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LOANS AND ALLOWANCE FOR CREDIT LOSSES
 12 Months Ended
Dec. 31, 2023
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company's loan portfolio is grouped into segments, which are further broken down into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with
the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements, and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships as compared to owner occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, if any, including the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to local and regional businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers are typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending. At December 31, 2023 and 2022, commercial and industrial loans include $5.7 million and $13.8 million, respectively, of loans, net of deferred fees and costs, originated through the SBA PPP. At December 31, 2023, the Bank has $70 thousand of net deferred SBA PPP fees remaining to be recognized through net interest income over the remaining life of the loans. As these loans are 100% guaranteed by the SBA, there is no associated ACL at December 31, 2023 and 2022.
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its clients for a specific utility.
The Company originates loans to its retail clients, including fixed-rate and adjustable first lien mortgage loans with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-value ratios of no greater than 85% of the value of the real estate taken as collateral. The creditworthiness of the borrower is considered including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk are mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate, and may present a greater risk to the Company than 1-4 family residential loans.
The following table presents the loan portfolio by segment and class, excluding residential LHFS, at December 31, 2023 and 2022.
20232022
Commercial real estate:
Owner-occupied$373,757 $315,770 
Non-owner occupied694,638 608,043 
Multi-family150,675 138,832 
Non-owner occupied residential95,040 104,604 
Acquisition and development:
1-4 family residential construction24,516 25,068 
Commercial and land development115,249 158,308 
Commercial and industrial (1)
367,085 357,774 
Municipal9,812 12,173 
Residential mortgage:
First lien266,239 229,849 
Home equity – term5,078 5,505 
Home equity – lines of credit186,450 183,241 
Installment and other loans9,774 12,065 
Total loans$2,298,313 $2,151,232 
(1) This balance includes $5.7 million and $13.8 million of SBA PPP loans, net of deferred fees and costs, at December 31, 2023 and 2022, respectively.
In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management may determine to be either individually evaluated, referred to as "Substandard - Individually Evaluated Loan," or collectively evaluated, referred to as "Substandard Non-Individually Evaluated Loan." A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged-off.
The Company has a loan review policy and program, which is designed to identify and monitor risk in the lending function. The Management ERM Committee, comprised of executive officers, senior officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $1.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated substandard, doubtful or loss are reviewed quarterly and corresponding risk ratings are changed or reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of December 31, 2023. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan and payment activity, which residential mortgage and installment and other consumer loans are presented below based on payment performance: performing or nonperforming.
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Commercial Real Estate:
Owner-occupied:
Risk rating
Pass$50,829 $103,192 $69,888 $21,232 $21,251 $62,634 $4,941 $— $333,967 
Special mention— — 2,517 1,176 — 1,314 — — 5,007 
Substandard - Non-IEL— 9,923 — 6,075 — 2,687 312 — 18,997 
Substandard - IEL— — — 13,366 — 2,420 — — 15,786 
Total owner-occupied loans$50,829 $113,115 $72,405 $41,849 $21,251 $69,055 $5,253 $— $373,757 
Current period gross charge offs - owner-occupied$— $— $— $— $— $— $— $— $— 
Non-owner occupied:
Risk rating
Pass$82,879 $102,212 $235,031 $83,652 $63,176 $120,696 $509 $— $688,155 
Special mention— — — 524 — 2,112 — — 2,636 
Substandard - Non-IEL— — — — — 2,739 — 868 3,607 
Substandard - IEL— — — — — 240 — — 240 
Total non-owner occupied loans$82,879 $102,212 $235,031 $84,176 $63,176 $125,787 $509 $868 $694,638 
Current period gross charge offs - non-owner occupied$— $— $— $— $— $— $— $— $— 
Multi-family:
Risk rating
Pass$2,701 $61,805 $28,541 $12,694 $7,437 $33,895 $117 $— $147,190 
Special mention— — — — 244 2,008 — — 2,252 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — 1,233 — — 1,233 
Total multi-family loans$2,701 $61,805 $28,541 $12,694 $7,681 $37,136 $117 $— $150,675 
Current period gross charge offs - multi-family$— $— $— $— $— $— $— $— $— 
Non-owner occupied residential:
Risk rating
Pass$10,075 $20,473 $16,947 $7,974 $6,444 $28,319 $1,130 $— $91,362 
Special mention— — — — — 731 — — 731 
Substandard - Non-IEL— — — — — 375 — — 375 
Substandard - IEL2 — 192 1,461 — 917 — — 2,572 
Total non-owner occupied residential loans$10,077 $20,473 $17,139 $9,435 $6,444 $30,342 $1,130 $— $95,040 
Current period gross charge offs - non-owner occupied residential$— $— $— $— $— $12 $— $— $12 
(continued)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Acquisition and development:
1-4 family residential construction:
Risk rating
Pass$18,820 $5,400 $— $— $— $— $— $— $24,220 
Special mention222 — 74 — — — — — 296 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — — — — — 
Total 1-4 family residential construction loans$19,042 $5,400 $74 $— $— $— $— $— $24,516 
Current period gross charge offs - 1-4 family residential construction$— $— $— $— $— $— $— $— $— 
Commercial and land development:
Risk rating
Pass$28,829 $48,453 $9,847 $9,927 $110 $1,774 $6,574 $6,936 $112,450 
Special mention— — — 1,001 — 437 — — 1,438 
Substandard - Non-IEL— — — — — — — — — 
Substandard - IEL— — — — — 1,361 — — 1,361 
Total commercial and land development loans$28,829 $48,453 $9,847 $10,928 $110 $3,572 $6,574 $6,936 $115,249 
Current period gross charge offs - commercial and land development$— $— $— $— $— $— $— $— $— 
Commercial and Industrial:
Risk rating
Pass$67,735 $69,670 $67,117 $24,580 $10,753 $20,775 $86,475 $1,522 $348,627 
Special mention— 4,251 4,364 11 552 356 2,258 — 11,792 
Substandard - Non-IEL— — 4,682 — 5 225 1,082 — 5,994 
Substandard - IEL— 69 — 7 — 455 141 — 672 
Total commercial and industrial loans$67,735 $73,990 $76,163 $24,598 $11,310 $21,811 $89,956 $1,522 $367,085 
Current period gross charge offs - commercial and industrial$— $161 $106 $— $— $8 $473 $— $748 
Municipal:
Risk rating
Pass$— $— $3,403 $— $— $6,409 $— $— $9,812 
Total municipal loans$— $— $3,403 $— $— $6,409 $— $— $9,812 
Current period gross charge offs - municipal$— $— $— $— $— $— $— $— $— 
Residential mortgage:
First lien:
Payment performance
Performing$43,641 $71,311 $34,704 $8,056 $7,465 $97,943 $— $638 $263,758 
Nonperforming— — — — 120 2,361 — — 2,481 
Total first lien loans$43,641 $71,311 $34,704 $8,056 $7,585 $100,304 $— $638 $266,239 
Current period gross charge offs - first lien$— $— $— $— $— $58 $— $— $58 
Home equity - term:
Payment performance
Performing$607 $732 $90 $426 $115 $3,105 $— $— $5,075 
Nonperforming— — — — — 3 — — 3 
(continued)
Term Loans Amortized Cost Basis by Origination Year
As of December 31, 202320232022202120202019PriorRevolving Loans Amortized BasisRevolving Loans Converted to TermTotal
Total home equity - term loans$607 $732 $90 $426 $115 $3,108 $— $— $5,078 
Current period gross charge offs - home equity - term$— $— $— $— $— $— $— $— $— 
Home equity - lines of credit:
Payment performance
Performing$— $— $— $— $— $— $107,967 $77,171 $185,138 
Nonperforming— — — — — — 1,296 16 1,312 
Total residential real estate - home equity - lines of credit loans$— $— $— $— $— $— $109,263 $77,187 $186,450 
Current period gross charge offs - home equity - lines of credit$— $— $— $— $— $— $40 $— $40 
Installment and other loans:
Payment performance
Performing$758 $413 $332 $106 $670 $947 $6,500 $— $9,726 
Nonperforming3 — — — 33 12 — — 48 
Total Installment and other loans$761 $413 $332 $106 $703 $959 $6,500 $— $9,774 
Current period gross charge offs - installment and other$181 $24 $— $— $4 $10 $28 $— $247 

The information presented in the table above is not required for periods prior to the adoption of CECL. The following table summarizes the Company’s loan portfolio ratings based on its internal risk rating system at December 31, 2022, which presents the most comparable required information. Prior to the adoption of CECL, PCD loans were classified as PCI loans and accounted for under ASC 310-30. In accordance with the CECL standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the adoption date. At December 31, 2023, the amortized cost of the PCD loans was $8.6 million.
PassSpecial MentionNon-Impaired SubstandardImpaired - SubstandardDoubtfulPCI LoansTotal
December 31, 2022
Commercial real estate:
Owner occupied$305,159 $2,109 $3,532 $2,767 $— $2,203 $315,770 
Non-owner occupied601,244 4,243 2,273 — — 283 608,043 
Multi-family130,851 7,739 242 — — — 138,832 
Non-owner occupied residential102,674 810 482 81 — 557 104,604 
Acquisition and development:
1-4 family residential construction25,068 — — — — — 25,068 
Commercial and land development142,424 458 — 15,426 — — 158,308 
Commercial and industrial331,103 17,579 7,013 31 — 2,048 357,774 
Municipal12,173 — — — — — 12,173 
Residential mortgage:
First lien222,849 — 215 2,520 — 4,265 229,849 
Home equity - term5,485 — — 5 — 15 5,505 
Home equity - lines of credit182,801 — 45 395 — — 183,241 
Installment and other loans12,017 — — 40 — 8 12,065 
$2,073,848 $32,938 $13,802 $21,265 $— $9,379 $2,151,232 
For commercial real estate, acquisition and development, commercial and industrial and municipal segments, a loan is evaluated individually 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 individually evaluated. Generally, loans that are more than 90 days past due will be individually evaluated for a specific reserve. 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 to determine if the loan should be placed on nonaccrual status. Nonaccrual loans are, by definition, deemed to be individually evaluated under CECL. A specific reserve allocation for individually evaluated loans is measured on a loan-by-loan basis for commercial and construction loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are experiencing financial difficulty for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an individually evaluated loan that is collateral dependent if the carrying balance of the loan exceeds the appraised value of the collateral, the loan has been placed on nonaccrual status or identified as uncollectible, and it is deemed to be a confirmed loss. Typically, loans with a charge-off or partial charge-off will continue to be individually evaluated. Generally, an individually evaluated loan with a partial charge-off may continue to have a specific reserve on it after the partial charge-off, if factors warrant.
At December 31, 2023, the Company’s individually evaluated loans were measured based on the estimated fair value of the collateral securing the loan, except for purchased auto loans on nonaccrual status and accruing loans accounted for as TDRs prior to the adoption of ASU 2022-02. At December 31, 2022, except for TDRs, the Company's individually evaluated loans were measured based on the estimated fair value of the collateral securing the loan. Prior to the adoption of ASU 2022-02, by definition, TDRs were considered impaired and the related impairment analyses were initially based on DCF For real estate loans, collateral generally consists of commercial or residential real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances, dictate that another value than that provided by the appraiser is more appropriate.
Generally, commercial loans secured by real estate that are evaluated individually are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations, in which it is determined an updated appraisal is not required for loans individually evaluated for credit expected losses, fair values are based on either an existing appraisal or a DCF analysis as determined by management. The approaches are discussed below:
•Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
•Discounted cash flows – in limited cases, DCF may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding, and is used to validate collateral values derived from other approaches.
Collateral on loans evaluated individually is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable aging or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.
The Company distinguishes substandard loans for both loans individually and collectively evaluated, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of an individually evaluated loan. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development, commercial and industrial and municipal loans rated substandard to be collectively evaluated for credit expected losses. Although the Company believes these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
Larger groups of smaller balance homogeneous loans are collectively evaluated for credit expected losses. Generally, the Company does not separately identify individual residential mortgage and installment and other consumer loans for disclosures, unless such loans are the subject of a modified agreement due to financial difficulties of the borrower.
The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without reserves on individually evaluated loans as of December 31, 2023, as compared to nonaccrual loans at December 31, 2022. The Company did not recognize interest income on nonaccrual loans during the year ended December 31, 2023.
December 31, 2023
December 31, 2022
Nonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual loansLoans Past Due 90+ AccruingTotal nonaccrual loans
Commercial real estate:
Owner-occupied$— $15,786 $15,786 $— $2,767 
Non-owner occupied— 240 240 — — 
Multi-family— 1,233 1,233 — — 
Non-owner occupied residential— 2,572 2,572 — 81 
Acquisition and development:
1-4 family residential construction— — — — — 
Commercial and land development— 1,361 1,361 — 15,426 
Commercial and industrial68 604 672 — 31 
Municipal— — — — — 
Residential mortgage:
First lien— 2,309 2,309 66 1,838 
Home equity – term— 3 3 — 5 
Home equity – lines of credit— 1,312 1,312 — 395 
Installment and other loans3 36 39 — 40 
Total$71 $25,456 $25,527 $66 $20,583 

A loan is considered to be collateral-dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. At December 31, 2023, substantially all individually evaluated loans were collateral-dependent and consisted primarily of commercial real estate, acquisition and development and residential mortgage loans, which were primarily secured by commercial or residential real estate. The Company’s collateral-dependent loans had appraised collateral values which exceeded the amortized cost basis of the related loan as of December 31, 2023, except one commercial and industrial loan and one consumer installment loan. The following table presents the amortized cost basis of collateral-dependent loans by class as of December 31, 2023:
Type of Collateral
Business AssetsCommercial Real EstateEquipmentLandResidential Real EstateOtherTotal
Commercial real estate:
Owner occupied$— $15,786 $— $— $— $— $15,786 
Non-owner occupied— 240 — — — — 240 
Multi-family— 1,233 — — — — 1,233 
Non-owner occupied residential— 2,572 — — — — 2,572 
Acquisition and development:
1-4 family residential construction— — — — — — — 
Commercial and land development— — — 1,361 — — 1,361 
Commercial and industrial2 76 594 — — — 672 
Municipal— — — — — — — 
Residential mortgage:
First lien— — — — 2,231 — 2,231 
Home equity - term— — — — 3 — 3 
Home equity - lines of credit— — — — 1,312 — 1,312 
Installment and other loans— — 18 — — — 18 
Total$2 $19,907 $612 $1,361 $3,546 $— $25,428 
The information presented above in the nonaccrual loan table and the collateral-dependent table are not required for periods prior to the adoption of CECL. The following table, which excludes accruing PCI loans, presents the most comparable required information at December 31, 2022, which summarizes impaired loans by segment and class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at December 31, 2022. The recorded investment in loans excludes accrued interest receivable. Related allowances established generally pertain to those loans in which loan forbearance agreements were in the process of being negotiated or updated appraisals were pending, and any partial charge-off will be recorded when final information is received.
 
 Impaired Loans with a Specific AllowanceImpaired Loans with No Specific Allowance
Recorded
Investment
(Book Balance)
Unpaid
Principal Balance
(Legal Balance)
Related
Allowance
Recorded
Investment
(Book Balance)
Unpaid
Principal Balance
(Legal Balance)
December 31, 2022
Commercial real estate:
Owner-occupied$— $— $— $2,767 $3,799 
Non-owner occupied residential— — — 81 207 
Commercial and industrial— — — 31 112 
Residential mortgage:
First lien178 178 28 2,342 3,126 
Home equity—term— — — 5 8 
Home equity—lines of credit— — — 395 684 
Installment and other loans— — — 40 40 
$178 $178 $28 $21,087 $23,402 
The following table, which excludes accruing PCI loans, presents the most comparable required information for the prior comparative periods and summarizes the average recorded investment in impaired loans and related recognized interest income for the years ended December 31, 2022 and 2021.
 20222021
Average
Impaired
Balance
Interest
Income
Recognized
Average
Impaired
Balance
Interest
Income
Recognized
Commercial real estate:
Owner-occupied$3,050 $— $3,825 $1 
Non-owner occupied— — — — 
Multi-family— — — — 
Non-owner occupied residential96 — 225 — 
Acquisition and development:
Commercial and land development1,187 — 187 — 
Commercial and industrial109 — 3,030 — 
Residential mortgage:
First lien2,389 33 2,539 43 
Home equity – term6 — 11 — 
Home equity – lines of credit405 — 521 — 
Installment and other loans44 — 25 — 
$7,286 $33 $10,363 $44 

On January 1, 2023, the Company adopted ASU 2022-02 on a modified retrospective basis. ASU 2022-02 eliminates the TDR accounting model, and requires that the Company evaluate, based on the accounting for loan modifications, whether the borrower is experiencing financial difficulty, if the modification results in a more-than-insignificant direct change in the contractual cash flows and results in a new loan or a continuation of an existing loan. This change required all loan modifications to be accounted for under the general loan modification guidance in ASC 310-20, Receivables – Nonrefundable Fees and Other Costs, and subject entities to new disclosure requirements on loan modifications to borrowers experiencing financial difficulty. Upon adoption of CECL, the TDRs were evaluated and included in the CECL loan segment pools if the loans shared similar risk characteristics to other loans in the pool or remained with individually evaluated loans for which the ACL was measured using the collateral-dependent or DCF method.
The Company may modify loans to borrowers experiencing financial difficulty by providing principal forgiveness, term extension, interest rate reduction or an other-than-insignificant payment delay. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL. The Company may also provide multiple types of modifications on an individual loan.
The following table presents the amortized cost of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by loan class and by type of modification. The percentage of the amortized cost of loans that were modified to borrowers experiencing difficulty as compared to the amortized cost of loan class is also presented below. The Company has not committed to lend additional amounts to the borrowers included in the table below.
Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionCombination Term Extension and Principal ForgivenessCombination Term Extension and Interest Rate ReductionsTotal Class of Financing Receivable
Acquisition and development:
Commercial and land development$— $— $1,361 $— $— $— 1.18 %
Installment and other loans— — 9 — — — 0.09 %
The Company monitors the performance of the modified loans to borrowers experiencing financial difficulty to determine the effectiveness of its modification efforts. The following table presents the performance of the modified loans in the previous twelve months:
Current30-59 Days Past Due60-89 Days Past Due90 Days or More Past DueTotalNon-Accrual
Acquisition and development:
Commercial and land development$— $— $— $— $— $1,361 
Installment and other loans9 — — — 9 — 
Total:$9 $— $— $— $9 $1,361 

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. For loans modified to borrowers experiencing financial difficulty in the twelve months, there were no payment defaults in the subsequent twelve months.
Principal ForgivenessWeighted Average interest Rate ReductionWeighted Average Term Extension (in years)
Acquisition and development:
Commercial and land development— — %1.0
Installment and other loans— — %1.1

The following table presents the most comparable required information for impaired loans that were TDRs, with the recorded investment at December 31, 2022:
 2022
Number of
Contracts
Recorded
Investment
Accruing:
Residential mortgage:
First lien8 682 
8 682 
Nonaccruing:
Residential mortgage:
First lien4 212 
Installment and other loans1 2 
5 214 
13 $896 

The following table presents the number of loans modified as TDRs, and their pre-modification and post-modification investment balances for the year ended December 31, 2022. There were two new TDRs, both on non-accrual status for the year ended December 31, 2022. During 2022, one of the two new TDRs was paid off in full.
The loan presented in the table below was considered a TDR at December 31, 2022 as a result of the Company agreeing to a below market interest rate given the risk of the transaction and a term extension, in order to give the borrowers an opportunity to improve their cash flows. For new and accruing TDRs, impairment was generally assessed using a DCF analysis. For TDRs in default of their modified terms, impairment was generally determined on a collateral dependent approach.
Number of
Contracts
Pre-
Modification
Investment
Balance
Post-
Modification
Investment
Balance
December 31, 2022
Installment and other loans1 $5 $2 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due by aggregating loans based on its delinquencies. The following table presents the classes of the loan portfolio summarized by aging categories at December 31, 2023:
30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal
Past Due		Loans Not Past DueTotal
Loans
December 31, 2023
Commercial real estate:
Owner occupied$13,852 $— $117 $13,969 $359,788 $373,757 
Non-owner occupied152 — — 152 694,486 694,638 
Multi-family— — — — 150,675 150,675 
Non-owner occupied residential— — 192 192 94,848 95,040 
Acquisition and development:
1-4 family residential construction— — — — 24,516 24,516 
Commercial and land development16 — — 16 115,233 115,249 
Commercial and industrial27 69 625 721 366,364 367,085 
Municipal— — — — 9,812 9,812 
Residential mortgage:—
First lien5,433 1,058 721 7,212 259,027 266,239 
Home equity - term20 2 — 22 5,056 5,078 
Home equity - lines of credit1,801 100 839 2,740 183,710 186,450 
Installment and other loans84 28 19 131 9,643 9,774 
$21,385 $1,257 $2,513 $25,155 $2,273,158 $2,298,313 
The following table presents the most comparable required information, which includes the classes of the loan portfolio summarized by aging categories of performing loans and nonaccrual loans at December 31, 2022:
Days Past Due
Current30-5960-89
90+
(still accruing)
Total
Past Due
Non-
Accrual
Total
Loans
December 31, 2022
Commercial real estate:
Owner-occupied$310,769 $31 $— $— $31 $2,767 $313,567 
Non-owner occupied607,760 — — — — — 607,760 
Multi-family138,832 — — — — — 138,832 
Non-owner occupied residential103,782 184 — — 184 81 104,047 
Acquisition and development:
1-4 family residential construction24,622 446 — — 446 — 25,068 
Commercial and land development142,613 269 — — 269 15,426 158,308 
Commercial and industrial355,179 464 52 — 516 31 355,726 
Municipal12,173 — — — — — 12,173 
Residential mortgage:
First lien219,715 3,485 414 132 4,031 1,838 225,584 
Home equity – term5,485 — — — — 5 5,490 
Home equity – lines of credit181,350 1,395 101 — 1,496 395 183,241 
Installment and other loans11,953 64 — — 64 40 12,057 
Subtotal2,114,233 6,338 567 132 7,037 20,583 2,141,853 
Loans acquired with credit deterioration:
Commercial real estate:
Owner-occupied2,203 — — — — — 2,203 
Non-owner occupied283 — — — — — 283 
Non-owner occupied residential452 — — 105 105 — 557 
Commercial and industrial2,048 — — — — — 2,048 
Residential mortgage:
First lien3,657 327 79 202 608 — 4,265 
Home equity – term15 — — — — — 15 
Installment and other loans8 — — — — — 8 
Subtotal8,666 327 79 307 713 — 9,379 
$2,122,899 $6,665 $646 $439 $7,750 $20,583 $2,151,232 

As disclosed in Note 1, on January 1, 2023 the Company implemented CECL and increased the ACL, previously the ALL, with a cumulative-effect adjustment to the ACL for loans of $2.4 million. The Company’s ACL is calculated quarterly, with any adjustment recorded to the provision for credit losses in the consolidated statement of income. Management calculates the quantitative portion of collectively evaluated loans for all loan categories, with the exception of the consumer loan segment, using DCF methodology. For purposes of calculating the quantitative portion of collectively evaluated reserves on the consumer loan segment, the remaining life methodology is utilized. For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code in order to group loans with similar risk characteristics.
Loans that do not share similar risk characteristics are evaluated on an individual loan basis, and are excluded from the collective evaluation for the ACL. Loans identified to be individually evaluated under CECL include loans on nonaccrual status
and may include accruing loans that do not share similar risk characteristics to other accruing loans that are collectively evaluated on a loan pool basis. A specific reserve analysis may be applied to the individually evaluated loans, which considers collateral value, an observable market price or the present value of expected future cash flows. A specific reserve is assigned if the measured value of the loan using one of the before mentioned methods is less than the current carrying value of the loan.
Based on management's analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the quantitatively calculated reserve calculated on collectively evaluated loans. As the quantitative reserve calculation incorporates historical conditions, management may consider an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions. These qualitative risk factors considered by management are comparable to legacy factors prior to the adoption of CECL and include significant or unexpected changes in:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Lending Policies and Procedures, Underwriting Standards and Recovery Practices – including changes to credit policies and procedures, underwriting standards and perceived impact on anticipated losses; trends in the number of exceptions to loan policy; supervisory loan to value exceptions; and administration of loan recovery practices.
Delinquency and Classified Loan Trends – including delinquency percentages and internal loan ratings noted in the portfolio relative to economic conditions; severity of the delinquencies and the ratings; and whether the ratios are trending upwards or downwards.
Collateral Valuation Trends – including underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the level of experience of senior and middle management and the lending staff; turnover of the staff; and instances of repeat criticisms.
Quality of Loan Review System – including the level of experience of the loan review staff; in-house versus outsourced provider of review; turnover of the staff; and instances of repeat criticisms from independent testing, which includes the evaluation of internal loan ratings of the portfolio.
Economic Conditions – including trends in the international, national, regional and local conditions that monitor the interest rate environment, inflationary pressures, the consumer price index, the housing price index, housing statistics, and bankruptcy rates.
Other External Factors - including regulatory and legal environment risks and competition.
All factors noted above were established upon adoption of CECL and were deemed appropriate during the year ended December 31, 2023. For the year ended December 31, 2023, the Delinquency and Classified Loan Trends qualitative factor was increased for the commercial & industrial and owner-occupied commercial real estate loan classes, which was based on a trend of increases in loans downgraded to the special mention or classified risk rating. All other qualitative factors were unchanged from levels at adoption of CECL.
The following table presents the activity in the ACL, including the impact of adopting CECL, for the year ended December 31, 2023, and the activity in the ALL for the years ended December 31, 2022 and 2021.
 CommercialConsumer  
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotal
Residential
Mortgage
Installment
and Other
TotalUnallocatedTotal
December 31, 2023
Balance, beginning of year
$13,558 $3,214 $4,505 $24 $21,301 $3,444 $188 $3,632 $245 $25,178 
Impact of adopting ASC 326$2,857 $(214)$928 $169 $3,740 $(1,121)$49 $(1,072)$(245)$2,423 
Provision for credit losses1,360 (764)1,023 (36)1,583 6 93 99 — 1,682 
Charge-offs(12)— (748)— (760)(98)(247)(345)— (1,105)
Recoveries110 5 98 — 213 193 118 311 — 524 
Balance, end of year
$17,873 $2,241 $8 $157 $26,077 $2,424 $201 $2,625 $— $28,702 
December 31, 2022
Balance, beginning of year
$12,037 $2,062 $3,814 $30 $17,943 $2,785 $215 $3,000 $237 $21,180 
Provision for loan losses1,489 1,142 640 (6)3,265 669 218 887 8 4,160 
Charge-offs— — — — — (50)(360)(410)— (410)
Recoveries32 10 51 — 93 40 115 155 — 248 
Balance, end of year
$13,558 $3,214 $4,505 $24 $21,301 $3,444 $188 $3,632 $245 $25,178 
December 31, 2021
Balance, beginning of year
$11,151 $1,114 $3,942 $40 $16,247 $3,362 $324 $3,686 $218 $20,151 
Provision for loan losses710 938 23 (10)1,661 (517)(73)(590)19 1,090 
Charge-offs(293)— (663)— (956)(92)(70)(162)— (1,118)
Recoveries469 10 512 — 991 32 34 66 — 1,057 
Balance, end of year
$12,037 $2,062 $3,814 $30 $17,943 $2,785 $215 $3,000 $237 $21,180 

The information presented in the table below is not required for periods subsequent to the adoption of CECL. The following table summarizes the ALL allocation for loans individually and collectively evaluated for impairment by loan segment at December 31, 2022. Accruing PCI loans are excluded from loans individually evaluated for impairment.
 CommercialConsumer  
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotal
Residential
Mortgage
Installment
and Other
TotalUnallocatedTotal
December 31, 2022
Loans allocated by:
Individually evaluated for impairment
$2,848 $15,426 $31 $— $18,305 $2,920 $40 $2,960 $— $21,265 
Collectively evaluated for impairment
1,164,401 167,950 357,743 12,173 1,702,267 415,675 12,025 427,700 — 2,129,967 
$1,167,249 $183,376 $357,774 $12,173 $1,720,572 $418,595 $12,065 $430,660 $— $2,151,232 
Allowance for credit losses allocated by:
Individually evaluated for impairment
$— $— $— $— $— $28 $— $28 $— $28 
Collectively evaluated for impairment
13,558 3,214 4,505 24 21,301 3,416 188 3,604 245 25,150 
$13,558 $3,214 $4,505 $24 $21,301 $3,444 $188 $3,632 $245 $25,178