LOANS AND CREDIT QUALITY

12 Months Ended

Dec. 31, 2023

3. LOANS AND CREDIT QUALITY

Loans, net of deferred fees and costs as of December 31, 2023 and 2022 consisted of the following:


	December 31,
(Dollars in thousands)	2023		2022
Commercial and industrial:
Small Business Administration Paycheck Protection Program ("SBA PPP")	$	1,313	$	2,654
Other	574,725		544,495
Real estate:
Construction	185,994		167,366
Residential mortgage	1,927,206		1,940,456
Home equity	734,500		737,386
Commercial mortgage	1,384,579		1,364,998
Consumer	630,898		798,957

Gross loans	5,439,215		5,556,312
Net deferred fees and costs	(233)		(846)
Loans, net of deferred fees and costs	$	5,438,982	$	5,555,466

There are different types of risk characteristics for the loans in each portfolio segment. The construction and real estate segment's predominant risk characteristics are the collateral and the geographic location of the property collateralizing the loan, as well as the operating cash flow for the commercial real estate properties. The commercial and industrial segment's predominant risk characteristics are the cash flows of the business we lend to, the global cash flows and liquidity of the guarantors, as well as economic and market conditions. The consumer segment's predominant risk characteristics are employment and income levels as they relate to the consumer.

In 2023, the Company transferred one loan to the loans held for sale category. The loan did not have any credit concerns at the time of transfer and thus was transferred to loans held for sale at its amortized cost of $9.8 million. The loan was sold in 2023 for $9.6 million, or a loss of $0.2 million, which was recorded in other operating expense. The Company did not transfer any other loans to the held-for-sale category during the years ended December 31, 2023 and 2022.

The Company has purchased loan portfolios, none of which were credit deteriorated at the time of purchase.

The following table presents loan purchases by class for the periods presented:


(Dollars in thousands)	Consumer - Unsecured		Consumer - Automobile		Total
Year Ended December 31, 2023
Purchases:
Outstanding balance	$	3,932	$	15,159	$	19,091
Purchase premium	—		568		568
Purchase price	$	3,932	$	15,727	$	19,659

Year Ended December 31, 2022
Purchases:
Outstanding balance	$	229,283	$	101,500	$	330,783
Purchase (discount) premium	(12,119)		4,738		(7,381)
Purchase price	$	217,164	$	106,238	$	323,402

In the normal course of business, the Bank makes loans to certain directors, executive officers and their affiliates. Related party loan balances were $33.7 million and $37.4 million as of December 31, 2023 and 2022, respectively.

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 table presents 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 December 31, 2023 and 2022:


	December 31, 2023
(Dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Total		Allocated ACL

Real estate:

Residential mortgage	$	6,450	$	—	$	6,450	$	47
Home equity	834		—		834		—
Commercial mortgage	—		77		77		—


Total	$	7,284	$	77	$	7,361	$	47


	December 31, 2022
(Dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Total		Allocated ACL

Real estate:

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



Total	$	6,223	$	—	$	6,223	$	—

Foreclosure Proceedings

Residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure totaled $2.3 million and $0.1 million as of December 31, 2023 and 2022, respectively. The residential mortgage loans that were in the process of foreclosure are well-collateralized with low loan-to-value ratios and no losses are expected upon foreclosure of the loans.

The Company did not foreclose on any loans during the years ended December 31, 2023 and 2022. The Company did not sell any foreclosed properties during the years ended December 31, 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 December 31, 2023 and 2022. The following tables also present the amortized cost of loans on nonaccrual status for which there was no related ACL as of the dates indicated:


	December 31, 2023
(Dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+ Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans and Leases Not Past Due		Total		Nonaccrual Loans with No ACL
Commercial and industrial:
SBA PPP	$	—	$	—	$	—	$	—	$	—	$	1,284	$	1,284	$	—
Other	513		169		—		432		1,114		573,309		574,423		—
Real estate:
Construction	—		—		—		—		—		185,519		185,519		—
Residential mortgage	3,082		2,140		—		4,962		10,184		1,917,605		1,927,789		4,855
Home equity	804		400		229		834		2,267		734,257		736,524		834
Commercial mortgage	—		—		—		77		77		1,382,825		1,382,902		77
Consumer	5,677		2,329		1,083		703		9,792		620,749		630,541		—

Total	$	10,076	$	5,038	$	1,312	$	7,008	$	23,434	$	5,415,548	$	5,438,982	$	5,766


	December 31, 2022
(Dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+ Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans and Leases Not Past Due		Total		Nonaccrual Loans with No ACL
Commercial and industrial:
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

Interest income totaling $0.1 million, $1.6 million, and $0.8 million was recognized on nonaccrual loans, including loans held for sale, in 2023, 2022 and 2021, respectively. Additional interest income of $0.3 million, $0.2 million, and $0.3 million would have been recognized in 2023, 2022 and 2021, respectively, had these loans been accruing interest throughout those periods. Additionally, interest income recoveries of $0.4 million, $0.3 million, and $0.3 million was collected on charged-off loans and recognized in other operating income in 2023, 2022 and 2021, respectively.

Loan Modifications for Borrowers Experiencing Financial Difficulty

Since the adoption of ASU 2022-02 on January 1, 2023 and during the year ended December 31, 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, the Company 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 TDR.

There were $2.1 million and $2.8 million of TDRs still accruing interest at December 31, 2023 and 2022, respectively, none of which were more than 90 days delinquent. There were $0.9 million and $1.1 million of TDRs included in nonperforming assets at December 31, 2023 and 2022, respectively.

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 industrial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk rating of loans:

Pass. Loans classified as pass are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement.

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. Loans so classified 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, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.

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, net of deferred (fees) costs of the Company's loans by class, credit quality indicator and origination year as of December 31, 2023 and 2022. Revolving loans converted to term as of and during the year ended December 31, 2023 and 2022 were not material to the total loan portfolio.


	Amortized Cost of Term Loans by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Amortized Cost of Revolving Loans		Total
December 31, 2023
Commercial and industrial - SBA PPP:
Risk Rating
Pass	$	—	$	—	$	1,284	$	—	$	—	$	—	$	—	$	1,284




Subtotal	—		—		1,284		—		—		—		—		1,284
Commercial and industrial - Other:
Risk Rating
Pass	83,333		82,649		76,267		32,831		42,162		152,940		90,177		560,359
Special Mention	—		—		2,916		—		—		944		93		3,953
Substandard	37		1,189		576		662		571		7,026		50		10,111


Subtotal	83,370		83,838		79,759		33,493		42,733		160,910		90,320		574,423
Construction:
Risk Rating
Pass	8,434		52,596		69,203		18,878		2,136		31,090		2,778		185,115
Special Mention	—		—		404		—		—		—		—		404



Subtotal	8,434		52,596		69,607		18,878		2,136		31,090		2,778		185,519
Residential mortgage:
Risk Rating
Pass	101,473		266,314		609,648		414,430		144,312		385,452		—		1,921,629
Special Mention	—		—		—		—		—		268		—		268
Substandard	—		1,057		299		931		818		2,787		—		5,892


Subtotal	101,473		267,371		609,947		415,361		145,130		388,507		—		1,927,789
Home equity:
Risk Rating
Pass	12,229		32,208		19,589		8,766		6,372		17,379		638,917		735,460

Substandard	—		—		—		—		66		998		—		1,064


Subtotal	12,229		32,208		19,589		8,766		6,438		18,377		638,917		736,524
Commercial mortgage:
Risk Rating
Pass	96,479		256,660		202,933		115,055		112,578		566,325		6,311		1,356,341
Special Mention	—		—		—		—		10,513		9,638		—		20,151
Substandard	—		—		2,587		—		1,654		2,169		—		6,410


Subtotal	96,479		256,660		205,520		115,055		124,745		578,132		6,311		1,382,902
Consumer:
Risk Rating
Pass	88,593		261,752		144,341		36,431		27,970		10,538		59,130		628,755

Substandard	58		231		205		87		83		1,084		10		1,758

Loss	—		—		—		—		—		28		—		28
Subtotal	88,651		261,983		144,546		36,518		28,053		11,650		59,140		630,541
Total loans, net of deferred fees and costs	$	390,636	$	954,656	$	1,130,252	$	628,071	$	349,235	$	1,188,666	$	797,466	$	5,438,982


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



Subtotal	—		2,546		9		—		—		—		—		2,555
Commercial and industrial - 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

Subtotal	226,137		218,379		119,531		143,038		148,065		496,452		11,473		1,363,075
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 loans, net of deferred fees and costs	$	1,004,473	$	1,293,071	$	691,126	$	414,136	$	288,522	$	1,063,474	$	800,664	$	5,555,466

The following table includes gross charge-offs of loans by origination year during the year ended December 31, 2023.


	Gross Charge-offs by Year of Origination
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Amortized Cost of Revolving Loans		Total
Commercial and industrial:

Other	$	211	$	314	$	204	$	—	$	276	$	957	$	—	$	1,962





Consumer	111		8,282		5,997		1,148		833		874		—		17,245
Total gross charge-offs	$	322	$	8,596	$	6,201	$	1,148	$	1,109	$	1,831	$	—	$	19,207