Note 4 - Loans

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

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

Note 4 – Loans

Loans, excluding loans held for sale, at December 31, 2022 and 2021 were comprised of the following (dollars in thousands):

	December 31,
	2022		2021
Commercial	$	304,247	$	299,773
Commercial real estate:
Construction and land development		197,525		134,221
Commercial real estate - owner occupied		418,462		391,517
Commercial real estate - non-owner occupied		827,728		731,034
Residential real estate:
Residential		338,132		289,757
Home equity		93,740		93,203
Consumer		6,615		7,075
Total loans, net of deferred fees and costs	$	2,186,449	$	1,946,580

Commercial includes approximately $74 thousand and $12.2 million in net PPP loans at December 31, 2022 and 2021, respectively. The PPP loan balances at December 31, 2022 and 2021 included $5 thousand and $282 thousand, respectively, in unamortized net PPP fees. Net deferred loan costs included in the above loan categories are $202 thousand for 2022 and $616 thousand for 2021 in all other categories (excludes PPP fees and costs).

Overdraft deposits were reclassified to consumer loans in the amount of $70 thousand and $90 thousand for 2022 and 2021, respectively.

Acquired Loans

The outstanding principal balance and the carrying amount of these loans, including ASC 310-30 loans, included in the consolidated balance sheets at December 31, 2022 and 2021 are as follows (dollars in thousands):

	2022		2021
Outstanding principal balance	$	125,856	$	163,574
Carrying amount		120,432		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, at December 31, 2022 and 2021 are as follows (dollars in thousands):

	2022		2021
Outstanding principal balance	$	17,788	$	24,696
Carrying amount		13,541		19,802

The following table presents changes in the accretable yield on purchased credit impaired loans, for which the Company applies ASC 310-30, for the years ended December 31, 2022, 2021, and 2020 (dollars in thousands):

	2022			2021			2020
Balance at January 1	$	4,902		$	6,513		$	7,893
Accretion		(2,186	)		(5,292	)		(3,553	)
Reclassification from nonaccretable difference		986			2,780			2,233
Other changes, net (1)		(172	)		901			(60	)
Balance at December 31	$	3,530		$	4,902		$	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 December 31, 2022 (dollars in thousands):

					90 Days +
					Past Due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	161	$	—	$	—	$	4	$	165	$	304,082	$	304,247
Commercial real estate:
Construction and land development		—		—		—		—		—		197,525		197,525
Commercial real estate - owner occupied		724		268		—		—		992		417,470		418,462
Commercial real estate - non-owner occupied		319		—		—		301		620		827,108		827,728
Residential:
Residential		664		90		—		797		1,551		336,581		338,132
Home equity		104		—		—		205		309		93,431		93,740
Consumer		—		—		16		—		16		6,599		6,615
Total	$	1,972	$	358	$	16	$	1,307	$	3,653	$	2,182,796	$	2,186,449

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2021 (dollars in thousands):

					90 Days +
					Past Due		Non-		Total
	30- 59 Days		60-89 Days		and Still		Accrual		Past				Total
	Past Due		Past Due		Accruing		Loans		Due		Current		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 December 31, 2022 (dollars in thousands):

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		2,420		2,420		—		1,454		108
Commercial real estate - non-owner occupied		1,360		1,359		—		1,186		40
Residential:
Residential		1,149		1,156		—		935		21
Home equity		165		165		—		93		—
Consumer		—		—		—		—		—
	$	5,094	$	5,100	$	—	$	3,668	$	169
With a related allowance recorded:
Commercial	$	—	$	—	$	—	$	139	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		—		—
Residential
Residential		—		—		—		41		—
Home equity		—		—		—		—		—
Consumer		—		—		—		38		—
	$	—	$	—	$	—	$	218	$	—
Total:
Commercial	$	—	$	—	$	—	$	139	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		2,420		2,420		—		1,454		108
Commercial real estate - non-owner occupied		1,360		1,359		—		1,186		40
Residential:
Residential		1,149		1,156		—		976		21
Home equity		165		165		—		93		—
Consumer		—		—		—		38		—
	$	5,094	$	5,100	$	—	$	3,886	$	169

In the table above, recorded investment may be different than unpaid principal balance due to acquired loans with a premium or discount and loans with unearned costs or 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):

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		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		—		—		—		30		—
Residential:
Residential		—		—		—		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

In the table above, recorded investment may be different than unpaid principal balance due to acquired loans with a premium or discount and loans with unearned costs or unearned fees.

The following table shows the detail of loans modified as TDRs during the years ended December 31, 2022, 2021, and 2020, included in the impaired loan balances (dollars in thousands):

	Loans Modified as TDRs for the Year Ended December 31, 2022
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investment		Investment
Commercial		—	$	—	$	—
Commercial real estate - owner occupied		1		2,420		2,420
Commercial real estate - non-owner occupied		—		—		—
Residential real estate		1		109		109
Home equity		—		—		—
Consumer		—		—		—
Total		2	$	2,529	$	2,529

	Loans Modified as TDRs for the Year Ended December 31, 2021
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investment		Investment
Commercial		—	$	—	$	—
Commercial real estate - owner occupied		—		—		—
Commercial real estate - non-owner occupied		1		1,093		1,093
Residential real estate		—		—		—
Home equity		—		—		—
Consumer		—		—		—
Total		1	$	1,093	$	1,093

	Loans Modified as TDRs for the Year Ended December 31, 2020
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Outstanding Recorded
	Contracts		Investment		Investment
Commercial		1	$	106	$	106
Commercial real estate - owner occupied		—		—		—
Commercial real estate - non-owner occupied		2		1,311		1,311
Residential real estate		1		82		82
Home equity		1		6		6
Consumer		—		—		—
Total		5	$	1,505	$	1,505

All loans modified as TDRs during the years ended December 31, 2022, 2021, and 2020 were structure modifications. There was no impact to allowance for loan losses for the one real estate - owner-occupied TDR or the one residential real estate TDR in 2022. There was no impact to the allowance for loan losses for the one commercial real estate - non-owner occupied TDR in 2021. The impact on the allowance for loan losses for the commercial loan modified as a TDR in 2020 was $88 thousand. The impact on the allowance for loan losses for one of the commercial real estate - non-owner occupied loans modified as a TDR in 2020 was $138 thousand; there was no impact on the allowance for loan losses for the other commercial real estate - non-owner occupied loan. There was no impact on the allowance for loan losses for the residential real estate loan and the home equity loan modified as TDRs in 2020. For the year ended December 31, 2020, the impact on the allowance was due to specific reserves that were charged-off prior to year-end. 

During the year ended December 31, 2022, the Company had one residential real estate loan with a recorded investment of $109 thousand that subsequently defaulted within 12 months of modification. During the year ended December 31, 2021, the Company had no loans that subsequently defaulted within 12 months of modification. During the year ended December 31, 2020, the Company had one commercial real estate - non-owner occupied loan with a recorded investment of $1.1 million that subsequently defaulted within 12 months of modification. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure subsequent to modification. Any charge-offs resulting in default were adjusted through the allowance for loan losses.

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. 

The Company had $715 thousand and $102 thousand in residential real estate loans in the process of foreclosure at December 31, 2022 and December 31, 2021, respectively, and had no residential OREO at  December 31, 2022 and December 31, 2021, respectively.

Risk Ratings

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 31, 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 Real Estate		Home Equity
Pass	$	288,041	$	197,331	$	405,223	$	826,844	$	333,124	$	93,062
Special Mention		10,657		—		2,388		239		1,577		—
Substandard		5,548		194		10,851		645		3,431		678
Doubtful		1		—		—		—		—		—
Total	$	304,247	$	197,525	$	418,462	$	827,728	$	338,132	$	93,740

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	6,599
Nonperforming		16
Total	$	6,615

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 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.

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 Real Estate		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