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LOANS AND THE ALLOWANCE FOR CREDIT LOSSES
 3 Months Ended
Mar. 31, 2024
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)
March 31,
2024		December 31,
2023
Cash, Securities, and Other$150,969 $139,947 
Consumer and Other18,450 27,028 
Construction and Development331,437 345,516 
1-4 Family Residential912,106 927,965 
Non-Owner Occupied CRE559,763 543,692 
Owner Occupied CRE193,035 195,861 
Commercial and Industrial297,842 337,180 
Total2,463,602 2,517,189 
Allowance for credit losses(24,630)(23,931)
Total, net$2,438,972 $2,493,258 
Loans accounted for under the fair value option(1)
11,922 13,726 
Loans, net$2,450,894 $2,506,984 
______________________________________
(1)Includes $12.3 million and $14.1 million of unpaid principal balance of loans held for investment measured at fair value as of March 31, 2024 and December 31, 2023, respectively. Includes fair value adjustments on loans held for investment accounted for under the fair value option. See Note 12 – Fair Value.
As of March 31, 2024 and December 31, 2023, total loans held for investment included $204.3 million and $208.2 million, respectively, of performing loans purchased through mergers or acquisitions.
As of March 31, 2024, the Cash, Securities, and Other portion of the loan portfolio included $3.7 million of SBA Paycheck Protection Program (“PPP”) loans, or 2.5% of the total category. As of December 31, 2023, the Cash, Securities, and Other portion of the loan portfolio included $4.2 million of PPP loans, or 3.0% of the total category.
As of March 31, 2024, the Company’s Commercial and Industrial loans included three Main Street Lending Program (“MSLP”) loans with the net carrying amount of $4.9 million, or 1.6% of the total category. Two of these loans are risk rated Substandard and on non-accrual status. The remaining MSLP loan is risk rated Pass. As of December 31, 2023, the Company’s Commercial and Industrial loans included three MSLP loans with the net carrying amount of $5.1 million, or 1.5% of the total category.
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):
March 31, 202430-59
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$195 $70 $1,719 $1,984 $148,985 $150,969 $— $150,969 
Consumer and Other4 6 3,807 3,817 14,633 18,450 11,922 30,372 
Construction and Development— — — — 331,437 331,437 — 331,437 
1-4 Family Residential1,613 303 2,438 4,354 907,752 912,106 — 912,106 
Non-Owner Occupied CRE— — — — 559,763 559,763 — 559,763 
Owner Occupied CRE— — 3,980 3,980 189,055 193,035 — 193,035 
Commercial and Industrial10,596 — 30,786 41,382 256,460 297,842 — 297,842 
Total$12,408 $379 $42,730 $55,517 $2,408,085 $2,463,602 $11,922 $2,475,524 

December 31, 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$— $76 $1,704 $1,780 $138,167 $139,947 $— $139,947 
Consumer and Other676 11 7,504 8,191 18,837 27,028 13,726 40,754 
Construction and Development— 1,500 — 1,500 344,016 345,516 — 345,516 
1-4 Family Residential1,093 — 2,722 3,815 924,150 927,965 — 927,965 
Non-Owner Occupied CRE— — — — 543,692 543,692 — 543,692 
Owner Occupied CRE— — 3,980 3,980 191,881 195,861 — 195,861 
Commercial and Industrial19,305 1,085 29,180 49,570 287,610 337,180 — 337,180 
Total$21,074 $2,672 $45,090 $68,836 $2,448,353 $2,517,189 $13,726 $2,530,915 
(1)Refer to Note 12 – Fair Value for additional information on the measurement of loans accounted for under the fair value option.
As of March 31, 2024, the Company had one loan, totaling $16 thousand, in the Cash, Securities and Other portfolio that was more than 90 days delinquent and accruing interest. As of December 31, 2023, the Company had one loan, totaling $0.3 million, in the 1-4 Family Residential portfolio that was more than 90 days delinquent and accruing interest.
Loan Modifications
The following table presents the amortized cost basis as of March 31, 2024 of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during the three months ended March 31, 2024. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.
(dollars in thousands)Principal forgivenessInterest rate reductionTerm extensionCombination: term extension and principal forgivenessCombination: term extension and interest rate reductionTotal class of financing receivable
Commercial and Industrial$— $— $73 $— $— — %
Total$— $— $73 $— $— 
The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty for the three months ended March 31, 2024:
(dollars in thousands)Principal forgivenessWeighted average interest rate reductionWeighted average term extension
Commercial and Industrial—
—
$73
For all loans modified during the period, the borrowers continue to pay as agreed.
For the three months ended March 31, 2023, there were no loan modifications made to borrowers experiencing financial difficulty and the Company had not committed any additional funds to borrowers experiencing financial difficulty.
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 dates noted:
As of March 31, 2024
(dollars in thousands)Non-accrual loans with
no ACL
Total non-accrual loans(1)
Loans past due over 89 days still accruing
Cash, Securities, and Other$1,704 $1,704 $16 
Consumer and Other9 3,807 — 
Construction and Development— — — 
1-4 Family Residential569 3,007 — 
Non-Owner Occupied CRE— — — 
Owner Occupied CRE— 3,980 — 
Commercial and Industrial3,736 33,225 — 
Total$6,018 $45,723 $16 
(1)As of March 31, 2024, the Company had an allowance of $6.1 million on non-performing loans.
As of December 31, 2023
(dollars in thousands)Non-accrual loans with
no ACL
Total non-accrual loans(1)
Loans past due over 89 days still accruing
Cash, Securities, and Other$1,704 $1,704 $— 
Consumer and Other4 7,504 — 
Construction and Development2,719 2,719 — 
1-4 Family Residential578 3,016 285 
Owner Occupied CRE— 3,980 — 
Commercial and Industrial2,355 31,893 — 
Total$7,360 $50,816 $285 
(1)As of December 31, 2023, the Company had an allowance of $3.8 million on non-performing loans.
The Company recognized no interest income on non-accrual loans during the three months ended March 31, 2024. The Company recognized an immaterial amount of interest income on non-accrual loans during the three months ended March 31, 2023.
Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated. The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses, by class of loans as of the date noted:
As of March 31, 2024
Collateral Dependent Loans
(dollars in thousands)Secured by Real EstateSecured by Cash and
Securities		Secured by OtherTotal
Cash, Securities, and Other$— $1,704 $— $1,704 
Consumer and Other3,798 — — 3,798 
Construction and Development— — — — 
1-4 Family Residential3,007 — — 3,007 
Non-Owner Occupied CRE— — — — 
Owner Occupied CRE3,980 — — 3,980 
Commercial and Industrial— — 33,225 33,225 
Total$10,785 $1,704 $33,225 $45,714 
As of December 31, 2023
Collateral Dependent Loans
(dollars in thousands)Secured by Real EstateSecured by Cash and
Securities		Secured by OtherTotal
Cash, Securities, and Other$— $1,704 $— $1,704 
Consumer and Other— — 7,500 7,500 
Construction and Development2,719 — — 2,719 
1-4 Family Residential3,016 — — 3,016 
Owner Occupied CRE3,980 — — 3,980 
Commercial and Industrial— — 31,893 31,893 
Total$9,715 $1,704 $39,393 $50,812 
Charge-offs
The Company recorded an immaterial amount of net charge-offs during the three months ended March 31, 2024 and March 31, 2023.
Other Real Estate Owned (“OREO”)
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. As of March 31, 2024 and December 31, 2023, the Company did not own any OREO properties. Subsequent to March 31, 2024, the Company is currently in the process of foreclosure on multiple properties as it relates to problem loan resolution.
Allowance for Credit Losses on Loans
The allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable. Interest receivable excluded at March 31, 2024 and December 31, 2023 was $11.1 million and $10.8 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 March 31, 2024 is based on a slightly improved macro-economic forecast assuming a soft landing. As a result, we forecasted decreased probability of default rates, and therefore loss, which in turn reduced our model loss rates, further reduced by net pay downs in the loan portfolio, resulting in a $1.6 million release of provision on pooled loans for the three months ended March 31, 2024. The allowance on credit losses on non-performing loans was $6.1 million as of March 31, 2024. As of December 31, 2023, 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 $0.5 million release of provision on pooled loans. The allowance on credit losses on non-performing loans was $3.8 million as of December 31, 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 March 31, 2024:
Beginning balance$961 $124 $7,945 $4,370 $2,325 $1,034 $7,172 $23,931 
(Release) provision for credit losses(184)(31)(557)(87)(129)(59)1,746 699 
Charge-offs— (11)— — — — — (11)
Recoveries— 5 — 5 — — 1 11 
Ending balance$777 $87 $7,388 $4,288 $2,196 $975 $8,919 $24,630 
(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 March 31, 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 (release) for credit losses60 (95)(477)320 (92)(134)(387)(805)
Charge-offs— (17)— — — — — (17)
Recoveries— 11 — — — — 1 12 
Ending balance$1,451 $196 $6,229 $3,821 $2,709 $1,272 $4,165 $19,843 
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 tables 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 March 31, 2024 and December 31, 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 (dollars in thousands):
Term Loans Amortized Cost by Origination Year
March 31, 202420242023202220212020PriorRevolving Loans Amortized Cost BasisTotal
Cash, Securities, and Other
Pass$12,982 $8,325 $18,118 $15,166 $5,812 $19,043 $69,819 $149,265 
Special mention— — — — — — — — 
Substandard— — — — — — 1,704 1,704 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Cash, Securities, and Other$12,982 $8,325 $18,118 $15,166 $5,812 $19,043 $71,523 $150,969 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Consumer and Other
Pass— 595 1,898 631 556 705 10,267 14,652 
Special mention— — — — — — — — 
Substandard— — — — — — 3,798 3,798 
Doubtful— — — — — — — — 
Not rated(1)
— — 10,086 1,667 104 65 — 11,922 
Total Consumer and Other$— $595 $11,984 $2,298 $660 $770 $14,065 $30,372 
Current year-to-date gross write-offs$— $— $— $— $4 $7 $— $11 
Construction and Development
Pass$5,760 $40,304 $237,183 $22,113 $9,269 $— $903 $315,532 
Special mention— — 15,905 — — — — $15,905 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Construction and Development$5,760 $40,304 $253,088 $22,113 $9,269 $— $903 $331,437 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
1-4 Family Residential
Pass$12,239 $94,888 $365,495 $137,733 $107,509 $67,145 $124,090 $909,099 
Special mention— — — — — — — — 
Substandard— 569 2,438 — — — — 3,007 
Term Loans Amortized Cost by Origination Year
March 31, 202420242023202220212020PriorRevolving Loans Amortized Cost BasisTotal
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total 1-4 Family Residential$12,239 $95,457 $367,933 $137,733 $107,509 $— $67,145 $— $124,090 $— $912,106 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Non-Owner Occupied CRE
Pass$— $42,767 $198,683 $125,452 $86,840 $76,797 $24,259 $554,798 
Special mention— — — — 4,965 — — 4,965 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Non-Owner Occupied CRE$— $42,767 $198,683 $125,452 $91,805 $76,797 $24,259 $559,763 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Owner Occupied CRE
Pass$368 $3,209 $46,029 $43,648 $34,154 $56,155 $5,492 $189,055 
Special mention— — — — — — — — 
Substandard— — — 3,980 — — — 3,980 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Owner Occupied CRE$368 $3,209 $46,029 $47,628 $34,154 $56,155 $5,492 $193,035 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Commercial and Industrial
Pass$1,985 $18,856 $54,199 $15,249 $12,589 $25,422 $123,016 $251,316 
Special mention— — — — — — 11,190 11,190 
Substandard1,037 — 182 28,270 2,906 830 2,111 35,336 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Commercial and Industrial$3,022 $18,856 $54,381 $43,519 $15,495 $26,252 $136,317 $297,842 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Total pass$33,334 $208,944 $921,605 $359,992 $256,729 $245,267 $357,846 $2,383,717 
Total special mention— — 15,905 — 4,965 — 11,190 32,060 
Total substandard1,037 569 2,620 32,250 2,906 830 7,613 47,825 
Total doubtful— — — — — — — — 
Total not rated— — 10,086 1,667 104 65 — 11,922 
Total$34,371 $209,513 $950,216 $393,909 $264,704 $246,162 $376,649 $2,475,524 
(1)Includes loans held for investment measured at fair value as of March 31, 2024. Includes fair value adjustments on loans held for investment accounted for under the fair value option.
Term Loans Amortized Cost by Origination Year
December 31, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Cash, Securities, and Other
Pass$8,091 $17,878 $17,181 $5,966 $6,337 $13,188 $69,602 $138,243 
Special mention— — — — — — — — 
Substandard— — — — — — 1,704 1,704 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Cash, Securities, and Other$8,091 $17,878 $17,181 $5,966 $6,337 $13,188 $71,306 $139,947 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Consumer and Other
Pass$614 $2,013 $647 $633 $797 $24 $14,800 $19,528 
Special mention— — — — — — — — 
Substandard— — — — — — 7,500 7,500 
Doubtful— — — — — — — — 
Not rated(1)
— 10,469 2,544 614 99 — — 13,726 
Total Consumer and Other$614 $12,482 $3,191 $1,247 $896 $24 $22,300 $40,754 
Current year-to-date gross write-offs$— $— $— $8 $91 $2 $— $101 
Construction and Development
Pass$32,509 $231,103 $42,796 $21,615 $— $— $431 $328,454 
Special mention— 14,343 — — — — — 14,343 
Substandard2,719 — — — — — — 2,719 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Construction and Development$35,228 $245,446 $42,796 $21,615 $— $— $431 $345,516 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
1-4 Family Residential
Pass$97,901 $373,525 $143,694 $108,815 $37,756 $31,452 $131,806 $924,949 
Special mention— — — — — — — — 
Substandard578 2,438 — — — — — 3,016 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total 1-4 Family Residential$98,479 $375,963 $143,694 $108,815 $37,756 $31,452 $131,806 $927,965 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Non-Owner Occupied CRE
Pass$42,799 $197,122 $125,726 $75,026 $24,411 $53,056 $20,553 $538,693 
Special mention— — — 4,999 — — — 4,999 
Substandard— — — — — — — — 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Non-Owner Occupied CRE$42,799 $197,122 $125,726 $80,025 $24,411 $53,056 $20,553 $543,692 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Owner Occupied CRE
Pass$3,229 $46,751 $44,805 $37,957 $5,555 $51,259 $2,325 $191,881 
Special mention— — — — — — — — 
Substandard— — 3,980 — — — — 3,980 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Owner Occupied CRE$3,229 $46,751 $48,785 $37,957 $5,555 $51,259 $2,325 $195,861 
Current year-to-date gross write-offs$— $— $— $— $— $— $— $— 
Commercial and Industrial
Pass$38,497 $59,612 $15,430 $13,457 $6,430 $16,068 $152,782 $302,276 
Special mention— — — — — — 649 649 
Term Loans Amortized Cost by Origination Year
December 31, 202320232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
Substandard1,618 — 29,355 1,674 — 920 688 34,255 
Doubtful— — — — — — — — 
Not rated— — — — — — — — 
Total Commercial and Industrial$40,115 $59,612 $44,785 $15,131 $6,430 $16,988 $154,119 $337,180 
Current year-to-date gross write-offs$— $8,737 $— $— $— $— $— $8,737 
Total pass223,640 928,004 390,279 263,469 81,286 165,047 392,299 2,444,024 
Total special mention— 14,343 — 4,999 — — 649 19,991 
Total substandard4,915 2,438 33,335 1,674 — 920 9,892 53,174 
Total doubtful— — — — — — — — 
Total not rated— 10,469 2,544 614 99 — — 13,726 
Total$228,555 $955,254 $426,158 $270,756 $81,385 $165,967 $402,840 $2,530,915 
(1)Includes loans held for investment measured at fair value as of December 31, 2023. Includes fair value adjustments on loans held for investment accounted for under the fair value option.