Note 5 - Loans and the Allowance for Loan Losses

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

5. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Outstanding loans are summarized below:

	December 31,
	2019			2018
Commercial	$	47,892,000		$	49,563,000
Agricultural		78,785,000			69,160,000
Real estate – residential		14,530,000			15,900,000
Real estate – commercial		316,986,000			271,710,000
Real estate – construction & land development		31,181,000			40,161,000
Equity lines of credit		35,471,000			38,490,000
Auto		90,310,000			77,135,000
Other		4,563,000			4,080,000
		619,718,000			566,199,000
Deferred loan costs, net		3,561,000			3,257,000
Allowance for loan losses		(7,243,000	)		(6,958,000	)
Loans, net	$	616,036,000		$	562,498,000

Changes in the allowance for loan losses were as follows:

	Year Ended December 31,
	2019			2018
Balance, beginning of year	$	6,958,000		$	6,669,000
Provision charged to operations		1,500,000			1,000,000
Losses charged to allowance		(1,521,000	)		(1,191,000	)
Recoveries		306,000			480,000
Balance, end of year	$	7,243,000		$	6,958,000

The recorded investment in impaired loans totaled

$2,244,000

and

$1,275,000

at

December 31, 2019

and

2018

, respectively. The Company had specific allowances for loan losses of

$154,000

on impaired loans of

$539,000

at

December 31, 2019

as compared to specific allowances for loan losses of

$181,000

on impaired loans of

$424,000

at

December 31, 2018

. The balance of impaired loans in which

no

specific reserves were required totaled

$1,705,000

and

$851,000

at

December 31, 2019

and

2018

, respectively. The average recorded investment in impaired loans for the years ended

December 31, 2019,

2018

and

2017

was

$1,777,000

and

$1,160,000,

respectively. The Company recognized

$62,000,

$71,000

and

$73,000

in interest income on impaired loans during the years ended

December 31, 2019,

2018

and

2017

, respectively.

Included in impaired loans are troubled debt restructurings. A troubled debt restructuring is a formal restructure of a loan where the Company for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower. The concessions

may

be granted in various forms to include

one

or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

The carrying value of troubled debt restructurings at

December 31, 2019

and

December 31, 2018

was

$1,016,000

and

$1,080,000,

respectively. The Company has allocated

$33,000

and

$53,000

of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of

December 31, 2019

and

December 31, 2018

, respectively. The Company has

not

committed to lend additional amounts on loans classified as troubled debt restructurings at

December 31, 2019

and

December 31, 2018

.

There were

no

new troubled debt restructurings during the

twelve

months ending

December 31, 2019

and

2018

.

There were

no

troubled debt restructurings for which there was a payment default within

twelve

months following the modification during the

twelve

months ended

December 31, 2019

and

2018

.

At

December 31, 2019

and

2018

, nonaccrual loans totaled

$2,050,000

and

$1,117,000,

respectively. Interest foregone on nonaccrual loans totaled

$158,000,

$46,000

and

$50,000

for the

twelve

months ended

December 31, 2019,

2018

and

2017

, respectively.  There were

no

loans past due

90

days or more and on accrual status at

December 31, 2019

and

December 31, 2018. 

No

interest was recognized on nonaccrual loans accounted for on a cash basis during the years ended

December 31, 2019,

2018

and

2017.

Salaries and employee benefits totaling

$2,294,000,

$2,520,000

and

$1,789,000

have been deferred as loan origination costs during the years ended

December 31, 2019,

2018

and

2017

, respectively.

The following tables show the loan portfolio allocated by management's internal risk ratings at the dates indicated, in thousands:

December 31, 2019	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
					Real		Real		Real
					Estate-		Estate-		Estate-		Equity
	Commercial		Agricultural		Residential		Commercial		Construction		LOC		Total
Grade:
Pass	$	47,334	$	76,620	$	14,253	$	309,785	$	31,097	$	34,855	$	513,944
Special Mention		478		2,165		-		4,954		-		-		7,597
Substandard		80		-		277		2,247		84		616		3,304
Doubtful		-		-		-		-		-		-		-
Total	$	47,892	$	78,785	$	14,530	$	316,986	$	31,181	$	35,471	$	524,845

December 31, 2018	Commercial Credit Exposure
	Credit Risk Profile by Internally Assigned Grade
					Real		Real		Real
					Estate-		Estate-		Estate-		Equity
	Commercial		Agricultural		Residential		Commercial		Construction		LOC		Total
Grade:
Pass	$	48,905	$	68,910	$	15,621	$	268,159	$	40,069	$	38,304	$	479,968
Special Mention		481		250		124		3,420		-		-		4,275
Substandard		177		-		155		131		92		186		741
Doubtful		-		-		-		-		-		-		-
Total	$	49,563	$	69,160	$	15,900	$	271,710	$	40,161	$	38,490	$	484,984

	Consumer Credit Exposure						Consumer Credit Exposure
	Credit Risk Profile						Credit Risk Profile
	Based on Payment Activity						Based on Payment Activity
	December 31, 2019						December 31, 2018
	Auto		Other		Total		Auto		Other		Total
Grade:
Performing	$	90,128	$	4,559	$	94,687	$	76,734	$	4,071	$	80,805
Non-performing		182		4		186		401		9		410
Total	$	90,310	$	4,563	$	94,873	$	77,135	$	4,080	$	81,215

The following tables show the allocation of the allowance for loan losses at the dates indicated, in thousands:

		Commercial			Agricultural			Real Estate Residential			Real Estate Commercial			Real Estate Construction			Equity LOC			Auto			Other			Total
Year ended 12/31/19:
Allowance for Loan Losses
Beginning balance	$	914		$	538		$	214		$	2,686		$	758		$	464		$	1,289		$	95		$	6,958
Charge-offs		(587	)		-			-			-			-			(6	)		(867	)		(61	)		(1,521	)
Recoveries		26			-			3			4			-			5			258			10			306
Provision		264			115			(54	)		736			(277	)		(70	)		729			57			1,500
Ending balance	$	617		$	653		$	163		$	3,426		$	481		$	393		$	1,409		$	101		$	7,243
Year ended 12/31/18:
Allowance for Loan Losses
Beginning balance	$	725		$	623		$	231		$	2,729		$	783		$	533		$	946		$	99		$	6,669
Charge-offs		(325	)		-			(25	)		-			-			-			(801	)		(40	)		(1,191	)
Recoveries		83			-			93			21			3			5			256			19			480
Provision		431			(85	)		(85	)		(64	)		(28	)		(74	)		888			17			1,000
Ending balance	$	914		$	538		$	214		$	2,686		$	758		$	464		$	1,289		$	95		$	6,958
Year ended 12/31/17:
Allowance for Loan Losses
Beginning balance	$	655		$	466		$	280		$	2,740		$	927		$	575		$	815		$	91		$	6,549
Charge-offs		(202	)		-			-			(48	)		-			(121	)		(450	)		(58	)		(879	)
Recoveries		89			-			3			115			-			4			173			15			399
Provision		183			157			(52	)		(78	)		(144	)		75			408			51			600
Ending balance	$	725		$	623		$	231		$	2,729		$	783		$	533		$	946		$	99		$	6,669
December 31, 2019:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	-		$	-		$	28		$	121		$	5		$	-		$	-		$	-		$	154
Ending balance: collectively evaluated for impairment		617			653			135			3,305			476			393			1,409			101			7,089
Ending balance	$	617		$	653		$	163		$	3,426		$	481		$	393		$	1,409		$	101		$	7,243
Loans
Ending balance: individually evaluated for impairment	$	25		$	248		$	612		$	815		$	110		$	434		$	-		$	-		$	2,244
Ending balance: collectively evaluated for impairment		47,867			78,537			13,918			316,171			31,071			35,037			90,310			4,563			617,474
Ending balance	$	47,892		$	78,785		$	14,530		$	316,986		$	31,181		$	35,471		$	90,310		$	4,563		$	619,718
December 31, 2018:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	128		$	-		$	41		$	-		$	12		$	-		$	-		$	-		$	181
Ending balance: collectively evaluated for impairment		786			538			173			2,686			746			464			1,289			95			6,777
Ending balance	$	914		$	538		$	214		$	2,686		$	758		$	464		$	1,289		$	95		$	6,958
Loans
Ending balance: individually evaluated for impairment	$	128		$	250		$	649			131		$	117		$	-		$	-		$	-		$	1,275
Ending balance: collectively evaluated for impairment		49,435			68,910			15,251			271,579			40,044			38,490			77,135			4,080			564,924
Ending balance	$	49,563		$	69,160		$	15,900		$	271,710		$	40,161		$	38,490		$	77,135		$	4,080		$	566,199

The following tables show an aging analysis of the loan portfolio by the time past due, in thousands:

December 31, 2019							Total Past Due
	30-89 Days		90 Days and				and
	Past Due		Still Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	333	$	-	$	58	$	391	$	47,501	$	47,892
Agricultural		199		-		-		199		78,586		78,785
Real estate - residential				-		277		277		14,253		14,530
Real estate - commercial		1,467		-		830		2,297		314,689		316,986
Real estate – construction & land		-		-		83		83		31,098		31,181
Equity Lines of Credit		288		-		616		904		34,567		35,471
Auto		1,281		-		182		1,463		88,847		90,310
Other		87		-		4		91		4,472		4,563
Total	$	3,655	$	-	$	2,050	$	5,705	$	614,013	$	619,718

December 31, 2018							Total Past Due
	30-89 Days		90 Days and				and
	Past Due		Still Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	11	$	-	$	144	$	155	$	49,408	$	49,563
Agricultural		-		-		-		-		69,160		69,160
Real estate - residential		154		-		155		309		15,591		15,900
Real estate - commercial		-		-		131		131		271,579		271,710
Real estate – construction & land		-		-		92		92		40,069		40,161
Equity Lines of Credit		596		-		186		782		37,708		38,490
Auto		1,725		-		401		2,126		75,009		77,135
Other		85		-		8		93		3,987		4,080
Total	$	2,571	$	-	$	1,117	$	3,688	$	562,511	$	566,199

The following tables show information related to impaired loans at the dates indicated, in thousands:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of December 31, 2019:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	25	$	85	$	-	$	23	$	-
Agricultural		248		248		-		249		19
Real estate – residential		435		447		-		385		29
Real estate – commercial		563		614		-		476		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		434		457		-		213		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		-		-		-		-		-
Real estate – residential		177		177		28		178		7
Real estate – commercial		252		261		121		139		-
Real estate – construction & land		110		110		5		114		7
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	25	$	85	$	-	$	23	$	-
Agricultural		248		248		-		249		19
Real estate – residential		612		624		28		563		36
Real estate – commercial		815		875		121		615		-
Real estate – construction & land		110		110		5		114		7
Equity Lines of Credit		434		457		-		213		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total	$	2,244	$	2,399	$	154	$	1,777	$	62

The following tables show information related to impaired loans at the dates indicated, in thousands:  

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of December 31, 2018:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		250		250		-		252		19
Real estate – residential		470		481		-		470		38
Real estate – commercial		131		144		-		136		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
With an allowance recorded:
Commercial	$	128	$	128	$	128	$	1	$	-
Agricultural		-		-		-		-		-
Real estate – residential		179		179		41		181		7
Real estate – commercial		-		-		-		-		-
Real estate – construction & land		117		117		12		120		7
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	128	$	128	$	128	$	1	$	-
Agricultural		250		250		-		252		19
Real estate – residential		649		660		41		651		45
Real estate – commercial		131		144		-		136		-
Real estate – construction & land		117		117		12		120		7
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total	$	1,275	$	1,299	$	181	$	1,160	$	71

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of December 31, 2017:	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		253		253		-		255		19
Real estate – residential		697		708		-		548		38
Real estate – commercial		287		287		-		184		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		162		162		-		180		-
Auto		377		377		-		144		-
Other		19		19		-		1		-
With an allowance recorded:
Commercial	$	14	$	14	$	2	$	15	$	1
Agricultural		-		-		-		-		-
Real estate – residential		237		237		48		203		7
Real estate – commercial		-		-		-		-		-
Real estate – construction & land		224		224		32		230		8
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	14	$	14	$	2	$	15	$	1
Agricultural		253		253		-		255		19
Real estate – residential		934		945		48		751		45
Real estate – commercial		287		287		-		184		-
Real estate – construction & land		224		224		32		230		8
Equity Lines of Credit		162		162		-		180		-
Auto		377		377		-		144		-
Other		19		19		-		1		-
Total	$	2,270	$	2,281	$	82	$	1,760	$	73