Loans Acquired

12 Months Ended

Dec. 31, 2019

LOANS ACQUIRED

During the fourth quarter of 2019, the Company evaluated $1.995 billion of net loans ($2.011 billion gross loans less $15.818 million discount) purchased in conjunction with the acquisition of Landrum in accordance with the provisions of ASC Topic 310-20, Nonrefundable Fees and Other Costs. The Company evaluated the remaining $11.2 million of net loans ($15.823 million gross loans less $4.6 million discount) purchased in conjunction with the acquisition of Landrum for impairment in accordance with the provisions of ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased loans are considered impaired if there is evidence of credit deterioration since origination and if it is probable that not all contractually required payments will be collected.

During the second quarter of 2019, the Company evaluated $1.097 billion of net loans ($1.127 billion gross loans less $30.6 million discount) purchased in conjunction with the acquisition of Reliance in accordance with the provisions of ASC Topic 310-20. The Company evaluated the remaining $176,000 of net loans ($385,000 gross loans less $209,000 discount) purchased in conjunction with the acquisition of Reliance for impairment in accordance with the provisions of ASC Topic 310-30.

During the fourth quarter of 2017, the Company evaluated $1.985 billion of net loans ($2.021 billion gross loans less $36.3 million discount) purchased in conjunction with the acquisition of OKSB in accordance with the provisions of ASC Topic 310-20. The Company evaluated the remaining $11.4 million of net loans ($18.1 million gross loans less $6.7 million discount) purchased in conjunction with the acquisition of OKSB for impairment in accordance with the provisions of ASC Topic 310-30.

Also during the fourth quarter of 2017, the Company evaluated $2.208 billion of net loans ($2.246 billion gross loans less $37.8 million discount) purchased in conjunction with the acquisition of First Texas in accordance with the provisions of ASC Topic 310-20.

During the second quarter of 2017, the Company evaluated $249.2 million of net loans ($254.2 million gross loans less $5.0 million discount) purchased in conjunction with the acquisition of Hardeman in accordance with the provisions of ASC Topic 310-20. The Company evaluated the remaining $2.4 million of net loans ($3.4 million gross loans less $990,000 discount) purchased in conjunction with the acquisition of Hardeman for impairment in accordance with the provisions of ASC Topic 310-30.

For the acquisitions discussed above, the fair value discount associated with each acquisition is being accreted into interest income over the weighted average life of the loans using a constant yield method. See Note 1, Summary of Significant Accounting Policies, and Note 2, Acquisitions, for further discussions regarding the Company’s acquisition accounting policies and specific information on loans acquired from the above acquisitions.

The following table reflects the carrying value of all loans acquired as of December 31, 2019 and 2018:



	Loans Acquired At December 31,
(In thousands)	2019		2018
Consumer:
Other consumer	$	57,748	$	15,658
Real estate:
Construction and development	475,967		429,605
Single family residential	997,444		566,188
Other commercial	2,526,247		1,848,679
Total real estate	3,999,658		2,844,472
Commercial:
Commercial	585,720		430,914
Agricultural	152,058		1,739
Total commercial	737,778		432,653
Total loans acquired ⁽¹⁾	$	4,795,184	$	3,292,783

_________________________

(1) Loans acquired are reported net of a $444,000 and $95,000 allowance as of December 31, 2019 and 2018, respectively.

Nonaccrual loans acquired, excluding purchased credit impaired loans accounted for under ASC Topic 310-30, segregated by class of loans, are as follows (see Note 5, Loans and Allowance for Loan Losses, for discussion of nonaccrual loans):



(In thousands)	December 31, 2019		December 31, 2018
Consumer:
Other consumer	$	327	$	140
Real estate:
Construction and development	751		114
Single family residential	9,593		6,603
Other commercial	7,221		1,167
Total real estate	17,565		7,884
Commercial:
Commercial	4,349		13,578
Agricultural	253		38
Total commercial	4,602		13,616
Total	$	22,494	$	21,640

An age analysis of past due loans acquired segregated by class of loans, is as follows (see Note 5, Loans and Allowance for Loan Losses, for discussion of past due loans):



(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing
December 31, 2019
Consumer:
Other consumer	$	827	$	140	$	967	$	56,781	$	57,748	$	—
Real estate:
Construction and development	824		473		1,297		474,670		475,967		—
Single family residential	12,904		5,020		17,924		979,520		997,444		597
Other commercial	3,343		2,481		5,824		2,520,423		2,526,247		—
Total real estate	17,071		7,974		25,045		3,974,613		3,999,658		597
Commercial:
Commercial	4,326		1,377		5,703		580,017		585,720		—
Agricultural	1,016		6		1,022		151,036		152,058		—
Total commercial	5,342		1,383		6,725		731,053		737,778		—

Total	$	23,240	$	9,497	$	32,737	$	4,762,447	$	4,795,184	$	597



December 31, 2018
Consumer:
Other consumer	$	337	$	49	$	386	$	15,272	$	15,658	$	2
Real estate:
Construction and development	8,283		27		8,310		421,295		429,605		—
Single family residential	4,706		3,049		7,755		558,433		566,188		—
Other commercial	168		577		745		1,847,934		1,848,679		—
Total real estate	13,157		3,653		16,810		2,827,662		2,844,472		—
Commercial:
Commercial	1,302		9,542		10,844		420,070		430,914		—
Agricultural	31		5		36		1,703		1,739		—
Total commercial	1,333		9,547		10,880		421,773		432,653		—

Total	$	14,827	$	13,249	$	28,076	$	3,264,707	$	3,292,783	$	2

The following table presents a summary of loans acquired by credit risk rating, segregated by class of loans (see Note 5, Loans and Allowance for Loan Losses, for discussion of loan risk rating). Loans accounted for under ASC Topic 310-30 are all included in Risk Rate 1-4 in this table.



(In thousands)	Risk Rate 1-4		Risk Rate 5		Risk Rate 6		Risk Rate 7		Risk Rate 8		Total
December 31, 2019
Consumer:
Other consumer	$	57,318	$	—	$	430	$	—	$	—	$	57,748
Real estate:
Construction and development	474,750		21		1,159		—		37		475,967
Single family residential	978,681		1,181		17,455		127		—		997,444
Other commercial	2,446,685		40,872		38,690		—		—		2,526,247
Total real estate	3,900,116		42,074		57,304		127		37		3,999,658
Commercial:
Commercial	548,928		1,528		35,041		43		180		585,720
Agricultural	146,933		—		5,125		—		—		152,058
Total commercial	695,861		1,528		40,166		43		180		737,778

Total	$	4,653,295	$	43,602	$	97,900	$	170	$	217	$	4,795,184

December 31, 2018
Consumer:
Other consumer	$	15,380	$	—	$	278	$	—	$	—	$	15,658
Real estate:
Construction and development	393,122		27,621		8,862		—		—		429,605
Single family residential	553,460		2,081		10,299		348		—		566,188
Other commercial	1,822,179		9,137		17,363		—		—		1,848,679
Total real estate	2,768,761		38,839		36,524		348		—		2,844,472
Commercial:
Commercial	401,300		12,416		17,198		—		—		430,914
Agricultural	1,642		—		97		—		—		1,739
Total commercial	402,942		12,416		17,295		—		—		432,653

Total	$	3,187,083	$	51,255	$	54,097	$	348	$	—	$	3,292,783

Loans acquired were individually evaluated and recorded at estimated fair value, including estimated credit losses, at the time of acquisition. These loans are systematically reviewed by the Company to determine the risk of losses that may exceed those identified at the time of the acquisition. Techniques used in determining risk of loss are similar to the Company’s legacy loan portfolio, with most focus being placed on those loans which include the larger loan relationships and those loans which exhibit higher risk characteristics.

The following is a summary of the loans acquired in the Landrum acquisition on October 31, 2019, as of the date of acquisition.



(In thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	2,033,315		$	15,822
Non-accretable difference (expected losses and foregone interest)	—			(4,646		)
Cash flows expected to be collected at acquisition	2,033,315			11,176
Accretable yield	(38,555		)	—
Basis in acquired loans at acquisition	$	1,994,760		$	11,176

The following is a summary of the loans acquired in the Reliance acquisition on April 12, 2019, as of the date of acquisition.



(In thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	1,138,142		$	385
Non-accretable difference (expected losses and foregone interest)	—			(210		)
Cash flows expected to be collected at acquisition	1,138,142			175
Accretable yield	(41,447		)
Basis in acquired loans at acquisition	$	1,096,695		$	175

The following is a summary of the loans acquired in the OKSB acquisition on October 19, 2017, as of the date of acquisition.



(In thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	2,021,388		$	18,136
Non-accretable difference (expected losses and foregone interest)	—			(6,731		)
Cash flows expected to be collected at acquisition	2,021,388			11,405
Accretable yield	(36,340		)	—
Basis in acquired loans at acquisition	$	1,985,048		$	11,405

The following is a summary of the loans acquired in the First Texas acquisition on October 19, 2017, as of the date of acquisition.



(In thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	2,246,212		$	—
Non-accretable difference (expected losses and foregone interest)	—			—
Cash flows expected to be collected at acquisition	2,246,212			—
Accretable yield	(37,834		)	—
Basis in acquired loans at acquisition	$	2,208,378		$	—

The following is a summary of the loans acquired in the Hardeman acquisition on May 15, 2017, as of the date of acquisition.



(In thousands)	Not Impaired			Impaired
Contractually required principal and interest at acquisition	$	254,189		$	3,452
Non-accretable difference (expected losses and foregone interest)	—			(990		)
Cash flows expected to be collected at acquisition	254,189			2,462
Accretable yield	(5,002		)	—
Basis in acquired loans at acquisition	$	249,187		$	2,462

In addition to the accretable yield on acquired loans not considered to be impaired, the amount of the estimated cash flows expected to be received from the purchased credit impaired loans in excess of the fair values recorded for the purchased credit impaired loans is also referred to as the accretable yield. The accretable yield is recognized as interest income over the estimated lives of the loans. Each quarter, the Company estimates the cash flows expected to be collected from the acquired purchased credit impaired loans, and adjustments may or may not be required. This has resulted in an increase in interest income that is spread on a level-yield basis over the remaining expected lives of the loans. These adjustments will be recognized over the remaining lives of the purchased credit impaired loans. The accretable yield adjustments recorded in future periods will change as the Company continues to evaluate expected cash flows from the purchased credit impaired loans.

Changes in the carrying amount of the accretable yield for all purchased impaired loans were as follows for the years ended December 31, 2019, 2018 and 2017.



(In thousands)	Accretable Yield			Carrying Amount of Loans
Balance, January 1, 2017	$	1,655		$	17,802
Additions	—			13,793
Accretable yield adjustments	4,893			—
Accretion	(5,928		)	5,928
Payments and other reductions, net	—			(20,407		)
Balance, December 31, 2017	620			17,116

Additions	—			—
Accretable yield adjustments	2,045			—
Accretion	(1,205		)	1,205
Payments and other reductions, net	—			(14,271		)
Balance, December 31, 2018	1,460			4,050

Additions	—			11,351
Accretable yield adjustments	39			—
Accretion	(51		)	51
Payments and other reductions, net	—			(2,068		)
Balance, December 31, 2019	$	1,448		$	13,384

Purchased impaired loans are evaluated on an individual borrower basis. Because some loans evaluated by the Company were determined to have experienced impairment in the estimated credit quality or cash flows, the Company recorded a provision and established an allowance for loan losses for loans acquired resulting in a total allowance on loans acquired of $444,000 at December 31, 2019, $95,000 at December 31, 2018 and $418,000 at December 31, 2017.