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Loans
 3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
Portfolio Loans LOANS

Below is a summary of loans by category at March 31, 2020 and December 31, 2019:
 
(in thousands)
March 31, 2020
 
December 31, 2019
Commercial and industrial
$
2,469,013

 
2,361,157

Real estate:
 
 
 
Commercial - investor owned
1,327,814

 
1,299,884

Commercial - owner occupied
720,543

 
697,437

Construction and land development
469,627

 
457,273

Residential
346,758

 
366,261

Total real estate loans
2,864,742

 
2,820,855

Consumer and other
126,212

 
134,941

Loans, before unearned loan fees
5,459,967

 
5,316,953

Unearned loan fees, net
(2,450
)
 
(2,616
)
Loans, including unearned loan fees
$
5,457,517

 
$
5,314,337



The loan balance at March 31, 2020 includes a discount on acquired loans of $24.5 million. At March 31, 2020 loans of $2.7 billion were pledged to FHLB and the Federal Reserve Bank.

A summary of the activity in the ACLL by category through March 31, 2020 is as follows:
(in thousands)
Commercial and industrial
 
CRE - investor owned
 
CRE -
owner occupied
 
Construction and land development
 
Residential real estate
 
Consumer and other
 
Total
Allowance for credit losses on loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
27,455

 
$
5,935

 
$
4,873

 
$
2,611

 
$
1,280

 
$
1,134

 
$
43,288

CECL adoption
6,494

 
10,726

 
2,598

 
5,183

 
3,470

 
(84
)
 
28,387

PCD loans immediately charged off
—

 
(5
)
 
(57
)
 
(217
)
 
(1,401
)
 
—

 
(1,680
)
Balance at January 1, 2020
$
33,949

 
$
16,656

 
$
7,414

 
$
7,577

 
$
3,349

 
$
1,050

 
$
69,995

Provision for credit losses
11,591

 
3,224

 
1,994

 
2,309

 
2,011

 
566

 
21,695

Charge-offs
(63
)
 
(2
)
 
—

 
(31
)
 
(122
)
 
(86
)
 
(304
)
Recoveries
504

 
14

 
69

 
40

 
157

 
17

 
801

Balance at March 31, 2020
$
45,981

 
$
19,892


$
9,477


$
9,895


$
5,395


$
1,547


$
92,187



On January 1, 2020, the Company adopted the CECL methodology which added $28.4 million to the ACLL. Upon adoption, $1.7 million of nonaccrual PCD loans that were less than $100,000 were immediately charged-off. Under the CECL method, the Company recorded a $21.7 million provision for credit losses on loans in the first quarter 2020, compared to a $1.5 million provision for loan losses in the first quarter 2019 under the incurred loss method. The increase in the provision for credit losses on loans is due to the Company’s forecast of macroeconomic factors over the next 12 months, which significantly decreased in the first quarter 2020 due to the COVID-19 pandemic. The CECL methodology incorporates various economic scenarios, including baseline, upside and downside scenarios. In the first quarter 2020, the Company changed its weighting of economic scenarios to capture more downside risk in the economy. This changed added $2.2 million to the ACLL in the first quarter 2020.

The recorded investment in nonperforming loans by category at March 31, 2020 and December 31, 2019, is as follows: 
 
March 31, 2020
(in thousands)
Nonaccrual
 
Restructured, accruing
 
Loans over 90 days past due and still accruing interest
 
Total nonperforming loans
 
Nonaccrual loans with no allowance
Commercial and industrial
$
22,729

 
$
3,731

 
$
71

 
$
26,531

 
$
17,915

Real estate:
 
 
 
 
 
 
 
 
 
    Commercial - investor owned
4,115

 
—

 
—

 
4,115

 
2,576

    Commercial - owner occupied
2,110

 
—

 
—

 
2,110

 
1,114

    Construction and land development
214

 
—

 
—

 
214

 
214

    Residential
4,075

 
79

 
—

 
4,154

 
3,086

Consumer and other
25

 
—

 
55

 
80

 
—

       Total
$
33,268

 
$
3,810


$
126


$
37,204

 
$
24,905


There was no interest income recognized on nonaccrual loans in the first quarter 2020.

 
December 31, 2019
(in thousands)
Nonaccrual
 
Restructured, accruing
 
Loans over 90 days past due and still accruing interest
 
Total nonperforming loans
Commercial and industrial
$
22,328

 
$
—

 
$
250

 
$
22,578

Real estate:
 
 
 
 
 
 
 
    Commercial - investor owned
2,303

 
—

 
—

 
2,303

    Commercial - owner occupied
213

 
—

 
—

 
213

    Residential
1,251

 
79

 
—

 
1,330

Consumer and other
1

 
—

 
—

 
1

       Total
$
26,096

 
$
79

 
$
250

 
$
26,425


 
 
 
 
 
 

The following table presents the amortized cost basis of collateral-dependent nonperforming loans by class of loan at March 31, 2020:

 
Type of Collateral
(in thousands)
Commercial Real Estate
 
Residential Real Estate
 
Blanket Lien
Commercial and industrial
$
13,051

 
$
—

 
$
5,910

Real estate:
 
 
 
 
 
Commercial - investor owned
4,115

 
—

 
—

Commercial - owner occupied
1,521

 
—

 
—

Construction and land development
—

 
214

 
—

Residential
—

 
3,927

 
—

Total
$
18,687

 
$
4,141

 
$
5,910



The recorded investment by category for loans restructured during the three months ended March 31, 2020 is as follows:
 
March 31, 2020
(in thousands, except for number of loans)
Number of loans
 
Pre-Modification Outstanding Recorded Balance
 
Post-Modification Outstanding Recorded Balance
Commercial and industrial
1

 
$
3,731

 
$
3,731

Real estate:
 
 
 
 
 
Residential
2

 
155

 
155

Total
3

 
$
3,886

 
$
3,886



There were no loans restructured during the three months ended March 31, 2019.

There were no troubled debt restructured loans that subsequently defaulted during the three months ended March 31, 2020 or 2019.
 
 
 
 
 
 
 
 
 
 
 
 
The aging of the recorded investment in past due loans by class at March 31, 2020 is shown below.

 
March 31, 2020
(in thousands)
30-89 Days
 Past Due
 
90 or More
Days
Past Due
 
Total
Past Due
 
Current
 
Total
Commercial and industrial
$
24,898

 
$
9,491

 
$
34,389

 
$
2,434,624

 
$
2,469,013

Real estate:
 
 
 
 
 
 
 
 
 
Commercial - investor owned
1,996

 
3,438

 
5,434

 
1,322,380

 
1,327,814

Commercial - owner occupied
3,870

 
1,182

 
5,052

 
715,491

 
720,543

Construction and land development
95

 
—

 
95

 
469,532

 
469,627

Residential
5,124

 
1,482

 
6,606

 
340,152

 
346,758

Consumer and other
459

 
75

 
534

 
123,228

 
123,762

Total
$
36,442

 
$
15,668


$
52,110


$
5,405,407


$
5,457,517

 
 
 
 
 
 
 
 
 
 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, payment experience, credit documentation, and current economic factors among other factors. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:
•
Grades 1, 2, and 3 – Includes loans to borrowers with a continuous record of strong earnings, sound balance sheet condition and capitalization, ample liquidity with solid cash flow, and whose management team has experience and depth within their industry.
•
Grade 4 – Includes loans to borrowers with positive trends in profitability, satisfactory capitalization and balance sheet condition, and sufficient liquidity and cash flow.
•
Grade 5 – Includes loans to borrowers that may display fluctuating trends in sales, profitability, capitalization, liquidity, and cash flow.
•
Grade 6 – Includes loans to borrowers where an adverse change or perceived weakness has occurred, but may be correctable in the near future. Alternatively, this rating category may also include circumstances where the borrower is starting to reverse a negative trend or condition, or has recently been upgraded from a 7, 8, or 9 rating.
•
Grade 7 – Watch credits are borrowers that have experienced financial setback of a nature that is not determined to be severe or influence ‘ongoing concern’ expectations. Although possible, no loss is anticipated at this time, due to strong collateral and/or guarantor support.
•
Grade 8 – Substandard credits include those borrowers characterized by significant losses and sustained downward trends in balance sheet condition, liquidity, and cash flow. Repayment reliance may have shifted to secondary sources. Collateral exposure may exist and additional reserves may be warranted.
•
Grade 9 – Doubtful credits include borrowers that may show deteriorating trends that are unlikely to be corrected. Collateral values may appear insufficient for full recovery, therefore requiring a partial charge-off, or debt renegotiation with the borrower. The borrower may have declared bankruptcy or bankruptcy is likely in the near term. All doubtful rated credits will be on nonaccrual.
The recorded investment by risk category of the loans by class at March 31, 2020, which is based upon the most recent analysis performed is as follows:
 
 
Term Loans by Origination Year
 
 
 
 
 
 
(in thousands)
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior
 
Revolving Loans Converted to Term Loans
 
Revolving Loans
 
Total
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass (1-6)
 
$
274,021

 
$
623,511

 
$
328,712

 
$
188,489

 
$
53,064

 
$
126,446

 
$
2,557

 
$
660,675

 
$
2,257,475

Watch (7)
 
780

 
17,643

 
5,258

 
11,986

 
23,454

 
524

 
506

 
66,449

 
126,600

Classified (8-9)
 
649

 
20,887

 
8,438

 
3,881

 
5,253

 
3,581

 
431

 
26,687

 
69,807

Total Commercial and industrial
 
$
275,450

 
$
662,041

 
$
342,408

 
$
204,356

 
$
81,771

 
$
130,551

 
$
3,494

 
$
753,811

 
$
2,453,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate-investor owned
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass (1-6)
 
$
114,369

 
$
356,099

 
$
229,830

 
$
154,406

 
$
173,623

 
$
204,948

 
$
1,745

 
$
52,875

 
$
1,287,895

Watch (7)
 
113

 
10,395

 
1,305

 
400

 
12,614

 
1,623

 
—

 
—

 
26,450

Classified (8-9)
 
—

 
978

 
8,043

 
445

 
246

 
3,757

 
—

 
—

 
13,469

Total Commercial real estate-investor owned
 
$
114,482

 
$
367,472

 
$
239,178

 
$
155,251

 
$
186,483

 
$
210,328

 
$
1,745

 
$
52,875

 
$
1,327,814

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate-owner occupied
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Pass (1-6)
 
$
50,382

 
$
226,562

 
$
99,918

 
$
89,750

 
$
58,499

 
$
96,149

 
$
2,797

 
$
44,271

 
$
668,328

Watch (7)
 
2,775

 
8,802

 
370

 
9,904

 
8,641

 
5,313

 
—

 
5,900

 
41,705

Classified (8-9)
 
—

 
1,131

 
5,212

 
—

 
—

 
4,167

 
—

 
—

 
10,510

Total Commercial real estate-owner occupied
 
$
53,157

 
$
236,495

 
$
105,500

 
$
99,654

 
$
67,140

 
$
105,629

 
$
2,797

 
$
50,171

 
$
720,543

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Construction real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass (1-6)
 
$
23,035

 
$
184,561

 
$
123,931

 
$
63,034

 
$
28,407

 
$
14,672

 
$
—

 
$
17,410

 
$
455,050

Watch (7)
 
966

 
11,448

 
1,262

 
69

 
—

 
563

 
—

 
—

 
14,308

Classified (8-9)
 
—

 
226

 
—

 
—

 
—

 
43

 
—

 
—

 
269

Total Construction real estate
 
$
24,001

 
$
196,235

 
$
125,193

 
$
63,103

 
$
28,407

 
$
15,278

 
$
—

 
$
17,410

 
$
469,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass (1-6)
 
$
12,356

 
$
37,811

 
$
23,381

 
$
24,306

 
$
38,082

 
$
132,715

 
$
245

 
$
65,660

 
$
334,556

Watch (7)
 
1

 
1,045

 
875

 
—

 
4

 
2,683

 
—

 
1,093

 
5,701

Classified (8-9)
 
—

 
1,715

 
767

 
13

 
131

 
2,882

 
—

 
49

 
5,557

Total residential real estate
 
$
12,357

 
$
40,571

 
$
25,023

 
$
24,319

 
$
38,217

 
$
138,280

 
$
245

 
$
66,802

 
$
345,814

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer and other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass (1-6)
 
$
1,257

 
$
26,478

 
$
20,911

 
$
1,735

 
$
5,535

 
$
35,940

 
$
—

 
$
29,311

 
$
121,167

Watch (7)
 
—

 
2

 
—

 
—

 
—

 
1

 
—

 
1

 
4

Classified (8-9)
 
—

 
2

 
4

 
6

 
—

 
24

 
10

 
24

 
70

Total consumer and other
 
$
1,257

 
$
26,482

 
$
20,915

 
$
1,741

 
$
5,535

 
$
35,965

 
$
10

 
$
29,336

 
$
121,241


In the table above, loan originations in 2020 and 2019 with a classification of watch or classified primarily represent renewals or modifications initially underwritten and originated in prior years.
For certain loans, primarily credit cards, the Company evaluates credit quality based on the aging status.
The following table presents the recorded investment on loans based on payment activity:
 
 
March 31, 2020
(in thousands)
 
Performing
 
Non Performing
 
Total
Commercial and industrial
 
$
15,060

 
$
71

 
$
15,131

Real estate:
 
 
 
 
 
 
Residential
 
944

 
—

 
944

Consumer and other
 
2,465

 
56

 
2,521

Total
 
$
18,469

 
$
127

 
$
18,596


 
 
 
 
 
 
 
 
The recorded investment by risk category of loans by class at December 31, 2019, was as follows:
 
December 31, 2019
(in thousands)
Pass (1-6)
 
Watch (7)
 
Classified (8 & 9)
 
Total*
Commercial and industrial
$
2,151,084

 
$
124,718

 
$
70,021

 
$
2,345,823

Real estate:
 
 
 
 
 
 
 
Commercial - investor owned
1,242,569

 
17,572

 
2,840

 
1,262,981

Commercial - owner occupied
643,276

 
28,773

 
6,473

 
678,522

Construction and land development
437,134

 
12,140

 
106

 
449,380

Residential
348,246

 
4,450

 
2,496

 
355,192

Consumer and other
132,096

 
3

 
51

 
132,150

Total
$
4,954,405

 
$
187,656


$
81,987

 
$
5,224,048

*Excludes $90.3 million of loans accounted for as PCI


In response to the COVID-19 pandemic, the Company has implemented short-term deferral programs allowing customers to primarily defer payments for up to 90 days. As of April 30, 2020, $392.1 million loans have participated in the programs, including $190.8 million loans deferring interest payments of $2.2 million. In addition, the Company has been actively participating in the PPP since the SBA began accepting applications in April 2020. In the second quarter 2020, the Company expects to fund $856.5 million in PPP loans that have been approved by the SBA.