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Loans | 6 Months Ended
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Jun. 30, 2020
Receivables [Abstract] |
Portfolio Loans | LOANS Below is a summary of loans by category at June 30, 2020 and December 31, 2019:
(in thousands) | June 30, 2020 |  | December 31, 2019
Commercial and industrial | $ | 3,165,611 |  |  | $ | 2,361,157 |
Real estate: |  |  |
Commercial - investor owned | 1,309,895 |  |  | 1,299,884 |
Commercial - owner occupied | 738,549 |  |  | 697,437 |
Construction and land development | 481,221 |  |  | 457,273 |
Residential | 326,992 |  |  | 366,261 |
Total real estate loans | 2,856,657 |  |  | 2,820,855 |
Other | 142,224 |  |  | 134,941 |
Loans, before unearned loan fees | 6,164,492 |  |  | 5,316,953 |
Unearned loan fees, net | (24,441 | ) |  | (2,616 | )
Loans, including unearned loan fees | $ | 6,140,051 |  |  | $ | 5,314,337 |
PPP loans totaled $830.2 million at June 30, 2020, or $807.8 million net of unearned fees of $22.4 million. The loan balance at June 30, 2020 also includes a discount on acquired loans of $22.2 million. At June 30, 2020 loans of $2.4 billion were pledged to FHLB and the Federal Reserve Bank. A summary of the activity in the ACLL by category for the three and six months ended June 30, 2020 is as follows:
(in thousands) | Commercial and industrial |  | CRE - investor owned |  | CRE - owner occupied |  | Construction and land development |  | Residential real estate |  | Other |  | Total
Allowance for credit losses on loans: |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at March 31, 2020 | $ | 45,981 |  |  | $ | 19,892 |  |  | $ | 9,477 |  |  | $ | 9,895 |  |  | $ | 5,395 |  |  | $ | 1,547 |  |  | $ | 92,187 |
Provision for credit losses | 7,168 |  |  | 2,599 |  |  | 1,600 |  |  | 6,038 |  |  | 744 |  |  | 242 |  |  | 18,391 |
Charge-offs | (3,303 | ) |  | (224 | ) |  | — |  |  | — |  |  | (32 | ) |  | (105 | ) |  | (3,664 | )
Recoveries | 293 |  |  | 2,752 |  |  | 11 |  |  | 29 |  |  | 226 |  |  | 45 |  |  | 3,356 |
Balance at June 30, 2020 | $ | 50,139 |  |  | $ | 25,019 |  |  | $ | 11,088 |  |  | $ | 15,962 |  |  | $ | 6,333 |  |  | $ | 1,729 |  |  | $ | 110,270 |
(in thousands) | Commercial and industrial |  | CRE - investor owned |  | CRE - owner occupied |  | Construction and land development |  | Residential real estate |  | 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 | 18,759 |  |  | 5,823 |  |  | 3,594 |  |  | 8,347 |  |  | 2,755 |  |  | 808 |  |  | 40,086 |
Charge-offs | (3,366 | ) |  | (226 | ) |  | — |  |  | (31 | ) |  | (154 | ) |  | (191 | ) |  | (3,968 | )
Recoveries | 797 |  |  | 2,766 |  |  | 80 |  |  | 69 |  |  | 383 |  |  | 62 |  |  | 4,157 |
Balance at June 30, 2020 | $ | 50,139 |  |  | $ | 25,019 |  |  | $ | 11,088 |  |  | $ | 15,962 |  |  | $ | 6,333 |  |  | $ | 1,729 |  |  | $ | 110,270 |
Reserves on enterprise value lending and agricultural lending, which are included in the categories above, represented $15.8 million and $2.4 million, respectively. 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 $18.4 million and $40.1 million provision for credit losses on loans in the three and six months ended June 30, 2020, respectively, compared to a $1.7 million and $3.2 million provision for loan losses in the prior year periods, respectively, under the incurred loss method. The increase in the provision for credit losses on loans is primarily due to the Company’s forecast of macroeconomic factors over the next 12 months, which significantly deteriorated in the first quarter 2020 due to the COVID-19 pandemic. The forecast continued to worsen in the second quarter of 2020. The CECL methodology incorporates various economic scenarios. The Company utilizes three forecasts in the model, a Moody’s baseline, a stronger near-term growth and a moderate recession forecast. The Company weights these scenarios at 80%, 10%, and 10%, respectively. These forecasts incorporate an accommodative monetary policy and the current and anticipated impact of government stimulus. Accordingly, the CECL model has not been adjusted for negative qualitative factors, such as the potential loss mitigation of loan deferrals and the PPP. Some of the key risks to the forecasts that could result in future provision for credit losses are additional shutdowns and self-quarantines if a second wave of COVID hits, small-business bankruptcies occur at higher levels or unemployment increases. The 80/10/10 weighting adds approximately $1.0 million to the ACL. The recorded investment in nonperforming loans by category at June 30, 2020 and December 31, 2019, is as follows:
| June 30, 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 | $ | 27,431 |  |  | $ | 3,642 |  |  | $ | 865 |  |  | $ | 31,938 |  |  | $ | 20,553 |
Real estate: |  |  |  |  |  |  |  |  |
Commercial - investor owned | 2,389 |  |  | — |  |  | — |  |  | 2,389 |  |  | 1,677 |
Commercial - owner occupied | 2,400 |  |  | — |  |  | — |  |  | 2,400 |  |  | 1,403 |
Construction and land development | 207 |  |  | — |  |  | — |  |  | 207 |  |  | 207 |
Residential | 4,421 |  |  | 78 |  |  | — |  |  | 4,499 |  |  | 3,444 |
Other | 19 |  |  | — |  |  | 21 |  |  | 40 |  |  | — |
Total | $ | 36,867 |  |  | $ | 3,720 |  |  | $ | 886 |  |  | $ | 41,473 |  |  | $ | 27,284 |
There was no interest income recognized on nonaccrual loans during the six months ended June 30, 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 |
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 June 30, 2020:
| Type of Collateral
(in thousands) | Commercial Real Estate |  | Residential Real Estate |  | Blanket Lien
Commercial and industrial | $ | 13,124 |  |  | $ | — |  |  | $ | 4,872 |
Real estate: |  |  |  |  |
Commercial - investor owned | 2,389 |  |  | — |  |  | — |
Commercial - owner occupied | 1,811 |  |  | — |  |  | — |
Construction and land development | — |  |  | 207 |  |  | — |
Residential | — |  |  | 4,271 |  |  | — |
Total | $ | 17,324 |  |  | $ | 4,478 |  |  | $ | 4,872 |
There were no troubled debt restructurings that occurred during the three months ended June 30, 2020. The recorded investment by category for troubled debt restructurings that occurred during the six months ended June 30, 2020 and the three and six months ended June 30, 2019 are as follows:
| June 30, 2020 |  | June 30, 2019
(in thousands, except for number of loans) | Number of loans |  | Pre-Modification Outstanding Recorded Balance |  | Post-Modification Outstanding Recorded Balance |  | Number of loans |  | Pre-Modification Outstanding Recorded Balance |  | Post-Modification Outstanding Recorded Balance
Commercial and industrial | 1 |  |  | $ | 3,731 |  |  | $ | 3,731 |  |  | — |  |  | $ | — |  |  | $ | — |
Real estate: |  |  |  |  |  |  |  |  |  |  |
Commercial - owner occupied | — |  |  | — |  |  | — |  |  | 1 |  |  | 188 |  |  | 188 |
Residential | 2 |  |  | 155 |  |  | 155 |  |  | 2 |  |  | 332 |  |  | 332 |
Total | 3 |  |  | $ | 3,886 |  |  | $ | 3,886 |  |  | 3 |  |  | $ | 520 |  |  | $ | 520 |
There were no troubled debt restructured loans that subsequently defaulted during the three or six months ended June 30, 2020 or 2019. 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. Deferrals under the CARES Act or interagency guidance are not included above as troubled debt restructurings. As of June 30, 2020, $685.7 million in loans have participated in the programs, including $361.4 million in loans deferring full principal and interest payments and $324.3 million in loans deferring principal only. Interest of $4.0 million has been deferred and will be collected upon final maturity. The Company has moved all loans that have requested deferrals to a level six risk rating for additional monitoring.
The aging of the recorded investment in past due loans by class at June 30, 2020 is shown below.
| June 30, 2020
(in thousands) | 30-89 Days Past Due |  | 90 or More Days Past Due |  | Total Past Due |  | Current |  | Total
Commercial and industrial | $ | 6,684 |  |  | $ | 22,623 |  |  | $ | 29,307 |  |  | $ | 3,113,890 |  |  | $ | 3,143,197 |
Real estate: |  |  |  |  |  |  |  |  |
Commercial - investor owned | 116 |  |  | 2,095 |  |  | 2,211 |  |  | 1,307,684 |  |  | 1,309,895 |
Commercial - owner occupied | 2,723 |  |  | 1,208 |  |  | 3,931 |  |  | 734,618 |  |  | 738,549 |
Construction and land development | 58 |  |  | — |  |  | 58 |  |  | 481,163 |  |  | 481,221 |
Residential | 951 |  |  | 1,738 |  |  | 2,689 |  |  | 324,303 |  |  | 326,992 |
Other | 100 |  |  | 21 |  |  | 121 |  |  | 140,076 |  |  | 140,197 |
Total | $ | 10,632 |  |  | $ | 27,685 |  |  | $ | 38,317 |  |  | $ | 6,101,734 |  |  | $ | 6,140,051 |
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 June 30, 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) |  | $ | 1,239,062 |  |  | $ | 535,477 |  |  | $ | 318,046 |  |  | $ | 180,269 |  |  | $ | 47,210 |  |  | $ | 85,529 |  |  | $ | 14,954 |  |  | $ | 510,168 |  |  | $ | 2,930,715 |
Watch (7) |  | 26,347 |  |  | 13,354 |  |  | 4,850 |  |  | 6,468 |  |  | 24,044 |  |  | 175 |  |  | — |  |  | 62,293 |  |  | 137,531 |
Classified (8-9) |  | 3,775 |  |  | 15,068 |  |  | 8,155 |  |  | 3,950 |  |  | 5,093 |  |  | 3,673 |  |  | 295 |  |  | 23,222 |  |  | 63,231 |
Total Commercial and industrial |  | $ | 1,269,184 |  |  | $ | 563,899 |  |  | $ | 331,051 |  |  | $ | 190,687 |  |  | $ | 76,347 |  |  | $ | 89,377 |  |  | $ | 15,249 |  |  | $ | 595,683 |  |  | $ | 3,131,477 |
Commercial real estate-investor owned |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 246,319 |  |  | $ | 321,849 |  |  | $ | 204,242 |  |  | $ | 126,567 |  |  | $ | 153,904 |  |  | $ | 181,761 |  |  | $ | 3,284 |  |  | $ | 35,460 |  |  | $ | 1,273,386 |
Watch (7) |  | 5,136 |  |  | 4,220 |  |  | 1,192 |  |  | 369 |  |  | 12,681 |  |  | 1,275 |  |  | — |  |  | — |  |  | 24,873 |
Classified (8-9) |  | — |  |  | 966 |  |  | 8,286 |  |  | 455 |  |  | 249 |  |  | 1,680 |  |  | — |  |  | — |  |  | 11,636 |
Total Commercial real estate-investor owned |  | $ | 251,455 |  |  | $ | 327,035 |  |  | $ | 213,720 |  |  | $ | 127,391 |  |  | $ | 166,834 |  |  | $ | 184,716 |  |  | $ | 3,284 |  |  | $ | 35,460 |  |  | $ | 1,309,895 |
Commercial real estate-owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 147,313 |  |  | $ | 200,519 |  |  | $ | 92,624 |  |  | $ | 79,058 |  |  | $ | 44,990 |  |  | $ | 80,172 |  |  | $ | 2,756 |  |  | $ | 42,883 |  |  | $ | 690,315 |
Watch (7) |  | 9,473 |  |  | 1,963 |  |  | 261 |  |  | 9,729 |  |  | 8,533 |  |  | 5,074 |  |  | — |  |  | 2,500 |  |  | 37,533 |
Classified (8-9) |  | 601 |  |  | 1,156 |  |  | 4,267 |  |  | 458 |  |  | — |  |  | 4,219 |  |  | — |  |  | — |  |  | 10,701 |
Total Commercial real estate-owner occupied |  | $ | 157,387 |  |  | $ | 203,638 |  |  | $ | 97,152 |  |  | $ | 89,245 |  |  | $ | 53,523 |  |  | $ | 89,465 |  |  | $ | 2,756 |  |  | $ | 45,383 |  |  | $ | 738,549 |
Construction real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 75,983 |  |  | $ | 167,936 |  |  | $ | 121,909 |  |  | $ | 37,555 |  |  | $ | 28,060 |  |  | $ | 12,906 |  |  | $ | — |  |  | $ | 20,631 |  |  | $ | 464,980 |
Watch (7) |  | 2,408 |  |  | 722 |  |  | 1,254 |  |  | 11,047 |  |  | — |  |  | 546 |  |  | — |  |  | — |  |  | 15,977 |
Classified (8-9) |  | — |  |  | 227 |  |  | — |  |  | — |  |  | — |  |  | 37 |  |  | — |  |  | — |  |  | 264 |
Total Construction real estate |  | $ | 78,391 |  |  | $ | 168,885 |  |  | $ | 123,163 |  |  | $ | 48,602 |  |  | $ | 28,060 |  |  | $ | 13,489 |  |  | $ | — |  |  | $ | 20,631 |  |  | $ | 481,221 |
Residential real estate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 26,448 |  |  | $ | 33,085 |  |  | $ | 22,074 |  |  | $ | 19,931 |  |  | $ | 34,427 |  |  | $ | 115,036 |  |  | $ | 591 |  |  | $ | 63,505 |  |  | $ | 315,097 |
Watch (7) |  | 181 |  |  | 895 |  |  | 842 |  |  | — |  |  | — |  |  | 2,027 |  |  | 279 |  |  | 802 |  |  | 5,026 |
Classified (8-9) |  | 184 |  |  | 1,265 |  |  | 758 |  |  | 13 |  |  | 213 |  |  | 3,445 |  |  | — |  |  | 50 |  |  | 5,928 |
Total residential real estate |  | $ | 26,813 |  |  | $ | 35,245 |  |  | $ | 23,674 |  |  | $ | 19,944 |  |  | $ | 34,640 |  |  | $ | 120,508 |  |  | $ | 870 |  |  | $ | 64,357 |  |  | $ | 326,051 |
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass (1-6) |  | $ | 8,758 |  |  | $ | 25,567 |  |  | $ | 20,615 |  |  | $ | 682 |  |  | $ | 3,705 |  |  | $ | 34,455 |  |  | $ | — |  |  | $ | 43,971 |  |  | $ | 137,753 |
Watch (7) |  | — |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | 3 |
Classified (8-9) |  | — |  |  | 1 |  |  | 3 |  |  | 4 |  |  | — |  |  | 19 |  |  | 10 |  |  | 7 |  |  | 44 |
Total Other |  | $ | 8,758 |  |  | $ | 25,570 |  |  | $ | 20,618 |  |  | $ | 686 |  |  | $ | 3,705 |  |  | $ | 34,474 |  |  | $ | 10 |  |  | $ | 43,979 |  |  | $ | 137,800 |
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:
|  | June 30, 2020
(in thousands) |  | Performing |  | Non Performing |  | Total
Commercial and industrial |  | $ | 11,682 |  |  | $ | 38 |  |  | $ | 11,720 |
Real estate: |  |  |  |  |  |
Residential |  | 941 |  |  | — |  |  | 941 |
Other |  | 2,376 |  |  | 21 |  |  | 2,397 |
Total |  | $ | 14,999 |  |  | $ | 59 |  |  | $ | 15,058 |
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 |
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

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