Note 3 - Loans and Allowance for Credit Losses

9 Months Ended

Sep. 30, 2024

Note 3: Loans and Allowance for Credit Losses

Loans

Loans as of September 30, 2024 include acquired loans at their outstanding principal balance, net of the remaining purchase discount of $7,886. Originated loans as of September 30, 2024 and December 31, 2023 are presented at amortized cost, net of unearned income and deferred fees and costs. The following table presents the composition of the loan portfolio, excluding mortgage loans held for sale, as of the dates indicated.


	September 30, 2024			December 31, 2023
Real estate construction	$	71,920		$	55,379
Consumer real estate		306,012			241,564
Commercial real estate		473,018			419,130
Commercial non real estate		52,699			41,555
Public sector and IDA		58,109			60,551
Consumer non real estate		40,483			38,996
Gross loans	$	1,002,241		$	857,175
Less unearned income and deferred fees and costs		(582	)		(529	)
Loans, net of unearned income and deferred fees and costs	$	1,001,659		$	856,646
Allowance for credit losses on loans		(10,328	)		(9,094	)
Total loans, net	$	991,331		$	847,552

Accrued interest receivable of $3,269 at September 30, 2024 and $3,032 at December 31, 2023 is not included in total loans above.

Past Due and Nonaccrual Loans

The following tables present the aging of past due loans, by loan pool, as of the dates indicated.


September 30, 2024	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	18,070	$	-	$	-	$	-	$	18,070	$	-
Construction, other		53,822		28		-		-		53,850		-
Consumer Real Estate
Equity line		22,253		90		-		-		22,343		-
Residential closed-end first liens		169,444		930		84		-		170,458		-
Residential closed-end junior liens		7,297		10		-		-		7,307		-
Investor-owned residential real estate		105,142		762		-		-		105,904		-
Commercial Real Estate
Multifamily residential real estate		132,554		-		-		-		132,554		-
Commercial real estate owner-occupied		140,800		322		-		2,283		143,405		215
Commercial real estate, other		196,511		548		-		-		197,059		-
Commercial Non Real Estate
Commercial and industrial		52,543		112		44		-		52,699		44
Public Sector and IDA
States and political subdivisions		58,109		-		-		-		58,109		-
Consumer Non Real Estate
Credit cards		4,789		4		1		-		4,794		1
Automobile		13,498		174		-		-		13,672		-
Other consumer loans		21,721		270		26		-		22,017		26
Total	$	996,553	$	3,250	$	155	$	2,283	$	1,002,241	$	286


December 31, 2023	Accruing Current Loans		Accruing Loans 30 – 89 Days Past Due		Accruing Loans 90 or More Days Past Due		Nonaccrual Loans		Total Loans		Accruing and Nonaccrual 90 or More Days Past Due
Real Estate Construction
Construction, 1-4 family residential	$	13,442	$	-	$	-	$	-	$	13,442	$	-
Construction, other		41,916		21		-		-		41,937		-
Consumer Real Estate
Equity line		17,178		104		-		-		17,282		-
Residential closed-end first liens		124,886		662		131		-		125,679		131
Residential closed-end junior liens		5,027		12		-		-		5,039		-
Investor-owned residential real estate		93,564		-		-		-		93,564		-
Commercial Real Estate
Multifamily residential real estate		119,052		195		-		-		119,247		-
Commercial real estate owner-occupied		114,477		336		-		2,408		117,221		231
Commercial real estate, other		182,662		-		-		-		182,662		-
Commercial Non Real Estate
Commercial and industrial		41,249		57		28		221		41,555		28
Public Sector and IDA
States and political subdivisions		60,551		-		-		-		60,551		-
Consumer Non Real Estate
Credit cards		4,648		17		3		-		4,668		3
Automobile		12,126		135		-		-		12,261		-
Other consumer loans		21,934		107		26		-		22,067		26
Total	$	852,712	$	1,646	$	188	$	2,629	$	857,175	$	419

The following table presents nonaccrual loans, by loan class, as of the dates indicated:


	September 30, 2024						December 31, 2023
	With No Allowance		With an Allowance		Total		With No Allowance		With an Allowance		Total
Commercial Real Estate
Commercial real estate owner-occupied	$	2,068	$	215	$	2,283	$	2,177	$	231	$	2,408
Commercial Non Real Estate
Commercial and industrial		-		-		-		-		221		221
Total	$	2,068	$	215	$	2,283	$	2,177	$	452	$	2,629

During the three and nine months ended September 30, 2024, no accrued interest receivable was reversed against interest income.

Allowance for Credit Losses on Loans (“ACLL”)

The following tables present the activity in the ACLL by portfolio segment for the periods indicated:


	Activity in the ACLL for the Nine Months Ended September 30, 2024
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2023	$	408	$	3,162	$	3,576	$	682		$	333	$	583		$	350		$	9,094
Charge-offs		-		-		-		(145	)		-		(266	)		-			(411	)
Recoveries		-		-		41		12			-		105			-			158
Provision for (recovery of) credit losses		43		697		589		106			5		139			(267	)		1,312
Merger adjustment(1)		10		97		55		4			-		9			-			175
Balance, September 30, 2024	$	461	$	3,956	$	4,261	$	659		$	338	$	570		$	83		$	10,328

(1)

Adjustment for PCD acquired loans.


	Activity in the ACLL for the Nine Months Ended September 30, 2023
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2022	$	450		$	2,199		$	3,642		$	930		$	319		$	506		$	179	$	8,225
Adoption of ASU 2016-13		(21	)		1,261			700			216			(15	)		72			129		2,342
Charge-offs	–				(17	)	–				(11	)	–				(204	)	–			(232	)
Recoveries	–				103			37			4		–				91		–			235
Provision for (recovery of) credit losses		133			(353	)		(212	)		(300	)		10			156			177		(389	)
Balance, September 30, 2023	$	562		$	3,193		$	4,167		$	839		$	314		$	621		$	485	$	10,181


	Activity in the ACLL for the Year Ended December 31, 2023
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2022	$	450		$	2,199		$	3,642		$	930		$	319		$	506		$	179	$	8,225
Adoption of ASU 2016-13		(21	)		1,261			700			216			(15	)		72			129		2,342
Charge-offs	–				(17	)	–				(214	)	–				(247	)	–			(478	)
Recoveries	–				103			45			6		–				129		–			283
Provision for (recovery of) for credit losses		(21	)		(384	)		(811	)		(256	)		29			123			42		(1,278	)
Balance, December 31, 2023	$	408		$	3,162		$	3,576		$	682		$	333		$	583		$	350	$	9,094

The following tables present information about the ACLL for individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.


	ACLL by Segment and Evaluation Method
September 30, 2024	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated	$	–	$	34	$	51	$	–	$	–	$	–	$	–	$	85
Collectively evaluated		461		3,922		4,210		659		338		570		83		10,243
Total	$	461	$	3,956	$	4,261	$	659	$	338	$	570	$	83	$	10,328


	ACLL by Segment and Evaluation Method
December 31, 2023	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated	$	–	$	74	$	367	$	126	$	–	$	5	$	–	$	572
Collectively evaluated		408		3,088		3,209		556		333		578		350		8,522
Total	$	408	$	3,162	$	3,576	$	682	$	333	$	583	$	350	$	9,094

The following tables present information about individually evaluated loans and collectively evaluated loans by portfolio segment as of the dates indicated.


	Loans by Segment and Evaluation Method as of
September 30, 2024	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	–	$	591	$	10,122	$	–	$	–	$	0	$	10,713
Collectively evaluated		71,920		305,421		462,896		52,699		58,109		40,483		991,528
Total	$	71,920	$	306,012	$	473,018	$	52,699	$	58,109	$	40,483	$	1,002,241


	Loans by Segment and Evaluation Method as of
December 31, 2023	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated	$	286	$	1,183	$	8,805	$	227	$	–	$	43	$	10,544
Collectively evaluated		55,093		240,381		410,325		41,328		60,551		38,953		846,631
Total	$	55,379	$	241,564	$	419,130	$	41,555	$	60,551	$	38,996	$	857,175

Collateral Dependent Loans

Loans are collateral dependent when repayment is expected substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually evaluated. The Company measures the ACLL

on collateral dependent loans based upon the fair value of the collateral, as permitted by ASU 2016-13. Fair value of the collateral is adjusted for liquidation costs/discounts. If the fair value of the collateral falls below the amortized cost of the loan, the shortfall is recognized in the ACLL. If the fair value of the collateral exceeds the amortized cost, no ACLL is required.

As of September 30, 2024, four of the Company’s individually evaluated loans were collateral dependent. As of December 31, 2023, three of the Company’s individually evaluated loans were collateral dependent. All collateral dependent loans were secured by real estate as of September 30, 2024 and December 31, 2023. The following table details the amortized cost of the collateral dependent loans as of the dates indicated:


	September 30, 2024				December 31, 2023
	Balance		Related Allowance		Balance		Related Allowance
Consumer Real Estate
Residential closed-end first lien	$	84	$	–	$	7	$	–
Commercial Real Estate
Commercial real estate, owner occupied		8,464		–		2,177		–
Commercial real estate, other		880		–		–		–
Total Loans	$	9,428	$	–	$	2,184	$	–

Credit Quality

The Company categorizes loans by risk based on relevant information about the ability of borrowers to service their debt, including: collateral and financial information, historical payment experience, credit documentation and current economic trends, among other factors. At origination, each loan is assigned a risk rating. Ongoing analysis of the loan portfolio adjusts risk ratings on an individual loan basis to reflect updated information. Loans rated pass have acceptable credit quality. Loans rated special mention have potential weakness due to challenging economic or financial conditions. Loans rated classified have well-defined weaknesses that heighten the risk of default. The tables below present the loan portfolio by amortized cost basis, year of origination, loan class and credit quality, and gross charge-offs for the nine months ended September 30, 2024 and year ended December 31, 2023.


	Term Loans Amortized Cost Basis by Origination Year														Revolving Loans Converted
September 30, 2024	Prior		2020		2021		2022		2023		2024		Revolving		to Term		Total
Construction, residential
Pass	$	170	$	60	$	163	$	691	$	4,561	$	1,511	$	10,914	$	—	$	18,070
Construction, other
Pass	$	2,859	$	1,103	$	7,923	$	22,163	$	7,334	$	7,465	$	4,731	$	—	$	53,578
Classified		—		—		272		—		—		—		—		—		272
Total	$	2,859	$	1,103	$	8,195	$	22,163	$	7,334	$	7,465	$	4,731	$	—	$	53,850
Equity lines
Pass	$	372	$	335	$	408	$	486	$	938	$	93	$	19,621	$	—	$	22,253
Classified		—		—		—		—		—		–		90		—		90
Total	$	372	$	335	$	408	$	486	$	938	$	93	$	19,711	$	—	$	22,343
Residential closed-end first liens
Pass	$	41,446	$	18,265	$	34,985	$	37,415	$	20,325	$	16,572	$	—	$	305	$	169,313
Special Mention		369		—		—		—		—		—		—		—		369
Classified		776		—		—		—		—		—		—		—		776
Total	$	42,591	$	18,265	$	34,985	$	37,415	$	20,325	$	16,572	$	—	$	305	$	170,458
Residential closed-end junior liens
Pass	$	1,637	$	—	$	284	$	2,066	$	1,663	$	1,630	$	27	$	—	$	7,307
Investor-owned residential real estate
Pass	$	29,550	$	23,305	$	19,409	$	16,420	$	8,309	$	3,030	$	2,066	$	2,554	$	104,643
Special Mention		—		—		—		140		—		—		—		—		140
Classified		751		—		169		35		166		—		—		—		1,121
Total	$	30,301	$	23,305	$	19,578	$	16,595	$	8,475	$	3,030	$	2,066	$	2,554	$	105,904
Multifamily residential real estate
Pass	$	40,280	$	2,097	$	40,166	$	28,004	$	8,614	$	13,243	$	150	$	—	$	132,554
Commercial real estate, owner occupied
Pass	$	54,180	$	24,811	$	7,546	$	29,283	$	10,495	$	3,528	$	3,915	$	84	$	133,842
Special mention		6,396		—		—		—		—		—		—		—		6,396
Classified		2,404		748		—		—		—		—		15		—		3,167
Total	$	62,980	$	25,559	$	7,546	$	29,283	$	10,495	$	3,528	$	3,930	$	84	$	143,405
Commercial real estate, other
Pass	$	91,828	$	18,117	$	37,922	$	24,009	$	17,112	$	5,519	$	1,857	$	—	$	196,364
Special Mention		695		—		—		—		—		—		—		—		695
Total	$	92,523	$	18,117	$	37,922	$	24,009	$	17,112	$	5,519	$	1,857	$	—	$	197,059
Commercial and industrial
Pass	$	6,539	$	2,241	$	12,256	$	5,860	$	6,680	$	7,042	$	12,041	$	12	$	52,671
Special Mention		—		—		—		—		—		—		22		—		22
Classified		—		—		—		6		—		—		—		—		6
Total	$	6,539	$	2,241	$	12,256	$	5,866	$	6,680	$	7,042	$	12,063	$	12	$	52,699
YTD gross charge-offs	$	125	$	—	$	—	$	—	$	—	$	—	$	20	$	—	$	145
Public sector and IDA
Pass	$	19,421	$	223	$	25,978	$	6,025	$	6,462	$	—	$	—	$	—	$	58,109
Credit cards
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	4,794	$	—	$	4,794
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	43	$	—	$	43
Automobile
Pass	$	55	$	324	$	915	$	1,953	$	5,091	$	5,252	$	—	$	—	$	13,590
Special Mention		—		—		—		—		4		—		—		—		4
Classified		—		—		—		5		73		—		—		—		78
Total	$	55	$	404	$	1,139	$	2,181	$	6,019	$	3,905	$	—	$	—	$	13,672
YTD gross charge-offs	$	—	$	—	$	—	$	9	$	13	$	11	$	—	$	—	$	33
Other consumer
Pass	$	264	$	496	$	1,151	$	2,807	$	7,115	$	9,422	$	724	$	—	$	21,979
Special Mention		—		—		1		—		—		10		—		—		11
Classified		—		—		—		—		5		22		—		—		27
Total	$	264	$	496	$	1,152	$	2,807	$	7,120	$	9,454	$	724	$	—	$	22,017
YTD gross charge-offs	$	—	$	4	$	15	$	17	$	74	$	80	$	—	$	—	$	190
Total Loans
Pass	$	288,601	$	91,377	$	189,106	$	177,182	$	104,699	$	74,307	$	60,840	$	2,955	$	989,067
Special Mention		7,460		—		1		140		4		10		22		—		7,637
Classified		3,931		748		441		46		244		22		105		—		5,537
Total	$	299,992	$	92,125	$	189,548	$	177,368	$	104,947	$	74,339	$	60,967	$	2,955	$	1,002,241
YTD gross charge-offs	$	125	$	4	$	15	$	26	$	87	$	91	$	63	$	–	$	411


	Term Loans Amortized Cost Basis by Origination Year														Revolving Loans Converted
December 31, 2023	Prior		2019		2020		2021		2022		2023		Revolving		to Term		Total
Construction, residential
Pass	$	–	$	–	$	246	$	158	$	3,275	$	5,157	$	4,606	$	–	$	13,442
Construction, other
Pass	$	2,741	$	1,094	$	1,305	$	12,671	$	17,397	$	4,884	$	1,559	$	–	$	41,651
Classified		–		–		–		286		–		–		–		–		286
Total	$	2,741	$	1,094	$	1,305	$	12,957	$	17,397	$	4,884	$	1,559	$	–	$	41,937
Equity lines
Pass	$	51	$	–	$	–	$	–	$	–	$	–	$	17,182	$	–	$	17,233
Classified		–		–		–		–		–		–		49		–		49
Total	$	51	$	–	$	–	$	–	$	–	$	–	$	17,231	$	–	$	17,282
Residential closed-end first liens
Pass	$	32,404	$	5,806	$	14,634	$	31,414	$	29,787	$	11,208	$	–	$	–	$	125,253
Classified		426		–		–		–		–		–		–		–		426
Total	$	32,830	$	5,806	$	14,634	$	31,414	$	29,787	$	11,208	$	–	$	–	$	125,679
YTD gross charge-offs	$	–	$	–	$	17	$	–	$	–	$	–	$	–	$	–	$	17
Residential closed-end junior liens
Pass	$	1,499	$	116	$	–	$	172	$	1,387	$	1,850	$	–	$	15	$	5,039
Investor-owned residential real estate
Pass	$	24,556	$	5,162	$	23,649	$	19,062	$	14,166	$	4,880	$	1,283	$	98	$	92,856
Classified		708		–		–		–		–		–		–		–		708
Total	$	25,264	$	5,162	$	23,649	$	19,062	$	14,166	$	4,880	$	1,283	$	98	$	93,564
Multifamily residential real estate
Pass	$	40,092	$	1,806	$	2,148	$	40,544	$	25,681	$	8,850	$	126	$	–	$	119,247
Commercial real estate, owner occupied
Pass	$	41,573	$	11,091	$	23,407	$	4,792	$	16,720	$	7,914	$	2,919	$	–	$	108,416
Special mention		6,396		–		–		–		–		–		–		–		6,396
Classified		2,409		–		–		–		–		–		–		–		2,409
Total	$	50,378	$	11,091	$	23,407	$	4,792	$	16,720	$	7,914	$	2,919	$	–	$	117,221
Commercial real estate, other
Pass	$	68,889	$	21,841	$	19,098	$	36,157	$	22,697	$	13,279	$	701	$	–	$	182,662
Commercial and industrial
Pass	$	6,004	$	438	$	1,060	$	12,667	$	6,954	$	6,938	$	7,267	$	–	$	41,328
Classified		220		–		–		–		7		–		–		–		227
Total	$	6,224	$	438	$	1,060	$	12,667	$	6,961	$	6,938	$	7,267	$	–	$	41,555
YTD gross charge-offs	$	–	$	12	$	–	$	–	$	–	$	12	$	190	$	–	$	214
Public sector and IDA
Pass	$	20,817	$	–	$	235	$	26,702	$	6,335	$	6,462	$	–	$	–	$	60,551
Credit cards
Pass	$	–	$	–	$	–	$	–	$	–	$	–	$	4,668	$	–	$	4,668
YTD gross charge-offs	$	–	$	–	$	–	$	–	$	–	$	–	$	39	$	–	$	39
Automobile
Pass	$	78	$	204	$	563	$	1,619	$	2,750	$	7,047	$	–	$	–	$	12,261
YTD gross charge-offs	$	–	$	3	$	–	$	1	$	38	$	–	$	–	$	–	$	42
Other Consumer
Pass	$	93	$	334	$	811	$	1,943	$	5,815	$	12,356	$	672	$	–	$	22,024
Special mention		–		–		–		–		–		17		–		–		17
Classified		–		–		–		–		11		15		–		–		26
Total	$	93	$	334	$	811	$	1,943	$	5,826	$	12,388	$	672	$	–	$	22,067
YTD gross charge-offs	$	–	$	–	$	–	$	19	$	52	$	95	$	–	$	–	$	166
Total Loans
Pass	$	238,797	$	47,892	$	87,156	$	187,901	$	152,964	$	90,825	$	40,983	$	113	$	846,631
Special mention		6,396		–		–		–		–		17		–		–		6,413
Classified		3,763		–		–		286		18		15		49		–		4,131
Total	$	248,956	$	47,892	$	87,156	$	188,187	$	152,982	$	90,857	$	41,032	$	113	$	857,175
YTD gross charge-offs	$	–	$	15	$	17	$	20	$	90	$	107	$	229	$	–	$	478

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Company modifies loans for a variety of reasons. At the date of modification, the Company assesses whether the borrower is experiencing financial difficulty. If the borrower is experiencing financial difficulty, the loan’s risk rating is evaluated and is typically changed to special mention or classified, which results in individual evaluation of the loan for the ACLL. Two loans were modified for borrowers experiencing financial difficulty during the first three months of 2024. These loans were modified again during the three months ended September 30, 2024. There was one loan to a borrower experiencing financial difficulty that was modified during the nine months ended September 30, 2023.

The following table presents information as of September 30, 2024 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2024.

        September 30, 2024

        Amortized Cost Basis

        % of Class

        Type of Modification

        Financial Effect

        Commercial Real Estate

Commercial real estate owner-occupied

6,396

4.40

Interest only payments

3 months of interest only payments, re-amortization of the balance to contractual maturity.

        Commercial Non real estate

Commercial and industrial

6

0.01

Term
extension

Renewal of single-payment note for an additional 3 months.

The following table presents information as of September 30, 2023 about loans modified for borrowers experiencing financial difficulty during the nine months ended September 30, 2023.


September 30, 2023	Amortized Cost Basis		% of Class			Type of Modification	Financial Effect
Commercial Real Estate
Commercial real estate owner-occupied	$	6,396		5.38	%	Interest only payments	6 months of interest only payments, re-amortization of the balance to contractual maturity.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty. Both loans are in current status as of September 30, 2024.

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three or nine months ended September 30, 2024 and 2023 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

Consumer Real Estate Loans In Process of Foreclosure

As of September 30, 2024, the Company had three consumer real estate loans totaling $397 in process of foreclosure. As of December 31, 2023, one consumer real estate loan of $7 was in process of foreclosure.

ACL for Unfunded Commitments

The following tables present the balance and activity in the ACL for unfunded commitments for the nine months ended September 30, 2024 and 2023:


Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2023	$	259
Recovery of credit losses		(25	)
FCB acquisition		7
Balance, September 30, 2024	$	241


Allowance for Credit Losses on Unfunded Commitments
Balance, December 31, 2022	$	35
Adoption of ASU 2016-13		207
Recovery of credit losses		21
Balance, September 30, 2023	$	263