XML 27 R16.htm IDEA: XBRL DOCUMENT v3.23.3
Note 8 - Loans and Related Allowance for Credit Losses
9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 8 - LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

 

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties. The Company also serves the central and western Ohio market with offices in Ada, Bellefontaine, Dublin, Kenton, Marysville, Plain City, Powell, Sunbury, and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for credit losses. Interest income is recognized on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that the collection of interest is doubtful. Interest payments received on nonaccrual loans are applied against the unpaid principal balance until accrual status is restored.

 

Loan origination fees and certain direct loan origination costs are deferred with the net amount amortized over the contractual life of the loan as an adjustment of the related loan’s yield.

 

The following tables summarize the primary segments of the loan portfolio (in thousands):

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 
         

Commercial real estate:

        

Owner occupied

 $185,593  $191,748 

Non-owner occupied

  382,676   380,580 

Multifamily

  82,578   58,251 

Residential real estate

  321,331   296,308 

Commercial and industrial

  214,334   195,602 

Home equity lines of credit

  127,494   128,065 

Construction and Other

  127,106   94,199 

Consumer installment

  7,481   8,119 

Total loans

  1,448,593   1,352,872 

Less: Allowance for credit losses

  (20,986)  (14,438)

Net loans

 $1,427,607  $1,338,434 

 

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into CRE, which is further segmented into CRE OO, CRE NOO, and Multifamily Residential; RRE; C&I; HELOC; Construction; and Consumer Installment Loans. The commercial real estate loan segments consist of loans made to finance the activities of commercial real estate owners and operators and certain agricultural loans. The residential real estate and HELOC loan segments consist of loans made to finance the activities of residential homeowners. The C&I loan segment consists of loans made to finance the activities of commercial customers and certain agricultural loans. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. 

 

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidelines established by the Board of Directors. Loans are individually analyzed when, based on current information and events, the Company will probably be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating credit loss include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall concerning the principal and interest owed.

 

Once the determination has been made that a loan is going to be individually analyzed, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made quarterly. The Company’s policy for recognizing interest income on individually analyzed loans does not differ from its overall policy for interest recognition.

 

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but have potential weaknesses, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. A loan categorized as Doubtful contains all of the weaknesses as a Substandard loan with the added characteristic that the weaknesses are so pronounced that the collection or liquidation in full of both principal and interest is highly questionable or improbable. Any portion of a loan that has been 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 Company 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 payment delinquency, bankruptcy, repossession, or death, occurs to raise awareness of a possible credit quality loss. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships with loan balances of $750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews a sample of commercial relationships greater than $250,000 and criticized relationships greater than $150,000. Detailed reviews, including plans for resolution, are performed on criticized loans on at least a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

 

The following table represents outstanding loan balances by credit quality indicators and vintage year by class of financing receivable and current period gross charge-offs by year of origination under ASC 326 as of September 30, 2023:

 

September 30, 2023

 

Term Loans Amortized Cost Basis by Origination Year

  

Revolving Amortized

     

(Dollar amounts in thousands)

 

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Cost Basis

  

Total

 

Commercial real estate:

                                

Owner occupied

                                

Pass

 $12,237  $38,017  $42,203  $25,523  $12,706  $44,919  $2,729  $178,334 

Special Mention

  -   2,290   -   -   18   -   -   2,308 

Substandard

  -   -   -   1,569   -   3,382   -   4,951 

Total Owner occupied

 $12,237  $40,307  $42,203  $27,092  $12,724  $48,301  $2,729  $185,593 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $46  $-  $46 

Non-owner occupied

                                

Pass

 $40,520  $70,145  $44,145  $22,943  $34,788  $125,196  $561  $338,298 

Special Mention

  -   2,508   -   -   -   2,377   -   4,885 

Substandard

  -   -   -   -   3,647   31,312   -   34,959 

Doubtful

  -   -   647   -   3,887   -   -   4,534 

Total Non-owner occupied

 $40,520  $72,653  $44,792  $22,943  $42,322  $158,885  $561  $382,676 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Multifamily

                                

Pass

 $25,767  $25,893  $4,309  $10,550  $1,402  $14,590  $67  $82,578 

Total Multifamily

 $25,767  $25,893  $4,309  $10,550  $1,402  $14,590  $67  $82,578 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Residential real estate

                                

Pass

 $40,205  $55,375  $80,717  $40,523  $20,200  $82,022  $755  $319,797 

Substandard

  -   -   121   -   25   1,388   -   1,534 

Total Residential real estate

 $40,205  $55,375  $80,838  $40,523  $20,225  $83,410  $755  $321,331 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $108  $-  $108 

Commercial and industrial

                                

Pass

 $33,532  $45,807  $19,238  $27,433  $3,143  $7,029  $75,879  $212,061 

Special Mention

  -   -   -   -   -   -   184   184 

Substandard

  13   16   -   360   133   961   610   2,093 

Loss

  -   -   -   -   -   (4)  -   (4)

Total Commercial and industrial

 $33,545  $45,823  $19,238  $27,793  $3,276  $7,986  $76,673  $214,334 

Current-period gross charge-offs

 $-  $-  $75  $-  $6  $4  $-  $85 

Home equity lines of credit

                                

Pass

 $4,404  $143  $-  $18  $64  $2,087  $119,392  $126,108 

Substandard

  -   -   -   24   30   542   790   1,386 

Total Home equity lines of credit

 $4,404  $143  $-  $42  $94  $2,629  $120,182  $127,494 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Construction and other

                                

Pass

 $40,918  $47,961  $21,795  $1,851  $3,441  $2,645  $2,047  $120,658 

Special Mention

  -   2,710   -   -   276   -   -   2,986 

Substandard

  -   -   420   -   1,921   -   1,121   3,462 

Total Construction and other

 $40,918  $50,671  $22,215  $1,851  $5,638  $2,645  $3,168  $127,106 

Current-period gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 

Consumer installment

                                

Pass

 $1,485  $1,235  $444  $116  $84  $3,962  $-  $7,326 

Substandard

  -   -   -   -   -   155   -   155 

Total Consumer installment

 $1,485  $1,235  $444  $116  $84  $4,117  $-  $7,481 

Current-period gross charge-offs

 $-  $23  $-  $-  $-  $39  $-  $62 

Total Loans

 $199,081  $292,100  $214,039  $130,910  $85,765  $322,563  $204,135  $1,448,593 

 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

 

      

Special

          

Total

 

December 31, 2022

 

Pass

  

Mention

  

Substandard

  

Doubtful

  

Loans

 
                     

Commercial real estate:

                    

Owner occupied

 $176,400  $6,873  $8,475  $-  $191,748 

Non-owner occupied

  331,584   6,387   42,609   -   380,580 

Multifamily

  58,251   -   -   -   58,251 

Residential real estate

  294,254   -   2,054   -   296,308 

Commercial and industrial

  185,674   7,936   1,992   -   195,602 

Home equity lines of credit

  127,080   -   985   -   128,065 

Construction and other

  90,728   308   3,163   -   94,199 

Consumer installment

  8,117   -   2   -   8,119 

Total

 $1,272,088  $21,504  $59,280  $-  $1,352,872 

 

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 individually analyzed and collateral-dependent loans by classes of loan type as of September 30, 2023 (in thousands):

 

  

September 30, 2023

 
  

Type of Collateral

 

 

 

Real Estate

  

Blanket Lien

  

Investment/Cash

  

Other

  

Total

 

Commercial real estate:

                    

Non-owner occupied

 $4,534  $-  $-  $-  $4,534 

Construction and other

  -   -   513   -   513 

Total

 $4,534  $-  $513  $-  $5,047 

 

The following table presents information related to impaired loans by class of loans under ASC 310 as of December 31, 2022 (in thousands):

 

December 31, 2022

 

Impaired Loans

 
      

Unpaid

     
  

Recorded

  

Principal

  

Related

 
  

Investment

  

Balance

  

Allowance

 

With no related allowance recorded:

            

Commercial real estate:

            

Owner occupied

 $4,141  $4,141  $- 

Non-owner occupied

  1,042   1,042   - 

Residential real estate

  706   770   - 

Commercial and industrial

  450   547   - 

Home equity lines of credit

  112   112   - 

Total

 $6,451  $6,612  $- 
             

With an allowance recorded:

            

Commercial real estate:

            

Owner occupied

 $1,509  $1,509  $407 

Non-owner occupied

  12,528   12,528   167 

Residential real estate

  317   317   28 

Commercial and industrial

  1,378   1,378   39 

Home equity lines of credit

  132   132   48 

Total

 $15,864  $15,864  $689 
             

Total:

            

Commercial real estate:

            

Owner occupied

 $5,650  $5,650  $407 

Non-owner occupied

  13,570   13,570   167 

Residential real estate

  1,023   1,087   28 

Commercial and industrial

  1,828   1,925   39 

Home equity lines of credit

  244   244   48 

Total

 $22,315  $22,476  $689 

 

The table above includes troubled debt restructuring totaling $3.3 million as of December 31, 2022. The amount allocated within the allowance for credit losses for these troubled debt restructurings was $72,000 as of December 31, 2022.

 

The following table presents the average recorded investment in impaired loans by class and interest income recognized by loan class under ASC 310, for the three-month period ended September 30, 2022 (in thousands):

 

  

Three Months Ended September 30, 2022

  

For the Nine Months Ended September 30, 2022

 
  

Average

  

Interest

  

Average

  

Interest

 
  

Recorded

  

Income

  

Recorded

  

Income

 
  

Investment

  

Recognized

  

Investment

  

Recognized

 
                 

Commercial real estate:

                

Owner occupied

 $3,044  $119  $1,884  $142 

Non-owner occupied

  9,637   340   7,446   455 

Residential real estate

  934   10   992   35 

Commercial and industrial

  1,806   37   1,207   102 

Home equity lines of credit

  247   4   248   9 

Total

 $15,668  $510  $11,777  $743 

 

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30:

 

(In Thousands)

 

December 01, 2022

  

December 31, 2022

 

Outstanding balance

 $7,919  $7,998 

Carrying amount

 $6,019  $6,068 

 

The primary risk of commercial and industrial loans is related to deterioration in the cash flow of the business, which may result in the liquidation of the business assets securing the loan. C&I loans are, by nature, secured by less substantial collateral than secured real estate loans. The primary risk of real estate construction loans is potential delays and disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties. The primary risk of commercial real estate loans is the loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

 

Nonperforming assets are nonaccrual loans, including nonaccrual troubled debt restructurings (“TDR”), loans 90 and greater days past due, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about the collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against the principal balance.

 

The following tables present the aging of the recorded investment in past-due loans by class of loans (in thousands):

 

      

30-59 Days

  

60-89 Days

  

90 Days+

  

Total

  

Total

 

September 30, 2023

 

Current

  

Past Due

  

Past Due

  

Past Due

  

Past Due

  

Loans

 
                         

Commercial real estate:

                        

Owner occupied

 $185,185  $319  $44  $45  $408  $185,593 

Non-owner occupied

  382,123   494   59   -   553   382,676 

Multifamily

  82,512   -   66   -   66   82,578 

Residential real estate

  319,289   1,268   555   219   2,042   321,331 

Commercial and industrial

  214,163   96   25   50   171   214,334 

Home equity lines of credit

  126,634   388   154   318   860   127,494 

Construction and other

  126,592   -   -   514   514   127,106 

Consumer installment

  7,447   34   -   -   34   7,481 

Total

 $1,443,945  $2,599  $903  $1,146  $4,648  $1,448,593 

 

                      

Purchase

     
      

30-59 Days

  

60-89 Days

  

90 Days+

  

Total

  

Credit

  

Total

 

December 31, 2022

 

Current

  

Past Due

  

Past Due

  

Past Due

  

Past Due

  

Impaired Loans

  

Loans

 
                             

Commercial real estate:

                            

Owner occupied

 $191,748  $-  $-  $-  $-  $-  $191,748 

Non-owner occupied

  380,467   113   -   -   113   2,992   380,580 

Multifamily

  58,251   -   -   -   -   -   58,251 

Residential real estate

  293,698   2,093   111   406   2,610   24   296,308 

Commercial and industrial

  195,532   62   4   4   70   -   195,602 

Home equity lines of credit

  127,494   415   145   11   571   -   128,065 

Construction and other

  93,997   202   -   -   202   3,052   94,199 

Consumer installment

  8,096   23   -   -   23   -   8,119 

Total

 $1,349,283  $2,908  $260  $421  $3,589  $6,068  $1,352,872 

 

The following tables present the recorded investment in nonaccrual loans and loans 90 and greater days past due and still on accrual by class of loans (in thousands):

 

  

September 30, 2023

 
  

Nonaccrual

  

Nonaccrual

      

Loans Past

     

 

 

with no

  

with

  

Total

  Due Over 90 Days  

Total

 
  

ACL

  

ACL

  

Nonaccrual

  

Still Accruing

  

Nonperforming

 

Commercial real estate:

                    

Owner occupied

 $-  $259  $259  $-  $259 

Non-owner occupied

  4,534   -   4,534   -   4,534 

Residential real estate

  -   1,150   1,150   -   1,150 

Commercial and industrial

  -   281   281   -   281 

Home equity lines of credit

  -   824   824   -   824 

Construction and other

  514   -   514   -   514 

Consumer installment

  155   -   155   -   155 

Total

 $5,203  $2,514  $7,717  $-  $7,717 

 

      

90+ Days Past Due and

 

December 31, 2022

 

Nonaccrual

  

Accruing

 
         

Commercial real estate:

        

Owner occupied

 $69  $- 

Residential real estate

  1,431   - 

Commercial and industrial

  186   - 

Home equity lines of credit

  191   - 

Construction and other

  68   - 

Consumer installment

  166   - 

Total

 $2,111  $- 

 

Interest income that would have been recorded had these loans not been placed on nonaccrual status was $211,000 and $414,000 for the three and nine months ended September 30, 2023, respectively. Interest income that would have been recorded had these loans not been placed on nonaccrual status was $39,000 and $120,000 for the three and nine months ended September 30, 2022, respectively.

 

On January 1, 2023, the Company adopted CECL. This methodology for calculating the allowance for credit losses considers the possibility of loss over the life of the loan. It also considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL estimate under the current expected loss model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements. An ACL is maintained to absorb losses from the loan portfolio. The ACL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

 

Prior to January 1, 2023 the Company’s methodology for determining the allowance for loan losses (ALLL) was based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represented the Company’s ALLL. Management also performed impairment analyses on TDRs, which could have resulted in specific reserves.

 

Management reviews the loan portfolio quarterly using a defined, consistently applied process 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 tables summarize the ACL within the primary segments of the loan portfolio and the activity within those segments (in thousands):

 

  

For the Nine Months Ended September 30, 2023

 
  

Allowance for Credit Losses

 
  

Balance

  

CECL

              

Balance

 
  

December 31, 2022

  

Adoption

  

Charge-offs

  

Recoveries

  

Provision

  

September 30, 2023

 

Loans:

                        

Commercial real estate:

                        

Owner occupied

 $2,203  $811  $(46) $4  $(269) $2,703 

Non-owner occupied

  5,597   (1,206)  -   -   (314)  4,077 

Multifamily

  662   591   -   -   521   1,774 

Residential real estate

  2,047   2,744   (108)  -   618   5,301 

Commercial and industrial

  1,483   2,320   (85)  30   447   4,195 

Home equity lines of credit

  1,753   (1,031)  -   70   (66)  726 

Construction and other

  609   956   -   -   465   2,030 

Consumer installment

  84   197   (62)  110   (149)  180 

Total

 $14,438  $5,382  $(301) $214  $1,253  $20,986 

 

  

For the Nine Months Ended September 30, 2022

 
  

Allowance for Credit Losses

 
  

Balance

              

Balance

 
  

December 31, 2021

  

Charge-offs

  

Recoveries

  

Provision

  

September 30, 2022

 

Loans:

                    

Commercial real estate:

                    

Owner occupied

 $1,836  $-  $4  $44  $1,884 

Non-owner occupied

  7,431   (150)  -   (1,583)  5,698 

Multifamily

  454   -   -   169   623 

Residential real estate

  1,740   -   61   448   2,249 

Commercial and industrial

  882   (30)  269   611   1,732 

Home equity lines of credit

  1,452   (25)  -   466   1,893 

Construction and other

  533   -   -   (104)  429 

Consumer installment

  14   (46)  107   (51)  24 

Total

 $14,342  $(251) $441  $-  $14,532 

 

 

  

For the Three Months Ended September 30, 2023

 
  

Allowance for Credit Losses

 
  

Balance

              

Balance

 
  

June 30, 2023

  

Charge-offs

  

Recoveries

  

Provision

  

September 30, 2023

 

Loans:

                    

Commercial real estate:

                    

Owner occupied

 $3,413  $-  $1  $(711) $2,703 

Non-owner occupied

  3,846   -   -   231   4,077 

Multifamily

  1,279   -   -   495   1,774 

Residential real estate

  5,114   -   -   187   5,301 

Commercial and industrial

  4,104   (25)  10   106   4,195 

Home equity lines of credit

  723   -   -   3   726 

Construction and other

  1,884   -   -   146   2,030 

Consumer installment

  228   -   30   (78)  180 

Total

 $20,591  $(25) $41  $379  $20,986 

 

  

For the Three Months Ended September 30, 2022

 
  

Allowance for Credit Losses

 
  

Balance

              

Balance

 
  

June 30, 2022

  

Charge-offs

  

Recoveries

  

Provision

  

September 30, 2022

 

Loans:

                    

Commercial real estate:

                    

Owner occupied

 $1,803  $-  $1  $80  $1,884 

Non-owner occupied

  7,347   (150)  -   (1,499)  5,698 

Multifamily

  416   -   -   207   623 

Residential real estate

  1,853   -   34   362   2,249 

Commercial and industrial

  1,213   -   61   458   1,732 

Home equity lines of credit

  1,495   -   -   398   1,893 

Construction and other

  399   -   -   30   429 

Consumer installment

  24   -   36   (36)  24 

Total

 $14,550  $(150) $132  $-  $14,532 

 

The provision fluctuations during the nine months ended September 30, 2023, allocated to:

• residential, C&I, and construction loans are due to increases in outstanding balances.

• owner occupied CRE are due to a decrease in outstanding balances.

• non-owner occupied CRE are due to a decrease in reserves allocated using the individual allocation method to a historically problematic credit.

• multifamily fluctuation was driven by increases in the reserve because of an increase in adjusted historical loss rate and increased balances.


The provision fluctuations during the three months ended September 30, 2023, allocated to:

• residential, C&I, and construction loans are due to increases in outstanding balances.

• non-owner occupied CRE are due to an increase in loan balances.

• owner occupied CRE are due to a decrease in reserves allocated using the individual allocation method to two historically problematic credits and a decrease in pooled loans reserve due to a decrease in outstanding balances.

• multifamily are based on a decrease in the pooled loans reserve because of a moderate decline in outstanding loan balances.

 

The provision fluctuations during the three and nine months ended September 30, 2022, allocated to:

• non-owner occupied commercial loans due to a decrease in special mention and substandard credits.

• commercial and industrial loans are due to an increase in loans, excluding the impact of PPP forgiveness, coupled with an increase in the specific reserve on impaired loans.

• residential loans and home equity lines of credit are due to an increase in outstanding balances.

 

Modifications to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company implemented ASU 2022-02, which eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

 

The table below details the amortized cost basis of gross loans held for investment made to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2023:

 

  

For the Nine Months Ended September 30, 2023

 
  

Modifications

 
          

Payment

  

Interest Rate

      

Percentage of

 
          

Deferral

  

Reduction

      

Total Loans

 
  

Payment

  

Term

  

and Term

  

and Term

      

Held for

 
  

Deferral

  

Extension

  

Extension

  

Past Due

  

Total

  

Investment

 
                         

Commercial real estate:

                        

Non-owner occupied

  -   145   2,507   -   2,652   0.18%

Residential real estate

  -   19,074   -   -   19,074   1.32%

Commercial and industrial

  -   83   -   -   83   0.01%

Consumer installment

  -   8   -   -   8   0.00%

Total

 $-  $19,310  $2,507  $-  $21,817   1.51%

 

As of September 30, 2023, the Company did not have any loans that were modified for borrowers experiencing financial difficulty and subsequently defaulted. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.

 

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

TDR describes loans on which the bank has granted concessions for reasons related to the customer’s financial difficulties. Such concessions may include one or more of the following:

 

 

reduction in the interest rate to below-market rates

 

extension of repayment requirements beyond normal terms

 

reduction of the principal amount owed

 

reduction of accrued interest due

 

acceptance of other assets in full or partial payment of a debt

 

In each case, the concession is made due to deterioration in the borrower’s financial condition, and the new terms are less stringent than those required on a new loan with similar risk.

 

The following tables summarize troubled debt restructurings that did not meet the exemption criteria above (in thousands):

 

  

For the Three Months Ended

  

September 30, 2022

  

Number of Contracts

 

Pre-Modification

 

Post-Modification

  

Term

   

Outstanding Recorded

 

Outstanding Recorded

Troubled Debt Restructurings

 

Modification

Other

Total

 

Investment

 

Investment

Residential real estate

 

1

-

1

 

$

27 

$

27

 

 

  

For the Nine Months Ended

  

September 30, 2022

  

Number of Contracts

 

Pre-Modification

 

Post-Modification

  

Term

   

Outstanding Recorded

 

Outstanding Recorded

Troubled Debt Restructurings

 

Modification

Other

Total

 

Investment

 

Investment

Commercial and industrial

 

3

-

3

 

$

1,252 

$

1,252

 

There were no subsequent defaults of troubled debt restructurings for the three and nine-month periods ended September 30, 2022.

 

ACL for Unfunded Commitments:

 

Upon adoption of CECL on January 1, 2023, the Company recorded a separate ACL for unfunded commitments using a methodology that is inherently similar to the methodology used for calculating the ACL for loans.   The liability for credit losses on these exposures is included in “Accrued interest payable and other liabilities” on the balance sheet.  Prior to the adoption of CECL, this type of liability was not recognized on the balance sheet.  The following table summarizes the ACL for unused commitments for the three and nine months ended September 30, 2023:

 

  For the Three Months Ended  For the Nine Months Ended 
  September 30, 2023  September 30,2023 
ACL for unfunded commitments, beginning balance  $1,068  - 
CECL adoption  -   622 

Provision for (reduction in) credit losses

  748   1,194 
ACL for unfunded commitments, ending balance 1,816  1,816