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Loans

6 Months Ended

Jun. 30, 2023

Note 5 Loans

The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions. The tables below show the loan portfolio composition including carrying value by segment as of the dates shown. The carrying value of loans is net of discounts, fees, costs and fair value marks of $36.8 million and $38.8 million as of June 30, 2023 and December 31, 2022, respectively.


	June 30, 2023
	Total loans		% of total
Commercial	$	4,256,694	57.4%
Commercial real estate non-owner occupied		1,891,945	25.5%
Residential real estate		1,245,905	16.8%
Consumer		19,813	0.3%
Total	$	7,414,357	100.0%


	December 31, 2022
	Total loans		% of total
Commercial	$	4,251,780	58.9%
Commercial real estate non-owner occupied		1,696,050	23.5%
Residential real estate		1,251,281	17.3%
Consumer		21,358	0.3%
Total	$	7,220,469	100.0%

Information about delinquent and non-accrual loans is shown in the following tables at June 30, 2023 and December 31, 2022:


	June 30, 2023
			Greater
	30-89 days		than 90 days				Total past
	past due and		past due and		Non-accrual		due and
	accruing		accruing		loans		non-accrual		Current		Total loans
Commercial:
Commercial and industrial	$	4,631	$	71	$	1,915	$	6,617	$	1,945,236	$	1,951,853
Municipal and non-profit		—		—		—		—		1,022,724		1,022,724
Owner occupied commercial real estate		88		—		2,061		2,149		953,964		956,113
Food and agribusiness		160		141		23,677		23,978		302,026		326,004
Total commercial		4,879		212		27,653		32,744		4,223,950		4,256,694
Commercial real estate non-owner occupied:
Construction		—		—		—		—		356,072		356,072
Acquisition/development		—		—		—		—		131,211		131,211
Multifamily		—		—		—		—		292,074		292,074
Non-owner occupied		—		—		135		135		1,112,453		1,112,588
Total commercial real estate		—		—		135		135		1,891,810		1,891,945
Residential real estate:
Senior lien		2,283		—		4,879		7,162		1,149,087		1,156,249
Junior lien		65		31		781		877		88,779		89,656
Total residential real estate		2,348		31		5,660		8,039		1,237,866		1,245,905
Consumer		34		3		66		103		19,710		19,813
Total loans	$	7,261	$	246	$	33,514	$	41,021	$	7,373,336	$	7,414,357

	June 30, 2023
	Non-accrual loans		Non-accrual loans
	with a related		with no related
	allowance for		allowance for		Non-accrual
	credit loss		credit loss		loans
Commercial:
Commercial and industrial	$	1,915	$	—	$	1,915
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		642		1,419		2,061
Food and agribusiness		23,091		586		23,677
Total commercial		25,648		2,005		27,653
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		135		—		135
Total commercial real estate		135		—		135
Residential real estate:
Senior lien		3,229		1,650		4,879
Junior lien		481		300		781
Total residential real estate		3,710		1,950		5,660
Consumer		60		6		66
Total loans	$	29,553	$	3,961	$	33,514


	December 31, 2022
			Greater
	30-89 days		than 90 days				Total past
	past due and		past due and		Non-accrual		due and
	accruing		accruing		loans		non-accrual		Current		Total loans
Commercial:
Commercial and industrial	$	919	$	53	$	2,601	$	3,573	$	2,021,262	$	2,024,835
Municipal and non-profit		—		—		—		—		959,626		959,626
Owner occupied commercial real estate		—		—		6,551		6,551		906,789		913,340
Food and agribusiness		699		—		2,148		2,847		351,132		353,979
Total commercial		1,618		53		11,300		12,971		4,238,809		4,251,780
Commercial real estate non-owner occupied:
Construction		—		—		—		—		341,325		341,325
Acquisition/development		—		—		—		—		129,102		129,102
Multifamily		—		—		—		—		213,677		213,677
Non-owner occupied		629		—		685		1,314		1,010,632		1,011,946
Total commercial real estate		629		—		685		1,314		1,694,736		1,696,050
Residential real estate:
Senior lien		446		—		4,174		4,620		1,149,728		1,154,348
Junior lien		255		—		341		596		96,337		96,933
Total residential real estate		701		—		4,515		5,216		1,246,065		1,251,281
Consumer		38		42		12		92		21,266		21,358
Total loans	$	2,986	$	95	$	16,512	$	19,593	$	7,200,876	$	7,220,469

	December 31, 2022
	Non-accrual loans		Non-accrual loans
	with a related		with no related
	allowance for		allowance for		Non-accrual
	credit loss		credit loss		loans
Commercial:
Commercial and industrial	$	1,640	$	961	$	2,601
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		693		5,858		6,551
Food and agribusiness		455		1,693		2,148
Total commercial		2,788		8,512		11,300
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		685		—		685
Total commercial real estate		685		—		685
Residential real estate:
Senior lien		3,019		1,155		4,174
Junior lien		341		—		341
Total residential real estate		3,360		1,155		4,515
Consumer		12		—		12
Total loans	$	6,845	$	9,667	$	16,512

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Loans to borrowers experiencing financial difficulties may be modified. Modified loans are discussed in more detail below. There was no interest income recognized from non-accrual loans during the three or six months ended June 30, 2023 or 2022.

The Company’s internal risk rating system uses a series of grades, which reflect our assessment of the credit quality of loans based on an analysis of the borrower's financial condition, liquidity and ability to meet contractual debt service requirements and are categorized as “Pass”, “Special mention”, “Substandard” and “Doubtful”. For a description of the general characteristics of the risk grades, refer to note 2 Summary of Significant Accounting Policies in our audited consolidated financial statements in our 2022 Annual Report on Form 10-K.

The amortized cost basis and current period gross charge-offs for all loans as determined by the Company’s internal risk rating system and year of origination is shown in the following table as of June 30, 2023:


	June 30, 2023
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2023		2022		2021		2020		2019		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	166,451	$	439,642	$	327,382	$	105,996	$	70,741	$	133,327	$	640,794	$	19,481	$	1,903,814
Special mention		—		13,634		6,526		8,848		1,192		4,207		5,676		3,844		43,927
Substandard		—		30		195		1,427		232		1,391		—		—		3,275
Doubtful		600		—		—		237		—		—		—		—		837
Total commercial and industrial		167,051		453,306		334,103		116,508		72,165		138,925		646,470		23,325		1,951,853
Gross charge-offs: Commercial and industrial		—		—		—		—		—		3		—		—		3
Municipal and non-profit:
Pass		52,539		137,200		249,017		89,780		57,454		406,750		29,984		—		1,022,724
Total municipal and non-profit		52,539		137,200		249,017		89,780		57,454		406,750		29,984		—		1,022,724
Owner occupied commercial real estate:
Pass		65,678		286,688		187,083		93,111		85,592		177,762		18,465		3,554		917,933
Special mention		—		—		4,021		—		6,836		20,651		—		—		31,508
Substandard		—		—		1,752		1,419		2,276		501		—		—		5,948
Doubtful		—		—		—		—		57		667		—		—		724
Total owner occupied commercial real estate		65,678		286,688		192,856		94,530		94,761		199,581		18,465		3,554		956,113
Food and agribusiness:
Pass		14,756		43,211		21,411		23,773		10,789		37,196		146,321		53		297,510
Special mention		—		—		203		—		—		3,661		450		—		4,314
Substandard		—		—		586		—		12		2,803		17,134		—		20,535

Doubtful		—		—		—		228		—		389		3,028		—		3,645
Total food and agribusiness		14,756		43,211		22,200		24,001		10,801		44,049		166,933		53		326,004
Total commercial		300,024		920,405		798,176		324,819		235,181		789,305		861,852		26,932		4,256,694
Gross charge-offs: Commercial		—		—		—		—		—		3		—		—		3
Commercial real estate non-owner occupied:
Construction:
Pass		11,688		157,556		83,248		51,041		14,704		211		37,624		—		356,072
Total construction		11,688		157,556		83,248		51,041		14,704		211		37,624		—		356,072
Acquisition/development:
Pass		3,622		63,212		32,810		11,931		672		9,980		8,477		183		130,887
Substandard		—		—		—		—		—		324		—		—		324
Total acquisition/development		3,622		63,212		32,810		11,931		672		10,304		8,477		183		131,211
Multifamily:
Pass		15,161		104,257		63,578		17,489		39,484		32,303		19,802		—		292,074
Total multifamily		15,161		104,257		63,578		17,489		39,484		32,303		19,802		—		292,074
Non-owner occupied
Pass		120,879		248,876		179,064		119,900		120,659		264,556		9,326		—		1,063,260
Special mention		—		—		—		7,235		3,956		28,137		—		—		39,328
Substandard		—		—		—		—		—		9,459		—		—		9,459
Doubtful		—		—		—		280		—		261		—		—		541
Total non-owner occupied		120,879		248,876		179,064		127,415		124,615		302,413		9,326		—		1,112,588
Total commercial real estate non-owner occupied		151,350		573,901		358,700		207,876		179,475		345,231		75,229		183		1,891,945
Residential real estate:
Senior lien
Pass		43,243		377,633		308,943		120,559		45,654		203,312		49,615		769		1,149,728
Special mention		—		—		—		—		—		419		—		—		419
Substandard		—		724		1,006		454		816		3,058		—		—		6,058
Doubtful		—		—		—		—		—		44		—		—		44
Total senior lien		43,243		378,357		309,949		121,013		46,470		206,833		49,615		769		1,156,249
Gross charge-offs: Senior lien		—		—		—		—		—		46		—		—		46
Junior lien
Pass		2,566		4,941		1,971		3,229		2,611		5,352		66,888		781		88,339
Special mention		—		—		—		—		—		27		—		—		27
Substandard		—		8		300		251		—		373		—		149		1,081
Doubtful		—		—		—		209		—		—		—		—		209
Total junior lien		2,566		4,949		2,271		3,689		2,611		5,752		66,888		930		89,656
Total residential real estate		45,809		383,306		312,220		124,702		49,081		212,585		116,503		1,699		1,245,905
Gross charge-offs: Residential real estate		—		—		—		—		—		46		—		—		46
Consumer
Pass		3,978		4,771		2,976		1,434		406		498		5,639		46		19,748
Substandard		—		—		2		4		—		56		3		—		65
Total consumer		3,978		4,771		2,978		1,438		406		554		5,642		46		19,813
Gross charge-offs: Consumer		618		4		—		2		0		5		—		—		630
Total loans	$	501,161	$	1,882,383	$	1,472,074	$	658,835	$	464,143	$	1,347,675	$	1,059,226	$	28,860	$	7,414,357
Gross charge-offs: Total loans		618		4		—		2		0		54		—		—		679

The amortized cost basis for all loans as determined by the Company’s internal risk rating system and year of origination is shown in the following table as of December 31, 2022:


	December 31, 2022
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2022		2021		2020		2019		2018		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	528,180	$	351,003	$	129,453	$	95,003	$	101,951	$	88,038	$	688,398	$	17,883	$	1,999,909
Special mention		66		137		388		2,887		588		4,440		3,512		—		12,018
Substandard		34		7		1,882		200		189		10,270		50		30		12,662
Doubtful		—		—		246		—		—		—		—		—		246
Total commercial and industrial		528,280		351,147		131,969		98,090		102,728		102,748		691,960		17,913		2,024,835
Municipal and non-profit:
Pass		105,630		246,696		89,562		59,066		73,013		383,158		2,501		—		959,626
Total municipal and non-profit		105,630		246,696		89,562		59,066		73,013		383,158		2,501		—		959,626
Owner occupied commercial real estate:
Pass		263,635		203,628		100,522		92,653		70,447		121,448		24,930		894		878,157
Special mention		—		515		—		6,956		2,616		17,360		—		—		27,447
Substandard		—		—		1,185		4,612		—		931		—		234		6,962

Doubtful		—		—		—		85		108		581		—		—		774
Total owner occupied commercial real estate		263,635		204,143		101,707		104,306		73,171		140,320		24,930		1,128		913,340
Food and agribusiness:
Pass		36,505		23,907		25,285		11,035		19,689		31,210		191,785		1,663		341,079
Special mention		—		204		4,573		—		3,486		195		1,750		—		10,208
Substandard		—		1,747		—		12		—		324		—		173		2,256
Doubtful		—		186		250		—		—		—		—		—		436
Total food and agribusiness		36,505		26,044		30,108		11,047		23,175		31,729		193,535		1,836		353,979
Total commercial		934,050		828,030		353,346		272,509		272,087		657,955		912,926		20,877		4,251,780
Commercial real estate non-owner occupied:
Construction:
Pass		106,197		139,012		56,489		14,387		—		213		25,027		—		341,325
Total construction		106,197		139,012		56,489		14,387		—		213		25,027		—		341,325
Acquisition/development:
Pass		57,773		33,663		7,810		1,921		3,939		16,648		7,348		—		129,102
Total acquisition/development		57,773		33,663		7,810		1,921		3,939		16,648		7,348		—		129,102
Multifamily:
Pass		99,988		22,022		17,658		39,547		17,358		16,009		1,095		—		213,677
Total multifamily		99,988		22,022		17,658		39,547		17,358		16,009		1,095		—		213,677
Non-owner occupied
Pass		235,958		172,648		120,871		138,711		42,489		249,461		11,707		—		971,845
Special mention		—		—		7,313		4,048		3,947		12,658		—		—		27,966
Substandard		—		—		—		—		629		7,912		—		—		8,541
Doubtful		—		—		280		—		—		3,314		—		—		3,594
Total non-owner occupied		235,958		172,648		128,464		142,759		47,065		273,345		11,707		—		1,011,946
Total commercial real estate non-owner occupied		499,916		367,345		210,421		198,614		68,362		306,215		45,177		—		1,696,050
Residential real estate:
Senior lien
Pass		361,405		323,984		133,847		47,557		30,283		184,998		66,792		496		1,149,362
Special mention		—		—		—		—		—		362		—		—		362
Substandard		191		186		468		854		105		2,769		—		—		4,573
Doubtful		—		—		—		—		51		—		—		—		51
Total senior lien		361,596		324,170		134,315		48,411		30,439		188,129		66,792		496		1,154,348
Junior lien
Pass		6,429		5,977		3,010		4,163		1,726		3,773		69,059		1,286		95,423
Special mention		—		—		—		—		—		351		—		—		351
Substandard		9		—		89		—		54		242		305		251		950
Doubtful		—		—		—		—		—		—		—		209		209
Total junior lien		6,438		5,977		3,099		4,163		1,780		4,366		69,364		1,746		96,933
Total residential real estate		368,034		330,147		137,414		52,574		32,219		192,495		136,156		2,242		1,251,281
Consumer
Pass		8,576		4,816		2,209		607		282		531		4,292		33		21,346
Substandard		3		—		—		—		—		5		4		—		12
Total consumer		8,579		4,816		2,209		607		282		536		4,296		33		21,358
Total loans	$	1,810,579	$	1,530,338	$	703,390	$	524,304	$	372,950	$	1,157,201	$	1,098,555	$	23,152	$	7,220,469

Loans evaluated individually

We evaluate loans individually when they no longer share risk characteristics with pooled loans. These loans include loans on non-accrual status, loans in bankruptcy, and modified loans as described below. If a specific allowance is warranted based on the borrower’s overall financial condition, the specific allowance is calculated based on discounted expected cash flows using the loan’s initial contractual effective interest rate or the fair value of the collateral less selling costs for collateral-dependent loans.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Management individually evaluates collateral-dependent loans with an amortized cost basis of $250 thousand or more and includes collateral-dependent loans less than $250 thousand within the general allowance population. The amortized cost basis of collateral-dependent loans over $250 thousand was as follows at June 30, 2023 and December 31, 2022:


	June 30, 2023
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,150	$	30	$	2,180
Owner-occupied commercial real estate		2,650		150		2,800
Food and agribusiness		24,728		—		24,728
Total Commercial		29,528		180		29,708
Commercial real estate non owner-occupied
Non-owner occupied		6,520		—		6,520
Total commercial real estate		6,520		—		6,520
Residential real estate
Senior lien		2,103		—		2,103
Junior lien		760		—		760
Total residential real estate		2,863		—		2,863
Consumer		—		6		6
Total loans	$	38,911	$	186	$	39,097


	December 31, 2022
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,869	$	791	$	3,660
Owner-occupied commercial real estate		6,711		1,346		8,057
Food and agribusiness		3,020		173		3,193
Total Commercial		12,600		2,310		14,910
Commercial real estate non owner-occupied
Non-owner occupied		8,561		—		8,561
Total commercial real estate		8,561		—		8,561
Residential real estate
Senior lien		2,806		—		2,806
Junior lien		460		—		460
Total residential real estate		3,266		—		3,266
Total loans	$	24,427	$	2,310	$	26,737

Loan modifications

The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include modifying a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. The Company considers loans to borrowers experiencing financial difficulties to be troubled loans. In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which became effective for the Company on January 1, 2023. The guidance eliminates the accounting for troubled debt restructures and requires that an entity evaluate whether loan modifications represent a new loan or a continuation of an existing loan. Such troubled debt modifications (“TDM”) may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof.

The following schedule presents, by loan class, the amortized costs basis as of the dates shown for modified loans to borrowers experiencing financial difficulty:


	June 30, 2023
	Term extension			Payment delay
	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	—	0.0%	$	136	0.0%
Total commercial		—	0.0%		136	0.0%
Commercial real estate non-owner occupied:
Non-owner occupied		18,770	1.7%		—	0.0%
Total commercial real estate		18,770	1.0%		—	0.0%
Total loans	$	18,770	0.3%	$	136	0.0%

The following schedule presents the payment status, by loan class, the amortized cost basis of loans that have been modified in the last six months as of June 30, 2023:


	June 30, 2023
	Current		Non-accrual
Commercial:
Commercial and industrial	$	136	$	—
Total commercial		136		—
Commercial real estate non-owner occupied:
Non-owner occupied		18,770		—
Total commercial real estate		18,770		—
Total loans	$	18,906	$	—

Accrual of interest is resumed on loans that were previously on non-accrual only after the loan has performed sufficiently for a period of time. The Company had no TDMs that were modified within the past twelve months and had defaulted on their modified terms during the six months ended June 30, 2023. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDMs on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDMs.

The following schedule presents the financial effect of the modifications made to borrowers experiencing financial difficulty as of June 30, 2023:


	June 30, 2023
	Financial effect
		Term extension	Payment delay
Commercial:
Commercial and industrial			Delayed payments for a weighted average of 0.2 year(s)
Commercial real estate non-owner occupied:
Non-owner occupied		Added weighted average 0.3 year(s) to the life of loans, which reduced monthly payment amounts

Prior to the adoption of ASU 2022-02, the Company disclosed troubled debt restructurings (“TDR”) in accordance with ASC 310-40. During 2022, the Company restructured 10 loans with an amortized cost basis of $1.1 million to facilitate repayment that were considered TDRs. Troubled debt restructurings were a reduction of the principal payment, a reduction in interest rate, or an extension of term. The table below provides additional information related to accruing TDRs at December 31, 2022:


	December 31, 2022
	Amortized		Average year-to-date		Unpaid		Unfunded commitments
	cost basis		amortized cost basis		principal balance		to fund TDRs
Commercial	$	2,160	$	2,348	$	2,150	$	150
Commercial real estate non-owner occupied		685		734		699		—
Residential real estate		1,809		1,867		1,964		—
Consumer		—		—		—		—
Total	$	4,654	$	4,949	$	4,813	$	150

The following table summarizes the Company’s carrying value of non-accrual TDRs as of December 31, 2022:


	December 31, 2022
Commercial	$	356
Commercial real estate non-owner occupied		81
Residential real estate		2,041
Consumer		—
Total non-accruing TDRs	$	2,478

During the six months ended June 30, 2022, the Company had no TDRs that were modified within the past 12 months and had defaulted on their modified terms. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDRs on non-accrual status was determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status, which were not classified as TDRs.