Note 8 - Loans Receivable, Net

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Financing Receivables [Text Block]

NOTE 8 - LOANS RECEIVABLE, NET

Loans receivable, net, consisted of the following as of the dates indicated below:

Dollars in thousands		March 31, 2024		December 31, 2023
Real Estate Loans:
Construction	$	114,769	$	104,508
Residential Mortgage		187,146		172,883
Commercial		267,585		264,802
Commercial and Agricultural Loans		28,919		33,286
Consumer Loans:
Home Equity Lines of Credit ("HELOC")		36,201		34,497
Other Consumer		24,512		24,520
Total Loans Held for Investment, Gross		659,132		634,496
Less:
Allowance for Credit Losses		12,842		12,569
Deferred Loan Fees		387		365
		13,229		12,934
Total Loans Receivable, Net	$	645,903	$	621,562

Credit Quality Indicators

The Company 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 Company to sufficient risk to warrant adverse classification but possess weaknesses.

Special Mention - Loans that do not currently expose the Company 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 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 tables present the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2024 and  December 31, 2023.

	March 31, 2024
	Term Loans by Year of Origination
Dollars in thousands		2024		2023		2022		2021		2020		Prior		Revolving		Total
Real Estate - Construction
Pass	$	13,423	$	36,314	$	17,113	$	15,269	$	1,476	$	1,946	$	5,413	$	90,954
Caution		1,644		4,053		12,753		571		38		662		316		20,037
Special Mention		36		—		28		—		—		1,555		—		1,619
Substandard		—		143		—		331		129		1,552		4		2,159
Total Real Estate - Construction		15,103		40,510		29,894		16,171		1,643		5,715		5,733		114,769
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Real Estate - Residential
Pass		4,783		29,442		40,601		11,319		14,015		25,737		9,651		135,548
Caution		1,861		15,588		10,808		6,277		4,547		5,473		144		44,698
Special Mention		217		2,283		157		426		388		227		—		3,698
Substandard		—		572		—		615		—		2,015		—		3,202
Total Real Estate - Residential		6,861		47,885		51,566		18,637		18,950		33,452		9,795		187,146
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Real Estate - Commercial
Pass		847		18,720		47,539		51,776		16,349		68,756		4,119		208,106
Caution		352		12,173		4,161		4,587		5,139		20,741		168		47,321
Special Mention		—		211		895		448		406		5,415		—		7,375
Substandard		—		—		339		55		—		4,389		—		4,783
Total Real Estate - Commercial		1,199		31,104		52,934		56,866		21,894		99,301		4,287		267,585
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Commercial and Agricultural
Pass		1,190		4,471		4,510		2,759		590		1,946		4,616		20,082
Caution		422		3,606		1,285		1,656		29		190		718		7,906
Special Mention		—		445		14		23		2		90		100		674
Substandard		—		11		—		81		—		59		106		257
Total Commercial and Agricultural		1,612		8,533		5,809		4,519		621		2,285		5,540		28,919
Current Period Gross Write-Offs		—		—		—		—		—		—		21		21
Home Equity Lines of Credit
Pass		—		—		—		—		—		—		29,581		29,581
Caution		—		—		—		—		—		—		5,695		5,695
Special Mention		—		—		—		—		—		—		351		351
Substandard		—		—		—		—		—		—		574		574
Total Home Equity Lines of Credit		—		—		—		—		—		—		36,201		36,201
Current Period Gross Write-Offs		—		—		—		—		—		—		—		—
Other Consumer
Pass		2,107		5,158		3,459		1,339		611		179		5,115		17,968
Caution		572		2,135		1,753		791		395		166		269		6,081
Special Mention		29		72		116		—		—		—		5		222
Substandard		—		74		32		79		37		8		11		241
Total Other Consumer		2,708		7,439		5,360		2,209		1,043		353		5,400		24,512
Current Period Gross Write-Offs		—		6		—		4		6		4		21		41
Total Loans	$	27,483	$	135,471	$	145,563	$	98,402	$	44,151	$	141,106	$	66,956	$	659,132
Total Current Period Gross Write-Offs	$	-	$	6	$	-	$	4	$	6	$	4	$	42	$	62

	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 - Residential
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 - Residential		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

Past Due and Nonaccrual Loans

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

	March 31, 2024
	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	$	551	$	—	$	631	$	1,182	$	113,587	$	114,769
Residential Real Estate		1,381		137		61		1,579		185,567		187,146
Commercial Real Estate		262		14		607		883		266,702		267,585
Commercial and Agricultural		369		59		2		430		28,489		28,919
Consumer HELOC		147		97		21		265		35,936		36,201
Other Consumer		162		74		84		320		24,192		24,512
Total	$	2,872	$	381	$	1,406	$	4,659	$	654,473	$	659,132

	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

At March 31, 2024 and December 31, 2023, the Company did not have any loans that were 90 days or more past due and still accruing interest. 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 nonaccrual loans by category at the dates indicated.

	March 31, 2024						December 31, 2023
	Nonaccrual Loans		Nonaccrual Loans		Total		Nonaccrual Loans		Nonaccrual Loans		Total
Dollars in thousands	with No Allowance		with an Allowance		Nonaccrual Loans		with No Allowance		with an Allowance		Nonaccrual Loans
Construction Real Estate	$	836	$	—	$	836	$	868	$	—	$	868
Residential Real Estate		1,213		—		1,213		1,307		—		1,307
Commercial Real Estate		3,989		—		3,989		4,125		—		4,125
Commercial and Agricultural		73		—		73		50		—		50
Consumer HELOC		402		—		402		413		—		413
Other Consumer		122		—		122		62		—		62
Total Nonaccrual Loans	$	6,635	$	—	$	6,635	$	6,825	$	—	$	6,825

The Company did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2024 and 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2024 and 2023:

	For the Three Months Ended March 31,
Dollars in thousands	2024		2023
Construction Real Estate	$	—	$	3
Residential Real Estate		4		1
Commercial Real Estate		5		—
Commercial and Agricultural		—		1
Consumer HELOC		—		—
Other Consumer		2		—
Total	$	11	$	5

Allowance for Credit Losses

The following tables show the activity in the allowance for credit losses on loans by category for the three months ended March 31, 2024 and 2023:

	Three Months Ended March 31, 2024
		Real Estate							Commercial and			Consumer
Dollars in thousands		Construction		Residential		Commercial			Agricultural			HELOC		Other			Total
Beginning Balance	$	1,828	$	3,551	$	5,052		$	808		$	731	$	599		$	12,569
Provision for (Reversal of) Credit Losses		162		302		(120	)		(88	)		30		14			300
Charge-Offs		—		—		—			(21	)		—		(41	)		(62	)
Recoveries		—		1		—			—			—		34			35
Ending Balance	$	1,990	$	3,854	$	4,932		$	699		$	761	$	606		$	12,842

	Three Months Ended March 31, 2023
	Real Estate								Commercial and			Consumer
Dollars in thousands	Construction			Residential		Commercial			Agricultural			HELOC			Other			Total
Beginning Balance	$	2,323		$	2,125	$	4,804		$	874		$	599		$	452		$	11,177
Adjustment to Allowance for Credit Loss on Adoption of ASU 2016-13		264			462		(340	)		112			108			179			785
(Reversal of) Provision for Loan Losses		(245	)		477		(205	)		155			(57	)		40			165
Charge-Offs		—			—		—			(16	)		—			(35	)		(51	)
Recoveries		4			8		5			5			22			6			50
Ending Balance	$	2,346		$	3,072	$	4,264		$	1,130		$	672		$	642		$	12,126

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:

• 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.

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

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

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

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

• 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 at the dates indicated:

Dollars in thousands	March 31, 2024		December 31, 2023
Construction Real Estate	$	631	$	643
Residential Real Estate		416		668
Commercial Real Estate		3,746		3,567
Commercial and Agricultural		—		—
Consumer HELOC		322		332
Total Loans	$	5,115	$	5,210

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.

Loan modifications made for borrowers experiencing financial difficulty typically have their impact already factored into the allowance for credit losses. This is due to the measurement methodologies used 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 each much be reported. The combination is at least two of the following: a term extension, principal forgiveness, and 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 $334,000 at March 31, 2024, compared to two modified loans with a combined balance of $342,000 at December 31, 2023.  The Company did not modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2024 or 2023.

As of March 31, 2024 and 2023, 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. The allowance for credit losses - unfunded commitments of $894,000 and $859,000 at March 31, 2024 and December 31, 2023, respectively, is separately classified on the balance sheet within "Other Liabilities."

The following tables present the balance and activity in the allowance for credit losses - unfunded loan commitments for the three months ended March 31, 2024 and 2023.

	For the Three Months Ended March 31,
Allowance for Credit Losses - Unfunded Commitments (Dollars in thousands)	2024		2023
Beginning Balance	$	859	$	—
Adjustment for adoption of ASU 2016-13		-		1,214
Provision (reversal of provision) for unfunded commitments		35		(165	)
Ending Balance	$	894	$	1,049