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Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
 3 Months Ended
Mar. 31, 2022
Notes to Financial Statements  
Allowance for Credit Losses [Text Block]

Note 3:         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 the Company’s 2021 Form 10-K, 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.

 

Collectively Evaluated Loans

The loan portfolio is composed of major segments and smaller classes within each segment. Segments and classes are determined based on characteristics such as 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

Commercial Non-Real Estate

  

Construction, residential

 

Commercial and industrial

  

Construction, other

  
   

Public Sector and IDA

 

Consumer Real Estate

 

Public sector and IDA

  

Equity lines

  
  

Residential closed-end first liens

  
  

Residential closed-end junior liens

Consumer Non-Real Estate

  

Investor-owned residential real estate

 

Credit cards

    

Automobile

 

Commercial Real Estate

 

Other consumer loans

  

Multifamily real estate

  
  

Commercial real estate, owner-occupied

  
  

Commercial real estate, other

  

 

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 the Company’s 2021 Form 10-K, Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class.

 

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

 

  

Activity in the Allowance for Loan Losses for the Three Months Ended March 31, 2022

 
  

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, 2021

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

Charge-offs

  -   -   -   -   -   (60

)

  -   (60

)

Recoveries

  -   -   12   3   -   25   -   40 

Provision for (recovery of) loan losses

  171   5   290   (158

)

  10   6   (190

)

  134 

Balance, March 31, 2022

 $593  $1,935  $3,423  $944  $307  $415  $171  $7,788 

 

  

Activity in the Allowance for Loan Losses for the Three Months Ended March 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

  -   -   -   -   -   (47

)

  -   (47

)

Recoveries

  -   -   12   2   -   38   -   52 

Provision for (recovery of) loan losses

  8   201   (3

)

  (38

)

  (28

)

  (50

)

  (40

)

  50 

Balance, March 31, 2021

 $511  $2,366  $3,862  $634  $311  $496  $356  $8,536 

 

  

Activity in the Allowance for Loan Losses 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 

 

  

Allowance for Loan Losses as of March 31, 2022

 
  

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 for impairment

  593   1,935   3,423   944   307   415   171   7,788 

Total

 $593  $1,935  $3,423  $944  $307  $415  $171  $7,788 

 

 

  

Allowance for Loan Losses 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 for impairment

  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 as of March 31, 2022

 
  

Real Estate Construction

  

Consumer Real Estate

  

Commercial

Real

Estate

  

Commercial Non-Real Estate

  

Public Sector and IDA

  

Consumer Non- Real Estate

  

Total

 

Individually evaluated for impairment

 $-  $189  $5,358  $287  $-  $-  $5,834 

Collectively evaluated for impairment

  59,741   208,883   411,595   52,509   47,156   34,056   813,940 

Total

 $59,741  $209,072  $416,953  $52,796  $47,156  $34,056  $819,774 

 

  

Loans 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

  

Total

 

Individually evaluated for impairment

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

Collectively evaluated for impairment

  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 

 

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

 

  

As of and for the

 
  

Three Months Ended

March 31,

  

Year Ended

December 31,

 
  

2022

  

2021

  

2021

 

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

  0.95

%

  1.10

%

  0.96

%

Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs(1)

  0.01

%

  0.00

%

  0.05

%

 

(1)

Net charge-offs are on an annualized basis.

 

A summary of nonperforming assets follows:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

  

2021

 

Nonperforming assets:

            

Nonaccrual loans

 $29  $784  $- 

TDR loans in nonaccrual

  2,833   2,907   2,873 

Total nonperforming loans

  2,862   3,691   2,873 

Other real estate owned, net

  957   957   957 

Total nonperforming assets

 $3,819  $4,648  $3,830 

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

  0.47

%

  0.60

%

  0.48

%

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

  272.12

%

  231.27

%

  267.11

%

 

(1)

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

 

A summary of loans past due 90 days or more and impaired loans follows.

 

  

March 31,

  

December 31,

 
  

2022

  

2021

  

2021

 

Loans past due 90 days or more and still accruing

 $381  $12  $90 

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

  0.05

%

  0.00

%

  0.01

%

Accruing restructured loans

 $3,001  $1,378  $3,005 

Impaired loans:

            

Impaired loans with no valuation allowance

 $5,834  $4,564  $5,878 

Impaired loans with a valuation allowance

  -   375   - 

Total impaired loans

 $5,834  $4,939  $5,878 

Valuation allowance

  -   (18

)

  - 

Impaired loans, net of allowance

 $5,834  $4,921  $5,878 

Average recorded investment in impaired loans(1)

 $5,842  $4,956  $5,901 

Interest income recognized on impaired loans, after designation as impaired

 $21  $46  $137 

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 three months ended March 31, 2022 or March 31, 2021 or for the year ended December 31, 2021.

 

A detailed analysis of investment in impaired loans and associated reserves, segregated by loan class follows.  Only classes with impaired loans are presented

 

  

Impaired Loans as of March 31, 2022

 
  

Principal

Balance

  

Total

Recorded Investment(1)

  

Recorded Investment(1)for Which There is No Related Allowance

  

Recorded Investment(1) for Which There is a Related Allowance

  

Related

Allowance

 

Consumer Real Estate

                    

Investor-owned residential real estate

 $189  $189  $189  $-  $- 

Commercial Real Estate

                    

Commercial real estate, owner-occupied

  3,254   2,639   2,639   -   - 

Commercial real estate, other

  2,719   2,719   2,719   -   - 

Commercial Non-Real Estate

                    

Commercial and industrial

  300   287   287   -   - 

Total

 $6,462  $5,834  $5,834  $-  $- 

 

  

Impaired Loans as of December 31, 2021

 
  

Principal

Balance

  

Total

Recorded Investment(1)

  

Recorded Investment(1) for Which There is No Related Allowance

  

Recorded Investment(1) for Which There is a Related Allowance

  

Related

Allowance

 

Consumer Real Estate

                    

Investor-owned residential real estate

 $191  $191  $191  $-  $- 

Commercial Real Estate

                    

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

                    

Commercial and industrial

  310   301   301   -   - 

Total

 $6,478  $5,878  $5,878  $-  $- 

 

(1)

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

 

The following tables show the average recorded investment and interest income recognized for impaired loans. Only classes with impaired loans are presented.

 

  

For the Three Months Ended

March 31, 2022

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate

        

Investor-owned residential real estate

 $190  $3 

Commercial Real Estate

        

Commercial real estate, owner occupied

  2,640   1 

Commercial real estate, other

  2,720   17 

Commercial Non-Real Estate

        

Commercial and industrial

  292   - 

Total

 $5,842  $21 

 

  

For the Three Months Ended

March 31, 2021

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate

        

Investor-owned residential real estate

 $194  $3 

Commercial Real Estate

        

Commercial real estate, owner occupied

  3,269   38 

Commercial real estate, other

  654   - 

Commercial Non-Real Estate

        

Commercial and industrial

  838   5 

Consumer Non-Real Estate

        

Automobile

  1   - 

Total

 $4,956  $46 

 

  

For the Year Ended

December 31, 2021

 
  

Average Recorded Investment(1)

  

Interest Income Recognized

 

Consumer Real Estate

        

Investor-owned residential real estate

 $192  $13 

Commercial Real Estate

        

Commercial real estate, owner occupied

  2,668   9 

Commercial real estate, other

  2,723   100 

Commercial Non-Real Estate

        

Commercial and industrial

  317   15 

Consumer Non-Real Estate

        

Automobile

  1   - 

Total

 $5,901  $137 

 

(1)

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

 

An analysis of past due and nonaccrual loans follows.  Only classes with past due or nonaccrual loans are shown.

 

March 31, 2022

                
  

30 – 89 Days

Past Due and Accruing

  

90 or More

Days Past Due

  

90 or More Days

Past Due and Accruing

  

Nonaccruals(1)

 

Real Estate Construction

                

Construction, other

 $-  $320  $320  $- 

Consumer Real Estate

                

Equity lines

  50   29   -   29 

Residential closed-end first liens

  517   32   32   - 

Commercial Real Estate

                

Commercial real estate, owner-occupied

  61   262   -   2,546 

Commercial Non-Real Estate

                

Commercial and industrial

  53   2   2   287 

Consumer Non-Real Estate

                

Credit cards

  1   2   2   - 

Automobile

  80   -   -   - 

Other consumer loans

  139   25   25   - 

Total

 $901  $672  $381  $2,862 

 

December 31, 2021

                
  

30 – 89 Days

Past Due and Accruing

  

90 or More Days Past Due

  

90 or More Days

Past Due and Accruing

  

Nonaccruals(1)

 

Real Estate Construction

                

Construction, other

 $14  $-  $-  $- 

Consumer Real Estate

                

Equity lines

  50   29   29    

Residential closed-end first liens

  715   58   58   - 

Commercial Real Estate

                

Commercial real estate, owner occupied

  12   266   -   2,572 

Commercial Non-Real Estate

                

Commercial and Industrial

  13   -   -   301 

Consumer Non-Real Estate 

                

Credit cards

  2   2   2   - 

Automobile

  93   -   -   - 

Other consumer loans

  88   1   1   - 

Total

 $987  $356  $90  $2,873 

 

(1)

Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.

 

The following displays collectively evaluated loans by credit quality indicator. Impaired loans are not included.

 

March 31, 2022

 

Pass

  

Special Mention

  

Classified

 

Real Estate Construction

            

Construction, 1-4 family residential

 $14,447  $-  $- 

Construction, other

  44,974   -   320 

Consumer Real Estate

            

Equity lines

  13,530   -   29 

Residential closed-end first liens

  107,259   -   247 

Residential closed-end junior liens

  2,295   -   - 

Investor-owned residential real estate

  84,918   -   605 

Commercial Real Estate

            

Multifamily residential real estate

  106,309   -   - 

Commercial real estate owner-occupied

  128,739   -   - 

Commercial real estate, other

  176,547   -   - 

Commercial Non-Real Estate

            

Commercial and industrial

  52,507   -   2 

Public Sector and IDA

            

States and political subdivisions

  47,156   -   - 

Consumer Non-Real Estate

            

Credit cards

  4,658   -   - 

Automobile

  10,673   -   - 

Other consumer

  18,669   -   56 

Total

 $812,681  $-  $1,259 

 

December 31, 2021

 

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 

Residential closed-end first liens

  106,107   -   275 

Residential 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 

 

Determination of risk ratings was completed for the portfolio as of March 31, 2022 and December 31, 2021.

 

Troubled Debt Restructurings

 

Total TDRs amounted to $5,834 at March 31, 2022, $5,878 at December 31, 2021, and $4,285 at March 31, 2021. All of the Company’s TDR loans are fully funded and no further increase in credit is available.

 

TDRs Designated During the Reporting Period

During the three months ended March 31, 2022, the Company did not designate any new TDRs. During the three months ended March 31, 2021 the Company designated one loan as a TDR. The restructuring completed during the three-month period ended March 31, 2021 shifted the payment structure from interest-only to amortizing and reduced the interest rate to provide cash flow relief. No principal or interest was forgiven. The impairment measurement at March 31, 2021 was based upon the collateral method and did not result in a specific allocation.

 

The following table presents restructurings by class that occurred during the period indicated.

 

  

Restructurings That Occurred During the Three Months

Ended March 31, 2021

 
  

Number of Contracts

  

Pre-Modification Outstanding Principal Balance

  

Post-Modification Outstanding Principal Balance

 

Commercial Real Estate

            

Commercial real estate owner-occupied

  1  $102  $102 

Total

  1  $102  $102 

 

Defaulted TDRs

The Company analyzed its TDR portfolio for loans that defaulted during the three month periods ended March 31, 2022 and March 31, 2021 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 March 31, 2022 and March 31, 2021, none of the defaulted TDRs were modified within 12 months prior to default. All of the defaulted TDRs were in nonaccrual status as of March 31, 2022 and March 31, 2021.