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Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2024

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

Note 4: Loans and Allowance for Credit Losses

The following table presents the components of the loan portfolio at September 30, 2024 and December 31, 2023:


		September 30,			December 31,
(dollars in thousands)		2024			2023
Commercial		$	493,403		$	464,061
Construction and Land Development			118,596			232,804
1-4 Family Construction			45,822			65,087
Real Estate Mortgage:
1-4 Family Mortgage			421,179			402,396
Multifamily			1,379,814			1,388,541
CRE Owner Occupied			182,239			175,783
CRE Nonowner Occupied			1,032,142			987,306
Total Real Estate Mortgage Loans			3,015,374			2,954,026
Consumer and Other			12,395			8,304
Total Loans, Gross			3,685,590			3,724,282
Allowance for Credit Losses			(51,018)			(50,494)
Net Deferred Loan Fees			(5,705)			(6,573)
Total Loans, Net		$	3,628,867		$	3,667,215

The following tables present the aging in past due loans and loans on nonaccrual status, with and without an ACL by loan segment as of September 30, 2024 and December 31, 2023:


		Accruing Interest
					30-89 Days			90 Days or			Nonaccrual			Nonaccrual
(dollars in thousands)		Current			Past Due			More Past Due			with ACL			without ACL			Total
September 30, 2024
Commercial		$	493,338		$	65		$	—		$	—		$	—		$	493,403
Construction and Land Development			118,532			—			—			—			64			118,596
1-4 Family Construction			45,822			—			—			—			—			45,822
Real Estate Mortgage:
1-4 Family Mortgage			421,179			—			—			—			—			421,179
Multifamily			1,379,814			—			—			—			—			1,379,814
CRE Owner Occupied			182,239			—			—			—			—			182,239
CRE Nonowner Occupied			1,023,828			—			—			—			8,314			1,032,142
Consumer and Other			12,395			—			—			—			—			12,395
Totals		$	3,677,147		$	65		$	—		$	—		$	8,378		$	3,685,590


		Accruing Interest
					30-89 Days			90 Days or			Nonaccrual			Nonaccrual
(dollars in thousands)		Current			Past Due			More Past Due			with ACL			without ACL			Total
December 31, 2023
Commercial		$	463,966		$	—		$	—		$	—		$	95		$	464,061
Construction and Land Development			232,724			—			—			—			80			232,804
1-4 Family Construction			64,838			—			—			—			249			65,087
Real Estate Mortgage:
1-4 Family Mortgage			402,396			—			—			—			—			402,396
Multifamily			1,373,431			15,110			—			—			—			1,388,541
CRE Owner Occupied			175,289			—			—			—			494			175,783
CRE Nonowner Occupied			987,306			—			—			—			—			987,306
Consumer and Other			8,303			—			—			—			1			8,304
Totals		$	3,708,253		$	15,110		$	—		$	—		$	919		$	3,724,282

The Company aggregates loans into credit quality indicators based on relevant information about the ability of borrowers to service their debt by using internal reviews in which management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate, and the fair values of collateral securing the loans. The Company analyzes all loans individually to assign a risk rating, grouped into five major categories defined as follows:

Pass: A pass loan is a credit with no known or existing potential weaknesses deserving of management’s close attention.

Watch: Loans classified as watch have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Watch loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and charged-off immediately.

The following tables present loan balances classified by credit quality indicators by year of origination as of September 30, 2024 and December 31, 2023:


		September 30, 2024
(dollars in thousands)		2024			2023			2022			2021			2020			Prior			Revolving			Total
Commercial
Pass	$	89,609		$	66,265		$	81,681		$	27,568		$	14,641		$	20,026		$	178,919		$	478,709
Watch		—			—			—			—			—			—			495			495
Substandard		—			44			10,458			—			—			—			3,697			14,199
Total Commercial		89,609			66,309			92,139			27,568			14,641			20,026			183,111			493,403
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Construction and Land Development
Pass		44,342			59,852			5,640			610			28			—			8,060			118,532
Substandard		—			—			64			—			—			—			—			64
Total Construction and Land Development		44,342			59,852			5,704			610			28			—			8,060			118,596
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

1-4 Family Construction
Pass		27,554			3,144			4,574			760			—			—			9,790			45,822
Total 1-4 Family Construction		27,554			3,144			4,574			760			—			—			9,790			45,822
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Real Estate Mortgage:
1-4 Family Mortgage
Pass		69,363			54,020			98,356			74,281			49,254			11,785			62,646			419,705
Watch		—			197			—			302			327			—			—			826
Substandard		—			—			—			—			—			648			—			648
Total 1-4 Family Mortgage		69,363			54,217			98,356			74,583			49,581			12,433			62,646			421,179
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Multifamily
Pass		169,306			105,433			498,422			365,638			162,839			59,454			5,844			1,366,936
Watch		—			12,878			—			—			—			—			—			12,878
Total Multifamily		169,306			118,311			498,422			365,638			162,839			59,454			5,844			1,379,814
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

CRE Owner Occupied
Pass		17,714			30,824			63,452			35,215			19,759			10,322			2,251			179,537
Watch		—			—			—			1,725			—			—			—			1,725
Substandard		—			977			—			—			—			—			—			977
Total CRE Owner Occupied		17,714			31,801			63,452			36,940			19,759			10,322			2,251			182,239
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

CRE Nonowner Occupied
Pass		178,443			137,938			315,481			189,778			73,685			100,341			4,660			1,000,326
Watch		9,677			3,679			—			2,711			—			—			—			16,067
Substandard		10,231			5,518			—			—			—			—			—			15,749
Total CRE Nonowner Occupied		198,351			147,135			315,481			192,489			73,685			100,341			4,660			1,032,142
Current Period Gross Write-offs		935			—			—			—			—			—			—			935

Total Real Estate Mortgage Loans		454,734			351,464			975,711			669,650			305,864			182,550			75,401			3,015,374

Consumer and Other
Pass		235			2,717			164			1			1,279			—			7,999			12,395
Total Consumer and Other		235			2,717			164			1			1,279			—			7,999			12,395
Current Period Gross Write-offs		11			2			—			—			—			—			1			14

Total Period Gross Write-offs		946			2			—			—			—			—			1			949
Total Loans	$	616,474		$	483,486		$	1,078,292		$	698,589		$	321,812		$	202,576		$	284,361		$	3,685,590


		December 31, 2023
(dollars in thousands)		2023			2022			2021			2020			2019			Prior			Revolving			Total
Commercial
Pass	$	93,299		$	121,274		$	37,056		$	19,297		$	18,594		$	4,507		$	149,836		$	443,863
Watch		1,700			318			34			—			—			—			2,003			4,055
Substandard		3			11,299			—			—			—			50			4,791			16,143
Total Commercial		95,002			132,891			37,090			19,297			18,594			4,557			156,630			464,061
Current Period Gross Write-offs		72			96			12			—			—			—			—			180

Construction and Land Development
Pass		87,402			99,133			34,122			46			—			—			12,021			232,724
Substandard		—			80			—			—			—			—			—			80
Total Construction and Land Development		87,402			99,213			34,122			46			—			—			12,021			232,804
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

1-4 Family Construction
Pass		35,172			16,156			941			355			—			—			12,214			64,838
Substandard		249			—			—			—			—			—			—			249
Total 1-4 Family Construction		35,421			16,156			941			355			—			—			12,214			65,087
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Real Estate Mortgage:
1-4 Family Mortgage
Pass		74,602			106,085			83,525			52,813			18,789			3,403			62,490			401,707
Substandard		—			—			—			—			—			659			30			689
Total 1-4 Family Mortgage		74,602			106,085			83,525			52,813			18,789			4,062			62,520			402,396
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Multifamily
Pass		192,078			456,179			444,162			196,784			41,998			45,847			8,577			1,385,625
Watch		2,916			—			—			—			—			—			—			2,916
Total Multifamily		194,994			456,179			444,162			196,784			41,998			45,847			8,577			1,388,541
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

CRE Owner Occupied
Pass		36,255			61,724			40,748			20,610			4,903			8,312			1,672			174,224
Substandard		194			—			494			—			—			871			—			1,559
Total CRE Owner Occupied		36,449			61,724			41,242			20,610			4,903			9,183			1,672			175,783
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

CRE Nonowner Occupied
Pass		164,226			305,749			253,683			77,618			78,288			66,569			4,521			950,654
Watch		16,301			—			3,213			—			—			—			—			19,514
Substandard		15,183			1,955			—			—			—			—			—			17,138
Total CRE Nonowner Occupied		195,710			307,704			256,896			77,618			78,288			66,569			4,521			987,306
Current Period Gross Write-offs		—			—			—			—			—			—			—			—

Total Real Estate Mortgage Loans		501,755			931,692			825,825			347,825			143,978			125,661			77,290			2,954,026

Consumer and Other
Pass		2,908			256			9			1,460			6			—			3,665			8,304
Total Consumer and Other		2,908			256			9			1,460			6			—			3,665			8,304
Current Period Gross Write-offs		42			—			—			—			—			—			2			44

Total Period Gross Write-offs		114			96			12			—			—			—			2			224
Total Loans	$	722,488		$	1,180,208		$	897,987		$	368,983		$	162,578		$	130,218		$	261,820		$	3,724,282

The following tables present the activity in the ACL, by segment, for the three and nine months ended September 30, 2024 and 2023:


					Construction												CRE			CRE
					and Land			1-4 Family			1--4 Family						Owner			Non-owner			Consumer
(dollars in thousands)		Commercial			Development			Construction			Mortgage			Multifamily			Occupied			Occupied			and Other			Total
Three Months Ended September 30, 2024
Allowance for Credit Losses for Loans:
Beginning Balance		$	6,018		$	1,220		$	522		$	2,774		$	22,480		$	1,258		$	17,581		$	96		$	51,949
Provision for (Recovery of) Credit Losses for Loans			(350)			(141)			(128)			5			(125)			(25)			730			34			—
Loans Charged-off			—			—			—			—			—			—			(935)			(2)			(937)
Recoveries of Loans			5			—			—			—			—			—			—			1			6
Total Ending Allowance Balance		$	5,673		$	1,079		$	394		$	2,779		$	22,355		$	1,233		$	17,376		$	129		$	51,018

Nine Months Ended September 30, 2024
Allowance for Credit Losses for Loans:
Beginning Balance		$	5,398		$	2,156		$	558		$	2,651		$	22,217		$	1,184		$	16,225		$	105		$	50,494
Provision for (Recovery of) Credit Losses for Loans			265			(1,077)			(164)			125			138			49			2,086			28			1,450
Loans Charged-off			—			—			—			—			—			—			(935)			(14)			(949)
Recoveries of Loans			10			—			—			3			—			—						10			23
Total Ending Allowance Balance		$	5,673		$	1,079		$	394		$	2,779		$	22,355		$	1,233		$	17,376		$	129		$	51,018


					Construction												CRE			CRE
					and Land			1-4 Family			1--4 Family						Owner			Non-owner			Consumer
(dollars in thousands)		Commercial			Development			Construction			Mortgage			Multifamily			Occupied			Occupied			and Other			Unallocated			Total
Three Months Ended September 30, 2023
Allowance for Credit Losses for Loans:
Beginning Balance		$	5,439		$	3,476		$	654		$	2,836		$	21,164		$	1,086		$	15,976		$	70		$	—		$	50,701
Provision for (Recovery of) Credit Losses for Loans			151			(704)			(80)			22			1,052			3			(464)			20			—			—
Loans Charged-off			(96)			—			—			—			—			—			—			(26)			—			(122)
Recoveries of Loans			2			—			—			2			—			—			—			2			—			6
Total Ending Allowance Balance		$	5,496		$	2,772		$	574		$	2,860		$	22,216		$	1,089		$	15,512		$	66		$	—		$	50,585

Nine Months Ended September 30, 2023
Allowance for Credit Losses for Loans:
Beginning Balance, Prior to Adoption of CECL		$	6,501		$	3,911		$	845		$	4,325		$	17,459		$	1,965		$	12,576		$	151		$	263		$	47,996
Impact of Adopting CECL			(1,158)			(1,070)			(235)			(1,778)			3,318			(943)			2,869			(90)			(263)			650
Balance as of January 1, 2023, as Adjusted for Adoption of CECL			5,343			2,841			610			2,547			20,777			1,022			15,445			61			—			48,646
Provision for (Recovery of) Credit Losses for Loans			242			(69)			(36)			309			1,439			67			67			31			—			2,050
Loans Charged-off			(96)			—			—			—			—			—			—			(33)			—			(129)
Recoveries of Loans			7			—			—			4			—			—			—			7			—			18
Total Ending Allowance Balance		$	5,496		$	2,772		$	574		$	2,860		$	22,216		$	1,089		$	15,512		$	66		$	—		$	50,585

The following tables present the balance in the ACL and the recorded investment in loans, by segment, as of September 30, 2024 and December 31, 2023:


					Construction												CRE			CRE
					and Land			1-4 Family			1--4 Family						Owner			Non-owner			Consumer
(dollars in thousands)		Commercial			Development			Construction			Mortgage			Multifamily			Occupied			Occupied			and Other			Total
ACL at September 30, 2024
Individually Evaluated for Impairment		$	11		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	11
Collectively Evaluated for Impairment			5,662			1,079			394			2,779			22,355			1,233			17,376			129			51,007
Totals		$	5,673		$	1,079		$	394		$	2,779		$	22,355		$	1,233		$	17,376		$	129		$	51,018


					Construction												CRE			CRE
					and Land			1-4 Family			1--4 Family						Owner			Non-owner			Consumer
(dollars in thousands)		Commercial			Development			Construction			Mortgage			Multifamily			Occupied			Occupied			and Other			Total
ACL at December 31, 2023
Individually Evaluated for Impairment		$	8		$	—		$	—		$	—		$	—		$	—		$	95		$	—		$	103
Collectively Evaluated for Impairment			5,390			2,156			558			2,651			22,217			1,184			16,130			105			50,391
Totals		$	5,398		$	2,156		$	558		$	2,651		$	22,217		$	1,184		$	16,225		$	105		$	50,494


					Construction												CRE			CRE
					and Land			1-4 Family			1--4 Family						Owner			Non-owner			Consumer
(dollars in thousands)		Commercial			Development			Construction			Mortgage			Multifamily			Occupied			Occupied			and Other			Total
Loans at September 30, 2024
Individually Evaluated for Impairment		$	14,199		$	64		$	—		$	648		$	—		$	977		$	15,749		$	—		$	31,637
Collectively Evaluated for Impairment			479,204			118,532			45,822			420,531			1,379,814			181,262			1,016,393			12,395			3,653,953
Totals		$	493,403		$	118,596		$	45,822		$	421,179		$	1,379,814		$	182,239		$	1,032,142		$	12,395		$	3,685,590

Loans at December 31, 2023
Individually Evaluated for Impairment		$	16,143		$	80		$	249		$	689		$	—		$	1,559		$	17,138		$	—		$	35,858
Collectively Evaluated for Impairment			447,918			232,724			64,838			401,707			1,388,541			174,224			970,168			8,304			3,688,424
Totals		$	464,061		$	232,804		$	65,087		$	402,396		$	1,388,541		$	175,783		$	987,306		$	8,304		$	3,724,282

The following tables present the amortized cost basis of collateral dependent loans by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of September 30, 2024 and December 31, 2023:


		Primary Type of Collateral
					Business									ACL
(dollars in thousands)		Real Estate			Assets			Other			Total			Allocation
September 30, 2024
Commercial		$	—		$	3,841		$	10,358		$	14,199		$	11
Construction and Land Development			64			—			—			64			—
Real Estate Mortgage:
1-4 Family Mortgage			648			—			—			648			—
CRE Owner Occupied			977			—			—			977			—
CRE Nonowner Occupied			15,749			—			—			15,749			—
Totals		$	17,438		$	3,841		$	10,358		$	31,637		$	11


		Primary Type of Collateral
					Business									ACL
(dollars in thousands)		Real Estate			Assets			Other			Total			Allocation
December 31, 2023
Commercial		$	—		$	5,782		$	10,361		$	16,143		$	8
Construction and Land Development			80			—			—			80			—
1-4 Family Construction			249			—			—			249			—
Real Estate Mortgage:
1-4 Family Mortgage			689			—			—			689			—
CRE Owner Occupied			1,559			—			—			1,559			—
CRE Nonowner Occupied			17,138			—			—			17,138			95
Totals		$	19,715		$	5,782		$	10,361		$	35,858		$	103

Accrued interest receivable on loans, which is recorded within accrued interest on the balance sheet, totaled $10.0 million and $11.8 million at September 30, 2024 and December 31, 2023, respectively, and was excluded from the estimate of credit losses.

For both the three months ended September 30, 2024 and September 30, 2023, there were no loans modified to borrowers experiencing financial difficulty. For the nine months ended September 30, 2024, there were no loans modified to borrowers experiencing financial difficulty. For the nine months ended September 30, 2023, the Company modified one commercial real estate, or CRE, nonowner occupied loan, with an outstanding balance of $9.6 million, for a borrower experiencing financial difficulty by granting a 12-month extension at a below market rate. There was no forgiveness of principal and this loan was current with its modified terms as of September 30, 2023.