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ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
 9 Months Ended
Sep. 30, 2022
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 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, 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
Three Months Ended September 30, 2021                
Beginning balance, July 1$33,130 $28,291 $3,930 $1,298 $3,165 $1,393 $506 $71,713 
Provision for credit losses3,507 (1,545)(244)89 (265)(116)(126)1,300 
Loans charged-off(5)0 0 0 (13)(72)0 (90)
Recoveries44 0 0 0 14 67 0 125 
Net loans (charged-off) recovered39 0 0 0 1 (5)0 35 
Ending balance$36,676 $26,746 $3,686 $1,387 $2,901 $1,272 $380 $73,048 
(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 
(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, 2021                
Beginning balance, January 1$28,333 $22,907 $3,043 $416 $2,619 $951 $3,139 $61,408 
Impact of adopting ASC 3264,312 4,316 1,060 941 953 349 (2,881)9,050 
Provision for credit losses2,780 (420)(737)30 (719)21 122 1,077 
Loans charged-off(254)(71)0 0 (51)(217)0 (593)
Recoveries1,505 14 320 0 99 168 0 2,106 
Net loans (charged-off) recovered1,251 (57)320 0 48 (49)0 1,513 
Ending balance$36,676 $26,746 $3,686 $1,387 $2,901 $1,272 $380 $73,048 
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 institution’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 origination date as of September 30, 2022:
(dollars in thousands)20222021202020192018PriorTerm TotalRevolvingTotal
Commercial and industrial loans:                  
Working capital lines of credit loans:                  
Pass$0 $2,841 $1,795 $0 $0 $0 $4,636 $622,729 $627,365 
Special Mention0 0 0 0 0 0 0 41,856 41,856 
Substandard0 0 0 0 0 0 0 15,122 15,122 
Total0 2,841 1,795 0 0 0 4,636 679,707 684,343 
Non-working capital loans:
Pass240,076 134,468 98,133 52,784 14,249 18,906 558,616 232,421 791,037 
Special Mention479 4,741 0 111 197 3,388 8,916 207 9,123 
Substandard1,972 2,450 6,210 3 1,971 4,423 17,029 3,561 20,590 
Not Rated2,229 1,675 1,355 480 207 29 5,975 0 5,975 
Total244,756 143,334 105,698 53,378 16,624 26,746 590,536 236,189 826,725 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass23,795 19,247 20,833 422 0 0 64,297 401,951 466,248 
Owner occupied loans:
Pass73,876 180,121 149,215 100,287 70,756 101,475 675,730 44,382 720,112 
Special Mention1,176 5,495 0 835 1,620 8,148 17,274 0 17,274 
Substandard322 106 1,492 0 1,161 231 3,312 0 3,312 
Total75,374 185,722 150,707 101,122 73,537 109,854 696,316 44,382 740,698 
Nonowner occupied loans:
Pass126,326 128,907 140,706 93,016 13,844 75,388 578,187 66,248 644,435 
Special Mention0 11,232 0 0 0 0 11,232 0 11,232 
Total126,326 140,139 140,706 93,016 13,844 75,388 589,419 66,248 655,667 
Multifamily loans:
Pass19,757 25,847 37,245 35,896 17,105 11,752 28,977 159,474 9,492 168,966 
Special Mention21,968 0 0 0 0 0 21,968 0 21,968 
Total41,725 25,847 37,245 35,896 11,752 28,977 181,442 9,492 190,934 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass28,584 42,904 30,599 9,904 8,581 20,594 141,166 20,171 161,337 
Special Mention260 0 1,676 1,863 0 29 3,828 0 3,828 
Substandard0 0 0 0 0 145 145 0 145 
Total28,844 42,904 32,275 11,767 8,581 20,768 145,139 20,171 165,310 
Loans for agricultural production:
Pass2,899 31,300 23,029 3,845 9,521 4,792 75,386 89,018 164,404 
Special Mention300 399 7,263 996 0 0 8,958 3,465 12,423 
Total3,199 31,699 30,292 4,841 9,521 4,792 84,344 92,483 176,827 
Other commercial loans:
Pass19,286 5,854 19,079 156 995 12,817 58,187 39,046 97,233 
Special Mention0 0 0 0 0 3,341 3,341 0 3,341 
Total19,286 5,854 19,079 156 995 16,158 61,528 39,046 100,574 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans
Pass6,500 13,063 12,601 4,881 4,727 4,054 45,826 5,618 51,444 
Special Mention0 0 560 0 0 0 560 0 560 
Substandard0 0 0 0 0 1,749 1,749 0 1,749 
Not Rated39,377 44,681 20,174 6,187 3,082 28,548 142,049 0 142,049 
Total45,877 57,744 33,335 11,068 7,809 34,351 190,184 5,618 195,802 
Open end and junior lien loans
Pass0 631 362 77 77 0 1,147 5,129 6,276 
Not Rated39,296 15,143 3,445 4,014 1,918 2,456 66,272 102,641 168,913 
Total39,296 15,774 3,807 4,091 1,995 2,456 67,419 107,770 175,189 
Residential construction loans
Not Rated12,215 3,901 910 300 132 1,241 18,699 0 18,699 
Total12,215 3,901 910 300 132 1,241 18,699 0 18,699 
Other consumer loans
Pass1,484 1,919 488 600 0 992 5,483 22,394 27,877 
Substandard0 0 0 203 0 0 203 0 203 
Not Rated18,286 16,046 10,173 4,336 3,345 1,566 53,752 10,987 64,739 
Total19,770 17,965 10,661 5,139 3,345 2,558 59,438 33,381 92,819 
TOTAL$680,463 $692,971 $587,343 $321,196 $148,135 $323,289 $2,753,397 $1,736,438 $4,489,835 
As of September 30, 2022, $1.6 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.
The following table summarizes the risk category of loans by loan segment and origination date as of December 31, 2021:
(dollars in thousands)20212020201920182017PriorTerm TotalRevolvingTotal
Commercial and industrial loans:                  
Working capital lines of credit loans:                  
Pass$3,699 $830 $3,360 $0 $0 $0 $7,889 $558,634 $566,523 
Special Mention0 0 0 0 0 0 0 60,441 60,441 
Substandard0 0 35 0 0 0 35 25,928 25,963 
Total3,699 830 3,395 0 0 0 7,924 645,003 652,927 
Non-working capital loans:
Pass185,374 139,157 79,477 38,899 19,415 18,489 480,811 203,794 684,605 
Special Mention17,728 0 225 979 2,350 1,426 22,708 0 22,708 
Substandard2,996 6,948 1,091 2,534 5,465 426 19,460 3,321 22,781 
Not Rated2,265 1,758 837 563 128 14 5,565 0 5,565 
Total208,363 147,863 81,630 42,975 27,358 20,355 528,544 207,115 735,659 
Commercial real estate and multi-family residential loans:
Construction and land development loans:
Pass35,136 30,224 1,276 998 0 0 67,634 310,396 378,030 
Total35,136 30,224 1,276 998 0 0 67,634 310,396 378,030 
Owner occupied loans:
Pass135,861 169,404 124,117 85,070 78,155 93,925 686,532 29,611 716,143 
Special Mention6,555 0 880 933 7,387 1,235 16,990 0 16,990 
Substandard489 1,570 909 1,758 694 238 5,658 0 5,658 
Total142,905 170,974 125,906 87,761 86,236 95,398 709,180 29,611 738,791 
Nonowner occupied loans:
Pass146,342 154,433 107,262 19,054 31,023 59,154 517,268 44,362 561,630 
Special Mention11,825 331 0 0 0 14,253 26,409 0 26,409 
Total158,167 154,764 107,262 19,054 31,023 73,407 543,677 44,362 588,039 
Multifamily loans:
Pass84,678 53,195 36,575 12,286 14,574 9,793 211,101 13,434 224,535 
Special Mention0 0 0 0 22,252 0 22,252 0 22,252 
Total84,678 53,195 36,575 12,286 36,826 9,793 233,353 13,434 246,787 
Agri-business and agricultural loans:
Loans secured by farmland:
Pass47,532 37,035 16,249 10,469 10,454 17,021 138,760 61,774 200,534 
Special Mention0 1,985 2,303 0 180 30 4,498 918 5,416 
Substandard207 0 0 0 0 145 352 0 352 
Total47,739 39,020 18,552 10,469 10,634 17,196 143,610 62,692 206,302 
Loans for agricultural production:
Pass36,238 25,855 4,224 11,072 1,331 4,178 82,898 138,142 221,040 
Special Mention448 8,642 1,171 0 0 0 10,261 8,272 18,533 
Total36,686 34,497 5,395 11,072 1,331 4,178 93,159 146,414 239,573 
Other commercial loans:
Pass6,556 21,111 3,243 1,273 8,592 7,460 48,235 21,145 69,380 
Special Mention0 0 0 0 0 3,798 3,798 0 3,798 
Total6,556 21,111 3,243 1,273 8,592 11,258 52,033 21,145 73,178 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans
Pass14,635 16,173 5,312 5,903 3,049 3,221 48,293 5,005 53,298 
Special Mention0 0 0 0 0 1,274 1,274 0 1,274 
Not Rated45,089 27,738 9,248 5,217 7,628 26,321 121,241 482 121,723 
Total59,724 43,911 14,560 11,120 10,677 30,816 170,808 5,487 176,295 
Open end and junior lien loans
Pass679 379 159 313 0 0 1,530 5,074 6,604 
Substandard0 0 0 0 0 0 0 98 98 
Not Rated21,945 5,624 5,987 3,899 1,653 1,526 40,634 110,523 151,157 
Total22,624 6,003 6,146 4,212 1,653 1,526 42,164 115,695 157,859 
Residential construction loans
Not Rated7,926 1,537 960 138 171 1,125 11,857 0 11,857 
Total7,926 1,537 960 138 171 1,125 11,857 0 11,857 
Other consumer loans
Pass3,401 957 1,523 0 1,155 0 7,036 12,998 20,034 
Substandard36 23 230 0 0 0 289 0 289 
Not Rated21,652 14,931 7,474 5,844 1,890 1,203 52,994 9,227 62,221 
Total25,089 15,911 9,227 5,844 3,045 1,203 60,319 22,225 82,544 
TOTAL$839,292 $719,840 $414,127 $207,202 $217,546 $266,255 $2,664,262 $1,623,579 $4,287,841 
As of December 31, 2021, $26.2 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, 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$684,320 $23 $0 $683,016 $1,327 $379 $684,343 
Non-working capital loans826,725 0 0 822,017 4,708 657 826,725 
Commercial real estate and multi-family residential loans:
Construction and land development loans466,248 0 0 466,248 0 0 466,248 
Owner occupied loans740,698 0 0 737,618 3,080 1,483 740,698 
Nonowner occupied loans655,667 0 0 655,667 0 0 655,667 
Multifamily loans190,934 0 0 190,934 0 0 190,934 
Agri-business and agricultural loans:
Loans secured by farmland165,310 0 0 165,165 145 0 165,310 
Loans for agricultural production176,827 0 0 176,827 0 0 176,827 
Other commercial loans100,574 0 0 100,574 0 0 100,574 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans195,196 581 25 195,597 205 136 195,802 
Open end and junior lien loans175,090 99 0 174,974 215 215 175,189 
Residential construction loans18,699 0 0 18,699 0 0 18,699 
Other consumer loans92,603 216 0 92,609 210 8 92,819 
Total$4,488,891 $919 $25 $4,479,945 $9,890 $2,878 $4,489,835 
As of September 30, 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 nine month period ended September 30, 2022.
The following table presents the aging of the amortized cost basis in past due loans as of December 31, 2021 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$652,903 $24 $0 $646,961 $5,966 $5,200 $652,927 
Non-working capital loans735,658 1 0 731,063 4,596 229 735,659 
Commercial real estate and multi-family residential loans:
Construction and land development loans378,030 0 0 378,030 0 0 378,030 
Owner occupied loans738,791 0 0 735,157 3,634 2,129 738,791 
Nonowner occupied loans588,039 0 0 588,039 0 0 588,039 
Multifamily loans246,787 0 0 246,787 0 0 246,787 
Agri-business and agricultural loans:
Loans secured by farmland206,302 0 0 205,967 335 0 206,302 
Loans for agricultural production239,573 0 0 239,573 0 0 239,573 
Other commercial loans73,178 0 0 73,178 0 0 73,178 
Consumer 1‑4 family mortgage loans:
Closed end first mortgage loans175,678 500 117 176,240 55 55 176,295 
Open end and junior lien loans157,729 130 0 157,761 98 98 157,859 
Residential construction loans11,857 0 0 11,857 0 0 11,857 
Other consumer loans82,472 72 0 82,255 289 0 82,544 
Total$4,286,997 $727 $117 $4,272,868 $14,973 $7,711 $4,287,841 
As of December 31, 2021 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, 2021.
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, 2022
(dollars in thousands)Real EstateGeneral
Business
 Assets		OtherTotal
Commercial and industrial loans:      
Working capital lines of credit loans$0 $1,327 $0 $1,327 
Non-working capital loans476 9,441 229 10,146 
Commercial real estate and multi-family residential loans:
Owner occupied loans428 1,492 1,161 3,081 
Agri-business and agricultural loans:
Loans secured by farmland0 145 0 145 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans1,954 0 0 1,954 
Open end and junior lien loans216 0 0 216 
Other consumer loans0 0 8 8 
Total$3,074 $12,405 $1,398 $16,877 
December 31, 2021
(dollars in thousands)Real EstateGeneral
Business
 Assets		OtherTotal
Commercial and industrial loans:      
Working capital lines of credit loans$0 $5,966 $0 $5,966 
Non-working capital loans1,606 9,475 229 11,310 
Commercial real estate and multi-family residential loans:
Owner occupied loans1,435 1,505 1,161 4,101 
Agri-business and agricultural loans:
Loans secured by farmland190 145 0 335 
Consumer 1-4 family mortgage loans:
Closed end first mortgage loans3,081 0 0 3,081 
Open end and junior lien loans98 0 0 98 
Other consumer loans0 0 59 59 
Total$6,312 $17,091 $1,449 $24,950 
Modifications:
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. Additionally, the Company may allow a loan to go interest only for a specified period of time.
During the three and nine months ended September 30, 2022, no loans received a material modification based on borrower financial difficulty.
Troubled Debt Restructurings (Prior to January 1, 2022):
Prior to the partial adoption of ASU 2022-02 on January 1, 2022, which had an immaterial impact on the Company's allowance for credit losses, troubled debt restructured loans were included in the totals for individually analyzed loans. The following are disclosures related to troubled debt restructured loans in prior periods.
Troubled debt restructured loans are included in the totals for individually analyzed loans. The Company has allocated $5.8 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2021. The Company is not committed to lend additional funds to debtors whose loans have been modified in a trouble debt restructuring.
(dollars in thousands)December 31,
2021
Accruing troubled debt restructured loans$5,121 
Nonaccrual troubled debt restructured loans6,218 
Total troubled debt restructured loans$11,339 
During the three and nine months ended September 30, 2021, no loans were modified as troubled debt restructurings.