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Note 5 - Allowance for Credit Losses

9 Months Ended

Sep. 30, 2025

Allowance for Credit Losses [Text Block]

5. Allowance for Credit Losses

Credit Quality Indicators

A Loan Risk Rating Grading System has been developed and is being utilized to categorize loans with similar characteristics. There are six (6) “Pass” Ratings and the standard “Classified” Watchlist Ratings. The loans are assessed based upon the information in the Loan Committee Package and a lender identified score. Further, any reassessment would be performed when the annual loan review is performed or when the loan account exhibits signs of financial difficulty or improvement. The definition of each Loan Risk Rating is outlined below:

Pass (Grades 1-6) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

Substandard (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss (Grade 10) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company’s loan rating process includes several layers of internal and external oversight. The Company’s loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management. All commercial, agricultural and state and political relationships over $500,000 are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on an annual basis to: 1) review a minimum of 50% of the dollar volume of the commercial and agricultural loan portfolios, including 2) review of a sample of existing or new credit relationships with aggregate commitments greater than or equal to $1.0 million, 3) review a sample of loan relationships which are over 90 days past due, or classified Special Mention, Substandard, Doubtful, or Loss, 4) review a sample of borrowings extended to directors or executive officers, including any new borrowings made in the last year, and 5) review of other loans which management may deem appropriate.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of September 30, 2025 and December 31, 2024 and gross year-to-date charge-offs for the respective periods (in thousands):

	*Term Loans by Year of Origination*
*September 30, 2025*	*2025*		*2024*		*2023*		*2022*		*2021*		*Prior*		*Revolving*		*Total*

Commercial
Pass	$	4,512	$	15,794	$	7,520	$	10,861	$	33,798	$	30,392	$	53,681	$	156,558
Special Mention		-		52		361		-		820		1,577		988		3,798
Substandard		-		-		49		1,100		-		-		190		1,339
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Commercial – Total		4,512		15,846		7,930		11,961		34,618		31,969		54,859		161,695

Current Year Gross Charge-Offs		-		-		25		-		-		-		-		25

Commercial Real Estate
Pass		45,768		56,386		41,221		55,104		49,348		67,409		17,287		332,523
Special Mention		-		-		289		564		1,703		4,359		9		6,924
Substandard		-		-		5		-		-		343		1,800		2,148
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Commercial Real Estate – Total		45,768		56,386		41,515		55,668		51,051		72,111		19,096		341,595

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Residential Mortgage
Pass		40,275		42,822		36,379		55,729		49,367		120,919		3,227		348,718
Special Mention		-		265		191		-		100		1,705		-		2,261
Substandard		-		-		197		26		-		2,676		192		3,091
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Residential Mortgage – Total		40,275		43,087		36,767		55,755		49,467		125,300		3,419		354,070

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Home Equity
Pass		3,732		4,383		2,637		2,363		2,126		7,151		8,776		31,168
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		25		-		-		-		31		-		56
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Home Equity – Total		3,732		4,408		2,637		2,363		2,126		7,182		8,776		31,224

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Consumer - Other
Pass		1,223		1,185		857		307		79		235		518		4,404
Special Mention		-		1		-		-		-		-		-		1
Substandard		-		1		2		12		-		-		1		16
Doubtful		-		-		21		-		-		-		-		21
Loss		-		-		-		-		-		-		-		-

Consumer - Other – Total		1,223		1,187		880		319		79		235		519		4,442

Current Year Gross Charge-Offs		-		21		3		-		-		-		-		24

Consumer – Auto
Pass		2,302		2,611		2,089		1,246		221		75		-		8,544
Special Mention		-		-		26		-		-		-		-		26
Substandard		-		-		-		11		17		-		-		28
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Consumer - Auto – Total		2,302		2,611		2,115		1,257		238		75		-		8,598

Current Year Gross Charge-Offs		-		36		6		6		-		-		-		48

Overall – Total	$	97,812	$	123,525	$	91,844	$	127,323	$	137,579	$	236,872	$	86,669	$	901,624

	*Term Loans by Year of Origination*
*December 31, 2024*	*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving*		*Total*

Commercial
Pass	$	6,909	$	4,500	$	6,221	$	14,788	$	3,968	$	4,812	$	45,006	$	86,204
Special Mention		55		381		-		-		451		-		899		1,786
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Commercial – Total		6,964		4,881		6,221		14,788		4,419		4,812		45,905		87,990

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Commercial Real Estate
Pass		44,433		35,523		26,801		34,436		16,420		46,684		56		204,353
Special Mention		240		289		573		-		-		2,677		-		3,779
Substandard		-		-		-		4,449		-		14		-		4,463
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Commercial Real Estate – Total		44,673		35,812		27,374		38,885		16,420		49,375		56		212,595

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Residential Mortgage
Pass		14,439		14,932		15,320		19,923		18,859		35,550		128		119,151
Special Mention		453		277		-		364		-		624		-		1,718
Substandard		-		-		-		-		-		476		-		476
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Residential Mortgage – Total		14,892		15,209		15,320		20,287		18,859		36,650		128		121,345

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Home Equity
Pass		109		-		-		-		-		369		6,708		7,186
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Home Equity – Total		109		-		-		-		-		369		6,708		7,186

Current Year Gross Charge-Offs		-		-		-		-		-		-		-		-

Consumer - Other
Pass		707		445		200		31		7		5		109		1,504
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-
Doubtful		-		22		-		-		-		-		-		22
Loss		-		-		-		-		-		-		-		-

Consumer - Other – Total		707		467		200		31		7		5		109		1,526

Current Year Gross Charge-Offs		10		-		-		-		-		-		-		10

Consumer – Auto
Pass		2,574		2,113		1,138		367		130		155		-		6,477
Special Mention		8		5		15		-		-		-		-		28
Substandard		-		-		-		8		-		3		-		11
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-

Consumer - Auto – Total		2,582		2,118		1,153		375		130		158		-		6,516

Current Year Gross Charge-Offs		13		26		-		13		-		-		-		52

Overall – Total	$	69,927	$	58,487	$	50,268	$	74,366	$	39,835	$	91,369	$	52,906	$	437,158

There were no revolving to term loans as of September 30, 2025 and December 31, 2024.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by past due and nonaccrual status as of September 30, 2025 and December 31, 2024 (in thousands):

Greater

Total Past

than 90

Due and

Total

30-89 Days

Days and

Non-

Loans

September 30, 2025

Past Due

Accruing

accrual

Current

Receivable

Commercial

1,394

1,443

160,252

161,695

Commercial real estate

201

206

341,389

341,595

Residential mortgage

3,160

1,483

4,643

349,427

354,070

Home equity

136

161

31,063

31,224

Consumer, other

4,384

4,442

Consumer, automobile

124

151

8,447

8,598

Total

5,071

1,591

6,662

894,962

901,624

			Greater				Total Past
			than 90				Due and				Total
	30-89 Days		Days and		Non-		Non-				Loans
December 31, 2024	Past Due		Accruing		accrual		accrual		Current		Receivable

Commercial	$	18	$	-	$	-	$	18	$	87,972	$	87,990
Commercial real estate		-		-		-		-		212,595		212,595
Residential mortgage		282		-		420		702		120,643		121,345
Home equity		-		-		-		-		7,186		7,186
Consumer, other		2		-		-		2		1,524		1,526
Consumer, automobile		121		-		18		139		6,377		6,516

Total	$	423	$	-	$	438	$	861	$	436,297	$	437,158

The following tables present nonaccrual loans, by loan class, as of September 30, 2025 and December 31, 2024 (in thousands):

	Nonaccruals		Nonaccruals
	with No		with an
	Allowance		Allowance
	for Credit		for Credit
September 30, 2025	Losses		Losses

Commercial	$	-	$	49
Commercial real estate		5		-
Residential mortgage		1,073		410
Home equity		25		-
Consumer, other		-		2
Consumer, automobile		27		-

Total	$	1,130	$	461

	Nonaccruals		Nonaccruals
	with No		with an
	Allowance		Allowance
	for Credit		for Credit
December 31, 2024	Losses		Losses

Commercial	$	-	$	-
Commercial real estate		-		-
Residential mortgage		420		-
Home equity		-		-
Consumer, other		-		-
Consumer, automobile		18		-

Total	$	438	$	-

During the three and nine months ended September 30, 2025 and 2024, no accrued interest receivable was reversed against interest income.

The following tables summarize the activity in the allowance for credit losses by loan class for the nine months ended September 30, 2025 and 2024, and the year ended December 31, 2024 and information in regard to the allowance for credit losses and the recorded investment in loans receivable by loan class as of September 30, 2025 and December 31, 2024 (in thousands):

	Beginning		Merger							Provisions		Ending
September 30, 2025	Balance		Adjustments		Charge-offs			Recoveries		(Credits)		Balance

Commercial	$	1,007	$	423	$	(25	)	$	4	$	1,257	$	2,666
Commercial real estate		2,366		114		-			-		1,611		4,091
Residential mortgage		823		178		-			-		1,323		2,324
Home equity		83		7		-			-		176		266
Consumer, other		18		3		(24	)		2		65		64
Consumer, automobile		82		-		(48	)		9		58		101

Total	$	4,379	$	725	$	(97	)	$	15	$	4,490	$	9,512

	Beginning							Provisions			Ending
September 30, 2024	Balance		Charge-offs			Recoveries		(Credits)			Balance

Commercial	$	793	$	-		$	1	$	23		$	817
Commercial real estate		1,741		-			-		273			2,014
Residential mortgage		792		-			-		5			797
Home equity		60		-			-		14			74
Consumer, other		44		(10	)		-		(16	)		18
Consumer, automobile		85		(27	)		9		17			84
Unallocated		346		-			-		(199	)		147

Total	$	3,861	$	(37	)	$	10	$	117		$	3,951



	Beginning							Provision			Ending
December 31, 2024	Balance		Charge-offs			Recoveries		(Credits)			Balance

Commercial	$	793	$	-		$	2	$	212		$	1,007
Commercial real estate		1,741		-			-		625			2,366
Residential mortgage		792		-			-		31			823
Home equity		60		-			-		23			83
Consumer, other		44		(10	)		-		(16	)		18
Consumer, automobile		85		(52	)		9		40			82
Unallocated		346		-			-		(346	)		-

Total	$	3,861	$	(62	)	$	11	$	569		$	4,379

Allowance for Credit Losses

Loans Receivable

Ending Balance September 30, 2025

Individually

Collectively

Individually

Collectively

Evaluated

Total

Evaluated

Total

Commercial

2,659

2,666

161,646

161,695

Commercial real estate

4,091

341,590

341,595

Residential mortgage

2,312

2,324

2,142

351,928

354,070

Home equity

266

31,198

31,224

Consumer, other

4,439

4,442

Consumer, automobile

101

8,598

Total

9,491

9,512

2,225

899,399

901,624

	Allowance for Credit Losses						Loans Receivable
	Ending Balance December 31, 2024						Ending Balance December 31, 2024
	Individually		Collectively				Individually		Collectively
	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial	$	17	$	990	$	1,007	$	964	$	87,026	$	87,990
Commercial real estate		-		2,366		2,366		289		212,306		212,595
Residential mortgage		3		820		823		852		120,493		121,345
Home equity		-		83		83		-		7,186		7,186
Consumer, other		-		18		18		-		1,526		1,526
Consumer, automobile		-		82		82		-		6,516		6,516

Total	$	20	$	4,359	$	4,379	$	2,105	$	435,053	$	437,158

The Company individually evaluates loans for impairment when a loan meets the following criteria: credit risk rated substandard or doubtful and on non-accrual status, or a previously modified loan that is now past due 30 days or more.

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral when the borrower is experiencing financial difficulty. Under ASU 2016-13, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of the collateral. The allowance for credit losses is calculated on an individual loan basis on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The following table details the amortized costs of the collateral dependent loans as of September 30, 2025 and December 31, 2024 (in thousands):

	Real Estate		Other
September 30, 2025	Collateral		Collateral		Total

Commercial	$	-	$	49	$	49
Commercial real estate		5		-		5
Residential mortgage		2,142		-		2,142
Home equity		25		-		25
Consumer, other		-		-		-
Consumer, automobile		-		-		-

Total	$	2,172	$	49	$	2,221

	Real Estate		Other
December 31, 2024	Collateral		Collateral		Total

Commercial	$	97	$	-	$	97
Commercial real estate		-		-		-
Residential mortgage		590		-		590
Home equity		-		-		-
Consumer, other		-		-		-
Consumer, automobile		-		-		-

Total	$	687	$	-	$	687

Modifications

In situations where a borrower is experiencing financial difficulty, management grants a concession to the borrower that it would not otherwise consider, and the modification results in a more than insignificant change in contractual cash flows, the related loan is subject to specific disclosure requirements. Management strives to identify borrowers in financial difficulty early and work with them to modify their loans to more affordable terms before their loans reach nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. Occasionally, we may modify a loan by providing principal forgiveness. In some cases, we will modify a loan by providing multiple types, or combinations, of concessions.

The following table presents the amortized cost basis of loans at September 30, 2025 that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2025. The percentage of amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each financing receivable is also presented below. All loan categories with modifications are included in the table below (in thousands):

Combination

% of Total

Term Extension

Class of

Principal

Payment

Term

Interest Rate

and Payment

Financing

September 30, 2025

Forgiveness

Delay

Extension

Reduction

Delay

Total

Receivable

Commercial

498

0.3

Total

498

0.1

There were no commitments to lend additional funds under these modifications as of September 30, 2025.

There were no loans to borrowers experiencing financial difficulty that were modified during the three and nine months ended September 30, 2024.

There were no loans to borrowers experiencing financial difficulty that defaulted during the three and nine months ended September 30, 2025 and 2024 and were modified in the twelve months prior.

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable by the Company. The allowance for off-balance sheet credit exposures is adjusted as a provision for (or recovery of) credit losses and is included in provision for (recovery of) credit losses in the Consolidated Statements of Income. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for loan credit losses. The allowance for credit losses for unfunded loan commitments of $277,000 and $377,000 at September 30, 2025 and December 31, 2024, respectively, is separately classified within Other Liabilities on the Consolidated Balance Sheets. The following tables present the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended September 30, 2025 and 2024 (in thousands):

	Allowance for
	Credit Losses
	Unfunded
	Commitments
Beginning balance, December 31, 2024	$	377
Provision for credit losses	$	(100	)
Ending balance, September 30, 2025	$	277

	Allowance for
	Credit Losses
	Unfunded
	Commitments
Beginning balance, December 31, 2023	$	266
Provision for credit losses		52
Ending balance, September 30, 2024	$	318