Annual report pursuant to Section 13 and 15(d)

LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

v3.24.0.1
LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
12 Months Ended
Dec. 31, 2023
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 following tables exclude LHFS. The Company’s LHFI are stated at their face amount, net of deferred fees and costs, and consisted of the following at December 31, (dollars in thousands):

2023

2022

Construction and Land Development

$

1,107,850

$

1,101,260

Commercial Real Estate – Owner Occupied

 

1,998,787

 

1,982,608

Commercial Real Estate – Non-Owner Occupied

 

4,172,401

 

3,996,130

Multifamily Real Estate

 

1,061,997

 

802,923

Commercial & Industrial

 

3,589,347

 

2,983,349

Residential 1-4 Family – Commercial

 

522,580

 

538,063

Residential 1-4 Family – Consumer

 

1,078,173

 

940,275

Residential 1-4 Family – Revolving

 

619,433

 

585,184

Auto

 

486,926

 

592,976

Consumer

 

120,641

 

152,545

Other Commercial

 

876,908

 

773,829

Total LHFI, net of deferred fees and costs(1)

15,635,043

14,449,142

Allowance for loan and lease losses

(132,182)

(110,768)

Total LHFI, net

$

15,502,861

$

14,338,374

(1) Total loans included unamortized premiums and discounts, and unamortized deferred fees and costs totaling $79.7 million and $50.4 million as of December 31, 2023 and December 31, 2022, respectively.

Accrued interest receivable on LHFI totaled $72.5 million and $58.9 million at December 31, 2023 and 2022, respectively. For the years ended December 31, 2023, 2022, and 2021, accrued interest receivable write-offs were not material to the Company’s consolidated financial statements.

The following table shows the aging of the Company’s LHFI portfolio, by class, at December 31, 2023 (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

$

1,107,183

$

270

$

24

$

25

$

348

$

1,107,850

Commercial Real Estate – Owner Occupied

 

1,991,632

 

1,575

 

 

2,579

 

3,001

 

1,998,787

Commercial Real Estate – Non-Owner Occupied

 

4,156,089

 

545

 

184

 

2,967

 

12,616

 

4,172,401

Multifamily Real Estate

 

1,061,851

 

 

146

 

 

 

1,061,997

Commercial & Industrial

 

3,579,657

 

4,303

 

49

 

782

 

4,556

 

3,589,347

Residential 1-4 Family – Commercial

 

518,150

 

567

 

676

 

1,383

 

1,804

 

522,580

Residential 1-4 Family – Consumer

 

1,053,255

 

7,546

 

1,804

 

4,470

 

11,098

 

1,078,173

Residential 1-4 Family – Revolving

 

611,584

 

2,238

 

1,429

 

1,095

 

3,087

 

619,433

Auto

 

480,557

 

4,737

 

872

 

410

 

350

 

486,926

Consumer

 

119,487

 

770

 

232

 

152

 

 

120,641

Other Commercial

870,339

6,569

876,908

Total LHFI, net of deferred fees and costs

$

15,549,784

$

29,120

$

5,416

$

13,863

$

36,860

$

15,635,043

% of total loans

99.45

%

0.19

%

0.03

%

0.09

%

0.24

%

100.00

%

The following table shows the aging of the Company’s LHFI portfolio, by class, at December 31, 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

$

1,099,555

$

1,253

$

45

$

100

$

307

$

1,101,260

Commercial Real Estate – Owner Occupied

 

1,970,323

 

2,305

 

635

 

2,167

 

7,178

 

1,982,608

Commercial Real Estate – Non-Owner Occupied

 

3,993,091

 

1,121

 

48

 

607

 

1,263

 

3,996,130

Multifamily Real Estate

 

801,694

 

1,229

 

 

 

 

802,923

Commercial & Industrial

 

2,980,008

 

824

 

174

 

459

 

1,884

 

2,983,349

Residential 1-4 Family – Commercial

 

534,653

 

1,231

 

 

275

 

1,904

 

538,063

Residential 1-4 Family – Consumer

 

919,833

 

5,951

 

1,690

 

1,955

 

10,846

 

940,275

Residential 1-4 Family – Revolving

 

577,993

 

1,843

 

511

 

1,384

 

3,453

 

585,184

Auto

 

589,235

 

2,747

 

450

 

344

 

200

 

592,976

Consumer

 

151,958

 

351

 

125

 

108

 

3

 

152,545

Other Commercial

773,738

91

773,829

Total LHFI, net of deferred fees and costs

$

14,392,081

$

18,855

$

3,678

$

7,490

$

27,038

$

14,449,142

% of total loans

99.60

%

0.13

%

0.03

%

0.05

%

0.19

%

100.00

%

The following table shows the Company’s amortized cost basis of loans on nonaccrual status with no related ALLL, as of December 31, (dollars in thousands):

2023

2022

Commercial Real Estate – Owner Occupied

908

Commercial Real Estate – Non-Owner Occupied

4,835

Commercial & Industrial

1

Total LHFI

$

4,835

$

909

There was no interest income recognized on nonaccrual loans during the years ended December 31, 2023 and 2022. See Note 1 “Summary of Significant Accounting Policies” in this Form 10-K for additional information on the Company’s policies for nonaccrual loans.

Troubled Loan Modifications

The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. See Note 1 “Summary of Significant Accounting Policies” in this Form 10-K for information on the Company’s accounting policy for loan modifications to borrowers experiencing financial difficulty and how the Company defines TLMs.

As of December 31, 2023, the Company had TLMs with an amortized cost basis of $51.2 million and approximately $289,000 in allowance for those loans. As of December 31, 2023, there was $1.6 million of unfunded commitments on loans modified and designated as TLMs since January 1, 2023.

The following table presents the amortized cost basis as of December 31, 2023 of TLMs modified during the year ended December 31, 2023 (dollars in thousands):

    

Amortized Cost

% of Total Class of Financing Receivable

 

Other-Than-Insignificant Payment Delay and Term Extension

Commercial Real Estate - Non-Owner Occupied

$

20,766

0.50

%

Total Other-Than-Insignificant Payment Delay and Term Extension

$

20,766

Term Extension

 

Construction and Land Development

$

18,999

1.71

%

Commercial and Industrial

3,542

0.10

%

Commercial Real Estate – Owner Occupied

766

0.04

%

Residential 1-4 Family – Consumer

1,137

0.11

%

Total Term Extension

$

24,444

Combination - Term Extension and Interest Rate Reduction

Residential 1-4 Family – Consumer

$

1,177

0.11

%

Residential 1-4 Family – Revolving

 

15

NM

Total Combination - Term Extension and Interest Rate Reduction

$

1,192

Principal Forgiveness

Commercial Real Estate – Non-Owner Occupied

4,835

0.12

%

Total Principal Forgiveness

$

4,835

Total

$

51,237

NM = Not Meaningful

The following table describes the financial effects of TLMs on a weighted average basis for TLMs within that loan type for the year ended December 31, 2023:

Other-Than-Insignificant Payment Delay and Term Extension

Loan Type

Financial Effect

Commercial Real Estate – Non-Owner Occupied

Added a weighted-average 1.0 years to the life of loans.

Term Extension

Loan Type

Financial Effect

Construction and Land Development

Added a weighted-average 1.3 years to the life of loans.

Commercial and Industrial

Added a weighted-average 0.2 years to the life of loans.

Commercial Real Estate – Owner Occupied

Added a weighted-average 0.5 years to the life of loans.

Residential 1-4 Family – Consumer

Added a weighted-average 10.8 years to the life of loans.

Combination - Term Extension and Interest Rate Reduction

Loan Type

Financial Effect

Residential 1-4 Family – Consumer

Added a weighted-average 20.3 years to the life of loans and reduced the weighted average contractual interest rate from 8.2% to 7.5%.

Residential 1-4 Family – Revolving

Added a weighted-average 19.1 years to the life of loans and reduced the weighted average contractual interest rate from 10.5% to 7.3%.

Principal Forgiveness

Loan Type

Financial Effect

Commercial Real Estate – Non-Owner Occupied

Reduced the amortized cost basis of loans by $3.5 million.

The Company considers a default of a TLM to occur when the borrower is 90 days past due following the modification or a foreclosure and repossession of the applicable collateral occurs. During the year ended December 31, 2023, the Company did not have any significant loans either individually or in the aggregate that went into default that have been modified and designated as TLMs.

The Company monitors the performance of TLMs in order to determine the effectiveness of the modifications. As of December 31, 2023, the Company had TLMs with an amortized cost basis of $426,000 that were past due.

Allowance for Loan and Lease Losses

The following tables show the ALLL activity by loan segment for the years ended December 31, (dollars in thousands):

2023

2022

Commercial

Consumer

Total

    

Commercial

Consumer

Total

Balance at beginning of period

$

82,753

$

28,015

$

110,768

 

$

77,902

$

21,885

$

99,787

Loans charged-off

 

(8,727)

 

(3,268)

 

(11,995)

 

 

(4,137)

 

(3,272)

 

(7,409)

Recoveries credited to allowance

 

2,455

 

1,935

 

4,390

 

 

2,426

 

2,650

 

5,076

Provision charged to operations

 

29,415

 

(396)

 

29,019

 

 

6,562

 

6,752

 

13,314

Balance at end of period

$

105,896

$

26,286

$

132,182

$

82,753

$

28,015

$

110,768

The increase in net charge-offs for the year ended December 31, 2023 compared to the year ended December 31, 2022 is primarily due to charge-offs associated with two commercial loans.

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.

The Company presents loan and lease portfolio segments and classes by credit quality indicator and vintage year. The Company defines the vintage date for the purpose of this disclosure as the date of the most recent credit decision. Renewals are categorized as new credit decisions and reflect the renewal date as the vintage date, except for renewals of loans modified for borrowers experiencing financial difficulty, or TLMs, which are presented in the original vintage.

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 December 31, (dollars in thousands):

2023

Term Loans Amortized Cost Basis by Origination Year

Revolving

2023

2022

2021

2020

2019

Prior

Loans

Total

Construction and Land Development

Pass

$

289,786

$

440,473

$

192,148

$

19,536

$

10,934

$

38,841

$

64,137

$

1,055,855

Watch

84

3,611

16,249

2,127

22,071

Special Mention

4,444

1,332

367

6,143

Substandard

114

1,244

1,248

20,705

205

265

23,781

Total Construction and Land Development

$

289,984

$

445,328

$

214,089

$

41,573

$

11,139

$

41,600

$

64,137

$

1,107,850

Current period gross write-off

$

$

$

$

$

$

(11)

$

$

(11)

Commercial Real Estate – Owner Occupied

Pass

$

175,627

$

257,889

$

194,030

$

239,549

$

259,502

$

750,180

$

23,689

$

1,900,466

Watch

5,919

1,311

4,768

4,422

9,146

27,829

399

53,794

Special Mention

786

849

249

5,150

9,549

611

17,194

Substandard

362

326

26,645

27,333

Total Commercial Real Estate – Owner Occupied

$

182,694

$

260,049

$

199,047

$

244,297

$

273,798

$

814,203

$

24,699

$

1,998,787

Current period gross write-off

$

$

$

$

$

$

(141)

$

$

(141)

Commercial Real Estate – Non-Owner Occupied

Pass

$

374,221

$

548,262

$

710,122

$

334,449

$

492,782

$

1,419,882

$

35,276

$

3,914,994

Watch

1,520

1,690

32,326

82,930

118,466

Special Mention

67,001

12,155

79,156

Substandard

4,837

2,121

17,956

5,899

28,972

59,785

Total Commercial Real Estate – Non-Owner Occupied

$

379,058

$

549,782

$

713,933

$

352,405

$

531,007

$

1,598,785

$

47,431

$

4,172,401

Current period gross write-off

$

$

$

$

$

$

(3,528)

$

$

(3,528)

Commercial & Industrial

Pass

$

981,290

$

617,805

$

409,973

$

178,578

$

122,160

$

168,368

$

923,359

$

3,401,533

Watch

2,708

38,711

512

1,379

18,065

4,943

22,832

89,150

Special Mention

108

32,714

981

3,310

1,722

1,513

19,865

60,213

Substandard

146

343

2,000

925

3,181

31,856

38,451

Total Commercial & Industrial

$

984,106

$

689,376

$

411,809

$

185,267

$

142,872

$

178,005

$

997,912

$

3,589,347

Current period gross write-off

$

$

$

(101)

$

$

$

(17)

$

(1,812)

$

(1,930)

Multifamily Real Estate

Pass

$

21,911

$

129,854

$

321,918

$

222,172

$

45,879

$

250,887

$

50,060

$

1,042,681

Watch

914

914

Special Mention

250

81

331

Substandard

14,222

3,703

146

18,071

Total Multifamily Real Estate

$

36,133

$

129,854

$

321,918

$

222,422

$

49,582

$

252,028

$

50,060

$

1,061,997

Current period gross write-off

$

$

$

$

$

$

$

$

Residential 1-4 Family – Commercial

Pass

$

41,631

$

67,495

$

77,321

$

69,779

$

44,498

$

203,125

$

604

$

504,453

Watch

49

387

580

220

757

8,854

107

10,954

Special Mention

47

1,302

1,349

Substandard

57

614

279

624

3,997

253

5,824

Total Residential 1-4 Family – Commercial

$

41,784

$

67,882

$

78,515

$

70,278

$

45,879

$

217,278

$

964

$

522,580

Current period gross write-off

$

$

$

$

$

$

$

$

Other Commercial

Pass

$

201,252

$

180,346

$

165,732

$

114,838

$

123,515

$

62,284

$

9,850

$

857,817

Watch

14,355

32

4

3,977

18,368

Special Mention

93

630

723

Total Other Commercial

$

215,700

$

180,346

$

165,732

$

114,870

$

123,519

$

66,891

$

9,850

$

876,908

Current period gross write-off

$

$

(101)

$

$

$

$

(3,016)

$

$

(3,117)

Total Commercial

Pass

$

2,085,718

$

2,242,124

$

2,071,244

$

1,178,901

$

1,099,270

$

2,893,567

$

1,106,975

$

12,677,799

Watch

23,115

45,540

23,799

6,053

60,298

131,574

23,338

313,717

Special Mention

1,034

33,563

5,674

4,892

6,872

80,443

32,631

165,109

Substandard

19,592

1,390

4,326

41,266

11,356

63,206

32,109

173,245

Total Commercial

$

2,129,459

$

2,322,617

$

2,105,043

$

1,231,112

$

1,177,796

$

3,168,790

$

1,195,053

$

13,329,870

Total current period gross write-off

$

$

(101)

$

(101)

$

$

$

(6,713)

$

(1,812)

$

(8,727)

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, (dollars in thousands):

2022

Term Loans Amortized Cost Basis by Origination Year

2022

2021

2020

2019

2018

Prior

Revolving Loans

Total

Construction and Land Development

Pass

$

357,688

$

499,738

$

107,559

$

17,191

$

33,801

$

36,335

$

34,345

$

1,086,657

Watch

242

1,637

115

1,669

3,663

Special Mention

2,843

411

93

3,347

Substandard

1,254

3,148

40

211

1,345

1,595

7,593

Total Construction and Land Development

$

362,027

$

504,934

$

107,599

$

17,402

$

35,261

$

39,692

$

34,345

$

1,101,260

Commercial Real Estate – Owner Occupied

Pass

$

258,953

$

215,414

$

257,740

$

282,110

$

228,410

$

624,238

$

17,190

$

1,884,055

Watch

1,060

176

2,437

9,567

9,736

31,331

916

55,223

Special Mention

256

93

1,332

18,766

132

20,579

Substandard

2,565

474

4,728

1,591

12,979

414

22,751

Total Commercial Real Estate – Owner Occupied

$

260,013

$

218,411

$

260,651

$

296,498

$

241,069

$

687,314

$

18,652

$

1,982,608

Commercial Real Estate – Non-Owner Occupied

Pass

$

496,079

$

661,977

$

385,084

$

517,834

$

373,126

$

1,389,507

$

34,804

$

3,858,411

Watch

2,151

2,091

11,915

19,550

20,683

2

56,392

Special Mention

232

25,578

702

7,381

33,893

Substandard

10,460

3,083

29,012

4,879

47,434

Total Commercial Real Estate – Non-Owner Occupied

$

496,311

$

664,128

$

397,635

$

558,410

$

422,390

$

1,422,450

$

34,806

$

3,996,130

Commercial & Industrial

Pass

$

849,547

$

536,982

$

262,093

$

182,263

$

67,648

$

120,326

$

846,059

$

2,864,918

Watch

1,399

1,305

18,682

5,039

12,843

1,984

41,836

83,088

Special Mention

222

393

2,145

354

1,773

12,380

17,267

Substandard

94

513

112

2,911

1,449

1,339

11,658

18,076

Total Commercial & Industrial

$

851,040

$

539,022

$

281,280

$

192,358

$

82,294

$

125,422

$

911,933

$

2,983,349

Multifamily Real Estate

Pass

$

111,798

$

90,952

$

204,159

$

47,240

$

59,883

$

231,745

$

52,025

$

797,802

Watch

350

442

416

1,208

Special Mention

3,826

87

3,913

Total Multifamily Real Estate

$

111,798

$

90,952

$

204,159

$

51,416

$

60,325

$

232,248

$

52,025

$

802,923

Residential 1-4 Family – Commercial

Pass

$

58,534

$

86,881

$

77,110

$

50,721

$

38,090

$

199,783

$

803

$

511,922

Watch

500

539

852

1,532

5,378

113

8,914

Special Mention

94

7,771

582

2,630

11,077

Substandard

632

1,400

463

473

2,883

299

6,150

Total Residential 1-4 Family – Commercial

$

59,034

$

87,513

$

79,143

$

59,807

$

40,677

$

210,674

$

1,215

$

538,063

Other Commercial