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Loans and Asset Quality
 9 Months Ended
Sep. 30, 2024
Receivables [Abstract]  
Loans and Asset Quality Loans and Asset Quality
Loans
Loans HFI by category and loans HFS are summarized below:
(in thousands)September 30, 2024December 31, 2023
Real estate:
Commercial real estate$875,590 $851,582 
One-to-four family residential616,467 599,487 
Construction and development141,525 125,238 
Commercial and industrial327,069 315,327 
Tax-exempt66,436 72,913 
Consumer28,961 28,311 
Total loans HFI$2,056,048 $1,992,858 
Total loans HFS$1,805 $1,306 
Accrued interest receivable on loans HFI totaled $6.3 million and $6.8 million as of September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the accompanying consolidated balance sheets.
Allowance for Credit Losses
Effective January 1, 2023, the Company adopted the provisions of ASC 326 using the modified retrospective method. The Company maintains an ACL on all loans that reflects management’s estimate of expected credit losses for the full life of the loan portfolio.
The following table summarizes the activity in the ACL by category for the nine months ended September 30, 2024:
(in thousands)
Beginning Balance December 31, 2023
Provision for Credit Losses(1)
Charge-offsRecoveries
Ending Balance September 30, 2024
Real estate:
Commercial real estate$9,118 $213 $— $— $9,331 
One-to-four family residential7,484 (978)— 7 6,513 
Construction and development1,309 (83)— — 1,226 
Commercial and industrial2,553 1,813 (218)59 4,207 
Tax-exempt575 (469)— — 106 
Consumer297 304 (327)100 374 
Total allowance for credit losses$21,336 $800 $(545)$166 $21,757 
(1)The $900,000 provision for credit losses on the consolidated statements of income for the nine months ended September 30, 2024, includes $800,000 for loans and $100,000 for unfunded loan commitments.
The following table summarizes the activity in the ACL by category for the nine months ended September 30, 2023:
(in thousands)Beginning Balance December 31, 2022
Impact of ASC 326 Adoption
 Provision for Credit Losses Charge-offsRecoveries
Ending Balance September 30, 2023
Real estate:
Commercial real estate$7,720 $876 $53 $— $— $8,649 
One-to-four family residential5,682 1,231 554 — 8 7,475 
Construction and development1,654 (444)32 (9)— 1,233 
Commercial and industrial4,350 (822)(562)(51)25 2,940 
Tax-exempt751 (427)255 — — 579 
Consumer471 (136)153 (288)107 307 
Total allowance for credit losses$20,628 $278 $485 $(348)$140 $21,183 
Nonaccrual and Past Due Loans
The following table presents nonaccrual loans as of September 30, 2024:
(in thousands)Nonaccrual with No ACLNonaccrual with ACLTotal Nonaccrual
Real estate:
Commercial real estate$458 $276 $734 
One-to-four family residential337 252 589 
Construction and development— 920 920 
Commercial and industrial553 136 689 
Tax-exempt— — — 
Consumer— 91 91 
Total loans HFI$1,348 $1,675 $3,023 
The following table presents nonaccrual loans as of December 31, 2023:
(in thousands)Nonaccrual with No ACLNonaccrual with ACLTotal Nonaccrual
Real estate:
Commercial real estate$— $714 $714 
One-to-four family residential— 269 269 
Construction and development— — — 
Commercial and industrial709 135 844 
Tax-exempt— — — 
Consumer— 132 132 
Total loans HFI$709 $1,250 $1,959 
No material interest income was recognized in the consolidated statements of income on nonaccrual loans for the nine months ended September 30, 2024 and 2023.
The following table presents the aging analysis of the past due loans and loans 90 days or more past due and still accruing interest by loan category as of September 30, 2024:
Past Due
(in thousands)30-59 Days60-89 Days90 Days or MoreCurrentTotal Loans HFI90 Days or More Past Due and Accruing
Real estate:
Commercial real estate$166 $— $705 $874,719 $875,590 $— 
One-to-four family residential143 603 580 615,141 616,467 44 
Construction and development— — 918 140,607 141,525 — 
Commercial and industrial28 2 674 326,365 327,069 — 
Tax-exempt— — — 66,436 66,436 — 
Consumer3 11 13 28,934 28,961 1 
Total loans HFI$340 $616 $2,890 $2,052,202 $2,056,048 $45 
The following table presents the aging analysis of the past due loans and loans 90 days or more past due and still accruing interest by loan category as of December 31, 2023:
Past Due
(in thousands)30-59 Days60-89 Days90 Days or MoreCurrentTotal Loans HFI90 Days or More Past Due and Accruing
Real estate:
Commercial real estate$36 $— $678 $850,868 $851,582 $— 
One-to-four family residential392 251 409 598,435 599,487 260 
Construction and development— — 265 124,973 125,238 265 
Commercial and industrial132 60 847 314,288 315,327 45 
Tax-exempt— — — 72,913 72,913 — 
Consumer27 16 46 28,222 28,311 4 
Total loans HFI$587 $327 $2,245 $1,989,699 $1,992,858 $574 
Loan Modifications
Modifications are made to a borrower experiencing financial difficulty, and the modified terms are in the form of principal forgiveness, interest rate reduction, other-than-insignificant payment delay, or a term extension in the current reporting period. For the periods ended September 30, 2024 and 2023, modifications were made to certain borrowers by granting term extensions. These term extensions were not significant to the consolidated financial statements.
Credit Quality Indicators
Loans are categorized based on the degree of risk inherent in the credit and the ability of the borrower to service the debt. A description of the general characteristics of the Bank’s risk rating grades follows:
Pass - These loans are of satisfactory quality and do not require a more severe classification.
Special mention - This category includes loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan. However, the loss potential does not warrant substandard classification.
Substandard - Loans in this category have well-defined weaknesses that jeopardize normal repayment of principal and interest. Prompt corrective action is required to reduce exposure and to assure adequate remedial actions are taken by the borrower. If these weaknesses do not improve, loss is possible.
Doubtful - Loans in this category have well-defined weaknesses that make full collection improbable.
Loss - Loans classified in this category are considered uncollectible and charged-off to the ACL.
As of September 30, 2024, the Company had no loans classified as doubtful or loss. The following table summarizes loans by risk rating and year of origination as of September 30, 2024, and gross charge-offs for the nine months ended September 30, 2024:
Year of Origination
(in thousands)20242023202220212020Prior YearsRevolving LinesTotal
Real estate:
Commercial real estate
Pass$110,418 $110,026 $237,793 $221,675 $70,707 $90,857 $26,310 $867,786 
Special Mention3,073 227 1,494 — — 661 — 5,455 
Substandard— 183 747 684 — 735 — 2,349 
Total$113,491 $110,436 $240,034 $222,359 $70,707 $92,253 $26,310 $875,590 
One-to-four family residential
Pass$76,264 $109,718 $121,231 $116,108 $81,318 $90,646 $17,885 $613,170 
Special Mention131 — — 807 — 257 — 1,195 
Substandard— — 372 43 34 843 810 2,102 
Total$76,395 $109,718 $121,603 $116,958 $81,352 $91,746 $18,695 $616,467 
Construction and development
Pass$41,907 $64,646 $25,662 $4,206 $802 $1,754 $1,377 $140,354 
Special Mention— — — — — — — — 
Substandard— 918 — — — 253 — 1,171 
Total$41,907 $65,564 $25,662 $4,206 $802 $2,007 $1,377 $141,525 
Commercial and industrial
Pass$57,633 $53,224 $34,515 $42,115 $9,120 $2,909 $124,746 $324,262 
Special Mention192 — 1,250 — — — 564 2,006 
Substandard26 3 31 12 2 84 643 801 
Total$57,851 $53,227 $35,796 $42,127 $9,122 $2,993 $125,953 $327,069 
Tax-exempt
Pass$2,487 $1,606 $14,977 $6,625 $11,123 $29,618 $— $66,436 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Total$2,487 $1,606 $14,977 $6,625 $11,123 $29,618 $— $66,436 
Consumer
Pass$13,107 $8,834 $3,611 $1,480 $419 $215 $1,187 $28,853 
Special Mention— — — — — — — — 
Substandard— 10 — — — 91 7 108 
Total$13,107 $8,844 $3,611 $1,480 $419 $306 $1,194 $28,961 
Total loans HFI$305,238 $349,395 $441,683 $393,755 $173,525 $218,923 $173,529 $2,056,048 
Gross charge-offs$7 $27 $27 $1 $— $153 $330 $545 
As of December 31, 2023, the Company had no loans classified as doubtful or loss. The following table summarizes loans by risk rating and year of origination as of December 31, 2023, and gross charge-offs for the year ended December 31, 2023:
Year of Origination
(in thousands)20232022202120202019Prior YearsRevolving LinesTotal
Real estate:
Commercial real estate
Pass$124,134 $256,707 $239,364 $76,754 $63,475 $61,957 $18,467 $840,858 
Special Mention73 — 3,186 — 1,031 4,082 — 8,372 
Substandard184 779 675 — — 714 — 2,352 
Total$124,391 $257,486 $243,225 $76,754 $64,506 $66,753 $18,467 $851,582 
One-to-four family residential
Pass$122,004 $134,583 $129,388 $90,190 $31,110 $74,077 $16,472 $597,824 
Special Mention— — — — — 261 — 261 
Substandard— 79 — 37 385 827 74 1,402 
Total$122,004 $134,662 $129,388 $90,227 $31,495 $75,165 $16,546 $599,487 
Construction and development
Pass$54,189 $55,515 $10,333 $1,742 $2,158 $1,015 $286 $125,238 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Total$54,189 $55,515 $10,333 $1,742 $2,158 $1,015 $286 $125,238 
Commercial and industrial
Pass$73,653 $49,637 $51,012 $13,863 $7,409 $813 $107,171 $303,558 
Special Mention1,208 937 4,659 — 310 509 3,173 10,796 
Substandard4 — 59 5 54 51 800 973 
Total$74,865 $50,574 $55,730 $13,868 $7,773 $1,373 $111,144 $315,327 
Tax-exempt
Pass$959 $15,679 $8,174 $13,919 $4,250 $29,932 $— $72,913 
Special Mention— — — — — — — — 
Substandard— — — — — — — — 
Total$959 $15,679 $8,174 $13,919 $4,250 $29,932 $— $72,913 
Consumer
Pass$16,947 $6,385 $2,325 $858 $363 $133 $1,173 $28,184 
Special Mention— — — — — — — — 
Substandard— 29 — — — 90 8 127 
Total$16,947 $6,414 $2,325 $858 $363 $223 $1,181 $28,311 
Total loans HFI$393,355 $520,330 $449,175 $197,368 $110,545 $174,461 $147,624 $1,992,858 
Gross charge-offs$12 $20 $1 $— $10 $25 $405 $473 
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s evaluation of the customer’s ability to repay. As of September 30, 2024 and December 31, 2023, unfunded loan commitments totaled approximately $501.2 million and $372.0 million, respectively.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. As of September 30, 2024 and December 31, 2023, commitments under standby letters of credit totaled approximately $12.0 million and $15.4 million, respectively. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Effective January 1, 2023, the Company adopted the provision of ASC 326 using the modified retrospective method and established a reserve for unfunded commitments. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is recorded within accrued expenses and other liabilities on the consolidated balance sheets, and the related provision is recorded in provision for credit losses on the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The loss rates computed for each pool and expected pool-level funding rates are applied to the related unfunded commitment balance to obtain the reserve amount. As of September 30, 2024 and December 31, 2023, the reserve on unfunded commitments was $542,000 and $442,000, respectively.
The following table summarizes the reserve for unfunded commitments for the periods indicated:
As of and For the Nine Months Ended
(in thousands)September 30, 2024September 30, 2023
Reserve for unfunded commitments at beginning of period$442 $— 
Provision for credit losses(1,2)
100 — 
Impact of ASC 326 adoption— 442 
Reserve for unfunded commitments at end of period$542 $442 
(1)The $900,000 provision for credit losses on the consolidated statements of income for the nine months ended September 30, 2024, includes $800,000 for loans and $100,000 for unfunded loan commitments.
(2)The $485,000 provision for credit losses on the consolidated statements of income for the nine months ended September 30, 2023, is all for loans.