Note 2 - Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Financing Receivables [Text Block]

Note 2: Loans and Allowance for Credit Losses

Loans

The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.

	June 30, 2023			December 31, 2022
Real estate construction	$	56,984		$	54,579
Consumer real estate		226,453			221,052
Commercial real estate		423,396			437,888
Commercial non real estate		56,079			57,652
Public sector and IDA		47,791			48,074
Consumer non real estate		36,236			33,948
Gross loans		846,939			853,193
Less unearned income and deferred fees and costs		(398	)		(449	)
Loans, net of unearned income and deferred fees and costs	$	846,541		$	852,744
Allowance for credit losses on loans		(10,626	)		(8,225	)
Total loans, net	$	835,915		$	844,519

Accrued interest receivable on loans, which is excluded from the amortized cost of loans, totaled $2,517 and $2,516 at June 30, 2023 and December 31, 2022, respectively.

Past Due and Nonaccrual Loans

The following tables present the aging of past due loans, by loan pool, as of the dates indicated.

	June 30, 2023
	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	14,094	$	-	$	-	$	-	$	14,094	$	-
Construction, other		42,890		-		-		-		42,890		-
Consumer Real Estate
Equity line		15,312		50		-		-		15,362		-
Residential closed-end first liens		123,820		527		7		87		124,441		94
Residential closed-end junior liens		4,085		-		-		-		4,085		-
Investor-owned residential real estate		82,243		322		-		-		82,565		-
Commercial Real Estate
Multifamily residential real estate		131,192		-		-		-		131,192		-
Commercial real estate owner-occupied		115,752		146		-		2,446		118,344		242
Commercial real estate, other		173,860		-		-		-		173,860		-
Commercial Non Real Estate
Commercial and industrial		55,517		19		1		542		56,079		1
Public Sector and IDA
States and political subdivisions		47,791		-		-		-		47,791		-
Consumer Non-Real Estate
Credit cards		4,637		6		10		-		4,653		10
Automobile		11,539		34		-		-		11,573		-
Other consumer loans		19,902		105		3		-		20,010		3
Total	$	842,634	$	1,209	$	21	$	3,075	$	846,939	$	350

	December 31, 2022
	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	12,538	$	-	$	-	$	-	$	12,538	$	-
Construction, other		42,041		-		-		-		42,041		-
Consumer Real Estate
Equity line		15,010		16		-		-		15,026		-
Residential closed-end first liens		121,807		750		-		91		122,648		91
Residential closed-end junior liens		2,446		-		-		-		2,446		-
Investor-owned residential real estate		80,524		408		-		-		80,932		-
Commercial Real Estate
Multifamily residential real estate		127,312		-		-		-		127,312		-
Commercial real estate owner-occupied		126,640		-		-		2,493		129,133		252
Commercial real estate, other		181,443		-		-		-		181,443		-
Commercial Non Real Estate
Commercial and industrial		57,373		16		-		263		57,652		-
Public Sector and IDA
States and political subdivisions		48,074		-		-		-		48,074		-
Consumer Non-Real Estate
Credit cards		4,592		3		2		-		4,597		2
Automobile		9,833		102		-		-		9,935		-
Other consumer loans		19,317		93		6		-		19,416		6
Total	$	848,950	$	1,388	$	8	$	2,847	$	853,193	$	351

The following table presents nonaccrual loans, by loan class, as of the dates indicated:

	CECL						Incurred Loss
	June 30, 2023						December 31, 2022
	Nonaccrual Loans						Nonaccrual Loans
	With No Allowance		With an Allowance		Total
Consumer Real Estate
Residential closed-end first liens	$	-	$	87	$	87	$	91
Commercial Real Estate
Commercial real estate owner-occupied		-		2,446		2,446		2,493
Commercial Non Real Estate
Commercial and industrial		-		542		542		263
Total	$	-	$	3,075	$	3,075	$	2,847

During the three and six months ended June 30, 2023, no accrued interest receivable was reversed against interest income.

The following table presents certain past due indicators as of the dates indicated.

	June 30,						December 31,
	2023			2022			2022
Ratio of ACLL to nonaccrual loans		345.56	%		270.86	%		288.90	%
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs		0.00	%		0.00	%		0.00	%

Allowance for Credit Losses on Loans

The following tables present the activity in the ACLL by portfolio segment for the periods indicated:

	Activity in the Allowance for Credit Losses on Loans for the Six Months Ended June 30, 2023
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, Dec. 31, 2022	$	450		$	2,199		$	3,642		$	930		$	319		$	506		$	179	$	8,225
Adoption of ASU 2016-13		(21	)		1,261			700			216			(15	)		72			129		2,342
Charge-offs		-			(17	)		-			(11	)		-			(132	)		-		(160	)
Recoveries		-			102			25			3			-			77			-		207
Provision for (recovery of) credit losses		47			(180	)		(26	)		78			(3	)		70			26		12
Balance, June 30, 2023	$	476		$	3,365		$	4,341		$	1,216		$	301		$	593		$	334	$	10,626

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, Dec. 31, 2021	$	422	$	1,930	$	3,121	$	1,099		$	297	$	444		$	361		$	7,674
Charge-offs		-		-		-		(2	)		-		(133	)		-			(135	)
Recoveries		-		-		24		6			-		56			-			86
Provision for (recovery of) loan losses		285		189		325		(307	)		39		95			(182	)		444
Balance, June 30, 2022	$	707	$	2,119	$	3,470	$	796		$	336	$	462		$	179		$	8,069

	Activity in the Allowance for Loan Losses for the Year Ended December 31, 2022
	Real Estate Construction		Consumer Real Estate			Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, Dec. 31, 2021	$	422	$	1,930		$	3,121	$	1,099		$	297	$	444		$	361		$	7,674
Charge-offs		-		(13	)		-		(2	)		-		(352	)		-			(367	)
Recoveries		-		29			49		11			-		123			-			212
Provision for (recovery of) loan losses		28		253			472		(178	)		22		291			(182	)		706
Balance, Dec. 31, 2022	$	450	$	2,199		$	3,642	$	930		$	319	$	506		$	179		$	8,225

The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.

	Allowance for Credit Losses on Loans as of June 30, 2023
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated	$	-	$	80	$	552	$	307	$	-	$	1	$	-	$	940
Collectively evaluated		476		3,285		3,789		909		301		592		334		9,686
Total	$	476	$	3,365	$	4,341	$	1,216	$	301	$	593	$	334	$	10,626

	Allowance for Loan Losses as of December 31, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non- Real Estate		Unallocated		Total
Individually evaluated	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated		450		2,199		3,642		930		319		506		179		8,225
Total	$	450	$	2,199	$	3,642	$	930	$	319	$	506	$	179	$	8,225

The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.

	Loans as of June 30, 2023
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	293	$	1,029	$	8,847	$	548	$	-	$	8	$	10,725
Collectively evaluated		56,691		225,424		414,549		55,531		47,791		36,228		836,214
Total	$	56,984	$	226,453	$	423,396	$	56,079	$	47,791	$	36,236	$	846,939

	Loans as of December 31, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non- Real Estate		Total
Individually evaluated	$	-	$	186	$	2,583	$	263	$	-	$	-	$	3,032
Collectively evaluated		54,579		220,866		435,305		57,389		48,074		33,948		850,161
Total	$	54,579	$	221,052	$	437,888	$	57,652	$	48,074	$	33,948	$	853,193

The following table presents ratios pertaining to the ACLL as of the dates and for the periods indicated.

	As of and for the
	Six Months Ended June 30,						Year Ended December 31,
	2023			2022			2022
Ratio of ACLL to the end of period loans, net of unearned income and deferred fees and costs		1.26	%		0.95	%		0.96	%
Ratio of net charge-offs (recoveries), annualized, to average loans, net of unearned income and deferred fees and costs		(0.01	)%		0.01	%		0.02	%

In accordance with CECL, the Company identifies individually evaluated loans when their risk characteristics become different from their pool.  Under previous GAAP, the Company identified loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. When the Company determined that it was probable all principal and interest amounts due would not be collected in accordance with the contractual terms of the loan agreement, the loan was generally deemed impaired and individually evaluated. For further information on the impairment process under previous GAAP, please refer to the Company’s 2022 Form 10-K. A summary of individually evaluated loans as of the date indicated follows.

	Individually Evaluated Loans under Incurred Loss as of December 31, 2022
	Principal Balance		Recorded Investment(1)		Recorded Investment(1) for Which There is No Related Allowance		Recorded Investment(1) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate
Investor-owned residential real estate	$	186	$	186	$	186	$	-	$	-
Commercial Real Estate
Commercial real estate, owner occupied		3,248		2,583		2,583		-		-
Commercial Non Real Estate
Commercial and industrial		285		263		263		-		-
Total	$	3,719	$	3,032	$	3,032	$	-	$	-

(1) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

The following table shows the average recorded investment and interest income recognized for individually evaluated loans under the incurred loss model for the period indicated. Only classes with individually evaluated loans are presented.

	For the Six Months Ended June 30, 2022
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate
Investor-owned residential real estate	$	189	$	6
Commercial Real Estate
Commercial real estate, owner occupied		2,626		3
Commercial real estate, other		2,719		34
Commercial Non-Real Estate
Commercial and industrial		286		-
Total	$	5,820	$	43

(1) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

Collateral Dependent Loans

The Company reviews individually evaluated loans for collateral dependency. Collateral dependent loans are loans for which repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Under ASU 2016-13, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of the 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. As of June 30, 2023, one of the Company’s individually evaluated loans was considered collateral dependent.

The following table details the amortized cost of the collateral dependent loan as of the date indicated:

	June 30, 2023
Consumer Real Estate
Residential closed-end first lien	$	7
Total Loans	$	7

Credit Quality

The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. General descriptions of risk ratings are as follows:

● Pass: loans with acceptable credit quality are rated pass.

● Special mention: loans with potential weaknesses due to challenging economic or financial conditions are rated special mention.

● Classified: loans with well-defined weaknesses that heighten the risk of default are rated classified.

The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of the date indicated.

	Term Loans Amortized Cost Basis by Origination Year
Balance at June 30, 2023	Prior		2019		2020		2021		2022		2023		Revolving		Revolving Loans Converted to Term		Total
Construction, residential
Pass	$	-	$	-	$	233	$	703	$	4,294	$	1,462	$	7,402	$	-	$	14,094
Classified		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	233	$	703	$	4,294	$	1,462	$	7,402	$	-	$	14,094
Construction, other
Pass	$	3,254	$	1,201	$	1,450	$	24,570	$	7,247	$	3,560	$	1,315	$	-	$	42,597
Classified		-		-		-		293		-		-		-		-		293
Total	$	3,254	$	1,201	$	1,450	$	24,863	$	7,247	$	3,560	$	1,315	$	-	$	42,890
Equity lines
Pass	$	55	$	-	$	-	$	-	$	-	$	-	$	15,294	$	13	$	15,362
Classified		-		-		-		-		-		-		-		-		-
Total	$	55	$	-	$	-	$	-	$	-	$	--	$	15,294	$	13	$	15,362
Residential closed-end first liens
Pass	$	34,228	$	6,023	$	14,971	$	32,396	$	29,086	$	7,433	$	-	$	-	$	124,137
Classified		304		-		-		-		-		-		-		-		304
Total	$	34,532	$	6,023	$	14,971	$	32,396	$	29,086	$	7,433	$	-	$	-	$	124,441
YTD gross charge-offs	$	-	$	-	$	17	$	-	$	-	$	-	$	-	$	-	$	17
Residential closed-end junior liens
Pass	$	1,847	$	120	$	-	$	178	$	401	$	1,539	$	-	$	-	$	4,085
Classified		-		-		-		-		-		-		-		-		-
Total	$	1,847	$	120	$	-	$	178	$	401	$	1,539	$	-	$	-	$	4,085
Investor-owned residential real estate
Pass	$	23,727	$	5,308	$	14,842	$	20,230	$	14,127	$	2,210	$	1,297	$	99	$	81,840
Classified		725		-		-		-		-		-		-		-		725
Total	$	24,452	$	5,308	$	14,842	$	20,230	$	14,127	$	2,210	$	1,297	$	99	$	82,565
Multifamily residential real estate
Pass	$	43,414	$	1,839	$	11,910	$	41,134	$	27,216	$	5,679	$	-	$	-	$	131,192
Classified		-		-		-		-		-		-		-		-		-
Total	$	43,414	$	1,839	$	11,910	$	41,134	$	27,216	$	5,679	$	-	$	-	$	131,192
Commercial real estate, owner occupied
Pass	$	45,878	$	11,389	$	23,909	$	4,978	$	16,843	$	3,751	$	2,749	$	-	$	109,497
Special mention		6,396		-		-		-		-		-		-		-		6,396
Classified		2,451		-		-		-		-		-		-		-		2,451
Total	$	54,725	$	11,389	$	23,909	$	4,978	$	16,843	$	3,751	$	2,749	$	-	$	118,344
Commercial real estate, other
Pass	$	71,694	$	22,223	$	19,489	$	36,621	$	22,906	$	356	$	571	$	-	$	173,860
Classified		-		-		-		-		-		-		-		-		-
Total	$	71,694	$	22,223	$	19,489	$	36,621	$	22,906	$	356	$	571	$	-	$	173,860
Commercial and industrial
Pass	$	6,519	$	925	$	9,708	$	14,654	$	7,935	$	4,093	$	11,697	$	-	$	55,531
Classified		242		-		-		-		6		-		300		-		548
Total	$	6,761	$	925	$	9,708	$	14,654	$	7,941	$	4,093	$	11,997	$	-	$	56,079
YTD gross charge-offs	$	-	$	11	$	-	$	-	$	-	$	-	$	-	$	-	$	11
Public sector and IDA
Pass	$	21,590	$	33	$	243	$	18,259	$	6,540	$	1,126	$	-	$	-	$	47,791
Classified		-		-		-		-		-		-		-		-		-
Total	$	21,590	$	33	$	243	$	18,259	$	6,540	$	1,126	$	-	$	-	$	47,791
Credit cards
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	4,653	$	-	$	4,653
Classified		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	4,653	$	-	$	4,653
YTD gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	19	$	-	$	19
Automobile
Pass	$	127	$	397	$	890	$	2,153	$	3,613	$	4,385	$	-	$	-	$	11,565
Classified		-		-		-		-		8		-		-		-		8
Total	$	127	$	397	$	890	$	2,153	$	3,621	$	4,385	$	-	$	-	$	11,573
YTD gross charge-offs	$	-	$	-	$	-	$	1	$	31	$	-	$	-	$	-	$	32
Other consumer
Pass	$	150	$	465	$	1,118	$	2,653	$	7,773	$	6,774	$	1,077	$	-	$	20,010
Classified		-		-		-		-		-		-		-		-		-
Total	$	150	$	465	$	1,118	$	2,653	$	7,773	$	6,774	$	1,077	$	-	$	20,010
YTD gross charge-offs	$	-	$	-	$	-	$	17	$	25	$	-	$	39	$	-	$	81
Total Loans
Pass	$	252,483	$	49,923	$	98,763	$	198,529	$	147,981	$	42,368	$	46,055	$	112	$	836,214
Special Mention		6,396		-		-		-		-		-		-		-		6,396
Classified		3,722		-		-		293		14		-		300		-		4,329
Total	$	262,601	$	49,923	$	98,763	$	198,822	$	147,995	$	42,368	$	46,355	$	112	$	846,939
YTD gross charge-offs	$	-	$	11	$	17	$	18	$	56	$	-	$	58	$	-	$	160

The following table presents the recorded investment by loan pool and credit quality as of December 31, 2022.

	December 31, 2022
	Pass		Special Mention		Classified
Real Estate Construction
Construction, 1-4 family residential	$	12,538	$	-	$	-
Construction, other		41,741		-		300
Consumer Real Estate
Equity lines		15,026		-		-
Residential closed-end first liens		122,187		-		461
Residential closed-end junior liens		2,446		-		-
Investor-owned residential real estate		80,143		-		603
Commercial Real Estate
Multifamily residential real estate		127,312		-		-
Commercial real estate owner-occupied		126,550		-		-
Commercial real estate, other		181,443		-		-
Commercial Non Real Estate
Commercial and industrial		57,381		-		8
Public Sector and IDA
States and political subdivisions		48,074		-		-
Consumer Non-Real Estate
Credit cards		4,597		-		-
Automobile		9,932		-		3
Other consumer		19,398		-		18
Total	$	848,768	$	-	$	1,393

Loan Modifications to Borrowers Experiencing Financial Difficulty

When the Company modifies a loan, an assessment is made to determine whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL. The Company modified one loan to a borrower experiencing financial difficulty during the three and six month periods ended June 30, 2023. During the three and six month periods ended June 30, 2022, no loans were modified for borrowers experiencing financial difficulty.

The following table presents the amortized cost basis as of June 30, 2023 of the loan modified for a borrower experiencing financial difficulty.

	Interest Only Payments
	Amortized Cost Basis		% of Portfolio			Financial Effect
Commercial Real Estate
Commercial real estate owner-occupied	$	6,396		5.40	%	6 months of interest only payments, after which remaining balance will be re-amortized to the contractual maturity date.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty. The commercial real estate owner-occupied loan is in current status as of June 30, 2023.

The Company analyzed its modified loan portfolio for loans that defaulted during the three and six month period ended June 30, 2023, and that were modified within 12 months prior to default. The Company designates three circumstances that indicate default: one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure after the date of modification. Of the Company’s modifications at June 30, 2023, none of the defaulted modifications were modified within 12 months prior to default.

ACL on Unfunded Commitments

The following table presents the balance and activity in the ACL for unfunded commitments for the six months ended June 30, 2023:

Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2022	$	35
Adoption of ASU 2016-13		207
Recovery of credit losses		(9	)
Balance, June 30, 2023	$	233