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Loans

9 Months Ended

Sep. 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 $36.3 million and $38.8 million as of September 30, 2023 and December 31, 2022, respectively.


	September 30, 2023
	Total loans		% of total
Commercial	$	4,349,012	58.1%
Commercial real estate non-owner occupied		1,814,059	24.3%
Residential real estate		1,295,991	17.3%
Consumer		19,376	0.3%
Total	$	7,478,438	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 September 30, 2023 and December 31, 2022:


	September 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	$	4,851	$	—	$	2,284	$	7,135	$	1,933,065	$	1,940,200
Municipal and non-profit		—		—		—		—		1,013,272		1,013,272
Owner occupied commercial real estate		211		—		1,661		1,872		1,073,508		1,075,380
Food and agribusiness		40		140		7,244		7,424		312,736		320,160
Total commercial		5,102		140		11,189		16,431		4,332,581		4,349,012
Commercial real estate non-owner occupied:
Construction		—		—		—		—		327,756		327,756
Acquisition/development		—		—		—		—		98,412		98,412
Multifamily		—		—		—		—		328,534		328,534
Non-owner occupied		226		—		13,537		13,763		1,045,594		1,059,357
Total commercial real estate and non-owner occupied		226		—		13,537		13,763		1,800,296		1,814,059
Residential real estate:
Senior lien		1,934		8		7,662		9,604		1,195,898		1,205,502
Junior lien		808		—		762		1,570		88,919		90,489
Total residential real estate		2,742		8		8,424		11,174		1,284,817		1,295,991
Consumer		74		6		62		142		19,234		19,376
Total loans	$	8,144	$	154	$	33,212	$	41,510	$	7,436,928	$	7,478,438

	September 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	$	2,284	$	—	$	2,284
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		237		1,424		1,661
Food and agribusiness		6,673		571		7,244
Total commercial		9,194		1,995		11,189
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		65		13,472		13,537
Total commercial real estate non-owner occupied		65		13,472		13,537
Residential real estate:
Senior lien		2,914		4,748		7,662
Junior lien		462		300		762
Total residential real estate		3,376		5,048		8,424
Consumer		56		6		62
Total loans	$	12,691	$	20,521	$	33,212


	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 and non-owner occupied		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 non-owner occupied		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 nine months ended September 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 September 30, 2023:


	September 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	$	249,364	$	423,936	$	293,175	$	90,830	$	58,580	$	118,061	$	609,476	$	12,009	$	1,855,431
Special mention		8,741		14,588		22,428		20,749		1,221		4,209		9,448		—		81,384
Substandard		—		78		181		1,237		204		229		—		269		2,198
Doubtful		600		—		—		423		—		164		—		—		1,187
Total commercial and industrial		258,705		438,602		315,784		113,239		60,005		122,663		618,924		12,278		1,940,200
Gross charge-offs: Commercial and industrial		—		—		215		—		24		3		—		—		242
Municipal and non-profit:
Pass		67,861		140,673		248,738		84,518		57,244		387,367		26,871		—		1,013,272
Total municipal and non-profit		67,861		140,673		248,738		84,518		57,244		387,367		26,871		—		1,013,272
Owner occupied commercial real estate:
Pass		175,287		282,771		186,968		95,383		84,877		175,538		16,044		836		1,017,704
Special mention		410		15,836		8,694		—		8,031		19,865		—		—		52,836
Substandard		—		—		1,742		1,207		913		321		—		—		4,183
Doubtful		—		—		—		—		—		657		—		—		657
Total owner occupied commercial real estate		175,697		298,607		197,404		96,590		93,821		196,381		16,044		836		1,075,380
Food and agribusiness:
Pass		20,862		49,396		19,672		16,352		10,560		35,903		155,214		153		308,112
Special mention		—		—		203		—		—		3,746		450		—		4,399
Substandard		—		—		586		—		12		171		3,235		—		4,004
Doubtful		—		—		—		228		—		—		3,417		—		3,645
Total food and agribusiness		20,862		49,396		20,461		16,580		10,572		39,820		162,316		153		320,160
Total commercial		523,125		927,278		782,387		310,927		221,642		746,231		824,155		13,267		4,349,012
Gross charge-offs: Commercial		—		—		215		—		24		3		—		—		242
Commercial real estate non-owner occupied:
Construction:
Pass		18,771		150,694		54,337		58,723		1,015		—		37,310		6,906		327,756
Total construction		18,771		150,694		54,337		58,723		1,015		—		37,310		6,906		327,756
Acquisition/development:
Pass		7,025		45,635		21,087		6,036		641		9,084		8,740		—		98,248
Substandard		—		—		—		—		—		164		—		—		164
Total acquisition/development		7,025		45,635		21,087		6,036		641		9,248		8,740		—		98,412
Multifamily:
Pass		15,170		113,146		90,973		17,015		39,430		32,111		20,689		—		328,534
Total multifamily		15,170		113,146		90,973		17,015		39,430		32,111		20,689		—		328,534
Non-owner occupied
Pass		87,691		257,343		173,674		106,359		133,372		244,826		10,320		—		1,013,585
Special mention		—		—		—		7,194		3,920		11,294		—		—		22,408
Substandard		—		—		—		—		—		22,823		—		—		22,823
Doubtful		—		—		—		280		—		261		—		—		541
Total non-owner occupied		87,691		257,343		173,674		113,833		137,292		279,204		10,320		—		1,059,357
Total commercial real estate non-owner occupied		128,657		566,818		340,071		195,607		178,378		320,563		77,059		6,906		1,814,059
Residential real estate:
Senior lien
Pass		60,807		418,159		318,325		114,668		44,619		192,174		46,803		633		1,196,188
Special mention		—		—		—		—		—		475		—		—		475
Substandard		1,573		1,796		358		447		817		3,808		—		—		8,799
Doubtful		—		—		—		—		—		40		—		—		40
Total senior lien		62,380		419,955		318,683		115,115		45,436		196,497		46,803		633		1,205,502
Gross charge-offs: Senior lien		—		—		—		—		—		46		—		—		46
Junior lien
Pass		4,351		4,837		1,997		3,301		2,527		5,282		64,208		2,691		89,194
Special mention		—		—		—		—		—		27		—		—		27
Substandard		—		152		300		460		—		356		—		—		1,268
Total junior lien		4,351		4,989		2,297		3,761		2,527		5,665		64,208		2,691		90,489
Total residential real estate		66,731		424,944		320,980		118,876		47,963		202,162		111,011		3,324		1,295,991

Gross charge-offs: Residential real estate		—		—		—		—		—		46		—		—		46
Consumer
Pass		5,624		3,873		2,557		1,175		329		445		5,287		24		19,314
Substandard		—		—		2		4		—		53		3		—		62
Total consumer		5,624		3,873		2,559		1,179		329		498		5,290		24		19,376
Gross charge-offs: Consumer		914		6		1		2		0		7		—		—		930
Total loans	$	724,137	$	1,922,913	$	1,445,997	$	626,589	$	448,312	$	1,269,454	$	1,017,515	$	23,521	$	7,478,438
Gross charge-offs: Total loans		914		6		216		2		24		56		—		—		1,218

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 September 30, 2023 and December 31, 2022:


	September 30, 2023
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,136	$	464	$	2,600
Owner-occupied commercial real estate		2,578		—		2,578
Food and agribusiness		1,672		6,638		8,310
Total Commercial		6,386		7,102		13,488
Commercial real estate non owner-occupied
Non-owner occupied		19,986		—		19,986
Total commercial real estate non owner-occupied		19,986		—		19,986
Residential real estate
Senior lien		5,037		163		5,200
Junior lien		300		—		300
Total residential real estate		5,337		163		5,500
Consumer		—		6		6
Total loans	$	31,709	$	7,271	$	38,980


	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 non owner-occupied		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:


	September 30, 2023

	Term extension			Payment delay
	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	—	0.0%	$	114	0.0%
Total commercial		—	0.0%		114	0.0%
Commercial real estate non-owner occupied:
Non-owner occupied		18,764	1.8%		—	0.0%
Total commercial real estate non-owner occupied		18,764	1.0%		—	0.0%
Residential real estate:
Senior lien		653	0.1%		—	0.0%
Total residential real estate		653	0.1%		—	0.0%
Total loans	$	19,417	0.3%	$	114	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 twelve months as of September 30, 2023:


	September 30, 2023

	Current		Non-accrual
Commercial:
Commercial and industrial	$	114	$	—
Total commercial		114		—
Commercial real estate non-owner occupied:
Non-owner occupied		5,292		13,472
Total commercial real estate non-owner occupied		5,292		13,472
Residential real estate:
Senior lien		653		—
Total residential real estate		653		—
Total loans	$	6,059	$	13,472

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 one TDM with an amortized cost totaling $13.5 million that was modified within the past twelve months, utilizing a term extension, and had defaulted on their modified terms during the nine months ended September 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 September 30, 2023:


	September 30, 2023
	Financial effect
		Term extension	Payment delay	Combination - Interest Rate Reduction and Term Extension
Commercial:
Commercial and industrial			Delayed payments for a weighted average of 0.2 year
Commercial real estate non-owner occupied:
Non-owner occupied		Extended weighted average of 0.3 years to the life of loans, which reduced monthly payment amounts
Residential real estate:
Senior lien				Reduced weighted average contractual interest rate by 2.5% and renewed with a weighted average life of 30 years, 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 nine months ended September 30, 2022, the Company had two TDRs totaling $2.3 million 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.