Note 4 - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

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

(4)         LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans at December 31, 2021 and 2020 consisted of the following:

(In thousands)	2021			2020
Real estate mortgage loans:
Residential	$	130,603		$	131,217
Land		19,478			17,328
Construction		59,959			44,148
Commercial		137,915			135,114
Commercial business loans		51,787			82,274
Consumer loans:
Home equity and second mortgage loans		54,453			52,001
Automobile loans		43,946			43,770
Loans secured by savings accounts		827			1,083
Unsecured loans		2,219			2,766
Other consumer loans		13,579			16,117
Gross loans		514,766			525,818
Less undisbursed portion of loans in process		(26,520	)		(19,179	)
Principal loan balance		488,246			506,639
Deferred loan origination fees and costs, net		1,124			317
Allowance for loan losses		(6,083	)		(6,625	)
Loans, net	$	483,287		$	500,331

At December 31, 2021 and 2020, PPP loans guaranteed by the SBA totaling $1.5 million and $37.3 million, respectively, were included in commercial business loans. At December 31, 2021 and December 31, 2020, net deferred loan fees related to PPP loans were $34,000 and $843,000, respectively, which will be recognized over the expected life of the loans and as borrowers are granted forgiveness.

At December 31, 2021 and 2020, the net unamortized premium on loans acquired from other financial institutions, excluding purchased credit impaired (“PCI”) loans, was $31,000 and $61,000, respectively.

At both December 31, 2021 and 2020, 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 $1.6 million.

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, 2021 and 2020. 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)	2021			2020
Beginning balance	$	13,287		$	9,520
Adjustments due to officer and director changes		-			(1,051	)
New loans		3,391			8,235
Payments		(9,445	)		(3,417	)
Ending balance	$	7,233		$	13,287

Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at December 31, 2021 and 2020 were $2.6 million and $2.0 million, respectively.

The following table provides the components of the Company’s recorded investment in loans at December 31, 2021 and 2020:

														Home Equity
	Residential							Commercial			Commercial			and Second		Other
	Real Estate		Land		Construction			Real Estate			Business			Mortgage		Consumer		Total
	(In thousands)
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
December 31, 2020:
Principal loan balance	$	131,217	$	17,328	$	24,969		$	135,114		$	82,274		$	52,001	$	63,736	$	506,639
Accrued interest receivable		513		116		61			435			378			176		244		1,923
Net deferred loan origination fees and costs		120		17		(12	)		(65	)		(843	)		1,100		-		317
Recorded investment in loans	$	131,850	$	17,461	$	25,018		$	135,484		$	81,809		$	53,277	$	63,980	$	508,879

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 and recorded investment in loans as of and 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
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-		$	-	$	-		$	-	$	-		$	-	$	-		$	-
Collectively evaluated for impairment		1,208			209		292			2,358		843			617		1,067			6,594
Acquired with deteriorated credit quality		31			-		-			-		-			-		-			31
Ending balance	$	1,239		$	209	$	292		$	2,358	$	843		$	617	$	1,067		$	6,625
Recorded Investment in Loans:
Individually evaluated for impairment	$	1,728		$	97	$	-		$	779	$	211		$	353	$	-		$	3,168
Collectively evaluated for impairment		129,851			17,364		25,018			134,679		81,598			52,924		63,980			505,414
Acquired with deteriorated credit quality		271			-		-			26		-			-		-			297
Ending balance	$	131,850		$	17,461	$	25,018		$	135,484	$	81,809		$	53,277	$	63,980		$	508,879

An analysis of the allowance for loan losses for the year ended December 31, 2019 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	$	693		$	162	$	224	$	1,401	$	459	$	443		$	683		$	4,065
Provisions		251			-		126		222		132		77			617			1,425
Charge-offs		(194	)		-		-		-		-		(24	)		(548	)		(766	)
Recoveries		117			1		-		-		4		19			196			337
Ending balance	$	867		$	163	$	350	$	1,623	$	595	$	515		$	948		$	5,061

At December 31, 2021 and 2020, 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 qualitative factors due to economic uncertainties related to the novel coronavirus ("COVID-19"). During the year ended December 31, 2021, while there was still uncertainty about how severely the COVID-19 pandemic has 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, 2021, the Company's allowance for loan losses totaled $6.1 million, of which $5.5 million related to qualitative factor adjustments. At December 31, 2020, the Company's allowance for loan losses totaled $6.6 million, of which $6.0 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, 2021 and 2020.

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 as of and 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.

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,728	$	1,902	$	-	$	1,638	$	22
Land		97		97		-		101		1
Construction		-		-		-		-		-
Commercial real estate		779		784		-		836		36
Commercial business		211		210		-		249		9
Home equity and second mortgage		353		345		-		234		13
Other consumer		-		-		-		19		-
	$	3,168	$	3,338	$	-	$	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	$	1,728	$	1,902	$	-	$	1,755	$	22
Land		97		97		-		101		1
Construction		-		-		-		-		-
Commercial real estate		779		784		-		836		36
Commercial business		211		210		-		325		9
Home equity and second mortgage		353		345		-		234		13
Other consumer		-		-		-		19		-
	$	3,168	$	3,338	$	-	$	3,270	$	81

The following table summarizes the Company’s impaired loans for the year ended December 31, 2019. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended December 31, 2019.

	Average		Interest
	Recorded		Income
	Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,973	$	17
Land		147		-
Construction		209		-
Commercial real estate		446		33
Commercial business		330		11
Home equity and second mortgage		29		1
Other consumer		20		-
	$	3,154	$	62
Loans with an allowance recorded:
Residential	$	87	$	-
Land		-		-
Construction		-		-
Commercial real estate		81		-
Commercial business		58		-
Home equity and second mortgage		13		-
Other consumer		-		-
	$	239	$	-
Total:
Residential	$	2,060	$	17
Land		147		-
Construction		209		-
Commercial real estate		527		33
Commercial business		388		11
Home equity and second mortgage		42		1
Other consumer		20		-
	$	3,393	$	62

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, 2021 and 2020:

	December 31, 2021						December 31, 2020
			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	$	806	$	-	$	806	$	1,154	$	-	$	1,154
Land		102		-		102		97		59		156
Construction		-		-		-		-		-		-
Commercial real estate		115		-		115		155		-		155
Commercial business		-		-		-		-		-		-
Home equity and second mortgage		304		-		304		-		-		-
Other consumer		-		3		3		-		-		-
Total	$	1,327	$	3	$	1,330	$	1,406	$	59	$	1,465

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 following table presents the aging of the recorded investment in loans at December 31, 2020:

											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	$	1,672	$	227	$	726	$	2,625	$	128,954	$	271	$	131,850
Land		130		65		156		351		17,110		-		17,461
Construction		-		-		-		-		25,018		-		25,018
Commercial real estate		155		-		-		155		135,303		26		135,484
Commercial business		-		-		-		-		81,809		-		81,809
Home equity and second mortgage		53		302		-		355		52,922		-		53,277
Other consumer		285		101		-		386		63,594		-		63,980
Total	$	2,295	$	695	$	882	$	3,872	$	504,710	$	297	$	508,879

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, 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
December 31, 2020
Pass	$	130,054	$	16,925	$	25,018	$	131,822	$	81,452	$	52,869	$	63,919	$	502,059
Special Mention		-		315		-		2,289		284		-		10		2,898
Substandard		642		124		-		1,218		73		408		51		2,516
Doubtful		1,154		97		-		155		-		-		-		1,406
Loss		-		-		-		-		-		-		-		-
Total	$	131,850	$	17,461	$	25,018	$	135,484	$	81,809	$	53,277	$	63,980	$	508,879

Troubled Debt Restructurings

The following table summarizes the Company’s TDRs by accrual status as of December 31, 2021 and 2020:

	December 31, 2021								December 31, 2020
							Related								Related
							Allowance								Allowance
	Accruing		Nonaccrual		Total		for Loan Losses		Accruing		Nonaccrual		Total		for Loan Losses
	(In thousands)
Troubled debt restructurings:
Residential real estate	$	216	$	-	$	216	$	-	$	556	$	-	$	556	$	-
Commercial real estate		585		-		585		-		621		-		621		-
Commercial business		174		-		174		-		210		-		210		-
Home equity and second mortgage		-		287		287		7		345		-		345		-
Total	$	975	$	287	$	1,262	$	7	$	1,732	$	-	$	1,732	$	-

At December 31, 2021 and 2020, 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 year ended December 31, 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. The Company restructured two residential real estate loans, one commercial real estate loan and one home equity loan during the year ended December 31, 2019, with pre-modification and post-modification balances of $225,000, $154,000 and $56,000, respectively. For the TDRs restructured during 2020 and 2019, 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, 2021, 2020 and 2019.

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, 2020 and 2019. 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 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, 2020 and 2019.

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”. The guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance goes on to explain that in consultation with the FASB staff that the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs. The CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. The Consolidated Appropriations Act of 2021 further extended the relief from TDR accounting for qualified modifications to the earlier of January 1, 2022, or 60 days after the national emergency concerning COVID-19 terminates. The Bank has applied this guidance related to payment deferrals and other COVID-19 related loan modifications made through December 31, 2021. As of December 31, 2021, the Bank had approved payment extensions of primarily one to three months on $68.1 million of balances in the loan portfolio, primarily related to commercial real estate lending relationships. At December 31, 2021, all such loans had resumed payments or been paid off.

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, 2021 and 2020:

(In thousands)	2021		2020
Residential real estate	$	270	$	271
Commercial real estate		11		26
Carrying amount		281		297
Allowance for loan losses		31		31
Carrying amount, net of allowance	$	250	$	266

The outstanding balance of PCI loans accounted for under FASB ASC 310-30, including contractual principal, interest, fees and penalties was $339,000 and $390,000 at December 31, 2020 and 2020, respectively.

The allowance for loan losses related to PCI loans was $31,000 at December 31, 2021 and 2020. There were no provisions for loan losses related to PCI loans for the year ended December 31, 2021. Provisions for loan losses related to PCI loans were $19,000 and $12,000 for the years ended December 31, 2020 and 2019, respectively.

Accretable yield, or income expected to be collected, is as follows for the years ended December 31, 2021, 2020 and 2019:

(In thousands)	2021			2020			2019
Beginning balance	$	316		$	403		$	423
New loans acquired		-			-			-
Accretion to income		(30	)		(42	)		(46	)
Disposals and other adjustements		-			(4	)		-
Reclassification (to) from nonaccretable difference		(20	)		(41	)		26
Ending Balance	$	266		$	316		$	403