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Note 7 - Loans Receivable and Credit Disclosures

3 Months Ended

Mar. 31, 2021

7.	Loans Receivable and Credit Disclosures

The composition of loans receivable as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

	2021			2020

Real estate - construction	$	53,335		$	45,497
Real estate - 1 to 4 family residential		206,993			213,562
Real estate - commercial		497,155			496,357
Real estate - agricultural		145,228			151,992
Commercial ¹		127,440			122,535
Agricultural		95,891			102,586
Consumer and other		13,919			15,048
		1,139,961			1,147,577
Less:
Allowance for loan losses		(16,907	)		(17,215	)
Deferred loan fees and costs, net²		(2,843	)		(857	)
Loans receivable, net	$	1,120,211		$	1,129,505

¹ Commercial loan portfolio includes $59.2 million and $50.9 million of Paycheck Protection Program ("PPP") loans as of March 31, 2021 and December 31, 2020, respectively.

²Deferred loan fees and costs, net includes $2.9 million and $0.9 million of net fees and costs related to the PPP loans as of March 31, 2021 and December 31, 2020, respectively.

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 months ended March 31, 2021 and 2020 is as follows (in thousands):

	Three Months Ended March 31, 2021
			1-4 Family
	Construction		Residential			Commercial		Agricultural									Consumer
	Real Estate		Real Estate			Real Estate		Real Estate			Commercial			Agricultural			and Other			Total
Balance, December 31, 2020	$	725	$	2,581		$	8,930	$	1,595		$	1,453		$	1,696		$	235		$	17,215
Provision (credit) for loan losses		143		(431	)		118		(97	)		(79	)		(82	)		2			(426	)
Recoveries of loans charged-off		-		263			1		-			1			-			4			269
Loans charged-off		-		(30	)		-		-			(113	)		-			(8	)		(151	)
Balance, March 31, 2021	$	868	$	2,383		$	9,049	$	1,498		$	1,262		$	1,614		$	233		$	16,907

	Three Months Ended March 31, 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 for loan losses		80		214		1,220			237		212		337		16			2,316
Recoveries of loans charged-off		1		-		1			-		2		-		3			7
Loans charged-off		-		-		(31	)		-		-		-		(2	)		(33	)
Balance, March 31, 2020	$	753	$	2,336	$	6,552		$	1,563	$	1,672	$	1,815	$	218		$	14,909

Allowance for loan losses disaggregated on the basis of impairment analysis method as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

2021			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	$	-	$	17	$	1,486	$	-	$	-	$	120	$	33	$	1,656
Collectively evaluated for impairment		868		2,366		7,563		1,498		1,262		1,494		200		15,251
Balance March 31, 2021	$	868	$	2,383	$	9,049	$	1,498	$	1,262	$	1,614	$	233	$	16,907

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	$	1,486	$	-	$	115	$	40	$	28	$	1,819
Collectively evaluated for impairment		725		2,431		7,444		1,595		1,338		1,656		207		15,396
Balance December 31, 2020	$	725	$	2,581	$	8,930	$	1,595	$	1,453	$	1,696	$	235	$	17,215

Loans receivable disaggregated on the basis of impairment analysis method as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

2021			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	$	167	$	399	$	10,157	$	1,091	$	817	$	747	$	46	$	13,424
Collectively evaluated for impairment		53,168		206,594		486,998		144,137		126,623		95,144		13,873		1,126,537

Balance March 31, 2021	$	53,335	$	206,993	$	497,155	$	145,228	$	127,440	$	95,891	$	13,919	$	1,139,961

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	$	167	$	1,340	$	10,258	$	1,664	$	940	$	859	$	45	$	15,273
Collectively evaluated for impairment		45,330		212,222		486,099		150,328		121,595		101,727		15,003		1,132,304

Balance December 31, 2020	$	45,497	$	213,562	$	496,357	$	151,992	$	122,535	$	102,586	$	15,048	$	1,147,577

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

	2021						2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no specific reserve recorded:
Real estate - construction	$	167	$	167	$	-	$	167	$	167	$	-
Real estate - 1 to 4 family residential		306		360		-		416		475		-
Real estate - commercial		141		168		-		242		578		-
Real estate - agricultural		1,091		1,140		-		1,664		1,698		-
Commercial		817		1,560		-		274		318		-
Agricultural		343		533		-		377		542		-
Consumer and other		4		5		-		8		10		-
Total loans with no specific reserve:		2,869		3,933		-		3,148		3,788		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		93		98		17		924		1,278		150
Real estate - commercial		10,016		10,157		1,486		10,016		10,157		1,486
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		666		1,247		115
Agricultural		404		411		120		482		484		40
Consumer and other		42		44		33		37		39		28
Total loans with specific reserve:		10,555		10,710		1,656		12,125		13,205		1,819

Total
Real estate - construction		167		167		-		167		167		-
Real estate - 1 to 4 family residential		399		458		17		1,340		1,753		150
Real estate - commercial		10,157		10,325		1,486		10,258		10,735		1,486
Real estate - agricultural		1,091		1,140		-		1,664		1,698		-
Commercial		817		1,560		-		940		1,565		115
Agricultural		747		944		120		859		1,026		40
Consumer and other		46		49		33		45		49		28

	$	13,424	$	14,643	$	1,656	$	15,273	$	16,993	$	1,819

Average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended March 31,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	167	$	-	$	-	$	-
Real estate - 1 to 4 family residential		361		-		283		-
Real estate - commercial		192		297		5,351		-
Real estate - agricultural		1,378		25		439		6
Commercial		546		-		437		-
Agricultural		360		13		2,979		-
Consumer and other		6		-		44		-
Total loans with no specific reserve:		3,010		335		9,533		6

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		509		-		919		-
Real estate - commercial		10,016		-		488		-
Real estate - agricultural		-		-		-		-
Commercial		333		-		84		-
Agricultural		443		-		228		-
Consumer and other		40		-		-		-
Total loans with specific reserve:		11,341		-		1,719		-

Total
Real estate - construction		167		-		-		-
Real estate - 1 to 4 family residential		870		-		1,202		-
Real estate - commercial		10,208		297		5,839		-
Real estate - agricultural		1,378		25		439		6
Commercial		879		-		521		-
Agricultural		803		13		3,207		-
Consumer and other		46		-		44		-

	$	14,351	$	335	$	11,252	$	6

The interest foregone on nonaccrual loans for the three months ended March 31, 2021 and 2020 was approximately $199 thousand and $189 thousand, respectively.

Nonaccrual loans at March 31, 2021 and December 31, 2020 were $13.4 million and $15.3 million, respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $10.5 million as of March 31, 2021, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $11.3 million as of December 31, 2020, all of which were included in impaired and nonaccrual loans.

The Company’s TDR, on a disaggregated basis, occurring in the three months ended March 31, 2021 and 2020, is as follows (dollars in thousands):

	Three Months Ended March 31,
	2021						2020
			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		2		153		153		-		-		-
Real estate - commercial		-		-		-		1		184		184
Real estate - agricultural		-		-		-		-		-		-
Commercial		1		58		58		1		61		61
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		3	$	211	$	211		2	$	245	$	245

During the three months ended March 31, 2021, the Company granted concessions to two borrowers facing financial difficulties which were unrelated to COVID-19. The loans were restructured for an extended maturity without principal reductions or an amortization period longer than a typical loan. During the three months ended March 31, 2020, the Company granted concessions to two related borrowers in the hospitality industry that are 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.

There were no TDR loans that were modified during the three months ended March 31, 2021 and twelve months ended March 31, 2021 that had payment defaults. The Company considers TDR loans to have payment default when it is past due 60 days or more.

There were $262 thousand of net recoveries and $16 thousand of net charge-offs related to TDRs for the three months ended March 31, 2021 and 2020, respectively. No additional specific reserve was provided for the three months ended March 31, 2021 and March 31, 2020.

Section 4013 of the CARES Act, “Temporary Relief From TDRs,” 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. This temporary suspension may only be applied to modifications of loans that were not more than 30 days past due as of December 31, 2019 and may not be applied to modifications that are not related to the COVID-19 pandemic. If elected, the temporary suspension may be applied to eligible modifications executed during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020, extended to January 1, 2022 under the Coronavirus Response and Relief Supplemental Appropriations Act, or 60 days after the termination of the COVID-19 national emergency. In March 2020, federal banking regulators in consultation with the FASB issued interagency statements that include similar guidance on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement provided 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.

As of March 31, 2021, the Company had five COVID-19 related loan modifications still in the modification period with a total outstanding principal balance of $15.4 million. 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 March 31, 2021 and December 31, 2020, is as follows (in thousands):

2021			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	26	$	167	$	193	$	53,142	$	53,335	$	-
Real estate - 1 to 4 family residential		1,223		104		1,327		205,666		206,993		5
Real estate - commercial		117		-		117		497,038		497,155		-
Real estate - agricultural		622		592		1,214		144,014		145,228		-
Commercial		203		552		755		126,685		127,440		-
Agricultural		158		382		540		95,351		95,891		-
Consumer and other		9		18		27		13,892		13,919		-

	$	2,358	$	1,815	$	4,173	$	1,135,788	$	1,139,961	$	5

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

Real estate - construction	$	169	$	167	$	336	$	45,161	$	45,497	$	-
Real estate - 1 to 4 family residential		1,523		176		1,699		211,863		213,562		6
Real estate - commercial		152		56		208		496,149		496,357		-
Real estate - agricultural		574		1,618		2,192		149,800		151,992		-
Commercial		283		3		286		122,249		122,535		3
Agricultural		79		458		537		102,049		102,586		30
Consumer and other		18		16		34		15,014		15,048		-

	$	2,798	$	2,494	$	5,292	$	1,142,285	$	1,147,577	$	39

The credit risk profile by internally assigned grade, on a disaggregated basis, as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

2021	Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	48,042	$	352,434	$	112,595	$	109,898	$	77,925	$	700,894
Watch		3,773		84,589		25,420		13,057		16,316		143,155
Special Mention		1,353		22,396		173		42		-		23,964
Substandard		-		27,579		5,949		3,626		903		38,057
Substandard-Impaired		167		10,157		1,091		817		747		12,979

	$	53,335	$	497,155	$	145,228	$	127,440	$	95,891	$	919,049

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

Pass	$	39,980	$	346,591	$	110,925	$	101,858	$	80,075	$	679,429
Watch		5,350		88,113		33,144		15,897		20,793		163,297
Special Mention		-		23,753		175		52		-		23,980
Substandard		-		27,642		6,084		3,788		859		38,373
Substandard-Impaired		167		10,258		1,664		940		859		13,888

	$	45,497	$	496,357	$	151,992	$	122,535	$	102,586	$	918,967

The credit risk profile based on payment activity, on a disaggregated basis, as of March 31, 2021 and December 31, 2020 is as follows (in thousands):

2021	1-4 Family
	Residential		Consumer
	Real Estate		and Other		Total

Performing	$	206,587	$	13,873	$	220,460
Non-performing		406		46		452

	$	206,993	$	13,919	$	220,912

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

Performing	$	212,282	$	15,003	$	227,285
Non-performing		1,280		45		1,325

	$	213,562	$	15,048	$	228,610