Loans, net, and allowance for loan losses | 5. Loans, net, and allowance for loan losses: The major classifications of loans outstanding, net of deferred loan origination fees and costs at June 30, 2021 and December 31, 2020 are summarized as follows. Net deferred loan costs were $745 at June 30, 2021 and net deferred loan costs were $701 at December 31, 2020. June 30, December 31, Commercial $ 197,287 $ 359,080 Real estate: Construction 55,500 73,402 Commercial 502,471 502,495 Residential 187,479 197,596 Consumer 6,003 6,666 Total $ 948,740 $ 1,139,239 The Company participated in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), Paycheck Protection Program (“PPP”), a multi-billion dollar specialized low-interest The change in the allowance for loan losses account by major loan classifications for the three and six months ended June 30, 2021 and 2020 is summarized as follows: Real Estate June 30, 2021 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, April 1, 2021 $ 1,393 $ 1,134 $ 6,793 $ 2,236 $ 127 $ 457 $ 12,140 Charge-offs (201 ) (373 ) (37 ) (611 ) Recoveries 57 2 14 73 Provisions 167 (381 ) (57 ) (378 ) 7 (93 ) (735 ) Ending balance $ 1,416 $ 753 $ 6,365 $ 1,858 $ 111 $ 364 $ 10,867 Real Estate Real June 30, 2021 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, January 1, 2021 $ 1,705 $ 1,117 $ 6,494 $ 2,427 $ 142 $ 315 $ 12,200 Charge-offs (210 ) (37 ) (373 ) (85 ) (705 ) Recoveries 57 3 2 45 107 Provisions (136 ) (327 ) 241 (571 ) 9 49 (735 ) Ending balance $ 1,416 $ 753 $ 6,365 $ 1,858 $ 111 $ 364 $ 10,867 Real Estate June 30, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, April 1, 2020 $ 1,671 $ 695 $ 3,917 $ 1,713 $ 152 $ 103 $ 8,251 Charge-offs (501 ) (2 ) (71 ) (574 ) Recoveries 7 2 1 37 47 Provisions 7 46 1,660 358 44 (103 ) 2,012 Ending balance $ 1,685 $ 741 $ 5,078 $ 2,070 $ 162 $ $ 9,736 Real Estate June 30, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, January 1, 2020 $ 1,953 $ 473 $ 3,115 $ 1,820 $ 155 $ $ 7,516 Charge-offs (899 ) (595 ) (2 ) (201 ) (1,697 ) Recoveries 9 2 1 93 105 Provisions 622 268 2,556 251 115 3,812 Ending balance $ 1,685 $ 741 $ 5,078 $ 2,070 $ 162 $ $ 9,736 The allocation of the allowance for loan losses and related loans by classifications of loans at June 30, 2021 and December 31, 2020 is summarized as follows: Real Estate June 30, 2021 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,416 $ 753 $ 6,365 $ 1,858 $ 111 $ 364 $ 10,867 Ending balance: individually evaluated for impairment 95 95 Ending balance: collectively evaluated for 1,416 753 6,270 1,858 111 364 10,772 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 197,287 $ 55,500 $ 502,471 $ 187,479 $ 6,003 $ $ 948,740 Ending balance: individually evaluated for impairment 974 957 6,284 2,355 10,570 Ending balance: collectively evaluated for impairment 196,313 54,543 495,870 184,978 6,003 937,707 Ending balance: purchased credit impaired loans $ $ $ 317 $ 146 $ $ $ 463 Real Estate December 31, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,705 $ 1,117 $ 6,494 $ 2,427 $ 142 $ 315 $ 12,200 Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment 1,705 1,117 6,494 2,427 142 315 12,200 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loan’s receivable: Ending balance $ 359,080 $ 73,402 $ 502,495 $ 197,596 $ 6,666 $ $ 1,139,239 Ending balance: individually evaluated for impairment 1,565 6,444 2,494 10,503 Ending balance: collectively evaluated for impairment 357,515 73,402 495,674 194,939 6,666 1,128,196 Ending balance: purchased credit impaired loans $ $ $ 377 $ 163 $ $ $ 540 The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Non-homogeneous • Pass—A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss or designated as Special Mention. • Special Mention—A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification. • Substandard—A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful—A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. • Loss—A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. Homogeneous loans not meeting the criteria above are considered pass rated loans and evaluated based on delinquency performance. The following tables present the major classifications of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at June 30, 2021 and December 31, 2020: June 30, 2021 Pass Special Substandard Doubtful Total Commercial $ 193,190 $ 2,763 $ 1,334 $ $ 197,287 Real estate: Construction 47,732 7,768 55,500 Commercial 450,523 26,162 25,786 502,471 Residential 183,751 1,122 2,606 187,479 Consumer 6,003 6,003 Total $ 881,199 $ 30,047 $ 37,494 $ $ 948,740 December 31, 2020 Pass Special Substandard Doubtful Total Commercial $ 353,758 $ 3,147 $ 2,175 $ $ 359,080 Real estate: Construction 63,838 1,817 7,747 73,402 Commercial 451,190 29,180 22,125 502,495 Residential 191,775 2,670 3,151 197,596 Consumer 6,666 6,666 Total $ 1,067,227 $ 36,814 $ 35,198 $ $ 1,139,239 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 December 31, 2020. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules. Accrual Loans June 30, 2021 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 82 $ 15 $ $ 97 $ 196,856 $ 334 $ 197,287 Real estate: Construction 54,543 957 55,500 Commercial 92 283 375 501,592 187 502,154 Residential 598 275 87 960 185,455 918 187,333 Consumer 24 7 4 35 5,968 6,003 Total $ 796 $ 580 $ 91 $ 1,467 $ 944,414 $ 2,396 $ 948,277 Purchased credit impaired loans 463 Total Loans $ 948,740 Accrual Loans December 31, 2020 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 64 $ 1 $ $ 65 $ 358,496 $ 519 $ 359,080 Real estate: Construction 73,402 73,402 Commercial 1,238 4,063 5,301 496,785 32 502,118 Residential 2,125 2,993 146 5,264 191,299 870 197,433 Consumer 22 20 10 52 6,614 6,666 Total $ 3,449 $ 7,077 $ 156 $ 10,682 $ 1,126,596 $ 1,421 $ 1,138,699 Purchased credit impaired loans 540 Total Loans $ 1,139,239 The following tables summarize information concerning impaired loans as of and for the three and six months ended June 30, 2021 and 2020, and as of and for the year ended, December 31, 2020 by major loan classification: This Quarter Year-to-Date June 30, 2021 Recorded Unpaid Related Average Interest Average Interest With no related allowance: Commercial $ 974 $ 974 $ 1,326 $ 9 $ 1,473 $ 50 Real estate: Construction 957 957 964 726 Commercial 671 671 793 8 2,322 42 Residential 2,501 2,631 2,521 29 2,560 62 Consumer Total 5,103 5,233 5,604 46 7,081 154 With an allowance recorded: Commercial Real estate: Construction Commercial 5,930 5,930 $ 95 5,950 95 4,476 143 Residential Consumer Total 5,930 5,930 95 5,950 95 4,476 143 Commercial 974 974 1,326 9 1,473 50 Real estate: Construction 957 957 964 726 Commercial 6,601 6,601 95 6,743 103 6,798 185 Residential 2,501 2,631 2,521 29 2,560 62 Consumer Total $ 11,033 $ 11,163 $ 95 $ 11,554 $ 141 $ 11,557 $ 297 Recorded Unpaid Related For the Year Ended December 31, 2020 Average Interest With no related allowance: Commercial $ 1,565 $ 1,675 $ 1,356 $ 416 Real estate: Construction Commercial 6,821 6,821 4,392 311 Residential 2,657 2,787 2,493 146 Consumer Total 11,043 11,283 8,241 873 With an allowance recorded: Commercial 561 Real estate: Construction Commercial 391 65 Residential Consumer Total 952 65 Commercial 1,565 1,675 1,917 416 Real estate: Construction Commercial 6,821 6,821 4,783 376 Residential 2,657 2,787 2,493 146 Consumer Total $ 11,043 $ 11,283 $ 9,193 $ 938 This Quarter Year-to-Date June 30, 2020 Recorded Unpaid Related Average Interest Average Interest With no related allowance: Commercial $ 2,059 $ 2,169 $ $ 1,579 $ 132 $ 1,603 $ 200 Real estate: Construction Commercial 9,158 9,659 5,854 19 5,561 66 Residential 2,748 2,878 2,520 81 2,539 106 Consumer Total 13,965 14,706 9,953 232 9,703 372 With an allowance recorded: Commercial 121 121 29 121 621 Real estate: Construction Commercial 184 391 4 Residential Consumer Total 121 121 29 305 1,012 4 Commercial 2,180 2,290 29 1,700 132 2,224 200 Real estate: Construction Commercial 9,158 9,659 6,038 19 5,952 70 Residential 2,748 2,878 2,520 81 2,539 106 Consumer Total $ 14,086 $ 14,827 $ 29 $ 10,258 $ 232 $ 10,715 $ 376 For the three and six months ended June 30, interest income related to impaired loans, would have been $21 and $49 in 2021 and $35 and $56 in 2020 had the loans been current and the terms of the loans not been modified. Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories: • Rate Modification—A modification in which the interest rate is changed to a below market rate. • Term Modification—A modification in which the maturity date, timing of payments or frequency of payments is changed. • Interest Only Modification—A modification in which the loan is converted to interest only payments for a period of time. • Payment Modification—A modification in which the dollar amount of the payment is changed, other than an interest only modification described above. • Combination Modification—Any other type of modification, including the use of multiple categories above. Included in the commercial loan and commercial and residential real estate categories are troubled debt restructures that are classified as impaired. Troubled debt restructures totaled $9,295 at June 30, 2021, $9,985 at December 31, 2020 and $9,988 at June 30, 2020. There were no loans modified as troubled debt restructures during the three and six months ended June 30, 2021. There were nine loans modified as troubled debt restructures during the second quarter of 2020 and nine loans modified during the six months ended June 30, 2020 totaling $7,817. During the three and six months ended June 30, 2021, there were no defaults on restructured loans. During the three months ended June 30, 2020, there were no defaults on loans restructured and one default on a restructured loan totaling $368 during the six months ended June 30, 2020. The Company is a party to financial instruments with off-balance Distribution of off-balance June 30, December 31, Unused portions of lines of credit $ 102,141 $ 92,848 Construction loans 14,320 24,751 Commitments to extend credit 12,797 10,275 Deposit overdraft protection 18,031 18,117 Standby and performance letters of credit 7,274 6,577 Total $ 154,563 $ 152,568 The Company’s exposure to credit loss in the event of nonperformance by the other party to the off-balance on-balance off-balance off-balance |