Portfolio Loans | LOANS Below is a summary of loans by category at December 31, 2021 and 2020: ($ in thousands) December 31, 2021 December 31, 2020 Commercial and industrial $ 3,396,590 $ 3,100,299 Real estate loans: Commercial - investor owned 2,141,143 1,589,419 Commercial - owner occupied 2,035,785 1,498,408 Construction and land development 734,073 546,686 Residential 454,052 319,179 Total real estate loans 5,365,053 3,953,692 Other 265,137 187,083 Loans, before unearned loan fees 9,026,780 7,241,074 Unearned loan fees, net (9,138) (16,139) Loans, including unearned loan fees $ 9,017,642 $ 7,224,935 PPP loans totaled $276.2 million at December 31, 2021, or $272.0 million net of unearned fees of $4.2 million. PPP loans totaled $709.9 million at December 31, 2020, or $698.6 million net of unearned fees of $11.3 million. The loan balance includes a net premium on acquired loans of $11.9 million and $16.1 million at December 31, 2021 and 2020, respectively. At December 31, 2021 loans of $2.5 billion were pledged to the FHLB and the Federal Reserve. Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $5.7 million for each year ended December 31, 2021 and 2020. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility. A summary of the activity, by loan category, in the allowance for loan losses for 2019, excluding the allowance on PCI loans, and the ACL on loans for 2020 and 2021 is as follows: ($ in thousands) Commercial and industrial CRE - investor owned CRE - owner occupied Construction and land development Residential real estate Other Total Balance at December 31, 2019 Allowance for loan losses: Balance, beginning of year $ 29,039 $ 4,683 $ 4,239 $ 1,987 $ 1,616 $ 731 $ 42,295 Provision for loan losses 4,801 1,708 673 (237) (330) 67 6,682 Charge-offs (6,882) (551) (58) (54) (667) (382) (8,594) Recoveries 338 95 19 776 661 295 2,184 Balance, end of year $ 27,296 $ 5,935 $ 4,873 $ 2,472 $ 1,280 $ 711 $ 42,567 Balance at December 31, 2020 Allowance for loan losses: Balance at December 31, 2019 $ 27,296 $ 5,935 $ 4,873 $ 2,472 $ 1,280 $ 711 $ 42,567 PCI allowance at December 31, 2019 159 — — 139 — 423 721 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, beginning of year $ 33,949 $ 16,656 $ 7,414 $ 7,577 $ 3,349 $ 1,050 $ 69,995 Provision for loan losses 28,373 11,037 7,845 13,438 674 2,012 63,379 Initial allowance on acquired PCD loans 23 2,026 1,427 45 3 — 3,524 Charge-offs (5,381) (498) (30) (31) (408) (391) (6,739) Recoveries 1,848 2,841 356 384 967 116 6,512 Balance, end of year $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671 Balance at December 31, 2021 Allowance for credit losses: Balance, beginning of year $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671 Provision (benefit) for loan losses 14,361 568 (550) (7,365) 3,900 2,079 12,993 Initial allowance on acquired PCD loans 1,077 3,651 1,504 37 — 737 7,006 Charge-offs (12,113) (2,487) (602) (3) (1,521) (459) (17,185) Recoveries 1,688 2,083 196 454 963 172 5,556 Balance, end of year $ 63,825 $ 35,877 $ 17,560 $ 14,536 $ 7,927 $ 5,316 $ 145,041 The ACL on sponsor finance loans, which is included in the categories above, represented $18.2 million and $19.0 million as of December 31, 2021 and 2020, respectively. On January 1, 2020, the Company adopted the CECL methodology which added $28.4 million to the ACL on loans. 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 $13.0 million and $63.4 million in provision for credit losses on loans for the years ended December 31, 2021 and 2020, respectively. An additional provision for credit losses of $0.4 million and $2.0 million was recorded in 2021 and 2020, respectively, for HTM securities, unfunded commitments and the recapture of accrued interest on nonaccrual loans. In 2019, a $6.7 million provision for loan losses (excluding the allowance release on PCI loans) was recorded under the incurred loss method. Acquisition-related provision expense of $25.4 million and $8.6 million in 2021 and 2020, respectively, was included in the provision for credit losses. This expense, commonly referred to as the “CECL double-count”, is recognized when a loan portfolio is acquired. 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 40%, 30%, and 30%, respectively, which added approximately $17.5 million to the ACL over the baseline model. These forecasts incorporate an expectation that government stimulus will decline, the Federal Reserve will wind down quantitative easing and begin raising the federal funds rate, and that the pandemic will begin to slowly recede. 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 from another significant wave of COVID, continued or worsening supply-chain issues, labor supply and job growth worsens, or financial market conditions tighten. In addition to the CECL methodology, the Company incorporates qualitative adjustments into the ACL on loans to capture credit risks inherent within the loan portfolio that are not captured in the DCF model. Included in these risks are 1) changes in lending policies and procedures, 2) actual and expected changes in business and economic conditions, 3) changes in the nature and volume of the portfolio, 4) changes in lending management, 5) changes in volume and the severity of past due loans, 6) changes in the quality of the loan review system, 7) changes in the value of underlying collateral, 8) the existence and effect of concentrations of credit and 9) other factors such as the regulatory, legal and competitive environments and events such as natural disasters and pandemics. At December 31, 2021, the ACL on loans included a qualitative adjustment of approximately $39.1 million. Of this amount, approximately $8.6 million was allocated to Sponsor Finance loans due to their unsecured nature. The recorded investment in nonperforming loans by category at December 31, 2021 and 2020 is as follows: December 31, 2021 ($ in thousands) Non-accrual Restructured, accruing Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 17,052 $ 2,783 $ 1,703 $ 21,538 $ 5,685 Real estate: Commercial - investor owned 1,575 — — 1,575 168 Commercial - owner occupied 2,839 — — 2,839 2,550 Residential 1,971 76 1 2,048 1,348 Other 12 — 12 24 — Total $ 23,449 $ 2,859 $ 1,716 $ 28,024 $ 9,751 December 31, 2020 ($ in thousands) Non-accrual Restructured, accruing Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 18,158 $ 3,482 $ 130 $ 21,770 $ 8,316 Real estate: Commercial - investor owned 9,579 — — 9,579 716 Commercial - owner occupied 2,940 — — 2,940 6,024 Residential 4,112 77 — 4,189 — Other 29 — — 29 3,190 Total $ 34,818 $ 3,559 $ 130 $ 38,507 $ 18,246 The amortized cost basis of collateral-dependent nonperforming loans by class of loan is presented for the periods indicated: December 31, 2021 Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Commercial and industrial $ 4,271 $ 209 $ 9,312 Real estate: Commercial - investor owned 169 1,200 — Commercial - owner occupied 2,807 32 — Residential — 2,048 — Total $ 7,247 $ 3,489 $ 9,312 December 31, 2020 Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other Commercial and industrial $ 8,316 $ — $ 394 $ — Real estate: Commercial - investor owned 9,579 — — — Commercial - owner occupied 2,940 — — — Residential — 4,135 — — Other — — — 17 Total $ 20,835 $ 4,135 $ 394 $ 17 The recorded investment by category for loans restructured during the years ended December 31, 2021 and 2020 is as follows: Year ended December 31, 2021 Year ended December 31, 2020 ($ in thousands, except for number of loans) Number of Loans Pre-Modification Outstanding Post-Modification Outstanding Number of Loans Pre-Modification Outstanding Post-Modification Outstanding Commercial and industrial — $ — $ — 3 $ 7,447 $ 7,447 Real estate: Residential 1 221 221 3 372 372 Total 1 $ 221 $ 221 6 $ 7,819 $ 7,819 Restructured loans primarily resulted from interest rate concessions. As of December 31, 2021, the Company allocated an immaterial amount in specific reserves to loans that have been restructured. Loans restructured that subsequently defaulted during the year ended December 31, 2021 are as follows: Year ended December 31, 2021 ($ in thousands, except for number of loans) Number of Loans Recorded Balance Real Estate: Residential 1 148 There were no restructured loans that subsequently defaulted during the year ended December 31, 2020. In response to the COVID-19 pandemic, the Company 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 December 31, 2021, substantially all of these loans have returned to a current payment status. The aging of the recorded investment in past due loans by class and category at December 31, 2021 and 2020 is shown below: December 31, 2021 ($ in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 24,447 $ 14,158 $ 38,605 $ 3,353,770 $ 3,392,375 Real estate: Commercial - investor owned 3,880 — 3,880 2,137,263 2,141,143 Commercial - owner occupied 10,070 289 10,359 2,025,426 2,035,785 Construction and land development 24 — 24 734,049 734,073 Residential 3,181 1,305 4,486 449,566 454,052 Other 37 11 48 260,166 260,214 Total $ 41,639 $ 15,763 $ 57,402 $ 8,960,240 $ 9,017,642 December 31, 2020 ($ in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 8,652 $ 12,928 $ 21,580 $ 3,067,415 $ 3,088,995 Real estate: Commercial - investor owned 734 9,301 10,035 1,579,384 1,589,419 Commercial - owner occupied 328 4,647 4,975 1,493,433 1,498,408 Construction and land development 13 — 13 546,673 546,686 Residential 2,071 2,118 4,189 314,990 319,179 Other 1,731 50 1,781 180,467 182,248 Total $ 13,529 $ 29,044 $ 42,573 $ 7,182,362 $ 7,224,935 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, historical 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, due to strong collateral and/or guarantor support. • Grade 8 – Substandard credits will 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 non-accrual. The recorded investment by risk category of the loans by class and year of origination is presented in the following tables as of the dates indicated: December 31, 2021 Term Loans by Origination Year (in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 1,180,601 $ 477,374 $ 317,869 $ 132,851 $ 116,738 $ 82,846 $ 11,648 $ 854,102 $ 3,174,029 Watch (7) 35,005 17,502 9,404 9,880 12,217 10,979 4,037 53,595 152,619 Classified (8-9) 14,917 3,530 3,840 1,689 2,988 813 787 10,996 39,560 Total Commercial and industrial $ 1,230,523 $ 498,406 $ 331,113 $ 144,420 $ 131,943 $ 94,638 $ 16,472 $ 918,693 $ 3,366,208 Commercial real estate-investor owned Pass (1-6) $ 651,740 $ 476,946 $ 346,245 $ 146,107 $ 112,043 $ 217,808 $ 3,625 $ 68,236 $ 2,022,750 Watch (7) 16,871 35,908 32,755 1,003 502 17,478 300 2,062 106,879 Classified (8-9) 1,376 3,135 835 817 1,159 4,141 — 50 11,513 Total Commercial real estate-investor owned $ 669,987 $ 515,989 $ 379,835 $ 147,927 $ 113,704 $ 239,427 $ 3,925 $ 70,348 $ 2,141,142 Commercial real estate-owner occupied Pass (1-6) $ 604,975 $ 423,263 $ 278,830 $ 164,210 $ 140,515 $ 235,973 $ 250 $ 48,349 $ 1,896,365 Watch (7) 12,825 13,585 4,301 16,774 10,274 15,764 — 300 73,823 Classified (8-9) 2,048 556 9,181 17,016 6,432 6,959 — — 42,192 Total Commercial real estate-owner occupied $ 619,848 $ 437,404 $ 292,312 $ 198,000 $ 157,221 $ 258,696 $ 250 $ 48,649 $ 2,012,380 Construction real estate Pass (1-6) $ 310,140 $ 229,396 $ 70,531 $ 35,936 $ 14,860 $ 7,180 $ 568 $ 2,992 $ 671,603 Watch (7) 28,947 15,348 60 1,199 11,068 2,330 — — 58,952 Classified (8-9) — — 387 419 — 22 — — 828 Total Construction real estate $ 339,087 $ 244,744 $ 70,978 $ 37,554 $ 25,928 $ 9,532 $ 568 $ 2,992 $ 731,383 Residential real estate Pass (1-6) $ 116,352 $ 66,481 $ 21,356 $ 14,841 $ 24,778 $ 103,840 $ 9,980 $ 87,146 $ 444,774 Watch (7) 2,425 2 622 1,157 248 1,305 — 79 5,838 Classified (8-9) 414 169 554 — 12 2,024 — — 3,173 Total residential real estate $ 119,191 $ 66,652 $ 22,532 $ 15,998 $ 25,038 $ 107,169 $ 9,980 $ 87,225 $ 453,785 Other Pass (1-6) $ 108,209 $ 68,806 $ 22,684 $ 23,145 $ 6,924 $ 13,832 $ 1,500 $ 9,166 $ 254,266 Watch (7) — — — 4 — 2,440 — 1 2,445 Classified (8-9) — — 10 10 — 16 — 2 38 Total Other $ 108,209 $ 68,806 $ 22,694 $ 23,159 $ 6,924 $ 16,288 $ 1,500 $ 9,169 $ 256,749 Total loans classified by risk category $ 3,086,845 $ 1,832,001 $ 1,119,464 $ 567,058 $ 460,758 $ 725,750 $ 32,695 $ 1,137,076 $ 8,961,647 Total loans classified by performing status 55,995 Total loans $ 9,017,642 December 31, 2020 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) $ 1,402,276 $ 454,729 $ 262,258 $ 132,832 $ 25,057 $ 58,315 $ 14,118 $ 527,170 $ 2,876,755 Watch (7) 44,922 15,369 9,585 7,509 19,613 110 — 60,448 157,556 Classified (8-9) 6,602 9,219 3,115 3,964 4,490 1,080 1,281 22,432 52,183 Total Commercial and industrial $ 1,453,800 $ 479,317 $ 274,958 $ 144,305 $ 49,160 $ 59,505 $ 15,399 $ 610,050 $ 3,086,494 Commercial real estate-investor owned Pass (1-6) $ 481,867 $ 338,843 $ 189,305 $ 131,718 $ 138,288 $ 161,439 $ 6,509 $ 32,058 $ 1,480,027 Watch (7) 32,308 19,722 6,656 — 9,647 17,370 — — 85,703 Classified (8-9) — 5,278 8,716 5,830 1,245 2,620 — — 23,689 Total Commercial real estate-investor owned $ 514,175 $ 363,843 $ 204,677 $ 137,548 $ 149,180 $ 181,429 $ 6,509 $ 32,058 $ 1,589,419 Commercial real estate-owner occupied Pass (1-6) $ 419,142 $ 287,001 $ 215,181 $ 179,382 $ 104,470 $ 167,456 $ 2,672 $ 45,323 $ 1,420,627 Watch (7) 13,657 5,257 3,113 6,198 4,338 8,460 1,776 941 43,740 Classified (8-9) 2,420 7,427 5,822 6,140 1,309 10,860 — 63 34,041 Total Commercial real estate-owner occupied $ 435,219 $ 299,685 $ 224,116 $ 191,720 $ 110,117 $ 186,776 $ 4,448 $ 46,327 $ 1,498,408 Construction real estate Pass (1-6) $ 223,069 $ 156,360 $ 45,460 $ 18,579 $ 11,539 $ 9,144 $ — $ 28,880 $ 493,031 Watch (7) 2,544 86 34,179 11,632 — 2,499 — — 50,940 Classified (8-9) 56 2,124 503 1 — 31 — — 2,715 Total Construction real estate $ 225,669 $ 158,570 $ 80,142 $ 30,212 $ 11,539 $ 11,674 $ — $ 28,880 $ 546,686 Residential real estate Pass (1-6) $ 57,059 $ 27,907 $ 17,718 $ 17,138 $ 27,443 $ 92,657 $ 1,172 $ 66,902 $ 307,996 Watch (7) 210 840 526 — 514 1,603 287 511 4,491 Classified (8-9) 571 733 121 14 898 3,181 — 253 5,771 Total residential real estate $ 57,840 $ 29,480 $ 18,365 $ 17,152 $ 28,855 $ 97,441 $ 1,459 $ 67,666 $ 318,258 Other Pass (1-6) $ 43,526 $ 28,195 $ 30,074 $ 9,646 $ 5,641 $ 17,027 $ — $ 40,779 $ 174,888 Watch (7) — 1 8 — — 2,637 — 1 2,647 Classified (8-9) — 18 19 13 — 17 8 4 79 Total Other $ 43,526 $ 28,214 $ 30,101 $ 9,659 $ 5,641 $ 19,681 $ 8 $ 40,784 $ 177,614 Total loans classified by risk category $ 2,730,229 $ 1,359,109 $ 832,359 $ 530,596 $ 354,492 $ 556,506 $ 27,823 $ 825,765 $ 7,216,879 Total loans classified by performing status 8,056 Total loans $ 7,224,935 In the tables above, loan originations in 2021 and 2020 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 tables present the recorded investment on loans based on aging status: December 31, 2021 (in thousands) Performing Non Performing Total Commercial and industrial $ 26,166 $ 1 $ 26,167 Real estate: Commercial - investor owned 1 — 1 Commercial - owner occupied 23,405 — 23,405 Construction and land development 2,690 — 2,690 Residential 267 — 267 Other 3,453 12 3,465 Total $ 55,982 $ 13 $ 55,995 December 31, 2020 (in thousands) Performing Non Performing Total Commercial and industrial $ 2,502 $ — $ 2,502 Real estate: Residential 921 — 921 Other 4,612 21 4,633 Total $ 8,035 $ 21 $ 8,056 The Company has purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows: ($ in thousands) At July 21, 2021 Par value of acquired loans $ 180,440 Allowance for credit losses (7,006) Non-credit discount (6,428) Purchase price of acquired loans $ 167,006 |