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Loans
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Loans Loans
The following table presents the composition of loans segregated by class of loans, as of September 30, 2023 and December 31, 2022.
(dollars in thousands)September 30, 2023December 31, 2022
Construction, land & land development$245,268 $229,435 
Other commercial real estate969,168 975,447 
Total commercial real estate1,214,436 1,204,882 
Residential real estate339,501 290,054 
Commercial, financial & agricultural 252,725 223,923 
Consumer and other58,309 18,247 
Total Loans$1,864,971 $1,737,106 
Included in the above table are government guaranteed loans totaling $82.4 million at September 30, 2023 and $58.4 million at December 31, 2022. The following table presents the composition of government guaranteed loans segregated by class of loans for each respective period.

(dollars in thousands)September 30, 2023December 31, 2022
Construction, land & land development$7,665 $5,888 
Other commercial real estate35,316 32,642 
Total commercial real estate42,981 38,530 
Residential real estate11,757 8,036 
Commercial, financial & agricultural 27,645 11,787 
Consumer and other— — 
Total Loans$82,383 $58,353 

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this note. As of September 30, 2023 and December 31, 2022, accrued interest receivable for loans totaled $8.5 million and $6.8 million, respectively, and is included in the "other assets" line item on the Company’s consolidated balance sheet.

Commercial, financial & agricultural loans are extended to a diverse group of businesses within the Company’s market area. These loans are often underwritten based on the borrower’s ability to service the debt from income from the business. Real estate construction loans often require loan funds to be advanced prior to completion of the project. Due to uncertainties
inherent in estimating construction costs, changes in interest rates and other economic conditions, these loans often pose a higher risk than other types of loans. Consumer and other loans are originated at the Bank level.
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio, management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4) nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. A description of the general characteristics of the grades is as follows:
•Grades 1, 2 and 3 - Borrowers with these assigned risk grades range from virtual absence of risk to minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or properly margined equity securities or bonds. Other loans comprising these grades are made to companies that have been in existence for a long period of time with many years of consecutive profits and strong equity, good liquidity, excellent debt service ability and unblemished past performance, or to exceptionally strong individuals with collateral of unquestioned value that fully secures the loans. Loans in this category fall into the “pass” classification.
•Grades 4 and 5 - Loans assigned these “pass” risk grades are made to borrowers with acceptable credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment capacity and collateral protection to acceptable loans with one or more risk factors considered to be more than average. These loans are also included in into the “pass” classification.
•Grade 6 - This grade includes “special mention” loans on management’s watch list and is intended to be used on a temporary basis for pass grade loans where risk-modifying action is intended in the short-term.
•Grades 7 and 8 - These grades includes “substandard” loans in accordance with regulatory guidelines. This category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in accordance with the agreed terms. Loans considered to be impaired are assigned grade 8, and these loans often have assigned loss allocations as part of the allowance for credit losses. Generally, loans on which interest accrual has been stopped would be included in this grade.
•Grades 9 and 10 - These grades correspond to regulatory classification definitions of “doubtful” and “loss,” respectively. In practice, any loan with these grades would be for a very short period of time, and generally the Company has no loans with these assigned grades. Management manages the Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are charged off immediately with any residual, collectible amounts assigned a risk grade of 7 or 8. 
The following table presents the loan portfolio segregated by class of loans and the risk category of term loans by vintage year, which is the year of origination or most recent renewal, as of September 30, 2023. Those loans with a risk grade of 1, 2, 3, 4 and 5 have been combined in the pass column for presentation purposes. There were no loans with a risk rating of "doubtful" or "loss" at September 30, 2023.
Term Loans Amortized Cost Basis by Origination Year
(dollars in thousands)20232022202120202019PriorRevolversRevolvers converted to term loansTotal
September 30, 2023
Construction, land & land development
Risk rating
Pass$93,480 $105,461 $27,729 $7,808 $1,031 $5,955 $2,535 $31 $244,030 
Special Mention— — 25 — — 33 — — 58 
Substandard— 883 5 — 21 146 125 — 1,180 
Total Construction, land & land development93,480 106,344 27,759 7,808 1,052 6,134 2,660 31 245,268 
  Current period gross write offs$— $— $— $— $— $— $— $— $— 
Other commercial real estate
Risk rating
Pass40,254 340,854 208,444 92,693 84,083 155,802 25,603 1,079 948,812 
Special Mention— 802 419 2,128 4,550 4,696 35 — 12,630 
Substandard— 4,423 287 — — 2,758 258 — 7,726 
Total Other commercial real estate40,254 346,079 209,150 94,821 88,633 163,256 25,896 1,079 969,168 
Current period gross write offs— — — — — — — — — 
Residential real estate
Risk rating
Pass55,868 119,728 52,516 23,033 9,108 45,226 20,809 — 326,288 
Special Mention296 809 309 51 555 4,461 98 — 6,579 
Substandard253 838 208 271 277 4,777 10 — 6,634 
Total Residential real estate56,417 121,375 53,033 23,355 9,940 54,464 20,917 — 339,501 
Current period gross write offs— — — — — — — — — 
Commercial, financial & agricultural
Risk rating
Pass62,802 57,302 25,445 14,308 5,415 14,495 56,939 318 237,024 
Special Mention8,471 544 311 390 25 33 826 — 10,600 
Substandard215 88 4,190 129 30 326 98 25 5,101 
Total Commercial, financial & agricultural71,488 57,934 29,946 14,827 5,470 14,854 57,863 343 252,725 
Current period gross write offs— 692 404 — — 61 — — 1,157 
Consumer and other
Risk rating
Pass47,123 4,622 2,381 1,483 1,017 1,004 445 — 58,075 
Special Mention77 4 43 14 31 2 — — 171 
Substandard16 23 2 7 5 10 — — 63 
Total Consumer and other47,216 4,649 2,426 1,504 1,053 1,016 445 — 58,309 
Current period gross write offs— 12 1 4 — — — — 17 
Total Loans
Risk rating
Pass299,527 627,968 316,516 139,324 100,653 222,484 106,330 1,428 1,814,230 
Special Mention8,844 2,158 1,108 2,583 5,161 9,224 959 — 30,037 
Substandard484 6,255 4,692 406 333 8,018 491 25 20,704 
Total Loans$308,855 $636,381 $322,316 $142,313 $106,147 $239,726 $107,780 $1,453 $1,864,971 
Total current period gross write offs$— $705 $404 $4 $— $61 $— $— $1,174 
The following table presents the loan portfolio by credit quality indicator (risk grade) as of December 31, 2022. Those loans with a risk grade of 1, 2, 3, 4 and 5 have been combined
in the pass column for presentation purposes. There were no loans with a risk rating of "doubtful" or "loss" at December 31, 2022.
(dollars in thousands)Special
December 31, 2022PassMentionSubstandardTotal
Construction, land & land development$228,494 $290 $651 $229,435 
Other commercial real estate951,126 17,562 6,759 975,447 
Total commercial real estate1,179,620 17,852 7,410 1,204,882 
Residential real estate277,930 6,574 5,550 290,054 
Commercial, financial & agricultural220,908 885 2,130 223,923 
Consumer and other18,157 54 $36 18,247 
Total Loans$1,696,615 $25,365 $15,126 $1,737,106 
A loan’s risk grade is assigned at loan origination and is based on the financial strength of the borrower and the type of collateral. Loan risk grades are subject to review at various times throughout the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of six or below and an outstanding balance of $500,000 or more are reassessed on a quarterly basis. During this reassessment process individual reserves may be identified and placed against certain loans which are not considered impaired.
In assessing the overall economic condition of the markets in which it operates, the Company monitors the unemployment rates for its major service areas. The unemployment rates are reviewed on a quarterly basis as part of the allowance for credit loss determination.
Loans are placed on nonaccrual status if principal or interest payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory guidelines. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due.
Collateral-Dependent Loans
We classify a loan as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of collateral. Our commercial loans have collateral that is comprised of real estate and business assets. Our consumer loans have collateral that is substantially comprised of residential real estate.
There were no significant changes in the extent to which collateral secures our collateral-dependent loans during the three and nine month periods ended September 30, 2023.
The following table presents the aging of the amortized cost basis of loans by aging category and accrual status as of September 30, 2023 and December 31, 2022:
(dollars in thousands)30-89 Days
Past Due		90 Days
or More
Past Due		Total Accruing
Loans Past Due		Nonaccrual
Loans		Current LoansTotal Loans
September 30, 2023
Construction, land & land development$— $— $— $92 $245,176 $245,268 
Other commercial real estate469 — 469 1,589 967,110 969,168 
Total commercial real estate469 — 469 1,681 1,212,286 1,214,436 
Residential real estate1,185 — 1,185 3,289 335,027 339,501 
Commercial, financial & agricultural131 — 131 4,275 248,319 252,725 
Consumer and other14 9 23 21 58,265 58,309 
Total Loans$1,799 $9 $1,808 $9,266 $1,853,897 $1,864,971 
December 31, 2022
Construction, land & land development$— $— $— $149 $229,286 $229,435 
Other commercial real estate395 — 395 1,509 973,543 975,447 
Total commercial real estate395 — 395 1,658 1,202,829 1,204,882 
Residential real estate882 — 882 2,686 286,486 290,054 
Commercial, financial & agricultural476 — 476 1,341 222,106 223,923 
Consumer and other40 — 40 21 18,186 18,247 
Total Loans$1,793 $— $1,793 $5,706 $1,729,607 $1,737,106 

The following table is a summary of the Company's nonaccrual loans by major categories for the periods indicated.
September 30, 2023
(dollars in thousands)Nonaccrual Loans with No Related ACLNonaccrual Loans with a Related ACLTotal Nonaccrual Loans
Construction, land & land development$28 $64 $92 
Other commercial real estate784 805 1,589 
Total commercial real estate812 869 1,681 
Residential real estate328 2,961 3,289 
Commercial, financial & agricultural620 3,655 4,275 
Consumer and other— 21 21 
Total Loans$1,760 $7,506 $9,266 
The following table details impaired loan data, including purchased credit impaired loans, as of December 31, 2022.
December 31, 2022
(dollars in thousands)Unpaid
Contractual
Principal
Balance		Recorded InvestmentRelated
Allowance		Average
Recorded
Investment
With No Related Allowance Recorded
Construction, land & land development$40 $40 $— $10 
Other commercial real estate3,754 3,754 — 5,311 
Residential real estate62 62 — 570 
Commercial, financial & agricultural— — — 306 
Consumer and other— — — 1 
3,856 3,856 — 6,198 
With An Allowance Recorded
Construction, land & land development474 474 44 177 
Other commercial real estate— — — 503 
Residential real estate— — — 588 
Commercial, financial & agricultural— — — 369 
Consumer and other— — — — 
474 474 44 1,637 
Purchased Credit Impaired Loans
Construction, land & land development— — — — 
Other commercial real estate798 798 33 760 
Residential real estate— — — 13 
Commercial, financial & agricultural— — — — 
Consumer and other— — — 65 
798 798 33 838 
Total
Construction, land & land development514 514 44 187 
Other commercial real estate4,552 4,552 33 6,574 
Residential real estate62 62 — 1,171 
Commercial, financial & agricultural— — — 675 
Consumer and other— — — 66 
$5,128 $5,128 $77 $8,673 
Interest income recorded on nonaccrual loans during the three and nine months ended September 30, 2023 was $55,000 and $265,000, respectively. Interest income recorded on nonaccrual and TDR loans during the three and nine months ended September 30, 2022 was $165,000 and $380,000, respectively.
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. Upon the Company's determination that a modified loan, or portion of a loan, has subsequently been deemed uncollectible, the loan, or portion of the loan, is written off.
The following table presents loans modified due to a financial difficulty under the above terms during the three and nine months ended September 30, 2023.
Loans modified due to financial difficulty
(dollars in thousands)Term ExtensionTerm Extension and Payment DelayTotal*
Residential real estate$13 $— $13 
Commercial, financial & agricultural— 10 10 
Total Loans$13 $10 $23 
*less than .01% of total class of receivable
There was one loan in each of the above categories. The residential real estate loan had a term extension of two years. The commercial, financial & agricultural loan had a term extension of two years and was given a payment delay.
Prior to the adoption of ASU 2022-02 on January 1, 2023, the restructuring of a loan was considered a troubled debt restructuring ("TDR") if both the borrower was experiencing financial difficulties and the Company had granted a concession to the terms of the loan. Concessions may have included interest rate reductions to below market interest rates, principal forgiveness, restructured amortization schedules and other actions intended to minimize potential losses.
As discussed in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2022, which are included in the Company’s 2022 Form 10-K, once a loan was identified as a TDR, it was accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that had a troubled debt restructured loan as of December 31, 2022 and September 30, 2022. Loans modified in a TDR were considered to be in default once the loan became 90 days past due. A TDR ceased being classified as impaired if the loan was subsequently modified at market terms and, had performed according to the modified terms for at least six months, and there had not been any prior principal forgiveness on a cumulative basis.
The Company had no loans that subsequently defaulted during the three and nine month periods ended September 30, 2022 and for the year ended December 31, 2022.