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Allowance for Loans Losses | 3 Months Ended
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Mar. 31, 2020
Receivables [Abstract] |
Allowance for Loans Losses | Note 5 – Allowance for Loans Losses A summary of changes in the allowance for loans losses for March 31, 2020 and December 31, 2019 is as follows:
| March 31, 2020 |  |  | December 31, 2019 |
(in thousands) |  |  |  |  |  |  |
Allowance, beginning of period | $ | 4,572 |  |  | $ | 3,580 |
Charge-Offs |  |  |  |  |  |  |
Commercial and industrial | $ | — |  |  | $ | (43 | )
Real estate, mortgage |  | — |  |  |  | (4 | )
Consumer and other loans |  | (319 | ) |  |  | (914 | )
Total charge-offs |  | (319 | ) |  |  | (961 | )
Recoveries |  |  |  |  |  |  |
Commercial and industrial | $ | 1 |  |  | $ | — |
Real estate, mortgage |  | — |  |  |  | 6 |
Consumer and other loans |  | 68 |  |  |  | 205 |
Total recoveries |  | 69 |  |  |  | 211 |
Net charge-offs |  | (250 | ) |  |  | (750 | )
Provision for loan losses |  | 575 |  |  |  | 1,742 |
Allowance, end of period | $ | 4,897 |  |  | $ | 4,572 |
Note 5 – Allowance for Loans Losses, continued
(in thousands) | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
March 31, 2020 |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 270 |  |  | $ | 81,907 |  |  | $ | 82,177 |
Agricultural |  | — |  |  |  | 309 |  |  |  | 309 |
Real Estate – construction, commercial |  | — |  |  |  | 42,527 |  |  |  | 42,527 |
Real Estate – construction, residential |  | — |  |  |  | 27,152 |  |  |  | 27,152 |
Real Estate – mortgage, commercial |  | 412 |  |  |  | 256,131 |  |  |  | 256,543 |
Real Estate – mortgage, residential |  | 395 |  |  |  | 214,760 |  |  |  | 215,155 |
Real Estate – mortgage, farmland |  | — |  |  |  | 5,394 |  |  |  | 5,394 |
Consumer installment loans |  | — |  |  |  | 42,409 |  |  |  | 42,409 |
Gross loans |  | 1,077 |  |  |  | 670,589 |  |  |  | 671,666 |
Less: Unearned income |  | — |  |  |  | (731 | ) |  |  | (731 | )
Total | $ | 1,077 |  |  | $ | 669,858 |  |  | $ | 670,935 |
(in thousands) | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 280 |  |  | $ | 77,002 |  |  | $ | 77,282 |
Agricultural |  | — |  |  |  | 446 |  |  |  | 446 |
Real Estate – construction, commercial |  | — |  |  |  | 38,039 |  |  |  | 38,039 |
Real Estate – construction, residential |  | — |  |  |  | 26,778 |  |  |  | 26,778 |
Real Estate – mortgage, commercial |  | 733 |  |  |  | 251,091 |  |  |  | 251,824 |
Real Estate – mortgage residential |  | 395 |  |  |  | 208,099 |  |  |  | 208,494 |
Real Estate – mortgage, farmland |  | — |  |  |  | 5,507 |  |  |  | 5,507 |
Consumer installment loans |  | — |  |  |  | 39,202 |  |  |  | 39,202 |
Gross loans |  | 1,408 |  |  |  | 646,164 |  |  |  | 647,572 |
Less: Unearned income |  | — |  |  |  | (738 | ) |  |  | (738 | )
Total | $ | 1,408 |  |  | $ | 645,426 |  |  | $ | 646,834 |
The following table presents information related to impaired loans, by portfolio segment, at the dates presented.
| March 31, 2020 |
(in thousands) | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate – mortgage, residential | $ | 395 |  |  | $ | 395 |  |  | $ | — |  |  | $ | 395 |  |  | $ | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | 270 |  |  |  | 270 |  |  |  | 135 |  |  |  | 275 |  |  |  | 1 |
Real estate – mortgage, commercial |  | 412 |  |  |  | 412 |  |  |  | 96 |  |  |  | 573 |  |  |  | 4 |
| $ | 1,077 |  |  | $ | 1,077 |  |  | $ | 231 |  |  | $ | 1,243 |  |  | $ | 5 |
Note 5 – Allowance for Loans Losses, continued
| December 31, 2019 |
(in thousands) | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate – mortgage, residential | $ | 395 |  |  | $ | 395 |  |  | $ | — |  |  | $ | 527 |  |  | $ | 7 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | 280 |  |  |  | 280 |  |  |  | 143 |  |  |  | 286 |  |  |  | 2 |
Real estate – mortgage, commercial |  | 733 |  |  |  | 733 |  |  |  | 98 |  |  |  | 734 |  |  |  | 5 |
| $ | 1,408 |  |  | $ | 1,408 |  |  | $ | 241 |  |  | $ | 1,547 |  |  | $ | 14 |
Purchased loans from the 2016 River Bancorp, Inc. acquisition had remaining balances (in thousands) of $16,158 and 19,686 as of March 31, 2020 and December 31, 2019, respectively. Of these balances three loan relationships were considered specifically impaired purchased credit-impaired loans. One of these relationships was resolved during 2018 and the Company recovered $200 of the balance previously written-off. During the first quarter of 2019, another loan relationship was resolved and the Company recovered $200 of the balance previously written-off. At March 31, 2020, the remaining specifically impaired purchase-credit impaired (“PCI”) loans totaled $2,223 with a specific impairment of $190. The following table presents the recorded investment in the segments of the River Bancorp, Inc. purchased loans as of March 31, 2020 and December 31, 2019 (in thousands):
| March 31, 2020 |  |  | December 31, 2019 |
Real Estate |  |  |  |  |  |  |
Construction loans and all land development and other land loans | $ | 917 |  |  | $ | 1,397 |
Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit |  | 2,770 |  |  |  | 2,709 |
Secured by first liens |  | 6,240 |  |  |  | 6,971 |
Secured by junior liens |  | 175 |  |  |  | 394 |
Secured by multifamily (5 or more) residential properties |  | 61 |  |  |  | 63 |
Loans secured by owner-occupied, nonfarm nonresidential properties |  | 4,210 |  |  |  | 4,459 |
Loans secured by other nonfarm nonresidential properties |  | 544 |  |  |  | 2,322 |
Commercial and Industrial |  | 1,152 |  |  |  | 1,272 |
Other |  |  |  |  |  |  |
Other revolving credit plans |  | 23 |  |  |  | 26 |
Automobile loans |  | 9 |  |  |  | 10 |
Other consumer loans |  | 57 |  |  |  | 63 |
Total | $ | 16,158 |  |  | $ | 19,686 |
Note 5 – Allowance for Loans Losses, continued The following table presents the Company’s loan portfolio by internal loan grade (in thousands) as of March 31, 2020 and December 31, 2019:
| March 31, 2020 |  |  |  |  |
| Grade 1 Prime |  |  | Grade 2 Desirable |  |  | Grade 3 Good |  |  | Grade 4 Acceptable |  |  | Grade 5 Pass/Watch |  |  | Grade 6 Special Mention |  |  | Grade 7 Substandard |  |  | Total |
Commercial and industrial | $ | 1,618 |  |  | $ | 1,428 |  |  | $ | 35,586 |  |  | $ | 41,167 |  |  | $ | 926 |  |  | $ | 883 |  |  | $ | 569 |  |  | $ | 82,177 |
Agricultural |  | — |  |  |  | 104 |  |  |  | 139 |  |  |  | 66 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 309 |
Real Estate – construction, commercial |  | — |  |  |  | 1,563 |  |  |  | 25,044 |  |  |  | 14,865 |  |  |  | 102 |  |  |  | — |  |  |  | 953 |  |  |  | 42,527 |
Real Estate – construction, residential |  | — |  |  |  | — |  |  |  | 9,359 |  |  |  | 14,174 |  |  |  | 3,619 |  |  |  | — |  |  |  | — |  |  |  | 27,152 |
Real Estate – mortgage, commercial |  | — |  |  |  | 3,675 |  |  |  | 125,197 |  |  |  | 114,441 |  |  |  | 9,193 |  |  |  | 1,444 |  |  |  | 2,593 |  |  |  | 256,543 |
Real Estate – mortgage residential |  | — |  |  |  | 3,570 |  |  |  | 103,297 |  |  |  | 103,716 |  |  |  | 2,987 |  |  |  | 249 |  |  |  | 1,336 |  |  |  | 215,155 |
Real Estate – mortgage, farmland |  | 1,410 |  |  |  | 116 |  |  |  | 1,702 |  |  |  | 2,166 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,394 |
Consumer installment loans |  | 373 |  |  |  | 54 |  |  |  | 17,627 |  |  |  | 23,524 |  |  |  | 110 |  |  |  | — |  |  |  | 721 |  |  |  | 42,409 |
Gross loans |  | 3,401 |  |  |  | 10,510 |  |  |  | 317,951 |  |  |  | 314,119 |  |  |  | 16,937 |  |  |  | 2,576 |  |  |  | 6,172 |  |  |  | 671,666 |
Less: Unearned income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (731 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 670,935 |
| December 31, 2019 |  |  |  |  |
| Grade 1 Prime |  |  | Grade 2 Desirable |  |  | Grade 3 Good |  |  | Grade 4 Acceptable |  |  | Grade 5 Pass/Watch |  |  | Grade 6 Special Mention |  |  | Grade 7 Substandard |  |  | Total |
Commercial and industrial | $ | 1,509 |  |  | $ | 924 |  |  | $ | 35,012 |  |  | $ | 37,298 |  |  | $ | 568 |  |  | $ | 1,488 |  |  | $ | 483 |  |  | $ | 77,282 |
Agricultural |  | — |  |  |  | 118 |  |  |  | 168 |  |  |  | 160 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 446 |
Real Estate – construction, commercial |  | — |  |  |  | 1,454 |  |  |  | 24,667 |  |  |  | 10,850 |  |  |  | 102 |  |  |  | — |  |  |  | 966 |  |  |  | 38,039 |
Real Estate – construction, residential |  | — |  |  |  | 139 |  |  |  | 9,355 |  |  |  | 14,331 |  |  |  | 2,953 |  |  |  | — |  |  |  | — |  |  |  | 26,778 |
Real Estate – mortgage, commercial |  | — |  |  |  | 4,971 |  |  |  | 118,488 |  |  |  | 114,598 |  |  |  | 9,273 |  |  |  | 1,935 |  |  |  | 2,559 |  |  |  | 251,824 |
Real Estate – mortgage residential |  | — |  |  |  | 4,611 |  |  |  | 100,665 |  |  |  | 98,116 |  |  |  | 3,470 |  |  |  | 130 |  |  |  | 1,502 |  |  |  | 208,494 |
Real Estate – mortgage, farmland |  | 1,467 |  |  |  | 134 |  |  |  | 1,736 |  |  |  | 2,170 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,507 |
Consumer installment loans |  | 293 |  |  |  | 72 |  |  |  | 17,872 |  |  |  | 20,067 |  |  |  | 116 |  |  |  | — |  |  |  | 782 |  |  |  | 39,202 |
Gross loans |  | 3,269 |  |  |  | 12,423 |  |  |  | 307,963 |  |  |  | 297,590 |  |  |  | 16,482 |  |  |  | 3,553 |  |  |  | 6,292 |  |  |  | 647,572 |
Less: Unearned income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (738 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 646,834 |
The Company also utilizes the grades 8 (Doubtful) and 9 (Loss). There were no loans classified in these categories at March 31, 2020 and December 31, 2019. The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: Risk Grade 1 – Prime Loans: This grade is reserved for only the strongest of loans. These loans are to individuals or corporations that are well known to the bank and are always secured with an almost guaranteed source of repayment such as a lien on a bank certificate of deposit or savings account. Character, credit history, and ability of individuals or company principals are excellent and unquestioned. Source of income and industry of borrower appears stable. High liquidity, minimum risk, good ratios and low handling cost. Risk Grade 2 – Desirable Loans: This grade is reserved for new loans that are within guidelines and where the borrowers have documented significant overall financial strength. A liquid financial statement is generally a financial statement with substantial liquid assets, particularly relative to the debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind). Note 5 – Allowance for Loans Losses, continued Risk Grade 3 – Good Loans: This grade is reserved for loans which exhibit satisfactory credit risk. These loans have adequate sources of repayment, with little identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: (1) conformity in all respects with policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind), (2) documented historical cash flow that meets or exceeds required minimum Blue Ridge Bank guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Risk Grade 4 – Acceptable Loans: This grade is given to satisfactory loans containing more risk than Risk Grade 3 loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics: (1) general conformity to Blue Ridge Bank's underwriting requirements, with limited exceptions to policy, product or underwriting guidelines. All exceptions noted have documented mitigating factors that offset any additional risk associated with the exceptions noted, (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Risk Grade 5 – Pass/Watch Loans: This grade is for satisfactory loans containing acceptable but elevated risk. These loans are characterized by borrowers who have a marginal cash flow, marginal profitability, or have experienced an unprofitable year and declining financial condition. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. These loans require more diligent monitoring due to characteristics such as: (1) additional exceptions to Blue Ridge Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk, (2) unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time, and (3) marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor. Risk Grade 6 – Special Mention: This grade is for loans classified as Special Mention. They have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention credits typically exhibit underwriting guideline tolerances and/or exceptions with no mitigating factors, or emerging weaknesses that may or may not be cured as time passes. Risk Grade 7 – Substandard: A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to: (1) high debt to worth ratios, (2) declining or negative earnings trends, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable repayment sources, (6) lack of well-defined secondary repayment source, and (7) unfavorable competitive comparisons. Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals. Risk Grade 8 – Doubtful: Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are: (1) injection of capital, (2) alternative financing, (3) liquidation of assets or the pledging of additional collateral, and (4) the ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off. Risk Grade 9 – Loss: Loans classified Loss are considered uncollectable and of such little value that their continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future. Probable Loss portions of Doubtful assets should be charged against the reserve for loan losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter-end.

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- Definition The entire disclosure for allowance for credit losses. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -URI http://asc.fasb.org/topic&trid=2196771 + Details
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