ALLOWANCE FOR LOAN LOSSES

The Company’s accounting method for loans and the corresponding allowance for loan losses (“ALL”) differs depending on whether the loans are New or Acquired. The Company assesses and monitors credit risk and portfolio performance using distinct methodologies for Acquired loans, both ASC 310-30 Loans and Non-ASC 310-30 Loans, and New loans. Within each of these portfolios, the Company further disaggregates the portfolios into the following segments: Commercial real estate, Owner-occupied commercial real estate, 1-4 single family residential, Construction, land and development, Home equity loans and lines of credit, Commercial and industrial and Consumer. The ALL reflects management’s estimate of probable credit losses inherent in each of the segments. In response to Hurricane Irma, the Company recorded an unallocated provision expense of $1.5 million in prior year to reflect management's estimate of probable credit losses inherent in the loan portfolio related specifically to the storm.

The following tables present information related to the ALL for the periods presented:



	Commercial Real Estate			Owner- Occupied Commercial Real Estate		1-4 Single Family Residential			Construction, Land and Development			Home Equity Loans and Lines of Credit			Commercial and Industrial			Consumer			Total
	(Dollars in thousands)
Balance at January 1, 2018	$	13,870		$	3,365	$	7,978		$	4,345		$	674		$	15,141		$	272		$	47,145
Provision (credit) for ASC 310-30 loans	31			—		15			(15		)	—			(31		)	(2		)	(2		)
Provision (credit) for non-ASC 310-30 loans	(1		)	3		(12		)	—			(13		)	44			(3		)	18
Provision (credit) for New loans	292			410		(488		)	(55		)	(45		)	1,979			(33		)	2,060
Provision (credit) for Unallocated	—			—		—			—			—			—			—			—
Total provision	322			413		(485		)	(70		)	(58		)	1,992			(38		)	2,076
Charge-offs for ASC 310-30 loans	—			—		—			—			—			—			(7		)	(7		)
Charge-offs for non-ASC 310-30 loans	—			—		—			—			—			(36		)	—			(36		)
Charge-offs for New loans	—			—		—			—			—			—			—			—
Total charge-offs	—			—		—			—			—			(36		)	(7		)	(43		)
Recoveries for ASC 310-30 loans	—			—		—			13			—			17			—			30
Recoveries for non-ASC 310-30 loans	—			—		—			—			—			—			—			—
Recoveries for New loans	5			—		—			—			—			—			—			5
Total recoveries	5			—		—			13			—			17			—			35
Ending ALL balance
ASC 310-30 loans	1,479			—		40			143			—			112			136			1,910
Non-ASC 310-30 loans	337			58		172			36			186			321			3			1,113
New loans	12,381			3,720		7,281			4,109			430			16,681			88			44,690
Unallocated	—			—		—			—			—			—			—			1,500
Balance at March 31, 2018	$	14,197		$	3,778	$	7,493		$	4,288		$	616		$	17,114		$	227		$	49,213



	Commercial Real Estate			Owner- Occupied Commercial Real Estate		1-4 Single Family Residential			Construction, Land and Development			Home Equity Loans and Lines of Credit			Commercial and Industrial			Consumer			Total
	(Dollars in thousands)
Balance at January 1, 2017	$	10,123		$	2,597	$	7,379		$	4,677		$	648		$	12,245		$	228		$	37,897
Provision (credit) for ASC 310-30 loans	(1,352		)	—		2			66			—			1,047			(82		)	(319		)
Provision (credit) for non-ASC 310-30 loans	(32		)	—		(58		)	(3		)	40			(6		)	(29		)	(88		)
Provision (credit) for New loans	1,342			114		590			178			45			(219		)	—			2,050
Total provision	(42		)	114		534			241			85			822			(111		)	1,643
Charge-offs for ASC 310-30 loans	—			—		—			—			—			(14		)	—			(14		)
Charge-offs for non-ASC 310-30 loans	—			—		—			—			(7		)	—			—			(7		)
Charge-offs for New loans	(131		)	—		—			—			—			(100		)	—			(231		)
Total charge-offs	(131		)	—		—			—			(7		)	(114		)	—			(252		)
Recoveries for ASC 310-30 loans	14			—		—			—			—			—			100			114
Recoveries for non-ASC 310-30 loans	—			—		—			—			—			—			29			29
Recoveries for New loans	—			—		—			—			—			—			—			—
Total recoveries	14			—		—			—			—			—			129			143
Ending ALL balance
ASC 310-30 loans	917			—		31			305			—			1,310			162			2,725
Non-ASC 310-30 loans	344			61		243			44			276			370			6			1,344
New loans	8,703			2,650		7,639			4,569			450			11,273			78			35,362
Balance at March 31, 2017	$	9,964		$	2,711	$	7,913		$	4,918		$	726		$	12,953		$	246		$	39,431

Credit Quality Indicators

In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and consumer loans. Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for Non-ASC 310-30 and New commercial, construction, land and development and commercial real estate loans. Internal risk ratings are updated on a continuous basis.

The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment (excluding loans accounted for under ASC 310-30):



	Accruing
March 31, 2018	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More Past Due		Non- Accrual		Total
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	983		—		—		—		983
1-4 single family residential	3,253		—		—		2,995		6,248
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	255		—		—		126		381
Total real estate loans	4,491		—		—		3,121		7,612
Other loans:
Commercial and industrial	—		—		—		—		—
Consumer	—		—		—		—		—
Total other loans	—		—		—		—		—
Total new loans	$	4,491	$	—	$	—	$	3,121	$	7,612
Acquired loans:
Real estate loans:
Commercial real estate	$	—	$	—	$	—	$	3,847	$	3,847
Owner-occupied commercial real estate	—		—		—		492		492
1-4 single family residential	848		—		43		1,298		2,189
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	764		—		—		2,484		3,248
Total real estate loans	1,612		—		43		8,121		9,776
Other loans:
Commercial and industrial	2,236		—		—		394		2,630
Consumer	—		—		—		—		—
Total other loans	2,236		—		—		394		2,630
Total acquired loans	$	3,848	$	—	$	43	$	8,515	$	12,406



	Accruing
December 31, 2017	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days or More Past Due		Non- Accrual		Total
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	324	$	—	$	—	$	—	$	324
Owner-occupied commercial real estate	843		150		—		—		993
1-4 single family residential	1,179		1,310		—		3,167		5,656
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	—		—		—		126		126
Total real estate loans	2,346		1,460		—		3,293		7,099
Other loans:
Commercial and industrial	4,980		2,167		—		—		7,147
Consumer	—		—		—		—		—
Total other loans	4,980		2,167		—		—		7,147
Total new loans	$	7,326	$	3,627	$	—	$	3,293	$	14,246
Acquired Loans:
Real estate loans:
Commercial real estate	$	360	$	—	$	—	$	3,893	$	4,253
Owner-occupied commercial real estate	290		—		—		494		784
1-4 single family residential	892		44		—		1,331		2,267
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	1,128		—		—		1,720		2,848
Total real estate loans	2,670		44		—		7,438		10,152
Other loans:
Commercial and industrial	101		—		—		394		495
Consumer	—		—		—		—		—
Total other loans	101		—		—		394		495
Total acquired loans	$	2,771	$	44	$	—	$	7,832	$	10,647

Loans exhibiting potential credit weaknesses that deserve management’s close attention and that, if left uncorrected, may result in deterioration of the repayment capacity of the borrower, are categorized as special mention. Loans with well-defined credit weaknesses including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves are assigned an internal risk rating of substandard. A loan with a weakness so severe that collection in full is highly questionable or improbable will be assigned an internal risk rating of doubtful.

The following tables summarize the Company’s commercial Non-ASC 310-30 and New loans by key indicators of credit quality. Loans accounted for under ASC 310-30 are excluded from the following analysis because their related allowance is determined by loan pool performance:



March 31, 2018	Pass		Special Mention		Substandard		Doubtful
	(Dollars in thousands)
New loans:
Commercial real estate	$	2,159,454	$	6,057	$	3,095	$	—
Owner-occupied commercial real estate	1,074,076		—		—		—
Construction, land and development	732,551		—		—		—
Commercial and industrial	1,673,470		28,181		—		—
Total new loans	$	5,639,551	$	34,238	$	3,095	$	—
Acquired loans:
Commercial real estate	$	107,104	$	—	$	4,190	$	—
Owner-occupied commercial real estate	81,953		—		581		—
Construction, land and development	32,413		—		—		—
Commercial and industrial	47,025		—		735		—
Total acquired loans	$	268,495	$	—	$	5,506	$	—

December 31, 2017	Pass		Special Mention		Substandard		Doubtful
	(Dollars in thousands)
New loans:
Commercial real estate	$	2,095,560	$	6,066	$	2,162	$	—
Owner-occupied commercial real estate	987,781		—		—		—
Construction, land and development	684,462		—		—		—
Commercial and industrial	1,617,462		16,910		—		—
Total new loans	$	5,385,265	$	22,976	$	2,162	$	—
Acquired loans:
Commercial real estate	$	33,496	$	—	$	4,240	$	—
Owner-occupied commercial real estate	15,607		—		493		—
Construction, land and development	5,889		—		—		—
Commercial and industrial	4,324		—		738		—
Total acquired loans	$	59,316	$	—	$	5,471	$	—

Internal risk ratings are a key factor in identifying loans to be individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the ALL.

The following tables show the Company’s investment in loans disaggregated based on the method of evaluating impairment:



	Loans - Recorded Investment						Allowance for Credit Loss
March 31, 2018	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ASC 310- 30 Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ASC 310- 30 Loans
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	—	$	2,168,606	$	—	$	—	$	12,381	$	—
Owner-occupied commercial real estate	—		1,074,076		—		—		3,720		—
1-4 single family residential	524		2,232,267		—		—		7,281		—
Construction, land and development	—		732,551		—		—		4,109		—
Home equity loans and lines of credit	129		61,727		—		66		364		—
Total real estate loans	$	653	$	6,269,227	$	—	$	66	$	27,855	$	—
Other loans:
Commercial and industrial	$	—	$	1,701,651	$	—	$	—	$	16,681	$	—
Consumer	—		4,720		—		—		88		—
Total other loans	$	—	$	1,706,371	$	—	$	—	$	16,769	$	—
Acquired loans:
Real estate loans:
Commercial real estate	$	3,847	$	107,447	$	138,853	$	129	$	234	$	1,479
Owner-occupied commercial real estate	—		82,534		—		—		66		—
1-4 single family residential	267		163,921		35,264		—		104		40
Construction, land and development	—		32,413		31,188		—		39		143
Home equity loans and lines of credit	495		41,940		202		—		210		—
Total real estate loans	$	4,609	$	428,255	$	205,507	$	129	$	653	$	1,662
Other loans:
Commercial and industrial	$	272	$	47,488	$	22,434	$	272	$	56	$	112
Consumer	—		18,203		1,373		—		3		136
Total other loans	$	272	$	65,691	$	23,807	$	272	$	59	$	248
Total Loans:
Unallocated	$	—	$	8,704,392	$	—	$	—	$	1,500	$	—



	Loans - Recorded Investment						Allowance for Credit Loss
December 31, 2017	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ASC 310- 30 Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ASC 310- 30 Loans
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	—	$	2,103,788	$	—	$	—	$	12,084	$	—
Owner-occupied commercial real estate	—		987,781		—		—		3,310		—
1-4 single family residential	1,096		2,184,266		—		—		7,769		—
Construction, land and development	—		684,462		—		—		4,164		—
Home equity loans and lines of credit	130		59,506		—		66		409		—
Total real estate loans	$	1,226	$	6,019,803	$	—	$	66	$	27,736	$	—
Other loans:
Commercial and industrial	$	—	$	1,634,372	$	—	$	—	$	14,702	$	—
Consumer	—		5,984		—		—		121		—
Total other loans	$	—	$	1,640,356	$	—	$	—	$	14,823	$	—
Acquired Loans:
Real estate loans:
Commercial real estate	$	3,893	$	33,843	$	104,335	$	129	$	209	$	1,448
Owner-occupied commercial real estate	—		16,100		—		—		55		—
1-4 single family residential	267		57,428		27,513		—		184		25
Construction, land and development	—		5,889		13,167		—		36		145
Home equity loans and lines of credit	495		34,094		—		—		199		—
Total real estate loans	$	4,655	$	147,354	$	145,015	$	129	$	683	$	1,618
Other loans:
Commercial and industrial	$	272	$	4,790	$	12,631	$	272	$	41	$	126
Consumer	—		259		1,423		—		6		145
Total other loans	$	272	$	5,049	$	14,054	$	272	$	47	$	271
Total Loans:
Unallocated	$	—	$	7,977,784	$	—	$	—	$	1,500	$	—

The following tables set forth certain information regarding the Company’s impaired loans (excluding loans accounted for under ASC 310-30) that were evaluated for specific reserves:



	Impaired Loans - With Allowance						Impaired Loans - With no Allowance
March 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	—		—		—		—		—
1-4 single family residential	—		—		—		524		524
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	66		66		66		63		63
Total real estate loans	$	66	$	66	$	66	$	587	$	587
Other loans:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Consumer	—		—		—		—		—
Total other loans	$	—	$	—	$	—	$	—	$	—
Acquired loans:
Real estate loans:
Commercial real estate	$	336	$	347	$	129	$	3,511	$	4,991
Owner-occupied commercial real estate	—		—		—		—		—
1-4 single family residential	—		—		—		267		267
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	—		—		—		495		495
Total real estate loans	$	336	$	347	$	129	$	4,273	$	5,753
Other loans:
Commercial and industrial	$	272	$	272	$	272	$	—	$	—
Consumer	—		—		—		—		—
Total other loans	$	272	$	272	$	272	$	—	$	—



	Impaired Loans - With Allowance						Impaired Loans - With no Allowance
December 31, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
	(Dollars in thousands)
New loans:
Real estate loans:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Owner-occupied commercial real estate	—		—		—		—		—
1-4 single family residential	—		—		—		1,096		1,096
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	66		66		66		63		63
Total real estate loans	$	66	$	66	$	66	$	1,159	$	1,159
Other loans:
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Consumer	—		—		—		—		—
Total other loans	$	—	$	—	$	—	$	—	$	—
Acquired loans:
Real estate loans:
Commercial real estate	$	336	$	347	$	129	$	3,557	$	4,991
Owner-occupied commercial real estate	—		—		—		—		—
1-4 single family residential	—		—		—		267		267
Construction, land and development	—		—		—		—		—
Home equity loans and lines of credit	—		—		—		495		495
Total real estate loans	$	336	$	347	$	129	$	4,319	$	5,753
Other loans:
Commercial and industrial	$	272	$	272	$	272	$	—	$	—
Consumer	—		—		—		—		—
Total other loans	$	272	$	272	$	272	$	—	$	—

The following table presents the average recorded investment and interest income recognized during the period subsequent to impairment on loans individually evaluated for impairment:



	Three Months Ended March 31,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Impaired loans with no related allowance:
Real estate loans:
Commercial real estate	$	3,534	$	—	$	3,723	$	—
Owner-occupied commercial real estate	—		—		—		—
1-4 single family residential	790		—		790		—
Construction, land and development	—		—		—		—
Home equity loans and lines of credit	558		—		1,036		—
Total real estate loans	$	4,882	$	—	$	5,549	$	—
Other loans:
Commercial and industrial	$	—	$	—	$	—	$	—
Consumer	—		—		—		—
Total other loans	$	—	$	—	$	—	$	—
Impaired loans with an allowance:
Real estate loans:
Commercial real estate	$	336	$	—	$	630	$	—
Owner-occupied commercial real estate	—		—		—		—
1-4 single family residential	—		—		525		—
Construction, land and development	—		—		—		—
Home equity loans and lines of credit	66		—		66		—
Total real estate loans	$	402	$	—	$	1,221	$	—
Other loans:
Commercial and industrial	$	272	$	—	$	375	$	—
Consumer	—		—		—		—
Total other loans	$	272	$	—	$	375	$	—