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Note 7 - Loans Receivable

9 Months Ended

Sep. 30, 2023

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 7 - Loans Receivable

The Bancorp’s current lending programs are described below:

Residential Real Estate. The primary lending activity of the Bancorp has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes. Conventional loans are made up to a maximum of 97% of the purchase price or appraised value, whichever is less. For loans made in excess of 80% of value, private mortgage insurance is generally required in an amount sufficient to reduce the Bancorp’s exposure to 80% of the lesser of purchase price or appraised value of the property. Loans insured by private mortgage insurance companies can be made for up to 97% of value. Loans closed with over 20% of equity do not require private mortgage insurance because of the borrower’s level of equity investment.

Fixed rate loans currently originated generally conform to Freddie Mac guidelines for loans purchased by the Single Family Division. Loan interest rates are determined based on secondary market yield requirements and local market conditions. Fixed rate mortgage loans with contractual maturities generally exceeding fifteen years and greater may be sold and/or classified as held for sale to control exposure to interest rate risk.

The Bancorp’s Adjustable Rate Mortgage Loans (“ARMs”) include offerings that reprice annually or are “mini-fixed.” The “mini‑fixed” mortgage reprices annually after a one, three, five, seven or ten year period. The ability of the Bancorp to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, public acceptance of such loans and terms offered by competitors.

Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home. Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require a second mortgage appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89% of the appraised value of the property less any outstanding liens.

Fixed term home improvement and equity loans are made up to a maximum of 85% of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.

Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80% of the appraised value. Such loans are generally made on an adjustable rate basis. These loans are typically made for terms of 15 to 25 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the loan if economic conditions so warrant. Commercial real estate loans include loans secured by commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments.

While commercial real estate lending is generally considered to involve a higher degree of risk than single‑family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Bancorp has endeavored to reduce this risk in several ways. In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings. All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment.

Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records. Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards.

Construction and Land Development. Construction loans on residential properties are made primarily to individuals and contractors who are under contract with individual purchasers. These loans are personally guaranteed by the borrower. The maximum loan-to-value ratio is 89% of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for periods of nine months to one year.

Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the loans are not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do not exceed 80% of the appraised value of the property. Commercial construction loans are typically made for periods not to exceed two years or date of occupancy, whichever is less.

Commercial Business and Farmland Loans. Although the Bancorp’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Bancorp seeks commercial loan relationships from the local business community and from its present customers. Conservative lending policies based upon sound credit analysis governs the extension of commercial credit. The following loans, although not inclusive, are considered preferable for the Bancorp’s commercial loan portfolio: loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short‑term working capital loans to established businesses secured by business assets; short‑term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.

Consumer Loans. The Bancorp offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured. Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products.

Manufactured Homes. The Bancorp purchases fixed rate closed loans from a third party that are subject to Bancorp’s underwriting requirements and secured by manufactured homes. The maturity date on these loans can range up to 25 years. In addition, these loans are partially secured by a reserve account held at the Bancorp.

Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes and warrants within the local market area.

Loans receivable are summarized below:

(Dollars in thousands)
	September 30, 2023			December 31, 2022
Loans secured by real estate:
Residential real estate	$	487,659		$	484,595
Home equity		47,339			38,978
Commercial real estate		498,513			486,431
Construction and land development		121,547			108,926
Multifamily		225,469			251,014
Total loans secured by real estate		1,380,527			1,369,944
Commercial business		98,723			93,278
Consumer		747			918
Manufactured homes		31,661			34,882
Government		10,021			9,549
Loans receivable		1,521,679			1,508,571
Add (less):
Net deferred loan origination costs		4,070			5,083
Undisbursed loan funds		(89	)		(23	)
Loans receivable, net of deferred fees and costs	$	1,525,660		$	1,513,631

The Bancorp's age analysis of past due loans is summarized below:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due and Accruing		Total Past Due and Accruing		Current		Accruing Loans		Non-accrual Loans		Total Loans Receivable
September 30, 2023
Residential real estate	$	5,419	$	1,380	$	11	$	6,810	$	475,035	$	481,845	$	5,814	$	487,659
Home equity		216		10		-		226		46,500		46,726		613		47,339
Commercial real estate		1,583		527		222		2,332		495,183		497,515		998		498,513
Construction and land development		-		-		-		-		121,547		121,547		-		121,547
Multifamily		3,351		308		-		3,659		220,862		224,521		948		225,469
Commercial business		701		30		-		731		96,527		97,258		1,465		98,723
Consumer		-		-		-		-		745		745		2		747
Manufactured homes		485		246		-		731		30,930		31,661		-		31,661
Government		-		-		-		-		10,021		10,021		-		10,021
Total	$	11,755	$	2,501	$	233	$	14,489	$	1,497,350	$	1,511,839	$	9,840	$	1,521,679

December 31, 2022
Residential real estate	$	3,758	$	2,520	$	166	$	6,444	$	472,804	$	479,248	$	5,347	$	484,595
Home equity		315		42		-		357		38,027		38,384		594		38,978
Commercial real estate		1,399		150		-		1,549		481,640		483,189		3,242		486,431
Construction and land development		2,673		-		-		2,673		106,253		108,926		-		108,926
Multifamily		1,724		616		-		2,340		241,610		243,950		7,064		251,014
Commercial business		1,775		-		-		1,775		89,622		91,397		1,881		93,278
Consumer		3		-		-		3		915		918		-		918
Manufactured homes		601		256		82		939		33,943		34,882		-		34,882
Government		-		-		-		-		9,549		9,549		-		9,549
Total	$	12,248	$	3,584	$	248	$	16,080	$	1,474,363	$	1,490,443	$	18,128	$	1,508,571

The following table shows the amortized cost of loans, segregated by portfolio segment, credit quality rating and year of origination as of September 30, 2023, and gross charge-offs for the nine months ended September 30, 2023.

September 30, 2023	2023			2022			2021		2020			2019			Prior			Revolving		Revolving Converted to Term		Total
Total Loans Receivable	$	120,990		$	327,676		$	329,016	$	238,750		$	117,664		$	290,691		$	94,590	$	2,302	$	1,521,679
Total current period gross charge-off	$	(60	)	$	(110	)	$	-	$	(342	)	$	(11	)	$	(973	)	$	-	$	-		(1,496	)

Residential real estate
Pass (1-6)	$	17,958		$	94,369		$	104,146	$	116,629		$	24,264		$	119,977		$	2,038	$	-	$	479,381
Special Mention (7)		-			-			153		107			303			1,371			-		-		1,934
Substandard (8)		-			966			154		488			457			4,279			-		-		6,344
Total	$	17,958		$	95,335		$	104,453	$	117,224		$	25,024		$	125,627		$	2,038	$	-	$	487,659
Current period gross charge-off		-			-			-		-			-			-			-		-		-

Home equity
Pass (1-6)	$	95		$	116		$	104	$	16		$	68		$	2,132		$	43,337	$	665	$	46,533
Special Mention (7)		-			-			-		-			-			67			114		-		181
Substandard (8)		-			167			-		-			-			154			304		-		625
Total	$	95		$	283		$	104	$	16		$	68		$	2,353		$	43,755	$	665	$	47,339
Current period gross charge-off		-			-			-		-			-			-			-		-		-

Commercial real estate
Pass (1-6)	$	47,346		$	121,142		$	93,017	$	56,483		$	56,482		$	112,834		$	2,882	$	-	$	490,186
Special Mention (7)		-			71			1,328		851			1,134			2,499			-		-		5,883
Substandard (8)		-			49			92		239			-			2,064			-		-		2,444
Total	$	47,346		$	121,262		$	94,437	$	57,573		$	57,616		$	117,397		$	2,882	$	-	$	498,513
Current period gross charge-off		-			-			-		-			-			(371	)		-		-		(371	)

*Construction and land development*
Pass (1-6)	$	32,930		$	37,460		$	20,838	$	2,018		$	8,640		$	497		$	11,501	$	1,637	$	115,521
Special Mention (7)		365			-			3,459		2,202			-			-			-		-		6,026
Total	$	33,295		$	37,460		$	24,297	$	4,220		$	8,640		$	497		$	11,501	$	1,637	$	121,547
Current period gross charge-off		-			-			-		-			-			-			-		-		-

Multifamily
Pass (1-6)	$	9,588		$	53,484		$	81,284	$	43,521		$	14,303		$	21,496		$	179	$	-	$	223,855
Special Mention (7)		-			-			-		-			-			130			-		-		130
Substandard (8)		-			-			-		457			-			1,027			-		-		1,484
Total	$	9,588		$	53,484		$	81,284	$	43,978		$	14,303		$	22,653		$	179	$	-	$	225,469
Current period gross charge-off		-			-			-		-			-			-			-		-		-

Commercial business
Pass (1-6)	$	10,383		$	15,992		$	9,910	$	6,227		$	6,438		$	13,398		$	34,235	$	-	$	96,583
Special Mention (7)		33			-			63		-			134			446			-		-		676
Substandard (8)		-			-			199		99			-			1,166			-		-		1,464
Total	$	10,416		$	15,992		$	10,172	$	6,326		$	6,572		$	15,010		$	34,235	$	-	$	98,723
Current period gross charge-off		-			(110	)		-		(342	)		(11	)		(602	)		-		-		(1,065	)

Consumer
Pass (1-6)	$	402		$	87		$	127	$	9		$	19		$	101		$	-	$	-	$	745
Substandard (8)		-			-			-		2			-			-			-		-		2
Total	$	402		$	87		$	127	$	11		$	19		$	101		$	-	$	-	$	747
Current period gross charge-off		(60	)		-			-		-			-			-			-		-		(60	)

Manufactured homes
Pass (1-6)	$	-		$	1,958		$	12,709	$	9,402		$	5,422		$	2,170		$	-	$	-	$	31,661
Total	$	-		$	1,958		$	12,709	$	9,402		$	5,422		$	2,170		$	-	$	-	$	31,661
Current period gross charge-off		-			-			-		-			-			-			-		-		-

Government
Pass (1-6)	$	1,890		$	1,815		$	1,433	$	-		$	-		$	4,883		$	-	$	-	$	10,021
Total	$	1,890		$	1,815		$	1,433	$	-		$	-		$	4,883		$	-	$	-	$	10,021
Current period gross charge-off		-			-			-		-			-			-			-		-		-

The Bancorp's credit quality indicators are summarized below at December 31, 2022:

	December 31, 2022
(Dollars in thousands)	1-6		7		8

Loan Segment	Pass		Special mention		Substandard		Total
Residential real estate	$	477,222	$	1,338	$	6,035	$	484,595
Home equity		37,981		385		612		38,978
Commercial real estate		474,055		4,955		7,421		486,431
Construction and land development		106,580		2,346		-		108,926
Multifamily		242,091		1,859		7,064		251,014
Commercial business		90,694		703		1,881		93,278
Consumer		918		-		-		918
Manufactured homes		34,882		-		-		34,882
Government		9,549		-		-		9,549
Total	$	1,473,972	$	11,586	$	23,013	$	1,508,571

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

1 – Superior Quality

Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free.

2 – Excellent Quality

The borrower generates excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over 15 years’ experience. Current and debt to tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent.

3 – Great Quality

The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average.

4 – Above Average Quality

The borrower generates more than sufficient cash flow to fund debt service but cash flow trends may be stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average.

5 – Average Quality

Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends may be inconsistent or fluctuating. Average credit scores are satisfactory and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average.

6 – Pass

Borrowers are considered credit worthy but financial condition may show signs of weakness due to internal or external factors. Cash flow trends may be declining annually. Average credit scores may be low but remain acceptable. Borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and collateral condition is average.

7 – Special Mention

A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these 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 an institution to sufficient risk to warrant adverse classification. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely.

Loans in this category may exhibit some of the following risk factors. Cash flow trends may be consistently declining or may be questionable. Debt coverage ratios may be at or near 1:1. Average credit scores may be very weak or the borrower may have minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios may be very weak. Loan to value may be at policy limits or may exceed policy limits. Collateral condition may be below average.

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

9 – Doubtful

Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

10 – Loss

Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.

Performing loans are loans that are paying as agreed and are approximately less than ninety days past due on payments of interest and principal.

Non-performing loans include those loans that are 90 days or more past due and those loans that have

been placed on non-accrual status.

Loan Modification Disclosures Pursuant to ASU 2022-02

The following table shows the amortized cost of loans at September 30, 2023, that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

	For the three months ended September 30, 2023
(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		% of Total Segment Financing Receivables
Home Equity	$	-	$	16	$	-	$	-		0.03	%
Total	$	-	$	16	$	-	$	-		0.00	%

	For the nine months ended September 30, 2023
(Dollars in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Interest Rate Reduction		% of Total Segment Financing Receivables
Residential Real Estate	$	-	$	878	$	-	$	-		0.18	%
Home Equity	$	-	$	16	$	-	$	-		0.03	%
Total	$	-	$	894	$	-	$	-		0.06	%

There were no commitments to lend additional amounts to the borrowers included in the previous table.

The Bancorp closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans and leases that have been modified during the nine months ended September 30, 2023.

(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due
Residential Real Estate	$	878	$	-	$	-	$	-
Home Equity	$	16	$	-	$	-	$	-
Total	$	894	$	-	$	-	$	-

The borrowers with term extension have had their maturity dates extended and as a result their monthly payments were reduced.

Upon the Bancorp’s determination that a modified loan has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02

During the nine months ending September 30, 2022, nine residential real estate loans totaling $1.5 million, one commercial real estate loan totaling $1.4 million, and one home equity loan totaling $5 thousand, were modified to include deferral of principal resulting in troubled debt restructuring classification. No trouble debt restructuring loans had subsequently defaulted during the nine months ending September 30, 2022. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

Acquired Loan Purchase Discounts

As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $5.8 million at September 30, 2023, compared to $5.5 million at December 31, 2022.

Accretable yield, or income recorded for the three months ended September 30, is as follows:

(dollars in thousands)	Total
2022	$	176
2023		244

Accretable yield, or income recorded for the nine months ended September 30, is as follows:

(dollars in thousands)	Total
2022	$	723
2023		486

Accretable yield, or income expected to be recorded in the future is as follows:

(dollars in thousands)	Total
Remainder 2023		194
2024		768
2025		689
2026		466
2027 and thereafter		3,679
Total	$	5,796

AllowanceforCreditLosses

The allowance for credit losses is established for current expected credit losses on the Bancorp’s loan and lease portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326. The Bancorp adopted ASU 2016-13 on January 1, 2023. Therefore, September 30, 2022, provision for credit losses and other allowance for loan and lease loss disclosures for the three and nine months ended September 30, 2022, were calculated under the incurred loss method.

The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Bancorp estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Bancorp’s outstanding loan and lease balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Bancorp’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.

The Bancorp categorizes the loan portfolios into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD). In creating the CECL model, the Bancorp has established a two-year reasonable and supportable forecast period with a one-year straight line reversion to the long-term historical average. Due to its minimal loss history, the Bancorp elected to use peer data for a more reasonable calculation. The following table shows the changes in the allowance for loan and lease losses, segregated by portfolio segment, for the three and nine months ended September 30, 2023, and 2022.

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for the three months ended September 30, 2023:

(Dollars in thousands)	Beginning Balance		Adoption of ASC 326		PCD Gross-up		Charge-offs			Recoveries		Provisions			Ending Balance

Allowance for credit losses:
Residential real estate	$	4,854	$	-	$	-	$	-		$	11	$	(154	)	$	4,711
Home equity		680		-		-		-			-		41			721
Commercial real estate		7,031		-		-		1			1		426			7,459
Construction and land development		3,599		-		-		-			-		(195	)		3,404
Multifamily		1,020		-		-		-			45		(115	)		950
Commercial business		2,050		-		-		(622	)		18		463			1,909
Consumer		57		-		-		(20	)		1		18			56
Manufactured homes		166		-		-		-			-		(12	)		154
Government		50		-		-		-			-		16			66
Total	$	19,507	$	-	$	-	$	(641	)	$	76	$	488		$	19,430

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2022:

Allowance for loan losses:
Residential real estate	$	2,756	$	-	$	-	$	-		$	8	$	246		$	3,010
Home equity		373		-		-		-			-		22			395
Commercial real estate		5,527		-		-		-			-		(27	)		5,500
Construction and land development		1,744		-		-		-			-		(229	)		1,515
Multifamily		1,128		-		-		-			-		108			1,236
Commercial business		1,808		-		-		(57	)		50		(100	)		1,701
Consumer		70		-		-		(13	)		4		(20	)		41
Manufactured homes		-		-		-		-			-		-			-
Government		-		-		-		-			-		-			-
Total	$	13,406	$	-	$	-	$	(70	)	$	62	$	-		$	13,398

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for the nine months ended September 30, 2023:

Allowance for credit losses:
Residential real estate	$	3,021	$	1,688	$	535	$	-		$	74	$	(607	)	$	4,711
Home equity		410		99		29		-			-		183			721
Commercial real estate		5,784		1,003		443		(371	)		2		598			7,459
Construction and land development		1,253		1,735		-		-			-		416			3,404
Multifamily		1,007		141		-		-			131		(329	)		950
Commercial business		1,365		320		5		(1,065	)		166		1,118			1,909
Consumer		57		5		17		(60	)		7		30			56
Manufactured homes		-		112		-		-			-		42			154
Government		-		55		-		-			-		11			66
Total	$	12,897	$	5,158	$	1,029	$	(1,496	)	$	380	$	1,462		$	19,430

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2022:

Allowance for loan losses:
Residential real estate	$	2,480	$	-	$	-	$	-		$	58	$	472		$	3,010
Home equity		357		-		-		-			-		38			395
Commercial real estate		5,515		-		-		-			-		(15	)		5,500
Construction and land development		2,119		-		-		-			-		(604	)		1,515
Multifamily		848		-		-		-			-		388			1,236
Commercial business		2,009		-		-		(57	)		88		(339	)		1,701
Consumer		15		-		-		(50	)		16		60			41
Manufactured homes		-		-		-		-			-		-			-
Government		-		-		-		-			-		-			-
Total	$	13,343	$	-	$	-	$	(107	)	$	162	$	-		$	13,398

A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. In evaluating the overall risk associated with the loan, the Bancorp considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent.

The table below presents the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses.

(Dollars in thousands)	September 30, 2023
Commercial	Real Estate		Accounts Receivable		Other		Total		ACL Allocation
Commercial real estate	$	2,441	$	-	$	-	$	2,441	$	61
Multifamily		1,483		-		-		1,483		-
Commercial business		-		1,612		298		1,910		493
	$	3,924	$	1,612	$	298	$	5,834	$	554

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectations, the deferred cost reserve is paid as a premium to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $4.0 million and $4.6 million as of September 30, 2023, and December 31, 2022, respectively, and is included in net deferred loan origination cost.

The following table presents non–accrual loans, and loans past due over 90 days still on accrual by class of loans:

As of September 30, 2023	Nonaccrual with No Allowance for Credit Loss		Nonaccrual		Loans Past Due over 90 Days Still Accruing
Residential real estate	$	1,065	$	4,749	$	11
Home equity		183		430		-
Commercial real estate		759		239		222
Construction and land development		-		-		-
Multifamily		948		-		-
Commercial business		-		1,465		-
Consumer		-		2		-
Manufactured homes		-		-		-
Government		-		-		-
Total	$	2,955	$	6,885	$	233

The Bancorp's impairment analysis is summarized below:

	Ending Balances

(Dollars in thousands)	Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Individually evaluated for impairment		Purchased credit impaired individually evaluated for impairment		Collectively evaluated for impairment

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2022:

Residential real estate	$	24	$	2,997	$	484,595	$	1,518	$	988	$	482,089
Home equity		3		407		38,978		294		125		38,559
Commercial real estate		13		5,771		486,431		2,392		2,935		481,104
Construction and land development		-		1,253		108,926		-		-		108,926
Multifamily		-		1,007		251,014		6,739		382		243,893
Commercial business		297		1,068		93,278		1,758		953		90,567
Consumer		-		57		918		-		17		901
Manufactured homes		-		-		34,882		-		-		34,882
Government		-		-		9,549		-		-		9,549
Total	$	337	$	12,560	$	1,508,571	$	12,701	$	5,400	$	1,490,470

							For the nine months ended				For the three months ended
	As of December 31, 2022						September 30, 2022				September 30, 2022
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,683	$	3,017	$	-	$	2,596	$	206	$	2,563	$	51
Home equity		262		275		-		216		14		178		1
Commercial real estate		765		765		-		2,932		196		3,677		(24	)
Construction & land development		-		-		-		430		13		400		13
Multifamily		556		647		-		2,454		86		2,872		24
Farmland		-		-		-		-		-		-		-
Commercial business		1,205		1,324		-		1,137		79		1,048		3
Consumer		-		-		-		15		1		20		1
Manufactured homes		-		-		-		-		-		-		-
Government		-		-		-		-		-		-		-
														-
With an allowance recorded:														-
Residential real estate	$	88	$	88	$	17	$	179	$	5	$	272	$	(4	)
Home equity		22		22		4		21		1		21		-
Commercial real estate		835		835		386		844		-		846		-
Construction & land development		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-
Farmland		-		-		-		-		-		-		-
Commercial business		392		392		277		332		14		311		(2	)
Consumer		-		-		-		-		-		-		-
Manufactured homes		-		-		-		-		-		-		-
Government		-		-		-		-		-		-		-

Total:
Residential real estate	$	1,771	$	3,105	$	17	$	2,775	$	211	$	2,835	$	47
Home equity	$	284	$	297	$	4	$	237	$	15	$	199	$	1
Commercial real estate	$	1,600	$	1,600	$	386	$	3,776	$	196	$	4,523	$	(24	)
Construction & land development	$	-	$	-	$	-	$	430	$	13	$	400	$	13
Multifamily	$	556	$	647	$	-	$	2,454	$	86	$	2,872	$	24
Farmland	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,597	$	1,716	$	277	$	1,469	$	93	$	1,359	$	1
Consumer	$	-	$	-	$	-	$	15	$	1	$	20	$	1
Manufactured homes	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Accrued interest receivable on loans totaled $5.4 million and is excluded from the estimate of credit losses. The Bancorp made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income.

Liability for Credit Losses on Unfunded Loan Commitments

The liability for credit losses inherent in unfunded loan commitments is included in accrued expenses and other liabilities on the Consolidated Balance Sheet. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table shows the changes in the liability for credit losses on unfunded loan commitments.

	Three months ended,
	September 30,
(Dollars in thousands)	2023
Balance, beginning of period	$	3,136
Provision (recovery of provision)		(244	)
Balance, end of period	$	2,892

	Nine months ended,
	September 30,
(Dollars in thousands)	2023
Balance, beginning of period	$	-
Adoption of ASC 326		3,108
Provision (recovery of provision)		(216	)
Balance, end of period	$	2,892