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Note 6 - Allowance for Credit Losses and Credit Quality Information

12 Months Ended

Dec. 31, 2023

Allowance For Loan Losses And Credit Quality Information [Text Block]

NOTE 6 Allowance for Credit Losses and Credit Quality Information

The allowance for credit losses is summarized as follows:

(Dollars in thousands)	Single Family			Commercial Real Estate			Consumer			Commercial Business			Total
Balance, December 31, 2021	$	974			6,388			981			936			9,279

Provision for losses	$	286			729			94			(38	)		1,071
Charge-offs		0			(91	)		(24	)		0			(115	)
Recoveries		1			0			7			34			42
Balance, December 31, 2022	$	1,261			7,026			1,058			932			10,277

January 1, 2023 adoption of ASU 2016-13	$	(259	)		512			(485	)		1,302			1,070
Provision for losses		403			(24	)		77			339			795
Charge-offs		0			0			(50	)		(334	)		(384	)
Recoveries		21			0			7			38			66
December 31, 2023	$	1,426			7,514			607			2,277			11,824

Allocated to:
Individual reserves	$	33			0			112			17			162
Collective reserves		1,228			7,026			946			915			10,115
Balance, December 31, 2022	$	1,261			7,026			1,058			932			10,277

Allocated to:
Individual reserves	$	28			0			103			297			428
Collective reserves		1,398			7,514			504			1,980			11,396
Balance, December 31, 2023	$	1,426			7,514			607			2,277			11,824

Loans receivable at December 31, 2022:
Individually reviewed for impairment	$	908			179			492			561			2,140
Collectively reviewed for impairment		204,982			471,166			44,325			65,274			785,747
Ending balance	$	205,890			471,345			44,817			65,835			787,887

Loans receivable at December 31, 2023:
Individually reviewed for impairment	$	979			668			425			2,212			4,284
Collectively reviewed for impairment		263,324			489,285			42,309			58,906			853,824
Ending balance	$	264,303			489,953			42,734			61,118			858,108

In addition to the ACL on loans, the Company has established an ACL on unfunded commitments that is included in other liabilities on the consolidated balance sheets. This amount is determined based on an estimate of outstanding commitments that are anticipated to be funded as of the balance sheet date and multiplying those amounts by the loss rate for their loan category. The allowance for unfunded commitments at December 31, 2023 was not material.

The provision for credit losses is determined by the Company as the amount to be added to the ACL for various types of financial instruments including loans, investment securities, and off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management’s judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. No provision for credit losses was recorded on available-for-sale investment securities at December 31, 2023.

The following table presents the components of the provision for credit losses for the years ended December 31, 2023 and December 31, 2022.

(Dollars in thousands)	2023			2022
Provision for credit losses on:
Loans ⁽¹⁾	$	795			1,071
Unfunded commitments⁽¹⁾		(82	)		0
Total	$	713			1,071

⁽¹⁾The Company adopted ASU 2016-13 as of January 1, 2023. The 2022 amounts presented are calculated under the prior accounting standard.

The following table presents total loans by risk categories and year of origination as of December 31, 2023:

(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Total
Single family
Unclassified	$	81,070		59,474		62,690		33,637		10,915		14,635		0		262,421
Special Mention		0		511		0		0		0		0		0		511
Substandard		64		546		0		79		182		462		0		1,333
Doubtful		0		0		0		0		24		14		0		38
Loss		0		0		0		0		0		0		0		0
		81,134		60,531		62,690		33,716		11,121		15,111		0		264,303

Commercial Real Estate
Unclassified		64,688		187,320		109,729		75,754		14,531		9,603		0		461,625
Special Mention		1,026		7,756		2,188		371		0		1,016		0		12,357
Substandard		2,225		388		292		10,867		637		1,562		0		15,971
Doubtful		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0
		67,939		195,464		112,209		86,992		15,168		12,181		0		489,953

Consumer
Unclassified		9,913		7,583		1,606		1,870		2,369		4,778		14,170		42,289
Special Mention		20		0		0		0		0		0		0		20
Substandard		8		26		52		0		3		113		30		232
Doubtful		15		0		0		0		0		0		19		34
Loss		3		0		116		0		0		0		40		159
		9,959		7,609		1,774		1,870		2,372		4,891		14,259		42,734
Current period gross write offs		0		1		0		0		0		49		0		50

Commercial Business
Unclassified		12,404		6,967		3,539		3,317		217		288		30,160		56,892
Special Mention		0		0		0		0		0		0		0		0
Substandard		1,703		483		152		104		11		31		1,742		4,226
Doubtful		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0
		14,107		7,450		3,691		3,421		228		319		31,902		61,118
Current period gross write offs		174		0		0		0		0		0		160		334

Total Loans	$	173,139		271,054		180,364		125,999		28,889		32,502		46,161		858,108

The following table summarizes the amount of classified and unclassified loans at December 31, 2022:

	December 31, 2022
	Classified										Unclassified
(Dollars in thousands)	Special Mention		Substandard		Doubtful		Loss		Total		Total		Total Loans
Single family	$	882		2,067		47		0		2,996		202,894		205,890
Commercial real estate:
Real estate rental and leasing		9,529		2,241		0		0		11,770		238,013		249,783
Other		11,273		8,592		0		0		19,865		201,697		221,562
Consumer		0		387		20		86		493		44,324		44,817
Commercial business		1,000		1,803		0		0		2,803		63,032		65,835
Total	$	22,684		15,090		67		86		37,927		749,960		787,887

Credit Quality Indicators

The Company categorized loans into risk categories based on relevant information about the ability of borrowers to service their debt. The information considered includes information, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company established a risk rating at origination for all commercial real estate and commercial business loans and management monitors the loans on an ongoing basis for any changes in the borrower’s ability to service their debt. Management also affirms the risk ratings for these loans on an annual basis.

The Company uses the following definitions for classifying loans:

Special Mention - Loans classified as special mention are loans that have potential weaknesses that, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date.

Substandard - Loans classified as substandard are loans that are generally inadequately protected by the current net worth and paying capacity of the obligor, or by the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have the weaknesses of those classified as substandard, with additional characteristics that make collection in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss.

Loss - Loans classified as loss are essentially uncollateralized and/or considered uncollectible and of such little value that continuance as an asset on the balance sheet may not be warranted.

Classified loans are categorized as special mention, substandard, doubtful, and loss. Loans classified as substandard, doubtful, or loss require the Bank to perform an analysis of the individual loan and charge off any loans, or portion thereof, that are deemed uncollectible. Loans not meeting the criteria above to require an individual analysis that are not classified as special mention are considered to be unclassified or pass-rated loans.

The aging of past due loans at December 31, 2023 and 2022 is summarized as follows:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
December 31, 2023
Single family	$	453		71		363		887		263,416		264,303		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		271,531		271,531		0
Other		0		0		399		399		218,023		218,422		0
Consumer		361		92		57		510		42,224		42,734		0
Commercial business		0		309		812		1,121		59,997		61,118		0
Total	$	814		472		1,631		2,917		855,191		858,108		0

December 31, 2022
Single family	$	380		145		481		1,006		204,884		205,890		0
Commercial real estate:
Real estate rental and leasing		0		0		0		0		249,783		249,783		0
Other		578		0		0		578		220,984		221,562		0
Consumer		394		123		88		605		44,212		44,817		0
Commercial business		0		0		0		0		65,835		65,835		0
Total	$	1,352		268		569		2,189		785,698		787,887		0

The Company considers a loan to have defaulted when it becomes 90 or more days past due and the loan is classified as non-accruing. When a loan is classified as non-accruing, any accrued interest on the loan is reversed from interest income and any subsequent interest on the loan is recognized using the cash basis method of income recognition. A non-accruing loan may be reclassified as an accruing loan after the loan becomes current.

The following table presents the carrying value of collateral dependent individually analyzed loans and the related allowances for the year ended December 31, 2023:

	December 31, 2023
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
Loans with no related allowance recorded:
Single family	$	758		758		0
Commercial real estate:
Other		668		668		0
Consumer		306		306		0

Loans with an allowance recorded:
Single family		221		221		28
Consumer		119		119		103
Commercial business		2,212		2,546		297

Total:
Single family		979		979		28
Commercial real estate:
Other ⁽¹⁾		668		668		0
Consumer ⁽²⁾		425		425		103
Commercial business ⁽³⁾		2,212		2,546		297
Total	$	4,284		4,618		428

⁽¹⁾ Secured by commercial land.
⁽²⁾ Secured by second mortgages on single family housing, recreational vehicles, and autos.
⁽³⁾ Secured by business equipment.

The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by portfolio segment as of December 31, 2022:

	December 31, 2022
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded:
Single family	$	667		685		0		496		8
Commercial real estate:
Other		179		179		0		182		11
Consumer		338		338		0		345		13

Loans with an allowance recorded:
Single family		241		241		33		108		4
Commercial real estate:
Other		0		0		0		2,044		0
Consumer		154		154		112		152		2
Commercial business		561		561		17		244		2

Total:
Single family		908		926		33		604		12
Commercial real estate:
Other ⁽¹⁾		179		179		0		2,226		11
Consumer ⁽²⁾		492		492		112		497		15
Commercial business ⁽³⁾		561		561		17		244		2
Total	$	2,140		2,158		162		3,571		40

	⁽¹⁾	Secured by commercial land.
	⁽²⁾	Secured by second mortgages on single family housing, recreational vehicles, and autos.
	⁽³⁾	Secured by business equipment primarily related to the farming and trucking industries.

At December 31, 2023 and 2022, non-accruing loans totaled $3.8 million and $1.9 million, respectively, for which the related allowance for credit losses was $0.4 million and $0.2 million, respectively. Non-accruing loans for which no specific allowance has been recorded because management determined that the value of the collateral was sufficient to repay the loan totaled $1.3 million and $1.0 million at December 31, 2023 and 2022, respectively. Had the non-accruing loans performed in accordance with their original terms, the Company would have recorded gross interest income on the loans of $0.5 million and $0.1 million in 2023 and 2022, respectively. The amount that was included in interest income on a cash basis for 2023 was $0.1 million, and for 2022 the amount included in interest income was not material. All of the interest income that was recognized for non-accruing loans was recognized using the cash basis method of income recognition. Non-accrual loans also include loans that have had terms modified for borrowers experiencing financial difficulty.

The following table summarizes non-accrual loans at December 31, 2023 and 2022:

(Dollars in thousands)	2023		2022
Single family	$	762		908
Commercial real estate:
Other		493		0
Consumer		376		441
Commercial business		2,187		529
Total	$	3,818		1,878

Occasionally, the Company provides modifications of loans to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows. Additional disclosures are applicable to situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or a combination of any of these items. If the Company modifies any loans to borrowers in financial distress that involves principal forgiveness, the amount of principal that is forgiven is charged off against the ACL. During the year ended December 31, 2023, the Company made six loan modifications to borrowers experiencing financial difficulty. These modifications involved payment deferral, interest rate reduction and extending the loans for periods longer than our loan policy dictates. There was no principal forgiveness for any of these modifications. The Company has no commitments to lend additional funds to borrowers that had any loan terms modified in 2023. The modifications outstanding at December 31, 2023 totaled $0.4 million.

The following table summarizes the modification outstanding at December 31, 2023.

(Dollars in thousands)	Number of Loans		Outstanding Balance December 31, 2023		Concessions Granted	Number of Loans
Single family		1	$	217	Rate reduction		1
					Term extension		1

Commercial real estate		1		93	Payment deferral		1

Consumer		4		54	Rate reduction		1
					Term extension		3
					Payment deferral		1
			$	364