Loans and Allowance for Loan Losses | Loans and Allowance for Loan Losses Loans in the accompanying consolidated balance sheets are summarized as follows: December 31, 2019 2018 Real estate: Construction and land $ 629,374 $ 324,863 Farmland 16,939 10,528 1 - 4 family residential 549,811 297,917 Multi-family residential 320,041 51,285 Commercial real estate 2,490,983 1,103,032 Commercial 1,712,838 760,772 Mortgage warehouse 183,628 — Consumer 17,457 7,112 5,921,071 2,555,509 Deferred loan costs (fees) 134 (15) Allowance for loan losses (29,834) (19,255) $ 5,891,371 $ 2,536,239 Included in the net loan portfolio as of December 31, 2019 and 2018 is an accretable discount related to purchased performing and PCI loans acquired in connection with a business combination in the approximate amounts of $57,811 and $22,309, 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 December 31, 2019 and 2018 is a discount on retained loans from sale of originated Small Business Administration (“SBA”) loans of $2,193 and $2,398, respectively. The majority of the loan portfolio consists 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 December 31, 2019 and 2018. 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 December 31, 2019 and 2018, were as follows: December 31, 2019 2018 Real estate: Construction and land $ 567 $ 2,399 Farmland — — 1 - 4 family residential 1,581 — Multi-family residential — — Commercial real estate 21,905 2,575 Commercial 5,672 19,769 Mortgage warehouse — — Consumer 54 2 $ 29,779 $ 24,745 There were no PCI loans included in non-accrual loans at December 31, 2019. At December 31, 2018, non-accrual loans included PCI loans of $16,902 for which discount accretion has been suspended because the extent and timing of future cash flows from these PCI loans can no longer be reasonably estimated. During the year ended December 31, 2019 and 2018, interest income not recognized on non-accrual loans, excluding PCI loans, was $1,672 and $724, respectively. An age analysis of past due loans, aggregated by class of loans, as of December 31, 2019 and 2018 is as follows: December 31, 2019 30 to 59 Days 60 to 89 Days 90 Days or Greater Total Past Due Total Current PCI Total Total 90 Days Past Due and Still Accruing (1) Real estate: Construction and land $ — $ — $ — $ — $ 629,374 $ 3,947 $ 629,374 $ 800 Farmland — — — — 16,939 — 16,939 — 1 - 4 family residential 2,595 520 1,155 4,270 541,772 3,769 549,811 959 Multi-family residential — — — — 320,041 — 320,041 — Commercial real estate 12 3,834 868 4,714 2,389,415 96,854 2,490,983 511 Commercial 3,572 1,707 1,497 6,776 1,684,043 22,019 1,712,838 1,317 Mortgage warehouse — — — — 183,628 — 183,628 — Consumer 30 2,641 140 2,811 14,646 129 17,457 73 $ 6,209 $ 8,702 $ 3,660 $ 18,571 $ 5,779,858 $ 126,718 $ 5,921,071 $ 3,660 (1) Loans 90 days past due and still accruing excludes $41,328 of PCI loans as of December 31, 2019. December 31, 2018 30 to 59 Days 60 to 89 Days 90 Days or Greater Total Past Due Total Current PCI Total Total 90 Days Past Due and Still Accruing (1) Real estate: Construction and land $ 305 $ — $ — $ 305 $ 324,558 $ — $ 324,863 $ — Farmland — — — — 10,528 — 10,528 — 1 - 4 family residential 131 266 — 397 297,435 85 297,917 — Multi-family residential — — — — 51,285 — 51,285 — Commercial real estate 3,465 — — 3,465 1,082,559 17,008 1,103,032 — Commercial 816 828 — 1,644 735,391 23,737 760,772 — Consumer 10 — — 10 7,102 — 7,112 — $ 4,727 $ 1,094 $ — $ 5,821 $ 2,508,858 $ 40,830 $ 2,555,509 $ — (1) Loans 90 days past due and still accruing excludes $527 of PCI loans as of December 31, 2018. Loans 90 days past due and still accruing interest were $3,660 as of December 31, 2019. No loans were 90 days past due and still accruing as of December 31, 2018. These loans are considered well-secured and in the process of collection as of the reporting date with plans in place for the borrowers to bring the loans fully current. The Company believes that it will collect all principal and interest due on each of the loans 90 days past due 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. A majority of the Company’s impaired loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral. Impaired loans, or portions thereof, are charged off when deemed uncollectible. Impaired loans, including TDRs, at December 31, 2019 and 2018 are summarized in the following tables. December 31, 2019 (1) Unpaid Recorded Recorded Total Related Average Real estate: Construction and land $ 567 $ — $ 567 $ 567 $ 128 $ 1,793 Farmland — — — — — — 1 - 4 family residential 156 — 156 156 37 158 Multi-family residential — — — — — — Commercial real estate 21,644 21,040 604 21,644 395 22,529 Commercial 5,188 2,011 3,177 5,188 1,042 8,546 Mortgage warehouse — — — — — — Consumer 61 61 — 61 — 62 Total $ 27,616 $ 23,112 $ 4,504 $ 27,616 $ 1,602 $ 33,088 (1) Loans reported exclude PCI loans. December 31, 2018 (1) Unpaid Recorded Recorded Total Related Average Real estate: Construction and land $ 2,016 $ 2,016 $ — $ 2,016 $ — $ 2,262 Farmland — — — — — — 1 - 4 family residential 542 542 — 542 — 565 Multi-family residential — — — — — — Commercial real estate 2,939 2,939 — 2,939 — 3,032 Commercial 3,228 644 2,584 3,228 368 3,351 Consumer 66 66 — 66 — 79 Total $ 8,791 $ 6,207 $ 2,584 $ 8,791 $ 368 $ 9,289 (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. 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 $2,142 and $1,171 as of December 31, 2019 and 2018, respectively. There were two and three new TDRs during the years ended December 31, 2019 and 2018. The terms of certain loans modified as TDRs during the year ended December 31, 2019 and December 31, 2018 are summarized in the following tables: During the year ended December 31, 2019 Post-Modification Outstanding Recorded Investment Number Pre- Adjusted Extended Extended Extended Commercial 2 $ 1,034 — $ 115 $ 919 — Total 2 $ 1,034 $ — $ 115 $ 919 $ — During the year ended December 31, 2018 Post-Modification Outstanding Recorded Investment Number Pre- Adjusted Extended Extended Extended Commercial 3 $ 628 $ — $ 612 $ — $ — Total 3 $ 628 $ — $ 612 $ — $ — All TDRs are measured individually for impairment. Of the two new TDR loans during the year ended December 31, 2019, none were past due and two were performing as agreed to in the modified terms. There was no specific allowance for loan loss recorded for the two new TDR loans as of December 31, 2019. Interest income recorded during 2019, 2018 and 2017 on TDR loans and interest income that would have been recorded had the terms of the loan not been modified was minimal. There were no loans modified as a TDR loan for which there was a payment default during the year ended December 31, 2019 or December 31, 2018. A default for purposes of this disclosure is a TDR loan as to which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral. The Company has not committed to lend additional amounts to customers with outstanding loans that were classified as TDRs as of December 31, 2019 and 2018. 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 classification of each loan reflects 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 creditworthiness; however, such concerns are generally not so pronounced that the Company expects to experience significant loss in 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 existing in the applicable 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 that 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 the applicable 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 quarterly on a projected cash flow basis. The following tables summarize the Company’s internal ratings of its loans, including PCI loans, as of December 31, 2019 and 2018: December 31, 2019 Pass Special Substandard Doubtful PCI Total Real estate: Construction and land $ 618,773 $ 3,965 $ 2,689 $ — $ 3,947 $ 629,374 Farmland 16,939 — — — — 16,939 1 - 4 family residential 541,787 795 3,460 — 3,769 549,811 Multi-family residential 320,041 — — — — 320,041 Commercial real estate 2,332,357 23,494 38,278 — 96,854 2,490,983 Commercial 1,610,150 51,999 28,670 — 22,019 1,712,838 Mortgage warehouse 183,628 — — — — 183,628 Consumer 17,106 40 182 — 129 17,457 Total $ 5,640,781 $ 80,293 $ 73,279 $ — $ 126,718 $ 5,921,071 December 31, 2018 Pass Special Substandard Doubtful PCI Total Real estate: Construction and land $ 320,987 $ 1,860 $ 2,016 $ — $ — $ 324,863 Farmland 10,528 — — — — 10,528 1 - 4 family residential 296,870 236 726 — 85 297,917 Multi-family residential 51,285 — — — — 51,285 Commercial real estate 1,065,982 7,056 12,986 — 17,008 1,103,032 Commercial 720,583 8,900 7,552 — 23,737 760,772 Consumer 6,950 — 162 — — 7,112 Total $ 2,473,185 $ 18,052 $ 23,442 $ — $ 40,830 $ 2,555,509 An analysis of the allowance for loan losses for the years ended December 31, 2019, 2018 and 2017 is as follows: For the For the For the Year Ended Year Ended Year Ended December 31, 2019 December 31, 2018 December 31, 2017 Balance at beginning of year $ 19,255 $ 12,808 $ 8,524 Provision charged to earnings 21,514 6,603 5,114 Charge-offs (11,320) (197) (839) Recoveries 385 41 9 Net charge-offs (10,935) (156) (830) Balance at end of year $ 29,834 $ 19,255 $ 12,808 The allowance for loan losses as a percentage of total loans was 0.50%, 0.75% and 0.57% as of December 31, 2019, 2018 and 2017, respectively. The following tables summarize the activity in the allowance for loan losses by portfolio segment for the periods indicated. There were no allowance for loan losses related to PCI loans at December 31, 2017. December 31, 2019 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Balance at beginning of year $ 2,244 $ 1,975 $ 6,463 $ 8,554 $ 19 $ 19,255 Provision (recapture) charged to earnings 1,639 1,458 3,654 14,487 276 21,514 Charge-offs — (157) — (10,898) (265) (11,320) Recoveries — 67 — 226 92 385 Net charge-offs — (90) — (10,672) (173) (10,935) Balance at end of year $ 3,883 $ 3,343 $ 10,117 $ 12,369 $ 122 $ 29,834 Period-end amount allocated to: Specific reserves $ 128 $ 37 $ 395 $ 1,042 $ — $ 1,602 PCI reserves — — 20 573 — 593 General reserves 3,755 3,306 9,702 10,754 122 27,639 Total $ 3,883 $ 3,343 $ 10,117 $ 12,369 $ 122 $ 29,834 December 31, 2018 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Balance at beginning of year $ 1,315 $ 1,473 $ 4,410 $ 5,588 $ 22 $ 12,808 Provision (recapture) charged to earnings 929 502 2,053 3,100 19 6,603 Charge-offs — — — (175) (22) (197) Recoveries — — — 41 — 41 Net charge-offs — — — (134) (22) (156) Balance at end of year $ 2,244 $ 1,975 $ 6,463 $ 8,554 $ 19 $ 19,255 Period-end amount allocated to: Specific reserves: $ — $ — $ — $ 368 $ — $ 368 PCI reserves — — — 1,302 — 1,302 General reserves 2,244 1,975 6,463 6,884 19 17,585 Total $ 2,244 $ 1,975 $ 6,463 $ 8,554 $ 19 $ 19,255 December 31, 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 (Recapture) provision 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 year $ 1,315 $ 1,473 $ 4,410 $ 5,588 $ 22 $ 12,808 Period-end amount allocated to: Specific reserves: $ — $ — $ — $ 12 $ — $ 12 PCI reserves — — — — — — 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 The Company’s recorded investment in loans as of December 31, 2019 and 2018 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology is as follows: December 31, 2019 Real Estate Construction, Residential Commercial Real Estate Commercial 1 Consumer Total Loans individually evaluated for impairment $ 567 $ 156 $ 21,644 $ 5,188 $ 61 $ 27,616 Loans collectively evaluated for impairment 641,799 865,927 2,372,485 1,869,259 17,267 5,766,737 PCI loans 3,947 3,769 96,854 22,019 129 126,718 Total $ 646,313 $ 869,852 $ 2,490,983 $ 1,896,466 $ 17,457 $ 5,921,071 1 Commercial loans collectively evaluated for impairment includes mortgage warehouse. December 31, 2018 Real Estate Construction, Residential Commercial Real Estate Commercial Consumer Total Loans individually evaluated for impairment $ 2,016 $ 542 $ 2,939 $ 3,228 $ 66 $ 8,791 Loans collectively evaluated for impairment 333,375 348,575 1,083,085 733,807 7,046 2,505,888 PCI loans — 85 17,008 23,737 — 40,830 Total $ 335,391 $ 349,202 $ 1,103,032 $ 760,772 $ 7,112 $ 2,555,509 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 consolidated balance sheets and the related outstanding balances at December 31, 2019 and 2018 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. December 31, 2019 December 31, 2018 Carrying amount $ 126,125 $ 39,528 Outstanding balance 157,417 49,902 Changes in the accretable yield for PCI loans for the years ended December 31, 2019, 2018 and 2017 are included in table below. Year Ended December 31, 2019 Year Ended December 31, 2018 Year Ended December 31, 2017 Balance at beginning of period $ 18,747 $ 2,723 $ — Additions 19,870 1,459 3,927 Reclassifications from nonaccretable 12,719 19,162 — Accretion (13,112) (4,597) (1,204) Balance at year-end $ 38,224 $ 18,747 $ 2,723 During the years ended December 31, 2019 and 2018, the Company received cash collections in excess of expected cash flows on PCI loans accounted for individually and not aggregated into loan pools of $440 and $4,113, respectively. Servicing Assets The Company was servicing loans of approximately $205,210 and $71,159 as of December 31, 2019 and 2018, respectively. A summary of the changes in the related servicing assets are as follows: Year Ended December 31, 2019 2018 Balance at beginning of year $ 1,304 $ 1,215 Servicing assets acquired through acquisition 2,382 — Increase from loan sales 1,253 470 Amortization charged as a reduction to income (1,826) (381) Balance at year-end $ 3,113 $ 1,304 The estimated fair value of the servicing assets approximated the carrying amount at December 31, 2019 and 2018. 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 December 31, 2019 and 2018, there were no valuation allowances recorded. The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing fees. 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 December 31, 2019 and 2018 . |