Portfolio Loans | LOANS The following table presents a summary of loans by category: (in thousands) September 30, 2020 December 31, 2019 Commercial and industrial $ 3,171,916 $ 2,361,157 Real estate: Commercial - investor owned 1,292,182 1,299,884 Commercial - owner occupied 735,704 697,437 Construction and land development 474,727 457,273 Residential 321,792 366,261 Total real estate loans 2,824,405 2,820,855 Other 151,230 134,941 Loans, before unearned loan fees 6,147,551 5,316,953 Unearned loan fees, net (21,244) (2,616) Loans, including unearned loan fees $ 6,126,307 $ 5,314,337 PPP loans totaled $838.6 million at September 30, 2020, or $819.1 million net of unearned fees of $19.5 million . The loan balance at September 30, 2020 also includes a discount on acquired loans of $19.8 million. At September 30, 2020 loans of $2.4 billion were pledged to FHLB and the Federal Reserve Bank. A summary of the activity in the ACLL by category for the three and nine months ended September 30, 2020 is as follows: (in thousands) Commercial and industrial CRE - investor owned CRE - Construction and land development Residential real estate Other Total Allowance for credit losses on loans: Balance at June 30, 2020 $ 50,139 $ 25,019 $ 11,088 $ 15,962 $ 6,333 $ 1,729 $ 110,270 Provision for credit losses 8,929 4,869 (1,854) 2,873 (1,132) 342 14,027 Charge-offs (2,006) (272) (30) — (173) (103) (2,584) Recoveries 808 55 268 83 303 40 1,557 Balance at September 30, 2020 $ 57,870 $ 29,671 $ 9,472 $ 18,918 $ 5,331 $ 2,008 $ 123,270 (in thousands) Commercial and industrial CRE - investor owned CRE - Construction and land development Residential real estate Other Total Allowance for credit losses on loans: Balance at December 31, 2019 $ 27,455 $ 5,935 $ 4,873 $ 2,611 $ 1,280 $ 1,134 $ 43,288 CECL adoption 6,494 10,726 2,598 5,183 3,470 (84) 28,387 PCD loans immediately charged off — (5) (57) (217) (1,401) — (1,680) Balance at January 1, 2020 $ 33,949 $ 16,656 $ 7,414 $ 7,577 $ 3,349 $ 1,050 $ 69,995 Provision for credit losses 27,688 10,692 1,740 11,220 1,623 1,150 54,113 Charge-offs (5,372) (498) (30) (31) (327) (294) (6,552) Recoveries 1,605 2,821 348 152 686 102 5,714 Balance at September 30, 2020 $ 57,870 $ 29,671 $ 9,472 $ 18,918 $ 5,331 $ 2,008 $ 123,270 Reserves on enterprise value lending and agricultural lending, which are included in the categories above, represented $20.1 million and $1.8 million, respectively, as of September 30, 2020. On January 1, 2020, the Company adopted the CECL methodology which added $28.4 million to the ACLL. Upon adoption, $1.7 million of nonaccrual PCD loans with individual outstanding balances of less than $100,000 were immediately charged-off. Under the CECL method, the Company recorded $14.0 million and $54.1 million in provision for credit losses on loans in the three and nine months ended September 30, 2020, respectively, compared to $1.8 million and $5.0 million in provision for loan losses in the prior year periods, respectively, under the incurred loss method. The increase in the provision for credit losses in 2020 was primarily due to a change in economic forecasts from the end of 2019 due to the COVID-19 pandemic. The deterioration in the forecast was most significant in the second quarter of 2020. The economic forecast improved in the third quarter of 2020 compared to the second quarter of 2020. The CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model, Moody’s baseline, a stronger near-term growth upside and a moderate recession downside forecast. The Company weights these scenarios at 80%, 10%, and 10%, respectively, which added approximately $1.2 million to the ACL over the baseline model. These forecasts incorporate an accommodative monetary policy and the current and anticipated impact of government stimulus. The Company has also recognized the risk posed by loans that have received multiple deferrals of principal and interest payments, including the hospitality sector, by allocating additional reserves to those segments. Some of the key risks to the forecasts that could result in future provision for credit losses are additional shutdowns and self-quarantines if another significant wave of COVID hits, small-business bankruptcies occur at higher levels, unemployment increases, or the next round of fiscal stimulus is delayed or does not occur. The following tables present the recorded investment in nonperforming loans by category: September 30, 2020 (in thousands) Nonaccrual Restructured, accruing Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 19,141 $ 3,557 $ 888 $ 23,586 $ 10,208 Real estate: Commercial - investor owned 9,850 — — 9,850 1,440 Commercial - owner occupied 1,511 — — 1,511 1,511 Construction and land development 200 — — 200 200 Residential 4,316 78 — 4,394 3,246 Other 19 — 63 82 — Total $ 35,037 $ 3,635 $ 951 $ 39,623 $ 16,605 No interest income was recognized on nonaccrual loans during the three or nine months ended September 30, 2020. December 31, 2019 (in thousands) Nonaccrual Restructured, accruing Loans over 90 days past due and still accruing interest Total nonperforming loans Commercial and industrial $ 22,328 $ — $ 250 $ 22,578 Real estate: Commercial - investor owned 2,303 — — 2,303 Commercial - owner occupied 213 — — 213 Residential 1,251 79 — 1,330 Other 1 — — 1 Total $ 26,096 $ 79 $ 250 $ 26,425 The following table presents the amortized cost basis of collateral-dependent nonperforming loans by class of loan at September 30, 2020: Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other Commercial and industrial $ 11,056 $ — $ 405 $ — Real estate: Commercial - investor owned 9,850 — — — Commercial - owner occupied 1,511 — — — Construction and land development — 200 — — Residential — 4,208 — — Other — — — 18 Total $ 22,417 $ 4,408 $ 405 $ 18 The recorded investment by category for troubled debt restructurings that occurred during the three months ended September 30, 2020 are as follows: September 30, 2020 (in thousands, except for number of loans) Number of loans Pre-Modification Outstanding Recorded Balance Post-Modification Outstanding Recorded Balance Commercial and industrial 2 $ 3,716 $ 3,716 Real estate: Residential 1 217 217 Total 3 $ 3,933 $ 3,933 No troubled debt restructurings occurred during the three months ended September 30, 2019. The recorded investment by category for troubled debt restructurings that occurred during the nine months ended September 30, 2020 and 2019 are as follows: September 30, 2020 September 30, 2019 (in thousands, except for number of loans) Number of loans Pre-Modification Outstanding Recorded Balance Post-Modification Outstanding Recorded Balance Number of loans Pre-Modification Outstanding Recorded Balance Post-Modification Outstanding Recorded Balance Commercial and industrial 3 $ 7,447 $ 7,447 — $ — $ — Real estate: Commercial - owner occupied — — — 1 188 188 Residential 3 372 372 2 332 332 Total 6 $ 7,819 $ 7,819 3 $ 520 $ 520 No troubled debt restructurings subsequently defaulted during the three or nine months ended September 30, 2020. Restructured loans that subsequently defaulted during the three months ended September 30, 2019 included one commercial and industrial loan with a recorded balance of $0.1 million. Restructured loans that subsequently defaulted for the nine months ended September 30, 2019 included two commercial and industrial loans with an aggregate recorded balance of $0.4 million In response to the COVID-19 pandemic, the Company has implemented short-term deferral programs allowing customers to primarily defer payments for up to 90 days. Deferrals under the CARES Act or interagency guidance are not included above as troubled debt restructurings. As of September 30, 2020, $690.8 million in loans have participated in the programs, including $355.8 million in loans deferring full principal and interest payments and $335.0 million in loans deferring principal only. As of September 30, 2020, $139.4 million loans remain in a deferral status. Interest of $4.5 million has been deferred and will be collected upon final maturity. The aging of the recorded investment in past due loans by class at September 30, 2020 is shown below. September 30, 2020 (in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 1,558 $ 16,313 $ 17,871 $ 3,134,523 $ 3,152,394 Real estate: Commercial - investor owned 164 9,516 9,680 1,282,502 1,292,182 Commercial - owner occupied 1,166 1,190 2,356 733,348 735,704 Construction and land development 898 — 898 473,829 474,727 Residential 840 2,154 2,994 318,798 321,792 Other 46 82 128 149,380 149,508 Total $ 4,672 $ 29,255 $ 33,927 $ 6,092,380 $ 6,126,307 The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings: • Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry. • Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow. • Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow. • Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating. • Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated at this time, due to strong collateral and/or guarantor support. • Grade 8 – Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted. • Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on nonaccrual. The recorded investment by risk category of the loans by class at September 30, 2020, which is based upon the most recent analysis performed is as follows: Term Loans by Origination Year (in thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 1,378,251 $ 499,865 $ 289,283 $ 155,369 $ 30,317 $ 41,477 $ 14,000 $ 524,025 $ 2,932,587 Watch (7) 41,834 11,685 3,421 11,619 22,835 105 — 63,198 154,697 Classified (8-9) 4,685 11,235 3,253 3,861 4,783 2,367 578 21,859 52,621 Total Commercial and industrial $ 1,424,770 $ 522,785 $ 295,957 $ 170,849 $ 57,935 $ 43,949 $ 14,578 $ 609,082 $ 3,139,905 Commercial real estate-investor owned Pass (1-6) $ 338,563 $ 277,705 $ 180,534 $ 119,492 $ 138,823 $ 158,678 $ 4,969 $ 33,539 $ 1,252,303 Watch (7) 6,634 5,115 1,245 — 12,584 3,609 — — 29,187 Classified (8-9) 64 498 8,362 455 248 1,065 — — 10,692 Total Commercial real estate-investor owned $ 345,261 $ 283,318 $ 190,141 $ 119,947 $ 151,655 $ 163,352 $ 4,969 $ 33,539 $ 1,292,182 Commercial real estate-owner occupied Pass (1-6) $ 192,320 $ 184,427 $ 80,269 $ 72,465 $ 43,855 $ 68,277 $ 2,715 $ 43,882 $ 688,210 Watch (7) 10,628 5,213 259 4,851 8,367 4,946 — 2,823 37,087 Classified (8-9) 400 508 4,538 812 — 4,149 — — 10,407 Total Commercial real estate-owner occupied $ 203,348 $ 190,148 $ 85,066 $ 78,128 $ 52,222 $ 77,372 $ 2,715 $ 46,705 $ 735,704 Construction real estate Pass (1-6) $ 147,206 $ 152,879 $ 77,811 $ 18,076 $ 11,676 $ 11,899 $ — $ 25,516 $ 445,063 Watch (7) 3,064 — 14,540 11,456 — 348 — — 29,408 Classified (8-9) 222 — — — — 34 — — 256 Total Construction real estate $ 150,492 $ 152,879 $ 92,351 $ 29,532 $ 11,676 $ 12,281 $ — $ 25,516 $ 474,727 Residential real estate Pass (1-6) $ 38,603 $ 30,290 $ 20,571 $ 17,630 $ 32,011 $ 105,538 $ 644 $ 64,662 $ 309,949 Watch (7) 212 852 828 — — 2,122 277 801 5,092 Classified (8-9) 534 882 328 13 906 3,111 — 50 5,824 Total residential real estate $ 39,349 $ 32,024 $ 21,727 $ 17,643 $ 32,917 $ 110,771 $ 921 $ 65,513 $ 320,865 Other Pass (1-6) $ 23,762 $ 13,492 $ 20,109 $ 551 $ 3,567 $ 28,539 $ — $ 52,276 $ 142,296 Watch (7) — 1 5 — — 2,685 — 1 2,692 Classified (8-9) — 19 21 3 — 18 9 6 76 Total Other $ 23,762 $ 13,512 $ 20,135 $ 554 $ 3,567 $ 31,242 $ 9 $ 52,283 $ 145,064 In the table above, loan originations in 2020 and 2019 with a classification of watch or classified primarily represent renewals or modifications initially underwritten and originated in prior years. For certain loans, primarily credit cards, the Company evaluates credit quality based on the aging status. The following table presents the recorded investment on loans based on payment activity: September 30, 2020 (in thousands) Performing Non Performing Total Commercial and industrial $ 12,425 $ 64 $ 12,489 Real estate: Residential 927 — 927 Other 4,381 63 4,444 Total $ 17,733 $ 127 $ 17,860 The recorded investment by risk category of loans by class at December 31, 2019, was as follows: December 31, 2019 (in thousands) Pass (1-6) Watch (7) Classified (8 & 9) Total* Commercial and industrial $ 2,151,084 $ 124,718 $ 70,021 $ 2,345,823 Real estate: Commercial - investor owned 1,242,569 17,572 2,840 1,262,981 Commercial - owner occupied 643,276 28,773 6,473 678,522 Construction and land development 437,134 12,140 106 449,380 Residential 348,246 4,450 2,496 355,192 Other 132,096 3 51 132,150 Total $ 4,954,405 $ 187,656 $ 81,987 $ 5,224,048 *Excludes $90.3 million of loans accounted for as PCI |