Loans Receivable, Net and Allowance for Loan Losses | 6. Loans Receivable, Net and Allowance for Loan Losses Loans receivable consist of the following (in thousands): June 30, 2021 September 30, 2020 Real estate loans: Residential $ 584,368 $ 610,172 Construction 12,236 11,853 Commercial 578,506 509,628 Commercial 95,153 139,603 Obligations of states and political subdivisions 57,070 79,230 Home equity loans and lines of credit 38,571 40,800 Auto loans 18,805 39,795 Other 1,600 2,293 1,386,309 1,433,374 Less allowance for loan losses 17,693 15,400 Net loans $ 1,368,616 $ 1,417,974 During 2020 and 2021 the Company participated in the Paycheck Protection Program (“PPP”), administered directly by the U.S. SBA. The PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. PPP loans are included in the Commercial loan category. In accordance with the SBA terms and conditions on these PPP loans, the Company received approximately $2.4 million in fees associated with the processing of these loans. Upon funding of the loan, these fees were deferred and will be amortized over the life of the loan as an adjustment to yield in accordance with FASB ASC 310-20-25-2. Included in commercial loans in the above table are 442 loans totaling $44.2 million originated by the Company under the Paycheck Protection Program through the quarter ended June 30, 2021 compared to 673 loans totaling $76.8 million at September 30, 2020. These loans mature in two or five years. Purchased loans acquired in a business combination are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. The following table presents additional information regarding loans acquired and accounted for in accordance with ASC 310-30 (in thousands): June 30, 2021 September 30, 2020 Acquired Loans with Specific Evidence or Deterioration in Credit Quality (ASC 310-30) Acquired Loans with Specific Evidence or Deterioration in Credit Quality (ASC 310-30) Outstanding balance $ 942 $ 1,086 Carrying amount $ 880 $ 1,025 The following tables show the amount of loans in each category that were individually and collectively evaluated for impairment at the dates indicated (in thousands): Total Loans Individually Evaluated for Impairment Loans Acquired with Deteriorated Credit Quality Collectively Evaluated for Impairment June 30, 2021 Real estate loans: Residential $ 584,368 $ 2,493 $ — $ 581,875 Construction 12,236 — — 12,236 Commercial 578,506 11,330 880 566,296 Commercial 95,153 5,320 — 89,833 Obligations of states and political subdivisions 57,070 — — 57,070 Home equity loans and lines of credit 38,571 92 — 38,479 Auto loans 18,805 73 — 18,732 Other 1,600 9 — 1,591 Total $ 1,386,309 $ 19,317 $ 880 $ 1,366,112 Total Loans Individually Evaluated for Impairment Loans Acquired with Deteriorated Credit Quality Collectively Evaluated for Impairment September 30, 2020 Real estate loans: Residential $ 610,172 $ 3,949 $ — $ 606,223 Construction 11,853 — — 11,853 Commercial 509,628 11,322 1,025 497,281 Commercial 139,603 1,595 — 138,008 Obligations of states and political sub divisions 79,230 — — 79,230 Home equity loans and lines of credit 40,800 117 — 40,683 Auto loans 39,795 210 — 39,585 Other 2,293 11 — 2,282 Total $ 1,433,374 $ 17,204 $ 1,025 $ 1,415,145 The Company maintains a loan review system that allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified losses based on a review of such information. A loan evaluated for impairment is considered to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Impairment is measured on a loan-by-loan basis for commercial and construction loans by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential mortgage loans for impairment disclosures, unless such loans are part of a larger relationship that is impaired, or are classified as a troubled debt restructuring(“TDR”). A loan is considered to be a TDR loan when the Company grants a concession to the borrower that it would not otherwise consider because of the borrower’s financial condition. Such concessions include the reduction of interest rates, forgiveness of principal or interest, or other modifications of interest rates that are less than the current market rate for new obligations with similar risk. TDR loans that are in compliance with their modified terms and that yield a market rate at the time of modification may be removed from TDR status after one year of performance. The following tables include the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount at the dates indicated, if applicable (in thousands): Recorded Investment Unpaid Principal Balance Associated Allowance June 30, 2021 With no specific allowance recorded: Real estate loans Residential $ 2,384 $ 3,587 $ — Construction — — — Commercial 10,929 12,922 — Commercial 676 910 — Obligations of states and political subdivisions — — — Home equity loans and lines of credit 92 180 — Auto loans 73 99 — Other 9 21 — Total 14,163 17,719 — With an allowance recorded: Real estate loans Residential 109 113 18 Construction — — — Commercial 401 415 21 Commercial 4,644 4,686 848 Obligations of states and political subdivisions — — — Home equity loans and lines of credit — — — Auto loans — — — Other — — — Total 5,154 5,214 887 Total: Real estate loans Residential 2,493 3,700 18 Construction — — — Commercial 11,330 13,337 21 Commercial 5,320 5,596 848 Obligations of states and political subdivisions — — Home equity loans and lines of credit 92 180 — Auto loans 73 99 — Other 9 21 — Total Impaired Loans $ 19,317 $ 22,933 $ 887 Recorded Investment Unpaid Principal Balance Associated Allowance September 30, 2020 With no specific allowance recorded: Real Estate Loans Residential $ 3,699 $ 5,070 $ — Construction — — — Commercial 4,203 6,342 — Commercial 1,539 1,625 — Obligations of states and political subdivisions — — — Home equity loans and lines of credit 117 222 — Auto Loans 72 131 — Other 11 22 — Total 9,641 13,412 — With an allowance recorded: Real Estate Loans Residential 250 271 26 Construction — — — Commercial 7,119 7,169 132 Commercial 56 57 20 Obligations of states and political subdivisions — — — Home equity loans and lines of credit — — — Auto Loans 138 143 43 Other — — — Total 7,563 7,640 221 Total: Real Estate Loans Residential 3,949 5,341 26 Construction — — — Commercial 11,322 13,511 132 Commercial 1,595 1,682 20 Obligations of states and political subdivisions — — Home equity loans and lines of credit 117 222 — Auto Loans 210 274 43 Other 11 22 — Total Impaired Loans $ 17,204 $ 21,052 $ 221 The following table represents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired (in thousands): For the Three Months Ended June 30, 2021 2020 2021 2020 Average Recorded Investment Average Recorded Investment Interest Income Recognized Interest Income Recognized With no specific allowance recorded: Real estate loans Residential $ 1,107 $ 3,602 $ 2 $ 1 Construction — — — — Commercial 7,422 5,108 6 — Commercial 1,946 2,323 — — Obligations of states and political subdivisions — — — — Home equity loans and lines of credit 90 244 — — Auto loans 50 74 — 1 Other 10 13 — — Total 10,625 11,364 8 2 With an allowance recorded: Real estate loans Residential 146 361 — — Construction — — — — Commercial 4,985 182 — — Commercial 4,903 168 — — Obligations of states and political subdivisions — — — — Home equity loans and lines of credit — 6 — — Auto loans 12 85 — — Other — — — — Total 10,046 802 — — Total: Real estate loans Residential 1,253 3,963 2 1 Construction — — — — Commercial 12,407 5,290 6 — Commercial 6,849 2,491 — Obligations of states and political subdivisions — — — — Home equity loans and lines of credit 90 250 — — Auto loans 62 159 — 1 Other 10 13 — — Total Impaired Loans $ 20,671 $ 12,166 $ 8 $ 2 For the Nine Months Ended June 30, 2021 2020 2021 2020 Average Recorded Investment Average Recorded Investment Interest Income Recognized Interest Income Recognized With no specific allowance recorded: Real estate loans Residential $ 1,304 $ 3,800 $ 3 $ 2 Construction — — — — Commercial 8,408 3,203 11 1 Commercial 1,569 1,260 — 4 Obligations of states and political subdivisions — — — — Home equity loans and lines of credit 98 253 — — Auto loans 52 130 — 1 Other 11 14 — — Total 11,442 8,660 14 8 With an allowance recorded: Real estate loans Residential 171 304 — — Construction — — — — Commercial 4,908 239 — — Commercial 2,222 97 — — Obligations of states and political subdivisions — — — — Home equity loans and lines of credit — 2 — — Auto loans 28 128 1 — Other — 8 — — Total 7,329 778 1 — Total: Real estate loans Residential 1,475 4,104 3 2 Construction — — — — Commercial 13,316 3,442 11 1 Commercial 3,791 1,357 4 Obligations of states and political subdivisions — — — — Home equity loans and lines of credit 98 255 — — Auto loans 80 258 1 1 Other 11 22 — — Total Impaired Loans $ 18,771 $ 9,438 $ 15 $ 8 The Company uses a ten-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first six 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 fundamentally sound yet exhibit potentially unacceptable credit risk or deteriorating trends or characteristics which, if left uncorrected, may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. 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 that are 90 or more days past due are considered Substandard. Loans in the Doubtful category have all the weaknesses inherent in loans classified as Substandard with the added characteristic that their weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in the Loss category are considered uncollectible and of little value that their continuance as bankable assets is not warranted. Certain residential real estate loans, construction loans, home equity loans and lines of credit, auto loans and other consumer loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank 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 bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s commercial loan officers are responsible for the timely and accurate risk rating recommendation for the loans in their portfolios at origination and on an ongoing basis. The Bank’s commercial loan officers perform an annual review of all commercial relationships $750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank engages an external consultant to conduct loan reviews on at least a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or all criticized relationships. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on 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 following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard, and Doubtful or Loss within the internal risk rating system at June 30, 2021 and September 30, 2020 (in thousands): Pass Special Mention Substandard Doubtful or Loss Total June 30, 2021 Commercial real estate loans $ 539,774 $ 16,422 $ 22,310 $ — $ 578,506 Commercial 89,317 159 5,677 — 95,153 Obligations of states and political subdivisions 57,070 — — — 57,070 Total $ 686,161 $ 16,581 $ 27,987 $ — $ 730,729 Pass Special Mention Substandard Doubtful or Loss Total September 30, 2020 Commercial real estate loans $ 479,475 $ 15,022 $ 15,131 $ — $ 509,628 Commercial 137,860 — 1,743 — 139,603 Obligations of states and political subdivisions 79,230 — — — 79,230 Total $ 696,565 $ 15,022 $ 16,874 $ — $ 728,461 All other loans are underwritten and structured using standardized criteria and characteristics, primarily payment performance, and are normally risk rated and monitored collectively on a monthly basis. These are typically loans to individuals in the consumer categories and are delineated as either performing or non-performing. The following tables present the risk ratings in the consumer categories of performing and non-performing loans at June 30, 2021 and September 30, 2020 (in thousands): Performing Non- performing Total June 30, 2021 Real estate loans: Residential $ 580,970 $ 3,398 $ 584,368 Construction 12,236 — 12,236 Home equity loans and lines of credit 38,408 163 38,571 Auto loans 18,725 80 18,805 Other 1,585 15 1,600 Total $ 651,924 $ 3,656 $ 655,580 Performing Non- performing Total September 30, 2020 Real estate loans: Residential $ 605,549 $ 4,623 $ 610,172 Construction 11,853 — 11,853 Home equity loans and lines of credit 40,581 219 40,800 Auto loans 39,572 223 39,795 Other 2,282 11 2,293 Total $ 699,837 $ 5,076 $ 704,913 The Company 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. The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of June 30, 2021 and September 30, 2020 (in thousands): 31-60 Days 61-89 Days 90 + Days Past Due and Total Purchased Credit Impaired Total Current Past Due Past Due Accruing Nonaccrual Past Due Accruing Nonaccrual Loans June 30, 2021 Real estate loans: Residential $ 580,186 $ 460 $ 324 $ — $ 3,398 $ 4,182 $ — $ — $ 584,368 Construction 12,236 — — — — — — — 12,236 Commercial 565,745 — — — 11,881 11,881 227 653 578,506 Commercial 89,815 — — — 5,338 5,338 — — 95,153 Obligations of states and political subdivisions 57,070 — — — — — — — 57,070 Home equity loans and lines of credit 38,103 222 83 — 163 468 — — 38,571 Auto loans 18,495 219 11 — 80 310 — — 18,805 Other 1,585 — — — 15 15 — — 1,600 Total $ 1,363,235 $ 901 $ 418 $ — $ 20,875 $ 22,194 $ 227 $ 653 $ 1,386,309 31-60 Days 61-89 Days 90 + Days Past Due and Total Purchased Credit Impaired Total Current Past Due Past Due Accruing Nonaccrual Past Due Accruing Nonaccrual Loans September 30, 2020 Real estate loans: Residential $ 604,168 $ 979 $ 402 $ — $ 4,623 $ 6,004 $ — $ — $ 610,172 Construction 11,853 — — — — — — — 11,853 Commercial 494,881 1,085 — — 12,637 13,722 236 789 509,628 Commercial 137,769 6 — — 1,828 1,834 — — 139,603 Obligations of states and political subdivisions 79,230 — — — — — — — 79,230 Home equity loans and lines of credit 40,533 48 — — 219 267 — — 40,800 Auto loans 38,971 593 8 — 223 824 — — 39,795 Other 2,282 — — — 11 11 — — 2,293 Total $ 1,409,687 $ 2,711 $ 410 $ — $ 19,541 $ 22,662 $ 236 $ 789 $ 1,433,374 The allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. The allowance for loan losses consists of two elements: (1) an allocated allowance, which comprises allowances established on specific loans and class allowances based on historical loss experience and current trends, and (2) an unallocated allowance based on general economic conditions and other risk factors in our markets and portfolios. We maintain a loan review system, which allows for a periodic review of our loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type and market value of collateral and financial condition of the borrowers. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions, management’s judgment and losses which are probable and reasonably estimable. In addition, for the three and nine months ended June 30, 2021, consideration was given and a credit provision was recorded for loans granted short term payment relief due to the COVID pandemic. The allowance is increased through provisions charged against current earnings and recoveries of previously charged-off loans. Loans that are determined to be uncollectible are charged against the allowance. While management uses available information to recognize probable and reasonably estimable loan losses, future loss provisions may be necessary, based on changing economic conditions. Payments received on impaired loans generally are either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. The allowance for loan losses as of June 30, 2021 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio, and such losses were both probable and reasonably estimable. In addition, the FDIC and the Pennsylvania Department of Banking and Securities, as an integral part of their examination process, have periodically reviewed our allowance for loan losses. The banking regulators may require that we recognize additions to the allowance based on its analysis and review of information available to it at the time of its examination. 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 allowance for loan losses (“ALL”). When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. The following table summarizes changes in the primary segments of the ALL for the three and nine months ended June 30, 2021 and 2020 (in thousands): Home Obligations of Equity States and Loans and Real Estate Loans Commercial Political Lines of Other Residential Construction Commercial Loans Subdivisions Credit Auto Loans Loans Unallocated Total ALL balance at March 31, 2021 $ 4,299 $ 117 $ 8,943 $ 1,770 $ 487 $ 337 $ 439 $ 20 $ 742 $ 17,154 Charge-offs (55 ) — — (200 ) — — (18 ) — — (273 ) Recoveries 149 — 20 — — 1 42 — — 212 Provision (184 ) 39 564 88 (88 ) (17 ) (120 ) — 318 600 ALL balance at June 30, 2021 $ 4,209 $ 156 $ 9,527 $ 1,658 $ 399 $ 321 $ 343 $ 20 $ 1,060 $ 17,693 ALL balance at March 31, 2020 $ 4,330 $ 55 $ 4,563 $ 2,180 $ 359 $ 351 $ 1,104 $ 29 $ 208 $ 13,179 Charge-offs (42 ) — (4 ) — — (21 ) (135 ) (15 ) — (217 ) Recoveries 1 — 17 — — 1 49 — — 68 Provision 78 48 2,294 (1,206 ) 185 5 (55 ) 10 (59 ) 1,300 ALL balance at June 30, 2020 $ 4,367 $ 103 $ 6,870 $ 974 $ 544 $ 336 $ 963 $ 24 $ 149 $ 14,330 ALL balance at September 30, 2020 $ 4,301 $ 127 $ 7,209 $ 874 $ 555 $ 337 $ 780 $ 25 $ 1,192 $ 15,400 Charge-offs (59 ) — (76 ) (209 ) — (8 ) (244 ) (1 ) — (597 ) Recoveries 213 — 56 — — 4 217 — — 490 Provision (246 ) 29 2,338 993 (156 ) (12 ) (410 ) (4 ) (132 ) 2,400 ALL balance at June 30, 2021 $ 4,209 $ 156 $ 9,527 $ 1,658 $ 399 $ 321 $ 343 $ 20 $ 1,060 $ 17,693 ALL balance at September 30, 2019 $ 4,243 $ 53 $ 3,806 $ 1,870 $ 343 $ 329 $ 1,384 $ 28 $ 574 $ 12,630 Charge-offs (72 ) — (54 ) — — (61 ) (717 ) (20 ) — (924 ) Recoveries 7 — 77 1 — 4 358 2 — 449 Provision 189 50 3,041 (897 ) 201 64 (62 ) 14 (425 ) 2,175 ALL balance at June 30, 2020 $ 4,367 $ 103 $ 6,870 $ 974 $ 544 $ 336 $ 963 $ 24 $ 149 $ 14,330 During the three months ended June 30, 2021, the Company recorded provision expense for the construction real estate loans, commercial real estate loans and commercial loans segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the residential real estate loans, obligations of states and political subdivisions, home equity loans and lines of credit and auto loans segments. During the three months ended June 30, 2020 the Company recorded provision expense for the residential real estate loans, commercial real estate loans, obligations of states and political subdivisions, construction loans, home equity loans and lines of credit and other loan segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the commercial loans and auto loan segments. During the nine months ended June 30, 2021, the Company recorded provision expense for the construction real estate loans, commercial real estate loans and commercial loans, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the residential real estate loans, obligations of states and political subdivisions, home equity loans and lines of credit segments, auto loan and other loan segments. During the nine months ended June 30, 2020 the Company recorded provision expense for the residential real estate loans, commercial real estate loans, obligations of states and political subdivisions, construction loans, home equity loans and lines of credit and other loan segments, due to either increased loan balances, changes in the loan mix within the pool, and/or charge-off activity in those segments. Provision expense was also recorded for possible loan losses due to the economic slowdown caused by COVID-19 restrictions. Credit provisions were recorded for loan loss for the commercial loans and auto loan segments. The Company is closely monitoring all customer credit positions, particularly loans requesting payment relief. Such loans, as of June 30, 2021, amounted to approximately 2.3% of total loans outstanding, including $29.8 million in commercial real estate loans, $481,000 in commercial loans and $1.1 million in mortgage loans. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn, may require further increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio. The following table summarizes the primary segments of the ALL, segregated into two categories, the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2021 and September 30, 2020 (in thousands): Home Obligations of Equity States and Loans and Real Estate Loans Commercial Political Lines of Other Residential Construction Commercial Loans Subdivisions Credit Auto Loans Loans Unallocated Total Individually evaluated for impairment $ 18 $ — $ 21 $ 848 $ — $ — $ — $ — $ — $ 887 Collectively evaluated for impairment 4,191 156 9,506 810 399 321 343 20 1,060 16,806 ALL balance at June 30, 2021 $ 4,209 $ 156 $ 9,527 $ 1,658 $ 399 $ 321 $ 343 $ 20 $ 1,060 $ 17,693 Individually evaluated for impairment $ 26 $ — $ 132 $ 20 $ — $ — $ 43 $ — $ — $ 221 Collectively evaluated for impairment 4,275 127 7,077 854 555 337 737 25 1,192 15,179 ALL balance at September 30, 2020 $ 4,301 $ 127 $ 7,209 $ 874 $ 555 $ 337 $ 780 $ 25 $ 1,192 $ 15,400 The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. Despite the above allocations, the allowance for loan losses is general in nature and is available to absorb losses from any loan segment. The following is a summary of troubled debt restructuring granted during the three months ended June 30, 2021 (dollars in thousands): For the Three Months Ended June 30, 2021 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled Debt Restructurings Real estate loans: Residential 1 $ 343 $ 343 Construction — — — Commercial 4 7,353 7,353 Commercial — — — Obligations of states and political subdivisions — — — Home equity loans and lines of credit — — — Auto loans — — — Other — — — Total $ 5 $ 7,696 $ 7,696 There were no new troubled debt restructurings granted for the three months ended June 30, 2020. The following is a summary of troubled debt restructuring granted during the nine months ended June 30, 2021 and 2020 (dollars in thousands): For the Nine Months Ended June 30, 2021 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled Debt Restructurings Real estate loans: Residential 2 $ 416 $ 416 Construction — — — Commercial 4 7,353 7,353 Commercial — — — Obligations of states and political subdivisions — — — Home equity loans and lines of credit — — — Auto loans — — — Other — — — Total 6 $ 7,769 $ 7,769 For the Nine Months Ended June 30, 2020 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled Debt Restructurings Real estate loans: Residential 1 $ 534 $ 534 Construction — — — Commercial — — — Commercial — — — Obligations of states and political subdivisions — — — Home equity loans and lines of credit — — — Auto loans — — — Other — — — Total 1 $ 534 $ 534 The five new troubled debt restructurings granted for the three months ended June 30, 2021, totaled $7.7 million and were granted interest rate and or terms concessions. The six new troubled debt restructurings granted for the nine months ended June 30, 2021, totaled $7.8 million and were granted terms and or interest rate concessions. The one troubled debt restructuring granted for the nine months ended June 30, 2020, totaled $534,000 and was granted an interest rate concession. For the three and nine months ended June 30, 2021 and 2020, no loans defaulted on a restructuring agreement within one year of modification. The Company continues to closely monitor all customer credit positions, particularly loans requesting payment relief. As of June 30, 2021, approximately 15 of our commercial clients had requested loan payment deferrals or payments of interest only on loans totaling $30.3 million. We have had similar requests from approximately five mortgage customers totaling $1.1 million. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings unless the borrower was previously experiencing financial difficulty. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn may require further increases in our allowance for loan losses and increases in the level of chargeoffs in our loan portfolio. There can be no assurance that our non-performing assets will not increase in the future due to the impact of COVID-19 or otherwise. We will continue to closely monitor credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial and consumer clients. |