — $ — $ — $ 150 $ — $ 20 $ — $ 170 (1) Excludes $17.6 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. Construction/land/land development: Risk rating: Pass $ 45,874 $ 203,582 $ 210,678 $ 69,863 $ 9,583 $ 2,191 $ 16,447 $ 558,218 Special mention 336 146 — — — — — 482 Classified — 1,232 384 3,220 98 186 — 5,120 Total construction/land/land development loans $ 46,210 $ 204,960 $ 211,062 $ 73,083 $ 9,681 $ 2,377 $ 16,447 $ 563,820 Current-period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Current-period recoveries — — — — — — — — Current period net writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate: Risk rating: Pass $ 40,894 $ 196,502 $ 115,661 $ 122,452 $ 59,959 $ 108,855 $ 50,656 $ 694,979 Special mention 198 — 30 1,061 — — — 1,289 Classified 11 2,579 1,699 365 890 1,249 202 6,995 Total residential real estate loans $ 41,103 $ 199,081 $ 117,390 $ 123,878 $ 60,849 $ 110,104 $ 50,858 $ 703,263 Current-period gross writeoffs $ — $ 42 $ — $ 7 $ — $ — $ — $ 49 Current-period recoveries — — — — — 149 — 149 Current period net writeoffs (recoveries) $ — $ 42 $ — $ 7 $ — $ (149 ) $ — $ (100 ) Term Loans Amortized Cost Basis by Origination Year 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total Commercial and industrial: Risk rating: Pass $ 126,922 $ 253,195 $ 185,905 $ 70,454 $ 23,380 $ 42,005 $ 683,276 $ 1,385,137 Special mention 300 297 1,568 954 6,196 18,737 1,700 29,752 Classified 608 11,415 2,031 2,472 9,769 5,226 9,087 40,608 Total commercial and industrial loans $ 127,830 $ 264,907 $ 189,504 $ 73,880 $ 39,345 $ 65,968 $ 694,063 $ 1,455,497 Current-period gross writeoffs $ — $ — $ 63 $ 56 $ 108 $ 131 $ 822 $ 1,180 Current-period recoveries — 12 20 55 47 29 6 169 Current period net (recoveries) writeoffs $ — $ (12 ) $ 43 $ 1 $ 61 $ 102 $ 816 $ 1,011 Mortgage Warehouse Lines of Credit: Risk rating: Pass $ — $ — $ — $ — $ — $ — $ 437,257 $ 437,257 Current-period gross writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Current-period recoveries — — — — — — — — Current period net writeoffs $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Risk rating: Pass $ 1,588 $ 6,844 $ 3,029 $ 607 $ 281 $ 156 $ 6,142 $ 18,647 Classified 1 17 72 23 11 36 21 181 Total consumer loans $ 1,589 $ 6,861 $ 3,101 $ 630 $ 292 $ 192 $ 6,163 $ 18,828 Current-period gross writeoffs $ — $ 6 $ 4 $ 10 $ — $ 4 $ — $ 24 Current-period recoveries — — — — 1 2 1 4 Current period net writeoffs (recoveries) $ — $ 6 $ 4 $ 10 $ (1 ) $ 2 $ (1 ) $ 20 The recorded investment in loans by credit quality indicator at December 31, 2019, excluding loans held for sale, were as follows: December 31, 2019 (Dollars in thousands) Pass Special Mention Substandard Doubtful Loss Total Loans secured by real estate: 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 LHFI $ 4,035,471 $ 42,664 $ 65,060 $ — $ — $ 4,143,195 The following tables present the Company's loan portfolio aging analysis at the dates indicated: March 31, 2020 (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 $ 7,890 $ 665 $ 6,427 $ 14,982 $ 1,287,538 $ 1,302,520 $ — Construction/land/land development 9,612 26 — 9,638 554,182 563,820 — Residential real estate 5,135 126 621 5,882 697,381 703,263 — Total real estate 22,637 817 7,048 30,502 2,539,101 2,569,603 — Commercial and industrial 6,902 312 13,073 20,287 1,435,210 1,455,497 — Mortgage warehouse lines of credit — — — — 437,257 437,257 — Consumer 165 53 11 229 18,599 18,828 — Total LHFI $ 29,704 $ 1,182 $ 20,132 $ 51,018 $ 4,430,167 $ 4,481,185 $ — December 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 $ 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 LHFI $ 8,412 $ 3,123 $ 18,445 $ 29,980 $ 4,113,215 $ 4,143,195 $ — As of April 30, 2020, the Company had 1,242 loans totaling $880.2 million in COVID-19 related forbearance. The following tables detail activity in the allowance for credit losses by portfolio segment. Accrued interest of $12.6 million was not included in the book value for the purposes of calculating the allowance at March 31, 2020 . 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, 2020 (Dollars in thousands) Beginning Balance Impact of Adopting ASC 326 Charge-offs Recoveries Provision (1) Ending Balance Loans secured by real estate: Commercial real estate $ 10,013 $ (5,052 ) $ 172 $ 2 $ 4,463 $ 9,254 Construction/land/land development 3,711 1,141 — — 202 5,054 Residential real estate 6,332 (2,526 ) 49 149 589 4,495 Commercial and industrial 16,960 7,296 1,180 169 12,578 35,823 Mortgage warehouse lines of credit 262 29 — — 488 779 Consumer 242 360 24 4 76 658 Total $ 37,520 $ 1,248 $ 1,425 $ 324 $ 18,396 $ 56,063 ____________________________ (1) The $18.5 million provision for credit losses on the condensed consolidated statements of income includes a $18.4 million net loan loss provision and a $135,000 provision for off-balance sheet commitments for the three months ended March 31, 2020 . The provision for loan credit losses for the first quarter of 2020 was driven by a significant increase in uncertainty related to the economic impact of the current COVID-19 pandemic. Based upon the requirement of CECL, economic forecasts are essential for estimating the life of loan losses. For periods prior to January 1, 2020, the incurred loss model did not require a life of loan loss estimation. The increased risk, as reflected in current and forecast adjustments, resulted in approximately $11.2 million in provision expense across the Company’s risk pools. An additional $6.0 million in provision expense was due to the current and forecast effects of individually evaluated loans. The provision for commercial real estate loans includes approximately $3.0 million in increased credit allowances related to individually evaluated loans. The provision for commercial and industrial loans includes $5.4 million related to current and forecast factors as well as approximately $3.0 million related to individually evaluated loans. The only significant charge-off in commercial and industrial loans during the first quarter of 2020 was for $732,000 on an operating loan secured by equipment. 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 release of provision for off-balance sheet commitments for the three months ended March 31, 2019 . The following table shows the recorded investment in loans by loss estimation methodology at March 31, 2020. March 31, 2020 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate (1) $ 1,273,101 $ 11,059 $ 771 $ 1,284,931 Construction/land/land development 560,042 3,405 373 563,820 Residential real estate 699,859 2,660 744 703,263 Commercial and industrial 1,440,724 8,498 6,275 1,455,497 Mortgage warehouse lines of credit 437,257 — — 437,257 Consumer 18,801 27 — 18,828 Total $ 4,429,784 $ 25,649 $ 8,163 $ 4,463,596 ____________________________ (1) Excludes $17.6 million of commercial real estate loans at fair value, which are not included in the loss estimation methodology due to the fair value option election. The following table shows the allowance for credit losses by loss estimation methodology at March 31, 2020. March 31, 2020 Collectively Evaluated Individually Evaluated (Dollars in thousands) Probability of Default Fair Value of Collateral Discounted Cash Flow Total Loans secured by real estate: Commercial real estate $ 6,290 $ 2,964 $ — $ 9,254 Construction/land/land development 5,053 — 1 5,054 Residential real estate 4,495 — — 4,495 Commercial and industrial 32,644 3,152 27 35,823 Mortgage warehouse lines of credit 779 — — 779 Consumer 649 9 — 658 Total $ 49,910 $ 6,125 $ 28 $ 56,063 The following tables present the balance of loans receivable by method of impairment evaluation at December 31, 2019 : (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. The following table present impaired loans at December 31, 2019 . No mortgage warehouse lines of credit were impaired at December 31, 2019 . (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 Note that the Company is not using the collateral maintenance agreement practical expedient. All fair value of collateral is real estate related. Collateral-dependent loans consist primarily of commercial real estate and commercial and industrial loans. These loans are individually evaluated when foreclosure is probable or when the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral. The collateral drivers for the allowance and provision related to commercial real estate loans were primarily assisted living facilities and storage facilities. The commercial and industrial loans with allowances are collateralized by notes and other interests in the company that owns and operates the previously mentioned assisted living facilities. Factors related to the deterioration of collateral values were exacerbated by the economic conditions related to the current coronavirus pandemic. Nonaccrual LHFI were as follows: March 31, 2020 December 31, 2019 (Dollars in thousands) Nonaccrual With No Allowance for Credit Loss Nonaccrual Nonaccrual Loans secured by real estate: Commercial real estate $ 2,164 $ 11,306 $ 6,994 Construction/land/land development 3,661 3,850 4,337 Residential real estate 3,148 4,076 5,132 Total real estate 8,973 19,232 16,463 Commercial and industrial 746 13,619 14,520 Consumer 18 181 163 Total $ 9,737 $ 33,032 $ 31,146 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. At March 31, 2020 , the Company had no funding commitments in connection with debtors whose terms have been modified in troubled debt restructurings. For the three months ended March 31, 2020 and 2019 , gross interest income that would have been recorded if the nonaccruing loans had been current in accordance with their original terms was $354,000 and $355,000 , respectively. No interest income was recorded on these loans while they were considered nonaccrual during the three months ended March 31, 2020 or 2019 . The Company elects the fair value option for recording certain residential mortgage loans held for sale, as well as certain commercial real estate loans in accordance with U.S. GAAP. The Company had $840,000 of nonaccrual mortgage loans held for sale that were recorded using the fair value option election at March 31, 2020 , compared to $927,000 at December 31, 2019 . There were no nonaccrual LHFI that were recorded using the fair value option election at March 31, 2020 , or December 31, 2019 . The following is a summary of loans classified as TDRs. (Dollars in thousands) March 31, 2020 December 31, 2019 TDRs Nonaccrual TDRs $ 6,034 $ 6,609 Performing TDRs 1,885 1,843 Total $ 7,919 $ 8,452 Three Months Ended March 31, 2020 (Dollars in thousands) Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination of Term and Rate Concessions Total Modifications Commercial and industrial 2 $ 128 $ 127 $ — $ 127 Total 2 $ 128 $ 127 $ — $ — $ 127 Three Months Ended March 31, 2019 (Dollars in thousands) Number of Loans Restructured Pre-Modification Recorded Balance Term Concessions Interest Rate Concessions Combination of Term and Rate Concessions 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 During the three months ended March 31, 2020 , two loans with an outstanding principal balance of $2.3 million defaulted after having been modified as a TDR within the previous 12 months. During the three months ended March 31, 2019 , there were no loans that 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, 2020 , did not significantly impact the Company's determination of the allowance for loan credit 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 credit losses continues to be reassessed on the basis of an individual evaluation of each loan. |