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Note 3 - Loans and Allowance for Credit Losses on Loans

9 Months Ended

Sep. 30, 2023

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

(3)

Loans and Allowance for Credit Losses on Loans

Composition of loans by class follows:

(in thousands)	September 30, 2023		December 31, 2022

Commercial real estate - non-owner occupied	$	1,508,615	$	1,397,346
Commercial real estate - owner occupied		945,122		834,629
Total commercial real estate		2,453,737		2,231,975

Commercial and industrial - term		826,201		765,163
Commercial and industrial - term - PPP		4,827		18,593
Commercial and industrial - lines of credit		419,999		465,813
Total commercial and industrial		1,251,027		1,249,569

Residential real estate - owner occupied		696,162		591,515
Residential real estate - non-owner occupied		350,386		313,248
Total residential real estate		1,046,548		904,763

Construction and land development		480,120		445,690
Home equity lines of credit		203,184		200,725
Consumer		143,703		139,461
Leases		14,710		13,322
Credits cards		24,055		20,413
Total loans (1)	$	5,617,084	$	5,205,918

(1) Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $19 million and $17 million at September 30, 2023 and December 31, 2022, respectively, and was included in the condensed consolidated balance sheets.

Loans with carrying amounts of $3.11 billion and $2.77 billion were pledged to secure FHLB borrowing capacity at September 30, 2023 and December 31, 2022, respectively.

Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers, totaled $77 million and $79 million as of September 30, 2023 and December 31, 2022, respectively.

PCD Loans

In connection with the acquisition of CB on March 7, 2022, Bancorp acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded allowance for loan and lease losses. Acquired loans are accounted for under ASC 326, Financial Instruments – Credit Losses.

Bancorp purchased loans through the prior year acquisition for which there was, at the time of acquisition, more-than-insignificant deterioration of credit quality since origination. The carrying amount of loans acquired and classified as PCD was as follows at the respective acquisition dates:

	CB
(in thousands)	March 7, 2022

Purchase price of PCD loans at acquisition	$	88,549
Allowance for credit losses at acquisition		(9,950	)
Non-credit discount at acquisition		(4,094	)
Fair value of PCD loans at acquisition	$	74,505

At September 30, 2023, the book balance of PCD loans acquired as a result of the CB acquisition totaled $55 million. Interest income recognized on loans classified as PCD totaled $1.1 million and $3.3 million for the three and nine month periods ended September 30, 2023, respectively. For the three and nine month periods ended September 30, 2022, interest income recognized on loans classified as PCD totaled $1.1 million and $4.0 million, respectively.

ACL for Loans

The table below reflects activity in the ACL related to loans:

(in thousands) Three Months Ended September 30, 2023	Beginning Balance		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	21,773	$	(420	)	$	-		$	17	$	21,370
Commercial real estate - owner occupied		11,557		1,088			-			6		12,651
Total commercial real estate		33,330		668			-			23		34,021

Commercial and industrial - term		14,792		1,026			(1,878	)		16		13,956
Commercial and industrial - lines of credit		6,503		(158	)		-			1		6,346
Total commercial and industrial		21,295		868			(1,878	)		17		20,302

Residential real estate - owner occupied		8,835		278			-			6		9,119
Residential real estate - non-owner occupied		4,169		55			-			-		4,224
Total residential real estate		13,004		333			-			6		13,343

Construction and land development		6,752		227			-			-		6,979
Home equity lines of credit		1,609		(7	)		-			-		1,602
Consumer		1,285		184			(232	)		131		1,368
Leases		205		7			-			-		212
Credit cards		230		20			(5	)		3		248
Total	$	77,710	$	2,300		$	(2,115	)	$	180	$	78,075

(in thousands) Nine Months Ended September 30, 2023	Beginning Balance		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	22,641	$	(1,324	)	$	-		$	53	$	21,370
Commercial real estate - owner occupied		10,827		1,818			-			6		12,651
Total commercial real estate		33,468		494			-			59		34,021

Commercial and industrial - term		12,991		2,955			(2,006	)		16		13,956
Commercial and industrial - lines of credit		6,389		(193	)		-			150		6,346
Total commercial and industrial		19,380		2,762			(2,006	)		166		20,302

Residential real estate - owner occupied		6,717		2,418			(43	)		27		9,119
Residential real estate - non-owner occupied		3,597		625			-			2		4,224
Total residential real estate		10,314		3,043			(43	)		29		13,343

Construction and land development		7,186		(207	)		-			-		6,979
Home equity lines of credit		1,613		1			(12	)		-		1,602
Consumer		1,158		473			(639	)		376		1,368
Leases		201		11			-			-		212
Credit cards		211		123			(105	)		19		248
Total	$	73,531	$	6,700		$	(2,805	)	$	649	$	78,075

(in thousands) Three Months Ended September 30, 2022	Beginning Balance		Initial ACL on PCD Loans		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	20,723	$	-	$	502		$	(37	)	$	-	$	21,188
Commercial real estate - owner occupied		9,842		-		(227	)		-			153		9,768
Total commercial real estate		30,565		-		275			(37	)		153		30,956

Commercial and industrial - term		12,342		-		2,055			(466	)		232		14,163
Commercial and industrial - lines of credit		5,000		-		203			(99	)		-		5,104
Total commercial and industrial		17,342		-		2,258			(565	)		232		19,267

Residential real estate - owner occupied		5,988		-		423			(17	)		2		6,396
Residential real estate - non-owner occupied		3,190		-		146			-			9		3,345
Total residential real estate		9,178		-		569			(17	)		11		9,741

Construction and land development		6,214		-		731			-			-		6,945
Home equity lines of credit		1,521		-		105			-			-		1,626
Consumer		1,113		-		162			(307	)		148		1,116
Leases		221		-		(10	)		-			-		211
Credit cards		208		-		13			-			-		221
Total	$	66,362	$	-	$	4,103		$	(926	)	$	544	$	70,083

(in thousands) Nine Months Ended September 30, 2022	Beginning Balance		Initial ACL on Loans Purchased with Credit Deterioration		Provision for Credit Losses on Loans			Charge-offs			Recoveries		Ending Balance

Commercial real estate - non-owner occupied	$	15,960	$	3,508	$	1,744		$	(37	)	$	13	$	21,188
Commercial real estate - owner occupied		9,595		2,121		(2,103	)		(41	)		196		9,768
Total commercial real estate		25,555		5,629		(359	)		(78	)		209		30,956

Commercial and industrial - term		8,577		1,358		3,796			(594	)		1,026		14,163
Commercial and industrial - lines of credit		4,802		1,874		(1,437	)		(135	)		-		5,104
Total commercial and industrial		13,379		3,232		2,359			(729	)		1,026		19,267

Residential real estate - owner occupied		4,316		590		1,458			(30	)		62		6,396
Residential real estate - non-owner occupied		3,677		-		(349	)		-			17		3,345
Total residential real estate		7,993		590		1,109			(30	)		79		9,741

Construction and land development		4,789		419		1,809			(72	)		-		6,945
Home equity lines of credit		1,044		2		580			-			-		1,626
Consumer		772		78		565			(796	)		497		1,116
Leases		204		-		7			-			-		211
Credit cards		162		-		12			-			47		221
Total	$	53,898	$	9,950	$	6,082		$	(1,705	)	$	1,858	$	70,083

The following tables present the amortized cost basis of non-performing loans and the amortized cost basis of loans on non-accrual status for which there was no related ACL losses:

	Non-accrual Loans				Past Due 90-Days-
(in thousands)	*With No*		*Total*		*or-More and Still*
September 30, 2023	*Recorded ACL*		*Non-accrual*		*Accruing Interest*

Commercial real estate - non-owner occupied	$	—	$	7,162	$	—
Commercial real estate - owner occupied		—		1,109		—

Total commercial real estate		—		8,271		—

Commercial and industrial - term		3,737		5,229		—
Commercial and industrial - PPP		—		—		—
Commercial and industrial - lines of credit		—		58		—

Total commercial and industrial		3,737		5,287		—

Residential real estate - owner occupied		237		2,709		—
Residential real estate - non-owner occupied		—		378		—

Total residential real estate		237		3,087		—

Construction and land development		—		—		—
Home equity lines of credit		—		304		—
Consumer		—		266		—
Leases		—		—		—
Credit cards		—		12		1
Total	$	3,974	$	17,227	$	1

	Non-accrual Loans						Past Due 90-Days-
(in thousands)	*With No*		*Total*		*Troubled Debt*		*or-More and Still*
December 31, 2022	*Recorded ACL*		*Non-accrual*		*Restructurings (1)*		*Accruing Interest*

Commercial real estate - non-owner occupied	$	—	$	7,707	$	—	$	78
Commercial real estate - owner occupied		1,370		2,525		—		—

Total commercial real estate		1,370		10,232		—		78

Commercial and industrial - term		403		1,182		—		259
Commercial and industrial - PPP		—		21		—		28
Commercial and industrial - lines of credit		273		348		—		300

Total commercial and industrial		676		1,551		—		587

Residential real estate - owner occupied		249		1,801		—		—
Residential real estate - non-owner occupied		—		219		—		220

Total residential real estate		249		2,020		—		220

Construction and land development		—		—		—		—
Home equity lines of credit		—		205		—		—
Consumer		—		234		—		—
Leases		—		—		—		—
Credit cards		—		—		—		7
Total	$	2,295	$	14,242	$	—	$	892

(1) Does not include TDRs reflected in the non-accrual column.

For the three and nine month periods ended September 30, 2023 and 2022, the amount of accrued interest income previously recorded as revenue and subsequently reversed due to the change in accrual status was immaterial.

For the three and nine month periods ended September 30, 2023 and 2022, no interest income was recognized on loans on non-accrual status.

The following table presents the amortized cost basis and ACL allocated for collateral dependent loans, which are individually evaluated to determine expected credit losses:

(in thousands) September 30, 2023	Real Estate		Accounts Receivable / Equipment		Other		Total		ACL Allocation

Commercial real estate - non-owner occupied	$	14,004	$	-	$	-	$	14,004	$	1,892
Commercial real estate - owner occupied		2,906		-		-		2,906		840
Total commercial real estate		16,910		-		-		16,910		2,732

Commercial and industrial - term		432		4,847		-		5,279		412
Commercial and industrial - lines of credit		2,690		159		-		2,849		739
Total commercial and industrial		3,122		5,006		-		8,128		1,151

Residential real estate - owner occupied		3,251		-		-		3,251		206
Residential real estate - non-owner occupied		567		-		-		567		116
Total residential real estate		3,818		-		-		3,818		322

Construction and land development		-		-		-		-		-
Home equity lines of credit		304		-		-		304		-
Consumer		-		-		275		275		20
Leases		-		-		-		-		-
Credit cards		-		-		-		-		-
Total collateral dependent loans	$	24,154	$	5,006	$	275	$	29,435	$	4,225

(in thousands) December 31, 2022	Real Estate		Accounts Receivable / Equipment		Other		Total		ACL Allocation

Commercial real estate - non-owner occupied	$	14,764	$	-	$	-	$	14,764	$	2,652
Commercial real estate - owner occupied		4,415		-		-		4,415		846
Total commercial real estate		19,179		-		-		19,179		3,498

Commercial and industrial - term		39		2,207		-		2,246		1,205
Commercial and industrial - lines of credit		422		2,821		-		3,243		761
Total commercial and industrial		461		5,028		-		5,489		1,966

Residential real estate - owner occupied		2,199		-		-		2,199		222
Residential real estate - non-owner occupied		415		-		-		415		116
Total residential real estate		2,614		-		-		2,614		338

Construction and land development		-		-		-		-		-
Home equity lines of credit		205		-		-		205		-
Consumer		-		-		219		219		20
Leases		-		-		-		-		-
Credit cards		-		-		-		-		-
Total collateral dependent loans	$	22,459	$	5,028	$	219	$	27,706	$	5,822

The following tables present the aging of contractually past due loans by portfolio class:

(in thousands)			30-59 days		60-89 days		90 or more		Total Past		Total
September 30, 2023	Current		Past Due		Past Due		days Past Due		Due Loans		Loans

Commercial real estate - non-owner occupied	$	1,504,918	$	114	$	3,235	$	348	$	3,697	$	1,508,615
Commercial real estate - owner occupied		943,521		1,370		—		231		1,601		945,122
Total commercial real estate		2,448,439		1,484		3,235		579		5,298		2,453,737

Commercial and industrial - term		824,236		456		803		706		1,965		826,201
Commercial and industrial - term - PPP		4,827		—		—		—		—		4,827
Commercial and industrial - lines of credit		419,734		207		—		58		265		419,999
Total commercial and industrial		1,248,797		663		803		764		2,230		1,251,027

Residential real estate - owner occupied		689,433		4,618		709		1,402		6,729		696,162
Residential real estate - non-owner occupied		349,772		377		—		237		614		350,386
Total residential real estate		1,039,205		4,995		709		1,639		7,343		1,046,548

Construction and land development		480,059		61		—		—		61		480,120
Home equity lines of credit		202,697		183		11		293		487		203,184
Consumer		143,019		348		136		200		684		143,703
Leases		14,710		—		—		—		—		14,710
Credit cards		24,049		3		2		1		6		24,055
Total	$	5,600,975	$	7,737	$	4,896	$	3,476	$	16,109	$	5,617,084

(in thousands)			30-59 days		60-89 days		90 or more		Total Past		Total
December 31, 2022	Current		Past Due		Past Due		days Past Due		Due Loans		Loans

Commercial real estate - non-owner occupied	$	1,393,016	$	3,404	$	460	$	466	$	4,330	$	1,397,346
Commercial real estate - owner occupied		831,731		225		2,592		81		2,898		834,629
Total commercial real estate		2,224,747		3,629		3,052		547		7,228		2,231,975

Commercial and industrial - term		763,793		157		292		921		1,370		765,163
Commercial and industrial - term - PPP		17,719		748		77		49		874		18,593
Commercial and industrial - lines of credit		464,494		389		300		630		1,319		465,813
Total commercial and industrial		1,246,006		1,294		669		1,600		3,563		1,249,569

Residential real estate - owner occupied		587,830		1,613		974		1,098		3,685		591,515
Residential real estate - non-owner occupied		312,249		373		331		295		999		313,248
Total residential real estate		900,079		1,986		1,305		1,393		4,684		904,763

Construction and land development		445,618		—		72		—		72		445,690
Home equity lines of credit		200,036		566		40		83		689		200,725
Consumer		138,846		342		85		188		615		139,461
Leases		13,322		—		—		—		—		13,322
Credit cards		20,401		3		2		7		12		20,413
Total	$	5,189,055	$	7,820	$	5,225	$	3,818	$	16,863	$	5,205,918

Loan Risk Ratings

Consistent with regulatory guidance, Bancorp categorizes loans into credit risk rating categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans include all risk-rated loans other than those classified as OAEM, substandard, and doubtful, which are defined below:

OAEM – Loans classified as OAEM have potential weaknesses requiring management's heightened attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have well-defined weaknesses that jeopardize ultimate repayment of the debt. Default is a distinct possibility if the deficiencies are not corrected.

Substandard non-performing – Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. Bancorp has elected not to disclose revolving loans that have converted to term loans, as activity relating to this disclosure, which is included in the tables is currently immaterial to Bancorp’s loan portfolio and is expected to be in the future.

As of September 30, 2023, the risk rating of loans based on year of origination was as follows:

(in thousands)	Term Loans Amortized Cost Basis by Origination Year																	Revolving loans amortized
September 30, 2023	2023			2022			2021			2020			2019		Prior			cost basis		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	255,865		$	354,634		$	338,426		$	222,111		$	122,851	$	153,093		$	22,016	$	1,468,996
OAEM		3,287			-			2,917			-			3,373		4,098			-		13,675
Substandard		-			1,383			1,003			3,628			12,424		247			97		18,782
Substandard non-performing		6,080			299			-			-			76		707			-		7,162
Doubtful		-			-			-			-			-		-			-		-
Total Commercial real estate non-owner occupied	$	265,232		$	356,316		$	342,346		$	225,739		$	138,724	$	158,145		$	22,113	$	1,508,615
Current period gross charge offs	$	-		$	-		$	-		$	-		$	-	$	-		$	-	$	-

Commercial real estate - owner occupied:
Risk rating
Pass	$	127,016		$	181,373		$	203,605		$	189,483		$	96,127	$	113,057		$	15,814	$	926,475
OAEM		3,571			2,002			602			5,192			79		771			-		12,217
Substandard		266			4,286			-			-			392		377			-		5,321
Substandard non-performing		-			230			808			71			-		-			-		1,109
Doubtful		-			-			-			-			-		-			-		-
Total Commercial real estate owner occupied	$	130,853		$	187,891		$	205,015		$	194,746		$	96,598	$	114,205		$	15,814	$	945,122
Current period gross charge offs	$	-		$	-		$	-		$	-		$	-	$	-		$	-	$	-

Commercial and industrial - term:
Risk rating
Pass	$	192,704		$	322,039		$	180,682		$	62,307		$	27,539	$	30,438		$	-	$	815,709
OAEM		-			855			2,625			-			167		164			-		3,811
Substandard		922			85			45			100			-		300			-		1,452
Substandard non-performing		3,848			774			44			341			222		-			-		5,229
Doubtful		-			-			-			-			-		-			-		-
Total Commercial and industrial - term	$	197,474		$	323,753		$	183,396		$	62,748		$	27,928	$	30,902		$	-	$	826,201
Current period gross charge offs	$	(1,274	)	$	(621	)	$	(26	)	$	(57	)	$	-	$	(28	)	$	-	$	(2,006	)

Commercial and industrial - PPP
Risk rating
Pass	$	-		$	-		$	2,753		$	2,074		$	-	$	-		$	-	$	4,827
OAEM		-			-			-			-			-		-			-		-
Substandard		-			-			-			-			-		-			-		-
Substandard non-performing		-			-			-			-			-		-			-		-
Doubtful		-			-			-			-			-		-			-		-
Total Commercial and industrial - PPP	$	-		$	-		$	2,753		$	2,074		$	-	$	-		$	-	$	4,827
Current period gross charge offs	$	-		$	-		$	-		$	-		$	-	$	-		$	-	$	-

(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year													Revolving loans amortized
September 30, 2023	2023		2022		2021		2020		2019		Prior			cost basis			Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	34,187	$	29,544	$	3,413	$	360	$	9,143	$	2,053		$	323,574		$	402,274
OAEM		-		-		-		829		-		-			7,588			8,417
Substandard		-		-		-		-		25		-			9,225			9,250
Substandard non-performing		-		-		-		-		-		-			58			58
Doubtful		-		-		-		-		-		-			-			-
Total Commercial and industrial - lines of credit	$	34,187	$	29,544	$	3,413	$	1,189	$	9,168	$	2,053		$	340,445		$	419,999
Current period gross charge offs	$	-	$	-	$	-	$	-	$	-	$	-		$	-		$	-

Residential real estate - owner occupied
Risk rating
Pass	$	148,984	$	181,101	$	179,320	$	88,093	$	23,378	$	72,112		$	-		$	692,988
OAEM		-		-		91		-		-		-			-			91
Substandard		-		16		-		-		-		358			-			374
Substandard non-performing		178		675		162		254		52		1,388			-			2,709
Doubtful		-		-		-		-		-		-			-			-
Total Residential real estate - owner occupied	$	149,162	$	181,792	$	179,573	$	88,347	$	23,430	$	73,858		$	-		$	696,162
Current period gross charge offs	$	-	$	-	$	-	$	-	$	-	$	(43	)	$	-		$	(43	)

Residential real estate - non-owner occupied
Risk rating
Pass	$	65,058	$	87,911	$	80,228	$	51,062	$	31,771	$	33,108		$	-		$	349,138
OAEM		-		10		-		-		262		280			-			552
Substandard		-		-		-		-		-		318			-			318
Substandard non-performing		-		237		20		-		46		75			-			378
Doubtful		-		-		-		-		-		-			-			-
Total Residential real estate - non-owner occupied	$	65,058	$	88,158	$	80,248	$	51,062	$	32,079	$	33,781		$	-		$	350,386
Current period gross charge offs	$	-	$	-	$	-	$	-	$	-	$	-		$	-		$	-

Construction and land development
Risk rating
Pass	$	83,239	$	246,335	$	73,479	$	49,275	$	489	$	3,837		$	15,996		$	472,650
OAEM		-		-		-		-		-		-			999			999
Substandard		4,175		2,296		-		-		-		-			-			6,471
Substandard non-performing		-		-		-		-		-		-			-			-
Doubtful		-		-		-		-		-		-			-			-
Total Construction and land development	$	87,414	$	248,631	$	73,479	$	49,275	$	489	$	3,837		$	16,995		$	480,120
Current period gross charge offs	$	-	$	-	$	-	$	-	$	-	$	-		$	-		$	-

Home equity lines of credit
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-		$	202,842		$	202,842
OAEM		-		-		-		-		-		-			-			-
Substandard		-		-		-		-		-		-			38			38
Substandard non-performing		-		-		-		-		-		-			304			304
Doubtful		-		-		-		-		-		-			-			-
Total Home equity lines of credit	$	-	$	-	$	-	$	-	$	-	$	-		$	203,184		$	203,184
Current period gross charge offs	$	-	$	-	$	-	$	-	$	-	$	-		$	(12	)	$	(12	)

(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year																		Revolving loans amortized
September 30, 2023	2023			2022			2021			2020			2019			Prior			cost basis			Total

Consumer
Risk rating
Pass	$	25,219		$	19,908		$	11,791		$	3,355		$	2,477		$	2,073		$	78,614		$	143,437
OAEM		-			-			-			-			-			-			-			-
Substandard		-			-			-			-			-			-			-			-
Substandard non-performing		-			110			80			25			13			26			12			266
Doubtful		-			-			-			-			-			-			-			-
Total Consumer	$	25,219		$	20,018		$	11,871		$	3,380		$	2,490		$	2,099		$	78,626		$	143,703
Current period gross charge offs	$	(477	)	$	(18	)	$	(23	)	$	(40	)	$	(40	)	$	(27	)	$	(14	)	$	(639	)

Leases
Risk rating
Pass	$	3,688		$	3,360		$	1,937		$	307		$	315		$	5,103		$	-		$	14,710
OAEM		-			-			-			-			-			-			-			-
Substandard		-			-			-			-			-			-			-			-
Substandard non-performing		-			-			-			-			-			-			-			-
Doubtful		-			-			-			-			-			-			-			-
Total Leases	$	3,688		$	3,360		$	1,937		$	307		$	315		$	5,103		$	-		$	14,710
Current period gross charge offs	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-

Credit cards
Risk rating
Pass	$	-		$	-		$	-		$	-		$	-		$	-		$	24,043		$	24,043
OAEM		-			-			-			-			-			-			-			-
Substandard		-			-			-			-			-			-			-			-
Substandard non-performing		-			-			-			-			-			-			12			12
Doubtful		-			-			-			-			-			-			-			-
Total Credit cards	$	-		$	-		$	-		$	-		$	-		$	-		$	24,055		$	24,055
Current period gross charge offs	$	-		$	-		$	-		$	-		$	-		$	-		$	(105	)	$	(105	)

Total loans
Risk rating
Pass	$	935,960		$	1,426,205		$	1,075,634		$	668,427		$	314,090		$	414,874		$	682,899		$	5,518,089
OAEM		6,858			2,867			6,235			6,021			3,881			5,313			8,587			39,762
Substandard		5,363			8,066			1,048			3,728			12,841			1,600			9,360			42,006
Substandard non-performing		10,106			2,325			1,114			691			409			2,196			386			17,227
Doubtful		-			-			-			-			-			-			-			-
Total Loans	$	958,287		$	1,439,463		$	1,084,031		$	678,867		$	331,221		$	423,983		$	701,232		$	5,617,084
Current period gross charge offs	$	(1,751	)	$	(639	)	$	(49	)	$	(97	)	$	(40	)	$	(98	)	$	(131	)	$	(2,805	)

As of December 31, 2022, the risk rating of loans based on year of origination was as follows:

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Commercial real estate - non-owner occupied:
Risk rating
Pass	$	338,460	$	380,612	$	264,833	$	128,407	$	76,359	$	139,095	$	24,875	$	1,352,641
OAEM		-		2,006		-		3,534		-		5,414		-		10,954
Substandard		1,381		1,012		3,744		19,574		-		233		100		26,044
Substandard non-performing		-		-		-		-		-		7,707		-		7,707
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estate non-owner occupied	$	339,841	$	383,630	$	268,577	$	151,515	$	76,359	$	152,449	$	24,975	$	1,397,346

Commercial real estate - owner occupied:
Risk rating
Pass	$	165,711	$	202,599	$	194,052	$	104,148	$	60,899	$	74,356	$	13,062	$	814,827
OAEM		2,895		1,777		4,540		1,891		676		216		510		12,505
Substandard		-		1,152		-		1,623		1,928		69		-		4,772
Substandard non-performing		1,533		911		-		-		-		81		-		2,525
Doubtful		-		-		-		-		-		-		-		-
Total Commercial real estate owner occupied	$	170,139	$	206,439	$	198,592	$	107,662	$	63,503	$	74,722	$	13,572	$	834,629

Commercial and industrial - term:
Risk rating
Pass	$	357,470	$	210,906	$	90,063	$	39,068	$	29,901	$	27,354	$	-	$	754,762
OAEM		3,835		2,935		-		303		1,426		-		-		8,499
Substandard		178		-		-		201		-		341		-		720
Substandard non-performing		539		39		486		101		17		-		-		1,182
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - term	$	362,022	$	213,880	$	90,549	$	39,673	$	31,344	$	27,695	$	-	$	765,163

Commercial and industrial - PPP
Risk rating
Pass	$	-	$	14,212	$	4,047	$	-	$	-	$	-	$	-	$	18,259
OAEM		-		-		313		-		-		-		-		313
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		21		-		-		-		-		21
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - PPP	$	-	$	14,212	$	4,381	$	-	$	-	$	-	$	-	$	18,593

(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Commercial and industrial - lines of credit
Risk rating
Pass	$	54,948	$	13,999	$	991	$	9,179	$	1,188	$	1,033	$	367,688	$	449,026
OAEM		-		-		-		-		-		366		12,491		12,857
Substandard		-		-		905		1,915		-		-		762		3,582
Substandard non-performing		-		-		-		273		-		-		75		348
Doubtful		-		-		-		-		-		-		-		-
Total Commercial and industrial - lines of credit	$	54,948	$	13,999	$	1,896	$	11,367	$	1,188	$	1,399	$	381,016	$	465,813

Residential real estate - owner occupied
Risk rating
Pass	$	188,765	$	189,007	$	96,818	$	28,316	$	15,281	$	70,556	$	-	$	588,743
OAEM		360		96		-		70		-		-		-		526
Substandard		18		-		10		-		140		277		-		445
Substandard non-performing		65		191		70		292		122		1,061		-		1,801
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - owner occupied	$	189,208	$	189,294	$	96,898	$	28,678	$	15,543	$	71,894	$	-	$	591,515

Residential real estate - non-owner occupied
Risk rating
Pass	$	97,313	$	83,458	$	55,787	$	34,304	$	19,300	$	21,720	$	-	$	311,882
OAEM		15		-		115		271		124		290		-		815
Substandard		-		-		-		-		-		332		-		332
Substandard non-performing		86		21		-		-		-		112		-		219
Doubtful		-		-		-		-		-		-		-		-
Total Residential real estate - non-owner occupied	$	97,414	$	83,479	$	55,902	$	34,575	$	19,424	$	22,454	$	-	$	313,248

Construction and land development
Risk rating
Pass	$	257,559	$	99,204	$	45,427	$	580	$	5,959	$	1,123	$	30,378	$	440,230
OAEM		-		-		-		-		-		-		999		999
Substandard		4,461		-		-		-		-		-		-		4,461
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Construction and land development	$	262,020	$	99,204	$	45,427	$	580	$	5,959	$	1,123	$	31,377	$	445,690

Home equity lines of credit
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	200,481	$	200,481
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		39		39
Substandard non-performing		-		-		-		-		-		-		205		205
Doubtful		-		-		-		-		-		-		-		-
Total Home equity lines of credit	$	-	$	-	$	-	$	-	$	-	$	-	$	200,725	$	200,725

(continued)

(in thousands)	Term Loans Amortized Cost Basis by Origination Year												Revolving loans amortized
December 31, 2022	2022		2021		2020		2019		2018		Prior		cost basis		Total

Consumer
Risk rating
Pass	$	27,308	$	18,396	$	5,536	$	5,450	$	2,270	$	1,621	$	78,646	$	139,227
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		21		56		40		62		9		31		15		234
Doubtful		-		-		-		-		-		-		-		-
Total Consumer	$	27,329	$	18,452	$	5,576	$	5,512	$	2,279	$	1,652	$	78,661	$	139,461

Leases
Risk rating
Pass	$	4,643	$	4,344	$	2,589	$	535	$	576	$	635	$	-	$	13,322
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Leases	$	4,643	$	4,344	$	2,589	$	535	$	576	$	635	$	-	$	13,322

Credit cards
Risk rating
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	20,413	$	20,413
OAEM		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Substandard non-performing		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Total Credit cards	$	-	$	-	$	-	$	-	$	-	$	-	$	20,413	$	20,413

Total loans
Risk rating
Pass	$	1,492,177	$	1,216,737	$	760,143	$	349,987	$	211,733	$	337,493	$	735,543	$	5,103,813
OAEM		7,105		6,814		4,968		6,069		2,226		6,286		14,000		47,468
Substandard		6,038		2,164		4,659		23,313		2,068		1,252		901		40,395
Substandard non-performing		2,244		1,218		617		728		148		8,992		295		14,242
Doubtful		-		-		-		-		-		-		-		-
Total Loans	$	1,507,564	$	1,226,933	$	770,387	$	380,097	$	216,175	$	354,023	$	750,739	$	5,205,918

For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in credit cards based on payment activity:

	September 30,		December 31,
(in thousands)	2023		2022

Credit cards
Performing	$	24,043	$	20,413
Non-performing		12		—
Total credit cards	$	24,055	$	20,413

Bancorp had $483,000 and $317,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process at September 30, 2023 and December 31, 2022.

Modifications to Borrowers Experiencing Financial Difficulty

Bancorp adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,” effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

During the three and nine months ended September 30, 2023, there were no modifications made to loans for borrowers experiencing financial difficulty and there were no payment defaults of existing modified loans within 12 months following modification. Default is determined at 90 days or more past due, charge off, or foreclosure.

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

Detail of outstanding TDRs included in total non-accrual loans follows:

	September 30, 2022
			Specific		Additional
			reserve		commitment
(in thousands)	Balance		allocation		to lend

Commercial real estate - owner occupied	$	902	$	202	$	—
Commercial & industrial - term		—		—		—
Total TDRs	$	902	$	202	$	—

During the three and nine month periods ended September 30, 2022, there were no loans modified as TDRs and there were no payment defaults of existing TDRs within 12 months following the modification. Default is determined at 90 or more days past due, charge-off, or foreclosure.