Page 26 - Annual Report 2017

TEXAS GULF BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements
December 31, 2016 and 2015

NOTE D LOANS (CONTINUED)

In the normal course of business, the Company purchases participations in loans originated
by other financial institutions and sells participations in loans originated by the Company.
There were no participations purchased at December 31, 2016 and 2015. Total loan
participations sold at December 31, 2016 and 2015, by portfolio segment, are summarized as
follows:
Total
Participations
Sold
2016
Real estate $ 28,121,280
Commercial and industrial 796,834

$ 28,918,114
2015
Real estate $ 21,061,684
Commercial and industrial 974,366
$ 22,036,050

Loan Portfolio Segments and Loan Classes

The Company has certain lending policies and procedures in place that are designed to
maximize loan income within an acceptable level of risk. Management reviews and approves
these policies and procedures on a regular basis. The Company’s loans are segmented by
type and diversification of the loan portfolio as a means of managing the risks associated
with fluctuations in economic conditions. In order to manage the diversification of the
portfolio, the Company sub-segments loans into classes. The real estate loan segment is sub-
segmented into classes that primarily include commercial real estate mortgage loans,
construction and development loans, farmland loans, 1-4 family residential loans, and multi-
family residential loans. The Company sub-segments consumer loans into classes that
primarily include automobile loans, and other consumer loans including revolving credit plans.
Management has not identified any significant sub-segments, or classes, for the other loan
segments identified in the table above. Information and risk management practices
specific to the Company’s loan segments and classes follows.

Real Estate - The Company makes mortgage (commercial real estate) loans which are
primarily viewed as cash flow loans and secondarily as loans secured by real estate. The
properties securing the Company’s commercial real estate loans can be owner occupied or
nonowner occupied. Concentrations within the various types of commercial properties are
monitored by management in order to assess the risks in the portfolio. The repayment
of these loans is largely dependent on the successful operation of the property securing
the loan or the business conducted on the property and securing the loan.
Accordingly, repayment of these loans may be subject to adverse conditions in the real
estate market or the economy to a greater extent than other types of loans. The Company
seeks to minimize these risks in a variety of ways in connection with underwriting these
loans including giving careful consideration to the property’s operating history, future
operating projections, current and projected occupancy, location and the physical condition of
the property.

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