LOANS

12 Months Ended

Dec. 31, 2022

LOANS

LOANS

5. LOANS:

Loans are summarized as follows:

	December 31,
(Dollar amounts in thousands)	2022		2021
Commercial	$	1,798,260	$	1,674,066
Residential		673,464		664,509
Consumer		588,539		474,026
Total gross loans		3,060,263		2,812,601
Deferred costs, net		7,175		3,294
Allowance for credit losses		(39,779)		(48,305)
TOTAL	$	3,027,659	$	2,767,590

The Corporation periodically sells residential mortgage loans it originates based on the overall loan demand of the Corporation and the outstanding balances in the residential mortgage portfolio. At December 31, 2022 and 2021, loans held for sale were $1.7 million and $4.2 million, respectively, and are included in the totals above.

In the normal course of business, the Corporation’s subsidiary banks make loans to directors and executive officers and to their associates. In 2022, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to $50.9 million at the beginning of the year. During 2022, advances of $46.2 million, repayments of $45.7 million, and reductions for the removal of The Morris Plan directors of $5.3 million were made with respect to related party loans for an aggregate dollar amount outstanding of $46.1 million at December 31, 2022.

Loans serviced for others, which are not reported as assets, total $518.1 million and $542.8 million at year-end 2022 and 2021. Custodial escrow balances maintained in connection with serviced loans were $2.7 million and $3.0 million at year-end 2022 and 2021.

Activity for capitalized mortgage servicing rights (included in other assets) was as follows:

	December 31,
(Dollar amounts in thousands)	2022		2021		2020
Servicing rights:
Beginning of year	$	1,959	$	1,601	$	1,435
Additions		489		1,094		956
Amortized to expense		(681)		(736)		(790)
End of year	$	1,767	$	1,959	$	1,601

Third party valuations are conducted periodically for mortgage servicing rights. Based on these valuations, fair values were approximately $3.3 million and $2.7 million at year end 2022 and 2021. There was no valuation allowance in 2022 or 2021.

Fair value for 2022 was determined using a discount rate of 12.5%, prepayment speeds ranging from 113% to 238%, depending on the stratification of the specific right. Fair value at year end 2021 was determined using a discount rate of 12.5%, prepayment speeds ranging from 185% to 453%, depending on the stratification of the specific right. Mortgage servicing rights are amortized over 8 years, the expected life of the sold loans.