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Note 3 - Loans
 3 Months Ended
Mar. 31, 2023
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, 2023 and  December 31, 2022, were comprised of the following (dollars in thousands):

 

  March 31, 2023  December 31, 2022 

Commercial

 $304,486  $304,247 

Commercial real estate:

        

Construction and land development

  215,975   197,525 

Commercial real estate - owner occupied

  415,106   418,462 

Commercial real estate - non-owner occupied

  822,347   827,728 

Residential real estate:

        

Residential

  343,548   338,132 

Home equity

  91,408   93,740 

Consumer

  6,647   6,615 

Total loans, net of deferred fees and costs

 $2,199,517  $2,186,449 

 

Acquired Loans 

 

The following information for the year ended  December 31, 2022 was in accordance with guidance in effect prior to the adoption of ASC 326. 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  December 31, 2022 were as follows (dollars in thousands):

 

  

December 31, 2022

 

Outstanding principal balance

 $125,856 

Carrying amount

  120,432 

 

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 were as follows (dollars in thousands):

 

  

December 31, 2022

 

Outstanding principal balance

 $17,788 

Carrying amount

  13,541 

 

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applied ASC 310-30 (dollars in thousands):

 

  

December 31, 2022

 

Balance at January 1

 $4,902 

Accretion

  (2,186)

Reclassification from nonaccretable difference

  986 

Other changes, net (1)

  (172)
  $3,530 

  __________________________

  (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, 2023 (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

 $206  $38  $—  $4  $248  $304,238  $304,486 

Commercial real estate:

                            

Construction and land development

  —   —   —   —   —   215,975   215,975 

Commercial real estate - owner occupied

  —   156   —   617   773   414,333   415,106 

Commercial real estate - non-owner occupied

  —   —   —   295   295   822,052   822,347 

Residential:

                            

Residential

  136   —   —   749   885   342,663   343,548 

Home equity

  —   —   —   203   203   91,205   91,408 

Consumer

  —   —   —   19   19   6,628   6,647 

Total

 $342  $194  $—  $1,887  $2,423  $2,197,094  $2,199,517 

 

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2022 (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

 $161  $—  $—  $4  $165  $304,082  $304,247 

Commercial real estate:

                            

Construction and land development

  —   —   —   —   —   197,525   197,525 

Commercial real estate - owner occupied

  724   268   —   —   992   417,470   418,462 

Commercial real estate - non-owner occupied

  319   —   —   301   620   827,108   827,728 

Residential:

                            

Residential

  664   90   —   797   1,551   336,581   338,132 

Home equity

  104   —   —   205   309   93,431   93,740 

Consumer

  —   —   16   —   16   6,599   6,615 

Total

 $1,972  $358  $16  $1,307  $3,653  $2,182,796  $2,186,449 

 

The following table is a summary of nonaccrual loans by major categories for the periods indicated (dollars in thousands):

 

  

CECL

  

Incurred Loss

 
  March 31, 2023  December 31, 2022 
  

Nonaccrual Loans

  

Nonaccrual Loans

  

Total

     
  

with No Allowance

  

with an Allowance

  

Nonaccrual Loans

  

Nonaccrual Loans

 

Commercial

 $-  $4  $4  $4 

Commercial real estate:

                

Construction and land development

  -   -   -   - 

Commercial real estate-owner occupied

  617   -   617   - 

Commercial real estate-non-owner occupied

  295   -   295   301 

Residential:

          -     

Residential

  499   250   749   797 

Home equity

  161   42   203   205 

Consumer

  -   19   19   - 

Total

 $1,572  $315  $1,887  $1,307 

 

The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2023 (dollars in thousands):

 

  

For the Three Months Ended March 31, 2023

 

Commercial

 $1 

Commercial real estate:

    

Construction and land development

  - 

Commercial real estate-owner occupied

  8 

Commercial real estate-non-owner occupied

  - 

Residential:

    

Residential

  2 

Home equity

  - 

Consumer

  - 

Total accrued interest reversed

 $11 

 

The following table presents a nonaccrual loan analysis of collateral dependent loans as of March 31, 2023. Only loans over the Company's threshold are assessed (dollars in thousands).

 

  

Residential

  

Business

      

Commercial

  

Owner

  

Total

 
  

Properties

  

Assets

  

Land

  

Property

  

Occupied

  

Loans

 
                         

Commercial real estate:

 $-  $-  $-  $295  $617  $912 

Residential:

                        

Residential

  391   -   -   108   -   499 

Home equity

  161   -   -   -   -   161 

Total collateral dependent loans

 $552  $-  $-  $403  $617  $1,572 

 

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

 

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

 

The following table shows the amortized cost basis as of March 31, 2023 of the loan modified to a borrower experiencing financial difficulty during the three months ended March 31,2023 in accordance with ASU 2022-02. It is shown by class of loan and type of concession granted and describes the financial effect of the modification made to the borrower experiencing financial difficulty (dollars in thousands):

 

 

Term Extension

 

Amortized Cost Basis

% of Total Loan Type

  

Financial Effect

Commercial real estate-owner occupied

$2,422 0.58% 

Added a year to the term of one loan with principal deferment.

 

Impaired Loans

 

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at December 31, 2022 (dollars in thousands):

 

  

Recorded Investment

  Unpaid Principal Balance  Related Allowance  Average Recorded Investment  Interest Income Recognized 

With no related allowance recorded:

                    

Commercial

 $—  $—  $—  $—  $— 

Commercial real estate:

                    

Construction and land development

  —   —   —   —   — 

Commercial real estate - owner occupied

  2,420   2,420   —   1,454   108 

Commercial real estate - non-owner occupied

  1,360   1,359   —   1,186   40 

Residential:

                    

Residential

  1,149   1,156   —   935   21 

Home equity

  165   165   —   93   — 

Consumer

  —   —   —   —   — 
  $5,094  $5,100  $—  $3,668  $169 

With a related allowance recorded:

                    

Commercial

 $—  $—  $—  $139  $— 

Commercial real estate:

                    

Construction and land development

  —   —   —   —   — 

Commercial real estate - owner occupied

  —   —   —   —   — 

Commercial real estate - non-owner occupied (1)

  —   —   —   —   — 

Residential:

                    

Residential (1)

  —   —   —   41   — 

Home equity

  —   —   —   —   — 

Consumer

  —   —   —   38   — 
  $—  $—  $—  $218  $— 

Total:

                    

Commercial

 $—  $—  $—  $139  $— 

Commercial real estate:

                    

Construction and land development

  —   —   —   —   — 

Commercial real estate - owner occupied

  2,420   2,420   —   1,454   108 

Commercial real estate - non-owner occupied

  1,360   1,359   —   1,186   40 

Residential:

                    

Residential

  1,149   1,156   —   976   21 

Home equity

  165   165   —   93   — 

Consumer

  —   —   —   38   — 
  $5,094  $5,100  $—  $3,886  $169 

  __________________________

  (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.

 

Residential Real Estate in Process of Foreclosure

 

The Company had $497 thousand in residential loans in process of foreclosure at March 31, 2023 and $715 thousand in process of foreclosure at  December 31, 2022,. The Company had no residential other real estate owned ("OREO") at March 31, 2023 or at  December 31, 2022.

 

Risk Grades

 

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, and 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.

 

The following table show the Company's recorded investment in loans by credit quality indicators further disaggregated by year of origination as of  March 31, 2023 (dollars in thousands):

 

  

Term Loans by Year of Origination

         
  

2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Revolving

  

Total

 

Commercial

                                

Pass

 $9,472  $47,620  $62,685  $23,580  $12,498  $33,723  $99,913  $289,491 

Special Mention

  -   1,267   1,318   98   647   1,753   5,181   10,264 

Substandard

  6   -   -   -   456   1,247   3,022   4,731 

Total commercial

 $9,478  $48,887  $64,003  $23,678  $13,601  $36,723  $108,116  $304,486 

Current period gross write-offs

 $-  $-  $(360) $-  $-  $-  $-  $(360)
                                 

Construction and land development

                                

Pass

 $3,184  $76,316  $96,857  $8,539  $5,420  $18,073  $6,506  $214,895 

Special Mention

  -   1,080   -   -   -   -   -   1,080 

Substandard

  -   -   -   -   -   -   -   - 

Total construction and land development

 $3,184  $77,396  $96,857  $8,539  $5,420  $18,073  $6,506  $215,975 

Current period gross write-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial real estate - owner occupied

                                

Pass

 $6,556  $60,675  $104,240  $44,728  $26,980  $151,305  $6,179  $400,663 

Special Mention

  -   -   1,437   236   -   829   -   2,502 

Substandard

  1,279   -   360   2,363   -   5,598   2,341   11,941 

Total commercial real estate - owner occupied

 $7,835  $60,675  $106,037  $47,327  $26,980  $157,732  $8,520  $415,106 

Current period gross write-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Commercial real estate - non-owner occupied

                                

Pass

 $6,240  $142,424  $199,730  $138,967  $89,430  $230,905  $7,618  $815,314 

Special Mention

  -   -   -   -   913   5,486   -   6,399 

Substandard

  -   -   -   -   315   319   -   634 

Total commercial real estate - non-owner occupied

 $6,240  $142,424  $199,730  $138,967  $90,658  $236,710  $7,618  $822,347 

Current period gross write-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Residential

                                

Pass

 $16,621  $104,345  $90,511  $26,636  $15,322  $72,176  $13,107  $338,718 

Special Mention

  -   263   206   -   321   827   -   1,617 

Substandard

  -   -   752   134   188   2,072   67   3,213 

Total residential

 $16,621  $104,608  $91,469  $26,770  $15,831  $75,075  $13,174  $343,548 

Current period gross write-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Home equity

                                

Pass

 $-  $-  $-  $-  $-  $-  $90,730  $90,730 

Special Mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   678   678 

Total home equity

 $-  $-  $-  $-  $-  $-  $91,408  $91,408 

Current period gross write-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Consumer

                                

Pass

 $1,004  $1,962  $794  $403  $224  $1,804  $432  $6,623 

Special Mention

  -   -   -   -   -   -   -   - 

Substandard

  -   3   -   -   -   20   1   24 

Total consumer

 $1,004  $1,965  $794  $403  $224  $1,824  $433  $6,647 

Current period gross write-offs

 $-  $-  $(5) $-  $-  $(30) $-  $(35)

 

The following tables show the Company's loan portfolio broken down by internal risk grading as of December 31, 2022 (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

 $288,041  $197,331  $405,223  $826,844  $333,124  $93,062 

Special Mention

  10,657   —   2,388   239   1,577   — 

Substandard

  5,548   194   10,851   645   3,431   678 

Doubtful

  1   —   —   —   —   — 

Total

 $304,247  $197,525  $418,462  $827,728  $338,132  $93,740 

 

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

 

  

Consumer

 

Performing

 $6,599 

Nonperforming

  16 

Total

 $6,615