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Note 3 - Loans
 9 Months Ended
Sep. 30, 2022
Notes to Financial Statements  
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, 2022 and  December 31, 2021, were comprised of the following (dollars in thousands):

 

    September 30, 2022     December 31, 2021  

Commercial

   $ 295,541     $ 299,773  

Commercial real estate:

                

Construction and land development

     210,500       134,221  

Commercial real estate - owner occupied

     423,678       391,517  

Commercial real estate - non-owner occupied

     764,963       731,034  

Residential real estate:

                

Residential

     324,468       289,757  

Home equity

     93,659       93,203  

Consumer

     6,606       7,075  

Total loans, net of deferred fees and costs

   $ 2,119,415     $ 1,946,580  

 

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, 2022 and  December 31, 2021 are as follows (dollars in thousands):

 

    September 30, 2022     December 31, 2021  

Outstanding principal balance

   $ 131,959     $ 163,574  

Carrying amount

     126,636       156,975  

 

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, 2022     December 31, 2021  

Outstanding principal balance

   $ 19,946     $ 24,696  

Carrying amount

     15,846       19,802  

 

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, 2022 and the year ended December 31, 2021 (dollars in thousands):

 

    September 30, 2022     December 31, 2021  

Balance at January 1

   $ 4,902     $ 6,513  

Accretion

     (1,808 )     (5,292 )

Reclassification from nonaccretable difference

     835       2,780  

Other changes, net (1)

     (273 )     901  
    $ 3,656     $ 4,902  

  __________________________

  (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, 2022 (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

   $ 161     $ —     $ —     $ 288     $ 449     $ 295,092     $ 295,541  

Commercial real estate:

                                                        

Construction and land development

     —       —       —       —       —       210,500       210,500  

Commercial real estate - owner occupied

     —       —       —       —       —       423,678       423,678  

Commercial real estate - non-owner occupied

     —       —       —       —       —       764,963       764,963  

Residential:

                                                        

Residential

     382       7       —       457       846       323,622       324,468  

Home equity

     16       —       —       314       330       93,329       93,659  

Consumer

     —       83       18       112       213       6,393       6,606  

Total

   $ 559     $ 90     $ 18     $ 1,171     $ 1,838     $ 2,117,577     $ 2,119,415  

 

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 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

   $ 120     $ —     $ —     $ 26     $ 146     $ 299,627     $ 299,773  

Commercial real estate:

                                                        

Construction and land development

     —       —       —       —       —       134,221       134,221  

Commercial real estate - owner occupied

     —       —       —       12       12       391,505       391,517  

Commercial real estate - non-owner occupied

     —       —       —       1,093       1,093       729,941       731,034  

Residential:

                                                        

Residential

     670       20       154       792       1,636       288,121       289,757  

Home equity

     12       30       47       80       169       93,034       93,203  

Consumer

     6       —       15       3       24       7,051       7,075  

Total

   $ 808     $ 50     $ 216     $ 2,006     $ 3,080     $ 1,943,500     $ 1,946,580  

 

Impaired Loans

 

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at September 30, 2022 (dollars in thousands):

 

   

Recorded Investment

     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized  

With no related allowance recorded:

                                        

Commercial

   $ —     $ —     $ —     $ —     $ —  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     2,421       2,420       —       1,212       81  

Commercial real estate - non-owner occupied

     1,068       1,069       —       1,143       31  

Residential:

                                        

Residential

     817       825       —       881       17  

Home equity

     165       165       —       76       —  

Consumer

     —       —       —       —       —  
    $ 4,471     $ 4,479     $ —     $ 3,312     $ 129  

With a related allowance recorded:

                                        

Commercial

   $ 283     $ 279     $ 169     $ 174     $ —  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     —       —       —       —       —  

Commercial real estate - non-owner occupied

     —       —       —       —       —  

Residential

                                        

Residential

     —       —       —       51       —  

Home equity

     —       —       —       —       —  

Consumer

     95       95       48       48       —  
    $ 378     $ 374     $ 217     $ 273     $ —  

Total:

                                        

Commercial

   $ 283     $ 279     $ 169     $ 174     $ —  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     2,421       2,420       —       1,212       81  

Commercial real estate - non-owner occupied

     1,068       1,069       —       1,143       31  

Residential:

                                        

Residential

     817       825       —       932       17  

Home equity

     165       165       —       76       —  

Consumer

     95       95       48       48       —  
    $ 4,849     $ 4,853     $ 217     $ 3,585     $ 129  

 

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, 2021 (dollars in thousands):

 

   

Recorded Investment

     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized  

With no related allowance recorded:

                                        

Commercial

   $ —     $ —     $ —     $ 4     $ —  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     8       5       —       71       1  

Commercial real estate - non-owner occupied

     1,185       1,186       —       1,107       23  

Residential:

                                        

Residential

     1,021       1,031       —       1,217       41  

Home equity

     4       4       —       5       1  

Consumer

     —       —       —       —       —  
    $ 2,218     $ 2,226     $ —     $ 2,404     $ 66  

With a related allowance recorded:

                                        

Commercial

   $ 14     $ 7     $ 7     $ 25     $ 1  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     —       —       —       —       —  

Commercial real estate - non-owner occupied (1)

     —       —       —       30       —  

Residential:

                                        

Residential (1)

     —       —       —       61       2  

Home equity

     —       —       —       —       —  

Consumer

     —       —       —       —       —  
    $ 14     $ 7     $ 7     $ 116     $ 3  

Total:

                                        

Commercial

   $ 14     $ 7     $ 7     $ 29     $ 1  

Commercial real estate:

                                        

Construction and land development

     —       —       —       —       —  

Commercial real estate - owner occupied

     8       5       —       71       1  

Commercial real estate - non-owner occupied

     1,185       1,186       —       1,137       23  

Residential:

                                        

Residential

     1,021       1,031       —       1,278       43  

Home equity

     4       4       —       5       1  

Consumer

     —       —       —       —       —  
    $ 2,232     $ 2,233     $ 7     $ 2,520     $ 69  

  __________________________

  (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 months ended September 30, 2022, there were no new loans modified as TDRs. There was one commercial real estate non-owner occupied loan with a recorded investment of $81 thousand that fully paid off during the quarter. 

 

During the three months ended September 30, 2022, there were no loans modified as TDRs and one loan modified as a TDR during the nine months ended September 30, 2022. A commercial real estate-owner occupied loan was modified in the second quarter of 2022. The commercial real estate-owner occupied loan was an extension of maturity with a pre- and post- modification outstanding investment of $2.4 million. A commercial real estate-non-owner occupied TDR loan was returned to accruing in the second quarter of 2022. During the three and nine months ended September 30, 2022, the Company had no restructures that had 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 loans modified as TDRs during the three or nine months ended September 30, 2021.

 

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 thousand at restructure and one commercial loan with a recorded investment of $106 thousand at restructure that subsequently defaulted with 12 months of modification.

 

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, 2022, the commercial real estate portfolio included concentrations of $87 million, $52 million and $212 million in hotel, restaurants, and retail loans, respectively. These concentrations total 4.1%, 2.5%, and 10.0% of total loans, respectively, excluding loans in process.

 

Residential Real Estate in Process of Foreclosure

 

The Company had $212 thousand in residential loans in process of foreclosure at September 30, 2022 and $103 thousand in process of foreclosure at  December 31, 2021, respectively. The Company had no residential other real estate owned ("OREO") at September 30, 2022 or at  December 31, 2021.

 

Risk Grades

 

The following tables show the Company's loan portfolio broken down by internal risk grading as of September 30, 2022 (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

   $ 289,058     $ 209,667     $ 412,458     $ 762,254     $ 320,467     $ 93,090  

Special Mention

     5,756       —       4,811       397       1,658       —  

Substandard

     444       833       6,409       2,312       2,343       569  

Doubtful

     283       —       —       —       —       —  

Total

   $ 295,541     $ 210,500     $ 423,678     $ 764,963     $ 324,468     $ 93,659  

 

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

 

   

Consumer

  

Performing

   $ 6,476  

Nonperforming

     130  

Total

   $ 6,606  

 

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 31, 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

   $ 290,823     $ 130,111     $ 372,177     $ 720,138     $ 285,188     $ 92,807  

Special Mention

     8,333       2,881       11,048       8,702       1,774       —  

Substandard

     617       1,229       8,292       2,194       2,795       396  

Doubtful

     —       —       —       —       —       —  

Total

   $ 299,773     $ 134,221     $ 391,517     $ 731,034     $ 289,757     $ 93,203  

 

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

 

   

Consumer

  

Performing

   $ 7,057  

Nonperforming

     18  

Total

   $ 7,075  

 

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, and 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.