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LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
LOANS AND THE ALLOWANCE FOR CREDIT LOSSES LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
The following presents a summary of the Company’s loans at amortized cost as of the dates noted (dollars in thousands):
September 30,
2023		December 31,
2022
Cash, Securities, and Other$148,618 $165,559 
Consumer and Other23,464 26,070 
Construction and Development347,053 285,627 
1-4 Family Residential915,011 899,722 
Non-Owner Occupied CRE523,910 493,134 
Owner Occupied CRE206,958 214,189 
Commercial and Industrial349,981 361,791 
Total2,514,995 2,446,092 
Allowance for credit losses(23,175)(17,183)
Total, net$2,491,820 $2,428,909 
Loans accounted for under the fair value option(1)
15,464 23,321 
Loans, net$2,507,284 $2,452,230 
______________________________________
(1)Includes $16.1 million and $23.4 million of unpaid principal balance of loans held for investment measured at fair value as of September 30, 2023 and December 31, 2022, respectively. Includes fair value adjustments on loans held for investment accounted for under the fair value option. See Note 13 – Fair Value.
As of September 30, 2023 and December 31, 2022, total loans held for investment included $212.2 million and $230.4 million, respectively, of performing loans purchased through mergers or acquisitions.
As of September 30, 2023, the Cash, Securities, and Other portion of the loan portfolio included $4.8 million of SBA Paycheck Protection Program (“PPP”) loans, or 3.2% of the total category. As of December 31, 2022, the Cash, Securities, and Other portion of the loan portfolio included $6.9 million of PPP loans, or 4.2% of the total category.
As of September 30, 2023, the Company’s Commercial and Industrial loans included four Main Street Lending Program (“MSLP”) loans with the net carrying amount of $5.1 million, or 1.5% of the total category. As of December 31, 2022, the Company’s Commercial and Industrial loans included five MSLP loans with the net carrying amount of $5.9 million, or 1.6% of the total category.
Loan Modifications
On January 1, 2023 the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty. GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported and include the following; (i) principal forgiveness, (ii) interest rate reduction, (iii) other than insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing. ASU 2022-02 eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs. If a modification results in a new loan under the guidance, the Company will recognize any unearned deferred net revenue and measure the ACL on the loan on a collective basis rather than individually analyzed.
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.
In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the original terms. As of September 30, 2023, the Company’s loan portfolio included 43 non-acquired loans which were previously modified under the loan modification program, totaling $72.9 million. Through the Teton Acquisition, the Company acquired loans which were previously modified and are no longer in their deferral period. As of September 30, 2023, there were 14 of these loans, totaling $3.0 million.
All loans modified in response to COVID-19 are classified as performing and pass rated as of September 30, 2023. These loans are included in the allowance for credit loss general reserve in accordance with ASU 2016-13. Management maintains a heightened level of loan level reviews and portfolio monitoring to address the changing environment. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. Accrued interest receivable is excluded from the estimate of credit losses.
For the nine months ended September 30, 2023, the Company made protective advances of $0.5 million to borrowers experiencing financial difficulty.
The following presents, by class, an aging analysis of the amortized cost basis in loans past due as of the date noted (dollars in thousands):
September 30, 202330-59
Days
Past Due		60-89
Days
Past Due		90 or
More Days
Past Due		Total
Loans
Past Due		CurrentTotal
Amortized
Cost
Loans Accounted for Under the Fair Value Option(1)
Total Loans
Cash, Securities, and Other$3,732 $— $1,704 $5,436 $143,182 $148,618 $— $148,618 
Consumer and Other8 5 7,503 7,516 15,948 23,464 15,464 38,928 
Construction and Development2,752 — — 2,752 344,301 347,053 — 347,053 
1-4 Family Residential3,651 2,438 625 6,714 908,297 915,011 — 915,011 
Non-Owner Occupied CRE— — — — 523,910 523,910 — 523,910 
Owner Occupied CRE— — 3,980 3,980 202,978 206,958 — 206,958 
Commercial and Industrial4,556 — 37,885 42,441 307,540 349,981 — 349,981 
Total$14,699 $2,443 $51,697 $68,839 $2,446,156 $2,514,995 $15,464 $2,530,459 
December 31, 202230-59
Days
Past Due		60-89
Days
Past Due		90 or
More Days
Past Due		Total
Loans
Past Due		CurrentTotal Amortized Cost
Loans Accounted for Under the Fair Value Option(1)
Total Loans
Cash, Securities, and Other$1,735 $539 $4 $2,278 $163,281 $165,559 $— $165,559 
Consumer and Other657 5 5 667 25,403 26,070 23,321 49,391 
Construction and Development— — 201 201 285,426 285,627 — 285,627 
1-4 Family Residential1,752 — 5 1,757 897,965 899,722 — 899,722 
Non-Owner Occupied CRE1,071 — — 1,071 492,063 493,134 — 493,134 
Owner Occupied CRE1,165 — — 1,165 213,024 214,189 — 214,189 
Commercial and Industrial4,858 10,648 1,319 16,825 344,966 361,791 — 361,791 
Total$11,238 $11,192 $1,534 $23,964 $2,422,128 $2,446,092 $23,321 $2,469,413 
(1)Refer to Note 13 - Fair Value for additional information on the measurement of loans accounted for under the fair value option.
As of September 30, 2023, the Company had no loans that were more than 90 days delinquent and accruing interest. As of December 31, 2022, the Company had one loan, totaling an immaterial amount, in the Commercial and Industrial portfolio that was more than 90 days delinquent and accruing interest.
The following table presents the amortized cost basis as of September 30, 2023 of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during the three months and nine months ended September 30, 2023. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.
Principal forgivenessInterest rate reductionTerm extensionCombination: term extension and principal forgivenessCombination: term extension and interest rate reductionTotal class of financing receivable
Commercial and Industrial$— $— $— $185 $— 0.1 %
Total$— $— $— $185 $— 

The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty for the period ended September 30, 2023:
Principal forgivenessInterest rate reductionTerm extension
Commercial and Industrial
Reduced the amortized cost basis of the loan by $185 thousand
—
Added a weighted-average 2.8 years to the life of the loan, which reduced monthly payment amounts for the borrower
For all loans that have been modified during the period, the borrowers continue to pay as agreed.
Non-Accrual Loans
The accrual of interest on loans is discontinued at the time the loan becomes 90 days or more delinquent unless the loan is well secured and in the process of collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful. The following presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing by class as of the date noted (dollars in thousands).
As of September 30, 2023
Non-accrual loans with
no ACL		Total non-accrual loansLoans past due over 89 days still accruing
Cash, Securities, and Other$1,704 $1,704 $— 
Consumer and Other7,503 7,503 — 
Construction and Development— — — 
1-4 Family Residential3,063 3,063 — 
Owner Occupied CRE3,980 3,980 — 
Commercial and Industrial(1)
30,795 39,370 — 
Total$47,045 $55,620 $— 
(1)The Company recorded an allowance of $4.0 million on two individually analyzed loans totaling $8.6 million as of September 30, 2023.
The following presents the recorded investment in non-accrual loans by class as of the date noted (dollars in thousands):
As of December 31, 2022
Non-accrual loans with
no ALLL		Total non-accrual loansLoans past due over 89 days still accruing
Cash, Securities, and Other$4 $4 $— 
Consumer and Other5 5 — 
Construction and Development201 201 — 
1-4 Family Residential— — — 
Owner Occupied CRE1,165 1,165 — 
Commercial and Industrial10,762 10,762 25 
Total(1)
$12,137 $12,137 $25 
(1)The Company did not record a specific reserve on any individually analyzed loans as of December 31, 2022.
The Company recognized an immaterial amount and $0.2 million of interest income on non-accrual loans during the three and nine months ended September 30, 2023, respectively. The Company recognized no interest income and an immaterial amount of interest income on non-accrual loans during the three and nine months ended September 30, 2022, respectively.
Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated. The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses, by class of loans as of the date noted (dollars in thousands):
As of September 30, 2023
Collateral Dependent Loans
Secured by Real EstateSecured by Cash and
Securities		Secured by OtherTotal
Cash, Securities, and Other$— $1,704 $— $1,704 
Consumer and Other— — — — 
Construction and Development— — — — 
1-4 Family Residential3,063 — — 3,063 
Non-Owner Occupied CRE— — — — 
Owner Occupied CRE3,980 — — 3,980 
Commercial and Industrial— — 39,370 39,370 
Total$7,043 $1,704 $39,370 $48,117 
Allowance for Credit Losses on Loans
Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable. Interest receivable excluded at September 30, 2023 and December 31, 2022 was $10.8 million and $9.8 million, respectively, presented in Accrued interest receivable on the Condensed Consolidated Balance Sheets. Refer to Note 1 - Organization and Summary of Significant Accounting Policies for additional information related to the Company’s methodology on estimated credit losses.
The Allowance for credit losses on loans (“ACL”) represents Management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans’ contractual terms, adjusted for expected prepayments when appropriate. Our quantitative discounted cash flow models use economic forecasts including; housing price index (“HPI”), gross domestic product (“GDP”), and national unemployment. The HPI, GDP, and unemployment twelve month forecasts used in our model as of September 30, 2023 is based on a slightly improved macro-economic forecast assuming a soft landing as compared to assumptions previously used as of January 1, 2023 projecting the likelihood of a deeper recession. As a result, we forecasted decreased probability of default rates and loss given default rates which in turn reduced our model loss rates, partially offset by loan growth and changes in our segment mix, resulting in a $1.5 million release of provision on pooled loans for the nine months ended September 30, 2023. The allowance on individually analyzed loans was $4.0 million as of September 30, 2023.
Allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories. The following table presents the activity in the allowance for credit losses by portfolio segment during the periods presented (dollars in thousands):
Cash,
Securities
and Other		Consumer
and
Other		Construction
and
Development		1-4
Family
Residential		Non-Owner
Occupied
CRE		Owner
Occupied
CRE		Commercial
and
Industrial		Total
Changes in allowance for credit losses for the three months ended September 30, 2023
Beginning balance$1,311 $137 $7,496 $3,579 $2,495 $1,182 $5,844 $22,044 
Provision for credit losses(185)(15)405 38 (240)(172)1,490 1,321 
Charge-offs— (12)— — — — (186)(198)
Recoveries— 4 — 3 — — 1 8 
Ending balance$1,126 $114 $7,901 $3,620 $2,255 $1,010 $7,149 $23,175 
Changes in allowance for credit losses for the nine months ended September 30, 2023
Beginning balance, prior to the adoption of ASU 2016-13$1,198 $191 $2,025 $6,309 $3,490 $1,510 $2,460 $17,183 
Impact of adopting ASU 2016-13193 106 4,681 (2,808)(689)(104)2,091 3,470 
Provision for credit losses(265)(160)1,195 116 (546)(396)2,781 2,725 
Charge-offs— (42)— — — — (186)(228)
Recoveries— 19 — 3 — — 3 25 
Ending balance$1,126 $114 $7,901 $3,620 $2,255 $1,010 $7,149 $23,175 
Allowance for credit losses as of September 30, 2023 allocated to loans evaluated:         
Individually$— $— $— $— $— $— $4,000 $4,000 
Collectively1,126 114 7,901 3,620 2,255 1,010 3,149 19,175 
Ending balance$1,126 $114 $7,901 $3,620 $2,255 $1,010 $7,149 $23,175 
Loans as of September 30, 2023:        
Individually evaluated$1,704 $7,500 $— $3,063 $— $3,980 $39,370 $55,617 
Collectively evaluated146,914 15,964 347,053 911,948 523,910 202,978 310,611 2,459,378 
Loans held for investment measured at fair value— 15,464 — — — — — 15,464 
Ending balance$148,618 $38,928 $347,053 $915,011 $523,910 $206,958 $349,981 $2,530,459 
Cash,
Securities
and Other		Consumer
and
Other		Construction
and
Development		1-4
Family
Residential		Non-Owner
Occupied
CRE		Owner
Occupied
CRE		Commercial
and
Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2022
Beginning balance$1,194 $220 $1,074 $4,845 $3,235 $1,477 $2,312 $14,357 
Provision for loan losses(97)9 496 824 402 31 91 1,756 
Charge-offs— (50)— — — — — (50)
Recoveries— 18 — — — — — 18 
Ending balance$1,097 $197 $1,570 $5,669 $3,637 $1,508 $2,403 $16,081 
Changes in allowance for loan losses for the nine months ended September 30, 2022
Beginning balance$1,598 $266 $1,092 $3,553 $2,952 $1,292 $2,979 $13,732 
Provision for loan losses(501)67 478 2,116 685 216 (576)2,485 
Charge-offs— (242)— — — — — (242)
Recoveries— 106 — — — — — 106 
Ending balance$1,097 $197 $1,570 $5,669 $3,637 $1,508 $2,403 $16,081 
Allowance for loan losses as of December 31, 2022 allocated to loans evaluated:        
Individually$— $— $— $— $— $— $— $— 
Collectively1,198 191 2,025 6,309 3,490 1,510 2,460 17,183 
Ending balance$1,198 $191 $2,025 $6,309 $3,490 $1,510 $2,460 $17,183 
Loans as of December 31, 2022:        
Individually evaluated$4 $5 $201 $— $— $1,165 $10,762 $12,137 
Collectively evaluated165,555 26,065 285,426 899,722 493,134 213,024 351,029 2,433,955 
Loans held for investment measured at fair value$— $23,321 $— $— $— $— $— $23,321 
Ending balance$165,559 $49,391 $285,627 $899,722 $493,134 $214,189 $361,791 $2,469,413 
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans by credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:
Special Mention—Loans classified as special mention have a potential weakness or borrowing relationships that require more than the usual amount of management attention. Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies, or other similar weaknesses may be evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected. Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered "classified" and are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual status and may individually be evaluated.
Doubtful—Loans graded Doubtful are considered "classified" and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. However, the amount of certainty of eventual loss is not known because of specific pending factors.
Loans accounted for under the fair value option are not rated.
The following table presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of September 30, 2023. For revolving lines of credit that converted to term loans, if the conversion involved a credit decision, such loans are included in the origination year in which the credit decision was made. If revolving lines of credit converted to term loans without a credit decision, such lines of credit are included in the “Revolving lines of credit converted to term” column in the following table.

Term Loans Amortized Cost by Origination Year
September 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Cash, Securities, and Other
Pass$7,626 $11,995 $21,546 $5,982 $6,556 $13,243 $79,966 $— $146,914 
Special mention— — — — — — — — — 
Substandard— — — — — — 1,704 — 1,704 
Not rated— — — — — — — — — 
Total Cash, Securities, and Other$7,626 $11,995 $21,546 $5,982 $6,556 $13,243 $81,670 $— $148,618 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Consumer and Other
Pass$650 $1,612 $662 $716 $922 $26 $11,376 $— $15,964 
Special mention— — — — — — — — — 
Substandard— — — — — — 7,500 — 7,500 
Not rated(1)
— 11,548 2,965 835 116 — — — 15,464 
Total Consumer and Other$650 $13,160 $3,627 $1,551 $1,038 $26 $18,876 $— $38,928 
Current year-to-date gross write-offs$— $— $— $6 $34 $2 $— $— $42 
Construction and Development
Pass$24,410 $253,895 $45,112 $20,590 $— $— $3,046 $— $347,053 
Special mention— — — — — — — — — 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Construction and Development$24,410 $253,895 $45,112 $20,590 $— $— $3,046 $— $347,053 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
1-4 Family Residential
Pass$76,406 $379,601 $148,757 $109,485 $38,171 $33,324 $126,204 $— $911,948 
Special mention— — — — — — — — — 
Substandard625 2,438 — — — — — — 3,063 
Not rated— — — — — — — — — 
Total 1-4 Family Residential$77,031 $382,039 $148,757 $109,485 $38,171 $33,324 $126,204 $— $915,011 
Term Loans Amortized Cost by Origination Year
September 30, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisRevolving Loans Converted to TermTotal
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Non-Owner Occupied CRE
Pass$37,094 $179,154 $130,893 $76,321 $24,567 $54,024 $16,825 $— $518,878 
Special mention— — — 5,032 — — — — 5,032 
Substandard— — — — — — — — — 
Not rated— — — — — — — — — 
Total Non-Owner Occupied CRE$37,094 $179,154 $130,893 $81,353 $24,567 $54,024 $16,825 $— $523,910 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Owner Occupied CRE
Pass$3,259 $44,366 $54,788 $38,315 $5,631 $51,826 $4,793 $— $202,978 
Special mention— — — — — — — — — 
Substandard— — 3,980 — — — — — 3,980 
Not rated— — — — — — — — — 
Total Owner Occupied CRE$3,259 $44,366 $58,768 $38,315 $5,631 $51,826 $4,793 $— $206,958 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— $— 
Commercial and Industrial
Pass$39,928 $70,374 $15,972 $14,190 $6,703 $14,542 $144,812 $— $306,521 
Special mention— — — 1,656 — — 648 — 2,304 
Substandard185 7,590 29,358 1,300 — 1,040 1,683 — 41,156 
Not rated— — — — — — — — — 
Total Commercial and Industrial$40,113 $77,964 $45,330 $17,146 $6,703 $15,582 $147,143 $— $349,981 
Current year-to-date gross write-offs$— $186 $— $— $— $— $— $— $186 
Total$190,183 $962,573 $454,033 $274,422 $82,666 $168,025 $398,557 $— $2,530,459 
(1)Includes loans held for investment measured at fair value as of September 30, 2023. Includes fair value adjustments on loans held for investment accounted for under the fair value option.
The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of the date noted (dollars in thousands):
December 31, 2022PassSpecial
Mention		SubstandardNot RatedTotal
Cash, Securities, and Other$165,555 $— $4 $— $165,559 
Consumer and Other(1)
26,070 — — 23,321 49,391 
Construction and Development285,426 — 201 — 285,627 
1-4 Family Residential899,722 — — — 899,722 
Non-Owner Occupied CRE493,134 — — — 493,134 
Owner Occupied CRE213,024 — 1,165 — 214,189 
Commercial and Industrial348,844 2,185 10,762 — 361,791 
Total$2,431,775 $2,185 $12,132 $23,321 $2,469,413 
(1)Includes loans held for investment measured at fair value as of December 31, 2022. Includes fair value adjustments on loans held for investment accounted for under the fair value option.