LOANS AND ALLOWANCE FOR CREDIT LOSSES |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOANS AND ALLOWANCE FOR CREDIT LOSSES | LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans Held for Sale The following table presents loans held for sale:
Loans Held for Investment and Allowance for Credit Losses The following table presents the amortized cost and unpaid principal for loans held for investment:
The difference between the amortized cost and unpaid principal balance is due to (1) premiums and discounts associated with acquired loans totaling $9,300,000 and $2,689,000 at December 31, 2025 and 2024, respectively, and (2) net deferred origination and factoring fees totaling $2,530,000 and $3,128,000 at December 31, 2025 and 2024, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $42,478,000 and $36,838,000 at December 31, 2025 and 2024, respectively, and was included in other assets in the Consolidated Balance Sheets. During the year ended December 31, 2025, the Company acquired a $23,411,000 nonperforming commercial loan for $3,284,000. The loan was purchased credit deteriorated ("PCD") and therefore, a $10,780,000 ACL was established on Day 1 resulting in a discount of $9,348,000. In the first half of the year, the Company determined that the $10,780,000 ACL was uncollectible and charged off the entire amount. Such charge-off had no impact on credit loss expense as the initial reserve was recorded through purchase accounting. During the fourth quarter of the year, the Company was able to repossess, and in some instances liquidate, a substantial amount of the loan's collateral leading to a recovery and benefit to credit loss expense of $9,460,000. The net charge-off amount related to the acquired PCD loan was $1,320,000 for the year ended December 31, 2025. As of December 31, 2025, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Texas (20%), Illinois (10%), Colorado (10%), and Iowa (4%), make up 44% of the Company’s gross loans, excluding factored receivables. Therefore, the Company’s exposure to credit risk is affected by changes in the economies in these states. At December 31, 2024, the states of Texas (22%), Colorado (10%), Illinois (12%), and Iowa (4%) made up 48% of the Company’s gross loans, excluding factored receivables. A majority (97%) of the Company’s factored receivables, representing approximately 29% of the total loan portfolio as of December 31, 2025, are transportation receivables. At December 31, 2024, 97% of our factored receivables, representing approximately 26% of our total loan portfolio, were transportation receivables. At December 31, 2025 and 2024, the Company had $338,496,000 and $267,891,000, respectively, of customer reserves associated with factored receivables which are held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer and are periodically released to or withdrawn by customers. Customer reserves are reported as deposits in the consolidated balance sheets. As of December 31, 2024, the Company carried a separate receivable (the “Misdirected Payments Receivable”) payable by the United States Postal Service (“USPS”) arising from accounts factored to a large carrier. The balance of such Misdirected Payments Receivable, net of customer reserves, was $0 and $19,361,000 at December 31, 2025 and December 31, 2024, respectively and is reflected in factored receivables. Refer to Note 1 for further discussion. Loans with carrying amounts of $1,725,914,000 and $1,744,145,000 at December 31, 2025 and 2024, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity and Federal Reserve Bank discount window borrowing capacity. 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. The activity in the allowance for credit losses (“ACL”) related to loans held for investment is as follows:
The decrease in required ACL during the year ended December 31, 2025 is a function of net charge-offs of $18,213,000 and credit loss expense of $3,230,000. Included in charge-offs for the year ended December 31, 2025 was the $10,780,000 day-one purchased credit deteriorated ACL that was deemed uncollectible and charged off with no impact to credit loss expense. The increase in required ACL during the year ended December 31, 2024 is a function of net charge-offs of $13,108,000 and credit loss expense of $18,603,000. The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) 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. Consistent forecasts of the loss drivers are used across the loan segments. The Company also forecasts prepayment speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the future interest rate environment. The impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions. For all DCF models at December 31, 2025, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company 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 the Company when developing the forecast metrics. At December 31, 2025 as compared to December 31, 2024, the Company forecasted a modest increase in national unemployment and modest degradation in one-year percentage change in national retail sales, one-year percentage change in national home price index, and one-year percentage change in national gross domestic product. At December 31, 2025 for national unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected small increases in the first two projected quarters followed by a decline to negative levels over the last two projected quarters to a level below recent actual periods. For percentage change in national home price index, the Company projected a breakeven level in the first projected quarter followed by a steep drop to negative levels for the remaining three quarters with such negative levels peaking in the fourth projected quarter. For percentage change in national gross domestic product, management projected very low growth for the first two projected quarters with low levels of contraction for the final two projected quarters. At December 31, 2025, the Company used its historical prepayment speeds with minimal adjustment. The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivables, and mortgage warehouse loan pools. For each of these loan segments, 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 the Company'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 factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above. For the year ended December 31, 2025, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $706,000, and changes in the loan volume and mix of our portfolio during the period increased the required ACL by $3,569,000. Specific reserves decreased by $8,477,000. Net charge-offs during the period were $18,213,000. 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:
Commercial loans secured by Other collateral primarily consist of large liquid credit loans secured by the underlying enterprise values of the borrowers.
At December 31, 2024 the balance of the Over-Formula Advance Portfolio included in factored receivables was $1,429,000 and was fully reserved. At December 31, 2024 the balance of Misdirected Payments, net of customer reserves, included in factored receivables was $19,361,000 and carried no ACL allocation. Past Due and Nonaccrual Loans The following tables present an aging of contractually past due loans:
At December 31, 2024, the Misdirected Payments Receivable, net of customer reserves, totaled $19,361,000, all of which was considered past due 90 days or more. Given the nature of factored receivables, these assets are disclosed as past due 90 days or more still accruing; however, the Company is not recognizing income on the assets. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material. The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:
The following table presents accrued interest on nonaccrual loans reversed through interest income:
There was no interest earned on nonaccrual loans during the years ended December 31, 2025, 2024, and 2023. The following table presents information regarding nonperforming loans:
Credit Quality Information The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings: Pass – Pass rated loans have low to average risk and are not otherwise classified. Classified – Classified loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Certain classified loans have the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. As of December 31, 2025 and 2024, based on the most recent analysis performed, the risk category of loans is as follows:
Loan Modifications to Borrowers Experiencing Financial Difficulty In an effort to mitigate potential losses on loans, the Company will endeavor to work with borrowers experiencing financial difficulty to modify the terms of such loans to improve the likelihood of principal repayment. Such modifications generally fall into four broad categories; principal forgiveness, interest rate reduction, other-than-insignificant payment delay, or a term extension. Modifications can reflect one or multiple modification categories. For all loan types, including commercial real estate loans, the Company considers the likelihood of repayment by the borrower experiencing financial difficulty under the potential agreed upon modified terms. If such repayment is not deemed likely, the Company will not grant the troubled borrower a modification and will commence ultimate collection proceedings. On an ongoing basis, the Company monitors the performance of modified loans related to their restructured terms. The following tables present the amortized cost basis at the end of the reporting period and the financial effect of loan modifications made to borrowers experiencing financial difficulty:
Generally, if a loan to a borrower experiencing financial difficulty is modified, the Company will seek to obtain credit enhancements when possible. The following table presents the payment status of loans that were modified in the preceding twelve months:
At December 31, 2025, the Company had $302,000 of commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period. There were $566,000 of commercial loans to a borrower experiencing financial difficulty that had a payment default during the year ended December 31, 2025 and were modified in the form of a payment delay in the twelve months prior to that default. There were $1,771,000 loans to borrowers experiencing financial difficulty that had a payment default during the year ended December 31, 2024 and were modified in the twelve months prior to that default. There were no loans to borrowers experiencing financial difficulty that had a payment default during the year ended December 31, 2023 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly. Residential Real Estate Loans In Process of Foreclosure At December 31, 2025 and 2024, the Company had $371,000 and $0, respectively, of 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.
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