Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 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:

	March 31,		December 31,
	2024		2023
	(In thousands)
Commercial and Industrial	$	90,227	$	91,294
Commercial real estate		288,886		291,859
Residential real estate		92,712		93,364
Consumer loans		8,482		6,719
Total gross loans		480,307		483,236
Less allowance for credit losses		(3,870)		(3,918)
Total loans	$	476,437	$	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.

The following tables present the balance in the allowance for credit losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2024 and December 31, 2023.

	March 31, 2024
			Commercial
	Commercial and Industrial		Real Estate		Residential		Installment		Total
	(In thousands)
Allowance for credit losses:
Balance, beginning of period	$	573	$	1,408	$	1,843	$	94	$	3,918
Provision for credit loss expense		15		(31)		(60)		76		—
Losses charged off		—		—		—		(57)		(57)
Recoveries		1		—		—		8		9
Balance, end of period	$	589	$	1,377	$	1,783	$	121	$	3,870
Ending balance: individually evaluated for credit losses	$	75	$	—	$	—	$	—	$	75
Ending balance: collectively evaluated for credit losses	$	514	$	1,377	$	1,783	$	121	$	3,795
Loans:
Ending balance: individually evaluated for credit losses	$	141	$	8	$	235	$	—	$	384
Ending balance: collectively evaluated for credit losses	$	90,086	$	288,878	$	92,477	$	8,482	$	479,923

	March 31, 2023
			Commercial
	Commercial and Industrial		Real Estate		Residential		Installment		Total
	(In thousands)
Allowance for credit losses:
Balance, beginning of period	$	215	$	815	$	816	$	206	$	2,052
Impact of adopting ASC 326		755		388		1,379		(103)		2,419
Provision for credit loss expense		15		(1)		(39)		25		—
Losses charged off		—		—		—		(29)		(29)
Recoveries		5		—		—		5		10
Balance, end of period	$	990	$	1,202	$	2,156	$	104	$	4,452
Ending balance: individually evaluated for credit losses	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for credit losses	$	990	$	1,202	$	2,156	$	104	$	4,452
Loans:
Ending balance: individually evaluated for credit losses	$	14	$	9	$	—	$	—	$	23
Ending balance: collectively evaluated for losses	$	88,506	$	275,433	$	93,386	$	6,340	$	463,665

			December 31, 2023
			Commercial
	Commercial and Industrial		Real Estate		Residential		Installment		Total
	(In thousands)
Allowance for credit 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	$	481,910

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 March 31, 2024 (in thousands):

													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
March 31, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Commercial and Industrial
Risk Rating
Pass	$	4,680	$	20,578	$	13,995	$	11,901	$	12,920	$	10,280	$	14,447	$	—	$	88,801
Special Mention		—		—		26		—		—		138		1,121		—		1,285
Substandard		—		141		—		—		—		—		—		—		141
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	4,680	$	20,719	$	14,021	$	11,901	$	12,920	$	10,418	$	15,568	$	—	$	90,227
Commercial and Industrial
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Risk Rating
Pass	$	1,597	$	37,728	$	36,617	$	47,995	$	32,776	$	79,510	$	45,246	$	—	$	281,469
Special Mention		—		—		—		242		2,034		4,108		1,025		—		7,409
Substandard		—		—		—		—		8		—		—		—		8
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	1,597	$	37,728	$	36,617	$	48,237	$	34,801	$	83,618	$	46,271	$	—	$	288,886
Commercial real estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total
Pass	$	6,277	$	58,306	$	50,612	$	59,896	$	45,696	$	89,790	$	59,693	$	—	$	370,270
Special Mention		—		—		26		242		2,034		4,246		2,146		—		8,694
Substandard		—		141		—		—		8		—		—		—		149
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	6,277	$	58,447	$	50,638	$	60,138	$	47,738	$	94,036	$	61,839	$	—	$	379,113
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
March 31, 2024	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Residential Real Estate
Payment Performance
Performing	$	1,198	$	12,063	$	18,064	$	16,066	$	18,828	$	26,098	$	—	$	—	$	92,317
Nonperforming		—		—		—		—		36		359		—		—		395
Total	$	1,198	$	12,063	$	18,064	$	16,066	$	18,864	$	26,457	$	—	$	—	$	92,712
Residential real estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer
Payment Performance
Performing	$	2,486	$	2,056	$	1,212	$	565	$	417	$	1,377	$	369	$	—	$	8,482
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	2,486	$	2,056	$	1,212	$	565	$	417	$	1,377	$	369	$	—	$	8,482
Consumer
Current period gross charge-offs	$	28	$	29	$	—	$	—	$	—	$	—	$	—	$	—	$	57
Total
Payment Performance
Performing	$	3,684	$	14,119	$	19,276	$	16,631	$	19,245	$	27,475	$	369	$	—	$	100,799
Nonperforming		—		—		—		—		36		359		—		—		395
Total	$	3,684	$	14,119	$	19,277	$	16,631	$	19,281	$	27,834	$	369	$	—	$	101,194

													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	$	14,752	$	13,067	$	14,042	$	6,017	$	5,459	$	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	$	62,878	$	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 (in thousands):

															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	$	24,440	$	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 March 31, 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 and Industrial	$	135	$	66	$	165	$	75	$	441	$	89,786	$	90,227
Commercial real estate		—		—		242		7		249		288,637		288,886
Residential		266		68		—		395		729		91,983		92,712
Installment		3		8		—		—		11		8,471		8,482
Total	$	404	$	142	$	407	$	477	$	1,430	$	478,877	$	480,307

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 and Insustrial	$	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 March 31, 2024:

							Loans Past
							Due Over 90 Days		Total
	Nonaccrual with no ACL		Nonaccrual with ACL		Total Nonaccrual		Still Accruing		Nonperforming
	(In thousands)
Commercial and Industrial	$	—	$	75	$	75	$	165	$	240
Commercial real estate		7		—		7		242		249
Residential		395		—		395		—		395
Installment		—		—		—		—		—
Total	$	402	$	75	$	477	$	407	$	884

The Company recognize $16,500 interest income on nonaccrual loans during the period ended March 31, 2024.

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.