XML 22 R11.htm IDEA: XBRL DOCUMENT v3.23.1
Loans and Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2023
Loans and Allowance for Credit Losses [Abstract]  
Loans and Allowance for Credit Losses

NOTE 4 – Loans and Allowance for Credit Losses

 

The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $7.4 million as of March 31, 2023 and $7.3 million as of December 31, 2022.

 

 
   March 31, 2023   December 31, 2022 
(dollars in thousands)  Amount   % of Total   Amount   % of Total 
Commercial                
Owner occupied RE  $615,094    18.0%  $612,901    18.7%
Non-owner occupied RE   928,059    27.2%   862,579    26.3%
Construction   94,641    2.8%   109,726    3.4%
Business   495,161    14.5%   468,112    14.3%
Total commercial loans   2,132,955    62.5%   2,053,318    62.7%
Consumer                    
Real estate   993,258    29.1%   931,278    28.4%
Home equity   180,974    5.3%   179,300    5.5%
Construction   71,137    2.1%   80,415    2.5%
Other   39,621    1.0%   29,052    0.9%
Total consumer loans   1,284,990    37.5%   1,220,045    37.3%
Total gross loans, net of deferred fees   3,417,945    100.0%   3,273,363    100.0%
Less—allowance for credit losses   (40,435)        (38,639)     
Total loans, net  $3,377,510        $3,234,724      

 

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

 

                 
           March 31, 2023 
(dollars in thousands)  One year
or less		   After one
but within
five years		   After five
but within
fifteen
years		   After
fifteen
years		   Total 
Commercial                    
Owner occupied RE  $9,295    144,602    418,450    42,747    615,094 
Non-owner occupied RE   57,909    449,859    394,421    25,870    928,059 
Construction   2,742    30,409    59,103    2,387    94,641 
Business   92,502    211,145    187,033    4,481    495,161 
Total commercial loans   162,448    836,015    1,059,007    75,485    2,132,955 
Consumer                         
Real estate   9,871    46,324    280,204    656,859    993,258 
Home equity   1,028    20,452    154,189    5,305    180,974 
Construction   1,014    227    32,358    37,538    71,137 
Other   3,569    21,975    13,272    805    39,621 
 Total consumer loans   15,482    88,978    480,023    700,507    1,284,990 
  Total gross loans, net of deferred fees  $177,930    924,993    1,539,030    775,992    3,417,945 

 

             
   December 31, 2022 
(dollars in thousands)  One year
or less		   After one
but within
five years		   After five
but within fifteen years		   After fifteen
years		   Total 
Commercial                    
Owner occupied RE  $10,574    133,017    420,881    48,429    612,901 
Non-owner occupied RE   44,570    419,976    371,208    26,825    862,579 
Construction   5,509    36,537    61,009    6,671    109,726 
Business   96,157    194,489    173,259    4,207    468,112 
Total commercial loans   156,810    784,019    1,026,357    86,132    2,053,318 
Consumer                         
Real estate   12,137    38,948    260,005    620,188    931,278 
Home equity   1,336    20,933    151,696    5,335    179,300 
Construction   665    182    23,788    55,780    80,415 
Other   3,926    21,890    2,458    778    29,052 
Total consumer loans   18,064    81,953    437,947    682,081    1,220,045 
Total gross loans, net of deferred fees  $174,874    865,972    1,464,304    768,213    3,273,363 

 

The following table summarizes the loans due after one year by category.

 

             
   March 31, 2023   December 31, 2022 
   Interest Rate       Interest Rate 
(dollars in thousands)  Fixed   Floating or
Adjustable		   Fixed   Floating or
Adjustable		 
Commercial                    
Owner occupied RE  $602,302    3,497    598,513    3,814 
Non-owner occupied RE   784,868    85,282    742,763    75,246 
Construction   75,041    16,858    90,246    13,971 
Business   310,976    91,683    298,866    73,089 
Total commercial loans   1,773,187    197,320    1,730,388    166,120 
Consumer                    
Real estate   983,376    11    919,130    11 
Home equity   13,508    166,438    14,173    163,791 
Construction   70,123    
-
    79,750    
-
 
Other   19,173    16,879    19,113    6,013 
Total consumer loans   1,086,180    183,328    1,032,166    169,815 
Total gross loans, net of deferred fees  $2,859,367    380,648    2,762,554    335,935 

 

Credit Quality Indicators

 

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

 

A description of the general characteristics of the risk grades is as follows:

 

●Pass— A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk.

 

●Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management.

 

●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 loan or the institution’s credit position at some future date.

 

●Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

●Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

 

The following table presents loan balances classified by credit quality indicators by year of origination as of March 31, 2023.

 

     
   March 31, 2023 
(dollars in thousands)  2023   2022   2021   2020   2019   Prior   Revolving   Revolving Converted to Term   Total 
Commercial                                            
Owner occupied RE                                            
Pass  $19,874    160,403   143,384    76,171    65,408    121,520    
-
    169    586,929 
Watch   
-
    3,548   475    9,281    3,628    6,716    
-
    
-
    23,648 
Special Mention   
-
    196  
-
    
-
    
-
    3,133    
-
    
-
    3,329 
Substandard   
-
    
-
  
-
    
-
    
-
    1,188    
-
    
-
    1,188 
Total Owner occupied RE   19,874    164,147   143,859    85,452    69,036    132,557    
-
    169    615,094 
                                             
Non-owner occupied RE                                            
Pass   47,280    298,161   177,421    112,850    59,025    181,699    623    
-
    877,059 
Watch   200    972   9,496    
-
    7,555    13,070    
-
    
-
    31,293 
Special Mention   
-
    
-
   201    
-
    8,893    906    
-
    
-
    10,000 
Substandard   
-
    615  
-
    
-
    7,996    1,096    
-
    
-
    9,707 
Total Non-owner occupied RE   47,480    299,748   187,118    112,850    83,469    196,771    623    
-
    928,059 
                                             
Construction                                            
Pass   942    62,604   22,778    6,737    246    
-
    
-
    
-
    93,307 
Watch   
-
    1,334  
-
    
-
    
-
    
-
    
-
    
-
    1,334 
Special Mention   
-
    
-
  
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Substandard   
-
    
-
  
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Total Construction   942    63,938   22,778    6,737    246    
-
    
-
    
-
    94,641 
                                             
Business                                            
Pass   17,705    140,684   54,235    21,675    20,611    58,086    147,734    442    461,172 
Watch   145    14,571   2,031    1,627    1,061    3,607    5,420    
-
    28,462 
Special Mention   
-
    1,259   236    463    279    424    15    99    2,775 
Substandard   
-
    495  
-
    28    202    1,344    683    
-
    2,752 
Total Business   17,850    157,009   56,502    23,793    22,153    63,461    153,852    541    495,161 
                                             
Total Commercial loans   86,146    684,842   410,257    228,832    174,904    392,789    154,475    710    2,132,955 
                                             
Consumer                                            
Real estate                                            
Pass   49,330    253,611   284,238    183,939    69,806    112,705    
-
    
-
    953,629 
Watch   494    5,765   8,023    4,016    2,086    4,582    
-
    
-
    24,966 
Special Mention   
-
    2,346   1,687    2,152    2,444    3,127    
-
    
-
    11,756 
Substandard   
-
    
-
   646    224    330    1,707    
-
    
-
    2,907 
Total Real estate   49,824    261,722   294,594    190,331    74,666    122,121    
-
    
-
    993,258 
                                             
Home equity                                            
Pass   
-
    
-
  
-
    
-
    
-
    
-
    167,694    
-
    167,694 
Watch   
-
    
-
  
-
    
-
    
-
    
-
    6,701    
-
    6,701 
Special Mention   
-
    
-
  
-
    
-
    
-
    
-
    3,861    
-
    3,861 
Substandard   
-
    
-
  
-
    
-
    
-
    
-
    2,718    
-
    2,718 
Total Home equity   
-
    
-
  
-
    
-
    
-
    
-
    180,974    
-
    180,974 
                                             
Construction                                            
Pass   2,656    47,570   20,066    845    
-
    
-
    
-
    
-
    71,137 
Watch   
-
    
-
  
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Special Mention   
-
    
-
  
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Substandard   
-
    
-
  
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Total Construction   2,656    47,570   20,066    845    
-
    
-
    
-
    
-
    71,137 
                                             
Other                                            
Pass   390    3,375   2,829    1,645    1,433    3,205    25,359    
-
    38,236 
Watch   10    42   363    11    4    183    118    
-
    731 
Special Mention   
-
    11  
-
    
-
    37    90    93    
-
    231 
Substandard   
-
    327   88    
-
    3    
-
    5    
-
    423 
Total Other   400    3,755   3,280    1,656    1,477    3,478    25,575    
-
    39,621 
                                             
Total Consumer loans   52,880    313,047   317,940    192,832    76,143    125,599    206,549    
-
    1,284,990 
Total loans  $139,026    997,889   728,197    421,664    251,047    518,388    361,024    710    3,417,945 
Current period gross write-offs        (160)       (1)                       (161)

 

The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2022.

 

                                     
   December 31, 2022 
(dollars in thousands)  2022   2021   2020   2019   2018   Prior   Revolving   Revolving Converted to Term   Total 
Commercial                                             
Owner occupied RE                                             
Pass  $169,083    122,654    85,867    66,299    36,718    93,915    
-
    
-
    574,536 
Watch   14,648    479    9,339    3,658    
-
    6,792    
-
    
-
    34,916 
Special Mention   200    
-
    
-
    
-
    
-
    2,960    
-
    
-
    3,160 
Substandard   
-
    
-
    
-
    
-
    289    
-
    
-
    
-
    289 
Total Owner occupied RE   183,931    123,133    95,206    69,957    37,007    103,667    
-
    
-
    612,901 
                                              
Non-owner occupied RE                                             
Pass   281,890    169,599    113,264    59,550    79,722    106,967    604    137    811,733 
Watch   1,061    9,491    -    10,683    1,408    11,660    -    -    34,303 
Special Mention   
-
    202    
-
    6,087    
-
    930    
-
    
-
    7,219 
Substandard   
-
    134    
-
    7,992    327    871    
-
    
-
    9,324 
Total Non-owner occupied RE   282,951    179,426    113,264    84,312    81,457    120,428    604    137    862,579 
                                              
Construction                                             
Pass   48,420    55,129    4,811    247    
-
    
-
    
-
    
-
    108,607 
Watch   1,119    
-
    
-
    
-
    
-
    
-
    
-
    
-
    1,119 
Special Mention   
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Substandard   
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Total Construction   49,539    55,129    4,811    247    
-
    
-
    
-
    
-
    109,726 
                                              
Business                                             
Pass   136,489    57,804    29,864    21,808    35,249    28,914    136,337    709    447,174 
Watch   3,186    2,058    1,318    1,282    179    3,074    3,783    439    15,319 
Special Mention   1,137    260    386    210    
-
    252    115    642    3,002 
Substandard   498    
-
    188    233    315    911    472    
-
    2,617 
Total Business   141,310    60,122    31,756    23,533    35,743    33,151    140,707    1,790    468,112 
Total Commercial loans   657,731    417,810    245,037    178,049    154,207    257,246    141,311    1,927    2,053,318 
                                              
Consumer                                             
Real estate                                             
Pass   243,589    269,565    189,075    72,499    39,042    76,172    
-
    
-
    889,942 
Watch   6,196    8,256    3,847    2,278    494    3,671    
-
    
-
    24,742 
Special Mention   3,114    1,938    2,644    2,258    955    2,639    
-
    
-
    13,548 
Substandard   
-
    648    227    341    408    1,422    
-
    
-
    3,046 
Total Real estate   252,899    280,407    195,793    77,376    40,899    83,904    
-
    
-
    931,278 
                                              
Home equity                                             
Pass   
-
    
-
    
-
    
-
    
-
    
-
    165,847    
-
    165,847 
Watch   
-
    
-
    
-
    
-
    
-
    
-
    7,226    
-
    7,226 
Special Mention   
-
    
-
    
-
    
-
    
-
    
-
    4,055    
-
    4,055 
Substandard   
-
    
-
    
-
    
-
    
-
    
-
    2,172    
-
    2,172 
Total Home equity   
-
    
-
    
-
    
-
    
-
    
-
    179,300    
-
    179,300 
                                              
Construction                                             
Pass   41,138    34,039    4,923    
-
    
-
    
-
    
-
    
-
    80,100 
Watch   
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Special Mention   
-
    
-
    
-
    315    
-
    
-
    
-
    
-
    315 
Substandard   
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
    
-
 
Total Construction   41,138    34,039    4,923    315    
-
    
-
    
-
    
-
    80,415 
                                              
Other                                             
Pass   3,894    3,038    1,702    1,534    341    3,015    14,465    
-
    27,989 
Watch   46    367    15    5    16    175    93    
-
    717 
Special Mention   94    
-
    
-
    44    75    23    97    
-
    332 
Substandard   
-
    
-
    
-
    5    
-
    
-
    9    
-
    14 
Total Other   4,034    3,405    1,717    1,588    432    3,213    14,663    
-
    29,052 
Total Consumer loans   298,071    317,851    202,433    79,279    41,331    87,117    193,963    
-
    1,220,045 
Total loans  $955,802    735,661    447,470    257,328    195,538    344,363    335,274    1,927    3,273,363 

 

The following tables present loan balances by age and payment status.

 

         
   March 31, 2023 
(dollars in thousands)  Accruing
30-59 days
past due		   Accruing
60-89 days
past due		   Accruing 90
days or more
past due		   Nonaccrual
loans		   Accruing
current		   Total 
Commercial                              
Owner occupied RE  $
-
    
-
    
-
    
-
    615,094    615,094 
Non-owner occupied RE   151    -    
-
    1,384    926,524    928,059 
Construction   
-
    
-
    
-
    
-
    94,641    94,641 
Business   135    235    
-
    1,196    493,595    495,161 
Consumer                              
Real estate   886    -    
-
    1,075    991,297    993,258 
Home equity   587    
-
    
-
    1,078    179,309    180,974 
Construction   
-
    
-
    
-
    
-
    71,137    71,137 
Other   1    88    
-
    
-
    39,532    39,621 
Total loans  $1,760    323    
-
    4,733    3,411,129    3,417,945 
Total loans over 90 days past due   
-
    
-
    
-
    
-
    
-
    192 

 

   December 31, 2022 
(dollars in thousands)  Accruing
30-59 days
past due		   Accruing
60-89 days
past due		   Accruing 90
days or more
past due		   Nonaccrual
loans		   Accruing
current		   Total 
Commercial                              
Owner occupied RE  $
-
    
-
    
-
    
-
    612,901    612,901 
Non-owner occupied RE   119    757    
-
    247    861,456    862,579 
Construction   
-
    
-
    
-
    
-
    109,726    109,726 
Business   24    1    
-
    182    467,905    468,112 
Consumer                              
Real estate   330    
-
    
-
    1,099    929,849    931,278 
Home equity   50    -    
-
    1,099    178,151    179,300 
Construction   
-
    
-
    
-
    
-
    80,415    80,415 
Other   88    
-
    
-
    
-
    28,964    29,052 
Total loans  $611    758    
-
    2,627    3,269,367    3,273,363 
Total loans over 90 days past due   -    -    -    -    -    402 

 

As of March 31, 2023 and December 31, 2022, loans 30 days or more past due represented 0.11% of the Company’s total loan portfolio. Commercial loans 30 days or more past due were 0.03% of the Company’s total loan portfolio as of March 31, 2023 and December 31, 2022. Consumer loans 30 days or more past due were 0.08% of total loans as of March 31, 2023 and December 31, 2022.

 

The table below summarizes nonaccrual loans by major categories for the periods presented.

 

             
   March 31, 2023   December 31, 2022 
   Nonaccrual   Nonaccrual       Nonaccrual   Nonaccrual     
   loans   loans   Total   loans   loans   Total 
   with no   with an   nonaccrual   with no   with an   nonaccrual 
(dollars in thousands)  allowance   allowance   loans   allowance   allowance   loans 
Commercial                              
Owner occupied RE   
-
    
-
    
-
    
-
    -    - 
Non-owner occupied RE  $615    769    1,384    114    133    247 
Construction   
-
    
-
    
-
    
-
    -    - 
Business   1,045    151    1,196    
-
    182    182 
Total commercial   1,660    920    2,580    114    315    429 
Consumer                              
Real estate   
-
    1,075    1,075    -    1,099    1,099 
Home equity   192    886    1,078    194    905    1,099 
Construction   
-
    
-
    
-
    
-
    -    - 
Other   
-
    
-
    
-
    
-
    -    - 
Total consumer   192    1,961    2,153    194    2,004    2,198 
Total nonaccrual loans   1,852    2,881    4,733    308    2,319    2,627 

 

We did not recognize interest income on nonaccrual loans for the three months ended March 31, 2023 and March 31, 2022. Accrued interest of $23,000 was reversed during the three months ended March 31, 2023. Accrued interest of $3,000 was reversed during the three months ended March 31, 2022.

 

The table below summarizes information regarding nonperforming assets.

 

         
(dollars in thousands)  March 31,
2023		   December 31,
2022		 
Nonaccrual loans  $4,733    2,627 
Other real estate owned   
-
    
-
 
Total nonperforming assets  $4,733    2,627 
Nonperforming assets as a percentage of:          
Total assets   0.12%   0.07%
Gross loans   0.14%   0.08%
Total loans over 90 days past due  $192    402 
Loans over 90 days past due and still accruing   
-
    
-
 
Accruing troubled debt restructurings   
-
    4,503 

 

Modifications to Borrowers Experiencing Financial Difficulty

 

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. There were no loan modifications to borrowers experiencing financial difficulty during the three months ended March 31, 2023.

 

Allowance for Credit Losses

 

The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance.

 

A formal evaluation of the adequacy of the credit loss allowance is conducted quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

 

The Company uses a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculates lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

 

Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The Company generally utilizes a four-quarter forecast period in evaluating the appropriateness of the reasonable and supportable forecast scenarios which are incorporated through qualitative adjustments. There is immediate reversion to historical loss rates. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. These adjustments are based upon quarterly trend assessments in certain economic factors such as labor, inflation, consumer sentiment and real disposable income, as well as associate retention and turnover, portfolio concentrations, and growth characteristics. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

 

The following table summarizes the activity related to the allowance for credit losses for the three months ended March 31, 2023 under the CECL methodology.

 

     
   Three months ended March 31, 2023 
   Commercial   Consumer     
(dollars in thousands)  Owner occupied RE   Non-owner occupied RE   Construction   Business   Real Estate   Home
Equity		   Construction   Other   Total 
Balance, beginning of period  $5,867    10,376    1,292    7,861    9,487    2,551    893    312    38,639 
Provision for credit losses   117    1,038    (182)   150    592    53    (83)   170    1,855 
Loan charge-offs   
-
    (160)   
-
    (1)   
-
    -    
-
    -    (161)
Loan recoveries   
-
    31    
-
    12    
-
    59    
-
    -    102 
Net loan recoveries (charge-offs)   
-
    (129)   
-
    11    
-
    59    
-
    -    (59)
Balance, end of period  $5,984    11,285    1,110    8,022    10,079    2,663    810    482    40,435 
Net charge-offs to average loans (annualized)                   0.01%
Allowance for credit losses to gross loans                   1.18%
Allowance for credit losses to nonperforming loans                   854.33%

 

                 
   Three months ended March 31, 2022 
   Commercial   Consumer     
(dollars in thousands)  Owner occupied RE   Non-owner occupied RE   Construction   Business   Real Estate   Home
Equity		   Construction   Other   Total 
Balance, beginning of period  $4,700    10,518    625    4,887    7,083    1,697    578    320    30,408 
Adjustment for CECL   (313)   333    154    1,057    (294)   438    130    (5)   1,500 
Provision for credit losses   511    (878)   150    159    813    165    136    (31)   1,025 
Loan charge-offs   
-
    
-
    
-
    
-
    
-
    (169)   
-
    
-
    (169)
Loan recoveries   
-
    
-
    
-
    114    
-
    66    
-
    
-
    180 
Net loan recoveries (charge-offs)   
-
    
-
    
-
    114    
-
    (103)   
-
    
-
    11 
Balance, end of period  $4,898    9,973    929    6,217    7,602    2,197    844    284    32,944 
Net charge-offs (recoveries) to average loans (annualized)    0.00%
Allowance for credit losses to gross loans    1.24%
Allowance for credit losses to nonperforming loans    726.88%

 

The $1.9 million provision for credit losses for the three months ended March 31, 2023 was driven by $144.6 million in loan growth for the quarter. In addition to loan growth, the provision for credit losses was impacted by slightly lower expected loss rates due to continued low charge-offs during the first quarter of 2023, while minor adjustments to an internal qualitative factor increased the qualitative component of the allowance and related provision expense.

 

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

 

The following tables present an analysis of collateral-dependent loans of the Company.

 

             
           March 31, 2023 
(dollars in thousands)  Real
estate		   Business
assets		   Other   Total 
Commercial                    
Owner occupied RE  $
-
    
-
    
-
    
-
 
Non-owner occupied RE   651    
-
    
-
    651 
Construction   
-
    
-
    
-
    
-
 
Business   28    
-
    1,045    1,073 
Total commercial   679    
-
    1,045    1,724 
Consumer                    
Real estate   197    
-
    
-
    197 
Home equity   192    
-
    
-
    192 
Construction   
-
    
-
    
-
    
-
 
Other   
-
    
-
    
-
    
-
 
Total consumer   389    
-
    
-
    389 
Total  $1,068    
       -
    1,045    2,113 

 

             
           December 31, 2022 
   Real   Business         
(dollars in thousands)  estate   assets   Other   Total 
Commercial                    
Owner occupied RE  $
-
    
-
    
-
    
-
 
Non-owner occupied RE   114    
-
    
-
    114 
Construction   
-
    
-
    
-
    
-
 
Business   30    
-
    
-
    30 
Total commercial   144    
-
    
-
    144 
Consumer                    
Real estate   207    
-
    
-
    207 
Home equity   194    
-
    
-
    194 
Construction   
-
    
-
    
-
    
-
 
Other   
-
    
-
    
-
    
-
 
Total consumer   401    
-
    
-
    401 
Total  $545    
        -
    
-
    545 

 

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

 

Allowance for Credit Losses - Unfunded Loan Commitments

 

The allowance for credit losses for unfunded loan commitments was $2.8 million at March 31, 2023 and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023 and for the twelve months ended December 31, 2022.

 

         
   Three months ended   Twelve months ended 
(dollars in thousands)  March 31, 2023   December 31, 2022 
Balance, beginning of period  $2,780    
-
 
Adjustment for adoption of CECL   
-
    2,000 
Provision (reversal of) for credit losses   (30)   780 
Balance, end of period  $2,750    2,780 
Unfunded Loan Commitments  $882,489    878,324 
Reserve for Unfunded Commitments to Unfunded Loan Commitments   0.31%   0.32%