LOANS AND CREDIT QUALITY

6 Months Ended

Jun. 30, 2023

3. LOANS AND CREDIT QUALITY

The following table presents loans by class, excluding loans held for sale, net of deferred fees and costs as of the dates presented:


(dollars in thousands)	June 30, 2024		December 31, 2023



Commercial and industrial	$	585,048	$	576,038
Real estate:
Construction	171,918		185,994
Residential mortgage	1,912,753		1,927,206
Home equity	704,836		734,500
Commercial mortgage	1,467,273		1,384,579
Consumer	542,241		630,898

Gross loans	5,384,069		5,439,215
Deferred fees and costs, net	(425)		(233)
Total loans, net of deferred fees and costs	$	5,383,644	$	5,438,982

Interest income on loans is accrued at the contractual rate of interest on the unpaid principal balance. Accrued interest receivable on loans totaled $17.7 million and $17.1 million at June 30, 2024 and December 31, 2023, respectively, and was reported together with accrued interest receivable on investment securities and other assets on the consolidated balance sheets. Accrued interest receivable on loans is excluded from the estimate of credit losses.

The Company did not transfer any loans to the held for sale category during the three and six months ended June 30, 2024 and 2023 and did not sell any other loans originally held for investment during the three and six months ended June 30, 2024 and 2023.

The following tables present loans purchased by class for the periods presented. None of these loan purchases were categorized as purchased credit deteriorated ("PCD") and there were no loans categorized as PCD during the periods presented.


	Three Months Ended June 30, 2024						Three Months Ended June 30, 2023
(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	$	—	$	12,384	$	12,384	$	152	$	—	$	152
Premium	—		247		247		—		—		—
Purchase price	$	—	$	12,631	$	12,631	$	152	$	—	$	152


	Six Months Ended June 30, 2024						Six Months Ended June 30, 2023
	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	$	—	$	12,384	$	12,384	$	3,932	$	15,159	$	19,091
Premium	—		247		247		—		568		568
Purchase price	$	—	$	12,631	$	12,631	$	3,932	$	15,727	$	19,659

Foreclosure Proceedings

The Company did not own any foreclosed properties as of June 30, 2024 and December 31, 2023. The Company had $3.9 million and $2.3 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2024 and December 31, 2023, respectively. The Company had $0.1 million in commercial real estate loans in the process of foreclosure at June 30, 2024 and December 31, 2023.

The Company did not sell any foreclosed properties during the three and six months ended June 30, 2024 and 2023.

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 the dates presented. The following tables also present the amortized cost of loans on nonaccrual status for which there was no related ACL as of the dates presented:


(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 Not Past Due		Total Loans		Nonaccrual Loans With No ACL
June 30, 2024



Commercial and industrial	$	597	$	183	$	—	$	355	$	1,135	$	583,721	$	584,856	$	—
Real estate:
Construction	—		—		—		—		—		171,522		171,522		—
Residential mortgage	626		1,352		1,273		7,991		11,242		1,901,935		1,913,177		7,991
Home equity	2,001		—		135		1,247		3,383		703,428		706,811		1,247
Commercial mortgage	—		—		—		77		77		1,465,293		1,465,370		77
Consumer	4,891		1,525		896		587		7,899		534,009		541,908		—

Total	$	8,115	$	3,060	$	2,304	$	10,257	$	23,736	$	5,359,908	$	5,383,644	$	9,315


(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 Not Past Due		Total Loans		Nonaccrual Loans With No ACL
December 31, 2023



Commercial and industrial	$	513	$	169	$	—	$	432	$	1,114	$	574,593	$	575,707	$	—
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

Collateral-Dependent Loans

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, which are individually evaluated to determine expected credit losses. The following tables present the amortized cost basis of collateral-dependent loans by class and the related ACL allocated to these loans as of the dates presented:


(dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Total		Allocated ACL
June 30, 2024

Real estate:

Residential mortgage	$	9,435	$	—	$	9,435	$	—
Home equity	1,247		—		1,247		—
Commercial mortgage	—		77		77		—


Total	$	10,682	$	77	$	10,759	$	—


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

Real estate:

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


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

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, 2024, the Company has not had any material modifications to loans either individually or in the aggregate 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").

There were $0.8 million of TDRs included in nonperforming assets at June 30, 2024, compared to $0.9 million at December 31, 2023. There were $2.0 million of TDRs that were still accruing interest at June 30, 2024, compared to $2.1 million at December 31, 2023. None of the TDRs still accruing interest at June 30, 2024 and December 31, 2023 were more than 90 days delinquent.

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.

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. 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 Company 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 and costs, of the Company's loans by class, credit quality indicator and origination year as of the dates presented. Revolving loans converted to term as of and during the periods presented were not material to the total loan portfolio. In addition, the following tables present gross charge-offs of loans by origination year during the periods presented.


(dollars in thousands)	Amortized Cost of Term Loans by Year of Origination												Amortized Cost of Revolving Loans
June 30, 2024	2024		2023		2022		2021		2020		Prior				Total
















Commercial and industrial:
Risk Rating
Pass	$	82,768	$	66,377	$	80,033	$	74,516	$	28,777	$	152,988	$	91,260	$	576,719
Special Mention	—		33		3,775		2,910		—		—		—		6,718
Substandard	—		93		37		141		557		591		—		1,419


Subtotal	82,768		66,503		83,845		77,567		29,334		153,579		91,260		584,856
Construction:
Risk Rating
Pass	791		13,053		52,375		60,724		13,376		31,203		—		171,522




Subtotal	791		13,053		52,375		60,724		13,376		31,203		—		171,522
Residential mortgage:
Risk Rating
Pass	37,641		95,295		264,381		602,347		404,839		498,253		—		1,902,756
Special Mention	—		—		—		—		—		247		—		247
Substandard	—		—		1,697		646		1,868		5,963		—		10,174


Subtotal	37,641		95,295		266,078		602,993		406,707		504,463		—		1,913,177
Home equity:
Risk Rating
Pass	661		11,619		30,352		18,589		7,880		25,505		610,823		705,429

Substandard	—		—		—		—		—		1,247		135		1,382


Subtotal	661		11,619		30,352		18,589		7,880		26,752		610,958		706,811
Commercial mortgage:
Risk Rating
Pass	106,586		95,806		238,556		200,970		113,069		689,968		6,561		1,451,516
Special Mention	—		624		—		1,450		—		5,254		—		7,328
Substandard	—		—		—		1,097		—		5,429		—		6,526


Subtotal	106,586		96,430		238,556		203,517		113,069		700,651		6,561		1,465,370
Consumer:
Risk Rating
Pass	16,203		91,475		212,509		115,566		27,775		24,351		52,545		540,424

Substandard	—		48		160		205		15		1,056		—		1,484


Subtotal	16,203		91,523		212,669		115,771		27,790		25,407		52,545		541,908
Total	$	244,650	$	374,423	$	883,875	$	1,079,161	$	598,156	$	1,442,055	$	761,324	$	5,383,644


(dollars in thousands)	Gross Charge-Offs by Year of Origination
Six Months Ended June 30, 2024	2024		2023		2022		2021		2020		Prior		Total



Commercial and industrial	$	19	$	74	$	204	$	184	$	13	$	707		$	1,201
Real estate:

Residential mortgage	—		—		76		—		—		208			284


Consumer	5		392		5,460		2,318		283		725			9,183

Gross charge-offs	$	24	$	466	$	5,740	$	2,502	$	296	$	1,640		$	10,668


(dollars in thousands)	Amortized Cost of Term Loans by Year of Origination												Amortized Cost of Revolving Loans
December 31, 2023	2023		2022		2021		2020		2019		Prior				Total
















Commercial and industrial:
Risk Rating
Pass	$	83,333	$	82,649	$	77,551	$	32,831	$	42,162	$	152,940	$	90,177	$	561,643
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		81,043		33,493		42,733		160,910		90,320		575,707
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	$	390,636	$	954,656	$	1,130,252	$	628,071	$	349,235	$	1,188,666	$	797,466	$	5,438,982


(dollars in thousands)	Gross Charge-Offs by Year of Origination
Six Months Ended June 30, 2023	2023		2022		2021		2020		2019		Prior		Total



Commercial and industrial	$	—	$	212	$	88	$	—	$	207	$	634		$	1,141





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

Gross charge-offs	$	—	$	2,957	$	2,818	$	345	$	616	$	964		$	7,700