LOANS AND CREDIT QUALITY

6 Months Ended

Jun. 30, 2022

4. LOANS AND CREDIT QUALITY

The following table presents loans by class, excluding loans held for sale, net of ACL as of June 30, 2023 and December 31, 2022:


(dollars in thousands)	June 30, 2023		December 31, 2022
Commercial, financial and agricultural:
SBA PPP	$	1,615	$	2,654
Other	543,775		544,495
Real estate:
Construction	201,426		167,366
Residential mortgage	1,942,272		1,940,456
Home equity	748,704		737,386
Commercial mortgage	1,369,329		1,364,998
Consumer	713,630		798,957

Gross loans	5,520,751		5,556,312
Net deferred fees and costs	(68)		(846)
Total loans, net of deferred fees and costs	5,520,683		5,555,466
Allowance for credit losses	(63,849)		(63,738)
Total loans, net of allowance for credit losses	$	5,456,834	$	5,491,728

The Company did not transfer any loans to the held-for-sale category during the three and six months ended June 30, 2023 and 2022.

The Company did not sell any loans originally held for investment during the three and six months ended June 30, 2023 and 2022.

As of June 30, 2023 and December 31, 2022, the Company did not have any loans categorized as purchased credit deteriorated ("PCD").

The following tables present loans purchased by class during the periods presented:


	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
(dollars in thousands)	U.S. Mainland Consumer - Unsecured		U.S. Mainland Consumer - Automobile		Total		U.S. Mainland Consumer - Unsecured		U.S. Mainland Consumer - Automobile		Total
Purchases:
Outstanding balance	$	152	$	—	$	152	$	56,624	$	30,866	$	87,490
(Discount) premium	—		—		—		(3,043)		1,543		(1,500)
Purchase price	$	152	$	—	$	152	$	53,581	$	32,409	$	85,990


	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
	U.S. Mainland Consumer - Unsecured		U.S. Mainland Consumer - Automobile		Total		U.S. Mainland Consumer - Unsecured		U.S. Mainland Consumer - Automobile		Total
Purchases:
Outstanding balance	$	3,932	$	15,159	$	19,091	$	104,766	$	64,890	$	169,656
(Discount) premium	—		568		568		(7,410)		3,457		(3,953)
Purchase price	$	3,932	$	15,727	$	19,659	$	97,356	$	68,347	$	165,703

Foreclosure Proceedings

The Company had $1.4 million and $2.4 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2023 and December 31, 2022, respectively. The Company also had $0.1 million of commercial real estate loans collateralized by commercial real estate that were in the process of foreclosure at June 30, 2023. There were no commercial real estate loans in the process of foreclosure at December 31, 2022, respectively.

The Company did not foreclose on any loans during the three and six months ended June 30, 2023 and 2022.

The Company did not sell any foreclosed properties during the three and six months ended June 30, 2023 and 2022.

Nonaccrual and Past Due Loans

For all loan types, the Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The following tables present by class, the aging of the recorded investment in past due loans as of June 30, 2023 and December 31, 2022. The following tables also present the amortized cost of loans on nonaccrual status for which there was no related ACL under ASC 326 as of June 30, 2023 and December 31, 2022.


(dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans Greater Than 90 Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans Not Past Due		Total Loans		Nonaccrual Loans With No ACL
June 30, 2023
Commercial, financial and agricultural:
SBA PPP	$	5	$	—	$	—	$	—	$	5	$	1,560	$	1,565	$	—
Other	454		98		—		319		871		542,722		543,593		—
Real estate:
Construction	—		—		—		4,851		4,851		195,968		200,819		4,851
Residential mortgage	—		2,941		959		4,385		8,285		1,934,621		1,942,906		4,385
Home equity	1,623		178		133		797		2,731		748,029		750,760		797
Commercial mortgage	—		—		—		77		77		1,367,485		1,367,562		77
Consumer	4,124		1,546		2,207		632		8,509		704,969		713,478		—

Total	$	6,206	$	4,763	$	3,299	$	11,061	$	25,329	$	5,495,354	$	5,520,683	$	10,110


(dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans Greater Than 90 Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans Not Past Due		Total Loans		Nonaccrual Loans With No ACL
December 31, 2022
Commercial, financial and agricultural:
SBA PPP	$	471	$	37	$	13	$	—	$	521	$	2,034	$	2,555	$	—
Other	546		131		26		297		1,000		542,947		543,947		—
Real estate:
Construction	—		—		—		—		—		166,723		166,723		—
Residential mortgage	303		—		559		3,808		4,670		1,936,329		1,940,999		3,808
Home equity	1,540		—		—		570		2,110		737,270		739,380		570
Commercial mortgage	160		—		—		—		160		1,362,915		1,363,075		—
Consumer	5,173		1,921		1,240		576		8,910		789,877		798,787		—

Total	$	8,193	$	2,089	$	1,838	$	5,251	$	17,371	$	5,538,095	$	5,555,466	$	4,378

Collateral-Dependent Loans

In accordance with ASC 326, a loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following tables

present the amortized cost basis of collateral-dependent loans by class, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of June 30, 2023 and December 31, 2022:


(dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Secured by Real Estate and Business Assets		Total		Allocated ACL
June 30, 2023

Real estate:
Construction	$	—	$	4,851	$	—	$	4,851	$	—
Residential mortgage	5,832		—		—		5,832		—
Home equity	797		—		—		797		—
Commercial mortgage	—		77		—		77		—


Total	$	6,629	$	4,928	$	—	$	11,557	$	—


(dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Secured by Real Estate and Business Assets		Total		Allocated ACL
December 31, 2022

Real estate:

Residential mortgage	$	5,653	$	—	$	—	$	5,653	$	—
Home equity	570		—		—		570		—



Total	$	6,223	$	—	$	—	$	6,223	$	—

Loan Modifications for Borrowers Experiencing Financial Difficulty

Since the adoption of ASU 2022-02 on January 1, 2023 and during the three and six months ended June 30, 2023, the Company has not modified any material loans for borrowers experiencing financial difficulty.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a troubled debt restructuring ("TDR").

Loans identified as TDRs prior to our adoption of ASU 2022-02 included in nonperforming assets at June 30, 2023 consisted of five Hawaii loans with a principal balance of $1.0 million. There were $2.3 million of loans identified as TDRs prior to our adoption of ASU 2022-02 that were still accruing interest at June 30, 2023, none of which were more than 90 days delinquent. At December 31, 2022, there were $2.8 million of loans identified as TDRs prior to our adoption of ASU 2022-02 that were still accruing interest, none of which were more than 90 days delinquent.

The Company offered various types of concessions when modifying a loan. Concessions made to the original contractual terms of the loan typically consisted of the deferral of interest and/or principal payments due to deterioration in the borrowers' financial condition. In these cases, the principal balance on the TDR had matured and/or was in default at the time of restructure, and there were no commitments to lend additional funds to the borrower during the three and six months ended June 30, 2023 and 2022.

During the three and six months ended June 30, 2022, the Company did not modify any loans as a TDR prior to the adoption of ASU 2022-02.

No loans were modified as a TDR prior to the adoption of ASU 2022-02 within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2023 and 2022.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of 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. This

analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk rating of loans. Loans that do not meet the following criteria that are analyzed individually as part of the described process are considered to be pass-rated loans.

Special Mention. Loans classified as special mention, while still adequately protected by the borrower's capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management's close attention so as to avoid becoming undue or unwarranted credit exposures.

Substandard. Loans classified as substandard are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, and in addition have weaknesses that make collection or orderly repayment in full on the basis of current existing facts, conditions and values, highly questionable and improbable. Although the possibility of loss is extremely high, its classification as an estimated loss is deferred until a more exact status may be determined due to certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure.

Loss. Loans classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

The following tables present the amortized cost basis of the Company's loans by class, credit quality indicator and origination year as of June 30, 2023 and December 31, 2022. Revolving loans converted to term as of and during the three and six months ended June 30, 2023 and 2022 were not material to the total loan portfolio. In addition, the following table includes gross charge-offs of loans by origination year in the six months ended June 30, 2023.


(dollars in thousands)	Amortized Cost of Term Loans by Year of Origination												Amortized Cost of Revolving Loans
June 30, 2023	2023		2022		2021		2020		2019		Prior				Total
Commercial, financial and agricultural - SBA PPP:
Risk Rating
Pass	$	—	$	—	$	1,558	$	7	$	—	$	—	$	—	$	1,565




Subtotal	—		—		1,558		7		—		—		—		1,565
Commercial, financial and agricultural - Other:
Risk Rating
Pass	28,074		88,909		96,370		36,582		45,644		164,349		71,833		531,761
Special Mention	—		1,025		933		389		763		1		—		3,111
Substandard	—		194		364		740		213		7,115		95		8,721


Subtotal	28,074		90,128		97,667		37,711		46,620		171,465		71,928		543,593
Construction:
Risk Rating
Pass	3,392		54,815		71,645		17,343		2,339		31,491		13,854		194,879

Substandard	—		—		5,260		—		680		—		—		5,940


Subtotal	3,392		54,815		76,905		17,343		3,019		31,491		13,854		200,819
Residential mortgage:
Risk Rating
Pass	56,266		273,298		626,257		424,951		148,026		407,541		—		1,936,339
Special Mention	—		—		—		—		—		288		—		288
Substandard	—		1,077		—		935		822		3,445		—		6,279


Subtotal	56,266		274,375		626,257		425,886		148,848		411,274		—		1,942,906
Home equity:
Risk Rating
Pass	6,159		33,821		22,328		9,767		6,632		17,969		653,154		749,830

Substandard	—		—		—		—		73		857		—		930


Subtotal	6,159		33,821		22,328		9,767		6,705		18,826		653,154		750,760
Commercial mortgage:
Risk Rating
Pass	30,227		237,434		204,823		117,919		113,677		608,900		8,356		1,321,336
Special Mention	—		—		—		—		10,950		11,690		—		22,640
Substandard	—		—		11,627		—		1,677		10,282		—		23,586


Subtotal	30,227		237,434		216,450		117,919		126,304		630,872		8,356		1,367,562
Consumer:
Risk Rating
Pass	39,595		317,273		194,537		46,587		38,114		18,684		55,851		710,641

Substandard	4		103		148		161		163		1,161		3		1,743

Loss	—		—		—		—		—		1,094		—		1,094
Subtotal	39,599		317,376		194,685		46,748		38,277		20,939		55,854		713,478
Total	$	163,717	$	1,007,949	$	1,235,850	$	655,381	$	369,773	$	1,284,867	$	803,146	$	5,520,683


(dollars in thousands)	Gross Charge-Offs by Year of Origination												Amortized Cost of Revolving Loans
Six Months Ended June 30, 2023	2023		2022		2021		2020		2019		Prior				Total
Commercial, financial and agricultural:

Other	$	—	$	212	$	88	$	—	$	207	$	634	$	—	$	1,141





Consumer	—		2,745		2,730		345		409		330		—		6,559

Year-to-date gross charge-offs	$	—	$	2,957	$	2,818	$	345	$	616	$	964	$	—	$	7,700


(dollars in thousands)	Amortized Cost of Term Loans by Year of Origination												Amortized Cost of Revolving Loans
December 31, 2022	2022		2021		2020		2019		2018		Prior				Total
Commercial, financial and agricultural - SBA PPP:
Risk Rating
Pass	$	—	$	2,546	$	9	$	—	$	—	$	—	$	—	$	2,555




Subtotal	—		2,546		9		—		—		—		—		2,555
Commercial, financial and agricultural - Other:
Risk Rating
Pass	77,550		101,595		41,358		53,241		39,106		141,950		76,466		531,266
Special Mention	2,206		350		172		1,011		29		—		99		3,867
Substandard	188		176		833		256		116		7,215		30		8,814


Subtotal	79,944		102,121		42,363		54,508		39,251		149,165		76,595		543,947
Construction:
Risk Rating
Pass	25,663		61,027		23,384		2,387		14,309		18,048		15,044		159,862
Special Mention	—		417		—		—		898		—		—		1,315
Substandard	—		4,850		—		696		—		—		—		5,546


Subtotal	25,663		66,294		23,384		3,083		15,207		18,048		15,044		166,723
Residential mortgage:
Risk Rating
Pass	279,146		636,756		434,928		154,906		58,431		371,517		—		1,935,684

Substandard	—		—		948		—		503		3,864		—		5,315


Subtotal	279,146		636,756		435,876		154,906		58,934		375,381		—		1,940,999
Home equity:
Risk Rating
Pass	34,973		23,772		10,520		7,463		6,880		11,727		643,277		738,612
Special Mention	—		—		—		—		—		—		198		198
Substandard	—		—		—		—		78		453		39		570


Subtotal	34,973		23,772		10,520		7,463		6,958		12,180		643,514		739,380
Commercial mortgage:
Risk Rating
Pass	226,137		208,230		119,531		129,950		145,932		472,267		11,473		1,313,520
Special Mention	—		—		—		11,388		—		16,082		—		27,470
Substandard	—		10,149		—		1,700		2,133		8,103		—		22,085



Consumer:
Risk Rating
Pass	358,609		242,942		59,352		50,899		20,065		10,958		54,038		796,863
Special Mention	—		—		—		113		—		—		—		113
Substandard	1		261		91		126		42		790		—		1,311

Loss	—		—		—		—		—		500		—		500
Subtotal	358,610		243,203		59,443		51,138		20,107		12,248		54,038		798,787
Total	$	1,004,473	$	1,293,071	$	691,126	$	414,136	$	288,522	$	1,063,474	$	800,664	$	5,555,466