XML 24 R12.htm IDEA: XBRL DOCUMENT

Loans, net and allowance for loan losses

6 Months Ended

Jun. 30, 2020

Loans, net and allowance for loan losses

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, 2020 and December 31, 2019 are summarized as follows. The Company had net deferred loan origination fees of $3,508 at June 30, 2020 due to the origination of $201.3 million of PPP loans and $6.6 million of SBA processing fees during the 2020 second quarter. At December 31, 2019, we had net deferred loan costs of $908.


		June 30, 2020		December 31, 2019
Commercial	$	694,551	$	522,957
Real estate:
Commercial		1,099,818		1,011,423
Residential		297,880		301,378
Consumer		89,660		102,482
Total	$	2,181,909	$	1,938,240

The PPP loans are included in the commercial loan classification and had an outstanding balance at June 30, 2020 of $201,274. The PPP loans are risk rated ‘Pass’ and do not carry an allowance for loan losses due to a 100% SBA guarantee. The outstanding balance is considered current at June 30, 2020.

The changes in the allowance for loan losses account by major classification of loan for the three and six months ended June 30, 2020 and 2019 are summarized as follows:


			Real estate
June 30, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2020	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686
Charge-offs		(335)		(47)		(81)		(154)		(617)
Recoveries		31				3		54		88
Provisions		822		895		21		62		1,800
Ending balance	$	8,487	$	13,855	$	3,567	$	1,048	$	26,957

			Real estate
June 30, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance April 1, 2019	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
Charge-offs		(10)		(343)		(143)		(80)		(576)
Recoveries		2				12		37		51
Provisions		195		311		(134)		(22)		350
Ending balance	$	6,142	$	11,042	$	3,615	$	1,131	$	21,930


			Real estate
June 30, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2020	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(985)		(47)		(135)		(248)		(1,415)
Recoveries		298				13		84		395
Provisions		2,286		2,406		463		145		5,300
Ending balance	$	8,487	$	13,855	$	3,567	$	1,048	$	26,957

			Real estate
June 30, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(87)		(349)		(302)		(212)		(950)
Recoveries		10				16		75		101
Provisions		703		655		9		33		1,400
Ending balance	$	6,142	$	11,042	$	3,615	$	1,131	$	21,930

The Company's allowance for loan losses increased $4.3 million or 18.9% in 2020, due largely to the adjustment of qualitative factors in our allowance for loan losses methodology, which reflect current economic decline due to COVID-19's adverse impact on economic and business operating conditions.

The allocation of the allowance for loan losses and the related loans by major classifications of loans at June 30, 2020 and December 31, 2019 is summarized as follows:


			Real estate
June 30, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,487	$	13,855	$	3,567	$	1,048	$	26,957
Ending balance: individually evaluated for impairment		1,339		239		163				1,741
Ending balance: collectively evaluated for impairment	$	7,148	$	13,616	$	3,404	$	1,048	$	25,216
Loans receivable:
Ending balance	$	694,551	$	1,099,818	$	297,880	$	89,660	$	2,181,909
Ending balance: individually evaluated for impairment		5,408		4,490		1,925		160		11,983
Ending balance: collectively evaluated for impairment	$	689,143	$	1,095,328	$	295,955	$	89,500	$	2,169,926



			Real estate
December 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Ending balance: individually evaluated for impairment		363		279		135				777
Ending balance: collectively evaluated for impairment	$	6,525	$	11,217	$	3,091	$	1,067	$	21,900
Loans receivable:
Ending balance	$	522,957	$	1,011,423	$	301,378	$	102,482	$	1,938,240
Ending balance: individually evaluated for impairment		4,658		3,048		2,153		261		10,120
Ending balance: collectively evaluated for impairment	$	518,299	$	1,008,375	$	299,225	$	102,221	$	1,928,120

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. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

●

Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor 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 of 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 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 be affected in the future.

The following tables present the major classification 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, 2020 and December 31, 2019:


			Special
June 30, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	677,234	$	10,915	$	6,402	$	$	694,551
Real estate:
Commercial		1,083,864		6,606		9,348			1,099,818
Residential		294,627				3,253			297,880
Consumer		89,483				177			89,660
Total	$	2,145,208	$	17,521	$	19,180	$	$	2,181,909


			Special
December 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	513,994	$	3,837	$	5,126	$	$	522,957
Real estate:
Commercial		993,645		2,508		15,270			1,011,423
Residential		298,449		597		2,332			301,378
Consumer		102,145				337			102,482
Total	$	1,908,233	$	6,942	$	23,065	$	$	1,938,240

The increase in special mention loans from December 31, 2019 to June 30, 2020 is primarily associated with the reclassification of one large commercial real estate credit and two large commercial credits. The commercial real estate credit totaled $3.8 million and was downgraded to special mention due to the loss of major tenants. The commercial credits relate to a $6.8 million relationship which is experiencing short-term cash flow issues while the other credit totaling $2.1 million has experienced financial difficulties directly related to COVID-19. The decrease to substandard loans resulted from the payoff of a $5.1 million commercial real estate construction loan that had experienced significant construction delays.

Information concerning nonaccrual loans by major loan classification at June 30, 2020 and December 31, 2019 is summarized as follows:


		June 30, 2020		December 31, 2019
Commercial	$	5,443	$	3,336
Real estate:
Commercial		3,109		2,765
Residential		1,135		1,148
Consumer		160		261
Total	$	9,847	$	7,510

The major classifications of loans by past due status are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
June 30, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	329	$	351	$	5,468	$	6,148	$	688,403	$	694,551	$	25
Real estate:
Commercial		575		234		3,149		3,958		1,095,860		1,099,818		40
Residential		80		150		1,361		1,591		296,289		297,880		226
Consumer		229		66		160		455		89,205		89,660
Total	$	1,213	$	801	$	10,138	$	12,152	$	2,169,757	$	2,181,909	$	291

The Company implemented a customer payment deferral program to assist both consumer and business borrowers that may be experiencing financial hardship due to COVID-19 related challenges. On March 22, 2020, the federal bank regulatory agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.” This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19. The guidance goes on to explain that, in consultation with the FASB staff, the federal bank regulatory agencies concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs. Section 4013 of the CARES Act also addresses COVID-19 related modifications and specifies that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs. Through June 30, 2020, the Company granted payment deferral requests for up to six months on 479 commercial loans with outstanding balances of $306,770 and on 512 consumer loans with outstanding balances of $23,349. In accordance with Section 4013 of the CARES Act and the interagency statement, we have not accounted for such loans as TDRs, nor have we designated them as past due or nonaccrual.

The increase in the greater than 90 day category was due to an increase in nonaccrual loans which are included in the category. Three large commercial loans were added to non-accrual. All three loans have been individually measured for impairment and have specific reserves allocated.


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	75			$	3,036	$	3,111	$	519,846	$	522,957
Real estate:
Commercial		926	$	175		2,765		3,866		1,007,557		1,011,423
Residential		2,164		1,227		1,526		4,917		296,461		301,378	$	378
Consumer		523		123		261		907		101,575		102,482
Total	$	3,688	$	1,525	$	7,588	$	12,801	$	1,925,439	$	1,938,240	$	378

The following tables summarize information concerning impaired loans as of and for the three and six months ended June 30, 2020 and June 30, 2019, and as of and for the year ended December 31, 2019 by major loan classification:


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2020	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	2,921	$	3,480			$	3,314	$	9	$	3,422	$	25
Real estate:
Commercial		2,042		2,606				2,153		17		2,074		22
Residential		1,115		1,273				1,122		5		1,321		10
Consumer		160		178				181				207
Total		6,238		7,537				6,770		31		7,024		57
With an allowance recorded:
Commercial		2,487		2,516		1,339		2,222				1,821		6
Real estate:
Commercial		2,448		2,774		239		1,856				1,614
Residential		810		878		163		758		3		650		7
Consumer
Total		5,745		6,168		1,741		4,836		3		4,085		13
Total impaired loans
Commercial		5,408		5,996		1,339		5,536		9		5,243		31
Real estate:
Commercial		4,490		5,380		239		4,009		17		3,688		22
Residential		1,925		2,151		163		1,880		8		1,971		17
Consumer		160		178				181				207
Total	$	11,983	$	13,705	$	1,741	$	11,606	$	34	$	11,109	$	70


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,638	$	4,175			$	3,907	$	63
Real estate:
Commercial		1,918		2,205				2,385		38
Residential		1,718		2,060				1,362		25
Consumer		261		274				233
Total		7,535		8,714				7,887		126
With an allowance recorded:
Commercial		1,020		1,038		363		1,012		32
Real estate:
Commercial		1,130		1,811		279		1,050		10
Residential		435		450		135		1,408		29
Consumer								20
Total		2,585		3,299		777		3,490		71
Total impaired loans
Commercial		4,658		5,213		363		4,919		95
Real estate:
Commercial		3,048		4,016		279		3,435		48
Residential		2,153		2,510		135		2,770		54
Consumer		261		274				253
Total	$	10,120	$	12,013	$	777	$	11,377	$	197


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
June 30, 2019	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	4,495	$	4,931			$	5,284	$	17	$	4,043	$	34
Real estate:
Commercial		2,957		3,116				2,528		10		2,341		23
Residential		619		888				740		4		1,150		11
Consumer		251		261				245				214
Total		8,322		9,196				8,797		31		7,748		68
With an allowance recorded:
Commercial		1,420		1,432	$	615		1,180		5		1,012		12
Real estate:
Commercial		910		1,380		216		1,174		5		1,166		10
Residential		1,661		1,740		295		1,848		7		1,932		18
Consumer												20
Total		3,991		4,552		1,126		4,202		17		4,130		40
Total impaired loans
Commercial		5,915		6,363		615		6,464		22		5,055		46
Real estate:
Commercial		3,867		4,496		216		3,702		15		3,507		33
Residential		2,280		2,628		295		2,588		11		3,082		29
Consumer		251		261				245				234
Total	$	12,313	$	13,748	$	1,126	$	12,999	$	48	$	11,878	$	108

Loan Modifications/Troubled Debt Restructurings/COVID-19

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $3,168 at June 30 2020, $2,193 at December 31, 2019 and $2,677 at June 30, 2019.

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.

●

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.

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:


		2020

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
			Pre-Modification	Post-Modification				Pre-Modification		Post-Modification
	Number	Recorded		Recorded		Number		Recorded		Recored
	of Loans	Investment		Investment		of Loans		Investment		Investment
Commercial real estate	3	$	1,073	$	1,073	3	$	1,073	$	1,073
Commercial and industrial	1		12		12	1		12		12
Total	4	$	1,085	$	1,085	4	$	1,085	$	1,085

2019

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Pre-Modification

Post-Modification

Pre-Modification

Post-Modification

Number

Recorded

Number

Recorded

Recored

of Loans

Investment

of Loans

Investment

Commercial real estate

340

300

Total

340

300

During the six months ended June 30, 2020, there was one payment default on a residential real estate loan in the amount of $52 and there were no payment defaults on troubled debt restructurings. During the three and six months ended June 30, 2019, there were payment defaults on two restructured commercial real estate loans with balances totaling $335 which were subsequently charged-off.

The Company has received a significant number of requests to modify loan terms and/or defer principal and/or interest payments, and has agreed to many such deferrals or are in the process of doing so. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019, will be considered current for COVID-19 modifications. A financial institution can then use FASB agreed upon temporary changes to GAAP for loan modifications related to

COVID-19 that would otherwise be categorized as a troubled debt restructuring (TDR), and suspend any determination of a loan modified as a result of COVID-19 being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, FASB has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

Beginning in March 2020, the Company began receiving requests for temporary modifications to the repayment structure for borrower loans. As of June 30, 2020, the Company had 479 commercial loan and 512 consumer loan temporary modifications with principal balances totaling $330,119. As of July 30, 2020, 481 commercial loans and 505 consumer loans were on deferral with principal balances of $330,135.

The following table provides information as of June 30, 2020 with respect to the Company’s payment deferrals granted on commercial loans by North American Industry Classification System (“NAICS”) categories:


NAICS category	Number of Loans		Balance	Percentage of Total Loan Portfolio		Percentage of Tier 1 Capital (Bank)
Lessors of Nonresidential Buildings	65	$	71,899	3.3	%	26.9	%
Lessors of Residential Buildings and Dwellings	64		53,564	2.5		19.9
Hotels and Motels	27		39,261	1.8		14.5
Full-Service Restaurants	33		27,783	1.3		10.3
Limited-Service Restaurants	8		11,829	0.5		4.4
Gasoline Stations with Convenience Stores	18		12,422	0.6		4.6
Construction and Mining	13		9,718	0.4		3.6
Assisted Living Facilities for the Elderly	2		6,319	0.3		2.3
Colleges, Universities, and Professional Schools	1		6,301	0.3		2.3
All Others	248		67,674	3.1		24.9
	479	$	306,770	14.1	%	113.7	%