Note 4 - Loans Receivable, Net

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Financing Receivables [Text Block]

NOTE 4 - LOANS RECEIVABLE, NET

Loans receivable, net, at the dates indicated are summarized as follows:

	December 31,
	2023					2022
(Dollars in thousands)	Balance		% of Total Gross Loans			Balance		% of Total Gross Loans
Real Estate Loans:
Construction	$	104,508		16.5	%	$	112,794		20.1	%
Residential Mortgage		172,883		27.2	%		110,057		19.6	%
Commercial		264,802		41.7	%		252,154		44.9	%
Commercial and Agricultural Loans		33,286		5.3	%		30,648		5.5	%
Consumer Loans:
Home Equity Lines of Credit ("HELOC")		34,497		5.4	%		31,737		5.7	%
Other Consumer Loans		24,520		3.9	%		23,598		4.2	%
Total Loans Held For Investment, Gross		634,496		100.0	%		560,988		100.0	%
Less:
Allowance For Credit Losses		12,569					11,178
Deferred Loan Fees		365					806
		12,934					11,984
Loans Receivable Held For Investment, Net	$	621,562				$	549,004

Credit Quality Indicators

The Bank categorizes loans into risk categories based on relevant information regarding the borrowers' ability to pay off their loan in accordance with its terms. This information includes; but is not limited to, current financial and credit documentation, payment history, public information and current economic trends, among other factors. Risk ratings are used to rate the credit quality of loans for the purposes of determining the Bank’s allowance for credit losses. The following definitions are used for credit quality risk ratings:

Pass - loans that are performing and are deemed adequately protected by the net worth of the borrower or the underlying collateral value. These loans are considered to have the least amount of risk in terms of determining the allowance for credit losses.

Caution - loans that do not currently expose the Bank to sufficient risk to warrant adverse classification but possess weaknesses.

Special Mention - loans that do not currently expose the Bank to sufficient risk to warrant adverse classification but possess more weaknesses than Caution loans.

Substandard - loans that are considered to have the most risk. These loans typically have an identified weakness or weaknesses and are inadequately protected by the net worth of the borrower or collateral value. All loans 90 days or more past due are automatically classified in this category.

Doubtful - loans that have all of the weaknesses of Substandard loans and those weaknesses make collection or liquidation highly questionable and improbable based on current conditions and values.

Loss - loans that are considered uncollectible and of such little values that their continuance as assets is not warranted.

The following table presents the Company's recorded investment in loans, excluding loans held for sale, by credit quality indicators, loan segment and year of origination as of December 31, 2023.

	December 31, 2023
	Term Loans by Year of Origination
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Total
Real Estate - Construction
Pass	$	31,811	$	21,125	$	15,431	$	1,518	$	617	$	1,322	$	5,089	$	76,913
Caution		4,073		14,381		1,192		3,148		275		333		150		23,552
Special Mention		—		29		—		—		1,072		457		—		1,558
Substandard		143		310		333		133		1,474		92		—		2,485
Total Real Estate - Construction		36,027		35,845		16,956		4,799		3,438		2,204		5,239		104,508
Current Period Gross Write-Offs		—		—		—		—		—		1		—		1
Real Estate - Mortgage
Pass		28,352		36,426		12,290		14,164		3,991		22,239		9,708		127,170
Caution		15,050		10,397		5,954		1,497		1,546		4,134		149		38,727
Special Mention		2,291		158		430		394		—		190		—		3,463
Substandard		574		—		618		—		48		2,283		—		3,523
Total Real Estate - Mortgage		46,267		46,981		19,292		16,055		5,585		28,846		9,857		172,883
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Real Estate - Commercial
Pass		12,702		48,077		49,377		16,593		17,806		52,848		2,375		199,778
Caution		16,951		4,880		4,212		5,197		12,831		8,468		20		52,559
Special Mention		213		900		452		408		—		5,485		100		7,558
Substandard		—		342		57		—		—		4,508		—		4,907
Total Real Estate - Commercial		29,866		54,199		54,098		22,198		30,637		71,309		2,495		264,802
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Commercial and Agricultural
Pass		4,763		5,991		6,672		643		348		2,128		4,205		24,750
Caution		3,732		1,131		1,715		67		16		207		816		7,684
Special Mention		458		22		100		9		7		90		—		686
Substandard		—		—		—		1		—		62		103		166
Total Commercial and Agricultural		8,953		7,144		8,487		720		371		2,487		5,124		33,286
Current Period Gross Write-Offs		—		—		16		—		—		—		—		16
Home Equity Lines of Credit
Pass		—		—		—		—		—		—		27,192		27,192
Caution		—		—		—		—		—		—		6,290		6,290
Special Mention		—		—		—		—		—		—		401		401
Substandard		—		—		—		—		—		—		614		614
Total Home Equity Lines of Credit		—		—		—		—		—		—		34,497		34,497
Current Period Gross Write-Offs		—		—		—		—		—		—		1		1
Other Consumer
Pass		6,543		3,874		1,580		740		190		63		4,922		17,912
Caution		2,316		1,975		911		468		137		51		295		6,153
Special Mention		77		123		—		—		—		—		6		206
Substandard		67		36		73		48		10		6		9		249
Total Other Consumer		9,003		6,008		2,564		1,256		337		120		5,232		24,520
Current Period Gross Write-Offs		—		23		17		17		—		11		89		157
Total Loans	$	130,116	$	150,177	$	101,397	$	45,028	$	40,368	$	104,966	$	62,444	$	634,496
Total Current Period Gross Write-Offs	$	-	$	23	$	33	$	17	$	-	$	12	$	90	$	175

The table below summarizes the balance by credit quality rating and loan segment, excluding loans held for sale, at December 31, 2022.   

	Pass		Caution		Special Mention		Substandard		Total Loans
Construction Real Estate	$	91,564	$	18,838	$	2,014	$	378	$	112,794
Residential Real Estate		84,028		22,373		888		2,768		110,057
Commercial Real Estate		196,063		47,821		3,271		4,999		252,154
Commercial and Agricultural		25,384		4,593		371		300		30,648
Consumer HELOC		25,694		5,018		402		623		31,737
Other Consumer		16,515		6,725		179		179		23,598
Total Loans	$	439,248	$	105,368	$	7,125	$	9,247	$	560,988

Past Due and Non-accrual Loans

The following tables present an age analysis of past due balances by category at the dates indicated.

	December 31, 2023
	30-59 Days		60-89 Days		90 Days or						Total Loans
(Dollars in thousands)	Past Due		Past Due		More Past Due		Total Past Due		Current		Receivable
Construction Real Estate	$	971	$	—	$	643	$	1,614	$	102,894	$	104,508
Residential Real Estate		1,103		47		240		1,390		171,493		172,883
Commercial Real Estate		500		519		336		1,355		263,447		264,802
Commercial and Agricultural		81		1		2		84		33,202		33,286
Consumer HELOC		347		64		21		432		34,065		34,497
Other Consumer		273		138		46		457		24,063		24,520
Total	$	3,275	$	769	$	1,288	$	5,332	$	629,164	$	634,496

	December 31, 2022
	30-59 Days		60-89 Days		90 Days or						Total Loans
(Dollars in thousands)	Past Due		Past Due		More Past Due		Total Past Due		Current		Receivable
Construction Real Estate	$	—	$	—	$	100	$	100	$	112,694	$	112,794
Residential Real Estate		1,557		—		472		2,029		108,028		110,057
Commercial Real Estate		2,671		89		354		3,114		249,040		252,154
Commercial and Agricultural		6		2		55		63		30,585		30,648
Consumer HELOC		199		—		74		273		31,464		31,737
Other Consumer		272		79		17		368		23,230		23,598
Total	$	4,705	$	170	$	1,072	$	5,947	$	555,041	$	560,988

At December 31, 2023 and 2022, the Bank did not have any loans that were 90 days or more past due and still accruing interest. At December 31, 2023, $5.0 million in non-accrual loans were current, $472,000 were 30-59 days past due, and $123,000 were 60-89 days past due. The remaining non-accrual loans were 90 or more days past due. Our strategy is to work with our borrowers to reach acceptable payment plans while protecting our interests in the existing collateral.  In the event an acceptable arrangement cannot be reached, we may have to acquire these properties through foreclosure or other means and subsequently sell, develop, or liquidate them.

The following table shows non-accrual loans by category at the dates indicated.

	CECL						Incurred Loss
	December 31, 2023						December 31, 2022
	Nonaccrual Loans		Nonaccrual Loans		Total
(Dollars in thousands)		with No Allowance		with an Allowance		Nonaccrual Loans		Nonaccrual Loans
Construction Real Estate	$	868	$	—	$	868	$	115
Residential Real Estate		1,307		—		1,307		1,545
Commercial Real Estate		4,125		—		4,125		4,282
Commercial and Agricultural		50		—		50		113
Consumer HELOC		413		—		413		188
Other Consumer		62		—		62		29
Total Nonaccrual Loans	$	6,825	$	—	$	6,825	$	6,272

The Company did not recognize any interest income on nonaccrual loans during the year ended  December 31, 2023. The following table represents the accrued interest receivables written off by reversing interest income during the year ended  December 31, 2023 :

	For the Year Ended
(Dollars in thousands)	December 31, 2023
Construction Real Estate	$	22
Residential Real Estate		7
Commercial Real Estate		1
Commercial and Agricultural		1
Consumer HELOC		—
Other Consumer		3
Total Loans	$	34

Allowance for Credit Losses

The table below shows the activity in the allowance for credit losses on loans by loan category for the year ended year ended  December 31, 2023 under the CECL methodology.

	For the Year Ended December 31, 2023
	Real Estate								Commercial and			Consumer
(Dollars in thousands)	Construction			Residential		Commercial			Agricultural			HELOC			Other			Total
Beginning Balance	$	2,323		$	2,124	$	4,805		$	875		$	599		$	452		$	11,178
Adjustment to Allowance for Credit Loss on Adoption of ASU 2016-13		264			462		(341	)		112			108			179			784
Provision for (Reversal of) Credit Losses		(775	)		911		569			(189	)		(13	)		98			601
Charge-Offs		(1	)		—		—			(16	)		(1	)		(157	)		(175	)
Recoveries		17			54		19			26			38			27			181
Ending Balance	$	1,828		$	3,551	$	5,052		$	808		$	731		$	599		$	12,569

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the Incurred Loss methodology. The following table shows the activity in the allowance for loan losses by category for year ended December 31, 2022.

	For the Year Ended December 31, 2022
	Real Estate								Commercial and			Consumer
(Dollars in thousands)	Construction			Residential		Commercial			Agricultural			HELOC		Other			Total
Beginning Balance	$	2,401		$	1,663	$	4,832		$	1,242		$	518	$	431		$	11,087
Provision for (Reversal of) Credit Losses		(113	)		415		(160	)		(305	)		30		133			—
Charge-Offs		—			—		—			(105	)		—		(162	)		(267	)
Recoveries		35			46		133			43			51		50			358
Ending Balance	$	2,323		$	2,124	$	4,805		$	875		$	599	$	452		$	11,178

Allowance for Credit Losses and Collateral Dependent Loans

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral dependent loans:

o Commercial real estate loans can be secured by either owner occupied commercial real estate or non-owner occupied investment commercial real estate. Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

o Construction real estate loans are typically secured by commercial and residential lots.

o Commercial and agricultural business loans are primarily secured by business equipment, furniture and fixtures, inventory and receivables.

o Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

o Home equity lines of credit are generally secured by second mortgages on residential real estate property.

o Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.

The following table summarizes the amortized cost of collateral dependent loans:

(Dollars in thousands)	December 31, 2023
Construction Real Estate	$	643
Residential Real Estate		668
Commercial Real Estate		3,567
Commercial and Agricultural		—
Consumer HELOC		332
Other Consumer		—
Total	$	5,210

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. Non-accrual commercial loans under $200,000 and non-accrual consumer loans under $100,000 were considered immaterial and are excluded from the impairment review. The tables below include all loans deemed impaired, whether individually assessed for impairment or not. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

The table below summarizes the impaired loan balances evaluated individually and collectively for impairment within the allowance for loan losses and loans receivable balances under the Incurred Loss methodology at December 31, 2022.

	Allowance For Loan Losses						Loans Receivable
(Dollars in thousands)	Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total		Individually Evaluated For Impairment		Collectively Evaluated For Impairment		Total
Construction Real Estate	$	—	$	2,323	$	2,323	$	115	$	112,679	$	112,794
Residential Real Estate		—		2,124		2,124		1,089		108,968		110,057
Commercial Real Estate		—		4,805		4,805		4,282		247,872		252,154
Commercial and Agricultural		—		875		875		31		30,617		30,648
Consumer HELOC		—		599		599		49		31,688		31,737
Other Consumer		—		452		452		—		23,598		23,598
Total	$	—	$	11,178	$	11,178	$	5,566	$	555,422	$	560,988

The table below presents information related to impaired loans by loan category at December 31, 2022 under the Incurred Loss methodology.

	December 31, 2022
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
Impaired Loans (Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
Construction Real Estate	$	115	$	115	$	—	$	117	$	—
Residential Real Estate		1,089		1,626		—		1,133		—
Commercial Real Estate		4,282		4,282		—		4,382		—
Commercial and Agricultural		31		926		—		31		—
Consumer HELOC		49		49		—		52		—
Other Consumer		—		—		—		—		—
Total	$	5,566	$	6,998	$	—	$	5,715	$	—

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 asset 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. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Modifications made to borrowers experiencing financial difficulty typically have their impact already factored into the allowance for credit losses. This is due to the measurement methodologies utilized in estimating the allowance.  Consequently, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. As such multiple types of modifications may have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension, principal forgiveness, or interest rate reduction. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The Company had two modified loans with a combined balance of $342,000 at December 31, 2023, compared to two modified loans with a combined balance of $385,000 at December 31, 2022. The Company did not modify any loans to borrowers experiencing financial difficulty during the years ended  December 31, 2023 and 2022. As of December 31, 2023 and 2022, there were no loans modified with borrowers experiencing financial difficulty for which there was a payment default within 12 months of the restructuring date. The Company considers any loan 30 days or more past due to be in default.

Allowance for Credit Losses - Unfunded Commitments

The Company maintains an allowance for credit losses - unfunded commitments for credit exposures such as unfunded balances for existing lines of credit and commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time). The allowance for credit losses - unfunded commitments is adjusted through the provision for (reversal of) credit losses. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in this footnote. The allowance for credit losses - unfunded commitments at December 31, 2023 is separately classified on the balance sheet within "Other Liabilities."

The following table presents the balance and activity in the allowance for credit losses - unfunded loan commitments for the year ended December 31, 2023.

	Year Ended December 31, 2023
(Dollars in thousands)		Allowance for Credit Losses - Unfunded Commitments
Beginning Balance	$	—
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		1,214
Reversal of provision for unfunded commitments		(355	)
Ending Balance	$	859