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Note 4 - Loans, Allowance for Credit Losses and Other Real Estate Owned

9 Months Ended

Sep. 30, 2022

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

Note 4: Loans, Allowance for Credit Losses and Other Real Estate Owned

A summary of the major categories of loans outstanding is shown in the following tables at the dates indicated.

	At September 30,		At December 31,
	2022		2021
	(In thousands)
Commercial:
Paycheck Protection Program ("PPP") loans	$	6,095	$	45,888
Other		174,321		187,202
Total Commercial		180,416		233,090
Commercial Real Estate		492,749		535,261
Construction		2,635		48
Residential Real Estate		14,719		18,133
Consumer Installment & Other		288,514		281,594
Total	$	979,033	$	1,068,126

PPP loans are guaranteed by the Small Business Administration (“SBA”). PPP loan proceeds used for eligible payroll and certain other operating costs are eligible for forgiveness, with repayment of loan principal and accrued interest made by the SBA. Management does not expect credit losses on PPP loans. Therefore, there is no allowance for such loans. The following summarizes activity in the allowance for credit losses.

	Allowance for Credit Losses
	For the Three Months Ended September 30, 2022
										Consumer
				Commercial				Residential		Installment
	Commercial			Real Estate		Construction		Real Estate		and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,536		$	5,916	$	96	$	35	$	9,730		$	22,313
(Reversal) provision		(164	)		14		32		-		118			-
Chargeoffs		-			-		-		-		(1,917	)		(1,917	)
Recoveries		72			14		-		-		736			822
Total allowance for credit losses	$	6,444		$	5,944	$	128	$	35	$	8,667		$	21,218

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2022
												Consumer
				Commercial					Residential			Installment
	Commercial			Real Estate			Construction		Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,966		$	6,529		$	2	$	45		$	9,972		$	23,514
(Reversal) provision		(837	)		(631	)		126		(10	)		1,352			-
Chargeoffs		(20	)		-			-		-			(4,522	)		(4,542	)
Recoveries		335			46			-		-			1,865			2,246
Total allowance for credit losses	$	6,444		$	5,944		$	128	$	35		$	8,667		$	21,218

	Allowance for Credit Losses
	For the Three Months Ended September 30, 2021
													Consumer
				Commercial						Residential			Installment
	Commercial			Real Estate			Construction			Real Estate			and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	6,858		$	6,752		$	5		$	57		$	10,065		$	23,737
Provision (reversal)		10			(754	)		(3	)		(7	)		756			2
Chargeoffs		(56	)		-			-			-			(916	)		(972	)
Recoveries		80			705			-			-			330			1,115
Total allowance for credit losses	$	6,892		$	6,703		$	2		$	50		$	10,235		$	23,882

	Allowance for Credit Losses
	For the Nine Months Ended September 30, 2021
											Consumer
				Commercial					Residential		Installment
	Commercial			Real Estate		Construction			Real Estate		and Other			Total
	(In thousands)
Allowance for credit losses:
Balance at beginning of period	$	9,205		$	5,660	$	6		$	47	$	8,936		$	23,854
(Reversal) provision		(2,425	)		314		(4	)		3		2,114			2
Chargeoffs		(56	)		-		-			-		(2,176	)		(2,232	)
Recoveries		168			729		-			-		1,361			2,258
Total allowance for credit losses	$	6,892		$	6,703	$	2		$	50	$	10,235		$	23,882

The Company’s customers are primarily small businesses, professionals and consumers. Given the scale of these borrowers, corporate credit rating agencies do not evaluate the borrowers’ financial condition. The Bank maintains a Loan Review Department which reports directly to the Audit Committee of the Board of Directors. The Loan Review Department performs independent evaluations of loans and validates management assigned credit risk grades on evaluated loans using grading standards employed by bank regulatory agencies. Loans judged to carry lower-risk attributes are assigned a “pass” grade, with a minimal likelihood of loss. Loans judged to carry higher-risk attributes are referred to as “classified loans,” and are further disaggregated, with increasing expectations for loss recognition, as “substandard,” “doubtful,” and “loss.” The Loan Review Department performs continuous evaluations throughout the year. If the Bank becomes aware of deterioration in a borrower’s performance or financial condition between Loan Review Department examinations, assigned risk grades are re-evaluated promptly. Credit risk grades assigned by management and validated by the Loan Review Department are subject to review by the Bank’s regulatory authorities during regulatory examinations.

The following summarizes the credit risk profile by internally assigned grade:

	Credit Risk Profile by Internally Assigned Grade
	At September 30, 2022
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	179,923	$	480,476	$	2,635	$	13,669	$	286,386	$	963,089
Substandard		493		12,273		-		1,050		419		14,235
Doubtful		-		-		-		-		739		739
Loss		-		-		-		-		970		970
Total	$	180,416	$	492,749	$	2,635	$	14,719	$	288,514	$	979,033

	Credit Risk Profile by Internally Assigned Grade
	At December 31, 2021
	Commercial		Commercial Real Estate		Construction		Residential Real Estate		Consumer Installment and Other		Total
	(In thousands)
Grade:
Pass	$	232,710	$	521,300	$	48	$	16,874	$	278,922	$	1,049,854
Substandard		380		13,961		-		1,259		1,207		16,807
Doubtful		-		-		-		-		931		931
Loss		-		-		-		-		534		534
Total	$	233,090	$	535,261	$	48	$	18,133	$	281,594	$	1,068,126

The following tables summarize loans by delinquency and nonaccrual status:

	Summary of Loans by Delinquency and Nonaccrual Status
	At September 30, 2022
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	179,272	$	1,041	$	53	$	-	$	50	$	180,416
Commercial real estate		491,955		367		371		-		56		492,749
Construction		2,635		-		-		-		-		2,635
Residential real estate		14,425		265		-		-		29		14,719
Consumer installment and other		282,954		3,739		990		769		62		288,514
Total	$	971,241	$	5,412	$	1,414	$	769	$	197	$	979,033

	Summary of Loans by Delinquency and Nonaccrual Status
	At December 31, 2021
	Current and Accruing		30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Past Due 90 Days or More and Accruing		Nonaccrual		Total Loans
	(In thousands)
Commercial	$	232,444	$	383	$	263	$	-	$	-	$	233,090
Commercial real estate		534,748		223		-		-		290		535,261
Construction		48		-		-		-		-		48
Residential real estate		17,855		141		-		-		137		18,133
Consumer installment and other		276,793		3,184		1,013		339		265		281,594
Total	$	1,061,888	$	3,931	$	1,276	$	339	$	692	$	1,068,126

There was no allowance for credit losses allocated to loans on nonaccrual status as of September 30, 2022 or December 31, 2021. There were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2022 or December 31, 2021.

The following tables provide information on troubled debt restructurings (TDRs):

	Troubled Debt Restructurings
	At September 30, 2022
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		2	$	2,785	$	1,760	$	-
Total		2	$	2,785	$	1,760	$	-

	Troubled Debt Restructurings
	At December 31, 2021
							Period-End
							Individual
	Number of		Pre-Modification		Period-End		Credit Loss
	Contracts		Carrying Value		Carrying Value		Allowance
	($ in thousands)
Commercial real estate		2	$	2,785	$	1,793	$	-
Residential real estate		1		241		172		-
Total		3	$	3,026	$	1,965	$	-

During the three and nine months ended September 30, 2022, the Company did not modify any loans that were considered TDRs. During the three and nine months ended September 30, 2021, the Company did not modify any loans that were considered TDRs for accounting purposes. Section 4013 of the CARES Act allowed certain loan modifications for borrowers impacted by the COVID-19 pandemic to be excluded from TDR accounting. This relief ended on January 1, 2022. During the three and nine months ended September 30, 2021, the Company modified loans under Section 4013 of the CARES Act, granting 90 day deferrals of principal and interest payments. As of September 30, 2021, loans deferred under the CARES Act that are not considered TDRs consisted of consumer loans totaling $1.0 million. There were no chargeoffs related to TDRs made during the three and nine months ended September 30, 2022 and September 30, 2021. During the three and nine months ended September 30, 2022 and September 30, 2021, no TDR loans defaulted within 12 months of the modification date. A troubled debt restructuring is considered to be in default when payments are 90 days or more past due.

No loans on nonaccrual status were included in TDRs of $1,760 thousand at September 30, 2022 and $1,965 thousand at December 31, 2021.

A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Loans that were considered collateral dependent at September 30, 2022 included the following: six commercial real estate loans totaling $9.0 million secured by real property, $726 thousand of indirect consumer installment loans secured by personal property, one commercial loan with a balance of $204 thousand secured by business assets, and one residential real estate loans totaling $62 thousand secured by real property. There were no other collateral dependent loans at September 30, 2022. Loans that were considered collateral dependent at December 31, 2021 included the following: five commercial real estate loans totaling $8.4 million secured by real property, $394 thousand of indirect consumer installment loans secured by personal property, one commercial loan with a balance of $57 thousand secured by business assets, and three residential real estate loans totaling $420 thousand secured by real property. There were no other collateral dependent loans at December 31, 2021.

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	At September 30, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Commercial loans by grade
Pass	$	33,823	$	7,392	$	13,442	$	18,059	$	62,055	$	16,533	$	151,304	$	28,619	$	179,923
Substandard		24		15		-		-		-		204		243		250		493
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	33,847	$	7,407	$	13,442	$	18,059	$	62,055	$	16,737	$	151,547	$	28,869	$	180,416

	At December 31, 2021
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Commercial loans by grade
Pass	$	34,784	$	3,999	$	8,690	$	16,919	$	30,694	$	98,799	$	193,885	$	38,825	$	232,710
Substandard		32		-		-		-		-		57		89		291		380
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	34,816	$	3,999	$	8,690	$	16,919	$	30,694	$	98,856	$	193,974	$	39,116	$	233,090

	At September 30, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Commercial real estate loans by grade
Pass	$	155,099	$	59,294	$	74,660	$	74,703	$	73,851	$	42,869	$	480,476	$	-	$	480,476
Substandard		8,354		-		832		810		-		2,277		12,273		-		12,273
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	163,453	$	59,294	$	75,492	$	75,513	$	73,851	$	45,146	$	492,749	$	-	$	492,749

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	At December 31, 2021
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Commercial real estate loans by grade
Pass	$	116,181	$	87,921	$	78,200	$	78,647	$	83,642	$	76,709	$	521,300	$	-	$	521,300
Substandard		10,993		-		-		2,016		823		129		13,961		-		13,961
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	127,174	$	87,921	$	78,200	$	80,663	$	84,465	$	76,838	$	535,261	$	-	$	535,261

	At September 30, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Residential real estate loans by grade
Pass	$	13,669	$	-	$	-	$	-	$	-	$	-	$	13,669	$	-	$	13,669
Substandard		1,050		-		-		-		-		-		1,050		-		1,050
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	14,719	$	-	$	-	$	-	$	-	$	-	$	14,719	$	-	$	14,719

	At December 31, 2021
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Residential Real Estate loans by grade
Pass	$	16,874	$	-	$	-	$	-	$	-	$	-	$	16,874	$	-	$	16,874
Substandard		1,259		-		-		-		-		-		1,259		-		1,259
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	18,133	$	-	$	-	$	-	$	-	$	-	$	18,133	$	-	$	18,133

	At September 30, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Construction loans by grade
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	2,635	$	2,635
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	2,635	$	2,635

	At December 31, 2021
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Construction loans by grade
Pass	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	48	$	48
Substandard		-		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	48	$	48

The Company considers the delinquency and nonaccrual status of the consumer loan portfolio and its impact on the allowance for credit losses. The following table presents the amortized cost in consumer installment and other loans based on delinquency and nonaccrual status:

	At September 30, 2022
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2018		2019		2020		2021		2022		Term Loans		Cost Basis		Total
	(In thousands)
Consumer installment and other loans by delinquency and nonaccrual status
Current	$	8,034	$	15,870	$	25,405	$	40,262	$	84,632	$	88,962	$	263,165	$	19,789	$	282,954
30-59 days past due		131		368		446		700		1,386		685		3,716		23		3,739
60-89 days past due		15		41		67		317		331		219		990		-		990
Past due 90 days or more		31		63		134		99		174		253		754		15		769
Nonaccrual		-		-		-		-		-		-		-		62		62
Total	$	8,211	$	16,342	$	26,052	$	41,378	$	86,523	$	90,119	$	268,625	$	19,889	$	288,514

	At December 31, 2021
															Line of
															Credit
	Term Loans Amortized Cost Basis by Origination Year												Total		Amortized
	Prior		2017		2018		2019		2020		2021		Term Loans		Cost Basis		Total
	(In thousands)
Consumer installment and other loans by delinquency and nonaccrual status
Current	$	7,884	$	10,162	$	25,932	$	37,999	$	58,178	$	113,899	$	254,054	$	22,739	$	276,793
30-59 days past due		197		139		634		504		662		1,034		3,170		14		3,184
60-89 days past due		5		20		156		150		186		408		925		88		1,013
Past due 90 days or more		1		17		81		62		109		40		310		29		339
Nonaccrual		-		-		-		-		-		-		-		265		265
Total	$	8,087	$	10,338	$	26,803	$	38,715	$	59,135	$	115,381	$	258,459	$	23,135	$	281,594

There were no loans held for sale at September 30, 2022 and December 31, 2021.

The Company held no other real estate owned (OREO) at September 30, 2022 and December 31, 2021. The amount of consumer mortgage loans outstanding secured by residential real estate properties for which formal foreclosure proceedings were in process was $62 thousand at September 30, 2022 and $247 thousand at December 31, 2021.