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) 2018 2017 Loans held for investment: Commercial real estate loans: Real estate term $ 856,247 $ 784,148 Construction and land development 382,254 369,590 Total commercial real estate loans 1,238,501 1,153,738 Commercial and industrial loans 314,395 294,085 Consumer loans: Residential and home equity 153,406 158,591 Consumer and other 16,597 25,591 Total consumer loans 170,003 184,182 Total gross loans 1,722,899 1,632,005 Net deferred loan fees (4,496 ) (4,561 ) Total loans held for investment 1,718,403 1,627,444 Allowance for loan losses (23,309 ) (18,303 ) Total loans held for investment, net $ 1,695,094 $ 1,609,141 Changes in the allowance for loan losses (“ALLL”) are as follows: Three Months Ended September 30, 2018 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 $ 9,028 $ 6,789 $ 5,780 $ 659 $ 52 $ 22,308 Additions: Provisions for loan losses 469 892 455 14 95 1,925 Deductions: Gross loan charge-offs (294 ) - (945 ) - (105 ) (1,344 ) Recoveries 46 6 312 2 54 420 Net loan (charge-offs) / recoveries (248 ) 6 (633 ) 2 (51 ) (924 ) Balance at end of period $ 9,249 $ 7,687 $ 5,602 $ 675 $ 96 $ 23,309 Note 3 — Loans and Allowance for Loan Losses – Continued 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) / recoveries 23 2 (575 ) 7 (19 ) (562 ) Balance at end of period $ 6,877 $ 5,488 $ 4,684 $ 466 $ 94 $ 17,609 Nine Months Ended September 30, 2018 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 $ 6,706 $ 6,309 $ 4,314 $ 815 $ 159 $ 18,303 Additions: Provisions for loan losses 2,779 1,301 1,522 (223 ) 71 5,450 Deductions: Gross loan charge-offs (294 ) - (1,235 ) - (277 ) (1,806 ) Recoveries 58 77 1,001 83 143 1,362 Net loan (charge-offs) / recoveries (236 ) 77 (234 ) 83 (134 ) (444 ) Balance at end of period $ 9,249 $ 7,687 $ 5,602 $ 675 $ 96 $ 23,309 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) / recoveries (146 ) 81 (770 ) (191 ) (80 ) (1,106 ) Balance at end of period $ 6,877 $ 5,488 $ 4,684 $ 466 $ 94 $ 17,609 Note 3 — Loans and Allowance for Loan Losses – Continued Non-accrual loans are summarized as follows: September 30, December 31, (Dollars in thousands) 2018 2017 Non-accrual loans, not troubled debt restructured: Real estate term $ 310 $ - Construction and land development 98 - Commercial and industrial 1,455 223 Residential and home equity - - Consumer and other 5 - Total non-accrual loans, not troubled debt restructured 1,868 223 Troubled debt restructured loans, non-accrual: Real estate term 1,495 - Construction and land development - - Commercial and industrial 169 - Residential and home equity - - Consumer and other - - Total troubled debt restructured loans, non-accrual 1,664 - Total non-accrual loans $ 3,532 $ 223 Troubled debt restructured loans are summarized as follows: September 30, December 31, (Dollars in thousands) 2018 2017 Accruing troubled debt restructured loans $ 2,423 $ 3,307 Non-accrual troubled debt restructured loans 1,664 - Total troubled debt restructured loans $ 4,087 $ 3,307 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. Loans totaling $4.1 million were classified as TDR’s during the nine months ended September 30, 2018. No new TDRs occurred during the nine months ended September 30, 2018. In addition, there were no TDRs which incurred a payment default within twelve months of the restructure date during the nine-month periods ended September 30, 2018 and 2017. Current and past due loans held for investment (accruing and non-accruing) are summarized as follows: September 30, 2018 Purchased 30-89 Days 90+ Days Non- Total Credit Total (Dollars in thousands) Current Past Due Past Due accrual Past Due Impaired Loans Commercial real estate: Real estate term $ 850,094 $ 1,040 $ - $ 1,805 $ 2,845 $ 3,308 $ 856,247 Construction and land development 380,306 1,517 - 98 1,615 333 382,254 Total commercial real estate 1,230,400 2,557 - 1,903 4,460 3,641 1,238,501 Commercial and industrial 307,873 2,346 - 1,624 3,970 2,552 314,395 Consumer: Residential and home equity 152,518 888 - - 888 - 153,406 Consumer and other 16,355 220 17 5 242 - 16,597 Total consumer 168,873 1,108 17 5 1,130 - 170,003 Total gross loans $ 1,707,146 $ 6,011 $ 17 $ 3,532 $ 9,560 $ 6,193 $ 1,722,899 Note 3 — Loans and Allowance for Loan Losses – Continued December 31, 2017 Purchased 30-89 Days 90+ Days Non- Total Credit Total (Dollars in thousands) Current Past Due Past Due accrual Past Due Impaired Loans Commercial real estate: Real estate term $ 777,746 $ 2,243 $ - $ - $ 2,243 $ 4,159 $ 784,148 Construction and land development 361,847 7,095 - - 7,095 648 369,590 Total commercial real estate 1,139,593 9,338 - - 9,338 4,807 1,153,738 Commercial and industrial 285,785 4,210 - 223 4,433 3,867 294,085 Consumer: Residential and home equity 156,379 2,212 - - 2,212 - 158,591 Consumer and other 25,307 283 1 - 284 - 25,591 Total consumer 181,686 2,495 1 - 2,496 - 184,182 Total gross loans $ 1,607,064 $ 16,043 $ 1 $ 223 $ 16,267 $ 8,674 $ 1,632,005 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. 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, 2018 Special Total Total (Dollars in thousands) Pass Mention Substandard Doubtful Loans Allowance Commercial real estate: Real estate term $ 827,297 $ 17,896 $ 11,054 $ - $ 856,247 $ 9,249 Construction and land development 378,895 1,596 1,763 - 382,254 7,687 Total commercial real estate 1,206,192 19,492 12,817 - 1,238,501 16,936 Commercial and industrial 295,243 6,186 12,966 - 314,395 5,602 Consumer loans: Residential and home equity 149,310 1,701 2,395 - 153,406 675 Consumer and other 16,543 27 27 - 16,597 96 Total consumer 165,853 1,728 2,422 - 170,003 771 Total $ 1,667,288 $ 27,406 $ 28,205 $ - $ 1,722,899 $ 23,309 Note 3 — Loans and Allowance for Loan Losses – Continued December 31, 2017 Special Total Total (Dollars in thousands) Pass Mention Substandard Doubtful Loans Allowance Commercial real estate: Real estate term $ 758,575 $ 13,055 $ 12,518 $ - $ 784,148 $ 6,706 Construction and land development 358,766 7,227 3,597 - 369,590 6,309 Total commercial real estate 1,117,341 20,282 16,115 - 1,153,738 13,015 Commercial and industrial 274,535 13,464 6,086 - 294,085 4,314 Consumer loans: Residential and home equity 152,753 3,913 1,925 - 158,591 815 Consumer and other 25,461 45 72 13 25,591 159 Total consumer 178,214 3,958 1,997 13 184,182 974 Total $ 1,570,090 $ 37,704 $ 24,198 $ 13 $ 1,632,005 $ 18,303 The ALLL and outstanding loan balances reviewed according to the Company’s impairment method are summarized as follows: September 30, 2018 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 $ - $ - $ 279 $ - $ - $ 279 Collectively evaluated for impairment 9,249 7,687 5,323 675 96 23,030 Purchased credit-impaired loans - - - - - - Total $ 9,249 $ 7,687 $ 5,602 $ 675 $ 96 $ 23,309 Outstanding loan balances: Individually evaluated for impairment $ 4,355 $ 1,441 $ 11,564 $ 2,112 $ - $ 19,472 Collectively evaluated for impairment 848,584 380,480 300,279 151,294 16,597 1,697,234 Purchased credit-impaired loans 3,308 333 2,552 - - 6,193 Total gross loans $ 856,247 $ 382,254 $ 314,395 $ 153,406 $ 16,597 $ 1,722,899 December 31, 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 $ - $ 3 $ 41 $ 101 $ - $ 145 Collectively evaluated for impairment 6,706 6,306 4,273 714 159 18,158 Purchased credit-impaired loans - - - - - - Total $ 6,706 $ 6,309 $ 4,314 $ 815 $ 159 $ 18,303 Outstanding loan balances: Individually evaluated for impairment $ 6,191 $ 2,568 $ 2,044 $ 1,150 $ - $ 11,953 Collectively evaluated for impairment 773,798 366,374 288,174 157,441 25,591 1,611,378 Purchased credit-impaired loans 4,159 648 3,867 - - 8,674 Total gross loans $ 784,148 $ 369,590 $ 294,085 $ 158,591 $ 25,591 $ 1,632,005 Note 3 — Loans and Allowance for Loan Losses – Continued Information on impaired loans, excluding Purchased Credit Impaired (“PCI”) loans, is summarized as follows: September 30, 2018 Recorded Investment Unpaid Total Principal With No With Recorded Related (Dollars in thousands) Balance Allowance Allowance Investment Allowance Commercial real estate: Real estate term $ 7,607 $ 4,355 $ - $ 4,355 $ - Construction and land development 2,194 1,441 - 1,441 - Total commercial real estate 9,801 5,796 - 5,796 - Commercial and industrial 14,523 9,723 1,841 11,564 279 Consumer loans: Residential and home equity 2,112 2,112 - 2,112 - Consumer and other - - - - - Total consumer 2,112 2,112 - 2,112 - Total $ 26,436 $ 17,631 $ 1,841 $ 19,472 $ 279 December 31, 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 $ 7,090 $ 6,191 $ - $ 6,191 $ - Construction and land development 3,485 2,372 196 2,568 3 Total commercial real estate 10,575 8,563 196 8,759 3 Commercial and industrial 6,204 1,276 768 2,044 41 Consumer loans: Residential and home equity 1,150 229 921 1,150 101 Consumer and other - - - - - Total consumer 1,150 229 921 1,150 101 Total $ 17,929 $ 10,068 $ 1,885 $ 11,953 $ 145 The interest income recognized on impaired loans was as follows: Three Months Ended September 30, 2018 September 30, 2017 Average Interest Average Interest Recorded Income Recorded Income (Dollars in thousands) Investment Recognition Investment Recognition Commercial real estate: Real estate term $ 10,127 $ 111 $ 6,648 $ 100 Construction and land development 1,043 16 1,880 73 Total commercial real estate 11,170 127 8,528 173 Commercial and industrial 10,049 140 4,659 103 Consumer loans: Residential and home equity 2,728 33 1,052 26 Consumer and other - - - - Total consumer 2,728 33 1,052 26 Total $ 23,947 $ 300 $ 14,239 $ 302 Note 3 — Loans and Allowance for Loan Losses – Continued Nine Months Ended September 30, 2018 September 30, 2017 Average Interest Average Interest Recorded Income Recorded Income (Dollars in thousands) Investment Recognition Investment Recognition Commercial real estate: Real estate term $ 8,366 $ 257 $ 5,765 $ 118 Construction and land development 1,716 90 2,397 104 Total commercial real estate 10,082 347 8,162 222 Commercial and industrial 7,198 268 4,464 148 Consumer loans: Residential and home equity 2,175 76 1,054 37 Consumer and other - - - - Total consumer 2,175 76 1,054 37 Total $ 19,455 $ 691 $ 13,680 $ 407 Purchased credit-impaired loans and purchased non-credit-impaired loans . Purchased loans, including loans acquired in business combinations, are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan and lease losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired (PCI) or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The outstanding contractual unpaid principal balance of PCI loans, excluding acquisition accounting adjustments, was $9.2 million at September 30, 2018 and $12.4 million at December 31, 2017. The carrying balance of PCI loans was $6.2 million at September 30, 2018 and $8.7 million at December 31, 2017. The following table presents the changes in the accretable yield for PCI loans for the nine months ended September 30, 2018, and 2017: Nine Months Ended September 30, (Dollars in thousands) 2018 2017 Balance, beginning of period $ 8,536 $ 573 Accretion to interest income (2,165 ) (38 ) Reclassification from non-accretable difference 189 9 Balance, end of period $ 6,560 $ 544 As of September 30, 2018 and December 31, 2017, the non-accretable difference between the contractually required payments and cash flows expected to be collected were $3.0 million and $3.7 million, respectively. 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 $4.3 million and $3.4 million as of September 30, 2018, and December 31, 2017, respectively. Available lines of credit for loans and credit cards to affiliates were approximately $1.3 million and $330,000 as of September 30, 2018, and December 31, 2017, respectively. Deposits from affiliates were $8.8 million and $7.1 million as of September 30, 2018 and December 31, 2017, respectively. |