Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2024

Receivables [Abstract]

Loans and Allowance for Credit Losses

4. Loans and Allowance for Credit Losses

Loan Origination/Risk Management

The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio. Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. Authority levels are established for the extension of credit to ensure consistency throughout the Company. It is necessary that policies, processes, and practices implemented to control the risks of individual credit transactions and portfolio segments are sound and adhered to. The Company maintains an independent loan review department that reviews and validates the risk assessment on a continual basis. Management regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers.

Specialty lending loans include Asset-based loans, which are offered primarily in the form of revolving lines of credit to commercial borrowers that do not generally qualify for traditional bank financing. Asset-based loans are underwritten based primarily upon the value of the collateral pledged to secure the loan, rather than on the borrower’s general financial condition. The Company utilizes pre-loan due diligence techniques, monitoring disciplines, and loan management practices common within the asset-based lending industry to underwrite loans to these borrowers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires that an appraisal of the collateral be made at origination and on an as-needed basis, in conformity with current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner-occupied real estate. Also included in Commercial real estate are Construction loans that are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes, governmental regulation of real property, economic conditions, completion of the construction project, and the availability of long-term financing.

Consumer real estate loans, including residential real estate and home equity loans, are underwritten based on the borrower’s loan-to-value percentage, collection remedies, and overall credit history.

Consumer loans are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer loans and leases. The underwriting and review practices combined with the

relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing.

Credit cards include both commercial and consumer credit cards. Commercial credit cards are generally unsecured and are underwritten with criteria similar to commercial loans, including an analysis of the borrower’s cash flow, available business capital, and overall creditworthiness of the borrower. Consumer credit cards are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer credit cards and periodically reviews the distribution of credit scores relative to historical periods to monitor credit risk on its consumer credit card loans. During the first quarter of 2024, the Company purchased a co-branded credit card portfolio. The purchase included $109.4 million in credit card receivables.

Credit risk is a potential loss resulting from nonpayment of either the primary or secondary exposure. Credit risk is mitigated with formal risk management practices and a thorough initial credit-granting process including consistent underwriting standards and approval process. Control factors or techniques to minimize credit risk include knowing the client, understanding total exposure, analyzing the client and debtor’s financial capacity, and monitoring the client’s activities. Credit risk and portions of the portfolio risk are managed through concentration considerations, average risk ratings, and other aggregate characteristics.

Loan Aging Analysis

The following tables provide a summary of loan classes and an aging of past due loans at June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	30-89 Days Past Due and Accruing		Greater than 90 Days Past Due and Accruing		Nonaccrual Loans		Total Past Due		Current		Total Loans
Loans
Commercial and industrial	$	2,713	$	260	$	5,266	$	8,239	$	10,225,221	$	10,233,460
Specialty lending		—		—		—		—		524,242		524,242
Commercial real estate		1,398		—		628		2,026		9,447,587		9,449,613
Consumer real estate		813		—		7,416		8,229		3,013,059		3,021,288
Consumer		122		1		53		176		158,992		159,168
Credit cards		12,738		5,383		380		18,501		550,767		569,268
Leases and other		—		—		—		—		240,423		240,423
Total loans	$	17,784	$	5,644	$	13,743	$	37,171	$	24,160,291	$	24,197,462

	December 31, 2023
	30-89 Days Past Due and Accruing		Greater than 90 Days Past Due and Accruing		Nonaccrual Loans		Total Past Due		Current		Total Loans
Loans
Commercial and industrial	$	2,851	$	—	$	7,033	$	9,884	$	9,920,045	$	9,929,929
Specialty lending		—		—		—		—		498,786		498,786
Commercial real estate		1,848		—		737		2,585		8,891,341		8,893,926
Consumer real estate		1,137		—		5,058		6,195		2,954,437		2,960,632
Consumer		104		55		28		187		163,104		163,291
Credit cards		5,343		3,056		285		8,684		415,272		423,956
Leases and other		—		—		71		71		301,893		301,964
Total loans	$	11,283	$	3,111	$	13,212	$	27,606	$	23,144,878	$	23,172,484

The Company sold consumer real estate loans with proceeds of $38.0 million and $30.6 million in the secondary market without recourse during the six months ended June 30, 2024 and 2023, respectively.

The Company has ceased the recognition of interest on loans with a carrying value of $13.7 million and $13.2 million at June 30, 2024 and December 31, 2023, respectively. Restructured loans totaled $315 thousand and $548 thousand at June 30, 2024 and December 31, 2023, respectively. Loans 90 days past due and still accruing interest amounted to $5.6 million and $3.1 million at June 30, 2024 and December 31, 2023, respectively. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. There was an insignificant amount of interest reversed related to loans on nonaccrual during 2024 and 2023. Nonaccrual loans with no related allowance for credit losses totaled $13.7 million and $13.2 million at June 30, 2024 and December 31, 2023, respectively.

The following tables provide the amortized cost of nonaccrual loans with no related allowance for credit losses by loan class at June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	Nonaccrual Loans		Amortized Cost of Nonaccrual Loans with no related Allowance
Loans
Commercial and industrial	$	5,266	$	5,266
Specialty lending		—		—
Commercial real estate		628		628
Consumer real estate		7,416		7,416
Consumer		53		53
Credit cards		380		380
Leases and other		—		—
Total loans	$	13,743	$	13,743

	December 31, 2023
	Nonaccrual Loans		Amortized Cost of Nonaccrual Loans with no related Allowance
Loans
Commercial and industrial	$	7,033	$	7,033
Specialty lending		—		—
Commercial real estate		737		737
Consumer real estate		5,058		5,058
Consumer		28		28
Credit cards		285		285
Leases and other		71		71
Total loans	$	13,212	$	13,212

Amortized Cost

The following tables provide a summary of the amortized cost balance of each of the Company’s loan classes disaggregated by collateral type and origination year as of June 30, 2024 and December 31, 2023, as well as the gross charge-offs by loan class and origination year for the six months ended June 30, 2024 (in thousands):

	June 30, 2024
	Amortized Cost Basis by Origination Year - Term Loans
Loan Segment and Type	2024		2023		2022		2021		2020		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Commercial and industrial:
Equipment/Accounts Receivable/Inventory	$	782,641	$	1,546,824	$	1,209,935	$	904,950	$	356,949	$	227,748	$	5,044,452	$	514	$	10,074,013
Agriculture		10,867		6,330		4,315		2,766		619		483		125,743		—		151,123
Overdrafts		—		—		—		—		—		—		8,324		—		8,324
Total Commercial and industrial		793,508		1,553,154		1,214,250		907,716		357,568		228,231		5,178,519		514		10,233,460
Current period charge-offs		—		598		36		22		11		327		—		—		994
Specialty lending:
Asset-based lending		5,612		—		9,563		33,655		31,090		—		444,322		—		524,242
Total Specialty lending		5,612		—		9,563		33,655		31,090		—		444,322		—		524,242
Current period charge-offs		—		—		—		—		—		—		—		—		—
Commercial real estate:
Owner-occupied		105,871		270,193		614,370		460,640		315,017		321,826		50,747		—		2,138,664
Non-owner-occupied		312,363		621,502		933,021		762,453		422,244		385,016		32,140		—		3,468,739
Farmland		33,930		49,749		66,826		37,507		190,011		27,872		103,891		8		509,794
5+ Multi-family		72,818		34,695		135,950		210,771		29,219		20,205		8,257		—		511,915
1-4 Family construction		16,957		25,950		62,218		—		—		—		2,640		—		107,765
General construction		160,794		590,556		1,413,608		462,013		4,136		590		81,039		—		2,712,736
Total Commercial real estate		702,733		1,592,645		3,225,993		1,933,384		960,627		755,509		278,714		8		9,449,613
Current period charge-offs		—		—		—		236		—		14		—		—		250
Consumer real estate:
HELOC		—		—		555		120		305		5,189		366,560		963		373,692
First lien: 1-4 family		176,648		389,382		558,875		659,467		528,452		290,962		—		—		2,603,786
Junior lien: 1-4 family		8,576		11,338		11,115		6,373		3,355		2,968		85		—		43,810
Total Consumer real estate		185,224		400,720		570,545		665,960		532,112		299,119		366,645		963		3,021,288
Current period charge-offs		—		1		—		—		—		—		175		—		176
Consumer:
Revolving line		35		—		—		—		—		—		79,465		301		79,801
Auto		5,012		9,386		4,744		2,831		1,345		593		—		—		23,911
Other		2,082		3,511		15,570		25,855		454		872		7,112		—		55,456
Total Consumer		7,129		12,897		20,314		28,686		1,799		1,465		86,577		301		159,168
Current period charge-offs		—		25		38		—		—		2		604		—		669
Credit cards:
Consumer		—		—		—		—		—		—		317,953		—		317,953
Commercial		—		—		—		—		—		—		251,315		—		251,315
Total Credit cards		—		—		—		—		—		—		569,268		—		569,268
Current period charge-offs		—		—		—		—		—		—		7,246		—		7,246
Leases and other:
Leases		—		—		—		—		—		1,681		—		—		1,681
Other		16,743		90,070		59,490		14,715		13,380		11,482		32,862		—		238,742
Total Leases and other		16,743		90,070		59,490		14,715		13,380		13,163		32,862		—		240,423
Current period charge-offs		—		—		—		—		—		—		—		—		—
Total loans	$	1,710,949	$	3,649,486	$	5,100,155	$	3,584,116	$	1,896,576	$	1,297,487	$	6,956,907	$	1,786	$	24,197,462

	December 31, 2023
	Amortized Cost Basis by Origination Year - Term Loans
Loan Segment and Type	2023		2022		2021		2020		2019		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Commercial and industrial:
Equipment/Accounts Receivable/Inventory	$	1,787,301	$	1,486,609	$	1,123,732	$	412,276	$	202,827	$	97,130	$	4,615,872	$	6,336	$	9,732,083
Agriculture		13,934		5,840		3,785		920		477		239		169,173		—		194,368
Overdrafts		—		—		—		—		—		—		3,478		—		3,478
Total Commercial and industrial		1,801,235		1,492,449		1,127,517		413,196		203,304		97,369		4,788,523		6,336		9,929,929
Specialty lending:
Asset-based lending		13,938		16,103		35,466		32,229		—		—		401,050		—		498,786
Total Specialty lending		13,938		16,103		35,466		32,229		—		—		401,050		—		498,786
Commercial real estate:
Owner-occupied		276,284		629,514		499,020		335,133		152,539		215,373		30,842		—		2,138,705
Non-owner-occupied		556,369		901,614		849,496		449,547		293,531		185,679		36,313		—		3,272,549
Farmland		75,418		71,087		39,128		195,750		15,608		19,700		89,291		—		505,982
5+ Multi-family		34,714		27,668		240,724		29,840		16,861		4,982		9,274		—		364,063
1-4 Family construction		49,327		51,360		—		—		—		—		3,286		3,394		107,367
General construction		574,661		1,340,152		515,289		4,220		636		130		70,172		—		2,505,260
Total Commercial real estate		1,566,773		3,021,395		2,143,657		1,014,490		479,175		425,864		239,178		3,394		8,893,926
Consumer real estate:
HELOC		150		650		—		497		82		4,958		355,105		1,364		362,806
First lien: 1-4 family		419,312		585,401		682,008		548,859		158,228		165,197		2		—		2,559,007
Junior lien: 1-4 family		12,117		11,943		6,861		3,927		2,117		1,769		85		—		38,819
Total Consumer real estate		431,579		597,994		688,869		553,283		160,427		171,924		355,192		1,364		2,960,632
Consumer:
Revolving line		48		—		—		—		—		—		56,272		—		56,320
Auto		11,509		6,013		3,922		2,170		1,088		158		—		—		24,860
Other		4,853		22,147		26,125		574		365		1,243		26,804		—		82,111
Total Consumer		16,410		28,160		30,047		2,744		1,453		1,401		83,076		—		163,291
Credit cards:
Consumer		—		—		—		—		—		—		197,095		—		197,095
Commercial		—		—		—		—		—		—		226,861		—		226,861
Total Credit cards		—		—		—		—		—		—		423,956		—		423,956
Leases and other:
Leases		—		—		—		—		610		1,106		—		—		1,716
Other		100,484		95,909		16,968		16,949		1,620		13,966		54,352		—		300,248
Total Leases and other		100,484		95,909		16,968		16,949		2,230		15,072		54,352		—		301,964
Total loans	$	3,930,419	$	5,252,010	$	4,042,524	$	2,032,891	$	846,589	$	711,630	$	6,345,327	$	11,094	$	23,172,484

Accrued interest on loans totaled $130.8 million and $119.6 million as of June 30, 2024 and December 31, 2023, respectively, and is included in the Accrued income line on the Company’s Consolidated Balance Sheets. The total amount of accrued interest is excluded from the amortized cost basis of loans presented above. Further, the Company has elected not to measure an allowance for credit losses for accrued interest receivable.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions.

The Company utilizes a risk grading matrix to assign a rating to each of its commercial, commercial real estate, and construction real estate loans. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified. The loan ratings are summarized into the following categories: Non-watch list, Watch, Special Mention, Substandard, and Doubtful. Any loan not classified in one of the categories described below is considered to be a Non-watch list loan. A description of the general characteristics of the loan rating categories is as follows:

•Watch – This rating represents credit exposure that presents higher than average risk and warrants greater than routine attention by Company personnel due to conditions affecting the borrower, the borrower’s industry, or the economic environment. These conditions have resulted in some degree of uncertainty that results in higher-than-average credit risk. These loans are considered pass-rated credits.

•Special Mention – This rating reflects a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the borrower’s credit position at some future date. The rating is not adversely classified and does not expose an institution to sufficient risk to warrant adverse classification.

•Substandard – This rating represents an asset inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.

•Doubtful – This rating represents an asset that has all the weaknesses inherent in an asset classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage of strengthening the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, liquidation procedures, capital injection, or perfecting liens.

Commercial and industrial

A discussion of the credit quality indicators that impact each type of collateral securing Commercial and industrial loans is included below:

Equipment, accounts receivable, and inventory General commercial and industrial loans are secured by working capital assets and non-real estate assets. The general purpose of these loans is for financing capital expenditures and current operations for commercial and industrial entities. These assets are short-term in nature. In the case of accounts receivable and inventories, the repayment of debt is reliant upon converting assets into cash or through goods and services being sold and collected. Collateral-based risk is due to aged short-term assets, which can be indicative of underlying issues with the borrower and lead to the value of the collateral being overstated.

Agriculture Agricultural loans are secured by non-real estate agricultural assets. These include shorter-term assets such as equipment, crops, and livestock. The risks associated with loans to finance crops or livestock include the borrower’s ability to successfully raise and market the commodity. Adverse weather conditions and other natural perils can dramatically affect farmers’ or ranchers’ production and ability to service debt. Volatile commodity prices present another significant risk for agriculture borrowers. Market price volatility and production cost volatility can affect both revenues and expenses.

Overdrafts Commercial overdrafts are typically short-term and unsecured. Some commercial borrowers tie their overdraft obligation to their line of credit, so any draw on the line of credit will satisfy the overdraft.

Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position.

The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2024		2023		2022		2021		2020		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Equipment/Accounts Receivable/Inventory
Non-watch list – Pass	$	707,825	$	1,446,289	$	1,118,254	$	774,479	$	353,615	$	219,411	$	4,748,980	$	457	$	9,369,310
Watch – Pass		24,539		88,891		21,630		114,494		2,906		3,959		91,813		8		348,240
Special Mention		31,449		4,686		64,295		10,226		84		—		100,076		—		210,816
Substandard		18,114		6,958		5,756		5,751		344		4,378		103,583		49		144,933
Doubtful		714		—		—		—		—		—		—		—		714
Total Equipment/Accounts Receivable/Inventory	$	782,641	$	1,546,824	$	1,209,935	$	904,950	$	356,949	$	227,748	$	5,044,452	$	514	$	10,074,013
Agriculture
Non-watch list – Pass	$	3,593	$	6,234	$	2,064	$	2,766	$	619	$	483	$	81,258	$	—	$	97,017
Watch – Pass		—		96		1,564		—		—		—		42,127		—		43,787
Special Mention		—		—		35		—		—		—		1,498		—		1,533
Substandard		7,274		—		652		—		—		—		860		—		8,786
Doubtful		—		—		—		—		—		—		—		—		—
Total Agriculture	$	10,867	$	6,330	$	4,315	$	2,766	$	619	$	483	$	125,743	$	—	$	151,123

	December 31, 2023
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2023		2022		2021		2020		2019		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Equipment/Accounts Receivable/Inventory
Non-watch list – Pass	$	1,728,443	$	1,381,481	$	1,059,277	$	402,632	$	184,561	$	92,979	$	4,242,095	$	6,194	$	9,097,662
Watch – Pass		38,940		81,233		55,928		8,809		9,620		1,627		230,990		49		427,196
Special Mention		3,000		17,857		5,186		214		—		—		39,059		—		65,316
Substandard		15,708		6,038		3,341		621		8,646		2,524		103,728		93		140,699
Doubtful		1,210		—		—		—		—		—		—		—		1,210
Total Equipment/Accounts Receivable/Inventory	$	1,787,301	$	1,486,609	$	1,123,732	$	412,276	$	202,827	$	97,130	$	4,615,872	$	6,336	$	9,732,083
Agriculture
Non-watch list – Pass	$	13,934	$	5,122	$	3,785	$	839	$	477	$	239	$	159,565	$	—	$	183,961
Watch – Pass		—		—		—		—		—		—		—		—		—
Special Mention		—		66		—		—		—		—		1,236		—		1,302
Substandard		—		652		—		81		—		—		8,372		—		9,105
Doubtful		—		—		—		—		—		—		—		—		—
Total Agriculture	$	13,934	$	5,840	$	3,785	$	920	$	477	$	239	$	169,173	$	—	$	194,368

Specialty lending

A discussion of the credit quality indicators that impact each type of collateral securing Specialty loans is included below:

Asset-based lending General asset-based loans are secured by accounts receivable, inventory, equipment, and real estate. The purpose of these loans is for financing current operations for commercial customers. The repayment of debt is reliant upon collection of the accounts receivable within 30 to 90 days or converting assets into cash or through goods and services being sold and collected. The Company tracks each individual borrower credit risk based on their loan to collateral position. Any borrower position where the underlying value of collateral is below the fair value of the loan is considered out-of-margin and inherently higher risk.

The following table provides a summary of the amortized cost balance by risk rating for asset-based loans as of June 30, 2024 and December 31, 2023 (in thousands):

	Asset-based lending
Risk	June 30, 2024		December 31, 2023
In-margin	$	524,242	$	498,786
Out-of-margin		—		—
Total	$	524,242	$	498,786

Commercial real estate

A discussion of the credit quality indicators that impact each type of collateral securing Commercial real estate loans is included below:

Owner-occupied Owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The loans rely on the owner-occupied operations to service

debt which cover a broad spectrum of industries. Real estate debt can carry a significant amount of leverage for a borrower to maintain.

Non-owner-occupied Non-owner-occupied loans are secured by commercial real estate. These loans are often longer tenured and susceptible to multiple economic cycles. The key element of risk in this type of lending is the cyclical nature of real estate markets. Although national conditions affect the overall real estate industry, the effect of national conditions on local markets is equally important. Factors such as unemployment rates, consumer demand, household formation, and the level of economic activity can vary widely from state to state and among metropolitan areas. In addition to geographic considerations, markets can be defined by property type. While all sectors are influenced by economic conditions, some sectors are more sensitive to certain economic factors than others.

Farmland Farmland loans are secured by real estate used for agricultural purposes such as crop and livestock production. Assets used as collateral are long-term assets that carry the ability to have longer amortizations and maturities. Longer terms carry the risk of added susceptibility to market conditions. The limited purpose of some Agriculture-related collateral affects credit risk because such collateral may have limited or no other uses to support values when loan repayment problems emerge.

5+ Multi-family 5+ multi-family loans are secured by a multi-family residential property. The primary risks associated with this type of collateral are largely driven by economic conditions. The national and local market conditions can change with unemployment rates or competing supply of multi-family housing. Tenants may not be able to afford their housing or have better options and this can result in increased vacancy. Rents may need to be lowered to fill apartment units. Increased vacancy and lower rental rates not only drive the borrower’s ability to repay debt but also contribute to how the collateral is valued.

1-4 Family construction 1-4 family construction loans are secured by 1-4 family residential real estate and are in the process of construction or improvements being made. The predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Market conditions also play an important role in understanding the risk profile. Risk from adverse changes in market conditions from the start of development to completion can result in deflated collateral values.

General construction General construction loans are secured by commercial real estate in process of construction or improvements being made and their repayment is dependent on the collateral’s completion. Construction lending presents unique risks not encountered in term financing of existing real estate. The predominant risk inherent to this portfolio is the risk associated with a borrower’s ability to successfully complete a project on time and within budget. Commercial properties under construction are susceptible to market and economic conditions. Demand from prospective customers may erode after construction begins because of a general economic slowdown or an increase in the supply of competing properties.

Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position.

The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2024		2023		2022		2021		2020		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Owner-occupied
Non-watch list – Pass	$	70,359	$	269,802	$	605,110	$	455,012	$	298,300	$	305,352	$	50,018	$	—	$	2,053,953
Watch – Pass		3,112		—		4,932		2,052		9,794		8,150		—		—		28,040
Special Mention		31,112		—		4,328		3,530		6,916		355		729		—		46,970
Substandard		1,288		391		—		46		7		7,969		—		—		9,701
Doubtful		—		—		—		—		—		—		—		—		—
Total Owner-occupied	$	105,871	$	270,193	$	614,370	$	460,640	$	315,017	$	321,826	$	50,747	$	—	$	2,138,664
Non-owner-occupied
Non-watch list – Pass	$	258,093	$	606,497	$	885,435	$	718,707	$	400,706	$	385,016	$	32,140	$	—	$	3,286,594
Watch – Pass		54,270		15,005		47,586		19,637		21,538		—		—		—		158,036
Special Mention		—		—		—		24,109		—		—		—		—		24,109
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Non-owner-occupied	$	312,363	$	621,502	$	933,021	$	762,453	$	422,244	$	385,016	$	32,140	$	—	$	3,468,739
Farmland
Non-watch list – Pass	$	19,884	$	47,391	$	57,439	$	37,507	$	185,319	$	24,277	$	103,655	$	8	$	475,480
Watch – Pass		93		—		1,460		—		4,220		—		236		—		6,009
Special Mention		—		2,358		425		—		472		3,443		—		—		6,698
Substandard		13,953		—		7,502		—		—		152		—		—		21,607
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	33,930	$	49,749	$	66,826	$	37,507	$	190,011	$	27,872	$	103,891	$	8	$	509,794
5+ Multi-family
Non-watch list – Pass	$	72,818	$	34,695	$	135,950	$	210,771	$	29,219	$	20,205	$	8,257	$	—	$	511,915
Watch – Pass		—		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total 5+ Multi-family	$	72,818	$	34,695	$	135,950	$	210,771	$	29,219	$	20,205	$	8,257	$	—	$	511,915
1-4 Family construction
Non-watch list – Pass	$	16,957	$	25,950	$	62,218	$	—	$	—	$	—	$	2,640	$	—	$	107,765
Watch – Pass		—		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total 1-4 Family construction	$	16,957	$	25,950	$	62,218	$	—	$	—	$	—	$	2,640	$	—	$	107,765
General construction
Non-watch list – Pass	$	160,169	$	590,556	$	1,413,608	$	454,042	$	4,136	$	573	$	81,039	$	—	$	2,704,123
Watch – Pass		341		—		—		—		—		6		—		—		347
Special Mention		173		—		—		—		—		—		—		—		173
Substandard		—		—		—		7,971		—		11		—		—		7,982
Doubtful		111		—		—		—		—		—		—		—		111
Total General construction	$	160,794	$	590,556	$	1,413,608	$	462,013	$	4,136	$	590	$	81,039	$	—	$	2,712,736

	December 31, 2023
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2023		2022		2021		2020		2019		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Owner-occupied
Non-watch list – Pass	$	269,735	$	607,418	$	461,179	$	319,610	$	130,428	$	209,707	$	30,113	$	—	$	2,028,190
Watch – Pass		2,105		18,701		24,164		8,769		15,547		4,324		—		—		73,610
Special Mention		—		1,609		12,911		6,741		4,015		—		729		—		26,005
Substandard		4,444		1,786		766		13		2,549		1,342		—		—		10,900
Doubtful		—		—		—		—		—		—		—		—		—
Total Owner-occupied	$	276,284	$	629,514	$	499,020	$	335,133	$	152,539	$	215,373	$	30,842	$	—	$	2,138,705
Non-owner-occupied
Non-watch list – Pass	$	481,902	$	798,936	$	773,032	$	449,547	$	217,240	$	175,924	$	36,313	$	—	$	2,932,894
Watch – Pass		49,933		102,678		51,402		—		76,291		9,755		—		—		290,059
Special Mention		24,534		—		24,404		—		—		—		—		—		48,938
Substandard		—		—		658		—		—		—		—		—		658
Doubtful		—		—		—		—		—		—		—		—		—
Total Non-owner-occupied	$	556,369	$	901,614	$	849,496	$	449,547	$	293,531	$	185,679	$	36,313	$	—	$	3,272,549
Farmland
Non-watch list – Pass	$	48,615	$	62,321	$	38,681	$	195,234	$	11,735	$	19,168	$	89,241	$	—	$	464,995
Watch – Pass		—		273		125		—		—		—		50		—		448
Special Mention		2,358		428		—		493		3,627		—		—		—		6,906
Substandard		24,445		8,065		322		23		246		532		—		—		33,633
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	75,418	$	71,087	$	39,128	$	195,750	$	15,608	$	19,700	$	89,291	$	—	$	505,982
5+ Multi-family
Non-watch list – Pass	$	34,714	$	27,668	$	240,724	$	29,840	$	16,861	$	4,982	$	9,274	$	—	$	364,063
Watch – Pass		—		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total 5+ Multi-family	$	34,714	$	27,668	$	240,724	$	29,840	$	16,861	$	4,982	$	9,274	$	—	$	364,063
1-4 Family construction
Non-watch list – Pass	$	49,327	$	51,360	$	—	$	—	$	—	$	—	$	3,286	$	3,394	$	107,367
Watch – Pass		—		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total 1-4 Family construction	$	49,327	$	51,360	$	—	$	—	$	—	$	—	$	3,286	$	3,394	$	107,367
General construction
Non-watch list – Pass	$	572,847	$	1,340,152	$	507,276	$	4,220	$	625	$	117	$	70,172	$	—	$	2,495,409
Watch – Pass		1,554		—		—		—		11		—		—		—		1,565
Special Mention		180		—		—		—		—		—		—		—		180
Substandard		—		—		8,013		—		—		13		—		—		8,026
Doubtful		80		—		—		—		—		—		—		—		80
Total General construction	$	574,661	$	1,340,152	$	515,289	$	4,220	$	636	$	130	$	70,172	$	—	$	2,505,260

Consumer real estate

A discussion of the credit quality indicators that impact each type of collateral securing Consumer real estate loans is included below:

HELOC HELOC loans are revolving lines of credit secured by 1-4 family residential property. The primary risk is the borrower’s inability to repay debt. Revolving notes are often associated with HELOCs that can be secured by real estate without a 1st lien priority. Collateral is susceptible to market volatility impacting home values or economic downturns.

First lien: 1-4 family First lien 1-4 family loans are secured by a first lien on 1-4 family residential property. These term loans carry longer maturities and amortizations. The longer tenure exposes the borrower to multiple economic cycles, coupled with longer amortizations that result in smaller principal reduction early in the life of the loan. Collateral is susceptible to market volatility impacting home values.

Junior lien: 1-4 family Junior lien 1-4 family loans are secured by a junior lien on 1-4 family residential property. The Company’s primary risk is the borrower’s inability to repay debt and not being in a first lien position. Collateral is susceptible to market volatility impacting home values or economic downturns.

A borrower is considered non-performing if the Company has ceased the recognition of interest and the loan is placed on non-accrual. Charge-offs and borrower performance are tracked on a loan origination vintage basis. Certain vintages, based on their maturation cycle, could be at higher risk due to collateral-based risk factors.

The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2024		2023		2022		2021		2020		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
HELOC
Performing	$	—	$	—	$	555	$	120	$	285	$	4,070	$	366,560	$	800	$	372,390
Non-performing		—		—		—		—		20		1,119		—		163		1,302
Total HELOC	$	—	$	—	$	555	$	120	$	305	$	5,189	$	366,560	$	963	$	373,692
First lien: 1-4 family
Performing	$	176,356	$	388,187	$	555,488	$	659,384	$	528,298	$	290,051	$	—	$	—	$	2,597,764
Non-performing		292		1,195		3,387		83		154		911		—		—		6,022
Total First lien: 1-4 family	$	176,648	$	389,382	$	558,875	$	659,467	$	528,452	$	290,962	$	—	$	—	$	2,603,786
Junior lien: 1-4 family
Performing	$	8,576	$	11,318	$	11,084	$	6,373	$	3,355	$	2,926	$	85	$	—	$	43,717
Non-performing		—		20		31		—		—		42		—		—		93
Total Junior lien: 1-4 family	$	8,576	$	11,338	$	11,115	$	6,373	$	3,355	$	2,968	$	85	$	—	$	43,810

	December 31, 2023
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2023		2022		2021		2020		2019		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
HELOC
Performing	$	150	$	579	$	—	$	466	$	82	$	3,737	$	355,047	$	1,308	$	361,369
Non-performing		—		71		—		31		—		1,221		58		56		1,437
Total HELOC	$	150	$	650	$	—	$	497	$	82	$	4,958	$	355,105	$	1,364	$	362,806
First lien: 1-4 family
Performing	$	418,766	$	583,711	$	681,921	$	548,736	$	158,037	$	164,315	$	2	$	—	$	2,555,488
Non-performing		546		1,690		87		123		191		882		—		—		3,519
Total First lien: 1-4 family	$	419,312	$	585,401	$	682,008	$	548,859	$	158,228	$	165,197	$	2	$	—	$	2,559,007
Junior lien: 1-4 family
Performing	$	12,094	$	11,911	$	6,861	$	3,927	$	2,117	$	1,722	$	85	$	—	$	38,717
Non-performing		23		32		—		—		—		47		—		—		102
Total Junior lien: 1-4 family	$	12,117	$	11,943	$	6,861	$	3,927	$	2,117	$	1,769	$	85	$	—	$	38,819

Consumer

A discussion of the credit quality indicators that impact each type of collateral securing Consumer loans is included below:

Revolving line Consumer Revolving lines of credit are secured by consumer assets other than real estate. The primary risk associated with this collateral is related to market volatility and the value of the underlying financial assets.

Auto Direct consumer auto loans are secured by new and used consumer vehicles. The primary risk with this collateral class is the rate at which the collateral depreciates.

Other This category includes Other consumer loans made to an individual. The primary risk for this category is for those loans where the loan is unsecured. This collateral type also includes other unsecured lending such as consumer overdrafts.

A borrower is considered non-performing if the Company has ceased the recognition of interest and the loan is placed on non-accrual. Charge-offs and borrower performance are tracked on a loan origination vintage basis. Certain vintages, based on their maturation cycle, could be at higher risk due to collateral-based risk factors.

The following tables provide a summary of the amortized cost balance by collateral type and risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2024		2023		2022		2021		2020		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Revolving line
Performing	$	35	$	—	$	—	$	—	$	—	$	—	$	79,465	$	301	$	79,801
Non-performing		—		—		—		—		—		—		—		—		—
Total Revolving line	$	35	$	—	$	—	$	—	$	—	$	—	$	79,465	$	301	$	79,801
Auto
Performing	$	5,012	$	9,386	$	4,715	$	2,820	$	1,345	$	593	$	—	$	—	$	23,871
Non-performing		—		—		29		11		—		—		—		—		40
Total Auto	$	5,012	$	9,386	$	4,744	$	2,831	$	1,345	$	593	$	—	$	—	$	23,911
Other
Performing	$	2,068	$	3,511	$	15,570	$	25,855	$	454	$	872	$	7,112	$	—	$	55,442
Non-performing		14		—		—		—		—		—		—		—		14
Total Other	$	2,082	$	3,511	$	15,570	$	25,855	$	454	$	872	$	7,112	$	—	$	55,456

	December 31, 2023
	Amortized Cost Basis by Origination Year - Term Loans
Risk by Collateral	2023		2022		2021		2020		2019		Prior		Amortized Cost - Revolving Loans		Amortized Cost - Revolving Loans Converted to Term Loans		Total
Revolving line
Performing	$	48	$	—	$	—	$	—	$	—	$	—	$	56,272	$	—	$	56,320
Non-performing		—		—		—		—		—		—		—		—		—
Total Revolving line	$	48	$	—	$	—	$	—	$	—	$	—	$	56,272	$	—	$	56,320
Auto
Performing	$	11,509	$	6,013	$	3,908	$	2,170	$	1,088	$	158	$	—	$	—	$	24,846
Non-performing		—		—		14		—		—		—		—		—		14
Total Auto	$	11,509	$	6,013	$	3,922	$	2,170	$	1,088	$	158	$	—	$	—	$	24,860
Other
Performing	$	4,853	$	22,133	$	26,125	$	574	$	365	$	1,243	$	26,804	$	—	$	82,097
Non-performing		—		14		—		—		—		—		—		—		14
Total Other	$	4,853	$	22,147	$	26,125	$	574	$	365	$	1,243	$	26,804	$	—	$	82,111

Credit cards

A discussion of the credit quality indicators that impact Credit card loans is included below:

Consumer Consumer credit card loans are revolving loans made to individuals. The primary risk associated with this collateral class is credit card debt which is generally unsecured; therefore, repayment depends primarily on a borrower’s willingness and capacity to repay. The highly competitive environment for credit card lending provides consumers with ample opportunity to hold several credit cards from different issuers and to pay only minimum monthly payments on outstanding balances. In such an environment, borrowers may become over-extended and unable to repay, particularly in times of an economic downturn or a personal catastrophic event.

The consumer credit card portfolio is segmented by borrower payment activity. Transactors are defined as accounts that pay off their balance by the end of each statement cycle. Revolvers are defined as an account that carries a balance from one statement cycle to the next. These accounts incur monthly finance charges, and, sometimes, late fees. Revolvers are inherently higher risk and are tracked by credit score.

Commercial Commercial credit card loans are revolving loans made to small and commercial businesses. The primary risk associated with this collateral class is credit card debt which is generally unsecured; therefore, repayment depends primarily on a borrower’s willingness and capacity to repay. Borrowers may become over-extended and unable to repay, particularly in times of an economic downturn or a catastrophic event.

The commercial credit card portfolio is segmented by current and past due payment status. A borrower is past due after 30 days. In general, commercial credit card customers do not have incentive to hold a balance resulting in paying interest on credit card debt as commercial customers will typically have other debt obligations with lower interest rates in which they can utilize for capital.

The following table provides a summary of the amortized cost balance of consumer credit cards by risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	Consumer
Risk	June 30, 2024		December 31, 2023
Transactor accounts	$	104,667	$	74,330
Revolver accounts (by credit score):
Less than 600		14,588		7,140
600-619		6,970		3,572
620-639		12,356		5,343
640-659		19,158		9,536
660-679		20,547		9,642
680-699		22,913		11,220
700-719		24,613		13,489
720-739		21,620		12,896
740-759		18,967		12,434
760-779		17,983		12,955
780-799		16,660		11,822
800-819		10,868		7,808
820-839		5,175		4,054
840+		868		854
Total	$	317,953	$	197,095

The following table provides a summary of the amortized cost balance of commercial credit cards by risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	Commercial
Risk	June 30, 2024		December 31, 2023
Current	$	235,311	$	207,520
Past Due		16,004		19,341
Total	$	251,315	$	226,861

Leases and other

A discussion of the credit quality indicators that impact each type of collateral securing Leases and other loans is included below:

Leases Leases are either loans to individuals for household, family and other personal expenditures or are loans related to all other direct financing and leveraged leases on property for leasing to lessees other than for household, family and other personal expenditure purposes. All leases are secured by the lease between the lessor and the lessee. These assignments grant the creditor a security interest in the rent stream from any lease, an important source of cash to pay the note in case of the borrower’s default.

Other Other loans are loans that are obligations of states and political subdivisions in the U.S., loans to non-depository financial institutions, loans for purchasing or carrying securities, or all other non-consumer loans. Risk associated with other loans is tied to the underlying collateral by each type of loan. Collateral is generally equipment, accounts receivable, inventory, 1-4 family residential construction and susceptible to the same risks mentioned with those collateral types previously. Other risks consist of collateral that is secured by the stock of a non-depository financial institution, which can be unlisted stock with a limited market for the stock, or volatility of asset values driven by market performance.

Based on the factors noted above for each type of collateral, the Company assigns risk ratings to borrowers based on their most recently assessed financial position.

The following table provides a summary of the amortized cost balance by collateral type and risk rating as of June 30, 2024 and December 31, 2023 (in thousands):

	Leases				Other
Risk	June 30, 2024		December 31, 2023		June 30, 2024		December 31, 2023
Non-watch list – Pass	$	1,681	$	1,716	$	237,909	$	285,497
Watch – Pass		—		—		808		14,655
Special Mention		—		—		—		—
Substandard		—		—		25		96
Doubtful		—		—		—		—
Total	$	1,681	$	1,716	$	238,742	$	300,248

Allowance for Credit Losses

The allowance for credit losses (ACL) is a valuation account that is deducted from loans’ and held-to-maturity (HTM) securities’ amortized cost bases to present the net amount expected to be collected on the instrument. Loans and HTM securities are charged off against the ACL when management believes the balance has become uncollectible. Expected recoveries are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable economic forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses and is tracked over an economic cycle to capture a ‘through the cycle’ loss history. Adjustments to historical loss information are made for

differences in current loan-specific risk characteristics such as differences in portfolio industry-based segmentation, risk rating and credit score changes, average prepayment rates, changes in environmental conditions, or other relevant factors. For economic forecasts, the Company uses the Moody’s baseline scenario. The Company has developed a dynamic reasonable and supportable forecast period that ranges from one to three years and changes based on economic conditions. Due to current economic conditions, the Company’s reasonable and supportable forecast period is one year. After the reasonable and supportable forecast period, the Company reverts to historical losses. The reversion method applied to each portfolio can either be cliff or straight-line over four quarters.

The ACL is measured on a collective (pool) basis when similar risk characteristics exists. The ACL also incorporates qualitative factors which represent adjustments to historical credit loss experience for items such as concentrations of credit and results of internal loan review. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods. The Company’s portfolio segmentation consists of Commercial and industrial, Specialty lending, Commercial real estate, Consumer real estate, Consumer, Credit cards, Leases and other, and Held-to-maturity securities. Multiple modeling techniques are used to measure credit losses based on the portfolio.

The ACL for Commercial and industrial and Leases and other segments are measured using a probability of default and loss given default method. Primary risk drivers within the segment are risk ratings of the individual loans along with changes of macro-economic variables. The economic variables utilized are typically comprised of leading and lagging indicators. The ACL for Commercial and industrial loans is calculated by modeling probability of default (PD) over future periods multiplied by historical loss given default rates (LGD) multiplied by contractual exposure at default minus any estimated prepayments and charge offs.

Collateral positions for Specialty lending loans are continuously monitored by the Company and the borrower is required to continually adjust the amount of collateral securing the loan. Credit losses are measured for any position where the amortized cost basis is greater than the fair value of the collateral. The ACL for specialty lending loans is calculated by using a bottom-up approach comparing collateral values to outstanding balances.

The ACL for the Commercial real estate segment is measured using a PD and LGD method. Primary risk characteristics within the segment are risk ratings of the individual loans, along with changes of macro-economic variables, such as interest rates, CRE price index, median household income, construction activity, farm income, and vacancy rates. The ACL for Commercial real estate loans is calculated by modeling PD over future periods based on peer bank data. The PD loss rate is then multiplied by historical LGD multiplied by contractual exposure at default minus any estimated prepayments and charge offs.

The ACL for the Consumer real estate and Consumer segments are measured using an origination vintage loss rate method applied to the loans’ amortized cost balance. The primary risk driver within the segments is year of origination along with changes of macro-economic variables such as unemployment and the home price index.

The Credit card segment contains both consumer and commercial credit cards. The ACL for Consumer credit cards is measured using a PD and LGD method for Revolvers and average historical loss rates across a defined lookback period for Transactors. The PD and LGD method used for Revolvers is similar in nature to the method used in the Commercial and industrial and Commercial real estate segments. Primary risk drivers within the segment are credit ratings of the individual card holders along with changes of macro-economic variables such as unemployment and retail sales. The ACL for Commercial credit cards is measured using roll-rate loss rate method based on days past due.

The ACL for the State and political HTM securities segment is measured using a loss rate method based on historical bond rating transitions. Primary risk drivers within the segment are bond ratings in the portfolio along with changes of macro-economic conditions. There is no ACL for the U.S. Agency and GSE mortgage-backed HTM securities portfolios as they are considered to be agency-backed securities with no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. For further discussion on these securities, including the aging and amortized cost balance of HTM securities, see Note 5, “Securities.”

See the credit quality indicators presented previously for a summary of current risk in the Company’s portfolio. Changes in economic forecasts will affect all portfolio segments, updated financial records from

borrowers will affect portfolio segments by risk rating, updated credit scores will affect consumer credit cards, payment performance will affect consumer and commercial credit card portfolio segments, and updated bond credit ratings will affect held-to-maturity securities. The Company actively monitors all credit quality indicators for risk changes that will influence the current estimate.

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a concessionary loan term has been granted to a borrower experiencing financial difficulty or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.

Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then applies those expected future cash flows to the credit card balance. Expected credit losses for credit cards are determined by estimating the amount and timing of principal payments expected to be received as payment for the balance outstanding as of the reporting period until the expected payments have been fully allocated. The ACL is recorded for the excess of the balance outstanding as of the reporting period over the expected principal payments.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually include loans on nonaccrual, loans that include modifications deemed concessionary made to borrowers experiencing financial difficulty, or any loans specifically identified, and are excluded from the collective evaluation. When it is determined that payment of interest or recovery of all principal is questionable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for undiscounted selling costs as appropriate. All loans are classified as collateral dependent if placed on non-accrual or include modifications made to borrowers experiencing financial difficulty.

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS

This table provides a rollforward of the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2024 and June 30, 2023 (in thousands):

	Three Months Ended June 30, 2024
	Commercial and industrial			Specialty lending			Commercial real estate		Consumer real estate			Consumer			Credit cards			Leases and other			Total - Loans			HTM			Total
Allowance for credit losses:
Beginning balance	$	139,824		$	—		$	66,291	$	3,399		$	531		$	14,557		$	1,557		$	226,159		$	3,820		$	229,979
Charge-offs		(50	)		—			—		(2	)		(261	)		(3,545	)		—			(3,858	)		—			(3,858	)
Recoveries		366			1			—		4			22			609			—			1,002			—			1,002
Provision		10,386			(1	)		2,571		166			340			2,315			87			15,864			(864	)		15,000
Ending balance - ACL	$	150,526		$	—		$	68,862	$	3,567		$	632		$	13,936		$	1,644		$	239,167		$	2,956		$	242,123
Allowance for credit losses on off-balance sheet credit exposures:
Beginning balance	$	4,092		$	186		$	460	$	117		$	9		$	—		$	160		$	5,024		$	64		$	5,088
Provision		(1,887	)		(186	)		1,221		(37	)		4			—			(45	)		(930	)		(20	)		(950	)
Ending balance - ACL on off-balance sheet	$	2,205		$	—		$	1,681	$	80		$	13		$	—		$	115		$	4,094		$	44		$	4,138

	Three Months Ended June 30, 2023
	Commercial and industrial		Specialty lending			Commercial real estate		Consumer real estate			Consumer			Credit cards			Leases and other			Total - Loans			HTM			Total
Allowance for credit losses:
Beginning balance	$	154,484	$	922		$	40,514	$	5,616		$	453		$	6,471		$	2,049		$	210,509		$	2,341		$	212,850
Charge-offs		—		—			—		(21	)		(411	)		(2,066	)		—			(2,498	)		—			(2,498	)
Recoveries		2,098		—			21		5			100			413			—			2,637			—			2,637
Provision		7,228		(922	)		1,657		927			275			2,413			(65	)		11,513			487			12,000
Ending balance - ACL	$	163,810	$	—		$	42,192	$	6,527		$	417		$	7,231		$	1,984		$	222,161		$	2,828		$	224,989
Allowance for credit losses on off-balance sheet credit exposures:
Beginning balance	$	2,178	$	186		$	418	$	124		$	13		$	—		$	62		$	2,981		$	107		$	3,088
Provision		901		—			12		(5	)		(1	)		—			115			1,022			(22	)		1,000
Ending balance - ACL on off-balance sheet	$	3,079	$	186		$	430	$	119		$	12		$	—		$	177		$	4,003		$	85		$	4,088

	Six Months Ended June 30, 2024
	Commercial and industrial			Specialty lending			Commercial real estate			Consumer real estate			Consumer			Credit cards			Leases and other			Total - Loans			HTM			Total
Allowance for credit losses:
Beginning balance	$	155,658		$	—		$	45,507		$	6,941		$	1,089		$	7,935		$	2,608		$	219,738		$	3,258		$	222,996
Charge-offs		(994	)		—			(250	)		(176	)		(669	)		(7,246	)		—			(9,335	)		—			(9,335	)
Recoveries		1,618			2			—			610			98			1,134			—			3,462			—			3,462
Provision		(5,756	)		(2	)		23,605			(3,808	)		114			12,113			(964	)		25,302			(302	)		25,000
Ending balance - ACL	$	150,526		$	—		$	68,862		$	3,567		$	632		$	13,936		$	1,644		$	239,167		$	2,956		$	242,123
Allowance for credit losses on off-balance sheet credit exposures:
Beginning balance	$	4,092		$	186		$	460		$	117		$	9		$	—		$	160		$	5,024		$	64		$	5,088
Provision		(1,887	)		(186	)		1,221			(37	)		4			—			(45	)		(930	)		(20	)		(950	)
Ending balance - ACL on off-balance sheet	$	2,205		$	—		$	1,681		$	80		$	13		$	—		$	115		$	4,094		$	44		$	4,138

	Six Months Ended June 30, 2023
	Commercial and industrial			Specialty lending			Commercial real estate			Consumer real estate			Consumer			Credit cards			Leases and other			Total - Loans			HTM			Total
Allowance for credit losses:
Beginning balance	$	136,737		$	—		$	39,370		$	6,148		$	494		$	6,866		$	2,221		$	191,836		$	2,407		$	194,243
Charge-offs		(2,819	)		—			(21	)		(1,142	)		(680	)		(3,670	)		—			(8,332	)		—			(8,332	)
Recoveries		2,886			1			21			18			122			780			—			3,828			—			3,828
Provision		27,006			(1	)		2,822			1,503			481			3,255			(237	)		34,829			421			35,250
Ending balance - ACL	$	163,810		$	—		$	42,192		$	6,527		$	417		$	7,231		$	1,984		$	222,161		$	2,828		$	224,989
Allowance for credit losses on off-balance sheet credit exposures:
Beginning balance	$	2,178		$	186		$	418		$	124		$	13		$	—		$	62		$	2,981		$	107		$	3,088
Provision		901			—			12			(5	)		(1	)		—			115			1,022			(22	)		1,000
Ending balance - ACL on off-balance sheet	$	3,079		$	186		$	430		$	119		$	12		$	—		$	177		$	4,003		$	85		$	4,088

The allowance for credit losses on off-balance sheet credit exposures is recorded in the Accrued expenses and taxes line of the Company’s Consolidated Balance Sheets. See Note 10 “Commitments, Contingencies and Guarantees.”

Collateral Dependent Financial Assets

The following tables provide the amortized cost balance of financial assets considered collateral dependent as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024
Loan Segment and Type	Amortized Cost of Collateral Dependent Assets		Related Allowance for Credit Losses		Amortized Cost of Collateral Dependent Assets with no related Allowance
Commercial and industrial:
Equipment/Accounts Receivable/Inventory	$	5,266	$	—	$	5,266
Agriculture		—		—		—
Total Commercial and industrial		5,266		—		5,266
Specialty lending:
Asset-based lending		—		—		—
Total Specialty lending		—		—		—
Commercial real estate:
Owner-occupied		514		—		514
Non-owner-occupied		—		—		—
Farmland		152		—		152
5+ Multi-family		—		—		—
1-4 Family construction		—		—		—
General construction		122		—		122
Total Commercial real estate		788		—		788
Consumer real estate:
HELOC		1,301		—		1,301
First lien: 1-4 family		6,022		—		6,022
Junior lien: 1-4 family		93		—		93
Total Consumer real estate		7,416		—		7,416
Consumer:
Revolving line		—		—		—
Auto		39		—		39
Other		14		—		14
Total Consumer		53		—		53
Leases and other:
Leases		—		—		—
Other		—		—		—
Total Leases and other		—		—		—
Total loans	$	13,523	$	—	$	13,523

	December 31, 2023
Loan Segment and Type	Amortized Cost of Collateral Dependent Assets		Related Allowance for Credit Losses		Amortized Cost of Collateral Dependent Assets with no related Allowance
Commercial and industrial:
Equipment/Accounts Receivable/Inventory	$	7,033	$	—	$	7,033
Agriculture		—		—		—
Total Commercial and industrial		7,033		—		7,033
Specialty lending:
Asset-based lending		—		—		—
Total Specialty lending		—		—		—
Commercial real estate:
Owner-occupied		632		—		632
Non-owner-occupied		—		—		—
Farmland		175		—		175
5+ Multi-family		—		—		—
1-4 Family construction		—		—		—
General construction		93		—		93
Total Commercial real estate		900		—		900
Consumer real estate:
HELOC		1,437		—		1,437
First lien: 1-4 family		3,519		—		3,519
Junior lien: 1-4 family		102		—		102
Total Consumer real estate		5,058		—		5,058
Consumer:
Revolving line		—		—		—
Auto		14		—		14
Other		14		—		14
Total Consumer		28		—		28
Leases and other:
Leases		—		—		—
Other		71		—		71
Total Leases and other		71		—		71
Total loans	$	13,090	$	—	$	13,090

Modifications made to Borrowers Experiencing Financial Difficulty

In the normal course of business, the Company may execute loan modifications with borrowers. These modifications are analyzed to determine whether the modification is considered concessionary, long term and made to a borrower experiencing financial difficulty. The Company’s modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the borrower short-term cash relief to allow them to improve their financial condition. If a loan modification is determined to be made to a borrower experiencing financial difficulty, the loan is considered collateral dependent and evaluated as part of the ACL as described above in the Allowance for Credit Losses section of this note.

For the three and six months ended June 30, 2024, the Company had two modifications on residential real estate loans made to borrowers experiencing financial difficulty with a total pre-modification loan balance of $291

thousand and a total post-modification loan balance of $293 thousand. For the three and six-months ended June 30, 2023, the Company had no new modifications.

The Company had no commitments to lend to borrowers experiencing financial difficulty for which the Company has modified an existing loan as of June 30, 2024 and 2023. The Company monitors loan payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of payment default involves analyzing the economic conditions that exist for each customer and their ability to generate positive cash flows during the loan term. For the three and six months ended June 30, 2024 and 2023, the Company had no loan modifications made to borrowers experiencing financial difficulty for which there was a payment default within the 12 months following the modification date.