XML 24 R12.htm IDEA: XBRL DOCUMENT v3.24.3
LOANS AND ALLOWANCE FOR CREDIT LOSSES
 9 Months Ended
Sep. 30, 2024
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company’s loan portfolio is grouped into segments, which are further broken down into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and the value of its associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner-occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner-occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships compared to owner-occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions, which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, if any, including the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers is typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending.
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its clients for a specific utility.
The Company originates loans to its retail clients, including fixed-rate and adjustable first lien mortgage loans, with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards, which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 85% of the value of the real estate taken as collateral. The creditworthiness of the borrower is also considered, including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk is mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate and may present a greater risk to the Company than 1-4 family residential loans.
The following table presents the loan portfolio by segment and class, excluding residential LHFS, at September 30, 2024 and December 31, 2023:
September 30, 2024December 31, 2023
Commercial real estate:
Owner occupied$622,726 $373,757 
Non-owner occupied1,164,501 694,638 
Multi-family276,296 150,675 
Non-owner occupied residential190,786 95,040 
Acquisition and development:
1-4 family residential construction56,383 24,516 
Commercial and land development262,317 115,249 
Commercial and industrial601,469 367,085 
Municipal27,960 9,812 
Residential mortgage:
First lien451,195 266,239 
Home equity - term6,508 5,078 
Home equity - lines of credit303,165 186,450 
Installment and other loans18,131 9,774 
Total loans $3,981,437 $2,298,313 
In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management may determine to be either individually evaluated, referred to as "Substandard - Individually Evaluated Loan," or collectively evaluated, referred to as "Substandard Non-Individually Evaluated Loan." A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged off.
The Company has a loan review policy and program, which is designed to identify and monitor risk in the lending function. The Management ERM Committee, comprised of executive officers, senior officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $1.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated Substandard, Doubtful or Loss are reviewed quarterly and corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of September 30, 2024 and December 31, 2023. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity, which residential mortgage and installment and other consumer loans are presented below based on payment performance: performing or nonperforming.
Term Loans Amortized Cost Basis by Origination Year
As of September 30, 2024
20242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$30,447 $85,352 $129,668 $114,761 $32,532 $160,478 $6,446 $283 $559,967 
Special mention— 2,688 313 1,348 1,831 6,670 165 — 13,015 
Substandard - Non-IEL110 2,077 17,653 7,597 8,435 8,641 94 — 44,607 
Substandard - IEL— 192 — 896 932 3,117 — — 5,137 
Total owner-occupied loans$30,557 $90,309 $147,634 $124,602 $43,730 $178,906 $6,705 $283 $622,726 
Current period gross charge offs - owner-occupied$— $— $13 $313 $— $12 $— $— $338 
Non-owner occupied:
Risk rating
Pass$76,044 $137,520 $194,349 $328,128 $130,201 $262,980 $778 $398 $1,130,398 
Special mention— 10,108 2,981 337 8,858 3,790 — — 26,074 
Substandard - Non-IEL— — 1,156 — — 4,594 — 859 6,609 
Substandard - IEL— — — — — 1,420 — — 1,420 
Total non-owner occupied loans$76,044 $147,628 $198,486 $328,465 $139,059 $272,784 $778 $1,257 $1,164,501 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
Multi-family:
Risk rating
Pass$6,916 $8,438 $106,885 $59,107 $31,234 $61,297 $75 $— $273,952 
Special mention— — 1,107 — — — — — 1,107 
Substandard - Non-IEL— — — — — 237 — — 237 
Substandard - IEL— — — — — 1,000 — — 1,000 
Total multi-family loans$6,916 $8,438 $107,992 $59,107 $31,234 $62,534 $75 $— $276,296 
Current period gross charge offs - multi-family$— $— $— $— $— $7 $— $— $7 
Non-owner occupied residential:
Risk rating
Pass$8,894 $23,655 $31,532 $30,155 $19,933 $73,281 $439 $— $187,889 
Special mention— — — 147 43 526 — — 716 
Substandard - Non-IEL— — 52 134 — 1,431 — — 1,617 
Substandard - IEL— — 391 33 — 140 — — 564 
Total non-owner occupied residential loans$8,894 $23,655 $31,975 $30,469 $19,976 $75,378 $439 $— $190,786 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of September 30, 2024
20242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$32,828 $14,652 $5,175 $1,152 $940 $946 $— $242 $55,935 
Special mention74 222 — — — — — — 296 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — 152 — — — — 152 
Total 1-4 family residential construction loans$32,902 $14,874 $5,175 $1,304 $940 $946 $— $242 $56,383 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$44,312 $71,243 $70,096 $16,594 $19,648 $7,079 $4,964 $8,837 $242,773 
Special mention2,306 2,382 4,372 994 2,123 3,437 — — 15,614 
Substandard - Non-IEL— 275 — — — — — — 275 
Substandard - IEL— — 3,285 370 — — — — 3,655 
Total commercial and land development loans$46,618 $73,900 $77,753 $17,958 $21,771 $10,516 $4,964 $8,837 $262,317 
Current period gross charge offs - commercial and land development$— $23 $— $— $— $— $— $— $23 
Commercial and Industrial:
Risk rating
Pass$71,366 $93,138 $87,249 $80,565 $28,924 $85,851 $105,250 $4,138 $556,481 
Special mention446 2,153 2,640 245 1,379 1,358 3,041 — 11,262 
Substandard - Non-IEL— 1,382 2,868 7,656 — 3,212 9,548 — 24,666 
Substandard - IEL419 3,486 190 622 2,965 1,364 14 — 9,060 
Total commercial and industrial loans$72,231 $100,159 $92,947 $89,088 $33,268 $91,785 $117,853 $4,138 $601,469 
Current period gross charge offs - commercial and industrial$— $— $202 $11 $— $6 $— $— $219 
Municipal:
Risk rating
Pass$227 $10,388 $3,124 $293 $13,928 $— $— $27,960 
Total municipal loans$227 $— $10,388 $3,124 $293 $13,928 $— $— $27,960 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
Residential mortgage:
First lien:
Payment performance
Performing$50,716 $98,953 $105,266 $53,549 $25,783 $111,910 $— $626 $446,803 
Nonperforming— 312 244 487 116 3,233 — — 4,392 
Total first lien loans$50,716 $99,265 $105,510 $54,036 $25,899 $115,143 $— $626 $451,195 
Current period gross charge offs - first lien$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of September 30, 2024
20242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Home equity - term:
Payment performance
Performing$621 $867 $1,075 $209 $478 $3,221 $— $— $6,471 
Nonperforming— — 36 — — 1 — — 37 
Total home equity - term loans$621 $867 $1,111 $209 $478 $3,222 $— $— $6,508 
Current period gross charge offs - home equity - term$— $— $— $— $— $— $— $— $— 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $225,526 $75,987 $301,513 
Nonperforming— — — — — — 1,024 628 1,652 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $226,550 $76,615 $303,165 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $50 $— $50 
Installment and other loans:
Payment performance
Performing$2,080 $3,595 $2,816 $2,042 $455 $664 $6,436 $17 $18,105 
Nonperforming9 3 — — — 14 — — 26 
Total Installment and other loans$2,089 $3,598 $2,816 $2,042 $455 $678 $6,436 $17 $18,131 
Current period gross charge offs - installment and other$115 $12 $— $32 $— $33 $14 $— $206 
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$50,829 $103,192 $69,888 $21,232 $21,251 $62,634 $4,941 $— $333,967 
Special mention— — 2,517 1,176 — 1,314 — — 5,007 
Substandard - Non-IEL— 9,923 — 6,075 — 2,687 312 — 18,997 
Substandard - IEL— — — 13,366 — 2,420 — — 15,786 
Total owner-occupied loans$50,829 $113,115 $72,405 $41,849 $21,251 $69,055 $5,253 $— $373,757 
Current period gross charge offs - owner-occupied$— $— $— $— $— $— $— $— $— 
Non-owner occupied:
Risk rating
Pass$82,879 $102,212 $235,031 $83,652 $63,176 $120,696 $509 $— $688,155 
Special mention— — — 524 — 2,112 — — 2,636 
Substandard - Non-IEL— — — — — 2,739 — 868 3,607 
Substandard - IEL— — — — — 240 — — 240 
Total non-owner occupied loans$82,879 $102,212 $235,031 $84,176 $63,176 $125,787 $509 $868 $694,638 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Multi-family:
Risk rating
Pass$2,701 $61,805 $28,541 $12,694 $7,437 $33,895 $117 $— $147,190 
Special mention— — — — 244 2,008 — — 2,252 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — 1,233 — — 1,233 
Total multi-family loans$2,701 $61,805 $28,541 $12,694 $7,681 $37,136 $117 $— $150,675 
Current period gross charge offs - multi-family$— $— $— $— $— $— $— $— $— 
Non-owner occupied residential:
Risk rating
Pass$10,075 $20,473 $16,947 $7,974 $6,444 $28,319 $1,130 $— $91,362 
Special mention— — — — — 731 — — 731 
Substandard - Non-IEL— — — — — 375 — — 375 
Substandard - IEL2 — 192 1,461 — 917 — — 2,572 
Total non-owner occupied residential loans$10,077 $20,473 $17,139 $9,435 $6,444 $30,342 $1,130 $— $95,040 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $— $12 $— $— $12 
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$18,820 $5,400 $— $— $— $— $— $— $24,220 
Special mention222 — 74 — — — — — 296 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$19,042 $5,400 $74 $— $— $— $— $— $24,516 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$28,829 $48,453 $9,847 $9,927 $110 $1,774 $6,574 $6,936 $112,450 
Special mention— — — 1,001 — 437 — — 1,438 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — 1,361 — — 1,361 
Total commercial and land development loans$28,829 $48,453 $9,847 $10,928 $110 $3,572 $6,574 $6,936 $115,249 
Current period gross charge offs - commercial and land development$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial and Industrial:
Risk rating
Pass$67,735 $69,670 $67,117 $24,580 $10,753 $20,775 $86,475 $1,522 $348,627 
Special mention— 4,251 4,364 11 552 356 2,258 — 11,792 
Substandard - Non-IEL— — 4,682 — 5 225 1,082 — 5,994 
Substandard - IEL— 69 — 7 — 455 141 — 672 
Total commercial and industrial loans$67,735 $73,990 $76,163 $24,598 $11,310 $21,811 $89,956 $1,522 $367,085 
Current period gross charge offs - commercial and industrial$— $161 $106 $— $— $8 $473 $— $748 
Municipal:
Risk rating
Pass$— $— $3,403 $— $— $6,409 $— $— $9,812 
Total municipal loans$— $— $3,403 $— $— $6,409 $— $— $9,812 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
Residential mortgage:
First lien:
Payment performance
Performing$43,641 $71,311 $34,704 $8,056 $7,465 $97,943 $— $638 $263,758 
Nonperforming— — — — 120 2,361 — — 2,481 
Total first lien loans$43,641 $71,311 $34,704 $8,056 $7,585 $100,304 $— $638 $266,239 
Current period gross charge offs - first lien$— $— $— $— $— $58 $— $— $58 
Home equity - term:
Payment performance
Performing$607 $732 $90 $426 $115 $3,105 $— $— $5,075 
Nonperforming— — — — — 3 — — 3 
Total home equity - term loans$607 $732 $90 $426 $115 $3,108 $— $— $5,078 
Current period gross charge offs - home equity - term$— $— $— $— $— $— $— $— $— 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $107,967 $77,171 $185,138 
Nonperforming— — — — — — 1,296 16 1,312 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $109,263 $77,187 $186,450 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $40 $— $40 
Installment and other loans:
Payment performance
Performing$758 $413 $332 $106 $670 $947 $6,500 $— $9,726 
Nonperforming3 — — — 33 12 — — 48 
Total Installment and other loans$761 $413 $332 $106 $703 $959 $6,500 $— $9,774 
Current period gross charge offs - installment and other$181 $24 $— $— $4 $10 $28 $— $247 
For commercial real estate, acquisition and development, commercial and industrial and municipal segments, a loan is evaluated individually when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining expected credit losses, and whether the loan will be individually evaluated, include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not individually evaluated. Generally, loans that are more than 90 days past due will be individually evaluated for a specific reserve. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed to determine if the loan should be placed on nonaccrual status. Nonaccrual loans are, by definition, deemed to be individually evaluated under CECL. A specific reserve allocation for individually evaluated loans is measured on a loan-by-loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are experiencing financial difficulty for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an individually evaluated loan that is collateral dependent if the carrying balance of the loan exceeds the appraised value of the collateral, the loan has been placed on nonaccrual status or identified as uncollectible, and it is deemed to be a confirmed loss. Typically, loans with a charge-off or partial charge-off will continue to be individually evaluated. Generally, an individually evaluated loan with a partial charge-off may continue to have a specific reserve on it after the partial charge-off, if factors warrant.
At September 30, 2024 and December 31, 2023, the Company’s individually evaluated loans were measured based on the estimated fair value of the collateral securing the loan, except for purchased auto loans on nonaccrual status and accruing loans accounted for as TDRs prior to the adoption of ASU 2022-02. For real estate loans, collateral generally consists of commercial or residential real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans, secured by commercial real estate, in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances, dictate that another value than that provided by the appraiser is more appropriate.
Generally, commercial loans secured by real estate that are evaluated individually are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations in which it is determined an updated appraisal is not required for loans individually evaluated for credit expected losses, fair values are based on either an existing appraisal or a DCF analysis as determined by management. The approaches are discussed below:
•Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
•Discounted cash flows – in limited cases, DCF may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding and is used to validate collateral values derived from other approaches.
Collateral on loans evaluated individually is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable aging or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.
The Company distinguishes substandard loans for both loans individually and collectively evaluated, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of an individually evaluated loan. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial
real estate, acquisition and development, commercial and industrial and municipal loans rated substandard to be collectively evaluated for credit expected losses. Although the Company believes these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without reserves on individually evaluated loans as of September 30, 2024 and December 31, 2023. The Company did not recognize interest income on nonaccrual loans during the three and nine months ended September 30, 2024 and 2023. During the nine months ended September 30, 2024, the Company recorded interest income previously applied to principal of $1.6 million from the payoff of a commercial real estate loan, which totaled $13.4 million at December 31, 2023.
September 30, 2024December 31, 2023
Nonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual loansLoans Past Due 90+ AccruingNonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual loansLoans Past Due 90+ Accruing
Commercial real estate:
Owner-occupied$232 $4,905 $5,137 $252 $— $15,786 $15,786 $— 
Non-owner occupied— 1,420 1,420 — — 240 240 — 
Multi-family1,000 — 1,000 — — 1,233 1,233 — 
Non-owner occupied residential— 564 564 — — 2,572 2,572 — 
Acquisition and development:
1-4 family residential construction— 152 152 — — — — — 
Commercial and land development3,655 — 3,655 — — 1,361 1,361 — 
Commercial and industrial2,455 6,605 9,060 — 68 604 672 — 
Residential mortgage:
First lien312 3,912 4,224 63 — 2,309 2,309 66 
Home equity – term37 — 37 22 — 3 3 — 
Home equity – lines of credit— 1,652 1,652 — — 1,312 1,312 — 
Installment and other loans15 11 26 — 3 36 39 — 
Total$7,706 $19,221 $26,927 $337 $71 $25,456 $25,527 $66 
A loan is considered to be collateral-dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. At September 30, 2024 and December 31, 2023, substantially all individually evaluated loans were collateral-dependent and consisted primarily of commercial real estate, acquisition and development and residential mortgage loans, which were primarily secured by commercial or residential real estate.
The following table presents the amortized cost basis of collateral-dependent loans by class as of September 30, 2024 and December 31, 2023:
Type of Collateral
September 30, 2024Business AssetsCommercial Real EstateEquipmentLandResidential Real EstateOtherTotal
Commercial real estate:
Owner occupied$— $5,137 $— $— $— $— $5,137 
Non-owner occupied— 1,420 — — — — 1,420 
Multi-family— 1,000 — — — — 1,000 
Non-owner occupied residential— 564 — — — — 564 
Acquisition and development:
1-4 family residential construction— — — — 152 — 152 
Commercial and land development— 3,655 — — — — 3,655 
Commercial and industrial4,270 — 4,114 679 — — 9,063 
Residential mortgage:
First lien— — — — 4,152 — 4,152 
Home equity - term— — — — 37 — 37 
Home equity - lines of credit— — — — 1,652 — 1,652 
Installment and other loans— — 3 — — 9 12 
Total$4,270 $11,776 $4,117 $679 $5,993 $9 $26,844 
December 31, 2023
Commercial real estate:
Owner occupied$— $15,786 $— $— $— $— $15,786 
Non-owner occupied— 240 — — — — 240 
Multi-family— 1,233 — — — — 1,233 
Non-owner occupied residential— 2,572 — — — — 2,572 
Acquisition and development:
Commercial and land development— — — 1,361 — — 1,361 
Commercial and industrial2 76 594 — — — 672 
Residential mortgage:
First lien— — — — 2,231 — 2,231 
Home equity - term— — — — 3 — 3 
Home equity - lines of credit— — — — 1,312 — 1,312 
Installment and other loans— — 18 — — — 18 
Total$2 $19,907 $612 $1,361 $3,546 $— $25,428 

ASU 2022-02 requires that the Company evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty and the modification results in a more-than-insignificant direct change in the contractual cash flows and represents a new loan or a continuation of an existing loan. This standard requires all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables – Nonrefundable Fees and Other Costs.
The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan. During the nine months ended September 30, 2024, the Company extended modifications to three borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan. In addition, the Company acquired three FDM loans from the Merger, which were modified previously during 2024. The Company did not extend modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan during the nine months ended September 30, 2023. For loans previously
modified to borrowers experiencing financial difficulty, there was a payoff of a loan within the Acquisition and Development segment totaling $1.3 million during the nine months ended September 30, 2024. In addition, there were no payment defaults in the subsequent twelve months and the Company has not committed to lend additional amounts to those borrowers.
The following tables presents the amortized cost of loans at September 30, 2024 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2024, by loan class and by type of modification. The percentage of the amortized cost of loans that were modified to borrowers experiencing difficulty as compared to the amortized cost of loan class is also presented below. The Company has not committed to lend additional amounts to the borrowers included in the table below.
Three Months Ended   September 30, 2024Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionsTotal Class of Financing Receivable
Commercial real estate:
Owner-occupied$— $— $567 $2,452 $— $— 0.48 %
Commercial and industrial— — — 2,080 — — 0.35 %
Total:— — 567 4,532 — — 
Nine Months Ended   September 30, 2024
Commercial real estate:
Owner-occupied— — 567 2,452 — — 0.48 %
Acquisition and development:
Commercial and land development— — 4,404 — — — 1.68 %
Commercial and industrial— — 73 2,080 — — 0.36 %
Total:— — 5,044 4,532 — — 
The Company monitors the performance of the modified loans to borrowers experiencing financial difficulty to determine the effectiveness of its modification efforts. The following table presents the performance of the loans modified during the nine months ended September 30, 2024, which includes loans that remain on nonaccrual status.
September 30, 2024Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotalNon-Accrual
Commercial real estate:
Owner-occupied$2,981 $— $38 $— $3,019 $567 
Acquisition and development:
Commercial and land development4,405 — — — 4,405 — 
Commercial and industrial2,152 — — — 2,152 — 
Total:9,538 — 38 — 9,576 567 
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024.
September 30, 2024Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (in years)
Commercial real estate:
Owner-occupied$— 4.0 %1.9
Acquisition and development:
Commercial and land development— — %1.0
Commercial and industrial— 4.0 %4.0
Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due by aggregating loans based on its delinquencies. The following table presents the classes of the loan portfolio summarized by aging categories at September 30, 2024 and December 31, 2023:
30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Past Due		Loans Not Past DueTotal
Loans
September 30, 2024
Commercial real estate:
Owner occupied$17 $22 $1,529 $1,568 $621,158 $622,726 
Non-owner occupied1,057 — — 1,057 1,163,444 1,164,501 
Multi-family237 — — 237 276,059 276,296 
Non-owner occupied residential213 — 68 281 190,505 190,786 
Acquisition and development:
1-4 family residential construction— — 152 152 56,231 56,383 
Commercial and land development— 3,556 649 4,205 258,112 262,317 
Commercial and industrial88 4,091 1,029 5,208 596,261 601,469 
Municipal— — — — 27,960 27,960 
Residential mortgage:
First lien842 1,704 1,484 4,030 447,165 451,195 
Home equity - term1,705 913 745 3,363 3,145 6,508 
Home equity - lines of credit— — 22 22 303,143 303,165 
Installment and other loans35 31 3 69 18,062 18,131 
$4,194 $10,317 $5,681 $20,192 $3,961,245 $3,981,437 
December 31, 2023
Commercial real estate:
Owner occupied$13,852 $— $117 $13,969 $359,788 $373,757 
Non-owner occupied152 — — 152 694,486 694,638 
Multi-family— — — — 150,675 150,675 
Non-owner occupied residential— — 192 192 94,848 95,040 
Acquisition and development:
1-4 family residential construction— — — — 24,516 24,516 
Commercial and land development16 — — 16 115,233 115,249 
Commercial and industrial27 69 625 721 366,364 367,085 
Municipal— — — — 9,812 9,812 
Residential mortgage:
First lien5,433 1,058 721 7,212 259,027 266,239 
Home equity - term20 2 — 22 5,056 5,078 
Home equity - lines of credit1,801 100 839 2,740 183,710 186,450 
Installment and other loans84 28 19 131 9,643 9,774 
$21,385 $1,257 $2,513 $25,155 $2,273,158 $2,298,313 

The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statements of operations. Management calculates the quantitative portion of collectively evaluated loans for all loan categories, with the exception of the consumer loan segment, using DCF methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on the consumer loan segment, the remaining life methodology is
utilized. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code, which represents the loan classes based upon U.S. regulatory loan classification rules, in order to group loans with similar risk characteristics.
Loans that do not share similar risk characteristics are evaluated on an individual loan basis, and are excluded from the collective evaluation for the ACL. Loans identified to be individually evaluated under CECL include loans on nonaccrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis. A specific analytical method is applied to the individually evaluated loans, which considers collateral value, an observable market price or the present value of expected future cash flows. A specific reserve is assigned if the measured value of the loan using one of the before mentioned methods is less than the current carrying value of the loan.
Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve calculated on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions. These qualitative risk factors considered by management are comparable to legacy factors prior to the adoption of CECL and include significant or unexpected changes in:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Lending Policies and Procedures, Underwriting Standards and Recovery Practices – including changes to credit policies and procedures, underwriting standards and perceived impact on anticipated losses, trends in the number of exceptions to loan policy, supervisory loan to value exceptions; and administration of loan recovery practices.
Delinquency and Classified Loan Trends – including delinquency percentages and internal loan ratings noted in the portfolio relative to economic conditions, severity of the delinquencies and the ratings and whether the ratios are trending upwards or downwards.
Collateral Valuation Trends – including underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the level of experience of senior and middle management and the lending staff, turnover of the staff, and instances of repeat criticisms.
Quality of Loan Review System – including the level of experience of the loan review staff, in-house versus outsourced provider of review, turnover of the staff and instances of repeat criticisms from independent testing, which includes the evaluation of internal loan ratings of the portfolio.
Economic Conditions – including trends in the international, national, regional and local conditions that monitor the interest rate environment, inflationary pressures, the consumer price index, the housing price index, housing statistics, and bankruptcy rates.
Other External Factors - including regulatory and legal environment risks and competition.
All factors noted above were deemed appropriate at September 30, 2024. For the three and nine months ended September 30, 2024, the Economic Conditions qualitative factor was reduced and the Other External Factors qualitative factor is no longer assigned to the impacted loan segments. These changes were based on improved economic reports, as well as concerns subsiding from the prior year about liquidity positions within the banking industry. During the three months ended June 30, 2024, the Economic Conditions qualitative factor for the residential mortgage loan segment was removed and there was a decrease in the Collateral Valuation Trends qualitative factor from a moderate to low level in the ACL model for the residential mortgage and installment and other loan segments applied during the three months ended March 31, 2024. These changes were based on the stabilization in real estate collateral valuations and housing demand and overall portfolio performance. All other qualitative factors were unchanged from December 31, 2023.
The following table presents the activity in the ACL for the three and nine months ended September 30, 2024 and 2023:
CommercialConsumer
Commercial
Real Estate		Acquisition
and
Development		Commercial
and
Industrial		MunicipalTotalResidential
Mortgage		Installment
and Other		TotalUnallocatedTotal
Three Months Ended
September 30, 2024
Balance, beginning of period$18,203 $2,634 $5,652 $161 $26,650 $3,023 $191 $3,214 $— $29,864 
Allowance established for acquired PCD loans1,321 2,535 1,949 — 5,805 105 10 115 — 5,920 
Provision for credit losses11,103 1,809 (955)110 12,067 1,773 275 2,048 — 14,115 
Charge-offs(333)— (159)— (492)— (88)(88)— (580)
Recoveries4 12 164 — 180 54 77 131 — 311 
Balance, end of period$30,298 $6,990 $6,651 $271 $44,210 $4,955 $465 $5,420 $— $49,630 
September 30, 2023
Balance, beginning of period$16,996 $2,767 $5,854 $167 $25,784 $2,307 $292 $2,599 $— $28,383 
Provision for loan losses(173)125 (62)(11)(121)239 18 257 — 136 
Charge-offs— — (267)— (267)— (75)(75)— (342)
Recoveries17 1 33 — 51 31 19 50 — 101 
Balance, end of period$16,840 $2,893 $5,558 $156 $25,447 $2,577 $254 $2,831 $— $28,278 
Nine Months Ended
September 30, 2024
Balance, beginning of period$17,873 $2,241 $5,806 $157 $26,077 $2,424 $201 $2,625 $— $28,702 
Allowance established for acquired PCD loans1,321 2,535 1,949 — 5,805 105 10 115 — 5,920 
Provision for credit losses11,417 2,223 (1,149)114 12,605 2,410 333 2,743 — 15,348 
Charge-offs(345)(23)(219)— (587)(50)(206)(256)— (843)
Recoveries32 14 264 — 310 66 127 193 — 503 
Balance, end of period$30,298 $6,990 $6,651 $271 $44,210 $4,955 $465 $5,420 $— $49,630 
September 30, 2023
Balance, beginning of period$13,558 $3,214 $4,505 $24 $21,301 $3,444 $188 $3,632 $245 $25,178 
Impact of adopting ASC 3262,857 (214)928 169 3,740 (1,121)49 (1,072)(245)2,423 
Provision for loan losses335 (111)790 (37)977 163 124 287 — 1,264 
Charge-offs(12)— (748)— (760)(98)(198)(296)— (1,056)
Recoveries102 4 83 — 189 189 91 280 — 469 
Balance, end of period$16,840 $2,893 $5,558 $156 $25,447 $2,577 $254 $2,831 $— $28,278