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Note 5 - Allowance for Loan Losses on Loans and Nonperforming Assets
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]

Note 5: Allowance for Credit Losses on Loans and Nonperforming Assets

Please refer to Note 1: Summary of Significant Accounting Policies for information on evaluation of collectively evaluated loans and individually evaluated loans and associated reserves, and policies regarding nonaccruals, past due status and charge-offs.

A detailed analysis showing the allowance roll-forward by portfolio segment for the periods indicated follows:

 

  

Activity in the Allowance for Credit Losses on Loans for the Year Ended December 31, 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, December 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)  -   (214)  -   (247)  -   (478)

Recoveries

  -   103   45   6   -   129   -   283 

(Recovery of) provision for credit losses

  (21)  (384)  (811)  (256)  29   123   42   (1,278)

Balance, December 31, 2023

 $408  $3,162  $3,576  $682  $333  $583  $350  $9,094 

 

  Activity in the Allowance for Loan Losses by Segment 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, December 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, December 31, 2022

 $450  $2,199  $3,642  $930  $319  $506  $179  $8,225 

 

 

A detailed analysis showing the allowance and loan portfolio by segment and evaluation method as of the dates indicated follows:

 

  

Allowance for Credit Losses on Loans by Segment and Evaluation Method as of

 

December 31, 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

 $-  $74  $367  $126  $-  $5  $-  $572 

Collectively evaluated

  408   3,088   3,209   556   333   578   350   8,522 

Total

 $408  $3,162  $3,576  $682  $333  $583  $350  $9,094 

 

  

Loans by Segment and Evaluation Method as of

 

December 31, 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

 $286  $1,183  $8,805  $227  $-  $43  $10,544 

Collectively evaluated

  55,093   240,381   410,325   41,328   60,551   38,953   846,631 

Total

 $55,379  $241,564  $419,130  $41,555  $60,551  $38,996  $857,175 

 

  

Allowance for Loan Losses by Segment and Evaluation Method 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 

 

  

Loans by Segment and Evaluation Method 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 

 

A summary of ratios for the allowance for credit losses, as of the dates indicated, follows:

 

  

December 31,

 
  

2023

  

2022

 

Ratio of ACLL to the end of period loans, net of unearned income and deferred fees and costs

  1.06%  0.96%

Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs

  0.02%  0.02%

 

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

 

  

CECL

  

Incurred Loss

 
  

December 31, 2023

  

December 31, 2022

 

Nonaccrual Loans

 

With No

Allowance

  

With an

Allowance

  

Total

     

Consumer Real Estate

                

Residential closed-end first liens

 $-  $-  $-  $91 

Commercial Real Estate

                

Commercial real estate owner-occupied

  2,177   231   2,408   2,493 

Commercial Non-Real Estate

                

Commercial and industrial

  -   221   221   263 

Total

 $2,177  $452  $2,629  $2,847 

 

 

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 Year Ended December 31, 2022

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate

        

Investor-owned residential real estate

 $188  $13 

Commercial Real Estate

        

Commercial real estate, owner occupied

  2,587   5 

Commercial real estate, other

  729   - 

Commercial Non-Real Estate

        

Commercial and industrial

  272   - 

Total

 $3,776  $18 

 

 

(1)

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

 

 

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

 

December 31, 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

 $13,442  $-  $-  $-  $13,442  $- 

Construction, other

  41,916   21   -   -   41,937   - 

Consumer Real Estate

                        

Equity line

  17,178   104   -   -   17,282   - 

Residential closed-end first liens

  124,886   662   131   -   125,679   131 

Residential closed-end junior liens

  5,027   12   -   -   5,039   - 

Investor-owned residential real estate

  93,564   -   -   -   93,564   - 

Commercial Real Estate

                        

Multifamily residential real estate

  119,052   195   -   -   119,247   - 

Commercial real estate owner-occupied

  114,477   336   -   2,408   117,221   231 

Commercial real estate, other

  182,662   -   -   -   182,662   - 

Commercial Non-Real Estate

                        

Commercial and industrial

  41,249   57   28   221   41,555   28 

Public Sector and IDA

                        

States and political subdivisions

  60,551   -   -   -   60,551   - 

Consumer Non-Real Estate

                        

Credit cards

  4,648   17   3   -   4,668   3 

Automobile

  12,126   135   -   -   12,261   - 

Other consumer loans

  21,934   107   26   -   22,067   26 

Total

 $852,712  $1,646  $188  $2,629  $857,175  $419 

 

 

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 

 

Collateral Dependent Loans

 

Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACL on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU 2016-13. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACL is required.

As of December 31, 2023, three of the Company’s individually evaluated loans were considered collateral dependent, and all are secured by real estate. The following table provides details on collateral dependent loans:

 

December 31, 2023

 

Amortized Cost

  

Related Allowance

 

Consumer Real Estate

        

Residential closed-end first lien

 $7  $- 

Commercial Real Estate

        

Commercial real estate owner-occupied

  2,177   - 

Total Loans

 $2,184  $- 

 

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

  

 

  

Revolving

Loans

  

 

 
December 31, 2023 

Prior

  

2019

  

2020

  

2021

  

2022

  

2023

  Revolving  

Converted

to Term

  Total 

Construction, residential

                                    

Pass

 $-  $-  $246  $158  $3,275  $5,157  $4,606  $-  $13,442 

Construction, other

                                    

Pass

 $2,741  $1,094  $1,305  $12,671  $17,397  $4,884  $1,559  $-  $41,651 

Classified

  -   -   -   286   -   -   -   -   286 

Total

 $2,741  $1,094  $1,305  $12,957  $17,397  $4,884  $1,559  $-  $41,937 

Equity lines

                                    

Pass

 $51  $-  $-  $-  $-  $-  $17,182  $-  $17,233 

Classified

  -   -   -   -   -   -   49   -   49 

Total

 $51  $-  $-  $-  $-  $-  $17,231  $-  $17,282 

Residential closed-end first liens

                                 

Pass

 $32,404  $5,806  $14,634  $31,414  $29,787  $11,208  $-  $-  $125,253 

Classified

  426   -   -   -   -   -   -   -   426 

Total

 $32,830  $5,806  $14,634  $31,414  $29,787  $11,208  $-  $-  $125,679 

YTD gross charge-offs

 $-  $-  $17  $-  $-  $-  $-  $-  $17 

Residential closed-end junior liens

                                 

Pass

 $1,499  $116  $-  $172  $1,387  $1,850  $-  $15  $5,039 

Investor-owned residential real estate

                                 

Pass

 $24,556  $5,162  $23,649  $19,062  $14,166  $4,880  $1,283  $98  $92,856 

Classified

  708   -   -   -   -   -   -   -   708 

Total

 $25,264  $5,162  $23,649  $19,062  $14,166  $4,880  $1,283  $98  $93,564 

Multifamily residential real estate

                                 

Pass

 $40,092  $1,806  $2,148  $40,544  $25,681  $8,850  $126  $-  $119,247 

Commercial real estate, owner occupied

                                 

Pass

 $41,573  $11,091  $23,407  $4,792  $16,720  $7,914  $2,919  $-  $108,416 

Special mention

  6,396   -   -   -   -   -   -   -   6,396 

Classified

  2,409   -   -   -   -   -   -   -   2,409 

Total

 $50,378  $11,091  $23,407  $4,792  $16,720  $7,914  $2,919  $-  $117,221 

Commercial real estate, other

                                 

Pass

 $68,889  $21,841  $19,098  $36,157  $22,697  $13,279  $701  $-  $182,662 

Commercial and industrial

                                 

Pass

 $6,004  $438  $1,060  $12,667  $6,954  $6,938  $7,267  $-  $41,328 

Classified

  220   -   -   -   7   -   -   -   227 

Total

 $6,224  $438  $1,060  $12,667  $6,961  $6,938  $7,267  $-  $41,555 

YTD gross charge-offs

 $-  $12  $-  $-  $-  $12  $190  $-  $214 

Public sector and IDA

                                    

Pass

 $20,817  $-  $235  $26,702  $6,335  $6,462  $-  $-  $60,551 

Credit cards

                                    

Pass

 $-  $-  $-  $-  $-  $-  $4,668  $-  $4,668 

YTD gross charge-offs

 $-  $-  $-  $-  $-  $-  $39  $-  $39 

Automobile

                                    

Pass

 $78  $204  $563  $1,619  $2,750  $7,047  $-  $-  $12,261 

YTD gross charge-offs

 $-  $3  $-  $1  $38  $-  $-  $-  $42 

Other Consumer

                                    

Pass

 $93  $334  $811  $1,943  $5,815  $12,356  $672  $-  $22,024 

Special mention

  -   -   -   -   -   17   -   -   17 

Classified

  -   -   -   -   11   15   -   -   26 

Total

 $93  $334  $811  $1,943  $5,826  $12,388  $672  $-  $22,067 

YTD gross charge-offs

 $-  $-  $-  $19  $52  $95  $-  $-  $166 

Total Loans

                                    

Pass

 $238,797  $47,892  $87,156  $187,901  $152,964  $90,825  $40,983  $113  $846,631 

Special mention

  6,396   -   -   -   -   17   -   -   6,413 

Classified

  3,763   -   -   286   18   15   49   -   4,131 

Total

 $248,956  $47,892  $87,156  $188,187  $152,982  $90,857  $41,032  $113  $857,175 

YTD gross charge-offs

 $-  $15  $17  $20  $90  $107  $229  $-  $478 

 

 

The following table presents the recorded investment of collectively evaluated loans by loan pool and credit quality as of the date indicated.

 

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

The Company modifies loans for a variety of reasons. At the date of modification, the Company assesses 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 year ended December 31, 2023. The following table presents information on the modification.

 

  

Interest Only Payments

Year Ended December 31, 2023

 

Amortized

Cost Basis

  

% of Portfolio

  

Financial Effect

Commercial Real Estate

          

Commercial real estate owner-occupied

 $6,396   5.46% 

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 December 31, 2023. The loan is rated special mention and is individually evaluated using the discounted cash flow method, resulting in a specific reserve of $347.

There were no loans to borrowers experiencing financial difficulty that defaulted during the year ended December 31, 2023 and were modified in the twelve months prior to that 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.

Under GAAP in effect for December 31, 2022, the Company reported TDRs totaling $3,032. No new TDRs were recognized during 2022. Of the Company’s TDRs in default status as of December 31, 2022, none were modified within 12 months prior to default.

 

 

ACL on Unfunded Commitments

 

The following table presents information on the ACL for unfunded commitments for the year ended December 31, 2023:

 

Allowance for Credit Losses on Unfunded Commitments

 

Balance, December 31, 2022

 $35 

Adoption of ASU 2016-13

  207 

Provision for credit losses

  17 

Balance, December 31, 2023

 $259