Annual report pursuant to Section 13 and 15(d)

Allowance for Loan and Lease Losses

v3.20.4
Allowance for Loan and Lease Losses
12 Months Ended
Dec. 31, 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 15, 2019, the Company closed its acquisition of Citizens. At the date of acquisition, Citizens had $253.1 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 preliminary fair value of the loans was approximately $250.3 million at the acquisition date. The overall discount calculated was $2.8 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.

Purchased credit impaired loans related to the Comanche acquisition were insignificant, and the Bank did not identify any purchased credit impaired loans related to the Beeville acquisition or the Simmons branch acquisition. Management identified purchased credit impaired loans related to the Citizens of approximately $3.2 million and estimated that expected cash flows were equal to contractual cash flows at the acquisition date.  The remaining recorded investment in purchased credit impaired loans related to the Citizens acquisition was $610 thousand at December 31, 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 December 31, 2020 no provision for loan losses has been recorded for PPP loans.  These loans are fully guaranteed by the federal government and therefore carry a zero percent reserve.  PPP loans also carry a put-back provision pursuant to which the Bank would have to repay any losses to the SBA 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 the allowance for loan and lease losses for the periods presented:

 

 

 

Allowance Rollforward

 

 

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

For the Year Ended December 31, 2020

 

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,078

 

 

$

(1,877

)

 

$

89

 

 

$

6,796

 

 

$

9,086

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

31

 

 

 

(21

)

 

 

 

 

$

137

 

 

 

147

 

Construction, land and development

 

 

1,055

 

 

 

 

 

 

 

 

$

689

 

 

 

1,744

 

Commercial real estate (including multifamily)

 

 

1,451

 

 

 

 

 

 

 

 

$

3,392

 

 

 

4,843

 

Consumer loans and leases

 

 

68

 

 

 

(222

)

 

 

57

 

 

$

242

 

 

 

145

 

Municipal and other loans

 

 

54

 

 

 

 

 

 

6

 

 

$

1

 

 

 

61

 

Ending allowance balance

 

$

6,737

 

 

$

(2,120

)

 

$

152

 

 

$

11,257

 

 

$

16,026

 

 

 

 

Allowance Rollforward

 

 

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

For the Year Ended December 31, 2019

 

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,453

 

 

$

(2,508

)

 

$

147

 

 

$

1,986

 

 

$

4,078

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

59

 

 

 

 

 

 

65

 

 

 

(93

)

 

 

31

 

Construction, land and development

 

 

731

 

 

 

 

 

 

 

 

 

324

 

 

 

1,055

 

Commercial real estate (including multifamily)

 

 

960

 

 

 

 

 

 

 

 

 

491

 

 

 

1,451

 

Consumer loans and leases

 

 

80

 

 

 

(134

)

 

 

20

 

 

 

102

 

 

 

68

 

Municipal and other loans

 

 

3

 

 

 

 

 

 

5

 

 

 

46

 

 

 

54

 

Ending allowance balance

 

$

6,286

 

 

$

(2,642

)

 

$

237

 

 

$

2,856

 

 

$

6,737

 

 

 

 

Allowance Rollforward

 

 

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

For the Year Ended December 31, 2018

 

Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

3,046

 

 

$

(1,465

)

 

$

75

 

 

$

2,797

 

 

$

4,453

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

902

 

 

 

(5

)

 

 

 

 

 

(838

)

 

 

59

 

Construction, land and development

 

 

441

 

 

 

 

 

 

 

 

 

290

 

 

 

731

 

Commercial real estate (including multifamily)

 

 

898

 

 

 

 

 

 

 

 

 

62

 

 

 

960

 

Consumer loans and leases

 

 

198

 

 

 

(132

)

 

 

1

 

 

 

13

 

 

 

80

 

Municipal and other loans

 

 

167

 

 

 

 

 

 

 

 

 

(164

)

 

 

3

 

Ending allowance balance

 

$

5,652

 

 

$

(1,602

)

 

$

76

 

 

$

2,160

 

 

$

6,286

 

 

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 as the Company receives updated borrower financials and other documents.

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

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 to 59

 

 

60 to 89

 

 

90 or More

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

Days Past

 

 

Non-

 

 

 

 

 

December 31, 2020

 

Current

 

 

Due

 

 

Due

 

 

Due

 

 

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

567,491

 

 

$

2,295

 

 

$

271

 

 

$

 

 

$

4,929

 

 

$

574,986

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

362,505

 

 

 

99

 

 

 

28

 

 

 

 

 

 

1,507

 

 

 

364,139

 

Construction, land and development

 

 

415,135

 

 

 

136

 

 

 

 

 

 

 

 

 

217

 

 

 

415,488

 

Commercial real estate

   (including multifamily)

 

 

953,823

 

 

 

1,084

 

 

 

 

 

 

 

 

 

1,836

 

 

 

956,743

 

Consumer loans and leases

 

 

11,618

 

 

 

8

 

 

 

4

 

 

 

 

 

 

108

 

 

 

11,738

 

Municipal and other loans

 

 

65,416

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

65,438

 

Total loans

 

$

2,375,988

 

 

$

3,622

 

 

$

325

 

 

$

 

 

$

8,597

 

 

$

2,388,532

 

 

 

 

Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 to 59

 

 

60 to 89

 

 

90 or More

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Days Past

 

 

Days Past

 

 

Days Past

 

 

Non-

 

 

 

 

 

December 31, 2019

 

Current

 

 

Due

 

 

Due

 

 

Due

 

 

Accrual

 

 

Total

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

278,922

 

 

$

760

 

 

$

688

 

 

$

 

 

$

2,579

 

 

$

282,949

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

372,828

 

 

 

1,018

 

 

 

 

 

 

 

 

 

1,897

 

 

 

375,743

 

Construction, land and development

 

 

258,497

 

 

 

671

 

 

 

 

 

 

 

 

 

216

 

 

 

259,384

 

Commercial real estate

   (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 December 31, 2020. There was one loan past due greater than 90 days or more and still accruing at December 31, 2019 with a recorded investment of two thousand. All loans with active deferral periods related to the COVID-19 pandemic are excluded from nonaccrual and days past due reporting   

At December 31, 2020, non-accrual loans that were 30 to 59 days past due were $930 thousand, non-accrual loans that were 60 to 89 days past due were $545 thousand, and non-accrual loans that were 90 days or more past due were $2.2 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 table summarizes the Company’s loans by key indicators of credit quality:

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

December 31, 2020

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

554,685

 

 

$

1,332

 

 

$

18,723

 

 

$

246

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

360,337

 

 

 

 

 

 

3,802

 

 

 

 

Construction, land and development

 

 

411,151

 

 

 

4,120

 

 

 

217

 

 

 

 

Commercial real estate (including multifamily)

 

 

935,865

 

 

 

10,913

 

 

 

9,965

 

 

 

 

Consumer loans and leases

 

 

11,626

 

 

 

 

 

 

112

 

 

 

 

Municipal and other loans

 

 

62,273

 

 

 

3,085

 

 

 

80

 

 

 

 

Total loans

 

$

2,335,937

 

 

$

19,450

 

 

$

32,899

 

 

$

246

 

 

 

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

266,688

 

 

$

1,905

 

 

$

14,355

 

 

$

1

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

372,190

 

 

 

893

 

 

 

2,660

 

 

 

 

Construction, land and development

 

 

258,864

 

 

 

304

 

 

 

216

 

 

 

 

Commercial real estate (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 table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

 

 

 

Loans - Recorded

Investment

 

 

Allowance for

Credit Loss

 

 

 

Individually

 

 

Collectively

 

 

Individually

 

 

Collectively

 

 

 

Evaluated for

 

 

Evaluated for

 

 

Evaluated for

 

 

Evaluated for

 

December 31, 2020

 

Impairment

 

 

Impairment

 

 

Impairment

 

 

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,978

 

 

$

570,008

 

 

$

3,488

 

 

$

5,598

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

1,637

 

 

$

362,502

 

 

 

1

 

 

$

146

 

Construction, land and development

 

 

217

 

 

$

415,271

 

 

 

 

 

$

1,744

 

Commercial real estate

   (including multifamily)

 

 

1,837

 

 

$

954,906

 

 

 

500

 

 

$

4,343

 

Consumer loans and leases

 

 

108

 

 

$

11,630

 

 

 

90

 

 

$

55

 

Municipal and other loans

 

 

52

 

 

$

65,386

 

 

 

 

 

$

61

 

Total loans

 

$

8,829

 

 

$

2,379,703

 

 

$

4,079

 

 

$

11,947

 

 

 

 

Loans - Recorded

Investment

 

 

Allowance for

Credit Loss

 

 

 

Individually

 

 

Collectively

 

 

Individually

 

 

Collectively

 

 

 

Evaluated for

 

 

Evaluated for

 

 

Evaluated for

 

 

Evaluated for

 

December 31, 2019

 

Impairment

 

 

Impairment

 

 

Impairment

 

 

Impairment

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,508

 

 

$

280,441

 

 

$

1,422

 

 

$

2,657

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

1,988

 

 

 

373,755

 

 

 

3

 

 

 

28

 

Construction, land and development

 

 

216

 

 

 

259,168

 

 

 

 

 

 

1,055

 

Commercial real estate

   (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:

 

 

 

Impaired Loans -

with Allowance

 

 

Impaired Loans -

with No Allowance

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

Recorded

 

 

Principal

 

 

Related

 

 

Recorded

 

 

Principal

 

December 31, 2020

 

Investment

 

 

Balance

 

 

Allowance

 

 

Investment

 

 

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,407

 

 

$

4,453

 

 

$

3,488

 

 

$

566

 

 

$

571

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

5

 

 

 

5

 

 

 

1

 

 

 

1,632

 

 

 

1,612

 

Construction, land and

   development

 

 

 

 

 

 

 

 

 

 

 

217

 

 

 

215

 

Commercial real estate

   (including multifamily)

 

 

1,308

 

 

 

1,281

 

 

 

500

 

 

 

528

 

 

 

528

 

Consumer loans and leases

 

 

90

 

 

 

90

 

 

 

90

 

 

 

24

 

 

 

28

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

52

 

Total loans

 

$

5,810

 

 

$

5,829

 

 

$

4,079

 

 

$

3,019

 

 

$

3,006

 

 

 

 

Impaired Loans -

with Allowance

 

 

Impaired Loans -

with No Allowance

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

Recorded

 

 

Principal

 

 

Related

 

 

Recorded

 

 

Principal

 

December 31, 2019

 

Investment

 

 

Balance

 

 

Allowance

 

 

Investment

 

 

Balance

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

2,150

 

 

$

2,168

 

 

$

1,422

 

 

$

358

 

 

$

360

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

12

 

 

 

12

 

 

 

3

 

 

 

1,976

 

 

 

 

Construction, land and

   development

 

 

 

 

 

 

 

 

 

 

 

216

 

 

 

214

 

Commercial real estate

   (including multifamily)

 

 

 

 

 

 

 

 

 

 

 

1,571

 

 

 

1,571

 

Consumer loans and leases

 

 

24

 

 

 

24

 

 

 

19

 

 

 

 

 

 

 

Municipal and other loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,965

 

Total loans

 

$

2,186

 

 

$

2,204

 

 

$

1,444

 

 

$

4,121

 

 

$

4,110

 

 

 

 

For the Years Ended

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

Recorded

 

 

Income

 

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

Investment

 

 

Recognized

 

 

 

(Dollars in thousands)

 

Commercial and industrial loans

 

$

4,864

 

 

$

 

 

$

2,790

 

 

$

 

 

$

4,107

 

 

$

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 single family residential

 

 

1,658

 

 

 

 

 

 

2,011

 

 

 

 

 

 

1,211

 

 

 

 

Construction, land and development

 

 

216