Loans and Leases | 4. LOANS AND LEASES The composition of the loan and lease portfolio is as follows (dollars in thousands): December 31, 2021 2020 Real estate: Secured by commercial and professional office properties, including construction and development $ 1,242,633 $ 1,477,677 Secured by residential properties 390,872 288,341 Secured by farmland 106,706 129,905 Total real estate loans 1,740,211 1,895,923 Agricultural 33,990 44,872 Commercial and industrial 109,791 209,048 Mortgage warehouse lines 101,184 307,679 Consumer 4,550 5,589 Total loans 1,989,726 2,463,111 Deferred loan and lease origination cost, net (1,865) (3,147) Allowance for loan and lease losses (14,256) (17,738) Loans, net $ 1,973,605 $ 2,442,226 The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications: Pass Special Mention – Substandard – Impaired – Credit quality classifications as of December 31, 2021 were as follows (dollars in thousands): Pass Special Mention Substandard Impaired Total Real estate: 1-4 family residential construction $ 19,669 $ 1,700 $ — $ — $ 21,369 Other construction/land 24,958 — — 341 25,299 1-4 family - closed-end 282,717 4,703 201 1,836 289,457 Equity lines 23,277 615 55 2,641 26,588 Multi-family residential 49,986 3,472 — — 53,458 Commercial real estate owner occupied 321,996 6,108 3,860 2,482 334,446 Commercial real estate non-owner occupied 841,728 26,364 14,429 367 882,888 Farmland 92,479 10,266 3,961 — 106,706 Total real estate 1,656,810 53,228 22,506 7,667 1,740,211 Agricultural 32,513 — 1,099 378 33,990 Commercial and industrial 98,367 9,989 212 1,223 109,791 Mortgage warehouse lines 101,184 — — — 101,184 Consumer loans 4,349 31 6 164 4,550 Total gross loans and leases $ 1,893,223 $ 63,248 $ 23,823 $ 9,432 $ 1,989,726 Credit quality classifications as of December 31, 2020 were as follows (dollars in thousands): Pass Special Mention Substandard Impaired Total Real estate: 1-4 family residential construction $ 40,044 $ 8,521 $ — $ — $ 48,565 Other construction/land 61,809 7,478 2,148 545 71,980 1-4 family - closed-end 130,559 4,922 1,356 2,999 139,836 Equity lines 30,479 2,581 58 4,957 38,075 Multi-family residential 57,934 3,597 — 334 61,865 Commercial real estate owner occupied 308,819 21,148 5,652 7,580 343,199 Commercial real estate non-owner occupied 1,026,041 10,827 25,048 582 1,062,498 Farmland 104,826 21,468 3,169 442 129,905 Total real estate 1,760,511 80,542 37,431 17,439 1,895,923 Agricultural 39,391 3,617 1,614 250 44,872 Commercial and industrial 194,876 11,819 1,259 1,094 209,048 Mortgage warehouse lines 307,679 — — — 307,679 Consumer loans 5,323 58 11 197 5,589 Total gross loans and leases $ 2,307,780 $ 96,036 $ 40,315 $ 18,980 $ 2,463,111 Loans may or may not be collateralized, and collection efforts are continuously pursued. Loans or leases may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Loans and leases are charged off when they are deemed to be uncollectible, while recoveries are generally recorded only when cash payments are received subsequent to the charge-off. The following tables present the activity in the allowance for loan and lease losses and the recorded investment in loans and impairment method by portfolio segment for each of the years ending December 31, 2021, 2020, and 2019 (dollars in thousands): Commercial and Real Estate Agricultural Industrial (1) Consumer Unallocated Total Allowance for credit losses: Balance, December 31, 2018 $ 5,831 256 2,394 1,239 30 9,750 Charge-offs (1,190) — (1,274) (2,409) — (4,873) Recoveries 647 — 690 1,159 — 2,496 Provision 347 (63) 875 1,289 102 2,550 Balance, December 31, 2019 5,635 193 2,685 1,278 132 9,923 Charge-offs — — (436) (1,397) — (1,833) Recoveries 87 — 129 882 — 1,098 Provision 6,044 289 2,343 (43) (83) 8,550 Balance, December 31, 2020 11,766 482 4,721 720 49 17,738 Charge-offs (245) (50) (159) (946) — (1,400) Recoveries 601 — 223 744 — 1,568 Benefit (536) 32 (3,226) (8) 88 (3,650) Balance, December 31, 2021 $ 11,586 $ 464 $ 1,559 $ 510 $ 137 $ 14,256 (1) Includes mortgage warehouse lines Loans evaluated for impairment: December 31, 2021 December 31, 2020 December 31, 2019 Individually Collectively Individually Collectively Individually Collectively Real estate $ 7,667 $ 1,732,544 $ 17,439 $ 1,878,484 $ 12,745 $ 1,389,368 Agricultural 378 33,612 250 44,622 5 48,031 Commercial and industrial (1) 1,223 209,752 1,094 515,633 977 303,658 Consumer 164 4,386 197 5,392 426 7,355 Total loans $ 9,432 $ 1,980,294 $ 18,980 $ 2,444,131 $ 14,153 $ 1,748,412 (1) Includes mortgage warehouse lines Reserves based on method of evaluation for impairment: December 31, 2021 December 31, 2020 December 31, 2019 Specific General Specific General Specific General Real estate $ 428 $ 10,983 $ 525 $ 11,241 $ 493 $ 5,142 Agricultural 244 217 250 232 1 192 Commercial and industrial (1) 127 1,405 202 4,519 219 2,466 Consumer 19 487 19 701 114 1,164 Unallocated — 346 — 49 — 132 Total loan loss reserves $ 818 $ 13,438 $ 996 $ 16,742 $ 827 $ 9,096 (1) Includes mortgage warehouse lines The following tables present the recorded investment in nonaccrual loans and loans past due over 30 days as of December 31, 2021 and December 31, 2020 (dollars in thousands, except footnotes): December 31, 2021 30-59 Days 60-89 Days 90 Days Or More Past Total Financing Non-Accrual Past Due Past Due Due (2) Total Past Due Current Receivables Loans (1) Real Estate: 1-4 family residential construction $ — $ — $ — $ — $ 21,369 $ 21,369 $ — Other construction/land — — — — 25,299 25,299 — 1-4 family - closed-end 1,532 132 — 1,664 287,793 289,457 1,023 Equity lines 30 — — 30 26,558 26,588 892 Multi-family residential — — — — 53,458 53,458 — Commercial real estate owner occupied 124 — 698 822 333,624 334,446 1,234 Commercial real estate non-owner occupied — — — — 882,888 882,888 — Farmland — — — — 106,706 106,706 — Total real estate loans 1,686 132 698 2,516 1,737,695 1,740,211 3,149 Agricultural — — 284 284 33,706 33,990 378 Commercial and industrial 473 — 283 756 109,035 109,791 973 Mortgage warehouse lines — — — — 101,184 101,184 — Consumer loans 6 3 — 9 4,541 4,550 22 Total gross loans and leases $ 2,165 $ 135 $ 1,265 $ 3,565 $ 1,986,161 $ 1,989,726 $ 4,522 (1) Included in Total Financing Receivables (2) As of December 31, 2021 there were no loans over 90 days past due and still accruing. December 31, 2020 30-59 Days 60-89 Days 90 Days Or More Past Total Financing Non-Accrual Past Due Past Due Due (2) Total Past Due Current Receivables Loans (1) Real Estate: 1-4 family residential construction $ — $ — $ — $ — $ 48,565 $ 48,565 $ — Other construction/land — — — — 71,980 71,980 — 1-4 family - closed-end 210 37 150 397 139,439 139,836 1,193 Equity lines 1,409 — 551 1,960 36,115 38,075 2,403 Multi-family residential — — — — 61,865 61,865 — Commercial real estate owner occupied 101 1,187 78 1,366 341,833 343,199 1,678 Commercial real estate non-owner occupied — — 152 152 1,062,346 1,062,498 582 Farmland — 211 442 653 129,252 129,905 442 Total real estate loans 1,720 1,435 1,373 4,528 1,891,395 1,895,923 6,298 Agricultural — — 250 250 44,622 44,872 250 Commercial and industrial 325 — 237 562 208,486 209,048 1,026 Mortgage warehouse lines — — — — 307,679 307,679 — Consumer loans 38 — — 38 5,551 5,589 24 Total gross loans and leases $ 2,083 $ 1,435 $ 1,860 $ 5,378 $ 2,457,733 $ 2,463,111 $ 7,598 (1) Included in Total Financing Receivables (2) As of December 31, 2020 there were no loans over 90 days past due and still accruing. Generally, the Company places a loan or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. Subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. As of December 31, 2021 there was 1 customer relationship, for a total of $10.4 million, with payment deferrals either under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement, that are not included in the table above. Individually impaired loans as of December 31, 2021, December 31, 2020 and December 31, 2019 were as follows (dollars in thousands): December 31, 2021 Unpaid Principal Recorded Average Recorded Interest Income Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded Real estate: Other construction/land $ 341 $ 341 $ 64 $ 352 $ 55 1-4 family - closed-end 1,048 1,048 37 1,096 104 Equity lines 2,005 1,993 182 2,056 138 Commercial real estate - owner occupied 1,249 1,248 19 1,278 144 Commercial real estate - non-owner occupied 367 367 126 393 32 Total real estate 5,010 4,997 428 5,175 473 Agricultural 244 244 244 246 — Commercial and industrial 757 757 127 873 41 Consumer loans 164 164 19 180 28 6,175 6,162 818 6,474 542 With no Related Allowance Recorded Real estate: 1-4 family - closed-end 788 788 — 869 — Equity lines 648 648 — 690 6 Commercial real estate - owner occupied 1,353 1,234 — 1,282 — Total real estate 2,789 2,670 — 2,841 6 Agricultural 134 134 — 186 — Commercial and industrial 466 466 — 550 — 3,389 3,270 — 3,577 6 Total $ 9,564 $ 9,432 $ 818 $ 10,051 $ 548 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. December 31, 2020 Unpaid Principal Recorded Average Recorded Interest Income Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded Real estate: Other construction/land $ 545 $ 545 $ 171 $ 565 $ 40 1-4 family - closed-end 2,078 2,077 51 2,141 104 Equity lines 2,875 2,875 233 2,989 98 Multifamily residential 334 334 16 343 23 Commercial real estate- owner occupied 6,076 6,076 54 6,135 226 Total real estate 11,908 11,907 525 12,173 491 Agricultural 250 250 250 250 — Commercial and industrial 945 935 202 1,152 6 Consumer loans 235 197 19 221 16 13,338 13,289 996 13,796 513 With no Related Allowance Recorded Real estate: Other construction/land 114 — — 5 — 1-4 family - closed-end 942 922 — 960 — Equity Lines 2,160 2,082 — 2,127 3 Commercial real estate- owner occupied 1,624 1,504 — 1,590 — Commercial real estate- non-owner occupied 582 582 — 617 — Farmland 442 442 — 446 — Total real estate 5,864 5,532 — 5,745 3 Commercial and industrial 189 159 — 165 — Consumer loans 5 — — 5 2 6,058 5,691 — 5,915 5 Total $ 19,396 $ 18,980 $ 996 $ 19,711 $ 518 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. December 31, 2019 Unpaid Principal Recorded Average Recorded Interest Income Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded Real estate: Other construction/land $ 656 $ 537 $ 157 $ 563 $ 32 1-4 family - closed-end 2,298 2,298 58 2,365 146 Equity lines 4,173 4,120 252 4,185 200 Multifamily residential 353 353 17 361 23 Commercial real estate- owner occupied 593 593 6 606 38 Farmland 237 237 3 256 — Total real estate 8,310 8,138 493 8,336 439 Agricultural 5 5 1 6 — Commercial and industrial 915 896 219 1,140 29 Consumer loans 464 426 114 469 35 9,694 9,465 827 9,951 503 With no Related Allowance Recorded Real estate: Other construction/land 52 17 — 577 4 1-4 family - closed-end 755 722 — 726 — Equity Lines 326 301 — 310 5 Commercial real estate- owner occupied 1,560 1,440 — 1,477 — Commercial real estate- non-owner occupied 3,295 2,105 — 3,267 — Farmland 22 22 — 25 — Total real estate 6,010 4,607 — 6,382 9 Commercial and industrial 102 81 — 162 — Consumer loans 9 — — 140 15 6,121 4,688 — 6,684 24 Total $ 15,815 $ 14,153 $ 827 $ 16,635 $ 527 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. Included in loans above are troubled debt restructurings that were classified as impaired. The Company had $0.4 million and $0.4 million in commercial loans, $0.1 million and $0 in agricultural loans, $5.4 million and $13.0 million in real estate secured loans and $0.2 million and $0.2 million in consumer loans, which were modified as troubled debt restructurings and consequently classified as impaired at December 31, 2021 and 2020, respectively. Additional commitments to existing customers with restructured loans totaled $0.04 million and $0.05 million at December 31, 2021 and 2020, respectively. Interest income recognized on impaired loans was $0.5 million, $0.5 million, and $0.5 million, for the years ended December 31, 2021, 2020, and 2019, respectively. There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2021, 2020, and 2019, respectively. The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands): Years Ended December 31, Non-accrual loans 2021 2020 2019 Interest that would have been recorded under the loans’ original terms $ 406 $ 605 $ 650 Less gross interest recorded 33 201 289 Foregone interest $ 373 $ 404 $ 361 Certain loans have been pledged to secure short-term borrowing arrangements (see Note 10). These loans totaled $808.8 million and $1.1 billion at December 31, 2021 and 2020, respectively. Salaries and employee benefits totaling $1.0 million, $3.3 million, and $3.7 million, have been deferred as loan and lease origination costs to be amortized over the estimated lives of the related loans and leases for the years ended December 31, 2021, 2020, and 2019, respectively. During the periods ended December 31, 2021 and 2020, the terms of certain loans were modified as troubled debt restructurings. Types of modifications applied to these loans include a reduction of the stated interest rate, a modification of term, an agreement to collect only interest rather than principal and interest for a specified period, or any combination thereof. The following tables present troubled debt restructurings by type of modification during the period ending December 31, 2021, December 31, 2020 and December 31, 2019 (dollars in thousands): December 31, 2021 Rate Term Interest Only Rate & Term Term & Interest Modification Modification Modification Modification Modification Total Troubled debt restructurings Real estate: 1-4 family residential construction $ — $ — $ — $ — $ — $ — Other construction/land — — — — — — 1-4 family - closed-end — — — — — — Equity lines — 1,000 — 83 — 1,083 Multi-family residential — — — — — — Commercial real estate owner occupied — 136 — — — 136 Commercial real estate non-owner occupied — — — — — — Farmland — — — — — — Total real estate loans — 1,136 — 83 — 1,219 Agricultural — 118 — — — 118 Commercial and industrial — 185 — — — 185 Consumer loans — 44 — — 23 67 Small Business Administration Loans — — — — — — $ — $ 1,483 $ — $ 83 $ 23 $ 1,589 December 31, 2020 Rate Term Interest Only Rate & Term Term & Interest Modification Modification Modification Modification Modification Total Troubled debt restructurings Real estate: Other construction/land $ — $ 85 $ — $ — $ — $ 85 1-4 family - closed-end — 1,325 — — — 1,325 Equity lines — — — — — — Multi-family residential — — — — — — Commercial real estate owner occupied — 5,515 — — 338 5,853 Commercial real estate non-owner occupied — 443 — — — 443 Farmland — — — — — — Total real estate loans — 7,368 — — 338 7,706 Agricultural — — — — — — Commercial and industrial — 143 — — — 143 Consumer loans — — — — — — $ — $ 7,511 $ — $ — $ 338 $ 7,849 December 31, 2019 Rate Term Interest Only Rate & Term Term & Interest Modification Modification Modification Modification Modification Total Troubled debt restructurings Real estate: Other construction/land $ — $ 163 $ — $ — $ — $ 163 1-4 family - closed-end — — — — — — Equity lines — 344 — — — 344 Multi-family residential — — — — — — Commercial real estate owner occupied — — — — — — Commercial real estate non-owner occupied — — — — — — Farmland — — — — — — Total real estate loans — 507 — — — 507 Agricultural — — — — — — Commercial and industrial 94 255 — 52 — 401 Consumer loans — 9 — 50 — 59 $ 94 $ 771 $ — $ 102 $ — $ 967 The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2021, December 31, 2020 and December 31, 2019 (dollars in thousands): Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Reserve December 31, 2021 Loans Investment Investment Difference (1) Real estate: 1-4 family residential construction — $ — $ — $ — Other construction/land — — — — 1-4 family - closed-end — — — — Equity lines 2 1,083 1,083 — Multi-family residential — — — — Commercial real estate - owner occupied 1 137 136 (1) Commercial real estate - non-owner occupied — — — — Farmland — — — — Total real estate loans 1,220 1,219 (1) Agricultural 1 118 118 116 Commercial and industrial 1 185 185 (1) Consumer loans 3 67 67 2 Small Business Administration Loans — — — — $ 1,590 $ 1,589 $ 116 (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Reserve December 31, 2020 Loans Investment Investment Difference (1) Real estate: Other construction/land 1 $ 86 $ 85 $ 40 1-4 family - closed-end 1 1,325 1,325 10 Equity lines — — — — Multi-family residential — — — — Commercial real estate - owner occupied 4 5,853 5,853 8 Commercial real estate - non-owner occupied 1 443 443 — Farmland — — — — Total real estate loans 7,707 7,706 58 Agricultural — — — — Commercial and industrial 3 143 143 3 Consumer loans — — — — $ 7,850 $ 7,849 $ 61 (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Reserve December 31, 2019 Loans Investment Investment Difference (1) Real estate: Other construction/land 1 $ 163 $ 163 $ 74 1-4 family - closed-end — — — — Equity lines 2 344 344 — Multi-family residential — — — — Commercial real estate - owner occupied — — — — Commercial real estate - non-owner occupied — — — — Farmland — — — — Total real estate loans 507 507 74 Agricultural — — — — Commercial and industrial 7 401 401 (59) Consumer loans 2 59 59 (47) $ 967 $ 967 $ (32) (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. In the tables above, there were no TDRs that subsequently defaulted necessitating an increase in the allowance for loan and lease losses for the years ended December 31, 2021, 2020 and 2019. The total allowance for loan and lease losses specifically allocated to the balances that were classified as TDRs during the year ended December 31, 2021 and 2020 is $0.5 million and $0.6 million, respectively. Purchased Credit Impaired Loans The Company has purchased loans from past acquisitions, some of which have shown evidence of credit deterioration since origination and it was probable at acquisition that all contractually required payments would not be collected. The carrying amount and unpaid principal balance of those loans are as follows (dollars in thousands): December 31, 2021 Unpaid Principal Balance Carrying Value Real estate secured $ 60 $ 60 Total purchased credit impaired loans $ 60 $ 60 December 31, 2020 Unpaid Principal Balance Carrying Value Real estate secured $ 78 $ 78 Total purchased credit impaired loans $ 78 $ 78 For those purchased credit impaired loans disclosed above, the Company did not increase the allowance for loan and lease losses during 2021, 2020 and 2019. There is no accretable yield, or income expected to be collected on these purchased credit impaired loans. During the years ended December 31, 2021 and 2020, there were no purchased credit impaired loans acquired. |