Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2023

Receivables [Abstract]

Loans and Allowance for Credit Losses

NOTE 4 – Loans and Allowance for Credit Losses

The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $7.1 million as of September 30, 2023 and $7.3 million as of December 31, 2022.

	September 30, 2023						December 31, 2022
(dollars in thousands)	Amount			%  of Total			Amount			%  of Total
Commercial
Owner occupied RE	$	637,038			17.9	%	$	612,901			18.7	%
Non-owner occupied RE		937,749			26.4	%		862,579			26.3	%
Construction		119,629			3.4	%		109,726			3.4	%
Business		500,253			14.1	%		468,112			14.3	%
Total commercial loans		2,194,669			61.8	%		2,053,318			62.7	%
Consumer
Real estate		1,074,679			30.2	%		931,278			28.4	%
Home equity		180,856			5.1	%		179,300			5.5	%
Construction		54,210			1.5	%		80,415			2.5	%
Other		49,218			1.4	%		29,052			0.9	%
Total consumer loans		1,358,963			38.2	%		1,220,045			37.3	%
Total gross loans, net of deferred fees		3,553,632			100.0	%		3,273,363			100.0	%
Less—allowance for credit losses		(41,131	)					(38,639	)
Total loans, net	$	3,512,501					$	3,234,724

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

			September 30, 2023
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	13,679		177,138		404,693		41,528		637,038
Non-owner occupied RE		66,746		501,700		343,953		25,350		937,749
Construction		23,899		44,452		51,278		-		119,629
Business		106,126		198,150		191,559		4,418		500,253
Total commercial loans		210,450		921,440		991,483		71,296		2,194,669
Consumer
Real estate		8,646		50,898		304,890		710,245		1,074,679
Home equity		1,996		24,720		149,252		4,888		180,856
Construction		-		259		31,796		22,155		54,210
Other		12,945		33,082		2,376		815		49,218
Total consumer loans		23,587		108,959		488,314		738,103		1,358,963
Total gross loans, net of deferred fees	$	234,037		1,030,399		1,479,797		809,399		3,553,632

					December 31, 2022
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	10,574		133,017		420,881		48,429		612,901
Non-owner occupied RE		44,570		419,976		371,208		26,825		862,579
Construction		5,509		36,537		61,009		6,671		109,726
Business		96,157		194,489		173,259		4,207		468,112
Total commercial loans		156,810		784,019		1,026,357		86,132		2,053,318
Consumer
Real estate		12,137		38,948		260,005		620,188		931,278
Home equity		1,336		20,933		151,696		5,335		179,300
Construction		665		182		23,788		55,780		80,415
Other		3,926		21,890		2,458		778		29,052
Total consumer loans		18,064		81,953		437,947		682,081		1,220,045
Total gross loans, net of deferred fees	$	174,874		865,972		1,464,304		768,213		3,273,363

The following table summarizes the loans due after one year by category.

	September 30, 2023				December 31, 2022
	Interest Rate						Interest Rate
(dollars in thousands)	Fixed		Floating or Adjustable		Fixed		Floating or Adjustable
Commercial
Owner occupied RE	$	614,563		8,796		598,513		3,814
Non-owner occupied RE		787,479		83,524		742,763		75,246
Construction		65,517		30,213		90,246		13,971
Business		300,464		93,663		298,866		73,089
Total commercial loans		1,768,023		216,196		1,730,388		166,120
Consumer
Real estate		1,066,033		-		919,130		11
Home equity		12,403		166,457		14,173		163,791
Construction		54,210		-		79,750		-
Other		11,916		24,357		19,113		6,013
Total consumer loans		1,144,562		190,814		1,032,166		169,815
Total gross loans, net of deferred fees	$	2,912,585		407,010		2,762,554		335,935

Credit Quality Indicators

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

A description of the general characteristics of the risk grades is as follows:

· Pass— A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk.

· Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management.

· Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

· Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, which may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The following table presents loan balances classified by credit quality indicators by year of origination as of September 30, 2023.

																September 30, 2023
(dollars in thousands)	2023		2022			2021		2020			2019		Prior			Revolving			Revolving Converted to Term		Total
Commercial
Owner occupied RE
Pass	$	38,310		178,722			143,057		67,509			62,216		112,528			-			167		602,509
Watch		-		3,482			464		16,074			3,551		6,821			-			-		30,392
Special Mention		-		186			-		-			-		3,074			-			-		3,260
Substandard		-		-			-		-			-		877			-			-		877
Total Owner occupied RE		38,310		182,390			143,521		83,583			65,767		123,300			-			167		637,038
Non-owner occupied RE
Pass		79,567		302,942			169,567		109,566			59,595		173,400			257			-		894,894
Watch		772		828			10,221		-			5,393		6,610			-			-		23,824
Special Mention		-		-			199		-			8,267		878			-			-		9,344
Substandard		-		-			-		-			8,073		1,614			-			-		9,687
Total Non-owner occupied RE		80,339		303,770			179,987		109,566			81,328		182,502			257			-		937,749
Construction
Pass		13,921		72,528			22,179		9,897			-		-			-			-		118,525
Watch		-		1,104			-		-			-		-			-			-		1,104
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		13,921		73,632			22,179		9,897			-		-			-			-		119,629
Business
Pass		41,808		136,635			50,098		19,637			18,214		53,775			144,671			1,099		465,937
Watch		282		14,431			1,955		1,114			913		3,958			6,697			-		29,350
Special Mention		101		977			77		793			211		234			-			98		2,491
Substandard		-		490			164		-			153		1,199			447			22		2,475
Total Business		42,191		152,533			52,294		21,544			19,491		59,166			151,815			1,219		500,253
Total Commercial loans		174,761		712,325			397,981		224,590			166,586		364,968			152,072			1,386		2,194,669
Consumer
Real estate
Pass		126,174		273,593			283,538		178,459			66,468		108,094			-			-		1,036,326
Watch		490		5,684			7,877		3,941			2,058		4,098			-			-		24,148
Special Mention		-		2,319			1,663		1,301			2,407		2,799			-			-		10,489
Substandard		-		186			637		820			323		1,750			-			-		3,716
Total Real estate		126,664		281,782			293,715		184,521			71,256		116,741			-			-		1,074,679
Home equity
Pass		-		-			-		-			-		-			168,399			-		168,399
Watch		-		-			-		-			-		-			6,870			-		6,870
Special Mention		-		-			-		-			-		-			4,150			-		4,150
Substandard		-		-			-		-			-		-			1,437			-		1,437
Total Home equity		-		-			-		-			-		-			180,856			-		180,856
Construction
Pass		9,798		35,606			8,806		-			-		-			-			-		54,210
Watch		-		-			-		-			-		-			-			-		-
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		9,798		35,606			8,806		-			-		-			-			-		54,210
Other
Pass		923		2,643			2,578		1,505			846		2,726			36,718			-		47,939
Watch		44		33			352		4			1		167			94			-		695
Special Mention		-		334			-		-			27		84			51			-		496
Substandard		-		-			80		-			1		-			7			-		88
Total Other		967		3,010			3,010		1,509			875		2,977			36,870			-		49,218
Total Consumer loans		137,429		320,398			305,531		186,030			72,131		119,718			217,726			-		1,358,963
Total loans	$	312,190		1,032,723			703,512		410,620			238,717		484,686			369,798			1,386		3,553,632
Current period gross write-offs		-		(200	)		-		(28	)		-		(10	)		(405	)		-		(643	)

The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, 2022.

	December 31, 2022
(dollars in thousands)	2022		2021			2020		2019			2018		Prior			Revolving			Revolving Converted to Term		Total
Commercial
Owner occupied RE
Pass	$	169,083		122,654			85,867		66,299			36,718		93,915			-			-		574,536
Watch		14,648		479			9,339		3,658			-		6,792			-			-		34,916
Special Mention		200		-			-		-			-		2,960			-			-		3,160
Substandard		-		-			-		-			289		-			-			-		289
Total Owner occupied RE		183,931		123,133			95,206		69,957			37,007		103,667			-			-		612,901
Non-owner occupied RE
Pass		281,890		169,599			113,264		59,550			79,722		106,967			604			137		811,733
Watch		1,061		9,491			-		10,683			1,408		11,660			-			-		34,303
Special Mention		-		202			-		6,087			-		930			-			-		7,219
Substandard		-		134			-		7,992			327		871			-			-		9,324
Total Non-owner occupied RE		282,951		179,426			113,264		84,312			81,457		120,428			604			137		862,579
Construction
Pass		48,420		55,129			4,811		247			-		-			-			-		108,607
Watch		1,119		-			-		-			-		-			-			-		1,119
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		49,539		55,129			4,811		247			-		-			-			-		109,726
Business
Pass		136,489		57,804			29,864		21,808			35,249		28,914			136,337			709		447,174
Watch		3,186		2,058			1,318		1,282			179		3,074			3,783			439		15,319
Special Mention		1,137		260			386		210			-		252			115			642		3,002
Substandard		498		-			188		233			315		911			472			-		2,617
Total Business		141,310		60,122			31,756		23,533			35,743		33,151			140,707			1,790		468,112
Total Commercial loans		657,731		417,810			245,037		178,049			154,207		257,246			141,311			1,927		2,053,318
Consumer
Real estate
Pass		243,589		269,565			189,075		72,499			39,042		76,172			-			-		889,942
Watch		6,196		8,256			3,847		2,278			494		3,671			-			-		24,742
Special Mention		3,114		1,938			2,644		2,258			955		2,639			-			-		13,548
Substandard		-		648			227		341			408		1,422			-			-		3,046
Total Real estate		252,899		280,407			195,793		77,376			40,899		83,904			-			-		931,278
Home equity
Pass		-		-			-		-			-		-			165,847			-		165,847
Watch		-		-			-		-			-		-			7,226			-		7,226
Special Mention		-		-			-		-			-		-			4,055			-		4,055
Substandard		-		-			-		-			-		-			2,172			-		2,172
Total Home equity		-		-			-		-			-		-			179,300			-		179,300
Construction
Pass		41,138		34,039			4,923		-			-		-			-			-		80,100
Watch		-		-			-		-			-		-			-			-		-
Special Mention		-		-			-		315			-		-			-			-		315
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		41,138		34,039			4,923		315			-		-			-			-		80,415
Other
Pass		3,894		3,038			1,702		1,534			341		3,015			14,465			-		27,989
Watch		46		367			15		5			16		175			93			-		717
Special Mention		94		-			-		44			75		23			96			-		332
Substandard		-		-			-		5			-		-			9			-		14
Total Other		4,034		3,405			1,717		1,588			432		3,213			14,663			-		29,052
Total Consumer loans		298,071		317,851			202,433		79,279			41,331		87,117			193,963			-		1,220,045
Total loans	$	955,802		735,661			447,470		257,328			195,538		344,363			335,274			1,927		3,273,363
Current period gross write-offs		-		(91	)		-		(23	)		-		(32	)		(339	)		-		(485	)

The following tables present loan balances by age and payment status.

	September 30, 2023
(dollars in thousands)	Accruing 30 -59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	-		-		-		-		637,038		637,038
Non-owner occupied RE		440		-		-		1,615		935,694		937,749
Construction		-		-		-		-		119,629		119,629
Business		347		27		-		404		499,475		500,253
Consumer
Real estate		1,210		-		-		1,228		1,072,241		1,074,679
Home equity		226		182		-		1,068		179,380		180,856
Construction		-		-		-		-		54,210		54,210
Other		-		-		-		-		49,218		49,218
Total loans	$	2,223		209		-		4,315		3,546,885		3,553,632
Total loans over 90 days past due		-		-		-		-		-		1,572
	December 31, 2022
(dollars in thousands)	Accruing 30- 59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	-		-		-		-		612,901		612,901
Non-owner occupied RE		119		757		-		247		861,456		862,579
Construction		-		-		-		-		109,726		109,726
Business		24		1		-		182		467,905		468,112
Consumer
Real estate		330		-		-		1,099		929,849		931,278
Home equity		50		-		-		1,099		178,151		179,300
Construction		-		-		-		-		80,415		80,415
Other		88		-		-		-		28,964		29,052
Total loans	$	611		758		-		2,627		3,269,367		3,273,363
Total loans over 90 days past due		-		-		-		-		-		402

As of September 30, 2023 and December 31, 2022, loans 30 days or more past due represented 0.13% and 0.11% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.05% and 0.03% of the Company’s total loan portfolio as of September 30, 2023 and December 31, 2022, respectively. Consumer loans 30 days or more past due were 0.08% and 0.08% of total loans as of September 30, 2023 and December 31, 2022, respectively.

The table below summarizes nonaccrual loans by major categories for the periods presented.

	September 30, 2023								December 31, 2022
	Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual
	loans		loans		Total		loans		loans		Total
	with no		with an		nonaccrual		with no		with an		nonaccrual
(dollars in thousands)	allowance		allowance		loans		allowance		allowance		loans
Commercial
Owner occupied RE		-		-		-		-		-		-
Non-owner occupied RE		379		1,236		1,615		114		133		247
Construction		-		-		-		-		-		-
Business		170		234		404		-		182		182
Total commercial		549		1,470		2,019		114		315		429
Consumer
Real estate		227		1,001		1,228		-		1,099		1,099
Home equity		181		887		1,068		194		905		1,099
Construction		-		-		-		-		-		-
Other		-		-		-		-		-		-
Total consumer		408		1,888		2,296		194		2,004		2,198
Total nonaccrual loans		957		3,358		4,315		308		2,319		2,627

We did not recognize interest income on nonaccrual loans for the three months ended September 30, 2023 and September 30, 2022. The accrued interest reversed during the three months ended September 30, 2023 and September 30, 2022 was not material.

We did not recognize interest income on nonaccrual loans for the nine months ended September 30, 2023 and September 30, 2022. Accrued interest of $35,000 was reversed during the nine months ended September 30, 2023 and $16,000 was reversed during the nine months ended September 30, 2022.

The table below summarizes information regarding nonperforming assets.

(dollars in thousands)	September 30, 2023			December 31, 2022
Nonaccrual loans	$	4,315			2,627
Other real estate owned		-			-
Total nonperforming assets	$	4,315			2,627
Nonperforming assets as a percentage of:
Total assets		0.11	%		0.07	%
Gross loans		0.12	%		0.08	%
Total loans over 90 days past due	$	1,572			402
Loans over 90 days past due and still accruing		-			-
Accruing troubled debt restructurings		-			4,503

Modifications to Borrowers Experiencing Financial Difficulty

The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty.

			Term Extension
(dollars in thousands)	Amortized Cost Basis	% of Total Loan Type	Financial Effect
Commercial Business	$           329	0.07%	Added a 1-year term to both of the loans modified. One loan was granted an extended amortization due to the inability to pay on a 3-year amortization. The other loan was given an interest only period due to the ability to pay only interest to get the loan renewed.

Neither of the two loans modified had a payment default during the period. The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Both loans are in current payment status since the loan modification occurred in the third quarter of 2023. There have been no commitments to lend additional funds to the borrowers experiencing financial difficulty as of September 30, 2023.

Allowance for Credit Losses

The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance.

A formal evaluation of the adequacy of the credit loss allowance is conducted quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

The Company uses a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculates lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data. Loans that do not

share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The Company generally utilizes a four-quarter forecast period in evaluating the appropriateness of the reasonable and supportable forecast scenarios which are incorporated through qualitative adjustments. There is immediate reversion to historical loss rates. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. These adjustments are based upon quarterly trend assessments in certain economic factors such as labor, inflation, consumer sentiment and real disposable income, as well as associate retention and turnover, portfolio concentrations, and growth characteristics. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

The following tables summarize the activity related to the allowance for credit losses for the three and nine months ended September 30, 2023 and September 30, 2022 under the CECL methodology.

									Three months ended September 30, 2023
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE		Non- owner occupied RE			Construction			Business			Real Estate		Home Equity			Construction			Other			Total
Balance, beginning of period	$	5,896		11,584			1,331			8,152			10,395		2,521			684			542			41,105
Provision for credit losses		300		(247	)		(34	)		(148	)		191		(20	)		(102	)		(40	)		(100	)
Loan charge-offs		-		(1	)		-			(42	)		-		-			-			-			(43	)
Loan recoveries		-		154			-			13			-		2			-			-			169
Net loan recoveries (charge-offs)		-		153			-			(29	)		-		2			-			-			126
Balance, end of period	$	6,196		11,490			1,297			7,975			10,586		2,503			582			502			41,131
Net recoveries to average loans (annualized)																								(0.01	)%
Allowance for credit losses to gross loans																								1.16	%
Allowance for credit losses to nonperforming loans																								953.25	%

									Three months ended September 30, 2022
	Commercial										Consumer
(dollars in thousands)	Owner occupied RE		Non- owner occupied RE			Construction			Business		Real Estate		Home Equity		Construction		Other		Total
Balance, beginning of period	$	4,829		10,010			1,060			6,717		7,992		2,442		851		291		34,192
Provision for credit losses		476		(1,595	)		(82	)		875		782		3		41		25		525
Loan charge-offs		-		-			-			-		-		-		-		-		-
Loan recoveries		-		1,540			-			51		-		8		-		1		1,600
Net loan recoveries (charge-offs)		-		1,540			-			51		-		8		-		1		1,600
Balance, end of period	$	5,305		9,955			978			7,643		8,774		2,453		892		317		36,317
Net recoveries to average loans (annualized)																				(0.22	)%
Allowance for credit losses to gross loans																				1.20	%
Allowance for credit losses to nonperforming loans																				1,388.87	%

								Nine months ended September 30, 2023
	Commercial										Consumer
(dollars in thousands)	Owner occupied RE		Non- owner occupied RE			Construction		Business			Real Estate		Home Equity			Construction			Other			Total
Balance, beginning of period	$	5,867		10,376			1,292		7,861			9,487		2,551			893			312			38,639
Provision for credit losses		329		1,138			5		120			1,099		278			(311	)		192			2,850
Loan charge-offs		-		(209	)		-		(43	)		-		(389	)		-			(2	)		(643	)
Loan recoveries		-		185			-		37			-		63			-			-			285
Net loan recoveries (charge-offs)		-		(24	)		-		(6	)		-		(326	)		-			(2	)		(358	)
Balance, end of period	$	6,196		11,490			1,297		7,975			10,586		2,503			582			502			41,131
Net charge-offs to average loans (annualized)																							0.01	%
Allowance for credit losses to gross loans																							1.16	%
Allowance for credit losses to nonperforming loans																							953.25	%

									Nine months ended September 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction		Other			Total
Balance, beginning of period	$	4,700			10,518			625		4,887			7,083			1,697			578		320			30,408
Adjustment for CECL		(313	)		333			154		1,057			(294	)		438			130		(5	)		1,500
Provision for credit losses		918			(2,436	)		199		1,558			1,985			575			184		92			3,075
Loan charge-offs		-			-			-		(55	)		-			(339	)		-		(91	)		(485	)
Loan recoveries		-			1,540			-		196			-			82			-		1			1,819
Net loan recoveries (charge-offs)		-			1,540			-		141			-			(257	)		-		(90	)		1,334
Balance, end of period	$	5,305			9,955			978		7,643			8,774			2,453			892		317			36,317
Net recoveries to average loans (annualized)																								(0.06	)%
Allowance for credit losses to gross loans																								1.20	%
Allowance for credit losses to nonperforming loans																								1,388.87	%

The $100,000 reversal of the provision for credit losses for the three months ended September 30, 2023 was driven by net recoveries of $126,000 for the quarter combined with lower expected loss rates. The $2.9 million provision for credit losses for the nine months ended September 30, 2023 was driven by $280.3 million in loan growth for the period. In addition to loan growth, the provision for credit losses was impacted by lower expected loss rates due to continued low charge-offs during the first nine months of 2023, while minor adjustments to an internal qualitative factor increased the qualitative component of the allowance and related provision expense.

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

The following tables present an analysis of collateral-dependent loans of the Company as of September 30, 2023 and December 31, 2022.

					September 30, 2023
	Real		Business
(dollars in thousands)	estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		908		-		-		908
Construction		-		-		-		-
Business		244		-		-		244
Total commercial		1,152		-		-		1,152
Consumer
Real estate		386		-		-		386
Home equity		182		-		-		182
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		568		-		-		568
Total	$	1,720		-		-		1,720

					December 31, 2022
	Real		Business
(dollars in thousands)	estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		114		-		-		114
Construction		-		-		-		-
Business		30		-		-		30
Total commercial		144		-		-		144
Consumer
Real estate		207		-		-		207
Home equity		194		-		-		194
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		401		-		-		401
Total	$	545		-		-		545

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for credit losses for unfunded loan commitments was $2.2 million and $2.8 million at September 30, 2023 and December 31, 2022, respectively, and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and nine months ended September 30, 2023 and September 30, 2022.

	Three months ended			Three months ended
(dollars in thousands)	September 30, 2023			September 30, 2022
Balance, beginning of period	$	2,565			2,330
Adjustment for adoption of CECL		-			-
Provision for (reversal of) credit losses		(400	)		425
Balance, end of period	$	2,165			2,755
Unfunded Loan Commitments	$	780,581			840,912
Reserve for Unfunded Commitments to Unfunded Loan Commitments		0.28	%		0.33	%

	Nine months ended			Nine months ended
(dollars in thousands)	September 30, 2023			September 30, 2022
Balance, beginning of period	$	2,780			-
Adjustment for adoption of CECL		-			2,000
Provision for (reversal of) credit losses		(615	)		755
Balance, end of period	$	2,165			2,755
Unfunded Loan Commitments	$	780,581			840,912
Reserve for Unfunded Commitments to Unfunded Loan Commitments		0.28	%		0.33	%