ACL for Loans | ACL for Loans There have been no material changes to the Company's ACL for loans methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure as described in the 2023 Annual Report on Form 10-K. See Note 4, "Credit Risk Management and ACL for Loans," to the Company's audited consolidated financial statements contained in the 2023 Annual Report on Form 10-K and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the subheading "Accounting Policies/Critical Accounting Estimates," of the Company's 2023 Annual Report on Form 10-K. The credit risk management function of the Company evaluates a wide variety of factors as early detection of credit issues is critical to minimizing credit losses. Accordingly, management regularly monitors internal credit quality indicators such as, the risk classification of loans, past due and non-accrual loans, individually evaluated loans, loan modifications, and the level of foreclosure activity, among other items. These credit quality indicators are outlined below. Risk ratings and adversely classified loans The Company's loan risk rating system classifies loans depending on risk of loss characteristics. Adversely classified ratings for loans determined to be of weaker credit range from "special mention," for loans that may need additional monitoring, to the more severe adverse classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations. The following tables present the amortized cost basis of the Company's loan portfolio risk ratings within portfolio classifications, by origination date, or revolving status as of the dates indicated: Balance at March 31, 2024 Term Loans by Origination Year (Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial real estate owner-occupied Pass $ 9,737 $ 86,392 $ 82,614 $ 87,945 $ 51,879 $ 297,009 $ 5,233 $ — $ 620,809 Special mention — 31 — — — 7,183 — — 7,214 Substandard — — 1,296 440 — 5,661 — — 7,397 Total commercial real estate owner-occupied 9,737 86,423 83,910 88,385 51,879 309,853 5,233 — 635,420 Current period charge-offs — — — — — — — — — Commercial real estate non owner-occupied Pass 32,629 134,347 297,528 300,717 159,534 556,224 23,876 — 1,504,855 Special mention — — 15,721 — — 648 — — 16,369 Substandard — — — 785 — 2,165 — — 2,950 Total commercial real estate non owner-occupied 32,629 134,347 313,249 301,502 159,534 559,037 23,876 — 1,524,174 Current period charge-offs — — — — — — — — — Commercial and industrial Pass 19,653 74,047 50,068 40,663 21,879 63,480 140,427 556 410,773 Special mention — — — — 266 387 2,377 20 3,050 Substandard — — 3,323 27 — 204 227 — 3,781 Total commercial and industrial 19,653 74,047 53,391 40,690 22,145 64,071 143,031 576 417,604 Current period charge-offs — 10 — — — 175 — — 185 Commercial construction Pass 21,387 222,208 162,246 112,463 11,291 19,852 26,357 — 575,804 Substandard — — 7,907 — — — — — 7,907 Total commercial construction 21,387 222,208 170,153 112,463 11,291 19,852 26,357 — 583,711 Current period charge-offs — — — — — — — — — Residential mortgages Pass 12,155 83,035 105,766 69,363 46,248 81,862 — — 398,429 Special mention — — — — — 107 — — 107 Substandard — — — 234 — 1,323 — — 1,557 Total residential mortgages 12,155 83,035 105,766 69,597 46,248 83,292 — — 400,093 Current period charge-offs — — — — — — — — — Home equity Pass — 462 772 531 442 2,398 79,938 468 85,011 Special mention — — — — — 8 — — 8 Substandard — — 23 — — 102 — — 125 Total home equity — 462 795 531 442 2,508 79,938 468 85,144 Current period charge-offs — — — — — — — — — Consumer Pass 750 2,724 1,547 1,268 661 885 — 341 8,176 Total consumer 750 2,724 1,547 1,268 661 885 — 341 8,176 Current period charge-offs 6 2 — — — 1 — — 9 Total loans $ 96,311 $ 603,246 $ 728,811 $ 614,436 $ 292,200 $ 1,039,498 $ 278,435 $ 1,385 $ 3,654,322 Total current period charge-offs $ 6 $ 12 $ — $ — $ — $ 176 $ — $ — $ 194 Balance at December 31, 2023 Term Loans by Origination Year (Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total Commercial real estate owner-occupied Pass $ 82,500 $ 83,366 $ 88,178 $ 52,891 $ 51,379 $ 242,518 $ 2,169 $ — $ 603,001 Special mention 31 — — — 489 6,971 — — 7,491 Substandard — 1,311 270 — — 7,229 — — 8,810 Total commercial real estate 82,531 84,677 88,448 52,891 51,868 256,718 2,169 — 619,302 Current period charge-offs owner-occupied — — — — — — — — — Commercial real estate non owner-occupied Pass 133,179 288,240 278,833 148,730 165,676 398,516 9,961 107 1,423,242 Special mention — 15,782 — — — 2,977 — — 18,759 Substandard — — 361 — 969 1,654 — 450 3,434 Total commercial real estate non owner-occupied 133,179 304,022 279,194 148,730 166,645 403,147 9,961 557 1,445,435 Current period charge-offs — — — — — — — — — Commercial and industrial Pass 73,608 51,990 45,278 24,778 23,724 44,609 156,465 3,402 423,854 Special mention — — — 70 215 201 2,227 223 2,936 Substandard — — 18 — 1 209 316 3,415 3,959 Total commercial and industrial 73,608 51,990 45,296 24,848 23,940 45,019 159,008 7,040 430,749 Current period charge-offs 15 248 — — 67 266 — — 596 Commercial construction Pass 192,462 164,313 143,203 22,017 16,247 10,532 27,261 — 576,035 Special mention — 7,905 — — 1,173 — — — 9,078 Total commercial construction 192,462 172,218 143,203 22,017 17,420 10,532 27,261 — 585,113 Current period charge-offs — — — — — — — — — Residential mortgages Pass 82,848 107,222 69,979 46,674 19,205 65,311 — — 391,239 Special mention — — — — — 109 — — 109 Substandard — — 236 — 1,055 503 — — 1,794 Total residential mortgages 82,848 107,222 70,215 46,674 20,260 65,923 — — 393,142 Current period charge-offs — — — — — — — — — Home equity Pass 1,203 775 561 444 317 1,738 79,421 636 85,095 Substandard — — — — — 72 — 208 280 Total home equity 1,203 775 561 444 317 1,810 79,421 844 85,375 Current period charge-offs — — — — — — — — — Consumer Pass 3,705 1,652 1,371 722 623 442 — — 8,515 Total consumer 3,705 1,652 1,371 722 623 442 — — 8,515 Current period charge-offs 35 — — — — 1 — — 36 Total loans $ 569,536 $ 722,556 $ 628,288 $ 296,326 $ 281,073 $ 783,591 $ 277,820 $ 8,441 $ 3,567,631 Total current period charge-offs $ 50 $ 248 $ — $ — $ 67 $ 267 $ — $ — $ 632 The total amortized cost basis of adversely classified loans amounted to $50.5 million, or 1.38% of total loans, at March 31, 2024, and $56.7 million, or 1.59% of total loans, at December 31, 2023. Past due and non-accrual loans The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated: Balance at March 31, 2024 (Dollars in thousands) 30-59 Days 60-89 Days Past Due 90 Days or More Total Past Due Loans (1) Current Loans (1) Total Commercial real estate owner-occupied $ 456 $ 48 $ 273 $ 777 $ 634,643 $ 635,420 Commercial real estate non owner-occupied 1,648 1,815 953 4,416 1,519,758 1,524,174 Commercial and industrial 3,385 15 154 3,554 414,050 417,604 Commercial construction 4,848 995 7,906 13,749 569,962 583,711 Residential mortgages 2,135 — 1,054 3,189 396,904 400,093 Home equity 36 — 35 71 85,073 85,144 Consumer 3 — — 3 8,173 8,176 Total loans $ 12,511 $ 2,873 $ 10,375 $ 25,759 $ 3,628,563 $ 3,654,322 Balance at December 31, 2023 (Dollars in thousands) 30-59 Days 60-89 Days Past Due 90 Days or More Total Past Due Loans (1) Current Loans (1) Total Commercial real estate owner-occupied $ 459 $ 270 $ 212 $ 941 $ 618,361 $ 619,302 Commercial real estate non owner-occupied 722 504 1,122 2,348 1,443,087 1,445,435 Commercial and industrial 660 64 — 724 430,025 430,749 Commercial construction — — — — 585,113 585,113 Residential mortgages 1,265 — 1,277 2,542 390,600 393,142 Home equity 53 — 97 150 85,225 85,375 Consumer 25 2 — 27 8,488 8,515 Total loans $ 3,184 $ 840 $ 2,708 $ 6,732 $ 3,560,899 $ 3,567,631 _______________________________________ (1) The loan balances in the tables above include loans designated as non-accrual according to their payment due status. At March 31, 2024 and December 31, 2023, all loans past due 90 days or more were carried as non-accrual, however, not all non-accrual loans were 90 days or more past due in their payments. Loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal have also been designated as non-accrual, despite their payment due status. The following tables present the amortized cost of non-accrual loans by portfolio classification as of the dates indicated: Balance at March 31, 2024 (Dollars in thousands) Total Non-accrual Loans Non-accrual Loans without a Specific Reserve Non-accrual Loans with a Specific Reserve Related Specific Commercial real estate owner-occupied $ 2,696 $ 2,696 $ — $ — Commercial real estate non owner-occupied 2,651 1,698 953 214 Commercial and industrial 3,880 314 3,566 2,629 Commercial construction 7,906 — 7,906 1,594 Residential mortgages 1,292 1,292 — — Home equity 102 102 — — Consumer — — — — Total loans $ 18,527 $ 6,102 $ 12,425 $ 4,437 Balance at December 31, 2023 (Dollars in thousands) Total Non-accrual Loans Non-accrual Loans without a Specific Reserve Non-accrual Loans with a Specific Reserve Related Specific Commercial real estate owner-occupied $ 2,683 $ 2,683 $ — $ — Commercial real estate non owner-occupied 2,686 1,717 969 229 Commercial and industrial 4,262 736 3,526 2,658 Commercial construction — — — — Residential mortgages 1,526 1,526 — — Home equity 257 257 — — Consumer — — — — Total loans $ 11,414 $ 6,919 $ 4,495 $ 2,887 The ratio of non-accrual loans to total loans amounted to 0.51% and 0.32% at March 31, 2024 and December 31, 2023, respectively. The increase in non-accrual loans from December 31, 2023 to March 31, 2024 was due primarily to one commercial construction loan that was deemed collateral dependent and added to non-accrual. At March 31, 2024 and December 31, 2023, additional funding commitments for non-accrual loans were immaterial. Collateral dependent loans The total recorded investment in collateral dependent loans amounted to $20.7 million at March 31, 2024 compared to $13.7 million at December 31, 2023. Total accruing collateral dependent loans amounted to $2.3 million while non-accrual collateral dependent loans amounted to $18.4 million as of March 31, 2024. As of December 31, 2023, total accruing collateral dependent loans amounted to $2.4 million, while non-accrual collateral dependent loans amounted to $11.3 million. The following tables present the recorded investment in collateral dependent loans and the related specific allowance by portfolio allocation as of the dates indicated: Balance at March 31, 2024 (Dollars in thousands) Unpaid Total Recorded Recorded Recorded Related Specific Commercial real estate owner-occupied $ 4,559 $ 4,053 $ 4,053 $ — $ — Commercial real estate non owner-occupied 4,112 2,949 1,996 953 213 Commercial and industrial 5,288 4,013 526 3,487 2,551 Commercial construction 7,938 7,906 — 7,906 1,594 Residential mortgages 1,846 1,665 1,665 — — Home equity 155 126 126 — — Consumer — — — — — Total $ 23,898 $ 20,712 $ 8,366 $ 12,346 $ 4,358 Balance at December 31, 2023 (Dollars in thousands) Unpaid Total Recorded Recorded Recorded Related Specific Commercial real estate owner-occupied $ 4,641 $ 4,165 $ 4,165 $ — $ — Commercial real estate non owner-occupied 4,062 2,983 2,015 968 229 Commercial and industrial 6,804 4,332 950 3,382 2,526 Commercial construction — — — — — Residential mortgages 2,117 1,902 1,902 — — Home equity 359 281 281 — — Consumer — — — — — Total $ 17,983 $ 13,663 $ 9,313 $ 4,350 $ 2,755 At March 31, 2024 and December 31, 2023, additional funding commitments for collateral dependent loans were immaterial. Loan modifications to borrowers experiencing financial difficulty Effective on January 1, 2023, the Company adopted ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326), TDR and Vintage Disclosures," which eliminated the accounting guidance for TDRs and enhanced the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. The adoption did not have a significant impact on the financial statements. The Company works with loan customers experiencing financial difficulty and may enter into loan modifications to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and future prospects of the borrower. An assessment of whether a borrower is experiencing financial difficulty is made on the date of the modification. Modifications made for borrowers experiencing financial difficulty may be concessions in the form of principal forgiveness, interest rate reductions, payment deferrals of principal, interest or both, or term extensions, or some combination thereof. When a debt has been previously modified, the Company considers the cumulative effect of modifications made within the prior twelve-month period before the current modification, when determining whether or not a delay in payment resulting from the current modification is insignificant. During the three months ended March 31, 2024, there were no loan modifications made to borrowers experiencing financial difficulty. The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty by type of concession granted during the period indicated: Three months ended March 31, 2023 (Dollars in thousands) Payment Deferrals % of Loan Class Total Commercial real estate $ 281 0.01 % Commercial and industrial 38 0.01 % Total $ 319 0.01 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the period indicated: Three months ended March 31, 2023 Weighted Average Payment Deferrals Commercial real estate 0.5 years Commercial and industrial 0.5 years The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance status of loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty, at the period indicated. Balance at March 31, 2024 (Dollars in thousands) Current 30-59 Days 60-89 Days Past Due 90 Days or More Total Past Commercial real estate $ — $ — $ — $ — $ — Commercial and industrial — — — 143 143 Commercial construction — — — — — Residential mortgages 31 — — — — Home equity — — — — — Consumer — — — — — Total $ 31 $ — $ — $ 143 $ 143 Balance at March 31, 2023 (Dollars in thousands) Current 30-59 Days 60-89 Days Past Due 90 Days or More Total Past Commercial real estate $ 406 $ — $ — $ 1,014 $ 1,014 Commercial and industrial 237 — — — — Commercial construction — — — — — Residential mortgages — — — — — Home equity — — — — — Consumer — — — — — Total $ 643 $ — $ — $ 1,014 $ 1,014 During the three months ended March 31, 2024 and March 31, 2023, there were no subsequent defaults on loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty. At March 31, 2024 and March 31, 2023, additional funding commitments to borrowers experiencing financial difficulty who were party to a loan modification were immaterial. ACL for loans and provision for credit loss activity The following table presents changes in the provision for credit losses on loans and unfunded commitments during the periods indicated: Three months ended (Dollars in thousands) March 31, March 31, Provision for credit losses on loans $ 1,868 $ 2,318 Provision for unfunded commitments (1,246) 418 Total provision for credit losses $ 622 $ 2,736 ACL for loans The ACL for loans amounted to $60.7 million and $59.0 million at March 31, 2024 and December 31, 2023, respectively. The ACL for loans to total loans ratio was 1.66% and 1.65% at March 31, 2024 and December 31, 2023, respectively. The following tables present changes in the ACL for loans by portfolio classification, during the three months indicated: (Dollars in thousands) Commercial Real Estate Owner-Occupied Commercial Real Estate Non Owner-Occupied Commercial and Commercial Construction Residential Home Consumer Total Beginning Balance at December 31, 2023 $ 10,454 $ 27,620 $ 11,089 $ 6,787 $ 2,152 $ 579 $ 314 $ 58,995 Provision for credit losses on loans 25 1,201 (639) 1,429 (80) (46) (22) 1,868 Recoveries — — 68 — — 2 2 72 Less: Charge-offs — — 185 — — — 9 194 Ending Balance at March 31, 2024 $ 10,479 $ 28,821 $ 10,333 $ 8,216 $ 2,072 $ 535 $ 285 $ 60,741 (Dollars in thousands) Commercial Real Estate Owner-Occupied Commercial Real Estate Non Owner-Occupied Commercial and Commercial Construction Residential Home Consumer Total Beginning Balance at December 31, 2022 $ 10,304 $ 26,260 $ 8,896 $ 3,961 $ 2,255 $ 633 $ 331 $ 52,640 Provision for credit losses on loans 391 770 438 492 123 76 28 2,318 Recoveries — — 127 — — 3 3 133 Less: Charge-offs — — 83 — — — 6 89 Ending Balance at March 31, 2023 $ 10,695 $ 27,030 $ 9,378 $ 4,453 $ 2,378 $ 712 $ 356 $ 55,002 Reserve for unfunded commitments The Company's reserve for unfunded commitments amounted to $5.9 million at March 31, 2024 and $7.1 million at December 31, 2023. Management believes that the Company's ACL for loans and reserve for unfunded commitments were adequate as of March 31, 2024. Other real estate owned The Company carried no OREO at March 31, 2024 and December 31, 2023. At March 31, 2024 and December 31, 2023, the Company had $1.1 million and $1.2 million, respectively, in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions. |