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 March 31, 2023 and December 31, 2022 (in thousands): March 31, 2023 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 $ 4,964 $ — $ 8,059 $ 13,023 $ 9,564,802 $ 9,577,825 Specialty lending — — — — 574,294 574,294 Commercial real estate 5,581 — 2,418 7,999 8,041,314 8,049,313 Consumer real estate 204 — 4,524 4,728 2,764,198 2,768,926 Consumer 101 14 54 169 130,500 130,669 Credit cards 3,325 1,709 425 5,459 440,977 446,436 Leases and other — — — — 265,509 265,509 Total loans $ 14,175 $ 1,723 $ 15,480 $ 31,378 $ 21,781,594 $ 21,812,972 December 31, 2022 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 $ 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 $13.7 million and $9.5 million in the secondary market without recourse during the three months ended March 31, 2023 and 2022, respectively. The Company has ceased the recognition of interest on loans with a carrying value of $15.5 million and $19.3 million at March 31, 2023 and December 31, 2022, respectively. Restructured loans totaled $6.0 million and $5.2 million at March 31, 2023 and December 31, 2022, respectively. Loans 90 days past due and still accruing interest amounted to $1.7 million and $1.6 million at March 31, 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 $13.9 million and $16.7 million at March 31, 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 March 31, 2023 and December 31, 2022 (in thousands): March 31, 2023 Nonaccrual Loans Amortized Cost of Nonaccrual Loans with no related Allowance Loans Commercial and industrial $ 8,059 $ 6,483 Specialty lending — — Commercial real estate 2,418 2,418 Consumer real estate 4,524 4,524 Consumer 54 54 Credit cards 425 425 Leases and other — — Total loans $ 15,480 $ 13,904 December 31, 2022 Nonaccrual Loans 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 March 31, 2023 and December 31, 2022, as well as the gross charge-offs by loan class and origination year for the three months ended March 31, 2023 (in thousands): March 31, 2023 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Loan Segment and Type Amortized Cost Basis by Origination Year - Term Loans 2023 2022 2021 2020 2019 Prior Total Commercial and industrial: Equipment/Accounts Receivable/Inventory $ 485,403 $ 1,970,486 $ 1,476,507 $ 604,059 $ 254,607 $ 184,452 $ 4,449,092 $ — $ 9,424,606 Agriculture 3,491 11,614 4,902 1,696 1,906 576 118,359 — 142,544 Overdrafts — — — — — — 10,675 — 10,675 Total Commercial and industrial 488,894 1,982,100 1,481,409 605,755 256,513 185,028 4,578,126 — 9,577,825 Current period charge-offs — — 383 — — 21 2,415 — 2,819 Specialty lending: Asset-based lending — 18,529 61,460 35,990 — — 458,315 — 574,294 Total Specialty lending — 18,529 61,460 35,990 — — 458,315 — 574,294 Current period charge-offs — — — — — — — — — Commercial real estate: Owner-occupied 67,396 669,916 599,261 365,292 169,529 258,198 6,700 956 2,137,248 Non-owner-occupied 278,080 1,059,779 878,097 566,316 309,287 247,148 28,563 — 3,367,270 Farmland 30,778 83,652 46,573 205,198 23,595 25,108 107,934 — 522,838 5+ Multi-family — 27,734 76,222 67,619 18,853 6,999 4,635 — 202,062 1-4 Family construction 18,554 59,992 3,272 — — — 841 — 82,659 General construction 64,488 811,587 754,942 43,821 15,380 378 46,640 — 1,737,236 Total Commercial real estate 459,296 2,712,660 2,358,367 1,248,246 536,644 537,831 195,313 956 8,049,313 Current period charge-offs — — — — — 21 — — 21 Consumer real estate: HELOC — 232 — 545 105 5,680 332,284 1,716 340,562 First lien: 1-4 family 94,859 617,128 737,664 597,584 168,372 180,259 17 — 2,395,883 Junior lien: 1-4 family 1,782 13,307 8,080 4,682 2,420 2,123 87 — 32,481 Total Consumer real estate 96,641 630,667 745,744 602,811 170,897 188,062 332,388 1,716 2,768,926 Current period charge-offs — — — — — 1,121 — — 1,121 Consumer: Revolving line — — — — — — 45,528 1,619 47,147 Auto 2,315 8,224 5,740 3,780 2,241 352 — — 22,652 Other 2,716 24,891 27,461 820 657 1,500 2,825 — 60,870 Total Consumer 5,031 33,115 33,201 4,600 2,898 1,852 48,353 1,619 130,669 Current period charge-offs — 3 — — — 1 265 — 269 Credit cards: Consumer — — — — — — 195,367 — 195,367 Commercial — — — — — — 251,069 — 251,069 Total Credit cards — — — — — — 446,436 — 446,436 Current period charge-offs — — — — — — 1,604 — 1,604 Leases and other: Leases — — — — 712 1,207 — — 1,919 Other 14,395 109,397 19,240 18,825 32,514 15,086 54,133 — 263,590 Total Leases and other 14,395 109,397 19,240 18,825 33,226 16,293 54,133 — 265,509 Current period charge-offs — — — — — — — — — Total loans $ 1,064,257 $ 5,486,468 $ 4,699,421 $ 2,516,227 $ 1,000,178 $ 929,066 $ 6,113,064 $ 4,291 $ 21,812,972 December 31, 2022 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Loan Segment and Type Amortized Cost Basis by Origination Year - Term Loans 2022 2021 2020 2019 2018 Prior 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 $89.9 million and $90.6 million as of March 31, 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 March 31, 2023 and December 31, 2022 (in thousands): March 31, 2023 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2023 2022 2021 2020 2019 Prior Total Equipment/Accounts Receivable/Inventory Non-watch list – Pass $ 464,095 $ 1,921,845 $ 1,353,428 $ 555,610 $ 226,993 $ 174,219 $ 4,115,279 $ — $ 8,811,469 Watch – Pass 1,863 30,695 104,202 45,386 14,614 5,304 207,705 — 409,769 Special Mention — 4,545 5,253 1,151 — 2,641 34,285 — 47,875 Substandard 17,869 13,401 13,624 1,912 13,000 2,288 91,463 — 153,557 Doubtful 1,576 — — — — — 360 — 1,936 Total Equipment/Accounts Receivable/Inventory $ 485,403 $ 1,970,486 $ 1,476,507 $ 604,059 $ 254,607 $ 184,452 $ 4,449,092 $ — $ 9,424,606 Agriculture Non-watch list – Pass $ 2,998 $ 10,236 $ 4,838 $ 1,480 $ 1,906 $ 576 $ 108,680 $ — $ 130,714 Watch – Pass — — — — — — 6,535 — 6,535 Special Mention — 828 64 75 — — 1,545 — 2,512 Substandard 493 550 — 141 — — 1,599 — 2,783 Doubtful — — — — — — — — — Total Agriculture $ 3,491 $ 11,614 $ 4,902 $ 1,696 $ 1,906 $ 576 $ 118,359 $ — $ 142,544 December 31, 2022 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2022 2021 2020 2019 2018 Prior 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 March 31, 2023 and December 31, 2022 (in thousands): Asset-based lending Risk March 31, 2023 December 31, 2022 In-margin $ 566,480 $ 602,706 Out-of-margin 7,814 — Total $ 574,294 $ 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 March 31, 2023 and December 31, 2022 (in thousands): March 31, 2023 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2023 2022 2021 2020 2019 Prior Total Owner-occupied Non-watch list – Pass $ 65,983 $ 641,834 $ 564,708 $ 344,284 $ 150,837 $ 249,947 $ 6,700 $ 956 $ 2,025,249 Watch – Pass 725 20,669 32,363 16,683 11,651 4,640 — — 86,731 Special Mention 688 5,390 2,190 4,304 4,196 — — — 16,768 Substandard — 2,023 — 21 2,845 3,611 — — 8,500 Doubtful — — — — — — — — — Total Owner-occupied $ 67,396 $ 669,916 $ 599,261 $ 365,292 $ 169,529 $ 258,198 $ 6,700 $ 956 $ 2,137,248 Non-owner-occupied Non-watch list – Pass $ 251,630 $ 946,458 $ 808,130 $ 566,316 $ 266,585 $ 232,111 $ 28,563 $ — $ 3,099,793 Watch – Pass 26,450 113,321 45,122 — 42,702 5,016 — — 232,611 Special Mention — — 24,845 — — — — — 24,845 Substandard — — — — — 10,021 — — 10,021 Doubtful — — — — — — — — — Total Non-owner-occupied $ 278,080 $ 1,059,779 $ 878,097 $ 566,316 $ 309,287 $ 247,148 $ 28,563 $ — $ 3,367,270 Farmland Non-watch list – Pass $ 19,053 $ 51,597 $ 36,219 $ 203,164 $ 17,102 $ 21,441 $ 99,956 $ — $ 448,532 Watch – Pass 225 19,750 6,414 — — 2,504 704 — 29,597 Special Mention — 5,505 — 947 — — — — 6,452 Substandard 11,500 6,800 3,940 1,087 6,493 1,163 7,274 — 38,257 Doubtful — — — — — — — — — Total Farmland $ 30,778 $ 83,652 $ 46,573 $ 205,198 $ 23,595 $ 25,108 $ 107,934 $ — $ 522,838 5+ Multi-family Non-watch list – Pass $ — $ 27,734 $ 76,222 $ 67,619 $ 18,853 $ 6,999 $ 4,635 $ — $ 202,062 Watch – Pass — — — — — — — — — Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total 5+ Multi-family $ — $ 27,734 $ 76,222 $ 67,619 $ 18,853 $ 6,999 $ 4,635 $ — $ 202,062 1-4 Family construction Non-watch list – Pass $ 18,554 $ 59,992 $ 3,272 $ — $ — $ — $ 841 $ — $ 82,659 Watch – Pass — — — — — — — — — Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Total 1-4 Family construction $ 18,554 $ 59,992 $ 3,272 $ — $ — $ — $ 841 $ — $ 82,659 General construction Non-watch list – Pass $ 64,062 $ 799,202 $ 746,723 $ 43,821 $ 15,361 $ 363 $ 46,640 $ — $ 1,716,172 Watch – Pass 341 12,385 — — 19 — — — 12,745 Special Mention — — 8,219 — — — — — 8,219 Substandard — — — — — 15 — — 15 Doubtful 85 — — — — — — — 85 Total General construction $ 64,488 $ 811,587 $ 754,942 $ 43,821 $ 15,380 $ 378 $ 46,640 $ — $ 1,737,236 December 31, 2022 Amortized Cost - Revolving Loans Amortized Cost - Revolving Loans Converted to Term Loans Risk by Collateral Amortized Cost Basis by Origination Year - Term Loans 2022 2021 2020 2019 2018 Prior 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 l |