Loans And Allowance For Credit Losses

9 Months Ended

Sep. 30, 2024

Loans And Allowance For Credit Losses [Abstract]

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.

The Company’s primary portfolio segments 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 September 30, 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

Commercial 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.

Consumer and Residential

Consumer and Residential consist of two segments - residential mortgage loans and personal loans. We include HELOCs and other second mortgages in in our consumer loan segment. 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. 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. 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.

‎

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

A summary of loans, net of deferred costs of $624 and $961 as of September 30, 2024 and December 31, 2023, respectively, is as follows (dollars in thousands):


	As of	As of
	September 30, 2024	December 31, 2023
Commercial	$ 60,342	$ 65,324
Commercial Real Estate:
Commercial Mortgages-Owner Occupied	143,791	131,519
Commercial Mortgages-Non-Owner Occupied	189,977	175,344
Commercial Construction/Land	22,358	21,966
Consumer:
Consumer Open-End	47,919	50,282
Consumer Closed-End	27,171	26,235
Residential:
Residential Mortgages	114,989	106,990
Residential Consumer Construction/Land	27,643	31,673

Total loans	$ 634,190	$ 609,333

Less allowance for credit losses	7,078	7,412

Net loans	$ 627,112	$ 601,921

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


Collateral Dependent Loans	September 30, 2024
(dollars in thousands)	Business/Other Assets	Real Estate
Commercial	$ 3,866	$ -
Commercial Real Estate	-	8,409
Consumer	-	605
Residential	-	1,261
Total	$ 3,866	$ 10,275


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 three and nine month periods ended and the distribution of the allowance by segment as of September 30, 2024 and 2023.

‎

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


	Allowance for Credit Losses
	(dollars in thousands)
	As of and For the Three Months Ended September 30, 2024
		Commercial
2024	Commercial	Real Estate	Consumer	Residential	Total

Allowance for Credit Losses:
Beginning Balance, June 30, 2024	$ 606	$ 3,748	$ 897	$ 1,700	$ 6,951
Charge-Offs	-	-	-	-	-
Recoveries	1	2	18	-	21
Provision for (recovery of)	(118)	165	(17)	76	106
Ending Balance, September 30, 2024	$ 489	$ 3,915	$ 898	$ 1,776	$ 7,078

	As of and For the Nine Months Ended September 30, 2024
	(dollars in thousands)
		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)	-	(76)	-	(84)
Recoveries	199	6	38	1	244
Recovery of	(216)	(76)	(157)	(45)	(494)
Ending Balance, September 30, 2024	$ 489	$ 3,915	$ 898	$ 1,776	$ 7,078


	Allowance for Credit Losses
	(dollars in thousands)
	As of and For the Three Months Ended September 30, 2023
		Commercial
2023	Commercial	Real Estate	Consumer	Residential	Total
Allowance for Credit Losses:

Beginning Balance, June 30, 2023	$ 571	$ 4,052	$ 1,161	$ 1,802	$ 7,586
Charge-Offs	(120)	-	(24)	-	(144)
Recoveries	2	1	3	2	8
Provision for (recovery of)	59	(90)	(34)	(65)	(130)
Ending Balance, September 30, 2023	$ 512	$ 3,963	$ 1,106	$ 1,739	$ 7,320

	As of and For the Nine Months Ended September 30, 2023
	(dollars in thousands)
		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	(137)	-	(56)	(3)	(196)
Recoveries	50	91	42	17	200
Provision for (recovery of)	23	(187)	(41)	17	(188)
Ending Balance, September 30, 2023	$ 512	$ 3,963	$ 1,106	$ 1,739	$ 7,320

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 September 30, 2024.


	Term Loans Amortized Cost Basis by Origination Year
	2024	2023	2022	2021	2020	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Commercial:
Risk Rating
Pass	$ 8,413	$ 3,897	$ 3,677	$ 7,693	$ 1,419	$ 13,805	$ 16,780	$ 29	$ 55,713
Special Mention	68	-	45	84	121	2	384	-	704
Substandard	-	933	14	220	-	106	2,477	175	3,925
Total	$ 8,481	$ 4,830	$ 3,736	$ 7,997	$ 1,540	$ 13,913	$ 19,641	$ 204	$ 60,342

Commercial Real Estate:
Commercial Mort. - Owner Occupied
Risk Rating
Pass	$ 20,272	$ 9,132	$ 21,849	$ 40,684	$ 7,271	$ 36,987	$ 826	$ 155	$ 137,176
Special Mention	-	-	-	-	-	700	-	-	700
Substandard	-	93	-	2,945	44	2,833	-	-	5,915
Total	$ 20,272	$ 9,225	$ 21,849	$ 43,629	$ 7,315	$ 40,520	$ 826	$ 155	$ 143,791

Commercial Mort. - Non-Owner Occupied
Risk Rating
Pass	$ 32,420	$ 12,360	$ 49,899	$ 27,855	$ 9,828	$ 50,634	$ 5,808	$ -	$ 188,804
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	1,173	-	-	-	1,173
Total	$ 32,420	$ 12,360	$ 49,899	$ 27,855	$ 11,001	$ 50,634	$ 5,808	$ -	$ 189,977

Commercial Construction/Land
Risk Rating
Pass	$ 3,906	$ 2,804	$ 774	$ 9,577	$ 2,035	$ 1,038	$ 904	$ -	$ 21,038
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	957	363	-	-	-	-	1,320
Total	$ 3,906	$ 2,804	$ 1,731	$ 9,940	$ 2,035	$ 1,038	$ 904	$ -	$ 22,358

Consumer:
Consumer - Open-End
Risk Rating
Pass	$ -	$ -	$ -	$ -	$ -	$ -	$ 46,021	$ 1,471	$ 47,492
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	427	-	427
Total	$ -	$ -	$ -	$ -	$ -	$ -	$ 46,448	$ 1,471	$ 47,919

Consumer - Closed-End
Risk Rating
Pass	$ 4,413	$ 4,757	$ 9,907	$ 426	$ 434	$ 6,795	$ -	$ -	$ 26,732
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	38.00	-	209	-	-	192	-	-	439
Total	$ 4,451	$ 4,757	$ 10,116	$ 426	$ 434	$ 6,987	$ -	$ -	$ 27,171

Residential:
Residential Mortgages
Risk Rating
Pass	$ 17,828	$ 24,198	$ 23,223	$ 9,166	$ 8,551	$ 30,003	$ -	$ -	$ 112,969
Special Mention	-	-	-	-	-	398	-	-	398
Substandard	-	-	270	-	103	1,249	-	-	1,622
Total	$ 17,828	$ 24,198	$ 23,493	$ 9,166	$ 8,654	$ 31,650	$ -	$ -	$ 114,989


Residential Consumer Constr./Land
Risk Rating
Pass	$ 9,853	$ 8,854	$ 2,908	$ 1,201	$ 859	$ 3,968	$ -	$ -	$ 27,643
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	-	-	-
Total	$ 9,853	$ 8,854	$ 2,908	$ 1,201	$ 859	$ 3,968	$ -	$ -	$ 27,643

Totals:
Risk Rating
Pass	$ 97,105	$ 66,002	$ 112,237	$ 96,602	$ 30,397	$ 143,230	$ 70,339	$ 1,655	$ 617,567
Special Mention	68	-	45	84	121	1,100	384	-	1,802
Substandard	38	1,026	1,450	3,528	1,320	4,380	2,904	175	14,821
Total	$ 97,211	$ 67,028	$ 113,732	$ 100,214	$ 31,838	$ 148,710	$ 73,627	$ 1,830	$ 634,190

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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, 2023.


	Term Loans Amortized Cost Basis by Origination Year
	2023	2022	2021	2020	2019	Prior	Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term	Total
Commercial
Risk Rating
Pass	$ 6,086	$ 4,559	$ 9,091	$ 6,067	$ 2,754	$ 18,429	$ 17,302	$ 39	$ 64,327
Special Mention	100	-	-	132	-	-	382	-	614
Substandard	-	18	51	-	6	127	-	181	383
Total	$ 6,186	$ 4,577	$ 9,142	$ 6,199	$ 2,760	$ 18,556	$ 17,684	$ 220	$ 65,324

Commercial Real Estate:
Commercial Mort. - Owner Occupied
Risk Rating
Pass	$ 10,260	$ 23,120	$ 45,838	$ 7,972	$ 8,988	$ 31,254	$ 1,471	$ 159	$ 129,062
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	$ 1,471	$ 159	$ 131,519

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	$ -	$ -	$ -	$ -	$ -	$ -	$ 48,576	$ 1,466	$ 50,042
Special Mention	-	-	-	-	-	-	-	-	-
Substandard	-	-	-	-	-	-	240	-	240
Total	$ -	$ -	$ -	$ -	$ -	$ -	$ 48,816	$ 1,466	$ 50,282

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	$ 74,466	$ 130,379	$ 114,846	$ 38,041	$ 33,471	$ 131,682	$ 76,269	$ 1,664	$ 600,818
Special Mention	100	-	22	146	-	2,143	382	-	2,793
Substandard	94	18	442	1,323	375	3,049	240	181	5,722
Total	$ 74,660	$ 130,397	$ 115,310	$ 39,510	$ 33,846	$ 136,874	$ 76,891	$ 1,845	$ 609,333

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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 September 30, 2024 and December 31, 2023.


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


As of September 30, 2024	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	-	-	74	-	-	-	-	74	-
Residential:
Residential Mortgages	-	-	-	-	-	-	-	-	-
Residential Consumer Construction/Land	-	-	-	-	-	-	-	-	-

Total	$ -	$ 8	$ 74	$ -	$ -	$ 2	$ -	$ 84	$ -


As of December 31, 2023	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	$ -

‎

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

The following tables present nonaccrual information by class of loans as of September 30, 2024 and December 31, 2023.

Loans on Nonaccrual Status

(dollars in thousands)


	September 30, 2024
	Nonaccrual Loans
	With No Allowance	With an Allowance	Total
Commercial	$ 399	$ -	$ 399
Commercial Real Estate:
Commercial Construction/Land	363	-	363
Consumer:
Consumer Closed-End	263	-	263
Residential Mortgages	270	-	270
Total	$ 1,295	$ -	$ 1,295


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

‎

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 September 30, 2024 and December 31, 2023:


Age Analysis of Past Due Loans as of September 30, 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	$	56	$	—	$	—	$	56	$	60,286	$	60,342	$	—
Commercial Real Estate:
Commercial Mortgages-Owner Occupied		93		—		—		93		143,698		143,791		—
Commercial Mortgages-Non-Owner Occupied		—		—		—		—		189,977		189,977		—
Commercial Construction/Land		—		—		—		—		22,358		22,358		—
Consumer:
Consumer Open-End		—		—		—		—		47,919		47,919		—
Consumer Closed-End		—		76		125		201		26,970		27,171		—
Residential:
Residential Mortgages		438		202		99		739		114,250		114,989		—
Residential Consumer Construction/Land		—		4		—		4		27,639		27,643		—
Total	$	587	$	282	$	224	$	1,093	$	633,097	$	634,190	$	—


Age Analysis of Past Due Loans as of December 31, 2023
														Recorded
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	$	—

‎

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 and nine months ended September 30, 2024 or September 30, 2023. As of September 30, 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 $575,000 at September 30, 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 and nine months ended September 30, 2024 and 2023:


Allowance for Credit Losses on Unfunded Commitments (in thousands)
Balance, June 30, 2024	$ 589
Recovery of credit losses	(14)
Balance September 30, 2024	$ 575

Balance, December 31, 2023	$ 665
Recovery of credit losses	(90)
Balance September 30, 2024	$ 575

Balance, June 30, 2023	$ 723
Recovery of credit losses	(33)
Balance September 30, 2023	$ 690

Balance, December 31, 2022	$ -
Adoption of ASU 2016-13	779
Recovery of credit losses	(89)
Balance September 30, 2023	$ 690

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 September 30, 2024 and December 31, 2023. The following table represents the changes in OREO balance during the nine months ended September 30, 2024 and year ended December 31, 2023.


OREO Changes
	Nine Months Ended		Year Ended
(in thousands)	September 30, 2024		December 31, 2023
Balance at the beginning of the year	$	—	$	566
Transfers from Loans		—		—
Capitalized costs		—		—
Valuation adjustments		—		(23)
Sales proceeds		—		(540)
Loss on sales		—		(3)
Balance at the end of the year	$	—	$	—

At September 30, 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 September 30, 2024 and December 31, 2023.