Note 4 - Loans and the Allowance for Credit Losses

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

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

4. LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

Outstanding loans are summarized below, in thousands:

	March 31,			December 31,
	2024			2023
Commercial	$	82,136		$	74,271
Agricultural		123,239			129,389
Real estate – residential		11,872			11,914
Real estate – commercial		562,870			544,339
Real estate – construction and land development		64,547			57,717
Equity lines of credit (Equity LOC)		37,196			37,871
Auto		89,399			98,132
Other		4,953			4,931
Total loans		976,212			958,564
Deferred loan costs, net		3,086			2,907
Loans, amortized cost basis		979,298			961,471
Allowance for credit losses		(13,157	)		(12,867	)
Total net loans	$	966,141		$	948,604

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

	March 31,			December 31,
	2024			2023
Balance, beginning of period	$	12,867		$	10,717
Cumulative change from adoption of ASU 2016-13		-			529
Provision charged to operations - loans		900			2,575
Charge-offs		(680	)		(1,802	)
Recoveries		70			848
Balance, end of period	$	13,157		$	12,867

Salaries and employee benefits totaling $700,000 and $562,000 have been deferred as loan origination costs during the three months ended March 31, 2024 and 2023, 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.

For other loans, which are primarily consumer loans and automobile loans the Company evaluates credit quality based on the aging status of the loan and by payment activity.

The following table shows the loan portfolio allocated by management's internal risk ratings or payment activity at the dates indicated, in thousands:

	Amortized Cost Basis by Origination Year and Risk Grades - As of March 31, 2024
(in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Book Amortized Cost Basis		Revolving Loans Converted to Term Amortized Cost Basis		Total - Amortized Cost Basis
Commercial
Pass	$	7,017	$	16,166	$	18,484	$	11,085	$	3,003	$	8,990	$	15,678	$	-	$	80,423
Special Mention		-		-		-		295		-		65		252		-		612
Substandard		-		-		1,120		288		328		53		22		-		1,811
Total Commercial loans	$	7,017	$	16,166	$	19,604	$	11,668	$	3,331	$	9,108	$	15,952	$	-	$	82,846
Current period gross charge-offs	$	-			$	43											$	43
Agricultural
Pass	$	2,169	$	10,104	$	16,712	$	12,909	$	14,907	$	30,165	$	14,410	$	-	$	101,376
Special Mention		1,157		1,525		755		95		1,329		1,726		423		-		7,010
Substandard		-		4,226		6,837		3,075		-		999		-		-		15,137
Total Agricultural	$	3,326	$	15,855	$	24,304	$	16,079	$	16,236	$	32,890	$	14,833	$	-	$	123,523
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate - Residential
Pass	$	-	$	1,121	$	-	$	2,125	$	2,426	$	5,137	$	252	$	-	$	11,061
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		839		-		-		839
Total Real Estate - Residential	$	-	$	1,121	$	-	$	2,125	$	2,426	$	5,976	$	252	$	-	$	11,900
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate -Commercial
Pass	$	19,724	$	78,747	$	120,241	$	83,976	$	76,403	$	167,887	$	10,247	$	-	$	557,225
Special Mention		-		-		-		-		94		2,843		-		-		2,937
Substandard		-		-		11		-		270		2,652		-		-		2,933
Total Real Estate -Commercial	$	19,724	$	78,747	$	120,252	$	83,976	$	76,767	$	173,382	$	10,247	$	-	$	563,095
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate -Construction
Pass	$	1,478	$	25,813	$	29,567	$	3,681	$	976	$	882	$	1,764	$	-	$	64,161
Special Mention		-		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		-		-		-
Total Real Estate -Construction	$	1,478	$	25,813	$	29,567	$	3,681	$	976	$	882	$	1,764	$	-	$	64,161
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Equity LOC
Pass	$	-	$	-	$	-	$	-	$	-			$	34,452	$	2,943	$	37,395
Substandard		-		-		-		-		-				339		307		646
Total Equity LOC	$	-	$	-	$	-	$	-	$	-	$	-	$	34,791	$	3,250	$	38,041
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total
Pass	$	30,388	$	131,951	$	185,004	$	113,776	$	97,715	$	213,061	$	76,803	$	2,943	$	851,641
Special Mention		1,157		1,525		755		390		1,423		4,634		675		-		10,559
Substandard		-		4,226		7,968		3,363		598		4,543		361		307		21,366
Total	$	31,545	$	137,702	$	193,727	$	117,529	$	99,736	$	222,238	$	77,839	$	3,250	$	883,566
Current period gross charge-offs	$	-	$	-	$	43	$	-	$	-	$	-	$	-	$	-	$	43
Auto
Performing	$	-	$	29,872	$	29,531	$	14,772	$	7,595	$	8,182	$	-	$	-	$	89,952
Non-performing		-		101		103		191		199		191		-		-		785
Total Auto	$	-	$	29,973	$	29,634	$	14,963	$	7,794	$	8,373	$	-	$	-	$	90,737
Current period gross charge-offs	$	-	$	127	$	264	$	46	$	65	$	131	$	-	$	-	$	633
Other
Performing	$	876	$	1,875	$	1,227	$	637	$	178	$	55	$	144	$	-	$	4,992
Non-performing		-		-		3		-		-		-		-		-		3
Total Other	$	876	$	1,875	$	1,230	$	637	$	178	$	55	$	144	$	-	$	4,995
Current period gross charge-offs	$	-	$	2	$	1	$	-	$	-	$	1	$	-	$	-	$	4
Total
Performing	$	876	$	31,747	$	30,758	$	15,409	$	7,773	$	8,237	$	144	$	-	$	94,944
Non-performing		-		101		106		191		199		191		-		-		788
Total	$	876	$	31,848	$	30,864	$	15,600	$	7,972	$	8,428	$	144	$	-	$	95,732
Total Loans	$	32,421	$	169,550	$	224,591	$	133,129	$	107,708	$	230,666	$	77,983	$	3,250	$	979,298
Total gross charge-offs	$	-	$	129	$	308	$	46	$	65	$	132	$	-	$	-	$	680

	Term Loans
	Amortized Cost Basis by Origination Year and Risk Grades - As of December 31, 2023
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Book Balance Basis		Revolving loans converted to term Book Balance Basis		Total
Commercial
Pass	$	15,549	$	18,995	$	11,603	$	3,472	$	4,291	$	5,165	$	13,079	$	-	$	72,154
Special Mention		-		-		302		-		31		68		170		-		571
Substandard		-		1,532		289		340		-		24		23		-		2,208
Total Commercial loans	$	15,549	$	20,527	$	12,194	$	3,812	$	4,322	$	5,257	$	13,272	$	-	$	74,933
Current period gross charge-offs	$	-	$	34	$	40	$	14	$	-	$	10	$	25	$	-	$	123
Agricultural
Pass	$	12,028	$	17,382	$	13,182	$	15,550	$	11,495	$	20,704	$	18,925	$	-	$	109,266
Special Mention		1,852		813		97		1,017		16		817		621		-		5,233
Substandard		6,226		6,878		1,075		-		752		248		-		-		15,179
Total Agricultural	$	20,106	$	25,073	$	14,354	$	16,567	$	12,263	$	21,769	$	19,546	$	-	$	129,678
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate - Residential
Pass	$	1,127	$	-	$	2,143	$	2,447	$	524	$	4,676	$	201		-	$	11,118
Substandard		-		-		-		-		59		765		-		-		824
Total Real Estate - Residential	$	1,127	$	-	$	2,143	$	2,447	$	583	$	5,441	$	201		-	$	11,942
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate -Commercial
Pass	$	74,595	$	115,890	$	90,436	$	76,401	$	40,256	$	133,958	$	6,246		-	$	537,782
Special Mention		-		-		-		199		-		3,316		-		-		3,515
Substandard		-		12		-		281		353		2,271		-		-		2,917
Total Real Estate -Commercial	$	74,595	$	115,902	$	90,436	$	76,881	$	40,609	$	139,545	$	6,246		-	$	544,214
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Real Estate -Construction
Pass	$	18,878	$	30,825	$	3,717	$	1,672	$	619	$	281	$	1,368	$	-	$	57,360
Total Real Estate -Construction	$	18,878	$	30,825	$	3,717	$	1,672	$	619	$	281	$	1,368	$	-	$	57,360
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Equity LOC
Pass	$	-	$	-	$	-	$	-	$	-			$	35,122	$	3,018	$	38,140
Substandard		-		-		-		-		-				319		254		573
Total Equity LOC	$	-	$	-	$	-	$	-	$	-	$	-	$	35,441	$	3,272	$	38,713
Current period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total
Pass	$	122,177	$	183,092	$	121,081	$	99,542	$	57,185	$	164,784	$	74,941	$	3,018	$	825,820
Special Mention		1,852		813		399		1,216		47		4,201		791		-		9,319
Substandard		6,226		8,422		1,364		621		1,164		3,308		342		254		21,701
Total	$	130,255	$	192,327	$	122,844	$	101,379	$	58,396	$	172,293	$	76,074	$	3,272	$	856,840
Current period gross charge-offs	$	-	$	34	$	40	$	14	$	-	$	10	$	25	$	-	$	123
Auto
Performing	$	31,880	$	31,913	$	16,246	$	8,554	$	6,329	$	3,689	$	-	$	-	$	98,611
Non-performing		167		228		179		210		228		37		-		-		1,049
Total Auto	$	32,047	$	32,141	$	16,425	$	8,764	$	6,557	$	3,726	$	-	$	-	$	99,660
Current period gross charge-offs	$	-	$	367	$	569	$	237	$	255	$	122	$	-	$	-	$	1,550
Other
Performing	$	2,411	$	1,354	$	719	$	252	$	57	$	15	$	159	$	-	$	4,967
Non-performing		-		4		-		-		-		-		-		-		4
Total Other	$	2,411	$	1,358	$	719	$	252	$	57	$	15	$	159	$	-	$	4,971
Current period gross charge-offs	$	-	$	70	$	33	$	9	$	12	$	3	$	2	$	-	$	129
Total
Performing	$	34,291	$	33,267	$	16,965	$	8,806	$	6,386	$	3,704	$	159	$	-	$	103,578
Non-performing		167		232		179		210		228		37		-		-		1,053
Total	$	34,458	$	33,499	$	17,144	$	9,016	$	6,614	$	3,741	$	159	$	-	$	104,631
Total Loans	$	164,713	$	225,826	$	139,988	$	110,395	$	65,010	$	176,034	$	76,233	$	3,272	$	961,471
Total gross charge-offs	$	-	$	471	$	642	$	260	$	267	$	135	$	27	$	-	$	1,802

The following table shows the ending balance of nonaccrual loans by loan category as of the date indicated:

	Non Performing Loans
	March 31, 2024						December 31, 2023
(in thousands)	Nonaccrual with no allowance for credit losses		Total nonaccrual		Past due 90 days or more and still accruing		Nonaccrual with no allowance for credit losses		Total nonaccrual		Past due 90 days or more and still accruing
Commercial	$	67	$	124	$	-	$	75	$	132	$	-
Agricultural		2,066		2,066		-		2,066		2,066		-
Real estate – residential		662		662		-		223		223		-
Real estate – commercial		1,324		1,324		-		774		774		-
Real estate – construction & land development		-		-		-		-		-		-
Equity lines of credit		646		646		-		572		572		-
Auto		785		785		-		1,049		1,049		-
Other		3		3		-		4		4		-
Total Gross Loans	$	5,553	$	5,610	$	-	$	4,763	$	4,820	$	-

The Company places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is received, and future collection of principal is deemed by management to be probable. Where the collectability of the principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.

The following tables shows interest reversed against interest income for loans placed on nonaccrual status during the three months ended March 31, 2024.

Three months ended March 31, 2024
(in thousands)		Interest Reversed
Commercial	$	4
Real estate – residential		9
Real estate – commercial		14
Equity Lines of Credit		10
Auto		2
Total	$	39

On March 31, 2024, and December 31, 2023, there was one commercial nonaccrual loan with an amortized cost of $57,000 that had allowance for credit losses totaling $28,000. No income was recognized on nonaccrual loans accounted on a cash basis during the three months ended March 31, 2024, or the year ended December 31, 2023.

The following table presents the amortized cost basis of loans for the three months ended March 31, 2024, that were both experiencing financial difficulty and modified during the three months ended March 31,2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.  

	Term Extension
(in thousands)	Amortized Cost Basis		Total Class of Financing Receivable
Commercial		36		0.04	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty at  March 31, 2024:

	Weighted-Average Term Extension (in months)
Commercial		6.0

The following table presents the amortized cost basis of loans for the year ended December 31, 2023, that were both experiencing financial difficulty and modified during the twelve months ended December 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financial receivable is also presented below.  

	Term Extension
(in thousands)	Amortized Cost Basis		Total Class of Financing Receivable
Commercial		1,489		1.92	%
Agricultural		4,367		3.32	%
Total	$	5,856		0.62	%

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of December 31, 2023:

	Weighted-Average Term Extension (in months)
Commercial		6.0
Agricultural		10.0
Total		9.1

Loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended March 31, 2024, which had material modifications in rate, term or principal forgiveness during the twelve months prior to default totaled $2.9 million in agricultural loans.

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

Three Months Ended March 31, 2024:	Commercial			Agricultural			Real Estate-Residential			Real Estate-Commercial		Real Estate-Construction			Equity LOC			Auto			Other			Total
Allowance for credit losses
Beginning balance	$	1,134		$	1,738		$	137		$	6,678	$	797		$	439		$	1,865		$	79		$	12,867
Charge-offs		(43	)		-			-			-		-			-			(633	)		(4	)		(680	)
Recoveries		9			-			1			-		-			-			57			3			70
Provision		211			(86	)		(4	)		239		121			(2	)		411			10			900
Ending balance	$	1,311		$	1,652		$	134		$	6,917	$	918		$	437		$	1,700		$	88		$	13,157
Three Months Ended March 31, 2023:
Allowance for credit losses
Beginning balance	$	892		$	1,086		$	138		$	4,980	$	1,500		$	687		$	1,289		$	145		$	10,717
Impact of CECL Adoption		354			148			2			1,488		(951	)		(421	)		9			(100	)		529
Charge-offs		-			-			-			-		-			-			(293	)		(15	)		(308	)
Recoveries		6			-			1			1		-			-			131			3			142
Provision		223			73			21			271		214			64			368			16			1,250
Ending balance	$	1,475		$	1,307		$	162		$	6,740	$	763		$	330		$	1,504		$	49		$	12,330

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

									Total
March 31, 2024					90 Days				Past Due
	30-59 Days		60-89 Days		and Still				and
	Past Due		Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	385	$	175	$	-	$	124	$	684	$	82,162	$	82,846
Agricultural		22		4,977		-		2,066		7,065		116,458		123,523
Real estate – residential		-		157		-		662		819		11,081		11,900
Real estate – commercial		1,316		-		-		1,324		2,640		560,455		563,095
Real estate - construction & land		-		624		-		-		624		63,537		64,161
Equity Lines of Credit		155		-		-		646		801		37,240		38,041
Auto		1,485		332		-		785		2,602		88,135		90,737
Other		10		42		-		3		55		4,940		4,995
Total	$	3,373	$	6,307	$	-	$	5,610	$	15,290	$	964,008	$	979,298

									Total
December 31, 2023					90 Days				Past Due
	30-89 Days		60-89 Days		and Still				and
	Past Due		Past Due		Accruing		Nonaccrual		Nonaccrual		Current		Total
Commercial	$	21	$	254	$	-	$	132	$	407	$	74,526	$	74,933
Agricultural		82		-		-		2,066		2,148		127,530		129,678
Real estate – residential		348		423		-		223		994		10,948		11,942
Real estate - commercial		587		-		-		774		1,361		542,853		544,214
Real estate - construction & land		-		-		-		-		-		57,360		57,360
Equity Lines of Credit		473		53		-		572		1,098		37,615		38,713
Auto		1,729		405		-		1,049		3,183		96,477		99,660
Other		19		3		-		4		26		4,945		4,971
Total	$	3,259	$	1,138	$	-	$	4,820	$	9,217	$	952,254	$	961,471

The following tables present the amortized cost basis of collateral dependent loans by class of loans at  March 31, 2024, in thousands:

					Commercial -1st		SFR-1st		SFR-2nd		SFR-3rd		Auto		Auto
	Equipment		Crops		Deed		Deed		Deed		Deed		New		Used		Total
Commercial	$	102	$	-	$	-	$	-	$	-			$	-	$	-	$	102
Agricultural		-		2,066				-		-				-		-		2,066
Real estate – residential		-		-				662		-				-		-		662
Real estate – commercial		-		-		269		963		39		53				-		1,324
Real estate - construction & land		-		-				-		-				-		-		-
Equity Lines of Credit		-		-				140		506				-		-		646
Auto		-		-				-		-				502		273		775
Other		-		-				-		-				-		-		-
Total	$	102	$	2,066	$	269	$	1,765	$	545	$	53	$	502	$	273	$	5,575

The following tables present the amortized cost basis of collateral dependent loans by class of loans at December 31, 2023 in thousands:

					Commercial -1st		SFR-1st		SFR-2nd				Auto		Auto
	Equipment		Crops		Deed		Deed		Deed		Inventory		New		Used		Total
Commercial	$	64	$	-	$	-	$	-	$	-	$	45	$	-	$	-	$	109
Agricultural		-		2,066		-		-		-		-		-		-		2,066
Real estate – residential		-		-		-		223		-		-		-		-		223
Real estate – commercial		-		-		279		454		41		-		-		-		774
Real estate - construction & land		-		-		-		-		-		-		-		-		-
Equity Lines of Credit		-		-		-		208		365		-		-		-		573
Auto		-		-		-		-		-		-		755		294		1,049
Other		-		-		-		-		-		-		-		-		-
Total	$	64	$	2,066	$	279	$	885	$	406	$	45	$	755	$	294	$	4,794