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Note 4 - Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

Allowance for Credit Losses [Text Block]

Note 4. Allowance for Credit Losses

The following tables present, as of and during the periods ended March 31, 2024, December 31, 2023 and March 31, 2023, the activity in the Allowance for Credit Losses on Loans (ACLL) (previously Allowance for Loan Losses) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands):

	March 31, 2024
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate		Commercial and Industrial			Consumer and Other Loans			Total
Allowance for credit losses:
Beginning Balance, December 31, 2023	$	312		$	3,159		$	4,698	$	3,706		$	99		$	11,974
Charge-offs		(4	)		(10	)		—		(317	)		(83	)		(414	)
Recoveries		—			4			1		6			41			52
Provision for (recovery of) credit losses on loans		47			(396	)		225		1,098			17			991
Ending Balance, March 31, 2024	$	355		$	2,757		$	4,924	$	4,493		$	74		$	12,603
Ending Balance:
Individually evaluated		—			—			—		3,569			—			3,569
Collectively evaluated		355			2,757			4,924		924			74			9,034
Loans:
Ending Balance	$	53,364		$	347,014		$	445,085	$	113,562		$	13,949		$	972,974
Individually evaluated		37			772			—		7,202			—			8,011
Collectively evaluated		53,327			346,242			445,085		106,360			13,949			964,963

	December 31, 2023
	Construction and Land Development			Secured by 1-4 Family Residential			Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for loan losses:
Beginning Balance, December 31, 2022	$	546		$	1,108		$	3,609		$	1,874		$	309		$	7,446
Adjustment to allowance for adoption of ASU 2016-13		(313	)		1,409			1,702			(387	)		(225	)		2,186
Charge-offs		—			(59	)		(34	)		(3,452	)		(448	)		(3,993	)
Recoveries		—			47			14			145			212			418
Provision for (recovery of) credit losses on loans		79			654			(593	)		5,526			251			5,917
Ending Balance, December 31, 2023	$	312		$	3,159		$	4,698		$	3,706		$	99		$	11,974
Ending Balance:
Individually evaluated for impairment		—			—			—			2,705			—			2,705
Collectively evaluated for impairment		312			3,159			4,698			1,001			99			9,269
Loans:
Ending Balance	$	52,680		$	344,369		$	447,272		$	113,074		$	12,035		$	969,430
Individually evaluated for impairment		38			495			—			6,230			—			6,763
Collectively evaluated for impairment		52,642			343,874			447,272			106,844			12,035			962,667

	March 31, 2023
	Construction and Land Development			Secured by 1-4 Family Residential		Other Real Estate			Commercial and Industrial			Consumer and Other Loans			Total
Allowance for loan losses:
Beginning Balance, December 31, 2022	$	546		$	1,108	$	3,609		$	1,874		$	309		$	7,446
Adjustment to allowance for adoption of ASU 2016-13		(313	)		1,409		1,705			(391	)		(224	)		2,186
Charge-offs		—			—		—			(851	)		(126	)		(977	)
Recoveries		—			5		2			—			55			62
Provision for (recovery of) credit losses on loans		11			74		(150	)		(15	)		80			—
Ending Balance, March 31, 2023	$	244		$	2,596	$	5,166		$	617		$	94		$	8,717
Ending Balance:
Individually evaluated for impairment		—			—		—			—			—			—
Collectively evaluated for impairment		244			2,596		5,166			617			94			8,717
Loans:
Ending Balance	$	48,610		$	334,302	$	416,001		$	110,937		$	8,117		$	917,967
Individually evaluated for impairment		1,044			474		73			—			—			1,591
Collectively evaluated for impairment		47,566			333,828		415,928			110,937			8,117			916,376

Nonaccrual loans

The following is a summary of the Company's nonaccrual loans by major categories for the periods indicated (in thousands):

	March 31, 2024						December 31, 2023						March 31, 2023
	Nonaccrual Loans with No Allowance		Nonaccrual loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans with No Allowance		Nonaccrual loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans with No Allowance		Nonaccrual loans with an Allowance		Total Nonaccrual Loans
Real estate loans:
Construction and land development	$	37	$	—	$	37	$	38	$	—	$	38	$	1,044	$	—	$	1,044
Secured by 1-4 family residential		775		—		775		495		—		495		474		—		474
Other real estate loans		—		—		—		—		—		—		73		—		73
Commercial and industrial		—		7,203		7,203		—		6,230		6,230		—		—		—
Total	$	812	$	7,203	$	8,015	$	533	$	6,230	$	6,763	$	1,591	$	—	$	1,591

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 included 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. The Company individually assessed for impairment all nonaccrual loans and troubled debt restructurings. The tables below include information on all loans deemed impaired. 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.

Collateral-Dependent Loans

The Company may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The Company reevaluates the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. 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.

	•	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 presents the amortized cost of collateral-dependent loans (in thousands):

	March 31, 2024						December 31, 2023						March 31, 2023
(Dollars in thousands)	Real Estate Secured		Non-Real Estate Secured		Total Collateral-Dependent Loans		Real Estate Secured		Non-Real Estate Secured		Total Collateral-Dependent Loans		Real Estate Secured		Non-Real Estate Secured		Total Collateral-Dependent Loans
Real estate loans:
Construction and land development	$	37	$	—	$	37	$	38	$	—	$	38	$	1,044	$	—	$	1,044
Secured by 1-4 family residential		775		—		775		495		—		495		474		—		474
Other real estate loans		—		—		—		—		—		—		73		—		73
Commercial and industrial		—		—		—		—		—		—		—		—		—
Total	$	812	$	—	$	812	$	533	$	—	$	533	$	1,591	$	—	$	1,591

At March 31, 2024 and 2023 there was no allowance for credit losses on collateral-dependent loans.

Modifications Made 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. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, 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. For the real estate loans included in the “combination” columns below, multiple types of modifications 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, and interest rate reduction.

For the three months ended March 31, 2024, there were no loans modified to borrowers experiencing financial difficulty.

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. For the three months ended March 31, 2024 and 2023, there were no payment defaults of modified loans that were modified during the previous twelve months. At March 31, 2024 and 2023 there was no allowance for credit losses on modified loans.

Unfunded Commitments

The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described in Note 1, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

There was no provision for credit losses on unfunded commitments during the first quarter of 2024. On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $153 thousand for the adoption of ASC Topic 326. For the three months ended March 31, 2023, the Company did not record a provision for credit losses for unfunded commitments. The allowance for credit losses on off-balance sheet exposures was $413 and $153 thousand at March 31, 2024 and 2023, respectively.