Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

3 Months Ended

Mar. 31, 2022

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 months ended March 31, 2022 and 2021 are as follows:


March 31, 2022	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	$	16,918		$	1,628	$	522	$	33,129		$	—	$	9	$	2,806		$	55,012
Provision		2,784			513		594		458			—		1		645			4,995
Charge-offs		(240	)		—		—		(463	)		—		—		(363	)		(1,066	)
Recoveries		244			4		—		120			—		—		149			517
Ending balance	$	19,706		$	2,145	$	1,116	$	33,244		$	—	$	10	$	3,237		$	59,458
Ending balance:
Individually evaluated for impairment	$	7,731		$	6	$	—	$	13,002		$	—	$	—	$	—		$	20,739
Collectively evaluated for impairment		10,320			1,138		1,115		19,855			—		8		3,237			35,673
Loans acquired with deteriorated credit quality		1,655			1,001		1		387			—		2		—			3,046
Total allowance for loan and lease losses	$	19,706		$	2,145	$	1,116	$	33,244		$	—	$	10	$	3,237		$	59,458


March 31, 2022	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	$	36,805	$	2,190	$	—	$	32,457	$	—	$	—	$	—	$	71,452
Collectively evaluated for impairment		1,675,468		445,183		351,715		1,703,362		36,260		1,193		384,684		4,597,865
Loans acquired with deteriorated credit quality		67,092		47,347		1,357		3,792		—		163		—		119,751
Total loans and leases	$	1,779,365	$	494,720	$	353,072	$	1,739,611	$	36,260	$	1,356	$	384,684	$	4,789,068


March 31, 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	$	19,584		$	2,400		$	1,352		$	41,183		$	—	$	15		$	1,813		$	66,347
Provision/(recapture)		2,606			(302	)		(241	)		1,947			—		(3	)		360			4,367
Charge-offs		(1,877	)		(11	)		(326	)		(2,888	)		—		—			(364	)		(5,466	)
Recoveries		185			4			—			60			—		—			93			342
Ending balance	$	20,498		$	2,091		$	785		$	40,302		$	—	$	12		$	1,902		$	65,590
Ending balance:
Individually evaluated for impairment	$	7,409		$	101		$	—		$	18,824		$	—	$	—		$	—		$	26,334
Collectively evaluated for impairment		10,881			1,460			780			20,066			—		12			1,902			35,101
Loans acquired with deteriorated credit quality		2,208			530			5			1,412			—		—			—			4,155
Total allowance for loan and lease losses	$	20,498		$	2,091		$	785		$	40,302		$	—	$	12		$	1,902		$	65,590


March 31, 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	$	54,421	$	1,709	$	—	$	43,306	$	—	$	—	$	—	$	99,436
Collectively evaluated for impairment		1,281,188		469,287		238,332		1,312,248		617,006		1,425		254,331		4,173,817
Loans acquired with deteriorated credit quality		96,059		74,283		1,992		8,842		—		191		—		181,367
Total loans and leases	$	1,431,668	$	545,279	$	240,324	$	1,364,396	$	617,006	$	1,616	$	254,331	$	4,454,620

The Company increased the allowance for loan and lease losses by $4.4 million for the three months ended March 31, 2022, and decreased it by $757,000 for the three months ended March 31, 2021. For acquired impaired loans, the Company decreased the allowance by $139,000 and increased it by $2.3 million for the three months ended March 31, 2022, and 2021, respectively.

For loans individually evaluated for impairment, the Company decreased the allowance for loan and lease losses for the three months ended March 31, 2022 by $299,000. The Company increased the allowance on loans individually evaluated for impairment by $2.4 million for the three months ended March 31, 2021. For loans collectively evaluated for impairment, the Company increased allowance for loan and lease losses by $4.9 million for the three months ended March 31, 2022, and recaptured $824,000 of the allowance for the three months ended March 31, 2021, respectively.

An allowance for loan and lease loss allocation has not been made for 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 losses considered impaired as of March 31, 2022 and December 31, 2021, 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.


March 31, 2022	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial real estate	$	14,083	$	15,163	$	—
Residential real estate		2,104		2,209		—
Commercial and industrial		12,285		13,891		—
With an allowance recorded
Commercial real estate		22,722		26,515		7,731
Residential real estate		86		108		6
Commercial and industrial		20,172		21,472		13,002
Total impaired loans	$	71,452	$	79,358	$	20,739


December 31, 2021	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Commercial real estate	$	17,233	$	19,252	$	—
Residential real estate		1,802		1,919		—
Commercial and industrial		16,624		19,148		—
With an allowance recorded
Commercial real estate		17,818		20,117		6,538
Commercial and industrial		19,446		21,198		14,500
Total impaired loans	$	72,923	$	81,634	$	21,038

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 three months ended:


March 31, 2022	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	16,068	$	236
Residential real estate		2,005		12
Commercial and industrial		17,380		123
With an allowance recorded
Commercial real estate		21,252		375
Residential real estate		29		—
Commercial and industrial		20,611		278
Total impaired loans	$	77,345	$	1,024


March 31, 2021	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded
Commercial real estate	$	34,961	$	311
Residential real estate		3,080		18
Commercial and industrial		16,568		129
With an allowance recorded
Commercial real estate		22,178		161
Residential real estate		298		2
Commercial and industrial		31,089		273
Total impaired loans	$	108,174	$	894

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 March 31, 2022 and December 31, 2021:


March 31, 2022	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	$	1,530,253	$	423,884	$	316,400	$	1,541,963	$	36,260	$	1,113	$	380,897	$	4,230,770
Watch		107,164		17,934		29,774		136,986		—		80		2,017		293,955
Special Mention		38,012		3,624		5,541		23,162		—		—		1,381		71,720
Substandard		36,844		1,931		—		33,708		—		—		329		72,812
Doubtful		—		—		—		—		—		—		60		60
Loss		—		—		—		—		—		—		—		—
Total	$	1,712,273	$	447,373	$	351,715	$	1,735,819	$	36,260	$	1,193	$	384,684	$	4,669,317


December 31, 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	$	1,397,228	$	406,948	$	286,434	$	1,341,826	$	123,712	$	1,123	$	354,380	$	3,911,651
Watch		123,248		19,062		31,768		177,638		—		81		1,992		353,789
Special Mention		37,340		3,118		5,885		21,586		—		—		1,609		69,538
Substandard		35,772		1,985		—		36,897		—		—		348		75,002
Doubtful		—		—		—		—		—		—		97		97
Loss		—		—		—		—		—		—		—		—
Total	$	1,593,588	$	431,113	$	324,087	$	1,577,947	$	123,712	$	1,204	$	358,426	$	4,410,077

The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category at March 31, 2022 and December 31, 2021:


March 31, 2022	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	$	8,457	$	10,684	$	—	$	10,988	$	30,129	$	1,682,144	$	1,712,273
Residential real estate		2,213		2,430		—		1,923		6,566		440,807		447,373
Construction, land development, and other land		—		—		—		—		—		351,715		351,715
Commercial and industrial		4,671		—		—		7,003		11,674		1,724,145		1,735,819
Paycheck Protection Program		—		—		—		—		—		36,260		36,260
Installment and other		2		34		—		—		36		1,157		1,193
Lease financing receivables		515		16		—		363		894		383,790		384,684
Total	$	15,858	$	13,164	$	—	$	20,277	$	49,299	$	4,620,018	$	4,669,317


December 31, 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	$	5,185	$	2,361	$	—	$	12,751	$	20,297	$	1,573,291	$	1,593,588
Residential real estate		14,282		852		—		1,450		16,584		414,529		431,113
Construction, land development, and other land		5,885		—		—		—		5,885		318,202		324,087
Commercial and industrial		2,479		1,097		—		8,600		12,176		1,565,771		1,577,947
Paycheck Protection Program		—		—		—		—		—		123,712		123,712
Installment and other		3		35		—		—		38		1,166		1,204
Lease financing receivables		1,661		251		—		329		2,241		356,185		358,426
Total	$	29,495	$	4,596	$	—	$	23,130	$	57,221	$	4,352,856	$	4,410,077

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 March 31, 2022 and December 31, 2021:


March 31, 2022	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		4	$	1,244	$	1,244	$	—	$	158
Commercial and industrial		1		50		50		—		50
Residential real estate		2		162		162		—		—
Total accruing		7		1,456		1,456		—		208
Non-accruing:
Commercial real estate		4		899		783		116		163
Commercial and industrial		3		1,717		560		1,157		—
Total non-accruing		7		2,616		1,343		1,273		163
Total troubled debt restructurings		14	$	4,072	$	2,799	$	1,273	$	371


December 31, 2021	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Charge-offs		Specific Reserves
Accruing:
Commercial real estate		5	$	1,703	$	1,703	$	—	$	215
Commercial and industrial		1		56		56		—		131
Residential real estate		2		168		168		—		—
Total accruing		8		1,927		1,927		—		346
Non-accruing:
Commercial real estate		4		1,034		918		116		111
Commercial and industrial		3		1,745		588		1,157		—
Total non-accruing		7		2,779		1,506		1,273		111
Total troubled debt restructurings		15	$	4,706	$	3,433	$	1,273	$	457

Loans modified as troubled debt restructurings that occurred during the three months ended March 31, 2022 and 2021 were:


	Three Months Ended
	March 31,
	2022			2021
Accruing:
Beginning balance	$	1,927		$	2,495
Additions		—			281
Net payments		(471	)		(57	)
Net transfers from non-accrual		—			—
Ending balance		1,456			2,719
Non-accruing:
Beginning balance		1,506			5,650
Additions		—			673
Net payments		(163	)		(343	)
Charge-offs		—			(395	)
Net transfers to accrual		—			—
Ending balance		1,343			5,585
Total troubled debt restructurings	$	2,799		$	8,304

There were no troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the three months ended March 31, 2022 or 2021. In addition, there was no commitment outstanding on troubled debt restructurings at March 31, 2022 or December 31, 2021.

At March 31, 2022 and December 31, 2021, the reserve for unfunded commitments was $2.0 million and $1.4 million, respectively. During the three months ended March 31, 2022, the increase to unfunded commitments was $599,000. During the three months ended March 31, 2021, there was a recapture for unfunded commitments of $120,000. There were no charge-offs or recoveries related to the reserve for unfunded commitments during the periods.