Loans and Allowance for Credit Losses

12 Months Ended

Dec. 31, 2023

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

NOTE 6 Loans and Allowance for Credit Losses

The following table presents total loans outstanding, by portfolio segment, as of December 31, 2023 and 2022:

	December 31,		December 31,
(dollars in thousands)	2023		2022
Commercial
Commercial and industrial	$	598,321	$	583,876
Real estate construction		124,034		97,810
Commercial real estate		1,126,912		881,670
Total commercial		1,849,267		1,563,356
Consumer
Residential real estate first mortgage		726,879		679,551
Residential real estate junior lien		154,134		150,479
Other revolving and installment		29,303		50,608
Total consumer		910,316		880,638
Total loans	$	2,759,583	$	2,443,994

Total loans include net deferred loan fees and costs of $0.2 million and $0.9 million at December 31, 2023 and 2022, respectively. Unearned discounts associated with the acquisition of Metro Phoenix Bank totaled $5.1 million and $7.1 million as of December 31, 2023 and 2022, respectively.

Accrued interest receivable on loans is recorded within accrued interest receivable, and totaled $12.2 million at December 31, 2023 and $9.2 million at December 31, 2022.

The Company manages its loan portfolio proactively to effectively identify problem credits and assess trends early, implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company monitors and manages credit risk through the following governance structure:

● The Credit Risk team, Collection and Special Assets team and the Credit Governance Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking, oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system.

● The Loan Committee is responsible for reviewing and approving all credit requests that exceed individual limits that have not been countersigned by an individual with sufficient assigned authority. This committee has full authority to commit the Bank to any request that fits within its assigned approval authority.

● The adequacy of the ACL is overseen by the ACL Governance Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking. The ACL Governance Committee supports the oversight efforts of the Board of Directors.

● The Board of Directors has approval authority and responsibility for all matters regarding loan policy, reviews all loans approved or declined by the Loan Committee, approves lending authority and monitors asset quality and concentration levels.

● The ACL Governance Committee and Bank Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.

Loans with a carrying value of $1.6 billion and $1.5 billion were pledged at December 31, 2023 and 2022, respectively, to secure FHLB borrowings, public deposits, and for other purposes required or permitted by law.

Segmentation

For purposes of determining the ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of December 31, 2023, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, included the following:

Commercial & Industrial: Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Commercial Real Estate – Construction, Land & Development: Construction, Land & Development commercial estate loans primarily consists of loans to commercial real estate construction projects until they are completed. The construction projects are for real property that may include, but are not limited to multifamily residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Construction, Land & Development commercial real estate loans are typically written with interest only, variable rate, multi advance structures. Collateral values are determine based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

Commercial Real Estate – Multifamily: Multifamily commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Multifamily commercial real estate loans consist of mortgage loans to finance investments in real property including multifamily residential properties, Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

Commercial Real Estate – Non-Owner Occupied: Non-owner occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non owner occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan to value ratios at origination are governed by established policy and regulatory guidelines.

Commercial Real Estate – Owner Occupied: Generally, owner occupied commercial real estate loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner occupied commercial real estate loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, commercial/retail office space, restaurants, educational and medical practice facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan to value ratios at origination are governed by established policy and regulatory guidelines.

Agricultural: Agricultural loans include loans secured by farmland and loans for agricultural production. Farmland includes purposes such as crop and livestock production. Farmland loans are typically written with amortizing payment structures. Collateral values for farmland are determined based upon appraisals and evaluations in accordance with established policy guidelines and maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Agricultural production loans are for the purpose of financing working capital and/or capital investment for agriculture production activities. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate in applicable. Agricultural production loans are primarily paid by the operating cash flow of the borrower. Agricultural production loans may be secured or unsecured.

Residential – 1st Lien: Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. Collateral consists of senior mortgage liens on one to four family residences, including for investment purposes.

Residential – Construction: Residential real estate construction loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Residential real estate construction loans are typically written with interest only, variable rate, multi advance structures. Collateral consists of residential construction projects for one to four family residences, including for investment purposes.

HELOC: Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupied one to four family homes, condominiums, or vacation homes. Home equity lines of credit have a variable rate and are billed as interest only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Residential – Jr Lien: Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. Collateral consists of junior mortgage liens on one to four family residences, including for investment purposes.

Consumer: Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable. Consumer loans may be secured or unsecured.

ACL on Loans

The following tables present, by loan portfolio segment, a summary of the changes in the ACL for the three years ending December 31, 2023, 2022, and 2021:

	Year ended December 31, 2023
	Beginning		Adoption		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		of ASC 326		Credit Losses(1)		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	9,233	$	(707)	$	645	$	(436)	$	1,159	$	9,894
Real estate construction		1,437		2,549		2,125		—		—		6,111
Commercial real estate		12,761		(131)		(778)		—		45		11,897
Total commercial		23,431		1,711		1,992		(436)		1,204		27,902
Consumer
Residential real estate first mortgage		5,857		2,269		(1,829)		(49)		330		6,578
Residential real estate junior lien		1,318		(27)		(115)		(77)		52		1,151
Other revolving and installment		540		(96)		(273)		(51)		92		212
Total consumer		7,715		2,146		(2,217)		(177)		474		7,941
Total	$	31,146	$	3,857	$	(225)	$	(613)	$	1,678	$	35,843

(1) The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of $2.2 million related to off-balance sheet credit exposure and $40 thousand related to investment securities held-to-maturity.

	Year ended December 31, 2022
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	9,218	$	950	$	(1,396)	$	461	$	9,233
Real estate construction		810		551		—		76		1,437
Commercial real estate		12,778		(151)		—		134		12,761
Total commercial		22,806		1,350		(1,396)		671		23,431
Consumer
Residential real estate first mortgage		6,874		(1,017)		—		—		5,857
Residential real estate junior lien		1,380		(344)		—		282		1,318
Other revolving and installment		512		11		(153)		170		540
Total consumer		8,766		(1,350)		(153)		452		7,715
Total	$	31,572	$	—	$	(1,549)	$	1,123	$	31,146

	Year ended December 31, 2021
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	10,547	$	(1,759)	$	(1,230)	$	1,660	$	9,218
Real estate construction		690		120		—		—		810
Commercial real estate		14,574		(2,082)		(536)		822		12,778
Total commercial		25,811		(3,721)		(1,766)		2,482		22,806
Consumer
Residential real estate first mortgage		6,174		700		—		—		6,874
Residential real estate junior lien		1,472		(215)		—		123		1,380
Other revolving and installment		789		(264)		(156)		143		512
Total consumer		8,435		221		(156)		266		8,766
Total	$	34,246	$	(3,500)	$	(1,922)	$	2,748	$	31,572

The ACL on loans at December 31, 2023, was $35.8 million, an increase of $4.7 million, or 15.1%, since December 31, 2022. The increase was primarily due to the adoption of CECL, which resulted in an additional allowance of $3.9 million in the ACL on loans. As of December 31, 2023 and 2022, the significant model inputs and assumptions used within the discounted cash flow model for purposes of estimating the ACL on loans were:

● Macroeconomic (loss) drivers: As of December 31, 2023 and 2022, the following loss drivers for each loan segment were used to calculate the expected PD over the forecast and reversion period:

● Commercial & Industrial – National Unemployment; Change in National GDP

● CRE – Construction, Land & Development – National Unemployment; Change in National GDP

● CRE – Multifamily – National Unemployment

● CRE – Non-Owner Occupied – National Unemployment; Change in National GDP

● CRE – Owner Occupied – National Unemployment

● Agricultural – (None)

● Residential – 1^st Lien – National Unemployment; Change in National Home Price Index (“HPI”)

● Residential – Construction – National Unemployment; Change in National HPI

● Residential – HELOC – National Unemployment; Change in National HPI

● Residential – Jr Lien – National Unemployment; Change in National HPI

● Consumer – National Unemployment; Change in National GDP

● Paycheck Protection Program – (None)

After adoption of ASU 2016-13, given the strong loan growth and the future economic uncertainty, the reserve increased $840 thousand during 2023. This increase was partially offset by the release of certain qualitative factors due to strong asset quality and the continued maturity of the overall model. The increase in the reserve represents the elevated risk of credit loss within the Company's portfolio.

Credit Concentrations

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and industrial and owner occupied real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. Property type coding is used for investment real estate. As of December 31, 2023, the Company's total exposure to the general business industry was 10.7% of total loans. There were no other industry concentrations exceeding 10% of the Company's total loan portfolio as of December 31, 2023.

Credit Quality Indicators

The Company’s consumer loan portfolio is primarily comprised of secured loans that are evaluated at origination on a centralized basis against standardized underwriting criteria. The Company generally does not risk rate consumer loans unless a default event such as bankruptcy or extended nonperformance takes place. Credit quality for the consumer loan portfolio is measured by delinquency rates, nonaccrual amounts and actual losses incurred. These loans are rated as either performing or non-performing.

The Company assigns a risk rating to all commercial loans, except pools of homogeneous loans, and performs detailed internal and external reviews of risk rated loans over a certain threshold to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by the Company’s regulators. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the estimated fair values of collateral securing the loans. These credit quality indicators are used to assign a risk rating to each individual loan.

The Company’s ratings are aligned to pass and criticized categories. The criticized category includes special mention, substandard, and doubtful risk ratings. The risk ratings are defined as follows:

● Pass: A pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.

● Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

● Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. 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 characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

● Loss: Loans classified as loss are considered uncollectible and charged off immediately.

The following table sets forth the amortized cost basis of loans by credit quality indicator and vintage based on the most recent analysis performed, as of December 31, 2023:

													Revolving
(dollars in thousands)	Term Loans Amortized Cost Basis by Origination Year												Loans Amortized
As of December 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		Total
Commercial and industrial
Pass	$	197,533	$	89,090	$	67,691	$	64,272	$	34,603	$	15,053	$	100,239	$	568,481
Special mention		—		—		—		—		—		—		—		—
Substandard		464		4,844		236		6,328		94		2,513		15,361		29,840
Doubtful		—		—		—		—		—		—		—		—
Subtotal	$	197,997	$	93,934	$	67,927	$	70,600	$	34,697	$	17,566	$	115,600	$	598,321
Gross charge-offs for the year ended	$	39	$	—	$	49	$	11	$	247	$	90	$	—	$	436
Real estate construction
Pass	$	29,902	$	57,944	$	14,326	$	122	$	—	$	952	$	121	$	103,367
Special mention		—		—		—		—		—		—		—		—
Substandard		—		20,667		—		—		—		—		—		20,667
Doubtful		—		—		—		—		—		—		—		—
Subtotal	$	29,902	$	78,611	$	14,326	$	122	$	—	$	952	$	121	$	124,034
Gross charge-offs for the year ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Pass	$	272,261	$	265,549	$	142,027	$	153,796	$	116,861	$	159,454	$	7,794	$	1,117,742
Special mention		—		—		—		—		—		262		—		262
Substandard		—		587		2,872		—		3,690		1,759		—		8,908
Doubtful		—		—		—		—		—		—		—		—
Subtotal	$	272,261	$	266,136	$	144,899	$	153,796	$	120,551	$	161,475	$	7,794	$	1,126,912
Gross charge-offs for the year ended	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate first mortgage
Performing	$	72,180	$	207,177	$	218,719	$	108,100	$	33,102	$	87,212	$	284	$	726,774
Non-performing		—		—		—		—		—		105		—		105
Subtotal	$	72,180	$	207,177	$	218,719	$	108,100	$	33,102	$	87,317	$	284	$	726,879
Gross charge-offs for the year ended	$	—	$	—	$	9	$	—	$	—	$	40	$	—	$	49
Residential real estate junior lien
Performing	$	18,408	$	15,655	$	5,946	$	4,857	$	1,769	$	5,280	$	100,438	$	152,353
Non-performing		—		—		—		—		—		—		1,781		1,781
Subtotal	$	18,408	$	15,655	$	5,946	$	4,857	$	1,769	$	5,280	$	102,219	$	154,134
Gross charge-offs for the year ended	$	—	$	—	$	—	$	—	$	—	$	77	$	—	$	77
Other revolving and installment
Performing	$	5,320	$	6,395	$	980	$	4,489	$	1,554	$	952	$	9,613	$	29,303
Non-performing		—		—		—		—		—		—		—		—
Subtotal	$	5,320	$	6,395	$	980	$	4,489	$	1,554	$	952	$	9,613	$	29,303
Gross charge-offs for the year ended	$	4	$	2	$	—	$	31	$	6	$	8	$	—	$	51
Total loans	$	596,068	$	667,908	$	452,797	$	341,964	$	191,673	$	273,542	$	235,631	$	2,759,583
Gross charge-offs for the year ended	$	43	$	2	$	58	$	42	$	253	$	215	$	—	$	613

The following table sets forth the risk category of loans by class and credit quality indicator used on the most recent analysis performed as of December 31, 2022:

	December 31, 2022
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	558,694	$	21,969	$	3,213	$	—	$	583,876
Real estate construction		97,548		—		262		—		97,810
Commercial real estate		873,270		—		8,400		—		881,670
Total commercial		1,529,512		21,969		11,875		—		1,563,356
Consumer
Residential real estate first mortgage		678,743		63		745		—		679,551
Residential real estate junior lien		149,847		—		632		—		150,479
Other revolving and installment		50,607		—		1		—		50,608
Total consumer		879,197		63		1,378		—		880,638
Total loans	$	2,408,709	$	22,032	$	13,253	$	—	$	2,443,994

Past Due and Nonaccrual Loans

The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on non-accrual, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual. All previously accrued and unpaid interest is reversed at that time. A loan will return to accrual when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period, generally at least six months.

The following tables present past due aging analysis of total loans outstanding, by portfolio segment, as of December 31, 2023 and 2022, respectively:

	December 31, 2023
							90 Days
	Accruing		30 - 59 Days		60 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	590,663	$	924	$	—	$	139	$	6,595	$	598,321
Real estate construction		124,034		—		—		—		—		124,034
Commercial real estate		1,125,669		128		—		—		1,115		1,126,912
Total commercial		1,840,366		1,052		—		139		7,710		1,849,267
Consumer
Residential real estate first mortgage		724,786		901		554		—		638		726,879
Residential real estate junior lien		153,220		666		—		—		248		154,134
Other revolving and installment		29,086		170		47		—		—		29,303
Total consumer		907,092		1,737		601		—		886		910,316
Total loans	$	2,747,458	$	2,789	$	601	$	139	$	8,596	$	2,759,583

	December 31, 2022
							90 Days
	Accruing		30 - 59 Days		60 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	580,288	$	2,332	$	94	$	—	$	1,162	$	583,876
Real estate construction		97,370		—		—		—		440		97,810
Commercial real estate		879,830		368		—		—		1,472		881,670
Total commercial		1,557,488		2,700		94		—		3,074		1,563,356
Consumer
Residential real estate first mortgage		677,471		1,234		311		—		535		679,551
Residential real estate junior lien		149,918		377		—		—		184		150,479
Other revolving and installment		50,360		237		10		—		1		50,608
Total consumer		877,749		1,848		321		—		720		880,638
Total loans	$	2,435,237	$	4,548	$	415	$	—	$	3,794	$	2,443,994

In calculating expected credit losses, the Company includes loans on nonaccrual status and loans 90 days or more past due and still accruing. The following table presents the amortized cost basis on nonaccrual status loans and loans 90 days or more past due and still accruing as of December 31, 2023 and 2022:

	As of December 31, 2023
					90 Days
	Nonaccrual				or More
	with no Allowance				Past Due
(dollars in thousands)	for Credit Losses		Nonaccrual		and Accruing
Commercial
Commercial and industrial	$	79	$	6,595	$	139
Real estate construction		—		—		—
Commercial real estate		95		1,115		—
Total commercial		174		7,710		139
Consumer
Residential real estate first mortgage		632		638		—
Residential real estate junior lien		185		248		—
Other revolving and installment		—		—		—
Total consumer		817		886		—
Total loans	$	991	$	8,596	$	139

	December 31, 2022
					90 Days
	Nonaccrual				or More
	with no Allowance				Past Due
(dollars in thousands)	for Credit Losses		Nonaccrual		and Accruing
Commercial
Commercial and industrial	$	638	$	1,162	$	—
Real estate construction		—		440		—
Commercial real estate		576		1,472		—
Total commercial		1,214		3,074		—
Consumer
Residential real estate first mortgage		535		535		—
Residential real estate junior lien		184		184		—
Other revolving and installment		1		1		—
Total consumer		720		720		—
Total loans	$	1,934	$	3,794	$	—

Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the years ended December 31, 2023, 2022, and 2021 is estimated to have been $469 thousand, $155 thousand, and $183 thousand, respectively.

The Company’s policy is to reverse previously recorded interest income when a loan is placed on nonaccrual. As a result, the Company did not record any interest income on its nonaccrual loans for the years ended years ended December 31, 2023, 2022 and 2021. As of December 31, 2023 and 2022, total accrued interest receivable on loans, which had been excluded from reported amortized cost basis on loans; was $12.2 million and $9.2 million, respectively, and was reported within accrued interest receivable on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date.

In cases where a borrower experiences financial difficulty, the Company may make certain concessions for which the terms of the loan are modified. Loans experiencing financial difficulty can include modifications for an interest rate reduction below current market rates, a forgiveness of principal balance, an extension of the loan term, an-other than significant payment delay, or some combination of similar types of modifications. During the years ended

December 31, 2023 and 2022, the Company did not provide any modifications to loans under these circumstances that were experiencing financial difficulty.

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine credit losses, and the related ACL allocated to these loans, as of December 31, 2023:

	As of December 31, 2023
	Primary Type of Collateral
									Allowance for
(dollars in thousands)	Real estate		Equipment		Other		Total		Credit Losses
Commercial
Commercial and industrial	$	6,124	$	—	$	—	$	6,124	$	2,384
Commercial real estate		695		—		96		791		601
Total commercial		6,819		—		96		6,915		2,985
Consumer
Residential real estate first mortgage		638		—		—		638		3
Residential real estate junior lien		134		22		93		249		6
Total consumer		772		22		93		887		9
Total loans	$	7,591	$	22	$	189	$	7,802	$	2,994

Collateral dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.

Pre-ASC 326 Adoption impaired loan disclosures

The following tables present the recorded investment in loans and related allowance for the loan losses, by portfolio segment, disaggregated on the basis of the Company’s impairment methodology, as of December 31, 2023 and 2022:

	December 31, 2022
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	1,313	$	582,563	$	583,876	$	275	$	8,958	$	9,233
Real estate construction		262		97,548		97,810		97		1,340		1,437
Commercial real estate		1,472		880,198		881,670		582		12,179		12,761
Total commercial		3,047		1,560,309		1,563,356		954		22,477		23,431
Consumer
Residential real estate first mortgage		535		679,016		679,551		—		5,857		5,857
Residential real estate junior lien		184		150,295		150,479		—		1,318		1,318
Other revolving and installment		1		50,607		50,608		—		540		540
Total consumer		720		879,918		880,638		—		7,715		7,715
Total loans	$	3,767	$	2,440,227	$	2,443,994	$	954	$	30,192	$	31,146

The table below summarizes key information on impaired loans as of December 31, 2022:

	December 31, 2022
	Recorded		Unpaid		Related
(dollars in thousands)	Investment		Principal		Allowance
Impaired loans with a valuation allowance
Commercial and industrial	$	675	$	711	$	275
Real estate construction		262		440		97
Commercial real estate		896		900		582
Residential real estate first mortgage		—		—		—
Total impaired loans with a valuation allowance		1,833		2,051		954
Impaired loans without a valuation allowance
Commercial and industrial		638		767		—
Real estate construction		—		—		—
Commercial real estate		576		660		—
Residential real estate first mortgage		535		573		—
Residential real estate junior lien		184		218		—
Other revolving and installment		1		1		—
Total impaired loans without a valuation allowance		1,934		2,219		—
Total impaired loans
Commercial and industrial		1,313		1,478		275
Real estate construction		262		440		97
Commercial real estate		1,472		1,560		582
Residential real estate first mortgage		535		573		—
Residential real estate junior lien		184		218		—
Other revolving and installment		1		1		—
Total impaired loans	$	3,767	$	4,270	$	954

The table below presents the average recorded investment in impaired loans and interest income for the two years ending December 31, 2022 and 2021:

	Year Ended December 31,
	2022				2021
	Average				Average
	Recorded		Interest		Recorded		Interest
(dollars in thousands)	Investment		Income		Investment		Income
Impaired loans with a valuation allowance
Commercial and industrial	$	722	$	13	$	517	$	13
Real estate construction		442		—		—		—
Commercial real estate		935		—		187		7
Residential real estate first mortgage		—		—		—
Residential real estate junior lien		—		—		—		—
Other revolving and installment		—		—		—		—
Total impaired loans with a valuation allowance		2,099		13		704		20
Impaired loans without a valuation allowance
Commercial and industrial		707		—		1,988		20
Real estate construction		—		—		—		—
Commercial real estate		618		—		672		—
Residential real estate first mortgage		575		—		23		—
Residential real estate junior lien		191		—		98		—
Other revolving and installment		1		—		1		—
Total impaired loans without a valuation allowance		2,092		—		2,782		20
Total impaired loans
Commercial and industrial		1,429		13		2,505		33
Real estate construction		442		—		—		—
Commercial real estate		1,553		—		859		7
Residential real estate first mortgage		575		—		23		—
Residential real estate junior lien		191		—		98		—
Other revolving and installment		1		—		1		—
Total impaired loans	$	4,191	$	13	$	3,486	$	40