LOANS AND CREDIT QUALITY

9 Months Ended

Sep. 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)	September 30, 2024		December 31, 2023



Commercial and industrial	$	599,556	$	576,038
Real estate:
Construction	158,523		185,994
Residential mortgage	1,897,526		1,927,206
Home equity	695,175		734,500
Commercial mortgage	1,472,230		1,384,579
Consumer	520,014		630,898

Gross loans	5,343,024		5,439,215
Deferred fees and costs, net	(415)		(233)
Total loans, net of deferred fees and costs	$	5,342,609	$	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 $17.5 million and $17.1 million at September 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.

During the three months ended September 30, 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 during the three months ended September 30, 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 three and nine months ended September 30, 2024 and 2023 and did not sell any other loans originally held for investment during the three and nine months ended September 30, 2024 and 2023.

The following tables present the loan purchase information at the time of purchase by class during 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. There were no loan purchases made during the three months ended September 30, 2023.


	Three Months Ended September 30, 2024
(dollars in thousands)	U.S. Mainland Consumer - Unsecured		U.S. Mainland Consumer - Automobile		Total
Purchases:
Outstanding balance	$	—	$	14,731	$	14,731
Premium	—		921		921
Purchase price	$	—	$	15,652	$	15,652


	Nine Months Ended September 30, 2024						Nine Months Ended September 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	$	—	$	27,115	$	27,115	$	3,932	$	15,159	$	19,091
Premium	—		1,168		1,168		—		568		568
Purchase price	$	—	$	28,283	$	28,283	$	3,932	$	15,727	$	19,659

Foreclosure Proceedings

The Company did not own any foreclosed properties as of September 30, 2024 and December 31, 2023. The Company did not sell any foreclosed properties during the three and nine months ended September 30, 2024 and 2023.

The Company had $3.8 million and $2.3 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2024 and December 31, 2023, respectively.

The Company did not have any commercial real estate loans in the process of foreclosure at September 30, 2024. The Company had commercial real estate loans totaling $0.1 million in the process of foreclosure at December 31, 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
September 30, 2024



Commercial and industrial	$	1,924	$	688	$	—	$	376	$	2,988	$	596,459	$	599,447	$	—
Real estate:
Construction	—		—		—		—		—		158,126		158,126		—
Residential mortgage	—		1,990		13		9,680		11,683		1,886,236		1,897,919		9,680
Home equity	387		254		135		915		1,691		695,432		697,123		915
Commercial mortgage	203		—		—		—		203		1,470,107		1,470,310		—
Consumer	4,644		1,667		481		626		7,418		512,266		519,684		—

Total	$	7,158	$	4,599	$	629	$	11,597	$	23,983	$	5,318,626	$	5,342,609	$	10,595


(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
September 30, 2024

Real estate:

Residential mortgage	$	9,679	$	—	$	9,679	$	—
Home equity	915		—		915		—



Total	$	10,594	$	—	$	10,594	$	—


(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 nine months ended September 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 September 30, 2024, compared to $0.9 million at December 31, 2023. There were $1.9 million of TDRs that were still accruing interest at September 30, 2024, compared to $2.1 million at December 31, 2023. None of the TDRs still accruing interest at September 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
September 30, 2024	2024		2023		2022		2021		2020		Prior				Total
















Commercial and industrial:
Risk Rating
Pass	$	125,093	$	56,889	$	75,837	$	71,370	$	26,287	$	149,077	$	88,324	$	592,877
Special Mention	—		587		297		2,579		—		—		—		3,463
Substandard	2,380		236		58		121		—		312		—		3,107


Subtotal	127,473		57,712		76,192		74,070		26,287		149,389		88,324		599,447
Construction:
Risk Rating
Pass	6,508		19,346		47,954		35,859		13,342		35,117		—		158,126




Subtotal	6,508		19,346		47,954		35,859		13,342		35,117		—		158,126
Residential mortgage:
Risk Rating
Pass	55,009		92,858		261,649		596,350		400,545		480,913		—		1,887,324

Substandard	—		—		1,599		294		1,862		6,840		—		10,595


Subtotal	55,009		92,858		263,248		596,644		402,407		487,753		—		1,897,919
Home equity:
Risk Rating
Pass	1,231		11,997		29,158		18,224		7,611		24,418		603,434		696,073

Substandard	—		—		—		—		—		915		135		1,050


Subtotal	1,231		11,997		29,158		18,224		7,611		25,333		603,569		697,123
Commercial mortgage:
Risk Rating
Pass	122,037		95,562		238,401		225,176		112,347		657,231		5,911		1,456,665
Special Mention	—		623		—		1,438		—		5,185		—		7,246
Substandard	—		—		—		1,088		—		5,311		—		6,399


Subtotal	122,037		96,185		238,401		227,702		112,347		667,727		5,911		1,470,310
Consumer:
Risk Rating
Pass	32,636		91,838		192,185		103,112		24,048		19,153		55,605		518,577

Substandard	20		40		254		175		35		578		5		1,107


Subtotal	32,656		91,878		192,439		103,287		24,083		19,731		55,610		519,684
Total	$	344,914	$	369,976	$	847,392	$	1,055,786	$	586,077	$	1,385,050	$	753,414	$	5,342,609


(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
Nine Months Ended September 30, 2024	2024		2023		2022		2021		2020		Prior		Total



Commercial and industrial	$	69	$	150	$	241	$	203	$	33	$	1,168		$	1,864
Real estate:

Residential mortgage	—		—		175		—		—		208			383


Consumer	75		518		7,944		3,243		408		951			13,139

Gross charge-offs	$	144	$	668	$	8,360	$	3,446	$	441	$	2,327		$	15,386


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



Commercial and industrial	$	143	$	239	$	145	$	—	$	265	$	751		$	1,543





Consumer	4		4,988		4,158		871		627		621			11,269

Gross charge-offs	$	147	$	5,227	$	4,303	$	871	$	892	$	1,372		$	12,812