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LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
 9 Months Ended
Sep. 30, 2023
Loans and Leases Receivable Disclosure [Abstract]  
LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Major categories of loans are summarized as follows:
(dollars in thousands)September 30, 2023December 31, 2022
Commercial and industrial$386,933 $266,757 
Commercial real estate - owner occupied297,242 218,503 
Commercial real estate - non-owner occupied901,929 713,202 
Construction and land development371,158 360,824 
Multi-family388,742 287,865 
One-to-four family residential488,655 338,253 
Agricultural and farmland275,239 237,746 
Municipal, consumer, and other232,888 197,103 
Loans, before allowance for credit losses3,342,786 2,620,253 
Allowance for credit losses(38,863)(25,333)
Loans, net of allowance for credit losses$3,303,923 $2,594,920 
As of September 30, 2023 and December 31, 2022, commercial and industrial loans include $18 thousand and $28 thousand Paycheck Protection Program (“PPP”) loans, respectively.
Allowance for Credit Losses
Management estimates the allowance for credit losses using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The discounted cash flow method is used to estimate expected credit losses for all loan categories, except for consumer loans where the weighted average remaining maturity method is utilized.
At September 30, 2023, the economic forecast used by management anticipates a mild recession starting in 2024, with the unemployment rate increasing and GDP growth slowing and then shrinking over the next 4 quarters considered in the forecast period. After the forecast period, the Company reverts to long-term averages over a 4-quarter reversion period. Additionally, management may make qualitative adjustments to the loss estimates, as necessary, to reflect other factors that influence credit losses.
The following tables detail activity in the allowance for credit losses for the three and nine months ended September 30:
Three Months Ended September 30, 2023
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Beginning balance$3,735 $2,362 $7,538 $5,834 $2,603 $4,077 $2,607 $9,058 $37,814 
Provision for credit losses515 (108)248 1,004 (348)(21)(337)30 983 
Charge-offs(15)(2)(171)— — (8)— (216)(412)
Recoveries14 2 15 44 280 40 2 81 478 
Ending balance$4,249 $2,254 $7,630 $6,882 $2,535 $4,088 $2,272 $8,953 $38,863 
Three Months Ended September 30, 2022
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Beginning balance$2,981 $1,224 $6,611 $4,059 $1,375 $1,696 $924 $5,864 $24,734 
Provision for loan losses14 (65)268 316 (52)(78)(83)66 386 
Charge-offs(17)— — — — (18)— (187)(222)
Recoveries6 1 3 1 — 60 — 91 162 
Ending balance$2,984 $1,160 $6,882 $4,376 $1,323 $1,660 $841 $5,834 $25,060 
Nine Months Ended September 30, 2023
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Beginning balance$3,279 $1,193 $6,721 $4,223 $1,472 $1,759 $796 $5,890 $25,333 
Adoption of ASC 326(822)587 501 1,969 85 797 1,567 2,299 6,983 
PCD allowance established in acquisition69 127 239 240 68 492 5 7 1,247 
Provision for credit losses1,693 336 87 398 630 939 (100)1,021 5,004 
Charge-offs(15)(5)(171)— — (34)— (508)(733)
Recoveries45 16 253 52 280 135 4 244 1,029 
Ending balance$4,249 $2,254 $7,630 $6,882 $2,535 $4,088 $2,272 $8,953 $38,863 
Nine Months Ended September 30, 2022
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Beginning balance$2,440 $1,840 $8,145 $4,914 $1,263 $1,311 $845 $3,178 $23,936 
Provision for loan losses(189)(781)(1,536)(539)60 93 (4)2,843 (53)
Charge-offs(22)— — — — (67)— (426)(515)
Recoveries755 101 273 1 — 323 — 239 1,692 
Ending balance$2,984 $1,160 $6,882 $4,376 $1,323 $1,660 $841 $5,834 $25,060 
Gross charge-offs, further sorted by origination year, were as follows during the three and nine months ended September 30, 2023:
Gross Charge-Offs for the Three Months Ended September 30, 2023
Term Loans by Origination YearRevolving
Loans		Revolving
Loans
Converted
to Term		Total
(dollars in thousands)20232022202120202019Prior
Commercial and industrial$— $— $— $— $— $— $15 $— $15 
Commercial real estate - owner occupied— 2 — — — — — — 2 
Commercial real estate - non-owner occupied— — — — — — 171 — 171 
Construction and land development— — — — — — — — — 
Multi-family— — — — — — — — — 
One-to-four family residential— — — — — 8 — — 8 
Agricultural and farmland— — — — — — — — — 
Municipal, consumer, and other141 9 — — — — 66 — 216 
Total$141 $11 $— $— $— $8 $252 $— $412 
Gross Charge-Offs for the Nine Months Ended September 30, 2023
Term Loans by Origination YearRevolving
Loans		Revolving
Loans
Converted
to Term		Total
(dollars in thousands)20232022202120202019Prior
Commercial and industrial$— $— $— $— $— $— $15 $— $15 
Commercial real estate - owner occupied— 5 — — — — — — 5 
Commercial real estate - non-owner occupied— — — — — — 171 — 171 
Construction and land development— — — — — — — — — 
Multi-family— — — — — — — — — 
One-to-four family residential— — — — 1 33 — — 34 
Agricultural and farmland— — — — — — — — — 
Municipal, consumer, and other276 83 — 9 — — 140 — 508 
Total$276 $88 $— $9 $1 $33 $326 $— $733 
The following tables present loans and the related allowance for credit losses by category:
September 30, 2023
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Loan balances:
Collectively evaluated for impairment$386,763 $297,068 $888,068 $370,942 $388,282 $482,838 $275,111 $217,638 $3,306,710 
Individually evaluated for impairment170 174 13,861 216 460 5,817 128 15,250 36,076 
Total$386,933 $297,242 $901,929 $371,158 $388,742 $488,655 $275,239 $232,888 $3,342,786 
Allowance for credit losses:
Collectively evaluated for impairment$4,244 $2,254 $6,503 $6,882 $2,535 $3,737 $2,272 $5,844 $34,271 
Individually evaluated for impairment5 — 1,127 — — 351 — 3,109 4,592 
Total$4,249 $2,254 $7,630 $6,882 $2,535 $4,088 $2,272 $8,953 $38,863 
December 31, 2022
(dollars in thousands)Commercial
and
Industrial		Commercial
Real Estate
Owner
Occupied		Commercial
Real Estate
Non-owner
Occupied		Construction
and Land
Development		Multi-FamilyOne-to-four
Family
Residential		Agricultural
and
Farmland		Municipal,
Consumer,
and
Other		Total
Loan balances:
Collectively evaluated for impairment$261,833 $203,558 $671,663 $359,892 $287,298 $325,621 $233,118 $184,579 $2,527,562 
Individually evaluated for impairment4,818 11,366 30,509 82 — 8,399 4,033 12,508 71,715 
Acquired with deteriorated credit quality106 3,579 11,030 850 567 4,233 595 16 20,976 
Total$266,757 $218,503 $713,202 $360,824 $287,865 $338,253 $237,746 $197,103 $2,620,253 
Allowance for loan losses:
Collectively evaluated for impairment$3,121 $1,008 $4,332 $4,221 $1,470 $1,709 $796 $2,327 $18,984 
Individually evaluated for impairment158 168 2,388 — — 44 — 3,562 6,320 
Acquired with deteriorated credit quality— 17 1 2 2 6 — 1 29 
Total$3,279 $1,193 $6,721 $4,223 $1,472 $1,759 $796 $5,890 $25,333 
The following table presents collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans:
September 30, 2023
Amortized CostAllowance
for Credit
Losses
Primary Collateral Type
(dollars in thousands)Real EstateVehiclesOtherTotal
Commercial and industrial$— $— $170 $170 $5 
Commercial real estate - owner occupied174 — — 174 — 
Commercial real estate - non-owner occupied13,861 — — 13,861 1,127 
Construction and land development216 — — 216 — 
Multi-family460 — — 460 — 
One-to-four family residential5,817 — — 5,817 351 
Agricultural and farmland128 — — 128 — 
Municipal, consumer, and other15,141 31 78 15,250 3,109 
Total$35,797 $31 $248 $36,076 $4,592 
Accrued interest on loans totaled $17.0 million as of September 30, 2023 and is excluded from the estimate of credit losses.
Pre-ASC 326 Adoption Impaired Loan Disclosures
The following table presents loans individually evaluated for impairment by category of loans:
December 31, 2022
(dollars in thousands)Unpaid
Principal
Balance		Recorded
Investment		Related
Allowance
With an allowance recorded:
Commercial and industrial$268 $254 $158 
Commercial real estate - owner occupied635 610 168 
Commercial real estate - non-owner occupied14,269 14,261 2,388 
Construction and land development— — — 
Multi-family— — — 
One-to-four family residential569 524 44 
Agricultural and farmland— — — 
Municipal, consumer, and other8,152 8,131 3,562 
Total$23,893 $23,780 $6,320 
With no related allowance:
Commercial and industrial$4,564 $4,564 $— 
Commercial real estate - owner occupied10,912 10,756 — 
Commercial real estate - non-owner occupied16,327 16,248 — 
Construction and land development92 82 — 
Multi-family— — — 
One-to-four family residential9,181 7,875 — 
Agricultural and farmland4,440 4,033 — 
Municipal, consumer, and other4,410 4,377 — 
Total$49,926 $47,935 $— 
Total loans individually evaluated for impairment:
Commercial and industrial$4,832 $4,818 $158 
Commercial real estate - owner occupied11,547 11,366 168 
Commercial real estate - non-owner occupied30,596 30,509 2,388 
Construction and land development92 82 — 
Multi-family— — — 
One-to-four family residential9,750 8,399 44 
Agricultural and farmland4,440 4,033 — 
Municipal, consumer, and other12,562 12,508 3,562 
Total$73,819 $71,715 $6,320 
The following tables present the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans:
Three Months Ended September 30, 2022
(dollars in thousands)Average
Recorded
Investment		Interest
Income
Recognized
With an allowance recorded:
Commercial and industrial$258 $5 
Commercial real estate - owner occupied739 11 
Commercial real estate - non-owner occupied14,441 185 
Construction and land development— — 
Multi-family— — 
One-to-four family residential349 2 
Agricultural and farmland— — 
Municipal, consumer, and other8,254 66 
Total$24,041 $269 
With no related allowance:
Commercial and industrial$3,894 $41 
Commercial real estate - owner occupied11,651 141 
Commercial real estate - non-owner occupied17,220 369 
Construction and land development2,010 57 
Multi-family— — 
One-to-four family residential8,119 99 
Agricultural and farmland425 5 
Municipal, consumer, and other4,457 44 
Total$47,776 $756 
Total loans individually evaluated for impairment:
Commercial and industrial$4,152 $46 
Commercial real estate - owner occupied12,390 152 
Commercial real estate - non-owner occupied31,661 554 
Construction and land development2,010 57 
Multi-family— — 
One-to-four family residential8,468 101 
Agricultural and farmland425 5 
Municipal, consumer, and other12,711 110 
Total$71,817 $1,025 
Nine Months Ended September 30, 2022
(dollars in thousands)Average
Recorded
Investment		Interest
Income
Recognized
With an allowance recorded:
Commercial and industrial$272 $13 
Commercial real estate - owner occupied1,297 55 
Commercial real estate - non-owner occupied14,631 556 
Construction and land development— — 
Multi-family— — 
One-to-four family residential513 11 
Agricultural and farmland— — 
Municipal, consumer, and other8,368 151 
Total$25,081 $786 
With no related allowance:
Commercial and industrial$12,793 $397 
Commercial real estate - owner occupied11,524 388 
Commercial real estate - non-owner occupied16,894 907 
Construction and land development2,012 105 
Multi-family— — 
One-to-four family residential8,341 240 
Agricultural and farmland305 8 
Municipal, consumer, and other4,493 98 
Total$56,362 $2,143 
Total loans individually evaluated for impairment:
Commercial and industrial$13,065 $410 
Commercial real estate - owner occupied12,821 443 
Commercial real estate - non-owner occupied31,525 1,463 
Construction and land development2,012 105 
Multi-family— — 
One-to-four family residential8,854 251 
Agricultural and farmland305 8 
Municipal, consumer, and other12,861 249 
Total$81,443 $2,929 
Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows:
(dollars in thousands)Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
Beginning balance$537$413
Reclassification from non-accretable difference283500
Accretion income(58)(151)
Ending balance$762$762
Past Due and Nonaccrual Status
Past due status is based on the contractual terms of the loan. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status.
The following tables present loans by category based on current payment and accrual status:
September 30, 2023
Accruing Interest
(dollars in thousands)Current30 - 89 Days
Past Due		90+ Days
Past Due		NonaccrualTotal
Loans
Commercial and industrial$386,383 $380 $— $170 $386,933 
Commercial real estate - owner occupied297,069 — — 173 297,242 
Commercial real estate - non-owner occupied900,058 1,605 — 266 901,929 
Construction and land development370,922 20 — 216 371,158 
Multi-family387,966 316 — 460 388,742 
One-to-four family residential481,603 1,897 — 5,155 488,655 
Agricultural and farmland275,096 15 — 128 275,239 
Municipal, consumer, and other232,561 217 — 110 232,888 
Total$3,331,658 $4,450 $— $6,678 $3,342,786 
December 31, 2022
Accruing Interest
(dollars in thousands)Current30 - 89 Days
Past Due		90+ Days
Past Due		NonaccrualTotal
Loans
Commercial and industrial$266,521 $17 $— $219 $266,757 
Commercial real estate - owner occupied218,242 187 — 74 218,503 
Commercial real estate - non-owner occupied713,031 — — 171 713,202 
Construction and land development360,763 61 — — 360,824 
Multi-family287,854 11 — — 287,865 
One-to-four family residential335,576 894 145 1,638 338,253 
Agricultural and farmland237,727 19 — — 237,746 
Municipal, consumer, and other196,892 157 1 53 197,103 
Total$2,616,606 $1,346 $146 $2,155 $2,620,253 
The following table presents nonaccrual loans with and without a related allowance for credit losses:
September 30, 2023
(dollars in thousands)Nonaccrual
With
Allowance for
Credit Losses		Nonaccrual
With No
Allowance for
Credit Losses		Total
Nonaccrual
Commercial and industrial$127 $43 $170 
Commercial real estate - owner occupied— 173 173 
Commercial real estate - non-owner occupied220 46 266 
Construction and land development— 216 216 
Multi-family— 460 460 
One-to-four family residential100 5,055 5,155 
Agricultural and farmland— 128 128 
Municipal, consumer, and other31 79 110 
Total$478 $6,200 $6,678 
Credit Quality Indicators
The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all such loans that are part of relationships with over $750,000 in total exposure to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to review by the Company’s regulators, external loan review, and internal loan review. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the fair values of collateral securing the loans. The risk rating is reviewed annually, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. These credit quality indicators are used to assign a risk rating to each individual loan. Risk ratings are grouped into four major categories, defined as follows:
Pass – a pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.
Pass-Watch – a pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification.
Substandard – a substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms.
Doubtful – a doubtful loan has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following tables present loans by category based on their assigned risk ratings determined by management:
September 30, 2023
(dollars in thousands)PassPass-WatchSubstandardDoubtfulTotal
Commercial and industrial$382,041 $4,114 $778 $— $386,933 
Commercial real estate - owner occupied279,081 8,249 9,912 — 297,242 
Commercial real estate - non-owner occupied842,816 33,767 25,346 — 901,929 
Construction and land development366,198 4,667 293 — 371,158 
Multi-family363,214 24,753 775 — 388,742 
One-to-four family residential468,736 7,572 12,347 — 488,655 
Agricultural and farmland266,353 5,466 3,420 — 275,239 
Municipal, consumer, and other215,726 1,771 15,391 — 232,888 
Total$3,184,165 $90,359 $68,262 $— $3,342,786 
December 31, 2022
(dollars in thousands)PassPass-WatchSubstandardDoubtfulTotal
Commercial and industrial$255,309 $6,630 $4,818 $— $266,757 
Commercial real estate - owner occupied198,546 10,105 9,852 — 218,503 
Commercial real estate - non-owner occupied652,691 27,282 33,229 — 713,202 
Construction and land development358,215 2,527 82 — 360,824 
Multi-family283,682 4,183 — — 287,865 
One-to-four family residential323,632 5,907 8,714 — 338,253 
Agricultural and farmland223,114 10,004 4,628 — 237,746 
Municipal, consumer, and other184,299 296 12,508 — 197,103 
Total$2,479,488 $66,934 $73,831 $— $2,620,253