4) Loans

Loans at year‑end were as follows:


	December 31,		December 31,
	2019		2018
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	631,547	$	597,763
Real estate:
CRE		1,510,592		994,067
Land and construction		150,634		122,358
Home equity		175,252		109,112
Residential mortgages		46,256		50,979
Consumer		19,882		12,453
Loans		2,534,163		1,886,732
Deferred loan fees, net		(319)		(327)
Loans, net of deferred fees		2,533,844		1,886,405
Allowance for loan losses		(23,285)		(27,848)
Loans, net	$	2,510,559	$	1,858,557

Changes in the allowance for loan losses were as follows:


`	Year Ended December 31, 2019
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Beginning of period balance	$	17,061	$	10,671	$	116	$	27,848
Charge-offs		(6,609)		—		(14)		(6,623)
Recoveries		1,045		169		—		1,214
Net (charge-offs) recoveries		(5,564)		169		(14)		(5,409)
Provision (credit) for loan losses		(1,044)		1,910		(20)		846
End of period balance	$	10,453	$	12,750	$	82	$	23,285


	Year Ended December 31, 2018
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Beginning of period balance	$	10,608	$	8,950	$	100	$	19,658
Charge-offs		(2,002)		—		(24)		(2,026)
Recoveries		2,645		150		—		2,795
Net (charge-offs) recoveries		643		150		(24)		769
Provision for loan losses		5,810		1,571		40		7,421
End of period balance	$	17,061	$	10,671	$	116	$	27,848


	Year Ended December 31, 2017
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Beginning of period balance	$	10,656	$	8,327	$	106	$	19,089
Charge-offs		(2,239)		—		—		(2,239)
Recoveries		1,585		1,124		—		2,709
Net (charge-offs) recoveries		(654)		1,124		—		470
Provision (credit) for loan losses		606		(501)		(6)		99
End of period balance	$	10,608	$	8,950	$	100	$	19,658

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on the impairment method as follows at year‑end:


	December 31, 2019
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,835	$	—	$	—	$	1,835
Collectively evaluated for impairment		8,618		12,750		82		21,450
Total allowance balance	$	10,453	$	12,750	$	82	$	23,285
Loans:
Individually evaluated for impairment	$	4,810	$	5,454	$	—	$	10,264
Collectively evaluated for impairment		626,737		1,877,280		19,882		2,523,899
Total loan balance	$	631,547	$	1,882,734	$	19,882	$	2,534,163


	December 31, 2018
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,944	$	—	$	—	$	6,944
Collectively evaluated for impairment		10,117		10,671		116		20,904
Total allowance balance	$	17,061	$	10,671	$	116	$	27,848
Loans:
Individually evaluated for impairment	$	9,495	$	5,645	$	—	$	15,140
Collectively evaluated for impairment		588,268		1,270,871		12,453		1,871,592
Total loan balance	$	597,763	$	1,276,516	$	12,453	$	1,886,732

The following table presents loans held‑for‑investment individually evaluated for impairment by class of loans as of December 31, 2019 and December 31, 2018. The recorded investment included in the following table represents loan principal net of any partial charge‑offs recognized on the loans. The unpaid principal balance represents the recorded balance prior to any partial charge‑offs.


	December 31, 2019						December 31, 2018
					Allowance						Allowance
	Unpaid				for Loan		Unpaid				for Loan
	Principal		Recorded		Losses		Principal		Recorded		Losses
	Balance		Investment		Allocated		Balance		Investment		Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	2,113	$	2,113	$	—	$	1,849	$	1,849	$	—
Real estate:
CRE		5,094		5,094		—		5,094		5,094		—
Home Equity		360		360		—		551		551		—
Total with no related allowance recorded		7,567		7,567		—		7,494		7,494		—

With an allowance recorded:
Commercial		2,697		2,697		1,835		7,646		7,646		6,944
Total with an allowance recorded		2,697		2,697		1,835		7,646		7,646		6,944
Total	$	10,264	$	10,264	$	1,835	$	15,140	$	15,140	$	6,944

The following table presents interest recognized and cash‑basis interest earned on impaired loans for the periods indicated:


	Year Ended December 31, 2019
			Real Estate
					Land and		Home
	Commercial		CRE		Construction		Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	8,048	$	6,433	$	—	$	440	$	—	$	14,921
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest recognized	$	—	$	—	$	—	$	—	$	—	$	—


	Year Ended December 31, 2018
			Real Estate
					Land and		Home
	Commercial		CRE		Construction		Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	10,744	$	3,507	$	24	$	487	$	—	$	14,762
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest recognized	$	—	$	—	$	—	$	—	$	—	$	—

Nonperforming loans include both smaller dollar balance homogenous loans that are collectively evaluated for impairment and individually classified loans. Nonperforming loans were as follows at year‑end:



	2019		2018
	(Dollars in thousands)
Nonaccrual loans - held-for-investment	$	8,675	$	13,699
Restructured and loans over 90 days past due and still accruing		1,153		1,188
Total nonperforming loans		9,828		14,887
Other restructured loans		436		253
Total impaired loans	$	10,264	$	15,140

The following table presents the nonperforming loans by class at year‑end:


	December 31, 2019						December 31, 2018
				Restructured						Restructured
				and Loans						and Loans
				over 90 Days						over 90 Days
				Past Due						Past Due
				and Still						and Still
	Nonaccrual			Accruing	Total		Nonaccrual			Accruing	Total
	(Dollars in thousands)
Commercial	$	3,444	$	1,153	$	4,597	$	8,279	$	963	$	9,242
Real estate:
CRE		5,094		—		5,094		5,094		—		5,094
Home equity		137		—		137		326		225		551
Total	$	8,675	$	1,153	$	9,828	$	13,699	$	1,188	$	14,887

The following table presents the aging of past due loans at year-end by class of loans:


	December 31, 2019
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
	(Dollars in thousands)
Commercial	$	4,770	$	2,097	$	3,217	$	10,084	$	621,463	$	631,547
Real estate:
CRE		—		—		5,094		5,094		1,505,498		1,510,592
Land and construction		—		—		—		—		150,634		150,634
Home equity		—		137		—		137		175,115		175,252
Residential mortgages		—		—		—		—		46,256		46,256
Consumer		—		—		—		—		19,882		19,882
Total	$	4,770	$	2,234	$	8,311	$	15,315	$	2,518,848	$	2,534,163


	December 31, 2018
	30 - 59		60 - 89		90 Days or
	Days		Days		Greater		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
	(Dollars in thousands)
Commercial	$	5,698	$	1,916	$	1,258	$	8,872	$	588,891	$	597,763
Real estate:
CRE		—		—		—		—		994,067		994,067
Land and construction		—		—		—		—		122,358		122,358
Home equity		—		—		—		—		109,112		109,112
Residential mortgages		—		—		—		—		50,979		50,979
Consumer		1		—		—		1		12,452		12,453
Total	$	5,699	$	1,916	$	1,258	$	8,873	$	1,877,859	$	1,886,732

Past due loans 30 days or greater totaled $ 15,315,000 and $8,873,000 at December 31, 2019 and December 31, 2018, respectively, of which $7,413,000 and $430,000 were on nonaccrual. At December 31, 2019, there were also $1,262,000 loans less than 30 days past due included in nonaccrual loans held-for-investment. At December 31, 2018, there were also $13,269,000 loans less than 30 days past due included in nonaccrual loans held-for-investment. Management’s classification of a loan as “nonaccrual” is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued.

Credit Quality Indicators

Concentrations of credit risk arise when a number of clients are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company’s loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company’s lending operations are located in the Company’s market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company’s borrowers could be adversely impacted by a continued downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers’ ability to repay their loans.

The Company categorizes 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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loans terms. Classified loans are those loans that are assigned a substandard, substandard‑nonaccrual, or doubtful risk rating using the following definitions:

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Substandard‑Nonaccrual. Loans classified as substandard‑nonaccrual are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, and it is probable that the Company will not receive payment of the full contractual principal and interest. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss. Loans classified as loss are considered uncollectable. In addition, loans of so little value that their continuance as assets is not warranted are classified as loss. This classification does not necessarily mean that a loan has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery will occur. Loans classified as loss are immediately charged off against the allowance for loan losses. Therefore, there is no balance to report at December 31, 2019 or 2018.

The following table provides a summary of the loan portfolio by loan type and credit quality classification for the periods indicated:


	December 31, 2019						December 31, 2018
	Nonclassified		Classified		Total		Nonclassified		Classified		Total
	(Dollars in thousands)
Commercial	$	623,768		7,779	$	631,547	$	584,845	$	12,918	$	597,763
Real estate:
CRE		1,492,126		18,466		1,510,592		985,193		8,874		994,067
Land and construction		147,553		3,081		150,634		122,358		—		122,358
Home equity		171,999		3,253		175,252		107,495		1,617		109,112
Residential mortgages		46,256		—		46,256		50,979		—		50,979
Consumer		19,882		—		19,882		12,453		—		12,453
Total	$	2,501,584	$	32,579	$	2,534,163	$	1,863,323	$	23,409	$	1,886,732

The increase in classified assets at December 31, 2019 was primarily due to classified assets acquired from Presidio. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in compliance with the Company’s underwriting policy.

The book balance of troubled debt restructurings at December 31, 2019 was $1,039,000, which included $590,000 of nonaccrual loans and $449,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2018 was $649,000, which included $36,000 of nonaccrual loans and $613,000 of accruing loans. Approximately $20,000 and $38,000 in specific reserves were established with respect to these loans as of December 31, 2019 and December 31, 2018. As of December 31, 2019 and December 31, 2018, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

The following table presents loans by class modified as troubled debt restructurings:


	During the Year Ended
		December 31, 2019
				Pre-modification		Post-modification
		Number		Outstanding		Outstanding
		of		Recorded		Recorded
Troubled Debt Restructurings:		Contracts		Investment		Investment
	(Dollars in thousands)
Commercial		3	$	591	$	591
Total		3	$	591	$	591


	During the Year Ended
		December 31, 2018
				Pre-modification		Post-modification
		Number		Outstanding		Outstanding
		of		Recorded		Recorded
Troubled Debt Restructurings:		Contracts		Investment		Investment
	(Dollars in thousands)
Commercial		2	$	112	$	112
Equity		1		224		224
Total		3	$	336	$	336

During the twelve months ended December 31, 2019, there were no troubled debt restructurings in which the amount of principal or accrued interest owed from the borrower was forgiven or which resulted in a charge-off or change to the allowance for loan losses.

A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the years ended December 31, 2019 and 2018.

A loan that is a troubled debt restructuring on nonaccrual status may return to accruing status after a period of at least six months of consecutive payments in accordance with the modified terms.

HBC makes loans to executive officers, directors, and their affiliates. The following table presents the loans outstanding to these related parties for the periods indicated:


	2019		2018
	(Dollars in thousands)
Beginning of year balance	$	—	$	531
Repayment on loans during the year		—		(531)
End of year balance	$	—	$	—