XML 43 R12.htm IDEA: XBRL DOCUMENT

Note 4 - Loans Receivable

12 Months Ended

Dec. 31, 2021

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4 – Loans Receivable

Year end loans are summarized below:

Loans receivable are summarized below:

(Dollars in thousands)
	December 31, 2021			December 31, 2020
Loans secured by real estate:
Residential real estate	$	260,134		$	286,048
Home equity		34,612			39,233
Commercial real estate		317,145			298,257
Construction and land development		123,822			93,562
Multifamily		61,194			50,571
Farmland		-			215
Total loans secured by real estate		796,907			767,886
Commercial business		115,772			158,140
Consumer		582			1,025
Manufactured homes		37,887			24,232
Government		8,991			10,142
Loans receivable		960,139			961,425
Less:
Net deferred loan origination costs		6,810			3,871
Undisbursed loan funds		(229	)		(150	)
Loans receivable, net of deferred fees and costs	$	966,720		$	965,146

As of December 31, 2021, the Bancorp had remaining loan balances under the Paycheck Protection Program totaling $22.1 million and the balances are included in the commercial business segment.

(Dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the twelve months ended December 31, 2021:

Allowance for loan losses:
Residential real estate	$	2,211	$	(32	)	$	81	$	220		$	2,480
Home equity		276		(1	)		1		81			357
Commercial real estate		5,406		(530	)		-		639			5,515
Construction and land development		1,405		-			-		714			2,119
Multifamily		626		-			-		222			848
Farmland		-		-			-		-			-
Commercial business		2,508		(158	)		36		(377	)		2,009
Consumer		26		(29	)		8		10			15
Manufactured homes		-		-			-		-			-
Government		-		-			-		-			-
Total	$	12,458	$	(750	)	$	126	$	1,509		$	13,343

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the twelve months ended December 31, 2020:

Allowance for loan losses:
Residential real estate	$	1,812	$	(2	)	$	27	$	374		$	2,211
Home equity		223		-			-		53			276
Commercial real estate		3,773		(80	)		-		1,713			5,406
Construction and land development		1,098		(17	)		-		324			1,405
Multifamily		529		-			-		97			626
Farmland		-		-			-		-			-
Commercial business		1,504		(158	)		17		1,145			2,508
Consumer		43		(29	)		14		(2	)		26
Manufactured homes		-		-			-		-			-
Government		17		-			-		(17	)		-
Total	$	8,999	$	(286	)	$	58	$	3,687		$	12,458

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as an origination cost to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $5.8 million and $3.8 million as of December 31, 2021 and December 31, 2020, respectively, and is included in net deferred loan origination fees and costs.

The Bancorp's impairment analysis is summarized below:

	Ending Balances

(Dollars in thousands)	Allowance for individually evaluated for impairment reserves		Allowance for collectively evaluated for impairment reserves		Loan receivables		Loans individually evaluated for impairment		Purchased credit impaired loans individually evaluated for impairment		Loans collectively evaluated for impairment

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2021:

Residential real estate	$	17	$	2,463	$	260,134	$	755	$	1,016	$	258,363
Home equity		4		353		34,612		147		137		34,328
Commercial real estate		386		5,129		317,145		1,600		-		315,545
Construction and land development		-		2,119		123,822		-		-		123,822
Multifamily		-		848		61,194		-		556		60,638
Farmland		-		-		-		-		-		-
Commercial business		277		1,732		115,772		524		1,073		114,175
Consumer		-		15		582		-		-		582
Manufactured homes		-		-		37,887		-		-		37,887
Government		-		-		8,991		-		-		8,991
Total	$	684	$	12,659	$	960,139	$	3,026	$	2,782	$	954,331


The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:

Residential real estate	$	173	$	2,038	$	286,048	$	868	$	1,297	$	283,883
Home equity		1		275		39,233		216		137		38,880
Commercial real estate		1,089		4,317		298,257		6,190		151		291,916
Construction and land development		-		1,405		93,562		-		-		93,562
Multifamily		-		626		50,571		95		621		49,855
Farmland		-		-		215		-		-		215
Commercial business		512		1,996		158,140		1,086		1,160		155,894
Consumer		-		26		1,025		-		-		1,025
Manufactured homes		-		-		24,232		-		-		24,232
Government		-		-		10,142		-		-		10,142
Total	$	1,775	$	10,683	$	961,425	$	8,455	$	3,366	$	949,604

The Bancorp's credit quality indicators are summarized below at December 31, 2021 and December 31, 2020:

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	December 31, 2021
(Dollars in thousands)	1-5		6		7		8

Loan Segment	Pass		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	222,057	$	31,415	$	2,940	$	3,722	$	260,134
Home equity		32,873		692		415		632		34,612
Commercial real estate		253,424		48,148		12,011		3,562		317,145
Construction and land development		103,365		16,827		3,630		-		123,822
Multifamily		54,719		5,938		153		384		61,194
Farmland		-		-		-		-		-
Commercial business		95,412		18,058		1,915		387		115,772
Consumer		582		-		-		-		582
Manufactured homes		37,103		725		59		-		37,887
Government		8,991		-		-		-		8,991
Total	$	808,526	$	121,803	$	21,123	$	8,687	$	960,139

	December 31, 2020
(Dollars in thousands)	1-5		6		7		8

Loan Segment	Pass		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	234,317	$	41,805	$	3,539	$	6,387	$	286,048
Home equity		37,044		933		761		495		39,233
Commercial real estate		222,892		55,202		11,983		8,180		298,257
Construction and land development		77,855		12,055		3,652		-		93,562
Multifamily		43,594		5,065		1,408		504		50,571
Farmland		-		215		-		-		215
Commercial business		135,671		20,067		1,341		1,061		158,140
Consumer		1,025		-		-		-		1,025
Manufactured homes		23,501		731		-		-		24,232
Government		10,142		-		-		-		10,142
Total	$	786,041	$	136,073	$	22,684	$	16,627	$	961,425

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. During the year, the Bancorp updated its risk rating naming structure, however the underlying grading system has not changed. The loan grading system is as follows:

1 – Superior Quality

Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free.

2 – Excellent Quality

The borrower generates excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over 15 years experience. Current and debt to tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent.

3 – Great Quality

The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average.

4 – Above Average Quality

The borrower generates more than sufficient cash flow to fund debt service but cash flow trends may be stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average.

5 – Average Quality

Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends may be inconsistent or fluctuating. Average credit scores are satisfactory and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average.

6 – Pass

Borrowers are considered credit worthy but financial condition may show signs of weakness due to internal or external factors. Cash flow trends may be declining annually. Average credit scores may be low but remain acceptable. Borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and collateral condition is average.

7 – Special Mention

A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these 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. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely.

Loans in this category may exhibit some of the following risk factors. Cash flow trends may be consistently declining or may be questionable. Debt coverage ratios may be at or near 1:1. Average credit scores may be very weak or the borrower may have minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios may be very weak. Loan to value may be at policy limits or may exceed policy limits. Collateral condition may be below average.

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

9 – Doubtful

Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

10 – Loss

Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.

Performing loans are loans that are paying as agreed and are approximately less than ninety days past due on payments of interest and principal.

During the twelve months ending December 31, 2021, three residential real estate loans to three customer totaling $203 thousand were modified to include deferral of principal or interest resulting in troubled debt restructuring classification. One commercial business loan totaling $601 thousand was provided a short-term renewal and a pending long term restructure resulting in troubled debt restructuring classification. One residential real estate trouble debt restructuring loan totaling $37 thousand had subsequently defaulted during the twelve months ending December 31, 2021. During the twelve months ending December 31, 2020, one residential real estate loan totaling $108 thousand was a new troubled debt restructuring loan. In addition, during 2020, one commercial real estate loan totaling $142 thousand, one residential loan totaling $50 thousand and one home equity loan totaling $22 thousand were renewed as a troubled debt restructuring. One residential real estate loan totaling $108 thousand and one commercial business trouble debt restructuring loan totaling $275 thousand, had subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

The Bancorp's individually evaluated impaired loans are summarized below:

							For the twelve months ended
	As of December 31, 2021						December 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,683	$	3,017	$	-	$	1,689	$	113
Home equity		262		275		-		298		12
Commercial real estate		765		765		-		1,167		43
Construction and land development.		-		-		-		-		-
Multifamily		556		647		-		629		31
Farmland		-		-		-		-		-
Commercial business		1,205		1,324		-		1,369		52
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate	$	88	$	88	$	17	$	145	$	2
Home equity		22		22		4		18		1
Commercial real estate		835		835		386		4,727		225
Construction and land development.		-		-		-		-		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		392		392		277		637		24
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	1,771	$	3,105	$	17	$	1,834	$	115
Home equity	$	284	$	297	$	4	$	316	$	13
Commercial real estate	$	1,600	$	1,600	$	386	$	5,894	$	268
Construction & land development	$	-	$	-	$	-	$	-	$	-
Multifamily	$	556	$	647	$	-	$	629	$	31
Farmland	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,597	$	1,716	$	277	$	2,006	$	76
Consumer	$	-	$	-	$	-	$	-	$	-
Manufactured homes	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-

The Bancorp's individually evaluated impaired loans are summarized below:

							For the twelve months ended
	As of December 31, 2020						December 31, 2020
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,895	$	3,228	$	-	$	2,028	$	115
Home equity		352		363		-		373		16
Commercial real estate		1,177		1,761		-		1,305		80
Construction & land development.		-		-		-		-		-
Multifamily		716		798		-		763		42
Farmland		-		-		-		-		-
Commercial business		1,497		1,514		-		1,591		80
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate	$	270	$	314	$	173	$	174	$	6
Home equity		1		9		1		5		-
Commercial real estate		5,164		5,164		1,089		2,109		16
Construction & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		749		749		512		739		30
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	2,165	$	3,542	$	173	$	2,202	$	121
Home equity	$	353	$	372	$	1	$	378	$	16
Commercial real estate	$	6,341	$	6,925	$	1,089	$	3,414	$	96
Construction & land development....	$	-	$	-	$	-	$	-	$	-
Multifamily	$	716	$	798	$	-	$	763	$	42
Farmland	$	-	$	-	$	-	$	-	$	-
Commercial business	$	2,246	$	2,263	$	512	$	2,330	$	110
Consumer	$	-	$	-	$	-	$	-	$	-
Manufactured homes	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-

The Bancorp's age analysis of past due loans is summarized below:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investments Greater than 90 Days Past Due and Accruing
December 31, 2021
Residential real estate	$	2,507	$	824	$	2,142	$	5,473	$	254,661	$	260,134	$	31
Home equity		169		67		565		801		33,811		34,612		34
Commercial real estate		231		1,960		944		3,135		314,010		317,145		91
Construction and land development		5,148		283		-		5,431		118,391		123,822		-
Multifamily		-		-		109		109		61,085		61,194		-
Farmland		-		-		-		-		-		-		-
Commercial business		573		1,594		242		2,409		113,363		115,772		49
Consumer		-		3		-		3		579		582		-
Manufactured homes		633		171		-		804		37,083		37,887		-
Government		-		-		-		-		8,991		8,991		-
Total	$	9,261	$	4,902	$	4,002	$	18,165	$	941,974	$	960,139	$	205

December 31, 2020
Residential real estate	$	2,797	$	1,119	$	4,875	$	8,791	$	277,257	$	286,048	$	80
Home equity		616		323		416		1,355		37,878		39,233		29
Commercial real estate		1,172		237		680		2,089		296,168		298,257		437
Construction and land development		471		-		20		491		93,071		93,562		20
Multifamily		94		266		150		510		50,061		50,571		-
Farmland		-		-		-		-		215		215		-
Commercial business		845		96		269		1,210		156,930		158,140		-
Consumer		2		-		-		2		1,023		1,025		-
Manufactured homes		303		173		-		476		23,756		24,232		-
Government		380		-		-		380		9,762		10,142		-
Total	$	6,680	$	2,214	$	6,410	$	15,304	$	946,121	$	961,425	$	566

The Bancorp's loans on nonaccrual status are summarized below:

(Dollars in thousands)
	December 31, 2021		December 31, 2020
Residential real estate	$	4,651	$	6,390
Home equity		623		476
Commercial real estate		940		5,390
Construction and land development.		-		-
Multifamily		455		504
Farmland		-		-
Commercial business		387		1,039
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	7,056	$	13,799

As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At December 31, 2021, total purchased credit impaired loans with unpaid principal balances totaled $4.2 million with a recorded investment of $2.8 million. At December 31, 2020, purchased credit impaired loans with unpaid principal balances totaled $5.4 million with a recorded investment of $3.4 million.

Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the twelve months ended December 31, is as follows:

(dollars in thousands)	Total
2020	$	99
2021		21

The accretable interest portion of the purchase credit impaired portfolio has fully amortized at December 31, 2021.

As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $1.1 million at December 31, 2021, compared to $2.0 million at December 31, 2020. Total unpaid principal balances of acquired non-impaired loans with remaining fair value discount totaled $72.5 million and $106.6 million as of December 31, 2021, and December 31, 2020, respectively.

Accretable yield, or income recorded for the nine months ended December 31, is as follows:

(dollars in thousands)	Total
2020	$	1,820
2021		960

Accretable yield, or income expected to be recorded in the future is as follows:

(dollars in thousands)	Total
2022	$	758
2023		300
Total	$	1,058