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Note 5 - Loans
 12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

(5) Loans

 

Composition of loans by class as reported under ASC 326 follows:

 

December 31, (in thousands)

 

2020

  

2019

 
         

Commercial real estate - non-owner occupied

 $833,470  $746,283 

Commercial real estate - owner occupied

  508,672   474,329 

Total commercial real estate

  1,342,142   1,220,612 
         

Commercial and industrial - term

  525,776   457,298 

Commercial and industrial - term - PPP

  550,186   - 

Commercial and industrial - lines of credit

  276,646   381,502 

Total commercial and industrial

  1,352,608   838,800 
         

Residential real estate - owner occupied

  239,191   217,606 

Residential real estate - non-owner occupied

  140,930   134,995 

Total residential real estate

  380,121   352,601 
         

Construction and land development

  291,764   255,816 

Home equity lines of credit

  95,366   103,854 

Consumer

  44,606   47,467 

Leases

  14,786   16,003 

Credit cards - commercial

  10,203   9,863 

Total loans (1)

 $3,531,596  $2,845,016 

 

(1) Total loans are presented inclusive of premiums, discounts and net loan origination fees and costs.

 

For historical comparative purposes, the composition of loans by class pre-ASC 326 adoption follows:

 

(in thousands)

 

December 31, 2019

 
     

Commercial and industrial

 $870,511 

Construction and development

  213,822 

Undeveloped land

  46,360 
     

Real estate mortgage:

    

Commercial investment

  736,618 

Owner occupied commercial

  473,783 

1-4 family residential

  334,358 

Home equity - first lien

  48,620 

Home equity - junior lien

  73,477 

Total: real estate mortgage

  1,666,856 

Consumer

  47,467 

Total loans (1)

 $2,845,016 

 

(1) Total loans are presented inclusive of premiums, discounts and net of loan origination fees and costs.

 

Fees and costs of originating loans are deferred at origination and amortized over the life of the loan. Loan balances reported herein include deferred loan origination fees, net of deferred loan costs. At December 31, 2020 and 2019, net deferred loan origination costs exceeded deferred loan origination fees, resulting in net negative balances of $12 million and $564,000. The large increase over prior year is the result of fees received from the SBA related to the origination of PPP loans in 2020 that were unearned at December 31, 2020.

 

Bancorp’s credit exposure is diversified with secured and unsecured loans to individuals and businesses. No specific industry concentration exceeds 10% of loans outstanding. While Bancorp has a diversified loan portfolio, a customer’s ability to honor contracts is somewhat dependent upon the economic stability and/or industry in which that customer does business. Loans outstanding and related unfunded commitments are primarily concentrated within Bancorp’s current market areas, which encompass the Louisville, Indianapolis and Cincinnati MSAs.

 

Bancorp occasionally enters into loan participation agreements with other banks in the ordinary course of business to diversify credit risk. For certain sold participation loans, Bancorp has retained effective control of the loans, typically by restricting the participating institutions from pledging or selling their share of the loan without permission from Bancorp. GAAP requires the participated portion of these loans to be recorded as secured borrowings. The participated portions of these loans are included in the C&I totals above with a corresponding liability reflected in other liabilities. At December 31, 2020 and 2019, the total participated portions of loans of this nature were $10 million and $8 million respectively.

 

Accrued interest on loans, which is excluded from the amortized cost of loans, totaled $12 million and $7 million at December 31, 2020 and 2019, respectively, and was included in the consolidated balance sheets.

 

Loans with carrying amounts of $2 billion and $1.6 billion at December 31, 2020 and 2019, respectively, were pledged to secure FHLB borrowing capacity, the increase stemming from pledging a portion of the PPP portfolio this year.

 

Loans to directors and their related interests, including loans to companies for which directors are principal owners and executive officers are presented in the following table.

 

Years ended December 31, (in thousands)

 

2020

  

2019

 

Balance as of January 1

 $43,224  $52,687 

Effect of change in composition of directors and executive officers

  —   — 

Repayment of term loans

  (737)  (184)

Changes in balances of revolving lines of credit

  604   (9,279)

Balance as of December 31

 $43,091  $43,224 

 

The following table summarizes loans acquired in Bancorp’s acquisition of KSB, as recasted:

 

  

May 1, 2019

 
  

Contractual

  

Non-accretable

  

Accretable

  

Acquisition-day

 

(in thousands)

 

Receivable

  

Yield

  

Yield

  

Fair Value

 
                 

Commercial and industrial

 $8,249  $—  $(23) $8,226 

Construction and land development

  18,738   —   86   18,824 

Real estate mortgage:

                

Commercial real estate

  84,219   —   (456)  83,763 

Residential real estate

  50,556   —   322   50,878 

Home equity lines of credit

  875   —   8   883 

Subtotal: Real estate mortgage

  135,650   —   (126)  135,524 
                 

Consumer

  1,528   —   (73)  1,455 
                 

Total loans acquired under ASC 310-20

  164,165   —   (136)  164,029 
                 

Commercial and industrial

  —   —   —   — 

Construction and land development

  —   —   —   — 

Real estate mortgage:

                

Commercial real estate

  1,351   (1,351)  —   — 

Residential real estate

  228   (228)  —   — 

Home equity lines of credit

  —   —   —   — 

Subtotal: Real estate mortgage

  1,579   (1,579)  —   — 
                 

Consumer

  —   —   —   — 
                 

Total purchased credit impaired loans acquired under ASC 310-30

  1,579   (1,579)  —   — 
                 

Total loans

 $165,744  $(1,579) $(136) $164,029 

 

Effective March 31, 2020, management finalized the fair values of the acquired assets and assumed liabilities in advance of 12 months post acquisition date, as allowed by GAAP.

 

The Bank acquired PCI loans related to its 2019 and 2013 acquisitions. At acquisition date, these loans were accounted for under ASC 310-30. On January 1, 2020, Bancorp adopted ASC 326 using the prospective transition approach for loans purchased with credit deterioration that were previously classified as PCI and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI loans met the criteria of PCD loans as of the adoption date. On January 1, 2020, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassed between the amortized cost basis of loans and corresponding ACL. The majority of these marks were subsequently charged off in the third quarter of 2020.

 

Bancorp’s estimate of the ACL on loans reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications. The table below reflects activity in the ACL related to loans for the year ended December 31, 2020, presented in accordance with ASC 326:

 

Year Ended December 31, 2020

(in thousands)

 

Beginning Balance

  

Impact of Adopting ASC 326

  

Initial ACL on Loans Purchased with Credit Deterioration

  

Provision for Credit Losses

  

Charge-offs

  

Recoveries

  

Ending Balance

 
                             

Commercial real estate - non-owner occupied

 $5,235  $2,946  $152  $11,194  $(143) $12  $19,396 

Commercial real estate - owner occupied

  3,327   1,542   1,350   2,115   (1,351)  -   6,983 

Total commercial real estate

  8,562   4,488   1,502   13,309   (1,494)  12   26,379 
                             

Commercial and industrial - term

  6,782   365   -   1,832   (18)  9   8,970 

Commercial and industrial - lines of credit

  5,657   (1,528)  -   (515)  -   -   3,614 

Total commercial and industrial

  12,439   (1,163)  -   1,317   (18)  9   12,584 
                             

Residential real estate - owner occupied

  1,527   1,087   99   737   (79)  18   3,389 

Residential real estate - non-owner occupied

  947   429   -   442   (2)  2   1,818 

Total residential real estate

  2,474   1,516   99   1,179   (81)  20   5,207 
                             

Construction and land development

  2,105   3,056   -   902   -   56   6,119 

Home equity lines of credit

  728   114   -   53   -   -   895 

Consumer

  100   264   34   91   (508)  359   340 

Leases

  237   (4)  -   28   -   -   261 

Credit cards - commercial

  146   (50)  -   39   -   -   135 

Total net loan (charge-offs) recoveries

 $26,791  $8,221  $1,635  $16,918  $(2,101) $456  $51,920 

 

The tables below reflect activity in the ACL related to loans for the years ended December 31, 2019 and 2018, presented in accordance with ASC 310 prior to the adoption of ASC 326:

 

Year Ended December 31, 2019

(in thousands)

 

Beginning

Balance

  

Provision for Credit Losses

  

Charge-offs

  

Recoveries

  

Ending

Balance

 
                     

Real estate mortgage

 $10,681  $1,021  $(38) $100  $11,764 

Commercial and industrial

  11,965   684   (94)  267   12,822 

Construction and development

  1,760   (644)  -   203   1,319 

Undeveloped land

  752   34   -   -   786 

Consumer

  376   (95)  (552)  371   100 
  $25,534  $1,000  $(684) $941  $26,791 

 

Year Ended December 31, 2018

(in thousands)

 

Beginning

Balance

  

Provision for Credit Losses

  

Charge-offs

  

Recoveries

  

Ending

Balance

 
                     

Real estate mortgage

 $11,012  $(261) $(132) $62  $10,681 

Commercial and industrial

  11,276   2,539   (2,404)  554   11,965 

Construction and development

  1,724   36   -   -   1,760 

Undeveloped land

  521   231   -   -   752 

Consumer

  352   160   (476)  340   376 
  $24,885  $2,705  $(3,012) $956  $25,534 

 

Upon adoption of ASC 326 on January 1, 2020, Bancorp recorded an increase of $8.2 million to the ACL on loans and a corresponding decrease to retained earnings, net of the DTA impact. In addition, non-accretable yield marks of $1.6 million related to formerly classified PCI loans were reclassed between the amortized cost basis of loans and corresponding ACL. The majority of these marks were subsequently charged off in the third quarter of 2020. The adjustment upon adoption of ASC 326 raised the ACL on loans balance to $37 million on January 1, 2020. In addition to CECL adoption, Bancorp’s national unemployment forecast adjustments within the CECL model have had a significant impact on the ACL in 2020, along with changes in the loan mix and the addition of a large specific reserve during the second quarter of 2020.

 

Subsequent to January 1, 2020, based on the economic crisis caused by COVID-19 and measures taken to protect public health such as stay-at-home orders and mandatory businesses closures, economic activity halted significantly and job losses surged. As such, national unemployment rose to a high of 14.7% in April and declined to 6.70% at December 31, 2020.

 

  

Dec 20

  

Sep 20

  

Jun 20

  

Mar 20

  

Dec 19

 
                     

Seasonally Adjusted National Civilian Unemployment Rate

  6.70%  7.90%  11.10%  4.40%  3.50%

 

During the fourth quarter, the FRB released its forecasted Seasonally Adjusted National Civilian Unemployment Rate for the 12 months ended December 31, 2020, 2021, 2022 and 2023 as follows:

 

  

2020

  

2021

  

2022

  

2023

 
                 

Upper end of range

  6.9%  6.8%  5.8%  4.4%

Median

  6.7%  5.0%  4.2%  3.7%

Lower end of range

  6.6%  4.0%  3.5%  3.5%

 

As of December 31, 2020, Bancorp elected to forecast for one quarter of national unemployment utilizing the FRB’s 2021 median unemployment forecast released in December then stepping down to the FRB’s 2021 median unemployment forecast over the next four quarters before reverting back to Bancorp’s long-term average.

 

The following table presents the amortized cost basis of non-performing loans and the amortized cost basis of loans on non-accrual status for which there was no related ACL losses of December 31, 2020:

 

  

Non-accrual Loans

          

Past Due 90-Days-

 

December 31, 2020

 

With No

  

Total

  

Troubled Debt

  

or-More and Still

 

(in thousands)

 

Recorded ACL

  

Non-accrual

  

Restructurings

  

Accruing Interest

 
                 

Commercial real estate - non-owner occupied

 $186  $10,278  $—  $— 

Commercial real estate - owner occupied

  1,048   1,403   —   156 

Total commercial real estate

  1,234   11,681   —   156 
                 

Commercial and industrial - term

  6   6   16   — 

Commercial and industrial - lines of credit

  88   88   —   — 

Total commercial and industrial

  94   94   16   — 
                 

Residential real estate - owner occupied

  413   413   —   178 

Residential real estate - non-owner occupied

  101   101   —   301 

Total residential real estate

  514   514   —   479 
                 

Construction and land development

  —   —   —   — 

Home equity lines of credit

  221   221   —   14 

Consumer

  4   4   —   — 

Leases

  —   —   —   — 

Credit cards - commercial

  —   —   —   — 

Total

 $2,067  $12,514  $16  $649 

 

For the years ended December 31, 2020 and 2019, the amount of accrued interest income previously recorded as revenue and subsequently reversed due to the change in accrual status was immaterial.

 

For the years ended December 31, 2020 and 2019, no interest income was recognized on loans on non-accrual status.

 

The following table presents the recorded investment in non-performing loans by portfolio class as of December 31, 2019:

 

December 31, 2019 (in thousands)

 

Non-accrual

  

Troubled Debt Restructurings

  

Past Due 90-Days-or-More and Still

Accruing Interest

 
             

Commercial and industrial

 $8,202  $21  $— 

Construction and devlopment

  —   —   — 

Undeveloped land

  —   —   — 
             

Real estate mortgage:

            

Commercial investment

  740   —   396 

Owner occupied commercial

  2,278   —   — 

1-4 family residential

  123   13   104 

Home equity - first lien

  —   —   — 

Home equity - junior lien

  151   —   35 

Total: Real estate mortgage

  3,292   13   535 

Consumer

  —   —   — 
             

Total

 $11,494  $34  $535 

 

The following table presents the amortized cost basis and ACL allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses:

 

December 31, 2020 (in thousands)

 

Real Estate

  

Accounts Receivable / Equipment

  

Other

  

Total

  

ACL Allocation

 
                     

Commercial real estate - non-owner occupied

 $10,278  $-  $-  $10,278  $3,037 

Commercial real estate - owner occupied

  1,403   -   -   1,403   13 

Total commercial real estate

  11,681   -   -   11,681   3,050 
                     

Commercial and industrial - term

  16   7   -   23   16 

Commercial and industrial - lines of credit

  -   88   -   88   - 

Total commercial and industrial

  16   95   -   111   16 
                     

Residential real estate - owner occupied

  413   -   -   413   - 

Residential real estate - non-owner occupied

  101   -   -   101   - 

Total residential real estate

  514   -   -   514   - 
                     

Construction and land development

  -   -   -   -   - 

Home equity lines of credit

  221   -   -   221   - 

Consumer

  -   -   4   4   - 

Leases

  -   -   -   -   - 

Credit cards - commercial

  -   -   -   -   - 

Total collateral dependent loans

 $12,432  $95  $4  $12,531  $3,066 

 

There have been no significant changes to the types of collateral securing Bancorp’s collateral dependent loans.

 

The following table presents loans individually and collectively evaluated for impairment and the respective ACL allocation as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASC 326:

 

  

Loans

  

ACL

 

December 31, 2019

(in thousands)

 

Loans individually evaluated for impairment

  

Loans collectively evaluated for impairment

  

Loans acquired with deteriorated credit quality

  

Total loans

  

Loans individually evaluated for impairment

  

Loans collectively evaluated for impairment

  

Loans acquired with deteriorated credit quality

  

Total ACL

 
                                 

Commercial and industrial

 $8,223  $862,288  $—  $870,511  $1,150  $11,672  $—  $12,822 

Construction and development

  —   213,822   —   213,822   —   1,319   —   1,319 

Undeveloped land

  —   46,360   —   46,360   —   786   —   786 

Real estate mortgage

  3,307   1,663,549   —   1,666,856   13   11,751   —   11,764 

Consumer

  —   47,467   —   47,467   —   100   —   100 
                                 

Total

 $11,530  $2,833,486  $—  $2,845,016  $1,163  $25,628  $—  $26,791 

 

The following table presents information pertaining to impaired loans as of December 31, 2019 and 2018, as determined in accordance with ASC 310:

 

  

As of

  

Twelve months ended

 
  

December 31, 2019

  

December 31, 2019

 
                     
      

Unpaid

      

Average

  

Interest

 
  

Recorded

  

principal

  

Related

  

recorded

  

income

 

(in thousands)

 

investment

  

balance

  

ACL

  

investment

  

recognized

 
                     

Impaired loans with no related ACL

                    

Commercial and industrial

 $174  $174  $—  $166  $— 

Construction and development

  —   —   —   64   — 

Undeveloped land

  —   —   —   95   — 
                     

Real estate mortgage

                    

Commercial investment

  741   741   —   448   — 

Owner occupied commercial

  2,276   2,736   —   1,437   — 

1-4 family residential

  124   124   —   516   — 

Home equity - junior lien

  151   151   —   293   — 

Total: real estate mortgage

  3,292   3,752   —   2,694   — 
                     

Subtotal

 $3,466  $3,926  $—  $3,019  $— 
                     

Impaired loans with an ACL

                    

Commercial and industrial

 $8,049  $8,049  $1,150  $1,631  $— 

Real estate mortgage

                    

1-4 family residential

  13   13   13   13   — 

Total: real estate mortgage

  13   13   13   13   — 
                     

Subtotal

 $8,062  $8,062  $1,163  $1,644  $— 
                     

Total impaired loans:

                    

Commercial and industrial

 $8,223  $8,223  $1,150  $1,797  $— 

Construction and development

  —   —   —   64   — 

Undeveloped land

  —   —   —   95   — 
                     

Real estate mortgage

                    

Commercial investment

  741   741   —   448   — 

Owner occupied commercial

  2,276   2,736   —   1,437   — 

1-4 family residential

  137   137   13   529   — 

Home equity - junior lien

  151   151   —   293   — 

Total: real estate mortgage

  3,305   3,765   13   2,707   — 
                     

Total

 $11,528  $11,988  $1,163  $4,663  $— 

 

  

As of

  

Twelve Months Ended

 
  

December 31, 2018

  

December 31, 2018

 
      

Unpaid

      

Average

  

Interest

 
  

Recorded

  

principal

  

Related

  

recorded

  

income

 

(in thousands)

 

investment

  

balance

  

allowance

  

investment

  

recognized

 
                     

Impaired loans with no related allowance:

                    

Commercial and industrial

 $192  $707  $—  $161  $— 

Construction and development

  318   489   —   437   — 

Undeveloped land

  474   506   —   474   — 
                     

Real estate mortgage

                    

Commercial investment

  138   138   —   35   — 

Owner occupied commercial

  586   1,023   —   1,503   — 

1-4 family residential

  760   760   —   1,242   — 

Home equity - junior lien

  143   143   —   73   — 

Total: real estate mortgage

  1,627   2,064   —   2,853   — 

Consumer

  —   —   —   23   — 

Subtotal

 $2,611  $3,766  $—  $3,948  $— 
                     

Impaired loans with an allowance:

                    

Commercial and industrial

 $28  $28  $28  $1,851  $2 

Construction and development

  —   —   —   —   — 

Undeveloped land

  —   —   —   24   — 
                     

Real estate mortgage

                    

Commercial investment

  —   —   —   —   — 

Owner occupied commercial

  —   —   —   897   — 

1-4 family residential

  14   14   14   14   1 

Home equity - junior lien

  —   —   —   —   — 

Total: real estate mortgage

  14   14   14   911   1 

Consumer

  —   —   —   —   — 

Subtotal

 $42  $42  $42  $2,786  $3 
                     

Total:

                    

Commercial and industrial

 $220  $735  $28  $2,012  $2 

Construction and development

  318   489   —   437   — 

Undeveloped land

  474   506   —   498   — 
                     

Real estate mortgage

                    

Commercial investment

  138   138   —   35   — 

Owner occupied commercial

  586   1,023   —   2,400   — 

1-4 family residential

  774   774   14   1,256   1 

Home equity - first lien

  —   —   —   —   — 

Home equity - junior lien

  143   143   —   73   — 

Total: real estate mortgage

  1,641   2,078   14   3,764   1 

Consumer

  —   —   —   23   — 

Total impaired loans

 $2,653  $3,808  $42  $6,734  $3 

 

Differences between recorded investment amounts and unpaid principal balance amounts less related ACL are due to partial charge-offs which have occurred over the lives of certain loans.

 

The following tables present the aging of contractually past due loans by portfolio class (2020 is presented in accordance with ASC 326 and 2019 in accordance with ASC 310):

 

      

30-59 days

  

60-89 days

  

90 or more

  

Total

  

Total

 

December 31, 2020 (in thousands)*

 

Current

  

Past Due

  

Past Due

  

Days Past Due

  

Past Due

  

Loans

 
                         

Commercial real estate - non-owner occupied

 $822,199  $—  $10,600  $671  $11,271  $833,470 

Commercial real estate - owner occupied

  507,265   278   —   1,129   1,407   508,672 

Total commercial real estate

  1,329,464   278   10,600   1,800   12,678   1,342,142 
                         

Commercial and industrial - term

  523,936   1,404   430   6   1,840   525,776 

Commercial and industrial - term - PPP

  550,186   —   —   —   —   550,186 

Commercial and industrial - lines of credit

  276,472   86   —   88   174   276,646 

Total commercial and industrial

  1,350,594   1,490   430   94   2,014   1,352,608 
                         

Residential real estate - owner occupied

  237,902   585   247   457   1,289   239,191 

Residential real estate - non-owner occupied

  140,234   294   —   402   696   140,930 

Total residential real estate

  378,136   879   247   859   1,985   380,121 
                         

Construction and land development

  291,764   —   —   —   —   291,764 

Home equity lines of credit

  95,206   7   139   14   160   95,366 

Consumer

  44,510   90   4   2   96   44,606 

Leases

  14,786   —   —   —   —   14,786 

Credit cards - commercial

  10,197   5   —   1   6   10,203 

Total

 $3,514,657  $2,749  $11,420  $2,770  $16,939  $3,531,596 

 

*Pursuant to the CARES Act, loan deferrals granted to borrowers experiencing business interruptions related to the pandemic were not classified as TDRs and not included in past due and/or non-performing loan statistics. As of December 31, 2020, outstanding deferrals totaling $37 million are reflected as current. 

 

              

90 or more

         
              

Days Past Due

         
      

30-59 days

  

60-89 days

  

(includes all

  

Total

  

Total

 

December 31, 2019 (in thousands)

 

Current

  

Past Due

  

Past Due

  

non-accrual)

  

Past Due

  

Loans

 
                         

Commercial and industrial

 $861,860  $253  $194  $8,204  $8,651  $870,511 

Construction and development

  213,766   6   50   —   56   213,822 

Undeveloped land

  46,360   —   —   —   —   46,360 
                         

Real estate mortgage:

                        

Commercial investment

  735,387   94   —   1,137   1,231   736,618 

Owner occupied commercial

  470,951   467   86   2,279   2,832   473,783 

1-4 family residential

  332,718   1,368   33   239   1,640   334,358 

Home equity - first lien

  48,441   179   —   —   179   48,620 

Home equity - junior lien

  72,995   196   100   186   482   73,477 

Total: real estate mortgage

  1,660,492   2,304   219   3,841   6,364   1,666,856 

Consumer

  47,379   84   4   —   88   47,467 

Total

 $2,829,857  $2,647  $467  $12,045  $15,159  $2,845,016 

 

Loan Risk Ratings

 

Consistent with regulatory guidance, Bancorp categorizes loans into credit risk rating categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information and current economic trends. Pass-rated loans include all risk-rated loans other than those classified as OAEM, substandard, and doubtful, which are defined below:

 

OAEM – Loans classified as OAEM have potential weaknesses requiring management's heightened attention. These potential weaknesses may result in deterioration of repayment prospects for the loan or of Bancorp's credit position at some future date.

 

Substandard – Loans classified as substandard are inadequately protected by the paying capacity of the obligor or of collateral pledged, if any. Loans so classified have well-defined weaknesses that jeopardize ultimate repayment of the debt. Default is a distinct possibility if the deficiencies are not corrected.

 

Substandard non-performing – Loans classified as substandard non-performing have all the characteristics of substandard loans and have been placed on non-accrual status or have been accounted for as TDRs. Loans are placed on non-accrual status when prospects for recovering both principal and accrued interest are considered doubtful or when a default of principal or interest has existed for 90 days or more.

 

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

 

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. As of December 31, 2020, the risk rating of loans based on year of origination is as follows:

 

                          

Revolving

  

Revolving

     
                          

loans

  

loans

     

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

amortized

  

converted

     

December 31, 2020

 

2020

  

2019

  

2018

  

2017

  

2016

  

Prior

  

cost basis

  

to term

  

Total

 
                                     

Commercial real estate - non-owner occupied:

                                    

Risk rating

                                    

Pass

 $303,246  $114,731  $102,147  $105,981  $77,925  $57,221  $12,439  $11,717  $785,407 

OAEM

  3,867   16,587   -   -   7,707   615   -   -   28,776 

Substandard

  4,174   1,901   -   -   1,513   991   430   -   9,009 

Substandard non-performing

  9,644   -   -   609   -   -   -   25   10,278 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Commercial real estate non-owner occupied

 $320,931  $133,219  $102,147  $106,590  $87,145  $58,827  $12,869  $11,742  $833,470 
                                     

Commercial real estate - owner occupied:

                                    

Risk rating

                                    

Pass

 $183,666  $94,462  $83,592  $47,506  $39,638  $30,533  $7,693  $2,418  $489,508 

OAEM

  74   6,534   1,575   796   115   -   200   -   9,294 

Substandard

  1,408   5,360   1,335   247   117   -   -   -   8,467 

Substandard non-performing

  91   -   15   500   -   471   -   326   1,403 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Commercial real estate owner occupied

 $185,239  $106,356  $86,517  $49,049  $39,870  $31,004  $7,893  $2,744  $508,672 
                                     

Commercial and industrial - term:

                                    

Risk rating

                                    

Pass

 $215,629  $94,563  $104,871  $42,929  $36,016  $8,412  $-  $7,690  $510,110 

OAEM

  60   2,969   7,878   -   283   8   -   -   11,198 

Substandard

  1,229   2,521   -   91   163   74   -   384   4,462 

Substandard non-performing

  -   -   -   -   -   6   -   -   6 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Commercial and industrial - term

 $216,918  $100,053  $112,749  $43,020  $36,462  $8,500  $-  $8,074  $525,776 
                                     

Commercial and industrial - PPP

                                    

Risk rating

                                    

Pass

 $550,186  $-  $-  $-  $-  $-  $-  $-  $550,186 

OAEM

  -   -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Commercial and industrial - PPP

 $550,186  $-  $-  $-  $-  $-  $-  $-  $550,186 

 

 

 

                          

Revolving

  

Revolving

     
                          

loans

  

loans

     

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

amortized

  

converted

     

December 31, 2020

 

2020

  

2019

  

2018

  

2017

  

2016

  

Prior

  

cost basis

  

to term

  

Total

 
                                     

Commercial and industrial - lines of credit

                                    

Risk rating

                                    

Pass

 $26,351  $14,405  $2,229  $1,990  $290  $85  $223,172  $-  $268,522 

OAEM

  -   2,222   -   -   -   -   1,596   -   3,818 

Substandard

  -   -   -   -   -   -   4,218   -   4,218 

Substandard non-performing

  -   -   -   -   -   -   88   -   88 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Commercial and industrial - lines of credit

 $26,351  $16,627  $2,229  $1,990  $290  $85  $229,074  $-  $276,646 
                                     

Residential real estate - owner occupied

                                    

Risk rating

                                    

Pass

 $94,023  $34,631  $23,748  $19,567  $27,791  $37,362  $-  $1,528  $238,650 

OAEM

  -   -   -   -   -   -   -   -   - 

Substandard

  13   -   -   115   -   -   -   -   128 

Substandard non-performing

  49   58   -   100   38   73   -   95   413 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Residential real estate - owner occupied

 $94,085  $34,689  $23,748  $19,782  $27,829  $37,435  $-  $1,623  $239,191 
                                     

Residential real estate - non-owner occupied

                                    

Risk rating

                                    

Pass

 $63,537  $22,422  $25,466  $10,587  $9,609  $6,451  $-  $788  $138,860 

OAEM

  137   1,600   140   -   -   92   -   -   1,969 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   29   -   -   72   -   -   101 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Residential real estate - non-owner occupied

 $63,674  $24,022  $25,635  $10,587  $9,609  $6,615  $-  $788  $140,930 
                                     

Construction and land development

                                    

Risk rating

                                    

Pass

 $139,611  $94,066  $32,539  $15,384  $1,175  $553  $6,304  $1,883  $291,515 

OAEM

  -   -   -   -   -   -   249   -   249 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Construction and land development

 $139,611  $94,066  $32,539  $15,384  $1,175  $553  $6,553  $1,883  $291,764 
                                     

Home equity lines of credit

                                    

Risk rating

                                    

Pass

 $-  $-  $-  $-  $-  $-  $95,145  $-  $95,145 

OAEM

  -   -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   221   -   221 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Home equity lines of credit

 $-  $-  $-  $-  $-  $-  $95,366  $-  $95,366 

 

 

 

                          

Revolving

  

Revolving

     
                          

loans

  

loans

     

(in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

amortized

  

converted

     

December 31, 2020

 

2020

  

2019

  

2018

  

2017

  

2016

  

Prior

  

cost basis

  

to term

  

Total

 
                                     

Consumer

                                    

Risk rating

                                    

Pass*

 $10,334  $2,897  $1,687  $243  $420  $466  $28,363  $192  $44,602 

OAEM

  -   -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   2   -   2   -   4 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Consumer

 $10,334  $2,897  $1,687  $243  $422  $466  $28,365  $192  $44,606 
                                     

Leases

                                    

Risk rating

                                    

Pass

 $4,674  $1,875  $2,144  $1,300  $2,550  $2,168  $-  $-  $14,711 

OAEM

  -   -   -   -   69   -   -   -   69 

Substandard

  -   -   6   -   -   -   -   -   6 

Substandard non-performing

  -   -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Leases

 $4,674  $1,875  $2,150  $1,300  $2,619  $2,168  $-  $-  $14,786 
                                     

Credit cards - commercial

                                    

Risk rating

                                    

Pass

 $-  $-  $-  $-  $-  $-  $10,203  $-  $10,203 

OAEM

  -   -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   -   - 

Substandard non-performing

  -   -   -   -   -   -   -   -   - 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Credit cards

 $-  $-  $-  $-  $-  $-  $10,203  $-  $10,203 
                                     

Total loans

                                    

Risk rating

                                    

Pass

 $1,591,257  $474,052  $378,423  $245,487  $195,414  $143,251  $383,319  $26,216  $3,437,419 

OAEM

  4,138   29,912   9,593   796   8,174   715   2,045   -   55,373 

Substandard

  6,824   9,782   1,341   453   1,793   1,065   4,648   384   26,290 

Substandard non-performing

  9,784   58   44   1,209   40   622   311   446   12,514 

Doubtful

  -   -   -   -   -   -   -   -   - 

Total Loans

 $1,612,003  $513,804  $389,401  $247,945  $205,421  $145,653  $390,323  $27,046  $3,531,596 

 

* - Revolving loans include $506,000 in overdrawn demand deposit balances.

 

Bancorp considers the performance of the loan portfolio and its impact on the ACL. For certain loan classes, such as credit cards, credit quality is evaluated based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in commercial credit cards based on payment activity:

 

  

December 31,

 

(in thousands)

 

2020

 
     

Credit cards - commercial

    

Performing

 $10,203 

Non-performing

  — 

Total credit cards - commercial

 $10,203 

 

In accordance with Section 4013 of the CARES Act and in response to requests from borrowers who experienced business interruptions related to the pandemic, Bancorp extended payment deferrals for those affected borrowers. Depending on the demonstrated need of the customer, Bancorp deferred either the full loan payment or the principal-only portion of respective loan payments for 90 or 180 days for some borrowers directly impacted by the pandemic. Pursuant to the CARES Act, these loan deferrals were not classified as TDRs and not included in past due and/or non-performing loan statistics. As of December 31, 2020, outstanding loan deferrals totaled $37 million, representing 1.24% of the loan portfolio (excluding PPP loans).

 

Internally assigned risk ratings of loans by loan portfolio class classification category as of December 31, 2019 follows:

 

              

Substandard

      

Total

 

December 31, 2019 (in thousands)

 

Pass

  

OAEM

  

Substandard

  

Non-performing

  

Doubtful

  

Loans

 
                         

Commercial and industrial

 $840,105  $704  $21,500  $8,202  $—  $870,511 

Construction and development

  213,822   —   —   —   —   213,822 

Undeveloped land

  46,360   —   —   —   —   46,360 
                         

Real estate mortgage:

                        

Commercial investment

  722,747   6,459   6,275   1,137   —   736,618 

Owner occupied commercial

  460,981   1,375   9,050   2,377   —   473,783 

1-4 family residential

  332,294   1,701   122   241   —   334,358 

Home equity - first lien

  48,620   —   —   —   —   48,620 

Home equity - junior lien

  73,273   —   17   187   —   73,477 

Total: real estate mortgage

  1,637,915   9,535   15,464   3,942   —   1,666,856 
                         

Consumer

  47,429   —   38   —   —   47,467 
                         

Total

 $2,785,631  $10,239  $37,002  $12,144  $—  $2,845,016 

 

Troubled Debt Restructurings

 

Detail of outstanding TDRs included in total non-performing loans follows:

 

  

December 31, 2020

  

December 31, 2019

 
      

Specific

  

Additional

      

Specific

  

Additional

 
      

reserve

  

commitment

      

reserve

  

commitment

 

(in thousands)

 

Balance

  

allocation

  

to lend

  

Balance

  

allocation

  

to lend

 
                         

Commercial and industrial - term

 $16  $16  $—  $21  $21  $— 

Residential real estate

  —   —   —   13   13   — 

Total TDRs

 $16  $16  $—  $34  $34  $— 

 

During the years ended December 31, 2020 and 2019, there were no loans modified as TDRs and there were no payment defaults of existing TDRs within 12 months following the modification. Default is determined at 90 or more days past due, charge-off, or foreclosure.

 

At December 31, 2020 and December 31, 2019, Bancorp had $147,000 and $239,000, respectively, in residential real estate loans for which formal foreclosure proceedings were in process.

 

Purchased Credit Impaired Loans (Prior to the Adoption of ASC 326)

 

Management utilized the following criteria in determining which loans were classified as PCI loans for its 2019 acquisition:

 

 

●

Loans classified by management as substandard, doubtful or loss

 

●

Loans classified as non-accrual when acquired

 

●

Loans past due 90 days or more when acquired

 

●

Loans for which management assigned a non-accretable mark

 

The Bank acquired $1.6 million in PCI loans in connection with its 2019 acquisition. Under ASC 310-30, the non-accretable amount attributed to these loans equaled the contractually required principal at acquisition date and as of December 31, 2020.

 

The following table presents loans acquired during 2019 for which it was probable at acquisition date that all contractually required payments would not be collected:

 

December 31, (in thousands)

 

2019

 
     

Contractually-required principal

 $1,579 

Non-accretable amount

  (1,579)

Accretable amount

  - 

Carrying value of loans

 $- 

 

The following table presents a roll forward of the accretable amount of PCI loans acquired in its 2013 acquisition:

 

Years ended December 31, (in thousands)

 

2020

  

2019

  

2018

 
             

Balance, beginning of period

 $-  $(69) $(106)

Transfers between non-accretable and accretable

  -   -   - 

Net accretion into interest income on loans, including loan fees

  -   69   37 

Balance, end of period

 $-  $-  $(69)