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Note 8 - Loans Receivable and Credit Disclosures

6 Months Ended

Jun. 30, 2020

8.	Loans Receivable and Credit Disclosures

The composition of loans receivable as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

	2020			2019

Real estate - construction	$	51,045		$	47,895
Real estate - 1 to 4 family residential		205,254			201,510
Real estate - commercial		463,077			435,850
Real estate - agricultural		160,286			160,771
Commercial ¹		158,217			84,084
Agricultural		109,066			111,945
Consumer and other		17,704			18,791
		1,164,649			1,060,846
Less:
Allowance for loan losses		(16,005	)		(12,619	)
Deferred loan fees²		(2,598	)		(80	)
Loans receivable, net	$	1,146,046		$	1,048,147

¹ Commercial loan portfolio as of June 30, 2020 includes $78.3 million Payroll Protection Program ("PPP") loans

²Deferred loan fees as of June 30, 2020 includes $2.5 million of fees related to the PPP loans.

Activity in the allowance for loan losses, on a disaggregated basis, for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

	Three Months Ended June 30, 2020
			1-4 Family
	Construction		Residential			Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, March 31, 2020	$	753	$	2,336		$	6,552		$	1,563	$	1,672		$	1,815	$	218		$	14,909
Provision (credit) for loan losses		96		183			724			150		366			15		32			1,566
Recoveries of loans charged-off		-		3			1			-		2			-		2			8
Loans charged-off		-		(17	)		(413	)		-		(46	)		-		(2	)		(478	)
Balance, June 30, 2020	$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005

	Six Months Ended June 30, 2020
			1-4 Family
	Construction		Residential			Commercial			Agricultural							Consumer
	Real Estate		Real Estate			Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, December 31, 2019	$	672	$	2,122		$	5,362		$	1,326	$	1,458		$	1,478	$	201		$	12,619
Provision (credit) for loan losses		176		397			1,944			387		578			352		49			3,883
Recoveries of loans charged-off		1		3			2			-		4			-		4			14
Loans charged-off		-		(17	)		(444	)		-		(46	)		-		(4	)		(511	)
Balance, June 30, 2020	$	849	$	2,505		$	6,864		$	1,713	$	1,994		$	1,830	$	250		$	16,005

	Three Months Ended June 30, 2019
				1-4 Family
	Construction			Residential			Commercial		Agricultural								Consumer
	Real Estate			Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total
Balance, March 31, 2019	$	736		$	1,850		$	4,770	$	1,258	$	1,610		$	1,392		$	196		$	11,812
Provision (credit) for loan losses		(15	)		(1	)		136		43		(21	)		(61	)		(13	)		68
Recoveries of loans charged-off		-			1			-		-		1			1			4			7
Loans charged-off		-			(3	)		-		-		-			-			(15	)		(18	)
Balance, June 30, 2019	$	721		$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869

	Six Months Ended June 30, 2019
			1-4 Family
	Construction		Residential			Commercial		Agricultural								Consumer
	Real Estate		Real Estate			Real Estate		Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2018	$	699	$	1,820		$	4,615	$	1,198	$	1,777		$	1,384		$	191		$	11,684
Provision (credit) for loan losses		11		27			291		103		(211	)		(53	)		(2	)		166
Recoveries of loans charged-off		11		3			-		-		29			1			4			48
Loans charged-off		-		(3	)		-		-		(5	)		-			(21	)		(29	)
Balance, June 30, 2019	$	721	$	1,847		$	4,906	$	1,301	$	1,590		$	1,332		$	172		$	11,869

Allowance for loan losses disaggregated on the basis of impairment analysis method as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

2020			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	150	$	-	$	-	$	558	$	40	$	6	$	754
Collectively evaluated for impairment		849		2,355		6,864		1,713		1,436		1,790		244		15,251
Balance June 30, 2020	$	849	$	2,505	$	6,864	$	1,713	$	1,994	$	1,830	$	250	$	16,005

2019			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	209	$	-	$	-	$	-	$	-	$	-	$	209
Collectively evaluated for impairment		672		1,913		5,362		1,326		1,458		1,478		201		12,410
Balance December 31, 2019	$	672	$	2,122	$	5,362	$	1,326	$	1,458	$	1,478	$	201	$	12,619

Loans receivable disaggregated on the basis of impairment analysis method as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

2020			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	1,192	$	11,136	$	2,063	$	1,775	$	1,711	$	24	$	17,901
Collectively evaluated for impairment		51,045		204,062		451,941		158,223		156,442		107,355		17,680		1,146,748

Balance June 30, 2020	$	51,045	$	205,254	$	463,077	$	160,286	$	158,217	$	109,066	$	17,704	$	1,164,649

2019			1-4 Family
	Construction		Residential		Commercial		Agricultural						Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial		Agricultural		and Other		Total
Individually evaluated for impairment	$	-	$	1,204	$	83	$	84	$	462	$	2,951	$	4	$	4,788
Collectively evaluated for impairment		47,895		200,306		435,767		160,687		83,622		108,994		18,787		1,056,058

Balance December 31, 2019	$	47,895	$	201,510	$	435,850	$	160,771	$	84,084	$	111,945	$	18,791	$	1,060,846

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payment of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company applies its normal loan review procedures to identify loans that should be evaluated for impairment.

Impaired loans, on a disaggregated basis, as of June 30, 2020 and December 31, 2019 (in thousands):

	2020						2019
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		224		269		-		460		796		-
Real estate - commercial		11,136		11,907		-		83		435		-
Real estate - agricultural		2,063		2,079		-		84		97		-
Commercial		523		568		-		462		517		-
Agricultural		1,178		1,335		-		2,951		3,071		-
Consumer and other		6		6		-		4		4		-
Total loans with no specific reserve:		15,130		16,164		-		4,044		4,920		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		968		1,293		150		744		755		209
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		1,252		1,252		558		-		-		-
Agricultural		533		535		40		-		-		-
Consumer and other		18		18		6		-		-		-
Total loans with specific reserve:		2,771		3,098		754		744		755		209

Total
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		1,192		1,562		150		1,204		1,551		209
Real estate - commercial		11,136		11,907		-		83		435		-
Real estate - agricultural		2,063		2,079		-		84		97		-
Commercial		1,775		1,820		558		462		517		-
Agricultural		1,711		1,870		40		2,951		3,071		-
Consumer and other		24		24		6		4		4		-

	$	17,901	$	19,262	$	754	$	4,788	$	5,675	$	209

Average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2020 and 2019 (in thousands):

	Three Months Ended June 30,
	*2020*				*2019*
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		164		-		209		6
Real estate - commercial		10,877		-		135		29
Real estate - agricultural		1,429		-		78		-
Commercial		468		2		235		-
Agricultural		2,092		-		943		-
Consumer and other		45		-		-		-
Total loans with no specific reserve:		15,075		2		1,600		35

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		1,031		-		89		-
Real estate - commercial		488		-		-		-
Real estate - agricultural		-		-		-		-
Commercial		710		-		2,535		-
Agricultural		495		-		-		-
Consumer and other		9		-		7		-
Total loans with specific reserve:		2,733		-		2,631		-

Total
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		1,195		-		298		6
Real estate - commercial		11,365		-		135		29
Real estate - agricultural		1,429		-		78		-
Commercial		1,178		2		2,770		-
Agricultural		2,587		-		943		-
Consumer and other		54		-		7		-

	$	17,808	$	2	$	4,231	$	35

	Six Months Ended June 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		263		-		223		26
Real estate - commercial		7,279		-		133		60
Real estate - agricultural		980		6		76		-
Commercial		466		2		239		-
Agricultural		2,378		-		629		-
Consumer and other		31		-		-		-
Total loans with no specific reserve:		11,397		8		1,300		86

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		935		-		97		-
Real estate - commercial		325		-		-		-
Real estate - agricultural		-		-		-		-
Commercial		473		-		2,490		-
Agricultural		330		-		-		-
Consumer and other		6		-		10		1
Total loans with specific reserve:		2,069		-		2,597		1

Total
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		1,198		-		320		26
Real estate - commercial		7,604		-		133		60
Real estate - agricultural		980		6		76		-
Commercial		939		2		2,729		-
Agricultural		2,708		-		629		-
Consumer and other		37		-		10		1

	$	13,466	$	8	$	3,897	$	87

The interest foregone on nonaccrual loans for the three months ended June 30, 2020 and 2019 was approximately $312,000 and $59,000, respectively. The interest foregone on nonaccrual loans for the six months ended June 30, 2020 and 2019 was approximately $501,000 and $117,000, respectively.

Nonaccrual loans at June 30, 2020 and December 31, 2019 were $17,901,000 and $4,788,000 respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $1,276,000 as of June 30, 2020, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $1,171,000 as of December 31, 2019, all of which were included in impaired and nonaccrual loans.

During the three months ended June 30, 2020 and 2019, the Company did not grant any concessions to borrowers that are facing financial difficulties. During the six months ended June 30, 2020, the Company granted concessions to two borrowers facing financial difficulties. One loan was secured by commercial real estate and the second loan was secured by a commercial operating note. Payments on these loans were deferred for six months and the interest rate was reduced below the market interest rate. During the six months ended June 30, 2019, the Company did not grant concessions to any borrowers facing financial difficulty. COVID-19 related loan modifications are not reported as TDR’s.

There were no TDR loans that were modified during the six months ended June 30, 2020 and twelve months ended June 30, 2019 that had payment defaults. The Company considers TDR loans to have payment default when it is past due 60 days or more.

There were $16,000 of net charge-offs related to TDRs for the three months ended June 30, 2020 and $31,000 of net charge-offs related to TDRs for the six months ended June 30, 2020. There were no charge-offs related to TDRs for the three and six months ended June 30, 2019.

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the FDIC, (the "agencies") issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” a restructuring of debt constitutes a TDR if the creditor grants a concession and the debtor is experiencing financial difficulties. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The Company is applying this guidance to qualifying loan modifications. There were $122,778,000 of loans modified under these rules during the six months ended June 30, 2020. These loans did not have financial difficulty prior to the COVID-19 pandemic and were generally modified for principal and interest payment deferral or interest only payments for up to six months.

An aging analysis of the recorded investments in loans, on a disaggregated basis, as of June 30, 2020 and December 31, 2019, is as follows (in thousands):

2020			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	429	$	-	$	429	$	50,616	$	51,045	$	-
Real estate - 1 to 4 family residential		749		233		982		204,272		205,254		109
Real estate - commercial		4,940		10,325		15,265		447,812		463,077		-
Real estate - agricultural		586		2,004		2,590		157,696		160,286		-
Commercial		268		1,572		1,840		156,377		158,217		-
Agricultural		149		1,747		1,896		107,170		109,066		532
Consumer and other		30		20		50		17,654		17,704		-

	$	7,151	$	15,901	$	23,052	$	1,141,597	$	1,164,649	$	641

2019			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	1,796	$	-	$	1,796	$	46,099	$	47,895	$	-
Real estate - 1 to 4 family residential		811		290		1,101		200,409		201,510		188
Real estate - commercial		387		-		387		435,463		435,850		-
Real estate - agricultural		422		-		422		160,349		160,771		-
Commercial		518		237		755		83,329		84,084		-
Agricultural		666		2,587		3,253		108,692		111,945		62
Consumer and other		146		6		152		18,639		18,791		5

	$	4,746	$	3,120	$	7,866	$	1,052,980	$	1,060,846	$	255

The increase in the 90 days or greater loans from December 31, 2019 is primarily due to one hospitality loan as of June 30, 2020.

The credit risk profile by internally assigned grade, on a disaggregated basis, as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

2020	Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	38,995	$	352,549	$	115,509	$	135,955	$	79,597	$	722,605
Watch		12,050		90,122		33,718		16,302		24,570		176,762
Special Mention		-		5,015		-		1,057		-		6,072
Substandard		-		4,255		8,996		3,128		3,188		19,567
Substandard-Impaired		-		11,136		2,063		1,775		1,711		16,685

	$	51,045	$	463,077	$	160,286	$	158,217	$	109,066	$	941,691

2019	Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	41,073	$	387,274	$	118,692	$	62,655	$	90,083	$	699,777
Watch		6,822		29,209		32,780		16,147		15,248		100,206
Special Mention		-		4,581		-		-		-		4,581
Substandard		-		14,703		9,215		4,820		3,663		32,401
Substandard-Impaired		-		83		84		462		2,951		3,580

	$	47,895	$	435,850	$	160,771	$	84,084	$	111,945	$	840,545

The credit risk profile based on payment activity, on a disaggregated basis, as of June 30, 2020 and December 31, 2019 is as follows (in thousands):

2020	1-4 Family
	Residential		Consumer
	Real Estate		and Other		Total

Performing	$	203,953	$	17,684	$	221,637
Non-performing		1,301		20		1,321

	$	205,254	$	17,704	$	222,958

2019	1-4 Family
	Residential		Consumer
	Real Estate		and Other		Total

Performing	$	200,117	$	18,782	$	218,899
Non-performing		1,393		9		1,402

	$	201,510	$	18,791	$	220,301