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Loans and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2024
Receivables [Abstract]  
Loans and Allowance for Credit Losses
Note 3 – Loans and Allowance for Credit Losses

The following table presents the components of loans as of the periods shown:
(Dollars in thousands)September 30, 2024December 31, 2023
Commercial:
   Business$701,974 $797,100 
   Real estate665,038 670,584 
   Acquisition, development and construction113,521 134,004 
          Total commercial1,480,533 1,601,688 
Residential real estate656,606 672,547 
Home equity lines of credit12,356 14,531 
Consumer20,452 27,408 
Total loans2,169,947 2,316,174 
   Deferred loan origination costs, net1,325 1,420 
Loans receivable$2,171,272 $2,317,594 

We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the specific portfolio segments shown below. Our loan portfolio segmentation is based primarily on call report codes, which are levels at which we develop and document our systematic methodology to determine the ACL attributable to each respective portfolio segment. The ACL portfolio segments are aggregated into broader segments in order to present informative yet concise disclosures within this document, 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 business loans include the following ACL segments: commercial and industrial (including both healthcare and SBA subsegments), commercial real estate owner-occupied (including both healthcare and SBA subsegments), government leases, and other loans.

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 real estate loans include the following ACL segments: commercial real estate non-owner occupied (including both healthcare and SBA subsegments).

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, 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 the market may not absorb constructed units 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 acquisition, development and construction loans include the following ACL segments: other construction (including an SBA subsegment).

Residential real estate – This residential real estate segment contains permanent and construction mortgage loans principally to consumers, but also includes loans to residential real estate developers, secured by residential real estate, which we previously presented under commercial acquisitions, development and construction loans under the incurred loss model. Residential real estate loans to consumers 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 continuing financial stability of the borrower and, where applicable, the builder, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Residential real estate secured loans to developers 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 the market may not absorb constructed units within the anticipated time frame or at the anticipated price. 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. Residential real estate loans include the following ACL segments: residential and residential construction (including SBA subsegment).

Home equity lines of credit – This segment includes subsegments 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. Credit risk is unique as this segment includes only those loans provided to consumers who cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan. Consumer loans include the following ACL segments: subprime consumer automotive and consumer.

As of September 30, 2024, the Bank’s other real estate owned balance totaled $0.8 million, all of which was related to a 2020 acquisition of another bank. The other real estate owned balance consisted of two unrelated commercial properties. As of September 30, 2024, there were eight residential mortgages in the process of foreclosure with a loan balance totaling $3.4 million.

Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five 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 weaknesses inherent in those classified as 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.

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 with the intent of reviewing 35% to 40% of the Bank's commercial outstanding loan balances on an annual basis. The Bank's credit department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis.
The following table presents the amortized cost of loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system by vintage year as of the period shown:

Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20242023202220212020PriorRevolving Loans Converted to TermTotal
September 30, 2024
Commercial business:
Risk rating:
Pass$49,244 $142,643 $211,830 $65,488 $70,770 $114,002 $7,136 $661,113 
Special Mention41 — 21,785 222 791 4,011 — 26,850 
Substandard— 1,242 5,178 285 — 4,410 202 11,317 
Doubtful— — 1,011 382 285 1,016 — 2,694 
Total commercial business loans$49,285 $143,885 $239,804 $66,377 $71,846 $123,439 $7,338 $701,974 
Gross charge-offs$2 $— $1,083 $840 $— $367 $2,292 
Commercial real estate:
Risk rating:
Pass$50,668 $111,823 $137,027 $167,909 $11,531 $124,518 $460 $603,936 
Special Mention— — — 7,797 — 14,835 — 22,632 
Substandard— — — 18,002 — 20,468 — 38,470 
Doubtful— — — — — — — — 
Total commercial real estate loans$50,668 $111,823 $137,027 $193,708 $11,531 $159,821 $460 $665,038 
Gross charge-offs$— $— $— $— $— $— $— 
Commercial acquisition, development and construction:
Risk rating:
Pass$11,867 $11,277 $35,154 $30,339 $7,235 $3,608 $— $99,480 
Special Mention— — — — — — — — 
Substandard— — — 13,506 — 535 — 14,041 
Doubtful— — — — — — — — 
Total commercial acquisition, development and construction loans$11,867 $11,277 $35,154 $43,845 $7,235 $4,143 $— $113,521 
Gross charge-offs$— $— $— $— $— $— $— 
Residential Real Estate:
Risk rating:
Pass$44,489 $57,280 $388,965 $97,588 $33,618 $24,334 $2,679 $648,953 
Special Mention— — — — — 670 — 670 
Substandard— — 1,821 — 2,490 2,252 116 6,679 
Doubtful— — — 211 — 93 — 304 
Total residential real estate loans$44,489 $57,280 $390,786 $97,799 $36,108 $27,349 $2,795 $656,606 
Gross charge-offs$— $— $— $— $— $— $— 
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20242023202220212020PriorRevolving Loans Converted to TermTotal
September 30, 2024
Home equity lines of credit:
Risk rating:
Pass$— $57 $35 $— $1,052 $10,858 $— $12,002 
Special Mention— — — — — 229 — 229 
Substandard— — — — — 125 — 125 
Doubtful— — — — — — — — 
Total home equity lines of credit loans$— $57 $35 $— $1,052 $11,212 $— $12,356 
Gross charge-offs$— $— $— $— $— $— $— 
Consumer:
Risk rating:
Pass$— $1,709 $14,131 $4,383 $— $42 $— $20,265 
Special Mention— — — — — — — — 
Substandard— — 151 36 — — — 187 
Doubtful— — — — — — — — 
Total consumer loans$— $1,709 $14,282 $4,419 $— $42 $— $20,452 
Gross charge-offs$— $352 $2,057 $379 $— $— $2,788 
Total:
Risk rating:
Pass$156,268 $324,789 $787,142 $365,707 $124,206 $277,362 $10,275 $2,045,749 
Special Mention41 — 21,785 8,019 791 19,745 — 50,381 
Substandard— 1,242 7,150 31,829 2,490 27,790 318 70,819 
Doubtful— — 1,011 593 285 1,109 — 2,998 
Total loans$156,309 $326,031 $817,088 $406,148 $127,772 $326,006 $10,593 $2,169,947 
Gross charge-offs$2 $352 $3,140 $1,219 $— $367 $— $5,080 
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Converted to TermTotal
December 31, 2023
Commercial business:
Risk rating:
Pass$187,743 $249,718 $95,547 $66,195 $51,025 $91,435 $4,617 $746,280 
Special Mention990 30,695 72 830 339 3,767 1,647 38,340 
Substandard368 988 317 — 4,640 1,436 204 7,953 
Doubtful— 2,022 839 264 — 1,402 — 4,527 
Total commercial business loans$189,101 $283,423 $96,775 $67,289 $56,004 $98,040 $6,468 $797,100 
Gross charge-offs$— $228 $1,250 $141 $— $2,953 $— $4,572 
Commercial real estate:
Risk rating:
Pass$112,063 $149,189 $217,222 $11,952 $26,438 $108,934 $546 $626,344 
Special Mention— — 7,961 — 6,079 11,201 — 25,241 
Substandard— — — — — 18,999 — 18,999 
Doubtful— — — — — — — — 
Total commercial real estate loans$112,063 $149,189 $225,183 $11,952 $32,517 $139,134 $546 $670,584 
Gross charge-offs$— $— $— $— $— $— $— $— 
Commercial acquisition, development and construction:
Risk rating:
Pass$6,546 $54,468 $31,120 $22,041 $2,940 $1,483 $— $118,598 
Special Mention— — 14,652 — — — — 14,652 
Substandard— — — — — 754 — 754 
Doubtful— — — — — — — — 
Total commercial acquisition, development and construction loans$6,546 $54,468 $45,772 $22,041 $2,940 $2,237 $— $134,004 
Gross charge-offs$— $— $— $— $— $— $— $— 
Residential Real Estate:
Risk rating:
Pass$54,453 $429,326 $107,763 $40,202 $8,292 $21,313 $— $661,349 
Special Mention— — — 4,224 414 708 — 5,346 
Substandard— 988 3,764 82 146 777 — 5,757 
Doubtful— — — — — 95 — 95 
Total residential real estate loans$54,453 $430,314 $111,527 $44,508 $8,852 $22,893 $— $672,547 
Gross charge-offs$— $— $— $— $19 $381 $— $400 
Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving Loans Converted to TermTotal
December 31, 2023
Home equity lines of credit:
Risk rating:
Pass$58 $36 $— $1,338 $5,147 $7,568 $— $14,147 
Special Mention— — — — — 223 — 223 
Substandard— — — — — 161 — 161 
Doubtful— — — — — — — — 
Total home equity lines of credit loans$58 $36 $— $1,338 $5,147 $7,952 $— $14,531 
Gross charge-offs$— $— $— $— $— $— $— $— 
Consumer:
Risk rating:
Pass$2,295 $18,926 $5,753 $— $39 $51 $— $27,064 
Special Mention— — — — — — — — 
Substandard20 266 58 — — — — 344 
Doubtful— — — — — — — — 
Total consumer loans$2,315 $19,192 $5,811 $— $39 $51 $— $27,408 
Gross charge-offs$1,144 $10,608 $1,753 $— $— $2 $— $13,507 
Total:
Risk rating:
Pass$363,158 $901,663 $457,405 $141,728 $93,881 $230,784 $5,163 $2,193,782 
Special Mention990 30,695 22,685 5,054 6,832 15,899 1,647 83,802 
Substandard388 2,242 4,139 82 4,786 22,127 204 33,968 
Doubtful— 2,022 839 264 — 1,497 — 4,622 
Total loans$364,536 $936,622 $485,068 $147,128 $105,499 $270,307 $7,014 $2,316,174 
Gross charge-offs$1,144 $10,836 $3,003 $141 $19 $3,336 $— $18,479 

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.
The following table presents the amortized cost basis in loans by aging category and accrual status as of the periods shown:
(Dollars in thousands)Current30-59 Days Past Due60-89 Days Past Due90+ Days Past DueTotal Past DueTotal LoansNon-Accrual90+ Days Still AccruingNon Accrual with No Credit LossInterest Income Recognized
September 30, 2024
Commercial
Business$691,716 $813 $2,379 $7,066 $10,258 $701,974 $8,639 $— $3,388 $— 
Real estate647,036 18,002 — — 18,002 665,038 — — — — 
Acquisition, development and construction111,392 — — 2,129 2,129 113,521 16,170 — 16,170 — 
          Total commercial1,450,144 18,815 2,379 9,195 30,389 1,480,533 24,809 — 19,558 — 
Residential real estate651,768 1,330 395 3,113 4,838 656,606 3,388 — 906 — 
Home equity lines of credit12,307 — — 49 49 12,356 172 — — — 
Consumer18,402 1,414 449 187 2,050 20,452 187 — — — 
          Total loans$2,132,621 $21,559 $3,223 $12,544 $37,326 $2,169,947 $28,556 $— $20,464 $— 
December 31, 2023
Commercial
Business$788,430 $4,728 $448 $3,494 $8,670 $797,100 $6,926 $— $1,825 $— 
Real estate670,170 — 414 — 414 670,584 — — — — 
Acquisition, development and construction134,004 — — — — 134,004 754 — 754 — 
          Total commercial1,592,604 4,728 862 3,494 9,084 1,601,688 7,680 — 2,579 — 
Residential real estate670,539 1,671 337 — 2,008 672,547 82 — — — 
Home equity lines of credit14,522 9 — — 9 14,531 161 — — — 
Consumer24,494 1,792 778 344 2,914 27,408 344 — — — 
          Total loans$2,302,159 $8,200 $1,977 $3,838 $14,015 $2,316,174 $8,267 $— $2,579 $— 

The increase in acquisition, development and construction loans in non-accrual status from December 31, 2023 was primarily the result of the addition of a single commercial multifamily loan that was put into non-accrual status during the three months ended June 30, 2024. The loan had a balance of $13.5 million as of September 30, 2024.

The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the loan balance is uncollectible. Accrued interest receivable is excluded from the estimate of credit losses. Management determines the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in environmental conditions, such as changes in economic conditions, property values or other relevant factors.

The Bank’s methodology for determining the ACL is based on the requirements of ASC 326. The ACL is calculated on a collective basis when similar risk characteristics exist. The ACL for the majority of loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a one-year straight-line reversion period with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type. Expected credit loss rates were estimated using a regression model based on historical data from peer banks which incorporates a third-party vendor’s economic forecast to predict the change in credit losses. As of September 30, 2024, the Bank
expects the markets in which it operates will experience economic improvements over the next one to two years. The ACL for only one portfolio segment consisting entirely of automotive loans to consumers was calculated under the remaining life methodology using straight-line amortization over the remaining life of the portfolio.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When Bank management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of the periods shown:
(Dollars in thousands)Real EstateVehicles and EquipmentAssignment of Cash FlowAccounts ReceivableOtherTotalsAllowance for Credit Losses
September 30, 2024
Commercial
Business$3,508 $2,016 $— $213 $1,524 $7,261 $3,382 
Real estate— — — — — — — 
Acquisition, development and construction15,635 — — — — 15,635 — 
Total commercial$19,143 $2,016 $— $213 $1,524 $22,896 $3,382 
Residential1,889 — — — — 1,889 5 
Home equity lines of credit— — — — — — — 
Consumer— 187 — — — 187 47 
Total$21,032 $2,203 $— $213 $1,524 $24,972 $3,434 
Collateral value$39,883 $2,994 $— $84 $— $42,961 
December 31, 2023
Commercial
Business$424 $2,277 $— $452 $1,037 $4,190 $1,583 
Real estate— — — — — — — 
Acquisition, development and construction— — — — — — — 
Total commercial$424 $2,277 $— $452 $1,037 $4,190 $1,583 
Residential— — — — — — — 
Home equity lines of credit— — — — — — — 
Consumer— 344 — — — 344 60 
Total$424 $2,621 $— $452 $1,037 $4,534 $1,643 
Collateral value$301 $2,040 $— $906 $320 $3,567 

The Bank evaluates certain 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 are evaluated collectively for expected credit losses by applying allocation rates derived from the Bank’s historical losses specific to these loans. The reserve was immaterial at September 30, 2024 and December 31, 2023.

Management has identified a number of additional qualitative factors that it uses to supplement the estimated losses derived from the loss rate methodologies employed within the Current Expected Credit Losses model because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from the loss rate methodologies. 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.
To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of unfunded commitments based on the same segmentation used for the ACL calculation. The estimated funding rate for each segment was derived from a funding rate study created by a third-party vendor which analyzed funding of various loan types over time to develop industry benchmarks at the call report code level. Once the estimated future advances were calculated, the allocation rate applicable to that portfolio segment was applied in the same manner as those used for the ACL 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, 2024 and December 31, 2023, the liability for unfunded commitments related to loans held-for-investment was $1.4 million and $1.0 million, respectively.

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 ACL. When information confirms that all or part of specific loans are uncollectible, these amounts are promptly charged off against the ACL.

The following table presents the balance and activity for the primary segments of the ACL as of the periods shown:
CommercialResidentialHome EquityConsumerTotal
(Dollars in thousands)BusinessReal EstateAcquisition, development and constructionTotal Commercial
ACL at June 30, 2024$9,573 $2,472 $1,437 $13,482 $6,248 $85 $2,269 $22,084 
Provision (release of allowance) for credit losses1
(743)308 228 (207)839 5 (511)126 
Charge-offs(415)— — (415)— — (977)(1,392)
Recoveries— 3 — 3 — 1 677 681 
ACL at September 30, 2024$8,415 $2,783 $1,665 $12,863 $7,087 $91 $1,458 $21,499 
(Dollars in thousands)
ALL at December 31, 2023$7,931 $2,931 $1,674 $12,536 $6,412 $97 $3,079 $22,124 
Provision (release of allowance) for credit losses1
2,734 (166)(9)2,559 640 (9)(939)2,251 
Charge-offs(2,292)— — (2,292)— — (2,788)(5,080)
Recoveries42 18 — 60 35 3 2,106 2,204 
ACL at September 30, 2024$8,415 $2,783 $1,665 $12,863 $7,087 $91 $1,458 $21,499 
1 Excludes the provision for unfunded commitments and the provision for credit losses related to available-for-sale debt securities.
CommercialResidentialHome EquityConsumerTotal
(Dollars in thousands)BusinessReal EstateAcquisition, development and constructionTotal Commercial
ACL balance at June 30, 2023$11,308 $3,051 $1,707 $16,066 $7,168 $114 $6,946 $30,294 
Provision (release of allowance) for credit losses1
1,584 183 343 2,110 (242)(15)(2,012)(159)
     Charge-offs(4,028)— — (4,028)(359)— (3,677)(8,064)
     Recoveries4 7 — 11 — 1 2,193 2,205 
ALL balance at September 30, 2023$8,868 $3,241 $2,050 $14,159 $6,567 $100 $3,450 $24,276 
(Dollars in thousands)
ALL, prior to adoption of ASC 326, at December 31, 2022$8,771 $5,704 $1,064 $15,539 $2,880 $131 $5,287 $23,837 
Impact of adopting ASC 326(126)(2,846)288 (2,684)3,889 (5)6,482 7,682 
Initial allowance on loans purchased with credit deterioration710 — — 710 507 — — 1,217 
Provision (release of allowance) for credit losses1
3,770 363 698 4,831 (328)(29)(4,165)309 
Charge-offs(4,297)— — (4,297)(381)— (11,933)(16,611)
Recoveries40 20 — 60 — 3 7,779 7,842 
ACL balance at September 30, 2023$8,868 $3,241 $2,050 $14,159 $6,567 $100 $3,450 $24,276 
1 Excludes the provision for unfunded commitments and the provision for credit losses related to available-for-sale debt securities.

During the three and nine months ended September 30, 2024, there were charge offs totaling $1.4 million and $5.1 million, respectively. For the three months ended September 30, 2024, $1.0 million, or 71%, of charge offs were related to the subprime consumer automotive segment and $0.4 million, or 29%, was related to five commercial notes secured by business assets. During the three and nine months ended September 30, 2024, the provision related to unfunded commitments was $0.3 million and $0.5 million, respectively. During the three and nine months ended September 30, 2023, there was an inconsequential and a $0.1 million release of allowance related to unfunded commitments, respectively.

The ACL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the portfolio segments, the related loss estimation methodologies and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.

Loan Modifications for Borrowers Experiencing Financial Difficulty

Occasionally, the Bank modifies loans to borrowers in financial distress by providing concessions that allow for the borrower to lower their payment obligations for a defined period, these may include, but are not limited to: principal forgiveness, payment delays, term extensions, interest rate reductions and any combinations of the preceding.

The following table summarize the amortized cost basis of loans that were modified as of the period shown:
(Dollars in thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionTotalTotal Class of Financing Receivable
Three Months Ended September 30, 2024
Commercial
Business$— $— $475 $— $475 — %
Real estate— — — — — — %
Acquisition, development and construction— — — — — — %
Total commercial— — 475 — 475 — %
Residential— — — — — — %
Home equity lines of credit— — — — — — %
Consumer— — — — — — %
Total$— $— $475 $— $475 — %
Three Months Ended September 30, 2023
Commercial
Business$— $3,122 $— $— $3,122 — %
Real estate— — — — — — %
Acquisition, development and construction— — — — — — %
Total commercial— 3,122 — — 3,122 — %
Residential— — — — — — %
Home equity lines of credit— — — — — — %
Consumer— — — — — — %
Total$— $3,122 $— $— $3,122 — %
(Dollars in thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionTotalTotal Class of Financing Receivable
Nine Months Ended September 30, 2024
Commercial
Business$— $5,333 $475 $— $5,808 1 %
Real estate— — — — — — %
Acquisition, development and construction— — — — — — %
Total commercial— 5,333 475 — 5,808 — %
Residential— — — — — %
Home equity lines of credit— — — — — %
Consumer— — — — — %
Total$— $5,333 $475 $— $5,808 — %
Nine Months Ended September 30, 2023
Commercial
Business$— $7,681 $— $— $7,681 1 %
Real estate— 11,321 — — 11,321 2 %
Acquisition, development and construction— — — — — — %
Total commercial— 19,002 — — 19,002 1 %
Residential— — — — — — %
Home equity lines of credit— — — — — — %
Consumer— — — — — — %
Total$— $19,002 $— $— $19,002 1 %

The above table presents the amortized cost basis of loans at September 30, 2024 that were experiencing financial difficulty and modified during the three and nine months ended September 30, 2024, by class and by type of modification. Also presented above is the percentage of the amortized cost basis of loans that were modified for borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable. There are 16 loans to 15 borrowers that received payment delay modifications in the nine months ended September 30, 2024, and one loan received a term extension. These 17 total loans include 16 commercial loans with government guarantees totaling $5.6 million and one note secured by accounts receivable totaling $0.2 million.

The Bank closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified as of the periods shown:
(Dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Greater Than
89 Days
Past Due		Total Past Due
Nine Months Ended September 30, 2024
Commercial
Business$33 $1,412 $3,690 $5,135 
Real estate— — — — 
Acquisition, development and construction— — — — 
Total commercial33 1,412 3,690 5,135 
Residential— — — — 
Home equity lines of credit— — — — 
Consumer— — — — 
Total$33 $1,412 $3,690 $5,135 
Nine Months Ended September 30, 2023
Commercial
Business$— $2,071 $— $2,071 
Real estate— — — — 
Acquisition, development and construction— — — — 
Total commercial— 2,071 — 2,071 
Residential— — — — 
Home equity lines of credit— — — — 
Consumer— — — — 
Total$— $2,071 $— $2,071 

As of September 30, 2024, there are 12 modified loans past due, with an amortized cost basis of $5.1 million. This includes 11 commercial notes with government guarantees totaling $5.1 million secured by business assets. Seven notes totaling $4.1 million are considered non-accrual as of September 30, 2024. As of September 30, 2023, there was one modified loan past due, with an amortized cost basis of $2.1 million. This note is a commercial note with a government guarantee and is considered non-accrual as of September 30, 2023.

The following table presents the amortized cost basis of loans that had a payment default and were modified prior to that default to borrowers experiencing financial difficulty as of the period shown:
(Dollars in thousands)Principal ForgivenessPayment DelayTerm ExtensionInterest Rate ReductionTotal
Three Months Ended September 30, 2024
Commercial
Business$— $1,864 $— $— $1,864 
Real estate— — — — — 
Acquisition, development and construction— — — — — 
Total commercial— 1,864 — — 1,864 
Residential— — — — — 
Home equity lines of credit— — — — — 
Consumer— — — — — 
Total$— $1,864 $— $— $1,864 
Three Months Ended September 30, 2023
Commercial
Business$— $— $— $— $— 
Real estate— — — — — 
Acquisition, development and construction— — — — — 
Total commercial— — — — — 
Residential— — — — — 
Home equity lines of credit— — — — — 
Consumer— — — — — 
Total$— $— $— $— $— 
Nine Months Ended September 30, 2024
Commercial
Business$— $2,275 $— $— $2,275 
Real estate— — — — — 
Acquisition, development and construction— — — — — 
Total commercial— 2,275 — — 2,275 
Residential— — — — — 
Home equity lines of credit— — — — — 
Consumer— — — — — 
Total$— $2,275 $— $— $2,275 
Nine Months Ended September 30, 2023
Commercial
Business$— $2,071 $— $— $2,071 
Real estate— — — — — 
Acquisition, development and construction— — — — — 
Total commercial— 2,071 — — 2,071 
Residential— — — — — 
Home equity lines of credit— — — — — 
Consumer— — — — — 
Total$— $2,071 $— $— $2,071 

As of September 30, 2024, there are three modified loans that have defaulted, with an amortized cost basis of $2.3 million. All three loans are commercial notes that have government guarantees and are considered non-accrual as of September 30, 2024. As of September 30, 2023, there is one commercial note with a government guarantee that was considered non-accrual as of September 30, 2023. Upon the Bank’s determination that a modified loan (or portion of a loan) has subsequently been deemed
uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.