Loans and Allowance for Loan Losses | Note 3 — Loans and Allowance for Loan Losses Loans are summarized as follows: September 30, December 31, (Dollars in thousands) 2017 2016 Loans held for investment: Commercial real estate loans: Real estate term $ 627,467 $ 582,029 Construction and land development 281,545 240,120 Total commercial real estate loans 909,012 822,149 Commercial and industrial loans 222,674 213,260 Consumer loans: Residential and home equity 73,383 72,959 Consumer and other 15,099 15,678 Total consumer loans 88,482 88,637 Total gross loans 1,220,168 1,124,046 Less: Net deferred loan fees (4,595 ) (4,169 ) Total loans held for investment 1,215,573 1,119,877 Less: allowance for loan losses (17,609 ) (16,715 ) Total loans held for investment, net $ 1,197,964 $ 1,103,162 Changes in the allowance for loan losses (“ALLL”) are as follows: Three Months Ended September 30, 2017 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Balance at beginning of period $ 7,157 $ 5,077 $ 4,489 $ 503 $ 45 $ 17,271 Additions: Provisions for loan losses (303 ) 409 770 (44 ) 68 900 Deductions: Gross loan charge-offs — — (621 ) — (46 ) (667 ) Recoveries 23 2 46 7 27 105 Net loan charge-offs 23 2 (575 ) 7 (19 ) (562 ) Balance at end of period $ 6,877 $ 5,488 $ 4,684 $ 466 $ 94 $ 17,609 Three Months Ended September 30, 2016 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Balance at beginning of period $ 6,869 $ 4,725 $ 3,768 $ 628 $ 162 $ 16,152 Additions: Provisions for loan losses (426 ) 413 411 (24 ) (49 ) 325 Deductions: Gross loan charge-offs — — (558 ) — (57 ) (615 ) Recoveries 3 148 81 8 79 319 Net loan charge-offs 3 148 (477 ) 8 22 (296 ) Balance at end of period $ 6,446 $ 5,286 $ 3,702 $ 612 $ 135 $ 16,181 Note 3 — Loans and Allowance for Loan Losses – Continued Nine Months Ended September 30, 2017 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Balance at beginning of period $ 6,770 $ 5,449 $ 3,718 $ 617 $ 161 $ 16,715 Additions: Provisions for loan losses 253 (42 ) 1,736 40 13 2,000 Deductions: Gross loan charge-offs (350 ) — (893 ) (338 ) (159 ) (1,740 ) Recoveries 204 81 123 147 79 634 Net loan charge-offs (146 ) 81 (770 ) (191 ) (80 ) (1,106 ) Balance at end of period $ 6,877 $ 5,488 $ 4,684 $ 466 $ 94 $ 17,609 Nine Months Ended September 30, 2016 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Balance at beginning of period $ 6,783 $ 3,984 $ 3,941 $ 603 $ 246 $ 15,557 Additions: Provisions for loan losses (349 ) 1,108 202 (80 ) (131 ) 750 Deductions: Gross loan charge-offs — — (630 ) — (177 ) (807 ) Recoveries 12 194 189 89 197 681 Net loan charge-offs 12 194 (441 ) 89 20 (126 ) Balance at end of period $ 6,446 $ 5,286 $ 3,702 $ 612 $ 135 $ 16,181 Non-accrual loans are summarized as follows: September 30, December 31, (Dollars in thousands) 2017 2016 Non-accrual loans, not troubled debt restructured: Real estate term $ 2,193 $ 2,386 Construction and land development 45 378 Commercial and industrial 1,150 1,211 Residential and home equity — 142 Consumer and other 5 14 Total non-accrual loans, not troubled debt restructured 3,393 4,131 Troubled debt restructured loans, non-accrual: Real estate term 378 808 Construction and land development 352 396 Commercial and industrial — — Residential and home equity — — Consumer and other — — Total troubled debt restructured loans, non-accrual 730 1,204 Total non-accrual loans $ 4,123 $ 5,335 Note 3 — Loans and Allowance for Loan Losses – Continued Troubled debt restructured loans are summarized as follows: September 30, December 31, (Dollars in thousands) 2017 2016 Accruing troubled debt restructured loans $ 3,938 $ 5,572 Non-accrual troubled debt restructured loans 730 1,204 Total troubled debt restructured loans $ 4,668 $ 6,776 A restructured loan is considered a troubled debt restructured loan (“TDR”), if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession in terms or a below-market interest rate to the debtor that it would not otherwise consider. Each TDR loan is separately negotiated with the borrower and includes terms and conditions that reflect the borrower’s prospective ability to service the debt as modified. Current and past due loans held for investment (accruing and non-accruing) are summarized as follows: September 30, 2017 30-89 Days 90+ Days Total Total (Dollars in thousands) Current Past Due Past Due Non-accrual Past Due Loans Commercial real estate: Real estate term $ 624,516 $ 380 $ — $ 2,571 $ 2,951 $ 627,467 Construction and land development 280,289 859 — 397 1,256 281,545 Total commercial real estate 904,805 1,239 — 2,968 4,207 909,012 Commercial and industrial 221,209 315 — 1,150 1,465 222,674 Consumer: Residential and home equity 73,199 184 — — 184 73,383 Consumer and other 14,811 265 18 5 288 15,099 Total consumer 88,010 449 18 5 472 88,482 Total gross loans $ 1,214,024 $ 2,003 $ 18 $ 4,123 $ 6,144 $ 1,220,168 December 31, 2016 30-89 Days 90+ Days Total Total (Dollars in thousands) Current Past Due Past Due Non-accrual Past Due Loans Commercial real estate: Real estate term $ 577,134 $ 1,701 $ — $ 3,194 $ 4,895 $ 582,029 Construction and land development 237,433 1,913 — 774 2,687 240,120 Total commercial real estate 814,567 3,614 — 3,968 7,582 822,149 Commercial and industrial 211,143 906 — 1,211 2,117 213,260 Consumer: Residential and home equity 71,719 1,098 — 142 1,240 72,959 Consumer and other 15,168 474 22 14 510 15,678 Total consumer 86,887 1,572 22 156 1,750 88,637 Total gross loans $ 1,112,597 $ 6,092 $ 22 $ 5,335 $ 11,449 $ 1,124,046 Credit Quality Indicators: In addition to past due and non-accrual criteria, the Company also analyzes loans using a loan grading system. Performance-based grading follows the Company’s definitions of Pass, Special Mention, Substandard and Doubtful, which are consistent with published definitions of regulatory risk classifications. Note 3 — Loans and Allowance for Loan Losses – Continued Definitions of Pass, Special Mention, Substandard and Doubtful are summarized as follows: Pass : A Pass asset is higher quality and does not fit any of the other categories described below. The likelihood of loss is considered remote. Special Mention : A Special Mention asset has potential weaknesses that may be temporary or, if left uncorrected, may result in a loss. While concerns exist, the Company is currently protected and loss is considered unlikely and not imminent. Substandard : A Substandard asset is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if deficiencies are not corrected. Doubtful : A Doubtful asset has all the weaknesses inherent in a Substandard asset with the added characteristics that the weaknesses make collection or liquidation in full highly questionable. For Consumer loans, the Company generally assigns internal risk grades similar to those described above based on payment performance. Outstanding loan balances (accruing and non-accruing) categorized by these credit quality indicators are summarized as follows: September 30, 2017 Special Substandard Total Total (Dollars in thousands) Pass Mention and Doubtful Loans Allowance Commercial real estate: Real estate term $ 603,905 $ 11,481 $ 12,081 $ 627,467 $ 6,877 Construction and land development 273,580 4,686 3,279 281,545 5,488 Total commercial real estate 877,485 16,167 15,360 909,012 12,365 Commercial and industrial 208,849 5,797 8,028 222,674 4,684 Consumer loans: Residential and home equity 70,627 1,705 1,051 73,383 466 Consumer and other 14,953 48 98 15,099 94 Total consumer 85,580 1,753 1,149 88,482 560 Total $ 1,171,914 $ 23,717 $ 24,537 $ 1,220,168 $ 17,609 December 31, 2016 Special Substandard Total Total (Dollars in thousands) Pass Mention and Doubtful Loans Allowance Commercial real estate: Real estate term $ 565,550 $ 10,609 $ 5,870 $ 582,029 $ 6,770 Construction and land development 234,359 2,222 3,539 240,120 5,449 Total commercial real estate 799,909 12,831 9,409 822,149 12,219 Commercial and industrial 205,933 2,266 5,061 213,260 3,718 Consumer loans: Residential and home equity 69,287 1,869 1,803 72,959 617 Consumer and other 15,542 — 136 15,678 161 Total consumer 84,829 1,869 1,939 88,637 778 Total $ 1,090,671 $ 16,966 $ 16,409 $ 1,124,046 $ 16,715 Note 3 — Loans and Allowance for Loan Losses – Continued The ALLL and outstanding loan balances reviewed according to the Company’s impairment method are summarized as follows: September 30, 2017 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Allowance for loan losses: Individually evaluated for impairment $ 59 $ 67 $ 396 $ 71 $ — $ 593 Collectively evaluated for impairment 6,818 5,421 4,288 395 94 17,016 Total $ 6,877 $ 5,488 $ 4,684 $ 466 $ 94 $ 17,609 Outstanding loan balances: Individually evaluated for impairment $ 5,752 $ 1,800 $ 2,882 $ 632 $ — $ 11,066 Collectively evaluated for impairment 621,715 279,745 219,792 72,751 15,099 1,209,102 Total gross loans $ 627,467 $ 281,545 $ 222,674 $ 73,383 $ 15,099 $ 1,220,168 December 31, 2016 Real Construction Commercial Residential Consumer Estate and Land and and and (Dollars in thousands) Term Development Industrial Home Equity Other Total Allowance for loan losses: Individually evaluated for impairment $ 189 $ 67 $ 323 $ 75 $ — $ 654 Collectively evaluated for impairment 6,581 5,382 3,395 542 161 16,061 Total $ 6,770 $ 5,449 $ 3,718 $ 617 $ 161 $ 16,715 Outstanding loan balances: Individually evaluated for impairment $ 5,778 $ 2,995 $ 6,045 $ 1,476 $ — $ 16,294 Collectively evaluated for impairment 576,251 237,125 207,215 71,483 15,678 1,107,752 Total gross loans $ 582,029 $ 240,120 $ 213,260 $ 72,959 $ 15,678 $ 1,124,046 Information on impaired loans is summarized as follows: September 30, 2017 Recorded Investment Unpaid Total Principal With No With Recorded Related (Dollars in thousands) Balance Allowance Allowance Investment Allowance Commercial real estate: Real estate term $ 5,838 $ 4,198 $ 1,554 $ 5,752 $ 59 Construction and land development 2,754 1,603 197 1,800 67 Total commercial real estate 8,592 5,801 1,751 7,552 126 Commercial and industrial 4,276 1,674 1,208 2,882 396 Consumer loans: Residential and home equity 632 230 402 632 71 Consumer and other — — — — — Total consumer 632 230 402 632 71 Total $ 13,500 $ 7,705 $ 3,361 $ 11,066 $ 593 Note 3 — Loans and Allowance for Loan Losses – Continued December 31, 2016 Recorded Investment Unpaid Total Principal With No With Recorded Related (Dollars in thousands) Balance Allowance Allowance Investment Allowance Commercial real estate: Real estate term $ 5,864 $ 2,979 $ 2,799 $ 5,778 $ 189 Construction and land development 3,949 2,790 205 2,995 67 Total commercial real estate 9,813 5,769 3,004 8,773 256 Commercial and industrial 6,937 4,458 1,587 6,045 323 Consumer loans: Residential and home equity 1,476 1,071 405 1,476 75 Consumer and other — — — — — Total consumer 1,476 1,071 405 1,476 75 Total $ 18,226 $ 11,298 $ 4,996 $ 16,294 $ 654 The interest income recognized on impaired loans was as follows: Three Months Ended September 30, 2017 September 30, 2016 Average Interest Average Interest Recorded Income Recorded Income (Dollars in thousands) Investment Recognition Investment Recognition Commercial real estate: Real estate term $ 6,648 $ 100 $ 8,990 $ 65 Construction and land development 1,880 73 3,528 54 Total commercial real estate 8,528 173 12,518 119 Commercial and industrial 4,659 103 6,353 88 Consumer loans: Residential and home equity 1,052 26 1,971 23 Consumer and other — — 15 1 Total consumer 1,052 26 1,986 24 Total $ 14,239 $ 302 $ 20,857 $ 231 Nine Months Ended September 30, 2017 September 30, 2016 Average Interest Average Interest Recorded Income Recorded Income (Dollars in thousands) Investment Recognition Investment Recognition Commercial real estate: Real estate term $ 5,765 $ 118 $ 9,067 $ 218 Construction and land development 2,397 104 3,752 156 Total commercial real estate 8,162 222 12,819 374 Commercial and industrial 4,464 148 6,944 273 Consumer loans: Residential and home equity 1,054 37 1,977 57 Consumer and other — — 15 1 Total consumer 1,054 37 1,992 58 Total $ 13,680 $ 407 $ 21,755 $ 705 Note 3 — Loans and Allowance for Loan Losses – Concluded Loans and Deposits to affiliates — The Company has entered into loan transactions with certain directors, affiliated companies and executive committee members (“affiliates”). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. Total outstanding loans with affiliates were approximately $3,366,000 and $330,000 as of September 30, 2017 and December 31, 2016, respectively. Available lines of credit for loans and credit cards to affiliates were approximately $548,000 as of September 30, 2017. Deposits from affiliates were $7.9 million and $7.8 million as of September 30, 2017 and December 31, 2016, respectively. |