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Allowance for Credit Losses | 9 Months Ended
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Sep. 30, 2023
Receivables [Abstract] |
Allowance for Credit Losses | Allowance for Credit Losses Upon adoption of ASC 326, in the first quarter of 2023, the Company replaced the incurred loss model that recognized losses when it became probable that a credit loss would be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The ACL consists of three elements: (1) specific reserves for loans individually analyzed; (2) general reserves for each portfolio segment; and, (3) qualitative reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance. Loans are segmented by common risk characteristics as delineated in the paragraph below. Prior to adoption of ASC 326, under the incurred loss methodology, the Company evaluated portfolio risk characteristics largely on loan purpose. The Company provides for loan losses through the allowance for credit losses which represents an estimated reserve for losses in the loan portfolio. To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates. To determine an appropriate level for qualitative reserves, various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation. Adoption of ASC 326 added $6,210,000 to the Allowance for Credit Losses, recorded as a charge to retained earnings at January 1, 2023. Loan Portfolio Composition & Risk Characteristics: The loan portfolio is segmented into ten classes and credit risk is evaluated separately in each class. Major risk characteristics relevant to each portfolio segment are as follows: Commercial Real Estate Owner Occupied - commercial real estate owner occupied loans consist of mortgage loans to finance investments in real property such as retail space, offices, industrial buildings, hotels, educational facilities, and other specific or mixed use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines. Loans typically have a loan-to-value ratio of up to 80% based upon current valuation information at the time the loan is made, and are primarily paid by the cash flow generated from the real property, typically the operating entity of owner occupant. Risk factors typically include competitive market forces, net operating incomes of the operating entity, and overall economic demand. Loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. Commercial real estate lending also carries a higher degree of environmental risk than other types of lending. Commercial Real Estate Non-Owner Occupied - commercial real estate loans non-owner occupied share many of the purpose, loan structure and risk characteristics of owner-occupied commercial real estate. Repayment is generally reliant upon cash flow generated from tenants with risk factors also influenced by vacancy rates, cap rates, lease renewals, and underlying financial health of lessees. Commercial Construction - commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial real estate properties. Loans typically have construction periods of less than two years, and payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed. During the construction phase, commercial construction loans are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable. Commercial construction loans will typically convert to permanent financing from the Company, or loan repayment may come from a third party source in the event that the Company will not be providing permanent term financing. Collateral valuation and loan-to-value guidelines follow those for commercial real estate loans. Commercial construction loans are impacted by factors similar to those for commercial real estate loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget. Commercial and Industry- C&I loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and or capital investment. C&I loans may be secured or unsecured; when secured, collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, equipment, and/or other tangible and intangible assets. C&I loans are primarily paid by the operating cash flow of the borrower. A weakened economy, soft consumer spending, and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment. Commercial Multifamily - multifamily loans share structure and risk characteristics with non-owner occupied commercial real estate; underlying collateral is residential in nature rather than commercial, consisting of properties with five or more units. Municipal Loans - municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects, or tax anticipation notes. All municipal loans are considered either general obligations of the municipality collateralized by the taxing ability of the municipality for repayment of debt or have a pledge of specific revenues. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment. Residential Real Estate Term - residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines. Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines. Residential loans typically have a loan-to-value ratio of up to 80% based on appraisal information at the time the loan is made. Collateral consists of mortgage liens on one-to four-family residential properties. Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment. Residential Real Estate Construction - residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned and occupied by the borrower. Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines. Residential construction loans normally have construction terms of one year or less and payment during the construction term is typically on an interest only basis from sources including interest reserves, borrower liquidity, and/or income. Residential construction loans will typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender. Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans. Residential construction loans are impacted by factors similar to those for residential real estate term loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget. Home Equity Revolving and Term - home equity revolving and term loans are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupied one- to four-family homes, condominiums, or vacation homes. The home equity line of credit typically has a variable interest rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Loan maturities are normally 300 months. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios usually not exceeding 80% inclusive of priority liens. Collateral valuation guidelines follow those for residential real estate loans. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment. Consumer - consumer loans include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as autos, recreational vehicles, debt consolidation, personal expenses, or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment. Construction, land, and land development: CLLD loans, both commercial and residential, represented 37.3% of total Bank capital as of September 30, 2023 and remain below the regulatory guidance of 100.0% of total Bank capital. Construction loans and non-owner-occupied commercial real estate loans represented 215.5% of total Bank capital at September 30, 2023, below the regulatory guidance of 300.0% of total Bank capital. Composition of the ACL: A breakdown of the allowance for credit losses as of September 30, 2023, by class of financing receivable and allowance element, is presented in the following table:
As of September 30, 2023 | Specific Reserves on Loans Evaluated Individually | General Reserves on Loans Based on Historical Loss Experience | Reserves for Qualitative Factors |  | Total Reserves
Commercial |  |  |  |  |
Real estate owner occupied | $ | — |  | $ | 3,731,000 |  | $ | 780,000 |  |  | $ | 4,511,000 |
Real estate non-owner occupied | — |  | 3,855,000 |  | 574,000 |  |  | 4,429,000 |
Construction | — |  | 1,445,000 |  | 157,000 |  |  | 1,602,000 |
C&I | 225,000 |  | 3,909,000 |  | 663,000 |  |  | 4,797,000 |
Multifamily | — |  | 1,184,000 |  | 93,000 |  |  | 1,277,000 |
Municipal | — |  | 332,000 |  | 44,000 |  |  | 376,000 |
Residential |  |  |  |  |
Term | 41,000 |  | 4,020,000 |  | 825,000 |  |  | 4,886,000 |
Construction | — |  | 602,000 |  | (26,000) |  |  | 576,000 |
Home Equity |  |  |  |  |
Revolving and term | — |  | 442,000 |  | 175,000 |  |  | 617,000 |
Consumer | — |  | 219,000 |  | 32,000 |  |  | 251,000 |
| $ | 266,000 |  | $ | 19,739,000 |  | $ | 3,317,000 |  |  | $ | 23,322,000 |
A breakdown of the allowance for loan losses as of December 31, 2022 under the incurred loss method, by class of financing receivable and allowance element, is presented in the following table:
As of December 31, 2022 | Specific Reserves on Loans Evaluated Individually for Impairment | General Reserves on Loans Based on Historical Loss Experience | Reserves for Qualitative Factors | Unallocated Reserves | Total Reserves
Commercial |  |  |  |  |
Real estate | $ | — |  | $ | 974,000 |  | $ | 5,142,000 |  | $ | — |  | $ | 6,116,000 |
Construction | — |  | 131,000 |  | 690,000 |  | — |  | 821,000 |
Other | 298,000 |  | 446,000 |  | 2,353,000 |  | — |  | 3,097,000 |
Municipal | — |  | — |  | 162,000 |  | — |  | 162,000 |
Residential |  |  |  |  |
Term | 100,000 |  | 83,000 |  | 2,376,000 |  | — |  | 2,559,000 |
Construction | — |  | 7,000 |  | 192,000 |  | — |  | 199,000 |
Home equity line of credit | — |  | 101,000 |  | 928,000 |  | — |  | 1,029,000 |
Consumer | — |  | 286,000 |  | 776,000 |  | — |  | 1,062,000 |
Unallocated | — |  | — |  | — |  | 1,678,000 |  | 1,678,000 |
| $ | 398,000 |  | $ | 2,028,000 |  | $ | 12,619,000 |  | $ | 1,678,000 |  | $ | 16,723,000 |
A breakdown of the allowance for loan losses as of September 30, 2022 under the incurred loss method, by class of financing receivable and allowance element, is presented in the following table:
As of September 30, 2022 | Specific Reserves on Loans Evaluated Individually for Impairment | General Reserves on Loans Based on Historical Loss Experience | Reserves for Qualitative Factors | Unallocated Reserves | Total Reserves
Commercial |  |  |  |  |
Real estate | $ | — |  | $ | 867,000 |  | $ | 4,708,000 |  | $ | — |  | $ | 5,575,000 |
Construction | 6,000 |  | 173,000 |  | 942,000 |  | — |  | 1,121,000 |
Other | 315,000 |  | 420,000 |  | 2,279,000 |  | — |  | 3,014,000 |
Municipal | — |  | — |  | 160,000 |  | — |  | 160,000 |
Residential |  |  |  |  |
Term | 99,000 |  | 102,000 |  | 2,346,000 |  | — |  | 2,547,000 |
Construction | — |  | 7,000 |  | 161,000 |  | — |  | 168,000 |
Home equity line of credit | — |  | 106,000 |  | 887,000 |  | — |  | 993,000 |
Consumer | — |  | 216,000 |  | 656,000 |  | — |  | 872,000 |
Unallocated | — |  | — |  | — |  | 1,937,000 |  | 1,937,000 |
| $ | 420,000 |  | $ | 1,891,000 |  | $ | 12,139,000 |  | $ | 1,937,000 |  | $ | 16,387,000 |
The allowance for credit losses as a percent of total loans stood at 1.12% as of September 30, 2023, 0.87% at December 31, 2022 and 0.88% as of September 30, 2022. Off-Balance Sheet Credit Exposures: In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded. Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense and any adjustment is recognized in net income. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company’s own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date. The Company’s allowance for credit losses on unfunded commitments is recognized as a liability, included within other liabilities on the consolidated balance sheet. The following table presents the activity in the ACL for off-balance sheet credit exposures for the nine months ended September 30, 2023 :
Allowance for credit losses: |
Beginning balance, prior to adoption of ASC 326 | $ | 100,000 |
Impact of adopting ASC 326 | 1,297,000 |
Credit loss expense | 89,000 |
Total ending allowance balance | $ | 1,486,000 |
Credit Quality Indicators: To monitor the credit quality of its loan portfolio, management applies an internal risk rating system to categorize commercial loan segments. Approximately 60% of commercial loan outstanding balances are subject to review and validation annually by an independent consulting firm. Additionally, commercial loan relationships with exposure greater than or equal to 750,000 are subject to review annually by the Company's internal credit review function. The risk rating system has eight levels, defined as follows: 1 Strong Credits rated "1" are characterized by borrowers fully responsible for the credit with excellent capacity to pay principal and interest. Loans rated "1" may be secured with acceptable forms of liquid collateral. 2 Above Average Credits rated "2" are characterized by borrowers that have better than average liquidity, capitalization, earnings, and/or cash flow with a consistent record of solid financial performance. 3 Satisfactory Credits rated "3" are characterized by borrowers with favorable liquidity, profitability, and financial condition with adequate cash flow to pay debt service. 4 Average Credits rated "4" are characterized by borrowers that present risk more than 1, 2 and 3 rated loans and merit an ordinary level of ongoing monitoring. Financial condition is on par or somewhat below industry averages while cash flow is generally adequate to meet debt service requirements. 5 Watch Credits rated "5" are characterized by borrowers that warrant greater monitoring due to financial condition or unresolved and identified risk factors. 6 Other Assets Especially Mentioned Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. OAEM have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Company's credit position at some future date. 7 Substandard Loans in this category are inadequately protected by the paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. 8 Doubtful Loans classified "Doubtful" have the same weaknesses as those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Most residential real estate, home equity, and consumer loans are not assigned ratings; therefore they are categorized as performing and non-performing loans. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due more than 90 days are considered non-performing. The following table summarizes the credit quality for the Company's portfolio by risk category of loans and by class by vintage as follows:
| Term Loans Amortized Cost Basis by Origination Year |  |  |
Dollars in thousands | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of September 30, 2023 |  |  |  |  |  |  |  |  |
Commercial |  |  |  |  |  |  |  |  |
Real estate owner occupied |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | $ | 43,022 |  | $ | 75,590 |  | $ | 41,851 |  | $ | 28,387 |  | $ | 35,696 |  | $ | 65,064 |  | $ | 9,355 |  | $ | 175 |  | $ | 299,140 |
Special Mention (risk rating 6) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard (risk rating 7) | 283 |  | — |  | — |  | — |  | 503 |  | 17 |  | — |  | — |  | 803 |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Real Estate Owner Occupied | 43,305 |  | 75,590 |  | 41,851 |  | 28,387 |  | 36,199 |  | 65,081 |  | 9,355 |  | 175 |  | 299,943 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | 40 |  | — |  | — |  | 40 |
Real estate non-owner occupied |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | 27,875 |  | 71,474 |  | 130,132 |  | 49,160 |  | 27,670 |  | 85,559 |  | 5,092 |  | — |  | 396,962 |
Special Mention (risk rating 6) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard (risk rating 7) | — |  | — |  | — |  | — |  | — |  | 62 |  | — |  | — |  | 62 |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Real Estate Non-Owner Occupied | 27,875 |  | 71,474 |  | 130,132 |  | 49,160 |  | 27,670 |  | 85,621 |  | 5,092 |  | — |  | 397,024 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Construction |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | 16,892 |  | 41,852 |  | 8,506 |  | 1,665 |  | 1,039 |  | 2,470 |  | — |  | — |  | 72,424 |
Special Mention (risk rating 6) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard (risk rating 7) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Construction | 16,892 |  | 41,852 |  | 8,506 |  | 1,665 |  | 1,039 |  | 2,470 |  | — |  | — |  | 72,424 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
C&I |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | 43,648 |  | 66,873 |  | 53,712 |  | 37,052 |  | 6,526 |  | 38,003 |  | 90,748 |  | 11,937 |  | 348,499 |
Special Mention (risk rating 6) | — |  | 129 |  | 268 |  | — |  | — |  | 8 |  | 400 |  | — |  | 805 |
Substandard (risk rating 7) | 94 |  | 363 |  | 35 |  | — |  | 188 |  | 545 |  | 67 |  | — |  | 1,292 |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total C&I | 43,742 |  | 67,365 |  | 54,015 |  | 37,052 |  | 6,714 |  | 38,556 |  | 91,215 |  | 11,937 |  | 350,596 |
Current period gross write-offs | — |  | — |  | — |  | — |  | 16 |  | — |  | — |  | — |  | 16 |
Multifamily |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | 8,435 |  | 32,082 |  | 18,172 |  | 16,103 |  | 5,553 |  | 8,796 |  | 329 |  | 207 |  | 89,677 |
Special Mention (risk rating 6) | — |  | — |  | 1,364 |  | — |  | — |  | — |  | — |  | — |  | 1,364 |
Substandard (risk rating 7) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Multifamily | 8,435 |  | 32,082 |  | 19,536 |  | 16,103 |  | 5,553 |  | 8,796 |  | 329 |  | 207 |  | 91,041 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Municipal |  |  |  |  |  |  |  |  |
Pass (risk rating 1-5) | 24,527 |  | 6,239 |  | 4,121 |  | 10,226 |  | 5,270 |  | 8,064 |  | — |  | — |  | 58,447 |
Special Mention (risk rating 6) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Substandard (risk rating 7) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Doubtful (risk rating 8) | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Municipal | 24,527 |  | 6,239 |  | 4,121 |  | 10,226 |  | 5,270 |  | 8,064 |  | — |  | — |  | 58,447 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
| Term Loans Amortized Cost Basis by Origination Year |  |  |
Dollars in thousands | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term | Total
As of September 30, 2023 |  |  |  |  |  |  |  |  |
Residential |  |  |  |  |  |  |  |  |
Term |  |  |  |  |  |  |  |  |
Performing | 47,019 |  | 149,470 |  | 143,048 |  | 97,350 |  | 40,621 |  | 179,788 |  | 1,301 |  | 132 |  | 658,729 |
Non-performing | — |  | 304 |  | — |  | 81 |  | 340 |  | 595 |  | — |  | — |  | 1,320 |
Total Term | 47,019 |  | 149,774 |  | 143,048 |  | 97,431 |  | 40,961 |  | 180,383 |  | 1,301 |  | 132 |  | 660,049 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Construction |  |  |  |  |  |  |  |  |
Performing | 15,966 |  | 11,715 |  | — |  | 1,305 |  | — |  | — |  | — |  | — |  | 28,986 |
Non-performing | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Construction | 15,966 |  | 11,715 |  | — |  | 1,305 |  | — |  | — |  | — |  | — |  | 28,986 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Home Equity Revolving and Term |  |  |  |  |  |  |  |  |
Performing | 8,154 |  | 9,472 |  | 2,073 |  | 1,214 |  | 609 |  | 1,754 |  | 67,639 |  | 10,575 |  | 101,490 |
Non-performing | — |  | — |  | — |  | — |  | — |  | 115 |  | 198 |  | 177 |  | 490 |
Total Home Equity Revolving and Term | 8,154 |  | 9,472 |  | 2,073 |  | 1,214 |  | 609 |  | 1,869 |  | 67,837 |  | 10,752 |  | 101,980 |
Current period gross write-offs | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Consumer |  |  |  |  |  |  |  |  |
Performing | 3,072 |  | 2,338 |  | 1,296 |  | 1,951 |  | 538 |  | 4,404 |  | 5,771 |  | — |  | 19,370 |
Non-performing | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Consumer | 3,072 |  | 2,338 |  | 1,296 |  | 1,951 |  | 538 |  | 4,404 |  | 5,771 |  | — |  | 19,370 |
Current period gross write-offs | 5 |  | 41 |  | 30 |  | 30 |  | 7 |  | 39 |  | — |  | — |  | 152 |
Total loans | $ | 238,987 |  | $ | 467,901 |  | $ | 404,578 |  | $ | 244,494 |  | $ | 124,553 |  | $ | 395,244 |  | $ | 180,900 |  | $ | 23,203 |  | $ | 2,079,860 |
Loss Recognition: Commercial loans are generally charged off when all or a portion of the principal amount is determined to be uncollectible. This determination is based on circumstances specific to a borrower including repayment ability, analysis of collateral, and other factors as applicable. Consumer loans greater than 120 days past due are generally charged off. Residential loans 90 days or more past due are placed on non-accrual status unless the loans are both well secured and in the process of collection. One- to four-family residential real estate loans and home equity loans are written down or charged-off no later than 180 days past due, or for residential real estate secured loans having a borrower in bankruptcy, within 60 days of receipt of notification of filing from the bankruptcy court, whichever is sooner. This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off. The following table presents allowance for credit losses activity by class for the nine months and quarter ended September 30, 2023:
Dollars in thousands | Commercial | Municipal | Residential | Home Equity | Consumer | Unallocated | Total
Real Estate Owner Occupied | Real Estate Non-Owner Occupied | Construction | C&I | Multifamily |  | Term | Construction | Revolving and term |  |  |
For the nine months ended September 30, 2023
Beginning balance, prior to adoption of ASC 326 | $ | 6,116 |  | $ | — |  | $ | 821 |  | $ | 3,097 |  | $ | — |  | $ | 162 |  | $ | 2,559 |  | $ | 199 |  | $ | 1,029 |  | $ | 1,062 |  | $ | 1,678 |  | $ | 16,723 |
Charge offs | 40 |  | — |  | — |  | 16 |  | — |  | — |  | — |  | — |  | — |  | 152 |  | — |  | 208 |
Recoveries | 2 |  | 75 |  | — |  | 3 |  | — |  | — |  | 10 |  | — |  | 10 |  | 78 |  | — |  | 178 |
Provision (credit) | 119 |  | 39 |  | (162) |  | 68 |  | 93 |  | 82 |  | 439 |  | (358) |  | 34 |  | 65 |  | — |  | 419 |
Impact of adopting ASC 326 | (1,686) |  | 4,315 |  | 943 |  | 1,645 |  | 1,184 |  | 132 |  | 1,878 |  | 735 |  | (456) |  | (802) |  | (1,678) |  | 6,210 |
Ending balance | $ | 4,511 |  | $ | 4,429 |  | $ | 1,602 |  | $ | 4,797 |  | $ | 1,277 |  | $ | 376 |  | $ | 4,886 |  | $ | 576 |  | $ | 617 |  | $ | 251 |  | $ | — |  | $ | 23,322 |
For the three months ended September 30, 2023
Beginning balance | $ | 4,719 |  | $ | 4,492 |  | $ | 1,469 |  | $ | 4,721 |  | $ | 1,312 |  | $ | 399 |  | $ | 4,831 |  | $ | 609 |  | $ | 635 |  | $ | 278 |  | $ | — |  | $ | 23,465 |
Charge offs | 1 |  | — |  | — |  | 16 |  | — |  | — |  | — |  | — |  | — |  | 69 |  | — |  | 86 |
Recoveries | 2 |  | — |  | — |  | — |  | — |  | — |  | 4 |  | — |  | 3 |  | 20 |  | — |  | 104 |
Provision (credit) | (209) |  | (63) |  | 133 |  | 92 |  | (35) |  | (23) |  | 51 |  | (33) |  | (21) |  | 22 |  | — |  | (161) |
Ending balance | $ | 4,511 |  | $ | 4,429 |  | $ | 1,602 |  | $ | 4,797 |  | $ | 1,277 |  | $ | 376 |  | $ | 4,886 |  | $ | 576 |  | $ | 617 |  | $ | 251 |  | $ | — |  | $ | 23,322 |
As of September 30, 2023, the significant model inputs and assumptions used within the discounted cash flow model for purposes of estimating the ACL on loans were: Macroeconomic (loss) drivers: The following loss drivers for each loan segment were used to calculate the expected Probability of Default over the forecast and reversion period: •Commercial Real Estate Owner Occupied: FOMC median forecasts of national unemployment and change in national GDP •Commercial Real Estate Non-Owner Occupied: FOMC median forecasts of national unemployment and change in national GDP •Commercial Construction: FOMC median forecasts of national unemployment and change in national GDP •Commercial & Industrial: FOMC median forecasts of national unemployment and change in national GDP •Commercial Multifamily: FOMC median forecast of national unemployment and Case-Shiller National Home Price Index •Municipal: FOMC median forecasts of national unemployment and change in national GDP •Residential Real Estate Term: FOMC median forecasts of national unemployment and change in national GDP •Residential Real Estate Construction: FOMC median forecast of national unemployment •Home Equity Revolving & Term: FOMC median forecasts of national unemployment and change in national GDP •Consumer: FOMC median forecasts of national unemployment and change in national GDP Reasonable and supportable forecast period: The ACL on loans estimate used a reasonable and supportable forecast period of one year. Reversion period: The ACL on loans estimate used a reversion period of one year. Prepayment speeds: The estimate of prepayment speed for each loan segment was derived using internally sourced prepayment data. Qualitative factors: The ACL on loans estimate incorporated various qualitative factors into the calculation such as changes in lending policies, changes in the nature and volume and terms of loans, changes in the experience, depth and ability of lending management, and economic factors not captured in the quantitative model. The following table presents allowance for loan losses activity by class for the year ended December 31, 2022:
Dollars in thousands | Commercial | Municipal | Residential | Home Equity Line of Credit | Consumer | Unallocated | Total
Real Estate | Construction | Other |  | Term | Construction |  |  |  |
For the year ended December 31, 2022
Beginning balance | $ | 5,367 |  | $ | 746 |  | $ | 2,830 |  | $ | 157 |  | $ | 2,733 |  | $ | 148 |  | $ | 925 |  | $ | 833 |  | $ | 1,782 |  | $ | 15,521 |
Charge offs | — |  | — |  | 309 |  | — |  | 8 |  | — |  | 29 |  | 412 |  | — |  | 758 |
Recoveries | 20 |  | — |  | 13 |  | — |  | 29 |  | — |  | 4 |  | 144 |  | — |  | 210 |
Provision (credit) | 729 |  | 75 |  | 563 |  | 5 |  | (195) |  | 51 |  | 129 |  | 497 |  | (104) |  | 1,750 |
Ending balance | $ | 6,116 |  | $ | 821 |  | $ | 3,097 |  | $ | 162 |  | $ | 2,559 |  | $ | 199 |  | $ | 1,029 |  | $ | 1,062 |  | $ | 1,678 |  | $ | 16,723 |
The following table presents allowance for loan losses activity by class for the nine months and quarter ended September 30, 2022:
Dollars in thousands | Commercial | Municipal | Residential | Home Equity Line of Credit | Consumer | Unallocated | Total
Real Estate | Construction | Other |  | Term | Construction |  |  |  |
For the nine months ended September 30, 2022
Beginning balance | $ | 5,367 |  | $ | 746 |  | $ | 2,830 |  | $ | 157 |  | $ | 2,733 |  | $ | 148 |  | $ | 925 |  | $ | 833 |  | $ | 1,782 |  | $ | 15,521 |
Charge offs | — |  | — |  | 272 |  | — |  | — |  | — |  | 29 |  | 318 |  | — |  | 619 |
Recoveries | 16 |  | — |  | 11 |  | — |  | 27 |  | — |  | 3 |  | 128 |  | — |  | 185 |
Provision (credit) | 192 |  | 375 |  | 445 |  | 3 |  | (213) |  | 20 |  | 94 |  | 229 |  | 155 |  | 1,300 |
Ending balance | $ | 5,575 |  | $ | 1,121 |  | $ | 3,014 |  | $ | 160 |  | $ | 2,547 |  | $ | 168 |  | $ | 993 |  | $ | 872 |  | $ | 1,937 |  | $ | 16,387 |
For the three months ended September 30, 2022
Beginning balance | $ | 5,480 |  | $ | 1,151 |  | $ | 2,948 |  | $ | 157 |  | $ | 2,592 |  | $ | 191 |  | $ | 966 |  | $ | 866 |  | $ | 1,850 |  | $ | 16,201 |
Charge offs | — |  | — |  | 229 |  | — |  | — |  | — |  | — |  | 31 |  | — |  | 260 |
Recoveries | (1) |  | — |  | 9 |  | — |  | 16 |  | — |  | 2 |  | 20 |  | — |  | 46 |
Provision (credit) | 96 |  | (30) |  | 286 |  | 3 |  | (61) |  | (23) |  | 25 |  | 17 |  | 87 |  | 400 |
Ending balance | $ | 5,575 |  | $ | 1,121 |  | $ | 3,014 |  | $ | 160 |  | $ | 2,547 |  | $ | 168 |  | $ | 993 |  | $ | 872 |  | $ | 1,937 |  | $ | 16,387 |

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