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Note 8 - Loans Receivable and Credit Disclosures

9 Months Ended

Sep. 30, 2020

8.	Loans Receivable and Credit Disclosures

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

	2020			2019

Real estate - construction	$	45,521		$	47,895
Real estate - 1 to 4 family residential		211,239			201,510
Real estate - commercial		491,399			435,850
Real estate - agricultural		157,495			160,771
Commercial ¹		152,707			84,084
Agricultural		102,199			111,945
Consumer and other		16,539			18,791
		1,177,099			1,060,846
Less:
Allowance for loan losses		(15,932	)		(12,619	)
Deferred loan fees²		(2,104	)		(80	)
Loans receivable, net	$	1,159,063		$	1,048,147

¹ Commercial loan portfolio as of September 30, 2020 includes $79.6 million Payroll Protection Program ("PPP") loans

² Deferred loan fees as of September 30, 2020 includes $1.9 million of fees related to the PPP loans.

The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, in response to the Coronavirus Disease 2019 (COVID-19) pandemic. The PPP is administered by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA.

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

	Three Months Ended September 30, 2020
				1-4 Family
	Construction			Residential			Commercial		Agricultural									Consumer
	Real Estate			Real Estate			Real Estate		Real Estate			Commercial			Agricultural			and Other			Total
Balance, June 30, 2020	$	849		$	2,505		$	6,864	$	1,713		$	1,994		$	1,830		$	250		$	16,005
Provision (credit) for loan losses		(105	)		80			583		(15	)		(5	)		(14	)		18			542
Recoveries of loans charged-off		-			2			1		-			9			-			272			284
Loans charged-off		-			(1	)		-		-			(582	)		(48	)		(268	)		(899	)
Balance, September 30, 2020	$	744		$	2,586		$	7,448	$	1,698		$	1,416		$	1,768		$	272		$	15,932

	Nine Months Ended September 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		71		477			2,527			372		573			338			66			4,424
Recoveries of loans charged-off		1		5			3			-		13			-			277			299
Loans charged-off		-		(18	)		(444	)		-		(628	)		(48	)		(272	)		(1,410	)
Balance, September 30, 2020	$	744	$	2,586		$	7,448		$	1,698	$	1,416		$	1,768		$	272		$	15,932

	Three Months Ended September 30, 2019
			1-4 Family
	Construction		Residential		Commercial		Agricultural							Consumer
	Real Estate		Real Estate		Real Estate		Real Estate		Commercial			Agricultural		and Other		Total
Balance, June 30, 2019	$	721	$	1,847	$	4,906	$	1,301	$	1,590		$	1,332	$	172	$	11,869
Provision (credit) for loan losses		41		237		158		9		(112	)		10		36		379
Recoveries of loans charged-off		-		2		3		-		5			-		2		12
Loans charged-off		-		-		-		-		(326	)		-		-		(326	)
Balance, September 30, 2019	$	762	$	2,086	$	5,067	$	1,310	$	1,157		$	1,342	$	210	$	11,934

	Nine Months Ended September 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		63		265			437		112		(324	)		(42	)		34			545
Recoveries of loans charged-off		-		4			15		-		34			-			6			59
Loans charged-off		-		(3	)		-		-		(330	)		-			(21	)		(354	)
Balance, September 30, 2019	$	762	$	2,086		$	5,067	$	1,310	$	1,157		$	1,342		$	210		$	11,934

Allowance for loan losses disaggregated on the basis of impairment analysis method as of September 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	$	-	$	-	$	2	$	41	$	30	$	223
Collectively evaluated for impairment		744		2,436		7,448		1,698		1,414		1,727		242		15,709
Balance September 30, 2020	$	744	$	2,586	$	7,448	$	1,698	$	1,416	$	1,768	$	272	$	15,932

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 September 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	$	165	$	1,332	$	11,046	$	1,868	$	949	$	977	$	51	$	16,388
Collectively evaluated for impairment		45,356		209,907		480,353		155,627		151,758		101,222		16,488		1,160,711

Balance September 30, 2020	$	45,521	$	211,239	$	491,399	$	157,495	$	152,707	$	102,199	$	16,539	$	1,177,099

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 September 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	$	165	$	165	$	-	$	-	$	-	$	-
Real estate - 1 to 4 family residential		386		436		-		460		796		-
Real estate - commercial		11,046		11,836		-		83		435		-
Real estate - agricultural		1,868		1,885		-		84		97		-
Commercial		947		1,567		-		462		517		-
Agricultural		448		605		-		2,951		3,071		-
Consumer and other		10		10		-		4		4		-
Total loans with no specific reserve:		14,870		16,504		-		4,044		4,920		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		946		1,283		150		744		755		209
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		2		2		2		-		-		-
Agricultural		529		531		41		-		-		-
Consumer and other		41		43		30		-		-		-
Total loans with specific reserve:		1,518		1,859		223		744		755		209

Total
Real estate - construction		165		165		-		-		-		-
Real estate - 1 to 4 family residential		1,332		1,719		150		1,204		1,551		209
Real estate - commercial		11,046		11,836		-		83		435		-
Real estate - agricultural		1,868		1,885		-		84		97		-
Commercial		949		1,569		2		462		517		-
Agricultural		977		1,136		41		2,951		3,071		-
Consumer and other		51		53		30		4		4		-

	$	16,388	$	18,363	$	223	$	4,788	$	5,675	$	209

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

	Three Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	83	$	-	$	-	$	-
Real estate - 1 to 4 family residential		305		-		364		4
Real estate - commercial		11,091		-		637		45
Real estate - agricultural		1,966		-		86		-
Commercial		735		21		240		-
Agricultural		813		340		2,206		-
Consumer and other		8		-		-		-
Total loans with no specific reserve:		15,001		361		3,533		49

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		957		-		341		-
Real estate - commercial		-		-		-		-
Real estate - agricultural		-		-		-		-
Commercial		627		-		1,267		-
Agricultural		531		-		-		-
Consumer and other		30		-		5		-
Total loans with specific reserve:		2,145		-		1,613		-

Total
Real estate - construction		83		-		-		-
Real estate - 1 to 4 family residential		1,262		-		705		4
Real estate - commercial		11,091		-		637		45
Real estate - agricultural		1,966		-		86		-
Commercial		1,362		21		1,507		-
Agricultural		1,344		340		2,206		-
Consumer and other		38		-		5		-

	$	17,146	$	361	$	5,146	$	49

	Nine Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	41	$	-	$	-	$	-
Real estate - 1 to 4 family residential		294		-		305		30
Real estate - commercial		8,221		-		384		105
Real estate - agricultural		1,202		6		79		-
Commercial		586		23		241		-
Agricultural		1,896		340		1,103		-
Consumer and other		26		-		-		-
Total loans with no specific reserve:		12,266		369		2,112		135

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		938		-		226		-
Real estate - commercial		244		-		-		-
Real estate - agricultural		-		-		-		-
Commercial		356		-		1,867		-
Agricultural		380		-		-		-
Consumer and other		15		-		10		1
Total loans with specific reserve:		1,933		-		2,103		1

Total
Real estate - construction		41		-		-		-
Real estate - 1 to 4 family residential		1,232		-		531		30
Real estate - commercial		8,465		-		384		105
Real estate - agricultural		1,202		6		79		-
Commercial		942		23		2,108		-
Agricultural		2,276		340		1,103		-
Consumer and other		41		-		10		1

	$	14,199	$	369	$	4,215	$	136

The interest foregone on nonaccrual loans for the three months ended September 30, 2020 and 2019 was approximately $247,000 and $272,000, respectively. The interest foregone on nonaccrual loans for the nine months ended September 30, 2020 and 2019 was approximately $747,000 and $389,000, respectively.

Nonaccrual loans at September 30, 2020 and December 31, 2019 were $16,388,000 and $4,788,000 respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $11,480,000 as of September 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.

The Company’s TDR, on a disaggregated basis, occurring in the three and nine months ended September 30, 2020 and 2019, is as follows (dollars in thousands):

	Three Months Ended September 30,
	2020						2019
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		-	$	-	$	-		-	$	-	$	-
Real estate - 1 to 4 family residential		-		-		-		3		1,035		1,035
Real estate - commercial		1		10,157		10,157		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Agricultural		3		56		56		-		-		-
Consumer and other		1		27		27		-		-		-

		5	$	10,240	$	10,240		3	$	1,035	$	1,035

	Nine Months Ended September 30,
	2020						2019
			Pre-Modification		Post-Modification				Pre-Modification		Post-Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Real estate - construction		-	$	-	$	-		-	$	-	$	-
Real estate - 1 to 4 family residential		-		-		-		3		1,035		1,035
Real estate - commercial		2		10,341		10,341		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		1		61		61		-		-		-
Agricultural		3		56		56		-		-		-
Consumer and other		1		27		27		-		-		-

		7	$	10,485	$	10,485		3	$	1,035	$	1,035

During the three months ended September 30, 2020, the Company granted concessions to three borrowers facing financial difficulties which were unrelated to COVID-19. Payments on these loans were deferred for an extended period of time and the interest rate was reduced below the market interest rate. During the nine months ended September 30, 2020, the Company granted concessions to five borrowers facing financial difficulties. Payments on these loans were deferred for an extended period of time and the interest rate was reduced below the market interest rate. During the three and nine months ended September 30, 2019, the Company granted concessions to one borrower with three 1-4 family residential contracts facing financial difficulties. The loans were originated with terms less than normal related to collateral.

There were no TDR loans that were modified during the twelve months ended September 30, 2020 and 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 $15,000 and $31,000 of net charge-offs related to TDRs for the three and nine months ended September 30, 2020, respectively. There were $275,000 of net charge-offs related to TDRs for the three and nine months ended September 30, 2019.

Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” allows financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time during the COVID-19 pandemic. 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. 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.

As of September 30, 2020, the Company had executed 199 COVID-19 related loan modifications under these rules on a total outstanding principal balance of $127.5 million. Of those loans, 100 loans with a total outstanding principal balance of $94.8 million remain on deferral, including $11.7 million of loans that were less than 30 days past due after the modification period expired. The remaining loans of $32.7 million have been returned to a normal payment status. 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. Modified loans continue to accrue interest and are evaluated for past due status based on the revised payment terms.

An aging analysis of the recorded investments in loans, on a disaggregated basis, as of September 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	$	26	$	165	$	191	$	45,330	$	45,521	$	-
Real estate - 1 to 4 family residential		763		385		1,148		210,091		211,239		131
Real estate - commercial		176		75		251		491,148		491,399		-
Real estate - agricultural		1,014		1,835		2,849		154,646		157,495		33
Commercial		104		647		751		151,956		152,707		-
Agricultural		574		472		1,046		101,153		102,199		-
Consumer and other		37		36		73		16,466		16,539		16

	$	2,694	$	3,615	$	6,309	$	1,170,790	$	1,177,099	$	180

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 credit risk profile by internally assigned grade, on a disaggregated basis, as of September 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	$	39,626	$	380,297	$	113,790	$	132,487	$	76,116	$	742,316
Watch		5,730		74,178		34,810		14,820		23,843		153,381
Special Mention		-		3,200		-		-		-		3,200
Substandard		-		22,678		7,027		4,451		1,263		35,419
Substandard-Impaired		165		11,046		1,868		949		977		15,005

	$	45,521	$	491,399	$	157,495	$	152,707	$	102,199	$	949,321

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 September 30, 2020 and December 31, 2019 is as follows (in thousands):

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

Performing	$	209,778	$	16,472	$	226,250
Non-performing		1,461		67		1,528

	$	211,239	$	16,539	$	227,778

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