Loans and Allowance for Loan Losses | NOTE 5. Loans and Allowance for Loan Losses The composition of loans at June 30, 2021 and December 31, 2020 was as follows: June 30, December 31, 2021 2020 (in thousands) Mortgage loans on real estate: Construction and land development $ 59,288 $ 42,544 Secured by farmland 15,334 15,846 Secured by 1-4 family residential properties 249,517 248,246 Multifamily 19,523 21,496 Commercial 343,873 334,661 Commercial and industrial loans 135,849 140,762 Consumer installment loans 42,287 21,321 All other loans 10,896 10,773 Total loans $ 876,567 $ 835,649 Net deferred loan costs 802 685 Allowance for loan losses (8,098 ) (7,096 ) $ 869,271 $ 829,238 Changes in the allowance for loan losses for the six months ended June 30, 2021 and 2020 and the year ended December 31, 2020 were as follows: Six Months Ended Year Ended Six Months Ended June 30, December 31, June 30, 2021 2020 2020 (in thousands) Balance, beginning $ 7,096 $ 4,973 $ 4,973 Provision for loan losses 883 1,457 655 Recoveries added to the allowance 143 1,131 880 Loan losses charged to the allowance (24 ) (465 ) (143 ) Balance, ending $ 8,098 $ 7,096 $ 6,365 Nonaccrual and past due loans by class at June 30, 2021 and December 31, 2020 were as follows: June 30, 2021 (in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans 90 or More Days Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ — $ — $ — $ — $ 135,849 $ 135,849 $ — $ — Commercial Real Estate: Owner Occupied — — — — 167,493 167,493 — 1,004 Non-owner occupied 131 — 500 631 175,749 176,380 500 2,229 Construction and Farmland: Residential — — — — 12,599 12,599 — — Commercial 108 — — 108 61,915 62,023 — 108 Consumer: Installment 6 — — 6 42,281 42,287 — 4 Residential: Equity Lines — — — — 32,800 32,800 — 33 Single family 393 419 193 1,005 215,712 216,717 — 1,054 Multifamily — — — — 19,523 19,523 — — All Other Loans — — — — 10,896 10,896 — — Total $ 638 $ 419 $ 693 $ 1,750 $ 874,817 $ 876,567 $ 500 $ 4,432 December 31, 2020 (in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans 90 or More Past Due Still Accruing Nonaccrual Loans Commercial - Non Real Estate: Commercial & Industrial $ 43 $ — $ — $ 43 $ 140,719 $ 140,762 $ — $ — Commercial Real Estate: Owner Occupied — — 157 157 165,764 165,921 — 1,227 Non-owner occupied 500 — 122 622 168,118 168,740 — 2,405 Construction and Farmland: Residential — — — — 10,644 10,644 — — Commercial — — 69 69 47,677 47,746 — 69 Consumer: Installment 5 — — 5 21,316 21,321 — 5 Residential: Equity Lines 13 — — 13 31,239 31,252 — 42 Single family 249 123 581 953 216,041 216,994 — 1,006 Multifamily — — — — 21,496 21,496 — — All Other Loans — — — — 10,773 10,773 — — Total $ 810 $ 123 $ 929 $ 1,862 $ 833,787 $ 835,649 $ — $ 4,754 Allowance for loan losses by segment at June 30, 2021 and December 31, 2020 were as follows: As of and For the Three Months Ended June 30, 2021 (in thousands) Construction and Farmland Residential Real Estate Commercial Real Estate Commercial Consumer All Other Loans Unallocated Total Allowance for credit losses: Beginning Balance $ 1,604 $ 1,929 $ 1,645 $ 1,374 $ 198 $ 346 $ — $ 7,096 Charge-Offs — — — — (10 ) (14 ) — (24 ) Recoveries 9 109 — 4 15 6 — 143 Provision 669 96 40 159 (92 ) 11 — 883 Ending balance $ 2,282 $ 2,134 $ 1,685 $ 1,537 $ 111 $ 349 $ — $ 8,098 Ending balance: Individually evaluated for impairment $ — $ 58 $ — $ — $ — $ — $ — $ 58 Ending balance: collectively evaluated for impairment $ 2,282 $ 2,076 $ 1,685 $ 1,537 $ 111 $ 349 $ — $ 8,040 Loans: Ending balance $ 74,622 $ 269,040 $ 343,873 $ 135,849 $ 42,287 $ 10,896 $ — $ 876,567 Ending balance individually evaluated for impairment $ 140 $ 3,228 $ 3,233 $ 128 $ 19 $ — $ — $ 6,748 Ending balance collectively evaluated for impairment $ 74,482 $ 265,812 $ 340,640 $ 135,721 $ 42,268 $ 10,896 $ — $ 869,819 December 31, 2020 (in thousands) Construction and Farmland Residential Real Estate Commercial Real Estate Commercial Consumer All Other Loans Unallocated Total Allowance for credit losses: Beginning Balance $ 446 $ 1,601 $ 1,991 $ 565 $ 54 $ 120 $ 196 $ 4,973 Charge-Offs (119 ) (20 ) (155 ) (49 ) (83 ) (39 ) — (465 ) Recoveries 7 275 302 498 41 8 — 1,131 Provision 1,270 73 (493 ) 360 186 257 (196 ) 1,457 Ending balance $ 1,604 $ 1,929 $ 1,645 $ 1,374 $ 198 $ 346 $ — $ 7,096 Ending balance: Individually evaluated for impairment $ — $ 72 $ — $ — $ — $ — $ — $ 72 Ending balance: collectively evaluated for impairment $ 1,604 $ 1,857 $ 1,645 $ 1,374 $ 198 $ 346 $ — $ 7,024 Loans: Ending balance $ 58,390 $ 269,742 $ 334,661 $ 140,762 $ 21,321 $ 10,773 $ — $ 835,649 Ending balance individually evaluated for impairment $ 105 $ 3,869 $ 3,632 $ 147 $ 15 $ — $ — $ 7,768 Ending balance collectively evaluated for impairment $ 58,285 $ 265,873 $ 331,029 $ 140,615 $ 21,306 $ 10,773 $ — $ 827,881 Impaired loans by class as of and for the periods ended June 30, 2021 and December 31, 2020 were as follows: As of June 30, 2021 (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 203 $ 128 $ — $ 151 $ 6 Commercial Real Estate: Owner Occupied 1,086 1,004 — 1,022 — Non-owner occupied 2,548 2,229 — 2,234 — Construction and Farmland: Residential — — — — — Commercial 149 140 — 144 3 Consumer: Installment 20 19 — 21 — Residential Equity lines 38 33 — 34 — Single family 2,389 2,210 — 2,233 38 Multifamily — — — — — Other Loans — — — — — $ 6,433 $ 5,763 $ — $ 5,839 $ 47 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ — $ — $ — $ — $ — Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied — — — — — Construction and Farmland: Residential — — — — — Commercial — — — — — Consumer: Installment — — — — — Residential Equity lines — — — — — Single family 1,019 999 58 1,006 14 Multifamily — — — — — Other Loans — — — — — $ 1,019 $ 999 $ 58 $ 1,006 $ 14 Total: Commercial $ 203 $ 128 $ — $ 151 $ 6 Commercial Real Estate 3,634 3,233 — 3,256 — Construction and Farmland 149 140 — 144 3 Consumer 20 19 — 21 — Residential 3,446 3,242 58 3,273 52 Other — — — — — Total $ 7,452 $ 6,762 $ 58 $ 6,845 $ 61 (1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, net deferred loan fees or costs, and any partial charge-offs. Accrued interest and net deferred loan fees or costs totaled $14 thousand at June 30, 2021. As of December 31, 2020 (in thousands) Unpaid Principal Balance Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized With no related allowance: Commercial - Non Real Estate: Commercial & Industrial $ 246 $ 147 $ — $ 186 $ 16 Commercial Real Estate: Owner Occupied 1,282 1,227 — 1,258 18 Non-owner occupied 2,682 2,405 — 2,444 34 Construction and Farmland: Residential — — — — — Commercial 233 105 — 109 3 Consumer: Installment 16 15 — 22 1 Residential: Equity lines 272 42 — 44 — Single family 2,655 2,413 — 2,514 76 Multifamily — — — — — Other Loans — — — — — $ 7,386 $ 6,354 $ — $ 6,577 $ 148 With an allowance recorded: Commercial - Non Real Estate: Commercial & Industrial $ — $ — $ — $ — $ — Commercial Real Estate: Owner Occupied — — — — — Non-owner occupied — — — — — Construction and Farmland: Residential — — — — — Commercial — — — — — Consumer: Installment — — — — — Residential: Equity lines — — — — — Single family 1,449 1,431 72 1,448 38 Multifamily — — — — — Other Loans — — — — — $ 1,449 $ 1,431 $ 72 $ 1,448 $ 38 Total: Commercial $ 246 $ 147 $ — $ 186 $ 16 Commercial Real Estate 3,964 3,632 — 3,702 52 Construction and Farmland 233 105 — 109 3 Consumer 16 15 — 22 1 Residential 4,376 3,886 72 4,006 114 Other — — — — — Total $ 8,835 $ 7,785 $ 72 $ 8,025 $ 186 (1) Recorded investment is defined as the summation of the outstanding principal balance, accrued interest, net deferred loan fees or costs, and any partial charge-offs. Accrued interest and net deferred loan fees or costs totaled $17 thousand at December 31, 2020. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is in nonaccrual status, all payments are applied to principal under the cost-recovery method. For financial statement purposes, the recorded investment in nonaccrual loans is the actual principal balance reduced by payments that would otherwise have been applied to interest. When reporting information on these loans to the applicable customers, the unpaid principal balance is reported as if payments were applied to principal and interest under the original terms of the loan agreements. Therefore, the unpaid principal balance reported to the customer would be higher than the recorded investment in the loan for financial statement purposes. When the ultimate collectability of the total principal of the impaired loan is not in doubt and the loan is in nonaccrual status, contractual interest is credited to interest income when received under the cash-basis method. The Company uses a rating system for evaluating the risks associated with non-consumer loans. Consumer loans are not evaluated for risk unless the characteristics of the loan fall within classified categories. Consumer loans are evaluated for collection based on payment performance. Descriptions of these ratings are as follows: Pass Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner. Pass Monitored Pass monitored loans may be experiencing income and cash volatility, inconsistent operating trends, nominal liquidity and/or a leveraged balance sheet. A higher level of supervision is required for these loans as the potential for a negative event could impact the borrower’s ability to repay the loan. Special Mention Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt. Substandard Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt. Doubtful Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions. Loss Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted. Credit quality information by class at June 30, 2021 and December 31, 2020 was as follows: As of June 30, 2021 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 129,046 $ 4,664 $ 2,133 $ 6 $ — $ — $ 135,849 Commercial Real Estate: Owner Occupied 110,771 48,055 7,662 1,005 — — 167,493 Non-owner occupied 128,333 33,108 12,306 2,633 — — 176,380 Construction and Farmland: Residential 7,310 5,289 — — — — 12,599 Commercial 24,476 29,777 7,577 193 — — 62,023 Residential: Equity Lines 32,001 719 47 33 — — 32,800 Single family 197,619 13,518 3,453 2,007 120 — 216,717 Multifamily 12,689 5,665 1,169 — — — 19,523 All other loans 10,764 132 — — — — 10,896 Total $ 653,009 $ 140,927 $ 34,347 $ 5,877 $ 120 $ — $ 834,280 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 42,281 $ 6 As of December 31, 2020 (in thousands) INTERNAL RISK RATING GRADES Pass Pass Monitored Special Mention Substandard Doubtful Loss Total Commercial - Non Real Estate: Commercial & Industrial $ 137,566 $ 2,750 $ 439 $ 7 $ — $ — $ 140,762 Commercial Real Estate: Owner Occupied 126,839 31,927 5,929 1,226 — — 165,921 Non-owner occupied 101,026 42,338 22,555 2,821 — — 168,740 Construction and Farm land: Residential 8,131 2,513 — — — — 10,644 Commercial 19,599 24,982 3,004 161 — — 47,746 Residential: Equity Lines 31,087 124 — 36 5 — 31,252 Single family 193,579 16,639 3,594 3,053 129 — 216,994 Multifamily 10,923 8,700 1,873 — — — 21,496 All other loans 8,438 — 2,335 — — — 10,773 Total $ 637,188 $ 129,973 $ 39,729 $ 7,304 $ 134 $ — $ 814,328 Performing Nonperforming Consumer Credit Exposure by Payment Activity $ 21,316 $ 5 |