Allowance for Credit Losses on Loans

12 Months Ended

Dec. 31, 2023

NOTE 4. Allowance for Credit Losses on Loans

Changes in the allowance for credit losses for the years ended December 31, 2023 and 2022 were as follows:


	December 31,
	2023			2022
	(in thousands)
Balance, beginning	$	11,218		$	8,787
Cumulative effect adjustment for adoption of ASC 326		2,077			—
Provision charged to operating expense		1,641			1,830
Recoveries added to the allowance		298			1,260
Credit losses charged to the allowance		(741	)		(659	)
Balance, ending	$	14,493		$	11,218

Nonaccrual and past due loans by class at December 31, 2023 were as follows:


	December 31, 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	$	—	$	—	$	—	$	—	$	84,145	$	84,145	$	—
HELOCs		—		—		—		—		47,674		47,674		—
Residential First Lien - Investor		844		253		—		1,097		116,334		117,431		—
Residential First Lien - Owner Occupied		—		78		149		227		177,953		178,180		—
Residential Junior Liens		—		—		9		9		12,822		12,831		—
Commercial - Owner Occupied		—		—		—		—		251,456		251,456		—
Commercial - Non-Owner Occupied & Multifamily		—		—		—		—		348,879		348,879		—
Commercial and industrial loans:
SBA PPP loans		—		—		—		—		51		51		—
Other commercial and industrial loans		9		—		26		35		107,742		107,777		14
Marine loans		—		—		552		552		250,616		251,168		—
Consumer loans		173		—		167		340		42,079		42,419		167
Overdrafts		—		—		—		—		253		253		—
Other loans		—		—		—		—		12,895		12,895		—
Total	$	1,026	$	331	$	903	$	2,260	$	1,452,899	$	1,455,159	$	181


	December 31, 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	$	95	$	—	$	95
HELOCs		15		—		15
Residential First Lien - Investor		1,085		—		1,085
Residential First Lien - Owner Occupied		228		—		228
Residential Junior Liens		11		—		11
Commercial - Owner Occupied		22		—		22
Commercial - Non-Owner Occupied & Multifamily		3,625		—		3,625
Commercial and industrial loans:
SBA PPP loans		—		—		—
Other commercial and industrial loans		12		—		12
Marine loans		552		—		552
Consumer loans		—		—		—
Overdrafts		—		—		—
Other loans		—		—		—
Total	$	5,645	$	—	$	5,645

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

Allowance for credit losses by segment as of and for the years ended December 31, 2023 and December 31, 2022 were as follows:


	December 31, 2023
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate & Multi Family		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		—			—			—		(312	)		(126	)		(121	)		(182	)		—		(741	)
Recoveries		8			18			—		43			—			48			181			—		298
Provision		(110	)		1,039			419		176			9			95			13			—		1,641
Ending balance	$	772		$	4,725		$	6,224	$	1,027		$	1,153		$	198		$	394		$	—	$	14,493
Ending balance: Individually evaluated	$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—	$	—
Ending balance: collectively evaluated	$	772		$	4,725		$	6,224	$	1,027		$	1,153		$	198		$	394		$	—	$	14,493
Loans:
Ending balance	$	84,145		$	356,116		$	600,335	$	107,828		$	251,168		$	42,419		$	13,148		$	—	$	1,455,159
Ending balance individually evaluated	$	95		$	1,288		$	3,639	$	—		$	552		$	—		$	—		$	—	$	5,574
Ending balance collectively evaluated	$	84,050		$	354,828		$	596,696	$	107,828		$	250,616		$	42,419		$	13,148		$	—	$	1,449,585

	December 31, 2022
	(in thousands)
	Construction and Farmland			Residential Real Estate			Commercial Real Estate & Multi Family		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:


	December 31, 2023
	(in thousands)
(in thousands)	Real Estate Collateral		Other Collateral		Total
Mortgage real estate loans:
Construction & Secured by Farmland	$	95	$	—	$	95
HELOCs		—		—		—
Residential First Lien - Investor		1,086		—		1,086
Residential First Lien - Owner Occupied		194		—		194
Residential Junior Liens		8		—		8
Commercial - Owner Occupied		14		—		14
Commercial - Non-Owner Occupied & Multifamily		3,625		—		3,625
Commercial and industrial loans:
SBA PPP loans		—		—		—
Other commercial and industrial loans		—		—		—
Marine loans		—		552		552
Consumer loans		—		—		—
Overdrafts		—		—		—
Other loans		—		—		—
	$	5,022	$	552	$	5,574

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 December 31, 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 analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year (for 2023 only). Descriptions 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 December 31, 2023 and December 31, 2022 was as follows:


	December 31, 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	$	34,617	$	21,460	$	7,584	$	4,851	$	2,389	$	2,829	$	7,052	$	57	$	80,839
Special Mention		—		1,173		—		—		1,040		815		—		—		3,028
Classified		—		—		—		145		—		133		—		—		278
Total	$	34,617	$	22,633	$	7,584	$	4,996	$	3,429	$	3,777	$	7,052	$	57	$	84,145
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
HELOCs
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	47,610	$	—	$	47,610
Special Mention		—		—		—		—		—		—		49		—		49
Classified		—		—		—		—		—		—		15		—		15
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	47,674	$	—	$	47,674
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential First Lien - Investor
Pass	$	19,394	$	23,205	$	31,371	$	10,667	$	4,054	$	22,265	$	—	$	367	$	111,323
Special Mention		—		1,273		—		1,180		626		1,944		—		—		5,023
Classified		—		—		1,085		—		—		—		—		—		1,085
Total	$	19,394	$	24,478	$	32,456	$	11,847	$	4,680	$	24,209	$	—	$	367	$	117,431
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential First Lien - Owner Occupied
Pass	$	59,007	$	33,793	$	23,749	$	35,783	$	3,932	$	20,413	$	—	$	589	$	177,266
Special Mention		—		—		—		—		—		258		—		—		258
Classified		—		—		—		—		—		656		—		—		656
Total	$	59,007	$	33,793	$	23,749	$	35,783	$	3,932	$	21,327	$	—	$	589	$	178,180
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential Junior Liens
Pass	$	2,562	$	2,902	$	3,429	$	1,486	$	606	$	1,613	$	—	$	189	$	12,787
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		27		—		17		44
Total	$	2,562	$	2,902	$	3,429	$	1,486	$	606	$	1,640	$	—	$	206	$	12,831
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Owner Occupied
Pass	$	36,736	$	68,868	$	40,707	$	22,871	$	13,971	$	50,059	$	3,088	$	4,364	$	240,664
Special Mention		—		3,817		64		2,145		1,877		1,402		—		—		9,305
Classified		—		—		967		498		—		8		—		14		1,487
Total	$	36,736	$	72,685	$	41,738	$	25,514	$	15,848	$	51,469	$	3,088	$	4,378	$	251,456
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Non-Owner Occupied & Multifamily
Pass	$	56,510	$	88,518	$	64,005	$	65,075	$	15,563	$	34,619	$	1,196	$	5,651	$	331,137
Special Mention		624		4,748		3,685		5,060		—		—		—		—		14,117
Classified		—		—		—		2,355		—		1,270		—		—		3,625
Total	$	57,134	$	93,266	$	67,690	$	72,490	$	15,563	$	35,889	$	1,196	$	5,651	$	348,879
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial loans:
SBA PPP loans
Pass	$	—	$	—	$	51	$	—	$	—	$	—	$	—	$	—	$	51
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	51	$	—	$	—	$	—	$	—	$	—	$	51


	December 31, 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

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other commercial and industrial loans
Pass	$	15,052	$	26,798	$	8,659	$	4,824	$	2,629	$	3,898	$	43,188	$	1,005	$	106,053
Special Mention		1,125		—		—		13		1		9		220		344		1,712
Classified		—		—		—		3		—		—		9		—		12
Total	$	16,177	$	26,798	$	8,659	$	4,840	$	2,630	$	3,907	$	43,417	$	1,349	$	107,777
Current period gross charge-offs	$	231	$	81	$	—	$	—	$	—	$	—	$	—	$	—	$	312
Marine loans
Pass	$	86,001	$	128,456	$	35,492	$	667	$	—	$	—	$	—	$	—	$	250,616
Special Mention		—		—		—		—		—		—		—		—		—
Classified		367		185		—		—		—		—		—		—		552
Total	$	86,368	$	128,641	$	35,492	$	667	$	—	$	—	$	—	$	—	$	251,168
Current period gross charge-offs	$	—	$	126	$	—	$	—	$	—	$	—	$	—	$	—	$	126
Consumer loans
Pass	$	3,427	$	13,950	$	6,205	$	8,687	$	1,747	$	21	$	8,354	$	28	$	42,419
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	3,427	$	13,950	$	6,205	$	8,687	$	1,747	$	21	$	8,354	$	28	$	42,419
Current period gross charge-offs	$	—	$	3	$	—	$	66	$	—	$	—	$	52	$	—	$	121
Overdrafts
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Special Mention		—		—		—		—		—		—		—		—		—
Classified		253		—		—		—		—		—		—		—		253
Total	$	253	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	253
Current period gross charge-offs	$	182	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	182
Other loans
Pass	$	69	$	10,176	$	—	$	—	$	—	$	2,587	$	55	$	8	$	12,895
Special Mention		—		—		—		—		—		—		—		—		—
Classified		—		—		—		—		—		—		—		—		—
Total	$	69	$	10,176	$	—	$	—	$	—	$	2,587	$	55	$	8	$	12,895
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total by Risk Category
Pass	$	313,375	$	418,126	$	221,252	$	154,911	$	44,891	$	138,304	$	110,543	$	12,258	$	1,413,660
Special Mention		1,749		11,011		3,749		8,398		3,544		4,428		269		344		33,492
Classified		620		185		2,052		3,001		—		2,094		24		31		8,007
Total	$	315,744	$	429,322	$	227,053	$	166,310	$	48,435	$	144,826	$	110,836	$	12,633	$	1,455,159
Total current period gross charge-offs	$	413	$	210	$	—	$	66	$	—	$	—	$	52	$	—	$	741


	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 Farmland:
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