Loans and Leases

12 Months Ended

Dec. 31, 2019

Receivables [Abstract]

Loans and Leases

4.       LOANS AND LEASES

The composition of the loan and lease portfolio is as follows (dollars in thousands):

	December 31,
	2019		2018
Real estate:
Secured by commercial and professional office properties, including construction and  development	$	847,865	$	848,691
Secured by residential properties		410,216		453,698
Secured by farm land		144,033		151,541
Total real estate loans		1,402,114		1,453,930
Agricultural		48,036		49,103
Commercial and industrial		115,532		128,220
Mortgage warehouse lines		189,103		91,813
Consumer		7,780		8,862
Total loans		1,762,565		1,731,928
Deferred loan and lease origination cost, net		2,896		2,602
Allowance for loan and lease losses		(9,923)		(9,750)
Loans, net	$	1,755,538	$	1,724,780

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position and some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

Impaired – A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired.

Credit quality classifications as of December 31, 2019 were as follows (dollars in thousands):

	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,979	$	—	$	—	$	—	$	105,979
Other construction/land		90,761		98		—		554		91,413
1-4 family - closed-end		194,572		2,425		164		3,020		200,181
Equity lines		43,111		1,995		72		4,421		49,599
Multi-family residential		54,104		—		—		353		54,457
Commercial real estate owner occupied		334,460		4,005		3,384		2,034		343,883
Commercial real estate non-owner occupied		409,289		1,164		11		2,105		412,569
Farmland		142,594		1,048		132		259		144,033
Total real estate		1,374,870		10,735		3,763		12,746		1,402,114
Agricultural		47,814		217		—		5		48,036
Commercial and industrial		100,584		13,415		556		977		115,532
Mortgage warehouse lines		189,103		—		—		—		189,103
Consumer loans		7,245		85		25		425		7,780
Total gross loans and leases	$	1,719,616	$	24,452	$	4,344	$	14,153	$	1,762,565

Credit quality classifications as of December 31, 2018 were as follows (dollars in thousands):

	Pass		Special Mention		Substandard		Impaired		Total
Real estate:
1-4 family residential construction	$	105,676	$	—	$	—	$	—	$	105,676
Other construction/land		108,304		231		—		488		109,023
1-4 family - closed-end		230,022		1,861		1,310		3,632		236,825
Equity lines		49,346		2,194		64		4,716		56,320
Multi-family residential		54,504		—		—		373		54,877
Commercial real estate owner occupied		292,886		4,192		3,021		1,225		301,324
Commercial real estate non-owner occupied		429,835		2,730		4,354		1,425		438,344
Farmland		148,680		1,073		146		1,642		151,541
Total real estate		1,419,253		12,281		8,895		13,501		1,453,930
Agricultural		48,517		580		—		6		49,103
Commercial and industrial		110,413		15,686		377		1,744		128,220
Mortgage warehouse lines		91,813		—		—		—		91,813
Consumer loans		7,851		151		39		821		8,862
Total gross loans and leases	$	1,677,847	$	28,698	$	9,311	$	16,072	$	1,731,928

Loans may or may not be collateralized, and collection efforts are continuously pursued. Loans or leases may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Loans and leases are charged off when they are deemed to be uncollectible, while recoveries are generally recorded only when cash payments are received subsequent to the charge-off.

The following tables present the activity in the allowance for loan losses and the recorded investment in loans and impairment method by portfolio segment for each of the years ending December 31, 2019, 2018, and 2017 (dollars in thousands):

					Commercial and
	Real Estate		Agricultural		Industrial (1)		Consumer		Unallocated		Total
Allowance for credit losses:
Balance, December 31, 2016	$	3,548		209		4,279		1,208		457		9,701
Charge-offs		(101)		(154)		(669)		(2,161)		—		(3,085)
Recoveries		2,235		5		310		1,017		—		3,567
Provision		(896)		148		(1,148)		1,167		(411)		(1,140)
Balance, December 31, 2017		4,786		208		2,772		1,231		46		9,043
Charge-offs		(2,474)		—		(608)		(2,226)		—		(5,308)
Recoveries		374		23		148		1,120		—		1,665
Provision		3,145		25		82		1,114		(16)		4,350
Balance, December 31, 2018		5,831		256		2,394		1,239		30		9,750
Charge-offs		(1,190)		—		(1,274)		(2,409)		—		(4,873)
Recoveries		647		—		690		1,159		—		2,496
Provision		347		(63)		875		1,289		102		2,550
Balance, December 31, 2019	$	5,635	$	193	$	2,685	$	1,278	$	132	$	9,923

⁽¹⁾ Includes mortgage warehouse lines

Loans evaluated for impairment:

	December 31, 2019				December 31, 2018				December 31, 2017
	Individually		Collectively		Individually		Collectively			Individually		Collectively
Real estate	$	12,745	$	1,389,368	$	13,501	$	1,440,429		$	13,072	$	1,213,644
Agricultural		5		48,031		6		49,097			—		46,796
Commercial and industrial (1)		977		303,658		1,744		218,289			2,064		271,618
Consumer		425		7,355		821		8,041			1,277		9,349
Total loans	$	14,152	$	1,748,412	$	16,072	$	1,715,856		$	16,413	$	1,541,407

⁽²⁾ Includes mortgage warehouse lines

Reserves based on method of evaluation for impairment:

	December 31, 2019				December 31, 2018				December 31, 2017
	Specific		General		Specific		General		Specific		General
Real estate	$	493	$	5,142	$	937	$	4,894	$	728	$	4,058
Agricultural		1		192		2		254		—		208
Commercial and industrial (1)		219		2,466		918		1,476		188		2,584
Consumer		114		1,164		151		1,088		237		994
Unallocated		—		132		—		30		—		46
Total loan loss reserves	$	827	$	9,096	$	2,008	$	7,742	$	1,153	$	7,890

⁽¹⁾ Includes mortgage warehouse lines

The following tables present the recorded investment in nonaccrual loans and loans past due over 30 days as of December 31, 2019 and December 31, 2018 (dollars in thousands, except footnotes):

December 31, 2019	30-59 Days		60-89 Days		90 Days Or  More Past						Total Financing		Non-Accrual
	Past Due		Past Due		Due(2)		Total Past Due		Current		Receivables		Loans(1)
Real Estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,979	$	105,979	$	—
Other construction/land		16		—		—		16		91,397		91,413		31
1-4 family - closed-end		485		380		659		1,524		198,657		200,181		741
Equity lines		177		10		78		265		49,334		49,599		480
Multi-family residential		—		—		—		—		54,457		54,457		—
Commercial real estate owner occupied		1,552		—		88		1,640		342,243		343,883		1,440
Commercial real estate non-owner occupied		500		—		1,605		2,105		410,464		412,569		2,105
Farmland		—		—		—		—		144,033		144,033		258
Total real estate loans		2,730		390		2,430		5,550		1,396,564		1,402,114		5,055
Agricultural		—		—		—		—		48,036		48,036		—
Commercial and industrial		160		215		—		375		115,157		115,532		651
Mortgage warehouse lines		—		—		—		—		189,103		189,103		—
Consumer loans		55		12		2		69		7,711		7,780		31
Total gross loans and leases	$	2,945	$	617	$	2,432	$	5,994	$	1,756,571	$	1,762,565	$	5,737

⁽¹⁾ Included in Total Financing Receivables

⁽²⁾ As of December 31, 2019 there were no loans over 90 days past due and still accruing .

December 31, 2018	30-59 Days		60-89 Days		90 Days Or  More Past						Total Financing		Non-Accrual
	Past Due		Past Due		Due(2)		Total Past Due		Current		Receivables		Loans(1)
Real Estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	105,676	$	105,676	$	—
Other construction/land		210		—		27		237		108,786		109,023		82
1-4 family - closed-end		319		—		775		1,094		235,731		236,825		799
Equity lines		1,471		—		57		1,528		54,792		56,320		408
Multi-family residential		—		—		—		—		54,877		54,877		—
Commercial real estate owner occupied		183		—		102		285		301,039		301,324		605
Commercial real estate non-owner occupied		49		—		—		49		438,295		438,344		49
Farmland		1,555		—		—		1,555		149,986		151,541		1,642
Total real estate loans		3,787		—		961		4,748		1,449,182		1,453,930		3,585
Agricultural		—		—		—		—		49,103		49,103		—
Commercial and industrial		1,567		83		886		2,536		125,684		128,220		1,425
Mortgage warehouse lines		—		—		—		—		91,813		91,813		—
Consumer loans		95		45		56		196		8,666		8,862		146
Total gross loans and leases	$	5,449	$	128	$	1,903	$	7,480	$	1,724,448	$	1,731,928	$	5,156

⁽¹⁾ Included in Total Financing Receivables

⁽²⁾ As of December 31, 2018 there were no loans over 90 days past due and still accruing.

Generally, the Company places a loan or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. Subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

Individually impaired loans as of December 31, 2019 and December 31, 2018 were as follows (dollars in thousands):

	December 31, 2019
	Unpaid Principal		Recorded				Average Recorded		Interest Income
	Balance(1)		Investment(2)		Related Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	—
Other construction/land		656		537		157		563		32
1-4 family - closed-end		2,298		2,298		58		2,365		146
Equity lines		4,173		4,120		252		4,185		200
Multifamily residential		353		353		17		361		23
Commercial real estate - owner occupied		593		593		6		606		38
Commercial real estate - non-owner occupied		—		—		—		—		—
Farmland		237		237		3		256		—
Total real estate		8,310		8,138		493		8,336		439
Agricultural		5		5		1		6		—
Commercial and industrial		915		896		219		1,140		29
Consumer loans		464		425		114		469		35
		9,694		9,464		827		9,951		503
With no Related Allowance Recorded
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	—
Other construction/land		52		17		—		577		4
1-4 family - closed-end		755		722		—		726		—
Equity lines		326		301		—		310		5
Multifamily residential		—		—		—		—		—
Commercial real estate - owner occupied		1,560		1,440		—		1,477		—
Commercial real estate - non-owner occupied		3,295		2,105		—		3,267		—
Farmland		22		22		—		25		—
Total real estate		6,010		4,607		—		6,382		9
Agricultural		—		—		—		—		—
Commercial and industrial		102		81		—		162		—
Consumer loans		9		—		—		140		15
		6,121		4,688		—		6,684		24
Total	$	15,815	$	14,152	$	827	$	16,635	$	527

⁽¹⁾ Contractual principal balance due from customer.

⁽²⁾ Principal balance on Company’s books, less any direct charge offs.

⁽³⁾ Interest income is recognized on performing balances on a regular accrual basis.

	December 31, 2018
	Unpaid Principal		Recorded				Average Recorded		Interest Income
	Balance(1)		Investment(2)		Related Allowance		Investment		Recognized(3)
With an Allowance Recorded
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	—
Other construction/land		593		438		44		648		40
1-4 family - closed-end		3,325		3,325		75		3,182		175
Equity lines		4,603		4,550		656		4,368		206
Multifamily residential		373		373		25		359		20
Commercial real estate- owner occupied		842		723		135		740		40
Commercial real estate- non-owner occupied		1,572		1,425		3		1,644		107
Farmland		—		—		—		—		—
Total real estate		11,308		10,834		938		10,941		588
Agricultural		6		6		1		6		—
Commercial and industrial		1,724		1,534		918		1,965		40
Consumer loans		813		764		151		909		61
		13,851		13,138		2,008		13,821		689
With no Related Allowance Recorded
Real estate:
1-4 family residential construction	$	—	$	—	$	—	$	—	$	—
Other construction/land		54		50		—		58		—
1-4 family - closed-end		357		307		—		375		3
Equity Lines		224		166		—		221		—
Multifamily residential		—		—		—		—		—
Commercial real estate- owner occupied		502		502		—		478		—
Commercial real estate- non-owner occupied		—		—		—		—		—
Farmland		1,642		1,642		—		1,538		—
Total real estate		2,779		2,667		—		2,670		3
Agricultural		—		—		—		—		—
Commercial and industrial		238		211		—		838		—
Consumer loans		182		56		—		273		1
		3,199		2,934		—		3,781		4
Total	$	17,050	$	16,072	$	2,008	$	17,602	$	693

⁽¹⁾ Contractual principal balance due from customer.

⁽²⁾ Principal balance on Company’s books, less any direct charge offs.

⁽³⁾ Interest income is recognized on performing balances on a regular accrual basis.

Included in loans above are troubled debt restructurings that were classified as impaired. The Company had $470,000 and $602,000 in commercial loans, $8,179,000 and $10,630,000 in real estate secured loans and $407,000 and $705,000 in consumer loans, which were modified as troubled debt restructurings and consequently classified as impaired at December 31, 2019 and 2018, respectively.

Additional commitments to existing customers with restructured loans totaled $37,000 and $1,834,000 at December 31, 2019 and 2018, respectively.

Interest income recognized on impaired loans was $527,000,  $693,000, and $784,000, for the years ended December 31, 2019, 2018, and 2017, respectively. There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2019, 2018, and 2017, respectively.

The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands):

	Years Ended December 31,
	2019		2018		2017
Interest that would have been recorded under the loans’ original terms	$	650	$	484	$	361
Less gross interest recorded		289		167		103
Foregone interest	$	361	$	317	$	258

Certain loans have been pledged to secure short-term borrowing arrangements (see Note 10). These loans totaled $777,685,000 and $804,705,000 at December 31, 2019 and 2018, respectively.

Salaries and employee benefits totaling $3,678,000,  $4,173,000, and $3,854,000, have been deferred as loan and lease origination costs to be amortized over the estimated lives of the related loans and leases for the years ended December 31, 2019, 2018, and 2017, respectively.

During the periods ended December 31, 2019 and 2018, the terms of certain loans were modified as troubled debt restructurings. Types of modifications applied to these loans include a reduction of the stated interest rate, a modification of term, an agreement to collect only interest rather than principal and interest for a specified period, or any combination thereof.

The following tables present troubled debt restructurings by type of modification during the period ending December 31, 2019 and December 31, 2018 (dollars in thousands):

December 31, 2019	Rate		Term		Interest Only		Rate & Term
	Modification		Modification		Modification		Modification		Total
Troubled debt restructurings
Real estate:
Other construction/land	$	—	$	163	$	—	$	—	$	163
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		344		—		—		344
Multi-family residential		—		—		—		—		—
Commercial real estate owner occupied		—		—		—		—		—
Commercial real estate non-owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		507		—		—		507
Agricultural		—		—		—		—		—
Commercial and industrial		94		255		—		52		401
Consumer loans		—		9		—		50		59
	$	94	$	771	$	—	$	102	$	967

December 31, 2018	Rate		Term		Interest Only		Rate & Term
	Modification		Modification		Modification		Modification		Total
Troubled debt restructurings
Real estate:
Other construction/land	$	—	$	—	$	—	$	—	$	—
1-4 family - closed-end		—		—		—		—		—
Equity lines		—		460		504		—		964
Multi-family residential		—		—		—		—		—
Commercial real estate owner occupied		—		—		—		—		—
Commercial real estate non-owner occupied		—		—		—		—		—
Farmland		—		—		—		—		—
Total real estate loans		—		460		504		—		964
Agricultural		—		7		—		—		7
Commercial and industrial		—		73		25		225		323
Consumer loans		—		—		10		—		10
	$	—	$	540	$	539	$	225	$	1,304

The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2019 and December 31, 2018 (dollars in thousands):

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Numberof	Recorded		Recorded		Reserve
December 31, 2019	Loans	Investment		Investment		Difference(1)
Real estate:
Other construction/land	1	$	163	$	163	$	74
1-4 family - closed-end	—		—		—		—
Equity lines	2		344		344		—
Multi-family residential	—		—		—		—
Commercial real estate - owner occupied	—		—		—		—
Commercial real estate - non-owner occupied	—		—		—		—
Farmland	—		—		—		—
Total real estate loans			507		507		74
Agricultural	—		—		—		—
Commercial and industrial	7		401		401		(59)
Consumer loans	2		59		59		(47)
		$	967	$	967	$	(32)

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Numberof	Recorded		Recorded		Reserve
December 31, 2018	Loans	Investment		Investment		Difference(1)
Real estate:
Other construction/land	—	$	—	$	—	$	—
1-4 family - closed-end	—		—		—		—
Equity lines	8		964		964		4
Multi-family residential	—		—		—		—
Commercial real estate - owner occupied	—		—		—		—
Commercial real estate - non-owner occupied	—		—		—		—
Farmland	—		—		—		—
Total real estate loans			964		964		4
Agricultural	1		7		7		2
Commercial and industrial	4		323		323		—
Consumer loans	1		10		10		—
		$	1,304	$	1,304	$	6

⁽¹⁾ This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.

In the tables above, there were no TDRs that subsequently defaulted necessitating an increase in the allowance for loan and lease losses for the years ended December 31, 2019 and 2018. The total allowance for loan and lease losses specifically allocated to the balances that were classified as TDRs during the year ended December 31, 2019 and 2018 is $648,000 and $1,048,000, respectively.

Purchased Credit Impaired Loans

As part of the acquisitions described in Note 22 Business Combinations,  the Company has purchased loans, some of which have shown evidence of credit deterioration since origination and it was probable at acquisition that all contractually required payments would not be collected. The carrying amount and unpaid principal balance of those loans are as follows (dollars in thousands):

	December 31, 2019
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	88	$	—
Commercial and industrial		—		—
Consumer		—		—
Total purchased credit impaired loans	$	88	$	—

	December 31, 2018
	Unpaid Principal Balance		Carrying Value
Real estate secured	$	103	$	—
Commercial and industrial		—		—
Consumer		—		—
Total purchased credit impaired loans	$	103	$	—

For those purchased credit impaired loans disclosed above, the Company did not increase the allowance for loan lossesduring 2019, 2018 and 2017. There is no accretable yield, or income expected to be collected on these purchased credit impaired loans. During the years ended December 31, 2019 and 2018, there were no purchased credit impaired loans acquired.