Note 3 - Loans and Allowance for Credit Losses

12 Months Ended

Jun. 30, 2024

Notes to Financial Statements

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

NOTE 3—LOANS AND ALLOWANCE FOR CREDIT LOSSES

Major classifications of loans were as follows as of June 30:

	2024			2023
Commercial & Industrial	$	127,782		$	112,558
Commercial real estate:
Owner occupied		163,856			151,005
Non-owner occupied		146,827			140,002
Farmland		38,898			40,606
Land development		12,654			11,004
1-4 family residential real estate		196,098			189,312
Consumer		72,915			65,617
Subtotal		759,030			710,104
Unamortized deferred loan costs, net		84			258
Allowance for credit losses		(7,930	)		(7,724	)
Net loans	$	751,184		$	702,638

The following table presents the activity in the allowance for credit losses by portfolio segment for year ended June 30, 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		297			(240	)		(4	)		(224	)		277		450			556
Charge-offs		(6	)		—			—			—			—		(560	)		(566	)
Recoveries		—			—			—			—			4		160			164
ACL ending balance	$	1,144		$	3,650		$	89		$	174		$	2,018	$	855		$	7,930

Upon adoption of ASC 326, the Company updated its classifications of loans and its determination of credit losses. For the year ended June 30, 2023, Farmland and Land Development loans were included within Commercial Real Estate. For the year ended June 30, 2024, these loan classes have been separately presented.

The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended June 30, 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		348		15		(72	)		564			855
Loans charged-off		—		—		(6	)		(441	)		(447	)
Recoveries		—		1		4			151			156
Total ending allowance balance	$	1,308	$	3,943	$	1,571		$	902		$	7,724

The following table presents the amortized cost of non-accrual loans by class as of June 30, 2024:

	June 30, 2024
					Interest Income
	Non-accrual		Total		Recognized during
	loans with		Non-accrual		the period on
	no ACL		loans		non-accrual loans
Commercial & Industrial	$	51	$	308	$	—
Commercial real estate:
Owner occupied		189		189		75
1 – 4 family residential real estate		262		277		7
Total	$	502	$	774	$	82

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 June 30, 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	$	—	$	—	$	308	$	308	$	127,503	$	127,811	$	—
Commercial real estate:
Owner occupied		311		—		189		500		163,043		163,543		—
Non-owner occupied		—		—		—		—		146,529		146,529		—
Farmland		—		—		—		—		38,799		38,799		—
Land development		—		—		—		—		12,615		12,615		—
1 – 4 family residential real estate		294		—		158		452		196,691		197,143		68
Consumer		575		98		16		689		71,985		72,674		16
Total	$	1,180	$	98	$	671	$	1,949	$	757,165	$	759,114	$	84

The above table of past due loans includes the recorded investment in non-accrual loans of $187 in the loan not past due category and $587 in the 90 days or greater category.

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

The above table of past due loans includes the recorded investment in non-accrual loans of $54 in the 90 days or greater category. Also, included in the recorded investment in loans is $1,598 of accrued interest receivable.

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 commercial loans as of June 30, 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	$	43,540	$	24,263	$	28,588	$	7,370	$	3,448	$	3,954	$	14,868	$	93	$	126,124
Special Mention		151		67		569		12		—		61		755		—		1,615
Substandard		—		—		—		8		—		—		—		—		8
Doubtful		—		—		—		—		—		—		64		—		64
Total Commercial & Industrial	$	43,691	$	24,330	$	29,157	$	7,390	$	3,448	$	4,015	$	15,687	$	93	$	127,811
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	6	$	—	$	—	$	6
Commercial real estate:
Owner occupied:
Pass	$	16,207	$	20,615	$	34,572	$	21,405	$	14,877	$	41,035	$	11,684	$	—	$	160,395
Special Mention		—		—		—		650		320		1,708		151		—		2,829
Substandard		—		—		—		—		—		254		—		—		254
Doubtful		—		—		—		14		—		51		—		—		65
Total owner occupied	$	16,207	$	20,615	$	34,572	$	22,069	$	15,197	$	43,048	$	11,835	$	—	$	163,543
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-owner occupied:
Pass	$	16,395	$	37,241	$	22,324	$	23,564	$	11,616	$	34,570	$	819	$	—	$	146,529
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total non-owner occupied	$	16,395	$	37,241	$	22,324	$	23,564	$	11,616	$	34,570	$	819	$	—	$	146,529
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Farmland:
Pass	$	1,543	$	5,854	$	5,867	$	5,309	$	2,280	$	16,591	$	1,201	$	143	$	38,788
Special Mention		—		—		—		—		—		11		—		—		11
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Farmland	$	1,543	$	5,854	$	5,867	$	5,309	$	2,280	$	16,602	$	1,201	$	143	$	38,799
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Land Development:
Pass	$	4,449	$	2,005	$	353	$	512	$	285	$	504	$	4,507	$	—	$	12,615
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total Land Development	$	4,449	$	2,005	$	353	$	512	$	285	$	504	$	4,507	$	—	$	12,615
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total:
Pass	$	82,134	$	89,978	$	91,704	$	58,160	$	32,506	$	96,654	$	33,079	$	236	$	484,451
Special Mention		151		67		569		662		320		1,780		906		—		4,455
Substandard		—		—		—		8		—		254		—		—		262
Doubtful		—		—		—		14		—		51		64		—		129
Total	$	82,285	$	90,045	$	92,273	$	58,844	$	32,826	$	98,739	$	34,049	$	236	$	489,297

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 June 30, 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	$	16,675	$	23,451	$	29,857	$	54,816	$	18,891	$	28,792	$	24,235	$	81	$	196,798
Nonperforming		—		—		277		—		—		68		—		—		345
Total 1-4 family residential real estate	$	16,675	$	23,451	$	30,134	$	54,816	$	18,891	$	28,860	$	24,235	$	81	$	197,143
Current year-to-date gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer:
Performing	$	29,800	$	25,179	$	12,422	$	4,241	$	586	$	236	$	194	$	—	$	72,658
Nonperforming		8		—		8		—		—		—		—		—		16
Total consumer	$	29,808	$	25,179	$	12,430	$	4,241	$	586	$	236	$	194	$	—	$	72,674
Current year-to-date gross write-offs	$	63	$	140	$	265	$	56	$	35	$	1	$	—	$	—	$	560
Total:
Performing	$	46,475	$	48,630	$	42,279	$	59,057	$	19,477	$	29,028	$	24,429	$	81	$	269,456
Nonperforming		8		—		285		—		—		68		—		—		361
Total	$	46,483	$	48,630	$	42,564	$	59,057	$	19,477	$	29,096	$	24,429	$	81	$	269,817

As of June 30, 2023 the recorded investment by risk category of loans by class of loans was as follows:

	Pass		Special Mention		Substandard		Doubtful		Not Rated		Total
Commercial	$	110,928	$	1,174	$	573	$	—	$	151		112,826
Commercial real estate:
Construction		23,996		—		—		—		—		23,996
Other		310,427		7,097		468		51		662		318,705
1-4 Family residential real estate:
Owner occupied		2,013		—		17		—		156,407		158,437
Non-owner occupied		23,474		50		105		3		256		23,888
Construction		3,227		—		—		—		5,287		8,514
Consumer		597		—		—		—		64,997		65,594
Total	$	474,662	$	8,321	$	1,163	$	54	$	227,760		711,960

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 twelve-month period ended June 30, 2024.

As of June 30, 2023, under previous accounting guidance for troubled debt restructurings (TDRs), the Company had $351 of loans classified as TDRs. There were no specific reserves allocated to these loans and TDRs were also included as impaired loans. For the year ended June 30, 2023, there were no loans modified that were classified as a TDR and there were no loans classified as TDRs for which there was a payment default within 12 months following the modification. A loan was considered in payment default once it was 90 days contractually past due under the modified terms.

Collateral Dependent Loans

A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following table presents the amortized cost of collateral dependent loans and the related allowance for credit losses allocated to these loans:

June 30, 2024:	Real Estate		Other		ACL
Commercial & Industrial	$	—	$	257	$	67
Commercial real estate:
Owner occupied		189		—		—
Total loans	$	189	$	257	$	67

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		Residential
			Real		Real
	Commercial		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 loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2023:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial	$	404	$	314	$	—	$	306	$	37	$	37
Commercial real estate:
Other		127		88		—		52		6		6
1-4 Family residential real estate:
Owner occupied		24		—		—		38		2		2
Non-owner occupied		3		3		—		29		—		—
Total	$	558	$	405	$	—	$	425	$	45	$	45