Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except for per share amounts)
1. Summary of Significant Accounting Policies
Nature of Organization
Veritex Holdings, Inc. (“Veritex” or the “Company”), a Texas corporation and bank holding company, was incorporated in July 2009 and was formed for the purpose of acquiring one or more financial institutions located in Dallas, Texas and surrounding areas.
Veritex, through its wholly-owned subsidiary, Veritex Community Bank (the “Bank”), is a Texas state banking organization, with corporate offices in Dallas, Texas, and currently operates 25 branches and one mortgage office located in the Dallas-Fort Worth metroplex, 12 branches in the Houston metropolitan area and one branch in Louisville, Kentucky. The Bank provides a full range of banking services to individual and corporate customers, which include commercial and retail lending, and the acceptance of checking and savings deposits. The Texas Department of Banking and the Board of Governors of the Federal Reserve System are the primary regulators of the Company and the Bank, and both perform periodic examinations to ensure regulatory compliance.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Veritex and the Bank, its wholly owned subsidiary.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), but do not include all of the information and footnotes required for complete financial statements. Intercompany transactions and balances are eliminated in consolidation. In management’s opinion, these unaudited condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for a fair statement of the Company’s condensed consolidated financial position at March 31, 2020 and December 31, 2019, condensed consolidated results of operations for the three months ended March 31, 2020 and 2019, condensed consolidated stockholders’ equity for the three months ended March 31, 2020 and 2019 and condensed consolidated cash flows for the three months ended March 31, 2020 and 2019. Certain prior period balances have been reclassified to conform to the current period presentation.
Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end and the results for the interim periods shown herein are not necessarily indicative of results to be expected for the full year due in part to global economic and financial market conditions, interest rates, access to sources of liquidity, market competition and interruptions of business processes. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on February 28, 2020.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions may also affect disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment Reporting
The Company has one reportable segment. All of the Company’s activities are interrelated, and each activity is dependent and assessed based on how each activity of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund itself with deposits and borrowings while managing interest rate and credit risk. Accordingly, all significant operating decisions are based upon an analysis of the Bank as one segment or unit. The Company’s chief operating decision-maker, the Chief Executive Officer, uses the consolidated results to make operating and strategic decisions.
Earnings Per Share
Earnings per share (“EPS”) are based upon the Company’s weighted-average shares outstanding. The table below sets forth the reconciliation between weighted average shares used for calculating basic and diluted EPS for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Earnings (numerator)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
4,134
|
|
|
$
|
7,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic EPS
|
|
|
|
|
|
50,725
|
|
|
54,293
|
|
|
Dilutive effect of employee stock-based awards
|
|
|
|
|
|
331
|
|
|
1,146
|
|
|
Adjusted weighted average shares outstanding
|
|
|
|
|
|
51,056
|
|
|
55,439
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
0.08
|
|
|
$
|
0.14
|
|
|
Diluted
|
|
|
|
|
|
$
|
0.08
|
|
|
$
|
0.13
|
|
For the three months ended March 31, 2020, there were 1,341 antidilutive shares excluded from the diluted EPS weighted average shares outstanding. For the three months ended March 31, 2019, there were no antidilutive shares excluded from the diluted EPS weighted average shares outstanding.
Adoption of New Accounting Standards
On January 1, 2020, the Company adopted Accounting Standard Update (“ASU”) 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet (“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investments in leases and OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $15,505 as of January 1, 2020 for the cumulative effect of adopting ASC 326.
The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $19,710 of the allowance for credit losses (“ACL”). The remaining noncredit discount will be accreted into interest income at the effective interest rate. As allowed by ASC 326, the Company elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.
The following table illustrates the impact of ASC 326.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2020
|
|
|
|
|
|
|
|
As Reported
Under
ASC 326
|
|
Pre-ASC 326
Adoption
|
|
Impact of ASC 326 Adoption
|
|
Assets:
|
|
|
|
|
|
|
|
Allowance for credit losses on debt securities held-to-maturity
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Allowance for credit losses on loans
|
|
|
|
|
|
|
|
|
Construction and land
|
|
3,760
|
|
|
3,822
|
|
|
(62)
|
|
|
Farmland
|
|
65
|
|
|
61
|
|
|
4
|
|
|
1 - 4 family residential
|
|
6,002
|
|
|
1,378
|
|
|
4,624
|
|
|
Multi-family residential
|
|
2,593
|
|
|
1,965
|
|
|
628
|
|
|
Owner Occupied Commercial Real Estate
|
|
13,066
|
|
|
1,978
|
|
|
11,088
|
|
|
Non-Owner Occupied Commercial Real Estate
|
|
15,314
|
|
|
8,139
|
|
|
7,175
|
|
|
Commercial
|
|
27,729
|
|
|
12,369
|
|
|
15,360
|
|
|
Consumer
|
|
442
|
|
|
122
|
|
|
320
|
|
|
Allowance for credit losses on loans
|
|
$
|
68,971
|
|
|
$
|
29,834
|
|
|
$
|
39,137
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Allowance for credit losses on OBS credit exposures
|
|
$
|
1,718
|
|
|
$
|
878
|
|
|
840
|
|
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.
On March 22 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modification using ASC 310-40. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered troubled debt restructurings (“TDRs”). This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress. Section 4013 of the CARES Act provides financial institutions with an option to suspend the application of ASC 310-40 to eligible loan restructurings. A loan restructuring is eligible under Section 4013 if the loan restructuring is related to COVID-19, if the loan was not more than 30 days past due as of December 31, 2019, and if the restructuring occurs between March 1, 2020 and the earlier of 60 days after the termination of the national emergency or December 31, 2020. If a loan restructuring is not eligible under Section 4013, or if the financial institution does not elect to avail itself of the optional relief in Section 4013, the financial institution should evaluate the loan restructuring under ASC 310-40 considering the guidance in the interagency statement.
For the month ending March 31, 2020, the Company had 85 modifications of loans with aggregate principal balances totaling $57,807 that qualified for temporary suspension of TDR requirements under Section 4013 of the CARES Act. The majority of these modifications allow 90-day deferment of principal and/or interest payments. More of these types of modifications are likely to be executed in the second quarter of 2020.
Debt Securities
Debt securities that the Company has both the positive intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost. Debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, are classified as available for sale and are carried at fair value. Unrealized gains and losses on investment securities classified as available for sale have been accounted for as accumulated other comprehensive income (loss), net of taxes. Management determines the appropriate classification of investment securities at the time of purchase.
Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable debt securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of debt securities in noninterest income.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in other assets on the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2020 and 2019.
Allowance for Credit Losses – Available for Sale Securities
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.
Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Allowance for Credit Losses – Held to Maturity Securities
Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Accrued interest receivable on held to maturity debt securities is excluded from the estimate of credit losses.
Management classifies the held to maturity portfolio into the following major security types: mortgage-backed securities, collateralized mortgage obligations and municipal securities. All of the mortgage-backed securities and collateralized mortgage obligations held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses.
Loans Held for Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the ACL. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.
Interest on loans is recognized using the effective-interest method on the daily balances of the principal amounts outstanding. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the loan agreement. The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payment obligations as they come due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When a loan is placed on non-accrual status, all interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Acquired Loans
Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired. PCI loans were accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination.
All loans considered to be PCI loans prior to January 1, 2020 were converted to PCD loans upon the Company’s adoption of ASC 326. The Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold. Upon adoption of ASC 326, the ACL was determined for each loan or pool and added to the loan or pool's carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the loan or pool and the new amortized cost basis is the noncredit premium or discount which will be accreted into interest income over the remaining life of the loan or pool. Changes to the ACL after adoption are recorded through provision expense.
Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.
For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense.
The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.
Allowance for Credit Losses - Loans
The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.
The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.
Expected credit losses are reflected in the ACL through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, an asset will typically be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.
The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses. The Company will utilize a probability of default/loss given default (PD/LGD) model to estimate expected credit losses for our PCD loans and pools.
The Company’s methodologies for estimating the ACL take into account available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed.
The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:
Real Estate — This category of loans consists of the following loan types:
Construction and land — This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied residential and commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.
Farmland — These loans are principally loans to purchase farmland.
1-4 family residential — This category of loans includes both first and junior liens on residential real estate. Home equity revolving lines of credit and home equity term loans are included in this group of loans.
Multi-family residential — This category of loans is primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.
Owner occupied commercial real estate (“OOCRE”) — This category of loans includes real estate loans for a variety of commercial property types and purposes. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location, throughout the Dallas-Fort Worth metroplex and Houston metropolitan area. This diversity helps reduce the exposure to adverse economic events that may affect any single market or industry.
Non-owner occupied commercial real estate (“NOOCRE”) — This category of loans includes investment real estate loans that are primarily secured by office and industrial buildings, retail shopping centers and various special purpose properties. Generally, these types of loans are thought to involve a greater degree of credit risk than OOCRE as they are more sensitive to adverse economic conditions.
Commercial — This category of loans is for commercial, corporate and business purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, agriculture operating loans and other business loans for working capital and operational purposes. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory.
Mortgage warehouse - Mortgage warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by 1-4 family residential loans. The originator closes new mortgage loans with the intent to sell these loans to third party investors for a profit. The Company provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Company is repaid with the proceeds received from sale of the mortgage loan to the final investor.
Consumer — This category of loans is used for personal use typically for consumer purposes.
Collateral Dependent Financial Assets
Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
For collateralized financial assets that are not collateral dependent, the Company will consider the nature of the collateral, potential future changes in collateral values, and historical loss information for financial assets secured with similar collateral to determine the ACL.
Troubled-debt Restructurings (TDRs)
From time to time, the Company may modify its loan agreement with a borrower. A modified loan is considered a TDR, using Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), when two conditions are met: (i) the borrower is experiencing financial difficulty and (ii) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit risk characteristics. Modifications to loan terms may include a lower interest rate, a reduction of principal, or a longer term to maturity. The ACL on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring. In addition, when management has a reasonable expectation of executing a TDR the expected effect of the modification is included in the estimate of the ACL.
Contractual Term
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR.
Discounted Cash Flow Method
The Company uses the DCF method to estimate expected credit losses for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and premium finance), and consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts Texas unemployment as a loss driver. Management also utilizes and forecasts either one-year percentage change in Texas gross domestic product or one-year percentage change in the commercial real estate property index as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. The ACL is further increased for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Loss-Rate Method
The Company uses a loss-rate method to estimate expected credit losses for its farmland and mortgage warehouse loan pool. For this loan segment, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Probability of Default/Loss Given Default Method
The Company uses the PD/LGD method to estimate expected credit losses for the construction and land, 1-4 family residential, OOCRE, NOOCRE, commercial and consumer PCD loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, time to recovery, probability of default, and loss given default.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment and time to recovery) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument’s undiscounted cash flows and amortized cost basis. The ACL is further increased for qualitative loss factors based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an ACL on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancellable, through a charge to provision for credit losses for unfunded commitments included in the Company’s condensed consolidated statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in accounts payable and other liabilities on the Company’s consolidated balance sheets.
Derivative Financial Instruments (Not Designated as Accounting Hedges)
The Company has entered into certain derivative instruments pursuant to a customer accommodation program under which the Company enters into an interest rate swap, cap or collar agreement with a commercial customer and an agreement with offsetting terms with a correspondent bank. These derivative instruments are not designated as accounting hedges and the changes in net fair value are recognized in noninterest income or expense on the Company’s condensed consolidated statements of income and the fair value amounts are included in other assets and accounts payable and other liabilities on the Company’s condensed consolidated balance sheets.
Derivative Financial Instruments (Designated as Cash Flow Hedges)
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, floors, caps and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans. The entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction affects income.
.
The Company assesses the “effectiveness” of hedging derivatives on the date an arrangement was entered into and on a prospective basis at least quarterly. Hedge “effectiveness” is determined by the extent to which changes in the fair value of a derivative instrument offset changes in the fair value, cash flows or carrying value attributable to the risk being hedged. If the relationship between the change in the fair value of the derivative instrument and the change in the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. A hedge is “ineffective” if the relationship between the changes falls outside the acceptable range. In that case, hedge accounting is discontinued on a prospective basis. The time value of the option is excluded from the assessment of effectiveness and is recognized in earnings using a straight-line amortization method over the life of the hedge arrangement. Gains or losses resulting from the termination or sale of a derivative accounted for as a cash flow hedge remain in other comprehensive income and are accreted or amortized to earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.
Goodwill
Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized but is reviewed for potential impairment annually on October 31 of each fiscal year or when a triggering event occurs. The Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. The Company has an unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test, and the Company may resume performing the qualitative assessment in any subsequent period. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The quantitative goodwill impairment test, used to identify both the existence of potential impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any such adjustments to goodwill are reflected in the results of operations in the periods in which they become known. The Company evaluated events and circumstances as of March 31, 2020 and determined that it was not more likely than not that impairment existed as of that date. The Company recorded no impairments of goodwill during the three months ended March 31, 2020.
2. Supplemental Statement of Cash Flows
Other supplemental cash flow information is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
(in thousands)
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
18,489
|
|
|
$
|
14,975
|
|
|
Cash paid for income taxes
|
|
2,330
|
|
|
—
|
|
|
Supplemental Disclosures of Non-Cash Flow Information:
|
|
|
|
|
|
Setup of ROU asset and lease liability upon adoption of ASC 842
|
|
$
|
—
|
|
|
$
|
9,380
|
|
|
Reclassification of deferred offering costs paid in 2018 from other assets to additional paid in capital
|
|
—
|
|
|
788
|
|
|
Reclassification of lease intangibles, cease-use liability and deferred rent liability to ROU asset upon adoption of ASC 842
|
|
—
|
|
|
(48)
|
|
|
Net foreclosure of other real estate owned and repossessed assets
|
|
1,725
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash assets acquired in business combination
|
|
|
|
|
|
Investment securities
|
|
$
|
—
|
|
|
$
|
661,032
|
|
|
Non-marketable equity securities
|
|
—
|
|
|
40,287
|
|
|
Loans held for sale
|
|
—
|
|
|
9,360
|
|
|
Loans held for investment
|
|
—
|
|
|
3,245,492
|
|
|
Accrued interest receivable
|
|
—
|
|
|
11,673
|
|
|
Bank-owned life insurance
|
|
—
|
|
|
56,841
|
|
|
Bank premises, furniture and equipment
|
|
—
|
|
|
39,426
|
|
|
Investment in trusts
|
|
—
|
|
|
666
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
—
|
|
|
65,718
|
|
|
Goodwill
|
|
—
|
|
|
206,821
|
|
|
Other assets
|
|
|
—
|
|
|
12,245
|
|
|
Right of use asset
|
|
—
|
|
|
9,373
|
|
|
Deferred taxes
|
|
—
|
|
|
11,535
|
|
|
Current taxes
|
|
—
|
|
|
1,799
|
|
|
Assets held for sale
|
|
—
|
|
|
85,307
|
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
4,457,575
|
|
|
Non-cash liabilities assumed in business combination
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
$
|
—
|
|
|
$
|
825,364
|
|
|
Interest-bearing deposits
|
|
—
|
|
|
1,300,825
|
|
|
Certificates and other time deposits
|
|
—
|
|
|
1,346,915
|
|
|
Accounts payable and accrued expenses
|
|
—
|
|
|
26,587
|
|
|
Lease liability
|
|
—
|
|
|
9,373
|
|
|
Accrued interest payable and other liabilities
|
|
—
|
|
|
5,181
|
|
|
Securities sold under agreements to repurchase
|
|
—
|
|
|
3,226
|
|
|
Advances from Federal Home Loan Bank
|
|
—
|
|
|
300,000
|
|
|
Subordinated debentures and subordinated notes
|
|
—
|
|
|
56,233
|
|
|
Liabilities held for sale
|
|
—
|
|
|
52,682
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
3,926,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Share Transactions
On January 28, 2019, the Company's Board of Directors (the “Board”) originally authorized a stock buyback program (the "Stock Buyback Program") pursuant to which the Company could, from time to time, purchase up to $50,000 of its outstanding common stock in the aggregate. The Board authorized increases of $50,000 on September 3, 2019 and $75,000 on December 12, 2019, resulting in an aggregate authorization to purchase up to $175,000 under the Stock Buyback Program. The Board also authorized an extension of the original expiration date of the Stock Buyback Program from December 31, 2019 to December 31, 2020. The shares may be repurchased in the open market or in privately negotiated transactions from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The Stock Buyback Program does not obligate the Company to purchase any share and the program may be terminated or amended by the Board at any time prior to its expiration.
During the three months ended March 31, 2020, 2,002,211 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.78. During the three months ended March 31, 2019, 316,600 shares were repurchased through the Stock Buyback Program and held as treasury stock at an average price of $24.42.
4. Securities
Equity Securities With a Readily Determinable Fair Value
The Company held equity securities with a fair value of $15,373 and $11,122 at March 31, 2020 and December 31, 2019, respectively. The Company had no realized gains or losses on equity securities with a readily determinable fair value during the three months ended March 31, 2020 and 2019. The gross unrealized (loss) gain recognized on equity securities with readily determinable fair values recorded in other noninterest income in the Company’s condensed consolidated statements of income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Unrealized (loss) gain recognized on equity securities with a readily determinable fair value
|
|
$
|
(249)
|
|
|
$
|
136
|
|
Equity Securities Without a Readily Determinable Fair Value
The Company held equity securities without a readily determinable fair values and measured at cost of $3,575 and $3,575 at March 31, 2020 and December 31, 2019, respectively.
Debt Securities
Debt securities have been classified in the condensed consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, and the fair value of available for sale and held to maturity securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Allowance for Credit Losses
|
|
Fair Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
107,802
|
|
|
$
|
4,592
|
|
|
$
|
298
|
|
|
$
|
—
|
|
|
$
|
112,096
|
|
|
Municipal securities
|
|
97,945
|
|
|
5,332
|
|
|
246
|
|
|
—
|
|
|
103,031
|
|
|
Mortgage-backed securities
|
|
313,077
|
|
|
19,020
|
|
|
—
|
|
|
—
|
|
|
332,097
|
|
|
Collateralized mortgage obligations
|
|
450,490
|
|
|
18,700
|
|
|
300
|
|
|
—
|
|
|
468,890
|
|
|
Asset-backed securities
|
|
64,927
|
|
|
3,921
|
|
|
—
|
|
|
—
|
|
|
68,848
|
|
|
|
|
$
|
1,034,241
|
|
|
$
|
51,565
|
|
|
$
|
844
|
|
|
$
|
—
|
|
|
$
|
1,084,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Allowance for Credit Losses
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
8,589
|
|
|
$
|
783
|
|
|
$
|
—
|
|
|
$
|
9,372
|
|
|
$
|
—
|
|
|
Collateralized mortgage obligations
|
|
1,784
|
|
|
152
|
|
|
—
|
|
|
1,936
|
|
|
—
|
|
|
Municipal securities
|
|
22,469
|
|
|
1,736
|
|
|
—
|
|
|
24,205
|
|
|
—
|
|
|
|
|
$
|
32,842
|
|
|
$
|
2,671
|
|
|
$
|
—
|
|
|
$
|
35,513
|
|
|
$
|
—
|
|
The Company did not transfer any securities from available for sale to held to maturity at fair value during the three months ended March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
76,997
|
|
|
$
|
1,974
|
|
|
$
|
—
|
|
|
$
|
78,971
|
|
|
Municipal securities
|
|
74,956
|
|
|
3,724
|
|
|
—
|
|
|
78,680
|
|
|
Mortgage-backed securities
|
|
288,938
|
|
|
9,512
|
|
|
260
|
|
|
298,190
|
|
|
Collateralized mortgage obligations
|
|
431,276
|
|
|
6,465
|
|
|
1,503
|
|
|
436,238
|
|
|
Asset-backed securities
|
|
69,964
|
|
|
2,322
|
|
|
—
|
|
|
72,286
|
|
|
|
|
$
|
942,131
|
|
|
$
|
23,997
|
|
|
$
|
1,763
|
|
|
$
|
964,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
8,621
|
|
|
$
|
452
|
|
|
$
|
—
|
|
|
$
|
9,073
|
|
|
Collateralized mortgage obligations
|
|
1,809
|
|
|
|
43
|
|
|
|
—
|
|
|
|
1,852
|
|
|
Municipal securities
|
|
22,535
|
|
|
|
1,350
|
|
|
|
—
|
|
|
|
23,885
|
|
|
|
|
$
|
32,965
|
|
|
$
|
1,845
|
|
|
$
|
—
|
|
|
$
|
34,810
|
|
The following tables disclose the Company’s available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
|
12 Months or More
|
|
|
|
Totals
|
|
|
|
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
14,134
|
|
|
$
|
298
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,134
|
|
|
$
|
298
|
|
|
Municipal securities
|
|
17,120
|
|
|
246
|
|
|
—
|
|
|
—
|
|
|
17,120
|
|
|
246
|
|
|
Mortgage-backed securities
|
|
24,425
|
|
|
300
|
|
|
—
|
|
|
—
|
|
|
24,425
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55,679
|
|
|
$
|
844
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55,679
|
|
|
$
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
|
12 Months or More
|
|
|
|
Totals
|
|
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
468
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
468
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
28,883
|
|
|
370
|
|
|
—
|
|
|
—
|
|
|
28,883
|
|
|
370
|
|
|
Collateralized mortgage obligations
|
|
109,749
|
|
|
1,392
|
|
|
—
|
|
|
—
|
|
|
109,749
|
|
|
1,392
|
|
|
|
|
$
|
139,100
|
|
|
$
|
1,763
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
139,100
|
|
|
$
|
1,763
|
|
Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
The number of available for sale debt securities in an unrealized loss position totaled 10 and 11 at March 31, 2020 and December 31, 2019, respectively. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of March 31, 2020, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company’s condensed consolidated statements of income.
The amortized costs and estimated fair values of securities available for sale, by contractual maturity, as of the dates indicated, are shown in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities, collateralized mortgage obligations and asset-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgage loans and other loans that have varying maturities. The terms of mortgage-backed securities, collateralized mortgage obligations and asset-backed securities thus approximates the terms of the underlying mortgages and loans and can vary significantly due to prepayments. Therefore, these securities are not included in the maturity categories below.
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
Held to Maturity
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Due from one year to five years
|
|
4,912
|
|
|
5,042
|
|
|
—
|
|
|
—
|
|
|
Due from five years to ten years
|
|
105,390
|
|
|
109,583
|
|
|
2,833
|
|
|
2,974
|
|
|
Due after ten years
|
|
95,445
|
|
|
100,502
|
|
|
19,636
|
|
|
21,231
|
|
|
|
|
205,747
|
|
|
215,127
|
|
|
22,469
|
|
|
24,205
|
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
763,567
|
|
|
800,987
|
|
|
10,373
|
|
|
11,308
|
|
|
Asset-backed securities
|
|
64,927
|
|
|
68,848
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,034,241
|
|
|
$
|
1,084,962
|
|
|
$
|
32,842
|
|
|
$
|
35,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
Held to Maturity
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Due in one year or less
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Due from one year to five years
|
|
4,904
|
|
|
5,100
|
|
|
—
|
|
|
|
—
|
|
|
Due from five years to ten years
|
|
74,596
|
|
|
76,403
|
|
|
1,204
|
|
|
|
1,219
|
|
|
Due after ten years
|
|
72,453
|
|
|
76,148
|
|
|
21,331
|
|
|
|
22,666
|
|
|
|
|
151,953
|
|
|
157,651
|
|
|
22,535
|
|
|
|
23,885
|
|
|
Mortgage-backed securities and collateralized mortgage obligations
|
|
720,214
|
|
|
734,428
|
|
|
10,430
|
|
|
|
10,925
|
|
|
Asset-backed securities
|
|
69,964
|
|
|
72,286
|
|
|
—
|
|
|
|
—
|
|
|
|
|
$
|
942,131
|
|
|
$
|
964,365
|
|
|
$
|
32,965
|
|
|
|
$
|
34,810
|
|
Proceeds from sales of debt securities available for sale and gross gains and losses for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Proceeds from sales
|
|
$
|
—
|
|
|
$
|
108,865
|
|
|
Gross realized gains
|
|
—
|
|
|
1
|
|
|
Gross realized losses
|
|
—
|
|
|
772
|
|
As of March 31, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders' equity. There was a blanket floating lien on all debt securities held by the Company to secure Federal Home Loan Bank (“FHLB”) advances as of March 31, 2020 and December 31, 2019.
5. Loans and Allowance for Credit Losses
Loans Held for Investment
Loans held for investment in the accompanying condensed consolidated balance sheets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Loans held for investment:
|
|
|
|
|
Real estate:
|
|
|
|
|
Construction and land
|
$
|
566,470
|
|
|
$
|
629,374
|
|
|
Farmland
|
14,930
|
|
|
16,939
|
|
|
1 - 4 family residential
|
536,892
|
|
|
549,811
|
|
|
Multi-family residential
|
388,374
|
|
|
320,041
|
|
|
OOCRE
|
723,839
|
|
|
706,782
|
|
|
NOOCRE
|
1,828,386
|
|
|
1,784,201
|
|
|
Commercial
|
1,777,603
|
|
|
1,712,838
|
|
|
Mortgage warehouse
|
371,161
|
|
|
183,628
|
|
|
Consumer
|
15,771
|
|
|
17,457
|
|
|
|
6,223,426
|
|
|
5,921,071
|
|
|
Deferred loan costs, net
|
1,470
|
|
|
134
|
|
|
Allowance for credit losses
|
(100,983)
|
|
|
(29,834)
|
|
|
Total loans held for investment
|
$
|
6,123,913
|
|
|
$
|
5,891,371
|
|
Included in the net loan portfolio as of March 31, 2020 and December 31, 2019 was an accretable discount related to purchased performing and PCD loans, previously called PCI loans prior to the Company’s adoption of ASU 2016-13, acquired within a business combination in the approximate amounts of $25,167 and $57,811, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans. For the three months ended March 31, 2020 and 2019, the Company recognized $3,260 and $4,355, respectively, of accretion on non-PCD loans into interest income. For the three months ended March 31, 2020 and 2019, the Company recognized $1,060 and $2,545, respectively, of accretion on PCD/PCI loans into interest income. In addition, included in the net loan portfolio as of March 31, 2020 and December 31, 2019 is a discount on retained loans from sale of originated SBA loans of $2,264 and $2,193, respectively.
The majority of the Company’s loan portfolio consists of loans to businesses and individuals in the Dallas-Fort Worth metroplex and the Houston metropolitan area. This geographic concentration subjects the loan portfolio to the general economic conditions within these areas. The risks created by this concentration have been considered by management in the determination of the adequacy of the ACL. Management believes the ACL was adequate to cover estimated losses on loans as of March 31, 2020 and December 31, 2019.
Allowance for Credit Losses
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the ACL related to loans held for investment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land
|
|
Farmland
|
|
Residential
|
|
Multifamily
|
|
OOCRE
|
|
NOOCRE
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
Balance at beginning of year
|
|
$
|
3,822
|
|
|
$
|
61
|
|
|
|
$
|
1,378
|
|
|
$
|
1,965
|
|
|
|
$
|
1,978
|
|
|
|
$
|
8,139
|
|
|
$
|
12,369
|
|
|
$
|
122
|
|
|
$
|
29,834
|
|
|
Impact of adopting ASC 326 non-PCD loans
|
|
(707)
|
|
|
4
|
|
|
|
3,716
|
|
|
628
|
|
|
|
3,406
|
|
|
|
5,138
|
|
|
7,025
|
|
|
217
|
|
|
19,427
|
|
|
Impact of adoption ASC 326 PCD loans
|
|
645
|
|
|
—
|
|
|
|
908
|
|
|
—
|
|
|
|
7,682
|
|
|
|
2,037
|
|
|
8,335
|
|
|
103
|
|
|
19,710
|
|
|
Credit loss expense non-PCD loans
|
|
2,965
|
|
|
(7)
|
|
|
|
2,488
|
|
|
2,306
|
|
|
|
918
|
|
|
|
9,955
|
|
|
10,226
|
|
|
(15)
|
|
|
28,836
|
|
|
Credit loss expense PCD loans
|
|
113
|
|
|
—
|
|
|
|
(173)
|
|
|
—
|
|
|
|
2,477
|
|
|
|
412
|
|
|
126
|
|
|
(15)
|
|
|
2,940
|
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
(68)
|
|
|
(68)
|
|
|
Recoveries
|
|
—
|
|
|
—
|
|
|
|
1
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
29
|
|
|
274
|
|
|
304
|
|
|
Ending Balance
|
|
$
|
6,838
|
|
0
|
$
|
58
|
|
|
|
$
|
8,318
|
|
|
$
|
4,899
|
|
|
|
$
|
16,461
|
|
|
|
$
|
25,681
|
|
|
$
|
38,110
|
|
|
$
|
618
|
|
|
$
|
100,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and Land
|
|
Farmland
|
|
Residential
|
|
Multifamily
|
|
OOCRE
|
|
NOOCRE
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
Balance at beginning of year
|
|
$
|
2,188
|
|
|
$
|
56
|
|
|
|
$
|
1,614
|
|
|
$
|
361
|
|
|
|
$
|
1,393
|
|
|
|
$
|
5,070
|
|
|
$
|
8,554
|
|
|
$
|
19
|
|
|
$
|
19,255
|
|
|
Credit Loss Expense
|
|
501
|
|
|
6
|
|
|
|
(5)
|
|
|
(80)
|
|
|
|
124
|
|
|
|
626
|
|
|
3,785
|
|
|
55
|
|
|
5,012
|
|
|
Charge-offs
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(2,654)
|
|
|
(74)
|
|
|
(2,728)
|
|
|
Recoveries
|
|
—
|
|
|
—
|
|
|
|
8
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
10
|
|
|
46
|
|
|
64
|
|
|
Ending Balance
|
|
$
|
2,689
|
|
|
$
|
62
|
|
|
|
$
|
1,617
|
|
|
$
|
281
|
|
|
|
$
|
1,517
|
|
|
|
$
|
5,696
|
|
|
$
|
9,695
|
|
|
$
|
46
|
|
|
$
|
21,603
|
|
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Assets1
|
|
Real Property1
|
|
ACL Allocation
|
|
Real estate:
|
|
|
|
|
|
|
Construction and land
|
$
|
785
|
|
|
$
|
—
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
1 - 4 family residential
|
—
|
|
|
594
|
|
|
13
|
|
|
|
|
|
|
|
|
|
OOCRE
|
—
|
|
|
3,927
|
|
|
—
|
|
|
NOOCRE
|
—
|
|
|
18,904
|
|
|
—
|
|
|
Commercial
|
13,647
|
|
|
—
|
|
|
5,815
|
|
|
|
|
|
|
|
|
|
Consumer
|
56
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
14,488
|
|
|
$
|
23,425
|
|
|
$
|
5,921
|
|
1 Loans reported exclude PCD loans that transitioned upon adoption of ASC 326. Refer to Note 1 for further discussion.
The following table presents loans individually and collectively evaluated for impairment, as well as PCD loans, and their respective allowance for credit loss allocations as of December 31, 2019, as determined in accordance with ASC 310 prior to the Company’s adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
Land and
Farmland
|
|
Residential
|
|
Commercial Real Estate
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
Loans individually evaluated for impairment
|
|
$
|
567
|
|
|
$
|
156
|
|
|
$
|
21,644
|
|
|
$
|
5,188
|
|
|
$
|
61
|
|
|
$
|
27,616
|
|
|
Loans collectively evaluated for impairment
|
|
641,799
|
|
|
865,927
|
|
|
2,372,485
|
|
|
1,869,259
|
|
|
17,267
|
|
|
5,766,737
|
|
|
PCD loans
|
|
3,947
|
|
|
3,769
|
|
|
96,854
|
|
|
22,019
|
|
|
129
|
|
|
126,718
|
|
|
Total
|
|
$
|
646,313
|
|
|
$
|
869,852
|
|
|
$
|
2,490,983
|
|
|
$
|
1,896,466
|
|
|
$
|
17,457
|
|
|
$
|
5,921,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACL Allocations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
128
|
|
|
$
|
37
|
|
|
$
|
395
|
|
|
$
|
1,042
|
|
|
$
|
—
|
|
|
$
|
1,602
|
|
|
Loans collectively evaluated for impairment
|
|
3,755
|
|
|
3,306
|
|
|
9,702
|
|
|
|
10,754
|
|
|
|
122
|
|
|
|
27,639
|
|
|
PCD loans
|
|
—
|
|
|
—
|
|
|
20
|
|
|
|
573
|
|
|
|
—
|
|
|
|
593
|
|
|
Total
|
|
$
|
3,883
|
|
|
$
|
3,343
|
|
|
$
|
10,117
|
|
|
$
|
12,369
|
|
|
$
|
122
|
|
|
$
|
29,834
|
|
The following table presents information on impaired loans as of December 31, 2019, as determined in accordance with ASC 310 prior to the Company’s adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
Contractual
Principal
Balance
|
|
Recorded
Investment
with No
Allowance
|
|
Recorded
Investment
with
Allowance
|
|
Total
Recorded
Investment
|
|
Related
Allowance
|
|
Average
Recorded
Investment
YTD
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
$
|
567
|
|
|
$
|
—
|
|
|
$
|
567
|
|
|
$
|
567
|
|
|
$
|
128
|
|
|
$
|
1,793
|
|
|
Farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1 - 4 family residential
|
156
|
|
|
—
|
|
|
156
|
|
|
156
|
|
|
37
|
|
|
158
|
|
|
Multi-family residential
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial real estate
|
21,644
|
|
|
21,040
|
|
|
604
|
|
|
21,644
|
|
|
395
|
|
|
22,529
|
|
|
Commercial
|
5,188
|
|
|
2,011
|
|
|
3,177
|
|
|
5,188
|
|
|
1,042
|
|
|
8,546
|
|
|
Consumer
|
61
|
|
|
61
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
62
|
|
|
Total
|
$
|
27,616
|
|
|
$
|
23,112
|
|
|
$
|
4,504
|
|
|
$
|
27,616
|
|
|
$
|
1,602
|
|
|
$
|
33,088
|
|
(1) Loans reported exclude PCI loans.
Non-Accrual and Past Due Loans
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due in accordance with the terms of the loan agreement.. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Non-accrual loans aggregated by class of loans, as of March 31, 2020 and December 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
Nonaccrual
|
|
Nonaccrual With No ACL
|
|
|
|
Nonaccrual
|
|
Nonaccrual With No ACL
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
$
|
785
|
|
|
$
|
—
|
|
|
|
|
$
|
567
|
|
|
$
|
—
|
|
|
|
|
Farmland
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
1 - 4 family residential
|
912
|
|
|
912
|
|
|
|
|
1,581
|
|
|
1,581
|
|
|
|
|
Multi-family residential
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
OOCRE
|
3,794
|
|
|
3,794
|
|
|
|
|
3,029
|
|
|
2,778
|
|
|
|
|
NOOCRE
|
18,876
|
|
|
18,876
|
|
|
|
|
18,876
|
|
|
18,876
|
|
|
|
|
Commercial
|
14,395
|
|
|
2,852
|
|
|
|
|
5,672
|
|
|
2,747
|
|
|
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
Consumer
|
74
|
|
|
74
|
|
|
|
|
54
|
|
|
54
|
|
|
|
|
Total
|
$
|
38,836
|
|
|
$
|
26,508
|
|
|
|
|
$
|
29,779
|
|
|
$
|
26,036
|
|
|
|
There were no PCD loans included in non-accrual loans at March 31, 2020 and December 31, 2019.
During the three months ended March 31, 2020, interest income not recognized on non-accrual loans was $173. During the three months ended March 31, 2019, interest income not recognized on non-accrual loans, excluding PCI loans, was $151.
An age analysis of past due loans, aggregated by class of loans, as of March 31, 2020 and December 31, 2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 Days
|
|
60 to 89 Days
|
|
90 Days or Greater
|
|
Total Past Due
|
|
Total Current
|
|
PCD
|
|
Total
Loans
|
|
Total 90 Days Past Due and Still Accruing(1)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
$
|
327
|
|
|
$
|
1,322
|
|
|
$
|
—
|
|
|
$
|
1,649
|
|
|
$
|
559,216
|
|
|
$
|
5,605
|
|
|
$
|
566,470
|
|
|
$
|
—
|
|
|
Farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,930
|
|
|
—
|
|
|
14,930
|
|
|
—
|
|
|
1 - 4 family residential
|
4,400
|
|
|
62
|
|
|
210
|
|
|
4,672
|
|
|
527,410
|
|
|
4,810
|
|
|
536,892
|
|
|
210
|
|
|
Multi-family residential
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
388,374
|
|
|
—
|
|
|
388,374
|
|
|
—
|
|
|
OOCRE
|
1,471
|
|
|
1
|
|
|
1,992
|
|
|
3,464
|
|
|
720,375
|
|
|
63,182
|
|
|
723,839
|
|
|
1,992
|
|
|
NOOCRE
|
3,773
|
|
|
—
|
|
|
—
|
|
|
3,773
|
|
|
1,771,909
|
|
|
52,704
|
|
|
1,828,386
|
|
|
—
|
|
|
Commercial
|
16,433
|
|
|
1,295
|
|
|
2,545
|
|
|
20,273
|
|
|
1,727,278
|
|
|
30,052
|
|
|
1,777,603
|
|
|
2,545
|
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
371,161
|
|
|
—
|
|
|
371,161
|
|
|
—
|
|
|
Consumer
|
135
|
|
|
4
|
|
|
17
|
|
|
156
|
|
|
15,386
|
|
|
229
|
|
|
15,771
|
|
|
17
|
|
|
Total
|
$
|
26,539
|
|
|
$
|
2,684
|
|
|
$
|
4,764
|
|
|
$
|
33,987
|
|
|
$
|
6,096,039
|
|
|
$
|
156,582
|
|
|
$
|
6,223,426
|
|
|
$
|
4,764
|
|
(1) Loans 90 days past due and still accruing excludes $68,325 of PCD loans as of March 31, 2020 that transitioned upon adoption of ASC 326. Refer to Note 1 for further discussion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 Days
|
|
60 to 89 Days
|
|
90 Days or Greater
|
|
Total Past Due
|
|
Total Current
|
|
PCD
|
|
Total
Loans
|
|
Total 90 Days Past Due and Still Accruing(1)
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
629,374
|
|
|
$
|
3,947
|
|
|
$
|
629,374
|
|
|
$
|
800
|
|
|
Farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,939
|
|
|
—
|
|
|
16,939
|
|
|
—
|
|
|
1 - 4 family residential
|
2,595
|
|
|
520
|
|
|
1,155
|
|
|
4,270
|
|
|
541,772
|
|
|
3,769
|
|
|
549,811
|
|
|
959
|
|
|
Multi-family residential
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320,041
|
|
|
—
|
|
|
320,041
|
|
|
—
|
|
|
Commercial real estate
|
12
|
|
|
3,834
|
|
|
868
|
|
|
4,714
|
|
|
2,389,415
|
|
|
96,854
|
|
|
2,490,983
|
|
|
511
|
|
|
Commercial
|
3,572
|
|
|
1,707
|
|
|
1,497
|
|
|
6,776
|
|
|
1,684,043
|
|
|
22,019
|
|
|
1,712,838
|
|
|
1,317
|
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183,628
|
|
|
—
|
|
|
183,628
|
|
|
—
|
|
|
Consumer
|
30
|
|
|
2,641
|
|
|
140
|
|
|
2,811
|
|
|
14,646
|
|
|
129
|
|
|
17,457
|
|
|
73
|
|
|
Total
|
$
|
6,209
|
|
|
$
|
8,702
|
|
|
$
|
3,660
|
|
|
$
|
18,571
|
|
|
$
|
5,779,858
|
|
|
$
|
126,718
|
|
|
$
|
5,921,071
|
|
|
$
|
3,660
|
|
(1) Loans 90 days past due and still accruing excludes $41,328 of PCD loans as of December 31, 2019.
Loans past due 90 days and still accruing increased to $4,764 as of March 31, 2020. These loans are also considered well-secured, and are in the process of collection with plans in place for the borrowers to bring the notes fully current or to subsequently be renewed. The Company believes that it will collect all principal and interest due on each of the loans past due 90 days and still accruing.
Troubled Debt Restructuring
Modifications of terms for the Company’s loans and their inclusion as TDRs are based on individual facts and circumstances. Loan modifications that are included as TDRs may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless of the period of the modification. The recorded investment in TDRs was $3,142 and $2,142 as of March 31, 2020 and December 31, 2019, respectively.
The following table presents the pre- and post-modification amortized cost of loan modified as TDRs during the three months ended March 31, 2020. There were no new TDRs during the three months ended March 31, 2019. The Company did not grant principal reductions or interest rate concessions on any TDRs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended Amortization Period
|
|
Payment Deferrals
|
|
Total Modifications
|
|
Number of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
970
|
|
|
$
|
970
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
970
|
|
|
$
|
970
|
|
|
$
|
1
|
|
There were no loans modified as TDR loans within the previous 12 months and for which there was a payment default during the three months ended March 31, 2020 and 2019. A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days past due or results in the foreclosure and repossession of the applicable collateral.
Interest income recorded during the three months ended March 31, 2020 and 2019 on TDR loans and interest income that would have been recorded had the terms of the loans not been modified was minimal.
The Company has not committed to lend additional amounts to customers with outstanding loans classified as TDRs as of March 31, 2020 or December 31, 2019.
Credit Quality Indicators
From a credit risk standpoint, the Company classifies its loans in one of the following categories: (i) pass, (ii) special mention, (iii) substandard or (iv) doubtful. Loans classified as loss are charged-off. Loans not rated special mention, substandard, doubtful or loss are classified as pass loans.
The classifications of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on criticized credits monthly. Ratings are adjusted to reflect the degree of risk and loss that is felt to be inherent in each credit as of each monthly reporting period. All classified credits are evaluated for impairment. If impairment is determined to exist, a specific reserve is established. The Company’s methodology is structured so that specific reserves are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are generally not so pronounced that the Company expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits with a lower rating.
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses which exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated doubtful are those in which full collection of principal appears highly questionable, and in which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on non-accrual.
Credits classified as PCD are those that, at acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. All loans considered to be PCI loans prior to January 1, 2020 were converted to PCD loans upon adoption of ASC 326. The Company elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are foreclosed, written off, paid off, or sold.
The Company considers the guidance in ASC 310-20 when determining whether a modification, extension or renewal of a loan constitutes a current period origination. Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. Based on the most recent analysis performed, the risk category of loans by class of loans based on year or origination is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans Amortized Cost Basis by Origination Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving Loans Converted to Term
|
|
Total
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
10,095
|
|
|
$
|
183,309
|
|
|
$
|
245,362
|
|
|
$
|
37,572
|
|
|
$
|
13,121
|
|
|
$
|
22,578
|
|
|
|
$
|
42,786
|
|
|
|
$
|
—
|
|
|
|
$
|
554,823
|
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,935
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,935
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
855
|
|
|
785
|
|
|
467
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,107
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
476
|
|
|
995
|
|
|
938
|
|
|
3,196
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,605
|
|
|
Total construction and land
|
|
$
|
10,095
|
|
|
$
|
183,309
|
|
|
$
|
246,693
|
|
|
$
|
39,352
|
|
|
$
|
14,526
|
|
|
$
|
29,709
|
|
|
|
$
|
42,786
|
|
|
|
$
|
—
|
|
|
|
$
|
566,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
290
|
|
|
$
|
1,004
|
|
|
$
|
3,367
|
|
|
$
|
4,415
|
|
|
$
|
—
|
|
|
$
|
4,470
|
|
|
|
$
|
1,384
|
|
|
|
$
|
—
|
|
|
|
$
|
14,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total farmland
|
|
$
|
290
|
|
|
$
|
1,004
|
|
|
$
|
3,367
|
|
|
$
|
4,415
|
|
|
$
|
—
|
|
|
$
|
4,470
|
|
|
|
$
|
1,384
|
|
|
|
$
|
—
|
|
|
|
$
|
14,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 - 4 family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
16,974
|
|
|
$
|
95,380
|
|
|
$
|
118,905
|
|
|
$
|
75,229
|
|
|
$
|
41,458
|
|
|
$
|
148,332
|
|
|
|
$
|
29,490
|
|
|
|
$
|
3,056
|
|
|
|
$
|
528,824
|
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
155
|
|
|
119
|
|
|
—
|
|
|
552
|
|
|
|
—
|
|
|
|
—
|
|
|
|
826
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
629
|
|
|
1,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,432
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,810
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,810
|
|
|
Total 1 - 4 family residential
|
|
$
|
16,974
|
|
|
$
|
95,380
|
|
|
$
|
119,060
|
|
|
$
|
75,451
|
|
|
$
|
42,087
|
|
|
$
|
155,394
|
|
|
|
$
|
29,490
|
|
|
|
$
|
3,056
|
|
|
|
$
|
536,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
—
|
|
|
$
|
113,249
|
|
|
$
|
172,526
|
|
|
$
|
32,779
|
|
|
$
|
43,606
|
|
|
$
|
8,931
|
|
|
|
$
|
219
|
|
|
|
$
|
—
|
|
|
|
$
|
371,310
|
|
|
Special mention
|
|
—
|
|
|
17,064
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multi-family residential
|
|
$
|
—
|
|
|
$
|
130,313
|
|
|
$
|
172,526
|
|
|
$
|
32,779
|
|
|
$
|
43,606
|
|
|
$
|
8,931
|
|
|
|
$
|
219
|
|
|
|
$
|
—
|
|
|
|
$
|
388,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OOCRE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
19,057
|
|
|
$
|
60,032
|
|
|
$
|
108,442
|
|
|
$
|
85,128
|
|
|
$
|
123,511
|
|
|
$
|
226,995
|
|
|
|
$
|
1,632
|
|
|
|
$
|
7,411
|
|
|
|
$
|
632,208
|
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
4,296
|
|
|
92
|
|
|
4,176
|
|
|
4,869
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,433
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
1,664
|
|
|
2,692
|
|
|
8,109
|
|
|
2,551
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,016
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
9,788
|
|
|
—
|
|
|
7,978
|
|
|
45,416
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,182
|
|
|
Total commercial real estate
|
|
$
|
19,057
|
|
|
$
|
60,032
|
|
|
$
|
124,190
|
|
|
$
|
87,912
|
|
|
$
|
143,774
|
|
|
$
|
279,831
|
|
|
|
$
|
1,632
|
|
|
|
$
|
7,411
|
|
|
|
$
|
723,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOOCRE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
135,824
|
|
|
$
|
311,588
|
|
|
$
|
522,931
|
|
|
$
|
116,413
|
|
|
$
|
231,653
|
|
|
$
|
405,536
|
|
|
|
$
|
27,677
|
|
|
|
$
|
—
|
|
|
|
$
|
1,751,622
|
|
|
Special mention
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,184
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,184
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,876
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18,876
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
18,655
|
|
|
—
|
|
|
6,756
|
|
|
27,293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52,704
|
|
|
Total commercial real estate
|
|
$
|
135,824
|
|
|
$
|
311,588
|
|
|
$
|
541,586
|
|
|
$
|
116,413
|
|
|
$
|
238,409
|
|
|
$
|
456,889
|
|
|
|
$
|
27,677
|
|
|
|
$
|
—
|
|
|
|
$
|
1,828,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
62,944
|
|
|
$
|
208,011
|
|
|
$
|
201,677
|
|
|
$
|
115,757
|
|
|
$
|
31,351
|
|
|
$
|
47,577
|
|
|
|
$
|
1,024,341
|
|
|
|
$
|
18,252
|
|
|
|
$
|
1,709,910
|
|
|
Special mention
|
|
67
|
|
|
1,440
|
|
|
9,924
|
|
|
233
|
|
|
174
|
|
|
1,852
|
|
|
|
—
|
|
|
|
5,961
|
|
|
|
19,651
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
3,729
|
|
|
3,883
|
|
|
7,347
|
|
|
2,839
|
|
|
|
—
|
|
|
|
192
|
|
|
|
17,990
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,040
|
|
|
3,689
|
|
|
21,323
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,052
|
|
|
Total commercial
|
|
$
|
63,011
|
|
|
$
|
209,451
|
|
|
$
|
215,330
|
|
|
$
|
124,913
|
|
|
$
|
42,561
|
|
|
$
|
73,591
|
|
|
|
$
|
1,024,341
|
|
|
|
$
|
24,405
|
|
|
|
$
|
1,777,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
371,161
|
|
|
|
$
|
—
|
|
|
|
$
|
371,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage warehouse
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
371,161
|
|
|
|
$
|
—
|
|
|
|
$
|
371,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,986
|
|
|
$
|
2,079
|
|
|
$
|
1,620
|
|
|
$
|
4,896
|
|
|
$
|
952
|
|
|
$
|
733
|
|
|
|
$
|
3,136
|
|
|
|
$
|
—
|
|
|
|
$
|
15,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
122
|
|
|
|
—
|
|
|
|
—
|
|
|
|
140
|
|
|
PCD
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
188
|
|
|
|
—
|
|
|
|
—
|
|
|
|
229
|
|
|
Total consumer
|
|
$
|
1,986
|
|
|
$
|
2,079
|
|
|
$
|
1,620
|
|
|
$
|
4,955
|
|
|
$
|
952
|
|
|
$
|
1,043
|
|
|
|
$
|
3,136
|
|
|
|
$
|
—
|
|
|
|
$
|
15,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pass
|
|
$
|
247,170
|
|
|
$
|
974,652
|
|
|
$
|
1,374,830
|
|
|
$
|
472,189
|
|
|
$
|
485,652
|
|
|
$
|
865,152
|
|
|
|
$
|
1,501,826
|
|
|
|
$
|
28,719
|
|
|
|
$
|
5,950,190
|
|
|
Total Special Mention
|
|
67
|
|
|
|
18,504
|
|
|
|
14,375
|
|
|
|
444
|
|
|
|
4,350
|
|
|
|
16,392
|
|
|
|
—
|
|
|
|
5,961
|
|
|
|
60,093
|
|
|
Total Substandard
|
|
—
|
|
|
|
—
|
|
|
|
6,248
|
|
|
|
7,481
|
|
|
|
16,552
|
|
|
|
26,088
|
|
|
|
—
|
|
|
|
192
|
|
|
|
56,561
|
|
|
Total PCD
|
|
—
|
|
|
|
—
|
|
|
|
28,919
|
|
|
|
6,076
|
|
|
|
19,361
|
|
|
|
102,226
|
|
|
|
—
|
|
|
|
—
|
|
|
|
156,582
|
|
|
Total
|
|
$
|
247,237
|
|
|
$
|
993,156
|
|
|
$
|
1,424,372
|
|
|
$
|
486,190
|
|
|
$
|
525,915
|
|
|
$
|
1,009,858
|
|
|
|
$
|
1,501,826
|
|
|
|
$
|
34,872
|
|
|
|
$
|
6,223,426
|
|
The following table summarizes the Company’s internal ratings of its loans, including PCD loans, as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
PCD
|
|
Total
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and land
|
|
$
|
618,773
|
|
|
$
|
3,965
|
|
|
$
|
2,689
|
|
|
$
|
—
|
|
|
$
|
3,947
|
|
|
$
|
629,374
|
|
|
Farmland
|
|
16,939
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,939
|
|
|
1 - 4 family residential
|
|
541,787
|
|
|
795
|
|
|
3,460
|
|
|
—
|
|
|
3,769
|
|
|
549,811
|
|
|
Multi-family residential
|
|
320,041
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320,041
|
|
|
Commercial real estate
|
|
2,332,357
|
|
|
23,494
|
|
|
38,278
|
|
|
—
|
|
|
96,854
|
|
|
2,490,983
|
|
|
Commercial
|
|
1,610,150
|
|
|
51,999
|
|
|
28,670
|
|
|
—
|
|
|
22,019
|
|
|
1,712,838
|
|
|
Mortgage warehouse
|
|
183,628
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183,628
|
|
|
Consumer
|
|
17,106
|
|
|
40
|
|
|
182
|
|
|
—
|
|
|
129,000
|
|
|
17,457
|
|
|
Total
|
|
$
|
5,640,781
|
|
|
$
|
80,293
|
|
|
$
|
73,279
|
|
|
$
|
—
|
|
|
$
|
126,718
|
|
|
$
|
5,921,071
|
|
Purchased Credit Impaired Loans (Prior to the Adoption of ASU 2016-13)
Loans acquired with evidence of credit quality deterioration at acquisition, for which it was probable that the Company would not be able to collect all contractual amounts due, were accounted for as PCI loans. The carrying amount of PCI loans included in the condensed consolidated balance sheets and the related outstanding balances at December 31, 2019 are set forth in the table below. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Carrying amount
|
|
|
$
|
126,125
|
|
|
Outstanding balance
|
|
|
157,417
|
|
Changes in the accretable yield for PCI loans for the three months ended March 31, 2019 are included in table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Balance at beginning of period
|
|
|
|
$
|
18,747
|
|
|
|
|
|
|
Additions
|
|
|
|
18,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications (to) from nonaccretable
|
|
|
|
(413)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
|
(2,545)
|
|
|
|
|
|
|
Balance at end of period
|
|
|
|
$
|
33,862
|
|
|
|
|
|
During the three months ended March 31, 2019, the Company received cash collections in excess of expected cash flows on PCI loans accounted for individually and not aggregated into loan pools of $390.
Servicing Assets
The Company was servicing loans of approximately $211,941 and $228,638 as of March 31, 2020 and 2019, respectively. A summary of the changes in the related servicing assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Balance at beginning of period
|
|
|
|
|
|
$
|
3,113
|
|
|
$
|
1,304
|
|
|
Servicing asset acquired through acquisition
|
|
|
|
|
|
—
|
|
|
2,382
|
|
|
Increase from loan sales
|
|
|
|
|
|
109
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization charged to income
|
|
|
|
|
|
(232)
|
|
|
(175)
|
|
|
Balance at end of period
|
|
|
|
|
|
$
|
2,990
|
|
|
$
|
3,972
|
|
The estimated fair value of the servicing assets approximated the carrying amount at March 31, 2020, December 31, 2019 and March 31, 2019. Fair value is estimated by discounting estimated future cash flows from the servicing assets using discount rates that approximate current market rates over the expected lives of the loans being serviced. A valuation allowance is recorded when the fair value is below the carrying amount of the asset.
The Company may also receive a portion of subsequent interest collections on loans sold that exceed the contractual servicing fees. In that case, the Company records an interest-only strip based on its relative fair market value and the other components of the loans. There was no interest-only strip receivable recorded at March 31, 2020 and December 31, 2019.
6. Fair Value
The following table summarizes assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
Level 2
Inputs
|
|
Level 3
Inputs
|
|
Total
Fair Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
—
|
|
|
$
|
1,084,962
|
|
|
$
|
—
|
|
|
$
|
1,084,962
|
|
|
Equity securities with a readily determinable fair value
|
|
15,373
|
|
|
—
|
|
|
—
|
|
|
15,373
|
|
|
Loans held for sale(1)
|
|
—
|
|
|
15,048
|
|
|
—
|
|
|
15,048
|
|
|
Interest rate swaps designated as hedging instruments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Customer interest rate swaps not designated as hedging instruments
|
|
—
|
|
|
14,654
|
|
|
—
|
|
|
14,654
|
|
|
Correspondent interest rate caps and collars not designated as hedging instruments
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps designated as hedging instruments
|
|
—
|
|
|
1,903
|
|
|
—
|
|
|
1,903
|
|
|
Correspondent interest rate swaps not designated as hedging instruments
|
|
—
|
|
|
15,743
|
|
|
—
|
|
|
15,743
|
|
|
Customer interest rate caps and collars not designated as hedging instruments
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
Level 2
Inputs
|
|
Level 3
Inputs
|
|
Total
Fair Value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
—
|
|
|
$
|
964,365
|
|
|
$
|
—
|
|
|
$
|
964,365
|
|
|
Equity securities with a readily determinable fair value
|
|
11,122
|
|
|
—
|
|
|
—
|
|
|
11,122
|
|
|
Loans held for sale(1)
|
|
—
|
|
|
10,068
|
|
|
—
|
|
|
10,068
|
|
|
Correspondent interest rate swaps
|
|
—
|
|
|
105
|
|
|
—
|
|
|
105
|
|
|
Customer interest rate swaps
|
|
—
|
|
|
4,393
|
|
|
—
|
|
|
4,393
|
|
|
Correspondent interest rate caps and collars
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
Commercial loan interest rate floor
|
|
—
|
|
|
3,353
|
|
|
—
|
|
|
3,353
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent interest rate swaps
|
|
—
|
|
|
4,736
|
|
|
—
|
|
|
4,736
|
|
|
Customer interest rate swaps
|
|
—
|
|
|
84
|
|
|
—
|
|
|
84
|
|
|
Customer interest rate caps and collars
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents loans held for sale elected to be carried at fair value upon origination or acquisition.
There were no transfers between Level 2 and Level 3 during the three months ended March 31, 2020 and 2019.
The following table summarizes assets measured at fair value on a non-recurring basis as of March 31, 2020 and December 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements Using
|
|
|
|
|
|
|
|
|
|
Level 1
Inputs
|
|
Level 2
Inputs
|
|
Level 3
Inputs
|
|
Total
Fair Value
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Collateral dependent loans
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,370
|
|
|
$
|
12,370
|
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
7,720
|
|
|
7,720
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
—
|
|
|
—
|
|
|
4,504
|
|
|
4,504
|
|
|
Other real estate owned
|
|
—
|
|
|
—
|
|
|
5,995
|
|
|
5,995
|
|
At March 31, 2020, collateral dependent loans with an allowance had a recorded investment of $12,370, with $5,921 specific allowance for credit loss allocated. At December 31, 2019, impaired loans had a carrying value of $4,504, with $1,602 specific allowance for credit loss allocated.
Other real estate owned consisted of five properties recorded with a fair value of approximately $7,720 at March 31, 2020. Other real estate owned consisted of four properties recorded with a fair value of approximately $5,995 at December 31, 2019.
There were no liabilities measured at fair value on a non-recurring basis as of March 31, 2020 or December 31, 2019.
Fair Value of Financial Instruments
The Company’s methods of determining fair value of financial instruments in this Note are consistent with its methodologies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, with the exception of securities sold under agreements to repurchase. Please refer to Note 17 in the Company’s Annual Report on Form 10-K for information on these methods.
The estimated fair values and carrying values of all financial instruments under current authoritative guidance as of March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
430,842
|
|
|
$
|
—
|
|
|
$
|
430,842
|
|
|
$
|
—
|
|
|
Held to maturity investments
|
|
32,842
|
|
|
—
|
|
|
35,512
|
|
|
—
|
|
|
Loans held for sale
|
|
15,048
|
|
|
—
|
|
|
15,048
|
|
|
—
|
|
|
Loans held for investment, mortgage warehouse
|
|
371,161
|
|
|
—
|
|
|
—
|
|
|
373,759
|
|
|
Loans held for investment
|
|
5,853,735
|
|
|
—
|
|
|
—
|
|
|
5,799,072
|
|
|
Accrued interest receivable
|
|
22,059
|
|
|
—
|
|
|
22,059
|
|
|
—
|
|
|
Bank-owned life insurance
|
|
81,395
|
|
|
—
|
|
|
81,395
|
|
|
—
|
|
|
Servicing asset
|
|
2,991
|
|
|
—
|
|
|
2,991
|
|
|
—
|
|
|
Equity securities without a readily determinable fair value
|
|
3,575
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
92,809
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
5,799,945
|
|
|
$
|
—
|
|
|
$
|
5,783,125
|
|
|
$
|
—
|
|
|
Advances from FHLB
|
|
1,377,832
|
|
|
—
|
|
|
1,129,409
|
|
|
—
|
|
|
Accrued interest payable
|
|
7,881
|
|
|
—
|
|
|
7,881
|
|
|
—
|
|
|
Subordinated debentures and subordinated notes
|
|
140,406
|
|
|
—
|
|
|
140,406
|
|
|
—
|
|
|
Securities sold under agreement to repurchase
|
|
2,426
|
|
|
—
|
|
|
2,426
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
251,550
|
|
|
$
|
—
|
|
|
$
|
251,550
|
|
|
$
|
—
|
|
|
Held to maturity investments
|
|
32,965
|
|
|
—
|
|
|
34,810
|
|
|
—
|
|
|
Loans held for sale
|
|
14,080
|
|
|
—
|
|
|
14,080
|
|
|
—
|
|
|
Loans held for investment, mortgage warehouse
|
|
183,628
|
|
|
—
|
|
|
—
|
|
|
185,060
|
|
|
Loans held for investment
|
|
5,737,577
|
|
|
—
|
|
|
—
|
|
|
5,714,885
|
|
|
Accrued interest receivable
|
|
19,508
|
|
|
—
|
|
|
19,508
|
|
|
—
|
|
|
Bank-owned life insurance
|
|
80,915
|
|
|
—
|
|
|
80,915
|
|
|
—
|
|
|
Servicing asset
|
|
3,113
|
|
|
—
|
|
|
3,113
|
|
|
—
|
|
|
Equity securities without a readily determinable fair value
|
|
3,575
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Federal Home Loan Bank and Federal Reserve Bank stock
|
|
68,348
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
5,894,350
|
|
|
$
|
—
|
|
|
$
|
5,692,217
|
|
|
$
|
—
|
|
|
Advances from FHLB
|
|
677,870
|
|
|
—
|
|
|
708,692
|
|
|
—
|
|
|
Accrued interest payable
|
|
5,893
|
|
|
—
|
|
|
5,893
|
|
|
—
|
|
|
Subordinated debentures and subordinated notes
|
|
145,571
|
|
|
—
|
|
|
145,571
|
|
|
—
|
|
|
Other borrowings
|
|
2,353
|
|
|
—
|
|
|
2,353
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
7. Derivative Financial Instruments
The Company primarily uses derivatives to manage exposure to market risk, including interest rate risk and credit risk and to assist customers with their risk management objectives. Management will designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s remaining derivatives consist of derivatives held for customer accommodation or other purposes.
The fair value of derivative positions outstanding is included in other assets and accounts payable and other liabilities on the accompanying condensed consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying condensed consolidated statements of cash flows. For derivatives not designated as hedging instruments, gains and losses due to changes in fair value are included in noninterest income and the operating section of the condensed consolidated statement of cash flows. For derivatives designated as hedging instruments, the entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified into interest income when the forecasted transaction affects income. The notional amounts and estimated fair values as of March 31, 2020 and December 31, 2019 are as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
Notional
Amount
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Notional
Amount
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
Derivatives designated as hedging instruments (cash flow hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap on borrowing advances
|
$
|
500,000
|
|
|
$
|
4,613
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest rate swap on money market deposit account payments
|
250,000
|
|
—
|
|
|
1,903
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial loan interest rate floor
|
—
|
|
|
—
|
|
|
—
|
|
|
275,000
|
|
|
3,353
|
|
|
—
|
|
|
Total derivatives designated as hedging instruments
|
750,000
|
|
|
4,613
|
|
|
1,903
|
|
|
275,000
|
|
|
3,353
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial institution counterparty:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
272,636
|
|
|
—
|
|
|
15,743
|
|
|
222,394
|
|
|
105
|
|
|
4,736
|
|
|
Interest rate caps and collars
|
72,894
|
|
|
7
|
|
|
—
|
|
|
90,093
|
|
|
11
|
|
|
—
|
|
|
Commercial customer counterparty:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
272,636
|
|
|
14,654
|
|
|
—
|
|
|
222,394
|
|
|
4,393
|
|
|
84
|
|
|
Interest rate caps and collars
|
72,894
|
|
|
—
|
|
|
7
|
|
|
90,093
|
|
|
—
|
|
|
11
|
|
|
Total derivatives not designated as hedging instruments
|
691,060
|
|
|
14,661
|
|
|
15,750
|
|
|
624,974
|
|
|
4,509
|
|
|
4,831
|
|
|
Offsetting derivative assets/liabilities
|
|
|
4,620
|
|
|
4,620
|
|
|
|
|
(2,895)
|
|
|
(2,895)
|
|
|
Total derivatives
|
$
|
1,441,060
|
|
|
$
|
23,894
|
|
|
$
|
22,273
|
|
|
$
|
899,974
|
|
|
$
|
4,967
|
|
|
$
|
1,936
|
|
Pre-tax gain (loss) included in the condensed consolidated statements of income and related to derivative instruments for the three months ended March 31, 2020 was as follows. We had no cash flow hedges for the three months ended March 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, 2020
|
|
|
|
|
|
For the Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain recognized in other comprehensive income on derivative
|
|
Gain reclassified from accumulated other comprehensive income into interest income
|
|
Gain recognized in other noninterest income
|
|
Net Gain recognized in other comprehensive income on derivative
|
|
Gain reclassified from accumulated other comprehensive income into interest income
|
|
Gain recognized in other noninterest income
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments (cash flow hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate floor
|
$
|
1,022
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
2,710
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
|
$
|
3,732
|
|
|
|
$
|
284
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps, caps and collars
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
501
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
250
|
|
|
|
|
|
|
|
Cash Flow Hedges
Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, floors, caps and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans.
In March 2020, the Company entered into an interest rate swap for a notional amount of $500,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted issuances of three-month term debt arrangements every three months from March 2022 through March 2032. These forecasted borrowings can be sourced from an FHLB advance, repurchase agreement, brokered certificate of deposit or some combination.
In March 2020, the Company entered into an interest rate swap for a notional amount of $250,000 to hedge the variability of cash flow payments attributable to changes in interest rates in regards to forecasted money market account borrowings from March 2020 through March 2025.
In May 2019, the Company entered into a $275,000 notional interest rate floor for commercial loans with a two-year term. The interest rate floor had a purchased floor strike of 2.43%. In February 2020, the Company terminated this interest rate floor. The gain resulting from the termination of the interest rate floor will remain in other comprehensive income (loss) and will be accreted into earnings over the remaining period of the former hedging relationship unless the forecasted transaction becomes probable of not occurring.
Interest Rate Swap, Floor, Cap and Collar Agreements Not Designated as Hedging Derivatives
In order to accommodate the borrowing needs of certain commercial customers, the Company has entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow the Company’s customers to convert a variable rate loan into a fixed rate loan. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on the Company’s results of operations. The fair value amounts are included in other assets and other liabilities.
The following is a summary of the interest rate swaps, caps and collars outstanding as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Rate
|
|
Floating Rate
|
|
Maturity
|
|
Fair Value
|
|
Non-hedging derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
Customer interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - receive fixed/pay floating
|
$
|
272,636
|
|
|
3.140 - 8.470%
|
|
LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%
|
|
Wtd. Avg.
4.3 years
|
|
$
|
(15,743)
|
|
|
Interest rate caps and collars
|
$
|
72,894
|
|
|
2.500% / 3.100%
|
|
LIBOR 1 month + 0%
|
|
Wtd. Avg.
1.7 years
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - pay fixed/receive floating
|
$
|
272,636
|
|
|
3.140 - 8.470%
|
|
LIBOR 1 month + 0% - 5.00%
PRIME H.15 - 0.250%
|
|
Wtd. Avg.
4.3 years
|
|
$
|
14,654
|
|
|
Interest rate caps and collars
|
$
|
72,894
|
|
|
3.000% / 5.000%
|
|
LIBOR 1 month + 0% - 2.50%
|
|
Wtd. Avg.
1.7 years
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Fixed Rate
|
|
Floating Rate
|
|
Maturity
|
|
Fair Value
|
|
Non-hedging derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
Customer interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - receive fixed/pay floating
|
$
|
222,394
|
|
|
2.944 - 8.470%
|
|
LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%
|
|
Wtd. Avg.
3.3 years
|
|
$
|
(4,632)
|
|
|
Interest rate caps and collars
|
$
|
90,093
|
|
|
2.430% / 5.800%
|
|
LIBOR 1 month + 0% - 3.75%
|
|
Wtd. Avg.
1.5 years
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correspondent interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps - pay fixed/receive floating
|
$
|
222,394
|
|
|
2.944 - 8.470%
|
|
LIBOR 1 month + 0% - 5.00%
PRIME H15 - 0.250%
|
|
Wtd. Avg.
3.3 years
|
|
$
|
4,309
|
|
|
Interest rate caps and collars
|
$
|
90,093
|
|
|
3.000% / 5.800%
|
|
LIBOR 1 month + 0% - 3.75%
|
|
Wtd. Avg.
1.5 years
|
|
$
|
(11)
|
|
8. Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets.
The Company’s exposure to credit loss in the event of nonperformance by the other party to a financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The following table sets forth the approximate amounts of these financial instruments as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Commitments to extend credit
|
|
$
|
1,607,683
|
|
|
$
|
1,950,350
|
|
|
Standby and commercial letters of credit
|
|
34,529
|
|
|
27,196
|
|
|
Total
|
|
$
|
1,642,212
|
|
|
$
|
1,977,546
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Management evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company’s policy for obtaining collateral and the nature of such collateral is substantially the same as that involved in making commitments to extend credit.
The table below presents our financial instruments with off-balance sheet risk, as well as the activity in the allowance for unfunded commitment credit losses related to those financial instruments. This allowance is recorded in accounts payable and other liabilities on the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Beginning balance for allowance for unfunded commitments
|
|
$
|
878
|
|
|
|
$
|
878
|
|
|
Impact of CECL adoption
|
|
840
|
|
|
|
—
|
|
|
Provision for unfunded commitments
|
|
3,881
|
|
|
|
—
|
|
|
Ending balance of allowance for unfunded commitments
|
|
$
|
5,599
|
|
|
|
$
|
878
|
|
9. Stock-Based Awards
Veritex 2010 Stock Option and Equity Incentive Plan (“2010 Incentive Plan”)
The Company recognized no stock compensation expense related to the 2010 Incentive Plan for the three months ended March 31, 2020. The Company recognized stock compensation expense related to the 2010 Incentive Plan of $2 for the three months ended March 31, 2019.
A summary of option activity under the 2010 Incentive Plan for the three months ended March 31, 2020 and 2019, and changes during the periods then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Incentive Plan
|
|
|
|
|
|
|
|
|
|
Non-Performance Based Stock Options
|
|
|
|
|
|
|
|
|
|
Shares
Underlying
Options
|
|
Weighted
Exercise
Price
|
|
Weighted
Average
Contractual
Term
|
|
Aggregate Intrinsic Value
|
|
Outstanding at January 1, 2019
|
|
275,000
|
|
|
$
|
10.12
|
|
|
2.39 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(15,000)
|
|
|
10.28
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2019
|
|
260,000
|
|
|
$
|
10.12
|
|
|
2.11 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
|
257,500
|
|
|
$
|
10.28
|
|
|
1.37 years
|
|
$
|
4,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(202,500)
|
|
|
10.14
|
|
|
|
|
3,691
|
|
|
Outstanding and exercisable at March 31, 2020
|
|
55,000
|
|
|
$
|
10.77
|
|
|
2.02 years
|
|
$
|
232
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020, December 31, 2019 and March 31, 2019 there was no unrecognized stock compensation expense related to non-performance based stock options.
A summary of the fair value of the Company’s stock options exercised under the 2010 Incentive Plan for the three months ended March 31, 2020 and 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Options Exercised as of March 31,
|
|
|
|
|
|
2020
|
|
2019
|
|
Non-performance based stock options exercised
|
|
5,745
|
|
|
390
|
|
|
|
|
|
|
|
2019 Amended Plan and Green Acquired Omnibus Plans
2020 Grants of Restricted Stock Units
During the three months ending March 31, 2020, the Company granted non-performance-based and performance-based restricted stock units (“RSUs”) under the 2019 Amended and Restated Omnibus Incentive Plan, which amended and restated the 2014 Omnibus Incentive Plan (“2019 Amended Plan”), and the Veritex (Green) 2014 Omnibus Equity Incentive Plan (“Veritex (Green) 2014 Plan”). The majority of the non-performance-based RSUs granted to employees during the three months ended March 31, 2020 are subject to “cliff” vesting after three years from the grant date. There were also non-performance-based RSUs granted to the Company’s directors that vest in four equal quarterly installments from the grant date.
The performance-based RSUs granted in January 2020 are subject to “cliff” vesting, with a vesting date of January 1, 2023, based on a performance period starting on December 31, 2019 and ending on December 31, 2022. The vesting percentage is determined based on the Company’s total shareholder return (“TSR”) relative to the TSR of 15 peer companies (“Peer Group”) over the performance period. Below is a table showing the range of vesting percentages for the performance-based RSUs based on the Company’s TSR percentile rank.
|
|
|
|
|
|
|
|
|
Vesting %
|
|
Below the 24.9th percentile of Peer Group TSR
|
—%
|
|
Within the 25th to 49.9th percentile of Peer Group TSR
|
50%
|
|
Within the 50th the 74.9th percentile of Peer Group TSR
|
100%
|
|
At or above the 75th percentile of Peer Group TSR
|
150%
|
A Monte Carlo simulation was used to estimate the fair value of performance-based RSUs on the grant date that include a market condition based on the Company’s TSR relative to its Peer Group, which determines the eligible number of RSUs to vest.
2020 Grant of Stock Options
In January 2020, the Company granted non-performance-based options under the 2019 Amended Plan and the Veritex (Green) 2014 Plan, which vest over three years in equal installments on each anniversary of the grant date.
The fair value of each option award is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for the grants for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
Dividend yield
|
|
2.33% to 2.40%
|
|
|
|
Expected life
|
|
5.0 to 6.5 years
|
|
|
|
Expected volatility
|
|
27.49% to 28.78%
|
|
|
|
Risk-free interest rate
|
|
1.65% to 1.76%
|
|
|
The expected life is based on the amount of time that options being valued are expected to remain outstanding. The dividend yield assumption is based on the Company’s dividend history. The expected volatility is based on historical volatility of the Company. The risk-free interest rates are based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.
Stock Compensation Expense and Liability Award Compensation Expense
Stock compensation expense for equity awards under the 2019 Amended Plan was approximately $1,488 for the three months ended March 31, 2020. For the three months ended March 31, 2019, the Company recognized $1,508 in stock compensation expense.
Stock compensation expense for options and RSUs granted under the Veritex (Green) 2014 Plan was approximately $470 and $385 for the three months ended March 31, 2020 and March 31, 2019, respectively.
There was no compensation expense for liability-classified awards under the 2019 Amended Plan during the three months ended March 31, 2020. Compensation expense for liability-classified awards was $708 for the three months ended March 31, 2019.