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 on 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; Existence 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 Corporation’s Chief Credit Officer in discussion with the appropriate finance and executive personnel. During the quarter ending September 30, 2023, the quantitative allowance was positively impacted by forecasted improvements in the macroeconomic conditions such as national civilian unemployment rates and GDP. While these changes project an improvement in credit conditions, a decrease was experienced in commercial real estate prices. This resulted in a decision to increase the qualitative loss risk related to changes in national, regional and local conditions along with changes in the value of underlying collateral for commercial real estate loans. This increased risk will continue to be monitored and would expect to remain until forecasts for the unemployment rate and GDP again align with projections for commercial real estate pricing. While other areas of risk beyond the quantitative risk have been identified within the model, no additional 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 September 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. September 30, % Total (dollars in thousands) 2023 Loans Commercial loans $ 171,490 10.1 Commercial real estate: Construction 184,960 10.9 Owner occupied 347,857 20.4 Non-owner occupied 455,584 26.7 Residential real estate: Construction 29,132 1.7 Revolving 105,169 6.2 Multi family 123,465 7.2 Other 273,170 16.0 Consumer 13,553 0.8 Gross Loans 1,704,380 100.0 Less: Allowance for credit losses 21,449 Net Loans $ 1,682,931 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 nine months ended September 30, 2023. (dollars in thousands) Balance, July 1, 2023 Provision for credit losses Loan charge-offs Loan recoveries Balance, September 30, 2023 Commercial loans $ 3,041 $ ( 614 ) $ ( 190 ) $ 768 $ 3,005 Commercial real estate: Construction 3,542 451 0 0 3,993 Owner occupied 3,877 236 0 1 4,114 Non-owner occupied 6,125 36 0 0 6,161 Residential real estate: Construction 93 ( 5 ) 0 0 88 Revolving 476 5 0 1 482 Multi family 1,907 75 0 0 1,982 Other 1,448 ( 43 ) 0 51 1,456 Consumer 172 ( 13 ) ( 3 ) 12 168 Total $ 20,681 $ 128 $ ( 193 ) $ 833 $ 21,449 (dollars in thousands) Balance, January 1, 2023 - Pre ASC 326 Adoption Impact of adopting ASC 326 Provision for credit losses Loan charge-offs Loan recoveries Balance, September 30, 2023 Commercial loans $ 4,783 $ ( 235 ) $ ( 1,212 ) $ ( 1,248 ) $ 917 $ 3,005 Commercial real estate: Construction 1,829 1,121 1,043 0 0 3,993 Owner occupied 4,341 ( 69 ) 484 ( 683 ) 41 4,114 Non-owner occupied 6,387 ( 468 ) 242 0 0 6,161 Residential real estate: Construction 230 ( 144 ) 2 0 0 88 Revolving 417 192 ( 234 ) ( 27 ) 134 482 Multi family 1,205 194 583 0 0 1,982 Other 1,511 169 ( 293 ) 0 69 1,456 Consumer 33 167 ( 26 ) ( 27 ) 21 168 Total $ 20,736 $ 927 $ 589 $ ( 1,985 ) $ 1,182 $ 21,449 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 nine months ended September 30, 2022. Allowance for Loan Losses July 1, 2022 September 30, 2022 (dollars in thousands) Balance Charge-offs Recoveries Provision Balance Builder & developer $ 2,290 $ 0 $ 12 $ ( 176 ) $ 2,126 Commercial real estate investor 5,766 ( 22 ) 0 ( 13 ) 5,731 Residential real estate investor 3,483 ( 52 ) 1 ( 670 ) 2,762 Hotel/Motel 1,262 ( 10 ) 179 ( 345 ) 1,086 Wholesale & retail 518 0 0 17 535 Manufacturing 858 0 0 128 986 Agriculture 1,454 0 40 150 1,644 Service 827 ( 248 ) 1 443 1,023 Other commercial 5,936 0 6 ( 126 ) 5,816 Total commercial related loans 22,394 ( 332 ) 239 ( 592 ) 21,709 Residential mortgage 212 0 0 31 243 Home equity 195 0 24 ( 19 ) 200 Other consumer 75 ( 3 ) 6 2 80 Total consumer related loans 482 ( 3 ) 30 14 523 Unallocated ( 11 ) 0 0 11 0 Total $ 22,865 $ ( 335 ) $ 269 $ ( 567 ) $ 22,232 Allowance for Loan Losses January 1, 2022 September 30, 2022 (dollars in thousands) Balance Charge-offs Recoveries Provision Balance Builder & developer $ 2,408 $ 0 $ 12 $ ( 294 ) $ 2,126 Commercial real estate investor 5,647 ( 1,249 ) 0 1,333 5,731 Residential real estate investor 3,493 ( 52 ) 10 ( 689 ) 2,762 Hotel/Motel 968 ( 1,669 ) 179 1,608 1,086 Wholesale & retail 1,989 0 0 ( 1,454 ) 535 Manufacturing 883 0 0 103 986 Agriculture 1,307 ( 535 ) 40 832 1,644 Service 981 ( 736 ) 1 777 1,023 Other commercial 4,656 ( 3 ) 30 1,133 5,816 Total commercial related loans 22,332 ( 4,244 ) 272 3,349 21,709 Residential mortgage 186 0 0 57 243 Home equity 191 ( 49 ) 26 32 200 Other consumer 74 ( 6 ) 17 ( 5 ) 80 Total consumer related loans 451 ( 55 ) 43 84 523 Unallocated ( 1 ) 0 0 1 0 Total $ 22,782 $ ( 4,299 ) $ 315 $ 3,434 $ 22,232 Non-accrual Loans The table below presents a summary of non-accrual loans at September 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 Nine months ended September 30, 2023 Commercial loans $ 1,988 $ 1,996 $ 1,092 $ 136 $ 381 Commercial real estate: Construction 40 0 0 107 Owner occupied 0 2,043 0 0 53 Non-owner occupied 0 204 0 0 0 Residential real estate: Construction 0 0 0 0 36 Revolving 0 506 0 0 27 Multi family 0 0 0 0 0 Other 0 828 0 0 38 Consumer 0 0 0 0 0 Total $ 1,988 $ 5,617 $ 1,092 $ 136 $ 642 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 nine months ended September 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 September 30, 2022 Builder & developer $ 982 $ 0 $ 1,492 $ 0 $ 2,474 $ 0 Commercial real estate investor 2,855 4 0 0 2,855 4 Residential real estate investor 711 4 213 0 924 4 Hotel/Motel 0 0 0 0 0 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,023 0 0 0 4,023 0 Agriculture 405 0 748 0 1,153 0 Service 0 0 0 0 0 0 Other commercial 0 0 4,179 0 4,179 0 Total impaired commercial related loans 8,976 8 6,632 0 15,608 8 Residential mortgage 842 6 0 0 842 6 Home equity 470 0 0 0 470 0 Other consumer 44 15 0 0 44 15 Total impaired consumer related loans 1,356 21 0 0 1,356 21 Total impaired loans $ 10,332 $ 29 $ 6,632 $ 0 $ 16,964 $ 29 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 Nine months ended September 30, 2022 Builder & developer $ 986 $ 0 $ 746 $ 0 $ 1,732 $ 0 Commercial real estate investor 2,993 18 469 0 3,462 18 Residential real estate investor 466 27 106 0 572 27 Hotel/Motel 6,067 0 0 0 6,067 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,478 37 0 0 4,478 37 Agriculture 1,482 501 771 0 2,253 501 Service 0 0 486 0 486 0 Other commercial 996 177 3,596 0 4,592 177 Total impaired commercial related loans 17,468 760 6,174 0 23,642 760 Residential mortgage 452 13 280 8 732 21 Home equity 459 27 0 0 459 27 Other consumer 69 15 0 0 69 15 Total impaired consumer related loans 980 55 280 8 1,260 63 Total impaired loans $ 18,448 $ 815 $ 6,454 $ 8 $ 24,902 $ 823 As of September 30, 2023 and December 31, 2022, there were approximately $ 5,600,000 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 allowance for credit losses 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 $ 14,196 $ 44,255 $ 15,949 $ 4,712 $ 10,760 $ 9,893 $ 51,716 $ 0 $ 151,481 Special Mention 0 0 50 0 563 137 3,374 0 4,124 Substandard 38 649 2,784 13 12 1,168 7,237 0 11,901 Nonaccrual 0 360 599 0 625 1,000 1,400 0 3,984 Total 14,234 45,264 19,382 4,725 11,960 12,198 63,727 0 171,490 Gross write-offs 0 ( 26 ) 0 ( 15 ) 0 ( 968 ) ( 239 ) 0 ( 1,248 ) Commercial real estate: Construction Pass $ 41,980 $ 74,921 $ 31,133 $ 11,922 $ 7,966 $ 8,474 $ 2,831 $ 0 $ 179,227 Special Mention 0 605 0 1,679 0 0 1,000 0 3,284 Substandard 0 0 0 2,409 0 0 0 0 2,409 Nonaccrual 0 0 0 0 0 40 0 0 40 Total 41,980 75,526 31,133 16,010 7,966 8,514 3,831 0 184,960 Gross write-offs 0 0 0 0 0 0 0 0 0 Owner occupied Pass $ 33,433 $ 60,051 $ 66,381 $ 24,657 $ 34,689 $ 94,644 $ 16,803 $ 0 $ 330,658 Special Mention 140 0 0 2,519 0 4,151 0 0 6,810 Substandard 250 0 1,263 0 0 6,404 429 0 8,346 Nonaccrual 0 0 1,785 0 0 258 0 0 2,043 Total 33,823 60,051 69,429 27,176 34,689 105,457 17,232 0 347,857 Gross write-offs 0 0 0 0 0 ( 683 ) 0 0 ( 683 ) Non-owner occupied Pass $ 33,056 $ 120,640 $ 111,199 $ 63,341 $ 11,542 $ 111,059 $ 1,439 $ 0 $ 452,276 Special Mention 0 0 1,197 0 0 950 0 0 2,147 Substandard 0 0 0 0 0 957 0 0 957 Nonaccrual 0 0 0 50 0 154 0 0 204 Total 33,056 120,640 112,396 63,391 11,542 113,120 1,439 0 455,584 Gross write-offs 0 0 0 0 0 0 0 0 0 Residential real estate: Construction Pass $ 8,388 $ 13,824 $ 2,155 $ 972 $ 1,556 $ 540 $ 1,697 $ 0 $ 29,132 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 8,388 13,824 2,155 972 1,556 540 1,697 0 29,132 Gross write-offs 0 0 0 0 0 0 0 0 0 Revolving Pass $ 9,616 $ 16,462 $ 1,099 $ 333 $ 638 $ 2,102 $ 74,413 $ 0 $ 104,663 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 0 0 0 Nonaccrual 0 34 0 0 0 0 472 0 506 Total 9,616 16,496 1,099 333 638 2,102 74,885 0 105,169 Gross write-offs 0 0 0 0 0 ( 8 ) ( 19 ) 0 ( 27 ) Multi family Pass $ 5,418 $ 26,836 $ 32,980 $ 19,625 $ 23,934 $ 9,442 $ 1,003 $ 0 $ 119,238 Special Mention 0 0 0 0 0 1,800 0 0 1,800 Substandard 0 0 0 0 0 2,427 0 0 2,427 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 5,418 26,836 32,980 19,625 23,934 13,669 1,003 0 123,465 Gross write-offs 0 0 0 0 0 0 0 0 0 Other Pass $ 50,055 $ 63,283 $ 43,265 $ 38,398 $ 18,221 $ 56,723 $ 956 $ 0 $ 270,901 Special Mention 0 0 0 52 0 1,012 42 0 1,106 Substandard 0 0 0 130 0 205 0 0 335 Nonaccrual 0 0 292 0 0 536 0 0 828 Total 50,055 63,283 43,557 38,580 18,221 58,476 998 0 273,170 Gross write-offs 0 0 0 0 0 0 0 0 0 Consumer Pass $ 3,843 $ 3,622 $ 1,708 $ 204 $ 111 $ 277 $ 3,788 $ 0 $ 13,553 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 3,843 3,622 1,708 204 111 277 3,788 0 13,553 Gross write-offs 0 ( 2 ) 0 ( 2 ) 0 ( 1 ) ( 22 ) 0 ( 27 ) Total Loans Pass $ 199,985 $ 423,894 $ 305,869 $ 164,164 $ 109,417 $ 293,154 $ 154,646 $ 0 $ 1,651,129 Special Mention 140 605 1,247 4,250 563 8,050 4,416 0 19,271 Substandard 288 649 4,047 2,552 12 11,161 7,666 0 26,375 Nonaccrual 0 394 2,676 50 625 1,988 1,872 0 7,605 Total 200,413 425,542 313,839 171,016 110,617 314,353 168,600 0 1,704,380 Total Gross Charge-Offs $ 0 $ ( 28 ) $ 0 $ ( 17 ) $ 0 $ ( 1,660 ) $ ( 280 ) $ 0 $ ( 1,985 ) 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 September 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 September 30, 2023 Commercial loans $ 50 $ 0 $ 0 $ 3,984 $ 4,034 $ 167,456 $ 171,490 Commercial real estate: Construction 0 1,679 0 40 1,719 183,241 184,960 Owner occupied 0 0 0 2,043 2,043 345,814 347,857 Non-owner occupied 0 0 0 204 204 455,380 455,584 Residential real estate: Construction 0 0 0 0 0 29,132 29,132 Revolving 246 0 0 506 752 104,417 105,169 Multi family 0 0 0 0 0 123,465 123,465 Other 3 0 0 828 831 272,339 273,170 Consumer 24 0 0 0 24 13,529 13,553 Total $ 323 $ 1,679 $ 0 $ 7,605 $ 9,607 $ 1,694,773 $ 1,704,380 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 September 30, 2023 collateral dependent loans totaled $ 7,600,000 . 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 September 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: Payment Delay & (dollars in thousands) Term Extension Total Loan Class September 30, 2023 Commercial real estate: Construction $ 1,679 0.91 % Residential real estate: Multi family 1,800 1.46 Total $ 3,479 0.20 % The following table presents the amortized costs basis of loans at September 30, 2023 that were both experiencing financial difficulty and modified during the prior nine 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: Payment Delay & Term (dollars in thousands) Term Extension Extension Total Loan Class September 30, 2023 Commercial loans $ 0 $ 1,748 1.02 % Commercial real estate: Construction 1,679 0 0.91 Owner occupied 0 1,785 0.51 Residential real estate: Multi family 1,800 0 1.46 Total $ 3,479 $ 3,533 0.41 % The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended September 30, 2023: Weighted-Average Payment Delay & (dollars in thousands) Term Extension (months) September 30, 2023 Commercial real estate: Construction 4 Residential real estate: Multi family 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 nine months ended September 30, 2023: Weighted-Average Weighted-Average Payment Delay & (dollars in thousands) Term Extension (months) Term Extension (months) September 30, 2023 Commercial loans 8 0 Commercial real estate: Construction 0 4 Owner occupied 8 0 Residential real estate: Multi family 0 4 The Corporation has committed to lend additional amounts totaling $ 231,000 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 nine months were past due or had a payment default at September 30, 2023. |