LOANS AND ALLOWANCE FOR CREDIT LOSSES

12 Months Ended

Dec. 31, 2020

NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes our loan portfolio by type of loan at December 31:

	2020			2019
Commercial and industrial	$	445,771		$	279,583
Real estate:
Construction and development		270,407			280,498
Commercial real estate		594,216			567,360
Farmland		78,508			57,476
1-4 family residential		389,096			412,166
Multi-family residential		21,701			37,379
Consumer		51,044			53,245
Agricultural		15,734			18,359
Overdrafts		342			329
Total loans⁽¹⁾		1,866,819			1,706,395
Net of:
Deferred loan (fees) costs, net		(1,463	)		601
Allowance for credit losses		(33,619	)		(16,202	)
Total net loans⁽¹⁾	$	1,831,737		$	1,690,794

(1) Excludes accrued interest receivable on loans of $7.0 million and $6.4 million as of December 31, 2020 and 2019, respectively, which is presented separately on the consolidated balance sheets.

The Company has entered into transactions, at prevailing market rates and terms, with certain directors, executive officers, significant shareholders and their affiliates. Loans to such related parties at December 31, 2020 and 2019, totaled $52,559 and $33,663, respectively. Unfunded commitments to such related parties at December 31, 2020 totaled $15,503.

Loans to principal officers, directors, and their affiliates during the year ended December 31, 2020, was as follows:

	December 31, 2020
Beginning balance	$	33,663
New loans		58,154
Effect of changes in composition of related parties		(39	)
Repayments		(39,219	)
Ending balance	$	52,559

Allowance for Credit Losses

The Company’s estimate of the allowance for credit losses (“ACL”) reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.

The following tables present the activity in the ACL by segment of loans for the years ended December 31, 2020, 2019 and 2018:

For the Year Ended December 31, 2020	Commercial and industrial			Construction and development		Commercial real estate		Farmland		1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	2,056		$	2,378	$	6,853	$	570	$	3,125		$	409		$	602		$	197		$	12		$	16,202
Impact of adopting ASC 326		546			323		2,228		26		1,339			(50	)		72			73			(9	)		4,548
Provision for credit losses		1,398			2,034		6,698		624		1,915			4			373			(33	)		187			13,200
Loans charged-off		(68	)		—		—		—		(68	)		—			(155	)		(18	)		(234	)		(543	)
Recoveries		101			—		1		—		2			—			37			20			51			212
Ending balance	$	4,033		$	4,735	$	15,780	$	1,220	$	6,313		$	363		$	929		$	239		$	7		$	33,619

For the Year Ended December 31, 2019	Commercial and industrial			Construction and development		Commercial real estate		Farmland			1-4 family residential			Multi-family residential			Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,751		$	1,920	$	6,025	$	643		$	2,868		$	631		$	565		$	238		$	10		$	14,651
Provision for loan losses		(117	)		458		827		(73	)		268			(222	)		(2	)		(41	)		152			1,250
Loans charged-off		(86	)		—		—		—			(14	)		—			(72	)		(89	)		(192	)		(453	)
Recoveries		508			—		1		—			3			—			111			89			42			754
Ending balance	$	2,056		$	2,378	$	6,853	$	570		$	3,125		$	409		$	602		$	197		$	12		$	16,202

For the Year Ended December 31, 2018	Commercial and industrial			Construction and development		Commercial real estate			Farmland		1-4 family residential			Multi-family residential		Consumer			Agricultural			Overdrafts			Total
Allowance for loan losses:
Beginning balance	$	1,581		$	1,724	$	4,585		$	523	$	3,022		$	629	$	602		$	187		$	6		$	12,859
Provision for loan losses		426			196		1,472			120		(196	)		2		127			(12	)		115			2,250
Loans charged-off		(367	)		—		(33	)		—		(93	)		—		(254	)		(2	)		(169	)		(918	)
Recoveries		111			—		1			—		135			—		90			65			58			460
Ending balance	$	1,751		$	1,920	$	6,025		$	643	$	2,868		$	631	$	565		$	238		$	10		$	14,651

Credit Quality

Assets are graded “pass” when the relationship exhibits acceptable credit risk and indicates repayment ability, tolerable collateral coverage and reasonable performance history. Lending relationships exhibiting potentially significant credit risk and marginal repayment ability and/or asset protection are graded “special mention.” Assets 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 must have a well-defined weakness that jeopardizes the liquidation of the debt. Substandard graded loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets graded “doubtful” are substandard graded loans that have added characteristics that make collection or liquidation in full improbable. Loans that are on nonaccrual status are generally classified as substandard.

In general, the loans in our portfolio have low historical credit losses. The Company closely monitors economic conditions and loan performance trends to manage and evaluate the exposure to credit risk. Key factors tracked by the Company and utilized in evaluating the credit quality of the loan portfolio include trends in delinquency ratios, the level of nonperforming assets, borrower’s repayment capacity, and collateral coverage.

The following table summarizes the credit exposure in the Company’s loan portfolio for each class of loans, by year of origination and risk rating, as of December 31, 2020:

December 31, 2020	2020		2019		2018			2017		2016		Prior		Revolving Loans Amortized Cost			Total
Commercial and industrial:
Pass	$	278,687	$	30,563	$	12,860		$	4,366	$	6,131	$	16,294	$	90,074		$	438,975
Special mention		124		119		222			4,040		1,324		—		—			5,829
Substandard		—		307		540			50		43		—		—			940
Nonaccrual		—		—		13			—		14		—		—			27
Total commercial and industrial loans	$	278,811	$	30,989	$	13,635		$	8,456	$	7,512	$	16,294	$	90,074		$	445,771

Charge-offs	$	—	$	—	$	(43	)	$	—	$	—	$	—	$	(25	)	$	(68	)
Recoveries		—		—		43			—		—		14		44			101
Current period net	$	—	$	—	$	—		$	—	$	—	$	14	$	19		$	33

Construction and development:
Pass	$	118,590	$	76,926	$	26,212		$	24,524	$	7,742	$	10,507	$	3,266		$	267,767
Special mention		356		—		—			990		—		—		—			1,346
Substandard		—		609		5			—		680		—		—			1,294
Nonaccrual		—		—		—			—		—		—		—			—
Total construction and development loans	$	118,946	$	77,535	$	26,217		$	25,514	$	8,422	$	10,507	$	3,266		$	270,407

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

Commercial real estate:
Pass	$	91,819	$	80,753	$	89,542		$	72,311	$	86,946	$	123,463	$	5,890		$	550,724
Special mention		—		2,716		3,542			849		5,724		449		—			13,280
Substandard		—		—		2,010			4,913		4,445		8,240		—			19,608
Nonaccrual		—		1,140		151			4,158		4,769		386		—			10,604
Total commercial real estate loans	$	91,819	$	84,609	$	95,245		$	82,231	$	101,884	$	132,538	$	5,890		$	594,216

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		1		—			1
Current period net	$	—	$	—	$	—		$	—	$	—	$	1	$	—		$	1

Farmland:
Pass	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,402	$	5,864		$	78,229
Special mention		—		—		—			—		—		35		—			35
Substandard		—		—		—			—		—		129		—			129
Nonaccrual		—		—		—			—		—		115		—			115
Total farmland loans	$	17,444	$	12,668	$	10,327		$	6,620	$	9,904	$	15,681	$	5,864		$	78,508

Charge-offs	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—
Recoveries		—		—		—			—		—		—		—			—
Current period net	$	—	$	—	$	—		$	—	$	—	$	—	$	—		$	—

December 31, 2020	2020			2019			2018			2017			2016			Prior			Revolving Loans Amortized Cost			Total
1-4 family residential:
Pass	$	87,578		$	62,937		$	52,087		$	37,224		$	43,858		$	93,486		$	10,091		$	387,261
Special mention		—			—			—			—			—			168			—			168
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			326			44			163			1,134			—			1,667
Total 1-4 family residential loans	$	87,578		$	62,937		$	52,413		$	37,268		$	44,021		$	94,788		$	10,091		$	389,096

Charge-offs	$	—		$	—		$	—		$	—		$	(9	)	$	(59	)	$	—		$	(68	)
Recoveries		—			—			—			—			—			2			—			2
Current period net	$	—		$	—		$	—		$	—		$	(9	)	$	(57	)	$	—		$	(66	)

Multi-family residential:
Pass	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701
Special mention		—			—			—			—			—			—			—			—
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		—			—			—			—			—			—			—			—
Total multi-family residential loans	$	5,889		$	4,498		$	3,617		$	1,371		$	1,737		$	4,391		$	198		$	21,701

Charge-offs	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Recoveries		—			—			—			—			—			—			—			—
Current period net	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Consumer and overdrafts:
Pass	$	24,740		$	11,176		$	9,369		$	1,701		$	735		$	513		$	2,825		$	51,059
Special mention		16			83			9			7			—			—			—			115
Substandard		—			—			—			—			—			—			—			—
Nonaccrual		24			36			131			20			1			—			—			212
Total consumer loans and overdrafts	$	24,780		$	11,295		$	9,509		$	1,728		$	736		$	513		$	2,825		$	51,386

Charge-offs	$	(243	)	$	(63	)	$	(31	)	$	(43	)	$	(3	)	$	(6	)	$	—		$	(389	)
Recoveries		49			2			12			8			4			13			—			88
Current period net	$	(194	)	$	(61	)	$	(19	)	$	(35	)	$	1		$	7		$	—		$	(301	)

Agricultural:
Pass	$	3,489		$	1,718		$	1,893		$	607		$	273		$	189		$	7,408		$	15,577
Special mention		—			—			—			36			—			—			—			36
Substandard		—			7			10			—			24			—			—			41
Nonaccrual		—			—			33			—			45			2			—			80
Total agricultural loans	$	3,489		$	1,725		$	1,936		$	643		$	342		$	191		$	7,408		$	15,734

Charge-offs	$	—		$	—		$	(18	)	$	—		$	—		$	—		$	—		$	(18	)
Recoveries		—			—			—			—			20			—			—			20
Current period net	$	—		$	—		$	(18	)	$	—		$	20		$	—		$	—		$	2

Total loans:
Pass	$	628,236		$	281,239		$	205,907		$	148,724		$	157,326		$	264,245		$	125,616		$	1,811,293
Special mention		496			2,918			3,773			5,922			7,048			652			—			20,809
Substandard		—			923			2,565			4,963			5,192			8,369			—			22,012
Nonaccrual		24			1,176			654			4,222			4,992			1,637			—			12,705
Total loans	$	628,756		$	286,256		$	212,899		$	163,831		$	174,558		$	274,903		$	125,616		$	1,866,819

Charge-offs	$	(243	)	$	(63	)	$	(92	)	$	(43	)	$	(12	)	$	(65	)	$	(25	)	$	(543	)
Recoveries		49			2			55			8			24			30			44			212
Total current period net (charge-offs) recoveries	$	(194	)	$	(61	)	$	(37	)	$	(35	)	$	12		$	(35	)	$	19		$	(331	)

The following table summarizes the credit exposure in the Company’s loan portfolio by class as of December 31, 2019:

December 31, 2019	Commercial and industrial		Construction and development		Commercial real estate		Farmland		1-4 family residential		Multi-family residential		Consumer and Overdrafts		Agricultural		Total
Grade:
Pass	$	279,217	$	278,679	$	548,662	$	57,152	$	409,896	$	37,379	$	53,327	$	18,101	$	1,682,413
Special mention		153		600		1,071		91		1,425		—		192		126		3,658
Substandard		213		1,219		17,627		233		845		—		55		132		20,324
Total	$	279,583	$	280,498	$	567,360	$	57,476	$	412,166	$	37,379	$	53,574	$	18,359	$	1,706,395

There were no loans classified in the “doubtful” or “loss” risk rating categories as of December 31, 2020 and December 31, 2019.

The following table presents the amortized cost basis of individually evaluated collateral-dependent loans by class of loans, and their impact on ACL, as of December 31, 2020:

	Real Estate		Non-RE		Total		Allowance for Credit Losses Allocation
Commercial and industrial	$	129	$	—	$	129	$	44
Real estate:
Construction and development		609		—		609		208
Commercial real estate		9,989		—		9,989		2,048
Total	$	10,727	$	—	$	10,727	$	2,300

The following tables summarize the payment status of loans in the Company’s total loan portfolio, including an aging of delinquent loans and loans 90 days or more past due continuing to accrue interest as of:

December 31, 2020	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	385	$	25	$	22	$	432	$	445,339	$	445,771	$	—
Real estate:
Construction and development		256		—		—		256		270,151		270,407		—
Commercial real estate		1,094		—		10,105		11,199		583,017		594,216		—
Farmland		117		3		—		120		78,388		78,508		—
1-4 family residential		2,097		556		127		2,780		386,316		389,096		—
Multi-family residential		—		—		—		—		21,701		21,701		—
Consumer		383		124		97		604		50,440		51,044		—
Agricultural		50		46		45		141		15,593		15,734		—
Overdrafts		—		—		—		—		342		342		—
Total	$	4,382	$	754	$	10,396	$	15,532	$	1,851,287	$	1,866,819	$	—

December 31, 2019	30 to 59 Days Past Due		60 to 89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
Commercial and industrial	$	321	$	53	$	15	$	389	$	279,194	$	279,583	$	—
Real estate:
Construction and development		161		—		—		161		280,337		280,498		—
Commercial real estate		1,181		49		882		2,112		565,248		567,360		—
Farmland		103		—		—		103		57,373		57,476		—
1-4 family residential		2,514		1,433		845		4,792		407,374		412,166		—
Multi-family residential		—		—		—		—		37,379		37,379		—
Consumer		373		152		96		621		52,624		53,245		—
Agricultural		51		67		—		118		18,241		18,359		—
Overdrafts		—		—		—		—		329		329		—
Total	$	4,704	$	1,754	$	1,838	$	8,296	$	1,698,099	$	1,706,395	$	—

The following table presents information regarding nonaccrual loans as of:

	2020		2019
Commercial and industrial	$	27	$	46
Real estate:
Commercial real estate		10,604		6,860
Farmland		115		182
1-4 family residential		1,667		3,853
Consumer and overdrafts		212		279
Agricultural		80		42
Total	$	12,705	$	11,262

If interest on nonaccrual loans had been accrued, such income would have been approximately $821 and $637 for the years ended December 31, 2020 and 2019, respectively. There were no commitments to lend additional funds to borrowers whose loans were classified as non-accrual.

Troubled Debt Restructurings

A troubled debt restructuring (“TDR”) is a restructuring in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. In response to the COVID-19 pandemic, the Bank provided financial relief to many of its customers through a 3-month principal and interest payment deferral program or an up to 6-month interest only program. Most modifications made as a direct result of COVID-19 are not TDRs pursuant to the CARES Act and the April 7, 2020 Interagency guidance. As of December 31, 2020 there were loans with balances of $62,133 modified pursuant to the CARES Act and GAAP, therefore not classified as TDRs.

The outstanding balances of TDRs are shown below at December 31:

	2020		2019
Nonaccrual TDRs	$	90	$	101
Performing TDRs		9,626		7,240
Total	$	9,716	$	7,341
Specific reserves on TDRs	$	—	$	164

The following table presents the loans by class, modified as TDRs that occurred during the year ended:

December 31, 2020	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Construction and development		2	$	1,289	$	1,081
Commercial and industrial		1		129		85
Commercial real estate		1		1,017		670
Total		4	$	2,435	$	1,836

There were no TDRs that subsequently defaulted during 2020. The TDRs described above did not increase the allowance for credit losses and resulted in no charge-offs during the year ended December 31, 2020.

The following table presents the loan by class, modified as a TDR that occurred during the year ended:

December 31, 2019	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial real estate		4	$	1,680	$	1,515
Total		4	$	1,680	$	1,515

There were two TDRs that subsequently defaulted during 2019 and remained on nonaccrual status as of December 31, 2019. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2019.

The following table presents loans individually and collectively evaluated for impairment, and the respective allowance for loan losses as of December 31, 2019, as determined in accordance with ASC 310, prior to the adoption of ASC 326. A loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short falls in the amount payments expected to be collected were not considered to be impaired. Loans defined as individually impaired included larger balance non-performing loans and TDRs.

December 31, 2019	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Commercial and industrial	$	289	$	289	$	—	$	312
Real estate:
Construction and development		1,212		1,212		—		1,259
Commercial real estate		4,612		4,612		—		4,244
Farmland		—		—		—		—
1-4 family residential		2,498		2,498		—		1,798
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		62		62		—		190
Subtotal		8,673		8,673		—		7,803
With allowance recorded:
Commercial and industrial		—		—		—		61
Real estate:
Construction and development		—		—		—		—
Commercial real estate		12,871		12,871		1,587		9,111
Farmland		133		133		62		135
1-4 family residential		—		—		—		78
Multi-family residential		—		—		—		—
Consumer		—		—		—		—
Agricultural		—		—		—		—
Subtotal		13,004		13,004		1,649		9,385
Total	$	21,677	$	21,677	$	1,649	$	17,188