XML 22 R11.htm IDEA: XBRL DOCUMENT

Note 4 - Loans and the Allowance for Loan Losses

9 Months Ended

Sep. 30, 2020

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

4. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Outstanding loans are summarized below, in thousands:

	September 30,			December 31,
	2020			2019

Commercial	$	167,770		$	47,892
Agricultural		74,209			78,785
Real estate – residential		12,848			14,530
Real estate – commercial		333,768			316,986
Real estate – construction and land development		27,886			31,181
Equity lines of credit		34,894			35,471
Auto		92,248			90,310
Other		4,262			4,563
Total loans		747,885			619,718
Deferred loan (fees) costs, net		(635	)		3,561
Allowance for loan losses		(9,600	)		(7,243	)
Total net loans	$	737,650		$	616,036

Changes in the allowance for loan losses, in thousands, were as follows:

	September 30,			December 31,
	2020			2019

Balance, beginning of period	$	7,243		$	6,958
Provision charged to operations		2,800			1,500
Losses charged to allowance		(668	)		(1,521	)
Recoveries		225			306
Balance, end of period	$	9,600		$	7,243

The recorded investment in impaired loans totaled $2,083,000 and $2,244,000 at September 30, 2020 and December 31, 2019, respectively. The Company had specific allowances for loan losses of $153,000 on impaired loans of $535,000 at September 30, 2020 as compared to specific allowances for loan losses of $154,000 on impaired loans of $539,000 at December 31, 2019. The balance of impaired loans in which no specific reserves were required totaled $1,548,000 and $1,705,000 at September 30, 2020 and December 31, 2019, respectively. The average recorded investment in impaired loans for the nine months ended September 30, 2020 and September 30, 2019 was $2,111,000 and $1,771,000, respectively. The Company recognized $45,000 in interest income for impaired loans during the nine months ended September 30, 2020 and 2019. No interest was recognized on nonaccrual loans accounted on a cash basis during the nine months ended September 30, 2020 and 2019.

Included in impaired loans are troubled debt restructurings. Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides that a qualifying loan modification or extension is exempt by law from classification as a Troubled Debt Restructuring ("TDR") pursuant to FASB ASC 340-10. In addition, FIL-36-2020 issued by the FDIC on April 7, 2020 provides more limited circumstances in which a loan modification or extension is not subject to classification as a TDR pursuant to FASB ASC 340-10.

The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under FIL-36-2020 in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR. Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above. 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 September 30, 2020 and December 31, 2019 was $1,002,000 and $1,016,000, respectively. The Company has allocated $32,000 and $33,000 of specific reserves on loans to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2020 and December 31, 2019. The Company has not committed to lend additional amounts on loans classified as troubled debt restructurings at September 30, 2020 and December 31, 2019.

There were no troubled debt restructurings that occurred during the nine months ending September 30, 2020 or September 30, 2019.

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, nonaccrual loans totaled $2,445,000 and $2,050,000, respectively. Interest foregone on nonaccrual loans totaled $85,000 and $116,000 for the nine months ended September 30, 2020 and 2019, respectively. Interest foregone on nonaccrual loans totaled $22,000 and $47,000 for the three and nine months ended September 30, 2020 and 2019, respectively. There were no loans past due 90 days or more and on accrual status at September 30, 2020 and December 31, 2019.

Salaries and employee benefits totaling $1,788,000 and $1,716,000 have been deferred as loan origination costs during the nine months ended September 30, 2020 and 2019, respectively. Salaries and employee benefits totaling $588,000 and $511,000 have been deferred as loan origination costs during the three months ended September 30, 2020 and 2019, respectively.

The Company assigns a risk rating to all loans and periodically, but not less than annually, performs detailed reviews of all criticized and classified loans over $100,000 to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by independent specialists engaged by the Company and the Company’s regulators. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which borrowers operate and the fair values of collateral securing these loans. These credit quality indicators are used to assign a risk rating to each individual loan.

The risk ratings can be grouped into three major categories, defined as follows:

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 – A substandard loan is not adequately protected by the current sound worth and paying capacity of the borrower or the value of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Well defined weaknesses include a project's lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time or the project's failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified 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 known 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 table shows the loan portfolio allocated by management's internal risk ratings at the dates indicated, in thousands:

September 30, 2020	*Commercial Credit Exposure*
	*Credit Risk Profile by Internally Assigned Grade*
Grade:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Total
Pass	$	167,515	$	73,852	$	12,644	$	332,249	$	27,808	$	34,378	$	648,446
Special Mention		252		357		-		653		-		-		1,262
Substandard		3		-		204		866		78		516		1,667
Doubtful		-		-		-		-		-		-		-
Total	$	167,770	$	74,209	$	12,848	$	333,768	$	27,886	$	34,894	$	651,375

December 31, 2019	*Commercial Credit Exposure*
	*Credit Risk Profile by Internally Assigned Grade*
Grade:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Total
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

	*Consumer Credit Exposure*						*Consumer Credit Exposure*
	*Credit Risk Profile Based on Payment Activity*						*Credit Risk Profile Based on Payment Activity*
	*September 30, 2020*						*December 31, 2019*
	Auto		Other		Total		Auto		Other		Total
Grade:
Performing	$	91,507	$	4,225	$	95,732	$	90,128	$	4,559	$	94,687
Non-performing		741		37		778		182		4		186
Total	$	92,248	$	4,262	$	96,510	$	90,310	$	4,563	$	94,873

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

Nine Months Ended September 30, 2020:	Commercial			Agricultural		Real Estate-Residential			Real Estate-Commercial		Real Estate-Construction			Equity LOC			Auto			Other			Total
Allowance for Loan Losses
Beginning balance	$	617		$	653	$	163		$	3,426	$	481		$	393		$	1,409		$	101		$	7,243
Charge-offs		(131	)		-		-			-		-			-			(457	)		(80	)		(668	)
Recoveries		21			-		3			6		-			3			185			7			225
Provision		450			93		8			1,345		87			94			642			81			2,800
Ending balance	$	957		$	746	$	174		$	4,777	$	568		$	490		$	1,779		$	109		$	9,600
Three Months Ended September 30, 2020:
Beginning balance	$	788		$	691	$	173		$	4,405	$	476		$	474		$	1,712		$	116		$	8,835
Charge-offs		-			-		-			-		-			-			(94	)		(39	)		(133	)
Recoveries		14			-		1			3		-			1			78			1			98
Provision		155			55		-			369		92			15			83			31			800
Ending balance	$	957		$	746	$	174		$	4,777	$	568		$	490		$	1,779		$	109		$	9,600
Nine Months Ended September 30, 2019:
Allowance for Loan Losses
Beginning balance	$	914		$	538	$	214		$	2,686	$	758		$	464		$	1,289		$	95		$	6,958
Charge-offs		(186	)		-		-			-		-			(6	)		(624	)		(58	)		(874	)
Recoveries		21			-		2			2		-			4			207			6			242
Provision		14			123		(42	)		399		(118	)		(29	)		494			59			900
Ending balance	$	763		$	661	$	174		$	3,087	$	640		$	433		$	1,366		$	102		$	7,226
Three Months Ended September 30, 2019:
Allowance for Loan Losses
Beginning balance	$	721		$	627	$	177		$	2,997	$	597		$	468		$	1,372		$	99		$	7,058
Charge-offs		(49	)		-		-			-		-			(1	)		(140	)		(27	)		(217	)
Recoveries		5			-		-			2		-			2			72			4			85
Provision		86			34		(3	)		88		43			(36	)		62			26			300
Ending balance	$	763		$	661	$	174		$	3,087	$	640		$	433		$	1,366		$	102		$	7,226
September 30, 2020:
Allowance for Loan Losses
Ending balance: individually evaluated for impairment	$	-		$	-	$	26		$	122	$	5		$	-		$	-		$	-		$	153
Ending balance: collectively evaluated for impairment		957			746		148			4,655		563			490			1,779			109			9,447
Ending balance	$	957		$	746	$	174		$	4,777	$	568		$	490		$	1,779		$	109		$	9,600
Loans
Ending balance: individually evaluated for impairment	$	-		$	245	$	649		$	786	$	108		$	295		$	-		$	-		$	2,083
Ending balance: collectively evaluated for impairment		167,770			73,964		12,199			332,982		27,778			34,599			92,248			4,262			745,802
Ending balance	$	167,770		$	74,209	$	12,848		$	333,768	$	27,886		$	34,894		$	92,248		$	4,262		$	747,885

December 31, 2019:	Commercial		Agricultural		Real Estate-Residential		Real Estate-Commercial		Real Estate-Construction		Equity LOC		Auto		Other		Total
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

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

							Total
September 30, 2020			90 Days				Past Due
	30-89 Days		and Still				and
	Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total

Commercial	$	149	$	-	$	3	$	152	$	167,618	$	167,770
Agricultural		250		-		-		250		73,959		74,209
Real estate – residential		70		-		204		274		12,574		12,848
Real estate – commercial		42		-		866		908		332,860		333,768
Real estate - construction & land		-		-		78		78		27,808		27,886
Equity Lines of Credit		82		-		516		598		34,296		34,894
Auto		685		-		741		1,426		90,822		92,248
Other		84		-		37		121		4,141		4,262
Total	$	1,362	$	-	$	2,445	$	3,807	$	744,078	$	747,885

							Total
December 31, 2019			90 Days				Past Due
	30-89 Days		and Still				and
	Past Due		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

The following tables show information related to impaired loans at September 30, 2020, in thousands:

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
As of September 30, 2020:	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		245		245		-		247		14
Real estate – residential		474		500		-		477		21
Real estate – commercial		534		604		-		549		-
Real estate – construction & land		-		-		-		-		-
Equity Lines of Credit		295		321		-		301		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
With an allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		-		-		-		-		-
Real estate – residential		175		175		26		176		5
Real estate – commercial		252		271		122		252		-
Real estate – construction & land		108		108		5		109		5
Equity Lines of Credit		-		-		-		-		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total:
Commercial	$	-	$	-	$	-	$	-	$	-
Agricultural		245		245		-		247		14
Real estate – residential		649		675		26		653		26
Real estate – commercial		786		875		122		801		-
Real estate – construction & land		108		108		5		109		5
Equity Lines of Credit		295		321		-		301		-
Auto		-		-		-		-		-
Other		-		-		-		-		-
Total	$	2,083	$	2,224	$	153	$	2,111	$	45

The following tables show information related to impaired loans at December 31, 2019, 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