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Note 3 - Loans

3 Months Ended

Mar. 31, 2024

Loans, Notes, Trade and Other Receivables, Excluding Allowance for Credit Losses [Text Block]

Note 3. Loans

Loans at March 31, 2024 and December 31, 2023 are summarized as follows (in thousands):

	March 31, 2024			December 31, 2023
Real estate loans:
Construction and land development	$	53,364		$	52,680
Secured by 1-4 family residential		347,014			344,369
Other real estate loans		445,085			447,272
Commercial and industrial loans		113,562			113,074
Consumer and other loans		13,949			12,035
Total loans	$	972,974		$	969,430
Allowance for credit losses		(12,603	)		(11,974	)
Loans, net	$	960,371		$	957,456

Net deferred loan fees included in the above loan categories were $1.1 million and $1.1 million at March 31, 2024 and December 31, 2023, respectively. Unamortized premiums on loans purchased from a third-party loan originator are included in the commercial and industrial loan categories and totaled $7.4 million as of March 31, 2024 and $7.9 million as of December 31, 2023. Consumer and other loans included $251 thousand and $222 thousand of demand deposit overdrafts at March 31, 2024 and December 31, 2023, respectively.

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The principal balance of purchased loans is included in the allowance for credit losses calculation. The remaining net discount on purchased loans at March 31, 2024 was $1.8 million. The outstanding principal balance and the carrying amount at March 31, 2024 and December 31, 2022 of loans acquired in business combinations were as follows:

	March 31, 2024		December 31, 2023
	Acquired Loans-		Acquired Loans-
	Non-Purchased		Non-Purchased
(Dollars in thousands)	Credit Deteriorated		Credit Deteriorated
Outstanding principal balance	$	155,913	$	164,028

Carrying amount
Real estate loans:
Construction and land development	$	7,676	$	7,851
Secured by 1-4 family residential		35,044		36,290
Other real estate loans		91,362		94,882
Commercial and industrial loans		16,558		19,611
Consumer and other loans		3,428		3,451
Total acquired loans	$	154,068	$	162,085

Risk characteristics of each loan portfolio class that are considered by the Company include:

•

1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

•

Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.

•

Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.

•

Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability. Commercial and industrial loans also include purchased loans which could have been originated outside of the Company's market area.

•

Consumer and other loans carry risks associated with the continued creditworthiness of the borrower and the value of the collateral, if any. Consumer loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area. Other loans included in this category include loans to states and political subdivisions.

The following tables provide a summary of loan classes and an aging of past due loans as of March 31, 2024 and December 31, 2023 (in thousands):

	March 31, 2024
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	—	$	—	$	—	$	—	$	53,364	$	53,364	$	37	$	—
Secured by 1-4 family residential		1,604		65		130		1,799		345,215		347,014		775		130
Other real estate loans		—		—		—		—		445,085		445,085		—		—
Commercial and industrial		474		769		45		1,288		112,274		113,562		7,203		45
Consumer and other loans		53		6		—		59		13,890		13,949		—		—
Total	$	2,131	$	840	$	175	$	3,146	$	969,828	$	972,974	$	8,015	$	175

	December 31, 2023
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	183	$	4	$	38	$	225	$	52,455	$	52,680	$	38	$	—
Secured by 1-4 family residential		1,364		350		392		2,106		342,263		344,369		495		245
Other real estate loans		—		—		82		82		447,190		447,272		—		82
Commercial and industrial		252		316		197		765		112,309		113,074		6,230		197
Consumer and other loans		33		—		—		33		12,002		12,035		—		—
Total	$	1,832	$	670	$	709	$	3,211	$	966,219	$	969,430	$	6,763	$	524

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:

Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Bank’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.

Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following table presents the Company's recorded investment in loans by credit quality indicators by year of origination as of March 31, 2024 (in thousands).

	March 31, 2024
	Term Loans by Year of Origination
	2024		2023		2022		2021		2020		Prior		Revolving		Total
Construction and land development
Pass	$	419	$	1,716	$	2,809	$	4,183	$	3,330	$	4,705	$	36,165	$	53,327
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		37		—		37
Doubtful		—		—		—		—		—		—		—		—
Total Construction and land development	$	419	$	1,716	$	2,809	$	4,183	$	3,330	$	4,742	$	36,165	$	53,364

Current period gross write-offs	$	—	$	—	$	4	$	—	$	—	$	—	$	—	$	4

Secured by 1-4 family residential
Pass	$	3,937	$	37,427	$	65,965	$	58,505	$	37,782	$	93,662	$	48,679	$	345,957
Special Mention		—		—		—		—		—		—		—		—
Substandard		—				89		208		—		760		—		1,057
Doubtful		—		—		—		—		—		—		—		—
Total Secured by 1-4 family residential	$	3,937	$	37,427	$	66,054	$	58,713	$	37,782	$	94,422	$	48,679	$	347,014

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	10	$	—	$	10

Other real estate loans
Pass	$	2,876	$	49,906	$	94,347	$	92,627	$	40,803	$	152,384	$	12,142	$	445,085
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—				—
Doubtful		—		—		—		—		—		—		—		—
Total Other real estate loans	$	2,876	$	49,906	$	94,347	$	92,627	$	40,803	$	152,384	$	12,142	$	445,085

Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Pass	$	7,403	$	22,279	$	19,892	$	17,278	$	2,449	$	10,365	$	25,307	$	104,973
Special Mention		—		—		1,371		—		—		—		—		1,371
Substandard		—		696		4,130		1,440		—		952		—		7,218
Doubtful		—		—		—		—		—		—		—		—
Total Commercial and industrial	$	7,403	$	22,975	$	25,393	$	18,718	$	2,449	$	11,317	$	25,307	$	113,562

Current period gross write-offs	$	—	$	317	$	—	$	—	$	—	$	—	$	—	$	317

Consumer and other loans
Pass	$	1,951	$	2,427	$	1,027	$	326	$	1,328	$	2,116	$	4,774	$	13,949
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Consumer and other loans	$	1,951	$	2,427	$	1,027	$	326	$	1,328	$	2,116	$	4,774	$	13,949

Current period gross write-offs	$	70	$	4	$	6	$	3	$	—	$	—	$	—	$	83