Loans | Loans Loans held for investment are categorized into the following segments: • Construction and land development: Loans are extended to both commercial and consumer customers which are collateralized by and for the purpose of funding land development and construction projects, including 1-4 family residential construction, multi-family property and non-farm residential property where the primary source of repayment is from proceeds of the sale, refinancing or permanent financing of the property. • Commercial real estate - owner-occupied: Loans are extended to commercial customers for the purpose of acquiring real estate to be occupied by the borrower's business. These loans are collateralized by the subject property and the repayment of these loans is largely dependent on the performance of the company occupying the property. • Commercial real estate - non owner-occupied: Loans are extended to commercial customers for the purpose of acquiring commercial property where occupancy by the borrower is not their primary intent. These loans are viewed primarily as cash flow loans, collateralized by the subject property, and the repayment of these loans is largely dependent on rental income from the successful operation of the property. • Residential real estate: Loans are extended to consumer customers and collateralized primarily by 1-4 family residential properties and include fixed and variable rate mortgages, home equity mortgages, and home equity lines of credit. Loans are primarily written based on conventional loan agency guidelines, including loans that exceed agency value limitations. Sources of repayment may be from the occupant of the residential property or from cash flows on rental income from the successful operation of the property. • Commercial and financial: Loans are extended to commercial customers. The purpose of the loans can be working capital, physical asset expansion, asset acquisition or other business purposes. Loans may be collateralized by assets owned by the borrower or the borrower's business. Commercial loans are based primarily on the historical and projected cash flow of the borrower's business and secondarily on the capacity of credit enhancements, guarantees and underlying collateral provided by the borrower. • Consumer: Loans are extended to consumer customers. The segment includes both installment loans and lines of credit which may be collateralized or non-collateralized. • Paycheck Protection Program (“PPP”): Loans originated under a temporary program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and extended by the Economic Aid Act. Under the terms of the program, balances may be forgiven if the borrower uses the funds in a manner consistent with the program guidelines, and repayment is guaranteed by the U.S. government. The following tables present net loan balances by segment as of: June 30, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 320,596 $ 29,391 $ 38 $ 350,025 Commercial real estate - owner-occupied 979,173 255,850 19,320 1,254,343 Commercial real estate - non owner-occupied 1,457,626 438,184 76,730 1,972,540 Residential real estate 1,442,435 198,901 6,129 1,647,465 Commercial and financial 1,018,258 92,610 13,903 1,124,771 Consumer 171,315 3,886 — 175,201 Paycheck Protection Program 10,518 6,685 — 17,203 Totals $ 5,399,921 $ 1,025,507 $ 116,120 $ 6,541,548 December 31, 2021 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 199,341 $ 31,438 $ 45 $ 230,824 Commercial real estate - owner occupied 983,517 186,812 27,445 1,197,774 Commercial real estate - non-owner occupied 1,278,180 382,554 75,705 1,736,439 Residential real estate 1,261,306 156,957 7,091 1,425,354 Commercial and financial 968,318 84,395 16,643 1,069,356 Consumer 169,507 4,658 10 174,175 Paycheck Protection Program 69,503 21,604 — 91,107 Totals $ 4,929,672 $ 868,418 $ 126,939 $ 5,925,029 The amortized cost basis of loans at June 30, 2022 included net deferred costs of $30.8 million on non-PPP portfolio loans and net deferred fees of $0.3 million on PPP loans. At December 31, 2021, the amortized cost basis included net deferred costs of $31.0 million on non-PPP portfolio loans and net deferred fees of $2.4 million on PPP loans. At June 30, 2022, the remaining fair value adjustments on acquired loans were $21.4 million, or 1.8% of the outstanding acquired loan balances, compared to $23.1 million, or 2.3% of the acquired loan balances at December 31, 2021. The discount is accreted into interest income over the remaining lives of the related loans on a level yield basis. Accrued interest receivable is included within Other Assets and was $15.7 million and $14.7 million at June 30, 2022 and December 31, 2021, respectively. The following tables present the status of net loan balances as of June 30, 2022 and December 31, 2021. June 30, 2022 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 320,588 $ — $ — $ — $ 8 $ 320,596 Commercial real estate - owner-occupied 977,270 360 544 — 999 979,173 Commercial real estate - non owner-occupied 1,455,266 — — — 2,360 1,457,626 Residential real estate 1,431,258 3,147 13 — 8,017 1,442,435 Commercial and financial 1,013,540 1,074 13 — 3,631 1,018,258 Consumer 170,262 851 39 — 163 171,315 Paycheck Protection Program 1 10,442 — — 76 — 10,518 Total Portfolio Loans $ 5,378,626 $ 5,432 $ 609 $ 76 $ 15,178 $ 5,399,921 Acquired Non-PCD Loans Construction and land development $ 29,391 $ — $ — $ — $ — $ 29,391 Commercial real estate - owner-occupied 255,103 — 747 — — 255,850 Commercial real estate - non owner-occupied 437,140 — — — 1,044 438,184 Residential real estate 197,974 403 — — 524 198,901 Commercial and financial 91,918 310 — — 382 92,610 Consumer 3,655 — — — 231 3,886 Paycheck Protection Program 1 6,658 — — 27 — 6,685 Total Acquired Non-PCD Loans $ 1,021,839 $ 713 $ 747 $ 27 $ 2,181 $ 1,025,507 PCD Loans Construction and land development $ 35 $ — $ — $ — $ 3 $ 38 Commercial real estate - owner-occupied 18,748 — — — 572 19,320 Commercial real estate - non owner-occupied 73,544 — — — 3,186 76,730 Residential real estate 5,426 — — — 703 6,129 Commercial and financial 9,284 — — — 4,619 13,903 Consumer — — — — — — Total PCD Loans $ 107,037 $ — $ — $ — $ 9,083 $ 116,120 Total Loans $ 6,507,502 $ 6,145 $ 1,356 $ 103 $ 26,442 $ 6,541,548 1 Paycheck Protection Program loans are not reflected as past due when forgiveness applications are being processed by the SBA. Repayment of principal and interest is fully guaranteed by the U.S. government. December 31, 2021 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 199,087 $ — $ — $ — $ 254 $ 199,341 Commercial real estate - owner occupied 982,804 — — — 713 983,517 Commercial real estate - non-owner occupied 1,276,582 — — — 1,598 1,278,180 Residential real estate 1,248,160 3,457 143 — 9,546 1,261,306 Commercial and financial 963,828 851 41 — 3,598 968,318 Consumer 168,791 565 23 15 113 169,507 Paycheck Protection Program 1 69,434 — — 69 — 69,503 Total Portfolio Loans $ 4,908,686 $ 4,873 $ 207 $ 84 $ 15,822 $ 4,929,672 Acquired Non-PCD Loans Construction and land development $ 31,438 $ — $ — $ — $ — $ 31,438 Commercial real estate - owner occupied 186,652 — 160 — — 186,812 Commercial real estate - non-owner occupied 381,510 — — — 1,044 382,554 Residential real estate 154,981 182 — — 1,794 156,957 Commercial and financial 84,180 — 40 — 175 84,395 Consumer 4,082 135 — — 441 4,658 Paycheck Protection Program 1 21,567 — — 37 — 21,604 Total Acquired Non-PCD Loans $ 864,410 $ 317 $ 200 $ 37 $ 3,454 $ 868,418 PCD Loans Construction and land development $ 40 $ — $ — $ — $ 5 $ 45 Commercial real estate - owner occupied 24,192 — — — 3,253 27,445 Commercial real estate - non-owner occupied 72,442 — — — 3,263 75,705 Residential real estate 5,386 — — — 1,705 7,091 Commercial and financial 13,547 — — — 3,096 16,643 Consumer 10 — — — — 10 Total PCD Loans $ 115,617 $ — $ — $ — $ 11,322 $ 126,939 Total Loans $ 5,888,713 $ 5,190 $ 407 $ 121 $ 30,598 $ 5,925,029 1 Paycheck Protection Program loans are not reflected as past due when forgiveness applications are being processed by the SBA. Repayment of principal and interest is fully guaranteed by the U.S. government. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest subsequently received on such loans is accounted for under the cost-recovery method, whereby interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, and future payments are reasonably assured. The Company recognized $0.4 million in interest income on nonaccrual loans during each of the three months ended June 30, 2022 and 2021. The Company recognized $1.2 million and $0.6 million in interest income on nonaccrual loans during the six months ended June 30, 2022 and 2021, respectively. The following tables present net balances of loans on nonaccrual status and the related allowance for credit losses, if any, as of: June 30, 2022 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 11 $ — $ 11 $ — Commercial real estate - owner-occupied 999 572 1,571 48 Commercial real estate - non owner-occupied 6,590 — 6,590 — Residential real estate 9,149 95 9,244 34 Commercial and financial 5,599 3,033 8,632 1,881 Consumer 49 345 394 345 Totals $ 22,397 $ 4,045 $ 26,442 $ 2,308 December 31, 2021 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 37 $ 222 $ 259 $ 92 Commercial real estate - owner-occupied 2,976 990 3,966 419 Commercial real estate - non owner-occupied 4,490 1,415 5,905 27 Residential real estate 12,358 687 13,045 357 Commercial and financial 2,676 4,193 6,869 2,384 Consumer 29 525 554 525 Totals $ 22,566 $ 8,032 $ 30,598 $ 3,804 Collateral-Dependent Loans Loans are considered collateral-dependent when the repayment, based on the Company's assessment as of the reporting date, is expected to be provided substantially through the operation or sale of the underlying collateral and there are no other available and reliable sources of repayment. The following table presents collateral-dependent loans as of: (In thousands) June 30, 2022 December 31, 2021 Construction and land development $ 16 $ 271 Commercial real estate - owner-occupied 2,069 4,706 Commercial real estate - non owner-occupied 6,349 4,923 Residential real estate 12,971 16,334 Commercial and financial 6,137 8,741 Consumer 548 741 Totals $ 28,090 $ 35,716 Loans by Risk Rating The Company utilizes an internal asset classification system as a means of identifying problem and potential problem loans. The following classifications are used to categorize loans under the internal classification system: • Pass: Loans that are not problem loans or potential problem loans are considered to be pass-rated. • Special Mention: Loans that do not currently expose the Company to sufficient risk to warrant classification in the Substandard or Doubtful categories, but possess weaknesses that deserve management's close attention are deemed to be Special Mention. • Substandard: Loans with the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. • Substandard Impaired: Loans typically placed on nonaccrual and considered to be collateral-dependent or accruing TDRs. • Doubtful: Loans that have all the weaknesses inherent in those classified Substandard with the added characteristic that the weakness present makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The principal balance of loans classified as doubtful are likely to be charged off. The following tables present the risk rating of loans by year of origination as of: June 30, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 112,623 $ 124,511 $ 19,219 $ 29,937 $ 7,222 $ 13,488 $ 43,009 $ 350,009 Special Mention — — — — — — — — Substandard — — — — — — — — Substandard Impaired — — — — — 16 — 16 Doubtful — — — — — — — — Total $ 112,623 $ 124,511 $ 19,219 $ 29,937 $ 7,222 $ 13,504 $ 43,009 $ 350,025 Commercial real estate - owner-occupied Risk Ratings: Pass $ 108,673 $ 198,439 $ 152,729 $ 180,828 $ 121,286 $ 458,968 $ 13,388 $ 1,234,311 Special Mention — — 5,280 5,275 636 314 — 11,505 Substandard — — 447 2,665 — 2,701 — 5,813 Substandard Impaired — — — 317 309 2,088 — 2,714 Doubtful — — — — — — — — Total $ 108,673 $ 198,439 $ 158,456 $ 189,085 $ 122,231 $ 464,071 $ 13,388 $ 1,254,343 Commercial real estate - non owner-occupied Risk Ratings: Pass $ 288,039 $ 407,054 $ 207,900 $ 286,427 $ 192,275 $ 538,503 $ 7,498 $ 1,927,696 Special Mention — — — 830 — 3,797 — 4,627 Substandard — — 4,731 — 14,282 13,873 — 32,886 Substandard Impaired — — 1,044 4,175 34 2,078 — 7,331 Doubtful — — — — — — — — Total $ 288,039 $ 407,054 $ 213,675 $ 291,432 $ 206,591 $ 558,251 $ 7,498 $ 1,972,540 Residential real estate Risk Ratings: Pass $ 91,195 $ 542,597 $ 116,702 $ 83,670 $ 103,890 $ 291,042 $ 403,630 $ 1,632,726 Special Mention — — — 66 — 868 546 1,480 Substandard — — — — 13 275 — 288 Substandard Impaired — — 140 133 90 10,397 2,211 12,971 Doubtful — — — — — — — — Total $ 91,195 $ 542,597 $ 116,842 $ 83,869 $ 103,993 $ 302,582 $ 406,387 $ 1,647,465 June 30, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Commercial and financial Risk Ratings: Pass $ 138,675 $ 306,952 $ 159,376 $ 79,518 $ 57,045 $ 69,304 $ 279,113 $ 1,089,983 Special Mention 1,263 480 5,202 479 309 371 444 8,548 Substandard — 478 5,891 5,888 2,253 2,484 277 17,271 Substandard Impaired — — 216 547 5,227 2,926 53 8,969 Doubtful — — — — — — — — Total $ 139,938 $ 307,910 $ 170,685 $ 86,432 $ 64,834 $ 75,085 $ 279,887 $ 1,124,771 Consumer Risk Ratings: Pass $ 25,561 $ 43,537 $ 26,957 $ 20,625 $ 13,667 $ 20,177 $ 21,157 $ 171,681 Special Mention — — 24 296 228 272 1,954 2,774 Substandard — — — 12 19 8 159 198 Substandard Impaired — 8 26 101 54 144 215 548 Doubtful — — — — — — — — Total $ 25,561 $ 43,545 $ 27,007 $ 21,034 $ 13,968 $ 20,601 $ 23,485 $ 175,201 Paycheck Protection Program Risk Ratings: Pass $ — $ 14,764 $ 2,439 $ — $ — $ — $ — $ 17,203 Total $ — $ 14,764 $ 2,439 $ — $ — $ — $ — $ 17,203 Consolidated Risk Ratings: Pass $ 764,766 $ 1,637,854 $ 685,322 $ 681,005 $ 495,385 $ 1,391,482 $ 767,795 $ 6,423,609 Special Mention 1,263 480 10,506 6,946 1,173 5,622 2,944 28,934 Substandard — 478 11,069 8,565 16,567 19,341 436 56,456 Substandard Impaired — 8 1,426 5,273 5,714 17,649 2,479 32,549 Doubtful — — — — — — — — Total $ 766,029 $ 1,638,820 $ 708,323 $ 701,789 $ 518,839 $ 1,434,094 $ 773,654 $ 6,541,548 December 31, 2021 (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 94,318 $ 23,860 $ 38,058 $ 25,507 $ 3,995 $ 15,466 $ 29,349 $ 230,553 Special Mention — — — — — — — — Substandard — — — — — — — — Substandard Impaired — — — 222 — 49 — 271 Doubtful — — — — — — — — Total $ 94,318 $ 23,860 $ 38,058 $ 25,729 $ 3,995 $ 15,515 $ 29,349 $ 230,824 Commercial real estate - owner-occupied Risk Ratings: Pass $ 205,404 $ 154,432 $ 179,786 $ 132,353 $ 125,763 $ 363,986 $ 10,005 $ 1,171,729 Special Mention — 6,527 5,370 649 218 3,250 — 16,014 Substandard — — — — 3,290 1,610 — 4,900 Substandard Impaired — — 2,742 310 596 1,483 — 5,131 Doubtful — — — — — — — — Total $ 205,404 $ 160,959 $ 187,898 $ 133,312 $ 129,867 $ 370,329 $ 10,005 $ 1,197,774 December 31, 2021 (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Total Commercial real estate - non owner-occupied Risk Ratings: Pass $ 395,308 $ 207,824 $ 298,021 $ 186,339 $ 110,990 $ 460,435 $ 6,477 $ 1,665,394 Special Mention — — 844 — 289 13,850 — 14,983 Substandard — 4,776 3,009 23,206 1,900 17,266 — 50,157 Substandard Impaired — 1,044 1,849 — 326 2,686 — 5,905 Doubtful — — — — — — — — Total $ 395,308 $ 213,644 $ 303,723 $ 209,545 $ 113,505 $ 494,237 $ 6,477 $ 1,736,439 Residential real estate Risk Ratings: Pass $ 394,547 $ 114,364 $ 90,566 $ 119,836 $ 118,556 $ 213,950 $ 354,439 $ 1,406,258 Special Mention — — — 70 — 1,243 532 1,845 Substandard — 340 — — 58 422 86 906 Substandard Impaired — 149 724 39 4,415 8,507 2,511 16,345 Doubtful — — — — — — — — Total $ 394,547 $ 114,853 $ 91,290 $ 119,945 $ 123,029 $ 224,122 $ 357,568 $ 1,425,354 Commercial and financial Risk Ratings: Pass $ 340,826 $ 180,677 $ 97,072 $ 68,232 $ 39,331 $ 56,053 $ 246,568 $ 1,028,759 Special Mention 530 15,587 — 237 251 84 876 17,565 Substandard — 371 2,605 3,594 1,436 3,217 339 11,562 Substandard Impaired — 196 4,561 3,694 1,371 1,520 128 11,470 Doubtful — — — — — — — — Total $ 341,356 $ 196,831 $ 104,238 $ 75,757 $ 42,389 $ 60,874 $ 247,911 $ 1,069,356 Consumer Risk Ratings: Pass $ 45,063 $ 31,342 $ 26,194 $ 17,300 $ 9,979 $ 16,019 $ 25,418 $ 171,315 Special Mention — 24 431 37 167 3 1,199 1,861 Substandard — — 18 — 17 — 223 258 Substandard Impaired — — 92 23 74 118 434 741 Doubtful — — — — — — — — Total $ 45,063 $ 31,366 $ 26,735 $ 17,360 $ 10,237 $ 16,140 $ 27,274 $ 174,175 Paycheck Protection Program Risk Ratings: Pass $ 87,036 $ 4,071 $ — $ — $ — $ — $ — $ 91,107 Total $ 87,036 $ 4,071 $ — $ — $ — $ — $ — $ 91,107 Consolidated Risk Ratings: Pass $ 1,562,502 $ 716,570 $ 729,697 $ 549,567 $ 408,614 $ 1,125,909 $ 672,256 $ 5,765,115 Special Mention 530 22,138 6,645 993 925 18,430 2,607 52,268 Substandard — 5,487 5,632 26,800 6,701 22,515 648 67,783 Substandard Impaired — 1,389 9,968 4,288 6,782 14,363 3,073 39,863 Doubtful — — — — — — — — Total $ 1,563,032 $ 745,584 $ 751,942 $ 581,648 $ 423,022 $ 1,181,217 $ 678,584 $ 5,925,029 Troubled Debt Restructured Loans The Company’s TDR concessions granted to certain borrowers generally do not include forgiveness of principal balances, but may include interest rate reductions, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements. The following table presents loans that were modified in a troubled debt restructuring during the three and six months ended June 30, 2022 and June 30, 2021: Three Months Ended June 30, 2022 2021 (In thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Construction and land development — $ — $ — — $ — $ — Commercial real estate - owner-occupied — — — — — — Commercial real estate - non owner-occupied — — — — — — Residential real estate — — — 2 52 52 Commercial and financial 1 21 21 1 142 142 Consumer — — — — — — Totals 1 $ 21 $ 21 3 $ 194 $ 194 Six Months Ended June 30, 2022 2021 (In thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Construction and land development — $ — $ — — $ — $ — Commercial real estate - owner-occupied — — — — — — Commercial real estate - non owner-occupied — — — — — — Residential real estate 3 785 785 3 79 79 Commercial and financial 2 54 54 1 142 142 Consumer 4 23 23 — — — Totals 9 $ 862 $ 862 4 $ 221 $ 221 The TDRs described above resulted in a specific allowance for credit losses of $0.1 million and $0.2 million as of June 30, 2022 and June 30, 2021, respectively. During the six months ended June 30, 2022, there was one default totaling $2 thousand on a loan that had been modified to a TDR within the preceding twelve months. During the six months ended June 30, 2021, there were two defaults on loans totaling $0.1 million that had been modified to a TDR within the preceding twelve months. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, is charged off or has been transferred to other real estate owned. For loans measured based on the present value of expected future cash flows, $15 thousand and $6 thousand for the three months ended June 30, 2022, and 2021, respectively, and $20 thousand and $11 thousand for the six months ended June 30, 2022, and 2021, respectively, was included in interest income and represents the change in present value attributable to the passage of time. |