6. LOANS

The loan portfolio classified by type and class as of the dates set forth were as follows:


	December 31, 2014

	Originated		Acquired		Total
	(Dollars in thousands)

Commercial & industrial	$	759,810	$	28,600	$	788,410
Real estate:
Owner occupied commercial real estate		148,197		15,395		163,592
Commercial real estate		308,521		30,485		339,006
Construction, land & land development		230,143		10,523		240,666
Residential mortgage		107,275		149,791		257,066
Consumer and other		6,785		3,630		10,415
Total loans held for investment	$	1,560,731	$	238,424	$	1,799,155

Total loans held-for-sale	$	573	$	-	$	573


	December 31, 2013

	Originated		Acquired		Total
		(Dollars in thousands)

Commercial & industrial	$	674,621	$	6,669	$	681,290
Real estate:
Owner occupied commercial real estate		153,507		3,454		156,961
Commercial real estate		254,838		12,173		267,011
Construction, land & land development		139,867		200		140,067
Residential mortgage		105,888		474		106,362
Consumer and other		7,296		428		7,724
Total loans held for investment	$	1,336,017	$	23,398	$	1,359,415

Total loans held-for-sale	$	-	$	-	$	-

The loan portfolio is comprised of three types, commercial and industrial loans, real estate loans and consumer and other loans. The real estate loans are further segregated into owner occupied commercial real estate, commercial real estate, which includes multi-family loans, construction, land and land development, which includes both commercial construction and loans for the construction of residential properties and residential mortgage, which includes first and second liens and home equity lines. Consumer and other loans includes various types of loans to consumers and overdrafts. Loans are further separated between loans originated by the Company and loans acquired.

Included in the loans held for investment balance was $10.3 million and $7.1 million of net deferred loan origination fees and unamortized premium and discount at December 31, 2014 and 2013, respectively. Also included in loans at December 31, 2014 and 2013, respectively was $1.4 million and $375 thousand in non-accretable discount on acquired credit impaired loans. Accrued interest receivable on loans was $4.5 million and $3.5 million at December 31, 2014 and 2013, respectively. Consumer and other loans include overdrafts of $51 thousand and $21 thousand as of December 31, 2014 and 2013, respectively.

The loan portfolio consists of various types of loans made principally to borrowers located in the Houston, Dallas and Austin metropolitan areas. Although the portfolio is diversified and generally secured by various types of collateral, a substantial portion of its debtors’ ability to honor their obligations is dependent on local economic conditions. The risks created by this geographic concentration and our exposure to energy related borrowers have been considered by management in the determination of the adequacy of the allowance for loan losses.

Reserved-based energy loans outstanding represented approximately 8.7% and 9.6% of total funded loans, respectively, as of December 31, 2014 and 2013. Energy related service industry loans represented approximately 5.2% and 8.7% of total funded loans, respectively, as of December 31, 2014 and 2013. None of these loans were impaired as of December 31, 2014. Management believes the allowance for loan losses is appropriate to cover estimated losses on loans at each balance sheet date.

Loan maturities and rate sensitivity of the loans held for investment, as of the date indicated, was as follows:


	December 31, 2014
	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years		Total
	(Dollars in thousands)

Commercial & industrial	$	254,202	$	484,088	$	50,120	$	788,410
Real estate:
Owner occupied commercial real estate		20,309		65,940		77,343		163,592
Commercial real estate		27,827		245,244		65,935		339,006
Construction, land & land development		42,433		112,086		86,147		240,666
Residential mortgage		3,541		62,111		191,414		257,066
Consumer and other		6,167		3,274		974		10,415

Total loans held for investment	$	354,479	$	972,743	$	471,933	$	1,799,155

Fixed rate	$	41,402	$	227,371	$	113,189	$	381,962
Floating rate		313,077		745,372		358,744		1,417,193

Total loans held for investment	$	354,479	$	972,743	$	471,933	$	1,799,155

In the ordinary course of business, the Company has granted loans to certain directors, officers and their affiliates. In the opinion of management, all transactions entered into between the Bank and such related parties have been and are in the ordinary course of business, made on the same terms and conditions as similar transactions with unaffiliated persons.

An analysis of activity with respect to these related-party loans for the periods ended December 31, 2014 and 2013 was as follows:


	December 31,
	2014		2013
	(Dollars in thousands)

Beginning balance	$	-	$	-
Advances		2		-
Repayments		(2)		-
Ending Balance	$	-	$	-

Acquired Loans — The outstanding principal balance and recorded investment in loans acquired from Share Plus at December 31, 2014 and October 17, 2014, was as follows:


	December 31,		October 17,
	2014		2014
	(Dollars in thousands)

Credit impaired acquired loans:
Outstanding principal balance	$	8,584	$	8,782
Recorded investment		7,353		7,549
Discount, net	$	1,231	$	1,233

Other acquired loans:
Outstanding principal balance		221,100		247,394
Deferred fees, net		(3)		-
Recorded investment		219,157		245,262
Discount, net	$	1,940	$	2,132

Total acquired loans:
Outstanding principal balance		229,684		256,176
Deferred fees, net		(3)		-
Recorded investment		226,510		252,811
Discount, net	$	3,171	$	3,365

The outstanding principal balance and recorded investment in the total acquired loans from all acquisitions at December 31, 2014 and 2013, was as follows:


	December 31,
	2014		2013
	(Dollars in thousands)

Credit impaired acquired loans:
Outstanding principal balance	$	16,224	$	8,477
Recorded investment		14,154		7,498
Discount, net	$	2,070	$	979

Other acquired loans:
Outstanding principal balance		226,284		16,187
Deferred fees, net		(3)		-
Recorded investment		224,270		15,900
Discount, net	$	2,011	$	287

Total acquired loans:
Outstanding principal balance		242,508		24,664
Deferred fees, net		(3)		-
Recorded investment		238,424		23,398
Discount, net	$	4,081	$	1,266

Changes in the accretable yield for credit impaired acquired loans for the periods indicated, were as follows:


	Year Ended December 31,
	2014		2013
	(Dollars in thousands)

Balance at beginning of period	$	603	$	510
Additions		62		-
Reclassifications from (to) nonaccretable yield		161		192
Accretion		(141)		(99)
Balance at period end	$	685	$	603

Purchased credit impaired loans are evaluated on an ongoing basis after acquisition. Reclassifications from nonaccretable yield to accretable yield are recorded based on the current estimates of the timing and amount of expected future cash flows.

Nonaccrual and Past Due Loans — When management doubts a borrower’s ability to meet payment obligations, which typically occurs when principal or interest payments are more than 90 days past due, the loans are placed on nonaccrual status.

The age analysis of loans, segregated by class, as of the dates set forth was as follows:


	December 31, 2014
	Loans Past Due and Still Accruing
	30 - 89 Days Past Due		90 Days or More Past Due		Total		Nonaccrual		Purchased Credit Impaired		Current		Total Loans
	(Dollars in thousands)

Originated Loans
Commercial & industrial	$	7,266	$	-	$	7,266	$	1,789	$	-	$	750,755	$	759,810
Real estate:
Owner occupied commercial real estate		1,464		-		1,464		173		-		146,560		148,197
Commercial real estate		-		-		-		-		-		308,521		308,521
Construction, land & land development		677		-		677		940		-		228,526		230,143
Residential mortgage		382		16		398		1,277		-		105,600		107,275
Consumer and other		217		-		217		95		-		6,473		6,785

Total loans held for investment	$	10,006	$	16	$	10,022	$	4,274	$	-	$	1,546,435	$	1,560,731

Acquired Loans
Commercial & industrial	$	137	$	-	$	137	$	-	$	2,432	$	26,031	$	28,600
Real estate:
Owner occupied commercial real estate		-		-		-		-		1,248		14,147		15,395
Commercial real estate		1,141		-		1,141		570		7,261		21,513		30,485
Construction, land & land development		2,048		-		2,048		-		72		8,403		10,523
Residential mortgage		981		-		981		-		3,141		145,669		149,791
Consumer and other		7		-		7		-		-		3,623		3,630

Total loans held for investment	$	4,314	$	-	$	4,314	$	570	$	14,154	$	219,386	$	238,424


	December 31, 2013
	Loans Past Due and Still Accruing
	30 - 89 Days Past Due		90 Days or More Past Due		Total		Nonaccrual		Purchased Credit Impaired		Current		Total Loans
	(Dollars in thousands)

Originated Loans
Commercial & industrial	$	4,988	$	-	$	4,988	$	7,345	$	-	$	662,288	$	674,621
Real estate:
Owner occupied commercial real estate		780		536		1,316		-		-		152,191		153,507
Commercial real estate		-		780		780		164		-		253,894		254,838
Construction, land & land development		-		-		-		587		-		139,280		139,867
Residential mortgage		221		-		221		1,328		-		104,339		105,888
Consumer and other		208		-		208		1,284		-		5,804		7,296

Total loans held for investment	$	6,197	$	1,316	$	7,513	$	10,708	$	-	$	1,317,796	$	1,336,017

Acquired Loans
Commercial & industrial	$	-	$	-	$	-	$	-	$	895	$	5,774	$	6,669
Real estate:
Owner occupied commercial real estate		-		-		-		-		1,655		1,799		3,454
Commercial real estate		-		-		-		652		4,676		6,845		12,173
Construction, land & land development		-		-		-		-		96		104		200
Residential mortgage		-		-		-		-		176		298		474
Consumer and other		24		-		24		-		-		404		428

Total loans held for investment	$	24	$	-	$	24	$	652	$	7,498	$	15,224	$	23,398

Impaired Loans — The following is a summary of information related to impaired, nonaccrual and restructured loans as of the dates set forth:


	December 31,
	2014		2013
	(Dollars in thousands)

Nonaccrual loans	$	2,127	$	1,496
Accruing loans past due 90 days or more		16		1,316
Restructured loans - nonaccrual		2,717		9,864
Restructured loans - accruing		2,257		4,072
Total nonperforming loans	$	7,117	$	16,748

Based on an analysis of impaired loans at December 31, 2014 and 2013, an allowance of $468 thousand and $4.3 million, respectively, was allocated to impaired loans. The average recorded investment in impaired loans for the years ended December 31, 2014 and 2013, was $11.7 million and $38.0 million, respectively. There was approximately $667 thousand, $373 thousand and $253 thousand in interest recognized on impaired loans, for the years ended December 31, 2014, 2013 and 2012, respectively. Interest recognized includes interest accrued on restructured loans that are performing based on their restructured terms and interest collected on paid nonaccrual loans.

Impaired loans of $4.8 million and $11.4 million at December 31, 2014 and 2013 respectively, have been categorized by management as nonaccrual loans. Interest foregone on nonaccrual loans for the years ended December 31, 2014, 2013 and 2012 was approximately $401 thousand, $657 thousand and $775 thousand, respectively.

The following table presents additional information regarding impaired loans that were individually evaluated for impairment as of the dates indicated:


	December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)

With no related allowance recorded:
Commercial & industrial	$	1,424	$	1,424	$	-
Owner occupied commercial real estate		173		173		-
Commercial real estate		2,506		2,510
Construction, land & land development		969		969		-
Residential mortgage		1,277		1,277		-
Consumer and other		155		156		-

With an allowance recorded:
Commercial & industrial	$	502	$	502	$	373
Consumer and other		95		95		95

Total:
Commercial & Industrial	$	1,926	$	1,926	$	373
Real Estate		4,925		4,929		-
Consumer and other		250		251		95
	$	7,101	$	7,106	$	468


	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)

With no related allowance recorded:
Commercial & industrial	$	631	$	631	$	-
Commercial real estate		2,690		2,692		-
Construction, land & land development		1,751		1,751		-
Residential mortgage		1,213		1,213		-
Consumer and other		170		170		-

With an allowance recorded:
Commercial & industrial	$	6,932	$	6,932	$	2,924
Commercial real estate		653		653		45
Residential mortgage		114		114		88
Consumer and other		1,278		1,278		1,278

Total:
Commercial & Industrial	$	7,563	$	7,563	$	2,924
Real Estate		6,421		6,423		133
Consumer and other		1,448		1,448		1,278
	$	15,432	$	15,434	$	4,335

Credit Quality — Internally assigned risk grades for loans are defined as follows:

Grade 1 (Highest Quality — No Apparent Risk) — This category includes loans to borrowers of unquestioned credit standing which are secured by readily marketable collateral of undisputed value, with appropriate margin. It also includes loans to borrowing entities with: excellent capitalization, liquidity and earnings levels; quality management; positive financial trends; and favorable industry conditions.

Grade 2 (Good Quality — Minimal Risk) — This category includes loans to investment grade entities with: good liquidity and financial condition, nominal term debt, strong debt service capability, solid management, and quality financial information. These loans are usually secured with current assets, but may be unsecured. Alternative financing from other lenders is generally available to these borrowers.

Grade 3 (Satisfactory Quality — Acceptable Risk — Tier One) — This category includes loans to entities maintaining fair liquidity and acceptable financial conditions. The level of term debt is moderate, with adequate debt service capability. Earnings may be volatile, but borrowers in this category generally do not show a loss within the last three years. Primary debt service must be supported by identified secondary repayment sources or by guarantors with adequate and proven responsibility and capacity.

Grade 4 (Satisfactory Quality — Acceptable Risk — Tier Two) — This category includes loans to borrowers maintaining acceptable financial conditions; however may exhibit certain characteristics of leverage or asset dependency that reflect a greater level of risk than Tier One credits. This category may also include borrowers exhibiting explainable interim losses within the previous three years and/or industry characteristics that warrant frequent monitoring.

Grade 5 (Monitored Loans) — This category includes loans with trends or characteristics which, if continued, could result in impaired repayment ability. The borrower may exhibit a low degree of liquidity and relatively high leverage, erratic earnings history (including the possibility of a reported loss in the past four years), significant term debt and a nominal cushion for debt service capacity. Loans in this category may also include financing to start-up borrowers backed by experienced management and significant capital investment or established companies in distressed industry conditions.

Grade 6 (Other Assets Especially Mentioned) — This category includes loans which have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or a weakening of the Company’s credit position at some future date. Grade 6 loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Grade 7 (Substandard — Accruing) — This category includes loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any, or loans with identified weaknesses but where there is sufficient collateral value and/or cash flow coverage. This category includes loans that: (1) may require a secondary source of repayment (liquidation of collateral or repayment by a guarantor), (2) lack current financial information or appraisals, and/or (3) have collateral deficiencies such that the Company would be in an unsecured position with an obligor not deserving unsecured credit. This category may also include borrowers with operating losses in recent periods.

Grade 8 (Substandard — Nonaccrual) — This category includes loans with the same basic characteristics as Grade 7 loans and also meet the Company’s criteria for nonaccrual status, but do not warrant a Grade 9 or Grade 10 classification.

Grade 9 (Doubtful/Exposure) — This category includes loans with all the Grade 7 or 8 characteristics but with weaknesses that make collection (or liquidation) highly questionable and improbable.

Grade 10 (Loss) — This category includes loans which are considered uncollectible, or of such little value that they should no longer be carried as an asset of the Company.

The credit risk profile of loans aggregated by class and internally assigned risk grades as of the dates set forth were as follows:


	December 31, 2014
	Commercial & Industrial		Owner Occupied Commercial Real Estate		Commercial Real Estate		Construction & Land Development		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)

Grade 1	$	2,410		-		-		-		285		997		3,692
Grade 2		5,338		-		-		-		-		-		5,338
Grade 3		183,109		26,830		33,347		7,605		57,945		2,956		311,792
Grade 4		484,214		133,051		283,401		222,209		192,565		6,067		1,321,507
Grade 5		62,783		1,016		1,935		3,692		99		150		69,675
Grade 6		42,995		-		2,680		-		447		121		46,243
Grade 7		3,341		1,273		9,812		6,148		1,307		29		21,910
Grade 8		1,788		174		570		940		1,277		95		4,844
Grade 9		-		-		-		-		-		-		-
		785,978		162,344		331,745		240,594		253,925		10,415		1,785,001

Purchased Credit Impaired		2,432		1,248		7,261		72		3,141		-		14,154
Total loans	$	788,410	$	163,592	$	339,006	$	240,666	$	257,066	$	10,415	$	1,799,155


	December 31, 2013
	Commercial & Industrial		Owner Occupied Commercial Real Estate		Commercial Real Estate		Construction & Land Development		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)

Grade 1	$	2,657	$	-	$	-	$	-	$	292	$	548	$	3,497
Grade 2		7,750		-		-		-		-		50		7,800
Grade 3		161,581		26,548		37,750		12,058		71,264		3,785		312,986
Grade 4		474,831		118,070		213,946		124,972		32,735		1,653		966,207
Grade 5		10,970		10,631		8,752		2,323		149		248		33,073
Grade 6		11,790		-		569		-		-		107		12,466
Grade 7		3,471		57		502		31		418		49		4,528
Grade 8		6,106		-		816		587		1,328		6		8,843
Grade 9		1,239		-		-		-		-		1,278		2,517
		680,395		155,306		262,335		139,971		106,186		7,724		1,351,917

Purchased Credit Impaired		895		1,655		4,676		96		176		-		7,498

Total loans	$	681,290	$	156,961	$	267,011	$	140,067	$	106,362	$	7,724	$	1,359,415

Troubled Debt Restructurings — The restructuring of a loan is considered a troubled debt restructuring if both the borrower is experiencing financial difficulties and the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

Troubled debt restructurings identified during the periods indicated were as follows:


	Year Ended December 31,
	2014					2013
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Recorded Investment
	(Dollars in thousands)

Commercial & industrial	4	$	915	$	353	8	$	8,400	$	5,587
Commercial real estate	1		580		570	1		2,562		2,526
Construction, land & land development	1		30		29	3		4,783		1,164
Consumer and other	1		125		121	2		146		146
Total	7	$	1,650	$	1,073	14	$	15,891	$	9,423

During the year ended December 31, 2014, the Company added $1.7 million in new troubled debt restructurings. The modifications primarily related to extending the maturity date of the loans, which includes loans modified post-bankruptcy. The Company did not forgive any principal or interest on the restructured loans. Following the restructure, none were paid in full and $533 thousand defaulted on the modified terms and were charged off during the year. Restructured loans are individually evaluated for impairment. The allowance for loan losses included specific reserves of $21 thousand relates to one loan at December 31, 2014.

During the year ended December 31, 2013, the Company added $15.9 million in new troubled debt restructurings. The modifications primarily related to extending the maturity date of the loans, which includes loans modified post-bankruptcy. The Company did not forgive any principal or interest on the restructured loans. Following the restructure, $4.8 million were paid in full and $65 thousand defaulted on the modified terms and were charged off during the year. The restructured loans were individually evaluated for impairment. The allowance for loan losses included specific reserves of $3.7 million related to these loans at December 31, 2013.