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LOANS
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
LOANS

NOTE 6 LOANS

 

Loans receivable outstanding as of March 31, 2023, and December 31, 2022, are summarized as follows:

 

          
(Dollars are in thousands) 

March 31,

2023

  December 31, 2022
Real estate secured:          
Commercial   197,820   $197,069 
Construction and land development   42,742    42,470 
Residential 1-4 family   228,727    227,232 
Multifamily   34,167    29,710 
Farmland   16,892    17,744 
Total real estate loans   520,348    514,225 
Commercial   46,338    46,697 
Agriculture   3,931    3,756 
Consumer installment loans   19,271    19,309 
All other loans   602    626 
Total loans   590,490   $584,613 

 

 

Also included in total loans above are deferred loan fees of $1.6 million as of March 31, 2023 and December 31, 2022. Deferred loan costs were $1.9 million, as of March 31, 2023 and December 31, 2022. Income from net deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities, any unamortized fee or cost is recognized at that time.

 

Loans receivable on nonaccrual status as of March 31, 2023, and December 31, 2022, are summarized as follows:

 

                 
        CECL   Incurred Loss
        March 31, 2023   December 31, 2022
(Dollars are in thousands)   With No Allowance   With an Allowance   Total    
Real estate secured:                
  Commercial $ - $ 268 $ 268 $ -
  Construction and land development   447   -   447   471
  Residential 1-4 family   1,869   -   1,869   2,597
  Multifamily   207   -   207   268
  Farmland   -   -   -   41
    Total real estate loans   2,523   268   2,791   3,377
Commercial   -   -   -   -
Consumer installment loans and other loans   36   -   36   36
Total loans receivable on nonaccrual status $ 2,559 $ 268 $ 2,827 $ 3,413
                     

 

Total interest income not recognized on nonaccrual loans for the three months ended March 31, 2023 and 2022, was $13,000 and $5,000, respectively.

 

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all nonaccrual loans greater than $250,000 and all troubled debt restructurings, whether or not currently classified as such. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis.

 

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022:

                    

 

 

As of December 31, 2022

(Dollars are in thousands)

  Recorded
Investment		  Unpaid Principal Balance  Related
Allowance		  Average
Recorded
Investment
With no related allowance recorded:                    
Real estate secured:                    
Commercial  $90   $131   $—     $124 
Construction and land development   471    491    —      114 
Residential 1-4 family   1,617    1,972    —      1,585 
Multifamily   —      —      —      —   
Farmland   248    417    —      307 
Commercial   23    31    —      14 
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      1 
All other loans   —      —      —      —   
With an allowance recorded:                    
Real estate secured:                    
Commercial   268    338    63    407 
Construction and land development   —      —      —      291 
Residential 1-4 family   32    48    23    201 
Multifamily   —      —      —      20 
Farmland   —      —      —      63 
Commercial   —      —      —      27 
Agriculture   —      —      —      —   
Consumer installment loans   —      —      —      —   
All other loans   —      —      —      —   
Total  $2,749   $3,428   $86   $3,154 
                     

 

Upon adoption of ASU 2016-13 the Company began evaluating loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods as described in Note 2 Summary of Significant Accounting Policies. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as March 31, 2023:

 

 

 

As of March 31, 2023

(Dollars are in thousands)

  Unpaid Principal Balance  Related
Allowance
Real estate secured:          
Commercial  $268   $64 
Construction and land development   447    —   
Residential 1-4 family   —      —   
Multifamily   —      —   
Farmland   —      —   
Total real estate secured   715      
Commercial   —      —   
Agriculture   —      —   
Consumer installment loans   —      —   
Total  $715   $64 
           

 

 

The following table is an age analysis of past due loans receivable as of March 31, 2023, segregated by class:

 

                              

 

 

 

 

As of March 31, 2023

(Dollars are in thousands)

  Loans
30-59
Days
Past
Due		  Loans
60-89
Days
Past
Due		  Loans
90 or
More
Days
Past
Due		  Total
Past
Due
Loans		  Current
Loans		  Total
Loans
Real estate secured:                              
Commercial  $—     $—     $268   $268   $197,552   $197,820 
Construction and land
development		   6    —      —      6    42,736    42,742 
Residential 1-4 family   1,174    475    260    1,909    226,818    228,727 
Multifamily   207    —      —      207    33,960    34,167 
Farmland   10    —      —      10    16,882    16,892 
Total real estate loans   1,397    475    528    2,400    517,948    520,348 
Commercial   75    —      —      75    46,263    46,338 
Agriculture   2    —      —      2    3,929    3,931 
Consumer installment
loans		   54    22    36    112    19,159    19,271 
All other loans   —      —      —      —      602    602 
Total loans  $1,528   $497   $564   $2,589   $587,901   $590,490 

 

The following table is an age analysis of past due loans receivable as of December 31, 2022, segregated by class:

 

 

 

 

 

As of December 31, 2022

(Dollars are in thousands)

  Loans
30-59
Days
Past
Due		  Loans
60-89
Days
Past
Due		  Loans
90 or
More
Days
Past
Due		  Total
Past
Due
Loans		  Current
Loans		  Total
Loans
Real estate secured:                              
Commercial  $268   $—     $—     $268   $196,801   $197,069 
Construction and land
development		   89    —      —      89    42,381    42,470 
Residential 1-4 family   3,521    543    341    4,405    222,827    227,232 
Multifamily   229    —      —      229    29,481    29,710 
Farmland   285    —      —      285    17,459    17,744 
Total real estate loans   4,392    543    341    5,276    508,949    514,225 
Commercial   56    —      —      56    46,641    46,697 
Agriculture   —      —      —      —      3,756    3,756 
Consumer installment
Loans		   73    17    17    107    19,202    19,309 
All other loans   59    —      —      59    567    626 
Total loans  $4,580   $560   $358   $5,498   $579,115   $584,613 

 

The Company categorizes loans receivable into risk categories based on relevant information about the ability of 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 receivable as to credit risk. The Company uses the following definitions for risk ratings:

 

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

 

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances.  Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.

 

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

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

 

The following table present the credit risk grade of loans by origination year as of March 31, 2023:

 

                         
                         
As of March 31, 2023                        
Dollars in thousands  2023  2022  2021  2020  2019  Prior  Revolving  Total
 Commercial real estate                                        
 Pass  $5,884   $41,352   $48,047   $31,056   $22,063   $47,937   $1,112   $197,451 
 Special mention   —      —      —      —      —      101    —      101 
 Substandard   —      —      —      —      —      268    —      268 
 Total commercial real estate  $5,884   $41,352   $48,047   $31,056   $22,063   $48,306   $1,112   $197,820 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Construction and Land Development                                        
 Pass  $1,531   $20,860   $11,315   $4,643   $1,558   $2,204   $71   $42,182 
 Special mention   —      —      —      —      —      113    —      113 
 Substandard   —      —      —      —      447    —      —      447 
 Total construction and land development  $1,531   $20,860   $11,315   $4,643   $2,005   $2,317   $71   $42,742 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Residential 1-4 family                                        
 Pass  $6,741   $34,122   $44,471   $14,619   $14,799   $92,868   $18,922   $226,542 
 Special mention   —      —      —      —      —      316    —      316 
 Substandard   —      —      152    —      41    1,620    56    1,869 
 Total residential 1-4 family  $6,741   $34,122   $44,623   $14,619   $14,840   $94,804   $18,978   $228,727 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Multifamily                                        
 Pass  $3,766   $12,142   $8,320   $2,714   $1,117   $5,901   $—     $33,960 
 Special mention   —      —      —      —      —      —      —      —   
 Substandard   —      —      —      —      —      207    —      207 
 Total multifamily  $3,766   $12,142   $8,320   $2,714   $1,117   $6,108   $—     $34,167 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Farmland                                        
 Pass  $171   $2,280   $3,637   $849   $1,246   $8,507   $—     $16,690 
 Special mention   —      —      —      —      1    201    —      202 
 Substandard   —      —      —      —      —      —      —      —   
 Total farmland  $171   $2,280   $3,637   $849   $1,247   $8,708   $—     $16,892 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Commercial                                        
 Pass  $4,925   $13,233   $7,513   $2,124   $2,886   $7,894   $7,760   $46,335 
 Special mention   —      —      —      —      —      3    —      3 
 Substandard   —      —      —      —      —      —      —      —   
 Total commercial  $4,925   $13,233   $7,513   $2,124   $2,886   $7,897   $7,760   $46,338 
                                         
 Current period gross charge-offs  $—     $(5)  $—     $—     $—     $—     $—     $(5)
                                         
 Agriculture                                        
 Pass  $239   $711   $517   $906   $151   $1,178   $229   $3,931 
 Special mention   —      —      —      —      —      —      —      —   
 Substandard   —      —      —      —      —      —      —      —   
 Total agriculture  $239   $711   $517   $906   $151   $1,178   $229   $3,931 
                                         
 Current period gross charge-offs  $—     $—     $—     $—     $—     $—     $—     $—   
                                         
 Consumer and All Other                                        
 Pass  $2,165   $7,860   $3,934   $1,461   $954   $1,429   $2,032   $19,835 
 Special mention   —      2    —      —      —      —      —      2 
 Substandard   —      —      17    —      —      19    —      36 
 Total consumer and all other  $2,165   $7,862   $3,951   $1,461   $954   $1,448   $2,032   $19,873 
                                         
 Current period gross charge-offs  $(58)  $(17)  $(3)  $—     $—     $—          $(78)
                                         
 Total  $25,422   $132,562   $127,923   $58,372   $45,263   $170,766   $30,182   $590,490 
 Total current period gross charge-offs  $(58)  $(22)  $(3)  $—     $—     $—     $—     $(83)

The following table presents the credit risk grade of loans as of December 31, 2022, prior to the adoption of ASU 2016-13, under the incurred loss model:

 

 

As of December 31, 2022

(Dollars are in thousands)

  Pass  Special
Mention		  Substandard  Doubtful  Total
Real estate secured:                         
   Commercial  $195,376   $1,425   $268   $—     $197,069 
   Construction and land development   41,882    117    471    —      42,470 
   Residential 1-4 family   224,228    406    2,598    —      227,232 
   Multifamily   29,503    207    —      —      29,710 
   Farmland   16,848    855    41    —      17,744 
Total real estate loans   507,837    3,010    3,378    —      514,225 
Commercial   46,471    226    —      —      46,697 
Agriculture   3,756    —      —      —      3,756 
Consumer installment loans   19,272    2    35    —      19,309 
All other loans   626    —      —      —      626 
Total  $577,962   $3,238   $3,413   $—     $584,613