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Loan Quality | 12 Months Ended
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Dec. 31, 2021
Loan Quality [Abstract] |
Loan Quality | Note 6. Loan Quality Management utilizes a risk rating scale ranging from 1-Prime to 9-Loss to evaluate loan quality. This risk rating scale is used primarily for commercial purpose loans. Consumer purpose loans are identified as either a pass or substandard rating based on the performance status of the loans. Substandard consumer loans are loans that are nonaccrual or 90 days or more past due and still accruing. Loans rated 1 – 4 are considered pass credits. Loans that are rated 5-Pass Watch are pass credits but have been identified as credits that are likely to warrant additional attention and monitoring. Loans rated 6-OAEM or worse begin to receive enhanced monitoring and reporting by the Bank. Loans rated 7-Substandard or 8-Doubtful exhibit the greatest financial weakness and present the greatest possible risk of loss to the Bank. Nonaccrual loans are rated no better than 7-Substandard. The following factors represent some of the factors used in determining the risk rating of a borrower: cash flow, debt coverage, liquidity, management, and collateral. Risk ratings, for pass credits, are generally reviewed annually for term debt and at renewal for revolving or renewing debt. The following table reports on the risk rating for those loans in the portfolio that are assigned an individual risk rating as of December 31, 2021 and 2020: Pass OAEM Substandard Doubtful (Dollars in thousands)(1-5) (6) (7) (8) TotalDecember 31, 2021 Residential Real Estate 1-4 Family First liens$ 132,433 $ — $ 50 $ — $ 132,483Junior liens and lines of credit 71,906 — 38 — 71,944Total 204,339 — 88 — 204,427Residential real estate - construction 20,233 — 424 — 20,657Commercial real estate 486,903 19,006 16,870 — 522,779Commercial 244,315 49 179 — 244,543Consumer 6,406 — — — 6,406Total$ 962,196 $ 19,055 $ 17,561 $ — $ 998,812 December 31, 2020 Residential Real Estate 1-4 Family First liens$ 137,156 $ — $ 68 $ — $ 137,224Junior liens and lines of credit 65,350 — 10 — 65,360Total 202,506 — 78 — 202,584Residential real estate - construction 15,797 — 512 — 16,309Commercial real estate 449,478 35,947 18,552 — 503,977Commercial 270,272 10,698 287 — 281,257Consumer 5,565 — 12 — 5,577Total$ 943,618 $ 46,645 $ 19,441 $ — $ 1,009,704 Delinquent loans are a result of borrowers’ cash flow and/or alternative sources of cash being insufficient to repay loans. The Bank’s likelihood of collateral liquidation to repay the loans becomes more probable the further behind a borrower falls, particularly when loans reach 90 days or more past due. Management monitors the performance status of loans by the use of an aging report. The aging report can provide an early indicator of loans that may become severely delinquent and possibly result in a loss to the Bank. ‎ The following table presents the aging of payments in the loan portfolio as of December 31, 2021 and 2020: (Dollars in thousands) Loans Past Due and Still Accruing Total Current 30-59 Days 60-89 Days 90 Days+ Total Non-Accrual LoansDecember 31, 2021 Residential Real Estate 1-4 Family First liens $ 132,224 $ 96 $ 113 $ — $ 209 $ 50 $ 132,483 Junior liens and lines of credit 71,788 118 — — 118 38 71,944 Total 204,012 214 113 — 327 88 204,427 Residential real estate - construction 20,233 — — — — 424 20,657 Commercial real estate 515,487 293 187 — 480 6,812 522,779 Commercial 244,377 106 — — 106 60 244,543 Consumer 6,368 27 11 — 38 — 6,406 Total $ 990,477 $ 640 $ 311 $ — $ 951 $ 7,384 $ 998,812 December 31, 2020 Residential Real Estate 1-4 Family First liens $ 137,056 $ 43 $ 58 $ 26 $ 127 $ 41 $ 137,224 Junior liens and lines of credit 65,212 115 23 — 138 10 65,360 Total 202,268 158 81 26 265 51 202,584 Residential real estate - construction 15,797 — — — — 512 16,309 Commercial real estate 495,609 74 261 — 335 8,033 503,977 Commercial 280,930 219 — — 219 108 281,257 Consumer 5,525 38 2 12 52 — 5,577 Total $ 1,000,129 $ 489 $ 344 $ 38 $ 871 $ 8,704 $ 1,009,704 Impaired loans generally represent Management’s determination that the borrower will be unable to repay the loan in accordance with its contractual terms and that collateral liquidation may or may not fully repay both interest and principal. It is the Bank’s policy to evaluate the probable collectability of principal and interest due under terms of loan contracts for all loans 90-days or more, nonaccrual loans, or impaired loans. Further, it is the Bank’s policy to discontinue accruing interest on loans that are not adequately secured and in the process of collection. Upon determination of nonaccrual status, the Bank subtracts any current year accrued and unpaid interest from its income, and any prior year accrued and unpaid interest from the allowance for loan losses. Management continually monitors the status of nonperforming loans, the value of any collateral and potential of risk of loss. Commercial loans are charged-off immediately upon identification of a loss. If a loan (commercial or mortgage) is collateral dependent (repayment provided solely by the collateral), the value of the collateral is determined and a partial charge-off may be recorded. Consumer loans are charged-off no later than 180 days past due. At December 31, 2021, the Bank had $38.0 thousand of residential properties in the process of foreclosure compared to $68.0 thousand at the end of 2020. Interest not recognized on nonaccrual loans was $115.4 thousand and $342.6 thousand for the years ended December 31, 2021 and 2020, respectively. In addition to monitoring nonaccrual loans, the Bank also closely monitors impaired loans and troubled debt restructurings. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect all interest and principal payments due according to the originally contracted terms of the loan agreement. Nonaccrual loans, excluding consumer purpose loans, and troubled-debt restructuring (TDR) loans are considered impaired. Commercial loans with a balance less than $250 thousand, and all consumer purpose loans are not included in the specific reserve analysis as impaired loans but are added to the general allocation pool. Impaired loans totaled $11.6 million at December 31, 2021 compared to $17.3 million at December 31, 2020. ‎ The following tables present information on impaired loans: Impaired Loans With No Allowance With Allowance(Dollars in thousands) Unpaid Unpaid Recorded Principal Recorded Principal RelatedDecember 31, 2021 Investment Balance Investment Balance Allowance Residential Real Estate 1-4 Family First liens $ 661 $ 661 $ — $ — $ —Junior liens and lines of credit — — — — —Total 661 661 — — — Residential real estate - construction 424 729 — — — Commercial real estate 4,942 5,405 5,578 5,764 698 Commercial — — — — —Total $ 6,027 $ 6,795 $ 5,578 $ 5,764 $ 698 December 31, 2020 Residential Real Estate 1-4 Family First liens $ 637 $ 637 $ — $ — $ —Junior liens and lines of credit — — — — —Total 637 637 — — — Residential real estate - construction 512 729 — — — Commercial real estate 10,402 11,107 5,702 5,702 228 Commercial — — — — —Total $ 11,551 $ 12,473 $ 5,702 $ 5,702 $ 228 Twelve Months Ended December 31, 2021 December 31, 2020 Average Interest Average Interest (Dollars in thousands) Recorded Income Recorded Income Investment Recognized Investment Recognized Residential Real Estate 1-4 Family First liens $ 657 $ 32 $ 648 $ 40Junior liens and lines of credit — — — —Total 657 32 648 40 Residential real estate - construction 469 — 518 — Commercial real estate 14,530 341 13,839 390 Commercial — — — —Total $ 15,656 $ 373 $ 15,005 $ 430 A loan is considered a troubled debt restructuring (TDR) if the creditor (the Bank), for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. These concessions may include lowering the interest rate, extending the maturity, reamortization of payment, or a combination of multiple concessions. The Bank reviews all loans rated 6-OAEM or worse when it is providing a loan restructure, modification or new credit facility to determine if the action is a TDR. If a TDR loan is placed on nonaccrual status, it remains on nonaccrual status for at least six months to ensure performance. The cash basis income recognized is the same as the accrual basis income. ‎ The following table presents TDR loans as of December 31, 2021 and 2020: Troubled Debt Restructurings Within the Last 12 Months That Have Defaulted(Dollars in thousands) Troubled Debt Restructurings on Modified Terms Number of Recorded Number of Recorded Contracts Investment Performing* Nonperforming* Contracts InvestmentDecember 31, 2021 Residential real estate - construction 1 $ 424 $ — $ 424 — $ —Residential real estate 5 661 661 — — —Commercial real estate - owner occupied 4 1,161 1,161 — — —Commercial real estate - farmland 4 1,664 1,664 — — —Commercial real estate - multi-family residential 1 1,360 1,360 — — —Commercial real estate 2 294 294 — — — Total 17 $ 5,564 $ 5,140 $ 424 — $ — December 31, 2020 Residential real estate - construction 1 $ 434 $ 434 $ — — $ —Residential real estate 4 637 637 — — —Commercial real estate - owner occupied 4 1,224 1,224 — — —Commercial real estate - farmland 6 2,257 2,257 — — —Commercial real estate - consturction and land development 2 6,129 6,129 — — —Commercial real estate 2 330 122 208 — — Total 19 $ 11,011 $ 10,803 $ 208 — $ — *The performing status is determined by the loan’s compliance with the modified terms. The following table presents new TDR loans made during 2021, concession granted and the recorded investment as of December 31, 2021: New During PeriodTwelve Months Ended Number of Pre-TDR After-TDR Recorded December 31, 2021 Contracts Modification Modification Investment ConcessionResidential real estate 1 $ 41 $ 50 $ 50 multiple The following table presents new TDR loans made during 2020, concession granted and the recorded investment as of December 31, 2021: New During PeriodTwelve Months Ended Number of Pre-TDR After-TDR Recorded December 31, 2020 Contracts Modification Modification Investment ConcessionCommercial real estate - farm land 1 $ 650 $ 650 $ 682 multipleCommercial real estate - owner occupied 2 426 426 412 maturity Total 3 $ 1,076 $ 1,076 $ 1,094 Allowance for Loan Losses: Management monitors loan performance on a monthly basis and performs a quarterly evaluation of the adequacy of the allowance for loan losses (ALL). The ALL is determined by segmenting the loan portfolio based on the loan’s collateral. When calculating the ALL, consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, historical charge-offs, the adequacy of the underlying collateral (if collateral dependent) and other relevant factors. The Bank begins enhanced monitoring of all loans rated 6–OAEM or worse and obtains a new appraisal or asset valuation for any loans placed on nonaccrual and rated 7 - Substandard or worse. Management, at its discretion, may determine that additional adjustments to the appraisal or valuation are required. Valuation adjustments will be made as necessary based on factors, including, but not limited to: the economy, deferred maintenance, industry, type of property/equipment, age of the appraisal, etc. and the knowledge Management has about a particular situation. In addition, the cost to sell or liquidate the collateral is also estimated and deducted from the valuation in order to determine the net realizable value to the Bank. When determining the allowance for loan losses, certain factors involved in the evaluation are inherently subjective and require material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans. Management monitors the adequacy of the allowance for loan losses on an ongoing basis and reports its adequacy quarterly to the Credit Risk Oversight Committee of the Board of Directors. Management believes that the allowance for loan losses at December 31, 2021 is adequate. The following table shows the activity in the Allowance for Loan Loss (ALL), for the years ended December 31, 2021 and 2020: Residential Real Estate 1-4 Family First Junior Liens & Commercial (Dollars in thousands) Liens Lines of Credit Construction Real Estate Commercial Consumer Unallocated Total ALL at December 31, 2019 $ 555 $ 226 $ 294 $ 9,163 $ 5,679 $ 97 $ 775 $ 16,789 Charge-offs — — (28) (57) (50) (195) — (330)Recoveries — 170 — 1 505 31 — 707 Provision (80) (144) 59 (939) (1,007) 197 (186) (2,100)ALL at December 31, 2020 $ 475 $ 252 $ 325 $ 8,168 $ 5,127 $ 130 $ 589 $ 15,066 ALL at December 31, 2020 $ 416 $ 119 $ 187 $ 6,607 $ 4,021 $ 84 $ 532 $ 11,966 Charge-offs — (10) — (55) (463) (117) — (645)Recoveries 4 — — 545 268 26 — 843 Provision 135 117 107 2,066 1,853 104 243 4,625 ALL at December 31, 2021 $ 555 $ 226 $ 294 $ 9,163 $ 5,679 $ 97 $ 775 $ 16,789 The following table shows the loans that were evaluated for the Allowance for Loan Loss (ALL) under a specific reserve (individually) and those that were evaluated under a general reserve (collectively), and the amount of the allowance established in each category as of December 31, 2021 and 2020: Residential Real Estate 1-4 Family First Junior Liens & Commercial (Dollars in thousands) Liens Lines of Credit Construction Real Estate Commercial Consumer Unallocated Total December 31, 2021 Loans evaluated for ALL: Individually $ 661 $ — $ 424 $ 10,520 $ — $ — $ — $ 11,605 Collectively 131,822 71,944 20,233 512,259 244,543 6,406 — 987,207 Total $ 132,483 $ 71,944 $ 20,657 $ 522,779 $ 244,543 $ 6,406 $ — $ 998,812 ALL established for ‎ loans evaluated: Individually $ — $ — $ — $ 698 $ — $ — $ — $ 698 Collectively 475 252 325 7,470 5,127 130 589 14,368 ALL at December 31, 2021 $ 475 $ 252 $ 325 $ 8,168 $ 5,127 $ 130 $ 589 $ 15,066 December 31, 2020 Loans evaluated for ALL: Individually $ 637 $ — $ 512 $ 16,104 $ — $ — $ — $ 17,253 Collectively 136,587 65,360 15,797 487,873 281,257 5,577 — 992,451 Total $ 137,224 $ 65,360 $ 16,309 $ 503,977 $ 281,257 $ 5,577 $ — $ 1,009,704 ALL established for ‎ loans evaluated: Individually $ — $ — $ — $ 228 $ — $ — $ — $ 228 Collectively 555 226 294 8,935 5,679 97 775 16,561 ALL at December 31, 2020 $ 555 $ 226 $ 294 $ 9,163 $ 5,679 $ 97 $ 775 $ 16,789

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