Loans and Allowance for Loan Losses | 3. LOANS AND ALLOWANCE FOR LOAN LOSSES: Loans held-for-investment December 31, 2017 2016 Commercial $ 684,099 $ 674,410 Agricultural 94,543 84,021 Real estate 2,302,998 2,189,844 Consumer 403,929 409,032 Total loans held-for-investment $ 3,485,569 $ 3,357,307 Loans held-for-sale The Company’s non-accrual December 31, 2017 2016 Non-accrual $ 17,670 $ 27,371 Loans still accruing and past due 90 days or more 288 284 Troubled debt restructured loans** 627 701 Total $ 18,585 $ 28,356 * Includes $618,000 and $1,256,000, respectively, of purchased credit impaired loans as of December 31, 2017 and 2016. ** Our troubled debt restructured loans of $4,629,000 and $6,863,000, 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, 2017 December 31, 2016 Recorded Investment Valuation Allowance Recorded Investment Valuation Allowance $17,670 $ 3,996 $ 27,371 $ 5,012 The Company had $20,117,000 and $29,000,000 in non-accrual, Non-accrual December 31, 2017 2016 Commercial $ 3,612 $ 7,284 Agricultural 134 99 Real Estate 12,838 18,754 Consumer 1,086 1,234 Total $ 17,670 $ 27,371 No significant additional funds are committed to be advanced in connection with impaired loans as of December 31, 2017. The Company’s impaired loans and related allowance as of December 31, 2017 and 2016 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, 2017 Unpaid Recorded Recorded Total Related 12 Month Commercial $ 5,597 $ 518 $ 3,094 $ 3,612 $ 1,194 $ 4,849 Agricultural 147 — 134 134 31 120 Real Estate 16,823 2,348 10,490 12,838 2,316 13,835 Consumer 1,284 143 943 1,086 455 1,258 Total $ 23,851 $ 3,009 $ 14,661 $ 17,670 $ 3,996 $ 20,062 * Includes $618,000 of purchased credit impaired loans. 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. The Company recognized interest income on impaired loans prior to being recognized as impaired of approximately $624,000, $829,000 and $922,000 during the years ended December 31, 2017, 2016 and 2015, 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, 2017 Pass Special Substandard Doubtful Total Commercial $ 649,166 $ 6,282 $ 28,651 $ — $ 684,099 Agricultural 90,457 1,527 2,559 — 94,543 Real Estate 2,227,302 29,089 46,607 — 2,302,998 Consumer 401,434 181 2,314 — 403,929 Total $ 3,368,359 $ 37,079 $ 80,131 $ — $ 3,485,569 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 At December 31, 2017 and 2016, the Company’s past due loans are as follows (in thousands): December 31, 2017 15-59 60-89 Greater Total Total Total Loans Total 90 Commercial $ 2,039 $ 1,104 $ 1,081 $ 4,224 $ 679,875 $ 684,099 $ 7 Agricultural 640 — — 640 93,903 94,543 — Real Estate 12,308 511 1,198 14,017 2,288,981 2,302,998 216 Consumer 1,360 361 135 1,856 402,073 403,929 65 Total $ 16,347 $ 1,976 $ 2,414 $ 20,737 $ 3,464,832 $ 3,485,569 $ 288 December 31, 2016 15-59 60-89 Greater Total Total Total Loans 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 * 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, 2017 and 2016 by portfolio segment (in thousands). There were no allowances for purchased credit impaired loans at December 31, 2017 or 2016. 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, 2017 Commercial Agricultural Real Consumer Total Loans individually evaluated for impairment $ 1,194 $ 31 $ 2,316 $ 455 $ 3,996 Loan collectively evaluated for impairment 9,671 1,274 27,580 5,635 44,160 Total $ 10,865 $ 1,305 $ 29,896 $ 6,090 $ 48,156 December 31, 2016 Commercial Agricultural Real 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 Changes in the allowance for loan losses for the years ended December 31, 2017 and 2016 are summarized as follows (in thousands): December 31, 2017 Commercial Agricultural Real Consumer Total Beginning balance $ 11,707 $ 1,101 $ 26,864 $ 6,107 $ 45,779 Provision for loan losses 1,233 243 4,055 999 6,530 Recoveries 943 32 192 501 1,668 Charge-offs (3,018 ) (71 ) (1,215 ) (1,517 ) (5,821 ) Ending balance $ 10,865 $ 1,305 $ 29,896 $ 6,090 $ 48,156 December 31, 2016 Commercial Agricultural Real 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 The Company’s recorded investment in loans as of December 31, 2017 and 2016 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 $618,000 and $1,256,000, respectively, at December 31, 2017 and 2016 are included in loans individually evaluated for impairment. December 31, 2017 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 3,612 $ 134 $ 12,838 $ 1,086 $ 17,670 Loan collectively evaluated for impairment 680,487 94,409 2,290,160 402,843 3,467,899 Total $ 684,099 $ 94,543 $ 2,302,998 $ 403,929 $ 3,485,569 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 The Company’s loans that were modified in the years ended December 31, 2017 and 2016, and considered troubled debt restructurings are as follows (in thousands): Year Ended December 31, 2017 Year Ended December 31, 2016 Number Pre-Modification Post- Number Pre-Modification Post- Commercial 11 $ 895 $ 895 15 $ 3,208 $ 3,208 Agricultural — — — — — — Real Estate 5 625 625 6 1,460 1,460 Consumer 1 25 25 7 189 189 Total 17 $ 1,545 $ 1,545 28 $ 4,857 $ 4,857 The balances below provide information as to how the loans were modified as troubled debt restructured loans during the years ended December 31, 2017 and 2016 (in thousands): Year Ended December 31, 2017 Year Ended December 31, 2016 Adjusted Extended Combined Adjusted Extended Combined Commercial $ — $ 195 $ 700 $ — $ 2,560 $ 648 Agricultural — — — — — — Real Estate — 312 313 — 298 1,162 Consumer — 25 — — 70 119 Total $ — $ 532 $ 1,013 $ — $ 2,928 $ 1,929 During the years ended December 31, 2017 and 2016, 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 Year Ended Number Balance Number Balance Commercial 2 $ 88 4 $ 1,690 Agriculture — — — — Real Estate — — 3 921 Consumer — — — — Total 2 $ 88 7 $ 2,611 As of December 31, 2017, 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, 2017 (determined as of each respective year-end) Beginning Additional Payments Ending Year ended December 31, 2017 $44,429 $58,420 $46,945 $55,904 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, 2017, $2,163,425,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At December 31, 2017, there was no balance outstanding under this line of credit. |