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. 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. 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. The ACL also includes a qualitative adjustment for risk factors that are not considered within the quantitative component or where the Corporation’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 quantitative 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 year ending December 31, 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. Loan Portfolio Composition The table below provides the composition of the loan portfolio at December 31, 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. December 31, % Total (dollars in thousands) 2023 Loans Commercial loans $ 154,189 9.0 Commercial real estate: Construction 178,756 10.5 Owner occupied 355,236 20.8 Non-owner occupied 455,171 26.7 Residential real estate: Construction 27,383 1.6 Revolving 107,968 6.3 Multi family 130,666 7.7 Other 283,387 16.6 Consumer 12,852 0.8 Gross Loans 1,705,608 100.0 Less: Allowance for credit losses 20,506 Net Loans $ 1,685,102 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 Concentrations of Risk Concentrations of credit risk arise when a number of clients are engaged in similar business activities in the same geographic region or have similar economic features or other correlations that could cause their ability meet contractual obligations to be similarly affected.Most of the Corporation’s business is with clients in south central Pennsylvania, specifically York County and Lancaster County and north central Maryland, specifically Baltimore and Harford County.At December 31, 2023, the Corporation had four segments of its total loan portfolio that exceeded 10 percent: commercial real estate construction, commercial real estate owner occupied, commercial real estate non-owner occupied and residential real estate other, which represented 10.5 percent, 20.8 percent, 26.7 percent and 16.6 percent of the total loan portfolio, respectively. At December 31, 2022, the Corporation had two segments of its total loans portfolio that exceeded 10 percent: commercial real estate investor, which represented 22.5 percent of the portfolio and residential real estate investor, which represented 16.1 percent of the portfolio. The principal balance of outstanding loans to directors, executive officers, principal shareholders and any affiliates of such persons was $ 12,803,000 at December 31, 2023 and $ 11,041,000 at December 31, 2022.During 2023, total additions were $ 3,322,000 and total repayments and reductions were $ 1,560,000 .As of year-end 2023, all loans to this group were current and performing in accordance with contractual terms. The following tables presents the activity in the allowance for credit losses by segment as of and for the year ended December 31, 2023. Boy I a (dollars in thousands) Balance, January 1, 2023 - Pre ASC 326 Adoption Impact of adopting ASC 326 Recovery of credit losses Loan charge-offs Loan recoveries Balance, December 31, 2023 Commercial loans $ 4,783 $ ( 235 ) $ ( 1,907 ) $ ( 1,448 ) $ 1,061 $ 2,254 Commercial real estate: Construction 1,829 1,121 708 0 0 3,658 Owner occupied 4,341 ( 69 ) 465 ( 682 ) 41 4,096 Non-owner occupied 6,387 ( 468 ) 360 0 0 6,279 Residential real estate: Construction 230 ( 144 ) ( 4 ) 0 0 82 Revolving 417 192 ( 207 ) ( 63 ) 136 475 Multi family 1,205 194 120 0 0 1,519 Other 1,511 169 233 0 73 1,986 Consumer 33 167 ( 12 ) ( 62 ) 31 157 Total $ 20,736 $ 927 $ ( 244 ) $ ( 2,255 ) $ 1,342 $ 20,506 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 year ended December 31, 2022. Allowance for Loan Losses January 1, 2022 December 31, 2022 (dollars in thousands) Balance Charge-offs Recoveries Provision Balance Builder & developer $ 2,408 $ ( 423 ) $ 12 $ ( 228 ) $ 1,769 Commercial real estate investor 5,647 ( 1,249 ) 1,249 ( 789 ) 4,858 Residential real estate investor 3,493 ( 52 ) 50 ( 678 ) 2,813 Hotel/Motel 968 ( 1,668 ) 179 2,179 1,658 Wholesale & retail 1,989 ( 41 ) 0 ( 1,460 ) 488 Manufacturing 883 0 0 47 930 Agriculture 1,307 ( 535 ) 40 833 1,645 Service 981 ( 763 ) 1 845 1,064 Other commercial 4,656 ( 1,747 ) 34 2,009 4,952 Total commercial related loans 22,332 ( 6,478 ) 1,565 2,758 20,177 Residential mortgage 186 0 0 84 270 Home equity 191 ( 49 ) 27 38 207 Other consumer 74 ( 28 ) 27 9 82 Total consumer related loans 451 ( 77 ) 54 131 559 Unallocated ( 1 ) 0 0 1 0 Total $ 22,782 $ ( 6,555 ) $ 1,619 $ 2,890 $ 20,736 Non-accrual Loans The table below presents a summary of non-accrual loans at December 31, 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 an individual 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 Year ended December 31, 2023 December 31, 2023 Commercial loans $ 1,000 $ 513 $ 500 $ 663 Commercial real estate: Construction 0 38 0 107 Owner occupied 463 0 56 401 Non-owner occupied 0 205 0 0 Residential real estate: Construction 0 0 0 36 Revolving 0 439 0 35 Multi family 0 0 0 0 Other 0 951 0 38 Consumer 0 0 0 0 Total $ 1,463 $ 2,146 $ 556 $ 1,280 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 year ended December 31, 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 December 31, 2022 Builder & developer $ 1,168 $ 0 $ 605 $ 0 $ 1,773 $ 0 Commercial real estate investor 2,494 22 376 0 2,870 22 Residential real estate investor 502 27 127 0 629 27 Hotel/Motel 4,854 0 0 0 4,854 0 Wholesale & retail 0 0 0 0 0 0 Manufacturing 4,139 37 37 5 4,176 42 Agriculture 1,219 534 766 0 1,985 534 Service 0 0 388 0 388 0 Other commercial 1,164 177 3,197 0 4,361 177 Total impaired commercial related loans 15,540 797 5,496 5 21,036 802 Residential mortgage 584 19 224 8 808 27 Home equity 459 30 0 0 459 30 Other consumer 55 15 0 0 55 15 Total impaired consumer related loans 1,098 64 224 8 1,322 72 Total impaired loans $ 16,638 $ 861 $ 5,720 $ 13 $ 22,358 $ 874 As of December 31, 2023 and December 31, 2022, there were approximately $ 2,146,000 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 nine 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 $ 19,859 $ 40,037 $ 14,742 $ 4,183 $ 10,482 $ 8,928 $ 44,105 $ 0 $ 142,336 Special Mention 0 12 0 0 530 128 2,071 0 2,741 Substandard 36 227 2,559 10 0 1,098 3,669 0 7,599 Nonaccrual 0 21 33 0 310 1,000 149 0 1,513 Total 19,895 40,297 17,334 4,193 11,322 11,154 49,994 0 154,189 Gross write-offs 0 ( 26 ) ( 11 ) ( 15 ) 0 ( 1,009 ) ( 387 ) 0 ( 1,448 ) Commercial real estate: Construction Pass $ 53,320 $ 63,945 $ 19,825 $ 11,790 $ 7,743 $ 8,160 $ 4,879 $ 0 $ 169,662 Special Mention 0 3,279 0 0 0 0 500 0 3,779 Substandard 0 1,175 0 4,102 0 0 0 0 5,277 Nonaccrual 0 0 0 0 0 38 0 0 38 Total 53,320 68,399 19,825 15,892 7,743 8,198 5,379 0 178,756 Gross write-offs 0 0 0 0 0 0 0 0 0 Owner occupied Pass $ 40,600 $ 59,363 $ 76,868 $ 24,384 $ 30,913 $ 92,524 $ 16,343 $ 0 $ 340,995 Special Mention 139 0 0 0 0 3,510 0 0 3,649 Substandard 247 0 1,240 2,502 0 5,711 429 0 10,129 Nonaccrual 0 0 0 0 0 463 0 0 463 Total 40,986 59,363 78,108 26,886 30,913 102,208 16,772 0 355,236 Gross write-offs 0 0 0 0 0 ( 682 ) 0 0 ( 682 ) Non-owner occupied Pass $ 38,259 $ 124,825 $ 111,364 $ 53,115 $ 11,406 $ 102,011 $ 1,856 $ 0 $ 442,836 Special Mention 0 0 0 9,941 0 85 0 0 10,026 Substandard 0 0 1,189 0 0 915 0 0 2,104 Nonaccrual 0 0 0 50 0 155 0 0 205 Total 38,259 124,825 112,553 63,106 11,406 103,166 1,856 0 455,171 Gross write-offs 0 0 0 0 0 0 0 0 0 Residential real estate: Construction Pass $ 14,200 $ 7,554 $ 1,199 $ 965 $ 1,294 $ 537 $ 1,634 $ 0 $ 27,383 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 14,200 7,554 1,199 965 1,294 537 1,634 0 27,383 Gross write-offs 0 0 0 0 0 0 0 0 0 Revolving Pass $ 10,935 $ 16,175 $ 1,042 $ 319 $ 605 $ 1,975 $ 76,178 $ 0 $ 107,229 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 0 0 0 0 0 0 300 0 300 Nonaccrual 0 35 0 0 0 0 404 0 439 Total 10,935 16,210 1,042 319 605 1,975 76,882 0 107,968 Gross write-offs 0 0 0 0 0 ( 8 ) ( 55 ) 0 ( 63 ) Multi family Pass $ 6,300 $ 34,966 $ 32,692 $ 19,487 $ 23,751 $ 8,238 $ 1,023 $ 0 $ 126,457 Special Mention 0 0 0 0 0 1,800 0 0 1,800 Substandard 0 0 0 0 0 2,409 0 0 2,409 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 6,300 34,966 32,692 19,487 23,751 12,447 1,023 0 130,666 Gross write-offs 0 0 0 0 0 0 0 0 0 Other Pass $ 65,759 $ 62,257 $ 42,183 $ 37,607 $ 17,649 $ 54,210 $ 1,232 $ 0 $ 280,897 Special Mention 0 0 0 50 0 916 42 0 1,008 Substandard 0 102 0 129 0 300 0 0 531 Nonaccrual 0 0 425 0 0 526 0 0 951 Total 65,759 62,359 42,608 37,786 17,649 55,952 1,274 0 283,387 Gross write-offs 0 0 0 0 0 0 0 0 0 Consumer Pass $ 3,982 $ 3,282 $ 1,521 $ 160 $ 81 $ 259 $ 3,560 $ 0 $ 12,845 Special Mention 0 0 0 0 0 0 0 0 0 Substandard 1 6 0 0 0 0 0 0 7 Nonaccrual 0 0 0 0 0 0 0 0 0 Total 3,983 3,288 1,521 160 81 259 3,560 0 12,852 Gross write-offs 0 ( 6 ) 0 ( 2 ) 0 ( 1 ) ( 53 ) 0 ( 62 ) Total Loans Pass $ 253,214 $ 412,404 $ 301,436 $ 152,010 $ 103,924 $ 276,842 $ 150,810 $ 0 $ 1,650,640 Special Mention 139 3,291 0 9,991 530 6,439 2,613 0 23,003 Substandard 284 1,510 4,988 6,743 0 10,433 4,398 0 28,356 Nonaccrual 0 56 458 50 310 2,182 553 0 3,609 Total 253,637 417,261 306,882 168,794 104,764 295,896 158,374 0 1,705,608 Total Gross Charge-Offs $ 0 $ ( 32 ) $ ( 11 ) $ ( 17 ) $ 0 $ ( 1,700 ) $ ( 495 ) $ 0 $ ( 2,255 ) 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 December 31, 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 December 31, 2023 Commercial loans $ 307 $ 12 $ 0 $ 1,513 $ 1,832 $ 152,357 $ 154,189 Commercial real estate: Construction 0 0 0 38 38 178,718 178,756 Owner occupied 348 0 0 463 811 354,425 355,236 Non-owner occupied 346 0 0 205 551 454,620 455,171 Residential real estate: Construction 0 0 0 0 0 27,383 27,383 Revolving 304 26 0 439 769 107,199 107,968 Multi family 0 0 0 0 0 130,666 130,666 Other 911 0 0 951 1,862 281,525 283,387 Consumer 17 0 0 0 17 12,835 12,852 Total $ 2,233 $ 38 $ 0 $ 3,609 $ 5,880 $ 1,699,728 $ 1,705,608 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 December 31, 2023 collateral dependent loans totaled $ 3,609,000 . 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 December 31, 2023 that were both experiencing financial difficulty and modified during the year, 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 Rate Reduction & (dollars in thousands) Term Extension Extension Payment Delay Term Extension Total Loan Class December 31, 2023 Commercial loans $ 1,516 $ 24 $ 150 $ 0 1.10 % Commercial real estate: Construction 1,693 0 0 0 0.95 Owner occupied 0 0 0 330 0.09 Residential real estate: Multi family 1,800 0 0 0 1.38 Total $ 5,009 $ 24 $ 150 $ 330 0.32 % The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023: Weighted-Average Weighted-Average Weighted-Average Interest Rate Interest Rate Weighted-Average Payment Delay & Weighted-Average (dollars in thousands) Reduction Reduction Range Term Extension (months) Term Extension (months) Payment Delay (months) December 31, 2023 Commercial loans 0 % 0 % 3 15 2 Commercial real estate: Construction 0 0 0 8 0 Owner occupied 2.41 1.50 - 3.31 23 0 0 Residential real estate: Multi family 0 0 0 7 7 The Corporation has committed to lend additional amounts totaling $ 350,000 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 during the year ending December 31, 2023 were past due or had a payment default at December 31, 2023. |