LOANS

9 Months Ended

Sep. 30, 2022

Loans

LOANS

NOTE 6 LOANS

Loans receivable outstanding as of September 30, 2022, and December 31, 2021, are summarized as follows:

(Dollars are in thousands)	September 30, 2022		December 31, 2021
Real estate secured:
Commercial	$	198,101	$	206,162
Construction and land development		38,598		32,325
Residential 1-4 family		226,706		224,530
Multifamily		29,062		33,048
Farmland		17,467		18,735
Total real estate loans		509,934		514,800
Commercial		45,126		54,325
Agriculture		3,799		4,021
Consumer installment loans		19,602		18,756
All other loans		1,413		1,842
Total loans	$	579,874	$	593,744

Included in commercial loans at September 30, 2022 and December 31, 2021 were $298 thousand and $6.4 million of Paycheck Protection Program (PPP) loans, respectively, that are guaranteed by the Small Business Administration (SBA).

Also included in total loans above are deferred loan fees of $1.7 million and $1.8 million at September 30, 2022 and December 31, 2021, respectively. Deferred loan costs were $2.1 million and $2.0 million, at September 30, 2022 and December 31, 2021, respectively. Income from net deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities any unamortized fee or costs is recognized at that time.

Loans receivable on nonaccrual status as of September 30, 2022, and December 31, 2021, are summarized as follows:

(Dollars are in thousands)	September 30, 2022		December 31, 2021
Real estate secured:
Commercial	$	273	$	415
Construction and land development		735		37
Residential 1-4 family		2,636		2,314
Multifamily		—		111
Farmland		43		48
Total real estate loans		3,687		2,925
Commercial		15		9
Consumer installment loans and other loans		4		7
Total loans receivable on nonaccrual status	$	3,706	$	2,941

Total interest income not recognized on nonaccrual loans for the nine months ended September 30, 2022, and September 30, 2021, was $22 thousand and $445 thousand, respectively.

The following tables presents information concerning the Company’s investment in loans considered impaired as of September 30, 2022, and December 31, 2021:

As of September 30, 2022 (Dollars are in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	92	$	133	$	—
Construction and land development		6		279		—
Residential 1-4 family		1,662		2,008		—
Multifamily		—		—		—
Farmland		268		437		—
Commercial		24		32		—
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		291		361		69
Construction and land development		710		710		174
Residential 1-4 family		34		49		26
Multifamily		—		—		—
Farmland		—		—		—
Commercial		—		—		—
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
Total	$	3,087	$	4,009	$	269

As of December 31, 2021 (Dollars are in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Real estate secured:
Commercial	$	99	$	140	$	—
Construction and land development		24		298		—
Residential 1-4 family		1,508		1,791		—
Multifamily		—		—		—
Farmland		320		490		—
Commercial		—		—		—
Agriculture		—		—		—
Consumer installment loans		2		2		—
All other loans		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		315		372		94
Construction and land development		—		—		—
Residential 1-4 family		340		372		53
Multifamily		—		—		—
Farmland		197		209		17
Commercial		28		35		2
Agriculture		—		—		—
Consumer installment loans		—		—		—
All other loans		—		—		—
Total	$	2,833	$	3,709	$	166

The following tables present information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods indicated:

	Nine Months Ended
	September 30, 2022				September 30, 2021
(Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate secured:
Commercial	$	132	$	4	$	281	$	—
Construction and land development		25		13		75		9
Residential 1-4 family		1,578		37		1,773		24
Multifamily		—		—		—		—
Farmland		322		18		467		14
Commercial		12		1		—		—
Agriculture		—		—		—		—
Consumer installment loans		1		—		3		—
All other loans		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		442		3		1,010		3
Construction and land development		364		17		—		—
Residential 1-4 family		243		6		338		6
Multifamily		25		—		—		—
Farmland		79		—		102		4
Commercial		34		1		129		1
Agriculture		—		—		—		—
Consumer installment loans		—		—		—		—
All other loans		—		—		—		—
Total	$	3,257	$	100	$	4,178	$	61

	Three Months Ended
	September 30, 2022				September 30, 2021
(Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate secured:
Commercial	$	94	$	4	$	122	$	—
Construction and land development		9		9		56		5
Residential 1-4 family		1,553		23		1,764		10
Multifamily		—		—		—		—
Farmland		275		9		452		5
Commercial		25		1		—		—
Agriculture		—		—		—		—
Consumer installment loans		—		—		3		—
All other loans		—		—		—		—
With an allowance recorded:
Real estate secured:
Commercial		295		—		519		—
Construction and land development		727		17		—		—
Residential 1-4 family		167		6		357		6
Multifamily		25		—		—		—
Farmland		—		—		100		4
Commercial		—		—		29		—
Agriculture		—		—		—		—
Consumer installment loans		—		—		—		—
All other loans		—		—		—		—
Total	$	3,170	$	69	$	3,402	$	30

An age analysis of past due loans receivable as of September 30, 2022, and December 31, 2021, is below. At September 30, 2022 and December 31, 2021, no loans over 90 days past due were accruing.

As of September 30, 2022 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	—	$	—	$	—	$	—	$	198,101	$	198,101
Construction and land development		50		—		710		760		37,838		38,598
Residential 1-4 family		1,879		361		551		2,791		223,915		226,706
Multifamily		—		—		—		—		29,062		29,062
Farmland		43		—		—		43		17,424		17,467
Total real estate loans		1,972		361		1,261		3,594		506,340		509,934
Commercial		65		—		15		80		45,046		45,126
Agriculture		—		—		—		—		3,799		3,799
Consumer installment loans		28		32		4		64		19,538		19,602
All other loans		28		—		—		28		1,385		1,413
Total loans	$	2,093	$	393	$	1,280	$	3,766	$	576,108	$	579,874

As of December 31, 2021 (Dollars are in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans
Real estate secured:
Commercial	$	—	$	—	$	—	$	—	$	206,162	$	206,162
Construction and land development		7		—		7		14		32,311		32,325
Residential 1-4 family		2,473		240		486		3,199		221,331		224,530
Multifamily		—		—		111		111		32,937		33,048
Farmland		—		—		—		—		18,735		18,735
Total real estate loans		2,480		240		604		3,324		511,476		514,800
Commercial		5		—		—		5		54,320		54,325
Agriculture		—		—		—		—		4,021		4,021
Consumer installment Loans		56		5		—		61		18,695		18,756
All other loans		—		—		—		—		1,842		1,842
Total loans	$	2,541	$	245	$	604	$	3,390	$	590,354	$	593,744

The Company categorizes loans receivable 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 receivable as to credit risk. The Company uses the following definitions for risk ratings:

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.  Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must 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 doubtful have all the weaknesses inherent in loans classified as substandard, plus 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.

Based on the most recent analysis performed, the risk categories of loans receivable as of September 30, 2022, and December 31, 2021, was as follows:

As of September 30, 2022 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	193,557	$	4,271	$	273	$	—	$	198,101
Construction and land development		37,738		126		734		—		38,598
Residential 1-4 family		223,593		493		2,620		—		226,706
Multifamily		28,852		210		—		—		29,062
Farmland		16,538		886		43		—		17,467
Total real estate loans		500,278		5,986		3,670		—		509,934
Commercial		44,208		903		15		—		45,126
Agriculture		3,799		—		—		—		3,799
Consumer installment loans		19,595		3		4		—		19,602
All other loans		1,413		—		—		—		1,413
Total	$	569,293	$	6,892	$	3,689	$	—	$	579,874
As of December 31, 2021 (Dollars are in thousands)		Pass		Special Mention		Substandard		Doubtful		Total
Real estate secured:
Commercial	$	198,022	$	7,725	$	415	$	—	$	206,162
Construction and land development		31,366		922		37		—		32,325
Residential 1-4 family		221,342		915		2,273		—		224,530
Multifamily		32,499		438		111		—		33,048
Farmland		18,137		550		48		—		18,735
Total real estate loans		501,366		10,550		2,884		—		514,800
Commercial		53,162		1,154		9		—		54,325
Agriculture		4,021		—		—		—		4,021
Consumer installment loans		18,746		2		8		—		18,756
All other loans		1,842		—		—		—		1,842
Total	$	579,137	$	11,706	$	2,901	$	—	$	593,744