Allowance for Credit Losses

12 Months Ended

Dec. 31, 2020

ALLOWANCE FOR CREDIT LOSSES

The Company adopted the ASU 2016-13 standard, which requires the measurement of expected credit losses for financial assets measured at amortized cost, including loans and certain off-balance-sheet credit exposures. See Note 1 - Summary of Significant Accounting Policies for a description of the adoption of ASU 2016-13 and the Company's allowance methodology.

Under the standard, the Company's methodology for determining the allowance for credit losses on loans is based upon key assumptions, including the lookback periods, historic net charge-off factors, economic forecasts, reversion periods, prepayments and qualitative adjustments. The allowance is measured on a collective, or pool, basis when similar risk characteristics exist. Loans that do not share common risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. At December 31, 2020, loans totaling $5.98 billion were evaluated collectively and the allowance on these balances totaled $69.8 million and loans evaluated on an individual basis totaled $42.0 million with the specific allocations of the allowance for credit losses totaling $1.3 million.

Allowance for Credit Losses - Loans

The allowance for credit losses is summarized in the following table:


(in thousands)	2020		2019
Balance at beginning of the period	$	40,003	$	37,688
Impact of adopting ASU 2016-13	6,656		—
Charge-offs	(2,053)		(1,936)
Recoveries	541		2,121
Net (charge-offs) recoveries	(1,512)		185
Provision for credit loss - loans	25,977		2,130
Balance at end of the period	$	71,124	$	40,003

Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheet, totaled $16.1 million at December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses.

The following table details activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2020 and 2019:


(in thousands)	Balance at 12/31/2019		Impact of adopting ASU 2016-13		Charge-offs		Recoveries		Provision for Credit Loss - Loans		Balance at 12/31/2020

Non-owner occupied commercial	$	—	$	17,027	$	(53)	$	29	$	8,907	$	25,910
Owner occupied commercial	—		3,080		(369)		21		1,223		3,955
Multifamily	—		3,717		—		—		3,536		7,253
Non-owner occupied residential	—		2,801		—		22		498		3,321
Commercial, secured by real estate (1)	28,950		(28,950)		—		—		—		—
Commercial, industrial and other	3,289		2,850		(814)		207		8,133		13,665
Construction	2,672		(2,396)		(77)		100		487		786
Equipment finance	957		2,481		(284)		65		3,333		6,552
Residential mortgage	1,725		1,217		(116)		21		776		3,623
Consumer	2,410		4,829		(340)		76		(916)		6,059
Total	$	40,003	$	6,656	$	(2,053)	$	541	$	25,977	$	71,124


(in thousands)	Balance at 12/31/2018		Charge-offs		Recoveries		Provision for Loan Loss		Balance at 12/31/2019





Commercial, secured by real estate	$	27,881	$	(544)	$	251	$	1,362	$	28,950
Commercial, industrial and other	1,742		(645)		1,100		1,092		3,289
Construction	3,015		—		126		(469)		2,672
Equipment finance	987		(414)		332		52		957
Residential mortgage	1,566		(50)		66		143		1,725
Consumer	2,497		(283)		246		(50)		2,410
Total	$	37,688	$	(1,936)	$	2,121	$	2,130	$	40,003

(1) With the adoption of ASU 2016-13 in 2020, the Company expanded its portfolio segments.

The allowance for credit losses increased to $71.1 million, 1.18% of total loans, at December 31, 2020, compared to $40.0 million, 0.78% of total loans, at December 31, 2019. The increase from December 31, 2019, was primarily due to the adoption of ASU 2016-13 and the impact of COVID-19. The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020.

The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit or loan losses for the years ended December 31, 2020 and 2019:


December 31, 2020	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated		Collectively evaluated		Acquired with deteriorated credit quality		Total		Individually evaluated		Collectively evaluated		Total
Non-owner occupied commercial	$	12,112	$	2,382,717	$	4,117	$	2,398,946	$	355	$	25,555	$	25,910
Owner occupied commercial	16,547		809,935		610		827,092		96		3,859		3,955
Multifamily	—		813,225		—		813,225		—		7,253		7,253
Non-owner occupied residential	1,459		198,334		436		200,229		43		3,278		3,321
Commercial, industrial and other	1,596		715,129		1,464		718,189		830		12,835		13,665
Construction	515		265,649		719		266,883		—		786		786
Equipment finance	—		116,690		—		116,690		—		6,552		6,552
Residential mortgage	1,490		375,482		408		377,380		—		3,623		3,623
Consumer	—		302,099		499		302,598		31		6,028		6,059
Total loans	$	33,719	$	5,979,260	$	8,253	$	6,021,232	$	1,355	$	69,769	$	71,124


December 31, 2019	Loans								Allowance for Credit Losses
(in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Acquired with deteriorated credit quality		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total




Commercial, secured by real estate	$	15,948	$	3,567,540	$	6,105	3,589,593		$	228	$	28,722	$	28,950
Commercial, industrial and other	1,504		429,486		944		431,934		5		3,284		3,289
Construction	1,663		332,722		784		335,169		—		2,672		2,672
Equipment finance	23		111,053		—		111,076		10		947		957
Residential mortgage	2,315		332,486		390		335,191		104		1,621		1,725
Consumer	671		336,781		525		337,977		5		2,405		2,410
Total loans	$	22,124	$	5,110,068	$	8,748	$	5,140,940	$	352	$	39,651	$	40,003

Allowance for Credit Losses - Securities

The following table presents the activity in the allowance for credit losses for securities for the twelve months ended December 31, 2020 (in thousands):


(in thousands)	Available for Sale		Held to Maturity		Total
Beginning balance	$	—	$	—	$	—
Impact of adoption of ASU 2016-13	—		30		30
Provision for credit loss - securities	2		(30)		(28)
Ending balance	$	2	$	—	$	2

Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheet and totaled $3.3 million at December 31, 2020. The Company made the election to exclude accrued interest receivable from the estimate of credit losses on securities.

Allowance for Credit Losses - Off Balance Sheet Exposures

The allowance for credit losses on off-balance sheet exposures is reported in other liabilities in the Consolidated Balance Sheets. The liability represents an estimate of expected credit losses arising from off balance sheet exposures such as letters of credit, guarantees and unfunded loan commitments. The process for measuring lifetime expected credit losses on these exposures is consistent with that for loans as discussed above, but is subject to an additional estimate reflecting the likelihood that funding will occur. No liability is recognized for off balance sheet credit exposures that are unconditionally cancellable by the Company. Adjustments to the liability are reported as a component of credit loss expense.

The following table summarizes the changes in the allowance for credit losses for off-balance sheet exposures for the year ended December 31, 2020 (in thousands):


Balance at beginning of the period	$	1,778
Impact of adopting ASU 2016-13	(498)
Provision for credit loss - off-balance sheet exposures	1,273
Balance at end of the period	$	2,553