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Allowance for Credit Losses | 12 Months Ended
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Dec. 31, 2021
Receivables [Abstract] |
Allowance for Credit Losses | ALLOWANCE FOR CREDIT LOSSES As noted in Note A, Accounting Polices and Basis of Presentation, BancShares determined SBA-PPP loans have zero expected credit losses and as such these are excluded from the following ACL disclosures. Upon adoption of ASC 326 on January 1, 2020, BancShares recorded a net decrease of $37.9 million in the ACL, which included a decrease of $56.9 million in the ACL on non-PCD loans, offset by an increase of $19.0 million in the ACL on PCD loans. The largest changes as a result of adoption were decreases in the ACL on commercial loan segments as these portfolios have exhibited strong historical credit performance and have relatively short average lives. The reduction in ACL on these segments was partially offset by increases in ACL on our consumer loan segments primarily due to their longer average lives. The increase in the ACL on PCD loans was primarily the result of reallocating credit discount from loan balances into ACL. The remaining non-credit related discount continues to amortize into interest. 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. The decrease in the ACL as of December 31, 2021 compared to December 31, 2020 was primarily 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 forecasts consider a range of economic scenarios from an upside scenario to a severely adverse scenario, but the December 31, 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. Refer to Note A, Accounting Policies and Basis of Presentation, for discussion of the accounting treatment of the allowance for loan losses prior to adoption of ASC 326. The following tables summarize activity in the allowance for credit losses for the years ended December 31, 2021 and 2020 and the allowance for loan losses for the year ended December 31, 2019.
|  |  |  |  |  |  |  |  | Year ended December 31, 2021
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Balance at January 1 |  |  |  |  |  |  |  |  | $ | 80,842 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 119,485 |  |  | $ | 23,987 |  |  | $ | 224,314 |
Benefit |  |  |  |  |  |  |  |  | (1,228) |  |  |  |  |  |  |  |  |  |  |  |  | (21,278) |  |  | (14,329) |  |  | (36,835) |
Charge-offs |  |  |  |  |  |  |  |  | (15,924) |  |  |  |  |  |  |  |  |  |  |  |  | (17,181) |  |  | (2,317) |  |  | (35,422) |
Recoveries |  |  |  |  |  |  |  |  | 7,523 |  |  |  |  |  |  |  |  |  |  |  |  | 11,452 |  |  | 7,461 |  |  | 26,436 |
Balance at December 31 |  |  |  |  |  |  |  |  | $ | 71,213 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 92,478 |  |  | $ | 14,802 |  |  | $ | 178,493 |
|  |  |  |  |  |  |  |  | Year ended December 31, 2020
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCD |  | Total
Balance at January 1 |  |  |  |  |  |  |  |  | $ | 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 (benefit) |  |  |  |  |  |  |  |  | 37,763 |  |  |  |  |  |  |  |  |  |  |  |  | 27,791 |  |  | (7,202) |  |  | 58,352 |
Initial allowance on PCD loans |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  | 1,193 |  |  | 1,193 |
Charge-offs |  |  |  |  |  |  |  |  | (17,586) |  |  |  |  |  |  |  |  |  |  |  |  | (24,219) |  |  | (3,300) |  |  | (45,105) |
Recoveries |  |  |  |  |  |  |  |  | 5,850 |  |  |  |  |  |  |  |  |  |  |  |  | 10,048 |  |  | 6,759 |  |  | 22,657 |
Balance at December 31 |  |  |  |  |  |  |  |  | $ | 80,842 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 119,485 |  |  | $ | 23,987 |  |  | $ | 224,314 |
|  |  |  |  |  |  |  |  | Year ended December 31, 2019
(Dollars in thousands) |  |  |  |  |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  | Consumer |  | PCI |  | Total
Balance at January 1 |  |  |  |  |  |  |  |  | $ | 139,043 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 75,525 |  |  | $ | 9,144 |  |  | $ | 223,712 |
Provision (benefit) |  |  |  |  |  |  |  |  | 13,386 |  |  |  |  |  |  |  |  |  |  |  |  | 19,663 |  |  | (1,608) |  |  | 31,441 |
Charge-offs |  |  |  |  |  |  |  |  | (14,744) |  |  |  |  |  |  |  |  |  |  |  |  | (28,283) |  |  | — |  |  | (43,027) |
Recoveries |  |  |  |  |  |  |  |  | 4,684 |  |  |  |  |  |  |  |  |  |  |  |  | 8,331 |  |  | — |  |  | 13,015 |
Balance at December 31 |  |  |  |  |  |  |  |  | $ | 142,369 |  |  |  |  |  |  |  |  |  |  |  |  | $ | 75,236 |  |  | $ | 7,536 |  |  | $ | 225,141 |
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:
(Dollars in thousands) | December 31, 2021 |  | December 31, 2020
Allowance for credit losses: |  |  |
Beginning balance | $ | 12,814 |  |  | $ | 1,055 |
Adoption of ASC 326 | — |  |  | 8,885 |
Adjusted beginning balance | $ | 12,814 |  |  | $ | 9,940 |
(Benefit) provision | (999) |  |  | 2,874 |
Ending balance | 11,815 |  |  | 12,814 |
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 December 31, 2021 and 2020.
| December 31, 2021
(Dollars in thousands) | Collateral-Dependent Loans |  | Net Realizable Value of Collateral |  | Collateral Coverage |  | Allowance for Credit Losses
Commercial loans: |  |  |  |  |  |  |
Construction and land development | $ | 1,424 |  |  | $ | 1,964 |  |  | 137.9 | % |  | $ | — |
Owner occupied commercial mortgage | 3,461 |  |  | 4,370 |  |  | 126.3 |  |  | — |
Non-owner occupied commercial mortgage | 2,056 |  |  | 2,118 |  |  | 103.0 |  |  | — |
Commercial and industrial and leases | 2,665 |  |  | 5,208 |  |  | 195.4 |  |  | 941 |
Total commercial loans | 9,606 |  |  | 13,660 |  |  | 142.2 |  |  | 941 |
Consumer: |  |  |  |  |  |  |
Residential mortgage | 5,323 |  |  | 7,353 |  |  | 138.1 |  |  | — |
Total non-PCD loans | 14,929 |  |  | 21,013 |  |  | 140.8 |  |  | 941 |
PCD | 4,864 |  |  | 21,099 |  |  | 433.8 |  |  | — |
Total collateral-dependent loans | $ | 19,793 |  |  | $ | 42,112 |  |  | 212.8 | % |  | $ | 941 |
| December 31, 2020
(Dollars in thousands) | Collateral-Dependent Loans |  | Net Realizable Value of Collateral |  | Collateral Coverage |  | Allowance for Credit Losses
Commercial loans: |  |  |  |  |  |  |
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 |
Total non-PCD loans | 39,783 |  |  | 53,400 |  |  | 134.2 |  |  | 131 |
PCD | 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 $14.8 million and $57.5 million as of December 31, 2021 and 2020, respectively. All other nonaccrual loans have a recorded allowance. Non-PCI impaired loans less than $500,000 that were collectively evaluated was $41.0 million at December 31, 2019. The following table shows the average non-PCI impaired loan balance and the interest income recognized by loan class for the years ended December 31, 2019.
|  |  |  |  | 2019
(Dollars in thousands) |  |  |  |  |  |  |  |  | Average Balance |  | Interest Income Recognized
Non-PCI impaired loans and leases: |  |  |  |  |  |  |  |  |  |  |
Commercial: |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  |  |  |  |  |  |  |  | $ | 3,915 |  |  | $ | 53 |
Commercial mortgage |  |  |  |  |  |  |  |  | 64,363 |  |  | 2,188 |
Other commercial real estate |  |  |  |  |  |  |  |  | 919 |  |  | 27 |
Commercial and industrial and leases |  |  |  |  |  |  |  |  | 11,884 |  |  | 482 |
Other |  |  |  |  |  |  |  |  | 396 |  |  | 11 |
Total commercial |  |  |  |  |  |  |  |  | 81,477 |  |  | 2,761 |
Noncommercial: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage |  |  |  |  |  |  |  |  | 52,045 |  |  | 1,386 |
Revolving mortgage |  |  |  |  |  |  |  |  | 29,516 |  |  | 1,009 |
Construction and land development |  |  |  |  |  |  |  |  | 3,589 |  |  | 116 |
Consumer |  |  |  |  |  |  |  |  | 3,311 |  |  | 138 |
Total noncommercial |  |  |  |  |  |  |  |  | 88,461 |  |  | 2,649 |
Total non-PCI impaired loans and leases |  |  |  |  |  |  |  |  | $ | 169,938 |  |  | $ | 5,410 |
Troubled Debt Restructurings BancShares accounts for certain loan modifications or restructurings as 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 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 is not recording these as TDRs. The following tables provides a summary of total TDRs by accrual status.
| December 31, 2021 |  | December 31, 2020 |  |  |  |
(Dollars in thousands) | Accruing |  | Nonaccruing |  | Total |  | Accruing |  | Nonaccruing |  | Total |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development | $ | 328 |  |  | $ | 29 |  |  | $ | 357 |  |  | $ | 578 |  |  | $ | 54 |  |  | $ | 632 |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied commercial mortgage | 43,593 |  |  | 6,231 |  |  | 49,824 |  |  | 37,574 |  |  | 10,889 |  |  | 48,463 |  |  |  |  |  |  |  |  |  |  |  |  |
Non-owner occupied commercial mortgage | 21,278 |  |  | 2,741 |  |  | 24,019 |  |  | 18,336 |  |  | 1,649 |  |  | 19,985 |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial and leases | 11,723 |  |  | 9,384 |  |  | 21,107 |  |  | 29,131 |  |  | 3,528 |  |  | 32,659 |  |  |  |  |  |  |  |  |  |  |  |  |
Total commercial loans | 76,922 |  |  | 18,385 |  |  | 95,307 |  |  | 85,619 |  |  | 16,120 |  |  | 101,739 |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage | 20,635 |  |  | 12,262 |  |  | 32,897 |  |  | 29,458 |  |  | 19,380 |  |  | 48,838 |  |  |  |  |  |  |  |  |  |  |  |  |
Revolving mortgage | 16,322 |  |  | 6,395 |  |  | 22,717 |  |  | 20,124 |  |  | 7,128 |  |  | 27,252 |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development | 961 |  |  | 259 |  |  | 1,220 |  |  | 1,573 |  |  | 9 |  |  | 1,582 |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer auto | 1,827 |  |  | 455 |  |  | 2,282 |  |  | 2,018 |  |  | 696 |  |  | 2,714 |  |  |  |  |  |  |  |  |  |  |  |  |
Consumer other | 713 |  |  | 76 |  |  | 789 |  |  | 955 |  |  | 137 |  |  | 1,092 |  |  |  |  |  |  |  |  |  |  |  |  |
Total consumer loans | 40,458 |  |  | 19,447 |  |  | 59,905 |  |  | 54,128 |  |  | 27,350 |  |  | 81,478 |  |  |  |  |  |  |  |  |  |  |  |  |
PCD loans | 29,401 |  |  | 9,935 |  |  | 39,336 |  |  | 17,617 |  |  | 7,346 |  |  | 24,963 |  |  |  |  |  |  |  |  |  |  |  |  |
Total loans | $ | 146,781 |  |  | $ | 47,767 |  |  | $ | 194,548 |  |  | $ | 157,364 |  |  | $ | 50,816 |  |  | $ | 208,180 |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | December 31, 2019
(Dollars in thousands) |  |  |  |  |  |  | Accruing |  | Nonaccruing |  | Total
Commercial loans: |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  |  |  |  |  |  | $ | 487 |  |  | $ | 2,279 |  |  | $ | 2,766 |
Commercial mortgage |  |  |  |  |  |  | 50,819 |  |  | 11,116 |  |  | 61,935 |
Other commercial real estate |  |  |  |  |  |  | 571 |  |  | — |  |  | 571 |
Commercial and industrial and leases |  |  |  |  |  |  | 9,430 |  |  | 2,409 |  |  | 11,839 |
Other |  |  |  |  |  |  | 320 |  |  | 105 |  |  | 425 |
Total commercial loans |  |  |  |  |  |  | 61,627 |  |  | 15,909 |  |  | 77,536 |
Noncommercial: |  |  |  |  |  |  |  |  |  |  |
Residential mortgage |  |  |  |  |  |  | 41,813 |  |  | 16,048 |  |  | 57,861 |
Revolving mortgage |  |  |  |  |  |  | 21,032 |  |  | 7,367 |  |  | 28,399 |
Construction and land development |  |  |  |  |  |  | 1,452 |  |  | 2,430 |  |  | 3,882 |
Consumer |  |  |  |  |  |  | 2,826 |  |  | 688 |  |  | 3,514 |
Total noncommercial loans |  |  |  |  |  |  | 67,123 |  |  | 26,533 |  |  | 93,656 |
Total loans |  |  |  |  |  |  | $ | 128,750 |  |  | $ | 42,442 |  |  | $ | 171,192 |
The following table summarizes the loan restructurings as of December 31, 2021, 2020 and 2019 that were designated as TDRs. BancShares defines payment default as movement of the TDR to nonaccrual status, which is generally 90 days past due, foreclosure or charge-off, whichever occurs first.
| 2021 |  | 2020 |  | 2019
| Restructurings |  |  |  | Restructurings |  |  |  | Restructurings |  |
(Dollars in thousands) | Number of loans | Amortized cost at period end |  |  |  |  | Number of loans | Amortized cost at period end |  |  |  |  | Number of loans | Amortized cost at period end |  |  |
Loans and leases |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest only period provided |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans | 19 | $ | 17,847 |  |  |  |  |  | 31 | $ | 28,145 |  |  |  |  |  | 11 | $ | 1,595 |  |  |  |
Consumer loans | 1 | 297 |  |  |  |  |  | 6 | 4,169 |  |  |  |  |  | 7 | 4,018 |  |  |  |
Total interest only | 20 | 18,144 |  |  |  |  |  | 37 | 32,314 |  |  |  |  |  | 18 | 5,613 |  |  |  |
Loan term extension |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans | 23 | 6,717 |  |  |  |  |  | 26 | 5,444 |  |  |  |  |  | 16 | 3,904 |  |  |  |
Consumer loans | 106 | 8,803 |  |  |  |  |  | 66 | 5,689 |  |  |  |  |  | 2 | 342 |  |  |  |
Total loan term extension | 129 | 15,520 |  |  |  |  |  | 92 | 11,133 |  |  |  |  |  | 18 | 4,246 |  |  |  |
Below market interest rate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans | 97 | 17,082 |  |  |  |  |  | 98 | 33,870 |  |  |  |  |  | 90 | 13,932 |  |  |  |
Consumer loans | 80 | 3,188 |  |  |  |  |  | 156 | 6,074 |  |  |  |  |  | 176 | 12,458 |  |  |  |
Total below market interest rate | 177 | 20,270 |  |  |  |  |  | 254 | 39,944 |  |  |  |  |  | 266 | 26,390 |  |  |  |
Discharged from bankruptcy |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans | 32 | 5,955 |  |  |  |  |  | 30 | 1,168 |  |  |  |  |  | 25 | 5,571 |  |  |  |
Consumer loans | 96 | 3,675 |  |  |  |  |  | 186 | 8,129 |  |  |  |  |  | 178 | 10,349 |  |  |  |
Total discharged from bankruptcy | 128 | 9,630 |  |  |  |  |  | 216 | 9,297 |  |  |  |  |  | 203 | 15,920 |  |  |  |
Total restructurings | 454 | $ | 63,564 |  |  |  |  |  | 599 | $ | 92,688 |  |  |  |  |  | 505 | $ | 52,169 |  |  |  |
As of December 31, 2021, 2020 and 2019, the pre-modification and post-modification outstanding amortized cost of loans modified as TDRs were not materially different.

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