Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

12 Months Ended

Dec. 31, 2019

Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

Loans and leases considered for inclusion in the allowance for loan and lease losses include acquired non-impaired loans and leases, those acquired impaired loans with credit deterioration after acquisition, and originated loans and leases. Although all acquired loans and leases are included in the following table, only those with credit deterioration subsequent to acquisition date are actually included in the allowance for loan and lease losses.

The following tables summarize the balance and activity within the allowance for loan and lease losses, the components of the allowance for loan and lease losses in terms of loans and leases individually and collectively evaluated for impairment, and corresponding loan and lease balances by type for the years ended December 31, 2019, 2018, and 2017 are as follows:

2019	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land		Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	7,540		$	1,751		$	466	$	12,932		$	49		$	2,463		$	25,201
Provision		4,805			67			144		14,460			15			1,217			20,708
Charge-offs		(4,950	)		(113	)		—		(8,171	)		(16	)		(2,609	)		(15,859	)
Recoveries		570			285			—		156			2			873			1,886
Ending balance	$	7,965		$	1,990		$	610	$	19,377		$	50		$	1,944		$	31,936
Ending balance:
Individually evaluated for impairment	$	2,614		$	124		$	—	$	7,952		$	—		$	—		$	10,690
Collectively evaluated for impairment		4,414			1,191			584		10,287			50			1,944			18,470
Loans acquired with deteriorated credit quality		937			675			26		1,138			—			—			2,776
Total allowance for loan and lease losses	$	7,965		$	1,990		$	610	$	19,377		$	50		$	1,944		$	31,936

2019	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	26,396	$	2,398	$	2,644	$	37,303	$	—	$	—	$	68,741
Collectively evaluated for impairment		1,114,232		609,201		270,640		1,277,353		6,316		180,510		3,458,252
Loans acquired with deteriorated credit quality		135,914		100,223		5,373		16,909		249		—		258,668
Total loans and leases	$	1,276,542	$	711,822	$	278,657	$	1,331,565	$	6,565	$	180,510	$	3,785,661

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2018	Commercial Real Estate			Residential Real Estate		Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	4,794		$	1,638	$	222		$	7,418		$	41		$	2,593		$	16,706
Provision		4,543			113		662			12,089			68			1,320			18,795
Charge-offs		(1,865	)		—		(418	)		(6,944	)		(60	)		(2,517	)		(11,804	)
Recoveries		68			—		—			369			—			1,067			1,504
Ending balance	$	7,540		$	1,751	$	466		$	12,932		$	49		$	2,463		$	25,201
Ending balance:
Individually evaluated for impairment	$	2,191		$	61	$	—		$	4,397		$	—		$	—		$	6,649
Collectively evaluated for impairment		4,105			1,323		466			7,413			47			2,463			15,817
Loans acquired with deteriorated credit quality		1,244			367		—			1,122			2			—			2,735
Total allowance for loan and lease losses	$	7,540		$	1,751	$	466		$	12,932		$	49		$	2,463		$	25,201

2018	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	11,983	$	2,137	$	—	$	21,794	$	—	$	—	$	35,914
Collectively evaluated for impairment		1,102,816		588,831		181,570		1,110,386		13,314		191,253		3,188,170
Loans acquired with deteriorated credit quality		146,808		113,934		3,779		12,617		404		—		277,542
Total loans and leases	$	1,261,607	$	704,902	$	185,349	$	1,144,797	$	13,718	$	191,253	$	3,501,626

2017	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Beginning balance	$	1,945		$	2,483		$	742		$	4,196		$	334		$	1,223		$	10,923
Provision (release)		4,343			(405	)		(520	)		6,058			34			3,143			12,653
Charge-offs		(1,494	)		(440	)		—			(2,836	)		(327	)		(3,099	)		(8,196	)
Recoveries		—			—			—			—			—			1,326			1,326
Ending balance	$	4,794		$	1,638		$	222		$	7,418		$	41		$	2,593		$	16,706
Ending balance:
Individually evaluated for impairment	$	1,101		$	158		$	—		$	2,692		$	14		$	—		$	3,965
Collectively evaluated for impairment		1,765			1,047			145			3,308			9			2,593			8,867
Loans acquired with deteriorated credit quality		1,928			433			77			1,418			18			—			3,874
Total allowance for loan and lease losses	$	4,794		$	1,638		$	222		$	7,418		$	41		$	2,593		$	16,706

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2017	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	13,884	$	2,429	$	—	$	14,784	$	14	$	—	$	31,111
Collectively evaluated for impairment		711,097		430,227		99,483		496,446		3,752		177,686		1,918,691
Loans acquired with deteriorated credit quality		166,712		144,562		5,946		10,008		462		—		327,690
Total loans and leases	$	891,693	$	577,218	$	105,429	$	521,238	$	4,228	$	177,686	$	2,277,492

The Company increased the allowance for loan and lease losses by $6.7 million, $8.5 million, and $5.8 million for the years ended December 31, 2019, 2018, and 2017, respectively. For acquired impaired loans, the Company increased the allowance for loan and lease losses by $41,000 for the year ended December 31, 2019, decreased the allowance for loan and lease losses by $1.1 million for the year ended December 31, 2018, and increased the allowance for loan and lease losses by $2.3 million for the year ended December 31, 2017.

For loans individually evaluated for impairment, the Company increased the allowance for loan and lease losses by $4.0 million, $2.7 million, and $2.9 million for the years ended December 31, 2019, 2018, and 2017, respectively. For loans collectively evaluated for impairment, the Company increased the allowance for loan and lease losses by $2.7 million, $7.0 million, and $572,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

The following tables summarize the recorded investment, unpaid principal balance, related allowance, average recorded investment, and interest income recognized for loans and leases considered impaired as of December 31, 2019, 2018, and 2017, which excludes acquired impaired loans:

2019	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	16,556	$	19,808	$	—	$	11,218	$	1,257
Residential real estate		2,165		2,253		—		2,285		192
Construction, land development, and other land		2,644		3,000		—		220		191
Commercial and industrial		19,211		20,398		—		14,137		1,487
With an allowance recorded
Commercial real estate		9,840		10,691		2,614		8,863		711
Residential real estate		233		233		124		195		7
Commercial and industrial		18,092		19,285		7,952		14,989		1,010
Total impaired loans	$	68,741	$	75,668	$	10,690	$	51,907	$	4,855

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	6,110	$	7,693	$	—	$	8,968	$	590
Residential real estate		1,886		1,858		—		1,917		43
Commercial and industrial		11,193		13,961		—		8,680		483
With an allowance recorded
Commercial real estate		5,873		6,313		2,191		5,328		270
Residential real estate		251		253		61		311		4
Commercial and industrial		10,601		11,153		4,397		9,472		749
Installment and other		—		—		—		11		—
Total impaired loans	$	35,914	$	41,231	$	6,649	$	34,687	$	2,139

2017	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	11,425	$	12,936	$	—	$	10,482	$	525
Residential real estate		2,075		2,046		—		1,781		72
Construction, land development and other land		—		—		—		295		2
Commercial and industrial		5,470		6,774		—		2,875		265
With an allowance recorded
Commercial real estate		2,459		2,634		1,101		1,988		187
Residential real estate		354		351		158		422		6
Construction, land development and other land		—		—		—		14		—
Commercial and industrial		9,314		9,724		2,692		3,460		486
Installment and other		14		14		14		162		12
Total impaired loans	$	31,111	$	34,479	$	3,965	$	21,479	$	1,555

For purposes of these tables, the unpaid principal balance represents the outstanding contractual balance. Impaired loans include loans that are individually evaluated for impairment as well as troubled debt restructurings for all loan categories. The sum of non‑accrual loans and loans past due 90 days still on accrual will differ from the total impaired loan amount.

The Bank’s credit risk rating methodology assigns risk ratings from 1 to 10, where a higher rating represents higher risk. The risk rating categories are described by the following groupings:

Pass—Ratings 1‑4 define the risk levels of borrowers and guarantors that offer a minimal to an acceptable level of risk.

Watch—A watch asset (rating of 5) has credit exposure that presents higher than average risk and warrants greater than routine attention by Bank personnel due to conditions affecting the borrower, the borrower’s industry or the economic environment.

Special Mention—A special mention asset (rating of 6) has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Substandard Accrual—A substandard accrual asset (rating of 7) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This classification may be used in limited cases, where despite credit severity, the borrower is current on payments and there is an agreed plan for credit remediation.

Substandard Non‑Accrual—A substandard asset (rating of 8) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

Doubtful—A doubtful asset (rating of 9) has all the weaknesses inherent in one classified substandard with 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.

Loss—A loss asset (rating of 10) is considered uncollectible and of such little value that its continuance as a realizable asset is not warranted.

The following tables summarize the risk rating categories of the loans and leases considered for inclusion in the allowance for loan and lease losses calculation, excluding acquired impaired loans, as of December 31, 2019 and 2018:

2019	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	984,881	$	584,363	$	247,775	$	1,087,856	$	6,013	$	177,696	$	3,088,584
Watch		99,803		21,856		18,181		159,282		302		8		299,432
Special Mention		27,484		3,648		4,684		26,944		—		1,799		64,559
Substandard		28,460		1,732		2,644		40,574		1		728		74,139
Doubtful		—		—		—		—		—		279		279
Loss		—		—		—		—		—		—		—
Total	$	1,140,628	$	611,599	$	273,284	$	1,314,656	$	6,316	$	180,510	$	3,526,993

2018	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Installment and Other		Lease Financing Receivables		Total
Pass	$	1,009,041	$	553,665	$	147,123	$	962,291	$	9,997	$	188,314	$	2,870,431
Watch		76,276		29,522		31,376		112,996		3,302		80		253,552
Special Mention		17,602		5,656		3,071		34,314		—		1,794		62,437
Substandard		11,880		2,125		—		22,579		15		818		37,417
Doubtful		—		—		—		—		—		247		247
Loss		—		—		—		—		—		—		—
Total	$	1,114,799	$	590,968	$	181,570	$	1,132,180	$	13,314	$	191,253	$	3,224,084

The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category as of December 31, 2019 and 2018:

2019	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	14,269	$	5,153	$	—	$	12,274	$	31,696	$	1,108,932	$	1,140,628
Residential real estate		3,187		460		—		1,371		5,018		606,581		611,599
Construction, land development, and other land		—		4,460		—		—		4,460		268,824		273,284
Commercial and industrial		7,789		3,594		—		22,151		33,534		1,281,122		1,314,656
Installment and other		133		2		—		1		136		6,180		6,316
Lease financing receivables		585		532		—		475		1,592		178,918		180,510
Total	$	25,963	$	14,201	$	—	$	36,272	$	76,436	$	3,450,557	$	3,526,993

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2018	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days and Accruing		Non- accrual		Total Past Due		Current		Total
Commercial real estate	$	6,659	$	2,145	$	—	$	9,484	$	18,288	$	1,096,511	$	1,114,799
Residential real estate		4,488		711		—		1,815		7,014		583,954		590,968
Construction, land development, and other land		—		—		—		—		—		181,570		181,570
Commercial and industrial		5,829		1,376		—		13,932		21,137		1,111,043		1,132,180
Installment and other		1,932		4		—		12		1,948		11,366		13,314
Lease financing receivables		789		530		—		591		1,910		189,343		191,253
Total	$	19,697	$	4,766	$	—	$	25,834	$	50,297	$	3,173,787	$	3,224,084

Trouble debt restructurings are granted due to borrower financial difficulty and provide for a modification of loan repayment terms. TDRs are treated in the same manner as impaired loans for purposes of calculating the allowance for loan and lease losses. The tables below present TDRs by loan category as of December 31, 2019, 2018, and 2017. Refer to Note 1—Summary of Significant Accounting Policies for the accounting policy for TDRs.

2019	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		5	$	1,451	$	1,451	$	—	$	223
Commercial and industrial		2		129		129		—		118
Residential real estate		2		191		191		—		—
Total accruing		9		1,771		1,771		—		341
Non-accruing:
Commercial real estate		6		2,777		2,600		177		513
Commercial and industrial		11		8,048		6,096		1,952		1,312
Residential real estate		1		104		104		—		—
Total non-accruing		18		10,929		8,800		2,129		1,825
Total troubled debt restructurings		27	$	12,700	$	10,571	$	2,129	$	2,166

2018	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		4	$	1,508	$	1,508	$	—	$	113
Commercial and industrial		2		191		191		—		100
Residential real estate		1		114		114		—		—
Total accruing		7		1,813		1,813		—		213
Non-accruing:
Commercial real estate		9		2,512		2,471		41		743
Commercial and industrial		6		6,714		4,843		1,871		1,290
Total non-accruing		15		9,226		7,314		1,912		2,033
Total troubled debt restructurings		22	$	11,039	$	9,127	$	1,912	$	2,246

Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued)

2017	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		3	$	912	$	912	$	—	$	—
Residential real estate		1		149		149		—		—
Total accruing		4		1,061		1,061		—		—
Non-accruing:
Commercial real estate		2		743		743		—		111
Commercial and industrial		3		1,246		759		487		246
Residential real estate		1		67		67		—		—
Total non-accruing		6		2,056		1,569		487		357
Total troubled debt restructurings		10	$	3,117	$	2,630	$	487	$	357

In addition, there was a $500,000 commitment outstanding on troubled debt restructurings at December 31, 2019 and 2018. There were no commitments outstanding on troubled debt restructurings at December 31, 2017.

Loans modified as troubled debt restructurings that occurred during the years ended December 31, 2019, 2018, and 2017:

	For the Year Ended
	December 31,
	2019			2018			2017
Accruing:
Beginning balance	$	1,813		$	1,061		$	602
Additions		113			37			1,017
Net payments		(940	)		(86	)		(144	)
Net transfers from (to) non-accrual		785			801			(414	)
Ending balance		1,771			1,813			1,061
Non-accruing:
Beginning balance		7,314			1,569			552
Additions		5,254			8,408			681
Net payments		(2,310	)		(1,718	)		(78	)
Charge-offs		(673	)		(144	)		—
Net transfers from (to) accrual		(785	)		(801	)		414
Ending balance		8,800			7,314			1,569
Total troubled debt restructurings	$	10,571		$	9,127		$	2,630

Troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the years ended December 31, 2019, 2018, and 2017 had a recorded investment of $348,000, $340,000, and $144,000, respectively.

The reserve for unfunded commitments was $1.2 million at December 31, 2019 and 2018. During the year ended December 31, 2019, the Company released provision for unfunded commitments of $80,000. During the years ended December 31, 2018 and 2017, the provisions for unfunded commitments were $317,000 and $162,000, respectively. There were no charge‑offs or recoveries related to the reserve for unfunded commitments during the periods.