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Note 7 - Loans Receivable and Credit Disclosures

9 Months Ended

Sep. 30, 2022

7. Loans Receivable and Credit Disclosures

The composition of loans receivable as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

	2022			2021

Real estate - construction	$	42,816		$	42,638
Real estate - 1 to 4 family residential		281,046			246,745
Real estate - commercial		519,345			515,367
Real estate - agricultural		159,099			153,457
Commercial ¹		73,554			75,482
Agricultural		98,914			111,881
Consumer and other		15,994			15,097
		1,190,768			1,160,667
Less:
Allowance for loan losses		(15,897	)		(16,621	)
Deferred loan costs, net		376			62
Loans receivable, net	$	1,175,247		$	1,144,108

¹ Commercial loan portfolio includes $0.2 million and $6.0 million of Paycheck Protection Program ("PPP") loans as of September 30, 2022 and December 31, 2021, respectively.

The Paycheck Protection Program (PPP) was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in response to the Coronavirus Disease 2019 (COVID-19) pandemic. Funding was extended into 2021. The PPP is administered by the Small Business Administration (SBA). PPP loans are forgivable by the SBA in qualifying circumstances 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, 2022 and 2021 is as follows (in thousands):

	Three Months Ended September 30, 2022
				1-4 Family
	Construction			Residential		Commercial			Agricultural									Consumer
	Real Estate			Real Estate		Real Estate			Real Estate			Commercial			Agricultural			and Other			Total
Balance, June 30, 2022	$	606		$	2,920	$	8,360		$	1,692		$	1,125		$	1,484		$	233		$	16,420
Provision (credit) for loan losses		(2	)		83		(492	)		(94	)		(25	)		24			(14	)		(520	)
Recoveries of loans charged-off		-			4		1			-			1			-			-			6
Loans charged-off		-			-		-			-			(2	)		(7	)		-			(9	)
Balance, September 30, 2022	$	604		$	3,007	$	7,869		$	1,598		$	1,099		$	1,501		$	219		$	15,897

	Nine Months Ended September 30, 2022
				1-4 Family
	Construction			Residential			Commercial			Agricultural								Consumer
	Real Estate			Real Estate			Real Estate			Real Estate		Commercial			Agricultural			and Other			Total
Balance, December 31, 2021	$	675		$	2,752		$	8,406		$	1,584	$	1,170		$	1,836		$	198		$	16,621
Provision (credit) for loan losses		(71	)		257			(539	)		14		(72	)		(328	)		33			(706	)
Recoveries of loans charged-off		-			8			2			-		3			-			4			17
Loans charged-off		-			(10	)		-			-		(2	)		(7	)		(16	)		(35	)
Balance, September 30, 2022	$	604		$	3,007		$	7,869		$	1,598	$	1,099		$	1,501		$	219		$	15,897

	Three Months Ended September 30, 2021
				1-4 Family
	Construction			Residential			Commercial		Agricultural								Consumer
	Real Estate			Real Estate			Real Estate		Real Estate			Commercial		Agricultural			and Other			Total
Balance, June 30, 2021	$	738		$	2,603		$	8,889	$	1,614		$	1,140	$	1,675		$	234		$	16,893
Provision (credit) for loan losses		(156	)		59			33		(36	)		64		(59	)		1			(94	)
Recoveries of loans charged-off		-			1			1		-			1		43			1			47
Loans charged-off		-			(4	)		-		-			-		-			(12	)		(16	)
Balance, September 30, 2021	$	582		$	2,659		$	8,923	$	1,578		$	1,205	$	1,659		$	224		$	16,830

	Nine Months Ended September 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		(143	)		(155	)		(10	)		(17	)		(138	)		(85	)		8			(540	)
Recoveries of loans charged-off		-			267			3			-			3			48			8			329
Loans charged-off		-			(34	)		-			-			(113	)		-			(27	)		(174	)
Balance, September 30, 2021	$	582		$	2,659		$	8,923		$	1,578		$	1,205		$	1,659		$	224		$	16,830

Allowance for loan losses disaggregated on the basis of impairment analysis method as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

2022			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	$	-	$	30	$	874	$	-	$	-	$	83	$	18	$	1,005
Collectively evaluated for impairment		604		2,977		6,995		1,598		1,099		1,418		201		14,892
Balance September 30, 2022	$	604	$	3,007	$	7,869	$	1,598	$	1,099	$	1,501	$	219	$	15,897

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	$	-	$	40	$	1,139	$	-	$	60	$	132	$	21	$	1,392
Collectively evaluated for impairment		675		2,712		7,267		1,584		1,110		1,704		177		15,229
Balance December 31, 2021	$	675	$	2,752	$	8,406	$	1,584	$	1,170	$	1,836	$	198	$	16,621

Loans receivable disaggregated on the basis of impairment analysis method as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

2022			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	$	-	$	1,035	$	13,144	$	169	$	276	$	319	$	26	$	14,969
Collectively evaluated for impairment		42,816		280,011		506,201		158,930		73,278		98,595		15,968		1,175,799

Balance September 30, 2022	$	42,816	$	281,046	$	519,345	$	159,099	$	73,554	$	98,914	$	15,994	$	1,190,768

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	$	-	$	980	$	9,792	$	546	$	330	$	637	$	27	$	12,312
Collectively evaluated for impairment		42,638		245,765		505,575		152,911		75,152		111,244		15,070		1,148,355

Balance December 31, 2021	$	42,638	$	246,745	$	515,367	$	153,457	$	75,482	$	111,881	$	15,097	$	1,160,667

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

	2022						2021
			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		839		879		-		677		739		-
Real estate - commercial		3,739		3,774		-		124		142		-
Real estate - agricultural		169		194		-		546		1,001		-
Commercial		276		320		-		233		269		-
Agricultural		48		58		-		322		521		-
Consumer and other		8		10		-		6		8		-
Total loans with no specific reserve:		5,079		5,235		-		1,908		2,680		-

With an allowance recorded:
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		196		187		30		303		314		40
Real estate - commercial		9,405		9,944		874		9,668		10,001		1,139
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		97		98		60
Agricultural		271		294		83		315		315		132
Consumer and other		18		20		18		21		23		21
Total loans with specific reserve:		9,890		10,445		1,005		10,404		10,751		1,392

Total
Real estate - construction		-		-		-		-		-		-
Real estate - 1 to 4 family residential		1,035		1,066		30		980		1,053		40
Real estate - commercial		13,144		13,718		874		9,792		10,143		1,139
Real estate - agricultural		169		194		-		546		1,001		-
Commercial		276		320		-		330		367		60
Agricultural		319		352		83		637		836		132
Consumer and other		26		30		18		27		31		21

	$	14,969	$	15,680	$	1,005	$	12,312	$	13,431	$	1,392

Average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,
	2022				2021
	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		781		39		813		8
Real estate - commercial		1,929		-		132		-
Real estate - agricultural		170		-		602		-
Commercial		242		-		255		-
Agricultural		39		-		318		-
Consumer and other		6		-		6		-
Total loans with no specific reserve:		3,167		39		2,126		8

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		98		-		164		-
Real estate - commercial		9,500		-		9,922		-
Real estate - agricultural		-		-		-		-
Commercial		17		1		29		-
Agricultural		286		-		327		-
Consumer and other		19		-		30		-
Total loans with specific reserve:		9,920		1		10,472		-

Total
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		879		39		977		8
Real estate - commercial		11,429		-		10,054		-
Real estate - agricultural		170		-		602		-
Commercial		259		1		284		-
Agricultural		325		-		645		-
Consumer and other		25		-		36		-

	$	13,087	$	40	$	12,598	$	8

	Nine Months Ended September 30,
	2022				2021
	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		722		55		587		19
Real estate - commercial		1,026		-		162		297
Real estate - agricultural		357		14		990		25
Commercial		234		5		400		-
Agricultural		164		-		339		14
Consumer and other		5		-		6		-
Total loans with no specific reserve:		2,508		74		2,568		355

With an allowance recorded:
Real estate - construction		-		-		-		-
Real estate - 1 to 4 family residential		206		1		336		-
Real estate - commercial		9,584		-		9,969		-
Real estate - agricultural		-		-		-		-
Commercial		43		1		181		-
Agricultural		299		-		385		-
Consumer and other		20		-		35		-
Total loans with specific reserve:		10,152		2		10,906		-

Total
Real estate - construction		-		-		84		-
Real estate - 1 to 4 family residential		928		56		923		19
Real estate - commercial		10,610		-		10,131		297
Real estate - agricultural		357		14		990		25
Commercial		277		6		581		-
Agricultural		463		-		724		14
Consumer and other		25		-		41		-

	$	12,660	$	76	$	13,474	$	355

The interest foregone on nonaccrual loans for the three months ended September 30, 2022 and 2021 was approximately $224 thousand and $154 thousand, respectively. The interest foregone on nonaccrual loans for the nine months ended September 30, 2022 and 2021 was approximately $535 thousand and $523 thousand, respectively.

Nonaccrual loans at September 30, 2022 and December 31, 2021 were $15.2 million and $12.7 million, respectively.

The Company had loans meeting the definition of a troubled debt restructuring (TDR) of $10.8 million as of September 30, 2022, all of which were included in impaired and nonaccrual loans. The Company had TDRs of $11.3 million as of December 31, 2021, all of which were included in impaired and nonaccrual loans.

The Company’s TDRs, on a disaggregated basis, occurring in the three and nine months ended September 30, 2022 and 2021, were as follows (dollars in thousands):

	Three Months Ended September 30,
	2022						2021
			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		-		-		-		-		-		-
Real estate - commercial		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		1		6		6
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		-	$	-	$	-		1	$	6	$	6

	Nine Months Ended September 30,
	2022						2021
			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		-		-		-		-		-		-
Real estate - agricultural		-		-		-		-		-		-
Commercial		-		-		-		2		64		64
Agricultural		-		-		-		-		-		-
Consumer and other		-		-		-		-		-		-

		-	$	-	$	-		5	$	642	$	642

During the three and nine months ended September 30, 2022, the Company did not grant any concessions to borrowers facing financial difficulties. During the three months ended September 30, 2021, the Company granted concessions to one borrower facing financial difficulties. The loan was restructured with a lower interest rate and accrued interest was waived. During the nine months ended September 30, 2021, the Company granted concessions to four borrowers, with five contracts, facing financial difficulties. The loans were restructured with a lower interest rate or amortization periods longer than a typical loan.

There were no TDR loans that were modified during the twelve months ended September 30, 2022 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 related to TDRs for the three months ended September 30, 2022 and 2021. There were no net charge-offs and $262 thousand of net recoveries related to TDRs for the nine months ended September 30, 2022 and 2021, respectively. No additional specific reserve was provided for the three and nine months ended September 30, 2022 and 2021.

An aging analysis of the recorded investments in loans, on a disaggregated basis, as of September 30, 2022 and December 31, 2021, is as follows (in thousands):

2022			90 Days								90 Days
	30-89		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	305	$	-	$	305	$	42,511	$	42,816	$	-
Real estate - 1 to 4 family residential		701		72		773		280,273		281,046		7
Real estate - commercial		512		1,483		1,995		517,350		519,345		-
Real estate - agricultural		-		-		-		159,099		159,099		-
Commercial		276		75		351		73,203		73,554		-
Agricultural		67		12		79		98,835		98,914		-
Consumer and other		38		10		48		15,946		15,994		5

	$	1,899	$	1,652	$	3,551	$	1,187,217	$	1,190,768	$	12

2021			90 Days								90 Days
	300899		or Greater		Total						or Greater
	Past Due		Past Due		Past Due		Current		Total		Accruing

Real estate - construction	$	-	$	-	$	-	$	42,638	$	42,638	$	-
Real estate - 1 to 4 family residential		1,198		482		1,680		245,065		246,745		169
Real estate - commercial		24		-		24		515,343		515,367		-
Real estate - agricultural		30		-		30		153,427		153,457		-
Commercial		251		15		266		75,216		75,482		-
Agricultural		172		-		172		111,709		111,881		-
Consumer and other		49		-		49		15,048		15,097		-

	$	1,724	$	497	$	2,221	$	1,158,446	$	1,160,667	$	169

The credit risk profile by internally assigned grade, on a disaggregated basis, as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

2022	Construction		Commercial		Agricultural
	Real Estate		Real Estate		Real Estate		Commercial		Agricultural		Total

Pass	$	42,588	$	413,090	$	134,873	$	65,221	$	81,530	$	737,302
Watch		228		71,674		19,105		6,452		16,556		114,015
Special Mention		-		-		-		-		-		-
Substandard		-		21,437		4,952		1,605		509		28,503
Substandard-Impaired		-		13,144		169		276		319		13,908

	$	42,816	$	519,345	$	159,099	$	73,554	$	98,914	$	893,728

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

Pass	$	38,753	$	381,346	$	126,157	$	63,141	$	95,289	$	704,686
Watch		239		99,127		17,853		8,132		7,421		132,772
Special Mention		-		3,085		3,519		762		7,664		15,030
Substandard		3,646		22,017		5,382		3,117		870		35,032
Substandard-Impaired		-		9,792		546		330		637		11,305

	$	42,638	$	515,367	$	153,457	$	75,482	$	111,881	$	898,825

The credit risk profile based on payment activity, on a disaggregated basis, as of September 30, 2022 and December 31, 2021 is as follows (in thousands):

2022	1-4 Family
	Residential		Consumer
	Real Estate		and Other		Total

Performing	$	280,011	$	15,964	$	295,975
Non-performing		1,035		30		1,065

	$	281,046	$	15,994	$	297,040

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

Performing	$	245,598	$	15,067	$	260,665
Non-performing		1,147		30		1,177

	$	246,745	$	15,097	$	261,842