Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2023

NOTE 5. Loans and Allowance for Credit Losses on Loans

The composition of loans at June 30, 2023 and December 31, 2022 was as follows:


	June 30,			December 31,
	2023			2022
	(in thousands)
Mortgage real estate loans:
Construction & Secured by Farmland	$	95,433		$	89,651
HELOCs		44,333			43,588
Residential First Lien - Investor		117,265			111,074
Residential First Lien - Owner Occupied		142,417			125,088
Residential Junior Liens		11,869			11,417
Commercial - Owner Occupied		243,610			232,115
Commercial - Non-Owner Occupied & Multifamily		350,210			315,326
Commercial and industrial loans:
SBA PPP loans		63			74
Other commercial and industrial loans		100,759			99,571
Marine loans		299,304			230,874
Consumer loans		43,642			44,841
Overdrafts		308			218
Other loans		13,805			12,503
Total loans	$	1,463,018		$	1,316,340
Net deferred loan costs and premiums		7,952			7,443
Allowance for credit losses		(14,511	)		(11,218	)
	$	1,456,459		$	1,312,565

At June 30, 2023, the Company was servicing $257.3 million of marine loans for other financial institutions which are not included in the table above. Also excluded from the table above are net servicing assets of $705 thousand at June 30, 2023, which are recorded in other assets in the Consolidated Balance Sheets. When loans are sold with servicing retained, servicing assets are recorded which represent the Company's right to service loans that were sold. Servicing assets are initially recorded by the Company at fair value and are subsequently amortized in proportion to, and over the period of, estimated net servicing income.

Changes in the allowance for credit losses on loans for the three and six months ended June 30, 2023 and 2022 were as follows:


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2023			2022			2023			2022
				(in thousands)
Balance, beginning	$	13,950		$	9,315		$	11,218		$	8,787
Cumulative effect adjustment for adoption of ASC 326		—			—			2,077			—
Provision for credit losses		410			360			1,119			900
Recoveries added to the allowance		203			213			224			248
Credit losses charged to the allowance		(52	)		(41	)		(127	)		(88	)
Balance, ending	$	14,511		$	9,847		$	14,511		$	9,847

Nonaccrual and past due loans by class at June 30, 2023 were as follows:


	June 30, 2023
	(in thousands)
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans		90 or More Days Past Due Still Accruing
Mortgage real estate loans:
Construction & Secured by Farmland	$	—	$	—	$	98	$	98	$	95,335	$	95,433	$	—
HELOCs		40		—		—		40		44,293		44,333		—
Residential First Lien - Investor		—		—		—		—		117,265		117,265		—
Residential First Lien - Owner Occupied		76		—		37		113		142,304		142,417		169
Residential Junior Liens		—		—		—		—		11,869		11,869		—
Commercial - Owner Occupied		34		—		—		34		243,576		243,610		—
Commercial - Non-Owner Occupied & Multifamily		1,311		—		—		1,311		348,899		350,210		—
Commercial and industrial loans:
SBA PPP loans		—		—		—		—		63		63		—
Other commercial and industrial loans		238		—		3		241		100,518		100,759		—
Marine loans		—		—		430		430		298,874		299,304		—
Consumer loans		212		105		235		552		43,090		43,642		66
Overdrafts		—		—		—		—		308		308		—
Other loans		—		—		—		—		13,805		13,805		—
Total	$	1,911	$	105	$	803	$	2,819	$	1,460,199	$	1,463,018	$	235


	June 30, 2023
	(in thousands)
	Nonaccruals with No Allowance for Credit Losses		Nonaccrual with an Allowance for Credit Losses		Nonaccrual Loans
Mortgage real estate loans:
Construction & Secured by Farmland	$	98	$	—	$	98
HELOCs		16		—		16
Residential First Lien - Investor		1,111		—		1,111
Residential First Lien - Owner Occupied		118		—		118
Residential Junior Liens		4		—		4
Commercial - Owner Occupied		18		—		18
Commercial - Non-Owner Occupied & Multifamily		1,311		—		1,311
Commercial and industrial loans:
SBA PPP loans		—		—		—
Other commercial and industrial loans		—		3		3
Marine loans		430		—		430
Consumer loans		—		—		—
Overdrafts		—		—		—
Other loans		—		—		—
Total	$	3,106	$	3	$	3,109

Nonaccrual and past due loans by class at December 31, 2022 were as follows:


	December 31, 2022
	(in thousands)
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans		90 or More Past Due Still Accruing		Nonaccrual Loans
Mortgage real estate loans:
Construction & Secured by Farmland	$	—	$	—	$	101	$	101	$	89,550	$	89,651	$	—	$	397
HELOCs		149		—		—		149		43,439		43,588		—		155
Residential First Lien - Investor		—		—		—		—		111,074		111,074		—		—
Residential First Lien - Owner Occupied		222		—		39		261		124,827		125,088		—		175
Residential Junior Liens		—		—		—		—		11,417		11,417		—		6
Commercial - Owner Occupied		—		—		—		—		232,115		232,115		—		—
Commercial - Non-Owner Occupied & Multifamily		—		—		—		—		315,326		315,326		—		1,356
Commercial and industrial loans:
SBA PPP loans		—		—		—		—		74		74		—		—
Other commercial and industrial loans		15		—		73		88		99,483		99,571		—		73
Marine loans		—		—		—		—		230,874		230,874		—		—
Consumer loans		56		—		318		374		44,467		44,841		318		—
Overdrafts		—		—		—		—		218		218		—		—
Other loans		—		—		—		—		12,503		12,503		—		—
Total	$	442	$	—	$	531	$	973	$	1,315,367	$	1,316,340	$	318	$	2,162

The allowance for credit losses on loans by segment at June 30, 2023 and December 31, 2022 was as follows:


	As of and For the Six Months Ended
	June 30, 2023
	(in thousands)
	Construction and Farmland			Residential Real Estate		Commercial Real Estate & MultiFamily		Commercial			Marine			Consumer			All Other Loans			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	2,714		$	1,735	$	2,221	$	2,222		$	1,555		$	299		$	472		$	—	$	11,218
Cumulative effect adjustment for adoption of ASC 326	$	(1,840	)	$	1,933	$	3,584	$	(1,102	)	$	(285	)	$	(123	)	$	(90	)	$	—	$	2,077
Charge-Offs		—			—		—		—			—			(21	)		(106	)		—		(127	)
Recoveries		4			9		—		9			—			28			174			—		224
Provision		25			333		496		(151	)		376			48			(8	)		—		1,119
Ending balance	$	903		$	4,010	$	6,301	$	978		$	1,646		$	231		$	442		$	—	$	14,511
Ending balance: Individually evaluated	$	—		$	—	$	—	$	3		$	—		$	—		$	—		$	—	$	3
Ending balance: collectively evaluated	$	903		$	4,010	$	6,301	$	975		$	1,646		$	231		$	442		$	—	$	14,508
Loans:
Ending balance	$	95,433		$	315,884	$	593,820	$	100,822		$	299,304		$	43,642		$	14,113		$	—	$	1,463,018
Ending balance individually evaluated	$	98		$	1,193	$	1,328	$	3		$	430		$	—		$	—		$	—	$	3,052
Ending balance collectively evaluated	$	95,335		$	314,691	$	592,492	$	100,819		$	298,874		$	43,642		$	14,113		$	—	$	1,459,966


	As of and For the Year Ended
	December 31, 2022
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate & MultiFamily		Commercial			Marine		Consumer			All Other Loans			Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	2,794		$	1,671		$	1,729	$	1,294		$	789	$	219		$	291		$	—	$	8,787
Charge-Offs		—			(9	)		—		(300	)		—		(79	)		(271	)		—		(659	)
Recoveries		9			888			197		109			—		44			13			—		1,260
Provision		(89	)		(815	)		295		1,119			766		115			439			—		1,830
Ending balance	$	2,714		$	1,735		$	2,221	$	2,222		$	1,555	$	299		$	472		$	—	$	11,218
Ending balance: Individually evaluated for impairment	$	—		$	27		$	—	$	73		$	—	$	—		$	—		$	—	$	100
Ending balance: collectively evaluated for impairment	$	2,714		$	1,708		$	2,221	$	2,149		$	1,555	$	299		$	472		$	—	$	11,118
Loans:
Ending balance	$	89,651		$	291,167		$	547,441	$	99,645		$	230,874	$	44,841		$	12,721		$	—	$	1,316,340
Ending balance individually evaluated for impairment	$	1,044		$	3,719		$	1,695	$	141		$	—	$	22		$	—		$	—	$	6,621
Ending balance collectively evaluated for impairment	$	88,607		$	287,448		$	545,746	$	99,504		$	230,874	$	44,819		$	12,721		$	—	$	1,309,719

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:


	June 30, 2023
	(in thousands)
(in thousands)	Real Estate Collateral		Other Collateral		Total
Mortgage real estate loans:
Construction & Secured by Farmland	$	98	$	—	$	98
HELOCs		—		—		—
Residential First Lien - Investor		1,111		—		1,111
Residential First Lien - Owner Occupied		82		—		82
Residential Junior Liens		—		—		—
Commercial - Owner Occupied		17		—		17
Commercial - Non-Owner Occupied & Multifamily		1,311		—		1,311
Commercial and industrial loans:
SBA PPP loans		—		—		—
Other commercial and industrial loans		—		3		3
Marine loans		—		430		430
Consumer loans		—		—		—
Overdrafts		—		—		—
Other loans		—		—		—
	$	2,619	$	433	$	3,052

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended June 30, 2023.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This anallysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year (for 2023 only). Description of these ratings are as follows:


Pass		Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Special Mention		Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Classified		Classified loans include loans rated Substandard, Doubtful and Loss.
		• Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
		• Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
		• Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.

Credit quality information by class at June 30, 2023 and December 31, 2022 was as follows:


	June 30, 2023
	Term Loan Amortized Cost Basis by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total

Mortgage real estate loans:
Construction & Secured by Farmland
Pass	$	19,554	$	24,071	$	19,562	$	5,478	$	3,515	$	5,750	$	17,205	$	—	$	95,135
Special Mention		—		—		—		149		—		—		—		—		149
Classified		—		—		—		—		—		149		—		—		149
Total	$	19,554	$	24,071	$	19,562	$	5,627	$	3,515	$	5,899	$	17,205	$	—	$	95,433
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
HELOCs
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	44,317	$	—	$	44,317
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		16		—		16
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	44,333	$	—	$	44,333
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential First Lien - Investor
Pass	$	10,655	$	27,335	$	33,180	$	12,040	$	5,304	$	26,381	$	—	$	—	$	114,895
Special Mention		—		394		234		631		—		—		—		—		1,259
Classified		—		—		1,111		—		—		—		—		—		1,111
Total	$	10,655	$	27,729	$	34,525	$	12,671	$	5,304	$	26,381	$	—	$	—	$	117,265
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential First Lien - Owner Occupied
Pass	$	21,933	$	29,514	$	24,254	$	36,812	$	4,417	$	23,952	$	17	$	—	$	140,899
Special Mention		—		—		—		—		—		652		—		—		652
Classified		—		—		—		—		—		866		—		—		866
Total	$	21,933	$	29,514	$	24,254	$	36,812	$	4,417	$	25,470	$	17	$	—	$	142,417
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential Junior Liens
Pass	$	930	$	3,075	$	3,631	$	1,581	$	667	$	1,945	$	—	$	—	$	11,829
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		40		—		—		40
Total	$	930	$	3,075	$	3,631	$	1,581	$	667	$	1,985	$	—	$	—	$	11,869
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Owner Occupied
Pass	$	18,864	$	74,703	$	41,305	$	28,100	$	16,460	$	54,660	$	3,431	$	—	$	237,523
Special Mention		—		—		1,056		957		1,098		565		—		—		3,676
Classified		—		—		2,393		—		—		18		—		—		2,411
Total	$	18,864	$	74,703	$	44,754	$	29,057	$	17,558	$	55,243	$	3,431	$	—	$	243,610
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial - Non-Owner Occupied & Multifamily
Pass	$	34,992	$	111,601	$	62,627	$	75,287	$	17,488	$	38,433	$	1,175	$	—	$	341,603
Special Mention		—		4,204		531		2,406		—		155		—		—		7,296
Classified		—		—		—		—		—		1,311		—		—		1,311
Total	$	34,992	$	115,805	$	63,158	$	77,693	$	17,488	$	39,899	$	1,175	$	—	$	350,210
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial loans:
SBA PPP loans
Pass	$	—	$	—	$	63	$	—	$	—	$	—	$	—	$	—	$	63
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	63	$	—	$	—	$	—	$	—	$	—	$	63
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial and industrial loans
Pass	$	10,073	$	33,564	$	11,686	$	5,392	$	3,129	$	2,404	$	27,414	$	—	$	93,662
Special Mention		2,522		3,164		—		—		2		—		1,406		—		7,094
Classified		—		—		—		3		—		—		—		—		3
Total	$	12,595	$	36,728	$	11,686	$	5,395	$	3,131	$	2,404	$	28,820	$	—	$	100,759
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Marine loans
Pass	$	78,488	$	138,775	$	38,712	$	680	$	—	$	—	$	42,649	$	—	$	299,304
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	78,488	$	138,775	$	38,712	$	680	$	—	$	—	$	42,649	$	—	$	299,304
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer loans
Pass	$	2,035	$	15,112	$	6,645	$	9,270	$	1,916	$	61	$	8,603	$	—	$	43,642
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	2,035	$	15,112	$	6,645	$	9,270	$	1,916	$	61	$	8,603	$	—	$	43,642
Current period gross charge-offs	$	—	$	3	$	—	$	—	$	—	$	—	$	18	$	—	$	21
Overdrafts
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Classified		308		—		—		—		—		—		—		—		308
Total	$	308	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	308
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	106	$	—	$	106
Other loans
Pass	$	76	$	9,947	$	177	$	11	$	—	$	2,744	$	850	$	—	$	13,805
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	76	$	9,947	$	177	$	11	$	—	$	2,744	$	850	$	—	$	13,805
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total by Risk Category


Pass	$	197,600	$	467,697	$	241,842	$	174,651	$	52,896	$	156,330	$	145,661	$	—	$	1,436,677
Special Mention		2,522		7,762		1,821		4,143		1,100		1,372		1,406		—		20,126
Classified		308		—		3,504		3		—		2,384		16		—		6,215
Total	$	200,430	$	475,459	$	247,167	$	178,797	$	53,996	$	160,086	$	147,083	$	—	$	1,463,018
Total current period gross charge-offs	$	—	$	3	$	—	$	—	$	—	$	—	$	124	$	—	$	127


	As of
	December 31, 2022
	(in thousands)
INTERNAL RISK RATING GRADES	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Commercial - Non Real Estate:
Commercial & Industrial	$	247,061	$	526	$	72	$	—	$	—	$	247,659
Commercial Real Estate:
Owner Occupied		212,074		20,020		21		—		—		232,115
Non-owner occupied		257,625		16,189		1,706		—		—		275,520
Construction and Farm land:
Residential		11,235		—		21		—		—		11,256
Commercial		69,427		153		8,815		—		—		78,395
Residential:
Equity Lines		43,124		310		154		—		—		43,588
Single family		251,247		5,972		951		—		—		258,170
Multifamily		39,806		—		—		—		—		39,806
All other loans		12,721		—		—		—		—		12,721
Total	$	1,144,320	$	43,170	$	11,740	$	—	$	—	$	1,199,230


	Performing		Nonperforming
Consumer Credit Exposure by Payment Activity	$	116,908	$	202