Loans and Allowance for Credit Losses | Note 4 Loans and Allowance for Credit Losses Loans consisted of the following at the dates indicated (dollars in thousands): March 31, 2024 December 31, 2023 Total Percent of Total Total Percent of Total Commercial: Non-owner occupied commercial real estate $ 5,309,126 21.9 % $ 5,323,241 21.6 % Construction and land 529,645 2.2 % 495,992 2.0 % Owner occupied commercial real estate 1,916,651 7.9 % 1,935,743 7.9 % Commercial and industrial 6,745,622 27.9 % 6,971,981 28.3 % Pinnacle - municipal finance 864,796 3.6 % 884,690 3.6 % Franchise and equipment finance 347,103 1.4 % 380,347 1.5 % Mortgage warehouse lending 456,385 1.9 % 432,663 1.8 % 16,169,328 66.8 % 16,424,657 66.7 % Residential: 1-4 single family residential 6,814,865 28.1 % 6,903,013 28.0 % Government insured residential 1,242,107 5.1 % 1,306,014 5.3 % 8,056,972 33.2 % 8,209,027 33.3 % Total loans 24,226,300 100.0 % 24,633,684 100.0 % Allowance for credit losses (217,556) (202,689) Loans, net $ 24,008,744 $ 24,430,995 Premiums, discounts and deferred fees and costs, excluding the non-credit related discount on PCD loans, totaled $41 million and $45 million at March 31, 2024 and December 31, 2023, respectively. The following table presents the amortized cost basis of residential PCD loans and the related amount of non-credit discount, net of the related ACL, at the dates indicated (in thousands): March 31, 2024 December 31, 2023 UPB $ 76,342 $ 80,123 Non-credit discount (33,171) (35,249) Total amortized cost of PCD loans 43,171 44,874 ACL related to PCD loans (134) (161) PCD loans, net $ 43,037 $ 44,713 Included in loans, net are direct or sales type finance leases totaling $583 million and $602 million at March 31, 2024 and December 31, 2023, respectively. The amount of income recognized from direct or sales type finance leases for the three months ended March 31, 2024 and 2023 totaled $4.0 million and $4.3 million, respectively, and is included in interest income on loans in the consolidated statements of income. During the three months ended March 31, 2024 and 2023, the Company purchased residential loans totaling $67 million and $187 million, respectively. At March 31, 2024 and December 31, 2023, the Company had pledged loans with a carrying value of approximately $16.2 billion and $16.5 billion, respectively, as security for FHLB advances and Federal Reserve discount window capacity. Accrued interest receivable on loans totaled $138 million at both March 31, 2024 and December 31, 2023, and is included in other assets in the accompanying consolidated balance sheets. The amount of interest income reversed on non-accrual loans was not material for the three months ended March 31, 2024 and 2023. Allowance for credit losses Activity in the ACL is summarized below for the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Commercial Residential Total Commercial Residential Total Beginning balance $ 195,058 $ 7,631 $ 202,689 $ 136,205 $ 11,741 $ 147,946 Impact of adoption of ASU 2022-02 N/A N/A N/A (1,677) (117) (1,794) Balance after adoption of ASU 2022-02 195,058 7,631 202,689 134,528 11,624 146,152 Provision (recovery) 16,779 (974) 15,805 17,425 170 17,595 Charge-offs (5,352) (34) (5,386) (7,899) — (7,899) Recoveries 4,444 4 4,448 2,941 3 2,944 Ending balance $ 210,929 $ 6,627 $ 217,556 $ 146,995 $ 11,797 $ 158,792 The ACL was determined utilizing a 2-year reasonable and supportable forecast period. The quantitative portion of the ACL was determined using three weighted third-party provided economic scenarios. The ACL increased by $14.9 million, from 0.82% to 0.90% of total loans, at March 31, 2024, compared to December 31, 2023. The more significant factors impacting the provision for credit losses and increase in the ACL for the three months ended March 31, 2024, were an increase in qualitative loss factors and risk rating migration, partially offset by an improved economic forecast. The following table presents gross charge-offs during the three months ended March 31, 2024, by year of origination (in thousands): 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Total CRE $ — $ — $ — $ — $ — $ 486 $ — $ 486 C&I — 191 3,186 29 — 591 79 4,076 Franchise and equipment finance — — — — — 790 — 790 Residential — — — — — 34 — 34 $ — $ 191 $ 3,186 $ 29 $ — $ 1,901 $ 79 $ 5,386 The following table presents the components of the provision for credit losses for the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Amount related to funded portion of loans $ 15,805 $ 17,595 Amount related to off-balance sheet credit exposures (520) 2,193 Total provision for credit losses $ 15,285 $ 19,788 Credit quality indicators for residential loans Management considers delinquency status to be the most meaningful indicator of the credit quality of residential loans, other than government insured residential loans. Delinquency status is updated at least monthly. LTV and FICO scores are also important indicators of credit quality for 1-4 single family residential loans other than government insured loans. FICO scores are generally updated semi-annually, and were most recently updated in the first quarter of 2024. LTVs are typically at origination since we do not routinely update residential appraisals. Substantially all of the government insured residential loans are government insured buyout loans, which the Company buys out of GNMA securitizations upon default. For these loans, traditional measures of credit quality are not particularly relevant considering the guaranteed nature of the loans and the underlying business model. Factors that impact risk inherent in the residential portfolio segment include national and regional economic conditions such as levels of unemployment, wages and interest rates, as well as residential property values. 1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on delinquency status (in thousands): March 31, 2024 Amortized Cost By Origination Year 2024 2023 2022 2021 2020 Prior Total Current $ 45,089 $ 363,306 $ 1,093,852 $ 2,923,477 $ 839,473 $ 1,495,593 $ 6,760,790 30 - 59 Days Past Due — 2,033 5,986 5,444 5,651 17,067 36,181 60 - 89 Days Past Due — — 1,058 — — 221 1,279 90 Days or More Past Due — — 4,505 897 — 11,213 16,615 $ 45,089 $ 365,339 $ 1,105,401 $ 2,929,818 $ 845,124 $ 1,524,094 $ 6,814,865 December 31, 2023 Amortized Cost By Origination Year 2023 2022 2021 2020 2019 Prior Total Current $ 363,123 $ 1,117,039 $ 2,965,840 $ 854,376 $ 296,146 $ 1,255,688 $ 6,852,212 30 - 59 Days Past Due 2,200 1,785 7,201 5,745 — 14,527 31,458 60 - 89 Days Past Due — 2,116 1,465 — 143 2,728 6,452 90 Days or More Past Due — 5,872 — — 1,439 5,580 12,891 $ 365,323 $ 1,126,812 $ 2,974,506 $ 860,121 $ 297,728 $ 1,278,523 $ 6,903,013 1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on LTV (in thousands): March 31, 2024 Amortized Cost By Origination Year LTV 2024 2023 2022 2021 2020 Prior Total Less than 61% $ 3,734 $ 63,498 $ 256,645 $ 1,190,472 $ 321,803 $ 484,128 $ 2,320,280 61% - 70% 8,295 67,262 276,274 804,309 216,282 351,977 1,724,399 71% - 80% 32,772 234,579 570,411 900,665 306,968 646,898 2,692,293 More than 80% 288 — 2,071 34,372 71 41,091 77,893 $ 45,089 $ 365,339 $ 1,105,401 $ 2,929,818 $ 845,124 $ 1,524,094 $ 6,814,865 December 31, 2023 Amortized Cost By Origination Year LTV 2023 2022 2021 2020 2019 Prior Total Less than 61% $ 63,117 $ 260,403 $ 1,211,101 $ 326,771 $ 72,219 $ 428,451 $ 2,362,062 61% - 70% 67,146 280,602 813,682 221,091 71,652 293,784 1,747,957 71% - 80% 235,060 583,724 915,166 312,188 148,483 519,699 2,714,320 More than 80% — 2,083 34,557 71 5,374 36,589 78,674 $ 365,323 $ 1,126,812 $ 2,974,506 $ 860,121 $ 297,728 $ 1,278,523 $ 6,903,013 1-4 Single Family Residential credit exposure, excluding government insured residential loans, based on FICO score (in thousands): March 31, 2024 Amortized Cost By Origination Year FICO 2024 2023 2022 2021 2020 Prior Total 760 or greater $ 32,918 $ 262,572 $ 799,670 $ 2,340,757 $ 671,972 $ 1,071,738 $ 5,179,627 720 - 759 9,389 70,612 188,024 375,750 105,189 207,386 956,350 719 or less or not available 2,782 32,155 117,707 213,311 67,963 244,970 678,888 $ 45,089 $ 365,339 $ 1,105,401 $ 2,929,818 $ 845,124 $ 1,524,094 $ 6,814,865 December 31, 2023 Amortized Cost By Origination Year FICO 2023 2022 2021 2020 2019 Prior Total 760 or greater $ 253,774 $ 810,150 $ 2,378,572 $ 696,363 $ 203,966 $ 893,290 $ 5,236,115 720 - 759 78,882 194,135 392,179 99,412 50,984 210,663 1,026,255 719 or less or not available 32,667 122,527 203,755 64,346 42,778 174,570 640,643 $ 365,323 $ 1,126,812 $ 2,974,506 $ 860,121 $ 297,728 $ 1,278,523 $ 6,903,013 Past Due and Non-Accrual Loans: The following table presents an aging of loans at the dates indicated (in thousands): March 31, 2024 December 31, 2023 Current 30 - 59 60 - 89 90 Days or Total Current 30 - 59 60 - 89 90 Days or Total CRE $ 5,827,723 $ 2,332 $ — $ 8,716 $ 5,838,771 $ 5,779,309 $ 27,918 $ 1,947 $ 10,059 $ 5,819,233 C&I 8,603,178 13,084 160 45,851 8,662,273 8,851,585 16,228 5,536 34,375 8,907,724 Pinnacle - municipal finance 864,796 — — — 864,796 884,690 — — — 884,690 Franchise and equipment finance 345,090 1,593 — 420 347,103 380,347 — — — 380,347 Mortgage warehouse lending 456,385 — — — 456,385 432,663 — — — 432,663 1-4 single family residential 6,760,790 36,181 1,279 16,615 6,814,865 6,852,212 31,458 6,452 12,891 6,903,013 Government insured residential 805,859 127,661 53,216 255,371 1,242,107 835,282 131,652 61,942 277,138 1,306,014 $ 23,663,821 $ 180,851 $ 54,655 $ 326,973 $ 24,226,300 $ 24,016,088 $ 207,256 $ 75,877 $ 334,463 $ 24,633,684 Included in the table above is the guaranteed portion of SBA loans past due by 90 days or more totaling $37.8 million ($29.5 million of C&I and $8.3 million of CRE) and $39.7 million at March 31, 2024 and December 31, 2023, respectively. Loans contractually delinquent by 90 days or more and still accruing totaled $256 million and $278 million at March 31, 2024 and December 31, 2023, respectively, substantially all of which were government insured residential loans. These loans are government insured pool buyout loans, which the Company buys out of GNMA securitizations upon default. The following table presents information about loans on non-accrual status at the dates indicated (in thousands): March 31, 2024 December 31, 2023 Amortized Cost Amortized Cost With No Related Allowance Amortized Cost Amortized Cost With No Related Allowance CRE $ 12,258 $ 1,891 $ 13,727 $ 1,947 C&I 62,445 9,303 68,533 14,078 Franchise and equipment finance 22,630 7,305 23,678 7,796 1-4 single family residential 17,847 — 20,513 — $ 115,180 $ 18,499 $ 126,451 $ 23,821 Included in the table above is the guaranteed portion of non-accrual SBA loans totaling $40.0 million and $41.8 million at March 31, 2024 and December 31, 2023, respectively. The amount of interest income recognized on non-accrual loans was insignificant for the three months ended March 31, 2024 and 2023. The amount of additional interest income that would have been recognized on non-accrual loans had they performed in accordance with their contractual terms was approximately $2.5 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively. Collateral dependent loans: The following table presents the amortized cost basis of collateral dependent loans at the dates indicated (in thousands): March 31, 2024 December 31, 2023 Amortized Cost Extent to Which Secured by Collateral Amortized Cost Extent to Which Secured by Collateral CRE $ 10,995 $ 10,995 $ 11,574 $ 11,574 C&I 45,379 34,711 36,401 25,821 Franchise and equipment finance 22,210 18,330 23,488 18,678 $ 78,584 $ 64,036 $ 71,463 $ 56,073 Collateral for the CRE loan class generally consists of commercial real estate, or for certain construction loans, residential real estate. Collateral for C&I loans generally consists of equipment, accounts receivable, inventory and other business assets and for owner-occupied commercial real estate loans, may also include commercial real estate. Franchise and equipment finance loans may be collateralized by franchise value or by equipment. Residential loans are collateralized by residential real estate. There were no significant changes to the extent to which collateral secured collateral dependent loans during the three months ended March 31, 2024. Foreclosure of residential real estate The recorded investment in residential loans in the process of foreclosure was $238 million, of which $225 million was government insured at March 31, 2024, and $262 million, of which $250 million was government insured at December 31, 2023. The carrying amount of foreclosed residential real estate included in other assets in the accompanying consolidated balance sheet was insignificant at March 31, 2024 and December 31, 2023. Loan Modifications The following tables summarize loans that were modified for borrowers experiencing financial difficulty, by type of modification, during the periods indicated (dollars in thousands): Three Months Ended March 31, 2024 Interest Rate Reduction Term Extension Combination - Interest Rate Reduction and Term Extension Total % (1) Total % (1) Total % (1) Total CRE $ — — % $ 8,486 — % $ — — % $ 8,486 C&I — — % 1,743 — % 29 — % 1,772 Government insured residential — — % 14,422 1 % 2,623 — % 17,045 $ — $ 24,651 $ 2,652 $ 27,303 Three Months Ended March 31, 2023 Interest Rate Reduction Term Extension Combination - Interest Rate Reduction and Term Extension Total % (1) Total % (1) Total % (1) Total C&I $ — — % $ 4,918 — % $ — — % $ 4,918 1-4 single family residential 766 — % — — % — — % 766 Government insured residential 109 — % 36,920 2 % 2,312 — % 39,341 $ 875 $ 41,838 $ 2,312 $ 45,025 (1) Represents percentage of loans receivable in each category. The following tables summarize the financial effect of the modifications made to borrowers experiencing difficulty, during the periods indicated: Three Months Ended March 31, 2024 Financial Effect Term Extension: CRE Added a weighted average 0.2 years to the term of the modified loans. C&I Added a weighted average 0.3 years to the term of the modified loans. Government insured residential Added a weighted average 11.2 years to the term of the modified loans. Combination - Interest Rate Reduction and Term Extension: C&I Reduced weighted average contractual interest rate from 21.2% to 5.0% and added a weighted average 2.2 years to the term of the modified loans. Government insured residential Reduced weighted average contractual interest rate from 6.8% to 6.4% and added a weighted average 3.7 years to the term of the modified loans. Three Months Ended March 31, 2023 Financial Effect Interest Rate Reduction: 1-4 single family residential Reduced weighted average contractual interest rate from 3.8% to 3.1%. Government insured residential Reduced weighted average contractual interest rate from 4.8% to 3.8%. Term Extension: C&I Added a weighted average 0.7 years to the term of the modified loans. Government insured residential Added a weighted average 9.6 years to the term of the modified loans. Combination - Interest Rate Reduction and Term Extension: Government insured residential Reduced weighted average contractual interest rate from 5.8% to 4.9% and added a weighted average 6.9 years to the term of the modified loans. The following tables present the aging at March 31, 2024, of loans that were modified within the previous 12 months, and at March 31, 2023, of loans that were modified since January 1, 2023, the date of adoption of ASU 2022-02 (in thousands): March 31, 2024 Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total CRE $ 8,486 $ — $ — $ — $ 8,486 C&I 3,953 — — — 3,953 Franchise and equipment finance 10,425 — — — 10,425 1-4 single family residential 74 — — — 74 Government insured residential 17,123 9,001 4,439 20,974 51,537 $ 40,061 $ 9,001 $ 4,439 $ 20,974 $ 74,475 March 31, 2023 Current 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total C&I $ 4,918 $ — $ — $ — $ 4,918 1-4 single family residential 766 — — — 766 Government insured residential 22,346 11,083 4,683 1,229 39,341 $ 28,030 $ 11,083 $ 4,683 $ 1,229 $ 45,025 The following tables summarize loans that were modified within the previous 12 months and defaulted during the periods indicated (in thousands): Three Months Ended March 31, 2024 Interest Rate Reduction Term Extension Combination - Interest Rate Reduction and Term Extension Total Government insured residential $ — $ 10,262 $ — $ 10,262 Three Months Ended March 31, 2023 Interest Rate Reduction Term Extension Combination - Interest Rate Reduction and Term Extension Total Government insured residential $ 109 $ 5,070 $ 733 $ 5,912 |