| Loans and Allowance for Credit Losses | 4. Loans and Allowance for Credit Losses Loan Origination/Risk Management The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio. Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. Authority levels are established for the extension of credit to ensure consistency throughout the Company. It is necessary that policies, processes, and practices implemented to control the risks of individual credit transactions and portfolio segments are sound and adhered to. The Company maintains an independent loan review department that reviews and validates the risk assessment on a continual basis. Management regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers. Specialty lending loans include Asset-based loans, which are offered primarily in the form of revolving lines of credit to commercial borrowers that do not generally qualify for traditional bank financing. Asset-based loans are underwritten based primarily upon the value of the collateral pledged to secure the loan, rather than on the borrower’s general financial condition. The Company utilizes pre-loan due diligence techniques, monitoring disciplines, and loan management practices common within the asset-based lending industry to underwrite loans to these borrowers. Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires that an appraisal of the collateral be made at origination and on an as-needed basis, in conformity with current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner-occupied real estate. Also included in Commercial real estate are Construction loans that are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes, governmental regulation of real property, economic conditions, completion of the construction project, and the availability of long-term financing. Consumer real estate loans, including residential real estate and home equity loans, are underwritten based on the borrower’s loan-to-value percentage, collection remedies, and overall credit history. Consumer loans are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer loans and leases. The underwriting and review practices combined with the relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing. Credit cards include both commercial and consumer credit cards. Commercial credit cards are generally unsecured and are underwritten with criteria similar to commercial loans, including an analysis of the borrower’s cash flow, available business capital, and overall creditworthiness of the borrower. Consumer credit cards are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer credit cards and periodically reviews the distribution of credit scores relative to historical periods to monitor credit risk on its consumer credit card loans. Credit risk is a potential loss resulting from nonpayment of either the primary or secondary exposure. Credit risk is mitigated with formal risk management practices and a thorough initial credit-granting process including consistent underwriting standards and approval process. Control factors or techniques to minimize credit risk include knowing the client, understanding total exposure, analyzing the client and debtor’s financial capacity, and monitoring the client’s activities. Credit risk and portions of the portfolio risk are managed through concentration considerations, average risk ratings, and other aggregate characteristics. Loan Aging Analysis This table provides a summary of loan classes and an aging of past due loans at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
30-89 Greater than Nonaccrual Total Current Total Loans
Loans
Commercial and industrial $ 11,748 $ 76 $ 8,784 $ 20,608 $ 9,769,077 $ 9,789,685
Specialty lending — — — — 522,419 522,419
Commercial real estate 4,298 — 2,324 6,622 8,772,016 8,778,638
Consumer real estate 286 — 5,706 5,992 2,918,523 2,924,515
Consumer 181 — 37 218 143,503 143,721
Credit cards 4,613 2,968 191 7,772 442,792 450,564
Leases and other — — — — 272,147 272,147
Total loans $ 21,126 $ 3,044 $ 17,042 $ 41,212 $ 22,840,477 $ 22,881,689
December 31, 2022
30-89 Greater than Nonaccrual Total Current Total Loans
Loans
Commercial and industrial $ 2,456 $ 2 $ 11,356 $ 13,814 $ 9,192,172 $ 9,205,986
Specialty lending — — — — 602,706 602,706
Commercial real estate 2,167 191 2,505 4,863 7,611,223 7,616,086
Consumer real estate 10 — 4,882 4,892 2,718,377 2,723,269
Consumer 613 20 61 694 144,972 145,666
Credit cards 3,529 1,404 441 5,374 426,298 431,672
Leases and other — — 24 24 305,780 305,804
Total loans $ 8,775 $ 1,617 $ 19,269 $ 29,661 $ 21,001,528 $ 21,031,189 The Company sold consumer real estate loans with proceeds of $ 49.7 million and $ 33.7 million in the secondary market without recourse during the nine months ended September 30, 2023 and 2022, respectively. The Company has ceased the recognition of interest on loans with a carrying value of $ 17.0 million and $ 19.3 million at September 30, 2023 and December 31, 2022, respectively. Restructured loans totaled $ 3.2 million and $ 5.2 million at September 30, 2023 and December 31, 2022, respectively. Loans 90 days past due and still accruing interest amounted to $ 3.0 million and $ 1.6 million at September 30, 2023 and December 31, 2022, respectively. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. There was an insignificant amount of interest reversed related to loans on nonaccrual during 2023 and 2022. Nonaccrual loans with no related allowance for credit losses totaled $ 14.6 million and $ 16.7 million at September 30, 2023 and December 31, 2022, respectively. The following tables provide the amortized cost of nonaccrual loans with no related allowance for credit losses by loan class at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Nonaccrual Amortized Cost of Nonaccrual Loans with no related Allowance
Loans
Commercial and industrial $ 8,784 $ 8,175
Specialty lending — —
Commercial real estate 2,324 467
Consumer real estate 5,706 5,706
Consumer 37 37
Credit cards 191 191
Leases and other — —
Total loans $ 17,042 $ 14,576
December 31, 2022
Nonaccrual Amortized Cost of Nonaccrual Loans with no related Allowance
Loans
Commercial and industrial $ 11,356 $ 9,447
Specialty lending — —
Commercial real estate 2,505 2,505
Consumer real estate 4,882 4,226
Consumer 61 61
Credit cards 441 441
Leases and other 24 24
Total loans $ 19,269 $ 16,704 Amortized Cost The following tables provide a summary of the amortized cost balance of each of the Company’s loan classes disaggregated by collateral type and origination year as of September 30, 2023 and December 31, 2022, as well as the gross charge-offs by loan class and origination year for the nine months ended September 30, 2023 (in thousands):
September 30, 2023
Amortized Cost Basis by Origination Year - Term Loans
Loan Segment 2023 2022 2021 2020 2019 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Commercial and industrial:
Equipment/Accounts Receivable/Inventory $ 1,250,651 $ 1,882,547 $ 1,222,414 $ 455,865 $ 225,610 $ 102,859 $ 4,457,511 $ 8,011 $ 9,605,468
Agriculture 11,901 5,983 4,234 1,189 1,630 280 141,554 325 167,096
Overdrafts — — — — — — 17,121 — 17,121
Total Commercial and industrial 1,262,552 1,888,530 1,226,648 457,054 227,240 103,139 4,616,186 8,336 9,789,685
Current period charge-offs 41 — 883 — — 456 3,347 — 4,727
Specialty lending:
Asset-based lending 14,344 17,221 36,530 35,164 — — 419,160 — 522,419
Total Specialty lending 14,344 17,221 36,530 35,164 — — 419,160 — 522,419
Current period charge-offs — — — — — — 762 — 762
Commercial real estate:
Owner-occupied 243,215 658,830 513,044 344,082 162,097 225,211 5,211 — 2,151,690
Non-owner-occupied 497,181 988,386 804,805 518,112 303,913 218,155 33,455 — 3,364,007
Farmland 56,787 76,085 44,625 199,827 22,252 20,649 94,270 — 514,495
5+ Multi-family 831 27,690 208,264 32,209 18,363 5,697 8,214 — 301,268
1-4 Family construction 63,788 40,097 — — — — 5,275 — 109,160
General construction 347,154 1,205,620 694,726 4,262 663 135 85,458 — 2,338,018
Total Commercial real estate 1,208,956 2,996,708 2,265,464 1,098,492 507,288 469,847 231,883 — 8,778,638
Current period charge-offs — — — — — 21 — — 21
Consumer real estate:
HELOC — 651 — 517 52 5,145 342,092 1,121 349,578
First lien: 1-4 family 353,966 591,744 697,900 563,668 161,053 170,537 2 — 2,538,870
Junior lien: 1-4 family 7,419 12,516 7,569 4,318 2,225 1,857 163 — 36,067
Total Consumer real estate 361,385 604,911 705,469 568,503 163,330 177,539 342,257 1,121 2,924,515
Current period charge-offs — 22 — — 11 1,120 — — 1,153
Consumer:
Revolving line — — — — — — 53,858 30 53,888
Auto 9,408 6,643 4,556 2,657 1,422 200 — — 24,886
Other 4,881 23,088 26,433 622 454 1,256 8,213 — 64,947
Total Consumer 14,289 29,731 30,989 3,279 1,876 1,456 62,071 30 143,721
Current period charge-offs 67 11 20 2 6 15 813 — 934
Credit cards:
Consumer — — — — — — 198,508 — 198,508
Commercial — — — — — — 252,056 — 252,056
Total Credit cards — — — — — — 450,564 — 450,564
Current period charge-offs — — — — — — 6,181 — 6,181
Leases and other:
Leases — — — — 610 1,123 — — 1,733
Other 30,836 94,246 17,419 17,395 29,916 14,000 66,580 22 270,414
Total Leases and other 30,836 94,246 17,419 17,395 30,526 15,123 66,580 22 272,147
Current period charge-offs — — — — — — — — —
Total loans $ 2,892,362 $ 5,631,347 $ 4,282,519 $ 2,179,887 $ 930,260 $ 767,104 $ 6,188,701 $ 9,509 $ 22,881,689
December 31, 2022
Amortized Cost Basis by Origination Year - Term Loans
Loan Segment 2022 2021 2020 2019 2018 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Commercial and industrial:
Equipment/Accounts Receivable/Inventory $ 2,140,609 $ 1,562,527 $ 642,649 $ 267,444 $ 96,916 $ 86,787 $ 4,223,358 $ 3,926 $ 9,024,216
Agriculture 13,630 5,415 2,046 1,985 396 541 149,266 562 173,841
Overdrafts — — — — — — 7,929 — 7,929
Total Commercial and industrial 2,154,239 1,567,942 644,695 269,429 97,312 87,328 4,380,553 4,488 9,205,986
Specialty lending:
Asset-based lending 18,084 55,469 36,040 — — — 493,113 — 602,706
Total Specialty lending 18,084 55,469 36,040 — — — 493,113 — 602,706
Commercial real estate:
Owner-occupied 656,860 593,861 388,519 180,786 136,499 167,628 8,685 — 2,132,838
Non-owner-occupied 1,128,978 855,508 568,489 368,203 64,915 229,826 28,679 — 3,244,598
Farmland 94,989 47,092 220,796 24,057 15,963 24,162 121,054 — 548,113
5+ Multi-family 30,920 35,869 68,996 18,978 1,334 5,776 4,908 — 166,781
1-4 Family construction 61,943 15,217 — — — — 19 — 77,179
General construction 628,820 719,437 43,166 15,492 — 395 39,267 — 1,446,577
Total Commercial real estate 2,602,510 2,266,984 1,289,966 607,516 218,711 427,787 202,612 — 7,616,086
Consumer real estate:
HELOC 237 — 618 224 654 5,389 339,066 981 347,169
First lien: 1-4 family 628,703 748,362 607,105 173,466 45,907 140,443 12 — 2,343,998
Junior lien: 1-4 family 13,490 8,445 5,107 2,529 940 1,504 87 — 32,102
Total Consumer real estate 642,430 756,807 612,830 176,219 47,501 147,336 339,165 981 2,723,269
Consumer:
Revolving line 467 584 — — — — 58,133 1,403 60,587
Auto 9,124 6,543 4,455 2,743 335 159 — — 23,359
Other 26,306 27,751 1,096 876 1,133 591 3,967 — 61,720
Total Consumer 35,897 34,878 5,551 3,619 1,468 750 62,100 1,403 145,666
Credit cards:
Consumer — — — — — — 200,348 — 200,348
Commercial — — — — — — 231,324 — 231,324
Total Credit cards — — — — — — 431,672 — 431,672
Leases and other:
Leases — — — 712 — 1,224 — — 1,936
Other 125,095 34,282 22,552 32,055 17,764 1,066 71,054 — 303,868
Total Leases and other 125,095 34,282 22,552 32,767 17,764 2,290 71,054 — 305,804
Total loans $ 5,578,255 $ 4,716,362 $ 2,611,634 $ 1,089,550 $ 382,756 $ 665,491 $ 5,980,269 $ 6,872 $ 21,031,189 Accrued interest on loans totaled $ 115.7 million and $ 90.6 million as of September 30, 2023 and December 31, 2022, respectively, and is included in the Accrued income line on the Company’s Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable. 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 the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions. The Company utilizes a risk grading matrix to assign a rating to each of its commercial, commercial real estate, and construction real estate loans. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified. The loan ratings are summarized into the following categories: Non-watch list, Watch, Special Mention, Substandard, and Doubtful. Any loan not classified in one of the categories described below is considered to be a Non-watch list loan. A description of the general characteristics of the loan rating categories is as follows: • Watch – This rating represents credit exposure that presents higher than average risk and warrants greater than routine attention by Company personnel due to conditions affecting the borrower, the borrower’s industry, or the economic environment. These conditions have resulted in some degree of uncertainty that results in higher-than-average credit risk. These loans are considered pass-rated credits. • Special Mention – This rating reflects a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the borrower’s credit position at some future date. The rating is not adversely classified and does not expose an institution to sufficient risk to warrant adverse classification. • Substandard – This rating represents an asset inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard. • Doubtful – This rating represents an asset that has all the weaknesses inherent in an asset classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage of strengthening the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, or perfecting liens. Commercial and industrial A discussion of the credit quality indicators that impact each type of collateral securing Commercial and industrial loans is included below: Equipment, accounts receivable, and inventory General commercial and industrial loans are secured by working capital assets and non-real estate assets. The general purpose of these loans is for financing capital expenditures and current operations for commercial and industrial entities. These assets are short-term in nature. In the case of accounts receivable and inventories, the repayment of debt is reliant upon converting assets into cash or through goods and services being sold and collected. Collateral-based risk is due to aged short-term assets, which can be indicative of underlying issues with the borrower and lead to the value of the collateral being overstated. Agriculture Agricultural loans are secured by non-real estate agricultural assets. These include shorter-term assets such as equipment, crops, and livestock. The risks associated with loans to finance crops or livestock include the borrower’s ability to successfully raise and market the commodity. Adverse weather conditions and other natural perils can dramatically affect farmers’ or ranchers’ production and ability to service debt. Volatile commodity prices present another significant risk for agriculture borrowers. Market price volatility and production cost volatility can affect both revenues and expenses. Overdrafts Commercial overdrafts are typically short-term and unsecured. Some commercial borrowers tie their overdraft obligation to their line of credit, so any draw on the line of credit will satisfy the overdraft. Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position. The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral 2023 2022 2021 2020 2019 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Equipment/Accounts Receivable/Inventory
Non-watch list – Pass $ 1,218,812 $ 1,794,147 $ 1,162,035 $ 449,097 $ 204,893 $ 97,679 $ 4,110,311 $ 3,121 $ 9,040,095
Watch – Pass 12,512 75,936 49,138 5,554 11,585 1,618 227,734 — 384,077
Special Mention 3,487 5,543 5,311 249 — 1,252 34,874 — 50,716
Substandard 12,983 6,921 5,930 965 9,132 2,310 84,592 4,890 127,723
Doubtful 2,857 — — — — — — — 2,857
Total Equipment/Accounts Receivable/Inventory $ 1,250,651 $ 1,882,547 $ 1,222,414 $ 455,865 $ 225,610 $ 102,859 $ 4,457,511 $ 8,011 $ 9,605,468
Agriculture
Non-watch list – Pass $ 11,009 $ 5,226 $ 4,090 $ 1,048 $ 1,630 $ 280 $ 136,879 $ — $ 160,162
Watch – Pass — — — — — — 3,400 — 3,400
Special Mention — 66 144 — — — 795 325 1,330
Substandard 892 691 — 141 — — 480 — 2,204
Doubtful — — — — — — — — —
Total Agriculture $ 11,901 $ 5,983 $ 4,234 $ 1,189 $ 1,630 $ 280 $ 141,554 $ 325 $ 167,096
December 31, 2022
Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral 2022 2021 2020 2019 2018 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Equipment/Accounts Receivable/Inventory
Non-watch list – Pass $ 2,079,002 $ 1,466,120 $ 588,562 $ 246,387 $ 90,656 $ 83,054 $ 3,879,709 $ 3,633 $ 8,437,123
Watch – Pass 28,570 78,523 52,696 7,493 3,617 2,275 213,871 — 387,045
Special Mention 4,072 5,637 1,178 — 1,817 899 34,631 — 48,234
Substandard 26,698 12,247 213 13,564 826 559 92,352 293 146,752
Doubtful 2,267 — — — — — 2,795 — 5,062
Total Equipment/Accounts Receivable/Inventory $ 2,140,609 $ 1,562,527 $ 642,649 $ 267,444 $ 96,916 $ 86,787 $ 4,223,358 $ 3,926 $ 9,024,216
Agriculture
Non-watch list – Pass $ 12,252 $ 5,351 $ 1,693 $ 1,985 $ 396 $ 541 $ 137,759 $ — $ 159,977
Watch – Pass 550 — 206 — — — 8,512 562 9,830
Special Mention 828 64 147 — — — 1,539 — 2,578
Substandard — — — — — — 1,456 — 1,456
Doubtful — — — — — — — — —
Total Agriculture $ 13,630 $ 5,415 $ 2,046 $ 1,985 $ 396 $ 541 $ 149,266 $ 562 $ 173,841 Specialty lending A discussion of the credit quality indicators that impact each type of collateral securing Specialty loans is included below: Asset-based lending General asset-based loans are secured by accounts receivable, inventory, equipment, and real estate. The purpose of these loans is for financing current operations for commercial customers. The repayment of debt is reliant upon collection of the accounts receivable within 30 to 90 days or converting assets into cash or through goods and services being sold and collected. The Company tracks each individual borrower credit risk based on their loan to collateral position. Any borrower position where the underlying value of collateral is below the fair value of the loan is considered out-of-margin and inherently higher risk. The following table provides a summary of the amortized cost balance by risk rating for asset-based loans as of September 30, 2023 and December 31, 2022 (in thousands):
Asset-based lending
Risk September 30, 2023 December 31, 2022
In-margin $ 522,419 $ 602,706
Out-of-margin — —
Total $ 522,419 $ 602,706 Commercial real estate A discussion of the credit quality indicators that impact each type of collateral securing Commercial real estate loans is included below: Owner-occupied Owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The loans rely on the owner-occupied operations to service debt which cover a broad spectrum of industries. Real estate debt can carry a significant amount of leverage for a borrower to maintain. Non-owner-occupied Non-owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The key element of risk in this type of lending is the cyclical nature of real estate markets. Although national conditions affect the overall real estate industry, the effect of national conditions on local markets is equally important. Factors such as unemployment rates, consumer demand, household formation, and the level of economic activity can vary widely from state to state and among metropolitan areas. In addition to geographic considerations, markets can be defined by property type. While all sectors are influenced by economic conditions, some sectors are more sensitive to certain economic factors than others. Farmland Farmland loans are secured by real estate used for agricultural purposes such as crop and livestock production. Assets used as collateral are long-term assets that carry the ability to have longer amortizations and maturities. Longer terms carry the risk of added susceptibility to market conditions. The limited purpose of some Agriculture-related collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge. 5+ Multi-family 5+ multi-family loans are secured by a multi-family residential property. The primary risks associated with this type of collateral are largely driven by economic conditions. The national and local market conditions can change with unemployment rates or competing supply of multi-family housing. Tenants may not be able to afford their housing or have better options and this can result in increased vacancy. Rents may need to be lowered to fill apartment units. Increased vacancy and lower rental rates not only drive the borrower’s ability to repay debt but also contribute to how the collateral is valued. 1-4 Family construction 1-4 family construction loans are secured by 1-4 family residential real estate and are in the process of construction or improvements being made. The predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Market conditions also play an important role in understanding the risk profile. Risk from adverse changes in market conditions from the start of development to completion can result in deflated collateral values. General construction General construction loans are secured by commercial real estate in process of construction or improvements being made and their repayment is dependent on the collateral’s completion. Construction lending presents unique risks not encountered in term financing of existing real estate. The predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Commercial properties under construction are susceptible to market and economic conditions. Demand from prospective customers may erode after construction begins because of a general economic slowdown or an increase in the supply of competing properties. Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position. The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023
Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral 2023 2022 2021 2020 2019 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Owner-occupied
Non-watch list – Pass $ 241,234 $ 634,235 $ 477,304 $ 328,982 $ 141,367 $ 212,147 $ 4,610 $ — $ 2,039,879
Watch – Pass 1,740 7,279 21,942 8,104 10,337 2,411 — — 51,813
Special Mention — 14,914 13,025 6,981 4,083 6,731 601 — 46,335
Substandard 241 2,402 773 15 6,310 3,922 — — 13,663
Doubtful — — — — — — — — —
Total Owner-occupied $ 243,215 $ 658,830 $ 513,044 $ 344,082 $ 162,097 $ 225,211 $ 5,211 $ — $ 2,151,690
Non-owner-occupied
Non-watch list – Pass $ 447,122 $ 796,544 $ 728,283 $ 518,112 $ 216,245 $ 208,309 $ 33,455 $ — $ 2,948,070
Watch – Pass 50,059 167,308 51,971 — 87,668 — — — 357,006
Special Mention — 24,534 24,551 — — — — — 49,085
Substandard — — — — — 9,846 — — 9,846
Doubtful — — — — — — — — —
Total Non-owner-occupied $ 497,181 $ 988,386 $ 804,805 $ 518,112 $ 303,913 $ 218,155 $ 33,455 $ — $ 3,364,007
Farmland
Non-watch list – Pass $ 43,340 $ 62,189 $ 35,087 $ 198,770 $ 16,029 $ 19,677 $ 86,946 $ — $ 462,038
Watch – Pass — 1,413 4,089 — — 436 50 — 5,988
Special Mention — 432 1,643 — — 536 — — 2,611
Substandard 13,447 12,051 3,806 1,057 6,223 — 7,274 — 43,858
Doubtful — — — — — — — — —
Total Farmland $ 56,787 $ 76,085 $ 44,625 $ 199,827 $ 22,252 $ 20,649 $ 94,270 $ — $ 514,495
5+ Multi-family
Non-watch list – Pass $ 831 $ 27,690 $ 208,264 $ 32,209 $ 18,363 $ 5,697 $ 8,214 $ — $ 301,268
Watch – Pass — — — — — — — — —
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful — — — — — — — — —
Total 5+ Multi-family $ 831 $ 27,690 $ 208,264 $ 32,209 $ 18,363 $ 5,697 $ 8,214 $ — $ 301,268
1-4 Family construction
Non-watch list – Pass $ 63,788 $ 40,097 $ — $ — $ — $ — $ 5,275 $ — $ 109,160
Watch – Pass — — — — — — — — —
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful — — — — — — — — —
Total 1-4 Family construction $ 63,788 $ 40,097 $ — $ — $ — $ — $ 5,275 $ — $ 109,160
General construction
Non-watch list – Pass $ 344,494 $ 1,205,620 $ 686,692 $ 4,262 $ 648 $ 121 $ 85,458 $ — $ 2,327,295
Watch – Pass 1,148 — — — 15 — — — 1,163
Special Mention 1,431 — — — — — — — 1,431
Substandard — — 8,034 — — 14 — — 8,048
Doubtful 81 — — — — — — — 81
Total General construction $ 347,154 $ 1,205,620 $ 694,726 $ 4,262 $ 663 $ 135 $ 85,458 $ — $ 2,338,018
December 31, 2022
Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral 2022 2021 2020 2019 2018 Prior Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Total
Owner-occupied
Non-watch list – Pass $ 628,858 $ 559,067 $ 364,760 $ 149,183 $ 133,339 $ 162,412 $ 7,850 $ — $ 2,005,469
Watch – Pass 19,405 32,581 17,061 9,785 2,664 2,121 — — 83,617
Special Mention 5,435 2,213 5,120 18,946 — — 835 — 32,549
Substandard 3,162 — 1,578 2,872 496 3,095 — — 11,203
Doubtful — — — — — — — — —
Total Owner-occupied $ 656,860 $ 593,861 $ 388,519 $ 180,786 $ 136,499 $ 167,628 $ 8,685 $ — $ 2,132,838
Non-owner-occupied
Non-watch list – Pass $ 1,075,444 $ 810,926 $ 568,489 $ 356,896 $ 64,915 $ 214,635 $ 28,679 $ — $ 3,119,984
Watch – Pass 53,534 44,582 — 11,307 — 5,071 — — 114,494
Special Mention — — — — — 10,109 — — 10,109
Substandard — — — — — — — — —
Doubtful — — — — — 11 — — 11
Total Non-owner-occupied $ 1,128,978 $ 855,508 $ 568,489 $ 368,203 $ 64,915 $ 229,826 $ 28,679 $ — $ 3,244,598
Farmland
Non-watch list – Pass $ 62,357 $ 36,698 $ 218,704 $ 17,563 $ 2,830 $ 20,285 $ 113,385 $ — $ 471,822
Watch – Pass 20,327 6,454 1,055 101 — 2,559 395 — 30,891
Special Mention 5,505 — 1,001 — — — — — 6,506
Substandard 6,800 3,940 36 6,393 13,133 1,318 7,274 — 38,894
Doubtful — — — — — — — — —
Total Farmland $ 94,989 $ 47,092 $ 220,796 $ 24,057 $ 15,963 $ 24,162 $ 121,054 $ — $ 548,113
5+ Multi-family
Non-watch list – Pass $ 30,920 $ 35,869 $ 68,996 $ 18,978 $ 1,334 $ 5,776 $ 4,908 $ — $ 166,781
Watch – Pass — — — — — — — — —
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful — — — — — — — — —
Total 5+ Multi-family $ 30,920 $ 35,869 $ 68,996 $ 18,978 $ 1,334 $ 5,776 $ 4,908 $ — $ 166,781
1-4 Family construction
Non-watch list – Pass $ 61,943 $ 15,217 $ — $ — $ — $ — $ 19 $ — $ 77,179
Watch – Pass — — — — — — — — —
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful — — — — — — — — —
Total 1-4 Family construction $ 61,943 $ 15,217 $ — $ — $ — $ — $ 19 $ — $ 77,179
General construction
Non-watch list – Pass $ 628,479 $ 699,698 $ 43,166 $ 15,384 $ — $ 380 $ 39,267 $ — $ 1,426,374
Watch – Pass 341 — — 22 — — — — 363
Special Mention — 8,340 — — — — — — 8,340
Substandard — 11,399 — — — 15 — — 11,414
Doubtful — — — 86 — — — — 86
Total General construction $ 628,820 $ 719,437 $ 43,166 $ 15,492 $ — $ 395 $ 39,267 $ — $ 1,446,577 Consumer real estate A discussion of the credit quality indicators that impact each type of collateral securing Consumer real estate loans is included below: HELOC HELOC loans are revolving lines of credit secured by 1-4 family residential property. The primary risk is the borrower’s inability to repay debt. Revolving notes are often associated with HELOCs that can be secured by real estate without a 1st lien priority. Collateral is susceptible to market volatility impacting home values or economic downturns. First lien: 1-4 family First lien 1-4 family loans are secured by a first lien on 1-4 family residen |
