Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 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)	March 31, 2024		December 31, 2023
Commercial:
Business	$	742,369	$	797,100
Real estate	681,067		670,584
Acquisition, development and construction	144,261		134,004
Total commercial	1,567,697		1,601,688
Residential real estate	660,444		672,547
Home equity lines of credit	13,369		14,531
Consumer	24,681		27,408
Total loans	2,266,191		2,316,174
Deferred loan origination costs, net	1,119		1,420
Loans receivable	$	2,267,310	$	2,317,594

We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments. 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 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 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 constructed units may not be absorbed by the market 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.

Residential real estate – This residential real estate subsegment 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 borrower’s, and where applicable, the builder’s, continuing financial stability, 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 constructed units may not be absorbed by the market 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.

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 for sub-prime borrowers. Credit risk is unique in comparison to the Consumer segment as this segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan.

As of March 31, 2024, the Bank’s other real estate owned balance totaled $0.8 million, all of which was related to our acquisition of The First State Bank (“First State”) in 2020. The other real estate owned balance consisted of two unrelated commercial properties. As of March 31, 2024, there was one residential mortgage in the process of foreclosure with loan balances totaling $0.2 million.

Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six 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 weakness inherent in those classified 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 40% to 45% 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)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Commercial business:
Risk rating:
Pass	$	11,058	$	148,499	$	230,313	$	71,110	$	30,347	$	119,528	$	85,322	$	—	$	696,177
Special Mention	—		—		29,776		185		817		4,094		—		—		34,872
Substandard	—		1,250		1,227		691		—		4,349		808		—		8,325
Doubtful	—		—		924		779		264		1,028		—		—		2,995
Total commercial business loans	$	11,058	$	149,749	$	262,240	$	72,765	$	31,428	$	128,999	$	86,130	$	—	$	742,369
Gross charge-offs	$	—	$	—	$	614	$	—	$	—	$	367	$	—	$	—	$	981
Commercial real estate:
Risk rating:
Pass	$	37,733	$	112,029	$	134,778	$	191,268	$	11,813	$	131,047	$	518	$	—	$	619,186
Special Mention	—		—		—		25,919		—		17,150		—		—		43,069
Substandard	—		—		—		—		—		18,812		—		—		18,812
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	37,733	$	112,029	$	134,778	$	217,187	$	11,813	$	167,009	$	518	$	—	$	681,067
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial acquisition, development and construction:
Risk rating:
Pass	$	5,146	$	6,592	$	56,763	$	30,552	$	23,656	$	3,692	$	2,500	$	—	$	128,901
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		14,652		—		708		—		—		15,360
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial acquisition, development and construction loans	$	5,146	$	6,592	$	56,763	$	45,204	$	23,656	$	4,400	$	2,500	$	—	$	144,261
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential Real Estate:
Risk rating:
Pass	$	8,946	$	56,959	$	417,220	$	104,709	$	34,748	$	28,585	$	2,705	$	—	$	653,872
Special Mention	—		—		—		—		4,118		1,161		—		—		5,279
Substandard	—		—		—		—		81		787		120		—		988
Doubtful	—		—		—		211		—		94		—		—		305
Total residential real estate loans	$	8,946	$	56,959	$	417,220	$	104,920	$	38,947	$	30,627	$	2,825	$	—	$	660,444
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Home equity lines of credit:
Risk rating:
Pass	$	—	$	58	$	36	$	—	$	—	$	11	$	12,828	$	—	$	12,933
Special Mention	—		—		—		—		—		—		271		—		271
Substandard	—		—		—		—		—		—		165		—		165
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity lines of credit loans	$	—	$	58	$	36	$	—	$	—	$	11	$	13,264	$	—	$	13,369
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Risk rating:
Pass	$	—	$	2,040	$	17,093	$	5,243	$	—	$	55	$	30	$	—	$	24,461
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		21		189		10		—		—		—		—		220
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	—	$	2,061	$	17,282	$	5,253	$	—	$	55	$	30	$	—	$	24,681
Gross charge-offs	$	—	$	189	$	833	$	147	$	—	$	—	$	—	$	—	$	1,169
Total:
Risk rating:
Pass	$	62,883	$	326,177	$	856,203	$	402,882	$	100,564	$	282,918	$	103,903	$	—	$	2,135,530
Special Mention	—		—		29,776		26,104		4,935		22,405		271		—		83,491
Substandard	—		1,271		1,416		15,353		81		24,656		1,093		—		43,870
Doubtful	—		—		924		990		264		1,122		—		—		3,300
Total loans	$	62,883	$	327,448	$	888,319	$	445,329	$	105,844	$	331,101	$	105,267	$	—	$	2,266,191
Gross charge-offs	$	—	$	189	$	1,447	$	147	$	—	$	367	$	—	$	—	$	2,150

	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
December 31, 2023
Commercial business:
Risk rating:
Pass	$	176,309	$	251,265	$	92,307	$	64,964	$	50,765	$	90,355	$	20,315	$	—	$	746,280
Special Mention	990		32,342		72		830		339		3,767		—		—		38,340
Substandard	368		988		521		—		4,640		1,436		—		—		7,953
Doubtful	—		2,022		839		264		—		1,402		—		—		4,527
Total commercial business loans	$	177,667	$	286,617	$	93,739	$	66,058	$	55,744	$	96,960	$	20,315	$	—	$	797,100
Gross charge-offs	$	—	$	228	$	1,250	$	141	$	—	$	2,953	$	—	$	—	$	4,572
Commercial real estate:
Risk rating:
Pass	$	80,553	$	149,189	$	205,651	$	11,952	$	26,438	$	101,322	$	51,239	$	—	$	626,344
Special Mention	—		—		7,961		—		6,079		11,201		—		—		25,241
Substandard	—		—		—		—		—		18,999		—		—		18,999
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	80,553	$	149,189	$	213,612	$	11,952	$	32,517	$	131,522	$	51,239	$	—	$	670,584
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial acquisition, development and construction:
Risk rating:
Pass	$	6,546	$	54,170	$	29,535	$	22,041	$	—	$	1,483	$	4,823	$	—	$	118,598
Special Mention	—		—		14,652		—		—		—		—		—		14,652
Substandard	—		—		—		—		—		754		—		—		754
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial acquisition, development and construction loans	$	6,546	$	54,170	$	44,187	$	22,041	$	—	$	2,237	$	4,823	$	—	$	134,004
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential Real Estate:
Risk rating:
Pass	$	33,867	$	413,466	$	96,413	$	38,169	$	7,306	$	21,313	$	50,815	$	—	$	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	$	33,867	$	414,454	$	100,177	$	42,475	$	7,866	$	22,893	$	50,815	$	—	$	672,547
Gross charge-offs	$	—	$	—	$	—	$	—	$	19	$	381	$	—	$	—	$	400

	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
December 31, 2023
Home equity lines of credit:
Risk rating:
Pass	$	638	$	3,798	$	1,779	$	1,192	$	501	$	3,084	$	3,154	$	—	$	14,146
Special Mention	—		61		—		36		—		41		86		—		224
Substandard	—		83		—		78		—		—		—		—		161
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity lines of credit loans	$	638	$	3,942	$	1,779	$	1,306	$	501	$	3,125	$	3,240	$	—	$	14,531
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Risk rating:
Pass	$	2,275	$	18,926	$	5,753	$	9	$	28	$	53	$	20	$	—	$	27,064
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	20		266		58		—		—		—		—		—		344
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	2,295	$	19,192	$	5,811	$	9	$	28	$	53	$	20	$	—	$	27,408
Gross charge-offs	$	1,144	$	10,608	$	1,753	$	—	$	—	$	2	$	—	$	—	$	13,507
Total:
Risk rating:
Pass	$	300,188	$	890,814	$	431,438	$	138,327	$	85,038	$	217,610	$	130,366	$	—	$	2,193,781
Special Mention	990		32,403		22,685		5,090		6,832		15,717		86		—		83,803
Substandard	388		2,325		4,343		160		4,786		21,966		—		—		33,968
Doubtful	—		2,022		839		264		—		1,497		—		—		4,622
Total loans	$	301,566	$	927,564	$	459,305	$	143,841	$	96,656	$	256,790	$	130,452	$	—	$	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)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing		Non Accrual with No Credit Loss		Interest Income Recognized
March 31, 2024
Commercial
Business	$	735,578	$	3,088	$	549	$	3,154	$	6,791	$	742,369	$	4,859	$	—	$	1,983	$	—
Real estate	678,997		2,070		—		—		2,070		681,067		—		—		—		—
Acquisition, development and construction	129,609		—		14,652		—		14,652		144,261		708		—		708		—
Total commercial	1,544,184		5,158		15,201		3,154		23,513		1,567,697		5,567		—		2,691		—
Residential real estate	658,397		125		324		1,598		2,047		660,444		1,678		—		404		—
Home equity lines of credit	13,264		105		—		—		105		13,369		81		—		—		—
Consumer	22,538		1,513		410		220		2,143		24,681		220		—		—		—
Total loans	$	2,238,383	$	6,901	$	15,935	$	4,972	$	27,808	$	2,266,191	$	7,546	$	—	$	3,095	$	—
December 31, 2023
Commercial
Business	$	788,430	$	4,728	$	448	$	3,494	$	8,670	$	797,100	$	6,926	$	—	$	1,825	$	—
Real estate	670,170		—		414		—		414		670,584		—		—		—		—
Acquisition, development and construction	134,004		—		—		—		—		134,004		754		—		754		—
Total commercial	1,592,604		4,728		862		3,494		9,084		1,601,688		7,680		—		2,579		—
Residential real estate	670,539		1,671		337		—		2,008		672,547		82		—		—		—
Home equity lines of credit	14,522		9		—		—		9		14,531		161		—		—		—
Consumer	24,494		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 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 March 31, 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 Estate		Vehicles and Equipment		Assignment of Cash Flow		Accounts Receivable		Other		Totals		Allowance for Credit Losses
March 31, 2024
Commercial
Business	$	16,209	$	2,732	$	—	$	442	$	695	$	20,078	$	2,958
Real estate	—		—		—		—		—		—		—
Acquisition, development and construction	—		—		—		—		—		—		—
Total commercial	$	16,209	$	2,732	$	—	$	442	$	695	$	20,078	$	2,958
Residential	1,387		—		—		—		—		1,387		35
Home equity lines of credit	—		—		—		—		—		—		—
Consumer	—		220		—		—		—		220		146
Total	$	17,596	$	2,952	$	—	$	442	$	695	$	21,685	$	3,139
Collateral value	$	34,924	$	2,393	$	—	$	38	$	—	$	37,355
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 March 31, 2024 and December 31, 2023.

Management has identified a number of additional qualitative factors which 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 March 31, 2024 and December 31, 2023, the liability for unfunded commitments related to loans held-for-investment was $1.0 million.

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 all or part of specific loans to be 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:

	Commercial								Residential		Home Equity		Consumer		Total
(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial
ACL 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 losses	1,297		365		447		2,109		(145)		(8)		39		1,995
Charge-offs	(981)		—		—		(981)		—		—		(1,169)		(2,150)
Recoveries	42		8		—		50		35		1		749		835
ACL at March 31, 2024	$	8,289	$	3,304	$	2,121	$	13,714	$	6,302	$	90	$	2,698	$	22,804

	Commercial								Residential		Home Equity		Consumer		Total
(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial
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 deterioration	710		—		—		710		507		—		—		1,217
Provision (release of allowance) for credit losses	681		313		288		1,282		364		(8)		2,817		4,455
Charge-offs	(141)		—		—		(141)		(22)		—		(4,684)		(4,847)
Recoveries	23		6		—		29		—		1		3,139		3,169
ACL balance at March 31, 2023	$	9,918	$	3,177	$	1,640	$	14,735	$	7,618	$	119	$	13,041	$	35,513

During the three months ended March 31, 2024, there were charge offs totaling $2.2 million. For the three months ended March 31, 2024, $1.2 million, or 55%, of charge offs were related to the subprime consumer automotive segment, $0.6 million, or 27%, was related to a commercial note secured by business assets and $0.4 million, or 18%, was related to a commercial note secured by heavy equipment. During the three months ended March 31, 2024, the provision related to unfunded commitments was not significant.

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 Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Total		Total Class of Financing Receivable
March 31, 2024
Commercial
Business	$	—	$	1,377	$	—	$	—	$	1,377	—	%
Real estate	—		—		—		—		—		—	%
Total commercial	—		1,377		—		—		1,377		—	%
Residential	—		—		—		—		—		—	%
Home equity lines of credit	—		—		—		—		—		—	%
Consumer	—		—		—		—		—		—	%
Total	$	—	$	1,377	$	—	$	—	$	1,377	—	%

The above table presents the amortized cost basis of loans at March 31, 2024 that were experiencing financial difficulty and modified during the three months ended March 31, 2024, by class and by type of modification. Also presented above is the percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable. Six loans to six borrowers received payment delay modifications in the three months ended March 31, 2024, including six commercial loans with government guarantees totaling $1.4 million. There were no loans that were experiencing financial difficulty and modified during the three months ended March 31, 2023.

The Bank closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. 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. There were no loans that had a payment default and were modified prior to that default to borrowers experiencing financial difficulty in the three months ended March 31, 2024 and March 31, 2023.