Loans & Allowance for Credit Losses on Loans | 8. LOANS & ALLOWANCE FOR CREDIT LOSSES ON LOANS Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the principal amount outstanding, net of deferred loan fees and costs. Interest income is accrued on the principal amount outstanding. Loan origination and commitment fees and related direct costs are deferred and amortized to income over the term of the respective loan and loan commitment period as a yield adjustment. Loans held-for-sale consists of residential mortgage loans that are carried at the lower of aggregate cost or fair value. Net unrealized losses, if any, are recognized through a valuation allowance charged to income. Gains and losses on residential mortgages held-for-sale are included in non-interest income. The Company maintains an allowance for credit losses on loans, which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. The allowance is reduced by actual credit losses and is increased or decreased by the provision (reversal) for loan losses and increased by recoveries of previous losses. The provisions or reversals for credit losses are charged to earnings to bring the total allowance for loan losses to a level considered necessary by management. The allowance for credit losses is measured on a pool basis when similar risk characteristics exist; these pools are identified in the first table below. The Company establishes a general valuation allowance for performing loans, including non-accrual student loans. QNB calculates each segment's historical loss rate using a full economic cycle of loan balance and historical loss experienced. The level of the allowance is determined by assigning specific reserves to all non-accrual loans, except the homogeneous pool of student loans which are measured in the general reserve. An allowance on these non-accrual loans is established when the discounted cash flows (or collateral value) of the loan is lower than the carrying value of that loan. The portion of the allowance that is allocated to non-accrual loans is determined by estimating the inherent loss on each credit after giving consideration to the value of underlying collateral. The general component is adjusted for qualitative factors. These qualitative risk factors include: 1. Concentrations: The Company adjusts historic loss for concentrations in the current portfolio that were not present during the down-turn of economic cycle. 2. Economic Forecast: The Company utilizes an entire economic cycle of data to determine loss rates by segment. This approach reflects an inherent reversion to the historical losses during life of the loans within the pool considering prepayments and loss experience throughout an entire economic cycle. However, the Company feels it is prudent to maintain a floor in its model to assure that there is enough reserve on hand to sustain any losses upon an upcoming recession. Management emphasizes loan quality and close monitoring of potential problem credits. Credit risk identification and review processes are utilized in order to assess and monitor the degree of risk in the loan portfolio. The Company’s lending and credit administration staff are charged with reviewing the loan portfolio and identifying changes in the economy or in a borrower’s circumstances which may affect the ability to repay debt or the value of pledged collateral. A loan classification and review system exists that identifies those loans with a higher than normal risk of collectability. Each commercial loan is assigned a grade based upon an assessment of the borrower’s financial capacity to service the debt and the presence and value of collateral for the loan. An independent firm reviews risk assessment and evaluates the adequacy of the allowance for loan losses. Management meets monthly to review the credit quality of the loan portfolio and quarterly to review the allowance for loan losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments using information available to them at the time of their examination. Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing allowance for credit losses on loans in accordance with U.S. GAAP. If circumstances differ substantially from the current calculation, future adjustments to the allowance for credit losses on loans may be necessary and results of operations could be affected. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary should the quality of any loans deteriorate. Major classes of loans are as follows: June 30, 2023 Commercial: Commercial and industrial $ 135,258 Construction and land development 74,057 Real estate secured by multi-family properties 102,497 Real estate secured by owner-occupied properties 162,546 Real estate secured by other commercial properties 258,532 Revolving real estate secured by 1-4 family properties-business 7,223 Real estate secured by 1st lien on 1-4 family properties-business 100,058 Real estate secured by junior lien on 1-4 family properties-business 3,592 State and political subdivisions 19,487 Retail: 1-4 family residential mortgages 105,871 Construction-individual 262 Revolving home equity secured by 1-4 family properties-personal 32,731 Real estate secured by 1st lien on 1-4 family properties-personal 11,452 Real estate secured by junior lien on 1-4 family properties-personal 12,658 Student loans 1,846 Overdrafts 162 Other consumer 1,780 Total loans 1,030,012 Net unearned (fees) costs ( 268 ) Allowance for credit losses on loans ( 8,365 ) Loans receivable, net $ 1,021,379 December 31, 2022 Commercial: Commercial and industrial $ 160,875 Construction 62,955 Secured by commercial real estate 518,070 Secured by residential real estate 103,419 State and political subdivisions 20,971 Retail: 1-4 family residential mortgages 105,654 Home equity loans and lines 63,580 Consumer 4,113 Total loans 1,039,637 Net unearned (fees) costs ( 252 ) Allowance for loan losses ( 10,531 ) Loans receivable, net $ 1,028,854 Overdrafts are reclassified as loans and at December 31, 2022 are included in consumer loans above and total loans receivable on the Consolidated Balance Sheets. At December 31, 2022, overdrafts were approximately $ 132,000 . Loans secured by commercial real estate include all loans collateralized at least in part by commercial real estate. These loans may not be for the express purpose of conducting commercial real estate transactions. QNB generally lends in Bucks, Lehigh, and Montgomery counties in southeastern Pennsylvania. To a large extent, QNB makes loans collateralized at least in part by real estate. Its lending activities could be affected by changes in the general economy, the regional economy, or real estate values. The Company engages in a variety of lending activities, including commercial, residential real estate and consumer transactions. The Company focuses its lending activities on individuals, professionals and small to medium sized businesses. Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral. Commercial and industrial loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. These loans may involve greater risk because the availability of funds to repay these loans depends on the successful operation of the borrower’s business. The assets financed are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets, such as accounts receivable and inventory, to cash. Typical collateral for commercial and industrial loans includes the borrower’s accounts receivable, inventory and machinery and equipment. Commercial real estate and residential real estate loans secured for a business purpose are originated primarily within the eastern Pennsylvania market area at conservative loan-to-value ratios and often backed by the individual guarantees of the borrowers or owners. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale or lease of the subject property. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers. Loans to state and political subdivisions are tax-exempt or taxable loans to municipalities, school districts and housing and industrial development authorities. These loans can be general obligations of the municipality or school district repaid through their taxing authority, revenue obligations repaid through the income generated by the operations of the authority, such as a water or sewer authority, or loans issued to a housing and industrial development agency, for which a private corporation is responsible for payments on the loans. The Company originates fixed-rate and adjustable-rate real estate-residential mortgage loans for personal purposes that are secured by first liens on the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80 % loan-to-value ratio criterion are generally insured by private mortgage insurance. The real estate-home equity portfolio consists of fixed-rate home equity loans and variable-rate home equity lines of credit. Risks associated with loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market. Since most loans are secured by a primary or secondary residence, the borrower’s continued employment is the greatest risk to repayment. The Company offers a variety of loans to individuals for personal and household purposes. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and is more likely to decrease in value than real estate. Credit risk in this portfolio is controlled by conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values. The Company employs a ten-grade risk rating system related to the credit quality of commercial loans and loans to state and political subdivisions of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating. 1. Excellent - no apparent risk 2. Good - minimal risk 3. Acceptable - lower risk 4. Acceptable - average risk 5. Acceptable – higher risk 6. Pass watch 7. Special Mention - potential weaknesses 8. Substandard - well defined weaknesses 9. Doubtful - full collection unlikely 10. Loss - considered uncollectible The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential problem loans. Each loan officer assigns a rating to all loans in the portfolio at the time the loan is originated. Loans with risk ratings of one through five are reviewed annually based on the borrower’s fiscal year. Loans with risk ratings of six are reviewed every six to twelve months based on the dollar amount of the relationship with the borrower. Loans with risk ratings of seven through ten are reviewed at least quarterly, and as often as monthly, at management’s discretion. The Company also utilizes an outside loan review firm to review the portfolio on a semi-annual basis to provide the Board of Directors and senior management an independent review of the Company’s loan portfolio on an ongoing basis. These reviews are designed to recognize deteriorating credits in their earliest stages in an effort to reduce and control risk in the lending function as well as identifying potential shifts in the quality of the loan portfolio. The examinations by the outside loan review firm include the review of lending activities with respect to underwriting and processing new loans, monitoring the risk of existing loans and to provide timely follow-up and corrective action for loans showing signs of deterioration in quality. In addition, the outside firm reviews the methodology for the allowance for loan losses to determine compliance to policy and regulatory guidance. The following tables present the classes of the loan p ortfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of June 30, 2023 and December 31, 2022: Term Loans by Origination Year June 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Total Commercial Loans Commercial and industrial: Risk rating Pass $ 8,564 $ 15,920 $ 9,765 $ 7,428 $ 6,557 $ 8,182 $ 77,315 $ 133,731 Special mention — — — — — — — — Substandard — — — — 18 231 1,278 1,527 Doubtful — — — — — — — — Total commercial and industrial $ 8,564 $ 15,920 $ 9,765 $ 7,428 $ 6,575 $ 8,413 $ 78,593 $ 135,258 Construction and land development: Risk rating Pass $ 19,280 $ 29,627 $ 13,427 $ 3,147 $ 4,111 $ 4,418 $ — $ 74,010 Special mention — — — — — — — — Substandard — — — — — 47 — 47 Doubtful — — — — — — — — Total construction and land development $ 19,280 $ 29,627 $ 13,427 $ 3,147 $ 4,111 $ 4,465 $ — $ 74,057 Real estate secured by multi-family properties: Risk rating Pass $ 2,542 $ 28,995 $ 23,648 $ 10,057 $ 5,895 $ 28,916 $ — $ 100,053 Special mention — — — — — — — — Substandard — — — — 713 1,731 — 2,444 Doubtful — — — — — — — — Total real estate secured by multi-family properties $ 2,542 $ 28,995 $ 23,648 $ 10,057 $ 6,608 $ 30,647 $ — $ 102,497 Real estate secured by owner-occupied properties: Risk rating Pass $ 8,985 $ 30,143 $ 28,759 $ 19,366 $ 12,261 $ 56,370 $ — $ 155,884 Special mention — — — — — — — — Substandard — — 126 — — 6,536 — 6,662 Doubtful — — — — — — — — Total real estate secured by owner-occupied properties $ 8,985 $ 30,143 $ 28,885 $ 19,366 $ 12,261 $ 62,906 $ — $ 162,546 Real estate secured by other commercial properties: Risk rating Pass $ 14,458 $ 44,781 $ 44,818 $ 20,070 $ 30,199 $ 101,111 $ — $ 255,437 Special mention — — — — — — — — Substandard — — — — — 3,095 — 3,095 Doubtful — — — — — — — — Total real estate secured by other commercial properties $ 14,458 $ 44,781 $ 44,818 $ 20,070 $ 30,199 $ 104,206 $ — $ 258,532 Term Loans by Origination Year June 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Total Revolving real estate secured by 1-4 family properties-business: Risk rating Pass $ — $ — $ — $ — $ — $ — $ 7,223 $ 7,223 Special mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total revolving real estate secured by 1-4 family properties-business $ — $ — $ — $ — $ — $ — $ 7,223 $ 7,223 Real estate secured by 1st lien on 1-4 family properties-business: Risk rating Pass $ 7,296 $ 28,716 $ 21,637 $ 10,869 $ 8,970 $ 21,643 $ — $ 99,131 Special mention — — 139 — — — — 139 Substandard — 192 — — 443 153 — 788 Doubtful — — — — — — — — Total real estate secured by 1st lien on 1-4 family properties-business $ 7,296 $ 28,908 $ 21,776 $ 10,869 $ 9,413 $ 21,796 $ — $ 100,058 Real estate secured by junior lien on 1-4 family properties-business: Risk rating Pass $ 549 $ 617 $ 559 $ 600 $ 43 $ 981 $ — $ 3,349 Special mention — — — — — — — — Substandard — — — — — 243 — 243 Doubtful — — — — — — — — Total real estate secured by junior lien on 1-4 family properties-business $ 549 $ 617 $ 559 $ 600 $ 43 $ 1,224 $ — $ 3,592 State and political subdivisions: Risk rating Pass $ 53 $ 40 $ 4,569 $ 23 $ 5,931 $ 8,871 $ — $ 19,487 Special mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total real estate secured by junior lien on 1-4 family properties-business $ 53 $ 40 $ 4,569 $ 23 $ 5,931 $ 8,871 $ — $ 19,487 Total Commercial Loans: Risk rating Pass $ 61,727 $ 178,839 $ 147,182 $ 71,560 $ 73,967 $ 230,492 $ 84,538 $ 848,305 Special mention — — 139 — — — — 139 Substandard — 192 126 — 1,174 12,036 1,278 14,806 Doubtful — — — — — — — — Total Commercial loans $ 61,727 $ 179,031 $ 147,447 $ 71,560 $ 75,141 $ 242,528 $ 85,816 $ 863,250 December 31, 2022 Pass Special Substandard Doubtful Total Commercial: Commercial and industrial $ 157,914 $ 23 $ 2,938 $ — $ 160,875 Construction 62,955 — — — 62,955 Secured by commercial real estate 505,657 2,597 9,816 — 518,070 Secured by residential real estate 102,295 194 930 — 103,419 State and political subdivisions 20,971 — — — 20,971 Total $ 849,792 $ 2,814 $ 13,684 $ — $ 866,290 For retail loans, the Company evaluates credit quality based on the performance of the individual credits. The following tables present the recorded investment in the retail classes of the loan portfolio based on payment activity as of June 30, 2023 and December 2022: Term Loans by Origination Year June 30, 2023 2023 2022 2021 2020 2019 Prior Revolving Total Retail Loans 1-4 family residential mortgages: Payment performance Performing $ 6,148 $ 15,221 $ 31,258 $ 21,133 $ 4,602 $ 26,686 $ — $ 105,048 Nonperforming — — — — — 823 — 823 Total 1-4 family residential mortgages $ 6,148 $ 15,221 $ 31,258 $ 21,133 $ 4,602 $ 27,509 $ — $ 105,871 Construction-individual: Payment performance Performing $ — $ — $ 262 $ — $ — $ — $ — $ 262 Nonperforming — — — — — — — — Total construction-individual $ — $ — $ 262 $ — $ — $ — $ — $ 262 Revolving home equity secured by 1-4 family properties-personal: Payment performance Performing $ — $ — $ — $ — $ — $ — $ 32,553 $ 32,553 Nonperforming — — — — — — 178 178 Total revolving home equity secured by 1-4 family properties-personal $ — $ — $ — $ — $ — $ — $ 32,731 $ 32,731 Real estate secured by 1st lien on 1-4 family properties-personal: Payment performance Performing $ 1,755 $ 1,703 $ 3,358 $ 1,038 $ 1,074 $ 2,389 $ — $ 11,317 Nonperforming — — — — — 135 — 135 Total real estate secured by 1st lien Real estate secured by 1st lien on 1-4 family properties-personal $ 1,755 $ 1,703 $ 3,358 $ 1,038 $ 1,074 $ 2,524 $ — $ 11,452 Real estate secured by junior lien on 1-4 family properties-personal: Payment performance Performing $ 2,601 $ 1,778 $ 2,531 $ 1,418 $ 746 $ 3,565 $ — $ 12,639 Nonperforming — 19 — — — — — 19 Total real estate secured by junior lien on 1-4 family properties-personal $ 2,601 $ 1,797 $ 2,531 $ 1,418 $ 746 $ 3,565 $ — $ 12,658 Student loans: Payment performance Performing $ — $ — $ — $ — $ — $ 1,829 $ — $ 1,829 Nonperforming — — — — — 17 — 17 Total student loans $ — $ — $ — $ — $ — $ 1,846 $ — $ 1,846 Overdrafts: Payment performance Performing $ — $ — $ — $ — $ — $ — $ 162 $ 162 Nonperforming — — — — — — — — Total overdrafts $ — $ — $ — $ — $ — $ — $ 162 $ 162 Other consumer: Payment performance Performing $ 477 $ 397 $ 351 $ 125 $ 125 $ 64 $ 201 $ 1,740 Nonperforming — — — — — 40 — 40 Total other consumer $ 477 $ 397 $ 351 $ 125 $ 125 $ 104 $ 201 $ 1,780 Total Retail Loans: Payment performance Performing $ 10,981 $ 19,099 $ 37,760 $ 23,714 $ 6,547 $ 34,533 $ 32,916 $ 165,550 Nonperforming — 19 — — — 1,015 178 1,212 Total Retail Loans $ 10,981 $ 19,118 $ 37,760 $ 23,714 $ 6,547 $ 35,548 $ 33,094 $ 166,762 December 31, 2022 Performing Non-performing Total Retail: 1-4 family residential mortgages $ 104,933 $ 721 $ 105,654 Home equity loans and lines 62,900 680 63,580 Consumer 4,023 90 4,113 Total $ 171,856 $ 1,491 $ 173,347 The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of June 30, 2023 and December 31, 2022: June 30, 2023 30-59 days 60-89 days 90 days or Total past Current Total loans Commercial: Commercial and industrial $ 44 $ — $ — $ 44 $ 135,214 $ 135,258 Construction and land development — — — — 74,057 74,057 Real estate secured by multi-family properties — — — — 102,497 102,497 Real estate secured by owner-occupied properties — — — — 162,546 162,546 Real estate secured by other commercial properties 8,822 — — 8,822 249,710 258,532 Revolving real estate secured by 1-4 family properties-business — — — — 7,223 7,223 Real estate secured by 1st lien on 1-4 family properties-business — — 5 5 100,053 100,058 Real estate secured by junior lien on 1-4 family properties-business — — — — 3,592 3,592 State and political subdivisions — — — — 19,487 19,487 Retail: 1-4 family residential mortgages — 343 156 499 105,372 105,871 Construction-individual — — — — 262 262 Revolving home equity secured by 1-4 family properties-personal 97 — — 97 32,634 32,731 Real estate secured by 1st lien on 1-4 family properties-personal — — 100 100 11,352 11,452 Real estate secured by junior lien on 1-4 family properties-personal — 19 — 19 12,639 12,658 Student loans — 21 — 21 1,825 1,846 Overdrafts 15 2 — 17 145 162 Other consumer 7 5 — 12 1,768 1,780 Total $ 8,985 $ 390 $ 261 $ 9,636 $ 1,020,376 $ 1,030,012 December 31, 2022 30-59 days 60-89 days 90 days or Total past Current Total loans Commercial: Commercial and industrial $ — $ 1,157 $ — $ 1,157 $ 159,718 $ 160,875 Construction — — — — 62,955 62,955 Secured by commercial real estate — — — — 518,070 518,070 Secured by residential real estate — — 13 13 103,406 103,419 State and political subdivisions — — — — 20,971 20,971 Retail: 1-4 family residential mortgages 703 168 216 1,087 104,567 105,654 Home equity loans and lines 95 — — 95 63,485 63,580 Consumer 37 50 — 87 4,026 4,113 Total $ 835 $ 1,375 $ 229 $ 2,439 $ 1,037,198 $ 1,039,637 As previously discussed, the Company maintains a loan review system, which includes a continuous review of the loan portfolio by internal and external parties to aid in the early identification of potential impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. When placing a loan on non-accrual status, management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. All non-accrual loans, except student loans, are individually evaluated for an allowance for credit losses ("ACL"). This ACL is measured using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance for credit loss is established for a non-accrual loan if its carrying value exceeds its estimated fair value. The estimated fair values of the majority of the Company’s non-accrual loans are measured based on the estimated fair value of the loan’s collateral. For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. The following table disclose the recorded investment in loans receivable that are either on non-accrual status or past due 90 days or more and still accruing interest as of June 30, 2023: June 30, 2023 90 Days or More Past Due-Still Accruing Nonaccrual With No Specifically-Related ACL Nonaccrual With Related ACL Total Nonaccrual Loans Commercial: Commercial and industrial $ — $ — $ 366 $ 366 Construction and land development — — — — Real estate secured by multi-family properties — — — — Real estate secured by owner-occupied properties — 784 — 784 Real estate secured by other commercial properties — 2,207 — 2,207 Revolving real estate secured by 1-4 family properties-business — — — — Real estate secured by 1st lien on 1-4 family properties-business — 5 — 5 Real estate secured by junior lien on 1-4 family properties-business — — 220 220 State and political subdivisions — — — — Retail: 1-4 family residential mortgages — 480 343 823 Construction-individual — — — — Revolving home equity secured by 1-4 family properties-personal — 24 154 178 Real estate secured by 1st lien on 1-4 family properties-personal — 135 — 135 Real estate secured by junior lien on 1-4 family properties-personal — 19 19 Student loans — 17 — 17 Other consumer — 40 — 40 Total $ — $ 3,692 $ 1,102 $ 4,794 QNB recognized interest income of $ 316,000 on non-accrual loans during the six months ended June 30, 2023. The following table presents the collateral-dependent loans by loan category at June 30, 2023: June 30, 2023 Real Estate Secured Other (1) Deficiency in Collateral Total Collateral Dependent Nonaccrual Loans Commercial: Commercial and industrial $ — $ 294 $ 72 $ 366 Construction and land development — — — — Real estate secured by multi-family properties — — — — Real estate secured by owner-occupied properties 784 — — 784 Real estate secured by other commercial properties 2,207 — — 2,207 Revolving real estate secured by 1-4 family properties-business — — — — Real estate secured by 1st lien on 1-4 family properties-business 5 5 Real estate secured by junior lien on 1-4 family properties-business — — 220 220 State and political subdivisions — — — — Retail: 1-4 family residential mortgages 778 — 45 823 Construction-individual — — — — Revolving home equity secured by 1-4 family properties-personal 67 — 111 178 Real estate secured by 1st lien on 1-4 family properties-personal 135 — — 135 Real estate secured by junior lien on 1-4 family properties-personal 17 — 2 19 Other consumer — 40 — 40 Total $ 3,993 $ 334 $ 450 $ 4,777 (1) Secured by business assets, personal property and equipment or guarantees The following tables disclose the recorded investment in loans receivable that are either on non-accrual status or past due 90 days or more and still accruing interest as of December 31, 2022: December 31, 2022 90 days or Non-accrual Commercial: Commercial and industrial $ — $ 3,369 Construction — — Secured by commercial real estate — 2,279 Secured by residential real estate — 391 State and political subdivisions — — Retail: 1-4 family residential mortgages — 721 Home equity loans and lines — 680 Consumer — 90 Total $ — $ 7,530 The following table present the balance in the allowance for loan losses at December 31, 2022 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class, excluding unearned fees and costs, disaggregated on the basis of the Company’s impairment methodology: Allowance for Loan Losses Loans Receivable December 31, 2022 Balance Balance Balance Balance Balance Balance Commercial: Commercial and industrial $ 1,316 $ 125 $ 1,191 $ 160,875 $ 1,821 $ 159,054 Construction 755 — 755 62,955 — 62,955 Secured by commercial real estate 5,002 131 4,871 518,070 5,309 512,761 Secured by residential real estate 1,240 321 919 103,419 1,362 102,057 State and political subdivisions 94 — 94 20,971 — 20,971 Retail: 1-4 family residential mortgages 683 — 683 105,654 628 105,026 Home equity loans and lines 437 119 318 63,580 402 63,178 Consumer 502 — 502 4,113 45 4,068 Unallocated 502 N/A N/A N/A N/A N/A Total $ 10,531 $ 696 $ 9,333 $ 1,039,637 $ 9,567 $ 1,030,070 The following table summarizes additional information, in regards to impaired loans by loan portfolio class, as of December 31, 2022: December 31, 2022 Recorded Unpaid Related With no specific allowance recorded: Commercial: Commercial and industrial $ 1,402 $ 1,694 Construction — — Secured by commercial real estate 2,198 2,608 Secured by residential real estate 430 482 Retail: 1-4 family residential mortgages 628 678 Home equity loans and lines 240 296 Consumer 45 62 Total $ 4,943 $ 5,820 With an allowance recorded: Commercial: Commercial and industrial $ 419 $ 601 $ 125 Construction — — — Secured by commercial real estate 3,111 3,312 131 Secured by residential real estate 932 1,065 321 Retail: 1-4 family residential mortgages — — — Home equity loans and lines 162 191 119 Consumer — — — Total $ 4,624 $ 5,169 $ 696 Total: Commercial: Commercial and industrial $ 1,821 $ 2,295 $ 125 Construction — — — Secured by commercial real estate 5,309 5,920 131 Secured by residential real estate 1,362 1,547 321 Retail: 1-4 family residential mortgages 628 678 — Home equity loans and lines 402 487 119 Consumer 45 62 — Total $ 9,567 $ 10,989 $ 696 Activity in the allowance for credit losses on loans for the three and six months ended June 30, 2023 and 2022 are as follows: For the Three Months Ended June 30, 2023 Beginning balance prior to adoption of ASC 326 Credit loss expense (reversal) Charge-offs Recoveries Balance, end Commercial: Commercial and industrial $ 899 $ ( 75 ) $ ( 40 ) $ 11 $ 795 Construction and land development 749 105 — — 854 Real estate secured by multi-family properties 1,577 47 — — 1,624 Real estate secured by owner-occupied properties 972 13 — — 985 Real estate secured by other commercial properties 1,091 137 — — 1,228 Revolving real estate secured by 1-4 family properties-business 34 3 — — 37 Real estate secured by 1st lien on 1-4 family properties-business 1,273 2 — 2 1,277 Real estate secured by junior lien on 1-4 family properties-business 258 ( 24 ) — — 234 State and political subdivisions 55 ( 4 ) — — 51 Retail: — — — 1-4 family residential mortgages 405 28 — — 433 Construction-individual 1 ( 1 ) — — — Revolving home equity secured by 1-4 family properties-personal 249 ( 15 ) — — 234 Real estate secured by 1st lien on 1-4 family properties-personal 64 3 — — 67 Real estate secured by junior lien on 1-4 family properties-personal 77 7 — 2 86 Student loans 448 ( 32 ) — 2 418 Overdrafts 9 19 ( 20 ) 5 13 Other consumer 30 ( 1 ) — — 29 Total $ 8,191 $ 212 $ ( 60 ) $ 22 $ 8,365 For the Three Months Ended June 30, 2022 Balance, Provision for Charge-offs R |