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Allowance for Credit Losses | 9 Months Ended
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Sep. 30, 2021
Receivables [Abstract] |
Allowance | ALLOWANCE FOR CREDIT LOSSES The ACL is calculated using a variety of factors, including, but not limited to, charge-off and recovery activity, loan growth, changes in macroeconomic factors, collateral type, estimated loan life and changes in credit quality. For the period ended September 30, 2021, the ACL change since December 31, 2020 was driven by continued strong credit performance, low net charge-offs, and improvement in macroeconomic factors. Forecasted economic conditions are developed using third party macroeconomic scenarios adjusted based on management’s expectations over a forecast period of two years. For most pools, BancShares uses a 12-month straight-line reversion period to historical averages for model inputs; however for the consumer other, consumer card and commercial card pools, immediate reversion to historical net loss rates is utilized. Significant macroeconomic factors used in estimating the expected losses include unemployment, gross domestic product, home price index and commercial real estate index. BancShares’ ACL forecast considers a range of economic scenarios from an upside scenario to a severely adverse scenario, but the September 30, 2021 ACL forecast was calculated using the consensus baseline scenario. This scenario showed improvements in the most significant economic factors compared to what was used to generate the December 31, 2020 ACL. These loss estimates were also influenced by BancShares’ strong credit quality and low net charge-offs. Activity in the ACL by portfolio segment is summarized as follows:
|  |  |  |  |  |  |  |  | Three months ended September 30, 2021
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at July 1 |  |  |  |  |  |  |  |  | $ | 76,082 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 94,272 |  |  | $ | 18,740 |  |  | $ | 189,094 |
Provision (credit) |  |  |  |  |  |  |  |  | 975 |  |  |  |  |  |  |  |  |  |  |  |  | (223) |  |  | (1,872) |  |  | (1,120) |
Charge-offs |  |  |  |  |  |  |  |  | (5,967) |  |  |  |  |  |  |  |  |  |  |  |  | (4,307) |  |  | (799) |  |  | (11,073) |
Recoveries |  |  |  |  |  |  |  |  | 1,594 |  |  |  |  |  |  |  |  |  |  |  |  | 2,330 |  |  | 2,369 |  |  | 6,293 |
Balance at September 30 |  |  |  |  |  |  |  |  | $ | 72,684 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 92,072 |  |  | $ | 18,438 |  |  | $ | 183,194 |
|  |  |  |  |  |  |  |  | Three months ended September 30, 2020
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Balance at July 1 |  |  |  |  |  |  |  |  | $ | 76,177 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 119,345 |  |  | $ | 26,928 |  |  | $ | 222,450 |
Provision (credit) |  |  |  |  |  |  |  |  | 4,793 |  |  |  |  |  |  |  |  |  |  |  |  | 1,874 |  |  | (2,625) |  |  | 4,042 |
Charge-offs |  |  |  |  |  |  |  |  | (3,328) |  |  |  |  |  |  |  |  |  |  |  |  | (5,109) |  |  | (495) |  |  | (8,932) |
Recoveries |  |  |  |  |  |  |  |  | 2,338 |  |  |  |  |  |  |  |  |  |  |  |  | 2,719 |  |  | 1,319 |  |  | 6,376 |
Balance at September 30 |  |  |  |  |  |  |  |  | $ | 79,980 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 118,829 |  |  | $ | 25,127 |  |  | $ | 223,936 |
|  |  |  |  |  |  |  |  | Nine months ended September 30, 2021
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Balance at January 1 |  |  |  |  |  |  |  |  | $ | 80,842 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 119,485 |  |  | $ | 23,987 |  |  | $ | 224,314 |
Provision (credit) |  |  |  |  |  |  |  |  | 332 |  |  |  |  |  |  |  |  |  |  |  |  | (23,208) |  |  | (8,821) |  |  | (31,697) |
Charge-offs |  |  |  |  |  |  |  |  | (12,342) |  |  |  |  |  |  |  |  |  |  |  |  | (12,804) |  |  | (2,018) |  |  | (27,164) |
Recoveries |  |  |  |  |  |  |  |  | 3,852 |  |  |  |  |  |  |  |  |  |  |  |  | 8,599 |  |  | 5,290 |  |  | 17,741 |
Balance at September 30 |  |  |  |  |  |  |  |  | $ | 72,684 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 92,072 |  |  | $ | 18,438 |  |  | $ | 183,194 |
|  |  |  |  |  |  |  |  | Nine months ended September 30, 2020
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Balance at December 31 |  |  |  |  |  |  |  |  | $ | 142,369 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 75,236 |  |  | $ | 7,536 |  |  | $ | 225,141 |
Adoption of ASC 326 |  |  |  |  |  |  |  |  | (87,554) |  |  |  |  |  |  |  |  |  |  |  |  | 30,629 |  |  | 19,001 |  |  | (37,924) |
Balance at January 1 |  |  |  |  |  |  |  |  | 54,815 |  |  |  |  |  |  |  |  |  |  |  |  | 105,865 |  |  | 26,537 |  |  | 187,217 |
Provision (credit) |  |  |  |  |  |  |  |  | 32,854 |  |  |  |  |  |  |  |  |  |  |  |  | 25,066 |  |  | (4,971) |  |  | 52,949 |
Initial allowance on PCD loans |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 1,193 |  |  | 1,193 |
Charge-offs |  |  |  |  |  |  |  |  | (12,712) |  |  |  |  |  |  |  |  |  |  |  |  | (19,535) |  |  | (3,010) |  |  | (35,257) |
Recoveries |  |  |  |  |  |  |  |  | 5,023 |  |  |  |  |  |  |  |  |  |  |  |  | 7,433 |  |  | 5,378 |  |  | 17,834 |
Balance at September 30 |  |  |  |  |  |  |  |  | $ | 79,980 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 118,829 |  |  | $ | 25,127 |  |  | $ | 223,936 |
BancShares records an allowance for credit losses on unfunded commitments within other liabilities. Activity in the allowance for credit losses for unfunded commitments is summarized as follows:
| Three months ended September 30 |  | Nine months ended September 30
(Dollars in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Allowance for credit losses: |  |  |  |  |  |  |
Beginning balance | $ | 11,103 |  |  | $ | 13,685 |  |  | $ | 12,814 |  |  | $ | 1,055 |
Adoption of ASC 326 | — |  |  | — |  |  | — |  |  | 8,885 |
Adjusted beginning balance | $ | 11,103 |  |  | $ | 13,685 |  |  | $ | 12,814 |  |  | $ | 9,940 |
Provision (credit) | 369 |  |  | 286 |  |  | (1,342) |  |  | 4,031 |
Ending balance | 11,472 |  |  | 13,971 |  |  | 11,472 |  |  | 13,971 |
BancShares individually reviews loans greater than $500 thousand that are determined to be collateral-dependent. These collateral-dependent loans are evaluated based on the fair value of the underlying collateral as repayment of the loan is expected to be made through the operation or sale of the collateral. Commercial and industrial loans and leases are collateralized by business assets, while the remaining loan classes are collateralized by real property. The following table presents information on collateral-dependent loans by class and includes the amortized cost of collateral-dependent loans and leases, the net realizable value of the collateral, the extent to which collateral secures collateral-dependent loans and the associated ACL as of September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021
(Dollars in thousands) | Collateral-Dependent Loans |  | Net Realizable Value of Collateral |  | Collateral Coverage |  | Allowance for Credit Losses
Commercial: |  |  |  |  |  |  |
Construction and land development | $ | 1,424 |  |  | $ | 1,964 |  |  | 137.9 | % |  | $ | — |
Owner occupied commercial mortgage | 7,411 |  |  | 8,367 |  |  | 112.9 |  |  | — |
Non-owner occupied commercial mortgage | 8,204 |  |  | 11,307 |  |  | 137.8 |  |  | 1,203 |
Commercial and industrial and leases | 4,787 |  |  | 6,530 |  |  | 136.4 |  |  | 230 |
Total commercial loans | 21,826 |  |  | 28,168 |  |  | 129.1 |  |  | 1,433 |
Consumer: |  |  |  |  |  |  |
Residential mortgage | 11,423 |  |  | 14,625 |  |  | 128.0 |  |  | — |
Revolving mortgage | — |  |  | — |  |  | — |  |  | — |
Total consumer loans | 11,423 |  |  | 14,625 |  |  | 128.0 |  |  | — |
PCD loans | 18,154 |  |  | 32,788 |  |  | 180.6 |  |  | — |
Total collateral-dependent loans | $ | 51,403 |  |  | $ | 75,581 |  |  | 147.0 | % |  | $ | 1,433 |
| December 31, 2020
(Dollars in thousands) | Collateral-Dependent Loans |  | Net Realizable Value of Collateral |  | Collateral Coverage |  | Allowance for Credit Losses
Commercial: |  |  |  |  |  |  |
Construction and land development | $ | 1,424 |  |  | $ | 1,795 |  |  | 126.1 | % |  | $ | — |
Owner occupied commercial mortgage | 9,792 |  |  | 14,253 |  |  | 145.6 |  |  | — |
Non-owner occupied commercial mortgage | 5,556 |  |  | 7,577 |  |  | 136.4 |  |  | — |
Total commercial loans | 16,772 |  |  | 23,625 |  |  | 140.9 |  |  | — |
Consumer: |  |  |  |  |  |  |
Residential mortgage | 23,011 |  |  | 29,775 |  |  | 129.4 |  |  | 131 |
PCD loans | 19,042 |  |  | 27,872 |  |  | 146.4 |  |  | — |
Total collateral-dependent loans | $ | 58,825 |  |  | $ | 81,272 |  |  | 138.2 | % |  | $ | 131 |
Collateral-dependent nonaccrual loans with no recorded allowance totaled $45.5 million and $57.5 million as of September 30, 2021 and December 31, 2020, respectively. All other nonaccrual loans have a recorded allowance. Troubled Debt Restructurings BancShares accounts for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, the modification or restructuring of a loan is considered a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, a concession is granted to the borrower that creditors would not otherwise consider. Concessions may relate to the contractual interest rate, maturity date, payment structure or other actions. Within BancShares’ ACL loss models, TDRs are not individually evaluated unless determined to be collateral-dependent. Consumer TDRs are included in the definition of default which provides for a 100% probability of default applied within the models. As a result, subsequent changes in credit quality metrics do not impact the calculation of the ACL on consumer TDRs. For commercial TDRs, the TDR distinction does impact the calculation of ACL, as the standard definition of default is utilized. The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing financial difficulty due to COVID-19. BancShares applied this regulatory guidance during its TDR identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases did not record these as TDRs. The following tables provides a summary of total TDRs by accrual status:
| September 30, 2021 |  | December 31, 2020
(Dollars in thousands) | Accruing |  | Nonaccruing |  | Total |  | Accruing |  | Nonaccruing |  | Total
Commercial: |  |  |  |  |  |  |  |  |  |  |
Construction and land development | $ | 346 |  |  | $ | 33 |  |  | $ | 379 |  |  | $ | 578 |  |  | $ | 54 |  |  | $ | 632 |
Owner occupied commercial mortgage | 46,255 |  |  | 10,661 |  |  | 56,916 |  |  | 37,574 |  |  | 10,889 |  |  | 48,463 |
Non-owner occupied commercial mortgage | 20,022 |  |  | 3,763 |  |  | 23,785 |  |  | 18,336 |  |  | 1,649 |  |  | 19,985 |
Commercial and industrial and leases | 12,506 |  |  | 11,295 |  |  | 23,801 |  |  | 29,131 |  |  | 3,528 |  |  | 32,659 |
Total commercial loans | 79,129 |  |  | 25,752 |  |  | 104,881 |  |  | 85,619 |  |  | 16,120 |  |  | 101,739 |
Consumer: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 22,106 |  |  | 14,937 |  |  | 37,043 |  |  | 29,458 |  |  | 19,380 |  |  | 48,838 |
Revolving mortgage | 16,533 |  |  | 6,925 |  |  | 23,458 |  |  | 20,124 |  |  | 7,128 |  |  | 27,252 |
Construction and land development | 2,380 |  |  | 282 |  |  | 2,662 |  |  | 1,573 |  |  | 9 |  |  | 1,582 |
Consumer auto | 1,888 |  |  | 636 |  |  | 2,524 |  |  | 2,018 |  |  | 696 |  |  | 2,714 |
Consumer other | 774 |  |  | 61 |  |  | 835 |  |  | 955 |  |  | 137 |  |  | 1,092 |
Total consumer loans | 43,681 |  |  | 22,841 |  |  | 66,522 |  |  | 54,128 |  |  | 27,350 |  |  | 81,478 |
PCD loans | 29,207 |  |  | 12,365 |  |  | 41,572 |  |  | 17,617 |  |  | 7,346 |  |  | 24,963 |
Total loans | $ | 152,017 |  |  | $ | 60,958 |  |  | $ | 212,975 |  |  | $ | 157,364 |  |  | $ | 50,816 |  |  | $ | 208,180 |
The following table provides the types of modifications designated as TDRs during the three and nine months ended September 30, 2021 and 2020.
| Three months ended September 30, 2021 |  | Three months ended September 30, 2020
| All restructurings |  |  |  | All restructurings |  |
(Dollars in thousands) | Number of Loans | Recorded investment at period end |  |  |  |  | Number of Loans | Recorded investment at period end |  |  |
Loans and leases |  |  |  |  |  |  |  |  |  |  |
Interest only | 7 |  | $ | 9,639 |  |  |  |  |  | 6 |  | $ | 5,703 |  |  |  |
Loan term extension | 41 |  | 6,371 |  |  |  |  |  | 29 |  | 2,380 |  |  |  |
Below market interest rate | 47 |  | 3,126 |  |  |  |  |  | 55 |  | 15,341 |  |  |  |
Discharged from bankruptcy | 21 |  | 2,783 |  |  |  |  |  | 55 |  | 1,654 |  |  |  |
Total restructurings | 116 |  | $ | 21,919 |  |  |  |  |  | 145 |  | $ | 25,078 |  |  |  |
| Nine months ended September 30, 2021 |  | Nine months ended September 30, 2020
| All restructurings |  |  |  | All restructurings |  |
(Dollars in thousands) | Number of Loans | Recorded investment at period end |  |  |  |  | Number of Loans | Recorded investment at period end |  |  |
Loans and leases |  |  |  |  |  |  |  |  |  |  |
Interest only | 17 |  | $ | 19,728 |  |  |  |  |  | 23 |  | $ | 24,847 |  |  |  |
Loan term extension | 112 |  | 14,500 |  |  |  |  |  | 62 |  | 5,885 |  |  |  |
Below market interest rate | 148 |  | 21,004 |  |  |  |  |  | 212 |  | 38,740 |  |  |  |
Discharged from bankruptcy | 110 |  | 12,478 |  |  |  |  |  | 165 |  | 7,025 |  |  |  |
Total restructurings | 387 |  | $ | 67,710 |  |  |  |  |  | 462 |  | $ | 76,497 |  |  |  |
For the nine months ended September 30, 2021 and 2020, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.

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