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Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

NOTE 4 – Loans and Allowance for Credit Losses

The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $7.4 million as of June 30, 2023 and $7.3 million as of December 31, 2022.



	June 30, 2023						December 31, 2022
(dollars in thousands) Commercial [Member]	Amount			% of Total			Amount			% of Total
Commercial
Owner occupied RE Owner occupied RE [Member]	$	613,874			17.4	%	$	612,901			18.7	%
Non-owner occupied RE Non-owner occupied RE [Member]		951,536			26.9	%		862,579			26.3	%
Construction Construction [Member]		115,798			3.3	%		109,726			3.4	%
Business Business [Member]		511,719			14.5	%		468,112			14.3	%
Total commercial loans Consumer [Member]		2,192,927			62.1	%		2,053,318			62.7	%
Consumer
Real estate Real estate [Member]		1,047,904			29.6	%		931,278			28.4	%
Home equity Home equity [Member]		185,584			5.2	%		179,300			5.5	%
Construction Construction [Member]		61,044			1.7	%		80,415			2.5	%
Other Other [Member]		50,157			1.4	%		29,052			0.9	%
Total consumer loans		1,344,689			37.9	%		1,220,045			37.3	%
Total gross loans, net of deferred fees		3,537,616			100.0	%		3,273,363			100.0	%
Less—allowance for credit losses		(41,105	)					(38,639	)
Total loans, net	$	3,496,511					$	3,234,724

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.


	June 30, 2023
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	9,511		155,585		406,974		41,804		613,874
Non-owner occupied RE		61,846		487,268		377,281		25,141		951,536
Construction		10,643		35,648		68,916		591		115,798
Business		103,829		211,107		192,332		4,451		511,719
Total commercial loans		185,829		889,608		1,045,503		71,987		2,192,927
Consumer
Real estate		7,672		48,115		299,705		692,412		1,047,904
Home equity		620		21,841		157,853		5,270		185,584
Construction		244		314		36,816		23,670		61,044
Other		9,347		21,779		18,266		765		50,157
Total consumer loans		17,883		92,049		512,640		722,117		1,344,689
Total gross loans, net of deferred fees	$	203,712		981,657		1,558,143		794,104		3,537,616


					December 31, 2022
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	10,574		133,017		420,881		48,429		612,901
Non-owner occupied RE		44,570		419,976		371,208		26,825		862,579
Construction		5,509		36,537		61,009		6,671		109,726
Business		96,157		194,489		173,259		4,207		468,112
Total commercial loans		156,810		784,019		1,026,357		86,132		2,053,318
Consumer
Real estate		12,137		38,948		260,005		620,188		931,278
Home equity		1,336		20,933		151,696		5,335		179,300
Construction		665		182		23,788		55,780		80,415
Other		3,926		21,890		2,458		778		29,052
Total consumer loans		18,064		81,953		437,947		682,081		1,220,045
Total gross loans, net of deferred fees	$	174,874		865,972		1,464,304		768,213		3,273,363

The following table summarizes the loans due after one year by category.


	June 30, 2023				December 31, 2022
	Interest Rate						Interest Rate
(dollars in thousands)	Fixed		Floating or Adjustable		Fixed		Floating or Adjustable
Commercial Commercial [Member]
Owner occupied RE Owner occupied RE [Member]	$	600,648		3,715		598,513		3,814
Non-owner occupied RE Non-owner occupied RE [Member]		792,099		97,591		742,763		75,246
Construction Construction [Member]		90,403		14,752		90,246		13,971
Business Business [Member]		313,001		94,889		298,866		73,089
Total commercial loans		1,796,151		210,947		1,730,388		166,120
Consumer Consumer [Member]
Real estate Real estate [Member]		1,040,232		-		919,130		11
Home equity Home equity [Member]		13,525		171,439		14,173		163,791
Construction Construction [Member]		60,800		-		79,750		-
Other Other [Member]		16,830		23,980		19,113		6,013
Total consumer loans		1,131,387		195,419		1,032,166		169,815
Total gross loans, net of deferred fees	$	2,927,538		406,366		2,762,554		335,935

Credit Quality Indicators

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

A description of the general characteristics of the risk grades is as follows:

Pass— A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk.

Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management.

Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, which may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The following table presents loan balances classified by credit quality indicators by year of origination as of June 30, 2023.



																June 30, 2023
(dollars in thousands)	2023		2022			2021		2020			2019		Prior			Revolving			Revolving Converted to Term		Total
Commercial
Owner occupied RE
Pass	$	32,634		157,619			139,472		68,570			62,877		118,738			-			168		580,078
Watch		-		3,510			469		16,170			3,585		6,489			-			-		30,223
Special Mention		-		191			-		-			-		3,100			-			-		3,291
Substandard		-		-			-		-			-		282			-			-		282
Total Owner occupied RE		32,634		161,320			139,941		84,740			66,462		128,609			-			168		613,874

Non-owner occupied RE
Pass		75,513		305,006			174,325		110,120			54,654		182,840			222			-		902,680
Watch		775		966			9,468		-			10,737		6,396			-			-		28,342
Special Mention		-		-			200		-			9,028		965			-			-		10,193
Substandard		-		-			-		-			7,974		2,347			-			-		10,321
Total Non-owner occupied RE		76,288		305,972			183,993		110,120			82,393		192,548			222			-		951,536

Construction
Pass		9,046		71,909			24,939		8,397			242		-			-			-		114,533
Watch		-		1,265			-		-			-		-			-			-		1,265
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		9,046		73,174			24,939		8,397			242		-			-			-		115,798

Business
Pass		34,799		142,869			52,202		20,565			19,229		55,100			151,640			1,162		477,566
Watch		139		14,342			1,998		1,511			987		4,178			5,751			-		28,906
Special Mention		102		1,232			226		459			245		416			-			98		2,778
Substandard		-		492			-		27			174		1,314			462			-		2,469
Total Business		35,040		158,935			54,426		22,562			20,635		61,008			157,853			1,260		511,719
Total Commercial loans		153,008		699,401			403,299		225,819			169,732		382,165			158,075			1,428		2,192,927

Consumer
Real estate
Pass		103,913		263,435			282,239		181,201			68,138		110,151			-			-		1,009,077
Watch		491		5,715			7,936		3,974			2,069		4,156			-			-		24,341
Special Mention		-		2,329			1,673		2,133			2,422		2,921			-			-		11,478
Substandard		-		187			640		-			327		1,854			-			-		3,008
Total Real estate		104,404		271,666			292,488		187,308			72,956		119,082			-			-		1,047,904

Home equity
Pass		-		-			-		-			-		-			172,802			-		172,802
Watch		-		-			-		-			-		-			7,052			-		7,052
Special Mention		-		-			-		-			-		-			3,967			-		3,967
Substandard		-		-			-		-			-		-			1,763			-		1,763
Total Home equity		-		-			-		-			-		-			185,584			-		185,584

Construction
Pass		6,231		40,707			14,106		-			-		-			-			-		61,044
Watch		-		-			-		-			-		-			-			-		-
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		6,231		40,707			14,106		-			-		-			-			-		61,044

Other
Pass		4,535		3,140			2,707		1,586			1,359		3,016			32,462			-		48,805
Watch		44		37			356		7			3		177			95			-		719
Special Mention		-		336			-		-			33		87			83			-		539
Substandard		-		-			84		-			2		-			8			-		94
Total Other		4,579		3,513			3,147		1,593			1,397		3,280			32,648			-		50,157

Total Consumer loans		115,214		315,886			309,741		188,901			74,353		122,362			218,232			-		1,344,689
Total loans	$	268,222		1,015,287			713,040		414,720			244,085		504,527			376,307			1,428		3,537,616
Current period gross write-offs				(200	)				(1	)				(9	)		(391	)				(601	)

The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2022.


	December 31, 2022
(dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving Converted to Term		Total
Commercial
Owner occupied RE
Pass	$	169,083		122,654		85,867		66,299		36,718		93,915		-		-		574,536
Watch		14,648		479		9,339		3,658		-		6,792		-		-		34,916
Special Mention		200		-		-		-		-		2,960		-		-		3,160
Substandard		-		-		-		-		289		-		-		-		289
Total Owner occupied RE		183,931		123,133		95,206		69,957		37,007		103,667		-		-		612,901

Non-owner occupied RE
Pass		281,890		169,599		113,264		59,550		79,722		106,967		604		137		811,733
Watch		1,061		9,491		-		10,683		1,408		11,660		-		-		34,303
Special Mention		-		202		-		6,087		-		930		-		-		7,219
Substandard		-		134		-		7,992		327		871		-		-		9,324
Total Non-owner occupied RE		282,951		179,426		113,264		84,312		81,457		120,428		604		137		862,579

Construction
Pass		48,420		55,129		4,811		247		-		-		-		-		108,607
Watch		1,119		-		-		-		-		-		-		-		1,119
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total Construction		49,539		55,129		4,811		247		-		-		-		-		109,726

Business
Pass		136,489		57,804		29,864		21,808		35,249		28,914		136,337		709		447,174
Watch		3,186		2,058		1,318		1,282		179		3,074		3,783		439		15,319
Special Mention		1,137		260		386		210		-		252		115		642		3,002
Substandard		498		-		188		233		315		911		472		-		2,617
Total Business		141,310		60,122		31,756		23,533		35,743		33,151		140,707		1,790		468,112
Total Commercial loans		657,731		417,810		245,037		178,049		154,207		257,246		141,311		1,927		2,053,318

Consumer
Real estate
Pass		243,589		269,565		189,075		72,499		39,042		76,172		-		-		889,942
Watch		6,196		8,256		3,847		2,278		494		3,671		-		-		24,742
Special Mention		3,114		1,938		2,644		2,258		955		2,639		-		-		13,548
Substandard		-		648		227		341		408		1,422		-		-		3,046
Total Real estate		252,899		280,407		195,793		77,376		40,899		83,904		-		-		931,278

Home equity
Pass		-		-		-		-		-		-		165,847		-		165,847
Watch		-		-		-		-		-		-		7,226		-		7,226
Special Mention		-		-		-		-		-		-		4,055		-		4,055
Substandard		-		-		-		-		-		-		2,172		-		2,172
Total Home equity		-		-		-		-		-		-		179,300		-		179,300

Construction
Pass		41,138		34,039		4,923		-		-		-		-		-		80,100
Watch		-		-		-		-		-		-		-		-		-
Special Mention		-		-		-		315		-		-		-		-		315
Substandard		-		-		-		-		-		-		-		-		-
Total Construction		41,138		34,039		4,923		315		-		-		-		-		80,415

Other
Pass		3,894		3,038		1,702		1,534		341		3,015		14,465		-		27,989
Watch		46		367		15		5		16		175		93		-		717
Special Mention		94		-		-		44		75		23		97		-		332
Substandard		-		-		-		5		-		-		9		-		14
Total Other		4,034		3,405		1,717		1,588		432		3,213		14,663		-		29,052
Total Consumer loans		298,071		317,851		202,433		79,279		41,331		87,117		193,963		-		1,220,045
Total loans	$	955,802		735,661		447,470		257,328		195,538		344,363		335,274		1,927		3,273,363

The following tables present loan balances by age and payment status.


	June 30, 2023
(dollars in thousands)	Accruing 30- 59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	6		-		-		-		613,868		613,874
Non-owner occupied RE		83		104		-		754		950,595		951,536
Construction		-		-		-		-		115,798		115,798
Business		184		5		-		137		511,393		511,719
Consumer
Real estate		132		583		-		1,053		1,046,136		1,047,904
Home equity		29		-		-		1,072		184,483		185,584
Construction		-		-		-		-		61,044		61,044
Other		6		-		-		-		50,151		50,157
Total loans	$	440		692		-		3,016		3,533,468		3,537,616
Total loans over 90 days past due		-		-		-		-		-		1,072

	December 31, 2022
(dollars in thousands)	Accruing 30- 59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	-		-		-		-		612,901		612,901
Non-owner occupied RE		119		757		-		247		861,456		862,579
Construction		-		-		-		-		109,726		109,726
Business		24		1		-		182		467,905		468,112
Consumer
Real estate		330		-		-		1,099		929,849		931,278
Home equity		50		-		-		1,099		178,151		179,300
Construction		-		-		-		-		80,415		80,415
Other		88		-		-		-		28,964		29,052
Total loans	$	611		758		-		2,627		3,269,367		3,273,363
Total loans over 90 days past due		-		-		-		-		-		402

As of June 30, 2023 and December 31, 2022, loans 30 days or more past due represented 0.07% and 0.11% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.01% and 0.03% of the Company’s total loan portfolio as of June 30, 2023 and December 31, 2022, respectively. Consumer loans 30 days or more past due were 0.05% and 0.08% of total loans as of June 30, 2023 and December 31, 2022, respectively.

The table below summarizes nonaccrual loans by major categories for the periods presented.



	June 30, 2023								December 31, 2022
	Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual
	loans		loans		Total		loans		loans		Total
	with no		with an		nonaccrual		with no		with an		nonaccrual
(dollars in thousands)	allowance		allowance		loans		allowance		allowance		loans
Commercial
Owner occupied RE		-		-		-		-		-		-
Non-owner occupied RE		-		754		754		114		133		247
Construction		-		-		-		-		-		-
Business		-		137		137		-		182		182
Total commercial		-		891		891		114		315		429
Consumer
Real estate		-		1,053		1,053		-		1,099		1,099
Home equity		185		887		1,072		194		905		1,099
Construction		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total consumer		185		1,940		2,125		194		2,004		2,198
Total nonaccrual loans		185		2,831		3,016		308		2,319		2,627

We did not recognize interest income on nonaccrual loans for the three months ended June 30, 2023 and June 30, 2022. The accrued interest reversed during the three months ended June 30, 2023 and June 30, 2022 was not material.

We did not recognize interest income on nonaccrual loans for the six months ended June 30, 2023 and June 30, 2022. Accrued interest of $23,000 was reversed during the six months ended June 30, 2023 and $3,000 was reversed during the six months ended June 30, 2022.

The table below summarizes information regarding nonperforming assets.



(dollars in thousands)	June 30, 2023			December 31, 2022
Nonaccrual loans	$	3,016			2,627
Other real estate owned		-			-
Total nonperforming assets	$	3,016			2,627
Nonperforming assets as a percentage of:
Total assets		0.08	%		0.07	%
Gross loans		0.09	%		0.08	%
Total loans over 90 days past due	$	1,072			402
Loans over 90 days past due and still accruing		-			-
Accruing troubled debt restructurings		-			4,503

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) 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. There were no loan modifications to borrowers experiencing financial difficulty during the three months and six months ended June 30, 2023.

Allowance for Credit Losses

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 quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management'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, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

The Company uses a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculates lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The Company generally utilizes a four-quarter forecast period in evaluating the appropriateness of the reasonable and supportable forecast scenarios which are incorporated through qualitative adjustments. There is immediate reversion to historical loss rates. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. These adjustments are based upon quarterly trend assessments in certain economic factors such as labor, inflation, consumer sentiment and real disposable income, as well as associate retention and turnover, portfolio concentrations, and growth characteristics. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

The following tables summarize the activity related to the allowance for credit losses for the three and six months ended June 30, 2023 and June 30, 2022 under the CECL methodology.



									Three months ended June 30, 2023
	Commercial										Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business		Real Estate		Home Equity			Construction			Other			Total
Balance, beginning of period	$	5,984			11,285			1,110		8,022		10,079		2,663			810			482			40,435
Provision for credit losses		(88	)		347			221		118		316		245			(126	)		62			1,095
Loan charge-offs		-			(48	)		-		-		-		(389	)		-			(2	)		(439	)
Loan recoveries		-			-			-		12		-		2			-			-			14
Net loan recoveries (charge-offs)		-			(48	)		-		12		-		(387	)		-			(2	)		(425	)
Balance, end of period	$	5,896			11,584			1,331		8,152		10,395		2,521			684			542			41,105
Net charge-offs to average loans (annualized)																							0.05	%
Allowance for credit losses to gross loans																							1.16	%
Allowance for credit losses to nonperforming loans																							1,363.11	%



									Three months ended June 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	4,898			9,973			929		6,217			7,602			2,197			844			284			32,944
Provision for credit losses		(69	)		37			131		524			390			407			7			98			1,525
Loan charge-offs		-			-			-		(55	)		-			(170	)		-			(91	)		(316	)
Loan recoveries		-			-			-		31			-			8			-			-			39
Net loan recoveries (charge-offs)		-			-			-		(24	)		-			(162	)		-			(91	)		(277	)
Balance, end of period	$	4,829			10,010			1,060		6,717			7,992			2,442			851			291			34,192
Net charge-offs to average loans (annualized)																									0.04	%
Allowance for credit losses to gross loans																									1.20	%
Allowance for credit losses to nonperforming loans																									1,166.70	%


									Six months ended June 30, 2023
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	5,867			10,376			1,292		7,861			9,487			2,551			893			312			38,639
Provision for credit losses		29			1,385			39		268			908			298			(209	)		232			2,950
Loan charge-offs		-			(209	)		-		(1	)		-			(389	)		-			(2	)		(601	)
Loan recoveries		-			32			-		24			-			61			-			-			117
Net loan recoveries (charge-offs)		-			(177	)		-		23			-			(328	)		-			(2	)		(484	)
Balance, end of period	$	5,896			11,584			1,331		8,152			10,395			2,521			684			542			41,105
Net charge-offs to average loans (annualized)																									0.03	%
Allowance for credit losses to gross loans																									1.16	%
Allowance for credit losses to nonperforming loans																									1,363.11	%

												Six months ended June 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	4,700			10,518			625		4,887			7,083			1,697			578			320			30,408
Adjustment for CECL		(313	)		333			154		1,057			(294	)		438			130			(5	)		1,500
Provision for credit losses		442			(841	)		281		683			1,203			572			143			67			2,550
Loan charge-offs		-			-			-		(55	)		-			(339	)		-			(91	)		(485	)
Loan recoveries		-			-			-		145			-			74			-			-			219
Net loan recoveries (charge-offs)		-			-			-		90			-			(265	)		-			(91	)		(266	)
Balance, end of period	$	4,829			10,010			1,060		6,717			7,992			2,442			851			291			34,192
Net charge-offs to average loans (annualized)																									0.02	%
Allowance for credit losses to gross loans																									1.20	%
Allowance for credit losses to nonperforming loans																									1,166.70	%

The $1.1 million provision for credit losses for the three months ended June 30, 2023 was driven by $119.7 million in loan growth combined with net charge-offs of $425,000 for the quarter. The $3.0 million provision for credit losses for the six months ended June 30, 2023 was driven by $264.3 million in loan growth for the period. In addition to loan growth, the provision for credit losses was impacted by slightly lower expected loss rates due to continued low charge-offs during the first half of 2023, while minor adjustments to an internal qualitative factor increased the qualitative component of the allowance and related provision expense.

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management

of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

The following tables present an analysis of collateral-dependent loans of the Company.


					June 30, 2023
	Real		Business
(dollars in thousands)	estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		31		-		-		31
Construction		-		-		-		-
Business		42		-		-		42
Total commercial		73		-		-		73
Consumer
Real estate		195		-		-		195
Home equity		185		-		-		185
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		380		-		-		380
Total	$	453		-		-		453

						December 31, 2022
		Real		Business
(dollars in thousands)		estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		114		-		-		114
Construction		-		-		-		-
Business		30		-		-		30
Total commercial		144		-		-		144
Consumer
Real estate		207		-		-		207
Home equity		194		-		-		194
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		401		-		-		401
Total	$	545		-		-		545

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for credit losses for unfunded loan commitments was $2.6 million at June 30, 2023 and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and six months ended June 30, 2023 and June 30, 2022.



	Three months ended			Three months ended
(dollars in thousands)	June 30, 2023			June 30, 2022
Balance, beginning of period	$	2,750			2,080
Adjustment for adoption of CECL		-			-
Provision for (reversal of) credit losses		(185	)		250
Balance, end of period	$	2,565			2,330
Unfunded Loan Commitments	$	849,977			738,791
Reserve for Unfunded Commitments to Unfunded Loan Commitments		0.30	%		0.32	%

		Six months ended			Six months ended
(dollars in thousands)		June 30, 2023			June 30, 2022
Balance, beginning of period	$	2,780			-
Adjustment for adoption of CECL		-			2,000
Provision for (reversal of) credit losses		(215	)		330
Balance, end of period	$	2,565			2,330
Unfunded Loan Commitments	$	849,977			738,791
Reserve for Unfunded Commitments to Unfunded Loan Commitments		0.30	%		0.32	%