Portfolio Loans | LOANS The following table presents a summary of loans by category: (in thousands) September 30, 2022 December 31, 2021 Commercial and industrial $ 3,710,012 $ 3,396,590 Real estate: Commercial - investor owned 2,286,458 2,141,143 Commercial - owner occupied 2,152,189 2,035,785 Construction and land development 583,649 734,073 Residential 397,450 454,052 Total real estate loans 5,419,746 5,365,053 Other 232,158 265,137 Loans, before unearned loan fees 9,361,916 9,026,780 Unearned loan fees, net (6,929) (9,138) Loans, including unearned loan fees $ 9,354,987 $ 9,017,642 PPP loans totaled $13.3 million at September 30, 2022, or $13.2 million net of deferred fees of $0.1 million. The loan balance at September 30, 2022 includes a net premium on acquired loans of $12.3 million. At September 30, 2022, loans of $2.8 billion were pledged to FHLB and the Federal Reserve Bank. PPP loans totaled $276.2 million at December 31, 2021, or $272.0 million net of deferred fees of $4.2 million. The loan balance included a net premium on acquired loans of $11.9 million at December 31, 2021. At December 31, 2021, loans of $2.5 billion were pledged to FHLB and the Federal Reserve Bank. Accrued interest receivable totaled $33.6 million and $30.6 million at September 30, 2022 and December 31, 2021, respectively, and was reported in “Other Assets” on the consolidated balance sheets. A summary of the activity in the ACL on loans by category for the three and nine months ended September 30, 2022 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, 2022 $ 65,646 $ 33,338 $ 16,156 $ 13,180 $ 7,478 $ 4,748 $ 140,546 Provision (benefit) for credit losses 4,202 71 224 (3,987) 99 (105) 504 Charge-offs (1,320) — (190) — (401) (88) (1,999) Recoveries 640 225 232 10 365 49 1,521 Balance at September 30, 2022 $ 69,168 $ 33,634 $ 16,422 $ 9,203 $ 7,541 $ 4,604 $ 140,572 (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, 2021 $ 63,825 $ 35,877 $ 17,560 $ 14,536 $ 7,927 $ 5,316 $ 145,041 Provision (benefit) for credit losses 7,283 (2,488) (1,424) (5,378) (50) (588) (2,645) Charge-offs (3,576) (200) (395) — (1,706) (262) (6,139) Recoveries 1,636 445 681 45 1,370 138 4,315 Balance at September 30, 2022 $ 69,168 $ 33,634 $ 16,422 $ 9,203 $ 7,541 $ 4,604 $ 140,572 The ACL on sponsor finance loans, which is included in the categories above, represented $19.2 million and $18.2 million, respectively, as of September 30, 2022 and December 31, 2021. A summary of the activity in the ACL on loans by category for the three and nine months ended September 30, 2021 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, 2021 $ 53,351 $ 36,003 $ 15,564 $ 11,632 $ 4,677 $ 6,958 $ 128,185 Initial allowance on acquired PCD loans 1,077 3,651 1,504 37 — 737 7,006 Provision for credit losses* 9,836 1,475 1,909 2,215 5,271 (1,951) 18,755 Charge-offs (2,829) (117) (259) (3) (840) (203) (4,251) Recoveries 452 1,623 15 171 115 25 2,401 Balance at September 30, 2021 $ 61,887 $ 42,635 $ 18,733 $ 14,052 $ 9,223 $ 5,566 $ 152,096 *Provision includes $23.9 million on certain acquired First Choice loans (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, 2020 $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671 Initial allowance on acquired PCD loans 1,077 3,651 1,504 37 — 737 7,006 Provision for credit losses* 8,538 7,715 686 (7,833) 5,374 2,305 16,785 Charge-offs (8,019) (2,489) (503) (3) (1,155) (389) (12,558) Recoveries 1,479 1,696 34 438 419 126 4,192 Balance at September 30, 2021 $ 61,887 $ 42,635 $ 18,733 $ 14,052 $ 9,223 $ 5,566 $ 152,096 *Provision includes $23.9 million on certain acquired First Choice loans 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 $9.5 million to the ACL over the baseline model. These forecasts incorporate an expectation that the Federal Reserve will continue to aggressively tighten monetary policy and will wind down its treasury and mortgage-backed securities portfolio and continue raising the federal funds rate, that the Russia-Ukraine military conflict will have a limited disruption on the economy, that the global pandemic will continue to recede and become less disruptive to supply chains and the risk of a period of stagflation. 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 continued or worsening supply-chain disruptions, the risk that the Federal Reserve tightens too aggressively and pushes the economy into a recession, labor shortages and declines in job growth, oil prices increase more than anticipated or a period of persistently high inflation. 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 discounted cash flow (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 September 30, 2022, the ACL on loans included a qualitative adjustment of approximately $40.8 million. Of this amount, approximately $7.5 million was allocated to sponsor finance loans due to their unsecured nature. The following tables present the recorded investment in nonperforming loans by category: September 30, 2022 (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 $ 13,304 $ — $ 1 $ 13,305 $ 1,551 Real estate: Commercial - investor owned 3,388 — — 3,388 3,388 Commercial - owner occupied 1,150 — — 1,150 1,150 Residential 252 74 — 326 252 Other 1 — 14 15 — Total $ 18,095 $ 74 $ 15 $ 18,184 $ 6,341 December 31, 2021 (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 $ 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 The nonperforming loan balances at both September 30, 2022 and December 31, 2021 exclude government guaranteed balances of $6.5 million. No material interest income was recognized on nonaccrual loans during the three and nine months ended September 30, 2022 or 2021. The amortized cost basis of collateral-dependent nonperforming loans by class of loan is presented as of the dates indicated: September 30, 2022 Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Commercial and industrial $ 4,271 $ — $ 4,726 Real estate: Commercial - investor owned 2,268 1,120 — Commercial - owner occupied 1,139 11 — Residential — 326 — Total $ 7,678 $ 1,457 $ 4,726 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 There were no loans restructured during the three or nine months ended September 30, 2022 or 2021. No troubled debt restructurings subsequently defaulted during the three or nine months ended September 30, 2022 or 2021. The aging of the recorded investment in past due loans by class is presented as of the dates indicated. September 30, 2022 (in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 4,966 $ 6,869 $ 11,835 $ 3,698,058 $ 3,709,893 Real estate: Commercial - investor owned 2,059 — 2,059 2,284,399 2,286,458 Commercial - owner occupied 9,241 187 9,428 2,142,761 2,152,189 Construction and land development 1,192 — 1,192 582,457 583,649 Residential 192 — 192 397,258 397,450 Other 44 15 59 225,289 225,348 Total $ 17,694 $ 7,071 $ 24,765 $ 9,330,222 $ 9,354,987 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 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 loans by class and year of origination is presented in the following tables as of the dates indicated: September 30, 2022 Term Loans by Origination Year (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 1,085,307 $ 717,307 $ 360,383 $ 208,530 $ 65,014 $ 89,982 $ 7,860 $ 936,868 $ 3,471,251 Watch (7) 45,503 12,222 14,739 495 9,026 4,145 155 87,336 173,621 Classified (8-9) 16,722 7,013 1,328 3,839 172 1,024 — 14,672 44,770 Total Commercial and industrial $ 1,147,532 $ 736,542 $ 376,450 $ 212,864 $ 74,212 $ 95,151 $ 8,015 $ 1,038,876 $ 3,689,642 Commercial real estate-investor owned Pass (1-6) $ 484,071 $ 628,899 $ 406,567 $ 265,033 $ 121,771 $ 227,789 $ 593 $ 45,532 $ 2,180,255 Watch (7) 18,638 9,041 29,920 12,168 — 13,128 — — 82,895 Classified (8-9) 1,221 — 196 821 194 6,879 50 — 9,361 Total Commercial real estate-investor owned $ 503,930 $ 637,940 $ 436,683 $ 278,022 $ 121,965 $ 247,796 $ 643 $ 45,532 $ 2,272,511 Commercial real estate-owner occupied Pass (1-6) $ 364,007 $ 577,848 $ 380,740 $ 244,923 $ 126,757 $ 287,072 $ — $ 55,602 $ 2,036,949 Watch (7) 9,052 2,282 13,694 5,125 14,284 8,303 — 800 53,540 Classified (8-9) — — 3,206 8,880 16,147 11,505 — — 39,738 Total Commercial real estate-owner occupied $ 373,059 $ 580,130 $ 397,640 $ 258,928 $ 157,188 $ 306,880 $ — $ 56,402 $ 2,130,227 Construction real estate Pass (1-6) $ 224,466 $ 243,622 $ 77,015 $ 2,966 $ 2,543 $ 9,232 $ — $ 1,901 $ 561,745 Watch (7) 17,349 — 520 — — — — — 17,869 Classified (8-9) 1,192 — — 12 410 14 — — 1,628 Total Construction real estate $ 243,007 $ 243,622 $ 77,535 $ 2,978 $ 2,953 $ 9,246 $ — $ 1,901 $ 581,242 Residential real estate Pass (1-6) $ 47,323 $ 69,924 $ 57,277 $ 22,535 $ 11,568 $ 93,339 $ 513 $ 90,659 $ 393,138 Watch (7) 113 290 — 80 353 791 — — 1,627 Classified (8-9) 156 82 — 55 767 1,223 — 5 2,288 Total residential real estate $ 47,592 $ 70,296 $ 57,277 $ 22,670 $ 12,688 $ 95,353 $ 513 $ 90,664 $ 397,053 Other Pass (1-6) $ 12,963 $ 92,335 $ 57,732 $ 11,299 $ 21,135 $ 20,562 $ — $ 8,399 $ 224,425 Watch (7) — — — — 2 — — — 2 Classified (8-9) — — — 5 5 13 — 1 24 Total Other $ 12,963 $ 92,335 $ 57,732 $ 11,304 $ 21,142 $ 20,575 $ — $ 8,400 $ 224,451 Total loans classified by risk category $ 2,328,083 $ 2,360,865 $ 1,403,317 $ 786,766 $ 390,148 $ 775,001 $ 9,171 $ 1,241,775 $ 9,295,126 Total loans classified by performing status 59,861 Total loans $ 9,354,987 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 In the tables above, loan originations in 2022 and 2021 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 payment activity as of the dates indicated: September 30, 2022 (in thousands) Performing Non Performing Total Commercial and industrial $ 20,250 $ 1 $ 20,251 Real estate: Commercial - investor owned 13,947 — 13,947 Commercial - owner occupied 21,962 — 21,962 Construction and land development 2,407 — 2,407 Residential 397 — 397 Other 883 14 897 Total $ 59,846 $ 15 $ 59,861 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 |