item 14 principal accounting fees services information required item incorporated herein reference 2018 proxy statement part iv item 15 item 14 principal accounting fees services information required item incorporated herein reference 2020 proxy statement part iv item 15 item 14 principal accounting fees services information required item incorporated herein reference 2021 proxy statement part iv item 15 item 14 principal accountant fees services information required item incorporated herein reference 2016 proxy statement part iv item 15 item 14 principal accounting fees services information required item incorporated herein reference 2019 proxy statement part iv item 15 item 14 principal accountant fees services information required item incorporated herein reference 2017 proxy statement part iv item 15 item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” item 7 item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements cautionary notice regarding forwardlooking statements financial discussion analysis contained annual report form 10k historical facts forwardlooking statements made pursuant safe harbor provisions private securities litigation reform act 1995 also may make forwardlooking statements documents filed furnished sec addition senior management may make forwardlooking statements orally investors analysts representatives media others statements preceded followed otherwise include words “believes” “expects” “anticipates” “intends” “projects” “estimates” “plans” similar expressions future conditional verbs “will” “should” “would” “may” “could” generally forwardlooking nature historical facts although forward looking statements include foregoing forwardlooking statements based assumptions involve number risks uncertainties many beyond control many possible events factors could affect future financial results performance could cause results performance differ materially expressed forwardlooking statements assurance list risks uncertainties risk factors complete certain factors could cause actual results differ forwardlooking statements • risks related concentration business houston metropolitan area including risks associated volatility decreases oil gas prices prolonged periods lower oil gas prices • general market conditions economic trends nationally regionally particularly houston metropolitan area • ability retain executive officers key employees customer community relationships • ability recruit retain successful bankers meet expectations terms customer community relationships profitability • risks related strategic focus lending small mediumsized businesses • ability implement growth strategy including identification acquisition candidates accretive financial condition results operations well permitting decisionmaking authority branch level • risks related businesses acquire future including exposure potential asset credit quality risks unknown contingent liabilities time costs associated integrating systems technology platforms procedures personnel need additional capital finance transactions possible failures realizing anticipated benefits acquisitions • risks associated owneroccupied commercial real estate loan commercial real estate loan portfolios including risks inherent valuation collateral securing loans • risks associated commercial industrial loan portfolio including risk deterioration value general business assets generally secure loans • accuracy sufficiency assumptions estimates make establishing reserves potential loan losses estimates • risk deteriorating asset quality higher loan chargeoffs well time effort necessary resolve nonperforming assets • potential changes prices values sales volumes commercial residential real estate securing real estate loans • changes market interest rates affect pricing loans deposits net interest income • potential fluctuations market value liquidity securities hold sale • risk impairment investment securities goodwill intangible assets deferred tax assets • effects competition wide variety local regional national providers financial investment insurance services may adversely affect pricing terms • risks associated negative public perception company • ability maintain effective system disclosure controls procedures internal controls financial reporting • risks associated fraudulent negligent acts customers employees vendors • ability keep pace technological change difficulties implementing new technologies • risks associated system failures protect cybersecurity threats breaches network security • ability comply privacy laws properly safeguard personal confidential proprietary information • risks associated data processing system failures errors • potential risk environmental liability related owning foreclosing real property • institution outcome litigation legal proceeding us become subject • ability maintain adequate liquidity raise necessary capital fund acquisition strategy operations meet increased minimum regulatory capital levels • ability comply various governmental regulatory requirements applicable financial institutions • impact recent future legislative regulatory changes including changes banking securities tax laws regulations application regulators implementation doddfrank act • governmental monetary fiscal policies including policies federal reserve • ability comply supervisory actions federal state banking agencies • changes scope cost fdic insurance coverage • systemic risks associated soundness financial institutions • effects war conflicts acts terrorism including cyberattacks catastrophic events including storms droughts tornadoes flooding may affect general economic conditions • risks uncertainties listed time reports documents filed sec forwardlooking statements speak date made undertake obligation update revise forwardlooking statements reflect events circumstances date statements made reflect occurrence unanticipated events unless required federal securities laws factors identified including described headings item 1a “risk factors” item 7 “management’s discussion analysis financial condition results operations” may also cause actual results differ materially described forward looking statements factors difficult anticipate generally beyond control consider factors connection considering forwardlooking statements may made us overview generate income interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits shareholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston metropolitan area well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets january 1 2015 completed acquisition fm bancshares whollyowned subsidiary bank enterprise bank results year ended 2015 reflect combined entity december 31 2014 fm bancshares consolidated basis reported total assets 5697 million total loans 4102 million total deposits 4889 million acquisition closed january 1 2015 historical financial condition results operations periods ended december 31 2014 contained annual report form 10k reflect financial condition results operations fm bancshares connection acquisition fm bancshares incurred approximately 293 million indebtedness including borrowing approximately 180 million revolving credit agreement repay debt fm bancshares owed shareholders assumption junior subordinated debentures aggregate original principal amount 113 million issued two statutory trusts addition impact acquisition fm bancshares comparability consolidated results operations years ended december 31 2014 2013 may affected acquisition independence bank national association “independence” fourth quarter 2013 results acquired operations independence included results operations portion 2013 compared full years 2014 2015 2016 2017 completed initial public offering 2990000 shares allegiances common stock 2100 per share october 7 2015 generating net proceeds 571 million allegiances common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” critical accounting policies accounting policies integral understanding results operations accounting policies described detail note 1 included elsewhere annual consolidated financial statements believe accounting policies following policies may involve higher degree judgment complexity securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component shareholders’ equity realized securities within available sale portfolio may used part assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost basis less otti recognized earnings becomes new amortized cost basis security loans held investment loans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonperforming past due loans placed nonaccrual status payment full principal interest expected upon principal interest default period 90 days unless asset well secured process collection decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts charged allowance loan types considered delinquent 30 days past due typically charged later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy events requiring chargeoffs occur shortfall identified recorded investment loan underlying value collateral allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired follow loan review program evaluate credit risk loan portfolio loans identified impaired reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry specific historical loan loss experience volume growth composition loan portfolio evaluation loan portfolio internal loan review process general current economic conditions internal external us may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates adjust allowance loan losses level determined management adequate estimates loan losses inherently subjective involve exercise judgment allowance loan losses dollars percentage total loans may comparable similar sized institutions due impact acquisition accounting part acquisition accounting acquired loans initially recognized fair value corresponding allowance loan losses initial fair value loans includes consideration expected credit losses loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings therefore classified impaired subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby determine amount reserve accordance accounting policy impaired loans part allowance loan losses calculation loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral accounting acquired loans time acquisition evaluate loans determine purchased credit impaired loans purchased credit impaired loans acquired loans evidence credit deterioration probable acquisition would unable collect contractual payments make determination considering past due andor nonaccrual status prior designation troubled debt restructuring factors may suggest able collect contractual payments purchased credit impaired loans initially recorded fair value difference fair value estimated future cash flows accreted expected cash flow period income extent reasonably estimate timing amount future cash flows case loans would classified accruing event unable reasonably estimate timing amount future cash flows loan classified nonaccrual acquired loan previously classified seller troubled debt restructuring longer classified date acquisition past due status reported based contractual payment status purchased credit impaired loans generally de minimis comprised less 001 loan portfolio december 31 2017 historically purchased credit impaired loans placed nonaccrual status reported able reasonably estimate timing amount future expected cash flows income associated purchased credit impaired loans 2017 prior periods immaterial loans otherwise classified purchased credit impaired recorded fair value discount contractual value accreted life loan determining allowance loan losses acquired loans bifurcate allowance legacy loans acquired loans remain designated acquired either loan 1 renewed 2 substantially modified whereby modification results new loan determining allowance acquired loans company estimates principal losses compared company’s recorded investment recorded investment net unaccreted discounts acquisition december 31 2017 1332 million acquired loans renewed substantially modified net unaccreted discount 207 thousand 016 accrued interest receivable accrued interest receivable represents amount interest income loans earned customer yet pay december 31 2017 balance accrued interest receivable increased 32 million compared december 31 2016 increase primarily due interest payment deferrals period 90 days granted borrowers good standing impacted hurricane harvey help relieve customers financial burden addition loan growth prior yearend goodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment perform annual impairment test october 1st goodwill intangible asset indefinite life balance sheet emerging growth company pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies elected opt standards election irrevocable likely take advantage reduced regulatory reporting requirements available us long qualify emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments recently issued accounting pronouncements evaluated new accounting pronouncements recently issued determined new accounting pronouncements described section material impact company’s operations financial condition liquidity future periods refer note 1 company’s audited consolidated financial statements discussion recent accounting pronouncements adopted company require enhanced disclosures company’s financial statements future periods results operations net income attributable common shareholders 176 million 131 per diluted common share year ended december 31 2017 compared 229 million 175 per diluted common share year ended december 31 2016 decrease 52 million 228 decrease net income primarily result 77 million increase provision loan losses 107 million increase noninterest expense partly offset 138 million increase net interest income net income attributable common shareholders increased 76 million 501 year ended december 31 2016 compared 152 million 143 per diluted common share year ended december 31 2015 returns average common equity 592 836 743 returns average assets 065 098 081 efficiency ratios 6389 6234 6527 years ended december 31 2017 2016 2015 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches 2016 additionally taxes provision loan losses part efficiency ratio calculation net interest income net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue representing 950 total revenue 2017 tax equivalent net interest margin ratio taxableequivalent net interest income average earning assets period level interest rates volume mix earning assets interestbearing liabilities impact net interest income net interest margin federal reserve influences general market rates interest including deposit loan rates offered many financial institutions loan portfolio affected changes prime interest rate prime interest rate offered loans borrowers strong credit remained 325 2015 december 2015 prime rate increased 25 basis points 350 remained level 2016 december 2016 prime rate increased 25 basis points end year 375 2017 prime rate increased 75 basis points 25 basis points march june december end year 450 loan portfolio also impacted changes london interbank offered rate libor december 31 2017 onemonth threemonth us dollar libor rates 157 169 respectively december 31 2016 onemonth threemonth us dollar libor rates 077 100 respectively effective federal funds rate cost immediately borrow available overnight funds remained zero 025 2015 december 2015 effective federal funds rate increased 25 basis points 050 remained level 2016 december 2016 effective federal funds rate increased 25 basis points end year 075 2017 effective federal funds rate increased 75 basis points 25 basis points march june december end year 150 year ended december 31 2017 compared year ended december 31 2016 net interest income provision loan losses year ended december 31 2017 1037 million compared 899 million year ended december 31 2016 increase 138 million 154 increase net interest income primarily due increase average interestearning assets 3436 million 163 year ended december 31 2017 compared year ended december 31 2016 increase average interestearning assets year ended december 31 2017 compared year ended 2016 primarily due organic loan growth interest income 1194 million year ended december 31 2017 increase 187 million 185 compared year ended december 31 2016 primarily due increase 170 million interest income fees loans year ended december 31 2017 compared period 2016 result increase average loans outstanding 3261 million period increase interest income years ended december 31 2017 2016 included acquisition accounting loan discount accretion 632 thousand 14 million respectively interest expense 158 million year ended december 31 2017 increase 49 million 445 compared year ended december 31 2016 increase primarily due increase average interestbearing liabilities increase funding costs interestbearing liabilities average interestbearing liabilities increased 2857 million 199 year ended december 31 2017 compared year ended december 31 2016 increase averagebearing liabilities primarily due increase average interestbearing deposits 2233 million increase average borrowed funds 603 million year ended december 31 2017 significant increase interestbearing deposits year ended december 31 2017 compared year ended december 31 2016 impacted increase average certificates time deposits 1000 million 154 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2017 434 decrease 3 basis points compared 437 year ended december 31 2016 decrease net interest margin tax equivalent basis primarily due increase funding costs certificates deposit borrowed funds decrease impact net acquisition accounting adjustments average yield interest earning assets average rate paid interestbearing liabilities increased 2017 average yield interestearning assets average rate paid interestbearing liabilities primarily impacted changes market interest rates well changes volume relative mix underlying assets liabilities impact net acquisition accounting adjustments 527 thousand 15 million tax equivalent net interest margin increase 2 basis points 7 basis points years ended december 31 2017 2016 respectivelytax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields tax equivalent yields net interest margin comparable periods presented based upon tax rate 35 beginning january 1 2018 tax equivalent yields net interest margin based upon tax rate 21 result tax cuts jobs act enacted december 22 2017 year ended december 31 2016 compared year ended december 31 2015 net interest income provision loan losses year ended december 31 2016 899 million compared 802 million year ended december 31 2015 increase 97 million 121 increase net interest income primarily due increase average interestearning assets 3780 million 218 year ended december 31 2016 compared year ended december 31 2015 increase average interestearning assets year ended december 31 2016 compared year ended 2015 primarily due organic loan growth increase size securities portfolio interest income 1008 million year ended december 31 2016 increase 120 million 135 compared year ended december 31 2015 primarily due increase 79 million interest income fees loans year ended december 31 2016 compared period 2015 result increase average loans outstanding 2300 million period increase interest income years ended december 31 2016 2015 included acquisition accounting loan discount accretion 14 million 35 million respectively interest expense 109 million year ended december 31 2016 increase 23 million 263 compared year ended december 31 2015 increase primarily due increase average interestbearing liabilities 2723 million year ended december 31 2016 compared year ended december 31 2015 increase average interestbearing liabilities primarily due increase average interestbearing deposits 1291 million increase average borrowed funds 1081 million year ended december 31 2016 entered 2000 million longterm fhlb borrowings second quarter 2016 october 2015 paid 275 million credit agreement portion proceeds initial public offering significant increase interestbearing deposits year ended december 31 2016 compared year end december 31 2015 impacted increase average certificates time deposits 888 million 159 tax equivalent net interest margin year ended december 31 2016 437 decrease 31 basis points compared 468 year ended december 31 2015 decrease net interest margin tax equivalent basis primarily due increase securities percentage interestearning assets increase funding costs interestbearing liabilities decrease impact net acquisition accounting adjustments impact net acquisition accounting adjustments 15 million 40 million tax equivalent net interest margin increase 7 basis points 24 basis points years ended december 31 2016 2015 respectively tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1 includes loans held sale 2 net interest margin equal net interest income divided average interestearning assets 3 order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 35 years ended december 31 2017 2016 2015 applicable effective tax rates following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision loan losses allowance loan losses established charges income form provision order bring allowance loan losses level deemed appropriate management allowance loan losses december 31 2017 december 31 2016 236 million 179 million respectively representing 104 095 total loans dates acquired loans initially recorded fair value based discounted cash flow valuation methodology considers among things projected default rates losses given existing defaults recovery rates carryover allowance loan losses occurs loans acquired recorded 132 million provision loan losses year ended december 31 2017 compared 55 million year ended december 31 2016 increase provision primarily due increase organic loan growth net chargeoffs 75 million estimated losses related hurricane harvey increase 702 thousand allowance impaired loans year ended december 31 2017 provision loan losses year ended december 31 2016 55 million compared 58 million year ended december 31 2015 noninterest income primary sources noninterest income service charges deposit accounts nonsufficient funds fees rebates correspondent bank debit card atm card income noninterest income include loan origination fees recognized life related loan adjustment yield using interest method year ended december 31 2017 compared year ended december 31 2016 noninterest income totaled 59 million year ended december 31 2017 compared 73 million year ended december 31 2016 decrease 14 million 194 decrease primarily due 21 million gain 13 million aftertax sale two central texas branch locations completed first quarter 2016 year ended december 31 2016 compared year ended december 31 2015 noninterest income totaled 73 million year ended december 31 2016 compared 40 million year ended december 31 2015 increase 33 million 821 increase primarily due 21 million gain 13 million aftertax sale two central texas branch locations completed first quarter 2016 following table presents periods indicated major categories noninterest income 1 includes wire transfer letter credit fees among items noninterest expense year ended december 31 2017 compared year ended december 31 2016 noninterest expense 700 million year ended december 31 2017 compared 593 million year ended december 31 2016 increase 107 million 181 increase primarily due increased expenses related core technology conversion professional fees regulatory assessments fdic insurance salaries benefits related supporting growth initiatives year ended december 31 2016 compared year ended december 31 2015 noninterest expense 593 million year ended december 31 2016 compared 548 million year ended december 31 2015 increase 45 million 81 increase primarily attributable increases salaries benefits professional fees related supporting growth initiatives following table presents periods indicated major categories noninterest expense 1 total salaries employee benefits includes 18 million 15 million 14 million stock based compensation expense years ended december 31 2017 2016 2015 respectively salaries employee benefits salaries benefits 447 million year ended december 31 2017 increase 59 million 152 compared year ended december 31 2016 increase primarily attributable addition high quality lenders key personnel hired strengthen infrastructure support future growth plans total size workforce periods increased 375 fulltime equivalent employees december 31 2017 334 employees december 31 2016 salaries benefits 389 million year ended december 31 2016 increase 35 million 100 compared year ended december 31 2015 increase primarily attributable additional employees hired support growth past year net occupancy equipment net occupancy equipment expenses increased 508 thousand 103 year ended december 31 2017 55 million compared 49 million year ended december 31 2016 increase primarily due general business growth continued buildout needed support growth net occupancy equipment expenses 49 million year ended december 31 2016 compared 48 million year ended december 31 2015 data processing software amortization data processing software amortization increased 14 million 537 year ended december 31 2017 compared year ended december 31 2016 increase primarily due expenses related upcoming conversion core technology platform better serve customers increase efficiencies data processing software amortization decreased 411 thousand 135 year ended december 31 2016 compared year ended december 31 2015 professional fees professional fees increased 692 thousand 310 year ended december 31 2017 29 million 22 million year ended december 31 2016 continued focus enhancing operational infrastructure required pursue growth strategy professional fees increased 563 thousand 337 year ended december 31 2016 compared year ended december 31 2015 increase primarily attributable consulting fees incurred support growth initiatives year regulatory assessments fdic insurance regulatory assessments fdic insurance expense increased 692 thousand 438 year ended december 31 2017 compared year ended december 31 2016 increased 235 thousand 175 year ended december 31 2016 compared year ended december 31 2015 increases primarily related increase assessment rate increase assets efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance calculated based generally accepted accounting principles calculate efficiency ratio dividing total noninterest expense sum net interest income noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches additionally taxes provision loan losses part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio 6389 year ended december 31 2017 compared 6234 year ended december 31 2016 efficiency ratio 6234 year ended december 31 2016 compared 6527 year ended december 31 2015 efficiency ratio 2015 impacted mergerrelated expenses approximately 941 thousand related fm bancshares acquisition completed 2015 monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2015 2016 demonstrates scalability operating platform expect continue benefit scalable platform future periods continue monitor overhead expenses necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense decreased 807 thousand 84 87 million year ended december 31 2017 compared 96 million period 2016 primarily due decrease pretax net income year ended december 31 2016 income tax expense increased 18 million compared 78 million year ended december 31 2015 increase income tax expense year primarily attributable higher pretax net income effective tax rates 332 295 330 years ended december 31 2017 2016 2015 respectively effective tax rate 2017 impacted adjustment deferred tax assets related reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 partially offset tax free income purchase additional municipal securities cashless exercises stock options employees 2017 asc 740 income taxes effect income tax law changes deferred taxes recognized component income tax expense related continuing operations period law enacted requirement applies items initially recognized continuing operations also items initially recognized comprehensive income result reduction us federal statutory income tax rate recognized provisional net income tax expense totaling 26 million effective tax rate decreased year ended december 31 2016 compared period 2015 due increase taxexempt income purchase additional municipal securities cashless exercises stock options employees tax cuts jobs act tax cuts jobs act enacted december 22 2017 among things new law establishes new flat corporate federal statutory income tax rate 21 ii eliminates corporate alternative minimum tax allows use carryforwards offset regular tax liability taxable year iii limits deduction net interest expense incurred us corporations iv allows businesses immediately expense tax purposes cost new investments certain qualified depreciable assets v eliminates reduces certain deductions related meals entertainment expenses vi modifies limitation excessive employee remuneration eliminate exception performancebased compensation clarifies definition covered employee vii limits deductibility deposit insurance premiums tax cuts jobs act also significantly changes us tax law related foreign operations however changes currently impact us quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2017 2016 information read conjunction consolidated financial statements fiscal years ended december 31 2017 2016 appearing elsewhere annual report form 10k 1 earnings per share computed independently quarters presented therefore may total earnings per share year financial condition loan portfolio december 31 2017 total loans 227 billion increase 3792 million 200 compared december 31 2016 primarily due organic growth loan portfolio total loans percentage deposits 1026 1011 december 31 2017 december 31 2016 respectively 2017 2016 grew loan portfolio faster rate grew deposits total loans percentage assets 794 772 december 31 2017 december 31 2016 respectively following table summarizes loan portfolio type loan dates indicated 1 consists loans two former fm bancshares locations company acquired january 1 2015 december 31 2015 loans held sale consisted 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million l4 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston metropolitan area strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed semiannual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made lenders credit personnel contained policies procedures principal categories loan portfolio including loans held sale discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income commercial industrial loan portfolio increased 404 million 97 4571 million december 31 2017 compared 4168 million december 31 2016 mortgage warehouse make loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes portfolio tend peak end month mortgage warehouse portfolio increased 24 million 36 695 million december 31 2017 compared 670 million december 31 2016 commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate december 31 2017 december 31 2016 514 535 respectively commercial real estate loans owneroccupied commercial real estate loan portfolio increased 1883 million 211 108 billion december 31 2017 8920 million december 31 2016 result organic loan growth included commercial real estate portfolio multifamily residential loans multifamily loans increased 143 million 270 672 million december 31 2017 529 million december 31 2016 100 multifamily loans average loan size 673 thousand december 31 2017 exposure oil gas oil gasrelated customers 31 total loan portfolio december 31 2017 defined customers prices oil gas significant operational financial impact loans carry overall allowance 35 december 31 2017 collateral loans includes industrial commercial real estate working capital assets machining equipment drilling equipment general industrial equipment vehicles airplanes ranch property insurance policies notes receivable hotel addition loans personally guaranteed owners borrower commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction december 31 2017 december 31 2016 264 161 respectively commercial real estate construction land development loans owneroccupied commercial real estate construction land development land loans increased 841 million 528 2434 million december 31 2017 compared 1592 million december 31 2016 primarily result organic loan growth 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market area residential real estate portfolio including home equity increased 542 million 220 3012 million december 31 2017 2470 million december 31 2016 home equity home improvement home equity lines credit portion residential real estate portfolio increased 95 million 276 438 million december 31 2017 343 million december 31 2016 increases primarily result increased lending activity due increase demand residential real estate growing houston metropolitan area residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio increased 105 million 106 1091 million december 31 2017 987 million december 31 2016 consumer loan portfolio made loans made individuals personal purposes consumer loan portfolio decreased 645 thousand 59 103 million december 31 2017 110 million december 31 2016 contractual maturity ranges total loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined fixed interest rates floating interest rates maturity range case date indicated summarized following tables concentrations credit vast majority lending activity occurs houston metropolitan area loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston metropolitan area december 31 2017 2016 2015 commercial real estate commercial construction loans represented 583 556 542 respectively total loans including loans held sale asset quality nonperforming assets potential problem loans procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 133 million 167 million 52 million nonperforming loans december 31 2017 2016 2015 respectively interest nonaccrual loans accrued original loan terms 733 thousand 892 thousand 404 thousand would recorded income years ended december 31 2017 2016 2015 respectively following table presents information regarding nonperforming assets dates indicated 1 restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan 2 nonperforming assets include nonaccrual loans past due 90 days still accruing interest repossessed assets real estate 3 nonperforming loans include nonaccrual loans past due 90 days still accruing interest potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2017 2016 179 million 52 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2017 potential problem loans consisted 21 credit relationships total outstanding balance december 31 2017 460 related one customer hospitality industry 239 related eight customers energyrelated industry 153 related two customers residential real estate rental industry 70 related one customer manufacturing industry 28 related one customer convenience store industry 21 related two customers commercial services industry 11 related one customer construction material industry 10 related one customer service industry 06 related three customers trucking industry 03 related one customer commercial real estate industry weakness organizations’ operating performance financial condition borrowing base deficits certain energy related credits among factors caused us heighten attention given credits loans identified potential problem loans december 31 2017 graded substandard accruing loans potential problem loans impact allocation allowance loan losses result risk grade based allocation methodology see note 6 loans accompanying consolidated financial statements details regarding allowance allocation methodology nonperforming assets decreased 46 million 139 million december 31 2017 185 million december 31 2016 nonaccrual loans consisted 50 separate credits december 31 2017 compared 62 separate credits december 31 2016 nonperforming assets 061 total loans december 31 2017 compared 098 december 31 2016 allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance loans acquired fm bancshares recorded fair value without carryover fm bancshares allowance loan losses discount recognized acquired loans prospectively accreted increasing basis loans due acquisition accounting allowance loan losses total loans may comparable peers particularly relates allowance gross loan percentage allowance nonperforming loans recognizing acquired purchased credit impaired loans de minimis monitor credit quality trends postacquisition basis emphasis past due chargeoff classified loan nonperforming trends amount discount recorded company acquisition date fm bancshares acquisition 60 million 147 loans acquired remaining discount balance acquired loans december 31 2017 207 thousand 016 discount purchased loans considers anticipated credit losses portfolio therefore allowance credit losses established acquisition date unaccreted discount represents additional protection potential losses presented reduction recorded investment loans rather allowance loan losses continue look portfolio credit deterioration establish additional allowances remaining discount needed december 31 2017 allowance loan losses amounted 236 million 104 total loans compared 179 million 095 december 31 2016 increase allowance 57 million year ended december 31 2017 compared year ended december 31 2016 primarily due increase required reserves associated organic loan growth increase problem loans estimated losses related hurricane harvey increase 702 thousand allowance impaired loans additionally net chargeoffs increased 75 million year 2017 compared 2016 primarily due two commercial loan relationships experienced financial difficulty 2017 believe allowance loan losses december 31 2017 adequate cover probable incurred losses loan portfolio date ratio net chargeoffs average loans outstanding increased 036 year ended december 31 2017 004 december 31 2016 following table presents periods indicated analysis allowance loan losses related data connection review loan portfolio consider following risk elements attributable particular loan types categories assessing quality individual loans • commercial industrial loans operating results commercial industrial professional enterprise borrower’s business professional financial ability expertise specific risks volatility income operating results typical businesses category value nature marketability collateral • commercial real estate including multifamily residential loans debt service coverage ratio income property excess operating expenses compared loan payment requirements operating results owner case owneroccupied properties loan value ratio age condition collateral volatility income property value future operating results typical properties type • commercial real estate construction land development residential construction loans perceived feasibility project including ability sell developed lots improvements constructed resale ability lease property constructed lease quality nature contracts presale prelease experience ability developer loan value ratio • 14 family residential including home equity loans borrower’s ability repay loan including consideration debt income ratio employment income stability loan value ratio age condition marketability collateral • consumer loans individual borrower’s income current debt level past credit history value available collateral based review loan portfolio classify loans credit risk track risk ratings following general description risk ratings use • loans classified “watch” loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value • loans classified “special mention” potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan credit position future date characterized distinct possibility sustain loss deficiencies corrected • loans classified “substandard” welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans characterized distinct possibility sustain loss deficiencies corrected • loans classified “doubtful” weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually considered pass rated loans see item 7 “ management’s discussion analysis financial condition results operationscritical accounting policiesallowance loan losses” additional information regarding estimate evaluate credit risk loan portfolio following table shows allocation allowance loan losses among loan categories percentage respective loan category total loans held investment dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2017 carrying amount investment securities totaled 3096 million decrease 68 million 22 compared 3165 million december 31 2016 securities represented 108 129 total assets december 31 2017 2016 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown certain investment securities valued less historical cost management evaluates securities otti least quarterly basis frequently economic market conditions warrant evaluation see item 7 “management’s discussion analysis financial condition results operationcritical accounting policiessecurities” additional information regarding management evaluates securities otti december 31 2017 expect sell securities classified available sale material unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased management believe securities impaired due reasons credit quality fair value expected recover securities approach maturity date repricing date market yields investments decline accordingly december 31 2017 management believes impairment securities temporary impairment loss realized consolidated statements income following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2017 2016 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated shareholders’ equity average yield securities portfolio 260 year ended december 31 2017 compared 253 year ended december 31 2016 increase average yield 2017 compared 2016 primarily due increased investment longerterm securities investment higheryielding securities replaced loweryielding securities matured called prepaid goodwill core deposit intangibles goodwill december 31 2017 2016 394 million goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable core deposit intangibles net december 31 2017 2016 33 million 41 million respectively core deposit intangibles amortized using straightline amortization method estimated useful life seven nine years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2017 221 billion increase 3438 million 184 compared 187 billion december 31 2016 deposit growth experienced largely result growth customer lending base many also established deposit relationship us noninterestbearing deposits december 31 2017 6831 million increase 894 million 150 compared 5938 million december 31 2016 interestbearing deposits december 31 2017 153 billion increase 2544 million 199 compared 128 billion december 31 2016 total deposits december 31 2016 187 billion increase 1111 million 63 compared 176 billion december 31 2015 noninterestbearing deposits december 31 2016 5938 million decrease 266 million 43 compared 6203 million december 31 2015 interestbearing deposits december 31 2016 128 billion increase 1376 million 121 compared 114 billion december 31 2015 following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits 318 year ended december 31 2017 338 years ended december 31 2016 2015 following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2017 company total borrowing capacity 9306 million 6062 million available agreement 3244 million outstanding fhlb advances 2820 million outstanding december 31 2017 weighted average rate 145 letters credit 424 million december 31 2017 31 million expired february 2018 renewed february 2019 80 million expire august 2018 250 million expire october 2018 64 million expire december 2018 credit agreement january 2015 borrowed additional 180 million credit agreement another financial institution addition 101 million indebtedness incurred agreement 2014 used funds borrowed 2015 repay debt fm bancshares owed october 2015 paid 275 million credit agreement using portion proceeds initial public offering allegiance common stock interest rate outstanding debt revolving credit agreement prime rate minus 25 basis points 425 december 31 2017 paid quarterly december 31 2017 2016 2015 569 thousand indebtedness owed credit agreement borrowing revolving credit agreement matures december 2021 secured 100 capital stock bank maximum commitment advance funds credit agreement originally 300 million continue reduced 4285 million december 22nd required repay outstanding balance excess thencurrent maximum commitment amount credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2017 compliance debt covenants except return assets bank fourth quarter 2017 046 required minimum primarily due tax provision adjustment recorded result enactment tax reform bill end fourth quarter noncompliance waived lender respect fourth quarter 2017 subordinated debt junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 92 million december 31 2017 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 11 audited consolidated financial statements included elsewhere annual report form 10k subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank intends use net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders contractual obligations following tables summarize contractual obligations commitments make future payments december 31 2017 2016 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance gaap included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby performance letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2017 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance loan losses standby letters credit standby letters credit written conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements backed promissory notes contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2017 2016 2015 liquidity needs met deposits borrowed funds security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 270 billion 234 billion 194 billion years ended december 31 2017 2016 2015 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average loans increased 3261 million 186 year ended december 31 2017 compared year ended december 31 2016 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 65 years modified duration 55 years december 31 2017 weighted average life 67 years modified duration 58 years december 31 2016 december 31 2017 december 31 2016 outstanding 6200 million 5864 million respectively commitments extend credit 172 million 95 million respectively commitments associated outstanding standby performance letters credit since commitments associated letters credit commitments extend credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2017 2016 2015 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2017 cash equivalents 1821 million compared 1421 million december 31 2016 increase 400 million increase cash equivalents primarily due 3438 million increase deposits proceeds maturities paydowns sales securities 205 billion proceeds subordinated note issuance 400 million partially offset increase total loans 3792 million purchase securities 204 billion capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common shareholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2017 2016 2015 bank wellcapitalized basel iii capital rules impact regulatory capital ratios banking organizations following manner fully phased create new requirement maintain ratio “common equity tier 1 capital” total riskweighted assets less 45 increase minimum leverage capital ratio 40 banking organizations increase minimum tier 1 riskbased capital ratio 40 60 maintain minimum total riskbased capital ratio 80 addition basel iii capital rules subject banking organization certain limitations capital distributions discretionary bonus payments executive officers organization maintain “capital conservation buffer” common equity tier 1 capital implementation capital conservation buffer began january 1 2016 0625 level phased fouryear period increasing 0625 subsequent january 1 reaches 25 january 1 2019 fully phasedin effect capital conservation buffer increase minimum common equity tier 1 capital ratio 70 minimum tier 1 riskbased capital ratio 85 minimum total riskbased capital ratio 105 following table provides comparison company’s bank’s leverage riskweighted capital ratios december 31 2017 minimum wellcapitalized regulatory standards total shareholder’s equity 3069 million december 31 2017 compared 2798 million december 31 2016 increase 270 million 97 increase primarily due net income 176 million year ended december 31 2017 assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered instruments leveraged derivatives interest rate swaps financial options financial future contracts forward delivery contracts purpose reducing interest rate risk based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management accordance policies approved board directors alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due duration loan securities portfolio duration borrowings expected behavior demand money market savings deposits rate fluctuations 2017 overall duration combined loan securities portfolios increased fhlb borrowings represented larger proportion funding mix year end gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible shareholders’ equity” shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total shareholders’ equity total assets goodwill intangible assets effect increasing total shareholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures 1 include 1711 11426 shares treasury stock december 31 2015 2013 respectively shares treasury stock outstanding december 31 2017 2016 2014 item 7a item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” item 7 item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements cautionary notice regarding forwardlooking statements financial discussion analysis contained annual report form 10k historical facts forwardlooking statements made pursuant safe harbor provisions private securities litigation reform act 1995 also may make forwardlooking statements documents filed furnished sec addition senior management may make forwardlooking statements orally investors analysts representatives media others statements preceded followed otherwise include words “believes” “expects” “anticipates” “intends” “projects” “estimates” “plans” similar expressions future conditional verbs “will” “should” “would” “may” “could” generally forwardlooking nature historical facts although forward looking statements include foregoing forwardlooking statements based assumptions involve number risks uncertainties many beyond control many possible events factors could affect future financial results performance could cause results performance differ materially expressed forwardlooking statements assurance list risks uncertainties risk factors complete certain factors could cause actual results differ forwardlooking statements • risks related concentration business houston region including risks associated volatility decreases oil gas prices prolonged periods lower oil gas prices • general market conditions economic trends nationally regionally particularly houston region • ability retain executive officers key employees customer community relationships • ability recruit retain successful bankers meet expectations terms customer community relationships profitability • risks related strategic focus lending small mediumsized businesses • ability implement growth strategy including identification acquisition candidates accretive financial condition results operations well permitting decisionmaking authority branch level • risks related businesses acquire future including exposure potential asset credit quality risks unknown contingent liabilities time costs associated integrating systems technology platforms procedures personnel need additional capital finance transactions possible failures realizing anticipated benefits acquisitions • risks associated owneroccupied commercial real estate loan commercial real estate loan portfolios including risks inherent valuation collateral securing loans • risks associated commercial industrial loan portfolio including risk deterioration value general business assets generally secure loans • accuracy sufficiency assumptions estimates make establishing reserves potential loan losses estimates • risk deteriorating asset quality higher loan chargeoffs well time effort necessary resolve nonperforming assets • potential changes prices values sales volumes commercial residential real estate securing real estate loans • risks related loans originated serviced small business administration’s guidelines • changes market interest rates affect pricing loans deposits net interest income • potential fluctuations market value liquidity securities hold sale • risk impairment investment securities goodwill intangible assets deferred tax assets • effects competition wide variety local regional national providers financial investment insurance services may adversely affect pricing terms • risks associated negative public perception company • ability maintain effective system disclosure controls procedures internal controls financial reporting • risks associated fraudulent negligent acts customers employees vendors • ability keep pace technological change difficulties implementing new technologies • risks associated system failures protect cybersecurity threats breaches network security • ability comply privacy laws properly safeguard personal confidential proprietary information • risks associated data processing system failures errors • potential risk environmental liability related owning foreclosing real property • institution outcome litigation legal proceeding us become subject • ability maintain adequate liquidity raise necessary capital fund acquisition strategy operations meet increased minimum regulatory capital levels • ability comply various governmental regulatory requirements applicable financial institutions • impact recent future legislative regulatory changes including changes banking securities tax laws regulations application regulators • governmental monetary fiscal policies including policies federal reserve • ability comply supervisory actions federal state banking agencies • changes scope cost fdic insurance coverage • systemic risks associated soundness financial institutions • effects war conflicts acts terrorism including cyberattacks catastrophic events including pandemics storms droughts tornadoes flooding may affect general economic conditions • risks uncertainties listed time reports documents filed sec forwardlooking statements speak date made undertake obligation update revise forwardlooking statements reflect events circumstances date statements made reflect occurrence unanticipated events unless required federal securities laws factors identified including described heading item 1a “risk factors” elsewhere item 7 “management’s discussion analysis financial condition results operations” may also cause actual results differ materially described forward looking statements factors difficult anticipate generally beyond control consider factors connection considering forwardlooking statements may made us overview following discussion analysis presents significant factors affected financial condition december 31 2019 2018 results operations years ended refer management’s discussion analysis financial condition results operations included annual report form 10k filed sec march 11 2019 “2018 form 10k” discussion analysis significant factors affected periods prior 2018 generate income interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits shareholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston region well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets october 1 2018 completed acquisition post oak bancshares inc whollyowned subsidiary bank post oak bank na collectively “post oak” acquisition closed october 1 2018 results operations included post oak portion 2018 historical financial condition results operations periods ended december 31 2018 contained annual report form 10k reflect financial condition results operations post oak connection acquisition post oak issued 84 million shares company common stock completed initial public offering 2990000 shares allegiances common stock 2100 per share october 7 2015 generating net proceeds 571 million allegiances common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” critical accounting policies certain accounting estimates important portrayal financial condition since require management make difficult complex subjective judgments may relate matters inherently uncertain estimates susceptible material changes result changes facts circumstances facts circumstances could affect judgments include limited changes interest rates changes performance economy changes financial condition borrowers management believes determining allowance loan losses critical accounting estimate accounting policies discussed detail note 1 nature operations summary significant accounting reporting policies accompanying notes consolidated financial statements included elsewhere annual report form 10k allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance management considers policies related allowance loan losses critical financial statement presentation total allowance loan losses includes activity related allowances calculated accordance accounting standards codification “asc” 310 receivables asc 450 contingencies throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired follow loan review program evaluate credit risk loan portfolio loans identified impaired reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry specific historical loan loss experience volume growth composition loan portfolio evaluation loan portfolio internal loan review process general current economic conditions internal external us may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates adjust allowance loan losses level determined management adequate estimates loan losses inherently subjective involve exercise judgment loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference recently issued accounting pronouncements june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” “asu 201613” asu 201613 makes significant changes accounting credit losses financial instruments presented amortized cost basis related disclosures new current expected credit loss cecl impairment model require estimate expected credit losses measured contractual life instrument considers reasonable supportable forecasts future economic conditions addition information past events current conditions standard provides significant flexibility requires high degree judgment regards pooling financial assets similar risk characteristics adjusting relevant historical loss information order develop estimate expected lifetime losses addition asu 201613 amends accounting credit losses purchased financial assets credit deterioration effective january 1 2020 adopt asu 201613 discussed fully part ii item 8 financial statements supplementary data note 1 nature operations summary significant accounting reporting policies report along recent accounting pronouncements adopted company require enhanced disclosures company’s financial statements future periods emerging growth company pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies elected opt standards election irrevocable able take advantage reduced regulatory reporting requirements available us qualified emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments full regulatory reporting requirements applicable beginning annual report fiscal year ending december 31 2020 results operations net income 530 million 247 per diluted common share year ended december 31 2019 compared 373 million 237 per diluted common share year ended december 31 2018 increase 157 million 419 increase net income primarily result 510 million increase net interest income partially offset 338 million increase noninterest expense returns average common equity 748 902 returns average assets 110 111 efficiency ratios 6299 6368 years ended december 31 2019 2018 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets additionally taxes provision loan losses part efficiency ratio calculation net interest income net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue representing 930 total revenue 2019 tax equivalent net interest margin ratio taxableequivalent net interest income average earning assets period level interest rates volume mix earning assets interestbearing liabilities impact net interest income net interest margin federal reserve influences general market rates interest including deposit loan rates offered many financial institutions loan portfolio affected changes effective federal funds rate cost immediately available overnight funds prime interest rate effective federal funds rate increased 75 basis points 25 basis points march june december end 2017 150 2018 effective federal funds rate increased 100 basis points 25 basis points march june september december end period 250 2019 effective federal funds rate decreased 75 basis points 25 basis points july september october end period 175 similarly prime rate increased 75 basis points 25 basis points march june december 2017 end year 450 2018 prime rate increased another 100 basis points 25 basis points march june september december end year 550 2019 prime rate decreased 75 basis points 25 basis points august september october end year 475 net interest income provision loan losses year ended december 31 2019 1795 million compared 1286 million year ended december 31 2018 increase 510 million 396 increase net interest income previous year primarily due increased average interestearning asset balances primarily acquisition post oak well organic growth year average interestearning assets increased 122 billion 402 year ended december 31 2019 compared year ended december 31 2018 interest income 2329 million year ended december 31 2019 increase 747 million 472 compared year ended december 31 2018 primarily due increase 731 million interest income fees loans increase interest income fees loans year ended december 31 2019 primarily due post oak acquisition fourth quarter 2018 organic growth 2019 average loans outstanding increased 118 billion 445 period additionally interest income years ended december 31 2019 2018 included acquisition accounting loan discount accretion 89 million 27 million respectively interest expense 534 million year ended december 31 2019 increase 237 million 800 compared year ended december 31 2018 increase primarily due increase average interestbearing deposits rising expenses associated higher funding costs interestbearing liabilities subordinated debt issued end september 2019 average interestbearing liabilities increased 7591 million 363 year ended december 31 2019 compared year ended december 31 2018 primarily due increase average interestbearing deposits average interestbearing deposits increased 8572 million primarily due deposits assumed post oak acquisition organic growth additionally average subordinated debt increased 157 million year ended december 31 2019 due issuance september 2019 increase interestbearing deposits year ended december 31 2019 compared year ended december 31 2018 primarily due increase average certificates time deposits 3363 million 358 increase average money market deposits 4050 million 735 overall cost average interestbearing liabilities increased 187 basis points year ended december 31 2019 compared 142 basis points period 2018 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2019 422 decrease 5 basis points compared 427 year ended december 31 2018 decrease net interest margin tax equivalent basis primarily due increase funding costs certificates deposit borrowed funds partially offset increase impact net acquisition accounting adjustments average yield interestearning assets average rate paid interestbearing liabilities increased 2019 average yield interestearning assets average rate paid interestbearing liabilities primarily impacted changes market interest rates well changes volume relative mix underlying assets liabilities impact net acquisition accounting adjustments 96 million 31 million tax equivalent net interest margin increase 22 basis points 10 basis points years ended december 31 2019 2018 respectively tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 21 federal tax rate years ended december 31 2019 2018 thus making taxexempt yields relatively comparable taxable asset yields following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1 net interest margin equal net interest income divided average interestearning assets 2 order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 21 years ended december 31 2019 2018 35 year ended december 31 2017 applicable effective tax rates following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision loan losses allowance loan losses established charges income form provision order bring allowance loan losses level deemed appropriate management allowance loan losses december 31 2019 december 31 2018 294 million 263 million respectively representing 075 071 total loans dates recorded 59 million provision loan losses year ended december 31 2019 compared 42 million year ended december 31 2018 primarily due increase organic loan growth net chargeoffs 13 million acquired loans initially recorded fair value based discounted cash flow valuation methodology considers among things projected default rates losses given existing defaults recovery rates loans acquired post oak initially recorded fair value corresponding allowance loan losses recorded loans acquisition date recognized discount acquired loans prospectively accreted increasing basis loans december 31 2019 balance acquisition accounting loan discount 55 million noninterest income primary sources noninterest income service charges deposit accounts nonsufficient funds fees rebates correspondent bank debit card atm card income noninterest income include loan origination fees recognized life related loan adjustment yield using interest method noninterest income totaled 134 million year ended december 31 2019 compared 77 million year ended december 31 2018 increase 57 million 740 noninterest income increased 2019 primarily due additional noninterest income driven primarily increased deposit loan balances resulting post oak acquisition additional rebates correspondent banks along gain 15 million sale securities following table presents periods indicated major categories noninterest income 1 includes wire transfer letter credit fees among items noninterest expense noninterest expense 1206 million year ended december 31 2019 compared 868 million year ended december 31 2018 increase 338 million 390 increase primarily due additional expenses related increased headcount bank offices post oak acquisition expenses support organic growth initiatives core deposit intangibles amortization partially offset 10 million fdic small bank assessment credit following table presents periods indicated major categories noninterest expense 1 total salaries employee benefits includes 31 million 17 million 18 million stock based compensation expense years ended december 31 2019 2018 2017 respectively salaries employee benefits salaries benefits 776 million year ended december 31 2019 increase 209 million 368 compared year ended december 31 2018 experienced significant increase total size workforce added post oak acquisition support organic growth additionally recorded 14 million severance expense 2019 net occupancy equipment net occupancy equipment expenses increased 23 million 399 year ended december 31 2019 82 million compared 58 million year ended december 31 2018 increase primarily due expenses associated infrastructure facilities added post oak acquisition continued buildout needed support growth data processing software amortization data processing software amortization increased 23 million 458 year ended december 31 2019 compared year ended december 31 2018 increase primarily due expenses added scale result post oak acquisition increase efficiencies regulatory assessment fdic insurance regulatory assessment fdic insurance decreased 604 thousand 262 year ended december 31 2019 compared year ended december 31 2018 decrease primarily due 10 million fdic small bank assessment credit received 2019 core deposit intangibles amortization core deposit intangibles amortization increased 29 million 1596 year ended december 31 2019 47 million 18 million year ended december 31 2018 primarily due increased core deposit intangibles amortization resulting post oak acquisition mergerrelated expenses acquisition mergerrelated expenses legal advisory accounting fees associated post oak lowerybank branch acquisitions expenses also include data processing conversion costs contract termination costs resulted post oak acquisition efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance calculate efficiency ratio dividing total noninterest expense sum net interest income noninterest income excluding net gains losses sale loans securities assets additionally taxes provision loan losses part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio decreased 6299 year ended december 31 2019 compared 6368 year ended december 31 2018 6389 year ended december 31 2017 monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2017 2018 2019 demonstrates scalability operating platform expect continue benefit scalable platform future periods continue monitor overhead expenses necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense increased 55 million 689 134 million year ended december 31 2019 compared 79 million period 2018 primarily due increase pretax net income effective tax rates 202 176 332 years ended december 31 2019 2018 2017 respectively effective tax rates 2019 2018 impacted reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 result reduction us federal statutory income tax rate recognized provisional net income tax expense totaling 26 million year ended december 31 2017 asc 740 income taxes effect income tax law changes deferred taxes recognized component income tax expense related continuing operations period law enacted requirement applies items initially recognized continuing operations also items initially recognized comprehensive income tax cuts jobs act tax cuts jobs act enacted december 22 2017 among things new law establishes new flat corporate federal statutory income tax rate 21 ii eliminates corporate alternative minimum tax allows use carryforwards offset regular tax liability taxable year iii limits deduction net interest expense incurred us corporations iv allows businesses immediately expense tax purposes cost new investments certain qualified depreciable assets v eliminates reduces certain deductions related meals entertainment expenses vi modifies limitation excessive employee remuneration eliminate exception performancebased compensation clarifies definition covered employee vii limits deductibility deposit insurance premiums tax cuts jobs act also significantly changes us tax law related foreign operations however changes currently impact us quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2019 2018 information read conjunction consolidated financial statements fiscal years ended december 31 2019 2018 appearing elsewhere annual report form 10k 1 earnings per share computed independently quarters presented therefore may total earnings per share year financial condition loan portfolio december 31 2019 total loans 392 billion increase 2070 million 56 compared december 31 2018 primarily due organic loan growth loans acquired lowerybank branch acquisition total loans percentage deposits 962 1012 december 31 2019 december 31 2018 respectively total loans percentage assets 784 797 december 31 2019 december 31 2018 respectively following table summarizes loan portfolio type loan dates indicated 1 consists loans two former fm bancshares locations central texas company acquired january 1 2015 december 31 2015 loans held sale consisted 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million l4 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston region strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed semiannual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made bankers credit personnel contained policies procedures principal categories loan portfolio including loans held sale discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans commercial industrial loan portfolio decreased 127 million 18 6894 million december 31 2019 compared 7020 million december 31 2018 mortgage warehouse make loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes portfolio tend peak end month mortgage warehouse portfolio decreased 400 million 828 83 million december 31 2019 compared 483 million december 31 2018 made strategic decision 2019 pursue orderly exit line business commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate loans secured owneroccupied properties generally involve less risk december 31 2019 december 31 2018 538 514 respectively commercial real estate loans owneroccupied commercial real estate loan portfolio increased 2229 million 135 187 billion december 31 2019 165 billion december 31 2018 primarily result organic loan growth included commercial real estate portfolio multifamily residential loans multifamily loans increased 37 million 47 822 million december 31 2019 784 million december 31 2018 148 multifamily loans average loan size 555 thousand december 31 2019 commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often includes disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan december 31 2019 december 31 2018 319 294 respectively commercial real estate construction land development loans owneroccupied commercial real estate construction land development land loans decreased 197 million 46 4105 million december 31 2019 compared 4301 million december 31 2018 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market area residential real estate portfolio including home equity increased 496 million 76 6990 million december 31 2019 6493 million december 31 2018 home equity home improvement home equity lines credit portion residential real estate portfolio increased 170 million 178 1125 million december 31 2019 954 million december 31 2018 residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio increased 61 million 33 1925 million december 31 2019 1864 million december 31 2018 consumer loan portfolio made loans made individuals personal purposes generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans consumer loan portfolio increased 688 thousand 17 419 million december 31 2019 412 million december 31 2018 contractual maturity ranges total loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined fixed interest rates floating interest rates maturity range case date indicated summarized following tables concentrations credit vast majority lending activity occurs houston region loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston region december 31 2019 2018 2017 commercial real estate commercial construction loans represented 583 561 583 respectively total loans asset quality procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 284 million 330 million 133 million nonperforming loans december 31 2019 2018 2017 respectively interest nonaccrual loans accrued original loan terms 12 million 10 million 733 thousand would recorded income years ended december 31 2019 2018 2017 respectively following table presents information regarding nonperforming assets dates indicated 1 nonperforming loans include nonaccrual loans past due 90 days still accruing interest 2 nonperforming assets include nonaccrual loans past due 90 days still accruing interest repossessed assets real estate 3 restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2019 2018 202 million 160 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2019 potential problem loans consisted 27 credit relationships total outstanding balance december 31 2019 352 related one customer hospitality industry 229 related nine customers energyrelated industry 182 related three customers customer service industry 118 related one customer residential real estate rental industry 58 related one customer manufacturing industry 32 related three customers commercial services industry 20 related one customer convenience store industry 06 related five customers trucking industry 02 related two customers construction material industry 01 related one consumer loan weakness organizations’ operating performance financial condition borrowing base deficits certain energy related credits among factors caused us heighten attention given credits potential problem loans impact allocation allowance loan losses result risk grade based allocation methodology see note 6 loans allowance loan losses accompanying consolidated financial statements details regarding allowance allocation methodology nonperforming assets increased 31 million 367 million december 31 2019 336 million december 31 2018 nonaccrual loans consisted 69 separate credits december 31 2019 compared 87 separate credits december 31 2018 nonperforming assets 094 total loans december 31 2019 compared 091 december 31 2018 allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance accounting standards business combinations acquired loans recorded fair value date acquisition fair value adjustment eliminates seller’s allowance associated loans purchase date credit exposure associated loans incorporated fair value adjustment provision loan losses recorded emergence new incurred estimable losses acquired loans acquisition date excess recorded discount loans acquired post oak recorded fair value without carryover post oak allowance loan losses discount recognized acquired loans prospectively accreted increasing basis loans due acquisition accounting allowance loan losses total loans may comparable peers particularly relates allowance gross loan percentage allowance nonperforming loans recognizing acquired purchased credit impaired loans de minimis monitor credit quality trends postacquisition basis emphasis past due chargeoff classified loan nonperforming trends amount discount recorded company acquisition date post oak acquisition 170 million 143 loans acquired remaining discount balance acquired loans december 31 2019 55 million discount purchased loans considers anticipated credit losses portfolio therefore allowance credit losses established acquisition date unaccreted discount represents additional protection potential losses presented reduction recorded investment loans rather allowance loan losses continue look portfolio credit deterioration establish additional allowances remaining discount needed december 31 2019 allowance loan losses amounted 294 million 075 total loans compared 263 million 071 december 31 2018 ratio net chargeoffs average loans outstanding increased slightly 007 year ended december 31 2019 006 december 31 2018 following table presents periods indicated analysis allowance loan losses related data connection review loan portfolio consider following risk elements attributable particular loan types categories assessing quality individual loans • commercial industrial loans operating results commercial industrial professional enterprise borrower’s business professional financial ability expertise specific risks volatility income operating results typical businesses category value nature marketability collateral • commercial real estate including multifamily residential loans debt service coverage ratio income property excess operating expenses compared loan payment requirements operating results owner case owneroccupied properties loan value ratio age condition collateral volatility income property value future operating results typical properties type • commercial real estate construction land development residential construction loans perceived feasibility project including ability sell developed lots improvements constructed resale ability lease property constructed lease quality nature contracts presale prelease experience ability developer loan value ratio • 14 family residential including home equity loans borrower’s ability repay loan including consideration debt income ratio employment income stability loan value ratio age condition marketability collateral • consumer loans individual borrower’s income current debt level past credit history value available collateral based review loan portfolio classify loans credit risk track risk ratings following general description risk ratings use • loans classified “watch” loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value • loans classified “special mention” potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan credit position future date characterized distinct possibility sustain loss deficiencies corrected • loans classified “substandard” welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans characterized distinct possibility sustain loss deficiencies corrected • loans classified “doubtful” weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually considered pass rated loans see note 6 loans allowance loan losses audited consolidated financial statement included elsewhere annual report form 10k additional information regarding estimate evaluate credit risk loan portfolio following table shows allocation allowance loan losses among loan categories percentage respective loan category total loans held investment dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2019 carrying amount investment securities totaled 3725 million increase 353 million 105 compared 3373 million december 31 2018 securities represented 75 72 total assets december 31 2019 2018 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown certain investment securities valued less historical cost management evaluates securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation see “securities” note 5 audited consolidated financial statements included elsewhere annual report form 10k additional information regarding management evaluates securities otti december 31 2019 expect sell securities classified available sale unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased management believe securities impaired due reasons credit quality fair value expected recover securities approach maturity date repricing date market yields investments decline accordingly december 31 2019 management believes impairment securities temporary impairment loss realized consolidated statements income following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2019 2018 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated shareholders’ equity average yield securities portfolio 279 year ended december 31 2019 compared 269 year ended december 31 2018 increase average yield 2019 compared 2018 primarily due increased investment longerterm securities investment higheryielding securities replaced loweryielding securities matured called prepaid goodwill core deposit intangibles goodwill december 31 2019 2236 million compared 2231 million december 31 2018 primarily due goodwill resulting lowerybank branch acquisition goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable core deposit intangibles net december 31 2019 219 million compared 266 million december 31 2018 core deposit intangibles amortized estimated useful life seven ten years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2019 407 billion increase 4056 million 111 compared 366 billion december 31 2018 deposit growth experienced largely result growth loan customer base many also established deposit relationship us noninterestbearing deposits december 31 2019 125 billion increase 429 million 36 compared 121 billion december 31 2018 interestbearing deposits december 31 2019 282 billion increase 3626 million 148 compared 245 billion december 31 2018 following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits 310 320 318 years ended december 31 2019 2018 2017 respectively following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2019 total borrowing capacity 172 billion 151 billion available agreement 2048 million outstanding fhlb advances 750 million outstanding december 31 2019 weighted average rate 229 letters credit 1298 million december 31 2019 86 million expired january 2020 89 million expired february 2020 250 million expire march 2020 85 million expire april 2020 371 million expire june 2020 17 million expire july 2020 84 million expire august 2020 250 million expire october 2020 41 million expire december 2020 25 million expire march 2021 credit agreement december 31 2019 2018 569 thousand indebtedness owed credit agreement another financial institution interest rate outstanding debt credit agreement prime rate minus 25 basis points 450 december 31 2019 paid quarterly december 28 2018 amended credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2019 believe compliance debt covenants made aware noncompliance lender subordinated debt junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 95 million december 31 2019 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 12 audited consolidated financial statements included elsewhere annual report form 10k subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders september 2019 completed issuance 600 million aggregate principal amount fixedtofloating rate subordinated notes company notes due october 1 2029 company notes issued price equal 100 principal amount resulting net proceeds company 586 million company intends use net proceeds offering support growth general corporate purposes company notes bear fixed interest rate 470 per annum excluding october 1 2024 payable semiannually arrears april 1 october 1 commencing april 1 2020 thereafter october 1 2024 maturity date october 1 2029 earlier redemption date company notes bear interest floating rate equal thencurrent three month libor plus 313 basis points 313 quarterly interest period subject certain provisions set forth “description notesinterest rates interest payment dates” included prospectus supplement company notes payable quarterly arrears january 1 april 1 july 1 october 1 year redemption price equal 100 principal amount company notes redeemed plus accrued unpaid interest subject require prior regulatory approval company notes subject redemption option holders contractual obligations following tables summarize contractual obligations commitments make future payments december 31 2019 2018 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance gaap included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby performance letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2019 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance loan losses standby letters credit standby letters credit written conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements backed promissory notes contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2019 2018 2017 liquidity needs met deposits borrowed funds security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 483 billion 337 billion 270 billion years ended december 31 2019 2018 2017 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average loans increased 118 billion 445 year ended december 31 2019 compared year ended december 31 2018 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 74 years modified duration 60 years december 31 2019 weighted average life 61 years modified duration 51 years december 31 2018 december 31 2019 december 31 2018 outstanding 104 billion 100 billion respectively commitments extend credit 152 million 233 million respectively commitments associated outstanding standby performance letters credit since commitments associated letters credit commitments extend credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2019 2018 2017 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2019 cash equivalents 3462 million compared 2689 million december 31 2018 increase 773 million increase cash equivalents primarily due increase 4056 million deposits proceeds subordinated note issuance 586 million partially offset increase total loans 2070 million capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common shareholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2019 2018 bank wellcapitalized basel iii capital rules impact regulatory capital ratios banking organizations following manner create new requirement maintain ratio “common equity tier 1 capital” total riskweighted assets less 45 increase minimum leverage capital ratio 40 banking organizations increase minimum tier 1 riskbased capital ratio 40 60 maintain minimum total riskbased capital ratio 80 addition basel iii capital rules subject banking organization certain limitations capital distributions discretionary bonus payments executive officers organization maintain “capital conservation buffer” common equity tier 1 capital implementation capital conservation buffer began january 1 2016 0625 level phased threeyear period increasing 0625 subsequent january 1 reached 25 january 1 2019 effect capital conservation buffer increase minimum common equity tier 1 capital ratio 70 minimum tier 1 riskbased capital ratio 85 minimum total riskbased capital ratio 105 following table provides comparison company’s bank’s leverage riskweighted capital ratios december 31 2019 minimum wellcapitalized regulatory standards total shareholder’s equity 7099 million december 31 2019 compared 7030 million december 31 2018 increase 69 million 10 primarily due net income 2019 partially offset share repurchases year assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered instruments leveraged derivatives interest rate swaps financial options financial future contracts forward delivery contracts purpose reducing interest rate risk based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due duration loan securities portfolio duration borrowings expected behavior demand money market savings deposits rate fluctuations 2019 overall duration combined loan securities portfolios decreased money market deposit balances increased fhlb borrowings represented smaller proportion funding mix year end due deposit growth exceeding loan growth 2019 gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible shareholders’ equity” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible shareholders’ equity defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period shareholders’ equity exclusive changes intangible assets tangible shareholders’ equity directly comparable financial measure calculated accordance gaap total shareholders’ equity goodwill intangible assets effect increasing total shareholders’ equity increasing tangible equity • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “return average tangible shareholders’ equity” nongaap measure generally used financial analysts investment bankers evaluate financial institutions return average tangible shareholders’ equity computed dividing net earnings average total shareholders’ equity reduced average goodwill core deposit intangibles net accumulated amortization return average tangible shareholders’ equity directly comparable financial measure calculated accordance gaap return average shareholders’ equity measure important investors measures performance business consistently exclusive changes intangible assets • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total shareholders’ equity total assets goodwill intangible assets effect increasing total shareholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures 1 include 1711 shares treasury stock december 31 2015 shares treasury stock outstanding december 31 2019 2018 2017 2016 item 7a item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” forepart report item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements overview following discussion analysis presents significant factors affected financial condition december 31 2020 2019 results operations years ended refer management’s discussion analysis financial condition results operations included annual report form 10k filed sec march 9 2020 “2019 form 10k” discussion analysis significant factors affected periods prior 2019 generate income interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits shareholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston region well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets october 1 2018 completed acquisition post oak bancshares inc whollyowned subsidiary bank post oak bank na collectively “post oak” acquisition closed october 1 2018 results operations included post oak portion 2018 historical financial condition results operations periods ended december 31 2018 contained annual report form 10k reflect financial condition results operations post oak connection acquisition post oak issued 84 million shares company common stock completed initial public offering 2990000 shares allegiances common stock 2100 per share october 7 2015 generating net proceeds 571 million allegiances common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” recent developments related covid19 pandemic continues place significant health economic major pressure throughout houston region serve state texas united states entire world executed preexisting pandemic response plan procedures response pandemic support safety wellbeing employees customers community continue date report • bank offices generally remain open customers taken steps address safety issues offering inperson visits appointment added social distancing markers plexiglass encouraging traffic leverage drivethrus following guidelines centers disease control prevention “cdc” • continue encourage use available ebanking tools financial education resources • provided extensions deferrals loan customers accordance cares act • actively participating assisting applications resources cares act’s ppp administered sba provides government guaranteed forgivable loans december 31 2020 funded 6300 loans totaling excess 7100 million believe loans participation program provide support customers small businesses communities serve • team fullstrength employees utilizing workfromhome program implemented pursuant preexisting pandemic plan • working ensure health safety inoffice teams split team rotations providing cdcrecommended supplies implementing additional routine cleaning measures offices departments additionally recorded increased provision year ended december 31 2020 driven increase chargeoffs stress loan portfolio increase unemployment economic effects covid19 pandemic economic effects related volatility crude oil prices increases may necessary continue closely monitor pandemic effects expect continue adjust operations response pandemic situation evolves critical accounting policies certain accounting estimates important portrayal financial condition since require management make difficult complex subjective judgments may relate matters inherently uncertain estimates susceptible material changes result changes facts circumstances facts circumstances could affect judgments include limited changes interest rates changes performance economy changes financial condition borrowers management believes determining allowance credit losses critical accounting estimate accounting policies discussed detail note 1 nature operations summary significant accounting reporting policies accompanying notes consolidated financial statements included elsewhere annual report form 10k allowance credit losses allowance credit losses valuation account represents management’s best estimate lifetime expected losses based reasonable supportable forecasts historical loss experience qualitative considerations allowance credit losses includes allowance credit losses loans deducted loans’ amortized cost basis present net amount expected collected loans allowance credit losses unfunded commitments reported liabilities amount allowance credit losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions credit losses charged income increase allowance management considers policies related allowance credit losses critical financial statement presentation total allowance credit losses includes activity related allowances calculated accordance accounting standards codification “asc” 326 measurement credit losses financial instruments recently issued accounting pronouncements evaluated new accounting pronouncements recently issued determined new accounting pronouncements described section impact company’s operations financial condition liquidity future periods refer part ii item 8 financial statements supplementary data note 1 nature operations summary significant accounting reporting policies report regarding recent accounting pronouncements adopted company require enhanced disclosures company’s financial statements future periods june 2016 fasb issued asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” “asc 326” along subsequent amendments thereto introduce current expected credit losses “cecl” methodology asc 326 makes significant changes accounting credit losses financial instruments presented amortized cost basis related disclosures measurement expected credit losses cecl methodology utilizes lifetime “expected credit loss” measurement objective recognition credit losses loans heldtomaturity debt securities measured amortized cost asc 326 also applies offbalance sheet credit exposures methodology replaces multiple existing impairment methods current guidance generally require loss incurred recognized within life cycle loan financial asset new guidance generally result earlier recognition provision credit losses related allowance credit losses current practice standard provides significant flexibility requires high degree judgment regards pooling financial assets similar risk characteristics adjusting relevant historical loss information order develop estimate expected lifetime losses addition asu 201613 amends accounting credit losses purchased financial assets credit deterioration cecl became effective company january 1 2020 using modified retrospective approach however company took option cares act temporarily defer adoption asc 326 decision delay adoption asc 326 due uncertainty impact covid19 volatility crude oil prices impactful houston region deferral company calculated recorded provision credit losses incurred loss model existed prior asc 326 company adopted new standard january 1 2020 fourth quarter 2020 asc 326 discussed fully part ii item 8 financial statements supplementary data note 1 nature operations summary significant accounting reporting policies report transition emerging growth company status pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies october 2015 consummated underwritten initial public offering common stock elected opt standards election irrevocable allegiances common stock traded nasdaq global market ticker symbol abtx able take advantage reduced regulatory reporting requirements available us emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments december 31 2020 longer eligible emerging growth company status full regulatory reporting requirements applicable us results operations net income 455 million 222 per diluted common share year ended december 31 2020 compared 530 million 247 per diluted common share year ended december 31 2019 decrease 74 million 140 decrease net income primarily result 214 million increase provision credit losses response covid19related uncertainties current economic environment 41 million real estate owned writedowns partially offset 231 million increase net interest income returns average equity 622 748 returns average assets 081 110 efficiency ratios 6055 6299 years ended december 31 2020 2019 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets additionally taxes provision credit losses part efficiency ratio calculation net interest income net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue representing 961 total revenue 2020 tax equivalent net interest margin ratio taxableequivalent net interest income average earning assets period level interest rates volume mix earning assets interestbearing liabilities impact net interest income net interest margin federal reserve influences general market rates interest including deposit loan rates offered many financial institutions loan portfolio affected changes effective federal funds rate cost immediately available overnight funds prime interest rate effective federal funds rate increased 100 basis points 25 basis points march june september december end 2018 250 2019 effective federal funds rate decreased 75 basis points 25 basis points july september october end period 175 2020 effective federal funds rate decreased 150 basis points march end period 025 similarly prime rate increased 100 basis points 25 basis points march june september december 2018 end year 550 2019 prime rate decreased 75 basis points 25 basis points august september october end year 475 2020 prime rate decreased 150 basis points march end year 325 net interest income provision credit losses year ended december 31 2020 2027 million compared 1795 million year ended december 31 2019 increase 231 million 129 increase net interest income previous year primarily due increased average interestearning asset balances lower funding costs interestbearing liabilities average interestearning assets increased 7469 million 175 year ended december 31 2020 compared year ended december 31 2019 interest income 2418 million year ended december 31 2020 increase 89 million 38 compared 2329 million year ended december 31 2019 primarily due increase mix average interestearning asset balances average securities outstanding increased 2331 million 656 period average loans outstanding increased 5515 million 144 year ended december 31 2020 compared year ended 2019 primarily due origination 7102 million ppp loans 2020 increases partially offset decrease average yield loans 515 year ended december 31 2020 578 period 2019 primarily due impact loweryielding ppp loans lower interest rate environment core loan yields lower acquisition accounting loan discount accretion included interest income loans acquisition accounting loan discount accretion decreased 25 million year ended december 31 2020 89 million period 2019 interest expense 391 million year ended december 31 2020 decrease 143 million 268 compared 534 million year ended december 31 2019 decrease primarily due lower funding costs interestbearing deposits fhlb borrowings partially offset increase average interestbearing liabilities cost average interestbearing liabilities decreased 119 basis points year ended december 31 2020 compared 187 basis points period 2019 average interestbearing liabilities increased 4242 million year ended december 31 2020 compared year ended december 31 2019 primarily result increased deposits due part funds government stimulus programs ppp consumer economic impact payments received organic deposit growth full year effect subordinated debt offering december 2019 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2020 408 decrease 14 basis points compared 422 year ended december 31 2019 decrease net interest margin tax equivalent basis primarily due decrease average yield interestearning assets partially offset decrease funding costs average yield interestearning assets average rate paid interestbearing liabilities primarily impacted changes volume relative mix underlying assets liabilities well changes market interest rates average yield interestearning assets 483 average rate paid interestbearing liabilities 119 year ended december 31 2020 decreased 64 basis points 68 basis points respectively period 2019 impact net acquisition accounting adjustments 29 million 96 million tax equivalent net interest margin increase 6 basis points 22 basis points year ended december 31 2020 2019 respectively tax equivalent adjustments net interest margin result increased decreased income taxfree securities amount equal taxes would paid income fully taxable based 21 federal tax rate years ended december 31 2020 2019 thus making taxexempt yields relatively comparable taxable asset yields following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1 net interest margin equal net interest income divided average interestearning assets 2 order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 21 years ended december 31 2020 2019 2018 applicable effective tax rates following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision credit losses allowance credit losses established charges income form provision order bring allowance credit losses various types financial instruments including loans securities unfunded commitments level deemed appropriate management recorded 274 million provision credit losses year ended december 31 2020 compared 59 million year ended december 31 2019 increase provision year ended december 31 2020 driven expected stress loan portfolio increase unemployment economic effects covid19 pandemic volatility crude oil prices year noninterest income primary sources noninterest income debit card atm card income service charges deposit accounts nonsufficient funds fees rebates correspondent bank noninterest income include loan origination fees recognized life related loan adjustment yield using interest method noninterest income totaled 82 million year ended december 31 2020 compared 134 million year ended december 31 2019 decrease 53 million 392 noninterest income decreased 2020 primarily due decrease rebates correspondent bank result decline earnings credit rate losses sales real estate owned decrease gain sale securities compared year ended december 31 2019 following table presents periods indicated major categories noninterest income 1 includes wire transfer letter credit fees among items noninterest expense noninterest expense 1275 million year ended december 31 2020 compared 1206 million year ended december 31 2019 increase 69 million 57 increase primarily due increased salaries employee benefits writedowns real estate recorded year ended december 31 2020 partially offset decrease acquisition mergerrelated expenses associated post oak lowerybank branch acquisitions recorded year ended 2019 following table presents periods indicated major categories noninterest expense 1 total salaries employee benefits includes 34 million 31 million 17 million stock based compensation expense years ended december 31 2020 2019 2018 respectively salaries employee benefits salaries benefits 802 million year ended december 31 2020 increase 26 million 33 compared year ended december 31 2019 due compensation increases well increase total size workforce fulltime equivalent employees increased 598 december 31 2020 588 december 31 2019 support organic growth regulatory assessments fdic insurance regulatory assessments fdic insurance increased 12 million 716 year ended december 31 2020 compared year ended december 31 2019 primarily due 10 million fdic small bank assessment credit received 2019 acquisition mergerrelated expenses acquisition mergerrelated expenses 2019 legal advisory accounting fees associated post oak lowerybank branch acquisitions expenses also included data processing conversion costs contract termination costs resulted post oak acquisition real estate expenses real estate expenses increased 45 million year ended december 31 2020 52 million 614 thousand year ended december 31 2019 primarily due writedowns several foreclosed properties related expenses associated properties year 2020 efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance calculate efficiency ratio dividing total noninterest expense sum net interest income noninterest income excluding net gains losses sale loans securities assets additionally taxes provision credit losses part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio decreased 6055 year ended december 31 2020 compared 6299 year ended december 31 2019 6368 year ended december 31 2018 monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2018 2019 2020 demonstrates scalability operating platform expect continue benefit scalable platform future periods continue monitor fixed variable expenses necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense decreased 30 million 223 104 million year ended december 31 2020 compared 134 million period 2019 primarily due decrease pretax net income effective tax rates 186 202 176 years ended december 31 2020 2019 2018 respectively quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2020 2019 information read conjunction consolidated financial statements fiscal years ended december 31 2020 2019 appearing elsewhere annual report form 10k 1 earnings per share computed independently quarters presented therefore may total earnings per share year 2 reflect adoption asc 326 financial condition loan portfolio december 31 2020 total loans 449 billion increase 5765 million 147 compared december 31 2019 primarily due origination ppp loans year ended 2020 total loans percentage deposits 900 962 december 31 2020 december 31 2019 respectively total loans percentage assets 742 784 december 31 2020 december 31 2019 respectively following table summarizes loan portfolio type loan dates indicated lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston region strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed semiannual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made bankers credit personnel contained policies procedures principal categories loan portfolio discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans commercial industrial loan portfolio decreased 223 million 32 6671 million december 31 2020 compared 6894 million december 31 2019 mortgage warehouse made loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carried terms conditions would expected competitive permanent mortgage market served collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes portfolio tend peak end month made strategic decision 2019 exit line business mortgage warehouse loans type december 31 2020 commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate december 31 2020 december 31 2019 546 538 respectively commercial real estate loans owneroccupied commercial real estate loan portfolio increased 1261 million 67 200 billion december 31 2020 187 billion december 31 2019 primarily result organic loan growth included commercial real estate portfolio multifamily residential loans multifamily loans decreased 63 million 77 759 million december 31 2020 822 million december 31 2019 142 multifamily loans average loan size 535 thousand december 31 2020 commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often includes disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan december 31 2020 december 31 2019 268 319 respectively commercial real estate construction land development loans owneroccupied commercial real estate construction land development land loans decreased 433 million 105 3672 million december 31 2020 compared 4105 million december 31 2019 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market area residential real estate portfolio including home equity increased 386 million 55 7376 million december 31 2020 6990 million december 31 2019 home equity home improvement home equity lines credit portion residential real estate portfolio increased 50 million 45 1175 million december 31 2020 1125 million december 31 2019 residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio decreased 650 million 338 1275 million december 31 2020 1925 million december 31 2019 consumer loan portfolio made loans made individuals personal purposes generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans consumer loan portfolio decreased 194 million 462 226 million december 31 2020 419 million december 31 2019 “atrisk” industry loan exposure due economic stress resulting covid19 impacts industries expected continue experience adverse impacts result covid19 pandemic exposure following loan categories considered “atrisk” significant impact hotel loans excluding ppp loans december 31 2020 totaled 1284 million 28 total loans 1177 million commercial real estate 14 million nonaccrual status december 31 2020 allowance credit losses loans allocated total hotel loan portfolio totaled 32 total hotel loans restaurant bar restaurant bar loans excluding ppp loans december 31 2020 totaled 1167 million 26 total loans 834 million commercial real estate 494 thousand nonaccrual status december 31 2020 allowance credit losses loans allocated total restaurant bar loan portfolio 13 total restaurant bar loans oil gas oil gas loans excluding ppp loans december 31 2020 totaled 748 million 17 total loans 284 million commercial real estate 580 thousand nonaccrual status december 31 2020 allowance credit losses loans allocated total oil gas loan portfolio 23 total oil gas loans december 31 2020 exposure exploration production reservebased lending minimal exposure industry crude oil prices decreased sharply first quarter 2020 remained volatile throughout remainder 2020 adversely impacted loans increasing classified oil gas loans expanded monitoring analysis loans implemented address decline oil gas prices needed contractual maturity ranges total loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined fixed interest rates floating interest rates maturity range case date indicated summarized following tables 1 includes net deferred fees 139 million ppp loans concentrations credit vast majority lending activity occurs houston region loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston region december 31 2020 2019 2018 commercial real estate commercial construction loans represented 527 583 561 respectively total loans asset quality procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 289 million 284 million 330 million nonperforming loans december 31 2020 2019 2018 respectively interest nonaccrual loans accrued original loan terms 902 thousand 12 million 10 million would recorded income years ended december 31 2020 2019 2018 respectively following table presents information regarding nonperforming assets dates indicated 1 nonperforming loans include nonaccrual loans past due 90 days still accruing interest 2 nonperforming assets include nonaccrual loans past due 90 days still accruing interest repossessed assets real estate 3 restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2020 2019 326 million 202 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2020 potential problem loans consisted 27 credit relationships total outstanding balance december 31 2020 546 related four customers hotel industry 150 related eight customers energyrelated industry 108 related two customers customer service industry 71 related one customer residential real estate rental industry 50 related three customers construction services industry 34 related one customer commercial real estate investment industry 12 related two customers commercial services industry 11 related one customer convenience store industry 08 related two customers homestead industry 06 related one customer wholesaler industry 03 related one customer medical industry 01 related one customer trucking industry weakness organizations’ operating performance financial condition borrowing base deficits among factors caused us heighten attention given credits potential problem loans impact allocation allowance credit losses loans result risk grade based allocation methodology see note 6 loans allowance credit losses accompanying consolidated financial statements details regarding allowance allocation methodology nonperforming assets increased 14 million 381 million december 31 2020 367 million december 31 2019 nonaccrual loans consisted 79 separate credits december 31 2020 compared 69 separate credits december 31 2019 nonperforming assets 085 total loans december 31 2020 compared 094 december 31 2019 provisions cares act included election apply guidance accounting troubled debt restructurings “tdr” loan modifications extensions deferrals related covid19 elected adopt provisions cares act following interagency statement loan modifications reporting financial institutions working customers affected coronavirus revised issued regulatory agencies year ended december 31 2020 company granted principal interest deferrals outstanding loan balances customers affected covid19 pandemic additionally upon request meeting certain conditions borrowers could granted additional payment deferrals subsequent first deferral deferrals generally 90 days duration considered troubled debt restructurings december 31 2020 164 loans outstanding loan balances 1613 million remained deferral impact covid19 persists borrower operations improve negative events occur modified loans could transition potential problem loans problem loans following table presents information regarding principal interest deferrals december 31 2020 associated loan modifications related covid19 allowance credit losses allowance credit losses valuation allowance established charges earnings form provision credit losses calculated accordance asc 326 deducted amortized cost basis certain assets present net amount expected collected amount allowance account represents managements best estimate cecl financial instruments considering available information internal external sources relevant assessing exposure credit loss contractual term instrument relevant available information includes historical credit loss experience current conditions reasonable supportable forecasts historical credit loss experience provides basis estimation expected credit losses adjustments historical loss information may made differences current portfoliospecific risk characteristics environmental conditions relevant factors management utilizes best judgment information available ultimate adequacy allowance accounts dependent upon variety factors beyond control including performance portfolios economy changes interest rates view regulatory authorities toward classification assets additional information regarding critical accounting policies refer note 1 nature operations summary significant accounting reporting policies note 6 loans allowance credit losses accompanying notes consolidated financial statements allowance credit losses loans allowance credit losses loans represents management’s estimates current expected credit losses company’s loan portfolio pools loans similar risk characteristics collectively evaluated loans longer share risk characteristics loan pools evaluated individually company retroactively adopted asc topic 326 effective january 1 2020 fourth quarter 2020 upon adoption cecl company recognized increase allowance credit losses loans 31 million corresponding decrease retained earnings pretax additionally company recognized increase allowance credit losses loans 21 million related loans acquired post oak due reclass pcd discounts result adopting cecl december 31 2020 allowance credit losses loans amounted 532 million 118 total loans 136 excluding ppp loans compared 294 million 075 december 31 2019 increase allowance credit losses loans 2020 primarily reflects increase expected losses resulting deterioration forecasted economic conditions current uncertain future impacts associated covid19 pandemic recent volatility oil prices increased allowance credit losses loans also reflects level net chargeoffs deterioration credit quality changes within loan portfolio 2020 collective loss estimates determined applying reserve factors designed estimate current expected credit losses amortized cost balances remaining contractual life collectively evaluated portfolio loans similar risk characteristics aggregated homogeneous pools allowance credit losses loans also includes qualitative adjustments bring allowance level management believes appropriate based factors otherwise fully accounted including adjustments foresight risk input imprecisions model imprecision credit losses loans longer share risk characteristics loan pools estimated individual basis individual credit loss estimates typically performed nonaccrual loans modified loans classified tdrs based one several methods including estimated fair value underlying collateral observable market value similar debt present value expected cash flows following table presents periods indicated analysis allowance credit losses loans related data following table shows allocation allowance credit losses loans among loan categories percentage respective loan category total loans held investment dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category company believes allowance credit losses loans december 31 2020 adequate based upon management’s best estimate current expected credit losses within existing portfolio loans nevertheless company could sustain losses future periods could substantial relation size allowance december 31 2020 factors considered management making estimate change allowance credit losses unfunded commitments upon adoption asc topic 326 fourth quarter 2020 retroactive january 1 2020 company established allowance credit losses unfunded commitments 39 million corresponding decrease retained earnings pretax allowance credit losses unfunded commitments estimates current expected credit losses contractual period exposure credit risk via contractual obligation extend credit unless obligation unconditionally cancellable us allowance credit losses unfunded commitments liability account reported component liabilities consolidated balance sheets adjusted provision credit loss expense estimate includes consideration likelihood funding occur estimate expected credit losses commitments expected fund estimate commitments expected fund affected historical analysis looking utilization rates expected credit loss rates applied commitments expected fund affected general valuation allowance utilized outstanding balances underlying assumptions drivers december 31 2020 allowance credit losses unfunded commitments amounted 47 million see note 6 loans allowance credit losses audited consolidated financial statement included elsewhere annual report form 10k additional information regarding estimate evaluate credit risk loan portfolio available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2020 carrying amount investment securities totaled 7729 million increase 4003 million 1075 compared 3725 million december 31 2019 overall growth securities portfolio attributable excess liquidity 2020 securities represented 128 75 total assets december 31 2020 2019 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown investment securities classified available sale held maturity evaluated expected credit losses asc topic 326 “financial instruments credit losses” see note 5 securities audited consolidated financial statements included elsewhere annual report form 10k additional information december 31 2020 expect sell securities classified available sale unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2020 2019 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated shareholders’ equity average yield securities portfolio 264 year ended december 31 2020 compared 279 year ended december 31 2019 decrease average yield 2020 compared 2019 primarily due nature growth securities portfolio 2020 lower interest rate environment 2020 goodwill core deposit intangibles goodwill 2236 million december 31 2020 2019 goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment october 1st interim basis events occurs circumstances change would indicate carrying amount asset may recoverable first quarter 2020 economic conditions deteriorated significantly spread covid19 pandemic performed interim quantitative analysis concluding likely fair value exceeded carrying amount resulted impairment charge period ended march 31 2020 june 30 2020 performed qualitative analysis taking account effect covid19 pandemic continued economy determined goodwill impaired qualitative factors included economic conditions industry market considerations cost factors overall financial performance regulatory developments performance company’s stock among events circumstances result continued economic decline effect share price factors performed annual quantitative goodwill impairment analysis september 30 2020 concluded likely fair value exceeded carrying value quantitative impairment analysis involves incorporating assumptions determine estimated fair value reporting unit arrive conclusion fair value utilized income approach market approach valuation methodologies applied weighting factors approach weighting factors represent best business judgment weightings market participant would utilize arriving fair value reporting unit performing analysis made numerous assumptions respect industry performance business performance changes working capital estimates externally sourced bank peer group market multiples economic market conditions various matters require significant management judgment highly subjective internal management projections related performance next five years assumed economic downturn 12month time horizon subsequently returning conservative positive growth rates loan deposits time period analysis performed assumptions incorporated analysis reflect best currently available estimates judgments expected future financial performance reporting unit changes key assumptions could materially affect estimate reporting unit fair value could affect conclusion regarding existence potential impairment fourth quarter 2020 reassessed goodwill determined triggering events occurred would require updated analysis concluded likely fair value exceeded carrying amount goodwill impairment december 31 2020 even though determined goodwill impairment december 31 2020 lingering economic effects covid19 market operate higher projected credit losses declines revenue beyond current forecasts significant adverse changes operating environment financial industry may adversely impact estimate fair value reporting unit factors could result future impairments could significant core deposit intangibles net december 31 2020 180 million compared 219 million december 31 2019 core deposit intangibles amortized estimated useful life seven ten years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2020 499 billion increase 9204 million 226 compared 407 billion december 31 2019 deposit growth experienced largely result growth loan customer base many also established deposit relationship us noninterestbearing deposits december 31 2020 170 billion increase 4523 million 361 compared 125 billion december 31 2019 interestbearing deposits december 31 2020 328 billion increase 4680 million 166 compared 282 billion december 31 2019 following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits 349 310 320 years ended december 31 2020 2019 2018 respectively following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2020 company total borrowing capacity 199 billion 144 billion available agreement 5502 million outstanding fhlb advances 1400 million outstanding december 31 2020 weighted average rate 119 letters credit 4102 million december 31 2020 2484 million expire 2021 1517 million expire 2022 101 million expire 2023 credit agreement december 31 2020 2019 156 million 569 thousand respectively indebtedness owed credit agreement another financial institution interest rate outstanding debt credit agreement prime rate minus 25 basis points 300 december 31 2020 paid quarterly december 28 2018 amended credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2020 believe compliance debt covenants made aware noncompliance lender subordinated debt junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 96 million december 31 2020 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 13 audited consolidated financial statements included elsewhere annual report form 10k subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders september 2019 completed issuance 600 million aggregate principal amount fixedtofloating rate subordinated notes company notes due october 1 2029 company notes issued price equal 100 principal amount resulting net proceeds company 586 million company intends use net proceeds offering support growth general corporate purposes company notes bear fixed interest rate 470 per annum excluding october 1 2024 payable semiannually arrears april 1 october 1 commencing april 1 2020 thereafter october 1 2024 maturity date october 1 2029 earlier redemption date company notes bear interest floating rate equal thencurrent threemonth libor plus 313 basis points 313 quarterly interest period subject certain provisions set forth “description notesinterest rates interest payment dates” included prospectus supplement company notes payable quarterly arrears january 1 april 1 july 1 october 1 year redemption price equal 100 principal amount company notes redeemed plus accrued unpaid interest subject require prior regulatory approval company notes subject redemption option holders contractual obligations following tables summarize contractual obligations commitments make future payments december 31 2020 2019 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance gaap included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby performance letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2020 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance credit losses standby letters credit standby letters credit written conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements backed promissory notes contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2020 2019 2018 liquidity needs met deposits borrowed funds security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 564 billion 483 billion 337 billion years ended december 31 2020 2019 2018 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average deposits increased 7091 million 184 year ended december 31 2020 compared year ended december 31 2019 average loans increased 5515 million 144 year ended december 31 2020 compared year ended december 31 2019 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 79 years modified duration 62 years december 31 2020 weighted average life 74 years modified duration 60 years december 31 2019 december 31 2020 december 31 2019 outstanding commitments extend credit 124 billion 104 billion respectively commitments associated outstanding letters credit 173 million 152 million respectively since commitments associated commitments extend credit outstanding letters credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2020 2019 2018 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2020 cash equivalents 4228 million compared 3462 million december 31 2019 increase 765 million increase cash equivalents primarily due increase 9204 million deposits partially offset increase total loans 5765 million total securities 4003 million capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common shareholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2020 2019 bank wellcapitalized basel iii capital rules impacted regulatory capital ratios banking organizations following manner created new requirement maintain ratio “common equity tier 1 capital” total riskweighted assets less 45 increased minimum leverage capital ratio 40 banking organizations increased minimum tier 1 riskbased capital ratio 40 60 maintained minimum total riskbased capital ratio 80 addition basel iii capital rules subject banking organization certain limitations capital distributions discretionary bonus payments executive officers organization maintain “capital conservation buffer” common equity tier 1 capital implementation capital conservation buffer began january 1 2016 0625 level phased threeyear period increasing 0625 subsequent january 1 reached 25 january 1 2019 effect capital conservation buffer increase minimum common equity tier 1 capital ratio 70 minimum tier 1 riskbased capital ratio 85 minimum total riskbased capital ratio 105 following table provides comparison company’s bank’s leverage riskweighted capital ratios december 31 2020 minimum wellcapitalized regulatory standards total shareholder’s equity 7587 million december 31 2020 compared 7099 million december 31 2019 increase 488 million 69 primarily due net income 2020 partially offset share repurchases dividends paid common stock year paid quarterly dividends 010 per common share first second third fourth quarters 2020 assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered interest rate swap 2020 purpose reducing interest rate risk see note 11 derivative instruments based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due duration loan securities portfolio duration borrowings expected behavior demand money market savings deposits rate fluctuations 2020 overall duration assets decreased nonmaturity deposit balances increased fhlb borrowings represented smaller proportion funding mix year end deposit growth exceeded loan growth 2020 gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible shareholders’ equity” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible shareholders’ equity defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period shareholders’ equity exclusive changes intangible assets tangible shareholders’ equity directly comparable financial measure calculated accordance gaap total shareholders’ equity goodwill intangible assets effect increasing total shareholders’ equity increasing tangible equity • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “return average tangible shareholders’ equity” nongaap measure generally used financial analysts investment bankers evaluate financial institutions return average tangible shareholders’ equity computed dividing net earnings average total shareholders’ equity reduced average goodwill core deposit intangibles net accumulated amortization return average tangible shareholders’ equity directly comparable financial measure calculated accordance gaap return average shareholders’ equity measure important investors measures performance business consistently exclusive changes intangible assets • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total shareholders’ equity total assets goodwill intangible assets effect increasing total shareholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures item 7a item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” item 7 item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements cautionary notice regarding forwardlooking statements financial discussion analysis contained annual report form 10k historical facts forwardlooking statements made pursuant safe harbor provisions private securities litigation reform act 1995 also may make forwardlooking statements documents filed furnished sec addition senior management may make forwardlooking statements orally investors analysts representatives media others statements preceded followed otherwise include words “believes” “expects” “anticipates” “intends” “projects” “estimates” “plans” similar expressions future conditional verbs “will” “should” “would” “may” “could” generally forwardlooking nature historical facts although forward looking statements include foregoing forwardlooking statements based assumptions involve number risks uncertainties many beyond control many possible events factors could affect future financial results performance could cause results performance differ materially expressed forwardlooking statements assurance list risks uncertainties risk factors complete certain factors could cause actual results differ forwardlooking statements • risks related concentration business houston metropolitan area including risks associated volatility decreases oil gas prices prolonged periods lower oil gas prices • general market conditions economic trends nationally regionally particularly houston metropolitan area • ability retain executive officers key employees customer community relationships • ability recruit retain successful bankers meet expectations terms customer community relationships profitability • risks related strategic focus lending small mediumsized businesses • ability implement growth strategy including identification acquisition candidates accretive financial condition results operations • risks related businesses acquire future including exposure potential asset credit quality risks unknown contingent liabilities time costs associated integrating systems technology platforms procedures personnel need additional capital finance transactions possible failures realizing anticipated benefits acquisitions • potential impairment goodwill recorded may record connection business acquisitions • risks associated owneroccupied commercial real estate loan commercial real estate loan portfolios including risks inherent valuation collateral securing loans • risks associated commercial industrial loan portfolio including risk deterioration value general business assets generally secure loans • accuracy sufficiency assumptions estimates make establishing reserves potential loan losses estimates • risk deteriorating asset quality higher loan chargeoffs • time effort necessary resolve nonperforming assets • potential changes prices values sales volumes commercial residential real estate securing real estate loans • changes market interest rates affect pricing loans deposits net interest income • potential fluctuations market value liquidity securities hold sale • risk impairment investment securities goodwill intangible assets deferred tax assets • effects competition wide variety local regional national providers financial investment insurance services may adversely affect pricing terms • ability maintain effective system disclosure controls procedures internal controls financial reporting • risks associated fraudulent negligent acts customers employees vendors • ability keep pace technological change difficulties implementing new technologies • risks associated system failures protect cybersecurity threats breaches network security • risks associated data processing system failures errors • institution outcome litigation legal proceeding us become subject • ability maintain adequate liquidity raise necessary capital fund acquisition strategy operations meet increased minimum regulatory capital levels • ability comply various governmental regulatory requirements applicable financial institutions • impact recent future legislative regulatory changes including changes banking securities tax laws regulations application regulators implementation doddfrank act • governmental monetary fiscal policies including policies federal reserve • ability comply supervisory actions federal state banking agencies • changes scope cost fdic insurance coverage • systemic risks associated soundness financial institutions • risks uncertainties listed time reports documents filed sec forwardlooking statements speak date made undertake obligation update revise forwardlooking statements reflect events circumstances date statements made reflect occurrence unanticipated events unless required federal securities laws factors identified including described headings item 1a “risk factors” item 7 “management’s discussion analysis financial condition results operations” may also cause actual results differ materially described forward looking statements factors difficult anticipate generally beyond control consider factors connection considering forwardlooking statements may made us overview generate revenues interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits stockholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston metropolitan area well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets january 1 2015 completed acquisition fm bancshares whollyowned subsidiary bank enterprise bank results year ended 2015 reflect combined entity impact acquisition reflected discussion analysis financial condition results operations year ended december 31 2014 december 31 2014 fm bancshares consolidated basis reported total assets 5697 million total loans 4102 million total deposits 4889 million acquisition closed january 1 2015 historical financial condition results operations periods ended december 31 2014 contained annual report form 10k reflect financial condition results operations fm bancshares connection acquisition fm bancshares incurred approximately 293 million indebtedness including borrowing approximately 180 million revolving credit facility repay debt fm bancshares owed shareholders assumption junior subordinated debentures aggregate original principal amount 113 million issued two statutory trusts addition impact acquisition fm bancshares comparability consolidated results operations years ended december 31 2014 2013 may affected acquisition independence bank national association “independence” fourth quarter 2013 results acquired operations independence included results operations portion 2013 compared full years 2014 2015 initial public offering completed initial public offering 2990000 shares company stock 2100 per share october 7 2015 generating net proceeds 571 million periodoverperiod comparability certain aspects results operations changes financial condition december 31 2014 december 31 2015 affected issuance shares offering receipt net proceeds sale shares common stock particular periodoverperiod comparability earnings per share return equity also affected common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” recent developments november 3 2015 bank entered definitive purchase assumption agreement providing sale two fullservice banking locations related assets located central texas incommons bank na national banking association headquartered mexia texas january 31 2016 following period covered annual report form 10k transaction completed terms purchase assumption agreement incommons bank na acquired certain assets assumed certain liabilities associated mart banking location 714 texas avenue mart texas rosebud banking location 339 main street rosebud texas company sold 182 million 266 million loans deposits respectively recorded tax gain approximately 14 million sale branches critical accounting policies accounting policies integral understanding results operations accounting policies described detail note 1 included elsewhere annual consolidated financial statements believe accounting policies following policies may involve higher degree judgment complexity securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component stockholders’ equity realized securities within available sale portfolio may used part assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost basis less otti recognized earnings becomes new amortized cost basis security loans held investment loans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonperforming past due loans placed nonaccrual status payment full principal interest expected upon principal interest default period 90 days unless asset well secured process collection decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts charged allowance loan types considered delinquent 30 days past due typically charged later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy events requiring chargeoffs occur shortfall identified recorded investment loan underlying value collateral allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoff loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged earnings increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired follow loan review program evaluate credit risk loan portfolio loans identified impaired reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry specific historical loan loss experience volume growth composition loan portfolio evaluation loan portfolio internal loan review process general current economic conditions internal external us may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates adjust allowance loan losses level determined management adequate estimates loan losses inherently subjective involve exercise judgment allowance loan losses dollars percentage total loans may comparable similar sized institutions due impact acquisition accounting part acquisition accounting acquired loans initially recognized fair value corresponding allowance loan losses initial fair value loans includes consideration expected credit losses loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings therefore classified impaired subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby determine amount reserve accordance accounting policy impaired loans part allowance loan losses calculation loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral accounting acquired loans time acquisition evaluate loans determine purchase credit impaired loans purchased credit impaired loans acquired loans evidence credit deterioration probable acquisition would unable collect contractual payments make determination considering past due andor nonaccrual status prior designation troubled debt restructuring factors may suggest able collect contractual payments purchased credit impaired loans initially recorded fair value difference fair value estimated future cash flows accreted expected cash flow period income extent reasonably estimate timing amount future cash flows case loans would classified accruing event unable reasonably estimate timing amount future cash flows loan classified nonaccrual acquired loan previously classified seller troubled debt restructuring longer classified date acquisition past due status reported based contractual payment status purchase credit impaired loans generally de minimis comprised 01 loan portfolio december 31 2015 historically purchased credit impaired loans placed nonaccrual status reported able reasonably estimate timing amount future expected cash flows income associated purchased credit impaired loans 2015 prior periods immaterial loans otherwise classified purchase credit impaired recorded fair value discount contractual value accreted life loan determining allowance loan losses acquired loans bifurcate allowance legacy loans acquired loans remain designated acquired either loan renewed ii loan substantially modified whereby modification results new loan determining allowance acquired loans company estimates principal losses compared company’s recorded investment recorded investment net unaccreted discounts acquisition december 31 2015 2936 million acquired loans renewed substantially modified net unaccreted discount 24 million 081 goodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment perform annual impairment test october 1st goodwill intangible asset indefinite life balance sheet emerging growth company pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies elected opt standards election irrevocable likely take advantage reduced regulatory reporting requirements available us long qualify emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments recently issued accounting pronouncements asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu 201516 requires acquirer recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined acquirer must record period’s financial statements effect earnings changes depreciation amortization income effects result change provisional amounts calculated accounting completed acquisition date additionally entity required present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date asu 201516 effective company beginning january 1 2016 though early adoption permitted asu 201516 expected significant impact company’s financial statements asu 201409 “revenue contract customers topic 606” asu 201409 supersedes revenue recognition requirements revenue recognition topic 605 industryspecific guidance throughout industry topics codification core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective us beginning january 1 2018 retrospective application prior reporting period presented still evaluating potential impact financial statements asu 201404 “receivablestroubled debt restructurings creditors subtopic 31040reclassification residential real estate collateralized consumer mortgage loans upon foreclosure” asu 201404 intends reduce diversity clarifying substance repossession foreclosure occurs creditor considered received physical possession residential real estate property collateralizing consumer mortgage loan receivable derecognized real estate property recognized asu 201404 became effective us january 1 2015 material impact financial statements results operations net income attributable common stockholders 152 million 143 per diluted common share year ended december 31 2015 compared 90 million 126 per diluted common share year ended december 31 2014 increase net income attributable common stockholders 62 million 691 net income attributable common stockholders increased 22 million 317 year ended december 31 2014 compared 68 million 122 per diluted common share year ended december 31 2013 returns average common equity 743 773 902 returns average assets 081 075 078 efficiency ratios 6527 6779 6923 years ended december 31 2015 2014 2013 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets additionally taxes provision loan losses part calculation net interest income year ended december 31 2015 compared year ended december 31 2014 net interest income provision loan losses year ended december 31 2015 802 million compared 468 million year ended december 31 2014 increase 333 million 712 increase net interest income primarily due increase average interestearning assets 6452 million 592 year ended december 31 2015 compared year ended december 31 2014 increase average interestearning assets year ended december 31 2015 compared year ended 2014 primarily result acquisition fm bancshares completed january 1 2015 interest income 888 million year ended december 31 2015 increase 364 million compared year ended december 31 2014 primarily due increase 352 million interest income fees loans year ended december 31 2015 compared period 2014 result increase average loans outstanding 6081 million period increase interest income year ended december 31 2015 2014 included acquisition accounting loan discount accretion 35 million loan premium amortization 83 thousand respectively interest expense 86 million year ended december 31 2015 increase 31 million compared year ended december 31 2014 increase primarily due increase average interestbearing liabilities 4199 million year ended december 31 2015 compared year ended december 31 2014 increase averagebearing liabilities primarily due deposits acquired fm bancshares acquisition addition increase interestbearing liabilities impacted addition 180 million borrowing agreement another financial institution january 1 2015 repay debt acquired fm bancshares paid 275 million revolving borrowing agreement october 2015 portion proceeds initial public offering additionally assumed 113 million junior subordinated debentures part acquisition fm bancshares january 1 2015 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2015 468 increase 37 basis points compared 431 year ended december 31 2014 tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields impact net acquisition accounting adjustments 40 million 432 thousand tax equivalent net interest margin increase 24 basis points 3 basis points years ended december 31 2015 2014 respectively year ended december 31 2014 compared year ended december 31 2013 net interest income provision loan losses 2014 468 million compared 339 million 2013 increase 129 million 382 increase net interest income primarily due increase average interestearning assets 2799 million 345 2014 increase average interestearning assets 2014 compared 2013 primarily result full year effect independence acquisition completed november 2013 well organic growth loan portfolio 2013 2014 average loans percentage average interestearning assets increased 801 841 organic growth loan portfolio 2014 largely driven production existing loan producers including former independence lenders able expand loan portfolios banking operational platform believe demonstrates strength platform supercommunity banking strategy also benefited late 2013 opening new banking location clear lake within houston metropolitan area contributed loan growth 2014 net interest income also benefited capital position consistent deposit strategy allowed us grow loan portfolio faster rate grew deposits interest income 2014 524 million compared 383 million 2013 increase 141 million 367 increase primarily due increase interest income fees loans 133 million 2014 compared 2013 result increase average loans outstanding 2679 million 2014 compared 2013 increase average loans outstanding primarily result full year effect independence acquisition increased productivity existing lenders opening clear lake banking location slightly offset 21 basis point decrease average yield loan portfolio interest expense 2014 56 million compared 44 million 2013 increase 11 million 253 increase primarily due increase average interestbearing liabilities 1824 million 2014 compared 2013 partially offset average rate paid interestbearing liabilities decreasing 075 079 period growth average interestbearing liabilities largely result 1096 million 372 increase certificates time deposits primarily result full year effect certificates deposit acquired independence acquisition tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets 2014 431 increase 12 basis points compared 419 2013 net interest margin increase primarily due growth higheryielding interestearning assets namely loan portfolio tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1the net interest margin equal net interest income divided average interestearning assets 2in order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 35 years ended december 31 2015 2014 2013 applicable effective tax rates 3includes loans held sale following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision loan losses allowance loan losses established charges income form provision order bring allowance loan losses level deemed appropriate management allowance loan losses december 31 2015 december 31 2014 131 million 82 million respectively representing 078 082 total loans dates acquired loans initially recorded fair value based discounted cash flow valuation methodology considers among things projected default rates losses given existing defaults recovery rates carryover allowance loan losses occurs loans acquired recorded 58 million provision loan losses year ended december 31 2015 compared 22 million year ended december 31 2014 increase provision primarily due increase required reserves associated organic loan growth increase 347 thousand allowance impaired loans net chargeoffs 940 thousand year ended december 31 2015 provision loan losses year ended december 31 2014 22 million compared 240 thousand year ended december 31 2013 increase provision largely result growth loan portfolio additionally provision 2013 reflected improvement credit quality relative prior years portfolio result improved economic conditions 2013 noninterest income primary sources noninterest income service charges deposit accounts nonsufficient funds fees noninterest income include loan origination fees recognized life related loan adjustment yield using interest method year ended december 31 2015 compared year ended december 31 2014 noninterest income totaled 40 million year ended december 31 2015 compared 26 million year ended december 31 2014 increase 14 million 531 increase partially due increase transactional deposit accounts acquired acquisition fm bancshares increased service charge nonsufficient funds income gains sale two individual loans portfolio year additionally noninterest income year ended december 31 2015 increased compared year ended december 31 2014 due addition bank owned life insurance income purchased bank owned life insurance first quarter 2015 conjunction acquisition fm bancshares acquired life insurance policies year ended december 31 2014 compared year ended december 31 2013 noninterest income totaled 26 million year ended december 31 2014 increase 968 thousand 591 compared period 2013 increase mainly due full year effect independence acquisition completed november 2013 following table presents periods indicated major categories noninterest income 1other includes wire transfer letter credit fees among items noninterest expense year ended december 31 2015 compared year ended december 31 2014 noninterest expense 548 million year ended december 31 2015 compared 335 million year ended december 31 2014 increase 213 million 638 increase primarily attributable additional personnel facilities infrastructure result fm bancshares acquisition january 1 2015 year ended december 31 2014 compared year ended december 31 2013 noninterest expense totaled 335 million year ended december 31 2014 increase 89 million 360 compared 2013 increase primarily due increased salaries benefits occupancy data processing expenses support growth result full year effect independence acquisition completed november 2013 following table presents periods indicated major categories noninterest expense 1total salaries employee benefits includes 14 million 731 thousand 375 thousand years ended december 31 2015 2014 2013 respectively stock based compensation expense salaries employee benefits salaries benefits 353 million year ended december 31 2015 increase 151 million 751 compared year ended december 31 2014 increase primarily attributable increase total size workforce periods fulltime employees increased 305 employees december 31 2015 195 employees december 31 2014 increase result combination acquisition fm bancshares additional employees hired support growth year ended december 31 2015 additionally incurred severance expenses approximately 555 thousand related fm bancshares acquisition year ended december 31 2015 salaries benefits 202 million year ended december 31 2014 increase 48 million 313 compared 2013 increase primarily due full year effect independence acquisition completed 2013 resulted increase 35 employees addition due growth added experienced banking accounting professionals 2014 contributed increase employees 165 december 31 2013 179 december 31 2014 net occupancy equipment net occupancy equipment expenses 48 million year ended december 31 2015 compared 33 million year ended december 31 2014 increase 15 million 455 year ended december 31 2015 compared year ended december 31 2014 primarily attributable cost retail branches acquired acquisition fm bancshares including utilities rent occupancy expenses net occupancy equipment expenses 33 million 24 million years ended december 31 2014 2013 respectively increase 896 thousand 370 2014 compared 2013 due primarily full year effect independence acquisition completed 2013 opening banking location clear lake late 2013 data processing software amortization data processing software amortization increased 14 million 836 year ended december 31 2015 compared year ended december 31 2014 increase primarily attributable additional hardware software expenses incurred part acquisition fm bancshares resulting increase transaction volume data processing software amortization expenses 17 million 12 million years ended december 31 2014 2013 respectively increase 456 thousand 379 2014 compared 2013 due primarily increased transaction volume portion independence conversion fee professional fees professional fees decreased 623 thousand 272 year ended december 31 2015 compared year ended december 31 2014 decrease primarily attributable expenses 2014 related conversion new accounting system completion conversion independence bank acquired 2013 decrease partially offset merger related expenses incurred complete conversion fm bancshares 2015 professional fees 23 million year ended december 31 2014 increase 613 thousand 365 compared year ended december 31 2013 increase primarily due approximately 500 thousand related system conversions year 2014 converted new accounting system completed conversion independence incurred costs preparation first quarter 2015 conversion fm bancshares acquired january 1 2015 core deposit intangibles amortization core deposit intangibles amortization increased 532 thousand 830 thousand year ended december 31 2015 compared year ended december 31 2014 increase attributable acquisition fm bancshares core deposit intangibles amortized using straightline amortization method useful lives core deposit intangibles amortization increased 261 thousand 298 thousand year ended december 31 2014 compared 37 thousand year ended december 31 2013 increase 2014 attributable addition independence november 2013 efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance defined generally accepted accounting principles calculate efficiency ratio dividing total noninterest expense excluding loan loss provisions net interest income plus noninterest income excluding net gains losses sale loans securities assets additionally taxes part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio 6527 year ended december 31 2015 compared 6779 year ended december 31 2014 efficiency ratio years ended december 31 2015 2014 impacted merger expenses approximately 941 thousand 638 thousand respectively related independence acquisition completed 2013 fm bancshares acquisition completed 2015 excluding merger expenses efficiency ratios would 6415 6660 years ended december 31 2015 2014 respectively efficiency ratio 6779 year ended december 31 2014 compared 6923 year ended december 31 2013 efficiency ratios 2014 2013 impacted mergerrelated expenses 638 thousand 239 thousand respectively monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2014 2015 demonstrates scalability operating platform expect continue benefit scalable platform future periods believe already incurred significant portion overhead expense necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense increased 29 million 610 78 million year ended december 31 2015 compared 48 million period 2014 year ended december 31 2014 income tax expense 48 million compared 39 million year ended december 31 2013 increases income tax expense year primarily attributable higher pretax net earnings effective tax rates 330 349 360 years ended december 31 2015 2014 2013 respectively effective tax rate decreased year ended december 31 2015 compared period 2014 2013 due increase tax free income purchase additional municipal securities bank owned life insurance 2015 quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2015 2014 information read conjunction consolidated financial statements fiscal years ended december 31 2015 2014 appearing elsewhere annual report form 10k 1earnings per share computed independently quarters presented therefore may total earnings per share year financial condition loan portfolio december 31 2015 total loans including loans held sale 168 billion increase 6790 million 678 compared december 31 2014 primarily due 4046 million loans net acquisition accounting adjustments acquired fm bancshares acquisition well organic growth loan portfolio total loans including loans held sale percentage deposits 956 884 december 31 2015 december 31 2014 respectively capital positions 2015 2014 allowed us grow loan portfolio faster rate grew deposits total loans percentage assets 806 783 december 31 2015 december 31 2014 respectively lending activities originate efforts lenders emphasis lending small mediumsized businesses companies professionals individuals located houston metropolitan area following table summarizes loan portfolio type loan dates indicated 1consists loans two former fm bancshares locations company acquired january 1 2015 december 31 2015 loans held sale consists 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million l4 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston metropolitan area strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed annual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made lenders credit personnel contained policies procedures principal categories loan portfolio including loans held sale discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income commercial industrial loan portfolio increased 1542 million 637 3962 million december 31 2015 compared 2420 million december 31 2014 primarily due organic loan growth 816 million commercial industrial portfolio year ended december 31 2015 remainder increase due loans acquired fm bancshares acquisition exposure oil gas exploration production companies roughly 32 total loan portfolio december 31 2015 defined customers prices oil gas significant operational financial impact loans carry overall allowance 22 december 31 2015 collateral loans includes industrial commercial real estate working capital assets machining equipment drilling equipment general industrial equipment vehicles airplanes ranch property insurance policies notes receivable hotel addition loans personally guaranteed mortgage warehouse make loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes tend peak end month mortgage warehouse portfolio increased 307 million 1085 591 million december 31 2015 compared 283 million december 31 2014 commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate december 31 2015 december 31 2014 528 597 respectively commercial real estate loans owneroccupied commercial real estate loan portfolio increased 3272 million 761 7572 million december 31 2015 4300 million december 31 2014 primarily due organic loan growth 1088 million commercial real estate portfolio year ended december 31 2015 remainder change due loans acquired fm bancshares acquisition included commercial real estate portfolio multifamily residential loans multifamily loans increased 129 million 467 404 million december 31 2015 275 million december 31 2014 66 multifamily loans average loan size 614 thousand december 31 2015 commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction commercial real estate construction land development land loans increased 692 million 809 1546 million december 31 2015 compared 855 million december 31 2014 primarily due organic loan growth 511 million commercial real estate construction portfolio year ended december 31 2015 remainder change due loans acquired fm bancshares acquisition 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market areas residential real estate portfolio including home equity increased 724 million 536 2075 million december 31 2015 1351 million december 31 2014 primarily due organic loan growth 435 million 14 family residential portfolio year ended december 31 2015 remainder change due loans acquired fm bancshares acquisition home equity portion residential real estate portfolio increased 84 million 1669 135 million december 31 2015 50 million december 31 2014 increases primarily result increased lending activity due increase demand growing houston metropolitan area residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio increased 214 million 296 938 million december 31 2015 724 million december 31 2014 primarily due organic loan growth 166 million residential construction portfolio year ended december 31 2015 remainder change due loans acquired fm bancshares acquisition consumer loan portfolio made loans made individuals personal purposes consumer loan portfolio increased 39 million 446 126 million december 31 2015 87 million december 31 2014 increase consumer loan portfolio primarily due additional loans acquired fm bancshares contractual maturity ranges loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined interest rates floating interest rates maturity range case date indicated summarized following tables concentrations credit vast majority lending activity occurs houston metropolitan area loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston metropolitan area december 31 2015 december 31 2014 december 31 2013 commercial real estate commercial construction loans represented approximately 542 514 565 respectively total loans including loans held sale asset quality nonperforming loans procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 52 million 32 million 26 million nonperforming loans december 31 2015 december 31 2014 december 31 2013 respectively interest nonaccrual loans accrued original loan terms 404 thousand 187 thousand 263 thousand would recorded income years ended december 31 2015 2014 2013 respectively following table presents information regarding nonperforming assets dates indicated 1restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2015 2014 64 million 25 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2015 potential problem loans consisted three credit relationships total outstanding balance december 31 2015 97 related two customers energy related industry 3 related one customer construction industry weakness organizations’ operating performance financial condition borrowing base deficits certain energy related credits among factors caused us heighten attention given credits loans identified potential problem loans december 31 2015 graded substandard accruing loans potential problem loans impact allocation allowance loan losses result risk grade based allocation methodology see note 6 loans accompanying consolidated financial statements details regarding allowance allocation methodology allowance credit losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 provisions loan losses charged earnings increase allowance 2 chargeoffs loans occur loans deemed uncollectible decrease allowance 3 recoveries loans previously chargedoff increase allowance loans acquired fm bancshares recorded fair value without carryover fm bancshares allowance loan losses discount recognized acquired loans prospectively accreted increasing basis loans due acquisition accounting allowance loan losses total loans may comparable peers particularly relates allowance gross loan percentage allowance nonperforming loans recognizing acquired purchased credit impaired loans de minimis monitor credit quality trends postacquisition basis emphasis past due chargeoff classified loan nonperforming trends amount discount recorded company acquisition date fm bancshares acquisition 60 million 147 loans acquired remaining discount balance acquired loans december 31 2015 24 million 081 discount purchased loans considers anticipated credit losses portfolio therefore allowance credit losses established acquisition date unaccreted discount represents additional protection potential losses presented reduction recorded investment loans rather allowance loan losses continue look portfolio credit deterioration establish additional allowances remaining discount needed december 31 2015 allowance loan losses amounted 131 million 078 total loans compared 82 million 082 december 31 2014 decrease allowance loan losses ratio total loans december 31 2014 december 31 2015 attributable loans acquired fm bancshares acquisition recorded fair value allowance december 31 2015 evidence credit deterioration since acquisition date excluding acquired loans december 31 2015 allowance would 089 total loans increase allowance 49 million year ended december 31 2015 compared year ended december 31 2014 primarily due increase required reserves associated organic loan growth increase 347 thousand allowance impaired loans net chargeoffs 940 thousand year 2015 believe allowance loan losses december 31 2015 december 31 2014 adequate cover probable incurred losses loan portfolio dates ratio net chargeoffs average loans outstanding remained constant 006 years ended december 31 2015 december 31 2014 following table presents periods indicated analysis allowance loan losses related data connection review loan portfolio consider following risk elements attributable particular loan types categories assessing quality individual loans • commercial industrial loans operating results commercial industrial professional enterprise borrower’s business professional financial ability expertise specific risks volatility income operating results typical businesses category value nature marketability collateral • commercial real estate including multifamily residential loans debt service coverage ratio income property excess operating expenses compared loan payment requirements operating results owner case owneroccupied properties loan value ratio age condition collateral volatility income property value future operating results typical properties type • commercial real estate construction land development residential construction loans perceived feasibility project including ability sell developed lots improvements constructed resale ability lease property constructed lease quality nature contracts presale prelease experience ability developer loan value ratio • 14 family residential including home equity loans borrower’s ability repay loan including consideration debt income ratio employment income stability loan value ratio age condition marketability collateral • consumer loans individual borrower’s income current debt level past credit history value available collateral based review loan portfolio classify loans credit risk track risk ratings following general description risk ratings use • loans classified “watch” loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value • loans classified “special mention” potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan credit position future date characterized distinct possibility sustain loss deficiencies corrected • loans classified “substandard” welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility sustain loss deficiencies corrected • loans classified “doubtful” weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually considered pass rated loans see item 7 “ management’s discussion analysis financial condition results operationscritical accounting policiesallowance loan losses” additional information regarding estimate evaluate credit risk loan portfolio following table shows allocation allowance loan losses among loan categories certain information dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2015 carrying amount investment securities totaled 1651 million increase 801 million 943 compared 850 million december 31 2014 december 31 2014 carrying amount investment securities decreased 20 million 23 compared 870 million december 31 2013 due part growth loan portfolio redeploying capital connection therewith securities represented 79 66 total assets december 31 2015 2014 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown certain investment securities valued less historical cost management evaluates securities otti least quarterly basis frequently economic market conditions warrant evaluation see item 7 “management’s discussion analysis financial condition results operationcritical accounting policiessecurities” additional information regarding management evaluates securities otti december 31 2015 expect sell securities classified available sale material unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased management believe securities impaired due reasons credit quality fair value expected recover securities approach maturity date repricing date market yields investments decline accordingly december 31 2015 management believes impairment securities temporary impairment loss realized consolidated statements income following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2015 2014 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated stockholders’ equity average yield securities portfolio 229 year ended december 31 2015 compared 203 year ended december 31 2014 increase average yield 2015 compared 2014 primarily due cash flows loweryielding shorterterm securities reinvested higheryielding longerduration securities goodwill core deposit intangibles goodwill december 31 2015 2014 394 million 111 million respectively increased result fm bancshares acquisition completed january 2015 independence acquisition completed november 2013 goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable core deposit intangibles net december 31 2015 2014 52 million 17 million respectively increased result fm bancshares acquisition completed january 2015 independence acquisition completed november 2013 core deposit intangibles arising fm bancshares independence acquisitions amortized using straightline amortization method estimated useful life seven nine years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2015 176 billion increase 6254 million 552 compared 113 billion december 31 2014 noninterestbearing deposits december 31 2015 6203 million increase 2465 million 660 compared 3738 million december 31 2014 interestbearing deposits december 30 2015 111 billion increase 3789 million 499 compared 7599 million december 31 2014 increase deposits primarily due deposits acquired fm bancshares acquisition total deposits december 31 2014 113 billion increase 884 million 85 compared 105 billion december 31 2013 noninterestbearing deposits december 31 2014 3738 million increase 484 million 149 compared 3254 million december 31 2013 interestbearing deposits december 31 2014 7599 million increase 400 million 56 compared 7199 million december 31 2013 actively seek grow deposits 2014 deposit growth experienced largely result growth customer lending base many also established deposit relationship us following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits years ended december 31 2015 2014 2013 338 309 293 respectively following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances shortterm borrowings used manage liquidity needed maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2015 company total borrowing capacity 6773 million 5993 million available agreement 780 million outstanding shortterm fhlb advances 500 million outstanding december 31 2015 weighted average rate 031 letters credit 280 million december 31 2015 500 thousand expired january 2016 25 million expire august 2016 250 million expire october 2016 december 31 2015 2014 2013 569 thousand 101 million 50 million respectively indebtedness owed another financial institution december 22 2014 connection acquisition fm bancshares entered revolving credit agreement pursuant new revolving credit agreement borrowed approximately 101 million december 2014 pay prior indebtedness january 2015 borrowed additional 180 million revolving credit agreement repay debt fm bancshares owed october 2015 paid 275 million borrowing agreement another financial institution portion proceeds initial public offering credit agreement borrowing revolving credit agreement matures december 2021 interest accrues borrowed funds prime rate minus 25 basis points equated approximately 325 december 31 2015 interest payments due quarterly revolving credit agreement secured 100 capital stock bank maximum commitment advance funds revolving credit agreement 300 million reduced 43 million december 22nd required repay outstanding balance excess thencurrent maximum commitment amount revolving credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2015 believe compliance debt covenants lender delivered notice noncompliance terms credit documents junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 91 million december 31 2015 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 11 audited consolidated financial statements included elsewhere annual report form 10k contractual obligations following table summarizes contractual obligations commitments make future payments december 31 2015 december 31 2014 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance accounting principles generally accepted united states included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2015 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance loan losses standby letters credit standby letters credit conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2015 2014 2013 liquidity needs met core deposits security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 194 billion 119 billion 8721 million years ended 2015 2014 2013 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average loans increased 6081 million 663 year ended december 31 2015 compared year ended december 31 2014 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 70 years modified duration 60 years december 31 2015 weighted average life 52 years modified duration 45 years december 31 2014 december 31 2015 december 31 2014 outstanding 5774 million 3930 million respectively commitments extend credit 95 million 40 million respectively commitments associated outstanding standby letters credit since commitments associated letters credit commitments extend credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2015 2014 2013 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2015 cash equivalents 1484 million compared 1675 million december 31 2014 decrease 191 million decrease cash equivalents primarily due purchase securities 231 billion increase total loans 2716 million purchase bank owned life insurance 100 million paydown longterm borrowings partially offset proceeds maturities paydowns securities 223 billion net cash acquired fm bancshares acquisition 1065 million proceeds initial public offering 571 million proceeds shortterm borrowings 500 million fhlb capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common stockholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2015 2014 2013 bank wellcapitalized total stockholder’s equity 2585 million december 31 2015 compared 1318 million december 31 2014 increase 1267 million 962 increase primarily due sale 2990000 shares common stock connection initial public offering resulting net proceeds 571 million 514 million common stock issued connection acquisition fm bancshares net income 158 million year ended december 31 2015 assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered instruments leveraged derivatives interest rate swaps financial options financial future contracts forward delivery contracts purpose reducing interest rate risk based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management accordance policies approved board directors alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due behavior demand money market savings deposits rate fluctuations found historically interest rates deposits change slowly changes discount federal funds rates gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible stockholders’ equity” stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined ratio total stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total stockholders’ equity total assets goodwill intangible assets effect increasing total stockholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures 1does include 1711 11426 8366 shares treasury stock december 31 2015 2013 2012 respectively shares treasury stock outstanding december 31 2014 2011 2as result system conversions unable calculate daily average balances 2012 2011 periods average loans securities deposits financial institutions assets equity calculated averaging ending balance prior month ending balance current month multiplying average number days current month twelve resulting products added together resulting sum divided number days year item 7a item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” item 7 item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements cautionary notice regarding forwardlooking statements financial discussion analysis contained annual report form 10k historical facts forwardlooking statements made pursuant safe harbor provisions private securities litigation reform act 1995 also may make forwardlooking statements documents filed furnished sec addition senior management may make forwardlooking statements orally investors analysts representatives media others statements preceded followed otherwise include words “believes” “expects” “anticipates” “intends” “projects” “estimates” “plans” similar expressions future conditional verbs “will” “should” “would” “may” “could” generally forwardlooking nature historical facts although forward looking statements include foregoing forwardlooking statements based assumptions involve number risks uncertainties many beyond control many possible events factors could affect future financial results performance could cause results performance differ materially expressed forwardlooking statements assurance list risks uncertainties risk factors complete certain factors could cause actual results differ forwardlooking statements • risks related concentration business houston region including risks associated volatility decreases oil gas prices prolonged periods lower oil gas prices • general market conditions economic trends nationally regionally particularly houston region • ability retain executive officers key employees customer community relationships • ability recruit retain successful bankers meet expectations terms customer community relationships profitability • risks related strategic focus lending small mediumsized businesses • ability implement growth strategy including identification acquisition candidates accretive financial condition results operations well permitting decisionmaking authority branch level • risks related businesses acquire future including exposure potential asset credit quality risks unknown contingent liabilities time costs associated integrating systems technology platforms procedures personnel need additional capital finance transactions possible failures realizing anticipated benefits acquisitions • risks associated owneroccupied commercial real estate loan commercial real estate loan portfolios including risks inherent valuation collateral securing loans • risks associated commercial industrial loan portfolio including risk deterioration value general business assets generally secure loans • accuracy sufficiency assumptions estimates make establishing reserves potential loan losses estimates • risk deteriorating asset quality higher loan chargeoffs well time effort necessary resolve nonperforming assets • potential changes prices values sales volumes commercial residential real estate securing real estate loans • risks related loans originated serviced small business administration’s guidelines • changes market interest rates affect pricing loans deposits net interest income • potential fluctuations market value liquidity securities hold sale • risk impairment investment securities goodwill intangible assets deferred tax assets • effects competition wide variety local regional national providers financial investment insurance services may adversely affect pricing terms • risks associated negative public perception company • ability maintain effective system disclosure controls procedures internal controls financial reporting • risks associated fraudulent negligent acts customers employees vendors • ability keep pace technological change difficulties implementing new technologies • risks associated system failures protect cybersecurity threats breaches network security • ability comply privacy laws properly safeguard personal confidential proprietary information • risks associated data processing system failures errors • potential risk environmental liability related owning foreclosing real property • institution outcome litigation legal proceeding us become subject • ability maintain adequate liquidity raise necessary capital fund acquisition strategy operations meet increased minimum regulatory capital levels • ability comply various governmental regulatory requirements applicable financial institutions • impact recent future legislative regulatory changes including changes banking securities tax laws regulations application regulators implementation doddfrank act • governmental monetary fiscal policies including policies federal reserve • ability comply supervisory actions federal state banking agencies • changes scope cost fdic insurance coverage • systemic risks associated soundness financial institutions • effects war conflicts acts terrorism including cyberattacks catastrophic events including storms droughts tornadoes flooding may affect general economic conditions • risks uncertainties listed time reports documents filed sec forwardlooking statements speak date made undertake obligation update revise forwardlooking statements reflect events circumstances date statements made reflect occurrence unanticipated events unless required federal securities laws factors identified including described heading item 1a “risk factors” elsewhere item 7 “management’s discussion analysis financial condition results operations” may also cause actual results differ materially described forward looking statements factors difficult anticipate generally beyond control consider factors connection considering forwardlooking statements may made us overview generate income interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits shareholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston region well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets october 1 2018 completed acquisition post oak bancshares inc whollyowned subsidiary bank post oak bank na collectively “post oak” acquisition closed october 1 2018 results operations included post oak portion 2018 historical financial condition results operations periods ended december 31 2018 contained annual report form 10k reflect financial condition results operations post oak connection acquisition post oak issued 84 million shares company common stock addition impact acquisition post oak comparability consolidated results operations year ended december 31 2014 may affected acquisition fm bancshares january 1 2015 results acquired operations fm bancshares included results operations 2015 compared full year 2014 completed initial public offering 2990000 shares allegiances common stock 2100 per share october 7 2015 generating net proceeds 571 million allegiances common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” critical accounting policies certain accounting estimates important portrayal financial condition since require management make difficult complex subjective judgments may relate matters inherently uncertain estimates susceptible material changes result changes facts circumstances facts circumstances could affect judgments include limited changes interest rates changes performance economy changes financial condition borrowers management believes determining allowance loan losses critical accounting estimate accounting policies discussed detail note 1 nature operations summary significant accounting reporting policies accompanying notes consolidated financial statements included elsewhere annual report form 10k allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance management considers policies related allowance loan losses critical financial statement presentation total allowance loan losses includes activity related allowances calculated accordance accounting standards codification “asc” 310 receivables asc 450 contingencies throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired follow loan review program evaluate credit risk loan portfolio loans identified impaired reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry specific historical loan loss experience volume growth composition loan portfolio evaluation loan portfolio internal loan review process general current economic conditions internal external us may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates adjust allowance loan losses level determined management adequate estimates loan losses inherently subjective involve exercise judgment loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference emerging growth company pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies elected opt standards election irrevocable likely continue take advantage reduced regulatory reporting requirements available us long qualify emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments recently issued accounting pronouncements evaluated new accounting pronouncements recently issued determined new accounting pronouncements described section material impact company’s operations financial condition liquidity future periods refer note 1 company’s audited consolidated financial statements discussion recent accounting pronouncements adopted company require enhanced disclosures company’s financial statements future periods results operations net income 373 million 237 per diluted common share year ended december 31 2018 compared 176 million 131 per diluted common share year ended december 31 2017 increase 197 million 1116 increase net income primarily result 249 million increase net interest income 89 million decrease provision loan losses partially offset 168 million increase noninterest expense net income 176 million 131 per diluted common share year ended december 31 2017 compared 229 million 175 per diluted common share year ended december 31 2016 returns average common equity 902 592 836 returns average assets 111 065 098 efficiency ratios 6368 6389 6234 years ended december 31 2018 2017 2016 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches 2016 additionally taxes provision loan losses part efficiency ratio calculation net interest income net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue representing 943 total revenue 2018 tax equivalent net interest margin ratio taxableequivalent net interest income average earning assets period level interest rates volume mix earning assets interestbearing liabilities impact net interest income net interest margin federal reserve influences general market rates interest including deposit loan rates offered many financial institutions loan portfolio affected changes prime interest rate prime interest rate offered loans borrowers strong credit remained 350 2016 december 2016 prime rate increased 25 basis points 375 2017 prime rate increased 75 basis points 25 basis points march june december end year 450 2018 prime rate increased 100 basis points 25 basis points march june september december end year 550 loan portfolio also impacted changes london interbank offered rate libor december 31 2018 onemonth threemonth us dollar libor rates 250 281 respectively december 31 2017 onemonth threemonth us dollar libor rates 157 169 respectively december 31 2016 onemonth threemonth us dollar libor rates 077 100 respectively effective federal funds rate cost immediately available overnight funds remained 050 2016 december 2016 effective federal funds rate increased 25 basis points end year 075 2017 effective federal funds rate increased 75 basis points 25 basis points march june december end year 150 2018 effective federal funds rate increased 100 basis points 25 basis points march june september december end period 250 year ended december 31 2018 compared year ended december 31 2017 net interest income provision loan losses year ended december 31 2018 1286 million compared 1037 million year ended december 31 2017 increase 249 million 240 increase net interest income previous year due increased average interestearning asset balances primarily acquisition post oak well organic growth year average interestearning assets increased 5826 million 237 year ended december 31 2018 compared year ended december 31 2017 interest income 1582 million year ended december 31 2018 increase 388 million 325 compared year ended december 31 2017 primarily due increase 379 million interest income fees loans increase interest income fees loans year ended december 31 2018 primarily due post oak acquisition organic growth average loans outstanding increased 5710 million 274 period additionally interest income years ended december 31 2018 2017 included acquisition accounting loan discount accretion 27 million 632 thousand respectively interest expense 296 million year ended december 31 2018 increase 139 million 880 compared year ended december 31 2017 increase primarily due increase average interestbearing deposits subordinated debt issued december 2017 rising expenses associated higher funding costs interestbearing liabilities average interestbearing liabilities increased 3701 million 215 year ended december 31 2018 compared year ended december 31 2017 primarily due increase average interestbearing deposits average interestbearing deposits increased 3613 million primarily due deposits assumed post oak acquisition organic growth additionally average subordinated debt increased 376 million year ended december 31 2018 due issuance december 2017 increase interestbearing deposits year ended december 31 2018 compared year ended december 31 2017 primarily due increase average certificates time deposits 1923 million 257 cost average interestbearing liabilities increased 142 basis points year ended december 31 2018 compared 92 basis points period 2017 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2018 427 decrease 7 basis points compared 434 year ended december 31 2017 decrease net interest margin tax equivalent basis primarily due increase funding costs certificates deposit borrowed funds partially offset increase impact net acquisition accounting adjustments average yield interestearning assets average rate paid interestbearing liabilities increased 2018 average yield interestearning assets average rate paid interestbearing liabilities primarily impacted changes market interest rates well changes volume relative mix underlying assets liabilities impact net acquisition accounting adjustments 31 million 527 thousand tax equivalent net interest margin increase 10 basis points 2 basis points years ended december 31 2018 2017 respectively tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 21 federal tax rate year ended december 31 2018 35 rate period 2017 thus making taxexempt yields comparable taxable asset yields beginning january 1 2018 tax equivalent yields net interest margin based upon tax rate 21 result tax cuts jobs act enacted december 22 2017 year ended december 31 2017 compared year ended december 31 2016 net interest income provision loan losses year ended december 31 2017 1037 million compared 899 million year ended december 31 2016 increase 138 million 154 increase net interest income primarily due increase average interestearning assets 3436 million 163 year ended december 31 2017 compared year ended december 31 2016 increase average interestearning assets year ended december 31 2017 compared year ended 2016 primarily due organic loan growth interest income 1194 million year ended december 31 2017 increase 187 million 185 compared year ended december 31 2016 primarily due increase 170 million interest income fees loans year ended december 31 2017 compared period 2016 result increase average loans outstanding 3261 million period increase interest income years ended december 31 2017 2016 included acquisition accounting loan discount accretion 632 thousand 14 million respectively interest expense 158 million year ended december 31 2017 increase 49 million 445 compared year ended december 31 2016 increase primarily due increase average interestbearing liabilities increase funding costs interestbearing liabilities average interestbearing liabilities increased 2857 million 199 year ended december 31 2017 compared year ended december 31 2016 increase average interestbearing liabilities primarily due increase average interestbearing deposits 2233 million increase average borrowed funds 603 million year ended december 31 2017 significant increase interestbearing deposits year ended december 31 2017 compared year ended december 31 2016 impacted increase average certificates time deposits 1000 million 154 tax equivalent net interest margin year ended december 31 2017 434 decrease 3 basis points compared 437 year ended december 31 2016 decrease net interest margin tax equivalent basis primarily due increase funding costs certificates deposit borrowed funds decrease impact net acquisition accounting adjustments average yield interest earning assets average rate paid interestbearing liabilities increased 2017 average yield interestearning assets average rate paid interestbearing liabilities primarily impacted changes market interest rates well changes volume relative mix underlying assets liabilities impact net acquisition accounting adjustments 527 thousand 15 million tax equivalent net interest margin increase 2 basis points 7 basis points years ended december 31 2017 2016 respectively tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields tax equivalent yields net interest margin comparable periods presented based upon tax rate 35 following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1 includes loans held sale 2 net interest margin equal net interest income divided average interestearning assets 3 order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 21 year ended december 31 2018 35 years ended december 31 2017 2016 applicable effective tax rates following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision loan losses allowance loan losses established charges income form provision order bring allowance loan losses level deemed appropriate management allowance loan losses december 31 2018 december 31 2017 263 million 236 million respectively representing 071 104 total loans dates recorded 42 million provision loan losses year ended december 31 2018 compared 132 million year ended december 31 2017 increased provision year ended december 31 2017 primarily due increase organic loan growth net chargeoffs 75 million estimated losses related hurricane harvey increase 702 thousand allowance impaired loans provision loan losses year ended december 31 2017 132 million compared 55 million year ended december 31 2016 acquired loans initially recorded fair value based discounted cash flow valuation methodology considers among things projected default rates losses given existing defaults recovery rates loans acquired post oak initially recorded fair value corresponding allowance loan losses recorded loans acquisition date recognized discount acquired loans prospectively accreted increasing basis loans december 31 2018 balance acquisition accounting discount 142 million noninterest income primary sources noninterest income service charges deposit accounts nonsufficient funds fees rebates correspondent bank debit card atm card income noninterest income include loan origination fees recognized life related loan adjustment yield using interest method year ended december 31 2018 compared year ended december 31 2017 noninterest income totaled 77 million year ended december 31 2018 compared 59 million year ended december 31 2017 increase 19 million 316 noninterest income increased 2018 due increased rebates correspondent bank increased noninterest income driven primarily increased deposit loan balances mitigated losses real estate owned 2018 year ended december 31 2017 compared year ended december 31 2016 noninterest income totaled 59 million year ended december 31 2017 compared 73 million year ended december 31 2016 decrease 14 million 194 decrease primarily due 21 million gain 13 million aftertax sale two central texas branch locations completed first quarter 2016 following table presents periods indicated major categories noninterest income 1 includes wire transfer letter credit fees among items noninterest expense year ended december 31 2018 compared year ended december 31 2017 noninterest expense 868 million year ended december 31 2018 compared 700 million year ended december 31 2017 increase 168 million 240 increase primarily due core system conversion expenses 18 million acquisition mergerrelated expenses 17 million additional expenses related increased headcount bank offices post oak acquisition increased expenses support organic growth initiatives year ended december 31 2018 year ended december 31 2017 compared year ended december 31 2016 noninterest expense 700 million year ended december 31 2017 compared 593 million year ended december 31 2016 increase 107 million 181 increase primarily due core system conversion expenses 11 million professional fees regulatory assessments fdic insurance salaries benefits related supporting growth initiatives following table presents periods indicated major categories noninterest expense 1 total salaries employee benefits includes 17 million 18 million 15 million stock based compensation expense years ended december 31 2018 2017 2016 respectively salaries employee benefits salaries benefits 567 million year ended december 31 2018 increase 120 million 267 compared year ended december 31 2017 experienced significant increase total size workforce periods fulltime equivalent employees 569 december 31 2018 compared 375 year ended december 31 2017 primary increase headcount employees added post oak acquisition support organic growth salaries benefits 447 million year ended december 31 2017 increase 59 million 152 compared year ended december 31 2016 increase primarily attributable addition high quality bankers key personnel hired strengthen infrastructure support future growth plans total size workforce periods increased 375 fulltime equivalent employees december 31 2017 334 employees december 31 2016 net occupancy equipment net occupancy equipment expenses increased 393 thousand 72 year ended december 31 2018 58 million compared 55 million year ended december 31 2017 increase primarily due expenses associated infrastructure facilities added post oak acquisition continued buildout needed support growth net occupancy equipment expenses increased 508 thousand 103 year ended december 31 2017 55 million compared 49 million year ended december 31 2016 increase primarily due general business growth continued buildout needed support growth data processing software amortization data processing software amortization increased 11 million 265 year ended december 31 2018 compared year ended december 31 2017 increase primarily due expenses incurred complete conversion core technology platform better serve customers added scale expense post oak acquisition increase efficiencies data processing software amortization increased 14 million 537 year ended december 31 2017 compared year ended december 31 2016 increase primarily due expenses related conversion core technology platform better serve customers increase efficiencies professional fees professional fees decreased 917 thousand 313 year ended december 31 2018 20 million 29 million year ended december 31 2017 due elevated expenses 2017 focused enhancing operational infrastructure required pursue growth strategy professional fees increased 692 thousand 310 year ended december 31 2017 29 million 22 million year ended december 31 2016 continued focus enhancing operational infrastructure required pursue growth strategy core deposit intangibles amortization core deposit intangibles amortization increased 10 million 1324 year ended december 31 2018 18 million 781 thousand year ended december 31 2017 primarily due increased core deposit intangibles amortization resulting post oak acquisition mergerrelated expenses acquisition mergerrelated expenses legal advisory accounting fees associated post oak acquisition expenses also include data processing conversion costs contract termination costs resulted post oak acquisition efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance calculated based generally accepted accounting principles calculate efficiency ratio dividing total noninterest expense sum net interest income noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches additionally taxes provision loan losses part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio 6368 year ended december 31 2018 compared 6389 year ended december 31 2017 efficiency ratio 2018 impacted 18 million core system conversion expenses 17 million mergerrelated expenses related post oak acquisition efficiency ratio 2017 impacted 11 million core system conversion expenses 2017 efficiency ratio 6389 year ended december 31 2017 compared 6234 year ended december 31 2016 monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2017 2018 demonstrates scalability operating platform expect continue benefit scalable platform future periods continue monitor overhead expenses necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense decreased 799 thousand 91 79 million year ended december 31 2018 compared 87 million period 2017 primarily due reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 partially offset increase pretax net income year ended december 31 2017 income tax expense decreased 807 thousand 84 compared 96 million year ended december 31 2016 decrease income tax expense year primarily due decrease pretax net income effective tax rates 176 332 295 years ended december 31 2018 2017 2016 respectively effective tax rate 2018 impacted reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 result reduction us federal statutory income tax rate recognized provisional net income tax expense totaling 26 million year ended december 31 2017 asc 740 income taxes effect income tax law changes deferred taxes recognized component income tax expense related continuing operations period law enacted requirement applies items initially recognized continuing operations also items initially recognized comprehensive income tax cuts jobs act tax cuts jobs act enacted december 22 2017 among things new law establishes new flat corporate federal statutory income tax rate 21 ii eliminates corporate alternative minimum tax allows use carryforwards offset regular tax liability taxable year iii limits deduction net interest expense incurred us corporations iv allows businesses immediately expense tax purposes cost new investments certain qualified depreciable assets v eliminates reduces certain deductions related meals entertainment expenses vi modifies limitation excessive employee remuneration eliminate exception performancebased compensation clarifies definition covered employee vii limits deductibility deposit insurance premiums tax cuts jobs act also significantly changes us tax law related foreign operations however changes currently impact us quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2018 2017 information read conjunction consolidated financial statements fiscal years ended december 31 2018 2017 appearing elsewhere annual report form 10k 1 earnings per share computed independently quarters presented therefore may total earnings per share year financial condition loan portfolio december 31 2018 total loans 371 billion increase 144 billion 633 compared december 31 2017 primarily due loans acquired post oak acquisition organic loan growth total loans percentage deposits 1013 1026 december 31 2018 december 31 2017 respectively total loans percentage assets 797 794 december 31 2018 december 31 2017 respectively following table summarizes loan portfolio type loan dates indicated 1 consists loans two former fm bancshares locations central texas company acquired january 1 2015 december 31 2015 loans held sale consisted 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million l4 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston region strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed semiannual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made bankers credit personnel contained policies procedures principal categories loan portfolio including loans held sale discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income commercial industrial loan portfolio increased 2449 million 536 7020 million december 31 2018 compared 4571 million december 31 2017 mortgage warehouse make loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes portfolio tend peak end month mortgage warehouse portfolio decreased 212 million 305 483 million december 31 2018 compared 695 million december 31 2017 commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate december 31 2018 december 31 2017 514 commercial real estate loans owneroccupied commercial real estate loan portfolio increased 5707 million 528 165 billion december 31 2018 108 billion december 31 2017 result commercial real estate loans acquired post oak acquisition organic loan growth included commercial real estate portfolio multifamily residential loans multifamily loans increased 112 million 166 784 million december 31 2018 672 million december 31 2017 135 multifamily loans average loan size 5814 thousand december 31 2018 commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction december 31 2018 december 31 2017 294 264 respectively commercial real estate construction land development loans owneroccupied commercial real estate construction land development land loans increased 1867 million 767 4301 million december 31 2018 compared 2434 million december 31 2017 primarily result loans acquired post oak organic loan growth 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market area residential real estate portfolio including home equity increased 3481 million 1156 6493 million december 31 2018 3012 million december 31 2017 home equity home improvement home equity lines credit portion residential real estate portfolio increased 517 million 1182 954 million december 31 2018 438 million december 31 2017 increases primarily result loans acquired part post oak acquisition residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio increased 773 million 708 1864 million december 31 2018 1091 million december 31 2017 increase primarily result loans acquired part post oak acquisition consumer loan portfolio made loans made individuals personal purposes consumer loan portfolio increased 309 million 2995 412 million december 31 2018 103 million december 31 2017 increase primarily result loans acquired part post oak acquisition contractual maturity ranges total loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined fixed interest rates floating interest rates maturity range case date indicated summarized following tables concentrations credit vast majority lending activity occurs houston region loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston region december 31 2018 2017 2016 commercial real estate commercial construction loans represented 561 583 536 respectively total loans including loans held sale asset quality procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 330 million 133 million 167 million nonperforming loans december 31 2018 2017 2016 respectively interest nonaccrual loans accrued original loan terms 10 million 733 thousand 892 thousand would recorded income years ended december 31 2018 2017 2016 respectively following table presents information regarding nonperforming assets dates indicated 1 nonperforming loans include nonaccrual loans past due 90 days still accruing interest 2 nonperforming assets include nonaccrual loans past due 90 days still accruing interest repossessed assets real estate 3 restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2018 2017 160 million 179 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2018 potential problem loans consisted 23 credit relationships total outstanding balance december 31 2018 396 related nine customers energyrelated industry 196 related two customers customer service industry 158 related three customers residential real estate rental industry 75 related one customer manufacturing industry 52 related one customer restaurant industry 43 related three customers commercial services industry 27 related one customer convenience store industry 31 related one customer commercial real estate development business 12 related one customer construction material industry 10 related two customers trucking industry weakness organizations’ operating performance financial condition borrowing base deficits certain energy related credits among factors caused us heighten attention given credits loans identified potential problem loans december 31 2018 graded substandard accruing loans potential problem loans impact allocation allowance loan losses result risk grade based allocation methodology see note 6 loans allowance loan losses accompanying consolidated financial statements details regarding allowance allocation methodology nonperforming assets increased 197 million 336 million december 31 2018 139 million december 31 2017 nonaccrual loans consisted 87 separate credits december 31 2018 compared 50 separate credits december 31 2017 nonperforming assets 091 total loans december 31 2018 compared 061 december 31 2017 nonaccrual loans december 31 2018 included 53 million loans acquired post oak see note 2 acquisitions accompanying consolidated financial statements included elsewhere annual report 10k additional information regarding loans purchased post oak allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance accounting standards business combinations acquired loans recorded fair value date acquisition fair value adjustment eliminates seller’s allowance associated loans purchase date credit exposure associated loans incorporated fair value adjustment provision loan losses recorded emergence new incurred estimable losses acquired loans acquisition date excess recorded discount loans acquired post oak recorded fair value without carryover post oak allowance loan losses discount recognized acquired loans prospectively accreted increasing basis loans due acquisition accounting allowance loan losses total loans may comparable peers particularly relates allowance gross loan percentage allowance nonperforming loans recognizing acquired purchased credit impaired loans de minimis monitor credit quality trends postacquisition basis emphasis past due chargeoff classified loan nonperforming trends amount discount recorded company acquisition date post oak acquisition 170 million 143 loans acquired remaining discount balance acquired loans december 31 2018 142 million discount purchased loans considers anticipated credit losses portfolio therefore allowance credit losses established acquisition date unaccreted discount represents additional protection potential losses presented reduction recorded investment loans rather allowance loan losses continue look portfolio credit deterioration establish additional allowances remaining discount needed december 31 2018 allowance loan losses amounted 263 million 071 total loans compared 236 million 104 december 31 2017 2018 allowance loan losses percentage loans decreased primarily due addition acquired loans post oak recorded fair value without carryover post oak allowance loan losses increase allowance 27 million year ended december 31 2018 compared year ended december 31 2017 primarily due increase 44 million allowance impaired loans partially offset reversal 2018 17 million hurricane harvey reserve established year 2017 believe allowance loan losses december 31 2018 adequate cover probable incurred losses loan portfolio date ratio net chargeoffs average loans outstanding decreased 006 year ended december 31 2018 036 december 31 2017 net chargeoffs decreased 59 million year 2018 compared 2017 primarily due two commercial loan relationships experienced financial difficulty 2017 following table presents periods indicated analysis allowance loan losses related data connection review loan portfolio consider following risk elements attributable particular loan types categories assessing quality individual loans • commercial industrial loans operating results commercial industrial professional enterprise borrower’s business professional financial ability expertise specific risks volatility income operating results typical businesses category value nature marketability collateral • commercial real estate including multifamily residential loans debt service coverage ratio income property excess operating expenses compared loan payment requirements operating results owner case owneroccupied properties loan value ratio age condition collateral volatility income property value future operating results typical properties type • commercial real estate construction land development residential construction loans perceived feasibility project including ability sell developed lots improvements constructed resale ability lease property constructed lease quality nature contracts presale prelease experience ability developer loan value ratio • 14 family residential including home equity loans borrower’s ability repay loan including consideration debt income ratio employment income stability loan value ratio age condition marketability collateral • consumer loans individual borrower’s income current debt level past credit history value available collateral based review loan portfolio classify loans credit risk track risk ratings following general description risk ratings use • loans classified “watch” loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value • loans classified “special mention” potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan credit position future date characterized distinct possibility sustain loss deficiencies corrected • loans classified “substandard” welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans characterized distinct possibility sustain loss deficiencies corrected • loans classified “doubtful” weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually considered pass rated loans see note 6 loans allowance loan losses audited consolidated financial statement included elsewhere annual report form 10k additional information regarding estimate evaluate credit risk loan portfolio following table shows allocation allowance loan losses among loan categories percentage respective loan category total loans held investment dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2018 carrying amount investment securities totaled 3373 million increase 277 million 89 compared 3096 million december 31 2017 primarily due securities acquired post oak securities represented 72 108 total assets december 31 2018 2017 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown certain investment securities valued less historical cost management evaluates securities otti least quarterly basis frequently economic market conditions warrant evaluation see “securities” note 5 audited consolidated financial statements included elsewhere annual report 10k additional information regarding management evaluates securities otti december 31 2018 expect sell securities classified available sale material unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased management believe securities impaired due reasons credit quality fair value expected recover securities approach maturity date repricing date market yields investments decline accordingly december 31 2018 management believes impairment securities temporary impairment loss realized consolidated statements income following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2018 2017 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated shareholders’ equity average yield securities portfolio 269 year ended december 31 2018 compared 260 year ended december 31 2017 increase average yield 2018 compared 2017 primarily due increased investment longerterm securities investment higheryielding securities replaced loweryielding securities matured called prepaid goodwill core deposit intangibles goodwill december 31 2018 2231 million compared 394 million december 31 2017 due goodwill resulting post oak acquisition goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable core deposit intangibles net december 31 2018 266 million compared 33 million december 31 2017 due core deposit intangible resulting post oak acquisition core deposit intangibles amortized estimated useful life seven ten years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2018 366 billion increase 145 billion 654 compared 221 billion december 31 2017 deposit growth experienced largely result deposits assumed post oak acquisition growth customer base many also established deposit relationship us noninterestbearing deposits december 31 2018 121 billion increase 5262 million 770 compared 6831 million december 31 2017 interestbearing deposits december 31 2018 245 billion increase 9224 million 603 compared 153 billion december 31 2017 total deposits december 31 2017 221 billion increase 3438 million 184 compared 187 billion december 31 2016 noninterestbearing deposits december 31 2017 6831 million increase 894 million 150 compared 5938 million december 31 2016 interestbearing deposits december 31 2017 153 billion increase 2544 million 199 compared 128 billion december 31 2016 following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits 320 318 338 years ended december 31 2018 2017 2016 respectively following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2018 total borrowing capacity 106 billion 7654 million available agreement 2965 million outstanding fhlb advances 2250 million outstanding december 31 2018 weighted average rate 257 letters credit 715 million december 31 2018 88 million expired january 2019 102 million expired february 2019 71 million expire april 2019 71 million expire may 2019 55 million expire august 2019 250 million expire october 2019 63 million expire december 2019 15 million expire january 2020 credit agreement january 2015 borrowed additional 180 million credit agreement another financial institution addition 101 million indebtedness incurred agreement 2014 used funds borrowed 2015 repay debt fm bancshares owed october 2015 paid 275 million credit agreement using portion proceeds initial public offering allegiance common stock december 31 2018 2017 2016 569 thousand indebtedness owed credit agreement interest rate outstanding debt revolving credit agreement prime rate minus 25 basis points 500 december 31 2018 paid quarterly december 28 2018 amended credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2018 believe compliance debt covenants made aware noncompliance lender subordinated debt junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 94 million december 31 2018 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 11 audited consolidated financial statements included elsewhere annual report form 10k subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders contractual obligations following tables summarize contractual obligations commitments make future payments december 31 2018 2017 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance gaap included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby performance letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2018 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance loan losses standby letters credit standby letters credit written conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements backed promissory notes contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2018 2017 2016 liquidity needs met deposits borrowed funds security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 337 billion 270 billion 234 billion years ended december 31 2018 2017 2016 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average loans increased 5710 million 274 year ended december 31 2018 compared year ended december 31 2017 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 61 years modified duration 51 years december 31 2018 weighted average life 65 years modified duration 55 years december 31 2017 december 31 2018 december 31 2017 outstanding 100 billion 6200 million respectively commitments extend credit 233 million 172 million respectively commitments associated outstanding standby performance letters credit since commitments associated letters credit commitments extend credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2018 2017 2016 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2018 cash equivalents 2689 million compared 1821 million december 31 2017 increase 868 million increase cash equivalents primarily due 2304 million cash acquired post oak acquisition capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common shareholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2018 2017 2016 bank wellcapitalized basel iii capital rules impact regulatory capital ratios banking organizations following manner fully phased create new requirement maintain ratio “common equity tier 1 capital” total riskweighted assets less 45 increase minimum leverage capital ratio 40 banking organizations increase minimum tier 1 riskbased capital ratio 40 60 maintain minimum total riskbased capital ratio 80 addition basel iii capital rules subject banking organization certain limitations capital distributions discretionary bonus payments executive officers organization maintain “capital conservation buffer” common equity tier 1 capital implementation capital conservation buffer began january 1 2016 0625 level phased threeyear period increasing 0625 subsequent january 1 reached 25 january 1 2019 effect capital conservation buffer increase minimum common equity tier 1 capital ratio 70 minimum tier 1 riskbased capital ratio 85 minimum total riskbased capital ratio 105 following table provides comparison company’s bank’s leverage riskweighted capital ratios december 31 2018 minimum wellcapitalized regulatory standards total shareholder’s equity 7030 million december 31 2018 compared 3069 million december 31 2017 increase 3961 million 1291 increase primarily due common equity issued related post oak acquisition assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered instruments leveraged derivatives interest rate swaps financial options financial future contracts forward delivery contracts purpose reducing interest rate risk based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management accordance policies approved board directors alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due duration loan securities portfolio duration borrowings expected behavior demand money market savings deposits rate fluctuations 2018 overall duration combined loan securities portfolios decreased fhlb borrowings represented smaller proportion funding mix year end due primarily assets liabilities acquired post oak acquisition gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible shareholders’ equity” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible shareholders’ equity defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period shareholders’ equity exclusive changes intangible assets tangible shareholders’ equity directly comparable financial measure calculated accordance gaap total shareholders’ equity goodwill intangible assets effect increasing total shareholders’ equity increasing tangible equity • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined total shareholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total shareholders’ equity total assets goodwill intangible assets effect increasing total shareholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures 1 include 1711 shares treasury stock december 31 2015 shares treasury stock outstanding december 31 2018 2017 2016 2014 item 7a item 7 management’s discussion analysis financial condition results operations following discussion analysis company’s financial condition results operations read conjunction item 6 “selected financial data” company’s consolidated financial statements accompanying notes included elsewhere annual report form 10k discussion analysis contains forwardlooking statements subject certain risks uncertainties based certain assumptions company believes reasonable may prove inaccurate certain risks uncertainties factors including set forth “ cautionary notice regarding forwardlooking statements” item 7 item 1a “risk factors” elsewhere annual report form 10k may cause actual results differ materially projected results discussed forwardlooking statements appearing discussion analysis company assumes obligation update forwardlooking statements cautionary notice regarding forwardlooking statements financial discussion analysis contained annual report form 10k historical facts forwardlooking statements made pursuant safe harbor provisions private securities litigation reform act 1995 also may make forwardlooking statements documents filed furnished sec addition senior management may make forwardlooking statements orally investors analysts representatives media others statements preceded followed otherwise include words “believes” “expects” “anticipates” “intends” “projects” “estimates” “plans” similar expressions future conditional verbs “will” “should” “would” “may” “could” generally forwardlooking nature historical facts although forward looking statements include foregoing forwardlooking statements based assumptions involve number risks uncertainties many beyond control many possible events factors could affect future financial results performance could cause results performance differ materially expressed forwardlooking statements assurance list risks uncertainties risk factors complete certain factors could cause actual results differ forwardlooking statements • risks related concentration business houston metropolitan area including risks associated volatility decreases oil gas prices prolonged periods lower oil gas prices • general market conditions economic trends nationally regionally particularly houston metropolitan area • ability retain executive officers key employees customer community relationships • ability recruit retain successful bankers meet expectations terms customer community relationships profitability • risks related strategic focus lending small mediumsized businesses • ability implement growth strategy including identification acquisition candidates accretive financial condition results operations well permitting decisionmaking authority branch level • risks related businesses acquire future including exposure potential asset credit quality risks unknown contingent liabilities time costs associated integrating systems technology platforms procedures personnel need additional capital finance transactions possible failures realizing anticipated benefits acquisitions • potential impairment goodwill recorded may record connection business acquisitions • risks associated owneroccupied commercial real estate loan commercial real estate loan portfolios including risks inherent valuation collateral securing loans • risks associated commercial industrial loan portfolio including risk deterioration value general business assets generally secure loans • accuracy sufficiency assumptions estimates make establishing reserves potential loan losses estimates • risk deteriorating asset quality higher loan chargeoffs well time effort necessary resolve nonperforming assets • potential changes prices values sales volumes commercial residential real estate securing real estate loans • changes market interest rates affect pricing loans deposits net interest income • potential fluctuations market value liquidity securities hold sale • risk impairment investment securities goodwill intangible assets deferred tax assets • effects competition wide variety local regional national providers financial investment insurance services may adversely affect pricing terms • risks associated negative public perception company • ability maintain effective system disclosure controls procedures internal controls financial reporting • risks associated fraudulent negligent acts customers employees vendors • ability keep pace technological change difficulties implementing new technologies • risks associated system failures protect cybersecurity threats breaches network security • risks associated data processing system failures errors • potential risk environmental liability related lending activities • institution outcome litigation legal proceeding us become subject • ability maintain adequate liquidity raise necessary capital fund acquisition strategy operations meet increased minimum regulatory capital levels • ability comply various governmental regulatory requirements applicable financial institutions • impact recent future legislative regulatory changes including changes banking securities tax laws regulations application regulators implementation doddfrank act • governmental monetary fiscal policies including policies federal reserve • ability comply supervisory actions federal state banking agencies • changes scope cost fdic insurance coverage • systemic risks associated soundness financial institutions • effects war conflicts acts terrorism including cyberattacks catastrophic events including storms droughts tornadoes flooding may affect general economic conditions • risks uncertainties listed time reports documents filed sec forwardlooking statements speak date made undertake obligation update revise forwardlooking statements reflect events circumstances date statements made reflect occurrence unanticipated events unless required federal securities laws factors identified including described headings item 1a “risk factors” item 7 “management’s discussion analysis financial condition results operations” may also cause actual results differ materially described forward looking statements factors difficult anticipate generally beyond control consider factors connection considering forwardlooking statements may made us overview generate revenues interest income loans service charges customer accounts interest income investments securities incur interest expense deposits borrowed funds noninterest expenses salaries employee benefits occupancy expenses net interest income difference interest income earning assets loans securities interest expense liabilities deposits borrowings used fund assets net interest income largest source revenue evaluate net interest income measure monitor 1 yields loans interestearning assets 2 interest expenses deposits funding sources 3 net interest spread 4 net interest margin net interest spread difference rates earned interestearning assets rates paid interestbearing liabilities net interest margin calculated net interest income divided average interestearning assets noninterestbearing sources funds noninterestbearing deposits stockholders’ equity also fund interestearning assets net interest margin includes benefit noninterestbearing sources net interest income affected changes amount mix interestearning assets interestbearing liabilities referred “volume change” periodic changes volume types loans loan portfolio affected among factors economic competitive conditions texas specifically houston metropolitan area well developments affecting real estate technology financial services insurance transportation manufacturing energy sectors within target market throughout state texas net interest income also affected changes yields earned interestearning assets rates paid interestbearing deposits borrowed funds referred “rate change” fluctuations market interest rates driven many factors including governmental monetary policies inflation deflation macroeconomic developments changes unemployment money supply political international conditions domestic foreign financial markets january 1 2015 completed acquisition fm bancshares whollyowned subsidiary bank enterprise bank results year ended 2015 reflect combined entity impact acquisition reflected discussion analysis financial condition results operations year ended december 31 2014 december 31 2014 fm bancshares consolidated basis reported total assets 5697 million total loans 4102 million total deposits 4889 million acquisition closed january 1 2015 historical financial condition results operations periods ended december 31 2014 contained annual report form 10k reflect financial condition results operations fm bancshares connection acquisition fm bancshares incurred approximately 293 million indebtedness including borrowing approximately 180 million revolving credit agreement repay debt fm bancshares owed shareholders assumption junior subordinated debentures aggregate original principal amount 113 million issued two statutory trusts addition impact acquisition fm bancshares comparability consolidated results operations years ended december 31 2014 2013 may affected acquisition independence bank national association “independence” fourth quarter 2013 results acquired operations independence included results operations portion 2013 compared full years 2014 2015 2016 initial public offering completed initial public offering 2990000 shares allegiances common stock 2100 per share october 7 2015 generating net proceeds 571 million periodoverperiod comparability certain aspects results operations changes financial condition december 31 2014 december 31 2016 affected issuance shares offering receipt net proceeds sale shares allegiances common stock particular periodoverperiod comparability earnings per share return equity also affected allegiances common stock began trading nasdaq global market october 8 2015 ticker symbol “abtx” critical accounting policies accounting policies integral understanding results operations accounting policies described detail note 1 included elsewhere annual consolidated financial statements believe accounting policies following policies may involve higher degree judgment complexity securities debt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component stockholders’ equity realized securities within available sale portfolio may used part assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost basis less otti recognized earnings becomes new amortized cost basis security loans held investment loans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonperforming past due loans placed nonaccrual status payment full principal interest expected upon principal interest default period 90 days unless asset well secured process collection decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts charged allowance loan types considered delinquent 30 days past due typically charged later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy events requiring chargeoffs occur shortfall identified recorded investment loan underlying value collateral allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired follow loan review program evaluate credit risk loan portfolio loans identified impaired reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry specific historical loan loss experience volume growth composition loan portfolio evaluation loan portfolio internal loan review process general current economic conditions internal external us may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates adjust allowance loan losses level determined management adequate estimates loan losses inherently subjective involve exercise judgment allowance loan losses dollars percentage total loans may comparable similar sized institutions due impact acquisition accounting part acquisition accounting acquired loans initially recognized fair value corresponding allowance loan losses initial fair value loans includes consideration expected credit losses loans terms modified borrower experiencing financial difficulties considered troubled debt restructurings therefore classified impaired subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby determine amount reserve accordance accounting policy impaired loans part allowance loan losses calculation loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral accounting acquired loans time acquisition evaluate loans determine purchased credit impaired loans purchased credit impaired loans acquired loans evidence credit deterioration probable acquisition would unable collect contractual payments make determination considering past due andor nonaccrual status prior designation troubled debt restructuring factors may suggest able collect contractual payments purchased credit impaired loans initially recorded fair value difference fair value estimated future cash flows accreted expected cash flow period income extent reasonably estimate timing amount future cash flows case loans would classified accruing event unable reasonably estimate timing amount future cash flows loan classified nonaccrual acquired loan previously classified seller troubled debt restructuring longer classified date acquisition past due status reported based contractual payment status purchased credit impaired loans generally de minimis comprised less 004 loan portfolio december 31 2016 historically purchased credit impaired loans placed nonaccrual status reported able reasonably estimate timing amount future expected cash flows income associated purchased credit impaired loans 2016 prior periods immaterial loans otherwise classified purchased credit impaired recorded fair value discount contractual value accreted life loan determining allowance loan losses acquired loans bifurcate allowance legacy loans acquired loans remain designated acquired either loan 1 renewed 2 substantially modified whereby modification results new loan determining allowance acquired loans company estimates principal losses compared company’s recorded investment recorded investment net unaccreted discounts acquisition december 31 2016 1938 million acquired loans renewed substantially modified net unaccreted discount 840 thousand 043 goodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable goodwill acquired purchase business combination determined indefinite useful life amortized tested impairment perform annual impairment test october 1st goodwill intangible asset indefinite life balance sheet emerging growth company pursuant jobs act emerging growth company elect opt new revised accounting standards may issued fasb sec otherwise applicable nonemerging growth companies elected opt standards election irrevocable likely take advantage reduced regulatory reporting requirements available us long qualify emerging growth company including limited required comply auditor attestation requirements section 404b sarbanesoxley act reduced disclosure obligations regarding executive compensation exemptions requirements holding nonbinding advisory votes executive compensation golden parachute payments recently issued accounting pronouncements evaluated new accounting pronouncements recently issued determined new accounting pronouncements described section impact company’s operations financial condition liquidity future periods refer note 1 company’s audited consolidated financial statements discussion recent accounting pronouncements adopted company require enhanced disclosures company’s financial statements future periods results operations net income attributable common stockholders 229 million 175 per diluted common share year ended december 31 2016 compared 152 million 143 per diluted common share year ended december 31 2015 increase net income attributable common stockholders 76 million 501 net income attributable common stockholders increased 62 million 691 year ended december 31 2015 compared 90 million 126 per diluted common share year ended december 31 2014 returns average common equity 836 743 773 returns average assets 098 081 075 efficiency ratios 6234 6527 6779 years ended december 31 2016 2015 2014 respectively efficiency ratio calculated dividing total noninterest expense sum net interest income plus noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches additionally taxes provision loan losses part efficiency ratio calculation net interest income year ended december 31 2016 compared year ended december 31 2015 net interest income provision loan losses year ended december 31 2016 899 million compared 802 million year ended december 31 2015 increase 97 million 121 increase net interest income primarily due increase average interestearning assets 3780 million 218 year ended december 31 2016 compared year ended december 31 2015 increase average interestearning assets year ended december 31 2016 compared year ended 2015 primarily due organic loan growth increase size securities portfolio interest income 1008 million year ended december 31 2016 increase 120 million 135 compared year ended december 31 2015 primarily due increase 79 million interest income fees loans year ended december 31 2016 compared period 2015 result increase average loans outstanding 2300 million period increase interest income years ended december 31 2016 2015 included acquisition accounting loan discount accretion 14 million 35 million respectively interest expense 109 million year ended december 31 2016 increase 23 million 263 compared year ended december 31 2015 increase primarily due increase average interestbearing liabilities 2723 million year ended december 31 2016 compared year ended december 31 2015 increase averagebearing liabilities primarily due increase average interestbearing deposits 1291 million increase average borrowed funds 1081 million year ended december 31 2016 entered 2000 million longterm fhlb borrowings second quarter 2016 october 2015 paid 275 million credit agreement portion proceeds initial public offering significant increase interestbearing deposits year ended december 31 2016 compared year ended december 31 2015 impacted increase average certificates time deposits 888 million 159 tax equivalent net interest margin defined net interest income adjusted taxfree income divided average interestearning assets year ended december 31 2016 437 decrease 31 basis points compared 468 year ended december 31 2015 decrease net interest margin tax equivalent basis primarily due increase securities percentage interestearnings assets increase funding costs certificates deposit borrowed funds tax equivalent adjustments net interest margin result increasing income taxfree securities amount equal taxes would paid income fully taxable based 35 federal tax rate thus making taxexempt yields comparable taxable asset yields impact net acquisition accounting adjustments 15 million 40 million tax equivalent net interest margin increase 7 basis points 24 basis points years ended december 31 2016 2015 respectively year ended december 31 2015 compared year ended december 31 2014 net interest income provision loan losses year ended december 31 2015 802 million compared 468 million year ended december 31 2014 increase 333 million 712 increase net interest income primarily due increase average interestearning assets 6452 million 592 year ended december 31 2015 compared year ended december 31 2014 increase average interestearning assets year ended december 31 2015 compared year ended 2014 primarily result acquisition fm bancshares completed january 1 2015 interest income 888 million year ended december 31 2015 increase 364 million compared year ended december 31 2014 primarily due increase 352 million interest income fees loans year ended december 31 2015 compared period 2014 result increase average loans outstanding 6081 million period increase interest income year ended december 31 2015 2014 included acquisition accounting loan discount accretion 35 million loan premium amortization 83 thousand respectively interest expense 86 million year ended december 31 2015 increase 31 million compared year ended december 31 2014 increase primarily due increase average interestbearing liabilities 4199 million year ended december 31 2015 compared year ended december 31 2014 increase averagebearing liabilities primarily due deposits acquired fm bancshares acquisition addition increase interestbearing liabilities impacted addition 180 million borrowed credit agreement another financial institution january 1 2015 repay debt acquired fm bancshares paid 275 million credit agreement october 2015 portion proceeds initial public offering additionally assumed 113 million junior subordinated debentures part acquisition fm bancshares january 1 2015 tax equivalent net interest margin year ended december 31 2015 468 increase 37 basis points compared 431 year ended december 31 2014 impact net acquisition accounting adjustments 40 million 432 thousand tax equivalent net interest margin increase 24 basis points 3 basis points years ended december 31 2015 2014 respectively following table presents periods indicated total dollar amount average balances interest income average interestearning assets annualized resultant yields well interest expense average interestbearing liabilities expressed dollars rates nonaccruing loans included table loans carrying zero yield 1 net interest margin equal net interest income divided average interestearning assets 2 order make pretax income resultant yields taxexempt investments loans comparable taxable investments loans taxequivalent adjustment computed using federal income tax rate 35 years ended december 31 2016 2015 2014 applicable effective tax rates 3 includes loans held sale following table presents information regarding dollar amount changes interest income interest expense periods indicated major component interestearning assets interestbearing liabilities distinguishes changes attributable changes volume changes interest rates purposes table changes attributable rate volume cannot segregated allocated rate provision loan losses allowance loan losses established charges income form provision order bring allowance loan losses level deemed appropriate management allowance loan losses december 31 2016 december 31 2015 179 million 131 million respectively representing 095 078 total loans dates acquired loans initially recorded fair value based discounted cash flow valuation methodology considers among things projected default rates losses given existing defaults recovery rates carryover allowance loan losses occurs loans acquired recorded 55 million provision loan losses year ended december 31 2016 compared 58 million year ended december 31 2015 provision loan losses year ended december 31 2015 58 million compared 22 million year ended december 31 2014 increase provision primarily due increase organic loan growth increase 347 thousand allowance impaired loans net chargeoffs 940 thousand year ended december 31 2015 noninterest income primary sources noninterest income service charges deposit accounts nonsufficient funds fees debit card atm card income noninterest income include loan origination fees recognized life related loan adjustment yield using interest method year ended december 31 2016 compared year ended december 31 2015 noninterest income totaled 73 million year ended december 31 2016 compared 40 million year ended december 31 2015 increase 33 million 821 increase primarily due 21 million gain 13 million aftertax sale two central texas branch locations completed first quarter 2016 year ended december 31 2015 compared year ended december 31 2014 noninterest income totaled 40 million year ended december 31 2015 compared 26 million year ended december 31 2014 increase 14 million 531 increase partially due increase transactional deposit accounts acquired acquisition fm bancshares increased service charge nonsufficient funds income gains sale two individual loans portfolio year additionally noninterest income year ended december 31 2015 increased compared year ended december 31 2014 due addition bank owned life insurance income purchased bank owned life insurance first quarter 2015 conjunction acquisition fm bancshares acquired life insurance policies following table presents periods indicated major categories noninterest income 1 includes wire transfer letter credit fees among items noninterest expense year ended december 31 2016 compared year ended december 31 2015 noninterest expense 593 million year ended december 31 2016 compared 548 million year ended december 31 2015 increase 45 million 81 increase primarily attributable increases salaries benefits professional fees related supporting growth initiatives year ended december 31 2015 compared year ended december 31 2014 noninterest expense 548 million year ended december 31 2015 compared 335 million year ended december 31 2014 increase 213 million 638 increase primarily attributable additional personnel facilities infrastructure result fm bancshares acquisition january 1 2015 following table presents periods indicated major categories noninterest expense 1 total salaries employee benefits includes 15 million 14 million 731 thousand stock based compensation expense years ended december 31 2016 2015 2014 respectively salaries employee benefits salaries benefits 389 million year ended december 31 2016 increase 35 million 100 compared year ended december 31 2015 increase primarily attributable additional incomeproducing employees hired support growth past year salaries benefits 353 million year ended december 31 2015 increase 151 million 751 compared year ended december 31 2014 increase primarily attributable increase total size workforce periods fulltime employees increased 305 employees december 31 2015 195 employees december 31 2014 increase result combination acquisition fm bancshares additional employees hired support growth year ended december 31 2015 additionally incurred severance expenses approximately 555 thousand related fm bancshares acquisition year ended december 31 2015 net occupancy equipment net occupancy equipment expenses increased 118 thousand 24 year ended december 31 2016 49 million compared 48 million year ended december 31 2015 net occupancy equipment expenses 48 million year ended december 31 2015 compared 33 million year ended december 31 2014 increase 15 million 455 year ended december 31 2015 compared year ended december 31 2014 primarily attributable cost retail branches acquired acquisition fm bancshares including utilities rent occupancy expenses data processing software amortization data processing software amortization decreased 411 thousand 135 year ended december 31 2016 compared year ended december 31 2015 data processing software amortization increased 14 million 836 year ended december 31 2015 compared year ended december 31 2014 increase primarily attributable additional hardware software expenses incurred part acquisition fm bancshares resulting increase transaction volume professional fees professional fees increased 563 thousand 337 year ended december 31 2016 22 million 17 million year ended december 31 2015 increase primarily attributable consulting fees incurred support growth initiatives year professional fees decreased 623 thousand 272 year ended december 31 2015 compared year ended december 31 2014 decrease primarily attributable expenses 2014 related conversion new accounting system completion conversion independence bank acquired 2013 decrease partially offset merger related expenses incurred complete conversion fm bancshares 2015 core deposit intangibles amortization core deposit intangibles amortization decreased 45 thousand 54 785 thousand year ended december 31 2016 compared year ended december 31 2015 core deposit intangibles amortized using straightline amortization method useful lives core deposit intangibles amortization increased 532 thousand 830 thousand year ended december 31 2015 compared year ended december 31 2014 increase attributable acquisition fm bancshares efficiency ratio efficiency ratio supplemental financial measure utilized management’s internal evaluation performance calculated based generally accepted accounting principles calculate efficiency ratio dividing total noninterest expense excluding loan loss provisions net interest income plus noninterest income excluding net gains losses sale loans securities assets including sale two acquired central texas branches additionally taxes provision loan losses part calculation increase efficiency ratio indicates resources utilized generate volume income decrease would indicate efficient allocation resources efficiency ratio 6234 year ended december 31 2016 compared 6527 year ended december 31 2015 efficiency ratio 6527 year ended december 31 2015 compared 6779 year ended december 31 2014 efficiency ratios 2015 2014 impacted mergerrelated expenses approximately 941 thousand 638 thousand respectively related fm bancshares acquisition completed 2015 independence acquisition completed 2013 monitor efficiency ratio comparison changes total assets loans believe maintaining reducing efficiency ratio periods growth 2015 2016 demonstrates scalability operating platform expect continue benefit scalable platform future periods continue monitor overhead expenses necessary support growth income taxes amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible expenses income tax expense increased 18 million 229 96 million year ended december 31 2016 compared 78 million period 2015 year ended december 31 2015 income tax expense 78 million compared 48 million year ended december 31 2014 increases income tax expense year primarily attributable higher pretax net income effective tax rates 295 330 349 years ended december 31 2016 2015 2014 respectively effective tax rate decreased year ended december 31 2016 compared period 2015 2014 due increase taxexempt income purchase additional municipal securities cashless exercises stock options employees quarterly financial information following table presents certain unaudited consolidated quarterly financial information regarding results operations quarters ended december 31 september 30 june 30 march 31 years ended december 31 2016 2015 information read conjunction consolidated financial statements fiscal years ended december 31 2016 2015 appearing elsewhere annual report form 10k 1 earnings per share computed independently quarters presented therefore may total earnings per share year financial condition loan portfolio december 31 2016 total loans 189 billion increase 2106 million 125 compared december 31 2015 primarily due organic growth loan portfolio total loans including loans held sale percentage deposits 1011 956 december 31 2016 december 31 2015 respectively capital positions 2016 2015 allowed us grow loan portfolio faster rate grew deposits total loans percentage assets 772 806 december 31 2016 december 31 2015 respectively lending activities originate efforts lenders emphasis lending small mediumsized businesses companies professionals individuals located houston metropolitan area following table summarizes loan portfolio type loan dates indicated 1 consists loans two former fm bancshares branch locations company acquired january 1 2015 december 31 2015 loans held sale consisted 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million l4 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value lending activities originate efforts bankers emphasis lending individuals professionals small mediumsized businesses commercial companies generally located houston metropolitan area strategy credit risk management generally includes welldefined centralized credit policies uniform underwriting criteria ongoing risk monitoring review processes credit exposures strategy generally emphasizes regular credit examinations management reviews loans certain lending policies procedures place designed maximize loan income within acceptable level risk maintain independent loan review department reviews validates credit risk program periodic basis addition independent thirdparty loan review performed annual basis results reviews presented management loan review process complements reinforces risk identification assessment decisions made lenders credit personnel contained policies procedures principal categories loan portfolio including loans held sale discussed commercial industrial make commercial loans market area underwritten basis borrower’s ability service debt income commercial industrial loan portfolio increased 205 million 52 4168 million december 31 2016 compared 3962 million december 31 2015 exposure oil gas oil gas related customers 37 total loan portfolio december 31 2016 defined customers prices oil gas significant operational financial impact loans carry overall allowance 24 december 31 2016 collateral loans includes industrial commercial real estate working capital assets machining equipment drilling equipment general industrial equipment vehicles airplanes ranch property insurance policies notes receivable hotel addition loans personally guaranteed owners borrower mortgage warehouse make loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated mortgage warehouse portfolio promissory notes originated mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times volumes tend peak end month mortgage warehouse portfolio increased 80 million 135 670 million december 31 2016 compared 591 million december 31 2015 commercial real estate including multifamily residential make loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate december 31 2016 december 31 2015 535 528 respectively commercial real estate loans owneroccupied commercial real estate loan portfolio increased 1348 million 178 8920 million december 31 2016 7572 million december 31 2015 included commercial real estate portfolio multifamily residential loans multifamily loans increased 125 million 309 529 million december 31 2016 404 million december 31 2015 81 multifamily loans average loan size 653 thousand december 31 2016 commercial real estate construction land development make commercial real estate construction land development loans fund commercial construction land acquisition real estate development construction commercial real estate construction land development land loans increased 46 million 30 1592 million december 31 2016 compared 1546 million december 31 2015 14 family residential including home equity residential real estate loans include origination 14 family residential mortgage loans including home equity home improvement loans home equity lines credit collateralized owneroccupied residential properties located market areas residential real estate portfolio including home equity increased 395 million 190 2470 million december 31 2016 2075 million december 31 2015 home equity portion residential real estate portfolio increased 58 million 253 287 million december 31 2016 229 million december 31 2015 increases primarily result increased lending activity due increase demand residential real estate growing houston metropolitan area residential construction make residential construction loans home builders individuals fund construction singlefamily residences understanding loans repaid proceeds sale homes builders proceeds mortgage loan loans secured real property built made based assessment value property ascompleted basis residential construction loans portfolio increased 48 million 51 987 million december 31 2016 938 million december 31 2015 consumer loan portfolio made loans made individuals personal purposes consumer loan portfolio decreased 16 million 127 110 million december 31 2016 126 million december 31 2015 contractual maturity ranges total loans loan portfolio amount loans predetermined interest rates maturity range amount loans predetermined fixed interest rates floating interest rates maturity range case date indicated summarized following tables concentrations credit vast majority lending activity occurs houston metropolitan area loans primarily secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans located houston metropolitan area december 31 2016 2015 2014 commercial real estate commercial construction loans represented 556 542 514 respectively total loans including loans held sale asset quality nonperforming loans procedures place assist us maintaining overall quality loan portfolio established underwriting guidelines followed officers monitor delinquency levels negative adverse trends 167 million 52 million 32 million nonperforming loans december 31 2016 2015 2014 respectively interest nonaccrual loans accrued original loan terms 892 thousand 404 thousand 187 thousand would recorded income years ended december 31 2016 2015 2014 respectively following table presents information regarding nonperforming assets dates indicated 1 restructured loans represent balance end respective period performing loans modified troubled debt restructuring already presented nonperforming loan potential problem loans consist loans performing accordance contractual terms management concerns ability obligor continue comply repayment terms obligor’s potential operating financial difficulties management monitors loans closely reviews performance regular basis potential problem loans contain potential weaknesses could improve persist deteriorate december 31 2016 2015 52 million 64 million respectively loans type included nonaccrual 90 days past due loan categories december 31 2016 potential problem loans consisted 11 credit relationships total outstanding balance december 31 2016 943 related 10 customers energy related industry 57 related one customer clothing industry weakness organizations’ operating performance financial condition borrowing base deficits certain energy related credits among factors caused us heighten attention given credits loans identified potential problem loans december 31 2016 graded substandard accruing loans potential problem loans impact allocation allowance loan losses result risk grade based allocation methodology see note 6 loans accompanying consolidated financial statements details regarding allowance allocation methodology nonperforming assets increased 132 million 185 million december 31 2016 53 million december 31 2015 nonaccrual loans consisted 62 separate credits december 31 2016 compared 31 separate credits december 31 2015 increase nonaccrual loans primarily due increase 99 million nonaccrual commercial real estate loans largely result 70 million increase nonaccrual energyrelated commercial real estate loans nonperforming assets 088 total loans december 31 2016 compared 031 december 31 2015 allowance loan losses allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance loans acquired fm bancshares recorded fair value without carryover fm bancshares allowance loan losses discount recognized acquired loans prospectively accreted increasing basis loans due acquisition accounting allowance loan losses total loans may comparable peers particularly relates allowance gross loan percentage allowance nonperforming loans recognizing acquired purchased credit impaired loans de minimis monitor credit quality trends postacquisition basis emphasis past due chargeoff classified loan nonperforming trends amount discount recorded company acquisition date fm bancshares acquisition 60 million 147 loans acquired remaining discount balance acquired loans december 31 2016 840 thousand 043 discount purchased loans considers anticipated credit losses portfolio therefore allowance credit losses established acquisition date unaccreted discount represents additional protection potential losses presented reduction recorded investment loans rather allowance loan losses continue look portfolio credit deterioration establish additional allowances remaining discount needed december 31 2016 allowance loan losses amounted 179 million 095 total loans compared 131 million 078 december 31 2015 excluding acquired loans december 31 2016 allowance would 105 total loans increase allowance 48 million year ended december 31 2016 compared year ended december 31 2015 primarily due increase required reserves associated organic loan growth increase potential problem loans increase 456 thousand allowance impaired loans net chargeoffs 656 thousand year 2016 believe allowance loan losses december 31 2016 adequate cover probable incurred losses loan portfolio date ratio net chargeoffs average loans outstanding decreased 004 year ended december 31 2016 006 december 31 2015 following table presents periods indicated analysis allowance loan losses related data connection review loan portfolio consider following risk elements attributable particular loan types categories assessing quality individual loans • commercial industrial loans operating results commercial industrial professional enterprise borrower’s business professional financial ability expertise specific risks volatility income operating results typical businesses category value nature marketability collateral • commercial real estate including multifamily residential loans debt service coverage ratio income property excess operating expenses compared loan payment requirements operating results owner case owneroccupied properties loan value ratio age condition collateral volatility income property value future operating results typical properties type • commercial real estate construction land development residential construction loans perceived feasibility project including ability sell developed lots improvements constructed resale ability lease property constructed lease quality nature contracts presale prelease experience ability developer loan value ratio • 14 family residential including home equity loans borrower’s ability repay loan including consideration debt income ratio employment income stability loan value ratio age condition marketability collateral • consumer loans individual borrower’s income current debt level past credit history value available collateral based review loan portfolio classify loans credit risk track risk ratings following general description risk ratings use • loans classified “watch” loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value • loans classified “special mention” potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan credit position future date characterized distinct possibility sustain loss deficiencies corrected • loans classified “substandard” welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans characterized distinct possibility sustain loss deficiencies corrected • loans classified “doubtful” weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually considered pass rated loans see item 7 “ management’s discussion analysis financial condition results operationscritical accounting policiesallowance loan losses” additional information regarding estimate evaluate credit risk loan portfolio following table shows allocation allowance loan losses among loan categories certain information dates indicated allocation made analytical purposes necessarily indicative categories future losses may occur total allowance available absorb losses loan category available sale securities use securities portfolio provide source liquidity provide appropriate return funds invested manage interest rate risk meet pledging requirements meet regulatory capital requirements december 31 2016 carrying amount investment securities totaled 3165 million increase 1514 million 917 compared 1651 million december 31 2015 securities represented 129 79 total assets december 31 2016 2015 respectively securities portfolio classified available sale securities classified available sale measured fair value financial statements unrealized gains losses reported net tax accumulated comprehensive income loss realized interest earned securities included interest income following table summarizes amortized cost fair value securities portfolio dates shown certain investment securities valued less historical cost management evaluates securities otti least quarterly basis frequently economic market conditions warrant evaluation see item 7 “management’s discussion analysis financial condition results operationcritical accounting policiessecurities” additional information regarding management evaluates securities otti december 31 2016 expect sell securities classified available sale material unrealized losses management believes likely required sell securities anticipated recovery time receive full value securities unrealized losses largely due increases market interest rates yields available time underlying securities purchased management believe securities impaired due reasons credit quality fair value expected recover securities approach maturity date repricing date market yields investments decline accordingly december 31 2016 management believes impairment securities temporary impairment loss realized consolidated statements income following table summarizes contractual maturity securities weighted average yields dates indicated contractual maturity mortgagebacked security date last underlying mortgage matures available sale securities shown amortized cost purposes table municipal securities calculated tax equivalent basis contractual maturity mortgagebacked securities collateralized mortgage obligations reliable indicator expected life borrowers generally right prepay obligations mortgagebacked securities collateralized mortgage obligations typically issued stated principal amounts backed pools mortgage loans varying maturities term underlying mortgages loans may vary significantly due ability borrower prepay particular monthly pay downs mortgagebacked securities tend cause average life securities much different stated contractual maturity period increasing interest rates fixed rate mortgagebacked securities tend experience heavy prepayments principal consequently average life security lengthened interest rates begin fall prepayments may increase thereby shortening estimated life security december 31 2016 2015 securities one issuer us government agencies sponsored entities aggregate adjusted cost exceeded 10 consolidated stockholders’ equity average yield securities portfolio 253 year ended december 31 2016 compared 229 year ended december 31 2015 increase average yield 2016 compared 2015 primarily due increased investment longerterm securities investment higheryielding securities replaced loweryielding securities matured called prepaid goodwill core deposit intangibles goodwill december 31 2016 2015 394 million goodwill resulting business combinations represents excess consideration paid fair value net assets acquired goodwill assessed annually impairment events changes circumstances indicate carrying amount asset may recoverable core deposit intangibles net december 31 2016 2015 41 million 52 million respectively core deposit intangibles amortized using straightline amortization method estimated useful life seven nine years deposits lending investing activities primarily funded deposits offer variety deposit accounts wide range interest rates terms including demand savings money market certificates time accounts rely primarily convenient locations personalized service customer relationships attract retain deposits seek customers engage lending deposit relationship us total deposits december 31 2016 187 billion increase 1111 million 63 compared 176 billion december 31 2015 deposit growth experienced largely result growth customer lending base many also established deposit relationship us noninterestbearing deposits december 31 2016 5938 million decrease 266 million 43 compared 6203 million december 31 2015 interestbearing deposits december 31 2016 13 billion increase 1376 million 121 compared 114 billion december 31 2015 total deposits december 31 2015 176 billion increase 6254 million 552 compared 113 billion december 31 2014 noninterestbearing deposits december 31 2015 6203 million increase 2465 million 660 compared 3738 million december 31 2014 interestbearing deposits december 31 2015 111 billion increase 3789 million 499 compared 7599 million december 31 2014 increase deposits primarily due deposits acquired fm bancshares acquisition following table presents daily average balances weighted average rates paid deposits periods indicated ratio average noninterestbearing deposits average total deposits 338 years ended december 31 2016 2015 309 year ended december 31 2014 following table sets forth amount certificates deposit 100 thousand greater time remaining maturity borrowings available line credit fhlb dallas allows us borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2016 company total borrowing capacity 6831 million 3627 million available agreement 3204 million outstanding shortterm fhlb advances 850 million outstanding december 31 2016 weighted average rate 055 longterm fhlb borrowings 2000 million outstanding december 31 2016 weighted average rate 056 letters credit 354 million december 31 2016 30 million expired february 2017 73 million expire august 2017 250 million expire october 2017 december 22 2014 connection acquisition fm bancshares entered credit agreement another financial institution pursuant credit agreement borrowed approximately 101 million december 2014 pay prior indebtedness january 2015 borrowed additional 180 million credit agreement repay debt fm bancshares owed october 2015 paid 275 million credit agreement using portion proceeds initial public offering december 31 2016 2015 569 thousand indebtedness owed credit agreement 101 million december 31 2014 credit agreement borrowing revolving credit agreement matures december 2021 interest accrues borrowed funds prime rate minus 25 basis points equated approximately 350 december 31 2016 interest payments due quarterly credit agreement secured 100 capital stock bank maximum commitment advance funds credit agreement originally 300 million continue reduced 4285 million december 22nd required repay outstanding balance excess thencurrent maximum commitment amount credit agreement contains certain restrictive covenants including limitations ability incur additional indebtedness engage certain fundamental corporate transactions mergers reorganizations recapitalizations additionally bank required maintain “wellcapitalized” rating minimum return assets 065 measured quarterly ratio loan loss reserve nonperforming loans equal greater 75 measured quarterly ratio nonperforming assets aggregate equity plus loan loss reserves minus intangible assets less 35 measured quarterly december 31 2016 believe compliance debt covenants lender delivered notice noncompliance terms credit documents junior subordinated debentures connection fm bancshares acquisition assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 92 million december 31 2016 acquisition recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures see note 11 audited consolidated financial statements included elsewhere annual report form 10k contractual obligations following tables summarize contractual obligations commitments make future payments december 31 2016 2015 deposit obligations consist future cash payments associated contractual obligations pursuant noncancelable operating leases indebtedness owed another financial institution payments related leases based actual payments specified underlying contracts offbalance sheet items normal course business enter various transactions accordance gaap included consolidated balance sheets enter transactions meet financing needs customers transactions include commitments extend credit standby letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets commitments associated outstanding standby letters credit commitments extend credit expiring period summarized december 31 2016 since commitments associated letters credit commitments extend credit may expire unused amounts shown necessarily reflect actual future cash funding requirements commitments extend credit enter contractual commitments extend credit normally fixed expiration dates termination clauses specified rates specific purposes substantially commitments extend credit contingent upon customers maintaining specific credit standards time loan funding minimize exposure loss commitments subjecting credit approval monitoring procedures amount type collateral obtained considered necessary us upon extension credit based management’s credit evaluation customer management assesses credit risk associated certain commitments extend credit determining level allowance loan losses standby letters credit standby letters credit conditional commitments issued us guarantee performance customer third party customer perform accordance terms agreement third party would required fund commitment would rights underlying collateral maximum potential amount future payments could required make represented contractual amount commitment policies generally require standby letter credit arrangements contain security debt covenants similar contained loan agreements liquidity capital resources liquidity measure ability meet cash flow requirements depositors borrowers time meeting operating capital strategic cash flow needs maintain reserve requirements operate ongoing basis manage unexpected events reasonable cost years ended december 31 2016 2015 2014 liquidity needs met core deposits security loan maturities amortizing investment loan portfolios bank access purchased funds correspondent banks advances fhlb available security pledge agreement take advantage investment opportunities average assets totaled 234 billion 194 billion 119 billion years ended december 31 2016 2015 2014 respectively following table illustrates periods presented mix funding sources average assets funds invested percentage average total assets period indicated largest source funds deposits largest use funds loans average loans increased 2300 million 151 year ended december 31 2016 compared year ended december 31 2015 predominantly invest excess deposits federal reserve bank dallas balances securities interestbearing deposits banks shortterm liquid investments funds needed fund loan growth securities portfolio weighted average life 67 years modified duration 58 years december 31 2016 weighted average life 70 years modified duration 60 years december 31 2015 december 31 2016 december 31 2015 outstanding 5864 million 4749 million respectively commitments extend credit 95 million years commitments associated outstanding standby letters credit since commitments associated letters credit commitments extend credit may expire unused total outstanding may necessarily reflect actual future cash funding requirements december 31 2016 2015 2014 exposure future cash requirements associated known uncertainties capital expenditures material nature december 31 2016 cash equivalents 1421 million compared 1484 million december 31 2015 decrease 63 million decrease cash equivalents primarily due purchase securities 273 billion increase total loans 2293 million paydowns shortterm borrowings 200 million partially offset proceeds maturities paydowns securities 257 billion proceeds longterm borrowings 2000 million proceeds shortterm borrowings 550 million fhlb capital resources capital management consists providing equity support current future operations subject capital adequacy requirements imposed federal reserve bank subject capital adequacy requirements imposed fdic federal reserve fdic adopted riskbased capital requirements assessing bank holding companies bank capital adequacy standards define capital establish minimum capital requirements relation assets offbalance sheet exposure adjusted credit risk riskbased capital standards currently effect designed make regulatory capital requirements sensitive differences risk profiles among bank holding companies banks account offbalance sheet exposure minimize disincentives holding liquid assets offbalance sheet items assigned broad risk categories appropriate relative risk weights resulting capital ratios represent capital percentage total riskweighted assets offbalance sheet items current guidelines minimum ratio total capital riskweighted assets primarily credit risk equivalents balance sheet assets certain offbalance sheet items standby letters credit 80 least half total capital must composed tier 1 capital includes common stockholders’ equity including retained earnings less goodwill disallowed intangibles disallowed deferred tax assets among items federal reserve also adopted minimum leverage ratio requiring tier 1 capital least 40 average quarterly total consolidated assets net goodwill certain intangible assets highly rated bank holding companies federal banking agencies also established riskbased leverage capital guidelines fdicinsured depository institutions required meet regulations generally similar established federal reserve bank holding companies federal deposit insurance act federal bank regulatory agencies must take “prompt corrective action” undercapitalized us depository institutions us depository institutions assigned one five capital categories “well capitalized” “adequately capitalized” “undercapitalized” “significantly undercapitalized” “critically undercapitalized” subjected different regulation corresponding capital category within institution falls depository institution deemed “well capitalized” banking institution total riskbased capital ratio 100 greater tier 1 riskbased capital ratio 80 greater common equity tier 1 capital ratio 65 leverage ratio 50 greater institution subject order written agreement capital directive prompt corrective action directive meet maintain specific level capital measure certain circumstances wellcapitalized adequately capitalized undercapitalized institution may treated institution next lower capital category failure meet capital guidelines could subject institution variety enforcement remedies federal bank regulatory agencies including termination deposit insurance fdic restrictions certain business activities appointment fdic conservator receiver december 31 2016 2015 2014 bank wellcapitalized following table provides comparison company’s bank’s leverage riskweighted capital ratios december 31 2016 minimum wellcapitalized regulatory standards total stockholder’s equity 2798 million december 31 2016 compared 2585 million december 31 2015 increase 213 million 83 increase primarily due net income 229 million year ended december 31 2016 assetliability management interest rate risk asset liability interest rate risk policy provides management guidelines effective balance sheet management established measurement system monitoring net interest rate sensitivity position manage sensitivity position within established guidelines financial institution component market risk face interest rate volatility fluctuations interest rates ultimately impact level income expense recorded assets liabilities market value interestearning assets interestbearing liabilities short term maturity interest rate risk potential economic losses due future interest rate changes economic losses reflected loss future net interest income andor loss current fair market values objective measure effect net interest income adjust balance sheet minimize inherent risk time maximizing income entered instruments leveraged derivatives interest rate swaps financial options financial future contracts forward delivery contracts purpose reducing interest rate risk based upon nature operations subject foreign exchange rate commodity price risk trading assets manage exposure interest rates structuring balance sheet ordinary course community banking business exposure interest rate risk managed asset liability committee “alco” composed certain members board directors bank management accordance policies approved board directors alco formulates strategies based appropriate levels interest rate risk determining appropriate level interest rate risk alco considers impact earnings capital current outlook interest rates potential changes interest rates regional economies liquidity business strategies factors alco meets regularly review among things sensitivity assets liabilities interest rate changes book market values assets liabilities unrealized gains losses purchase sale activities commitments originate loans maturities investments borrowings additionally alco reviews liquidity cash flow flexibility maturities deposits consumer commercial deposit activity use interest rate risk simulation model shock analysis test interest rate sensitivity net interest income balance sheet respectively instruments balance sheet modeled instrument level incorporating relevant attributes next reset date reset frequency call dates well prepayment assumptions loans securities decay rates nonmaturity deposits assumptions based past experience incorporated model nonmaturity deposit account decay rates assumptions used inherently uncertain result model cannot precisely measure future net interest income precisely predict impact fluctuations market interest rates net interest income actual results differ model’s simulated results due timing magnitude frequency interest rate changes well changes market conditions application timing various management strategies utilize static balance sheet rate shocks estimate potential impact net interest income changes interest rates various rate scenarios analysis estimates percentage change metric stable rate base scenario versus alternative scenarios rising falling market interest rates instantaneously shocking static balance sheet following table summarizes simulated change net interest income economic value equity 12month horizon dates indicated results primarily due duration loan securities portfolio expected behavior demand money market savings deposits rate fluctuations 2016 overall duration combined loan securities portfolios increased fhlb borrowings represented larger proportion funding mix year end gaap reconciliation management’s explanation nongaap financial measures identify certain financial measures discussed annual report form 10k “nongaap financial measures” accordance sec’s rules classify financial measure nongaap financial measure financial measure excludes includes amounts subject adjustments effect excluding including amounts included excluded case may directly comparable measure calculated presented accordance generally accepted accounting principles effect time united states statements income balance sheet statements cash flows nongaap financial measures include operating statistical measures ratios statistical measures calculated using exclusively either financial measures calculated accordance gaap operating measures nongaap financial measures nongaap financial measures discuss annual report form 10k considered isolation substitute directly comparable financial measures calculated accordance gaap moreover manner calculate nongaap financial measures discuss annual report form 10k may differ companies reporting measures similar names understand banking organizations calculate financial measures similar names similar nongaap financial measures discussed annual report form 10k comparing nongaap financial measures management uses nongaap financial measures analysis performance • “tangible stockholders’ equity” stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization • “tangible book value per share” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible book value per share defined total stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided total shares outstanding measure important investors interested changes period book value per share exclusive changes intangible assets tangible book value per share directly comparable financial measure calculated accordance gaap book value per share • “tangible equity tangible assets” nongaap measure generally used financial analysts investment bankers evaluate financial institutions tangible equity tangible assets defined total stockholders’ equity reduced goodwill core deposit intangibles net accumulated amortization divided tangible assets total assets reduced goodwill core deposit intangibles net accumulated amortization measure important investors interested changes period equity total assets exclusive changes intangible assets tangible equity tangible assets directly comparable financial measure calculated accordance gaap total stockholders’ equity total assets goodwill intangible assets effect increasing total stockholders’ equity assets increasing tangible common equity tangible assets believe nongaap financial measures provide useful information management investors supplementary financial condition results operations cash flows computed accordance gaap however acknowledge nongaap financial measures number limitations view disclosures substitute results determined accordance gaap necessarily comparable nongaap financial measures companies use following reconciliation tables provide detailed analysis nongaap financial measures 1 include 1711 11426 8366 shares treasury stock december 31 2015 2013 2012 respectively shares treasury stock outstanding december 31 2016 2014 2 result system conversions unable calculate daily average balances 2012 periods average loans securities deposits financial institutions assets equity calculated averaging ending balance prior month ending balance current month multiplying average number days current month twelve resulting products added together resulting sum divided number days year item 7a item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 7a quantitative qualitative disclosures market risk information regarding market risk company’s financial instruments see item 7 “management’s discussion analysis financial condition results operationfinancial conditionassetliability management interest rate risk” principal market risk exposure changes interest rates item 8 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 72 annual report form 10k item 9 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 71 annual report form 10k item 9 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 73 annual report form 10k item 9 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 72 annual report form 10k item 9 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 72 annual report form 10k item 9 item 8 financial statements supplementary data financial statements reports thereon notes thereto supplementary data commence page 71 annual report form 10k item 9 item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 72 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2017 2016 consolidated statements income years ended december 31 2017 2016 2015 consolidated statements comprehensive income years ended december 31 2017 2016 2015 consolidated statements changes shareholders’ equity years ended december 31 2017 2016 2015 consolidated statements cash flows years ended december 31 2017 2016 2015 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibits item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 9 2018 allegiance bancshares inc george martinez george martinez chairman chief executive officer pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm shareholders board directors allegiance bancshares inc houston texas opinion financial statements audited accompanying consolidated balance sheets allegiance bancshares inc company december 31 2017 2016 related consolidated statements income comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2017 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting accordance standards pcaob part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion accordance standards pcaob audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion crowe horwath llp served companys auditor since 2014 dallas texas march 9 2018 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes shareholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation us generally accepted accounting principles “gaap” company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 16 offices one loan production office houston texas surrounding region year ended december 31 2017 bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity gaap requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates initial public offering ipo october 2015 allegiance completed initial public offering common stock connection allegiances initial public offering allegiance issued sold 2990000 shares common stock 21 per share resulting total proceeds received allegiance net offering costs 571 million cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component shareholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost bases less otti recognized earnings shall become new amortized cost basis security loans held saleloans held sale carried lower aggregate cost fair value 2015 company purchased fm bancshares inc december 31 2015 loans held sale consisted loans two former fm bancshares branches central texas sale january 31 2016 company completed sale two branches loans held investmentloans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets allegiance bancshares inc notes consolidated financial statements commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonrefundable fees costs associated lending activities loan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company confirms loss loan troubled debt restructurings tdrsloans terms modified resulting concession granted borrower’s financial difficulty considered troubled debt restructurings classified impaired restructuring loan considered troubled debt restructuring 1 borrower experiencing financial difficulties 2 creditor granted concession would otherwise consider concessions may include reductions interest rates market interest rate extension terms debt principal forgiveness restructuring payment debt obligation actions intended minimize potential losses subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby loans measured present value estimated future cash flows using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral impaired loanson continuous basis loans evaluated impairment classification loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed allowance loan lossesthe allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs allegiance bancshares inc notes consolidated financial statements loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired company follows loan review program evaluate credit risk loan portfolio loans identified impaired generally reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry company specific historical loan loss experience volume growth composition loan portfolio evaluation company’s loan portfolio internal loan review process general current economic conditions internal external company may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates allowance loan losses adjusted level determined adequate estimates loan losses inherently subjective involves exercise judgment management allowance loan losses reflected consolidated balance sheets adequate absorb probable losses exist loan portfolio reporting date troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses company assesses exposure modification either collateral discounting calculation present value future cash flows determines specific allocation allowance loan losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full company returns troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2017 365 thousand balance real estate owned secured commercial real estate property formal foreclosure process federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insuranceduring 2015 company purchased bank owned life insurance policies certain key executives acquired life insurance policies conjunction acquisition fm bancshares bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill determined indefinite useful life amortized tested impairment least annually frequently events circumstances exists indicate goodwill impairment test performed company allegiance bancshares inc notes consolidated financial statements performs annual impairment test october 1 goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven nine years borrowed fundsthe company credit agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement awards graded vesting compensation cost recognized straightline basis requisite service period entire award fair value stock options granted employee stock purchase plan awards estimated date grant using blackscholes optionpricing model market price company’s common stock date grant used value restricted stock awards employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accounts income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income shareholders’ equity earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options restricted stock awards employee stock purchase plan allegiance bancshares inc notes consolidated financial statements loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders addition allegiances credit agreement another financial institution also limits ability pay dividends new accounting standards adoption new accounting standards january 1 2016 company adopted asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” asu 201609 excess tax benefits tax deficiencies related sharebased payment awards recognized income tax expense benefit income statement period occur previously amounts recorded pool excess tax benefits included additional paidin capital pool available excess tax benefits longer recognized additional paidin capital assumed proceeds applying treasury stock method computing earnings per share exclude amount excess tax benefits would previously recognized additional paidin capital additionally excess tax benefits classified along income tax cash flows operating activity rather financing activity previously case asu 201609 also provides entity make entitywide accounting policy election either estimate number awards expected vest current gaap account forfeitures occur asu 201609 changes threshold qualify equity classification rather liability permit withholding maximum statutory tax rates rather minimum previously case applicable jurisdictions company elected adopt provisions asu 201609 2016 advance required application date january 1 2017 without significant impact financial statements newly issued yet effective accounting standards asu 201409 “revenue contracts customers topic 606” asu 201409 supersedes revenue recognition requirements revenue recognition topic 605 industryspecific guidance throughout industry topics codification core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new standard effective company january 1 2018 management completed analysis impact standard’s adoption asu significant impact company’s consolidated financial statements related disclosures company’s primary sources revenue derived interest dividends earned loans investment securities financial instruments within scope asu 201409 company’s revenue recognition pattern revenue streams within scope asu 201409 including limited service charges deposit accounts gainslosses sale oreo change significantly current practice standard permits use either full retrospective modified retrospective transition method company elected use modified retrospective transition method requires application asu 201409 uncompleted contracts date adoption however periods prior date adoption retrospectively revised impact asu uncompleted contracts date adoption material asu 201601 financial instruments overall subtopic 82510 recognition financial assets financial liabilities asu 201601 makes targeted amendments fair value measurement disclosure guidance asu 201601 requires equity investments equity method investments measured fair value changes fair value recognized net income change applied readily determinable fair value obtained update also requires use exit prices measure fair value disclosure purposes well enhanced disclosure requirements asu 201601 effective company january 1 2018 expected significant impact financial statements related disclosures asu 201602 “leases topic 842 asu 201602 among things require lessees recognize lease liability lessee’s obligation make lease payments arising lease measured discounted basis rightofuse asset represents lessee’s right use control use specified asset lease term asu 201602 significantly change lease accounting requirements applicable lessors however certain changes made align necessary lessor accounting lessee accounting model asc topic 606 “revenue contracts customers” asu 201602 effective company january 1 2019 require transition using modified retrospective approach leases existing entered beginning earliest comparative period presented financial statements early allegiance bancshares inc notes consolidated financial statements application asu permitted entities adoption asu 201602 expected material impact company’s financial statements company leases certain properties equipment operating leases result recognition lease assets lease liabilities company’s balance sheet asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” among things asu 201613 requires measurement expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better form credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses addition asu 201613 amends accounting credit losses available sale debt securities purchased financial assets credit deterioration asu 201613 effective company january 1 2020 must applied using modified retrospective approach limited exceptions early adoption permitted fiscal years interim periods within years beginning december 15 2018 company currently unable reasonably estimate impact adopting asu 201613 company expects impact adoption significantly influenced composition characteristics quality loan securities portfolios well prevailing economic conditions forecasts adoption date asu 201615 “statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides guidance related certain cash flow issues order reduce current potential future diversity practice among things update clarifies appropriate classification proceeds settlement bank owned life insurance boli policies based preliminary assessments company expects change classification proceeds settlement boli policies operating activities investing activities changes classification resulting update expected significant asu 201615 effective company january 1 2018 expected significant impact companys financial statements asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu 201704 eliminates step 2 goodwill impairment test required entities compute implied fair value goodwill asu 201704 entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting unit’s fair value however loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective company january 1 2020 earlier adoption permitted expected significant impact companys financial statements asu 201708“receivables nonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities” asu 201708 shortens amortization period certain callable debt securities held premium require premiums amortized earliest call date unless applicable guidance related certain pools securities applied consider estimated prepayments prior guidance entities generally required amortize premiums individual nonpooled callable debt securities yield adjustment contractual life security asu 201708 change accounting callable debt securities held discount asu 201708 effective company january 1 2019 early adoption permitted company currently evaluating potential impact asu 201708 financial statements asu 201709 “compensation stock compensation topic 718 scope modification accounting” asu 201709 clarifies changes terms conditions sharebased payment award must accounted modifications asu 201709 entity apply modification accounting sharebased payment award following immediately change awards fair value ii awards vesting conditions iii awards classification equity liability instrument asu 201709 effective company january 1 2018 expected significant impact financial statements asu 201802 “income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income” asu 201802 amends asc 220 income statement reporting comprehensive income allow reclassification accumulated comprehensive income retained earnings stranded tax effects resulting tax cuts jobs act asu 201802 effective january 1 2019 early adoption permitted company plans early adopt recognize decrease retained earnings 72 thousand due reclassification january 1 2018 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets allegiance bancshares inc notes consolidated financial statements recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier 1 twelve months date acquisition 2 soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisitions completed dates indicated 2015 acquisition fm bancshares incon january 1 2015 company completed acquisition fm bancshares inc “fm bancshares” whollyowned subsidiary enterprise bank “enterprise” headquartered houston texas enterprise operated nine banking locations seven houston texas two central texas two central texas locations related assets classified within loans held sale branch assets held sale december 31 2015 first quarter 2015 company consolidated two seven acquired houston area locations due close proximity locations existing banking locations company acquired fm bancshares expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network goodwill expected deductible tax purposes pursuant merger agreement company issued 2338520 shares allegiance common stock outstanding shares fm bancshares capital stock paid 642 thousand cash fractional state shares held fm bancshares shareholders company recognized goodwill 282 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes fm bancshares’ results operations included company’s results beginning january 1 2015 year ended december 31 2015 net interest income associated fm bancshares 171 million company track separately noninterest income noninterest expense fm bancshares branches december 31 2015 company finalized valuation assets liabilities acquired resulting changes preliminary acquisition accounting adjustments summary final purchase price allocation follows dollars thousands subsequent acquisition company paid 180 million funds borrowed fm bancshares shareholders drawing credit agreement another financial institution additionally securities acquired fm bancshares sold subsequent acquisition income statement impact allegiance bancshares inc notes consolidated financial statements additionally july 15 2015 company redeemed outstanding shares series b preferred stock aggregate redemption price 117 million sum liquidation amount plus accrued unpaid dividends excluding redemption date company issued shares series b preferred stock connection fm bancshares acquisition preferred stock pursuant us treasury’s troubled asset relief program fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired january 1 2015 following table presents unaudited pro forma financial information acquisition occurred beginning 2014 pro forma financial information necessarily indicative results operations would occurred transactions effected assumed dates determine pro forma information company adjusted year ended december 31 2015 2014 historical results include historical results fm bancshares year ended december 31 2014 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects company incurred approximately 941 thousand 245 thousand pretax merger related expenses years ended december 31 2015 2014 respectively related fm bancshares acquisition merger expenses reflected company’s income statement applicable periods reported primarily categories salaries benefits professional fees excluded calculation pro forma income december 31 2015 company held two central texas locations related assets sale assets held sale locations included loans related accrued interest receivable loans premises equipment loans presented loans held sale balance sheet branch assets held sale reported balance sheet include accrued interest receivable premises equipment two respective locations company completed sale two central texas banking locations january 2016 gain 21 million 13 million aftertax allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangibles changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date company performed annual impairment test october 1 2017 determined impairment necessary estimated aggregate future amortization expense core deposit intangibles remaining december 31 2017 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances “cash due banks” consolidated balance sheets included restricted amount 503 million december 31 2015 bank required maintain reserve balances december 31 2016 2017 5 securities amortized cost fair value investment securities follows allegiance bancshares inc notes consolidated financial statements december 31 2017 companys management expect sell securities classified available sale material unrealized losses company believes likely required sell securities anticipated recovery time company receive full value securities fair value expected recover securities approach maturity date repricing date market yields investments decline management believe securities impaired due reasons credit quality accordingly december 31 2017 management believes unrealized losses previous table temporary impairment loss realized company’s consolidated statements income amortized cost fair value investment securities december 31 2017 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties securities unrealized losses segregated length time securities continuous loss position follows allegiance bancshares inc notes consolidated financial statements realized losses securities portfolio company believes securities temporarily impaired due changes market interest rates majority securities unrealized loss position related companys municipal securities 2017 company sold 391 million securities recorded net gain sales 18 thousand company sold 25 million securities 2016 recorded gain sale 30 thousand company sold 22 million securities 2015 recorded loss sale 37 thousand first quarter 2015 company sold securities acquired fm bancshares transaction resulting gross proceeds approximately 150 million gains losses recognized december 31 2017 2016 company securities one issuer us government agencies amount greater 10 consolidated shareholders’ equity respective dates carrying value pledged securities 50 million 49 million december 31 2017 2016 respectively securities pledged collateralize letters credit issued bank confirmed another financial institution allegiance bancshares inc notes consolidated financial statements 6 loans allowance loan losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows 1 mortgage warehouse loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated company’s mortgage warehouse portfolio promissory notes originated company’s mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed annual basis commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans dependent large part sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties generally involve less risk represented 514 outstanding principal balance company’s commercial real estate loans december 31 2017 company dependent cash flows allegiance bancshares inc notes consolidated financial statements business occupying property owners requires loans secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate floating interest rates company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often involves disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan company forced foreclose project prior completion assurance company able recover unpaid portion loan addition company may required fund additional amounts complete project may hold property indeterminate period time iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 20 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral terms loans typically range 12 60 months vary based upon nature collateral size loan generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans related party loans december 31 2017 2016 loans outstanding directors officers affiliates totaled 44 million 39 million respectively analysis activity respect relatedparty loans follows allegiance bancshares inc notes consolidated financial statements nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans follows interest nonaccrual loans accrued original loan terms approximately 733 thousand 892 thousand would recorded income years ended december 31 2017 2016 respectively allegiance bancshares inc notes consolidated financial statements impaired loans impaired loans class loans set forth following tables allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements following table presents average recorded investment impaired loans interest recognized impaired loans average recorded investment impaired loans year ended december 31 2015 121 million interest income recognized year ended december 31 2015 693 thousand credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt including factors current financial information historical payment experience credit documentation public information current economic trends company analyzes loans individually classifying loans credit risk part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks risk ratings used credit quality indicators following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans allegiance bancshares inc notes consolidated financial statements based recent analysis performed risk category loans class loan december 31 2017 follows following table presents risk category loans class loan december 31 2016 allowance loan losses december 31 2017 allowance loan losses totaled 236 million 104 total loans december 31 2016 allowance totaled 179 million 095 total loans allegiance bancshares inc notes consolidated financial statements following table presents activity allowance loan losses portfolio type years ended december 31 2017 2016 2015 allegiance bancshares inc notes consolidated financial statements following table presents balance allowance loan losses portfolio type based impairment method december 31 2017 2016 following table presents recorded investment loans held investment portfolio type based impairment method december 31 2017 2016 troubled debt restructurings december 31 2017 2016 company recorded investment troubled debt restructurings 256 million 126 million respectively company allocated 22 million 879 thousand specific reserves loans december 31 2017 2016 respectively commit lend additional amounts loans allegiance bancshares inc notes consolidated financial statements following table presents information regarding loans modified troubled debt restructuring years ended december 31 2017 2016 2015 troubled debt restructurings resulted chargeoffs 136 thousand 211 thousand 45 thousand years ended december 31 2017 2016 2015 respectively december 31 2017 defaults loans modified troubled debt restructurings preceding 12 months default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans commitments lend additional amounts years 2017 2016 year ended december 31 2017 company added 145 million new troubled debt restructurings 142 million still outstanding december 31 2017 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy • level 1quoted prices identical assets liabilities active markets entity ability access measurement date • level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data • level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity allegiance bancshares inc notes consolidated financial statements carrying amounts estimated fair values financial instruments reported balance sheet follows fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis loans held investmentthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows based interest rates currently offered allegiance bancshares inc notes consolidated financial statements loans similar terms borrowers similar credit quality resulting level 3 classification methods utilized estimate fair value loans necessarily represent exit price federal home loan bank stockthe fair value fhlb stock estimated equal carrying amount practical determine fair value fhlb stock due restrictions placed transferability depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification accrued interestthe carrying amounts accrued interest approximate fair values resulting level 2 3 classification borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs subordinated debenturesthe fair value subordinated debentures estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material following tables present fair values assets measured fair value recurring basis liabilities measured fair value recurring basis december 31 2017 2016 transfers levels 2017 2016 allegiance bancshares inc notes consolidated financial statements certain assets liabilities measured fair value nonrecurring basis instruments measured fair value ongoing basis subject fair value adjustments certain circumstances evidence impairment historically measure fair value certain loans real estate owned nonrecurring basis described impaired loans specific allocation allowance impaired loans company measured fair value generally based fair value loan’s collateral loan considered impaired based current information events probable company unable collect amounts due pursuant contractual terms loan agreement impairment measured estimating fair value loan based present value expected cash flows market price loan underlying fair value loan’s collateral real estate loans fair value impaired loan’s collateral determined third party appraisals adjusted estimated selling closing costs related liquidation collateral asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value nonreal estate loans fair value impaired loan’s collateral may determined using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge customer customers business years ended december 31 2017 2016 certain impaired loans reevaluated reported fair value specific allocation allowance loan losses december 31 2017 total reported fair value impaired loans 115 million based collateral valuations utilizing level 3 valuation inputs carrying value 138 million reduced specific allowance allocations totaling 24 million december 31 2016 total reported fair value impaired loans 23 million based collateral valuations utilizing level 3 valuation inputs carrying value 39 million reduced specific allowance allocations totaling 17 million real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable marketplace asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods allegiance bancshares inc notes consolidated financial statements predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value december 31 2017 balance real estate owned consisted 365 thousand foreclosed commercial real estate property recorded result obtaining physical possession property december 31 2017 formal foreclosure process real estate owned company 15 million real estate owned december 31 2016 8 premises equipment premises equipment summarized follows depreciation expense 16 million years ended december 31 2017 2016 2015 respectively 9 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2017 december 31 2016 2274 million 1965 million respectively scheduled maturities time deposits next five years follows dollars thousands company 3148 million 659 million brokered deposits major concentrations deposits one depositor december 31 2017 2016 respectively included amounts reciprocal deposits company placed certificates deposits account registry service cdars network 684 million 648 million december 31 2017 2016 respectively related party deposits principal officers directors affiliates december 31 2017 2016 157 million 148 million respectively 10 borrowings borrowing capacity company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2017 company total borrowing capacity 9306 million 6062 million available fhlb advances 2820 million outstanding december 31 2017 weighted average rate 145 letters credit 424 million december 31 2017 31 million expired february 2018 renewed february 2019 80 million expire august 2018 250 million expire october 2018 64 million expire december 2018 allegiance bancshares inc notes consolidated financial statements 2015 company borrowed additional 180 million credit agreement another financial institution addition 101 million indebtedness incurred credit agreement 2014 credit agreement matures december 2021 company used funds borrowed 2015 repay debt fm bancshares owed used funds borrowed 2014 pay previous borrowing another financial institution entered 2013 conjunction independence bank acquisition october 2015 company paid 275 million credit agreement portion proceeds initial public offering credit agreement includes certain restrictive covenants december 31 2017 company believes compliance debt covenants except return assets bank fourth quarter 2017 046 required minimum primarily due tax provision adjustment recorded result enactment tax reform bill end fourth quarter noncompliance waived lender respect fourth quarter 2017 interest rate debt prime rate minus 25 basis points 425 december 31 2017 paid quarterly scheduled principal maturities follows dollars thousands 11 subordinated debt junior subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests assets respective trusts subject mandatory redemption upon payment junior subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred company assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 93 million december 31 2017 acquisition company recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures december 31 2017 company 113 million outstanding junior subordinated debentures issued company’s unconsolidated subsidiary trusts junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations summary pertinent information related companys issuances junior subordinated debentures outstanding december 31 2017 set forth table 1 3month libor effect december 31 2017 16098 2 debentures currently callable allegiance bancshares inc notes consolidated financial statements subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank intends use net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders 12 income taxes components provision federal income taxes follows reported income tax expense differs amounts computed applying us federal statutory income tax rate income taxes years ended december 31 2017 2016 2015 due following income tax expense 2017 impacted adjustment companys deferred tax assets related reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 result new law company recognized provisional net tax expense totaling 26 million 2016 company adopted new accounting standard requires income tax effects associated stockbased compensation recognized component income tax expense company recognized net tax benefits related stockbased compensation totaling 11 million 2017 371 thousand 2016 allegiance bancshares inc notes consolidated financial statements yearend deferred taxes presented table result tax cuts jobs act enacted december 22 2017 deferred taxes december 31 2017 based newly enacted us statutory federal income tax rate 21 deferred taxes december 31 2016 based previously enacted us statutory federal income tax rate 35 deferred tax assets liabilities follows amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible items year ended december 31 2017 income tax expense 87 million compared 96 million year ended december 31 2016 78 million year ended december 31 2015 decrease income tax expense 2017 compared 2016 primarily due lower pretax earnings increase income tax expense 2016 compared 2015 primarily attributable higher pretax earnings effective income tax rate year ended december 31 2017 332 compared 295 year ended december 31 2016 330 year ended december 31 2015 effective tax rate increased year ended 2017 compared period 2016 2015 due nonrecurring tax provision adjustment recorded result revaluation deferred tax asset due enactment tax cuts jobs act partially offset tax free income purchase additional municipal securities cashless exercises stock options employees 2017 interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2017 2016 2015 company longer subject examination us federal tax jurisdiction years prior 2014 december 22 2017 sec staff issued staff accounting bulletin 118 “sab 118” provides guidance accounting tax effects tax cuts jobs act sab 118 provides measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes company’s financial results reflect income tax effects tax cuts jobs act accounting asc topic 740 complete provisional amounts specific income tax effects tax cuts jobs act accounting asc topic 740 incomplete reasonable estimate could determined 13 stock based compensation 2015 company’s board directors shareholders approved 2015 amended restated stock awards incentive plan “plan” covering certain awards stockbased compensation key employees directors company plan amended 2017 shareholders authorized maximum aggregate number shares stock issued 1900000 may issued incentive stock options company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 18 million 15 million 14 million years ended december 31 2017 2016 2015 respectively stock options purchase total 1304431 shares company stock granted december 31 2017 plan options exercisable 10 years date grant dependent terms applicable award agreement allegiance bancshares inc notes consolidated financial statements generally vest 4 years date grant fair value stock options granted estimated date grant using blackscholes optionpricing model expected volatility determined based historical volatilities allegiances common stock expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant blackscholes pricing model utilizes certain assumptions noted table summary activity stock option plan years ended december 31 2017 2016 set forth company expects outstanding options december 31 2017 vest information related stock option plan year follows december 31 2017 20 million total unrecognized compensation cost related nonvested stock options granted plan cost expected recognized weightedaverage period 162 years restricted stock awards company issued 104462 restricted stock awards plan december 31 2017 2015 company awarded 3983 shares restricted stock weighted average grant date fair value 2200 2016 company awarded 15401 shares restricted stock weighted average grant date fair value 1752 2017 company awarded 28106 shares restricted stock weighted average grant date fair value 3617 shares restricted stock generally vest period 4 years considered outstanding date issuance company accounts shares restricted stock recording fair value grant award date compensation expense vesting period allegiance bancshares inc notes consolidated financial statements summary activity nonvested shares restricted stock december 31 2017 2016 including changes years ended follows december 31 2017 511 thousand unrecognized compensation expense related restricted stock awards expected recognized remaining period 335 years total fair value restricted stock awards fully vested years ended december 31 2017 2016 2015 approximately 203 thousand 172 thousand 220 thousand respectively 14 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employees contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2017 2016 2015 789 thousand 637 thousand 551 thousand respectively profit sharing plan financial statements include accrual 15 million 17 million 12 million contribution plan profit sharing contribution years ended december 31 2017 2016 2015 respectively employee stock purchase plan company offers employees opportunity purchase shares allegiance’s common stock pursuant terms allegiance bancshares inc amended restated employee stock purchase plan amended “espp plan” espp plan adopted board directors provide employees opportunity purchase shares allegiance order provide employees direct opportunity participate company’s growth company allows employees purchase shares 15 discount market value thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 144 thousand 90 thousand 96 thousand years ended december 31 2017 2016 2015 respectively 15 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments allegiance bancshares inc notes consolidated financial statements commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows commitments make loans generally made periods 120 days less december 31 2017 fixed rate loan commitments interest rates ranging 160 750 weighted average maturity rate 271 years 498 respectively leases following table presents summary noncancelable future operating lease commitments december 31 2017 dollars thousands expected normal course business expiring leases renewed replaced leases property equipment rent expense noncancelable operating lease obligations aggregated approximately 28 million 27 million 26 million years ended december 31 2017 2016 2015 respectively 16 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s allegiance bancshares inc notes consolidated financial statements consolidated financial statements final rules implementing basel committee banking supervision’s capital guideline us banks basel iii rules became effective company january 1 2015 full compliance requirements phased multiyear schedule fully phased january 1 2019 management believes december 31 2017 2016 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required year end 2017 2016 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category following summary company’s bank’s actual required capital ratios december 31 2017 2016 dividend restrictions allegiances principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies addition allegiances credit agreement another financial institution also limits ability pay dividends regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described allegiance bancshares inc notes consolidated financial statements 17 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options issued company represent dilutive effect reflected diluted weighted average shares restricted shares considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options 28 thousand shares considered computing diluted earnings per share december 31 2017 antidilutive stock options december 31 2016 dilutive considered computing diluted earnings per share allegiance bancshares inc notes consolidated financial statements 18 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 19 quarterly financial data unaudited 1 earnings per share computed independently quarters presented therefore may total earnings per share year item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 71 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2019 2018 consolidated statements income years ended december 31 2019 2018 2017 consolidated statements comprehensive income years ended december 31 2019 2018 2017 consolidated statements changes shareholders’ equity years ended december 31 2019 2018 2017 consolidated statements cash flows years ended december 31 2019 2018 2017 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibit number description 21 agreement plan reorganization allegiance bancshares inc post oak bancshares inc dated april 30 2018 incorporated herein reference exhibit 21 companys form 8k filed may 1 2018 31 amended restated certificate formation allegiance bancshares inc incorporated herein reference exhibit 31 company’s quarterly report form 10q filed august 1 2019 32 bylaws allegiance bancshares inc incorporated herein reference exhibit 32 company’s registration statement form s1 registration 333206536 “registration statement” 41 specimen common stock certificate incorporated reference exhibit 41 registration statement 42 description securities registered pursuant section 12 securities exchange act 1934 43 form allegiance bank fixedtofloating rate subordinated note due december 15 2027 certificate incorporated reference exhibit 41 companys current report form 8k filed december 14 2017 44 subordinated debt indenture dated september 20 2019 allegiance bancshares inc us bank national association trustee incorporated reference exhibit 41 company’s current report form 8k filed october 1 2019 45 first supplemental indenture dated september 27 2019 allegiance bancshares inc us bank national association trustee incorporated herein reference exhibit 42 company’s form 8k filed october 1 2019 46 form allegiance bancshares inc 470 fixedtofloating rate subordinated note due 2029 incorporated reference exhibit 42 company’s current report form 8k filed october 1 2019 101 tax allocation agreement dated april 1 2013 allegiance bancshares inc allegiance bank fka allegiance bank texas incorporated reference exhibit 101 registration statement 102 allegiance bancshares inc 2015 amended restated stock awards incentive plan including form awards incorporated reference exhibit 102 registration statement 103 credit agreement dated december 22 2014 among allegiance bancshares inc prosperity bank incorporated reference exhibit 103 registration statement 104 form director officer indemnification agreement incorporated reference exhibit 104 amendment 1 registration statement 105 amendment allegiance bancshares inc 2015 amended restated stock awards incentive plan incorporated reference exhibit 101 companys current report form 8k filed may 24 2017 106 allegiance bancshares inc form nonemployee director restricted stock agreement incorporated reference exhibit 101 company’s quarterly report form 10q filed may 5 2017 107 amended restated employee stock purchase plan incorporated reference exhibit 991 companys registration statement form s8 registration 333208600 108 amendment amended restated employee stock purchase plan incorporated reference exhibit 108 company’s annual report form 10k filed march 9 2018 109 amendment 1 credit agreement dated december 28 2018 among allegiance bancshares inc prosperity bank incorporated reference exhibit 101 company’s current report form 8k filed december 31 2018 1010 allegiance bancshares inc annual incentive plan incorporated reference exhibit 101 company’s current report form 8k filed january 29 2019 1011 purchase agreement real property 8727 w sam houston parkway houston texas 77040 incorporated reference exhibit 101 company’s quarterly report form 10q filed august 1 2019 1012 purchase agreement real property 8807 w sam houston parkway houston texas 77040 incorporated reference exhibit 102 company’s quarterly report form 10q filed august 1 2019 1013 allegiance bancshares inc 2019 amended restated stock awards incentive plan incorporated reference exhibit 101 companys current report form 8k filed april 30 2019 1014 allegiance bancshares inc 2019 amended restated employee stock purchase plan incorporated reference exhibit 102 company’s current report form 8k filed april 30 2019 1015 form restricted stock award agreement incorporated reference exhibit 992 companys form s8 registration 333231142 1016 form performance share unit agreement incorporated reference exhibit 993 companys form s8 registration 333231142 1017 form restricted stock award agreement nonemployee director incorporated reference exhibit 994 companys form s8 registration 333231142 211 subsidiaries allegiance bancshares inc 231 consent crowe llp 311 certification chief executive officer pursuant rule 13a14a securities exchange act 1934 amended 312 certification chief financial officer pursuant rule 13a14a securities exchange act 1934 amended 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document exhibit 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document exhibits filed annual report form 10k furnished annual report form 10k item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 9 2020 pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated signature positions date steven f retzloff chief executive officer march 9 2020 steven f retzloff principal executive officer director paul p egge chief financial officer march 9 2020 paul p egge principal financial principal accounting officer george martinez chairman board march 9 2020 george martinez director ramon vitulli iii director march 9 2020 ramon vitulli iii john beckworth director march 9 2020 john beckworth matthew h hartzell director march 9 2020 matthew h hartzell robert ivany director march 9 2020 robert ivany umesh jain director march 9 2020 umesh jain frances h jeter director march 9 2020 frances h jeter signature positions date robert e mckee iii director march 9 2020 robert e mckee iii david b moulton director march 9 2020 david b moulton william nichols iii director march 9 2020 william nichols iii thomas reiser director march 9 2020 thomas reiser raimundo riojas e director march 9 2020 raimundo riojas e fred robertson director march 9 2020 fred robertson louis waters jr director march 9 2020 louis waters jr roland l williams director march 9 2020 roland l williams report independent registered public accounting firm shareholders board directors allegiance bancshares inc houston texas opinion financial statements audited accompanying consolidated balance sheets allegiance bancshares inc company december 31 2019 2018 related consolidated statements income comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2019 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion crowe llp served companys auditor since 2014 dallas texas march 9 2020 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes shareholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation us generally accepted accounting principles “gaap” company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 27 offices 26 bank offices one loan production office houston metropolitan area one office beaumont outside houston metropolitan area year ended december 31 2019 bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity gaap requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates acquisitions october 1 2018 allegiance completed acquisition post oak bancshares inc february 1 2019 allegiance completed acquisition lowerybank branch sugar land location huntington state bank see note 2 acquisitions additional information pertaining post oak lowerybank acquisitions impact post oak transaction company’s consolidated financial statements cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component shareholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost bases less otti recognized earnings shall become new amortized cost basis security loans held investmentloans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance acquired loansacquired loans recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates certain larger purchased loans individually evaluated allegiance bancshares inc notes consolidated financial statements certain purchased loans grouped together according similar risk characteristics treated aggregate applying various valuation techniques cash flow evaluations inherently subjective require material estimates may susceptible significant change loans acquired business combination evidence deterioration credit quality since origination probable acquisition company unable collect contractually required payments receivable considered purchased credit impaired “pci” pci loans individually evaluated recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates increases expected cash flows including prepayments subsequent initial investment recognized prospectively adjustment yield loan remaining life decreases expected cash flows recognized impairment valuation allowances pci loans reflect losses incurred acquisition meaning present value cash flows expected acquisition ultimately received acquired loans deemed creditimpaired acquisition differences initial fair value unpaid principal balance recognized interest income levelyield basis lives related loans subsequent acquisition date methods utilized estimate required allowance loan losses loans similar originated loans however provision credit losses recorded extent required allowance exceeds remaining purchase discounts acquired loan undergoes new underwriting meets criteria new loan case loan renewal remaining fair value adjustments accreted interest income loan establishes new amortized cost basis fully subject companys allowance loan loss methodology nonrefundable fees costs associated lending activities loan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company confirms loss loan troubled debt restructurings tdrsloans terms modified resulting concession granted borrower’s financial difficulty considered troubled debt restructurings classified impaired restructuring loan considered troubled debt restructuring 1 borrower experiencing financial difficulties 2 creditor granted concession would otherwise consider concessions may include reductions interest rates market interest rate extension terms debt principal forgiveness restructuring payment debt obligation actions intended minimize potential losses subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby loans measured present value estimated future cash flows allegiance bancshares inc notes consolidated financial statements using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral impaired loanson continuous basis loans evaluated impairment classification loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed allowance loan lossesthe allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired company follows loan review program evaluate credit risk loan portfolio loans identified impaired generally reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry company specific historical loan loss experience volume growth composition loan portfolio evaluation company’s loan portfolio internal loan review process general current economic conditions internal external company may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates allowance loan losses adjusted level determined adequate estimates loan losses inherently subjective involves exercise judgment management allowance loan losses reflected consolidated balance sheets adequate absorb probable losses exist loan portfolio reporting date troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses company assesses exposure modification either collateral discounting calculation present value future cash flows determines specific allocation allowance loan losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full company returns troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost leases january 1 2019 company adopted accounting standards update asu 201602 leases topic 842 required modified retrospective approach applying allowed transition method whereby comparative periods restated company elected apply several available practical expedients provided asu 201612 including carryover historical lease determination carryover historical initial direct cost balances existing leases accounting lease nonlease components contracts company lease single lease component upon adoption new leasing standard january 1 2019 company recognized 153 million rightofuse assets 157 million related lease liabilities consolidated balance sheet allegiance bancshares inc notes consolidated financial statements company leases certain office facilities operating leases also certain office facilities lease outside parties operating lessor leases however leases significant new standards operating leases considered shortterm recognize lease rightofuse assets related lease liabilities amounts reported components premises equipment liabilities respectively consolidated balance sheet real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2019 83 million balance real estate owned primarily consisted foreclosed commercial real estate properties recorded result obtaining physical possession property federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurancethe company purchased bank owned life insurance policies certain key executives acquired life insurance policies conjunction acquisitions fm bancshares post oak bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill determined indefinite useful life amortized tested impairment least annually frequently events circumstances exists indicate goodwill impairment test performed company performs annual impairment test october 1 goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven ten years borrowed fundsthe company credit agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards performance share units “psus” issued employees based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement fair value stock options granted employee stock purchase plan awards estimated date grant using blackscholes optionpricing model fair value restricted stock awards psus generally market price stock date grant impact forfeitures sharebased payment awards compensation expense recognized forfeitures occur psus contingent upon performance service conditions affect number shares ultimately issued company periodically evaluates probable outcome performance conditions makes cumulative adjustments compensation expense appropriate employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accounts income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences allegiance bancshares inc notes consolidated financial statements financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income shareholders’ equity earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options restricted stock awards employee stock purchase plan loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders addition allegiances credit agreement another financial institution also limits ability pay dividends revenue contracts customersthe company records revenue contracts customers accordance accounting standards codification topic 606 “revenue contracts customers” “topic 606” topic 606 company must identify contract customer identify performance obligations contract determine transaction price allocate transaction price performance obligations contract recognize revenue company satisfies performance obligation significant revenue recognized current reporting period results performance obligations satisfied previous periods company’s primary sources revenue derived interest dividends earned loans investment securities financial instruments within scope topic 606 company evaluated nature contracts customers determined disaggregation revenue contracts customers granular categories beyond presented consolidated statements income necessary company generally fully satisfies performance obligations contracts customers services rendered transaction prices typically fixed charged either periodic basis based activity performance obligations satisfied services rendered transaction prices fixed company made significant judgments applying revenue guidance prescribed asc 606 affect determination amount timing revenue contracts customers new accounting standards adoption new accounting standards asu 201602 “leases topic 842 asu 201602 requires lessees recognize lease liability lessee’s obligation make lease payments arising lease measured discounted basis rightofuse asset represents allegiance bancshares inc notes consolidated financial statements lessee’s right use control use specified asset lease term asu 201602 significantly change lease accounting requirements applicable lessors however certain changes made align necessary lessor accounting lessee accounting model asc topic 606 “revenue contracts customers” asu 201602 became effective company january 1 2019 company adopted standard required modified retrospective approach applying allowed transition method whereby comparative periods restated cumulative effect adjustment opening balance retained earnings recognized january 1 2019 topic 842 requires recognition lease liability measured present value unpaid lease payments operating leases company lessee corresponding rightofuse rou asset right use leased properties company elected reassess whether contracts contain leases lease classification initial direct costs existing leases set practical expedients transition provided asu 201612 company elected practical expedient use hindsight determining lease term assessing impairment election hindsight practical expedient resulted longer lease terms limited number strategic locations based relevant factors adoption date company implemented lease management system assist centralizing maintaining accounting leases ensure company meets asu’s reporting disclosure requirements prior comparable periods presented accordance previous guidance accounting standards codification asc 840 “leases” january 1 2019 rightofuse assets related lease liabilities totaled 153 million 157 million respectively see note 9 leases information regarding company’s leases certain properties equipment operating leases asu 201708 “receivables nonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities” asu 201708 shortens amortization period certain callable debt securities held premium require premiums amortized earliest call date unless applicable guidance related certain pools securities applied consider estimated prepayments prior guidance entities generally required amortize premiums individual nonpooled callable debt securities yield adjustment contractual life security asu 201708 change accounting callable debt securities held discount asu 201708 became effective company january 1 2019 upon adoption company recognized cumulative effect reduction retained earnings totaling 17 million newly issued yet effective accounting standards asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” among things asu 201613 requires measurement expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts requires enhanced disclosures related significant estimates judgments used estimating credit losses well credit quality underwriting standards organization’s portfolio financial institutions organizations use forwardlooking information better form credit loss estimates many loss estimation techniques historically applied today still permitted although inputs techniques change reflect full amount expected credit losses asu 201613 requires new credit loss methodology current expected credit loss “cecl” model requires recognition allowance lifetime expected credit losses loans addition asu 201613 amends accounting credit losses available sale debt securities purchased financial assets credit deterioration company expects adoption cecl result increase combined allowance loan losses reserve unfunded commitments 25 50 increase primarily attributable applying cecl model companys acquired loans prior guidance recorded fair value without allowance acquisition date requirement record allowance unfunded commitments addition increase result changing incurred loss model encompasses allowances current known incurred losses within portfolio expected loss model encompasses allowances losses expected incurred life portfolio company adopt asu 201613 january 1 2020 using modified retrospective approach cumulativeeffect adjustment retained earnings company currently finalizing execution implementation controls processes therefore ultimate impact adoption asu 201613 could differ current expectation adoption asu 201613 expected significant impact company’s regulatory capital ratios asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu 201704 eliminates step 2 goodwill impairment test required entities compute implied fair value goodwill asu 201704 entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting unit’s fair value however loss recognized exceed total amount goodwill allocated reporting unit asu 201704 became effective company january 1 2020 expected significant impact companys financial statements 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date allegiance bancshares inc notes consolidated financial statements measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier 1 twelve months date acquisition 2 soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisitions completed dates indicated 2019 acquisition lowerybank branchon february 1 2019 bank completed acquisition lowerybank branch sugar land location huntington state bank paid 329 million cash acquire certain assets included approximately 450 million loans assumed approximately 160 million customer deposits bank consolidated existing sugar land bank office new bank office location less one mile away acquisition lowerybank accounted acquisition method accounting accordance asc topic 805 business combinations company recognized goodwill 578 thousand calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired deductible tax purposes income expense generated acquired assets liabilities assumed would material impact therefore proforma numbers presented 2018 acquisition post oak bancshares incon october 1 2018 company completed acquisition post oak bancshares inc “post oak” whollyowned subsidiary post oak bank na headquartered houston texas post oak operated thirteen bank offices twelve located throughout greater houston metropolitan area one beaumont outside houston metropolitan area company acquired post oak expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network deductible tax purposes pursuant merger agreement company issued 8402010 shares company common stock outstanding shares post oak common stock paid 21 thousand cash fractional shares held post oak shareholders additionally outstanding post oak options assumed allegiance converted using 07017 exchange ratio 299352 options weighted average exercise price 1283 per option based 4170 per share closing price allegiance common stock september 28 2018 total transaction value approximately 3590 million acquisition accounted acquisition method accounting accordance asc topic 805 business combinations company recognized goodwill 1837 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes intangible assets recognized transaction amortized utilizing accelerated method ten year estimated useful lives allegiance bancshares inc notes consolidated financial statements september 30 2019 company finalized valuation assets liabilities acquired summary final purchase price allocation follows dollars thousands fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired october 1 2018 connection post oak acquisition company acquired loans without evidence credit quality deterioration since origination acquired loans initially recorded fair value carryover allowance loan losses acquired loans segregated considered purchased credit impaired “pci” loans without credit impairment acquisition allegiance bancshares inc notes consolidated financial statements pci loans following presents information acquisition date pci loans acquired transaction dollars thousands nonpci loans following table presents information acquisition date nonpci loans acquired transaction dollars thousands following table presents unaudited pro forma financial information acquisition occurred beginning 2017 post oak’s results operations included company’s results beginning october 1 2018 pro forma financial information necessarily indicative results operations would occurred transaction effected assumed dates determine pro forma information company adjusted year ended december 31 2018 2017 historical results include historical results post oak year ended december 31 2017 year ended december 31 2018 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects earnings post oak since acquisition date disclosed acquired company merged company separate financial information readily available company incurred approximately 13 million 17 million pretax acquisition mergerrelated expenses years ended december 31 2019 2018 respectively related post oak acquisition mergerrelated expenses reflected company’s income statement 2019 2018 excluded calculation pro forma income allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangible assets changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date company performed annual impairment test october 1 2019 determined impairment necessary estimated aggregate future amortization expense core deposit intangibles remaining december 31 2019 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances bank required maintain reserve balances december 31 2019 “cash due banks” consolidated balance sheets included reserve amount 277 million december 31 2018 5 securities amortized cost fair value investment securities follows allegiance bancshares inc notes consolidated financial statements december 31 2019 companys management expect sell securities classified available sale material unrealized losses company believes likely required sell securities anticipated recovery time company receive full value securities fair value expected recover securities approach maturity date repricing date market yields investments decline management believe securities impaired due reasons credit quality accordingly december 31 2019 management believes unrealized losses previous table temporary impairment loss realized company’s consolidated statements income amortized cost fair value investment securities december 31 2019 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties securities unrealized losses segregated length time securities continuous loss position follows allegiance bancshares inc notes consolidated financial statements 2019 company received proceeds 1730 million related available sale securities sold recorded gross gains 21 million gross losses 596 thousand net gain 15 million 2018 company acquired 428 million sold 127 million securities acquired post oak transaction gains losses recognized december 31 2019 2018 company securities one issuer us government agencies amount greater 10 consolidated shareholders’ equity respective dates carrying value pledged securities 243 million 289 million december 31 2019 2018 respectively majority securities pledged collateralize public fund deposits 6 loans allowance loan losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows 1 mortgage warehouse loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated company’s mortgage warehouse portfolio promissory notes originated company’s mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times allegiance bancshares inc notes consolidated financial statements loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed semiannual basis commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans dependent large part sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties represented 538 outstanding principal balance company’s commercial real estate loans december 31 2019 company dependent cash flows business occupying property owners requires loans secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate floating interest rates company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities company may required fund additional amounts complete project may hold property indeterminate period time iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 20 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral terms loans typically range 12 60 months vary based upon nature collateral size loan acquired loans pci loans company loans acquired acquisition evidence deterioration credit quality since origination probable acquisition contractually required payments would collected carrying amount pci loans included consolidated balance sheet related outstanding balance owed december 31 2019 2018 presented table dollars thousands allegiance bancshares inc notes consolidated financial statements changes accretable yield pci loans years ended december 31 2019 2018 deemed immaterial nonpci loans carrying amount nonpci loans included consolidated balance sheet related outstanding balance owed presented table dollars thousands changes discount accretion nonpci loans follows dollars thousands concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans related party loans december 31 2019 2018 loans outstanding directors officers affiliates totaled 68 million 79 million respectively analysis activity respect relatedparty loans follows allegiance bancshares inc notes consolidated financial statements nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans included purposes future disclosures recorded investment defined outstanding loan balances including net deferred loan fees excluding accrued interest receivable 155 million 170 million december 31 2019 2018 respectively due immateriality interest nonaccrual loans accrued original loan terms approximately 12 million 10 million would recorded income years ended december 31 2019 2018 respectively allegiance bancshares inc notes consolidated financial statements impaired loans impaired loans class loans set forth following tables allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements following table presents average recorded investment impaired loans interest recognized impaired loans average recorded investment impaired loans year ended december 31 2017 341 million interest income recognized year ended december 31 2017 922 thousand credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt including factors current financial information historical payment experience credit documentation public information current economic trends company analyzes loans individually classifying loans credit risk part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks risk ratings used credit quality indicators following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans allegiance bancshares inc notes consolidated financial statements based recent analysis performed risk category loans class loan december 31 2019 follows following table presents risk category loans class loan december 31 2018 allowance loan losses december 31 2019 allowance loan losses totaled 294 million 075 total loans december 31 2018 allowance totaled 263 million 071 total loans acquired loans carried without allowance loan losses recorded fair value acquisition date however company recorded discount acquired loans prospectively accreted increasing basis loans december 31 2019 balance acquisition accounting discount 55 million allegiance bancshares inc notes consolidated financial statements following table presents activity allowance loan losses portfolio type years ended december 31 2019 2018 2017 following table presents balance allowance loan losses portfolio type based impairment method december 31 2019 2018 allegiance bancshares inc notes consolidated financial statements following table presents recorded investment loans held investment portfolio type based impairment method december 31 2019 2018 troubled debt restructurings december 31 2019 2018 company recorded investment troubled debt restructurings 289 million 331 million respectively company allocated 32 million 30 million specific reserves loans december 31 2019 2018 respectively commit lend additional amounts loans following table presents information regarding loans modified troubled debt restructuring years ended december 31 2019 2018 2017 troubled debt restructurings resulted chargeoffs 251 thousand 272 thousand 136 thousand years ended december 31 2019 2018 2017 respectively december 31 2019 five loans total 472 thousand modified troubled debt restructuring previous twelvemonth period subsequently defaulted year 2019 december 31 2018 loans modified troubled debt restructurings previous twelvemonth period subsequently defaulted year 2018 default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans commitments lend additional amounts years 2019 2018 year ended december 31 2019 company added 51 million new troubled debt restructurings 46 million still outstanding december 31 2019 year ended december 31 2018 company added 102 million new troubled debt restructurings 98 million still outstanding december 31 2018 allegiance bancshares inc notes consolidated financial statements 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date company groups financial assets financial liabilities measured fair value three levels based markets assets liabilities traded reliability assumptions used determine fair value levels • level 1quoted prices identical assets liabilities active markets entity ability access measurement date • level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data • level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity carrying amounts estimated fair values financial instruments reported balance sheet follows allegiance bancshares inc notes consolidated financial statements fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis loans held investmentthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows accordance asu 201601 adopted effective january 1 2018 discount rates used determine fair value loans used interest rate spreads reflect factors liquidity credit nonperformance risk loans depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification accrued interestthe carrying amounts accrued interest approximate fair values resulting level 1 2 3 classification borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs subordinated debtthe fair values subordinated debentures notes estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material following tables present fair values assets measured fair value recurring basis allegiance bancshares inc notes consolidated financial statements liabilities measured fair value recurring basis december 31 2019 2018 transfers levels 2019 2018 certain assets liabilities measured fair value nonrecurring basis instruments measured fair value ongoing basis subject fair value adjustments certain circumstances evidence impairment allegiance bancshares inc notes consolidated financial statements historically company measures fair value certain loans real estate owned nonrecurring basis described impaired loans specific allocation allowance impaired loans company measured fair value generally based fair value loan’s collateral loan considered impaired based current information events probable company unable collect amounts due pursuant contractual terms loan agreement impairment measured estimating fair value loan based present value expected cash flows market price loan underlying fair value loan’s collateral real estate loans fair value impaired loan’s collateral determined third party appraisals adjusted estimated selling closing costs related liquidation collateral asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value nonreal estate loans fair value impaired loan’s collateral may determined using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge customer customers business years ended december 31 2019 2018 certain impaired loans reevaluated reported fair value specific allocation allowance loan losses december 31 2019 total reported fair value impaired loans 211 million based collateral valuations utilizing level 3 valuation inputs carrying value 279 million reduced specific allowance allocations totaling 68 million december 31 2018 total reported fair value impaired loans 171 million based collateral valuations utilizing level 3 valuation inputs carrying value 238 million reduced specific allowance allocations totaling 67 million real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable marketplace asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value december 31 2019 balance real estate owned 83 million consisting primarily foreclosed commercial real estate properties recorded result obtaining physical possession property company 630 thousand real estate owned december 31 2018 december 31 2019 2018 valuation allowance recorded 8 premises equipment premises equipment summarized follows allegiance bancshares inc notes consolidated financial statements depreciation expense 32 million year ended december 31 2019 21 million year ended december 31 2018 9 leases lease payments expected term discounted using company’s incremental borrowing rate borrowings similar terms generally company cannot reasonably certain whether renew lease time lease within last two years existing lease term company reasonably certain renewal option exercised measuresremeasures rightofuse asset related lease liability using lease payments specified renewal period amounts unspecified company generally assumes increase evaluated casebycase basis light prevailing market conditions lease payment final period existing lease term sale leaseback transactions leveraged leases lease transactions related parties year ended december 31 2019 december 31 2019 company 14 leases consisting branch locations office space along equipment december 31 2019 balance sheet rightofuse asset classified within premises equipment lease liability included liabilities company also owns certain office facilities leases outside parties operating lessor leases however leases significant leases classified operating leases initial term 12 months less recorded balance sheet related lease expense recognized straightline basis lease term year 2019 allegiance bank purchased two previously leased properties total 107 million operating lease costs classified occupancy equipment expense 36 million year ended december 31 2019 included amounts shortterm lease costs 553 thousand year ended december 31 2019 certain leases include options renew renewal terms extend lease term one five years lease assets liabilities include related options reasonably certain exercised depreciable life leased assets limited expected lease term supplemental lease information year ended december 31 2019 follows dollars thousands maturity analysis company’s lease liabilities december 31 2019 follows dollars thousands allegiance bancshares inc notes consolidated financial statements 10 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2019 december 31 2018 4858 million 5093 million respectively scheduled maturities time deposits next five years follows dollars thousands company 2635 million 2611 million brokered deposits concentrations deposits one depositor december 31 2019 2018 respectively related party deposits principal officers directors affiliates december 31 2019 2018 92 million 96 million respectively 11 borrowings borrowing capacity company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2019 company total borrowing capacity 172 billion 151 billion available agreement 2048 million outstanding fhlb advances 750 million outstanding december 31 2019 weighted average rate 229 letters credit 1298 million december 31 2019 86 million expired january 2020 89 million expired february 2020 250 million expire march 2020 85 million expire april 2020 371 million expire june 2020 17 million expire july 2020 84 million expire august 2020 250 million expire october 2020 41 million expire december 2020 25 million expire march 2021 december 28 2018 company amended revolving credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter company required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants december 31 2019 company believes compliance debt covenants made aware noncompliance lender interest rate debt prime rate minus 25 basis points 450 december 31 2019 paid quarterly scheduled principal maturities follows dollars thousands 12 subordinated debt junior subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii aggregate original principal amount 113 million current carrying value 95 million december 31 2019 acquisition company recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests assets respective trusts subject mandatory redemption upon payment junior allegiance bancshares inc notes consolidated financial statements subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred summary pertinent information related companys issuances junior subordinated debentures outstanding december 31 2019 set forth table 1 3month libor effect december 31 2019 19124 2 debentures currently callable subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders september 2019 company completed issuance 600 million aggregate principal amount fixedtofloating rate subordinated notes company notes due october 1 2029 company notes issued price equal 100 principal amount resulting net proceeds company 586 million company intends use net proceeds offering support growth general corporate purposes company notes bear fixed interest rate 470 per annum excluding october 1 2024 payable semiannually arrears april 1 october 1 commencing april 1 2020 thereafter october 1 2024 maturity date october 1 2029 earlier redemption date company notes bear interest floating rate equal thencurrent threemonth libor plus 313 basis points 313 quarterly interest period subject certain provisions set forth “description notesinterest rates interest payment dates” included prospectus supplement payable quarterly arrears january 1 april 1 july 1 october 1 year redemption price equal 100 principal amount company notes redeemed plus accrued unpaid interest subject require prior regulatory approval company notes subject redemption option holders allegiance bancshares inc notes consolidated financial statements 13 income taxes components provision federal income taxes follows reported income tax expense differs amounts computed applying us federal statutory income tax rate income taxes years ended december 31 2019 2018 2017 due following company recognized net tax benefits related stock based compensation totaling 11 thousand 2019 587 thousand 2018 11 million 2017 yearend deferred taxes presented table result tax cuts jobs act enacted december 22 2017 deferred taxes december 31 2019 2018 based 21 maximum federal statutory tax rate deferred tax assets liabilities follows interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2019 2018 2017 company longer subject examination us federal tax jurisdiction years prior 2016 allegiance bancshares inc notes consolidated financial statements 14 stock based compensation december 31 2019 company two stockbased employee compensation plans awards outstanding connection acquisition post oak bancshares inc october 1 2018 company assumed post oak bancshares inc stock option plan additional awards issued 2019 company’s board directors shareholders approved 2019 amended restated stock awards incentive plan “plan” covering certain awards stockbased compensation key employees directors company affiliates plan company authorized issue maximum aggregate 3200000 shares stock 1800000 may issued incentive stock options company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 31 million 17 million 18 million years ended december 31 2019 2018 2017 respectively stock options purchase total 1309231 shares company stock granted december 31 2019 stock options granted 2019 plan options exercisable 10 years date grant dependent terms applicable award agreement generally vest 4 years date grant fair value stock options granted estimated date grant using blackscholes optionpricing model part post oak acquisition outstanding post oak options assumed allegiance converted using 07017 exchange ratio 299352 options weighted average exercise price 1283 per option expected volatility determined based historical volatilities allegiances common stock expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant blackscholes pricing model utilizes certain assumptions noted table summary activity stock option plans years ended december 31 2019 2018 set forth company expects outstanding options december 31 2019 vest allegiance bancshares inc notes consolidated financial statements information related stock option plans year follows 1 options granted 2019 december 31 2019 402 thousand total unrecognized compensation cost related nonvested stock options granted plans cost expected recognized weightedaverage period 088 years restricted stock awards company issued 314539 restricted stock awards plan december 31 2019 2018 company awarded 122127 shares restricted stock weighted average grant date fair value 3904 2019 company awarded 87950 shares restricted stock weighted average grant date fair value 3497 shares restricted stock generally vest period 4 years considered outstanding date issuance company accounts shares restricted stock recording fair value grant award date compensation expense vesting period summary activity nonvested shares restricted stock december 31 2019 2018 including changes years ended follows december 31 2019 53 million unrecognized compensation expense related restricted stock awards expected recognized weightedaverage period 294 years total fair value restricted stock awards fully vested years ended december 31 2019 2018 2017 approximately 16 million 621 thousand 203 thousand respectively performance share units “psus” psus earned subject certain performance goals met twoyear performance period settled shares allegiance common stock following oneyear service period 2019 company awarded 34628 psus december 31 2019 888 thousand unrecognized compensation expense related psus expected recognized weightedaverage period 227 years allegiance bancshares inc notes consolidated financial statements 15 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employees contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2019 2018 2017 14 million 962 thousand 789 thousand respectively profit sharing plan financial statements include accrual 37 million 25 million 15 million contribution plan profit sharing contribution years ended december 31 2019 2018 2017 respectively employee stock purchase plan company offers employees opportunity purchase shares allegiance’s common stock pursuant terms allegiance bancshares inc 2019 amended restated employee stock purchase plan “espp” espp adopted board directors provide employees opportunity purchase shares allegiance order provide employees direct opportunity participate company’s growth company allows employees purchase shares 15 discount market value thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 210 thousand 48 thousand 144 thousand years ended december 31 2019 2018 2017 respectively 16 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows allegiance bancshares inc notes consolidated financial statements commitments make loans generally made periods 120 days less december 31 2019 fixed rate loan commitments interest rates ranging 195 840 weighted average maturity rate 359 years 532 respectively 17 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s consolidated financial statements final rules implementing basel committee banking supervision’s capital guideline us banks basel iii rules became effective company january 1 2015 full compliance requirements phased multiyear schedule fully phased january 1 2019 management believes december 31 2019 2018 company bank met capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2019 2018 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category allegiance bancshares inc notes consolidated financial statements following summary company’s bank’s actual required capital ratios december 31 2019 2018 dividend restrictions allegiances principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies addition allegiances credit agreement another financial institution also limits ability pay dividends applicable banking regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described 18 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options issued allegiance bancshares inc notes consolidated financial statements company represent dilutive effect reflected diluted weighted average shares common shares issuable restricted stock awards stock options employee stock purchase plan considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options 23125 54175 28300 shares considered computing diluted earnings per share december 31 2019 2018 2017 respectively antidilutive allegiance bancshares inc notes consolidated financial statements 19 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 20 quarterly financial data unaudited 1 earnings per share computed independently quarters presented therefore may total earnings per share year 21 subsequent event dividend declaration january 28 2020 company declared first quarterly cash dividend 010 per share common stock paid march 16 2020 shareholders record february 28 2020 real estate february 4 2020 company foreclosed loan recorded 69 million property real estate loan classified impaired specific reserve charged allowance loan loss 19 million december 31 2019 foreclosure company recorded chargeoff 21 million record property fair value less estimated selling costs stock repurchase authorization february 26 2020 board directors approved stock repurchase program authorizing company repurchase one million shares common stock outstanding discretion management march 31 2021 repurchases program may made time open market purchases privately negotiated transactions manners comply applicable laws regulations february 20 2020 company completed second one million share repurchase authorization previously approved july 25 2019 item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 73 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2020 2019 consolidated statements income years ended december 31 2020 2019 2018 consolidated statements comprehensive income years ended december 31 2020 2019 2018 consolidated statements changes shareholders’ equity years ended december 31 2020 2019 2018 consolidated statements cash flows years ended december 31 2020 2019 2018 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibit number description 21 agreement plan reorganization allegiance bancshares inc post oak bancshares inc dated april 30 2018 incorporated herein reference exhibit 21 companys form 8k filed may 1 2018 31 amended restated certificate formation allegiance bancshares inc incorporated herein reference exhibit 31 company’s quarterly report form 10q filed august 1 2019 32 bylaws allegiance bancshares inc incorporated herein reference exhibit 32 company’s registration statement form s1 registration 333206536 “registration statement” 41 specimen common stock certificate incorporated reference exhibit 41 registration statement 42 description securities registered pursuant section 12 securities exchange act 1934 43 form allegiance bank fixedtofloating rate subordinated note due december 15 2027 certificate incorporated reference exhibit 41 companys current report form 8k filed december 14 2017 44 subordinated debt indenture dated september 20 2019 allegiance bancshares inc us bank national association trustee incorporated reference exhibit 41 company’s current report form 8k filed october 1 2019 45 first supplemental indenture dated september 27 2019 allegiance bancshares inc us bank national association trustee incorporated herein reference exhibit 42 company’s form 8k filed october 1 2019 46 form allegiance bancshares inc 470 fixedtofloating rate subordinated note due 2029 incorporated reference exhibit 42 company’s current report form 8k filed october 1 2019 101 tax allocation agreement dated april 1 2013 allegiance bancshares inc allegiance bank fka allegiance bank texas incorporated reference exhibit 101 registration statement 102 allegiance bancshares inc 2015 amended restated stock awards incentive plan including form awards incorporated reference exhibit 102 registration statement 103 credit agreement dated december 22 2014 among allegiance bancshares inc prosperity bank incorporated reference exhibit 103 registration statement 104 form director officer indemnification agreement incorporated reference exhibit 104 amendment 1 registration statement 105 amendment allegiance bancshares inc 2015 amended restated stock awards incentive plan incorporated reference exhibit 101 companys current report form 8k filed may 24 2017 106 allegiance bancshares inc form nonemployee director restricted stock agreement incorporated reference exhibit 101 company’s quarterly report form 10q filed may 5 2017 107 amended restated employee stock purchase plan incorporated reference exhibit 991 companys registration statement form s8 registration 333208600 108 amendment amended restated employee stock purchase plan incorporated reference exhibit 108 company’s annual report form 10k filed march 9 2018 109 amendment 1 credit agreement dated december 28 2018 among allegiance bancshares inc prosperity bank incorporated reference exhibit 101 company’s current report form 8k filed december 31 2018 1010 allegiance bancshares inc annual incentive plan incorporated reference exhibit 101 company’s current report form 8k filed january 29 2019 1011 allegiance bancshares inc 2019 amended restated stock awards incentive plan incorporated reference exhibit 101 companys current report form 8k filed april 30 2019 1012 allegiance bancshares inc 2019 amended restated employee stock purchase plan incorporated reference exhibit 102 company’s current report form 8k filed april 30 2019 1013 form restricted stock award agreement incorporated reference exhibit 992 companys form s8 registration 333231142 1014 form performance share unit agreement incorporated reference exhibit 993 companys form s8 registration 333231142 1015 form restricted stock award agreement nonemployee director incorporated reference exhibit 994 companys form s8 registration 333231142 1016 change control severance plan incorporated herein reference exhibit 101 company’s form 8k filed february 4 2020 211 subsidiaries allegiance bancshares inc 231 consent crowe llp 311 certification chief executive officer pursuant rule 13a14a securities exchange act 1934 amended 312 certification chief financial officer pursuant rule 13a14a securities exchange act 1934 amended 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins inline xbrl instance document instance document appear interactive data file xbrl tags embedded within inline xbrl document 101sch inline xbrl taxonomy extension schema document exhibit 101cal inline xbrl taxonomy extension calculation linkbase document 101def inline xbrl taxonomy extension definition linkbase document 101lab inline xbrl taxonomy extension label linkbase document 101pre inline xbrl taxonomy extension presentation linkbase document cover page interactive data file formatted inline xbrl contained exhibit 101 exhibits filed annual report form 10k furnished annual report form 10k item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 10 2021 pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated signature positions date steven f retzloff chief executive officer march 10 2021 steven f retzloff principal executive officer director paul p egge chief financial officer march 10 2021 paul p egge principal financial principal accounting officer george martinez chairman board march 10 2021 george martinez director ramon vitulli iii director march 10 2021 ramon vitulli iii john beckworth director march 10 2021 john beckworth denise castillorhodes director march 10 2021 denise castillorhodes jonal duplantier director march 10 2021 jonal duplantier matthew h hartzell director march 10 2021 matthew h hartzell robert ivany director march 10 2021 robert ivany frances h jeter director march 10 2021 frances h jeter william nichols iii director march 10 2021 william nichols iii signature positions date raimundo riojas e director march 10 2021 raimundo riojas e fred robertson director march 10 2021 fred robertson louis waters jr director march 10 2021 louis waters jr roland l williams director march 10 2021 roland l williams janet wong director march 10 2021 janet wong report independent registered public accounting firm shareholders board directors allegiance bancshares inc houston texas opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets allegiance bancshares inc company december 31 2020 2019 related consolidated statements income comprehensive income changes shareholders’ equity cash flows years threeyear period ended december 31 2020 related notes collectively referred financial statements also audited company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission “coso” opinion financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows years threeyear period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 1 financial statements company changed method accounting credit losses effective january 1 2020 due adoption asu 201613 financial instruments credit losses “asc topic 326” company adopted new credit loss standard using modified retrospective method prior period amounts adjusted continue reported accordance previously applicable generally accepted accounting principles adoption new credit loss standard subsequent application also communicated critical audit matter basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying reporting management’s assessment internal controls financial reporting responsibility express opinion company’s financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matters communicated matters arising current period audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate allowance credit losses “acl” loans qualitative loss factors described notes 1 6 financial statements company adopted asc topic 326 january 1 2020 using modified retrospective approach recording net reduction retained earnings 55 million tax new current expected credit loss “cecl” impairment model requires estimate expected credit losses realized contractual life instrument considering past events current conditions reasonable supportable forecasts future economic conditions see change accounting principle explanatory paragraph december 31 2020 acl loans 53173000 primarily consisted 1 loss allocations loans individually evaluated impairment 2 loss allocations loans collectively evaluated impairment specific collectively evaluated allocation company uses cumulative loss rate methodology estimate expected credit losses within loan portfolio applying expected loss ratio based historical loss experience adjusted qualitatively appropriate economic portfoliospecific factors include current economic metrics reasonable supportable forecasted economic metrics delinquency trends credit concentrations nature volume portfolio adjustments items covered specific reserves historical lifetime loss experience determination inherently subjective qualitative loss factors loan portfolio category significant impact estimate expected credit losses recorded within allocation allowance loans collectively evaluated impairment given significance qualitative loss factors overall acl well level judgment subjectivity involved management’s determination qualitative loss factors identified auditing qualitative loss factors used establish allocation acl loans collectively evaluated impairment critical audit matter required especially subjective auditor judgment primary audit procedures performed address critical audit matter included • tested operating effectiveness internal controls determination qualitative loss factor adjustments • tested operating effectiveness internal controls completeness accuracy data used qualitative loss factor adjustments well internal controls mathematical accuracy management’s acl calculation • substantively tested management’s analysis supporting determination qualitative loss factor adjustments including evaluating external economic industry trends evaluating overall composition loan portfolio periodoverperiod adoption date year end changes current conditions reasonable supportable forecasts • substantively tested completeness accuracy data used qualitative loss factor adjustments verified mathematical accuracy management’s qualitative allocation calculation • evaluated periodoverperiod adoption date year end consistency qualitative loss factors determined applied goodwill impairment evaluation described note 3 financial statements company’s goodwill balance approximately 224000000 december 31 2020 allocated company’s single reporting unit goodwill tested impairment reporting unit level october 1 frequently whenever events circumstances occur indicate likely fair value reporting unit less carrying value due effects covid19 pandemic economy movement company’s stock price management performed quantitative assessment goodwill september 30 2020 concluding goodwill impaired date goodwill impairment analysis involves significant estimates subjective assumptions require high degree management judgment includes limited selection appropriate discount rates identification relevant market comparables development cash flow projections selection weighting various fair value techniques may result higher lower fair value judgment applied determining weightings representative fair value identified auditing company’s goodwill impairment assessment critical audit matter principal consideration determination extent audit effort degree auditor judgment performing procedures significant assumptions include discount rate prospective financial information weighting allocation valuation methodologies primary procedures performed address critical audit matter included • tested effectiveness controls management’s goodwill impairment test including controls addressing management’s review reasonableness accuracy company’s prospective financial information used discounted cash flow methodology managements evaluation significant assumptions used thirdparty valuation specialist including discount rate terminal growth rate control premium allocated weightings incorporated methodologies used determine fair value • substantively tested management’s estimate including evaluating judgments assumptions estimating fair value company included evaluated key financial data accuracy including comparing prospective financial information company’s operating budget evaluated management’s ability reasonably forecast income cash flows comparing actual results management’s historical forecasts utilized work valuation specialists evaluate appropriateness valuation methodologies discount rate control premium overall reasonableness fair value evaluated management’s weighting allocation valuation methodology crowe llp served companys auditor since 2014 dallas texas march 10 2021 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes shareholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation us generally accepted accounting principles “gaap” company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 28 offices 27 bank offices houston metropolitan area one office beaumont outside houston metropolitan area year ended december 31 2020 bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity gaap requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates acquisitions october 1 2018 allegiance completed acquisition post oak bancshares inc february 1 2019 allegiance completed acquisition lowerybank branch sugar land location huntington state bank see note 2 acquisitions additional information pertaining post oak lowerybank acquisitions impact post oak transaction company’s consolidated financial statements cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component shareholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method loansloans management intent ability hold foreseeable future maturity payoff reported amortized cost net allowance credit losses loans amortized cost principal balance outstanding net purchase accounting adjustments deferred fees costs accrued interest receivable loans totaled 345 million december 31 2020 reported accrued interest receivable consolidated balance sheets interest income accrued unpaid principal balance loan origination fees net origination costs deferred recognized interest income using interest method without anticipating prepayments interest income loans discontinued placed nonaccrual status time loan 90 days delinquent interest accrued received loans placed nonaccrual reversed interest income loans returned accrual status principal interest amount contractually due brought current future payments reasonably assured purchased credit deteriorated pcd loansupon adoption asc 326 allowance credit losses determined loan added loan’s carrying amount establish new amortized cost basis difference unpaid principal balance loan new amortized cost basis noncredit premium discount amortized interest income remaining life loan changes allowance credit losses adoption recorded provision expense allegiance bancshares inc notes consolidated financial statements nonrefundable fees costs associated lending activitiesloan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively individually evaluated available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company confirms loss loan acquired loansacquired loans recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates certain larger purchased loans individually evaluated certain purchased loans grouped together according similar risk characteristics treated aggregate applying various valuation techniques cash flow evaluations inherently subjective require material estimates may susceptible significant change prior adoption asc topic 326 january 1 2020 loans acquired business combination evidence deterioration credit quality since origination probable acquisition company would unable collect contractually required payments receivable considered purchased credit impaired “pci” pci loans individually evaluated recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates increases expected cash flows including prepayments subsequent initial investment recognized prospectively adjustment yield loan remaining life decreases expected cash flows recognized impairment valuation allowances pci loans reflected losses incurred acquisition meaning present value cash flows expected acquisition ultimately received subsequent january 1 2020 loans acquired business combination experienced morethaninsignificant deterioration credit quality since origination considered purchased credit deteriorated “pcd” loans acquisition date estimate expected credit losses made groups pcd loans similar risk characteristics individual pcd loans without similar risk characteristics initial allowance credit losses allocated individual pcd loans added purchase price acquisition date fair values establish initial amortized cost basis pcd loans initial allowance credit losses added purchase price credit loss expense recognized upon acquisition pcd loan difference unpaid principal balance pcd loans amortized cost basis considered relate noncredit factors results discount premium discounts premiums recognized interest income levelyield method life loans considered pci prior january 1 2020 converted pcd date allegiance bancshares inc notes consolidated financial statements acquired loans deemed purchased credit deteriorated acquisition differences initial fair value unpaid principal balance recognized interest income levelyield basis lives related loans acquisition date initial allowance expected credit losses estimated recorded provision credit losses expense subsequent measurement expected credit losses acquired loans subsequent measurement expected credit losses originated loans allowance credit losses allowance credit losses valuation account established provision credit losses charged expense represents management’s best estimate lifetime expected losses based reasonable supportable forecasts historical loss experience qualitative considerations allowance credit losses includes allowance credit losses loans deducted loans’ amortized cost basis present net amount expected collected loans allowance credit losses unfunded commitments reported liabilities allowance credit losses loans effective january 1 2020 company adopted asu 201613 financial instruments credit losses asc topic 326 measurement credit losses financial instruments replaced incurred loss methodology expected loss methodology referred cecl methodology level allowance based upon managements evaluation historical default loss experience current projected economic conditions asset quality trends known inherent risks portfolio adverse situations may affect borrowers ability repay loan including timing future payments estimated value underlying collateral composition loan portfolio industry peer bank loan quality indications pertinent factors including regulatory recommendations allowance credit losses loans maintained management believed adequate absorb expected future losses loan portfolio balance sheet date company disaggregates loan portfolio pools purposes determining allowance credit losses pools based level company develops documents applies systematic methodology determine allowance credit losses loans similar risk characteristics collectively evaluated resulting loss estimates determined applying reserve factors historical lifetime loan loss experience concentration risk specific loan types volume growth composition company’s loan portfolio current economic conditions reasonable supportable forecasted economic conditions may affect borrower’s ability pay value collateral evaluation company’s loan portfolio internal loan review process general economic conditions qualitative risk factors internal external company relevant factors designed estimate current expected credit losses amortized cost balances remaining contractual life collectively evaluated portfolio loans similar risk characteristics aggregated homogeneous pools assessment historical lifetime loan loss experience determined utilizing openpool “cumulative loss rate” methodology adjustments historical lifetime loan loss experience made differences current loan pool risk characteristics portfolio concentrations delinquency nonaccrual watch list levels well changes current forecasted economic conditions unemployment rates property collateral values indices relating economic activity losses predicted period time determined reasonable supportable end reasonable supportable period losses reverted long term historical averages reasonable supportable period reversion period reevaluated year company dependent current economic environment among factors reasonable supportable period twelve months utilized loan pools followed immediate reversion long term averages based review factors loan type company applies estimated percentage outstanding balance loan type loans longer share risk characteristics collectively evaluated loan pools evaluated individual basis excluded collectively evaluated pools order assess loans individually evaluated company follows loan review program evaluate credit risk total loan portfolio assigns risk grades loan individual credit loss estimates typically performed nonaccrual loans modified loans classified troubled debt restructurings loans identified management loans deemed individually evaluated reviewed quarterly basis order determine whether specific reserve required company considers certain loans collateral dependent borrower experiencing financial difficulty management expects repayment loan substantially operation sale collateral dependent loans loss estimates based fair value collateral less estimated cost sell applicable collateral values supporting individually evaluated loans assessed quarterly appraisals typically obtained least annually company allocates specific loan loss reserve individual loan basis primarily based value collateral securing individually evaluated loan review process company assesses overall quality loan portfolio adequacy allowance credit losses loans considering risk elements attributable particular loan types assessing quality individual loans addition category loans company considers secondary sources income financial strength credit history borrower guarantors change allowance credit losses loans attributable several factors notably specific reserves individually evaluated loans historical lifetime loan loss information changes economic factors growth loan portfolio specific reserves calculated individual basis qualitative assessment loans reflect current allegiance bancshares inc notes consolidated financial statements changes credit quality loan portfolio historical lifetime credit losses hand based openpool “cumulative loss rate” methodology applied estimate lifetime credit losses loan portfolio allowance credit losses loans determined size loan portfolio subject allowance methodology factors include companyspecific risk indicators general economic conditions constantly changing company evaluates economic portfoliospecific factors quarterly basis determine qualitative component general valuation allowance factors include current economic metrics reasonable supportable forecasted economic metrics delinquency trends credit concentrations nature volume portfolio adjustments items covered specific reserves historical lifetime loss experience based company’s actual historical lifetime loan loss experience relative economic loan portfoliospecific factors time losses occurred management able identify probable level lifetime losses date measurement company’s analysis qualitative economic factors pools loans common risk characteristics combination quantitative historical lifetime loss information specific reserves provides company estimate lifetime losses calculation current expected credit losses inherently subjective requires management exercise judgment determining appropriate factors used determine allowance estimated loan losses loan pools adjusted changes qualitative factors inherently considered quantitative analyses bring allowance level management believes appropriate based factors otherwise fully accounted including adjustments foresight risk input imprecision model imprecision qualitative categories measurements used quantify risks within categories subjectively selected management measured objective measurements period data measurement may obtained internal external sources current period measurements evaluated assigned factor commensurate current level risk relative past measurements time resulting qualitative adjustments applied relevant collectively evaluated loan portfolios adjustments based upon quarterly trend assessments portfolio concentrations changes lending policies procedures policy exceptions independent loan review results internal risk ratings peer group credit quality trends qualitative allowance allocation determined processes noted increased decreased loan pool based assessment various qualitative factors determination appropriate qualitative adjustment based managements analysis current expected economic conditions impact portfolio well internal credit risk movements qualitative assessment lending environment including underwriting standards management recognizes sensitivity various assumptions made quantitative modeling expected losses may adjust reserves depending upon level uncertainty currently exists one assumptions policies procedures used estimate allowance credit losses loans well resultant provision credit losses charged income considered adequate management reviewed periodically regulators internal audit approximate could materially change based changes within loan portfolio effects economic factors beyond company’s control changes projected economic conditions including political instability global events affecting us economy real estate markets particular industry conditions could cause changes expectations current conditions economic forecasts could result unanticipated increase allowance may materially impact asset quality adequacy allowance credit losses thus resulting provision credit losses assessing adequacy allowance credit losses loans company considers results ongoing independent loan review process company undertakes process ascertain loans portfolio elevated credit risk assist overall evaluation risk characteristics entire loan portfolio loan review process includes judgment management independent internal loan reviewers reviews may conducted thirdparty reviewers including regulatory examiners company incorporates relevant loan review results allowance accordance cecl losses estimated remaining contractual terms loans adjusted prepayments contractual term excludes expected extensions renewals modifications unless management reasonable expectation reporting date troubled debt restructuring executed renewals extensions modifications included original loan agreement unconditionally cancellable company credit losses estimated amortized cost basis loans includes principal balance outstanding purchase discounts premiums deferred loan fees costs loan losses estimated accrued interest receivable interest deemed uncollectible written interest income timely manner accrued interest presented separately balance sheets allowed asc topic 326 excluded tabular loan disclosures note 6 loans allowance credit losses allowance credit losses unfunded commitments company estimates expected credit losses contractual term company exposed credit risk contractual obligation extend credit unless obligation unconditionally cancellable company allowance credit losses unfunded commitments adjusted provision credit loss expense estimates determined based likelihood funding contractual term estimate allegiance bancshares inc notes consolidated financial statements credit losses subsequent funding estimated credit losses subsequently funded balances based assumptions used estimate credit losses existing funded loans allowance credit losses securities available sale securities classified available sale unrealized loss position balance sheet date company first assesses whether intends sell security likely required sell security recovery amortized cost basis either criteria met securitys amortized cost basis written fair value net income neither criteria met company evaluates whether portion decline fair value result credit deterioration evaluations consider extent amortized cost security exceeds fair value changes credit ratings known adverse conditions related specific security evaluation indicates credit loss exists allowance credit losses recorded provisions credit losses amount amortized cost basis security exceeds present value cash flows expected collected limited amount amortized cost exceeds fair value losses charged allowance management believes uncollectibility available sale security confirmed either criteria regarding intent requirement sell met impairment recognized allowance credit losses recognized comprehensive income certain types debt securities us treasuries securities government guarantees entities may expect zero credit losses zeroloss expectation applies company’s securities allowance credit losses recorded available sale securities portfolio transition prior adoption asu 201613 declines fair value availableforsale securities cost deemed temporary reflected earnings realized losses estimating otherthantemporary impairment losses prior january 1 2020 management considered among things length time extent fair value less cost ii financial condition nearterm prospects issuer iii intent ability retain investment issuer period time sufficient allow anticipated recovery fair value accrued interest receivable available sale securities totaled 55 million december 31 2020 excluded estimate credit losses troubled debt restructurings tdrs loans terms modified tdr evaluated using individual evaluation methods troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance credit losses company assesses exposure modification collateral discounting determines specific allocation allowance credit losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full company returns troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost leases january 1 2019 company adopted accounting standards update asu 201602 leases topic 842 required modified retrospective approach applying allowed transition method whereby comparative periods restated company elected apply several available practical expedients provided asu 201612 including carryover historical lease determination carryover historical initial direct cost balances existing leases accounting lease nonlease components contracts company lease single lease component upon adoption new leasing standard january 1 2019 company recognized 153 million rightofuse assets 157 million related lease liabilities consolidated balance sheet company leases certain office facilities operating leases also certain office facilities lease outside parties operating lessor leases however leases significant new standards operating leases considered shortterm recognize lease rightofuse assets related lease liabilities amounts reported components premises equipment liabilities respectively consolidated balance sheet real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2020 92 million balance real estate owned primarily consisted foreclosed commercial real estate properties recorded result obtaining physical possession property allegiance bancshares inc notes consolidated financial statements federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurancethe company purchased bank owned life insurance policies certain key executives acquired life insurance policies conjunction acquisitions fm bancshares post oak bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill assessed annually october 1 impairment frequently events circumstances exist indicate carrying amount asset may recoverable goodwill impairment test performed significant amount judgment involved determining indicator impairment occurred indicators may include among others significant decline expected future cash flows sustained significant decline stock price market capitalization significant adverse change legal factors business climate adverse action assessment regulator unanticipated competition adverse change factors could significant impact recoverability assets could material impact company’s consolidated financial statements goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven ten years borrowed fundsthe company credit agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents promise lend considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards performance share units “psus” issued employees directors based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement fair value stock options granted estimated date grant using blackscholes model fair value restricted stock awards generally market price stock date grant date fair value psus based probable outcome applicable performance conditions calculated target based combination closing market price common stock grant date monte carlo simulated fair value accordance asc 718 impact forfeitures sharebased payment awards compensation expense recognized forfeitures occur psus contingent upon performance service conditions affect number shares ultimately issued company periodically evaluates probable outcome performance conditions makes cumulative adjustments compensation expense appropriate employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accountsthe fair value shares purchased plan estimated date grant using blackscholes model income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit allegiance bancshares inc notes consolidated financial statements greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income shareholders’ equity earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options performance share unit awards employee stock purchase plan loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders addition allegiances credit agreement another financial institution also limits ability pay dividends revenue contracts customersthe company records revenue contracts customers accordance accounting standards codification topic 606 “revenue contracts customers” “topic 606” topic 606 company must identify contract customer identify performance obligations contract determine transaction price allocate transaction price performance obligations contract recognize revenue company satisfies performance obligation significant revenue recognized current reporting period results performance obligations satisfied previous periods company’s primary sources revenue derived interest dividends earned loans investment securities financial instruments within scope topic 606 company evaluated nature contracts customers determined disaggregation revenue contracts customers granular categories beyond presented consolidated statements income necessary company generally fully satisfies performance obligations contracts customers services rendered transaction prices typically fixed charged either periodic basis based activity performance obligations satisfied services rendered transaction prices fixed company made significant judgments applying revenue guidance prescribed asc 606 affect determination amount timing revenue contracts customers new accounting standards adoption new accounting standards asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments “asc topic 326” issued fasb june 2016 along subsequent amendments thereto introduce current expected credit losses “cecl” methodology measurement expected credit losses cecl methodology utilizes lifetime “expected credit loss” measurement objective recognition credit losses loans heldtomaturity debt securities measured amortized cost asc topic 326 also applies offbalance sheet credit exposures methodology replaces multiple existing impairment methods current guidance generally require loss incurred recognized within allegiance bancshares inc notes consolidated financial statements life cycle loan financial asset new guidance generally result earlier recognition provision credit losses related allowance credit losses previous practice available sale debt securities company intends hold fair value less cost creditrelated impairment recognized allowance credit losses adjusted period changes credit risk cecl became effective company january 1 2020 using modified retrospective approach however march 27 2020 coronavirus aid relief economic security act “cares act” signed law president united states allowed option temporarily defer suspend adoption asc topic 326 company elected temporarily defer adoption cecl due uncertainty impact covid19 volatility crude oil prices impactful houston market deferral company calculated recorded provision loan losses incurred loss model existed prior asc topic 326 company adopted new standard january 1 2020 fourth quarter 2020 upon adoption asc topic 326 company recognized increase allowance credit losses loans 31 million establishment allowance credit losses offbalance sheet exposure 39 million corresponding decrease retained earnings 55 million aftertax company adopted asc topic 326 using prospective transition approach purchased credit deteriorated “pcd” loans require reevaluation whether loans previously classified purchased credit impaired “pci” loans met criteria pcd assets date adoption company recognized increase allowance credit losses loans 21 million due reclass pcd discounts previously classified pci corresponding adjustment gross carrying amount loans remaining noncredit discount accreted interest income effective interest rate january 1 2020 see note 6 “loans allowance credit losses” additional information following table illustrates impact adopting asc topic 326 asc topic 326 also requires expected credit losses available sale afs debt securities recorded allowance credit losses certain types debt securities us treasuries securities government guarantees entities may expect zero credit losses zeroloss expectation generally applies company’s securities allowance credit losses recorded afs securities portfolio transition see note 5 “securities” additional information asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu 201704 eliminates step 2 goodwill impairment test required entities compute implied fair value goodwill asu 201704 entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting unit’s fair value however loss recognized exceed total amount goodwill allocated reporting unit asu 201704 became effective company january 1 2020 significant impact companys financial statements allegiance bancshares inc notes consolidated financial statements asu 201602 “leases topic 842 asu 201602 requires lessees recognize lease liability lessee’s obligation make lease payments arising lease measured discounted basis rightofuse asset represents lessee’s right use control use specified asset lease term asu 201602 significantly change lease accounting requirements applicable lessors however certain changes made align necessary lessor accounting lessee accounting model asc topic 606 “revenue contracts customers” asu 201602 became effective company january 1 2019 company adopted standard required modified retrospective approach applying allowed transition method whereby comparative periods restated cumulative effect adjustment opening balance retained earnings recognized january 1 2019 topic 842 requires recognition lease liability measured present value unpaid lease payments operating leases company lessee corresponding rightofuse rou asset right use leased properties company elected reassess whether contracts contain leases lease classification initial direct costs existing leases set practical expedients transition provided asu 201612 company elected practical expedient use hindsight determining lease term assessing impairment election hindsight practical expedient resulted longer lease terms limited number strategic locations based relevant factors adoption date company implemented lease management system assist centralizing maintaining accounting leases ensure company meets asu’s reporting disclosure requirements prior comparable periods presented accordance previous guidance accounting standards codification asc 840 “leases” january 1 2019 rightofuse assets related lease liabilities totaled 153 million 157 million respectively see note 9 leases information regarding company’s leases certain properties equipment operating leases asu 201708 “receivables nonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities” asu 201708 shortens amortization period certain callable debt securities held premium require premiums amortized earliest call date unless applicable guidance related certain pools securities applied consider estimated prepayments prior guidance entities generally required amortize premiums individual nonpooled callable debt securities yield adjustment contractual life security asu 201708 change accounting callable debt securities held discount asu 201708 became effective company january 1 2019 upon adoption company recognized cumulative effect reduction retained earnings totaling 17 million newly issued yet effective accounting standards asu 201912 income taxes topic 740 simplifying accounting income taxes “asu 201912” removes certain exceptions investments intraperiod allocations interim calculations adds guidance reduce complexity accounting income taxes asu 201912 introduces following new guidance evaluate whether stepup tax basis goodwill relates business combination book goodwill recognized separate transaction ii policy election allocate consolidated income taxes member consolidated tax return subject income tax additionally asu 201912 changes following current guidance making intraperiod allocation loss continuing operations gains outside continuing operations ii determining deferred tax liability recognized investor foreign entity transitions equity method accounting iii accounting tax law changes yeartodate losses interim periods iv determining apply income tax guidance franchise taxes partially based income asu 201912 effective fiscal years interim periods within fiscal years beginning december 15 2020 early adoption permitted asu 201912 expected material impact company’s results operations financial position disclosures asu 202004 reference rate reform facilitation effects reference rate reform financial reporting accounting standards codification “asc” topic 848 asu 202004 provides optional expedients exceptions applying gaap loan lease agreements derivative contracts transactions affected anticipated transition away libor toward new interest rate benchmarks guidance allows companies account certain contract modifications continuation existing contract without additional analysis ii continue hedge accounting certain critical terms hedging relationship change assess effectiveness ways disregard certain potential sources ineffectiveness iii make onetime sale andor transfer certain debt securities heldtomaturity available sale trading asu available adoption effective march 12 2020 december 31 2022 entity may elect apply asu 202004 contract modifications january 1 2020 prospectively date within interim period includes subsequent march 12 2020 date financial statements available issued elected topic industry subtopic within asu 202004 amendments must applied prospectively eligible contract modifications topic industry subtopic onetime election sell andor transfer debt securities classified heldtomaturity may made time march 12 2020 company anticipates asu simplify modifications executes selected start date yet determined december 31 2022 directly related libor transition allowing prospective recognition continuation contract rather extinguishment old contract resulting writing unamortized fees costs asu 202004 expected significant impact company’s financial statements allegiance bancshares inc notes consolidated financial statements 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier 1 twelve months date acquisition 2 soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisitions completed dates indicated 2019 acquisition lowerybank branchon february 1 2019 bank completed acquisition lowerybank branch sugar land location huntington state bank paid 329 million cash acquire certain assets included approximately 450 million loans assumed approximately 160 million customer deposits bank consolidated existing sugar land bank office new bank office location less one mile away acquisition lowerybank accounted acquisition method accounting accordance asc topic 805 business combinations company recognized goodwill 578 thousand calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired deductible tax purposes income expense generated acquired assets liabilities assumed would material impact therefore proforma numbers presented 2018 acquisition post oak bancshares incon october 1 2018 company completed acquisition post oak bancshares inc “post oak” whollyowned subsidiary post oak bank na headquartered houston texas post oak operated thirteen bank offices twelve located throughout greater houston metropolitan area one beaumont outside houston metropolitan area company acquired post oak expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network deductible tax purposes pursuant merger agreement company issued 8402010 shares company common stock outstanding shares post oak common stock paid 21 thousand cash fractional shares held post oak shareholders additionally outstanding post oak options assumed allegiance converted using 07017 exchange ratio 299352 options weighted average exercise price 1283 per option based 4170 per share closing price allegiance common stock september 28 2018 total transaction value approximately 3590 million acquisition accounted acquisition method accounting accordance asc topic 805 business combinations company recognized goodwill 1837 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes intangible assets recognized transaction amortized utilizing accelerated method ten year estimated useful lives allegiance bancshares inc notes consolidated financial statements september 30 2019 company finalized valuation assets liabilities acquired summary final purchase price allocation follows dollars thousands fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired october 1 2018 connection post oak acquisition company acquired loans without evidence credit quality deterioration since origination acquired loans initially recorded fair value carryover allowance loan losses acquired loans segregated considered purchased credit impaired “pci” loans without credit impairment acquisition allegiance bancshares inc notes consolidated financial statements pci loans following presents information acquisition date pci loans acquired transaction dollars thousands nonpci loans following table presents information acquisition date nonpci loans acquired transaction dollars thousands following table presents unaudited pro forma financial information acquisition occurred beginning 2017 post oak’s results operations included company’s results beginning october 1 2018 pro forma financial information necessarily indicative results operations would occurred transaction effected assumed dates determine pro forma information company adjusted year ended december 31 2018 2017 historical results include historical results post oak year ended december 31 2017 year ended december 31 2018 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects earnings post oak since acquisition date disclosed acquired company merged company separate financial information readily available company incurred approximately 13 million 17 million pretax acquisition mergerrelated expenses years ended december 31 2019 2018 respectively related post oak acquisition mergerrelated expenses reflected company’s income statement 2019 2018 excluded calculation pro forma income allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangible assets changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date company performs annual evaluation goodwill impairment allegiance bancshares inc sole reporting unit october 1 year interim basis events changes circumstances annual tests suggest additional testing may warranted determine goodwill might impaired company one reporting unit due effects covid19 pandemic continued economy movement company’s stock price company performed annual quantitative goodwill impairment analysis september 30 2020 determined goodwill impaired adverse economic conditions declines company’s stock price sustained quantitative qualitative analysis could result impairment charge recorded period event company concludes portion goodwill impaired noncash charge amount impairment would recorded earnings however charge would impact company’s liquidity operations regulatory capital triggering event occurred fourth quarter 2020 required updated goodwill impairment analysis december 31 2020 estimated aggregate future amortization expense core deposit intangibles remaining december 31 2020 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances bank required maintain reserve balances december 31 2020 2019 allegiance bancshares inc notes consolidated financial statements 5 securities amortized cost fair value investment securities follows december 31 2020 allowance credit losses recognized available sale securities unrealized loss position management believe securities impaired due reasons credit quality based upon analysis underlying risk characteristics including credit ratings qualitative factors related available sale securities consideration historical credit loss experience internal forecasts issuers securities continue make timely principal interest payments contractual terms securities furthermore management intent sell securities classified available sale table believes likely sell securities recovery cost unrealized losses due increases market interest rates yields available time underlying securities purchased fair value expected recover securities approach maturity date repricing date market yields investments decline amortized cost fair value investment securities december 31 2020 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties allegiance bancshares inc notes consolidated financial statements securities unrealized losses segregated length time securities continuous loss position follows 2020 company sold 308 million calls 73 million securities recording gross gains 391 thousand gross losses 104 thousand net gain 287 thousand year ended december 31 2020 company sold 1730 million securities recording gross gains 21 million gross losses 596 thousand net gain 15 million year ended december 31 2019 december 31 2020 2019 company securities one issuer us government agencies amount greater 10 consolidated shareholders’ equity respective dates carrying value pledged securities 185 million 243 million december 31 2020 2019 respectively majority securities pledged collateralize public fund deposits allegiance bancshares inc notes consolidated financial statements 6 loans allowance credit losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed semiannual basis connection reviews loan portfolio company considers risk elements attributable particular loan types categories assessing quality individual loans risk elements include commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income portfolio includes loans commercial customers use financing working capital needs equipment purchases expansions loans category repaid primarily cash flow borrower’s principal business operation credit risk loans driven creditworthiness borrower economic conditions impact cash flow stability business operations company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans generally dependent sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties represented 546 outstanding principal balance company’s commercial real estate loans december 31 2020 company dependent cash flows business occupying property owners requires loans generally secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period commercial real estate loans viewed primarily cash flow loans secondarily loans secured real estate credit risk loans may impacted creditworthiness borrower property values local economies company’s region iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate generally allegiance bancshares inc notes consolidated financial statements floating interest rates construction land development real estate loans usually based upon estimates costs estimated value completed project include independent appraisal reviews financial analysis developers property owners company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities company may required fund additional amounts complete project may hold property indeterminate period time sources repayment loans may include permanent loans sales developed property interim loan commitment company permanent financing obtained loans considered higher risk real estate loans due ultimate repayment sensitive interest rate changes general economic conditions availability longterm financing credit risk loans may impacted creditworthiness borrower property values local economies company’s region iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 30 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value repayment loans primarily dependent personal income credit rating borrowers credit risk loans impacted economic conditions within company’s region might impact either property values borrower’s personal income risk mitigated fact loans smaller individual amounts spread larger number borrowers v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral repayment loans come borrower’s income source typically independent loan purpose terms loans typically range 12 60 months vary based upon nature collateral size loan credit risk driven consumer economic factors unemployment general economic conditions company region creditworthiness borrower addition category company considers secondary sources income financial strength credit history borrower guarantors acquired loans carrying amount pci loans included consolidated balance sheet related outstanding balance owed december 31 2019 presented table dollars thousands changes accretable yield pci loans year ended december 31 2019 deemed immaterial nonpci loans recorded investment nonpci loans included consolidated balance sheet related outstanding balance owed presented table dollars thousands allegiance bancshares inc notes consolidated financial statements changes discount accretion nonpci loans follows dollars thousands concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans related party loans december 31 2020 2019 loans outstanding directors officers affiliates totaled 12 million 68 million respectively analysis activity respect relatedparty loans follows nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans included purposes future disclosures recorded investment defined outstanding loan balances including net deferred loan fees excluding accrued interest receivable 345 million 155 million december 31 2020 2019 respectively due immateriality allegiance bancshares inc notes consolidated financial statements interest nonaccrual loans accrued original loan terms approximately 9025 thousand 12 million would recorded income years ended december 31 2020 2019 respectively credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt company utilizes risk rating matrix assign risk rating loans rated scale 1 9 risk ratings updated ongoing basis subject change continuous loan monitoring processes including lending management monitoring executive management board committee oversight independent credit review part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks certain risk ratings used credit quality indicators including trends related weightedaverage risk grade loans ii level classified loans iii delinquency status loans iv nonperforming loans vi general economic conditions houston region individual bankers oversight credit administration review updated financial information pass grade commercial loans reassess risk grade least annual basis loan risk grade passwatch 4 still considered pass grade loan however considered management’s “watch list” significant riskmodifying action anticipated near term loan reaches set internally designated criteria including substandardnonperforming 7 higher special assets officer involved monitoring loan ongoing basis following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable allegiance bancshares inc notes consolidated financial statements lossloans classified loss chargedoff chargeddown payment acknowledged uncertain timing value payments cannot determined “loss” intended imply loan portion never paid way imply forgiveness debt following table presents risk ratings category loan december 31 2020 2019 allegiance bancshares inc notes consolidated financial statements following table presents risk ratings category loan december 31 2020 2019 1 includes net deferred fees 139 million ppp loans allegiance bancshares inc notes consolidated financial statements following table presents activity allowance credit losses loans portfolio type years ended december 31 2020 2019 2018 allowance credit losses unfunded commitments addition allowance credit losses loans company established allowance credit losses unfunded commitments classified liabilities adjusted provision credit loss expense allowance represents estimates expected credit losses contractual period exposure credit risk via contractual obligation extend credit unless obligation unconditionally cancellable company estimate includes consideration likelihood funding occur estimate expected credit losses commitments expected fund estimate commitments expected fund informed historical analysis looking utilization rates expected credit loss rates applied commitments expected fund informed general valuation allowance utilized outstanding balances underlying assumptions drivers allowance credit losses unfunded commitments december 31 2020 47 million allowance recorded unfunded commitments december 31 2019 establishment allowance 2020 due adoption cecl reserve maintained level management believes sufficient absorb losses arising unfunded loan commitments following table details activity allowance credit losses unfunded commitments allegiance bancshares inc notes consolidated financial statements collateral dependent loans secured commercial real estate assets accounts receivable inventory equipment collateral dependent loan company’s evaluation process includes valuation appraisal collateral analysis adjusted selling costs appropriate valuation compared remaining outstanding principal balance loan loss determined probable loss included allowance credit losses loans specific allocation december 31 2020 collateral dependent loans consisted primarily commercial loans following table presents amortized cost basis collateral dependent loans individually evaluated determine expected credit losses following table presents additional information regarding nonaccrual loans interest income recognized nonaccrual loans years ended december 31 2020 2019 respectively impaired loans prior adoption asc topic 326 january 1 2020 loans reported impaired based current information events probable company would unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments loan impaired specific valuation allowance allocated necessary loan reported net fair value collateral repayment expected solely collateral allegiance bancshares inc notes consolidated financial statements following table presents impaired loans december 31 2019 determined asc 310 prior adoption asc topic 326 class loans allegiance bancshares inc notes consolidated financial statements following table presents average impaired loans interest recognized impaired loans year ended december 31 2019 troubled debt restructurings december 31 2020 2019 company recorded investment troubled debt restructurings 258 million 289 million respectively company allocated 33 million 32 million specific reserves loans december 31 2020 2019 respectively commit lend additional amounts loans following table presents information regarding loans modified troubled debt restructuring years ended december 31 2020 2019 2018 troubled debt restructurings resulted chargeoffs 32 million 251 thousand 272 thousand years ended december 31 2020 2019 2018 respectively december 31 2020 four loans total 26 million modified troubled debt restructuring previous twelvemonth period subsequently defaulted year 2020 december 31 2019 five loans total 472 thousand modified troubled debt restructuring previous twelvemonth period subsequently defaulted year 2019 default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans commitments lend additional amounts years 2020 2019 year ended december 31 2020 company added 118 million new troubled debt restructurings 81 million still outstanding december 31 2020 allegiance bancshares inc notes consolidated financial statements year ended december 31 2019 company added 51 million new troubled debt restructurings 46 million still outstanding december 31 2019 year ended december 31 2020 company granted principal interest deferrals outstanding loan balances customers affected covid19 pandemic additionally upon request meeting certain conditions borrowers could granted additional payment deferrals subsequent first deferral addition shortterm modification program implemented company section 4013 cares act bank regulatory interagency guidance gave entities temporary relief accounting disclosure requirements tdrs indicating lender could conclude modifications tdr borrower less 30 days past due december 31 2019 december 31 2020 164 loans outstanding loan balances 1613 million remained deferral impact covid19 persists borrower operations improve negative events occur modified loans could transition potential problem loans problem loans following table presents information regarding principal interest deferrals december 31 2020 associated loan modifications related covid19 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date company groups financial assets financial liabilities measured fair value three levels based markets assets liabilities traded reliability assumptions used determine fair value levels • level 1quoted prices identical assets liabilities active markets entity ability access measurement date • level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data • level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity allegiance bancshares inc notes consolidated financial statements carrying amounts estimated fair values financial instruments reported balance sheet follows fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis loansthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows accordance asu 201601 adopted effective january 1 2018 discount rates used determine fair value loans used interest rate spreads reflect factors liquidity credit nonperformance risk loans depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies allegiance bancshares inc notes consolidated financial statements interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification accrued interestthe carrying amounts accrued interest approximate fair values resulting level 1 2 3 classification borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs subordinated debtthe fair values subordinated debentures notes estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material following tables present fair values assets measured fair value recurring basis liabilities measured fair value recurring basis december 31 2019 transfers levels 2020 2019 allegiance bancshares inc notes consolidated financial statements assets measured fair value nonrecurring basis summarized table liabilities measured fair value nonrecurring basis december 31 2020 2019 historically company measures fair value certain loans real estate owned nonrecurring basis described collateral dependent loans specific allocation allowance credit losses loans loan considered collateral dependent loan based current information events company expects repayment financial assets provided substantially operation sale collateral company determined borrower experiencing financial difficulty measurement date allowance credit losses loans measured estimating fair value loan based present value expected cash flows market price loan underlying fair value loan’s collateral real estate loans fair value loan’s collateral generally determined thirdparty appraisals internal evaluations adjusted estimated selling closing costs related liquidation collateral asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews thirdparty appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value nonreal estate loans fair value loan’s collateral may determined using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge client’s business real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable allegiance bancshares inc notes consolidated financial statements marketplace asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value december 31 2020 balance real estate owned 92 million consisting primarily foreclosed commercial real estate properties recorded result obtaining physical possession property company 83 million real estate owned december 31 2019 december 31 2020 2019 valuation allowance recorded 8 premises equipment premises equipment summarized follows depreciation expense 37 million year ended december 31 2020 32 million year ended december 31 2019 9 leases lease payments expected term discounted using company’s incremental borrowing rate borrowings similar terms generally company cannot reasonably certain whether renew lease time lease within last two years existing lease term company reasonably certain renewal option exercised measuresremeasures rightofuse asset related lease liability using lease payments specified renewal period amounts unspecified company generally assumes increase evaluated casebycase basis light prevailing market conditions lease payment final period existing lease term sale leaseback transactions leveraged leases lease transactions related parties years ended december 31 2020 2019 december 31 2020 company 14 leases consisting branch locations office space along equipment december 31 2020 balance sheet rightofuse asset classified within premises equipment lease liability included liabilities company also owns certain office facilities leases outside parties operating lessor leases however leases significant leases classified operating leases initial term 12 months less recorded balance sheet related lease expense recognized straightline basis lease term year 2019 allegiance bank purchased two previously leased properties total 107 million certain leases include options renew renewal terms extend lease term one five years lease assets liabilities include related options reasonably certain exercised depreciable life leased assets limited expected lease term allegiance bancshares inc notes consolidated financial statements supplemental lease information dates indicated follows lease costs dates indicated follows maturity analysis company’s lease liabilities follows 10 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2020 december 31 2019 7268 million 4858 million respectively scheduled maturities time deposits next five years follows dollars thousands company 4538 million 2635 million brokered deposits december 31 2020 2019 respectively concentrations deposits one depositor december 31 2020 2019 related party deposits principal officers directors affiliates december 31 2020 2019 92 million allegiance bancshares inc notes consolidated financial statements 11 derivative instruments 2020 company entered financial derivative financial derivatives reported fair value assets liabilities accounting changes fair value derivative depends whether designated qualifies part hedging relationship derivatives designated cash flow hedges derivative instruments designated qualify cash flow hedge aggregate fair value derivative instrument recorded assets liabilities gain loss related changes fair value recorded accumulated comprehensive income net tax gain loss reclassified earnings period hedged asset liability affects earnings presented income statement line item earnings effect hedged asset liability company uses forward cash flow hedges effort manage future interest rate exposure liabilities hedging strategy converts variable interest rate liabilities fixed interest rate used effort protect company floating interest rate variability summary company’s cash flow hedge relationship december 31 2020 follows effects company’s cash flow hedge relationship statement comprehensive income years ended december 31 2020 2019 follows net tax cash flow hedge determined effective periods presented result qualified hedge accounting treatment hedge would longer considered effective portion hedge becomes ineffective item hedged longer existence company discontinues hedge accounting company expects hedge december 31 2020 continue effective qualify hedge accounting remaining terms original hedging transactions december 31 2020 company expected 96 thousand unrealized loss reclassified interest expense next twelve months losses totaling 76 thousand net tax reclassified accumulated comprehensive income net income year ended december 31 2020 12 borrowings borrowing capacity company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2020 company total borrowing capacity 199 billion 144 billion available agreement 5502 million outstanding fhlb advances 1400 million outstanding december 31 2020 weighted average rate 119 letters credit 4102 million december 31 2020 2484 million expire 2021 1517 million expire 2022 101 million expire 2023 allegiance bancshares inc notes consolidated financial statements december 28 2018 company amended revolving credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter company required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants december 31 2020 company believes compliance debt covenants made aware noncompliance lender interest rate debt prime rate minus 25 basis points 300 december 31 2020 paid quarterly scheduled principal maturities follows dollars thousands 13 subordinated debt junior subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii aggregate original principal amount 113 million current carrying value 96 million december 31 2020 acquisition company recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests assets respective trusts subject mandatory redemption upon payment junior subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred summary pertinent information related companys issuances junior subordinated debentures outstanding december 31 2020 set forth table 1 3month libor effect december 31 2020 023364 2 debentures currently callable allegiance bancshares inc notes consolidated financial statements subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders september 2019 company completed issuance 600 million aggregate principal amount fixedtofloating rate subordinated notes company notes due october 1 2029 company notes issued price equal 100 principal amount resulting net proceeds company 586 million company notes bear fixed interest rate 470 per annum excluding october 1 2024 payable semiannually arrears april 1 october 1 commencing april 1 2020 thereafter october 1 2024 maturity date october 1 2029 earlier redemption date company notes bear interest floating rate equal thencurrent threemonth libor plus 313 basis points 313 quarterly interest period subject certain provisions set forth “description notesinterest rates interest payment dates” included prospectus supplement payable quarterly arrears january 1 april 1 july 1 october 1 year redemption price equal 100 principal amount company notes redeemed plus accrued unpaid interest subject require prior regulatory approval company notes subject redemption option holders 14 income taxes components provision federal income taxes follows reported income tax expense differs amounts computed applying us federal statutory income tax rate income taxes years ended december 31 2020 2019 2018 due following company recognized net tax shortfall related stock based compensation totaling 136 thousand 2020 compared net tax benefits 11 thousand 2019 400 thousand 2018 yearend deferred taxes presented table deferred taxes december 31 2020 2019 based 21 maximum federal statutory tax rate allegiance bancshares inc notes consolidated financial statements deferred tax assets liabilities follows interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2020 2019 2018 company longer subject examination us federal tax jurisdiction years prior 2017 15 stock based compensation december 31 2020 company two stockbased employee compensation plans awards outstanding connection acquisition post oak bancshares inc october 1 2018 company assumed post oak bancshares inc stock option plan additional awards issued 2019 company’s board directors shareholders approved 2019 amended restated stock awards incentive plan “plan” covering certain awards stockbased compensation key employees directors company affiliates plan company authorized issue maximum aggregate 3200000 shares stock 1800000 may issued incentive stock options company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 34 million 31 million 17 million years ended december 31 2020 2019 2018 respectively stock options purchase total 1309231 shares company stock granted december 31 2020 stock options granted 2020 2019 plan options exercisable 10 years date grant dependent terms applicable award agreement generally vest 4 years date grant fair value stock options granted estimated date grant using blackscholes model allegiance bancshares inc notes consolidated financial statements summary activity stock option plans years ended december 31 2020 2019 set forth company expects outstanding options december 31 2020 vest information related stock option plans year follows december 31 2020 110 thousand total unrecognized compensation cost related nonvested stock options granted plans cost expected recognized weightedaverage period 053 years restricted stock awards company issued 378091 restricted stock awards plan december 31 2020 2019 company awarded 87950 shares restricted stock weighted average grant date fair value 3497 2020 company awarded 63596 shares restricted stock weighted average grant date fair value 2259 shares restricted stock generally vest period 4 years considered outstanding date issuance company accounts shares restricted stock recording fair value grant award date compensation expense vesting period allegiance bancshares inc notes consolidated financial statements summary activity nonvested shares restricted stock december 31 2020 2019 including changes years ended follows december 31 2020 43 million unrecognized compensation expense related restricted stock awards expected recognized weightedaverage period 228 years total fair value restricted stock awards fully vested years ended december 31 2020 2019 2018 approximately 20 million 16 million 621 thousand respectively performance share units “psus” psus earned subject certain performance goals met twoyear performance period settled shares allegiance common stock following oneyear service period 2020 company awarded 46243 psus 2019 company awarded 34628 psus grant date fair value psus based probable outcome applicable performance conditions calculated target based combination closing market price common stock grant date monte carlo simulated fair value accordance asc 718 december 31 2020 12 million unrecognized compensation expense related psus expected recognized weightedaverage period 188 years 16 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employees contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2020 2019 2018 14 million 14 million 962 thousand respectively profit sharing plan financial statements include accrual 35 million 37 million 25 million contribution plan profit sharing contribution years ended december 31 2020 2019 2018 respectively employee stock purchase plan company offers employees opportunity purchase shares allegiance’s common stock pursuant terms allegiance bancshares inc 2019 amended restated employee stock purchase plan “espp” espp adopted board directors provide employees opportunity purchase shares allegiance order provide employees direct opportunity participate company’s growth company allows employees purchase shares 15 discount allegiance bancshares inc notes consolidated financial statements market value thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 142 thousand 210 thousand 48 thousand years ended december 31 2020 2019 2018 respectively 17 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows commitments make loans generally made periods 120 days less december 31 2020 fixed rate loan commitments interest rates ranging 120 1800 weighted average maturity rate 353 years 513 respectively 18 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s consolidated financial statements management believes december 31 2020 2019 company bank met capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial allegiance bancshares inc notes consolidated financial statements condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2020 2019 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category following summary company’s bank’s actual required capital ratios december 31 2020 2019 dividend restrictions allegiances principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies addition allegiances credit agreement another financial institution also limits ability pay dividends applicable banking regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described allegiance bancshares inc notes consolidated financial statements 19 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options psus issued company represent dilutive effect reflected diluted weighted average shares common shares issuable restricted stock awards considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options 39050 23125 54175 shares considered computing diluted earnings per share december 31 2020 2019 2018 respectively antidilutive allegiance bancshares inc notes consolidated financial statements 20 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 21 quarterly financial data unaudited 1 earnings per share computed independently quarters presented therefore may total earnings per share year 2 reflect adoption asc 326 22 subsequent event dividend declaration january 27 2021 company declared cash dividend 012 per share common stock paid march 15 2021 shareholders record february 26 2021 item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 72 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2015 2014 consolidated statements income years ended december 31 2015 2014 2013 consolidated statements comprehensive income years ended december 31 2015 2014 2013 consolidated statements changes stockholders’ equity years ended december 31 2015 2014 2013 consolidated statements cash flows years ended december 31 2015 2014 2013 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibits exhibit number description 31 amended restated certificate formation allegiance bancshares inc incorporated herein reference exhibit 31 company’s registration statement form s1 registration 333206536 “registration statement” 32 bylaws allegiance bancshares inc incorporated herein reference exhibit 32 registration statement 41 specimen common stock certificate incorporated reference exhibit 41 registration statement 101 tax allocation agreement dated april 1 2013 allegiance bancshares inc allegiance bank fka allegiance bank texas incorporated reference exhibit 101 registration statement 102 allegiance bancshares inc 2015 amended restated stock awards incentive plan including form awards incorporated reference exhibit 102 registration statement 103 credit agreement dated december 22 2014 among allegiance bancshares inc prosperity bank incorporated reference exhibit 103 registration statement 104 form director officer indemnification agreement incorporated reference exhibit 104 amendment 1 registration statement 105 consulting agreement dated august 5 2013 allegiance bank fka allegiance bank texas lawrence g fraser incorporated reference exhibit 105 registration statement 211 subsidiaries allegiance bancshares inc 231 consent crowe horwath llp 232 consent seidel schroeder formerly seidel schroeder company 311 certification chief executive officer pursuant rule 13a14a securities exchange act 1934 amended 312 certification chief financial officer pursuant rule 13a14a securities exchange act 1934 amended 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101 sch xbrl taxonomy extension schema document exhibit 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed annual report form 10k furnished annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 22 2016 pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated signature positions date george martinez chairman chief executive officer march 22 2016 george martinez principal executive officer director steven f retzloff president director march 22 2016 steven f retzloff laurence l lehman iii chief financial officer march 22 2016 laurence l lehman iii principal financial principal accounting officer ramon vitulli iii director march 22 2016 ramon vitulli iii daryl bohls director march 22 2016 daryl bohls john beckworth director march 22 2016 john beckworth lawrence g fraser director march 22 2016 lawrence g fraser matthew h hartzell director march 22 2016 matthew h hartzell umesh jain director march 22 2016 umesh jain frances h jeter director march 22 2016 frances h jeter james j kearney director march 22 2016 james j kearney signature positions date p michael mann md director march 22 2016 p michael mann md david b moulton director march 22 2016 david b moulton william nichols iii director march 22 2016 william nichols iii thomas reiser director march 22 2016 thomas reiser raimundo riojas e director march 22 2016 raimundo riojas e fred robertson director march 22 2016 fred robertson report independent registered public accounting firm crowe horwath llp independent member crowe horwath international board directors shareholders allegiance bancshares inc houston texas audited accompanying consolidated balance sheets allegiance bancshares inc “company” december 31 2015 2014 related consolidated statements income comprehensive income changes stockholders equity cash flows years ended consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position allegiance bancshares inc december 31 2015 2014 results operations cash flows years ended december 31 2015 2014 conformity us generally accepted accounting principles crowe horwath llp dallas texas march 22 2016 report independent registered public accounting firm board directors stockholders allegiance bancshares inc audited accompanying consolidated statements income comprehensive income changes stockholders equity cash flows allegiance bancshares inc “company” year ended december 31 2013 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects results operations cash flows allegiance bancshares inc year ended december 31 2013 conformity accounting principles generally accepted united states america seidel schroeder company brenham texas march 19 2014 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes stockholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see note 2 regarding noncash transactions included fm bancshares inc acquisition see note 2 regarding noncash transactions included independence bank acquisition see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 16 offices houston texas surrounding region year ended december 31 2015 additional two offices central texas bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates initial public offering ipo october 2015 company completed initial public offering common stock connection company’s initial public offering company sold issued 2990000 shares common stock 21 per share resulting total proceeds received company net offering costs 571 million cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component stockholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method allegiance bancshares inc notes consolidated financial statements management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost bases less otti recognized earnings shall become new amortized cost basis security loans held saleloans held sale carried lower aggregate cost fair value first quarter 2015 company purchased fm bancshares december 31 2015 loans held sale consists loans two former fm bancshares inc branches central texas sale loans held investmentloans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonrefundable fees costs associated lending activities loan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company deems loan uncollectible allegiance bancshares inc notes consolidated financial statements troubled debt restructurings tdrsloans terms modified resulting concession granted borrower’s financial difficulty considered troubled debt restructurings classified impaired restructuring loan considered troubled debt restructuring borrower experiencing financial difficulties ii creditor granted concession would otherwise consider concessions may include reductions interest rates market interest rate extension terms debt principal forgiveness restructuring payment debt obligation actions intended minimize potential losses subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby loans measured present value estimated future cash flows using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral impaired loanson continuous basis loans evaluated impairment classification loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed allowance loan lossesthe allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following chargeoff loans decrease allowance ii subsequent recoveries loans previously charged increase allowance iii provisions loan losses charged earnings increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired company follows loan review program evaluate credit risk loan portfolio loans identified impaired generally reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry company specific historical loan loss experience volume growth composition loan portfolio evaluation company’s loan portfolio internal loan review process general current economic conditions internal external company may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates allowance loan losses adjusted level determined adequate estimates loan losses inherently subjective involves exercise judgment management allowance loan losses reflected consolidated balance sheets adequate absorb probable losses exist loan portfolio reporting date troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses assesses exposure modification either collateral discounting calculation present value future cash flows determines specific allocation allowance loan losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full return troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference allegiance bancshares inc notes consolidated financial statements premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2015 loans secured residential real estate properties formal foreclosure proceeds process federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insuranceduring first quarter 2015 company purchased bank owned life insurance policies certain key executives conjunction acquisition fm bancshares company acquired life insurance policies bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill determined indefinite useful life amortized tested impairment least annually frequently events circumstances exists indicate goodwill impairment test performed company performs annual impairment test october 1 goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven nine years borrowed fundsthe company borrowing agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement awards graded vesting compensation cost recognized straightline basis requisite service period entire award fair value stock options granted employee stock purchase plan awards estimated date grant using blackscholes optionpricing model market price company’s common stock date grant used value restricted stock awards employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accounts allegiance bancshares inc notes consolidated financial statements income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity company recorded measurement period adjustments goodwill related previous acquisition noted note 3 goodwill core deposit intangibles 2014 earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options restricted stock awards employee stock purchase plan loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders new accounting standards adoption new accounting standards january 1 2015 company adopted accounting standards update asu 201404 “receivablestroubled debt restructurings creditors subtopic 31040 reclassification residential real estate collateralized consumer mortgage loans upon foreclosure” asu 201404 intends reduce diversity clarifying substance repossession foreclosure occurs creditor considered received physical possession residential real estate property collateralizing consumer mortgage loan receivable derecognized real estate property recognized adoption asu material impact company’s financial statements allegiance bancshares inc notes consolidated financial statements newly issued yet effective accounting standards asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu 201516 requires acquirer recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined acquirer must record period’s financial statements effect earnings changes depreciation amortization income effects result change provisional amounts calculated accounting completed acquisition date additionally entity required present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date asu 201516 effective company beginning january 1 2016 asu 201516 expected significant impact company’s financial statements asu 201409 “revenue contract customers topic 606” asu 201409 supersedes revenue recognition requirements revenue recognition topic 605 industryspecific guidance throughout industry topics codification core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 currently effective company beginning january 1 2018 retrospective application prior reporting period presented company still evaluating potential impact company’s financial statements 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier twelve months date acquisition ii soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisitions completed dates indicated 2013 acquisition independence bank naon november 15 2013 company completed acquisition independence bank na “independence bank” independence bank operated 3 banking offices houston texas company acquired independence bank increase market share houston texas area enhance sba lending capabilities expand commercial lending team solidify mortgage warehouse program terms acquisition agreement company issued 864723 shares company common stock converted existing options purchase shares independence bank options company’s stock paid 173 million cash outstanding shares independence bank common stock warrants options company incurred approximately 395 thousand 239 thousand pretax merger related expenses years ended december 31 2014 2013 respectively related independence bank acquisition december 31 2015 2014 total goodwill related independence bank acquisition 111 million goodwill resulted combination expected operational synergies enhanced branching network crossselling opportunities goodwill expected deductible tax purposes allegiance bancshares inc notes consolidated financial statements summary final purchase price allocation follows dollars thousands 2015 acquisition fm bancshares incon january 1 2015 company completed acquisition fm bancshares inc “fm bancshares” whollyowned subsidiary enterprise bank “enterprise” headquartered houston texas enterprise operated nine banking locations seven houston texas two central texas two central texas locations related assets classified within loans held sale branch assets held sale december 31 2015 first quarter 2015 company consolidated two seven acquired houston area locations due close proximity locations existing banking locations company acquired fm bancshares expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network crossselling opportunities goodwill expected deductible tax purposes company acquired fm bancshares expand houston texas area market allegiance bancshares inc notes consolidated financial statements pursuant merger agreement company issued 2338520 shares company common stock outstanding shares fm bancshares capital stock paid 642 thousand cash fractional state shares held fm bancshares shareholders company recognized goodwill 282 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes fm bancshares’ results operations included company’s results beginning january 1 2015 year ended december 31 2015 net interest income associated fm bancshares 171 million company track separately noninterest income noninterest expense fm bancshares branches december 31 2015 company finalized valuation assets liabilities acquired resulting changes preliminary acquisition accounting adjustments summary final purchase price allocation follows dollars thousands subsequent acquisition company paid 180 million borrowed funds fm bancshares shareholders drawing borrowing another financial institution additionally securities acquired fm bancshares sold subsequent acquisition income statement impact additionally july 15 2015 company redeemed outstanding shares series b preferred stock aggregate redemption price 117 million sum liquidation amount plus accrued unpaid dividends excluding redemption date company issued shares series b preferred stock connection fm bancshares acquisition preferred stock pursuant us treasury’s troubled asset relief program allegiance bancshares inc notes consolidated financial statements fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired january 1 2015 following table presents unaudited pro forma financial information acquisition occurred beginning 2014 pro forma financial information necessarily indicative results operations would occurred transactions effected assumed dates determine pro forma information company adjusted year ended december 31 2015 2014 historical results include historical results fm bancshares year ended december 31 2014 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects company incurred approximately 941 thousand 245 thousand pretax merger related expenses years ended december 31 2015 2014 respectively related fm bancshares acquisition merger expenses reflected company’s income statement applicable periods reported primarily categories salaries benefits professional fees excluded calculation pro forma income december 31 2015 company held two central texas locations related assets sale assets held sale locations include loans related accrued interest receivable loans premises equipment loans presented loans held sale balance sheet branch assets held sale reported balance sheet include accrued interest receivable premises equipment two respective locations see note 20 subsequent events regarding completion sale two central texas banking locations january 2016 allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangibles changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date 145 thousand measurement period adjustment recorded 2014 related independence bank acquisition october 1 2015 company elected perform quantitative step 1 goodwill assessment step 1 assessment includes determination carrying value reporting unit including existing goodwill intangible assets estimating fair value reporting unit quantitative assessment indicated fair value reporting unit exceeded carrying value resulting impairment estimated aggregate future amortization expense core deposit intangibles remaining december 31 2015 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances “cash due banks” consolidated balance sheets includes restricted amounts 503 million 274 million december 31 2015 2014 respectively allegiance bancshares inc notes consolidated financial statements 5 securities amortized cost fair value investment securities follows december 31 2015 company management expect sell securities classified available sale material unrealized losses company believes likely required sell securities anticipated recovery time company receive full value securities fair value expected recover securities approach maturity date repricing date market yields investments decline management believe securities impaired due reasons credit quality accordingly december 31 2015 management believes unrealized losses previous table temporary impairment loss realized company’s consolidated statements income amortized cost fair value investment securities december 31 2015 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties allegiance bancshares inc notes consolidated financial statements securities unrealized losses segregated length time securities continuous loss position follows december 31 2015 company’s security portfolio consisted 236 securities 16 unrealized loss position 12 months realized losses securities company believes securities temporarily impaired due changes market interest rates majority unrealized losses related company’s mortgagebacked securities first quarter 2015 company sold securities acquired fm bancshares transaction resulting gross proceeds approximately 150 million gains losses recognized additionally company sold 22 million securities 2015 recorded loss sale 37 thousand company sold 20 million securities 2014 recorded gain sale 82 thousand gain loss sale securities year ended december 31 2013 december 31 2015 2014 company securities one issuer us government agencies amount greater 10 consolidated stockholders’ equity respective dates company pledged securities december 31 2015 2014 respectively allegiance bancshares inc notes consolidated financial statements 6 loans allowance loan losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows 1consists loans two former fm bancshares locations acquired january 1 2015 december 31 2015 loans held sale consists 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million 14 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value january 31 2016 company completed sale former fm bancshares branches related assets located central texassee note 20subsequent events 2mortgage warehouse previously reported within commercial industrial loan portfolio loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated company’s mortgage warehouse portfolio promissory notes originated company’s mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times allegiance bancshares inc notes consolidated financial statements loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed annual basis commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans dependent large part sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties generally involve less risk represented approximately 53 outstanding principal balance company’s commercial real estate loans december 31 2015 company dependent cash flows business occupying property owners requires loans secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate floating interest rates company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often involves disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan company forced foreclose project prior completion assurance company able recover unpaid portion loan addition company may required fund additional amounts complete project may hold property indeterminate period time iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 20 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value allegiance bancshares inc notes consolidated financial statements v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans home improvement loans home equity loans home equity lines credit consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral terms loans typically range 12 60 months vary based upon nature collateral size loan generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans related party loans december 31 2015 2014 loans outstanding directors officers affiliates totaled 25 million 13 million respectively analysis activity respect relatedparty loans follows allegiance bancshares inc notes consolidated financial statements nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans follows 3includes 13 million loans acquired fm bancshares 4includes 676 thousand loans acquired fm bancshares nonaccrual loans december 31 2015 consisted 31 separate credits interest nonaccrual loans accrued original loan terms approximately 404 thousand 187 thousand would recorded income years ended december 31 2015 2014 respectively allegiance bancshares inc notes consolidated financial statements impaired loans impaired loans class loans set forth following tables average recorded investment presented table reported yeartodate basis allegiance bancshares inc notes consolidated financial statements increase impaired loans december 31 2014 december 31 2015 primarily due single energy related relationship downgraded average recorded investment impaired loans year ended december 31 2013 71 million interest income recognized year ended december 31 2013 450 thousand credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt including factors current financial information historical payment experience credit documentation public information current economic trends company analyzes loans individually classifying loans credit risk part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks risk ratings used credit quality indicators allegiance bancshares inc notes consolidated financial statements following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans based recent analysis performed risk category loans class loan december 31 2015 follows allegiance bancshares inc notes consolidated financial statements following table presents risk category loans class loan december 31 2014 allowance loan losses december 31 2015 allowance loan losses totaled 131 million 078 total loans december 31 2014 allowance aggregated 82 million 082 total loans following table presents activity allowance loan losses portfolio type years ended december 31 2015 2014 2013 allegiance bancshares inc notes consolidated financial statements following table presents balance allowance loan losses portfolio type based impairment method december 31 2015 2014 following table presents recorded investment loans held investment portfolio type based impairment method december 31 2015 2014 troubled debt restructurings december 31 2015 2014 company recorded investment troubled debt restructurings 31 million 17 million respectively company allocated 681 thousand 205 thousand specific reserves loans december 31 2015 2014 respectively commit lend additional amounts loans allegiance bancshares inc notes consolidated financial statements following table presents information regarding loans modified troubled debt restructuring years ended december 31 2015 2014 2013 troubled debt restructurings resulted chargeoffs 45 thousand 38 thousand 19 thousand years ended december 31 2015 2014 2013 respectively december 31 2015 defaults loans modified troubled debt restructurings preceding 12 months default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans year ended december 31 2015 company added 30 million new troubled debt restructurings 22 million still outstanding december 31 2015 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy •level 1quoted prices identical assets liabilities active markets entity ability access measurement date •level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data •level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity following method determine fair value loans held sale adopted first quarter 2015 part fm bancshares transaction loans held saleloans held sale carried lower aggregate cost fair value evaluated poollevel basis fair value loans held sale determined using assets adjusted specific attributes loan observable market data company classifies fair value loans held sale level 3 allegiance bancshares inc notes consolidated financial statements carrying amounts estimated fair values financial instruments reported balance sheet follows fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis allegiance bancshares inc notes consolidated financial statements loans held investmentthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows based interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification methods utilized estimate fair value loans necessarily represent exit price federal home loan bank stockthe fair value fhlb stock estimated equal carrying amount practical determine fair value fhlb stock due restrictions placed transferability depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowingsthe carrying amounts shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification subordinated debenturesthe fair value subordinated debentures estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs accrued interestthe carrying amounts accrued interest approximate fair values resulting level 2 3 classification offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material allegiance bancshares inc notes consolidated financial statements following tables present fair values assets measured fair value recurring basis liabilities measured fair value recurring basis december 31 2015 2014 transfers levels 2015 2014 allegiance bancshares inc notes consolidated financial statements certain assets liabilities measured fair value nonrecurring basis instruments measured fair value ongoing basis subject fair value adjustments certain circumstances evidence impairment historically measure fair value certain loans real estate owned nonrecurring basis described real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable marketplace company real estate owned december 31 2015 2014 impaired loans specific allocation allowance impaired loans company measured fair value generally based fair value loan’s collateral loan considered impaired based current information events probable company unable collect amounts due pursuant contractual terms loan agreement fair value generally determined based appraisals properties adjusted estimated selling closing costs related liquidation collateral discounted cash flows based upon expected proceeds estimated selling closing costs range 5 10 value underlying collateral allegiance bancshares inc notes consolidated financial statements years ended december 31 2015 2014 certain impaired loans reevaluated reported fair value specific allocation allowance loan losses december 31 2015 total reported fair value impaired loans 19 million based collateral valuations utilizing level 3 valuation inputs carrying value 27 million reduced specific allowance allocations totaling 859 thousand december 31 2014 total reported fair value impaired loans 15 million based collateral valuations utilizing level 3 valuation inputs carrying value 20 million reduced specific allowance allocations totaling 512 thousand 8 premises equipment premises equipment summarized follows depreciation expense 16 million 11 million 813 thousand years ended december 31 2015 2014 2013 respectively 9 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2015 december 31 2014 1647 million 1408 million respectively scheduled maturities time deposits next five years follows dollars thousands company 565 million 506 million brokered deposits major concentrations deposits one depositor december 31 2015 2014 respectively included amounts reciprocal deposits company placed certificates deposits account registry service cdars network 555 million 495 million december 31 2015 2014 respectively related party deposits principal officers directors affiliates december 31 2015 2014 120 million 71 million respectively allegiance bancshares inc notes consolidated financial statements 10 borrowings company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances shortterm borrowings used manage liquidity needed maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2015 company total borrowing capacity 6773 million 5993 million available 780 million outstanding shortterm fhlb advances 500 million outstanding december 31 2015 weighted average rate 031 letters credit 280 million december 31 2015 500 thousand expired january 2016 25 million expire august 2016 250 million expire october 2016 2015 company borrowed additional 180 million borrowing agreement another financial institution addition 101 million indebtedness incurred 2014 borrowing matures december 2021 company used funds borrowed 2015 repay debt fm bancshares owed used borrowed funds 2014 pay previous borrowing another financial institution entered 2013 conjunction purchase independence bank october 2015 company paid 275 million borrowing agreement portion proceeds initial public offering note agreement requires company meet certain restrictive covenants december 31 2015 company believes compliance debt covenants made aware noncompliance lender interest rate debt prime rate minus 25 basis points 325 december 31 2015 paid quarterly scheduled principal maturities follows dollars thousands 11 subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests assets respective trusts subject mandatory redemption upon payment junior subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred company assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 91 million december 31 2015 acquisition company rewarded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures december 31 2015 company 113 million outstanding junior subordinated debentures issued company’s unconsolidated subsidiary trusts junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations allegiance bancshares inc notes consolidated financial statements summary pertinent information related company’s issues junior subordinated debentures outstanding december 31 2015 set forth table 1the 3month libor effect december 31 2015 05393 2all debentures currently callable 12 income taxes components provision federal income taxes follows effective tax rates differ amount computed applying federal income tax statutory rate income taxes due following allegiance bancshares inc notes consolidated financial statements deferred tax assets liabilities follows amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible items year ended december 31 2015 income tax expense 78 million compared 48 million year ended december 31 2014 39 million year ended december 31 2013 increase income tax expense year primarily attributable higher pretax earnings effective income tax rate year ended december 31 2015 330 compared 349 year ended december 31 2014 360 year ended december 31 2013 effective tax rate decreased year ended 2015 compared period 2014 2013 due increase tax free income purchase additional municipal securities bank owned life insurance 2015 interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2015 2014 2013 company longer subject examination us federal tax jurisdiction years prior 2012 13 stock based compensation 2008 company’s board directors shareholders approved 2008 stock awards incentive plan “plan” covering certain key employees purchase shares company’s stock plan amended 2015 shareholders authorized maximum aggregate number shares stock issued 1460000 may issued incentive stock options company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 14 million 731 thousand 375 thousand years ended december 31 2015 2014 2013 respectively stock option plan options purchase total 1134081 shares company stock granted december 31 2015 plan options exercisable 10 years date grant unless otherwise provided board directors fully vested 4 years date grant allegiance bancshares inc notes consolidated financial statements fair value stock options granted estimated date grant using blackscholes optionpricing model blackscholes pricing model utilizes certain assumptions noted table given minimal trading company’s stock practicable company estimate volatility share price therefore company uses volatility appropriate industry index nasdaq community bank index input valuation model company uses historical data estimate option exercise postvesting termination behavior expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant summary activity stock option plan years ended december 31 2015 2014 set forth company expects outstanding options december 31 2015 vest information related stock option plan year follows december 31 2015 24 million total unrecognized compensation cost related nonvested stock options granted plan cost expected recognized weightedaverage period 237 years allegiance bancshares inc notes consolidated financial statements share award plan company issued 60955 restricted stock awards plan december 31 2015 2014 company issued 8385 shares restricted stock grant date fair value 2034 per share 2015 company awarded 3983 shares restricted stock grant date fair value 2200 restricted stock shares vest period 4 years considered outstanding date issuance company accounts restricted stock grants recording fair value grant compensation expense vesting period summary activity nonvested shares restricted stock december 31 2015 2014 including changes years ended follows december 31 2015 227 thousand unrecognized compensation expense related restricted stock awards expected recognized remaining period 2 years total fair value restricted stock awards fully vested years ended december 31 2015 2014 2013 approximately 220 thousand 200 thousand 109 thousand respectively 14 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employee contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2015 2014 2013 551 thousand 303 thousand 212 thousand respectively profit sharing plan financial statements include accrual 12 million 823 thousand 583 thousand contribution plan profit sharing contribution years ended december 31 2015 2014 2013 respectively employee stock purchase plan company offers employees opportunity purchase shares company’s common stock pursuant terms allegiance bancshares inc amended restated employee stock purchase plan “espp plan” espp plan adopted board directors provide employees opportunity purchase shares company order provide employees direct opportunity participate company’s growth company allows employees purchase shares discount thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 96 thousand year ended december 31 2015 allegiance bancshares inc notes consolidated financial statements 15 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows commitments make loans generally made periods 120 days less december 31 2015 fixed rate loan commitments interest rates ranging 160 900 weighted average maturity rate 228 years 510 respectively allegiance bancshares inc notes consolidated financial statements leases following table presents summary noncancelable future operating lease commitments december 31 2015 dollars thousands expected normal course business expiring leases renewed replaced leases property equipment rent expense noncancelable operating lease obligations aggregated approximately 26 million 20 million 15 million years ended december 31 2015 2014 2013 respectively 16 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s consolidated financial statements final rules implementing basel committee banking supervision’s capital guideline us banks basel iii rules became effective company january 1 2015 full compliance requirements phased multiyear schedule fully phased january 1 2019 management believes december 31 2015 2014 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required year end 2015 2014 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category allegiance bancshares inc notes consolidated financial statements following summary company’s bank’s actual required capital ratios december 31 2015 2014 dividend restrictions company’s principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described allegiance bancshares inc notes consolidated financial statements 17 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options issued company represent dilutive effect reflected diluted weighted average shares restricted shares considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options 39 thousand shares common stock issued 2200 per share 42 thousand share common stock issued 2000 per share considered computing diluted earnings per common share 2014 2013 respectively antidilutive stock options december 31 2015 dilutive considered computing diluted earnings per share allegiance bancshares inc notes consolidated financial statements 18 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 19 quarterly financial data unaudited 1earnings per share computed independently quarters presented therefore may total earnings per share year 20 subsequent events january 31 2016 bank completed sale two central texas banking locations acquired part fm bancshares acquisition incommons bank na national banking association headquartered mexia texas terms purchase assumption agreement incommons bank na acquired certain assets assume certain liabilities associated mart banking location 714 texas avenue mart texas rosebud banking location 339 main street rosebud texas allegiance sold 182 million 266 million loans deposits respectively recorded tax gain approximately 14 million sale branches item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 72 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2018 2017 consolidated statements income years ended december 31 2018 2017 2016 consolidated statements comprehensive income years ended december 31 2018 2017 2016 consolidated statements changes shareholders’ equity years ended december 31 2018 2017 2016 consolidated statements cash flows years ended december 31 2018 2017 2016 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibit number description 21 agreement plan reorganization allegiance bancshares inc post oak bancshares inc dated april 30 2018 incorporated herein reference exhibit 21 companys form 8k filed may 1 2018 31 amended restated certificate formation allegiance bancshares inc incorporated herein reference exhibit 31 company’s quarterly report form 10q filed november 1 2018 32 bylaws allegiance bancshares inc incorporated herein reference exhibit 32 company’s registration statement form s1 registration 333206536 “registration statement” 41 specimen common stock certificate incorporated reference exhibit 41 registration statement 42 form fixedtofloating rate subordinated note due december 15 2027 certificate incorporated reference exhibit 41 companys current report form 8k filed december 14 2017 101 tax allocation agreement dated april 1 2013 allegiance bancshares inc allegiance bank fka allegiance bank texas incorporated reference exhibit 101 registration statement 102 allegiance bancshares inc 2015 amended restated stock awards incentive plan including form awards incorporated reference exhibit 102 registration statement 103 credit agreement dated december 22 2014 among allegiance bancshares inc prosperity bank incorporated reference exhibit 103 registration statement 104 form director officer indemnification agreement incorporated reference exhibit 104 amendment 1 registration statement 105 amendment allegiance bancshares inc 2015 amended restated stock awards incentive plan incorporated reference exhibit 101 companys current report form 8k filed may 24 2017 106 allegiance bancshares inc form nonemployee director restricted stock agreement incorporated reference exhibit 101 company’s quarterly report form 10q filed may 5 2017 107 amended restated employee stock purchase plan incorporated reference exhibit 991 companys registration statement form s8 registration 333208600 108 amendment amended restated employee stock purchase plan incorporated reference exhibit 108 company’s annual report form 10k filed march 9 2018 109 amendment 1 credit agreement dated december 28 2018 among allegiance bancshares inc prosperity bank incorporated reference exhibit 101 company’s current report form 8k filed december 31 2018 1010 allegiance bancshares inc annual incentive plan incorporated reference exhibit 101 company’s current report form 8k filed january 29 2019 211 subsidiaries allegiance bancshares inc 231 consent crowe llp 311 certification chief executive officer pursuant rule 13a14a securities exchange act 1934 amended 312 certification chief financial officer pursuant rule 13a14a securities exchange act 1934 amended 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document exhibit 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document exhibits filed annual report form 10k furnished annual report form 10k item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 11 2019 pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated signature positions date george martinez chairman chief executive officer march 11 2019 george martinez principal executive officer director steven f retzloff director march 11 2019 steven f retzloff paul p egge chief financial officer march 11 2019 paul p egge principal financial principal accounting officer ramon vitulli iii director march 11 2019 ramon vitulli iii john beckworth director march 11 2019 john beckworth matthew h hartzell director march 11 2019 matthew h hartzell robert ivany director march 11 2018 robert ivany umesh jain director march 11 2019 umesh jain frances h jeter director march 11 2019 frances h jeter james j kearney director march 11 2019 james j kearney signature positions date p michael mann md director march 11 2019 p michael mann md robert e mckee iii director march 11 2019 robert e mckee iii david b moulton director march 11 2019 david b moulton william nichols iii director march 11 2019 william nichols iii thomas reiser director march 11 2019 thomas reiser raimundo riojas e director march 11 2019 raimundo riojas e fred robertson director march 11 2019 fred robertson louis waters jr director march 11 2019 louis waters jr roland l williams director march 11 2019 roland l williams report independent registered public accounting firm shareholders board directors allegiance bancshares inc houston texas opinion financial statements audited accompanying consolidated balance sheets allegiance bancshares inc company december 31 2018 2017 related consolidated statements income comprehensive income changes shareholders’ equity cash flows three years period ended december 31 2018 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion crowe llp served companys auditor since 2014 dallas texas march 11 2019 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes shareholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation us generally accepted accounting principles “gaap” company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 28 offices 27 bank offices one loan production office houston metropolitan area one office beaumont outside houston metropolitan area year ended december 31 2018 bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity gaap requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates acquisition october 1 2018 allegiance completed acquisition post oak bancshares inc see note 2 acquisitions additional information pertaining post oak acquisition impact transaction company’s consolidated financial statements cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component shareholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost bases less otti recognized earnings shall become new amortized cost basis security loans held investmentloans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance acquired loansacquired loans recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates certain larger purchased loans individually evaluated certain purchased loans grouped together according similar risk characteristics treated aggregate applying allegiance bancshares inc notes consolidated financial statements various valuation techniques cash flow evaluations inherently subjective require material estimates may susceptible significant change loans acquired business combination evidence deterioration credit quality since origination probable acquisition company unable collect contractually required payments receivable considered purchased credit impaired “pci” pci loans individually evaluated recorded fair value date acquisition initial valuation allowance based discounted cash flow methodology considers various factors including type loan related collateral classification status fixed variable interest rate term loan whether loan amortizing discount rate reflecting company’s assessment risk inherent cash flow estimates increases expected cash flows including prepayments subsequent initial investment recognized prospectively adjustment yield loan remaining life decreases expected cash flows recognized impairment valuation allowances pci loans reflect losses incurred acquisition meaning present value cash flows expected acquisition ultimately received acquired loans deemed creditimpaired acquisition differences initial fair value unpaid principal balance recognized interest income levelyield basis lives related loans subsequent acquisition date methods utilized estimate required allowance loan losses loans similar originated loans however provision credit losses recorded extent required allowance exceeds remaining purchase discounts acquired loan undergoes new underwriting meets criteria new loan case loan renewal remaining fair value adjustments accreted interest income loan establishes new amortized cost basis fully subject companys allowance loan loss methodology nonrefundable fees costs associated lending activities loan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company confirms loss loan troubled debt restructurings tdrsloans terms modified resulting concession granted borrower’s financial difficulty considered troubled debt restructurings classified impaired restructuring loan considered troubled debt restructuring 1 borrower experiencing financial difficulties 2 creditor granted concession would otherwise consider concessions may include reductions interest rates market interest rate extension terms debt principal forgiveness restructuring payment debt obligation actions intended minimize potential losses subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby loans measured present value estimated future cash flows allegiance bancshares inc notes consolidated financial statements using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral impaired loanson continuous basis loans evaluated impairment classification loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed allowance loan lossesthe allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired company follows loan review program evaluate credit risk loan portfolio loans identified impaired generally reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry company specific historical loan loss experience volume growth composition loan portfolio evaluation company’s loan portfolio internal loan review process general current economic conditions internal external company may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates allowance loan losses adjusted level determined adequate estimates loan losses inherently subjective involves exercise judgment management allowance loan losses reflected consolidated balance sheets adequate absorb probable losses exist loan portfolio reporting date troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses company assesses exposure modification either collateral discounting calculation present value future cash flows determines specific allocation allowance loan losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full company returns troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2018 630 thousand balance real estate owned residential real estate property federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock allegiance bancshares inc notes consolidated financial statements carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insurancethe company purchased bank owned life insurance policies certain key executives acquired life insurance policies conjunction acquisitions fm bancshares post oak bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill determined indefinite useful life amortized tested impairment least annually frequently events circumstances exists indicate goodwill impairment test performed company performs annual impairment test october 1 goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven ten years borrowed fundsthe company credit agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement awards graded vesting compensation cost recognized straightline basis requisite service period entire award fair value stock options granted employee stock purchase plan awards estimated date grant using blackscholes optionpricing model market price company’s common stock date prior grant date used value restricted stock awards employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accounts income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates allegiance bancshares inc notes consolidated financial statements operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income shareholders’ equity earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options restricted stock awards employee stock purchase plan loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders addition allegiances credit agreement another financial institution also limits ability pay dividends revenue contracts customersthe company records revenue contracts customers accordance accounting standards codification topic 606 “revenue contracts customers” “topic 606” topic 606 company must identify contract customer identify performance obligations contract determine transaction price allocate transaction price performance obligations contract recognize revenue company satisfies performance obligation significant revenue recognized current reporting period results performance obligations satisfied previous periods company’s primary sources revenue derived interest dividends earned loans investment securities financial instruments within scope topic 606 company evaluated nature contracts customers determined disaggregation revenue contracts customers granular categories beyond presented consolidated statements income necessary company generally fully satisfies performance obligations contracts customers services rendered transaction prices typically fixed charged either periodic basis based activity performance obligations satisfied services rendered transaction prices fixed company made significant judgments applying revenue guidance prescribed asc 606 affect determination amount timing revenue contracts customers new accounting standards adoption new accounting standards asu 201409 “revenue contracts customers topic 606” asu 201409 supersedes revenue recognition requirements revenue recognition topic 605 industryspecific guidance throughout industry topics codification core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new standard effective company january 1 2018 management completed analysis impact standard’s adoption asu significant impact company’s consolidated financial statements related disclosures company’s primary sources revenue derived interest dividends earned loans investment securities financial instruments within scope asu 201409 company’s revenue recognition pattern revenue streams within scope asu 201409 including limited service charges deposit accounts gainslosses sale oreo change significantly current practice standard permits use either full retrospective modified retrospective transition method company elected use modified retrospective transition method requires application asu 201409 uncompleted contracts date adoption however periods prior date adoption retrospectively revised impact asu uncompleted contracts date adoption material asu 201601 “financial instruments overall subtopic 82510 recognition financial assets financial liabilities” asu 201601 makes targeted amendments fair value measurement disclosure guidance asu 201601 requires equity investments equity method investments measured fair value changes fair value recognized net income change applied readily determinable fair value obtained adoption standard also resulted use exit price rather entrance price determine fair value loans measured fair value nonrecurring basis consolidated balance sheets see note 7 fair value disclosures information regarding valuation loans asu 201601 became effective company january 1 2018 allegiance bancshares inc notes consolidated financial statements asu 201701 “business combinations topic 805 clarifying definition business” “asu 201701” improve definition result assist entities evaluating whether transactions accounted acquisitions disposals assets business combinations definition business impacts many areas accounting including acquisitions disposals goodwill consolidation asu 201701 became effective company january 1 2018 applied prospective approach company expects adoption new guidance impact determination whether future acquisitions considered business combinations asset purchases newly issued yet effective accounting standards asu 201602 “leases topic 842 asu 201602 among things require lessees recognize lease liability lessee’s obligation make lease payments arising lease measured discounted basis rightofuse asset represents lessee’s right use control use specified asset lease term asu 201602 significantly change lease accounting requirements applicable lessors however certain changes made align necessary lessor accounting lessee accounting model asc topic 606 “revenue contracts customers” new standard adopted company january 1 2019 asu 201602 provides modified retrospective transition approach requiring lessees recognize measure leases balance sheet beginning either earliest period presented beginning period adoption company elected apply asu 201602 beginning period adoption january 1 2019 restate comparative periods company expects adoption asu 201602 result recognition lease liabilities totaling 15000000 17000000 recognition rightofuse assets totaling 15000000 17000000 results estimated 5 basis point decrease tier 1 capital risk weighted assets ratio date adoption initial balance sheet gross upon adoption primarily related operating leases certain real estate properties company material leasing arrangements lessor property equipment company made accounting policy election apply recognition requirements new standard shortterm leases company elected apply package practical expedients allowed new standard company need reassess whether expired existing contracts contain leases company need reassess lease classification expired existing lease company need reassess initial direct costs existing leases company also elected use practical expedient make accounting policy election leases certain underlying assets include lease nonlease components single component account lease adoption asu 201602 expected materially change company’s recognition lease expense future periods asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” among things asu 201613 requires measurement expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better form credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses addition asu 201613 amends accounting credit losses available sale debt securities purchased financial assets credit deterioration asu 201613 effective company january 1 2020 must applied using modified retrospective approach limited exceptions early adoption permitted fiscal years interim periods within years beginning december 15 2018 company currently unable reasonably estimate impact adopting asu 201613 company expects impact adoption significantly influenced composition characteristics quality loan securities portfolios well prevailing economic conditions forecasts adoption date asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu 201704 eliminates step 2 goodwill impairment test required entities compute implied fair value goodwill asu 201704 entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting unit’s fair value however loss recognized exceed total amount goodwill allocated reporting unit asu 201704 effective company january 1 2020 earlier adoption permitted expected significant impact companys financial statements asu 201708“receivables nonrefundable fees costs subtopic 31020 premium amortization purchased callable debt securities” asu 201708 shortens amortization period certain callable debt securities held premium require premiums amortized earliest call date unless applicable guidance related certain pools securities applied consider estimated prepayments prior guidance entities generally required amortize premiums individual nonpooled callable debt securities yield adjustment contractual life security asu 201708 change accounting callable debt securities held discount asu 201708 became effective company january 1 2019 early adoption permitted company record 17 million impact asu 201708 2019 financial statements asu 201802 “income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income” asu 201802 amends asc 220 income statement reporting comprehensive income allow reclassification accumulated comprehensive income retained earnings stranded tax effects resulting allegiance bancshares inc notes consolidated financial statements tax cuts jobs act asu 201802 effective january 1 2019 early adoption permitted company early adopted asu 201802 recognized decrease retained earnings 72 thousand due reclassification january 1 2018 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier 1 twelve months date acquisition 2 soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisition completed date indicated 2018 acquisition post oak bancshares incon october 1 2018 company completed acquisition post oak bancshares inc “post oak” whollyowned subsidiary post oak bank na headquartered houston texas post oak operated thirteen bank offices twelve located throughout greater houston metropolitan area one beaumont outside houston metropolitan area company acquired post oak expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network goodwill expected deductible tax purposes pursuant merger agreement company issued 8402010 shares company common stock outstanding shares post oak common stock paid 21 thousand cash fractional shares held post oak shareholders additionally outstanding post oak options assumed allegiance converted using 07017 exchange ratio 299352 options weighted average exercise price 1283 per option based 4170 per share closing price allegiance common stock september 28 2018 total transaction value approximately 3590 million acquisition accounted acquisition method accounting accordance asc topic 805 business combinations company recognized goodwill 1837 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes intangible assets recognized transaction amortized utilizing accelerated method ten year estimated useful lives initial accounting acquisition completed fair values assets acquired liabilities assumed yet finalized allegiance bancshares inc notes consolidated financial statements october 1 2018 company finalized valuation assets liabilities acquired resulting changes preliminary acquisition accounting adjustments summary final purchase price allocation follows thousands fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired october 1 2018 connection post oak acquisition company acquired loans without evidence credit quality deterioration since origination acquired loans initially recorded fair value carryover allowance loan losses acquired loans segregated considered purchased credit impaired “pci” loans without credit impairment acquisition allegiance bancshares inc notes consolidated financial statements pci loans following presents information acquisition date pci loans acquired transaction dollars thousands nonpci loans following table presents information acquisition date nonpci loans acquired transaction thousands following table presents unaudited pro forma financial information acquisition occurred beginning 2017 post oak’s results operations included company’s results beginning october 1 2018 pro forma financial information necessarily indicative results operations would occurred transaction effected assumed dates determine pro forma information company adjusted year ended december 31 2018 2017 historical results include historical results post oak year ended december 31 2017 nine months ended september 30 2018 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects earnings post oak since acquisition date disclosed acquired company merged company separate financial information readily available company incurred approximately 17 million pretax acquisition mergerrelated expenses year ended december 31 2018 related post oak acquisition mergerrelated expenses reflected company’s income statement 2018 excluded calculation pro forma income allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangibles changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date company performed annual impairment test october 1 2018 determined impairment necessary estimated aggregate future amortization expense core deposit intangibles remaining december 31 2018 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances “cash due banks” consolidated balance sheets included restricted amount 277 million december 31 2018 bank required maintain reserve balances december 31 2017 2016 5 securities amortized cost fair value investment securities follows allegiance bancshares inc notes consolidated financial statements december 31 2018 companys management expect sell securities classified available sale material unrealized losses company believes likely required sell securities anticipated recovery time company receive full value securities fair value expected recover securities approach maturity date repricing date market yields investments decline management believe securities impaired due reasons credit quality accordingly december 31 2018 management believes unrealized losses previous table temporary impairment loss realized company’s consolidated statements income amortized cost fair value investment securities december 31 2018 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties securities unrealized losses segregated length time securities continuous loss position follows allegiance bancshares inc notes consolidated financial statements realized losses securities portfolio company believes securities temporarily impaired due changes market interest rates majority securities unrealized loss position related companys municipal securities 2018 company acquired 428 million sold 127 million securities acquired post oak transaction gains losses recognized 2017 company sold 391 million securities recorded net gain sales 18 thousand company sold 25 million securities 2016 recorded gain sale 30 thousand december 31 2018 2017 company securities one issuer us government agencies amount greater 10 consolidated shareholders’ equity respective dates carrying value pledged securities 289 million 50 million december 31 2018 2017 respectively increase pledged securities year ended december 31 2018 primarily due 259 million pledged securities acquired post oak majority securities pledged collateralize public fund deposits 6 loans allowance loan losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows 1 mortgage warehouse loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated company’s mortgage warehouse portfolio promissory notes originated company’s mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory allegiance bancshares inc notes consolidated financial statements notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed semiannual basis commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans dependent large part sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties generally involve less risk represented 514 outstanding principal balance company’s commercial real estate loans december 31 2018 company dependent cash flows business occupying property owners requires loans secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate floating interest rates company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often involves disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan company forced foreclose project prior completion assurance company able recover unpaid portion loan addition company may required fund additional amounts complete project may hold property indeterminate period time iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 20 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value allegiance bancshares inc notes consolidated financial statements v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral terms loans typically range 12 60 months vary based upon nature collateral size loan generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans acquired loans pci loans carrying amount pci loans included consolidated balance sheet related outstanding balance owed december 31 2018 presented table thousands changes accretable yield pci loans year ended december 31 2018 follows thousands nonpci loans carrying amount nonpci loans included consolidated balance sheet related outstanding balance owed december 31 2018 presented table thousands changes discount accretion nonpci loans years ended december 31 2018 follows thousands concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans allegiance bancshares inc notes consolidated financial statements related party loans december 31 2018 2017 loans outstanding directors officers affiliates totaled 79 million 44 million respectively analysis activity respect relatedparty loans follows nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans follows allegiance bancshares inc notes consolidated financial statements interest nonaccrual loans accrued original loan terms approximately 10 million 733 thousand would recorded income years ended december 31 2018 2017 respectively impaired loans impaired loans class loans set forth following tables allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements following table presents average recorded investment impaired loans interest recognized impaired loans average recorded investment impaired loans year ended december 31 2016 225 million interest income recognized year ended december 31 2016 862 thousand credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt including factors current financial information historical payment experience credit documentation public information current economic trends company analyzes loans individually classifying loans credit risk part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks risk ratings used credit quality indicators following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans allegiance bancshares inc notes consolidated financial statements based recent analysis performed risk category loans class loan december 31 2018 follows following table presents risk category loans class loan december 31 2017 allowance loan losses december 31 2018 allowance loan losses totaled 263 million 071 total loans december 31 2017 allowance totaled 236 million 104 total loans acquired loans carried without allowance loan losses recorded fair value acquisition date however company recorded discount acquired loans prospectively accreted increasing basis loans december 31 2018 balance acquisition accounting discount 142 million allegiance bancshares inc notes consolidated financial statements following table presents activity allowance loan losses portfolio type years ended december 31 2018 2017 2016 following table presents balance allowance loan losses portfolio type based impairment method december 31 2018 2017 allegiance bancshares inc notes consolidated financial statements following table presents recorded investment loans held investment portfolio type based impairment method december 31 2018 2017 troubled debt restructurings december 31 2018 2017 company recorded investment troubled debt restructurings 331 million 256 million respectively company allocated 30 million 22 million specific reserves loans december 31 2018 2017 respectively commit lend additional amounts loans following table presents information regarding loans modified troubled debt restructuring years ended december 31 2018 2017 2016 troubled debt restructurings resulted chargeoffs 272 thousand 136 thousand 211 thousand years ended december 31 2018 2017 2016 respectively december 31 2018 four defaults totaling 200 thousand loans modified troubled debt restructurings preceding 12 months default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans commitments lend additional amounts years 2018 2017 year ended december 31 2018 company added 102 million new troubled debt restructurings 98 million still outstanding december 31 2018 allegiance bancshares inc notes consolidated financial statements 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy • level 1quoted prices identical assets liabilities active markets entity ability access measurement date • level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data • level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity carrying amounts estimated fair values financial instruments reported balance sheet follows allegiance bancshares inc notes consolidated financial statements fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis loans held investmentthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows accordance asu 201601 adopted effective january 1 2018 discount rates used determine fair value loans december 31 2018 used interest rate spreads reflect factors liquidity credit nonperformance risk loans discount rates used determine fair value loans december 31 2017 based interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification federal home loan bank stockthe fair value fhlb stock estimated equal carrying amount practical determine fair value fhlb stock due restrictions placed transferability depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification accrued interestthe carrying amounts accrued interest approximate fair values resulting level 2 3 classification borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs subordinated debtthe fair values subordinated debentures notes estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material allegiance bancshares inc notes consolidated financial statements following tables present fair values assets measured fair value recurring basis liabilities measured fair value recurring basis december 31 2018 2017 transfers levels 2018 2017 certain assets liabilities measured fair value nonrecurring basis instruments measured fair value ongoing basis subject fair value adjustments certain circumstances evidence impairment allegiance bancshares inc notes consolidated financial statements historically company measures fair value certain loans real estate owned nonrecurring basis described impaired loans specific allocation allowance impaired loans company measured fair value generally based fair value loan’s collateral loan considered impaired based current information events probable company unable collect amounts due pursuant contractual terms loan agreement impairment measured estimating fair value loan based present value expected cash flows market price loan underlying fair value loan’s collateral real estate loans fair value impaired loan’s collateral determined third party appraisals adjusted estimated selling closing costs related liquidation collateral asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value nonreal estate loans fair value impaired loan’s collateral may determined using appraisal net book value per borrower’s financial statements aging reports adjusted discounted based management’s historical knowledge changes market conditions time valuation management’s expertise knowledge customer customers business years ended december 31 2018 2017 certain impaired loans reevaluated reported fair value specific allocation allowance loan losses december 31 2018 total reported fair value impaired loans 175 million based collateral valuations utilizing level 3 valuation inputs carrying value 242 million reduced specific allowance allocations totaling 67 million december 31 2017 total reported fair value impaired loans 115 million based collateral valuations utilizing level 3 valuation inputs carrying value 138 million reduced specific allowance allocations totaling 24 million real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable marketplace asset class actual valuation methods income sales comparable cost vary based status project property example land generally based sales comparable method construction based income andor sales comparable methods unobservable inputs may vary depending individual assets one three methods predominant approach company reviews third party appraisal appropriateness adjusts value downward consider selling closing costs typically range 5 10 appraised value december 31 2018 balance real estate owned consisted 630 thousand foreclosed commercial real estate property recorded result obtaining physical possession property company 365 thousand real estate owned december 31 2017 8 premises equipment premises equipment summarized follows depreciation expense 21 million year ended december 31 2018 16 million years ended december 31 2017 2016 allegiance bancshares inc notes consolidated financial statements 9 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2018 december 31 2017 5093 million 2274 million respectively scheduled maturities time deposits next five years follows dollars thousands company 2611 million 3148 million brokered deposits major concentrations deposits one depositor december 31 2018 2017 respectively included december 31 2017 amount reciprocal deposits company placed certificates deposits account registry service cdars network 684 million related party deposits principal officers directors affiliates december 31 2018 2017 96 million 148 million respectively 10 borrowings borrowing capacity company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2018 company total borrowing capacity 106 billion 7654 million available agreement 2965 million outstanding fhlb advances 2250 million outstanding december 31 2018 weighted average rate 257 letters credit 715 million december 31 2018 88 million expired january 2019 102 million expired february 2019 71 million expire april 2019 71 million expire may 2019 55 million expire august 2019 250 million expire october 2019 63 million expire december 2019 15 million expire january 2020 december 28 2018 company amended revolving credit agreement increase maximum commitment advance funds 450 million reduce annually 75 million beginning december 2020 december 22nd following years thereafter company required repay outstanding balance excess thencurrent maximum commitment amount revised agreement mature december 2025 secured 100 capital stock bank credit agreement contains certain restrictive covenants december 31 2018 company believes compliance debt covenants made aware noncompliance lender interest rate debt prime rate minus 25 basis points 500 december 31 2018 paid quarterly scheduled principal maturities follows dollars thousands 11 subordinated debt junior subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii aggregate original principal amount 113 million current fair value 94 million december 31 2018 acquisition company recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests allegiance bancshares inc notes consolidated financial statements assets respective trusts subject mandatory redemption upon payment junior subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred summary pertinent information related companys issuances junior subordinated debentures outstanding december 31 2018 set forth table 1 3month libor effect december 31 2018 27902 2 debentures currently callable subordinated notes december 2017 bank completed issuance private placement 400 million aggregate principal amount fixedtofloating rate subordinated notes due december 15 2027 notes issued price equal 100 principal amount resulting net proceeds bank 394 million bank used net proceeds offering support growth general corporate purposes notes intended qualify tier 2 capital bank regulatory purposes notes bear fixed interest rate 525 per annum excluding december 15 2022 payable semiannually arrears december 15 2022 notes bear floating rate interest equal 3month libor 303 notes mature december 15 2027 earlier redemption date payable quarterly arrears notes redeemable bank whole part december 15 2022 whole part upon occurrence certain specified tax events capital events investment company events redemption price equal 100 principal amount notes redeemed plus accrued unpaid interest subject require prior regulatory approval notes subject redemption option holders 12 income taxes components provision federal income taxes follows allegiance bancshares inc notes consolidated financial statements reported income tax expense differs amounts computed applying us federal statutory income tax rate income taxes years ended december 31 2018 2017 2016 due following income tax expense 2018 impacted reduction us federal statutory income tax rate 21 tax cuts jobs act enacted december 22 2017 result new law company recognized provisional net tax expense totaling 26 million 2016 company adopted new accounting standard requires income tax effects associated stockbased compensation recognized component income tax expense company recognized net tax benefits related stockbased compensation totaling 587 thousand 2018 11 million 2017 yearend deferred taxes presented table result tax cuts jobs act enacted december 22 2017 deferred taxes december 31 2018 2017 based 21 35 federal income tax rate respectively deferred tax assets liabilities follows interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2018 2017 2016 company longer subject examination us federal tax jurisdiction years prior 2015 13 stock based compensation december 31 2018 company two stockbased employee compensation plans awards outstanding connection acquisition post oak bancshares inc october 1 2018 company assumed post oak bancshares inc stock option plan additional awards issued company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 17 million 18 million 15 million years ended december 31 2018 2017 2016 respectively 2015 company’s board directors shareholders approved 2015 amended restated stock awards incentive plan “plan” covering certain awards stockbased compensation key employees directors company plan allegiance bancshares inc notes consolidated financial statements amended 2017 shareholders authorized maximum aggregate number shares stock issued 1900000 may issued incentive stock options restricted stock options purchase total 1309231 shares company stock granted december 31 2018 plan options exercisable 10 years date grant dependent terms applicable award agreement generally vest 4 years date grant fair value stock options granted estimated date grant using blackscholes optionpricing model part post oak acquisition outstanding post oak options assumed allegiance converted using 07017 exchange ratio 299352 options weighted average exercise price 1283 per option expected volatility determined based historical volatilities allegiances common stock expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant blackscholes pricing model utilizes certain assumptions noted table summary activity stock option plans years ended december 31 2018 2017 set forth company expects outstanding options december 31 2018 vest information related stock option plans year follows december 31 2018 950 thousand total unrecognized compensation cost related nonvested stock options granted plans cost expected recognized weightedaverage period 141 years allegiance bancshares inc notes consolidated financial statements restricted stock awards company issued 226529 restricted stock awards plan december 31 2018 2016 company awarded 15401 shares restricted stock weighted average grant date fair value 1752 2017 company awarded 28106 shares restricted stock weighted average grant date fair value 3617 2018 company awarded 122127 shares restricted stock weighted average grant date fair value 3904 shares restricted stock generally vest period 4 years considered outstanding date issuance company accounts shares restricted stock recording fair value grant award date compensation expense vesting period summary activity nonvested shares restricted stock december 31 2018 2017 including changes years ended follows december 31 2018 48 million unrecognized compensation expense related restricted stock awards expected recognized weightedaverage period 359 years total fair value restricted stock awards fully vested years ended december 31 2018 2017 2016 approximately 621 thousand 203 thousand 172 thousand respectively 14 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employees contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2018 2017 2016 962 thousand 789 thousand 637 thousand respectively profit sharing plan financial statements include accrual 25 million 15 million 17 million contribution plan profit sharing contribution years ended december 31 2018 2017 2016 respectively employee stock purchase plan company offers employees opportunity purchase shares allegiance’s common stock pursuant terms allegiance bancshares inc amended restated employee stock purchase plan amended “espp” espp adopted board directors provide employees opportunity purchase shares allegiance order provide employees direct opportunity participate company’s growth company allows employees purchase shares 15 discount market value thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 48 thousand 144 thousand 90 thousand years ended december 31 2018 2017 2016 respectively allegiance bancshares inc notes consolidated financial statements 15 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows commitments make loans generally made periods 120 days less december 31 2018 fixed rate loan commitments interest rates ranging 195 870 weighted average maturity rate 249 years 526 respectively leases following table presents summary noncancelable future operating lease commitments december 31 2018 dollars thousands expected normal course business expiring leases renewed replaced leases property rent expense noncancelable operating lease obligations aggregated approximately 29 million 28 million 27 million years ended december 31 2018 2017 2016 respectively allegiance bancshares inc notes consolidated financial statements 16 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s consolidated financial statements final rules implementing basel committee banking supervision’s capital guideline us banks basel iii rules became effective company january 1 2015 full compliance requirements phased multiyear schedule fully phased january 1 2019 management believes december 31 2018 2017 company bank met capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required yearend 2018 2017 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category allegiance bancshares inc notes consolidated financial statements following summary company’s bank’s actual required capital ratios december 31 2018 2017 dividend restrictions allegiances principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies addition allegiances credit agreement another financial institution also limits ability pay dividends applicable banking regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described allegiance bancshares inc notes consolidated financial statements 17 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options issued company represent dilutive effect reflected diluted weighted average shares restricted shares considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options 69 thousand 28 thousand shares considered computing diluted earnings per share december 31 2018 2017 respectively antidilutive stock options december 31 2016 dilutive considered computing diluted earnings per share allegiance bancshares inc notes consolidated financial statements 18 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 19 quarterly financial data unaudited 1 earnings per share computed independently quarters presented therefore may total earnings per share year 20 subsequent event february 1 2019 bank completed previously announced acquisition lowerybank sugar land location huntington state bank connection purchase bank acquired approximately 440 million loans 150 million customer deposits bank consolidated existing sugar land bank office new bank office location less one mile away acquisition lowerybank accounted acquisition method accounting accordance asc topic 805 business combinations allegiance’s assessment fair value assets acquired liabilities assumed acquisition date incomplete time filing therefore certain disclosure omitted allegiance expects recognize goodwill transaction expected nondeductible tax purposes item 15 exhibits financial statement schedules following documents filed part annual report form 10k 1 consolidated financial statements reference made consolidated financial statements report thereon notes thereto commencing page 71 annual report form 10k set forth list consolidated financial statements report independent registered public accounting firm consolidated balance sheets december 31 2016 2015 consolidated statements income years ended december 31 2016 2015 2014 consolidated statements comprehensive income years ended december 31 2016 2015 2014 consolidated statements changes stockholders’ equity years ended december 31 2016 2015 2014 consolidated statements cash flows years ended december 31 2016 2015 2014 notes consolidated financial statements 2 financial statement schedules supplemental schedules omitted inapplicable required information included consolidated financial statements notes thereto 3 exhibits annual report form 10k listed included copy report filed sec company furnish copy exhibit shareholders upon written request company payment reasonable fee exceed company’s reasonable expense exhibit marked asterisk filed furnished annual report form 10k noted exhibits item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 amended registrant duly caused report signed behalf undersigned thereunto duly authorized date march 10 2017 allegiance bancshares inc george martinez george martinez chairman chief executive officer pursuant requirements securities exchange act 1934 amended report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm crowe horwath llp independent member crowe horwath board directors shareholders allegiance bancshares inc houston texas audited accompanying consolidated balance sheets allegiance bancshares inc “company” december 31 2016 2015 related consolidated statements income comprehensive income changes stockholders equity cash flows three years period ended december 31 2016 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting accordance standards public company accounting oversight board united states audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control financial reporting accordance standards public company accounting oversight board united states accordingly express opinion audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position allegiance bancshares inc december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity us generally accepted accounting principles crowe horwath llp dallas texas march 10 2017 allegiance bancshares inc consolidated balance sheets see notes consolidated financial statements allegiance bancshares inc consolidated statements income see notes consolidated financial statements allegiance bancshares inc consolidated statements comprehensive income see notes consolidated financial statements allegiance bancshares inc consolidated statements changes stockholders’ equity see notes consolidated financial statements allegiance bancshares inc consolidated statements cash flows see notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements 1 nature operations summary significant accounting reporting policies nature operations principles consolidationthe consolidated financial statements include allegiance bancshares inc “allegiance” whollyowned subsidiary allegiance bank “bank” together allegiance collectively referred “company” provide commercial retail loans commercial banking services intercompany transactions balances eliminated consolidation us generally accepted accounting principles “gaap” company derives substantially revenues income operation bank allegiance bank texas banking association began operations october 2007 company focused delivering wide variety relationshipdriven commercial banking products communityoriented services tailored meet needs small midsized businesses professionals individuals 16 offices houston texas surrounding region year ended december 31 2016 bank provides customers variety banking services including checking accounts savings accounts certificates deposit primary lending products commercial personal automobile mortgage home improvement loans bank also offers safe deposit boxes automated teller machines drivethrough services 24hour depository facilities use estimatesthe preparation financial statements conformity gaap requires management make estimates assumptions based available information estimates assumptions affect reporting assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates initial public offering ipo october 2015 allegiance completed initial public offering common stock connection allegiances initial public offering allegiance issued sold 2990000 shares common stock 21 per share resulting total proceeds received allegiance net offering costs 571 million cash equivalentscash cash equivalents include cash deposits financial institutions maturities greater one year net cash flows reported customer loan deposit transactions securitiesdebt securities classified available sale might sold maturity equity securities readily determinable fair values classified available sale securities available sale carried fair value unrealized gains losses excluded earnings reported net tax separate component stockholders’ equity realized securities within available sale portfolio may used part company’s assetliability strategy may sold response changes interest rate risk prepayment risk similar economic factors interest earned assets included interest income interest income includes amortization purchase premium discount premiums discounts securities amortized levelyield method except mortgage backed securities prepayments anticipated gains losses sales recorded trade date determined using specific identification method management evaluates debt securities otherthantemporary impairment “otti” least quarterly basis frequently economic market conditions warrant evaluation securities unrealized loss position management considers extent duration unrealized loss financial condition nearterm prospects issuer management also assesses whether intends sell likely required sell security unrealized loss position recovery amortized cost basis either criteria regarding intent requirement sell met entire difference amortized cost fair value recognized impairment earnings debt securities meet aforementioned criteria amount impairment split two components follows 1 otti related credit loss must recognized income statement 2 otti related factors recognized comprehensive income net applicable taxes credit loss defined difference present value cash flows expected collected amortized cost basis previous amortized cost bases less otti recognized earnings shall become new amortized cost basis security loans held saleloans held sale carried lower aggregate cost fair value 2015 company purchased fm bancshares inc december 31 2015 loans held sale consisted loans two former fm bancshares branches central texas sale january 31 2016 company completed sale two branches loans held investmentloans held investment management intent ability hold foreseeable future maturity payoff reported principal balance outstanding net deferred loan fees costs allowance loan losses loans typically secured specific items collateral including business assets consumer assets allegiance bancshares inc notes consolidated financial statements commercial residential real estate commercial loans expected repaid cash flow operations businesses interest income accrued unpaid principal balance nonrefundable fees costs associated lending activities loan commitment loan origination fees certain direct origination costs deferred recognized interest income adjustment yield without anticipating prepayments using interest method related loan life commitment expires unexercised balances recognized income upon expiration commitment nonperforming past due loansthe company several procedures place assist maintaining overall quality loan portfolio company established underwriting guidelines followed officers monitors delinquency levels negative adverse trends assurance however company’s loan portfolio become subject increasing pressures deteriorating borrower credit due general economic conditions factors past due status based contractual terms loan loans considered past due required principal interest payments received date payments due company generally classifies loan nonperforming automatically places loan nonaccrual status ceases accruing interest reverses unpaid accrued interest income management’s opinion borrower may unable meet payment obligations payment principal interest loan delinquent 90 days well required regulatory provisions unless loan process collection underlying collateral fully supports carrying value loan payments received nonaccrual loans applied first outstanding loan amounts interest income subsequently recognized extent cash payments received excess principal due excess treated recovery lost interest loans returned accrual status principal interest amounts contractually due brought current future payments reasonably assured cases loans placed nonaccrual chargedoff earlier date collection principal interest considered doubtful decision made continue accruing interest loan periodic reviews made confirm accruing status loan nonaccrual loans past due 90 days include smaller balance homogeneous loans collectively evaluated impairment individually classified impaired loans available information confirms specific loans portions thereof uncollectible amounts chargedoff allowance loan types considered delinquent 30 days past due typically chargedoff chargeddown later 120 days past due consideration limited following criteria determining need optional timing chargeoff chargedown 1 bank process repossession foreclosure appears likely deficiency 2 collateral securing loan sold actual deficiency 3 bank proceeding lengthy legal action collect balance 4 borrower unable located 5 borrower filed bankruptcy chargeoffs occur company confirms loss loan troubled debt restructurings tdrsloans terms modified resulting concession granted borrower’s financial difficulty considered troubled debt restructurings classified impaired restructuring loan considered troubled debt restructuring 1 borrower experiencing financial difficulties 2 creditor granted concession would otherwise consider concessions may include reductions interest rates market interest rate extension terms debt principal forgiveness restructuring payment debt obligation actions intended minimize potential losses subsequent identification troubled debt restructuring loans evaluated impairment individual basis whereby loans measured present value estimated future cash flows using loan’s effective rate inception troubled debt restructuring considered collateral dependent loan reported net fair value collateral impaired loanson continuous basis loans evaluated impairment classification loans considered impaired based current information events probable company unable collect amounts due accordance original contractual terms loan agreement including scheduled principal interest payments impairment evaluated total smallerbalance loans similar nature individual loan basis loans loan impaired specific valuation allowance allocated necessary loan reported net present value estimated future cash flows using loan’s existing rate fair value collateral repayment expected solely collateral factors considered management determining impairment include payment status collateral value probability collecting scheduled principal interest payments due loans experience insignificant payment delays payment shortfalls generally classified impaired management determines significance payment delays payment shortfalls casebycase basis taking consideration circumstances surrounding loan borrower including length delay reasons delay borrower’s prior payment record amount shortfall relation principal interest owed allowance loan lossesthe allowance loan losses valuation allowance established charges earnings form provision loan losses amount allowance loan losses affected following 1 chargeoffs allegiance bancshares inc notes consolidated financial statements loans decrease allowance 2 subsequent recoveries loans previously charged increase allowance 3 provisions loan losses charged income increase allowance throughout year management estimates probable incurred losses loan portfolio determine allowance loan losses adequate absorb losses allowance loan losses consists specific general components specific component relates loans individually classified impaired company follows loan review program evaluate credit risk loan portfolio loans identified impaired generally reviewed quarterly basis order determine whether specific reserve required general component covers nonimpaired loans based industry company specific historical loan loss experience volume growth composition loan portfolio evaluation company’s loan portfolio internal loan review process general current economic conditions internal external company may affect borrower’s ability pay value collateral qualitative relevant risk factors based review estimates allowance loan losses adjusted level determined adequate estimates loan losses inherently subjective involves exercise judgment management allowance loan losses reflected consolidated balance sheets adequate absorb probable losses exist loan portfolio reporting date troubled debt restructurings subsequently default company determines amount reserve accordance accounting policy allowance loan losses company assesses exposure modification either collateral discounting calculation present value future cash flows determines specific allocation allowance loan losses needed obligation restructured credit problems continues considered troubled debt restructuring paid full company returns troubled debt restructurings accrual status 1 contractual amounts due reasonably expected repaid within prudent period 2 repayment accordance contract sustained period typically least twelve months loans acquired business combinations initially recorded fair value includes estimate loan losses expected realized remaining lives loans therefore corresponding allowance loan losses recorded loans acquisition methods utilized estimate subsequently required allowance loan losses acquired loans deemed creditimpaired acquisition similar originated loans however estimate loss based unpaid principal balance compared remaining unaccreted purchase discount extent calculated loss greater remaining unaccreted purchase discount allowance recorded difference premises equipmentpremises equipment carried cost less accumulated depreciation expense calculated principally using straightline method estimated useful lives assets range 3 40 years leasehold improvements amortized using straightline method periods leases estimated useful lives whichever shorter land carried cost real estate ownedassets acquired instead loan foreclosure held sale initially recorded fair value less estimated selling costs acquired establishing new cost basis costs acquisition generally expensed fair value asset declines writedown recorded expense valuation foreclosed assets subjective nature may adjusted future changes economic conditions december 31 2016 15 million balance real estate owned secured residential real estate properties formal foreclosure proceeds process federal home loan bank “fhlb” stockthe bank member fhlb system members required certain amount stock based level borrowings factors may invest additional amounts fhlb stock carried cost classified restricted security periodically evaluated impairment based ultimate recovery par value cash stock dividends reported income bank owned life insuranceduring 2015 company purchased bank owned life insurance policies certain key executives conjunction acquisition fm bancshares company acquired life insurance policies bank owned life insurance recorded amount realized insurance contract balance sheet date cash surrender value reasonable estimate fair value adjusted charges amounts due probable settlement goodwillgoodwill resulting business combinations generally determined excess fair value consideration transferred plus fair value noncontrolling interests acquiree fair value net assets acquired liabilities assumed acquisition date goodwill determined indefinite useful life amortized tested impairment least annually frequently events circumstances exists indicate goodwill impairment test performed company allegiance bancshares inc notes consolidated financial statements performs annual impairment test october 1 goodwill intangible asset indefinite life company’s balance sheet core deposit intangiblescore deposit acquired customer relationship intangibles arising acquisitions amortized using straightline amortization method estimated useful lives seven nine years borrowed fundsthe company credit agreement another financial institution company pledged shares bank’s stock collateral borrowing loan commitments related financial instrumentsfinancial instruments include offbalance sheet credit instruments commitments extend credit issued meet customer financing needs face amount items represents exposure loss considering customer collateral ability repay financial instruments recorded funded stock based compensationcompensation cost recognized stock options restricted stock awards issued employees based fair value awards date grant expense associated stock based compensation recognized required service period generally defined vesting period individual arrangement awards graded vesting compensation cost recognized straightline basis requisite service period entire award fair value stock options granted employee stock purchase plan awards estimated date grant using blackscholes optionpricing model market price company’s common stock date grant used value restricted stock awards employee stock purchase planthe cost shares issued espp allocated participants shown reduction shareholder’s equity compensation expense based market price shares committed released participant accounts income taxesincome tax expense total current year income tax due change deferred tax assets liabilities deferred tax assets liabilities recognized estimated tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases recorded assets company’s consolidated balance sheets company records uncertain tax positions basis twostep process whereby 1 company determines whether likely tax positions sustained basis technical merits position 2 tax positions meet likely recognition threshold company recognizes largest amount tax benefit greater 50 percent likely realized upon ultimate settlement related tax authority tax positions meeting likely test tax benefit recorded interest andor penalties related income taxes reported component income tax expense company files consolidated federal income tax return comprehensive incomecomprehensive income consists net income comprehensive income includes unrealized gains losses securities available sale also recognized separate components equity fair value financial instrumentsfair values financial instruments estimated using relevant market information assumptions fully disclosed separate note fair value estimates involve uncertainties matters significant judgment regarding interest rates credit risk prepayments factors especially absence broad markets particular items changes assumptions market conditions could significantly affect estimates operating segmentswhile management monitors revenue streams various products services operations managed financial performance evaluated companywide basis financial service operations considered management aggregated one reportable operating segment reclassificationssome items prior year financial statements reclassified conform current presentation reclassifications effect prior year net income stockholders’ equity company recorded measurement period adjustments goodwill related previous acquisition noted note 3 goodwill core deposit intangibles 2014 allegiance bancshares inc notes consolidated financial statements earnings per common sharebasic earnings per common share calculated net income divided weighted average number common shares outstanding period diluted earnings per common share includes dilutive effect additional potential common shares issuable stock options restricted stock awards employee stock purchase plan loss contingenciesloss contingencies including claims legal actions arising ordinary course business recorded liabilities likelihood loss probable amount range loss reasonably estimated management believe matters material effect financial statements dividend restrictionsbanking regulations require maintaining certain capital levels may limit dividends paid bank allegiance shareholders new accounting standards adoption new accounting standards january 1 2016 company adopted asu 201516 “business combinations topic 805 simplifying accounting measurementperiod adjustments” asu 201516 requires acquirer recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined acquirer must record period’s financial statements effect earnings changes depreciation amortization income effects result change provisional amounts calculated accounting completed acquisition date additionally entity required present separately face income statement disclose notes portion amount recorded currentperiod earnings line item would recorded previous reporting periods adjustment provisional amounts recognized acquisition date adoption asu 201516 significant impact company’s financial statements january 1 2016 company adopted asu 201609 “compensation stock compensation topic 718 improvements employee sharebased payment accounting” asu 201609 excess tax benefits tax deficiencies related sharebased payment awards recognized income tax expense benefit income statement period occur previously amounts recorded pool excess tax benefits included additional paidin capital pool available excess tax benefits longer recognized additional paidin capital assumed proceeds applying treasury stock method computing earnings per share exclude amount excess tax benefits would previously recognized additional paidin capital additionally excess tax benefits classified along income tax cash flows operating activity rather financing activity previously case asu 201609 also provides entity make entitywide accounting policy election either estimate number awards expected vest current gaap account forfeitures occur asu 201609 changes threshold qualify equity classification rather liability permit withholding maximum statutory tax rates rather minimum previously case applicable jurisdictions company adopted asu 201609 without significant impact financial statements newly issued yet effective accounting standards asu 201409 “revenue contracts customers topic 606” asu 201409 supersedes revenue recognition requirements revenue recognition topic 605 industryspecific guidance throughout industry topics codification core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective company beginning january 1 2018 retrospective application prior reporting period presented company expects adopt asu 201409 first quarter 2018 using modified retrospective approach includes presenting cumulative effect initial application along supplementary disclosures company evaluating full effect asu 201409 consolidated financial statements related disclosures however adoption asu expected significant impact company’s primary sources revenues derived interest dividends earned loans investment securities financial instruments within scope asu 201409 asu 201601 financial instruments overall subtopic 82510 recognition financial assets financial liabilities asu 201601 makes targeted amendments fair value measurement disclosure guidance asu 201601 requires equity investments equity method investments measured fair value changes fair value recognized net income change applied readily determinable fair value obtained update also requires use exit prices measure fair value disclosure purposes well enhanced disclosure requirements asu 201601 effective company january 1 2018 expected significant impact financial statements related disclosures allegiance bancshares inc notes consolidated financial statements asu 201602 “leases topic 842 asu 201602 among things require lessees recognize lease liability lessee’s obligation make lease payments arising lease measured discounted basis rightofuse asset represents lessee’s right use control use specified asset lease term asu 201602 significantly change lease accounting requirements applicable lessors however certain changes made align necessary lessor accounting lessee accounting model asc topic 606 “revenue contracts customers” asu 201602 effective company january 1 2019 require transition using modified retrospective approach leases existing entered beginning earliest comparative period presented financial statements early application asu permitted entities adoption asu 201602 expected material impact company’s financial statements company leases certain properties equipment operating leases result recognition lease assets lease liabilities company’s balance sheet asu 201610 “revenue contracts customers topic 606 identifying performance obligations licensing” asu 201610 issued clarify asc topic 606 “revenue contracts customers” related 1 identifying performance obligations 2 licensing implementation guidance effective date transition asu 201610 effective date transition asu 201409 “revenue contracts customers topic 606” discussed company currently evaluating potential impact asu 201610 financial statements asu 201613 “financial instruments credit losses topic 326 measurement credit losses financial instruments” among things asu 201613 requires measurement expected credit losses financial assets held reporting date based historical experience current conditions reasonable supportable forecasts financial institutions organizations use forwardlooking information better form credit loss estimates many loss estimation techniques applied today still permitted although inputs techniques change reflect full amount expected credit losses addition asu 201613 amends accounting credit losses available sale debt securities purchased financial assets credit deterioration asu 201613 effective company january 1 2020 must applied using modified retrospective approach limited exceptions early adoption permitted fiscal years interim periods within years beginning december 15 2018 company currently assessing impact adoption standard financial condition results operations company asu 201615 “statement cash flows topic 230 classification certain cash receipts cash payments asu 201615 provides guidance related certain cash flow issues order reduce current potential future diversity practice among things update clarifies appropriate classification proceeds settlement bank owned life insurance boli policies based preliminary assessments company expects change classification proceeds settlement boli policies operating activities investing activities changes classification resulting update expected significant asu 201615 effective company january 1 2018 must applied using retrospective approach early adoption permitted asu 201704 “intangibles goodwill topic 350 simplifying test goodwill impairment” asu 201704 intends simplify goodwill impairment testing eliminating second step analysis implied fair value goodwill determined reporting unit acquired business combination update instead requires entities compare fair value reporting unit carrying amount recognize impairment charge amount carrying amount exceeds reporting unit’s fair value extent loss recognized exceed amount goodwill allocated reporting unit asu 201704 must applied prospectively effective company january 1 2020 early adoption permitted company expect new guidance material impact financial condition results operation 2 acquisitions accounted using acquisition method accounting accordingly assets liabilities acquired entity recorded fair value acquisition date excess purchase price estimated fair value net assets recorded goodwill results operations acquisition included company’s consolidated financial results beginning respective acquisition date measurement period company determine fair values acquired identifiable assets assumed liabilities end earlier 1 twelve months date acquisition 2 soon company receives information seeking facts circumstances existed acquisition date learns information obtainable following acquisitions completed dates indicated allegiance bancshares inc notes consolidated financial statements 2015 acquisition fm bancshares incon january 1 2015 company completed acquisition fm bancshares inc “fm bancshares” whollyowned subsidiary enterprise bank “enterprise” headquartered houston texas enterprise operated nine banking locations seven houston texas two central texas two central texas locations related assets classified within loans held sale branch assets held sale december 31 2015 first quarter 2015 company consolidated two seven acquired houston area locations due close proximity locations existing banking locations company acquired fm bancshares expand houston texas area market goodwill resulted combination expected operational synergies enhanced branching network goodwill expected deductible tax purposes pursuant merger agreement company issued 2338520 shares allegiance common stock outstanding shares fm bancshares capital stock paid 642 thousand cash fractional state shares held fm bancshares shareholders company recognized goodwill 282 million calculated excess consideration exchanged liabilities assumed compared fair value identifiable assets acquired none expected deductible tax purposes fm bancshares’ results operations included company’s results beginning january 1 2015 year ended december 31 2015 net interest income associated fm bancshares 171 million company track separately noninterest income noninterest expense fm bancshares branches december 31 2015 company finalized valuation assets liabilities acquired resulting changes preliminary acquisition accounting adjustments summary final purchase price allocation follows dollars thousands subsequent acquisition company paid 180 million funds borrowed fm bancshares shareholders drawing credit agreement another financial institution additionally securities acquired fm bancshares sold subsequent acquisition income statement impact additionally july 15 2015 company redeemed outstanding shares series b preferred stock aggregate redemption price 117 million sum liquidation amount plus accrued unpaid dividends excluding redemption date company issued shares series b preferred stock connection fm bancshares acquisition preferred stock pursuant us treasury’s troubled asset relief program allegiance bancshares inc notes consolidated financial statements fair value net assets acquired includes fair value adjustments certain acquired loans considered impaired acquisition date fair value adjustments determined using discounted contractual cash flows following presents details loans acquired january 1 2015 following table presents unaudited pro forma financial information acquisition occurred beginning 2014 pro forma financial information necessarily indicative results operations would occurred transactions effected assumed dates determine pro forma information company adjusted year ended december 31 2015 2014 historical results include historical results fm bancshares year ended december 31 2014 pro forma information includes acquisition accounting adjustments interest loans certificates deposit subordinated debt difference rate borrowed funds amortization intangibles arising transaction related income tax effects company incurred approximately 941 thousand 245 thousand pretax merger related expenses years ended december 31 2015 2014 respectively related fm bancshares acquisition merger expenses reflected company’s income statement applicable periods reported primarily categories salaries benefits professional fees excluded calculation pro forma income december 31 2015 company held two central texas locations related assets sale assets held sale locations included loans related accrued interest receivable loans premises equipment loans presented loans held sale balance sheet branch assets held sale reported balance sheet include accrued interest receivable premises equipment two respective locations company completed sale two central texas banking locations january 2016 gain 21 million 13 million aftertax allegiance bancshares inc notes consolidated financial statements 3 goodwill core deposit intangibles changes carrying amount company’s goodwill core deposit intangibles follows goodwill recorded acquisition date entity measurement period company may record subsequent adjustments goodwill provisional amounts recorded acquisition date 145 thousand measurementperiod adjustment recorded 2014 related independence bank acquisition october 1 2015 company elected perform quantitative step 1 goodwill assessment step 1 assessment includes determination carrying value reporting unit including existing goodwill intangible assets estimating fair value reporting unit step 1 assessment indicated fair value reporting unit exceeded carrying value resulting impairment estimated aggregate future amortization expense core deposit intangibles remaining december 31 2016 follows dollars thousands 4 cash due banks bank required federal reserve bank dallas maintain average reserve balances “cash due banks” consolidated balance sheets included restricted amount 503 million december 31 2015 bank required maintain reserve balances december 31 2016 allegiance bancshares inc notes consolidated financial statements 5 securities amortized cost fair value investment securities follows december 31 2016 companys management expect sell securities classified available sale material unrealized losses company believes likely required sell securities anticipated recovery time company receive full value securities fair value expected recover securities approach maturity date repricing date market yields investments decline management believe securities impaired due reasons credit quality accordingly december 31 2016 management believes unrealized losses previous table temporary impairment loss realized company’s consolidated statements income amortized cost fair value investment securities december 31 2016 contractual maturity shown expected maturities may differ contractual maturities borrowers right call prepay obligations time without call prepayment penalties allegiance bancshares inc notes consolidated financial statements securities unrealized losses segregated length time securities continuous loss position follows december 31 2016 company’s security portfolio consisted 314 securities two mortgagebacked securities unrealized loss position 12 months realized losses securities company believes securities temporarily impaired due changes market interest rates majority securities unrealized loss position related companys municipal securities company sold 25 million securities 2016 recorded gain sale 30 thousand company sold 22 million securities 2015 recorded loss sale 37 thousand first quarter 2015 company sold securities acquired fm bancshares transaction resulting gross proceeds approximately 150 million gains losses recognized company sold 20 million securities 2014 recorded gain sale 82 thousand december 31 2016 2015 company securities one issuer us government agencies amount greater 10 consolidated stockholders’ equity respective dates carrying value pledged securities 49 million december 31 2016 securities pledged collateralize letters credit issued bank confirmed another financial institution company pledged securities december 31 2015 allegiance bancshares inc notes consolidated financial statements 6 loans allowance loan losses loan portfolio balances net unearned income fees consist various types loans primarily made borrowers located within texas classified major type follows 1 consists loans two former fm bancshares locations acquired january 1 2015 december 31 2015 loans held sale consists 132 million commercial industrial loans 116 million commercial real estate including multifamily residential loans 23 million 14 family residential including home equity loans 803 thousand consumer loans held sale carried lower aggregate cost fair value january 31 2016 company completed sale former fm bancshares branches related assets located central texas 2 mortgage warehouse loans unaffiliated mortgage loan originators collateralized mortgage promissory notes segregated company’s mortgage warehouse portfolio promissory notes originated company’s mortgage warehouse customers carry terms conditions would expected competitive permanent mortgage market serve collateral traditional mortgage warehouse arrangement whereby promissory notes warehoused revolving credit facility allow end investor purchaser note receive complete loan package remit funds bank maturity revolving line credit facility normally less 24 months promissory notes warehoused facilities may much shorter length time outstanding mortgage promissory notes secured residential property warehouse time normally 10 20 days mortgage promissory notes secured commercial property warehouse time normally 40 50 days funded balance mortgage warehouse portfolio significant fluctuation based upon market demand product level home sales refinancing activity market interest rates velocity end investor processing times loan originationrisk management company certain lending policies procedures place designed maximize loan income within acceptable level risk company maintains independent loan review department reviews validates credit risk program periodic basis addition independent third party loan review performed annual basis commercial industrial loans company makes commercial industrial loans market area underwritten basis borrower’s ability service debt income company generally takes collateral lien available real estate equipment assets owned borrower typically obtains personal guaranty borrower principal general commercial loans involve credit risk residential mortgage loans commercial mortgage loans therefore typically yield higher return increased risk commercial loans derives expectation commercial industrial loans generally serviced principally operations business may successful type collateral securing loans result commercial industrial loans require extensive underwriting servicing types loans allegiance bancshares inc notes consolidated financial statements ii commercial real estate company makes loans collateralized owneroccupied nonowneroccupied multifamily real estate finance purchase ownership real estate company’s nonowneroccupied multifamily commercial real estate lending typically involves higher loan principal amounts repayment loans dependent large part sufficient income properties securing loans cover operating expenses debt service company generally requires borrower existing relationship company proven record success addition loans generally guaranteed individual owners borrower typically lower loan value ratios loans secured owneroccupied properties generally involve less risk represented 535 outstanding principal balance company’s commercial real estate loans december 31 2016 company dependent cash flows business occupying property owners requires loans secured property adequate margins guaranteed individual owners company’s owneroccupied commercial real estate loans collateralized first liens real estate typically fixed interest rates amortize 10 20 year period iii construction land development loans company makes loans finance construction residential lesser extent nonresidential properties construction loans generally collateralized first liens real estate floating interest rates company generally conducts periodic inspections either directly agent prior approval periodic draws loans underwriting guidelines similar described also used company’s construction lending activities construction loans involve additional risks often involve disbursement funds repayment dependent ultimate success project’s completion sources repayment loans may precommitted permanent financing sale developed property loans portfolio monitored closely management due uncertainties inherent estimating construction costs market value completed project effects governmental regulation real property difficult accurately evaluate total funds required complete project related loan value ratio result uncertainties construction lending often involves disbursement substantial funds repayment dependent part success ultimate project rather ability borrower guarantor repay loan company forced foreclose project prior completion assurance company able recover unpaid portion loan addition company may required fund additional amounts complete project may hold property indeterminate period time iv residential real estate loans company’s lending activities also include origination 14 family residential mortgage loans including home equity loans collateralized owneroccupied residential properties located company’s market areas company offers variety mortgage loan portfolio products term 5 7 years generally amortize 10 20 years loans collateralized 14 family residential real estate generally originated amounts 90 appraised value v consumer loans company makes variety loans individuals personal household purposes including secured unsecured installment term loans consumer loans underwritten based individual borrower’s income current debt level past credit history value available collateral terms loans typically range 12 60 months vary based upon nature collateral size loan generally consumer loans entail greater risk residential real estate loans may unsecured secured value collateral automobile boat may difficult assess likely decrease value real estate cases repossessed collateral defaulted consumer loan may provide adequate source repayment outstanding loan balance remaining deficiency often warrant substantial collection efforts borrower beyond obtaining deficiency judgment addition consumer loan collections dependent borrower’s continuing financial stability thus likely adversely affected job loss divorce illness personal bankruptcy furthermore application various federal state laws may limit amount recovered loans concentrations credit vast majority company’s lending activity occurs around houston texas area company’s loans primarily loans secured real estate including commercial residential construction owneroccupied nonowneroccupied multifamily commercial real estate raw land real estate based loans related party loans december 31 2016 2015 loans outstanding directors officers affiliates totaled 39 million 25 million respectively allegiance bancshares inc notes consolidated financial statements analysis activity respect relatedparty loans follows nonaccrual past due loans aging analysis recorded investment past due loans segregated class loans follows 1 includes 13 million loans acquired fm bancshares 2 includes 676 thousand loans acquired fm bancshares interest nonaccrual loans accrued original loan terms approximately 892 thousand 404 thousand would recorded income years ended december 31 2016 2015 respectively allegiance bancshares inc notes consolidated financial statements impaired loans impaired loans class loans set forth following tables allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc notes consolidated financial statements following table presents average recorded investment impaired loans interest recognized impaired loans average recorded investment impaired loans year ended december 31 2014 91 million interest income recognized year ended december 31 2014 405 thousand credit quality indicators company categorizes loans risk categories based relevant information ability borrowers service debt including factors current financial information historical payment experience credit documentation public information current economic trends company analyzes loans individually classifying loans credit risk part ongoing monitoring credit quality company’s loan portfolio methodology calculating allowance credit losses management assigns tracks risk ratings used credit quality indicators following general description risk ratings used watchloans classified watch loans may still high quality element risk added credit declining payment history deteriorating financial position borrower decrease collateral value special mentionloans classified special mention potential weakness deserves management’s close attention left uncorrected potential weaknesses may result deterioration repayment prospects loan institution’s credit position future date characterized distinct possibility institution sustain loss deficiencies corrected substandardloans classified substandard welldefined weaknesses continuing basis inadequately protected current net worth paying capacity borrower impaired declining collateral values continuing downturn industry reducing profits zero significantly negative impact cash flow loans classified characterized distinct possibility institution sustain loss deficiencies corrected doubtfulloans classified doubtful weaknesses inherent classified substandard added characteristic weaknesses make collection liquidation full basis currently existing facts conditions values highly questionable improbable loans meeting criteria analyzed individually part described process considered pass rated loans allegiance bancshares inc notes consolidated financial statements based recent analysis performed risk category loans class loan december 31 2016 follows following table presents risk category loans class loan december 31 2015 allowance loan losses december 31 2016 allowance loan losses totaled 179 million 095 total loans december 31 2015 allowance aggregated 131 million 078 total loans allegiance bancshares inc notes consolidated financial statements following table presents activity allowance loan losses portfolio type years ended december 31 2016 2015 2014 following table presents balance allowance loan losses portfolio type based impairment method december 31 2016 2015 allegiance bancshares inc notes consolidated financial statements following table presents recorded investment loans held investment portfolio type based impairment method december 31 2016 2015 troubled debt restructurings december 31 2016 2015 company recorded investment troubled debt restructurings 126 million 31 million respectively company allocated 879 thousand 681 thousand specific reserves loans december 31 2016 2015 respectively commit lend additional amounts loans following table presents information regarding loans modified troubled debt restructuring years ended december 31 2016 2015 2014 troubled debt restructurings resulted chargeoffs 211 thousand 45 thousand 38 thousand years ended december 31 2016 2015 2014 respectively december 31 2016 defaults loans modified troubled debt restructurings preceding 12 months default determined 90 days past due modifications primarily related extending amortization periods loans company grant principal reductions restructured loans year ended december 31 2016 company added 109 million new troubled debt restructurings 108 million still outstanding december 31 2016 allegiance bancshares inc notes consolidated financial statements 7 fair value company uses fair value measurements record fair value adjustments certain assets determine fair value disclosures fair value represents estimated exchange price would received selling asset paid transfer liability otherwise known “exit price” principal advantageous market available entity orderly transaction market participants measurement date fair value hierarchy • level 1quoted prices identical assets liabilities active markets entity ability access measurement date • level 2significant observable inputs level 1 prices quoted prices similar assets liabilities quoted prices markets active inputs observable corroborated observable market data • level 3significant unobservable inputs reflect management’s judgment assumptions market participants would use pricing asset liability supported little market activity carrying amounts estimated fair values financial instruments reported balance sheet follows allegiance bancshares inc notes consolidated financial statements fair value estimates presented herein based pertinent information available management dates indicated following description valuation methodologies used assets liabilities recorded fair value nonfinancial assets nonfinancial liabilities estimating fair value financial instruments recorded fair value cash equivalentsfor shortterm instruments carrying amount reasonable estimate fair value company classifies estimated fair value instruments level 1 available sale securitiesfair values investment securities based upon quoted market prices available considered level 1 inputs available sale securities quoted prices available fair values measured based market prices similar securities considered level 2 inputs securities company generally obtains fair value measurements independent pricing service fair value measurements consider observable data may include dealer quotes market spreads cash flows us treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information bond’s terms conditions among things available sale securities recorded fair value recurring basis loans held saleloans held sale carried lower aggregate cost fair value evaluated poollevel basis fair value loans held sale determined using assets adjusted specific attributes loan observable market data company classifies fair value loans held sale level 3 loans held investmentthe estimated fair value approximates carrying value variablerate loans reprice frequently significant change credit risk resulting level 3 classification fair values fixedrate loans variable rate loans reprice infrequently estimated discounting future cash flows based interest rates currently offered loans similar terms borrowers similar credit quality resulting level 3 classification methods utilized estimate fair value loans necessarily represent exit price federal home loan bank stockthe fair value fhlb stock estimated equal carrying amount practical determine fair value fhlb stock due restrictions placed transferability depositsthe fair value demand deposits eg interest noninterest checking savings certain types money market deposits amount payable demand reporting date ie carrying amount resulting level 2 classification fair value fixed rate certificates deposit estimated using discounted cash flows calculation applies interest rates currently offered certificates deposit schedule aggregated expected monthly maturities time deposits resulting level 2 classification shortterm borrowingsthe carrying amounts shortterm borrowings generally maturing within ninety days approximate fair values resulting level 2 classification allegiance bancshares inc notes consolidated financial statements subordinated debenturesthe fair value subordinated debentures estimated using discounted cash flow analyses based company’s current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs borrowed fundsthe fair value company’s borrowed funds estimated using discounted cash flow analyses based current borrowing rates similar types borrowing arrangements measured utilizing level 2 inputs accrued interestthe carrying amounts accrued interest approximate fair values resulting level 2 3 classification offbalance sheet instrumentsthe fair values offbalance sheet commitments extend credit standby letters credit financial instruments based fees currently charged enter similar agreements taking account remaining terms agreements counterparties’ credit standing company reviewed unfunded portion commitments extend credit well standby letters credit determined fair value financial instruments material following tables present fair values assets measured fair value recurring basis liabilities measured fair value recurring basis december 31 2016 2015 transfers levels 2016 2015 certain assets liabilities measured fair value nonrecurring basis instruments measured fair value ongoing basis subject fair value adjustments certain circumstances evidence impairment allegiance bancshares inc notes consolidated financial statements historically measure fair value certain loans real estate owned nonrecurring basis described real estate owned real estate owned comprised real estate acquired partial full satisfaction loans real estate owned recorded estimated fair value less estimated selling closing costs date transfer excess related loan balance fair value less expected selling costs charged allowance subsequent declines fair value reported adjustments carrying amount recorded earnings fair value real estate owned determined using appraisals indications value based recent comparable sales similar properties assumptions generally observable marketplace impaired loans specific allocation allowance impaired loans company measured fair value generally based fair value loan’s collateral loan considered impaired based current information events probable company unable collect amounts due pursuant contractual terms loan agreement fair value generally determined based appraisals collateral adjusted estimated selling closing costs related liquidation collateral discounted cash flows based upon expected proceeds estimated selling closing costs range 5 10 value underlying collateral years ended december 31 2016 2015 certain impaired loans reevaluated reported fair value specific allocation allowance loan losses december 31 2016 total reported fair value impaired loans 23 million based collateral valuations utilizing level 3 valuation inputs carrying value 39 million reduced specific allowance allocations totaling 17 million december 31 2015 total reported fair value impaired loans 19 million based collateral valuations utilizing level 3 valuation inputs carrying value 27 million reduced specific allowance allocations totaling 859 thousand 8 premises equipment premises equipment summarized follows depreciation expense 16 million 16 million 11 million years ended december 31 2016 2015 2014 respectively allegiance bancshares inc notes consolidated financial statements 9 deposits time deposits meet exceed federal deposit insurance corporation “fdic” insurance limit 250 thousand december 31 2016 december 31 2015 1965 million 1647 million respectively scheduled maturities time deposits next five years follows dollars thousands company 659 million 565 million brokered deposits major concentrations deposits one depositor december 31 2016 2015 respectively included amounts reciprocal deposits company placed certificates deposits account registry service cdars network 648 million 555 million december 31 2016 2015 respectively related party deposits principal officers directors affiliates december 31 2016 2015 148 million 120 million respectively 10 borrowings borrowing capacity company available line credit fhlb dallas allows company borrow collateralized basis fhlb advances used manage liquidity needed advances secured blanket lien certain loans maturing advances replaced drawing available cash making additional borrowings increased customer deposits december 31 2016 company total borrowing capacity 6831 million 3627 million available 3204 million outstanding shortterm fhlb advances 850 million outstanding december 31 2016 weighted average rate 055 longterm fhlb borrowings 2000 million outstanding december 31 2016 weighted average rate 056 total longterm fhlb borrowings 1000 million expire april 2018 another 1000 million expire may 2018 letters credit 354 million december 31 2016 30 million expired february 2017 73 million expire august 2017 250 million expire october 2017 2015 company borrowed additional 180 million credit agreement another financial institution addition 101 million indebtedness incurred credit agreement 2014 credit agreement matures december 2021 company used funds borrowed 2015 repay debt fm bancshares owed used funds borrowed 2014 pay previous borrowing another financial institution entered 2013 conjunction independence bank acquisition october 2015 company paid 275 million credit agreement portion proceeds initial public offering credit agreement includes certain restrictive covenants december 31 2016 company believes compliance debt covenants made aware noncompliance lender interest rate debt prime rate minus 25 basis points 350 december 31 2016 paid quarterly scheduled principal maturities follows dollars thousands 11 subordinated debentures january 1 2015 company acquired fm bancshares assumed farmers merchants capital trust ii farmers merchants capital trust iii trusts capital statutory business trust organized sole purpose issuing trust securities investing proceeds company’s junior subordinated debentures preferred trust securities trust represent preferred beneficial interests assets respective trusts subject mandatory redemption upon payment allegiance bancshares inc notes consolidated financial statements junior subordinated debentures held trust common securities trust wholly owned company trust’s ability pay amounts due trust preferred securities solely dependent upon company making payment related junior subordinated debentures assets trust subordinate junior right payment company’s present future senior indebtedness company fully unconditionally guaranteed trust’s obligations trust securities issued trust extent paid made trust provided trust funds available obligations provisions issue debentures company right defer payment interest debentures time periods exceeding five years interest payments either issue debentures deferred distributions applicable trust preferred securities common securities also deferred company assumed junior subordinated debentures aggregate original principal amount 113 million current fair value 92 million december 31 2016 acquisition company recorded discount 25 million debentures difference carrying value contractual balance recognized yield adjustment remaining term debentures december 31 2016 company 113 million outstanding junior subordinated debentures issued company’s unconsolidated subsidiary trusts junior subordinated debentures included tier 1 capital current regulatory guidelines interpretations summary pertinent information related company’s issues junior subordinated debentures outstanding december 31 2016 set forth table 1 3month libor effect december 31 2016 09773 2 debentures currently callable 12 income taxes components provision federal income taxes follows reported income tax expense differs amounts computed applying us federal statutory income tax rate 35 income taxes years ended december 31 2016 2015 2014 due following allegiance bancshares inc notes consolidated financial statements deferred tax assets liabilities follows amount federal state income tax expense influenced amount pretax income amount taxexempt income amount nondeductible items year ended december 31 2016 income tax expense 96 million compared 78 million year ended december 31 2015 48 million year ended december 31 2014 increase income tax expense year primarily attributable higher pretax earnings effective income tax rate year ended december 31 2016 295 compared 330 year ended december 31 2015 349 year ended december 31 2014 effective tax rate decreased year ended 2016 compared period 2015 2014 due increase tax free income purchase additional municipal securities cashless exercises stock options employees 2016 interest penalties related tax positions recognized period begin accruing entity claims position meet minimum statutory thresholds company uncertain tax positions interest penalties recorded income statement years ended december 31 2016 2015 2014 company longer subject examination us federal tax jurisdiction years prior 2013 13 stock based compensation 2008 company’s board directors shareholders approved 2008 stock awards incentive plan “plan” covering certain key employees purchase shares company’s stock plan amended 2015 shareholders authorized maximum aggregate number shares stock issued 1460000 may issued incentive stock options company accounts stock based employee compensation plans using fair valuebased method accounting company recognized total stock based compensation expense 15 million 14 million 731 thousand years ended december 31 2016 2015 2014 respectively stock options purchase total 1240431 shares company stock granted december 31 2016 plan options exercisable 10 years date grant unless otherwise provided board directors fully vested 4 years date grant fair value stock options granted estimated date grant using blackscholes optionpricing model expected volatility determined based historical volatilities allegiances common stock expected term options granted based historical data represents period time options granted expected outstanding takes account options transferable riskfree interest rate expected term option based us treasury yield curve effect time grant allegiance bancshares inc notes consolidated financial statements blackscholes pricing model utilizes certain assumptions noted table summary activity stock option plan years ended december 31 2016 2015 set forth company expects outstanding options december 31 2016 vest information related stock option plan year follows december 31 2016 22 million total unrecognized compensation cost related nonvested stock options granted plan cost expected recognized weightedaverage period 199 years restricted stock awards company issued 76356 restricted stock awards plan december 31 2016 2014 company issued 8385 shares restricted stock grant date fair value 2034 per share 2015 company awarded 3983 shares restricted stock grant date fair value 2200 2016 company awarded 15401 shares restricted stock weighted average grant date fair value 1752 restricted stock shares vest period 4 years considered outstanding date issuance company accounts restricted stock grants recording fair value grant compensation expense vesting period allegiance bancshares inc notes consolidated financial statements summary activity nonvested shares restricted stock december 31 2016 2015 including changes years ended follows december 31 2016 258 thousand unrecognized compensation expense related restricted stock awards expected recognized remaining period 285 years total fair value restricted stock awards fully vested years ended december 31 2016 2015 2014 approximately 172 thousand 220 thousand 200 thousand respectively 14 employee benefits 401k benefit plan company 401k benefit plan whereby participants may contribute percentage compensation company matches 50 employee contributions 6 employee’s compensation maximum match 3 compensation matching contribution expense december 31 2016 2015 2014 637 thousand 551 thousand 303 thousand respectively profit sharing plan financial statements include accrual 17 million 12 million 823 thousand contribution plan profit sharing contribution years ended december 31 2016 2015 2014 respectively employee stock purchase plan company offers employees opportunity purchase shares company’s common stock pursuant terms allegiance bancshares inc amended restated employee stock purchase plan “espp plan” espp plan adopted board directors provide employees opportunity purchase shares company order provide employees direct opportunity participate company’s growth company allows employees purchase shares 15 discount market value thus incurs stock based compensation expense fair value discount given company recognized total stock based compensation expense 90 thousand 96 thousand years ended december 31 2016 2015 respectively 15 offbalance sheet arrangements commitments contingencies normal course business company enters various transactions accordance accounting principles generally accepted united states included company’s consolidated balance sheets company enters transactions meet financing needs customers transactions include commitments extend credit standby commercial letters credit involve varying degrees elements credit risk interest rate risk excess amounts recognized consolidated balance sheets company uses credit policies making commitments conditional obligations balance sheet instruments allegiance bancshares inc notes consolidated financial statements commitments extend credit commitments extend credit agreements lend customer long violation condition established contract commitments generally fixed expiration dates termination clauses may require payment fee since many commitments expected expire without fully drawn upon total commitment amounts disclosed necessarily represent future cash funding requirements company evaluates customer’s creditworthiness casebycase basis company minimizes exposure loss commitments subjecting credit approval monitoring procedures management assesses credit risk associated certain commitments extend credit determining level allowance credit losses amount type collateral deemed necessary company upon extension credit based management’s credit evaluation customer standby letters credit standby letters credit written conditional commitments issued company guarantee performance customer third party event nonperformance customer company rights underlying collateral credit risk company issuing letters credit essentially involved extending loan facilities customers company’s policy obtaining collateral nature collateral essentially involved making commitments extend credit contractual amounts financial instruments offbalance sheet risk follows commitments make loans generally made periods 120 days less december 31 2016 fixed rate loan commitments interest rates ranging 160 750 weighted average maturity rate 197 years 465 respectively leases following table presents summary noncancelable future operating lease commitments december 31 2016 dollars thousands expected normal course business expiring leases renewed replaced leases property equipment rent expense noncancelable operating lease obligations aggregated approximately 27 million 26 million 20 million years ended december 31 2016 2015 2014 respectively allegiance bancshares inc notes consolidated financial statements 16 regulatory capital matters company bank subject various regulatory capital requirements administered federal banking agencies capital adequacy guidelines additionally banks prompt corrective action regulations involve quantitative measures assets liabilities certain balance sheet items calculated regulatory accounting practices capital amounts classifications also subject qualitative judgments regulators components risk weightings factors failure meet minimum capital requirements initiate actions regulators undertaken could direct material effect company’s consolidated financial statements final rules implementing basel committee banking supervision’s capital guideline us banks basel iii rules became effective company january 1 2015 full compliance requirements phased multiyear schedule fully phased january 1 2019 management believes december 31 2016 2015 company bank meet capital adequacy requirements subject prompt corrective action regulations provide five classifications well capitalized adequately capitalized undercapitalized significantly undercapitalized critically undercapitalized although terms used represent overall financial condition adequately capitalized regulatory approval required accept brokered deposits undercapitalized capital distributions limited asset growth expansion capital restoration plans required year end 2016 2015 recent regulatory notifications categorized bank well capitalized regulatory framework prompt corrective action conditions events since notification management believes changed institution’s category following summary company’s bank’s actual required capital ratios december 31 2016 2015 allegiance bancshares inc notes consolidated financial statements dividend restrictions allegiances principal source funds dividend payments dividends received bank banking regulations limit amount dividends may paid without prior approval regulatory agencies regulations amount dividends may paid bank calendar year limited current year’s net profits combined retained net profits preceding two years subject capital requirements described 17 earnings per common share diluted earnings per common share computed using weightedaverage number common shares determined basic earnings per common share computation plus potential dilution could occur securities contracts issue common stock exercised converted common stock using treasury stock method outstanding stock options issued company represent dilutive effect reflected diluted weighted average shares restricted shares considered outstanding date grant accounted participating securities included basic diluted weighted average common shares outstanding stock options december 31 2016 december 31 2015 dilutive considered computing diluted earnings per share allegiance bancshares inc notes consolidated financial statements 18 parent company financial statements allegiance bancshares inc parent company condensed balance sheets allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements income allegiance bancshares inc notes consolidated financial statements allegiance bancshares inc parent company condensed statements cash flows allegiance bancshares inc notes consolidated financial statements 19 quarterly financial data unaudited 1 earnings per share computed independently quarters presented therefore may total earnings per share year