Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

9 Months Ended

Sep. 30, 2021

Allowance for Loan and Leases and Reserve for Unfunded Commitments

Note 5—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 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 three and nine months ended September 30, 2021 and 2020 are as follows:


September 30, 2021	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Paycheck Protection Program		Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Three months ended
Beginning balance	$	19,541		$	1,364		$	619		$	38,284		$	—	$	9		$	1,902		$	61,719
Provision/(recapture)		1,108			(225	)		(61	)		(1,218	)		—		(2	)		750			352
Charge-offs		(564	)		(65	)		—			(1,456	)		—		—			(399	)		(2,484	)
Recoveries		287			2			—			380			—		—			342			1,011
Ending balance	$	20,372		$	1,076		$	558		$	35,990		$	—	$	7		$	2,595		$	60,598
Nine months ended
Beginning balance	$	19,584		$	2,400		$	1,352		$	41,183		$	—	$	15		$	1,813		$	66,347
Provision/(recapture)		2,891			(1,257	)		(468	)		226			—		(8	)		1,366			2,750
Charge-offs		(2,644	)		(76	)		(326	)		(6,172	)		—		—			(1,148	)		(10,366	)
Recoveries		541			9			—			753			—		—			564			1,867
Ending balance	$	20,372		$	1,076		$	558		$	35,990		$	—	$	7		$	2,595		$	60,598
Ending balance:
Individually evaluated for impairment	$	8,420		$	—		$	—		$	16,142		$	—	$	—		$	—		$	24,562
Collectively evaluated for impairment		9,314			723			550			18,572			—		7			2,595			31,761
Loans acquired with deteriorated credit quality		2,638			353			8			1,276			—		—			—			4,275
Total allowance for loan and lease losses	$	20,372		$	1,076		$	558		$	35,990		$	—	$	7		$	2,595		$	60,598


September 30, 2021	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Paycheck Protection Program		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	45,563	$	3,946	$	—	$	37,689	$	—	$	—	$	—	$	87,198
Collectively evaluated for impairment		1,487,994		441,915		336,666		1,492,065		268,081		1,273		338,756		4,366,750
Loans acquired with deteriorated credit quality		84,821		61,893		1,746		6,651		—		169		—		155,280
Total loans and leases	$	1,618,378	$	507,754	$	338,412	$	1,536,405	$	268,081	$	1,442	$	338,756	$	4,609,228


September 30, 2020	Commercial Real Estate			Residential Real Estate			Construction, Land Development, and Other Land			Commercial and Industrial			Paycheck Protection Program		Installment and Other			Lease Financing Receivables			Total
Allowance for loan and lease losses
Three months ended
Beginning balance	$	14,110		$	3,741		$	1,491		$	30,108		$	—	$	36		$	1,814		$	51,300
Provision		6,421			291			1,029			7,603			—		1			395			15,740
Charge-offs		(1,566	)		(250	)		(701	)		(3,254	)		—		—			(374	)		(6,145	)
Recoveries		19			8			53			83			—		—			200			363
Ending balance	$	18,984		$	3,790		$	1,872		$	34,540		$	—	$	37		$	2,035		$	61,258
Nine months ended
Beginning balance	$	7,965		$	1,990		$	610		$	19,377		$	—	$	50		$	1,944		$	31,936
Provision/(recapture)		14,149			2,031			1,910			26,844			—		(13	)		792			45,713
Charge-offs		(3,206	)		(259	)		(701	)		(12,057	)		—		—			(1,392	)		(17,615	)
Recoveries		76			28			53			376			—		—			691			1,224
Ending balance	$	18,984		$	3,790		$	1,872		$	34,540		$	—	$	37		$	2,035		$	61,258
Ending balance:
Individually evaluated for impairment	$	4,516		$	77		$	—		$	10,189		$	—	$	—		$	—		$	14,782
Collectively evaluated for impairment		11,825			3,413			1,685			22,450			—		37			2,035			41,445
Loans acquired with deteriorated credit quality		2,643			300			187			1,901			—		—			—			5,031
Total allowance for loan and lease losses	$	18,984		$	3,790		$	1,872		$	34,540		$	—	$	37		$	2,035		$	61,258


September 30, 2020	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Paycheck Protection Program		Installment and Other		Lease Financing Receivables		Total
Loans and leases ending balance:
Individually evaluated for impairment	$	39,001	$	1,636	$	—	$	37,253	$	—	$	—	$	—	$	77,890
Collectively evaluated for impairment		1,191,740		547,563		234,230		1,281,067		622,191		2,929		200,089		4,079,809
Loans acquired with deteriorated credit quality		117,114		84,197		4,804		10,489		—		214		—		216,818
Total loans and leases	$	1,347,855	$	633,396	$	239,034	$	1,328,809	$	622,191	$	3,143	$	200,089	$	4,374,517

The Company recaptured $1.1 million and $5.7 million of the allowance for loan and lease losses for the three and nine months ended September 30, 2021, respectively, and increased the allowance by $10.0 million and $29.3 million for the three and nine months ended September 30, 2020, respectively. For acquired impaired loans, the Company increased the allowance for loan and lease losses by $405,000 and recaptured $2.2 million of allowance for the three and nine months ended September 30, 2021, respectively. The Company increased the allowance for loan and lease losses by $295,000 and $2.3 million for the three and nine months ended September 30, 2020, respectively for acquired impaired loans.

For loans individually evaluated for impairment, the Company recaptured $1.0 million of the allowance for loan and lease losses and increased the allowance by $602,000 for the three and nine months ended September 30, 2021, respectively. The Company increased the allowance on loans individually evaluated for impairment by $768,000 and $4.1 million for the three and nine months ended September 30, 2020, respectively. For loans collectively evaluated for impairment, the Company decreased the allowance for loan and lease losses by $498,000 and $4.2 million for the three and nine months ended September 30, 2021, and increased the allowance for loan and lease losses by $8.9 million and $23.0 million for the three and nine months ended September 30, 2020, respectively.

An allowance for loan and lease loss allocation has not been made for Paycheck Protection Program (“PPP”) loans as these loans are fully guaranteed by the Small Business Association ("SBA"). On a quarterly basis, the Company assesses the collectability of its government guarantee loan and lease portfolio using historical loss experience in its small business lending unit.

The following tables summarize the recorded investment, unpaid principal balance, and related allowance for loans and leases considered impaired as of September 30, 2021 and December 31, 2020, which exclude acquired impaired loans. 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.


September 30, 2021	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial real estate	$	20,432	$	25,512	$	—
Residential real estate		3,850		3,901		—
Commercial and industrial		14,212		15,999		—
With an allowance recorded
Commercial real estate		25,131		26,569		8,420
Residential real estate		96		152		—
Commercial and industrial		23,477		25,614		16,142
Total impaired loans	$	87,198	$	97,747	$	24,562


December 31, 2020	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial real estate	$	32,473	$	34,792	$	—
Residential real estate		1,558		1,644		—
Commercial and industrial		17,944		19,917		—
With an allowance recorded
Commercial real estate		13,696		14,919		5,034
Residential real estate		272		274		78
Commercial and industrial		29,412		32,018		18,848
Total impaired loans	$	95,355	$	103,564	$	23,960

The following tables summarize the average recorded investment and interest income recognized for loans and leases considered impaired, which excludes acquired impaired loans, for the nine months ended:


September 30, 2021	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	28,480	$	920
Residential real estate		2,788		109
Commercial and industrial		16,668		481
With an allowance recorded
Commercial real estate		27,620		1,185
Residential real estate		207		2
Commercial and industrial		28,785		1,666
Total impaired loans	$	104,548	$	4,363


September 30, 2020	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	22,511	$	927
Residential real estate		1,615		26
Construction, land development, and other land		2,984		220
Commercial and industrial		16,991		493
With an allowance recorded
Commercial real estate		13,329		526
Residential real estate		460		21
Commercial and industrial		21,352		1,078
Total impaired loans	$	79,242	$	3,291

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 September 30, 2021 and December 31, 2020:


September 30, 2021	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Paycheck Protection Program		Installment and Other		Lease Financing Receivables		Total
Pass	$	1,297,981	$	422,843	$	291,496	$	1,261,335	$	268,081	$	1,190	$	335,475	$	3,878,401
Watch		143,047		16,862		37,795		196,288		—		83		264		394,339
Special Mention		48,605		3,036		7,375		30,841		—		—		1,934		91,791
Substandard		43,924		3,120		—		41,290		—		—		786		89,120
Doubtful		—		—		—		—		—		—		297		297
Loss		—		—		—		—		—		—		—		—
Total	$	1,533,557	$	445,861	$	336,666	$	1,529,754	$	268,081	$	1,273	$	338,756	$	4,453,948


December 31, 2020	Commercial Real Estate		Residential Real Estate		Construction, Land Development, and Other Land		Commercial and Industrial		Paycheck Protection Program		Installment and Other		Lease Financing Receivables		Total
Pass	$	1,064,623	$	463,103	$	180,458	$	1,027,399	$	517,815	$	1,706	$	222,818	$	3,477,922
Watch		134,381		22,086		46,162		225,930		—		96		47		428,702
Special Mention		60,022		3,795		—		56,784		—		—		2,721		123,322
Substandard		54,160		4,447		—		48,609		—		1		955		108,172
Doubtful		—		—		—		—		—		—		600		600
Loss		—		—		—		—		—		—		—		—
Total	$	1,313,186	$	493,431	$	226,620	$	1,358,722	$	517,815	$	1,803	$	227,141	$	4,138,718

The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category at September 30, 2021 and December 31, 2020:


September 30, 2021	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	$	330	$	1,426	$	—	$	17,082	$	18,838	$	1,514,719	$	1,533,557
Residential real estate		1,087		—		—		2,127		3,214		442,647		445,861
Construction, land development, and other land		2,035		—		—		—		2,035		334,631		336,666
Commercial and industrial		1,653		594		—		14,272		16,519		1,513,235		1,529,754
Paycheck Protection Program		—		—		—		—		—		268,081		268,081
Installment and other		39		—		—		—		39		1,234		1,273
Lease financing receivables		973		98		—		984		2,055		336,701		338,756
Total	$	6,117	$	2,118	$	—	$	34,465	$	42,700	$	4,411,248	$	4,453,948


December 31, 2020	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	$	1,544	$	4,194	$	—	$	15,969	$	21,707	$	1,291,479	$	1,313,186
Residential real estate		1,686		—		—		1,929		3,615		489,816		493,431
Construction, land development, and other land		—		—		—		—		—		226,620		226,620
Commercial and industrial		4,521		1,290		—		21,936		27,747		1,330,975		1,358,722
Paycheck Protection Program												517,815		517,815
Installment and other		6		—		—		1		7		1,796		1,803
Lease financing receivables		996		376		—		1,268		2,640		224,501		227,141
Total	$	8,753	$	5,860	$	—	$	41,103	$	55,716	$	4,083,002	$	4,138,718

Trouble debt restructurings (“TDRs”) 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 September 30, 2021 and December 31, 2020:


September 30, 2021	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		7	$	2,130	$	2,130	$	—	$	209
Commercial and industrial		1		63		63		—		63
Residential real estate		2		173		173		—		—
Total accruing		10		2,366		2,366		—		272
Non-accruing:
Commercial real estate		3		856		740		116		311
Commercial and industrial		3		1,730		1,107		623		508
Total non-accruing		6		2,586		1,847		739		819
Total troubled debt restructurings		16	$	4,952	$	4,213	$	739	$	1,091


December 31, 2020	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		8	$	2,187	$	2,187	$	—	$	104
Commercial and industrial		1		78		78		—		78
Residential real estate		3		230		230		—		—
Total accruing		12		2,495		2,495		—		182
Non-accruing:
Commercial real estate		4		1,609		1,362		247		102
Commercial and industrial		14		4,420		4,288		132		3,157
Total non-accruing		18		6,029		5,650		379		3,259
Total troubled debt restructurings		30	$	8,524	$	8,145	$	379	$	3,441

In addition, there was no commitment outstanding on troubled debt restructurings at September 30, 2021 or December 31, 2020.

Loans modified as troubled debt restructurings that occurred during the three and nine months ended September 30, 2021 and 2020 were:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Accruing:
Beginning balance	$	2,395		$	3,151		$	2,495		$	1,771
Additions		—			604			281			604
Net payments		(29	)		(1,462	)		(410	)		(1,538	)
Net transfers from non-accrual		—			—			—			1,456
Ending balance		2,366			2,293			2,366			2,293
Non-accruing:
Beginning balance		4,441			7,449			5,650			8,800
Additions		—			—			673			5,633
Net payments		(2,584	)		(302	)		(3,568	)		(1,688	)
Charge-offs		(10	)		(852	)		(908	)		(4,994	)
Net transfers to accrual		—			—			—			(1,456	)
Ending balance		1,847			6,295			1,847			6,295
Total troubled debt restructurings	$	4,213		$	8,588		$	4,213		$	8,588

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the three and nine months ended September 30, 2021 or 2020.

At September 30, 2021 and December 31, 2020, the reserve for unfunded commitments was $1.5 million and $1.9 million, respectively. During the three and nine months ended September 30, 2021, there was a recapture for unfunded commitments of $79,000 and $363,000, respectively. During the three and nine months ended September 30, 2020, the provision for unfunded commitments was $519,000 and $1.2 million, respectively. There were no charge-offs or recoveries related to the reserve for unfunded commitments during the periods.