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Loan Quality | 12 Months Ended
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Dec. 31, 2022
Loan Quality [Abstract] |
Loan Quality | Note 6. Loan Quality Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either a pass or substandard rating based on the performance status of the loans. Substandard consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. Loans rated 1 – 4 are considered pass credits. Loans that are rated 5-Pass Watch are pass credits but have been identified as credits that are likely to warrant additional attention and monitoring. Loans rated 6-OAEM or worse begin to receive enhanced monitoring and reporting by the Bank. Loans rated 7-Substandard or 8-Doubtful exhibit the greatest financial weakness and present the greatest possible risk of loss to the Bank. Nonaccrual loans are rated no better than 7-Substandard. The following factors represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral. Loans not meeting the threshold for annual review are considered to be pass rated. Revolving and renewing debt loans are reviewed annually. The following table reports on the risk rating for those loans in the portfolio that are assigned an individual risk rating as of December 31, 2022 and 2021:
| Pass |  | OAEM |  | Substandard |  | Doubtful |  |  |
(Dollars in thousands) | (1-5) |  | (6) |  | (7) |  | (8) |  | Total
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens | $ | 144,377 |  | $ | — |  | $ | 120 |  | $ | — |  | $ | 144,497
Junior liens and lines of credit |  | 73,688 |  |  | — |  |  | — |  |  | — |  |  | 73,688
Total |  | 218,065 |  |  | — |  |  | 120 |  |  | — |  |  | 218,185
Residential real estate - construction |  | 24,393 |  |  | — |  |  | — |  |  | — |  |  | 24,393
Commercial real estate |  | 562,665 |  |  | 1,095 |  |  | 2,902 |  |  | — |  |  | 566,662
Commercial |  | 228,085 |  |  | 2,751 |  |  | 4,766 |  |  | — |  |  | 235,602
Consumer |  | 6,199 |  |  | — |  |  | — |  |  | — |  |  | 6,199
Total | $ | 1,039,407 |  | $ | 3,846 |  | $ | 7,788 |  | $ | — |  | $ | 1,051,041
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens | $ | 132,433 |  | $ | — |  | $ | 50 |  | $ | — |  | $ | 132,483
Junior liens and lines of credit |  | 71,906 |  |  | — |  |  | 38 |  |  | — |  |  | 71,944
Total |  | 204,339 |  |  | — |  |  | 88 |  |  | — |  |  | 204,427
Residential real estate - construction |  | 20,233 |  |  | — |  |  | 424 |  |  | — |  |  | 20,657
Commercial real estate |  | 486,903 |  |  | 19,006 |  |  | 16,870 |  |  | — |  |  | 522,779
Commercial |  | 244,315 |  |  | 49 |  |  | 179 |  |  | — |  |  | 244,543
Consumer |  | 6,406 |  |  | — |  |  | — |  |  | — |  |  | 6,406
Total | $ | 962,196 |  | $ | 19,055 |  | $ | 17,561 |  | $ | — |  | $ | 998,812
Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank. ‎ The following table presents the aging of payments in the loan portfolio as of December 31, 2022 and 2021:
(Dollars in thousands) |  |  |  |  | Loans Past Due and Still Accruing |  |  |  |  | Total
|  | Current |  | 30-59 Days |  | 60-89 Days |  | 90 Days+ |  | Total |  | Non-Accrual |  | Loans
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens |  | $ | 143,860 |  | $ | 340 |  | $ | 177 |  | $ | — |  | $ | 517 |  | $ | 120 |  | $ | 144,497
Junior liens and lines of credit |  |  | 73,198 |  |  | 490 |  |  | — |  |  | — |  |  | 490 |  |  | — |  |  | 73,688
Total |  |  | 217,058 |  |  | 830 |  |  | 177 |  |  | — |  |  | 1,007 |  |  | 120 |  |  | 218,185
Residential real estate - construction |  |  | 24,393 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 24,393
Commercial real estate |  |  | 566,013 |  |  | 649 |  |  | — |  |  | — |  |  | 649 |  |  | — |  |  | 566,662
Commercial |  |  | 234,871 |  |  | 681 |  |  | 50 |  |  | — |  |  | 731 |  |  | — |  |  | 235,602
Consumer |  |  | 6,152 |  |  | 29 |  |  | 5 |  |  | 13 |  |  | 47 |  |  | — |  |  | 6,199
Total |  | $ | 1,048,487 |  | $ | 2,189 |  | $ | 232 |  | $ | 13 |  | $ | 2,434 |  | $ | 120 |  | $ | 1,051,041
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens |  | $ | 132,224 |  | $ | 96 |  | $ | 113 |  | $ | — |  | $ | 209 |  | $ | 50 |  | $ | 132,483
Junior liens and lines of credit |  |  | 71,788 |  |  | 118 |  |  | — |  |  | — |  |  | 118 |  |  | 38 |  |  | 71,944
Total |  |  | 204,012 |  |  | 214 |  |  | 113 |  |  | — |  |  | 327 |  |  | 88 |  |  | 204,427
Residential real estate - construction |  |  | 20,233 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 424 |  |  | 20,657
Commercial real estate |  |  | 515,487 |  |  | 293 |  |  | 187 |  |  | — |  |  | 480 |  |  | 6,812 |  |  | 522,779
Commercial |  |  | 244,377 |  |  | 106 |  |  | — |  |  | — |  |  | 106 |  |  | 60 |  |  | 244,543
Consumer |  |  | 6,368 |  |  | 27 |  |  | 11 |  |  | — |  |  | 38 |  |  | — |  |  | 6,406
Total |  | $ | 990,477 |  | $ | 640 |  | $ | 311 |  | $ | — |  | $ | 951 |  | $ | 7,384 |  | $ | 998,812
Impaired loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss. Commercial loans are charged-off immediately upon identification of a loss. If a loan (commercial or mortgage) is collateral dependent (repayment provided solely by the collateral), the value of the collateral is determined and a partial charge-off may be recorded. Consumer loans are charged-off no later than 180 days past due. At December 31, 2022, the Bank had $120 thousand of residential properties in the process of foreclosure compared to $38 thousand at the end of 2021. Interest not recognized on nonaccrual loans was $6 thousand and $115 thousand for the years ended December 31, 2022 and 2021, respectively. In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement. Nonaccrual loans, excluding consumer purpose loans, and troubled-debt restructuring (TDR) loans are considered impaired. Commercial loans with a balance less than $250 thousand, and all consumer purpose loans are not included in the specific reserve analysis as impaired loans but are added to the general allocation pool. Impaired loans totaled $3.0 million at December 31, 2022 compared to $11.6 million at December 31, 2021. ‎ The following tables present information on impaired loans:
|  | Impaired Loans
|  | With No Allowance |  | With Allowance
(Dollars in thousands) |  |  |  |  | Unpaid |  |  |  |  | Unpaid |  |  |
|  | Recorded |  | Principal |  | Recorded |  | Principal |  | Related
December 31, 2022 |  | Investment |  | Balance |  | Investment |  | Balance |  | Allowance
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens |  | $ | 619 |  | $ | 619 |  | $ | — |  | $ | — |  | $ | —
Junior liens and lines of credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Total |  |  | 619 |  |  | 619 |  |  | — |  |  | — |  |  | —
Residential real estate - construction |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Commercial real estate |  |  | 2,331 |  |  | 2,331 |  |  | — |  |  | — |  |  | —
Commercial |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Total |  | $ | 2,950 |  | $ | 2,950 |  | $ | — |  | $ | — |  | $ | —
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
First liens |  | $ | 661 |  | $ | 661 |  | $ | — |  | $ | — |  | $ | —
Junior liens and lines of credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Total |  |  | 661 |  |  | 661 |  |  | — |  |  | — |  |  | —
Residential real estate - construction |  |  | 424 |  |  | 729 |  |  | — |  |  | — |  |  | —
Commercial real estate |  |  | 4,942 |  |  | 5,405 |  |  | 5,578 |  |  | 5,764 |  |  | 698
Commercial |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Total |  | $ | 6,027 |  | $ | 6,795 |  | $ | 5,578 |  | $ | 5,764 |  | $ | 698
|  | Twelve Months Ended
|  | December 31, 2022 |  | December 31, 2021
|  | Average |  | Interest |  | Average |  | Interest
(Dollars in thousands) |  | Recorded |  | Income |  | Recorded |  | Income
|  | Investment |  | Recognized |  | Investment |  | Recognized
Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |
First liens |  | $ | 641 |  | $ | 33 |  | $ | 657 |  | $ | 32
Junior liens and lines of credit |  |  | — |  |  | — |  |  | — |  |  | —
Total |  |  | 641 |  |  | 33 |  |  | 657 |  |  | 32
Residential real estate - construction |  |  | 106 |  |  | 105 |  |  | 469 |  |  | —
Commercial real estate |  |  | 7,765 |  |  | 369 |  |  | 14,530 |  |  | 341
Commercial |  |  | — |  |  | — |  |  | — |  |  | —
Total |  | $ | 8,512 |  | $ | 507 |  | $ | 15,656 |  | $ | 373
A loan is considered a troubled debt restructuring (TDR) if the creditor (the Bank), for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. These concessions may include lowering the interest rate, extending the maturity, reamortization of payment, or a combination of multiple concessions. The Bank reviews all loans rated 6-OAEM or worse when it is providing a loan restructure, modification or new credit facility to determine if the action is a TDR. If a TDR loan is placed on nonaccrual status, it remains on nonaccrual status for at least six months to ensure performance. The cash basis income recognized is the same as the accrual basis income. ‎ The following table presents TDR loans as of December 31, 2022 and 2021:
|  |  |  |  |  |  |  |  |  |  |  |  | Troubled Debt Restructurings
|  |  |  |  |  |  |  |  |  |  |  |  | Within the Last 12 Months
|  |  |  |  |  |  |  |  |  | That Have Defaulted
(Dollars in thousands) |  | Troubled Debt Restructurings |  | on Modified Terms
|  | Number of |  | Recorded |  |  |  |  |  |  |  | Number of |  | Recorded
|  | Contracts |  | Investment |  | Performing* |  | Nonperforming* |  | Contracts |  | Investment
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate - construction |  | — |  | $ | — |  | $ | — |  | $ | — |  | — |  | $ | —
Residential real estate |  | 5 |  |  | 619 |  |  | 619 |  |  | — |  | — |  |  | —
Commercial real estate - owner occupied |  | 3 |  |  | 783 |  |  | 783 |  |  | — |  | — |  |  | —
Commercial real estate - farmland |  | 3 |  |  | 1,466 |  |  | 1,466 |  |  | — |  | — |  |  | —
Commercial real estate - multi-family residential |  | — |  |  | — |  |  | — |  |  | — |  | — |  |  | —
Commercial real estate |  | 1 |  |  | 82 |  |  | 82 |  |  | — |  | — |  |  | —
Total |  | 12 |  | $ | 2,950 |  | $ | 2,950 |  | $ | — |  | — |  | $ | —
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential real estate - construction |  | 1 |  | $ | 424 |  | $ | — |  | $ | 424 |  | — |  | $ | —
Residential real estate |  | 5 |  |  | 661 |  |  | 661 |  |  | — |  | — |  |  | —
Commercial real estate - owner occupied |  | 4 |  |  | 1,161 |  |  | 1,161 |  |  | — |  | — |  |  | —
Commercial real estate - farmland |  | 4 |  |  | 1,664 |  |  | 1,664 |  |  | — |  | — |  |  | —
Commercial real estate - construction and land development |  | 1 |  |  | 1,360 |  |  | 1,360 |  |  | — |  | — |  |  | —
Commercial real estate |  | 2 |  |  | 294 |  |  | 294 |  |  | — |  | — |  |  | —
Total |  | 17 |  | $ | 5,564 |  | $ | 5,140 |  | $ | 424 |  | — |  | $ | —
*The performing status is determined by the loan’s compliance with the modified terms. There were no new TDR loans made during 2022. The following table presents new TDR loans made during 2021, concession granted and the recorded investment as of December 31, 2022:
|  | New During Period
Twelve Months Ended |  | Number of |  | Pre-TDR |  | After-TDR |  | Recorded |  |
December 31, 2021 |  | Contracts |  | Modification |  | Modification |  | Investment |  | Concession
Residential real estate |  | 1 |  | $ | 41 |  | $ | 50 |  | $ | 37 |  | multiple
Allowance for Loan Losses: Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the allowance for loan losses (ALL). The ALL is determined by segmenting the loan portfolio based on the loan’s collateral. When calculating the ALL, consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, historical charge-offs, the adequacy of the underlying collateral (if collateral dependent) and other relevant factors. The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the allowance for loan losses, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans. Management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy quarterly to the Board Enterprise Risk Management Committee of the Board of Directors. Management believes that the allowance for loan losses at December 31, 2022 is adequate. The following table shows the activity in the Allowance for Loan Loss (ALL), for the years ended December 31, 2022 and 2021:
|  | Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |
|  | First |  | Junior Liens & |  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | Liens |  | Lines of Credit |  | Construction |  | Real Estate |  | Commercial |  | Consumer |  | Unallocated |  | Total
ALL at December 31, 2021 |  | $ | 475 |  | $ | 252 |  | $ | 325 |  | $ | 8,168 |  | $ | 5,127 |  | $ | 130 |  | $ | 589 |  | $ | 15,066
Charge-offs |  |  | (20) |  |  | — |  |  | — |  |  | (1,451) |  |  | (71) |  |  | (102) |  |  | — |  |  | (1,644)
Recoveries |  |  | 48 |  |  | 2 |  |  | — |  |  | 1 |  |  | 26 |  |  | 26 |  |  | — |  |  | 103
Provision |  |  | (44) |  |  | (20) |  |  | 18 |  |  | 775 |  |  | (236) |  |  | 79 |  |  | 78 |  |  | 650
ALL at December 31, 2022 |  | $ | 459 |  | $ | 234 |  | $ | 343 |  | $ | 7,493 |  | $ | 4,846 |  | $ | 133 |  | $ | 667 |  | $ | 14,175
ALL at December 31, 2020 |  | $ | 555 |  | $ | 226 |  | $ | 294 |  | $ | 9,163 |  | $ | 5,679 |  | $ | 97 |  | $ | 775 |  | $ | 16,789
Charge-offs |  |  | — |  |  | — |  |  | (28) |  |  | (57) |  |  | (50) |  |  | (195) |  |  | — |  |  | (330)
Recoveries |  |  | — |  |  | 170 |  |  | — |  |  | 1 |  |  | 505 |  |  | 31 |  |  | — |  |  | 707
Provision |  |  | (80) |  |  | (144) |  |  | 59 |  |  | (939) |  |  | (1,007) |  |  | 197 |  |  | (186) |  |  | (2,100)
ALL at December 31, 2021 |  | $ | 475 |  | $ | 252 |  | $ | 325 |  | $ | 8,168 |  | $ | 5,127 |  | $ | 130 |  | $ | 589 |  | $ | 15,066
The following table shows the loans that were evaluated for the Allowance for Loan Loss (ALL) under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each category as of December 31, 2022 and 2021:
|  | Residential Real Estate 1-4 Family |  |  |  |  |  |  |  |  |  |  |  |  |
|  | First |  | Junior Liens & |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  | Liens |  | Lines of Credit |  | Construction |  | Real Estate |  | Commercial |  | Consumer |  | Unallocated |  | Total
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans evaluated for ALL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually |  | $ | 619 |  | $ | — |  | $ | — |  | $ | 2,331 |  | $ | — |  | $ | — |  | $ | — |  | $ | 2,950
Collectively |  |  | 143,878 |  |  | 73,688 |  |  | 24,393 |  |  | 564,331 |  |  | 235,602 |  |  | 6,199 |  |  | — |  |  | 1,048,091
Total |  | $ | 144,497 |  | $ | 73,688 |  | $ | 24,393 |  | $ | 566,662 |  | $ | 235,602 |  | $ | 6,199 |  | $ | — |  | $ | 1,051,041
ALL established for ‎ loans evaluated: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Collectively |  |  | 459 |  |  | 234 |  |  | 343 |  |  | 7,493 |  |  | 4,846 |  |  | 133 |  |  | 667 |  |  | 14,175
ALL at December 31, 2022 |  | $ | 459 |  | $ | 234 |  | $ | 343 |  | $ | 7,493 |  | $ | 4,846 |  | $ | 133 |  | $ | 667 |  | $ | 14,175
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans evaluated for ALL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually |  | $ | 661 |  | $ | — |  | $ | 424 |  | $ | 10,520 |  | $ | — |  | $ | — |  | $ | — |  | $ | 11,605
Collectively |  |  | 131,822 |  |  | 71,944 |  |  | 20,233 |  |  | 512,259 |  |  | 244,543 |  |  | 6,406 |  |  | — |  |  | 987,207
Total |  | $ | 132,483 |  | $ | 71,944 |  | $ | 20,657 |  | $ | 522,779 |  | $ | 244,543 |  | $ | 6,406 |  | $ | — |  | $ | 998,812
ALL established for ‎ loans evaluated: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually |  | $ | — |  | $ | — |  | $ | — |  | $ | 698 |  | $ | — |  | $ | — |  | $ | — |  | $ | 698
Collectively |  |  | 475 |  |  | 252 |  |  | 325 |  |  | 7,470 |  |  | 5,127 |  |  | 130 |  |  | 589 |  |  | 14,368
ALL at December 31, 2021 |  | $ | 475 |  | $ | 252 |  | $ | 325 |  | $ | 8,168 |  | $ | 5,127 |  | $ | 130 |  | $ | 589 |  | $ | 15,066

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