Loan Quality And Allowance For Credit Losses

3 Months Ended

Mar. 31, 2025

Loan Quality And Allowance For Credit Losses [Abstract]

Loan Quality And Allowance For Credit Losses

Note 6. Loan Quality and Allowance for Credit Losses

The Bank 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, and current economic trends, among other factors. Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either performing or nonperforming based on the payment status of the loans. Nonperforming consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. The Bank uses the following definitions for risk ratings:

Pass (1-5): are considered pass credits with lower or average risk and are not otherwise classified.

Other Assets Especially Mentioned (OAEM) (6): Loans classified as OAEM have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the borrower’s credit position at some future date.

Substandard (7): Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful (8): Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, 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.

Loans that do not share risk characteristics with pooled loans are evaluated on an individual basis. Loans evaluated individually are not included in the pool evaluation, this includes collateral dependent loans. Loans are considered Collateral Dependent when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the sale of the collateral, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any discounts and selling costs as appropriate.

Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the Allowance for Credit Loss for loans (ACL). The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the ACL, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows. Management monitors the adequacy of the ACL on an ongoing basis and reports its adequacy quarterly to the Enterprise Risk Management Committee of the Board of Directors.

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The following table presents loans by year of origination and internally assigned risk ratings:

(Dollars in thousands)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of March 31, 2025	2025		2024		2023		2022		2021		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	799	$	5,150	$	9,157	$	7,221	$	9,918	$	27,471	$	3,801	$	—	$	63,517
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		186		—		—		186
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		799		5,150		9,157		7,221		9,918		27,657		3,801		—		63,703
Consumer:
Performing		9,648		35,815		66,103		30,933		13,998		35,493		56,209		17,418		265,617
Nonperforming		—		—		—		—		—		13		—		—		13
Total Consumer		9,648		35,815		66,103		30,933		13,998		35,506		56,209		17,418		265,630
Total	$	10,447	$	40,965	$	75,260	$	38,154	$	23,916	$	63,163	$	60,010	$	17,418	$	329,333
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	1,921	$	15,574	$	2,201	$	403	$	582	$	1,658	$	—	$	—	$	22,339
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		1,921		15,574		2,201		403		582		1,658		—		—		22,339
Consumer:
Performing		1,597		24,550		482		—		—		—		—		—		26,629
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		1,597		24,550		482		—		—		—		—		—		26,629
Total	$	3,518	$	40,124	$	2,683	$	403	$	582	$	1,658	$	—	$	—	$	48,968
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	41,435	$	95,143		215,877		103,900	$	92,285	$	235,849	$	18,218	$	—	$	802,707
OAEM (6)		—		—		8,879		1,760		706		9,509		—		—		20,854
Substandard (7)		—		—		6,269		253		—		1,654		50		—		8,226
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	41,435	$	95,143	$	231,025	$	105,913	$	92,991	$	247,012	$	18,268	$	—	$	831,787
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	6,434	$	26,234	$	15,702	$	26,473	$	37,616	$	76,484	$	46,964	$	—	$	235,907
OAEM (6)		—		—		10		405		1,456		7		175		—		2,053
Substandard (7)		—		—		—		—		—		—		50		—		50
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	6,434	$	26,234	$	15,712	$	26,878	$	39,072	$	76,491	$	47,189	$	—	$	238,010
Current period gross charge-offs	$	(3)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(3)
Consumer:
Performing		605		1,838		1,059		336		1,633		40		2,575		—		8,086
Nonperforming		—		—		—		—		—		—		7		—		7
Total	$	605	$	1,838	$	1,059	$	336	$	1,633	$	40	$	2,582	$	—	$	8,093
Current period gross charge-offs	$	(12)	$	—	$	—	$	(1)	$	(1)	$	(1)	$	(3)	$	—	$	(18)

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(Dollars in thousands)													Revolving		Revolving
	Term Loans												Loans		Loans
	Amortized Cost Basis by Origination Year												Amortized		Converted
As of December 31, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	5,306	$	9,436	$	7,529	$	10,133	$	8,099	$	20,251	$	4,079	$	—	$	64,833
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		187		—		187
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		5,306		9,436		7,529		10,133		8,099		20,251		4,266		—		65,020
Consumer:
Performing		36,214		67,248		31,290		14,303		9,014		27,744		54,147		17,855		257,815
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		36,214		67,248		31,290		14,303		9,014		27,744		54,147		17,855		257,815
Total	$	41,520	$	76,684	$	38,819	$	24,436	$	17,113	$	47,995	$	58,413	$	17,855	$	322,835
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	5,582	$	3,306	$	403	$	1,150	$	159	$	1,085	$	—	$	—	$	11,685
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		5,582		3,306		403		1,150		159		1,085		—		—		11,685
Consumer:
Performing		19,907		835		—		—		—		—		—		—		20,742
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		19,907		835		—		—		—		—		—		—		20,742
Total	$	25,489	$	4,141	$	403	$	1,150	$	159	$	1,085	$	—	$	—	$	32,427
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	95,410	$	221,889	$	106,385	$	93,228	$	32,546	$	218,875	$	16,290	$	—	$	784,623
OAEM (6)		—		—		1,772		1,711		6,624		—		—		—		10,107
Substandard (7)		—		6,301		266		—		—		2,018		50		—		8,635
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	95,410	$	228,190	$	108,423	$	94,939	$	39,170	$	220,893	$	16,340	$	—	$	803,365
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(2)	$	—	$	—	$	(2)
Commercial:
Risk rating:
Pass (1-5)	$	25,398	$	16,289	$	27,545	$	37,927	$	18,196	$	60,126	$	42,595	$	—	$	228,076
OAEM (6)		—		11		420		1,500		9		—		250		—		2,190
Substandard (7)		—		—		—		—		58		—		273		—		331
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	25,398	$	16,300	$	27,965	$	39,427	$	18,263	$	60,126	$	43,118	$	—	$	230,597
Current period gross charge-offs	$	(11)	$	—	$	(287)	$	—	$	—	$	—	$	(161)	$	—	$	(459)
Consumer:
Performing		2,289		1,140		386		1,682		36		27		3,291		—		8,851
Nonperforming		—		—		—		1		—		—		1		—		2
Total	$	2,289	$	1,140	$	386	$	1,683	$	36	$	27	$	3,292	$	—	$	8,853
Current period gross charge-offs	$	(44)	$	—	$	—	$	—	$	(6)	$	—	$	(49)	$	—	$	(99)

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The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the date presented:

	March 31, 2025						December 31, 2024
(Dollars in thousands)	Nonaccrual and Loans past due 90 Days or more						Nonaccrual and Loans past due 90 Days or more
					Loans past due						Loans past due
	Nonaccrual		Nonaccrual		90 Days or more		Nonaccrual		Nonaccrual		90 Days or more
	Without ACL		With ACL		Still Accruing		Without ACL		With ACL		Still Accruing
March 31, 2025
Residential Real Estate 1-4 Family
First liens	$	—	$	—	$	13	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—		—
Total		—		—		13		—		—		—
Residential real estate - construction		—		—		—		—		—		—
Commercial real estate		253		—		—		266		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		7		—		—		2
Total	$	253	$	—	$	20	$	266	$	—	$	2

At March 31, 2025, the Corporation had one commercial loan relationship for $253 thousand that was considered to be collateral dependent, compared to $266 thousand at December 31, 2024. This loan is secured by real estate and the Bank has not established a specific reserve for this loan.

At March 31, 2025 and December 31, 2024, the Bank had $0 of residential properties in the process of foreclosure.

The following table presents the aging of payments of the loan portfolio:

(Dollars in thousands)	Loans Past Due						Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
March 31, 2025
Residential Real Estate 1-4 Family
First liens	$	520	$	58	$	13	$	591	$	244,853	$	245,444
Junior liens and lines of credit		342		—		—		342		83,547		83,889
Total		862		58		13		933		328,400		329,333
Residential real estate - construction		—		—		—		—		48,968		48,968
Commercial real estate		3,506		—		253		3,759		828,028		831,787
Commercial		154		50		—		204		237,806		238,010
Consumer		32		1		7		40		8,053		8,093
Total	$	4,554	$	109	$	273	$	4,936	$	1,451,255	$	1,456,191

	Loans Past Due						Total				Total
	30-59 Days		60-89 Days		90 Days+		Past Due		Current		Loans
December 31, 2024
Residential Real Estate 1-4 Family
First liens	$	203	$	640	$	—	$	843	$	239,758	$	240,601
Junior liens and lines of credit		241		160		—		401		81,833		82,234
Total		444		800		—		1,244		321,591		322,835
Residential real estate - construction		—		—		—		—		32,427		32,427
Commercial real estate		380		219		—		599		802,766		803,365
Commercial		747		50		266		1,063		229,534		230,597
Consumer		30		4		2		36		8,817		8,853
Total	$	1,601	$	1,073	$	268	$	2,942	$	1,395,135	$	1,398,077

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The following table presents, by class, the activity in the Allowance for Credit Losses (ACL) for the periods shown:

	Residential Real Estate 1-4 Family
	First		Junior Liens &				Commercial
(Dollars in thousands)	Liens		Lines of Credit		Construction		Real Estate		Commercial		Consumer		Total
ACL at December 31, 2024	$	1,497	$	461	$	376	$	12,004	$	3,182	$	133	$	17,653
Charge-offs		—		—		—		—		(3)		(18)		(21)
Recoveries		—		—		3		—		54		5		62
Provision		32		9		76		476		161		(4)		750
ACL at March 31, 2025	$	1,529	$	470	$	455	$	12,480	$	3,394	$	116	$	18,444
ACL at December 31, 2024	$	1,497	$	461	$	376	$	12,004	$	3,182	$	133	$	17,653
ACL at December 31, 2023	$	1,296	$	419	$	296	$	10,657	$	3,290	$	94	$	16,052
Charge-offs		—		—		—		(2)		(66)		(28)		(96)
Recoveries		—		—		4		—		60		23		87
Provision		12		(4)		37		402		40		3		490
ACL at March 31, 2024	$	1,308	$	415	$	337	$	11,057	$	3,324	$	92	$	16,533

As of March 31, 2025 and December 31, 2024 there were no modifications made to borrowers experiencing financial difficulty.