Loans And Allowance For Credit Losses

3 Months Ended

Mar. 31, 2024

Loans And Allowance For Credit Losses [Abstract]

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Note 8 – Loans and allowance for credit losses

On January 1, 2023, the Company adopted the amendments within ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Accordingly, the Company’s financials results for reporting periods beginning after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts have not been adjusted and continue to be reported with legacy GAAP. For a detailed discussion of the impact of the adoption of ASU 2016-13 and information related to loans and credit quality, including accounting policies and methodologies used to estimate the allowance for credit losses, see Note 1.

The Company’s primary portfolio segments have changed to align with the methodology applied in estimating the allowance for credit losses under CECL and are reflected as such in the disclosures as of and for the period ended March 31, 2024 as provided below. Management determined after the adoption of CECL that the classifications set forth below were appropriate for use in identifying and managing risk in the loan portfolio.


Loan Segments:		Loan Classes:
Commercial		Commercial and Industrial Loans
Commercial Real Estate		Commercial Mortgages – Owner Occupied
		Commercial Mortgages – Non-Owner Occupied
		Commercial Construction/Land
Consumer		Consumer Open-End
		Consumer Closed-End
Residential		Residential Mortgages
		Residential Consumer Construction/Land

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Note 8 – Loans and allowance for credit losses (continued)

A summary of loans, net of deferred costs of $923 and $961 as of March 31, 2024 and December 31, 2023, respectively, is as follows (dollars in thousands):


	As of	As of
	March 31, 2024	December 31, 2023
Commercial	$ 68,257	$ 65,324
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	133,346	131,519
Commercial Mortgages-Non-Owner Occupied	172,178	175,344
Commercial Construction/Land	22,364	21,966
Consumer:
Consumer Open-End	48,073	50,282
Consumer Closed-End	26,691	26,235
Residential:
Residential Mortgages	105,417	106,990
Residential Consumer Construction/Land	31,709	31,673

Total loans	$ 608,035	$ 609,333

Less allowance for credit losses	6,920	7,412

Net loans	$ 601,115	$ 601,921

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Note 8 – Loans and allowance for credit losses (continued)

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


Collateral Dependent Loans	March 31, 2024
(dollars in thousands)	Business/Other Assets	Real Estate
Commercial	$ 3,969	$ -
Commercial Real Estate	-	7,524
Consumer	-	327
Residential	-	1,101
Total	$ 3,969	$ 8,952


Collateral Dependent Loans	December 31, 2023
(dollars in thousands)	Business/Other Assets	Real Estate
Commercial	$ 313	$ -
Commercial Real Estate	-	3,566
Consumer	-	329
Residential	-	1,105
Total	$ 313	$ 5,000

The following tables present the activity in the allowance for credit losses for the year-to-date periods ended and the distribution of the allowance by segment as of March 31, 2024 and December 31, 2023.


	Allowance for Credit Losses and Recorded Investment in Loans
	(dollars in thousands)
	As of and For the Three Months Ended March 31, 2024

		Commercial
2024	Commercial	Real Estate	Consumer	Residential	Total

Allowance for Credit Losses:

Beginning Balance, December 31, 2023	$ 514	$ 3,985	$ 1,093	$ 1,820	$ 7,412
Charge-Offs	(8)	-	(57)	-	(65)
Recoveries	65	1	7	1	74
Provision for (recovery of)	73	(344)	(159)	(71)	(501)
Ending Balance, March 31, 2024	$ 644	$ 3,642	$ 884	$ 1,750	$ 6,920


	As of and For the Three Months Ended March 31, 2023

		Commercial
2023	Commercial	Real Estate	Consumer	Residential	Total

Allowance for Credit Losses:

Beginning Balance, December 31, 2022	$ 1,102	$ 2,902	$ 904	$ 1,351	$ 6,259
Adoption of ASU 2016-13	(526)	1,157	257	357	1,245
Charge-Offs	(17)	-	(16)	-	(33)
Recoveries	9	88	5	2	104
Provision for (recovery of)	33	(52)	11	148	140
Ending Balance, March 31, 2023	$ 601	$ 4,095	$ 1,161	$ 1,858	$ 7,715

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Note 8 – Loans and allowance for credit losses (continued)

Credit Quality Indicators

The Bank’s internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower’s individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis.

Below is a summary and definition of the Bank’s risk rating categories:


RATING 1		Excellent
RATING 2		Above Average
RATING 3		Satisfactory
RATING 4		Acceptable / Low Satisfactory
RATING 5		Monitor
RATING 6		Special Mention
RATING 7		Substandard
RATING 8		Doubtful
RATING 9		Loss

We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows:

“Pass.” These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

“Monitor.” These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may currently or in the future be characterized by late payments. The Bank’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

“Special Mention.” These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events.

“Substandard.” These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due.

“Doubtful.” These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but 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.

“Loss.” These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

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Note 8 – Loans and allowance for credit losses (continued)

The table below details the amortized cost of the classes of loans by credit quality indicator and year of origination as of March 31, 2024.


	Term Loans Amortized Cost Basis by Origination Year
	2024	2023	2022	2021	2020	Prior	Revolving Loans Amortized Cost Basis	Total	Revolving Loans Converted to Term
Commercial:
Risk Rating
Pass	$ 4,868	$ 4,458	$ 4,001	$ 8,892	$ 1,984	$ 21,037	$ 18,579	$ 63,819	$ 35
Special Mention	80	-	-	-	128	-	159	367	-
Substandard	-	954	17	230	-	124	2,530	3,855	181
Total	$ 4,948	$ 5,412	$ 4,018	$ 9,122	$ 2,112	$ 21,161	$ 21,268	$ 68,041	$ 216

Commercial Real Estate:
Commercial Mort. - Owner Occupied
Risk Rating
Pass	$ 5,482	$ 9,248	$ 22,450	$ 42,190	$ 7,661	$ 39,290	$ 1,418	$ 127,739	$ 158
Special Mention	-	-	-	-	-	449	-	449	-
Substandard	-	94	-	3,036	45	1,825	-	5,000	-
Total	$ 5,482	$ 9,342	$ 22,450	$ 45,226	$ 7,706	$ 41,564	$ 1,418	$ 133,188	$ 158

Commercial Mort. - Non-Owner Occupied
Risk Rating
Pass	$ 905	$ 12,577	$ 51,521	$ 34,246	$ 10,076	$ 55,672	$ 6,008	$ 171,005	$ -
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	1,173	-	-	1,173	-
Total	$ 905	$ 12,577	$ 51,521	$ 34,246	$ 11,249	$ 55,672	$ 6,008	$ 172,178	$ -

Commercial Construction/Land
Risk Rating
Pass	$ 1,721	$ 2,247	$ 787	$ 9,753	$ 2,780	$ 1,074	$ 2,650	$ 21,012	$ -
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	970	382	-	-	-	1,352	-
Total	$ 1,721	$ 2,247	$ 1,757	$ 10,135	$ 2,780	$ 1,074	$ 2,650	$ 22,364	$ -

Consumer:
Consumer - Open-End
Risk Rating
Pass	$ -	$ -	$ -	$ -	$ -	$ -	$ 46,783	$ 46,783	$ 1,049
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	241	241	-
Total	$ -	$ -	$ -	$ -	$ -	$ -	$ 47,024	$ 47,024	$ 1,049

Consumer - Closed-End
Risk Rating
Pass	$ 1,828	$ 5,162	$ 10,725	$ 518	$ 494	$ 7,742	$ -	$ 26,469	$ -
Special Mention	-	-	-	-	13	-	-	13	-
Substandard	-	-	-	-	-	209	-	209	-
Total	$ 1,828	$ 5,162	$ 10,725	$ 518	$ 507	$ 7,951	$ -	$ 26,691	$ -

Residential:
Residential Mortgages
Risk Rating
Pass	$ 2,544	$ 26,225	$ 24,277	$ 9,517	$ 8,861	$ 32,208	$ -	$ 103,632	$ -
Special Mention	-	-	-	-	-	408	-	408	-
Substandard	-	-	-	-	104	1,273	-	1,377	-
Total	$ 2,544	$ 26,225	$ 24,277	$ 9,517	$ 8,965	$ 33,889	$ -	$ 105,417	$ -

Residential Consumer Constr./Land
Risk Rating
Pass	$ 1,351	$ 13,009	$ 8,882	$ 3,112	$ 1,186	$ 4,169	$ -	$ 31,709	$ -
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	-	-	-
Total	$ 1,351	$ 13,009	$ 8,882	$ 3,112	$ 1,186	$ 4,169	$ -	$ 31,709	$ -

Totals:
Risk Rating
Pass	$ 18,699	$ 72,926	$ 122,643	$ 108,228	$ 33,042	$ 161,192	$ 75,438	$ 592,168	$ 1,242
Special Mention	80	-	-	-	141	857	159	1,237	-
Substandard	-	1,048	987	3,648	1,322	3,431	2,771	13,207	181
Total	$ 18,779	$ 73,974	$ 123,630	$ 111,876	$ 34,505	$ 165,480	$ 78,368	$ 606,612	$ 1,423

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Note 8 – Loans and allowance for credit losses (continued)

The table below details the amortized cost of the classes of loans by credit quality indicator and year of origination as of December 31 31, 2023.


	Term Loans Amortized Cost Basis by Origination Year
	2023	2022	2021	2020	2019	Prior	Revolving Loans Amortized Cost Basis	Total	Revolving Loans Converted to Term
Commercial
Risk Rating
Pass	$ 6,724	$ 4,559	$ 9,091	$ 6,067	$ 2,754	$ 18,429	$ 16,703	$ 64,327	$ 39
Special Mention	100	-	-	132	-	-	382	614	-
Substandard	-	18	232	-	6	127	-	383	181
Total	$ 6,824	$ 4,577	$ 9,323	$ 6,199	$ 2,760	$ 18,556	$ 17,085	$ 65,324	$ 220

Commercial Real Estate:
Commercial Mort. - Owner Occupied
Risk Rating
Pass	$ 10,260	$ 23,120	$ 45,838	$ 7,972	$ 8,988	$ 31,254	$ 1,630	$ 129,062	$ 159
Special Mention	-	-	-	-	-	456	-	456	-
Substandard	94	-	-	45	283	1,579	-	2,001	-
Total	$ 10,354	$ 23,120	$ 45,838	$ 8,017	$ 9,271	$ 33,289	$ 1,630	$ 131,519	$ 159

Commercial Mort. - Non-Owner Occupied
Risk Rating
Pass	$ 13,069	$ 52,341	$ 35,419	$ 10,210	$ 4,397	$ 52,583	$ 6,152	$ 174,171	$ -
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	1,173	-	-	-	1,173	-
Total	$ 13,069	$ 52,341	$ 35,419	$ 11,383	$ 4,397	$ 52,583	$ 6,152	$ 175,344	$ -

Commercial Construction/Land
Risk Rating
Pass	$ 1,848	$ 3,157	$ 9,869	$ 2,842	$ 628	$ 463	$ 2,768	$ 21,575	$ -
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	391	-	-	-	-	391	-
Total	$ 1,848	$ 3,157	$ 10,260	$ 2,842	$ 628	$ 463	$ 2,768	$ 21,966	$ -

Consumer:
Consumer - Open-End
Risk Rating
Pass	$ -	$ -	$ -	$ -	$ -	$ -	$ 50,042	$ 50,042	$ 1,466
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	240	240	-
Total	$ -	$ -	$ -	$ -	$ -	$ -	$ 50,282	$ 50,282	$ 1,466

Consumer - Closed-End
Risk Rating
Pass	$ 5,587	$ 11,121	$ 588	$ 529	$ 7,647	$ 601	$ -	$ 26,073	$ -
Special Mention	-	-	-	14	-	-	-	14	-
Substandard	-	-	-	-	32	116	-	148	-
Total	$ 5,587	$ 11,121	$ 588	$ 543	$ 7,679	$ 717	$ -	$ 26,235	$ -

Residential:
Residential Mortgages

Risk Rating
Pass	$ 26,854	$ 24,740	$ 10,220	$ 9,007	$ 7,161	$ 25,935	$ -	$ 103,917	$ -
Special Mention	-	-	-	-	-	1,687	-	1,687	-
Substandard	-	-	-	105	54	1,227	-	1,386	-
Total	$ 26,854	$ 24,740	$ 10,220	$ 9,112	$ 7,215	$ 28,849	$ -	$ 106,990	$ -

Residential Consumer Construction/Land
Risk Rating
Pass	$ 10,762	$ 11,341	$ 3,821	$ 1,414	$ 1,896	$ 2,417	$ -	$ 31,651	$ -
Special Mention	-	-	22	-	-	-	-	22	-
Substandard	-	-	-	-	-	-	-	-	-
Total	$ 10,762	$ 11,341	$ 3,843	$ 1,414	$ 1,896	$ 2,417	$ -	$ 31,673	$ -

Totals:
Risk Rating
Pass	$ 75,104	$ 130,379	$ 114,846	$ 38,041	$ 33,471	$ 131,682	$ 77,295	$ 600,818	$ 1,664
Special Mention	100	-	22	146	-	2,143	382	2,793	-
Substandard	94	18	623	1,323	375	3,049	240	5,722	181
Total	$ 75,298	$ 130,397	$ 115,491	$ 39,510	$ 33,846	$ 136,874	$ 77,917	$ 609,333	$ 1,845

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Note 8 – Loans and allowance for credit losses (continued)

The following table details the current period gross charge-offs of loans by year of origination as of March 31, 2024 and December 31, 2023.


Current Period Gross Charge-Offs by Origination Year (in thousands)


	2024	2023	2022	2021	2020	Prior	Revolving Loans Amortized Cost Basis	Total	Revolving Loans Converted to Term
Commercial	$ -	$ 8	$ -	$ -	$ -	$ -	$ -	$ 8	$ -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	-	-	-	-	-	-	-	-	-
Commercial Mortgages-Non-Owner Occupied	-	-	-	-	-	-	-	-	-
Commercial Construction/Land	-	-	-	-	-	-	-	-	-
Consumer:
Consumer Open-End	-	-	-	-	-	2	-	2	-
Consumer Closed-End	-	-	55	-	-	-	-	55	-
Residential:
Residential Mortgages	-	-	-	-	-	-	-	-	-
Residential Consumer Construction/Land	-	-	-	-	-	-	-	-	-

Total	$ -	$ 8	$ 55	$ -	$ -	$ 2	$ -	$ 65	$ -


	2023	2022	2021	2020	2019	Prior	Revolving Loans Amortized Cost Basis	Total	Revolving Loans Converted to Term
Commercial	$ -	$ -	$ -	$ 17	$ -	$ 132	$ -	$ 149	$ -
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	-	-	-	-	-	-	-	-	-
Commercial Mortgages-Non-Owner Occupied	-	-	-	-	-	-	-	-	-
Commercial Construction/Land	-	-	-	-	-	-	-	-	-
Consumer:
Consumer Open-End	-	-	-	-	-	6	7	13	-
Consumer Closed-End	19	33	19	-	-	-	-	71	-
Residential:
Residential Mortgages	-	-	-	-	-	3	-	3	-
Residential Consumer Construction/Land	-	-	-	-	-	-	-	-	-

Total	$ 19	$ 33	$ 19	$ 17	$ -	$ 141	$ 7	$ 236	$ -

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Note 8 – Loans and allowance for credit losses (continued)

The following tables present nonaccrual information by class of loans as of March 31, 2024 and December 31, 2023.

Loans on Nonaccrual Status

(dollars in thousands)


	CECL
	March 31, 2024
	Nonaccrual Loans
	With No Allowance	With an Allowance	Total
Commercial Real Estate:
Commercial Construction/Land	$ 382	-	$ 382
Consumer
Consumer Open-End	24	-	24
Consumer Closed-End	152	-	152
Total	$ 558	$ -	$ 558


	CECL
	December 31, 2023
	Nonaccrual Loans
	With No Allowance	With an Allowance	Total
Commercial Real Estate:
Commercial Construction/Land	$ 391	-	$ 391

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Note 8 – Loans and allowance for credit losses (continued)

The following tables present an aging analysis of the loan portfolio by class and past due as of March 31, 2024 and December 31, 2023.


Age Analysis of Past Due Loans as of March 31, 2024
														Recorded
						Greater								Investment
2024		30-59 Days		60-89 Days		than		Total Past				Total		> 90 Days &
		Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
Commercial	$	—	$	—	$	—	$	—	$	68,257	$	68,257	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		199		—		—		199		133,147		133,346		—
Commercial Mortgages-Non-Owner Occupied		—		—		—		—		172,178		172,178		—
Commercial Construction/Land		—		—		—		—		22,364		22,364		—
Consumer:
Consumer Open-End		193		—		24		217		47,856		48,073		—
Consumer Closed-End		19		—		86		105		26,586		26,691		—
Residential:
Residential Mortgages		1,105		74		—		1,179		104,238		105,417		—
Residential Consumer Construction/Land		6		—		—		6		31,703		31,709		—
Total	$	1,522	$	74	$	110	$	1,706	$	606,329	$	608,035	$	—


Age Analysis of Past Due Loans as of December 31, 2023

2023						Greater								Investment
		30-59 Days		60-89 Days		than		Total Past				Total		> 90 Days &
		Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
Commercial	$	—	$	—	$	—	$	—	$	65,324	$	65,324	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		91		—		—		91		131,428		131,519		—
Commercial Mortgages-Non-Owner Occupied		—		—		—		—		175,344		175,344		—
Commercial Construction/Land		—		—		—		—		21,966		21,966		—
Consumer:
Consumer Open-End		357		—		—		357		49,925		50,282		—
Consumer Closed-End		126		89		—		215		26,020		26,235		—
Residential:
Residential Mortgages		396		—		—		396		106,594		106,990		—
Residential Consumer Construction/Land		—		—		—		—		31,673		31,673		—
Total	$	970	$	89	$	—	$	1,059	$	608,274	$	609,333	$	—

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Note 8 – Loans and allowance for credit losses (continued)

Occasionally, the Bank modifies loans to borrowers experiencing financial difficulties by providing principal forgiveness, term extensions, interest rate reductions or payment deferrals. As the effect of most modifications is already included in the allowance for credit losses due to the measurement methodologies used in its estimate, the allowance for credit losses is typically not adjusted upon modification. When principal forgiveness is provided at modification, the amount forgiven is charged against the allowance for credit losses.

There were no loan modifications to borrowers experiencing financial difficulty during the three-months ended March 31, 2024 or March 31, 2023. As of March 31, 2024, no previously modified loans have defaulted in the last twelve months.

ACL on Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable by the Company. The allowance for off-balance sheet credit exposures is adjusted as a provision for (or recovery of) credit losses in the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for loan credit losses. The allowance for credit losses for unfunded loan commitments of $613,000 at March 31, 2024, is separately classified within Other Liabilities on the Consolidated Balance Sheets.

The following table presents the balance and activity in the ACL for unfunded commitments for the three-months ended March 31, 2024 and March 31, 2023:


Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2023	$ 665
Recovery of credit losses	(52)
Balance March 31, 2024	$ 613

Balance, December 31, 2022	$ -
Adoption of ASU 2016-13	779
Provision for credit losses	30
Balance March 31, 2023	$ 809

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Note 8 – Loans and allowance for credit losses (continued)

Other Real Estate Owned

We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank which was acquired through purchase at foreclosure or from the borrower through a deed in lieu of foreclosure. There were no OREO properties on March 31, 2024 and December 31, 2023. The following table represents the changes in OREO balance during the three-months ended March 31, 2024 and year ended December 31, 2023.

OREO Changes

(dollars in thousands)


	Three-months Ended Year Ended
	March 31, 2024		December 31, 2023
Balance at the beginning of the year (net)	$	—	$	566
Transfers from loans		—		—
Capitalized costs		—		—
Valuation adjustments		—		(23)
Sales proceeds		—		(540)
Loss on disposition		—		(3)
Balance at the end of the period (net)	$	—	$	—

At March 31, 2024 and December 31, 2023, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. The Company held no residential real estate properties in other real estate owned as of March 31, 2024 and December 31, 2023.