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Note 3 - Loans

9 Months Ended

Sep. 30, 2020

Loans, Notes, Trade and Other Receivables, Excluding Allowance for Credit Losses [Text Block]

Note 3. Loans

Loans at September 30, 2020 and December 31, 2019 are summarized as follows (in thousands):

	September 30, 2020			December 31, 2019
Real estate loans:
Construction and land development	$	27,472		$	43,164
Secured by 1-4 family residential		234,198			229,438
Other real estate loans		250,319			236,555
Commercial and industrial loans		125,277			50,153
Consumer and other loans		11,102			15,036
Total loans	$	648,368		$	574,346
Allowance for loan losses		(7,777	)		(4,934	)
Loans, net	$	640,591		$	569,412

Net deferred loan fees included in the above loan categories were $1.9 million and $340 thousand at September 30, 2020 and December 31, 2019, respectively. Consumer and other loans included $194 thousand and $374 thousand of demand deposit overdrafts at September 30, 2020 and December 31, 2019, respectively.

Risk characteristics of each loan portfolio class that are considered by the Company include:

•

1-4 family residential mortgage loans carry risks associated with the continued creditworthiness of the borrower and changes in the value of the collateral.

•

Real estate construction and land development loans carry risks that the project may not be finished according to schedule, the project may not be finished according to budget, and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure or other factors unrelated to the project.

•

Other real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because repayment of these loans may be dependent upon the profitability and cash flows of the business or project.

•

Commercial and industrial loans carry risks associated with the successful operation of a business because repayment of these loans may be dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much reliability.

•

Consumer and other loans carry risk associated with the continued creditworthiness of the borrower and the value of the collateral, if any. These loans are typically either unsecured or secured by rapidly depreciating assets such as automobiles. They are also likely to be immediately and adversely affected by job loss, divorce, illness, personal bankruptcy, or other changes in circumstances. Consumer and other loans also include purchased consumer loans which could have been originated outside of the Company's market area.

The following tables provide a summary of loan classes and an aging of past due loans as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	—	$	133	$	—	$	133	$	27,339	$	27,472	$	283	$	—
Secured by 1-4 family residential		172		339		30		541		233,657		234,198		469		—
Other real estate loans		—		133		321		454		249,865		250,319		4,674		—
Commercial and industrial		96		—		—		96		125,181		125,277		1,548		—
Consumer and other loans		103		38		6		147		10,955		11,102		—		6
Total	$	371	$	643	$	357	$	1,371	$	646,997	$	648,368	$	6,974	$	6

	December 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		> 90 Days Past Due		Total Past Due		Current		Total Loans		Non-accrual Loans		90 Days or More Past Due and Accruing
Real estate loans:
Construction and land development	$	—	$	136	$	30	$	166	$	42,998	$	43,164	$	367	$	30
Secured by 1-4 family residential		1,428		306		115		1,849		227,589		229,438		630		67
Other real estate loans		457		—		416		873		235,682		236,555		462		—
Commercial and industrial		45		50		—		95		50,058		50,153		—		—
Consumer and other loans		83		79		—		162		14,874		15,036		—		—
Total	$	2,013	$	571	$	561	$	3,145	$	571,201	$	574,346	$	1,459	$	97

Credit Quality Indicators

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans. The Company utilizes a risk grading matrix to assign a rating to each of its loans. The loan ratings are summarized into the following categories: pass, special mention, substandard, doubtful, and loss. Pass rated loans include all risk rated credits other than those included in special mention, substandard, or doubtful. Loans classified as loss are charged-off. Loan officers assign risk grades to loans at origination and as renewals arise. The Bank’s Credit Administration department reviews risk grades for accuracy on a quarterly basis and as credit issues arise. In addition, a certain amount of loans are reviewed each year through the Company’s internal and external loan review process. A description of the general characteristics of the loan grading categories is as follows:

Pass – Loans classified as pass exhibit acceptable operating trends, balance sheet trends, and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower as agreed.

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 the Bank’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as 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 existing facts, conditions, and values, highly questionable and improbable. The Company considers all doubtful loans to be impaired and places the loan on non-accrual status.

Loss – Loans classified as loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted.

The following tables provide an analysis of the credit risk profile of each loan class as of September 30, 2020 and December 31, 2019 (in thousands):

	September 30, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	27,031	$	—	$	441	$	—	$	27,472
Secured by 1-4 family residential		232,759		510		929		—		234,198
Other real estate loans		243,368		—		6,951		—		250,319
Commercial and industrial		122,820		—		2,457		—		125,277
Consumer and other loans		11,102		—		—		—		11,102
Total	$	637,080	$	510	$	10,778	$	—	$	648,368

	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	42,636	$	—	$	528	$	—	$	43,164
Secured by 1-4 family residential		228,029		524		885		—		229,438
Other real estate loans		233,240		537		2,778		—		236,555
Commercial and industrial		48,527		948		678		—		50,153
Consumer and other loans		10,976		4,060		—		—		15,036
Total	$	563,408	$	6,069	$	4,869	$	—	$	574,346