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LOANS AND ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 2024

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

We evaluate risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan types. The following is a summary of total loans based on regulatory call report code segmentation for certain loan types:


	June 30,		December 31,
(in thousands)	2024		2023
Commercial construction	$	179,259	$	154,048
Commercial real estate owner occupied		277,385		310,015
Commercial real estate non-owner occupied		1,229,493		1,144,566
Tax exempt		38,118		43,688
Commercial and industrial		322,657		310,883
Residential real estate		918,578		940,334
Home equity		90,465		87,683
Consumer other		8,226		7,832
Total loans		3,064,181		2,999,049
Allowance for credit losses		28,855		28,142
Net loans	$	3,035,326	$	2,970,907

Total unamortized net costs and premiums included in loan totals were as follows:


	June 30,		December 31,
(in thousands)	2024		2023
Net unamortized loan origination costs	$	2,499	$	3,039
Net unamortized fair value discount on acquired loans		(2,644)		(2,891)
Total	$	(145)	$	148

We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2024 and December 31, 2023, accrued interest receivable for loans totaled $13.2 million and $11.9 million, respectively, and is included in the “other assets” line item on the consolidated balance sheets.

Characteristics of each loan portfolio segment are as follows:

Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the completed structure in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than on stabilized commercial real estate transactions. Construction loans are primarily paid by the cash flow generated from the completed structure, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial real estate owner occupied and non-owner occupied - Loans in these segments are primarily owner-occupied or income-producing properties. Loans to real estate investment trusts and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made to these borrowers may provide us with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.

Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally, loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the US Small Business Administration. Loans are primarily paid by the operating cash flow of the borrower.

Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable.

Allowance for Credit Losses

The Allowance for Credit Losses (“ACL”) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on our consolidated balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the consolidated balance sheet date.

The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.

The activity in the ACL for the periods ended are as follows:


	At or for the Three Months Ended June 30, 2024
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	3,697	$	—	$	—	$	520	$	4,217
Commercial real estate owner occupied		3,081		—		—		(461)		2,620
Commercial real estate non-owner occupied		9,155		—		—		419		9,574
Tax exempt		113		—		—		(3)		110
Commercial and industrial		3,834		(18)		16		150		3,982
Residential real estate		7,651		—		3		(138)		7,516
Home equity		752		—		1		10		763
Consumer other		72		(88)		1		88		73
Total	$	28,355	$	(106)	$	21	$	585	$	28,855


	At or for the Six Months Ended June 30, 2024
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	4,261	$	—	$	—	$	(44)	$	4,217
Commercial real estate owner occupied		2,863		(3)		—		(240)		2,620
Commercial real estate non-owner occupied		9,443		—		—		131		9,574
Tax exempt		119		—		—		(9)		110
Commercial and industrial		3,259		(83)		17		789		3,982
Residential real estate		7,352		—		8		156		7,516
Home equity		767		—		4		(8)		763
Consumer other		78		(133)		29		99		73
Total	$	28,142	$	(219)	$	58	$	874	$	28,855


	At or for the Three Months Ended June 30, 2023
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	3,034	$	—	$	—	$	343	$	3,377
Commercial real estate owner occupied		2,348		—		139		79		2,566
Commercial real estate non-owner occupied		9,344		—		—		137		9,481
Tax exempt		93		—		—		8		101
Commercial and industrial		3,615		(121)		49		70		3,613
Residential real estate		7,305		(4)		7		68		7,376
Home equity		792		(12)		2		(14)		768
Consumer other		76		(62)		7		59		80
Total	$	26,607	$	(199)	$	204	$	750	$	27,362


	At or for the Six Months Ended June 30, 2023
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	2,579	$	—	$	—	$	798	$	3,377
Commercial real estate owner occupied		2,189		—		139		238		2,566
Commercial real estate non-owner occupied		9,341		—		—		140		9,481
Tax exempt		93		—		—		8		101
Commercial and industrial		3,493		(122)		55		187		3,613
Residential real estate		7,274		(8)		15		95		7,376
Home equity		811		(12)		4		(35)		768
Consumer other		80		(125)		8		117		80
Total	$	25,860	$	(267)	$	221	$	1,548	$	27,362

Unfunded Commitments

The ACL on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the ACL on unfunded commitments for the periods ended was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Beginning Balance	$	3,639	$	3,735	$	3,825	$	3,910
Provision for credit losses		—		45		(186)		(130)
Ending Balance	$	3,639	$	3,780	$	3,639	$	3,780

Loan Origination/Risk Management: We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. Our Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board of Directors with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, non-performing loans and potential problem loans. We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

Credit Quality Indicators: In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively).

The following are the definitions of our credit quality indicators:

Pass: Loans we consider in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a low risk of loss related to these loans considered pass-rated.

Special Mention: Loans considered having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point

where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose us to sufficient risks to warrant classification.

Substandard: Loans we consider as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.

Doubtful: Loans we consider as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).

Loss: Loans we consider as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be effected in the future. Losses are taken in the period in which they are determined to be uncollectible.

The following table presents our loans by year of origination, loan segmentation and risk indicator as of June 30, 2024:



(in thousands)	2024		2023		2022		2021		2020		Prior		Total
Commercial construction
Risk rating:
Pass	$	3,134	$	28,460	$	120,612	$	12,931	$	3,927	$	10,195	$	179,259
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	3,134	$	28,460	$	120,612	$	12,931	$	3,927	$	10,195	$	179,259
Current period gross write-offs		—		—		—		—		—		—		—

Commercial real estate owner occupied
Risk rating:
Pass	$	2,505	$	51,829	$	61,677	$	30,689	$	19,739	$	103,496	$	269,935
Special mention		—		147		—		—		1,310		2,339		3,796
Substandard		—		—		—		—		—		3,547		3,547
Doubtful		—		—		—		—		—		107		107
Total	$	2,505	$	51,976	$	61,677	$	30,689	$	21,049	$	109,489	$	277,385
Current period gross write-offs		—		—		—		—		—		3		3

Commercial real estate non-owner occupied
Risk rating:
Pass	$	55,812	$	41,109	$	345,156	$	235,349	$	134,787	$	314,034	$	1,126,247
Special mention		—		—		9,336		21,404		27,864		19,646		78,250
Substandard		—		7,756		—		—		—		17,240		24,996
Doubtful		—		—		—		—		—		—		—
Total	$	55,812	$	48,865	$	354,492	$	256,753	$	162,651	$	350,920	$	1,229,493
Current period gross write-offs		—		—		—		—		—		—		—

Tax exempt
Risk rating:
Pass	$	1,706	$	2,820	$	6,528	$	713	$	208	$	26,143	$	38,118
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	1,706	$	2,820	$	6,528	$	713	$	208	$	26,143	$	38,118
Current period gross write-offs		—		—		—		—		—		—		—

Commercial and industrial
Risk rating:
Pass	$	33,902	$	67,597	$	63,974	$	16,419	$	35,986	$	78,221	$	296,099
Special mention		11		15,725		1,385		997		243		3,281		21,642
Substandard		—		148		549		199		117		3,816		4,829
Doubtful		—		—		—		—		—		87		87
Total	$	33,913	$	83,470	$	65,908	$	17,615	$	36,346	$	85,405	$	322,657
Current period gross write-offs		—		—		—		62		3		18		83


Residential real estate
Performing	$	13,797	$	78,444	$	181,085	$	159,689	$	92,599	$	389,312	$	914,926
Nonperforming		—		—		469		—		—		3,183		3,652
Total	$	13,797	$	78,444	$	181,554	$	159,689	$	92,599	$	392,495	$	918,578
Current period gross write-offs		—		—		—		—		—		—		—

Home equity
Performing	$	6,765	$	15,957	$	15,632	$	7,138	$	5,977	$	38,080	$	89,549
Nonperforming		—		54		—		55		—		807		916
Total	$	6,765	$	16,011	$	15,632	$	7,193	$	5,977	$	38,887	$	90,465
Current period gross write-offs		—		—		—		—		—		—		—

Consumer other
Performing	$	3,310	$	2,229	$	1,261	$	462	$	167	$	792	$	8,221
Nonperforming		—		—		—		3		1		1		5
Total	$	3,310	$	2,229	$	1,261	$	465	$	168	$	793	$	8,226
Current period gross write-offs		—		32		3		—		2		96		133

Total Loans	$	120,942	$	312,275	$	807,664	$	486,048	$	322,925	$	1,014,327	$	3,064,181

The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2023:



(in thousands)	2023		2022		2021		2020		2019		Prior		Total
Commercial construction
Risk rating:
Pass	$	14,040	$	99,115	$	35,978	$	3,992	$	—	$	923	$	154,048
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	14,040	$	99,115	$	35,978	$	3,992	$	—	$	923	$	154,048
Current period gross write-offs		—		—		—		—		—		—		—

Commercial real estate owner occupied
Risk rating:
Pass	$	57,603	$	61,015	$	43,228	$	20,209	$	20,462	$	91,187	$	293,704
Special mention		160		387		7,488		1,596		—		3,066		12,697
Substandard		—		—		—		—		—		3,497		3,497
Doubtful		—		—		—		—		—		117		117
Total	$	57,763	$	61,402	$	50,716	$	21,805	$	20,462	$	97,867	$	310,015
Current period gross write-offs		—		—		—		—		—		—		—

Commercial real estate non-owner occupied
Risk rating:
Pass	$	41,270	$	353,613	$	199,311	$	127,231	$	78,759	$	238,973	$	1,039,157
Special mention		7,809		—		14,134		37,249		15,246		17,108		91,546
Substandard		—		—		—		—		—		13,863		13,863
Doubtful		—		—		—		—		—		—		—
Total	$	49,079	$	353,613	$	213,445	$	164,480	$	94,005	$	269,944	$	1,144,566
Current period gross write-offs		—		—		—		—		—		—		—

Tax exempt
Risk rating:
Pass	$	6,340	$	8,468	$	787	$	208	$	590	$	27,295	$	43,688
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	6,340	$	8,468	$	787	$	208	$	590	$	27,295	$	43,688
Current period gross write-offs		—		—		—		—		—		—		—

Commercial and industrial
Risk rating:
Pass	$	80,942	$	69,402	$	22,205	$	38,824	$	14,739	$	77,273	$	303,385
Special mention		364		1,446		—		776		28		3,588		6,202
Substandard		58		94		186		109		95		532		1,074
Doubtful		—		—		—		—		87		135		222
Total	$	81,364	$	70,942	$	22,391	$	39,709	$	14,949	$	81,528	$	310,883
Current period gross write-offs		—		—		—		—		5		659		664


Performing	$	72,395	$	194,109	$	165,434	$	96,016	$	62,648	$	345,823	$	936,425
Nonperforming		—		—		41		—		234		3,634		3,909
Total	$	72,395	$	194,109	$	165,475	$	96,016	$	62,882	$	349,457	$	940,334
Current period gross write-offs		—		—		—		—		—		8		8

Home equity
Performing	$	15,582	$	15,334	$	7,873	$	6,633	$	4,800	$	36,652	$	86,874
Nonperforming		—		—		—		—		—		809		809
Total	$	15,582	$	15,334	$	7,873	$	6,633	$	4,800	$	37,461	$	87,683
Current period gross write-offs		—		—		—		—		—		12		12

Consumer other
Performing	$	4,128	$	1,787	$	696	$	301	$	51	$	864	$	7,827
Nonperforming		—		—		4		1		—		—		5
Total	$	4,128	$	1,787	$	700	$	302	$	51	$	864	$	7,832
Current period gross write-offs		—		52		18		5		—		214		289

Total Loans	$	300,691	$	804,770	$	497,365	$	333,145	$	197,739	$	865,339	$	2,999,049

Past Dues

The following is a summary of past due loans for the periods ended:


	June 30, 2024
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	179,259	$	179,259
Commercial real estate owner occupied		—		835		—		835		276,550		277,385
Commercial real estate non-owner occupied		206		—		89		295		1,229,198		1,229,493
Tax exempt		—		—		—		—		38,118		38,118
Commercial and industrial		172		45		1,094		1,311		321,346		322,657
Residential real estate		629		222		1,123		1,974		916,604		918,578
Home equity		542		214		75		831		89,634		90,465
Consumer other		35		39		1		75		8,151		8,226
Total	$	1,584	$	1,355	$	2,382	$	5,321	$	3,058,860	$	3,064,181


	December 31, 2023
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	154,048	$	154,048
Commercial real estate owner occupied		—		—		—		—		310,015		310,015
Commercial real estate non-owner occupied		—		—		103		103		1,144,463		1,144,566
Tax exempt		—		—		—		—		43,688		43,688
Commercial and industrial		465		59		330		854		310,029		310,883
Residential real estate		1,520		627		1,999		4,146		936,188		940,334
Home equity		600		—		337		937		86,746		87,683
Consumer other		10		2		—		12		7,820		7,832
Total	$	2,595	$	688	$	2,769	$	6,052	$	2,992,997	$	2,999,049

Non-Accrual Loans

The following is a summary of non-accrual loans for the periods ended:


	June 30, 2024
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		91		—		—
Commercial real estate non-owner occupied		311		190		—
Tax exempt		—		—		—
Commercial and industrial		1,302		99		—
Residential real estate		3,652		943		34
Home equity		916		1		—
Consumer other		5		1		—
Total	$	6,277	$	1,234	$	34


	December 31, 2023
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		103		44		—
Commercial real estate non-owner occupied		340		224		—
Tax exempt		—		—		—
Commercial and industrial		363		6		—
Residential real estate		3,908		1,131		118
Home equity		809		1		22
Consumer other		5		—		—
Total	$	5,528	$	1,406	$	140

Collateral Dependent Loans

Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment for the periods ended:


	June 30, 2024				December 31, 2023
(in thousands)	Real Estate		Other		Real Estate		Other
Commercial construction	$	—	$	—	$	—	$	—
Commercial real estate owner occupied		91		—		104		—
Commercial real estate non-owner occupied		311		—		340		—
Tax exempt		—		—		—		—
Commercial and industrial		1,302		—		229		134
Residential real estate		3,652		—		3,908		—
Home equity		916		—		808		—
Consumer other		5		—		5		—
Total	$	6,277	$	—	$	5,394	$	134

Loan Modifications to Borrowers Experiencing Financial Difficulty

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, we are no longer required to establish a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective category and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.

These modifications typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.

The following table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2024 and 2023, by class and by type of modification.


(in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Interest Rate Reduction and Term Extension		% of Total Class of Loans
Three Months Ended June 30, 2024
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		—		—		—	—
Residential real estate		—		—		—		—		—	—
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	—	$	—	$	—	—	%
Six Months Ended June 30, 2024
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		—		—		—	—
Residential real estate		—		—		32		—		—	0.00
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	32	$	—	$	—	—


(in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Interest Rate Reduction and Term Extension		% of Total Class of Loans
Three Months Ended June 30, 2023
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		1,419		—		18	0.46
Residential real estate		—		—		—		101		—	0.01
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	1,419	$	101	$	18	0.05	%
Six Months Ended June 30, 2023
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		1,419		—		18	0.46
Residential real estate		—		—		—		101		—	0.01
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	1,419	$	101	$	18	0.05	%

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 and 2023.


(in thousands)	Weighted-Average Months of Payment Delay		Weighted-Average Months of Term Extension		Weighted-Average Interest Rate Reduction
Three Months Ended June 30, 2024
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		—	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		—	—	%
Six Months Ended June 30, 2024
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		—	—
Residential real estate		—		64.00	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		64.00	—	%


(in thousands)	Weighted-Average Months of Payment Delay		Weighted-Average Months of Term Extension		Weighted-Average Interest Rate Reduction
Three Months Ended June 30, 2023
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		3.82	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		3.82	—	%
Six Months Ended June 30, 2023
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		3.82	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		3.82	—	%

Foreclosure

There were $36 thousand of residential mortgage loans collateralized by real estate that are in the process of foreclosure as of June 30, 2024. Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of December 31, 2023 totaled $430 thousand.

Mortgage Banking

Loans held for sale at June 30, 2024 had an unpaid principal balance of $3.8 million and $2.2 million as of December 31, 2023. The interest rate exposure on loans held for sale is mitigated through forward sale commitments with certain approved secondary market investors. Forward sale commitments had a notional amount of $10.9 million at June 30, 2024, and $5.0 million at December 31, 2023.

For the three months ended June 30, 2024 and 2023, we sold $8.8 million and $5.4 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $216 thousand and $16 thousand, respectively. For the six months ended June 30, 2024 and 2023, we sold $17.2 million and $6.1 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $184 thousand and $8 thousand, respectively.

We sell residential loans on the secondary market while primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and earn fees over the servicing period. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. We obtain third-party valuations of our servicing assets portfolio quarterly, and the assumptions are reflected in Fair Value disclosures.