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Note 3 - Loans

9 Months Ended

Sep. 30, 2021

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 3 – Loans

Loans, net of deferred fees and costs and excluding loans held for sale, at September 30, 2021 and December 31, 2020, were comprised of the following (dollars in thousands):

	*September 30, 2021*		*December 31, 2020*
Commercial	$	320,278	$	491,256
Commercial real estate:
Construction and land development		120,193		140,071
Commercial real estate - owner occupied		404,029		373,680
Commercial real estate - non-owner occupied		713,339		627,569
Residential real estate:
Residential		280,351		269,137
Home equity		95,317		104,881
Consumer		6,825		8,462
Total loans, net of deferred fees and costs	$	1,940,332	$	2,015,056

Acquired Loans

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC 310-30, included in the consolidated balance sheets at September 30, 2021 and December 31, 2020 are as follows (dollars in thousands):

	*September 30, 2021*		*December 31, 2020*
Outstanding principal balance	$	182,125	$	251,730
Carrying amount		174,184		241,008

The outstanding principal balance and related carrying amount of purchased credit impaired loans, for which the Company applies ASC 310-30 to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

	*September 30, 2021*		*December 31, 2020*
Outstanding principal balance	$	29,073	$	37,417
Carrying amount		23,072		30,201

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC 310-30, for the nine months ended September 30, 2021 and the year ended December 31, 2020 (dollars in thousands):

	*September 30, 2021*			*December 31, 2020*
Balance at January 1	$	6,513		$	7,893
Accretion		(2,948	)		(3,553	)
Reclassification from nonaccretable difference		1,432			2,233
Other changes, net (1)		(433	)		(60	)
	$	4,564		$	6,513

__________________________

(1) This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

Past Due Loans

The following table shows an analysis by portfolio segment of the Company's past due loans at September 30, 2021 (dollars in thousands):

	*30- 59 Days Past Due*		*60-89 Days Past Due*		*90 Days + Past Due and Still Accruing*		*Non Accrual Loans*		*Total Past Due*		*Current*		*Total Loans*
Commercial	$	51	$	—	$	—	$	32	$	83	$	320,195	$	320,278
Commercial real estate:
Construction and land development		—		—		—		1		1		120,192		120,193
Commercial real estate - owner occupied		—		—		—		23		23		404,006		404,029
Commercial real estate - non-owner occupied		—		—		—		926		926		712,413		713,339
Residential:
Residential		409		—		—		827		1,236		279,115		280,351
Home equity		81		55		—		81		217		95,100		95,317
Consumer		1		13		—		13		27		6,798		6,825
Total	$	542	$	68	$	—	$	1,903	$	2,513	$	1,937,819	$	1,940,332

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2020 (dollars in thousands):

	*30- 59 Days Past Due*		*60-89 Days Past Due*		*90 Days + Past Due and Still Accruing*		*Non Accrual Loans*		*Total Past Due*		*Current*		*Total Loans*
Commercial	$	153	$	9	$	—	$	100	$	262	$	490,994	$	491,256
Commercial real estate:
Construction and land development		168		—		—		5		173		139,898		140,071
Commercial real estate - owner occupied		62		—		209		304		575		373,105		373,680
Commercial real estate - non-owner occupied		—		—		—		1,158		1,158		626,411		627,569
Residential:
Residential		711		211		53		792		1,767		267,370		269,137
Home equity		—		—		—		69		69		104,812		104,881
Consumer		49		14		—		6		69		8,393		8,462
Total	$	1,143	$	234	$	262	$	2,434	$	4,073	$	2,010,983	$	2,015,056

Impaired Loans

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at September 30, 2021 (dollars in thousands):

	*Recorded Investment*		*Unpaid Principal Balance*		*Related Allowance*		*Average Recorded Investment*		*Interest Income Recognized*
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	5	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		14		11		—		87		1
Commercial real estate - non-owner occupied		1,027		1,026		—		1,087		22
Residential:
Residential		1,139		1,146		—		1,265		31
Home equity		5		5		—		5		—
Consumer		—		—		—		—		—
	$	2,185	$	2,188	$	—	$	2,449	$	54
With a related allowance recorded:
Commercial	$	16	$	9	$	9	$	28	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		31		—
Residential
Residential		16		16		1		76		2
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	32	$	25	$	10	$	135	$	3
Total:
Commercial	$	16	$	9	$	9	$	33	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		14		11		—		87		1
Commercial real estate - non-owner occupied		1,027		1,026		—		1,118		22
Residential:
Residential		1,155		1,162		1		1,341		33
Home equity		5		5		—		5		—
Consumer		—		—		—		—		—
	$	2,217	$	2,213	$	10	$	2,584	$	57

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at December 31, 2020 (dollars in thousands):

	*Recorded Investment*		*Unpaid Principal Balance*		*Related Allowance*		*Average Recorded Investment*		*Interest Income Recognized*
With no related allowance recorded:
Commercial	$	18	$	18	$	—	$	23	$	6
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		286		283		—		357		27
Commercial real estate - non-owner occupied		1,148		1,147		—		766		75
Residential:
Residential		1,096		1,103		—		912		62
Home equity		6		6		—		31		3
Consumer		—		—		—		—		—
	$	2,554	$	2,557	$	—	$	2,089	$	173
With a related allowance recorded:
Commercial	$	39	$	33	$	29	$	382	$	15
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied (1)		122		122		—		180		15
Residential:
Residential		137		137		1		256		9
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	298	$	292	$	30	$	818	$	39
Total:
Commercial	$	57	$	51	$	29	$	405	$	21
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		286		283		—		357		27
Commercial real estate - non-owner occupied		1,270		1,269		—		946		90
Residential:
Residential		1,233		1,240		1		1,168		71
Home equity		6		6		—		31		3
Consumer		—		—		—		—		—
	$	2,852	$	2,849	$	30	$	2,907	$	212

__________________________

(1) Allowance is reported as zero in the table due to presentation in thousands and rounding.

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

During the three and nine months ended September 30, 2021 there were no loans modified as troubled debt restructurings ("TDRs"). During the nine months ended September 30, 2020, there were five loans modified as TDRs. One was a commercial loan, two were commercial real estate - non-owner occupied loans, one was a residential real estate loan, and one was a home equity loan, all included in the impaired loan balances. The commercial loan was a payment deferral with a pre- and post-modification outstanding investment of $106,000. The two commercial real estate - non-owner occupied loans were payment deferrals with an aggregate pre- and post-modification outstanding recorded investment of $1,311,000. The residential real estate loan was a payment deferral with a pre- and post-modification outstanding recorded investment of $82,000. The home equity loan was an extension of maturity with a pre- and post-modification outstanding recorded investment of $6,000.

During the nine months ended September 30, 2021, the Company had one commercial real estate - non-owner occupied loan with a recorded investment of $259,000 at restructure and one commercial loan with a recorded investment of $106,000 at restructure that subsequently defaulted within 12 months of modification. During the nine months ended September 30, 2020, the Company had one commercial real estate loan with a recorded investment of $1,052,000 that subsequently defaulted within 12 months of modification. The Company defines defaults as one or more payments that occur more than 90 days past the due date, charge-off or foreclosure subsequent to modification. There were no defaults during the three months ended September 30, 2021 and the three and nine months ended September 30, 2020.

The Company utilized a Disaster Assistance Program for borrowers in accordance with Section 4013 of the CARES Act throughout the pandemic. The Company assisted borrowers with modifications to outstanding loan balances of $347.0 million in the aggregate since the beginning of the pandemic in March 2020. At September 30, 2021, all modifications had expired compared to outstanding loan balances of $2.3 million at June 30, 2021.

The Company processed a total of $364.2 million in PPP loans under the CARES Act. Of the total processed, $66.9 million was forgiven in the three months and $254.3 million in the nine months ended September 30, 2021. Total outstanding net PPP loans were $37.2 million and $211.3 million at September 30, 2021 and December 31, 2020, respectively.

The loan portfolio consists primarily of commercial and residential real estate loans, commercial loans to small and medium-sized businesses, construction and land development loans, and home equity loans. At September 30, 2021, the commercial real estate portfolio included concentrations of $83,540,000, $44,127,000 and $199,571,000 in hotel, restaurants, and retail loans, respectively. These concentrations total 4.3%, 2.3%, and 10.3% of total loans, respectively, excluding loans in process.

Residential Real Estate in Process of Foreclosure

The Company had $5,000 in residential loans in process of foreclosure at September 30, 2021 and $387,000 in process of foreclosure at December 31, 2020, respectively. The Company had no residential other real estate owned ("OREO") at September 30, 2021 and had $285,000 in residential OREO at December 31, 2020.

Risk Grades

The following tables show the Company's loan portfolio broken down by internal risk grading as of September 30, 2021 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	*Commercial*		*Construction and Land Development*		*Commercial Real Estate - Owner Occupied*		*Commercial Real Estate - Non-owner Occupied*		*Residential*		*Home Equity*
Pass	$	311,207	$	115,975	$	383,787	$	697,632	$	275,172	$	94,941
Special Mention		8,466		2,933		11,840		8,880		2,375		—
Substandard		605		1,285		8,402		6,827		2,804		376
Doubtful		—		—		—		—		—		—
Total	$	320,278	$	120,193	$	404,029	$	713,339	$	280,351	$	95,317

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	*Consumer*
Performing	$	6,824
Nonperforming		1
Total	$	6,825

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 31, 2020 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	*Commercial*		*Construction and Land Development*		*Commercial Real Estate -Owner Occupied*		*Commercial Real Estate - Non-owner Occupied*		*Residential*		*Home Equity*
Pass	$	479,416	$	131,770	$	350,376	$	612,688	$	262,677	$	104,608
Special Mention		10,956		2,505		14,621		9,196		3,665		—
Substandard		865		5,796		8,474		5,563		2,795		273
Doubtful		19		—		209		122		—		—
Total	$	491,256	$	140,071	$	373,680	$	627,569	$	269,137	$	104,881

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	*Consumer*
Performing	$	8,456
Nonperforming		6
Total	$	8,462

Loans classified in the Pass category typically are fundamentally sound, and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically 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. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

Consumer loans are classified as performing or nonperforming. A loan is nonperforming when payments of interest and principal are past due 90 days or more.