Quarterly report pursuant to Section 13 or 15(d)

Allowance for Loan and Lease Losses

v3.20.2
Allowance for Loan and Lease Losses
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
Allowance for Loan and Lease Losses

NOTE 6. ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans.  The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The methodology is based on historical loss experience by type of credit and internal risk grade, changes in the composition and volume of the portfolio, and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for loan and lease losses is designated to account for credit deterioration as it occurs.

On April 2, 2019, the Company closed its acquisition of Beeville. At the date of acquisition, Beeville had $298.9 million in loans. In accordance with ASC 805, “Business Combinations,” the Company utilized a third party to value the loan portfolio as of the acquisition date. Based upon the third-party valuation, the fair value of the loans was approximately $296.4 million at the acquisition date. The overall discount calculated was $2.5 million and will be accreted into interest income over the life of the loans.

On November 5, 2019, the Company closed its acquisition of Citizens. At the date of acquisition, Citizens had loans with a contractual balance of $253.1 million.  In accordance with ASC 805, “Business Combinations,” the Company utilized a third party to value the loan portfolio as of the acquisition date. Based upon the third-party valuation, the preliminary fair value of non-purchased credit impaired loans was approximately $248.8 million at the acquisition date.  Purchased credit impaired loans had a fair value of $3.2 million. The overall discount calculated was $1.1 million and will be accreted into interest income over the life of the loans.

On February 28, 2020, the Company closed its acquisition of certain assets and assumption of certain liabilities associated with five offices of Simmons Bank. At the date of acquisition, the offices had $260.3 million in loans.  In accordance with ASC 805, “Business Combinations,” the Company utilized a third party to value the loan portfolio as of the acquisition date. Based upon the third-party valuation, the fair value of the loans was approximately $255.5 million at the acquisition date. The overall discount calculated was $4.8 million and will be accreted into interest income over the life of the loans.

At September 30, 2020, purchased credit impaired loans related to the Comanche acquisition remain insignificant, and the Bank did not identify any purchased credit impaired loans related to the Beeville acquisition or the Simmons branch acquisition. Remaining recorded investment in purchased credit impaired loans related to the Citizens acquisition was $576 thousand at September 30, 2020 and the Company believes that all contractual principal and interest will be received.  Purchased credit impaired loans related to the Citizens acquisition are not included in the impaired loans disclosure within this Note.

At September 30, 2020 no provision for loan losses has been recorded for PPP Loans.  These loans are fully guaranteed by the U.S. Federal Government and therefore carry a zero percent reserve.  PPP loans also carry a put-back provision in the event that a loan is fraudulently originated and the Bank is at fault.  Management does not deem a put-back reserve necessary at this time.

The following tables present information related to allowance for loan and lease losses for the periods presented:

 

 

 

Allowance Rollforward

 

Three Months Ended September 30, 2020

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

6,313

 

 

$

(559

)

 

$

33

 

 

$

1,874

 

 

$

7,661

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

107

 

 

 

(21

)

 

 

 

 

 

(4

)

 

 

82

 

Construction, land and development loans

 

 

1,258

 

 

 

 

 

 

 

 

 

200

 

 

 

1,458

 

Commercial real estate loans (including multifamily)

 

 

2,163

 

 

 

 

 

 

 

 

 

686

 

 

 

2,849

 

Consumer loans and leases

 

 

49

 

 

 

(4

)

 

 

20

 

 

 

37

 

 

 

102

 

Municipal and other loans

 

 

15

 

 

 

 

 

 

2

 

 

 

38

 

 

 

55

 

Ending allowance balance

 

$

9,905

 

 

$

(584

)

 

$

55

 

 

$

2,831

 

 

$

12,207

 

 

 

 

Allowance Rollforward

 

Three Months Ended September 30, 2019

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,217

 

 

$

(687

)

 

$

36

 

 

$

669

 

 

$

4,235

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

32

 

 

 

 

 

 

65

 

 

 

(66

)

 

 

31

 

Construction, land and development loans

 

 

794

 

 

 

 

 

 

 

 

 

90

 

 

 

884

 

Commercial real estate loans (including multifamily)

 

 

1,191

 

 

 

 

 

 

 

 

 

127

 

 

 

1,318

 

Consumer loans and leases

 

 

35

 

 

 

(26

)

 

 

 

 

 

85

 

 

 

94

 

Municipal and other loans

 

 

8

 

 

 

 

 

 

 

 

 

(5

)

 

 

3

 

Ending allowance balance

 

$

6,277

 

 

$

(713

)

 

$

101

 

 

$

900

 

 

$

6,565

 

 

 

 

Allowance Rollforward

 

Nine Months Ended September 30, 2020

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,078

 

 

$

(1,268

)

 

$

42

 

 

$

4,809

 

 

$

7,661

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

31

 

 

 

(21

)

 

 

 

 

 

72

 

 

 

82

 

Construction, land and development loans

 

 

1,055

 

 

 

 

 

 

 

 

 

403

 

 

 

1,458

 

Commercial real estate loans (including multifamily)

 

 

1,451

 

 

 

 

 

 

 

 

 

1,398

 

 

 

2,849

 

Consumer loans and leases

 

 

68

 

 

 

(163

)

 

 

34

 

 

 

163

 

 

 

102

 

Municipal and other loans

 

 

54

 

 

 

 

 

 

6

 

 

 

(5

)

 

 

55

 

Ending allowance balance

 

$

6,737

 

 

$

(1,452

)

 

$

82

 

 

$

6,840

 

 

$

12,207

 

 

 

 

Allowance Rollforward

 

Nine Months Ended September 30, 2019

 

Beginning

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,453

 

 

$

(1,908

)

 

$

95

 

 

$

1,595

 

 

$

4,235

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

59

 

 

 

 

 

 

65

 

 

 

(93

)

 

 

31

 

Construction, land and development loans

 

 

731

 

 

 

 

 

 

 

 

 

153

 

 

 

884

 

Commercial real estate loans (including multifamily)

 

 

960

 

 

 

 

 

 

 

 

 

358

 

 

 

1,318

 

Consumer loans and leases

 

 

80

 

 

 

(60

)

 

 

5

 

 

 

69

 

 

 

94

 

Municipal and other loans

 

 

3

 

 

 

 

 

 

1

 

 

 

(1

)

 

 

3

 

Ending allowance balance

 

$

6,286

 

 

$

(1,968

)

 

$

166

 

 

$

2,081

 

 

$

6,565

 

 

Credit Quality Indicators

In evaluating credit risk, the Company looks at multiple factors; however, management considers delinquency status to be the most meaningful indicator of the credit quality of 1-4 single family residential, home equity loans and lines of credit and consumer loans. Delinquency statistics are updated at least monthly. Internal risk ratings are considered the most meaningful indicator of credit quality for commercial, construction, land and development and commercial real estate loans. Internal risk ratings are updated on a continuous basis.

The following tables present an aging analysis of the recorded investment for delinquent loans by portfolio and segment for the periods presented:

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

September 30, 2020

 

Current

 

 

30 to 59

Days Past

Due

 

 

60 to 89

Days Past

Due

 

 

90 Days or

More Past

Due

 

 

Non-

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

685,416

 

 

$

195

 

 

$

39

 

 

$

 

 

$

4,359

 

 

$

690,009

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

369,983

 

 

 

733

 

 

 

563

 

 

 

 

 

 

1,941

 

 

 

373,220

 

Construction, land and development

 

 

402,259

 

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

402,476

 

Commercial real estate loans (including multifamily)

 

 

903,602

 

 

 

 

 

 

381

 

 

 

 

 

 

2,151

 

 

 

906,134

 

Consumer loans and leases

 

 

12,813

 

 

 

82

 

 

 

20

 

 

 

 

 

 

62

 

 

 

12,977

 

Municipal and other loans

 

 

67,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67,537

 

Total loans

 

$

2,441,610

 

 

$

1,010

 

 

$

1,003

 

 

$

 

 

$

8,730

 

 

$

2,452,353

 

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Current

 

 

30 to 59

Days Past

Due

 

 

60 to 89

Days Past

Due

 

 

90 Days or

More Past

Due

 

 

Non-

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

278,922

 

 

$

760

 

 

$

688

 

 

$

-

 

 

$

2,579

 

 

$

282,949

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

372,828

 

 

 

1,018

 

 

 

 

 

 

 

 

 

1,897

 

 

 

375,743

 

Construction, land and development

 

 

258,497

 

 

 

671

 

 

 

 

 

 

 

 

 

216

 

 

 

259,384

 

Commercial real estate loans (including multifamily)

 

 

750,432

 

 

 

1,283

 

 

 

404

 

 

 

 

 

 

1,693

 

 

 

753,812

 

Consumer loans and leases

 

 

22,663

 

 

 

27

 

 

 

3

 

 

 

2

 

 

 

74

 

 

 

22,769

 

Municipal and other loans

 

 

72,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,525

 

Total loans

 

$

1,755,867

 

 

$

3,759

 

 

$

1,095

 

 

$

2

 

 

$

6,459

 

 

$

1,767,182

 

 

There were no loans 90 days or more past due and still accruing at September 30, 2020.  There was one loan 90 days or more past due and still accruing at December 31, 2019 with a recorded investment of $2 thousand.  All loans with active deferral periods related to COVID-19 are excluded from nonaccrual and days past due reporting.

At September 30, 2020, non-accrual loans that were 30 to 59 days past due were $730 thousand, non-accrual loans that were 60 to 89 days past due were $370 thousand and non-accrual loans that were 90 days or more past due were $2.1 million. At December 31,

2019, non-accrual loans that were 30 to 59 days past due were $308 thousand, non-accrual loans that were 60 to 89 days past due were $1.2 million, and non-accrual loans that were 90 days or more past due were $2.6 million.

Loans exhibiting potential credit weaknesses that deserve management’s close attention and that if left uncorrected may result in deterioration of the repayment capacity of the borrower are categorized as special mention. Loans with well-defined credit weaknesses including payment defaults, declining collateral values, frequent overdrafts, operating losses, increasing balance sheet leverage, inadequate cash flow, project cost overruns, unreasonable construction delays, past due real estate taxes or exhausted interest reserves are assigned an internal risk rating of substandard. Loans classified as substandard can be on an accrual or non-accrual basis, as determined by its unique characteristics. A loan with a weakness so severe that collection in full is highly questionable or improbable will be assigned an internal risk rating of doubtful.

The following tables summarize the Company’s loans by key indicators of credit quality for the periods presented:

 

September 30, 2020

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

670,463

 

 

$

2,783

 

 

$

16,462

 

 

$

301

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

369,024

 

 

 

286

 

 

 

3,910

 

 

 

 

Construction, land and development

 

 

398,134

 

 

 

4,125

 

 

 

217

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

889,239

 

 

 

7,339

 

 

 

9,556

 

 

 

 

Consumer loans and leases

 

 

12,901

 

 

 

 

 

 

76

 

 

 

 

Municipal and other loans

 

 

64,498

 

 

 

2,950

 

 

 

89

 

 

 

 

Total loans

 

$

2,404,259

 

 

$

17,483

 

 

$

30,310

 

 

$

301

 

 

December 31, 2019

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

266,688

 

 

$

1,905

 

 

$

14,355

 

 

$

1

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

372,190

 

 

 

893

 

 

 

2,660

 

 

 

 

Construction, land and development

 

 

258,864

 

 

 

304

 

 

 

216

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

734,757

 

 

 

5,312

 

 

 

13,743

 

 

 

 

Consumer loans and leases

 

 

22,632

 

 

 

 

 

 

137

 

 

 

 

Municipal and other loans

 

 

72,134

 

 

 

 

 

 

391

 

 

 

 

Total loans

 

$

1,727,265

 

 

$

8,414

 

 

$

31,502

 

 

$

1

 

 

Internal risk ratings and other credit metrics are key factors in identifying loans to be individually evaluated for impairment and impact management’s estimates of loss factors used in determining the amount of the allowance for loan and lease losses.

The following tables show the Company’s investment in loans disaggregated based on the method of evaluating impairment for the periods presented:

 

 

 

Loans - Recorded Investment

 

 

Allowance for Credit Loss

 

September 30, 2020

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,457

 

 

$

685,552

 

 

$

3,023

 

 

$

4,638

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

2,073

 

 

 

371,147

 

 

 

2

 

 

 

80

 

Construction, land and development

 

 

215

 

 

 

402,261

 

 

 

 

 

 

1,458

 

Commercial real estate loans (including multifamily)

 

 

2,149

 

 

 

903,985

 

 

 

 

 

 

2,849

 

Consumer loans and leases

 

 

61

 

 

 

12,916

 

 

 

51

 

 

 

51

 

Municipal and other loans

 

 

 

 

 

67,537

 

 

 

 

 

 

55

 

Total loans

 

$

8,955

 

 

$

2,443,398

 

 

$

3,076

 

 

$

9,131

 

 

 

 

Loans - Recorded Investment

 

 

Allowance for Credit Loss

 

December 31, 2019

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

Individually

Evaluated for

Impairment

 

 

Collectively

Evaluated for

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,508

 

 

$

280,441

 

 

$

1,422

 

 

$

2,657

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

1,988

 

 

 

373,755

 

 

 

3

 

 

 

28

 

Construction, land and development

 

 

216

 

 

 

259,168

 

 

 

 

 

 

1,055

 

Commercial real estate loans (including multifamily)

 

 

1,571

 

 

 

752,241

 

 

 

 

 

 

1,451

 

Consumer loans and leases

 

 

24

 

 

 

22,745

 

 

 

19

 

 

 

48

 

Municipal and other loans

 

 

 

 

 

72,525

 

 

 

 

 

 

54

 

Total loans

 

$

6,307

 

 

$

1,760,875

 

 

$

1,444

 

 

$

5,293

 

 

The following tables set forth certain information regarding the Company’s impaired loans that were evaluated for specific reserves for the periods presented:

 

 

 

Impaired Loans - With Allowance

 

 

Impaired Loans - With no

Allowance

 

September 30, 2020

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

3,919

 

 

$

3,924

 

 

$

3,023

 

 

$

532

 

 

$

530

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

7

 

 

 

7

 

 

 

2

 

 

 

2,068

 

 

 

2,067

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

215

 

Commercial real estate loans (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

2,151

 

 

 

2,124

 

Consumer loans and leases

 

 

51

 

 

 

51

 

 

 

51

 

 

 

10

 

 

 

9

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

3,977

 

 

$

3,982

 

 

$

3,076

 

 

$

4,978

 

 

$

4,945

 

 

 

 

Impaired Loans - With Allowance

 

 

Impaired Loans - With no

Allowance

 

December 31, 2019

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Related

Allowance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,150

 

 

$

2,168

 

 

$

1,422

 

 

$

358

 

 

$

360

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

12

 

 

 

12

 

 

 

3

 

 

 

1,976

 

 

 

1,965

 

Construction, land and development

 

 

 

 

 

 

 

 

 

 

 

216

 

 

 

214

 

Commercial real estate loans (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

1,571

 

 

 

1,571

 

Consumer loans and leases

 

 

24

 

 

 

24

 

 

 

19

 

 

 

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

2,186

 

 

$

2,204

 

 

$

1,444

 

 

$

4,121

 

 

$

4,110

 

 

 

 

Three Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,526

 

 

$

 

 

$

2,758

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

2,005

 

 

 

 

 

 

1,409

 

 

 

 

Construction, land and development

 

 

217

 

 

 

 

 

 

216

 

 

 

 

Commercial real estate loans (including multifamily)

 

 

278

 

 

 

 

 

 

238

 

 

 

 

Consumer loans and leases

 

 

51

 

 

 

 

 

 

22

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

7,077

 

 

$

 

 

$

4,643

 

 

$

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

5,342

 

 

$

 

 

$

2,905

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential loans

 

 

2,024

 

 

 

 

 

 

1,434