NOTE 4 - LOANS

Loans at year-end were as follows:


	12/31/2019		12/31/2018
Commercial	$	86,552	$	86,149
Real estate construction		32,219		24,254
Real estate mortgage:
1-4 family residential		291,419		252,318
Multi-family residential		48,622		46,403
Non-farm & non-residential		204,908		196,674
Agricultural		57,166		60,049
Consumer		23,122		20,089
Other		305		208
Total	$	744,313	$	686,144

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ending December 31, 2019 and 2018:


	Beginning								Ending
December 31, 2019	Balance		Charge-offs		Recoveries		Provision		Balance
Commercial	$	1,159	$	(260)	$	21	$	—	$	920
Real estate Construction		414		—		—		137		551
Real estate mortgage:
1-4 family residential		2,605		(168)		19		445		2,901
Multi-family residential		733		—		15		59		807
Non-farm & non-residential		1,649		(17)		—		11		1,643
Agricultural		420		—		8		(39)		389
Consumer		410		(397)		39		454		506
Other		58		(901)		724		162		43
Unallocated		679		—		—		21		700
	$	8,127	$	(1,743)	$	826	$	1,250	$	8,460


	Beginning								Ending
December 31, 2018	Balance		Charge-offs		Recoveries		Provision		Balance
Commercial	$	975	$	(23)	$	10	$	197	$	1,159
Real estate Construction		462		—		—		(48)		414
Real estate mortgage:
1-4 family residential		2,316		(98)		272		115		2,605
Multi-family residential		640		—		10		83		733
Non-farm & non-residential		1,554		(31)		—		126		1,649
Agricultural		494		—		191		(265)		420
Consumer		582		(285)		51		62		410
Other		18		(823)		633		230		58
Unallocated		679		—		—		—		679
	$	7,720	$	(1,260)	$	1,167	$	500	$	8,127

The following tables present the balance in the allowance for loan losses and the recorded investment (excluding accrued interest receivable amounting to $3.1 million and $2.8 million) in loans by portfolio segment and based on impairment method as of December 31, 2019 and December 31, 2018:


	Individually		Collectively
	Evaluated for		Evaluated for
As of December 31, 2019	Impairment		Impairment		Total
Allowance for Loan Losses:
Commercial	$	—	$	920	$	920
Real estate construction		—		551		551
Real estate mortgage:
1-4 family residential		2		2,899		2,901
Multi-family residential		50		757		807
Non-farm & non-residential		—		1,643		1,643
Agricultural		—		389		389
Consumer		—		506		506
Other		—		43		43
Unallocated		—		700		700
	$	52	$	8,408	$	8,460
Loans:
Commercial	$	—	$	86,552	$	86,552
Real estate construction		374		31,845		32,219
Real estate mortgage:
1-4 family residential		202		291,217		291,419
Multi-family residential		1,292		47,330		48,622
Non-farm & non-residential		1,799		203,109		204,908
Agricultural		842		56,324		57,166
Consumer		—		23,122		23,122
Other		—		305		305
Total	$	4,509	$	739,804	$	744,313


	Individually		Collectively
	Evaluated for		Evaluated for
As of December 31, 2018	Impairment		Impairment		Total
Allowance for Loan Losses:
Commercial	$	191	$	968	$	1,159
Real estate construction		—		414		414
Real estate mortgage:
1-4 family residential		10		2,595		2,605
Multi-family residential		—		733		733
Non-farm & non-residential		—		1,649		1,649
Agricultural		—		420		420
Consumer		—		410		410
Other		—		58		58
Unallocated		—		679		679
	$	201	$	7,926	$	8,127
Loans:
Commercial	$	191	$	85,958	$	86,149
Real estate construction		374		23,880		24,254
Real estate mortgage:
1-4 family residential		1,003		251,315		252,318
Multi-family residential		1,973		44,430		46,403
Non-farm & non-residential		227		196,447		196,674
Agricultural		1,164		58,885		60,049
Consumer		—		20,089		20,089
Other		—		208		208
Total	$	4,932	$	681,212	$	686,144

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019:


	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
(in thousands):	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Real estate construction	$	374	$	374	$	—	$	374	$	—	$	—
Real estate mortgage:
Non-farm & non-residential		1,799		1,799		—		1,013		17	$	17
Agricultural		842		842		—		1,003		18		18
With an allowance recorded:
Real estate mortgage
1-4 family residential		202		202		2		603		35		35
Multi-family residential		1,292		1,292		50		646		54		54
Total	$	4,509	$	4,509	$	52	$	3,639	$	124	$	124

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2018:


	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
(in thousands):	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Real estate construction	$	374	$	374	$	—	$	187	$	3	$	3
Real estate mortgage:
1-4 family residential		1,973		1,973		—		1,991		101		101
Non-farm & non-residential		227		227		—		679		12		12
Agricultural		1,164		1,164		—		724		54		54
With an allowance recorded:
Commercial		191		191		191		96		18		18
Real estate mortgage
1-4 family residential		1,003		1,003		10		605		13		13
Total	$	4,932	$	4,932	$	201	$	4,282	$	201	$	201

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

Nonperforming loans include impaired loans and smaller balance homogeneous loans, such as residential mortgage and consumer loans, that are collectively evaluated for impairment.

Nonaccrual loans secured by real estate make up 85.8% of the total nonaccrual loans.

If a loan is on nonaccrual status or past due over 89 days does not indicate if a loan was individually evaluated for a specific allowance for loss as certain conditions must be met for this evaluation to occur. Further, it is possible a loan that is on nonaccrual status or past due 89 days or greater was individually evaluated but deemed not impaired.

The following tables present the recorded investment in nonaccrual loans, loans past due over 89 days still accruing, and troubled debt restructurings by class of loans as of December 31, 2019 and 2018:


			Loans Past Due
			Over 89 Days
			Still		Troubled Debt
As of December 31, 2019	Nonaccrual		Accruing		Restructurings
Real estate construction	$	374	$	—	$	—
Real estate mortgage:
1-4 family residential		845		47		—
Multi-family residential		—		1,292		—
Non-farm & non-residential		1,799		121		—
Agricultural		—		7		—
Consumer		63		32		—
Total	$	3,081	$	1,499	$	—


			Loans Past Due
			Over 89 Days
			Still		Troubled Debt
As of December 31, 2018	Nonaccrual		Accruing		Restructurings
Commercial	$	191	$	—	$	—
Real estate construction		—		374		—
Real estate mortgage:
1-4 family residential		525		784		—
Non-farm & non-residential		156		14		—
Agricultural		252		—		—
Consumer		17		10		—
Total	$	1,141	$	1,182	$	—

The following tables present the aging of the recorded investment in past due and non-accrual loans as of December 31, 2019 and 2018 by class of loans:

December 31, 2019


	30–59		60–89		Greater than				Total
	Days		Days		89 Days				Past Due &		Loans Not
(in thousands)	Past Due		Past Due		Past Due		Non-accrual		Non-accrual		Past Due
Commercial	$	326	$	25	$	—	$	—	$	351	$	86,201
Real estate construction		—		—		—		374		374		31,845
Real estate mortgage:
1-4 family residential		2,734		274		47		845		3,900		287,519
Multi-family residential		—		—		1,292		—		1,292		47,330
Non-farm & non-residential		302		19		121		1,799		2,241		202,667
Agricultural		704		—		7		—		711		56,455
Consumer		158		17		32		63		270		22,852
Other		—		—		—		—		—		305
Total	$	4,224	$	335	$	1,499	$	3,081	$	9,139	$	735,174

December 31, 2018


	30–59		60–89		Greater than				Total
	Days		Days		89 Days				Past Due &		Loans Not
(in thousands)	Past Due		Past Due		Past Due		Non-accrual		Non-accrual		Past Due
Commercial	$	10	$	24	$	—	$	191	$	225	$	85,924
Real estate construction		309		—		374		—		683		23,571
Real estate mortgage:
1-4 family residential		2,158		563		784		525		4,030		248,288
Multi-family residential		951		—		—		—		951		45,452
Non-farm & non-residential		68		84		14		156		322		196,352
Agricultural		502		15		—		252		769		59,280
Consumer		119		15		10		17		161		19,928
Other		—		—		—		—		—		208
Total	$	4,117	$	701	$	1,182	$	1,141	$	7,141	$	679,003

Troubled Debt Restructurings:

At December 31, 2019 and 2018, the Company did not have any loans designated as troubled debt restructurings.

For the years ending December 31, 2019 and 2018, no loans modified as troubled debt restructurings defaulted on payment.

Credit Quality Indicators:

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. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes primarily non-homogeneous loans with an outstanding balance greater than $200 thousand such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

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

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. The following tables present the risk category of loans by class of loans, based on the most recent analysis performed, as of December 31, 2019 and 2018:

December 31, 2019


			Special
(in thousands)	Pass		Mention		Substandard		Doubtful
Commercial	$	83,515	$	2,785	$	252	$	—
Real estate construction		30,462		1,363		394		—
Real estate mortgage:
1-4 family residential		283,048		3,435		4,932		4
Multi-family residential		43,193		4,137		1,292		—
Non-farm & non-residential		195,800		7,169		1,939		—
Agricultural		51,352		4,459		1,355		—
Total	$	687,370	$	23,348	$	10,164	$	4

December 31, 2018


			Special
(in thousands)	Pass		Mention		Substandard		Doubtful
Commercial	$	84,911	$	994	$	53	$	191
Real estate construction		23,857		—		397		—
Real estate mortgage:
1-4 family residential		244,382		2,685		5,201		50
Multi-family residential		43,248		1,182		1,973		—
Non-farm & non-residential		188,186		7,967		503		18
Agricultural		54,654		3,715		1,680		—
Total	$	639,238	$	16,543	$	9,807	$	259

For consumer loans, the Company evaluates the credit quality based on the aging of the recorded investment in loans, which was previously presented. Non-performing consumer loans are loans which are greater than 89 days past due or on non-accrual status, and total $95 thousand at December 31, 2019 and $27 thousand at December 31, 2018.

Non-consumer loans with an outstanding balance less than $200 thousand are evaluated similarly to consumer loans. Loan performance is evaluated based on delinquency status. Both are reviewed at least quarterly and credit quality grades are updated as needed.

Certain directors and executive officers of the Company and companies in which they have beneficial ownership were loan customers of the Bank during 2019 and 2018. An analysis of the activity with respect to all director and executive officer loans is as follows:


	2019		2018
Balance, beginning of year	$	828	$	930
New loans		138		14
Effect of change in composition of related parties		783		—
Repayments		(416)		(116)
Balance, end of year	$	1,333	$	828

Loan Servicing

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were approximately $227.2 million and $217.0 million at December 31, 2019 and 2018. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $1.3 million and $977 thousand at December 31, 2019 and 2018.

Activity for mortgage servicing rights and the related valuation allowance follows:


	2019		2018
Servicing Rights:
Beginning balance	$	1,536	$	1,511
Additions		299		335
Amortization		(333)		(327)
Change in valuation allowance		71		17
Ending balance	$	1,573	$	1,536

Valuation Allowance:
Beginning balance	$	39	$	56
Additions expensed		155		39
Reductions credited to operations		84		56
Ending balance	$	110	$	39

The fair value of servicing rights was $2.0 million at December 31, 2019 and $2.1 million at December 31, 2018. Fair value at year-end 2019 was determined using a discount rate of 12.0%, prepayment speeds ranging from 8.8% to 19.9%, depending on the stratification of the specific right, and default rates ranging from 0.1% to 0.9%. Fair value at year-end 2018 was determined using a discount rate of 12.0%, prepayment speeds ranging from 6.6% to 25.0%, depending on the stratification of the specific right, and default rates ranging from 0.1% to 0.9%.

The weighted average amortization period is 22.0 years. Estimated amortization expense for each of the next five years is:


2020	$	137
2021		118
2022		102
2023		89
2024		79