Quarterly report pursuant to Section 13 or 15(d)

LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

v3.22.2.2
LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
9 Months Ended
Sep. 30, 2022
Loans and Allowance for Loan Losses [Abstract]  
LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

3. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The information included below reflects the impact of the CARES Act, as amended by the CAA, and the Joint Guidance. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K for information about COVID-19 and related legislative and regulatory developments.

The Company’s loans are stated at their face amount, net of deferred fees and costs, and consisted of the following at September 30, 2022 and December 31, 2021 (dollars in thousands):

September 30, 2022

    

December 31, 2021

Construction and Land Development

$

1,068,201

$

862,236

Commercial Real Estate - Owner Occupied

 

1,953,872

 

1,995,409

Commercial Real Estate - Non-Owner Occupied

 

3,900,325

 

3,789,377

Multifamily Real Estate

 

774,970

 

778,626

Commercial & Industrial(1)

 

2,709,047

 

2,542,243

Residential 1-4 Family - Commercial

 

542,612

 

607,337

Residential 1-4 Family - Consumer

 

891,353

 

816,524

Residential 1-4 Family - Revolving

 

588,452

 

560,796

Auto

 

561,277

 

461,052

Consumer

 

172,776

 

176,992

Other Commercial(2)

 

755,835

 

605,251

Total LHFI, net of deferred fees and costs(3)

13,918,720

13,195,843

Allowance for loan and lease losses

(108,009)

(99,787)

Total LHFI, net

$

13,810,711

$

13,096,056

(1) Commercial & industrial loans included approximately $12.1 million and $145.3 million in loans from the PPP at September 30, 2022 and December 31, 2021, respectively.

(2) There are no loans from the PPP included in other commercial loans as of September 30, 2022. As of December 31, 2021 other commercial loans included approximately $5.1 million in loans from the PPP.

(3) Total loans include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $45.7 million and $49.3 million as of September 30, 2022 and December 31, 2021, respectively.

The following table shows the aging of the Company’s loan portfolio, by class, at September 30, 2022 (dollars in thousands):

    

    

    

    

Greater than

    

    

30-59 Days

60-89 Days

90 Days and

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

Construction and Land Development

$

1,067,438

$

120

$

107

$

115

$

421

$

1,068,201

Commercial Real Estate - Owner Occupied

 

1,937,372

 

7,337

 

763

 

3,517

 

4,883

 

1,953,872

Commercial Real Estate - Non-Owner Occupied

 

3,897,324

 

 

457

 

621

 

1,923

 

3,900,325

Multifamily Real Estate

 

774,970

 

 

 

 

 

774,970

Commercial & Industrial

 

2,702,308

 

796

 

3,128

 

526

 

2,289

 

2,709,047

Residential 1-4 Family - Commercial

 

538,835

 

1,410

 

97

 

308

 

1,962

 

542,612

Residential 1-4 Family - Consumer

 

876,980

 

1,123

 

1,449

 

680

 

11,121

 

891,353

Residential 1-4 Family - Revolving

 

581,418

 

1,115

 

1,081

 

1,255

 

3,583

 

588,452

Auto

 

558,678

 

1,876

 

257

 

148

 

318

 

561,277

Consumer

 

172,180

 

409

 

101

 

86

 

 

172,776

Other Commercial

755,740

95

755,835

Total LHFI

$

13,863,243

$

14,186

$

7,440

$

7,351

$

26,500

$

13,918,720

% of total loans

99.61

%

0.10

%

0.05

%

0.05

%

0.19

%

100.00

%

The following table shows the aging of the Company’s loan portfolio, by class, at December 31, 2021 (dollars in thousands):

    

    

    

    

Greater than

    

    

 

30-59 Days

60-89 Days

90 Days and

 

Current

Past Due

Past Due

still Accruing

Nonaccrual

Total Loans

 

Construction and Land Development

$

857,883

$

1,357

$

$

299

$

2,697

$

862,236

Commercial Real Estate - Owner Occupied

 

1,987,133

 

1,230

 

152

 

1,257

 

5,637

 

1,995,409

Commercial Real Estate - Non-Owner Occupied

 

3,783,211

 

1,965

 

127

 

433

 

3,641

 

3,789,377

Multifamily Real Estate

 

778,429

 

84

 

 

 

113

 

778,626

Commercial & Industrial

 

2,536,100

 

1,161

 

1,438

 

1,897

 

1,647

 

2,542,243

Residential 1-4 Family - Commercial

 

601,946

 

1,844

 

272

 

990

 

2,285

 

607,337

Residential 1-4 Family - Consumer

 

795,821

 

3,368

 

2,925

 

3,013

 

11,397

 

816,524

Residential 1-4 Family - Revolving

 

554,652

 

1,493

 

363

 

882

 

3,406

 

560,796

Auto

 

458,473

 

1,866

 

249

 

241

 

223

 

461,052

Consumer

 

175,943

 

689

 

186

 

120

 

54

 

176,992

Other Commercial

605,214

37

605,251

Total LHFI

$

13,134,805

$

15,094

$

5,712

$

9,132

$

31,100

$

13,195,843

% of total loans

99.54

%

0.11

%

0.04

%

0.07

%

0.24

%

100.00

%

The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of September 30, 2022 (dollars in thousands):

September 30, 2022

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

421

$

$

115

Commercial Real Estate - Owner Occupied

4,883

932

3,517

Commercial Real Estate - Non-Owner Occupied

1,923

621

Commercial & Industrial

2,289

1

526

Residential 1-4 Family - Commercial

1,962

308

Residential 1-4 Family - Consumer

11,121

680

Residential 1-4 Family - Revolving

3,583

1,255

Auto

318

148

Consumer

86

Other Commercial

95

Total LHFI

$

26,500

$

933

$

7,351

The following table shows the Company’s amortized cost basis of loans on nonaccrual status and loans past due 90 days and still accruing as of December 31, 2021 (dollars in thousands):

December 31, 2021

Nonaccrual

Nonaccrual With No ALLL

90 Days Past due and still Accruing

Construction and Land Development

$

2,697

$

1,985

$

299

Commercial Real Estate - Owner Occupied

5,637

970

1,257

Commercial Real Estate - Non-Owner Occupied

3,641

1,089

433

Multifamily Real Estate

113

Commercial & Industrial

1,647

1

1,897

Residential 1-4 Family - Commercial

2,285

990

Residential 1-4 Family - Consumer

11,397

3,013

Residential 1-4 Family - Revolving

3,406

882

Auto

223

241

Consumer

54

120

Total LHFI

$

31,100

$

4,045

$

9,132

There was no interest income recognized on nonaccrual loans during the three and nine months ended September 30, 2022 and 2021. See Note 1 “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” contained in Item 8 “Financial Statements and Supplementary Data” in the Company’s 2021 Form 10-K for additional information on the Company’s policies for nonaccrual loans.

Troubled Debt Restructurings

As of September 30, 2022, the Company had TDRs totaling $15.6 million with an estimated $569,000 of allowance for those loans. As of December 31, 2021, the Company had TDRs totaling $18.0 million with an estimated $859,000 of allowance for those loans.

A TDR occurs when a lender, for economic or legal reasons, grants a concession to the borrower related to the borrower’s financial difficulties, that it would not otherwise consider. All loans that are considered to be TDRs are evaluated for credit losses in accordance with the Company’s ALLL methodology. For the three and nine months ended September 30, 2022 and September 30, 2021, the recorded investment in TDRs prior to modifications was not materially impacted by the modifications.

The following table provides a summary, by class, of TDRs that continue to accrue interest under the terms of the applicable restructuring agreement, which are considered to be performing, and TDRs that have been placed on nonaccrual status, which are considered to be nonperforming, as of September 30, 2022 and December 31, 2021 (dollars in thousands):

September 30, 2022

December 31, 2021

    

No. of

    

Recorded

    

Outstanding

    

No. of

    

Recorded

    

Outstanding

Loans

Investment

Commitment

Loans

Investment

Commitment

Performing

 

  

 

  

 

  

 

  

 

  

 

  

Construction and Land Development

 

3

$

159

$

 

4

$

201

$

Commercial Real Estate - Owner Occupied

 

2

 

1,000

 

 

3

 

572

 

Commercial & Industrial

 

1

 

100

 

 

 

 

Residential 1-4 Family - Commercial

 

1

 

1,334

 

 

 

 

Residential 1-4 Family - Consumer

 

81

 

7,470

 

 

75

 

9,021

 

Residential 1-4 Family - Revolving

 

3

 

257

 

5

 

3

 

265

 

4

Consumer

 

1

 

13

 

 

2

 

15

 

Other Commercial

1

239

Total performing

 

92

$

10,333

$

5

 

88

$

10,313

$

4

Nonperforming

 

  

 

  

 

  

 

  

 

  

 

  

Commercial Real Estate - Owner Occupied

 

1

$

16

$

 

2

$

830

$

Commercial Real Estate - Non-Owner Occupied

2

242

3

1,357

Commercial & Industrial

 

2

 

481

 

 

3

 

729

 

Residential 1-4 Family - Commercial

 

3

 

371

 

 

3

 

388

 

Residential 1-4 Family - Consumer

 

24

 

4,092

 

 

24

 

4,239

 

Residential 1-4 Family - Revolving

 

3

 

96

 

 

3

 

99

 

Total nonperforming

 

35

$

5,298

$

 

38

$

7,642

$

Total performing and nonperforming

 

127

$

15,631

$

5

 

126

$

17,955

$

4

The Company considers a default of a TDR to occur when the borrower is 90 days past due following the restructure or a foreclosure and repossession of the applicable collateral occurs. During the three and nine months ended September 30, 2022 and 2021, the Company did not have any material loans that went into default that had been restructured in the twelve-month period prior to the time of default.

The following table shows, by class and modification type, TDRs that occurred during the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

$

1

$

1,334

Total interest only at market rate of interest

 

$

 

1

$

1,334

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Owner Occupied

 

$

 

1

$

766

 

Total loan term extended at a market rate

 

$

 

1

$

766

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

7

$

665

 

17

$

1,166

 

Total loan term extended at a below market rate

 

7

$

665

 

17

$

1,166

 

Total

 

7

$

665

 

19

$

3,266

 

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

    

    

Recorded

    

    

Recorded

    

No. of

Investment at

No. of

Investment at

Loans

Period End

Loans

Period End

Modified to interest only, at a market rate

 

  

 

  

 

  

 

  

 

Total interest only at market rate of interest

 

$

 

$

 

Term modification, at a market rate

 

  

 

  

 

  

 

  

 

Commercial Real Estate - Non-Owner Occupied

 

1

$

157

1

$

157

 

Residential 1-4 Family - Consumer

 

 

2

102

 

Total loan term extended at a market rate

 

1

$

157

 

3

$

259

 

Term modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Consumer

 

$

 

11

$

1,813

 

Consumer

1

15

Total loan term extended at a below market rate

 

$

 

12

$

1,828

 

Interest rate modification, below market rate

 

  

 

  

 

  

 

  

 

Residential 1-4 Family - Commercial

 

$

 

1

$

45

 

Total interest only at below market rate of interest

 

$

 

1

$

45

 

Total

 

1

$

157

 

16

$

2,132

 

Allowance for Loan and Lease Losses

ALLL on the loan portfolio is a material estimate for the Company. The Company estimates its ALLL on its loan portfolio on a quarterly basis. The Company models the ALLL using two primary segments, Commercial and Consumer. Each loan segment is further disaggregated into classes based on similar risk characteristics. The Company has identified the following classes within each loan segment:

Commercial: Construction and Land Development, Commercial Real Estate – Owner Occupied, Commercial Real Estate – Non-Owner Occupied, Multifamily Real Estate, Commercial & Industrial, Residential 1-4 Family – Commercial, and Other Commercial
Consumer: Residential 1-4 Family – Consumer, Residential 1-4 Family – Revolving, Auto, and Consumer

The following tables show the ALLL activity by loan segment for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands):

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

77,413

$

26,771

$

104,184

$

77,902

$

21,885

$

99,787

Loans charged-off

 

(1,086)

 

(715)

 

(1,801)

 

 

(2,852)

 

(2,415)

 

(5,267)

Recoveries credited to allowance

 

605

 

609

 

1,214

 

1,723

 

2,022

 

3,745

Provision charged to operations

 

6,969

 

(2,557)

 

4,412

 

 

7,128

 

2,616

 

9,744

Balance at end of period

$

83,901

$

24,108

$

108,009

 

$

83,901

$

24,108

$

108,009

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

89,837

$

28,424

$

118,261

 

$

117,403

$

43,137

$

160,540

Loans charged-off

 

(967)

 

(1,299)

 

(2,266)

 

 

(3,832)

 

(4,020)

 

(7,852)

Recoveries credited to allowance

 

1,281

 

872

 

2,153

 

 

3,929

 

2,569

 

6,498

Provision charged to operations

 

(15,173)

 

(1,177)

 

(16,350)

 

 

(42,522)

 

(14,866)

 

(57,388)

Balance at end of period

$

74,978

$

26,820

$

101,798

$

74,978

$

26,820

$

101,798

Credit Quality Indicators

Credit quality indicators are utilized to help estimate the collectability of each loan class within the Commercial and Consumer loan segments. For classes of loans within the Commercial segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is risk rating categories of Pass, Watch, Special Mention, Substandard, and Doubtful.  For classes of loans within the Consumer segment, the primary credit quality indicator used for evaluating credit quality and estimating the ALLL is delinquency bands of Current, 30-59, 60-89, 90+, and Nonaccrual.  While other credit quality indicators are evaluated and analyzed as part of the Company’s credit risk management activities, these indicators are primarily used in estimating the ALLL. The Company evaluates the credit risk of its loan portfolio on at least a quarterly basis.

Commercial Loans

The Company uses a risk rating system as the primary credit quality indicator for classes of loans within the Commercial segment. The risk rating system on a scale of 0 through 9 is used to determine risk level as used in the calculation of the ACL. The risk levels, as described below, do not necessarily follow the regulatory definitions of risk levels with the same name. A general description of the characteristics of the risk levels follows:

Pass is determined by the following criteria:

Risk rated 0 loans have little or no risk and are with General Obligation Municipal Borrowers;
Risk rated 1 loans have little or no risk and are generally secured by cash or cash equivalents;
Risk rated 2 loans have minimal risk to well qualified borrowers and no significant questions as to safety;
Risk rated 3 loans are satisfactory loans with strong borrowers and secondary sources of repayment;
Risk rated 4 loans are satisfactory loans with borrowers not as strong as risk rated 3 loans and may exhibit a greater degree of financial risk based on the type of business supporting the loan.

Watch is determined by the following criteria:

Risk rated 5 loans are watch loans that warrant more than the normal level of supervision and have the possibility of an event occurring that may weaken the borrower’s ability to repay.

Special Mention is determined by the following criteria:

Risk rated 6 loans have increasing potential weaknesses beyond those at which the loan originally was granted and if not addressed could lead to inadequately protecting the Company’s credit position.

Substandard is determined by the following criteria:

Risk rated 7 loans are substandard loans and are inadequately protected by the current sound worth or paying capacity of the obligor or the collateral pledged; these have well defined weaknesses that jeopardize the liquidation of the debt with the distinct possibility the Company will sustain some loss if the deficiencies are not corrected.

Doubtful is determined by the following criteria:

Risk rated 8 loans are doubtful of collection and the possibility of loss is high but pending specific borrower plans for recovery, its classification as a loss is deferred until its more exact status is determined;
Risk rated 9 loans are loss loans which are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of September 30, 2022 (dollars in thousands):

September 30, 2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

278,751

$

522,332

$

139,003

$

16,527

$

35,327

$

36,153

$

22,434

$

1,050,527

Watch

855

3,842

120

2,736

7,553

Special Mention

921

1,491

338

174

2,924

Substandard

1,261

2,359

40

214

1,345

1,978

7,197

Total Construction and Land Development

$

280,933

$

527,037

$

139,381

$

20,583

$

36,792

$

41,041

$

22,434

$

1,068,201

Commercial Real Estate - Owner Occupied

Pass

$

193,743

$

204,645

$

256,490

$

290,697

$

233,459

$

663,420

$

15,089

$

1,857,543

Watch

1,069

178

2,463

8,293

12,375

26,383

1,149

51,910

Special Mention

641

1,479

914

18,816

42

21,892

Substandard

2,826

4,370

1,610

13,256

465

22,527

Total Commercial Real Estate - Owner Occupied

$

195,453

$

207,649

$

258,953

$

304,839

$

248,358

$

721,875

$

16,745

$

1,953,872

Commercial Real Estate - Non-Owner Occupied

Pass

$

339,274

$

671,073

$

397,814

$

508,462

$

375,951

$

1,392,787

$

31,971

$

3,717,332

Watch

2,151

818

26,793

40,466

27,259

97,487

Special Mention

234

6,084

2,609

18,771

27,698

Substandard

10,501

22,797

18,930

5,580

57,808

Total Commercial Real Estate - Non-Owner Occupied

$

339,508

$

673,224

$

409,133

$

564,136

$

437,956

$

1,444,397

$

31,971

$

3,900,325

Commercial & Industrial

Pass

$

529,915

$

576,070

$

321,669

$

191,789

$

86,424

$

144,362

$

746,107

$

2,596,336

Watch

1,401

794

17,955

5,204

12,546

2,283

22,057

62,240

Special Mention

182

416

2,500

373

2,031

20,174

25,676

Substandard

98

536

112

3,912

14,253

1,375

4,509

24,795

Total Commercial & Industrial

$

531,414

$

577,582

$

340,152

$

203,405

$

113,596

$

150,051

$

792,847

$

2,709,047

Multifamily Real Estate

Pass

$

84,683

$

79,629

$

216,676

$

62,386

$

76,761

$

247,444

$

2,225

$

769,804

Watch

4,209

446

423

5,078

Special Mention

88

88

Total Multifamily Real Estate

$

84,683

$

79,629

$

216,676

$

66,595

$

77,207

$

247,955

$

2,225

$

774,970

Residential 1-4 Family - Commercial

Pass

$

35,383

$

91,966

$

79,004

$

53,298

$

38,421

$

208,616

$

949

$

507,637

Watch

1,344

545

8,561

2,985

5,093

114

18,642

Special Mention

1,495

71

4,800

2,717

9,083

Substandard

2,464

478

4,009

299

7,250

Total Residential 1-4 Family - Commercial

$

35,383

$

93,310

$

81,044

$

64,394

$

46,684

$

220,435

$

1,362

$

542,612

Other Commercial

Pass

$

168,290

$

216,249

$

156,770

$

118,283

$

3,683

$

70,833

$

13,209

$

747,317

Watch

5,367

3,056

8,423

Substandard

95

95

Total Other Commercial

$

173,657

$

216,249

$

156,770

$

118,283

$

3,683

$

73,889

$

13,304

$

755,835

Total Commercial

Pass

$

1,630,039

$

2,361,964

$

1,567,426

$

1,241,442

$

850,026

$

2,763,615

$

831,984

$

11,246,496

Watch

7,837

5,322

21,781

56,902

68,938

67,233

23,320

251,333

Special Mention

1,796

1,673

2,249

10,134

8,696

42,597

20,216

87,361

Substandard

1,359

5,721

10,653

33,757

36,616

26,198

5,368

119,672

Total Commercial

$

1,641,031

$

2,374,680

$

1,602,109

$

1,342,235

$

964,276

$

2,899,643

$

880,888

$

11,704,862

The table below details the amortized cost of the classes of loans within the Commercial segment by risk level and year of origination as of December 31, 2021 (dollars in thousands):

December 31, 2021

Term Loans Amortized Cost Basis by Origination Year

2021

2020

2019

2018

2017

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

430,764

$

218,672

$

39,937

$

40,128

$

11,299

$

50,908

$

22,996

$

814,704

Watch

395

185

12,923

129

349

4,026

18,007

Special Mention

735

735

Substandard

3,541

1

221

19,264

198

5,565

28,790

Total Construction and Land Development

$

434,700

$

218,858

$

53,081

$

59,521

$

11,846

$

61,234

$

22,996

$

862,236

Commercial Real Estate - Owner Occupied

Pass

$

222,079

$

279,165

$

321,503

$

263,422

$

179,994

$

555,540

$

19,705

$

1,841,408

Watch

185

18

7,959

10,875

14,648

57,466

702

91,853

Special Mention

932

11,826

610

1,052