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Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2021
Receivables [Abstract]  
Loans and Allowance for Loan Losses

(5) Loans and Allowance for Loan Losses

 

Loans consisted of the following:

 

(Dollars in thousands)  2021   2020 
   As of December 31, 
(Dollars in thousands)  2021   2020 
         
One-to-four family residential real estate loans  $166,081   $157,984 
Construction and land loans   27,644    26,106 
Commercial real estate loans   198,472    172,307 
Commercial loans   132,154    134,047 
Paycheck protection program loans   17,179    100,084 
Agriculture loans   94,267    96,532 
Municipal loans   2,050    2,332 
Consumer loans   24,541    24,122 
Total gross loans   662,388    713,514 
Net deferred loan (fees) costs and loans in process   (380)   (1,957)
Allowance for loan losses   (8,775)   (8,775)
Loans, net  $653,233   $702,782 

 

 

The following tables provide information on the Company’s allowance for loan losses by loan class and allowance methodology:

 

(Dollars in thousands)
   Year ended December 31, 2021 
   One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for loan losses:                                             
Balance at January 1, 2021  $859   $181   $2,482   $2,388   $-   $2,690   $6   $169   $8,775 
Charge-offs   (81)   -    (540)   (72)   -    (50)   -    (235)   (978)
Recoveries   11    263    -    14    -    66    6    118    478 
Provision for loan losses   (166)   (306)   1,109    283    -    (485)   (6)   71    500 
Balance at December 31, 2021  $623   $138   $3,051   $2,613   $-   $2,221   $6   $123   $8,775 
                                              
Allowance for loan losses:                                             
Individually evaluated for loss  $-   $-   $-   $504   $-   $-   $-   $-   $504 
Collectively evaluated for loss   623    138    3,051    2,109    -    2,221    6    123    8,271 
Total  $623   $138   $3,051   $2,613   $-   $2,221   $6   $123   $8,775 
                                              
Loan balances:                                             
Individually evaluated for loss  $578   $794   $2,214   $1,029   $-   $2,067   $36   $-   $6,718 
Collectively evaluated for loss   165,503    26,850    196,258    131,125    17,179    92,200    2,014    24,541    655,670 
Total  $166,081   $27,644   $198,472   $132,154   $17,179   $94,267   $2,050   $24,541   $662,388 

 

(Dollars in thousands)
   Year ended December 31, 2020 
   One-to-four family residential real estate loans   Construction and land loans   Commercial real estate loans   Commercial loans   Paycheck protection loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                     
Allowance for loan losses:                                             
Balance at January 1, 2020  $501   $271   $1,386   $1,815   $-   $2,347   $7   $140   $6,467 
Charge-offs   (251)   (191)   (131)   (292)   -    (3)   -    (248)   (1,116)
Recoveries   -    -    13    3    -    -    6    102    124 
Provision for loan losses   609    101    1,214    862    -    346    (7)   175    3,300 
Balance at December 31, 2020  $859   $181   $2,482   $2,388   $-   $2,690   $6   $169   $8,775 
                                              
Allowance for loan losses:                                             
Individually evaluated for loss  $-   $-   $177   $22   $-   $67   $-   $-   $266 
Collectively evaluated for loss   859    181    2,305    2,366    -    2,623    6    169    8,509 
Total  $859   $181   $2,482   $2,388   $-   $2,690   $6   $169   $8,775 
                                              
Loan balances:                                             
Individually evaluated for loss  $914   $1,137   $8,119   $1,639   $-   $614   $36   $3   $12,462 
Collectively evaluated for loss   157,070    24,969    164,188    132,408    100,084    95,918    2,296    24,119    701,052 
Total  $157,984   $26,106   $172,307   $134,047   $100,084   $96,532   $2,332   $24,122   $713,514 

 

 

(Dollars in thousands)
   Year ended December 31, 2019 
   One-to-four family residential real estate   Construction and land   Commercial real estate   Commercial loans   Agriculture loans   Municipal loans   Consumer loans   Total 
                                 
Allowance for loan losses:                                        
Balance at January 1, 2019  $449   $168   $1,686   $1,051   $2,238   $7   $166   $5,765 
Charge-offs   (56)   (31)   -    (453)   -    -    (285)   (825)
Recoveries   1    -    -    53    -    6    67    127 
Provision for loan losses   107    134    (300)   1,164    109    (6)   192    1,400 
Balance at December 31, 2019  $501   $271   $1,386   $1,815   $2,347   $7   $140   $6,467 
                                         
Allowance for loan losses:                                        
Individually evaluated for loss  $129   $191   $103   $204   $106   $-   $-   $733 
Collectively evaluated for loss   372    80    1,283    1,611    2,241    7    140    5,734 
Total  $501   $271   $1,386   $1,815   $2,347   $7   $140    6,467 
                                         
Loan balances:                                        
Individually evaluated for loss  $1,256   $1,479   $3,461   $1,298   $1,124   $58   $4   $8,680 
Collectively evaluated for loss   145,249    20,980    130,040    108,314    97,434    2,598    25,097    529,712 
Total  $146,505   $22,459   $133,501   $109,612   $98,558   $2,656   $25,101   $538,392 

 

 

The Company’s impaired loans decreased $5.8 million from $12.5 million at December 31, 2020 to $6.7 million at December 31, 2021. The difference between the unpaid contractual principal and the impaired loan balance is a result of charge-offs recorded against impaired loans. The difference in the Company’s non-accrual loan balances and impaired loan balances at December 31, 2021 and December 31, 2020 was related to TDRs that are current and accruing interest, but still classified as impaired. Interest income recognized on a cash basis for impaired loans was immaterial during the years 2021, 2020 and 2019. The following tables present information on impaired loans:

 

(Dollars in thousands)
   As of December 31, 2021 
   Unpaid contractual principal   Impaired loan balance   Impaired loans without an allowance   Impaired loans with an allowance   Related allowance recorded   Year-to-date average loan balance   Year-to-date interest income recognized 
                             
One-to-four family residential real estate loans  $578   $578   $578   $-   $-   $590   $8 
Construction and land loans   2,401    794    794    -    -    895    16 
Commercial real estate loans   2,214    2,214    2,214    -    -    2,388    37 
Commercial loans   1,380    1,029    520    509    504    1,096    38 
Agriculture loans   2,235    2,067    2,067    -    -    2,420    67 
Municipal loans   36    36    36    -    -    36    1 
Total impaired loans  $8,844   $6,718   $6,209   $509   $504   $7,425   $167 

 

   As of December 31, 2020 
   Unpaid contractual principal   Impaired loan balance   Impaired loans without an allowance   Impaired loans with an allowance   Related allowance recorded   Year-to-date average loan balance   Year-to-date interest income recognized 
                             
One-to-four family residential real estate loans  $914   $914   $914   $-   $-   $925   $3 
Construction and land loans   2,872    1,137    1,137    -    -    1,211    26 
Commercial real estate loans   8,119    8,119    4,302    3,817    177    8,152    8 
Commercial loans   1,990    1,639    1,543    96    22    1,984    43 
Agriculture loans   829    614    538    76    67    618    67 
Municipal loans   36    36    36    -    -    54    1 
Consumer loans   3    3    3    -    -    4    - 
Total impaired loans  $14,763   $12,462   $8,473   $3,989   $266   $12,948   $148 

 

   As of December 31, 2019 
   Unpaid contractual principal   Impaired loan balance   Impaired loans without an allowance   Impaired loans with an allowance   Related allowance recorded   Year-to-date average loan balance   Year-to-date interest income recognized 
                             
One-to-four family residential real estate loans  $1,297   $1,256   $887   $369   $129   $1,291   $10 
Construction and land loans   3,214    1,479    1,288    191    191    1,631    36 
Commercial real estate loans   3,461    3,461    3,258    203    103    3,489    478 
Commercial loans   1,427    1,298    416    882    204    1,464    11 
Agriculture loans   1,339    1,124    613    511    106    1,166    48 
Municipal loans   58    58    58    -    -    58    1 
Consumer loans   4    4    4    -    -    5    - 
Total impaired loans  $10,800   $8,680   $6,524   $2,156   $733   $9,104   $584 

 

 

The Company’s key credit quality indicator is a loan’s performance status, defined as accruing or non-accruing. Performing loans are considered to have a lower risk of loss. Non-accrual loans are those which the Company believes have a higher risk of loss. The accrual of interest on non-performing loans is discontinued at the time the loan is ninety days delinquent, unless the credit is well secured and in process of collection. Loans are placed on non-accrual or are charged off at an earlier date if collection of principal or interest is considered doubtful. There were no loans ninety days delinquent and accruing interest at December 31, 2021 or December 31, 2020. The following tables present information on the Company’s past due and non-accrual loans by loan class:

 

(Dollars in thousands)
   As of December 31, 2021 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $20   $125   $-   $145   $417   $562   $165,519 
Construction and land loans   -    -    -    -    681    681    26,963 
Commercial real estate loans   -    -    -    -    2,214    2,214    196,258 
Commercial loans   289    340    -    629    593    1,222    130,932 
Paycheck protection program loans   -    -    -    -    -    -    17,179 
Agriculture loans   1,189    -    -    1,189    1,325    2,514    91,753 
Municipal loans   -    -    -    -    -    -    2,050 
Consumer loans   18    9    -    27    -    27    24,514 
Total  $1,516   $474   $-   $1,990   $5,230   $7,220   $655,168 
                                    
Percent of gross loans   0.23%   0.07%   0.00%   0.30%   0.79%   1.09%   98.91%

 

   As of December 31, 2020 
   30-59 days delinquent and accruing   60-89 days delinquent and accruing   90 days or more delinquent and accruing   Total past due loans accruing   Non-accrual loans   Total past due and non-accrual loans   Total loans not past due 
                             
One-to-four family residential real estate loans  $262   $185   $-   $447   $749   $1,196   $156,788 
Construction and land loans   -    -    -    -    694    694    25,412 
Commercial real estate loans   -    -    -    -    8,119    8,119    164,188 
Commercial loans   832    -    -    832    874    1,706    132,341 
Paycheck protection program loans   -    -    -    -    -    -    100,084 
Agriculture loans   206    29    -    235    76    311    96,221 
Municipal loans   -    -    -    -    -    -    2,332 
Consumer loans   15    1    -    16    3    19    24,103 
Total  $1,315   $215   $-   $1,530   $10,515   $12,045   $701,469 
                                    
Percent of gross loans   0.19%   0.03%   0.00%   0.22%   1.47%   1.69%   98.31%

 

Under the original terms of the Company’s non-accrual loans, interest earned on such loans for the years 2021, 2020 and 2019, would have increased interest income by $309,000, $380,000 and $230,000, respectively. No interest income related to non-accrual loans was included in interest income for the years ended December 31, 2021, 2020 and 2019.

 

 

The Company also categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Non-classified loans generally include those loans that are expected to be repaid in accordance with contractual loan terms. Classified loans are those that are assigned a special mention, substandard or doubtful risk rating using the following definitions:

 

Special Mention: Loans are currently protected by the current net worth and paying capacity of the obligor or of the collateral pledged but potentially weak. These loans constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

 

Substandard: Loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

The following table provides information on the Company’s risk categories by loan class:

 

   As of December 31, 2021   As of December 31, 2020 
(Dollars in thousands)  Nonclassified   Classified   Nonclassified   Classified 
                 
One-to-four family residential real estate loans  $165,299   $782   $154,985   $2,999 
Construction and land loans   26,963    681    25,412    694 
Commercial real estate loans   193,669    4,803    161,661    10,646 
Commercial loans   123,609    8,545    132,023    2,024 
Paycheck protection program loans   17,179    -    100,084    - 
Agriculture loans   91,036    3,231    87,662    8,870 
Municipal loans   2,050    -    2,332    - 
Consumer loans   24,541    -    24,119    3 
Total  $644,346   $18,042   $688,278   $25,236 

 

At December 31, 2021, the Company had 11 loan relationships consisting of 16 outstanding loans totaling $3.4 million that were classified as TDRs compared to nine loan relationships consisting of 21 outstanding loans totaling $3.9 million that were classified as TDRs at December 31, 2020.

 

During 2021, a commercial loan relationship consisting of five loans was modified after originally being classified as a TDR in 2020. The borrower liquidated some of the collateral securing the loans and refinanced the remaining balance of $397,000 into one loan, which retained a TDR classification. A commercial loan totaling $32,000 was classified as a TDR during 2021 after the maturity of the loan was extended. The restructuring changed the payment terms to match the borrower’s cash flows. The Company had previously charged-off $100,000 of the loan due to a collateral shortfall. An agriculture loan totaling $250,000 was also classified as a TDR during 2021 after a new loan was originated to an existing classified loan relationship. The additional loan provided funds to stabilize the borrower’s operations through the fall harvest. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19 pandemic. An agriculture loan and two construction and land loans previously classified as TDRs in 2016 and 2012, respectively, were paid off during 2021.

 

During 2020, the Company modified the payment terms on an agriculture loan totaling $156,000 and classified the restructuring as a TDR. The loans related to a $1.6 million loan relationship, consisting of two one-to-our family loans, one construction and land loan, two commercial real estate loans and one commercial loan, were classified as TDRs during 2020 after negotiating restructuring agreements with the borrowers. The restructuring included a charge-off of $50,000. The loans related to one commercial loan relationship, with five loans totaling $742,000, were classified as TDRs during 2020, after the payments were modified to interest only. All of the loans classified as TDRs were experiencing financial difficulties prior to the COVID-19 pandemic. An agriculture loan, a commercial real estate loan and a one-to-four family residential real estate loan previously classified as TDRs in 2017, 2015 and 2016, respectively, paid off during 2020.

 

 

The Company did not classify any loans as TDRs during 2019. A commercial real estate loan previously classified as a TDR in 2014 paid off during 2019.

 

Subsequently, the Company evaluates each TDR individually and returns the loan to accrual status when a payment history is established after the restructuring and future payments are reasonably assured. There were no loans modified as TDRs for which there was a payment default within 12 months of modification as of December 31, 2021, 2020 and 2019. At December 31, 2021, there were no commitments to lend additional funds on loans classified as TDRs. The Company did not record any charge-offs against loans classified as TDRs during 2021 and recorded a credit provision for loan loss of $6,000 against TDRs in 2021. The Company did not record any charge-offs against loans classified as TDRs during 2020 and recorded a credit provision for loan loss of $1,000 against TDRs during 2020. The Company did not record any charge-offs against loans classified as TDRs during 2019 and recorded a credit provision for loan loss of $1,000 against TDRs during 2019. The Company allocated $2,000 and $8,000 of the allowance for loan losses recorded against loans classified as TDRs at December 31, 2021 and 2020, respectively.

 

The following table presents information on loans that were classified as TDRs:

 

(Dollars in thousands)                        
   As of December 31, 2021  As of December 31, 2020 
   Number of loans   Non-accrual balance   Accruing balance   Number of loans   Non-accrual balance   Accruing balance 
                         
One-to-four family residential real estate loans   2   $-   $161    2   $-   $165 
Construction and land loans   3    681    113    5    693    443 
Commercial real estate loans   2    1,224    -    2    1,227    - 
Commercial loans   4    33    436    7    33    765 
Agriculture   4    -    742    4    -    538 
Municipal loans   1    -    36    1    -    36 
Total troubled debt restructurings   16   $1,938   $1,488    21   $1,953   $1,947 

 

As of December 31, 2021, all of the loan modifications and short-term forbearance and repayment plans in connection with the COVID-19 pandemic returned to contractual terms.

 

The Company had loans and unfunded commitments to directors and officers, and to affiliated parties, at December 31, 2021 and 2020. A summary of such loans is as follows:

 

     
(Dollars in thousands)    
     
Balance at December 31, 2020  $16,094 
New loans   10,920 
Repayments   (17,077)
Balance at December 31, 2021  $9,937