Note 3 - Loans and Allowance for Credit Losses

9 Months Ended

Mar. 31, 2024

Notes to Financial Statements

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.

	March 31, 2024			June 30, 2023
Commercial & Industrial	$	115,402		$	112,558
Commercial real estate:
Owner occupied		159,732			151,005
Non-owner occupied		151,555			140,002
Farmland		39,150			40,606
Land Development		12,138			11,004
1 – 4 family residential real estate		191,884			189,312
Consumer		72,600			65,617
Subtotal		742,461			710,104
Unamortized deferred loan costs, net		123			258
Allowance for credit losses		(7,911	)		(7,724	)
Net Loans	$	734,673		$	702,638

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2024.

											1-4 Family
	Commercial		Commercial								Residential
	&		Real					Land			Real
	Industrial		Estate			Farmland		Development			Estate		Consumer			Total
ACL beginning balance	$	955	$	4,131		$	89	$	246		$	1,696	$	870		$	7,987
Provision for expected credit losses		122		(381	)		1		(78	)		276		75			15
Charge-offs		—		—			—		—			—		(138	)		(138	)
Recoveries		—		—			—		—			1		46			47
ACL ending balance	$	1,077	$	3,750		$	90	$	168		$	1,973	$	853		$	7,911

The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended March 31, 2024.

													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		224			(140	)		(3	)		(230	)		233		296			380
Charge-offs		—			—			—			—			—		(381	)		(381	)
Recoveries		—			—			—			—			3		133			136
ACL ending balance	$	1,077		$	3,750		$	90		$	168		$	1,973	$	853		$	7,911

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2023:

						1-4 Family
			Commercial			Residential
			Real			Real
	Commercial		Estate			Estate		Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,006	$	4,084		$	1,677	$	908		$	7,675
Provision for loan losses		132		(103	)		70		61			160
Loans charged-off		—		—			—		(56	)		(56	)
Recoveries		—		—			—		44			44
Total ending allowance balance	$	1,138	$	3,981		$	1,747	$	957		$	7,823

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2023:

					1-4 Family
			Commercial		Residential
			Real		Real
	Commercial		Estate		Estate			Consumer			Total
Allowance for loan losses:
Beginning balance	$	960	$	3,927	$	1,645		$	628		$	7,160
Provision for loan losses		178		53		106			458			795
Loans charged-off		—		—		(6	)		(247	)		(253	)
Recoveries		—		1		2			118			121
Total ending allowance balance	$	1,138	$	3,981	$	1,747		$	957		$	7,823

The following table presents the amortized cost of non-accrual loans by class as of March 31, 2024:

	March 31, 2024
					Interest Income
	Non-accrual		Total		Recognized during
	loans with		Non-accrual		the period on
	no ACL		loans		non-accrual loans
Commercial & Industrial	$	332	$	332	$	—
Commercial real estate:
Owner occupied		429		429		—
1 – 4 family residential real estate		264		264		—
Total	$	1,025	$	1,025	$	—

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 March 31, 2024 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	$	6	$	54	$	332	$	392	$	115,054	$	115,446	$	—
Commercial real estate:
Owner occupied		—		—		429		429		159,032		159,461		—
Non-owner occupied		—		—		—		—		151,230		151,230		—
Farmland		—		—		—		—		39,050		39,050		—
Land development		—		—		—		—		12,095		12,095		—
1 – 4 family residential real estate		793		22		73		888		192,055		192,943		—
Consumer		584		168		66		818		71,541		72,359		66
Total	$	1,383	$	244	$	900	$	2,527	$	740,057	$	742,584	$	66

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:

Pass. Loans classified as pass exhibit a wide array of characteristics but at a minimum represent minimal level of risk and are considered collectable. Borrowers in this rating may have leveraged but acceptable balance sheet positions, satisfactory asset quality, stable to favorable sales and earnings trends, acceptable liquidity, and adequate cash flow. While generally adhering to credit policy, these loans may exhibit occasional exceptions that do not result in undue risk. Borrowers are generally capable of absorbing setbacks, financial and otherwise.

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.

Not Rated. Loans listed as not rated are included in groups of homogeneous loans. Past due information is the primary credit indicator for groups of homogenous loans.

Based on the most recent analysis performed, the following tables present the amortized cost by internal risk category and class of loans as of March 31, 2024:

													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	$	27,006	$	25,565	$	30,303	$	7,883	$	3,805	$	4,550	$	14,280	$	—	$	113,392
Special Mention		—		—		365		69		12		43		1,182		—		1,671
Substandard		—		—		—		—		—		—		—		300		300
Doubtful		—		—		—		—		—		—		83		—		83
Total Commercial & Industrial	$	27,006	$	25,565	$	30,668	$	7,952	$	3,817	$	4,593	$	15,545	$	300	$	115,446
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Owner occupied:
Pass	$	14,605	$	20,372	$	34,929	$	22,648	$	15,268	$	41,645	$	7,005	$	—	$	156,472
Special Mention		—		—		—		—		332		2,156		152		—		2,640
Substandard		—		—		—		—		—		260		—		—		260
Doubtful		—		—		—		38		—		51		—		—		89
Total owner occupied	$	14,605	$	20,372	$	34,929	$	22,686	$	15,600	$	44,112	$	7,157	$	—	$	159,461
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-owner occupied:
Pass	$	14,101	$	38,508	$	22,535	$	25,135	$	11,717	$	35,148	$	685	$	—	$	147,829
Special Mention		—		—		—		3,401		—		—		—		—		3,401
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total non-owner occupied	$	14,101	$	38,508	$	22,535	$	28,536	$	11,717	$	35,148	$	685	$	—	$	151,230
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland:
Pass	$	1,349	$	5,876	$	5,910	$	5,356	$	2,321	$	16,469	$	977	$	—	$	38,258
Special Mention		—		—		—		—		—		792		—		—		792
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	1,349	$	5,876	$	5,910	$	5,356	$	2,321	$	17,261	$	977	$	—	$	39,050
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Land Development:
Pass	$	3,384	$	2,015	$	358	$	520	$	294	$	526	$	4,998	$	—	$	12,095
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Land Development	$	3,384	$	2,015	$	358	$	520	$	294	$	526	$	4,998	$	—	$	12,095
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total:
Pass	$	60,445	$	92,336	$	94,035	$	61,542	$	33,405	$	98,338	$	27,945	$	—	$	468,046
Special Mention		—		—		365		3,470		344		2,991		1,334		—		8,504
Substandard		—		—		—		—		—		260		—		300		560
Doubtful		—		—		—		38		—		51		83		—		172
Total	$	60,445	$	92,336	$	94,400	$	65,050	$	33,749	$	101,640	$	29,362	$	300	$	477,282

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 March 31, 2024:

													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	$	13,403	$	22,831	$	30,691	$	51,646	$	19,600	$	29,952	$	24,556	$	—	$	192,679
Nonperforming		—		—		192		—		—		72		—		—		264
Total 1-4 family residential real estate	$	13,403	$	22,831	$	30,883	$	51,646	$	19,600	$	30,024	$	24,556	$	—	$	192,943
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Performing	$	24,104	$	27,871	$	14,053	$	4,951	$	766	$	355	$	193	$	—	$	72,293
Nonperforming		—		4		62		—		—		—		—		—		66
Total consumer	$	24,104	$	27,875	$	14,115	$	4,951	$	766	$	355	$	193	$	—	$	72,359
Current year-to-date gross write-offs	$	31	$	115	$	144	$	54	$	36	$	1	$	—	$	—	$	381
Total:
Performing	$	37,507	$	50,702	$	44,744	$	56,597	$	20,366	$	30,307	$	24,749	$	—	$	264,972
Nonperforming		—		4		254		—		—		72		—		—		330
Total	$	37,507	$	50,706	$	44,998	$	56,597	$	20,366	$	30,379	$	24,749	$	—	$	265,302

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 nine-month period ended March 31, 2024.

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 nine months ended March 31, 2023:

	As of June 30, 2023						Nine Months ended March 31, 2023
	Unpaid				Allowance 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	$	—	$	303	$	27	$	27
Commercial real estate:
Other		127		88		—		40		5		5
1-4 Family residential real estate:
Owner occupied		24		—		—		20		2		2
Non-owner occupied		3		3		—		42		—		—
Total	$	558	$	405	$	—	$	405	$	34	$	34

The following table presents information related to average recorded investment and interest income associated with loans individually evaluated for impairment by class of loans for the three months ended March 31, 2023:

	Average		Interest		Cash Basis
	Recorded		Income		Interest
	Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	315	$	9	$	9
Commercial real estate:
Other		39		1		1
1-4 Family residential real estate:
Owner occupied		18		—		—
Non-owner occupied		27		—		—
Total	$	399	$	10	$	10