LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2022

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Summary of the Company's loans

The following presents a summary of the Company’s loans as of the dates noted (dollars in thousands):

	September 30,		December 31,
	2022		2021
Cash, Securities, and Other(1)	$	154,748	$	261,190
Consumer and Other(2)		50,429		34,758
Construction and Development		228,060		178,716
1-4 Family Residential		822,796		580,872
Non-Owner Occupied CRE		527,836		482,622
Owner Occupied CRE		220,075		212,426
Commercial and Industrial(3)		350,954		203,584
Total loans held for investment		2,354,898		1,954,168
Deferred fees and unamortized premiums/(unaccreted discounts), net(4)		(3,576)		(5,031)
Allowance for loan losses		(16,081)		(13,732)
Loans, net	$	2,335,241	$	1,935,405

______________________________________

⁽¹⁾ Includes Paycheck Protection Program (“PPP”) loans of $7.7 million and $46.8 million as of September 30, 2022 and December 31, 2021, respectively.

⁽²⁾ Includes $22.6 million of unpaid principal balance of loans held for investment measured at fair value as of September 30, 2022.

⁽³⁾ Includes MSLP loans of $6.8 million as of September 30, 2022 and December 31, 2021.

⁽⁴⁾ Includes fair value adjustments on loans held for investment accounted for under the fair value option.

Summary of aging analysis of the recorded investments in loans past due

The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred fees, and unamortized premiums/(unaccreted discounts), which are not material) in loans past due as of the dates noted (dollars in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
September 30, 2022	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities, and Other	$	20	$	855	$	4	$	879	$	153,869	$	154,748
Consumer and Other		421		343		65		829		49,600		50,429
Construction and Development		882		960		1,038		2,880		225,180		228,060
1-4 Family Residential		209		—		69		278		822,518		822,796
Non-Owner Occupied CRE		—		—		—		—		527,836		527,836
Owner Occupied CRE		—		—		—		—		220,075		220,075
Commercial and Industrial		10		—		1,670		1,680		349,274		350,954
Total	$	1,542	$	2,158	$	2,846	$	6,546	$	2,348,352	$	2,354,898

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2021	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities, and Other	$	745	$	—	$	6	$	751	$	260,439	$	261,190
Consumer and Other		454		—		2		456		34,302		34,758
Construction and Development		2,758		—		—		2,758		175,958		178,716
1-4 Family Residential		1,449		—		—		1,449		579,423		580,872
Non-Owner Occupied CRE		—		2,548		—		2,548		480,074		482,622
Owner Occupied CRE		1,419		—		—		1,419		211,007		212,426
Commercial and Industrial		748		—		2,200		2,948		200,636		203,584
Total	$	7,573	$	2,548	$	2,208	$	12,329	$	1,941,839	$	1,954,168

Schedule of recorded investment in non accrual loans by class

The following presents the recorded investment in non-accrual loans by class as of the dates noted (dollars in thousands):

	September 30,		December 31,
	2022		2021
Cash, Securities, and Other	$	4	$	6
Consumer and Other		65		2
Construction and Development		201		—
1-4 Family Residential		69		75
Owner Occupied CRE		1,179		1,241
Commercial and Industrial		2,184		2,938
Total	$	3,702	$	4,262

Summary of the unpaid principal balance of loans classified as TDRs

The following presents a summary of the unpaid principal balance of loans classified as TDRs as of the dates noted (dollars in thousands):

	September 30,		December 31,
	2022		2021
Accruing
Non-Owner Occupied CRE	$	42	$	55
Non-accrual
Cash, Securities, and Other		4		6
1-4 Family Residential		69		75
Owner Occupied CRE		1,179		1,241
Commercial and Industrial		2,184		2,938
Total		3,478		4,315
Allowance for loan losses associated with TDR		—		(1,751)
Net recorded investment	$	3,478	$	2,564

Summary of impaired loans by portfolio and related valuation allowance

The following presents impaired loans by portfolio and related valuation allowance during the periods presented (dollars in thousands):

	September 30, 2022						December 31, 2021
			Unpaid		Allowance				Unpaid		Allowance
	Total		Contractual		for		Total		Contractual		for
	Recorded		Principal		Loan		Recorded		Principal		Loan
	Investment		Balance		Losses		Investment		Balance		Losses
Impaired loans with a valuation allowance:
Consumer and Other	$	—	$	—	$	—	$	2	$	2	$	2
Commercial and Industrial		—		—		—		2,190		2,190		1,751
Total	$	—	$	—	$	—	$	2,192	$	2,192	$	1,753
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	4	$	4	$	—	$	6	$	6	$	—
Construction and Development		201		201		—		—		—		—
1-4 Family Residential		69		69		—		75		75		—
Owner Occupied CRE		1,179		1,179		—		1,241		1,241		—
Commercial and Industrial		2,184		2,184		—		748		748		—
Total	$	3,637	$	3,637	$	—	$	2,070	$	2,070	$	—
Total impaired loans:
Cash, Securities, and Other	$	4	$	4	$	—	$	6	$	6	$	—
Consumer and Other		—		—		—		2		2		2
Construction and Development		201		201		—		—		—		—
Commercial and Industrial		2,184		2,184		—		2,938		2,938		1,751
1-4 Family Residential		69		69		—		75		75		—
Owner Occupied CRE		1,179		1,179		—		1,241		1,241		—
Total	$	3,637	$	3,637	$	—	$	4,262	$	4,262	$	1,753

The recorded investment in loans in the previous tables excludes accrued interest, deferred fees, and unamortized premiums/(unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-accrual loans.

The following presents the average balance of impaired loans and interest income recognized on impaired loans during the periods presented (dollars in thousands):

	Three Months Ended September 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	—	$	—	$	1	$	—
Consumer and Other		1		—		17		—
Commercial and Industrial		—		—		2,635		—
Total	$	1	$	—	$	2,653	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	4	$	—	$	10	$	—
Construction and Development		101		—		—		—
Commercial and Industrial		2,393		—		410		220
1-4 Family Residential		68		—		41		—
Owner Occupied CRE		1,190		—		625		—
Total	$	3,756	$	—	$	1,086	$	220
Total impaired loans:
Cash, Securities, and Other	$	4	$	—	$	11	$	—
Consumer and Other		1		—		17		—
Construction and Development		101		—		—		—
Commercial and Industrial		2,393		—		3,045		220
1-4 Family Residential		68		—		41		—
Owner Occupied CRE		1,190		—		625		—
Total	$	3,757	$	—	$	3,739	$	220

	Nine Months Ended September 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	—	$	—	$	1	$	—
Consumer and Other		1		—		9		—
Commercial and Industrial		—		—		3,027		21
Total	$	1	$	—	$	3,037	$	21
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	4	$	—	$	22	$	—
Construction and Development		50		—		—		—
Commercial and Industrial		2,663		*		257		220
1-4 Family Residential		71		—		21		—
Owner Occupied CRE		1,211		—		313		51
Total	$	3,999	$	—	$	613	$	271
Total impaired loans:
Cash, Securities, and Other	$	4	$	—	$	23	$	—
Consumer and Other		1		—		9		—
Construction and Development		50		—		—		—
Commercial and Industrial		2,663		*		3,284		241
1-4 Family Residential		71		—		21		—
Owner Occupied CRE		1,211		—		313		51
Total	$	4,000	$	—	$	3,650	$	292

______________________________________

* The Company recognized an immaterial amount of interest income during the period.

Schedule of activity in the Company's allowance for loan losses by portfolio class

The following presents the activity in the Company’s allowance for loan losses by portfolio class during the periods presented (dollars in thousands):

	Cash,		Consumer		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		and		Family		Occupied		Occupied		and
	and Other		Other		Development		Residential		CRE		CRE		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
(Release)/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
(Release)/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 September 30, 2022 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively		1,097		197		1,570		5,669		3,637		1,508		2,403		16,081
Ending balance	$	1,097	$	197	$	1,570	$	5,669	$	3,637	$	1,508	$	2,403	$	16,081
Loans as of September 30, 2022:
Individually evaluated for impairment	$	4	$	—	$	201	$	69	$	—	$	1,179	$	2,184	$	3,637
Collectively evaluated for impairment		154,744		27,781		227,859		822,727		527,836		218,896		348,770		2,328,613
Unpaid principal balance of loans held for investment measured at fair value		—		22,648		—		—		—		—		—		22,648
Ending balance	$	154,748	$	50,429	$	228,060	$	822,796	$	527,836	$	220,075	$	350,954	$	2,354,898

	Cash,		Consumer		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		and		Family		Occupied		Occupied		and
	and Other		Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2021
Beginning balance	$	1,843	$	196	$	871	$	3,399	$	2,223	$	1,225	$	2,795	$	12,552
(Release)/provision for loan losses		(51)		136		48		97		271		(67)		(28)		406
Charge-offs		—		—		—		—		—		—		—		—
Recoveries		—		6		—		—		—		—		—		6
Ending balance	$	1,792	$	338	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Changes in allowance for loan losses for the nine months ended September 30, 2021
Beginning balance	$	2,439	$	140	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
(Release)/provision for loan losses		(647)		191		(13)		263		490		(1)		135		418
Charge-offs		—		—		—		—		—		—		—		—
Recoveries		—		7		—		—		—		—		—		7
Ending balance	$	1,792	$	338	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Allowance for loan losses as of December 31, 2021 allocated to loans evaluated for impairment:
Individually	$	—	$	2	$	—	$	—	$	—	$	—	$	1,751	$	1,753
Collectively		1,598		264		1,092		3,553		2,952		1,292		1,228		11,979
Ending balance	$	1,598	$	266	$	1,092	$	3,553	$	2,952	$	1,292	$	2,979	$	13,732
Loans as of December 31, 2021:
Individually evaluated for impairment	$	6	$	2	$	—	$	75	$	—	$	1,241	$	2,938	$	4,262
Collectively evaluated for impairment		261,184		34,756		178,716		580,797		482,622		211,185		200,646		1,949,906
Ending balance	$	261,190	$	34,758	$	178,716	$	580,872	$	482,622	$	212,426	$	203,584	$	1,954,168

Summary of recorded investment in the Company's loans by class and by credit quality indicator

The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of the dates noted (dollars in thousands):

			Special
September 30, 2022	Pass		Mention		Substandard		Not Rated			Total
Cash, Securities, and Other	$	154,744	$	—	$	4	$	—	$	154,748
Consumer and Other		27,781		—		—		22,648		50,429
Construction and Development		227,859		—		201		—		228,060
1-4 Family Residential		822,728		—		68		—		822,796
Non-Owner Occupied CRE		527,794		42		—		—		527,836
Owner Occupied CRE		218,896		—		1,179		—		220,075
Commercial and Industrial		337,003		11,767		2,184		—		350,954
Total	$	2,316,805	$	11,809	$	3,636	$	22,648	$	2,354,898

			Special
December 31, 2021	Pass		Mention		Substandard		Not Rated			Total
Cash, Securities, and Other	$	261,184	$	—	$	6	$	—	$	261,190
Consumer and Other		34,756		—		2		—		34,758
Construction and Development		176,194		2,522		—		—		178,716
1-4 Family Residential		580,797		—		75		—		580,872
Non-Owner Occupied CRE		476,670		5,952		—		—		482,622
Owner Occupied CRE		210,493		—		1,933		—		212,426
Commercial and Industrial		198,368		401		4,815		—		203,584
Total	$	1,938,462	$	8,875	$	6,831	$	—	$	1,954,168