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Loans and Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2024
Receivables [Abstract]  
Loans and Allowance for Loan Losses Loans and Allowance for Loan Losses
Loans in the accompanying consolidated balance sheets are classified as follows (in thousands):    
March 31, 2024December 31, 2023
Real estate loans:  
Construction$599,464 $789,744 
1-4 family residential720,508 696,738 
Commercial2,413,345 2,168,451 
Commercial loans358,053 366,893 
Municipal loans427,225 441,168 
Loans to individuals58,773 61,516 
Total loans4,577,368 4,524,510 
Less: Allowance for loan losses43,557 42,674 
Net loans$4,533,811 $4,481,836 

Construction Real Estate Loans
Our construction loans are collateralized by property located primarily in or near the market areas we serve. A number of our construction loans will be owner occupied upon completion. Construction loans for non-owner occupied projects are financed, but these typically have cash flows from leases with tenants, secondary sources of repayment, and in some cases, additional collateral. Our construction loans have both adjustable and fixed interest rates during the construction period. Construction loans to individuals are typically priced and made with the intention of granting the permanent loan on the completed property. Commercial construction loans are subject to underwriting standards similar to that of the commercial real estate loan portfolio.  Owner occupied 1-4 family residential construction loans are subject to the underwriting standards of the permanent loan.
1-4 Family Residential Real Estate Loans
Residential loan originations are generated by our mortgage loan officers, in-house origination staff, marketing efforts, present customers, walk-in customers and referrals from real estate agents and builders.  We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner occupied 1-4 family residences.  Substantially all of our 1-4 family residential originations are secured by properties located in or near our market areas.  
Our 1-4 family residential loans generally have maturities ranging from 15 to 30 years.  These loans are typically fully amortizing with monthly payments sufficient to repay the total amount of the loan.  Our 1-4 family residential loans are made at both fixed and adjustable interest rates.
Underwriting for 1-4 family residential loans includes debt-to-income analysis, credit history analysis, appraised value and down payment considerations. Changes in the market value of real estate can affect the potential losses in the residential portfolio.
Commercial Real Estate Loans
Commercial real estate loans as of March 31, 2024 consisted of $1.83 billion of owner and non-owner occupied real estate, $551.8 million of loans secured by multi-family properties and $28.0 million of loans secured by farmland. Commercial real estate loans primarily include loans collateralized by retail, commercial office buildings, multi-family residential buildings, medical facilities and offices, senior living, assisted living and skilled nursing facilities, warehouse facilities, hotels and churches. In determining whether to originate commercial real estate loans, we generally consider such factors as the financial condition of the borrower and the debt service coverage of the property. Commercial real estate loans are made at both fixed and adjustable interest rates for terms generally up to 20 years.
Commercial Loans
Our commercial loans are diversified loan types including short-term working capital loans for inventory and accounts receivable and short- and medium-term loans for equipment or other business capital expansion.  In our commercial loan underwriting, we assess the creditworthiness, ability to repay and the value and liquidity of the collateral being offered.  Terms of commercial loans are generally commensurate with the useful life of the collateral offered.
Municipal Loans
We have made loans to municipalities and school districts primarily throughout the state of Texas, with a small percentage originating outside of the state.  The majority of the loans to municipalities and school districts have tax or revenue pledges and in some cases are additionally supported by collateral.  Municipal loans made without a direct pledge of taxes or revenues are usually made based on some type of collateral that represents an essential service. These loans allow us to earn a higher yield than we could if we purchased municipal securities for similar durations.
Loans to Individuals
Substantially all originations of our loans to individuals are made to consumers in our market areas.  The majority of loans to individuals are collateralized by titled equipment, which are primarily automobiles. Loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards we employ for consumer loans include an application, a determination of the applicant’s payment history on other debts, with the greatest weight being given to payment history with us and an assessment of the borrower’s ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, in relation to the proposed loan amount. Most of our loans to individuals are collateralized, which management believes assists in limiting our exposure.
Credit Quality Indicators
We categorize loans into risk categories on an ongoing basis based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  We use the following definitions for risk ratings:
•Pass (Rating 1 – 4) – This rating is assigned to all satisfactory loans.  This category, by definition, consists of acceptable credit.  Credit and collateral exceptions should not be present, although their presence would not necessarily prohibit a loan from being rated Pass, if deficiencies are in the process of correction.  These loans are not included in the Watch List.
•Pass Watch (Rating 5) – These loans require some degree of special treatment, but not due to credit quality.  This category does not include loans specially mentioned or adversely classified; however, particular attention is warranted to characteristics such as:
▪A lack of, or abnormally extended payment program;
▪A heavy degree of concentration of collateral without sufficient margin;
▪A vulnerability to competition through lesser or extensive financial leverage; and
▪A dependence on a single or few customers or sources of supply and materials without suitable substitutes or alternatives.
•Special Mention (Rating 6) – A Special Mention loan has 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 in our credit position at some future date.  Special Mention loans are not adversely classified and do not expose us to sufficient risk to warrant adverse classification.
•Substandard (Rating 7) – Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful (Rating 8) – Loans classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation, in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Watch List loans reported as 2024 originations as of March 31, 2024 and Watch List loans reported as 2023 originations as of December 31, 2023 were, for the majority, first originated in various years prior to 2024 and 2023, respectively, but were renewed in the respective year.
The following tables set forth the amortized cost basis by class of financing receivable and credit quality indicator for the periods presented (in thousands):
March 31, 2024Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
20242023202220212020Prior
Construction real estate:
Pass$8,331 $138,169 $184,407 $64,103 $4,649 $9,006 $160,337 $569,002 
Pass watch— — 13,912 — 266 — — 14,178 
Special mention— — — 180 — 7 — 187 
Substandard— — 16,019 65 — — — 16,084 
Doubtful— — — — — 13 — 13 
Total construction real estate$8,331 $138,169 $214,338 $64,348 $4,915 $9,026 $160,337 $599,464 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
1-4 family residential real estate:
Pass$7,326 $44,497 $148,117 $148,890 $112,986 $251,106 $1,545 $714,467 
Pass watch— — — — 30 — — 30 
Special mention— — — 512 74 — — 586 
Substandard— 169 — 71 1,282 3,282 73 4,877 
Doubtful— — — — 162 386 — 548 
Total 1-4 family residential real estate$7,326 $44,666 $148,117 $149,473 $114,534 $254,774 $1,618 $720,508 
Current period gross charge-offs$— $— $— $— $— $22 $— $22 
Commercial real estate:
Pass$57,374 $472,778 $690,253 $606,292 $173,900 $273,284 $16,515 $2,290,396 
Pass watch— — 34,418 — 1,022 472 — 35,912 
Special mention24,541 17,353 1,470 — — 34,443 — 77,807 
Substandard— — 853 95 261 6,358 — 7,567 
Doubtful— — — — — 1,663 — 1,663 
Total commercial real estate$81,915 $490,131 $726,994 $606,387 $175,183 $316,220 $16,515 $2,413,345 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Commercial loans:
Pass$18,574 $83,955 $56,619 $37,923 $9,421 $6,297 $139,370 $352,159 
Pass watch— — 99 101 — 204 — 404 
Special mention— 183 169 — 13 147 — 512 
Substandard53 — 3,434 312 — 43 579 4,421 
Doubtful— 41 206 253 — 57 — 557 
Total commercial loans$18,627 $84,179 $60,527 $38,589 $9,434 $6,748 $139,949 $358,053 
Current period gross charge-offs$— $65 $49 $37 $— $— $— $151 
Municipal loans:
Pass$2,032 $38,519 $59,855 $67,922 $48,107 $210,790 $— $427,225 
Pass watch— — — — — — — — 
Special mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total municipal loans$2,032 $38,519 $59,855 $67,922 $48,107 $210,790 $— $427,225 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Loans to individuals:
Pass$7,489 $18,441 $13,054 $9,886 $5,212 $2,557 $2,096 $58,735 
Pass watch— — — — — — — — 
Special mention— — — — — — — — 
Substandard— — — — — 10 — 10 
Doubtful— 15 2 — 1 10 — 28 
Total loans to individuals$7,489 $18,456 $13,056 $9,886 $5,213 $2,577 $2,096 $58,773 
Current period gross charge-offs (1)
$427 $1 $18 $2 $13 $— $— $461 
Total loans$125,720 $814,120 $1,222,887 $936,605 $357,386 $800,135 $320,515 $4,577,368 
Total current period gross charge-offs (1)
$427 $66 $67 $39 $13 $22 $— $634 
(1) Includes $306,000 in charged off demand deposit overdrafts reported as 2024 originations.
December 31, 2023Term Loans Amortized Cost Basis by Origination YearRevolving Loans Amortized Cost BasisTotal
20232022202120202019Prior
Construction real estate:
Pass$132,838 $236,573 $196,311 $37,997 $3,938 $6,457 $144,358 $758,472 
Pass watch— 7,798 — — — — — 7,798 
Special mention13,166 9,456 698 — 7 — — 23,327 
Substandard36 — 68 — — 43 — 147 
Doubtful— — — — — — — — 
Total construction real estate$146,040 $253,827 $197,077 $37,997 $3,945 $6,500 $144,358 $789,744 
Current period gross charge-offs$— $92 $— $— $— $— $— $92 
1-4 family residential real estate:
Pass$41,520 $126,981 $145,671 $114,631 $63,710 $196,651 $1,803 $690,967 
Pass watch— — — 32 — — — 32 
Special mention— — — 75 — — — 75 
Substandard325 — 73 1,379 — 3,259 74 5,110 
Doubtful— — — 163 — 391 — 554 
Total 1-4 family residential real estate$41,845 $126,981 $145,744 $116,280 $63,710 $200,301 $1,877 $696,738 
Current period gross charge-offs$— $— $— $— $1 $118 $— $119 
Commercial real estate:
Pass$469,844 $641,577 $495,363 $143,150 $91,085 $189,021 $16,493 $2,046,533 
Pass watch24,300 34,424 255 1,037 333 146 — 60,495 
Special mention17,403 — — — 9,746 25,072 — 52,221 
Substandard— 862 95 269 1,565 6,346 — 9,137 
Doubtful— — — — 65 — — 65 
Total commercial real estate$511,547 $676,863 $495,713 $144,456 $102,794 $220,585 $16,493 $2,168,451 
Current period gross charge-offs$— $— $— $— $788 $— $— $788 
Commercial loans:
Pass$78,090 $62,192 $42,114 $10,708 $4,356 $3,310 $161,153 $361,923 
Pass watch— 128 117 — — 18 — 263 
Special mention191 174 — 16 — 162 — 543 
Substandard14 2,357 73 — 65 12 821 3,342 
Doubtful238 267 133 — 64 120 — 822 
Total commercial loans$78,533 $65,118 $42,437 $10,724 $4,485 $3,622 $161,974 $366,893 
Current period gross charge-offs$745 $440 $44 $26 $23 $5 $— $1,283 
Municipal loans:
Pass$39,028 $61,429 $68,979 $49,746 $39,949 $182,037 $— $441,168 
Pass watch— — — — — — — — 
Special mention— — — — — — — — 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Total municipal loans$39,028 $61,429 $68,979 $49,746 $39,949 $182,037 $— $441,168 
Current period gross charge-offs$— $— $— $— $— $— $— $— 
Loans to individuals:
Pass$22,788 $15,503 $11,588 $6,256 $2,180 $941 $2,216 $61,472 
Pass watch— — — — — — — — 
Special mention— — — — — — — — 
Substandard— — — — 13 — — 13 
Doubtful4 17 — 10 — — — 31 
Total loans to individuals$22,792 $15,520 $11,588 $6,266 $2,193 $941 $2,216 $61,516 
Current period gross charge-offs$1,682 $54 $61 $20 $6 $99 $— $1,922 
Total loans$839,785 $1,199,738 $961,538 $365,469 $217,076 $613,986 $326,918 $4,524,510 
Total current period gross charge-offs (1)
$2,427 $586 $105 $46 $818 $222 $— $4,204 
(1) Includes $1.7 million in charged off demand deposit overdrafts reported as 2023 originations.
The following tables present the aging of the amortized cost basis in past due loans by class of loans (in thousands):
 March 31, 2024
 
30-59 Days
Past Due
60-89 Days
Past Due
Greater than 90 Days Past Due
Total Past
Due
CurrentTotal
Real estate loans:     
Construction$20 $— $— $20 $599,444 $599,464 
1-4 family residential4,908 26 2,230 7,164 713,344 720,508 
Commercial1,250 1,781 346 3,377 2,409,968 2,413,345 
Commercial loans1,261 78 165 1,504 356,549 358,053 
Municipal loans— — — — 427,225 427,225 
Loans to individuals55 24 — 79 58,694 58,773 
Total$7,494 $1,909 $2,741 $12,144 $4,565,224 $4,577,368 
December 31, 2023
30-59 Days Past Due60-89 Days Past DueGreater than 90 Days
Past Due
Total Past
Due
CurrentTotal
Real estate loans:
Construction$474 $— $29 $503 $789,241 $789,744 
1-4 family residential4,638 774 1,700 7,112 689,626 696,738 
Commercial621 34 40 695 2,167,756 2,168,451 
Commercial loans1,693 347 127 2,167 364,726 366,893 
Municipal loans27 — — 27 441,141 441,168 
Loans to individuals107 1 10 118 61,398 61,516 
Total$7,560 $1,156 $1,906 $10,622 $4,513,888 $4,524,510 
The following table sets forth the amortized cost basis of nonperforming assets for the periods presented (in thousands):
 March 31, 2024December 31, 2023
Nonaccrual loans:
Real estate loans:
Construction$40 $29 
1-4 family residential2,767 2,093 
Commercial2,423 528 
Commercial loans2,451 1,208 
Loans to individuals28 31 
Total nonaccrual loans (1)
7,709 3,889 
Accruing loans past due more than 90 days— — 
Restructured loans151 13 
OREO119 99 
Repossessed assets— — 
Total nonperforming assets$7,979 $4,001 

(1)    Includes $535,000 and $506,000 of restructured loans as of March 31, 2024 and December 31, 2023, respectively.

The increase in nonaccrual loans was primarily due to one commercial real estate loan and one commercial loan relationship that were put on nonaccrual during the three months ended March 31, 2024. We reversed $34,000 of interest income on nonaccrual loans during the three months ended March 31, 2024, and $26,000 for the three months ended March 31, 2023. We had $939,000 and $1.0 million of loans on nonaccrual for which there was no related allowance for credit losses as of March 31, 2024 and December 31, 2023, respectively.
Collateral-dependent loans are loans that we expect the repayment to be provided substantially through the operation or sale of the collateral of the loan and we have determined that the borrower is experiencing financial difficulty. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for selling costs. As of March 31, 2024 and December 31, 2023, we had $10.6 million and $7.5 million, respectively, of collateral-dependent loans, secured mainly by real estate and equipment. There have been no significant changes to the collateral that secures the collateral-dependent assets. Foreclosed assets include OREO and repossessed assets. For 1-4 family residential real estate properties, a loan is recognized as a foreclosed property once legal title to the real estate property has been received upon completion of foreclosure or the borrower has conveyed all interest in the residential property through a deed in lieu of foreclosure. There were $1.2 million and $1.0 million loans secured by 1-4 family residential properties for which formal foreclosure proceedings were in process as of March 31, 2024 and December 31, 2023, respectively.
Restructured Loans
A loan is considered restructured if the borrower is experiencing financial difficulties and the loan has been modified. Modifications may include interest rate reductions or below market interest rates, restructuring amortization schedules and other actions intended to minimize potential losses. We may provide a combination of modifications which may include an extension of the amortization period, interest rate reduction and/or converting the loan to interest-only for a limited period of time. In most instances, interest will continue to be charged on principal balances outstanding during the extended term. Therefore, the financial effects of the recorded investment of loans restructured during the three months ended March 31, 2024 were not significant.
There were no loans restructured during the three months ended March 31, 2024. There were 3 loans totaling $535,000 included in nonperforming assets as of March 31, 2024. There was one commercial loan for $179,000 that was restructured with an extension of amortization period as of March 31, 2023 and is included in our nonaccrual loans in nonperforming assets.
On an ongoing basis, the performance of the restructured loans is monitored for subsequent payment default. Payment default is recognized when the borrower is 90 days or more past due. For the three months ended March 31, 2024 and 2023, there were no restructured loans in default. Payment defaults for restructured loans did not significantly impact the determination of the allowance for loan losses in the periods presented. At March 31, 2024, there were no commitments to lend additional funds to borrowers whose loans had been restructured.
Allowance for Loan Losses

The following tables detail activity in the allowance for loan losses by portfolio segment for the periods presented (in thousands):
 Three Months Ended March 31, 2024
 Real Estate    
 Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period$5,287 $2,840 $32,266 $2,086 $19 $176 $42,674 
Loans charged-off— (22)— (151)— (461)(634)
Recoveries of loans charged-off— 11 3 56 — 277 347 
Net loans (charged-off) recovered— (11)3 (95)— (184)(287)
Provision for (reversal of) loan losses(367)(61)624 783 — 191 1,170 
Balance at end of period$4,920 $2,768 $32,893 $2,774 $19 $183 $43,557 

 Three Months Ended March 31, 2023
 Real Estate    
 Construction
1-4 Family
Residential
Commercial
Commercial
Loans
Municipal
Loans
Loans to
Individuals
Total
Balance at beginning of period$3,164 $2,173 $28,701 $2,235 $45 $197 $36,515 
Loans charged-off— (49)— (109)— (475)(633)
Recoveries of loans charged-off1 5 — 60 — 296 362 
Net loans (charged-off) recovered1 (44)— (49)— (179)(271)
Provision for (reversal of) loan losses (13)185 20 (285)(1)182 88 
Balance at end of period$3,152 $2,314 $28,721 $1,901 $44 $200 $36,332 


The accrued interest receivable on our loan receivables is excluded from the allowance for credit loss estimate and is included in interest receivable on our consolidated balance sheets. As of March 31, 2024 and December 31, 2023, the accrued interest on our loan portfolio was $21.5 million and $21.3 million, respectively.