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 and Factoring loans. Asset-based loans 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. Factoring loans provide working capital through the purchase and/or financing of accounts receivable to borrowers in the transportation industry and to commercial borrowers that do not generally qualify for traditional bank financing. 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, 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 FICO 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 March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 30-89 Days Past Due and Accruing Greater than 90 Days Past Due and Accruing Nonaccrual Loans Total Past Due Current Total Loans Loans Commercial and industrial $ 3,156 $ 66 $ 30,181 $ 33,403 $ 7,136,002 $ 7,169,405 Specialty lending — — 19,083 19,083 501,693 520,776 Commercial real estate 12,335 183 21,297 33,815 6,116,539 6,150,354 Consumer real estate 1,610 111 5,372 7,093 1,992,647 1,999,740 Consumer 196 173 73 442 120,055 120,497 Credit cards 1,563 1,240 700 3,503 353,003 356,506 Leases and other — — — — 180,107 180,107 Total loans $ 18,860 $ 1,773 $ 76,706 $ 97,339 $ 16,400,046 $ 16,497,385 December 31, 2020 30-89 Days Past Due and Accruing Greater than 90 Days Past Due and Accruing Nonaccrual Loans Total Past Due Current Total Loans Loans Commercial and industrial $ 4,652 $ 319 $ 33,769 $ 38,740 $ 7,023,334 $ 7,062,074 Specialty lending — — 19,437 19,437 491,863 511,300 Commercial real estate 2,351 225 28,386 30,962 5,877,972 5,908,934 Consumer real estate 524 — 5,345 5,869 1,939,625 1,945,494 Consumer 281 120 88 489 117,497 117,986 Credit cards 2,061 1,288 798 4,147 362,821 366,968 Leases and other — — — — 190,895 190,895 Total loans $ 9,869 $ 1,952 $ 87,823 $ 99,644 $ 16,004,007 $ 16,103,651 The Company sold consumer real estate loans with proceeds of $43.2 million and $75.7 million in the secondary market without recourse during the three months ended March 31, 2021 and 2020, respectively. The Company has ceased the recognition of interest on loans with a carrying value of $76.7 million and $87.8 million at March 31, 2021 and December 31, 2020, respectively. Restructured loans totaled $7.9 million and $10.8 million at March 31, 2021 and December 31, 2020, respectively. Loans 90 days past due and still accruing interest amounted to $1.8 million and $2.0 million at March 31, 2021 and December 31, 2020, 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 2021. Nonaccrual loans with no related allowance for credit losses totaled $34.1 million and $42.1 million at March 31, 2021 and December 31, 2020, respectively. The following tables provide the amortized cost of nonaccrual loans with no related allowance for credit losses by loan class at March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 Nonaccrual Loans Amortized Cost of Nonaccrual Loans with no related Allowance Loans Commercial and industrial $ 30,181 $ 11,060 Specialty lending 19,083 1,674 Commercial real estate 21,297 15,221 Consumer real estate 5,372 5,372 Consumer 73 73 Credit cards 700 700 Total loans $ 76,706 $ 34,100 December 31, 2020 Nonaccrual Loans Amortized Cost of Nonaccrual Loans with no related Allowance Loans Commercial and industrial $ 33,769 $ 9,916 Specialty lending 19,437 242 Commercial real estate 28,386 25,733 Consumer real estate 5,345 5,345 Consumer 88 88 Credit cards 798 798 Total loans $ 87,823 $ 42,122 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 March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Loan Segment and Type Amortized Cost Basis by Origination Year - Term Loans 2021 2020 2019 2018 2017 Prior Total Commercial and industrial: Equipment/Accounts Receivable/Inventory $ 1,054,638 $ 2,369,843 $ 637,469 $ 453,289 $ 173,635 $ 202,850 $ 2,115,942 $ 5,626 $ 7,013,292 Agriculture 2,962 8,070 4,753 1,571 2,422 1,881 122,856 — 144,515 Overdrafts — — — — — — 11,598 — 11,598 Total Commercial and industrial 1,057,600 2,377,913 642,222 454,860 176,057 204,731 2,250,396 5,626 7,169,405 Specialty lending: Asset-based lending 2,387 61,950 — — — — 303,994 — 368,331 Factoring — — — — — — 152,445 — 152,445 Total Specialty lending 2,387 61,950 — — — — 456,439 — 520,776 Commercial real estate: Owner-occupied 120,177 583,506 315,070 252,097 156,162 263,986 18,297 3,639 1,712,934 Non-owner-occupied 465,337 705,983 660,048 209,190 126,261 386,854 21,639 116,001 2,691,313 Farmland 30,449 284,001 35,557 29,720 29,150 48,835 36,470 — 494,182 5+ Multi-family 4,871 228,665 106,403 2,669 3,816 39,504 1,820 — 387,748 1-4 Family construction — — — — — — 39,046 — 39,046 General construction 9,157 20,063 3,004 1,144 398 365 791,000 — 825,131 Total Commercial real estate 629,991 1,822,218 1,120,082 494,820 315,787 739,544 908,272 119,640 6,150,354 Consumer real estate: HELOC 11,893 81,980 9,813 3,745 34 2,527 252,275 192 362,459 First lien: 1-4 family 171,257 873,810 282,568 75,864 79,744 133,202 356 — 1,616,801 Junior lien: 1-4 family 1,274 8,051 5,813 2,024 1,006 2,036 276 — 20,480 Total Consumer real estate 184,424 963,841 298,194 81,633 80,784 137,765 252,907 192 1,999,740 Consumer: Revolving line — — — — — — 66,690 — 66,690 Auto 3,155 11,496 8,742 2,431 1,296 663 — — 27,783 Other 1,826 4,309 2,686 1,883 187 1,044 14,089 — 26,024 Total Consumer 4,981 15,805 11,428 4,314 1,483 1,707 80,779 — 120,497 Credit cards: Consumer — — — — — — 172,816 — 172,816 Commercial — — — — — — 183,690 — 183,690 Total Credit cards — — — — — — 356,506 — 356,506 Leases and other: Leases — — 915 — 787 679 — — 2,381 Other 628 31,742 9,410 6,553 2,128 1,467 125,798 — 177,726 Total Leases and other 628 31,742 10,325 6,553 2,915 2,146 125,798 — 180,107 Total loans $ 1,880,011 $ 5,273,469 $ 2,082,251 $ 1,042,180 $ 577,026 $ 1,085,893 $ 4,431,097 $ 125,458 $ 16,497,385 December 31, 2020 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Loan Segment and Type Amortized Cost Basis by Origination Year - Term Loans 2020 2019 2018 2017 2016 Prior Total Commercial and industrial: Equipment/Accounts Receivable/Inventory $ 3,185,589 $ 684,488 $ 471,950 $ 185,167 $ 178,576 $ 69,599 $ 2,108,799 $ — $ 6,884,168 Agriculture 8,886 6,495 1,976 3,651 2,164 416 137,955 38 161,581 Overdrafts — — — — — — 16,325 — 16,325 Total Commercial and industrial 3,194,475 690,983 473,926 188,818 180,740 70,015 2,263,079 38 7,062,074 Specialty lending: Asset-based lending 64,258 — — — — — 291,091 — 355,349 Factoring — — — — — — 155,951 — 155,951 Total Specialty lending 64,258 — — — — — 447,042 — 511,300 Commercial real estate: Owner-occupied 579,212 334,098 233,192 170,913 120,603 176,377 18,880 51,910 1,685,185 Non-owner-occupied 846,030 630,457 230,549 169,193 333,215 115,753 49,384 97,954 2,472,535 Farmland 297,788 37,288 31,454 37,485 28,925 29,480 40,043 — 502,463 5+ Multi-family 190,922 80,293 2,835 32,498 39,802 6,298 2,418 94,789 449,855 1-4 Family construction 144 — — — — — 30,131 — 30,275 General construction 20,452 3,082 1,215 514 358 2,738 733,952 6,310 768,621 Total Commercial real estate 1,934,548 1,085,218 499,245 410,603 522,903 330,646 874,808 250,963 5,908,934 Consumer real estate: HELOC 82,410 11,236 4,263 241 63 2,561 294,390 5 395,169 First lien: 1-4 family 896,676 304,017 83,429 87,927 78,458 75,408 2,579 — 1,528,494 Junior lien: 1-4 family 9,142 6,383 2,360 1,247 948 1,470 281 — 21,831 Total Consumer real estate 988,228 321,636 90,052 89,415 79,469 79,439 297,250 5 1,945,494 Consumer: Revolving line — — — — — — 65,215 — 65,215 Auto 12,470 9,846 2,960 1,645 680 348 — — 27,949 Other 5,017 3,200 2,131 216 1,005 172 13,081 — 24,822 Total Consumer 17,487 13,046 5,091 1,861 1,685 520 78,296 — 117,986 Credit cards: Consumer — — — — — — 188,681 — 188,681 Commercial — — — — — — 178,287 — 178,287 Total Credit cards — — — — — — 366,968 — 366,968 Leases and other: Leases — 915 — 787 — 711 — — 2,413 Other 33,626 10,758 7,659 2,611 1,323 646 131,859 — 188,482 Total Leases and other 33,626 11,673 7,659 3,398 1,323 1,357 131,859 — 190,895 Total loans $ 6,232,622 $ 2,122,556 $ 1,075,973 $ 694,095 $ 786,120 $ 481,977 $ 4,459,302 $ 251,006 $ 16,103,651 Accrued interest on loans totaled $60.8 million and $58.8 million as of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2021 2020 2019 2018 2017 Prior Total Equipment/Accounts Receivable/Inventory Non-watch list – Pass $ 929,053 $ 2,249,057 $ 622,060 $ 429,748 $ 154,191 $ 188,618 $ 1,983,266 $ 5,626 $ 6,561,619 Watch – Pass 52,371 86,080 15,178 14,817 11,005 11,865 67,607 — 258,923 Special Mention 35,006 3,851 — 1,384 1,893 1,456 5,949 — 49,539 Substandard 38,208 30,769 231 3,866 1,346 911 59,120 — 134,451 Doubtful — 86 — 3,474 5,200 — — — 8,760 Total Equipment/Accounts Receivable/Inventory $ 1,054,638 $ 2,369,843 $ 637,469 $ 453,289 $ 173,635 $ 202,850 $ 2,115,942 $ 5,626 $ 7,013,292 Agriculture Non-watch list – Pass $ 2,907 $ 7,360 $ 3,688 $ 984 $ 686 $ 1,690 $ 81,256 $ — $ 98,571 Watch – Pass 55 124 578 188 102 142 14,278 — 15,467 Special Mention — 273 487 399 22 — 8,480 — 9,661 Substandard — 313 — — 1,612 49 18,842 — 20,816 Doubtful — — — — — — — — — Total Agriculture $ 2,962 $ 8,070 $ 4,753 $ 1,571 $ 2,422 $ 1,881 $ 122,856 $ — $ 144,515 December 31, 2020 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2020 2019 2018 2017 2016 Prior Total Equipment/Accounts Receivable/Inventory Non-watch list – Pass $ 2,975,305 $ 664,016 $ 439,460 $ 171,409 $ 165,321 $ 67,442 $ 1,948,261 $ — $ 6,431,214 Watch – Pass 89,746 10,400 9,309 5,126 11,044 1,592 70,768 — 197,985 Special Mention 53,334 9,788 15,524 1,898 2,158 — 8,485 — 91,187 Substandard 67,118 231 7,657 1,369 53 565 81,246 — 158,239 Doubtful 86 53 — 5,365 — — 39 — 5,543 Total Equipment/Accounts Receivable/Inventory $ 3,185,589 $ 684,488 $ 471,950 $ 185,167 $ 178,576 $ 69,599 $ 2,108,799 $ — $ 6,884,168 Agriculture Non-watch list – Pass $ 7,880 $ 3,924 $ 1,389 $ 1,379 $ 1,759 $ 404 $ 92,917 $ 38 $ 109,690 Watch – Pass 179 2,571 188 102 345 — 17,956 — 21,341 Special Mention 303 — 399 22 — 12 6,674 — 7,410 Substandard 524 — — 2,148 60 — 20,408 — 23,140 Doubtful — — — — — — — — — Total Agriculture $ 8,886 $ 6,495 $ 1,976 $ 3,651 $ 2,164 $ 416 $ 137,955 $ 38 $ 161,581 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. Factoring General factoring loans are secured by accounts receivable. The purpose of these loans is for financing current operations for trucking or other commercial customers. The repayment of debt is reliant upon collection of the accounts receivable within 30 to 90 days. The Company tracks each individual borrower’s credit risk based on their loan to collateral position. To assess credit risk, the portfolio is separated into two tiers and a specifically impaired category. Tier 1 are loans that have not experienced collateral coverage rates falling below an internally tracked threshold at any time during their relationship history. The internal threshold is lower than each customers’ actual contractual collateral coverage ratio. Tier 2 are loans that have experienced collateral coverage rates falling below the same internally tracked threshold during their relationship history. Loans individually evaluated are loans that have either experienced collateral coverage rates falling below an internally tracked threshold during their relationship history or have balances that are greater than an internally tracked threshold. Individually evaluated loans utilize a practical expedient for the purpose of determining the expected credit loss. Collateral dependent assets are loans placed on non-accrual and loans considered to be TDRs. The combination of these categories has created an associated allowance to this portfolio of $0.6 million at both March 31, 2021 and December 31, 2020. The following table provides a summary of the amortized cost balance by risk rating for asset-based loans as of March 31, 2021 and December 31, 2020 (in thousands): Asset-based lending Risk March 31, 2021 December 31, 2020 In-margin $ 350,922 $ 331,360 Out-of-margin 17,409 23,989 Total $ 368,331 $ 355,349 The following table provides a summary of the amortized cost balance by risk rating for factoring loans as of March 31, 2021 and December 31, 2020 (in thousands): Factoring Risk March 31, 2021 December 31, 2020 Tier 1 $ 7,144 $ 10,774 Tier 2 56,461 135,861 Individually evaluated 87,400 7,755 Collateral dependent assets 1,440 1,561 Total $ 152,445 $ 155,951 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 chang es 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 March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2021 2020 2019 2018 2017 Prior Total Owner-occupied Non-watch list – Pass $ 119,343 $ 574,043 $ 306,753 $ 245,581 $ 127,363 $ 247,605 $ 14,023 $ 3,639 $ 1,638,350 Watch – Pass — 2,335 8,217 5,729 1,181 10,254 568 — 28,284 Special Mention 106 1,394 — — — 2,564 — — 4,064 Substandard 728 5,734 100 787 27,618 3,563 3,706 — 42,236 Doubtful — — — — — — — — — Total Owner-occupied $ 120,177 $ 583,506 $ 315,070 $ 252,097 $ 156,162 $ 263,986 $ 18,297 $ 3,639 $ 1,712,934 Non-owner-occupied Non-watch list – Pass $ 431,837 $ 695,641 $ 547,676 $ 184,201 $ 120,831 $ 334,679 $ 21,639 $ 116,001 $ 2,452,505 Watch – Pass 33,500 1,326 60,675 24,989 5,430 9,530 — — 135,450 Special Mention — 9,016 25,187 — — 41,335 — — 75,538 Substandard — — 26,510 — — 1,310 — — 27,820 Doubtful — — — — — — — — — Total Non-owner-occupied $ 465,337 $ 705,983 $ 660,048 $ 209,190 $ 126,261 $ 386,854 $ 21,639 $ 116,001 $ 2,691,313 Farmland Non-watch list – Pass $ 10,019 $ 237,511 $ 26,282 $ 15,149 $ 22,288 $ 18,170 $ 17,976 $ — $ 347,395 Watch – Pass 6,413 20,732 8,720 13,404 4,523 23,843 15,887 — 93,522 Special Mention — — 303 630 2,339 4,890 476 — 8,638 Substandard 14,017 25,758 252 537 — 1,932 2,131 — 44,627 Doubtful — — — — — — — — — Total Farmland $ 30,449 $ 284,001 $ 35,557 $ 29,720 $ 29,150 $ 48,835 $ 36,470 $ — $ 494,182 5+ Multi-family Non-watch list – Pass $ 4,871 $ 228,665 $ 82,373 $ 2,669 $ 2,499 $ 39,504 $ 1,820 $ — $ 362,401 Watch – Pass — — 21,597 — — — — — 21,597 Special Mention — — — — — — — — — Substandard — — 2,433 — 1,317 — — — 3,750 Doubtful — — — — — — — — — Total 5+ Multi-family $ 4,871 $ 228,665 $ 106,403 $ 2,669 $ 3,816 $ 39,504 $ 1,820 $ — $ 387,748 1-4 Family construction Non-watch list – Pass $ — $ — $ — $ — $ — $ — $ 39,046 $ — $ 39,046 Watch – Pass — — — — — — — — — Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total 1-4 Family construction $ — $ — $ — $ — $ — $ — $ 39,046 $ — $ 39,046 General construction Non-watch list – Pass $ 9,157 $ 20,063 $ 2,918 $ 1,144 $ 398 $ 365 $ 787,683 $ — $ 821,728 Watch – Pass — — — — — — — — — Special Mention — — — — — — — — — Substandard — — — — — — 3,317 — 3,317 Doubtful — — 86 — — — — — 86 Total General construction $ 9,157 $ 20,063 $ 3,004 $ 1,144 $ 398 $ 365 $ 791,000 $ — $ 825,131 December 31, 2020 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2020 2019 2018 2017 2016 Prior Total Owner-occupied Non-watch list – Pass $ 568,636 $ 327,579 $ 227,581 $ 141,758 $ 118,593 $ 163,292 $ 15,052 $ 51,910 $ 1,614,401 Watch – Pass 1,712 6,413 4,761 1,194 — 8,581 — — 22,661 Special Mention 1,424 — — — 1,588 — — — 3,012 Substandard 7,440 106 850 27,961 422 4,504 3,828 — 45,111 Doubtful — — — — — — — — — Total Owner-occupied $ 579,212 $ 334,098 $ 233,192 $ 170,913 $ 120,603 $ 176,377 $ 18,880 $ 51,910 $ 1,685,185 Non-owner-occupied Non-watch list – Pass $ 802,078 $ 525,246 $ 205,484 $ 156,290 $ 294,979 $ 101,616 $ 49,384 $ 81,499 $ 2,216,576 Watch – Pass 43,769 45,748 25,065 12,903 1,936 7,701 — 16,455 153,577 Special Mention 183 32,953 — — 36,300 5,100 — — 74,536 Substandard — 26,510 — — — 1,336 — — 27,846 Doubtful — — — — — — — — — Total Non-owner-occupied $ 846,030 $ 630,457 $ 230,549 $ 169,193 $ 333,215 $ 115,753 $ 49,384 $ 97,954 $ 2,472,535 Farmland Non-watch list – Pass $ 237,124 $ 27,815 $ 15,907 $ 26,071 $ 13,376 $ 8,924 $ 19,074 $ — $ 348,291 Watch – Pass 20,992 9,221 13,404 5,133 6,301 19,835 17,699 — 92,585 Special Mention — —
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