Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

Note 3:  Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality on an individual loan basis and to identify impaired loans. Please refer to the Company’s 2021 Form 10-K, Note 1: Summary of Significant Accounting Policies for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

Collectively-Evaluated Loans

The loan portfolio is comprised of major segments and smaller classes within each segment. Segments and classes are determined based on characteristics such as collateral type and intended use, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively evaluated loans is applied at the class level. The Company’s segments and classes within each segment are presented below:

Portfolio Segments and Classes

The segments and classes used in determining the allowance for loan losses are as follows.

Real Estate Construction Construction, residential Construction, other   Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate   Commercial Real Estate Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other Commercial Non Real Estate Commercial and industrial   Public Sector and IDA Public sector and IDA   Consumer Non Real Estate Credit cards Automobile Other consumer loans

Collectively-evaluated loans within each class are further stratified by risk rating: pass-rated loans, loans rated special mention, and loans rated classified. Credit risk for collectively-evaluated loans is estimated at the class level, by risk rating, by applying historical net charge-off rates and percentages for qualitative factors that influence credit risk. Please refer to the Company’s 2021 Form 10-K, Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class.

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2021	$	422	$	1,930	$	3,121	$	1,099		$	297	$	444		$	361		$	7,674
Charge-offs		-		-		-		(2	)		-		(133	)		-			(135	)
Recoveries		-		-		24		6			-		56			-			86
Provision for (recovery of) loan losses		285		189		325		(307	)		39		95			(182	)		444
Balance, June 30, 2022	$	707	$	2,119	$	3,470	$	796		$	336	$	462		$	179		$	8,069

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2021
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2020	$	503		$	2,165		$	3,853		$	670		$	339	$	555		$	396		$	8,481
Charge-offs		-			(13	)		-			(485	)		-		(88	)		-			(586	)
Recoveries		-			-			25			27			-		76			-			128
Provision for (recovery of) loan losses		(18	)		(144	)		(427	)		655			37		(26	)		(23	)		54
Balance, June 30, 2021	$	485		$	2,008		$	3,451		$	867		$	376	$	517		$	373		$	8,077

	Activity in the Allowance for Loan Losses for the Year Ended December 31, 2021
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2020	$	503		$	2,165		$	3,853		$	670		$	339		$	555		$	396		$	8,481
Charge-offs		-			(13	)		-			(526	)		-			(216	)		-			(755	)
Recoveries		-			20			159			33			-			134			-			346
Provision for (recovery of) loan losses		(81	)		(242	)		(891	)		922			(42	)		(29	)		(35	)		(398	)
Balance, December 31, 2021	$	422		$	1,930		$	3,121		$	1,099		$	297		$	444		$	361		$	7,674

	Allowance for Loan Losses as of June 30, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		707		2,119		3,470		796		336		462		179		8,069
Total	$	707	$	2,119	$	3,470	$	796	$	336	$	462	$	179	$	8,069

	Allowance for Loan Losses as of December 31, 2021
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non-Real Estate		Public Sector and IDA		Consumer Non- Real Estate		Unallocated		Total
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		422		1,930		3,121		1,099		297		444		361		7,674
Total	$	422	$	1,930	$	3,121	$	1,099	$	297	$	444	$	361	$	7,674

	Loans as of June 30, 2022
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Total
Individually evaluated for impairment	$	-	$	188	$	5,342	$	279	$	-	$	-	$	5,809
Collectively evaluated for impairment		69,724		216,955		420,046		52,059		49,856		34,825		843,465
Total	$	69,724	$	217,143	$	425,388	$	52,338	$	49,856	$	34,825	$	849,274

	Loans as of December 31, 2021
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non-Real Estate		Public Sector and IDA		Consumer Non- Real Estate		Total
Individually evaluated for impairment	$	-	$	191	$	5,386	$	301	$	-	$	-	$	5,878
Collectively evaluated for impairment		48,841		208,786		400,336		59,963		47,899		32,026		797,851
Total	$	48,841	$	208,977	$	405,722	$	60,264	$	47,899	$	32,026	$	803,729

A summary of ratios for the allowance for loan losses follows.

	As of and for the
	Six Months Ended June 30,						Year Ended December 31,
	2022			2021			2021
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs(1)		0.95	%		1.00	%		0.96	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs(1)		0.01	%		0.12	%		0.05	%

⁽¹⁾ Net charge-offs are on an annualized basis.

A summary of nonperforming assets follows.

	June 30,						December 31,
	2022			2021			2021
Nonperforming assets:
Nonaccrual loans	$	168		$	713		$	-
Restructured loans in nonaccrual		2,811			3,109			2,873
Total nonperforming loans		2,979			3,822			2,873
Other real estate owned, net		957			1,007			957
Total nonperforming assets	$	3,936		$	4,829		$	3,830
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned		0.46	%		0.60	%		0.48	%
Ratio of allowance for loan losses to nonperforming loans(1)		270.86	%		211.33	%		267.11	%

⁽¹⁾ The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Loans 90 days past due and still accruing and accruing restructured loans are excluded.

A summary of loans past due 90 days or more and impaired loans follows.

	June 30,						December 31,
	2022			2021			2021
Loans past due 90 days or more and still accruing	$	7		$	28		$	90
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs		0.00	%		0.00	%		0.01	%
Accruing restructured loans	$	2,998		$	3,011		$	3,005
Impaired loans:
Impaired loans with no valuation allowance	$	5,809		$	6,774		$	5,878
Impaired loans with a valuation allowance		-			-			-
Total impaired loans	$	5,809		$	6,774		$	5,878
Valuation allowance		-			-			-
Impaired loans, net of allowance	$	5,809		$	6,774		$	5,878
Average recorded investment in impaired loans(1)	$	5,820		$	6,796		$	5,901
Interest income recognized on impaired loans, after designation as impaired	$	43		$	105		$	137
Amount of income recognized on a cash basis	$	-		$	-		$	-

⁽¹⁾ Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

No interest income was recognized on nonaccrual loans for the six months ended June 30, 2022 or June 30, 2021 or for the year ended December 31, 2021.

A detailed analysis of investment in impaired loans and associated reserves, segregated by loan class follows. Only classes with impaired loans are presented.         

	Impaired Loans as of June 30, 2022
	Principal Balance		Total Recorded Investment(1)		Recorded Investment(1) for Which There is No Related Allowance		Recorded Investment(1) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate
Investor-owned residential real estate	$	188	$	188	$	188	$	-	$	-
Commercial Real Estate
Commercial real estate, owner-occupied		3,252		2,624		2,624		-		-
Commercial real estate, other		2,718		2,718		2,718		-		-
Commercial Non Real Estate
Commercial and industrial		295		279		279		-		-
Total	$	6,453	$	5,809	$	5,809	$	-	$	-

	Impaired Loans as of December 31, 2021
	Principal Balance		Total Recorded Investment(1)		Recorded Investment(1) for Which There is No Related Allowance		Recorded Investment(1) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate
Investor-owned residential real estate	$	191	$	191	$	191	$	-	$	-
Commercial Real Estate
Commercial real estate, owner occupied		3,256		2,665		2,665		-		-
Commercial real estate, other		2,721		2,721		2,721		-		-
Commercial Non-Real Estate
Commercial and industrial		310		301		301		-		-
Total	$	6,478	$	5,878	$	5,878	$	-	$	-

⁽¹⁾ Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

The following tables show the average recorded investment and interest income recognized for impaired loans. Only classes with impaired loans are presented.

	For the Six Months Ended June 30, 2022
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate
Investor-owned residential real estate	$	189	$	6
Commercial Real Estate
Commercial real estate, owner occupied		2,626		3
Commercial real estate, other		2,719		34
Commercial Non Real Estate
Commercial and industrial		286		-
Total	$	5,820	$	43

⁽¹⁾ Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

	For the Six Months Ended June 30, 2021
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate
Investor-owned residential real estate	$	193	$	6
Commercial Real Estate
Commercial real estate, owner occupied		2,890		7
Commercial real estate, other		3,378		84
Commercial Non Real Estate
Commercial and industrial		334		8
Consumer Non Real Estate
Automobile		1		-
Total	$	6,796	$	105

⁽¹⁾ Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

	For the Year Ended December 31, 2021
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate
Investor-owned residential real estate	$	192	$	13
Commercial Real Estate
Commercial real estate, owner occupied		2,668		9
Commercial real estate, other		2,723		100
Commercial Non-Real Estate
Commercial and industrial		317		15
Consumer Non-Real Estate
Automobile		1		-
Total	$	5,901	$	137

⁽¹⁾ Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

An analysis of past due and nonaccrual loans, including impaired and collectively-evaluated loans, follows. Nonaccrual loans include those in both current and past due status. Only classes with past due or nonaccrual loans are shown.

June 30, 2022
	30 – 89 Days Past Due and Accruing		90 or More Days Past Due (1)		90 or More Days Past Due and Accruing		Nonaccruals
Consumer Real Estate
Residential closed-end first liens	$	641	$	137	$	-	$	137
Equity lines		-		29		-		29
Commercial Real Estate
Commercial real estate, owner-occupied		19		258		-		2,532
Commercial Non Real Estate
Commercial and industrial		37		-		-		279
Consumer Non Real Estate
Automobile		35		-		-		-
Credit cards		2
Other consumer loans		136		7		7		2
Total	$	870	$	431	$	7	$	2,979

December 31, 2021
	30 – 89 Days Past Due and Accruing		90 or More Days Past Due (1)		90 or More Days Past Due and Accruing		Nonaccruals
Real Estate Construction
Construction, other	$	14	$	-	$	-	$	-
Consumer Real Estate
Equity lines		50		29		29		-
Residential closed-end first liens		715		58		58		-
Commercial Real Estate
Commercial real estate, owner occupied		12		266		-		2,572
Commercial Non-Real Estate
Commercial and industrial		13		-		-		301
Consumer Non-Real Estate
Credit cards		2		2		2		-
Automobile		93		-		-		-
Other consumer loans		88		1		1		-
Total	$	987	$	356	$	90	$	2,873

(1) Includes accruing and nonaccrual loans past due 90 days or more.

The following displays collectively-evaluated loans by credit quality indicator. Impaired loans are not included.

June 30, 2022	Pass		Special Mention		Classified
Real Estate Construction
Construction, 1-4 family residential	$	17,791	$	-	$	-
Construction, other		51,621		312		-
Consumer Real Estate
Equity lines		14,165		-		29
Residential closed-end first liens		115,558		-		377
Residential closed-end junior liens		2,189		-		-
Investor-owned residential real estate		84,043		-		594
Commercial Real Estate
Multifamily residential real estate		113,938		-		-
Commercial real estate owner-occupied		131,560		-		-
Commercial real estate, other		174,548		-		-
Commercial Non Real Estate
Commercial and industrial		52,045		-		14
Public Sector and IDA
States and political subdivisions		49,856		-		-
Consumer Non Real Estate
Credit cards		4,644		-		-
Automobile		10,411		-		-
Other consumer		19,762		-		8
Total	$	842,131	$	312	$	1,022

December 31, 2021	Pass		Special Mention		Classified
Real Estate Construction
Construction, 1-4 family residential	$	10,008	$	-	$	-
Construction, other		38,833		-		-
Consumer Real Estate
Equity lines		13,588		-		29
Residential closed-end first liens		106,107		-		275
Residential closed-end junior liens		2,715		-		-
Investor-owned residential real estate		85,460		-		612
Commercial Real Estate
Multifamily residential real estate		106,644		-		-
Commercial real estate owner-occupied		125,605		-		35
Commercial real estate, other		164,324		3,728		-
Commercial Non-Real Estate
Commercial and industrial		59,953		-		10
Public Sector and IDA
States and political subdivisions		47,899		-		-
Consumer Non-Real Estate
Credit cards		4,531		-		-
Automobile		10,990		-		3
Other consumer		16,402		-		100
Total	$	793,059	$	3,728	$	1,064

Determination of risk ratings was completed for the portfolio as of June 30, 2022 and December 31, 2021.

Troubled Debt Restructurings

Total TDRs amounted to $5,809 at June 30, 2022, $5,878 at December 31, 2021, and $6,120 at June 30, 2021. All of the Company’s TDR loans are fully funded and no further increase in credit is available.

TDRs Designated During the Reporting Period

The Company did not designate any new TDRs during the three or six month periods ended June 30, 2022. During the three months ended June 30, 2021 the Company designated two loans as a TDR. The restructurings re-amortized the loans and reduced the interest rates to provide cash flow relief. No principal or interest was forgiven. The impairment measurement at June 30, 2021 was based upon the collateral method and did not result in a specific allocation.

The following table presents restructurings by class that occurred during the three month period ended June 30, 2021.

	Restructurings That Occurred During the Three Months Ended June 30, 2021
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Commercial Real Estate
Commercial real estate, other		2	$	2,724	$	2,724
Total		2	$	2,724	$	2,724

During the six months ended June 30, 2021 the Company designated three loans as a TDR. One loan was modified to shift the payment structure from interest-only to amortizing and reduce the interest rate to provide cash flow relief. Two loans were re-amortized at lower interest rates to provide cash flow relief. No principal or interest was forgiven. The impairment measurement for all three loans at June 30, 2021 was based upon the collateral method and did not result in a specific allocation.

The following table presents restructurings by class that occurred during the six month period ended June 30, 2021.

	Restructurings That Occurred During the Six Months Ended June 30, 2021
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Commercial Real Estate
Commercial real estate owner-occupied		1	$	102	$	102
Commercial real estate, other		2		2,724		2,724
Total		3	$	2,826	$	2,826

Defaulted TDRs

The Company analyzed its TDR portfolio for loans that defaulted during the three and six month periods ended June 30, 2022 and June 30, 2021, and that were modified within 12 months prior to default. The Company designates three circumstances that indicate default: one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure after the date of restructuring.

Of the Company’s TDRs at June 30, 2022 and June 30, 2021, none of the defaulted TDRs were modified within 12 months prior to default. All of the defaulted TDRs were in nonaccrual status as of June 30, 2022 and June 30, 2021.