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Loans and Allowance for Credit Losses
 6 Months Ended
Jun. 30, 2023
Receivables [Abstract]  
Loans and Allowance for Credit Losses

5. Loans and Allowance for Credit Losses

 

Loans consisted of the following as of the dates indicated below:

 

   June 30,   December 31, 
(Dollars in thousands)  2023   2022 
         
One-to-four family residential real estate loans  $259,655   $236,982 
Construction and land loans   22,016    22,725 
Commercial real estate loans   314,889    304,074 
Commercial loans   181,424    173,415 
Paycheck protection program loans   -    21 
Agriculture loans   84,345    84,283 
Municipal loans   2,711    2,026 
Consumer loans   28,219    26,664 
Total gross loans   893,259    850,190 
Net deferred loan costs (fees) and loans in process   (261)   (250)
Allowance for credit losses   (10,449)   (8,791)
Loans, net  $882,549   $841,149 

 

 

The following tables provide information on the Company’s allowance for credit losses by loan class and allowance methodology:

   

                                     
   Three and six months ended June 30, 2023 
(Dollars in thousands)  One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Balance at April 1, 2023  $     1,757   $170   $4,438   $2,614   $          -   $1,059   $17   $212   $10,267 
Charge-offs   -    -    -    (90)   -    -    -    (68)   (158)
Recoveries   -    -    -    10    -    57    -    23    90 
Provision for credit losses   95    (9)   (65)   176    -    18    (1)   36    250 
Balance at June 30, 2023  $1,852   $161   $4,373   $2,710   $-   $1,134   $16   $203   $10,449 
                                              
Allowance for credit losses:                                             
Balance at January 1, 2023  $655   $117   $3,158   $2,753   $-   $1,966   $5   $137   $8,791 
Impact of adopting ASC 326   1,022    49    1,063    145    -    (824)   11    57    1,523 
Charge-offs   -    -    -    (107)   -    -    -    (159)   (266)
Recoveries   -    -    -    19    -    73    -    59    151 
Provision for credit losses   175    (5)   152    (100)   -    (81)   -    109    250 
Balance at June 30, 2023  $1,852   $         161   $4,373   $2,710   $-   $1,134   $16   $203   $10,449 

 

   Three and six months ended June 30, 2022 
(Dollars in thousands)  One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Balance at April 1, 2022  $624   $146   $3,061   $2,465   $-   $1,929   $6   $126   $8,357 
Charge-offs   -    -    -    -    -    -    -    (76)   (76)
Recoveries   -    -    -    9    -    2    -    23    34 
Provision for credit losses            (44)                (13)   (79)   177             -    (111)              -    70    - 
Balance at June 30, 2022  $580   $133   $2,982   $2,651   $-   $1,820   $6   $143   $8,315 
                                              
Allowance for credit losses:                                             
Balance at January 1, 2022  $623   $138   $3,051   $2,613   $-   $2,221   $6   $123   $8,775 
Charge-offs   -    -    -    -    -    -    -    (129)   (129)
Recoveries   -    100    -    23    -    3    6    37    169 
Provision for credit losses   (43)   (105)   (69)   15    -    (404)   (6)   112    (500)
Balance at June 30, 2022  $580   $133   $2,982   $2,651   $-   $1,820   $6   $143   $8,315 

 

   As of December 31, 2022 
(Dollars in thousands)  One-to-four family residential real estate loan   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection program loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for credit losses:                                             
Individually evaluated for loss  $-   $-   $-   $636   $-   $18   $-   $-   $654 
Collectively evaluated for loss   655    117    3,158    2,117                -    1,948    5    137    8,137 
Total  $655   $117   $3,158   $2,753   $-   $1,966   $5   $137   $8,791 
                                              
Loan balances:                                             
Individually evaluated for loss  $326   $412   $1,224   $812   $-   $1,319   $36   $-   $4,129 
Collectively evaluated for loss   236,656    22,313    302,850    172,603    21    82,964    1,990    26,664    846,061 
Total  $236,982   $22,725   $304,074   $173,415   $21   $84,283   $2,026   $26,664   $850,190 

 

 

The Company recorded net loan charge-offs of $68,000 during the second quarter of 2023 compared to net loan charge-offs of $42,000 during the second quarter of 2022. The Company recorded net loan charge-offs of $115,000 during the six months ended June 30, 2023 compared to net loan recoveries of $40,000 during the six months ended June 30, 2022.

 

The following table presents information on non-accrual and loans past due over 89 days and still accruing:

 

             
(Dollars in thousands)  As of June 30, 2023 
   Non-accrual with no allowance for credit loss   Non-accrual with allowance for credit losses   Loans past due over 89 days still accruing 
             
One-to-four family residential real estate loans  $38   $-   $- 
Construction and land loans   194    -    - 
Commercial real estate loans   1,218    -    - 
Commercial loans   112    1,000    - 
Paycheck protection program loans   -    -    - 
Agriculture loans   214    8    - 
Municipal loans   -    -    - 
Consumer loans               -              -              - 
Total loans  $1,776   $1,008   $- 

 

The following table presents information on impaired loans:

 

                             
(Dollars in thousands)  As of December 31, 2022 
   Unpaid contractual principal   Impaired loan balance   Impaired loans without an allowance   Impaired loans with an allowance   Related allowance recorded   Year-to-date average loan balance   Year-to-date interest income recognized 
                             
One-to-four family residential real estate  $326   $326   $326   $-   $-   $357   $9 
Construction and land   843    412    412    -    -    243    10 
Commercial real estate   1,224    1,224    1,224    -    -    1,224    47 
Commercial   1,063    812    75    737    636    865    5 
Agriculture   1,402    1,319    1,301    18    18    1,433    64 
Municipal   36    36    36             -                -              36                  1 
Total impaired loans  $4,894   $4,129   $3,374   $755   $654   $4,158   $136 

 

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is 90 days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans 90 days or more delinquent and accruing interest at June 30, 2023 or December 31, 2022.

 

 

The following tables present information on the Company’s past due and non-accrual loans by loan class:

 

                             
(Dollars in thousands)  As of June 30, 2023 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $3   $234   $-   $237   $38   $275   $259,380 
Construction and land loans   -     -    -    -    194    194    21,822 
Commercial real estate loans   -    184    -    184    1,218    1,402    313,487 
Commercial loans   104    63    -    167    1,112    1,279    180,145 
Paycheck protection program loans   -    -    -    -    -    -    - 
Agriculture loans   -    5    -    5    222    227    84,118 
Municipal loans   -    -    -    -    -    -    2,711 
Consumer loans            20    1               -    21                 -                 21    28,198 
Total  $127   $487   $-   $614   $2,784   $3,398   $889,861 
                                    
Percent of gross loans   0.01%   0.05%   0.00%   0.07%   0.31%   0.38%   99.62%

 

                                    
(Dollars in thousands)  As of December 31, 2022 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $8   $72   $-   $80   $170   $250   $236,732 
Construction and land loans   -    -    -    -    195    195    22,530 
Commercial real estate loans   -    -    -    -    1,224    1,224    302,850 
Commercial loans   -    411    -    411    812    1,223    172,192 
Paycheck protection program loans   -    -    -    -    -    -    21 
Agriculture loans   -    180    -    180    925    1,105    83,178 
Municipal loans   -    -    -    -    -    -    2,026 
Consumer loans   67             -             -    67               -    67    26,597 
Total  $75   $663   $-   $738   $3,326   $4,064   $846,126 
                                    
Percent of gross loans   0.01%   0.08%   0.00%   0.09%   0.39%   0.48%   99.52%

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the six months ended June 30, 2023 and 2022 would have increased interest income by $280,000 and $95,000, respectively. No interest income related to non-accrual loans was included in interest income for the three and six months ended June 30, 2023 and 2022.

 

The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

 

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but such protection is potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

 

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

 

The following table presents information on the Company’s risk category of loans by type and year of origination:

                                     
(Dollars in thousands)  As of June 30, 2023 
   2023   2022   2021   2020   2019   Prior   Revolving loans amortized cost   Revolving loans converted to term   Total 
                                     
One-to-four family residential real estate loans                                             
Nonclassified  $39,106   $88,985   $45,184   $34,761   $13,910   $33,282   $3,966   $423   $259,617 
Classified   -    -    -    -    -    38    -    -    38 
Total  $39,106   $88,985   $45,184   $34,761   $13,910   $33,320   $3,966   $423   $259,655 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Construction and land loans                                             
Nonclassified  $2,717   $6,565   $5,848   $2,712   $2,079   $369   $1,173   $359   $21,822 
Classified   -    -    -    -    -    194    -    -    194 
Total  $2,717   $6,565   $5,848   $2,712   $2,079   $563   $1,173   $359   $22,016 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Commercial real estate loans                                             
Nonclassified  $19,401   $77,956   $59,861   $55,043   $31,249   $64,697   $3,262   $420   $311,889 
Classified   -    -    488    28    184    2,300    -    -    3,000 
Total  $19,401   $77,956   $60,349   $55,071   $31,433   $66,997   $3,262   $420   $314,889 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Commercial loans                                             
Nonclassified  $17,850   $39,227   $21,332   $18,866   $3,514   $5,696   $65,487   $5,007   $176,979 
Classified   190    867    286    413    543    34    1,905    207    4,445 
Total  $18,040   $40,094   $21,618   $19,279   $4,057   $5,730   $67,392   $5,214   $181,424 
Charge-offs  $-   $(17)  $(90)  $-   $-   $-   $-   $-   $(107)
Agriculture loans                                             
Nonclassified  $2,647   $12,667   $5,664   $4,473   $4,296   $12,876   $41,345   $155   $84,123 
Classified   -    -    -    -    50    114    58    -    222 
Total  $2,647   $12,667   $5,664   $4,473   $4,346   $12,990   $41,403   $155   $84,345 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Municipal loans                                             
Nonclassified  $851   $144   $-   $-   $-   $1,716   $-   $-   $2,711 
Classified   -    -    -    -    -    -    -    -    - 
Total  $851   $144   $-   $-   $-   $1,716   $-   $-   $2,711 
Charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Consumer loans                                             
Nonclassified  $3,222   $1,768   $1,588   $1,414   $5   $5,246   $14,952   $24   $28,219 
Classified   -    -    -    -    -    -    -    -    - 
Total  $3,222   $1,768   $1,588   $1,414   $5   $5,246   $14,952   $24   $28,219 
Charge-offs  $-   $-   $-   $-   $-   $-   $(159)  $-   $(159)
Total loans                                             
Nonclassified  $85,794   $227,312   $139,477   $117,269   $55,053   $123,882   $130,185   $6,388   $885,360 
Classified   190    867    774    441    777    2,680    1,963    207    7,899 
Total  $85,984   $228,179   $140,251   $117,710   $55,830   $126,562   $132,148   $6,595   $893,259 
Charge-offs  $-   $(17)  $(90)  $-   $-   $-   $(159)  $-   $(266)

 

 

The following table provides information on the Company’s risk categories by loan class:

 

         
   As of December 31, 2022 
(Dollars in thousands)  Nonclassified   Classified 
         
One-to-four family residential real estate loans  $236,663   $319 
Construction and land loans   22,530    195 
Commercial real estate loans   300,216    3,858 
Commercial loans   165,709    7,706 
Paycheck protection program loans   21    - 
Agriculture loans   83,358    925 
Municipal loan   2,026    - 
Consumer loans   26,664    - 
Total  $837,187   $13,003 

 

The following table provides information on the Company’s allowance for credit losses related to unfunded loan commitments.

(dollars in thousands)    
Balance at January 1, 2023  $170 
Impact of adopting ASC 326   - 
Provision for credit losses   30 
Balance at June 30, 2023  $200 

 

The following table presents the amortized cost basis of loans at June 30, 2023 that were both experiencing financial difficulty and modified during the six months ended June 30, 2023 by class, type of modification and includes the financial effect of the modification.

 

(Dollars in thousands)  As of June 30, 2023
   Amortized cost basis   % of loan class total   Financial effect
            
Term extension:             
Commercial  $      151    0.1%  90 day payment deferral

 

As of June 30, 2023, all loans experiencing both financial difficulty and modified during the three and six months ended June 30, 2023 were current under the terms of the agreements. There were no commitments to lend additional funds to the borrowers and there were no charge-offs recorded against the loans. The Company had no allowance for credit losses recorded against these loans as of June 30, 2023. The Company did not have any loan modifications that had a payment default during the three and six months ended June 30, 2023.