Loans and Allowance for Loan Losses | 3. LOANS AND ALLOWANCE FOR LOAN LOSSES: Loans held-for-investment December 31, 2016 2015 Commercial $ 674,410 $ 696,163 Agricultural 84,021 102,351 Real estate 2,189,844 2,136,233 Consumer 409,032 382,303 Total loans held-for-investment $ 3,357,307 $ 3,317,050 Loans held-for-sale The Company’s non-accrual December 31, 2016 2015 Non-accrual $ 27,371 $ 28,601 Loans still accruing and past due 90 days or more 284 341 Troubled debt restructured loans** 701 199 Total $ 28,356 $ 29,141 * Includes $1,256,000 and $2,178,000, respectively, of purchased credit impaired loans as of December 31, 2016 and 2015. ** Our troubled debt restructured loans of $6,863,000 and $6,113,000, whose interest collection, after considering economic and business conditions and collection efforts, is doubtful are included in non-accrual The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (in thousands): December 31, 2016 December 31, 2015 Recorded Investment Valuation Allowance Recorded Investment Valuation Allowance $ 27,371 $ 5,012 $ 28,601 $ 5,071 The Company had $29,000,000 and $29,768,000 in non-accrual, Non-accrual December 31, 2016 2015 Commercial $ 7,284 $ 8,761 Agricultural 99 97 Real Estate 18,754 18,766 Consumer 1,234 977 Total $ 27,371 $ 28,601 No significant additional funds are committed to be advanced in connection with impaired loans as of December 31, 2016. The Company’s impaired loans and related allowance as of December 31, 2016 and 2015 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. December 31, 2016 Unpaid Recorded Recorded Total Related 12 Month Commercial $ 13,389 $ 1,148 $ 6,136 $ 7,284 $ 2,128 $ 4,921 Agricultural 103 — 99 99 25 50 Real Estate 23,466 6,229 12,525 18,754 2,428 16,170 Consumer 1,421 280 954 1,234 431 914 Total $ 38,379 $ 7,657 $ 19,714 $ 27,371 $ 5,012 $ 22,055 * Includes $1,256,000 of purchased credit impaired loans. December 31, 2015 Unpaid Recorded Recorded Total Related 12 Month Commercial $ 10,056 $ 608 $ 8,153 $ 8,761 $ 2,030 $ 5,812 Agricultural 97 — 97 97 70 48 Real Estate 23,710 5,314 13,452 18,766 2,827 15,211 Consumer 1,167 624 353 977 144 664 Total $ 35,030 $ 6,546 $ 22,055 $ 28,601 $ 5,071 $ 21,735 * Includes $2,178,000 of purchased credit impaired loans. The Company recognized interest income on impaired loans prior to being recognized as impaired of approximately $829,000, $922,000 and $162,000 during the years ended December 31, 2016, 2015, and 2014, respectively. 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 Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits 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 December 31, 2016 Pass Special Substandard Doubtful Total Commercial $ 629,756 $ 5,769 $ 38,885 $ — $ 674,410 Agricultural 81,620 715 1,686 — 84,021 Real Estate 2,111,947 18,091 59,806 — 2,189,844 Consumer 406,182 212 2,638 — 409,032 Total $ 3,229,505 $ 24,787 $ 103,015 $ — $ 3,357,307 December 31, 2015 Pass Special Substandard Doubtful Total Commercial $ 633,083 $ 9,762 $ 53,318 $ — $ 696,163 Agricultural 99,862 1,398 1,091 — 102,351 Real Estate 2,054,738 29,000 52,458 37 2,136,233 Consumer 379,941 416 1,946 — 382,303 Total $ 3,167,624 $ 40,576 $ 108,813 $ 37 $ 3,317,050 At December 31, 2016 and 2015, the Company’s past due loans are as follows (in thousands): December 31, 2016 15-59 60-89 Greater Total Total Total Total 90 Commercial $ 3,908 $ 1,122 $ 2,220 $ 7,250 $ 667,160 $ 674,410 $ 10 Agricultural 185 — — 185 83,836 84,021 — Real Estate 13,172 1,301 5,268 19,741 2,170,103 2,189,844 272 Consumer 1,845 368 122 2,335 406,697 409,032 2 Total $ 19,110 $ 2,791 $ 7,610 $ 29,511 $ 3,327,796 $ 3,357,307 $ 284 December 31, 2015 15-59 60-89 Greater Total Total Total Total 90 Commercial $ 3,099 $ 3,652 $ 1,024 $ 7,775 $ 688,388 $ 696,163 $ 54 Agricultural 348 83 — 431 101,920 102,351 — Real Estate 12,247 2,226 2,874 17,347 2,118,886 2,136,233 217 Consumer 1,645 183 266 2,094 380,209 382,303 70 Total $ 17,339 $ 6,144 $ 4,164 $ 27,647 $ 3,289,403 $ 3,317,050 $ 341 * 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 following table details the allowance for loan losses at December 31, 2016 and 2015 by portfolio segment (in thousands). There were no allowances for purchased credit impaired loans at December 31, 2016 or 2015. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. December 31, 2016 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 2,128 $ 25 $ 2,428 $ 431 $ 5,012 Loan collectively evaluated for impairment 9,579 1,076 24,436 5,676 40,767 Total $ 11,707 $ 1,101 $ 26,864 $ 6,107 $ 45,779 December 31, 2015 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 2,030 $ 70 $ 2,827 $ 144 $ 5,071 Loan collectively evaluated for impairment 10,614 1,121 21,548 3,523 36,806 Total $ 12,644 $ 1,191 $ 24,375 $ 3,667 $ 41,877 Changes in the allowance for loan losses for the years ended December 31, 2016 and 2015 are summarized as follows (in thousands): December 31, 2016 Commercial Agricultural Real Estate Consumer Total Beginning balance $ 12,644 $ 1,191 $ 24,375 $ 3,667 $ 41,877 Provision for loan losses 5,101 104 1,150 3,857 10,212 Recoveries 952 25 2,021 508 3,506 Charge-offs (6,990 ) (219 ) (682 ) (1,925 ) (9,816 ) Ending balance $ 11,707 $ 1,101 $ 26,864 $ 6,107 $ 45,779 December 31, 2015 Commercial Agricultural Real Estate Consumer Total Beginning balance $ 7,990 $ 527 $ 26,657 $ 1,650 $ 36,824 Provision for loan losses 8,044 773 (2,399 ) 3,267 9,685 Recoveries 344 55 558 450 1,407 Charge-offs (3,734 ) (164 ) (441 ) (1,700 ) (6,039 ) Ending balance $ 12,644 $ 1,191 $ 24,375 $ 3,667 $ 41,877 The Company’s recorded investment in loans as of December 31, 2016 and 2015 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 $1,256,000 and $2,178,000, respectively, at December 31, 2016 and 2015 are included in loans individually evaluated for impairment. December 31, 2016 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 7,284 $ 99 $ 18,754 $ 1,234 $ 27,371 Loan collectively evaluated for impairment 667,126 83,922 2,171,090 407,798 3,329,936 Total $ 674,410 $ 84,021 $ 2,189,844 $ 409,032 $ 3,357,307 December 31, 2015 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 8,761 $ 97 $ 18,766 $ 977 $ 28,601 Loan collectively evaluated for impairment 687,402 102,254 2,117,467 381,326 3,288,449 Total $ 696,163 $ 102,351 $ 2,136,233 $ 382,303 $ 3,317,050 The Company’s loans that were modified in the years ended December 31, 2016 and 2015, and considered troubled debt restructurings are as follows (in thousands): Year Ended December 31, 2016 Year Ended December 31, 2015 Number Pre-Modification Post- Number Pre-Modification Post- Commercial 15 $ 3,208 $ 3,208 8 $ 447 $ 447 Agricultural — — — 3 128 128 Real Estate 6 1,460 1,460 5 598 598 Consumer 7 189 189 7 255 255 Total 28 $ 4,857 $ 4,857 23 $ 1,428 $ 1,428 The balances below provide information as to how the loans were modified as troubled debt restructured loans during the years ended December 31, 2016 and 2015 (in thousands): Year Ended December 31, 2016 Year Ended December 31, 2015 Adjusted Extended Combined Adjusted Extended Combined Commercial $ — $ 2,560 $ 648 $ — $ 182 $ 265 Agricultural — — — — 128 — Real Estate — 298 1,162 15 150 433 Consumer — 70 119 — 56 199 Total $ — $ 2,928 $ 1,929 $ 15 $ 516 $ 897 During the years ended December 31, 2016 and 2015, certain loans were modified as a 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 or more due or results in the foreclosure and repossession of the applicable collateral. The loans with payment default are as follows (dollars in thousands): Year Ended December 31, 2016 Year Ended December 31, 2015 Number Balance Number Balance Commercial 4 $ 1,690 1 $ 66 Agriculture — — — — Real Estate 3 921 1 15 Consumer — — 2 32 Total 7 $ 2,611 4 $ 113 As of December 31, 2016, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings. An analysis of the changes in loans to officers, directors, principal shareholders, or associates of such persons for the year ended December 31, 2016 (determined as of each respective year-end) Beginning Additional Payments Ending Year ended December 31, 2016 $ 65,729 $ 49,674 $ 70,974 $ 44,429 In the opinion of management, those loans are on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unaffiliated persons. Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas (FHLB) to provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits. At December 31, 2016, $2,081,615,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At December 31, 2016, $75,000,000 in advances were outstanding under this line of credit. |