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Note 3 - Loans

9 Months Ended

Sep. 30, 2021

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

Note 3. Loans

Loans at September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):

	September 30, 2021			December 31, 2020
Real estate loans:
Construction and land development	$	45,120		$	27,328
Secured by 1-4 family residential		294,216			235,814
Other real estate loans		362,643			246,883
Commercial and industrial loans		105,664			109,838
Consumer and other loans		14,768			10,051
Total loans	$	822,411		$	629,914
Allowance for loan losses		(5,434	)		(7,485	)
Loans, net	$	816,977		$	622,429

Net deferred loan fees included in the above loan categories were $1.1 million and $1.6 million at September 30, 2021 and December 31, 2020, respectively. Consumer and other loans included $179 thousand and $143 thousand of demand deposit overdrafts at September 30, 2021 and December 31, 2020, 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. Consumer 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. Other loans included in this category include loans to states and political subdivisions.

Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The outstanding principal balance and the carrying amount at September 30, 2021 of loans acquired in business combinations were as follows:

	Acquired Loans-
	Purchased
(Dollars in thousands)	Performing
Outstanding principal balance	$	244,054

Carrying amount
Real estate loans:
Construction and land development	$	20,264
Secured by 1-4 family residential		58,570
Other real estate loans		115,514
Commercial and industrial loans		39,597
Consumer and other loans		6,652
Total acquired loans	$	240,597

The following tables provide a summary of loan classes and an aging of past due loans as of September 30, 2021 and December 31, 2020 (in thousands):

	September 30, 2021
	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	$	—	$	178	$	—	$	178	$	44,942	$	45,120	$	—	$	—
Secured by 1-4 family residential		1,898		289		137		2,324		291,892		294,216		470		—
Other real estate loans		—		—		122		122		362,521		362,643		153		—
Commercial and industrial		92		196		—		288		105,376		105,664		1,535		—
Consumer and other loans		47		7		3		57		14,711		14,768		—		7
Total	$	2,037	$	670	$	262	$	2,969	$	819,442	$	822,411	$	2,158	$	7

	December 31, 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	$	47	$	20	$	—	$	67	$	27,261	$	27,328	$	276	$	—
Secured by 1-4 family residential		657		125		324		1,106		234,708		235,814		449		298
Other real estate loans		—		131		133		264		246,619		246,883		4,441		—
Commercial and industrial		104		—		—		104		109,734		109,838		1,548		—
Consumer and other loans		16		21		4		41		10,010		10,051		—		4
Total	$	824	$	297	$	461	$	1,582	$	628,332	$	629,914	$	6,714	$	302

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, 2021 and December 31, 2020 (in thousands):

	September 30, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	45,120	$	—	$	—	$	—	$	45,120
Secured by 1-4 family residential		293,427		—		789		—		294,216
Other real estate loans		362,490		—		153		—		362,643
Commercial and industrial		104,129		—		1,535		—		105,664
Consumer and other loans		14,768		—		—		—		14,768
Total	$	819,934	$	—	$	2,477	$	—	$	822,411

	December 31, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	26,896	$	—	$	432	$	—	$	27,328
Secured by 1-4 family residential		235,035		—		779		—		235,814
Other real estate loans		242,441		—		4,442		—		246,883
Commercial and industrial		107,383		—		2,455		—		109,838
Consumer and other loans		10,051		—		—		—		10,051
Total	$	621,806	$	—	$	8,108	$	—	$	629,914