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Note 7 - Loans Receivable and Credit Disclosures

6 Months Ended

Jun. 30, 2021

7.	Loans Receivable and Credit Disclosures

The composition of loans receivable as of June 30, 2021 and December 31, 2020 is as follows (in thousands):

	2021			2020

Real estate - construction	$	46,164		$	45,497
Real estate - 1 to 4 family residential		226,683			213,562
Real estate - commercial		498,561			496,357
Real estate - agricultural		152,157			151,992
Commercial ¹		106,016			122,535
Agricultural		98,233			102,586
Consumer and other		15,622			15,048
		1,143,436			1,147,577
Less:
Allowance for loan losses		(16,893	)		(17,215	)
Deferred loan fees and costs, net²		(2,108	)		(857	)
Loans receivable, net	$	1,124,435		$	1,129,505

¹	Commercial loan portfolio includes $37.6 million and $50.9 million of Paycheck Protection Program ("PPP") loans as of June 30, 2021 and December 31, 2020, respectively.

²	Deferred loan fees and costs, net includes $2.3 million and $0.9 million of fees, net of costs, related to the PPP loans as of June 30, 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, and expanded by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, enacted December 27, 2020 and the American Rescue Plan Act, enacted March 11, 2021, 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 June 30, 2021 and 2020 is as follows (in thousands):

	Three Months Ended June 30, 2021
				1-4 Family
	Construction			Residential		Commercial			Agricultural							Consumer
	Real Estate			Real Estate		Real Estate			Real Estate		Commercial			Agricultural		and Other			Total
Balance, March 31, 2021	$	868		$	2,383	$	9,049		$	1,498	$	1,262		$	1,614	$	233		$	16,907
Provision (credit) for loan losses		(130	)		217		(161	)		116		(123	)		56		5			(20	)
Recoveries of loans charged-off		-			3		1			-		1			5		3			13
Loans charged-off		-			-		-			-		-			-		(7	)		(7	)
Balance, June 30, 2021	$	738		$	2,603	$	8,889		$	1,614	$	1,140		$	1,675	$	234		$	16,893

	Six Months Ended June 30, 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		13		(214	)		(43	)		19		(202	)		(26	)		7			(446	)
Recoveries of loans charged-off		-		266			2			-		2			5			7			282
Loans charged-off		-		(30	)		-			-		(113	)		-			(15	)		(158	)
Balance, June 30, 2021	$	738	$	2,603		$	8,889		$	1,614	$	1,140		$	1,675		$	234		$	16,893

	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 for loan losses		96		183			724			150		366			15		33			1,567
Recoveries of loans charged-off		-		3			1			-		2			-		1			7
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

Allowance for loan losses disaggregated on the basis of impairment analysis method as of June 30, 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	$	-	$	15	$	1,486	$	-	$	-	$	132	$	28	$	1,661
Collectively evaluated for impairment		738		2,588		7,403		1,614		1,140		1,543		206		15,232
Balance June 30, 2021	$	738	$	2,603	$	8,889	$	1,614	$	1,140	$	1,675	$	234	$	16,893

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 June 30, 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	$	-	$	953	$	10,153	$	628	$	271	$	650	$	41	$	12,696
Collectively evaluated for impairment		46,164		225,730		488,408		151,529		105,745		97,583		15,581		1,130,740

Balance June 30, 2021	$	46,164	$	226,683	$	498,561	$	152,157	$	106,016	$	98,233	$	15,622	$	1,143,436

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 June 30, 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	$	-
Real estate - 1 to 4 family residential		932		995		-		416		475		-
Real estate - commercial		137		167		-		242		578		-
Real estate - agricultural		628		684		-		1,664		1,698		-
Commercial		271		302		-		274		318		-
Agricultural		312		504		-		377		542		-
Consumer and other		4		4		-		8		10		-
Total loans with no specific reserve:		2,284		2,656		-		3,148		3,788		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		21		21		15		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		338		342		132		482		484		40
Consumer and other		37		39		28		37		39		28
Total loans with specific reserve:		10,412		10,559		1,661		12,125		13,205		1,819

Total
Real estate - construction		-		-		-		167		167		-
Real estate - 1 to 4 family residential		953		1,016		15		1,340		1,753		150
Real estate - commercial		10,153		10,324		1,486		10,258		10,735		1,486
Real estate - agricultural		628		684		-		1,664		1,698		-
Commercial		271		302		-		940		1,565		115
Agricultural		650		846		132		859		1,026		40
Consumer and other		41		43		28		45		49		28

	$	12,696	$	13,215	$	1,661	$	15,273	$	16,993	$	1,819

Average recorded investment and interest income recognized on impaired loans for the three and six months ended June 30, 2021 and 2020 (in thousands):

	Three Months Ended June 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	84	$	-	$	-	$	-
Real estate - 1 to 4 family residential		619		11		164		-
Real estate - commercial		139		-		10,877		-
Real estate - agricultural		860		-		1,429		-
Commercial		544		-		468		2
Agricultural		328		1		2,092		-
Consumer and other		4		-		45		-
Total loans with no specific reserve:		2,578		12		15,075		2

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		57		-		1,031		-
Real estate - commercial		10,016		-		488		-
Real estate - agricultural		-		-		-		-
Commercial		-		-		710		-
Agricultural		371		-		495		-
Consumer and other		40		-		9		-
Total loans with specific reserve:		10,484		-		2,733		-

Total
Real estate - construction		84		-		-		-
Real estate - 1 to 4 family residential		676		11		1,195		-
Real estate - commercial		10,155		-		11,365		-
Real estate - agricultural		860		-		1,429		-
Commercial		544		-		1,178		2
Agricultural		699		1		2,587		-
Consumer and other		44		-		54		-

	$	13,062	$	12	$	17,808	$	2

	Six Months Ended June 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no specific reserve recorded:
Real estate - construction	$	111	$	-	$	-	$	-
Real estate - 1 to 4 family residential		551		11		263		-
Real estate - commercial		173		297		7,279		-
Real estate - agricultural		1,128		25		980		6
Commercial		454		-		466		2
Agricultural		344		14		2,378		-
Consumer and other		5		-		31		-
Total loans with no specific reserve:		2,766		347		11,397		8

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		346		-		935		-
Real estate - commercial		10,016		-		325		-
Real estate - agricultural		-		-		-		-
Commercial		222		-		473		-
Agricultural		408		-		330		-
Consumer and other		39		-		6		-
Total loans with specific reserve:		11,031		-		2,069		-

Total
Real estate - construction		111		-		-		-
Real estate - 1 to 4 family residential		897		11		1,198		-
Real estate - commercial		10,189		297		7,604		-
Real estate - agricultural		1,128		25		980		6
Commercial		676		-		939		2
Agricultural		752		14		2,708		-
Consumer and other		44		-		37		-

	$	13,797	$	347	$	13,466	$	8

The interest foregone on nonaccrual loans for the three months ended June 30, 2021 and 2020 was approximately $170 thousand and $312 thousand, respectively. The interest foregone on nonaccrual loans for the six months ended June 30, 2021 and 2020 was approximately $369 thousand and $501 thousand, respectively.

Nonaccrual loans at June 30, 2021 and December 31, 2020 were $12.7 million and $15.3 million, respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $10.8 million as of June 30, 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 TDRs, on a disaggregated basis, occurring in the three and six months ended June 30, 2021 and 2020, were as follows (dollars in thousands):

	Three Months Ended June 30,
	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		1		425		425		-		-		-
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		1	$	425	$	425		-	$	-	$	-

	Six Months Ended June 30,
	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		3		578		578		-		-		-
Real estate - commercial		-		-		-		1		184		184
Real estate - agricultural		-		-		-		-		-		-
Commercial		1		58		58		1		61		61
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		4	$	636	$	636		2	$	245	$	245

During the three months ended June 30, 2021, the Company granted concessions to one borrower facing financial difficulties which was unrelated to COVID-19. The loan was restructured with a lower interest rate and the amortization period was extended longer than a typical loan. During the three months ended June 30, 2020, the Company did not grant any concessions to borrowers that are facing financial difficulties. During the six months ended June 30, 2021, the Company granted concessions to three borrowers facing financial difficulties. The loans were restructured with a lower interest rate or amortization periods longer than a typical loan. 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.

There were no TDR loans that were modified during the six months ended June 30, 2021 and twelve months ended June 30, 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 no net charge-offs and $16 thousand of net charge-offs related to TDRs for the three months ended June 30, 2021 and 2020, respectively. There were $262 thousand of net recoveries and $31 thousand of net charge-offs related to TDRs for the six months ended June 30, 2021 and 2020, respectively. No additional specific reserve was provided for the three and six months ended June 30, 2021 and 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 June 30, 2021, the Company had four COVID-19 related loan modifications still in the modification period with a total outstanding principal balance of $15.3 million. As of December 31, 2020, the Company had 24 COVID-19 related loan modifications still in the modification period with a total outstanding principal balance of $45.9 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 June 30, 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	$	-	$	-	$	-	$	46,164	$	46,164	$	-
Real estate - 1 to 4 family residential		791		103		894		225,789		226,683		4
Real estate - commercial		2,525		-		2,525		496,036		498,561		-
Real estate - agricultural		577		-		577		151,580		152,157		-
Commercial		828		6		834		105,182		106,016		-
Agricultural		67		294		361		97,872		98,233		-
Consumer and other		23		5		28		15,594		15,622		-

	$	4,811	$	408	$	5,219	$	1,138,217	$	1,143,436	$	4

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 June 30, 2021 and December 31, 2020 is as follows (in thousands):

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

Pass	$	44,565	$	360,863	$	123,723	$	92,810	$	81,986	$	703,947
Watch		246		77,746		21,918		8,520		14,842		123,272
Special Mention		1,353		22,315		171		1,336		-		25,175
Substandard		-		27,484		5,717		3,079		755		37,035
Substandard-Impaired		-		10,153		628		271		650		11,702

	$	46,164	$	498,561	$	152,157	$	106,016	$	98,233	$	901,131

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 June 30, 2021 and December 31, 2020 is as follows (in thousands):

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

Performing	$	225,725	$	15,581	$	241,306
Non-performing		958		41		999

	$	226,683	$	15,622	$	242,305

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