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Loans and Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2022
Receivables [Abstract] |
Loans and Allowance for Loan Losses | Note 3 – Loans and Allowance for Loan Losses The following table presents the components of loans as of the periods shown:
(Dollars in thousands) |  | September 30, 2022 |  | December 31, 2021
Commercial: |  |  |  |
Business |  | $ | 870,390 |  |  | $ | 818,986 |
Real estate |  | 701,485 |  |  | 561,718 |
Acquisition, development and construction |  | 131,385 |  |  | 99,823 |
Total commercial |  | $ | 1,703,260 |  |  | $ | 1,480,527 |
Residential real estate |  | 602,084 |  |  | 306,140 |
Home equity |  | 19,376 |  |  | 22,186 |
Consumer |  | 141,289 |  |  | 43,919 |
Total loans, excluding PCI |  | 2,466,009 |  |  | 1,852,772 |
Purchased credit impaired loans: |  |  |  |
Commercial: |  |  |  |
Business |  | 1,878 |  |  | 2,629 |
Real estate |  | — |  |  | 11,018 |
Acquisition, development and construction |  | — |  |  | 257 |
Total commercial |  | $ | 1,878 |  |  | $ | 13,904 |
Residential real estate |  | 2,551 |  |  | 4,358 |
Consumer |  | — |  |  | 413 |
Total purchased credit impaired loans |  | 4,429 |  |  | 18,675 |
Total Loans |  | $ | 2,470,438 |  |  | $ | 1,871,447 |
Deferred loan origination costs and (fees), net |  | 957 |  |  | (1,609) |
Loans receivable |  | $ | 2,471,395 |  |  | $ | 1,869,838 |
We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments, which are levels at which we develop and document our systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows: Commercial business loans – Commercial business loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate, and to finance future cash flows of Federal government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial business loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both internally originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both internally originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow. Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan. Commercial Small Business Administration (“SBA”) loans – Loans originated through the various SBA programs have become an area of lending focus for the Bank. As of September 30, 2022, these loans have not yet been designated as a unique portfolio segment due to the relative insignificance from a loan volume perspective. These loans are currently included within the loan types noted above, based on the purpose of each loan originated. However, it is anticipated that this portfolio will continue to expand through a dedicated SBA lending focus, which we continue to monitor. When appropriate, the portfolio segments will be adjusted to segregate the SBA loan portfolio segment from the other commercial loan portfolio segments. Commercial SBA Paycheck Protection Program (“PPP”) loans – This segment includes the loan originated through the SBA PPP loan program. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds. These loans are currently included within the commercial business loan type above. Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s, and where applicable, the builder’s, continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral. Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. This segment primarily includes loans purchased from a third-party originator that originates loans in order to finance the purchase of personal automotive vehicles for sub-prime borrowers. Credit risk is unique in comparison to the Consumer segment as this segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan. The following table presents impaired loans by class segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods shown:
|  | Impaired Loans with Specific Allowance |  | Impaired Loans with No Specific Allowance |  | Total Impaired Loans
(Dollars in thousands) |  | Recorded Investment |  | Related Allowance |  | Recorded Investment |  | Recorded Investment |  | Unpaid Principal Balance
September 30, 2022 |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |
Business |  | $ | 7,371 |  |  | $ | 2,078 |  |  | $ | 7,978 |  |  | $ | 15,349 |  |  | $ | 17,318 |
Real estate |  | 644 |  |  | 221 |  |  | 446 |  |  | 1,090 |  |  | 1,213 |
Acquisition, development and construction |  | — |  |  | — |  |  | 278 |  |  | 278 |  |  | 1,693 |
Total commercial |  | 8,015 |  |  | 2,299 |  |  | 8,702 |  |  | 16,717 |  |  | 20,224 |
Residential |  | 1,212 |  |  | 84 |  |  | 7,209 |  |  | 8,421 |  |  | 8,438 |
Home equity |  | — |  |  | — |  |  | 157 |  |  | 157 |  |  | 162 |
Consumer |  | 1,231 |  |  | 248 |  |  | 16 |  |  | 1,247 |  |  | 1,247 |
Total impaired loans |  | $ | 10,458 |  |  | $ | 2,631 |  |  | $ | 16,084 |  |  | $ | 26,542 |  |  | $ | 30,071 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |
Business |  | $ | 2,401 |  |  | $ | 232 |  |  | $ | 8,796 |  |  | $ | 11,197 |  |  | $ | 13,010 |
Real estate |  | 668 |  |  | 243 |  |  | 543 |  |  | 1,211 |  |  | 1,329 |
Acquisition, development and construction |  | — |  |  | — |  |  | 1,392 |  |  | 1,392 |  |  | 2,807 |
Total commercial |  | 3,069 |  |  | 475 |  |  | 10,731 |  |  | 13,800 |  |  | 17,146 |
Residential |  | — |  |  | — |  |  | 8,179 |  |  | 8,179 |  |  | 8,219 |
Home equity |  | — |  |  | — |  |  | 217 |  |  | 217 |  |  | 221 |
Consumer |  | — |  |  | — |  |  | 259 |  |  | 259 |  |  | 259 |
Total impaired loans |  | $ | 3,069 |  |  | $ | 475 |  |  | $ | 19,386 |  |  | $ | 22,455 |  |  | $ | 25,845 |
The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods shown:
|  | Three Months Ended September 30,
|  | 2022 |  | 2021
(Dollars in thousands) |  | Average Investment in Impaired Loans |  | Interest Income Recognized on Accrual Basis |  | Interest Income Recognized on Cash Basis |  | Average Investment in Impaired Loans |  | Interest Income Recognized on Accrual Basis |  | Interest Income Recognized on Cash Basis
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Business |  | $ | 12,390 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 7,312 |  |  | $ | — |  |  | $ | — |
Real estate |  | 1,372 |  |  | 14 |  |  | 18 |  |  | 1,943 |  |  | 11 |  |  | 11 |
Acquisition, development and construction |  | 282 |  |  | — |  |  | — |  |  | 1,437 |  |  | — |  |  | — |
Total commercial |  | 14,044 |  |  | 15 |  |  | 20 |  |  | 10,692 |  |  | 11 |  |  | 11 |
Residential |  | 8,425 |  |  | 4 |  |  | 3 |  |  | 7,029 |  |  | 3 |  |  | 3 |
Home equity |  | 157 |  |  | — |  |  | — |  |  | 69 |  |  | — |  |  | — |
Consumer |  | 1085 |  |  | — |  |  | — |  |  | 29 |  |  | — |  |  | — |
Total |  | $ | 23,711 |  |  | $ | 19 |  |  | $ | 23 |  |  | $ | 17,819 |  |  | $ | 14 |  |  | $ | 14 |
|  | Nine Months Ended September 30,
|  | 2022 |  | 2021
(Dollars in thousands) |  | Average Investment in Impaired Loans |  | Interest Income Recognized on Accrual Basis |  | Interest Income Recognized on Cash Basis |  | Average Investment in Impaired Loans |  | Interest Income Recognized on Accrual Basis |  | Interest Income Recognized on Cash Basis
Commercial |  |  |  |  |  |  |  |  |  |  |  |
Business |  | $ | 11,378 |  |  | $ | 6 |  |  | $ | 6 |  |  | $ | 6,791 |  |  | $ | — |  |  | $ | — |
Real estate |  | 1,491 |  |  | 43 |  |  | 47 |  |  | 2,185 |  |  | 33 |  |  | 33 |
Acquisition, development and construction |  | 303 |  |  | — |  |  | — |  |  | 1,772 |  |  | — |  |  | — |
Total commercial |  | 13,172 |  |  | 49 |  |  | 53 |  |  | 10,748 |  |  | 33 |  |  | 33 |
Residential |  | 8,390 |  |  | 12 |  |  | 11 |  |  | 5,418 |  |  | 11 |  |  | 10 |
Home equity |  | 169 |  |  | — |  |  | — |  |  | 69 |  |  | — |  |  | — |
Consumer |  | 757 |  |  | — |  |  | — |  |  | 29 |  |  | — |  |  | — |
Total |  | $ | 22,488 |  |  | $ | 61 |  |  | $ | 64 |  |  | $ | 16,264 |  |  | $ | 44 |  |  | $ | 43 |
As of September 30, 2022, the Bank’s other real estate owned balance totaled $1.2 million, all of which was related to the acquisition of The First State Bank (“First State”) in 2020. The Bank held $1.1 million, or 91.7%, of other real estate owned as a result of the foreclosure of five unrelated commercial loans. The remaining $0.1 million, or 8.3%, consists of one foreclosed residential real estate property. There are twelve additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure, with a total recorded investment of $2.3 million as of September 30, 2022. These include five legacy Bank loans totaling $1.5 million and seven loans acquired from First State totaling $0.8 million. These loans are included in the table above and have $0.1 specific allowance allocated to them. Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors. Loans categorized as “Special Mention” rated have 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. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification. Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans categorized as “Doubtful” rated have all the weakness inherent in those classified Substandard with the added characteristic that the weakness makes collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. The Special Mention rated category includes assets that are currently protected but are potentially weak, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the "Loss" category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories, unless a specific action, such as past due status, bankruptcy, repossession or death, occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Bank's Credit Department ensures that a review of all commercial relationships of $1.0 million or more is performed annually. Review of the appropriate risk grade is included in both the internal and external loan review process and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships in excess of $3.0 million or criticized relationships. The Bank's Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods shown:
(Dollars in thousands) |  | Pass |  | Special Mention |  | Substandard |  | Doubtful |  | Total
September 30, 2022 |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |
Business |  | $ | 846,598 |  |  | $ | 3,442 |  |  | $ | 19,983 |  |  | $ | 2,245 |  |  | $ | 872,268 |
Real estate |  | 660,237 |  |  | 18,985 |  |  | 20,567 |  |  | 1,696 |  |  | 701,485 |
Acquisition, development and construction |  | 125,180 |  |  | 4,888 |  |  | 1,317 |  |  | — |  |  | 131,385 |
Total commercial |  | 1,632,015 |  |  | 27,315 |  |  | 41,867 |  |  | 3,941 |  |  | 1,705,138 |
Residential |  | 594,239 |  |  | 772 |  |  | 7,653 |  |  | 1,971 |  |  | 604,635 |
Home equity |  | 18,843 |  |  | 376 |  |  | 157 |  |  | — |  |  | 19,376 |
Consumer |  | 141,109 |  |  | — |  |  | 2 |  |  | 178 |  |  | 141,289 |
Total loans |  | $ | 2,386,206 |  |  | $ | 28,463 |  |  | $ | 49,679 |  |  | $ | 6,090 |  |  | $ | 2,470,438 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |
Business |  | $ | 789,101 |  |  | $ | 12,246 |  |  | $ | 18,143 |  |  | $ | 2,125 |  |  | $ | 821,615 |
Real estate |  | 526,851 |  |  | 12,598 |  |  | 31,293 |  |  | 1994 |  |  | 572,736 |
Acquisition, development and construction |  | 89,893 |  |  | 4,960 |  |  | 4,163 |  |  | 1,064 |  |  | 100,080 |
Total commercial |  | 1,405,845 |  |  | 29,804 |  |  | 53,599 |  |  | 5,183 |  |  | 1,494,431 |
Residential |  | 299,291 |  |  | 899 |  |  | 9,815 |  |  | 493 |  |  | 310,498 |
Home equity |  | 21,582 |  |  | 387 |  |  | 191 |  |  | 26 |  |  | 22,186 |
Consumer |  | 43,519 |  |  | 24 |  |  | 259 |  |  | 530 |  |  | 44,332 |
Total loans |  | $ | 1,770,237 |  |  | $ | 31,114 |  |  | $ | 63,864 |  |  | $ | 6,232 |  |  | $ | 1,871,447 |
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A complete review is presented to the Chief Credit Officer and/or the Special Asset Review Committee (“SARC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, becomes likely the borrower cannot or will not make scheduled principal or interest payments, full repayment of principal and interest is not expected or the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status unless we believe it is likely the accrued interest will be collected. Any payments subsequently received are applied to the principal. All principal and interest due must be paid up-to-date and the Bank is reasonably sure of future satisfactory payment performance to remove a loan from non-accrual status. Usually, this requires the receipt of six consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or the SARC. The following table presents the classes of the loan portfolio summarized by aging categories of performing loans and non-accrual loans as of the periods shown:
(Dollars in thousands) |  | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90+ Days Past Due |  | Total Past Due |  | Total Loans |  | Non-Accrual |  | 90+ Days Still Accruing
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Business |  | $ | 866,111 |  |  | $ | 1,911 |  |  | $ | — |  |  | $ | 4,246 |  |  | $ | 6,157 |  |  | $ | 872,268 |  |  | $ | 12,552 |  |  | $ | — |
Real estate |  | 701,485 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 701,485 |  |  | 108 |  |  | — |
Acquisition, development and construction |  | 131,145 |  |  | — |  |  | — |  |  | 240 |  |  | 240 |  |  | 131,385 |  |  | 279 |  |  | — |
Total commercial |  | 1,698,741 |  |  | 1,911 |  |  | — |  |  | 4,486 |  |  | 6,397 |  |  | 1,705,138 |  |  | 12,939 |  |  | — |
Residential |  | 604,207 |  |  | 10 |  |  | 418 |  |  | — |  |  | 428 |  |  | 604,635 |  |  | 8,008 |  |  | — |
Home equity |  | 19,172 |  |  | 139 |  |  | — |  |  | 65 |  |  | 204 |  |  | 19,376 |  |  | 170 |  |  | — |
Consumer |  | 129,972 |  |  | 7,206 |  |  | 2,880 |  |  | 1,231 |  |  | 11,317 |  |  | 141,289 |  |  | 1,233 |  |  | — |
Total loans |  | $ | 2,452,092 |  |  | $ | 9,266 |  |  | $ | 3,298 |  |  | $ | 5,782 |  |  | $ | 18,346 |  |  | $ | 2,470,438 |  |  | $ | 22,350 |  |  | $ | — |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Business |  | $ | 816,638 |  |  | $ | 1,718 |  |  | $ | 11 |  |  | $ | 3,248 |  |  | $ | 4,977 |  |  | $ | 821,615 |  |  | $ | 8,261 |  |  | $ | — |
Real estate |  | 569,792 |  |  | 396 |  |  | 461 |  |  | 2087 |  |  | 2944 |  |  | 572,736 |  |  | 192 |  |  | — |
Acquisition, development and construction |  | 98,781 |  |  | 67 |  |  | 412 |  |  | 820 |  |  | 1,299 |  |  | 100,080 |  |  | 1,392 |  |  | — |
Total commercial |  | 1,485,211 |  |  | 2,181 |  |  | 884 |  |  | 6,155 |  |  | 9,220 |  |  | 1,494,431 |  |  | 9,845 |  |  | — |
Residential |  | 303,940 |  |  | 3,620 |  |  | 285 |  |  | 2,653 |  |  | 6,558 |  |  | 310,498 |  |  | 7,636 |  |  | — |
Home equity |  | 21,974 |  |  | — |  |  | 119 |  |  | 93 |  |  | 212 |  |  | 22,186 |  |  | 217 |  |  | — |
Consumer |  | 42,231 |  |  | 1,211 |  |  | 461 |  |  | 429 |  |  | 2,101 |  |  | 44,332 |  |  | 259 |  |  | — |
Total loans |  | $ | 1,853,356 |  |  | $ | 7,012 |  |  | $ | 1,749 |  |  | $ | 9,330 |  |  | $ | 18,091 |  |  | $ | 1,871,447 |  |  | $ | 17,957 |  |  | $ | — |
An ALL is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of non-performing loans. The Bank’s methodology for determining the ALL is based on the requirements of ASC Topic 310 - Receivables ("ASC 310") for loans individually evaluated for impairment and ASC Subtopic 450-20 - Contingencies for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. The Bank analyzes certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans and the reserve totaled $0.1 million as of both September 30, 2022 and December 31, 2021. These loans are included in total loans individually evaluated for impairment and in total impaired loans as these are individually identified as impaired prior to the collective application of allocation rates to calculate impairment. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by qualified factors. The loan segments described above, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters. “Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the Criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates. To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit and revolving lines of credit and based its calculation on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole. Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in a similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of September 30, 2022 and December 31, 2021, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was $0.5 million. Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. The following table presents the primary segments of the ALL segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods shown:
|  | Commercial |  | Residential |  | Home Equity |  | Consumer |  | Total
(Dollars in thousands) |  | Business |  | Real Estate |  | Acquisition, development and construction |  | Total Commercial |  |  |  |
ALL balance at December 31, 2021 |  | $ | 8,027 |  |  | $ | 5,091 |  |  | $ | 982 |  |  | $ | 14,100 |  |  | $ | 1,492 |  |  | $ | 128 |  |  | $ | 2,546 |  |  | $ | 18,266 |
Charge-offs |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,304) |  |  | (7,304) |
Recoveries |  | 51 |  |  | 127 |  |  | — |  |  | 178 |  |  | — |  |  | 5 |  |  | 3,870 |  |  | 4,053 |
Provision |  | 1,666 |  |  | 1,178 |  |  | 176 |  |  | 3,020 |  |  | 1,445 |  |  | 3 |  |  | 7,032 |  |  | 11,500 |
ALL balance at September 30, 2022 |  | $ | 9,744 |  |  | $ | 6,396 |  |  | $ | 1,158 |  |  | $ | 17,298 |  |  | $ | 2,937 |  |  | $ | 136 |  |  | $ | 6,144 |  |  | $ | 26,515 |
Individually evaluated for impairment |  | $ | 2,078 |  |  | $ | 221 |  |  | $ | — |  |  | $ | 2,299 |  |  | $ | 84 |  |  | $ | — |  |  | $ | 248 |  |  | $ | 2,631 |
Collectively evaluated for impairment |  | $ | 7,666 |  |  | $ | 6,175 |  |  | $ | 1,158 |  |  | $ | 14,999 |  |  | $ | 2,853 |  |  | $ | 136 |  |  | $ | 5,896 |  |  | $ | 23,884 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ALL balance at June 30, 2022 |  | $ | 8,077 |  |  | $ | 6,641 |  |  | $ | 967 |  |  | $ | 15,685 |  |  | $ | 1,772 |  |  | $ | 141 |  |  | $ | 5,136 |  |  | $ | 22,734 |
Charge-offs |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,652) |  |  | (3,652) |
Recoveries |  | 41 |  |  | 65 |  |  | — |  |  | 106 |  |  | — |  |  | 1 |  |  | 2,206 |  |  | 2,313 |
Provision (release) |  | 1,626 |  |  | (310) |  |  | 191 |  |  | 1,507 |  |  | 1,165 |  |  | (6) |  |  | 2,454 |  |  | 5,120 |
ALL balance at September 30, 2022 |  | $ | 9,744 |  |  | $ | 6,396 |  |  | $ | 1,158 |  |  | $ | 17,298 |  |  | $ | 2,937 |  |  | $ | 136 |  |  | $ | 6,144 |  |  | $ | 26,515 |
Substantially all of the charge-offs during nine months ended September 30, 2022 are related to our subprime consumer automobile portfolio of loans. The following table presents the primary segments of our loan portfolio as of the period shown:
|  | Commercial |  | Residential |  | Home Equity |  | Consumer |  | Total
(Dollars in thousands) |  | Business |  | Real Estate |  | Acquisition, development and construction |  | Total Commercial |  |  |  |
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 15,349 |  |  | $ | 1,090 |  |  | $ | 278 |  |  | $ | 16,717 |  |  | $ | 8,421 |  |  | $ | 157 |  |  | $ | 1,246 |  |  | $ | 26,541 |
Collectively evaluated for impairment |  | 856,919 |  |  | 700,395 |  |  | 131,107 |  |  | 1,688,421 |  |  | 596,214 |  |  | 19,219 |  |  | 140,043 |  |  | 2,443,897 |
Total loans |  | $ | 872,268 |  |  | $ | 701,485 |  |  | $ | 131,385 |  |  | $ | 1,705,138 |  |  | $ | 604,635 |  |  | $ | 19,376 |  |  | $ | 141,289 |  |  | $ | 2,470,438 |
The following table presents the primary segments of the ALL segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods shown:
|  | Commercial |  | Residential |  | Home Equity |  | Consumer |  | Total
(Dollars in thousands) |  | Business |  | Real Estate |  | Acquisition, development and construction |  | Total Commercial |  |  |  |
ALL balance at December 31, 2020 |  | $ | 12,193 |  |  | $ | 9,079 |  |  | $ | 2,761 |  |  | $ | 24,033 |  |  | $ | 1,462 |  |  | $ | 298 |  |  | $ | 51 |  |  | $ | 25,844 |
Charge-offs |  | (361) |  |  | — |  |  | — |  |  | (361) |  |  | (2) |  |  | — |  |  | — |  |  | (363) |
Recoveries |  | 207 |  |  | 17 |  |  |  |  | 224 |  |  | — |  |  | 21 |  |  | 3 |  |  | 248 |
Provision (release) |  | 1,347 |  |  | (1,916) |  |  | (1,269) |  |  | (1,838) |  |  | 224 |  |  | (59) |  |  | 1,131 |  |  | (542) |
ALL balance at September 30, 2021 |  | $ | 13,386 |  |  | $ | 7,180 |  |  | $ | 1,492 |  |  | $ | 22,058 |  |  | $ | 1,684 |  |  | $ | 260 |  |  | $ | 1,185 |  |  | $ | 25,187 |
Individually evaluated for impairment |  | $ | 3,737 |  |  | $ | 298 |  |  | $ | — |  |  | $ | 4,035 |  |  | $ | — |  |  | $ | 69 |  |  | $ | — |  |  | $ | 4,104 |
Collectively evaluated for impairment |  | $ | 9,649 |  |  | $ | 6,882 |  |  | $ | 1,492 |  |  | $ | 18,023 |  |  | $ | 1,684 |  |  | $ | 191 |  |  | $ | 1,185 |  |  | $ | 21,083 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ALL balance at June 30, 2021 |  | $ | 12,914 |  |  | $ | 7,947 |  |  | $ | 1,798 |  |  | $ | 22,659 |  |  | $ | 1,363 |  |  | $ | 284 |  |  | $ | 576 |  |  | $ | 24,882 |
Charge-offs |  | (96) |  |  | — |  |  | — |  |  | (96) |  |  | (2) |  |  | — |  |  | — |  |  | (98) |
Recoveries |  | 9 |  |  | 1 |  |  | — |  |  | 10 |  |  | — |  |  | 13 |  |  | — |  |  | 23 |
Provision (release) |  | 559 |  |  | (768) |  |  | (306) |  |  | (515) |  |  | 323 |  |  | (37) |  |  | 609 |  |  | 380 |
ALL balance at September 30, 2021 |  | $ | 13,386 |  |  | $ | 7,180 |  |  | $ | 1,492 |  |  | $ | 22,058 |  |  | $ | 1,684 |  |  | $ | 260 |  |  | $ | 1,185 |  |  | $ | 25,187 |
The following table presents the primary segments of our loan portfolio as of the period shown:
|  | Commercial |  | Residential |  | Home Equity |  | Consumer |  | Total
(Dollars in thousands) |  | Business |  | Real Estate |  | Acquisition, development and construction |  | Total Commercial |  |  |  |
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment |  | $ | 9,576 |  |  | $ | 1,171 |  |  | $ | 1,401 |  |  | $ | 12,148 |  |  | $ | 6,971 |  |  | $ | 95 |  |  | $ | 3 |  |  | $ | 19,217 |
Collectively evaluated for impairment |  | 757,096 |  |  | 563,405 |  |  | 97,641 |  |  | 1,418,142 |  |  | 262,996 |  |  | 23,682 |  |  | 22,141 |  |  | 1,726,961 |
Total Loans |  | $ | 766,672 |  |  | $ | 564,576 |  |  | $ | 99,042 |  |  | $ | 1,430,290 |  |  | $ | 269,967 |  |  | $ | 23,777 |  |  | $ | 22,144 |  |  | $ | 1,746,178 |
The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. Troubled Debt Restructurings At September 30, 2022 and December 31, 2021, the Bank had specific reserve allocations for TDRs of $0.4 million and $0.5 million, respectively. Loans considered to be troubled debt restructured loans totaled $12.2 million and $12.6 million as of September 30, 2022 and December 31, 2021, respectively. Of these totals, $4.2 million and $4.5 million represent accruing troubled debt restructured loans at September 30, 2022 and December 31, 2021, respectively, and represent 16% and 21%, respectively, of total impaired loans. Meanwhile, as of September 30, 2022, $0.1 million represents one loan to one borrower that has defaulted under the restructured terms during the previous 12 months. This single loan is a commericial loan secured by owner occupied real estate. These borrowers have experienced continued financial difficulty and are considered non-performing loans as September 30, 2022. During the nine months ended September 30, 2022 and 2021, no additional loans were classified as TDRs and one restructured loan defaulted under modified terms that were not already classified as non-performing for having previously defaulted under modified terms. Purchased Credit Impaired Loans As a result of the acquisition of First State, we have PCI loans, with a carrying amount of $4.4 million as of September 30, 2022. As of September 30, 2022, the loans in our PCI portfolio were all collectively evaluated for impairment and are categorized as residential loans. During the nine months ended September 30, 2022, we sold PCI loans with an unpaid principal balance of $13.4 million, resulting in the recognition of additional accretion income of $1.0 million. None of the PCI loans are considered non-accrual as they are all currently accreting interest income under PCI loan accounting. Income is not recognized on PCI loans if we cannot reasonably estimate cash flows expected to be collected. As of September 30, 2022, we held no such loans. As our PCI loan portfolio is accounted for in pools with similar risk characteristics in accordance with ASC 310-30, this portfolio is not subject to the impaired loan and TDR guidance. Rather, the revised estimated future cash flows of the individually modified loans are included in the estimated future cash flows of the pool. PPP Loans and CARES Act Deferrals We actively participated in the PPP as a lender, evaluating other programs available to assist our clients and providing deferrals consistent with GSE guidelines. As of September 30, 2022, the outstanding balance of PPP loans totaled $9.3 million on loans originated through our internal commercial team and $10.8 million on loans originated through our partnership with a Fintech company. As of September 30, 2022, all commercial and mortgage loans previously approved for COVID-19 related modifications, such as interest-only payment and payment deferrals, had returned to their previous payment structures. These modifications were not considered to be TDRs in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”

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