Note 5 - Allowance for Credit Losses

12 Months Ended

Dec. 31, 2024

Allowance for Credit Losses [Text Block]

Note 5. Allowance for Credit Losses

The following tables summarize the activity in the allowance for credit losses by loan class for the twelve months ended December 31, 2024, 2023, and 2022:

Allowance for Credit Losses By Portfolio Segment

For the twelve months ended December 31, 2024

	*Real Estate*
	*Residential*			*Commercial*			*Construction*			*Commercial*			*Consumer*			*Total*
Beginning Balance	$	2,594		$	8,888		$	3,575		$	1,435		$	14		$	16,506
Charge-offs		(132	)		(740	)		(3,684	)		(4	)		(9	)		(4,569	)
Recoveries		—			—			—			19			9			28
Provision (recovery)		16			3,173			4,757			(457	)		(4	)		7,485
Ending Balance	$	2,478		$	11,321		$	4,648		$	993		$	10		$	19,450

Allowance for Credit Losses By Portfolio Segment

For the twelve months ended December 31, 2023

	*Real Estate*
	*Residential*		*Commercial*		*Construction*		*Commercial*			*Consumer*			*Total*
Beginning Balance, prior to adoption of ASC 326	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114
Impact of adopting ASC 326		59		614		19		172			31			895
Charge-offs		—		—		—		(462	)		(6	)		(468	)
Recoveries		7		—		—		—			15			22
Provision (recovery)		382		1,115		209		307			(70	)		1,943
Ending Balance	$	2,594	$	8,888	$	3,575	$	1,435		$	14		$	16,506

Allowance for Loan Losses By Portfolio Segment

For the twelve months ended December 31, 2022

	*Real Estate*
	*Residential*		*Commercial*		*Construction*		*Commercial*			*Consumer*			*Total*
Beginning Balance	$	1,672	$	5,689	$	2,697	$	1,540		$	99		$	11,697
Charge-offs		—		—		—		—			19			19
Recoveries		—		—		—		—			—			—
Provision (recovery)		474		1,470		650		(122	)		(74	)		2,398
Ending Balance	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114

Individually evaluated for Impairment	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for Impairment	$	2,146	$	7,159	$	3,347	$	1,418		$	44		$	14,114

The Company maintains a general allowance for credit losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated.

	*CECL*
	*December 31, 2024*
*(Dollars in thousands)*	*Nonaccrual Loans with No Allowance*		*Nonaccrual Loans with an Allowance*		*Total Nonaccrual Loans*
Residential Real Estate:
Single Family	$	1,162	$	—	$	1,162
Commercial Real Estate:
Non-owner occupied		11,160		—		11,160
Construction and Land Development		4,235		—		4,235
Commercial & industrial		5,093		—		5,093
Total	$	21,650	$	—	$	21,650

	*CECL*
	*December 31, 2023*
*(Dollars in thousands)*	*Nonaccrual Loans with No Allowance*		*Nonaccrual Loans with an Allowance*		*Total Nonaccrual Loans*
Residential Real Estate:
Single Family	$	149	$	—	$	149
Commercial & industrial		851		—		851
Total	$	1,000	$	—	$	1,000

The Company recognized $2.8 million and $57,792 of interest income on nonaccrual loans during the year ended December 31, 2024 and 2023.

The following table represents the accrued interest receivables written off by reversing interest income during the year ended December 31, 2024 and 2023:

	*For the Years Ended December 31,*
*(Dollars in thousands)*	*2024*		*2023*
Residential Real Estate:
Single Family	$	103	$	5
Multifamily		176		—
Commercial Real Estate:
Non-owner occupied		481		—
Construction & Land Development		965		—
Commercial – Non Real Estate:
Commercial & industrial		180		128
Total	$	1,905	$	133

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral-dependent loans:

•	Commercial real estate loans can be secured by either owner-occupied commercial real estate or non-owner-occupied investment commercial real estate. Typically, owner-occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities and other commercial and industrial properties occupied by operating companies. Non-owner-occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate where our borrower is the lessor.
•	Residential real estate mortgage loans, including equity lines of credit, are typically secured by first mortgages, and in some cases could be secured by a second mortgage.
•	Home equity lines of credit are generally secured by second mortgages on residential real estate property.
•	Consumer loans are generally secured by automobiles, motorcycles, recreational vehicles and other personal property. Some consumer loans are unsecured and have no underlying collateral.
•	Construction and land development loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties.

The following table details the amortized cost of collateral dependent loans:

*(Dollars in thousands)*	*As of December 31, 2024*		*As of December 31, 2023*
Residential Real Estate:
Single Family	$	5,494	$	346
Multifamily		3,206		—
Commercial Real Estate:
Owner occupied		—		1,120
Non-owner occupied		11,488		—
Construction & Land Development		28,608		—
Commercial & industrial		8,877		851
Total	$	57,673	$	2,317

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a weighted average remaining life model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

The following table shows the amortized cost basis as of December 31, 2024 of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the twelve-month period ended December 31, 2024:


	*December 31, 2024*
*(Dollars in thousands)*	*Amortized Cost Basis*		*% of Total Loan Type*			*Financial Effect*
Residential Real Estate:
Single Family		3,813		1.9	%	Extended term on interest only payments for six months. Deferred loan payment for three months.
Multifamily		9,570		4.1	%	Interest rate reduction.
Construction and Land Development		31,153		7.9	%	Interest rate reduction and extended term on interest only payments for two years. Extended amortization term for five years. Extended term on interest only payments for six months.
Commercial – Non Real-Estate:
Commercial & industrial		3,998		4.8	%	Extended term on interest only payments for seven months
Total	$	48,534


	*December 31, 2023*
*(Dollars in thousands)*	*Amortized Cost Basis*		*% of Total Loan Type*			*Financial Effect*
Commercial Real Estate:
Non-owner occupied	$	16,000		3.5	%	Extended term on interest only payments for six months.
Commercial & industrial		315		0.4	%	Extended term for three months.
Total	$	16,315

The Company monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. The loans that were modified in the twelve-month periods ended December 31, 2024 and December 31, 2023 are current on contractual payments, except for one loan for $364,000 as of December 31, 2024 and one loan for $315,000 as of December 31, 2023, that are both on nonaccrual and are individually evaluated, respectively.

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, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Credit quality risk ratings include regulatory classifications of Pass, Watch, Criticized (Special Mention), Classified (Substandard), Doubtful, and Loss. Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established. Loans classified as Watch have similar characteristics as Pass loans with some emerging signs of financial weaknesses that should be monitored closer. Loans classified as Watch are included in the Pass totals in the following tables. Loans classified as Criticized (Special Mention) have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified as Classified (Substandard) have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a Loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated Pass.

The following table presents the risk category of loans by credit quality indicators by year of origination as of December 31, 2024:

	*Term Loans Amortized Cost Basis by Origination Year*
December 31, 2024
*(Dollars in thousands)*	*2024*		*2023*		*2022*		*2021*		*2020*		*Prior*		*Revolving Loans*		*Revolving Loans converted to Term*		*Total*
Residential Real Estate - Single Family
Pass	$	18,439	$	44,460	$	17,803	$	26,055	$	29,482	$	32,065	$	24,643	$	—	$	192,947
Criticized		500		—		393		1,596		3,436		—		—		—		5,925
Classified		200		—		—		3,507		1,338		—		440		—		5,485
Total Residential Real Estate - Single Family	$	19,139	$	44,460	$	18,196	$	31,158	$	34,256	$	32,065	$	25,083	$	—	$	204,357
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	132	$	—	$	—	$	132

Residential Real Estate - Multifamily
Pass	$	12,163	$	5,314	$	69,629	$	24,693	$	38,226	$	23,199	$	390	$	—	$	173,614
Criticized		—		26,250		—		11,703		606		19,514		—		—		58,073
Classified		—		—		—		3,197		—		—		—		—		3,197
Total Residential Real Estate - Multifamily	$	12,163	$	31,564	$	69,629	$	39,593	$	38,832	$	42,713	$	390	$	—	$	234,884
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate - Farmland
Pass	$	106	$	—	$	—	$	—	$	—	$	134	$	—	$	—	$	240
Total Residential Real Estate - Farmland	$	106	$	—	$	—	$	—	$	—	$	134	$	—	$	—	$	240
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Owner Occupied
Pass	$	23,633	$	64,924	$	81,427	$	41,167	$	38,446	$	78,706	$	24,921	$	—	$	353,224
Criticized		—		4,500		—		—		—		—		—		—		4,500
Total Commercial Real Estate - Owner Occupied	$	23,633	$	69,424	$	81,427	$	41,167	$	38,446	$	78,706	$	24,921	$	—	$	357,724
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	75,392	$	9,668	$	154,994	$	58,931	$	46,057	$	153,682	$	34,180	$	—	$	532,904
Criticized		—		—		—		—		15,664		—		—		—		15,664
Classified		—		11,160		—		—		328		—		—		—		11,488
Total Commercial Real Estate - Non-Owner Occupied	$	75,392	$	20,828	$	154,994	$	58,931	$	62,049	$	153,682	$	34,180	$	—	$	560,056
Current period gross write-offs	$	—	$	740	$	—	$	—	$	—	$	—	$	—	$	—	$	740

Construction & Land Development
Pass	$	3,149	$	5,358	$	19,680	$	8,849	$	718	$	234	$	325,885	$	—	$	363,873
Criticized		—		—		—		—		—		—		1,138		—		1,138
Classified		—		—		1,950		—		—		—		26,424		—		28,374
Total Construction & Land Development	$	3,149	$	5,358	$	21,630	$	8,849	$	718	$	234	$	353,447	$	—	$	393,385
Current period gross write-offs	$	—	$	289	$	—	$	259	$	3,136	$	—	$	—	$	—		3,684

Commercial & Industrial
Pass	$	15,470	$	7,197	$	10,237	$	3,793	$	2,026	$	7,550	$	27,625	$	—	$	73,898
Classified		319		—		—		3,712		—		1,600		3,249		—		8,880
Total Commercial & Industrial	$	15,789	$	7,197	$	10,237	$	7,505	$	2,026	$	9,150	$	30,874	$	—	$	82,778
Current period gross write-offs	$	4	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	4
										—
Consumer - Unsecured
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	343	$	—	$	343
Total Consumer - Unsecured	$	—	$	—	$	—	$	—	$	—	$	—	$	343	$	—	$	343
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer - Secured
Pass	$	187	$	41	$	184	$	—	$	13	$	721	$	85			$1,231
Total Consumer - Secured	$	187	$	41	$	184	$	—	$	13	$	721	$	85	$	—	$	1,231
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	9	$	—	$	—	$	9

Total
Pass	$	148,539	$	136,962	$	353,954	$	163,488	$	154,968	$	296,291	$	438,072	$	—	$	1,692,274
Criticized		500		30,750		393		13,299		19,706		19,514		1,138		—		85,300
Classified		519		11,160		1,950		10,416		1,666		1,600		30,113		—		57,424
Total loans	$	149,558	$	178,872	$	356,297	$	187,203	$	176,340	$	317,405	$	469,323	$	—	$	1,834,998
Current period gross write-offs	$	4	$	1,029	$	—	$	259	$	3,136	$	141	$	—	$	—	$	4,569

The following table presents the risk category of loans by credit quality indicators as of December 31, 2023:

	*Term Loans Amortized Cost Basis by Origination Year*
December 31, 2023
*(Dollars in thousands)*	*2023*		*2022*		*2021*		*2020*		*2019*		*Prior*		*Revolving Loans*		*Revolving Loans converted to Term*		*Total*
Residential Real Estate - Single Family
Pass	$	50,101	$	17,502	$	26,434	$	34,453	$	20,610	$	20,542	$	33,217	$	—	$	202,859
Classified		—		—		—		—		409		—		149		—		558
Total Residential Real Estate - Single Family	$	50,101	$	17,502	$	26,434	$	34,453	$	21,019	$	20,542	$	33,366	$	—	$	203,417
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate - Multifamily
Pass	$	28,346	$	81,180	$	60,156	$	39,286	$	27,270	$	10,797	$	24,005	$	—	$	271,040
Total Residential Real Estate - Multifamily	$	28,346	$	81,180	$	60,156	$	39,286	$	27,270	$	10,797	$	24,005	$	—	$	271,040
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate - Farmland
Pass	$	—	$	—	$	—	$	—	$	—	$	145	$	—	$	—	$	145
Total Residential Real Estate - Farmland	$	—	$	—	$	—	$	—	$	—	$	145	$	—	$	—	$	145
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Owner Occupied
Pass	$	70,476	$	55,222	$	43,576	$	39,621	$	32,044	$	37,360	$	2,633	$	—	$	280,932
Classified		—		—		—		—		1,120		—		—		—		1,120
Total Commercial Real Estate - Owner Occupied	$	70,476	$	55,222	$	43,576	$	39,621	$	33,164	$	37,360	$	2,633	$	—	$	282,052
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial Real Estate - Non-Owner Occupied
Pass	$	23,091	$	101,617	$	51,291	$	48,692	$	30,595	$	150,629	$	32,122	$	—	$	438,037
Criticized		—		—		—		16,000		—		—		—		—		16,000
Classified		—		—		—		—		7,738		—		—		—		7,738
Total Commercial Real Estate - Non-Owner Occupied	$	23,091	$	101,617	$	51,291	$	64,692	$	38,333	$	150,629	$	32,122	$	—	$	461,775
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction & Land Development
Pass	$	6,416	$	32,544	$	13,612	$	2,455	$	—	$	8,118	$	355,689	$	—	$	418,834
Classified		—		1,454		—		—		—		—		9,349		—		10,803
Total Construction & Land Development	$	6,416	$	33,998	$	13,612	$	2,455	$	—	$	8,118	$	365,038	$	—	$	429,637
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial & Industrial
Pass	$	10,150	$	5,271	$	13,530	$	3,495	$	1,230	$	10,466	$	27,299	$	—	$	71,441
Criticized		—		—		—		—		—		—		2,997		—		2,997
Classified		—		—		—		—		536		353		88		—		977
Total Commercial & Industrial	$	10,150	$	5,271	$	13,530	$	3,495	$	1,766	$	10,819	$	30,384	$	—	$	75,415
Current period gross write-offs	$	—	$	—	$	—	$	—	$	261	$	201	$	—	$	—	$	462

Consumer - Unsecured
Pass	$	—	$	—	$	—	$	—	$	—	$	—	$	271	$	—	$	271
Total Consumer - Unsecured	$	—	$	—	$	—	$	—	$	—	$	—	$	271	$	—	$	271
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer - Secured
Pass	$	55	$	252	$	3	$	51	$	1,400	$	1,497	$	81	$	—	$	3,339
Total Consumer - Secured	$	55	$	252	$	3	$	51	$	1,400	$	1,497	$	81	$	—	$	3,339
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	6	$	—	$	—	$	6

Total
Pass	$	188,635	$	293,588	$	208,602	$	168,053	$	113,149	$	239,554	$	475,317	$	—	$	1,686,898
Criticized		—		—		—		16,000		—		—		2,997		—		18,997
Classified		—		1,454		—		—		9,803		353		9,586		—		21,196
Total loans	$	188,635	$	293,588	$	208,602	$	168,053	$	113,149	$	239,560	$	475,317	$	—	$	1,727,091
Current period gross write-offs	$	—	$	—	$	—	$	—	$	261	$	207	$	—	$	—	$	468

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 (i.e., the commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. 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 credit losses on loans, and are discussed in Note 1. The allowance for credit losses for unfunded loan commitments of $287,000 and $1 million at December 31, 2024 and December 31, 2023, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the year ended December 31, 2024 and 2023. The decline in the balance of the allowance for credit losses for unfunded loan commitments during the year ended December 31, 2024, was due to the decline in the balance of unfunded commitments.

	*Total Allowance for Credit Losses on Off-Balance Sheet Credit Exposure*
*(Dollars in thousands)*	*2024*			*2023*
Beginning Balance	$	1,009		$	—
Adjustment to allowance for off-balance sheet credit losses upon adoption of ASU 2016-13		—			1,310
Recovery of off-balance sheet credit losses, net		(722	)		(301	)
Ending Balance	$	287		$	1,009