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LOANS, ALLOWANCE FOR CREDIT LOSSES, AND CREDIT QUALITY

3 Months Ended

Mar. 31, 2024

LOANS, ALLOWANCE FOR CREDIT LOSSES, AND CREDIT QUALITY

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

NOTE 5 – LOANS, ALLOWANCE FOR CREDIT LOSSES, AND CREDIT QUALITY

The following table presents total loans by portfolio segment and class of loan as of March 31, 2024 and December 31, 2023:


	2024		2023
Commercial/industrial	$	510,930	$	488,498
Commercial real estate - owner occupied		892,994		893,977
Commercial real estate - non-owner occupied		502,569		473,829
Multi-family		323,248		332,959
Construction and development		208,807		201,823
Residential 1‑4 family		880,029		888,412
Consumer		52,086		50,741
Other		14,844		14,980
Subtotals		3,385,507		3,345,219
ACL - Loans		(44,378)		(43,609)
Loans, net of ACL - Loans		3,341,129		3,301,610
Deferred loan fees, net		(2,112)		(2,245)
Loans, net	$	3,339,017	$	3,299,365

The ACL - Loans is based on the Company’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors. More information regarding the Company’s methodology related to the ACL-Loans can be found in the Company’s Annual Report.

The Company utilized the high-end range of the Federal Reserve Bank Open Market Committee forecast for national unemployment and the low-end range for national GDP growth at March 31, 2024 and December 31, 2023. As of March 31, 2024, the Company anticipates the national unemployment rate to rise during the forecast period and the national GDP growth rate to decline. Due to recent volatility in forecasts, the Company utilized long-term averages for the remaining loss drivers.

A summary of the activity in the ACL - Loans by loan type for the three months ended March 31, 2024 is summarized as follows:


			Commercial		Commercial
			Real Estate -		Real Estate -				Construction
	Commercial /		Owner		Non - Owner		Multi-		and		Residential
	Industrial		Occupied		Occupied		Family		Development		1-4 Family		Consumer		Other		Total
ACL - Loans - January 1, 2024	$	5,965	$	12,285	$	5,700	$	4,754	$	3,597	$	10,620	$	615	$	73	$	43,609
Charge-offs		(17)		(1)		—		—		—		(1)		(4)		(29)		(52)
Recoveries		2		611		—		—		—		3		—		5		621
Provision		(139)		547		381		(153)		(359)		(122)		(7)		52		200
ACL - Loans - March 31, 2024	$	5,811	$	13,442	$	6,081	$	4,601	$	3,238	$	10,500	$	604	$	101	$	44,378

A summary of the activity in the ACL – Loans by loan type for the three months ended March 31, 2023 is summarized as follows:


			Commercial		Commercial
			Real Estate -		Real Estate -				Construction
	Commercial /		Owner		Non - Owner		Multi-		and		Residential
	Industrial		Occupied		Occupied		Family		Development		1-4 Family		Consumer		Other		Total
ACL - Loans - January 1, 2023	$	4,071	$	5,204	$	2,644	$	2,761	$	1,592	$	5,944	$	314	$	150	$	22,680
Adoption of CECL		1,859		1,982		1,161		753		2,063		2,567		620		(33)		10,972
ACL - Loans on PCD loans acquired		1,082		4,424		—		—		—		28		—		—		5,534
Charge-offs		—		—		—		—		—		—		—		(9)		(9)
Recoveries		1		16		—		—		—		27		1		2		47
Provision		211		1,023		795		532		(545)		1,978		71		27		4,092
ACL - Loans - March 31, 2023	$	7,224	$	12,649	$	4,600	$	4,046	$	3,110	$	10,544	$	1,006	$	137	$	43,316

In addition to the ACL-Loans, the Company has established an ACL-Unfunded Commitments, classified in other liabilities on the consolidated balance sheets. This allowance is maintained to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans. The ACL - Unfunded Commitments was $3.8 million at March 31, 2024 and December 31, 2023. See Note 10 for further information on commitments.

The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management’s judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses.


	Three Months Ended				Year Ended
	March 31, 2024		March 31, 2023		December 31, 2023
Provision for credit losses on:
Loans	$	200	$	4,092	$	4,292
Unfunded Commitments		—		90		390
Total provision for credit losses	$	200	$	4,182	$	4,682

The Company’s past due and non-accrual loans as of March 31, 2024 is summarized as follows:


			90 Days						Non-Accrual
	30-89 Days		or more						with no
	Past Due		Past Due		Non-				specifically
	Accruing		and Accruing		Accrual		Total		allocated ACL
Commercial/industrial	$	61	$	—	$	4,601	$	4,662	$	—
Commercial real estate - owner occupied		179		1,560		2,754		4,493		14
Commercial real estate - non-owner occupied		13		—		—		13		—
Multi-family		—		—		—		—		—
Construction and development		56		—		—		56		—
Residential 1‑4 family		1,552		703		244		2,499		244
Consumer		14		4		11		29		11
Other		—		—		—		—		—
	$	1,875	$	2,267	$	7,610	$	11,752	$	269

The Company’s past due and non-accrual loans as of December 31, 2023 is summarized as follows:


			90 Days						Non-Accrual
	30-89 Days		or more						with no
	Past Due		Past Due		Non-				specifically
	Accruing		and Accruing		Accrual		Total		allocated ACL
Commercial/industrial	$	4,303	$	106	$	1,344	$	5,753	$	365
Commercial real estate - owner occupied		180		252		3,877		4,309		343
Commercial real estate - non-owner occupied		14		—		—		14		—
Multi-family		—		—		—		—		—
Construction and development		—		—		—		—		—
Residential 1‑4 family		871		507		429		1,807		394
Consumer		68		28		12		108		11
Other		—		—		—		—		—
	$	5,436	$	893	$	5,662	$	11,991	$	1,113

Interest recognized on non-accrual loans is considered immaterial to the consolidated financial statements for the three months ended March 31, 2024 and 2023.

A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial

difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation. A significant portion of the loan balances in these tables and essentially all of the allowance allocations relate to PCD loans which were acquired from Hometown. Real estate collateral primarily consists of operating facilities of the underlying borrowers. Other business assets collateral primarily consists of equipment, receivables and inventory of the underlying borrowers.


	Collateral Type
As of March 31, 2024			Other				Without an		With an		Allowance
	Real Estate		Business Assets		Total		Allowance		Allowance		Allocation
Commercial/industrial	$	—	$	4,624	$	4,624	$	—	$	4,624	$	872
Commercial real estate - owner occupied		9,344		—		9,344		—		9,344		4,321
Commercial real estate - non-owner occupied		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Construction and development		707		—		707		707		—		—
Residential 1‑4 family		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Other		—		—		—		—		—		—
Total Loans	$	10,051	$	4,624	$	14,675	$	707	$	13,968	$	5,193


	Collateral Type
As of December 31, 2023			Other				Without an		With an		Allowance
	Real Estate		Business Assets		Total		Allowance		Allowance		Allocation
Commercial/industrial	$	—	$	5,320	$	5,320	$	47	$	5,273	$	1,089
Commercial real estate - owner occupied		8,131		—		8,131		794		7,337		3,156
Commercial real estate - non-owner occupied		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Construction and development		—		—		—		—		—		—
Residential 1‑4 family		35		—		35		35		—		—
Consumer		—		—		—		—		—		—
Other		—		—		—		—		—		—
Total Loans	$	8,166	$	5,320	$	13,486	$	876	$	12,610	$	4,245

The Company utilizes a numerical risk rating system for commercial relationships. All other types of relationships (ex: residential, consumer, other) are assigned a “Pass” rating, unless they have fallen 90 days past due or more, at which time they receive a rating of 7. The Company uses split ratings for government guaranties on loans. The portion of a loan that is supported by a government guaranty is included with other Pass credits.

The determination of a commercial loan risk rating begins with completion of a matrix, which assigns scores based on the strength of the borrower’s debt service coverage, collateral coverage, balance sheet leverage, industry outlook, and customer concentration. A weighted average is taken of these individual scores to arrive at the overall rating. This rating is subject to adjustment by the loan officer based on facts and circumstances pertaining to the borrower. Risk ratings are subject to independent review.

Commercial borrowers with ratings between 1 and 5 are considered Pass credits, with 1 being most acceptable and 5 being just above the minimum level of acceptance. Commercial borrowers rated 6 have potential weaknesses which may jeopardize repayment ability. Borrowers rated 7 have a well-defined weakness or weaknesses such as the inability to demonstrate significant cash flow for debt service based on analysis of the company’s financial information. These loans remain on accrual status provided full collection of principal and interest is reasonably expected. Otherwise they are deemed impaired and placed on nonaccrual status. Borrowers rated 8 are the same as 7 rated credits with one exception: collection or liquidation in full is not probable.

The following tables present total loans by risk ratings and year of origination. Loans acquired from other previously acquired institutions have been included in the table based upon the actual origination date.


	Amortized Cost Basis by Origination Year
As of March 31, 2024																Revolving
		2024		2023		2022		2021		2020		Prior		Revolving		to Term		Total
Commercial/industrial
Grades 1-4	$	18,760	$	59,266	$	127,515	$	58,432	$	49,594	$	27,040	$	91,935	$	-	$	432,542
Grade 5		4,163		8,763		5,146		11,897		4,729		3,334		23,382		-		61,414
Grade 6		-		848		88		628		135		240		1,639		-		3,578
Grade 7		9		345		251		5,068		1,998		1,511		4,214		-		13,396
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	22,932	$	69,222	$	133,000	$	76,025	$	56,456	$	32,125	$	121,170	$	-	$	510,930
Current-period gross charge-offs	$	-	$	-	$	-	$	15	$	-	$	2	$	-	$	-	$	17
Commercial real estate - owner occupied
Grades 1-4	$	3,042	$	62,423	$	105,056	$	165,290	$	105,647	$	214,671	$	57,259	$	-	$	713,388
Grade 5		950		7,991		22,074		24,820		12,739		32,669		12,510		-		113,753
Grade 6		-		-		2,128		2,811		1,032		8,696		967		-		15,634
Grade 7		-		3,108		7,471		7,629		1,307		28,047		2,657		-		50,219
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	3,992	$	73,522	$	136,729	$	200,550	$	120,725	$	284,083	$	73,393	$	-	$	892,994
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	1	$	-	$	-	$	1
Commercial real estate - non-owner occupied
Grades 1-4	$	5,547	$	54,765	$	71,752	$	143,488	$	52,556	$	121,594	$	10,326	$	-	$	460,028
Grade 5		12,427		935		3,690		2,769		2,928		15,794		-		-		38,543
Grade 6		-		-		-		-		-		187		-		-		187
Grade 7		-		-		124		64		362		3,261		-		-		3,811
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	17,974	$	55,700	$	75,566	$	146,321	$	55,846	$	140,836	$	10,326	$	-	$	502,569
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Multi-family
Grades 1-4	$	1,288	$	25,227	$	26,948	$	101,366	$	73,615	$	84,680	$	2,257	$	-	$	315,381
Grade 5		786		884		1,893		4,278		-		26		-		-		7,867
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		-		-		-		-
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	2,074	$	26,111	$	28,841	$	105,644	$	73,615	$	84,706	$	2,257	$	-	$	323,248
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Construction and development
Grades 1-4	$	3,900	$	81,137	$	72,161	$	12,663	$	4,869	$	6,514	$	392	$	-	$	181,636
Grade 5		224		18,527		1,190		3,844		716		214		798		-		25,513
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		707		-		-		169		782		-		-		1,658
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	4,124	$	100,371	$	73,351	$	16,507	$	5,754	$	7,510	$	1,190	$	-	$	208,807
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential 1‑4 family
Grades 1-4	$	9,928	$	102,344	$	192,776	$	195,856	$	155,273	$	116,910	$	82,525	$	-	$	855,612
Grade 5		1,351		3,916		6,489		3,015		222		2,797		319		-		18,109
Grade 6		-		156		317		-		-		180		-		-		653
Grade 7		-		314		322		1,066		1,010		2,775		168		-		5,655
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	11,279	$	106,730	$	199,904	$	199,937	$	156,505	$	122,662	$	83,012	$	-	$	880,029
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	1	$	-	$	-	$	1
Consumer
Grades 1-4	$	9,851	$	18,017	$	11,363	$	5,868	$	4,089	$	2,286	$	593	$	-	$	52,067
Grade 5		-		-		-		-		-		-		-		-		-
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		19		-		-		19
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	9,851	$	18,017	$	11,363	$	5,868	$	4,089	$	2,305	$	593	$	-	$	52,086
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	4	$	-	$	-	$	4
Other
Grades 1-4	$	855	$	192	$	651	$	543	$	832	$	9,630	$	2,055	$	-	$	14,758
Grade 5		-		-		-		-		-		-		86		-		86
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		-		-		-		-
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	855	$	192	$	651	$	543	$	832	$	9,630	$	2,141	$	-	$	14,844
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	29	$	-	$	29

Total Loans	$	73,081	$	449,865	$	659,405	$	751,395	$	473,822	$	683,857	$	294,082	$	-	$	3,385,507
Total current-period gross charge-offs	$	-	$	-	$	-	$	15	$	-	$	8	$	29	$	-	$	52


	Amortized Cost Basis by Origination Year
As of December 31, 2023																Revolving
		2023		2022		2021		2020		2019		Prior		Revolving		to Term		Total
Commercial/industrial
Grades 1-4	$	59,526	$	133,469	$	62,894	$	54,552	$	10,380	$	20,575	$	78,439	$	-	$	419,835
Grade 5		6,127		5,367		11,641		4,208		1,180		3,039		21,420		-		52,982
Grade 6		671		93		61		206		-		-		627		-		1,658
Grade 7		365		271		5,756		2,351		30		1,687		3,563		-		14,023
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	66,689	$	139,200	$	80,352	$	61,317	$	11,590	$	25,301	$	104,049	$	-	$	488,498
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - owner occupied
Grades 1-4	$	55,239	$	105,187	$	167,124	$	108,680	$	47,115	$	178,586	$	33,220	$	-	$	695,151
Grade 5		7,586		24,734		24,890		12,955		11,168		26,179		21,519		-		129,031
Grade 6		-		1,161		1,694		110		867		6,552		699		-		11,083
Grade 7		3,143		9,988		10,061		2,313		14,775		15,777		2,655		-		58,712
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	65,968	$	141,070	$	203,769	$	124,058	$	73,925	$	227,094	$	58,093	$	-	$	893,977
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - non-owner occupied
Grades 1-4	$	54,774	$	72,336	$	127,450	$	53,341	$	45,898	$	84,129	$	9,870	$	-	$	447,798
Grade 5		944		4,819		2,872		3,516		97		10,081		-		-		22,329
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		64		366		2,722		550		-		-		3,702
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	55,718	$	77,155	$	130,386	$	57,223	$	48,717	$	94,760	$	9,870	$	-	$	473,829
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial real estate - multi-family
Grades 1-4	$	25,099	$	28,144	$	103,804	$	74,083	$	25,640	$	61,589	$	2,149	$	-	$	320,508
Grade 5		672		1,092		10,660		-		-		27		-		-		12,451
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		-		-		-		-
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	25,771	$	29,236	$	114,464	$	74,083	$	25,640	$	61,616	$	2,149	$	-	$	332,959
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Construction and development
Grades 1-4	$	65,134	$	67,396	$	35,017	$	5,013	$	1,853	$	4,281	$	779	$	-	$	179,473
Grade 5		11,796		1,190		6,060		743		-		84		808		-		20,681
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		707		-		-		172		-		790		-		-		1,669
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	77,637	$	68,586	$	41,077	$	5,928	$	1,853	$	5,155	$	1,587	$	-	$	201,823
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential 1‑4 family
Grades 1-4	$	102,529	$	199,295	$	197,713	$	160,489	$	44,411	$	77,644	$	80,659	$	-	$	862,740
Grade 5		3,816		4,819		6,269		119		612		2,465		604		-		18,704
Grade 6		158		319		810		-		-		180		249		-		1,716
Grade 7		316		366		29		1,022		400		2,947		172		-		5,252
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	106,819	$	204,799	$	204,821	$	161,630	$	45,423	$	83,236	$	81,684	$	-	$	888,412
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Consumer
Grades 1-4	$	23,711	$	12,497	$	6,570	$	4,498	$	1,194	$	1,326	$	925	$	-	$	50,721
Grade 5		-		-		-		-		-		-		-		-		-
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		20		-		-		20
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	23,711	$	12,497	$	6,570	$	4,498	$	1,194	$	1,346	$	925	$	-	$	50,741
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	4	$	-	$	4
Other
Grades 1-4	$	347	$	663	$	551	$	1,076	$	38	$	9,697	$	2,520	$	-	$	14,892
Grade 5		-		-		-		-		-		-		88		-		88
Grade 6		-		-		-		-		-		-		-		-		-
Grade 7		-		-		-		-		-		-		-		-		-
Grade 8		-		-		-		-		-		-		-		-		-
Total	$	347	$	663	$	551	$	1,076	$	38	$	9,697	$	2,608	$	-	$	14,980
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	84	$	-	$	84

Total Loans	$	422,660	$	673,206	$	781,990	$	489,813	$	208,380	$	508,205	$	260,965	$	-	$	3,345,219
Total current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	88	$	-	$	88

Loans that were both experiencing financial difficulty and were modified during the three months ended March 31, 2024 and 2023, were insignificant to these consolidated financial statements.