| LOANS AND ALLOWANCE FOR CREDIT LOSSES |
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Major classifications of loans held for investment at June 30, 2026 and December 31, 2025 are summarized as follows: | | | | | | | | | June 30, | | December 31, | (Dollars in thousands) | | 2026 | | 2025 | Construction and development | | $ | 69,348 | | $ | 41,796 | Commercial real estate | | | 1,463,460 | | | 1,560,728 | Commercial and industrial | | | 84,999 | | | 96,360 | Residential real estate | | | 2,365,132 | | | 2,378,311 | Consumer and other | | | 600 | | | 627 | Total loans receivable | | $ | 3,983,539 | | $ | 4,077,822 | Unearned income | | | (9,660) | | | (6,621) | Loan discounts | | | (17,560) | | | (19,804) | Allowance for credit losses | | | (25,818) | | | (27,843) | Loans held for investment, net | | $ | 3,930,501 | | $ | 4,023,554 |
The Company is not committed to lend additional funds to borrowers with nonaccrual or restructured loans. In the normal course of business, the Company may sell and purchase loan participations to and from other financial institutions and related parties. Commercial loan participations are sold as needed to comply with the legal lending limits per borrower as imposed by regulatory authorities. The participations are sold without recourse and the Company imposes no transfer or ownership restrictions on the purchaser. The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this note. As of June 30, 2026 and December 31, 2025, accrued interest receivable for loans totaled $20.0 million and $20.0 million, respectively, and is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets. Allowance for Credit Losses A summary of changes in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2026 and 2025 is as follows: | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2026 | | | Construction | | | | | | | | | | | | | | | | | | and | | Commercial | | Commercial | | Residential | | Consumer | | | | (Dollars in thousands) | | Development | | Real Estate | | and Industrial | | Real Estate | | and Other | | Total | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 61 | | $ | 14,731 | | $ | 1,469 | | $ | 10,436 | | $ | 3 | | $ | 26,700 | Charge-offs | | | — | | | — | | | — | | | — | | | — | | | — | Recoveries | | | — | | | 96 | | | 3 | | | — | | | — | | | 99 | Provision for loan losses | | | 8 | | | (735) | | | (61) | | | (190) | | | (3) | | | (981) | Ending balance | | $ | 69 | | $ | 14,092 | | $ | 1,411 | | $ | 10,246 | | $ | — | | $ | 25,818 |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2025 | | | Construction | | | | | | | | | | | | | | | | | | and | | Commercial | | Commercial | | Residential | | Consumer | | | | (Dollars in thousands) | | Development | | Real Estate | | and Industrial | | Real Estate | | and Other | | Total | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 44 | | $ | 7,542 | | $ | 1,202 | | $ | 9,803 | | $ | 1 | | $ | 18,592 | Charge-offs | | | — | | | (62) | | | — | | | — | | | — | | | (62) | Recoveries | | | — | | | — | | | 2 | | | — | | | — | | | 2 | Provision for loan losses | | | 3 | | | 122 | | | 199 | | | (109) | | | 1 | | | 216 | Ending balance | | $ | 47 | | $ | 7,602 | | $ | 1,403 | | $ | 9,694 | | $ | 2 | | $ | 18,748 |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2026 | | | Construction | | | | | | | | | | | | | | | | | | and | | Commercial | | Commercial | | Residential | | Consumer | | | | (Dollars in thousands) | | Development | | Real Estate | | and Industrial | | Real Estate | | and Other | | Total | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 65 | | $ | 15,716 | | $ | 1,586 | | $ | 10,472 | | $ | 4 | | $ | 27,843 | Charge-offs | | | — | | | (190) | | | (92) | | | — | | | — | | | (282) | Recoveries | | | — | | | 99 | | | 8 | | | — | | | — | | | 107 | Provision for loan losses | | | 4 | | | (1,536) | | | (88) | | | (226) | | | (4) | | | (1,850) | Ending balance | | $ | 69 | | $ | 14,089 | | $ | 1,414 | | $ | 10,246 | | $ | — | | $ | 25,818 |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2025 | | | Construction | | | | | | | | | | | | | | | | | | and | | Commercial | | Commercial | | Residential | | Consumer | | | | (Dollars in thousands) | | Development | | Real Estate | | and Industrial | | Real Estate | | and Other | | Total | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 31 | | $ | 7,265 | | $ | 1,380 | | $ | 10,066 | | $ | 2 | | $ | 18,744 | Charge-offs | | | — | | | (62) | | | (173) | | | — | | | — | | | (235) | Recoveries | | | — | | | 1 | | | 5 | | | — | | | — | | | 6 | Provision for loan losses | | | 16 | | | 398 | | | 191 | | | (372) | | | — | | | 233 | Ending balance | | $ | 47 | | $ | 7,602 | | $ | 1,403 | | $ | 9,694 | | $ | 2 | | $ | 18,748 |
The allowance for credit losses was $25.8 million as of June 30, 2026 compared to $27.8 million as of December 31, 2025, a decrease of $2.0 million. The decrease was primarily driven by lower loan balances and reduced reserves on individually analyzed loans. Allowance for Unfunded Commitments The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s Consolidated Statements of Income. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The allowance for unfunded commitments totaled $535,000, $287,000 and $195,000 as of June 30, 2026, December 31, 2025 and June 30, 2025, respectively, and is included in “Other Liabilities” on the Company’s Consolidated Balance Sheets. Collateral-Dependent Loans Collateral-dependent loans are loans for which foreclosure is probable or loans for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The estimated credit losses for these loans are based on the collateral’s fair value, less selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value, less selling costs, at the time of foreclosure. As of June 30, 2026, there were $37.1 million, $11.0 million and $911,000 of collateral-dependent loans which were secured by commercial real estate, residential real estate, and commercial equipment, respectively. As of December 31, 2025, there were $46.4 million, $10.3 million and $1.4 million of collateral-dependent loans which were secured by commercial real estate, residential real estate, and commercial equipment, respectively. The allowance for credit losses allocated to these loans as of June 30, 2026 and December 31, 2025 was $2.0 million and $2.3 million, respectively. Past Due and Nonaccrual Loans A primary credit quality indicator for financial institutions is delinquent balances. Delinquencies are updated on a daily basis and are continuously monitored. Loans are placed on nonaccrual status as needed based on repayment status and consideration of accounting and regulatory guidelines. Nonaccrual balances are updated and reported on a daily basis. The following summarizes the Company’s past due and nonaccrual loans, by portfolio segment, as of June 30, 2026 and December 31, 2025: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accruing | | Total | | | | | Total | (Dollars in thousands) | | | | | | | | | | | Greater than | | Accruing | | | | | Financing | June 30, 2026 | | Current | | 30-59 Days | | 60-89 Days | | 90 Days | | Past Due | | Nonaccrual | | Receivables | Construction and development | | $ | 63,832 | | $ | — | | $ | 4,932 | | $ | — | | $ | 4,932 | | $ | — | | $ | 68,764 | Commercial real estate | | | 1,422,724 | | | 2,919 | | | 5,657 | | | 5,088 | | | 13,664 | | | 7,085 | | | 1,443,473 | Commercial and industrial | | | 81,372 | | | 519 | | | 1,175 | | | — | | | 1,694 | | | 963 | | | 84,029 | Residential real estate | | | 2,342,836 | | | — | | | 7,230 | | | — | | | 7,230 | | | 9,387 | | | 2,359,453 | Consumer and other | | | 600 | | | — | | | — | | | — | | | — | | | — | | | 600 | Total | | $ | 3,911,364 | | $ | 3,438 | | $ | 18,994 | | $ | 5,088 | | $ | 27,520 | | $ | 17,435 | | $ | 3,956,319 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accruing | | Total | | | | | Total | (Dollars in thousands) | | | | | | | | | | | Greater than | | Accruing | | | | | Financing | December 31, 2025 | | Current | | 30-59 Days | | 60-89 Days | | 90 Days | | Past Due | | Nonaccrual | | Receivables | Construction and development | | $ | 40,319 | | $ | 800 | | $ | — | | $ | — | | $ | 800 | | $ | — | | $ | 41,119 | Commercial real estate | | | 1,520,769 | | | 5,446 | | | 1,485 | | | — | | | 6,931 | | | 14,776 | | | 1,542,476 | Commercial and industrial | | | 94,025 | | | 306 | | | — | | | — | | | 306 | | | 1,301 | | | 95,632 | Residential real estate | | | 2,341,189 | | | 17,736 | | | 3,490 | | | — | | | 21,226 | | | 9,136 | | | 2,371,551 | Consumer and other | | | 619 | | | — | | | — | | | — | | | — | | | — | | | 619 | Total | | $ | 3,996,921 | | $ | 24,288 | | $ | 4,975 | | $ | — | | $ | 29,263 | | $ | 25,213 | | $ | 4,051,397 |
The following table presents an analysis of nonaccrual loans with and without a related allowance for credit losses as of June 30, 2026 and December 31, 2025: | | | | | | | | | | | | Nonaccrual | | Nonaccrual | | | | (Dollars in thousands) | | Loans With a | | Loans Without a | | Total | June 30, 2026 | | Related ACL | | Related ACL | | Nonaccrual Loans | Commercial real estate | | $ | 1,395 | | $ | 5,690 | | $ | 7,085 | Commercial and industrial | | | 766 | | | 197 | | | 963 | Residential real estate | | | — | | | 9,387 | | | 9,387 | Total | | $ | 2,161 | | $ | 15,274 | | $ | 17,435 |
| | | | | | | | | | | | Nonaccrual | | Nonaccrual | | | | (Dollars in thousands) | | Loans With a | | Loans Without a | | Total | December 31, 2025 | | Related ACL | | Related ACL | | Nonaccrual Loans | Commercial real estate | | $ | 4,601 | | $ | 10,175 | | $ | 14,776 | Commercial and industrial | | | 858 | | | 443 | | | 1,301 | Residential real estate | | | — | | | 9,136 | | | 9,136 | Total | | $ | 5,459 | | $ | 19,754 | | $ | 25,213 |
All payments received while a loan is on nonaccrual status are applied against the principal balance of the loan. The Company does not recognize interest income while loans are on nonaccrual status. Credit Quality Indicators The Company utilizes a ten grade loan risk rating system for its loan portfolio as follows: | ● | Loans rated Pass – Loans in this category have low to average risk. There are six loan risk ratings (grades 1-6) included in loans rated Pass. |
| ● | Loans rated Special Mention (grade 7) – Loans do not presently expose the Company to a sufficient degree of risk to warrant adverse classification, but do possess deficiencies deserving close attention. |
| ● | Loans rated Substandard (grade 8) – Loans are inadequately protected by the current credit-worthiness and paying capability of the obligor or of the collateral pledged, if any. |
| ● | Loans rated Doubtful (grade 9) – Loans which have all the weaknesses inherent in loans classified Substandard, with the added characteristic that the weaknesses make collections or liquidation in full, or on the basis of currently known facts, conditions and values, highly questionable or improbable. |
| ● | Loans rated Loss (grade 10) – Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. |
Loan grades are monitored regularly and updated as necessary based upon review of repayment status and consideration of periodic updates regarding the borrower’s financial condition and capacity to meet contractual requirements. The following tables present the loan portfolio’s amortized cost by loan type, risk rating and year of origination as of June 30, 2026 and December 31, 2025. There were no loans with a risk rating of Doubtful or Loss at June 30, 2026 and December 31, 2025. | | | | | | | | | | | | | | | | | | | | | | | | | (Dollars in thousands) | | Term Loan by Origination Year | | Revolving | | | | June 30, 2026 | | 2026 | | 2025 | | 2024 | | 2023 | | 2022 | | Prior | | Loans | | Total Loans | Construction and development | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 616 | | $ | 41,443 | | $ | 21,303 | | $ | — | | $ | 4,932 | | $ | 470 | | $ | — | | $ | 68,764 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Total construction and development | | $ | 616 | | $ | 41,443 | | $ | 21,303 | | $ | — | | $ | 4,932 | | $ | 470 | | $ | — | | $ | 68,764 | Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 61,477 | | $ | 296,351 | | $ | 285,804 | | $ | 190,562 | | $ | 279,200 | | $ | 252,128 | | $ | 2,335 | | $ | 1,367,857 | Special Mention | | | — | | | — | | | — | | | 11,899 | | | 7,191 | | | 118 | | | — | | | 19,208 | Substandard | | | — | | | — | | | — | | | 1,644 | | | 29,155 | | | 25,609 | | | — | | | 56,408 | Total commercial real estate | | $ | 61,477 | | $ | 296,351 | | $ | 285,804 | | $ | 204,105 | | $ | 315,546 | | $ | 277,855 | | $ | 2,335 | | $ | 1,443,473 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | Current period gross write offs | | $ | — | | $ | — | | $ | 74 | | $ | — | | $ | 116 | | $ | — | | $ | — | | $ | 190 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 3,727 | | $ | 13,457 | | $ | 6,651 | | $ | 17,341 | | $ | 6,029 | | $ | 8,405 | | $ | 26,404 | | $ | 82,014 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | 484 | | | — | | | 484 | Substandard | | | — | | | — | | | — | | | 466 | | | 463 | | | 602 | | | — | | | 1,531 | Total commercial and industrial | | $ | 3,727 | | $ | 13,457 | | $ | 6,651 | | $ | 17,807 | | $ | 6,492 | | $ | 9,491 | | $ | 26,404 | | $ | 84,029 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | Current period gross write offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 92 | | $ | — | | $ | 92 | | | | | | | | | | | | | | | | | | | | | | | | | | Residential real estate | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 174,110 | | $ | 386,665 | | $ | 125,310 | | $ | 127,019 | | $ | 612,357 | | $ | 922,064 | | $ | — | | $ | 2,347,525 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | 181 | | | 449 | | | 559 | | | 1,372 | | | 9,367 | | | — | | | 11,928 | Total residential real estate | | $ | 174,110 | | $ | 386,846 | | $ | 125,759 | | $ | 127,578 | | $ | 613,729 | | $ | 931,431 | | $ | — | | $ | 2,359,453 | Consumer and other | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 506 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 94 | | $ | 600 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Total consumer and other | | $ | 506 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 94 | | $ | 600 | | | | | | | | | | | | | | | | | | | | | | | | | | Total loans | | $ | 240,436 | | $ | 738,097 | | $ | 439,517 | | $ | 349,490 | | $ | 940,699 | | $ | 1,219,247 | | $ | 28,833 | | $ | 3,956,319 |
| | | | | | | | | | | | | | | | | | | | | | | | | (Dollars in thousands) | | Term Loan by Origination Year | | Revolving | | | | December 31, 2025 | | 2025 | | 2024 | | 2023 | | 2022 | | 2021 | | Prior | | Loans | | Total Loans | Construction and development | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 11,568 | | $ | 24,045 | | $ | 141 | | $ | 4,886 | | $ | 180 | | $ | 299 | | $ | — | | $ | 41,119 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Total construction and development | | $ | 11,568 | | $ | 24,045 | | $ | 141 | | $ | 4,886 | | $ | 180 | | $ | 299 | | $ | — | | $ | 41,119 | Commercial real estate | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 329,091 | | $ | 290,439 | | $ | 213,509 | | $ | 299,971 | | $ | 148,006 | | $ | 177,640 | | $ | 3,020 | | $ | 1,461,676 | Special Mention | | | — | | | — | | | 14,152 | | | 6,915 | | | — | | | 114 | | | — | | | 21,181 | Substandard | | | — | | | — | | | 1,121 | | | 31,544 | | | 12,396 | | | 14,558 | | | — | | | 59,619 | Total commercial real estate | | $ | 329,091 | | $ | 290,439 | | $ | 228,782 | | $ | 338,430 | | $ | 160,402 | | $ | 192,312 | | $ | 3,020 | | $ | 1,542,476 | Commercial and industrial | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 9,527 | | $ | 8,481 | | $ | 20,771 | | $ | 11,244 | | $ | 4,824 | | $ | 7,356 | | $ | 31,095 | | $ | 93,298 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | 484 | | | — | | | 484 | Substandard | | | — | | | — | | | 553 | | | 463 | | | 196 | | | 638 | | | — | | | 1,850 | Total commercial and industrial | | $ | 9,527 | | $ | 8,481 | | $ | 21,324 | | $ | 11,707 | | $ | 5,020 | | $ | 8,478 | | $ | 31,095 | | $ | 95,632 | | | | | | | | | | | | | | | | | | | | | | | | | | Commercial and industrial: | | | | | | | | | | | | | | | | | | | | | | | | | Current period gross write offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 196 | | $ | 98 | | $ | — | | $ | 294 | | | | | | | | | | | | | | | | | | | | | | | | | | Residential real estate | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 417,993 | | $ | 137,770 | | $ | 148,861 | | $ | 648,433 | | $ | 686,010 | | $ | 322,444 | | $ | — | | $ | 2,361,511 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | 837 | | | 1,098 | | | 2,067 | | | 425 | | | 5,613 | | | — | | | 10,040 | Total residential real estate | | $ | 417,993 | | $ | 138,607 | | $ | 149,959 | | $ | 650,500 | | $ | 686,435 | | $ | 328,057 | | $ | — | | $ | 2,371,551 | Consumer and other | | | | | | | | | | | | | | | | | | | | | | | | | Pass | | $ | 324 | | $ | 295 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 619 | Special Mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Substandard | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | Total consumer and other | | $ | 324 | | $ | 295 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 619 | | | | | | | | | | | | | | | | | | | | | | | | | | Total loans | | $ | 768,503 | | $ | 461,867 | | $ | 400,206 | | $ | 1,005,523 | | $ | 852,037 | | $ | 529,146 | | $ | 34,115 | | $ | 4,051,397 |
Loan Modifications to Borrowers Experiencing Financial Difficulty. Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, payment deferrals, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. During three and six months ended June 30, 2026, no loan modification were made to borrowers experiencing financial difficulty. During the three months ended June 30, 2025, no loan modification were made to borrowers experiencing financial difficulty. During the six months ended June 30, 2025, there was one commercial real estate loan modification totaling $12.2 million made to a borrower experiencing financial difficulty. The borrower of this loan modification was granted P&I payment deferrals totaling $324,000 so no payments were required to be made during the deferral period, which ended in May 2025. The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2025. | | | | | | | | | | | | | | | | | | Six months ended June 30, 2025 | | | Interest | | | | Interest | | | | % of Total | (Dollars in thousands) | | Term | | Payment | | Rate | | | | Financing | | | Extension | | Delay | | Reduction | | Total | | Receivable | Construction and development | | $ | — | | $ | — | | $ | — | | $ | — | | — | % | Commercial real estate | | | — | | | 12,200 | | | — | | | 12,200 | | 0.31 | | Commercial and industrial | | | — | | | — | | | — | | | — | | — | | Residential real estate | | | — | | | — | | | — | | | — | | — | | Consumer and other | | | — | | | — | | | — | | | — | | — | | Total | | $ | — | | $ | 12,200 | | $ | — | | $ | 12,200 | | — | % |
The following table presents the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the six months ended June 30, 2025. | | | | | | | | | | | | | Weighted/Average | | Weighted/Average | | Weighted/Average | | (Dollars in thousands) | | Months of | | Payment | | Interest Rate | | Three Months Ended March 31, 2025 | | Term Extension | | Deferral | | Reduction | | Construction and development | | | — | | $ | — | | | — | % | Commercial real estate | | | — | | | 289 | | | — | | Commercial and industrial | | | — | | | — | | | — | | Residential real estate | | | — | | | — | | | — | | Consumer and other | | | — | | | — | | | — | | Total | | | — | | $ | 289 | | | — | % |
No charge-offs of previously modified loans were recorded during the three and six months ended June 30, 2026 and 2025.
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