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 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 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), whichever 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 2016 2015 Commercial $ 119,088 $ 97,201 Commercial real estate Owner-occupied 203,047 203,555 Non-owner occupied 381,921 337,294 Construction and development Land and land development 72,042 65,500 Construction 16,584 9,970 Residential real estate Non-jumbo 265,641 221,750 Jumbo 65,628 50,313 Home equity 74,596 74,300 Mortgage warehouse lines 85,966 — Consumer 25,534 19,251 Other 9,489 11,669 Total loans, net of unearned fees 1,319,536 1,090,803 Less allowance for loan losses 11,674 11,472 Loans, net $ 1,307,862 $ 1,079,331 The outstanding balance and the recorded investment of loans acquired pursuant to our acquisition of HCB (or acquired loans) that were recorded at fair value, without carryover of HCB's allowance for loan losses at the acquisition date and were included in the consolidated balance sheet at December 31, 2016 are as follows: Acquired Loans Dollars in thousands Purchased Credit Impaired Purchased Performing Total Outstanding balance $ 2,714 $ 54,076 $ 56,790 Recorded investment Commercial $ — $ 4,292 $ 4,292 Commercial real estate Owner-occupied — 497 497 Non-owner occupied — 3,874 3,874 Construction and development Land and land development 395 4,175 4,570 Residential real estate Non-jumbo 789 32,213 33,002 Jumbo 1,017 3,900 4,917 Consumer — 4,460 4,460 Total recorded investment $ 2,201 $ 53,411 $ 55,612 The following table presents a summary of the change in the accretable yield of the PCI loan portfolio for the period from October 1, 2016 to December 31, 2016: Dollars in thousands Acquisition of HCB, October 1, 2016 $ 333 Accretion (20 ) Reclassification of nonaccretable difference due to improvement in expected cash flows — Other changes, net (23 ) Accretable yield, December 31, 2016 $ 290 The following presents loan maturities at December 31, 2016 : Within After 1 but After Dollars in thousands 1 Year within 5 Years 5 Years Commercial $ 48,602 $ 47,689 $ 22,797 Commercial real estate 28,685 49,032 507,251 Construction and development 37,852 15,702 35,072 Residential real estate 16,795 43,221 345,849 Mortgage warehouse lines 85,966 — — Consumer 4,515 17,703 3,316 Other 423 1,598 7,468 $ 222,838 $ 174,945 $ 921,753 Loans due after one year with: Variable rates $ 176,358 Fixed rates 920,340 $ 1,096,698 The following table presents the contractual aging of the recorded investment in past due loans by class as of December 31, 2016 and 2015 . At December 31, 2016 Past Due > 90 days and Accruing Dollars in thousands 30-59 days 60-89 days > 90 days Total Current Commercial $ 90 $ 86 $ 165 $ 341 $ 118,747 $ — Commercial real estate Owner-occupied 93 — 509 602 202,445 — Non-owner occupied 340 — 65 405 381,516 — Construction and development Land and land development 423 129 3,852 4,404 67,638 — Construction — — — — 16,584 — Residential mortgage Non-jumbo 4,297 1,889 3,287 9,473 256,168 — Jumbo — — — — 65,628 — Home equity — 302 57 359 74,237 — Mortgage warehouse lines — — — — 85,966 — Consumer 308 84 150 542 24,992 — Other — — — — 9,489 — Total $ 5,551 $ 2,490 $ 8,085 $ 16,126 $ 1,303,410 $ — 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 Nonaccrual loans: The following table presents the nonaccrual loans included in the net balance of loans at December 31, 2016 and 2015 . Dollars in thousands 2016 2015 Commercial $ 298 $ 853 Commercial real estate Owner-occupied 509 437 Non-owner occupied 4,336 5,518 Construction and development Land & land development 4,465 5,623 Construction — — Residential mortgage Non-jumbo 4,621 2,987 Jumbo — — Home equity 194 258 Mortgage warehouse lines — — Consumer 151 83 Total $ 14,574 $ 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, 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 following tables present loans individually evaluated for impairment at December 31, 2016 and 2015 . December 31, 2016 Dollars in thousands Recorded Investment Unpaid Principal Balance Related Allowance Average Impaired Balance Interest Income Recognized while impaired Without a related allowance Commercial $ 285 $ 285 $ — $ 247 $ 10 Commercial real estate Owner-occupied 520 520 — 534 31 Non-owner occupied 10,203 10,205 — 10,675 294 Construction and development Land & land development 5,227 5,227 — 5,270 80 Construction — — — — — Residential real estate Non-jumbo 4,055 4,065 — 3,910 193 Jumbo 3,640 3,639 — 3,693 175 Home equity 524 523 — 523 22 Mortgage warehouse lines — — — — — Consumer 44 44 — 50 5 Total without a related allowance $ 24,498 $ 24,508 $ — $ 24,902 $ 810 With a related allowance Commercial $ — $ — $ — $ — $ — Commercial real estate Owner-occupied 6,864 6,864 347 6,879 269 Non-owner occupied 1,311 1,311 197 1,327 43 Construction and development Land & land development 2,066 2,066 585 2,074 80 Construction — — — — — Residential real estate Non-jumbo 2,055 2,057 251 1,851 78 Jumbo 853 853 24 862 44 Home equity — — — — — Mortgage warehouse lines — — — — — Consumer — — — — — Total with a related allowance $ 13,149 $ 13,151 $ 1,404 $ 12,993 $ 514 Total Commercial $ 26,476 $ 26,478 $ 1,129 $ 27,006 $ 807 Residential real estate 11,127 11,137 275 10,839 512 Consumer 44 44 — 50 5 Total $ 37,647 $ 37,659 $ 1,404 $ 37,895 $ 1,324 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 The average recorded investment of impaired loans during 2014 was $46.6 million and $1.8 million interest income was recognized on those loans while impaired. 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 $28.6 million , of which $28.1 million were current with respect to restructured contractual payments at December 31, 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 2016 and 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. 2016 2015 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 4 693 696 1 25 25 Jumbo — — — — — — Home equity — — — — — — Mortgage warehouse lines — — — — — — Consumer 1 2 2 1 2 2 Total 5 $ 695 $ 698 3 $ 1,209 $ 1,209 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. 2016 2015 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 — — 1 1,182 Construction — — — — Residential real estate Non-jumbo 3 452 — — Jumbo — — — — Home equity — — — — Mortgage warehouse lines — — — — Consumer 1 2 — — Total 4 $ 454 1 $ 1,182 The following table details the activity regarding TDRs by loan type during 2016 and the related allowance on TDRs. 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 $ 4,189 $ — $ 242 $ 9,314 $ 6,059 $ 5,496 $ 4,635 $ 523 $ — $ 67 $ — $ 30,525 Additions — — — — — 696 — — — 2 — 698 Charge-offs — — — (129 ) — (52 ) — — — — — (181 ) Net (paydowns) advances (323 ) — (59 ) (491 ) (656 ) (717 ) (141 ) — — (25 ) — (2,412 ) Transfer into foreclosed properties — — — — — — — — — — — — Refinance out of TDR status — — — — — — — — — — — — Balance, December 31, 2016 $ 3,866 $ — $ 183 $ 8,694 $ 5,403 $ 5,423 $ 4,494 $ 523 $ — $ 44 $ — $ 28,630 Allowance related to troubled debt restructurings $ 530 $ — $ — $ 544 $ — $ 251 $ 24 $ — $ — $ — $ — $ 1,349 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 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Pass $ 64,144 $ 57,155 $ 16,584 $ 9,970 $ 117,214 $ 95,174 $ 201,113 $ 202,226 $ 375,181 $ 329,861 $ 85,966 $ — OLEM (Special Mention) 2,097 1,598 — — 1,471 1,295 567 546 1,381 1,602 — — Substandard 5,801 6,747 — — 403 732 1,367 783 5,359 5,831 — — Doubtful — — — — — — — — — — — — Loss — — — — — — — — — — — — Total $ 72,042 $ 65,500 $ 16,584 $ 9,970 $ 119,088 $ 97,201 $ 203,047 $ 203,555 $ 381,921 $ 337,294 $ 85,966 $ — 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 2016 2015 2016 2015 Residential real estate Non-jumbo $ 261,020 $ 218,763 $ 4,621 $ 2,987 Jumbo 65,628 50,313 — — Home Equity 74,402 74,042 194 258 Consumer 25,368 19,149 166 102 Other 9,489 11,669 — — Total $ 435,907 $ 373,936 $ 4,981 $ 3,347 Industry concentrations: At December 31, 2016 and 2015 , we had no concentrations of loans to any single industry in excess of 10% of total loans. Loans to related parties : We have had, and may be expected to have in the future, banking transactions in the ordinary course of business with our directors, principal officers, their immediate families and affiliated companies in which they are principal shareholders (commonly referred to as related parties). These transactions have been, in our opinion, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. The following presents the activity with respect to related party loans aggregating $60,000 or more to any one related party (other changes represent additions to and changes in director and executive officer status): Dollars in thousands 2016 2015 Balance, beginning $ 22,974 $ 20,586 Additions 33,004 11,095 Amounts collected (12,318 ) (6,142 ) Other changes, net (1,662 ) (2,565 ) Balance, ending $ 41,998 $ 22,974 |