Loans | LOANS Loans are generally stated at the amount of unpaid principal, reduced by unearned discount and allowance for loan losses. Interest on loans is accrued daily on the outstanding balances. Loan origination fees and certain direct loan origination costs are deferred and amortized as adjustments of the related loan yield over its contractual life. We categorize residential real estate loans in excess of $ 600,000 as jumbo loans. Generally, loans are placed on nonaccrual status when principal or interest is greater than 90 days past due based upon the loan's contractual terms. Interest is accrued daily on impaired loans unless the loan is placed on nonaccrual status. Impaired loans are placed on nonaccrual status when the payments of principal and interest are in default for a period of 90 days, unless the loan is both well-secured and in the process of collection. Interest on nonaccrual loans is recognized primarily using the cost-recovery method. Loans may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loans. Commercial-related loans or portions thereof (which are risk-rated) are charged off to the allowance for loan losses when the loss has been confirmed. This determination is made on a case by case basis considering many factors, including the prioritization of our claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity. We deem a loss confirmed when a loan or a portion of a loan is classified “loss” in accordance with bank regulatory classification guidelines, which state, “Assets classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted”. Consumer-related loans are generally charged off to the allowance for loan losses upon reaching specified stages of delinquency, in accordance with the Federal Financial Institutions Examination Council policy. For example, credit card loans are charged off by the end of the month in which the account becomes 180 days past due or within 60 days from receiving notification about a specified event (e.g., bankruptcy of the borrower), which ever is earlier. Residential mortgage loans are generally charged off to net realizable value no later than when the account becomes 180 days past due. Other consumer loans, if collateralized, are generally charged off to net realizable value at 120 days past due. Loans are summarized as follows: Dollars in thousands September 30, December 31, September 30, Commercial $ 110,466 $ 97,201 $ 89,250 Commercial real estate Owner-occupied 192,254 203,555 199,068 Non-owner occupied 367,196 337,294 336,550 Construction and development Land and land development 65,430 65,500 66,164 Construction 11,276 9,970 8,419 Residential real estate Non-jumbo 228,777 221,750 222,739 Jumbo 57,276 50,313 46,092 Home equity 75,161 74,300 73,652 Mortgage warehouse lines 108,983 — — Consumer 19,756 19,251 19,124 Other 9,649 11,669 12,518 Total loans, net of unearned fees 1,246,224 1,090,803 1,073,576 Less allowance for loan losses 11,619 11,472 11,228 Loans, net $ 1,234,605 $ 1,079,331 $ 1,062,348 The following table presents the contractual aging of the recorded investment in past due loans by class as of September 30, 2016 and 2015 and December 31, 2015 . At September 30, 2016 Past Due > 90 days and Accruing Dollars in thousands 30-59 days 60-89 days > 90 days Total Current Commercial $ 301 $ 138 $ 602 $ 1,041 $ 109,425 $ — Commercial real estate Owner-occupied 251 — 505 756 191,498 — Non-owner occupied 311 78 — 389 366,807 — Construction and development Land and land development 238 — 3,731 3,969 61,461 — Construction — — — — 11,276 — Residential mortgage Non-jumbo 1,932 1,488 2,762 6,182 222,595 — Jumbo — — — — 57,276 — Home equity — 136 318 454 74,707 — Mortgage warehouse lines — — — — 108,983 — Consumer 135 44 148 327 19,429 21 Other — — — — 9,649 — Total $ 3,168 $ 1,884 $ 8,066 $ 13,118 $ 1,233,106 $ 21 At December 31, 2015 Past Due > 90 days and Accruing Dollars in thousands 30-59 days 60-89 days > 90 days Total Current Commercial $ 345 $ 26 $ 632 $ 1,003 $ 96,198 $ — Commercial real estate Owner-occupied 158 386 437 981 202,574 — Non-owner occupied 1 — 856 857 336,437 — Construction and development Land and land development 1,182 194 4,547 5,923 59,577 — Construction — — — — 9,970 — Residential mortgage Non-jumbo 2,276 2,647 1,591 6,514 215,236 — Jumbo — — — — 50,313 — Home equity 374 172 100 646 73,654 — Consumer 155 41 92 288 18,963 9 Other — — — — 11,669 — Total $ 4,491 $ 3,466 $ 8,255 $ 16,212 $ 1,074,591 $ 9 At September 30, 2015 Past Due > 90 days and Accruing Dollars in thousands 30-59 days 60-89 days > 90 days Total Current Commercial $ 42 $ 41 $ 623 $ 706 $ 88,544 $ — Commercial real estate Owner-occupied 961 — 436 1,397 197,671 — Non-owner occupied 309 657 188 1,154 335,396 — Construction and development Land and land development 39 — 4,538 4,577 61,587 — Construction — — — — 8,419 — Residential mortgage Non-jumbo 3,239 1,108 2,065 6,412 216,327 — Jumbo — — — — 46,092 — Home equity 165 209 27 401 73,251 — Consumer 169 77 42 288 18,836 8 Other — — — — 12,518 — Total $ 4,924 $ 2,092 $ 7,919 $ 14,935 $ 1,058,641 $ 8 Nonaccrual loans: The following table presents the nonaccrual loans included in the net balance of loans at September 30, 2016 , December 31, 2015 and September 30, 2015 . September 30, December 31, Dollars in thousands 2016 2015 2015 Commercial $ 846 $ 884 $ 853 Commercial real estate Owner-occupied 505 437 437 Non-owner occupied 4,362 4,858 5,518 Construction and development Land & land development 4,360 5,346 5,623 Construction — — — Residential mortgage Non-jumbo 3,680 3,689 2,987 Jumbo — — — Home equity 494 191 258 Mortgage warehouse lines — — — Consumer 148 44 83 Total $ 14,395 $ 15,449 $ 15,759 Impaired loans: Impaired loans include the following: ▪ Loans which we risk-rate (consisting of loan relationships having aggregate balances in excess of $ 2.5 million , or loans exceeding $ 500,000 and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired. ▪ Loans that have been modified in a troubled debt restructuring. Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured in a troubled debt restructuring, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in our accounting policy are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below. The table below sets forth information about our impaired loans. Method Used to Measure Impairment of Impaired Loans Dollars in thousands September 30, December 31, Method used to measure impairment Loan Category 2016 2015 2015 Commercial $ 650 $ 41 $ 41 Fair value of collateral 159 269 201 Discounted cash flow Commercial real estate Owner-occupied 318 795 783 Fair value of collateral 7,095 7,646 7,616 Discounted cash flow Non-owner occupied 4,596 5,924 5,728 Fair value of collateral 7,121 7,775 7,722 Discounted cash flow Construction and development Land & land development 5,191 10,047 6,597 Fair value of collateral 2,131 2,257 2,177 Discounted cash flow Residential mortgage Non-jumbo 1,732 1,730 1,753 Fair value of collateral 4,748 4,375 4,378 Discounted cash flow Jumbo 3,682 3,792 3,869 Fair value of collateral 859 876 871 Discounted cash flow Home equity 190 186 186 Fair value of collateral 523 523 523 Discounted cash flow Consumer — 2 — Fair value of collateral 48 68 68 Discounted cash flow Total $ 39,043 $ 46,306 $ 42,513 The following tables present loans individually evaluated for impairment at September 30, 2016 , December 31, 2015 and September 30, 2015 . September 30, 2016 Dollars in thousands Recorded Investment Unpaid Principal Balance Related Allowance Average Impaired Balance Interest Income Recognized while impaired Without a related allowance Commercial $ 791 $ 790 $ — $ 400 $ 9 Commercial real estate Owner-occupied 4,914 4,914 — 4,932 188 Non-owner occupied 10,394 10,396 — 10,831 456 Construction and development Land & land development 6,181 6,181 — 6,207 104 Construction — — — — — Residential real estate Non-jumbo 3,852 3,861 — 3,732 170 Jumbo 3,683 3,682 — 3,711 176 Home equity 713 713 — 710 21 Mortgage warehouse lines — — — — — Consumer 48 48 — 52 5 Total without a related allowance $ 30,576 $ 30,585 $ — $ 30,575 $ 1,129 With a related allowance Commercial $ 19 $ 19 $ 19 $ 6 $ — Commercial real estate Owner-occupied 2,499 2,499 12 2,491 112 Non-owner occupied 1,321 1,321 132 1,332 43 Construction and development Land & land development 1,140 1,141 492 1,155 58 Construction — — — — — Residential real estate Non-jumbo 2,617 2,619 216 2,329 103 Jumbo 859 859 25 864 43 Home equity — — — — — Mortgage warehouse lines — — — — — Consumer — — — — — Total with a related allowance $ 8,455 $ 8,458 $ 896 $ 8,177 $ 359 Total Commercial $ 27,259 $ 27,261 $ 655 $ 27,354 $ 970 Residential real estate 11,724 11,734 241 11,346 513 Consumer 48 48 — 52 5 Total $ 39,031 $ 39,043 $ 896 $ 38,752 $ 1,488 December 31, 2015 Dollars in thousands Recorded Investment Unpaid Principal Balance Related Allowance Average Impaired Balance Interest Income Recognized while impaired Without a related allowance Commercial $ 242 $ 242 $ — $ 319 $ 17 Commercial real estate Owner-occupied 5,401 5,402 — 5,438 191 Non-owner occupied 10,740 10,741 — 9,982 310 Construction and development Land & land development 7,635 7,635 — 9,497 263 Construction — — — — — Residential real estate Non-jumbo 3,590 3,600 — 3,316 160 Jumbo 3,871 3,869 — 4,412 181 Home equity 709 709 — 709 32 Consumer 68 68 — 72 6 Total without a related allowance $ 32,256 $ 32,266 $ — $ 33,745 $ 1,160 With a related allowance Commercial $ — $ — $ — $ — $ — Commercial real estate Owner-occupied 2,997 2,997 45 3,003 135 Non-owner occupied 2,709 2,709 386 2,728 72 Construction and development Land & land development 1,139 1,139 85 1,154 — Construction — — — — — Residential real estate Non-jumbo 2,530 2,531 226 2,552 114 Jumbo 871 871 34 878 43 Home equity — — — — — Consumer — — — — — Total with a related allowance $ 10,246 $ 10,247 $ 776 $ 10,315 $ 364 Total Commercial $ 30,863 $ 30,865 $ 516 $ 32,121 $ 988 Residential real estate 11,571 11,580 260 11,867 530 Consumer 68 68 — 72 6 Total $ 42,502 $ 42,513 $ 776 $ 44,060 $ 1,524 September 30, 2015 Dollars in thousands Recorded Investment Unpaid Principal Balance Related Allowance Average Impaired Balance Interest Income Recognized while impaired Without a related allowance Commercial $ 310 $ 310 $ — $ 345 $ 63 Commercial real estate Owner-occupied 5,420 5,421 — 5,450 586 Non-owner occupied 11,635 11,636 — 10,362 988 Construction and development Land & land development 12,136 12,304 — 11,282 908 Construction — — — — — Residential real estate Non-jumbo 3,399 3,408 — 3,930 462 Jumbo 3,794 3,792 — 3,820 554 Home equity 710 709 — 709 93 Consumer 70 70 — 75 21 Total without a related allowance $ 37,474 $ 37,650 $ — $ 35,973 $ 3,675 With a related allowance Commercial $ — $ — $ — $ — $ — Commercial real estate Owner-occupied 3,019 3,020 46 3,005 409 Non-owner occupied 2,063 2,063 190 2,074 244 Construction and development Land & land development — — — — — Construction — — — — — Residential real estate Non-jumbo 2,695 2,697 251 2,714 348 Jumbo 876 876 37 880 134 Home equity — — — — — Consumer — — — — — Total with a related allowance $ 8,653 $ 8,656 $ 524 $ 8,673 $ 1,135 Total Commercial $ 34,583 $ 34,754 $ 236 $ 32,518 $ 3,198 Residential real estate 11,474 11,482 288 12,053 1,591 Consumer 70 70 — 75 21 Total $ 46,127 $ 46,306 $ 524 $ 44,646 $ 4,810 A modification of a loan is considered a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession that we would not otherwise consider. This may include a transfer of real estate or other assets from the borrower, a modification of loan terms, or a combination of both. A loan continues to be classified as a TDR for the life of the loan. Included in impaired loans are TDRs of $29.2 million , of which $28.5 million were current with respect to restructured contractual payments at September 30, 2016 , and $30.5 million , of which $28.9 million were current with respect to restructured contractual payments at December 31, 2015 . There were no commitments to lend additional funds under these restructurings at either balance sheet date. The following table presents by class the TDRs that were restructured during the three and nine months ended September 30, 2016 and September 30, 2015 . Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for loan loss purposes. For the Three Months Ended For the Three Months Ended Dollars in thousands Number of Modifications Pre-modification Recorded Investment Post-modification Recorded Investment Number of Modifications Pre-modification Recorded Investment Post-modification Recorded Investment Commercial — $ — $ — — $ — $ — Commercial real estate Owner-occupied — — — — — — Non-owner occupied — — — — — — Construction and development Land & land development — — — 1 1,182 1,182 Construction — — — — — — Residential real estate Non-jumbo 1 307 307 — — — Jumbo — — — — — — Home equity — — — — — — Mortgage warehouse lines — — — — — — Consumer — — — — — — Total 1 $ 307 $ 307 1 $ 1,182 $ 1,182 For the Nine Months Ended For the Nine Months Ended Dollars in thousands Number of Modifications Pre-modification Recorded Investment Post-modification Recorded Investment Number of Modifications Pre-modification Recorded Investment Post-modification Recorded Investment Commercial — $ — $ — — $ — $ — Commercial real estate Owner-occupied — — — — — — Non-owner occupied — — — — — — Construction and development Land & land development — — — 1 1,182 1,182 Construction — — — — — — Residential real estate Non-jumbo 4 702 702 — — — Jumbo — — — — — — Home equity — — — — — — Mortgage warehouse lines — — — — — — Consumer 1 2 2 — — — Total 5 $ 704 $ 704 1 $ 1,182 $ 1,182 The following table presents defaults during the stated period of TDRs that were restructured during the past twelve months. For purposes of these tables, a default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period. For the Three Months Ended For the Nine Months Ended Dollars in thousands Number of Defaults Recorded Investment at Default Date Number of Defaults Recorded Investment at Default Date Commercial — $ — — $ — Commercial real estate Owner-occupied — — — — Non-owner occupied — — — — Construction and development Land & land development — — — — Construction — — — — Residential real estate Non-jumbo 3 452 3 452 Jumbo — — — — Home equity — — — — Mortgage warehouse lines — — — — Consumer 1 2 1 2 Total 4 $ 454 4 $ 454 The following table details the activity regarding TDRs by loan type for the three months and nine months ended September 30, 2016 , and the related allowance on TDRs. For the Three Months Ended September 30, 2016 Construction & Land Development Commercial Real Estate Residential Real Estate Dollars in thousands Land & Land Develop- ment Construc- tion Commer- cial Owner Occupied Non- Owner Occupied Non- jumbo Jumbo Home Equity Mortgage Warehouse Lines Con- sumer Other Total Troubled debt restructurings Balance July 1, 2016 $ 3,956 $ — $ 198 $ 9,118 $ 6,001 $ 5,457 $ 4,575 $ 523 $ — $ 54 $ — $ 29,882 Additions — — — — — 303 — — — — — 303 Charge-offs — — — (2 ) — — — — — — — (2 ) Net (paydowns) advances (57 ) — (7 ) (381 ) (504 ) (44 ) (34 ) — — (6 ) — (1,033 ) Transfer into foreclosed properties — — — — — — — — — — — — Refinance out of TDR status — — — — — — — — — — — — Balance, September 30, 2016 $ 3,899 $ — $ 191 $ 8,735 $ 5,497 $ 5,716 $ 4,541 $ 523 $ — $ 48 $ — $ 29,150 Allowance related to troubled debt restructurings $ 492 $ — $ — $ 144 $ — $ 216 $ 25 $ — $ — $ — $ — $ 877 For the Nine Months Ended September 30, 2016 Construction & Land Development Commercial Real Estate Residential Real Estate Dollars in thousands Land & Land Develop- ment Construc- tion Commer- cial Owner Occupied Non- Owner Occupied Non- jumbo Jumbo Home Equity Mortgage Warehouse Lines Con- sumer Other Total Troubled debt restructurings Balance January 1, 2016 $ 4,188 $ — $ 242 $ 9,314 $ 6,059 $ 5,496 $ 4,634 $ 523 $ — $ 68 $ — $ 30,524 Additions — — — — — 698 — — — 1 — 699 Charge-offs — — — (128 ) — (52 ) — — — — — (180 ) Net (paydowns) advances (289 ) — (51 ) (451 ) (562 ) (426 ) (93 ) — — (21 ) — (1,893 ) Transfer into foreclosed properties — — — — — — — — — — — — Refinance out of TDR status — — — — — — — — — — — — Balance, September 30, 2016 $ 3,899 $ — $ 191 $ 8,735 $ 5,497 $ 5,716 $ 4,541 $ 523 $ — $ 48 $ — $ 29,150 Allowance related to troubled debt restructurings $ 492 $ — $ — $ 144 $ — $ 216 $ 25 $ — $ — $ — $ — $ 877 We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. We internally grade all commercial loans at the time of loan origination. In addition, we perform an annual loan review on all non-homogenous commercial loan relationships with an aggregate exposure of $ 2.5 million , at which time these loans are re-graded. We use the following definitions for our risk grades: Pass: Loans graded as Pass are loans to borrowers of acceptable credit quality and risk. They are higher quality loans that do not fit any of the other categories described below. OLEM (Special Mention): Commercial loans categorized as OLEM are potentially weak. The credit risk may be relatively minor yet represent a risk given certain specific circumstances. If the potential weaknesses are not monitored or mitigated, the asset may weaken or inadequately protect our position in the future. Substandard: Commercial loans categorized as Substandard are inadequately protected by the borrower’s ability to repay, equity, and/or the collateral pledged to secure the loan. These loans have identified weaknesses that could hinder normal repayment or collection of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the identified weaknesses are not mitigated. Doubtful: Commercial loans categorized as Doubtful have all the weaknesses inherent in those loans classified as Substandard, with the added elements that the full collection of the loan is improbable and the possibility of loss is high. Loss: Loans classified as loss are considered to be non-collectible and of such little value that their continuance as a bankable asset is not warranted. This does not mean that the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon the internal risk ratings defined above. Loan Risk Profile by Internal Risk Rating Construction and Development Commercial Real Estate Land and Land Development Construction Commercial Owner Occupied Non-Owner Occupied Mortgage Warehouse Lines Dollars in thousands 9/30/2016 12/31/2015 9/30/2016 12/31/2015 9/30/2016 12/31/2015 9/30/2016 12/31/2015 9/30/2016 12/31/2015 9/30/2016 12/31/2015 Pass $ 58,169 $ 57,155 $ 11,276 $ 9,970 $ 108,563 $ 95,174 $ 190,854 $ 202,226 $ 361,531 $ 329,861 $ 108,983 $ — OLEM (Special Mention) 1,737 1,598 — — 1,142 1,295 576 546 958 1,602 — — Substandard 5,524 6,747 — — 761 732 824 783 4,707 5,831 — — Doubtful — — — — — — — — — — — — Loss — — — — — — — — — — — — Total $ 65,430 $ 65,500 $ 11,276 $ 9,970 $ 110,466 $ 97,201 $ 192,254 $ 203,555 $ 367,196 $ 337,294 $ 108,983 $ — The following table presents the recorded investment in consumer, residential real estate, and home equity loans, which are generally evaluated based on the aging status of the loans, which was previously presented, and payment activity. Performing Nonperforming Dollars in thousands 9/30/2016 12/31/2015 9/30/2015 9/30/2016 12/31/2015 9/30/2015 Residential real estate Non-jumbo $ 225,097 $ 218,763 $ 219,050 $ 3,680 $ 2,987 $ 3,689 Jumbo 57,276 50,313 46,092 — — — Home Equity 74,667 74,042 73,461 494 258 191 Consumer 19,574 19,149 19,071 182 102 53 Other 9,649 11,669 12,518 — — — Total $ 386,263 $ 373,936 $ 370,192 $ 4,356 $ 3,347 $ 3,933 Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability. |