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Note 4 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2022

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at December 31, 2022 and 2021 consisted of the following:

	December 31,			December 31,
(In thousands)	2022			2021

Real estate mortgage loans:
Residential	$	155,334		$	130,603
Land		21,860			19,478
Construction		86,845			59,959
Commercial		161,425			137,915
Commercial business loans		60,817			51,787
Consumer loans:
Home equity and second mortgage loans		57,781			54,453
Automobile loans		48,184			43,946
Loans secured by savings accounts		627			827
Unsecured loans		2,245			2,219
Other consumer loans		12,973			13,579
Gross loans		608,091			514,766
Less undisbursed portion of loans in process		(44,574	)		(26,520	)

Principal loan balance		563,517			488,246

Deferred loan origination fees and costs, net		1,213			1,124
Allowance for loan losses		(6,772	)		(6,083	)

Loans, net	$	557,958		$	483,287

At December 31, 2022 and 2021, residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding 90% amounted to approximately $1.0 million and $1.6 million, respectively.

The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons and does not involve more than normal risk of collectability or present other unfavorable features.

The following table represents the aggregate activity for related party loans during the years ended December 31, 2022 and 2021. Adjustments are made to reflect new directors and officers added during the year, as well as directors and officers that left the Company during the year.

(In thousands)	2022			2021

Beginning balance	$	7,233		$	13,287
Adjustments due to officer and director changes		(711	)		-
New loans		1,189			3,391
Payments		(1,432	)		(9,445	)

Ending balance	$	6,279		$	7,233

Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at December 31, 2022 and 2021 were $2.7 million and $2.6 million, respectively.

The following table provides the components of the Company’s recorded investment in loans at December 31, 2022 and 2021:

														Home Equity
	*Residential*							*Commercial*			*Commercial*			*and Second*		*Other*
	*Real Estate*		*Land*		*Construction*			*Real Estate*			*Business*			*Mortgage*		*Consumer*		*Total*
	(In thousands)
December 31, 2022:
Principal loan balance	$	155,334	$	21,860	$	42,271		$	161,425		$	60,817		$	57,781	$	64,029	$	563,517

Accrued interest receivable		493		123		105			343			170			348		236		1,818

Net deferred loan origination fees and costs		111		14		(12	)		(93	)		(11	)		1,204		-		1,213

Recorded investment in loans	$	155,938	$	21,997	$	42,364		$	161,675		$	60,976		$	59,333	$	64,265	$	566,548


December 31, 2021:
Principal loan balance	$	130,603	$	19,478	$	33,439		$	137,915		$	51,787		$	54,453	$	60,571	$	488,246

Accrued interest receivable		442		103		67			290			180			160		218		1,460

Net deferred loan origination fees and costs		107		13		(15	)		(64	)		(46	)		1,129		-		1,124

Recorded investment in loans	$	131,152	$	19,594	$	33,491		$	138,141		$	51,921		$	55,742	$	60,789	$	490,830

An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended December 31, 2022 is as follows:

													Home Equity
	*Residential*							*Commercial*		*Commercial*			*and Second*		*Other*
	*Real Estate*			*Land*		*Construction*		*Real Estate*		*Business*			*Mortgage*		*Consumer*			*Total*
	(In thousands)
Allowance for Loan Losses:

Beginning balance	$	1,174		$	234	$	403	$	1,884	$	873		$	527	$	988		$	6,083
Provisions		247			31		123		147		173			1		228			950
Charge-offs		(48	)		-		-		-		(9	)		-		(448	)		(505	)
Recoveries		10			-		-		-		9			2		223			244

Ending balance	$	1,383		$	265	$	526	$	2,031	$	1,046		$	530	$	991		$	6,772

Ending allowance balance attributable to loans:

Individually evaluated for impairment	$	-		$	-	$	-	$	-	$	155		$	-	$	-		$	155
Collectively evaluated for impairment		1,383			265		526		2,031		891			530		991			6,617
Acquired with deteriorated credit quality		-			-		-		-		-			-		-			-

Ending balance	$	1,383		$	265	$	526	$	2,031	$	1,046		$	530	$	991		$	6,772

Recorded Investment in Loans:

Individually evaluated for impairment	$	854		$	51	$	-	$	463	$	195		$	372	$	-		$	1,935
Collectively evaluated for impairment		154,798			21,946		42,364		161,212		60,781			58,961		64,265			564,327
Acquired with deteriorated credit quality		286			-		-		-		-			-		-			286

Ending balance	$	155,938		$	21,997	$	42,364	$	161,675	$	60,976		$	59,333	$	64,265		$	566,548

An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended December 31, 2021 is as follows:

														Home Equity
	*Residential*								*Commercial*			*Commercial*		*and Second*			*Other*
	*Real Estate*			*Land*			*Construction*		*Real Estate*			*Business*		*Mortgage*			*Consumer*			*Total*
	(In thousands)
Allowance for Loan Losses:

Beginning balance	$	1,239		$	209		$	292	$	2,358		$	843	$	617		$	1,067		$	6,625
Provisions		(35	)		34			111		(474	)		20		(88	)		107			(325	)
Charge-offs		(35	)		(9	)		-		-			-		(10	)		(400	)		(454	)
Recoveries		5			-			-		-			10		8			214			237

Ending balance	$	1,174		$	234		$	403	$	1,884		$	873	$	527		$	988		$	6,083

Ending allowance balance attributable to loans:

Individually evaluated for impairment	$	-		$	-		$	-	$	-		$	-	$	7		$	-		$	7
Collectively evaluated for impairment		1,143			234			403		1,884			873		520			988			6,045
Acquired with deteriorated credit quality		31			-			-		-			-		-			-			31

Ending balance	$	1,174		$	234		$	403	$	1,884		$	873	$	527		$	988		$	6,083

Recorded Investment in Loans:

Individually evaluated for impairment	$	1,034		$	102		$	-	$	702		$	174	$	303		$	-		$	2,315
Collectively evaluated for impairment		129,848			19,492			33,491		137,428			51,747		55,439			60,789			488,234
Acquired with deteriorated credit quality		270			-			-		11			-		-			-			281

Ending balance	$	131,152		$	19,594		$	33,491	$	138,141		$	51,921	$	55,742		$	60,789		$	490,830

An analysis of the allowance for loan losses for the year ended December 31, 2020 is as follows:

														Home Equity
	*Residential*								*Commercial*		*Commercial*			*and Second*		*Other*
	*Real Estate*			*Land*		*Construction*			*Real Estate*		*Business*			*Mortgage*		*Consumer*			*Total*
	(In thousands)
Allowance for Loan Losses:

Beginning balance	$	867		$	163	$	350		$	1,623	$	595		$	515	$	948		$	5,061
Provisions		393			46		(58	)		735		280			91		314			1,801
Charge-offs		(72	)		-		-			-		(32	)		-		(407	)		(511	)
Recoveries		51			-		-			-		-			11		212			274

Ending balance	$	1,239		$	209	$	292		$	2,358	$	843		$	617	$	1,067		$	6,625

At December 31, 2022 and 2021, management applied qualitative factor adjustments to each portfolio segment as they determined that the historical loss experience was not indicative of the level of risk in the remaining balance of those portfolio segments. As part of their analysis of qualitative factors, management considers changes in underwriting standards, economic conditions, past due loan trends, collateral valuations, loan concentrations and other internal and external factors. During the year ended December 31, 2020, management adjusted the quantitative factors due to economic uncertainties related to COVID-19. During the year ended December 31, 2021, while there was still uncertainty about how severely the COVID-19 pandemic had impacted the loan portfolio, management decreased the COVID-19 qualitative factor adjustments for each portfolio segment based on loan performance, unemployment rates, the level of cases, vaccination status and government guidelines.

Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are not individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans.

At December 31, 2022, the Company's allowance for loan losses totaled $6.8 million, of which $6.2 million related to qualitative factor adjustments. At December 31, 2021, the Company's allowance for loan losses totaled $6.1 million, of which $5.5 million related to qualitative factor adjustments. These changes were made to reflect management’s estimates of inherent losses in the loan portfolio at December 31, 2022 and 2021.

The following table summarizes the Company’s impaired loans as of and for the year ended December 31, 2022. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2022.

			Unpaid				Average		Interest
	*Recorded*		*Principal*		*Related*		*Recorded*		*Income*
	*Investment*		*Balance*		*Allowance*		*Investment*		*Recognized*
	(In thousands)
*Loans with no related allowance recorded:*
Residential	$	854	$	996	$	-	$	893	$	12
Land		51		51		-		71		-
Construction		-		-		-		-		-
Commercial real estate		463		484		-		582		25
Commercial business		40		40		-		137		8
Home equity and second mortgage		372		389		-		155		-
Other consumer		-		-		-		-		-

	$	1,780	$	1,960	$	-	$	1,838	$	45

Loans with an allowance recorded:
Residential	$	-	$	-	$	-	$	11	$	-
Land		-		-		-		-		-
Construction		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		155		155		155		31		-
Home equity and second mortgage		-		-		-		172		-
Other consumer		-		-		-		-		-

	$	155	$	155	$	155	$	214	$	-

Total:
Residential	$	854	$	996	$	-	$	904	$	12
Land		51		51		-		71		-
Construction		-		-		-		-		-
Commercial real estate		463		484		-		582		25
Commercial business		195		195		155		168		8
Home equity and second mortgage		372		389		-		327		-
Other consumer		-		-		-		-		-

	$	1,935	$	2,115	$	155	$	2,052	$	45

The following table summarizes the Company’s impaired loans as of and for the year ended December 31, 2021. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2021.

			Unpaid				Average		Interest
	*Recorded*		*Principal*		*Related*		*Recorded*		*Income*
	*Investment*		*Balance*		*Allowance*		*Investment*		*Recognized*
	(In thousands)
*Loans with no related allowance recorded:*
Residential	$	1,034	$	1,163	$	-	$	1,529	$	21
Land		102		104		-		100		-
Construction		-		-		-		-		-
Commercial real estate		702		716		-		740		34
Commercial business		174		174		-		191		8
Home equity and second mortgage		15		15		-		111		2
Other consumer		-		-		-		-		-

	$	2,027	$	2,172	$	-	$	2,671	$	65

Loans with an allowance recorded:
Residential	$	-	$	-	$	-	$	-	$	-
Land		-		-		-		10		-
Construction		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial business		-		-		-		-		-
Home equity and second mortgage		288		296		7		231		-
Other consumer		-		-		-		-		-

	$	288	$	296	$	7	$	241	$	-

Total:
Residential	$	1,034	$	1,163	$	-	$	1,529	$	21
Land		102		104		-		110		-
Construction		-		-		-		-		-
Commercial real estate		702		716		-		740		34
Commercial business		174		174		-		191		8
Home equity and second mortgage		303		311		7		342		2
Other consumer		-		-		-		-		-

	$	2,315	$	2,468	$	7	$	2,912	$	65

The following table summarizes the Company’s impaired loans for the year ended December 31, 2020. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2020.

	Average		Interest
	Recorded		Income
	Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,638	$	22
Land		101		1
Construction		-		-
Commercial real estate		836		36
Commercial business		249		9
Home equity and second mortgage		234		13
Other consumer		19		-

	$	3,077	$	81

Loans with an allowance recorded:
Residential	$	117	$	-
Land		-		-
Construction		-		-
Commercial real estate		-		-
Commercial business		76		-
Home equity and second mortgage		-		-
Other consumer		-		-

	$	193	$	-

Total:
Residential	$	1,755	$	22
Land		101		1
Construction		-		-
Commercial real estate		836		36
Commercial business		325		9
Home equity and second mortgage		234		13
Other consumer		19		-

	$	3,270	$	81

Nonperforming loans consists of nonaccrual loans and loans over 90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at December 31, 2022 and 2021:

	December 31, 2022						December 31, 2021
			Loans 90+ Days		Total				Loans 90+ Days		Total
	*Nonaccrual*		*Past Due*		*Nonperforming*		*Nonaccrual*		*Past Due*		*Nonperforming*
	*Loans*		*Still Accruing*		*Loans*		*Loans*		*Still Accruing*		*Loans*
	(In thousands)

Residential	$	744	$	83	$	827	$	806	$	-	$	806
Land		51		-		51		102		-		102
Construction		-		-		-		-		-		-
Commercial real estate		81		-		81		115		-		115
Commercial business		155		-		155		-		-		-
Home equity and second mortgage		372		-		372		304		-		304
Other consumer		-		4		4		-		3		3

Total	$	1,403	$	87	$	1,490	$	1,327	$	3	$	1,330

The following table presents the aging of the recorded investment in loans at December 31, 2022:

											Purchased
	*30-59 Days*		*60-89 Days*		*90 Days or More*		*Total*				*Credit*		*Total*
	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Current*		*Impaired Loans*		*Loans*
	(In thousands)

Residential	$	2,229	$	226	$	543	$	2,998	$	152,654	$	286	$	155,938
Land		119		-		51		170		21,827		-		21,997
Construction		-		-		-		-		42,364		-		42,364
Commercial real estate		-		-		-		-		161,675		-		161,675
Commercial business		-		-		155		155		60,821		-		60,976
Home equity and second mortgage		206		278		93		577		58,756		-		59,333
Other consumer		211		72		4		287		63,978		-		64,265

Total	$	2,765	$	576	$	846	$	4,187	$	562,075	$	286	$	566,548

The following table presents the aging of the recorded investment in loans at December 31, 2021:

											Purchased
	*30-59 Days*		*60-89 Days*		*90 Days or More*		*Total*				*Credit*		*Total*
	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Current*		*Impaired Loans*		*Loans*
	(In thousands)

Residential	$	1,186	$	158	$	501	$	1,845	$	129,037	$	270	$	131,152
Land		94		62		102		258		19,336		-		19,594
Construction		-		-		-		-		33,491		-		33,491
Commercial real estate		-		-		-		-		138,130		11		138,141
Commercial business		-		-		-		-		51,921		-		51,921
Home equity and second mortgage		165		-		-		165		55,577		-		55,742
Other consumer		129		3		3		135		60,654		-		60,789

Total	$	1,574	$	223	$	606	$	2,403	$	488,146	$	281	$	490,830

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

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 of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful/Nonaccrual: Loans classified as doubtful/nonaccrual 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.

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

The following table presents the recorded investment in loans by risk category as of the date indicated:

											Home Equity
	*Residential*						*Commercial*		*Commercial*		*and Second*		*Other*
	*Real Estate*		*Land*		*Construction*		*Real Estate*		*Business*		*Mortgage*		*Consumer*		*Total*
	(In thousands)
December 31, 2022
Pass	$	154,429	$	21,827	$	42,364	$	159,842	$	60,261	$	58,937	$	64,149	$	561,809
Special Mention		-		60		-		679		388		-		116		1,243
Substandard		765		59		-		1,073		172		24		-		2,093
Doubtful		744		51		-		81		155		372		-		1,403
Loss		-		-		-		-		-		-		-		-

Total	$	155,938	$	21,997	$	42,364	$	161,675	$	60,976	$	59,333	$	64,265	$	566,548

December 31, 2021
Pass	$	129,705	$	19,369	$	33,491	$	135,608	$	51,353	$	55,438	$	60,789	$	485,753
Special Mention		-		61		-		1,203		323		-		-		1,587
Substandard		641		62		-		1,215		245		-		-		2,163
Doubtful		806		102		-		115		-		304		-		1,327
Loss		-		-		-		-		-		-		-		-

Total	$	131,152	$	19,594	$	33,491	$	138,141	$	51,921	$	55,742	$	60,789	$	490,830

Troubled Debt Restructurings

The following table summarizes the Company’s TDRs by accrual status as of December 31, 2022 and 2021:

	December 31, 2022								December 31, 2021
							Related								Related
							Allowance								Allowance
	*Accruing*		*Nonaccrual*		*Total*		*for Loan Losses*		*Accruing*		*Nonaccrual*		*Total*		*for Loan Losses*
	(In thousands)
*Troubled debt restructurings:*
Residential real estate	$	108	$	16	$	124	$	-	$	216	$	-	$	216	$	-
Commercial real estate		381		-		381		-		585		-		585		-
Commercial business		40		-		40		-		174		-		174		-
Home equity and second mortgage		-		278		278		-		-		287		287		7

Total	$	529	$	294	$	823	$	-	$	975	$	287	$	1,262	$	7

At December 31, 2022 and 2021, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

There were no TDRs that were restructured during the years ended December 31, 2022 and 2021. The Company restructured three residential real estate loans, two commercial business loans, one commercial real estate loan and one home equity loan during the year ended December 31, 2020, with pre-modification and post-modification balances of $358,000, $43,000, $250,000 and $294,000, respectively. For the TDRs restructured during 2020, the terms of modification included the deferral of contractual principal payments and the renewal/extension of matured loans where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics. There were no principal charge-offs recorded as a result of TDRs during the years ended December 31, 2022, 2021 and 2020.

The Company had no payment defaults (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) for TDRs modified within the previous 12 months during the years ended December 31, 2022 and 2020. During the year ended December 31, 2021, there was one second mortgage loan TDR modified within the previous 12 months with a balance of $290.000 that was moved to nonaccrual status. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses may be increased or charge-offs may be taken to reduce the carrying amount of the loan. As a result of the payment default described above, a specific reserve of $7,000 was established during the year ended December 31, 2021. The current balance on the second mortgage described above is $278,000 and there is no specific reserve related to the loan at December 31, 2022. The Company did not recognize any provisions for loan losses or net charge-offs as a result of defaulted TDRs for the years ended December 31, 2022 and 2020.

Purchased Credit Impaired (“PCI”) Loans

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (FASB ASC 310-30), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which is recognized as future interest income.

The following table presents the carrying amount of PCI loans accounted for under FASB ASC 310-30 at December 31, 2022 and 2021:

PCI carrying amount

(In thousands)	2022		2021

Residential real estate	$	286	$	270
Commercial real estate		-		11
Carrying amount		286		281
Allowance for loan losses		-		31

Carrying amount, net of allowance	$	286	$	250

The outstanding balance of PCI loans accounted for under FASB ASC 310-30, including contractual principal, interest, fees and penalties was $289,000 and $339,000 at December 31, 2022 and 2021, respectively. The accretable yield at December 31, 2022, 2021 and 2020 was immaterial.