Loans | LoansLoans 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 are largely dependent on the occupant of the residential 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. In the third quarter of 2022, to align with the Company’s transition of the calculation of expected credit losses to a new modeling tool, $100 million in loans to commercial borrowers collateralized by residential properties were reclassified from “Residential real estate” to “Commercial real estate - non owner-occupied.” The following tables present net loan balances by segment as of: September 30, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 338,070 $ 23,808 $ 35 $ 361,913 Commercial real estate - owner-occupied 988,614 245,943 18,902 1,253,459 Commercial real estate - non owner-occupied 1,568,138 469,363 70,113 2,107,614 Residential real estate 1,488,359 106,597 4,809 1,599,765 Commercial and financial 1,091,665 78,406 12,313 1,182,384 Consumer 176,895 3,521 — 180,416 Paycheck Protection Program 1,616 3,678 — 5,294 Totals $ 5,653,357 $ 931,316 $ 106,172 $ 6,690,845 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 September 30, 2022 included net deferred costs of $30.1 million. 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 September 30, 2022, the remaining fair value adjustments on acquired loans were $19.1 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 $17.6 million and $14.7 million at September 30, 2022 and December 31, 2021, respectively. The following tables present the status of net loan balances as of September 30, 2022 and December 31, 2021. September 30, 2022 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 338,063 $ — $ — $ — $ 7 $ 338,070 Commercial real estate - owner-occupied 987,534 — — — 1,080 988,614 Commercial real estate - non owner-occupied 1,568,107 — — — 31 1,568,138 Residential real estate 1,476,907 4,458 291 — 6,703 1,488,359 Commercial and financial 1,087,617 1,197 119 — 2,732 1,091,665 Consumer 176,351 387 47 — 110 176,895 Paycheck Protection Program 1 1,315 29 272 — — 1,616 Total Portfolio Loans $ 5,635,894 $ 6,071 $ 729 $ — $ 10,663 $ 5,653,357 Acquired Non-PCD Loans Construction and land development $ 23,808 $ — $ — $ — $ — $ 23,808 Commercial real estate - owner-occupied 245,943 — — — — 245,943 Commercial real estate - non owner-occupied 467,459 122 — 738 1,044 469,363 Residential real estate 105,653 426 — — 518 106,597 Commercial and financial 77,935 89 — — 382 78,406 Consumer 3,263 26 6 — 226 3,521 Paycheck Protection Program 1 3,671 — 7 — — 3,678 Total Acquired Non-PCD Loans $ 927,732 $ 663 $ 13 $ 738 $ 2,170 $ 931,316 PCD Loans Construction and land development $ 33 $ — $ — $ — $ 2 $ 35 Commercial real estate - owner-occupied 18,343 — — — 559 18,902 Commercial real estate - non owner-occupied 66,965 — — — 3,148 70,113 Residential real estate 3,852 260 — — 697 4,809 Commercial and financial 8,088 — — — 4,225 12,313 Consumer — — — — — — Total PCD Loans $ 97,281 $ 260 $ — $ — $ 8,631 $ 106,172 Total Loans $ 6,660,907 $ 6,994 $ 742 $ 738 $ 21,464 $ 6,690,845 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 $0.2 million and $0.3 million in interest income on nonaccrual loans during each of the three months ended September 30, 2022 and 2021, respectively. The Company recognized $1.4 million and $0.9 million in interest income on nonaccrual loans during the nine months ended September 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: September 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 $ 9 $ — $ 9 $ — Commercial real estate - owner-occupied 1,080 559 1,639 45 Commercial real estate - non owner-occupied 2,342 1,881 4,223 1,300 Residential real estate 7,684 234 7,918 173 Commercial and financial 4,980 2,359 7,339 1,472 Consumer 46 290 336 290 Totals $ 16,141 $ 5,323 $ 21,464 $ 3,280 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) September 30, 2022 December 31, 2021 Construction and land development $ 11 $ 271 Commercial real estate - owner-occupied 2,368 4,706 Commercial real estate - non owner-occupied 3,218 4,923 Residential real estate 9,779 16,334 Commercial and financial 5,476 8,741 Consumer 481 741 Totals $ 21,333 $ 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: September 30, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 138,044 $ 127,715 $ 12,724 $ 17,839 $ 6,943 $ 12,573 $ 46,064 $ 361,902 Special Mention — — — — — — — — Substandard — — — — — — — — Substandard Impaired — — — — — 11 — 11 Doubtful — — — — — — — — Total $ 138,044 $ 127,715 $ 12,724 $ 17,839 $ 6,943 $ 12,584 $ 46,064 $ 361,913 Commercial real estate - owner-occupied Risk Ratings: Pass $ 137,279 $ 194,852 $ 153,023 $ 180,220 $ 116,511 $ 445,680 $ 13,926 $ 1,241,491 Special Mention 694 — — — 764 2,909 — 4,367 Substandard — — — 2,646 — 1,956 — 4,602 Substandard Impaired — — — 314 304 2,381 — 2,999 Doubtful — — — — — — — — Total $ 137,973 $ 194,852 $ 153,023 $ 183,180 $ 117,579 $ 452,926 $ 13,926 $ 1,253,459 Commercial real estate - non owner-occupied Risk Ratings: Pass $ 379,918 $ 430,128 $ 213,128 $ 291,043 $ 194,840 $ 548,896 $ 26,578 $ 2,084,531 Special Mention — — 738 — — 1,436 — 2,174 Substandard — — 4,709 — 5,515 5,724 — 15,948 Substandard Impaired — — 1,044 1,849 31 2,037 — 4,961 Doubtful — — — — — — — — Total $ 379,918 $ 430,128 $ 219,619 $ 292,892 $ 200,386 $ 558,093 $ 26,578 $ 2,107,614 Residential real estate Risk Ratings: Pass $ 165,480 $ 496,317 $ 104,888 $ 69,576 $ 89,632 $ 249,545 $ 411,635 $ 1,587,073 Special Mention 24 — 50 — — 343 843 1,260 Substandard — — — — — — 194 194 Substandard Impaired — — 136 123 86 8,896 1,997 11,238 Doubtful — — — — — — — — Total $ 165,504 $ 496,317 $ 105,074 $ 69,699 $ 89,718 $ 258,784 $ 414,669 $ 1,599,765 September 30, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Commercial and financial Risk Ratings: Pass $ 220,218 $ 292,894 $ 151,871 $ 75,083 $ 51,569 $ 59,354 $ 299,146 $ 1,150,135 Special Mention 1,288 452 121 566 205 333 361 3,326 Substandard — — 11,098 5,756 1,875 2,304 256 21,289 Substandard Impaired 6 — 204 270 4,298 2,829 27 7,634 Doubtful — — — — — — — — Total $ 221,512 $ 293,346 $ 163,294 $ 81,675 $ 57,947 $ 64,820 $ 299,790 $ 1,182,384 Consumer Risk Ratings: Pass $ 36,074 $ 41,798 $ 25,282 $ 18,908 $ 12,322 $ 18,192 $ 24,793 $ 177,369 Special Mention — 31 136 58 10 160 1,914 2,309 Substandard — — 12 12 2 8 223 257 Substandard Impaired — 7 24 57 52 130 211 481 Doubtful — — — — — — — — Total $ 36,074 $ 41,836 $ 25,454 $ 19,035 $ 12,386 $ 18,490 $ 27,141 $ 180,416 Paycheck Protection Program Risk Ratings: Pass $ — $ 3,210 $ 2,084 $ — $ — $ — $ — $ 5,294 Total $ — $ 3,210 $ 2,084 $ — $ — $ — $ — $ 5,294 Consolidated Risk Ratings: Pass $ 1,077,013 $ 1,586,914 $ 663,000 $ 652,669 $ 471,817 $ 1,334,240 $ 822,142 $ 6,607,795 Special Mention 2,006 483 1,045 624 979 5,181 3,118 13,436 Substandard — — 15,819 8,414 7,392 9,992 673 42,290 Substandard Impaired 6 7 1,408 2,613 4,771 16,284 2,235 27,324 Doubtful — — — — — — — — Total $ 1,079,025 $ 1,587,404 $ 681,272 $ 664,320 $ 484,959 $ 1,365,697 $ 828,168 $ 6,690,845 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 nine months ended September 30, 2022 and September 30, 2021: Three Months Ended September 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 — — — 1 152 152 Commercial and financial — — — — — — Consumer — — — — — — Totals $ — $ — $ — $ 1 $ 152 $ 152 Nine Months Ended September 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 4 231 231 Commercial and financial 2 54 54 1 142 142 Consumer 4 23 23 — — — Totals $ 9 $ 862 $ 862 $ 5 $ 373 $ 373 The TDRs described above resulted in a specific allowance for credit losses of $0.1 million and $0.2 million as of September 30, 2022 and September 30, 2021, respectively. During the nine months ended September 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 nine months ended September 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, $13 thousand and $9 thousand for the three months ended September 30, 2022, and 2021, respectively, and $33 thousand and $20 thousand for the nine months ended September 30, 2022, and 2021, respectively, was included in interest income and represents the change in present value attributable to the passage of time. |