Note 2 - Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

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

Note 2. Loans and Allowance for Credit Losses

Loans — Loans are reported at their outstanding principal balances less unearned income, the allowance for credit losses and any deferred fees or costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method which approximates the interest method.

For financial reporting purposes, the Company classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with that utilized in the Quarterly Report of Condition and Income filed by the Bank with the Federal Deposit Insurance Corporation (“FDIC”).

The following schedule details the loans of the Company at June 30, 2023 and December 31, 2022:

	(In Thousands)
	June 30, 2023			December 31, 2022
Residential 1-4 family real estate	$	900,198		$	854,970
Commercial and multi-family real estate		1,158,864			1,064,297
Construction, land development and farmland		967,611			879,528
Commercial, industrial and agricultural		126,690			124,603
1-4 family equity lines of credit		180,540			151,032
Consumer and other		96,003			93,332
Total loans before net deferred loan fees		3,429,906			3,167,762
Net deferred loan fees		(13,607	)		(14,153	)
Total loans		3,416,299			3,153,609
Less: Allowance for credit losses		(43,363	)		(39,813	)
Net loans	$	3,372,936		$	3,113,796

Risk characteristics relevant to each portfolio segment are as follows:

Construction, land development and farmland: Loans for non-owner-occupied real estate construction or land development are generally repaid through cash flow related to the operation, sale or refinance of the property. The Company also finances construction loans for owner-occupied properties. A portion of the Company’s construction and land portfolio segment is comprised of loans secured by residential product types (residential land and single-family construction). Construction and land development loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates, market sales activity, and financial analysis of the developers and property owners. Construction loans generally rely on estimates of project costs and the anticipated value of the completed project, while the Company strives to ensure the accuracy of these estimates, it is possible for these estimates to be inaccurate. Construction loans often involve the disbursement of substantial funds with repayments substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential 1-4 family real estate: Residential real estate loans represent loans to consumers or investors to finance a residence. These loans are typically financed on 15 to 30 year amortization terms, but generally with shorter maturities of 5 to 15 years. Many of these loans are extended to borrowers to finance their primary or secondary residence. Loans to an investor secured by a 1-4 family residence will be repaid from either the rental income from the property or from the sale of the property. This loan segment also includes closed-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home. Loans in this portfolio segment are underwritten and approved based on a number of credit quality criteria including limits on maximum Loan-to-Value ("LTV") ratios, minimum credit scores, and maximum debt to income ratios. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment.

1-4 family equity lines of credit: This loan segment includes open-end home equity loans that are secured by a first or second mortgage on the borrower’s residence. This allows customers to borrow against the equity in their home utilizing a revolving line of credit. These loans are underwritten and approved based on a number of credit quality criteria including limits on maximum LTV ratios, minimum credit scores, and maximum debt to income ratios. Real estate market values as of the time the loan is made directly affect the amount of credit extended and, in addition, changes in these residential property values impact the depth of potential losses in this portfolio segment. Because of the revolving nature of these loans, as well as the fact that many represent second mortgages, this portfolio segment can contain more risk than the amortizing 1-4 family residential real estate loans.

Commercial and multi-family real estate: Multi-family and commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate.

Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting the market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied commercial real estate loans. Non-owner occupied commercial real estate loans are loans secured by multifamily and commercial properties where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. These loans are made to finance income-producing properties such as apartment buildings, office and industrial buildings, and retail properties. Owner-occupied commercial real estate loans are loans where the primary source of repayment is the cash flow from the ongoing operations and business activities conducted by the party, or affiliate of the party, who owns the property.

Commercial, industrial, and agricultural: The commercial and industrial loan portfolio segment includes commercial and industrial loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases or other expansion projects. Collection risk in this portfolio is driven by the creditworthiness of underlying borrowers, particularly cash flow from customers’ business operations. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower, if any. The cash flows of borrowers, however, may not be as expected and any collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and usually incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Consumer: The consumer loan portfolio segment includes non-real estate secured direct loans to consumers for household, family, and other personal expenditures. Consumer loans may be secured or unsecured and are usually structured with short or medium term maturities. These loans are underwritten and approved based on a number of consumer credit quality criteria including limits on maximum LTV ratios on secured consumer loans, minimum credit scores, and maximum debt to income ratios. Many traditional forms of consumer installment credit have standard monthly payments and fixed repayment schedules of one to five years. These loans are made with either fixed or variable interest rates that are based on specific indices. Installment loans fill a variety of needs, such as financing the purchase of an automobile, a boat, a recreational vehicle or other large personal items, or for consolidating debt. These loans may be unsecured or secured by an assignment of title, as in an automobile loan, or by money in a bank account. In addition to consumer installment loans, this portfolio segment also includes secured and unsecured personal lines of credit as well as overdraft protection lines. Loans in this portfolio segment are sensitive to unemployment and other key consumer economic measures.

Allowance For Credit Losses ("ACL") - Loans. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The Company’s discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts. Together, the probability of default and loss given default model with the use of reasonable and supportable forecasts generate estimates for cash flows expected and not expected to be collected over the estimated life of a loan. Estimates of future expected cash flows ultimately reflect assumptions made concerning net credit losses over the life of a loan. The use of reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from reputable and independent third parties to inform and provide its reasonable and supportable economic forecasts. The Company’s model reverts to a straight line basis for purposes of estimating cash flows beyond a period deemed reasonable and supportable. The Company forecasts probability of default and loss given default based on economic forecast scenarios over a four quarter time period before reverting to a straight line basis for a four quarter time period. The duration of the forecast horizon, the period over which forecasts revert to a straight line basis, the economic forecasts that management utilizes, as well as additional internal and external indicators of economic forecasts that management considers, may change over time depending on the nature and composition of our loan portfolio. Changes in economic forecasts, in conjunction with changes in loan specific attributes, impact a loan’s probability of default and loss given default, which can drive changes in the determination of the ACL. Expectations of future cash flows are discounted at the loan’s effective interest rate. The resulting ACL represents the amount by which the loan’s amortized cost exceeds the net present value of a loan’s discounted cash flows expected to be collected. The ACL is recorded through a charge to provision for credit losses and is reduced by charge-offs, net of recoveries on loans previously charged-off. It is the Company’s policy to charge-off loan balances at the time they have been deemed uncollectible.

For segments where the discounted cash flow methodology is not used, a remaining life methodology is utilized. The remaining life method uses an average annual charge-off rate applied to the contractual term, further adjusted for estimated prepayments to determine the unadjusted historical charge-off rate for the remaining balance of assets.

The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon the following:

1. Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

2. Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

3. Changes in the nature and volume of the portfolio and in the terms of loans.

4. Changes in the experience, ability, and depth of lending management and other relevant staff.

5. Changes in the volume and severity of past-due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans.

6. Changes in the quality of the Company's loan review system.

7. Changes in the value of underlying collateral for collateral-dependent loans.

8. The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

9. The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the Company’s existing portfolio.

The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $500,000 which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs. For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially through the operation or sale of the collateral, the Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, with selling costs considered in the event sale of the collateral is expected. Loans greater than $100,000 for which terms have been modified either through principal forgiveness, payment delay, term extension, or interest rate reduction are evaluated using these same individual evaluation methods.

In assessing the adequacy of the allowance for credit losses, the Company considers the results of the Company's ongoing independent loan review process. The Company undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers and reviews that may have been conducted by third-party reviewers including regulatory examiners. The Company incorporates relevant loan review results in the allowance.

In accordance with CECL, losses are estimated over the remaining contractual terms of loans, adjusted for prepayments and curtailment. The contractual term excludes expected extensions, renewals and modifications.

Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding and deferred loan fees and costs. 

While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. 
 

Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

Transactions in the allowance for credit losses for the six months ended  June 30, 2023 and  June 30, 2022 are summarized as follows:

	(In Thousands)
	Residential 1-4 Family Real Estate		Commercial and Multi-family Real Estate		Construction, Land Development and Farmland		Commercial, Industrial and Agricultural		1-4 family Equity Lines of Credit		Consumer and Other			Total
June 30, 2023
Allowance for credit losses - loans:
Beginning balance January 1,	$	7,310		15,299		13,305		1,437		1,170		1,292			39,813
Provision for credit losses		911		1,245		877		130		252		625			4,040
Charge-offs		—		—		—		—		—		(732	)		(732	)
Recoveries		10		—		7		—		—		225			242
Ending balance	$	8,231		16,544		14,189		1,567		1,422		1,410			43,363

	(In Thousands)
	Residential 1-4 Family Real Estate			Commercial and Multi-family Real Estate			Construction, Land Development and Farmland			Commercial, Industrial and Agricultural			1-4 family Equity Lines of Credit			Consumer and Other			Total
June 30, 2022
Allowance for credit losses - loans:
Beginning balance January 1,	$	9,242			16,846			9,757			1,329			1,098			1,360			39,632
Impact of adopting ASC 326		(3,393	)		(3,433	)		(266	)		219			(324	)		(367	)		(7,564	)
Provision		432			196			2,199			(13	)		142			561			3,517
Charge-offs		—			—			—			—			—			(593	)		(593	)
Recoveries		10			—			6			7			—			223			246
Ending balance	$	6,291			13,609			11,696			1,542			916			1,184			35,238

Transactions in the allowance for credit losses for the three months ended  June 30, 2023 and  June 30, 2022 are summarized as follows:

	(In Thousands)
	Residential 1-4 Family Real Estate		Commercial and Multi-family Real Estate		Construction, Land Development and Farmland		Commercial, Industrial and Agricultural		1-4 family Equity Lines of Credit		Consumer and Other			Total
June 30, 2023
Allowance for credit losses - loans:
Beginning balance April 1,	$	7,957		15,686		13,797		1,555		1,224		1,227			41,446
Provision for credit losses		264		858		389		12		198		357			2,078
Charge-offs		—		—		—		—		—		(284	)		(284	)
Recoveries		10		—		3		—		—		110			123
Ending balance	$	8,231		16,544		14,189		1,567		1,422		1,410			43,363

	(In Thousands)
	Residential 1-4 Family Real Estate		Commercial and Multi-family Real Estate			Construction, Land Development and Farmland		Commercial, Industrial and Agricultural			1-4 family Equity Lines of Credit		Consumer and Other			Total
June 30, 2022
Allowance for credit losses - loans:
Beginning balance April 1,	$	5,910		14,032			10,396		1,588			857		995			33,778
Provision		379		(423	)		1,297		(46	)		59		359			1,625
Charge-offs		—		—			—		—			—		(306	)		(306	)
Recoveries		2		—			3		—			—		136			141
Ending balance	$	6,291		13,609			11,696		1,542			916		1,184			35,238

The following table presents the amortized cost basis of collateral dependent loans at June 30, 2023 and  December 31, 2022 which are individually evaluated to determine expected credit losses:

	In Thousands
	Real Estate		Other		Total
June 30, 2023
Residential 1-4 family real estate	$	1,956		—		1,956
Commercial and multi-family real estate		2,931		—		2,931
Construction, land development and farmland		—		—		—
Commercial, industrial and agricultural		—		—		—
1-4 family equity lines of credit		—		—		—
Consumer and other		—		—		—
		4,887		—		4,887

	In Thousands
	Real Estate		Other		Total
December 31, 2022
Residential 1-4 family real estate	$	130		—		130
Commercial and multi-family real estate		508		—		508
Construction, land development and farmland		—		—		—
Commercial, industrial and agricultural		—		—		—
1-4 family equity lines of credit		—		—		—
Consumer and other		—		—		—
	$	638		—		638

Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower, which often is determined when the principal or interest on the loan is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Generally, all interest accrued but not collected for loans that are placed on nonaccrual status, is reversed against current income. Interest income is subsequently recognized only to the extent cash payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case basis. A nonaccrual loan is returned to accruing status once the loan has been brought current and collection is reasonably assured or the loan has been “well-secured” through other techniques. Past due status is determined based on the contractual due date per the underlying loan agreement.

The following tables present the Company’s nonaccrual loans and past due loans as of June 30, 2023 and December 31, 2022.

Loans on Nonaccrual Status

	In Thousands
	June 30,		December 31,
	2023		2022
Residential 1-4 family real estate	$	—	$	—
Commercial and multi-family real estate		—		—
Construction, land development and farmland		—		—
Commercial, industrial and agricultural		—		—
1-4 family equity lines of credit		—		—
Consumer and other		—		—
Total	$	—	$	—

Past Due Loans

	(In thousands)
	30-59 Days Past Due		60-89 Days Past Due		Non Accrual and Greater Than 89 Days Past Due		Total Non Accrual and Past Due		Current		Total Loans		Recorded Investment Greater Than 89 Days Past Due and Accruing
June 30, 2023
Residential 1-4 family real estate	$	841		238		136		1,215		898,983		900,198	$	136
Commercial and multi-family real estate		480		—		—		480		1,158,384		1,158,864		—
Construction, land development and farmland		387		—		—		387		967,224		967,611		—
Commercial, industrial and agricultural		16		12		7		35		126,655		126,690		7
1-4 family equity lines of credit		221		153		—		374		180,166		180,540		—
Consumer and other		319		646		41		1,006		94,997		96,003		41
Total	$	2,264		1,049		184		3,497		3,426,409		3,429,906	$	184
December 31, 2022
Residential 1-4 family real estate	$	2,046		1,080		426		3,552		851,418		854,970	$	426
Commercial and multi-family real estate		397		1,626		400		2,423		1,061,874		1,064,297		400
Construction, land development and farmland		591		—		—		591		878,937		879,528		—
Commercial, industrial and agricultural		49		62		—		111		124,492		124,603		—
1-4 family equity lines of credit		74		77		—		151		150,881		151,032		—
Consumer and other		403		184		43		630		92,702		93,332		43
Total	$	3,560		3,029		869		7,458		3,160,304		3,167,762	$	869

Loan Modifications to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, we adopted ASU 2022-02 which eliminated the accounting guidance for TDRs and requires disclosures for certain loan modifications when a borrower is experiencing financial difficulty.

Occasionally, the Company modifies loans to borrowers in financial distress by providing, principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types of concessions on one loan. 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. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction.

The following table presents the amortized cost basis of loans at  June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 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 receivable is also presented below.

	(In Thousands)
	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Term Extension and Principal Forgiveness		Combination Term Extension and Interest Rate Reduction		Total Class of Financing Receivable
Residential 1-4 family real estate	$	—	$	947	$	—	$	—	$	—	$	—		0.11	%
Commercial and multi-family real estate		—		2,436		—		—		—		—		0.21	%
Construction, land development and farmland		—		—		—		—		—		—		—	%
Commercial, industrial and agricultural		—		—		97		—		—		—		0.08	%
1-4 family equity lines of credit		—		—		—		—		—		—		—	%
Consumer and other		—		—		—		—		—		—		—	%
Total	$	—	$	3,383	$	97	$	—	$	—	$	—		0.10	%

The Company has not committed to lend additional amounts to the borrowers included in the previous table.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified within the last 12 months:

	In Thousands
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due
June 30, 2023
Residential 1-4 family real estate	$	—	$	—	$	—	$	—
Commercial and multi-family real estate		—		—		—		—
Construction, land development and farmland		—		—		—		—
Commercial, industrial and agricultural		—		—		—		—
1-4 family equity lines of credit		—		—		—		—
Consumer and other		—		—		—		—
Total	$	—	$	—	$	—	$	—

As evidenced above, no such loans that have been modified within the last 12 months were thirty days or more past due.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and six months ended June 30, 2023 (dollars in thousands):

Six Months Ended June 30, 2023		Principal Forgiveness	Weighted-Average Interest Rate Reduction		Weighted-Average Months of Term Extension
Residential 1-4 family real estate	$	—	—	%	—
Commercial and multi-family real estate		—	—		—
Construction, land development and farmland		—	—		—
Commercial, industrial and agricultural		—	—		37
1-4 family equity lines of credit		—	—		—
Consumer and other		—	—		—
Total	$	—	—	%	37

Three Months Ended June 30, 2023		Principal Forgiveness	Weighted-Average Interest Rate Reduction		Weighted-Average Months of Term Extension
Residential 1-4 family real estate	$	—	—	%	—
Commercial and multi-family real estate		—	—		—
Construction, land development and farmland		—	—		—
Commercial, industrial and agricultural		—	—		—
1-4 family equity lines of credit		—	—		—
Consumer and other		—	—		—
Total	$	—	—	%	—

There were no loan modifications with financial effect during the three months ended June 30, 2023.

The following table presents the amortized cost basis of loans that had a payment default during the three and six months ended June 30, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

	In Thousands
Six Months Ended June 30, 2023		Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction
Residential 1-4 family real estate	$	—	$	—	$	—	$	—
Commercial and multi-family real estate		—		—		—		—
Construction, land development and farmland		—		—		—		—
Commercial, industrial and agricultural		—		—		—		—
1-4 family equity lines of credit		—		—		—		—
Consumer and other		—		—		—		—
Total	$	—	$	—	$	—	$	—

	In Thousands
Three Months Ended June 30, 2023		Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction
Residential 1-4 family real estate	$	—	$	—	$	—	$	—
Commercial and multi-family real estate		—		—		—		—
Construction, land development and farmland		—		—		—		—
Commercial, industrial and agricultural		—		—		—		—
1-4 family equity lines of credit		—		—		—		—
Consumer and other		—		—		—		—
Total	$	—	$	—	$	—	$	—

There were no payment defaults on modified loans during the three and six months ended June 30, 2023.

Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized costs basis of the loan is reduced by the amount deemed uncollectible and the allowance for credit losses is adjusted by the same amount. 

TDR Disclosures Prior to Adoption of ASU 2022-02

Prior to the adoption of ASU 2022-02 the restructuring of a loan was considered a TDR if both (i) the borrower was experiencing financial difficulties and (ii) the creditor had granted a concession. Concessions may have included interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses. 

The Company did not modify any loan that was considered a TDR during the three and six months ended June 30, 2022.

As of June 30, 2023 there were no consumer mortgage loans in the process of foreclosure. As of  December 31, 2022, the Company's recorded investment in consumer mortgage loans in the process of foreclosure totaled $11,000.

Potential problem loans, which include nonperforming loans, amounted to approximately $4.7 million at June 30, 2023 and $6.4 million at December 31, 2022. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the FDIC, the Bank’s primary federal regulator, for loans classified as special mention, substandard, or doubtful.

The following summary presents the Bank's loan balances by primary loan classification and the amount classified within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard and doubtful which are defined as follows:

• Special mention loans 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 Bank’s credit position at some future date.

• Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful loans have all the characteristics of substandard loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The Bank considers all doubtful loans to be collateral dependent and places such loans on nonaccrual status.

The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of June 30, 2023:

	In Thousands
													Revolving
	2023		2022		2021		2020		2019		Prior		Loans		Total
June 30, 2023
Residential 1-4 family real estate
Pass	$	85,818		289,151		252,693		98,878		59,129		99,673		11,154		896,496
Special mention		—		241		—		881		62		1,482		—		2,666
Substandard		—		—		—		—		130		906		—		1,036
Total Residential 1-4 family real estate	$	85,818		289,392		252,693		99,759		59,321		102,061		11,154		900,198
Residential 1-4 family real estate:
Current-period gross charge-offs	$	—		—		—		—		—		—		—		—
Commercial and multi-family real estate
Pass	$	38,243		283,452		295,110		184,535		96,211		224,059		36,975		1,158,585
Special mention		—		—		—		158		—		36		—		194
Substandard		—		—		—		—		—		85		—		85
Total Commercial and multi-family real estate	$	38,243		283,452		295,110		184,693		96,211		224,180		36,975		1,158,864
Commercial and multi-family real estate:
Current-period gross charge-offs	$	—		—		—		—		—		—		—		—
Construction, land development and farmland
Pass	$	128,715		379,396		204,918		31,324		8,567		13,380		201,256		967,556
Special mention		—		—		—		—		—		55		—		55
Substandard		—		—		—		—		—		—		—		—
Total Construction, land development and farmland	$	128,715		379,396		204,918		31,324		8,567		13,435		201,256		967,611
Construction, land development and farmland:
Current-period gross charge-offs	$	—		—		—		—		—		—		—		—
Commercial, industrial and agricultural
Pass	$	15,899		35,873		8,892		13,710		17,895		8,363		25,942		126,574
Special mention		97		—		—		—		—		—		—		97
Substandard		—		7		—		—		—		—		12		19
Total Commercial, industrial and agricultural	$	15,996		35,880		8,892		13,710		17,895		8,363		25,954		126,690
Commercial, industrial and agricultural:
Current-period gross charge-offs	$	—		—		—		—		—		—		—		—
1-4 family equity lines of credit
Pass	$	—		—		—		—		—		—		180,314		180,314
Special mention		—		—		—		—		—		—		86		86
Substandard		—		—		—		—		—		—		140		140
Total 1-4 family equity lines of credit	$	—		—		—		—		—		—		180,540		180,540
1-4 family equity lines of credit:
Current-period gross charge-offs	$	—		—		—		—		—		—		—		—
Consumer and other
Pass	$	16,368		20,716		7,815		15,853		5,329		6,805		22,842		95,728
Special mention		—		66		83		12		—		—		—		161
Substandard		—		90		9		12		—		3		—		114
Total Consumer and other	$	16,368		20,872		7,907		15,877		5,329		6,808		22,842		96,003
Consumer and other:
Current-period gross charge-offs	$	1		105		41		4		—		1		580		732

The table below presents loan balances classified within each risk rating category based on year of origination as of June 30, 2023:

	In Thousands
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
June 30, 2023
Pass	$	285,043		1,008,588		769,428		344,300		187,131		352,280		478,483		3,425,253
Special mention		97		307		83		1,051		62		1,573		86		3,259
Substandard		—		97		9		12		130		994		152		1,394
Total	$	285,140		1,008,992		769,520		345,363		187,323		354,847		478,721		3,429,906

The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of December 31, 2022:

	In Thousands
													Revolving
	2022		2021		2020		2019		2018		Prior		Loans		Total
December 31, 2022
Residential 1-4 family real estate:
Pass	$	290,315		262,690		106,107		61,984		29,526		81,229		17,751		849,602
Special mention		245		300		885		62		115		1,955		349		3,911
Substandard		—		—		—		131		—		1,326		—		1,457
Total Residential 1-4 family real estate	$	290,560		262,990		106,992		62,177		29,641		84,510		18,100		854,970
Commercial and multi-family real estate:
Pass	$	271,403		246,265		161,326		107,908		74,494		166,267		36,342		1,064,005
Special mention		—		—		162		—		—		40		—		202
Substandard		—		—		—		—		—		90		—		90
Total Commercial and multi-family real estate	$	271,403		246,265		161,488		107,908		74,494		166,397		36,342		1,064,297
Construction, land development and farmland:
Pass	$	364,681		237,051		90,341		9,648		5,212		9,445		163,076		879,454
Special mention		—		—		—		—		—		60		—		60
Substandard		—		—		—		—		—		14		—		14
Total Construction, land development and farmland	$	364,681		237,051		90,341		9,648		5,212		9,519		163,076		879,528
Commercial, industrial and agricultural:
Pass	$	39,222		10,812		15,743		20,441		5,062		4,641		28,567		124,488
Special mention		7		44		17		—		—		47		—		115
Substandard		—		—		—		—		—		—		—		—
Total Commercial, industrial and agricultural	$	39,229		10,856		15,760		20,441		5,062		4,688		28,567		124,603
1-4 family equity lines of credit:
Pass	$	—		—		—		—		—		—		150,849		150,849
Special mention		—		—		—		—		—		—		67		67
Substandard		—		—		—		—		—		—		116		116
Total 1-4 family equity lines of credit	$	—		—		—		—		—		—		151,032		151,032
Consumer and other:
Pass	$	28,487		11,163		18,075		5,995		345		6,757		22,166		92,988
Special mention		74		130		20		2		—		—		—		226
Substandard		74		19		13		—		11		1		—		118
Total Consumer and other	$	28,635		11,312		18,108		5,997		356		6,758		22,166		93,332

The table below presents loan balances classified within each risk rating category based on year of origination as of December 31, 2022:

	In Thousands
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
December 31, 2022
Pass	$	994,108		767,981		391,592		205,976		114,639		268,339		418,751		3,161,386
Special mention		326		474		1,084		64		115		2,102		416		4,581
Substandard		74		19		13		131		11		1,431		116		1,795
Total	$	994,508		768,474		392,689		206,171		114,765		271,872		419,283		3,167,762