The Company’s loan portfolio is its largest class of earning assets and typically provides higher yields than other types of earning assets. Associated with the higher yields is an inherent amount of credit risk which the Company attempts to mitigate through strong underwriting practices. Table 4.1 presents the balance of each major product type within the Company’s portfolio as of the dates indicated.


Table 4.1: Loans Outstanding
(in thousands)	June 30, 2024		December 31, 2023
Real estate:
Commercial	$	2,774,001	$	2,685,419
Commercial land and development	4,766		15,551
Commercial construction	72,444		62,863
Residential construction	9,011		15,456
Residential	29,641		25,893
Farmland	48,852		51,669
Commercial:
Secured	154,080		165,109
Unsecured	23,198		23,850
Consumer and other	152,564		38,166
Subtotal	3,268,557		3,083,976
Net deferred loan fees	(2,266)		(2,257)
Loans held for investment	3,266,291		3,081,719
Allowance for credit losses	(35,406)		(34,431)
Loans held for investment, net of allowance for credit losses	$	3,230,885	$	3,047,288

Commercial loans: Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, the Company’s management examines current and projected cash flows to determine the ability of the borrower to repay its obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Real estate loans: Real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected than other loans by conditions in the real estate market or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography, and risk grade criteria.

Construction loans: With respect to construction loans that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans may be underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are

generally based upon estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the ultimate success of the project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored using on-site inspections and are generally considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

Residential real estate loans: Residential real estate loans are underwritten based upon the borrower’s income, credit history, and collateral. To monitor and manage residential loan risk, policies and procedures are developed and modified, as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Underwriting standards for home loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements.

Farmland loans: Farmland loans are generally made to producers and processors of crops and livestock. Repayment is primarily from the sale of an agricultural product or service. Farmland loans are secured by real property and are susceptible to changes in market demand for specific commodities. This may be exacerbated by, among other things, industry changes, changes in the individual financial capacity of the business owner, general economic conditions, and changes in business cycles, as well as adverse weather conditions.

Consumer loans: The Company purchased consumer loans underwritten utilizing credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements.

Loans rated pass: These are loans to borrowers with satisfactory financial support, repayment capacity, and credit strength. Borrowers in this category demonstrate fundamentally sound financial positions, repayment capacity, credit history, and management expertise. Loans in this category must have an identifiable and stable source of repayment and meet the Company’s policy regarding debt service coverage ratios. These borrowers are capable of sustaining normal economic, market, or operational setbacks without significant financial impacts and their financial ratios and trends are acceptable. Negative external industry factors are generally not present. The loan may be secured, unsecured, or supported by non-real estate collateral for which the value is more difficult to determine and/or marketability is more uncertain.

Loans rated watch: These are loans which have deficient loan quality and potentially significant issues, but losses do not appear to be imminent, and the issues may be temporary in nature. The significant issues are typically: (i) a history of losses or events that threaten the borrower’s viability; (ii) a property with significant depreciation and/or marketability concerns; or (iii) poor or deteriorating credit, occasional late payments, and/or limited reserves but the loan is generally kept current. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Loans rated substandard: These are loans which are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged (if any). Loans so classified exhibit a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected.


	Amortized Cost Basis by Origination Year as of June 30, 2024
(in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Converted to Term		Total
Real estate:
Commercial
Pass	$	250,845	$	323,243	$	934,312	$	651,701	$	231,487	$	330,193	$	4,879	$	—	$	2,726,660
Watch	644		—		17,734		19,363		4,670		340		—		—		42,751
Substandard	—		—		—		—		—		1,818		—		—		1,818

Total	251,489		323,243		952,046		671,064		236,157		332,351		4,879		—		2,771,229
Commercial land and development
Pass	1,636		1,000		1,259		—		182		695		—		—		4,772



Total	1,636		1,000		1,259		—		182		695		—		—		4,772
Commercial construction
Pass	2,982		28,518		23,512		—		11,231		5,897		—		—		72,140



Total	2,982		28,518		23,512		—		11,231		5,897		—		—		72,140
Residential construction
Pass	5,099		—		—		3,914		—		—		—		—		9,013



Total	5,099		—		—		3,914		—		—		—		—		9,013
Residential
Pass	5,686		4,814		2,911		6,148		2,240		6,559		1,308		—		29,666



Total	5,686		4,814		2,911		6,148		2,240		6,559		1,308		—		29,666
Farmland
Pass	900		2,074		7,114		11,761		7,129		18,552		—		—		47,530
Watch	—		—		799		—		—		—		—		502		1,301


Total	900		2,074		7,913		11,761		7,129		18,552		—		502		48,831
Commercial:
Secured
Pass	10,976		24,789		24,675		11,212		10,608		17,313		41,113		—		140,686
Watch	—		193		9,661		2,591		97		1,338		—		—		13,880
Substandard	—		—		—		—		—		60		—		—		60

Total	10,976		24,982		34,336		13,803		10,705		18,711		41,113		—		154,626
Unsecured
Pass	2,394		4,782		3,292		4,260		5,322		1,883		1,280		—		23,213



Total	2,394		4,782		3,292		4,260		5,322		1,883		1,280		—		23,213
Consumer and other
Pass	98,048		38,134		9,468		6,874		2		250		—		—		152,776
Watch	—		—		15		—		—		—		—		—		15
Substandard	—		—		10		—		—		—		—		—		10

Total	98,048		38,134		9,493		6,874		2		250		—		—		152,801
Total
Pass	378,566		427,354		1,006,543		695,870		268,201		381,342		48,580		—		3,206,456
Watch	644		193		28,209		21,954		4,767		1,678		—		502		57,947
Substandard	—		—		10		—		—		1,878		—		—		1,888

Total	$	379,210	$	427,547	$	1,034,762	$	717,824	$	272,968	$	384,898	$	48,580	$	502	$	3,266,291


	Amortized Cost Basis by Origination Year as of December 31, 2023
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Converted to Term		Total
Real estate:
Commercial
Pass	$	329,876	$	992,181	$	714,965	$	238,655	$	128,424	$	247,030	$	4,685	$	—	$	2,655,816
Watch	—		8,534		6,274		4,727		574		4,896		—		—		25,005
Substandard	—		—		—		—		—		1,890		—		—		1,890

Total	329,876		1,000,715		721,239		243,382		128,998		253,816		4,685		—		2,682,711
Commercial land and development
Pass	11,388		3,229		—		184		—		733		—		—		15,534



Total	11,388		3,229		—		184		—		733		—		—		15,534
Commercial construction
Pass	9,074		32,154		4,189		11,230		—		5,897		—		—		62,544



Total	9,074		32,154		4,189		11,230		—		5,897		—		—		62,544
Residential construction
Pass	2,412		9,128		3,912		—		—		—		—		—		15,452



Total	2,412		9,128		3,912		—		—		—		—		—		15,452


Residential
Pass	4,838		3,964		6,244		2,279		1,182		5,995		1,420		—		25,922



Total	4,838		3,964		6,244		2,279		1,182		5,995		1,420		—		25,922
Farmland
Pass	2,311		8,037		12,678		7,860		12,365		8,391		4		—		51,646



Total	2,311		8,037		12,678		7,860		12,365		8,391		4		—		51,646
Commercial:
Secured
Pass	25,299		28,879		14,304		12,164		9,918		10,363		50,020		—		150,947
Watch	189		8,802		2,705		63		154		941		1,727		—		14,581
Substandard	—		—		—		—		45		27		—		—		72

Total	25,488		37,681		17,009		12,227		10,117		11,331		51,747		—		165,600
Unsecured
Pass	3,891		3,782		4,902		5,963		2,240		7		3,072		—		23,857



Total	3,891		3,782		4,902		5,963		2,240		7		3,072		—		23,857
Consumer and other
Pass	18,489		11,359		8,264		6		—		307		—		—		38,425
Watch	—		16		—		—		—		—		—		—		16
Substandard	—		12		—		—		—		—		—		—		12

Total	18,489		11,387		8,264		6		—		307		—		—		38,453
Total
Pass	407,578		1,092,713		769,458		278,341		154,129		278,723		59,201		—		3,040,143
Watch	189		17,352		8,979		4,790		728		5,837		1,727		—		39,602
Substandard	—		12		—		—		45		1,917		—		—		1,974

Total	$	407,767	$	1,110,077	$	778,437	$	283,131	$	154,902	$	286,477	$	60,928	$	—	$	3,081,719

Management regularly reviews the Company’s loans for accuracy of risk grades whenever new information is received. Borrowers are generally required to submit financial information at regular intervals. Typically, commercial borrowers with lines of credit are required to submit financial information with reporting intervals generally ranging from monthly to annually depending on credit size, risk, and complexity. In addition, investor commercial real estate borrowers with loans exceeding a certain dollar threshold are usually required to submit rent rolls or property income statements annually. Management monitors construction loans monthly and reviews consumer loans based on delinquency. Management also reviews loans graded “watch” or worse, regardless of loan type, no less than quarterly.


Table 4.3: Age Analysis of Past Due Loans by Class
(in thousands)	Past Due
	30-59 Days		60-89 Days		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
June 30, 2024
Real estate:
Commercial	$	—	$	—	$	—	$	—	$	2,771,229	$	2,771,229
Commercial land and development	—		—		—		—		4,772		4,772
Commercial construction	—		—		—		—		72,140		72,140
Residential construction	—		—		—		—		9,013		9,013
Residential	—		—		—		—		29,666		29,666
Farmland	—		—		—		—		48,831		48,831
Commercial:
Secured	549		—		—		549		154,077		154,626
Unsecured	—		—		—		—		23,213		23,213

Consumer and other	80		—		—		80		152,721		152,801
Total	$	629	$	—	$	—	$	629	$	3,265,662	$	3,266,291

December 31, 2023
Real estate:
Commercial	$	—	$	—	$	—	$	—	$	2,682,711	$	2,682,711
Commercial land and development	—		—		—		—		15,534		15,534
Commercial construction	—		—		—		—		62,544		62,544
Residential construction	—		—		—		—		15,452		15,452
Residential	—		—		—		—		25,922		25,922
Farmland	—		—		—		—		51,646		51,646
Commercial:
Secured	—		—		—		—		165,600		165,600
Unsecured	—		—		—		—		23,857		23,857

Consumer and other	76		—		—		76		38,377		38,453
Total	$	76	$	—	$	—	$	76	$	3,081,643	$	3,081,719


Table 4.5: Allowance for Credit Losses
(in thousands)	Beginning Balance		Effect of Adoption of ASC 326		Charge-offs		Recoveries		Provision (Benefit)		Ending Balance
Three months ended June 30, 2024
Real estate:
Commercial	$	28,895	$	—	$	—	$	—	$	(4,187)	$	24,708
Commercial land and development	164		—		—		—		(92)		72
Commercial construction	697		—		—		—		400		1,097
Residential construction	114		—		—		—		(14)		100
Residential	164		—		—		—		31		195
Farmland	438		—		—		—		(36)		402
Commercial:
Secured	3,262		—		(1,239)		57		5,306		7,386
Unsecured	259		—		(36)		—		(9)		214

Consumer and other	660		—		(72)		93		551		1,232

Total	$	34,653	$	—	$	(1,347)	$	150	$	1,950	$	35,406


Table 4.5: Allowance for Credit Losses (continued)
(in thousands)	Beginning Balance		Effect of Adoption of ASC 326		Charge-offs		Recoveries		Provision (Benefit)		Ending Balance
Three months ended June 30, 2023
Real estate:
Commercial	$	27,119	$	—	$	—	$	—	$	434	$	27,553
Commercial land and development	226		—		—		—		(42)		184
Commercial construction	1,438		—		—		—		(226)		1,212
Residential construction	175		—		—		—		42		217
Residential	181		—		—		—		(29)		152
Farmland	219		—		—		—		17		236
Commercial:
Secured	4,258		—		(1,124)		47		570		3,751
Unsecured	152		—		—		—		57		209

Consumer and other	404		—		(137)		106		97		470

Total	$	34,172	$	—	$	(1,261)	$	153	$	920	$	33,984

Six months ended June 30, 2024
Real estate:
Commercial	$	29,015	$	—	$	—	$	—	$	(4,307)	$	24,708
Commercial land and development	178		—		—		—		(106)		72
Commercial construction	718		—		—		—		379		1,097
Residential construction	89		—		—		—		11		100
Residential	151		—		—		—		44		195
Farmland	399		—		—		—		3		402
Commercial:
Secured	3,314		—		(2,237)		239		6,070		7,386
Unsecured	189		—		(70)		—		95		214

Consumer and other	378		—		(143)		186		811		1,232

Total	$	34,431	$	—	$	(2,450)	$	425	$	3,000	$	35,406

Six months ended June 30, 2023
Real estate:
Commercial	$	19,216	$	7,606	$	—	$	—	$	731	$	27,553
Commercial land and development	54		74		—		—		56		184
Commercial construction	645		882		—		—		(315)		1,212
Residential construction	49		81		—		—		87		217
Residential	175		3		—		—		(26)		152
Farmland	644		(396)		—		—		(12)		236
Commercial:
Secured	7,098		(3,060)		(1,611)		139		1,185		3,751
Unsecured	116		37		—		—		56		209

Consumer and other	347		80		(522)		507		58		470
Unallocated	45		(45)		—		—		—		—
Total	$	28,389	$	5,262	$	(2,133)	$	646	$	1,820	$	33,984

The Company’s FHLB line of credit is secured under terms of a collateral agreement by a pledge of certain qualifying loans with unpaid principal balances of $1.6 billion and $1.7 billion at June 30, 2024 and December 31, 2023, respectively. In addition, the Company pledges eligible tenants in common loans, which totaled $1.2 billion at June 30, 2024 and December 31, 2023, to secure its borrowing capacity with the Federal Reserve Discount Window. See Note 6, Long Term Debt and Other Borrowings, for further discussion of these borrowings.