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Allowance for Credit Losses

6 Months Ended

Jun. 30, 2024

NOTE 4: Allowance for Credit Losses

The Corporation conducts an analysis of the collectability of the loan portfolio on a regular basis and uses this analysis to assess the sufficiency of the allowance for credit losses on loans and to determine the necessary provision for credit losses. The Corporation segmented the loan portfolio into three loan portfolios based on common risk characteristics. The Commercial portfolio consists of commercial real estate loans, commercial business loans, commercial and consumer real estate construction loans, land acquisition and development loans, and builder lines. The Consumer portfolio consists of residential mortgage loans, equity lines, and other consumer loans. The Consumer Finance portfolio consists of automobile and marine and RV loans.

The following table shows the allowance for credit losses activity by loan portfolio for the six months ended June 30, 2024 and 2023:

Consumer

(Dollars in thousands)

Commercial

Consumer

Finance

Total

Allowance for credit losses:

Balance at December 31, 2023

12,315

3,758

23,578

39,651

Provision charged to operations

645

255

5,100

6,000

Loans charged off

—

(169)

(7,572)

(7,741)

Recoveries of loans previously charged off

2,317

2,433

Balance at June 30, 2024

12,978

3,942

23,423

40,343


					Consumer
(Dollars in thousands)	Commercial		Consumer		Finance		Total
Allowance for credit losses:
Balance at December 31, 2022	$	11,219	$	3,330	$	25,969	$	40,518
Impact of ASC 326 adoption on non-PCD loans		(617)		98		406		(113)
Impact of ASC 326 adoption on PCD loans		595		9		—		604
Provision charged to operations		432		219		2,700		3,351
Loans charged off		(16)		(157)		(5,934)		(6,107)
Recoveries of loans previously charged off		125		104		2,046		2,275
Balance at June 30, 2023	$	11,738	$	3,603	$	25,187	$	40,528

The following table presents a breakdown of the provision for credit losses for the periods indicated.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2024		2023		2024		2023
Provision for credit losses:
Provision for loans	$	2,400	$	1,401	$	6,000	$	3,351
Provision for unfunded commitments		150		299		50		399
Total	$	2,550	$	1,700	$	6,050	$	3,750

The table below details the recorded balance of the classes of loans within the commercial and consumer loan portfolios by loan rating, which is reviewed on a quarterly basis, and year of origination as of June 30, 2024:


													Revolving		Revolving
	Term Loans Recorded Balance by Origination Year												Loans		Loans
													Recorded		Converted
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Balance		to Term¹		Total
Commercial real estate:
Loan Rating
Pass	$	57,461	$	78,507	$	125,591	$	149,376	$	118,129	$	165,667	$	—	$	114	$	694,845
Special Mention		—		—		—		5,668		—		947		—		—		6,615
Total	$	57,461	$	78,507	$	125,591	$	155,044	$	118,129	$	166,614	$	—	$	114	$	701,460

Commercial business:
Loan Rating
Pass	$	5,154	$	15,501	$	18,034	$	15,884	$	11,624	$	26,395	$	26,252	$	96	$	118,940
Special Mention		25		55		—		—		—		—		—		—		80
Total	$	5,179	$	15,556	$	18,034	$	15,884	$	11,624	$	26,395	$	26,252	$	96	$	119,020

Construction - commercial real estate:
Loan Rating
Pass	$	20,161	$	45,282	$	54,765	$	—	$	—	$	—	$	—	$	—	$	120,208
Total	$	20,161	$	45,282	$	54,765	$	—	$	—	$	—	$	—	$	—	$	120,208

Land acquisition and development:
Loan Rating
Pass	$	3,339	$	5,708	$	3,942	$	8,368	$	9,998	$	—	$	—	$	—	$	31,355
Total	$	3,339	$	5,708	$	3,942	$	8,368	$	9,998	$	—	$	—	$	—	$	31,355

Builder lines:
Loan Rating
Pass	$	12,471	$	6,818	$	1,555	$	479	$	—	$	404	$	—	$	—	$	21,727
Total	$	12,471	$	6,818	$	1,555	$	479	$	—	$	404	$	—	$	—	$	21,727

Construction - consumer real estate:
Loan Rating
Pass	$	5,203	$	9,844	$	917	$	—	$	—	$	—	$	—	$	—	$	15,964
Substandard Nonaccrual		—		517		—		—		—		—		—		—		517
Total	$	5,203	$	10,361	$	917	$	—	$	—	$	—	$	—	$	—	$	16,481

Residential mortgage:
Loan Rating
Pass	$	32,529	$	56,114	$	86,985	$	42,060	$	37,588	$	51,633	$	—	$	—	$	306,909
Special Mention		—		872		43		—		—		34		—		—		949
Substandard		—		—		—		—		103		298		—		—		401
Substandard Nonaccrual		131		21		105		—		—		274		—		—		531
Total	$	32,660	$	57,007	$	87,133	$	42,060	$	37,691	$	52,239	$	—	$	—	$	308,790

Equity lines:
Loan Rating
Pass	$	—	$	—	$	—	$	—	$	70	$	844	$	55,438	$	277	$	56,629
Substandard		—		—		—		—		—		5		—		151		156
Substandard Nonaccrual		—		—		—		—		—		—		—		50		50
Total	$	—	$	—	$	—	$	—	$	70	$	849	$	55,438	$	478	$	56,835

Other consumer:
Loan Rating
Pass	$	3,891	$	3,643	$	2,059	$	409	$	189	$	718	$	47	$	—	$	10,956
Total	$	3,891	$	3,643	$	2,059	$	409	$	189	$	718	$	47	$	—	$	10,956

Total:
Loan Rating
Pass	$	140,209	$	221,417	$	293,848	$	216,576	$	177,598	$	245,661	$	81,737	$	487	$	1,377,533
Special Mention		25		927		43		5,668		—		981		—		—		7,644
Substandard		—		—		—		—		103		303		—		151		557
Substandard Nonaccrual		131		538		105		—		—		274		—		50		1,098
Total	$	140,365	$	222,882	$	293,996	$	222,244	$	177,701	$	247,219	$	81,737	$	688	$	1,386,832

For the three and six months ended June 30, 2024, $78,000 and $136,000 of equity lines revolving loans were converted to term, respectively.


													Revolving		Revolving
	Term Loans Recorded Balance by Origination Year												Loans		Loans
													Recorded		Converted
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Balance		to Term¹		Total
Commercial real estate:
Loan Rating
Pass	$	81,324	$	125,278	$	155,805	$	121,365	$	37,383	$	140,158	$	—	$	119	$	661,432
Special Mention		—		—		5,731		—		—		959		—		—		6,690
Total	$	81,324	$	125,278	$	161,536	$	121,365	$	37,383	$	141,117	$	—	$	119	$	668,122

Commercial business:
Loan Rating
Pass	$	18,682	$	18,190	$	17,219	$	12,062	$	14,847	$	15,339	$	18,686	$	261	$	115,286
Special Mention		62		—		—		—		—		—		—		—		62
Total	$	18,744	$	18,190	$	17,219	$	12,062	$	14,847	$	15,339	$	18,686	$	261	$	115,348

Construction - commercial real estate:
Loan Rating
Pass	$	29,346	$	36,907	$	—	$	3,515	$	—	$	—	$	—	$	—	$	69,768
Total	$	29,346	$	36,907	$	—	$	3,515	$	—	$	—	$	—	$	—	$	69,768

Land acquisition and development:
Loan Rating
Pass	$	4,562	$	4,665	$	9,844	$	9,993	$	—	$	—	$	—	$	—	$	29,064
Total	$	4,562	$	4,665	$	9,844	$	9,993	$	—	$	—	$	—	$	—	$	29,064

Builder lines:
Loan Rating
Pass	$	17,919	$	5,124	$	1,221	$	—	$	404	$	—	$	—	$	—	$	24,668
Total	$	17,919	$	5,124	$	1,221	$	—	$	404	$	—	$	—	$	—	$	24,668

Construction - consumer real estate:
Loan Rating
Pass	$	7,889	$	3,240	$	—	$	—	$	—	$	—	$	94	$	—	$	11,223
Total	$	7,889	$	3,240	$	—	$	—	$	—	$	—	$	94	$	—	$	11,223

Residential mortgage:
Loan Rating
Pass	$	59,441	$	91,086	$	44,292	$	40,089	$	11,524	$	46,192	$	—	$	—	$	292,624
Special Mention		—		—		—		—		—		44		—		—		44
Substandard		—		—		—		103		—		165		—		—		268
Substandard Nonaccrual		—		—		—		—		62		258		—		—		320
Total	$	59,441	$	91,086	$	44,292	$	40,192	$	11,586	$	46,659	$	—	$	—	$	293,256

Equity lines:
Loan Rating
Pass	$	—	$	—	$	34	$	70	$	—	$	857	$	50,120	$	344	$	51,425
Special Mention		—		—		—		—		—		—		—		85		85
Substandard		—		—		—		—		5		—		—		—		5
Substandard Nonaccrual		—		—		—		—		—		9		—		68		77
Total	$	—	$	—	$	34	$	70	$	5	$	866	$	50,120	$	497	$	51,592

Other consumer:
Loan Rating
Pass	$	6,263	$	2,762	$	606	$	282	$	101	$	519	$	46	$	—	$	10,579
Substandard Nonaccrual		—		—		—		—		9		—		—		—		9
Total	$	6,263	$	2,762	$	606	$	282	$	110	$	519	$	46	$	—	$	10,588

Total:
Loan Rating
Pass	$	225,426	$	287,252	$	229,021	$	187,376	$	64,259	$	203,065	$	68,946	$	724	$	1,266,069
Special Mention		62		—		5,731		—		—		1,003		—		85		6,881
Substandard		—		—		—		103		5		165		—		—		273
Substandard Nonaccrual		—		—		—		—		71		267		—		68		406
Total	$	225,488	$	287,252	$	234,752	$	187,479	$	64,335	$	204,500	$	68,946	$	877	$	1,273,629

All balances shown in this column were converted to term during the year ended December 31, 2023.

The table below details the recorded balance of the classes of loans within the consumer finance loan portfolio by credit rating at the time of origination and year of origination as of June 30, 2024:

Revolving

Term Loans Recorded Balance by Origination Year

Loans

Revolving

Converted

(Dollars in thousands)

2024

2023

2022

2021

2020

Prior

Loans

to Term

Total

Consumer finance - automobiles:

Credit rating

Very good

14,402

12,501

10,050

3,209

706

179

—

41,047

Good

22,324

31,064

35,997

12,348

2,347

750

—

104,830

Fairly good

23,662

39,611

45,913

21,781

4,589

3,092

—

138,648

Fair

12,883

25,377

30,434

17,304

5,259

4,062

—

95,319

Marginal

2,860

5,407

7,244

6,332

2,435

2,711

—

26,989

Total

76,131

113,960

129,638

60,974

15,336

10,794

—

406,833

Consumer finance - marine and recreational vehicles:

Credit rating

Very good

7,061

6,830

13,759

8,922

8,818

4,265

—

49,655

Good

3,431

6,885

7,504

1,443

1,250

809

—

21,322

Fairly good

—

217

—

534

Total

10,492

13,932

21,480

10,401

10,097

5,109

—

71,511

Total:

Credit rating

Very good

21,463

19,331

23,809

12,131

9,524

4,444

—

90,702

Good

25,755

37,949

43,501

13,791

3,597

1,559

—

126,152

Fairly good

23,662

39,828

46,130

21,817

4,618

3,127

—

139,182

Fair

12,883

25,377

30,434

17,304

5,259

4,062

—

95,319

Marginal

2,860

5,407

7,244

6,332

2,435

2,711

—

26,989

Total

86,623

127,892

151,118

71,375

25,433

15,903

—

478,344


															Revolving
	Term Loans Recorded Balance by Origination Year														Loans
													Revolving		Converted
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Consumer finance - automobiles:
Credit rating
Very good	$	14,916	$	12,395	$	4,291	$	1,012	$	277	$	22	$	—	$	—	$	32,913
Good		35,203		42,800		15,530		3,338		1,090		325		—		—		98,286
Fairly good		44,227		54,968		26,645		6,186		3,984		1,470		—		—		137,480
Fair		28,779		36,794		22,266		7,014		4,808		1,908		—		—		101,569
Marginal		6,359		8,956		7,715		3,322		2,832		1,844		—		—		31,028
Total	$	129,484	$	155,913	$	76,447	$	20,872	$	12,991	$	5,569	$	—	$	—	$	401,276

Consumer finance - marine and recreational vehicles:
Credit rating
Very good	$	7,481	$	15,000	$	9,857	$	9,952	$	2,518	$	2,438	$	—	$	—	$	47,246
Good		7,419		8,130		1,602		1,384		410		453		—		—		19,398
Fairly good		265		221		37		30		—		37		—		—		590
Total	$	15,165	$	23,351	$	11,496	$	11,366	$	2,928	$	2,928	$	—	$	—	$	67,234

Total:
Credit rating
Very good	$	22,397	$	27,395	$	14,148	$	10,964	$	2,795	$	2,460	$	—	$	—	$	80,159
Good		42,622		50,930		17,132		4,722		1,500		778		—		—		117,684
Fairly good		44,492		55,189		26,682		6,216		3,984		1,507		—		—		138,070
Fair		28,779		36,794		22,266		7,014		4,808		1,908		—		—		101,569
Marginal		6,359		8,956		7,715		3,322		2,832		1,844		—		—		31,028
Total	$	144,649	$	179,264	$	87,943	$	32,238	$	15,919	$	8,497	$	—	$	—	$	468,510

The following table details the current period gross charge-offs of loans by year of origination for the six months ended June 30, 2024:


															Revolving
	Current Period Gross Charge-offs by Origination Year														Loans
													Revolving		Converted
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Loans		to Term		Total
Residential mortgage	$	3	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3
Other consumer¹		147		11		5		—		—		3		—		—		166
Consumer finance - automobiles		78		1,370		3,383		1,846		312		405		—		—		7,394
Consumer finance - marine and recreational vehicles		—		40		103		8		27		—		—		—		178
Total	$	228	$	1,421	$	3,491	$	1,854	$	339	$	408	$	—	$	—	$	7,741

1	Gross charge-offs of other consumer loans for the six months ended June 30, 2024 included $137,000 of demand deposit overdrafts that originated in 2024.

The following table details the current period gross charge-offs of loans by year of origination for the six months ended June 30, 2023:


															Revolving
	Current Period Gross Charge-offs by Origination Year														Loans
													Revolving		Converted
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Commercial business	$	—	$	16	$	—	$	—	$	—	$	—	$	—	$	—	$	16
Equity lines		—		—		—		—		—		8		—		—		8
Other consumer¹		140		7		—		—		2		—		—		—		149
Consumer finance - automobiles		83		2,789		1,739		430		312		460		—		—		5,813
Consumer finance - marine and recreational vehicles		—		56		—		49		2		14		—		—		121
Total	$	223	$	2,868	$	1,739	$	479	$	316	$	482	$	—	$	—	$	6,107

1	Gross charge-offs of other consumer loans for the six months ended June 30, 2023 included $139,000 of demand deposit overdrafts that originated in 2023.

Gross charge-offs increased for the six months ended June 30, 2024 compared to the same period in 2023 due primarily to higher charge-offs within the consumer finance-automobile portfolio segment as a result of an increase in the number of delinquent loans and repossessions and a higher average charge-off per unit as a result of a decline in wholesale values of used automobiles.

As of June 30, 2024 and December 31, 2023, the Corporation had no collateral dependent loans for which repayment was expected to be derived substantially through the operation or sale of the collateral and where the borrower is experiencing financial difficulty.