Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses Loans in the accompanying condensed consolidated balance sheets are summarized as follows: June 30, December 31, Real estate: Construction and land $ 300,262 $ 277,825 Farmland 10,815 9,385 1 - 4 family residential 283,486 236,542 Multi-family residential 109,621 106,275 Commercial Real Estate 1,015,463 909,292 Commercial 691,718 684,551 Consumer 7,543 9,648 2,418,908 2,233,518 Deferred loan fees (22 ) (28 ) Allowance for loan losses (14,842 ) (12,808 ) $ 2,404,044 $ 2,220,682 Included in the net loan portfolio as of June 30, 2018 and December 31, 2017 is an accretable discount related to purchased performing and purchased credit impaired (“PCI”) loans acquired within a business combination in the approximate amounts of $12,033 and $12,135 , respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. In addition, included in the net loan portfolio as of June 30, 2018 and December 31, 2017 is a discount on retained loans from sale of originated Small Business Administration (“SBA”) loans of $1,705 and $1,189 , respectively. The majority of the loan portfolio is comprised of loans to businesses and individuals in the Dallas-Fort Worth metroplex and the Houston metropolitan area. This geographic concentration subjects the loan portfolio to the general economic conditions within these areas. The risks created by this concentration have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses was adequate to cover estimated losses on loans as of June 30, 2018 and December 31, 2017 . Non-Accrual and Past Due Loans Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Non-accrual loans aggregated by class of loans, as of June 30, 2018 and December 31, 2017 , are as follows: Non-Accrual Loans (1) June 30, December 31, Real estate: Construction and land $ 2,136 $ — Farmland — — 1 - 4 family residential — — Multi-family residential — — Commercial Real Estate 54 61 Commercial 2,058 398 Consumer 4 6 $ 4,252 $ 465 (1 ) Excludes PCI loans. PCI loans are generally reported as accrual loans unless significant concerns exist related to the predictability of the timing and amount of future cash flows. During the three and six months ended June 30, 2018, interest income not recognized on non-accrual loans was $7 and $33 . During the three and six months ended June 30, 2017, interest income not recognized on non-accrual loans was minimal. An age analysis of past due loans, aggregated by class of loans, as of June 30, 2018 and December 31, 2017 is as follows: June 30, 2018 30 to 59 Days 60 to 89 Days 90 Days or Greater Total Past Due Total Current (1) Total Total 90 Days Past Due and Still Accruing (2) Real estate: Construction and land $ 46 $ 356 $ — $ 402 $ 299,860 $ 300,262 $ — Farmland — — — — 10,815 10,815 — 1 - 4 family residential 1,571 101 — 1,672 281,814 283,486 — Multi-family residential — — — — 109,621 109,621 — Commercial Real Estate 1,443 — — 1,443 1,014,020 1,015,463 — Commercial 5,951 280 2,169 8,400 683,318 691,718 613 Consumer 122 8 — 130 7,413 7,543 — $ 9,133 $ 745 $ 2,169 $ 12,047 $ 2,406,861 $ 2,418,908 $ 613 (1) Includes all PCI loans. (2) There were no PCI loans 90 days past due and still accruing as of June 30, 2018 . No PCI loans were considered non-performing loans as of June 30, 2018 . December 31, 2017 30 to 59 Days 60 to 89 Days 90 Days or Greater Total Past Due Total Current (1)(3) Total Total 90 Days Past Due and Still Accruing (2) Real estate: Construction and land $ 320 $ — $ — $ 320 $ 277,505 $ 277,825 $ — Farmland 104 — — 104 9,281 9,385 — 1 - 4 family residential 1,274 139 — 1,413 235,129 236,542 — Multi-family residential — — — — 106,275 106,275 — Commercial Real Estate 1,830 — — 1,830 907,462 909,292 — Commercial 1,849 389 389 2,627 681,924 684,551 — Consumer 39 51 18 108 9,540 9,648 18 $ 5,416 $ 579 $ 407 $ 6,402 $ 2,227,116 $ 2,233,518 $ 18 (1) Includes all PCI loans. (2) Loans 90 days past due and still accruing excludes $3,300 of PCI loans as of December 31, 2017 . No PCI loans were considered non-performing loans as of December 31, 2017 . (3) To conform to the current period presentation, $15,123 was reclassified from 1-4 family residential to multi-family residential within the total current column. Loans past due 90 days and still accruing increase d from $18 as of December 31, 2017 to $613 as of June 30, 2018 . These loans are also considered well-secured and in the process of collection with plans in place for the borrowers to bring the notes fully current. The Company believes that it will collect all principal and interest due on each of the loans past due 90 days and still accruing. Impaired Loans Impaired loans are those loans where 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. All troubled debt restructurings (“TDRs”) are considered impaired loans. Impaired loans are measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company’s impaired loans are measured at the fair value of the collateral. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans and TDRs, at June 30, 2018 and December 31, 2017 , are summarized in the following tables. June 30, 2018 (1) Unpaid Recorded Recorded Total Related Average Real estate: Construction and land $ 2,136 $ 2,136 $ — $ 2,136 $ — $ 2,298 Farmland — — — — — — 1 - 4 family residential 160 160 — 160 — 161 Multi-family residential — — — — — — Commercial Real Estate 368 368 — 368 — 371 Commercial 2,128 2,081 258 2,339 65 2,226 Consumer 69 69 — 69 — 76 Total $ 4,861 $ 4,814 $ 258 $ 5,072 $ 65 $ 5,132 (1) Loans reported exclude PCI loans. December 31, 2017 (1) Unpaid Recorded Recorded Total Related Average Real estate: Construction and land $ — $ — $ — $ — $ — $ — Farmland — — — — — — 1 - 4 family residential 161 161 — 161 — 163 Multi-family residential — — — — — — Commercial Real Estate 434 434 — 434 — 445 Commercial 398 282 116 398 12 499 Consumer 75 75 — 75 — 87 Total $ 1,068 $ 952 $ 116 $ 1,068 $ 12 $ 1,194 (1) Loans reported exclude PCI loans. 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. During the six months ended June 30, 2018 and 2017 , total interest income and cash-based interest income recognized on impaired loans was minimal. Troubled Debt Restructuring Modifications of terms for the Company’s loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless of the period of the modification. The recorded investment in TDRs was $603 and $618 as of June 30, 2018 and December 31, 2017 , respectively. There were no new TDRs during the six months ended June 30, 2018 and 2017. There were no loans modified as TDR loans within the previous 12 months and for which there was a payment default during the six months ended June 30, 2018 and 2017. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral. Interest income recorded during the three and six months ended June 30, 2018 and 2017 on TDR loans and interest income that would have been recorded had the terms of the loans not been modified was minimal. The Company has not committed to lend additional amounts to customers with outstanding loans classified as TDRs as of June 30, 2018 or December 31, 2017 . Credit Quality Indicators From a credit risk standpoint, the Company classifies its loans in one of the following categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans classified as loss are charged-off. Loans not rated special mention, substandard, doubtful, or loss are classified as pass loans. The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on criticized credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. All classified credits are evaluated for impairment. If impairment is determined to exist, a specific reserve is established. The Company’s methodology is structured so that specific reserves are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating. Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed. Credits rated doubtful are those in which full collection of principal appears highly questionable, and in which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual. Credits classified as PCI are those that, at acquisition date, had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly. The following tables summarize the Company’s internal ratings of its loans, including PCI loans, as of June 30, 2018 and December 31, 2017 : June 30, 2018 Pass Special Substandard Doubtful PCI Total Real estate: Construction and land $ 297,819 $ 307 $ 2,136 $ — $ — $ 300,262 Farmland 10,783 — — — 32 10,815 1 - 4 family residential 282,767 309 318 — 92 283,486 Multi-family residential 109,621 — — — — 109,621 Commercial Real Estate 985,302 10,251 2,890 — 17,020 1,015,463 Commercial 651,912 7,280 8,118 — 24,408 691,718 Consumer 7,453 — 90 — — 7,543 Total $ 2,345,657 $ 18,147 $ 13,552 $ — $ 41,552 $ 2,418,908 December 31, 2017 Pass (1) Special Mention Substandard Doubtful PCI Total Real estate: Construction and land $ 277,186 $ 639 $ — $ — $ — $ 277,825 Farmland 9,336 — — — 49 9,385 1 - 4 family residential 235,781 462 200 — 99 236,542 Multi-family residential 106,275 — — — — 106,275 Commercial Real Estate 882,523 8,771 681 — 17,317 909,292 Commercial 634,796 18,337 1,155 116 30,147 684,551 Consumer 9,540 — 108 — — 9,648 Total $ 2,155,437 $ 28,209 $ 2,144 $ 116 $ 47,612 $ 2,233,518 (1) To conform to the current period presentation, $15,123 was reclassified from 1-4 family residential to multi-family residential within the pass column. There were no reclassifications between internal rating buckets. An analysis of the allowance for loan losses for the six months ended June 30, 2018 and 2017 and year ended December 31, 2017 is as follows: Six Months Ended June 30, 2018 Year Ended December 31, 2017 Six Months Ended June 30, 2017 Balance at beginning of period $ 12,808 $ 8,524 $ 8,524 Provision charged to earnings 2,182 5,114 1,833 Charge-offs (171 ) (839 ) (622 ) Recoveries 23 9 5 Net charge-offs (148 ) (830 ) (617 ) Balance at end of period $ 14,842 $ 12,808 $ 9,740 The allowance for loan losses as a percentage of total loans was 0.61% , 0.57% and 0.87% as of June 30, 2018 , December 31, 2017 , and June 30, 2017 , respectively. The following tables summarize the activity in the allowance for loan losses by portfolio segment for the periods indicated. At June 30, 2018 , the allowance for loan losses related to PCI loans totaled $333 which is included in the specific reserves amount in the table below. There were no allowance for loan losses related to PCI loans at December 31, 2017 and June 30, 2017 . For the Six Months Ended June 30, 2018 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Balance at beginning of period $ 1,315 $ 1,473 $ 4,410 $ 5,588 $ 22 $ 12,808 Provision (recapture) charged to earnings 275 172 1,189 525 21 2,182 Charge-offs — — — (150 ) (21 ) (171 ) Recoveries — — — 23 — 23 Net charge-offs — — — (127 ) (21 ) (148 ) Balance at end of period $ 1,590 $ 1,645 $ 5,599 $ 5,986 $ 22 $ 14,842 Period-end amount allocated to: Specific reserves: — — — 398 — 398 General reserves 1,590 1,645 5,599 5,588 22 14,444 Total $ 1,590 $ 1,645 $ 5,599 $ 5,986 $ 22 $ 14,842 For the Year Ended December 31, 2017 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Balance at beginning of period $ 1,415 $ 1,116 $ 3,003 $ 2,955 $ 35 $ 8,524 Provision (recapture) charged to earnings (100 ) 368 1,407 3,452 (13 ) 5,114 Charge-offs — (11 ) — (828 ) — (839 ) Recoveries — — — 9 — 9 Net charge-offs — (11 ) — (819 ) — (830 ) Balance at end of period $ 1,315 $ 1,473 $ 4,410 $ 5,588 $ 22 $ 12,808 Period-end amount allocated to: Specific reserves: — — — 12 — 12 General reserves 1,315 1,473 4,410 5,576 22 12,796 Total $ 1,315 $ 1,473 $ 4,410 $ 5,588 $ 22 $ 12,808 For the Six Months Ended June 30, 2017 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Balance at beginning of year $ 1,415 $ 1,116 $ 3,003 $ 2,955 $ 35 $ 8,524 Provision (recapture) charged to earnings (291 ) 370 554 1,205 (5 ) 1,833 Charge-offs — (11 ) — (611 ) — (622 ) Recoveries — — — 5 — 5 Net charge-offs (recoveries) — (11 ) — (606 ) — (617 ) Balance at end of period $ 1,124 $ 1,475 $ 3,557 $ 3,554 $ 30 $ 9,740 Period-end amount allocated to: Specific reserves: — — — 137 1 138 General reserves 1,124 1,475 3,557 3,417 29 9,602 Total $ 1,124 $ 1,475 $ 3,557 $ 3,554 $ 30 $ 9,740 The Company’s recorded investment in loans as of June 30, 2018 and December 31, 2017 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology is as follows: June 30, 2018 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Loans individually evaluated for impairment $ 2,136 $ 160 $ 368 $ 2,128 $ 69 $ 4,861 Loans collectively evaluated for impairment 308,909 392,855 998,075 665,182 7,474 2,372,495 PCI loans 32 92 17,020 24,408 — 41,552 Total $ 311,077 $ 393,107 $ 1,015,463 $ 691,718 $ 7,543 $ 2,418,908 December 31, 2017 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Loans individually evaluated for impairment $ — $ 161 $ 434 $ 398 $ 75 $ 1,068 Loans collectively evaluated for impairment 287,161 342,557 891,541 654,006 9,573 2,184,838 PCI loans 49 99 17,317 30,147 — 47,612 Total $ 287,210 $ 342,817 $ 909,292 $ 684,551 $ 9,648 $ 2,233,518 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 loans. The carrying amount of PCI loans included in the condensed consolidated balance sheets and the related outstanding balances at June 30, 2018 and December 31, 2017 are set forth in the table below. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off. June 30, 2018 December 31, 2017 Carrying amount $ 41,552 $ 47,612 Outstanding balance 53,330 63,940 Changes in the accretable yield for PCI loans for the three and six months ended June 30, 2018 are included in table below. There was no accretable yield balance for PCI loans for the three or six months ended June 30, 2017. Three Months Ended June 30, 2018 Six Months Ended June 30, 2018 Balance at beginning of period $ 8,139 $ 2,723 Purchase accounting adjustments 45 1,459 Reclassifications from nonaccretable 351 6,221 Accretion (1,200 ) (3,068 ) Balance at end of period $ 7,335 $ 7,335 Servicing Assets The Company was servicing loans of approximately $74,615 and $44,720 as of June 30, 2018 and 2017, respectively. A summary of the changes in the related servicing assets are as follows: Six Months Ended June 30, 2018 2017 Balance at beginning of period $ 1,215 $ 601 Increase from loan sales 177 281 Amortization charged to income (209 ) (88 ) Balance at end of period $ 1,183 $ 794 The estimated fair value of the servicing assets approximated the carrying amount at June 30, 2018 , December 31, 2017 , and June 30, 2017 . Fair value is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset. As of June 30, 2018 and 2017, there was no valuation allowance recorded. The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing fee. In that case, the Company records an interest-only strip based on its relative fair market value and the other components of the loans. There was no interest-only strip receivable recorded at June 30, 2018 and December 31, 2017 . |