7. LOANS

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


	March 31, 2015
	Originated		Acquired		Total
	(Dollars in thousands)

Commercial & industrial	$	724,871	$	19,509	$	744,380
Real estate:
Owner occupied commercial real estate		152,034		14,570		166,604
Commercial real estate		338,709		28,362		367,071
Construction, land & land development		262,406		10,719		273,125
Residential mortgage		111,163		138,428		249,591
Consumer and other		6,970		3,101		10,071
Total loans held for investment	$	1,596,153	$	214,689	$	1,810,842

Total loans held-for-sale	$	939	$	-	$	939


	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

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 $10.0 million and $10.3 million of net deferred loan origination fees and unamortized premium and discount at March 31, 2015 and December 31, 2014, respectively. Also included in loans at March 31, 2015 and December 31, 2014, respectively was $905 thousand and $1.4 million in non-accretable discount on acquired credit impaired loans. Accrued interest receivable on loans was $5.0 million and $4.5 million at March 31, 2015 and December 31, 2014, respectively. Consumer and other loans include overdrafts of $55 thousand and $51 thousand as of March 31, 2015 and December 31, 2014, respectively.

The loan portfolio consists of various types of loans made principally to borrowers located in the Houston, Dallas, Austin and Louisville 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 7.6% and 8.7% of total funded loans, respectively, as of March 31, 2015 and December 31, 2014. Energy related service industry loans represented approximately 4.8% and 5.2% of total funded loans, respectively, as of March 31, 2015 and December 31, 2014. None of these loans were impaired as of March 31, 2015. 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:


	March 31, 2015
	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years		Total
	(Dollars in thousands)

Commercial & industrial	$	243,532	$	444,662	$	56,186	$	744,380
Real estate:
Owner occupied commercial real estate		24,158		61,166		81,280		166,604
Commercial real estate		25,263		265,775		76,033		367,071
Construction, land & land development		65,566		123,082		84,477		273,125
Residential mortgage		4,905		58,945		185,741		249,591
Consumer and Other		6,329		2,942		800		10,071

Total loans held for investment	$	369,753	$	956,572	$	484,517	$	1,810,842

Fixed rate	$	44,040	$	223,689	$	98,549	$	366,278
Floating rate		325,713		732,883		385,968		1,444,564

Total loans held for investment	$	369,753	$	956,572	$	484,517	$	1,810,842

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 March 31, 2015 and December 31, 2014 was as follows:


	March 31,		December 31,
	2015		2014
	(Dollars in thousands)

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

Acquired Loans — The outstanding principal balance and recorded investment in the total acquired loans from all acquisitions, as of the dates set forth, was as follows:


	March 31,		December 31,
	2015		2014
	(Dollars in thousands)

Credit impaired acquired loans:
Outstanding principal balance	$	15,417	$	16,224
Recorded investment		13,409		14,154
Discount, net	$	2,008	$	2,070

Other acquired loans:
Outstanding principal balance		202,804		226,284
Deferred fees, net		(58)		(3)
Recorded investment		201,280		224,270
Discount, net	$	1,466	$	2,011

Total acquired loans:
Outstanding principal balance		218,221		242,508
Deferred fees, net		(58)		(3)
Recorded investment		214,689		238,424
Discount, net	$	3,474	$	4,081

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


	Three Months Ended March 31,
	2015		2014
	(Dollars in thousands)

Balance at beginning of period	$	685	$	603
Additions		-		62
Reclassifications from nonaccretable yield		480		161
Accretion		(63)		(141)
Balance at period end	$	1,102	$	685

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:


	March 31, 2015
	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	$	2,898	$	-	$	2,898	$	3,319	$	-	$	718,654	$	724,871
Real estate:
Owner occupied commercial real estate		379		-		379		1,029		-		150,626		152,034
Commercial real estate		-		-		-		-		-		338,709		338,709
Construction, land & land development		2		-		2		516		-		261,888		262,406
Residential mortgage		728		-		728		1,279		-		109,156		111,163
Consumer and other		109		-		109		-		-		6,861		6,970

Total loans held for investment	$	4,116	$	-	$	4,116	$	6,143	$	-	$	1,585,894	$	1,596,153

Acquired Loans
Commercial & industrial	$	649	$	-	$	649	$	-	$	2,055	$	16,805	$	19,509
Real estate:
Owner occupied commercial real estate		-		-		-		-		1,063		13,507		14,570
Commercial real estate		1,139		-		1,139		547		7,145		19,531		28,362
Construction, land & land development		468		-		468		-		57		10,194		10,719
Residential mortgage		1,201		-		1,201		212		3,089		133,926		138,428
Consumer and other		29		7		36		-		-		3,065		3,101

Total loans held for investment	$	3,486	$	7	$	3,493	$	759	$	13,409	$	197,028	$	214,689


	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

Impaired Loans — The following is a summary of information related to nonaccrual restructured loans and accruing loans past due 90 days or more as of the dates set forth:


	March 31,		December 31,
	2015		2014
	(Dollars in thousands)

Nonaccrual loans	$	3,789	$	2,127
Accruing loans past due 90 days or more		7		16
Restructured loans - nonaccrual		3,113		2,717
Restructured loans - accruing		2,390		2,257
Total nonperforming loans	$	9,299	$	7,117

Based on an analysis of impaired loans at March 31, 2015 and December 31, 2014, an allowance of $433 thousand and $468 thousand, respectively, was allocated to impaired loans. The average recorded investment in impaired loans for the three months ended March 31, 2015, and for the year ended December 31, 2014, was $9.1 million and $11.7 million, respectively. There was approximately $53 thousand and $55 thousand in interest recognized on impaired loans, for the three months ended March 31, 2015 and 2014, respectively. Interest recognized includes interest accrual on restructured loans that are performed based on their restructured terms and interest calculated on paid nonaccrual loans.

Impaired loans of $6.9 million and $4.8 million at March 31, 2015 and December 31, 2014 respectively, have been categorized by management as nonaccrual loans. Interest foregone on nonaccrual loans for the three months ended March 31, 2015 and 2014 was approximately $164 thousand and $398 thousand, respectively.

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


	March 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)

With no related allowance recorded:
Commercial & industrial	$	1,433	$	1,442	$	-
Owner occupied commercial real estate		1,029		1,034		-
Commercial real estate		547		547		-
Construction, land & land development		2,430		2,431		-
Residential mortgage		1,263		1,264		-
Consumer and other		152		152		-

With an allowance recorded:
Commercial & industrial	$	2,210	$	2,211	$	261
Residential mortgage		228		228		172

Total:
Commercial & industrial	$	3,643	$	3,653	$	261
Owner occupied commercial real estate		1,029		1,034		-
Commercial real estate		547		547		-
Construction, land & land development		2,430		2,431		-
Residential mortgage		1,491		1,492		172
Consumer and other		152		152		-
	$	9,292	$	9,309	$	433


	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
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		250		251		95
	$	7,101	$	7,106	$	468

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:


	March 31, 2015
	Commercial & Industrial		Owner Occupied Commercial Real Estate		Commercial Real Estate		Construction & Land Development		Residential Mortgage		Consumer and Other		Total
	(Dollars in thousands)

Grade 1	$	1,868	$	-	$	-	$	-	$	283	$	1,209	$	3,360
Grade 2		5,337		-		-		-		-		-		5,337
Grade 3		153,619		25,123		35,692		7,203		56,707		2,891		281,235
Grade 4		483,546		139,236		302,004		258,075		186,104		5,682		1,374,647
Grade 5		51,412		154		8,141		1,153		98		141		61,099
Grade 6		40,948		-		4,652		-		518		120		46,238
Grade 7		2,276		-		8,890		6,121		1,300		28		18,615
Grade 8		3,009		1,028		547		516		1,492		-		6,592
Grade 9		310		-		-		-		-		-		310
		742,325		165,541		359,926		273,068		246,502		10,071		1,797,433

Purchased Credit Impaired		2,055		1,063		7,145		57		3,089		-		13,409

Total loans	$	744,380	$	166,604	$	367,071	$	273,125	$	249,591	$	10,071	$	1,810,842


	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

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:


	Three Months Ended
	March 31, 2015
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Recorded Investment as of March 31, 2015
	(Dollars in thousands)

Commercial & industrial	1	$	739	$	689
Total	1	$	739	$	689

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. For the three months ended March 31, 2015, the Company added $739 thousand in new troubled debt restructurings of which $689 thousand was still outstanding on March 31, 2015. The decrease in outstanding balance was due to payments totaling $50 thousand during the three months ended March 31, 2015. Restructured loans are individually evaluated for impairment. The allowance for loan losses included specific reserves of $37 thousand related to the $689 thousand loan at March 31, 2015.

There were no loans restructured during the three months ended March 31, 2014.