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Note 5 - Credit Quality

12 Months Ended

Dec. 31, 2022

Note 5. Credit Quality

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:

●

Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.

●

Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

●

Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

●

Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

●

Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated.

	*December 31, 2022*
			*Special*
(Amounts in thousands)	*Pass*		*Mention*		*Substandard*		*Doubtful*		*Loss*		*Total*
Commercial loans
Construction, development, and other land	$	115,972	$	853	$	349	$	—	$	—	$	117,174
Commercial and industrial		147,543		920		1,965		—		—		150,428
Multi-family residential		143,859		3,946		221		—		—		148,026
Single family non-owner occupied		195,775		2,303		8,043		—		—		206,121
Non-farm, non-residential		761,154		14,903		11,646		—		—		787,703
Agricultural		11,722		47		263		—		—		12,032
Farmland		9,868		573		1,338		—		—		11,779
Consumer real estate loans
Home equity lines		72,927		288		2,427		—		—		75,642
Single family owner occupied		706,952		1,958		25,630		—		—		734,540
Owner occupied construction		10,204		—		162		—		—		10,366
Consumer and other loans
Consumer loans		141,551		11		3,020		—		—		144,582
Other		1,804		—		—		—		—		1,804
Total loans	$	2,319,331	$	25,802	$	55,064	$	—	$	—	$	2,400,197

December 31, 2021

Special

(Amounts in thousands)

Pass

Mention

Substandard

Doubtful

Loss

Total

Commercial loans

Construction, development, and other land
$ 64,498 $ 451 $ 857 $ — $ — $ 65,806

Commercial and industrial
128,770 1,005 3,855 — — 133,630

Multi-family residential
98,457 1,090 855 — — 100,402

Single family non-owner occupied
186,184 3,607 8,977 10 — 198,778

Non-farm, non-residential
665,559 25,624 16,323 — — 707,506

Agricultural
8,758 70 513 — — 9,341

Farmland
11,939 633 2,441 — — 15,013

Consumer real estate loans

Home equity lines
76,259 426 3,172 — — 79,857

Single family owner occupied
671,459 2,420 29,985 — — 703,864

Owner occupied construction
16,629 — 281 — — 16,910

Consumer and other loans

Consumer loans
127,514 16 2,264 — — 129,794

Other
4,668 — — — — 4,668

Total loans
$ 2,060,694 $ 35,342 $ 69,523 $ 10 $ - $ 2,165,569

The following tables present the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of the dates indicated:

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Construction, development

and other land

Pass
$ 58,770 $ 39,995 $ 4,602 $ 3,050 $ 2,485 $ 5,608 $ 1,462 $ 115,972

Special Mention
- 225 - - 94 534 - 853

Substandard
- - 267 71 11 - - 349

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total construction, development, and other land
$ 58,770 $ 40,220 $ 4,869 $ 3,121 $ 2,590 $ 6,142 $ 1,462 $ 117,174

Commercial and industrial

Pass
$ 69,678 $ 23,746 $ 12,047 $ 7,729 $ 9,121 $ 8,890 $ 16,332 $ 147,543

Special Mention
227 20 21 367 185 1 99 920

Substandard
130 112 114 620 192 797 - 1,965

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total commercial and industrial
$ 70,035 $ 23,878 $ 12,182 $ 8,716 $ 9,498 $ 9,688 $ 16,431 $ 150,428

Multi-family residential

Pass
$ 45,261 $ 20,881 $ 31,087 $ 3,733 $ 1,328 $ 41,063 $ 506 $ 143,859

Special Mention
- - - - - 3,946 - 3,946

Substandard
- - - - - 221 - 221

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total multi-family residential
$ 45,261 $ 20,881 $ 31,087 $ 3,733 $ 1,328 $ 45,230 $ 506 $ 148,026

Non-farm, non-residential

Pass
$ 218,595 $ 145,675 $ 114,840 $ 52,575 $ 35,564 $ 185,448 $ 8,457 $ 761,154

Special Mention
- 1,927 852 1,193 2,708 8,076 147 14,903

Substandard
- 1,267 675 2,509 1,531 5,664 - 11,646

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total non-farm, non-residential
$ 218,595 $ 148,869 $ 116,367 $ 56,277 $ 39,803 $ 199,188 $ 8,604 $ 787,703

Agricultural

Pass
$ 6,244 $ 3,225 $ 1,003 $ 376 $ 154 $ 214 $ 506 $ 11,722

Special Mention
- 33 14 - - - - 47

Substandard
124 37 1 66 24 11 - 263

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total agricultural
$ 6,368 $ 3,295 $ 1,018 $ 442 $ 178 $ 225 $ 506 $ 12,032

Farmland

Pass
$ 646 $ 713 $ 796 $ 77 $ 869 $ 6,150 $ 617 $ 9,868

Special Mention
- 109 - - 222 242 - 573

Substandard
- - 12 - 253 1,073 - 1,338

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total farmland
$ 646 $ 822 $ 808 $ 77 $ 1,344 $ 7,465 $ 617 $ 11,779

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Home equity lines

Pass
$ 1,960 $ 198 $ 241 $ - $ 24 $ 7,429 $ 63,075 $ 72,927

Special Mention
- - - - - 117 171 288

Substandard
- - 27 35 114 1,253 998 2,427

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total home equity lines
$ 1,960 $ 198 $ 268 $ 35 $ 138 $ 8,799 $ 64,244 $ 75,642

Single family Mortgage

Pass
$ 157,890 $ 237,363 $ 207,480 $ 48,795 $ 36,678 $ 214,148 $ 373 $ 902,727

Special Mention
- 376 90 363 262 3,170 - 4,261

Substandard
461 1,196 740 1,217 1,991 28,068 - 33,673

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total single family owner and non-owner occupied
$ 158,351 $ 238,935 $ 208,310 $ 50,375 $ 38,931 $ 245,386 $ 373 $ 940,661

Owner occupied construction

Pass
$ 6,357 $ 3,344 $ - $ 23 $ 11 $ 469 $ - $ 10,204

Special Mention
- - - - - - - -

Substandard
- - 162 - - - - 162

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total owner occupied construction
$ 6,357 $ 3,344 $ 162 $ 23 $ 11 $ 469 $ - $ 10,366

Consumer loans

Pass
$ 69,579 $ 37,603 $ 16,033 $ 7,640 $ 2,528 $ 2,040 $ 7,932 $ 143,355

Special Mention
- 5 - 6 - - - 11

Substandard
881 1,002 466 416 36 159 60 3,020

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total consumer loans
$ 70,460 $ 38,610 $ 16,499 $ 8,062 $ 2,564 $ 2,199 $ 7,992 $ 146,386

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Total Loans

Pass
$ 634,980 $ 512,743 $ 388,129 $ 123,998 $ 88,762 $ 471,459 $ 99,260 $ 2,319,331

Special Mention
227 2,695 977 1,929 3,471 16,086 417 25,802

Substandard
1,596 3,614 2,464 4,934 4,152 37,246 1,058 55,064

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total loans
$ 636,803 $ 519,052 $ 391,570 $ 130,861 $ 96,385 $ 524,791 $ 100,735 $ 2,400,197

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2021

2021

2020

2019

2018

2017

Prior

Revolving

Total

Construction, development

and other land

Pass
$ 40,207 $ 10,127 $ 3,081 $ 3,704 $ 1,308 $ 5,717 $ 354 $ 64,498

Special Mention
- 266 - 128 - 21 36 451

Substandard
- - 128 11 291 427 - 857

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total construction, development, and other land
$ 40,207 $ 10,393 $ 3,209 $ 3,843 $ 1,599 $ 6,165 $ 390 $ 65,806

Commercial and industrial

Pass
$ 34,539 $ 18,887 $ 13,679 $ 13,772 $ 4,817 $ 5,890 $ 16,544 $ 108,128

Special Mention
32 60 597 192 28 - 96 1,005

Substandard
184 355 706 384 842 866 518 3,855

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total commercial and industrial
$ 34,755 $ 19,302 $ 14,982 $ 14,348 $ 5,687 $ 6,756 $ 17,158 $ 112,988

Paycheck Protection Loans

Pass
$ 16,482 $ 4,160 $ - $ - $ - $ - $ - $ 20,642

Special Mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total Paycheck Protection Loans
$ 16,482 $ 4,160 $ - $ - $ - $ - $ - $ 20,642

Multi-family residential

Pass
$ 11,307 $ 24,299 $ 4,644 $ 1,897 $ 8,413 $ 46,962 $ 935 $ 98,457

Special Mention
- - - - - 1,090 - 1,090

Substandard
- - - - - 855 - 855

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total multi-family residential
$ 11,307 $ 24,299 $ 4,644 $ 1,897 $ 8,413 $ 48,907 $ 935 $ 100,402

Non-farm, non-residential

Pass
$ 147,978 $ 146,381 $ 62,651 $ 50,943 $ 43,776 $ 199,812 $ 14,018 $ 665,559

Special Mention
397 3,334 823 2,595 9,190 9,135 150 25,624

Substandard
1,161 711 2,508 2,531 3,232 5,953 227 16,323

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total non-farm, non-residential
$ 149,536 $ 150,426 $ 65,982 $ 56,069 $ 56,198 $ 214,900 $ 14,395 $ 707,506

Agricultural

Pass
$ 4,564 $ 1,548 $ 998 $ 534 $ 346 $ 335 $ 433 $ 8,758

Special Mention
43 27 - - - - - 70

Substandard
44 11 282 39 17 120 - 513

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total agricultural
$ 4,651 $ 1,586 $ 1,280 $ 573 $ 363 $ 455 $ 433 $ 9,341

Farmland

Pass
$ 428 $ 1,047 $ 82 $ 1,125 $ 887 $ 6,835 $ 1,535 $ 11,939

Special Mention
189 - - 240 5 199 - 633

Substandard
- 14 519 249 264 1,395 - 2,441

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total farmland
$ 617 $ 1,061 $ 601 $ 1,614 $ 1,156 $ 8,429 $ 1,535 $ 15,013

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2021

2022

2021

2020

2019

2018

Prior

Revolving

Total

Home equity lines

Pass
$ 115 $ 59 $ - $ 25 $ 2 $ 2,168 $ 73,890 $ 76,259

Special Mention
- - - - - - 426 426

Substandard
- - 28 249 128 1,316 1,451 3,172

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total home equity lines
$ 115 $ 59 $ 28 $ 274 $ 130 $ 3,484 $ 75,767 $ 79,857

Single family Mortgage

Pass
$ 239,917 $ 225,294 $ 61,925 $ 46,716 $ 41,757 $ 240,845 $ 1,189 $ 857,643

Special Mention
399 510 937 269 137 3,775 - 6,027

Substandard
1,213 799 1,475 1,668 1,878 31,929 - 38,962

Doubtful
- - - - - 10 - 10

Loss
- - - - - - - -

Total single family owner and non-owner occupied
$ 241,529 $ 226,603 $ 64,337 $ 48,653 $ 43,772 $ 276,559 $ 1,189 $ 902,642

Owner occupied construction

Pass
$ 9,689 $ 4,729 $ 178 $ 22 $ 428 $ 1,583 $ - $ 16,629

Special Mention
- - - - - - - -

Substandard
- - - - - 281 - 281

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total owner occupied construction
$ 9,689 $ 4,729 $ 178 $ 22 $ 428 $ 1,864 $ - $ 16,910

Consumer loans

Pass
$ 65,018 $ 31,065 $ 16,548 $ 4,980 $ 2,306 $ 10,040 $ 2,225 $ 132,182

Special Mention
- - 16 - - - - 16

Substandard
328 663 824 107 78 186 78 2,264

Doubtful
- - - - - - - -

Loss
- - - - - - - -

Total consumer loans
$ 65,346 $ 31,728 $ 17,388 $ 5,087 $ 2,384 $ 10,226 $ 2,303 $ 134,462

(Amounts in thousands)

Term Loans Amortized Cost Basis by Origination Year

Balance at December 31, 2021

2022

2021

2020

2019

2018

Prior

Revolving

Total

Total Loans

Pass
$ 570,244 $ 467,596 $ 163,786 $ 123,718 $ 104,040 $ 520,187 $ 111,123 $ 2,060,694

Special Mention
1,060 4,197 2,373 3,424 9,360 14,220 708 35,342

Substandard
2,930 2,553 6,470 5,238 6,730 43,328 2,274 69,523

Doubtful
- - - - - 10 - 10

Loss
- - - - - - - -

Total loans
$ 574,234 $ 474,346 $ 172,629 $ 132,380 $ 120,130 $ 577,745 $ 114,105 $ 2,165,569

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

December 31, 2022

December 31, 2021

(Amounts in thousands)

No Allowance

With an Allowance

Total

No Allowance

With an Allowance

Total

Commercial loans

Construction, development, and other land
$ 31 $ — $ 31 $ 409 $ — $ 409

Commercial and industrial
438 — 438 1,734 — 1,734

Multi-family residential
220 — 220 208 — 208

Single family non-owner occupied
984 — 984 2,304 — 2,304

Non-farm, non-residential
1,771 — 1,771 3,439 1,100 4,539

Agricultural
9 — 9 136 — 136

Farmland
133 — 133 222 — 222

Consumer real estate loans

Home equity lines
400 — 400 767 — 767

Single family owner occupied
8,228 589 8,817 8,957 — 8,957

Owner occupied construction
— — — — — —

Consumer and other loans

Consumer loans
2,405 — 2,405 1,492 — 1,492

Total nonaccrual loans
$ 14,619 $ 589 $ 15,208 $ 19,668 $ 1,100 $ 20,768

During 2022, $5 thousand in nonaccrual loan interest was recognized compared to $72 thousand in 2021.

The following tables presents the aging of past due loans, by loan class, as of the date indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category.

December 31, 2022

Amortized Cost of

30 - 59 Days

60 - 89 Days

90+ Days

Total

Current

Total

>90 Days Accruing

(Amounts in thousands)

Past Due

Past Due

Past Due

Past Due

Loans

Loans

No Allowance

Commercial loans

Construction, development, and other land
$ 393 $ 8 $ 23 $ 424 $ 116,750 $ 117,174 $ —

Commercial and industrial
756 129 217 1,102 149,326 150,428 —

Multi-family residential
— — 83 83 147,943 148,026 —

Single family non-owner occupied
990 122 299 1,411 204,710 206,121 —

Non-farm, non-residential
646 52 548 1,246 786,457 787,703 —

Agricultural
36 135 9 180 11,852 12,032 —

Farmland
— — 133 133 11,646 11,779 —

Consumer real estate loans

Home equity lines
519 115 262 896 74,746 75,642 —

Single family owner occupied
5,951 2,322 3,166 11,439 723,101 734,540 —

Owner occupied construction
— — — — 10,366 10,366 —

Consumer and other loans

Consumer loans
4,282 1,960 1,459 7,701 136,881 144,582 —

Other
— — — — 1,804 1,804 —

Total loans
$ 13,573 $ 4,843 $ 6,199 $ 24,615 $ 2,375,582 $ 2,400,197 $ —

December 31, 2021

Amortized Cost of

30 - 59 Days

60 - 89 Days

90+ Days

Total

Current

Total

>90 Days Accruing

(Amounts in thousands)

Past Due

Past Due

Past Due

Past Due

Loans

Loans

No Allowance

Commercial loans

Construction, development, and other land
$ 52 $ — $ 120 $ 172 $ 65,634 $ 65,806 $ —

Commercial and industrial
325 35 1,394 1,754 131,876 133,630 —

Multi-family residential
97 — — 97 100,305 100,402 —

Single family non-owner occupied
1,210 583 795 2,588 196,190 198,778 —

Non-farm, non-residential
1,002 441 2,333 3,776 703,730 707,506 —

Agricultural
73 7 101 181 9,160 9,341 —

Farmland
52 — 222 274 14,739 15,013 —

Consumer real estate loans

Home equity lines
275 388 333 996 78,861 79,857 —

Single family owner occupied
4,740 2,584 3,880 11,204 692,660 703,864 —

Owner occupied construction
139 — — 139 16,771 16,910 —

Consumer and other loans

Consumer loans
3,469 1,182 1,049 5,700 124,094 129,794 —

Other
— — — — 4,668 4,668 —

Total loans
$ 11,434 $ 5,220 $ 10,227 $ 26,881 $ 2,138,688 $ 2,165,569 $ —

ASC 326 prescribes that when an entity determines foreclosure is probable, the expected credit loss is required to be measured based on the fair value of the collateral. As a practical expedient, an entity may use the fair value as of the reporting date when recording the net carrying amount of the asset. For the collateral dependent asset ("CDA") a credit loss expense is recorded for loan amounts in excess of fair value of the collateral. The table below summarizes collateral dependent loans, where foreclosure is possible, by type of collateral, and the extent to which they are collateralized during the periods.

December 31, 2022

December 31, 2021

(Amounts in thousands)

Balance

Collateral Coverage

Coverage Ratio

Balance

Collateral Coverage

Coverage Ratio

Commercial Real Estate

Hotel
$ - $ - - $ - $ - -

Office
- - - - - -

Other
- - - 2,216 2,312 104.33 %

Retail
- - - - - -

Multi-Family

Industrial
- - - - - -

Office
- - - - - -

Other
- - - - - -

Commercial and industrial

Industrial
- - - - - -

Other
- - - - - -

Home equity loans
- - - - - -

Consumer owner occupied
589 574 97.45 % - - -

Consumer
- - - - - -

Total collateral dependent loans
$ 589 $ 574 97.45 % $ 2,216 $ 2,312 104.33 %

The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Certain TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as individually evaluated until full payment or other satisfaction of the obligation occurs.

The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:

December 31,

2022

2021

(Amounts in thousands)

Nonaccrual(1)

Accruing

Total

Nonaccrual(1)

Accruing

Total

Commercial loans

Commercial and industrial
$ — $ 374 $ 374 $ 396 $ 470 $ 866

Single family non-owner occupied
142 838 980 857 1,100 1,957

Non-farm, non-residential
— 747 747 — 2,021 2,021

Consumer real estate loans

Home equity lines
— 55 55 — 67 67

Single family owner occupied
1,182 5,073 6,255 1,266 4,755 6,021

Owner occupied construction
— — — — 212 212

Consumer and other loans

Consumer loans
— 25 25 — 27 27

Total TDRs
$ 1,324 $ 7,112 $ 8,436 $ 2,519 $ 8,652 $ 11,171

Allowance for credit losses related to TDRs
$ — $ —

(1)

Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

The following table presents interest income recognized on TDRs for the periods indicated:

Year Ended December 31,

2022

2021

2020

(Amounts in thousands)

Interest income recognized
$ 383 $ 422 $ 473

The following table presents loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated.

Year Ended December 31,

2022

2021

(Amounts in thousands)

Total Contracts

Pre-modification Recorded Investment

Post modification Recorded Investment(1)

Total Contracts

Pre-modification Recorded Investment

Post modification Recorded Investment(1)

Below market interest rate

Single family owner occupied
1 $ 31 $ 32 — $ — $ —

Below market interest rate and extended payment term

Single family non-owner occupied
— — — 1 165.00 165.00

Single family owner occupied
— — — 4 402 402

Total below market interest rate and extended payment term
— — — 5 567 567

Principal deferral

Single family non-owner occupied
— — — 1 753 753

Single family owner occupied
5 494 481 1 41 41

Total principal deferral
5 494 481 2 794 794

Total
6 $ 525 $ 513 7 $ 1,361 $ 1,361

(1)

Represents the loan balance immediately following modification

There were no payment defaults for loans restructured within the previous 12 months for December 31, 2022 or 2021.

The following table provides information about OREO, which consists of properties acquired through foreclosure, as of the dates indicated:

December 31, 2022

December 31, 2021

(Amounts in thousands)

Total OREO
$ 703 $ 1,015

OREO secured by residential real estate
$ 407 $ 337

Residential real estate loans in the foreclosure process(1)
$ 1,474 $ 2,210

(1)

The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction