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Loans and Allowance for Credit Losses (Tables)

9 Months Ended

Sep. 30, 2020

Loans and Leases Receivable Disclosure [Abstract]

The following table presents loans held for sale:


(Dollars in thousands)	September 30, 2020		December 31, 2019
Commercial real estate	$	19,919	$	—
1-4 family residential	11,644		2,735
Commercial	5,153		—
Total loans held for sale	$	36,716	$	2,735

Schedule of Amortized Cost and Unpaid Principal

The following table presents the amortized cost and unpaid principal balance of loans held for investment:


	September 30, 2020										December 31, 2019
(Dollars in thousands)	Amortized Cost		Unpaid Principal		Difference		Amortized Cost		Unpaid Principal		Difference
Commercial real estate	$	762,531	$	766,471	$	(3,940)	$	1,046,961	$	1,051,684	$	(4,723)
Construction, land development, land	244,512		244,966		(454)		160,569		162,335		(1,766)
1-4 family residential	164,785		165,442		(657)		179,425		180,340		(915)
Farmland	110,966		111,870		(904)		154,975		156,995		(2,020)
Commercial	1,536,903		1,554,805		(17,902)		1,342,683		1,346,444		(3,761)
Factored receivables	1,016,337		1,017,805		(1,468)		619,986		621,697		(1,711)
Consumer	17,106		17,139		(33)		21,925		21,994		(69)
Mortgage warehouse	999,771		999,771		—		667,988		667,988		—
Total loans held for investment	4,852,911		$	4,878,269	$	(25,358)	4,194,512		$	4,209,477	$	(14,965)
Allowance for credit losses	(90,995)						(29,092)
	$	4,761,916					$	4,165,420

Summary of Allowance for Loan and Lease Losses

The activity in the allowance for credit losses (“ACL”) related to loans held for investment is as follows:


(Dollars in thousands)	Beginning Balance		Impact of Adopting ASC 326		Initial ACL on Loans Purchased with Credit Deterioration		Credit Loss Expense		Charge-offs		Recoveries		Reclassification to Held For Sale		Ending Balance
Three months ended September 30, 2020
Commercial real estate	$	15,539	$	—	$	—	$	(2,440)	$	—	$	53	$	—	$	13,152
Construction, land development, land	5,917		—		—		(319)		—		2		—		5,600
1-4 family residential	2,027		—		—		(56)		(6)		7		—		1,972
Farmland	958		—		—		(95)		—		—		—		863
Commercial	23,283		—		—		(657)		(528)		615		—		22,713
Factored receivables	5,244		—		37,415		3,059		(773)		40		—		44,985
Consumer	768		—		—		29		(118)		31		—		710
Mortgage warehouse	877		—		—		123		—		—		—		1,000
	$	54,613	$	—	$	37,415	$	(356)	$	(1,425)	$	748	$	—	$	90,995


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended September 30, 2019
Commercial real estate	$	5,677	$	147	$	(26)	$	—	$	5,798
Construction, land development, land	1,035		47		—		2		1,084
1-4 family residential	409		4		—		4		417
Farmland	590		349		—		—		939
Commercial	13,899		1,195		(557)		234		14,771
Factored receivables	6,861		851		(210)		215		7,717
Consumer	563		66		(85)		37		581
Mortgage warehouse	382		206		—		—		588
	$	29,416	$	2,865	$	(878)	$	492	$	31,895


(Dollars in thousands)	Beginning Balance		Impact of Adopting ASC 326		Initial ACL on Loans Purchased with Credit Deterioration		Credit Loss Expense		Charge-offs		Recoveries		Reclassification to Held For Sale		Ending Balance
Nine Months Ended September 30, 2020
Commercial real estate	$	5,353	$	1,372	$	—	$	6,366	$	—	$	61	$	—	$	13,152
Construction, land development, land	1,382		(187)		—		4,400		—		5		—		5,600
1-4 family residential	308		513		—		1,138		(27)		40		—		1,972
Farmland	670		437		—		(324)		—		80		—		863
Commercial	12,566		(184)		—		11,004		(1,173)		949		(449)		22,713
Factored receivables	7,657		(1,630)		37,415		4,475		(3,027)		95		—		44,985
Consumer	488		(52)		—		583		(410)		101		—		710
Mortgage warehouse	668		—		—		332		—		—		—		1,000
	$	29,092	$	269	$	37,415	$	27,974	$	(4,637)	$	1,331	$	(449)	$	90,995


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Nine months ended September 30, 2019
Commercial real estate	$	4,493	$	1,343	$	(39)	$	1	$	5,798
Construction, land development, land	1,134		(63)		(78)		91		1,084
1-4 family residential	317		86		(43)		57		417
Farmland	535		404		—		—		939
Commercial	12,865		3,252		(1,671)		325		14,771
Factored receivables	7,299		1,839		(1,682)		261		7,717
Consumer	615		424		(594)		136		581
Mortgage warehouse	313		275		—		—		588
	$	27,571	$	7,560	$	(4,107)	$	871	$	31,895

Individual And Collective Allowance For Credit Losses On Financing Receivables And Loan Balances

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


(Dollars in thousands)	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
September 30, 2020
Commercial real estate	$	14,198	$	—	$	—	$	366	$	14,564	$	1,668
Construction, land development, land	2,112		—		—		—		2,112		271
1-4 family residential	1,962		—		—		181		2,143		24
Farmland	1,914		—		148		572		2,634		—
Commercial	2,875		4,893		7,034		4,124		18,926		4,563
Factored receivables	—		73,875		—		—		73,875		40,072
Consumer	—		—		—		322		322		29
Mortgage warehouse	—		—		—		—		—		—
Total	$	23,061	$	78,768	$	7,182	$	5,565	$	114,576	$	46,627

Summary of Information Pertaining to Impaired Loans

The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective allowance for credit loss allocations as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:


(Dollars in thousands)	Loan Evaluation														ALLL Allocations
December 31, 2019	Individually		Collectively		PCI		Total loans		Individually		Collectively		PCI		Total ALLL
Commercial real estate	$	7,455	$	1,030,439	$	9,067	$	1,046,961	$	344	$	5,009	$	—	$	5,353
Construction, land development, land	2,138		155,985		2,446		160,569		271		1,111		—		1,382
1-4 family residential	1,728		177,189		508		179,425		33		275		—		308
Farmland	6,638		148,233		104		154,975		—		670		—		670
Commercial	15,618		1,326,515		550		1,342,683		1,278		11,284		4		12,566
Factored receivables	15,947		604,039		—		619,986		3,178		4,479		—		7,657
Consumer	327		21,598		—		21,925		9		479		—		488
Mortgage warehouse	—		667,988		—		667,988		—		668		—		668
	$	49,851	$	4,131,986	$	12,675	$	4,194,512	$	5,113	$	23,975	$	4	$	29,092

The following table presents information pertaining to impaired loans as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:


	Impaired Loans and Purchased Credit Impaired Loans With a Valuation Allowance										Impaired Loans Without a Valuation Allowance
(Dollars in thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Recorded Investment		Unpaid Principal
December 31, 2019
Commercial real estate	$	878	$	907	$	344	$	6,577	$	6,643
Construction, land development, land	935		935		271		1,203		1,305
1-4 family residential	35		22		33		1,693		1,799
Farmland	—		—		—		6,638		6,819
Commercial	6,032		6,053		1,278		9,586		9,751
Factored receivables	15,940		15,940		3,178		7		7
Consumer	17		16		9		310		311
Mortgage warehouse	—		—		—		—		—
PCI	71		55		4		—		—
	$	23,908	$	23,928	$	5,117	$	26,014	$	26,635

The following table presents average impaired loans, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13, and interest recognized on such loans, for the three and nine months ended September 30, 2019:


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Average Impaired Loans		Interest Recognized		Average Impaired Loans		Interest Recognized
(Dollars in thousands)
Commercial real estate	$	7,500	$	180	$	7,675	$	180
Construction, land development, land	1,087		5		624		5
1-4 family residential	2,353		13		2,326		15
Farmland	6,737		31		7,186		75
Commercial	15,222		321		16,397		373
Factored receivables	10,453		—		9,455		—
Consumer	458		5		411		5
Mortgage warehouse	—		—		—		—
PCI	71		—		71		—
	$	43,881	$	555	$	44,145	$	653

Summary of Contractually Past Due and Nonaccrual Loans

The following tables present an aging of contractually past due loans:


(Dollars in thousands)	Past Due 30-59 Days		Past Due 60-90 Days		Past Due 90 Days or More		Total Past Due		Current		Total		Past Due 90 Days or More and Accruing
September 30, 2020
Commercial real estate	$	1,714	$	6,993	$	2,666	$	11,373	$	751,158	$	762,531	$	1,287
Construction, land development, land	608		894		1,184		2,686		241,826		244,512		—
1-4 family residential	1,049		849		1,061		2,959		161,826		164,785		143
Farmland	400		—		284		684		110,282		110,966		—
Commercial	5,954		1,548		6,319		13,821		1,523,082		1,536,903		276
Factored receivables	68,522		7,247		8,638		84,407		931,930		1,016,337		8,638
Consumer	442		83		141		666		16,440		17,106		—
Mortgage warehouse	—		—		—		—		999,771		999,771		—
Total	$	78,689	$	17,614	$	20,293	$	116,596	$	4,736,315	$	4,852,911	$	10,344


(Dollars in thousands)	Past Due 30-59 Days		Past Due 60-90 Days		Past Due 90 Days or More		Total Past Due		Current		Total		Past Due 90 Days or More and Accruing
December 31, 2019
Commercial real estate	$	1,752	$	1,328	$	1,759	$	4,839	$	1,042,122	$	1,046,961	$	—
Construction, land development, land	1,785		842		361		2,988		157,581		160,569		—
1-4 family residential	1,396		723		554		2,673		176,752		179,425		286
Farmland	52		132		2,376		2,560		152,415		154,975		—
Commercial	4,444		4,154		9,555		18,153		1,324,530		1,342,683		808
Factored receivables	29,118		7,182		4,226		40,526		579,460		619,986		4,226
Consumer	508		429		183		1,120		20,805		21,925		49
Mortgage warehouse	—		—		—		—		667,988		667,988		—
Total	$	39,055	$	14,790	$	19,014	$	72,859	$	4,121,653	$	4,194,512	$	5,369

Summary of Amortized Cost Basis of Loans on Nonaccrual Status

The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:


	September 30, 2020						December 31, 2019
(Dollars in thousands)	Nonaccrual		Nonaccrual With No ACL		Nonaccrual		Nonaccrual With No ACL
Commercial real estate	$	12,235	$	4,700	$	7,501	$	6,623
Construction, land development, land	2,089		1,180		3,922		2,987
1-4 family residential	1,761		1,640		1,730		1,694
Farmland	2,452		2,452		6,494		6,494
Commercial	19,462		5,210		16,080		9,977
Factored receivables	—		—		—		—
Consumer	322		247		327		310
Mortgage warehouse	—		—		—		—
	$	38,321	$	15,429	$	36,054	$	28,085

Schedule of Accrued Interest on Non Accrual Loans Reversed Through Interest Income

The following table presents accrued interest on nonaccrual loans reversed through interest income:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Commercial real estate	$	371	$	13	$	435	$	32
Construction, land development, land	1		—		1		9
1-4 family residential	21		—		31		12
Farmland	36		26		36		27
Commercial	37		13		76		50
Factored receivables	—		—		—		—
Consumer	—		2		2		3
Mortgage warehouse	—		—		—		—
	$	466	$	54	$	581	$	133

Schedule of Nonperforming Loans

The following table presents information regarding nonperforming loans:


(Dollars in thousands)	September 30, 2020		December 31, 2019
Nonaccrual loans⁽¹⁾	$	38,321	$	36,054
Factored receivables greater than 90 days past due	8,638		4,226
Other nonperforming factored receivables⁽²⁾	10,029		—
Troubled debt restructurings accruing interest	3		333
	$	56,991	$	40,613

(1)Includes troubled debt restructurings of $15,743,000 and $4,888,000 at September 30, 2020 and December 31, 2019, respectively.

(2)Other nonperforming factored receivables represent the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification. This amount is also considered Classified from a risk rating perspective.

Summary of Risk Category of Loans

As of September 30, 2020 and December 31, 2019, based on the most recent analysis performed, the risk category of loans is as follows:


																			Revolving Loans	Revolving Loans Converted To Term Loans	Total
(Dollars in thousands)	Year of Origination
September 30, 2020	2020		2019		2018		2017		2016		Prior
Commercial real estate
Pass	$	374,993	$	85,458	$	95,818	$	92,112	$	35,576	$	53,189	$	7,124	$	908	$	745,178
Classified	13,918		437		182		636		852		1,328		—		—		17,353
Total commercial real estate	$	388,911	$	85,895	$	96,000	$	92,748	$	36,428	$	54,517	$	7,124	$	908	$	762,531

Construction, land development, land
Pass	$	141,940	$	29,654	$	55,887	$	12,362	$	268	$	1,776	$	13	$	500	$	242,400
Classified	905		838		—		—		—		369		—		—		2,112
Total construction, land development, land	$	142,845	$	30,492	$	55,887	$	12,362	$	268	$	2,145	$	13	$	500	$	244,512

1-4 family residential
Pass	$	35,959	$	12,614	$	15,172	$	13,316	$	11,773	$	30,076	$	38,669	$	5,320	$	162,899
Classified	570		76		16		—		359		758		107		—		1,886
Total 1-4 family residential	$	36,529	$	12,690	$	15,188	$	13,316	$	12,132	$	30,834	$	38,776	$	5,320	$	164,785

Farmland
Pass	$	19,870	$	17,100	$	16,458	$	15,168	$	13,829	$	21,150	$	2,130	$	486	$	106,191
Classified	1,207		417		1,672		145		—		560		774		—		4,775
Total farmland	$	21,077	$	17,517	$	18,130	$	15,313	$	13,829	$	21,710	$	2,904	$	486	$	110,966

Commercial
Pass	$	848,660	$	135,269	$	48,573	$	41,531	$	6,013	$	5,548	$	405,676	$	11,396	$	1,502,666
Classified	7,186		7,357		4,725		1,445		731		348		12,445		—		34,237
Total commercial	$	855,846	$	142,626	$	53,298	$	42,976	$	6,744	$	5,896	$	418,121	$	11,396	$	1,536,903

Factored receivables
Pass	$	995,046	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	995,046
Classified	21,291		—		—		—		—		—		—		—		21,291
Total factored receivables	$	1,016,337	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,016,337

Consumer
Pass	$	3,820	$	2,617	$	1,614	$	4,694	$	3,088	$	875	$	73	$	—	$	16,781
Classified	—		18		7		94		162		44		—		—		325
Total consumer	$	3,820	$	2,635	$	1,621	$	4,788	$	3,250	$	919	$	73	$	—	$	17,106

Mortgage warehouse
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	999,771	$	—	$	999,771
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	—	$	—	$	—	$	—	$	—	$	—	$	999,771	$	—	$	999,771

Total loans
Pass	$	2,420,288	$	282,712	$	233,522	$	179,183	$	70,547	$	112,614	$	1,453,456	$	18,610	$	4,770,932
Classified	45,077		9,143		6,602		2,320		2,104		3,407		13,326		—		81,979
Total loans	$	2,465,365	$	291,855	$	240,124	$	181,503	$	72,651	$	116,021	$	1,466,782	$	18,610	$	4,852,911


(Dollars in thousands)
December 31, 2019	Pass		Classified		PCI		Total
Commercial real estate	$	1,030,358	$	7,536	$	9,067	$	1,046,961
Construction, land development, land	155,985		2,138		2,446		160,569
1-4 family residential	177,177		1,740		508		179,425
Farmland	144,777		10,094		104		154,975
Commercial	1,313,042		29,091		550		1,342,683
Factored receivables	604,774		15,212		—		619,986
Consumer	21,594		331		—		21,925
Mortgage warehouse	667,988		—		—		667,988
	$	4,115,695	$	66,142	$	12,675	$	4,194,512

Schedule of Loans Modified as Troubled Debt Restructurings

The following table presents the pre- and post-modification recorded investment of loans modified as troubled debt restructurings during the three and nine months ended September 30, 2020 and 2019. The Company did not grant principal reductions on any restructured loans.


(Dollars in thousands)	Extended Amortization Period		Payment Deferrals		AB Note Restructure		Interest Rate Reduction		Total Modifications		Number of Loans
Nine months ended September 30, 2020
Commercial real estate	$	—	$	246	$	—	$	—	$	246	2
Construction, land development, land	8		—		—		—		8		1
Farmland	3,486		—		—		—		3,486		1
Commercial	4,714		9,296		—		—		14,010		19
	$	8,208	$	9,542	$	—	$	—	$	17,750	23

Three months ended September 30, 2020
Commercial	123		3,503		—		—		3,626		14
	$	123	$	3,503	$	—	$	—	$	3,626	14

Nine months ended September 30, 2019
Commercial real estate	$	—	$	—	$	4,597	$	—	$	4,597	1
Commercial	1,649		84		—		593		2,326		6
	$	1,649	$	84	$	4,597	$	593	$	6,923	7
Three months ended September 30, 2019
Commercial real estate	$	—	$	—	$	—	$	—	$	—	—
Commercial	554		—		—		—		554		1
	$	554	$	—	$	—	$	—	$	554	1

Summary of Amortized Cost of Loans Currently in Deferral

The following table summarized the amortized cost of loans with payments currently in deferral and the accrued interest related to the loans with payments currently in deferral at September 30, 2020:


(Dollars in thousands)	Total Loans		Balance of Loans Currently in Deferral		Percentage of Portfolio		Accrued Interest Receivable

September 30, 2020
Commercial real estate	$	762,531	$	77,419	10.2	%	$	464
Construction, land development, land	244,512		116		—	%	1
1-4 family residential	164,785		8,560		5.2	%	127
Farmland	110,966		—		—	%	—
Commercial	1,536,903		16,787		1.1	%	99
Factored receivables	1,016,337		—		—	%	—
Consumer	17,106		105		0.6	%	4
Mortgage warehouse	999,771		—		—	%	—
Total	$	4,852,911	$	102,987	2.1	%	$	695

Schedule of Outstanding Contractually Required Principal and Interest and Carrying Amount of PCI Loans Receivable

The following table summarizes information pertaining to loans that were identified as purchased credit impaired prior to the adoption of ASU 2016-13:


	December 31, 2019
Contractually required principal and interest:
Real estate loans	$	14,015
Commercial loans	677
Outstanding contractually required principal and interest	$	14,692
Gross carrying amount included in loans receivable	$	12,675

Schedule of Changes in Accretable Yield for the PCI Loans

The changes in accretable yield related to loans that were identified as purchased credit impaired prior to the adoption of ASU 2016-13 were as follows:


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Accretable yield, beginning balance	$	4,793	$	5,711
Additions	—		—
Accretion	(460)		(1,228)
Reclassification from nonaccretable to accretable yield	50		64
Disposals	(54)		(218)
Accretable yield, ending balance	$	4,329	$	4,329