XML 24 R12.htm IDEA: XBRL DOCUMENT

Note 4 - Loans Receivable

12 Months Ended

Dec. 31, 2022

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

NOTE 4 – Loans Receivable

Year end loans are summarized below:

(Dollars in thousands)
	December 31, 2022			December 31, 2021
Loans secured by real estate:
Residential real estate	$	484,595		$	260,134
Home equity		38,978			34,612
Commercial real estate		486,431			317,145
Construction and land development		108,926			123,822
Multifamily		251,014			61,194
Total loans secured by real estate		1,369,944			796,907
Commercial business		93,278			115,772
Consumer		918			582
Manufactured homes		34,882			37,887
Government		9,549			8,991
Loans receivable		1,508,571			960,139
Add (less):
Net deferred loan origination costs		5,083			6,810
Undisbursed loan funds		(23	)		(229	)
Loans receivable, net of deferred fees and costs..	$	1,513,631		$	966,720

(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, 2022:

Allowance for loan losses:
Residential real estate	$	2,480	$	(29	)	$	53	$	517		$	3,021
Home equity		357		-			-		53			410
Commercial real estate		5,515		(431	)		-		700			5,784
Construction and land development...		2,119		-			-		(866	)		1,253
Multifamily		848		-			-		159			1,007
Commercial business		2,009		(57	)		89		(676	)		1,365
Consumer		15		(91	)		20		113			57
Manufactured homes		-		-			-		-			-
Government		-		-			-		-			-
Total	$	13,343	$	(608	)	$	162	$	-		$	12,897

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
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

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 $4.6 million and $5.8 million as of December 31, 2022 and December 31, 2021, respectively, and is included in net deferred loan origination fees and costs.

(Dollars in thousands)	Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Individually evaluated for impairment		Purchased credit impaired individually evaluated for impairment		Collectively evaluated for impairment

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2022:

Residential real estate	$	24	$	2,997	$	484,595	$	1,518	$	988	$	482,089
Home equity		3		407		38,978		294		125		38,559
Commercial real estate		13		5,771		486,431		2,392		2,935		481,104
Construction and land development...		-		1,253		108,926		-		-		108,926
Multifamily		-		1,007		251,014		6,739		382		243,893
Commercial business		297		1,068		93,278		1,758		953		90,567
Consumer		-		57		918		-		17		901
Manufactured homes		-		-		34,882		-		-		34,882
Government		-		-		9,549		-		-		9,549
Total	$	337	$	12,560	$	1,508,571	$	12,701	$	5,400	$	1,490,470

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
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 credit quality indicators are summarized below at December 31, 2022 and December 31, 2021:

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	December 31, 2022
(Dollars in thousands)		1-6		7		8

Loan Segment	Pass		Special mention		Substandard		Total
Residential real estate	$	477,222	$	1,338	$	6,035	$	484,595
Home equity		37,981		385		612		38,978
Commercial real estate		474,055		4,955		7,421		486,431
Construction and land development		106,580		2,346		-		108,926
Multifamily		242,091		1,859		7,064		251,014
Commercial business		90,694		703		1,881		93,278
Consumer		918		-		-		918
Manufactured homes		34,882		-		-		34,882
Government		9,549		-		-		9,549
Total	$	1,473,972	$	11,586	$	23,013	$	1,508,571

	December 31, 2021
(Dollars in thousands)		1-6		7		8

Loan Segment	Pass		Special mention		Substandard		Total
Residential real estate	$	253,472	$	2,940	$	3,722	$	260,134
Home equity		33,565		415		632		34,612
Commercial real estate		301,572		12,011		3,562		317,145
Construction and land development		120,192		3,630		-		123,822
Multifamily		60,657		153		384		61,194
Commercial business		113,470		1,915		387		115,772
Consumer		582		-		-		582
Manufactured homes		37,828		59		-		37,887
Government		8,991		-		-		8,991
Total	$	930,329	$	21,123	$	8,687	$	960,139

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 reassessed its risk ratings, and while the credit quality indicators have not change the naming conventions have. 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, 2022, nine residential real estate loans to nine customers totaling $743 thousand were modified to include deferral of principal or interest resulting in troubled debt restructuring classification. Two home equity loans to two customers totaling $189 thousand were modified to include deferral of principal or interest resulting in troubled debt restructuring classification. One commercial real estate loan totaling $1.4 million was provided a short-term renewal resulting in troubled debt restructuring classification. No trouble debt restructuring loans had subsequently defaulted during the twelve months ending December 31, 2022.

During the twelve months ending December 31, 2021, three residential real estate loans to three customers 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, 2022.

As of December 31, 2022, one residential real estate loan in the process of foreclosure totaling $32 thousand. The Bancorp was not in the process of foreclosing on any residential real estate loan as of December 31, 2021.

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:

(Dollars in thousands)							For the twelve months ended
(unaudited)	As of December 31, 2022						December 31, 2022
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	2,255	$	3,711	$	-	$	2,528	$	202
Home equity		399		416		-		253		12
Commercial real estate		5,314		5,406		-		3,409		205
Construction and land development.		-		-		-		344		-
Multifamily		7,121		7,163		-		3,387		16
Commercial business		2,278		2,392		-		1,365		76
Consumer		17		17		-		15		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate	$	251	$	276	$	24	$	194	$	5
Home equity		20		20		3		21		1
Commercial real estate		13		14		13		678		-
Construction and land development.		-		-		-		-		-
Multifamily		-		-		-		-		-
Commercial business		433		561		297		352		13
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	2,506	$	3,987	$	24	$	2,722	$	207
Home equity	$	419	$	436	$	3	$	274	$	13
Commercial real estate	$	5,327	$	5,420	$	13	$	4,087	$	205
Construction & land development	$	-	$	-	$	-	$	344	$	-
Multifamily	$	7,121	$	7,163	$	-	$	3,387	$	16
Commercial business	$	2,711	$	2,953	$	297	$	1,717	$	89
Consumer	$	17	$	17	$	-	$	15	$	-
Manufactured homes	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-

							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 & land development		-		-		-		-		-
Multifamily		556		647		-		629		31
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 & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
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
Commercial business	$	1,597	$	1,716	$	277	$	2,006	$	76
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, 2022
Residential real estate	$	3,758	$	2,520	$	2,309	$	8,587	$	476,008	$	484,595	$	166
Home equity		315		42		162		519		38,459		38,978		-
Commercial real estate		1,399		150		1,817		3,366		483,065		486,431		-
Construction and land development.		2,673		-		-		2,673		106,253		108,926		-
Multifamily		1,724		616		1,004		3,344		247,670		251,014		-
Commercial business		1,775		-		529		2,304		90,974		93,278		-
Consumer		3		-		-		3		915		918		-
Manufactured homes		601		256		82		939		33,943		34,882		82
Government		-		-		-		-		9,549		9,549		-
Total	$	12,248	$	3,584	$	5,903	$	21,735	$	1,486,836	$	1,508,571	$	248

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		-
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

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

(Dollars in thousands)
	December 31, 2022		December 31, 2021
Residential real estate	$	5,347	$	4,651
Home equity		594		623
Commercial real estate		3,242		940
Construction and land development.		-		-
Multifamily		7,064		455
Commercial business		1,881		387
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	18,128	$	7,056

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, 2022, total purchased credit impaired loans with unpaid principal balances totaled $6.9 million with a recorded investment of $5.4 million. At December 31, 2021, purchased credit impaired loans with unpaid principal balances totaled $4.2 million with a recorded investment of $2.8 million.

As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $5.5 million at December 31, 2022, compared to $1.1 million at December 31, 2021. Total unpaid principal balances of acquired non-impaired loans with remaining fair value discount totaled $347.7 million and $72.5 million as of December 31, 2022, and December 31, 2021, respectively.

Accretable yield, or income recorded for the three months ended September 30, is as follows:

(dollars in thousands)	Total
2021	$	960
2022		1,010

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

(dollars in thousands)	Total
2023		541
2024		605
2025		511
2026		342
2027 and thereafter		3,494
Total	$	5,493