The following table summarizes the primary segments of the loan portfolio at March 31, 2023 and December 31, 2022:

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2023 and December 31, 2022:

Non-accrual loans that have been subject to partial charge-offs totaled $0.2 million at March 31, 2023 and $0.1 million at December 31, 2022. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $2.0 million at March 31, 2023. There were no loans subject to foreclosure at December 31, 2022. As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.17% at March 31, 2023 compared to 0.16% at December 31, 2022 and 0.19% as of March 31, 2022.

Effective January 1, 2023, the Company adopted the accounting guidance in ASU No. 2022-02, which eliminates the recognition and measurement of troubled debt restructurings (TDRs). Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a restructured loan may be subject to the individually evaluated loan analysis if the commitment is $0.1 million or greater; otherwise, the restructured loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the restructured loan. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 6, Fair Value Measurements. There were no loan modifications made to borrowers facing financial difficulties in the period ending March 31, 2023.

The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) commercial real estate, 2) acquisition and development, 3) commercial and industrial, 4) residential mortgage, and 5) consumer. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The segmentation in the current expected credit losses (“CECL”) model is different from the segmentation in the Incurred Loss model. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

Commercial Real Estate- loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans. The condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business.

Acquisition and Development- loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for supply of the property being constructed.

Commercial and Industrial- loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. The primary repayment source for local municipalities include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local

economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio.

Residential mortgage- loans are secured by first and second liens such as home equity lines of credit and 1-4 family residential mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy debt.

Consumer- loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes automobile loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

The following table summarizes the primary segments of the ACL at March 31, 2023 and ALL at December 31, 2022, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

Changes in the fair value of the types of collateral for individually evaluated loans are reported as provision for credit loss in the period of change. The evaluation of the need and amount of a specific allocation of the ACL and whether a loan can be removed from impairment status is made on a quarterly basis.

The following table presents the amortized cost basis of collateral-dependent individually evaluated loans as of March 31, 2023.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at December 31, 2022:

The following tables present the activity in the ACL and ALL for the three month period ended March 31, 2023 and 2022:



Three months ended (in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
Beginning balance at January 1, 2023 prior to adoption of ASC 326	$	6,345	$	979	$	2,845	$	3,160	$	877	$	430	$	14,636
Impact of adopting ASC 326		(1,143)		(15)		1,334		2,112		208		(430)		2,066
Credit Loss Expense		(345)		134		(428)		1,040		13		—		414
Loan Charge-offs		—		—		—		(6)		(333)		—		(339)
Recoveries collected		5		5		4		18		62		—		94
ACL balance at March 31, 2023	$	4,862	$	1,103	$	3,755	$	6,324	$	827	$	—	$	16,871
ALL balance at January 1, 2022	$	6,032	$	2,615	$	2,460	$	3,484	$	934	$	430	$	15,955
Provision		(111)		(91)		98		(545)		230		—		(419)
Loan Charge-offs		—		—		(48)		(9)		(246)		—		(303)
Recoveries collected		1		18		3		15		22		—		59
ALL balance at March 31, 2022	$	5,922	$	2,542	$	2,513	$	2,945	$	940	$	430	$	15,292

The Company’s methodology for estimating the ACL includes:

Segmentation. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.

Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly generally based on collateral value, observable market value or the present value of expected future cash flows. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyszed reside in the Quantitative Analysis.

Quantitative Analysis. The Company elected to use Discounted Cash Flow (“DCF”). Economic forecasts include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product. These forecasts are assumed to revert to the long term average and are utilized in the model to estimate the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumption related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values.

Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibrations, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibrations that appear to be unreasonable. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.

The ACL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of dates presented:


(in thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
March 31, 2023
Commercial real estate:
Non owner-occupied
Pass	$	694	$	66,354	$	31,448	$	48,257	$	40,497	$	60,520	$	1,558	$	249,328
Special Mention		—		—		—		—		—		6,236		—		6,236
Substandard		—		—		—		—		—		11,765		—		11,765
Total non-owner occupied		694		66,354		31,448		48,257		40,497		78,521		1,558		267,329
Current period gross charge-offs		—		—		—		—		—		—		—		—
All other CRE
Pass		2,220		25,934		26,430		22,074		26,326		73,298		4,133		180,415
Special Mention		—		—		1,101		—		—		—		—		1,101
Substandard		—		—		—		—		2,380		1,532		599		4,511
Total all other CRE		2,220		25,934		27,531		22,074		28,706		74,830		4,732		186,027
Current period gross charge-offs		—		—		—		—		—		—		—		—
Acquisition and development:
1-4 family residential construction
Pass		880		16,576		1,148		—		—		202		1,132		19,938
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total acquisition and development		880		16,576		1,148		—		—		202		1,132		19,938
Current period gross charge-offs		—		—		—		—		—		—		—		—
All other A&D
Pass		3,932		22,754		4,482		9,288		1,387		12,946		2,118		56,907
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		135		—		135
Total all other A&D		3,932		22,754		4,482		9,288		1,387		13,081		2,118		57,042
Current period gross charge-offs		—		—		—		—		—		—		—		—
Commercial and industrial:
Pass		12,709		75,378		28,492		14,767		11,648		13,811		60,526		217,331
Special Mention		—		—		2,339		—		—		337		2,374		5,050
Substandard		—		8,923		77		7,122		154		911		2,391		19,578
Total commercial and industrial		12,709		84,301		30,908		21,889		11,802		15,059		65,291		241,959
Current period gross charge-offs		—		—		—		—		—		—		—		—
Residential mortgage:
Residential mortgage - term
Pass		11,844		69,800		91,693		42,233		26,887		145,350		2,105		389,912
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		932		15		234		5,415		43		6,639
Total residental mortgage - term		11,844		69,800		92,625		42,248		27,121		150,765		2,148		396,551
Current period gross charge-offs		—		—		—		—		—		6		—		6
Residential mortgage - home equity
Pass		658		5,410		931		523		316		553		50,617		59,008
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		43		—		58		538		639
Total residental mortgage - home equity		658		5,410		931		566		316		611		51,155		59,647
Current period gross charge-offs		—		—		—		—		—		—		—		—
Consumer:
Pass		5,519		14,850		9,006		3,355		1,215		23,813		2,617		60,375
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		17		151		25		8		6		5		212
Total consumer		5,519		14,867		9,157		3,380		1,223		23,819		2,622		60,587
Current period gross charge-offs		46		105		177		1		—		4		—		333
Total Portfolio Loans
Pass		38,456		297,056		193,630		140,497		108,276		330,493		124,806		1,233,214
Special Mention		—		—		3,440		—		—		6,573		2,374		12,387
Substandard		—		8,940		1,160		7,205		2,776		19,822		3,576		43,479
Total Portfolio Loans	$	38,456	$	305,996	$	198,230	$	147,702	$	111,052	$	356,888	$	130,756	$	1,289,080
Current YTD Period:
Current period gross charge-offs		46		105		177		1		—		10		—		339


(in thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
December 31, 2022
Commercial real estate:
Non owner-occupied
Pass	$	67,429	$	31,710	$	48,421	$	41,221	$	19,414	$	42,069	$	1,570	$	251,834
Special Mention		—		—		—		—		—		6,289		—		6,289
Substandard		—		—		—		—		—		11,935		—		11,935
Total non-owner occupied		67,429		31,710		48,421		41,221		19,414		60,293		1,570		270,058
Current period gross charge-offs		—		—		—		—		—		—		—		—
All other CRE
Pass		24,655		26,947		22,906		27,213		8,873		67,691		4,790		183,075
Special Mention		—		1,111		—		—		—		—		—		1,111
Substandard		—		—		—		3,006		—		357		1,224		4,587
Total all other CRE		24,655		28,058		22,906		30,219		8,873		68,048		6,014		188,773
Current period gross charge-offs		—		—		—		—		—		—		—		—
Acquisition and development:
1-4 family residential construction
Pass		15,629		1,453		151		—		—		210		2,194		19,637
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total acquisition and development		15,629		1,453		151		—		—		210		2,194		19,637
Current period gross charge-offs		—		—		—		—		—		20		—		20
All other A&D
Pass		18,733		4,979		9,755		1,408		558		12,961		2,419		50,813
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		146		—		146
Total all other A&D		18,733		4,979		9,755		1,408		558		13,107		2,419		50,959
Current period gross charge-offs		—		—		—		—		—		—		—		—
Commercial and industrial:
Pass		83,608		30,451		15,982		12,707		5,013		9,528		63,668		220,957
Special Mention		—		2,555		—		—		—		338		2,134		5,027
Substandard		8,923		—		7,167		173		634		311		2,204		19,412
Total commercial and industrial		92,531		33,006		23,149		12,880		5,647		10,177		68,006		245,396
Current period gross charge-offs		—		97		34		3		—		—		—		134
Residential mortgage:
Residential mortgage - term
Pass		64,930		93,665		42,784		27,120		14,132		133,397		2,306		378,334
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		16		237		143		5,634		23		6,053
Total residental mortgage - term		64,930		93,665		42,800		27,357		14,275		139,031		2,329		384,387
Current period gross charge-offs		—		—		—		—		—		28		—		28
Residential mortgage - home equity
Pass		5,739		957		538		328		97		478		51,232		59,369
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		44		—		21		40		550		655
Total residental mortgage - home equity		5,739		957		582		328		118		518		51,782		60,024
Current period gross charge-offs		—		—		—		—		12		6		—		18
Consumer:
Pass		16,748		10,495		3,845		1,596		687		24,096		2,654		60,121
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		92		27		9		7		—		4		139
Total consumer		16,748		10,587		3,872		1,605		694		24,096		2,658		60,260
Current period gross charge-offs		36		494		18		37		11		40		—		636
Total Portfolio Loans
Pass		297,471		200,657		144,382		111,593		48,774		290,430		130,833		1,224,140
Special Mention		—		3,666		—		—		—		6,627		2,134		12,427
Substandard		8,923		92		7,254		3,425		805		18,423		4,005		42,927
Total Portfolio Loans	$	306,394	$	204,415	$	151,636	$	115,018	$	49,579	$	315,480	$	136,972	$	1,279,494
Current YTD Period:
Current period gross charge-offs	$	36	$	591	$	52	$	40	$	23	$	94	$	—	$	836

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past.

The following tables present loan balances by year of origination segregated by performing and non-performing loans for the periods presented:


(in thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
March 31, 2023
Commercial real estate:
Non owner-occupied
Performing	$	694	$	66,354	$	31,448	$	48,257	$	40,497	$	78,436	$	1,558		267,244
Nonperforming		—		—		—		—		—		85		—		85
Total non-owner occupied		694		66,354		31,448		48,257		40,497		78,521		1,558		267,329
All other CRE
Performing		2,220		25,934		27,531		22,074		28,706		74,830		4,732		186,027
Nonperforming		—		—		—		—		—		—		—		—
Total all other CRE		2,220		25,934		27,531		22,074		28,706		74,830		4,732		186,027
Acquisition and development:
1-4 family residential construction
Performing		880		16,576		1,148		—		—		202		1,132		19,938
Nonperforming		—		—		—		—		—		—		—		—
Total acquisition and development		880		16,576		1,148		—		—		202		1,132		19,938
All other A&D
Performing		3,932		22,754		4,482		9,288		1,387		12,946		2,118		56,907
Nonperforming		—		—		—		—		—		135		—		135
Total all other A&D		3,932		22,754		4,482		9,288		1,387		13,081		2,118		57,042
Commercial and industrial:
Performing		12,709		84,301		30,908		21,889		11,802		15,059		65,291		241,959
Nonperforming		—		—		—		—		—		—		—		—
Total commercial and industrial		12,709		84,301		30,908		21,889		11,802		15,059		65,291		241,959
Residential mortgage:
Residential mortgage - term
Performing		11,844		69,800		92,625		42,248		26,887		148,332		2,111		393,847
Nonperforming		—		—		—		—		234		2,433		37		2,704
Total residental mortgage - term		11,844		69,800		92,625		42,248		27,121		150,765		2,148		396,551
Residential mortgage - home equity
Performing		658		5,410		931		523		316		552		50,899		59,289
Nonperforming		—		—		—		43		—		59		256		358
Total residental mortgage - home equity		658		5,410		931		566		316		611		51,155		59,647
Consumer:
Performing		5,519		14,867		9,157		3,380		1,223		23,757		2,621		60,524
Nonperforming		—		—		—		—		—		62		1		63
Total consumer		5,519		14,867		9,157		3,380		1,223		23,819		2,622		60,587
Total Portfolio Loans
Performing		38,456		305,996		198,230		147,659		110,818		354,114		130,462		1,285,735
Nonperforming		—		—		—		43		234		2,774		294		3,345
Total Portfolio Loans	$	38,456	$	305,996	$	198,230	$	147,702	$	111,052	$	356,888	$	130,756	$	1,289,080


(in thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
December 31, 2022
Commercial real estate:
Non owner-occupied
Performing	$	67,429	$	31,710	$	48,421	$	41,221	$	19,414	$	60,206	$	1,570		269,971
Nonperforming		—		—		—		—		—		87		—		87
Total non-owner occupied		67,429		31,710		48,421		41,221		19,414		60,293		1,570		270,058
All other CRE
Performing		24,655		28,058		22,906		30,219		8,873		67,990		6,014		188,715
Nonperforming		—		—		—		—		—		58		—		58
Total all other CRE		24,655		28,058		22,906		30,219		8,873		68,048		6,014		188,773
Acquisition and development:
1-4 family residential construction
Performing		15,629		1,453		151		—		—		210		2,194		19,637
Nonperforming		—		—		—		—		—		—		—		—
Total acquisition and development		15,629		1,453		151		—		—		210		2,194		19,637
All other A&D
Performing		18,733		4,979		9,755		1,408		558		12,962		2,419		50,814
Nonperforming		—		—		—		—		—		145		—		145
Total all other A&D		18,733		4,979		9,755		1,408		558		13,107		2,419		50,959
Commercial and industrial:
Performing		92,531		33,006		23,149		12,880		5,647		10,177		68,006		245,396
Nonperforming		—		—		—		—		—		—		—		—
Total commercial and industrial		92,531		33,006		23,149		12,880		5,647		10,177		68,006		245,396
Residential mortgage:
Residential mortgage - term
Performing		64,930		93,665		42,800		27,120		14,198		136,228		2,313		381,254
Nonperforming		—		—		—		237		77		2,803		16		3,133
Total residental mortgage - term		64,930		93,665		42,800		27,357		14,275		139,031		2,329		384,387
Residential mortgage - home equity
Performing		5,739		957		538		328		115		478		51,515		59,670
Nonperforming		—		—		44		—		3		40		267		354
Total residental mortgage - home equity		5,739		957		582		328		118		518		51,782		60,024
Consumer:
Performing		16,748		10,581		3,872		1,605		694		24,077		2,658		60,235
Nonperforming		—		6		—		—		—		19		—		25
Total consumer		16,748		10,587		3,872		1,605		694		24,096		2,658		60,260
Total Portfolio Loans
Performing		306,394		204,409		151,592		114,781		49,499		312,328		136,689		1,275,692
Nonperforming		—		6		44		237		80		3,152		283		3,802
Total Portfolio Loans	$	306,394	$	204,415	$	151,636	$	115,018	$	49,579	$	315,480	$	136,972	$	1,279,494