| Loans and Allowance for Credit Losses | Note 3 – Loans and Allowance for Credit Losses The following table presents the components of loans as of the periods shown: (Dollars in thousands) March 31, 2023 December 31, 2022 Commercial: Business $ 845,801 $ 851,072 Real estate 611,769 632,839 Acquisition, development and construction 98,251 126,999 Total commercial $ 1,555,821 $ 1,610,910 Residential real estate 707,494 606,970 Home equity lines of credit 17,237 18,734 Consumer 78,685 131,566 Total loans, excluding PCI 2,359,237 2,368,180 Purchased credit impaired loans: Residential real estate — 2,482 Total purchased credit impaired loans — 2,482 Total Loans $ 2,359,237 $ 2,370,662 Deferred loan origination costs and (fees), net 1,916 1,983 Loans receivable $ 2,361,153 $ 2,372,645 We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments. With the adoption of ASU 2016-13 on January 1, 2023, we modified our loan portfolio segmentation to be based primarily on call report codes, which are levels at which we develop and document our systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. The ACL portfolio segments are aggregated into broader segments in order to present informative yet concise disclosures within this document, as follows: Commercial business loans – Commercial business loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate, and to finance future cash flows of Federal government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial business loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both internally originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both internally originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow. Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan. Residential real estate – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers, but also includes loans to residential real estate developers, secured by residential real estate, which we previously presented under commercial acquisitions, development and construction loans under the incurred loss model. Residential real estate loans to consumers are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s, and where applicable, the builder’s, continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Residential real estate secured loans to developers represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral. Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. This segment primarily includes loans purchased from a third-party originator that originates loans in order to finance the purchase of personal automotive vehicles for sub-prime borrowers. Credit risk is unique in comparison to the Consumer segment as this segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the incurred loss model. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of the periods shown: (Dollars in thousands) Real Estate Vehicles & Equipment Assignment of Cash Flow Accounts Receivable Other Totals March 31, 2023 Commercial Business $ 1,418 $ 3,269 $ 901 $ 241 $ 507 $ 6,336 Total commercial $ 1,418 $ 3,269 $ 901 $ 241 $ 507 $ 6,336 Residential 1,710 — — — — 1,710 Consumer — 980 — — — 980 Total $ 3,128 $ 4,249 $ 901 $ 241 $ 507 $ 9,026 Collateral value $ 2,579 $ 8,436 $ — $ 178 $ 599 $ 11,792 The following table presents impaired loans by class segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods shown: Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Total Impaired Loans (Dollars in thousands) Recorded Investment Related Allowance Recorded Investment Recorded Investment Unpaid Principal Balance December 31, 2022 Commercial Business $ 3,436 $ 1,253 $ 7,015 $ 10,451 $ 15,324 Real estate 1,240 222 125 1,365 1,470 Acquisition, development and construction — — — — 1,415 Total commercial 4,676 1,475 7,140 11,816 18,209 Residential real estate — — 2,603 2,603 2,671 Home equity lines of credit — — 90 90 94 Consumer 1,347 268 4 1,351 1,351 Total impaired loans $ 6,023 $ 1,743 $ 9,837 $ 15,860 $ 22,325 The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods shown: Three Months Ended March 31, 2022 (Dollars in thousands) Average Investment in Impaired Loans Interest Income Recognized on Accrual Basis Interest Income Recognized on Cash Basis Commercial Business $ 10,505 $ — $ — Real estate 1,728 16 18 Acquisition, development and construction 322 — — Total commercial 12,555 16 18 Residential 8,370 5 5 Home equity 190 — — Consumer 433 — — Total $ 21,548 $ 21 $ 23 As of March 31, 2023, the Bank’s other real estate owned balance totaled $1.0 million, of which $0.9 million was related to the acquisition of The First State Bank (“First State”) in 2020. The Bank held $0.8 million, or 80.0%, of other real estate owned as a result of the foreclosure of two unrelated commercial loans. The remaining $0.2 million, or 20.0%, consists of three foreclosed residential real estate property. As of March 31, 2023, there were five residential mortgages in the process of foreclosure with loan balances totaling $0.7 million. Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors. Loans categorized as “Special Mention” rated 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 asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification. Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans categorized as “Doubtful” rated have all the weakness inherent in those classified Substandard with the added characteristic that the weakness makes collections or liquidation in full, on the basis of currently known 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 debt. The Special Mention rated category includes assets that are currently protected but are potentially weak, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the “Loss” category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories, unless a specific action, such as past due status, bankruptcy, repossession or death, occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Bank's Credit Department ensures that a review of all commercial relationships of $1.0 million or more is performed annually. Review of the appropriate risk grade is included in both the internal and external loan review process and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships in excess of $3.0 million or criticized relationships. The Bank's Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table presents the amortized cost of loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system by vintage year as of the period shown: Term Loans Amortized Cost Basis by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total March 31, 2023 Commercial business: Risk rating: Pass $ 49,657 $ 284,869 $ 137,705 $ 34,545 $ 16,733 $ 71,339 $ 231,790 $ — $ 826,638 Special Mention — — 69 721 101 3,101 515 — 4,507 Substandard — 5 411 — 3,028 5,939 — — 9,383 Doubtful — — 1,137 264 2,553 1,319 — — 5,273 Total commercial business loans $ 49,657 $ 284,874 $ 139,322 $ 35,530 $ 22,415 $ 81,698 $ 232,305 $ — $ 845,801 Gross charge-offs $ — $ — $ — $ 141 $ — $ — $ — $ — $ 141 Commercial real estate: Risk rating: Pass $ 15,787 $ 153,443 $ 232,327 $ 12,396 $ 26,864 $ 117,383 $ — $ — $ 558,200 Special Mention — 4,441 — — 6,898 22,667 — — 34,006 Substandard — — — — — 19,563 — — 19,563 Doubtful — — — — — — — — — Total commercial real estate loans $ 15,787 $ 157,884 $ 232,327 $ 12,396 $ 33,762 $ 159,613 $ — $ — $ 611,769 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial acquisition, development and construction: Risk rating: Pass $ — $ 26,084 $ 44,400 $ 21,969 $ 3,128 $ 1,786 $ — $ — $ 97,367 Special Mention — — — — — 18 — — 18 Substandard — — — — — 866 — — 866 Doubtful — — — — — — — — — Total commercial acquisition, development and construction loans $ — $ 26,084 $ 44,400 $ 21,969 $ 3,128 $ 2,670 $ — $ — $ 98,251 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Residential Real Estate: Risk rating: Pass $ 79,153 $ 432,712 $ 111,001 $ 40,509 $ 6,832 $ 27,616 $ — $ — $ 697,823 Special Mention — — 3,326 1,434 746 — — 5,506 5,506 Substandard — — — 83 463 1,512 — — 2,058 Doubtful — — — 1,226 — 881 — — 2,107 Total residential real estate loans $ 79,153 $ 432,712 $ 111,001 $ 45,144 $ 8,729 $ 30,755 $ — $ — $ 707,494 Gross charge-offs $ — $ — $ — $ — $ — $ 22 $ — $ — $ 22 Home equity lines of credit: Risk rating: Pass $ — $ 37 $ — $ — $ 174 $ 855 $ 15,611 $ — $ 16,677 Special Mention — — — — — 225 151 — 376 Substandard — — — — — 184 — — 184 Doubtful — — — — — — — — — Total home equity lines of credit loans $ — $ 37 $ — $ — $ 174 $ 1,264 $ 15,762 $ — $ 17,237 Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer: Risk rating: Pass $ 9,571 $ 58,543 $ 9,394 $ 3 $ 73 $ 115 $ — $ — $ 77,699 Special Mention — — — — — — — — — Substandard — 852 129 2 — 2 — — 985 Doubtful — — — — — 1 — — 1 Total consumer loans $ 9,571 $ 59,395 $ 9,523 $ 5 $ 73 $ 118 $ — $ — $ 78,685 Gross charge-offs $ — $ 3,793 $ 891 $ — $ — $ — $ — $ — $ 4,684 Total: Risk rating: Pass $ 154,168 $ 955,688 $ 534,827 $ 109,422 $ 53,804 $ 219,094 $ 247,401 $ — $ 2,274,404 Special Mention — 4,441 69 4,047 8,433 26,757 666 — 44,413 Substandard — 857 540 85 3,491 28,066 — — 33,039 Doubtful — — 1,137 1,490 2,553 2,201 — — 7,381 Total consumer loans $ 154,168 $ 960,986 $ 536,573 $ 115,044 $ 68,281 $ 276,118 $ 248,067 $ — $ 2,359,237 Gross charge-offs $ — $ 3,793 $ 891 $ 141 $ — $ 22 $ — $ — $ 4,847 The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods shown: (Dollars in thousands) Pass Special Mention Substandard Doubtful Total December 31, 2022 Commercial Business $ 830,319 $ 5,963 $ 12,103 $ 2,687 $ 851,072 Real estate 592,997 18,883 20,600 359 632,839 Acquisition, development and construction 120,788 5,277 934 — 126,999 Total commercial 1,544,104 30,123 33,637 3,046 1,610,910 Residential real estate 605,513 760 1,556 1,623 609,452 Home equity lines of credit 18,269 375 90 — 18,734 Consumer 131,562 — 4 — 131,566 Total loans $ 2,299,448 $ 31,258 $ 35,287 $ 4,669 $ 2,370,662 Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A complete review is presented to the Chief Credit Officer and/or the Special Asset Review Committee (“SARC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, becomes likely the borrower cannot or will not make scheduled principal or interest payments, full repayment of principal and interest is not expected or the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status unless we believe it is likely the accrued interest will be collected. Any payments subsequently received are applied to the principal. All principal and interest due must be paid up-to-date and the Bank is reasonably sure of future satisfactory payment performance to remove a loan from non-accrual status. Usually, this requires the receipt of six The following table presents the amortized cost basis in loans by aging category and accrual status as of the periods shown: (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Total Loans Non-Accrual 90+ Days Still Accruing Non Accrual with No Credit Loss Interest Income Recognized March 31, 2023 Commercial Business $ 845,801 $ — $ — $ — $ — $ 845,801 $ 8,824 $ — $ 4,152 $ 123 Real estate 609,637 2,132 — — 2,132 611,769 — — — — Acquisition, development and construction 98,251 — — — — 98,251 — — — — Total commercial 1,553,689 2,132 — — 2,132 1,555,821 8,824 — 4,152 123 Residential real estate 702,611 3,519 210 1,154 4,883 707,494 3,090 — — 37 Home equity lines of credit 17,054 85 — 98 183 17,237 187 — — 3 Consumer 70,148 5,477 2,080 980 8,537 78,685 984 — — 62 Total loans $ 2,343,502 $ 11,213 $ 2,290 $ 2,232 $ 15,735 $ 2,359,237 $ 13,085 $ — $ 4,152 $ 225 The following table presents the aging of recorded investment in loans, including accruing and nonaccrual loans, as of the period shown: (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Total Loans Non-Accrual 90+ Days Still Accruing December 31, 2022 Commercial Business $ 850,112 $ — $ 960 $ — $ 960 $ 851,072 $ 7,528 $ — Real estate 632,839 — — — — 632,839 — — Acquisition, development and construction 126,999 — — — — 126,999 — — Total commercial 1,609,950 — 960 — 960 1,610,910 7,528 — Residential real estate 606,554 1,820 1,078 — 2,898 609,452 2,196 — Home equity lines of credit 18,131 603 — — 603 18,734 90 — Consumer 120,504 6,848 2,867 1,347 11,062 131,566 1,351 — Total loans $ 2,355,139 $ 9,271 $ 4,905 $ 1,347 $ 15,523 $ 2,370,662 $ 11,165 $ — The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the loan balance is uncollectible. Accrued interest receivable is excluded from the estimate of credit losses. Management determines the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in environmental conditions, such as changes in economic conditions, property values or other relevant factors. The Bank’s methodology for determining the ACL is based on the requirements of ASC 326 for loans individually evaluated for impairment and ASC Subtopic 450-20 - Contingencies for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Credit Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ACL. The ACL is calculated on a collective basis when similar risk characteristics exist. The ACL for the majority of loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a one-year straight-line reversion period with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type. Expected credit loss rates were estimated using a regression model based on historical data from peer banks which incorporates a third-party vendor’s economic forecast to predict the change in credit losses. As of March 31, 2023, the Bank expects the markets in which it operates will experience a decline in economic conditions and an increase in the unemployment rate and level of delinquencies, over the next one to two years. The ACL for only one portfolio segment consisting entirely of automotive loans to consumers was calculated under the remaining life methodology using straight-line amortization over the remaining life of the portfolio. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When Bank management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. The Bank evaluates certain loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans are evaluated collectively for expected credit losses by applying allocation rates derived from the Bank’s historical losses specific to these loans and the reserve totaled $0.1 million as of both March 31, 2023 and December 31, 2022. Management has identified a number of additional qualitative factors which it uses to supplement the estimated losses derived from the loss rate methodologies employed within the CECL model because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from the loss rate methodologies. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors. For accounting methodologies related to the incurred loss method previously used before the adoption of ASC 326, refer to Note 1 - Summary of Significant Accounting Policies and Note 3 - Loans and Allowance for Loan Losses of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data , of the 2022 Form 10-K. To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of unfunded commitments based on the same segmentation used for the allowance for credit losses calculation. The estimated funding rate for each segment was derived from a funding rate study created by a third-party vendor which analyzed funding of various loan types over time to develop industry benchmarks at the call report code level. Once the estimated future advances were calculated, the allocation rate applicable to that portfolio segment was applied in the same manner as those used for the allowance for credit loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of March 31, 2023 and December 31, 2022, the liability for unfunded commitments related to loans held for investment was $1.7 million and $0.5 million, respectively. Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ACL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL. The following table presents the balance and activity for the primary segments of the ACL as of the periods shown: Commercial Residential Home Equity Consumer Total (Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial ALL, prior to adoption of ASC 326, at December 31, 2022 $ 8,771 $ 5,704 $ 1,064 $ 15,539 $ 2,880 $ 131 $ 5,287 $ 23,837 Impact of adopting ASC 326 (126) (2,846) 288 (2,684) 3,889 (5) 6,482 7,682 Provision (release of allowance) for credit losses 681 313 288 1,282 364 (8) 2,817 4,455 Initial allowance on loans purchased with credit deterioration 710 — — 710 507 — — 1,217 Charge-offs (141) — — (141) (22) — (4,684) (4,847) Recoveries 23 6 — 29 — 1 3,139 3,169 ACL at March 31, 2023 $ 9,918 $ 3,177 $ 1,640 $ 14,735 $ 7,618 $ 119 $ 13,041 $ 35,513 During the three months ended March 31, 2023, there was a $0.1 million provision related to unfunded commitments. Substantially all of the charge-offs during three months ended March 31, 2023 are related to our subprime consumer automobile portfolio of loans. The following table presents the primary segments of the ALL segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods shown: Commercial Residential Home Equity Consumer Total (Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial ALL balance at December 31, 2021 $ 8,027 $ 5,091 $ 982 $ 14,100 $ 948 $ 128 $ 2,427 $ 17,603 Charge-offs — — — — — — (1,124) (1,124) Recoveries 1 7 — 8 — 2 375 385 Provision (release) (1,159) 468 (247) (938) 179 1 2,088 1,330 ALL balance at March 31, 2022 $ 6,869 $ 5,566 $ 735 $ 13,170 $ 1,127 $ 131 $ 3,766 $ 18,194 Individually evaluated for impairment $ 218 $ 224 $ — $ 442 $ 84 $ — $ 111 $ 637 Collectively evaluated for impairment $ 6,651 $ 5,342 $ 735 $ 12,728 $ 1,043 $ 131 $ 3,655 $ 17,557 The following table presents the primary segments of our loan portfolio as of the period shown: Commercial Residential Home Equity Lines of Credit Consumer Total (Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial March 31, 2022 Individually evaluated for impairment $ 11,085 $ 1,196 $ 1,139 $ 13,420 $ 8,364 $ 230 $ 512 $ 22,526 Collectively evaluated for impairment 774,222 598,066 95,699 1,467,987 305,199 21,194 65,119 1,859,499 Total Loans $ 785,307 $ 599,262 $ 96,838 $ 1,481,407 $ 313,563 $ 21,424 $ 65,631 $ 1,882,025 The ACL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the portfolio segments, the related loss estimation methodologies and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date. Purchased Credit Impaired Loans The carrying amount of purchased credit impaired loans ("PCI") outstanding at March 31, 2022 was $15.3 million, net of an allowance of $0.6 million. The following table presents the accretable yield, or income expected to be collected, during three months ended March 31, 2022: (Dollars in thousands) March 31, 2022 Beginning balance $ 6,505 Accretion of income (808) Other changes in expected cash flows 556 Ending balance 6,253 The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the PCI loan portfolio as of the periods indicated: Commercial Residential Consumer Total (Dollars in thousands) Business Real Estate Total Commercial ALL balance as of December 31, 2021 — — — 544 119 663 Recoveries 1 — 1 — — 1 Provision (release) 111 53 164 (221) 7 (50) ALL balance as of March 31, 2022 112 53 165 323 126 614 Collectively evaluated for impairment 112 53 165 323 126 614 Troubled Debt Restructurings Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, which eliminated the accounting guidance for TDRs, while prior period amounts continue to be reported in accordance with the TDR model. At December 31, 2022, the Bank had specific reserve allocations for TDRs of $0.4 million. Loans considered to be troubled debt restructured loans totaled $10.4 million as of December 31, 2022. Of the total, $4.7 million represents accruing troubled debt restructured loans and represent 45% of total impaired loans at December 31, 2022. Meanwhile, as of December 31, 2022, $5.7 million represents nine loans to seven borrowers that have defaulted under the restructured terms. The largest of these loans is a $1.9 million restructured commercial loan to a company previously dependent on the coal industry, which is now structured as an unsecured loan. Three of these loans to an unrelated borrower, totaling $3.1 million, are restructured equipment loans to a borrower in the coal industry, which was provided extended interest-only terms to allow time for the collateral equipment to be sold. There is a commercial loan totaling $0.5 million secured by government lease payments that previously defaulted and is now making restructured payments. The four remaining unrelated borrowers have a single loan each, totaling $0.2 million. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of December 31, 2022. During the three months ended March 31, 2023 and 2022, no additional loans were identified as both experiencing financial difficulty and modified. Financial difficulty is considered when the borrower's operating performance deteriorates to the degree we believe it is probably they will not able to perform under the terms of the loan. |
