Loans | (6) Loans A summary of loans held for investment by loan type is included in the following table: December 31, December 31, 2017 2016 (In thousands) Commercial and residential real estate $ 1,977,431 $ 1,768,424 Construction 99,965 88,451 Commercial 523,355 461,666 Agricultural 16,995 16,690 Consumer 143,066 125,264 SBA 44,121 52,380 Other 866 2,195 Total gross loans 2,805,799 2,515,070 Deferred (fees) and costs (136) (61) Loans, held for investment, net 2,805,663 2,515,009 Less allowance for loan losses (23,250) (23,250) Net loans, held for investment $ 2,782,413 $ 2,491,759 During 2017, excluding the Castle Rock transaction, the Company purchased $98,940,000 in performing loans, included in our commercial and residential real estate, commercial and consumer loan portfolio segments. In comparison, during 2016, excluding the Home State transaction, the Company purchased $109,519,000 in performing loans included in our commercial and residential real estate and consumer loan portfolio segments. Activity in the allowance for loan losses for the periods indicated is as follows: Year Ended December 31, 2017 2016 2015 (In thousands) Balance, beginning of period $ 23,250 $ 23,000 $ 22,490 Provision for loan losses 992 143 96 Loans charged-off (1,550) (721) (238) Recoveries on loans previously charged-off 558 828 652 Balance, end of period $ 23,250 $ 23,250 $ 23,000 The Company’s additional disclosures relating to loans and the allowance for loan losses are broken out into two subsets, portfolio segment and class. The portfolio segment level is defined as the level where financing receivables are aggregated in developing the Company’s systematic method for calculating its allowance for loan losses. The class level is the second level at which credit information is presented and represents the categorization of financing related receivables at a slightly less aggregated level than the portfolio segment level. Because data presented according to class is dependent upon the underlying purpose of the loan, whereas loan data organized by portfolio segment is determined by the loan’s underlying collateral, disclosures broken out by portfolio segment versus class may not be in agreement. The disclosures in this footnote include both non-PCI and PCI loans. As of December 31, 2017, PCI loans acquired in the Castle Rock and Home State transactions are not considered material and as a result separate PCI disclosures are not included. The following tables provide detail for the ending balances in the Company’s allowance for loan losses and loans held for investment, broken down by portfolio segment as of December 31, 2017 and December 31, 2016. In addition, the table also provides a rollforward by portfolio segment of the allowance for loan losses for the years ended December 31, 2017, December 31, 2016 and December 31, 2015. The detail provided for the amount of the allowance for loan losses and loans individually versus collectively evaluated for impairment (i.e., the specific component versus the general component of the allowance for loan losses) corresponds to the Company’s systematic methodology for estimating its allowance for loan losses. Real Estate Consumer and Installment Commercial and Other Total (In thousands) Allowance for Loan Losses Balance as of January 1, 2015 $ 19,607 $ 39 $ 2,844 $ 22,490 Charge-offs (21) (12) (205) (238) Recoveries 284 29 339 652 Provision (credit) 436 15 (355) 96 Balance as of December 31, 2015 $ 20,306 $ 71 $ 2,623 $ 23,000 Balance as of January 1, 2016 $ 20,306 $ 71 $ 2,623 $ 23,000 Charge-offs (217) (51) (453) (721) Recoveries 340 14 474 828 Provision (credit) (347) 71 419 143 Balance as of December 31, 2016 $ 20,082 $ 105 $ 3,063 $ 23,250 Balance as of January 1, 2017 $ 20,082 $ 105 $ 3,063 $ 23,250 Charge-offs (386) (106) (1,058) (1,550) Recoveries 132 91 335 558 Provision (credit) (1,283) 220 2,055 992 Balance as of December 31, 2017 $ 18,545 $ 310 $ 4,395 $ 23,250 Balances at December 31, 2017: Allowance for Loan Losses Individually evaluated $ 1 $ - $ 1,121 $ 1,122 Collectively evaluated 18,544 310 3,274 22,128 Total $ 18,545 $ 310 $ 4,395 $ 23,250 Loans Individually evaluated $ 11,256 $ 1 $ 12,363 $ 23,620 Collectively evaluated 2,225,944 74,675 481,424 2,782,043 Total $ 2,237,200 $ 74,676 $ 493,787 $ 2,805,663 Balances at December 31, 2016: Allowance for Loan Losses Individually evaluated $ 29 $ - $ 193 $ 222 Collectively evaluated 20,053 105 2,870 23,028 Total $ 20,082 $ 105 $ 3,063 $ 23,250 Loans Individually evaluated $ 22,728 $ 2 $ 7,645 $ 30,375 Collectively evaluated 2,024,524 55,182 404,928 2,484,634 Total $ 2,047,252 $ 55,184 $ 412,573 $ 2,515,009 The following tables provide additional detail with respect to impaired loans broken out according to class as of the dates indicated. The recorded investment included in the following table represents customer balances net of any partial charge-offs recognized on the loans, net of any deferred fees and costs. The unpaid balance represents the recorded balance prior to any partial charge-offs. Interest income recognized may exclude an immaterial amount of interest income on matured loans that are 90 days or more past due, but that are in the process of being renewed and thus are still accruing. December 31, 2017 Recorded Investment Unpaid Balance Related Allowance Average Recorded Investment YTD Interest Income Recognized YTD (In thousands) Impaired loans with no related allowance: Commercial and residential real estate $ 9,981 $ 10,705 $ - $ 16,166 $ 2,052 Construction - - - - - Commercial 1,006 1,553 - 886 195 Consumer 367 425 - 88 - Other 2,233 2,838 - 1,066 62 Total $ 13,587 $ 15,521 $ - $ 18,206 $ 2,309 Impaired loans with a related allowance: Commercial and residential real estate $ 46 $ 157 $ 1 $ 779 $ - Construction - - - - - Commercial 9,807 9,899 1,120 5,262 447 Consumer 180 214 1 329 18 Other - - - 635 6 Total $ 10,033 $ 10,270 $ 1,122 $ 7,005 $ 471 Total impaired loans: Commercial and residential real estate $ 10,027 $ 10,862 $ 1 $ 16,945 $ 2,052 Construction - - - - - Commercial 10,813 11,452 1,120 6,148 642 Consumer 547 639 1 417 18 Other 2,233 2,838 - 1,701 68 Total impaired loans $ 23,620 $ 25,791 $ 1,122 $ 25,211 $ 2,780 December 31, 2016 Recorded Investment Unpaid Balance Related Allowance Average Recorded Investment YTD Interest Income Recognized YTD (In thousands) Impaired loans with no related allowance: Commercial and residential real estate $ 20,477 $ 21,140 $ - $ 13,875 $ 1,911 Construction - - - 592 - Commercial 222 229 - 243 16 Consumer 18 19 - 117 2 Other 817 1,625 - 493 - Total $ 21,534 $ 23,013 $ - $ 15,320 $ 1,929 Impaired loans with a related allowance: Commercial and residential real estate $ 1,767 $ 1,890 $ 19 $ 8,590 $ 44 Construction - - - - - Commercial 6,371 6,423 155 2,937 309 Consumer 306 383 9 389 9 Other 397 444 39 348 - Total $ 8,841 $ 9,140 $ 222 $ 12,264 $ 362 Total impaired loans: Commercial and residential real estate $ 22,244 $ 23,030 $ 19 $ 22,465 $ 1,955 Construction - - - 592 - Commercial 6,593 6,652 155 3,180 325 Consumer 324 402 9 506 11 Other 1,214 2,069 39 841 - Total impaired loans $ 30,375 $ 32,153 $ 222 $ 27,584 $ 2,291 The following tables summarize by class loans classified as past due in excess of 30 days or more in addition to those loans classified as nonaccrual: December 31, 2017 30-89 Days Past Due 90 Days + Past Due and Still Accruing Nonaccrual Total Nonaccrual and Past Due Total Loans, Held for Investment (In thousands) Commercial and residential real estate $ 410 $ - $ 1,750 $ 2,160 $ 1,977,335 Construction - - - - 99,960 Commercial 1,663 - 2,079 3,742 523,330 Consumer 469 - 444 913 143,059 Other 327 - 1,281 1,608 61,979 Total $ 2,869 $ - $ 5,554 $ 8,423 $ 2,805,663 December 31, 2016 30-89 Days Past Due 90 Days + Past Due and Still Accruing Nonaccrual Total Nonaccrual and Past Due Total Loans, Held for Investment (In thousands) Commercial and residential real estate $ 1,258 $ - $ 2,835 $ 4,093 $ 1,768,381 Construction - - - - 88,449 Commercial 37 - 1,094 1,131 461,655 Consumer 42 - 201 243 125,261 Other - - 1,117 1,117 71,263 Total $ 1,337 $ - $ 5,247 $ 6,584 $ 2,515,009 If nonaccrual loans outstanding during 2017, 2016 and 2015 had been current in accordance with their original terms, $252,000 , $257,000 and $586,000 would have been recorded in incremental gross interest income during 2017, 2016 and 2015, respectively. The income recognized on nonaccrual loans prior to impairment during 2017, 2016 and 2015 was $93,000 , $163,000 and $90,000 respectively. During 2016 and 2015, $332,000 and $118,000 of cash basis interest income was recognized on a nonaccrual loan that was moved to accruing status in the third quarter of 2016; no cash basis interest income was recognized on nonaccrual loans in 2017. With the exception of cash basis interest income, the $2,780,000 and $2,291,000 in interest income recognized on impaired loans during 2017 and 2016, respectively, is primarily comprised of interest income recognized on performing TDRs. The Company categorizes loans into risk categories based on relevant information about the ability of a particular borrower to service its debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company uses the following definitions for risk ratings, which are consistent with the definitions used in supervisory guidance: Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral, if any, pledged to secure the loan. Loans so classified have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. 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. Loans not meeting the criteria above are considered to be non-classified loans. The following tables provide detail for the risk categories of loans by class of loans based on the most recent credit analysis performed as of the dates indicated: December 31, 2017 Commercial & Residential Real Estate Construction Commercial Consumer Other Total (In thousands) Non-classified $ 1,964,934 $ 99,965 $ 513,563 $ 142,512 $ 57,256 $ 2,778,230 Substandard 12,497 - 9,792 554 4,726 27,569 Doubtful - - - - - - Subtotal 1,977,431 99,965 523,355 143,066 61,982 2,805,799 Deferred fees and costs (96) (5) (25) (7) (3) (136) Loans, held for investment, net $ 1,977,335 $ 99,960 $ 523,330 $ 143,059 $ 61,979 $ 2,805,663 December 31, 2016 Commercial & Residential Real Estate Construction Commercial Consumer Other Total (In thousands) Non-classified $ 1,742,974 $ 88,451 $ 456,861 $ 124,932 $ 68,978 $ 2,482,196 Substandard 25,450 - 4,805 332 2,287 32,874 Doubtful - - - - - - Subtotal 1,768,424 88,451 461,666 125,264 71,265 2,515,070 Deferred fees and costs (43) (2) (11) (3) (2) (61) Loans, held for investment, net $ 1,768,381 $ 88,449 $ 461,655 $ 125,261 $ 71,263 $ 2,515,009 The book balance of TDRs at December 31, 2017 and December 31, 2016 was $ 19,256,000 and $ 25,219,000 , respectively. Management established approximately $53,000 and $ 74,000 in specific reserves with respect to these loans as of December 31, 2017 and December 31, 2016. At December 31, 2017, the Company had an additional $ 4,181,000 committed on loans classified as troubled debt restructurings. At December 31, 2016, the Company had an additional $2,238,000 committed on loans classified as troubled debt restructurings. During the year ended December 31, 2017, the terms of 33 loans totaling $12,062,000 were modified in troubled debt restructurings. The modification of the terms of such loans included 19 restructurings of payment terms and 14 loan renewals with terms more favorable to the borrowers than would otherwise be available based on the borrower’s financial strength. As a result of these modifications, the Company did not recognize any additional charge-offs during 2017. During the year ended December 31, 2016, the terms of 19 loans totaling $7,765,000 were modified in troubled debt restructurings. The modification of the terms of such loans included 10 restructurings of payment terms and nine loan renewals with terms more favorable to the borrowers than would otherwise be available based on the borrower’s financial strength. As a result of these modifications, the Company did not recognize any additional charge-offs during 2016. The following tables present loans by class modified as troubled debt restructurings that occurred during the years indicated: Year Ended December 31, 2017: Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (In thousands) Commercial and residential real estate 12 $ 2,935 $ 2,935 Construction - - - Commercial 15 7,991 7,991 Consumer 1 51 51 Other 5 1,085 1,085 Total 33 $ 12,062 $ 12,062 Year Ended December 31, 2016: Troubled Debt Restructurings Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (In thousands) Commercial and residential real estate 2 $ 1,018 $ 1,018 Construction - - - Commercial 16 6,650 6,650 Consumer - - - Other 1 97 97 Total 19 $ 7,765 $ 7,765 A TDR loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. No TDRs defaulted during the years ended December 31, 2017 or December 31, 2016. |