Portfolio Loans | LOANS The following table presents a summary of loans by category: (in thousands) March 31, 2023 December 31, 2022 Commercial and industrial $ 4,032,189 $ 3,859,964 Real estate: Commercial - investor owned 2,418,079 2,357,820 Commercial - owner occupied 2,281,223 2,270,551 Construction and land development 663,264 611,565 Residential 364,059 395,537 Total real estate loans 5,726,625 5,635,473 Other 260,001 248,990 Loans, before unearned loan fees 10,018,815 9,744,427 Unearned loan fees, net (6,897) (7,289) Loans, including unearned loan fees $ 10,011,918 $ 9,737,138 The loan balance at March 31, 2023 and December 31, 2022, includes a net premium on acquired loans of $10.3 million and $11.9 million, respectively. At March 31, 2023 and December 31, 2022, loans of $3.4 billion and $2.8 billion, respectively, were pledged to FHLB and the Federal Reserve Bank. Accrued interest receivable totaled $44.7 million and $48.1 million at March 31, 2023 and December 31, 2022, respectively, and was reported in “Other Assets” on the consolidated balance sheets. SBA 7(a) guaranteed loans sold during the three months ended March 31, 2023 totaled $8.8 million, resulting in a gain on sale of $0.5 million. There were no SBA loan sales during the same period in 2022. A summary of the activity in the ACL on loans by category for the three months ended March 31, 2023 and 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 December 31, 2022 $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932 Provision (benefit) for credit losses 5,083 222 (440) (2,578) (1,151) (37) 1,099 Charge-offs (707) (170) — (9) (102) (192) (1,180) Recoveries 938 23 16 32 322 113 1,444 Balance at March 31, 2023 $ 59,149 $ 36,266 $ 22,328 $ 8,889 $ 6,997 $ 4,666 $ 138,295 (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 (1,481) 121 (582) (1,574) (456) (336) (4,308) Charge-offs (2,159) — (180) — (887) (86) (3,312) Recoveries 790 196 240 21 525 19 1,791 Balance at March 31, 2022 $ 60,975 $ 36,194 $ 17,038 $ 12,983 $ 7,109 $ 4,913 $ 139,212 The ACL on sponsor finance loans, which is included in the categories above, represented $21.0 million and $16.1 million, respectively, as of March 31, 2023 and December 31, 2022. 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 $14.2 million to the ACL over the baseline model at March 31, 2023. These forecasts incorporate an expectation that the Federal Reserve will continue quantitative tightening and raise the federal funds rate to 5.00% to 5.25% in 2023 and that the recent bank failures are not an indication of a broader problem in the industry. The Company has also recognized various risks posed by loans in certain segments, including the hospitality and commercial office sectors, 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 market reactions to the Federal Reserve policy actions that could push the economy into a recession, persistently higher inflation, tightening in the credit markets, and further weakness in the financial system. 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 March 31, 2023, the ACL on loans included a qualitative adjustment of approximately $43.2 million. Of this amount, approximately $13.8 million was allocated to sponsor finance loans due to their unsecured nature. The current-period gross charge-offs by loan class and year of origination is presented in the following table: March 31, 2023 Term Loans by Origination Year (in thousands) 2022 2021 Prior Revolving Loans Total Commercial and industrial $ 1 $ — $ — $ 570 $ 571 Real estate: Commercial - investor owned — 170 — — 170 Construction and land development — — 9 — 9 Residential — — 102 — 102 Other — — 3 — 3 Total current-period gross charge-offs by risk rating $ 1 $ 170 $ 114 $ 570 $ 855 Total current-period gross charge-offs by performing status 325 Total current-period gross charge-offs $ 1,180 The following tables present the recorded investment in nonperforming loans by category: March 31, 2023 (in thousands) Nonaccrual Loans over 90 days past due and still accruing interest Total nonperforming loans Nonaccrual loans with no allowance Commercial and industrial $ 5,252 $ 73 $ 5,325 $ 1,002 Real estate: Commercial - investor owned 3,887 — 3,887 — Commercial - owner occupied 1,547 — 1,547 — Construction and land development 1,201 — 1,201 1,201 Other — 12 12 — Total $ 11,887 $ 85 $ 11,972 $ 2,203 December 31, 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 $ 4,373 $ — $ 70 $ 4,443 $ 1,047 Real estate: Commercial - investor owned 3,023 — — 3,023 — Commercial - owner occupied 1,177 — — 1,177 — Construction and land development 1,192 — — 1,192 1,192 Residential — 73 — 73 — Other 1 — 72 73 — Total $ 9,766 $ 73 $ 142 $ 9,981 $ 2,239 The nonperforming loan balances at March 31, 2023 and December 31, 2022 exclude government guaranteed balances of $6.8 million and $6.7 million, respectively. No material interest income was recognized on nonaccrual loans during the three months ended March 31, 2023 or 2022. Collateral-dependent nonperforming loans by class of loan is presented as of the dates indicated: March 31, 2023 Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Commercial and industrial $ — $ 950 $ 1,002 Real estate: Commercial - investor owned 2,177 773 — Commercial - owner occupied 1,547 — — Construction and land development 1,201 Residential — — — Total $ 3,724 $ 2,924 $ 1,002 December 31, 2022 Type of Collateral (in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Commercial and industrial $ — $ — $ 1,047 Real estate: Commercial - investor owned 2,238 785 — Commercial - owner occupied 1,177 — — Construction and land development — 1,192 — Residential — 73 — Total $ 3,415 $ 2,050 $ 1,047 The aging of the recorded investment in past due loans by class is presented as of the dates indicated. March 31, 2023 (in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 3,244 $ 1,894 $ 5,138 $ 4,027,051 $ 4,032,189 Real estate: Commercial - investor owned 2,086 1,098 3,184 2,414,895 2,418,079 Commercial - owner occupied 2,780 4,084 6,864 2,274,359 2,281,223 Construction and land development 396 — 396 662,868 663,264 Residential 2,414 — 2,414 361,645 364,059 Other 151 12 163 259,838 260,001 Loans, before unearned loan fees $ 11,071 $ 7,088 $ 18,159 $ 10,000,656 $ 10,018,815 Unearned loan fees, net (6,897) Total $ 10,011,918 December 31, 2022 (in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 555 $ 2,373 $ 2,928 $ 3,857,036 $ 3,859,964 Real estate: Commercial - investor owned — 1,135 1,135 2,356,685 2,357,820 Commercial - owner occupied 8,628 164 8,792 2,261,759 2,270,551 Construction and land development 9 1,192 1,201 610,364 611,565 Residential 1,227 — 1,227 394,310 395,537 Other 18 72 90 248,900 248,990 Loans, before unearned loan fees $ 10,437 $ 4,936 $ 15,373 $ 9,729,054 $ 9,744,427 Unearned loan fees, net (7,289) Total $ 9,737,138 The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. The effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The most common concession the Company provides to borrowers experiencing financial difficulty is a term extension. In limited circumstances, the Company may modify loans by providing principal forgiveness or an interest rate reduction. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as an interest rate reduction or principal forgiveness, may be granted. The following table shows loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted: Term Extension (in thousands) March 31, 2023 % of Total Class of Financing Receivable Commercial and industrial $ 22,818 0.57 % Real estate: Construction and land development 1,201 0.18 % Total $ 24,019 The term extensions were for 2-12 months, and all loans were current under the modified terms. There were no loans restructured during the three months ended March 31, 2022, and no troubled debt restructurings subsequently defaulted during the three months ended March 31, 2022. 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, current economic factors and 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 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 – Special Mention credits are borrowers that 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 and year of origination is presented in the following tables as of the dates indicated: March 31, 2023 Term Loans by Origination Year (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial Pass (1-6) $ 446,623 $ 1,294,156 $ 487,289 $ 296,880 $ 163,807 $ 107,963 $ 9,928 $ 1,003,625 $ 3,810,271 Special Mention (7) 11,145 21,894 17,320 13,862 477 11,766 — 68,846 145,310 Classified (8-9) 5,570 10,929 5,569 1,497 23 452 175 27,903 52,118 Total Commercial and industrial $ 463,338 $ 1,326,979 $ 510,178 $ 312,239 $ 164,307 $ 120,181 $ 10,103 $ 1,100,374 $ 4,007,699 Commercial real estate-investor owned Pass (1-6) $ 133,638 $ 649,170 $ 571,133 $ 385,909 $ 217,109 $ 293,114 $ 1,701 $ 60,720 $ 2,312,494 Special Mention (7) — 26,002 5,241 23,260 10,952 12,909 — — 78,364 Classified (8-9) — 1,809 — 462 639 5,845 49 — 8,804 Total Commercial real estate-investor owned $ 133,638 $ 676,981 $ 576,374 $ 409,631 $ 228,700 $ 311,868 $ 1,750 $ 60,720 $ 2,399,662 Commercial real estate-owner occupied Pass (1-6) $ 113,180 $ 520,215 $ 527,516 $ 348,955 $ 205,503 $ 371,027 $ — $ 57,489 $ 2,143,885 Special Mention (7) 9,608 5,946 4,862 19,644 4,459 13,660 4,962 300 63,441 Classified (8-9) — — 2,214 5,025 9,412 27,511 — 595 44,757 Total Commercial real estate-owner occupied $ 122,788 $ 526,161 $ 534,592 $ 373,624 $ 219,374 $ 412,198 $ 4,962 $ 58,384 $ 2,252,083 Construction real estate Pass (1-6) $ 106,759 $ 288,291 $ 198,719 $ 51,005 $ 2,931 $ 10,045 $ — $ 1,637 $ 659,387 Special Mention (7) — 1,284 — 146 145 217 — — 1,792 Classified (8-9) 1,201 396 — — 13 475 — — 2,085 Total Construction real estate $ 107,960 $ 289,971 $ 198,719 $ 51,151 $ 3,089 $ 10,737 $ — $ 1,637 $ 663,264 Residential real estate Pass (1-6) $ 9,606 $ 50,504 $ 54,407 $ 37,471 $ 20,438 $ 94,722 $ 774 $ 91,520 $ 359,442 Special Mention (7) — 329 — — 77 1,119 — — 1,525 Classified (8-9) — 119 72 — 51 2,039 — 75 2,356 Total residential real estate $ 9,606 $ 50,952 $ 54,479 $ 37,471 $ 20,566 $ 97,880 $ 774 $ 91,595 $ 363,323 Other Pass (1-6) $ 960 $ 60,165 $ 85,417 $ 55,789 $ 9,973 $ 26,899 $ — $ 6,833 $ 246,036 Special Mention (7) — — — — — — — — — Classified (8-9) — — — — 2 12 — — 14 Total Other $ 960 $ 60,165 $ 85,417 $ 55,789 $ 9,975 $ 26,911 $ — $ 6,833 $ 246,050 Total loans classified by risk category $ 838,290 $ 2,931,209 $ 1,959,759 $ 1,239,905 $ 646,011 $ 979,775 $ 17,589 $ 1,319,543 $ 9,932,081 Total loans classified by performing status 79,837 Total loans $ 10,011,918 December 31, 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) $ 1,403,381 $ 635,275 $ 332,740 $ 172,127 $ 62,729 $ 66,152 $ 8,388 $ 964,592 $ 3,645,384 Special Mention (7) 37,048 10,836 13,858 423 7,995 4,102 — 72,944 147,206 Classified (8-9) 16,176 4,457 1,627 24 166 183 — 21,349 43,982 Total Commercial and industrial $ 1,456,605 $ 650,568 $ 348,225 $ 172,574 $ 70,890 $ 70,437 $ 8,388 $ 1,058,885 $ 3,836,572 Commercial real estate-investor owned Pass (1-6) $ 667,107 $ 584,644 $ 392,402 $ 240,033 $ 115,530 $ 202,661 $ 1,457 $ 53,051 $ 2,256,885 Special Mention (7) 18,844 5,751 23,502 11,605 — 13,063 — — 72,765 Classified (8-9) 1,823 — 465 953 193 6,092 49 — 9,575 Total Commercial real estate-investor owned $ 687,774 $ 590,395 $ 416,369 $ 252,591 $ 115,723 $ 221,816 $ 1,506 $ 53,051 $ 2,339,225 Commercial real estate-owner occupied Pass (1-6) $ 539,610 $ 555,690 $ 362,150 $ 232,335 $ 123,095 $ 270,613 $ — $ 57,308 $ 2,140,801 Special Mention (7) 11,164 3,801 16,856 4,455 13,043 9,009 — 800 59,128 Classified (8-9) — 1,572 3,483 8,910 15,873 11,387 — — 41,225 Total Commercial real estate-owner occupied $ 550,774 $ 561,063 $ 382,489 $ 245,700 $ 152,011 $ 291,009 $ — $ 58,108 $ 2,241,154 Construction real estate Pass (1-6) $ 290,146 $ 232,998 $ 53,129 $ 2,909 $ 2,061 $ 8,480 $ — $ 1,769 $ 591,492 Special Mention (7) 17,331 — 681 146 111 106 — — 18,375 Classified (8-9) 1,192 — — 14 471 21 — — 1,698 Total Construction real estate $ 308,669 $ 232,998 $ 53,810 $ 3,069 $ 2,643 $ 8,607 $ — $ 1,769 $ 611,565 Residential real estate Pass (1-6) $ 63,317 $ 60,910 $ 48,796 $ 20,943 $ 11,259 $ 88,795 $ 579 $ 96,304 $ 390,903 Special Mention (7) 331 — — 79 352 781 — — 1,543 Classified (8-9) 121 73 — 53 1,102 994 — 5 2,348 Total residential real estate $ 63,769 $ 60,983 $ 48,796 $ 21,075 $ 12,713 $ 90,570 $ 579 $ 96,309 $ 394,794 Other Pass (1-6) $ 38,753 $ 88,613 $ 56,252 $ 10,556 $ 20,508 $ 10,796 $ — $ 9,536 $ 235,014 Special Mention (7) — — — — — — — — — Classified (8-9) — — — 4 3 11 3 4 25 Total Other $ 38,753 $ 88,613 $ 56,252 $ 10,560 $ 20,511 $ 10,807 $ 3 $ 9,540 $ 235,039 Total loans classified by risk category $ 3,106,344 $ 2,184,620 $ 1,305,941 $ 705,569 $ 374,491 $ 693,246 $ 10,476 $ 1,277,662 $ 9,658,349 Total loans classified by performing status 78,789 Total loans $ 9,737,138 In the tables above, loan originations in 2023 and 2022 with a classification of “special mention” or “classified” primarily represent renewals or modifications initially underwritten and originated in prior years. For certain loans 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: March 31, 2023 (in thousands) Performing Non Performing Total Commercial and industrial $ 24,417 $ 73 $ 24,490 Real estate: Commercial - investor owned 18,417 — 18,417 Commercial - owner occupied 29,140 — 29,140 Residential 736 — 736 Other 7,042 12 7,054 Total $ 79,752 $ 85 $ 79,837 December 31, 2022 (in thousands) Performing Non Performing Total Commercial and industrial $ 23,240 $ 70 $ 23,310 Real estate: Commercial - investor owned 18,595 — 18,595 Commercial - owner occupied 29,397 — 29,397 Residential 743 — 743 Other 6,672 72 6,744 Total $ 78,647 $ 142 $ 78,789 |