UNITED STATES | |||||||||||||||
SECURITIES AND EXCHANGE COMMISSION | |||||||||||||||
Washington, D.C. 20549 | |||||||||||||||
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FORM 10-Q |
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||
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| For the quarterly period ended | |||||||||||||
or | |||||||||||||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||||
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| For the transition period from ___________ to ___________ | |||||||||||||
Commission File Number 001-36613
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Middlefield Banc Corp. | ||||||||||||
(Exact Name of Registrant as Specified in its Charter) |
Ohio | 34-1585111 | |||||||||||||
State or Other Jurisdiction of | I.R.S. Employer Identification No. | |||||||||||||
Incorporation or Organization |
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15985 East High Street, Middlefield, Ohio | 44062-0035 | |||||||||||||
Address of Principal Executive Offices | Zip Code | |||||||||||||
| 440-632-1666 | |||||||
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Registrant’s Telephone Number, Including Area Code | ||||||||||||
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report | ||||||||||||
Securities Registered Pursuant to Section 12(b) of The Act: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1
MIDDLEFIELD BANC CORP.
INDEX
2
MIDDLEFIELD BANC CORP. CONSOLIDATED BALANCE SHEET (Dollar amounts in thousands, except share data) (Unaudited)
See accompanying notes to unaudited consolidated financial statements.
3
MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF INCOME (Dollar amounts in thousands, except per share data) (Unaudited)
See accompanying notes to unaudited consolidated financial statements.
4
MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Dollar amounts in thousands) (Unaudited)
See accompanying notes to unaudited consolidated financial statements.
5
MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollar amounts in thousands, except share and per share data) (Unaudited)
(continued on following page) See accompanying notes to unaudited consolidated financial statements.
6
MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Dollar amounts in thousands, except share and per share data) (Unaudited, continued from previous page)
See accompanying notes to unaudited consolidated financial statements.
7
MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Dollar amounts in thousands) (Unaudited)
See accompanying notes to unaudited consolidated financial statements.
8
See accompanying notes to unaudited consolidated financial statements.
9
MIDDLEFIELD BANC CORP. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MBC” or “Middlefield Bank”), and a nonbank asset resolution subsidiary EMORECO, Inc. The consolidated financial statements also include the accounts of MBC’s subsidiary, Middlefield Investments, Inc. (MI), established March 13, 2019. All significant inter-company items have been eliminated.
The unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to Form
In
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU In November 2019, the FASB issued ASU 2019-11,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The In March 2020, the FASB issued ASU 2020-3,Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825,Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be Reclassification of Comparative Amounts Certain comparative amounts for prior years have been
10
NOTE 2 – REVENUE RECOGNITION
In accordance with ASC Topic 606, management determined that the primary sources of revenue, which emanate from interest income on loans and investments, along with noninterest revenue resulting from investment security gains, gains on the sale of loans, and BOLI income, are not within the scope of ASC 606. These revenue sources cumulatively comprise
The main types of noninterest income within the scope of the standard are as follows:
Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if the account balance falls below predetermined levels defined as compensating balances. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific customer requests or activities that include overdraft fees, online banking fees, and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, which is completion of the requested service/transaction.
Gains (losses) on sale of other real estate owned
The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows:
11 NOTE 3 - STOCK-BASED COMPENSATION
The Company had no nonvested stock options outstanding as of
Stock option activity during the
The following table presents the activity during the
The Company recognizes restricted stock forfeitures in the period they occur.
Share-based compensation expense of
Total unrecognized stock compensation cost related to nonvested share-based compensation on restricted stock as of
12
NOTE 4 - EARNINGS PER SHARE
The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options and restricted stock to average shares outstanding.
The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings-per-share computation.
Options to purchase
Options to purchase
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve.
NOTE 5 - FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:
13
This hierarchy requires the use of observable market data when available.
The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Investment Securities Available for
Equity Securities - Equity securities that are traded on a national securities exchange are valued at their last reported sales price as of the measurement date. Equity securities traded in the over-the-counter (“OTC”) markets and listed securities for which no sale was reported on that date are generally valued at their last reported “bid” price if held long, and last reported “ask” price if sold short. To the extent equity securities are actively traded and valuation adjustments are not applied, they are categorized in Level I of the fair value hierarchy.
14 The following tables present the assets measured on a
Impaired Loans – The Company has measured impairment on collateral-dependent impaired loans generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent
The following tables present additional quantitative information about assets measured at fair value on a
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| Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. |
The estimated fair value of the Company’s financial instruments not recorded at fair value on a recurring basis is as follows:
September 30, 2019 | June 30, 2020 | |||||||||||||||||||||||||||||||||||||||
Carrying | Total | Carrying | Total | |||||||||||||||||||||||||||||||||||||
Value | Level I | Level II | Level III | Fair Value | Value | Level I | Level II | Level III | Fair Value | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | (Dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 120,025 | $ | 120,025 | $ | - | $ | - | $ | 120,025 | $ | 58,286 | $ | 58,286 | $ | - | $ | - | $ | 58,286 | ||||||||||||||||||||
Loans held for sale | 791 | - | 791 | - | 791 | 4,151 | - | 4,151 | - | 4,151 | ||||||||||||||||||||||||||||||
Net loans | 992,281 | - | - | 988,336 | 988,336 | 1,100,049 | - | - | 1,100,623 | 1,100,623 | ||||||||||||||||||||||||||||||
Bank-owned life insurance | 16,403 | 16,403 | - | - | 16,403 | 16,723 | 16,723 | - | - | 16,723 | ||||||||||||||||||||||||||||||
Federal Home Loan Bank stock | 3,848 | 3,848 | - | - | 3,848 | 5,448 | 5,448 | - | - | 5,448 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 3,684 | 3,684 | - | - | 3,684 | 5,541 | 5,541 | - | - | 5,541 | ||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 1,034,413 | $ | 643,692 | $ | - | $ | 393,068 | $ | 1,036,760 | $ | 1,158,267 | $ | 794,847 | $ | - | $ | 369,173 | $ | 1,164,020 | ||||||||||||||||||||
Short-term borrowings | 92,000 | 92,000 | - | - | 92,000 | 20,417 | 20,417 | - | - | 20,417 | ||||||||||||||||||||||||||||||
Other borrowings | 12,359 | - | - | 12,405 | 12,405 | 17,162 | - | - | 13,211 | 13,211 | ||||||||||||||||||||||||||||||
Accrued interest payable | 1,020 | 1,020 | - | - | 1,020 | 899 | 899 | - | - | 899 | ||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||
Carrying | Total | Carrying | Total | |||||||||||||||||||||||||||||||||||||
Value | Level I | Level II | Level III | Fair Value | Value | Level I | Level II | Level III | Fair Value | |||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | (Dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 107,933 | $ | 107,933 | $ | - | $ | - | $ | 107,933 | $ | 35,113 | $ | 35,113 | $ | - | $ | - | $ | 35,113 | ||||||||||||||||||||
Loans held for sale | 597 | - | 597 | - | 597 | 1,220 | - | 1,220 | - | 1,220 | ||||||||||||||||||||||||||||||
Net loans | 984,681 | - | - | 973,124 | 973,124 | 977,490 | - | - | 974,213 | 974,213 | ||||||||||||||||||||||||||||||
Bank-owned life insurance | 16,080 | 16,080 | - | - | 16,080 | 16,511 | 16,511 | - | - | 16,511 | ||||||||||||||||||||||||||||||
Federal Home Loan Bank stock | 3,679 | 3,679 | - | - | 3,679 | 3,848 | 3,848 | - | - | 3,848 | ||||||||||||||||||||||||||||||
Accrued interest receivable | 3,633 | 3,633 | - | - | 3,633 | 3,471 | 3,471 | - | - | 3,471 | ||||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||
Deposits | $ | 1,016,067 | $ | 715,153 | $ | - | $ | 298,891 | $ | 1,014,044 | $ | 1,020,843 | $ | 652,043 | $ | - | $ | 371,193 | $ | 1,023,236 | ||||||||||||||||||||
Short-term borrowings | 90,398 | 90,398 | - | - | 90,398 | 5,075 | 5,075 | - | - | 5,075 | ||||||||||||||||||||||||||||||
Other borrowings | 8,803 | - | - | 8,827 | 8,827 | 12,750 | - | - | 12,783 | 12,783 | ||||||||||||||||||||||||||||||
Accrued interest payable | 744 | 744 | - | - | 744 | 917 | 917 | - | - | 917 | ||||||||||||||||||||||||||||||
All financial instruments included in the above tables, with the exception of net loans, deposits, and other borrowings, are carried at cost, which approximates the fair value of the instrument.
NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in accumulated other comprehensive income (loss) (“AOCI”) by component net of tax for the three and ninesix months ended SeptemberJune 30, 2019 2020 and 2018,2019, respectively:
| (Dollars in thousands) | Accumulated Other Comprehensive Income (Loss) (a) | |||
Balance as of June 30, 2019 | $ | 1,377 | ||
Other comprehensive income | 783 | |||
Amount reclassified from accumulated other comprehensive income | (3 | ) | ||
Balance at September 30, 2019 | $ | 2,157 | ||
Balance as of December 31, 2018 | $ | (154 | ) | |
Other comprehensive income | 2,464 | |||
Amount reclassified from accumulated other comprehensive income | (153 | ) | ||
Balance at September 30, 2019 | $ | 2,157 | ||
| (Dollars in thousands) | Unrealized gains/(losses) on available-for-sale securities (a) | |||
Balance as of March 31, 2020 | $ | (2,237 | ) | |
Other comprehensive income | 5,998 | |||
Balance at June 30, 2020 | $ | 3,761 | ||
Balance as of December 31, 2019 | $ | 1,842 | ||
Other comprehensive income | 1,919 | |||
Balance at June 30, 2020 | $ | 3,761 | ||
| (Dollars in thousands) | Accumulated Other Comprehensive Income (Loss) (a) | |||
Balance as of June 30, 2018 | $ | (431 | ) | |
Other comprehensive loss | (1,025 | ) | ||
Balance at September 30, 2018 | $ | (1,456 | ) | |
Balance as of December 31, 2017 | $ | 1,091 | ||
Other comprehensive loss | (2,593 | ) | ||
Change in accounting principle, ASC 2016-01 (b) | (141 | ) | ||
Change in accounting principle, ASC 2018-02 (b) | 187 | |||
Period change | (2,547 | ) | ||
Balance at September 30, 2018 | $ | (1,456 | ) | |
| (Dollars in thousands) | Unrealized gains/(losses) on available-for-sale securities (a) | |||
Balance as of March 31, 2019 | $ | 641 | ||
Other comprehensive income | 886 | |||
Amount reclassified from accumulated other comprehensive income | (150 | ) | ||
Period change | 736 | |||
Balance at June 30, 2019 | $ | 1,377 | ||
Balance as of December 31, 2018 | $ | (154 | ) | |
Other comprehensive income | 1,681 | |||
Amount reclassified from accumulated other comprehensive income | (150 | ) | ||
Period change | 1,531 | |||
Balance at June 30, 2019 | $ | 1,377 | ||
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The following tables present significant amounts reclassified from or to each component of AOCI:
Amounts Reclassified from Accumulated Other | Affected Line Item in | |||||||||||||||||
| Comprehensive Income | the Statement Where | |||||||||||||||||
| (Dollars in thousands) | Amounts Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is | For the Three and Six Months Ended | Net Income is | ||||||||||||||
Details about other comprehensive income | September 30, 2019 | September 30, 2018 | Presented | June 30, 2020 | June 30, 2019 | Presented | ||||||||||||
Unrealized gains on available-for-sale securities (a) | ||||||||||||||||||
| $ | 4 | $ | - | Investment securities gains on sale, net | $ | - | $ | 190 | Investment securities gains on sale, net | |||||||||
| (1 | ) | - | Income taxes | - | (40 | ) | Income taxes | |||||||||||
| $ | 3 | $ | - | $ | - | $ | 150 | |||||||||||
(a) | For unrealized gains on available-for-sale securities, amounts in parentheses indicate expenses and other amounts indicate income. |
(Dollars in thousands) | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is | |||||||
Details about other comprehensive income | September 30, 2019 | September 30, 2018 | Presented | ||||||
Unrealized gains on available-for-sale securities (a) | |||||||||
| $ | 194 | $ | - | Investment securities gains on sale, net | |||||
| (41 | ) | - | Income taxes | ||||||
| $ | 153 | $ | - | ||||||
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NOTE 7 – INVESTMENT AND EQUITY SECURITIES
The amortized cost and fair values of investment securities available for sale are as follows:
September 30, 2019 | June 30, 2020 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
(Dollar amounts in thousands) | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
U.S. government agency securities | $ | 2,000 | $ | - | $ | (1 | ) | $ | 1,999 | |||||||||||||||||||||||
Subordinated debt | 4,000 | 150 | - | 4,150 | $ | 11,050 | $ | 239 | $ | - | $ | 11,289 | ||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||
Taxable | 500 | 3 | - | 503 | 500 | 2 | - | 502 | ||||||||||||||||||||||||
Tax-exempt | 76,816 | 2,322 | - | 79,138 | 80,155 | 3,883 | - | 84,038 | ||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 19,102 | 267 | (118 | ) | 19,251 | 16,063 | 637 | - | 16,700 | |||||||||||||||||||||||
Total | $ | 102,418 | $ | 2,742 | $ | (119 | ) | $ | 105,041 | $ | 107,768 | $ | 4,761 | $ | - | $ | 112,529 | |||||||||||||||
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
(Dollar amounts in thousands) | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | ||||||||||||||||||||||||
U.S. government agency securities | $ | 7,442 | $ | 90 | $ | (61 | ) | $ | 7,471 | |||||||||||||||||||||||
Subordinated debt | $ | 4,000 | $ | 126 | $ | - | $ | 4,126 | ||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||
Taxable | 502 | 10 | - | 512 | 500 | 1 | - | 501 | ||||||||||||||||||||||||
Tax-exempt | 72,387 | 667 | (473 | ) | 72,581 | 80,436 | 2,065 | (25 | ) | 82,476 | ||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 18,185 | 88 | (515 | ) | 17,758 | 18,465 | 274 | (109 | ) | 18,630 | ||||||||||||||||||||||
Total | $ | 98,516 | $ | 855 | $ | (1,049 | ) | $ | 98,322 | $ | 103,401 | $ | 2,466 | $ | (134 | ) | $ | 105,733 | ||||||||||||||
The Company recognized a net gain (loss) gains on equity investments of ($32,000)$31,000 and $12,000,($129,000), respectively, for the three and ninesix months ended SeptemberJune 30, 2019. 2020. The Company recognized a net gains(loss) gain on equity investments of $15,000($14,000) and $46,000,$44,000, respectively, for the three and ninesix months ended SeptemberJune 30, 2018. 2019. No net gains or losses on sold equity securities were realized during these periods.
The amortized cost and fair value of debt securities at SeptemberJune 30, 2019, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized | Fair | Amortized | Fair | |||||||||||||
(Dollar amounts in thousands) | Cost | Value | Cost | Value | ||||||||||||
Due in one year or less | $ | 5,094 | $ | 5,109 | $ | 3 | $ | 3 | ||||||||
Due after one year through five years | 1,276 | 1,296 | 887 | 911 | ||||||||||||
Due after five years through ten years | 15,267 | 15,592 | 22,176 | 22,713 | ||||||||||||
Due after ten years | 80,781 | 83,044 | 84,702 | 88,902 | ||||||||||||
Total | $ | 102,418 | $ | 105,041 | $ | 107,768 | $ | 112,529 | ||||||||
Proceeds from the sales of investment securities and the gross realized gains and losses are as follows:
| (Dollar amounts in thousands) | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||
| (Dollars amounts in thousands) | For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Proceeds from sales | $ | 518 | $ | - | $ | 12,325 | $ | - | $ | - | $ | 11,807 | $ | - | $ | 11,807 | ||||||||||||||||
Gross realized gains | 4 | - | 227 | - | - | 223 | - | 223 | ||||||||||||||||||||||||
Gross realized losses | - | - | (33 | ) | - | - | (33 | ) | - | (33 | ) | |||||||||||||||||||||
There were no securities sold during the six months ended June 30, 2020.
Investment securities with an approximate carrying value of $62.6$53.6 million and $63.5$55.6 million at SeptemberJune 30, 2019 2020 and December 31, 2018, 2019, respectively, were pledged to secure deposits and for other purposes as required by law.
The following tables showtable shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
September 30, 2019 | ||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Dollar amounts in thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
U.S. government agency securities | $ | - | $ | - | $ | 1,999 | $ | (1 | ) | $ | 1,999 | $ | (1 | ) | ||||||||||
Mortgage-backed securities in government-sponsored entities | - | - | 9,275 | (118 | ) | 9,275 | (118 | ) | ||||||||||||||||
Total | $ | - | $ | - | $ | 11,274 | $ | (119 | ) | $ | 11,274 | $ | (119 | ) | ||||||||||
December 31, 2018 | December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Greater | Total | Less than Twelve Months | Twelve Months or Greater | Total | |||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
(Dollar amounts in thousands) | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | - | $ | - | $ | 4,105 | $ | (61 | ) | $ | 4,105 | $ | (61 | ) | ||||||||||||||||||||||||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax-exempt | 20,451 | (286 | ) | 11,053 | (187 | ) | 31,504 | (473 | ) | $ | 4,324 | $ | (25 | ) | $ | - | $ | - | $ | 4,324 | $ | (25 | ) | |||||||||||||||||||||||||
Mortgage-backed securities in government-sponsored entities | 2,068 | (9 | ) | 12,257 | (506 | ) | 14,325 | (515 | ) | 1,409 | (2 | ) | 8,223 | (107 | ) | 9,632 | (109 | ) | ||||||||||||||||||||||||||||||
Total | $ | 22,519 | $ | (295 | ) | $ | 27,415 | $ | (754 | ) | $ | 49,934 | $ | (1,049 | ) | $ | 5,733 | $ | (27 | ) | $ | 8,223 | $ | (107 | ) | $ | 13,956 | $ | (134 | ) | ||||||||||||||||||
There were 14no securities in a gross unrealized loss position at June 30, 2020.
There were no securities considered temporarily impaired at SeptemberJune 30, 2019.2020.
On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.
OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.
An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.
Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for 96%90% of the total available-for-sale portfolio as of SeptemberJune 30, 2019 2020 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of the state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:
• | The length of time and the extent to which the fair value has been less than the amortized cost basis; |
• | Changes in the near-term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions; | |
• | The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and | |
• |
| |
| Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate. |
For the ninesix months ended SeptemberJune 30, 2019 2020 and 2018,2019, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of SeptemberJune 30, 2019 2020 or December 31, 2018 2019 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
NOTE 8 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES
Major classifications of loans are summarized as follows (in thousands):
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Commercial and industrial | $ | 85,861 | $ | 83,857 | ||||
Real estate - construction | 57,564 | 56,731 | ||||||
Real estate - mortgage: | ||||||||
Residential | 347,739 | 336,487 | ||||||
Commercial | 492,914 | 498,247 | ||||||
Consumer installment | 15,204 | 16,787 | ||||||
| 999,282 | 992,109 | |||||||
Less: Allowance for loan and lease losses | (7,001 | ) | (7,428 | ) | ||||
Net loans | $ | 992,281 | $ | 984,681 | ||||
The amounts above include deferred loan origination costs of $1.4 million and $1.6 million at September 30, 2019 and December 31, 2018.
The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties. The Company also serves the central Ohio market with offices in Dublin, Plain City, Powell, Sunbury, Westerville, and Powell,Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest payments received on nonaccrual loans are applied against the unpaid principal balance until accrual status is restored.
Loan origination fees and certain direct loan origination costs are deferred with the net amount amortized over the contractual life of the loan as an adjustment of the related loan’s yield.
The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):
Real Estate - Mortgage | ||||||||||||||||||||||||
September 30, 2019 | Commercial and industrial | Real estate- construction | Residential | Commercial | Consumer installment | Total | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,457 | $ | - | $ | 1,780 | $ | 11,261 | $ | 1 | $ | 14,499 | ||||||||||||
Collectively evaluated for impairment | 84,404 | 57,564 | 345,959 | 481,653 | 15,203 | 984,783 | ||||||||||||||||||
Total loans | $ | 85,861 | $ | 57,564 | $ | 347,739 | $ | 492,914 | $ | 15,204 | $ | 999,282 | ||||||||||||
June 30, 2020 | ||||||||||||
Impairment Evaluation | ||||||||||||
Individually | Collectively | Total Loans | ||||||||||
Loans: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 3,486 | $ | 106,648 | $ | 110,134 | ||||||
Non-owner occupied | 14,685 | 285,892 | 300,577 | |||||||||
Multifamily | - | 37,604 | 37,604 | |||||||||
Residential real estate | 1,259 | 226,168 | 227,427 | |||||||||
Commercial and industrial | 1,127 | 238,969 | 240,096 | |||||||||
Home equity lines of credit | 347 | 116,849 | 117,196 | |||||||||
Construction and other | - | 66,015 | 66,015 | |||||||||
Consumer installment | - | 11,210 | 11,210 | |||||||||
Total | $ | 20,904 | $ | 1,089,355 | $ | 1,110,259 | ||||||
Real Estate - Mortgage | ||||||||||||||||||||||||
December 31, 2018 | Commercial and industrial | Real estate- construction | Residential | Commercial | Consumer installment | Total | ||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 2,570 | $ | - | $ | 1,970 | $ | 9,533 | $ | 2 | $ | 14,075 | ||||||||||||
Collectively evaluated for impairment | 81,287 | 56,731 | 334,517 | 488,714 | 16,785 | 978,034 | ||||||||||||||||||
Total loans | $ | 83,857 | $ | 56,731 | $ | 336,487 | $ | 498,247 | $ | 16,787 | $ | 992,109 | ||||||||||||
December 31, 2019 | ||||||||||||
Impairment Evaluation | ||||||||||||
Individually | Collectively | Total Loans | ||||||||||
Loans: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 3,474 | $ | 98,912 | $ | 102,386 | ||||||
Non-owner occupied | 7,084 | 295,096 | 302,180 | |||||||||
Multifamily | - | 62,028 | 62,028 | |||||||||
Residential real estate | 1,278 | 233,520 | 234,798 | |||||||||
Commercial and industrial | 882 | 88,645 | 89,527 | |||||||||
Home equity lines of credit | 351 | 111,897 | 112,248 | |||||||||
Construction and other | - | 66,680 | 66,680 | |||||||||
Consumer installment | 1 | 14,410 | 14,411 | |||||||||
Total | $ | 13,070 | $ | 971,188 | $ | 984,258 | ||||||
The amounts above include net deferred loan origination costs of $4.7 million and $1.3 million at June 30, 2020 and December 31, 2019, respectively. The net deferred loan origination costs at June 30, 2020 include $4.0 million of unearned deferred fees from PPP loans.
June 30, 2020 | ||||||||||||
Ending Allowance Balance Attributable to Loans: | ||||||||||||
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total Allocation | ||||||||||
Loans: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 10 | $ | 1,028 | $ | 1,038 | ||||||
Non-owner occupied | 1,874 | 3,285 | 5,159 | |||||||||
Multifamily | - | 291 | 291 | |||||||||
Residential real estate | 22 | 1,145 | 1,167 | |||||||||
Commercial and industrial | 43 | 1,062 | 1,105 | |||||||||
Home equity lines of credit | 27 | 1,176 | 1,203 | |||||||||
Construction and other | - | 236 | 236 | |||||||||
Consumer installment | - | 11 | 11 | |||||||||
Total | $ | 1,976 | $ | 8,234 | $ | 10,210 | ||||||
Real Estate - Mortgage | ||||||||||||||||||||||||
September 30, 2019 | Commercial and industrial | Real estate- construction | Residential | Commercial | Consumer installment | Total | ||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 3 | $ | - | $ | 33 | $ | 670 | $ | - | $ | 706 | ||||||||||||
Collectively evaluated for impairment | 386 | 99 | 1,640 | 4,046 | 124 | 6,295 | ||||||||||||||||||
Total ending allowance balance | $ | 389 | $ | 99 | $ | 1,673 | $ | 4,716 | $ | 124 | $ | 7,001 | ||||||||||||
Real Estate - Mortgage | ||||||||||||||||||||||||
December 31, 2018 | Commercial and industrial | Real estate- construction | Residential | Commercial | Consumer installment | Total | ||||||||||||||||||
Allowance for loan and lease losses: | ||||||||||||||||||||||||
Ending allowance balance attributable to loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 667 | $ | - | $ | 43 | $ | 643 | $ | 1 | $ | 1,354 | ||||||||||||
Collectively evaluated for impairment | 302 | 100 | 1,538 | 4,008 | 126 | 6,074 | ||||||||||||||||||
Total ending allowance balance | $ | 969 | $ | 100 | $ | 1,581 | $ | 4,651 | $ | 127 | $ | 7,428 | ||||||||||||
December 31, 2019 | ||||||||||||
Ending Allowance Balance Attributable to Loans: | ||||||||||||
Individually Evaluated for Impairment | Collectively Evaluated for Impairment | Total Allocation | ||||||||||
Loans: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 45 | $ | 756 | $ | 801 | ||||||
Non-owner occupied | 582 | 2,800 | 3,382 | |||||||||
Multifamily | - | 340 | 340 | |||||||||
Residential real estate | 28 | 698 | 726 | |||||||||
Commercial and industrial | 3 | 453 | 456 | |||||||||
Home equity lines of credit | 2 | 930 | 932 | |||||||||
Construction and other | - | 103 | 103 | |||||||||
Consumer installment | - | 28 | 28 | |||||||||
Total | $ | 660 | $ | 6,108 | $ | 6,768 | ||||||
The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial Real Estate (“CRE”) which is further segmented into Owner Occupied (“CRE OO”), Non-owner Occupied (“CRE NOO”), and Multifamily Residential, Residential Real Estate (“RRE”), Commercial and Industrial (“C&I”), Real EstateHome Equity Lines of Credit (“HELOC”), Construction Real Estate - Mortgage which is further segmented into Residential and Commercial Real EstateOther (“CRE”Construction”), and Consumer Installment Loans. The commercial real estate loan segments consist of loans made for the purpose of financing the activities of commercial real estate owners and operators. The residential real estate and HELOC loan segments consist of loans made for the purpose of financing the activities of residential homeowners. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consistsAlthough PPP loans are included with C&I loans, the nature of PPP loans made fordiffers considerably from the purposerest of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators.category. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. The increases in the allowance for loan loss for the ResidentialCRE, RRE, C&I, HELOC, and Commercial mortgageConstruction portfolios were partially offset by decreasesa decrease in the allowance for the C&I, Real Estate Constructions, and Consumer Installment portfolios.
Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired, or the loan was modified in a troubled debt restructuring.
Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.
The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):
September 30, 2019 | ||||||||||||
Impaired Loans | ||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial and industrial | $ | 1,308 | $ | 2,059 | $ | - | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 1,126 | 1,406 | - | |||||||||
Commercial | 2,561 | 2,561 | - | |||||||||
Consumer installment | 1 | 1 | - | |||||||||
Total | $ | 4,996 | $ | 6,027 | $ | - | ||||||
With an allowance recorded: | ||||||||||||
Commercial and industrial | $ | 149 | $ | 149 | $ | 3 | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 654 | 703 | 33 | |||||||||
Commercial | 8,700 | 8,710 | 670 | |||||||||
Total | $ | 9,503 | $ | 9,562 | $ | 706 | ||||||
Total: | ||||||||||||
Commercial and industrial | $ | 1,457 | $ | 2,208 | $ | 3 | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 1,780 | 2,109 | 33 | |||||||||
Commercial | 11,261 | 11,271 | 670 | |||||||||
Consumer installment | 1 | 1 | - | |||||||||
Total | $ | 14,499 | $ | 15,589 | $ | 706 | ||||||
June 30, 2020 | ||||||||||||
Impaired Loans | ||||||||||||
Unpaid | ||||||||||||
Recorded | Principal | Related | ||||||||||
Investment | Balance | Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 3,028 | $ | 3,033 | $ | - | ||||||
Non-owner occupied | 7,538 | 7,538 | - | |||||||||
Residential real estate | 781 | 908 | - | |||||||||
Commercial and industrial | 659 | 1,148 | - | |||||||||
Home equity lines of credit | 179 | 189 | - | |||||||||
Total | $ | 12,185 | $ | 12,816 | $ | - | ||||||
With an allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 458 | $ | 458 | $ | 10 | ||||||
Non-owner occupied | 7,147 | 7,147 | 1,874 | |||||||||
Residential real estate | 478 | 478 | 22 | |||||||||
Commercial and industrial | 468 | 468 | 43 | |||||||||
Home equity lines of credit | 168 | 168 | 27 | |||||||||
Total | $ | 8,719 | $ | 8,719 | $ | 1,976 | ||||||
Total: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 3,486 | $ | 3,491 | $ | 10 | ||||||
Non-owner occupied | 14,685 | 14,685 | 1,874 | |||||||||
Residential real estate | 1,259 | 1,386 | 22 | |||||||||
Commercial and industrial | 1,127 | 1,616 | 43 | |||||||||
Home equity lines of credit | 347 | 357 | 27 | |||||||||
Total | $ | 20,904 | $ | 21,535 | $ | 1,976 | ||||||
December 31, 2018 | ||||||||||||
Impaired Loans | ||||||||||||
Recorded | Unpaid Principal | Related | ||||||||||
Investment | Balance | Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial and industrial | $ | 207 | $ | 413 | $ | - | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 1,306 | 1,462 | - | |||||||||
Commercial | 1,867 | 2,186 | - | |||||||||
Total | $ | 3,380 | $ | 4,061 | $ | - | ||||||
With an allowance recorded: | ||||||||||||
Commercial and industrial | $ | 2,363 | $ | 3,013 | $ | 667 | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 664 | 715 | 43 | |||||||||
Commercial | 7,666 | 7,676 | 643 | |||||||||
Consumer installment | 2 | 2 | 1 | |||||||||
Total | $ | 10,695 | $ | 11,406 | $ | 1,354 | ||||||
Total: | ||||||||||||
Commercial and industrial | $ | 2,570 | $ | 3,426 | $ | 667 | ||||||
Real estate - mortgage: | ||||||||||||
Residential | 1,970 | 2,177 | 43 | |||||||||
Commercial | 9,533 | 9,862 | 643 | |||||||||
Consumer installment | 2 | 2 | 1 | |||||||||
Total | $ | 14,075 | $ | 15,467 | $ | 1,354 | ||||||
December 31, 2019 | ||||||||||||
Impaired Loans | ||||||||||||
Unpaid | ||||||||||||
Recorded | Principal | Related | ||||||||||
Investment | Balance | Allowance | ||||||||||
With no related allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 1,772 | $ | 1,772 | $ | - | ||||||
Non-owner occupied | 3,845 | 3,845 | - | |||||||||
Residential real estate | 759 | 829 | - | |||||||||
Commercial and industrial | 747 | 1,524 | - | |||||||||
Home equity lines of credit | 220 | 228 | - | |||||||||
Consumer installment | 1 | 1 | - | |||||||||
Total | $ | 7,344 | $ | 8,199 | $ | - | ||||||
With an allowance recorded: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 1,702 | $ | 1,713 | $ | 45 | ||||||
Non-owner occupied | 3,239 | 3,239 | 582 | |||||||||
Residential real estate | 519 | 569 | 28 | |||||||||
Commercial and industrial | 135 | 135 | 3 | |||||||||
Home equity lines of credit | 131 | 131 | 2 | |||||||||
Total | $ | 5,726 | $ | 5,787 | $ | 660 | ||||||
Total: | ||||||||||||
Commercial real estate: | ||||||||||||
Owner occupied | $ | 3,474 | $ | 3,485 | $ | 45 | ||||||
Non-owner occupied | 7,084 | 7,084 | 582 | |||||||||
Residential real estate | 1,278 | 1,398 | 28 | |||||||||
Commercial and industrial | 882 | 1,659 | 3 | |||||||||
Home equity lines of credit | 351 | 359 | 2 | |||||||||
Consumer installment | 1 | 1 | - | |||||||||
Total | $ | 13,070 | $ | 13,986 | $ | 660 | ||||||
The tables above include troubled debt restructuring totaling $3.2 million and $3.6 million as of SeptemberJune 30, 2019 2020 and $4.4 million as of December 31, 2018.2019, respectively. The amounts allocated within the allowance for losses for troubled debt restructurings was $40,000$37,000 and $459,000$33,000 at SeptemberJune 30, 2019 2020 and December 31, 2018, 2019, respectively.
The following tables present the average balance and interest income by class, recognized on impaired loans (in thousands):
For the Three Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2019 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
Commercial and industrial | $ | 1,786 | $ | 20 | $ | 1,992 | $ | 44 | ||||||||
Real estate - construction | - | - | 810 | - | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Residential | 1,782 | 14 | 1,847 | 38 | ||||||||||||
Commercial | 11,344 | 95 | 10,317 | 286 | ||||||||||||
Consumer installment | 2 | - | 2 | - | ||||||||||||
Total | $ | 14,914 | $ | 129 | $ | 14,968 | $ | 368 | ||||||||
For the Three Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
Commercial real estate: | ||||||||||||||||
Owner occupied | $ | 3,459 | $ | 32 | $ | 3,464 | $ | 65 | ||||||||
Non-owner occupied | 10,864 | 209 | 9,604 | 258 | ||||||||||||
Residential real estate | 1,206 | 14 | 1,230 | 25 | ||||||||||||
Commercial and industrial | 1,019 | 11 | 973 | 21 | ||||||||||||
Home equity lines of credit | 347 | 2 | 348 | 4 | ||||||||||||
Consumer installment | 1 | - | 1 | - | ||||||||||||
Total | $ | 16,896 | $ | 268 | $ | 15,620 | $ | 373 | ||||||||
For the Three Months Ended September 30, 2018 | For the Nine Months Ended September 30, 2018 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
Commercial and industrial | $ | 2,984 | $ | 32 | $ | 4,620 | $ | 100 | ||||||||
Real estate - construction | - | - | 11 | - | ||||||||||||
Real estate - mortgage: | ||||||||||||||||
Residential | 2,574 | 18 | 2,672 | 49 | ||||||||||||
Commercial | 6,132 | 50 | 6,123 | 151 | ||||||||||||
Consumer installment | 3 | - | 3 | - | ||||||||||||
Total | $ | 11,693 | $ | 100 | $ | 13,429 | $ | 300 | ||||||||
For the Three Months Ended June 30, 2019 | For the Six Months Ended June 30, 2019 | |||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | |||||||||||||
Commercial real estate: | ||||||||||||||||
Owner occupied | $ | 3,819 | $ | 35 | $ | 4,014 | $ | 72 | ||||||||
Non-owner occupied | 6,419 | 50 | 5,989 | 100 | ||||||||||||
Residential real estate | 1,716 | 15 | 1,761 | 27 | ||||||||||||
Commercial and industrial | 1,970 | 23 | 2,170 | 45 | ||||||||||||
Home equity lines of credit | 104 | - | 109 | - | ||||||||||||
Construction and other | 1,620 | - | 1,080 | - | ||||||||||||
Consumer installment | 2 | - | 2 | - | ||||||||||||
Total | $ | 15,650 | $ | 123 | $ | 15,125 | $ | 244 | ||||||||
Management uses a nine-pointnine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The firstfive categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but have potential weaknesses, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as payment delinquency, bankruptcy, repossession, or death, occurs to raise awareness of a possible credit quality event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships with loan balances of $500,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and criticized relationships greater than $150,000. Detailed reviews, including plans for resolution, are performed on criticized loans on at least a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
The primary risk of commercial and industrial loans is related to deterioration in the cash flow of the business that may result in the liquidation of the business assets securing the loan. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market.uncertainties. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.
The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):
Special | Total | |||||||||||||||||||
September 30, 2019 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||
Commercial and industrial | $ | 78,163 | $ | 4,585 | $ | 3,113 | $ | - | $ | 85,861 | ||||||||||
Real estate - construction | 57,564 | - | - | - | 57,564 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Residential | 342,571 | 989 | 4,179 | - | 347,739 | |||||||||||||||
Commercial | 474,166 | 7,043 | 11,705 | - | 492,914 | |||||||||||||||
Consumer installment | 15,195 | - | 9 | - | 15,204 | |||||||||||||||
Total | $ | 967,659 | $ | 12,617 | $ | 19,006 | $ | - | $ | 999,282 | ||||||||||
Special | Total | |||||||||||||||||||
June 30, 2020 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 103,644 | $ | 3,042 | $ | 3,448 | $ | - | $ | 110,134 | ||||||||||
Non-owner occupied | 270,678 | 3,749 | 26,150 | - | 300,577 | |||||||||||||||
Multifamily | 37,604 | - | - | - | 37,604 | |||||||||||||||
Residential real estate | 224,316 | 410 | 2,701 | - | 227,427 | |||||||||||||||
Commercial and industrial | 235,535 | 2,658 | 1,903 | - | 240,096 | |||||||||||||||
Home equity lines of credit | 115,617 | - | 1,579 | - | 117,196 | |||||||||||||||
Construction and other | 66,015 | - | - | - | 66,015 | |||||||||||||||
Consumer installment | 11,191 | - | 19 | - | 11,210 | |||||||||||||||
Total | $ | 1,064,600 | $ | 9,859 | $ | 35,800 | $ | - | $ | 1,110,259 | ||||||||||
Special | Total | |||||||||||||||||||
December 31, 2018 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||
Commercial and industrial | $ | 77,002 | $ | 4,572 | $ | 2,283 | $ | - | $ | 83,857 | ||||||||||
Real estate - construction | 55,397 | 1,334 | - | - | 56,731 | |||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||
Residential | 332,475 | 553 | 3,459 | - | 336,487 | |||||||||||||||
Commercial | 483,516 | 6,617 | 8,114 | - | 498,247 | |||||||||||||||
Consumer installment | 16,776 | - | 11 | - | 16,787 | |||||||||||||||
Total | $ | 965,166 | $ | 13,076 | $ | 13,867 | $ | - | $ | 992,109 | ||||||||||
Special | Total | |||||||||||||||||||
December 31, 2019 | Pass | Mention | Substandard | Doubtful | Loans | |||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 95,518 | $ | 3,951 | $ | 2,917 | $ | - | $ | 102,386 | ||||||||||
Non-owner occupied | 292,192 | 3,038 | 6,950 | - | 302,180 | |||||||||||||||
Multifamily | 62,028 | - | - | - | 62,028 | |||||||||||||||
Residential real estate | 231,633 | 420 | 2,745 | - | 234,798 | |||||||||||||||
Commercial and industrial | 84,136 | 3,619 | 1,772 | - | 89,527 | |||||||||||||||
Home equity lines of credit | 111,354 | - | 894 | - | 112,248 | |||||||||||||||
Construction and other | 66,680 | - | - | - | 66,680 | |||||||||||||||
Consumer installment | 14,398 | - | 13 | - | 14,411 | |||||||||||||||
Total | $ | 957,939 | $ | 11,028 | $ | 15,291 | $ | - | $ | 984,258 | ||||||||||
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.
Nonperforming assets are nonaccrual loans including nonaccrual troubled debt restructurings (“TDR”), loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against the principal balance.
The following tables present the aging of the recorded investment in past-due loans by class of loans (in thousands):
30-59 Days | 60-89 Days | 90 Days+ | Total | Total | ||||||||||||||||||||
September 30, 2019 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
Commercial and industrial | $ | 84,689 | $ | 623 | $ | 190 | $ | 359 | $ | 1,172 | $ | 85,861 | ||||||||||||
Real estate - construction | 57,564 | - | - | - | - | 57,564 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Residential | 343,400 | 1,813 | 358 | 2,168 | 4,339 | 347,739 | ||||||||||||||||||
Commercial | 486,821 | 1,796 | 8 | 4,289 | 6,093 | 492,914 | ||||||||||||||||||
Consumer installment | 15,179 | 14 | 11 | - | 25 | 15,204 | ||||||||||||||||||
Total | $ | 987,653 | $ | 4,246 | $ | 567 | $ | 6,816 | $ | 11,629 | $ | 999,282 | ||||||||||||
30-59 Days | 60-89 Days | 90 Days+ | Total | Total | ||||||||||||||||||||
June 30, 2020 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 108,989 | $ | - | $ | 350 | $ | 795 | $ | 1,145 | $ | 110,134 | ||||||||||||
Non-owner occupied | 295,729 | - | 742 | 4,106 | 4,848 | 300,577 | ||||||||||||||||||
Multifamily | 37,604 | - | - | - | - | 37,604 | ||||||||||||||||||
Residential real estate | 223,820 | 1,539 | 893 | 1,175 | 3,607 | 227,427 | ||||||||||||||||||
Commercial and industrial | 239,836 | 160 | - | 100 | 260 | 240,096 | ||||||||||||||||||
Home equity lines of credit | 116,818 | 189 | 50 | 139 | 378 | 117,196 | ||||||||||||||||||
Construction and other | 60,524 | 5,491 | - | - | 5,491 | 66,015 | ||||||||||||||||||
Consumer installment | 10,977 | - | 1 | 232 | 233 | 11,210 | ||||||||||||||||||
Total | $ | 1,094,297 | $ | 7,379 | $ | 2,036 | $ | 6,547 | $ | 15,962 | $ | 1,110,259 | ||||||||||||
30-59 Days | 60-89 Days | 90 Days+ | Total | Total | ||||||||||||||||||||
December 31, 2018 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
Commercial and industrial | $ | 82,770 | $ | 288 | $ | 213 | $ | 586 | $ | 1,087 | $ | 83,857 | ||||||||||||
Real estate - construction | 56,731 | - | - | - | - | 56,731 | ||||||||||||||||||
Real estate - mortgage: | ||||||||||||||||||||||||
Residential | 331,379 | 2,612 | 1,083 | 1,413 | 5,108 | 336,487 | ||||||||||||||||||
Commercial | 496,597 | 664 | - | 986 | 1,650 | 498,247 | ||||||||||||||||||
Consumer installment | 16,768 | 19 | - | - | 19 | 16,787 | ||||||||||||||||||
Total | $ | 984,245 | $ | 3,583 | $ | 1,296 | $ | 2,985 | $ | 7,864 | $ | 992,109 | ||||||||||||
30-59 Days | 60-89 Days | 90 Days+ | Total | Total | ||||||||||||||||||||
December 31, 2019 | Current | Past Due | Past Due | Past Due | Past Due | Loans | ||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Owner occupied | $ | 101,264 | $ | 64 | $ | - | $ | 1,058 | $ | 1,122 | $ | 102,386 | ||||||||||||
Non-owner occupied | 298,941 | - | - | 3,239 | 3,239 | 302,180 | ||||||||||||||||||
Multifamily | 62,028 | - | - | - | - | 62,028 | ||||||||||||||||||
Residential real estate | 232,518 | 1,439 | 34 | 807 | 2,280 | 234,798 | ||||||||||||||||||
Commercial and industrial | 88,965 | 190 | 66 | 306 | 562 | 89,527 | ||||||||||||||||||
Home equity lines of credit | 111,792 | 274 | 29 | 153 | 456 | 112,248 | ||||||||||||||||||
Construction and other | 66,680 | - | - | - | - | 66,680 | ||||||||||||||||||
Consumer installment | 13,378 | 622 | 216 | 195 | 1,033 | 14,411 | ||||||||||||||||||
Total | $ | 975,566 | $ | 2,589 | $ | 345 | $ | 5,758 | $ | 8,692 | $ | 984,258 | ||||||||||||
The following tables present the recorded investment in nonaccrual loans and loans past due over 89 days and still on accrual by class of loans (in thousands):
September 30, 2019 | Nonaccrual | 90+ Days Past Due and Accruing | ||||||
Commercial and industrial | $ | 868 | $ | - | ||||
Real estate - construction | - | - | ||||||
Real estate - mortgage: | ||||||||
Residential | 4,732 | - | ||||||
Commercial | 4,450 | - | ||||||
Consumer installment | 3 | - | ||||||
Total | $ | 10,053 | $ | - | ||||
90+ Days Past Due | ||||||||
June 30, 2020 | Nonaccrual | and Accruing | ||||||
Commercial real estate: | ||||||||
Owner occupied | $ | 1,266 | $ | - | ||||
Non-owner occupied | 4,106 | - | ||||||
Residential real estate | 2,646 | - | ||||||
Commercial and industrial | 519 | - | ||||||
Home equity lines of credit | 1,021 | - | ||||||
Consumer installment | 245 | - | ||||||
Total | $ | 9,803 | $ | - | ||||
December 31, 2018 | Nonaccrual | 90+ Days Past Due and Accruing | ||||||
Commercial and industrial | $ | 996 | $ | 91 | ||||
Real estate - construction | - | - | ||||||
Real estate - mortgage: | ||||||||
Residential | 2,731 | 754 | ||||||
Commercial | 2,864 | 100 | ||||||
Consumer installment | 4 | - | ||||||
Total | $ | 6,595 | $ | 945 | ||||
90+ Days Past Due | ||||||||
December 31, 2019 | Nonaccrual | and Accruing | ||||||
Commercial real estate: | ||||||||
Owner occupied | $ | 1,162 | $ | - | ||||
Non-owner occupied | 3,289 | - | ||||||
Residential real estate | 2,576 | - | ||||||
Commercial and industrial | 946 | - | ||||||
Home equity lines of credit | 709 | - | ||||||
Consumer installment | 197 | - | ||||||
Total | $ | 8,879 | $ | - | ||||
Interest income that would have been recorded had these loans not been placed on nonaccrual status was $295,000$128,000 for the ninethree months ended SeptemberJune 30, 2019 2020 and $456,000$47,000 for the three months ended December 31, 2019. Interest income that would have been recorded had these loans not been placed on nonaccrual status was $228,000 for the six months ended June 30, 2020 and $342,000 for the year ended December 31, 2018.2019.
An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio. The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.
The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.
The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis. Management tracks the historical net charge-off activity at the call code level. The historical charge-off factor was calculated using the last twelve consecutive historical quarters.
Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and geographic standpoint.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.
The following tables summarize the primary segments of the loan portfolio and the activity within those segments (in thousands):
Commercial and industrial | Real estate- construction | Real estate- residential mortgage | Real estate- commercial mortgage | Consumer installment | Total | |||||||||||||||||||
ALLL balance at December 31, 2018 | $ | 969 | $ | 100 | $ | 1,581 | $ | 4,651 | $ | 127 | $ | 7,428 | ||||||||||||
Charge-offs | (393 | ) | - | (517 | ) | (31 | ) | (110 | ) | (1,051 | ) | |||||||||||||
Recoveries | 55 | 57 | 72 | 3 | 7 | 194 | ||||||||||||||||||
Provision | (242 | ) | (58 | ) | 537 | 93 | 100 | 430 | ||||||||||||||||
ALLL balance at September 30, 2019 | $ | 389 | $ | 99 | $ | 1,673 | $ | 4,716 | $ | 124 | $ | 7,001 | ||||||||||||
For the six months ended June 30, 2020 | ||||||||||||||||||||
Allowance for Loan and Lease Losses | ||||||||||||||||||||
Balance | Balance | |||||||||||||||||||
December 31, 2019 | Charge-offs | Recoveries | Provision | June 30, 2020 | ||||||||||||||||
Loans: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 801 | $ | (50 | ) | $ | 14 | $ | 273 | $ | 1,038 | |||||||||
Non-owner occupied | 3,382 | - | 74 | 1,703 | 5,159 | |||||||||||||||
Multifamily | 340 | - | - | (49 | ) | 291 | ||||||||||||||
Residential real estate | 726 | (51 | ) | 30 | 462 | 1,167 | ||||||||||||||
Commercial and industrial | 456 | (170 | ) | 239 | 580 | 1,105 | ||||||||||||||
Home equity lines of credit | 932 | (54 | ) | 16 | 309 | 1,203 | ||||||||||||||
Construction and other | 103 | - | 34 | 99 | 236 | |||||||||||||||
Consumer installment | 28 | (391 | ) | 11 | 363 | 11 | ||||||||||||||
Total | $ | 6,768 | $ | (716 | ) | $ | 418 | $ | 3,740 | $ | 10,210 | |||||||||
For the six months ended June 30, 2019 | ||||||||||||||||||||
Allowance for Loan and Lease Losses | ||||||||||||||||||||
Balance | Balance | |||||||||||||||||||
December 31, 2018 | Charge-offs | Recoveries | Provision | June 30, 2019 | ||||||||||||||||
Loans: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 1,315 | $ | (32 | ) | $ | 2 | $ | (419 | ) | $ | 866 | ||||||||
Non-owner occupied | 2,862 | - | - | 726 | 3,588 | |||||||||||||||
Multifamily | 474 | - | - | (62 | ) | 412 | ||||||||||||||
Residential real estate | 761 | - | 39 | (53 | ) | 747 | ||||||||||||||
Commercial and industrial | 969 | (355 | ) | 40 | (115 | ) | 539 | |||||||||||||
Home equity lines of credit | 820 | (138 | ) | 7 | 247 | 936 | ||||||||||||||
Construction and other | 100 | - | 45 | (48 | ) | 97 | ||||||||||||||
Consumer installment | 127 | (88 | ) | 6 | 74 | 119 | ||||||||||||||
Total | $ | 7,428 | $ | (613 | ) | $ | 139 | $ | 350 | $ | 7,304 | |||||||||
Commercial and industrial | Real estate- construction | Real estate- residential mortgage | Real estate- commercial mortgage | Consumer installment | Total | |||||||||||||||||||
ALLL balance at December 31, 2017 | $ | 999 | $ | 313 | $ | 1,760 | $ | 4,036 | $ | 82 | $ | 7,190 | ||||||||||||
Charge-offs | (284 | ) | - | (119 | ) | (111 | ) | (138 | ) | (652 | ) | |||||||||||||
Recoveries | 167 | 46 | 76 | - | 37 | 326 | ||||||||||||||||||
Provision | 274 | (258 | ) | (12 | ) | 483 | 143 | 630 | ||||||||||||||||
ALLL balance at September 30, 2018 | $ | 1,156 | $ | 101 | $ | 1,705 | $ | 4,408 | $ | 124 | $ | 7,494 | ||||||||||||
Commercial and industrial | Real estate- construction | Real estate- residential mortgage | Real estate- commercial mortgage | Consumer installment | Total | |||||||||||||||||||
ALLL balance at June 30, 2019 | $ | 539 | $ | 90 | $ | 1,681 | $ | 4,875 | $ | 119 | $ | 7,304 | ||||||||||||
Charge-offs | (38 | ) | - | (378 | ) | - | (22 | ) | (438 | ) | ||||||||||||||
Recoveries | 16 | 11 | 26 | 1 | 1 | 55 | ||||||||||||||||||
Provision | (128 | ) | (2 | ) | 344 | (160 | ) | 26 | 80 | |||||||||||||||
ALLL balance at September 30, 2019 | $ | 389 | $ | 99 | $ | 1,673 | $ | 4,716 | $ | 124 | $ | 7,001 | ||||||||||||
Commercial and industrial | Real estate- construction | Real estate- residential mortgage | Real estate- commercial mortgage | Consumer installment | Total | |||||||||||||||||||
ALLL balance at June 30, 2018 | $ | 1,180 | $ | 89 | $ | 1,743 | $ | 4,361 | $ | 129 | $ | 7,502 | ||||||||||||
Charge-offs | (275 | ) | - | (45 | ) | - | (3 | ) | (323 | ) | ||||||||||||||
Recoveries | 28 | 28 | 47 | - | 2 | 105 | ||||||||||||||||||
Provision | 223 | (16 | ) | (40 | ) | 47 | (4 | ) | 210 | |||||||||||||||
ALLL balance at September 30, 2018 | $ | 1,156 | $ | 101 | $ | 1,705 | $ | 4,408 | $ | 124 | $ | 7,494 | ||||||||||||
For the three months ended June 30, 2020 | ||||||||||||||||||||
Allowance for Loan and Lease Losses | ||||||||||||||||||||
Balance | Balance | |||||||||||||||||||
March 31, 2020 | Charge-offs | Recoveries | Provision | June 30, 2020 | ||||||||||||||||
Loans: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 1,099 | $ | (50 | ) | $ | 11 | $ | (22 | ) | $ | 1,038 | ||||||||
Non-owner occupied | 4,364 | - | - | 795 | 5,159 | |||||||||||||||
Multifamily | 386 | - | - | (95 | ) | 291 | ||||||||||||||
Residential real estate | 1,164 | (5 | ) | - | 8 | 1,167 | ||||||||||||||
Commercial and industrial | 716 | (109 | ) | 132 | 366 | 1,105 | ||||||||||||||
Home equity lines of credit | 1,240 | (41 | ) | 12 | (8 | ) | 1,203 | |||||||||||||
Construction and other | 254 | - | 17 | (35 | ) | 236 | ||||||||||||||
Consumer installment | 21 | (3 | ) | 2 | (9 | ) | 11 | |||||||||||||
Total | $ | 9,244 | $ | (208 | ) | $ | 174 | $ | 1,000 | $ | 10,210 | |||||||||
For the three months ended June 30, 2019 | ||||||||||||||||||||
Allowance for Loan and Lease Losses | ||||||||||||||||||||
Balance | Balance | |||||||||||||||||||
March 31, 2019 | Charge-offs | Recoveries | Provision | June 30, 2019 | ||||||||||||||||
Loans: | ||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||
Owner occupied | $ | 830 | $ | - | $ | 1 | $ | 35 | $ | 866 | ||||||||||
Non-owner occupied | 2,857 | - | - | 731 | 3,588 | |||||||||||||||
Multifamily | 492 | - | - | (80 | ) | 412 | ||||||||||||||
Residential real estate | 773 | - | 30 | (56 | ) | 747 | ||||||||||||||
Commercial and industrial | 586 | (9 | ) | 24 | (62 | ) | 539 | |||||||||||||
Home equity lines of credit | 832 | (48 | ) | 3 | 149 | 936 | ||||||||||||||
Construction and other | 748 | - | 23 | (674 | ) | 97 | ||||||||||||||
Consumer installment | 88 | (41 | ) | 5 | 67 | 119 | ||||||||||||||
Total | $ | 7,206 | $ | (98 | ) | $ | 86 | $ | 110 | $ | 7,304 | |||||||||
The provision fluctuations during the nine-monthsix-month period ended SeptemberJune 30, 2020 allocated to:
● | a $2.2 million increase in all lending categories’ qualitative factors during the second quarter of 2020 due to the economic uncertainty resulting from the COVID-19 pandemic. |
● | non-owner occupied portfolio are due to the increase of specific reserves for two relationships totaling $1.3 million. |
● | commercial and industrial loans are due to growth in loan volume along with an allocation for the PPP loans in the amount of $423,000. |
The provision fluctuations during the six-month period ended June 30, 2019 allocated to:
● | commercial and industrial loans are due to the charge-off of a large relationship of $336,000 from a previous reserve of $358,000 in the first quarter. |
● | residential |
● |
|
The provision fluctuations during the three-monththree-month period ended SeptemberJune 30, 2019 2020 allocated to:
● | non-owner occupied portfolio are due to the increase of specific reserves for two relationships totaling $776,000. |
● | commercial and industrial loans |
The provision fluctuation during the three-month period ended June 30, 2019 allocated to:
● |
|
TDR describes loans on which the bank has granted concessions for reasons related to the customer’s financial difficulties. Such concessions may include one or more of the following:
● | reduction in the interest rate to below-market rates |
● | extension of repayment requirements beyond normal terms |
● | reduction of the principal amount owed |
● | reduction of accrued interest due |
● | acceptance of other assets in full or partial payment of a debt |
In each case, the concession is made due to deterioration in the borrower’s financial condition, and the new terms are less stringent than those required on a new loan with similar risk.
On April 7, 2020, federal banking regulators issued a revised interagency statement that included guidance on their approach for the accounting of loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented. The agencies confirmed in working with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.
The following tables summarize troubled debt restructurings (in thousands):
For the Three Months Ended | ||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | ||||||||||||||||||
| Term | Outstanding Recorded | Outstanding Recorded | |||||||||||||||||
| Troubled Debt Restructurings | Modification | Other | Total | Investment | Investment | |||||||||||||||
Residential real estate | - | 1 | 1 | $ | 38 | $ | 38 | |||||||||||||
For the Nine Months Ended | ||||||||||||||||||||
September 30, 2019 | ||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | ||||||||||||||||||
| Term | Outstanding Recorded | Outstanding Recorded | |||||||||||||||||
| Troubled Debt Restructurings | Modification | Other | Total | Investment | Investment | |||||||||||||||
Residential real estate | - | 2 | 2 | $ | 123 | $ | 178 | |||||||||||||
For the Three Months Ended | ||||||||||||||||||||
September 30, 2018 | ||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | ||||||||||||||||||
| Term | Outstanding Recorded | Outstanding Recorded | |||||||||||||||||
| Troubled Debt Restructurings | Modification | Other | Total | Investment | Investment | |||||||||||||||
Residential real estate | 1 | - | 1 | $ | 86 | $ | 86 | |||||||||||||
For the Nine Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||
September 30, 2018 | June 30, 2020 | |||||||||||||||||||||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | Number of Contracts | Pre-Modification | Post-Modification | |||||||||||||||||||||||||||||||||||
| Term | Outstanding Recorded | Outstanding Recorded | Term | Outstanding Recorded | Outstanding Recorded | ||||||||||||||||||||||||||||||||||
| Troubled Debt Restructurings | Modification | Other | Total | Investment | Investment | Modification | Other | Total | Investment | Investment | ||||||||||||||||||||||||||||||
Residential real estate | 2 | 2 | 4 | $ | 261 | $ | 261 | 1 | - | 1 | $ | 39 | $ | 39 | ||||||||||||||||||||||||||
Commercial and industrial | 2 | - | 2 | 118 | 117 | |||||||||||||||||||||||||||||||||||
The following table summarizes TDR modifications within the previous 12 months for which there was a payment default during the nine-month period ended September 30, 2018 (in thousands):
For the Nine Months Ended | For the Three and Six Months Ended | |||||||||||||||||||||||||||
September 30, 2018 | June 30, 2019 | |||||||||||||||||||||||||||
Troubled Debt Restructurings subsequently defaulted | Number of Contracts | Recorded Investment | ||||||||||||||||||||||||||
Number of Contracts | Pre-Modification | Post-Modification | ||||||||||||||||||||||||||
| Term | Outstanding Recorded | Outstanding Recorded | |||||||||||||||||||||||||
| Troubled Debt Restructurings | Modification | Other | Total | Investment | Investment | |||||||||||||||||||||||
Residential real estate | 1 | $ | 20 | - | 1 | 1 | $ | 85 | $ | 140 | ||||||||||||||||||
There were no troubled debt restructurings during the three-month period ended June 30, 2020.
There were no subsequent defaults of troubled debt restructurings for the three-monththree-month periods ended SeptemberJune 30, 2020 and June 30, 2019, and September 30, 2018, or for the nine-month periodsix-month periods ended SeptemberJune 30, 2020 and June 30, 2019.
