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ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
 9 Months Ended
Sep. 30, 2023
ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY  
ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance. A formal evaluation of the adequacy of the credit loss allowance is conducted monthly. The ultimate recovery of all loans is susceptible to future market factors beyond the Company’s control.
The level of credit loss provision is influenced by growth in the overall loan portfolio, emerging market risk, emerging concentration risk, commercial loan focus and large credit concentration, new industry lending activity, general economic conditions and historical loss analysis. In addition, management gives consideration to changes in the facts and circumstances
of watch list credits, which includes the security position of the borrower, in determining the appropriate level of the credit loss provision. Furthermore, management’s overall view on credit quality is a factor in the determination of the provision.
The determination of the appropriate allowance is inherently subjective, as it requires significant estimates by management. The Company has an established process to determine the adequacy of the allowance for credit losses that generally includes consideration of changes in the nature and volume of the loan portfolio and overall portfolio quality, along with current and forecasted economic conditions that may affect borrowers’ ability to repay. Consideration is not limited to these factors although they represent the most commonly cited factors. To determine the specific allocation levels for individual credits, management considers the current valuation of collateral and the amounts and timing of expected future cash flows as the primary measures. Management also considers trends in adversely classified loans based upon an ongoing review of those credits. With respect to pools of similar loans, an appropriate level of general allowance is determined by portfolio segment using a probability of default-loss given default (“PD/LGD”) model, subject to a floor. A default can be triggered by one of several different asset quality factors, including past due status, nonaccrual status, material modification status or if the loan has had a charge-off. This PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee’s Summary of Economic Projections, and other environmental factors based on the risks present for each portfolio segment. These environmental factors include consideration of the following: levels of, and trends in, delinquencies and nonperforming loans; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedure, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. It is also possible that these factors could include social, political, economic, and terrorist events or activities. All of these factors are susceptible to change, which may be significant. As a result of this detailed process, the allowance results in two forms of allocations, specific and general. These two components represent the total allowance for credit losses deemed adequate to cover probable losses inherent in the loan portfolio.
Commercial loans are subject to a dual standardized grading process administered by the credit administration function. These grade assignments are performed independent of each other and a consensus is reached by credit administration and the loan review officer. Specific allowances are established in cases where management has identified significant conditions or circumstances related to an individual credit that indicate it should be evaluated on an individual basis. Considerations with respect to specific allocations for these individual credits include, but are not limited to, the following: (a) the sufficiency of the customer’s cash flow or net worth to repay the loan; (b) the adequacy of the discounted value of collateral relative to the loan balance; (c) whether the loan has been criticized in a regulatory examination; (d) whether the loan is nonperforming; (e) any other reasons the ultimate collectability of the loan may be in question; or (f) any unique loan characteristics that require special monitoring.
Allocations are also applied to categories of loans considered not to be individually analyzed, but for which the rate of loss is expected to be consistent with or greater than historical averages. Such allocations are based on past loss experience and information about specific borrower situations and estimated collateral values. These general pooled loan allocations are performed for portfolio segments of commercial and industrial; commercial real estate, multi-family, and construction; agri-business and agricultural; other commercial loans; and consumer 1-4 family mortgage and other consumer loans. General allocations of the allowance are determined by a historical loss rate based on the calculation of each pool’s probability of default-loss given default, subject to a floor. The length of the historical period for each pool is based on the average life of the pool. The historical loss rates are supplemented with consideration of economic conditions and portfolio trends.
Due to the imprecise nature of estimating the allowance for credit losses, the Company’s allowance for credit losses includes an immaterial unallocated component. The unallocated component of the allowance for credit losses incorporates the Company’s judgmental determination of potential expected losses that may not be fully reflected in other allocations. As a practical expedient, the Company has elected to disclose accrued interest separately from loan principal balances on the consolidated balance sheet. Additionally, when a loan is placed on non-accrual, interest payments are reversed through interest income.
For off balance sheet credit exposures outlined in the ASU at 326-20-30-11, it is the Company’s position that nearly all of the unfunded amounts on lines of credit are unconditionally cancellable, and therefore not subject to having a liability recorded.
The following tables present the activity in the allowance for credit losses by portfolio segment for the periods ended:
(dollars in thousands)Commercial and IndustrialCommercial Real Estate and Multifamily ResidentialAgri-business and AgriculturalOther CommercialConsumer 1-4 Family MortgageOther ConsumerUnallocatedTotal
Three Months Ended September 30, 2023                
Beginning balance, July 1$30,978 $30,913 $4,402 $1,120 $3,448 $846 $351 $72,058 
Provision for credit losses(167)230 (139)(102)197 283 98 400 
Loans charged-off(193)0 0 0 (149)(138)0 (480)
Recoveries21 12 0 0 3 91 0 127 
Net loans (charged-off) recovered(172)12 0 0 (146)(47)0 (353)
Ending balance$30,639 $31,155 $4,263 $1,018 $3,499 $1,082 $449 $72,105 
(dollars in thousands)Commercial and IndustrialCommercial Real Estate and Multifamily ResidentialAgri-business and AgriculturalOther CommercialConsumer 1-4 Family MortgageOther ConsumerUnallocatedTotal
Three Months Ended September 30, 2022                
Beginning balance, July 1$31,195 $26,448 $4,753 $713 $2,674 $1,093 $647 $67,523 
Provision for credit losses1,357 (678)(547)16 (197)71 (22)0 
Loans charged-off(222)0 0 0 (20)(131)0 (373)
Recoveries18 25 0 0 3 43 0 89 
Net loans (charged-off) recovered(204)25 0 0 (17)(88)0 (284)
Ending balance$32,348 $25,795 $4,206 $729 $2,460 $1,076 $625 $67,239 
(dollars in thousands)Commercial and IndustrialCommercial Real Estate and Multifamily ResidentialAgri-business and AgriculturalOther CommercialConsumer 1-4 Family MortgageOther ConsumerUnallocatedTotal
Nine Months Ended September 30, 2023
                
Beginning balance, January 1$35,290 $27,394 $4,429 $917 $3,001 $1,021 $554 $72,606 
Provision for credit losses1,065 3,465 (166)101 642 548 (105)5,550 
Loans charged-off(5,844)0 0 0 (163)(759)0 (6,766)
Recoveries128 296 0 0 19 272 0 715 
Net loans (charged-off) recovered(5,716)296 0 0 (144)(487)0 (6,051)
Ending balance$30,639 $31,155 $4,263 $1,018 $3,499 $1,082 $449 $72,105 
(dollars in thousands)Commercial and IndustrialCommercial Real Estate and Multifamily ResidentialAgri-business and AgriculturalOther CommercialConsumer 1-4 Family MortgageOther ConsumerUnallocatedTotal
Nine Months Ended September 30, 2022
                
Beginning balance, January 1$30,595 $26,535 $5,034 $1,146 $2,866 $1,147 $450 $67,773 
Provision for credit losses1,948 (168)(828)(417)(411)118 175 417 
Loans charged-off(254)(597)0 0 (42)(318)0 (1,211)
Recoveries59 25 0 0 47 129 0 260 
Net loans (charged-off) recovered(195)(572)0 0 5 (189)0 (951)
Ending balance$32,348 $25,795 $4,206 $729 $2,460 $1,076 $625 $67,239 
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.
The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard. Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans are considered to be "Pass" rated when they are reviewed as part of the previously described process and do not meet the criteria above, which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans, which are evaluated individually and listed with “Not Rated” loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status.
The following table summarizes the risk category of loans by loan segment and year of origination as of September 30, 2023:
(dollars in thousands)20232022202120202019PriorTerm TotalRevolvingTotal
Commercial and industrial loans:                  
Working capital lines of credit loans:                  
Pass$233 $1,959 $2,342 $1,250 $0 $0 $5,784 $509,151 $514,935 
Special Mention0 0 0 0 0 0 0 67,764 67,764 
Substandard0 310 75 0 139 0 524 6,155 6,679 
Total233 2,269 2,417 1,250 139 0 6,308 583,070 589,378 
Working capital lines of credit loans:
Current period gross write offs0 0 0 0 125 0 125 161 286 
Non-working capital loans:
Pass147,472 257,402 91,572 54,567 35,601 15,151 601,765 168,621 770,386 
Special Mention490 8,926 1,051 2,279 2,644 5,643 21,033 5,253 26,286 
Substandard575 2,699 689 4,036 62 632 8,693 564 9,257 
Not Rated2,008 2,308 1,012 964 214 36 6,542 0 6,542 
Total150,545 271,335 94,324 61,846 38,521 21,462 638,033 174,438 812,471 
Non-working capital loans:
Current period gross write offs0 5,400 0 0 118 0 5,518 40 5,558 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass41,662 20,498 10,870 13,078 178 0 86,286 544,725 631,011 
Special Mention0 0 0 0 0 0 0 0 0 
Total41,662 20,498 10,870 13,078 178 0 86,286 544,725 631,011 
Construction and land development loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Owner occupied loans:
Pass114,935 135,960 158,405 132,051 65,426 129,363 736,140 36,067 772,207 
Special Mention6,696 694 8,449 0 1,735 2,758 20,332 14,628 34,960 
Substandard223 265 0 1,476 352 1,160 3,476 0 3,476 
Total121,854 136,919 166,854 133,527 67,513 133,281 759,948 50,695 810,643 
Owner occupied loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Nonowner occupied loans:
Pass85,176 176,453 130,612 130,626 88,244 72,871 683,982 43,097 727,079 
Special Mention4,552 0 6,352 0 0 2,268 13,172 0 13,172 
Total89,728 176,453 136,964 130,626 88,244 75,139 697,154 43,097 740,251 
Nonowner occupied loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Multifamily loans:
Pass78,741 23,445 9,094 35,972 33,621 30,149 211,022 5,518 216,540 
Special Mention19,735 0 0 0 0 0 19,735 0 19,735 
Total98,476 23,445 9,094 35,972 33,621 30,149 230,757 5,518 236,275 
Multifamily loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass20,352 32,883 25,842 27,886 9,940 20,114 137,017 46,102 183,119 
Special Mention0 0 0 0 8 0 8 0 8 
Substandard0 0 0 0 0 105 105 0 105 
Total20,352 32,883 25,842 27,886 9,948 20,219 137,130 46,102 183,232 
Loans secured by farmland:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Loans for agricultural production:
Pass27,282 11,290 27,881 26,015 3,981 11,077 107,526 88,811 196,337 
Special Mention0 0 201 351 0 0 552 500 1,052 
Total27,282 11,290 28,082 26,366 3,981 11,077 108,078 89,311 197,389 
Loans for agricultural production:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Other commercial loans:
Pass6,057 28,024 39,057 14,778 102 7,488 95,506 27,640 123,146 
Special Mention0 0 0 0 0 2,607 2,607 0 2,607 
Total6,057 28,024 39,057 14,778 102 10,095 98,113 27,640 125,753 
Other commercial loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans:
Pass8,072 10,663 12,954 9,354 4,476 4,753 50,272 9,674 59,946 
Special Mention0 0 0 527 0 0 527 0 527 
Substandard0 0 96 125 0 258 479 0 479 
Not Rated45,488 52,631 39,206 17,653 4,378 26,466 185,822 0 185,822 
Total53,560 63,294 52,256 27,659 8,854 31,477 237,100 9,674 246,774 
Closed end first mortgage loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Open end and junior lien loans:
Pass565 137 504 339 0 7 1,552 8,722 10,274 
Substandard0 0 0 0 27 48 75 129 204 
Not Rated21,491 32,685 9,517 1,780 2,547 2,196 70,216 110,806 181,022 
Total22,056 32,822 10,021 2,119 2,574 2,251 71,843 119,657 191,500 
Open end and junior lien loans:
Current period gross write offs0 50 14 0 0 0 64 99 163 
Residential construction loans:
Not Rated1,551 7,352 1,546 857 269 1,230 12,805 0 12,805 
Total1,551 7,352 1,546 857 269 1,230 12,805 0 12,805 
Residential construction loans:
Current period gross write offs0 0 0 0 0 0 0 0 0 
Other consumer loans:
Pass1,908 808 1,505 358 0 0 4,579 13,393 17,972 
Substandard0 0 0 0 3 0 3 0 3 
Not Rated23,815 19,098 11,043 6,686 1,952 2,275 64,869 10,639 75,508 
Total25,723 19,906 12,548 7,044 1,955 2,275 69,451 24,032 93,483 
Other consumer loans:
Current period gross write offs1 255 91 6 212 1 566 193 759 
Total period gross write offs1 5,705 105 6 455 1 6,273 493 6,766 
Total Loans$659,079 $826,490 $589,875 $483,008 $255,899 $338,655 $3,153,006 $1,717,959 $4,870,965 
As of September 30, 2023, $1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans. These loans were included in this risk rating category because they are fully guaranteed by the Small Business Administration ("SBA").
The following table summarizes the risk category of loans by loan segment and year of origination as of December 31, 2022:
(dollars in thousands)20222021202020192018PriorTerm TotalRevolvingTotal
Commercial and industrial loans:                  
Working capital lines of credit loans:                  
Pass$2,207 $2,718 $1,601 $0 $0 $0 $6,526 $597,108 $603,634 
Special Mention0 0 0 0 0 0 0 36,410 36,410 
Substandard200 0 0 300 0 0 500 10,495 10,995 
Total2,407 2,718 1,601 300 0 0 7,026 644,013 651,039 
Non-working capital loans:
Pass272,273 124,600 91,850 47,711 9,981 13,670 560,085 240,490 800,575 
Special Mention448 1,620 0 109 159 2,961 5,297 2,153 7,450 
Substandard11,831 872 5,021 194 1,351 3,979 23,248 4,171 27,419 
Not Rated2,891 1,550 1,254 413 120 23 6,251 0 6,251 
Total287,443 128,642 98,125 48,427 11,611 20,633 594,881 246,814 841,695 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass26,889 19,944 14,026 356 0 0 61,215 453,953 515,168 
Total26,889 19,944 14,026 356 0 0 61,215 453,953 515,168 
Owner occupied loans:
Pass113,656 179,014 139,880 97,353 65,519 97,335 692,757 40,533 733,290 
Special Mention2,960 7,608 0 446 1,491 8,054 20,559 0 20,559 
Substandard308 105 1,491 373 1,161 229 3,667 0 3,667 
Total116,924 186,727 141,371 98,172 68,171 105,618 716,983 40,533 757,516 
Nonowner occupied loans:
Pass194,294 125,190 134,661 91,907 15,109 64,874 626,035 68,603 694,638 
Special Mention0 11,024 0 0 0 0 11,024 0 11,024 
Total194,294 136,214 134,661 91,907 15,109 64,874 637,059 68,603 705,662 
Multifamily loans:
Pass38,460 25,741 36,929 35,695 2,046 28,866 167,737 7,349 175,086 
Special Mention21,855 0 0 0 0 0 21,855 0 21,855 
Total60,315 25,741 36,929 35,695 2,046 28,866 189,592 7,349 196,941 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass38,344 28,684 29,741 9,656 8,145 19,638 134,208 63,094 197,302 
Special Mention260 0 1,676 1,780 0 15 3,731 0 3,731 
Substandard0 0 0 0 0 145 145 0 145 
Total38,604 28,684 31,417 11,436 8,145 19,798 138,084 63,094 201,178 
Loans for agricultural production:
Pass6,040 30,262 22,167 3,625 9,248 4,539 75,881 143,599 219,480 
Special Mention947 243 7,262 928 0 0 9,380 2,129 11,509 
Total6,987 30,505 29,429 4,553 9,248 4,539 85,261 145,728 230,989 
Other commercial loans:
Pass27,097 4,815 17,911 147 931 10,985 61,886 48,295 110,181 
Special Mention0 0 0 0 0 3,160 3,160 0 3,160 
Total27,097 4,815 17,911 147 931 14,145 65,046 48,295 113,341 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans:
Pass8,768 12,809 12,289 4,805 4,045 3,860 46,576 5,634 52,210 
Special Mention0 0 552 0 0 0 552 0 552 
Substandard0 0 0 0 83 1,944 2,027 0 2,027 
Not Rated57,404 44,331 20,023 5,936 2,970 27,004 157,668 0 157,668 
Total66,172 57,140 32,864 10,741 7,098 32,808 206,823 5,634 212,457 
Open end and junior lien loans:
Pass137 541 357 63 75 0 1,173 5,841 7,014 
Substandard0 0 0 31 49 0 80 111 191 
Not Rated44,472 13,597 3,014 3,616 1,476 2,252 68,427 101,750 170,177 
Total44,609 14,138 3,371 3,710 1,600 2,252 69,680 107,702 177,382 
Residential construction loans:
Not Rated14,463 2,167 897 291 129 1,223 19,170 0 19,170 
Total14,463 2,167 897 291 129 1,223 19,170 0 19,170 
Other consumer loans:
Pass1,344 1,841 432 600 0 948 5,165 16,152 21,317 
Substandard0 0 0 210 0 0 210 0 210 
Not Rated24,395 14,563 9,168 3,606 2,755 1,352 55,839 10,492 66,331 
Total25,739 16,404 9,600 4,416 2,755 2,300 61,214 26,644 87,858 
TOTAL$911,943 $653,839 $552,202 $310,151 $126,843 $297,056 $2,852,034 $1,858,362 $4,710,396 
As of December 31, 2022, $1.5 million in PPP loans were included in the "Pass" category of non-working capital commercial and industrial loans. These loans were included in this risk rating category because they are fully guaranteed by the SBA.
Nonaccrual and Past Due Loans:
The Company does not record interest on nonaccrual loans until principal is recovered. For all loan classes, a loan is generally placed on nonaccrual status when principal or interest becomes 90 days past due unless it is well secured and in the process of collection, or earlier when concern exists as to the ultimate collectability of principal or interest. Interest accrued but not received is reversed against earnings. Cash interest received on these loans is applied to the principal balance until the principal is recovered or until the loan returns to accrual status. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current, remain current for a prescribed period, and future payments are reasonably assured.
The following table presents the aging of the amortized cost basis in past due loans as of September 30, 2023 by class of loans and loans past due 90 days or more and still accruing by class of loan:
(dollars in thousands)Loans Not Past Due30-89 Days Past DueGreater than 89 Days Past Due and AccruingTotal AccruingTotal NonaccrualNonaccrual With No Allowance For Credit LossTotal
Commercial and industrial loans:            
Working capital lines of credit loans$583,816 $190 $0 $584,006 $5,372 $109 $589,378 
Non-working capital loans805,042 205 0 805,247 7,224 253 812,471 
Commercial real estate and multi-family residential loans:
Construction and land development loans631,011 0 0 631,011 0 0 631,011 
Owner occupied loans807,741 0 0 807,741 2,902 1,426 810,643 
Nonowner occupied loans740,251 0 0 740,251 0 0 740,251 
Multifamily loans236,275 0 0 236,275 0 0 236,275 
Agri-business and agricultural loans:
Loans secured by farmland183,128 0 0 183,128 104 0 183,232 
Loans for agricultural production197,389 0 0 197,389 0 0 197,389 
Other commercial loans125,753 0 0 125,753 0 0 125,753 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans245,544 729 19 246,292 482 336 246,774 
Open end and junior lien loans191,127 171 0 191,298 202 202 191,500 
Residential construction loans12,805 0 0 12,805 0 0 12,805 
Other consumer loans92,995 484 0 93,479 4 4 93,483 
Total$4,852,877 $1,779 $19 $4,854,675 $16,290 $2,330 $4,870,965 
As of September 30, 2023 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual. Additionally, interest income recognized on nonaccrual loans was insignificant during the three and nine month periods ended September 30, 2023.
The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2022 by class of loans and loans past due 90 days or more and still accruing by class of loan:
(dollars in thousands)Loans Not Past Due30-89 Days Past DueGreater than 89 Days Past Due and AccruingTotal AccruingTotal NonaccrualNonaccrual With No Allowance For Credit LossTotal
Commercial and industrial loans:            
Working capital lines of credit loans$649,529 $68 $0 $649,597 $1,442 $0 $651,039 
Non-working capital loans830,033 39 1 830,073 11,622 727 841,695 
Commercial real estate and multi-family residential loans:
Construction and land development loans515,168 0 0 515,168 0 0 515,168 
Owner occupied loans754,451 0 0 754,451 3,065 1,469 757,516 
Nonowner occupied loans705,662 0 0 705,662 0 0 705,662 
Multifamily loans196,941 0 0 196,941 0 0 196,941 
Agri-business and agricultural loans:
Loans secured by farmland201,033 0 0 201,033 145 0 201,178 
Loans for agricultural production230,989 0 0 230,989 0 0 230,989 
Other commercial loans113,341 0 0 113,341 0 0 113,341 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans211,736 306 122 212,164 293 225 212,457 
Open end and junior lien loans176,758 436 0 177,194 188 188 177,382 
Residential construction loans19,170 0 0 19,170 0 0 19,170 
Other consumer loans87,333 316 0 87,649 209 6 87,858 
Total$4,692,144 $1,165 $123 $4,693,432 $16,964 $2,615 $4,710,396 
As of December 31, 2022 there were an insignificant number of loans 30-89 days past due or greater than 89 days past due on nonaccrual. Additionally, interest income recognized on nonaccrual loans was insignificant during the year ended December 31, 2022.
When management determines that foreclosure is probable, expected credit losses for collateral dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. A loan is considered collateral dependent when the borrower is experiencing financial difficulty and the loan is expected to be repaid substantially through the operation or sale of the collateral. The class of loan represents the primary collateral type associated with the loan. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value.
The following tables present the amortized cost basis of collateral dependent loans by class of loan as of:
September 30, 2023
(dollars in thousands)Real EstateGeneral
Business
 Assets		OtherTotal
Commercial and industrial loans:      
Working capital lines of credit loans$50 $5,063 $109 $5,222 
Non-working capital loans44 6,689 394 7,127 
Commercial real estate and multi-family residential loans:
Owner occupied loans617 1,476 1,161 3,254 
Agri-business and agricultural loans:
Loans secured by farmland0 104 0 104 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans482 0 0 482 
Open end and junior lien loans202 0 0 202 
Other consumer loans0 0 4 4 
Total$1,395 $13,332 $1,668 $16,395 
December 31, 2022
(dollars in thousands)Real EstateGeneral
Business
 Assets		OtherTotal
Commercial and industrial loans:      
Working capital lines of credit loans$50 $5,402 $0 $5,452 
Non-working capital loans544 18,109 229 18,882 
Commercial real estate and multi-family residential loans:
Owner occupied loans413 1,491 1,161 3,065 
Agri-business and agricultural loans:
Loans secured by farmland0 145 0 145 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans2,030 0 0 2,030 
Open end and junior lien loans188 0 0 188 
Other consumer loans0 0 7 7 
Total$3,225 $25,147 $1,397 $29,769 
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point to determine estimate such credit losses is historical loss information. The Company uses a probability of default/loss given default model to determine the allowance for credit losses recorded at origination. Occasionally, the Company subsequently modifies loans for borrowers experiencing financial distress by providing the following forms of relief: forgiveness of loan principal, extension of repayment terms, or an interest rate reduction, among other possible concessions. In some instances, the Company provides multiple types of concessions for such modifications. Because the effect of most modifications to borrowers experiencing financial difficulty is already included in the allowance for credit losses, no change to the allowance for credit losses is generally recorded for these modifications.
The following tables present the amortized cost basis at the end of the reporting period of loans that were experiencing financial difficulty and received a modification of terms during the three and nine months ended September 30, 2023, by class and type of modification. 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 receivables at the end of the reporting period is also presented below:
(dollars in thousands)Interest Rate ReductionCombination Interest Rate Reduction and Term ExtensionCombination Principal Forgiveness, Interest Rate Reduction and Term ExtensionTotal ModificationsTotal Class of Financing Receivable
Three Months Ended September 30, 2023
Commercial and industrial loans:    
Working capital lines of credit loans$2,000 $931 $0 $2,931 0.50 %
Non-working capital loans0 0 0 0 0.00 
Total commercial and industrial loans2,000 931 0 2,931 0.21 
Total loan modifications made to borrowers experiencing financial difficulty$2,000 $931 $0 $2,931 0.06 %
(dollars in thousands)Interest Rate ReductionCombination Interest Rate Reduction and Term ExtensionCombination Principal Forgiveness, Interest Rate Reduction and Term ExtensionTotal ModificationsTotal Class of Financing Receivable
Nine Months Ended September 30, 2023
Commercial and industrial loans:    
Working capital lines of credit loans$2,000 $931 $0 $2,931 0.50 %
Non-working capital loans0 0 1,596 1,596 0.20 
Total commercial and industrial loans2,000 931 1,596 4,527 0.32 
Total loan modifications made to borrowers experiencing financial difficulty$2,000 $931 $1,596 $4,527 0.09 %
The Company has no material commitments to lend additional funds to borrowers included in the previous tables.
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2023:
(dollars in thousands)Principal ForgivenessInterest Rate Reduction
Financial Effect		Term Extension
Financial Effect		Total Class of Financing Receivable
Three Months Ended September 30, 2023
Commercial and industrial loans:    
Working capital lines of credit loans$0 
Reduction of two variable Prime Rate lines of credit to 1.00% Fixed

Reduction of one variable line of credit from Prime plus 1.00% to 1.00% Fixed
Extension of terms for one variable rate line of credit from 12 months to 120 months
0.50 %
Non-working capital loans0 No modificationsNo modifications0.00 %
(dollars in thousands)Principal ForgivenessInterest Rate Reduction
Financial Effect		Term Extension
Financial Effect		Total Class of Financing Receivable
Nine Months Ended September 30, 2023
Commercial and industrial loans:    
Working capital lines of credit loans$0 
Reduction of two variable Prime Rate lines of credit to 1.00% Fixed

Reduction of one variable line of credit from Prime plus 1.00% to 1.00% Fixed
Term extension for one variable rate line of credit from 12 months to 120 months
0.50 %
Non-working capital loans9,380 
Reduction of one term loan from Prime plus 0.75% to 1.00% Fixed
Term extension from 40 months to 300 months
0.20 
During the three and nine months ended September 30, 2022, no modifications were made to loans for borrowers experiencing financial difficulty.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. At September 30, 2023, no loans receiving such a modification within the last twelve months were 30 days or greater past due.
At September 30, 2023, no loans receiving a modification due to borrower financial difficulty within the last twelve months experienced a payment default.
Upon the Company's determination that a modified loan (or portion thereof) has subsequently been deemed uncollectible, the loan (or a portion thereof) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.