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LOANS AND ALLOWANCE FOR CREDIT LOSSES
 3 Months Ended
Mar. 31, 2025
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.
Agricultural loans include advances to individuals or businesses to finance agricultural production or loans secured by farmland. Agricultural production may include the growing or storing of crops, the purchase and carrying of livestock, the purchase of farm machinery and equipment or the operations of a farm, including vehicles and consumer goods. The collateral securing these loans may include the real estate for agricultural production, the borrower's business or personal assets, inventory or equipment.
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 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 March 31, 2025 and December 31, 2024:
March 31, 2025December 31, 2024
Commercial real estate:
Owner occupied$617,854 $633,567 
Non-owner occupied1,157,383 1,160,238 
Multi-family257,724 274,135 
Non-owner occupied residential168,354 179,512 
Acquisition and development:
1-4 family residential construction40,621 47,432 
Commercial and land development227,434 241,424 
Agricultural134,916 125,156 
Commercial and industrial455,494 451,384 
Municipal30,780 30,044 
Residential mortgage:
First lien464,642 460,297 
Home equity - term9,224 5,988 
Home equity - lines of credit295,820 303,561 
Installment and other loans15,739 18,476 
Total loans $3,875,985 $3,931,214 
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 $2.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated special mention, 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 March 31, 2025 and December 31, 2024. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity. Residential mortgage, 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 March 31, 2025
20252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$10,969 $53,350 $90,088 $104,618 $97,914 $169,641 $12,407 $1,578 $540,565 
Special mention— — 136 15,651 14,734 11,459 320 — 42,300 
Substandard - Non-IEL— — 1,522 12,572 4,177 6,999 3,854 217 29,341 
Substandard - IEL— — 694 206 1,082 3,666 — — 5,648 
Total owner-occupied loans$10,969 $53,350 $92,440 $133,047 $117,907 $191,765 $16,581 $1,795 $617,854 
Current period gross charge offs - owner-occupied$— $— $— $75 $— $— $— $— $75 
Non-owner occupied:
Risk rating
Pass$10,367 $82,873 $145,771 $192,518 $323,602 $372,363 $2,449 $378 $1,130,321 
Special mention— — 10,077 2,989 1,136 9,782 — — 23,984 
Substandard - Non-IEL— 466 — 1,045 — 207 — — 1,718 
Substandard - IEL— — — — — 1,360 — — 1,360 
Total non-owner occupied loans$10,367 $83,339 $155,848 $196,552 $324,738 $383,712 $2,449 $378 $1,157,383 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
Multi-family:
Risk rating
Pass$548 $7,232 $9,919 $96,057 $52,973 $84,242 $1,409 $214 $252,594 
Special mention— — — 1,082 776 — — — 1,858 
Substandard - Non-IEL— — — 569 2,468 235 — — 3,272 
Substandard - IEL— — — — — — — — — 
Total multi-family loans$548 $7,232 $9,919 $97,708 $56,217 $84,477 $1,409 $214 $257,724 
Current period gross charge offs - multi-family$— $— $— $— $— $— $— $— $— 
Non-owner occupied residential:
Risk rating
Pass$213 $9,291 $19,935 $28,486 $27,625 $78,606 $1,113 $652 $165,921 
Special mention— — — — 147 381 40 40 608 
Substandard - Non-IEL— — — 51 131 1,256 — 109 1,547 
Substandard - IEL— — — 154 — 124 — — 278 
Total non-owner occupied residential loans$213 $9,291 $19,935 $28,691 $27,903 $80,367 $1,153 $801 $168,354 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2025
20252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$8,151 $22,936 $4,235 $1,524 $1,138 $848 $880 $— $39,712 
Special mention— 74 222 — — 613 — — 909 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$8,151 $23,010 $4,457 $1,524 $1,138 $1,461 $880 $— $40,621 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$1,653 $67,323 $51,414 $73,373 $10,598 $5,422 $8,106 $150 $218,039 
Special mention— — — 4,748 — — — — 4,748 
Substandard - Non-IEL— 734 271 — — — — — 1,005 
Substandard - IEL— — 18 3,274 350 — — — 3,642 
Total commercial and land development loans$1,653 $68,057 $51,703 $81,395 $10,948 $5,422 $8,106 $150 $227,434 
Current period gross charge offs - commercial and land development$— $— $— $— $— $— $— $— $— 
Agricultural
Risk rating
Pass$5,219 $14,567 $14,206 $21,127 $19,446 $44,101 $13,130 $1,336 $133,132 
Special mention$— $— $— $— $— $256 $81 $— $337 
Substandard - Non-IEL$— $— $— $450 $— $207 $— $— $657 
Substandard - IEL$— $— $— $790 $— $— $— $— $790 
Total agricultural loans$5,219 $14,567 $14,206 $22,367 $19,446 $44,564 $13,211 $1,336 $134,916 
Current period gross charge offs - agricultural$— $— $— $— $25 $— $— $— $25 
Commercial and Industrial:
Risk rating
Pass$22,580 $81,474 $52,806 $51,298 $48,462 $24,931 $130,512 $7,126 $419,189 
Special mention— 4,376 927 2,361 235 — 9,603 61 17,563 
Substandard - Non-IEL— — 2,214 2,100 — — 8,607 2,813 15,734 
Substandard - IEL— 397 559 128 169 1,602 — 153 3,008 
Total commercial and industrial loans$22,580 $86,247 $56,506 $55,887 $48,866 $26,533 $148,722 $10,153 $455,494 
Current period gross charge offs - commercial and industrial$— $— $381 $— $41 $95 $— $— $517 
Municipal:
Risk rating
Pass$2,497 $562 $— $9,816 $2,877 $13,555 $— $— $29,307 
Special mention— — — — — 1,473 — — 1,473 
Total municipal loans$2,497 $562 $— $9,816 $2,877 $15,028 $— $— $30,780 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of March 31, 2025
20252024202320222021PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Residential mortgage:
First lien:
Payment performance
Performing$20,302 $59,611 $97,877 $100,981 $49,771 $130,429 $— $— $458,971 
Nonperforming— 673 577 237 250 3,934 — — 5,671 
Total first lien loans$20,302 $60,284 $98,454 $101,218 $50,021 $134,363 $— $— $464,642 
Current period gross charge offs - first lien$— $— $— $— $— $— $— $— $— 
Payment performance
Performing$79 $1,422 $1,245 $1,451 $1,028 $3,770 $160 $— $9,155 
Nonperforming— — — 35 — 34 — — 69 
Total home equity - term loans$79 $1,422 $1,245 $1,486 $1,028 $3,804 $160 $— $9,224 
Current period gross charge offs - home equity - term$— $— $— $— $— $— $— $— $— 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $196,120 $97,289 $293,409 
Nonperforming— — — — — — 2,086 325 2,411 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $198,206 $97,614 $295,820 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $— $— $— 
Installment and other loans:
Payment performance
Performing$578 $1,469 $2,355 $1,849 $666 $410 $8,371 $27 $15,725 
Nonperforming— — 3 — — 11 — — 14 
Total Installment and other loans$578 $1,469 $2,358 $1,849 $666 $421 $8,371 $27 $15,739 
Current period gross charge offs - installment and other$— $232 $— $3 $2 $8 $31 $— $276 
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202420242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$55,068 $86,255 $106,696 $112,278 $31,495 $155,543 $14,653 $280 $562,268 
Special mention— 1,674 18,563 1,895 7,946 5,422 165 — 35,665 
Substandard - Non-IEL— 694 14,572 4,204 2,477 4,899 4,510 — 31,356 
Substandard - IEL— 9 — 1,110 245 2,914 — — 4,278 
Total owner-occupied loans$55,068 $88,632 $139,831 $119,487 $42,163 $168,778 $19,328 $280 $633,567 
Current period gross charge offs - owner-occupied$— $217 $13 $313 $— $12 $— $— $555 
Non-owner occupied:
Risk rating
Pass$82,441 $146,020 $193,131 $326,586 $123,646 $256,212 $2,335 $— $1,130,371 
Special mention— 10,081 2,985 334 7,920 1,919 — — 23,239 
Substandard - Non-IEL482 — 1,049 — 1,043 2,588 — — 5,162 
Substandard - IEL— — — — — 1,466 — — 1,466 
Total non-owner occupied loans$82,923 $156,101 $197,165 $326,920 $132,609 $262,185 $2,335 $— $1,160,238 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $65 $— $— $65 
Multi-family:
Risk rating
Pass$7,269 $12,679 $105,883 $54,028 $30,968 $54,676 $1,351 $— $266,854 
Special mention— — 1,094 — — — — — 1,094 
Substandard - Non-IEL— — 571 4,658 — 237 — — 5,466 
Substandard - IEL— — — — — 721 — — 721 
Total multi-family loans$7,269 $12,679 $107,548 $58,686 $30,968 $55,634 $1,351 $— $274,135 
Current period gross charge offs - multi-family$— $— $— $— $— $7 $— $— $7 
Non-owner occupied residential:
Risk rating
Pass$9,322 $22,771 $29,681 $29,729 $19,410 $64,851 $1,257 $— $177,021 
Special mention— — — 147 42 478 39 — 706 
Substandard - Non-IEL— — 166 133 — 1,311 — — 1,610 
Substandard - IEL— — 43 — — 132 — — 175 
Total non-owner occupied residential loans$9,322 $22,771 $29,890 $30,009 $19,452 $66,772 $1,296 $— $179,512 
Current period gross charge offs - non-owner occupied residential$— $— $— $29 $— $— $— $— $29 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202420242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$30,908 $7,079 $2,295 $598 $935 $762 $3,921 $— $46,498 
Special mention74 717 — — — 143 — — 934 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$30,982 $7,796 $2,295 $598 $935 $905 $3,921 $— $47,432 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$60,420 $57,563 $74,893 $14,107 $372 $6,928 $7,280 $— $221,563 
Special mention734 — 4,557 998 1,841 3,451 — — 11,581 
Substandard - Non-IEL2,966 1,656 — — — — — — 4,622 
Substandard - IEL— 18 3,282 358 — — — — 3,658 
Total commercial and land development loans$64,120 $59,237 $82,732 $15,463 $2,213 $10,379 $7,280 $— $241,424 
Current period gross charge offs - commercial and land development$— $23 $— $— $— $— $— $— $23 
Agricultural
Risk rating
Pass$14,663 $14,507 $21,782 $19,486 $10,463 $28,095 $13,891 $164 $123,051 
Special mention— — — 25 — 902 161 — 1,088 
Substandard - Non-IEL— — 13 — — 207 — — 220 
Substandard - IEL— — 797 — — — — — 797 
Total agricultural loans$14,663 $14,507 $22,592 $19,511 $10,463 $29,204 $14,052 $164 $125,156 
Current period gross charge offs - agricultural$— $1 $— $18 $— $18 $1 $— $38 
Commercial and Industrial:
Risk rating
Pass$82,924 $55,109 $53,482 $49,937 $15,405 $17,215 $137,379 $2,768 $414,219 
Special mention485 2,000 2,477 293 2 23 10,516 — 15,796 
Substandard - Non-IEL— 1,037 2,547 3,409 — 490 8,386 — 15,869 
Substandard - IEL409 2,772 140 191 884 921 183 — 5,500 
Total commercial and industrial loans$83,818 $60,918 $58,646 $53,830 $16,291 $18,649 $156,464 $2,768 $451,384 
Current period gross charge offs - commercial and industrial$— $335 $212 $60 $1,739 $60 $571 $— $2,977 
Municipal:
Risk rating
Pass$1,565 $— $10,006 $3,124 $269 $15,080 $— $— $30,044 
Total municipal loans$1,565 $— $10,006 $3,124 $269 $15,080 $— $— $30,044 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
continued
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202420242023202220212020PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Residential mortgage:
First lien:
Payment performance
Performing$62,970 $101,901 $103,347 $52,420 $25,303 $109,113 $— $— $455,054 
Nonperforming672 308 241 483 218 3,321 — — 5,243 
Total first lien loans$63,642 $102,209 $103,588 $52,903 $25,521 $112,434 $— $— $460,297 
Current period gross charge offs - first lien$— $— $— $— $— $2 $— $— $2 
Home equity - term:
Payment performance
Performing$395 $752 $1,040 $201 $462 $3,068 $— $— $5,918 
Nonperforming— — 36 — — 34 — — 70 
Total home equity - term loans$395 $752 $1,076 $201 $462 $3,102 $— $— $5,988 
Current period gross charge offs - home equity - term$— $— $— $— $— $— $— $— $— 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $200,886 $100,331 $301,217 
Nonperforming— — — — — — 2,048 296 2,344 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $202,934 $100,627 $303,561 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $63 $— $63 
Installment and other loans:
Payment performance
Performing$2,197 $2,764 $2,209 $830 $119 $496 $9,817 $19 $18,451 
Nonperforming9 3 — — — 13 — — 25 
Total Installment and other loans$2,206 $2,767 $2,209 $830 $119 $509 $9,817 $19 $18,476 
Current period gross charge offs - installment and other$209 $12 $— $32 $— $33 $21 $— $307 
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 March 31, 2025 and December 31, 2024, 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 March 31, 2025 and December 31, 2024. The Company did not recognize interest income on nonaccrual loans during the three months ended March 31, 2025 and 2024.
March 31, 2025December 31, 2024
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 $5,416 $5,648 $— $232 $4,046 $4,278 $— 
Non-owner occupied— 1,360 1,360 — — 1,466 1,466 — 
Multi-family— — — — — 721 721 237 
Non-owner occupied residential— 278 278 — — 175 175 — 
Acquisition and development:
Commercial and land development3,006 636 3,642 — 3,282 376 3,658 — 
Agricultural— 790 790 — — 797 797 — 
Commercial and industrial1,460 1,548 3,008 109 2,822 2,678 5,500 113 
Residential mortgage:
First lien20 5,487 5,507 272 — 5,077 5,077 243 
Home equity – term— 69 69 19 36 34 70 18 
Home equity – lines of credit— 2,411 2,411 — — 2,344 2,344 30 
Installment and other loans14 — 14 — 15 10 25 — 
Total$4,732 $17,995 $22,727 $400 $6,387 $17,724 $24,111 $641 
A loan is considered to be collateral-dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. At March 31, 2025 and December 31, 2024, substantially all individually evaluated loans were collateral-dependent and consisted primarily of commercial real estate, acquisition and development and residential mortgage loans, which were primarily secured by commercial or residential real estate.
The following table presents the amortized cost basis of collateral-dependent loans by class as of March 31, 2025 and December 31, 2024:
Type of Collateral
March 31, 2025Business AssetsCommercial Real EstateEquipmentLandResidential Real EstateOtherTotal
Commercial real estate:
Owner occupied$— $5,648 $— $— $— $— $5,648 
Non-owner occupied— 1,360 — — — — 1,360 
Non-owner occupied residential— 278 — — — — 278 
Acquisition and development:
Commercial and land development— 3,642 — — — — 3,642 
Agricultural— — — 790 — — 790 
Commercial and industrial1,726 — 1,287 — — — 3,013 
Residential mortgage:
First lien— — — — 5,297 — 5,297 
Home equity - term— — — — 69 — 69 
Home equity - lines of credit— — — — 2,411 — 2,411 
Installment and other loans— — 3 — — — 3 
Total$1,726 $10,928 $1,290 $790 $7,777 $— $22,511 
December 31, 2024
Commercial real estate:
Owner occupied$— $4,269 $— $— $— $— $4,269 
Non-owner occupied— 1,463 — — — — 1,463 
Multi-family— 721 — — — — 721 
Non-owner occupied residential— 175 — — — — 175 
Acquisition and development:
Commercial and land development— 3,381 — 277 — — 3,658 
Agricultural— — — 797 — — 797 
Commercial and industrial1,919 — 3,515 — — — 5,434 
Residential mortgage:
First lien— — — — 5,007 — 5,007 
Home equity - term— — — — 70 — 70 
Home equity - lines of credit— — — — 2,344 — 2,344 
Installment and other loans— — 3 — — 9 12 
Total$1,919 $10,009 $3,518 $1,074 $7,421 $9 $23,950 

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 three months ended March 31, 2025, 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. 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 three months ended March 31, 2024. For loans previously modified to borrowers experiencing financial difficulty, there were FDMs totaling $1.0 million that were 90 days or more past due and accruing. The Company had committed to lend additional amounts to one commercial client, who was experiencing financial difficulty, with a loan previously modified that was a FDM. At March 31, 2025, the total commitment was $350 thousand and the outstanding loan balance was $50 thousand.
The following tables presents the amortized cost of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025, by loan class and by type of modification. The
percentage of the amortized cost of loans that were modified to borrowers experiencing difficulty as compared to the amortized cost of loan class is also presented below.
Three Months Ended   March 31, 2025Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionsTotal Class of Financing Receivable
Commercial real estate:
Owner-occupied— — 8 — — — — %
Acquisition and development:
Commercial and land development— — 5,016 — — — 2.21 %
Total:— — 5,024 — — — 
The Company monitors the performance of the modified loans to borrowers experiencing financial difficulty to determine the effectiveness of its modification efforts. The following table presents the performance of the loans modified during the three months ended March 31, 2025, which includes loans that remain on nonaccrual status:
March 31, 2025Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotalNon-Accrual
Commercial real estate:
Owner-occupied$— $— $— $— $— $8 
Acquisition and development:
1-4 family residential construction— — — — — — 
Commercial and land development4,747 — — — 4,747 269 
Total:4,747 — — — 4,747 277 
The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three and three months ended March 31, 2025:
March 31, 2025Principal ForgivenessWeighted Average Interest Rate ReductionWeighted Average Term Extension (in years)
Commercial real estate:
Owner-occupied$— — %0.3
Acquisition and development:
Commercial and land development— — %0.5
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 March 31, 2025 and December 31, 2024:
30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Past Due		Loans Not Past DueTotal
Loans
March 31, 2025
Commercial real estate:
Owner occupied$1,546 $899 $1,345 $3,790 $614,064 $617,854 
Non-owner occupied146 — — 146 1,157,237 1,157,383 
Multi-family938 — — 938 256,786 257,724 
Non-owner occupied residential140 74 178 392 167,962 168,354 
Acquisition and development:
1-4 family residential construction2,095 — — 2,095 38,526 40,621 
Commercial and land development734 — 3,005 3,739 223,695 227,434 
Agricultural185 — 845 1,030 133,886 134,916 
Commercial and industrial245 76 2,089 2,410 453,084 455,494 
Municipal— — — — 30,780 30,780 
Residential mortgage:
First lien22,834 2,108 1,780 26,722 437,920 464,642 
Home equity - term27 — 88 115 9,109 9,224 
Home equity - lines of credit1,690 413 1,263 3,366 292,454 295,820 
Installment and other loans67 — 3 70 15,669 15,739 
$30,647 $3,570 $10,596 $44,813 $3,831,172 $3,875,985 
December 31, 2024
Commercial real estate:
Owner occupied$1,753 $2,070 $1,433 $5,256 $628,311 $633,567 
Non-owner occupied1,251 148 72 1,471 1,158,767 1,160,238 
Multi-family124 — 237 361 273,774 274,135 
Non-owner occupied residential1,383 115 65 1,563 177,949 179,512 
Acquisition and development:
1-4 family residential construction1,540 532 — 2,072 45,360 47,432 
Commercial and land development818 — 3,301 4,119 237,305 241,424 
Agricultural466 845 — 1,311 123,845 125,156 
Commercial and industrial410 280 4,459 5,149 446,235 451,384 
Municipal237 — — 237 29,807 30,044 
Residential mortgage:
First lien17,534 4,827 2,822 25,183 435,114 460,297 
Home equity - term37 69 18 124 5,864 5,988 
Home equity - lines of credit3,612 318 1,208 5,138 298,423 303,561 
Installment and other loans94 11 12 117 18,359 18,476 
$29,259 $9,215 $13,627 $52,101 $3,879,113 $3,931,214 
The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statements of income. 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, which may be assigned at different levels of significance: minor, moderate or major. These qualitative risk factors considered by management 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 March 31, 2025. For the three months ended March 31, 2025, a qualitative factor was added at a minor level for Other External Factors for all loan classes due to the uncertainty created within the global and domestic markets from changes in U.S. economic policy, including the recently implemented tariffs, the Economic Conditions qualitative factor at a minor level and the Delinquency and Classified Loan Trends qualitative factor at a moderate level were added for the residential senior liens loan class and the Delinquency and Classified Loan Trends qualitative factor at a moderate level was added for the home equity loan class. An adjustment to the Economic Conditions qualitative factor was based on current market interest rates and prepayment speeds, and the adjustment to Delinquency and Classified Loan Trends was based on delinquencies and downgrades within the aforementioned loan classes.
The following table presents the activity in the ACL for the three months ended March 31, 2025 and 2024:
CommercialConsumer
Commercial
Real Estate		Acquisition
and
Development		AgriculturalCommercial
and
Industrial		MunicipalTotalResidential
Mortgage		Installment
and Other		TotalTotal
Three Months Ended
March 31, 2025
Balance, beginning of period$29,551 $6,601 $110 $6,190 $320 $42,772 $5,240 $677 $5,917 $48,689 
Provision for credit losses(3,587)(452)78 1,236 107 (2,618)1,998 66 2,064 (554)
Charge-offs(75)— (25)(517)— (617)— (276)(276)(893)
Recoveries4 1 — 453 — 458 74 30 104 562 
Balance, end of period$25,893 $6,150 $163 $7,362 $427 $39,995 $7,312 $497 $7,809 $47,804 
March 31, 2024
Balance, beginning of period$17,873 $2,241 $437 $5,369 $157 $26,077 $2,424 $201 $2,625 $28,702 
Provision for loan losses78 (9)(44)(417)7 (385)763 43 806 421 
Charge-offs— — — (46)— (46)— (53)(53)(99)
Recoveries24 1 — 90 — 115 6 20 26 141 
Balance, end of period$17,975 $2,233 $393 $4,996 $164 $25,761 $3,193 $211 $3,404 $29,165