Loans and Allowance for Loan Losses | Note 3. A summary of loan balances by type follows: September 30, 2021 December 31, 2020 (In thousands) Originated Acquired Total Originated Acquired Total Commercial real estate $ 849,828 $ 20,639 $ 870,467 $ 761,876 $ 28,149 $ 790,025 Commercial and industrial 218,289 3,792 222,081 271,039 4,295 275,334 Commercial construction 205,404 1,189 206,593 220,845 1,474 222,319 Consumer real estate 140,689 25,408 166,097 133,940 33,932 167,872 Consumer nonresidential 8,220 25 8,245 15,802 33 15,835 $ 1,422,430 $ 51,053 $ 1,473,483 $ 1,403,502 $ 67,883 $ 1,471,385 Less: Allowance for loan losses 14,363 — 14,363 14,333 625 14,958 Unearned income and (unamortized premiums), net 4,397 — 4,397 5,302 — 5,302 Loans, net $ 1,403,670 $ 51,053 $ 1,454,723 $ 1,383,867 $ 67,258 $ 1,451,125 During 2018, as a result of the Company’s acquisition of Colombo Bank (Colombo), the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans). The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20. The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of September 30, 2021 and December 31, 2020 are as follows: (In thousands) September 30, 2021 Purchased credit impaired acquired loans evaluated individually for credit losses Outstanding principal balance $ 222 Carrying amount — Other acquired loans Outstanding principal balance 51,663 Carrying amount 51,053 Total acquired loans Outstanding principal balance 51,885 Carrying amount 51,053 (In thousands) December 31, 2020 Purchased credit impaired acquired loans evaluated individually for credit losses Outstanding principal balance $ 4,010 Carrying amount 3,064 Other acquired loans Outstanding principal balance 65,656 Carrying amount 64,819 Total acquired loans Outstanding principal balance 69,666 Carrying amount 67,883 The following table presents changes during the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30. (In thousands) Balance at January 1, 2021 $ 216 Accretion (164) Reclassification of nonaccretable difference due to changes in expected cash flows 33 Other changes, net (79) Balance at September 30, 2021 $ 6 (In thousands) Balance at January 1, 2020 $ 371 Accretion (878) Reclassification of nonaccretable difference due to changes in expected cash flows 691 Other changes, net 32 Balance at December 31, 2020 $ 216 An analysis of the allowance for loan losses for the three and nine months ended September 30, 2021 and 2020, and for the year ended December 31, 2020, follows: Allowance for Loan Losses For the three months ended September 30, 2021 (In thousands) Commercial Commercial and Commercial Consumer Real Consumer Real Estate Industrial Construction Estate Nonresidential Total Allowance for credit losses: Beginning Balance, July 1 $ 8,969 $ 2,032 $ 2,360 $ 673 $ 325 $ 14,359 Charge-offs (24) — — — (24) (48) Recoveries — — — 31 21 52 Provision 569 (410) (135) 27 (51) — Ending Balance $ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363 Allowance for Loan Losses For the nine months ended September 30, 2021 (In thousands) Commercial Commercial and Commercial Consumer Real Consumer Real Estate Industrial Construction Estate Nonresidential Total Allowance for credit losses: Beginning Balance, January 1 $ 9,291 $ 2,546 $ 1,960 $ 690 $ 471 $ 14,958 Charge-offs (476) (117) — — (201) (794) Recoveries 24 — — 35 140 199 Provision 675 (807) 265 6 (139) — Ending Balance $ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363 Allowance for Loan Losses For the three months ended September 30, 2020 (In thousands) Commercial Commercial and Commercial Consumer Real Consumer Real Estate Industrial Construction Estate Nonresidential Total Allowance for credit losses: Beginning Balance, July 1 $ 8,855 $ 1,256 $ 2,105 $ 549 $ 129 $ 12,894 Charge-offs (2) — — — (85) (87) Recoveries 9 1 — — 39 49 Provision 855 148 (51) 279 469 1,700 Ending Balance $ 9,717 $ 1,405 $ 2,054 $ 828 $ 552 $ 14,556 Allowance for Loan Losses For the nine months ended September 30, 2020 (In thousands) Commercial Commercial and Commercial Consumer Real Consumer Real Estate Industrial Construction Estate Nonresidential Total Allowance for credit losses: Beginning Balance, January 1 $ 6,399 $ 1,275 $ 2,067 $ 417 $ 73 $ 10,231 Charge-offs (115) — — (3) (149) (267) Recoveries 9 20 — 2 45 76 Provision 3,424 110 (13) 412 583 4,516 Ending Balance $ 9,717 $ 1,405 $ 2,054 $ 828 $ 552 $ 14,556 Allowance for Loan Losses For the year ended December 31, 2020 (In thousands) Commercial Commercial and Commercial Consumer Real Consumer Real Estate Industrial Construction Estate Nonresidential Total Allowance for credit losses: Beginning Balance $ 6,399 $ 1,275 $ 2,067 $ 417 $ 73 $ 10,231 Charge-offs (115) — — (41) (254) (410) Recoveries 9 62 — 2 48 121 Provision 2,998 1,209 (107) 312 604 5,016 Ending Balance $ 9,291 $ 2,546 $ 1,960 $ 690 $ 471 $ 14,958 The following tables present the recorded investment in loans and impairment method as of September 30, 2021 and 2020, and at December 31, 2020, by portfolio segment: Allowance for Loan Losses At September 30, 2021 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Allowance for credit losses: Ending Balance: Individually evaluated for impairment $ 701 $ 270 $ — $ 22 $ — $ 993 Purchased credit impaired — — — — — — Collectively evaluated for impairment 8,813 1,352 2,225 709 271 13,370 $ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363 Loans Receivable At September 30, 2021 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Financing receivables: Ending Balance Individually evaluated for impairment $ 11,928 $ 5,230 $ 1,596 $ 414 $ — $ 19,168 Purchased credit impaired — — — — — — Collectively evaluated for impairment 858,539 216,851 204,997 165,683 8,245 1,454,315 $ 870,467 $ 222,081 $ 206,593 $ 166,097 $ 8,245 $ 1,473,483 Allowance for Loan Losses At September 30, 2020 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Allowance for credit losses: Ending Balance: Individually evaluated for impairment $ 80 $ 310 $ — $ 66 $ — $ 456 Purchased credit impaired — — — — — — Collectively evaluated for impairment 9,637 1,095 2,054 762 552 14,100 $ 9,717 $ 1,405 $ 2,054 $ 828 $ 552 $ 14,556 Loans Receivable At September 30, 2020 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Financing receivables: Ending Balance Individually evaluated for impairment $ 15,102 $ 4,078 820 $ 297 $ — $ 20,297 Purchased credit impaired 3,537 309 — 56 — 3,902 Collectively evaluated for impairment 789,215 281,599 214,693 176,679 17,357 1,479,543 $ 807,854 $ 285,986 $ 215,513 $ 177,032 $ 17,357 $ 1,503,742 Allowance for Loan Losses At December 31, 2020 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Allowance for credit losses: Ending Balance: Individually evaluated for impairment 625 $ 1,450 $ — $ 25 $ — $ 2,100 Purchased credit impaired — — — — — — Collectively evaluated for impairment 8,666 1,096 1,960 665 471 12,858 $ 9,291 $ 2,546 $ 1,960 $ 690 $ 471 $ 14,958 Loans Receivable At December 31, 2020 (In thousands) Commercial Commercial Commercial Consumer Consumer Real Estate and Industrial Construction Real Estate Nonresidential Total Financing receivables: Ending Balance Individually evaluated for impairment $ 13,379 $ 7,086 $ — $ 254 $ — $ 20,719 Purchased credit impaired 3,007 — — 57 — 3,064 Collectively evaluated for impairment 773,639 268,248 222,319 167,561 15,835 1,447,602 $ 790,025 $ 275,334 $ 222,319 $ 167,872 $ 15,835 $ 1,471,385 Impaired loans by class excluding purchased credit impaired, at September 30, 2021 and December 31, 2020, are summarized as follows: Impaired Loans – Originated Loan Portfolio Unpaid Average Interest Recorded Principal Related Recorded Income (In thousands) Investment Balance Allowance Investment Recognized September 30, 2021 With an allowance recorded: Commercial real estate $ 2,274 $ 2,274 $ 701 $ 2,302 $ 78 Commercial and industrial 1,701 1,711 270 1,716 71 Commercial construction — — — — — Consumer real estate 94 94 22 96 4 Consumer nonresidential — — — — — $ 4,069 $ 4,079 $ 993 $ 4,114 $ 153 September 30, 2021 With no related allowance: Commercial real estate $ 9,654 $ 9,654 $ — $ 9,654 $ 357 Commercial and industrial 3,529 3,529 — 3,731 181 Commercial construction 1,596 1,596 — 1,596 130 Consumer real estate 320 323 — 323 21 Consumer nonresidential — — — — — $ 15,099 $ 15,102 $ — $ 15,304 $ 689 Impaired Loans – Acquired Loan Portfolio Unpaid Average Interest Recorded Principal Related Recorded Income (In thousands) Investment Balance Allowance Investment Recognized September 30, 2021 With an allowance recorded: Commercial real estate $ — $ — $ — $ — $ — Commercial and industrial — — — — — Commercial construction — — — — — Consumer real estate — — — — — Consumer nonresidential — — — — — $ — $ — $ — $ — $ — September 30, 2021 With no related allowance: Commercial real estate $ — $ — $ — $ — $ — Commercial and industrial — — — — — Commercial construction — — — — — Consumer real estate — — — — — Consumer nonresidential — — — — — $ — $ — $ — $ — $ — Impaired Loans – Originated Loan Portfolio Unpaid Average Interest Recorded Principal Related Recorded Income (In thousands) Investment Balance Allowance Investment Recognized December 31, 2020 With an allowance recorded: Commercial real estate $ — $ — $ — $ — $ — Commercial and industrial 5,287 5,287 1,450 5,682 358 Commercial construction — — — — — Consumer real estate 97 97 25 99 6 Consumer nonresidential — — — — — $ 5,384 $ 5,384 $ 1,475 $ 5,781 $ 364 December 31, 2020 With no related allowance: Commercial real estate $ 9,926 $ 9,930 $ — $ 9,938 $ 133 Commercial and industrial 1,799 1,799 — 2,433 148 Commercial construction — — — — — Consumer real estate — — — — — Consumer nonresidential — — — — — $ 11,725 $ 11,729 $ — $ 12,371 $ 281 Impaired Loans – Acquired Loan Portfolio Unpaid Average Interest Recorded Principal Related Recorded Income (In thousands) Investment Balance Allowance Investment Recognized December 31, 2020 With an allowance recorded: Commercial real estate $ 3,303 $ 4,316 $ 625 $ 4,811 $ 267 Commercial and industrial — — — — — Commercial construction — — — — — Consumer real estate — — — — — Consumer nonresidential — — — — — $ 3,303 $ 4,316 $ 625 $ 4,811 $ 267 December 31, 2020 With no related allowance: Commercial real estate $ 150 $ 164 $ — $ 164 $ 13 Commercial and industrial 157 215 — 215 12 Commercial construction — — — — — Consumer real estate — — — — — Consumer nonresidential — — — — — $ 307 $ 379 $ — $ 379 $ 25 No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure. The Company categorizes 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: Pass Special Mention Substandard Doubtful Loss Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of September 30, 2021 and December 31, 2020: As of September 30, 2021 – Originated Loan Portfolio Commercial Real Commercial and Commercial Consumer Real Consumer (In thousands) Estate Industrial Construction Estate Nonresidential Total Grade: Pass $ 837,900 $ 212,872 $ 203,808 $ 138,246 $ 8,220 $ 1,401,046 Special mention — — — 2,029 — 2,029 Substandard 11,928 5,417 1,596 414 — 19,355 Doubtful — — — — — — Loss — — — — — — Total $ 849,828 $ 218,289 $ 205,404 $ 140,689 $ 8,220 $ 1,422,430 As of September 30, 2021 – Acquired Loan Portfolio Commercial Real Commercial and Commercial Consumer Real Consumer (In thousands) Estate Industrial Construction Estate Nonresidential Total Grade: Pass $ 20,639 $ 3,792 $ 1,189 $ 25,408 $ 25 $ 51,053 Special mention — — — — — — Substandard — — — — — — Doubtful — — — — — — Loss — — — — — — Total $ 20,639 $ 3,792 $ 1,189 $ 25,408 $ 25 $ 51,053 As of December 31, 2020 – Originated Loan Portfolio Commercial Real Commercial and Commercial Consumer Real Consumer (In thousands) Estate Industrial Construction Estate Nonresidential Total Grade: Pass $ 741,570 $ 262,355 $ 220,845 $ 133,750 $ 15,802 $ 1,374,322 Special mention 10,380 1,598 — 93 — 12,071 Substandard 9,926 7,086 — 97 — 17,109 Doubtful — — — — — — Loss — — — — — — Total $ 761,876 $ 271,039 $ 220,845 $ 133,940 $ 15,802 $ 1,403,502 As of December 31, 2020 – Acquired Loan Portfolio Commercial Real Commercial and Commercial Consumer Real Consumer (In thousands) Estate Industrial Construction Estate Nonresidential Total Grade: Pass $ 24,696 $ 4,295 $ 1,474 $ 33,844 $ 33 $ 64,342 Special mention — — — — — — Substandard 3,453 — — 88 — 3,541 Doubtful — — — — — — Loss — — — — — — Total $ 28,149 $ 4,295 $ 1,474 $ 33,932 $ 33 $ 67,883 The Company categorizes 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. This analysis is performed on an ongoing basis as new information is obtained. At September 30, 2021, the Company had $19.4 million in loans identified as substandard , a decrease of $1.3 million from December 31, 2020. The decrease in substandard loans was primarily related to two loans totaling $1.3 million which were sold at a discount. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At September 30, 2021, specific reserves on originated and acquired loans totaling $993 thousand has been allocated within the allowance for loan losses to supplement any shortfall of collateral. Past due and nonaccrual loans presented by loan class were as follows at September 30, 2021 and December 31, 2020: As of September 30, 2021 – Originated Loan Portfolio 30-59 days past 60-89 days past 90 days or more 90 days past due (In thousands) due due past due Total past due Current Total loans and still accruing Nonaccruals Commercial real estate $ — $ — $ — $ — $ 849,828 $ 849,828 $ — $ — Commercial and industrial — — — — 218,289 218,289 — 1,702 Commercial construction — — — — 205,404 205,404 — 1,596 Consumer real estate 592 — — 592 140,097 140,689 — 320 Consumer nonresidential — 37 20 57 8,163 8,220 20 — Total $ 592 $ 37 $ 20 $ 649 $ 1,421,781 $ 1,422,430 $ 20 $ 3,618 As of September 30, 2021 – Acquired Loan Portfolio 30-59 days past 60-89 days past 90 days or more 90 days past due (In thousands) due due past due Total past due Current Total loans and still accruing Nonaccruals Commercial real estate $ — $ — $ — $ — $ 20,639 $ 20,639 $ — $ — Commercial and industrial — — — — 3,792 3,792 — — Commercial construction — — — — 1,189 1,189 — — Consumer real estate — — — — 25,408 25,408 — — Consumer nonresidential 2 — — 2 23 25 — — Total $ 2 $ — $ — $ 2 $ 51,051 $ 51,053 $ — $ — As of December 31, 2020 – Originated Loan Portfolio 30-59 days past 60-89 days past 90 days or more 90 days past due (In thousands) due due past due Total past due Current Total loans and still accruing Nonaccruals Commercial real estate $ — $ 88 $ — $ 88 $ 761,788 $ 761,876 $ — $ — Commercial and industrial — — — $ — $ 271,039 271,039 — 2,883 Commercial construction — 13 — 13 220,832 220,845 — — Consumer real estate 347 76 — 423 133,517 133,940 — — Consumer nonresidential — — 44 44 15,758 15,802 44 — Total $ 347 $ 177 $ 44 $ 568 $ 1,402,934 $ 1,403,502 $ 44 $ 2,883 As of December 31, 2020 – Acquired Loan Portfolio 30-59 days past 60-89 days past 90 days or more 90 days past due (In thousands) due due past due Total past due Current Total loans and still accruing Nonaccruals Commercial real estate $ 694 $ — $ — $ 694 $ 27,455 $ 28,149 $ — $ 2,309 Commercial and industrial — — — — 4,295 4,295 — — Commercial construction 111 — — 111 1,363 1,474 — — Consumer real estate 353 108 228 689 33,243 33,932 228 157 Consumer nonresidential — — — — 33 33 — — Total $ 1,158 $ 108 $ 228 $ 1,494 $ 66,389 $ 67,883 $ 228 $ 2,466 As of September 30, 2021, there were $70 thousand of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2020 and September 30, 2020, respectively. There were overdrafts of $60 thousand and $72 thousand at September 30, 2021 and December 31, 2020, respectively, which have been reclassified deposits There were no defaults of TDRs during the twelve months since restructuring for the nine months ended September 30, 2021 and 2020. There were no loans designated as TDRs during the nine months ended September 30, 2021. The following table presents loans designated as TDRs during the nine months ended September 30, 2020: For the nine months ended September 30, 2020 Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Troubled Debt Restructurings Contracts Investment Investment (Dollars in thousands) Consumer real estate 1 $ 99 $ 99 Total 1 $ 99 $ 99 As of September 30, 2021 and December 31, 2020, the Company had a recorded investment in TDRs of $94 thousand and $97 thousand, respectively. The concessions made in the TDRs were related to the reduction in the stated interest rate for the remaining life of the debt. |