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Loans

6 Months Ended

Jun. 30, 2023

NOTE 3: Loans

On January 1, 2023, the Corporation adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. For further discussion on the Corporation’s accounting policies and policy elections related to the accounting standard update see Note 1. All loan information presented as of June 30, 2023 is in accordance with ASC 326. All loan information presented as of December 31, 2022 or a prior date is presented in accordance with previously applicable GAAP.

The Corporation’s loans are stated at their face amount, net of deferred fees and costs and discounts, and consist of the classes of loans included in the table below. The Corporation has elected to exclude accrued interest receivable, totaling $6.8 million at June 30, 2023, from the recorded balance of loans.


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Commercial real estate	$	630,018	$	592,301
Commercial business		117,505		118,605
Construction - commercial real estate		53,620		49,136
Land acquisition and development		33,107		37,537
Builder lines		29,857		34,538
Construction - consumer real estate		11,542		10,539
Residential mortgage		282,111		266,267
Equity lines		45,410		43,300
Other consumer		8,792		8,938
Consumer finance - automobiles		408,010		411,112
Consumer finance - marine and recreational vehicles		67,018		63,445
Subtotal		1,686,990		1,635,718
Less allowance for credit losses		(40,528)		(40,518)
Loans, net	$	1,646,462	$	1,595,200

Other consumer loans included $307,000 and $284,000 of demand deposit overdrafts at June 30, 2023 and December 31, 2022, respectively.

The following table shows the aging of the Corporation’s loan portfolio, by class, at June 30, 2023:


	30-59		60-89		90+								90+ Days
	Days		Days		Days		Total						Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current¹		Total Loans		Accruing
Commercial real estate	$	—	$	—	$	264	$	264	$	629,754	$	630,018	$	—
Commercial business		—		—		—		—		117,505		117,505		—
Construction - commercial real estate		—		—		—		—		53,620		53,620		—
Land acquisition and development		—		—		—		—		33,107		33,107		—
Builder lines		—		—		—		—		29,857		29,857		—
Construction - consumer real estate		—		—		—		—		11,542		11,542		—
Residential mortgage		794		307		240		1,341		280,770		282,111		240
Equity lines		146		192		98		436		44,974		45,410		—
Other consumer		30		—		—		30		8,762		8,792		—
Consumer finance - automobiles		10,842		2,002		610		13,454		394,556		408,010		—
Consumer finance - marine and recreational vehicles		152		54		39		245		66,773		67,018		—
Total	$	11,964	$	2,555	$	1,251	$	15,770	$	1,671,220	$	1,686,990	$	240

For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

The table above includes nonaccrual loans that are current of $36,000, 30-59 days past due of $122,000 and 90+ days past due of $1.0 million.

The following table shows the Corporation’s recorded balance of loans on nonaccrual status as of June 30, 2023 and December 31, 2022. The Corporation recognized $2,000 of interest income on loans on nonaccrual status as of June 30, 2023 and had $14,000 of reversals of interest income upon placing loans on nonaccrual status during the three and six months ended June 30, 2023. All nonaccrual loans at June 30, 2023 had an allowance for credit loss.


	June 30,		December 31,
(Dollars in thousands)	2023		2022
Commercial real estate	$	264	$	—
Residential mortgage		149		156
Equity lines		107		108
Consumer finance - automobiles		610		842
Consumer finance - marine and recreational vehicles		39		83
Total	$	1,169	$	1,189

Occasionally, the Corporation modifies loans to borrowers experiencing financial difficulties by providing principal forgiveness, term extensions, interest rate reductions or other-than-insignificant payment delays. As the effect of most modifications is already included in the allowance for credit losses due to the measurement methodologies used in its estimate, the allowance for credit losses is typically not adjusted upon modification. When principal forgiveness is provided at modification, the amount forgiven is charged against the allowance for credit losses. In some cases, the Corporation may provide multiple types of modifications on one loan and when multiple types of modifications occur within the same period, the combination of modifications is separately reported.

Loan modifications to borrowers experiencing financial difficulty (or modified loans) during the six months ended June 30, 2023 included a combination of term extensions and interest rate reductions of commercial real estate loans with a recorded investment of $47,000, or less than one percent of all commercial real estate loans, at June 30, 2023. The modified loans’ weighted-average interest rate was reduced from 8.75 percent to 8.0 percent and the weighted-average term extension was 4.9 years.

The Corporation closely monitors the performance of modified loans to understand the effectiveness of its modification efforts. Upon the determination that all or a portion of a modified loan is uncollectible, that amount is charged against the allowance for credit losses. There were no payment defaults during the three and six months ended June 30, 2023 of modified loans that were modified during the previous twelve months and all were current as of June 30, 2023.

Prior to the adoption of ASC 326

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The outstanding principal balance and the carrying amount at December 31, 2022 of loans acquired in business combinations were as follows:


	December 31, 2022
	Acquired Loans -		Acquired Loans -
	Purchased		Purchased		Acquired Loans -
(Dollars in thousands)	Credit Impaired		Performing		Total
Outstanding principal balance	$	4,522	$	38,157	$	42,679
Carrying amount
Real estate – residential mortgage	$	300	$	8,587	$	8,887
Real estate – construction		—		—		—
Commercial, financial and agricultural¹		1,114		23,023		24,137
Equity lines		15		5,047		5,062
Consumer		26		755		781
Total acquired loans	$	1,455	$	37,412	$	38,867

1	Includes acquired loans classified by the Corporation as commercial real estate lending and commercial business lending.

The following table presents a summary of the change in the accretable yield of loans classified as PCI:


		Six Months Ended
(Dollars in thousands)	June 30, 2022
Accretable yield, balance at beginning of period	$	3,111
Accretion		(1,019)
Reclassification of nonaccretable difference due to improvement in expected cash flows		616
Other changes, net		(271)
Accretable yield, balance at end of period	$	2,437

The past due status of loans as of December 31, 2022 was as follows:


															90+ Days
	30 - 59 Days		60 - 89 Days		90+ Days		Total								Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		PCI		Current¹		Total Loans		Accruing
Residential mortgage	$	1,649	$	452	$	20	$	2,121	$	300	$	263,846	$	266,267	$	—
Real estate – construction:
Construction - commercial real estate		—		—		—		—		—		49,136		49,136		—
Construction - consumer real estate		—		—		—		—		—		10,539		10,539		—
Commercial, financial and agricultural:
Commercial real estate		—		—		—		—		1,114		591,187		592,301		—
Land acquisition and development		—		—		—		—		—		37,537		37,537		—
Builder lines		—		—		—		—		—		34,538		34,538		—
Commercial business		—		1		—		1		—		118,604		118,605		—
Equity lines		—		39		—		39		15		43,246		43,300		—
Other consumer		9		—		191		200		26		8,712		8,938		191
Consumer finance:
Automobiles		10,557		1,570		842		12,969		—		398,143		411,112		—
Marine and recreational vehicles		114		35		83		232		—		63,213		63,445		—
Total	$	12,329	$	2,097	$	1,136	$	15,562	$	1,455	$	1,618,701	$	1,635,718	$	191

1For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

The table above includes nonaccrual loans that are current of $244,000 and 90+ days past due of $945,000.

There were no loan modifications during the three and six months ended June 30, 2022 that were classified as TDRs. There were no TDR payment defaults during the three and six months ended June 30, 2022.

Impaired loans, which included TDRs of $823,000, and the related allowance at December 31, 2022 were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	797	$	36	$	761	$	51	$	806	$	35
Equity lines		26		26		—		—		28		2
Total	$	823	$	62	$	761	$	51	$	834	$	37