Loans and Allowance for Credit Losses | Note 4—Loans and Allowance for Credit Losses On January 1, 2023, the Corporation adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. This change replaced the incurred loss model with a lifetime expected credit loss model. At adoption, the Corporation changed the way the loan portfolio is segmented and now segments the portfolio based on collateral using federal call code targeting similar risk characteristics. Previously the Corporation segmented the loan portfolio based on industry. Management selected national civilian unemployment rates, housing price index and real gross domestic product (GDP) as the drivers of the quantitative portion of the collectively evaluated reserves. These third party supplied economic driver forecasts are updated within the model quarterly to calculate expected life and related loan default rates. Loans that do not share similar risk characteristics are evaluated in an individual basis and are excluded from the quantitative calculations for the ACL. Loans that are individually evaluated under CECL will include loans in nonaccrual status and may include accruing loans that do not share similar risk characteristics within the evaluation. All individually evaluated loans in the current period were in nonaccrual status. The ACL also includes a qualitative adjustment for risk factors that are not considered within the quantitative component or where the Company’s risk factors differ from the utilized peer data. Management may consider additional or reduced reserves to be warranted based on current and expected conditions. During the current quarter factors that were considered relevant by management in determining expected credit losses beyond the qualitative assessment include changes in: Differences in lending policies, procedures, underwriting standards, charge off and recovery practices; Changes in the nature and volume of the portfolio and terms of loans; Changes in the experience, depth, and ability of lending management; Delinquency trends; Quality of the loan review system; Value of underlying collateral; Existance and effect of concentrations of credit and changes in the levels of such concentrations; and The effect of other external factors including legal, competition, local economic and their impact on credit losses. The qualitative adjustments and projected impact are reviewed and considered by the Company’s Chief Credit Officer in discussion with the appropriate finance and executive personnel. While multiple areas of risk beyond the quantitative risk have been identified within the model, no changes were considered warranted in the allocated reserve ratios within the current quarter. Loan Portfolio Composition The table below provides the composition of the loan portfolio at June 30, 2023. The portfolio is comprised of nine segments, commercial, commercial real estate construction, commercial real estate owner occupied, commercial real estate non-owner occupied, residential real estate construction, residential real estate revolving, residential real estate multi family, residential real estate other and consumer as presented in the table below. Certain portfolio segments are further disaggregated for the purpose of estimating credit losses. The Corporation has not engaged in sub-prime residential mortgage originations. June 30, % Total (dollars in thousands) 2023 Loans Commercial loans $ 169,384 10.0 Commercial real estate: Construction 177,995 10.6 Owner occupied 343,850 20.4 Non-owner occupied 458,388 27.3 Residential real estate: Construction 27,961 1.7 Revolving 102,674 6.1 Multi family 123,823 7.4 Other 264,314 15.7 Consumer 13,299 0.8 Gross Loans 1,681,688 100.0 Less: Allowance for credit losses 20,681 Net Loans $ 1,661,007 The table below provides the composition of the loan portfolio at December 31, 2022. The portfolio is comprised of two segments, commercial and consumer loans. The commercial loan segment is disaggregated by industry class which allows the Corporation to monitor risk and performance. Those industries representing the largest dollar investment and most risk are listed separately. The “Other” commercial loans category is comprised of various industries. The consumer related segment is comprised of residential mortgages, home equity and other consumer loans. December 31, % Total (dollars in thousands) 2022 Loans Builder & developer $ 128,327 7.9 Commercial real estate investor 367,366 22.5 Residential real estate investor 263,262 16.1 Hotel/Motel 94,471 5.8 Wholesale & retail 60,672 3.7 Manufacturing 86,593 5.3 Agriculture 91,449 5.6 Service 73,094 4.5 Other 209,116 12.8 Total commercial related loans 1,374,350 84.2 Residential mortgages 135,340 8.3 Home equity 98,030 6.0 Other 25,137 1.5 Total consumer related loans 258,507 15.8 Total loans $ 1,632,857 100.0 Management estimates the allowance balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These adjustments are commonly known as the Qualitative Framework. In addition to the estimated quantitative credit loss for loans evaluated collectively, qualitative factors that may not be fully captured in the quantitative results are also evaluated. These include changes in lending policy, the nature and volume of the portfolio, overall business conditions in the economy, credit concentrations, competition, model imprecision, and legal and regulatory requirements. Qualitative adjustments are judgmental and are based on management’s knowledge of the portfolio and the markets in which the Corporation operates. Qualitative adjustments are evaluated and approved on a quarterly basis. Additionally, the ACL includes other allowance categories that are not directly incorporated in the quantitative results including loans in process. The following tables presents the activity in the allowance for credit losses by segment as of and for the three and six months ended June 30, 2023. (dollars in thousands) Balance, April 1, 2023 Impact of adopting ASC 326 Provision for credit losses Loan charge-offs Loan recoveries Balance, June 30, 2023 Commercial loans $ 3,697 $ 0 $ 305 $ ( 994 ) $ 33 $ 3,041 Commercial real estate: Construction 3,539 0 3 0 0 3,542 Owner occupied 3,956 0 ( 86 ) 0 7 3,877 Non-owner occupied 6,168 0 ( 43 ) 0 0 6,125 Residential real estate: Construction 79 0 14 0 0 93 Revolving 641 0 ( 298 ) 0 133 476 Multi family 1,424 0 483 0 0 1,907 Other 1,859 0 ( 416 ) 0 5 1,448 Consumer 181 0 7 ( 20 ) 4 172 Total $ 21,544 $ 0 $ ( 31 ) $ ( 1,014 ) $ 182 $ 20,681 (dollars in thousands) Balance, January 1, 2023 Impact of adopting ASC 326 Provision for credit losses Loan charge-offs Loan recoveries Balance, June 30, 2023 Commercial loans $ 4,783 $ ( 235 ) $ ( 598 ) $ ( 1,058 ) $ 149 $ 3,041 Commercial real estate: Construction 1,829 1,121 592 0 0 3,542 Owner occupied 4,341 ( 69 ) 248 ( 683 ) 40 3,877 Non-owner occupied 6,387 ( 468 ) 206 0 0 6,125 Residential real estate: Construction 230 ( 144 ) 7 0 0 93 Revolving 417 192 ( 239 ) ( 27 ) 133 476 Multi family 1,205 194 508 0 0 1,907 Other 1,511 169 ( 250 ) 0 18 1,448 Consumer 33 167 ( 13 ) ( 24 ) 9 172 Total $ 20,736 $ 927 $ 461 $ ( 1,792 ) $ 349 $ 20,681 The following table presents the activity in and the composition of the allowance for loan losses in accordance with previously applicable GAAP by loan segment and class detail as of and for the three and six months ended June 30, 2022. Allowance for Loan Losses April 1, 2022 June 30, 2022 (dollars in thousands) Balance Charge-offs Recoveries Provision Balance Builder & developer $ 2,275 $ 0 $ 0 $ 15 $ 2,290 Commercial real estate investor 5,082 0 0 684 5,766 Residential real estate investor 3,202 0 3 278 3,483 Hotel/Motel 565 ( 1,659 ) 0 2,356 1,262 Wholesale & retail 1,983 0 0 ( 1,465 ) 518 Manufacturing 999 0 0 ( 141 ) 858 Agriculture 1,205 0 0 249 1,454 Service 976 ( 488 ) 0 339 827 Other commercial 5,112 0 5 819 5,936 Total commercial related loans 21,399 ( 2,147 ) 8 3,134 22,394 Residential mortgage 363 0 0 ( 151 ) 212 Home equity 190 ( 4 ) 1 8 195 Other consumer 73 ( 1 ) 7 ( 4 ) 75 Total consumer related loans 626 ( 5 ) 8 ( 147 ) 482 Unallocated 2 0 0 ( 13 ) ( 11 ) Total $ 22,027 $ ( 2,152 ) $ 16 $ 2,974 $ 22,865 Allowance for Loan Losses January 1, 2022 June 30, 2022 (dollars in thousands) Balance Charge-offs Recoveries Provision Balance Builder & developer $ 2,408 $ 0 $ 0 $ ( 118 ) $ 2,290 Commercial real estate investor 5,647 ( 1,227 ) 0 1,346 5,766 Residential real estate investor 3,493 0 9 ( 19 ) 3,483 Hotel/Motel 968 ( 1,659 ) 0 1,953 1,262 Wholesale & retail 1,989 0 0 ( 1,471 ) 518 Manufacturing 883 0 0 ( 25 ) 858 Agriculture 1,307 ( 535 ) 0 682 1,454 Service 981 ( 488 ) 0 334 827 Other commercial 4,656 ( 3 ) 24 1,259 5,936 Total commercial related loans 22,332 ( 3,912 ) 33 3,941 22,394 Residential mortgage 186 0 0 26 212 Home equity 191 ( 49 ) 2 51 195 Other consumer 74 ( 3 ) 11 ( 7 ) 75 Total consumer related loans 451 ( 52 ) 13 70 482 Unallocated ( 1 ) 0 0 ( 10 ) ( 11 ) Total $ 22,782 $ ( 3,964 ) $ 46 $ 4,001 $ 22,865 Non-accrual Loans The table below presents a summary of non-accrual loans at June 30, 2023. An allowance is established for those individual loans where the Corporation has doubt as to the full recovery of the outstanding principal balance. Typically, individually evaluated consumer related loans are partially or fully charged-off eliminating the need for specific allowance. Interest income on loans with no related allowance is the result of interest collected on a cash basis. With a Without a Related Interest Income (dollars in thousands) Related Allowance Related Allowance Allowance Three months ended Six months ended June 30, 2023 Commercial loans $ 1,727 $ 4,354 $ 1,172 $ 0 $ 245 Commercial real estate: Construction 0 42 0 0 107 Owner occupied 0 2,124 0 11 53 Non-owner occupied 0 54 0 0 0 Residential real estate: Construction 0 0 0 36 36 Revolving 0 484 0 20 27 Multi family 0 0 0 0 0 Other 0 845 0 38 38 Consumer 0 0 0 0 0 Total $ 1,727 $ 7,903 $ 1,172 $ 105 $ 506 The table below presents a summary of impaired loans at December 31, 2022 . Generally, impaired loans are all loans risk rated nonaccrual or classified troubled debt restructuring. An allowance is established for those individual loans where the Corporation has doubt as to the full recovery of the outstanding principal balance. Typically, impaired consumer related loans are partially or fully charged-off, eliminating the need for specific allowance. The recorded investment represents outstanding unpaid principal loan balances adjusted for payments collected on a non-cash basis and charged-offs. With No Allowance With A Related Allowance Total Recorded Unpaid Recorded Unpaid Related Recorded Unpaid (dollars in thousands) Investment Principal Investment Principal Allowance Investment Principal December 31, 2022 Builder & developer $ 1,901 $ 2,644 $ 44 $ 44 $ 44 $ 1,945 $ 2,688 Commercial real estate investor 500 500 0 0 0 500 500 Residential real estate investor 647 665 209 215 152 856 880 Hotel/Motel 0 0 0 0 0 0 0 Wholesale & retail 0 0 0 0 0 0 0 Manufacturing 2,783 2,877 182 183 33 2,965 3,060 Agriculture 164 210 748 930 655 912 1,140 Service 0 0 0 0 0 0 0 Other commercial 1,836 3,037 1,600 2,338 1,600 3,436 5,375 Total impaired commercial related loans 7,831 9,933 2,783 3,710 2,484 10,614 13,643 Residential mortgage 1,112 1,115 0 0 0 1,112 1,115 Home equity 457 512 0 0 0 457 512 Other consumer 0 0 0 0 0 0 0 Total impaired consumer related loans 1,569 1,627 0 0 0 1,569 1,627 Total impaired loans $ 9,400 $ 11,560 $ 2,783 $ 3,710 $ 2,484 $ 12,183 $ 15,270 The tables below presents a summary of average impaired loans and related interest income that was included for the three and six months ended June 30, 2022. Interest income on loans with no related allowance is the result of interest collected on a cash basis. With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Three months ended June 30, 2022 Builder & developer $ 986 $ 0 $ 760 $ 0 $ 1,746 $ 0 Commercial real estate investor 3,153 14 0 0 3,153 14 Residential real estate investor 466 0 107 0 573 0 Hotel/Motel 6,037 0 0 0 6,037 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,495 16 0 0 4,495 16 Agriculture 1,409 315 374 0 1,783 315 Service 0 0 486 0 486 0 Other commercial 181 62 4,243 0 4,424 62 Total impaired commercial related loans 16,727 407 5,970 0 22,697 407 Residential mortgage 468 7 559 8 1,027 15 Home equity 467 27 0 0 467 27 Other consumer 90 0 0 0 90 0 Total impaired consumer related loans 1,025 34 559 8 1,584 42 Total impaired loans $ 17,752 $ 441 $ 6,529 $ 8 $ 24,281 $ 449 With No Related Allowance With A Related Allowance Total Average Total Average Total Average Total Recorded Interest Recorded Interest Recorded Interest (dollars in thousands) Investment Income Investment Income Investment Income Six months ended June 30, 2022 Builder & developer $ 988 $ 0 $ 507 $ 0 $ 1,495 $ 0 Commercial real estate investor 3,047 14 626 0 3,673 14 Residential real estate investor 404 23 72 0 476 23 Hotel/Motel 8,090 0 0 0 8,090 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,705 37 0 0 4,705 37 Agriculture 1,842 501 779 0 2,621 501 Service 0 0 647 0 647 0 Other commercial 1,328 177 3,412 0 4,740 177 Total impaired commercial related loans 20,404 752 6,043 0 26,447 752 Residential mortgage 333 7 372 8 705 15 Home equity 457 27 0 0 457 27 Other consumer 91 0 0 0 91 0 Total impaired consumer related loans 881 34 372 8 1,253 42 Total impaired loans $ 21,285 $ 786 $ 6,415 $ 8 $ 27,700 $ 794 As of June 30, 2023 and December 31, 2022, there were approximately $ 7,900,000 and $ 9,400,000 , respectively, of non-accrual loans that did not have a related allowance for credit losses. The estimated fair value of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific allowance was considered to be necessary. The table below shows the allowance amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for December 31, 2022. Allowance for Loan Losses Loans Individually Collectively Individually Collectively Evaluated For Evaluated For Evaluated For Evaluated For (dollars in thousands) Impairment Impairment Balance Impairment Impairment Balance December 31, 2022 Builder & developer $ 44 $ 1,725 $ 1,769 $ 1,945 $ 126,382 $ 128,327 Commercial real estate investor 0 4,858 4,858 500 366,866 367,366 Residential real estate investor 152 2,661 2,813 856 262,406 263,262 Hotel/Motel 0 1,658 1,658 0 94,471 94,471 Wholesale & retail 0 488 488 0 60,672 60,672 Manufacturing 33 897 930 2,965 83,628 86,593 Agriculture 655 990 1,645 912 90,537 91,449 Service 0 1,064 1,064 0 73,094 73,094 Other commercial 1,600 3,352 4,952 3,436 205,680 209,116 Total commercial related 2,484 17,693 20,177 10,614 1,363,736 1,374,350 Residential mortgage 0 270 270 1,112 134,228 135,340 Home equity 0 207 207 457 97,573 98,030 Other consumer 0 82 82 0 25,137 25,137 Total consumer related 0 559 559 1,569 256,938 258,507 Unallocated 0 0 0 0 0 0 Total $ 2,484 $ 18,252 $ 20,736 $ 12,183 $ 1,620,674 $ 1,632,857 Asset Quality The Corporation’s internal risk rating system follows regulatory guidance as to risk classifications and definitions. Every approved loan is assigned a risk rating. Generally, risk ratings for commercial related loans are determined by a formal evaluation of risk factors performed by the Corporation’s underwriting staff. For consumer and residential mortgage loans, the bank follows the Uniform Retail Credit Classification guidance. Commercial loans up to $500,000 may be scored using a third-party credit scoring software model for risk rating purposes. The loan portfolio is monitored on a continuous basis by loan officers, loan review personnel and senior management. Adjustments of loan risk ratings within the Watch, Criticized and Classified categories are generally performed by the Watch and Special Asset Committees, which includes senior management. The Committees, which typically meet at least quarterly, make changes, as appropriate, to these risk ratings. In addition to review by the Committees, existing loans are monitored by the primary loan officer and loan portfolio risk management officer to determine if any changes, upward or downward, in risk ratings are appropriate. Primary loan officers may recommend a change to a risk rating and internal loan review officers may downgrade existing loans, except to non-accrual status. Only the President/CEO or CFO may approve a downgrade of a loan to non-accrual status. The Special Asset Committee or President/CEO may upgrade a loan that is criticized or classified. The Corporation uses eleven risk ratings to grade commercial loans. The first six ratings are considered “pass” ratings. A pass rating is a satisfactory credit rating, which applies to a loan that is expected to perform in accordance with the loan agreement and has a low probability of loss. A loan rated “special mention” has a potential weakness which may, if not corrected, weaken the loan or inadequately protect the Corporation’s position at some future date. A loan rated “substandard” is inadequately protected by the current net worth or paying capacity of the obligor, or of the collateral pledged. A “substandard” loan has a well-defined weakness or weaknesses that could jeopardize liquidation of the loan, which exposes the Corporation to potential loss if the deficiencies are not corrected. When circumstances indicate that collection of the loan is doubtful, the loan is risk-rated “nonaccrual,” the accrual of interest income is discontinued, and any unpaid interest previously credited to income is reversed. The following table summarizes designated internal risk rating categories by portfolio segment, by origination year, in the current period. It does not include the regulatory classification of “doubtful,” nor does it include the regulatory classification of “loss”, because the Corporation promptly charges off loan losses. Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans converted to Term Amortized Cost Loans Amortized (dollars in thousands) 2023 2022 2021 2020 2019 Prior Basis Cost Basis Total Commercial loans Pass $ 11,432 $ 45,118 $ 17,630 $ 5,281 $ 11,451 $ 13,426 $ 44,720 $ 0 $ 149,058 Special Mention 0 431 2,148 0 595 147 2,480 0 5,801 Substandard 0 256 962 0 31 1,209 5,986 0 8,444 Nonaccrual 0 2,443 618 0 637 0 2,383 0 6,081 Total 11,432 48,248 21,358 5,281 12,714 14,782 55,569 0 169,384 Gross charge-offs 0 ( 26 ) 0 ( 15 ) 0 ( 968 ) ( 49 ) 0 ( 1,058 ) Commercial real estate: Construction Pass $ 31,026 $ 67,244 $ 44,868 $ 14,418 $ 8,055 $ 8,572 $ 0 $ 0 $ 174,183 Special Mention 0 577 0 1,693 0 0 1,500 0 3,770 Substandard 0 0 0 0 0 0 0 0 0 Nonaccrual 0 0 0 0 0 42 0 0 42 Total 31,026 67,821 44,868 16,111 8,055 8,631 1,483 0 177,995 Gross charge-offs 0 0 0 0 0 0 0 0 0 Owner occupied Pass $ 24,110 $ 61,416 $ 71,217 $ 25,071 $ 35,182 $ 97,614 $ 11,805 $ 0 $ 326,415 Special Mention 0 0 0 2,391 0 4,741 0 0 7,132 Substandard 250 0 1,286 0 0 6,369 274 0 8,179 Nonaccrual 0 0 1,855 0 0 269 0 0 2,124 Total 24,360 61,416 74,358 27,462 35,182 108,993 12,079 0 343,850 Gross charge-offs 0 0 0 0 0 ( 683 ) 0 0 ( 683 ) Non-owner occupied Pass $ 26,642 $ 120,462 $ 106,635 $ 63,632 $ 11,683 $ 121,079 $ 1,544 $ 0 $ 451,677 Special Mention 0 0 0 0 0 960 0 0 960 Substandard 0 0 0 0 0 5,697 0 0 5,697 Nonaccrual 0 0 0 54 0 0 0 0 54 Total 26,642 120,462 106,635 63,686 11,683 127,736 1,544 0 458,388 Gross charge-offs 0 0 0 0 0 0 0 0 0 Residential real estate: Construction Pass $ 6,872 $ 11,935 $ 2,873 $ 709 $ 1,569 $ 1,216 $ 2,787 $ 0 $ 27,961 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 0 0 0 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 6,872 11,935 2,873 709 1,569 1,216 2,787 0 27,961 Gross charge-offs 0 0 0 0 0 0 0 0 0 Revolving Pass $ 7,847 $ 17,118 $ 1,424 $ 347 $ 671 $ 2,720 $ 71,973 $ 0 $ 102,100 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 90 0 90 Nonaccrual 0 0 0 0 0 0 484 0 484 Total 7,847 17,118 1,424 347 671 2,720 72,547 0 102,674 Gross charge-offs 0 0 0 0 0 ( 8 ) ( 19 ) 0 ( 27 ) Multi family Pass $ 5,133 $ 26,899 $ 33,242 $ 19,764 $ 24,102 $ 13,779 $ 904 $ 0 $ 123,823 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 0 0 0 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 5,133 26,899 33,242 19,764 24,102 13,779 904 0 123,823 Gross charge-offs 0 0 0 0 0 0 0 0 0 Other Pass $ 36,768 $ 63,554 $ 43,758 $ 39,264 $ 18,597 $ 59,694 $ 414 $ 0 $ 262,049 Special Mention 0 0 0 53 0 1,022 42 0 1,117 Substandard 0 0 0 131 0 172 0 0 303 Nonaccrual 0 0 296 0 0 549 0 0 845 Total 36,768 63,554 44,054 39,448 18,597 61,437 456 0 264,314 Gross charge-offs 0 0 0 0 0 0 0 0 0 Consumer Pass $ 2,892 $ 4,162 $ 1,950 $ 239 $ 143 $ 329 $ 3,584 $ 0 $ 13,299 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 0 0 0 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 2,892 4,162 1,950 239 143 329 3,584 0 13,299 Gross charge-offs 0 0 0 ( 2 ) 0 ( 1 ) ( 21 ) 0 ( 24 ) Total Loans Pass $ 152,722 $ 417,908 $ 323,597 $ 168,725 $ 111,453 $ 318,446 $ 137,714 $ 0 $ 1,630,565 Special Mention 0 1,008 2,148 4,137 595 6,870 4,022 0 18,780 Substandard 250 256 2,248 131 31 13,447 6,350 0 22,713 Nonaccrual 0 2,443 2,769 54 637 860 2,867 0 9,630 Total 152,972 421,615 330,762 173,047 112,716 339,623 150,953 0 1,681,688 Total Gross Charge-Offs $ 0 $ ( 26 ) $ 0 $ ( 17 ) $ 0 $ ( 1,660 ) $ ( 89 ) $ 0 $ ( 1,792 ) Special (dollars in thousands) Pass Mention Substandard Nonaccrual Total December 31, 2022 Builder & developer $ 124,572 $ 1,010 $ 972 $ 1,773 $ 128,327 Commercial real estate investor 367,144 0 0 222 367,366 Residential real estate investor 262,406 0 0 856 263,262 Hotel/Motel 89,710 0 4,761 0 94,471 Wholesale & retail 59,930 56 686 0 60,672 Manufacturing 81,552 1,444 632 2,965 86,593 Agriculture 87,896 2,260 381 912 91,449 Service 68,373 384 4,337 0 73,094 Other 192,194 4,934 8,552 3,436 209,116 Total commercial related loans 1,333,777 10,088 20,321 10,164 1,374,350 Residential mortgage 134,850 0 141 349 135,340 Home equity 97,573 0 0 457 98,030 Other 25,137 0 0 0 25,137 Total consumer related loans 257,560 0 141 806 258,507 Total loans $ 1,591,337 $ 10,088 $ 20,462 $ 10,970 $ 1,632,857 The performance and credit quality of the loan portfolio is also monitored by using an aging schedule that shows the length of time a loan is past due. The table below presents a summary of past due loans, nonaccrual loans and current loans by class segment at June 30, 2023. ≥ 90 Days Total Past 30-59 Days 60-89 Days Past Due Due and (dollars in thousands) Past Due Past Due and Accruing Nonaccrual Nonaccrual Current Total Loans June 30, 2023 Commercial loans $ 10 $ 0 $ 0 $ 6,081 $ 6,091 $ 163,293 $ 169,384 Commercial real estate: Construction 309 0 1,693 42 2,044 175,951 177,995 Owner occupied 425 0 0 2,124 2,549 341,301 343,850 Non-owner occupied 0 155 0 54 209 458,179 458,388 Residential real estate: Construction 0 0 0 0 0 27,961 27,961 Revolving 799 0 0 484 1,283 101,391 102,674 Multi family 0 0 0 0 0 123,823 123,823 Other 0 0 0 845 845 263,469 264,314 Consumer 7 0 0 0 7 13,292 13,299 Total $ 1,550 $ 155 $ 1,693 $ 9,630 $ 13,028 $ 1,668,660 $ 1,681,688 The performance and credit quality of the loan portfolio is also monitored by using an aging schedule that shows the length of time a loan is past due. The table below presents a summary of past due loans, nonaccrual loans and current loans by class segment at December 31, 2022. ≥ 90 Days 30-59 60-89 Past Due Total Past Days Days and Due and Total (dollars in thousands) Past Due Past Due Accruing Nonaccrual Nonaccrual Current Loans December 31, 2022 Builder & developer $ 3,500 $ 0 $ 0 $ 1,773 $ 5,273 $ 123,054 $ 128,327 Commercial real estate investor 0 0 0 222 222 367,144 367,366 Residential real estate investor 0 0 0 856 856 262,406 263,262 Hotel/Motel 0 0 0 0 0 94,471 94,471 Wholesale & retail 0 0 0 0 0 60,672 60,672 Manufacturing 0 0 0 2,965 2,965 83,628 86,593 Agriculture 8 0 0 912 920 90,529 91,449 Service 0 0 0 0 0 73,094 73,094 Other 0 0 0 3,436 3,436 205,680 209,116 Total commercial related loans 3,508 0 0 10,164 13,672 1,360,678 1,374,350 Residential mortgage 207 0 0 349 556 134,784 135,340 Home equity 345 94 0 457 896 97,134 98,030 Other 7 42 0 0 49 25,088 25,137 Total consumer related loans 559 136 0 806 1,501 257,006 258,507 Total loans $ 4,067 $ 136 $ 0 $ 10,970 $ 15,173 $ 1,617,684 $ 1,632,857 Collateral Dependent Loans A loan is considered to be collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. For all classes of loans deemed collateral-dependent, the Corporation elected the practical expedient to estimate expected credit losses based on the collateral’s fair value less cost to sell. In most cases, the Corporation records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less cost to sell. Substantially all of the collateral supporting collateral-dependent financial assets consists of various types of real estate, including residential properties, commercial properties, such as retail centers, office buildings, lodging, agriculture land, and vacant land. At June 30, 2023 collateral dependent loans totaled $ 9,600,000 . Modifications Occasionally, the Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, other-than-insignificant payment delay, term extension or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Corporation provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction. The following table presents the amortized costs basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the prior 3 months, by segment and type of modification. The percentage of the amortized costs basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of loan is also presented below: Term (dollars in thousands) Extension Total Loan Class June 30, 2023 Commercial loans $ 831 $ 0.49 % Commercial real estate: Owner occupied 1,855 0.54 Total $ 2,686 $ 0.16 % The following table presents the amortized costs basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the prior 6 months, by segment and type of modification. The percentage of the amortized costs basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of loan is also presented below: Term Interest Rate (dollars in thousands) Extension Reduction Total Loan Class June 30, 2023 Commercial loans $ 1,707 $ 2,074 2.23 % Commercial real estate: Owner occupied 1,855 0 0.54 Total $ 3,562 $ 2,074 0.34 % The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended June 30, 2023: Weighted-Average (dollars in thousands) Term Extension (months) June 30, 2023 Commercial loans 4 Commercial real estate: Owner occupied 4 The Corporation has not committed to lend additional amounts to the borrowers included in the previous table. The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the six months ended June 30, 2023: Weighted-Average Weighted-Average Interest Rate Interest Rate Weighted-Average (dollars in thousands) Reduction Reduction Range Term Extension (months) June 30, 2023 Commercial loans 3.15 % 3.15-3.15 % 8 Commercial real estate: Owner occupied 0 0 8 The Corporation has committed to lend additional amounts totaling $ 23,000 to the borrowers included in the previous table. The Corporation closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. No ne of the loans that have been modified in the last three and six months were past due or had a payment default at June 30, 2023. |