Loans and Asset Quality

3 Months Ended

Mar. 31, 2020

Receivables [Abstract]

Loans and Asset Quality

Loans and Asset Quality

Loans

Loans HFI by category and loans HFS are summarized below:

(in thousands)	March 31, 2020		December 31, 2019
Real estate:
Commercial real estate	$	538,077	$	531,990
One-to-four family residential	421,041		420,020
Construction and development	142,835		132,461
Commercial and industrial	263,888		267,940
Tax-exempt	54,490		56,494
Consumer	27,031		30,019
Total loans HFI	$	1,447,362	$	1,438,924
Total loans HFS	$	6,597	$	5,089

Allowance for Loan Losses

The following table summarizes the activity in the allowance for loan losses by category for the three months ended March 31, 2020:

(in thousands)	Beginning Balance December 31, 2019		Provision for Loan Losses			Loans Charged-off			Recoveries		Ending Balance March 31, 2020
Real estate:
Commercial real estate	$	3,454	$	241		$	—		$	—	$	3,695
One-to-four family residential	3,323		242			—			3		3,568
Construction and development	1,211		149			(14		)	—		1,346
Commercial and industrial	5,175		(89		)	(2		)	5		5,089
Tax-exempt	334		10			—			—		344
Consumer	440		(50		)	(77		)	38		351
Total allowance for loan losses	$	13,937	$	503		$	(93	)	$	46	$	14,393

The following table summarizes the activity in the allowance for loan losses by category for the twelve months ended December 31, 2019:

(in thousands)	Beginning Balance December 31, 2018		Provision for Loan Losses			Loans Charged-off			Recoveries		Ending Balance December 31, 2019
Real estate:
Commercial real estate	$	3,081	$	373		$	—		$	—	$	3,454
One-to-four family residential	3,146		216			(44		)	5		3,323
Construction and development	951		172			—			88		1,211
Commercial and industrial	4,604		850			(864		)	585		5,175
Tax-exempt	372		(38		)	—			—		334
Consumer	370		237			(311		)	144		440
Total allowance for loan losses	$	12,524	$	1,810		$	(1,219	)	$	822	$	13,937

The balance in the allowance for loan losses and the related recorded investment in loans by category as of March 31, 2020, are as follows:

(in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Real estate:
Commercial real estate	$	250	$	3,445	$	—	$	3,695
One-to-four family residential	40		3,528		—		3,568
Construction and development	—		1,346		—		1,346
Commercial and industrial	2,785		2,304		—		5,089
Tax-exempt	—		344		—		344
Consumer	62		289		—		351
Total allowance for loan losses	$	3,137	$	11,256	$	—	$	14,393
Loans:
Real estate:
Commercial real estate	$	2,427	$	535,650	$	—	$	538,077
One-to-four family residential	1,192		419,849		—		421,041
Construction and development	—		142,835		—		142,835
Commercial and industrial	8,732		255,156		—		263,888
Tax-exempt	—		54,490		—		54,490
Consumer	64		26,967		—		27,031
Total loans HFI	$	12,415	$	1,434,947	$	—	$	1,447,362

The balance in the allowance for loan losses and the related recorded investment in loans by category as of December 31, 2019, are as follows:

(in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Allowance for loan losses:
Real estate:
Commercial real estate	$	260	$	3,194	$	—	$	3,454
One-to-four family residential	31		3,292		—		3,323
Construction and development	10		1,201		—		1,211
Commercial and industrial	2,916		2,259		—		5,175
Tax-exempt	—		334		—		334
Consumer	71		369		—		440
Total allowance for loan losses	$	3,288	$	10,649	$	—	$	13,937
Loans:
Real estate:
Commercial real estate	$	2,639	$	529,351	$	—	$	531,990
One-to-four family residential	1,193		418,827		—		420,020
Construction and development	38		132,423		—		132,461
Commercial and industrial	8,797		259,143		—		267,940
Tax-exempt	—		56,494		—		56,494
Consumer	75		29,944		—		30,019
Total loans HFI	$	12,742	$	1,426,182	$	—	$	1,438,924

Past Due and Nonaccrual Loans

A summary of current, past due, and nonaccrual loans as of March 31, 2020, is as follows:

	Accruing
(in thousands)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total Loans
Real estate:
Commercial real estate	$	535,883	$	932	$	—	$	1,262	$	538,077
One-to-four family residential	419,392		1,055		—		594		421,041
Construction and development	142,573		262		—		—		142,835
Commercial and industrial	260,465		63		—		3,360		263,888
Tax-exempt	54,490		—		—		—		54,490
Consumer	26,978		34		1		18		27,031
Total loans HFI	$	1,439,781	$	2,346	$	1	$	5,234	$	1,447,362

A summary of current, past due, and nonaccrual loans as of December 31, 2019, is as follows:

	Accruing
(in thousands)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total Loans
Real estate:
Commercial real estate	$	530,712	$	—	$	—	$	1,278	$	531,990
One-to-four family residential	419,229		184		—		607		420,020
Construction and development	132,423		—		—		38		132,461
Commercial and industrial	264,427		143		—		3,370		267,940
Tax-exempt	56,494		—		—		—		56,494
Consumer	29,973		20		—		26		30,019
Total loans HFI	$	1,433,258	$	347	$	—	$	5,319	$	1,438,924

Impaired Loans

Impaired loans include TDRs and performing and nonperforming loans. Information pertaining to impaired loans as of March 31, 2020, is as follows:

(in thousands)	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Real estate:
Commercial real estate	$	1,359	$	1,334	$	—	$	1,435
One-to-four family residential	1,134		1,076		—		1,030
Construction and development	—		—		—		—
Commercial and industrial	1,759		1,426		—		1,450
Tax-exempt	—		—		—		—
Consumer	2		2		—		2
Total with no related allowance	4,254		3,838		—		3,917
With allowance recorded:
Real estate:
Commercial real estate	1,269		1,093		250		1,098
One-to-four family residential	121		116		40		163
Construction and development	—		—		—		19
Commercial and industrial	8,526		7,306		2,785		7,314
Tax-exempt	—		—		—		—
Consumer	66		62		62		68
Total with related allowance	9,982		8,577		3,137		8,662
Total impaired loans	$	14,236	$	12,415	$	3,137	$	12,579

Information pertaining to impaired loans as of December 31, 2019, is as follows:

(in thousands)	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment
With no related allowance recorded:
Real estate:
Commercial real estate	$	1,560	$	1,537	$	—	$	2,647
One-to-four family residential	1,040		984		—		1,194
Construction and development	—		—		—		76
Commercial and industrial	1,805		1,474		—		3,685
Tax-exempt	—		—		—		—
Consumer	2		2		—		9
Total with no related allowance	4,407		3,997		—		7,611
With allowance recorded:
Real estate:
Commercial real estate	1,263		1,102		260		1,076
One-to-four family residential	216		209		31		339
Construction and development	51		38		10		89
Commercial and industrial	8,544		7,323		2,916		7,746
Tax-exempt	—		—		—		—
Consumer	76		73		71		76
Total with related allowance	10,150		8,745		3,288		9,326
Total impaired loans	$	14,557	$	12,742	$	3,288	$	16,937

The interest income recognized on impaired loans for the three months ended March 31, 2020 and March 31, 2019, was $91,000 and $172,000, respectively.

Troubled Debt Restructurings

The restructuring of a loan is considered a TDR if the borrower is experiencing financial difficulties and the bank has granted a concession. Concessions grant terms to the borrower that would not be offered for new debt with similar risk characteristics. Concessions typically include interest rate reductions or below market interest rates, revising amortization schedules to defer principal and interest payments, and other changes necessary to provide payment relief to the borrower and minimize the risk of loss. There were no unfunded commitments to extend credit related to these loans as of March 31, 2020 or December 31, 2019.

A summary of current, past due, and nonaccrual TDR loans as of March 31, 2020, is as follows:

(dollars in thousands)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total TDRs
Real estate:
Commercial real estate	$	1,159	$	—	$	—	$	1,262	$	2,421
One-to-four family residential	249		—		—		—		249
Construction and development	—		—		—		—		—
Commercial and industrial	—		—		—		1,866		1,866
Tax-exempt	—		—		—		—		—
Consumer	43		—		—		—		43
Total	$	1,451	$	—	$	—	$	3,128	$	4,579
Number of TDR loans	9		—		—		5		14

A summary of current, past due, and nonaccrual TDR loans as of December 31, 2019, is as follows:

(dollars in thousands)	Current		30-89 Days Past Due		90 Days or More Past Due		Nonaccrual		Total TDRs
Real estate:
Commercial real estate	$	1,361	$	—	$	—	$	1,278	$	2,639
One-to-four family residential	252		—		—		—		252
Construction and development	—		—		—		38		38
Commercial and industrial	36		—		—		1,869		1,905
Tax-exempt	—		—		—		—		—
Consumer	46		—		—		—		46
Total	$	1,695	$	—	$	—	$	3,185	$	4,880
Number of TDR loans	12		—		—		6		18

A summary of loans modified as TDRs that occurred during the three months ended March 31, 2020 and March 31, 2019, is as follows:

	March 31, 2020					March 31, 2019
		Recorded Investment					Recorded Investment
(dollars in thousands)	Loan Count	Pre Modification		Post Modification		Loan Count	Pre Modification		Post Modification
Real estate:
Commercial real estate	—	$	—	$	—	1	$	166	$	166
One-to-four family residential	—	—		—		—	—		—
Construction and development	—	—		—		—	—		—
Commercial and industrial	—	—		—		—	—		—
Tax-exempt	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	—	$	—	$	—	1	$	166	$	166

The TDRs described above did not increase the allowance for loan losses as of March 31, 2020 and March 31, 2019. Additionally, there were no defaults on loans during the three months ended March 31, 2020 or March 31, 2019, that had been modified as a TDR during the prior twelve months.

As of March 31, 2020, short-term loan modifications on $113.4 million of loans HFI were made to provide temporary relief to borrowers that have been adversely affected by the outbreak of COVID-19. In accordance with interagency regulatory guidance issued in March 2020, these short-term deferrals are not deemed to be TDRs to the extent they meet the terms of such guidance.

Credit Quality Indicators

Loans are categorized based on the degree of risk inherent in the credit and the ability of the borrower to service the debt. A description of the general characteristics of the Bank’s risk rating grades follows:

Pass - These ratings are assigned to loans with a risk level ranging from very low to acceptable based on the borrower’s financial condition, financial trends, management strength, and collateral quality.

Special Mention - This category includes loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.

Substandard - Loans in this category have well defined weaknesses which jeopardize normal repayment of principal and interest.

Doubtful - Loans in this category have well defined weaknesses that make full collection improbable.

Loss - Loans classified in this category are considered uncollectible and charged-off to the allowance for loan losses.

The following table summarizes loans by risk rating as of March 31, 2020:

(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Real estate:
Commercial real estate	$	523,760	$	12,148	$	2,169	$	—	$	—	$	538,077
One-to-four family residential	417,569		2,052		1,420		—		—		421,041
Construction and development	141,498		558		779		—		—		142,835
Commercial and industrial	245,418		9,368		9,102		—		—		263,888
Tax-exempt	54,490		—		—		—		—		54,490
Consumer	26,897		5		129		—		—		27,031
Total loans HFI	$	1,409,632	$	24,131	$	13,599	$	—	$	—	$	1,447,362

The following table summarizes loans by risk rating as of December 31, 2019:

(in thousands)	Pass		Special Mention		Substandard		Doubtful		Loss		Total
Real estate:
Commercial real estate	$	515,926	$	14,118	$	1,946	$	—	$	—	$	531,990
One-to-four family residential	416,884		2,021		1,115		—		—		420,020
Construction and development	131,185		565		711		—		—		132,461
Commercial and industrial	247,382		11,473		9,085		—		—		267,940
Tax-exempt	56,494		—		—		—		—		56,494
Consumer	29,876		5		138		—		—		30,019
Total loans HFI	$	1,397,747	$	28,182	$	12,995	$	—	$	—	$	1,438,924

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer if all conditions of the commitment have been met. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s evaluation of the customer’s ability to repay. As of March 31, 2020, unfunded loan commitments totaled approximately $270.5 million. As of December 31, 2019, unfunded loan commitments totaled approximately $257.0 million.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. As of March 31, 2020, commitments under standby letters of credit totaled approximately $10.1 million. As of December 31, 2019, commitments under standby letters of credit totaled approximately $11.1 million. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.