LOANS AND ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 3 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents the classes of the loan portfolio summarized by risk rating and year of origination and gross charge offs by loan portfolio summarized by year of origination as of December 31, 2023.

(Dollars in thousands)
Real Estate:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	110,819	$	186,729	$	132,724	$	110,038	$	54,543	$	192,686	$	787,539
7    Special Mention		—		—		—		—		—		—		—
8    Substandard		—		86		587		3,661		9,452		9,598		23,384
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		130		176		153		116		(13)		8		570
Total Real Estate Loans	$	110,949	$	186,991	$	133,464	$	113,815	$	63,982	$	202,292	$	811,493
Agricultural:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	—	$	59	$	—	$	—	$	—	$	611	$	670
7    Special Mention		—		—		—		—		—		—		—
8    Substandard		—		—		—		—		—		—		—
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		—		1		—		—		—		—		1
Total Agricultural Loans	$	—	$	60	$	—	$	—	$	—	$	611	$	671

Commercial and Industrial:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	12,672	$	10,186	$	5,776	$	7,439	$	6,833	$	22,927	$	65,833
7    Special Mention		—		—		—		—		—		—		—
8    Substandard		—		—		—		—		—		650		650
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		95		83		24		17		208		(1)		426
Total Commercial and Industrial Loans	$	12,767	$	10,269	$	5,800	$	7,456	$	7,041	$	23,576	$	66,909
Consumer:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	2,415	$	1,238	$	926	$	206	$	110	$	802	$	5,697
7    Special Mention		58		—		—		—		—		—		58
8    Substandard		—		—		—		—		—		—		—
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		38		20		8		2		1		—		69
Total Consumer Loans	$	2,511	$	1,258	$	934	$	208	$	111	$	802	$	5,824
State and Political Subdivisions:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	731	$	4,095	$	14,139	$	1,905	$	—	$	5,303	$	26,173
7    Special Mention		—		—		—		—		—		—		—
8    Substandard		—		—		—		—		—		—		—
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		2		1		4		1		—		—		8
Total State and Political Subdivision Loans	$	733	$	4,096	$	14,143	$	1,906	$	—	$	5,303	$	26,181
Total Loans:		2023		2022		2021		2020		2019		Prior		Total
1-6 Pass	$	126,637	$	202,307	$	153,565	$	119,588	$	61,486	$	222,329	$	885,912
7    Special Mention		58		—		—		—		—		—		58
8    Substandard		—		86		587		3,661		9,452		10,248		24,034
9    Doubtful		—		—		—		—		—		—		—
Unearned discount		—		—		—		—		—		—		—
Net deferred loan fees and costs		265		281		189		136		196		7		1,074
Total Loans	$	126,960	$	202,674	$	154,341	$	123,385	$	71,134	$	232,584	$	911,078
		2023		2022		2021		2020		2019		Prior		Total
Gross Charge Offs:
Real Estate	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural		—		—		—		—		—		—		—
Commercial and Industrial		—		—		—		—		—		—		—
Consumer		2		23		13		2		4		13		57
State and Political Subdivisions		—		—		—		—		—		—		—
Total Gross Charge Offs	$	2	$	23	$	13	$	2	$	4	$	13	$	57

State and Political Subdivision loans include loans categorized as tax-free in the amount of $26,181,000 as of December 31, 2023. Commercial and Industrial loans include $4,470,000 of GGLs as of December 31, 2023. Loans held for sale are included in the Real Estate loans category and carried a balance of $214,000 as of December 31, 2023.

The activity in the allowance for credit losses by loan class (post adoption of ASU No. 2016-13), is summarized below for the year ended December 31, 2023.

(Dollars in thousands)									State and
	Real				Commercial				Political
	Estate		Agricultural		and Industrial		Consumer		Subdivisions		Total
As of and for the year ended December 31, 2023:
Allowance for Credit Losses:
Balance at December 31, 2022	$	7,483	$	6	$	504	$	84	$	197	$	8,274
CECL adoption adjustment		(717)		(4)		(261)		11		(148)		(1,119)
Beginning balance January 1, 2023		6,766		2		243		95		49		7,155
Charge-offs		—		—		—		(57)		—		(57)
Recoveries		37		—		2		5		—		44
(Credit) Provision		(264)		(1)		20		35		(7)		(217)
Ending Balance	$	6,539	$	1	$	265	$	78	$	42	$	6,925
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	6,539	$	1	$	265	$	78	$	42	$	6,925
Reserve for Unfunded Lending Commitments	$	140	$	—	$	25	$	—	$	1	$	166
Loans Receivable:
Ending Balance	$	811,493	$	671	$	66,909	$	5,824	$	26,181	$	911,078
Ending balance: individually
evaluated for impairment	$	4,005	$	309	$	611	$	—	$	—	$	4,925
Ending balance: collectively
evaluated for impairment	$	807,488	$	362	$	66,298	$	5,824	$	26,181	$	906,153

The Corporation’s activity in the allowance for credit losses on unfunded commitments for the year ended December 31, 2023 was as follows:

(Dollars in thousands)
	2023
Balance at December 31, 2022	$	68
CECL adoption adjustment		147
Credit for credit losses on unfunded commitments		(49)
Balance at December 31, 2023	$	166

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s individually evaluated loans are summarized below at December 31, 2023.

(Dollars in thousands)	December 31, 2023
	Recorded		Recorded				Unpaid		Unpaid
	Investment		Investment				Principal		Principal		Total
	With		With No		Total		Balance With		Balance With		Unpaid
	Related		Related		Recorded		Related		No Related		Principal		Related
	Allowance		Allowance		Investment		Allowance		Allowance		Balance		Allowance
Real Estate	$	—	$	4,005	$	4,005	$	—	$	5,994	$	5,994	$	—
Agricultural		—		309		309		—		309		309		—
Commercial and Industrial		—		611		611		—		611		611		—
Total	$	—	$	4,925	$	4,925	$	—	$	6,914	$	6,914	$	—

The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs. The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Corporation’s individually evaluated loans are summarized below for the years ended December 31, 2023.

(Dollars in thousands)	Year Ended December 31, 2023
	Average		Average				Interest		Interest
	Recorded		Recorded				Income		Income
	Investment		Investment		Total		Recognized		Recognized		Total
	With		With No		Average		With		With No		Interest
	Related		Related		Recorded		Related		Related		Income
	Allowance		Allowance		Investment		Allowance		Allowance		Recognized
Real Estate	$	—	$	4,380	$	4,380	$	—	$	—	$	—
Agricultural		—		309		309		—		24		24
Commercial and Industrial		—		643		643		—		—		—
Total	$	—	$	5,332	$	5,332	$	—	$	24	$	24

Of the $24,000 in interest income recognized on individually evaluated loans for the year ended December 31, 2023, $0 in interest income was recognized with respect to non-accrual loans.

The following table presents the collateral-dependent loans by segment for the year ended December 31, 2023.

(Dollars in thousands)	December 31, 2023
	Real Estate		Other
Real Estate	$	4,005	$	—
Agricultural		—		309
Commercial and Industrial		—		611
Total	$	4,005	$	920

At December 31, 2023, there were no commitments to lend additional funds with respect to individually evaluated loans.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of December 31, 2023 and 2022 were as follows:

(Dollars in thousands)	December 31,		December 31,
	2023		2022
Real Estate	$	4,005	$	4,387
Agricultural		—		—
Commercial and Industrial		611		664
Consumer		—		—
State and Political Subdivisions		—		—
Total non-accrual loans		4,616		5,051
Foreclosed assets held for resale		—		—
Loans past-due 90 days or more and still accruing interest		1,065		308
Total non-performing assets	$	5,681	$	5,359

If interest on non-accrual loans had been accrued at original contract rates, interest income would have increased by $2,488,000 in 2023 and $2,174,000 in 2022.

There were no foreclosed assets held for resale at December 31, 2023 or December 31, 2022. Consumer mortgage loans secured by residential real estate for which the Corporation has entered into formal foreclosure proceedings but for which physical possession of the property has yet to be obtained amounted to $138,000 at December 31, 2023 and $41,000 at December 31, 2022. These balances were not included in foreclosed assets held for resale at December 31, 2023 or December 31, 2022.

The following tables present the classes of the loan portfolio summarized by the past-due status at December 31, 2023 and 2022:

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2023:
Real Estate	$	2,155	$	379	$	5,069	$	7,603	$	803,890	$	811,493	$	1,065
Agricultural		—		—		—		—		671		671		—
Commercial and Industrial		6		—		591		597		66,312		66,909		—
Consumer		21		4		—		25		5,799		5,824		—
State and Political Subdivisions		—		—		—		—		26,181		26,181		—
Total	$	2,182	$	383	$	5,660	$	8,225	$	902,853	$	911,078	$	1,065

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2022:
Real Estate	$	2,682	$	59	$	4,694	$	7,435	$	757,445	$	764,880	$	308
Agricultural		—		—		—		—		860		860		—
Commercial and Industrial		61		63		640		764		55,313		56,077		—
Consumer		11		2		—		13		5,694		5,707		—
State and Political Subdivisions		—		—		—		—		30,945		30,945		—
Total	$	2,754	$	124	$	5,334	$	8,212	$	850,257	$	858,469	$	308

Pre-ASU No. 2016-13 Disclosures:

For periods prior to the adoption of ASU No. 2016-13, when management deemed the collection of contractual cashflows was unlikely for a specific instrument (mainly non-accrual loans and TDRs, then referred to as impaired loans), a specific reserve was calculated under ASC 310-10. Management further calculated a general reserve for performing assets under its previous methodology, following ASC 450-20 which utilized historical loss experience and qualitative factor adjustments to arrive at a calculated allowance for loan losses.

Upon adoption of ASU No. 2016-13, the classes of the loan portfolio were updated to match the segmentation used under the CECL model and have been updated from Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer to Real Estate, Agricultural, Commercial and Industrial, Consumer, and State and Political Subdivisions. Comparative, pre-ASU No. 2016-13 adoption data has not been updated to reflect the new loan classes/segmentation utilized under the CECL model.

The following table presents the classes of the loan portfolio summarized by risk rating as of December 31, 2022:

	Commercial and Industrial		Commercial Real Estate
	December 31,		December 31,
	2022		2022
Grade:
1-6 Pass	$	85,845	$	591,309
7 Special Mention		—		634
8 Substandard		725		18,781
9 Doubtful		—		—
Add (deduct):  Unearned discount		—		—
Net deferred loan fees and costs		429		825
Total loans	$	86,999	$	611,549
	Residential Real Estate Including Home Equity		Consumer
	December 31,		December 31,
	2022		2022
Grade:
1-6 Pass	$	153,902	$	5,349
7 Special Mention		—		—
8 Substandard		795		—
9 Doubtful		—		—
Add (deduct):  Unearned discount		—		—
Net deferred loan fees and costs		(191)		66
Total loans	$	154,506	$	5,415
			Total Loans
			December 31,
			2022
Grade:
1-6 Pass			$	836,405
7 Special Mention				634
8 Substandard				20,301
9 Doubtful				—
Add (deduct):  Unearned discount				—
Net deferred loan fees and costs				1,129
Total loans			$	858,469

The activity in the allowance for loan losses by loan class (prior to adoption of ASU No. 2016-13), is summarized below for the year ended December 31, 2022.

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2022:
Allowance for Loan Losses:
Beginning balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Charge-offs		(158)		(3)		(12)		(33)		—		(206)
Recoveries		3		40		16		5		—		64
Provision (Credit)		178		487		14		25		(968)		(264)
Ending Balance	$	704	$	5,932	$	1,557	$	81	$	—	$	8,274
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	704	$	5,932	$	1,557	$	81	$	—	$	8,274
Loans Receivable:
Ending Balance	$	86,999	$	611,549	$	154,506	$	5,415	$	—	$	858,469
Ending balance: individually
evaluated for impairment	$	973	$	9,495	$	739	$	—	$	—	$	11,207
Ending balance: collectively
evaluated for impairment	$	86,026	$	602,054	$	153,767	$	5,415	$	—	$	847,262

The outstanding recorded investment of loans categorized as TDRs as of December 31, 2022 was $7,480,000. There were no unfunded commitments on TDRs at December 31, 2022.

During the year ended December 31, 2022, two loans with a combined post modification balance of $515,000 were modified as TDRs. The loan modifications for the year ended December 31, 2022 consisted of two payment modifications.

The following table presents the outstanding recorded investment of TDRs at the dates indicated:

(Dollars in thousands)	December 31,
	2022
Non-accrual TDRs	$	1,324
Accruing TDRs		6,156
Total	$	7,480

At December 31, 2022, three commercial and industrial loans classified as TDRs with a combined recorded investment of $664,000 and five commercial real estate loans classified as TDRs with a combined recorded investment of $684,000 were not in compliance with the terms of their restructure.

Of the loans that were modified as TDRs within the twelve months preceding December 31, 2022, no loans experienced payment defaults during the year ended December 31, 2022.

The following table presents information regarding the loan modifications categorized as TDRs during the year ended December 31, 2022.

(Dollars in thousands)	Year Ended December 31, 2022
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial Real Estate	2	$	481	$	515	$	501
Total	2	$	481	$	515	$	501

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the year ended December 31, 2022 with the total number of each type of modification performed.

	Year Ended December 31, 2022
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial Real Estate	—	—	2	2
Total	—	—	2	2

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s impaired loans are summarized below at December 31, 2022.

(Dollars in thousands)		December 31, 2022
	Recorded		Recorded				Unpaid		Unpaid
	Investment		Investment				Principal		Principal		Total
	With		With No		Total		Balance With		Balance With		Unpaid
	Related		Related		Recorded		Related		No Related		Principal		Related
	Allowance		Allowance		Investment		Allowance		Allowance		Balance		Allowance
Commercial and Industrial	$	—	$	973	$	973	$	—	$	973	$	973	$	—
Commercial Real Estate		—		9,495		9,495		—		12,430		12,430		—
Residential Real Estate		—		739		739		—		771		771		—
Total	$	—	$	11,207	$	11,207	$	—	$	14,174	$	14,174	$	—

At December 31, 2022, $7,480,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at December 31, 2022. The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs. The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Corporation’s impaired loans are summarized below for the year ended December 31, 2022.

(Dollars in thousands)	Year Ended December 31, 2022
	Average		Average				Interest		Interest
	Recorded		Recorded				Income		Income
	Investment		Investment		Total		Recognized		Recognized		Total
	With		With No		Average		With		With No		Interest
	Related		Related		Recorded		Related		Related		Income
	Allowance		Allowance		Investment		Allowance		Allowance		Recognized
Commercial and Industrial	$	—	$	992	$	992	$	—	$	14	$	14
Commercial Real Estate		—		10,741		10,741		—		294		294
Residential Real Estate		—		841		841		—		1		1
Total	$	—	$	12,574	$	12,574	$	—	$	309	$	309

Of the $309,000 in interest income recognized on impaired loans for the year ended December 31, 2022, $0 in interest income was recognized with respect to non-accrual loans.

.