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Note 5 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]

Note 5: Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality on an individual loan basis and to identify impaired loans.

 

Please refer to Note 1: Summary of Significant Accounting Policies for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

 

Portfolio Segments and Classes

The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type and intended use, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively evaluated loans is applied at the class level.  The Company’s segments and classes within each segment are presented below:

 

 

Real Estate Construction

Construction, residential

Construction, other

Consumer Real Estate

Equity lines

Residential closed-end first liens

Residential closed-end junior liens

Investor-owned residential real estate

Commercial Real Estate

Multifamily real estate

Commercial real estate, owner-occupied

Commercial real estate, other

Commercial Non-Real Estate

Commercial and Industrial

Public Sector and IDA

State and political subdivisions

Consumer Non-Real Estate

Credit cards

Automobile

Other consumer loans

 

Collectively-evaluated loans within each class are further stratified by risk rating: pass-rated loans, loans rated special mention, and loans rated classified. Credit risk for collectively-evaluated loans is estimated at the class level, by risk rating, by applying historical net charge-off rates and percentages for qualitative factors that influence credit risk.  Please refer to Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class, information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

 

A detailed analysis showing the allowance roll-forward by portfolio segment follows:

 

  Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2021 
  

Real Estate Construction

  

Consumer Real Estate

  Commercial Real Estate  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  Unallocated  

Total

 

Balance, December 31, 2020

 $503  $2,165  $3,853  $670  $339  $555  $396  $8,481 

Charge-offs

  -   (13

)

  -   (526

)

  -   (216

)

  -   (755

)

Recoveries

  -   20   159   33   -   134   -   346 

Provision for (recovery of) loan losses

  (81

)

  (242

)

  (891

)

  922   (42

)

  (29

)

  (35

)

  (398

)

Balance, December 31, 2021

 $422  $1,930  $3,121  $1,099  $297  $444  $361  $7,674 

 

  

Activity in the Allowance for Loan Losses by Segment for the year ended December 31, 2020

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial Real Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  Unallocated  

Total

 

Balance, December 31, 2019

 $400  $1,895  $2,559  $555  $478  $650  $326  $6,863 

Charge-offs

  -   (85

)

  (15

)

  (372

)

  -   (248

)

  -   (720

)

Recoveries

  -   18   145   9   -   175   -   347 

Provision for (recovery of) loan losses

  103   337   1,164   478   (139

)

  (22

)

  70   1,991 

Balance, December 31, 2020

 $503  $2,165  $3,853  $670  $339  $555  $396  $8,481 

 

A detailed analysis showing the allowance and loan portfolio by segment and evaluation method follows:

 

  

Allowance for Loan Losses by Segment and Evaluation Method as of

 
  

December 31, 2021

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial Real Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  

Unallocated

  

Total

 

Individually evaluated for impairment

 $-  $-  $-  $-  $-  $-  $-  $- 

Collectively evaluated loans

  422   1,930   3,121   1,099   297   444   361   7,674 

Total

 $422  $1,930  $3,121  $1,099  $297  $444  $361  $7,674 

 

 

  

Loans by Segment and Evaluation Method as of

 
  

December 31, 2021

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial Real Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  

Unallocated

  

Total

 

Individually evaluated for impairment

 $-  $191  $5,386  $301  $-  $-  $-  $5,878 

Collectively evaluated loans

  48,841   208,786   400,336   59,963   47,899   32,026   -   797,851 

Total

 $48,841  $208,977  $405,722  $60,264  $47,899  $32,026  $-  $803,729 

 

 

  

Allowance for Loan Losses by Segment and Evaluation Method as of

 
  

December 31, 2020

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial Real Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  

Unallocated

  

Total

 

Individually evaluated for impairment

 $-  $2  $-  $73  $-  $-  $-  $75 

Collectively evaluated loans

  503   2,163   3,853   597   339   555   396   8,406 

Total

 $503  $2,165  $3,853  $670  $339  $555  $396  $8,481 

 

 

  

Loans by Segment and Evaluation Method as of

 
  

December 31, 2020

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial Real Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non-Real Estate

  

Unallocated

  

Total

 

Individually evaluated for impairment

 $-  $194  $3,856  $851  $-  $2  $-  $4,903 

Collectively evaluated loans

  42,266   181,588   389,259   77,920   40,983   33,108   -   765,124 

Total

 $42,266  $181,782  $393,115  $78,771  $40,983  $33,110  $-  $770,027 

 

A summary of ratios for the allowance for loan losses follows:

 

  

December 31,

 
  

2021

  

2020

 

Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs

  0.96

%

  1.10

%

Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs

  0.05

%

  0.05

%

 

A summary of nonperforming assets, as of the dates indicated, follows:

 

  

December 31,

 
  

2021

  

2020

 

Nonperforming assets:

        

Nonaccrual loans

 $-  $846 

TDR loans in nonaccrual

  2,873   2,839 

Total nonperforming loans

  2,873   3,685 

Other real estate owned, net

  957   1,553 

Total nonperforming assets

 $3,830  $5,238 

Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned

  0.48

%

  0.68

%

Ratio of allowance for loan losses to nonperforming loans(1)

  267.11

%

  230.15

%

 

 

(1)

The Company defines nonperforming loans as total nonaccrual and TDR loans that are nonaccrual. Loans 90 days past due and still accruing and accruing TDR loans are excluded.

 

As of December 31, 2021, OREO is comprised of construction properties. There is no residential real estate in OREO. As of December 31, 2021, $62 in loans secured by residential real estate are in process of foreclosure.

 

A summary of loans past due 90 days or more and impaired loans, as of the dates indicated, follows:

 

  

December 31,

 
  

2021

  

2020

 

Loans past due 90 days or more and still accruing

 $90  $17 

Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs

  0.01

%

  0.00

%

Accruing TDR loans

 $3,005  $1,410 

Impaired loans:

        

Impaired loans with no valuation allowance

 $5,878  $3,858 

Impaired loans with a valuation allowance

  -   1,045 

Total impaired loans

 $5,878  $4,903 

Valuation allowance

 $-  $(75

)

Impaired loans, net of allowance

 $5,878  $4,828 

Average recorded investment in impaired loans(1)

 $5,901  $5,093 

Income recognized on impaired loans, after designation as impaired

 $137  $54 

Amount of income recognized on a cash basis

 $-  $- 

 

 

(1)

 Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

 

No interest income was recognized on nonaccrual loans for the years ended December 31, 2021 or 2020. Nonaccrual loans that meet the Company’s balance thresholds are designated as impaired.

 

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, by loan class follows:

 

  

Impaired Loans as of December 31, 2021

 
  

Principal Balance

  

(A)

Total

Recorded

Investment(1)

  

Recorded

Investment(1) in (A)

for Which There is

No Related

Allowance

  

Recorded

Investment(1) in

(A) for Which

There is a Related

Allowance

  

Related

Allowance

 

Consumer Real Estate(2)

                    

Investor-owned residential real estate

  $191   $191   $191   $-   $- 

Commercial Real Estate(2)

                    

Commercial real estate, owner occupied

  3,256   2,665   2,665   -   - 

Commercial real estate, other

  2,721   2,721   2,721   -   - 

Commercial Non-Real Estate(2)

                    

Commercial and Industrial

  310   301   301   -   - 

Total

 $6,478  $5,878  $5,878  $-  $- 

 

  

Impaired Loans as of December 31, 2020

 
  

Principal Balance

  

(A)

Total

Recorded

Investment(1)

  

Recorded

Investment(1) in (A)

for Which There is

No Related

Allowance

  

Recorded

Investment(1) in

(A) for Which

There is a Related

Allowance

  

Related

Allowance

 

Consumer Real Estate(2)

                    

Investor-owned residential real estate

 $194  $194  $-  $194  $2 

Commercial Real Estate(2)

                    

Commercial real estate, owner occupied

  3,752   3,202   3,202   -   - 

Commercial real estate, other

  654   654   654   -   - 

Commercial Non-Real Estate(2)

                    

Commercial and Industrial

  851   851   -   851   73 

Consumer Non-Real Estate(2)

                    

Automobile

  2   2   2   -   - 

Total

 $5,453  $4,903  $3,858  $1,045  $75 

 

 

(1)

Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

 

(2)

Only classes with impaired loans are shown.

 

Information on the average investment and interest income of impaired loans is presented in the tables below:

 

Impaired Loans

 

For the Year Ended December 31, 2021

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate(2)

        

Investor-owned residential real estate

  $192   $13 

Commercial Real Estate(2)

        

Commercial real estate, owner occupied

  2,668   9 

Commercial real estate, other

  2,723   100 

Commercial Non-Real Estate(2)

        

Commercial and Industrial

  317   15 

Consumer Non-Real Estate(2)

        

Automobile

  1   - 

Total

 $5,901  $137 

 

Impaired Loans

 

For the Year Ended December 31, 2020

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate(2)

        

Investor-owned residential real estate

 $196  $13 

Commercial Real Estate(2)

        

Commercial real estate, owner occupied

  3,217   19 

Commercial real estate, other

  790   - 

Commercial Non-Real Estate(2)

        

Commercial and Industrial

  887   22 

Consumer Non-Real Estate(2)

        

Automobile

  3   - 

Total

 $5,093  $54 

 

(1)

Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

(2)

Only classes with impaired loans are shown.

 

An analysis of past due and nonaccrual loans, as of the dates indicated, follows:

 

December 31, 2021

                
  

30 – 89

Days Past

Due

  

90 or More

Days Past Due

  

90 or More

Days Past Due

and Still

Accruing

  

Nonaccruals

(Including

Impaired

Nonaccruals)

 

Real Estate Construction(1)

                

Construction, other

 $14  $-  $-  $- 

Consumer Real Estate(1)

                

Equity lines

  50   29   29    

Residential closed-end first liens

  715   58   58   - 

Commercial Real Estate(1)

                

Commercial real estate, owner occupied

  12   266   -   2,572 

Commercial Non-Real Estate(1)

                

Commercial and Industrial

  13   -   -   301 

Consumer Non-Real Estate (1)

                

Credit cards

  2   2   2   - 

Automobile

  93   -   -   - 

Other consumer loans

  88   1   1   - 

Total

 $987  $356  $90  $2,873 

 

 

(1)

Only classes with past due or nonaccrual loans are presented.

 

December 31, 2020

                
  

30 – 89

Days Past

Due

  

90 or More

Days Past Due

  

90 or More

Days Past Due

and Still

Accruing

  

Nonaccruals

(Including

Impaired

Nonaccruals)

 

Consumer Real Estate(1)

                

Residential closed-end first liens

 $365  $62  $-  $62 

Investor-owned residential real estate

  106   -   -   - 

Commercial Real Estate(1)

                

Commercial real estate, owner occupied

  15   571   -   2,941 

Commercial real estate, other

  -   654   -   654 

Commercial Non-Real Estate(1)

                

Commercial and Industrial

  730   27   -   28 

Consumer Non-Real Estate (1)

                

Credit cards

  7   3   3   - 

Automobile

  144   1   1   - 

Other consumer loans

  130   13   13   - 

Total

 $1,497  $1,331  $17  $3,685 

 

 

(1)

Only classes with past due or nonaccrual loans are presented.

 

Determination of risk grades was completed for the portfolio as of December 31, 2021 and 2020. The following displays non-impaired gross loans by credit quality indicator as of the dates indicated:

 

December 31, 2021

 

Collectively-Evaluated Loans

 

Pass

  

Special

Mention

  

Classified

 

Real Estate Construction

            

Construction, 1-4 family residential

 $10,008  $-  $- 

Construction, other

  38,833   -   - 

Consumer Real Estate

            

Equity lines

  13,588   -   29 

Closed-end first liens

  106,107   -   275 

Closed-end junior liens

  2,715   -   - 

Investor-owned residential real estate

  85,460   -   612 

Commercial Real Estate

            

Multifamily residential real estate

  106,644   -   - 

Commercial real estate owner-occupied

  125,605   -   35 

Commercial real estate, other

  164,324   3,728   - 

Commercial Non-Real Estate

            

Commercial and Industrial

  59,953   -   10 

Public Sector and IDA

            

States and political subdivisions

  47,899   -   -  

Consumer Non-Real Estate

            

Credit cards

  4,531   -   - 

Automobile

  10,990   -   3 

Other consumer

  16,402   -   100 

Total

 $793,059  $3,728  $1,064 

 

December 31, 2020

 

Collectively-Evaluated Loans

 

Pass

  

Special

Mention

  

Classified

 

Real Estate Construction

            

Construction, 1-4 family residential

 $8,195  $-  $- 

Construction, other

  34,071   -   - 

Consumer Real Estate

            

Equity lines

  13,903   -   - 

Closed-end first liens

  92,241   66   284 

Closed-end junior liens

  3,003   -   - 

Investor-owned residential real estate

  71,450   641   - 

Commercial Real Estate

            

Multifamily residential real estate

  87,455   265   - 

Commercial real estate owner-occupied

  146,900   543   140 

Commercial real estate, other

  147,436   6,520   - 

Commercial Non-Real Estate

            

Commercial and Industrial

  77,892   -   28 

Public Sector and IDA

            

States and political subdivisions

  40,983   -   - 

Consumer Non-Real Estate

            

Credit cards

  4,665   -   - 

Automobile

  12,024   -   6 

Other consumer

  16,398   -   15 

Total

 $756,616  $8,035  $473 

 

Sales, Purchases and Reclassification of Loans

The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no major reclassifications from portfolio loans to held for sale. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.

 

Troubled Debt Restructurings

 

Total TDRs amounted to $5,878 at December 31, 2021 and $4,249 at December 31, 2020. All of the Company’s TDR loans are fully funded and no further increase in credit is available.

 

TDRs Designated During the Reporting Period

The Company recognized three new TDRs during 2021. The restructuring of one commercial real estate owner-occupied loan provided cash flow relief to the borrower by shifting the payment structure from interest-only to amortizing and reducing the interest rate. The restructurings of the two other commercial real estate loans provided cash flow relief by re-amortizing the loans over a longer period and reducing the interest rate. No principal or interest was forgiven. The impairment measurement for all three loans at December 31, 2021 was based upon the collateral method and did not result in a specific allocation. There were no new TDRs designated in 2020.

 

The following table presents TDRs by class that occurred during the year ended December 31, 2021.

 

  

TDRs that occurred during the year ended

December 31, 2021

 
  

Number of

Contracts

  

Pre-

Modification

Outstanding

Recorded

Investment

  

Post-

Modification

Outstanding

Recorded

Investment(1)

 

Commercial Real Estate

            

Commercial real estate owner-occupied

  1  $102  $102 

Commercial real estate, other

  2   2,724   2,724 

Total

  3  $2,826  $2,826 

 

 

(1)

Post-modification outstanding recorded investment considers amounts immediately following the modification. Amounts do not reflect balances at the end of the period.

 

Defaulted TDRs

The Company analyzed its TDR portfolio for loans that defaulted during 2021 and 2020, and that were modified within 12 months prior to default. The Company designates three circumstances that indicate default: one or more payments that occur more than 90 days past the due date, charge-off, or foreclosure after the date of restructuring.

Of the Company’s TDRs at December 31, 2021 and December 31, 2020, none of the defaulted TDRs were modified within 12 months prior to default.