Allowance for Credit Losses

6 Months Ended

Jun. 30, 2021

The Company adopted ASU 2016-13, 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 June 30, 2021, loans totaling $5.96 billion were evaluated collectively and the allowance on these balances totaled $59.4 million and loans evaluated on an individual basis totaled $26.6 million with the specific allocations of the allowance for credit losses totaling $1.0 million.

Allowance for Credit Losses - Loans

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2021		2020		2021		2020
Balance at beginning of the period	$	67,252	$	48,884	$	71,124	$	40,003

Charge-offs	(1,861)		(141)		(3,132)		(624)
Recoveries	312		96		519		237
Net (charge-offs) recoveries	(1,549)		(45)		(2,613)		(387)
(Benefit) provision for credit loss - loans	(5,314)		9,000		(8,122)		18,223
Balance at end of the period	60,389		57,839		$	60,389	$	57,839

The benefit for credit losses for the three and six months ended June 30, 2021 was largely due to a change in macroeconomic factors.

Accrued interest receivable on loans, reported as a component of accrued interest receivable on the consolidated balance sheets, totaled $14.3 million at June 30, 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.

Loans totaling $5.0 million were sold during the second quarter of 2021 resulting in charge-offs of $75,000. During the six months ended June 30, 2021, the Company sold $15.1 million of loans and recorded charge-offs of $1.2 million.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2021 and 2020:


(in thousands)	Balance at 3/31/2021		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2021
Non-owner occupied commercial	$	23,880	$	(1,650)	$	1	$	(1,325)	$	20,906
Owner occupied commercial	4,003		—		9		88		4,100
Multifamily	7,508		—		—		(331)		7,177
Non-owner occupied residential	2,883		(3)		11		(299)		2,592
Commercial, industrial and other	12,139		(110)		105		(1,645)		10,489
Construction	1,129		—		42		(137)		1,034
Equipment finance	6,264		(10)		6		(1,140)		5,120
Residential mortgage	3,781		(36)		118		22		3,885
Consumer	5,665		(52)		20		(547)		5,086
Total	$	67,252	$	(1,861)	$	312	$	(5,314)	$	60,389


(in thousands)	Balance at 3/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2020




Commercial, secured by real estate (1)	34,793		$	—	$	21	$	8,466	43,280
Commercial, industrial and other	5,489		—		13		(804)		4,698
Construction	3,344		—		16		(241)		3,119
Equipment finance	1,257		(14)		24		1,704		2,971
Residential mortgage	1,600		—		—		(164)		1,436
Consumer	2,401		(127)		22		39		2,335
Total	$	48,884	$	(141)	$	96	$	9,000	$	57,839


(in thousands)	Balance at 12/31/2020		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2021
Non-owner occupied commercial	$	25,910	$	(2,243)	$	3	$	(2,764)	$	20,906
Owner occupied commercial	3,955		(78)		17		206		4,100
Multifamily	7,253		—		—		(76)		7,177
Non-owner occupied residential	3,321		(212)		13		(530)		2,592
Commercial, industrial and other	13,665		(375)		149		(2,950)		10,489
Construction	786		—		67		181		1,034
Equipment finance	6,552		(104)		17		(1,345)		5,120
Residential mortgage	3,623		(36)		176		122		3,885
Consumer	6,059		(84)		77		(966)		5,086
Total	$	71,124	$	(3,132)	$	519	$	(8,122)	$	60,389


(in thousands)	Balance at 12/31/2019		Charge-offs		Recoveries		(Benefit) Provision for Credit Loss		Balance at 6/30/2020




Commercial, secured by real estate (1)	$	28,950	$	(169)	$	47	$	14,452	43,280
Commercial, industrial and other	3,289		—		43		1,366		4,698
Construction	2,672		—		48		399		3,119
Equipment finance	957		(98)		38		2,074		2,971
Residential mortgage	1,725		(116)		20		(193)		1,436
Consumer	2,410		(241)		41		125		2,335
Total	$	40,003	$	(624)	$	237	$	18,223	$	57,839

(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 June 30, 2021 and December 31, 2020:


June 30, 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	$	9,093	$	2,318,592	$	2,691	$	2,330,376	273		$	20,633	$	20,906
Owner occupied commercial	9,958		860,000		577		870,535		78		4,022		4,100
Multifamily	—		902,394		—		902,394		—		7,177		7,177
Non-owner occupied residential	769		188,841		155		189,765		—		2,592		2,592
Commercial, industrial and other	744		563,844		1,116		565,704		638		9,851		10,489
Construction	515		334,652		—		335,167		—		1,034		1,034
Equipment finance	—		121,096		—		121,096		—		5,120		5,120
Residential mortgage	736		390,853		—		391,589		—		3,885		3,885
Consumer	—		281,967		239		282,206		—		5,086		5,086
Total loans	$	21,815	$	5,962,239	$	4,778	$	5,988,832	$	989	$	59,400	$	60,389


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

At June 30, 2021, the balance of the allowance for credit loss on available for sale and held to maturity securities was $21,000 and $137,000, respectively. At December 31, 2020, the Company reported an allowance for credit losses on available for sale securities of $2,000 and no allowance for credit losses on held to maturity securities. For the three months ended June 30, 2021, the Company recorded a benefit for credit losses on available for sale securities of $123,000 and a provision for credit losses on held to maturity securities of $137,000. For the six months ended June 30, 2021, the Company recorded a provision for credit losses of $19,000 and $137,000 on securities available for sale and held to maturity, respectively. 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 sheets and totaled $4.1 million at June 30, 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 the provision for credit losses.

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 $489,000 effective January 1, 2020. Prior year disclosures have not been restated.

At June 30, 2021 and December 31, 2020, the balance of the allowance for credit losses for off-balance sheet exposures was $1.9 million and $2.6 million, respectively. The Company recorded benefits for credit losses on off-balance-sheet exposures of $659,000 and $635,000 for the second quarter of 2021 and for the six months ended June 30, 2021, respectively. In the second quarter of 2020, the Company recorded no provision for unfunded lending commitments and, for the six months ended June 30, 2020, recorded $210,000 of provision for unfunded lending commitments in other noninterest expense.