XML 25 R12.htm IDEA: XBRL DOCUMENT

Note 4 - Loans and the Allowance for Credit Losses

12 Months Ended

Dec. 31, 2022

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

Note 4 – Loans and the Allowance for Credit Losses

Loans Receivable: The following table sets forth the composition of the Company’s loan portfolio segments, net of deferred fees, as of December 31, 2022 and December 31, 2021:

	2022			2021
	(dollars in thousands)
Commercial ⁽¹⁾	$	1,472,734		$	1,299,428
Commercial real estate		5,795,228			4,741,590
Commercial construction		574,139			540,178
Residential real estate		264,748			255,269
Consumer		2,312			1,886
Gross loans		8,109,161			6,838,351
Net deferred fees		(9,472	)		(9,729	)
Loans receivable	$	8,099,689		$	6,828,622

⁽¹⁾

Included in commercial loans as of December 31, 2022 and December 31, 2021 were Paycheck Protection Program (“PPP”) loans of $11.4 million and $93.1 million, respectively. These loans are 100% federally guaranteed and currently not subject to any allocation of allowance for credit losses.

As of December 31, 2022, and 2021, loan balances of approximately $2.7 billion and $2.5 billion, respectively, were pledged to secure borrowings from the Federal Home Loan Bank.

The loan segments in the above table have unique risk characteristics with respect to credit quality:

	•	The repayment of commercial loans is generally dependent on the creditworthiness and cash flow of borrowers, and if applicable, guarantors, which may be negatively impacted by adverse economic conditions. While the majority of these loans are secured, collateral type, marketing, coverage, valuation and monitoring is not as uniform as in other portfolio classes and recovery from liquidation of such collateral may be subject to greater variability.

	•	Payment on commercial real estate is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

	•	Properties underlying construction, land and land development loans often do not generate sufficient cash flows to service debt and thus repayment is subject to ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

	•	The ability of borrowers to service debt in the residential and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and/or second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

	•	The Company considers loan classes and loan segments to be one and the same.

Loans Held-For-Sale: The following table presents loans held-for-sale by loan segment as of December 31, 2022 and December 31, 2021:

2022

2021

(dollars in thousands)

Commercial
$ 13,473 $ -

Residential real estate
299 250

Total carrying amount
$ 13,772 $ 250

Loans Receivable on Nonaccrual Status - The following tables present nonaccrual loans with an allowance for credit loss (“ACL”) as of December 31, 2022 and December 31, 2021 and nonaccrual loans without an ACL as of December 31, 2022 and December 31, 2021:

December 31, 2022

Nonaccrual loans with ACL

Nonaccrual loans without ACL

Total Nonaccrual loans

(dollars in thousands)

Commercial
$ 23,512 $ 1,745 $ 25,257

Commercial real estate
10,220 6,597 16,817

Residential real estate
604 1,776 2,380

Total
$ 34,336 $ 10,118 $ 44,454

December 31, 2021

Nonaccrual loans with ACL

Nonaccrual loans without ACL

Total Nonaccrual loans

(dollars in thousands)

Commercial
$ 28,746 $ 1,316 $ 30,062

Commercial real estate
15,362 10,031 25,393

Commercial construction
- 3,150 3,150

Residential real estate
1,239 1,856 3,095

Total
$ 45,347 $ 16,353 $ 61,700

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and loans individually evaluated for impairment.

Credit Quality Indicators - The Company continuously monitors the credit quality of its loans receivable. In addition to its internal monitoring, the Company utilizes the services of a third-party loan review firm to periodically validate the credit quality of its loans receivable on a sample basis. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified as “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Company’s credit position at some future date. Assets are classified as “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified as special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected.

We evaluate whether a modification, extension or renewal of a loan is a current period origination in accordance with GAAP. Generally, loans up for renewal are subject to a full credit evaluation before the renewal is granted and such loans are considered current period originations for purpose of the table below. As of December 31, 2022, our loans based on year of origination and risk designation are as follows (dollars in thousands):

Term loans amortized cost basis by origination year

Revolving

Total

2022

2021

2020

2019

2018

Prior

Loans

Gross Loans

Commercial

Pass
$ 301,636 $ 305,721 $ 47,952 $ 28,177 $ 52,950 $ 127,739 $ 550,483 $ 1,414,658

Special mention
- - - 583 26 8,551 3,292 12,452

Substandard
7,615 146 15 1,769 11,214 22,596 2,269 45,624

Doubtful
- - - - - - - -

Total Commercial
$ 309,251 $ 305,867 $ 47,967 $ 30,529 $ 64,190 $ 158,886 $ 556,044 $ 1,472,734

Commercial Real Estate

Pass
$ 1,571,751 $ 1,608,023 $ 382,987 $ 358,578 $ 375,886 $ 987,982 $ 401,365 $ 5,686,572

Special mention
3,040 - - - - 37,774 8,839 49,653

Substandard
- 1,929 - 6,526 19,138 23,287 8,123 59,003

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 1,574,791 $ 1,609,952 $ 382,987 $ 365,104 $ 395,024 $ 1,049,043 $ 418,327 $ 5,795,228

Commercial Construction

Pass
$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 542,460 $ 565,908

Special mention
- - - - - - - -

Substandard
- - - - - - 8,231 8,231

Doubtful
- - - - - - - -

Total Commercial Construction
$ 8,615 $ 7,605 $ 6,720 $ 508 $ - $ - $ 550,691 $ 574,139

Residential Real Estate

Pass
$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 78,314 $ 41,468 $ 257,276

Special mention
- - - - - - - -

Substandard
- - - - - 3,379 4,093 7,472

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 45,926 $ 25,318 $ 24,409 $ 21,557 $ 20,284 $ 81,693 $ 45,561 $ 264,748

Consumer

Pass
$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 2,312

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 2,219 $ - $ 9 $ - $ - $ 2 $ 82 $ 2,312

Total

Pass
$ 1,930,147 $ 1,946,667 $ 462,077 $ 408,820 $ 449,120 $ 1,194,037 $ 1,535,858 $ 7,926,726

Special mention
3,040 - - 583 26 46,325 12,131 62,105

Substandard
7,615 2,075 15 8,295 30,352 49,262 22,716 120,330

Doubtful
- - - - - - - -

Grand Total
$ 1,940,802 $ 1,948,742 $ 462,092 $ 417,698 $ 479,498 $ 1,289,624 $ 1,570,705 $ 8,109,161

As of December 31, 2021, our loans based on year of origination and risk designation are as follows (dollars in thousands):

Revolving

Total

2021

2020

2019

2018

2017

Prior

Loans

Gross Loans

Commercial

Pass
$ 403,203 $ 58,534 $ 54,485 $ 60,409 $ 95,727 $ 86,556 $ 471,588 $ 1,230,502

Special mention
- - - - 1 4,045 4,266 8,312

Substandard
170 - 1,842 13,298 9,740 21,024 14,540 60,614

Doubtful
- - - - - - - -

Total Commercial
$ 403,373 $ 58,534 $ 56,327 $ 73,707 $ 105,468 $ 111,625 $ 490,394 $ 1,299,428

Commercial Real Estate

Pass
$ 1,692,098 $ 533,315 $ 420,995 $ 452,262 $ 497,065 $ 842,244 $ 170,721 $ 4,608,700

Special mention
- - - - 5,142 50,438 6,601 62,181

Substandard
1,968 9,039 4,006 20,624 - 26,108 8,964 70,709

Doubtful
- - - - - - - -

Total Commercial Real Estate
$ 1,694,066 $ 542,354 $ 425,001 $ 472,886 $ 502,207 $ 918,790 $ 186,286 $ 4,741,590

Commercial Construction

Pass
$ 8,018 $ 7,370 $ 12,625 $ 2,600 $ 2,339 $ - $ 490,119 $ 523,071

Special mention
- - - - 350 - 1,443 1,793

Substandard
- - - - - - 15,314 15,314

Doubtful
- - - - - - - -

Total Commercial Construction
$ 8,018 $ 7,370 $ 12,625 $ 2,600 $ 2,689 $ - $ 506,876 $ 540,178

Residential Real Estate

Pass
$ 27,081 $ 29,539 $ 23,611 $ 25,070 $ 28,701 $ 66,249 $ 44,221 $ 244,472

Special mention
- - - - - - - -

Substandard
- - - - - 7,262 3,535 10,797

Doubtful
- - - - - - - -

Total Residential Real Estate
$ 27,081 $ 29,539 $ 23,611 $ 25,070 $ 28,701 $ 73,511 $ 47,756 $ 255,269

Consumer

Pass
$ 1,590 $ 85 $ 39 $ 21 $ 28 $ - $ 123 $ 1,886

Special mention
- - - - - - - -

Substandard
- - - - - - - -

Doubtful
- - - - - - - -

Total Consumer
$ 1,590 $ 85 $ 39 $ 21 $ 28 $ - $ 123 $ 1,886

Total

Pass
$ 2,131,990 $ 628,843 $ 511,755 $ 540,362 $ 623,860 $ 995,049 $ 1,176,772 $ 6,608,631

Special mention
- - - - 5,493 54,483 12,310 72,286

Substandard
2,138 9,039 5,848 33,922 9,740 54,394 42,353 157,434

Doubtful
- - - - - - - -

Grand Total
$ 2,134,128 $ 637,882 $ 517,603 $ 574,284 $ 639,093 $ 1,103,926 $ 1,231,435 $ 6,838,351

Collateral Dependent Loans: Loans which meet certain criteria are individually evaluated as part of the process of calculating the allowance for credit losses. The evaluation is determined on an individual basis using the fair value of the collateral as of the reporting date. The following table presents collateral dependent loans that were individually evaluated for impairment as of December 31, 2022 and 2021:

December 31, 2022

Real Estate

Other

Total

(dollars in thousands)

Commercial
$ 5,352 $ 22,517 $ 27,869

Commercial real estate
52,477 - 52,477

Commercial construction
8,232 - 8,232

Residential real estate
5,864 - 5,864

Total
$ 71,925 $ 22,517 $ 94,442

December 31, 2021

Real Estate

Other

Total

(dollars in thousands)

Commercial
$ 6,385 $ 26,182 $ 32,567

Commercial real estate
55,244 - 55,244

Commercial construction
13,196 - 13,196

Residential real estate
8,856 - 8,856

Total
$ 83,681 $ 26,182 $ 109,863

Aging Analysis - The following table provides an analysis of the aging of the loans by class, excluding the effect of net deferred fees, which are past due as of December 31, 2022 and December 31, 2021 (dollars in thousands):

December 31, 2022

30-59 Days Past Due

60-89 Days Past Due

90 Days or Greater Past Due and Still Accruing

Nonaccrual

Total Past Due and Nonaccrual

Current

Gross Loans

Commercial
$ 306 $ - $ - $ 25,257 $ 25,563 $ 1,447,171 $ 1,472,734

Commercial real Estate
90 - 5,591 16,817 22,498 5,772,730 5,795,228

Commercial construction
- - - - - 574,139 574,139

Residential real Estate
1,569 - - 2,380 3,949 260,799 264,748

Consumer
- - - - - 2,312 2,312

Total
$ 1,965 $ - $ 5,591 $ 44,454 $ 52,010 $ 8,057,151 $ 8,109,161

The 90 days or greater past due and still accruing category reflects purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

December 31, 2021

30-59 Days Past Due

60-89 Days Past Due

90 Days or Greater Past Due and Still Accruing

Nonaccrual

Total Past Due and Nonaccrual

Current

Total Loans Receivable

Commercial
$ 4,305 $ 729 $ 4,457 $ 30,062 $ 39,553 $ 1,259,875 $ 1,299,428

Commercial real estate
1,622 1,009 5,935 25,393 33,959 4,707,631 4,741,590

Commercial construction
- - - 3,150 3,150 537,028 540,178

Residential real estate
1,437 292 3,139 3,095 7,963 247,306 255,269

Consumer
- - - - - 1,886 1,886

Total
$ 7,364 $ 2,030 $ 13,531 $ 61,700 $ 84,625 $ 6,753,726 $ 6,838,351

The 90 days or greater past due and still accruing category reflects purchased credit-deteriorated loans, net of fair value marks, which accrete income per the valuation at date of acquisition.

The following tables detail the amount of gross loans that are individually evaluated for impairment, collectively evaluated for impairment, and loans acquired with deteriorated quality, and the related portion of the allowance for credit losses for loans that are allocated to each loan portfolio segment.

December 31, 2022

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated
$ 7,426 $ 1,003 $ - $ 50 $ - $ 8,479

Collectively evaluated
19,319 50,818 3,718 4,093 7 77,955

Acquired with deteriorated credit quality individually analyzed
2,158 1,921 - - - 4,079

Total
$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ 90,513

Gross loans

Individually evaluated
$ 30,994 $ 46,886 $ 8,232 $ 5,864 $ - $ 91,976

Collectively evaluated
1,436,866 5,742,751 565,907 258,884 2,312 8,006,720

Acquired with deteriorated credit quality individually analyzed
4,874 5,591 - - - 10,465

Total
$ 1,472,734 $ 5,795,228 $ 574,139 $ 264,748 $ 2,312 $ 8,109,161



December 31, 2021

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Total

(dollars in thousands)

Allowance for credit losses - loans

Individually evaluated
$ 15,131 $ 955 $ - $ 131 $ - $ 16,217

Collectively evaluated
8,561 42,713 3,580 3,497 7 58,358

Acquired with deteriorated credit quality individually analyzed
2,277 1,921 - - - 4,198

Total
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ 78,773

Gross loans

Individually evaluated
$ 33,726 $ 49,310 $ 13,196 $ 5,717 $ - $ 101,949

Collectively evaluated
1,260,537 4,686,346 526,982 246,413 1,886 6,722,164

Acquired with deteriorated credit quality individually analyzed
5,165 5,934 - 3,139 - 14,238

Total
$ 1,299,428 $ 4,741,590 $ 540,178 $ 255,269 $ 1,886 $ 6,838,351

A summary of the activity in the allowance for credit losses for loans by loan segment is as follows:

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of January 1, 2022
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ - $ 78,773

Charge-offs
(2,612 ) (2,819 ) - (9 ) (3 ) - (5,443 )

Recoveries
54 - - 63 - - 117

Provision for credit losses
5,492 10,972 138 461 3 - 17,066

Balance as of December 31, 2022
$ 28,903 $ 53,742 $ 3,718 $ 4,143 $ 7 $ - $ 90,513

On January 1, 2021, the Company adopted CECL, which replaced the incurred loss method we used in prior periods for determining the provision for credit losses and the allowance for credit losses. Under CECL, we record an expected loss of all cash flows we do not expect to collect at the inception of the loan. The adoption of CECL resulted in an increase in our allowance for credit losses for loans of $6.6 million, which did not impact our consolidated income statement.

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of January 1, 2021
$ 28,443 $ 39,330 $ 8,194 $ 2,687 $ 4 $ 568 $ 79,226

Day 1 Adjustment CECL
(4,225 ) 9,605 (961 ) 2,697 9 (568 ) 6,557

Balance as of January 1, 2021
24,218 48,935 7,233 5,384 13 - 85,783

Charge-offs
(382 ) (1,780 ) - (235 ) - - (2,397 )

Recoveries
289 85 - 20 11 - 405

Provision for (reversal of) credit losses
1,844 (1,651 ) (3,653 ) (1,541 ) (17 ) - (5,018 )

Balance as of December 31, 2021
$ 25,969 $ 45,589 $ 3,580 $ 3,628 $ 7 $ - $ 78,773

Commercial

Commercial real estate

Commercial construction

Residential real estate

Consumer

Unallocated

Total

(dollars in thousands)

Balance as of January 1, 2020
$ 8,349 $ 20,853 $ 7,304 $ 1,685 $ 3 $ 99 $ 38,293

Charge-offs
(552 ) - - (341 ) (7 ) - (900 )

Recoveries
4 802 - 23 4 - 833

Provision for loan losses
20,642 17,675 890 1,320 4 469 41,000

Balance as of December 31, 2020
$ 28,443 $ 39,330 $ 8,194 $ 2,687 $ 4 $ 568 $ 79,226

Troubled Debt Restructurings

Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when, except as discussed below, due to a borrower’s financial difficulties, the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, maturity extensions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status for a period of nine months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual status.

As of December 31, 2022, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due 90 days or greater and still accruing interest, or whose terms have been modified in a TDR.

As of December 31, 2022, TDRs totaled $75.1 million, of which $23.7 million were on nonaccrual status and $51.4 million were classified as accruing and were performing under their restructured terms. As of December 31, 2021, TDRs totaled $79.5 million, of which $35.9 million were on nonaccrual status and $43.6 million were classified as accruing and were performing under their restructured terms. The Company has allocated $4.2 million and $10.4 million of specific allowance related to TDRs as of December 31, 2022 and December 31, 2021, respectively. There were no TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2022, 2021 and 2020.

The following table presents loans by class modified as TDRs during the year ended December 31, 2022:

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Loans

Investment

Investment

(dollars in thousands)

Troubled debt restructurings:

Commercial
2 $ 633 $ 633

Commercial real estate
3 12,083 11,583

Residential real estate
3 949 949

Total
8 $ 13,665 $ 13,165



The loans modified as TDRs during the year ended December 31, 2022 included maturity extensions and interest rate reductions. One of the commercial real estate loans included a one-time principal paydown of $500,000 at the time of modification. The eight loans modified during the year ended December 31, 2022 resulted in a $0.3 million increase to the allowance for credit losses at the time of their modification.

The following table presents loans by class modified as TDRs during the year ended December 31, 2021

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Loans

Investment

Investment

(dollars in thousands)

Troubled debt restructurings:

Commercial
4 $ 1,276 $ 1,276

Commercial real estate
11 35,635 35,635

Commercial construction
1 1,641 1,641

Residential real estate
3 1,758 1,758

Total
19 $ 40,310 $ 40,310



The loans modified as TDRs during the year ended December 31, 2021 included maturity extensions and interest rate reductions.

The following table presents loans by class modified as TDRs during the year ended December 31, 2020:

Pre-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Loans

Investment

Investment

(dollars in thousands)

Troubled debt restructurings:

Commercial
1 $ 188 $ 188

Commercial real estate
1 93 93

Commercial construction
1 4,021 4,021

Residential real estate
2 2,184 2,184

Total
5 $ 6,486 $ 6,486

The five loan modifications during the year ended December 31, 2020 were maturity extensions.

Allowance for Credit Losses for Unfunded Commitments

The Company has recorded an ACL for unfunded credit commitments, which is recorded in other liabilities. The provision is recorded within the (reversal of) provision for credit losses on the Company’s income statement. The following table presents the allowance for credit losses for unfunded commitments for the year ended December 31, 2022 and 2021 (dollars in thousands):

2022

2021

Balance as of beginning of period
$ 2,351 $ -

Day 1 Effect of CECL
- 2,833

Provision for (reversal of) credit losses - unfunded commitments
684 (482 )

Balance as of end of period
$ 3,035 $ 2,351

Components of (Reversal of) Provision for Credit Losses

The following table summarizes the provision for (reversal of) provision for credit losses for the year ended December 31, 2022 and 2021 (dollars in thousands):

2022

2021

Provision for (reversal of) credit losses - loans
$ 17,066 $ (5,018 )

Provision for (reversal of) credit losses - unfunded commitments
684 (482 )

Provision for (reversal of) credit losses
$ 17,750 $ (5,500 )