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Note 3 - Loans

9 Months Ended

Sep. 30, 2022

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

Note 3. Loans

Loans at September 30, 2022 and December 31, 2021 are summarized as follows (in thousands):

	September 30, 2022			December 31, 2021
Real estate loans:
Construction and land development	$	51,352		$	55,721
Secured by 1-4 family residential		317,414			291,990
Other real estate loans		417,504			364,921
Commercial and industrial loans		112,145			99,805
Consumer and other loans		8,099			12,681
Total loans	$	906,514		$	825,118
Allowance for loan losses		(6,292	)		(5,710	)
Loans, net	$	900,222		$	819,408

Net deferred loan fees included in the above loan categories were $856 thousand and $871 thousand at September 30, 2022 and December 31, 2021, respectively. Consumer and other loans included $163 thousand and $175 thousand of demand deposit overdrafts at September 30, 2022 and December 31, 2021, 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, 2022 of loans acquired in business combinations were as follows:

	Acquired Loans-
	Purchased
(Dollars in thousands)	Performing
Outstanding principal balance	$	166,832

Carrying amount
Real estate loans:
Construction and land development	$	5,943
Secured by 1-4 family residential		44,046
Other real estate loans		86,226
Commercial and industrial loans		23,848
Consumer and other loans		4,115
Total acquired loans	$	164,178

The following tables provide a summary of loan classes and an aging of past due loans as of September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022
	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	$	432	$	175	$	211	$	818	$	50,534	$	51,352	$	—	$	211
Secured by 1-4 family residential		153		—		286		439		316,975		317,414		549		95
Other real estate loans		—		—		—		—		417,504		417,504		17		—
Commercial and industrial		114		1,204		—		1,318		110,827		112,145		—		—
Consumer and other loans		39		—		—		39		8,060		8,099		—		—
Total	$	738	$	1,379	$	497	$	2,614	$	903,900	$	906,514	$	566	$	306

	December 31, 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	$	—	$	115	$	—	$	115	$	55,606	$	55,721	$	—	$	—
Secured by 1-4 family residential		1,293		100		372		1,765		290,225		291,990		766		—
Other real estate loans		186		—		—		186		364,735		364,921		29		—
Commercial and industrial		1,474		—		—		1,474		98,331		99,805		1,509		—
Consumer and other loans		56		11		—		67		12,614		12,681		—		—
Total	$	3,009	$	226	$	372	$	3,607	$	821,511	$	825,118	$	2,304	$	—

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, 2022 and December 31, 2021 (in thousands):

	September 30, 2022
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	51,352	$	—	$	—	$	—	$	51,352
Secured by 1-4 family residential		316,561		—		853		—		317,414
Other real estate loans		415,966		1,521		17		—		417,504
Commercial and industrial		110,484		1,661		—		—		112,145
Consumer and other loans		8,099		—		—		—		8,099
Total	$	902,462	$	3,182	$	870	$	—	$	906,514

	December 31, 2021
	Pass		Special Mention		Substandard		Doubtful		Total
Real estate loans:
Construction and land development	$	55,721	$	—	$	—	$	—	$	55,721
Secured by 1-4 family residential		290,909		—		1,081		—		291,990
Other real estate loans		364,892		—		29		—		364,921
Commercial and industrial		97,215		1,081		1,509		—		99,805
Consumer and other loans		12,681		—		—		—		12,681
Total	$	821,418	$	1,081	$	2,619	$	—	$	825,118