XML 21 R11.htm IDEA: XBRL DOCUMENT v3.21.2
Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2021
Allowance for Loan Losses  
Note 4. Allowance for Loan Losses

Note 4. Allowance for Loan Losses

 

A summary of changes in the allowance for loan losses (dollars in thousands) for September 30, 2021 and December 31, 2020 is as follows:

 

September 30, 2021 

 

Beginning Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

 

Individually Evaluated for Impairment

 

 

Collectively Evaluated for Impairment

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

$1,249

 

 

$-

 

 

$307

 

 

$(631)

 

$925

 

 

$-

 

 

$925

 

Farmland

 

 

731

 

 

 

-

 

 

 

-

 

 

 

(262)

 

 

469

 

 

 

-

 

 

 

469

 

Real Estate

 

 

1,624

 

 

 

-

 

 

 

34

 

 

 

(323)

 

 

1,335

 

 

 

169

 

 

 

1,166

 

Multi-Family

 

 

54

 

 

 

-

 

 

 

-

 

 

 

(25)

 

 

29

 

 

 

-

 

 

 

29

 

Commercial Real Estate

 

 

3,662

 

 

 

-

 

 

 

19

 

 

 

(945)

 

 

2,736

 

 

 

617

 

 

 

2,119

 

Home Equity – closed end

 

 

55

 

 

 

-

 

 

 

-

 

 

 

(11)

 

 

44

 

 

 

-

 

 

 

44

 

Home Equity – open end

 

 

463

 

 

 

-

 

 

 

13

 

 

 

(68)

 

 

408

 

 

 

-

 

 

 

408

 

 Commercial & Industrial – Non-Real Estate

 

 

363

 

 

 

-

 

 

 

30

 

 

 

(95)

 

 

298

 

 

 

-

 

 

 

298

 

 Consumer

 

 

521

 

 

 

18

 

 

 

20

 

 

 

3

 

 

 

526

 

 

 

-

 

 

 

526

 

Dealer Finance

 

 

1,674

 

 

 

746

 

 

 

520

 

 

 

146

 

 

 

1,594

 

 

 

14

 

 

 

1,580

 

Credit Cards

 

 

79

 

 

 

30

 

 

 

17

 

 

 

1

 

 

 

67

 

 

 

-

 

 

 

67

 

Total

 

$10,475

 

 

$794

 

 

$960

 

 

$(2,210)

 

$8,431

 

 

$800

 

 

$7,631

 

 

December 31, 2020

 

Beginning Balance

 

 

Charge-offs

 

 

Recoveries

 

 

Provision

 

 

Ending Balance

 

 

Individually Evaluated for Impairment

 

 

Collectively Evaluated for Impairment

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction/Land Development

 

$1,190

 

 

$7

 

 

$-

 

 

$66

 

 

$1,249

 

 

$-

 

 

$1,249

 

Farmland

 

 

668

 

 

 

-

 

 

 

-

 

 

 

63

 

 

 

731

 

 

 

370

 

 

 

361

 

Real Estate

 

 

1,573

 

 

 

158

 

 

 

7

 

 

 

202

 

 

 

1,624

 

 

 

365

 

 

 

1,259

 

Multi-Family

 

 

20

 

 

 

-

 

 

 

-

 

 

 

34

 

 

 

54

 

 

 

-

 

 

 

54

 

Commercial Real Estate

 

 

1,815

 

 

 

64

 

 

 

11

 

 

 

1,900

 

 

 

3,662

 

 

 

1,833

 

 

 

1,829

 

Home Equity – closed end

 

 

42

 

 

 

-

 

 

 

-

 

 

 

13

 

 

 

55

 

 

 

-

 

 

 

55

 

Home Equity – open end

 

 

457

 

 

 

34

 

 

 

3

 

 

 

37

 

 

 

463

 

 

 

-

 

 

 

463

 

 Commercial & Industrial – Non-Real Estate

 

 

585

 

 

 

138

 

 

 

19

 

 

 

(103)

 

 

363

 

 

 

-

 

 

 

363

 

 Consumer

 

 

186

 

 

 

89

 

 

 

50

 

 

 

374

 

 

 

521

 

 

 

1

 

 

 

520

 

Dealer Finance

 

 

1,786

 

 

 

1,551

 

 

 

784

 

 

 

655

 

 

 

1,674

 

 

 

15

 

 

 

1,659

 

Credit Cards

 

 

68

 

 

 

123

 

 

 

75

 

 

 

59

 

 

 

79

 

 

 

-

 

 

 

79

 

Total

 

$8,390

 

 

$2,164

 

 

$949

 

 

$3,300

 

 

$10,475

 

 

$2,584

 

 

$7,891

 

The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of September 30, 2021 and December 31, 2020:

 

September 30, 2021

 

Loan Receivable

 

 

Individually Evaluated for Impairment

 

 

Collectively Evaluated for Impairment

 

Construction/Land Development

 

$70,102

 

 

$733

 

 

$69,369

 

Farmland

 

 

66,367

 

 

 

2,371

 

 

 

63,996

 

Real Estate

 

 

145,647

 

 

 

4,157

 

 

 

141,490

 

Multi-Family

 

 

4,632

 

 

 

-

 

 

 

4,632

 

Commercial Real Estate

 

 

156,504

 

 

 

14,558

 

 

 

141,946

 

Home Equity – closed end

 

 

6,365

 

 

 

161

 

 

 

6,204

 

Home Equity –open end

 

 

42,872

 

 

 

-

 

 

 

42,872

 

Commercial & Industrial – Non-Real Estate

 

 

48,133

 

 

 

-

 

 

 

48,133

 

Consumer

 

 

8,239

 

 

 

-

 

 

 

8,239

 

Dealer Finance

 

 

104,418

 

 

 

118

 

 

 

104,300

 

Credit Cards

 

 

2,790

 

 

 

-

 

 

 

2,790

 

Gross loans

 

 

656,069

 

 

 

22,098

 

 

 

633,971

 

Less: Deferred loan fees, net of costs

 

 

(238)

 

 

-

 

 

 

(238)

Total

 

$665,831

 

 

$22,098

 

 

$633,733

 

 

December 31, 2020

 

Loan Receivable

 

 

Individually Evaluated for Impairment

 

 

Collectively Evaluated for Impairment

 

Construction/Land Development

 

$71,467

 

 

$1,693

 

 

$69,774

 

Farmland

 

 

53,728

 

 

 

1,737

 

 

 

51,991

 

Real Estate

 

 

163,018

 

 

 

13,791

 

 

 

149,227

 

Multi-Family

 

 

5,918

 

 

 

-

 

 

 

5,918

 

Commercial Real Estate

 

 

142,516

 

 

 

16,056

 

 

 

126,460

 

Home Equity – closed end

 

 

8,476

 

 

 

687

 

 

 

7,789

 

Home Equity –open end

 

 

46,613

 

 

 

151

 

 

 

46,462

 

Commercial & Industrial – Non-Real Estate

 

 

65,470

 

 

 

8

 

 

 

65,462

 

Consumer

 

 

9,405

 

 

 

1

 

 

 

9,404

 

Dealer Finance

 

 

91,861

 

 

 

155

 

 

 

91,706

 

Credit Cards

 

 

2,857

 

 

 

-

 

 

 

2,857

 

Total

 

$661,329

 

 

$34,279

 

 

$627,050

 

 

During the third quarter of 2021, Management changed the historical net charge off lookback period from two years to three years for all segments given recent asset quality trends and the impact of government programs in response to the COVID-19 pandemic on charge off experience. Management believes the three year lookback period is more indicative of the risk remaining in the loan portfolio.

 

This change and the effect on provision expense for the nine months ended September 30, 2021 and the allowance for loan losses at September 30, 2021 was as follows:

 

 

Calculated Provision Based on Current Methodology

 

 

Current Provision Based on Prior Methodology

 

 

Difference

 

Construction/Land Development

 

$(631)

 

$(952)

 

$321

 

Farmland

 

 

(262)

 

 

(262)

 

 

-

 

Real Estate

 

 

(323)

 

 

(325)

 

 

2

 

Multi-Family

 

 

(25)

 

 

(25)

 

 

-

 

Commercial Real Estate

 

 

(945)

 

 

(1,611)

 

 

666

 

Home Equity – closed end

 

 

(11)

 

 

(11)

 

 

-

 

Home Equity – open end

 

 

(68)

 

 

(102)

 

 

34

 

Commercial & Industrial – Non-Real Estate

 

 

(95)

 

 

(111)

 

 

16

 

Consumer

 

 

3

 

 

 

(400)

 

 

403

 

Dealer Finance

 

 

146

 

 

 

17

 

 

 

129

 

Credit Cards

 

 

1

 

 

 

(1)

 

 

2

 

 

 

$(2,210)

 

$(3,783)

 

$1,573

 

 

The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of September 30, 2021 and December 31, 2020:

 

September 30, 2021

 

Grade 1 Minimal Risk

 

 

Grade 2 Modest Risk

 

 

Grade 3 Average Risk

 

 

Grade 4 Acceptable Risk

 

 

Grade 5 Marginally Acceptable

 

 

Grade 6 Watch

 

 

Grade 7 Substandard

 

 

Grade 8 Doubtful

 

 

Total

 

Construction/Land Development

 

$-

 

 

$6

 

 

$8,747

 

 

$41,664

 

 

$17,535

 

 

$1,883

 

 

$267

 

 

$-

 

 

$70,102

 

Farmland

 

 

57

 

 

 

298

 

 

 

6,755

 

 

 

40,732

 

 

 

15,471

 

 

 

1,659

 

 

 

1,395

 

 

 

-

 

 

 

66,367

 

Real Estate

 

 

-

 

 

 

1,591

 

 

 

33,758

 

 

 

63,923

 

 

 

28,714

 

 

 

12,585

 

 

 

5,076

 

 

 

-

 

 

 

145,647

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

1,590

 

 

 

1,748

 

 

 

1,164

 

 

 

130

 

 

 

-

 

 

 

-

 

 

 

4,632

 

Commercial Real Estate

 

 

-

 

 

 

4,543

 

 

 

32,466

 

 

 

61,433

 

 

 

30,433

 

 

 

14,847

 

 

 

12,782

 

 

 

-

 

 

 

156,504

 

Home Equity – closed end

 

 

-

 

 

 

64

 

 

 

1,253

 

 

 

3,244

 

 

 

715

 

 

 

1,089

 

 

 

-

 

 

 

-

 

 

 

6,365

 

Home Equity – open end

 

 

-

 

 

 

1,259

 

 

 

16,395

 

 

 

21,253

 

 

 

2,223

 

 

 

1,526

 

 

 

216

 

 

 

-

 

 

 

42,872

 

Commercial & Industrial -Non-Real Estate

 

 

-

 

 

 

716

 

 

 

9,425

 

 

 

21,316

 

 

 

16,086

 

 

 

569

 

 

 

21

 

 

 

-

 

 

 

48,133

 

Consumer (excluding dealer)

 

 

-

 

 

 

477

 

 

 

3,120

 

 

 

3,600

 

 

 

1,020

 

 

 

22

 

 

 

-

 

 

 

-

 

 

 

8,239

 

Gross Loans

 

$57

 

 

$8,954

 

 

$113,509

 

 

$258,913

 

 

$113,361

 

 

$34,310

 

 

$19,757

 

 

$-

 

 

$548,861

 

Less: Deferred loan fees, net of costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(238)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$548,623

 

 

 

 

Credit Cards

 

 

Dealer Finance

 

Performing

 

$2,770

 

 

$104,389

 

Non-performing

 

 

20

 

 

 

29

 

Total

 

$2,790

 

 

$104,418

 

 December 31, 2020

 

Grade 1 Minimal Risk

 

 

Grade 2 Modest Risk

 

 

Grade 3 Average Risk

 

 

Grade 4 Acceptable Risk

 

 

Grade 5 Marginally Acceptable

 

 

Grade 6 Watch

 

 

Grade 7 Substandard

 

 

Grade 8 Doubtful

 

 

Total

 

Construction/Land Development

 

$-

 

 

$142

 

 

$8,448

 

 

$40,126

 

 

$18,226

 

 

$4,274

 

 

$251

 

 

$-

 

 

$71,467

 

Farmland

 

 

58

 

 

 

459

 

 

 

11,707

 

 

 

26,899

 

 

 

11,846

 

 

 

1,022

 

 

 

1,737

 

 

 

-

 

 

 

53,728

 

Real Estate

 

 

-

 

 

 

2,283

 

 

 

39,223

 

 

 

66,698

 

 

 

32,302

 

 

 

6,977

 

 

 

15,535

 

 

 

-

 

 

 

163,018

 

Multi-Family

 

 

-

 

 

 

-

 

 

 

1,075

 

 

 

3,509

 

 

 

1,334

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,918

 

Commercial Real Estate

 

 

-

 

 

 

4,114

 

 

 

31,205

 

 

 

47,477

 

 

 

26,677

 

 

 

18,637

 

 

 

14,406

 

 

 

-

 

 

 

142,516

 

Home Equity – closed end

 

 

-

 

 

 

124

 

 

 

2,479

 

 

 

3,289

 

 

 

759

 

 

 

1,795

 

 

 

30

 

 

 

-

 

 

 

8,476

 

Home Equity – open end

 

 

-

 

 

 

1,705

 

 

 

17,716

 

 

 

22,014

 

 

 

3,171

 

 

 

1,477

 

 

 

530

 

 

 

-

 

 

 

46,613

 

Commercial & Industrial - Non-Real Estate

 

 

90

 

 

 

1,524

 

 

 

7,601

 

 

 

17,050

 

 

 

38,290

 

 

 

913

 

 

 

2

 

 

 

-

 

 

 

65,470

 

Consumer (excluding dealer)

 

 

-

 

 

 

173

 

 

 

3,461

 

 

 

3,975

 

 

 

1,790

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

9,405

 

Total

 

$148

 

 

$10,524

 

 

$122,915

 

 

$231,037

 

 

$134,395

 

 

$35,101

 

 

$32,491

 

 

$-

 

 

$566,611

 

 

 

 

Credit Cards

 

 

Dealer Finance

 

Performing

 

$2,857

 

 

$91,817

 

Non-performing

 

 

-

 

 

 

44

 

Total

 

$2,857

 

 

$91,861

 

 

Description of internal loan grades:

 

Grade 1 – Minimal Risk:   Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

 

Grade 2 – Modest Risk:  Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

 

Grade 3 – Average Risk:  Borrower generates sufficient cash flow to fund debt service.  Employment (or business) is stable with good future trends.  Credit is very good.

 

Grade 4 – Acceptable Risk:  Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long-term debt.  Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

 

Grade 5 – Marginally acceptable:  Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable.  Employment or business stability may be weak or deteriorating.  May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects.  Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

 

Grade 6 – Watch:  Loans are currently protected, but are weak due to negative balance sheet or income statement trends.  There may be a lack of effective control over collateral or the existence of documentation deficiencies.  These loans have potential weaknesses that deserve management’s close attention.  Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness.  Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable.  Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt.  Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

 

Grade 8 – Doubtful:  The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety.  Cash flow is insufficient to service the debt.  It may be difficult to project the exact amount of loss, but the probability of some loss is great.  Loans are to be placed on non-accrual status when any portion is classified doubtful. 

 

Credit card and dealer finance loans are classified as performing or nonperforming.  A loan is nonperforming when payments of principal and interest are past due 90 days or more.