XML 26 R16.htm IDEA: XBRL DOCUMENT v3.23.1
Note 8 - Loans & Allowance for Loan Losses
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
Loans & Allowance for Loan Losses

8. LOANS & ALLOWANCE FOR LOAN LOSSES

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the principal amount outstanding, net of deferred loan fees and costs. Interest income is accrued on the principal amount outstanding. Loan origination and commitment fees and related direct costs are deferred and amortized to income over the term of the respective loan and loan commitment period as a yield adjustment.

Loans held-for-sale consists of residential mortgage loans that are carried at the lower of aggregate cost or fair value. Net unrealized losses, if any, are recognized through a valuation allowance charged to income. Gains and losses on residential mortgages held-for-sale are included in non-interest income.

The Company maintains an allowance for credit losses on loans, which is intended to absorb probable known and inherent losses in the outstanding loan portfolio. The allowance is reduced by actual credit losses and is increased or decreased by the provision (reversal) for loan losses and increased by recoveries of previous losses. The provisions or reversals for credit losses are charged to earnings to bring the total allowance for loan losses to a level considered necessary by management.

The allowance for credit losses is measured on a pool basis when similar risk characteristics exist; these pools are identified in the first table below. The Company establishes a general valuation allowance for performing loans, including non-accrual student loans. QNB calculates each segment's historical loss rate using a full economic cycle of loan balance and historical loss experienced. The level of the allowance is determined by assigning specific reserves to all non-accrual loans, except the homogeneous pool of student loans which are measured in the general reserve. An allowance on these non-accrual loans is established when the discounted cash flows (or collateral value) of the loan is lower than the carrying value of that loan. The portion of the allowance that is allocated to non-accrual loans is determined by estimating the inherent loss on each credit after giving consideration to the value of underlying collateral. The general component is adjusted for qualitative factors. These qualitative risk factors include:

1.
Concentrations: The Company adjusts historic loss for concentrations in the current portfolio that were not present during the down-turn of economic cycle.
2.
Economic Forecast: The Company utilizes an entire economic cycle of data to determine loss rates by segment. This approach reflects an inherent reversion to the historical losses during life of the loans within the pool considering prepayments and loss experience throughout an entire economic cycle. However, the Company feels it is prudent to maintain a floor in its model to assure that there is enough reserve on hand to sustain any losses upon an upcoming recession.

Management emphasizes loan quality and close monitoring of potential problem credits. Credit risk identification and review processes are utilized in order to assess and monitor the degree of risk in the loan portfolio. The Company’s lending and credit administration staff are charged with reviewing the loan portfolio and identifying changes in the economy or in a borrower’s circumstances which may affect the ability to repay debt or the value of pledged collateral. A loan classification and review system exists that identifies those loans with a higher than normal risk of collectability. Each commercial loan is assigned a grade based upon an assessment of the borrower’s financial capacity to service the debt and the presence and value of collateral for the loan. An independent firm reviews risk assessment and evaluates the adequacy of the allowance for loan losses. Management meets monthly to review the credit quality of the loan portfolio and quarterly to review the allowance for loan losses.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments using information available to them at the time of their examination.

Management believes that it uses the best information available to make determinations about the adequacy of the allowance and that it has established its existing allowance for credit losses on loans in accordance with U.S. GAAP. If circumstances differ substantially from the current calculation, future adjustments to the allowance for credit losses on loans may be necessary and results of operations could be affected. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that increases to the allowance will not be necessary should the quality of any loans deteriorate.

Major classes of loans are as follows:

 

 

March 31,

 

 

 

2023

 

Commercial:

 

 

 

Commercial and industrial

 

$

144,909

 

Construction and land development

 

 

59,639

 

Real estate secured by multi-family properties

 

 

98,886

 

Real estate secured by owner-occupied properties

 

 

156,812

 

Real estate secured by other commercial properties

 

 

257,944

 

Revolving real estate secured by 1-4 family properties-business

 

 

6,552

 

Real estate secured by 1st lien on 1-4 family properties-business

 

 

96,703

 

Real estate secured by junior lien on 1-4 family properties-business

 

 

3,457

 

State and political subdivisions

 

 

20,078

 

Retail:

 

 

 

1-4 family residential mortgages

 

 

106,758

 

Construction-individual

 

 

152

 

Revolving home equity secured by 1-4 family properties-personal

 

 

34,454

 

Real estate secured by 1st lien on 1-4 family properties-personal

 

 

10,697

 

Real estate secured by junior lien on 1-4 family properties-personal

 

 

11,355

 

Student loans

 

 

1,917

 

Overdrafts

 

 

103

 

Other consumer

 

 

1,736

 

Total loans

 

 

1,012,152

 

Net unearned (fees) costs

 

 

(196

)

Allowance for credit losses on loans

 

 

(8,191

)

Loans receivable, net

 

$

1,003,765

 

 

 

 

December 31,

 

 

 

2022

 

Commercial:

 

 

 

Commercial and industrial

 

$

160,875

 

Construction

 

 

62,955

 

Secured by commercial real estate

 

 

518,070

 

Secured by residential real estate

 

 

103,419

 

State and political subdivisions

 

 

20,971

 

Retail:

 

 

 

1-4 family residential mortgages

 

 

105,654

 

Home equity loans and lines

 

 

63,580

 

Consumer

 

 

4,113

 

Total loans

 

 

1,039,637

 

Net unearned (fees) costs

 

 

(252

)

Allowance for loan losses

 

 

(10,531

)

Loans receivable, net

 

$

1,028,854

 

 

Overdrafts are reclassified as loans and at December 31, 2022 are included in consumer loans above and total loans receivable on the Consolidated Balance Sheets. At December 31, 2022, overdrafts were approximately $132,000. Loans secured by commercial real estate include all loans collateralized at least in part by commercial real estate. These loans may not be for the express purpose of conducting commercial real estate transactions.

QNB generally lends in Bucks, Lehigh, and Montgomery counties in southeastern Pennsylvania. To a large extent, QNB makes loans collateralized at least in part by real estate. Its lending activities could be affected by changes in the general economy, the regional economy, or real estate values.

The Company engages in a variety of lending activities, including commercial, residential real estate and consumer transactions. The Company focuses its lending activities on individuals, professionals and small to medium sized businesses. Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral.

Commercial and industrial loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. These loans may involve greater risk because the availability of funds to repay these loans depends on the successful operation of the borrower’s business. The assets financed are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets, such as accounts receivable and inventory, to cash. Typical collateral for commercial and industrial loans includes the borrower’s accounts receivable, inventory and machinery and equipment. Commercial real estate and residential real estate loans secured for a business purpose are originated primarily within the eastern Pennsylvania market area at conservative loan-to-value ratios and often backed by the individual guarantees of the borrowers or owners. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale or lease of the subject property. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers.

Loans to state and political subdivisions are tax-exempt or taxable loans to municipalities, school districts and housing and industrial development authorities. These loans can be general obligations of the municipality or school district repaid through their taxing authority, revenue obligations repaid through the income generated by the operations of the authority, such as a water or sewer authority, or loans issued to a housing and industrial development agency, for which a private corporation is responsible for payments on the loans.

The Company originates fixed-rate and adjustable-rate real estate-residential mortgage loans for personal purposes that are secured by first liens on the underlying 1-4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

The real estate-home equity portfolio consists of fixed-rate home equity loans and variable-rate home equity lines of credit. Risks associated with loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market. Since most loans are secured by a primary or secondary residence, the borrower’s continued employment is the greatest risk to repayment.

The Company offers a variety of loans to individuals for personal and household purposes. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and is more likely to decrease in value than real estate. Credit risk in this portfolio is controlled by conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values.

The Company employs a ten-grade risk rating system related to the credit quality of commercial loans and loans to state and political subdivisions of which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk rating.

1.
Excellent - no apparent risk
2.
Good - minimal risk
3.
Acceptable - lower risk
4.
Acceptable - average risk
5.
Acceptable – higher risk
6.
Pass watch
7.
Special Mention - potential weaknesses
8.
Substandard - well defined weaknesses
9.
Doubtful - full collection unlikely
10.
Loss - considered uncollectible

The Company maintains a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential problem loans. Each loan officer assigns a rating to all loans in the portfolio at the time the loan is originated. Loans with risk

ratings of one through five are reviewed annually based on the borrower’s fiscal year. Loans with risk ratings of six are reviewed every six to twelve months based on the dollar amount of the relationship with the borrower. Loans with risk ratings of seven through ten are reviewed at least quarterly, and as often as monthly, at management’s discretion. The Company also utilizes an outside loan review firm to review the portfolio on a semi-annual basis to provide the Board of Directors and senior management an independent review of the Company’s loan portfolio on an ongoing basis. These reviews are designed to recognize deteriorating credits in their earliest stages in an effort to reduce and control risk in the lending function as well as identifying potential shifts in the quality of the loan portfolio. The examinations by the outside loan review firm include the review of lending activities with respect to underwriting and processing new loans, monitoring the risk of existing loans and to provide timely follow-up and corrective action for loans showing signs of deterioration in quality. In addition, the outside firm reviews the methodology for the allowance for loan losses to determine compliance to policy and regulatory guidance.

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of March 31, 2023 and December 31, 2022:

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

March 31, 2023

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Commercial Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

3,608

 

 

$

16,665

 

 

$

10,412

 

 

$

8,233

 

 

$

7,095

 

 

$

8,984

 

 

$

87,955

 

 

$

142,952

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

28

 

 

 

28

 

Substandard

 

 

—

 

 

 

179

 

 

 

—

 

 

 

4

 

 

 

24

 

 

 

242

 

 

 

1,480

 

 

 

1,929

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total commercial and industrial

 

$

3,608

 

 

$

16,844

 

 

$

10,412

 

 

$

8,237

 

 

$

7,119

 

 

$

9,226

 

 

$

89,463

 

 

$

144,909

 

Construction and land development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

6,821

 

 

$

27,572

 

 

$

13,172

 

 

$

3,441

 

 

$

4,160

 

 

$

4,424

 

 

$

—

 

 

$

59,590

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

49

 

 

 

—

 

 

 

49

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total construction and land development

 

$

6,821

 

 

$

27,572

 

 

$

13,172

 

 

$

3,441

 

 

$

4,160

 

 

$

4,473

 

 

$

—

 

 

$

59,639

 

Real estate secured by multi-family properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

100

 

 

$

27,489

 

 

$

23,048

 

 

$

10,258

 

 

$

6,005

 

 

$

29,533

 

 

$

—

 

 

$

96,433

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

718

 

 

 

1,735

 

 

 

—

 

 

 

2,453

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by multi-family properties

 

$

100

 

 

$

27,489

 

 

$

23,048

 

 

$

10,258

 

 

$

6,723

 

 

$

31,268

 

 

$

—

 

 

$

98,886

 

Real estate secured by owner-occupied properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

1,338

 

 

$

27,684

 

 

$

29,038

 

 

$

19,841

 

 

$

12,403

 

 

$

59,744

 

 

$

—

 

 

$

150,048

 

Special mention

 

 

—

 

 

 

—

 

 

 

127

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

127

 

Substandard

 

 

—

 

 

 

—

 

 

 

6

 

 

 

—

 

 

 

—

 

 

 

6,631

 

 

 

—

 

 

 

6,637

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by owner-occupied properties

 

$

1,338

 

 

$

27,684

 

 

$

29,171

 

 

$

19,841

 

 

$

12,403

 

 

$

66,375

 

 

$

—

 

 

$

156,812

 

Real estate secured by other commercial properties:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

7,015

 

 

$

45,257

 

 

$

46,480

 

 

$

20,637

 

 

$

32,055

 

 

$

102,370

 

 

$

—

 

 

$

253,814

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,130

 

 

 

—

 

 

 

4,130

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by other commercial properties

 

$

7,015

 

 

$

45,257

 

 

$

46,480

 

 

$

20,637

 

 

$

32,055

 

 

$

106,500

 

 

$

—

 

 

$

257,944

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

March 31, 2023

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Revolving real estate secured by 1-4 family properties-business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

6,552

 

 

$

6,552

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total revolving real estate secured by 1-4 family properties-business

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

6,552

 

 

$

6,552

 

Real estate secured by 1st lien on 1-4 family properties-business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

2,170

 

 

 

28,943

 

 

 

21,342

 

 

 

11,431

 

 

 

9,148

 

 

 

22,722

 

 

 

—

 

 

 

95,756

 

Special mention

 

 

—

 

 

 

193

 

 

 

139

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

332

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

455

 

 

 

160

 

 

 

—

 

 

 

615

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by 1st lien on 1-4 family properties-business

 

$

2,170

 

 

$

29,136

 

 

$

21,481

 

 

$

11,431

 

 

$

9,603

 

 

$

22,882

 

 

$

—

 

 

$

96,703

 

Real estate secured by junior lien on 1-4 family properties-business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

306

 

 

$

632

 

 

$

567

 

 

$

633

 

 

$

45

 

 

$

1,006

 

 

$

—

 

 

$

3,189

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

268

 

 

 

—

 

 

 

268

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by junior lien on 1-4 family properties-business

 

$

306

 

 

$

632

 

 

$

567

 

 

$

633

 

 

$

45

 

 

$

1,274

 

 

$

—

 

 

$

3,457

 

State and political subdivisions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

—

 

 

$

40

 

 

$

5,017

 

 

$

25

 

 

$

5,931

 

 

$

9,065

 

 

$

—

 

 

$

20,078

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by junior lien on 1-4 family properties-business

 

$

—

 

 

$

40

 

 

$

5,017

 

 

$

25

 

 

$

5,931

 

 

$

9,065

 

 

$

—

 

 

$

20,078

 

Total Commercial Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

 

21,358

 

 

 

174,282

 

 

 

149,076

 

 

 

74,499

 

 

 

76,842

 

 

 

237,848

 

 

 

94,507

 

 

 

828,412

 

Special mention

 

 

—

 

 

 

193

 

 

 

266

 

 

 

—

 

 

 

718

 

 

 

1,784

 

 

 

28

 

 

 

2,989

 

Substandard

 

 

—

 

 

 

179

 

 

 

6

 

 

 

4

 

 

 

479

 

 

 

11,431

 

 

 

1,480

 

 

 

13,579

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial loans

 

$

21,358

 

 

$

174,654

 

 

$

149,348

 

 

$

74,503

 

 

$

78,039

 

 

$

251,063

 

 

$

96,015

 

 

$

844,980

 

 

December 31, 2022

 

Pass

 

 

Special
mention

 

 

Substandard

 

 

Doubtful

 

 

Total

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

157,914

 

 

$

23

 

 

$

2,938

 

 

$

—

 

 

$

160,875

 

Construction

 

 

62,955

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

62,955

 

Secured by commercial real estate

 

 

505,657

 

 

 

2,597

 

 

 

9,816

 

 

 

—

 

 

 

518,070

 

Secured by residential real estate

 

 

102,295

 

 

 

194

 

 

 

930

 

 

 

—

 

 

 

103,419

 

State and political subdivisions

 

 

20,971

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,971

 

Total

 

$

849,792

 

 

$

2,814

 

 

$

13,684

 

 

$

—

 

 

$

866,290

 

 

For retail loans, the Company evaluates credit quality based on the performance of the individual credits. The following tables present the recorded investment in the retail classes of the loan portfolio based on payment activity as of March 31, 2023 and December 2022:

 

 

 

Term Loans by Origination Year

 

 

 

 

 

 

 

March 31, 2023

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving

 

 

Total

 

Retail Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

3,029

 

 

$

15,329

 

 

$

33,433

 

 

$

21,625

 

 

$

4,797

 

 

$

28,097

 

 

$

—

 

 

$

106,310

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

448

 

 

 

—

 

 

 

448

 

Total 1-4 family residential mortgages

 

$

3,029

 

 

$

15,329

 

 

$

33,433

 

 

$

21,625

 

 

$

4,797

 

 

$

28,545

 

 

$

—

 

 

$

106,758

 

Construction-individual:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

152

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

152

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total construction-individual

 

$

—

 

 

$

—

 

 

$

152

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

152

 

Revolving home equity secured by 1-4 family properties-personal:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

34,271

 

 

$

34,271

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

183

 

 

 

183

 

Total revolving home equity secured by 1-4 family properties-personal

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

34,454

 

 

$

34,454

 

Real estate secured by 1st lien on 1-4 family properties-personal:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

639

 

 

$

1,771

 

 

$

3,486

 

 

$

1,117

 

 

$

1,109

 

 

$

2,438

 

 

$

—

 

 

$

10,560

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

137

 

 

 

—

 

 

 

137

 

Total real estate secured by 1st lien Real estate secured by 1st lien on 1-4 family properties-personal

 

$

639

 

 

$

1,771

 

 

$

3,486

 

 

$

1,117

 

 

$

1,109

 

 

$

2,575

 

 

$

—

 

 

$

10,697

 

Real estate secured by junior lien on 1-4 family properties-personal:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

946

 

 

$

1,887

 

 

$

2,613

 

 

$

1,510

 

 

$

766

 

 

$

3,633

 

 

$

—

 

 

$

11,355

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total real estate secured by junior lien on 1-4 family properties-personal

 

$

946

 

 

$

1,887

 

 

$

2,613

 

 

$

1,510

 

 

$

766

 

 

$

3,633

 

 

$

—

 

 

$

11,355

 

Student loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,900

 

 

$

—

 

 

$

1,900

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17

 

 

 

—

 

 

 

17

 

Total student loans

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,917

 

 

$

—

 

 

$

1,917

 

Overdrafts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

103

 

 

$

103

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total overdrafts

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

103

 

 

$

103

 

Other consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

163

 

 

$

474

 

 

$

446

 

 

$

175

 

 

$

155

 

 

$

78

 

 

$

202

 

 

$

1,693

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

43

 

 

 

—

 

 

 

43

 

Total other consumer

 

$

163

 

 

$

474

 

 

$

446

 

 

$

175

 

 

$

155

 

 

$

121

 

 

$

202

 

 

$

1,736

 

Total Retail Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

4,777

 

 

$

19,461

 

 

$

40,130

 

 

$

24,427

 

 

$

6,827

 

 

$

36,146

 

 

$

34,576

 

 

$

166,344

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

645

 

 

 

183

 

 

 

828

 

Total Retail Loans

 

$

4,777

 

 

$

19,461

 

 

$

40,130

 

 

$

24,427

 

 

$

6,827

 

 

$

36,791

 

 

$

34,759

 

 

$

167,172

 

 

 

 

December 31, 2022

 

Performing

 

 

Non-performing

 

 

Total

 

Retail:

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

$

104,933

 

 

$

721

 

 

$

105,654

 

Home equity loans and lines

 

 

62,900

 

 

 

680

 

 

 

63,580

 

Consumer

 

 

4,023

 

 

 

90

 

 

 

4,113

 

Total

 

$

171,856

 

 

$

1,491

 

 

$

173,347

 

 

 

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2023 and December 31, 2022:

 

March 31, 2023

 

30-59 days
past due

 

 

60-89 days
past due

 

 

90 days or
more past
due

 

 

Total past
due loans

 

 

Current

 

 

Total loans
receivable

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

40

 

 

$

—

 

 

$

—

 

 

$

40

 

 

$

144,869

 

 

$

144,909

 

Construction and land development

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

59,639

 

 

 

59,639

 

Real estate secured by multi-family properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

98,886

 

 

 

98,886

 

Real estate secured by owner-occupied properties

 

 

2,978

 

 

 

—

 

 

 

—

 

 

 

2,978

 

 

 

153,834

 

 

 

156,812

 

Real estate secured by other commercial properties

 

 

1,588

 

 

 

—

 

 

 

—

 

 

 

1,588

 

 

 

256,356

 

 

 

257,944

 

Revolving real estate secured by 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6,552

 

 

 

6,552

 

Real estate secured by 1st lien on 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

9

 

 

 

9

 

 

 

96,694

 

 

 

96,703

 

Real estate secured by junior lien on 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,457

 

 

 

3,457

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,078

 

 

 

20,078

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1,130

 

 

 

—

 

 

 

116

 

 

 

1,246

 

 

 

105,512

 

 

 

106,758

 

Construction-individual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

152

 

 

 

152

 

Revolving home equity secured by 1-4 family properties-personal

 

 

—

 

 

 

53

 

 

 

—

 

 

 

53

 

 

 

34,401

 

 

 

34,454

 

Real estate secured by 1st lien on 1-4 family properties-personal

 

 

—

 

 

 

—

 

 

 

101

 

 

 

101

 

 

 

10,596

 

 

 

10,697

 

Real estate secured by junior lien on 1-4 family properties-personal

 

 

19

 

 

 

—

 

 

 

—

 

 

 

19

 

 

 

11,336

 

 

 

11,355

 

Student loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,917

 

 

 

1,917

 

Overdrafts

 

 

16

 

 

 

6

 

 

 

—

 

 

 

22

 

 

 

81

 

 

 

103

 

Other consumer

 

 

9

 

 

 

—

 

 

 

—

 

 

 

9

 

 

 

1,727

 

 

 

1,736

 

Total

 

$

5,780

 

 

$

59

 

 

$

226

 

 

$

6,065

 

 

$

1,006,087

 

 

$

1,012,152

 

 

December 31, 2022

 

30-59 days
past due

 

 

60-89 days
past due

 

 

90 days or
more past
due

 

 

Total past
due loans

 

 

Current

 

 

Total loans
receivable

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

2,288

 

 

$

1

 

 

$

596

 

 

$

2,885

 

 

$

157,990

 

 

$

160,875

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

62,955

 

 

 

62,955

 

Secured by commercial real estate

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

518,070

 

 

 

518,070

 

Secured by residential real estate

 

 

—

 

 

 

—

 

 

 

30

 

 

 

30

 

 

 

103,389

 

 

 

103,419

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,971

 

 

 

20,971

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1,139

 

 

 

—

 

 

 

127

 

 

 

1,266

 

 

 

104,388

 

 

 

105,654

 

Home equity loans and lines

 

 

21

 

 

 

—

 

 

 

10

 

 

 

31

 

 

 

63,549

 

 

 

63,580

 

Consumer

 

 

20

 

 

 

11

 

 

 

—

 

 

 

31

 

 

 

4,082

 

 

 

4,113

 

Total

 

$

3,468

 

 

$

12

 

 

$

763

 

 

$

4,243

 

 

$

1,035,394

 

 

$

1,039,637

 

 

As previously discussed, the Company maintains a loan review system, which includes a continuous review of the loan portfolio by internal and external parties to aid in the early identification of potential impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. When placing a loan on non-accrual status, management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. All non-accrual loans, except student loans, are individually evaluated for an ACL. This ACL is measured using either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for credit loss is established for a non-accrual loan if its carrying value exceeds its estimated fair value. The estimated fair values of the majority of the Company’s non-accrual loans are measured based on the estimated fair value of the loan’s collateral.

For commercial loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’s financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.The following table disclose the recorded investment in loans receivable that are either on non-accrual status or past due 90 days or more and still accruing interest as of March 31, 2023:

 

March 31, 2023

 

90 Days or More Past Due-Still Accruing

 

 

Nonaccrual With No Specifically-Related ACL

 

 

Nonaccrual With Related ACL

 

 

Total Nonaccrual Loans

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

—

 

 

$

—

 

 

$

391

 

 

$

391

 

Construction and land development

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by multi-family properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by owner-occupied properties

 

 

—

 

 

 

825

 

 

 

—

 

 

 

825

 

Real estate secured by other commercial properties

 

 

—

 

 

 

2,263

 

 

 

—

 

 

 

2,263

 

Revolving real estate secured by 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by 1st lien on 1-4 family properties-business

 

 

—

 

 

 

9

 

 

 

—

 

 

 

9

 

Real estate secured by junior lien on 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

245

 

 

 

245

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

—

 

 

 

448

 

 

 

—

 

 

 

448

 

Construction-individual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Revolving home equity secured by 1-4 family properties-personal

 

 

—

 

 

 

25

 

 

 

158

 

 

 

183

 

Real estate secured by 1st lien on 1-4 family properties-personal

 

 

—

 

 

 

137

 

 

 

—

 

 

 

137

 

Real estate secured by junior lien on 1-4 family properties-personal

 

 

—

 

 

 

—

 

 

 

 

 

 

—

 

Student loans

 

 

—

 

 

 

17

 

 

 

—

 

 

 

17

 

Other consumer

 

 

—

 

 

 

43

 

 

 

—

 

 

 

43

 

Total

 

$

—

 

 

$

3,767

 

 

$

794

 

 

$

4,561

 

 

 

QNB recognized interest income of $14,000 on non-accrual loans during the three months ended March 31, 2023.

 

The following table presents the collateral-dependent loans by loan category at March 31, 2023:

March 31, 2023

 

Real Estate Secured

 

 

Other (1)

 

 

Deficiency in Collateral

 

 

Total Collateral Dependent Nonaccrual Loans

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

—

 

 

$

294

 

 

$

97

 

 

$

391

 

Construction and land development

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by multi-family properties

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by owner-occupied properties

 

 

825

 

 

 

—

 

 

 

—

 

 

 

825

 

Real estate secured by other commercial properties

 

 

2,263

 

 

 

—

 

 

 

—

 

 

 

2,263

 

Revolving real estate secured by 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Real estate secured by 1st lien on 1-4 family properties-business

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Real estate secured by junior lien on 1-4 family properties-business

 

 

—

 

 

 

—

 

 

 

245

 

 

 

245

 

State and political subdivisions

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

448

 

 

 

—

 

 

 

—

 

 

 

448

 

Construction-individual

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Revolving home equity secured by 1-4 family properties-personal

 

 

68

 

 

 

—

 

 

 

115

 

 

 

183

 

Real estate secured by 1st lien on 1-4 family properties-personal

 

 

137

 

 

 

—

 

 

 

—

 

 

 

137

 

Real estate secured by junior lien on 1-4 family properties-personal

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other consumer

 

 

—

 

 

 

43

 

 

 

—

 

 

 

43

 

Total

 

$

3,750

 

 

$

337

 

 

$

457

 

 

$

4,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Secured by business assets, personal property and equipment or guarantees

 

 

 

The following tables disclose the recorded investment in loans receivable that are either on non-accrual status or past due 90 days or more and still accruing interest as of December 31, 2022:

December 31, 2022

 

90 days or
more past due
(still accruing)

 

 

Non-accrual

 

Commercial:

 

 

 

 

 

 

Commercial and industrial

 

$

—

 

 

$

3,369

 

Construction

 

 

—

 

 

 

—

 

Secured by commercial real estate

 

 

—

 

 

 

2,279

 

Secured by residential real estate

 

 

—

 

 

 

391

 

State and political subdivisions

 

 

—

 

 

 

—

 

Retail:

 

 

 

 

 

 

1-4 family residential mortgages

 

 

—

 

 

 

721

 

Home equity loans and lines

 

 

—

 

 

 

680

 

Consumer

 

 

—

 

 

 

90

 

Total

 

$

—

 

 

$

7,530

 

 

The following table present the balance in the allowance for loan losses at December 31, 2022 disaggregated on the basis of the Company’s impairment method by class of loans receivable along with the balance of loans receivable by class, excluding unearned fees and costs, disaggregated on the basis of the Company’s impairment methodology:

 

 

 

Allowance for Loan Losses

 

 

Loans Receivable

 

December 31, 2022

 

Balance

 

 

Balance
related
to loans
individually
evaluated for
impairment

 

 

Balance
related
to loans
collectively
evaluated for
impairment

 

 

Balance

 

 

Balance
individually
evaluated for
impairment

 

 

Balance
collectively
evaluated for
impairment

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,316

 

 

$

125

 

 

$

1,191

 

 

$

160,875

 

 

$

1,821

 

 

$

159,054

 

Construction

 

 

755

 

 

 

—

 

 

 

755

 

 

 

62,955

 

 

 

—

 

 

 

62,955

 

Secured by commercial real estate

 

 

5,002

 

 

 

131

 

 

 

4,871

 

 

 

518,070

 

 

 

5,309

 

 

 

512,761

 

Secured by residential real estate

 

 

1,240

 

 

 

321

 

 

 

919

 

 

 

103,419

 

 

 

1,362

 

 

 

102,057

 

State and political subdivisions

 

 

94

 

 

 

—

 

 

 

94

 

 

 

20,971

 

 

 

—

 

 

 

20,971

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

683

 

 

 

—

 

 

 

683

 

 

 

105,654

 

 

 

628

 

 

 

105,026

 

Home equity loans and lines

 

 

437

 

 

 

119

 

 

 

318

 

 

 

63,580

 

 

 

402

 

 

 

63,178

 

Consumer

 

 

502

 

 

 

—

 

 

 

502

 

 

 

4,113

 

 

 

45

 

 

 

4,068

 

Unallocated

 

 

502

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

$

10,531

 

 

$

696

 

 

$

9,333

 

 

$

1,039,637

 

 

$

9,567

 

 

$

1,030,070

 

 

 

The following table summarizes additional information, in regards to impaired loans by loan portfolio class, as of December 31, 2022:

 

 

 

December 31, 2022

 

 

 

Recorded
investment
(after
charge-offs)

 

 

Unpaid
principal
balance

 

 

Related
allowance

 

With no specific allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,402

 

 

$

1,694

 

 

 

 

Construction

 

 

—

 

 

 

—

 

 

 

 

Secured by commercial real estate

 

 

2,198

 

 

 

2,608

 

 

 

 

Secured by residential real estate

 

 

430

 

 

 

482

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

628

 

 

 

678

 

 

 

 

Home equity loans and lines

 

 

240

 

 

 

296

 

 

 

 

Consumer

 

 

45

 

 

 

62

 

 

 

 

Total

 

$

4,943

 

 

$

5,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

419

 

 

$

601

 

 

$

125

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

Secured by commercial real estate

 

 

3,111

 

 

 

3,312

 

 

 

131

 

Secured by residential real estate

 

 

932

 

 

 

1,065

 

 

 

321

 

Retail:

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

—

 

 

 

—

 

 

 

—

 

Home equity loans and lines

 

 

162

 

 

 

191

 

 

 

119

 

Consumer

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

4,624

 

 

$

5,169

 

 

$

696

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,821

 

 

$

2,295

 

 

$

125

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

Secured by commercial real estate

 

 

5,309

 

 

 

5,920

 

 

 

131

 

Secured by residential real estate

 

 

1,362

 

 

 

1,547

 

 

 

321

 

Retail:

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

628

 

 

 

678

 

 

 

—

 

Home equity loans and lines

 

 

402

 

 

 

487

 

 

 

119

 

Consumer

 

 

45

 

 

 

62

 

 

 

—

 

Total

 

$

9,567

 

 

$

10,989

 

 

$

696

 

 

 

Activity in the allowance for credit losses on loans for the three months ended March 31, 2023 and 2022 are as follows:

 

For the Three Months Ended March 31, 2023

 

Beginning balance prior to adoption of ASC 326

 

 

Impact of adopting ASC 326

 

 

Credit loss expense (reversal)

 

 

Charge-offs

 

 

Recoveries

 

 

Balance, end
of period

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

1,316

 

 

$

(70

)

 

$

(940

)

 

$

—

 

 

$

593

 

 

$

899

 

Construction and land development

 

 

755

 

 

 

(10

)

 

 

4

 

 

 

—

 

 

 

—

 

 

 

749

 

Real estate secured by multi-family properties

 

 

995

 

 

 

684

 

 

 

(102

)

 

 

—

 

 

 

—

 

 

 

1,577

 

Real estate secured by owner-occupied properties

 

 

1,549

 

 

 

(374

)

 

 

(203

)

 

 

—

 

 

 

—

 

 

 

972

 

Real estate secured by other commercial properties

 

 

2,458

 

 

 

(1,128

)

 

 

(239

)

 

 

—

 

 

 

—

 

 

 

1,091

 

Revolving real estate secured by 1-4 family properties-business

 

 

25

 

 

 

7

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

34

 

Real estate secured by 1st lien on 1-4 family properties-business

 

 

1,210

 

 

 

490

 

 

 

(430

)

 

 

—

 

 

 

3

 

 

 

1,273

 

Real estate secured by junior lien on 1-4 family properties-business

 

 

30

 

 

 

(14

)

 

 

242

 

 

 

—

 

 

 

—

 

 

 

258

 

State and political subdivisions

 

 

94

 

 

 

(20

)

 

 

(19

)

 

 

—

 

 

 

—

 

 

 

55

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

682

 

 

 

(196

)

 

 

(81

)

 

 

—

 

 

 

—

 

 

 

405

 

Construction-individual

 

 

1

 

 

 

-

 

 

 

-

 

 

 

—

 

 

 

—

 

 

 

1

 

Revolving home equity secured by 1-4 family properties-personal

 

 

299

 

 

 

(7

)

 

 

(43

)

 

 

—

 

 

 

—

 

 

 

249

 

Real estate secured by 1st lien on 1-4 family properties-personal

 

 

57

 

 

 

15

 

 

 

(8

)

 

 

—

 

 

 

—

 

 

 

64

 

Real estate secured by junior lien on 1-4 family properties-personal

 

 

55

 

 

 

29

 

 

 

(9

)

 

 

—

 

 

 

2

 

 

 

77

 

Student loans

 

 

454

 

 

 

12

 

 

 

(17

)

 

 

(3

)

 

 

2

 

 

 

448

 

Overdrafts

 

 

8

 

 

 

3

 

 

 

31

 

 

 

(43

)

 

 

10

 

 

 

9

 

Other consumer

 

 

41

 

 

 

(8

)

 

 

29

 

 

 

(32

)

 

 

—

 

 

 

30

 

Unallocated

 

 

502

 

 

 

(502

)

 

 

-

 

 

N/A

 

 

N/A

 

 

 

—

 

Total

 

$

10,531

 

 

$

(1,089

)

 

$

(1,783

)

 

$

(78

)

 

$

610

 

 

$

8,191

 

 

For the Three Months Ended March 31, 2022

 

Balance,
beginning of
period

 

 

Provision for
(credit to)
loan losses

 

 

Charge-offs

 

 

Recoveries

 

 

Balance, end
of period

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

4,050

 

 

$

(658

)

 

$

—

 

 

$

32

 

 

$

3,424

 

Construction

 

 

346

 

 

 

43

 

 

 

—

 

 

 

—

 

 

 

389

 

Secured by commercial real estate

 

 

3,736

 

 

 

417

 

 

 

—

 

 

 

—

 

 

 

4,153

 

Secured by residential real estate

 

 

871

 

 

 

270

 

 

 

(38

)

 

 

19

 

 

 

1,122

 

State and political subdivisions

 

 

89

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

88

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

533

 

 

 

32

 

 

 

—

 

 

 

—

 

 

 

565

 

Home equity loans and lines

 

 

386

 

 

 

(22

)

 

 

(12

)

 

 

6

 

 

 

358

 

Consumer

 

 

265

 

 

 

356

 

 

 

(111

)

 

 

34

 

 

 

544

 

Unallocated

 

 

550

 

 

 

21

 

 

N/A

 

 

N/A

 

 

 

571

 

Total

 

$

10,826

 

 

$

458

 

 

$

(161

)

 

$

91

 

 

$

11,214

 

 

The Company had extended, restructured, or otherwise modified the terms of loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers that had been experiencing financial difficulties. A loan is considered to be a troubled debt restructuring (“TDR”) loan when the Company granted a concession to the borrower because of the borrower’s financial condition that it would not have otherwise considered. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates to less than the current market rate for new obligations with similar risk. Loans classified as TDRs are considered non-performing.

The concessions made for the TDRs reported in the following disclosures involve lowering the monthly payments on loans through periods of interest only payments, a reduction in interest rate below a market rate or an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these three methods. The restructurings rarely result in the forgiveness of principal or accrued interest. If the borrower has demonstrated performance under the previous terms and our underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. TDR loans that are in compliance with their modified terms and that yield a market rate may be removed from the TDR status after a period of performance.

Since the implementation of ASU 326 on January 1, 2023, the Company measures loan modifications to borrowers in financial distress as either a TDR or a troubled debt modification ("TDM"). If the modification is not considered a TDR it is further analyzed for consideration as a TDM. A TDM could involve principal forgiveness, term extension, an other-than-insignificant payment delay, interest rate reduction or exchanging or paying off existing debt for new debt with the Company. Any amount forgiven would be charged to the allowance for credit losses.

There were no loans modified as TDRs or TDMs in 2023. The Company closely monitors the performance of loans that are modified to understand the effectiveness of its modification efforts. There were no payment default (60 days or more past due) during the three months ended March 31, 2023 and 2022, respectively, on loans modified within 12 months prior to March 31, 2023 and 2022, respectively.

Performing TDRs (not reported as non-accrual or past due 90 days or more and still accruing) totaled $4,224,000 and $4,301,000 as of March 31, 2023 and December 31, 2022, respectively. Non-performing TDRs totaled $333,000 and $371,000 as of March 31, 2023 and December 31, 2022, respectively. Non-accrual TDRs are included in the specific reserve calculation in 2023. All TDRs were included in the specific reserve calculation for 2022.

The following table illustrates the specific reserve for loan losses allocated to loans modified as TDRs. These specific reserves are included in the allowance for loan losses for loans individually evaluated. There were no loans modified as TDMs during the period.

 

 

 

March 31, 2023

 

 

December 31, 2022

 

 

 

Unpaid
principal
balance

 

 

Related
allowance

 

 

Unpaid
principal
balance

 

 

Related
allowance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TDRs with no specific allowance recorded

 

$

4,312

 

 

$

—

 

 

$

1,272

 

 

$

—

 

TDRs with an allowance recorded

 

 

245

 

 

 

245

 

 

 

3,400

 

 

 

392

 

Total

 

$

4,557

 

 

$

245

 

 

$

4,672

 

 

$

392

 

 

As of March 31, 2023 and December 31, 2022, QNB had $7,000 and $5,000, respectively, in commitments to lend additional funds to customers with loans whose terms have been modified as TDRs. There were no charge-offs during the three months ended March 31, 2023 and 2022, resulting from loans previously modified as TDRs.

The Company has one loan secured by residential real estate for which foreclosure proceedings are in process at March 31, 2023 with a total recorded investment of $116,000.