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Note 3 - Loans and Allowance for Credit Losses

3 Months Ended

Sep. 30, 2023

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

Note 3 – Loans and Allowance for Credit Losses

The following table presents loans by major category.

	September 30, 2023			June 30, 2023
Commercial & Industrial	$	111,235		$	112,558
Commercial real estate:
Owner occupied		154,688			151,005
Non-owner occupied		143,341			140,002
Farmland		40,610			40,606
Land Development		9,396			11,004
1 – 4 family residential real estate		189,501			189,312
Consumer		68,948			65,617
Subtotal		717,719			710,104
Unamortized deferred loan costs, net		202			258
Allowance for credit losses		(7,782	)		(7,724	)
Net Loans	$	710,139		$	702,638

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2023.

													1-4 Family
	Commercial			Commercial									Residential
	&			Real						Land			Real
	Industrial			Estate			Farmland			Development			Estate			Consumer			Total

ACL beginning balance	$	1,308		$	3,943		$	—		$	—		$	1,571		$	902		$	7,724
Cumulative effect of change in accounting principle		(455	)		(53	)		93			398			166			(97	)		52
Provision for expected credit losses		121			61			(2	)		(132	)		(99	)		91			40
Charge-offs		—			—			—			—			—			(106	)		(106	)
Recoveries		—			—			—			—			—			72			72
ACL ending balance	$	974		$	3,951		$	91		$	266		$	1,638		$	862		$	7,782

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2022:

					1-4 Family
	Commercial		Commercial		Residential
	&		Real		Real
	Industrial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	960	$	3,927	$	1,645		$	628		$	7,160
Provision for loan losses		61		145		35			169			410
Loans charged-off		—		—		(6	)		(72	)		(78	)
Recoveries		—		—		2			52			54
Total ending allowance balance	$	1,021	$	4,072	$	1,676		$	777		$	7,546

The following table presents the amortized cost of non-accrual loans by class as of September 30, 2023:

	September 30, 2023
					Interest Income
	Non-accrual		Total		Recognized during
	loans with		Non-accrual		the period on
	no ACL		loans		non-accrual loans
Commercial real estate:
Owner occupied	$	51	$	51	$	—
1 – 4 family residential real estate		142		142		—
Total	$	193	$	193	$	—

The following table presents the recorded investment of non-accrual loans by class as of June 30, 2023:

	June 30, 2023 Non-accrual
Commercial Real Estate:
Other	$	51
1 – 4 family residential:
Non-owner occupied		3
Total	$	54

The following table presents the aging of the amortized cost of past due loans as of September 30, 2023 by class of loans:

													Loans 90
	Days Past Due												Days Past
	30 – 59		60 - 89		90 Days or		Total		Loans Not				Due and
	Days		Days		Greater		Past Due		Past Due		Total		Accruing
Commercial & Industrial	$	26	$	—	$	—	$	26	$	111,282	$	111,308	$	—
Commercial real estate:
Owner occupied		—		—		51		51		154,374		154,425		—
Non-owner occupied		—		—		—		—		143,017		143,017		—
Farmland										40,509		40,509		—
Land development		—		—		—		—		9,373		9,373		—
1 – 4 family residential real estate		15		—		160		175		190,388		190,563		18
Consumer		580		168		80		828		67,898		68,726		80
Total	$	621	$	168	$	291	$	1,080	$	716,841	$	717,921	$	98

The following table presents the aging of the recorded investment in past due loans as of June 30, 2023 by class of loans:

													Loans 90
	Days Past Due												Days Past
	30 – 59		60 - 89		90 Days or		Total		Loans Not				Due and
	Days		Days		Greater		Past Due		Past Due		Total		Accruing
Commercial & Industrial	$	—	$	—	$	—	$	—	$	112,826	$	112,826	$	—
Commercial real estate:
Construction		—		—		—		—		23,996		23,996		—
Other		—		—		51		51		318,654		318,705		—
1-4 family residential:
Owner occupied		17		124		—		141		158,296		158,437		—
Non-owner occupied		—		—		3		3		23,885		23,888		—
Construction		—		—		—		—		8,514		8,514		—
Consumer		438		120		50		608		64,986		65,594		50
Total	$	455	$	244	$	104	$	803	$	711,157	$	711,960	$	50

Credit Quality Indicators:

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, historical payment experience, credit documentation, public information, current economic trends and other relevant information. At the time of origination, the Company analyzes all commercial loans individually and classifies the loans by credit risk. Management regularly monitors commercial loans for any changes in the borrowers’ ability to service their debt and completes an annual review to confirm the risk rating for those loans with total outstanding loan relationships greater than $500. The Company uses the following 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 institution’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 institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful 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.

Based on the most recent analysis performed, the following tables present the amortized cost by internal risk category and class of loans as of September 30, 2023:

													Revolving		Revolving
													Loans		Loans
	Term Loans by Origination Year												Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		To Term		Total
Commercial & Industrial
Pass	$	13,175	$	29,099	$	32,109	$	9,319	$	4,716	$	5,937	$	15,284	$	—	$	109,639
Special Mention		—		—		440		44		17		47		573		—		1,121
Substandard		—		—		—		—		—		16		532		—		548
Doubtful		—		—		—		—		—		—		—		—		—
Total Commercial & Industrial	$	13,175	$	29,099	$	32,549	$	9,363	$	4,733	$	6,000	$	16,389	$	—	$	111,308
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Owner occupied:
Pass	$	5,495	$	19,460	$	34,629	$	23,581	$	15,786	$	44,807	$	7,458	$	—	$	151,216
Special Mention		—		—		—		39		915		1,634		151		—		2,739
Substandard		—		—		—		—		—		419		—		—		419
Doubtful		—		—		—		—		—		51		—		—		51
Total owner occupied	$	5,495	$	19,460	$	34,629	$	23,620	$	16,701	$	46,911	$	7,609	$	—	$	154,425
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-owner occupied:
Pass	$	1,947	$	38,625	$	22,967	$	25,701	$	13,202	$	36,344	$	784	$	—	$	139,570
Special Mention		—		—		—		3,447		—		—		—		—		3,447
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total non-owner occupied	$	1,947	$	38,625	$	22,967	$	29,148	$	13,202	$	36,344	$	784	$	—	$	143,017
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland:
Pass	$	405	$	6,469	$	6,023	$	5,644	$	2,426	$	17,631	$	1,063	$	—	$	39,661
Special Mention		—		—		—		—		—		848		—		—		848
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	405	$	6,469	$	6,023	$	5,644	$	2,426	$	18,479	$	1,063	$	—	$	40,509
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Land Development:
Pass	$	110	$	2,027	$	1,066	$	537	$	388	$	614	$	4,631	$	—	$	9,373
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Land Development	$	110	$	2,027	$	1,066	$	537	$	388	$	614	$	4,631	$	—	$	9,373
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total:
Pass	$	21,132	$	95,680	$	96,794	$	64,782	$	36,518	$	105,333	$	29,220	$	—	$	449,459
Special Mention		—		—		440		3,530		932		2,529		724		—		8,155
Substandard		—		—		—		—		—		435		532		—		967
Doubtful		—		—		—		—		—		51		—		—		51
Total	$	21,132	$	95,680	$	97,234	$	68,312	$	37,450	$	108,348	$	30,476	$	—	$	458,632

Management monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual are considered nonperforming. The following table presents the amortized cost of residential real estate and consumer loans based on payment status as of September 30, 2023:

													Revolving		Revolving
													Loans		Loans
	Term Loans by Origination Year												Amortized		Converted
	2024		2023		2022		2021		2020		Prior		Cost Basis		To Term		Total
1 – 4 family residential real estate:
Performing	$	4,330	$	21,676	$	31,602	$	53,188	$	20,607	$	31,907	$	27,093	$	—	$	190,403
Nonperforming		—		—		—		—		—		160		—		—		160
Total 1-4 family residential real estate	$	4,330	$	21,676	$	31,602	$	53,188	$	20,607	$	32,067	$	27,093	$	—	$	190,563
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Performing	$	9,053	$	33,179	$	17,740	$	6,567	$	1,245	$	731	$	131	$	—	$	68,646
Nonperforming		—		17		50		13		—		—		—		—		80
Total consumer	$	9,053	$	33,196	$	17,790	$	6,580	$	1,245	$	731	$	131	$	—	$	68,726
Current year-to-date gross write-offs	$	12	$	47	$	21	$	16	$	10	$	—	$	—	$	—	$	106
Total:
Performing	$	13,383	$	54,855	$	49,342	$	59,755	$	21,852	$	32,638	$	27,224	$	—	$	259,049
Nonperforming		—		17		50		13		—		160		—		—		240
Total	$	13,383	$	54,872	$	49,392	$	59,768	$	21,852	$	32,798	$	27,224	$	—	$	259,289

Based on the most recent analysis performed, the following table presents the recorded investment by risk category and by class of loans as of June 30, 2023:

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
Commercial & Industrial	$	110,928	$	1,174	$	573	$	—	$	151
Commercial real estate:
Construction		23,996		—		—		—		—
Other		310,427		7,097		468		51		662
1-4 Family residential real estate:
Owner occupied		2,013		—		17		—		156,407
Non-owner occupied		23,474		50		105		3		256
Construction		3,227		—		—		—		5,287
Consumer		597		—		—		—		64,997
Total	$	474,662	$	8,321	$	1,163	$	54	$	227,760

Modifications to Borrowers Experiencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty to maximize collection of loan balances by providing principal forgiveness, term extension, an other-than insignificant payment delay, or an interest rate reduction. In some cases, the Company may provide multiple types of concessions on one loan. If principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

There were no modifications of loans to borrowers in financial distress completed during the quarter ended September 30, 2023.

Impaired Loans

The following impaired loan information relates to required disclosures under the previous incurred loan loss methodology and are only presented with prior period information.

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2023. Included in the recorded investment in loans is $1,598 of accrued interest receivable.

					1-4 Family
	Commercial		Commercial		Residential
	&		Real		Real
	Industrial		Estate		Estate		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Acquired loans collectively evaluated for impairment		—		40		74		—		114
Originated loans collectively evaluated for impairment		1,308		3,903		1,497		902		7,610
Total ending allowance balance	$	1,308	$	3,943	$	1,571	$	902	$	7,724

Recorded investment in loans:
Loans individually evaluated for impairment	$	314	$	88	$	3	$	—	$	405
Acquired loans collectively evaluated for impairment		622		6,953		23,038		1,230		31,843
Originated loans collectively evaluated for impairment		111,890		335,660		167,798		64,364		679,712
Total ending loans balance	$	112,826	$	342,701	$	190,839	$	65,594	$	711,960

The following table presents information related to unpaid principal balance, recorded investment and interest income associated with loans individually evaluated for impairment by class of loans as of June 30, 2023 and for the three months ended September 30, 2022:

	As of June 30, 2023						Three Months ended September 30, 2022
					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial & Industrial	$	404	$	314	$	—	$	286	$	10	$	10
Commercial real estate:
Other		127		88		—		41		3		3
1-4 Family residential real estate:
Owner occupied		24		—		—		21		1		1
Non-owner occupied		3		3		—		62		—		—
Total	$	558	$	405	$	—	$	410	$	14	$	14

Troubled Debt Restructurings (TDR):

The Company had certain loans that were modified to maximize collection of loan balances classified as TDRs. A modified loan was usually classified as a TDR if, for economic reasons, management granted a concession to the original terms and conditions of the loan to a borrower who was experiencing financial difficulties that it would not have otherwise considered. As of June 30, 2023, the Company had $351 of loans classified as TDRs which are included in impaired loans above.