Loans and Allowance for Loan Losses | 9 Months Ended |
Sep. 30, 2014 |
Receivables [Abstract] | ' |
Loans and Allowance for Loan Losses | ' |
Note 5 - Loans and Allowance for Loan Losses |
Loans held for investment are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes the collectability of the principal is unlikely. |
The Company has lending policies and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies and procedures on an annual basis and makes changes as appropriate. Management receives and reviews monthly reports related to loan originations, quality, concentrations, delinquencies, nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geographic location. |
Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate 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. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees. |
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Agricultural loans are subject to underwriting standards and processes similar to commercial loans. These agricultural loans are based primarily on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Most agricultural loans are secured by the agriculture related assets being financed, such as farm, land, cattle or equipment, and include personal guarantees. |
Real estate loans are also subject to underwriting standards and processes similar to commercial and agricultural loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. 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 real estate portfolio are generally diverse in terms of type and geographic location within Texas. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry. Generally, real estate loans are owner occupied which further reduces the Company’s risk. |
Consumer loan underwriting utilizes methodical credit standards and analysis to supplement the Company’s underwriting policies and procedures. The Company’s loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize the Company’s risk. |
The allowance for loan losses is an amount management believes is appropriate to absorb probable losses that have been incurred on existing loans as of the balance sheet date based upon management’s review and evaluation of the loan portfolio. The allowance for loan losses is comprised of three elements: (i) specific reserves determined based on probable losses on specific classified loans; (ii) a general reserve that considers historical loss rates; and (iii) qualitative reserves based upon general economic conditions and other qualitative risk factors both internal and external to the Company. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management’s periodic evaluation of the appropriateness of the allowance is based on general economic conditions, the financial condition of borrowers, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of the portfolio. For purposes of determining our general reserve, the loan portfolio, less cash secured loans, government guaranteed loans and classified loans, is multiplied by the Company’s historical loss rate. Specific allocations are increased in accordance with deterioration in credit quality and a corresponding increase in risk of loss on a particular loan. In addition, we adjust our allowance for qualitative factors such as current local economic conditions and trends, including, without limitations, unemployment, drought conditions, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans. This qualitative reserve serves to estimate for additional areas of incurred losses in our portfolio that are not reflected in our historic loss factors. |
Although we believe we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A further downturn in the economy and employment could result in increased levels of non-performing assets and charge-offs, increased loan provisions and reductions in income. Additionally, bank regulatory agencies periodically review our allowance for loan losses and methodology and could require, in accordance with generally accepted accounting principles, additional provisions to the allowance for loan losses is based on their judgment of information available to them at the time of their examination as well as changes to our methodology. |
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Accrual of interest is discontinued on a loan and payments are applied to principal when management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful. Except consumer loans, generally all loans past due greater than 90 days, based on contractual terms, are placed on non-accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Consumer loans are generally charged-off when a loan becomes past due 90 days. For other loans in the portfolio, facts and circumstances are evaluated in making charge-off decisions. |
Loans are considered impaired when, based on current information and events, management determines that it is probable we will be unable to collect all amounts due in accordance with the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary. 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 uncollectable. |
The Company’s policy requires measurement of the allowance for an impaired, collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price. At September 30, 2014 and 2013, and December 31, 2013, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral. |
From time to time, the Company modifies its loan agreement with a borrower. A modified loan is considered a troubled debt restructuring when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. For all impaired loans, including the Company’s troubled debt restructurings, the Company performs a periodic, well-documented credit evaluation of the borrower’s financial condition and prospects for repayment to assess the likelihood that all principal and interest payments required under the terms of the agreement will be collected in full. When doubt exists about the ultimate collectability of principal and interest, the troubled debt restructuring remains on non-accrual status and payments received are applied to reduce principal to the extent necessary to eliminate such doubt. This determination of accrual status is judgmental and is based on facts and circumstances related to each troubled debt restructuring. To date, all of the troubled debt restructurings have been such that, after considering economic and business conditions and collection efforts, the collection of interest is doubtful and therefore remain on non-accrual. Each of these loans is individually evaluated for impairment and a specific reserve is recorded based on probable losses, taking into consideration the related collateral, modified loan terms and cash flow. As of September 30, 2014 and 2013, and December 31, 2013, all of the Company’s troubled debt restructured loans are included in the non-accrual totals. |
The Company originates certain mortgage loans for sale in the secondary market. Accordingly, these loans are classified as held for sale and are carried at the lower of cost or fair value on an aggregate basis. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to six months, or if documentation is determined not to be in compliance with regulations. The Company’s historic losses as a result of these indemnities have been insignificant. |
Loans acquired, including loans acquired in a business combination, are initially recorded at fair value with no valuation allowance. Acquired loans are segregated between those considered to be credit impaired and those deemed performing. To make this determination, management considers such factors as past due status, non-accrual status and credit risk ratings. The fair value of acquired performing loans is determined by discounting expected cash flows, both principal and interest, at prevailing market interest rates. The difference between the fair value and principal balances at acquisition date, the fair value discount, is accreted into interest income over the estimated life of each loan. |
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Purchased credit impaired loans are those loans that showed evidence of deterioration of credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all amounts contractually owed. Their acquisition fair value was based on the estimate of cash flows, both principal and interest, expected to be collected or estimated collateral values if cash flows are not estimable, discounted at prevailing market rates of interest. The difference between the cash flows expected at acquisition and the investment in the loan, is recognized as interest income on a level-yield method over the life of the loan, unless management was unable to reasonably forecast cash flows in which case the loans were placed on non-accrual. Contractually required payments for interest and principal that exceed the cash flows expected at acquisition are not recognized as a yield adjustment. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition. The carrying amount of purchased credit impaired loans at September 30, 2014 and 2013, and December 31, 2013 was $2,383,000, $2,954,000 and $2,707,000, respectively, compared to a contractual balance of $3,525,000, $4,218,000 and $3,970,000, respectively. Other purchased credit impaired loan disclosures were omitted due to immateriality. |
Loans held-for-investment by class of financing receivables are as follows (in thousands): |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2013 | | | | | | | | | | | | | | | | |
Commercial | | $ | 612,092 | | | $ | 571,973 | | | $ | 596,730 | | | | | | | | | | | | | | | | | |
Agricultural | | | 86,718 | | | | 66,758 | | | | 75,928 | | | | | | | | | | | | | | | | | |
Real estate | | | 1,774,639 | | | | 1,640,308 | | | | 1,678,514 | | | | | | | | | | | | | | | | | |
Consumer | | | 354,981 | | | | 330,046 | | | | 333,113 | | | | | | | | | | | | | | | | | |
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Total loans held-for-investment | | $ | 2,828,430 | | | $ | 2,609,085 | | | $ | 2,684,285 | | | | | | | | | | | | | | | | | |
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Loans held for sale totaled $11,266,000, $5,724,000 and $5,163,000 at September 30, 2014 and 2013, and December 31, 2013, respectively, which were recorded at cost as fair value exceeded cost. |
The Company’s non-accrual loans, loans still accruing and past due 90 days or more and restructured loans are as follows (in thousands): |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2013 | | | | | | | | | | | | | | | | |
Non-accrual loans* | | $ | 22,093 | | | $ | 22,809 | | | $ | 27,926 | | | | | | | | | | | | | | | | | |
Loans still accruing and past due 90 days or more | | | 263 | | | | 54 | | | | 133 | | | | | | | | | | | | | | | | | |
Troubled debt restructured loans** | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
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Total | | $ | 22,356 | | | $ | 22,863 | | | $ | 28,059 | | | | | | | | | | | | | | | | | |
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* | Includes $2,383,000, $2,954,000 and $2,707,000 of purchased credit impaired loans as of September 30, 2014 and 2013, and December 31, 2013, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
** | Troubled debt restructured loans of $10,114,000, $14,737,000 and $13,298,000, whose interest collection, after considering economic and business conditions and collection efforts, is doubtful are included in non-accrual loans at September 30, 2014 and 2013, and December 31, 2013, respectively. At this time, all of our restructured loans are included in non-accrual loans. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (in thousands): |
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September 30, 2014 | | | September 30, 2013 | | | December 31, 2013 | | | | | | | |
Recorded | | | Valuation | | | Recorded | | | Valuation | | | Recorded | | | Valuation | | | | | | | |
Investment | Allowance | Investment | Allowance | Investment | Allowance | | | | | | |
| $22,093 | | | $ | 4,634 | | | $ | 22,809 | | | $ | 4,605 | | | $ | 27,926 | | | $ | 5,338 | | | | | | | |
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The average recorded investment in impaired loans for the three and nine months ended September 30, 2014, and the year ended December 31, 2013 was approximately $24,893,000, $26,524,000 and $31,293,000, respectively. The Company had $23,629,000, $28,535,000 and $31,128,000 in non-accrual, past due 90 days still accruing and restructured loans and foreclosed assets at September 30, 2014 and 2013, and December 31, 2013, respectively. Non-accrual loans at September 30, 2014 and 2013, and December 31, 2013, consisted of the following by class of financing receivables (in thousands): |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2013 | | | | | | | | | | | | | | | | |
Commercial | | $ | 3,481 | | | $ | 1,986 | | | $ | 4,281 | | | | | | | | | | | | | | | | | |
Agricultural | | | 102 | | | | 97 | | | | 131 | | | | | | | | | | | | | | | | | |
Real estate | | | 17,712 | | | | 20,036 | | | | 22,548 | | | | | | | | | | | | | | | | | |
Consumer | | | 798 | | | | 690 | | | | 966 | | | | | | | | | | | | | | | | | |
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Total | | $ | 22,093 | | | $ | 22,809 | | | $ | 27,926 | | | | | | | | | | | | | | | | | |
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No significant additional funds are committed to be advanced in connection with impaired loans as of September 30, 2014. |
The Company’s impaired loans and related allowance as of September 30, 2014 and 2013, and December 31, 2013, are summarized in the following tables by class of financing receivables (in thousands). No interest income was recognized on impaired loans subsequent to their classification as impaired. |
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September 30, | | Unpaid | | | Recorded | | | Recorded | | | Total | | | Related | | | Year-to-Date | | | Three-month | |
2014 | Contractual | Investment | Investment | Recorded | Allowance | Average | Average |
| Principal | With No | With | Investment | | Recorded | Recorded |
| Balance | Allowance* | Allowance | | | Investment | Investment |
Commercial | | $ | 3,928 | | | $ | 278 | | | $ | 3,203 | | | $ | 3,481 | | | $ | 1,160 | | | $ | 3,990 | | | $ | 3,713 | |
Agricultural | | | 113 | | | | — | | | | 102 | | | | 102 | | | | 37 | | | | 113 | | | | 104 | |
Real Estate | | | 23,559 | | | | 5,546 | | | | 12,166 | | | | 17,712 | | | | 3,256 | | | | 21,510 | | | | 20,212 | |
Consumer | | | 977 | | | | 467 | | | | 331 | | | | 798 | | | | 181 | | | | 911 | | | | 864 | |
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Total | | $ | 28,577 | | | $ | 6,291 | | | $ | 15,802 | | | $ | 22,093 | | | $ | 4,634 | | | $ | 26,524 | | | $ | 24,893 | |
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* | Includes $2,383,000 of purchased credit impaired loans. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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September 30, | | Unpaid | | | Recorded | | | Recorded | | | Total | | | Related | | | Year-to-Date | | | Three-month | |
2013 | Contractual | Investment | Investment | Recorded | Allowance | Average | Average |
| Principal | With No | With | Investment | | Recorded | Recorded |
| Balance | Allowance* | Allowance | | | Investment | Investment |
Commercial | | $ | 2,545 | | | $ | 701 | | | $ | 1,285 | | | $ | 1,986 | | | $ | 710 | | | $ | 1,779 | | | $ | 2,113 | |
Agricultural | | | 105 | | | | 91 | | | | 6 | | | | 97 | | | | 6 | | | | 104 | | | | 99 | |
Real Estate | | | 25,085 | | | | 4,290 | | | | 15,746 | | | | 20,036 | | | | 3,628 | | | | 19,985 | | | | 20,757 | |
Consumer | | | 824 | | | | 212 | | | | 478 | | | | 690 | | | | 261 | | | | 662 | | | | 799 | |
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Total | | $ | 28,559 | | | $ | 5,294 | | | $ | 17,515 | | | $ | 22,809 | | | $ | 4,605 | | | $ | 22,530 | | | $ | 23,768 | |
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* | Includes $2,954,000 of purchased credit impaired loans. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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December 31, | | Unpaid | | | Recorded | | | Recorded | | | Total | | | Related | | | Average | | | | | |
2013 | Contractual | Investment With | Investment | Recorded | Allowance | Recorded | | | | |
| Principal | No Allowance* | With | Investment | | Investment | | | | |
| Balance | | Allowance | | | | | | | |
Commercial | | $ | 4,764 | | | $ | 934 | | | $ | 3,348 | | | $ | 4,282 | | | $ | 1,079 | | | $ | 5,017 | | | | | |
Agricultural | | | 139 | | | | 17 | | | | 114 | | | | 131 | | | | 41 | | | | 144 | | | | | |
Real Estate | | | 31,704 | | | | 5,794 | | | | 16,753 | | | | 22,547 | | | | 4,006 | | | | 25,060 | | | | | |
Consumer | | | 1,117 | | | | 545 | | | | 421 | | | | 966 | | | | 212 | | | | 1,072 | | | | | |
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Total | | $ | 37,724 | | | $ | 7,290 | | | $ | 20,636 | | | $ | 27,926 | | | $ | 5,338 | | | $ | 31,293 | | | | | |
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* | Includes $2,707,000 of purchased credit impaired loans. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company recognized interest income on impaired loans prior to being classified as impaired of approximately $685,000 during the year ended December 31, 2013. Such amounts for the three-month and nine-month periods ended September 30, 2014 and 2013 were not significant. |
From a credit risk standpoint, the Company rates its loans in one of four categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans rated as loss are charged-off. |
The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our on-going monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations 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 weakness 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 rated more harshly. |
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 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 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. |
The following summarizes the Company’s internal ratings of its loans held-for-investment by class of financing receivables and portfolio segments, which are the same, at September 30, 2014 and December 31, 2013 (in thousands): |
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September 30, | | Pass | | | Special | | | Substandard | | | Doubtful | | | Total | | | | | | | | | |
2014 | Mention | | | | | | | | |
Commercial | | $ | 597,717 | | | $ | 3,649 | | | $ | 10,726 | | | $ | — | | | $ | 612,092 | | | | | | | | | |
Agricultural | | | 86,272 | | | | 93 | | | | 353 | | | | — | | | | 86,718 | | | | | | | | | |
Real Estate | | | 1,710,201 | | | | 18,741 | | | | 45,613 | | | | 84 | | | | 1,774,639 | | | | | | | | | |
Consumer | | | 352,850 | | | | 601 | | | | 1,527 | | | | 3 | | | | 354,981 | | | | | | | | | |
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Total | | $ | 2,747,040 | | | $ | 23,084 | | | $ | 58,219 | | | $ | 87 | | | $ | 2,828,430 | | | | | | | | | |
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December 31, | | Pass | | | Special | | | Substandard | | | Doubtful | | | Total | | | | | | | | | |
2013 | Mention | | | | | | | | |
Commercial | | $ | 584,547 | | | $ | 3,032 | | | $ | 9,151 | | | $ | — | | | $ | 596,730 | | | | | | | | | |
Agricultural | | | 75,382 | | | | 245 | | | | 298 | | | | 3 | | | | 75,928 | | | | | | | | | |
Real Estate | | | 1,609,242 | | | | 20,773 | | | | 48,352 | | | | 147 | | | | 1,678,514 | | | | | | | | | |
Consumer | | | 330,870 | | | | 639 | | | | 1,595 | | | | 9 | | | | 333,113 | | | | | | | | | |
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Total | | $ | 2,600,041 | | | $ | 24,689 | | | $ | 59,396 | | | $ | 159 | | | $ | 2,684,285 | | | | | | | | | |
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At September 30, 2014 and December 31, 2013, the Company’s past due loans are as follows (in thousands): |
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September 30, | | 15-59 | | | 60-89 | | | Greater | | | Total Past | | | Current | | | Total Loans | | | 90 Days | |
2014 | Days | Days | Than 90 | Due | Past Due |
| Past | Past | Days | | Still |
| Due* | Due | | | Accruing |
Commercial | | $ | 2,726 | | | $ | 110 | | | $ | 316 | | | $ | 3,152 | | | $ | 608,940 | | | $ | 612,092 | | | $ | 111 | |
Agricultural | | | 294 | | | | 59 | | | | — | | | | 353 | | | | 86,365 | | | | 86,718 | | | | — | |
Real Estate | | | 15,404 | | | | 930 | | | | 2,216 | | | | 18,550 | | | | 1,756,089 | | | | 1,774,639 | | | | 102 | |
Consumer | | | 1,742 | | | | 292 | | | | 297 | | | | 2,331 | | | | 352,650 | | | | 354,981 | | | | 50 | |
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Total | | $ | 20,166 | | | $ | 1,391 | | | $ | 2,829 | | | $ | 24,386 | | | $ | 2,804,044 | | | $ | 2,828,430 | | | $ | 263 | |
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December 31, | | 15-59 | | | 60-89 | | | Greater | | | Total Past | | | Current | | | Total Loans | | | 90 Days | |
2013 | Days | Days | Than 90 | Due | Past Due |
| Past | Past | Days | | Still |
| Due* | Due | | | Accruing |
Commercial | | $ | 5,303 | | | $ | 287 | | | $ | 420 | | | $ | 6,010 | | | $ | 590,720 | | | $ | 596,730 | | | $ | — | |
Agricultural | | | 355 | | | | — | | | | — | | | | 355 | | | | 75,573 | | | | 75,928 | | | | — | |
Real Estate | | | 13,787 | | | | 2,489 | | | | 1,876 | | | | 18,152 | | | | 1,660,362 | | | | 1,678,514 | | | | 55 | |
Consumer | | | 2,708 | | | | 582 | | | | 277 | | | | 3,567 | | | | 329,546 | | | | 333,113 | | | | 78 | |
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Total | | $ | 22,153 | | | $ | 3,358 | | | $ | 2,573 | | | $ | 28,084 | | | $ | 2,656,201 | | | $ | 2,684,285 | | | $ | 133 | |
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* | The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The allowance for loan losses as of September 30, 2014 and 2013, and December 31, 2013, is presented below. Management has evaluated the appropriateness of the allowance for loan losses by estimating the probable losses in various categories of the loan portfolio, which are identified below (in thousands): |
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| | September 30, | | | December 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 | | | 2013 | | | | | | | | | | | | | | | | | |
Allowance for loan losses provided for: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans specifically evaluated as impaired | | $ | 4,634 | | | $ | 4,605 | | | $ | 5,338 | | | | | | | | | | | | | | | | | |
Remaining portfolio | | | 31,754 | | | | 30,195 | | | | 28,562 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total allowance for loan losses | | $ | 36,388 | | | $ | 34,800 | | | $ | 33,900 | | | | | | | | | | | | | | | | | |
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The following table details the allowance for loan losses at September 30, 2014 and December 31, 2013 by portfolio segment (in thousands). There were no allowances for purchased credit impaired loans at September 30, 2014 or December 31, 2013. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. |
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September 30, 2014 | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 2,837 | | | $ | 127 | | | $ | 7,081 | | | $ | 388 | | | $ | 10,433 | | | | | | | | | |
Loans collectively evaluated for impairment | | | 4,649 | | | | 258 | | | | 19,218 | | | | 1,830 | | | | 25,955 | | | | | | | | | |
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Total | | $ | 7,486 | | | $ | 385 | | | $ | 26,299 | | | $ | 2,218 | | | $ | 36,388 | | | | | | | | | |
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December 31, 2013 | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 2,755 | | | $ | 125 | | | $ | 7,215 | | | $ | 378 | | | $ | 10,473 | | | | | | | | | |
Loans collectively evaluated for impairment | | | 3,685 | | | | 258 | | | | 17,725 | | | | 1,759 | | | | 23,427 | | | | | | | | | |
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Total | | $ | 6,440 | | | $ | 383 | | | $ | 24,940 | | | $ | 2,137 | | | $ | 33,900 | | | | | | | | | |
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Changes in the allowance for loan losses for the three and nine months ended September 30, 2014 and 2013 are summarized as follows by portfolio segment (in thousands): |
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Three months ended | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
September 30, 2014 | | | | | | | | |
Beginning balance | | $ | 6,861 | | | $ | 364 | | | $ | 26,561 | | | $ | 2,106 | | | $ | 35,892 | | | | | | | | | |
Provision for loan losses | | | 635 | | | | 7 | | | | (80 | ) | | | 334 | | | | 896 | | | | | | | | | |
Recoveries | | | 72 | | | | 14 | | | | 42 | | | | 86 | | | | 214 | | | | | | | | | |
Charge-offs | | | (82 | ) | | | — | | | | (224 | ) | | | (308 | ) | | | (614 | ) | | | | | | | | |
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Ending balance | | $ | 7,486 | | | $ | 385 | | | $ | 26,299 | | | $ | 2,218 | | | $ | 36,388 | | | | | | | | | |
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Three months ended | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
September 30, 2013 | | | | | | | | |
Beginning balance | | $ | 6,736 | | | $ | 1,493 | | | $ | 23,902 | | | $ | 1,968 | | | $ | 34,099 | | | | | | | | | |
Provision for loan losses | | | 354 | | | | (999 | ) | | | 1,644 | | | | 350 | | | | 1,349 | | | | | | | | | |
Recoveries | | | 141 | | | | 10 | | | | 42 | | | | 104 | | | | 297 | | | | | | | | | |
Charge-offs | | | (218 | ) | | | (86 | ) | | | (294 | ) | | | (347 | ) | | | (945 | ) | | | | | | | | |
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Ending balance | | $ | 7,013 | | | $ | 418 | | | $ | 25,294 | | | $ | 2,075 | | | $ | 34,800 | | | | | | | | | |
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Nine months ended | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
September 30, 2014 | | | | | | | | |
Beginning balance | | $ | 6,440 | | | $ | 383 | | | $ | 24,940 | | | $ | 2,137 | | | $ | 33,900 | | | | | | | | | |
Provision for loan losses | | | 1,189 | | | | (14 | ) | | | 1,988 | | | | 547 | | | | 3,710 | | | | | | | | | |
Recoveries | | | 225 | | | | 17 | | | | 361 | | | | 386 | | | | 989 | | | | | | | | | |
Charge-offs | | | (368 | ) | | | (1 | ) | | | (990 | ) | | | (852 | ) | | | (2,211 | ) | | | | | | | | |
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Ending balance | | $ | 7,486 | | | $ | 385 | | | $ | 26,299 | | | $ | 2,218 | | | $ | 36,388 | | | | | | | | | |
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Nine months ended | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
September 30, 2013 | | | | | | | | |
Beginning balance | | $ | 7,343 | | | $ | 1,541 | | | $ | 24,063 | | | $ | 1,892 | | | $ | 34,839 | | | | | | | | | |
Provision for loan losses | | | (77 | ) | | | (1,056 | ) | | | 3,035 | | | | 680 | | | | 2,582 | | | | | | | | | |
Recoveries | | | 329 | | | | 29 | | | | 95 | | | | 266 | | | | 719 | | | | | | | | | |
Charge-offs | | | (582 | ) | | | (96 | ) | | | (1,899 | ) | | | (763 | ) | | | (3,340 | ) | | | | | | | | |
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Ending balance | | $ | 7,013 | | | $ | 418 | | | $ | 25,294 | | | $ | 2,075 | | | $ | 34,800 | | | | | | | | | |
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The Company’s recorded investment in loans as of September 30, 2014 and December 31, 2013 related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology was as follows (in thousands). Purchased credit impaired loans of $2,383,000 and $2,707,000 at September 30, 2014 and December 31, 2013, respectively, are included in loans individually evaluated for impairment. |
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September 30, 2014 | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 14,375 | | | $ | 446 | | | $ | 64,438 | | | $ | 2,131 | | | $ | 81,390 | | | | | | | | | |
Loans collectively evaluated for impairment | | | 597,717 | | | | 86,272 | | | | 1,710,201 | | | | 352,850 | | | | 2,747,040 | | | | | | | | | |
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Total | | $ | 612,092 | | | $ | 86,718 | | | $ | 1,774,639 | | | $ | 354,981 | | | $ | 2,828,430 | | | | | | | | | |
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December 31, 2013 | | Commercial | | | Agricultural | | | Real Estate | | | Consumer | | | Total | | | | | | | | | |
Loans individually evaluated for impairment | | $ | 12,183 | | | $ | 546 | | | $ | 69,272 | | | $ | 2,243 | | | $ | 84,244 | | | | | | | | | |
Loans collectively evaluated for impairment | | | 584,547 | | | | 75,382 | | | | 1,609,242 | | | | 330,870 | | | | 2,600,041 | | | | | | | | | |
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Total | | $ | 596,730 | | | $ | 75,928 | | | $ | 1,678,514 | | | $ | 333,113 | | | $ | 2,684,285 | | | | | | | | | |
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The Company’s loans that were modified in the three and nine months ended September 30, 2014 and 2013 and considered troubled debt restructurings are as follows (in thousands): |
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| | Three Months Ended September 30, 2014 | | | Nine Months Ended September 30, 2014 | | | | | |
| | | | | Pre-Modification | | | Post-Modification | | | | | | Pre-Modification | | | Post-Modification | | | | | |
| | | | | Recorded | | | Recorded | | | | | | Recorded | | | Recorded | | | | | |
| | Number | | | Investment | | | Investment | | | Number | | | Investment | | | Investment | | | | | |
Commercial | | | 1 | | | $ | 158 | | | $ | 158 | | | | 6 | | | $ | 557 | | | $ | 557 | | | | | |
Agricultural | | | — | | | | — | | | | — | | | | 1 | | | | 39 | | | | 39 | | | | | |
Real Estate | | | 1 | | | | 40 | | | | 40 | | | | 5 | | | | 630 | | | | 630 | | | | | |
Consumer | | | — | | | | — | | | | — | | | | 3 | | | | 11 | | | | 11 | | | | | |
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Total | | | 2 | | | $ | 198 | | | $ | 198 | | | | 15 | | | $ | 1,237 | | | $ | 1,237 | | | | | |
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| | Three Months Ended September 30, 2013 | | | Nine Months Ended September 30, 2013 | | | | | |
| | | | | Pre-Modification | | | Post-Modification | | | | | | Pre-Modification | | | Post-Modification | | | | | |
| | | | | Recorded | | | Recorded | | | | | | Recorded | | | Recorded | | | | | |
| | Number | | | Investment | | | Investment | | | Number | | | Investment | | | Investment | | | | | |
Commercial | | | — | | | $ | — | | | $ | — | | | | 3 | | | $ | 218 | | | $ | 218 | | | | | |
Agricultural | | | — | | | | — | | | | — | | | | 1 | | | | 24 | | | | 24 | | | | | |
Real Estate | | | — | | | | — | | | | — | | | | 8 | | | | 3,779 | | | | 3,779 | | | | | |
Consumer | | | 4 | | | | 86 | | | | 86 | | | | 5 | | | | 123 | | | | 123 | | | | | |
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Total | | | 4 | | | $ | 86 | | | $ | 86 | | | | 17 | | | $ | 4,144 | | | $ | 4,144 | | | | | |
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The balances below provide information as to how the loans were modified as troubled debt restructured loans during the three and nine months ended September 30, 2014 and 2013 (in thousands): |
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| | Three Months Ended September 30, 2014 | | | Nine Months Ended September 30, 2014 | | | | | |
| | Adjusted | | | Extended | | | Combined | | | Adjusted | | | Extended | | | Combined | | | | | |
Interest | Maturity | Rate and | Interest | Maturity | Rate and | | | | |
Rate | | Maturity | Rate | | Maturity | | | | |
Commercial | | $ | — | | | $ | 158 | | | $ | — | | | $ | — | | | $ | 255 | | | $ | 302 | | | | | |
Agricultural | | | — | | | | — | | | | — | | | | — | | | | — | | | | 39 | | | | | |
Real Estate | | | — | | | | — | | | | 40 | | | | — | | | | 118 | | | | 512 | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | 8 | | | | 3 | | | | | |
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Total | | $ | — | | | $ | 158 | | | $ | 40 | | | $ | — | | | $ | 381 | | | $ | 856 | | | | | |
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| | Three Months Ended September 30, 2013 | | | Nine Months Ended September 30, 2013 | | | | | |
| | Adjusted | | | Extended | | | Combined | | | Adjusted | | | Extended | | | Combined | | | | | |
Interest | Maturity | Rate and | Interest | Maturity | Rate and | | | | |
Rate | | Maturity | Rate | | Maturity | | | | |
Commercial | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 218 | | | $ | — | | | | | |
Agricultural | | | — | | | | — | | | | — | | | | — | | | | 24 | | | | — | | | | | |
Real Estate | | | — | | | | — | | | | — | | | | 420 | | | | 350 | | | | 3,009 | | | | | |
Consumer | | | — | | | | 82 | | | | 4 | | | | — | | | | 119 | | | | 4 | | | | | |
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Total | | $ | — | | | $ | 82 | | | $ | 4 | | | $ | 420 | | | $ | 711 | | | $ | 3,013 | | | | | |
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Certain loans were modified as troubled debt restructured loans within the previous 12 months and for which there was a payment default. A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or more or results in the foreclosure and repossession of the applicable collateral. The loans with payment default are as follows (dollars in thousands): |
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| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | | | | | | | | | | |
2014 | 2014 | | | | | | | | | | | | |
| | Number | | | Balance | | | Number | | | Balance | | | | | | | | | | | | | |
Commercial | | | — | | | $ | — | | | | — | | | $ | — | | | | | | | | | | | | | |
Agriculture | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
Real Estate | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | 1 | | | | 32 | | | | | | | | | | | | | |
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Total | | | — | | | $ | — | | | | 1 | | | $ | 32 | | | | | | | | | | | | | |
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| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | | | | | | | | | | |
2013 | 2013 | | | | | | | | | | | | |
| | Number | | | Balance | | | Number | | | Balance | | | | | | | | | | | | | |
Commercial | | | 1 | | | $ | 71 | | | | 6 | | | $ | 316 | | | | | | | | | | | | | |
Agriculture | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
Real Estate | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
Consumer | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1 | | | $ | 71 | | | | 6 | | | $ | 316 | | | | | | | | | | | | | |
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As of September 30, 2014, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings. |
Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas to provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits. At September 30, 2014, $1,634,405,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At September 30, 2014, $1,038,000 in advances were outstanding and $7,000,000 in letters of credit were outstanding under this line of credit. The letters of credit were pledged as collateral for public funds held by our bank subsidiary. |