Loans

12 Months Ended

Dec. 31, 2023

Loans and allowance for credit losses

Loans and allowance for credit losses

Note 3. Loans

Loans classified by type as of December 31, 2023 and 2022 are as follows (dollars in thousands):

	December 31, 2023				December 31, 2022
	Amount		%		Amount		%
Construction and land development
Residential	$	10,471	1.82	%	$	9,727	1.81	%
Commercial		37,024	6.44	%		35,400	6.57	%
		47,495	8.26	%		45,127	8.38	%
Commercial real estate
Owner occupied		122,666	21.33	%		119,643	22.22	%
Non-owner occupied		154,855	26.93	%		153,610	28.53	%
Multifamily		12,743	2.22	%		11,291	2.10	%
Farmland		326	0.06	%		73	0.01	%
		290,590	50.54	%		284,617	52.86	%
Consumer real estate
Home equity lines		21,557	3.75	%		18,421	3.42	%
Secured by 1-4 family residential,
First deed of trust		95,638	16.63	%		67,495	12.54	%
Second deed of trust		11,337	1.97	%		7,764	1.44	%
		128,532	22.35	%		93,680	17.40	%
Commercial and industrial loans
(except those secured by real estate)		86,203	14.99	%		90,348	16.78	%
Guaranteed student loans		17,923	3.12	%		20,617	3.83	%
Consumer and other		4,265	0.74	%		4,038	0.75	%
Total loans		575,008	100.0	%		538,427	100.0	%
Deferred and costs, net		803				588
Less: allowance for credit losses		(3,423)				(3,370)
	$	572,388			$	535,645

The Bank has a purchased portfolio of rehabilitated student loans guaranteed by the DOE. The guarantee covers approximately 98% of principal and accrued interest. The loans are serviced by a third-party servicer that specializes in handling the special needs of the DOE student loan programs.

Loans pledged as collateral with the FHLB as part of their lending arrangements with the Company totaled $35.5 million and $33.7 million as of December 31, 2023 and 2022, respectively.

The following is a summary of loans directly or indirectly with executive officers or directors of the Company for the years ended December 31, 2023 and 2022 (in thousands):

	2023		2022
Beginning balance	$	4,365	$	5,922
Additions		6,774		7,662
Effect of changes in composition of related parties		(160)		—
Reductions		(6,063)		(9,219)
Ending balance	$	4,916	$	4,365

Executive officers and directors also had unused credit lines totaling $774,000 and $2,223,000 at December 31, 2023 and 2022, respectively. Based on management’s evaluation all loans and credit lines to executive officers and directors were made in the ordinary course of business at the Company’s normal credit terms, including interest rate and collateralization prevailing at the time for comparable transactions with other persons.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is reversed.  Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table provides information on nonaccrual loans segregated by type at the dates indicated (in thousands):

	December 31,		December 31,
	2023		2022
Consumer real estate
Home equity lines	$	—	$	300
Secured by 1-4 family residential
First deed of trust		160		164
Second deed of trust		105		171
		265		635
Commercial and industrial loans
(except those secured by real estate)		26		19
Total loans	$	291	$	654

There were no individual allowances associated with the total nonaccrual loans of $291,000 and $654,000 at December 31, 2023 and December 31, 2022, respectively, that were considered collateral dependent.

The Company assigns risk rating classifications to its loans. These risk ratings are divided into the following groups:

● Risk rated 1 to 4 loans are considered of sufficient quality to preclude an adverse rating. These assets generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral;

● Risk rated 5 loans are defined as having potential weaknesses that deserve management’s close attention;

● Risk rated 6 loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any; and

● Risk rated 7 loans have all the weaknesses inherent in substandard loans, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following tables provide information on the risk rating of loans at the dates indicated (in thousands):

	Risk Rated		Risk Rated		Risk Rated		Risk Rated		Total
	1‑4		5		6		7		Loans
December 31, 2022
Construction and land development
Residential	$	9,727	$	—	$	—	$	—	$	9,727
Commercial		32,763		2,637		—		—		35,400
		42,490		2,637		—		—		45,127
Commercial real estate
Owner occupied		115,825		2,583		1,235		—		119,643
Non-owner occupied		143,458		10,152		—		—		153,610
Multifamily		11,291		—		—		—		11,291
Farmland		73		—		—		—		73
		270,647		12,735		1,235		—		284,617
Consumer real estate
Home equity lines		17,507		614		300		—		18,421
Secured by 1-4 family residential
First deed of trust		66,616		407		472		—		67,495
Second deed of trust		7,517		72		175		—		7,764
		91,640		1,093		947		—		93,680
Commercial and industrial loans
(except those secured by real estate)		83,848		6,481		19		—		90,348
Guaranteed student loans		20,617		—		—		—		20,617
Consumer and other		4,017		—		21		—		4,038
Total loans	$	513,259	$	22,946	$	2,222	$	—	$	538,427

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination.  Generally, current period renewals of credit are reunderwritten at the point of renewal and considered current period originations for purposes of the table below. As of December 31, 2023, based on the most recent analysis performed, the risk category of loans based on year of origination is as follows (in thousands):

																Revolving-	Total
	2023		2022		2021		2020			2019		Prior		Revolving		Term	Loans
December 31, 2023
Construction and land development
Residential
Pass	$	6,320	$	3,812	$	339	$	—	$	—	$	—	$	—	$	—	$	10,471
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Residential	$	6,320	$	3,812	$	339	$	—	$	—	$	—	$	—	$	—	$	10,471
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial
Pass		5,007		14,506		10,339		235		—		1,183		5,754		—		37,024
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Commercial	$	5,007	$	14,506	$	10,339	$	235	$	—	$	1,183	$	5,754	$	—	$	37,024
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Owner occupied
Pass		11,945		21,846		20,044		9,855		12,145		41,067		788		—		117,690
Special Mention		—		202		73		—		—		4,701		—		—		4,976
Substandard		—		—		—		—		—		—		—		—		—
Total Owner occupied	$	11,945	$	22,048	$	20,117	$	9,855	$	12,145	$	45,768	$	788	$	—	$	122,666
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-owner occupied
Pass		9,468		25,607		28,455		23,567		9,528		47,645		3,312		—		147,582

																Revolving-	Total
	2023		2022		2021		2020			2019		Prior		Revolving		Term	Loans
Special Mention		—		—		2,173		—		—		5,100		—		—		7,273
Substandard		—		—		—		—		—		—		—		—		—
Total Non-owner occupied	$	9,468	$	25,607	$	30,628	$	23,567	$	9,528	$	52,745	$	3,312	$	—	$	154,855
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Multifamily
Pass		1,300		—		2,503		548		885		6,113		1,394		—		12,743
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Multifamily	$	1,300	$	—	$	2,503	$	548	$	885	$	6,113	$	1,394	$	—	$	12,743
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland
Pass		—		—		—		—		—		26		300		—		326
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Farmland	$	—	$	—	$	—	$	—	$	—	$	26	$	300	$	—	$	326
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer real estate
Home equity lines
Pass		—		446		—		—		—		—		21,036		—		21,482
Special Mention		—		—		—		—		—		—		75		—		75
Substandard		—		—		—		—		—		—		—		—		—
Total Home equity lines	$	—	$	446	$	—	$	—	$	—	$	—	$	21,111	$	—	$	21,557
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential
First deed of trust
Pass		34,067		14,288		15,613		8,107		2,957		17,427		2,125		—		94,584
Special Mention		—		—		—		170		—		724		—		—		894
Substandard		—		—		—		—		—		160		—		—		160
Total First deed of trust	$	34,067	$	14,288	$	15,613	$	8,277	$	2,957	$	18,311	$	2,125	$	—	$	95,638
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Second deed of trust
Pass		4,530		3,207		1,027		397		1,067		626		266		—		11,120
Special Mention		—		—		—		—		45		67		—		—		112
Substandard		—		—		—		—		—		105		—		—		105
Total Second deed of trust	$	4,530	$	3,207	$	1,027	$	397	$	1,112	$	798	$	266	$		$	11,337
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial loans
(except those secured by real estate)
Pass		15,022		15,900		15,321		5,634		2,852		3,698		27,068		—		85,495
Special Mention		37		—		—		—		318		22		306		—		683
Substandard		—		—		—		13		—		12		—		—		25
Total Commercial and industrial	$	15,059	$	15,900	$	15,321	$	5,647	$	3,170	$	3,732	$	27,374	$	—	$	86,203
Current period gross writeoff	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Guaranteed student loans
Pass		—		—		—		—		—		17,923		—		—		17,923
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Guaranteed student loans	$	—	$	—	$	—	$	—	$	—	$	17,923	$	—	$	—	$	17,923
Current period gross writeoff	$	30	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer and other
Pass		455		483		123		50		17		11		3,126		—		4,265
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Total Consumer and other	$	455	$	483	$	123	$	50	$	17	$	11	$	3,126	$		$	4,265
Current period gross writeoff	$	3	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Current period gross writeoff	$	33	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total loans	$	88,151	$	100,297	$	96,010	$	48,576	$	29,814	$	146,610	$	65,550	$	—	$	575,008

The following tables present the aging of the recorded investment in past due loans as of the dates indicated (in thousands):

					Greater								Investment >
	30‑59 Days		60‑89 Days		Than		Total Past				Total		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
December 31, 2023
Construction and land development
Residential	$	—	$	—	$	—	$	—	$	10,471	$	10,471	$	—
Commercial		—		—		—		—		37,024		37,024		—
		—		—		—		—		47,495		47,495		—
Commercial real estate
Owner occupied		—		—		—		—		122,666		122,666		—
Non-owner occupied		—		—		—		—		154,855		154,855		—
Multifamily		—		—		—		—		12,743		12,743		—
Farmland		—		—		—		—		326		326		—
		—		—		—		—		290,590		290,590		—
Consumer real estate
Home equity lines		83		25		—		108		21,449		21,557		—
Secured by 1‑4 family residential
First deed of trust		—		—		—		—		95,638		95,638		—
Second deed of trust		33		—		—		33		11,304		11,337		—
		116		25		—		141		128,391		128,532		—
Commercial and industrial loans
(except those secured by real estate)		—		—		—		—		86,203		86,203		—
Guaranteed student loans		690		493		2,228		3,411		14,512		17,923		2,228
Consumer and other		734		—		—		734		3,531		4,265		—
Total loans	$	1,540	$	518	$	2,228	$	4,286	$	570,722	$	575,008	$	2,228

													Recorded
					Greater								Investment >
	30-59 Days		60-89 Days		Than		Total Past				Total		90 Days and
	Past Due		Past Due		90 Days		Due		Current		Loans		Accruing
December 31, 2022
Construction and land development
Residential	$	—	$	—	$	—	$	—	$	9,727	$	9,727	$	—
Commercial		—		—		—		—		35,400		35,400		—
		—		—		—		—		45,127		45,127		—
Commercial real estate
Owner occupied		—		—		—		—		119,643		119,643		—
Non-owner occupied		—		—		—		—		153,610		153,610		—
Multifamily		—		—		—		—		11,291		11,291		—
Farmland		—		—		—		—		73		73		—
		—		—		—		—		284,617		284,617		—
Consumer real estate
Home equity lines		—		50		—		50		18,371		18,421		—
Secured by 1-4 family residential
First deed of trust		—		—		—		—		67,495		67,495		—
Second deed of trust		54		—		—		54		7,710		7,764		—
		54		50		—		104		93,576		93,680		—
Commercial and industrial loans
(except those secured by real estate)		1,022		—		377		1,399		88,949		90,348		—
Guaranteed student loans		831		390		1,725		2,946		17,671		20,617		1,725
Consumer and other		—		—		—		—		4,038		4,038		—
Total loans	$	1,907	$	440	$	2,102	$	4,449	$	533,978	$	538,427	$	1,725

Loans greater than 90 days past due consist of student loans that are guaranteed by the DOE which covers approximately 98% of the principal and interest. Accordingly, these loans will not be placed on nonaccrual status and are not considered to be impaired.

Loans that are individually evaluated for credit losses are limited to loans that have specific risk characteristics that are not shared by other loans and based on current information and events it is probable the Company will be unable to collect all amounts when due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. The repayment of these loans is expected to be substantially through the operations or the sale of the collateral. The allowance for credit losses on loans that are individually evaluated will be measured based on the fair value of the collateral either through operations or the sale of the collateral. When repayment is expected through the sale of the collateral, the allowance will be based on the fair value of the collateral less estimated costs to sell. Collateral

dependent loans, or portions thereof, are charged off when deemed uncollectible. Collateral dependent loans are set forth in the following table as of the dates indicated (in thousands):

	December 31, 2023						December 31, 2022
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded
Commercial real estate
Owner occupied	$	—	$	—	$	—	$	4,332	$	4,347	$	—
Non-owner occupied		—		—		—		312		312		—
		—		—		—		4,644		4,659		—
Consumer real estate
Home equity lines		—		—		—		300		300		—
Secured by 1‑4 family residential
First deed of trust		160		160		—		1,745		1,745		—
Second deed of trust		105		105		—		195		300		—
		265		265		—		2,240		2,345		—
Commercial and industrial loans
(except those secured by real estate)		26		26		—		19		19		—
		291		291		—		6,903		7,023		—
With an allowance recorded
Commercial real estate
Owner occupied		—		—		—		251		251		2
		—		—		—		251		251		2
Consumer real estate
Secured by 1-4 family residential
First deed of trust		—		—		—		136		136		6
		—		—		—		136		136		6
Consumer and other		—		—		—		21		21		1
		—		—		—		408		408		9
Total
Owner occupied		—		—		—		4,583		4,598		2
Non-owner occupied		—		—		—		312		312		—
		—		—		—		4,895		4,910		2
Consumer real estate
Home equity lines		—		—		—		300		300		—
Secured by 1-4 family residential,
First deed of trust		160		160		—		1,881		1,881		6
Second deed of trust		105		105		—		195		300		—
		265		265		—		2,376		2,481		6
Commercial and industrial loans
(except those secured by real estate)		26		26		—		19		19		—
Consumer and other		—		—		—		21		21		1
	$	291	$	291	$	—	$	7,311	$	7,431	$	9

The following is a summary of average recorded investment in individually evaluated loans with and without valuation allowance and interest income recognized on those loans for periods indicated (in thousands):

	December 31,
	2023				2022
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded
Commercial real estate
Owner occupied	$	1,166	$	208	$	4,339	$	159
Non-owner occupied		—		—		857		20
		1,166		208		5,196		179
Consumer real estate
Home equity lines		74		—		300		27
Secured by 1-4 family residential
First deed of trust		169		8		1,798		70
Second deed of trust		108		4		217		10
		351		12		2,315		107
Commercial and industrial loans
(except those secured by real estate)		57		8		94		4
		1,574		228		7,605		290
With an allowance recorded
Commercial real estate
Owner occupied		—		—		257		15
		—		—		257		15
Consumer real estate
Secured by 1-4 family residential
First deed of trust		—		—		121		7
Second deed of trust		—		—		49		—
		—		—		170		7
Consumer and other		—		—		11		—
		—		—		438		22
Total
Commercial real estate
Owner occupied		1,166		208		4,596		174
Non-owner occupied		—		—		857		20
		1,166		208		5,453		194
Consumer real estate
Home equity lines		74		—		300		27
Secured by 1-4 family residential,
First deed of trust		169		8		1,919		77
Second deed of trust		108		4		266		10
		351		12		2,485		114
Commercial and industrial loans
(except those secured by real estate)		57		8		94		4
Consumer and other		—		—		11		—
	$	1,574	$	228	$	8,043	$	312

Loan Modifications to Borrowers in Financial Difficulty

As part of its credit risk management, the Company may modify a loan agreement with a borrower experiencing financial difficulties through a refinancing or restructuring of the borrower’s loan agreement. There were no modified loans identified during the year ended December 31, 2023.

Prior Period Troubled Debt Restructuring Disclosures

Prior to adopting the new accounting standard on loan modifications, the Company accounted for modifications of loans to borrowers experiencing financial difficulties as TDRs, when the modification resulted in a concession. The following discussion reflects loans that are considered TDRs prior to January 1, 2023.

Included in impaired loans are loans classified as TDRs. A modification of a loan’s terms constitutes a TDR if the creditor grants a concession to the borrower for economic or legal reasons related to the borrower’s financial difficulties that it would not otherwise consider. For loans classified as impaired TDRs, the Company further evaluates the loans as performing or nonaccrual. To restore a nonaccrual loan that has been formally restructured in a TDR to accrual status, we perform a current, well documented credit analysis supporting a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised terms. Otherwise, the TDR must remain in nonaccrual status. The analysis considers the borrower’s sustained historical repayment performance for a reasonable period to the return-to-accrual date, but may take into account payments made for a reasonable period prior to the restructuring if the payments are consistent with the modified terms. A sustained period of repayment performance generally would be a minimum of six months and would involve payments in the form of cash or cash equivalents.

An accruing loan that is modified in a TDR can remain in accrual status if, based on a current well-documented credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before modification. The following is a summary of performing and nonaccrual TDRs and the related specific valuation allowance by portfolio segment as of December 31, 2022 (dollars in thousands).

							Specific
							Valuation
	Total		Performing		Nonaccrual		Allowance
December 31, 2022
Commercial real estate
Owner occupied	$	3,348	$	3,348	$	—	$	2
Non-owner occupied		312		312		—		—
		3,660		3,660		—		2
Consumer real estate
Secured by 1-4 family residential
First deeds of trust		1,409		1,409		—		6
Second deeds of trust		75		19		56		—
		1,484		1,428		56		6
Commercial and industrial loans
(except those secured by real estate)		19		—		19		—
	$	5,163	$	5,088	$	75	$	8
Number of loans		24		22		2		3

There were no new TDRs identified for the year ended December 31, 2022

A TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due. The specific reserve associated with a TDR is reevaluated when a TDR payment default occurs. There were no defaults on TDRs that were modified as TDRs during the twelve-month period ended December 31, 2022.