| Loans and Allowance for Credit Losses | LOANS AND ALLOWANCE FOR CREDIT LOSSES At March 31, 2021, the Company’s loan portfolio was $12.20 billion, compared to $12.90 billion at December 31, 2020. The various categories of loans are summarized as follows: March 31, December 31, (In thousands) 2021 2020 Consumer: Credit cards $ 175,458 $ 188,845 Other consumer 172,965 202,379 Total consumer 348,423 391,224 Real Estate: Construction and development 1,451,841 1,596,255 Single family residential 1,730,056 1,880,673 Other commercial 5,638,010 5,746,863 Total real estate 8,819,907 9,223,791 Commercial: Commercial 2,444,700 2,574,386 Agricultural 155,921 175,905 Total commercial 2,600,621 2,750,291 Other 426,922 535,591 Total loans $ 12,195,873 $ 12,900,897 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 $51.4 million and $57.3 million at March 31, 2021 and December 31, 2020, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $47.8 million and $54.4 million at March 31, 2021 and December 31, 2020, 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; 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 be impacted by economic downturns resulting in increasing unemployment. Other consumer loans include direct and indirect installment loans and 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, single family residential loans and commercial loans. Construction and development loans (“C&D”) and commercial real estate loans (“CRE”) can be particularly sensitive to valuation of real estate. Commercial real estate 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 commercial real estate – 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 length. 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 assist 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, 2021 and December 31, 2020, the total outstanding balance of PPP loans was $797.6 million and $904.7 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 class of loans are as follows: March 31, December 31, (In thousands) 2021 2020 Consumer: Credit cards $ 397 $ 301 Other consumer 916 1,219 Total consumer 1,313 1,520 Real estate: Construction and development 2,296 3,625 Single family residential 24,395 28,062 Other commercial 42,211 24,155 Total real estate 68,902 55,842 Commercial: Commercial 44,159 65,244 Agricultural 482 273 Total commercial 44,641 65,517 Total $ 114,856 $ 122,879 As of March 31, 2021 and December 31, 2020, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $18.8 million and $16.8 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 90 Days Total Current Total 90 Days March 31, 2021 Consumer: Credit cards $ 786 $ 453 $ 1,239 $ 174,219 $ 175,458 $ 336 Other consumer 1,221 329 1,550 171,415 172,965 85 Total consumer 2,007 782 2,789 345,634 348,423 421 Real estate: Construction and development 3,296 1,579 4,875 1,446,966 1,451,841 3 Single family residential 17,836 10,806 28,642 1,701,414 1,730,056 21 Other commercial 20,633 8,792 29,425 5,608,585 5,638,010 14 Total real estate 41,765 21,177 62,942 8,756,965 8,819,907 38 Commercial: Commercial 5,572 6,245 11,817 2,432,883 2,444,700 170 Agricultural 320 412 732 155,189 155,921 6 Total commercial 5,892 6,657 12,549 2,588,072 2,600,621 176 Other 23 — 23 426,899 426,922 — Total $ 49,687 $ 28,616 $ 78,303 $ 12,117,570 $ 12,195,873 $ 635 December 31, 2020 Consumer: Credit cards $ 708 $ 256 $ 964 $ 187,881 $ 188,845 $ 256 Other consumer 2,771 302 3,073 199,306 202,379 13 Total consumer 3,479 558 4,037 387,187 391,224 269 Real estate: Construction and development 1,375 3,089 4,464 1,591,791 1,596,255 — Single family residential 23,726 14,339 38,065 1,842,608 1,880,673 253 Other commercial 2,660 9,586 12,246 5,734,617 5,746,863 — Total real estate 27,761 27,014 54,775 9,169,016 9,223,791 253 Commercial: Commercial 7,514 7,429 14,943 2,559,443 2,574,386 56 Agricultural 226 187 413 175,492 175,905 — Total commercial 7,740 7,616 15,356 2,734,935 2,750,291 56 Other 92 — 92 535,499 535,591 — Total $ 39,072 $ 35,188 $ 74,260 $ 12,826,637 $ 12,900,897 $ 578 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. The provisions in the CARES Act included an election to not apply the guidance on accounting for TDRs to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. In March 2020, the federal financial institution regulatory agencies issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and provided information regarding loan modifications. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. In response to the concerns related to the expiration of the applicable period for which the election to not apply the guidance on accounting for TDRs to loan modifications, the CARES Act was amended in late fourth quarter of 2020 to extend COVID-19 relief related to loan modifications from the earlier of (i) January 1, 2022 or (ii) 60 days after the President terminates the COVID-19 national emergency declaration. During 2020 and the first quarter of 2021, the Company processed over 3,700 COVID-19 loan modifications in excess of $3.0 billion. As of March 31, 2021, the Company had the following loan modifications due to COVID-19 outstanding categorized by industry: (Dollars in thousands) Number Balance Assisted living 1 $ 17,310 Transportation 5 783 Consumer 37 3,776 Hotel 17 152,864 Food service 3 2,683 All other 16 31,029 Total 79 $ 208,445 Deferred interest on the above loans totaled $5.9 million as of March 31, 2021. The interest will be collected at the end of the note or once regular payments are resumed. As of March 31, 2021, over 3,300 loans totaling approximately $2.6 billion that had previously been modified under the CARES Act had returned to regular payment terms in addition to those that have paid off. 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, 2021 Real estate: Single-family residential 31 $ 3,133 15 $ 1,991 46 $ 5,124 Other commercial 1 48 1 8 2 56 Total real estate 32 3,181 16 1,999 48 5,180 Commercial: Commercial 3 624 3 1,479 6 2,103 Total commercial 3 624 3 1,479 6 2,103 Total 35 $ 3,805 19 $ 3,478 54 $ 7,283 Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance December 31, 2020 Real estate: Single-family residential 28 $ 2,463 18 $ 2,736 46 $ 5,199 Other commercial 1 49 1 12 2 61 Total real estate 29 2,512 19 2,748 48 5,260 Commercial: Commercial 3 626 3 1,627 6 2,253 Total commercial 3 626 3 1,627 6 2,253 Total 32 $ 3,138 22 $ 4,375 54 $ 7,513 There were no loans restructured as TDRs during the three month periods ended March 31, 2021 or 2020. Additionally, there were no loans considered TDRs for which a payment default occurred during the three months ended March 31, 2021 or 2020. 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 OREO was received in full or partial satisfaction of the loans during the three month periods ended March 31, 2021 or 2020. At March 31, 2021 and December 31, 2020, the Company had $5,838,000 and $7,182,000, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At March 31, 2021 and December 31, 2020, the Company had $1,995,000 and $3,172,000, 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. Loans are rated on a scale of 1 to 8. 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 8 risk ratings is as follows: • Risk Rate 1 – 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. • Risk Rate 2 – 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”). • Risk Rate 3 – 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. • Risk Rate 4 – 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. • Risk Rate 5 – 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. • Risk Rate 6 – 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. • Risk Rate 7 – 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. • Risk Rate 8 – 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 over 90 days 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 following tables present a summary of loans by credit quality indicator, other than pass or current, as of March 31, 2021 and December 31, 2020 segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 (YTD) 2020 2019 2018 2017 2016 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total March 31, 2021 Consumer - credit cards Delinquency: 30-89 days past due $ — $ — $ — $ — $ — $ — $ 786 $ — $ 786 90+ days past due — — — — — — 453 — 453 Total consumer - credit cards — — — — — — 1,239 — 1,239 Consumer - other Delinquency: 30-89 days past due — 258 142 78 237 421 85 — 1,221 90+ days past due — 19 76 36 57 137 4 — 329 Total consumer - other — 277 218 114 294 558 89 — 1,550 Real estate - C&D Risk rating: 5 internal grade — 2,664 1,699 — — 16 13,042 — 17,421 6 internal grade 93 2,449 580 387 244 460 8,386 1,955 14,554 7 internal grade — — — — — — — — — Total real estate - C&D 93 5,113 2,279 387 244 476 21,428 1,955 31,975 Real estate - SF residential Delinquency: 30-89 days past due 717 1,906 1,730 3,660 2,229 6,766 828 — 17,836 90+ days past due — 1,166 628 2,069 2,006 4,311 626 — 10,806 Total real estate - SF residential 717 3,072 2,358 5,729 4,235 11,077 1,454 — 28,642 Real estate - other commercial Risk rating: 5 internal grade 66,468 121,611 1,463 965 13,348 32,957 89,957 7,293 334,062 6 internal grade 5,944 93,796 3,256 3,686 5,059 9,707 59,872 32,859 214,179 7 internal grade — — — — 1 — — 1 2 Total real estate - other commercial 72,412 215,407 4,719 4,651 18,408 42,664 149,829 40,153 548,243 Commercial Risk rating: 5 internal grade 124 3,274 202 67 8 29 5,883 18,954 28,541 6 internal grade 2,027 25,259 2,763 1,430 539 535 59,475 6,924 98,952 7 internal grade — 3 — 5 2 — — 1 11 Total commercial 2,151 28,536 2,965 1,502 549 564 65,358 25,879 127,504 Commercial - agriculture Risk rating: 5 internal grade 35 — 6 12 17 — 63 — 133 6 internal grade 58 57 79 279 68 17 105 73 736 7 internal grade — — — — — — — — — Total commercial - agriculture 93 57 85 291 85 17 168 73 869 Other Delinquency: 30-89 days past due — — — — — 23 — — 23 90+ days past due — — — — — — — — — Total other — — — — — 23 — — 23 Total $ 75,466 $ 252,462 $ 12,624 $ 12,674 $ 23,815 $ 55,379 $ 239,565 $ 68,060 $ 740,045 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 2019 2018 2017 2016 2015 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total December 31, 2020 Consumer - credit cards Delinquency: 30-89 days past due $ — $ — $ — $ — $ — $ — $ 708 $ — $ 708 90+ days past due — — — — — — 256 — 256 Total consumer - credit cards — — — — — — 964 — 964 Consumer - other Delinquency: 30-89 days past due 234 441 327 658 689 84 339 — 2,772 90+ days past due 79 58 25 80 40 12 8 — 302 Total consumer - other 313 499 352 738 729 96 347 — 3,074 Real estate - C&D Risk rating: 5 internal grade 2,728 344 259 2,107 19 — 9,613 — 15,070 6 internal grade 294 2,069 404 449 342 320 17,914 14 21,806 7 internal grade — — — — — — — — — Total real estate - C&D 3,022 2,413 663 2,556 361 320 27,527 14 36,876 Real estate - SF residential Delinquency: 30-89 days past due 6,300 2,258 2,593 2,610 2,058 6,050 1,782 76 23,727 90+ days past due 557 1,853 2,735 2,582 832 3,852 1,928 — 14,339 Total real estate - SF residential 6,857 4,111 5,328 5,192 2,890 9,902 3,710 76 38,066 Real estate - other commercial Risk rating: 5 internal grade 100,085 4,346 10,738 19,943 26,245 10,608 63,305 23,435 258,705 6 internal grade 66,737 9,418 24,380 14,067 3,744 11,158 52,182 39,486 221,172 7 internal grade — — — — — — — — — Total real estate - other commercial 166,822 13,764 35,118 34,010 29,989 21,766 115,487 62,921 479,877 Commercial Risk rating: 5 internal grade 5,707 342 465 972 54 — 12,318 22,546 42,404 6 internal grade 23,227 4,495 1,586 730 276 334 53,682 7,522 91,852 7 internal grade — — — — — — — — — Total commercial 28,934 4,837 2,051 1,702 330 334 66,000 30,068 134,256 Commercial - agriculture Risk rating: 5 internal grade — 79 13 299 — 6 34 — 431 6 internal grade 86 101 64 47 12 10 68 75 463 7 internal grade — — — — — — — — — Total commercial - agriculture 86 180 77 346 12 16 102 75 894 Total $ 206,034 $ 25,804 $ 43,589 $ 44,544 $ 34,311 $ 32,434 $ 214,137 $ 93,154 $ 694,007 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 $68.8 million as of March 31, 2021, as further detailed in the table below. The collateral securing these loans consist of commercial real estate properties, residential properties, other business assets, and secured energy production assets. (In thousands) Real Estate Collateral Energy Other Collateral Total Construction and development $ 1,837 $ — $ — $ 1,837 Single family residential 5,086 — — 5,086 Other commercial real estate 18,414 — — 18,414 Commercial — 39,827 3,624 43,451 Total $ 25,337 $ 39,827 $ 3,624 $ 68,788 The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021. 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 Credit Other Total Allowance for credit losses: Three Months Ended March 31, 2021 Beginning balance, January 1, 2021 $ 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 (830) (1,687) (1,003) (731) (4,251) Recoveries 310 403 290 314 1,317 Net charge-offs (520) (1,284) (713) (417) (2,934) Ending balance, March 31, 2021 $ 34,633 $ 195,826 $ 2,172 $ 2,485 $ 235,116 Activity in the allowance for credit losses for the three months ended March 31, 2020 was as follows: (In thousands) Commercial Real Credit Other Total Allowance for credit losses: Three Months Ended March 31, 2020 Beginning balance, January 1, 2020 - prior to adoption of CECL $ 22,863 $ 39,161 $ 4,051 $ 2,169 $ 68,244 Impact of CECL adoption 22,733 114,314 2,232 12,098 151,377 Provision for credit loss expense 30,907 (12,158) 2,750 4,698 26,197 Charge-offs (523) (396) (1,441) (1,379) (3,739) Recoveries 347 101 225 443 1,116 Net charge-offs (176) (295) (1,216) (936) (2,623) Ending balance, March 31, 2020 $ 76,327 $ 141,022 $ 7,817 $ 18,029 $ 243,195 As of March 31, 2021, the Company’s allowance for credit losses was considered sufficient based upon expected loan level cash flows that were supported by economic forecasts. As a result, additional provision expense was not recorded for the three months ended March 31, 2021, however the Company reallocated certain amounts of the allowance for credit losses among loan categories for the same period. A change in forecast methodology, as well as the composition of the loans, resulted in a negative provision in the real estate C&D loan segment during the first quarter of 2020. Under the economic conditions during that time, the Company’s forecast of expected losses in the C&D segment no longer produced a forecast that was considered reasonable and supportable. As such, management adjusted the forecast methodology of this segment to better align with management’s expectation of loss under the modeled economic conditions. The other categories saw increases in the provision related to increased concern over the economic stresses related to COVID-19, as well as increased specific provisions of $22.0 million for two energy credits, that were previously identified a |
