NOTE 3: LOANS

Loans, including loans held for sale, by portfolio segment, at September 30, 2017 and December 31, 2016 are summarized as follows:


	September 30,				December 31,
	2017				2016
Commercial and industrial	$	548,870	24.9	%	$	511,554	23.7	%
Real estate:
Commercial real estate		689,501	31.3	%		697,794	32.3	%
Construction and development		424,489	19.3	%		491,626	22.8	%
1-4 family residential		246,564	11.2	%		236,882	11.0	%
Multi-family residential		211,219	9.6	%		133,210	6.2	%
Consumer		42,772	1.9	%		39,694	1.8	%
Agriculture		11,424	0.5	%		11,106	0.5	%
Other		29,684	1.3	%		38,180	1.7	%
Total gross loans		2,204,523	100.0	%		2,160,046	100.0	%
Less deferred loan fees		(4,338)				(4,321)
Less unearned discount on retained portion of loans sold		(241)				(227)
Less allowance for loan loss		(23,757)				(25,006)
Total loans, net		2,176,187				2,130,492
Less loans held for sale		466				613
Loans, net	$	2,175,721			$	2,129,879

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay‑off, which are measured at historical cost, are generally reported at their outstanding unpaid principal balances net of any unearned income, charge‑offs, and unamortized deferred fees and costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income is amortized to interest income using a level yield methodology without anticipating payoffs.

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management and the Board of Directors review and approve these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board of Directors with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non‑performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The majority of the loan portfolio is comprised of loans to businesses and individuals in the Houston metropolitan and Beaumont area. This geographic concentration subjects the loan portfolio to the general economic conditions within this area. The risks created by this concentration have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the allowance for loan losses is adequate to cover estimated losses on loans as of September 30, 2017 and December 31, 2016.

The Company’s loans are segmented by type as noted in the preceding table. The Company sub‑segments real estate loans into the following classes: commercial real estate, construction and development, 1‑4 family residential and multi‑family residential.

Loan Participations Purchased and Sold

From time to time, the Company will acquire and dispose of interests in loans under participating agreements with other financial institutions. Loan participations purchased and sold during the nine months ending September 30, 2017 and 2016, by loan class, are summarized as follows:


	Participations		Participations
	Purchased		Sold
	During the		During the
	Period		Period
September 30, 2017
Commercial and industrial	$	—	$	12,317
Commercial real estate		—		16,016
Construction and development		4,091		2,493
	$	4,091	$	30,826
September 30, 2016
Commercial real estate	$	—	$	654
Construction and development		—		2,983
	$	—	$	3,637

Loans Guaranteed by the United States Small Business Administration

The Company participates in the United States Small Business Administration (SBA) loan program.

The Company originates loans under the SBA chapter 7(a) and 504 programs which allows for federal guarantees of 75% to 90% of principal and accrued interest. When advantageous, the Company will sell the guaranteed portions of these loans with servicing retained. A majority of the nonguaranteed portion of these loans are reported as commercial real estate or commercial and industrial loans. Sales activity related to SBA loans during the nine months ending September 30, 2017 and 2016, is as follows:


	September 30,		September 30,
	2017		2016
Sold and serviced	$	2,173	$	3,490
Nonguaranteed portion retained		725		1,163
SBA loans subject to sale of guaranteed portion, net of payments	$	2,898	$	4,653