XML 38 R11.htm IDEA: XBRL DOCUMENT v3.20.1
Loans and Allowance for Loan Losses
12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Loans and Allowance for Loan Losses

Note 4 - Loans and Allowance for Loan Losses

The composition of the loan portfolio is as follows as of the periods indicated:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(dollars in thousands)

 

Commercial and industrial loans

 

$

111,401

 

 

$

90,390

 

Real estate loans:

 

 

 

 

 

 

 

 

Construction, land, and land development

 

 

97,034

 

 

 

64,045

 

Residential real estate

 

 

115,011

 

 

 

94,745

 

Commercial real estate

 

 

613,398

 

 

 

515,959

 

Consumer and other loans

 

 

4,214

 

 

 

3,584

 

Gross loans receivable

 

 

941,058

 

 

 

768,723

 

Net deferred origination fees and premiums

 

 

(1,955

)

 

 

(824

)

Loans receivable

 

$

939,103

 

 

$

767,899

 

 

Included in consumer and other loans are overdrafts of $26,000 and $36,000 at December 31, 2019 and December 31, 2018, respectively. The Company has pledged loans totaling $163,522,000 and $155,029,000 at December 31, 2019 and December 31, 2018, respectively, for borrowing lines at the FHLB and FRB.

The balance of SBA and USDA loans and participations serviced for others totaled $21,498,000 and $24,878,000 at December 31, 2019 and December 31, 2018, respectively.

The Company, at times, purchases individual whole loans at fair value as of the acquisition date. Purchased loans with remaining balances totaled $32,937,000 and $45,368,000 as of December 31, 2019 and December 31, 2018, respectively. Unamortized premiums totaled $527,000 and $701,000 as of December 31, 2019 and December 31, 2018, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $31,352,000 and $36,561,000 as of December 31, 2019 and December 31, 2018, respectively.

The following is a summary of the Company’s loan portfolio segments:

Commercial and industrial loans - Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in the Company’s primary market area. Loan types include revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities. The Company also issues letters of credit on behalf of its customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

Construction, land and land development loans – The Company originates loans for the construction of 1-4 family, multifamily, and CRE properties in the Company’s market area. Construction loans are considered to have higher risks due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. The Company occasionally originates land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral.

Residential real estate - Residential real estate includes various types of loans for which the Company holds real property as collateral. Included in this segment are multi-family loans, first lien single family loans, which the Company occasionally purchases to diversify its loan portfolio, and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable.

Commercial real estate (includes owner occupied and nonowner occupied) - Commercial real estate includes various types of loans for which the Company holds real property as collateral. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Consumer and other loans – The Company originates a limited number of consumer loans, generally for banking customers only, which consist primarily of home equity lines of credit, saving account secured loans, and auto loans. This loan category also includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral.

The following table illustrates an age analysis of past due loans as of the dates indicated:

 

 

 

30-89

Days Past

Due

 

 

90 Days

or More

Past Due

 

 

Total

Past Due

 

 

Current

 

 

Total

Loans

 

 

Recorded

Investment

90 Days or

More Past

Due and

Still

Accruing

 

 

 

(dollars in thousands)

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

143

 

 

$

965

 

 

$

1,108

 

 

$

110,293

 

 

$

111,401

 

 

$

-

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

97,034

 

 

 

97,034

 

 

 

-

 

Residential real estate

 

 

-

 

 

 

65

 

 

 

65

 

 

 

114,946

 

 

 

115,011

 

 

 

-

 

Commercial real estate

 

 

417

 

 

 

-

 

 

 

417

 

 

 

612,981

 

 

 

613,398

 

 

 

-

 

Consumer and other loans

 

 

4

 

 

 

-

 

 

 

4

 

 

 

4,210

 

 

 

4,214

 

 

 

-

 

 

 

$

564

 

 

$

1,030

 

 

$

1,594

 

 

$

939,464

 

 

$

941,058

 

 

$

-

 

Less net deferred origination fees and

   premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,955

)

 

 

 

 

Loans receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

939,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30-89

Days Past

Due

 

 

90 Days

or More

Past Due

 

 

Total

Past Due

 

 

Current

 

 

Total

Loans

 

 

Recorded

Investment

90 Days or

More Past

Due and

Still

Accruing

 

 

 

(dollars in thousands)

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

171

 

 

$

494

 

 

$

665

 

 

$

89,725

 

 

$

90,390

 

 

$

-

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and land development

 

 

823

 

 

 

-

 

 

 

823

 

 

 

63,222

 

 

 

64,045

 

 

 

-

 

Residential real estate

 

 

-

 

 

 

72

 

 

 

72

 

 

 

94,673

 

 

 

94,745

 

 

 

-

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

515,959

 

 

 

515,959

 

 

 

-

 

Consumer and other loans

 

 

2

 

 

 

-

 

 

 

2

 

 

 

3,582

 

 

 

3,584

 

 

 

-

 

 

 

$

996

 

 

$

566

 

 

$

1,562

 

 

$

767,161

 

 

$

768,723

 

 

$

-

 

Less net deferred origination fees and

   premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(824

)

 

 

 

 

Loans receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

767,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A summary of information pertaining to impaired loans as of the period indicated:

 

 

 

Unpaid

Contractual

Principal

Balance

 

 

Recorded

Investment

With No

Allowance

 

 

Recorded

Investment

With

Allowance

 

 

Total

Recorded

Investment

 

 

Related

Allowance

 

 

 

(dollars in thousands)

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

1,431

 

 

$

965

 

 

$

-

 

 

$

965

 

 

$

-

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

73

 

 

 

65

 

 

 

-

 

 

 

65

 

 

 

-

 

Commercial real estate

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Consumer loans

 

 

2

 

 

 

-

 

 

 

2

 

 

 

2

 

 

 

2

 

Total

 

$

1,506

 

 

$

1,030

 

 

$

2

 

 

$

1,032

 

 

$

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

766

 

 

$

493

 

 

$

-

 

 

$

493

 

 

$

-

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

74

 

 

 

72

 

 

 

-

 

 

 

72

 

 

 

-

 

Commercial real estate

 

 

1,491

 

 

 

1,261

 

 

 

-

 

 

 

1,261

 

 

 

-

 

Total

 

$

2,331

 

 

$

1,826

 

 

$

-

 

 

$

1,826

 

 

$

-

 

 

The following tables summarize the average recorded investment and interest income recognized on impaired loans by loan class for the year ended December 31, 2019 and 2018:

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

Commercial and industrial loans

 

$

1,026

 

 

$

-

 

 

$

1,103

 

 

$

28

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and land development

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Residential real estate

 

 

69

 

 

 

-

 

 

 

306

 

 

 

5

 

Commercial real estate

 

 

252

 

 

 

-

 

 

 

1,288

 

 

 

-

 

Consumer loans

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

1,348

 

 

$

-

 

 

$

2,697

 

 

$

33

 

 

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms. The restructured loans on accrual status represent the only impaired loans accruing interest. In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

The following table presents troubled debt restructurings by accrual versus nonaccrual status and by loan class as of December 31, 2018.  There were no troubled debt restructurings at December 31, 2019.

 

 

 

Accrual

Status

 

 

Nonaccrual

Status

 

 

Total

Restructured

Loans

 

 

 

(dollars in thousands)

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

-

 

 

$

1,261

 

 

$

1,261

 

 

No loans were restructured in the year ended December 31, 2019 and December 31, 2018 that qualified as troubled debt restructurings.   The Company has no commitments to loan additional funds to borrowers whose loans were classified as troubled debt restructurings at December 31, 2019, as there were no outstanding troubled debt restructurings at December 31, 2019.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(dollars in thousands)

 

Commercial and industrial loans

 

$

965

 

 

$

493

 

Real estate loans:

 

 

 

 

 

 

 

 

Residential real estate

 

 

65

 

 

 

72

 

Commercial real estate

 

 

-

 

 

 

1,261

 

Total nonaccrual loans

 

$

1,030

 

 

$

1,826

 

 

Credit Quality and Credit Risk

Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted. If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for loan losses, thereby reducing that reserve. The Company also classifies some loans as Watch or Other Loans Especially Mentioned (OLEM). Loans classified as Watch are performing assets and classified as pass credits but have elements of risk that require more monitoring than other performing loans and are reported in the OLEM column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring.

Loans by credit quality risk rating are as follows as of the periods indicated:

 

 

 

Pass

 

 

Other

Loans

Especially

Mentioned

 

 

Sub-

Standard

 

 

Doubtful

 

 

Total

 

 

 

(dollars in thousands)

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

104,911

 

 

$

4,740

 

 

$

1,750

 

 

$

-

 

 

$

111,401

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land, and land development

 

 

97,034

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

97,034

 

Residential real estate

 

 

114,823

 

 

 

123

 

 

 

65

 

 

 

-

 

 

 

115,011

 

Commercial real estate

 

 

608,773

 

 

 

4,625

 

 

 

-

 

 

 

-

 

 

 

613,398

 

Consumer and other loans

 

 

4,212

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

4,214

 

 

 

$

929,753

 

 

$

9,488

 

 

$

1,817

 

 

$

-

 

 

 

941,058

 

Less net deferred origination fees and premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,955

)

Loans receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

939,103

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

84,859

 

 

$

3,908

 

 

$

1,623

 

 

$

-

 

 

$

90,390

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land, and land development

 

 

55,666

 

 

 

8,379

 

 

 

-

 

 

 

-

 

 

 

64,045

 

Residential real estate

 

 

94,548

 

 

 

125

 

 

 

72

 

 

 

-

 

 

 

94,745

 

Commercial real estate

 

 

512,151

 

 

 

2,547

 

 

 

1,261

 

 

 

-

 

 

 

515,959

 

Consumer and other loans

 

 

3,584

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,584

 

 

 

$

750,808

 

 

$

14,959

 

 

$

2,956

 

 

$

-

 

 

 

768,723

 

Less net deferred origination fees and premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(824

)

Loans receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

767,899

 

 

Allowance for Loan Losses

The Company’s ALLL covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated probable losses inherent in the remainder of the loan portfolio. The ALLL is prepared using the information provided by the Company’s credit review process and our historical loss data, together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk profiles. Each segment possesses varying degrees of risk based on the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The following tables summarize the allocation of the allowance for loan loss, as well as the activity in the allowance for loan loss attributed to various segments in the loan portfolio, as of and for the year ended December 31, 2019:

 

 

 

Commercial

and

Industrial

 

 

Construction,

Land, and

Land

Development

 

 

Residential

Real

Estate

 

 

Commercial

Real Estate

 

 

Consumer

and Other

 

 

Unallocated

 

 

Total

 

 

 

(dollars in thousands)

 

ALLL balance, December 31, 2018

 

$

2,039

 

 

$

1,806

 

 

$

1,647

 

 

$

2,648

 

 

$

77

 

 

$

1,190

 

 

$

9,407

 

Provision for loan losses or

   (recapture)

 

 

677

 

 

 

1,014

 

 

 

422

 

 

 

507

 

 

 

54

 

 

 

(130

)

 

 

2,544

 

 

 

 

2,716

 

 

 

2,820

 

 

 

2,069

 

 

 

3,155

 

 

 

131

 

 

 

1,060

 

 

 

11,951

 

Loans charged-off

 

 

(355

)

 

 

(75

)

 

 

-

 

 

 

(29

)

 

 

(35

)

 

 

-

 

 

 

(494

)

Recoveries of loans previously

   charged-off

 

 

5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

13

 

Net (charge-offs) recoveries

 

 

(350

)

 

 

(75

)

 

 

-

 

 

 

(29

)

 

 

(27

)

 

 

-

 

 

 

(481

)

ALLL balance, December 31, 2019

 

$

2,366

 

 

$

2,745

 

 

$

2,069

 

 

$

3,126

 

 

$

104

 

 

$

1,060

 

 

$

11,470

 

ALLL amounts allocated to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

2

 

 

$

-

 

 

$

2

 

Collectively evaluated for

   impairment

 

 

2,366

 

 

 

2,745

 

 

 

2,069

 

 

 

3,126

 

 

 

102

 

 

 

1,060

 

 

 

11,468

 

ALLL balance, December 31, 2019

 

$

2,366

 

 

$

2,745

 

 

$

2,069

 

 

$

3,126

 

 

$

104

 

 

$

1,060

 

 

$

11,470

 

Loans individually evaluated

   for impairment

 

$

965

 

 

$

-

 

 

$

65

 

 

$

-

 

 

$

2

 

 

 

 

 

 

$

1,032

 

Loans collectively evaluated

   for impairment

 

 

110,436

 

 

 

97,034

 

 

 

114,946

 

 

 

613,398

 

 

 

4,212

 

 

 

 

 

 

 

940,026

 

Loan balance, December 31, 2019

 

$

111,401

 

 

$

97,034

 

 

$

115,011

 

 

$

613,398

 

 

$

4,214

 

 

 

 

 

 

$

941,058

 

 

The following tables summarize the allocation of the allowance for loan loss, as well as the activity in the allowance for loan loss attributed to various segments in the loan portfolio, as of and for the year ended December 31, 2018:

 

 

 

Commercial

and

Industrial

 

 

Construction,

Land, and

Land

Development

 

 

Residential

Real

Estate

 

 

Commercial

Real Estate

 

 

Consumer

and Other

 

 

Unallocated

 

 

Total

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALLL balance, December 31, 2017

 

$

1,864

 

 

$

1,063

 

 

$

1,343

 

 

$

2,014

 

 

$

43

 

 

$

1,690

 

 

$

8,017

 

Provision for loan losses or

   (recapture)

 

 

579

 

 

 

743

 

 

 

239

 

 

 

718

 

 

 

47

 

 

 

(500

)

 

 

1,826

 

 

 

 

2,443

 

 

 

1,806

 

 

 

1,582

 

 

 

2,732

 

 

 

90

 

 

 

1,190

 

 

 

9,843

 

Loans charged-off

 

 

(408

)

 

 

-

 

 

 

-

 

 

 

(84

)

 

 

(27

)

 

 

-

 

 

 

(519

)

Recoveries of loans previously

   charged-off

 

 

4

 

 

 

-

 

 

 

65

 

 

 

-

 

 

 

14

 

 

 

-

 

 

 

83

 

Net (charge-offs) recoveries

 

 

(404

)

 

 

-

 

 

 

65

 

 

 

(84

)

 

 

(13

)

 

 

-

 

 

 

(436

)

ALLL balance, December 31, 2018

 

$

2,039

 

 

$

1,806

 

 

$

1,647

 

 

$

2,648

 

 

$

77

 

 

$

1,190

 

 

$

9,407

 

ALLL amounts allocated to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for

   impairment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Collectively evaluated for

   impairment

 

 

2,039

 

 

 

1,806

 

 

 

1,647

 

 

 

2,648

 

 

 

77

 

 

 

1,190

 

 

 

9,407

 

ALLL balance, December 31, 2018

 

$

2,039

 

 

$

1,806

 

 

$

1,647

 

 

$

2,648

 

 

$

77

 

 

$

1,190

 

 

$

9,407

 

Loans individually evaluated

   for impairment

 

$

493

 

 

 

-

 

 

$

72

 

 

$

1,261

 

 

 

-

 

 

 

 

 

 

$

1,826

 

Loans collectively evaluated

   for impairment

 

 

89,897

 

 

 

64,045

 

 

 

94,673

 

 

 

514,698

 

 

 

3,584

 

 

 

 

 

 

 

766,897

 

Loan balance, December 31, 2018

 

$

90,390

 

 

$

64,045

 

 

$

94,745

 

 

$

515,959

 

 

$

3,584

 

 

 

 

 

 

$

768,723