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, 2017 December 31, 2016 (Dollars in thousands) Residential mortgage loans held for sale $ 25,473 $ 26,975 Commercial and industrial 1,472,397 1,539,439 Real estate: Construction, land development and other land loans 1,453,535 1,263,923 1-4 family residential (includes home equity) 2,707,654 2,690,856 Commercial real estate (includes multi-family residential) 3,295,001 3,162,109 Farmland 503,727 484,588 Agriculture 188,789 187,748 Consumer and other 264,626 266,422 Total loans held for investment 9,885,729 9,595,085 Total $ 9,911,202 $ 9,622,060 Concentrations of Credit. Most of the Company’s lending activity occurs within the states of Texas and Oklahoma. Commercial real estate loans, 1-4 family residential loans and construction, land development and other land loans make up 75.2% of the Company’s total loan portfolio at September 30, 2017. As of September 30, 2017 and December 31, 2016, 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, 2017 or December 31, 2016. Related Party Loans. As of September 30, 2017 and December 31, 2016, loans outstanding to directors, officers and their affiliates totaled $3.5 million and $4.5 million, respectively. All transactions between the Company and such related parties are conducted 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: As of and for the nine months ended September 30, 2017 As of and for the year ended December (Dollars in thousands) Beginning balance on January 1 $ 4,493 $ 4,063 New loans — 699 Repayments and reclassified related loans (977 ) (269 ) Ending balance $ 3,516 $ 4,493 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, 2017 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 $ 6,763 $ — $ 6,763 $ 130 $ 1,446,642 $ 1,453,535 Agriculture and agriculture real estate (includes farmland) 1,060 — 1,060 140 691,316 692,516 1-4 family (includes home equity) (1) 8,706 166 8,872 3,288 2,720,967 2,733,127 Commercial real estate (includes multi-family residential) 5,240 2,853 8,093 2,410 3,284,498 3,295,001 Commercial and industrial 6,900 1,882 8,782 20,204 1,443,411 1,472,397 Consumer and other 205 33 238 95 264,293 264,626 Total $ 28,874 $ 4,934 $ 33,808 $ 26,267 $ 9,851,127 $ 9,911,202 December 31, 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 $ 8,766 $ 514 $ 9,280 $ 73 $ 1,254,570 $ 1,263,923 Agriculture and agriculture real estate (includes farmland) 1,813 381 2,194 161 669,981 672,336 1-4 family (includes home equity) (1) 8,645 53 8,698 3,726 2,705,407 2,717,831 Commercial real estate (includes multi-family residential) 4,250 — 4,250 3,528 3,154,331 3,162,109 Commercial and industrial 8,290 8 8,298 23,999 1,507,142 1,539,439 Consumer and other 886 — 886 155 265,381 266,422 Total $ 32,650 $ 956 $ 33,606 $ 31,642 $ 9,556,812 $ 9,622,060 (1) Includes $25.5 million and $27.0 million of residential mortgage loans held for sale at September 30, 2017 and December 31, 2016, respectively. The following table presents information regarding nonperforming assets as of the dates indicated: September 30, 2017 December 31, 2016 (Dollars in thousands) Nonaccrual loans (1) $ 26,267 $ 31,642 Accruing loans 90 or more days past due 4,934 956 Total nonperforming loans 31,201 32,598 Repossessed assets 110 241 Other real estate 14,512 15,463 Total nonperforming assets $ 45,823 $ 48,302 Nonperforming assets to total loans and other real estate 0.46 % 0.50 % (1) Includes troubled debt restructurings of $4.4 million and $97 thousand as of September 30, 2017 and December 31, 2016, respectively. The Company had $45.8 million in nonperforming assets at September 30, 2017 compared with $48.3 million at December 31, 2016. Nonperforming assets were 0.46% of total loans and other real estate at September 30, 2017 compared with 0.50% of total loans and other real estate at December 31, 2016. These low nonperforming asset ratios are reflective of the Company’s conservative lending approach. If interest on nonaccrual loans had been accrued under the original loan terms, approximately $2.3 million and $2.2 million would have been recorded as income for the nine months ended September 30, 2017 and 2016, 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, 2017 and December 31, 2016. September 30, 2017 December 31, 2016 (Dollars in thousands) PCI loans: Outstanding balance $ 40,367 $ 51,640 Discount (17,040 ) (24,007 ) Recorded investment $ 23,327 $ 27,633 Changes in the accretable yield for acquired PCI loans for the three and nine months ended September 30, 2017 and 2016 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 (Dollars in thousands) Balance at beginning of period $ 8,757 $ 12,015 $ 9,778 $ 5,664 Additions — — — 10,222 Reclassifications from nonaccretable 1,161 1,378 3,339 8,809 Accretion (1,525 ) (2,324 ) (4,724 ) (13,626 ) Balance at September 30 $ 8,393 $ 11,069 $ 8,393 $ 11,069 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, 2017 and December 31, 2016, including accrued but unpaid interest. September 30, 2017 December 31, 2016 (Dollars in thousands) Non-PCI loans: Outstanding balance $ 796,477 $ 1,115,061 Discount (22,997 ) (35,401 ) Recorded investment $ 773,480 $ 1,079,660 Changes in the discount accretion for Non-PCI loans for the three and nine months ended September 30, 2017 and 2016 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 (Dollars in thousands) Balance at beginning of period $ 29,359 $ 44,672 $ 35,401 $ 54,734 Additions — — — 3,491 Accretion charge-offs (1 ) (16 ) (18 ) (1,073 ) Accretion (6,361 ) (5,296 ) (12,386 ) (17,792 ) Balance at September 30 $ 22,997 $ 39,360 $ 22,997 $ 39,360 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, 2017 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 $ 94 $ 109 $ — $ 54 Agriculture and agriculture real estate (includes farmland) 141 181 — 74 1-4 family (includes home equity) 2,796 3,056 — 2,623 Commercial real estate (includes multi-family residential) 685 715 — 1,935 Commercial and industrial 10,985 15,803 — 9,955 Consumer and other 95 156 — 107 Total 14,796 20,020 — 14,748 With an allowance recorded: Construction, land development and other land loans — — — — Agriculture and agriculture real estate (includes farmland) — — — 77 1-4 family (includes home equity) 478 478 97 458 Commercial real estate (includes multi-family residential) 1,486 1,499 193 887 Commercial and industrial 7,933 8,113 3,879 10,630 Consumer and other — — — 2 Total 9,897 10,090 4,169 12,054 Total: Construction, land development and other land loans 94 109 — 54 Agriculture and agriculture real estate (includes farmland) 141 181 — 151 1-4 family (includes home equity) 3,274 3,534 97 3,081 Commercial real estate (includes multi-family residential) 2,171 2,214 193 2,822 Commercial and industrial 18,918 23,916 3,879 20,585 Consumer and other 95 156 — 109 $ 24,693 $ 30,110 $ 4,169 $ 26,802 December 31, 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 $ 14 $ 220 $ — $ 24 Agriculture and agriculture real estate (includes farmland) 7 12 — 14 1-4 family (includes home equity) 2,450 2,682 — 1,828 Commercial real estate (includes multi-family residential) 3,184 3,327 — 9,150 Commercial and industrial 8,925 9,446 — 5,139 Consumer and other 119 157 — 88 Total 14,699 15,844 — 16,243 With an allowance recorded: Construction, land development and other land loans — — — 3 Agriculture and agriculture real estate (includes farmland) 154 181 17 171 1-4 family (includes home equity) 437 449 150 408 Commercial real estate (includes multi-family residential) 288 288 178 275 Commercial and industrial 13,327 13,821 2,851 13,961 Consumer and other 4 4 1 93 Total 14,210 14,743 3,197 14,911 Total: Construction, land development and other land loans 14 220 — 27 Agriculture and agriculture real estate (includes farmland) 161 193 17 185 1-4 family (includes home equity) 2,887 3,131 150 2,236 Commercial real estate (includes multi-family residential) 3,472 3,615 178 9,425 Commercial and industrial 22,252 23,267 2,851 19,100 Consumer and other 123 161 1 181 $ 28,909 $ 30,587 $ 3,197 $ 31,154 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, 2017. 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 (1) Commercial Real Estate (includes Multi-Family Commercial and Industrial Consumer and Other Total (Dollars in thousands) Grade 1 $ — $ 14,515 $ — $ — $ 48,793 $ 38,163 $ 101,471 Grade 2 2,120 4,280 29,417 30,690 10,451 25,788 102,746 Grade 3 1,354,516 588,797 2,626,512 2,950,268 1,096,171 185,654 8,801,918 Grade 4 87,990 74,706 60,731 241,940 195,508 6,574 667,449 Grade 5 392 7,918 3,643 37,060 61,953 3,200 114,166 Grade 6 7,445 1,777 4,883 18,687 37,488 5,152 75,432 Grade 7 94 141 3,177 2,171 18,918 95 24,596 Grade 8 — — 97 — — — 97 Grade 9 — — — — — — — PCI Loans (2) 978 382 4,667 14,185 3,115 — 23,327 Total $ 1,453,535 $ 692,516 $ 2,733,127 $ 3,295,001 $ 1,472,397 $ 264,626 $ 9,911,202 (1) Includes $25.5 million of residential mortgage loans held for sale at September 30, 2017. (2) Of the total PCI loans, $1.6 million were classified as substandard at September 30, 2017, with no specific reserves allocated to them. The following table presents risk grades and PCI loans by category of loan at December 31, 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 (1) Commercial Real Estate (includes Multi-Family Commercial and Industrial Consumer and Other Total (Dollars in thousands) Grade 1 $ — $ 14,616 $ — $ — $ 54,908 $ 40,688 $ 110,212 Grade 2 2,261 4,218 22,863 8,317 12,772 11,041 61,472 Grade 3 1,200,623 570,324 2,622,304 2,859,433 1,143,634 194,210 8,590,528 Grade 4 54,380 74,079 55,367 220,533 176,287 16,095 596,741 Grade 5 2,525 7,703 3,605 45,533 57,283 2,403 119,052 Grade 6 2,690 847 5,095 8,401 68,682 1,829 87,544 Grade 7 13 161 2,857 3,472 21,475 156 28,134 Grade 8 — — 30 — 714 — 744 Grade 9 — — — — — — — PCI Loans (2) 1,431 388 5,710 16,420 3,684 — 27,633 Total $ 1,263,923 $ 672,336 $ 2,717,831 $ 3,162,109 $ 1,539,439 $ 266,422 $ 9,622,060 (1) Includes $27.0 million of residential mortgage loans held for sale at December 31, 2016. (2) Of the total PCI loans, $2.7 million were classified as substandard at December 31, 2016, which includes $31 thousand with specific reserves 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 as of September 30, 2017 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: (1) a specific valuation allowance based on probable losses on specifically identified loans and (2) 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 agriculture 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 agriculture 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 addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors. 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, other qualitative risk factors both internal and external to the Company and other relevant factors in accordance with ASC Topic 450, “ Contingencies. The following table details activity in the allowance for credit losses by category of loan for the three and nine months ended September 30, 2017 and 2016. 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, 2017 $ 14,516 $ 4,009 $ 14,442 $ 10,379 $ 38,998 $ 1,439 $ 83,783 Provision for credit losses 558 (16 ) 256 328 5,081 693 6,900 Charge-offs — (36 ) (35 ) — (3,470 ) (881 ) (4,422 ) Recoveries 2 36 23 3 245 242 551 Net charge-offs 2 — (12 ) 3 (3,225 ) (639 ) (3,871 ) Balance September 30, $ 15,076 $ 3,993 $ 14,686 $ 10,710 $ 40,854 $ 1,493 $ 86,812 Nine Months Ended Balance December 31, 2016 $ 14,984 $ 4,073 $ 16,571 $ 12,256 $ 35,836 $ 1,606 $ 85,326 Provision for credit losses (35 ) (174 ) (1,873 ) (1,416 ) 14,269 1,554 12,325 Charge-offs (9 ) (53 ) (157 ) (133 ) (10,113 ) (2,486 ) (12,951 ) Recoveries 136 147 145 3 862 819 2,112 Net charge-offs 127 94 (12 ) (130 ) (9,251 ) (1,667 ) (10,839 ) Balance September 30, 2017 $ 15,076 $ 3,993 $ 14,686 $ 10,710 $ 40,854 $ 1,493 $ 86,812 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 The following table details the amount of the allowance for credit losses allocated to each category of loan as of September 30, 2017, December 31, 2016 and September 30, 2016, 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 September 30, 2017 Individually evaluated for impairment $ — $ — $ 97 $ 193 $ 3,879 $ — $ 4,169 Collectively evaluated for impairment 15,076 3,993 14,589 10,517 36,975 1,493 82,643 PCI loans — — — — — — — Total allowance for credit losses $ 15,076 $ 3,993 $ 14,686 $ 10,710 $ 40,854 $ 1,493 $ 86,812 December 31, 2016 Individually evaluated for impairment $ — $ 17 $ 150 $ 178 $ 2,820 $ 1 $ 3,166 Collectively evaluated for impairment 14,984 4,056 16,421 12,078 32,985 1,605 82,129 PCI loans — — — — 31 — 31 Total allowance for credit losses $ 14,984 $ 4,073 $ 16,571 $ 12,256 $ 35,836 $ 1,606 $ 85,326 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 The following table details the recorded investment in loans as of September 30, 2017, December 31, 2016 and September 30, 2016, excluding $25.5 million, $27.0 million and $29.5 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 September 30, 2017 Individually evaluated for impairment $ 94 $ 141 $ 3,274 $ 2,171 $ 18,918 $ 95 $ 24,693 Collectively evaluated for impairment 1,452,463 691,993 2,699,713 3,278,645 1,450,364 264,531 9,837,709 PCI loans 978 382 4,667 14,185 3,115 — 23,327 Total loans evaluated for impairment $ 1,453,535 $ 692,516 $ 2,707,654 $ 3,295,001 $ 1,472,397 $ 264,626 $ 9,885,729 December 31, 2016 Individually evaluated for impairment $ 14 $ 161 $ 2,887 $ 3,472 $ 22,221 $ 123 $ 28,878 Collectively evaluated for impairment 1,262,478 671,787 2,682,259 3,142,217 1,513,534 266,299 9,538,574 PCI loans 1,431 388 5,710 16,420 3,684 — 27,633 Total loans evaluated for impairment $ 1,263,923 $ 672,336 $ 2,690,856 $ 3,162,109 $ 1,539,439 $ 266,422 $ 9,595,085 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 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, 2017 and 2016, the Company had $4.4 million and $318 thousand, respectively, in outstanding troubled debt restructurings. The following table presents information regarding the recorded investment of loans modified as troubled debt restructurings during the nine months ended September 30, 2017 and 2016: Nine Months Ended September 30, 2017 2016 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 — $ — $ — — $ — $ — Agriculture and agriculture real estate (includes farmland) — — — 1 154 152 1-4 Family (includes home equity) — — — — — — Commercial real estate (includes multi-family residential) — — — — — — Commercial and industrial 3 8,656 4,338 — — — Consumer and other — — — — — — Total 3 $ 8,656 $ 4,338 1 $ 154 $ 152 For the nine months ended September 30, 2017, the Company added three loans totaling $8.7 million as new troubled debt restructurings, of which two loans totaling $4.3 million remain outstanding at September 30, 2017. These two loans, which were modified during the first quarter of 2017, have defaulted as of September 30, 2017. Defaul |