XML 30 R20.htm IDEA: XBRL DOCUMENT v3.22.2.2
Loans and Leases and Allowance for Credit Losses
9 Months Ended
Sep. 30, 2022
Credit Quality and Nonperforming Assets [Abstract]  
Loans and Leases and Allowance for Credit Losses

Note 10 – Loans and Leases and Allowance for Credit Losses

We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022. Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below as of September 30, 2022.

Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs. Unless specifically noted otherwise, September 30, 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 disclosures present information according to the recorded investment basis.

The following table presents loans by class as of September 30, 2022 and December 31, 2021. Accrued interest receivable on loans of $4.7 million and $6.8 million at September 30, 2022 and December 31, 2021 respectively is not included in the loans included in the table below but is included in other assets on the Company’s balance sheet. The September 30, 2022 balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchases of $173.1 million. The majority of the disclosures in this footnote are prepared at the class level which is equivalent to the call report or call code classification. The final table in this section separates a roll forward of the Allowance for Credit Losses at the portfolio segment level.

​

​

​

​

​

​

​

​

Loan And Lease Distribution

​

​

​

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

    

September 30, 2022

    

December 31, 2021

Real estate:

​

​

​

​

​

​

1-4 family residential construction

​

$

—

​

$

21,369

Other construction/land

​

​

18,315

​

​

25,299

1-4 family - closed-end

​

​

420,136

​

​

289,457

Equity lines

​

​

21,126

​

​

26,588

Multi-family residential

​

​

69,665

​

​

53,458

Commercial real estate - owner occupied

​

​

324,696

​

​

334,446

Commercial real estate - non-owner occupied

​

​

896,954

​

​

882,888

Farmland

​

​

117,385

​

​

106,706

Total real estate

​

​

1,868,277

​

​

1,740,211

Agricultural

​

​

31,290

​

​

33,990

Commercial and industrial

​

​

70,147

​

​

109,791

Mortgage warehouse lines

​

​

46,553

​

​

101,184

Consumer loans

​

​

4,097

​

​

4,550

Subtotal

​

​

2,020,364

​

​

1,989,726

Net deferred loan fees and costs

​

​

(348)

​

​

(1,865)

Loans and leases, amortized cost basis

​

​

2,020,016

​

​

1,987,861

Allowance for credit losses

​

​

(23,790)

​

​

(14,256)

Net loans and leases

​

$

1,996,226

​

$

1,973,605

​

​

The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of September 30, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Nonaccrual Loans and Leases

​

​

​

​

​

​

​

​

​

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

September 30, 2022

​

​

Nonaccrual Loans

​

​

​

​

    

With no allowance for credit loss

    

With an allowance for credit loss

​

Total

​

Loans Past Due 90+ Accruing

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

1-4 family residential construction

​

$

—

​

$

—

​

$

—

​

$

—

Other construction/land

​

​

—

​

​

—

​

​

—

​

​

—

1-4 family - closed-end

​

​

485

​

​

—

​

​

485

​

​

—

Equity lines

​

​

61

​

​

—

​

​

61

​

​

—

Multi-family residential

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - owner occupied

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - non-owner occupied

​

​

—

​

​

—

​

​

—

​

​

—

Farmland

​

​

9,677

​

​

8,593

​

​

18,270

​

​

—

Total real estate

​

​

10,223

​

​

8,593

​

​

18,816

​

​

—

Agricultural

​

​

82

​

​

7,649

​

​

7,731

​

​

—

Commercial and industrial

​

​

87

​

​

138

​

​

225

​

​

7

Mortgage warehouse lines

​

​

—

​

​

—

​

​

—

​

​

—

Consumer loans

​

​

—

​

​

—

​

​

—

​

​

—

Total

​

$

10,392

​

$

16,380

​

$

26,772

​

$

7

​

​

The following table presents the impaired loans as of December 31, 2021, according to loan class, with and without an individually evaluated reserve according to the recorded investment basis. Impaired loans as of December 31, 2021 included both nonaccrual loans and performing TDRs. A separate breakout of nonaccrual loans by class as of December 31, 2021 is included in the past due loans table as of December 31, 2021, later in this footnote.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2021

​

​

Unpaid Principal

​

Recorded

​

​

​

Average Recorded

​

Interest Income

​

    

Balance(1)

    

Investment(2)

    

Related Allowance

    

Investment

    

Recognized(3)

With an Allowance Recorded

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other construction/land

​

$

341

​

$

341

​

$

64

​

$

352

​

$

55

1-4 family - closed-end

​

​

1,048

​

​

1,048

​

​

37

​

​

1,096

​

​

104

Equity lines

​

​

2,005

​

​

1,993

​

​

182

​

​

2,056

​

​

138

Commercial real estate - owner occupied

​

​

1,249

​

​

1,248

​

​

19

​

​

1,278

​

​

144

Commercial real estate - non-owner occupied

​

​

367

​

​

367

​

​

126

​

​

393

​

​

32

Total real estate

​

​

5,010

​

​

4,997

​

​

428

​

​

5,175

​

​

473

Agricultural

​

​

244

​

​

244

​

​

244

​

​

246

​

​

—

Commercial and industrial

​

​

757

​

​

757

​

​

127

​

​

873

​

​

41

Consumer loans

​

​

164

​

​

164

​

​

19

​

​

180

​

​

28

​

​

​

6,175

​

​

6,162

​

​

818

​

​

6,474

​

​

542

With no Related Allowance Recorded

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

1-4 family - closed-end

​

​

788

​

​

788

​

​

—

​

​

869

​

​

—

Equity lines

​

​

648

​

​

648

​

​

—

​

​

690

​

​

6

Commercial real estate - owner occupied

​

​

1,353

​

​

1,234

​

​

—

​

​

1,282

​

​

—

Total real estate

​

​

2,789

​

​

2,670

​

​

—

​

​

2,841

​

​

6

Agricultural

​

​

134

​

​

134

​

​

—

​

​

186

​

​

—

Commercial and industrial

​

​

466

​

​

466

​

​

—

​

​

550

​

​

—

​

​

​

3,389

​

​

3,270

​

​

—

​

​

3,577

​

​

6

Total

​

$

9,564

​

$

9,432

​

$

818

​

$

10,051

​

$

548

(1)Contractual principal balance due from customer.
(2)Principal balance on Company’s books, less any direct charge offs.
(3)Interest income is recognized on performing balances on a regular accrual basis.

The Company did not recognize any interest on nonaccrual loans during 2022 and would have recognized an additional $0.6 million in interest income on nonaccrual loans had those loans not been designated as nonaccrual.

​

The following table presents the amortized cost basis of collateral-dependent loans by class as of September 30, 2022:

​

​

​

​

​

​

​

​

Collateral Dependent Loans

​

​

​

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

September 30, 2022

​

    

Amortized Cost

​

Individual Reserves

Real estate:

​

​

​

​

​

​

1-4 family residential construction

​

$

—

​

$

—

Other construction/land

​

​

—

​

​

—

1-4 family - closed-end

​

​

40

​

​

—

Equity lines

​

​

506

​

​

—

Multi-family residential

​

​

—

​

​

—

Commercial real estate - owner occupied

​

​

—

​

​

—

Commercial real estate - non-owner occupied

​

​

—

​

​

—

Farmland

​

​

18,271

​

​

195

Total real estate

​

​

18,817

​

​

195

Agricultural

​

​

7,702

​

​

967

Commercial and industrial

​

​

224

​

​

40

Mortgage warehouse lines

​

​

—

​

​

—

Consumer loans

​

​

—

​

​

—

Total loans and leases

​

$

26,743

​

$

1,202

​

​

During the third quarter the amortized cost balance of collateral-dependent loans declined by $1.7 million due to declines resulting from upgrades and payoffs. The weighted average loan-to-value ratio of collateral dependent loans was 93% at September 30, 2022.  There were no collateral dependent loans in the process of foreclosure as of September 30, 2022.

The following table presents the aging of the amortized cost basis in past-due loans, according to class, as of September 30, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Past Due Loans and Leases

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

September 30, 2022

​

    

30-59 Days Past Due

    

60-89 Days Past Due

​

Loans Past Due 90+ Days

​

Total Past Due

​

Loans not Past Due

​

Total Loans

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

1-4 family residential construction

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

Other construction/land

​

​

—

​

​

—

​

​

—

​

​

—

​

​

18,255

​

​

18,255

1-4 family - closed-end

​

​

—

​

​

32

​

​

8

​

​

40

​

​

421,096

​

​

421,136

Equity lines

​

​

—

​

​

—

​

​

—

​

​

—

​

​

21,441

​

​

21,441

Multi-family residential

​

​

—

​

​

—

​

​

—

​

​

—

​

​

69,569

​

​

69,569

Commercial real estate - owner occupied

​

​

351

​

​

—

​

​

—

​

​

351

​

​

324,364

​

​

324,715

Commercial real estate - non-owner occupied

​

​

—

​

​

—

​

​

—

​

​

—

​

​

894,213

​

​

894,213

Farmland

​

​

99

​

​

—

​

​

18,271

​

​

18,370

​

​

99,189

​

​

117,559

Total real estate

​

​

450

​

​

32

​

​

18,279

​

​

18,761

​

​

1,848,127

​

​

1,866,888

Agricultural

​

​

—

​

​

—

​

​

7,649

​

​

7,649

​

​

23,879

​

​

31,528

Commercial and industrial

​

​

775

​

​

—

​

​

—

​

​

775

​

​

70,069

​

​

70,844

Mortgage warehouse lines

​

​

—

​

​

—

​

​

—

​

​

—

​

​

46,554

​

​

46,554

Consumer loans

​

​

—

​

​

—

​

​

—

​

​

—

​

​

4,202

​

​

4,202

Total loans and leases

​

$

1,225

​

$

32

​

$

25,928

​

$

27,185

​

$

1,992,831

​

$

2,020,016

​

The following table presents the aging of the recorded investment in past-due and nonaccrual loans, according to class, as of December 31, 2021:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2021

​

30-59 Days

​

60-89 Days 

​

90 Days Or 
More Past

​

​

​

​

​

​

​

Total Financing

​

Non-Accrual

​

    

 Past Due

    

Past Due

    

Due(2)

    

Total Past Due

    

Current

    

Receivables

    

Loans(1)

Real Estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

1-4 family residential construction

​

$

—

​

$

—

​

$

—

​

$

—

​

$

21,369

​

$

21,369

​

$

—

Other construction/land

​

​

—

​

​

—

​

​

—

​

​

—

​

​

25,299

​

​

25,299

​

​

—

1-4 family - closed-end

​

​

1,532

​

​

132

​

​

—

​

​

1,664

​

​

287,793

​

​

289,457

​

​

1,023

Equity lines

​

​

30

​

​

—

​

​

—

​

​

30

​

​

26,558

​

​

26,588

​

​

892

Multi-family residential

​

​

—

​

​

—

​

​

—

​

​

—

​

​

53,458

​

​

53,458

​

​

—

Commercial real estate owner occupied

​

​

124

​

​

—

​

​

698

​

​

822

​

​

333,624

​

​

334,446

​

​

1,234

Commercial real estate non-owner occupied

​

​

—

​

​

—

​

​

—

​

​

—

​

​

882,888

​

​

882,888

​

​

—

Farmland

​

​

—

​

​

—

​

​

—

​

​

—

​

​

106,706

​

​

106,706

​

​

—

Total real estate loans

​

​

1,686

​

​

132

​

​

698

​

​

2,516

​

​

1,737,695

​

​

1,740,211

​

​

3,149

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Agricultural

​

​

—

​

​

—

​

​

284

​

​

284

​

​

33,706

​

​

33,990

​

​

378

Commercial and industrial

​

​

473

​

​

—

​

​

283

​

​

756

​

​

109,035

​

​

109,791

​

​

973

Mortgage warehouse lines

​

​

—

​

​

—

​

​

—

​

​

—

​

​

101,184

​

​

101,184

​

​

—

Consumer loans

​

​

6

​

​

3

​

​

—

​

​

9

​

​

4,541

​

​

4,550

​

​

22

Total gross loans and leases

​

$

2,165

​

$

135

​

$

1,265

​

$

3,565

​

$

1,986,161

​

$

1,989,726

​

$

4,522

(1)Included in Total Financing Receivables
(2)As of December 31, 2021 there were no loans over 90 days past due and still accruing.

Troubled Debt Restructurings

A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (TDR) if the modification constitutes a concession. At September 30, 2022, the Company had a total of $4.9 million in TDRs, including $0.3 million in TDRs that were on non-accrual status. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms. However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance

period or even at the time of loan modification. Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain, then the loan will be kept on non-accrual status.

The Company may agree to different types of concessions when modifying a loan or lease. The tables below summarize TDRs which were modified during the three and nine months ended September 30, 2021, by type of concession. For the three and nine months ended September 30, 2022, there were no new TDRs and no modifications of existing TDRs

Troubled Debt Restructurings, by Type of Loan Modification

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three months ended September 30, 2021

​

    

Rate Modification

    

Term
Modification

    

Interest Only
Modification

    

Rate & Term Modification

    

Term & Interest Modification

​

Total

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other construction/land

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

1-4 family - closed-end

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Equity lines

​

​

—

​

​

1,000

​

​

—

​

​

—

​

​

—

​

​

1,000

Multi-family residential

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - owner occupied

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Farmland

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Total real estate loans

​

​

—

​

​

1,000

​

​

—

​

​

—

​

​

—

​

​

1,000

Agricultural

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Commercial and industrial

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Consumer loans

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Total

​

$

—

​

$

1,000

​

$

—

​

$

—

​

$

—

​

$

1,000

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Nine months ended September 30, 2021

​

    

Rate Modification

    

Term
Modification

    

Interest Only Modification

    

Rate & Term Modification

    

Term & Interest Modification

​

Total

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other construction/land

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

​

$

—

1-4 family - closed-end

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Equity lines

​

​

—

​

​

1,000

​

​

—

​

​

83

​

​

—

​

​

1,083

Multi-family residential

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - owner occupied

​

​

—

​

​

136

​

​

—

​

​

—

​

​

—

​

​

136

Farmland

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Total real estate loans

​

​

—

​

​

1,136

​

​

—

​

​

83

​

​

—

​

​

1,219

Agricultural

​

​

—

​

​

118

​

​

—

​

​

—

​

​

​

​

​

118

Commercial and industrial

​

​

—

​

​

185

​

​

—

​

​

—

​

​

—

​

​

185

Consumer loans

​

​

—

​

​

41

​

​

—

​

​

—

​

​

—

​

​

41

Total

​

$

—

​

$

1,480

​

$

—

​

$

83

​

$

—

​

$

1,563

​

​

Troubled Debt Restructurings

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three months ended September 30, 2021

​

​

​

​

Pre-
Modification

​

Post-
Modification

​

​

​

​

​

​

​

    

Number of
Loans

    

Outstanding
Recorded
Investment

    

Outstanding
Recorded
Investment

    

Reserve
Difference⁽¹⁾

    

Reserve

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other construction/land

​

0

​

$

—

​

$

—

​

$

—

​

$

—

1-4 family - closed-end

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Equity lines

​

1

​

​

1,000

​

​

1,000

​

​

—

​

​

—

Multi-family residential

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - owner occupied

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Farmland

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Total real estate loans

​

​

​

​

1,000

​

​

1,000

​

​

—

​

​

—

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Agricultural

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Commercial and industrial

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Consumer loans

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Total

​

​

​

$

1,000

​

$

1,000

​

$

—

​

$

—

(1)This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Nine months ended September 30, 2021

​

​

​

​

Pre-
Modification

​

Post-
Modification

​

​

​

​

​

​

​

    

Number of
Loans

    

Outstanding
Recorded
Investment

    

Outstanding
Recorded
Investment

    

Reserve
Difference⁽¹⁾

    

Reserve

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other construction/land

​

0

​

$

—

​

$

—

​

$

—

​

$

—

1-4 family - closed-end

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Equity lines

​

2

​

​

1,083

​

​

1,083

​

​

—

​

​

1

Multi-family residential

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Commercial real estate - owner occupied

​

1

​

​

137

​

​

136

​

​

(1)

​

​

—

Farmland

​

0

​

​

—

​

​

—

​

​

—

​

​

—

Total real estate loans

​

​

​

​

1,220

​

​

1,219

​

​

(1)

​

​

1

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Agricultural

​

1

​

​

118

​

​

118

​

​

116

​

​

—

Commercial and industrial

​

1

​

​

185

​

​

185

​

​

(1)

​

​

47

Consumer loans

​

1

​

​

41

​

​

41

​

​

—

​

​

—

Total

​

​

​

$

1,564

​

$

1,563

​

$

114

​

$

48

(1)This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three or nine-month periods ending September 30, 2022 and 2021.

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of September 30, 2022:

​

Loan and Lease Credit Quality by Vintage

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Term Loans and Leases Amortized Cost Basis by Origination Year

​

​

​

​

​

​

​

​

2022

​

2021

​

2020

​

2019

​

2018

​

Prior

​

Revolving Loans Amortized Cost

​

Total Loans

Other construction/land

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

$

—

​

$

—

​

$

4,295

​

$

756

​

$

974

​

$

1,063

​

$

11,095

​

$

18,183

Special Mention

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Substandard

​

​

—

​

​

—

​

​

72

​

​

—

​

​

—

​

​

—

​

​

—

​

​

72

Subtotal

​

​

—

​

​

—

​

​

4,367

​

​

756

​

​

974

​

​

1,063

​

​

11,095

​

​

18,255

1-4 family - closed-end

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

108,169

​

​

240,043

​

​

8,011

​

​

2,077

​

​

11,061

​

​

50,121

​

​

—

​

​

419,482

Special Mention

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

744

​

​

—

​

​

744

Substandard

​

​

—

​

​

—

​

​

—

​

​

—

​

​

32

​

​

878

​

​

—

​

​

910

Subtotal

​

​

108,169

​

​

240,043

​

​

8,011

​

​

2,077

​

​

11,093

​

​

51,743

​

​

—

​

​

421,136

Equity lines

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

—

​

​

158

​

​

527

​

​

352

​

​

78

​

​

—

​

​

18,982

​

​

20,097

Special Mention

​

​

—

​

​

—

​

​

20

​

​

—

​

​

—

​

​

—

​

​

777

​

​

797

Substandard

​

​

—

​

​

116

​

​

—

​

​

—

​

​

—

​

​

—

​

​

431

​

​

547

Subtotal

​

​

—

​

​

274

​

​

547

​

​

352

​

​

78

​

​

—

​

​

20,190

​

​

21,441

Multi-family residential

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

23,928

​

​

519

​

​

9,439

​

​

664

​

​

13,018

​

​

11,778

​

​

4,628

​

​

63,974

Special Mention

​

​

—

​

​

—

​

​

2,228

​

​

—

​

​

—

​

​

3,367

​

​

—

​

​

5,595

Substandard

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Subtotal

​

​

23,928

​

​

519

​

​

11,667

​

​

664

​

​

13,018

​

​

15,145

​

​

4,628

​

​

69,569

Commercial real estate - OO

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

32,522

​

​

26,144

​

​

64,833

​

​

36,390

​

​

37,353

​

​

111,721

​

​

7,243

​

​

316,206

Special Mention

​

​

304

​

​

—

​

​

—

​

​

2,393

​

​

—

​

​

1,696

​

​

—

​

​

4,393

Substandard

​

​

—

​

​

—

​

​

—

​

​

—

​

​

79

​

​

3,280

​

​

757

​

​

4,116

Subtotal

​

​

32,826

​

​

26,144

​

​

64,833

​

​

38,783

​

​

37,432

​

​

116,697

​

​

8,000

​

​

324,715

Commercial real estate - NOO

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

75,716

​

​

19,627

​

​

401,978

​

​

26,624

​

​

57,534

​

​

161,763

​

​

60,457

​

​

803,699

Special Mention

​

​

—

​

​

—

​

​

64,607

​

​

—

​

​

8,965

​

​

3,098

​

​

9,924

​

​

86,594

Substandard

​

​

—

​

​

—

​

​

—

​

​

—

​

​

852

​

​

3,068

​

​

—

​

​

3,920

Subtotal

​

​

75,716

​

​

19,627

​

​

466,585

​

​

26,624

​

​

67,351

​

​

167,929

​

​

70,381

​

​

894,213

Farmland

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

15,958

​

​

1,368

​

​

4,971

​

​

1,904

​

​

8,098

​

​

24,658

​

​

28,976

​

​

85,933

Special Mention

​

​

—

​

​

—

​

​

—

​

​

—

​

​

7,081

​

​

4,671

​

​

1,504

​

​

13,256

Substandard

​

​

—

​

​

—

​

​

—

​

​

—

​

​

4,689

​

​

13,681

​

​

—

​

​

18,370

Subtotal

​

​

15,958

​

​

1,368

​

​

4,971

​

​

1,904

​

​

19,868

​

​

43,010

​

​

30,480

​

​

117,559

Agricultural

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

7,253

​

​

458

​

​

458

​

​

26

​

​

1,027

​

​

1,809

​

​

12,045

​

​

23,076

Special Mention

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

721

​

​

721

Substandard

​

​

—

​

​

7,702

​

​

—

​

​

—

​

​

—

​

​

—

​

​

29

​

​

7,731

Subtotal

​

​

7,253

​

​

8,160

​

​

458

​

​

26

​

​

1,027

​

​

1,809

​

​

12,795

​

​

31,528

Commercial and industrial

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

2,448

​

​

6,988

​

​

7,700

​

​

6,519

​

​

5,113

​

​

8,288

​

​

24,569

​

​

61,625

Special Mention

​

​

245

​

​

145

​

​

3,127

​

​

47

​

​

—

​

​

1,562

​

​

3,772

​

​

8,898

Substandard

​

​

—

​

​

—

​

​

—

​

​

97

​

​

87

​

​

137

​

​

—

​

​

321

Subtotal

​

​

2,693

​

​

7,133

​

​

10,827

​

​

6,663

​

​

5,200

​

​

9,987

​

​

28,341

​

​

70,844

Mortgage warehouse lines

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

46,554

​

​

46,554

Subtotal

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

46,554

​

​

46,554

Consumer loans

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Pass

​

​

945

​

​

229

​

​

156

​

​

243

​

​

6

​

​

375

​

​

2,187

​

​

4,141

Special Mention

​

​

—

​

​

—

​

​

37

​

​

19

​

​

—

​

​

—

​

​

4

​

​

60

Substandard

​

​

1

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

1

Subtotal

​

​

946

​

​

229

​

​

193

​

​

262

​

​

6

​

​

375

​

​

2,191

​

​

4,202

Total

​

$

267,489

​

$

303,497

​

$

572,459

​

$

78,111

​

$

156,047

​

$

407,758

​

$

234,655

​

$

2,020,016

​

The following table presents the Company’s loan portfolio on the recorded investment basis, according to loan class and credit grade as of December 31, 2021:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

Pass

    

Special
Mention

    

Substandard

    

Impaired

    

Total

Real estate:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

1-4 family residential construction

​

$

19,669

​

$

1,700

​

$

—

​

$

—

​

$

21,369

Other construction/land

​

​

24,958

​

​

—

​

​

—

​

​

341

​

​

25,299

1-4 family - closed-end

​

​

282,717

​

​

4,703

​

​

201

​

​

1,836

​

​

289,457

Equity lines

​

​

23,277

​

​

615

​

​

55

​

​

2,641

​

​

26,588

Multi-family residential

​

​

49,986

​

​

3,472

​

​

—

​

​

—

​

​

53,458

Commercial real estate owner occupied

​

​

321,996

​

​

6,108

​

​

3,860

​

​

2,482

​

​

334,446

Commercial real estate non-owner occupied

​

​

841,728

​

​

26,364

​

​

14,429

​

​

367

​

​

882,888

Farmland

​

​

92,479

​

​

10,266

​

​

3,961

​

​

—

​

​

106,706

Total real estate

​

​

1,656,810

​

​

53,228

​

​

22,506

​

​

7,667

​

​

1,740,211

Agricultural

​

​

32,513

​

​

—

​

​

1,099

​

​

378

​

​

33,990

Commercial and industrial

​

​

98,367

​

​

9,989

​

​

212

​

​

1,223

​

​

109,791

Mortgage warehouse lines

​

​

101,184

​

​

—

​

​

—

​

​

—

​

​

101,184

Consumer loans

​

​

4,349

​

​

31

​

​

6

​

​

164

​

​

4,550

Total gross loans and leases

​

$

1,893,223

​

$

63,248

​

$

23,823

​

$

9,432

​

$

1,989,726

​

CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”). PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination. Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021 management elected not to transition these loans into the PCD designation. As of September 30, 2022 the Company had no loans categorized as PCD.

As noted in footnote 3, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan and lease losses, with a $9.5 million cumulative adjustment. The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses. Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, with the exception of Farmland, Agricultural Production and Consumer loans, using a discounted cash flow (“DCF”) methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on Farmland, Agricultural Production, and Consumer categories a Remaining Life methodology is utilized. For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.

The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses. The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data. The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models. Regression models are generally refreshed on an annual basis, in order to pull in more recent loss rate data. Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over a four-quarter reversion period, on a straight-line basis. The prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the

consideration of current and expected conditions and circumstances including the level of interest rates.  The prepayment assumptions may be updated by Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation. LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data, as calculated by a third-party. Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters. The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of September 30, 2022, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate. Management selected the National Unemployment Rate as the driver of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly FOMC forecast, and given the widespread familiarity of stakeholders with this economic metric.

The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical bank specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes. The estimated remaining life is calculated using historical bank-specific loan attrition data. For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment rate, real GDP and the housing price index are considered through estimation of qualitative reserves.

Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans. As current and expected conditions, may vary compared with conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, management considers whether additional or reduced reserve levels on collectively evaluated loans may be warranted given the consideration of a variety of qualitative factors. Several of the following qualitative factors (“Q-factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period.

●Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices
●Changes in international, regional and local economic and business conditions, and developments that affect the collectability of the portfolio, as reflected in forecasts of the Housing Price Index, Real GDP and the National Unemployment Rate (Farmland & Agricultural Production and Consumer segments only)
●Changes in the nature and volume of the loan portfolio
●Changes in the experience, ability, and depth of lending management and other relevant staff
●Changes in the volume and severity of past due, non-accruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention
●Changes in the quality of the Bank’s loan review processes
●Changes in the value of underlying collateral for loans not identified as collateral dependent
●Changes in loan categorization concentrations  
●Other external factors, which include, the influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions

The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above. The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement.

Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans. Loans secured by 1-4 family residences have a different profile from loans secured by

Commercial Real Estate. Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses. The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic. Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns. Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate. Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data. Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.

Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves. As of September 30, 2022, the only loans that Management considered to have different risk characteristics from other loans sharing the same Federal Call Report code were loans designated nonaccrual.

​

The following table presents the activity in the allowance for credit losses by portfolio segment for the quarter ended September 30, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for Credit Losses and Recorded Investment in Financing Receivables

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

1-4 Family Real Estate

​

Commercial Real Estate

    

Farmland & Agricultural Production

    

Commercial & Industrial

​

Mortgage Warehouse

    

Consumer

    

Total

Allowance for credit losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance, June 30, 2022

​

$

3,593

​

$

17,319

​

$

376

​

$

1,133

​

$

41

​

$

340

​

$

22,802

Charge-offs

​

​

—

​

​

—

​

​

—

​

​

(85)

​

​

—

​

​

(371)

​

​

(456)

Recoveries

​

​

—

​

​

—

​

​

—

​

​

36

​

​

—

​

​

196

​

​

232

Provision for credit losses

​

​

(262)

​

​

249

​

​

1,034

​

​

67

​

​

6

​

​

118

​

​

1,212

Ending allowance balance:

​

$

3,331

​

$

17,568

​

$

1,410

​

$

1,151

​

$

47

​

$

283

​

$

23,790

​

The $1.0 million increase in the Company’s loan portfolio ACL in the third quarter of 2022 from $22.8 million at June 30, 2022 to $23.8 million at September 30, 2022, is primarily attributable to an increase in reserves on a single collateral-dependent loan relationship as a result of a decline in management’s estimate of net realizable value on the related collateral.

The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2022:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for Credit Losses and Recorded Investment in Financing Receivables

​

​

​

(dollars in thousands, unaudited)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

1-4 Family Real Estate

​

Commercial Real Estate

    

Farmland & Agricultural Production

    

Commercial & Industrial

​

Mortgage Warehouse

    

Consumer

    

Total

Allowance for credit losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balance, December 31, 2021

​

$

1,909

​

$

9,052

​

$

1,202

​

$

1,060

​

$

512

​

$

521

​

$

14,256

Impact of adopting ASC 326

​

​

611

​

​

9,628

​

​

(480)

​

​

358

​

​

(421)

​

​

(242)

​

​

9,454

Charge-offs

​

​

—

​

​

(1,911)

​

​

(2,170)

​

​

(244)

​

​

—

​

​

(984)

​

​

(5,309)

Recoveries

​

​

99

​

​

259

​

​

—

​

​

118

​

​

—

​

​

553

​

​

1,029

Provision for credit losses

​

​

712

​

​

539

​

​

2,858

​

​

(141)

​

​

(44)

​

​

436

​

​

4,360

Ending allowance balance:

​

$

3,331

​

$

17,567

​

$

1,410

​

$

1,151

​

$

47

​

$

284

​

$

23,790

​

The $2.2 million in charge-offs recognized in the Farmland and Agricultural Production portfolio segment is primarily the result of a reduction in the expected valuation of collateral on a single loan relationship, recorded in the first quarter 2022. The $1.9 million charge-off in Commercial Real Estate was recognized during the second quarter, when Management became aware of a borrower’s reduced ability to service their loan primarily as a result of increased vacancy rates related to the remote work which has increased following the pandemic.

​

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2021:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Three months ended September 30, 2021

​

​

​

Real Estate

​

​

Agricultural
Products

​

​

Commercial and
Industrial (1)

​

​

Consumer

​

​

Unallocated

​

​

Total

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Allowance for credit losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Beginning balance

​

$

12,075

​

$

524

​

$

3,072

​

$

690

​

$

60

​

$

16,421

Charge-offs

​

​

—

​

​

—

​

​

(52)

​

​

(274)

​

​

—

​

​

(326)

Recoveries

​

​

(59)

​

​

—

​

​

11

​

​

170

​

​

—

​

​

122

(Benefit) provision

​

​

261

​

​

1

​

​

(930)

​

​

(1)

​

​

69

​

​

(600)

Ending balance

​

$

12,277

​

$

525

​

$

2,101

​

$

585

​

$

129

​

$

15,617

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Nine months ended September 30, 2021

​

    

Real Estate

    

Agricultural
Products

    

Commercial and
Industrial (1)

    

Consumer

    

Unallocated

    

Total

Allowance for credit losses:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Beginning balance

    

$

11,766

    

$

482

    

$

4,721

    

$

720

    

$

49

    

$

17,738

Charge-offs

​

​

(245)

​

​

(50)

​

​

(129)

​

​

(606)

​

​

—

​

​

(1,030)

Recoveries

​

​

590

​

​

—

​

​

203

​

​

566

​

​

—

​

​

1,359

(Benefit) provision

​

​

166

​

​

93

​

​

(2,694)

​

​

(95)

​

​

80

​

​

(2,450)

Ending balance

​

$

12,277

​

$

525

​

$

2,101

​

$

585

​

$

129

​

$

15,617

Reserves:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Specific

​

$

419

​

$

244

​

$

382

​

$

16

​

$

—

​

$

1,061

General

​

​

11,858

​

​

281

​

​

1,719

​

​

569

​

​

129

​

​

14,556

Ending balance

​

$

12,277

​

$

525

​

$

2,101

​

$

585

​

$

129

​

$

15,617

Loans evaluated for impairment:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Individually

​

$

10,150

​

$

471

​

$

1,512

​

$

163

​

$

—

​

$

12,296

Collectively

​

​

1,822,774

​

​

42,825

​

​

257,266

​

​

4,665

​

​

—

​

​

2,127,530

Ending balance

​

$

1,832,924

​

$

43,296

​

$

258,778

​

$

4,828

​

$

—

​

$

2,139,826

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​