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Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2024

Loans and Allowance for Credit Losses

Loans and Allowance for Credit Losses

Note 3: Loans and Allowance for Credit Losses

Categories of loans include:


		June 30,			December 31,
		2024			2023

		(In thousands)
Commercial and Industrial		$	94,662		$	91,294
Commercial real estate			287,635			291,859
Residential real estate			92,154			93,364
Consumer loans			10,063			6,719

Total gross loans			484,514			483,236

Less allowance for credit losses			(3,989)			(3,918)

Total loans		$	480,525		$	479,318

The risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial, and Commercial Real Estate

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.

Residential Real Estate and Consumer

Residential real estate and consumer loans consist of two segments - residential mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Allowance for Credit Losses and Recorded Investment in Loans

As of and for the three and six month periods ended June 30, 2024


					Commercial
		Commercial			Real Estate			Residential			Consumer			Total
Allowance for credit losses:

Balance, April 1, 2024		$	589		$	1,377		$	1,783		$	121		$	3,870
Provision for (reversal of) credit loss exposure			114			36			37			47			234
Losses charged off			(75)			—			(7)			(44)			(126)
Recoveries			—			—			—			11			11
Balance, June 30, 2024		$	628		$	1,413		$	1,813		$	135		$	3,989
Balance, January 1, 2024		$	573		$	1,408		$	1,843		$	94		$	3,918
Provision for (reversal of ) credit loss exposure			129			5			(23)			123			234
Losses charged off			(75)			—			(7)			(101)			(183)
Recoveries			1			—			—			19			20
Balance, June 30, 2024		$	628		$	1,413		$	1,813		$	135		$	3,989

Allocation:

Ending balance: individually evaluated for credit losses		$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for credit losses		$	628		$	1,413		$	1,813		$	135		$	3,989
Loans:
Ending balance: individually evaluated for credit losses		$	66		$	7		$	237		$	—		$	310
Ending balance: collectively evaluated for credit losses		$	94,596		$	287,628		$	91,917		$	10,063		$	484,204

Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three and six month periods ended June 30, 2023


					Commercial
		Commercial			Real Estate			Residential			Consumer			Total
Allowance for loan losses:

Balance, April 1, 2023		$	990		$	1,202		$	2,156		$	104		$	4,452
Provision for (reversal of) for credit loss exposure			(93)			(123)			(64)			134			(146)
Losses charged off			—			—			—			(33)			(33)
Recoveries			5			—			—			3			8
Balance, June 30, 2023		$	902		$	1,079		$	2,092		$	208		$	4,281
Balance, January 1, 2023		$	215		$	815		$	816		$	206		$	2,052
Impact of adopting ASC 326			755			388			1,379			(103)			2,419
Provision for (reversal of ) for credit loss exposure			(78)			(124)			(103)			159			(146)
Losses charged off			—			—			—			(62)			(62)
Recoveries			10			—			—			8			18
Balance, June 30, 2023		$	902		$	1,079		$	2,092		$	208		$	4,281

Allocation:

Ending balance: individually evaluated for impairment		$	99		$	—		$	—		$	—		$	99
Ending balance: collectively evaluated for impairment		$	803		$	1,079		$	2,092		$	208		$	4,182
Loans:
Ending balance: individually evaluated for impairment		$	99		$	—		$	—		$	—		$	99
Ending balance: collectively evaluated for impairment		$	89,861		$	274,291		$	92,072		$	6,547		$	462,771

Allowance for Loan Losses and Recorded Investment in Loans

As of December 31, 2023


					Commercial
		Commercial			Real Estate			Residential			Consumer			Total

		(In thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment		$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment		$	573		$	1,408		$	1,843		$	94		$	3,918

Loans:
Ending balance: individually evaluated for impairment		$	—		$	8		$	318		$	—		$	326
Ending balance: collectively evaluated for impairment		$	91,294		$	291,851		$	93,046		$	6,719		$	482,910

The following tables show the portfolio quality indicators.

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogeneous loans by internal risk rating system as of June 30, 2024 (in thousands):


																				Revolving			Revolving
																				Loans			Loans
																				Amortized			Converted
June 30, 2024		2024			2023			2022			2021			2020			Prior			Cost Basis			to Term			Total
Commercial and industrial
Risk Rating
Pass		$	9,680		$	20,129		$	13,196		$	10,508		$	11,956		$	9,587		$	18,263		$	—		$	93,319
Special Mention			—			—			26			—			—			141			1,110			—			1,277
Substandard			—			66			—			—			—			—			—			—			66
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	9,680		$	20,195		$	13,222		$	10,508		$	11,956		$	9,728		$	19,373		$	—		$	94,662

Commercial and industrial
Current period gross charge-offs		$	—		$	75		$	—		$	—		$	—		$	—		$	—		$	—		$	75

Commercial real estate
Risk Rating
Pass		$	5,196		$	37,584		$	34,284		$	47,485		$	33,664		$	71,021		$	46,458		$	—		$	275,692
Special Mention			—			—			335			242			—			11,340			—			—			11,917
Substandard			—			—			—			—			—			26			—			—			26
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	5,196		$	37,584		$	34,619		$	47,727		$	33,664		$	82,387		$	46,458		$	—		$	287,635

Commercial real estate
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Total
Pass		$	14,876		$	57,713		$	47,480		$	57,993		$	45,620		$	80,608		$	64,721		$	—		$	369,011
Special Mention			—			—			361			242			—			11,481			1,110			—			13,194
Substandard			—			66			—			—			—			26			—			—			92
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	14,876		$	57,779		$	47,841		$	58,235		$	45,620		$	92,115		$	65,831		$	—		$	382,297
Current period gross charge-offs		$	—		$	75		$	—		$	—		$	—		$	—		$	—		$	—		$	75

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed quarterly. The following table presents the amortized cost in residential and consumer loans based on payment activity:


																				Revolving			Revolving
																				Loans			Loans
																				Amortized			Converted
June 30, 2024		2024			2023			2022			2021			2020			Prior			Cost Basis			to Term			Total
Residential Real Estate
Payment Performance
Performing		$	3,713		$	11,553		$	17,719		$	15,760		$	18,536		$	24,617		$	—		$	—		$	91,898
Nonperforming			—			—			—			—			—			256			—			—			256
Total		$	3,713		$	11,553		$	17,719		$	15,760		$	18,536		$	24,873		$	—		$	—		$	92,154

Residential real estate
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	7		$	—		$	—		$	7


Consumer
Payment Performance
Performing		$	4,852		$	1,826		$	1,065		$	480		$	377		$	1,081		$	368		$	—		$	10,049
Nonperforming			—			14			—			—			—			—			—			—			14
Total		$	4,852		$	1,840		$	1,065		$	480		$	377		$	1,081		$	368		$	—		$	10,063

Consumer
Current period gross charge-offs		$	64		$	37		$	—		$	—		$	—		$	—		$	—		$	—		$	101

Total
Payment Performance
Performing		$	8,565		$	13,379		$	18,784		$	16,240		$	18,913		$	25,698		$	368		$	—		$	101,947
Nonperforming			—			14			—			—			—			256			—			—			270
Total		$	8,565		$	13,393		$	18,784		$	16,240		$	18,913		$	25,954		$	368		$	—		$	102,217
Current period gross charge-offs		$	64		$	37		$	—		$	—		$	—		$	7		$	—		$	—		$	108

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogeneous loans by internal risk rating system as of December 31, 2023 (in thousands):


																				Revolving			Revolving
																				Loans			Loans
																				Amortized			Converted
December 31, 2023		2023			2022			2021			2020			2019			Prior			Cost Basis			to Term			Total
Commercial and industrial
Risk Rating
Pass		$	21,847		$	14,723		$	13,067		$	14,042		$	6,017		$	5,292		$	15,019		$	—		$	90,007
Special Mention			—			26			—			—			—			128			1,133			—			1,287
Substandard			—			—			—			—			—			—			—			—			—
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	21,847		$	14,749		$	13,067		$	14,042		$	6,017		$	5,420		$	16,152		$	—		$	91,294

Commercial and industrial
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Commercial real estate
Risk Rating
Pass		$	29,246		$	35,721		$	48,569		$	34,671		$	26,562		$	57,441		$	55,141		$	—		$	287,351
Special Mention			—			—			242			2,050			—			2,121			—			—			4,413
Substandard			—			—			—			—			—			95			—			—			95
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	29,246		$	35,721		$	48,811		$	36,721		$	26,562		$	59,657		$	55,141		$	—		$	291,859

Commercial real estate
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Total
Pass		$	51,093		$	50,444		$	61,636		$	48,713		$	32,579		$	62,733		$	70,160		$	—		$	377,358
Special Mention			—			26			242			2,050			—			2,249			1,133			—			5,700
Substandard			—			—			—			—			—			95			—			—			95
Doubtful			—			—			—			—			—			—			—			—			—
Total		$	51,093		$	50,470		$	61,878		$	50,763		$	32,579		$	65,077		$	71,293		$	—		$	383,153
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed quarterly. The following table presents the amortized cost in residential and consumer loans based on payment activity:


																							Revolving			Revolving
																							Loans			Loans
																							Amortized			Converted
December 31, 2023		2023			2022			2021			2020			2019			Prior			Cost Basis			to Term			Total
Residential Real Estate
Payment Performance
Performing		$	12,036		$	18,297		$	16,343		$	19,476		$	5,687		$	21,046		$	—		$	—		$	92,885
Nonperforming			—			—			—			38			—			441			—			—			479
Total		$	12,036		$	18,297		$	16,343		$	19,514		$	5,687		$	21,487		$	—		$	—		$	93,364

Residential real estate
Current period gross charge-offs		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Consumer
Payment Performance
Performing		$	2,484		$	1,396		$	674		$	456		$	385		$	953		$	371		$	—		$	6,719
Nonperforming			—			—			—			—			—			—			—			—			—
Total		$	2,484		$	1,396		$	674		$	456		$	385		$	953		$	371		$	—		$	6,719

Consumer
Current period gross charge-offs		$	138		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	138

Total
Payment Performance
Performing		$	14,520		$	19,693		$	17,017		$	19,932		$	6,072		$	21,999		$	371		$	—		$	99,604
Nonperforming			—			—			—			38			—-			441			—			—			479
Total		$	14,520		$	19,693		$	17,017		$	19,970		$	6,072		$	22,440		$	371		$	—		$	100,083
Current period gross charge-offs		$	138		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	138

To facilitate the monitoring of credit quality within the loan portfolio, and for purposes of analyzing historical loss rates used in the determination of the allowance for credit losses, the Company utilizes the following categories of credit grades: pass, special mention, substandard, and doubtful. The four categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass ratings, which are assigned to those borrowers that do not have identified potential or well defined weaknesses and for which there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on at least a quarterly basis.

The Company assigns a special mention rating to loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or the Company’s credit position.

The Company assigns a substandard rating to loans that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans have well defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies noted are not addressed and corrected.

The Company assigns a doubtful rating to loans that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

The Company evaluates the loan risk grading system definitions and allowance for credit losses methodology on an ongoing basis. No significant changes were made to either during the past year to date period.

Loan Portfolio Aging Analysis

As of June 30, 2024


		30-59 Days			60‑89 Days			Greater
		Past Due			Past Due			Than 90 Days						Total Past
		and			and			and						Due and						Total Loans
		Accruing			Accruing			Accruing			Non Accrual			Non Accrual			Current			Receivable

		(In thousands)
Commercial		$	45		$	—		$	167		$	66		$	278		$	94,384		$	94,662
Commercial real estate			—			—			242			7			249			287,386			287,635
Residential			306			25			—			275			606			91,548			92,154
Consumer			—			—			—			14			14			10,049			10,063
Total		$	351		$	25		$	409		$	362		$	1,147		$	483,367		$	484,514

Loan Portfolio Aging Analysis

As of December 31, 2023


		30‑59 Days			60‑89 Days			Greater
		Past Due			Past Due			Than 90 Days						Total Past
		and			and			and						Due and						Total Loans
		Accruing			Accruing			Accruing			Non Accrual			Non Accrual			Current			Receivable

		(In thousands)
Commercial		$	10		$	48		$	154		$	—		$	212		$	91,082		$	91,294
Commercial real estate			—			242			—			8			250			291,609			291,859
Residential			201			—			—			479			680			92,684			93,364
Installment			5			—			—			—			5			6,714			6,719
Total		$	216		$	290		$	154		$	487		$	1,147		$	482,089		$	483,236

Nonperforming Loans

The following table present the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of June 30, 2024:


											Loans Past
											Due Over 90 Days			Total
		Nonaccrual with no ACL			Nonaccrual with ACL			Total Nonaccrual			Still Accruing			Nonperforming

		(In thousands)
Commercial		$	66		$	—		$	66		$	167		$	233
Commercial real estate			7			—			7			242			249
Residential			275			—			275			—			275
Consumer			14			—			14			—			14
Total		$	362		$	—		$	362		$	409		$	771

The Company did recognized approximately $13,000 and $ 20,000 interest income on nonaccrual loans during the the period ended June 30, 2024 and 2023, respectively.

The following table present the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of December 31, 2023:


											Loans Past
											Due Over 90 Days			Total
		Nonaccrual with no ACL			Nonaccrual with ACL			Total Nonaccrual			Still Accruing			Nonperforming

		(In thousands)
Commercial and Industrial		$	—		$	—		$	—		$	154		$	154
Commercial real estate			8			—			8			—			8
Residential			479			—			479			—			479
Consumer			—			—			—			—			—
Total		$	487		$	—		$	487		$	154		$	641

The Company did recognized approximately $13,000 interest income on nonaccrual loans during the the period ended December 31, 2023.

Occasionally, the Bank modifies loans to borrowers in financial distress by providing term extension, other-than-significant payment delay or interest rate reduction. In some cases, the Bank provides multiple types of concessions on one loan. Typically, one type of concession, such as an interest rate reduction, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as term extension, may be granted.

For the three and six months ended June 30, 2024 and 2023, the Bank did not grant any loan modifications to borrowers experiencing financial difficulty.

As of June 30, 2024 and December 31, 2023, the Bank has not initiated formal proceedings on any loans that have not been transferred into foreclosed assets.