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Portfolio Loans
6 Months Ended
Jun. 30, 2022
Portfolio Loans  
Portfolio Loans

Note 4:  Portfolio Loans

Loan Categories

The Company’s lending can be summarized into five primary categories: commercial loans, commercial real estate loans, real estate construction loans, retail real estate loans, and retail other loans.  Distributions of the loan portfolio by loan category were as follows (dollars in thousands):

As of

June 30,

December 31,

    

2022

    

2021

Portfolio loans

Commercial

$

1,919,680

$

1,943,886

Commercial real estate

3,228,090

3,119,807

Real estate construction

466,185

385,996

Retail real estate

1,590,913

1,512,976

Retail other

292,910

226,333

Total portfolio loans

7,497,778

7,188,998

ACL

(88,757)

(87,887)

Portfolio loans, net

$

7,409,021

$

7,101,111

Net deferred loan origination costs included in the balances above were $12.9 million as of June 30, 2022, compared to $9.0 million as of December 31, 2021.  Net accretable purchase accounting adjustments included in the balances above reduced loans by $7.2 million as of June 30, 2022, and $8.8 million as of December 31, 2021.  Commercial balances include loans originated under the PPP with an amortized cost of $7.6 million as of June 30, 2022, and $75.0 million as of December 31, 2021.

There were no retail real estate loans purchased during the three or six months ended June 30, 2022.  In comparison, the Company purchased $32.2 million of retail real estate loans during the three and six months ended June 30, 2021.

Risk Grading

The Company utilizes a loan grading scale to assign a risk grade to all of its loans.  A description of the general characteristics of each grade is as follows:

Pass – This category includes loans that are all considered acceptable credits, ranging from investment or near investment grade, to loans made to borrowers who exhibit credit fundamentals that meet or exceed industry standards.

Watch – This category includes loans that warrant a higher-than-average level of monitoring to ensure that weaknesses do not cause the inability of the credit to perform as expected.  These loans are not necessarily a problem due to other inherent strengths of the credit, such as guarantor strength, but have above average concern and monitoring.

Special mention – This category is for “Other Assets Specially Mentioned” loans that have potential weaknesses, which may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date.

Substandard – This category includes “Substandard” loans, determined in accordance with regulatory guidelines, for which the accrual of interest has not been stopped.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Substandard non-accrual – This category includes loans that have all the characteristics of a “Substandard” loan with additional factors that make collection in full highly questionable and improbable.  Such loans are placed on non-accrual status and may be dependent on collateral with a value that is difficult to determine.

All loans are graded at their inception.  Commercial lending relationships that are $1.0 million or less are usually processed through an expedited underwriting process.  Most commercial loans greater than $1.0 million are included in a portfolio review at least annually.  Commercial loans greater than $0.35 million that have a grading of special mention or worse are typically reviewed on a quarterly basis.  Interim reviews may take place if circumstances of the borrower warrant a more frequent review.

The following table is a summary of risk grades segregated by category of portfolio loans (dollars in thousands):

As of June 30, 2022

    

    

    

Special

    

    

Substandard

    

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

    

Total

Portfolio loans

Commercial

$

1,743,101

$

86,902

$

44,434

$

38,425

$

6,818

$

1,919,680

Commercial real estate

 

2,867,188

 

265,920

 

47,867

 

40,879

 

6,236

 

3,228,090

Real estate construction

 

450,887

 

12,848

 

3

 

2,400

 

47

 

466,185

Retail real estate

 

1,574,634

 

7,847

 

2,022

 

3,759

 

2,651

 

1,590,913

Retail other

 

292,822

 

 

 

 

88

 

292,910

Total portfolio loans

$

6,928,632

$

373,517

$

94,326

$

85,463

$

15,840

$

7,497,778

As of December 31, 2021

    

    

    

Special

    

    

Substandard

    

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

    

Total

Portfolio loans

Commercial

$

1,747,756

$

93,582

$

69,427

$

26,117

$

7,004

$

1,943,886

Commercial real estate

 

2,682,441

 

343,304

 

49,695

 

38,394

 

5,973

 

3,119,807

Real estate construction

 

369,797

 

13,793

 

6

 

2,400

 

 

385,996

Retail real estate

 

1,491,845

 

12,374

 

1,992

 

3,867

 

2,898

 

1,512,976

Retail other

 

226,262

 

 

 

 

71

 

226,333

Total portfolio loans

$

6,518,101

$

463,053

$

121,120

$

70,778

$

15,946

$

7,188,998

Risk grades of portfolio loans, further sorted by origination year are as follows (dollars in thousands):

 

As of June 30, 2022

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

 

Loans

 

Total

Commercial

 

Pass

$

318,589

$

351,192

$

154,862

$

65,399

$

57,255

$

159,597

$

636,207

$

1,743,101

Watch

16,715

21,174

3,974

8,795

1,416

3,106

31,722

86,902

Special Mention

1,754

737

1,458

1,011

3,301

17,611

18,562

44,434

Substandard

3,332

1,408

2,754

7,212

597

5,486

17,636

38,425

Substandard non-accrual

3,766

326

139

519

2,068

6,818

Total commercial

340,390

378,277

163,374

82,556

62,569

186,319

706,195

1,919,680

Commercial real estate

Pass

594,333

921,519

529,485

341,259

186,369

273,412

20,811

2,867,188

Watch

44,855

26,003

50,638

95,099

20,877

22,983

5,465

265,920

Special Mention

5,777

5,412

13,455

842

6,630

15,482

269

47,867

Substandard

11,864

12,820

3,009

1,814

10,419

953

40,879

Substandard non-accrual

4,210

162

1,851

13

6,236

Total commercial real estate

656,829

969,964

596,749

439,014

226,146

312,843

26,545

3,228,090

Real estate construction

Pass

131,894

187,283

86,891

23,572

2,495

2,256

16,496

450,887

Watch

3,299

4,592

3,419

51

1,487

12,848

Special Mention

3

3

Substandard

2,400

2,400

Substandard non-accrual

47

47

Total real estate construction

135,193

191,875

92,757

23,626

2,495

3,743

16,496

466,185

Retail real estate

 

Pass

253,800

472,480

187,596

82,372

64,928

302,911

210,547

1,574,634

Watch

1,196

1,185

1,990

1,584

1,168

134

590

7,847

Special Mention

144

1,878

2,022

Substandard

1,184

215

87

15

2,175

83

3,759

Substandard non-accrual

436

115

43

1,653

404

2,651

Total retail real estate

255,140

477,163

189,916

84,043

66,154

306,873

211,624

1,590,913

Retail other

 

Pass

103,386

51,497

17,208

19,075

10,189

3,438

88,029

292,822

Substandard non-accrual

88

88

Total retail other

103,386

51,585

17,208

19,075

10,189

3,438

88,029

292,910

Total portfolio loans

$

1,490,938

$

2,068,864

$

1,060,004

$

648,314

$

367,553

$

813,216

$

1,048,889

$

7,497,778

 

As of December 31, 2021

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

  

2021

  

2020

  

2019

  

2018

  

2017

  

Prior

  

Loans

  

Total

Commercial

 

Pass

$

512,729

$

228,811

$

107,877

$

84,873

$

74,351

$

122,418

$

616,697

$

1,747,756

Watch

13,847

5,913

14,274

5,060

1,361

2,866

50,261

93,582

Special Mention

7,062

898

5,961

4,025

6,790

11,845

32,846

69,427

Substandard

3,595

3,362

3,136

1,855

1,125

5,459

7,585

26,117

Substandard non-accrual

4,126

364

142

320

52

2,000

7,004

Total commercial

541,359

239,348

131,390

95,813

83,947

142,640

709,389

1,943,886

Commercial real estate

Pass

969,548

637,550

425,850

235,928

200,373

198,002

15,190

2,682,441

Watch

51,560

38,820

123,324

48,088

46,761

32,608

2,143

343,304

Special Mention

9,542

7,060

6,585

10,098

6,357

9,870

183

49,695

Substandard

21,002

3,781

1,218

11,451

521

421

38,394

Substandard non-accrual

112

181

359

1,893

3,407

21

5,973

Total commercial real estate

1,051,764

687,392

557,336

307,458

257,419

240,922

17,516

3,119,807

Real estate construction

Pass

202,082

123,491

31,927

3,155

738

1,223

7,181

369,797

Watch

7,886

4,159

54

1,574

120

13,793

Special Mention

6

6

Substandard

2,400

2,400

Total real estate construction

209,968

130,050

31,987

3,155

2,312

1,343

7,181

385,996

Retail real estate

 

Pass

523,541

215,068

96,617

79,158

82,478

281,737

213,246

1,491,845

Watch

4,100

2,460

1,780

1,312

343

150

2,229

12,374

Special Mention

1,965

27

1,992

Substandard

1,369

232

12

71

165

1,687

331

3,867

Substandard non-accrual

235

63

16

227

1,705

652

2,898

Total retail real estate

531,210

217,850

98,409

80,557

83,213

285,279

216,458

1,512,976

Retail other

 

Pass

59,366

22,305

26,126

16,189

7,180

1,326

93,770

226,262

Substandard non-accrual

34

10

14

13

71

Total retail other

59,400

22,315

26,126

16,203

7,193

1,326

93,770

226,333

Total portfolio loans

$

2,393,701

$

1,296,955

$

845,248

$

503,186

$

434,084

$

671,510

$

1,044,314

$

7,188,998

Past Due and Non-accrual Loans

An analysis of the amortized cost basis of portfolio loans that are past due and still accruing, or on a non-accrual status, is as follows (dollars in thousands):

As of June 30, 2022

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

209

$

24

$

625

$

6,818

Commercial real estate

356

6,236

Real estate construction

 

 

 

 

47

Retail real estate

2,428

1,990

1,019

2,651

Retail other

 

143

 

7

 

10

 

88

Total past due and non-accrual loans

$

3,136

$

2,021

$

1,654

$

15,840

As of December 31, 2021

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

363

$

10

$

213

$

7,004

Commercial real estate

 

151

441

5,973

Real estate construction

 

56

 

 

 

Retail real estate

 

3,312

1,830

693

2,898

Retail other

 

82

 

16

 

 

71

Total past due and non-accrual loans

$

3,964

$

2,297

$

906

$

15,946

Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively.  Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.4 million and $0.9 million for the three and six months ended June 30, 2021, respectively.  The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three months ended June 30, 2022, and was $0.4 million for the six months ended June 30, 2022.  The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three and six months ended June 30, 2021.

Troubled Debt Restructurings

TDR loan balances are summarized as follows (dollars in thousands):

As of

June 30,

December 31,

    

2022

    

2021

TDRs

In compliance with modified terms

$

2,017

$

1,801

30 89 days past due

12

Non-performing TDRs

508

551

Total TDRs

$

2,537

$

2,352

Loans that were newly designated as TDRs during the periods presented, are summarized as follows (dollars in thousands):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Commercial

1

$

$

446

1

$

$

446

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Commercial

$

$

1

$

463

$

(1)TDRs may include multiple concessions; those that include an interest rate concession and payment concession are shown in the rate modification column.

There were no TDRs entered into during the 12 months ended June 30, 2022, or 2021, that had subsequent defaults during the three or six months ended June 30, 2022, or 2021.  A default occurs when a loan is 90 days or more past due or transferred to non-accrual.

Gross interest income that would have been recorded in the three and six months ended June 30, 2022, and 2021, if TDRs had performed in accordance with their original terms compared with their modified terms, was insignificant.

As of June 30, 2022, the Company had $0.8 million of residential real estate in the process of foreclosure.  The Company follows Federal Housing Finance Agency guidelines on single-family foreclosures and real estate owned evictions on portfolio loans.

Loans Modified Under the CARES Act or Interagency Statement

The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.  Federal regulatory agencies, in consultation with FASB, also issued an Interagency Statement to encourage financial institutions to work with borrowers affected by COVID-19, and to update guidance which allowed banks to modify loans of customers stressed by COVID-19 without having to classify the loan as a TDR.  The Company’s TDR loan totals do not include the following modified loans with payment deferrals that fall under the CARES Act or Interagency Statement, which suspended GAAP requirements related to TDR classification (dollars in thousands):

As of June 30, 2022

As of December 31, 2021

Number of

Recorded

Number of

Recorded

    

Contracts

    

Investment

    

Contracts

    

Investment

COVID-19 loan modifications

Commercial loans:

Interest-only deferrals

11

$

31,925

32

$

128,730

Retail loans:

 

Mortgage and personal loan deferrals

1

99

2

137

Total COVID-19 loans modifications

12

$

32,024

34

$

128,867

Loans Evaluated Individually

The Company evaluates loans with disparate risk characteristics on an individual basis.  The following tables provide details of loans evaluated individually, segregated by category.  The unpaid principal balance represents customer outstanding contractual principal balances excluding any partial charge-offs.  Recorded investment represents the amortized cost of customer balances net of any partial charge-offs recognized on the loan.  Average recorded investment is calculated using the most recent four quarters (dollars in thousands):

As of June 30, 2022

Unpaid

Recorded Investment

Average

Principal

With No

With

Related

Recorded

    

Balance

    

Allowance

    

Allowance

    

Total

    

Allowance

    

Investment

Loans evaluated individually

Commercial

$

10,282

$

932

$

6,092

$

7,024

$

2,826

$

8,317

Commercial real estate

 

8,099

1,923

4,100

 

6,023

 

2,000

 

5,748

Real estate construction

 

262

 

262

 

 

262

 

 

272

Retail real estate

 

2,290

 

2,121

 

25

 

2,146

 

25

 

2,890

Total loans evaluated individually

$

20,933

$

5,238

$

10,217

$

15,455

$

4,851

$

17,227

As of December 31, 2021

Unpaid

Recorded Investment

Average

Principal

With No

With

Related

Recorded

    

Balance

    

Allowance

    

Allowance

    

Total

    

Allowance

    

Investment

Loans evaluated individually

Commercial

$

10,247

$

498

$

6,490

$

6,988

$

3,564

$

8,791

Commercial real estate

 

6,456

5,750

 

5,750

 

 

6,390

Real estate construction

 

272

 

272

 

 

272

 

 

282

Retail real estate

 

2,514

 

2,345

 

25

 

2,370

 

25

 

4,093

Total loans evaluated individually

$

19,489

$

8,865

$

6,515

$

15,380

$

3,589

$

19,556

Management's evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral.  These estimates are affected by changing economic conditions and the economic prospects of borrowers.  Collateral dependent loans are loans in which repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  Loans are written down to the lower of cost or fair value of underlying collateral, less estimated costs to sell.  The Company had $4.1 million and $7.9 million of collateral dependent loans secured by real estate or business assets as of June 30, 2022, and December 31, 2021, respectively.

Allowance for Credit Losses

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.  Historical credit loss experience provides the basis for the estimation of expected credit losses.  The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience beginning in 2010.  As of June 30, 2022, the Company expects continued economic uncertainty in the markets in which it operates, and around levels of delinquencies, over the next 12 months.  Management adjusted the historical loss experience for these expectations with an immediate reversion to historical loss rate beyond this forecast period.  PPP loans were excluded from the ACL calculation as they are 100% government guaranteed.

The following tables summarize activity in the ACL.  Allocation of a portion of the ACL to one category does not preclude its availability to absorb losses in other categories (dollars in thousands):

Three Months Ended June 30, 2022

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, March 31, 2022

$

24,173

$

37,339

$

5,705

$

17,555

$

3,441

$

88,213

Provision for credit losses

 

(743)

 

1,028

 

(63)

 

312

 

1,119

 

1,653

Charged-off

 

(208)

 

(1,372)

 

(17)

 

(82)

 

(1,679)

Recoveries

 

137

 

187

 

27

 

134

 

85

 

570

ACL balance, June 30, 2022

$

23,359

$

37,182

$

5,669

$

17,984

$

4,563

$

88,757

Six Months Ended June 30, 2022

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, December 31, 2021

$

23,855

$

38,249

$

5,102

$

17,589

$

3,092

$

87,887

Provision for credit losses

 

(492)

 

(190)

 

447

 

142

 

1,493

 

1,400

Charged-off

 

(208)

 

(1,372)

 

(33)

 

(191)

 

(1,804)

Recoveries

 

204

 

495

 

120

 

286

 

169

 

1,274

ACL balance, June 30, 2022

$

23,359

$

37,182

$

5,669

$

17,984

$

4,563

$

88,757

Three Months Ended June 30, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL balance, March 31, 2021

$

23,025

$

43,306

$

6,879

$

19,978

$

755

$

93,943

Day 1 PCD (1)

3,546

336

129

167

4,178

Provision for credit losses

 

(1,420)

 

(3,390)

 

671

 

404

 

2,035

 

(1,700)

Charged-off

 

(1,000)

 

(317)

 

(157)

 

(64)

 

(1,538)

Recoveries

 

205

 

39

 

49

 

151

 

83

 

527

ACL balance, June 30, 2021

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

Six Months Ended June 30, 2021

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, December 31, 2020

$

23,866

$

46,230

$

8,193

$

21,992

$

767

$

101,048

Day 1 PCD (1)

3,546

336

129

167

4,178

Provision for credit losses

 

(2,084)

 

(6,085)

 

(579)

 

(1,873)

 

2,125

 

(8,496)

Charged-off

 

(1,262)

 

(620)

 

(209)

(160)

 

(251)

 

(2,502)

Recoveries

 

290

 

113

 

194

 

417

 

168

 

1,182

ACL balance, June 30, 2021

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

(1)The Day 1 PCD is attributable to the CAC acquisition in the second quarter of 2021.

The following tables present the ACL and amortized cost of portfolio loans by category (dollars in thousands):

As of June 30, 2022

Portfolio Loans

ACL Attributed to Portfolio Loans

Collectively

Individually

Collectively

Individually

Evaluated for

Evaluated for

Evaluated for

Evaluated for

    

Impairment

    

Impairment

    

Total

    

Impairment

    

Impairment

    

Total

Portfolio loan category

Commercial

$

1,912,656

$

7,024

$

1,919,680

$

20,533

$

2,826

$

23,359

Commercial real estate

3,222,067

6,023

3,228,090

35,182

2,000

37,182

Real estate construction

465,923

262

466,185

5,669

5,669

Retail real estate

1,588,767

2,146

1,590,913

17,959

25

17,984

Retail other

292,910

292,910

4,563

4,563

Portfolio loans and related ACL

$

7,482,323

$

15,455

$

7,497,778

$

83,906

$

4,851

$

88,757

As of December 31, 2021

Portfolio Loans

ACL Attributed to Portfolio Loans

Collectively

Individually

Collectively

Individually

Evaluated for

Evaluated for

Evaluated for

Evaluated for

    

Impairment

    

Impairment

    

Total

    

Impairment

    

Impairment

    

Total

Portfolio loan category

Commercial

$

1,936,898

$

6,988

$

1,943,886

$

20,291

$

3,564

$

23,855

Commercial real estate

3,114,057

5,750

3,119,807

38,249

38,249

Real estate construction

385,724

272

385,996

5,102

5,102

Retail real estate

1,510,606

2,370

1,512,976

17,564

25

17,589

Retail other

226,333

226,333

3,092

3,092

Portfolio loans and related ACL

$

7,173,618

$

15,380

$

7,188,998

$

84,298

$

3,589

$

87,887