| Loans and Allowance for Credit Losses | LOANS AND ALLOWANCE FOR CREDIT LOSSES At June 30, 2023, the Company’s loan portfolio was $16.83 billion, compared to $16.14 billion at December 31, 2022. The various categories of loans are summarized as follows: June 30, December 31, (In thousands) 2023 2022 Consumer: Credit cards $ 209,452 $ 196,928 Other consumer 148,333 152,882 Total consumer 357,785 349,810 Real Estate: Construction and development 2,930,586 2,566,649 Single family residential 2,633,365 2,546,115 Other commercial 7,546,130 7,468,498 Total real estate 13,110,081 12,581,262 Commercial: Commercial 2,569,330 2,632,290 Agricultural 280,541 205,623 Total commercial 2,849,871 2,837,913 Other 515,916 373,139 Total loans $ 16,833,653 $ 16,142,124 The above table presents total loans at amortized cost. The difference between amortized cost and unpaid principal balance is primarily premiums and discounts associated with acquisition date fair value adjustments on acquired loans as well as deferred origination costs and fees totaling $13.6 million and $26.4 million at June 30, 2023 and December 31, 2022, respectively. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $66.2 million and $65.4 million at June 30, 2023 and December 31, 2022, respectively, and is included in interest receivable on the consolidated balance sheets. Loan Origination/Risk Management – The Company seeks to manage its credit risk by diversifying its loan portfolio, determining that borrowers have adequate sources of cash flow for loan repayment without liquidation of collateral; obtaining and monitoring collateral; and providing an adequate allowance for credit losses by regularly reviewing loans through the internal loan review process. The loan portfolio is diversified by borrower, purpose and industry. The Company seeks to use diversification within the loan portfolio to reduce its credit risk, thereby minimizing the adverse impact on the portfolio if weaknesses develop in either the economy or a particular segment of borrowers. Collateral requirements are based on credit assessments of borrowers and may be used to recover the debt in case of default. Consumer – The consumer loan portfolio consists of credit card loans and other consumer loans. Credit card loans are diversified by geographic region to reduce credit risk and minimize any adverse impact on the portfolio. Although they are regularly reviewed to facilitate the identification and monitoring of creditworthiness, credit card loans are unsecured loans, making them more susceptible to economic downturns that result in increased unemployment. Other consumer loans include direct and indirect installment loans and account overdrafts. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures. Real estate – The real estate loan portfolio consists of construction and development loans (“C&D”), single family residential loans and commercial loans. C&D and commercial real estate (“CRE”) loans can be particularly sensitive to valuation of real estate. CRE cycles are inevitable. The long planning and production process for new properties and rapid shifts in business conditions and employment create an inherent tension between supply and demand for commercial properties. While general economic trends often move individual markets in the same direction over time, the timing and magnitude of changes are determined by other forces unique to each market. CRE cycles tend to be local in nature and longer than other credit cycles. Factors influencing the CRE market are traditionally different from those affecting residential real estate markets; thereby making predictions for one market based on the other difficult. Additionally, submarkets within CRE – such as office, industrial, apartment, retail and hotel – also experience different cycles, providing an opportunity to lower the overall risk through diversification across types of CRE loans. Management realizes that local demand and supply conditions will also mean that different geographic areas will experience cycles of different amplitude and duration. The Company monitors these loans closely. Commercial – The commercial loan portfolio includes commercial and agricultural loans, representing loans to commercial customers and farmers for use in normal business or farming operations to finance working capital needs, equipment purchases or other expansion projects. Paycheck Protection Program (“PPP”) loans are also included in the commercial loan portfolio. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrowers, particularly cash flow from customers’ business or farming operations. The Company continues its efforts to keep loan terms short, reducing the negative impact of upward movement in interest rates. Term loans are generally set up with one Paycheck Protection Program Loans – The Company originated loans pursuant to multiple PPP appropriations of the Coronavirus Aid, Relief and Economic Security Act which provided 100% federally guaranteed loans for small businesses to cover up to 24 weeks of payroll costs and assistance with mortgage interest, rent and utilities. Notably, these small business loans may be forgiven by the SBA if borrowers maintain their payrolls and satisfy certain other conditions. PPP loans have a zero percent risk-weight for regulatory capital ratios. As of June 30, 2023 and December 31, 2022, the total outstanding balance of PPP loans was $6.8 million and $8.9 million, respectively. Other – The other loan portfolio includes mortgage warehouse loans, representing warehouse lines of credit to mortgage originators for the disbursement of newly originated 1-4 family residential loans. Also included in the other loan portfolio are loans to public sector customers, including state and local governments. Nonaccrual and Past Due Loans – Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The amortized cost basis of nonaccrual loans segregated by category of loans are as follows: June 30, December 31, (In thousands) 2023 2022 Consumer: Credit cards $ 268 $ 349 Other consumer 629 433 Total consumer 897 782 Real estate: Construction and development 3,400 2,799 Single family residential 21,427 22,319 Other commercial 14,142 14,998 Total real estate 38,969 40,116 Commercial: Commercial 29,162 17,356 Agricultural 2,248 177 Total commercial 31,410 17,533 Other 3 3 Total $ 71,279 $ 58,434 As of June 30, 2023 and December 31, 2022, nonaccrual loans for which there was no related allowance for credit losses had an amortized cost of $13.0 million and $16.9 million, respectively. These loans are individually assessed and do not hold an allowance due to being adequately collateralized under the collateral-dependent valuation method. An age analysis of the amortized cost basis of past due loans, including nonaccrual loans, segregated by class of loans is as follows: (In thousands) Gross 90 Days Total Current Total 90 Days June 30, 2023 Consumer: Credit cards $ 1,666 $ 495 $ 2,161 $ 207,291 $ 209,452 $ 426 Other consumer 1,217 245 1,462 146,871 148,333 — Total consumer 2,883 740 3,623 354,162 357,785 426 Real estate: Construction and development 1,273 3,233 4,506 2,926,080 2,930,586 — Single family residential 11,035 8,022 19,057 2,614,308 2,633,365 28 Other commercial 4,762 7,433 12,195 7,533,935 7,546,130 — Total real estate 17,070 18,688 35,758 13,074,323 13,110,081 28 Commercial: Commercial 4,990 18,776 23,766 2,545,564 2,569,330 284 Agricultural 247 1,978 2,225 278,316 280,541 — Total commercial 5,237 20,754 25,991 2,823,880 2,849,871 284 Other — 3 3 515,913 515,916 — Total $ 25,190 $ 40,185 $ 65,375 $ 16,768,278 $ 16,833,653 $ 738 December 31, 2022 Consumer: Credit cards $ 1,297 $ 409 $ 1,706 $ 195,222 $ 196,928 $ 225 Other consumer 852 214 1,066 151,816 152,882 — Total consumer 2,149 623 2,772 347,038 349,810 225 Real estate: Construction and development 4,677 443 5,120 2,561,529 2,566,649 — Single family residential 23,625 11,075 34,700 2,511,415 2,546,115 106 Other commercial 2,759 7,100 9,859 7,458,639 7,468,498 — Total real estate 31,061 18,618 49,679 12,531,583 12,581,262 106 Commercial: Commercial 5,034 7,575 12,609 2,619,681 2,632,290 176 Agricultural 111 67 178 205,445 205,623 — Total commercial 5,145 7,642 12,787 2,825,126 2,837,913 176 Other 61 3 64 373,075 373,139 — Total $ 38,416 $ 26,886 $ 65,302 $ 16,076,822 $ 16,142,124 $ 507 Loan Modifications to Borrowers Experiencing Financial Difficulty The Company has internal loan modification programs for borrowers experiencing financial difficulties. Modifications to borrowers experiencing financial difficulties may include interest rate reductions, principal or interest forgiveness and/or term extensions. The Company primarily uses interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. The following table presents the period-end balance of loan modifications, segregated by type of modification, to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023. Combination: Interest Rate Percent of Modification and Total Class (Dollars in thousands) Term Extension of Loans Commercial: Commercial $ 655 0.03 % Total commercial $ 655 0.03 % The financial effects of the loan modification made to a borrower experiencing financial difficulty was not significant during the three and six month periods ended June 30, 2023. The loan modification reported in the table above did not significantly impact the Company’s determination of the allowance for credit losses on loans during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2023, the Company modified one loan, whereby the borrower was experiencing financial difficulty at the time of modification, that was current as of June 30, 2023 with a recorded investment of $655,000. Additionally, there were no modified loans for which a payment default occurred during the three and six month periods ended June 30, 2023 and were modified in the 12 months prior to default. At June 30, 2023 and December 31, 2022, the Company had $1.3 million and $3.0 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. At June 30, 2023 and December 31, 2022, the Company had $423,000 and $853,000, respectively, of Other Real Estate Owned (“OREO”) secured by residential real estate properties. Troubled Debt Restructurings (Prior to the adoption of ASU 2022-02) When the Company restructured a loan to a borrower that was experiencing financial difficulty and granted a concession that it would not otherwise consider, a “troubled debt restructuring” (“TDR”) resulted, and the Company classified the loan as a TDR. The Company granted various types of concessions, primarily interest rate reduction and/or payment modifications or extensions, with an occasional forgiveness of principal. Once an obligation was restructured because of such credit problems, it continued to be considered a TDR until paid in full; or, if an obligation yielded a market interest rate and no longer has any concession regarding payment amount or amortization, then it was not considered a TDR at the beginning of the calendar year after the year in which the improvement had taken place. The Company returned TDRs to accrual status only if (1) all contractual amounts due were reasonably expected to be repaid within a prudent period and (2) repayment was in accordance with the contract for a sustained period, typically at least six months. TDRs were individually evaluated for expected credit losses. The Company assessed the exposure for each modification, either by the fair value of the underlying collateral or the present value of expected cash flows, and determined if a specific allowance for credit losses was needed. The following table presents a summary of TDRs segregated by class of loans as of December 31, 2022. Accruing TDR Loans Nonaccrual TDR Loans Total TDR Loans (Dollars in thousands) Number Balance Number Balance Number Balance Real estate: Single-family residential 24 $ 1,849 12 $ 1,589 36 $ 3,438 Other commercial — — — — — — Total real estate 24 1,849 12 1,589 36 3,438 Commercial: Commercial — — 1 33 1 33 Total commercial — — 1 33 1 33 Total 24 $ 1,849 13 $ 1,622 37 $ 3,471 The following table presents loans that were restructured as TDRs during the three and six month periods ended June 30, 2022. (Dollars in thousands) Number of loans Balance Prior to TDR Balance at June 30, Change in Maturity Date Change in Rate Financial Impact on Date of Restructure Three and Six Months Ended June 30, 2022 Real estate: Other commercial 1 $ 13 $ 13 $ — $ 13 $ — Total real estate 1 $ 13 $ 13 $ — $ 13 $ — During the three and six months ended June 30, 2022, the Company modified one loan with a recorded investment of $13,000 prior to modification, which was deemed a TDR. The restructured loan was modified by reducing the interest rate on the loan. No specific reserve was recorded with respect to this TDR. Also, there was no immediate financial impact from the restructuring of this loan, as it was not considered necessary to charge-off interest or principal on the date of restructure. Additionally, there were no loans considered TDRs for which a payment default occurred during the six months ended June 30, 2022. There were no TDRs with pre-modification loan balances for which OREO was received in full or partial satisfaction of the loans during the three and six month period ended June 30, 2022. Credit Quality Indicators – As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the weighted-average risk rating of commercial and real estate loans, (ii) the level of classified commercial and real estate loans, (iii) net charge-offs, (iv) non-performing loans (see details above) and (v) the general economic conditions of the Company’s local markets. The Company utilizes a risk rating matrix to assign a risk rate to each of its commercial and real estate loans. Risk ratings are updated on an ongoing basis and are subject to change by continuous loan monitoring processes including lending management monitoring, executive management and board committee oversight, and independent credit review. A description of the general characteristics of the risk ratings is as follows: • Pass (Excellent) – This category includes loans which are virtually free of credit risk. Borrowers in this category represent the highest credit quality and greatest financial strength. • Pass (Good) - Loans under this category possess a nominal risk of default. This category includes borrowers with strong financial strength and superior financial ratios and trends. These loans are generally fully secured by cash or equivalents (other than those rated “excellent”). • Pass (Acceptable – Average) - Loans in this category are considered to possess a normal level of risk. Borrowers in this category have satisfactory financial strength and adequate cash flow coverage to service debt requirements. If secured, the perfected collateral should be of acceptable quality and within established borrowing parameters. • Pass (Monitor) - Loans in the Watch (Monitor) category exhibit an overall acceptable level of risk, but that risk may be increased by certain conditions, which represent “red flags”. These “red flags” require a higher level of supervision or monitoring than the normal “Pass” rated credit. The borrower may be experiencing these conditions for the first time, or it may be recovering from weakness, which at one time justified a higher rating. These conditions may include: weaknesses in financial trends; marginal cash flow; one-time negative operating results; non-compliance with policy or borrowing agreements; poor diversity in operations; lack of adequate monitoring information or lender supervision; questionable management ability/stability. • Special Mention - A loan in this category has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified (although they are “criticized”) and do not expose an institution to sufficient risk to warrant adverse classification. Borrowers may be experiencing adverse operating trends or an ill-proportioned balance sheet. Non-financial characteristics of a Special Mention rating may include management problems, pending litigation, a non-existent or ineffective loan agreement or other material structural weakness, and/or other significant deviation from prudent lending practices. • Substandard - A Substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the loan. • Doubtful - A loan classified Doubtful has all the weaknesses inherent in a substandard loan except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. The possibility of loss is extremely high, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Pending factors include: proposed merger or acquisition; liquidation procedures; capital injection; perfection of liens on additional collateral; and refinancing plans. Loans classified as Doubtful are placed on nonaccrual status. • Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loans has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless loan, even though partial recovery may be affected in the future. Borrowers in the Loss category are often in bankruptcy, have formally suspended debt repayments, or have otherwise ceased normal business operations. Loans should be classified as Loss and charged-off in the period in which they become uncollectible. The Company monitors credit quality in the consumer portfolio by delinquency status. The delinquency status of loans is updated daily. A description of the delinquency credit quality indicators is as follows: • Current - Loans in this category are either current in payments or are under 30 days past due. These loans are considered to have a normal level of risk. • 30-89 Days Past Due - Loans in this category are between 30 and 89 days past due and are subject to the Company’s loss mitigation process. These loans are considered to have a moderate level of risk. • 90+ Days Past Due - Loans in this category are 90 days or more past due and are placed on nonaccrual status. These loans have been subject to the Company’s loss mitigation process and foreclosure and/or charge-off proceedings have commenced. The Company uses a dual risk rating scale that utilizes quantitative models and qualitative factors (“score cards”) to assist in determining the appropriate risk rating for its commercial loans. This dual risk rating methodology incorporates a “probability of default” analysis which utilizes quantified metrics such as loan terms and financial performance, as well as a “loss given default” analysis which utilizes collateral values and economics of the market, among other attributes. Model outputs are reviewed and analyzed to ensure the projected risk levels are commensurate with underwriting and credit leader expectations. The risk rating scale includes Probability of Default levels of 1 – 16 and Loss Given Default levels of A – I. The scale allows for more granular recognition of risk and diversification of grading among traditional Pass grades. The following is a reconciliation between the expanded risk rating scale and the Company’s traditional risk rating segments utilized within the commercial loan classes presented in the credit quality indicator tables. • Pass - Includes loans with an expanded risk rating of 1 through 11. Loans with a risk rating of 10 and 11 equate to loans included on management’s “watch list” and is intended to be utilized on a temporary basis for pass grade borrowers where a significant risk-modifying action is anticipated in the near term. • Special Mention - Includes loans with an expanded risk rating of 12. • Substandard - Includes loans with an expanded risk rating of 13 and 14. • Doubtful and loss - Includes loans with an expanded risk rating of 15 and 16. The following table presents a summary of loans by credit quality indicator, as of June 30, 2023, segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 (YTD) 2022 2021 2020 2019 2018 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 207,291 $ — $ 207,291 30-89 days past due — — — — — — 1,666 — 1,666 90+ days past due — — — — — — 495 — 495 Total consumer - credit cards — — — — — — 209,452 — 209,452 Current-period consumer - credit cards gross charge-offs — — — — — — 2,486 — 2,486 Consumer - other Delinquency: Current 51,542 49,740 18,189 6,047 2,469 2,595 16,289 — 146,871 30-89 days past due 145 476 185 195 6 37 173 — 1,217 90+ days past due — 65 153 — 9 17 1 — 245 Total consumer - other 51,687 50,281 18,527 6,242 2,484 2,649 16,463 — 148,333 Current-period consumer - other gross charge-offs 18 513 214 55 28 97 143 — 1,068 Real estate - C&D Risk rating: Pass 63,331 185,255 65,189 41,966 12,798 26,591 2,522,794 — 2,917,924 Special mention — — — — — 406 3,342 — 3,748 Substandard — 565 103 2 11 196 8,037 — 8,914 Doubtful and loss — — — — — — — — — Total real estate - C&D 63,331 185,820 65,292 41,968 12,809 27,193 2,534,173 — 2,930,586 Current-period real estate - C&D gross charge-offs — 1,148 — — — 8 — — 1,156 Real estate - SF residential Delinquency: Current 230,962 656,365 373,639 237,589 122,329 637,891 354,957 576 2,614,308 30-89 days past due 13 1,838 1,609 478 54 5,639 1,404 — 11,035 90+ days past due — 451 985 497 597 5,140 352 — 8,022 Total real estate - SF residential 230,975 658,654 376,233 238,564 122,980 648,670 356,713 576 2,633,365 Current-period real estate - SF residential gross charge-offs — 1 — — — 109 200 — 310 Real estate - other commercial Risk rating: Pass 256,143 1,747,880 1,280,524 585,377 219,471 866,189 2,282,403 — 7,237,987 Special mention 16,810 1,279 27,790 10,642 2,686 46,041 97,843 — 203,091 Substandard 438 9,361 17,719 9,226 3,456 28,954 35,898 — 105,052 Doubtful and loss — — — — — — — — — Total real estate - other commercial 273,391 1,758,520 1,326,033 605,245 225,613 941,184 2,416,144 — 7,546,130 Current-period real estate - other commercial gross charge-offs — — — 7 — 35 131 — 173 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 (YTD) 2022 2021 2020 2019 2018 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Commercial Risk rating: Pass 222,995 466,055 248,760 114,917 55,019 75,495 1,325,382 348 2,508,971 Special mention 18 12,032 1,061 24 14 947 11,578 — 25,674 Substandard 28 7,723 3,561 1,066 1,325 5,649 15,270 — 34,622 Doubtful and loss — 61 — — — 2 — — 63 Total commercial 223,041 485,871 253,382 116,007 56,358 82,093 1,352,230 348 2,569,330 Current-period commercial - gross charge-offs — 332 205 140 158 180 619 — 1,634 Commercial - agriculture Risk rating: Pass 26,529 37,597 18,044 7,414 2,218 2,056 183,682 17 277,557 Special mention — — — — — — — — — Substandard — 635 488 256 40 28 1,537 — 2,984 Doubtful and loss — — — — — — — — — Total commercial - agriculture 26,529 38,232 18,532 7,670 2,258 2,084 185,219 17 280,541 Current-period commercial - agriculture gross charge-offs — — — — — 3 — — 3 Other Delinquency: Current 25,701 147,955 29,128 7,408 3,724 43,391 258,606 — 515,913 30-89 days past due — — — — — — — — — 90+ days past due — — — — — 3 — — 3 Total other 25,701 147,955 29,128 7,408 3,724 43,394 258,606 — 515,916 Current-period other - gross charge-offs — — — — — — 54 — 54 Total $ 894,655 $ 3,325,333 $ 2,087,127 $ 1,023,104 $ 426,226 $ 1,747,267 $ 7,329,000 $ 941 $ 16,833,653 The following table presents a summary of loans by credit quality indicator, as of December 31, 2022, segregated by class of loans. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 2017 and Prior Lines of Credit (“LOC”) Amortized Cost Basis LOC Converted to Term Loans Amortized Cost Basis Total Consumer - credit cards Delinquency: Current $ — $ — $ — $ — $ — $ — $ 195,222 $ — $ 195,222 30-89 days past due — — — — — — 1,297 — 1,297 90+ days past due — — — — — — 409 — 409 Total consumer - credit cards — — — — — — 196,928 — 196,928 Consumer - other Delinquency: Current 86,303 26,339 10,071 3,804 2,671 2,275 20,350 3 151,816 30-89 days past due 298 241 135 13 34 119 12 — 852 90+ days past due 121 47 2 1 2 41 — — 214 Total consumer - other 86,722 26,627 10,208 3,818 2,707 2,435 20,362 3 152,882 Real estate - C&D Risk rating: Pass 237,304 68,916 50,912 16,920 13,625 9,611 2,163,776 334 2,561,398 Special mention — — — — — 41 1,342 — 1,383 Substandard 1,091 116 36 13 31 103 2,478 — 3,868 Doubtful and loss — — — — — — — — — Total real estate - C&D 238,395 69,032 50,948 16,933 13,656 9,755 2,167,596 334 2,566,649 Real estate - SF residential Delinquency: Current 700,976 411,885 295,365 141,608 192,176 440,931 324,282 4,192 2,511,415 30-89 days past due 3,105 3,415 1,290 2,018 3,129 8,626 2,042 — 23,625 90+ days past due 586 871 885 968 1,017 6,312 436 — 11,075 Total real estate - SF residential 704,667 416,171 297,540 144,594 196,322 455,869 326,760 4,192 2,546,115 Real estate - other commercial Risk rating: Pass 1,917,352 1,482,049 768,630 254,986 179,729 428,027 2,093,379 19,469 7,143,621 Special mention 19,538 32,831 38,821 206 2,261 20,741 104,431 — 218,829 Substandard 24,639 3,399 27,399 2,544 2,026 15,217 30,824 — 106,048 Doubtful and loss — — — — — — — — — Total real estate - other commercial 1,961,529 1,518,279 834,850 257,736 184,016 463,985 2,228,634 19,469 7,468,498 Commercial Risk rating: Pass 595,256 300,650 168,539 41,924 31,329 35,447 1,401,402 24,940 2,599,487 Special mention 199 1,700 11 32 — 927 2,708 80 5,657 Substandard 5,257 2,435 3,328 802 891 1,290 11,337 1,805 27,145 Doubtful and loss — — — — — — — 1 1 Total commercial 600,712 304,785 171,878 42,758 32,220 37,664 1,415,447 26,826 2,632,290 Commercial - agriculture Risk rating: Pass 44,377 22,901 12,044 4,483 1,029 369 119,342 310 204,855 Special mention 8 — — — — — — — 8 Substandard 55 8 78 49 10 — 560 — 760 Doubtful and loss — — — — — — — — — Total commercial - agriculture 44,440 22,909 12,122 4,532 1,039 369 119,902 310 205,623 Other Delinquency: Current 152,086 29,362 8,181 4,742 20,018 25,349 132,384 953 373,075 30-89 days past due — — — — — 61 — — 61 90+ days past due — — — — — 3 — — 3 Total other 152,086 29,362 8,181 4,742 20,018 25,413 132,384 953 373,139 Total $ 3,788,551 $ 2,387,165 $ 1,385,727 $ 475,113 $ 449,978 $ 995,490 $ 6,608,013 $ 52,087 $ 16,142,124 Allowance for Credit Losses Allowance for Credit Losses – The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, quantitative factors, and other qualitative considerations. The allowance, in the judgment of management, is necessary to reserve for expected loan losses and risks inherent in the loan portfolio. The Company’s allowance for credit loss methodology includes reserve factors calculated to estimate current expected credit losses to amortized cost balances over the remaining contractual life of the portfolio, adjusted for prepayments, in accordance with ASC Topic 326-20, Financial Instruments - Credit Losses . Accordingly, the methodology is comprised of two components: individual assessments on loans with unique risk characteristics and collective assessments for loans that share similar risk characteristics. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated for collective assessment. The Company uses statistically-based models that leverage assumptions about current and future economic conditions throughout the contractual life of the loan. Expected credit losses are estimated by either lifetime loss rates or expected loss cash flows based on three key parameters: probability-of-default (“PD”), exposure-at-default (“EAD”), and loss-given-default (“LGD”). Future economic conditions are incorporated to the extent that they are reasonable and supportable. Beyond the reasonable and supportable periods, the economic variables revert to a historical equilibrium at a pace dependent on the state of the economy reflected within the economic scenarios. To determine the best estimate of credit losses as of June 30, 2023, the Company utilized a probability-weighted, multiple-scenario approach consisting of Baseline, Upside (S1), and Downside (S3) scenarios published by Moody’s Analytics in June 2023 that was updated to reflect the U.S. economic outlook. The Company also includes qualitative adjustments to the allowance based on factors and considerations that have not otherwise been fully accounted for. These factors may include but are not limited to portfolio trends and considerations, other economic considerations, policy actions, concentration risk, or imprecision risk. Loans with similar risk characteristics such as loan type, collateral type, and internal risk ratings are aggregated into homogeneous segments for assessment. Reserve factors are based on estimated probability of default and loss given default for each segment. The estimates are determined based on economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables that have a statistical relationship with the historical loss experience of the segments. For contractual periods that extend beyond the one-year forecast period, the estimates revert to average historical loss experiences over a one-year period on a straight-line basis. Loans that have unique risk characteristics are evaluated on an individual basis. These evaluations are typically performed on loans with a deteriorated internal risk rating. For a collateral-dependent loan, the Company’s evaluation process includes a valuation by appraisal or other collateral analysis adjusted for selling costs, when appropriate. This valuation is compared to the remaining outstanding principal balance of the loan. If a loss is determined to be probable, the loss is included in the allowance for credit losses as a specific allocation. Loans for which the repayment is expected to be provided substantially through the operation or sale of collateral and where the borrower is experiencing financial difficulty had an amortized cost of $99.7 million and $70.9 million as |
