Note 4 - Loans and Leases

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

( 4 ) Loans and leases

Composition of loans, net of deferred fees and costs, by loan portfolio class follows:

(In thousands)	March 31, 2019		December 31, 2018
Commercial and industrial	$	827,747	$	833,524
Construction and development, excluding undeveloped land (1)		216,115		225,050
Undeveloped land		28,433		30,092
Real estate mortgage
Commercial investment		586,648		588,610
Owner occupied commercial		428,163		426,373
1-4 family residential		277,847		276,017
Home equity - first lien		48,656		49,500
Home equity - junior lien		66,837		70,947
Subtotal: Real estate mortgage		1,408,151		1,411,447
Consumer		45,263		48,058
Total loans	$	2,525,709	$	2,548,171

(

1

) Consists of land acquired for development by the borrower, but for which

no

development has yet taken place

.

Loans to directors and their associates, including loans to companies for which directors are principal owners and executive officers totaled

$52.8

million and

$52.7

million, as of

March 31, 2019

and

December 31, 2018,

respectively.

Consistent with regulatory guidance, Bancorp categorizes loans into credit risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans included all risk-rated loans other than those classified as other assets especially mentioned, substandard, and doubtful, which are defined below:

● Other assets especially mentioned (“OAEM”): Loans classified as OAEM have potential weaknesses that deserve management's close attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date.

● Substandard: Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have well-defined weaknesses that jeopardize ultimate repayment of the debt. Default is a distinct possibility if the deficiencies are not corrected.

● Substandard non-performing: Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as troubled debt restructurings. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more.

● Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Internally assigned risk grades of loans by loan portfolio class classification category follows:

(In thousands)							Substandard				Total
March 31, 2019	Pass		OAEM		Substandard		non-performing		Doubtful		loans
Commercial and industrial	$	791,469	$	18,453	$	17,607	$	218	$	—	$	827,747
Construction and development, excluding undeveloped land		216,115		—		—		—		—		216,115
Undeveloped land		28,433		—		—		—		—		28,433
Real estate mortgage:
Commercial investment		580,591		1,145		4,224		688		—		586,648
Owner occupied commercial		408,777		13,628		4,292		1,466		—		428,163
1-4 family residential		275,293		1,522		161		871		—		277,847
Home equity - first lien		48,587		—		—		69		—		48,656
Home equity - junior lien		66,129		235		19		454		—		66,837
Subtotal: Real estate mortgage		1,379,377		16,530		8,696		3,548		—		1,408,151
Consumer		45,263		—		—		—		—		45,263
Total	$	2,460,657	$	34,983	$	26,303	$	3,766	$	—	$	2,525,709
December 31, 2018
Commercial and industrial	$	803,073	$	11,516	$	18,703	$	232	$	—	$	833,524
Construction and development, excluding undeveloped land		220,532		4,200		—		318		—		225,050
Undeveloped land		29,618		—		—		474		—		30,092
Real estate mortgage:
Commercial investment		586,543		1,815		15		237		—		588,610
Owner occupied commercial		411,722		9,030		4,500		1,121		—		426,373
1-4 family residential		273,537		1,544		162		774		—		276,017
Home equity - first lien		49,500		—		—		—		—		49,500
Home equity - junior lien		70,437		249		19		242		—		70,947
Subtotal: Real estate mortgage		1,391,739		12,638		4,696		2,374		—		1,411,447
Consumer		48,058		—		—		—		—		48,058
Total	$	2,493,020	$	28,354	$	23,399	$	3,398	$	—	$	2,548,171

The following table presents the activity in the allowance by loan portfolio class:

	Type of loan
				Construction
				and development
	Commercial			excluding
	and			undeveloped			Undeveloped			Real estate
(In thousands)	industrial			land			land			mortgage		Consumer			Total
Balance, January 1, 2019	$	11,965		$	1,760		$	752		$	10,681	$	376		$	25,534
Provision (credit)		(302	)		(79	)		(90	)		1,300		(229	)		600
Charge-offs		(3	)		—			—			—		(96	)		(99	)
Recoveries		102			203			—			20		104			429
Balance, March 31, 2019	$	11,762		$	1,884		$	662		$	12,001	$	155		$	26,464

				Construction
				and development
	Commercial			excluding
	and			undeveloped		Undeveloped			Real estate
(In thousands)	industrial			land		land			mortgage			Consumer			Total
Balance, January 1, 2018	$	11,276		$	1,724	$	521		$	11,012		$	352		$	24,885
Provision (credit)		761			296		(39	)		(309	)		26			735
Charge-offs		(1,409	)		—		—			—			(119	)		(1,528	)
Recoveries		10			—		—			4			97			111
Balance, March 31, 2018	$	10,638		$	2,020	$	482		$	10,707		$	356		$	24,203

The considerations by Bancorp in computing its allowance are determined based on the various risk characteristics of each loan segment. Relevant risk characteristics are as follows:

● Commercial and industrial: Loans in this category are made to businesses. Generally these loans are secured by assets of the business and repayment is expected from cash flows of the business. A decline in the strength of the business or a weakened economy and resultant decreased consumer and/or business spending may have an effect on the credit quality in this loan category.

● Construction and development, excluding undeveloped land: Loans in this category primarily include owner-occupied and investment construction loans and commercial development projects. In most cases, construction loans require only interest to be paid during construction. Upon completion or stabilization, the construction loans generally convert to permanent financing in the real estate mortgage segment, requiring principal amortization. Repayment of development loans is derived from sale of lots or units. Credit risk is affected by construction delays, cost overruns, market conditions and availability of permanent financing; to the extent such permanent financing is not being provided by Bancorp.

● Undeveloped land: Loans in this category are secured by land acquired for development by the borrower, but for which no development has yet taken place. Credit risk is primarily dependent upon the financial strength of the borrower, but can also be affected by market conditions and time to sell lots at an adequate price in the future. Credit risk is also affected by availability of permanent financing, including to the end user, to the extent such permanent financing is not being provided by Bancorp.  

● Real estate mortgage: Loans in this category are made to and secured by owner-occupied residential real estate, owner-occupied real estate used for business purposes, and income-producing investment properties. For owner occupied residential and owner-occupied commercial real estate, repayment is dependent on financial strength of the borrower. For income-producing investment properties, repayment is dependent on financial strength of tenants, and to a lesser extent the borrowers’ financial strength, once the project is stabilized. Underlying properties are generally located in Bancorp's primary market area. Cash flows of income producing investment properties may be adversely impacted by a downturn in the economy as reflected in increased vacancy rates, which in turn, will have an effect on credit quality and property values. Overall health of the economy, including unemployment rates and real estate prices, has an effect on credit quality in this loan category.

● Consumer: Loans in this category may be either secured or unsecured and repayment is dependent on credit quality of the individual borrower and, if applicable, adequacy of collateral securing the loan. Therefore, overall health of the economy, including unemployment rates as well as home and securities prices, will have a significant effect on credit quality in this loan category.

Impaired loans include non-accrual loans and accruing loans accounted for as troubled debt restructurings (“TDRs”), which continue to accrue interest. Non-performing loans include the balance of impaired loans plus any loans over

90

days past due and still accruing interest. Bancorp had

$454

thousand past due more than

90

days and still accruing interest at

March 31, 2019,

compared with

$745

thousand at

December 31, 2018,

and

none

at

March 31, 2018.

The following table presents the recorded investment in non-accrual loans:

(In thousands)	March 31, 2019		December 31, 2018
Commercial and industrial	$	193	$	192
Construction and development, excluding undeveloped land		—		318
Undeveloped land		—		474
Real estate mortgage
Commercial investment		317		138
Owner occupied commercial		1,466		586
1-4 family residential		843		760
Home equity - first lien		—		—
Home equity - junior lien		454		143
Subtotal: Real estate mortgage		3,080		1,627
Consumer		—		—
Total loans	$	3,273	$	2,611

In the course of working with borrowers, Bancorp

may

elect to restructure the contractual terms of certain loans. TDRs occur when, for economic, legal, or other reasons related to a borrower’s financial difficulties, Bancorp grants a concession to the borrower that it would

not

otherwise consider.

At

March 31, 2019

and

December 31, 2018,

Bancorp had

$39

thousand and

$42

thousand of accruing loans classified as TDRs, respectively. Bancorp did

not

modify and classify any additional loans as TDRs during the

three

-month periods ended

March 31, 2019

or

March 31, 2018,

respectively.

No

loans classified and reported as TDRs within the

twelve

months prior to

March 31, 2019

defaulted during the

three

-month period ended

March 31, 2019.

Loans accounted for as TDRs

may

include modifications from original terms such as those due to bankruptcy proceedings, certain modifications of amortization periods or extended suspension of principal payments due to customer financial difficulties.

At

March 31, 2019

and

December 31, 2018,

Bancorp did

not

have any outstanding commitments to lend additional funds to borrowers whose loans have been modified as TDRs.

As of

March 31, 2019

formal foreclosure proceedings were in process on consumer residential mortgage loans with a total recorded investment of

$795

thousand, as compared with

$528

thousand as of

December 31, 2018.

The following tables present the balance in the recorded investment in loans and allowance for loans by portfolio loan class and based on impairment evaluation method:

(In thousands)	Loans								Allowance
March 31, 2019	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Loans acquired with deteriorated credit quality		Total loans		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Loans acquired with deteriorated credit quality		Total allowance
Commercial and industrial	$	218	$	827,529	$	-	$	827,747	$	25	$	11,737	$	-	$	11,762
Construction and development, excluding undeveloped land		-		216,115		-		216,115		-		1,884		-		1,884
Undeveloped land		-		28,433		-		28,433		-		662		-		662
Real estate mortgage		3,094		1,405,057		-		1,408,151		14		11,987		-		12,001
Consumer		-		45,263		-		45,263		-		155		-		155
Total	$	3,312	$	2,522,397	$	-	$	2,525,709	$	39	$	26,425	$	-	$	26,464

(In thousands)	Loans								Allowance
December 31, 2018	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Loans acquired with deteriorated credit quality		Total loans		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Loans acquired with deteriorated credit quality		Total allowance
Commercial and industrial	$	220	$	833,304	$	-	$	833,524	$	28	$	11,937	$	-	$	11,965
Construction and development, excluding undeveloped land		318		224,732		-		225,050		-		1,760		-		1,760
Undeveloped land		474		29,618		-		30,092		-		752		-		752
Real estate mortgage		1,641		1,409,806		-		1,411,447		14		10,667		-		10,681
Consumer		-		48,058		-		48,058		-		376		-		376
Total	$	2,653	$	2,545,518	$	-	$	2,548,171	$	42	$	25,492	$	-	$	25,534

The following tables present loans individually evaluated for impairment by loan portfolio class:

	As of						Three months ended
	March 31, 2019						March 31, 2019
			Unpaid				Average		Interest
	Recorded		principal		Related		recorded		income
(In thousands)	investment		balance		allowance		investment		recognized
Impaired loans with no related allowance:
Commercial and industrial	$	193	$	710	$	-	$	192	$	-
Construction and development, excluding undeveloped land		-		-		-		159		-
Undeveloped land		-		-		-		237		-
Real estate mortgage
Commercial investment		317		317		-		227		-
Owner occupied commercial		1,466		1,904		-		1,026		-
1-4 family residential		843		843		-		801		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		454		454		-		299		-
Subtotal: Real estate mortgage		3,080		3,518		-		2,353		-
Consumer		-		-		-		-		-
Subtotal	$	3,273	$	4,228	$	-	$	2,941	$	-
Impaired loans with an allowance:
Commercial and industrial	$	25	$	25	$	25	$	27	$	1
Construction and development, excluding undeveloped land		-		-		-		-		-
Undeveloped land		-		-		-		-		-
Real estate mortgage
Commercial investment		-		-		-		-		-
Owner occupied commercial		-		-		-		-		-
1-4 family residential		14		14		14		14		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		-		-		-		-		-
Subtotal: Real estate mortgage		14		14		14		14		-
Consumer		-		-		-		-		-
Subtotal	$	39	$	39	$	39	$	41	$	1
Total:
Commercial and industrial	$	218	$	735	$	25	$	219	$	1
Construction and development, excluding undeveloped land		-		-		-		159		-
Undeveloped land		-		-		-		237		-
Real estate mortgage
Commercial investment		317		317		-		227		-
Owner occupied commercial		1,466		1,904		-		1,026		-
1-4 family residential		857		857		14		815		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		454		454		-		299		-
Subtotal: Real estate mortgage		3,094		3,532		14		2,367		-
Consumer		-		-		-		-		-
Total impaired loans	$	3,312	$	4,267	$	39	$	2,982	$	1

	As of						Three months ended
	December 31, 2018						March 31, 2018
			Unpaid				Average		Interest
	Recorded		principal		Related		recorded		income
(In thousands)	investment		balance		allowance		investment		recognized
Impaired loans with no related allowance:
Commercial and industrial	$	192	$	707	$	-	$	161	$	-
Construction and development, excluding undeveloped land		318		489		-		437		-
Undeveloped land		474		506		-		474		-
Real estate mortgage
Commercial investment		138		138		-		35		-
Owner occupied commercial		586		1,023		-		1,503		-
1-4 family residential		760		760		-		1,242		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		143		143		-		73		-
Subtotal: Real estate mortgage		1,627		2,064		-		2,853		-
Consumer		-		-		-		23		-
Subtotal	$	2,611	$	3,766	$	-	$	3,948	$	-
Impaired loans with an allowance:
Commercial and industrial	$	28	$	28	$	28	$	1,851	$	-
Construction and development, excluding undeveloped land		-		-		-		-		-
Undeveloped land		-		-		-		24		-
Real estate mortgage
Commercial investment		-		-		-		-		-
Owner occupied commercial		-		-		-		897		-
1-4 family residential		14		14		14		14		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		-		-		-		-		-
Subtotal: Real estate mortgage		14		14		14		911		-
Consumer		-		-		-		-		-
Subtotal	$	42	$	42	$	42	$	2,786	$	-
Total:
Commercial and industrial	$	220	$	735	$	28	$	2,012	$	-
Construction and development, excluding undeveloped land		318		489		-		437		-
Undeveloped land		474		506		-		498		-
Real estate mortgage		-		-		-		-		-
Commercial investment		138		138		-		35		-
Owner occupied commercial		586		1,023		-		2,400		-
1-4 family residential		774		774		14		1,256		-
Home equity - first lien		-		-		-		-		-
Home equity - junior lien		143		143		-		73		-
Subtotal: Real estate mortgage		1,641		2,078		14		3,764		-
Consumer		-		-		-		23		-
Total impaired loans	$	2,653	$	3,808	$	42	$	6,734	$	-

Differences between recorded investment amounts and unpaid principal balance amounts less related allowance are due to partial charge-offs which have occurred over the lives of certain loans.

The following table presents the aging of the recorded investment in loans by portfolio class:

													Recorded
(In thousands)							90 or more						investment
							days past due						> 90 days
			30-59 days		60-89 days		(includes all		Total		Total		and
March 31, 2019	Current		past due		past due		non-accrual)		past due		loans		accruing
Commercial and industrial	$	827,165	$	366	$	23	$	193	$	582	$	827,747	$	-
Construction and development, excluding undeveloped land		216,115		-		-		-		-		216,115		-
Undeveloped land		28,433		-		-		-		-		28,433		-
Real estate mortgage:
Commercial investment		585,673		232		56		687		975		586,648		370
Owner occupied commercial		426,347		350		-		1,466		1,816		428,163		-
1-4 family residential		276,143		594		252		858		1,704		277,847		15
Home equity - first lien		48,498		49		40		69		158		48,656		69
Home equity - junior lien		66,188		171		24		454		649		66,837		-
Subtotal: Real estate mortgage		1,402,849		1,396		372		3,534		5,302		1,408,151		454
Consumer		45,239		24		-		-		24		45,263		-
Total	$	2,519,801	$	1,786	$	395	$	3,727	$	5,908	$	2,525,709	$	454
December 31, 2018
Commercial and industrial	$	832,923	$	197	$	200	$	204	$	601	$	833,524	$	12
Construction and development, excluding undeveloped land		224,732		-		-		318		318		225,050		-
Undeveloped land		29,552		66		-		474		540		30,092		-
Real estate mortgage:
Commercial investment		586,884		1,382		107		237		1,726		588,610		99
Owner occupied commercial		421,143		2,732		1,377		1,121		5,230		426,373		535
1-4 family residential		274,547		374		336		760		1,470		276,017		-
Home equity - first lien		49,321		179		-		-		179		49,500		-
Home equity - junior lien		70,467		182		56		242		480		70,947		99
Subtotal: Real estate mortgage		1,402,362		4,849		1,876		2,360		9,085		1,411,447		733
Consumer		48,058		-		-		-		-		48,058		-
Total	$	2,537,627	$	5,112	$	2,076	$	3,356	$	10,544	$	2,548,171	$	745