7. LOANS

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


	June 30, 2015
	Originated		Acquired		Total
	(Dollars in thousands)

Commercial & industrial	$	777,094	$	18,389	$	795,483
Real estate:
Owner occupied commercial real estate		161,712		14,741		176,453
Commercial real estate		360,910		22,953		383,863
Construction, land & land development		284,239		6,230		290,469
Residential mortgage		108,098		125,928		234,026
Consumer and other		11,874		2,574		14,448
Total loans held for investment	$	1,703,927	$	190,815	$	1,894,742

Total loans held for sale	$	1,287	$	-	$	1,287


	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 $9.6 million and $10.3 million of net deferred loan origination fees and unamortized premium and discount at June 30, 2015 and December 31, 2014, respectively. Also included in loans at June 30, 2015 and December 31, 2014, respectively was $601 thousand and $1.4 million in non-accretable discount on acquired credit impaired loans. Accrued interest receivable on loans was $4.8 million and $4.5 million at June 30, 2015 and December 31, 2014, respectively. Consumer and other loans include overdrafts of $77 thousand and $51 thousand as of June 30, 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 in the commercial and industrial portfolio outstanding represented approximately 7.3% and 8.7% of total funded loans, respectively, as of June 30, 2015 and December 31, 2014. Energy related service industry loans represented approximately 4.1% and 5.2% of total funded loans, respectively, as of June 30, 2015 and December 31, 2014. None of these loans were impaired as of June 30, 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:


	June 30, 2015
	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years		Total
	(Dollars in thousands)

Commercial & industrial	$	284,537	$	472,312	$	38,634	$	795,483
Real estate:
Owner occupied commercial real estate		12,295		73,917		90,241		176,453
Commercial real estate		34,582		247,132		102,149		383,863
Construction, land & land development		49,991		154,551		85,927		290,469
Residential mortgage		4,672		51,990		177,364		234,026
Consumer and Other		6,244		7,549		655		14,448

Total loans held for investment	$	392,321	$	1,007,451	$	494,970	$	1,894,742

Fixed rate	$	35,245	$	209,281	$	96,973	$	341,499
Floating rate		357,076		798,170		397,997		1,553,243

Total loans held for investment	$	392,321	$	1,007,451	$	494,970	$	1,894,742

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 June 30, 2015 and December 31, 2014 was as follows:


	June 30,		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 completed acquisitions, as of the dates set forth, was as follows:


	June 30,		December 31,
	2015		2014
	(Dollars in thousands)

Credit impaired acquired loans:
Outstanding principal balance	$	11,579	$	16,224
Recorded investment		9,920		14,154
Discount, net	$	1,659	$	2,070

Other acquired loans:
Outstanding principal balance		182,049		226,284
Deferred fees, net		(42)		(3)
Recorded investment		180,895		224,270
Discount, net	$	1,112	$	2,011

Total acquired loans:
Outstanding principal balance		193,628		242,508
Deferred fees, net		(42)		(3)
Recorded investment		190,815		238,424
Discount, net	$	2,771	$	4,081

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


	Six Months Ended June 30,
	2015		2014
	(Dollars in thousands)

Balance at beginning of period	$	685	$	603
Additions		-		-
Reclassifications from nonaccretable yield		538		48
Accretion		(165)		(84)
Balance at period end	$	1,058	$	567

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:


	June 30, 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	$	877	$	-	$	877	$	2,655	$	-	$	773,562	$	777,094
Real estate:
Owner occupied commercial real estate		-		-		-		1,429		-		160,283		161,712
Commercial real estate		1,181		-		1,181		-		-		359,729		360,910
Construction, land & land development		315		-		315		503		-		283,421		284,239
Residential mortgage		-		-		-		15		-		108,083		108,098
Consumer and other		229		-		229		-		-		11,645		11,874
	$	2,602	$	-	$	2,602	$	4,602	$	-	$	1,696,723	$	1,703,927

Acquired Loans
Commercial & industrial	$	110	$	-	$	110	$	449	$	1,302	$	16,528	$	18,389
Real estate:
Owner occupied commercial real estate		-		-		-		-		1,046		13,695		14,741
Commercial real estate		1,134		-		1,134		532		4,523		16,764		22,953
Construction, land & land development		-		-		-		-		51		6,179		6,230
Residential mortgage		12		-		12		529		2,998		122,389		125,928
Consumer and other		9		-		9		2		-		2,563		2,574
	$	1,265	$	-	$	1,265	$	1,512	$	9,920	$	178,118	$	190,815
Total loans held for investment	$	3,867	$	-	$	3,867	$	6,114	$	9,920	$	1,874,841	$	1,894,742


	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
	$	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
	$	4,314	$	-	$	4,314	$	570	$	14,154	$	219,386	$	238,424
Total loans held for investment	$	14,320	$	16	$	14,336	$	4,844	$	14,154	$	1,765,821	$	1,799,155

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:


	June 30,		December 31,
	2015		2014
	(Dollars in thousands)

Nonaccrual loans	$	4,402	$	2,127
Accruing loans past due 90 days or more		-		16
Restructured loans - nonaccrual		1,712		2,717
Restructured loans - accruing		681		2,257
Total nonperforming loans	$	6,795	$	7,117

Impaired loans of $6.1 million and $4.8 million at June 30, 2015 and December 31, 2014 respectively, have been categorized by management as nonaccrual loans. Interest foregone on nonaccrual loans for the three months ended June 30, 2015 and 2014 was approximately $66 thousand and $133 thousand, respectively, and for the six months ended June 30, 2015 and 2014 was approximately $230 thousand and $341 thousand, respectively.

The following tables present, for the periods indicated, the average recorded investment in impaired loans and the approximate amount of interest recognized on impaired loans. Interest recognized includes interest accrued on restructured loans that have performed based on their restructured terms and interest collected on paid nonaccrual loans.


	Three Months Ended
	June 30, 2015				June 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)

Commercial & industrial	$	3,739	$	18	$	6,279	$	3
Owner occupied commercial real estate		1,426		-		57		25
Commercial real estate		534		-		3,103		63
Construction, land & land development		507		-		1,759		16
Residential mortgage		1,173		240		1,315		-
Consumer and other		152		2		193		5
Total	$	7,531	$	260	$	12,706	$	112


	Six Months Ended
	June 30, 2015				June 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)

Commercial & industrial	$	3,480	$	20	$	6,762	$	6
Owner occupied commercial real estate		1,230		-		28		25
Commercial real estate		1,510		16		3,126		97
Construction, land & land development		651		15		1,751		32
Residential mortgage		1,277		240		1,317		-
Consumer and other		183		5		580		7
Total	$	8,331	$	296	$	13,564	$	167

Based on an analysis of impaired loans at June 30, 2015 and December 31, 2014, an allowance of $680 thousand and $468 thousand, respectively, was allocated to impaired loans. The following table presents additional information regarding impaired loans that were individually evaluated for impairment as of the dates indicated:


	June 30, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)

With no related allowance recorded:
Commercial & industrial	$	1,997	$	1,999	$	-
Owner occupied commercial real estate		1,429		1,436		-
Commercial real estate		532		532		-
Construction, land & land development		287		287		-
Residential mortgage		435		435		-
Consumer and other		149		149		-

With an allowance recorded:
Commercial & industrial	$	1,639	$	1,639	$	516
Construction, land & land development		215		216		103
Residential mortgage		110		111		59
Consumer and other		2		2		2

Total:
Commercial & industrial	$	3,636	$	3,638	$	516
Owner occupied commercial real estate		1,429		1,436		-
Commercial real estate		532		532		-
Construction, land & land development		502		503		103
Residential mortgage		545		546		59
Consumer and other		151		151		2
	$	6,795	$	6,806	$	680


	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:


	June 30, 2015
	Commercial & Industrial		Owner Occupied Commercial Real Estate		Commercial Real Estate		Construction & Land Development		Residential Mortgage		Other Consumer		Total
	(Dollars in thousands)

Grade 1	$	3,510	$	-	$	-	$	-	$	281	$	1,045	$	4,836
Grade 2		5,825		-		-		-		-		-		5,825
Grade 3		148,372		18,787		28,240		8,016		55,840		2,760		262,015
Grade 4		495,150		147,527		330,924		274,560		173,070		10,368		1,431,599
Grade 5		58,043		7,665		6,194		1,215		97		134		73,348
Grade 6		53,795		-		3,491		-		258		120		57,664
Grade 7		26,382		-		9,959		6,124		937		19		43,421
Grade 8		2,794		1,428		532		503		545		2		5,804
Grade 9		310		-		-		-		-		-		310
		794,181		175,407		379,340		290,418		231,028		14,448		1,884,822

Purchased Credit Impaired		1,302		1,046		4,523		51		2,998		-		9,920

Total loans	$	795,483	$	176,453	$	383,863	$	290,469	$	234,026	$	14,448	$	1,894,742


	December 31, 2014
	Commercial & Industrial		Owner Occupied Commercial Real Estate		Commercial Real Estate		Construction & Land Development		Residential Mortgage		Other Consumer		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:


	Six Months Ended
	June 30, 2015					June 30, 2014
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Recorded Investment as of June 30, 2015		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Recorded Investment as of June 30, 2014
	(Dollars in thousands)

Commercial & industrial	3	$	985	$	877	3	$	545	$	542
Construction, land & land development	-		-		-	1		30		30
Consumer and other	-		-		-	1		125		125
Total	3	$	985	$	877	5	$	700	$	697

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 six months ended June 30, 2015, the Company added $985 thousand in new troubled debt restructurings of which $877 thousand was still outstanding on June 30, 2015. The decrease in outstanding balance was primarily due to payments received. For the six months ended June 30, 2014, the Company added $700 thousand in new troubled debt restructurings of which $697 thousand was still outstanding on June 30, 2014. The decrease in outstanding balance was primarily due to payments received.

Troubled debt restructurings are individually evaluated for impairment. The allowance for loan losses included specific reserves of $305 thousand related to the $632 thousand of these loans at June 30, 2015.