XML 32 R13.htm IDEA: XBRL DOCUMENT

Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2022

LOANS AND ALLOWANCE FOR CREDIT LOSSES

At March 31, 2022, the Company’s loan portfolio was $12.03 billion, compared to $12.01 billion at December 31, 2021. The various categories of loans are summarized as follows:


	March 31,		December 31,
(In thousands)	2022		2021
Consumer:
Credit cards	$	184,372	$	187,052
Other consumer	180,602		168,318
Total consumer	364,974		355,370
Real Estate:
Construction and development	1,423,445		1,326,371
Single family residential	2,042,978		2,101,975
Other commercial	5,762,567		5,738,904
Total real estate	9,228,990		9,167,250
Commercial:
Commercial	2,016,405		1,992,043
Agricultural	150,465		168,717
Total commercial	2,166,870		2,160,760
Other	267,759		329,123
Total loans	$	12,028,593	$	12,012,503

The above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as net deferred origination fees totaling $16.7 million and $21.5 million at March 31, 2022 and December 31, 2021, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $38.4 million and $39.8 million at March 31, 2022 and December 31, 2021, respectively, and is included in interest receivable on the consolidated balance sheets.

Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; and providing an adequate allowance for credit losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default.

Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to economic downturns that result in increased unemployment. Other consumer loans include direct and indirect installment loans and account overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

Real estate – The real estate loan portfolio consists of construction and development loans (“C&D”), single family residential loans and commercial loans. C&D and commercial real estate (“CRE”) loans can be particularly sensitive to valuation of real estate. CRE cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within CRE – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and duration. The Company monitors these loans closely.

Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Paycheck Protection Program (“PPP”) loans are also included in the commercial loan portfolio. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one or three year balloons, and the Company has instituted a pricing mechanism for commercial loans. It is standard practice to require personal guaranties on commercial loans for closely-held or limited liability entities.

Paycheck Protection Program Loans – The Company originated loans pursuant to multiple PPP appropriations of the CARES Act which provided 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assistance with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions. PPP loans have a zero percent risk-weight for regulatory capital ratios. As of March 31, 2022 and December 31, 2021, the total outstanding balance of PPP loans was $61.9 million and $116.7 million, respectively.

Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The amortized cost basis of nonaccrual loans segregated by category of loans are as follows:


	March 31,		December 31,
(In thousands)	2022		2021
Consumer:
Credit cards	$	435	$	377
Other consumer	358		381
Total consumer	793		758
Real estate:
Construction and development	1,746		2,296
Single family residential	20,060		19,268
Other commercial	27,521		26,953
Total real estate	49,327		48,517
Commercial:
Commercial	13,726		18,774
Agricultural	247		152
Total commercial	13,973		18,926
Other	3		3
Total	$	64,096	$	68,204

As of March 31, 2022 and December 31, 2021, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $9.3 million and $14.5 million, respectively. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method.

An age analysis of the amortized cost basis of past due loans, including nonaccrual loans, segregated by class of loans is as follows:


(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing
March 31, 2022
Consumer:
Credit cards	$	840	$	362	$	1,202	$	183,170	$	184,372	$	238
Other consumer	1,083		92		1,175		179,427		180,602		—
Total consumer	1,923		454		2,377		362,597		364,974		238
Real estate:
Construction and development	426		118		544		1,422,901		1,423,445		—
Single family residential	18,273		8,546		26,819		2,016,159		2,042,978		—
Other commercial	5,677		11,743		17,420		5,745,147		5,762,567		—
Total real estate	24,376		20,407		44,783		9,184,207		9,228,990		—
Commercial:
Commercial	4,707		8,082		12,789		2,003,616		2,016,405		2
Agricultural	110		199		309		150,156		150,465		—
Total commercial	4,817		8,281		13,098		2,153,772		2,166,870		2
Other	17		3		20		267,739		267,759		—
Total	$	31,133	$	29,145	$	60,278	$	11,968,315	$	12,028,593	$	240


(In thousands)	Gross 30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		90 Days Past Due & Accruing
December 31, 2021
Consumer:
Credit cards	$	847	$	413	$	1,260	$	185,792	$	187,052	$	247
Other consumer	1,149		130		1,279		167,039		168,318		—
Total consumer	1,996		543		2,539		352,831		355,370		247
Real estate:
Construction and development	114		504		618		1,325,753		1,326,371		—
Single family residential	11,313		9,398		20,711		2,081,264		2,101,975		102
Other commercial	2,474		12,268		14,742		5,724,162		5,738,904		—
Total real estate	13,901		22,170		36,071		9,131,179		9,167,250		102
Commercial:
Commercial	4,812		10,074		14,886		1,977,157		1,992,043		—
Agricultural	13		117		130		168,587		168,717		—
Total commercial	4,825		10,191		15,016		2,145,744		2,160,760		—
Other	—		3		3		329,120		329,123		—
Total	$	20,722	$	32,907	$	53,629	$	11,958,874	$	12,012,503	$	349

When the Company restructures a loan to a borrower that is experiencing financial difficulty and grants a concession that it would not otherwise consider, a “troubled debt restructuring” (“TDR”) results and the Company classifies the loan as a TDR. The Company grants various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal.

Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full; or, if an obligation yields a market interest rate and no longer has any concession regarding payment amount or amortization, then it is not considered a TDR at the beginning of the calendar year after the year in which the improvement takes place. The Company returns TDRs to accrual status only if (1) all contractual amounts due can reasonably be expected to be repaid within a prudent period and (2) repayment has been in accordance with the contract for a sustained period, typically at least six months.

TDRs are individually evaluated for expected credit losses. The Company assesses the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determines if a specific allowance for credit losses is needed.

The following table presents a summary of TDRs segregated by class of loans.


	Accruing TDR Loans			Nonaccrual TDR Loans			Total TDR Loans
(Dollars in thousands)	Number	Balance		Number	Balance		Number	Balance
March 31, 2022
Real estate:
Single-family residential	23	$	2,238	14	$	1,167	37	$	3,405
Other commercial	1	760		1	46		2	806
Total real estate	24	2,998		15	1,213		39	4,211
Commercial:
Commercial	2	426		2	1,405		4	1,831
Total commercial	2	426		2	1,405		4	1,831
Total	26	$	3,424	17	$	2,618	43	$	6,042


	Accruing TDR Loans			Nonaccrual TDR Loans			Total TDR Loans
(Dollars in thousands)	Number	Balance		Number	Balance		Number	Balance
December 31, 2021
Real estate:
Single-family residential	28	$	3,087	14	$	1,196	42	$	4,283
Other commercial	1	766		2	48		3	814
Total real estate	29	3,853		16	1,244		45	5,097
Commercial:
Commercial	2	436		2	1,406		4	1,842
Total commercial	2	436		2	1,406		4	1,842
Total	31	$	4,289	18	$	2,650	49	$	6,939

There were no loans restructured as TDRs during the three month periods ended March 31, 2022 and 2021.

Additionally, there were no loans considered TDRs for which a payment default occurred during the three months ended March 31, 2022 and 2021. The Company defines a payment default as a payment received more than 90 days after its due date.

There were no TDRs with pre-modification loan balances for which Other Real Estate Owned (“OREO”) was received in full or partial satisfaction of the loans during the three month periods ended March 31, 2022 or 2021. At March 31, 2022 and December 31, 2021, the Company had $1,143,000 and $1,806,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At March 31, 2022 and December 31, 2021, the Company had $647,000 and $831,000, respectively, of OREO secured by residential real estate properties.

Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions of the Company’s local markets.

The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the risk ratings is as follows:

•Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength.

•Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”).

•Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters.

•Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability.

•Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention

rating may include management problems, pending litigation, a non-existent or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices.

•Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan.

•Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status.

•Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible.

The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the delinquency credit quality indicators is as follows:

•Current - Loans in this category are either current in payments or are under 30 days past due. These loans are considered to have a normal level of risk.

•30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk.

•90+ Days Past Due - Loans in this category are 90 days or more past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced.

The Company uses a dual risk rating scale that utilizes quantitative models and qualitative factors (“score cards”) to assist in determining the appropriate risk rating for its commercial loans. This dual risk rating methodology incorporates a “probability of default” analysis which utilizes quantified metrics such as loan terms and financial performance, as well as a “loss given default” analysis which utilizes collateral values and economics of the market, among other attributes. Model outputs are reviewed and analyzed to ensure the projected risk levels are commensurate with underwriting and credit leader expectations. The risk rating scale includes Probability of Default levels of 1 – 16 and Loss Given Default levels of A – I. The scale allows for more granular recognition of risk and diversification of grading among traditional Pass grades.

The following is a reconciliation between the expanded risk rating scale and the Company’s traditional risk rating segments utilized within the commercial loan classes presented in the credit quality indicator tables.

•Pass - Includes loans with an expanded risk rating of 1 through 11. Loans with a risk rating of 10 and 11 equate to loans included on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term.

•Special Mention - Includes loans with an expanded risk rating of 12.

•Substandard - Includes loans with an expanded risk rating of 13 and 14.

•Doubtful and loss - Includes loans with an expanded risk rating of 15 and 16.

The following table presents a summary of loans by credit quality indicator, as of March 31, 2022, segregated by class of loans.


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2022 (YTD)		2021		2020		2019		2018		2017 and Prior		Lines of Credit (“LOC”) Amortized Cost Basis		LOC Converted to Term Loans Amortized Cost Basis		Total
Consumer - credit cards
Delinquency:
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	183,170	$	—	$	183,170
30-89 days past due	—		—		—		—		—		—		840		—		840
90+ days past due	—		—		—		—		—		—		362		—		362
Total consumer - credit cards	—		—		—		—		—		—		184,372		—		184,372
Consumer - other
Delinquency:
Current	79,761		43,528		18,213		8,773		5,164		6,467		17,517		4		179,427
30-89 days past due	15		476		122		90		83		245		52		—		1,083
90+ days past due	—		31		7		9		3		42		—		—		92
Total consumer - other	79,776		44,035		18,342		8,872		5,250		6,754		17,569		4		180,602
Real estate - C&D
Risk rating:
Pass	36,921		83,202		84,969		21,988		12,221		10,831		1,166,464		3,694		1,420,290
Special mention	—		—		—		265		—		46		—		—		311
Substandard	1,066		184		52		15		35		123		1,369		—		2,844
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total real estate - C&D	37,987		83,386		85,021		22,268		12,256		11,000		1,167,833		3,694		1,423,445
Real estate - SF residential
Delinquency:
Current	94,349		432,131		331,902		154,549		217,889		519,907		263,355		2,077		2,016,159
30-89 days past due	52		2,445		3,040		2,010		1,348		8,189		1,189		—		18,273
90+ days past due	141		223		502		775		801		5,517		587		—		8,546
Total real estate - SF residential	94,542		434,799		335,444		157,334		220,038		533,613		265,131		2,077		2,042,978
Real estate - other commercial
Risk rating:
Pass	512,084		1,559,457		917,510		295,515		176,517		579,079		1,317,696		19,730		5,377,588
Special mention	31,411		11,572		51,706		1,241		1,635		9,511		65,879		—		172,955
Substandard	4,895		67,793		49,225		3,416		3,000		30,247		53,448		—		212,024
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total real estate - other commercial	548,390		1,638,822		1,018,441		300,172		181,152		618,837		1,437,023		19,730		5,762,567
Commercial
Risk rating:
Pass	171,244		416,875		204,615		57,498		43,756		75,701		1,002,977		2,848		1,975,514
Special mention	3,718		1,373		1,808		112		12		1,038		3,803		—		11,864
Substandard	451		6,913		4,337		1,540		1,083		2,899		11,603		201		29,027
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total commercial	175,413		425,161		210,760		59,150		44,851		79,638		1,018,383		3,049		2,016,405
Commercial - agriculture
Risk rating:
Pass	12,418		31,654		16,797		7,300		2,234		1,987		76,716		1,059		150,165
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		79		—		68		39		1		113		—		300
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total commercial - agriculture	12,418		31,733		16,797		7,368		2,273		1,988		76,829		1,059		150,465
Other
Delinquency:
Current	28		24,198		4,616		1,170		22,241		11,612		203,874		—		267,739
30-89 days past due	—		—		—		17		—		—		—		—		17
90+ days past due	—		—		—		—		—		3		—		—		3
Total other	28		24,198		4,616		1,187		22,241		11,615		203,874		—		267,759
Total	$	948,554	$	2,682,134	$	1,689,421	$	556,351	$	488,061	$	1,263,445	$	4,371,014	$	29,613	$	12,028,593

The following table presents a summary of loans by credit quality indicator, as of December 31, 2021, segregated by class of loans.


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2021		2020		2019		2018		2017		2016 and Prior		Lines of Credit (“LOC”) Amortized Cost Basis		LOC Converted to Term Loans Amortized Cost Basis		Total
Consumer - credit cards
Delinquency:
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	185,792	$	—	$	185,792
30-89 days past due	—		—		—		—		—		—		847		—		847
90+ days past due	—		—		—		—		—		—		413		—		413
Total consumer - credit cards	—		—		—		—		—		—		187,052		—		187,052
Consumer - other
Delinquency:
Current	97,830		21,885		11,712		6,756		5,416		3,833		19,607		—		167,039
30-89 days past due	265		121		164		49		219		156		175		—		1,149
90+ days past due	23		23		28		21		13		22		—		—		130
Total consumer - other	98,118		22,029		11,904		6,826		5,648		4,011		19,782		—		168,318
Real estate - C&D
Risk rating:
Pass	74,813		83,729		28,803		17,349		8,505		9,319		1,074,617		20,285		1,317,420
Special mention	—		—		270		—		—		47		—		—		317
Substandard	191		77		16		54		324		423		5,598		1,951		8,634
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total real estate - C&D	75,004		83,806		29,089		17,403		8,829		9,789		1,080,215		22,236		1,326,371
Real estate - SF residential
Delinquency:
Current	419,605		335,788		185,190		260,037		193,110		421,957		256,155		9,422		2,081,264
30-89 days past due	1,061		883		1,662		791		1,077		4,360		1,479		—		11,313
90+ days past due	27		561		507		1,199		1,358		5,104		570		72		9,398
Total real estate - SF residential	420,693		337,232		187,359		262,027		195,545		431,421		258,204		9,494		2,101,975
Real estate - other commercial
Risk rating:
Pass	1,349,746		807,701		375,824		267,696		476,029		537,493		1,409,099		164,856		5,388,444
Special mention	28,151		30,981		2,799		6,650		39,361		4,801		38,638		1,608		152,989
Substandard	28,137		10,186		5,243		10,806		30,060		27,107		53,860		32,072		197,471
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total real estate - other commercial	1,406,034		848,868		383,866		285,152		545,450		569,401		1,501,597		198,536		5,738,904
Commercial
Risk rating:
Pass	455,499		187,517		80,486		57,437		36,529		57,099		1,004,971		41,885		1,921,423
Special mention	670		2,482		1,066		189		261		2,770		8,500		10,499		26,437
Substandard	3,436		18,381		4,397		1,196		578		850		8,242		7,103		44,183
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total commercial	459,605		208,380		85,949		58,822		37,368		60,719		1,021,713		59,487		1,992,043
Commercial - agriculture
Risk rating:
Pass	32,780		20,230		10,253		3,646		2,364		459		98,245		327		168,304
Special mention	—		—		—		—		—		—		—		—		—
Substandard	191		25		27		53		22		3		23		69		413
Doubtful and loss	—		—		—		—		—		—		—		—		—
Total commercial - agriculture	32,971		20,255		10,280		3,699		2,386		462		98,268		396		168,717
Other
Delinquency:
Current	24,247		4,740		1,236		22,438		6,692		5,578		264,189		—		329,120
30-89 days past due	—		—		—		—		—		—		—		—		—
90+ days past due	—		—		—		—		—		3		—		—		3
Total other	24,247		4,740		1,236		22,438		6,692		5,581		264,189		—		329,123
Total	$	2,516,672	$	1,525,310	$	709,683	$	656,367	$	801,918	$	1,081,384	$	4,431,020	$	290,149	$	12,012,503

Allowance for Credit Losses

Allowance for Credit Losses – The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical loss experience, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for the effective interest rate used to discount prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses. Accordingly, the methodology is based on the Company’s reasonable and supportable economic forecasts, historical loss experience, and other qualitative adjustments.

Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis.

The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. Qualitative adjustments include, but are not limited to:

•Changes in asset quality - Adjustments related to trending credit quality metrics including delinquency, non-performing loans, charge-offs, and risk ratings that may not be fully accounted for in the reserve factor.

•Changes in the nature and volume of the portfolio - Adjustments related to current changes in the loan portfolio that are not fully represented or accounted for in the reserve factors.

•Changes in lending and loan monitoring policies and procedures - Adjustments related to current changes in lending and loan monitoring procedures as well as review of specific internal policy compliance metrics.

•Changes in the experience, ability, and depth of lending management and other relevant staff - Adjustments to measure increasing or decreasing credit risk related to lending and loan monitoring management.

•Changes in the value of underlying collateral of collateralized loans - Adjustments related to improving or deterioration of the value of underlying collateral that are not fully captured in the reserve factors.

•Changes in and the existence and effect of any concentrations of credit - Adjustments related to credit risk of specific industries that are not fully captured in the reserve factors.

•Changes in regional and local economic and business conditions and developments - Adjustments related to expected and current economic conditions at a regional or local-level that are not fully captured within the Company’s reasonable and supportable forecast.

•Data imprecisions due to limited historical loss data - Adjustments related to limited historical loss data that is representative of the collective loan portfolio.

Loans that do not share similar risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating or are classified as a troubled debt restructuring. The allowance for credit loss is determined based on several methods including estimating the fair value of the underlying collateral or the present value of expected cash flows.

For a collateral dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. If the loan is not collateral dependent, the measurement of loss is based on the difference between the expected and contractual future cash flows of the loan.

Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $100.0 million and $47.1 million as of March 31, 2022 and December 31, 2021, respectively, as further detailed in the table below. The collateral securing these loans consist of commercial real estate properties, residential properties, and other business assets.


(In thousands)	Real Estate Collateral		Other Collateral		Total
March 31, 2022
Construction and development	$	1,369	$	—	$	1,369
Single family residential	1,947		—		1,947
Other commercial real estate	87,804		—		87,804
Commercial	—		8,877		8,877
Total	$	91,120	$	8,877	$	99,997

December 31, 2021
Construction and development	$	2,489	$	—	$	2,489
Single family residential	1,838		—		1,838
Other commercial real estate	32,849		—		32,849
Commercial	—		9,913		9,913
Total	$	37,176	$	9,913	$	47,089

The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2022. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


(In thousands)	Commercial		Real Estate		Credit Card		Other Consumer and Other		Total
Allowance for credit losses:
Three Months Ended March 31, 2022
Beginning balance, January 1, 2022	$	17,458	$	179,270	$	3,987	$	4,617	$	205,332
Provision for credit loss expense	(2,519)		(17,822)		(447)		874		(19,914)
Charge-offs	(6,319)		(485)		(920)		(414)		(8,138)
Recoveries	557		426		274		387		1,644
Net charge-offs	(5,762)		(59)		(646)		(27)		(6,494)
Ending balance, March 31, 2022	$	9,177	$	161,389	$	2,894	$	5,464	$	178,924

Activity in the allowance for credit losses for the three months ended March 31, 2021 was as follows:


(In thousands)	Commercial		Real Estate		Credit Card		Other Consumer and Other		Total
Allowance for credit losses:
Three Months Ended March 31, 2021
Beginning balance, January 1, 2020 - prior to adoption of CECL	$	42,093	$	182,868	$	7,472	$	5,617	$	238,050
Provision for credit loss expense	(6,940)		14,242		(4,587)		(2,715)		—
Charge-offs	(859)		(1,687)		(1,003)		(702)		(4,251)
Recoveries	320		403		290		304		1,317
Net charge-offs	(539)		(1,284)		(713)		(398)		(2,934)
Ending balance, March 31, 2021	$	34,614	$	195,826	$	2,172	$	2,504	$	235,116

As of March 31, 2022, the Company’s allowance for credit losses was considered sufficient based upon expected loan level cash flows that were supported by economic forecasts. Provision expense was recaptured for the three months ended March 31, 2022 based upon improved asset credit quality metrics combined with improved Moody’s economic modeling scenarios.

Reserve for Unfunded Commitments

In addition to the allowance for credit losses, the Company has established a reserve for unfunded commitments, classified in other liabilities. This reserve is maintained at a level management believes to be sufficient to absorb losses arising from unfunded loan commitments. The reserve for unfunded commitments as of March 31, 2022 and December 31, 2021 was $22.4 million. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the allowance for credit losses. No adjustment was made to the reserve for unfunded commitments during the three months ended March 31, 2022 and 2021, as it was considered sufficient to cover any loss expectations.

Provision for Credit Losses

Provision for credit losses is determined by the Company as the amount to be added to the allowance for credit loss accounts for various types of financial instruments including loans, securities and off-balance-sheet credit exposure after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments.

The components of the provision for credit losses for the three month periods ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31,
(In thousands)	2022		2021
Provision for credit losses related to:
Loans	$	(19,914)	$	—
Unfunded commitments	—		—
Securities - HTM	—		(697)
Securities - AFS	—		2,142
Total	$	(19,914)	$	1,445

Purchased Credit Deteriorated (“PCD”) Loans

Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans, the initial estimate of expected credit losses is recognized in the allowance for credit loss on the date of acquisition using the same methodology as discussed in the Allowance for Credit Losses section included above.

The following table provides a summary of loans purchased as part of the Landmark acquisition with credit deterioration at acquisition:


(In thousands)	Commercial	Real Estate	Credit Card	Other Consumer and Other	Total
Unpaid principal balance	11,046	55,549	—	67	66,662
PCD allowance for credit loss at acquisition	(350)	(2,008)	—	(1)	(2,359)
Non-credit related discount	(160)	(2,415)	—	(2)	(2,577)
Fair value of PCD loans	10,536	51,126	—	64	61,726

The following table provides a summary of loans purchased as part of the Triumph acquisition with credit deterioration at acquisition:


(In thousands)	Commercial	Real Estate	Credit Card	Other Consumer and Other	Total
Unpaid principal balance	40,466	80,803	—	15	121,284
PCD allowance for credit loss at acquisition	(2,999)	(8,093)	—	—	(11,092)
Non-credit related discount	(279)	(1,314)	—	(1)	(1,594)
Fair value of PCD loans	37,188	71,396	—	14	108,598