Loans

12 Months Ended

Dec. 31, 2023

Loans held-for-investment by portfolio type consist of the following as of December 31,:


	2023		2022
Commercial and industrial	$	2,467,688	$	2,310,929
Commercial real estate:
Non-owner occupied	812,235		779,546
Owner occupied	635,365		636,272
Construction and land	345,430		327,817
Multifamily	103,066		102,068
Total commercial real estate	1,896,096		1,845,703
Residential real estate	1,110,610		1,003,931
Public finance	602,913		590,284
Consumer	36,371		42,588
Other	153,418		118,397
Total loans	$	6,267,096	$	5,911,832
Allowance for credit losses	(80,398)		(65,917)
Loans, net of allowance for credit losses	$	6,186,698	$	5,845,915

As of December 31, 2023 and 2022, we had net deferred fees, costs, premiums and discounts of $12,859 and $17,101, respectively, on our loan portfolio.

Accrued interest receivable on loans totaled $34,879 and $26,494 at December 31, 2023 and 2022, respectively, and is included in accrued interest receivable in the accompanying consolidated balance sheets.

The following table presents the activity in the allowance for credit losses by portfolio type for the years ended December 31,:


	Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Public Finance		Consumer		Other		Total
2023
Allowance for credit losses:
Balance, beginning of period	$	40,785	$	19,754	$	2,963	$	1,664	$	352	$	399	$	65,917
Impact of adopting ASC 326	(13,583)		3,867		10,256		3,890		249		577		5,256
Provision for (benefit from) credit losses	10,445		3,996		2,457		(217)		400		(46)		17,035
Loans charged-off	(9,242)		(83)		(13)		—		(334)		—		(9,672)
Recoveries	1,118		12		682		—		50		—		1,862
Balance, end of period	$	29,523	$	27,546	$	16,345	$	5,337	$	717	$	930	$	80,398
2022
Allowance for credit losses:
Balance, beginning of period	$	31,622	$	13,198	$	836	$	1,544	$	235	$	112	$	47,547

Provision for (benefit from) credit losses	9,248		6,168		2,028		120		199		287		18,050
Loans charged-off	(2,321)		—		(122)		—		(144)		—		(2,587)
Recoveries	2,236		388		221		—		62		—		2,907
Balance, end of period	$	40,785	$	19,754	$	2,963	$	1,664	$	352	$	399	$	65,917
2021
Allowance for credit losses:
Balance, beginning of period	$	29,235	$	14,033	$	1,435	$	2,604	$	288	$	171	$	47,766

Provision for credit losses	5,136		(488)		(581)		(1,060)		52		(59)		3,000
Loans charged-off	(4,296)		(375)		(42)		—		(148)		—		(4,861)
Recoveries	1,547		28		24		—		43		—		1,642
Balance, end of period	$	31,622	$	13,198	$	836	$	1,544	$	235	$	112	$	47,547

We determine the allowance for credit losses estimate on at least a quarterly basis.

As of December 31, 2023 and 2022, we had an allowance for credit losses on unfunded commitments of $2,309 and $1,313, respectively. For the years ended December 31, 2023, 2022 and 2021, we recorded a provision for credit losses on unfunded commitments of $1,212, $525 and $300, respectively.

The following table presents our loan portfolio aging analysis as of December 31,:


	Loans Not Past Due		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans Greater than 90 Days Past Due, Still Accruing		Nonaccrual		Total
2023
Commercial and industrial (1)	$	2,420,775	$	10,117	$	3,782	$	25,010	$	8,004	$	2,467,688
Commercial real estate:
Non-owner occupied	796,477		1,063		10,851		—		3,844		812,235
Owner occupied	626,424		8,269		—		638		34		635,365
Construction and land	345,245		—		—		—		185		345,430
Multifamily	103,066		—		—		—		—		103,066
Total commercial real estate	1,871,212		9,332		10,851		638		4,063		1,896,096
Residential real estate	1,065,438		19,261		3,330		168		22,413		1,110,610
Public Finance	602,913		—		—		—		—		602,913
Consumer	36,357		4		—		—		10		36,371
Other	141,794		8,787		—		—		2,837		153,418
Total loans	$	6,138,489	$	47,501	$	17,963	$	25,816	$	37,327	$	6,267,096
2022
Commercial and industrial	$	2,298,207	$	2,409	$	819	$	—	$	9,494	$	2,310,929
Commercial real estate:
Non-owner occupied	773,042		4,356		—		—		2,148		779,546
Owner occupied	630,335		—		—		—		5,937		636,272
Construction and land	324,888		2,632		99		—		198		327,817
Multifamily	102,068		—		—		—		—		102,068
Total commercial real estate	1,830,333		6,988		99		—		8,283		1,845,703
Residential real estate	974,450		17,231		1,524		98		10,628		1,003,931
Public Finance	590,284		—		—		—		—		590,284
Consumer	42,434		58		3		—		93		42,588
Other	117,926		—		—		—		471		118,397
Total loans	$	5,853,634	$	26,686	$	2,445	$	98	$	28,969	$	5,911,832
(1) Loans greater than 90 days past due, still accruing relates primarily to one borrower relationship where interest was paid current in February 2024. Contractual principal payments related to this borrower relationship were deferred until March 15, 2024. This deferral was not significant.

Interest income recorded on nonperforming loans was not material for the years ended December 31, 2023, 2022 and 2021.

Credit risk monitoring and management is a continuous process to manage the quality of the loan portfolio. We segment loans into risk categories based on relevant borrower risk profile information, including the ability to service their debt based on current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. The risk rating system is used as a tool to analyze and monitor movements in loan portfolio quality.

Risk ratings meeting an internally specified exposure threshold are updated annually, or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. We use the following definitions for risk ratings:

Pass – Loans classified as Pass have a well-defined primary source of repayment, an acceptable financial position profile (including capitalization), profitability and minimal operating risk.

Pass/Watch – Pass/Watch loans require close attention by bank management and enhanced monitoring due to quantitative or qualitative concerns linked to adverse trends or near-term uncertainty. A covenant default or other type of requirement shortfall may have arisen subsequent to a loan's booking or borrower now shows signs of weakness in the overall base of confirmable financial resources available to repay the loan. However, overall financial capacity & performance are considered sufficient to support an expectation of continued payment performance and / or mitigating factors exist that are expected to limit the risk of near term default and loss.

Special Mention – Special Mention loans have identified potential weaknesses that are of sufficient materiality to require management’s (persistent) close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the bank's credit position under normal business operations. Special Mention loans contain greater than acceptable risk to warrant increases in credit exposure and are thus considered “criticized”, non-pass rated credits. They may contain weaknesses (that have arisen due to deteriorating conditions since origination) and / or underwriting exceptions that are not currently offset by mitigating factors. However, these weaknesses, while sufficient to constitute significantly elevated credit risk, are not sufficient to support a conclusion that the liquidation of the debt is in significant jeopardy.

Substandard - Accruing – Substandard - Accruing loans are inadequately protected by the current sound net worth and paying capacity of the obligor(s). Loans classified as Substandard - Accruing possess one or more well-defined weaknesses that are expected to jeopardize their liquidation but the weaknesses have not progressed to a point where recent late payments on the loan have become more than 90 days past due. These loans are characterized by the distinct possibility that the bank may sustain up to a moderate but not significant level of loss if such weaknesses are not corrected. Losses for Substandard - Accruing loans are moderated by the lower likelihood of ultimate default and the existence of relatively favorable secondary repayment protection. These loans are considered “nonperforming”.

Substandard - Nonaccrual – Substandard - Nonaccrual loans are inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as Substandard - Nonaccrual possess material, well-defined weaknesses that are expected to jeopardize their liquidation and have progressed to a point where consistently late payments on the loan have become more than 90 or more days past due. These loans are characterized by the distinct possibility that the bank may sustain a material level of loss if such weaknesses are not corrected. Losses for Substandard - Nonaccrual loans are prone to being elevated based on the strong likelihood of the loan remaining in payment default and an undesirable level of secondary repayment protection. These loans are considered “nonperforming”.

Doubtful – Loans classified as Doubtful possess all of the weaknesses inherent in loans classified as Substandard - Nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full highly questionable or improbable based on currently existing facts, conditions and values. A high probability of substantial loss or possible total loss exists. Loans rated as doubtful are not rated as loss because certain events may occur that could salvage at least a portion of the debt. These events include injections of capital, additions of pledged collateral or possible mezzanine debt refinancing options. However, without the occurrence of such events, total loss may be possible. No definite repayment schedule exists for these loans. The Doubtful grade is a temporary grade. If a near term recovery of a portion of the loan balance is indeterminable or unlikely to occur, the remaining balance of the loan should be written off and possible future recoveries may partially offset the full write-off of the loan. These loans are considered “nonperforming”.

Loss – Loans classified as Loss are defaulted loans with limited or immaterial recovery prospects. No loan that has not yet defaulted should be classified at this grade level. This rating level tends to be very short lived as the full balance of the loan tends to be fully written off nearly immediately after a change to this rating level. These loans are considered “nonperforming”.

The following table present the amortized costs by segment of loans by risk category and origination date as of December 31, 2023:


	2023		2022		2021		2020		2019		Prior		Revolving Loans Converted to Term		Revolving		Total
Commercial and industrial:
Pass	$	384,720	$	432,903	$	342,394	$	143,636	$	41,667	$	39,972	$	39,098	$	786,059	$	2,210,449
Pass/Watch	4,052		2,543		18,832		4,595		1,603		2,441		1,273		93,951		129,290
Special Mention	3,759		47,071		2,253		2,281		659		731		3,334		6,729		66,817
Substandard - Accruing	2,992		362		33,625		4,316		1,338		3,542		3,044		3,909		53,128
Substandard - Nonaccrual	—		—		690		4,122		1,110		364		96		248		6,630
Doubtful	—		—		—		490		547		33		304		—		1,374

Total commercial and industrial	$	395,523	$	482,879	$	397,794	$	159,440	$	46,924	$	47,083	$	47,149	$	890,896	$	2,467,688
Gross charge-offs	$	—	$	—	$	2,786	$	3,096	$	—	$	368	$	2,992	$	—	$	9,242

Commercial real estate:
Non-owner occupied:
Pass	$	55,581	$	117,162	$	136,361	$	116,402	$	60,535	$	176,308	$	19,256	$	71,322	$	752,927
Pass/Watch	—		—		—		3,791		6,342		24,620		1,277		—		36,030
Special Mention	2,717		—		—		—		—		—		1,582		—		4,299
Substandard - Accruing	—		3,561		—		1,880		—		9,694		—		—		15,135
Substandard - Nonaccrual	—		—		—		—		—		3,844		—		—		3,844


Total non-owner occupied	$	58,298	$	120,723	$	136,361	$	122,073	$	66,877	$	214,466	$	22,115	$	71,322	$	812,235
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Owner occupied:
Pass	$	87,167	$	83,308	$	105,935	$	102,885	$	64,134	$	123,199	$	2,961	$	6,103	$	575,692
Pass/Watch	600		902		—		15,541		2,896		2,520		—		1,615		24,074
Special Mention	—		493		5,745		306		1,092		2,834		—		—		10,470
Substandard - Accruing	2,295		460		1,204		3,027		2,259		15,850		—		—		25,095
Substandard - Nonaccrual	—		—		—		—		—		34		—		—		34


Total owner occupied	$	90,062	$	85,163	$	112,884	$	121,759	$	70,381	$	144,437	$	2,961	$	7,718	$	635,365
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	83	$	—	$	—	$	83

Construction & land:
Pass	$	44,496	$	171,411	$	32,176	$	28,221	$	13,459	$	8,718	$	21,600	$	1,913	$	321,994
Pass/Watch	—		—		13,036		6,541		—		15		—		—		19,592
Special Mention	—		—		1,381		2,278		—		—		—		—		3,659

Substandard - Nonaccrual	—		—		—		185		—		—		—		—		185


Total construction & land	$	44,496	$	171,411	$	46,593	$	37,225	$	13,459	$	8,733	$	21,600	$	1,913	$	345,430
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multifamily:
Pass	$	1,359	$	36,852	$	36,537	$	12,838	$	2,716	$	5,885	$	—	$	5,574	$	101,761

Special Mention	—		—		—		—		1,305		—		—		—		1,305




Total multifamily	$	1,359	$	36,852	$	36,537	$	12,838	$	4,021	$	5,885	$	—	$	5,574	$	103,066
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	2023		2022		2021		2020		2019		Prior		Revolving Loans Converted to Term		Revolving		Total
Total commercial real estate:
Pass	$	188,603	$	408,733	$	311,009	$	260,346	$	140,844	$	314,110	$	43,817	$	84,912	$	1,752,374
Pass/Watch	600		902		13,036		25,873		9,238		27,155		1,277		1,615		79,696
Special Mention	2,717		493		7,126		2,584		2,397		2,834		1,582		—		19,733
Substandard - Accruing	2,295		4,021		1,204		4,907		2,259		25,544		—		—		40,230
Substandard - Nonaccrual	—		—		—		185		—		3,878		—		—		4,063


Total commercial real estate:	$	194,215	$	414,149	$	332,375	$	293,895	$	154,738	$	373,521	$	46,676	$	86,527	$	1,896,096
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	83	$	—	$	—	$	83

Residential real estate:
Pass	$	153,327	$	573,624	$	116,695	$	38,309	$	38,121	$	141,216	$	1,857	$	13,540	$	1,076,689
Pass/Watch	155		1,181		28		—		269		4,667		176		—		6,476
Special Mention	—		—		—		—		254		1,465		—		—		1,719
Substandard - Accruing	—		3,199		—		—		—		114		—		—		3,313
Substandard - Nonaccrual	—		6,704		3,169		2,214		4,009		6,267		16		34		22,413


Total residential real estate	$	153,482	$	584,708	$	119,892	$	40,523	$	42,653	$	153,729	$	2,049	$	13,574	$	1,110,610
Gross charge-offs	$	—	$	—	$	—	$	13	$	—	$	—	$	—	$	—	$	13

Public Finance:
Pass	$	37,074	$	—	$	43,512	$	174,907	$	201,575	$	135,326	$	—	$	3,051	$	595,445


Substandard - Accruing	—		—		—		—		7,468		—		—		—		7,468



Total public finance	$	37,074	$	—	$	43,512	$	174,907	$	209,043	$	135,326	$	—	$	3,051	$	602,913
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Pass	$	3,232	$	2,183	$	5,347	$	9,414	$	3,482	$	2,555	$	2	$	9,491	$	35,706
Pass/Watch	—		53		108		99		145		153		1		46		605
Special Mention	—		—		13		7		—		—		—		—		20
Substandard - Accruing	—		—		—		—		—		—		30		—		30
Substandard - Nonaccrual	—		4		6		—		—		—		—		—		10


Total consumer	$	3,232	$	2,240	$	5,474	$	9,520	$	3,627	$	2,708	$	33	$	9,537	$	36,371
Gross charge-offs	$	—	$	—	$	11	$	8	$	111	$	32	$	3	$	169	$	334

Other:
Pass	$	5,890	$	7,802	$	13,198	$	806	$	282	$	10,227	$	4,859	$	100,183	$	143,247
Pass/Watch	—		—		7,334		—		—		—		—		—		7,334


Substandard - Nonaccrual	—		—		—		—		2,391		—		446		—		2,837


Total other	$	5,890	$	7,802	$	20,532	$	806	$	2,673	$	10,227	$	5,305	$	100,183	$	153,418
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total loans:
Pass	$	772,846	$	1,425,245	$	832,155	$	627,418	$	425,971	$	643,406	$	89,633	$	997,236	$	5,813,910
Pass/Watch	4,807		4,679		39,338		30,567		11,255		34,416		2,727		95,612		223,401
Special Mention	6,476		47,564		9,392		4,872		3,310		5,030		4,916		6,729		88,289
Substandard - Accruing	5,287		7,582		34,829		9,223		11,065		29,200		3,074		3,909		104,169
Substandard - Nonaccrual	—		6,708		3,865		6,521		7,510		10,509		558		282		35,953
Doubtful	—		—		—		490		547		33		304		—		1,374

Total loans	$	789,416	$	1,491,778	$	919,579	$	679,091	$	459,658	$	722,594	$	101,212	$	1,103,768	$	6,267,096
Gross charge-offs	$	—	$	—	$	2,797	$	3,117	$	111	$	483	$	2,995	$	169	$	9,672

The following table presents the credit risk profile of our loan portfolio, gross of deferred costs, fees, premiums and discounts, based on our rating categories as of December 31, 2022, which is prior to the adoption of ASU 2016-13 on January 1, 2023 and continue to be reported under ASC 310, Receivables. We categorized loans into risk categories based on relevant information about the ability of borrowers to service their debt including current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. This risk rating system was used as a tool to analyze and monitor loan portfolio quality. Risk ratings meeting an internally specified exposure threshold were updated annually, or more frequently upon the occurrence of a circumstance that affected the credit risk of the loan. We use the following definitions for risk ratings:

Substandard - loans are considered “classified” and have a well-defined weakness, or weaknesses, such as loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans are also characterized by the distinct possibility of loss in the future if the deficiencies are not corrected.

Doubtful - loans are considered “classified” and have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. There were loans totaling $45 categorized as doubtful as of December 31, 2022.


	Non-Classified		Classified		Total
Commercial and industrial	$	2,969,786	$	55,288	$	3,025,074
Commercial real estate	1,715,415		37,945		1,753,360
Residential real estate	1,096,108		10,685		1,106,793
Consumer	43,592		114		43,706
Total loans	$	5,824,901	$	104,032	$	5,928,933

The following table presents information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of December 31,:


	Collateral Dependent Loans With Allowance				Collateral Dependent Loans With No Related Allowance		Total Collateral Dependent Loans
	Amortized Cost		Related Allowance		Amortized Cost		Amortized Cost		Related Allowance
2023
Commercial & industrial	$	5,084	$	2,328	$	2,920	$	8,004	$	2,328
Commercial real estate:
Non-owner occupied	—		—		3,844		3,844		—
Owner occupied	—		—		34		34		—
Construction and land	—		—		185		185		—

Total commercial real estate	—		—		4,063		4,063		—
Residential real estate	1,551		103		20,862		22,413		103

Consumer	10		10		—		10		10
Other	2,391		102		446		2,837		102
Total loans	$	9,036	$	2,543	$	28,291	$	37,327	$	2,543
2022
Commercial & industrial	$	6,330	$	1,101	$	3,164	$	9,494	$	1,101
Commercial real estate:
Non-owner occupied	115		36		2,033		2,148		36
Owner occupied	681		153		5,256		5,937		153
Construction and land	—		—		198		198		—

Total commercial real estate	796		189		7,487		8,283		189
Residential real estate	836		34		9,779		10,615		34

Consumer	91		88		—		91		88
Other	—		—		475		475		—
Total loans	$	8,053	$	1,412	$	20,905	$	28,958	$	1,412

The allowance related to collateral dependent loans reported in the tables above includes qualitative adjustments applied to the loan portfolio that consider possible changes in circumstances that could ultimately impact credit losses and might not be reflected in historical data or forecasted data incorporated in the quantitative models.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a PD/LGD model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification. The loan modifications in the table below did not significantly impact our determination of the allowance for credit losses on loans during 2023.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectible; therefore, that portion of the loan is written-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. Additionally, the Company may allow a loan to go interest only for a specified period of time.

The following table presents loan modifications that were experiencing financial difficulty during 2023, segregated by modification type, regardless of whether such modifications resulted in a new loan.


	Payment Delay		Interest Rate Reduction		% of Total Class of Loans
Commercial and industrial	$	292	$	—	—	%
Commercial real estate:
Non-owner occupied	—		—		—	%
Owner occupied	—		1,145		0.2	%
Construction and land	—		—		—	%
Multifamily	—		—		—	%
Total commercial real estate	—		1,145		0.2	%
Residential real estate	—		—		—	%
Public finance	—		—		—	%
Consumer	—		—		—	%
Other	—		—		—	%
Total loans	$	292	$	1,145	0.2	%

There were no commitments to lend additional funds to these borrowers at December 31, 2023.

The financial effects of our loan modifications made to borrowers experiencing financial difficulty during 2023 were not significant.

We closely monitor the performance of loan modifications made to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts. There were no loans past due that have been modified in the last 12 months. There is one commercial and industrial loan totaling $292 on nonaccrual status that has been modified in the last 12 months.