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Allowance for Credit Losses on Loans | 12 Months Ended
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Dec. 31, 2020
Receivables [Abstract] |
Allowance for Credit Losses on Loans | Allowance for Credit Losses on Loans Effective January 1, 2020, the Bank adopted ASU 2016-13. CECL Adoption replaced the ALL with the ACL on loans and replaced the related provision for loan losses with the provision for credit losses on loans. The baseline loss rates used to calculate the ACL on loans at January 1, 2020 utilized the Bank's average quarterly historical loss information from December 31, 2007 through December 31, 2019. The baseline loss rate for the ACL at December 31, 2020 used historical losses beginning December 31, 2012 through the balance sheet date. The Bank updated the historical loss period during the year ended December 31, 2020 as it believed the economic cycle has ended with the onset of the COVID-19 recession. The Bank believes the historic loss rates are viable inputs to the current expected credit loss methodology as the Bank's lending practice and business has remained relatively stable throughout the periods. While the Bank's assets have grown, the credit culture has stayed relatively consistent. Prepayments included in the CECL model at January 1, 2020 were based on the 48-month rolling historical averages for each segment, which management believes is an accurate representation of future prepayment activity. There were no changes to this assumption during the year ended December 31, 2020. The reasonable and supportable period used in the CECL model as of January 1, 2020 was four quarters and was increased to five quarters for the model as of December 31, 2020 to include the additional impact of certain macroeconomic factors with lagged periods. Management believes that forecasts beyond this five quarter time period tend to diverge in economic assumptions and may be less comparable to actual future events. As the length of the reasonable and supportable period increases, the degree of judgment involved in estimating the allowance will likely increase. The Bank used a two-quarter reversion period in calculating the ACL as of January 1, 2020 and December 31, 2020 as it believes the historical loss information is relevant to the expected credit losses and recognizes the declining precision and increasing uncertainty of estimating credit losses in those periods beyond which it can make reasonable and supportable forecasts. The macroeconomic forecast used in the CECL model as of January 1, 2020 predicted continued economic expansion with steady GDP growth and low unemployment rates, among other factors. The onset of the COVID-19 pandemic resulted in the identification of an economic recession during the second quarter of 2020 as evidenced by certain economic forecasts signaling prolonged, profound, and pervasive contraction in economic activities due to the COVID-19 pandemic. The GDP contracted and unemployment rates increased, amount other factors, during the year ended December 31, 2020. The macroeconomic forecast used in the CECL model as of December 31, 2020 reflected a slow recovery from the COVID-19 recession, modeled to last through the end of 2021. The macroeconomic forecast as of December 31, 2020 considered the COVID-19 vaccine progress as well as anticipated government stimulus plans; however, uncertainty remained over the time necessary to return the economy to pre-pandemic levels. The ACL on loans at December 31, 2020 does not include a reserve for SBA PPP loans as these loans are fully guaranteed by the SBA. A summary of the changes in the ACL on loans during the years ended December 31, 2020, December 31, 2019 and December 31, 2018 is as follows:
| Year Ended December 31,
| 2020 |  | 2019 |  | 2018
| (In thousands)
Balance at the beginning of the year | $ | 36,171 |  |  | $ | 35,042 |  |  | $ | 32,086 |
Impact of CECL Adoption | 1,822 |  |  | — |  |  | — |
Balance at the beginning of the year, as adjusted | 37,993 |  |  | 35,042 |  |  | 32,086 |
Charge-offs | (5,622) |  |  | (4,989) |  |  | (3,605) |
Recoveries of loans previously charged-off | 2,381 |  |  | 1,807 |  |  | 1,432 |
Provision for loan losses | 35,433 |  |  | 4,311 |  |  | 5,129 |
Balance at the end of the year | $ | 70,185 |  |  | $ | 36,171 |  |  | $ | 35,042 |
The following table details the activity in the ACL on loans disaggregated by segment and class for the year ended December 31, 2020:
| Beginning Balance |  | Impact of CECL Adoption |  | Beginning Balance, as Adjusted |  | Charge-offs |  | Recoveries |  | Provision for Credit Losses |  | Ending Balance
| (In thousands)
Commercial business: |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 11,739 |  |  | $ | (1,348) |  |  | $ | 10,391 |  |  | $ | (3,616) |  |  | $ | 1,513 |  |  | $ | 21,722 |  |  | $ | 30,010 |
SBA PPP | — |  |  | — |  |  | $ | — |  |  | — |  |  | — |  |  | — |  |  | — |
Owner-occupied CRE | 4,512 |  |  | 452 |  |  | 4,964 |  |  | (135) |  |  | 17 |  |  | 4,640 |  |  | 9,486 |
Non-owner occupied CRE | 7,682 |  |  | (2,039) |  |  | 5,643 |  |  | — |  |  | — |  |  | 4,469 |  |  | 10,112 |
Total commercial business | 23,933 |  |  | (2,935) |  |  | 20,998 |  |  | (3,751) |  |  | 1,530 |  |  | 30,831 |  |  | 49,608 |
Residential real estate | 1,458 |  |  | 1,471 |  |  | 2,929 |  |  | — |  |  | 3 |  |  | (1,341) |  |  | 1,591 |
Real estate construction and land development: |  |  |  |  |  |  |  |  |  |  |  |  |
Residential | 1,455 |  |  | (571) |  |  | 884 |  |  | — |  |  | 278 |  |  | 789 |  |  | 1,951 |
Commercial and multifamily | 1,605 |  |  | 7,240 |  |  | 8,845 |  |  | (417) |  |  | — |  |  | 2,713 |  |  | 11,141 |
Total real estate construction and land development | 3,060 |  |  | 6,669 |  |  | 9,729 |  |  | (417) |  |  | 278 |  |  | 3,502 |  |  | 13,092 |
Consumer | 6,821 |  |  | (2,484) |  |  | 4,337 |  |  | (1,454) |  |  | 570 |  |  | 2,441 |  |  | 5,894 |
Unallocated | 899 |  |  | (899) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 36,171 |  |  | $ | 1,822 |  |  | $ | 37,993 |  |  | $ | (5,622) |  |  | $ | 2,381 |  |  | $ | 35,433 |  |  | $ | 70,185 |
The Bank recog nized net charge-offs of $3.2 million during the year ended December 31, 2020 primarily due to a commercial and industrial charge-off of $1.7 million related to issues surrounding control of the underlying loan collateral. The Bank determined it appropriate to charge-off this entire loan relationship balance and pursue an aggressive collection strategy. Net charge-offs also included two commercial and industrial loan relationships totaling $447,000 as a result of impacts from the COVID-19 pandemic, a partial charge-off of one commercial and multifamily real estate construction and land development loan totaling $417,000 as a result of cost overruns and delays in constructio n and small dollar net charge-offs on a large volume of consumer loans of $884,000. Net charge-offs were offset partially by the full recovery of a commercial and industrial agricultural lending relationship of $963,000 during the year ended December 31, 2020, which was charged-off during the year ended December 31, 2019. The provision for credit losses on loans of $35.4 million for the year ended December 31, 2020 was necessary to build the allowance to account for the current and forecasted economic conditions amidst the COVID-19 pandemic, including the credit losses estimated on collectively and individually evaluated loans. The following table details the activity in the ALL disaggregated by segment and class for the year ended December 31, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:
| Beginning Balance |  | Charge-offs |  | Recoveries |  | Provision for Loan Losses |  | Ending Balance
| (In thousands)
Commercial business: |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 11,343 |  |  | $ | (2,692) |  |  | $ | 166 |  |  | $ | 2,922 |  |  | $ | 11,739 |
Owner-occupied CRE | 4,898 |  |  | — |  |  | 50 |  |  | (436) |  |  | 4,512 |
Non-owner occupied CRE | 7,470 |  |  | — |  |  | 441 |  |  | (229) |  |  | 7,682 |
Total commercial business | 23,711 |  |  | (2,692) |  |  | 657 |  |  | 2,257 |  |  | 23,933 |
Residential real estate | 1,203 |  |  | (60) |  |  | — |  |  | 315 |  |  | 1,458 |
Real estate construction and land development: |  |  |  |  |  |  |  |  |
Residential | 1,240 |  |  | (133) |  |  | 637 |  |  | (289) |  |  | 1,455 |
Commercial and multifamily | 954 |  |  | — |  |  | — |  |  | 651 |  |  | 1,605 |
Total real estate construction and land development | 2,194 |  |  | (133) |  |  | 637 |  |  | 362 |  |  | 3,060 |
Consumer | 6,581 |  |  | (2,104) |  |  | 513 |  |  | 1,831 |  |  | 6,821 |
Unallocated | 1,353 |  |  | — |  |  | — |  |  | (454) |  |  | 899 |
Total | $ | 35,042 |  |  | $ | (4,989) |  |  | $ | 1,807 |  |  | $ | 4,311 |  |  | $ | 36,171 |
The following table details the ALL disaggregated on the basis of the Company's impairment method as of December 31, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:
| Loans Individually Evaluated for Impairment |  | Loans Collectively Evaluated for Impairment |  | PCI Loans |  | Total ALL
| (In thousands)
Commercial business: |  |  |  |  |  |  |
Commercial and industrial | $ | 1,372 |  |  | $ | 9,772 |  |  | $ | 595 |  |  | $ | 11,739 |
Owner-occupied CRE | 426 |  |  | 3,558 |  |  | 528 |  |  | 4,512 |
Non-owner occupied CRE | 146 |  |  | 7,064 |  |  | 472 |  |  | 7,682 |
Total commercial business | 1,944 |  |  | 20,394 |  |  | 1,595 |  |  | 23,933 |
Residential real estate | 56 |  |  | 1,316 |  |  | 86 |  |  | 1,458 |
Real estate construction and land development: |  |  |  |  |  |  |
Residential | — |  |  | 1,296 |  |  | 159 |  |  | 1,455 |
Commercial and multifamily | — |  |  | 1,527 |  |  | 78 |  |  | 1,605 |
Total real estate construction and land development | — |  |  | 2,823 |  |  | 237 |  |  | 3,060 |
Consumer | 143 |  |  | 6,327 |  |  | 351 |  |  | 6,821 |
Unallocated |  |  | 899 |  |  |  |  | 899 |
Total | $ | 2,143 |  |  | $ | 31,759 |  |  | $ | 2,269 |  |  | $ | 36,171 |
The following table details the amortized cost of the loan receivables disaggregated on the basis of the Company’s impairment method as of December 31, 2019 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:
| Loans Individually Evaluated for Impairment |  | Loans Collectively Evaluated for Impairment |  | PCI Loans |  | Loans Receivable
| (In thousands)
Commercial business: |  |  |  |  |  |  |
Commercial and industrial | $ | 43,808 |  |  | $ | 806,044 |  |  | $ | 2,368 |  |  | $ | 852,220 |
Owner-occupied CRE | 6,336 |  |  | 793,984 |  |  | 4,914 |  |  | 805,234 |
Non-owner occupied CRE | 6,324 |  |  | 1,276,964 |  |  | 5,491 |  |  | 1,288,779 |
Total commercial business | 56,468 |  |  | 2,876,992 |  |  | 12,773 |  |  | 2,946,233 |
Residential real estate | 215 |  |  | 127,870 |  |  | 3,575 |  |  | 131,660 |
Real estate construction and land development: |  |  |  |  |  |  |
Residential | 237 |  |  | 104,059 |  |  | — |  |  | 104,296 |
Commercial and multifamily | — |  |  | 170,350 |  |  | — |  |  | 170,350 |
Total real estate construction and land development | 237 |  |  | 274,409 |  |  | — |  |  | 274,646 |
Consumer | 561 |  |  | 413,017 |  |  | 1,762 |  |  | 415,340 |
Total | $ | 57,481 |  |  | $ | 3,692,288 |  |  | $ | 18,110 |  |  | $ | 3,767,879 |
The following table details the activity in the ALL disaggregated by segment and class for the year ended December 31, 2018 under the incurred loss methodology, including the ASC 310-30 methodology for PCI loans:
| Balance at Beginning of Year |  | Charge-offs |  | Recoveries |  | Provision for Loan Losses |  | Balance at End of Year
| (In thousands)
Commercial business: |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 9,910 |  |  | $ | (1,250) |  |  | $ | 901 |  |  | $ | 1,782 |  |  | $ | 11,343 |
Owner-occupied CRE | 3,992 |  |  | (1) |  |  | 7 |  |  | 900 |  |  | 4,898 |
Non-owner occupied CRE | 8,097 |  |  | (149) |  |  | — |  |  | (478) |  |  | 7,470 |
Total commercial business | 21,999 |  |  | (1,400) |  |  | 908 |  |  | 2,204 |  |  | 23,711 |
Residential real estate | 1,056 |  |  | (45) |  |  | — |  |  | 192 |  |  | 1,203 |
Real estate construction and land development: |  |  |  |  |  |  |  |  |
Residential | 862 |  |  | — |  |  | 11 |  |  | 367 |  |  | 1,240 |
Commercial and multifamily | 1,190 |  |  | — |  |  | — |  |  | (236) |  |  | 954 |
Total real estate construction and land development | 2,052 |  |  | — |  |  | 11 |  |  | 131 |  |  | 2,194 |
Consumer | 6,081 |  |  | (2,160) |  |  | 513 |  |  | 2,147 |  |  | 6,581 |
Unallocated | 898 |  |  | — |  |  | — |  |  | 455 |  |  | 1,353 |
Total | $ | 32,086 |  |  | $ | (3,605) |  |  | $ | 1,432 |  |  | $ | 5,129 |  |  | $ | 35,042 |

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- Definition The entire disclosure for allowance for credit losses. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -URI http://asc.fasb.org/topic&trid=2196771 + Details
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