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: September 30, 2023 (In thousands) Portfolio Loans Acquired Non-PCD Loans PCD Loans Total Construction and land development $ 474,788 $ 308,429 $ 10,519 $ 793,736 Commercial real estate - owner occupied 1,056,521 580,725 38,635 1,675,881 Commercial real estate - non-owner occupied 1,774,919 1,357,624 153,431 3,285,974 Residential real estate 1,693,169 703,628 22,106 2,418,903 Commercial and financial 1,187,340 340,412 56,298 1,584,050 Consumer 155,576 92,122 842 248,540 PPP Loans 809 3,293 — 4,102 Totals $ 6,343,122 $ 3,386,233 $ 281,831 $ 10,011,186 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 September 30, 2023 included net deferred costs of $38.1 million. At December 31, 2022, the amortized cost basis included net deferred costs of $35.1 million. At September 30, 2023, the remaining fair value adjustments on acquired loans were $186.5 million, or 4.9% 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 $37.8 million and $28.2 million at September 30, 2023 and December 31, 2022, respectively. The following tables present the status of net loan balances as of September 30, 2023 and December 31, 2022. September 30, 2023 (In thousands) Current Accruing Accruing Accruing Nonaccrual Total Portfolio Loans Construction and land development $ 474,783 $ — $ — $ — $ 5 $ 474,788 Commercial real estate - owner occupied 1,055,457 66 — — 998 1,056,521 Commercial real estate - non-owner occupied $ 1,771,201 $ 207 $ — $ — $ 3,511 $ 1,774,919 Residential real estate 1,675,299 10,279 738 — 6,853 1,693,169 Commercial and financial 1,178,839 1,168 141 31 7,161 1,187,340 Consumer 154,452 707 21 234 162 155,576 PPP Loans 809 — — — — 809 Total Portfolio Loans $ 6,310,840 $ 12,427 $ 900 $ 265 $ 18,690 $ 6,343,122 Acquired Non-PCD Loans Construction and land development $ 305,822 $ 1,462 $ 994 $ — $ 151 $ 308,429 Commercial real estate - owner occupied 578,177 74 — — 2,474 580,725 Commercial real estate - non-owner occupied 1,354,889 406 — — 2,329 1,357,624 Residential real estate 697,683 3,293 535 — 2,117 703,628 Commercial and financial 337,215 887 29 15 2,266 340,412 Consumer 78,887 6,274 3,361 2,415 1,185 92,122 PPP Loans 3,293 — — — — 3,293 Total Acquired Non-PCD Loans $ 3,355,966 $ 12,396 $ 4,919 $ 2,430 $ 10,522 $ 3,386,233 PCD Loans Construction and land development $ 10,519 $ — $ — $ — $ — $ 10,519 Commercial real estate - owner occupied 34,145 — — — 4,490 38,635 Commercial real estate - non-owner occupied 149,621 — — — 3,810 153,431 Residential real estate 18,864 573 1,571 — 1,098 22,106 Commercial and financial 53,403 — — — 2,895 56,298 Consumer 782 54 3 — 3 842 Total PCD Loans $ 267,334 $ 627 $ 1,574 $ — $ 12,296 $ 281,831 Total Loans $ 9,934,140 $ 25,450 $ 7,393 $ 2,695 $ 41,508 $ 10,011,186 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 $0.4 million and $0.8 million in interest income on nonaccrual loans during the three and nine months ended September 30, 2023, respectively. The Company recognized $0.2 million and $1.4 million in interest income on nonaccrual loans during the three and nine months ended September 30, 2022, 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, 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 $ — $ 156 $ 156 $ 71 Commercial real estate - owner occupied 1,908 6,054 7,962 320 Commercial real estate - non-owner occupied 6,868 2,782 9,650 728 Residential real estate 1,810 8,258 10,068 179 Commercial and financial 3,347 8,975 12,322 4,610 Consumer — 1,350 1,350 195 Totals $ 13,933 $ 27,575 $ 41,508 $ 6,103 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. In the third quarter of 2023, $19.9 million of loans moved from individually evaluated to collectively evaluated as a result of a change in methodology for evaluating loans individually.These loans are no longer reflected as collateral-dependent loans. The following table presents collateral-dependent loans as of: (In thousands) September 30, 2023 December 31, 2022 Construction and land development $ — $ 59 Commercial real estate - owner occupied — 2,733 Commercial real estate - non-owner occupied 8,519 1,698 Residential real estate 818 11,333 Commercial and financial 2,147 10,448 Consumer — 426 Totals $ 11,484 $ 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 is 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: September 30, 2023 (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Construction and Land Development Risk Ratings: Pass $ 58,254 $ 290,673 $ 134,906 $ 28,682 $ 23,102 $ 29,307 $ 216,059 $ 780,983 Special Mention — 1,214 794 — — 394 200 2,602 Substandard — — 9,975 — — — — 9,975 Substandard Impaired — — — — — 57 119 176 Doubtful — — — — — — — — Total $ 58,254 $ 291,887 $ 145,675 $ 28,682 $ 23,102 $ 29,758 $ 216,378 $ 793,736 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - owner occupied Risk Ratings: Pass $ 99,731 $ 259,947 $ 300,315 $ 169,143 $ 186,034 $ 569,304 $ 49,385 $ 1,633,859 Special Mention — — 350 — 871 9,252 — 10,473 Substandard — 2,775 — 6,377 6,868 7,501 66 23,587 Substandard Impaired — 848 36 664 295 6,119 — 7,962 Doubtful — — — — — — — — Total $ 99,731 $ 263,570 $ 300,701 $ 176,184 $ 194,068 $ 592,176 $ 49,451 $ 1,675,881 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate - non-owner occupied Risk Ratings: Pass $ 151,486 $ 842,420 $ 653,228 $ 291,699 $ 396,142 $ 865,181 $ 37,285 $ 3,237,441 Special Mention — — 2,108 — — 13,992 — 16,100 Substandard — — 189 8,383 8,456 5,754 242 23,024 Substandard Impaired — — — 1,066 1,849 6,494 — 9,409 Doubtful — — — — — — — — Total $ 151,486 $ 842,420 $ 655,525 $ 301,148 $ 406,447 $ 891,421 $ 37,527 $ 3,285,974 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ 109 $ 109 Residential real estate Risk Ratings: Pass $ 149,010 $ 439,061 $ 646,121 $ 164,118 $ 98,896 $ 424,737 $ 475,311 $ 2,397,254 Special Mention 3 33 70 — 1,267 769 5,467 7,609 Substandard — — — — — — 768 768 September 30, 2023 (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Total Substandard Impaired — — 861 126 315 9,516 2,454 13,272 Doubtful — — — — — — — — Total $ 149,013 $ 439,094 $ 647,052 $ 164,244 $ 100,478 $ 435,022 $ 484,000 $ 2,418,903 Gross Charge Offs $ — $ — $ — $ — $ — $ 159 $ 153 $ 312 Commercial and financial Risk Ratings: Pass $ 232,472 $ 377,084 $ 354,060 $ 139,626 $ 70,860 $ 94,921 $ 246,568 $ 1,515,591 Special Mention 129 3,545 1,086 1,002 461 3,583 2,842 12,648 Substandard — 7,860 20,895 4,942 5,558 2,448 1,786 43,489 Substandard Impaired 139 — 2,481 338 776 7,327 1,261 12,322 Doubtful — — — — — — — — Total $ 232,740 $ 388,489 $ 378,522 $ 145,908 $ 77,655 $ 108,279 $ 252,457 $ 1,584,050 Gross Charge Offs $ 206 $ 117 $ 109 $ 1,484 $ 265 $ 12,584 $ 418 $ 15,183 Consumer Risk Ratings: Pass $ 28,535 $ 59,686 $ 48,611 $ 20,742 $ 21,552 $ 20,634 $ 40,713 $ 240,473 Special Mention — 1,935 1,170 79 25 6 751 3,966 Substandard — — — — — — — — Substandard Impaired — 1,840 1,594 178 65 329 95 4,101 Doubtful — — — — — — — — Total $ 28,535 $ 63,461 $ 51,375 $ 20,999 $ 21,642 $ 20,969 $ 41,559 $ 248,540 Gross Charge Offs $ 9 $ 927 $ 2,146 $ 291 $ 138 $ 214 $ 139 $ 3,864 Paycheck Protection Program Risk Ratings: Pass $ — $ — $ 1,957 $ 2,145 $ — $ — $ — $ 4,102 Substandard — — — — — — — — Substandard Impaired — — — — — — — — Total $ — $ — $ 1,957 $ 2,145 $ — $ — $ — $ 4,102 Gross Charge Offs $ — $ — $ — $ — $ — $ — $ — $ — Consolidated Risk Ratings: Pass $ 719,488 $ 2,268,871 $ 2,139,198 $ 816,155 $ 796,586 $ 2,004,084 $ 1,065,321 $ 9,809,703 Special Mention 132 6,727 5,578 1,081 2,624 27,996 9,260 53,398 Substandard — 10,635 31,059 19,702 20,882 15,703 2,862 100,843 Substandard Impaired 139 2,688 4,972 2,372 3,300 29,842 3,929 47,242 Doubtful — — — — — — — — Total $ 719,759 $ 2,288,921 $ 2,180,807 $ 839,310 $ 823,392 $ 2,077,625 $ 1,081,372 $ 10,011,186 Gross Charge Offs $ 215 $ 1,044 $ 2,255 $ 1,775 $ 403 $ 12,957 $ 819 $ 19,468 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 $ 722,206 $ 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 $ 752,699 $ 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 September 30, 2023, the Company had eight loans classified as TBMs totaling $2.2 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. |