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Loans | 3 Months Ended
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Mar. 31, 2020
Receivables [Abstract] |
Portfolio Loans | LOANS Below is a summary of loans by category at March 31, 2020 and December 31, 2019:
(in thousands) | March 31, 2020 |  | December 31, 2019
Commercial and industrial | $ | 2,469,013 |  |  | 2,361,157 |
Real estate: |  |  |
Commercial - investor owned | 1,327,814 |  |  | 1,299,884 |
Commercial - owner occupied | 720,543 |  |  | 697,437 |
Construction and land development | 469,627 |  |  | 457,273 |
Residential | 346,758 |  |  | 366,261 |
Total real estate loans | 2,864,742 |  |  | 2,820,855 |
Consumer and other | 126,212 |  |  | 134,941 |
Loans, before unearned loan fees | 5,459,967 |  |  | 5,316,953 |
Unearned loan fees, net | (2,450 | ) |  | (2,616 | )
Loans, including unearned loan fees | $ | 5,457,517 |  |  | $ | 5,314,337 |
The loan balance at March 31, 2020 includes a discount on acquired loans of $24.5 million. At March 31, 2020 loans of $2.7 billion were pledged to FHLB and the Federal Reserve Bank. A summary of the activity in the ACLL by category through March 31, 2020 is as follows:
(in thousands) | Commercial and industrial |  | CRE - investor owned |  | CRE - owner occupied |  | Construction and land development |  | Residential real estate |  | Consumer and other |  | Total
Allowance for credit losses on loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2019 | $ | 27,455 |  |  | $ | 5,935 |  |  | $ | 4,873 |  |  | $ | 2,611 |  |  | $ | 1,280 |  |  | $ | 1,134 |  |  | $ | 43,288 |
CECL adoption | 6,494 |  |  | 10,726 |  |  | 2,598 |  |  | 5,183 |  |  | 3,470 |  |  | (84 | ) |  | 28,387 |
PCD loans immediately charged off | — |  |  | (5 | ) |  | (57 | ) |  | (217 | ) |  | (1,401 | ) |  | — |  |  | (1,680 | )
Balance at January 1, 2020 | $ | 33,949 |  |  | $ | 16,656 |  |  | $ | 7,414 |  |  | $ | 7,577 |  |  | $ | 3,349 |  |  | $ | 1,050 |  |  | $ | 69,995 |
Provision for credit losses | 11,591 |  |  | 3,224 |  |  | 1,994 |  |  | 2,309 |  |  | 2,011 |  |  | 566 |  |  | 21,695 |
Charge-offs | (63 | ) |  | (2 | ) |  | — |  |  | (31 | ) |  | (122 | ) |  | (86 | ) |  | (304 | )
Recoveries | 504 |  |  | 14 |  |  | 69 |  |  | 40 |  |  | 157 |  |  | 17 |  |  | 801 |
Balance at March 31, 2020 | $ | 45,981 |  |  | $ | 19,892 |  |  | $ | 9,477 |  |  | $ | 9,895 |  |  | $ | 5,395 |  |  | $ | 1,547 |  |  | $ | 92,187 |
On January 1, 2020, the Company adopted the CECL methodology which added $28.4 million to the ACLL. Upon adoption, $1.7 million of nonaccrual PCD loans that were less than $100,000 were immediately charged-off. Under the CECL method, the Company recorded a $21.7 million provision for credit losses on loans in the first quarter 2020, compared to a $1.5 million provision for loan losses in the first quarter 2019 under the incurred loss method. The increase in the provision for credit losses on loans is due to the Company’s forecast of macroeconomic factors over the next 12 months, which significantly decreased in the first quarter 2020 due to the COVID-19 pandemic. The CECL methodology incorporates various economic scenarios, including baseline, upside and downside scenarios. In the first quarter 2020, the Company changed its weighting of economic scenarios to capture more downside risk in the economy. This changed added $2.2 million to the ACLL in the first quarter 2020. The recorded investment in nonperforming loans by category at March 31, 2020 and December 31, 2019, is as follows:
| March 31, 2020
(in thousands) | Nonaccrual |  | Restructured, accruing |  | Loans over 90 days past due and still accruing interest |  | Total nonperforming loans |  | Nonaccrual loans with no allowance
Commercial and industrial | $ | 22,729 |  |  | $ | 3,731 |  |  | $ | 71 |  |  | $ | 26,531 |  |  | $ | 17,915 |
Real estate: |  |  |  |  |  |  |  |  |
Commercial - investor owned | 4,115 |  |  | — |  |  | — |  |  | 4,115 |  |  | 2,576 |
Commercial - owner occupied | 2,110 |  |  | — |  |  | — |  |  | 2,110 |  |  | 1,114 |
Construction and land development | 214 |  |  | — |  |  | — |  |  | 214 |  |  | 214 |
Residential | 4,075 |  |  | 79 |  |  | — |  |  | 4,154 |  |  | 3,086 |
Consumer and other | 25 |  |  | — |  |  | 55 |  |  | 80 |  |  | — |
Total | $ | 33,268 |  |  | $ | 3,810 |  |  | $ | 126 |  |  | $ | 37,204 |  |  | $ | 24,905 |
There was no interest income recognized on nonaccrual loans in the first quarter 2020.
| December 31, 2019
(in thousands) | Nonaccrual |  | Restructured, accruing |  | Loans over 90 days past due and still accruing interest |  | Total nonperforming loans
Commercial and industrial | $ | 22,328 |  |  | $ | — |  |  | $ | 250 |  |  | $ | 22,578 |
Real estate: |  |  |  |  |  |  |
Commercial - investor owned | 2,303 |  |  | — |  |  | — |  |  | 2,303 |
Commercial - owner occupied | 213 |  |  | — |  |  | — |  |  | 213 |
Residential | 1,251 |  |  | 79 |  |  | — |  |  | 1,330 |
Consumer and other | 1 |  |  | — |  |  | — |  |  | 1 |
Total | $ | 26,096 |  |  | $ | 79 |  |  | $ | 250 |  |  | $ | 26,425 |
The following table presents the amortized cost basis of collateral-dependent nonperforming loans by class of loan at March 31, 2020:
| Type of Collateral
(in thousands) | Commercial Real Estate |  | Residential Real Estate |  | Blanket Lien
Commercial and industrial | $ | 13,051 |  |  | $ | — |  |  | $ | 5,910 |
Real estate: |  |  |  |  |
Commercial - investor owned | 4,115 |  |  | — |  |  | — |
Commercial - owner occupied | 1,521 |  |  | — |  |  | — |
Construction and land development | — |  |  | 214 |  |  | — |
Residential | — |  |  | 3,927 |  |  | — |
Total | $ | 18,687 |  |  | $ | 4,141 |  |  | $ | 5,910 |
The recorded investment by category for loans restructured during the three months ended March 31, 2020 is as follows:
| March 31, 2020
(in thousands, except for number of loans) | Number of loans |  | Pre-Modification Outstanding Recorded Balance |  | Post-Modification Outstanding Recorded Balance
Commercial and industrial | 1 |  |  | $ | 3,731 |  |  | $ | 3,731 |
Real estate: |  |  |  |  |
Residential | 2 |  |  | 155 |  |  | 155 |
Total | 3 |  |  | $ | 3,886 |  |  | $ | 3,886 |
There were no loans restructured during the three months ended March 31, 2019. There were no troubled debt restructured loans that subsequently defaulted during the three months ended March 31, 2020 or 2019.
The aging of the recorded investment in past due loans by class at March 31, 2020 is shown below.
| March 31, 2020
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial and industrial | $ | 24,898 |  |  | $ | 9,491 |  |  | $ | 34,389 |  |  | $ | 2,434,624 |  |  | $ | 2,469,013 |
Real estate: |  |  |  |  |  |  |  |  |
Commercial - investor owned | 1,996 |  |  | 3,438 |  |  | 5,434 |  |  | 1,322,380 |  |  | 1,327,814 |
Commercial - owner occupied | 3,870 |  |  | 1,182 |  |  | 5,052 |  |  | 715,491 |  |  | 720,543 |
Construction and land development | 95 |  |  | — |  |  | 95 |  |  | 469,532 |  |  | 469,627 |
Residential | 5,124 |  |  | 1,482 |  |  | 6,606 |  |  | 340,152 |  |  | 346,758 |
Consumer and other | 459 |  |  | 75 |  |  | 534 |  |  | 123,228 |  |  | 123,762 |
Total | $ | 36,442 |  |  | $ | 15,668 |  |  | $ | 52,110 |  |  | $ | 5,405,407 |  |  | $ | 5,457,517 |
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
• | Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.
• | Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.
• | Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.
• | Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.
• | Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated at this time, due to strong collateral and/or guarantor support.
• | Grade 8 – Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.
• | Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on nonaccrual.
The recorded investment by risk category of the loans by class at March 31, 2020, which is based upon the most recent analysis performed is as follows:
|  | Term Loans by Origination Year |  |  |  |  |  |
(in thousands) |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016 |  | Prior |  | Revolving Loans Converted to Term Loans |  | Revolving Loans |  | Total
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 274,021 |  |  | $ | 623,511 |  |  | $ | 328,712 |  |  | $ | 188,489 |  |  | $ | 53,064 |  |  | $ | 126,446 |  |  | $ | 2,557 |  |  | $ | 660,675 |  |  | $ | 2,257,475 |
Watch (7) |  | 780 |  |  | 17,643 |  |  | 5,258 |  |  | 11,986 |  |  | 23,454 |  |  | 524 |  |  | 506 |  |  | 66,449 |  |  | 126,600 |
Classified (8-9) |  | 649 |  |  | 20,887 |  |  | 8,438 |  |  | 3,881 |  |  | 5,253 |  |  | 3,581 |  |  | 431 |  |  | 26,687 |  |  | 69,807 |
Total Commercial and industrial |  | $ | 275,450 |  |  | $ | 662,041 |  |  | $ | 342,408 |  |  | $ | 204,356 |  |  | $ | 81,771 |  |  | $ | 130,551 |  |  | $ | 3,494 |  |  | $ | 753,811 |  |  | $ | 2,453,882 |
Commercial real estate-investor owned |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 114,369 |  |  | $ | 356,099 |  |  | $ | 229,830 |  |  | $ | 154,406 |  |  | $ | 173,623 |  |  | $ | 204,948 |  |  | $ | 1,745 |  |  | $ | 52,875 |  |  | $ | 1,287,895 |
Watch (7) |  | 113 |  |  | 10,395 |  |  | 1,305 |  |  | 400 |  |  | 12,614 |  |  | 1,623 |  |  | — |  |  | — |  |  | 26,450 |
Classified (8-9) |  | — |  |  | 978 |  |  | 8,043 |  |  | 445 |  |  | 246 |  |  | 3,757 |  |  | — |  |  | — |  |  | 13,469 |
Total Commercial real estate-investor owned |  | $ | 114,482 |  |  | $ | 367,472 |  |  | $ | 239,178 |  |  | $ | 155,251 |  |  | $ | 186,483 |  |  | $ | 210,328 |  |  | $ | 1,745 |  |  | $ | 52,875 |  |  | $ | 1,327,814 |
Commercial real estate-owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 50,382 |  |  | $ | 226,562 |  |  | $ | 99,918 |  |  | $ | 89,750 |  |  | $ | 58,499 |  |  | $ | 96,149 |  |  | $ | 2,797 |  |  | $ | 44,271 |  |  | $ | 668,328 |
Watch (7) |  | 2,775 |  |  | 8,802 |  |  | 370 |  |  | 9,904 |  |  | 8,641 |  |  | 5,313 |  |  | — |  |  | 5,900 |  |  | 41,705 |
Classified (8-9) |  | — |  |  | 1,131 |  |  | 5,212 |  |  | — |  |  | — |  |  | 4,167 |  |  | — |  |  | — |  |  | 10,510 |
Total Commercial real estate-owner occupied |  | $ | 53,157 |  |  | $ | 236,495 |  |  | $ | 105,500 |  |  | $ | 99,654 |  |  | $ | 67,140 |  |  | $ | 105,629 |  |  | $ | 2,797 |  |  | $ | 50,171 |  |  | $ | 720,543 |
Construction real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 23,035 |  |  | $ | 184,561 |  |  | $ | 123,931 |  |  | $ | 63,034 |  |  | $ | 28,407 |  |  | $ | 14,672 |  |  | $ | — |  |  | $ | 17,410 |  |  | $ | 455,050 |
Watch (7) |  | 966 |  |  | 11,448 |  |  | 1,262 |  |  | 69 |  |  | — |  |  | 563 |  |  | — |  |  | — |  |  | 14,308 |
Classified (8-9) |  | — |  |  | 226 |  |  | — |  |  | — |  |  | — |  |  | 43 |  |  | — |  |  | — |  |  | 269 |
Total Construction real estate |  | $ | 24,001 |  |  | $ | 196,235 |  |  | $ | 125,193 |  |  | $ | 63,103 |  |  | $ | 28,407 |  |  | $ | 15,278 |  |  | $ | — |  |  | $ | 17,410 |  |  | $ | 469,627 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 12,356 |  |  | $ | 37,811 |  |  | $ | 23,381 |  |  | $ | 24,306 |  |  | $ | 38,082 |  |  | $ | 132,715 |  |  | $ | 245 |  |  | $ | 65,660 |  |  | $ | 334,556 |
Watch (7) |  | 1 |  |  | 1,045 |  |  | 875 |  |  | — |  |  | 4 |  |  | 2,683 |  |  | — |  |  | 1,093 |  |  | 5,701 |
Classified (8-9) |  | — |  |  | 1,715 |  |  | 767 |  |  | 13 |  |  | 131 |  |  | 2,882 |  |  | — |  |  | 49 |  |  | 5,557 |
Total residential real estate |  | $ | 12,357 |  |  | $ | 40,571 |  |  | $ | 25,023 |  |  | $ | 24,319 |  |  | $ | 38,217 |  |  | $ | 138,280 |  |  | $ | 245 |  |  | $ | 66,802 |  |  | $ | 345,814 |
Consumer and other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 1,257 |  |  | $ | 26,478 |  |  | $ | 20,911 |  |  | $ | 1,735 |  |  | $ | 5,535 |  |  | $ | 35,940 |  |  | $ | — |  |  | $ | 29,311 |  |  | $ | 121,167 |
Watch (7) |  | — |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | 4 |
Classified (8-9) |  | — |  |  | 2 |  |  | 4 |  |  | 6 |  |  | — |  |  | 24 |  |  | 10 |  |  | 24 |  |  | 70 |
Total consumer and other |  | $ | 1,257 |  |  | $ | 26,482 |  |  | $ | 20,915 |  |  | $ | 1,741 |  |  | $ | 5,535 |  |  | $ | 35,965 |  |  | $ | 10 |  |  | $ | 29,336 |  |  | $ | 121,241 |
In the table above, loan originations in 2020 and 2019 with a classification of watch or classified primarily represent renewals or modifications initially underwritten and originated in prior years. For certain loans, primarily credit cards, the Company evaluates credit quality based on the aging status. The following table presents the recorded investment on loans based on payment activity:
|  | March 31, 2020
(in thousands) |  | Performing |  | Non Performing |  | Total
Commercial and industrial |  | $ | 15,060 |  |  | $ | 71 |  |  | $ | 15,131 |
Real estate: |  |  |  |  |  |
Residential |  | 944 |  |  | — |  |  | 944 |
Consumer and other |  | 2,465 |  |  | 56 |  |  | 2,521 |
Total |  | $ | 18,469 |  |  | $ | 127 |  |  | $ | 18,596 |
The recorded investment by risk category of loans by class at December 31, 2019, was as follows:
| December 31, 2019
(in thousands) | Pass (1-6) |  | Watch (7) |  | Classified (8 & 9) |  | Total*
Commercial and industrial | $ | 2,151,084 |  |  | $ | 124,718 |  |  | $ | 70,021 |  |  | $ | 2,345,823 |
Real estate: |  |  |  |  |  |  |
Commercial - investor owned | 1,242,569 |  |  | 17,572 |  |  | 2,840 |  |  | 1,262,981 |
Commercial - owner occupied | 643,276 |  |  | 28,773 |  |  | 6,473 |  |  | 678,522 |
Construction and land development | 437,134 |  |  | 12,140 |  |  | 106 |  |  | 449,380 |
Residential | 348,246 |  |  | 4,450 |  |  | 2,496 |  |  | 355,192 |
Consumer and other | 132,096 |  |  | 3 |  |  | 51 |  |  | 132,150 |
Total | $ | 4,954,405 |  |  | $ | 187,656 |  |  | $ | 81,987 |  |  | $ | 5,224,048 |
*Excludes $90.3 million of loans accounted for as PCI In response to the COVID-19 pandemic, the Company has implemented short-term deferral programs allowing customers to primarily defer payments for up to 90 days. As of April 30, 2020, $392.1 million loans have participated in the programs, including $190.8 million loans deferring interest payments of $2.2 million. In addition, the Company has been actively participating in the PPP since the SBA began accepting applications in April 2020. In the second quarter 2020, the Company expects to fund $856.5 million in PPP loans that have been approved by the SBA.

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