Loans Receivable

9 Months Ended

Sep. 30, 2020

Note 3. Loans Receivable

Loans receivable were comprised of the following:

(Dollars in thousands)	September 30, 2020			December 31, 2019
Residential Real Estate:
Single family	$	139,730		$	143,535
Multifamily		16,922			6,512
Farmland		866			801
Commercial Real Estate:
Owner-occupied		134,012			134,116
Non-owner occupied		371,189			287,754
Construction and Land Development		325,516			272,620
Commercial – Non Real-Estate:
Commercial & Industrial		261,959			121,225
Consumer – Non Real-Estate:
Unsecured		522			599
Secured		50,983			74,984
Total Gross Loans		1,301,699			1,042,146
Less: unearned fees		(7,451	)		(2,118	)
Less: unamortized discount on consumer secured loans		(3	)		(19	)
Less: allowance for loan losses		(14,346	)		(9,584	)
Net Loans	$	1,279,899		$	1,030,425

The unsecured consumer loans above include $54,000 and $599,000 of overdrafts reclassified as loans at September 30, 2020 and December 31, 2019, respectively.

The commercial and industrial loans above include $173.1 million and $0 in Paycheck Protection Program loans at September 30, 2020 and December 31, 2019, respectively.

The Company held no loans for sale at September 30, 2020 and December 31, 2019.

The following tables summarize the activity in the allowance for loan losses by loan class for the three and nine months ended September 30, 2020 and 2019.

Allowance for Credit Losses By Portfolio Segment

	Real Estate
For the three months ended September 30, 2020	Residential		Commercial			Construction		Consumer			Commercial			Total
(Dollars in thousands)
Beginning Balance	$	1,084	$	7,023		$	2,873	$	1,330		$	1,421		$	13,731
Charge-offs		—		—			—		(35	)		—			(35	)
Recoveries		—		—			—		5			10			15
Provision		14		114			466		(191	)		232			635
Ending Balance	$	1,098	$	7,137		$	3,339	$	1,109		$	1,663		$	14,346
Ending Balance:
Individually evaluated for Impairment	$	—	$	—		$	—	$	—		$	329		$	329
Collectively evaluated for Impairment	$	1,098	$	7,137		$	3,339	$	1,109		$	1,334		$	14,017

For the nine months ended September 30, 2020
Beginning Balance	$	1,030	$	4,254		$	2,180	$	568		$	1,552		$	9,584
Charge-offs		—		(1	)		—		(35	)		(1,793	)		(1,829	)
Recoveries		—		—			—		8			23			31
Provision		68		2,884			1,159		568			1,881			6,560
Ending Balance	$	1,098	$	7,137		$	3,339	$	1,109		$	1,663		$	14,346
Ending Balance:
Individually evaluated for Impairment	$	—	$	—		$	—	$	—		$	329		$	329
Collectively evaluated for Impairment	$	1,098	$	7,137		$	3,339	$	1,109		$	1,334		$	14,017

	Real Estate
For the three months ended September 30, 2019	Residential		Commercial			Construction		Consumer			Commercial			Total
(Dollars in thousands)
Beginning Balance	$	1,220	$	4,026		$	1,689	$	907		$	1,343		$	9,185
Charge-offs		—		—			—		(28	)		—			(28	)
Recoveries		28		—			—		—			—			28
Provision		30		80			38		21			16			185
Ending Balance	$	1,278	$	4,106		$	1,727	$	900		$	1,359		$	9,370
Ending Balance:
Individually evaluated for Impairment	$	—	$	—		$	—	$	—		$	102		$	102
Collectively evaluated for Impairment	$	1,278	$	4,106		$	1,727	$	900		$	1,257		$	9,268

For the nine months ended September 30, 2019
Beginning Balance	$	1,019	$	4,299		$	1,469	$	826		$	1,218		$	8,831
Charge-offs		—		(733	)		—		(50	)		—			(783	)
Recoveries		58		—			—		4			—			62
Provision		201		540			258		120			141			1,260
Ending Balance	$	1,278	$	4,106		$	1,727	$	900		$	1,359		$	9,370
Ending Balance:
Individually evaluated for Impairment	$	—	$	—		$	—	$	—		$	102		$	102
Collectively evaluated for Impairment	$	1,278	$	4,106		$	1,727	$	900		$	1,257		$	9,268

The Company maintains a general allowance for loan losses based on evaluating known and inherent risks in the loan portfolio, including management’s continuing analysis of the factors underlying the quality of the loan portfolio. These factors include changes in the size and composition of the loan portfolio, actual loan loss experience, and current and anticipated economic conditions. The reserve is an estimate based upon factors and trends identified by management at the time the financial statements are prepared.

The following tables summarize information in regards to the recorded investment in loans receivable by loan class as of September 30, 2020 and December 31, 2019:

September 30, 2020
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential Real Estate	$	157,518	$	299	$	157,219
Commercial Real Estate		505,201		1,097		504,104
Construction and Land Development		325,516		—		325,516
Commercial & Industrial		261,959		517		261,442
Consumer		51,505		107		51,398
Total	$	1,301,699	$	2,020	$	1,299,679

December 31, 2019
Loans Receivable
(Dollars in thousands)	Ending Balance		Ending Balance: Individually Evaluated for Impairment		Ending Balance: Collectively Evaluated for Impairment
Residential Real Estate	$	150,848	$	1,482	$	149,366
Commercial Real Estate		421,870		—		421,870
Construction and Land Development		272,620		—		272,620
Commercial & Industrial		121,225		—		121,225
Consumer		75,583		—		75,583
Total	$	1,042,146	$	1,482	$	1,040,664

The following table summarizes information in regard to impaired loans by loan portfolio class as of September 30, 2020 and December 31, 2019:

	September 30, 2020						December 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded
Residential Real Estate:
Single family	$	299	$	299	$	—	$	1,482	$	1,482	$	—
Commercial Real Estate
Non-owner Occupied		1,097		1,097		—		—		—		—
Commercial & Industrial		46		46		—		—		—		—
Consumer
Secured		107		107		—		—		—		—
		1,549		1,549		—		1,482		1,482		—

With an allowance recorded
Commercial & Industrial	$	471	$	471	$	329	$	—	$	—	$	—
Total	$	2,020	$	2,020	$	329	$	1,482	$	1,482	$	—

The following table presents additional information regarding the impaired loans for the three and nine months ended September 30, 2020:

	Three Months Ended September 30,
	2020				2019
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
Residential Real Estate:
Single family	$	301	$	2	$	1,491	$	10
Commercial Real Estate
Non-owner Occupied		1,097		—		—		—
Commercial & Industrial		253		1		—		—
Consumer
Secured		115		2		—		—
Total		1,766		5		1,491		10

With an allowance recorded
Commercial & Industrial	$	268	$	8	$	102	$	—
Total	$	2,034	$	13	$	1,593	$	10

	Nine Months Ended September 30,
	2020				2019
(Dollars in thousands)	Average Record Investment		Interest Income Recognized		Average Record Investment		Interest Income Recognized
With no related allowance recorded
Residential Real Estate:
Single family	$	305	$	7	$	1,499	$	41
Commercial Real Estate
Non-owner Occupied		1,099		17		—		—
Commercial & Industrial		357		10		—		—
Consumer
Secured		129		6		—		—
Total		1,890		40		1,499		41

With an allowance recorded
Commercial & Industrial	$	167	$	9	$	105	$	4
Total	$	2,057	$	49	$	1,499	$	45

If interest on nonaccrual loans had been accrued, such income would have been $71,549 and $0 for the nine months ended September 30, 2020 and 2019.

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2020 and December 31, 2019:

(Dollars in thousands)	September 30, 2020		December 31, 2019
Residential Real Estate
Single family	$	145	$	—
Commercial Real Estate
Non-owner occupied		1,097		—
Total	$	1,242	$	—

Credit quality risk ratings include regulatory classifications of Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Loans classified as Pass have quality metrics to support that the loan will be repaid according to the terms established. Loans classified as Watch have similar characteristics as Pass loans with some emerging signs of financial weaknesses that should be monitored closer. Loans classified as Special Mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of prospects for repayment. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.

The following tables summarize the aggregate Pass and criticized categories of Watch, Special Mention, and Substandard within the Company’s internal risk rating system as of September 30, 2020 and December 31, 2019:

	September 30, 2020
(Dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
Residential Real Estate:
Single Family	$	138,326	$	—	$	741	$	663	$	139,730
Multifamily		16,922		—		—		—		16,922
Farmland		866		—		—		—		866
Commercial Real Estate:
Owner occupied		134,012		—		—		—		134,012
Non-owner occupied		370,092		—		—		1,097		371,189
Construction & Land Development		324,932		—		—		584		325,516
Commercial – Non Real Estate:
Commercial & Industrial		257,951		3,027		141		840		261,959
Consumer – Non Real Estate:
Unsecured		522		—		—		—		522
Secured		50,877		—		—		106		50,983
Total	$	1,294,500	$	3,027	$	882	$	3,290	$	1,301,699

	December 31, 2019
(Dollars in thousands)	Pass		Watch		Special Mention		Substandard		Total
Residential Real Estate:
Single Family	$	143,019	$	—	$	—	$	516	$	143,535
Multifamily		6,512		—		—		—		6,512
Farmland		801		—		—		—		801
Commercial Real Estate:
Owner occupied		133,966		—		—		150		134,116
Non-owner occupied		287,754		—		—		—		287,754
Construction & Land Development		272,620		—		—		—		272,620
Commercial – Non Real Estate:
Commercial & Industrial		109,106		3,772	$	5,685		2,662		121,225
Consumer – Non Real Estate:
Unsecured		599		—		—		—		599
Secured		74,984		—		—		—		74,984
Total	$	1,029,361	$	3,772	$	5,685	$	3,328	$	1,042,146

The following tables present the segments of the loan portfolio summarized by aging categories as of September 30, 2020 and December 31, 2019:

	September 30, 2020
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Nonaccrual
Residential Real Estate:
Single Family	$	365	$	—	$	—	$	365	$	139,365	$	139,730	$	145
Multifamily		—		—		—		—		16,922		16,922		—
Farmland		—		—		—		—		866		866		—
Commercial Real Estate:
Owner occupied		—		—		—		—		134,012		134,012		—
Non-owner occupied		—		—		1,097		1,097		370,092		371,189		1,097
Construction & Land Development		—		584		—		584		324,932		325,516		—
Commercial – Non Real Estate:
Commercial & Industrial		—		—		—		—		261,959		261,959		—
Consumer – Non Real Estate:
Unsecured		—		—		—		—		522		522		—
Secured		18		13		—		31		50,952		50,983		—
Total	$	383	$	597	$	1,097	$	2,077	$	1,299,622	$	1,301,699	$	1,242

	December 31, 2019
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Nonaccrual
Residential Real Estate:
Single Family	$	—	$	—	$	—	$	—	$	143,535	$	143,535	$	—
Multifamily		—		—		—		—		6,512		6,512		—
Farmland		—		—		—		—		801		801		—
Commercial Real Estate:
Owner occupied		—		150		—		150		133,966		134,116		—
Non-owner occupied		—		—		—		—		287,754		287,754		—
Construction & Land Development		—		—		—		—		272,620		272,620		—
Commercial – Non Real Estate:
Commercial & Industrial		—		—		—		—		121,225		121,225		—
Consumer – Non Real Estate:
Unsecured		—		—		—		—		599		599		—
Secured		124		—		—		124		74,860		74,984		—
Total	$	124	$	150	$	—	$	274	$	1,041,872	$	1,042,146	$	—

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan that is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses. TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the modified contractual terms for a reasonable period of time, generally six months, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Forbearance not automatically a Troubled Debt Restructuring (TDR)

On March 9, 2020, the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, National Credit Union Administration, and Conference of State Bank Supervisors issued a joint statement to financial institutions urging them to work constructively with borrowers and other customers affected by COVID-19.

Since then, the agencies provided additional guidance and the CARES Act was signed into law. Together, they offer these key takeaways:

Working with Customers

The agencies encourage financial institutions to work prudently and pro-actively with borrowers – consistent with "safe and sound" practices – who are or may be unable to meet their payment obligations because of the effects of COVID-19. The agencies view loan modification programs as positive actions to mitigate adverse effects on borrowers due to COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings ("TDRs").

Troubled Debt Restructuring

According to United States generally accepted accounting principles, restructuring a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The CARES Act states that from March 1, 2020, until the end of the year (unless the President terminates the COVID-19 emergency declaration sooner), financial institutions may elect to suspend the TDR accounting principles for loan modifications related to COVID-19.

The suspension applies during the modification. A modification can be a forbearance agreement, a new repayment plan, interest rate modification, or any other arrangement that defers or delays the payment of principal or interest. This provision applies only to loans that were current – less than 30 days past due on payments – as of December 31, 2019.

The Company may identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.

As of September 30, 2020, and December 31, 2019, the Company had TDRs totaling $0 and $1.5 million, respectively. At December 31, 2019, the Company had one TDR which was performing in compliance with the restructured terms and on accrual status. During the nine months ended September 30, 2020, the Bank removed the TDR designation from its only TDR loan after it was modified in accordance with applicable guidance.

The following table details the Company’s TDRs that are on accrual status and non-accrual status at September 30, 2020:

As of September 30, 2020

(Dollars in thousands)

Number

Of Loans

Accrual

Status

Non-

Accrual

Status

Total TDRs

Total

—

The following table details the Company’s TDRs that are on accrual status and non-accrual status at December 31, 2019:

	As of December 31, 2019
(Dollars in thousands)	Number Of Loans		Accrual Status		Non- Accrual Status		Total TDRs
Residential Real Estate		1	$	1,482	$	—	$	1,482
Total		1	$	1,482	$	—	$	1,482