| Loans, Net and Allowance for Loan Losses | Loans, Net and Allowance for Loan Losses Loans, net, at September 30, 2020 and December 31, 2019, consisted of the following: September 30, December 31, 2020 2019 Commercial $ 3,677,220 $ 2,482,356 Real estate: Commercial 6,056,583 5,872,653 Commercial construction, land and land development 1,261,913 1,236,623 Residential 1,409,189 1,515,227 Single-family interim construction 320,387 378,120 Agricultural 86,049 97,767 Consumer 59,146 32,603 Other 381 621 Total loans 12,870,868 11,615,970 Deferred loan fees, net (12,696) (1,695) Allowance for loan losses (87,491) (51,461) Total loans, net $ 12,770,681 $ 11,562,814 Loans with carrying amounts of $6,674,750 and $6,244,438 at September 30, 2020 and December 31, 2019, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity and Federal Reserve Bank discount window borrowing capacity. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. The Company’s management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. These cash flows, however, may not be as expected and the value of collateral securing the loans may fluctuate. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short term loans may be made on an unsecured basis. Additionally, our commercial loan portfolio includes loans made to customers in the energy industry, which is a complex, technical and cyclical industry. Experienced bankers with specialized energy lending experience originate our energy loans. Companies in this industry produce, extract, develop, exploit and explore for oil and natural gas. Loans are primarily collateralized with proven producing oil and gas reserves based on a technical evaluation of these reserves. At September 30, 2020 and December 31, 2019, there were approximately $219,726 and $189,781 of energy related loans outstanding, respectively. The Company has a mortgage warehouse purchase program providing mortgage inventory financing for residential mortgage loans originated by mortgage banker clients across a broad geographic scale. Proceeds from the sale of mortgages is the primary source of repayment for warehouse inventory financing via approved investor takeout commitments. These loans typically have a very short duration ranging between a few days to 15 days. In some cases, loans to larger mortgage originators may be financed for up to 60 days. These loans are reported as commercial loans since the loans are secured by notes receivable, not real estate. As of September 30, 2020 and December 31, 2019, mortgage warehouse purchase loans outstanding totaled $1,219,013 and $687,317, respectively. With the passage of the CARES Act Paycheck Protection Program (PPP), administered by the Small Business Administration (SBA), the Company has participated in originating loans to its customers through the program. PPP loans have terms of two Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors the diversification of the portfolio on a quarterly basis by type and geographic location. Management also tracks the level of owner occupied property versus non-owner occupied property. At September 30, 2020, the portfolio consisted of approximately 30% of owner occupied property. Land and commercial land development loans are underwritten using feasibility studies, independent appraisal reviews and financial analysis of the developers or property owners. Generally, borrowers must have a proven track record of success. Commercial construction loans are generally based upon estimates of cost and value of the completed project. These estimates may not be accurate. Commercial construction loans often involve the disbursement of substantial funds with the repayment dependent on the success of the ultimate project. Sources of repayment for these loans may be pre-committed permanent financing or sale of the developed property. The loans in this portfolio are geographically diverse and due to the increased risk are monitored closely by management and the board of directors on a quarterly basis. Residential real estate and single-family interim construction loans are underwritten primarily based on borrowers’ credit scores, documented income and minimum collateral values. Relatively small loan amounts are spread across many individual borrowers, which minimizes risk in the residential portfolio. In addition, management evaluates trends in past dues and current economic factors on a regular basis. Agricultural loans are collateralized by real estate and/or agricultural-related assets. Agricultural real estate loans are primarily comprised of loans for the purchase of farmland. Loan-to-value ratios on loans secured by farmland generally do not exceed 80% and have amortization periods limited to twenty years. Agricultural non-real estate loans are generally comprised of term loans to fund the purchase of equipment, livestock and seasonal operating lines to grain farmers to plant and harvest corn and soybeans. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary. Agricultural loans carry significant credit risks as they involve larger balances concentrated with single borrowers or groups of related borrowers. In addition, repayment of such loans depends on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized. Farming operations may be affected by adverse weather conditions such as drought, hail or floods that can severely limit crop yields. Consumer loans represent less than 1% of the outstanding total loan portfolio. Collateral consists primarily of automobiles and other personal assets. Credit score analysis is used to supplement the underwriting process. Most of the Company’s lending activity occurs within the State of Texas, primarily in the north, central and southeast Texas regions and the State of Colorado, specifically along the Front Range area. As of September 30, 2020, loans in the Colorado region represented about 27% of the total portfolio. A large percentage of the Company’s portfolio consists of commercial and residential real estate loans. As of September 30, 2020 and December 31, 2019, there were no concentrations of loans related to a single industry in excess of 10% of total loans. The allowance for loan losses is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance is derived from the following two components: 1) allowances established on individual impaired loans, which are based on a review of the individual characteristics of each loan, including the customer’s ability to repay the loan, the underlying collateral values and the industry the customer operates and 2) allowances based on actual historical loss experience for the last three years for similar types of loans in the Company’s loan portfolio adjusted for primarily changes in the lending policies and procedures; collection, charge-off and recovery practices; nature and volume of the loan portfolio; change in value of underlying collateral; volume and severity of nonperforming loans; existence and effect of any concentrations of credit and the level of such concentrations and current, national and local economic and business conditions. This second component also includes an unallocated allowance to cover uncertainties that could affect management’s estimate of probable losses. The unallocated allowance reflects the imprecision inherent in the underlying assumptions used in the methodologies for estimating this component. The Company’s management continually evaluates the allowance for loan losses determined from the allowances established on individual loans and the amounts determined from historical loss percentages adjusted for the qualitative factors above. Should any of the factors considered by management change, the Company’s estimate of loan losses could also change and would affect the level of future provision expense. While the calculation of the allowance for loan losses utilizes management’s best judgment and all the information available, the adequacy of the allowance for loan losses is dependent on a variety of factors beyond the Company’s control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations. Loans requiring an allocated loan loss provision are generally identified at the servicing officer level based on review of weekly past due reports and/or the loan officer’s communication with borrowers. In addition, the status of past due loans are routinely discussed within each lending region as well as credit committee meetings to determine if classification is warranted. The Company’s internal loan review department has implemented an internal risk based loan review process to identify potential internally classified loans that supplements the independent external loan review. External loan reviews cover a wide range of the loan portfolio, including large lending relationships and recently acquired loan portfolios. As such, the external loan review generally covers loans exceeding $3,500. These reviews include analysis of borrower’s financial condition, payment histories and collateral values to determine if a loan should be internally classified. Generally, once classified, an impaired loan analysis is completed by the credit department to determine if the loan is impaired and the amount of allocated allowance required. The Texas economy, specifically in the Company’s lending areas of north, central and southeast Texas, and the Colorado economy started to show improvement by the end of the second quarter of 2020 following unprecedented declines caused by the pandemic and volatile energy prices. During the third quarter, Texas had increased COVID-19 infections that disrupted the budding economic recovery and is the biggest risk to the near-term outlook. The Colorado economy continued to strengthen during the quarter. Activity in the manufacturing and financial sectors continued to expand while the service sector activity declined overall in July but resumed its nascent recovery by the end of the quarter. Energy activity remained depressed. Retail spending stabilized, however, activity remained below pre-pandemic levels. Loan volume increased over the period, driven by a sharp rise in residential real estate lending. Loan pricing fell further, and credit standards and terms continue to tighten with expectations for future loan demand turning slightly negative. Outlooks are increasingly uncertain, with concerns over surging COVID-19 cases and the possible disruption to business and overall economic recovery. The pandemic crisis has been impactful and the timing and magnitude of recovery cannot be predicted. The risk of loss associated with all segments of the portfolio could increase due to these factors. The economy and other risk factors are minimized by the Company’s underwriting standards, which include the following principles: 1) financial strength of the borrower including strong earnings, high net worth, significant liquidity and acceptable debt to worth ratio, 2) managerial business competence, 3) ability to repay, 4) loan to value, 5) projected cash flow and 6) guarantor financial statements as applicable. The following is a summary of the activity in the allowance for loan losses by loan class for the three and nine months ended September 30, 2020 and 2019: Commercial Commercial Residential Single-Family Agricultural Consumer Other Unallocated Total Three months ended September 30, 2020 Balance at beginning of period $ 25,498 $ 45,876 $ 5,911 $ 1,998 $ 379 $ 291 $ 140 $ (38) $ 80,055 Provision for loan losses 476 5,829 532 (152) (31) 92 119 755 7,620 Charge-offs (117) — — — — (13) (93) — (223) Recoveries 16 4 — — — 5 14 — 39 Balance at end of period $ 25,873 $ 51,709 $ 6,443 $ 1,846 $ 348 $ 375 $ 180 $ 717 $ 87,491 Nine months ended September 30, 2020 Balance at beginning of period $ 12,844 $ 33,085 $ 3,678 $ 1,606 $ 332 $ 226 $ 5 $ (315) $ 51,461 Provision for loan losses 15,111 19,355 2,765 322 16 150 371 1,032 39,122 Charge-offs (2,170) (735) — (82) — (35) (271) — (3,293) Recoveries 88 4 — — — 34 75 — 201 Balance at end of period $ 25,873 $ 51,709 $ 6,443 $ 1,846 $ 348 $ 375 $ 180 $ 717 $ 87,491 Three months ended September 30, 2019 Balance at beginning of period $ 15,677 $ 29,662 $ 3,696 $ 1,511 $ 343 $ 252 $ 6 $ (72) $ 51,075 Provision for loan losses 3,151 2,318 (50) 54 (6) 15 108 (357) 5,233 Charge-offs (5,698) — (47) — — (31) (124) — (5,900) Recoveries 16 — — — — 8 15 — 39 Balance at end of period $ 13,146 $ 31,980 $ 3,599 $ 1,565 $ 337 $ 244 $ 5 $ (429) $ 50,447 Nine months ended September 30, 2019 Balance at beginning of period $ 11,793 $ 27,795 $ 3,320 $ 1,402 $ 241 $ 186 $ 3 $ 62 $ 44,802 Provision for loan losses 8,507 4,185 419 166 96 68 246 (491) 13,196 Charge-offs (7,221) (3) (140) (3) — (51) (303) — (7,721) Recoveries 67 3 — — — 41 59 — 170 Balance at end of period $ 13,146 $ 31,980 $ 3,599 $ 1,565 $ 337 $ 244 $ 5 $ (429) $ 50,447 The following table details the amount of the allowance for loan losses and recorded investment in loans by class as of September 30, 2020 and December 31, 2019: Commercial Commercial Residential Single-Family Agricultural Consumer Other Unallocated Total September 30, 2020 Allowance for losses: Individually evaluated for impairment $ 9,230 $ — $ — $ — $ — $ 7 $ — $ — $ 9,237 Collectively evaluated for impairment 16,449 51,709 6,443 1,846 348 368 180 717 78,060 Loans acquired with deteriorated credit quality 194 — — — — — — — 194 Ending balance $ 25,873 $ 51,709 $ 6,443 $ 1,846 $ 348 $ 375 $ 180 $ 717 $ 87,491 Loans: Individually evaluated for impairment $ 30,054 $ 6,082 $ 2,342 $ — $ 680 $ 43 $ — $ — $ 39,201 Collectively evaluated for impairment 3,606,126 7,133,350 1,400,880 320,387 84,649 59,087 381 — 12,604,860 Acquired with deteriorated credit quality 41,040 179,064 5,967 — 720 16 — — 226,807 Ending balance $ 3,677,220 $ 7,318,496 $ 1,409,189 $ 320,387 $ 86,049 $ 59,146 $ 381 $ — $ 12,870,868 December 31, 2019 Allowance for losses: Individually evaluated for impairment $ 357 $ — $ — $ — $ — $ 1 $ — $ — $ 358 Collectively evaluated for impairment 12,108 32,615 3,678 1,606 332 225 5 (315) 50,254 Loans acquired with deteriorated credit quality 379 470 — — — — — — 849 Ending balance $ 12,844 $ 33,085 $ 3,678 $ 1,606 $ 332 $ 226 $ 5 $ (315) $ 51,461 Loans: Individually evaluated for impairment $ 3,130 $ 6,813 $ 2,008 $ — $ 114 $ 22 $ — $ — $ 12,087 Collectively evaluated for impairment 2,416,569 6,883,639 1,505,896 378,120 93,837 32,556 621 — 11,311,238 Acquired with deteriorated credit quality 62,657 218,824 7,323 — 3,816 25 — — 292,645 Ending balance $ 2,482,356 $ 7,109,276 $ 1,515,227 $ 378,120 $ 97,767 $ 32,603 $ 621 $ — $ 11,615,970 Nonperforming loans by loan class (excluding loans acquired with deteriorated credit quality) at September 30, 2020 and December 31, 2019, are summarized as follows: Commercial Commercial Residential Real Estate Single-Family Agricultural Consumer Other Total September 30, 2020 Nonaccrual loans $ 16,279 $ 4,257 $ 2,161 $ — $ 680 $ 43 $ — $ 23,420 Loans past due 90 days and still accruing 296 15,719 — — — — — 16,015 Troubled debt restructurings (not included in nonaccrual or loans past due and still accruing) — 1,825 181 — — — — 2,006 $ 16,575 $ 21,801 $ 2,342 $ — $ 680 $ 43 $ — $ 41,441 December 31, 2019 Nonaccrual loans $ 3,130 $ 6,461 $ 1,820 $ — $ 114 $ 22 $ — $ 11,547 Loans past due 90 days and still accruing 14,529 — — — — — — 14,529 Troubled debt restructurings (not included in nonaccrual or loans past due and still accruing) — 352 188 — — — — 540 $ 17,659 $ 6,813 $ 2,008 $ — $ 114 $ 22 $ — $ 26,616 The accrual of interest is discontinued on a loan when management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. All interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against interest income. Cash collections on nonaccrual loans are generally credited to the loan receivable balance, and no interest income is recognized on those loans until the principal balance has been collected. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans are measured based on 1) the present value of expected future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price; or 3) the fair value of collateral if the loan is collateral dependent. Substantially all of the Company’s impaired loans are measured at the fair value of the collateral. In limited cases, the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent. All commercial, real estate, agricultural loans and troubled debt restructurings are considered for individual impairment analysis. Smaller balance consumer loans are collectively evaluated for impairment. Impaired loans by loan class (excluding loans acquired with deteriorated credit quality) at September 30, 2020 and December 31, 2019, are summarized as follows: Commercial Commercial Residential Single-Family Agricultural Consumer Other Total September 30, 2020 Recorded investment in impaired loans: Impaired loans with an allowance for loan losses $ 29,278 $ — $ — $ — $ — $ 21 $ — $ 29,299 Impaired loans with no allowance for loan losses 776 6,082 2,342 — 680 22 — 9,902 Total $ 30,054 $ 6,082 $ 2,342 $ — $ 680 $ 43 $ — $ 39,201 Unpaid principal balance of impaired loans $ 38,429 $ 6,690 $ 2,506 $ — $ 707 $ 45 $ — $ 48,377 Allowance for loan losses on impaired loans $ 9,230 $ — $ — $ — $ — $ 7 $ — $ 9,237 December 31, 2019 Recorded investment in impaired loans: Impaired loans with an allowance for loan losses $ 1,580 $ — $ — $ — $ — $ 1 $ — $ 1,581 Impaired loans with no allowance for loan losses 1,550 6,813 2,008 — 114 21 — 10,506 Total $ 3,130 $ 6,813 $ 2,008 $ — $ 114 $ 22 $ — $ 12,087 Unpaid principal balance of impaired loans $ 8,580 $ 6,967 $ 2,197 $ — $ 123 $ 24 $ — $ 17,891 Allowance for loan losses on impaired loans $ 357 $ — $ — $ — $ — $ 1 $ — $ 358 For the three months ended September 30, 2020 Average recorded investment in impaired loans $ 21,790 $ 6,264 $ 2,417 $ — $ 495 $ 28 $ — $ 30,994 Interest income recognized on impaired loans $ 14 $ 57 $ 164 $ — $ — $ — $ — $ 235 For the nine months ended September 30, 2020 Average recorded investment in impaired loans $ 17,125 $ 6,402 $ 2,315 $ — $ 400 $ 27 $ — $ 26,269 Interest income recognized on impaired loans $ 16 $ 110 $ 202 $ — $ — $ — $ — $ 328 For the three months ended September 30, 2019 Average recorded investment in impaired loans $ 6,971 $ 3,782 $ 1,593 $ — $ 58 $ 33 $ — $ 12,437 Interest income recognized on impaired loans $ 4 $ 6 $ 3 $ — $ — $ — $ — $ 13 For the nine months ended September 30, 2019 Average recorded investment in impaired loans $ 7,050 $ 3,270 $ 1,681 $ 895 $ 43 $ 33 $ — $ 12,972 Interest income recognized on impaired loans $ 25 $ 34 $ 35 $ 114 $ — $ 5 $ — $ 213 Certain impaired loans have adequate collateral and do not require a related allowance for loan loss. The Company will charge-off that portion of any loan which management considers a loss. Commercial and real estate loans are generally considered for charge-off when exposure beyond collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower’s financial condition. The restructuring of a loan is considered a “troubled debt restructuring” (TDR) 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, extending amortization and other actions intended to minimize potential losses. A TDR loan is identified as impaired and measured for credit impairment as of each reporting period in accordance with the guidance in Accounting Standards Codification (ASC) 310-10-35. Modifications primarily relate to extending the amortization periods of the loans and interest rate concessions. The majority of these loans were identified as impaired prior to restructuring; therefore, the modifications did not materially impact the Company’s determination of the allowance for loan losses. The recorded investment in troubled debt restructurings, including those on nonaccrual, was $2,607 and $1,208 as of September 30, 2020 and December 31, 2019, respectively. Following is a summary of loans modified under troubled debt restructurings during the three and nine months ended September 30, 2020 and 2019: Commercial Commercial Residential Single-Family Agricultural Consumer Other Total Troubled debt restructurings during the three months ended September 30, 2020 Number of contracts — — — — — — — — Pre-restructuring outstanding recorded investment $ — $ — $ — $ — $ — $ — $ — $ — Post-restructuring outstanding recorded investment $ — $ — $ — $ — $ — $ — $ — $ — Troubled debt restructurings during the nine months ended September 30, 2020 Number of contracts — 1 — — — — — 1 Pre-restructuring outstanding recorded investment $ — $ 1,517 $ — $ — $ — $ — $ — $ 1,517 Post-restructuring outstanding recorded investment $ — $ 1,517 $ — $ — $ — $ — $ — $ 1,517 Troubled debt restructurings during the three months ended September 30, 2019 Number of contracts — — 1 — — — — 1 Pre-restructuring outstanding recorded investment $ — $ — $ 29 $ — $ — $ — $ — $ 29 Post-restructuring outstanding recorded investment $ — $ — $ 29 $ — $ — $ — $ — $ 29 Troubled debt restructurings during the nine months ended September 30, 2019 Number of contracts — — 1 — — — — 1 Pre-restructuring outstanding recorded investment $ — $ — $ 29 $ — $ — $ — $ — $ 29 Post-restructuring outstanding recorded investment $ — $ — $ 29 $ — $ — $ — $ — $ 29 At September 30, 2020 and 2019, there were no loans modified under troubled debt restructurings during the previous twelve month period that subsequently defaulted during the three and nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020 and 2019, the Company had no commitments to lend additional funds to any borrowers with loans whose terms have been modified under troubled debt restructurings. Under ASC Subtopic 310-40 and federal banking agencies interagency guidance, certain short-term loan modifications made on a good faith basis in response to COVID-19 (as defined by the guidance) are not considered TDRs. Additionally, under section 4013 of the CARES Act, banks may elect to suspend the requirement for certain loan modifications to be categorized as a TDR. In response to the COVID-19 pandemic, the Company has implemented prudent modifications allowing for primarily short-term payment deferrals or other payment relief to borrowers with pandemic-related economic hardships, where appropriate, that complies with the above guidance. As such, the Company's TDR loans noted above do not include loans that are modifications to borrowers impacted by COVID-19. Deferred payments along with any interest accrued during the deferral period are due and payable on the maturity date. As of September 30, 2020, the Company has 1,389 loans with outstanding deferred accrued interest of $24,605 on balances of $1,821,003. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. The following table presents information regarding the aging of past due loans by loan class as of September 30, 2020 and December 31, 2019: Loans Loans Total Past Current Total September 30, 2020 Commercial $ 11,454 $ 16,533 $ 27,987 $ 3,608,193 $ 3,636,180 Commercial real estate, construction, land and land development 2,080 19,358 21,438 7,117,994 7,139,432 Residential real estate 1,541 894 2,435 1,400,787 1,403,222 Single-family interim construction 106 — 106 320,281 320,387 Agricultural 1,200 9 1,209 84,120 85,329 Consumer 92 43 135 58,995 59,130 Other — — — 381 381 16,473 36,837 53,310 12,590,751 12,644,061 Acquired with deteriorated credit quality 2,568 4,381 6,949 219,858 226,807 $ 19,041 $ 41,218 $ 60,259 $ 12,810,609 $ 12,870,868 December 31, 2019 Commercial $ 4,512 $ 17,656 $ 22,168 $ 2,397,531 $ 2,419,699 Commercial real estate, construction, land and land development 9,153 2,905 12,058 6,878,394 6,890,452 Residential real estate 3,242 642 3,884 1,504,020 1,507,904 Single-family interim construction 2,836 — 2,836 375,284 378,120 Agricultural 22 114 136 93,815 93,951 Consumer 167 22 189 32,389 32,578 Other — — — 621 621 19,932 21,339 41,271 11,282,054 11,323,325 Acquired with deteriorated credit quality 2,556 6,766 9,322 283,323 292,645 $ 22,488 $ 28,105 $ 50,593 $ 11,565,377 $ 11,615,970 The Company’s internal classified report is segregated into the following categories: 1) Pass/Watch, 2) Special Mention, 3) Substandard and 4) Doubtful. The loans placed in the Pass/Watch category reflect the Company’s opinion that the loans reflect potential weakness that requires monitoring on a more frequent basis. The loans in the Special Mention category reflect the Company’s opinion that the credit contains weaknesses which represent a greater degree of risk and warrant extra attention. These loans are reviewed monthly by officers and senior management to determine if a change in category is warranted. The loans placed in the Substandard category are considered to be potentially inadequately protected by the current debt service capacity of the borrower and/or the pledged collateral. These credits, even if apparently protected by collateral value, have shown weakness related to adverse financial, managerial, economic, market or political conditions, which may jeopardize repayment of principal and interest. There is a possibility that some future loss could be sustained by the Company if such weakness is not corrected. The Doubtful category includes loans that are in default or principal exposure is probable. Substandard and Doubtful loans are individually evaluated to determine if they should be classified as impaired and an allowance is allocated if deemed necessary under ASC 310-10. The loans that are not impaired are included with the remaining “pass” credits in determining the portion of the allowance for loan loss based on historical loss experience and other qualitative factors. The portfolio is segmented into categories including: commercial loans, consumer loans, commercial real estate loans, residential real estate loans and agricultural loans. The adjusted historical loss percentage is applied to each category. Each category is then added together to determine the allowance allocated under ASC 450-20. A summary of loans by credit quality indicator by class as of September 30, 2020 and December 31, 2019, is as follows: Pass Pass/ Special Mention Substandard Doubtful Total September 30, 2020 Commercial $ 3,474,238 $ 74,512 $ 55,812 $ 72,658 $ — $ 3,677,220 Commercial real estate, construction, land and land development 6,622,679 430,250 156,815 108,752 — 7,318,496 Residential real estate 1,393,667 6,420 1,767 7,335 — 1,409,189 Single-family interim construction 317,930 2,457 — — — 320,387 Agricultural 78,380 5,549 1,437 683 — 86,049 Consumer 59,042 11 — 93 — 59,146 Other 381 — — — — 381 $ 11,946,317 $ 519,199 $ 215,831 $ 189,521 $ — $ 12,870,868 December 31, 2019 Commercial $ 2,332,611 $ 71,642 $ 37,739 $ 40,364 $ — $ 2,482,356 Commercial real estate, construction, land and land development 6,814,780 184,720 46,889 62,887 — 7,109,276 Residential real estate 1,501,019 4,850 994 8,364 — 1,515,227 Single-family interim construction 376,887 1,233 — — — 378,120 Agricultural 88,044 5,287 1,864 2,572 — 97,767 Consumer 32,459 33 2 109 — 32,603 Other 621 — — — — 621 $ 11,146,421 $ 267,765 $ 87,488 $ 114,296 $ — $ 11,615,970 The Company has acquired certain loans which experienced credit deterioration since origination (purchased credit impaired (PCI) loans). The Company has included PCI loans in the above grading tables. The following provides additional detail on the grades applied to those loans at September 30, 2020 and December 31, 2019: Pass Pass/ Special Mention Substandard Doubtful Total September 30, 2020 $ 146,433 $ 29,894 $ 30,655 $ 19,825 $ — $ 226,807 December 31, 2019 232,095 21,284 4,502 34,764 — 292,645 PCI loans may remain on accrual status to the extent the company can reasonably estimate the amount and timing of expected future cash flows. At September 30, 2020 and December 31, 2019, nonaccrual PCI loans were $6,991 and $10,850, respectively. Accretion on PCI loans is based on estimated future cash flows, regardless of contractual maturity. The following table summarizes the outstanding balance and related carrying amount of PCI loans by acquired bank as of the acquisition date for the acquisition occurring in 2019: Acquisition Date January 1, 2019 Guaranty Bancorp Outstanding balance $ 341,645 Nonaccretable difference (16,622) Accretable yield (13,299) Carrying amount $ 311,724 The carrying amount of all acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at September 30, 2020 and December 31, 2019 were as follows: September 30, 2020 December 31, 2019 Outstanding balance $ 251,263 $ 326,077 Carrying amount 226,807 292,645 There was an allocation of $194 and $849 established in the allowance for loan losses relating to PCI loans at September 30, 2020 and December 31, 2019, respectively. The changes in accretable yield during the nine months ended September 30, 2020 and 2019 in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are presented in the table below. For the Nine Months Ended September 30, 2020 2019 Balance at January 1, $ 8,905 $ 1,436 Additions — 13,299 Accretion (2,656) (4,076) Transfers from nonaccretable — — Balance at September 30, $ 6,249 $ 10,659 |
