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 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. The following tables present net loan balances by segment as of: June 30, 2023 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 424,964 $ 347,876 $ 21,531 $ 794,371 Commercial real estate - owner occupied 1,026,700 594,211 48,458 1,669,369 Commercial real estate - non-owner occupied 1,818,307 1,381,801 170,103 3,370,211 Residential real estate 1,674,505 691,863 29,984 2,396,352 Commercial and financial 1,152,360 376,571 81,964 1,610,895 Consumer 166,250 103,667 2,165 272,082 PPP Loans 958 3,681 — 4,639 Totals $ 6,264,044 $ 3,499,670 $ 354,205 $ 10,117,919 December 31, 2022 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 364,900 $ 201,333 $ 21,100 $ 587,332 Commercial real estate - owner occupied 995,154 451,202 31,946 1,478,302 Commercial real estate - non-owner occupied 1,695,411 767,138 127,225 2,589,774 Residential real estate 1,558,643 271,378 19,482 1,849,503 Commercial and financial 1,151,273 182,124 15,238 1,348,636 Consumer 177,338 89,458 19,791 286,587 PPP Loans 1,474 3,116 — 4,590 Totals $ 5,944,193 $ 1,965,749 $ 234,782 $ 8,144,724 The amortized cost basis of loans at June 30, 2023 included net deferred costs of $37.6 million. At December 31, 2022, the amortized cost basis included net deferred costs of $35.1 million. At June 30, 2023, the remaining fair value adjustments on acquired loans were $201.8 million, or 5.0% of the outstanding acquired loan balances, compared to $97.7 million, or 4.3% of the acquired loan balances at December 31, 2022. 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 $36.2 million and $28.2 million at June 30, 2023 and December 31, 2022, respectively. The following tables present the status of net loan balances as of June 30, 2023 and December 31, 2022. June 30, 2023 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 424,834 $ 124 $ — $ — $ 6 $ 424,964 Commercial real estate - owner occupied 1,025,697 — — — 1,003 1,026,700 Commercial real estate - non-owner occupied $ 1,814,323 $ 354 $ — $ — $ 3,630 $ 1,818,307 Residential real estate 1,660,568 7,108 451 1 6,377 1,674,505 Commercial and financial 1,144,831 1,351 235 131 5,812 1,152,360 Consumer 163,848 1,568 224 291 319 166,250 PPP Loans 904 — — 54 — 958 Total Portfolio Loans $ 6,235,005 $ 10,505 $ 910 $ 477 $ 17,147 $ 6,264,044 Acquired Non-PCD Loans Construction and land development $ 347,590 $ 90 $ — $ 162 $ 34 $ 347,876 Commercial real estate - owner occupied 593,508 398 — — 305 594,211 Commercial real estate - non-owner occupied 1,379,727 67 — — 2,007 1,381,801 Residential real estate 686,338 3,493 315 — 1,717 691,863 Commercial and financial 375,198 46 69 — 1,258 376,571 Consumer 93,926 5,825 2,057 803 1,056 103,667 PPP Loans 3,625 35 — 21 — 3,681 Total Acquired Non-PCD Loans $ 3,479,912 $ 9,954 $ 2,441 $ 986 $ 6,377 $ 3,499,670 PCD Loans Construction and land development $ 21,325 $ — $ — $ — $ 206 $ 21,531 Commercial real estate - owner occupied 43,870 — — — 4,588 48,458 Commercial real estate - non-owner occupied 166,846 — 224 — 3,033 170,103 Residential real estate 28,504 193 730 — 557 29,984 Commercial and financial 65,559 6 — — 16,399 81,964 Consumer 2,057 32 57 — 19 2,165 Total PCD Loans $ 328,161 $ 231 $ 1,011 $ — $ 24,802 $ 354,205 Total Loans $ 10,043,078 $ 20,690 $ 4,362 $ 1,463 $ 48,326 $ 10,117,919 December 31, 2022 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 364,841 $ — $ — $ — $ 59 $ 364,900 Commercial real estate - owner occupied 993,690 — 67 440 957 995,154 Commercial real estate - non-owner occupied 1,695,381 — — — 30 1,695,411 Residential real estate 1,550,040 1,172 147 — 7,284 1,558,643 Commercial and financial 1,142,536 1,032 476 — 7,229 1,151,273 Consumer 176,444 550 252 1 91 177,338 PPP Loans 1,099 33 — 342 — 1,474 Total Portfolio Loans $ 5,924,031 $ 2,787 $ 942 $ 783 $ 15,650 $ 5,944,193 Acquired Non-PCD Loans Construction and land development $ 201,263 $ — $ — $ — $ 70 $ 201,333 Commercial real estate - owner occupied 450,109 796 297 — — 451,202 Commercial real estate - non-owner occupied 765,633 162 — — 1,343 767,138 Residential real estate 270,215 577 — — 586 271,378 Commercial and financial 180,837 790 87 — 410 182,124 Consumer 87,317 779 616 525 221 89,458 PPP Loans 3,116 — — — — 3,116 Total Acquired Non-PCD Loans $ 1,958,490 $ 3,104 $ 1,000 $ 525 $ 2,630 $ 1,965,749 PCD Loans Construction and land development $ 20,680 $ — $ — $ — $ 420 $ 21,100 Commercial real estate - owner occupied 30,517 23 23 — 1,383 31,946 Commercial real estate - non-owner occupied 124,115 — — — 3,110 127,225 Residential real estate 17,885 10 — — 1,587 19,482 Commercial and financial 11,201 4 — — 4,033 15,238 Consumer 17,884 1,001 336 540 30 19,791 Total PCD Loans $ 222,282 $ 1,038 $ 359 $ 540 $ 10,563 $ 234,782 Total Loans $ 8,104,803 $ 6,929 $ 2,301 $ 1,848 $ 28,843 $ 8,144,724 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 $0.3 million and $0.4 million in interest income on nonaccrual loans during the three months ended June 30, 2023 and 2022, respectively. The Company recognized $0.4 million and $1.2 million in interest income on nonaccrual loans during each of the six months ended June 30, 2023 and 2022, 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, 2023 (In thousands) Nonaccrual Loans With No Related Allowance Nonaccrual Loans With an Allowance Total Nonaccrual Loans Allowance for Credit Losses Construction and land development $ 40 $ 206 $ 246 $ 107 Commercial real estate - owner occupied 5,383 513 5,896 15 Commercial real estate - non-owner occupied 7,484 1,186 8,670 318 Residential real estate 7,550 1,101 8,651 22 Commercial and financial 6,832 16,637 23,469 14,449 Consumer 144 1,250 1,394 1,222 Totals $ 27,433 $ 20,893 $ 48,326 $ 16,133 December 31, 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 $ 615 $ — $ 615 $ — Commercial real estate - owner occupied 957 1,641 2,597 41 Commercial real estate - non-owner occupied 3,347 837 4,184 230 Residential real estate 8,072 1,036 9,109 58 Commercial and financial 4,724 6,891 11,615 2,319 Consumer 40 683 723 257 Totals $ 17,755 $ 11,088 $ 28,843 $ 2,905 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, 2023 December 31, 2022 Construction and land development $ 430 $ 59 Commercial real estate - owner occupied 6,261 2,733 Commercial real estate - non-owner occupied 6,283 1,698 Residential real estate 11,895 11,333 Commercial and financial 40,087 10,448 Consumer 2,598 426 Totals $ 67,554 $ 26,697 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. • 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 and year-to-date gross charge offs by year of origination as of: June 30, 2023 (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 30,200 $ 265,371 $ 170,788 $ 36,370 $ 25,881 $ 27,596 $ 226,567 $ 782,773 Special Mention — 1,250 — — — 396 — 1,646 Substandard — — 9,685 — — — — 9,685 Substandard Impaired — — — — — 61 206 267 Doubtful — — — — — — — — Total $ 30,200 $ 266,621 $ 180,473 $ 36,370 $ 25,881 $ 28,053 $ 226,773 $ 794,371 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - owner occupied Risk Ratings: Pass $ 57,149 $ 273,495 $ 298,639 $ 175,708 $ 191,891 $ 608,264 $ 29,902 $ 1,635,048 Special Mention — — 2,168 — 4,866 6,674 101 13,809 Substandard — 688 — 7,075 2,584 7,357 — 17,704 Substandard Impaired — — — — 317 2,491 — 2,808 Doubtful — — — — — — — — Total $ 57,149 $ 274,183 $ 300,807 $ 182,783 $ 199,658 $ 624,786 $ 30,003 $ 1,669,369 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - non-owner occupied Risk Ratings: Pass $ 150,604 $ 835,973 $ 649,707 $ 299,717 $ 411,735 $ 914,410 $ 46,412 $ 3,308,558 Special Mention — 161 1,089 7,957 12,324 13,924 — 35,455 Substandard — — 190 6,085 2,982 8,270 248 17,775 Substandard Impaired — — — 1,068 1,849 5,506 — 8,423 Doubtful — — — — — — — — Total $ 150,604 $ 836,134 $ 650,986 $ 314,827 $ 428,890 $ 942,110 $ 46,660 $ 3,370,211 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ 109 $ 109 Residential real estate Risk Ratings: Pass $ 120,812 $ 424,322 $ 641,362 $ 167,176 $ 99,298 $ 445,280 $ 479,136 $ 2,377,386 Special Mention — — — — 82 1,057 5,574 6,713 Substandard — — — — — 31 357 388 June 30, 2023 (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Substandard Impaired — — 846 173 461 9,308 1,077 11,865 Doubtful — — — — — — — — Total $ 120,812 $ 424,322 $ 642,208 $ 167,349 $ 99,841 $ 455,676 $ 486,144 $ 2,396,352 Gross Charge Offs $ — $ — $ — $ — $ — $ 159 $ 109 $ 268 Commercial and financial Risk Ratings: Pass $ 176,563 $ 391,471 $ 376,754 $ 147,594 $ 82,400 $ 103,176 $ 254,426 $ 1,532,384 Special Mention 134 5,738 6,217 1,063 494 3,563 4,479 21,688 Substandard — 1,571 16,343 5,142 5,433 4,744 2,011 35,244 Substandard Impaired — 4 2,533 252 800 17,898 92 21,579 Doubtful — — — — — — — — Total $ 176,697 $ 398,784 $ 401,847 $ 154,051 $ 89,127 $ 129,381 $ 261,008 $ 1,610,895 Gross Charge Offs $ — $ 115 $ 109 $ 1,484 $ 265 $ 1,196 $ 200 $ 3,369 Consumer Risk Ratings: Pass $ 14,874 $ 81,377 $ 55,690 $ 22,334 $ 24,501 $ 23,240 $ 45,045 $ 267,061 Special Mention — 1,097 870 77 220 — 85 2,349 Substandard — — — — — — 74 74 Substandard Impaired — 577 1,094 62 70 533 262 2,598 Doubtful — — — — — — — — Total $ 14,874 $ 83,051 $ 57,654 $ 22,473 $ 24,791 $ 23,773 $ 45,466 $ 272,082 Gross Charge Offs $ — $ 557 $ 1,575 $ 277 $ 51 $ 22 $ 117 $ 2,599 Paycheck Protection Program Risk Ratings: Pass $ — $ — $ 2,211 $ 2,428 $ — $ — $ — $ 4,639 Substandard — — — — — — — — Substandard Impaired — — — — — — — — Total $ — $ — $ 2,211 $ 2,428 $ — $ — $ — $ 4,639 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Consolidated Risk Ratings: Pass $ 550,202 $ 2,272,009 $ 2,195,151 $ 851,327 $ 835,706 $ 2,121,966 $ 1,081,488 $ 9,907,849 Special Mention 134 8,246 10,344 9,097 17,986 25,614 10,239 81,660 Substandard — 2,259 26,218 18,302 10,999 20,402 2,690 80,870 Substandard Impaired — 581 4,473 1,555 3,497 35,797 1,637 47,540 Doubtful — — — — — — — — Total $ 550,336 $ 2,283,095 $ 2,236,186 $ 880,281 $ 868,188 $ 2,203,779 $ 1,096,054 $ 10,117,919 Gross Charge Offs $ — $ 672 $ 1,684 $ 1,761 $ 316 $ 1,377 $ 535 $ 6,345 December 31, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 223,204 $ 209,738 $ 18,239 $ 24,600 $ 12,783 $ 19,022 $ 50,960 $ 558,546 Special Mention 14,523 452 — 3,153 — — 15 18,143 Substandard — 9,227 — — 959 — — 10,186 Substandard Impaired — 52 — — — 405 — 457 Doubtful — — — — — — — — Total $ 237,727 $ 219,469 $ 18,239 $ 27,753 $ 13,742 $ 19,427 $ 50,975 $ 587,332 Commercial real estate - owner occupied Risk Ratings: Pass $ 215,453 $ 251,638 $ 180,081 $ 185,286 $ 121,568 $ 467,963 $ 32,253 $ 1,454,242 Special Mention 694 — 2,363 4,403 2,548 2,869 — 12,877 Substandard — — 667 2,625 573 4,444 — 8,309 Substandard Impaired — — — 311 294 2,269 — 2,874 Doubtful — — — — — — — — Total $ 216,147 $ 251,638 $ 183,111 $ 192,625 $ 124,983 $ 477,545 $ 32,253 $ 1,478,302 Commercial real estate - non-owner occupied Risk Ratings: Pass $ 593,364 $ 530,462 $ 231,693 $ 331,173 $ 228,077 $ 575,656 $ 35,326 $ 2,525,751 Special Mention — 16,257 735 5,438 — 4,975 — 27,405 Substandard — 192 19,315 — 5,515 7,412 — 32,434 Substandard Impaired — — 1,044 1,849 30 1,261 — 4,184 Doubtful — — — — — — — — Total $ 593,364 $ 546,911 $ 252,787 $ 338,460 $ 233,622 $ 589,304 $ 35,326 $ 2,589,774 Residential real estate Risk Ratings: Pass $ 270,054 $ 552,950 $ 121,879 $ 77,100 $ 97,900 $ 292,867 $ 423,764 $ 1,836,514 Special Mention — — 50 — 25 269 884 1,228 Substandard — — — — — 343 85 428 Substandard Impaired — — 133 32 83 9,515 1,570 11,333 Doubtful — — — — — — — — Total $ 270,054 $ 552,950 $ 122,062 $ 77,132 $ 98,008 $ 302,994 $ 426,303 $ 1,849,503 Commercial and financial Risk Ratings: Pass $ 359,833 $ 320,307 $ 140,450 $ 77,562 $ 57,924 $ 58,648 $ 292,818 $ 1,307,542 Special Mention 1,244 423 106 474 195 259 2,998 5,699 Substandard — 67 942 6,304 1,603 1,683 13,114 23,713 Substandard Impaired 5 58 5,109 147 3,642 2,545 176 11,682 Doubtful — — — — — — — — Total $ 361,082 $ 320,855 $ 146,607 $ 84,487 $ 63,364 $ 63,135 $ 309,106 $ 1,348,636 Consumer Risk Ratings: Pass $ 93,012 $ 77,889 $ 27,982 $ 28,772 $ 11,690 $ 16,480 $ 29,725 $ 285,550 Special Mention — — — 250 2 134 30 416 Substandard — — 11 — — 191 — 202 Substandard Impaired — — 18 55 36 103 207 419 Doubtful — — — — — — — — Total $ 93,012 $ 77,889 $ 28,011 $ 29,077 $ 11,728 $ 16,908 $ 29,962 $ 286,587 Paycheck Protection Program Risk Ratings: Pass $ — $ 2,708 $ 1,882 $ — $ — $ — $ — $ 4,590 December 31, 2022 (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Total Substandard $ — $ — $ — $ — $ — $ — $ — $ — Substandard Impaired $ — $ — $ — $ — $ — $ — $ — $ — Total $ — $ 2,708 $ 1,882 $ — $ — $ — $ — $ 4,590 Consolidated Risk Ratings: Pass $ 1,754,920 $ 1,945,692 $ 720,324 $ 724,493 $ 529,942 $ 1,430,636 $ 864,846 $ 7,972,735 Special Mention 16,461 17,132 3,254 13,718 2,770 8,506 3,927 65,768 Substandard — 9,486 20,935 8,929 8,650 14,073 13,199 75,272 Substandard Impaired 5 110 6,304 2,394 4,085 16,098 1,953 30,949 Doubtful — — — — — — — — Total $ 1,771,386 $ 1,972,420 $ 750,817 $ 749,534 $ 545,447 $ 1,469,313 $ 883,925 $ 8,144,724 Troubled Borrower Modifications On January 1, 2023, the Company adopted ASU 2022-02 which includes disclosure requirements related to certain modifications of loans to borrowers experiencing financial difficulty, which the Company refers to as troubled borrower modifications (“TBMs”). TBMs are typically in the form of an interest rate reduction, an extension of the amortization period and/or converting the loan to interest only for a limited period of time. In addition to the change in payment terms, the Company seeks to obtain additional collateral and/or guarantors to provide additional support for the loan. The Company does not typically provide forgiveness of principal as a modification. As of June 30, 2023, the Company had five loans classified as TBMs totaling $0.9 million, which is considered immaterial. To the extent there are additional modifications in subsequent periods, the Company will disclose additional information about the nature of the modifications, the financial effect of the modifications and payment defaults of TBMs in the 12 months prior to default, among any other relevant disclosures. |