Loans | LOANS The following table presents a summary of loans by category: ($ in thousands) December 31, 2023 December 31, 2022 Commercial and industrial $ 4,674,056 $ 3,859,964 Real estate loans: Commercial - investor owned 2,452,402 2,357,820 Commercial - owner occupied 2,344,117 2,270,551 Construction and land development 760,122 611,565 Residential 371,995 395,537 Total real estate loans 5,928,636 5,635,473 Other 285,653 248,990 Loans, before unearned loan fees 10,888,345 9,744,427 Unearned loan fees, net (4,227) (7,289) Loans, including unearned loan fees $ 10,884,118 $ 9,737,138 The loan balance includes a net premium on acquired loans of $9.6 million and $11.9 million at December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022 loans of $4.8 billion and $2.8 billion, respectively, were pledged to the FHLB and the Federal Reserve. Consumer mortgage loans secured by residential real estate in process of foreclosure totaled $1.0 million at December 31, 2023. There were no consumer mortgage loans secured by residential real estate in process of foreclosure at December 31, 2022. Loans to executive officers and directors, or to entities in which such individuals had beneficial interests as a shareholder, officer, or director totaled $0.1 million and $0.1 million for the year ended December 31, 2023 and 2022, respectively. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility. A summary of the activity, by loan category, in the allowance for credit losses on loans for 2021, 2022, and 2023 is as follows: ($ in thousands) Commercial and industrial CRE - investor owned CRE - owner occupied Construction and land development Residential real estate Other Total Balance at December 31, 2021 Allowance for credit losses on loans: Balance, beginning of year $ 58,812 $ 32,062 $ 17,012 $ 21,413 $ 4,585 $ 2,787 $ 136,671 Provision (benefit) for credit 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 Balance at December 31, 2022 Allowance for credit losses on loans: Balance, beginning of year $ 63,825 $ 35,877 $ 17,560 $ 14,536 $ 7,927 $ 5,316 $ 145,041 Provision (benefit) for credit losses (6,121) 46 4,867 (3,145) 540 (397) (4,210) Charge-offs (6,082) (478) (395) — (2,068) (370) (9,393) Recoveries 2,213 746 720 53 1,529 233 5,494 Balance, end of year $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932 Balance at December 31, 2023 Allowance for credit losses on loans: Balance, beginning of year $ 53,835 $ 36,191 $ 22,752 $ 11,444 $ 7,928 $ 4,782 $ 136,932 Provision (benefit) for credit losses 38,308 (335) 523 (1,300) (2,109) 796 35,883 Charge-offs (36,302) (4,869) — (9) (656) (1,379) (43,215) Recoveries 3,045 293 130 63 979 661 5,171 Balance, end of year $ 58,886 $ 31,280 $ 23,405 $ 10,198 $ 6,142 $ 4,860 $ 134,771 The Company recorded a provision for credit losses on loans of $35.9 million and a provision benefit for credit losses of $4.2 million for the years ended December 31, 2023 and 2022, respectively. An additional provision for credit losses of $0.7 million and $3.6 million was recorded in 2023 and 2022, respectively, for securities, unfunded commitments and accrued interest on nonaccrual loans. Acquisition-related provision expense of $25.4 million in 2021 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 $12.3 million to the ACL over the baseline model at December 31, 2023. The forecasts at the end of 2023 incorporate an expectation that the federal funds rate has peaked at the range of 5.25% to 5.50% and will begin falling in the latter half of 2024. It is also assumed that the bank failures in early 2023 were 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 commercial office 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 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 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, 2023, the ACL on loans included a qualitative adjustment of $37.4 million. Of this amount, $15.2 million was allocated to Sponsor Finance loans due to their unsecured nature. Gross charge-offs by loan class and year of origination is presented in the following table: December 31, 2023 Term Loans by Origination Year ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Loans Revolving Loans Total Commercial and industrial $ 600 $ 2,999 $ 1,940 $ 2,539 $ — $ — $ 12,533 $ 15,178 $ 35,789 Real estate: Commercial - investor owned — — 170 — 4,692 7 — — 4,869 Construction and land development — — — — — 9 — — 9 Residential — — — — — 480 176 — 656 Other — 3 459 — — 319 12 — 793 Total charge-offs by origination year $ 600 $ 3,002 $ 2,569 $ 2,539 $ 4,692 $ 815 $ 12,721 $ 15,178 $ 42,116 Total gross charge-offs by performing status 1,099 Total gross charge-offs $ 43,215 The following tables present the recorded investment in nonperforming loans by category, excluding government guaranteed balances: December 31, 2023 ($ 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 $ 7,641 $ — $ 115 $ 7,756 $ 6,179 Real estate: Commercial - investor owned 20,404 — — 20,404 19,466 Commercial - owner occupied 12,972 — 363 13,335 9,010 Construction and land development 1,205 — 64 1,269 464 Residential 959 — — 959 959 Other — — 5 5 — Total $ 43,181 $ — $ 547 $ 43,728 $ 36,078 December 31, 2022 ($ 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 $ 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 December 31, 2023 and December 31, 2022 exclude government guaranteed balances of $10.7 million and $6.7 million, respectively. Interest income recognized on nonaccrual loans was immaterial in the years ending December 31, 2021, 2022 and 2023. Collateral-dependent nonperforming loans by class of loan is presented as of the dates indicated: December 31, 2023 Type of Collateral ($ in thousands) Commercial Real Estate Residential Real Estate Blanket Lien Other Commercial and industrial $ 527 $ 1,864 $ 344 $ 3,445 Real estate: Commercial - investor owned 19,467 — — — Commercial - owner occupied 5,904 1,638 1,831 — Construction and land development 528 741 — — Residential — 959 — — Total $ 26,426 $ 5,202 $ 2,175 $ 3,445 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 and category is presented as of the dates indicated. December 31, 2023 ($ in thousands) 30-89 Days 90 or More Total Current Total Commercial and industrial $ 3,445 $ 9,037 $ 12,482 $ 4,661,574 $ 4,674,056 Real estate: Commercial - investor owned 1,905 18,395 20,300 2,432,102 2,452,402 Commercial - owner occupied 8,409 14,142 22,551 2,321,566 2,344,117 Construction and land development 770 1,908 2,678 757,444 760,122 Residential 1,620 959 2,579 369,416 371,995 Other 82 4 86 285,567 285,653 Loans, before unearned loan fees 16,231 44,445 60,676 10,827,669 10,888,345 Unearned loan fees, net (4,227) Total $ 10,884,118 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 and 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 the recorded investment at the end of the reporting period for loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted: Term Extension Twelve months ended ($ in thousands) December 31, 2023 Percent of Total Loan Class Commercial and industrial $ 39,437 0.84 % Real estate: Commercial - investor owned 9,411 0.38 % Commercial - owner occupied 94 — % Construction and land development 1,137 0.15 % Residential 7,601 2.04 % Other 4 — % Total $ 57,684 The following table summarizes the financial impacts of loan modifications made to borrowers experiencing financial difficulty and outstanding at the end of the year: Weighted Average Term Extension (in months) Twelve months ended December 31, 2023 Commercial and industrial 5 Real estate: Commercial - investor owned 4 Commercial - owner occupied 3 Construction and land development 7 Residential 3 Other 48 The following table shows the aging of the recorded investment in modified loans by class: December 31, 2023 ($ in thousands) Current 30-89 Days 90 or More Total Commercial and industrial $ 39,187 $ 250 $ — $ 39,437 Real estate: Commercial - investor owned 9,411 — — 9,411 Commercial - owner occupied — 94 — 94 Construction and land development 1,137 — — 1,137 Residential 7,527 74 — 7,601 Other — 4 — 4 Total $ 57,262 $ 422 $ — $ 57,684 As of December 31, 2023, no loans experienced a default subsequent to being granted a term extension modification in the prior twelve months. Default is defined as movement to nonperforming status, foreclosure or charge-off. As of December 31, 2023, the Company allocated an immaterial amount in specific reserves to loans that have been restructured. 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 – Special Mention 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 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, 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) $ 1,567,738 $ 1,052,462 $ 345,292 $ 194,972 $ 123,425 $ 71,205 $ 12,163 $ 1,108,233 $ 4,475,490 Special Mention (7) 52,523 6,845 8,597 544 453 242 272 19,590 89,066 Classified (8-9) 12,824 19,306 1,833 812 339 363 508 45,830 81,815 Total Commercial and industrial $ 1,633,085 $ 1,078,613 $ 355,722 $ 196,328 $ 124,217 $ 71,810 $ 12,943 $ 1,173,653 $ 4,646,371 Commercial real estate-investor owned Pass (1-6) $ 495,131 $ 544,223 $ 492,974 $ 323,175 $ 165,343 $ 236,914 $ 5,222 $ 51,413 $ 2,314,395 Special Mention (7) 3,626 22,725 51,851 1,657 164 5,526 — — 85,549 Classified (8-9) 9,411 1,034 43 15,838 2,831 4,919 48 — 34,124 Total Commercial real estate-investor owned $ 508,168 $ 567,982 $ 544,868 $ 340,670 $ 168,338 $ 247,359 $ 5,270 $ 51,413 $ 2,434,068 Commercial real estate-owner occupied Pass (1-6) $ 407,901 $ 486,701 $ 489,589 $ 301,399 $ 183,872 $ 313,474 $ 5,083 $ 30,036 $ 2,218,055 Special Mention (7) 13,739 2,521 4,652 10,492 5,439 15,833 — 1,493 54,169 Classified (8-9) 3,389 3,413 2,247 3,181 8,878 24,857 5,056 — 51,021 Total Commercial real estate-owner occupied $ 425,029 $ 492,635 $ 496,488 $ 315,072 $ 198,189 $ 354,164 $ 10,139 $ 31,529 $ 2,323,245 Construction real estate Pass (1-6) $ 292,689 $ 325,010 $ 96,426 $ 30,956 $ 1,413 $ 3,408 $ 10 $ 3,700 $ 753,612 Special Mention (7) 42 2,958 1,046 210 123 114 — — 4,493 Classified (8-9) 1,137 704 — — 13 466 — — 2,320 Total Construction real estate $ 293,868 $ 328,672 $ 97,472 $ 31,166 $ 1,549 $ 3,988 $ 10 $ 3,700 $ 760,425 Residential real estate Pass (1-6) $ 59,259 $ 41,956 $ 51,436 $ 30,713 $ 17,793 $ 77,327 $ 1,464 $ 78,351 $ 358,299 Special Mention (7) 322 — — — 75 1,801 — 614 2,812 Classified (8-9) 127 1,073 69 — 30 1,492 74 7,500 10,365 Total residential real estate $ 59,708 $ 43,029 $ 51,505 $ 30,713 $ 17,898 $ 80,620 $ 1,538 $ 86,465 $ 371,476 Other Pass (1-6) $ 10,071 $ 55,923 $ 67,766 $ 53,569 $ 9,382 $ 19,657 $ 7 $ 28,464 $ 244,839 Special Mention (7) — — 14,472 — — — — 11,645 26,117 Classified (8-9) — — — — — 8 — — 8 Total Other $ 10,071 $ 55,923 $ 82,238 $ 53,569 $ 9,382 $ 19,665 $ 7 $ 40,109 $ 270,964 Total loans classified by risk category $ 2,929,929 $ 2,566,854 $ 1,628,293 $ 967,518 $ 519,573 $ 777,606 $ 29,907 $ 1,386,869 $ 10,806,549 Total loans classified by performing status 77,569 Total loans $ 10,884,118 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 in loans based on payment activity as of the dates indicated: December 31, 2023 ($ in thousands) Performing Non Performing Total Commercial and industrial $ 26,076 $ 112 $ 26,188 Real estate: Commercial - investor owned 17,885 — 17,885 Commercial - owner occupied 28,373 — 28,373 Residential 712 — 712 Other 4,406 5 4,411 Total $ 77,452 $ 117 $ 77,569 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 |