NOTE 3 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:


	March 31,		December 31,
	2020		2019
	(dollars in thousands)
Commercial and industrial	$	299,266	$	307,175
Agricultural and farmland		228,701		207,776
Commercial real estate - owner occupied		229,608		231,162
Commercial real estate - non-owner occupied		540,515		579,757
Multi-family		177,172		179,073
Construction and land development		232,311		224,887
One-to-four family residential		313,925		313,580
Municipal, consumer, and other		111,454		120,416
Loans, before allowance for loan losses		2,132,952		2,163,826
Allowance for loan losses		(26,087)		(22,299)
Loans, net of allowance for loan losses	$	2,106,865	$	2,141,527

The following tables detail activity in the allowance for loan losses for the three months ended March 31:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended March 31, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2019	$	4,441	$	2,766	$	1,779	$	3,663	$	1,024	$	2,977	$	2,540	$	3,109	$	22,299
Provision for loan losses		538		254		(97)		820		450		237		777		1,376		4,355
Charge-offs		(809)		(27)		—		(56)		—		(1)		(104)		(224)		(1,221)
Recoveries		54		—		440		5		—		10		71		74		654
Balance, March 31, 2020	$	4,224	$	2,993	$	2,122	$	4,432	$	1,474	$	3,223	$	3,284	$	4,335	$	26,087

					Commercial		Commercial
	Commercial		Agricultural		Real Estate		Real Estate								Consumer
	and		and		Owner		Non-owner				Construction		Residential		and
Three Months Ended March 31, 2019	Industrial		Farmland		Occupied		Occupied		Multi-Family		and Land		Real Estate		Other		Total
Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2018	$	3,748	$	2,650	$	2,506	$	2,644	$	912	$	4,176	$	2,782	$	1,091	$	20,509
Provision for loan losses		222		598		(107)		74		60		(290)		211		8		776
Charge-offs		(256)		—		(65)		—		—		—		(37)		(175)		(533)
Recoveries		48		—		19		4		—		11		111		68		261
Balance, March 31, 2019	$	3,762	$	3,248	$	2,353	$	2,722	$	972	$	3,897	$	3,067	$	992	$	21,013

The following tables present the recorded investments in loans and the allowance for loan losses by category as of March 31, 2020 and December 31, 2019:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
March 31, 2020	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	287,998	$	214,328	$	210,206	$	522,305	$	175,874	$	225,768	$	292,250	$	97,603	$	2,026,332
Individually evaluated for impairment		9,122		13,303		11,171		3,367		—		3,120		11,394		13,762		65,239
Acquired with deteriorated credit quality		2,146		1,070		8,231		14,843		1,298		3,423		10,281		89		41,381
Total	$	299,266	$	228,701	$	229,608	$	540,515	$	177,172	$	232,311	$	313,925	$	111,454	$	2,132,952

Allowance for loan losses:
Collectively evaluated for impairment	$	2,260	$	2,832	$	1,618	$	4,354	$	1,467	$	2,771	$	2,524	$	899	$	18,725
Individually evaluated for impairment		1,859		90		261		68		—		323		719		3,435		6,755
Acquired with deteriorated credit quality		105		71		243		10		7		129		41		1		607
Total	$	4,224	$	2,993	$	2,122	$	4,432	$	1,474	$	3,223	$	3,284	$	4,335	$	26,087

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2019	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total
Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	294,006	$	192,722	$	211,744	$	561,277	$	176,273	$	217,708	$	291,624	$	106,448	$	2,051,802
Individually evaluated for impairment		10,733		13,966		10,927		3,398		1,324		3,782		11,349		13,872		69,351
Acquired with deteriorated credit quality		2,436		1,088		8,491		15,082		1,476		3,397		10,607		96		42,673
Total	$	307,175	$	207,776	$	231,162	$	579,757	$	179,073	$	224,887	$	313,580	$	120,416	$	2,163,826

Allowance for loan losses:
Collectively evaluated for impairment	$	1,926	$	2,576	$	1,486	$	3,591	$	1,019	$	2,283	$	1,684	$	931	$	15,496
Individually evaluated for impairment		2,170		105		270		70		—		567		822		2,176		6,180
Acquired with deteriorated credit quality		345		85		23		2		5		127		34		2		623
Total	$	4,441	$	2,766	$	1,779	$	3,663	$	1,024	$	2,977	$	2,540	$	3,109	$	22,299

The following tables present loans individually evaluated for impairment by category of loans as of March 31, 2020 and December 31, 2019:


	Unpaid
	Principal		Recorded		Related
March 31, 2020	Balance		Investment		Allowance
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	3,458	$	3,458	$	1,859
Agricultural and farmland		569		565		90
Commercial real estate - owner occupied		824		824		261
Commercial real estate - non-owner occupied		98		98		68
Multi-family		—		—		—
Construction and land development		3,014		3,014		323
One-to-four family residential		3,184		3,171		719
Municipal, consumer, and other		12,441		12,414		3,435
Total	$	23,588	$	23,544	$	6,755

With no related allowance:
Commercial and industrial	$	5,665	$	5,664	$	—
Agricultural and farmland		12,753		12,738		—
Commercial real estate - owner occupied		10,348		10,347		—
Commercial real estate - non-owner occupied		3,263		3,269		—
Multi-family		—		—		—
Construction and land development		107		106		—
One-to-four family residential		8,257		8,223		—
Municipal, consumer, and other		1,361		1,348		—
Total	$	41,754	$	41,695	$	—

Total
Commercial and industrial	$	9,123	$	9,122	$	1,859
Agricultural and farmland		13,322		13,303		90
Commercial real estate - owner occupied		11,172		11,171		261
Commercial real estate - non-owner occupied		3,361		3,367		68
Multi-family		—		—		—
Construction and land development		3,121		3,120		323
One-to-four family residential		11,441		11,394		719
Municipal, consumer, and other		13,802		13,762		3,435
Total	$	65,342	$	65,239	$	6,755


	Unpaid
	Principal		Recorded		Related
December 31, 2019	Balance		Investment		Allowance
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	4,292	$	4,292	$	2,170
Agricultural and farmland		590		590		105
Commercial real estate - owner occupied		830		830		270
Commercial real estate - non-owner occupied		99		99		70
Multi-family		—		—		—
Construction and land development		3,679		3,679		567
One-to-four family residential		3,401		3,390		822
Municipal, consumer, and other		9,138		9,111		2,176
Total	$	22,029	$	21,991	$	6,180

With no related allowance:
Commercial and industrial	$	6,438	$	6,441	$	—
Agricultural and farmland		13,369		13,376		—
Commercial real estate - owner occupied		10,089		10,097		—
Commercial real estate - non-owner occupied		3,297		3,299		—
Multi-family		1,328		1,324		—
Construction and land development		104		103		—
One-to-four family residential		7,986		7,959		—
Municipal, consumer, and other		4,775		4,761		—
Total	$	47,386	$	47,360	$	—

Total
Commercial and industrial	$	10,730	$	10,733	$	2,170
Agricultural and farmland		13,959		13,966		105
Commercial real estate - owner occupied		10,919		10,927		270
Commercial real estate - non-owner occupied		3,396		3,398		70
Multi-family		1,328		1,324		—
Construction and land development		3,783		3,782		567
One-to-four family residential		11,387		11,349		822
Municipal, consumer, and other		13,913		13,872		2,176
Total	$	69,415	$	69,351	$	6,180

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans during the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	3,486	$	49	$	3,122	$	35
Agricultural and farmland		573		4		1,733		20
Commercial real estate - owner occupied		828		11		6,450		69
Commercial real estate - non-owner occupied		99		2		103		2
Multi-family		—		—		1,359		18
Construction and land development		3,064		41		2,892		44
One-to-four family residential		3,261		27		3,034		22
Municipal, consumer, and other		12,487		83		241		2
Total	$	23,798	$	217	$	18,934	$	212

With no related allowance:
Commercial and industrial	$	5,941	$	58	$	11,251	$	93
Agricultural and farmland		12,520		161		9,562		101
Commercial real estate - owner occupied		10,432		131		13,024		133
Commercial real estate - non-owner occupied		3,340		41		8,242		87
Multi-family		—		—		—		—
Construction and land development		324		4		123		1
One-to-four family residential		8,344		62		9,641		69
Municipal, consumer, and other		1,370		56		146		1
Total	$	42,271	$	513	$	51,989	$	485

Total
Commercial and industrial	$	9,427	$	107	$	14,373	$	128
Agricultural and farmland		13,093		165		11,295		121
Commercial real estate - owner occupied		11,260		142		19,474		202
Commercial real estate - non-owner occupied		3,439		43		8,345		89
Multi-family		—		—		1,359		18
Construction and land development		3,388		45		3,015		45
One-to-four family residential		11,605		89		12,675		91
Municipal, consumer, and other		13,857		139		387		3
Total	$	66,069	$	730	$	70,923	$	697

The following tables present the recorded investment in loans by category based on current payment and accrual status as of March 31, 2020 and December 31, 2019:


	Accruing Interest
			30 - 89 Days		90+ Days				Total
March 31, 2020	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	295,114	$	244	$	—	$	3,908	$	299,266
Agricultural and farmland		222,877		—		—		5,824		228,701
Commercial real estate - owner occupied		227,160		1,642		—		806		229,608
Commercial real estate - non-owner occupied		539,807		485		—		223		540,515
Multi-family		177,172		—		—		—		177,172
Construction and land development		232,142		—		—		169		232,311
One-to-four family residential		307,003		2,416		264		4,242		313,925
Municipal, consumer, and other		111,040		214		—		200		111,454
Total	$	2,112,315	$	5,001	$	264	$	15,372	$	2,132,952


	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2019	Current		Past Due		Past Due		Nonaccrual		Loans
	(dollars in thousands)
Commercial and industrial	$	301,975	$	558	$	—	$	4,642	$	307,175
Agricultural and farmland		201,519		—		—		6,257		207,776
Commercial real estate - owner occupied		228,218		941		—		2,003		231,162
Commercial real estate - non-owner occupied		579,626		131		—		—		579,757
Multi-family		177,696		—		—		1,377		179,073
Construction and land development		224,716		140		—		31		224,887
One-to-four family residential		307,712		1,329		75		4,464		313,580
Municipal, consumer, and other		119,898		247		26		245		120,416
Total	$	2,141,360	$	3,346	$	101	$	19,019	$	2,163,826

The following tables present total loans by category based on their assigned risk ratings determined by management as of March 31, 2020 and December 31, 2019:


March 31, 2020	Pass		Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	262,646	$	25,831	$	10,789	$	—	$	299,266
Agricultural and farmland		202,195		12,409		14,097		—		228,701
Commercial real estate - owner occupied		197,131		20,884		11,593		—		229,608
Commercial real estate - non-owner occupied		490,549		48,008		1,958		—		540,515
Multi-family		175,824		1,348		—		—		177,172
Construction and land development		225,022		3,765		3,524		—		232,311
One-to-four family residential		289,942		11,406		12,577		—		313,925
Municipal, consumer, and other		97,404		293		13,757		—		111,454
Total	$	1,940,713	$	123,944	$	68,295	$	—	$	2,132,952


December 31, 2019	Pass		Watch		Substandard		Doubtful		Total
	(dollars in thousands)
Commercial and industrial	$	267,645	$	27,114	$	12,416	$	—	$	307,175
Agricultural and farmland		180,735		12,267		14,774		—		207,776
Commercial real estate - owner occupied		198,710		21,745		10,707		—		231,162
Commercial real estate - non-owner occupied		531,694		46,092		1,971		—		579,757
Multi-family		175,807		1,771		1,495		—		179,073
Construction and land development		217,120		3,582		4,185		—		224,887
One-to-four family residential		287,036		13,546		12,998		—		313,580
Municipal, consumer, and other		106,063		479		13,874		—		120,416
Total	$	1,964,810	$	126,596	$	72,420	$	—	$	2,163,826

There were no troubled debt restructurings during the three months ended March 31, 2020. The following tables present the financial effect of troubled debt restructurings for the three months ended March 31, 2019:


						Charge-offs
		Recorded Investment				and Specific
Three Months Ended March 31, 2019	Number	Pre-Modification		Post-Modification		Reserves
	(dollars in thousands)
Agricultural and farmland	1	$	285	$	285	$	30
Total	1	$	285	$	285	$	30

During the three months ended March 31, 2019, all troubled debt restructurings were the result of a payment concession.

Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three months ended March 31, 2020 and $672,000 which had subsequent payment defaults during the three months ended March 31, 2019. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of March 31, 2020 and December 31, 2019, the Company had $8,805,000 and $9,315,000 of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
	2020		2019
	(dollars in thousands)
Beginning balance	$	1,662	$	2,101
Reclassification from non-accretable difference		8		136
Accretion income		(160)		(527)
Ending balance	$	1,510	$	1,710