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LOANS AND ALLOWANCE FOR PROBABLE LOAN LOSSES (Tables)
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Classification of loans in the consolidated balance sheets
Loans in the accompanying consolidated balance sheets are classified as follows (in thousands):
 
 
December 31, 2018
 
December 31, 2017
Real Estate Loans:
 
 
 
 
Construction
 
$
507,732

 
$
475,867

1-4 Family Residential
 
794,499

 
805,341

Commercial
 
1,194,118

 
1,265,159

Commercial Loans
 
356,649

 
266,422

Municipal Loans
 
353,370

 
345,798

Loans to Individuals
 
106,431

 
135,769

Total Loans
 
3,312,799

 
3,294,356

Less: Allowance for Loan Losses (1)
 
27,019

 
20,781

Net Loans
 
$
3,285,780

 
$
3,273,575


(1)
Loans acquired with the Diboll acquisition were measured at fair value on November 30, 2017, with no carryover of allowance for loan loss. The allowance for loan loss recorded on PCI loans totaled $302,000 as of December 31, 2018. There was no allowance for loan loss recorded on PCI loans as of December 31, 2017.
Activity in the allowance for loan losses by portfolio segment
The following tables detail activity in the allowance for loan losses by portfolio segment for the periods presented (in thousands):
 
 
Year Ended December 31, 2018
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family
Residential
 
Commercial
 
Commercial
Loans
 
Municipal
Loans
 
Loans to
Individuals
 
Total
Balance at beginning of period (1)
 
$
3,676

 
$
2,445

 
$
10,821

 
$
2,094

 
$
860

 
$
885

 
$
20,781

Provision (reversal) for loan losses (2)
 
(72
)
 
1,134

 
3,894

 
2,392

 
(335
)
 
1,424

 
8,437

Loans charged off
 
(14
)
 
(91
)
 
(783
)
 
(756
)
 

 
(2,602
)
 
(4,246
)
Recoveries of loans charged off
 
7

 
356

 
36

 
244

 

 
1,404

 
2,047

Balance at end of period 
 
$
3,597

 
$
3,844

 
$
13,968

 
$
3,974

 
$
525

 
$
1,111

 
$
27,019


 
 
Year Ended December 31, 2017
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family Residential
 
Commercial
 
Commercial Loans
 
Municipal Loans
 
Loans to
Individuals
 
Total
Balance at beginning of period
 
$
4,147

 
$
2,665

 
$
7,204

 
$
2,263

 
$
750

 
$
882

 
$
17,911

Provision (reversal) for loan losses (2)
 
(437
)
 
65

 
3,604

 
242

 
110

 
1,091

 
4,675

Loans charged off
 
(35
)
 
(304
)
 

 
(723
)
 

 
(2,391
)
 
(3,453
)
Recoveries of loans charged off
 
1

 
19

 
13

 
312

 

 
1,303

 
1,648

Balance at end of period (1)
 
$
3,676

 
$
2,445

 
$
10,821

 
$
2,094

 
$
860

 
$
885

 
$
20,781


 
 
Year Ended December 31, 2016
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family Residential
 
Commercial
 
Commercial Loans (3)
 
Municipal Loans
 
Loans to
Individuals
 
Total
Balance at beginning of period 
 
$
4,350

 
$
2,595

 
$
4,577

 
$
6,596

 
$
725

 
$
893

 
$
19,736

Provision (reversal) for loan losses (2) 
 
(472
)
 
(28
)
 
2,604

 
6,397

 
(224
)
 
1,503

 
9,780

Loans charged off (3)
 

 
(43
)
 

 
(11,396
)
 

 
(2,948
)
 
(14,387
)
Recoveries of loans charged off
 
269

 
141

 
23

 
666

 
249

 
1,434

 
2,782

Balance at end of period
 
$
4,147

 
$
2,665

 
$
7,204

 
$
2,263

 
$
750

 
$
882

 
$
17,911



(1) Loans acquired with the Diboll acquisition were measured at fair value on November 30, 2017 with no carryover of allowance for loan loss.
(2) Of the $8.4 million in provision for loan losses for the year ended December 31, 2018, $302,000 related to provision expense on PCI loans. Of the $4.7 million and $9.8 million recorded in provision for loan losses for the year ended December 31, 2017 and 2016, respectively, none related to provision expense on PCI loans.
(3)
Of the $11.4 million in commercial charge-offs recorded for the year ended December 31, 2016, $10.9 million relates to the charge-off of two large commercial borrowing relationships.

Balance in the allowance for loan losses by portfolio segment based on impairment method
The following tables present the balance in the allowance for loan losses by portfolio segment based on impairment method (in thousands):
 
 
December 31, 2018
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family
Residential
 
Commercial
 
Commercial
Loans
 
Municipal
Loans
 
Loans to
Individuals
 
Total
Ending balance – individually evaluated for impairment (1)
 
$
13

 
$
40

 
$
5,337

 
$
368

 
$
1

 
$
149

 
$
5,908

Ending balance – collectively evaluated for impairment
 
3,584

 
3,804

 
8,631

 
3,606

 
524

 
962

 
21,111

Balance at end of period
 
$
3,597

 
$
3,844

 
$
13,968

 
$
3,974

 
$
525

 
$
1,111

 
$
27,019


 
 
December 31, 2017
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family
Residential
 
Commercial
 
Commercial
Loans
 
Municipal
Loans
 
Loans to
Individuals
 
Total
Ending balance – individually evaluated for impairment (1)
 
$
12

 
$
14

 
$
14

 
$
252

 
$
10

 
$
51

 
$
353

Ending balance – collectively evaluated for impairment
 
3,664

 
2,431

 
10,807

 
1,842

 
850

 
834

 
20,428

Balance at end of period
 
$
3,676

 
$
2,445

 
$
10,821

 
$
2,094

 
$
860

 
$
885

 
$
20,781

(1)
The allowance for loan loss on PCI loans totaled $302,000 as of December 31, 2018. There was no allowance for loan losses associated with PCI loans as of December 31, 2017
Balance in recorded investments in loans by portfolio segment based on impairment method
The following tables present the recorded investment in loans by portfolio segment based on impairment method (in thousands):
 
 
December 31, 2018
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
Construction

 
1-4 Family Residential
 
Commercial
 
Commercial Loans
 
Municipal Loans
 
Loans to Individuals
 
 
Total

Loans individually evaluated for impairment
 
$
12

 
$
1,215

 
$
33,013

 
$
1,394

 
$
429

 
$
184

 
$
36,247

Loans collectively evaluated for impairment
 
507,564

 
782,614

 
1,128,220

 
353,036

 
352,941

 
105,775

 
3,230,150

Purchased credit impaired loans (1) 
 
156

 
10,670

 
32,885

 
2,219

 

 
472

 
46,402

Total ending loan balance
 
$
507,732

 
$
794,499

 
$
1,194,118

 
$
356,649

 
$
353,370

 
$
106,431

 
$
3,312,799



 
 
December 31, 2017
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
Construction
 
1-4 Family Residential
 
Commercial
 
Commercial Loans
 
Municipal Loans
 
Loans to Individuals
 
Total
Loans individually evaluated for impairment
 
$
86

 
$
1,581

 
$
895

 
$
1,429

 
$
502

 
$
205

 
$
4,698

Loans collectively evaluated for impairment
 
475,505

 
797,111

 
1,232,327

 
259,745

 
345,296

 
134,441

 
3,244,425

Purchased credit impaired loans
 
276

 
6,649

 
31,937

 
5,248

 

 
1,123

 
45,233

Total ending loan balance
 
$
475,867

 
$
805,341

 
$
1,265,159

 
$
266,422

 
$
345,798

 
$
135,769

 
$
3,294,356



(1) At December 31, 2018, PCI totals include approximately $14.0 million in new funds to a borrower that has since been upgraded to a Pass credit.
Summary of loans by credit quality indicators
The following tables set forth credit quality indicators by class of loans for the periods presented (in thousands):
 
 
December 31, 2018
 
 
Pass
 
Pass Watch (1)
 
Special Mention (1)
 
Substandard (1)
 
Doubtful (1)
 
Total
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
507,529

 
$
163

 
$

 
$
28

 
$
12

 
$
507,732

1-4 Family Residential
 
787,516

 
37

 
100

 
5,489

 
1,357

 
794,499

Commercial
 
1,067,874

 
11,479

 
26,490

 
87,767

 
508

 
1,194,118

Commercial Loans
 
349,495

 
520

 
3,189

 
2,988

 
457

 
356,649

Municipal Loans
 
353,370

 

 

 

 

 
353,370

Loans to Individuals
 
105,536

 
4

 
4

 
678

 
209

 
106,431

Total
 
$
3,171,320

 
$
12,203

 
$
29,783

 
$
96,950

 
$
2,543

 
$
3,312,799


 
 
December 31, 2017
 
 
Pass
 
Pass Watch (1)
 
Special Mention (1)
 
Substandard (1)
 
Doubtful(1)
 
Total
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
471,446

 
$
3,329

 
$
77

 
$
982

 
$
33

 
$
475,867

1-4 Family Residential
 
796,639

 
559

 
857

 
6,610

 
676

 
805,341

Commercial
 
1,136,576

 
26,275

 
25,301

 
76,625

 
382

 
1,265,159

Commercial Loans
 
247,430

 
9,625

 
3,956

 
5,203

 
208

 
266,422

Municipal Loans
 
344,366

 

 
930

 
502

 

 
345,798

Loans to Individuals
 
134,694

 
20

 
102

 
707

 
246

 
135,769

Total
 
$
3,131,151

 
$
39,808

 
$
31,223

 
$
90,629

 
$
1,545

 
$
3,294,356


(1)
Includes PCI loans comprised of $22,000 pass watch, $859,000 special mention, $3.9 million substandard and $1.2 million doubtful as of December 31, 2018. Includes PCI loans comprised of $362,000 pass watch, $6.0 million special mention, $10.5 million substandard and $925,000 doubtful as of December 31, 2017.
Summary of nonperforming assets for the period
The following table sets forth nonperforming assets for the periods presented (in thousands):
 
 
December 31, 2018
 
December 31, 2017
Nonaccrual loans (1) (2)
 
$
35,770

 
$
2,937

Accruing loans past due more than 90 days (1)
 

 
1

Restructured loans (3)
 
5,930

 
5,767

Other real estate owned
 
1,206

 
1,613

Repossessed assets
 

 
154

Total Nonperforming Assets
 
$
42,906

 
$
10,472

(1)
Excludes PCI loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated. The increase in nonaccrual loans was primarily due to the addition of four commercial real estate loans to nonaccrual status during the year, one of which was added during the fourth quarter.
(2)
Includes $10.9 million and $1.3 million of restructured loans as of December 31, 2018 and 2017, respectively.
(3)
Includes $3.1 million and $2.9 million in PCI loans restructured as of December 31, 2018 and 2017, respectively.
Recorded investment in nonaccrual by class of loans
The following table sets forth the recorded investment in nonaccrual loans by class of loans for the periods presented (in thousands). The table excludes PCI loans measured at fair value at acquisition:
 
 
Nonaccrual Loans
 
 
December 31, 2018
 
December 31, 2017
Real Estate Loans:
 
 
 
 
Construction
 
$
12

 
$
86

1-4 Family Residential
 
2,202

 
1,098

Commercial
 
32,599

 
595

Commercial Loans
 
639

 
903

Loans to Individuals
 
318

 
255

Total
 
$
35,770

 
$
2,937


Summary of impaired loans by class of loans for the period
The following tables set forth impaired loans by class of loans, including the unpaid contractual principal balance, the recorded investment and the allowance for loan losses for the periods presented (in thousands). Impaired loans include restructured and nonaccrual loans for which the allowance was measured in accordance with section 310-10 of ASC Topic 310, “Receivables.” There were no impaired loans recorded without an allowance for the years ended December 31, 2018 or 2017.
 
 
December 31, 2018
 
 
Unpaid Contractual
Principal Balance
 
Recorded
Investment
 
Related Allowance for Loan Losses
Real Estate Loans:
 
 
 
 
 
 
Construction
 
$
182

 
$
148

 
$
13

1-4 Family Residential
 
6,507

 
5,923

 
40

Commercial
 
36,457

 
34,744

 
5,337

Commercial Loans
 
2,874

 
2,366

 
368

Municipal Loans
 
429

 
429

 
1

Loans to Individuals
 
825

 
657

 
149

Total (1)
 
$
47,274

 
$
44,267

 
$
5,908


 
 
December 31, 2017
 
 
Unpaid Contractual
Principal Balance
 
Recorded
Investment
 
Related Allowance for Loan Losses
Real Estate Loans:
 
 
 
 
 
 
Construction
 
$
91

 
$
86

 
$
12

1-4 Family Residential
 
4,141

 
3,952

 
14

Commercial
 
1,353

 
1,199

 
14

Commercial Loans
 
1,665

 
1,605

 
252

Municipal Loans
 
502

 
502

 
10

Loans to Individuals
 
237

 
205

 
51

Total (1)
 
$
7,989

 
$
7,549

 
$
353


(1)
Includes $8.0 million and $2.9 million of PCI loans that experienced deterioration in credit quality subsequent to the acquisition date as of December 31, 2018 and December 31, 2017, respectively.
Aging of recorded investment in past due loans by class of loans
The following tables present the aging of the recorded investment in past due loans by class of loans (in thousands):
 
 
December 31, 2018
 
 
30-59 Days
Past Due
 
60-89 Days
 Past Due
 
Greater than
90 Days
Past Due
 
Total Past
Due
 
Current (1)
 
Total
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
627

 
$
307

 
$

 
$
934

 
$
506,798

 
$
507,732

1-4 Family Residential
 
7,441

 
1,258

 
1,335

 
10,034

 
784,465

 
794,499

Commercial
 
10,663

 
7,655

 

 
18,318

 
1,175,800

 
1,194,118

Commercial Loans
 
1,946

 
705

 
591

 
3,242

 
353,407

 
356,649

Municipal Loans
 

 

 

 

 
353,370

 
353,370

Loans to Individuals
 
1,289

 
351

 
146

 
1,786

 
104,645

 
106,431

Total
 
$
21,966

 
$
10,276

 
$
2,072

 
$
34,314

 
$
3,278,485

 
$
3,312,799


 
 
December 31, 2017
 
 
30-59 Days
Past Due
 
60-89 Days
 Past Due
 
Greater than
 90 Days
Past Due
 
Total Past
 Due
 
Current (1)
 
Total
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
1,302

 
$
1,530

 
$
68

 
$
2,900

 
$
472,967

 
$
475,867

1-4 Family Residential
 
8,508

 
1,574

 
862

 
10,944

 
794,397

 
805,341

Commercial
 
1,357

 
24

 
5

 
1,386

 
1,263,773

 
1,265,159

Commercial Loans
 
662

 
400

 
333

 
1,395

 
265,027

 
266,422

Municipal Loans
 
422

 

 

 
422

 
345,376

 
345,798

Loans to Individuals
 
1,526

 
373

 
93

 
1,992

 
133,777

 
135,769

Total
 
$
13,777

 
$
3,901

 
$
1,361

 
$
19,039

 
$
3,275,317

 
$
3,294,356

(1)
Includes PCI loans measured at fair value at acquisition if the timing and amount of cash flows expected to be collected from those sales can be reasonably estimated.

Average recorded investment and interest income on impaired loans
The following table sets forth average recorded investment and interest income recognized on impaired loans by class of loans for the periods presented (in thousands). The table excludes PCI loans measured at fair value at acquisition that have not experienced further deterioration in credit quality subsequent to the acquisition date:

 
 
Years Ended December 31,
 
 
2018
 
2017
 
2016
 
 
Average
Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
 
 
Construction
 
$
149

 
$
7

 
$
251

 
$

 
$
510

 
$
22

1-4 Family Residential
 
4,193

 
208

 
4,264

 
197

 
3,247

 
169

Commercial
 
26,186

 
65

 
1,338

 
30

 
4,490

 
63

Commercial Loans
 
2,131

 
102

 
2,862

 
59

 
13,481

 
48

Municipal Loans
 
474

 
26

 
545

 
30

 
612

 
33

Loans to Individuals
 
250

 
9

 
244

 
9

 
257

 
9

Total
 
$
33,383

 
$
417

 
$
9,504

 
$
325

 
$
22,597

 
$
344


Schedule of recorded investment in loans modified
The following tables set forth the recorded balance of loans considered to be TDRs that were restructured and the type of concession during the periods presented (dollars in thousands):
 
 
December 31, 2018
 
 
Extend Amortization
 Period
 
Interest Rate Reductions
 
Combination
 
Total Modifications
 
Number of Contracts
Real Estate Loans:
 
 
 
 
 
 
 
 
 
 
1-4 Family Residential
 
$

 
$
79

 
$

 
$
79

 
1
Commercial
 
10,398

 

 
274

 
10,672

 
3
Commercial Loans
 
211

 

 
215

 
426

 
13
Loans to Individuals
 
8

 
33

 
51

 
92

 
5
Total
 
$
10,617

 
$
112

 
$
540

 
$
11,269

 
22

 
 
December 31, 2017
 
 
Extend Amortization
 Period
 
Interest Rate Reductions
 
Combination
 
Total Modifications
 
Number of Contracts
 
 
 
 
 
 
 
 
 
 
 
Commercial Loans
 
$
778

 
$

 
$
241

 
$
1,019

 
4
Loans to Individuals
 
23

 

 
52

 
75

 
6
Total
 
$
801

 
$

 
$
293

 
$
1,094

 
10
Schedule of acquired PCI loans
The table below details the PCI loan portfolio at the Diboll acquisition date (in thousands):
 
Purchased Credit Impaired Loans at Acquisition Date
Contractually required principal and interest payments
$
59,286

Nonaccretable difference
4,560

Cash flows expected to be collected
54,726

Accretable difference
15,389

Fair value of loans acquired with a deterioration of credit quality
$
39,337

The following table presents the outstanding principal balance and carrying value for PCI loans for the periods presented (in thousands):
 
December 31, 2018
 
December 31, 2017
Outstanding principal balance (1)
$
51,388

 
$
52,426

Carrying amount (1)
$
46,402

 
$
45,233

(1) At December 31, 2018, PCI totals include approximately $14.0 million in new funds to a borrower that has since been upgraded to a Pass credit.
Schedule of changes in accretable yield for PCI loans
The following table presents the changes in the accretable yield during the periods for PCI loans (in thousands):
 
December 31, 2018
 
December 31, 2017
Balance at beginning of period
$
18,721

 
$
2,480

Additions due to acquisition

 
15,389

Changes in expected cash flows not affecting non-accretable differences
(1,445
)
 

Reclassifications (to) from nonaccretable discount
1,211

 
1,720

Accretion
(3,433
)
 
(868
)
Balance at end of period
$
15,054

 
$
18,721