Loans and ACL

3 Months Ended

Mar. 31, 2025

Note 3 – Loans and ACL

The following table presents the amortized cost of loans held for investment as of the dates stated.


(Dollars in thousands)	March 31, 2025		December 31, 2024
Commercial and industrial	$	340,099	$	354,904
Real estate – construction, commercial		103,006		114,491
Real estate – construction, residential		53,498		51,807
Real estate – commercial		834,223		847,842
Real estate – residential		683,946		692,253
Real estate – farmland		4,748		5,520
Consumer		39,761		43,938
Gross loans held for investment		2,059,281		2,110,755
Deferred costs, net of loan fees		429		1,042
Total	$	2,059,710	$	2,111,797

The Company has pledged certain commercial and residential mortgage loans as collateral for borrowings with the FHLB. Loans totaling $772.4 million and $797.7 million were pledged with the FHLB as of March 31, 2025 and December 31, 2024, respectively. Additionally, the Company has pledged certain construction, and commercial and industrial loans totaling $68.5 million and $91.6 million as of March 31, 2025 and December 31, 2024, respectively, as collateral for borrowings with the FRB Discount Window.

The following tables present the aging of the recorded investment of loans held for investment by loan category as of the dates stated.


	March 31, 2025
(Dollars in thousands)	Current Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total Loans
Commercial and industrial	$	325,702	$	1,456	$	874	$	2,316	$	9,751	$	340,099
Real estate – construction, commercial		102,788		—		—		—		218		103,006
Real estate – construction, residential		53,498		—		—		—		—		53,498
Real estate – commercial		826,279		3,651		119		—		4,174		834,223
Real estate – residential		664,685		11,252		519		70		7,420		683,946
Real estate – farmland		4,748		—		—		—		—		4,748
Consumer		37,748		889		192		222		710		39,761
Deferred costs, net of loan fees		429		—		—		—		—		429
Total	$	2,015,877	$	17,248	$	1,704	$	2,608	$	22,273	$	2,059,710


	December 31, 2024
(Dollars in thousands)	Current Loans		30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total Loans
Commercial and industrial	$	339,893	$	1,335	$	1,232	$	2,259	$	10,185	$	354,904
Real estate – construction, commercial		114,238		—		33		—		220		114,491
Real estate – construction, residential		51,807		—		—		—		—		51,807
Real estate – commercial		842,982		625		—		—		4,235		847,842
Real estate – residential		680,406		3,874		476		—		7,497		692,253
Real estate – farmland		5,520		—		—		—		—		5,520
Consumer		41,295		1,296		300		227		820		43,938
Deferred costs, net of loan fees		1,042		—		—		—		—		1,042
Total	$	2,077,183	$	7,130	$	2,041	$	2,486	$	22,957	$	2,111,797

The following tables present the recorded investment of nonaccrual loans held for investment with and without an ACL by loan category as of the dates stated.


	March 31, 2025
(Dollars in thousands)	Nonaccrual Loans with No ACL		Nonaccrual Loans with an ACL		Total Nonaccrual Loans
Commercial and industrial	$	—	$	9,751	$	9,751
Real estate – construction, commercial		—		218		218
Real estate – commercial		—		4,174		4,174
Real estate – residential		1,052		6,368		7,420
Consumer		—		710		710
Total	$	1,052	$	21,221	$	22,273


	December 31, 2024
(Dollars in thousands)	Nonaccrual Loans with No ACL		Nonaccrual Loans with an ACL		Total Nonaccrual Loans
Commercial and industrial	$	778	$	9,407	$	10,185
Real estate – construction, commercial		—		220		220
Real estate – commercial		—		4,235		4,235
Real estate – residential		1,669		5,828		7,497
Consumer		—		820		820
Total	$	2,447	$	20,510	$	22,957

The Company recognized $118 thousand and $65 thousand of interest income on nonaccrual loans during the three months ended March 31, 2025 and 2024, respectively.

The following table presents accrued interest receivable by loan type reversed from interest income associated with loans held for investment that were placed on nonaccrual status for the periods stated.


	For the three months ended March 31,
(Dollars in thousands)	2025		2024
Commercial and industrial	$	70	$	57
Real estate – construction, commercial		—		25
Real estate – commercial		4		51
Real estate – residential		36		10
Consumer		7		5
Total	$	117	$	148

Credit Quality Indicators

The Company segments loans held for investment into risk categories based on relevant information about the expected ability of borrowers to repay debt, such as current financial information, historical payment performance, experience, collateral adequacy, credit documentation, and current economic trends, among other factors. Management assigns loan risk grades by a numerical system as an indication of credit quality of its portfolio of loans held for investment. The Company uses the following definitions for loan risk ratings and periodically evaluates the appropriateness of these ratings across its loan portfolio. Independent third-party loan reviews are performed periodically on the Company's loan portfolio and such reviews validate management's determination of loan risk grades. Bank regulatory agencies also periodically review the Company's loan portfolio, including loan risk grades and may, on occasion, change a grade based on their judgment of the facts at the time of review.

Risk Grade 1 – Strong: This grade is for the strongest of loans. These loans are extended to individuals or businesses where the probability of default is extremely low to the Bank and secured with liquid collateral where the loss given default is unlikely because of the source of repayment such as a lien on a deposit account held at the Bank. Character, credit history, and ability of individuals or company principals are excellent. High liquidity, minimum risk, strong ratios, and low servicing cost are present.

Risk Grade 2 – Minimal: This grade is for loans deemed exceptionally strong. These loans are within established guidelines and where the borrowers have documented significant overall financial strength with consistent and predictable cash flows. These loans have excellent sources of repayment, significant balance sheet liquidity, no significant identifiable risk of collection, and conform in all respects to policy, underwriting standards, and federal and state regulations (no exceptions of any kind). In addition, guarantor support, when provided, is deemed as excellent.

Risk Grade 3 – Acceptable: This grade is for loans deemed strong. These loans have adequate sources of repayment, with a minimal identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: (1) conformity in all respects with policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind), (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt. In addition, guarantor support, when provided, is deemed strong.

Risk Grade 4 – Satisfactory: This grade is for satisfactory loans containing more but deemed acceptable risk, and where the borrower is deemed as sound. These loans have adequate sources of repayment, with minimal identifiable risk of collection. Loans assigned with this risk grade will demonstrate the following characteristics: (1) general conformity to the Bank's underwriting requirements, with limited exceptions to policy, product, or underwriting guidelines, and all exceptions noted have documented mitigating factors that offset any additional risk associated with the exceptions noted, (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt. In addition, guarantor support, when provided, is deemed as satisfactory.

Risk Grade 5 – Watch: This grade is for satisfactory loans containing acceptable but elevated risk. These loans are characterized by borrowers who exhibit signs of financial stress or are experiencing unstable or unfavorable change(s) adversely impacting the current or expected financial condition. The borrower's management is considered to be satisfactory; however, the collateral securing the loan may have decreased in value, the debt service coverage ratio is inconsistent or breakeven but mostly positive, and/or guarantor support, if any, is deemed limited or marginal. Loans classified as Watch warrant additional monitoring by management.

Risk Grade 6 – Special Mention: This grade is for loans that have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the Bank's credit position potentially at a future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special Mention credits typically do not conform to established guidelines and/or exceptions without mitigating factors, or have emerging weaknesses that may or may not be remedied with the passage of time.

Risk Grade 7 – Substandard: This grade is for loans inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. The probability of default is highly likely and may have already occurred. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to: (1) current or expected unprofitable operations, (2) inadequate debt service coverage, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable or weak repayment sources, and (6) lack of well-defined secondary repayment source. There is a distinct possibility of loss and the Bank will sustain loss if the deficiencies remain uncorrected.

Risk Grade 8 – Doubtful: Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the Bank's position, which can include, but not limited to (1) an injection of capital, (2) alternative financing, and (3) liquidation of assets or the pledging of additional collateral. Doubtful is a temporary grade, where the Bank expects a loss but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is recorded and charged off against the ACL.

Risk Grade 9 – Loss: Loans classified Loss are deemed uncollectible and of such little value that continuance as assets held for investment is no longer warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer charging off the worthless loan, even though partial recovery may occur in the future. Probable loss amounts, either principal or interest, deemed uncollectible are charged off promptly against the ACL.

The following table presents the recorded investment of loans held for investment by internal loan risk grade by year of origination as of March 31, 2025. There were no loans classified as loss (risk grade 9) as of the same date. Also presented are current period gross charge-offs by loan type for the three months ended March 31, 2025.


	Term Loans Recorded Investment Basis by Origination Year
(Dollars in thousands)	2025		2024		2023		2022		2021		Prior		Revolving Loans		Total
Commercial and industrial
Risk Grades 1 - 4	$	5,226	$	10,508	$	13,830	$	52,822	$	12,525	$	28,927	$	103,283	$	227,121
Risk Grades 5 - 6		—		397		23,880		38,796		6,939		6,209		11,460		87,681
Risk Grade 7		—		861		342		5,421		13,053		1,811		1,804		23,292
Risk Grade 8		—		—		—		—		2,005		—		—		2,005
Total		5,226		11,766		38,052		97,039		34,522		36,947		116,547		340,099
Current period gross charge-offs		—		23		30		1,937		—		83		50		2,123

Real estate – construction, commercial
Risk Grades 1 - 4		180		6,341		3,694		46,453		6,593		9,641		399		73,301
Risk Grades 5 - 6		—		—		1,086		18,000		714		9,584		—		29,384
Risk Grade 7		—		—		115		—		19		187		—		321
Total		180		6,341		4,895		64,453		7,326		19,412		399		103,006
Current period gross charge-offs		—		—		—		—		—		—		—		—

Real estate – construction, residential
Risk Grades 1 - 4		4,919		17,829		7,558		3,352		—		55		739		34,452
Risk Grades 5 - 6		86		—		215		—		18,278		—		—		18,579
Risk Grade 7		—		—		—		467		—		—		—		467
Total		5,005		17,829		7,773		3,819		18,278		55		739		53,498
Current period gross charge-offs		—		—		—		—		—		—		—		—

Real estate – commercial
Risk Grades 1 - 4		5,924		4,663		37,221		217,275		114,002		259,122		19,007		657,214
Risk Grades 5 - 6		—		532		3,393		87,068		10,375		47,782		4,383		153,533
Risk Grade 7		—		1,560		—		10,192		8,190		2,170		25		22,137
Risk Grade 8		—		—		—		—		1,339		—		—		1,339
Total		5,924		6,755		40,614		314,535		133,906		309,074		23,415		834,223
Current period gross charge-offs		—		—		—		—		—		63		—		63

Real estate – residential
Risk Grades 1 - 4		1,016		2,199		65,597		225,464		112,936		198,552		56,971		662,735
Risk Grades 5 - 6		—		909		—		998		2,182		4,692		98		8,879
Risk Grade 7		141		—		1,104		2,165		1,723		6,702		497		12,332
Total		1,157		3,108		66,701		228,627		116,841		209,946		57,566		683,946
Current period gross charge-offs		—		—		—		—		—		16		—		16

Real estate – farmland
Risk Grades 1 - 4		—		146		—		995		1,225		2,005		148		4,519
Risk Grades 5 - 6		—		—		132		—		97		—		—		229
Total		—		146		132		995		1,322		2,005		148		4,748
Current period gross charge-offs		—		—		—		—		—		—		—		—

Consumer
Risk Grades 1 - 4		965		5,063		15,346		7,683		1,314		1,102		6,680		38,153
Risk Grades 5 - 6		—		101		173		294		76		29		—		673
Risk Grade 7		—		56		256		361		180		75		—		928
Risk Grade 8		—		—		7		—		—		—		—		7
Total		965		5,220		15,782		8,338		1,570		1,206		6,680		39,761
Current period gross charge-offs		—		302		55		220		6		4		—		587

Total Loans
Risk Grades 1 - 4	$	18,230	$	46,749	$	143,246	$	554,044	$	248,595	$	499,404	$	187,227	$	1,697,495
Risk Grades 5 - 6		86		1,939		28,879		145,156		38,661		68,296		15,941		298,958
Risk Grade 7		141		2,477		1,817		18,606		23,165		10,945		2,326		59,477
Risk Grade 8		—		—		7		—		3,344		—		—		3,351
Total	$	18,457	$	51,165	$	173,949	$	717,806	$	313,765	$	578,645	$	205,494	$	2,059,281
Total current period gross charge-offs	$	—	$	325	$	85	$	2,157	$	6	$	166	$	50	$	2,789

The following table presents the recorded investment of loans held for investment by internal loan risk grade by year of origination as of December 31, 2024. There were no loans classified as loss (risk grade 9) as of the same date.


	Term Loans Recorded Investment Basis by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Commercial and industrial
Risk Grades 1 - 4	$	13,883	$	13,559	$	64,530	$	14,600	$	17,405	$	15,760	$	98,867	$	238,604
Risk Grades 5 - 6		672		24,430		37,503		10,201		5,183		979		15,092		94,060
Risk Grade 7		944		2,248		5,173		10,462		562		1,247		1,521		22,157
Risk Grade 8		—		—		—		82		—		1		—		83
Total		15,499		40,237		107,206		35,345		23,150		17,987		115,480		354,904

Real estate – construction, commercial
Risk Grades 1 - 4		6,219		6,277		65,560		7,776		5,405		4,792		399		96,428
Risk Grades 5 - 6		—		1,090		—		7,567		4,770		4,235		—		17,662
Risk Grade 7		—		116		—		24		—		261		—		401
Total		6,219		7,483		65,560		15,367		10,175		9,288		399		114,491

Real estate – construction, residential
Risk Grades 1 - 4		19,574		8,861		7,837		13,971		—		57		990		51,290
Risk Grades 5 - 6		193		—		—		—		—		—		—		193
Risk Grade 7		—		169		155		—		—		—		—		324
Total		19,767		9,030		7,992		13,971		—		57		990		51,807

Real estate – commercial
Risk Grades 1 - 4		4,747		34,698		245,563		118,435		142,211		133,856		21,323		700,833
Risk Grades 5 - 6		535		5,092		64,677		7,002		14,604		23,104		4,184		119,198
Risk Grade 7		1,565		—		9,970		10,380		2,945		1,355		25		26,240
Risk Grade 8		—		—		—		1,379		—		192		—		1,571
Total		6,847		39,790		320,210		137,196		159,760		158,507		25,532		847,842

Real estate – residential
Risk Grades 1 - 4		2,815		66,780		225,159		114,682		64,548		143,002		53,498		670,484
Risk Grades 5 - 6		853		—		2,303		1,295		318		2,378		95		7,242
Risk Grade 7		—		736		2,153		2,113		1,454		5,822		2,249		14,527
Total		3,668		67,516		229,615		118,090		66,320		151,202		55,842		692,253

Real estate – farmland
Risk Grades 1 - 4		147		—		997		1,239		—		2,753		149		5,285
Risk Grades 5 - 6		—		135		—		100		—		—		—		235
Total		147		135		997		1,339		—		2,753		149		5,520

Consumer
Risk Grades 1 - 4		5,944		17,211		8,716		1,650		1,034		486		7,283		42,324
Risk Grades 5 - 6		74		133		225		99		32		3		—		566
Risk Grade 7		87		330		332		184		63		24		28		1,048
Total		6,105		17,674		9,273		1,933		1,129		513		7,311		43,938

Total Loans
Risk Grades 1 - 4	$	53,329	$	147,386	$	618,362	$	272,353	$	230,603	$	300,706	$	182,509	$	1,805,248
Risk Grades 5 - 6		2,327		30,880		104,708		26,264		24,907		30,699		19,371		239,156
Risk Grade 7		2,596		3,599		17,783		23,163		5,024		8,709		3,823		64,697
Risk Grade 8		—		—		—		1,461		—		193		—		1,654
Total	$	58,252	$	181,865	$	740,853	$	323,241	$	260,534	$	340,307	$	205,703	$	2,110,755

The following tables present an analysis of the change in the ACL by loan segment for the periods stated.


	For the three months ended March 31, 2025
(Dollars in thousands)	Commercial and industrial			Real estate – construction, commercial			Real estate – construction, residential			Real estate – commercial			Real estate – residential			Real estate – farmland		Consumer			Total
ACL, beginning of period	$	5,767		$	2,057		$	540		$	5,963		$	7,933		$	18	$	745		$	23,023
(Recovery of) provision for credit losses - loans		(189	)		(65	)		12			(240	)		253			—		229			—
Charge-offs		(2,123	)		—			—			(63	)		(16	)		—		(587	)		(2,789	)
Recoveries		2,271			—			—			338			1			—		282			2,892
Net recoveries (charge-offs)		148			—			—			275			(15	)		—		(305	)		103
ACL, end of period	$	5,726		$	1,992		$	552		$	5,998		$	8,171		$	18	$	669		$	23,126

	For the three months ended March 31, 2024
(Dollars in thousands)	Commercial and industrial			Real estate – construction, commercial			Real estate – construction, residential			Real estate – commercial			Real estate – residential			Real estate – farmland		Consumer			Total
ACL, beginning of period	$	13,787		$	4,024		$	1,094		$	9,929		$	6,286		$	15	$	758		$	35,893
Provision for (recovery of) credit losses - loans		257			(428	)		(175	)		(97	)		39			3		401			—
Charge-offs		(1,957	)		—			—			—			—			—		(745	)		(2,702	)
Recoveries		1,532			—			—			—			13			—		289			1,834
Net (charge-offs) recoveries		(425	)		—			—			—			13			—		(456	)		(868	)
ACL, end of period	$	13,619		$	3,596		$	919		$	9,832		$	6,338		$	18	$	703		$	35,025

There were no material changes to the assumptions, loss factors (both quantitative and qualitative), or reasonable and supportable forecasts used in the estimation of the ACL and the provision for (recovery of) credit losses for loans held for investment as of and for the three months ended March 31, 2025.

Excluded from the ACL as of both March 31, 2025 and December 31, 2024 was $10.7 million of accrued interest attributable to loans held for investment, which is included in accrued interest receivable on the consolidated balance sheet.

The following table presents the amortized cost of collateral-dependent loans that are individually evaluated for credit losses as of the dates stated.


(Dollars in thousands)	March 31, 2025		December 31, 2024
Commercial and industrial	$	22,560	$	42,723
Real estate – construction, commercial		115		116
Real estate – commercial		25,250		26,994
Real estate – residential		6,301		9,586
Total collateral-dependent loans	$	54,226	$	79,419

Acquired Loans

As of March 31, 2025 and December 31, 2024, the amortized cost of purchased credit deteriorated ("PCD") loans totaled $39.5 million and $43.8 million, respectively, with an estimated ACL of $255 thousand and $262 thousand, respectively. The remaining non-credit discount on PCD loans was $2.8 million and $3.0 million as of March 31, 2025 and December 31, 2024, respectively.

Troubled Loan Modifications

The Company closely monitors the performance of borrowers experiencing financial difficulty and grants certain loan modifications it would otherwise not consider. The Company refers to such loan modifications as troubled loan modifications ("TLMs").

The following table presents the amortized cost of TLMs, categorized by loan type and type of concession granted, for the periods stated.


	For the three months ended March 31,
	2025							2024
(Dollars in thousands)	Number of Loans		Recorded Investment		% of Recorded Investment to Gross Loans by Category			Number of Loans		Recorded Investment		% of Recorded Investment to Gross Loans by Category
Combined - term extension and deferral
Commercial and industrial		1	$	2,024		0.60	%		—	$	—		0.00	%
Total combined - term extension and deferral		1	$	2,024					—	$	—

Interest forgiveness
Real estate – residential		1	$	141		0.02	%		—	$	—		0.00	%
Total interest forgiveness		1	$	141					—	$	—

Total		2	$	2,165					—	$	—

For the three months ended March 31, 2025, the borrower of a commercial and industrial loan, which has been on nonaccrual status since the second quarter of 2024, was granted an 18-month term extension and principal deferral, extending the loan's maturity to a total of 72 months. Interest-only payments are due through the extended term, with a principal balloon payment due at the revised maturity date of June 2027. Also in the first quarter of 2025, three loans partially charged off in 2024 to a single borrower were refinanced into a single residential mortgage loan, which included the forgiveness of $40 thousand of accrued interest.

The following tables present an aging analysis of the amortized cost of TLMs as of the dates stated.


	March 31, 2025
(Dollars in thousands)	Current Loans		30-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total
Commercial and industrial	$	734	$	—	$	—	$	4,513	$	5,247
Real estate – construction, residential		154		—		—		—		154
Real estate – commercial		1,764		—		—		2,997		4,761
Real estate – residential		192		141		—		493		826
Consumer loans		—		—		—		9		9
Total modified loans	$	2,844	$	141	$	—	$	8,012	$	10,997


	December 31, 2024
(Dollars in thousands)	Current Loans		30-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Nonaccrual		Total
Commercial and industrial	$	554	$	—	$	—	$	2,745	$	3,299
Real estate – construction, residential		155		—		—		—		155
Real estate – commercial		1,773		—		—		2,999		4,772
Real estate – residential		194		—		—		500		694
Consumer loans		—		—		—		10		10
Total modified loans	$	2,676	$	—	$	—	$	6,254	$	8,930

As of March 31, 2025 and December 31, 2024, there were no unfunded commitments to borrowers with TLMs.

The following table presents the amortized cost of TLMs that were modified in the preceding twelve months and had a payment default during the periods stated.


	For the three months ended March 31,
	2025							2024
(Dollars in thousands)	Number of Loans		Amortized Cost		% of Amortized Cost to Gross Loans by Category			Number of Loans		Amortized Cost		% of Amortized Cost to Gross Loans by Category
Combined - term extension and deferral
Commercial and industrial		—	$	—		0.00	%	1		$	2,548		0.52	%
Total combined - term extension and deferral		—	$	—				1		$	2,548

Interest forgiveness
Real estate – residential	1		$	141		0.02	%		—	$	—		0.00	%
Total interest forgiveness	1		$	141					—	$	—

Payment deferral 6-9 months
Real estate – residential	1		$	493		0.07	%	1		$	565		0.08	%
Consumer	1			9		0.02	%		—		—		0.00	%
Total payment deferral	2		$	502				1		$	565

Total	3		$	643				2		$	3,113

As of March 31, 2025, five residential mortgage loans with a total amortized cost of $755 thousand were in the process of foreclosure.