Commercial Real Estate Lending. The commercial real estate lending initiative
began in 2003 with the Company purchasing participations from financial institutions
on a variety of investor owned commercial projects. This business model evolved
into the present focus of direct relationships, primarily with experienced regional
owners of three commercial product types: office, retail and multifamily. The
office and retail secured projects are occupied by local, regional, and national
tenants, while the primarily Class B multifamily secured projects are occupied
by individuals unlikely to become single family homeowners. Although the Company
does finance other project types (industrial, self-storage facilities, mixed
use, etc.), these other projects do not constitute a significant concentration
of the commercial real estate portfolio. Our commercial real estate projects
are primarily located in Texas, with the majority of the projects being located
in major metropolitan markets, such as Dallas, Fort Worth, and Houston.
Commercial and Industrial Lending. Our commercial and industrial borrowers
are typically located in Texas, but often provide their products and services
regionally or nationally. Loans are generally secured by a pledge of business
assets such as accounts receivable, inventory, equipment, or vehicles, with
the objective of reducing loan balances more quickly than the decline in useful
life or value of the asset. The likelihood of loans being paid depends on the
success of the business itself, and economic conditions can play a large role
in the long-term viability of a company. We generally obtain personal guarantees
for privately held companies.
Financial information on these borrowers is required at regular intervals, with
company information required on monthly or quarterly terms and annual personal
financial statements required on owner/guarantors. Covenants are included in
loan structure with the most common being leverage, liquidity and debt service
covenants and generally include debt to tangible net worth or minimum tangible
net worth, minimum liquidity, minimum Earnings Before Interest, Taxes, Depreciation,
and Amortizations (EBITDA), and minimum current ratios.
Construction and Land Lending. The Company's requirements for commercial construction
is predicated on dealing with reputable project developers, and financially
capable contractors, on projects with good equity and significant pre-leasing.
Requirements for builders of single family residential projects are similar,
with additional controls over the amount of exposure to custom, speculative
and model units being built, both financed by the Company and by competing institutions.
Additionally, through the mortgage division acquired from LegacyTexas Group,
Inc., we also originate one-time close residential construction loans to individuals
for the construction and acquisition of personal residences.
Consumer Real Estate Lending. We primarily originate loans secured by first
mortgages on owner-occupied, one-to-four family residences in our market area.
All of the one-to-four family loans we originate are funded by us and either
sold into the secondary market on a servicing released basis or retained in
our portfolio. See “Loan Originations, Purchases, Sales, Repayments and
Servicing” for more information. Sales of one-to-four family real estate
loans can increase liquidity, provide funds for additional lending activities,
and generate income.