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Note 5 - Allowance for Credit Losses

12 Months Ended

Dec. 31, 2024

Allowance for Credit Losses [Text Block]

Note 5. Allowance for Credit Losses

The following tables present, as of December 31, 2024 and 2023, the total Allowance for Credit Losses on Loans (ACLL) by portfolio, and information about individually evaluated and collectively evaluated loans (in thousands).

	December 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
Initial Allowance on PCD Touchstone loans		11			173			201		1			—			386
Charge-offs		(4	)		(38	)		—		(3,699	)		(293	)		(4,034	)
Recoveries		—			22			3		111			148			284
Initial Provision on Non-PCD Touchstone loans		118			1,310			1,370		143			888			3,829
Provision for (recovery of) credit losses		148			(360	)		1,190		3,665			(682	)		3,961
Ending Balance, December 31, 2024	$	585		$	4,266		$	7,462	$	3,927		$	160		$	16,400
Ending Balance:
Individually evaluated		—			—			—		3,079			—			3,079
Collectively evaluated		585			4,266			7,462		848			160			13,321
Loans:
Ending Balance		84,480			547,167			672,162		141,333			21,453			1,466,595
Individually evaluated		50			2,148			—		4,773			—			6,971
Collectively evaluated		84,430			545,019			672,162		136,560			21,453			1,459,624

	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 loan losses		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		—			—			—			2,705			—			2,705
Collectively evaluated		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		38			495			—			6,230			—			6,763
Collectively evaluated		52,642			343,874			447,272			106,844			12,035			962,667

Nonaccrual loans

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

	December 31, 2024						December 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
Real estate loans:
Construction and land development	$	50	$	—	$	50	$	38	$	—	$	38
Secured by 1-4 family residential		2,148		—		2,148		495		—		495
Commercial and industrial		237		4,536		4,773		—		6,230		6,230
Total	$	2,435	$	4,536	$	6,971	$	533	$	6,230	$	6,763

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):

	December 31, 2024						December 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 loans:
Construction and land development	$	—	$	—	$	—	$	38	$	—	$	38
Secured by 1-4 family residential		703		—		703		495		—		495
Total	$	703	$	—	$	703	$	533	$	—	$	533

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

Modifications Made to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Company refers to loan modifications where the borrower is experiencing financial difficulty and the modification is in the form of principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, or a combination of the above modifications, as modified loans. The Company accounts for modified loans consistently with its accounting policy for accounting for loan modifications. The ALLL on modified loans is measured using the same method as all other loans held for investment.

The Company evaluates all loan modifications according to the accounting guidance for loan refinancing and restructuring to determine whether the modification should be accounted for as a new loan or a continuation of the existing loan. If the modification meets the criteria to be accounted for as a new loan, any deferred fees and costs remaining prior to the modification are recognized in income and any new deferred fees and costs are recorded on the loan as part of the modification. If the modification does not meet the criteria to be accounted for as a new loan, any new deferred fees and costs resulting from the modification are added to the existing amortized cost basis of the loan.

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.

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.

	Term Extension
(Dollars in thousands)	Amortized Cost Basis		% of Total Loan Type			Financial Effect
Real estate loans
Construction and land development	$	—		0.00	%
Secured by 1-4 family residential		—		0.00	%
Other real estate loans		—		0.00	%
Commercial and industrial		1,829		1.29	%	Term extension and payment deferral for 6 months
Total	$	1,829		1.29	%

	Principal Forgiveness
(Dollars in thousands)	Amortized Cost Basis		% of Total Loan Type			Financial Effect
Real estate loans
Construction and land development	$	—		0.00	%
Secured by 1-4 family residential		—		0.00	%
Other real estate loans		—		0.00	%
Commercial and industrial		959		0.68	%	Payment deferral for 24 months
Total	$	959		0.68	%

	Interest Rate Reduction
(Dollars in thousands)	Amortized Cost Basis		% of Total Loan Type			Financial Effect
Real estate loans:
Construction and land development	$	—		0.00	%
Secured by 1-4 family residential		462		0.08	%	Interest rate reduced from 7.5% to 4.0%
Other real estate loans		—		0.00	%
Commercial and industrial		217		0.15	%	Weighted average interest rate reduced from 18.17% to 14.62%
Total	$	679		0.23	%

During the year ended December 31, 2023 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 year ended December 31, 2024, there were no payment defaults of modified loans that were modified during the previous twelve months.

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.

For the year ended December 31, 2024, the Company recorded a provision for credit losses for unfunded commitments of $73 thousand which includes a $100 thousand initial provision recorded on the acquisition of Touchstone. At December 31, 2024 and 2023 the liability for credit losses on off-balance-sheet exposures included in other liabilities was $486 and $413 thousand, respectively.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $153 thousand for the adoption of ASC Topic 326.