Loans and Allowance for Credit Losses | 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES The loan portfolio consists of various types of loans and is categorized by major type as follows: September 30, 2016 December 31, 2015 (Dollars in thousands) Residential mortgage loans held for sale $ 29,457 $ 23,933 Commercial and industrial 1,542,059 1,692,246 Real estate: Construction, land development and other land loans 1,205,820 1,073,198 1-4 family residential (includes home equity) 2,677,995 2,616,732 Commercial real estate (includes multi-family residential) 3,158,569 3,131,083 Farmland 473,957 434,349 Agriculture 190,123 214,469 Consumer and other 270,334 252,579 Total loans held for investment 9,518,857 9,414,656 Total $ 9,548,314 $ 9,438,589 Concentrations of Credit. Most of the Company’s lending activity occurs within the states of Texas and Oklahoma. The majority of the Company’s loan portfolio consists of commercial real estate, 1-4 family residential loans and commercial and industrial loans. As of September 30, 2016 and December 31, 2015, there were no concentrations of loans related to any single industry in excess of 10% of total loans. Foreign Loans. The Company has U.S. dollar-denominated loans and commitments to borrowers in Mexico. The outstanding balance of these loans and the unfunded amounts available under these commitments were not significant at September 30, 2016 or December 31, 2015. Related Party Loans. As of September 30, 2016 and December 31, 2015, loans outstanding to directors, officers and their affiliates totaled $4.1 million. All transactions entered into between the Company and such related parties are done in the ordinary course of business and made on the same terms and conditions as similar transactions with unaffiliated persons. An analysis of activity with respect to these related party loans is as follows: September 30, 2016 December 31, 2015 (Dollars in thousands) Beginning balance on January 1 $ 4,063 $ 4,940 New loans 199 428 Repayments and reclassified related loans (184 ) (1,305 ) Ending balance $ 4,078 $ 4,063 Nonperforming Assets and Nonaccrual and Past Due Loans. The Company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers, including requiring appraisals on loans collateralized by real estate. The Company also monitors its delinquency levels for any negative or adverse trends. Nevertheless, the Company’s loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions. The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. With respect to potential problem loans, an evaluation of the borrower’s overall financial condition is made to determine the need, if any, for possible writedowns or appropriate additions to the allowance for credit losses. An aging analysis of past due loans, segregated by category of loan, is presented below: September 30, 2016 Loans Past Due and Still Accruing 30-89 Days 90 or More Days Total Past Due Loans Nonaccrual Loans Current Loans Total Loans (Dollars in thousands) Construction, land development and other land loans $ 4,699 $ 254 $ 4,953 $ 279 $ 1,200,588 $ 1,205,820 Agriculture and agriculture real estate (includes farmland) 591 — 591 248 663,241 664,080 1-4 family (includes home equity) (1) 2,667 — 2,667 3,311 2,701,474 2,707,452 Commercial real estate (includes multi-family residential) 5,068 145 5,213 12,984 3,140,372 3,158,569 Commercial and industrial 9,020 — 9,020 26,426 1,506,613 1,542,059 Consumer and other 2,153 — 2,153 203 267,978 270,334 Total $ 24,198 $ 399 $ 24,597 $ 43,451 $ 9,480,266 $ 9,548,314 December 31, 2015 Loans Past Due and Still Accruing 30-89 Days 90 or More Days Total Past Due Loans Nonaccrual Loans Current Loans Total Loans (Dollars in thousands) Construction, land development and other land loans $ 4,097 $ — $ 4,097 $ 134 $ 1,068,967 $ 1,073,198 Agriculture and agriculture real estate (includes farmland) 946 — 946 208 647,664 648,818 1-4 family (includes home equity) (1) 4,748 220 4,968 1,894 2,633,803 2,640,665 Commercial real estate (includes multi-family residential) 12,922 — 12,922 15,535 3,102,626 3,131,083 Commercial and industrial 4,793 394 5,187 21,692 1,665,367 1,692,246 Consumer and other 1,274 — 1,274 248 251,057 252,579 Total $ 28,780 $ 614 $ 29,394 $ 39,711 $ 9,369,484 $ 9,438,589 (1) Includes $29.5 million and $23.9 million of residential mortgage loans held for sale at September 30, 2016 and December 31, 2015, respectively. The following table presents information regarding nonperforming assets as of the dates indicated: September 30, 2016 December 31, 2015 (Dollars in thousands) Nonaccrual loans (1) $ 43,451 $ 39,711 Accruing loans 90 or more days past due 399 614 Total nonperforming loans 43,850 40,325 Repossessed assets 36 171 Other real estate 16,280 2,963 Total nonperforming assets $ 60,166 $ 43,459 Nonperforming assets to total loans and other real estate 0.63 % 0.46 % (1) Includes troubled debt restructurings of $318 thousand and $681 thousand as of September 30, 2016 and December 31, 2015, respectively. The Company had $60.2 million in nonperforming assets at September 30, 2016 compared with $43.5 million at December 31, 2015. This increase was primarily due to two commercial real estate loans and two commercial and industrial loans. Nonperforming assets were 0.63% of total loans and other real estate at September 30, 2016 compared with 0.46% of total loans and other real estate at December 31, 2015. These low nonperforming assets to total loans and other real estate ratios are reflective of the Company’s conservative lending approach. If interest on nonaccrual loans had been accrued under the original loan terms, approximately $2.2 million and $2.8 million would have been recorded as income for the nine months ended September 30, 2016 and 2015, respectively. Acquired Loans. Acquired loans were preliminarily recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected default rates, loss given default, and recovery rates (no allowance for credit losses was carried over from the acquisition completed during 2016). During the valuation process, the Company identified Purchased Credit-Impaired (“PCI”) and Non-PCI loans in the acquired loan portfolios. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Company would not be able to collect all contractual amounts due were accounted for as PCI. PCI loan identification considers the following factors: payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may indicate deterioration of credit quality since origination. Non-PCI loan identification considers the following factors: account types, remaining terms, annual interest rates or coupons, current market rates, interest types, past delinquencies, timing of principal and interest payments, loan to value ratios, loss exposures and remaining balances. Accretion of purchased discounts on PCI loans will be based on estimated future cash flows, regardless of contractual maturities. Accretion of purchased discounts on Non-PCI loans will be recognized on a level-yield basis based on contractual maturity of individual loans. PCI Loans. The carrying amount of PCI loans included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of September 30, 2016 and December 31, 2015. September 30, 2016 December 31, 2015 (Dollars in thousands) PCI loans: Outstanding balance $ 61,570 $ 79,802 Less: discount 28,155 39,976 Recorded investment $ 33,415 $ 39,826 Changes in the accretable yield for acquired PCI loans for the three and nine months ended September 30, 2016 and 2015 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 (Dollars in thousands) Balance at beginning of period $ 12,015 $ 6,351 $ 5,664 $ 9,867 Additions — — 10,222 — Reclassifications from nonaccretable 1,378 3,940 8,809 12,572 Accretion (2,324 ) (3,974 ) (13,626 ) (16,122 ) Balance at September 30 $ 11,069 $ 6,317 $ 11,069 $ 6,317 Income recognition on PCI loans is subject to the Company’s ability to reasonably estimate both the timing and amount of future cash flows. PCI loans for which the Company is accruing interest income are not considered non-performing or impaired. The non-accretable difference represents contractual principal and interest the Company does not expect to collect. Non-PCI Loans. The carrying amount of Non-PCI loans included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of September 30, 2016 and December 31, 2015, including accrued but unpaid interest. September 30, 2016 December 31, 2015 (Dollars in thousands) Non-PCI loans: Outstanding balance $ 1,236,411 $ 1,430,501 Less: discount 39,360 54,734 Recorded investment $ 1,197,051 $ 1,375,767 Changes in the discount accretion for Non-PCI loans for the three and nine months ended September 30, 2016 and 2015 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 (Dollars in thousands) Balance at beginning of period $ 44,672 $ 67,895 $ 54,734 $ 89,105 Additions — — 3,491 — Accretion charge-offs (16 ) (16 ) (1,073 ) (125 ) Accretion (5,296 ) (7,060 ) (17,792 ) (28,161 ) Balance at September 30 $ 39,360 $ 60,819 $ 39,360 $ 60,819 Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans are set forth in the following tables. No interest income was recognized on impaired loans subsequent to their classification as impaired. The average recorded investment presented in the tables below is reported on a year-to-date basis. September 30, 2016 Recorded Investment Unpaid Contractual Principal Balance Related Allowance Average Recorded Investment (Dollars in thousands) With no related allowance recorded: Construction, land development and other land loans $ 177 $ 494 $ — $ 105 Agriculture and agriculture real estate (includes farmland) 10 15 — 15 1-4 family (includes home equity) 1,822 2,024 — 1,514 Commercial real estate (includes multi-family residential) 12,820 12,936 — 13,968 Commercial and industrial 10,663 10,957 — 6,009 Consumer and other 89 179 — 74 Total 25,581 26,605 — 21,685 With an allowance recorded: Construction, land development and other land loans — — — 4 Agriculture and agriculture real estate (includes farmland) 238 262 102 214 1-4 family (includes home equity) 459 482 140 419 Commercial real estate (includes multi-family residential) 69 69 13 166 Commercial and industrial 14,021 15,418 5,554 14,308 Consumer and other 74 107 46 128 Total 14,861 16,338 5,855 15,239 Total: Construction, land development and other land loans 177 494 — 109 Agriculture and agriculture real estate (includes farmland) 248 277 102 229 1-4 family (includes home equity) 2,281 2,506 140 1,933 Commercial real estate (includes multi-family residential) 12,889 13,005 13 14,134 Commercial and industrial 24,684 26,375 5,554 20,317 Consumer and other 163 286 46 202 $ 40,442 $ 42,943 $ 5,855 $ 36,924 December 31, 2015 Recorded Investment Unpaid Contractual Principal Balance Related Allowance Average Recorded Investment (Dollars in thousands) With no related allowance recorded: Construction, land development and other land loans $ 33 $ 346 $ — $ 142 Agriculture and agriculture real estate (includes farmland) 20 23 — 10 1-4 family (includes home equity) 1,206 1,365 — 1,458 Commercial real estate (includes multi-family residential) 15,115 15,398 — 10,104 Commercial and industrial 1,354 1,630 — 5,419 Consumer and other 58 131 — 4,101 Total 17,786 18,893 — 21,234 With an allowance recorded: Construction, land development and other land loans 7 11 2 141 Agriculture and agriculture real estate (includes farmland) 189 201 52 118 1-4 family (includes home equity) 379 386 93 902 Commercial real estate (includes multi-family residential) 262 1,857 262 162 Commercial and industrial 14,594 16,413 7,082 8,524 Consumer and other 181 220 44 208 Total 15,612 19,088 7,535 10,055 Total: Construction, land development and other land loans 40 357 2 283 Agriculture and agriculture real estate (includes farmland) 209 224 52 128 1-4 family (includes home equity) 1,585 1,751 93 2,360 Commercial real estate (includes multi-family residential) 15,377 17,255 262 10,266 Commercial and industrial 15,948 18,043 7,082 13,943 Consumer and other 239 351 44 4,309 $ 33,398 $ 37,981 $ 7,535 $ 31,289 Credit Quality Indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used: Grade 1— Credits in this category have risk potential that is virtually nonexistent. These loans may be secured by insured certificates of deposit, insured savings accounts, U.S. Government securities and highly rated municipal bonds. Grade 2— Credits in this category are of the highest quality. These borrowers represent top rated companies and individuals with unquestionable financial standing with excellent global cash flow coverage, net worth, liquidity and collateral coverage. Grade 3— Credits in this category are not immune from risk but are well protected by the collateral and paying capacity of the borrower. These loans may exhibit a minor unfavorable credit factor, but the overall credit is sufficiently strong to minimize the possibility of loss. Grade 4— Credits in this category are considered to be of acceptable credit quality with moderately greater risk than Grade 3 and receiving closer monitoring. Loans in this category have sources of repayment that remain sufficient to preclude a larger than normal probability of default and secondary sources are likewise currently of sufficient quantity, quality, and liquidity to protect the Company against loss of principal and interest. These borrowers have specific risk factors, but the overall strength of the credit is acceptable based on other mitigating credit and/or collateral factors and can repay the debt in the normal course of business. Grade 5— Credits in this category constitute an undue and unwarranted credit risk; however, the factors do not rise to a level of substandard. These credits have potential weaknesses and/or declining trends that, if not corrected, could expose the Bank to risk at a future date. These loans are monitored on the Bank’s internally-generated watch list and evaluated on a quarterly basis. Grade 6— Credits in this category are considered “substandard” but “non-impaired” loans in accordance with regulatory guidelines. Loans in this category have well-defined weakness that, if not corrected, could make default of principal and interest possible. Loans in this category are still accruing interest and may be dependent upon secondary sources of repayment and/or collateral liquidation. Grade 7— Credits in this category are deemed “substandard” and “impaired” pursuant to regulatory guidelines. As such, the Bank has determined that it is probable that less than 100% of the contractual principal and interest will be collected. These loans are individually evaluated for a specific reserve and will typically have the accrual of interest stopped. Grade 8— Credits in this category include “doubtful” loans in accordance with regulatory guidance. Such loans are no longer accruing interest and factors indicate a loss is imminent. These loans are also deemed “impaired.” While a specific reserve may be in place while the loan and collateral is being evaluated, these loans are typically charged down to an amount the Bank estimates is collectible. Grade 9— Credits in this category are deemed a “loss” in accordance with regulatory guidelines and have been charged off or charged down. The Bank may continue collection efforts and may have partial recovery in the future. The following table presents risk grades and PCI loans by category of loan at September 30, 2016. Impaired loans include loans in risk grades 7, 8 and 9, as well as any PCI loan that has a specific reserve allocated to it. Construction, Land Development and Other Agriculture and Agriculture Real Estate (includes Farmland) 1-4 Family (includes Home Commercial Real Estate (includes Multi-Family Commercial and Industrial Consumer and Other Total (Dollars in thousands) Grade 1 $ — $ 14,055 $ — $ — $ 59,625 $ 40,858 $ 114,538 Grade 2 2,196 4,593 23,773 6,646 12,162 8,457 57,827 Grade 3 1,138,839 561,473 2,609,138 2,829,626 1,129,900 204,153 8,473,129 Grade 4 56,519 74,216 58,215 229,146 177,319 12,269 607,684 Grade 5 3,331 7,937 2,739 41,643 66,833 2,189 124,672 Grade 6 3,287 1,165 5,596 20,913 63,824 2,245 97,030 Grade 7 177 248 2,251 12,820 23,683 163 39,342 Grade 8 — — 30 69 578 — 677 Grade 9 — — — — — — — PCI Loans (2) 1,471 393 5,710 17,706 8,135 — 33,415 Total $ 1,205,820 $ 664,080 $ 2,707,452 $ 3,158,569 $ 1,542,059 $ 270,334 $ 9,548,314 (1) Includes $29.5 million of residential mortgage loans held for sale at September 30, 2016. (2) Of the total PCI loans, $3.2 million were classified as substandard at September 30, 2016, which includes $423 thousand with specific reserves of $224 thousand allocated to them. The following table presents risk grades and PCI loans by category of loan at December 31, 2015. Impaired loans include loans in risk grades 7, 8 and 9, as well as any PCI loan that has a specific reserve allocated to it. Construction, Land Development and Other Agriculture and Agriculture Real Estate (includes Farmland) 1-4 Family (includes Home Commercial Real Estate (includes Multi-Family Commercial and Industrial Consumer and Other Total (Dollars in thousands) Grade 1 $ — $ 12,733 $ — $ — $ 57,625 $ 44,389 $ 114,747 Grade 2 3,975 5,603 27,272 24,965 27,755 34,668 124,238 Grade 3 1,034,792 553,782 2,539,282 2,861,872 1,355,887 162,892 8,508,507 Grade 4 29,831 67,453 58,172 164,924 123,772 3,395 447,547 Grade 5 2,431 7,191 1,261 20,078 68,618 6,908 106,487 Grade 6 1,209 1,452 7,824 26,237 28,005 88 64,815 Grade 7 40 209 1,526 15,377 12,487 239 29,878 Grade 8 — — 59 — 2,485 — 2,544 Grade 9 — — — — — — — PCI Loans (2) 920 395 5,269 17,630 15,612 — 39,826 Total $ 1,073,198 $ 648,818 $ 2,640,665 $ 3,131,083 $ 1,692,246 $ 252,579 $ 9,438,589 (1) Includes $23.9 million of residential mortgage loans held for sale at December 31, 2015. (2) Of the total PCI loans, $7.3 million were classified as substandard at December 31, 2015, which includes $976 thousand with specific reserves of $836 thousand allocated to them. Allowance for Credit Losses. The allowance for credit losses is a valuation established through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses which it believes is adequate for estimated losses in the Company’s loan portfolio. The amount of the allowance for credit losses is affected by the following: (1) charge offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance and (3) provisions for credit losses charged to earnings that increase the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or the borrower’s performance differ from the assumptions used in making the initial determinations. The Company’s allowance for credit losses consists of two components: a specific valuation allowance based on probable losses on specifically identified loans and a general valuation allowance based on historical loan loss experience, general economic conditions and other qualitative risk factors both internal and external to the Company. In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan in accordance with ASC Topic 310-10, “ Receivables. In connection with this review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include: • for 1-4 family residential mortgage loans, the borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of collateral; • for commercial real estate loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type; • for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio; • for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral; • for agricultural real estate loans, the experience and financial capability of the borrower, projected debt service coverage of the operations of the borrower and loan to value ratio; and • for non-real estate agricultural loans, the operating results, experience and financial capability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral. In determining the amount of the general valuation allowance, management considers factors such as historical loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions that may affect the borrower’s ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, general economic conditions and other qualitative risk factors both internal and external to the Company and other relevant factors in accordance with ASC Topic 450, “ Contingencies. In addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors. At September 30, 2016, the allowance for credit losses totaled $85.6 million or 0.90% of total loans, including acquired loans with discounts. At December 31, 2015, the allowance for credit losses totaled $81.4 million or 0.86% of total loans, including acquired loans with discounts. The following table details activity in the allowance for credit losses by category of loan for the three and nine months ended September 30, 2016 and 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. Construction, Land Development and Other Land Loans Agriculture and Agriculture Real Estate (includes Farmland) 1-4 Family (includes Home Equity) Commercial Real Estate (includes Multi-Family Residential) Commercial and Industrial Consumer and Other Total (Dollars in thousands) Allowance for credit losses: Three Months Ended Balance June 30, 2016 $ 14,202 $ 4,129 $ 14,916 $ 12,672 $ 36,254 $ 1,653 $ 83,826 Provision for credit losses (78 ) (40 ) 167 (477 ) 1,753 675 2,000 Charge-offs — (1 ) (63 ) — (24 ) (946 ) (1,034 ) Recoveries 368 46 15 1 131 232 793 Net charge-offs 368 45 (48 ) 1 107 (714 ) (241 ) Balance September 30, 2016 $ 14,492 $ 4,134 $ 15,035 $ 12,196 $ 38,114 $ 1,614 $ 85,585 Nine Months Ended Balance December 31, 2015 $ 14,882 $ 3,845 $ 14,891 $ 12,996 $ 33,409 $ 1,361 $ 81,384 Provision for credit losses (969 ) 6,551 144 (545 ) 13,103 3,716 22,000 Charge-offs (7 ) (7,026 ) (114 ) (257 ) (10,641 ) (4,371 ) (22,416 ) Recoveries 586 764 114 2 2,243 908 4,617 Net charge-offs 579 (6,262 ) — (255 ) (8,398 ) (3,463 ) (17,799 ) Balance September 30, 2016 $ 14,492 $ 4,134 $ 15,035 $ 12,196 $ 38,114 $ 1,614 $ 85,585 Allowance for credit losses: Three Months Ended Balance June 30, 2015 $ 16,909 $ 3,771 $ 16,593 $ 13,002 $ 29,205 $ 1,492 $ 80,972 Provision for credit losses (1,506 ) (79 ) (1,386 ) (742 ) 8,507 516 5,310 Charge-offs (215 ) (3 ) (120 ) (54 ) (4,865 ) (933 ) (6,190 ) Recoveries 42 43 10 1 439 376 911 Net charge-offs (173 ) 40 (110 ) (53 ) (4,426 ) (557 ) (5,279 ) Balance September 30, 2015 $ 15,230 $ 3,732 $ 15,097 $ 12,207 $ 33,286 $ 1,451 $ 81,003 Nine Months Ended Balance December 31, 2014 $ 15,825 $ 3,722 $ 16,377 $ 12,744 $ 30,002 $ 2,092 $ 80,762 Provision for credit losses (279 ) (173 ) (1,072 ) (337 ) 8,186 735 7,060 Charge-offs (366 ) (3 ) (249 ) (233 ) (5,691 ) (2,406 ) (8,948 ) Recoveries 50 186 41 33 789 1,030 2,129 Net charge-offs (316 ) 183 (208 ) (200 ) (4,902 ) (1,376 ) (6,819 ) Balance September 30, 2015 $ 15,230 $ 3,732 $ 15,097 $ 12,207 $ 33,286 $ 1,451 $ 81,003 The following table details the amount of the allowance for credit losses allocated to each category of loan as of September 30, 2016, December 31, 2015 and September 30, 2015, on the basis of the impairment methodology used by the Company. Construction, Land Development and Other Land Loans Agriculture and Agriculture Real Estate (includes Farmland) 1-4 Family (includes Home Equity) Commercial Real Estate (includes Multi-Family Residential) Commercial and Industrial Consumer and Other Total (Dollars in thousands) Allowance for credit losses related to: September 30, 2016 Individually evaluated for impairment $ — $ 102 $ 140 $ 13 $ 5,330 $ 46 $ 5,631 Collectively evaluated for impairment 14,492 4,032 14,895 12,183 32,560 1,568 79,730 PCI loans — — — — 224 — 224 Total allowance for credit losses $ 14,492 $ 4,134 $ 15,035 $ 12,196 $ 38,114 $ 1,614 $ 85,585 December 31, 2015 Individually evaluated for impairment $ 2 $ 52 $ 93 $ 262 $ 7,082 $ 44 $ 7,535 Collectively evaluated for impairment 14,880 3,793 14,798 12,734 25,491 1,317 73,013 PCI loans — — — — 836 — 836 Total allowance for credit losses $ 14,882 $ 3,845 $ 14,891 $ 12,996 $ 33,409 $ 1,361 $ 81,384 September 30, 2015 Individually evaluated for impairment $ 2 $ 123 $ 111 $ 292 $ 6,550 $ 43 $ 7,121 Collectively evaluated for impairment 15,228 3,609 14,986 11,915 26,474 1,408 73,620 PCI loans — — — — 262 — 262 Total allowance for credit losses $ 15,230 $ 3,732 $ 15,097 $ 12,207 $ 33,286 $ 1,451 $ 81,003 The following table details the recorded investment in loans as of September 30, 2016, December 31, 2015 and September 30, 2015, excluding $29.5 million, $23.9 million and $12.6 million, respectively, of residential mortgage loans held for sale, related to each balance in the allowance for credit losses by category of loan. Construction, Land Development and Other Land Loans Agriculture and Agriculture Real Estate (includes Farmland) 1-4 Family (includes Home Equity) Commercial Real Estate (includes Multi-Family Residential) Commercial and Industrial Consumer and Other Total (Dollars in thousands) Recorded investment in loans: September 30, 2016 Individually evaluated for impairment $ 177 $ 248 $ 2,281 $ 12,889 $ 24,261 $ 163 $ 40,019 Collectively evaluated for impairment 1,204,172 663,439 2,670,004 3,127,974 1,509,663 270,171 9,445,423 PCI loans 1,471 393 5,710 17,706 8,135 — 33,415 Total loans evaluated for impairment $ 1,205,820 $ 664,080 $ 2,677,995 $ 3,158,569 $ 1,542,059 $ 270,334 $ 9,518,857 December 31, 2015 Individually evaluated for impairment $ 40 $ 209 $ 1,585 $ 15,377 $ 15,948 $ 239 $ 33,398 Collectively evaluated for impairment 1,072,238 648,214 2,609,878 3,098,076 1,660,686 252,340 9,341,432 PCI loans 920 395 5,269 17,630 15,612 — 39,826 Total loans evaluated for impairment $ 1,073,198 $ 648,818 $ 2,616,732 $ 3,131,083 $ 1,692,246 $ 252,579 $ 9,414,656 September 30, 2015 Individually evaluated for impairment $ 249 $ 348 $ 1,908 $ 15,623 $ 20,480 $ 264 $ 38,872 Collectively evaluated for impairment 1,071,693 617,739 2,576,497 2,959,065 1,612,067 275,033 9,112,094 PCI loans 1,043 476 5,616 18,038 16,285 — 41,458 Total loans evaluated for impairment $ 1,072,985 $ 618,563 $ 2,584,021 $ 2,992,726 $ 1,648,832 $ 275,297 $ 9,192,424 Troubled Debt Restructurings. The restructuring of a loan is considered a “troubled debt restructuring” if both (1) the borrower is experiencing financial difficulties and (2) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Under ASC topic 310-40 “ the Company evaluates all loan modifications to identify whether the restructuring constitutes a troubled debt restructuring. As of September 30, 2016 and 2015, the Company had $318 thousand and $607 thousand, respectively, in outstanding troubled debt restructurings. The following table presents information regarding the recorded investment of loans modified in a troubled debt restructuring during the nine months ended September 30, 2016 and 2015: Nine Months Ended September 30, 2016 2015 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Troubled Debt Restructurings Construction, land development and other land loans — $ — $ — 1 $ 390 $ 307 Agriculture and agriculture real estate (includes farmland) 1 154 152 — — — 1-4 Family (includes home equity) — — — — — — Commercial real estate (includes multi-family resid |