Allowance for Credit Losses

3 Months Ended

Mar. 31, 2021

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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a description of the adoption of ASU 2016-13 and the Company's allowance methodology. The Company recorded an increase in the allowance for credit losses on loans of $6.7 million effective January 1, 2020. Prior year disclosures have not been restated.

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 March 31, 2021, loans totaling $6.08 billion were evaluated collectively and the allowance on these balances totaled $66.0 million and loans evaluated on an individual basis totaled $30.9 million with the specific allocations of the allowance for credit losses totaling $1.2 million.

Allowance for Credit Losses - Loans

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


	For the Three Months Ended March 31,
(in thousands)		2021		2020
Balance at beginning of the period		$	71,124	$	40,003

Charge-offs		(1,270)		(483)
Recoveries		206		141
Net (charge-offs) recoveries		(1,064)		(342)
Provision for credit loss - loans		(2,808)		9,223
Balance at end of the period		$	67,252	$	48,884

Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheet, totaled $15.5 million at March 31, 2021 and $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 March 31, 2021 and 2020:


(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		Provision for Credit Loss - Loans		Balance at 3/31/2021
Non-owner occupied commercial	$	25,910	$	(593)	$	1	$	(1,438)	$	23,880
Owner occupied commercial	3,955		(78)		8		118		4,003
Multifamily	7,253		—		—		255		7,508
Non-owner occupied residential	3,321		(208)		2		(232)		2,883
Commercial, industrial and other	13,665		(265)		44		(1,305)		12,139
Construction	786		—		25		318		1,129
Equipment finance	6,552		(94)		11		(205)		6,264
Residential mortgage	3,623		—		58		100		3,781
Consumer	6,059		(32)		57		(419)		5,665
Total	$	71,124	$	(1,270)	$	206	$	(2,808)	$	67,252


(in thousands)	Balance at 12/31/2019		Charge-offs		Recoveries		Provision for Credit Loss - Loans		Balance at 3/31/2020




Commercial, secured by real estate (1)	$	28,950	$	(169)	$	26	$	5,986	34,793
Commercial, industrial and other	3,289		—		30		2,170		5,489
Construction	2,672		—		32		640		3,344
Equipment finance	957		(84)		14		370		1,257
Residential mortgage	1,725		(116)		20		(29)		1,600
Consumer	2,410		(114)		19		86		2,401
Total	$	40,003	$	(483)	$	141	$	9,223	$	48,884

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

The following tables present the recorded investment in loans by portfolio segment and the related allowance for credit losses at March 31, 2021 and December 31, 2020:


March 31, 2021	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	$	9,605	$	2,362,334	$	3,085	$	2,375,024	351		$	23,529	$	23,880
Owner occupied commercial	11,131		845,786		589		857,506		—		4,003		4,003
Multifamily	—		858,168		—		858,168		—		7,508		7,508
Non-owner occupied residential	774		194,421		339		195,534		48		2,835		2,883
Commercial, industrial and other	1,370		737,833		1,363		740,566		810		11,329		12,139
Construction	515		290,737		—		291,252		—		1,129		1,129
Equipment finance	—		119,428		—		119,428		—		6,264		6,264
Residential mortgage	1,483		384,161		134		385,778		—		3,781		3,781
Consumer	—		285,201		489		285,690		30		5,635		5,665
Total loans	$	24,878	$	6,078,069	$	5,999	$	6,108,946	$	1,239	$	66,013	$	67,252


December 31, 2020	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
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

Allowance for Credit Losses - Securities

The following table presents the activity in the allowance for credit losses for securities:


	For the Three Months Ended March 31, 2021						For the Three Months Ended March 31, 2020
(in thousands)	Available for Sale		Held to Maturity		Total		Available for Sale		Held to Maturity		Total
Beginning balance	$	2	$	—	$	2	$	—	$	—	$	—
Provision for credit loss - securities	142		—		142		—		—		—
Balance at end of the period	$	144	$	—	$	144	$	—	$	—	$	—

The Company adopted ASU 2016-13 at December 31, 2020, and recorded an increase in the allowance for credit losses on securities of $30,000 effective January 1, 2020. Prior year disclosures have not been restated.

Accrued interest receivable on securities is reported as a component of accrued interest receivable on the consolidated balance sheet and totaled $4.4 million at March 31, 2021 and $3.3 million and 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 Company adopted ASU 2016-13 at December 31, 2020, and recorded a decrease in the allowance for credit losses for off-balance-sheet exposures of $498,000 effective January 1, 2020. Prior year disclosures have not been restated.

At both March 31, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance sheet exposures was $2.6 million. The Company recorded a provision for credit loss on off-balance-sheet exposures of $24,000 for the first quarter of 2021. In the first quarter of 2020, the Company recorded a provision for unfunded lending commitments of $210,000 in other noninterest expense.