Loans and Allowance for Loan Losses | Loans and Allowance for Credit Losses A summary of loan balances at amortized cost by type follows: March 31, 2024 December 31, 2023 Commercial real estate $ 1,089,362 $ 1,091,633 Commercial and industrial 246,564 219,873 Commercial construction 155,451 147,998 Consumer real estate 355,750 363,317 Consumer nonresidential 5,619 5,743 $ 1,852,746 $ 1,828,564 Less: Allowance for credit losses 18,918 18,871 Loans, net $ 1,833,828 $ 1,809,693 An analysis of the allowance for credit losses for the three months ended March 31, 2024 and 2023, and for the year ended December 31, 2023 follows: Commercial Commercial and Commercial Consumer Real Consumer Total March 31, 2024 Allowance for credit losses: Beginning Balance, January 1 $ 10,174 $ 3,385 $ 1,425 $ 3,822 $ 65 $ 18,871 Charge-offs — — — — (4) (4) Recoveries — — — — 34 34 Provision (reversal) (123) 42 48 85 (35) 17 Ending Balance $ 10,051 $ 3,427 $ 1,473 $ 3,907 $ 60 $ 18,918 Commercial Commercial and Commercial Consumer Real Consumer Total March 31, 2023 Allowance for credit losses: Beginning Balance, Prior to January 1, 2023 Adoption of ASC 326 $ 10,777 $ 2,623 $ 1,499 $ 1,044 $ 97 $ 16,040 Impact of Adoption of ASC 326 498 452 70 1,856 (12) 2,864 Charge-offs — — — — — — Recoveries — 1 — 1 21 23 Provision (reversal) 49 (480) 129 473 (40) 131 Ending Balance $ 11,324 $ 2,596 $ 1,698 $ 3,374 $ 66 $ 19,058 Commercial Commercial and Commercial Consumer Real Consumer Total December 31, 2023 Allowance for credit losses: Beginning Balance, Prior to January 1, 2023 Adoption of ASC 326 $ 10,777 $ 2,623 $ 1,499 $ 1,044 $ 97 $ 16,040 Impact of Adoption of ASC 326 498 452 70 1,856 (12) 2,864 Charge-offs (53) (350) — — (15) (418) Recoveries — 3 — 1 39 43 Provision (reversal) (1,048) 657 (144) 921 (44) 342 Ending Balance $ 10,174 $ 3,385 $ 1,425 $ 3,822 $ 65 $ 18,871 The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Real Estate Business / Other Assets Real Estate Business / Other Assets Collateral-Dependent Loans Commercial real estate $ 20,770 $ — $ 20,765 $ — Commercial and industrial — 1,070 — 1,070 Commercial construction — — — — Consumer real estate 526 — 654 — Consumer nonresidential — — — — Total $ 21,296 $ 1,070 $ 21,419 $ 1,070 Tare summarized as follows: Impaired Loans – Originated Loan Portfolio The Company 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: Pass — Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis. Special Mention — Loans classified as special mention 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 institution’s credit position at some future date. Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor 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 enhanced possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable. Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans. Based on the most recent analysis performed, amortized cost basis of loans by risk category, class and year of origination was as follows as of March 31, 2024: Prior 2020 2021 2022 2023 2024 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total Commercial Real Estate Grade: Pass $ 420,696 $ 69,992 $ 146,405 $ 211,209 $ 57,036 $ 1,787 $ 156,697 $ — $ 1,063,822 Special mention 2,099 — 2,671 — — — — — 4,770 Substandard — 849 — — 19,921 — — — 20,770 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 422,795 $ 70,841 $ 149,076 $ 211,209 $ 76,957 $ 1,787 $ 156,697 $ — $ 1,089,362 Commercial and Industrial Grade: Pass $ 13,032 $ 5,297 $ 11,970 $ 52,231 $ 40,644 $ 33,114 $ 88,493 $ — $ 244,781 Special mention — — — — — — 713 — 713 Substandard — — — 884 — — 186 — 1,070 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 13,032 $ 5,297 $ 11,970 $ 53,115 $ 40,644 $ 33,114 $ 89,392 $ — $ 246,564 Commercial Construction Grade: Pass $ 10,186 $ — $ 6,203 $ — $ — $ — $ 139,062 $ — $ 155,451 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 10,186 $ — $ 6,203 $ — $ — $ — $ 139,062 $ — $ 155,451 Consumer Real Estate Grade: Pass $ 42,128 $ 8,845 $ 28,559 $ 192,146 $ 50,607 $ — $ 32,883 $ — $ 355,168 Special mention — — — — — — 56 — 56 Substandard 107 — — — — — 419 — 526 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 42,235 $ 8,845 $ 28,559 $ 192,146 $ 50,607 $ — $ 33,358 $ — $ 355,750 Consumer Nonresidential Grade: Pass $ 626 $ 6 $ 2 $ 33 $ 122 $ 91 $ 4,739 $ — $ 5,619 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 626 $ 6 $ 2 $ 33 $ 122 $ 91 $ 4,739 $ — $ 5,619 Total Recorded Investment $ 488,874 $ 84,989 $ 195,810 $ 456,503 $ 168,330 $ 34,992 $ 423,248 $ — $ 1,852,746 Based on the most recent analysis performed, amortized cost basis of loans by risk category, class and year of origination was as follows as of December 31, 2023: Prior 2019 2020 2021 2022 2023 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total Commercial Real Estate Grade: Pass $ 341,765 $ 82,924 $ 70,564 $ 147,252 $ 211,786 $ 57,422 $ 153,838 $ — $ 1,065,551 Special mention 1,268 1,361 — 2,688 — — — — 5,317 Substandard — — 849 — — 19,916 — — 20,765 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 343,033 $ 84,285 $ 71,413 $ 149,940 $ 211,786 $ 77,338 $ 153,838 $ — $ 1,091,633 Commercial and Industrial Grade: Pass $ 9,997 $ 2,285 $ 6,296 $ 13,623 $ 54,784 $ 42,034 $ 88,926 $ — $ 217,945 Special mention — — — 76 — — 782 — 858 Substandard — — — — 884 — 186 — 1,070 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 9,997 $ 2,285 $ 6,296 $ 13,699 $ 55,668 $ 42,034 $ 89,894 $ — $ 219,873 Commercial Construction Grade: Pass $ 11,149 $ — $ — $ 6,204 $ — $ 709 $ 129,936 $ — $ 147,998 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 11,149 $ — $ — $ 6,204 $ — $ 709 $ 129,936 $ — $ 147,998 Consumer Real Estate Grade: Pass $ 35,240 $ 8,196 $ 8,914 $ 28,848 $ 196,678 $ 51,767 $ 32,963 $ — $ 362,606 Special mention — — — — — — 57 — 57 Substandard 108 — — — — — 546 — 654 Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 35,348 $ 8,196 $ 8,914 $ 28,848 $ 196,678 $ 51,767 $ 33,566 $ — $ 363,317 Consumer Nonresidential Grade: Pass $ 659 $ — $ 7 $ 3 $ 36 $ 177 $ 4,861 $ — $ 5,743 Special mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — Loss — — — — — — — — — Total $ 659 $ — $ 7 $ 3 $ 36 $ 177 $ 4,861 $ — $ 5,743 Total Recorded Investment $ 400,186 $ 94,766 $ 86,630 $ 198,694 $ 464,168 $ 172,025 $ 412,095 $ — $ 1,828,564 Total Loan Portfolio - As of March 31, 2024 and December 31, 2023 March 31, 2024 December 31, 2023 Grade: Pass $ 1,824,841 $ 1,799,843 Special mention 5,539 6,232 Substandard 22,366 22,489 Doubtful — — Loss — — Total Recorded Investment $ 1,852,746 $ 1,828,564 The Company 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2024, the Company had $5.5 million in loans identified as special mention, a decrease from $6.2 million at December 31, 2023. Special mention rated loans are loans that have a potential weakness that deserves management’s close attention, however, the borrower continues to pay in accordance with their contract. Loans rated as special mention do not have a specific reserve and are considered well-secured. At March 31, 2024, the Company had $22.4 million in loans identified as substandard, a decrease of $123 thousand from December 31, 2023. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a valuation analysis is completed. At March 31, 2024, an individually assessed allowance for credit losses totaling $673 thousand has been estimated to supplement any shortfall of collateral. Past due and nonaccrual loans presented by loan class were as follows at March 31, 2024 and December 31, 2023: As of March 31, 2024 30-59 days past due 60-89 days past due 90 days or more past due Total past due loans Current Nonaccruals Total Recorded Investment in Loans Commercial real estate $ — $ 1,107 $ — $ 1,107 $ 1,087,406 $ 849 $ 1,089,362 Commercial and industrial — — 551 551 244,943 1,070 246,564 Commercial construction — — — — 155,451 — 155,451 Consumer real estate 1,292 962 — 2,254 352,970 526 355,750 Consumer nonresidential 1 — — 1 5,618 — 5,619 Total $ 1,293 $ 2,069 $ 551 $ 3,913 $ 1,846,388 $ 2,445 $ 1,852,746 As of December 31, 2023 30-59 days past due 60-89 days past due 90 days or more past due Total past due loans Current Nonaccruals Total Recorded Investment in Loans Commercial real estate $ 1,115 $ — $ — $ 1,115 $ 1,089,669 $ 849 $ 1,091,633 Commercial and industrial 51 1,387 — 1,438 218,249 186 219,873 Commercial construction 2,569 391 — 2,960 145,038 — 147,998 Consumer real estate 1,300 — 134 1,434 361,229 654 363,317 Consumer nonresidential — — 6 6 5,737 — 5,743 Total $ 5,035 $ 1,778 $ 140 $ 6,953 $ 1,819,922 $ 1,689 $ 1,828,564 The following presents nonaccrual loans as of March 31, 2024 and December 31, 2023: As of March 31, 2024 Nonaccrual with No Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Interest Income Recognized Nonaccrual Loans Commercial real estate $ 849 $ — $ 849 $ 16 Commercial and industrial — 1,070 1,070 21 Commercial construction — — — — Consumer real estate 526 — 526 10 Consumer nonresidential — — — — Total $ 1,375 $ 1,070 $ 2,445 $ 47 As of December 31, 2023 Nonaccrual with No Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Interest Income Recognized Nonaccrual Loans Commercial real estate $ 849 $ — $ 849 $ 37 Commercial and industrial — 186 186 19 Commercial construction — — — — Consumer real estate 654 — 654 53 Consumer nonresidential — — — — Total $ 1,503 $ 186 $ 1,689 $ 109 There were two consumer mortgage loans totaling $107 thousand secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2024 and December 31, 2023, respectively. There were overdrafts of $87 thousand and $147 thousand at March 31, 2024 and December 31, 2023, respectively, which have been reclassified from deposits to loans. At March 31, 2024 and December 31, 2023, loans with a carrying value of $539.6 million and $530.2 million were pledged to the Federal Home Loan Bank of Atlanta ("FHLB"). Modifications with Borrowers Experiencing Financial Difficulty Loan modifications when a borrower is experiencing financial difficulty ("FDMs") occur as a result of loss mitigation activities. A variety of solutions are offered to borrowers, including loan modifications that may result in principal forgiveness, interest rate reductions, term extensions, payment delays, repayment plans or combinations thereof. FDMs exclude loans held for sale and loans accounted for under the fair value option. Loans with guarantor support, or guaranteed loans are included in the Company's disclosed population of FDMs when those loan modifications are granted to a borrower experiencing financial difficulty. There were no loans designated as modifications for borrowers who were experiencing financial difficulty during the three months ended March 31, 2024, and 2023, respectively. As of March 31, 2024, the reserve for unfunded commitments decreased to $586 thousand. The following table presents a breakdown of the provision for credit losses included in the Consolidated Statements of Income for the applicable periods: For the Three Months Ended March 31, 2024 March 31, 2023 Provision for credit losses - loans $ 17 $ 131 Provision for (reversal of) credit losses - unfunded commitments (17) 111 Total provision for credit losses $ — $ 242 |