XML 23 R13.htm IDEA: XBRL DOCUMENT

Note 5 - Credit Quality

9 Months Ended

Sep. 30, 2020

Note 5. Credit Quality

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:

●

Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.

●

Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of management’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

●

Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

●

Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

●

Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.

	*September 30, 2020*
			*Special*
(Amounts in thousands)	*Pass*		*Mention*		*Substandard*		*Doubtful*		*Loss*		*Total*
Non-covered loans
Commercial loans
Construction, development, and other land	$	35,889	$	8,419	$	2,477	$	-	$	-	$	46,785
Commercial and industrial		153,153		19,369		7,192		-		-		179,714
Multi-family residential		81,528		20,937		3,182		-		-		105,647
Single family non-owner occupied		143,235		32,649		13,368		13		-		189,265
Non-farm, non-residential		507,094		201,975		39,746		-		-		748,815
Agricultural		6,804		3,216		342		-		-		10,362
Farmland		13,281		5,139		4,553		-		-		22,973
Consumer real estate loans												-
Home equity lines		89,729		1,317		3,010		-		-		94,056
Single family owner occupied		607,616		3,815		33,167		-		-		644,598
Owner occupied construction		16,684		202		574		-		-		17,460
Consumer and other loans												-
Consumer loans		116,786		197		1,755		-		-		118,738
Other		5,838		-		-		-		-		5,838
Total non-covered loans		1,777,637		297,235		109,366		13		-		2,184,251
Covered loans
Commercial loans
Construction, development, and other land		-		27		-		-		-		27
Single family non-owner occupied		155		33		-		-		-		188
Consumer real estate loans												-
Home equity lines		7,365		386		328		-		-		8,079
Single family owner occupied		1,832		269		349		-		-		2,450
Total covered loans		9,352		715		677		-		-		10,744
Total loans	$	1,786,989	$	297,950	$	110,043	$	13	$	-	$	2,194,995

	December 31, 2019
			Special
(Amounts in thousands)	*Pass*		*Mention*		*Substandard*		*Doubtful*		*Loss*		*Total*
Non-covered loans
Commercial loans
Construction, development, and other land	$	45,781	$	2,079	$	799	$	-	$	-	$	48,659
Commercial and industrial		135,651		4,327		2,984		-		-		142,962
Multi-family residential		118,045		2,468		1,327		-		-		121,840
Single family non-owner occupied		149,916		7,489		5,776		-		-		163,181
Non-farm, non-residential		683,481		27,160		16,620		-		-		727,261
Agricultural		11,299		122		335		-		-		11,756
Farmland		17,609		4,107		1,439		-		-		23,155
Consumer real estate loans
Home equity lines		106,246		2,014		1,818		-		-		110,078
Single family owner occupied		580,580		17,001		23,116		-		-		620,697
Owner occupied construction		16,341		179		721		-		-		17,241
Consumer and other loans
Consumer loans		108,065		1,341		621		-		-		110,027
Other		4,742		-		-		-		-		4,742
Total non-covered loans		1,977,756		68,287		55,556		-		-		2,101,599
Covered loans
Commercial loans
Construction, development, and other land		-		28		-		-		-		28
Single family non-owner occupied		199		-		-		-		-		199
Non-farm, non-residential		-		-		3		-		-		3
Consumer real estate loans
Home equity lines		7,177		2,327		349		-		-		9,853
Single family owner occupied		2,111		275		392		-		-		2,778
Total covered loans		9,487		2,630		744		-		-		12,861
Total loans	$	1,987,243	$	70,917	$	56,300	$	-	$	-	$	2,114,460

The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired.

The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:

	*September 30, 2020*						*December 31, 2019*
			*Unpaid*						*Unpaid*
	*Recorded*		*Principal*		*Related*		*Recorded*		*Principal*		*Related*
(Amounts in thousands)	*Investment*		*Balance*		*Allowance*		*Investment*		*Balance*		*Allowance*
Impaired loans with no related allowance
Commercial loans
Construction, development, and other land	$	869	$	1,097	$	-	$	552	$	768	$	-
Commercial and industrial		3,242		3,302		-		576		599		-
Multi-family residential		923		1,009		-		1,254		1,661		-
Single family non-owner occupied		5,011		5,663		-		2,652		3,176		-
Non-farm, non-residential		7,712		8,362		-		4,158		4,762		-
Agricultural		267		275		-		158		164		-
Farmland		1,517		1,591		-		1,437		1,500		-
Consumer real estate loans
Home equity lines		1,540		1,697		-		1,372		1,477		-
Single family owner occupied		16,100		18,467		-		15,588		17,835		-
Owner occupied construction		503		511		-		648		648		-
Consumer and other loans
Consumer loans		413		424		-		290		294		-
Total impaired loans with no allowance		38,097		42,398		-		28,685		32,884		-

Impaired loans with a related allowance
Commercial loans
Commercial and industrial		-		-		-		-		-		-
Multi-family residential		944		1,278		222		-		-		-
Single family non-owner occupied		-		-		-		-		-		-
Non-farm, non-residential		1,779		1,970		565		1,241		1,227		292
Farmland		-		-		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-		-		-		-
Single family owner occupied		1,418		1,522		239		1,246		1,246		353
Consumer and other loans
Consumer loans		-		-		-		-		-		-
Total impaired loans with an allowance		4,141		4,770		1,026		2,487		2,473		645
Total impaired loans⁽¹⁾	$	42,238	$	47,168	$	1,026	$	31,172	$	35,357	$	645

(1)	Total recorded investment of impaired loans include loans totaling $33.48 million as of September 30, 2020, and $24.64 million as of December 31, 2019, that do not meet the Company's evaluation threshold for individual impairment and are therefore collectively evaluated for impairment.

The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:

	*Three Months Ended September 30,*									*Nine Months Ended September 30,*
	*2020*				*2019*					*2020*				*2019*
			*Average*					*Average*				*Average*				*Average*
	*Interest Income*		*Recorded*		*Interest Income*			*Recorded*		*Interest Income*		*Recorded*		*Interest Income*		*Recorded*
(Amounts in thousands)	*Recognized*		*Investment*		*Recognized*			*Investment*		*Recognized*		*Investment*		*Recognized*		*Investment*
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	6	$	882	$	5		$	570	$	21	$	1,021	$	17	$	720
Commercial and industrial		46		3,315		2			66		135		2,845		7		277
Multi-family residential		9		967		5			1,269		38		685		21		1,385
Single family non-owner occupied		54		5,090		41			2,958		126		4,798		97		3,063
Non-farm, non-residential		79		7,786		20			4,590		206		7,115		84		4,832
Agricultural		4		272		9			223		7		247		11		108
Farmland		12		1,526		19			1,536		48		1,640		45		1,474
Consumer real estate loans
Home equity lines		13		1,588		17			1,463		29		1,569		31		1,452
Single family owner occupied		120		16,328		176			16,593		410		17,044		454		16,123
Owner occupied construction		2		542		3			224		12		470		7		223
Consumer and other loans
Consumer loans		8		420		6			319		19		445		10		187
Total impaired loans with no related allowance		353		38,716		303			29,811		1,051		37,879		784		29,844

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-			-		-		-		-		-
Commercial and industrial		-		-		-			-		-		-		-		-
Multi-family residential		-		944		-			-		-		943		-		-
Single family non-owner occupied		-		-		-			-		-		-		-		-
Non-farm, non-residential		8		1,789		20			1,254		22		1,670		28		602
Farmland		-		-		-			-		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-			-		-		-		-		-
Single family owner occupied		3		1,423		(30	)		1,253		27		1,480		35		2,177
Owner occupied construction		-		-		-			-		-		-		-		-
Total impaired loans with a related allowance		11		4,156		(10	)		2,507		49		4,093		63		2,779
Total impaired loans	$	364	$	42,872	$	293		$	32,318	$	1,100	$	41,972	$	847	$	32,623

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

	*September 30, 2020*						*December 31, 2019*
(Amounts in thousands)	*Non-covered*		*Covered*		*Total*		*Non-covered*		*Covered*		*Total*
Commercial loans
Construction, development, and other land	$	285	$	-	$	285	$	211	$	-	$	211
Commercial and industrial		1,765		-		1,765		530		-		530
Multi-family residential		1,536		-		1,536		1,144		-		1,144
Single family non-owner occupied		3,289		-		3,289		1,286		-		1,286
Non-farm, non-residential		6,612		-		6,612		3,400		-		3,400
Agricultural		267		-		267		158		-		158
Farmland		814		-		814		713		-		713
Consumer real estate loans
Home equity lines		951		313		1,264		753		220		973
Single family owner occupied		8,012		20		8,032		7,259		24		7,283
Owner occupied construction		536		-		536		428		-		428
Consumer and other loans
Consumer loans		357		-		357		231		-		231
Total nonaccrual loans	$	24,424	$	333	$	24,757	$	16,113	$	244	$	16,357

The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. Non-covered accruing loans contractually past due 90 days or more totaled $43 thousand as of September 30, 2020, compared to $144 thousand as of December 31, 2019.

	*September 30, 2020*
	*30 - 59 Days*		*60 - 89 Days*		*90+ Days*		*Total*		*Current*		*Total*
(Amounts in thousands)	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Loans*		*Loans*
Non-covered loans
Commercial loans
Construction, development, and other land		$ -		$ -		$ 285		$ 285		$ 46,500		$ 46,785
Commercial and industrial		1,280		163		1,061		2,504		177,210		179,714
Multi-family residential		810		334		1,202		2,346		103,301		105,647
Single family non-owner occupied		842		636		2,255		3,733		185,532		189,265
Non-farm, non-residential		608		1,856		3,619		6,083		742,732		748,815
Agricultural		1		16		84		101		10,261		10,362
Farmland		125		-		737		862		22,111		22,973
Consumer real estate loans
Home equity lines		509		248		443		1,200		92,856		94,056
Single family owner occupied		2,894		1,286		3,533		7,713		636,885		644,598
Owner occupied construction		71		91		394		556		16,904		17,460
Consumer and other loans
Consumer loans		1,679		436		187		2,302		116,436		118,738
Other		-		-		-		-		5,838		5,838
Total non-covered loans		8,819		5,066		13,800		27,685		2,156,566		2,184,251
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		27		27
Single family non-owner occupied		-		-		-		-		188		188
Non-farm, non-residential		-		-		-		-		-		-
Consumer real estate loans
Home equity lines		123		-		263		386		7,693		8,079
Single family owner occupied		20		-		-		20		2,430		2,450
Total covered loans		143		-		263		406		10,338		10,744
Total loans		$ 8,962		$ 5,066		$ 14,063		$ 28,091		$ 2,166,904		$ 2,194,995

	December 31, 2019
	30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total
(Amounts in thousands)	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Loans*		*Loans*
Non-covered loans
Commercial loans
Construction, development, and other land	$	63	$	65	$	211	$	339	$	48,320	$	48,659
Commercial and industrial		1,913		238		507		2,658		140,304		142,962
Multi-family residential		375		-		1,144		1,519		120,321		121,840
Single family non-owner occupied		754		267		661		1,682		161,499		163,181
Non-farm, non-residential		917		1,949		3,027		5,893		721,368		727,261
Agricultural		86		164		-		250		11,506		11,756
Farmland		856		349		664		1,869		21,286		23,155
Consumer real estate loans
Home equity lines		1,436		165		503		2,104		107,974		110,078
Single family owner occupied		7,728		2,390		3,766		13,884		606,813		620,697
Owner occupied construction		207		-		428		635		16,606		17,241
Consumer and other loans
Consumer loans		1,735		439		202		2,376		107,651		110,027
Other		22		-		-		22		4,720		4,742
Total non-covered loans		16,092		6,026		11,113		33,231		2,068,368		2,101,599
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		28		28
Single family non-owner occupied		-		-		-		-		199		199
Non-farm, non-residential		-		-		-		-		3		3
Consumer real estate loans
Home equity lines		144		28		-		172		9,681		9,853
Single family owner occupied		-		50		-		50		2,728		2,778
Total covered loans		144		78		-		222		12,639		12,861
Total loans	$	16,236	$	6,104	$	11,113	$	33,453	$	2,081,007	$	2,114,460

The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $500 thousand are evaluated for a specific reserve based on either the collateral or cash flow method, whichever is most applicable. Restructured loans under $500 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain trouble debt restructurings ("TDRs") are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of September 30, 2020, or December 31, 2019.

The CARES Act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act.

Through September 30, 2020, the Company had modified a total of 3,362 loans with principal balances totaling $426.45 million related to COVID-19 relief. Those modifications were generally short-term payment deferrals and are not considered TDRs based on the CARES Act. The Company’s policy is to downgrade commercial loans modified for COVID-19 to Special Mention due to a higher-than-usual level of risk, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company will consider upgrading these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but not limited to additional modifications, payment performance and current underwriting. As of September, 30, 2020, current commercial and consumer loan deferrals were $102.54 million and $13.09 million, respectively.

The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:

	*September 30, 2020*						*December 31, 2019*
(Amounts in thousands)	*Nonaccrual(1)*		*Accruing*		*Total*		*Nonaccrual(1)*		*Accruing*		*Total*
Commercial loans
Construction, development, and other land	$	-	$	-	$	-	$	-	$	-	$	-
Commercial and industrial		-		1,342		1,342		-		-		-
Single family non-owner occupied		538		1,274		1,812		552		595		1,147
Non-farm, non-residential		-		2,419		2,419		-		307		307
Consumer real estate loans
Home equity lines		-		81		81		-		115		115
Single family owner occupied		1,535		5,573		7,108		1,790		5,305		7,095
Owner occupied construction		-		217		217		-		221		221
Consumer and other loans
Consumer loans		-		30		30		-		32		32
Total TDRs	$	2,073	$	10,936	$	13,009	$	2,342	$	6,575	$	8,917

Allowance for loan losses related to TDRs					$	347					$	353

(1)	Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

The following table presents interest income recognized on TDRs for the periods indicated:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2020*		*2019*		*2020*		*2019*
(Amounts in thousands)
Interest income recognized	$	122	$	56	$	372	$	203

The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated:

	*Three Months Ended September 30,*
	*2020*						*2019*
					*Post-modification*						*Post-modification*
	*Total*		*Pre-modification*		*Recorded*		*Total*		*Pre-modification*		*Recorded*
(Amounts in thousands)	*Contracts*		*Recorded Investment*		*Investment(1)*		*Contracts*		*Recorded Investment*		*Investment(1)*
Below market interest rate and extended payment term
Single family non-owner occupied		-		-		-		-		-		-
Single family owner occupied								-		-		-
Total below market interest rate and extended payment term		-		-		-		-		-		-
Payment deferral
Commercial and industrial		-		-		-		-		-		-
Non-farm, non-residential		-		-		-		-		-		-
Single family owner occupied		-		-		-		1		33		29
Total principal deferral		-		-		-		1		33		29
Total		-	$	-	$	-		1	$	33	$	29

(1)	Represents the loan balance immediately following modification

	*Nine Months Ended September 30,*
	*2020*						*2019*
					*Post-modification*						*Post-modification*
	*Total*		*Pre-modification*		*Recorded*		*Total*		*Pre-modification*		*Recorded*
(Amounts in thousands)	*Contracts*		*Recorded Investment*		*Investment(1)*		*Contracts*		*Recorded Investment*		*Investment(1)*
Below market interest rate Single family non-owner occupied		1		50		50		-	$	-	$	-
Total below market interest rate		1		50		50		-		-		-
Below market interest rate and extended payment term
Single family non-owner occupied		-		-		-		2		221		218
Single family owner occupied		-		-		-		2		488		480
Total below market interest rate and extended payment term		-		-		-		4		709		698
Payment deferral
Construction, development, and other land		1		63		63		-		-		-
Commercial and industrial		3		1,708		1,708		-		-		-
Single family non-owner occupied		1		529		529		-		-		-
Non-farm, non-residential		3		2,115		2,115		-		-		-
Single family owner occupied		3		742		726		1		33		29
Home equity lines		-		-		-		-		-		-
Total principal deferral		11		5,157		5,141		1		33		29
Total		12	$	5,207	$	5,191		5	$	742	$	727

(1)	Represents the loan balance immediately following modification

Payment defaults on loans modified as TDRs restructured within the previous 12 months as of September 30, 2020, were for one loan in the amount of $100 thousand; there were none in 2019.

The following table provides information about other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:

	*September 30, 2020*		*December 31, 2019*
(Amounts in thousands)
OREO	$	2,103	$	3,969

OREO secured by residential real estate	$	767	$	2,232
Residential real estate loans in the foreclosure process⁽¹⁾		2,938		1,539

(1)	The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction