Note 3 - Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

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

3. Loans and Allowance for Loan Losses

The Company’s loan and allowance for loan loss policies are as follows:

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses. The Company originates real estate mortgage, commercial business and consumer loans. A substantial portion of the loan portfolio is represented by mortgage loans to customers in the Louisville, Kentucky metropolitan statistical area (MSA). The ability of the Company’s customers to honor their loan agreements is largely dependent upon the real estate and general economic conditions in this area.

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status. Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote.

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid. A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment. Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below. Specific reserves are not considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined.

Consumer loans not secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

The allowance for loan losses reflects management’s judgment of probable loan losses inherent in the loan portfolio at the balance sheet date. Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are individually evaluated for impairment or loans otherwise classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the underlying discounted collateral value (or present value of estimated future cash flows) of the impaired loan is lower than the carrying value of that loan.

The general component covers loans not considered to be impaired. Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior five years. The Company’s historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio segment. Management considers changes and trends in the following qualitative loss factors: underwriting standards, economic conditions, changes and trends in past due and classified loans, collateral valuations, loan concentrations and other internal and external factors.

Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are not individually evaluated for impairment. The loss factor multiples for classified loans are based on management’s assessment of historical trends regarding losses experienced on classified loans in prior periods. See below for additional discussion of the qualitative factors utilized in management’s allowance for loan loss methodology at March 31, 2022 and December 31, 2021.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors. Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

Management utilizes the following portfolio segments in its analysis of the allowance for loan losses: residential real estate, land, construction, commercial real estate, commercial business, home equity and second mortgage, and other consumer loans. Additional discussion of the portfolio segments and the risks associated with each segment can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors. New appraisals are generally obtained for all significant properties when a loan is identified as impaired, and a property is considered significant if the value of the property is estimated to exceed $200,000. Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it is not deemed necessary to obtain a new appraisal, management bases its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

At March 31, 2022, the Company held no foreclosed real estate. At December 31, 2021, the balance of foreclosed real estate includes $36,000 of residential real estate properties where physical possession had been obtained. At March 31, 2022 and December 31, 2021, the recorded investment in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $77,000 and $53,000, respectively.

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

	March 31,			December 31,
(In thousands)	2022			2021
Real estate mortgage loans:
Residential	$	137,762		$	130,603
Land		19,489			19,478
Construction		68,112			59,959
Commercial		148,492			137,915
Commercial business loans		58,031			51,787
Consumer loans:
Home equity and second mortgage loans		55,893			54,453
Automobile loans		44,394			43,946
Loans secured by savings accounts		816			827
Unsecured loans		2,121			2,219
Other consumer loans		12,339			13,579
Gross loans		547,449			514,766
Less undisbursed portion of loans in process		(36,410	)		(26,520	)
Principal loan balance		511,039			488,246
Deferred loan origination fees and costs, net		1,156			1,124
Allowance for loan losses		(6,245	)		(6,083	)
Loans, net	$	505,950		$	483,287

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

														Home Equity
	Residential							Commercial			Commercial			and Second		Other
	Real Estate		Land		Construction			Real Estate			Business			Mortgage		Consumer		Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	137,762	$	19,489	$	31,702		$	148,492		$	58,031		$	55,893	$	59,670	$	511,039
Accrued interest receivable		468		103		74			300			163			166		199		1,473
Net deferred loan origination fees and costs		99		13		(11	)		(72	)		(21	)		1,148		-		1,156
Recorded investment in loans	$	138,329	$	19,605	$	31,765		$	148,720		$	58,173		$	57,207	$	59,869	$	513,668
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	824	$	102	$	-		$	599		$	167		$	287	$	-	$	1,979
Collectively evaluated for impairment		137,236		19,503		31,765			148,113			58,006			56,920		59,869		511,412
Acquired with deteriorated credit quality		269		-		-			8			-			-		-		277
Ending balance	$	138,329	$	19,605	$	31,765		$	148,720		$	58,173		$	57,207	$	59,869	$	513,668

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

														Home Equity
	Residential							Commercial			Commercial			and Second		Other
	Real Estate		Land		Construction			Real Estate			Business			Mortgage		Consumer		Total
	(In thousands)
Recorded Investment in Loans:
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
Recorded Investment in Loans as Evaluated for Impairment:
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 as of March 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)
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1	$	-	$	-	$	-	$	-	$	5	$	-	$	6
Collectively evaluated for impairment		1,196		235		387		1,927		994		512		957		6,208
Acquired with deteriorated credit quality		31		-		-		-		-		-		-		31
Ending balance	$	1,228	$	235	$	387	$	1,927	$	994	$	517	$	957	$	6,245

An analysis of the allowance for loan losses as of 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)
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

An analysis of the changes in the allowance for loan losses for the three months ended March 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 for loan losses		49		1		(16	)		43		121		(10	)		(13	)		175
Charge-offs		-		-		-			-		-		-			(74	)		(74	)
Recoveries		5		-		-			-		-		-			56			61
Ending balance	$	1,228	$	235	$	387		$	1,927	$	994	$	517		$	957		$	6,245

An analysis of the changes in the allowance for loan losses for the three months ended March 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 for loan losses		(14	)		3			56		(3	)		(27	)		14			46			75
Charge-offs		(4	)		(3	)		-		-			-			(9	)		(114	)		(130	)
Recoveries		-			-			-		-			-			-			58			58
Ending balance	$	1,221		$	209		$	348	$	2,355		$	816		$	622		$	1,057		$	6,628

At March 31, 2022 and December 31, 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 2020, management adjusted the qualitative factors due to economic uncertainties related to COVID-19. During 2021, while there was still considerable 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 March 31, 2022, the Company's allowance for loan losses totaled $6.2 million, of which $5.8 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 March 31, 2022 and December 31, 2021.

The following table summarizes the Company’s impaired loans as of March 31, 2022 and for the three months ended March 31, 2022 and 2021. The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the three-month periods ended March 31, 2022 and 2021:

	At March 31, 2022						Three Months Ended March 31, 2022				Three Months Ended March 31, 2021
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	796	$	926	$	-	$	915	$	5	$	1,804	$	5
Land		102		104		-		102		-		99		-
Construction		-		-		-		-		-		-		-
Commercial real estate		599		616		-		651		6		770		9
Commercial business		167		166		-		171		2		206		2
Home equity and second mortgage		-		-		-		8		-		209		1
Other consumer		-		-		-		-		-		-		-
		1,664		1,812		-		1,847		13		3,088		17
Loans with an allowance recorded:
Residential		28		28		1		14		-		-		-
Land		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Home equity and second mortgage		287		297		5		288		-		146		-
Other consumer		-		-		-		-		-		-		-
		315		325		6		302		-		146		-
Total:
Residential		824		954		1		929		5		1,804		5
Land		102		104		-		102		-		99		-
Construction		-		-		-		-		-		-		-
Commercial real estate		599		616		-		651		6		770		9
Commercial business		167		166		-		171		2		206		2
Home equity and second mortgage		287		297		5		296		-		355		1
Other consumer		-		-		-		-		-		-		-
	$	1,979	$	2,137	$	6	$	2,149	$	13	$	3,234	$	17

The following table summarizes the Company’s impaired loans as of December 31, 2021:

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,034	$	1,163	$	-
Land		102		104		-
Construction		-		-		-
Commercial real estate		702		716		-
Commercial business		174		174		-
Home equity and second mortgage		15		15		-
Other consumer		-		-		-
		2,027		2,172		-
Loans with an allowance recorded:
Residential		-		-		-
Land		-		-		-
Construction		-		-		-
Commercial real estate		-		-		-
Commercial business		-		-		-
Home equity and second mortgage		288		296		7
Other consumer		-		-		-
		288		296		7
Total:
Residential		1,034		1,163		-
Land		102		104		-
Construction		-		-		-
Commercial real estate		702		716		-
Commercial business		174		174		-
Home equity and second mortgage		303		311		7
Other consumer		-		-		-
	$	2,315	$	2,468	$	7

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 March 31, 2022 and December 31, 2021:

	March 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	$	598	$	99	$	697	$	806	$	-	$	806
Land		102		-		102		102		-		102
Construction		-		-		-		-		-		-
Commercial real estate		112		-		112		115		-		115
Commercial business		-		-		-		-		-		-
Home equity and second mortgage		287		-		287		304		-		304
Other consumer		-		-		-		-		3		3
Total	$	1,099	$	99	$	1,198	$	1,327	$	3	$	1,330

The following table presents the aging of the recorded investment in loans at March 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	$	1,601	$	48	$	516	$	2,165	$	135,895	$	269	$	138,329
Land		124		62		102		288		19,317		-		19,605
Construction		-		-		-		-		31,765		-		31,765
Commercial real estate		112		-		-		112		148,600		8		148,720
Commercial business		168		-		-		168		58,005		-		58,173
Home equity and second mortgage		637		-		-		637		56,570		-		57,207
Other consumer		153		28		-		181		59,688		-		59,869
Total	$	2,795	$	138	$	618	$	3,551	$	509,840	$	277	$	513,668

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 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.

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

Loans not meeting the criteria above that are analyzed individually as part of the 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)
March 31, 2022
Pass	$	137,026	$	19,380	$	31,765	$	146,216	$	57,591	$	56,920	$	59,869	$	508,767
Special Mention		-		61		-		1,193		345		-		-		1,599
Substandard		705		62		-		1,199		237		-		-		2,203
Doubtful		598		102		-		112		-		287		-		1,099
Loss		-		-		-		-		-		-		-		-
Total	$	138,329	$	19,605	$	31,765	$	148,720	$	58,173	$	57,207	$	59,869	$	513,668
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

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

	March 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	$	214	$	-	$	214	$	-	$	216	$	-	$	216	$	-
Commercial real estate		486		-		486		-		585		-		585		-
Commercial business		167		-		167		-		174		-		174		-
Home equity and second mortgage		-		286		286		5		-		287		287		7
Total	$	867	$	286	$	1,153	$	5	$	975	$	287	$	1,262	$	7

At March 31, 2022 and December 31, 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 three months ended March 31, 2022 or 2021.

There were no principal charge-offs recorded as a result of TDRs and there was no specific allowance for loan losses related to TDRs modified during the three months ended March 31, 2022 or 2021.

There were no TDRs modified within the previous 12 months for which there was a subsequent payment default (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the three months ended March 31, 2022. During the three months ended March 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 $9,000 was established during the three months ended March 31, 2021. The current balance and specific reserve on the second mortgage loan described above is $286,000 and $5,000, respectively.

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 that have evidence of credit deterioration since origination for which it is deemed probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) 310-30. 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 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 ASC 310-30 at March 31, 2022 and December 31, 2021:

	March 31,		December 31,
(In thousands)	2022		2021
Residential real estate	$	269	$	270
Commercial real estate		8		11
Carrying amount		277		281
Allowance for loan losses		31		31
Carrying amount, net of allowance	$	246	$	250

The outstanding balance of PCI loans accounted for under ASC 310-30, including contractual principal, interest, fees and penalties was $337,000 and $339,000 at March 31, 2022 and December 31, 2021, respectively.

There was a $31,000 allowance for loan losses related to PCI loans at March 31, 2022 and December 31, 2021. There was a $1,000 provision for loan losses related to PCI loans for the three-month period ended March 31, 2021. There was no provision for loan losses related to PCI loans for the three-month period ended March 31, 2022.

Accretable yield, or income expected to be collected, is as follows for the three month periods ended March 31, 2022 and 2021:

	2022			2021
Balance at beginning of period	$	266		$	316
New loans purchased		-			-
Accretion to income		(6	)		(8	)
Disposals and other adjustments		-			-
Reclassification from nonaccretable difference		(3	)		(5	)
Balance at end of period	$	257		$	303