Loans

6 Months Ended

Jun. 30, 2022

(5) Loans

A summary of loans is as follows:


	At		At
	June 30,		December 31,
	2022		2021
(In thousands)	Amount		Amount
Commercial real estate	$	422,162	$	432,275
Commercial (1)		796,345		726,241
Residential real estate		9,902		812
Construction and land development		67,525		42,800
Consumer		720		1,519
Mortgage warehouse		239,791		253,764
		1,536,445		1,457,411
Allowance for loan losses		(18,972)		(19,496)
Deferred loan fees, net		(3,228)		(4,112)
Net loans	$	1,514,245	$	1,433,803

(1)Includes $138.6 million and $120.5 million in loans to digital asset companies at June 30, 2022 and December 31, 2021, respectively.

The following tables set forth information regarding the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2022 and 2021:



	For the three months ended June 30,
(In thousands)	Commercial Real Estate		Commercial		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
Allowance for loan losses:

Balance at March 31, 2022	$	4,992	$	13,267	$	14	$	565	$	123	$	335	$	19,296
Charge-offs		—		(1,338)		—		—		(7)		—		(1,345)
Recoveries		—		5		—		—		11		—		16
Provision (credit)		(102)		1,067		—		173		(38)		(95)		1,005
Balance at June 30, 2022	$	4,890	$	13,001	$	14	$	738	$	89	$	240	$	18,972

Balance at March 31, 2021	$	6,102	$	11,512	$	155	$	452	$	445	$	366	$	19,032
Charge-offs		—		(1,366)		—		—		(35)		—		(1,401)
Recoveries		—		97		2		—		13		—		112
Provision (credit)		(349)		2,153		(16)		(7)		(87)		(25)		1,669
Balance at June 30, 2021	$	5,753	$	12,396	$	141	$	445	$	336	$	341	$	19,412



	For the six months ended June 30,
(In thousands)	Commercial Real Estate		Commercial		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
Allowance for loan losses:

Balance at December 31, 2021	$	4,935	$	13,495	$	38	$	479	$	168	$	381	$	19,496
Charge-offs		—		(1,689)		—		—		(35)		—		(1,724)
Recoveries		—		93		—		—		19		—		112
Provision (credit)		(45)		1,102		(24)		259		(63)		(141)		1,088
Balance at June 30, 2022	$	4,890	$	13,001	$	14	$	738	$	89	$	240	$	18,972

Balance at December 31, 2020	$	6,095	$	10,543	$	184	$	447	$	586	$	663	$	18,518
Charge-offs		(150)		(1,409)		—		—		(191)		—		(1,750)
Recoveries		81		97		2		—		42		—		222
Provision (credit)		(273)		3,165		(45)		(2)		(101)		(322)		2,422
Balance at June 30, 2021	$	5,753	$	12,396	$	141	$	445	$	336	$	341	$	19,412

The following table sets forth information regarding the allowance for loan losses and related loan balances by portfolio segment at June 30, 2022 and December 31, 2021:



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
June 30, 2022
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance:
Collectively evaluated
for impairment		4,890		13,001		14		738		89		240		18,972
Total allowance for loan
losses ending balance	$	4,890	$	13,001	$	14	$	738	$	89	$	240	$	18,972

Loans (1):
Ending balance:
Individually evaluated
for impairment	$	20,171	$	423	$	157	$	—	$	—	$	—	$	20,751
Ending balance:
Collectively evaluated
for impairment		401,991		795,922		9,745		67,525		720		239,791		1,515,694
Total loans ending balance	$	422,162	$	796,345	$	9,902	$	67,525	$	720	$	239,791	$	1,536,445

(1)Balances represent gross loans. The difference between gross loans versus recorded investment, which would consist of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs, is not material.



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Total
December 31, 2021
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment	$	—	$	1,616	$	—	$	—	$	—	$	—	$	1,616
Ending balance:
Collectively evaluated
for impairment		4,935		11,879		38		479		168		381		17,880
Total allowance for loan
losses ending balance	$	4,935	$	13,495	$	38	$	479	$	168	$	381	$	19,496

Loans (1):
Ending balance:
Individually evaluated
for impairment	$	20,188	$	3,929	$	—	$	—	$	—	$	—	$	24,117
Ending balance:
Collectively evaluated
for impairment		412,087		722,312		812		42,800		1,519		253,764		1,433,294
Total loans ending balance	$	432,275	$	726,241	$	812	$	42,800	$	1,519	$	253,764	$	1,457,411

The following tables set forth information regarding non-accrual loans and loan delinquencies by portfolio segment at June 30, 2022 and December 31, 2021:



													90 Days
					90 Days		Total						or More
	30 - 59		60 - 89		or More		Past		Total		Total		Past Due		Non-accrual
(In thousands)	Days		Days		Past Due		Due		Current		Loans		and Accruing		Loans
June 30, 2022
Commercial real estate	$	122	$	59	$	—	$	181	$	421,981	$	422,162	$	—	$	—
Commercial		—		94		263		357		795,988		796,345		—		301
Residential real estate		—		—		144		144		9,758		9,902		—		303
Construction and
land development		—		—		—		—		67,525		67,525		—		—
Consumer		15		10		3		28		692		720		—		4
Mortgage warehouse		—		—		—		—		239,791		239,791		—		—
Total	$	137	$	163	$	410	$	710	$	1,535,735	$	1,536,445	$	—	$	608

December 31, 2021
Commercial real estate	$	—	$	—	$	—	$	—	$	432,275	$	432,275	$	—	$	—
Commercial		13		111		1,860		1,984		724,257		726,241		—		2,080
Residential real estate		—		—		555		555		257		812		—		812
Construction and
land development		—		—		—		—		42,800		42,800		—		—
Consumer		15		11		—		26		1,493		1,519		—		—
Mortgage warehouse		—		—		—		—		253,764		253,764		—		—
Total	$	28	$	122	$	2,415	$	2,565	$	1,454,846	$	1,457,411	$	—	$	2,892

The following tables provide information with respect to the Company’s impaired loans:


	June 30, 2022						December 31, 2021
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate	$	20,171	$	20,217	$	—	$	20,188	$	20,339	$	—
Commercial		423		2,278		—		2,015		2,205		—
Residential real estate		157		157		—		—		—		—
Construction and land development		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired with no related allowance		20,751		22,652		—		22,203		22,544		—

With an allowance recorded:
Commercial real estate		—		—		—		—		—		—
Commercial		—		—		—		1,914		3,086		1,616
Residential real estate		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired with an allowance recorded		—		—		—		1,914		3,086		1,616

Total
Commercial real estate		20,171		20,217		—		20,188		20,339		—
Commercial		423		2,278		—		3,929		5,291		1,616
Residential real estate		157		157		—		—		—		—
Construction and land development		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired loans	$	20,751	$	22,652	$	—	$	24,117	$	25,630	$	1,616



	Three Months Ended June 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial real estate	$	20,187	$	164	$	20,984	$	161
Commercial		581		3		2,090		47
Residential real estate		157		2		161		3
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with no related allowance		20,925		169		23,235		211
With an allowance recorded:
Commercial real estate		—		—		—		—
Commercial		—		—		3,342		1
Residential real estate		—		—		—		—
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with an allowance recorded		—		—		3,342		1
Total
Commercial real estate		20,187		164		20,984		161
Commercial		581		3		5,432		48
Residential real estate		157		2		161		3
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired loans	$	20,925	$	169	$	26,577	$	212



	Six Months Ended June 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial real estate	$	20,187	$	319	$	21,040	$	344
Commercial		769		4		2,128		50
Residential real estate		157		3		161		5
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with no related allowance		21,113		326		23,329		399
With an allowance recorded:
Commercial real estate		—		—		—		—
Commercial		—		—		3,349		3
Residential real estate		—		—		—		—
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with an allowance recorded		—		—		3,349		3
Total
Commercial real estate		20,187		319		21,040		344
Commercial		769		4		5,477		53
Residential real estate		157		3		161		5
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired loans	$	21,113	$	326	$	26,678	$	402

Troubled debt restructurings: Loans are considered to be TDRs when the Company has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

TDRs are reported as such for at least one year from the date of the restructuring. In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is not deemed to be impaired based on the terms specified in the restructuring agreement.

There were no new TDRs entered into during the three months ended June 30, 2022 and 2021. The following table summarize TDRs entered into during the six months ended June 30, 2022 and 2021:



	Six Months Ended June 30,
	2022					2021
(Dollars in thousands)	Number of Contracts	Pre- ‎Modification ‎Outstanding ‎Recorded ‎Investment		Post-Modification ‎Outstanding ‎Recorded ‎Investment		Number of Contracts	Pre- ‎Modification ‎Outstanding ‎Recorded ‎Investment		Post-Modification ‎Outstanding ‎Recorded ‎Investment
Troubled debt restructurings:
Commercial	—	$	—	$	—	3	$	1,868	$	1,868
	—	$	—	$	—	3	$	1,868	$	1,868

There were no new TDRs approved during the six months ended June 30, 2022.

During the six months ended June 30, 2021, the Company approved three TDRs all related to one commercial relationship totaling $1.9 million. A troubled debt restructuring was completed to provide the borrower with a three-month principal and interest deferral through April 2021; upon review in the second quarter of 2021 an additional three-month principal and interest deferral was granted through August 2021. During the third quarter of 2021, $1.6 million relating to this commercial relationship was charged-off with an additional $351,000 written off in the first quarter of 2022. As of June 30, 2022 the balance remaining is equal to the estimated net value of the collateral and the relationship remains on non-accrual status.

The total recorded investment in TDRs was $20.6 million and $22.7 million at June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022, there were no material commitments to lend additional funds to borrowers whose loans had been restructured.

The following tables present the Company’s loans by risk rating and portfolio segment at June 30, 2022 and December 31, 2021:



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate			Construction ‎and Land ‎Development	Consumer		Mortgage Warehouse		Total
June 30, 2022
Grade:
Pass	$	374,227	$	750,660	$	—	$	66,487	$	—	$	239,791	$	1,431,165
Special mention		28,125		39,220		—		—		—		—		67,345
Substandard		19,810		6,202		303		1,038		—		—		27,353
Doubtful		—		263		—		—		—		—		263
Not formally rated		—		—		9,599		—		720		—		10,319
Total	$	422,162	$	796,345	$	9,902	$	67,525	$	720	$	239,791	$	1,536,445

December 31, 2021
Grade:
Pass	$	383,460	$	676,081	$	—	$	41,762	$	—	$	253,764	$	1,355,067
Special mention		29,004		41,921		—		—		—		—		70,925
Substandard		19,811		7,677		812		1,038		—		—		29,338
Doubtful		—		562		—		—		—		—		562
Not formally rated		—		—		—		—		1,519		—		1,519
Total	$	432,275	$	726,241	$	812	$	42,800	$	1,519	$	253,764	$	1,457,411

Credit Quality Information

The Company utilizes a seven grade internal loan risk rating system for commercial real estate, construction and land development, and commercial loans as follows:

Loans rated 1-3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and land development, and commercial loans.

On an annual basis, or more often if needed, the Company completes a credit recertification on all mortgage warehouse originators.

For residential real estate loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and rates such loans as pass. Ongoing monitoring is based upon the borrower’s payment activity.

Consumer loans are not formally rated.