Note 3 - Loans

3 Months Ended

Mar. 31, 2021

Notes to Financial Statements

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

Note 3 – Loans

Loans, net of deferred fees and costs and excluding loans held for sale, at March 31, 2021 and  December 31, 2020, were comprised of the following (dollars in thousands):

	March 31, 2021		December 31, 2020
Commercial	$	447,109	$	491,256
Commercial real estate:
Construction and land development		159,801		140,071
Commercial real estate - owner occupied		364,549		373,680
Commercial real estate - non-owner occupied		628,742		627,569
Residential real estate:
Residential		266,595		269,137
Home equity		100,643		104,881
Consumer		11,201		8,462
Total loans, net of deferred fees and costs	$	1,978,640	$	2,015,056

Acquired Loans 

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC 310-30, included in the consolidated balance sheets at March 31, 2021 and  December 31, 2020 are as follows (dollars in thousands):

	March 31, 2021		December 31, 2020
Outstanding principal balance	$	227,525	$	251,730
Carrying amount		217,738		241,008

The outstanding principal balance and related carrying amount of purchased credit impaired loans, for which the Company applies ASC 310-30 to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

	March 31, 2021		December 31, 2020
Outstanding principal balance	$	34,916	$	37,417
Carrying amount		27,966		30,201

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC 310-30, for the three months ended March 31, 2021 and the year ended December 31, 2020 (dollars in thousands):

	March 31, 2021			December 31, 2020
Balance at January 1	$	6,513		$	7,893
Accretion		(712	)		(3,553	)
Reclassification from nonaccretable difference		451			2,233
Other changes, net (1)		79			(60	)
	$	6,331		$	6,513

  __________________________

  (1) This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

Past Due Loans

The following table shows an analysis by portfolio segment of the Company's past due loans at March 31, 2021 (dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	—	$	23	$	—	$	68	$	91	$	447,018	$	447,109
Commercial real estate:
Construction and land development		—		—		—		5		5		159,796		159,801
Commercial real estate - owner occupied		—		—		—		45		45		364,504		364,549
Commercial real estate - non-owner occupied		—		—		—		1,003		1,003		627,739		628,742
Residential:
Residential		202		78		162		1,128		1,570		265,025		266,595
Home equity		90		—		—		67		157		100,486		100,643
Consumer		14		4		—		7		25		11,176		11,201
Total	$	306	$	105	$	162	$	2,323	$	2,896	$	1,975,744	$	1,978,640

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2020 (dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	153	$	9	$	—	$	100	$	262	$	490,994	$	491,256
Commercial real estate:
Construction and land development		168		—		—		5		173		139,898		140,071
Commercial real estate - owner occupied		62		—		209		304		575		373,105		373,680
Commercial real estate - non-owner occupied		—		—		—		1,158		1,158		626,411		627,569
Residential:
Residential		711		211		53		792		1,767		267,370		269,137
Home equity		—		—		—		69		69		104,812		104,881
Consumer		49		14		—		6		69		8,393		8,462
Total	$	1,143	$	234	$	262	$	2,434	$	4,073	$	2,010,983	$	2,015,056

Impaired Loans

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at March 31, 2021 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	9	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		30		27		—		158		1
Commercial real estate - non-owner occupied		1,108		1,107		—		1,127		17
Residential:
Residential		1,429		1,432		—		1,263		16
Home equity		5		5		—		6		—
Consumer		—		—		—		—		—
	$	2,572	$	2,571	$	—	$	2,563	$	34
With a related allowance recorded:
Commercial	$	36	$	29	$	26	$	38	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		61		—
Residential
Residential		135		135		1		136		2
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	171	$	164	$	27	$	235	$	3
Total:
Commercial	$	36	$	29	$	26	$	47	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		30		27		—		158		1
Commercial real estate - non-owner occupied		1,108		1,107		—		1,188		17
Residential:
Residential		1,564		1,567		1		1,399		18
Home equity		5		5		—		6		—
Consumer		—		—		—		—		—
	$	2,743	$	2,735	$	27	$	2,798	$	37

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at December 31, 2020 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	18	$	18	$	—	$	23	$	6
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		286		283		—		357		27
Commercial real estate - non-owner occupied		1,148		1,147		—		766		75
Residential:
Residential		1,096		1,103		—		912		62
Home equity		6		6		—		31		3
Consumer		—		—		—		—		—
	$	2,554	$	2,557	$	—	$	2,089	$	173
With a related allowance recorded:
Commercial	$	39	$	33	$	29	$	382	$	15
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied (1)		122		122		—		180		15
Residential:
Residential		137		137		1		256		9
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	298	$	292	$	30	$	818	$	39
Total:
Commercial	$	57	$	51	$	29	$	405	$	21
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		286		283		—		357		27
Commercial real estate - non-owner occupied		1,270		1,269		—		946		90
Residential:
Residential		1,233		1,240		1		1,168		71
Home equity		6		6		—		31		3
Consumer		—		—		—		—		—
	$	2,852	$	2,849	$	30	$	2,907	$	212

  __________________________

  (1) Allowance is reported as zero in the table due to presentation in thousands and rounding.

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

During the three months ended March 31, 2021, there were no loans modified as TDRs. There was one residential real estate loan modified as a TDR during the three months ended March 31, 2020. This TDR was included in the impaired loan balances and was a payment deferral with a pre- and post- modification outstanding recorded investment of $82,000.

During the three months ended March 31, 2021, the Company had one commercial real estate - non-owner occupied loan with a recorded investment of $259,000 at restructure and one commercial loan with a recorded investment of $106,000 at restructure that subsequently defaulted within 12 months of modification. During the three months ended March 31, 2020, the Company had no loans that subsequently defaulted within 12 months of modification. The Company defines defaults as one or more payments that occur more than 90 days past the due date, charge-off or foreclosure subsequent to modification.

During the first quarter of 2021, the Bank continued to assist borrowers through the DAP. On  March 31, 2021, the balance of loans remaining in this program was $19.3 million, or less than 1.0% of the total portfolio, compared to $30.0 million, or 1.5%, at December 31, 2020. At March 31, 2021, $16.4 million of the $19.3 million was the result of second and third interest deferrals. The majority of the remaining modifications involved six-month deferments of interest.

The Company continued to participate in the SBA's PPP under the CARES Act in the first quarter of 2021. During the quarter, there were 805 loans processed for approximately $80.7 million from the second round of the program. The loans are 100% guaranteed by the SBA and therefore do not have a related allowance. The SBA pays the Bank a processing fee based on the size of the loan which is amortized to income over the life of the loan or until the loan is forgiven or otherwise repaid. In addition to the new loans, $105.1 million of first round loans from 2020 were forgiven in first quarter 2021 compared to $56.4 million in the fourth quarter of 2020. Total outstanding net PPP loans were $183.8 million and $211.3 million at March 31, 2021 and December 31, 2020, respectively.

The loan portfolio consists primarily of commercial and residential real estate loans, commercial loans to small and medium-sized businesses, construction and land development loans, and home equity loans. At March 31, 2021, the commercial real estate portfolio included concentrations of $74,760,000, $43,720,000 and $195,656,000 in hotel, restaurants, and retail loans, respectively. These concentrations total 3.8%, 2.2%, and 9.9% of total loans, respectively, excluding loans in process.

Residential Real Estate in Process of Foreclosure

The Company had $192,000 and $387,000 in residential real estate loans in the process of foreclosure at March 31, 2021 and December 31, 2020, respectively. The Company had no residential other real estate owned ("OREO") at March 31, 2021 and had $285,000 in residential OREO at December 31, 2020.

Risk Grades

The following tables show the Company's loan portfolio broken down by internal risk grading as of March 31, 2021 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate - Owner Occupied		Commercial Real Estate - Non-owner Occupied		Residential		Home Equity
Pass	$	437,092	$	152,327	$	342,078	$	611,473	$	260,207	$	100,251
Special Mention		9,238		3,155		14,983		9,555		3,376		—
Substandard		778		4,319		7,488		7,714		3,012		392
Doubtful		1		—		—		—		—		—
Total	$	447,109	$	159,801	$	364,549	$	628,742	$	266,595	$	100,643

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	11,194
Nonperforming		7
Total	$	11,201

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 31, 2020 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate -Owner Occupied		Commercial Real Estate - Non-owner Occupied		Residential		Home Equity
Pass	$	479,416	$	131,770	$	350,376	$	612,688	$	262,677	$	104,608
Special Mention		10,956		2,505		14,621		9,196		3,665		—
Substandard		865		5,796		8,474		5,563		2,795		273
Doubtful		19		—		209		122		—		—
Total	$	491,256	$	140,071	$	373,680	$	627,569	$	269,137	$	104,881

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	8,456
Nonperforming		6
Total	$	8,462

Loans classified in the Pass category typically are fundamentally sound, and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

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