Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments | Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments Loans and leases considered for inclusion in the allowance for loan and lease losses include acquired non-impaired loans and leases, those acquired impaired loans with credit deterioration after acquisition, and originated loans and leases. Although all acquired loans and leases are included in the following table, only those with credit deterioration subsequent to acquisition date are actually included in the allowance for loan and lease losses. The following tables summarize the balance and activity within the allowance for loan and lease losses, the components of the allowance for loan and lease losses in terms of loans and leases individually and collectively evaluated for impairment, and corresponding loan and lease balances by type for the years ended December 31, 2018, 2017 and 2016 are as follows: 2018 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Allowance for loan and lease losses Beginning balance $ 4,794 $ 1,638 $ 222 $ 7,418 $ 41 $ 2,593 $ 16,706 Provisions 4,543 113 662 12,089 68 1,320 18,795 Charge-offs (1,865 ) — (418 ) (6,944 ) (60 ) (2,517 ) (11,804 ) Recoveries 68 — — 369 — 1,067 1,504 Ending balance $ 7,540 $ 1,751 $ 466 $ 12,932 $ 49 $ 2,463 $ 25,201 Ending balance: Individually evaluated for impairment $ 2,191 $ 61 $ — $ 4,397 $ — $ — $ 6,649 Collectively evaluated for impairment 4,105 1,323 466 7,413 47 2,463 15,817 Loans acquired with deteriorated credit quality 1,244 367 — 1,122 2 — 2,735 Total allowance for loan and lease losses $ 7,540 $ 1,751 $ 466 $ 12,932 $ 49 $ 2,463 $ 25,201 2018 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Loans and leases ending balance: Individually evaluated for impairment $ 11,983 $ 2,137 $ — $ 21,794 $ — $ — $ 35,914 Collectively evaluated for impairment 1,102,816 588,831 181,570 1,110,386 13,314 191,253 3,188,170 Loans acquired with deteriorated credit quality 146,808 113,934 3,779 12,617 404 — 277,542 Total loans and leases $ 1,261,607 $ 704,902 $ 185,349 $ 1,144,797 $ 13,718 $ 191,253 $ 3,501,626 Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) 2017 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Allowance for loan and lease losses Beginning balance $ 1,945 $ 2,483 $ 742 $ 4,196 $ 334 $ 1,223 $ 10,923 Provisions 4,343 (405 ) (520 ) 6,058 34 3,143 12,653 Charge-offs (1,494 ) (440 ) — (2,836 ) (327 ) (3,099 ) (8,196 ) Recoveries — — — — — 1,326 1,326 Ending balance $ 4,794 $ 1,638 $ 222 $ 7,418 $ 41 $ 2,593 $ 16,706 Ending balance: Individually evaluated for impairment $ 1,101 $ 158 $ — $ 2,692 $ 14 $ — $ 3,965 Collectively evaluated for impairment 1,765 1,047 145 3,308 9 2,593 8,867 Loans acquired with deteriorated credit quality 1,928 433 77 1,418 18 — 3,874 Total allowance for loan and lease losses $ 4,794 $ 1,638 $ 222 $ 7,418 $ 41 $ 2,593 $ 16,706 2017 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Loans and leases ending balance: Individually evaluated for impairment $ 13,884 $ 2,429 $ — $ 14,784 $ 14 $ — $ 31,111 Collectively evaluated for impairment 711,097 430,227 99,483 496,446 3,752 177,686 1,918,691 Loans acquired with deteriorated credit quality 166,712 144,562 5,946 10,008 462 — 327,690 Total loans and leases $ 891,693 $ 577,218 $ 105,429 $ 521,238 $ 4,228 $ 177,686 $ 2,277,492 2016 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Allowance for loan and lease losses Beginning balance $ 2,280 $ 2,981 $ 232 $ 1,403 $ 357 $ 379 $ 7,632 Provisions 4,032 135 605 2,869 (11 ) 2,722 10,352 Charge-offs (4,367 ) (633 ) (95 ) (76 ) (12 ) (2,634 ) (7,817 ) Recoveries — — — — — 756 756 Ending balance $ 1,945 $ 2,483 $ 742 $ 4,196 $ 334 $ 1,223 $ 10,923 Ending balance: Individually evaluated for impairment $ — $ 293 $ — $ 396 $ 328 $ — $ 1,017 Collectively evaluated for impairment 1,456 1,743 742 3,126 5 1,223 8,295 Loans acquired with deteriorated credit quality 489 447 — 674 1 — 1,611 Total allowance for loan and lease losses $ 1,945 $ 2,483 $ 742 $ 4,196 $ 334 $ 1,223 $ 10,923 Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) 2016 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Loans and leases ending balance: Individually evaluated for impairment $ 8,916 $ 1,300 $ — $ 1,382 $ 328 $ — $ 11,926 Collectively evaluated for impairment 580,125 433,721 133,787 423,392 2,057 158,966 1,732,048 Loans acquired with deteriorated credit quality 207,303 175,717 6,979 13,464 574 — 404,037 Total loans and leases $ 796,344 $ 610,738 $ 140,766 $ 438,238 $ 2,959 $ 158,966 $ 2,148,011 The Company increased the allowance for loan and lease losses by $8.5 million, $5.8 million, and $3.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. For acquired impaired loans, the Company decreased the allowance for loan and lease losses by $1.1 million for the year ended December 31, 2018, increased the allowance for loan and lease losses by $2.3 million for the year ended December 31, 2017, and decreased the allowance for loan and lease losses by $1.7 million for the year ended December 31, 2016. The following tables summarize the recorded investment, unpaid principal balance, related allowance, average recorded investment, and interest income recognized for loans and leases considered impaired as of December 31, 2018, 2017, and 2016, which excludes acquired impaired loans: 2018 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial real estate $ 6,110 $ 7,693 $ — $ 8,968 $ 590 Residential real estate 1,886 1,858 — 1,917 43 Commercial and industrial 11,193 13,961 — 8,680 483 With an allowance recorded Commercial real estate 5,873 6,313 2,191 5,328 270 Residential real estate 251 253 61 311 4 Commercial and industrial 10,601 11,153 4,397 9,472 749 Installment and other — — — 11 — Total impaired loans $ 35,914 $ 41,231 $ 6,649 $ 34,687 $ 2,139 2017 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial real estate $ 11,425 $ 12,936 $ — $ 10,482 $ 525 Residential real estate 2,075 2,046 — 1,781 72 Construction, land development and other land — — — 295 2 Commercial and industrial 5,470 6,774 — 2,875 265 With an allowance recorded Commercial real estate 2,459 2,634 1,101 1,988 187 Residential real estate 354 351 158 422 6 Construction, land development and other land — — — 14 — Commercial and industrial 9,314 9,724 2,692 3,460 486 Installment and other 14 14 14 162 12 Total impaired loans $ 31,111 $ 34,479 $ 3,965 $ 21,479 $ 1,555 Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) 2016 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance recorded Commercial real estate $ 8,916 $ 9,502 $ — $ 8,975 $ 305 Residential real estate 804 1,999 — 827 45 Commercial and Industrial 521 524 — 516 (2 ) With an allowance recorded Residential real estate 496 528 293 519 1 Commercial and industrial 861 869 396 914 — Installment and other 328 361 328 328 16 Total impaired loans $ 11,926 $ 13,783 $ 1,017 $ 12,079 $ 365 For purposes of these tables, the unpaid principal balance represents the outstanding contractual balance. Impaired loans include loans that are individually evaluated for impairment as well as troubled debt restructurings for all loan categories. The sum of non‑accrual loans and loans past due 90 days still on accrual will differ from the total impaired loan amount. The Bank’s credit risk rating methodology assigns risk ratings from 1 to 10, where a higher rating represents higher risk. The risk rating categories are described by the following groupings: Pass —Ratings 1‑4 define the risk levels of borrowers and guarantors that offer a minimal to an acceptable level of risk. Watch —A watch asset (rating of 5) has credit exposure that presents higher than average risk and warrants greater than routine attention by Bank personnel due to conditions affecting the borrower, the borrower’s industry or the economic environment. Special Mention —A special mention asset (rating of 6) 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 Company’s credit position at some future date. Substandard Accrual —A substandard accrual asset (rating of 7) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in a distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This classification may be used in limited cases, where despite credit severity, the borrower is current on payments and there is an agreed plan for credit remediation. Substandard Non‑Accrual —A substandard asset (rating of 8) has well‑defined weakness or weaknesses in cash flow and collateral coverage resulting in the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful —A doubtful asset (rating of 9) has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loss —A loss asset (rating of 10) is considered uncollectible and of such little value that its continuance as a realizable asset is not warranted. Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) The following tables summarize the risk rating categories of the loans and leases considered for inclusion in the allowance for loan and lease losses calculation, excluding acquired impaired loans, as of December 31, 2018 and 2017: 2018 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Pass $ 1,009,041 $ 553,665 $ 147,123 $ 962,291 $ 9,997 $ 188,314 $ 2,870,431 Watch 76,276 29,522 31,376 112,996 3,302 80 253,552 Special Mention 17,602 5,656 3,071 34,314 — 1,794 62,437 Substandard 11,880 2,125 — 22,579 15 818 37,417 Doubtful — — — — — 247 247 Loss — — — — — — — Total $ 1,114,799 $ 590,968 $ 181,570 $ 1,132,180 $ 13,314 $ 191,253 $ 3,224,084 2017 Commercial Real Estate Residential Real Estate Construction, Land Development, and Other Land Commercial and Industrial Installment and Other Lease Financing Receivables Total Pass $ 638,066 $ 398,743 $ 73,935 $ 415,163 $ 3,732 $ 174,672 $ 1,704,311 Watch 58,217 29,165 22,380 67,024 20 190 176,996 Special Mention 14,645 2,251 3,168 13,535 — 1,293 34,892 Substandard 14,053 2,497 — 15,508 14 1,259 33,331 Doubtful — — — — — 272 272 Loss — — — — — — — Total $ 724,981 $ 432,656 $ 99,483 $ 511,230 $ 3,766 $ 177,686 $ 1,949,802 The following tables summarize contractual delinquency information for acquired non-impaired and originated loans and leases by category as of December 31, 2018 and 2017: 2018 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days and Accruing Non- accrual Total Past Due Current Total Commercial real estate $ 6,659 $ 2,145 $ — $ 9,484 $ 18,288 $ 1,096,511 $ 1,114,799 Residential real estate 4,488 711 — 1,815 7,014 583,954 590,968 Construction, land development, and other land — — — — — 181,570 181,570 Commercial and industrial 5,829 1,376 — 13,932 21,137 1,111,043 1,132,180 Installment and other 1,932 4 — 12 1,948 11,366 13,314 Lease financing receivables 789 530 — 591 1,910 189,343 191,253 Total $ 19,697 $ 4,766 $ — $ 25,834 $ 50,297 $ 3,173,787 $ 3,224,084 2017 30-59 Days Past Due 60-89 Days Past Due Greater than 90 Days and Accruing Non- accrual Total Past Due Current Total Commercial real estate $ 4,783 $ 968 $ — $ 8,459 $ 14,210 $ 710,771 $ 724,981 Residential real estate 148 — — 2,092 2,240 430,416 432,656 Construction, land development, and other land — — — — — 99,483 99,483 Commercial and industrial 6,667 967 — 4,348 11,982 499,248 511,230 Installment and other 18 — — 14 32 3,734 3,766 Lease financing receivables 997 638 — 851 2,486 175,200 177,686 Total $ 12,613 $ 2,573 $ — $ 15,764 $ 30,950 $ 1,918,852 $ 1,949,802 Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) Trouble debt restructurings are granted due to borrower financial difficulty and provide for a modification of loan repayment terms. TDRs are treated in the same manner as impaired loans for purposes of calculating the allowance for loan and lease losses. The tables below present TDRs by loan category as of December 31, 2018, 2017, and 2016. Refer to Note 1—Summary of Significant Accounting Policies for the accounting policy for TDRs. December 31, 2018 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Charge-offs Specific Reserves Accruing: Commercial real estate 4 $ 1,508 $ 1,508 $ — $ 113 Commercial and industrial 2 191 191 — 100 Residential real estate 1 114 114 — — Total accruing 7 1,813 1,813 — 213 Non-accruing: Commercial real estate 9 2,512 2,471 41 743 Commercial and industrial 6 6,714 4,843 1,871 1,290 Total non-accruing 15 9,226 7,314 1,912 2,033 Total troubled debt restructurings 22 $ 11,039 $ 9,127 $ 1,912 $ 2,246 December 31, 2017 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Charge-offs Specific Reserves Accruing: Commercial real estate 3 $ 912 $ 912 $ — $ — Residential real estate 1 149 149 — — Total accruing 4 1,061 1,061 — — Non-accruing: Commercial real estate 2 743 743 — 111 Commercial and industrial 3 1,246 759 487 246 Residential real estate 1 67 67 — — Total non-accruing 6 2,056 1,569 487 357 Total troubled debt restructurings 10 $ 3,117 $ 2,630 $ 487 $ 357 December 31, 2016 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Charge-offs Specific Reserves Accruing: Commercial real estate 1 $ 421 $ 421 $ — $ — Residential real estate 2 181 181 — — Total accruing 3 602 602 — — Non-accruing: Commercial real estate 1 477 477 — — Residential real estate 1 75 75 — — Total non-accruing 2 552 552 — — Total troubled debt restructurings 5 $ 1,154 $ 1,154 $ — $ — Note 6—Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments (continued) In addition, there was a $500,000 commitment outstanding on troubled debt restructurings at December 31, 2018 and no commitments outstanding on troubled debt restructurings at December 31, 2017 or 2016. Loans modified as troubled debt restructurings that occurred during the years ended December 31, 2018, 2017, and 2016: For the Year Ended December 31, 2018 2017 2016 Accruing: Beginning balance $ 1,061 $ 602 $ 1,908 Additions 37 1,017 181 Net payments (86 ) (144 ) (1,010 ) Net transfers from (to) non-accrual 801 (414 ) (477 ) Ending balance 1,813 1,061 602 Non-accruing: Beginning balance 1,569 552 833 Additions 8,408 681 — Net payments (1,718 ) (78 ) (758 ) Charge-offs (144 ) — — Net transfers from (to) accrual (801 ) 414 477 Ending balance 7,314 1,569 552 Total troubled debt restructurings $ 9,127 $ 2,630 $ 1,154 Troubled debt restructurings that subsequently defaulted within twelve months of the restructure date during the years ended December 31, 2018, 2017, and 2016 had a recorded investment of $340,000, $144,000, and $477,000, respectively. At December 31, 2018 and 2017, the reserve for unfunded commitments was $1.2 million and $923,000, respectively. During the years ended December 31, 2018, 2017, and 2016, the provisions for unfunded commitments were $317,000, $162,000, and $493,000, respectively. There were no charge‑offs or recoveries related to the reserve for unfunded commitments during the periods. |