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Note 4 - Loans

12 Months Ended

Dec. 31, 2021

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

Note 4 – Loans

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

	*December 31,*
	*2021*		*2020*
Commercial	$	299,773	$	491,256
Commercial real estate:
Construction and land development		134,221		140,071
Commercial real estate - owner occupied		391,517		373,680
Commercial real estate - non-owner occupied		731,034		627,569
Residential real estate:
Residential		289,757		269,137
Home equity		93,203		104,881
Consumer		7,075		8,462
Total loans, net of deferred fees and costs	$	1,946,580	$	2,015,056

Commercial includes approximately $12.2 million and $211.3 million in net PPP loans at December 31, 2021 and 2020, respectively. The PPP loan balances at December 31, 2021 and 2020 included $(282,000) and $(4,439,000), respectively, in unamortized net PPP fees. Net deferred loan (fees) costs included in the above loan categories are $333,000 for 2021 and $(3,021,000) for 2020 in all other categories.

Overdraft deposits were reclassified to consumer loans in the amount of $90,000 and $59,000 for 2021 and 2020, respectively.

Acquired Loans

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

	*2021*		*2020*
Outstanding principal balance	$	163,574	$	251,730
Carrying amount		156,975		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, at December 31, 2021 and 2020 are as follows (dollars in thousands):

	*2021*		*2020*
Outstanding principal balance	$	24,696	$	37,417
Carrying amount		19,802		30,201

The following table presents changes in the accretable yield on purchased credit impaired loans, for which the Company applies ASC 310-30, for the years ended December 31, 2021, 2020, and 2019 (dollars in thousands):

	*2021*			*2020*			*2019*
Balance at January 1	$	6,513		$	7,893		$	4,633
Additions from merger with HomeTown		—			—			4,410
Accretion		(5,292	)		(3,553	)		(3,304	)
Reclassification from nonaccretable difference		2,780			2,233			736
Other changes, net (1)		901			(60	)		1,418
Balance at December 31	$	4,902		$	6,513		$	7,893

__________________________

(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 December 31, 2021 (dollars in thousands):

					*90 Days +*
					*Past Due*		*Non-*		*Total*
	*30- 59 Days*		*60-89 Days*		*and Still*		*Accrual*		*Past*				*Total*
	*Past Due*		*Past Due*		*Accruing*		*Loans*		*Due*		*Current*		*Loans*
Commercial	$	120	$	—	$	—	$	26	$	146	$	299,627	$	299,773
Commercial real estate:
Construction and land development		—		—		—		—		—		134,221		134,221
Commercial real estate - owner occupied		—		—		—		12		12		391,505		391,517
Commercial real estate - non-owner occupied		—		—		—		1,093		1,093		729,941		731,034
Residential:
Residential		670		20		154		792		1,636		288,121		289,757
Home equity		12		30		47		80		169		93,034		93,203
Consumer		6		—		15		3		24		7,051		7,075
Total	$	808	$	50	$	216	$	2,006	$	3,080	$	1,943,500	$	1,946,580

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

					*90 Days +*
					*Past Due*		*Non-*		*Total*
	*30- 59 Days*		*60-89 Days*		*and Still*		*Accrual*		*Past*				*Total*
	*Past Due*		*Past Due*		*Accruing*		*Loans*		*Due*		*Current*		*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 December 31, 2021 (dollars in thousands):

			*Unpaid*				*Average*		*Interest*
	*Recorded*		*Principal*		*Related*		*Recorded*		*Income*
	*Investment*		*Balance*		*Allowance*		*Investment*		*Recognized*
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	4	$	—
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		8		5		—		71		1
Commercial real estate - non-owner occupied		1,185		1,186		—		1,107		23
Residential:
Residential		1,021		1,031		—		1,217		41
Home equity		4		4		—		5		1
Consumer		—		—		—		—		—
	$	2,218	$	2,226	$	—	$	2,404	$	66
With a related allowance recorded:
Commercial	$	14	$	7	$	7	$	25	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		—		—		—		—		—
Commercial real estate - non-owner occupied		—		—		—		30		—
Residential
Residential		—		—		—		61		2
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	14	$	7	$	7	$	116	$	3
Total:
Commercial	$	14	$	7	$	7	$	29	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate - owner occupied		8		5		—		71		1
Commercial real estate - non-owner occupied		1,185		1,186		—		1,137		23
Residential:
Residential		1,021		1,031		—		1,278		43
Home equity		4		4		—		5		1
Consumer		—		—		—		—		—
	$	2,232	$	2,233	$	7	$	2,520	$	69

In the table above, recorded investment may be different than unpaid principal balance due to acquired loans with a premium or discount and loans with unearned costs or 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):

			*Unpaid*				*Average*		*Interest*
	*Recorded*		*Principal*		*Related*		*Recorded*		*Income*
	*Investment*		*Balance*		*Allowance*		*Investment*		*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		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

In the table above, recorded investment may be different than unpaid principal balance due to acquired loans with a premium or discount and loans with unearned costs or unearned fees.

The following table shows the detail of loans modified as TDRs during the years ended December 31, 2021, 2020, and 2019, included in the impaired loan balances (dollars in thousands):

	*Loans Modified as TDRs for the Year Ended December 31, 2021*
			*Pre-Modification*		*Post-Modification*
	*Number of*		*Outstanding Recorded*		*Outstanding Recorded*
	*Contracts*		*Investment*		*Investment*
Commercial		—	$	—	$	—
Commercial real estate - owner occupied		—		—		—
Commercial real estate - non-owner occupied		1		1,093		1,093
Residential real estate		—		—		—
Home equity		—		—		—
Consumer		—		—		—
Total		1	$	1,093	$	1,093

	*Loans Modified as TDRs for the Year Ended December 31, 2020*
			*Pre-Modification*		*Post-Modification*
	*Number of*		*Outstanding Recorded*		*Outstanding Recorded*
	*Contracts*		*Investment*		*Investment*
Commercial		1	$	106	$	106
Commercial real estate - owner occupied		—		—		—
Commercial real estate - non-owner occupied		2		1,311		1,311
Residential real estate		1		82		82
Home equity		1		6		6
Consumer		—		—		—
Total		5	$	1,505	$	1,505

	*Loans Modified as TDRs for the Year Ended December 31, 2019*
			*Pre-Modification*		*Post-Modification*
	*Number of*		*Outstanding Recorded*		*Outstanding Recorded*
	*Contracts*		*Investment*		*Investment*
Commercial		—	$	—	$	—
Commercial real estate - owner occupied		—		—		—
Commercial real estate - non-owner occupied		—		—		—
Residential real estate		1		207		207
Home equity		—		—		—
Consumer		—		—		—
Total		1	$	207	$	207

All loans modified as TDRs during the years ended December 31, 2021, 2020, and 2019 were structure modifications. There was no impact to the allowance for loan losses for the one commercial real estate-non-owner occupied TDR in 2021. The impact on the allowance for loan losses for the commercial loan modified as a TDR in 2020 was $88,000. The impact on the allowance for loan losses for one of the commercial real estate - non-owner occupied loans modified as a TDR in 2020 was $138,000; there was no impact on the allowance for loan losses for the other commercial real estate - non-owner occupied loan. There was no impact on the allowance for loan losses for the residential real estate loan and the home equity loan modified as TDRs in 2020. For the year ended December 31, 2020, the impact on the allowance was due to specific reserves that were charged-off prior to year-end. The impact on the allowance for loan losses for the residential real estate loan modified as a TDR in 2019 was $24,000.

During the years ended December 31, 2021 and 2019, the Company had no loans that subsequently defaulted within 12 months of modification. During the year ended December 31, 2020, the Company had one commercial real estate - non-owner occupied loan with a recorded investment of $1,052,000 that subsequently defaulted within 12 months of modification. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure subsequent to modification. Any charge-offs resulting in default were adjusted through the allowance for loan losses.

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 December 31, 2021, the commercial real estate portfolio included concentrations of $81,241,000, $46,049,000 and $204,655,000 in hotel, restaurants, and retail, respectively. The concentrations total 17.1% of total loans, excluding loans in process.

The Company had $102,500 and $387,000 in residential real estate loans in the process of foreclosure at December 31, 2021 and December 31, 2020, respectively, and had $0 and $285,000 in residential OREO at December 31, 2021 and December 31, 2020, respectively.

Risk Ratings

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 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 Real Estate*		*Home Equity*
Pass	$	290,823	$	130,111	$	372,177	$	720,138	$	285,188	$	92,807
Special Mention		8,333		2,881		11,048		8,702		1,774		—
Substandard		617		1,229		8,292		2,194		2,795		396
Doubtful		—		—		—		—		—		—
Total	$	299,773	$	134,221	$	391,517	$	731,034	$	289,757	$	93,203

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	*Consumer*
Performing	$	7,057
Nonperforming		18
Total	$	7,075

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 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.

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 Real Estate*		*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