Loans held for investment | Note 7. Loans held for investment (in thousands, except number of loans) The composition of net loans at September 30, 2022 and December 31, 2021 was as follows: September 30, 2022 December 31, 2021 Real Estate: Land Development and Construction $ 96,143 $ 71,898 Farmland 12,012 13,114 1-4 92,111 98,525 Commercial Real Estate 274,300 281,239 Total Real Estate Loans 474,566 464,776 Business Loans: Commercial and Industrial Loans (1) 88,012 92,501 Farm Production and Other Farm Loans 523 621 Total Business Loans 88,535 93,122 Consumer Loans: Credit Cards 2,531 1,963 Other Consumer Loans 13,033 11,986 Total Consumer Loans 15,564 13,949 Total Gross Loans 578,665 571,847 Allowance for Loan Losses (5,068 ) (4,513 ) Loans, net $ 573,597 $ 567,334 (1) Includes PPP loans of $274 and $5,789 as of September 30, 2022 and December 31, 2021, respectively. Loans are considered to be past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status, when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether such loans are considered past due. When interest accruals are discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Period-end, September 30, 2022 December 31, 2021 Real Estate: Land Development and Construction $ — $ 171 Farmland 97 118 1-4 1,726 1,891 Commercial Real Estate 968 1,249 Total Real Estate Loans 2,791 3,429 Business Loans: Commercial and Industrial Loans 270 386 Farm Production and Other Farm Loans — 3 Total Business Loans 270 389 Consumer Loans: Other Consumer Loans 26 8 Total Consumer Loans 26 8 Total Nonaccrual Loans $ 3,087 $ 3,826 An aging analysis of past due loans, segregated by class, as of September 30, 2022, was as follows: Accruing Loans 30-89 Days Loans Total Past Current Total Loans Real Estate: Land Development and Construction $ 392 $ — $ 392 $ 95,751 $ 96,143 $ — Farmland 170 — 170 11,842 12,012 — 1-4 1,397 210 1,607 90,504 92,111 — Commercial Real Estate 347 574 921 273,379 274,300 — Total Real Estate Loans 2,306 784 3,090 471,476 474,566 — Business Loans: Commercial and Industrial Loans 190 266 456 87,556 88,012 — Farm Production and Other Farm Loans 5 — 5 518 523 — Total Business Loans 195 266 461 88,074 88,535 — Consumer Loans: Credit Cards 61 14 75 2,456 2,531 14 Other Consumer Loans 142 23 165 12,868 13,033 — Total Consumer Loans 203 37 240 15,324 15,564 14 Total Loans $ 2,704 $ 1,087 $ 3,791 $ 574,874 $ 578,665 $ 14 An aging analysis of past due loans, segregated by class, as of December 31, 2021 was as follows: Loans 30-89 Days Loans Total Past Current Total Accruing Real Estate: Land Development and Construction $ 6 $ — $ 6 $ 71,892 $ 71,898 $ — Farmland 130 33 163 12,951 13,114 — 1-4 1,678 292 1,970 96,555 98,525 140 Commercial Real Estate 157 570 727 280,512 281,239 — Total Real Estate Loans 1,971 895 2,866 461,910 464,776 140 Business Loans: Commercial and Industrial Loans 205 376 581 91,920 92,501 — Farm Production and Other Farm Loans 3 — 3 618 621 — Total Business Loans 208 376 584 92,538 93,122 — Consumer Loans: Credit Cards 35 12 47 1,916 1,963 12 Other Consumer Loans 76 2 78 11,908 11,986 2 Total Consumer Loans 111 14 125 13,824 13,949 14 Total Loans $ 2,290 $ 1,285 $ 3,575 $ 568,272 $ 571,847 $ 154 Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. In determining which loans to evaluate for impairment, management looks at all loans over $100 that are past due loans, bankruptcy filings and any situation that might lend itself to cause a borrower to be unable to repay the loan according to the original agreement terms. If a loan is determined to be impaired and the collateral is deemed to be insufficient to fully repay the loan, a specific reserve will be established. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured by the impaired loan having sufficient collateral, in which case interest is recognized on a cash basis. Impaired loans or portions thereof, are charged-off Impaired loans as of September 30, 2022, segregated by class, were as follows: Unpaid Recorded Recorded Total Related Average Real Estate: Land Development and Construction $ — $ — $ — $ — $ — $ 86 Farmland 30 30 — 30 — 32 1-4 343 343 — 343 — 555 Commercial Real Estate 1,075 913 — 913 — 1,022 Total Real Estate Loans 1,448 1,286 — 1,286 — $ 1,695 Business Loans: Commercial and Industrial Loans 304 196 — 196 — $ 214 Total Business Loans 304 196 — 196 — $ 214 Total Loans $ 1,752 $ 1,482 $ — $ 1,482 $ — $ 1,909 Impaired loans as of December 31, 2021, segregated by class, were as follows: Unpaid Recorded Recorded Total Related Average Real Estate: Land Development and Construction $ 171 $ 171 $ — $ 171 $ — $ 240 Farmland 33 33 — 33 — 72 1-4 767 767 — 767 — 892 Commercial Real Estate 1,294 1,019 112 1,131 3 3,479 Total Real Estate Loans 2,265 1,990 112 2,102 3 $ 4,683 Business Loans: Commercial and Industrial Loans 304 72 160 232 36 $ 323 Total Business Loans 304 72 160 232 36 $ 323 Total Loans $ 2,569 $ 2,062 $ 272 $ 2,334 $ 39 $ 5,006 The Company did not have any new troubled debt restructurings as of September 30, 2022 or December 31, 2021. Changes in the Company’s troubled debt restructurings are set forth in the table below: Number Recorded Totals at January 1, 2021 3 $ 2,113 Reductions due to: Principal paydowns (112 ) Reclassification to OREO 2 (1,788 ) Totals at December 31, 2021 1 $ 213 Reductions due to: Principal paydowns (73 ) Total at September 30, 2022 1 $ 140 The allocated allowance for loan losses attributable to restructured loans was $-0- The Company utilizes a risk grading matrix to assign a risk grade to each of its loans when originated and is updated as factors related to the strength of the loan changes. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades is as follows. Grade 1. MINIMAL RISK - These loans are without loss exposure to the Company. This classification is reserved for only the best, well secured loans to borrowers with significant capital strength, low leverage, stable earnings and growth and other readily available financing alternatives. This type of loan would also include loans secured by a program of the government. Grade 2. MODEST RISK - These loans include borrowers with solid credit quality and moderate risk of loss. These loans may be fully secured by certificates of deposit with another reputable financial institution or secured by readily marketable securities with acceptable margins. Grade 3. AVERAGE RISK - This is the rating assigned to most of the loans held by the Company. This includes loans with average loss exposure and average overall quality. These loans should liquidate through possessing adequate collateral and adequate earnings of the borrower. In addition, these loans are properly documented and are in accordance with all aspects of the current loan policy. Grade 4. ACCEPTABLE RISK - Borrower generates sufficient cash flow to fund debt service but most working asset and capital expansion needs are provided from external sources. Profitability and key balance sheet ratios are usually close to peers but one or more may not align with peers. Grade 5. MANAGEMENT ATTENTION - Borrower has potential weaknesses resulting from performance trends or management concerns. The financial condition of the borrower has taken a negative turn and may be temporarily strained. Cash flow is weak but cash reserves remain adequate to meet debt service. Management weakness is evident. Grade 6. OTHER LOANS ESPECIALLY MENTIONED (“OLEM”) - Loans in this category are fundamentally sound but possess some weaknesses. OLEM loans have weaknesses, which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date. These loans have an identifiable weakness in credit, collateral, or repayment ability but there is no expectation of loss. Grade 7. SUBSTANDARD ASSETS - Assets classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness based upon objective evidence. Assets classified as substandard are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. The possibility that liquidation would not be timely requires a substandard classification even if there is little likelihood of total loss. Grade 8. DOUBTFUL - A loan classified as doubtful has all the weaknesses of a substandard classification and the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. A doubtful classification could reflect the fact that the primary source of repayment is gone and serious doubt exists as to the quality of a secondary source of repayment. Grade 9. LOSS - Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. Also included in this classification is the defined loss portion of loans rated substandard assets and doubtful assets. These internally assigned grades are updated on a continual basis throughout the course of the year and represent management’s most updated judgment regarding grades at September 30, 2022. The following table details the amount of gross loans, segregated by loan grade and class, as of September 30, 2022: Satisfactory Special Substandard Doubtful Loss Total Real Estate: Land Development and Construction $ 94,219 $ 1,620 $ 304 $ — $ — $ 96,143 Farmland 11,394 275 343 — — 12,012 1-4 85,672 1,975 4,464 — — 92,111 Commercial Real Estate 234,368 5,746 34,186 — — 274,300 Total Real Estate Loans 425,653 9,616 39,297 — — 474,566 Business Loans: Commercial and Industrial Loans 86,664 751 597 — — 88,012 Farm Production and Other Farm Loans 518 — 5 — — 523 Total Business Loans 87,182 751 602 — — 88,535 Consumer Loans: Credit Cards 2,456 — 75 — — 2,531 Other Consumer Loans 12,965 10 58 — — 13,033 Total Consumer Loans 15,421 10 133 — — 15,564 Total Loans $ 528,256 $ 10,377 $ 40,032 $ — $ — $ 578,665 The following table details the amount of gross loans segregated by loan grade and class, as of December 31, 2021: Satisfactory Special Substandard Doubtful Loss Total Real Estate: Land Development and Construction $ 69,758 $ 1,547 $ 593 $ — $ — $ 71,898 Farmland 12,365 297 452 — — 13,114 1-4 89,120 3,590 5,815 — — 98,525 Commercial Real Estate 238,561 8,055 34,623 — — 281,239 Total Real Estate Loans 409,804 13,489 41,483 — — 464,776 Business Loans: Commercial and Industrial Loans 85,138 1,483 5,877 — 3 92,501 Farm Production and Other Farm Loans 606 — 12 — 3 621 Total Business Loans 85,744 1,483 5,889 — 6 93,122 Consumer Loans: Credit Cards 1,916 — 47 — — 1,963 Other Consumer Loans 11,903 20 58 3 2 11,986 Total Consumer Loans 13,819 20 105 3 2 13,949 Total Loans $ 509,367 $ 14,992 $ 47,477 $ 3 $ 8 $ 571,847 |