Loans and Related Allowance for Loan Losses | Note 6 – Loans and Related Allowance for Loan Losses The following table summarizes the primary segments of the loan portfolio at March 31, 2021 and December 31, 2020: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Total March 31, 2021 Individually evaluated for impairment $ 7,846 $ 874 $ — $ 3,200 $ 23 $ 11,943 Collectively evaluated for impairment 357,885 122,751 299,178 371,127 36,441 1,187,382 Total loans $ 365,731 $ 123,625 $ 299,178 $ 374,327 $ 36,464 $ 1,199,325 December 31, 2020 Individually evaluated for impairment $ 3,330 $ 842 $ — $ 3,185 $ 102 $ 7,459 Collectively evaluated for impairment 365,846 116,119 266,745 375,985 35,658 1,160,353 Total loans $ 369,176 $ 116,961 $ 266,745 $ 379,170 $ 35,760 $ 1,167,812 The commercial and industrial portfolio in the table above includes $ 145.2 million and $ 114.0 million of PPP loans, at March 31, 2021 and December 31, 2020, respectively, which are 100 % guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them. The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at March 31, 2021 and December 31, 2020: (in thousands) Pass Special Mention Substandard Total March 31, 2021 Commercial real estate Non owner-occupied $ 179,153 $ 5,489 $ 6,383 $ 191,025 All other CRE 164,725 3,778 6,203 174,706 Acquisition and development 1-4 family residential construction 18,480 — — 18,480 All other A&D 104,721 16 408 105,145 Commercial and industrial 278,581 8,639 11,958 299,178 Residential mortgage Residential mortgage - term 306,749 147 5,826 312,722 Residential mortgage - home equity 60,817 — 788 61,605 Consumer 36,333 — 131 36,464 Total $ 1,149,559 $ 18,069 $ 31,697 $ 1,199,325 December 31, 2020 Commercial real estate Non owner-occupied $ 178,670 $ 5,526 $ 6,322 $ 190,518 All other CRE 166,504 5,664 6,490 178,658 Acquisition and development 1-4 family residential construction 18,920 — — 18,920 All other A&D 97,648 17 376 98,041 Commercial and industrial 245,185 8,867 12,693 266,745 Residential mortgage Residential mortgage - term 309,177 283 6,117 315,577 Residential mortgage - home equity 62,804 — 789 63,593 Consumer 35,648 3 109 35,760 Total $ 1,114,556 $ 20,360 $ 32,896 $ 1,167,812 The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2021 and December 31, 2020: (in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90 Days+ Past Due Total Past Due and Accruing Non- Accrual Total Loans March 31, 2021 Commercial real estate Non owner-occupied $ 186,443 $ — $ — $ — $ — $ 4,582 $ 191,025 All other CRE 173,535 305 — — 305 866 174,706 Acquisition and development 1-4 family residential construction 18,480 — — — — — 18,480 All other A&D 104,732 — 5 — 5 408 105,145 Commercial and industrial 299,131 47 — — 47 — 299,178 Residential mortgage Residential mortgage - term 310,248 938 — 2 940 1,534 312,722 Residential mortgage - home equity 60,766 361 — — 361 478 61,605 Consumer 36,267 126 44 4 174 23 36,464 Total $ 1,189,602 $ 1,777 $ 49 $ 6 $ 1,832 $ 7,891 $ 1,199,325 December 31, 2020 Commercial real estate Non owner-occupied $ 190,510 $ — $ — $ — $ — $ 8 $ 190,518 All other CRE 177,360 408 — — 408 890 178,658 Acquisition and development 1-4 family residential construction 18,920 — — — — — 18,920 All other A&D 97,660 5 — 10 15 366 98,041 Commercial and industrial 266,708 37 — — 37 — 266,745 Residential mortgage Residential mortgage - term 312,500 63 670 710 1,443 1,634 315,577 Residential mortgage - home equity 63,036 80 63 — 143 414 63,593 Consumer 35,473 230 26 4 260 27 35,760 Total $ 1,162,167 $ 823 $ 759 $ 724 $ 2,306 $ 3,339 $ 1,167,812 The current status of commercial and industrial loans includes $ 145.2 million and $ 114.0 million of PPP loans, at March 31, 2021 and December 31, 2020, respectively. Non-accrual loans totaled $ 7.9 million at March 31, 2021 compared to $ 3.3 million at December 31, 2020. The increase in non-accrual balances at March 31, 2021 was due to the movement of two hospitality loans totaling approximately $ 4.0 million in the first quarter of 2021. These loans suffered reduced cash flows due to the impact of the pandemic, have received modifications and were classified as substandard at December 31, 2020. Non-accrual loans that have been subject to partial charge-offs totaled $ 0.4 million at March 31, 2021 and $ 0.2 million at December 31, 2020. Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $ 0.4 million at March 31, 2021 and December 31, 2020. Foreclosure and repossession activities were temporarily suspended as a result of COVID-19. As a percentage of the loan portfolio, accruing loans past due 30 days or more decreased to 0.15 %, including PPP loans, or 0.17 % excluding PPP loans, compared to 0.67 % at March 31, 2020. The following table summarizes the primary segments of the ALL at March 31, 2021 and December 31, 2020, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total March 31, 2021 Individually evaluated for impairment $ 33 $ 2 $ — $ 17 $ — $ — $ 52 Collectively evaluated for impairment $ 5,371 $ 2,421 $ 2,831 $ 5,011 $ 368 $ 500 $ 16,502 Total ALL $ 5,404 $ 2,423 $ 2,831 $ 5,028 $ 368 $ 500 $ 16,554 December 31, 2020 Individually evaluated for impairment $ 4 $ 13 $ — $ 40 $ — $ — $ 57 Collectively evaluated for impairment $ 5,539 $ 2,326 $ 2,584 $ 5,110 $ 370 $ 500 $ 16,429 Total ALL $ 5,543 $ 2,339 $ 2,584 $ 5,150 $ 370 $ 500 $ 16,486 The evaluation of the need and amount of a specific allocation of the ALL and whether a loan can be removed from impairment status is made on a quarterly basis. The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2021 and December 31, 2020: Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Total Impaired Loans (in thousands) Recorded Investment Related Allowances Recorded Investment Recorded Investment (1) Unpaid Principal Balance March 31, 2021 Commercial real estate Non owner-occupied $ 1,867 $ 33 $ 2,826 $ 4,693 $ 4,693 All other CRE — — 3,153 3,153 3,153 Acquisition and development 1-4 family residential construction — — 259 259 259 All other A&D 207 2 408 615 1,825 Commercial and industrial — — — — 2,214 Residential mortgage Residential mortgage – term 491 17 2,231 2,722 2,904 Residential mortgage – home equity — — 478 478 510 Consumer — — 23 23 48 Total impaired loans $ 2,565 $ 52 $ 9,378 $ 11,943 $ 15,606 December 31, 2020 Commercial real estate Non owner-occupied $ 111 $ 4 $ 8 $ 119 $ 119 All other CRE — — 3,211 3,211 3,211 Acquisition and development 1-4 family residential construction — — 266 266 266 All other A&D 276 13 300 576 1,724 Commercial and industrial — — — — 2,214 Residential mortgage Residential mortgage – term 936 34 1,910 2,846 3,031 Residential mortgage – home equity 76 6 339 415 447 Consumer — — 26 26 51 Total impaired loans $ 1,399 $ 57 $ 6,060 $ 7,459 $ 11,063 (1) Recorded investment consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and cost. The following tables present the activity in the ALL for the three month periods ended March 31, 2021 and 2020: (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total ALL balance at January 1, 2021 $ 5,543 $ 2,339 $ 2,584 $ 5,150 $ 370 $ 500 $ 16,486 Charge-offs — ( 81 ) — ( 82 ) ( 80 ) — ( 243 ) Recoveries — 101 36 17 47 — 201 Provision ( 139 ) 64 211 ( 57 ) 31 — 110 ALL balance at March 31, 2021 $ 5,404 $ 2,423 $ 2,831 $ 5,028 $ 368 $ 500 $ 16,554 ALL balance at January 1, 2020 $ 2,882 $ 3,674 $ 1,341 $ 3,828 $ 312 $ 500 $ 12,537 Charge-offs — ( 15 ) ( 101 ) ( 98 ) ( 132 ) — ( 346 ) Recoveries 66 14 15 26 46 — 167 Provision 868 390 427 830 139 — 2,654 ALL balance at March 31, 2020 $ 3,816 $ 4,063 $ 1,682 $ 4,586 $ 365 $ 500 $ 15,012 The ALL is based on estimates, and actual losses may 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. The following table presents the average recorded investment in impaired loans by class and related interest income recognized for the periods indicated: Three months ended Three months ended March 31, 2021 March 31, 2020 (in thousands) Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Commercial real estate Non owner-occupied $ 2,406 $ 3 $ — $ 141 $ 2 $ — All other CRE 3,182 35 — 3,124 37 — Acquisition and development 1-4 family residential construction 263 3 — 288 3 — All other A&D 596 3 — 8,328 3 1 Commercial and industrial — — — 15 — — Residential mortgage Residential mortgage – term 2,784 20 5 2,497 22 — Residential mortgage – home equity 446 — — 828 — — Consumer 25 — — 4 — — Total $ 9,702 $ 64 $ 5 $ 15,225 $ 67 $ 1 The Bank modifies loan terms in the normal course of business. Among other reasons, modifications might be made in an effort to retain the loan relationship, to remain competitive in the current interest rate environment and/or to re-amortize or extend the loan’s term to better match the loan’s payment stream with the borrower’s cash flow. A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations. Section 4013 of the CARES Act allows financial institutions to suspend application of certain current TDRs accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met. This relief can be applied to loan modifications for borrowers that defer or delay the payment of principal or interest, or change the interest rate on the loan and that were not more than 30 days past due as of December 31, 2019. In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (i.e., up to nine months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40. The Corporation continues to prudently work with borrowers negatively impacted by the COVID-19 pandemic while managing credit risks and recognizing appropriate allowance for credit losses on its loan portfolio. See Note 3 to the financial statements included elsewhere in this report for additional information. There were 14 loans totaling $ 3.9 million and 14 loans totaling $ 4.0 million that were classified as TDRs at March 31, 2021 and December 31, 2020, respectively. During the three month periods ended March 31, 2021 and 2020, there were no new TDRs and no modifications on existing TDRs, no r were there any payment defaults under existing TDRs. The Bank had no significant commitments to lend additional funds to TDR borrowers. |