Loan Quality And Allowance For Credit Losses

6 Months Ended

Jun. 30, 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 or 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 June 30, 2025	2025		2024		2023		2022		2021		Prior		Cost Basis		to Term		Total
Residential real estate 1-4 family:
Commercial:
Risk rating:
Pass (1-5)	$	2,350	$	5,106	$	9,864	$	7,033	$	9,603	$	26,137	$	3,853	$	—	$	63,946
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		183		—		—		183
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		2,350		5,106		9,864		7,033		9,603		26,320		3,853		—		64,129
Consumer:
Performing		22,112		44,460		65,419		29,813		13,755		34,146		61,274		16,579		287,558
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		22,112		44,460		65,419		29,813		13,755		34,146		61,274		16,579		287,558
Total	$	24,462	$	49,566	$	75,283	$	36,846	$	23,358	$	60,466	$	65,127	$	16,579	$	351,687
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate construction:
Commercial:
Risk rating:
Pass (1-5)	$	3,124	$	14,420	$	1,663	$	403	$	470	$	2,062	$	—	$	—	$	22,142
OAEM (6)		—		—		—		—		—		—		—		—		—
Substandard (7)		—		—		—		—		—		—		—		—		—
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total Commercial		3,124		14,420		1,663		403		470		2,062		—		—		22,142
Consumer:
Performing		5,440		20,201		—		—		—		—		—		—		25,641
Nonperforming		—		—		—		—		—		—		—		—		—
Total Consumer		5,440		20,201		—		—		—		—		—		—		25,641
Total	$	8,564	$	34,621	$	1,663	$	403	$	470	$	2,062	$	—	$	—	$	47,783
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Risk rating:
Pass (1-5)	$	80,861	$	110,258		215,885		97,736	$	87,739	$	225,902	$	11,098	$	—	$	829,479
OAEM (6)		—		—		8,824		7,099		700		7,652		—		—		24,275
Substandard (7)		—		—		13,650		246		—		4,547		50		—		18,493
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	80,861	$	110,258	$	238,359	$	105,081	$	88,439	$	238,101	$	11,148	$	—	$	872,247
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial:
Risk rating:
Pass (1-5)	$	11,738	$	25,316	$	14,505	$	23,437	$	36,511	$	74,300	$	51,090	$	—	$	236,897
OAEM (6)		—		—		9		390		1,412		4		341		—		2,156
Substandard (7)		—		—		—		—		—		—		50		—		50
Doubtful (8)		—		—		—		—		—		—		—		—		—
Total	$	11,738	$	25,316	$	14,514	$	23,827	$	37,923	$	74,304	$	51,481	$	—	$	239,103
Current period gross charge-offs	$	(6)	$	—	$	—	$	—	$	—	$	(7)	$	—	$	—	$	(13)
Consumer:
Performing		1,019		1,588		959		282		1,589		20		2,873		—		8,330
Nonperforming		—		—		—		—		—		—		7		—		7
Total	$	1,019	$	1,588	$	959	$	282	$	1,589	$	20	$	2,880	$	—	$	8,337
Current period gross charge-offs	$	(40)	$	—	$	—	$	(1)	$	(1)	$	(1)	$	(18)	$	—	$	(61)

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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:

	June 30, 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
June 30, 2025
Residential Real Estate 1-4 Family
First liens	$	—	$	—	$	—	$	—	$	—	$	—
Junior liens and lines of credit		—		—		—		—		—		—
Total		—		—		—		—		—		—
Residential real estate - construction		—		—		—		—		—		—
Commercial real estate		10,828		—		—		266		—		—
Commercial		—		—		—		—		—		—
Consumer		—		—		—		—		—		2
Total	$	10,828	$	—	$	—	$	266	$	—	$	2

At June 30, 2025, the Corporation had two commercial loan relationships for $10.3 million that were considered to be collateral dependent, compared to $266 thousand at December 31, 2024. These loans are secured by a mixed-use construction loan and a hotel. The Bank has not established a specific reserve for the loans based on currently available information.

At June 30, 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
June 30, 2025
Residential Real Estate 1-4 Family
First liens	$	18	$	211	$	—	$	229	$	263,811	$	264,040
Junior liens and lines of credit		286		188		—		474		87,173		87,647
Total		304		399		—		703		350,984		351,687
Residential real estate - construction		—		—		—		—		47,783		47,783
Commercial real estate		246		—		3,136		3,382		868,865		872,247
Commercial		176		—		—		176		238,927		239,103
Consumer		55		2		—		57		8,280		8,337
Total	$	781	$	401	$	3,136	$	4,318	$	1,514,839	$	1,519,157

	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 March 31, 2025	$	1,529	$	470	$	455	$	12,480	$	3,394	$	116	$	18,444
Charge-offs		—		—		—		—		(10)		(43)		(53)
Recoveries		—		—		—		—		21		6		27
Provision		108		18		106		372		55		45		704
ACL at June 30, 2025	$	1,637	$	488	$	561	$	12,852	$	3,460	$	124	$	19,122
ACL at December 31, 2024	$	1,497	$	461	$	376	$	12,004	$	3,182	$	133	$	17,653
Charge-offs		—		—		—		—		(13)		(61)		(74)
Recoveries		—		—		3		—		75		11		89
Provision		140		27		182		848		216		41		1,454
ACL at June 30, 2025	$	1,637	$	488	$	561	$	12,852	$	3,460	$	124	$	19,122
ACL at March 31, 2024	$	1,308	$	415	$	337	$	11,057	$	3,324	$	92	$	16,533
Charge-offs		—		—		—		—		(83)		(18)		(101)
Recoveries		—		—		3		—		20		3		26
Provision		76		14		(22)		366		103		23		560
ACL at June 30, 2024	$	1,384	$	429	$	318	$	11,423	$	3,364	$	100	$	17,018
ACL at December 31, 2023	$	1,296	$	419	$	296	$	10,657	$	3,290	$	94	$	16,052
Charge-offs		—		—		—		(2)		(149)		(46)		(197)
Recoveries		—		—		7		—		80		26		113
Provision		88		10		15		768		143		26		1,050
ACL at June 30, 2024	$	1,384	$	429	$	318	$	11,423	$	3,364	$	100	$	17,018

As of June 30, 2025 and December 31, 2024 there were no modifications made to borrowers experiencing financial difficulty. During the three and six months ended June 30, 2025 and 2024, there were no loans to borrowers experiencing financial difficulty that had a payment default and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.