Loans

3 Months Ended

Mar. 31, 2023

Loans

Loans

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 $37.5 million and $38.8 million as of March 31, 2023 and December 31, 2022, respectively.

	March 31, 2023
	Total loans		% of total
Commercial	$	4,228,950	57.6%
Commercial real estate non-owner occupied		1,824,524	24.8%
Residential real estate		1,271,798	17.3%
Consumer		20,026	0.3%
Total	$	7,345,298	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 March 31, 2023 and December 31, 2022:

	March 31, 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	$	1,224	$	—	$	1,631	$	2,855	$	1,987,928	$	1,990,783
Municipal and non-profit		—		—		—		—		980,117		980,117
Owner occupied commercial real estate		—		—		2,200		2,200		920,914		923,114
Food and agribusiness		75		141		620		836		334,100		334,936
Total commercial		1,299		141		4,451		5,891		4,223,059		4,228,950
Commercial real estate non-owner occupied:
Construction		—		—		—		—		341,197		341,197
Acquisition/development		—		—		—		—		123,696		123,696
Multifamily		—		—		—		—		270,532		270,532
Non-owner occupied		—		—		149		149		1,088,950		1,089,099
Total commercial real estate		—		—		149		149		1,824,375		1,824,524
Residential real estate:
Senior lien		633		30		4,268		4,931		1,176,742		1,181,673
Junior lien		342		10		605		957		89,168		90,125
Total residential real estate		975		40		4,873		5,888		1,265,910		1,271,798
Consumer		34		4		73		111		19,915		20,026
Total loans	$	2,308	$	185	$	9,546	$	12,039	$	7,333,259	$	7,345,298

	March 31, 2023
	Non-accrual loans		Non-accrual loans
	with a related		with no related
	allowance for		allowance for		Non-accrual
	credit loss		credit loss		loans
Commercial:
Commercial and industrial	$	1,631	$	—	$	1,631
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		781		1,419		2,200
Food and agribusiness		34		586		620
Total commercial		2,446		2,005		4,451
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		149		—		149
Total commercial real estate		149		—		149
Residential real estate:
Senior lien		3,138		1,130		4,268
Junior lien		302		303		605
Total residential real estate		3,440		1,433		4,873
Consumer		66		7		73
Total loans	$	6,101	$	3,445	$	9,546

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

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

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Modified loans are discussed in more detail below. There was no interest income recognized from non-accrual loans during the three months ended March 31, 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 March 31, 2023:

	March 31, 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	$	69,538	$	467,029	$	341,901	$	113,152	$	91,494	$	149,917	$	711,784	$	4,261	$	1,949,076
Special mention		—		7,325		1,877		9,093		1,115		4,353		5,266		—		29,029
Substandard		—		32		36		1,264		210		10,843		2		50		12,437
Doubtful		—		—		—		241		—		—		—		—		241
Total commercial and industrial		69,538		474,386		343,814		123,750		92,819		165,113		717,052		4,311		1,990,783
Municipal and non-profit:
Pass		14,917		137,012		249,393		89,199		57,423		430,505		1,668		—		980,117
Total municipal and non-profit		14,917		137,012		249,393		89,199		57,423		430,505		1,668		—		980,117
Owner occupied commercial real estate:
Pass		19,585		276,224		201,657		94,484		88,505		185,546		17,457		2,575		886,033
Special mention		—		—		2,053		—		6,894		22,164		—		—		31,111
Substandard		—		—		1,761		1,952		885		629		—		—		5,227
Doubtful		—		—		—		—		69		674		—		—		743
Total owner occupied commercial real estate		19,585		276,224		205,471		96,436		96,353		209,013		17,457		2,575		923,114
Food and agribusiness:
Pass		11,556		38,482		22,437		24,318		10,923		46,699		143,594		40		298,049
Special mention		—		—		204		—		—		6,612		28,917		—		35,733
Substandard		—		—		586		—		12		306		—		—		904
Doubtful		—		—		—		250		—		—		—		—		250
Total food and agribusiness		11,556		38,482		23,227		24,568		10,935		53,617		172,511		40		334,936
Total commercial		115,596		926,104		821,905		333,953		257,530		858,248		908,688		6,926		4,228,950
Commercial real estate non-owner occupied:
Construction:
Pass		8,817		109,043		116,125		59,177		14,710		212		33,113		—		341,197
Total construction		8,817		109,043		116,125		59,177		14,710		212		33,113		—		341,197
Acquisition/development:
Pass		2,203		62,121		34,395		7,779		1,445		10,525		5,228		—		123,696
Total acquisition/development		2,203		62,121		34,395		7,779		1,445		10,525		5,228		—		123,696
Multifamily:
Pass		27,067		107,963		26,661		17,568		39,457		33,155		18,661		—		270,532
Total multifamily		27,067		107,963		26,661		17,568		39,457		33,155		18,661		—		270,532
Non-owner occupied
Pass		90,371		252,860		171,318		120,123		121,691		268,884		8,319		4,866		1,038,432
Special mention		—		—		—		7,275		3,999		29,351		—		—		40,625
Substandard		—		—		—		—		—		7,112		—		—		7,112
Doubtful		—		—		—		280		—		2,650		—		—		2,930
Total non-owner occupied		90,371		252,860		171,318		127,678		125,690		307,997		8,319		4,866		1,089,099
Total commercial real estate non-owner occupied		128,458		531,987		348,499		212,202		181,302		351,889		65,321		4,866		1,824,524
Residential real estate:
Senior lien
Pass		25,405		376,497		327,259		127,907		46,389		216,942		51,953		229		1,172,581
Special mention		—		—		—		—		—		387		—		—		387
Substandard		—		188		185		4,462		833		2,989		—		—		8,657
Doubtful		—		—		—		—		—		48		—		—		48
Total senior lien		25,405		376,685		327,444		132,369		47,222		220,366		51,953		229		1,181,673
Junior lien
Pass		1,261		4,981		2,055		3,085		2,572		5,790		68,406		832		88,982
Special mention		—		—		—		—		—		27		—		—		27
Substandard		—		95		—		251		—		258		—		303		907
Doubtful		—		—		—		209		—		—		—		—		209
Total junior lien		1,261		5,076		2,055		3,545		2,572		6,075		68,406		1,135		90,125
Total residential real estate		26,666		381,761		329,499		135,914		49,794		226,441		120,359		1,364		1,271,798
Consumer
Pass		3,492		5,858		3,403		1,851		479		649		4,175		47		19,954
Substandard		—		3		2		5		—		54		3		5		72
Total consumer		3,492		5,861		3,405		1,856		479		703		4,178		52		20,026
Gross charge-offs: Consumer		322		—		—		—		—		3		—		—		325
Total loans	$	274,212	$	1,845,713	$	1,503,308	$	683,925	$	489,105	$	1,437,281	$	1,098,546	$	13,208	$	7,345,298
Gross charge-offs: Total loans		322		—		—		—		—		3		—		—		325

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 March 31, 2023 and December 31, 2022:

	March 31, 2023
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,181	$	32	$	2,213
Owner-occupied commercial real estate		2,658		150		2,808
Food and agribusiness		1,680		—		1,680
Total Commercial		6,519		182		6,701
Commercial real estate non owner-occupied
Non-owner occupied		6,519		—		6,519
Total commercial real estate		6,519		—		6,519
Residential real estate
Senior lien		5,585		—		5,585
Junior lien		763		—		763
Total residential real estate		6,348		—		6,348
Consumer		—		7		7
Total loans	$	19,386	$	189	$	19,575

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

Loan modifications

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

modifications (“TDM”) may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof.

During the three months ended March 31, 2023, the Company modified three loans with an amortized cost basis of $4.3 million to facilitate repayment that are considered TDMs. The following schedule presents, by loan class, the amortized costs basis as of the dates shown for modified loans to borrowers experiencing financial difficulty:

	March 31, 2023
	Term extension			Payment delay
	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	—	0.0%	$	154	0.0%
Owner occupied commercial real estate		—	0.0%		116	0.0%
Total commercial		—	0.0%		270	0.0%
Residential real estate:
Senior lien		4,000	0.3%		—	0.0%
Total residential real estate		4,000	0.3%		—	0.0%
Total loans	$	4,000	0.1%	$	270	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 three months as of March 31, 2023:

	March 31, 2023
	Current		Non-accrual
Commercial:
Commercial and industrial	$	154	$	—
Owner occupied commercial real estate		—		116
Total commercial		154		116
Residential real estate:
Senior lien		4,000		—
Total residential real estate		4,000		—
Total loans	$	4,154	$	116

Accrual of interest is resumed on loans that were previously on non-accrual only after the loan has performed sufficiently for a period of time. The Company had no TDMs that were modified within the past twelve months and had defaulted on their modified terms during the three months ended March 31, 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 March 31, 2023:

	March 31, 2023
	Financial effect
		Term extension	Payment delay
Commercial:
Commercial and industrial			Delayed payments for a weighted average of 0.2 years
Owner occupied commercial real estate			Delayed payments for a weighted average of 0.5 years
Residential real estate:
Senior lien		Added weighted average 0.5 years to the life of loans, which reduced monthly payment amounts

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

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

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

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

During the three months ended March 31, 2022, the Company had no TDRs that were modified within the past twelve 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 is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDRs.