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Loans, net and allowance for loan losses

9 Months Ended

Sep. 30, 2021

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 September 30, 2021 and December 31, 2020 are summarized as follows. The Company had net deferred loan origination fees of $1,785 and

$2,058 at September 30, 2021 and December 31, 2020, respectively. Net deferred loan origination fees remaining related to PPP loans is $2,283 at September 30, 2021, compared to $2,921 at December 31, 2020.


		September 30, 2021		December 31, 2020
Commercial	$	588,466	$	679,286
Real estate:
Commercial		1,248,693		1,137,990
Residential		291,404		277,414
Consumer		77,098		83,292
Total	$	2,205,661	$	2,177,982

The PPP loans are included in the commercial loan classification and had an outstanding balance at September 30, 2021 of $83,521 comprised of $69,284 remaining from those originated during 2021 as part of round two and $14,237 remaining from loans originated during 2020 under round one of the program. At December 31,2020, PPP loans originated during 2020 had outstanding balances totaling $189,699. 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 September 30, 2021 and December 31, 2020.

The changes in the allowance for loan losses account by major classification of loan for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:


			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2021	$	8,520	$	14,281	$	3,069	$	869	$	26,739
Charge-offs		(446)		(12)				(8)		(466)
Recoveries		4		1				15		20
Provisions (credits)		(164)		519		92		(47)		400
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

			Real estate
September 30, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance July 1, 2020	$	8,487	$	13,855	$	3,567	$	1,048	$	26,957
Charge-offs		(1,354)		(66)		(71)		(51)		(1,542)
Recoveries		51		14		9		45		119
Provisions (credits)		1,271		(5)		(159)		(57)		1,050
Ending balance	$	8,455	$	13,798	$	3,346	$	985	$	26,584


			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2021	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(461)		(252)		(24)		(114)		(851)
Recoveries		83		67		2		48		200
Provisions (credits)		(442)		415		54		(27)
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693

			Real estate
September 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		(2,339)		(113)		(206)		(299)		(2,957)
Recoveries		349		14		22		129		514
Provisions		3,557		2,401		304		88		6,350
Ending balance	$	8,455	$	13,798	$	3,346	$	985	$	26,584

The allocation of the allowance for loan losses and the related loans by major classifications of loans at September 30, 2021 and December 31, 2020 is summarized as follows:


			Real estate
September 30, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	7,914	$	14,789	$	3,161	$	829	$	26,693
Ending balance: individually evaluated for impairment		18		107		41				166
Ending balance: collectively evaluated for impairment	$	7,896	$	14,682	$	3,120	$	829	$	26,527
Loans receivable:
Ending balance	$	588,466	$	1,248,693	$	291,404	$	77,098	$	2,205,661
Ending balance: individually evaluated for impairment		1,058		3,094		1,431		82		5,665
Ending balance: collectively evaluated for impairment	$	587,408	$	1,245,599	$	289,973	$	77,016	$	2,199,996



			Real estate
December 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Ending balance: individually evaluated for impairment		947		180		75				1,202
Ending balance: collectively evaluated for impairment	$	7,787	$	14,379	$	3,054	$	922	$	26,142
Loans receivable:
Ending balance	$	679,286	$	1,137,990	$	277,414	$	83,292	$	2,177,982
Ending balance: individually evaluated for impairment		4,297		3,952		1,546		111		9,906
Ending balance: collectively evaluated for impairment	$	674,989	$	1,134,038	$	275,868	$	83,181	$	2,168,076

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 September 30, 2021 and December 31, 2020:


			Special
September 30, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	584,020	$	2,889	$	1,557	$	$	588,466
Real estate:
Commercial		1,229,908		13,013		5,772			1,248,693
Residential		288,389		338		2,677			291,404
Consumer		77,016				82			77,098
Total	$	2,179,333	$	16,240	$	10,088	$	$	2,205,661


			Special
December 31, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	660,559	$	14,305	$	4,422	$	$	679,286
Real estate:
Commercial		1,107,699		17,517		12,774			1,137,990
Residential		274,327		144		2,943			277,414
Consumer		83,215				77			83,292
Total	$	2,125,800	$	31,966	$	20,216	$	$	2,177,982

The decrease to special mention commercial loans is due to a payoff of a $12.9 million municipal related credit. The decrease in special mention commercial real estate loans resulted primarily from an upgrade to a $5.3 million credit due to a credit enhancement and satisfactory repayment history. The decrease to substandard commercial loans resulted primarily from a $1.5 million relationship that was paid off during the nine month period ended September 30, 2021. The decrease in substandard commercial real estate loans resulted from a refinance of a credit related to the hospitality industry that is secured by a seventy-five percent SBA guarantee.

Information concerning nonaccrual loans by major loan classification at September 30, 2021 and December 31, 2020 is summarized as follows:


		September 30, 2021		December 31, 2020
Commercial	$	648	$	3,822
Real estate:
Commercial		2,435		3,262
Residential		809		922
Consumer		82		111
Total	$	3,974	$	8,117

The decrease to non-accrual loans since year end was due primarily to a $1.5 million payoff and $1.0 million payoff of two unrelated commercial relationships, a $0.5 million total charge-off of a small business line of credit and a $0.5 million commercial real estate loan transferred to other real estate owned.

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
September 30, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	62	$	47	$	648	$	757	$	587,709	$	588,466
Real estate:
Commercial		612		311		2,465		3,388		1,245,305		1,248,693	$	30
Residential		317		302		857		1,476		289,928		291,404		48
Consumer		450		78		82		610		76,488		77,098
Total	$	1,441	$	738	$	4,052	$	6,231	$	2,199,430	$	2,205,661	$	78

Improved credit quality resulted in lower levels of past due loans from year end.


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	73			$	3,822	$	3,895	$	675,391	$	679,286
Real estate:
Commercial		344	$	134		3,262		3,740		1,134,250		1,137,990
Residential		2,072		480		993		3,545		273,869		277,414	$	71
Consumer		374		63		111		548		82,744		83,292
Total	$	2,863	$	677	$	8,188	$	11,728	$	2,166,254	$	2,177,982	$	71

The following tables summarize information concerning impaired loans as of and for the three and nine months ended September 30, 2021 and September 30, 2020, and as of and for the year ended December 31, 2020 by major loan classification:


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	634	$	1,097			$	870	$	2	$	1,166	$	9
Real estate:
Commercial		2,560		3,275				2,785		4		2,805		19
Residential		991		1,184				999		5		1,051		15
Consumer		82		96				79				91
Total		4,267		5,652				4,733		11		5,113		43
With an allowance recorded:
Commercial		424		424	$	18		695		5		1,354		15
Real estate:
Commercial		534		564		107		604		4		875		14
Residential		440		446		41		450		3		445		10
Consumer
Total		1,398		1,434		166		1,749		12		2,674		39
Total impaired loans
Commercial		1,058		1,521		18		1,565		7		2,520		24
Real estate:
Commercial		3,094		3,839		107		3,389		8		3,680		33
Residential		1,431		1,630		41		1,449		8		1,496		25
Consumer		82		96				79				91
Total	$	5,665	$	7,086	$	166	$	6,482	$	23	$	7,787	$	82


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	2,251	$	3,421			$	2,915	$	30
Real estate:
Commercial		2,372		2,964				2,148		28
Residential		1,086		1,263				1,223		21
Consumer		111		121				167
Total		5,820		7,769				6,453		79
With an allowance recorded:
Commercial		2,046		2,094		947		2,038		17
Real estate:
Commercial		1,580		1,710		180		1,687		36
Residential		460		482		75		624		13
Consumer
Total		4,086		4,286		1,202		4,349		66
Total impaired loans
Commercial		4,297		5,515		947		4,953		47
Real estate:
Commercial		3,952		4,674		180		3,835		64
Residential		1,546		1,745		75		1,847		34
Consumer		111		121				167
Total	$	9,906	$	12,055	$	1,202	$	10,802	$	145


							This Quarter				Year-to-Date
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
September 30, 2020	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance:
Commercial	$	2,060	$	3,032			$	2,491	$	3	$	3,081	$	28
Real estate:
Commercial		2,146		2,749				2,094		3		2,092		25
Residential		1,068		1,219				1,092		5		1,258		15
Consumer		103		119				132				181
Total		5,377		7,119				5,809		11		6,612		68
With an allowance recorded:
Commercial		2,679		2,713	$	1,113		2,583		6		2,036		12
Real estate:
Commercial		2,015		2,254		179		2,232		18		1,714		18
Residential		711		795		92		761		3		666		10
Consumer
Total		5,405		5,762		1,384		5,576		27		4,416		40
Total impaired loans
Commercial		4,739		5,745		1,113		5,074		9		5,117		40
Real estate:
Commercial		4,161		5,003		179		4,326		21		3,806		43
Residential		1,779		2,014		92		1,853		8		1,924		25
Consumer		103		119				132				181
Total	$	10,782	$	12,881	$	1,384	$	11,385	$	38	$	11,028	$	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 $2,560 at September 30, 2021, $2,818 at December 31, 2020 and $3,004 at September 30, 2020.

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.

There were no loans modified as troubled debt restructurings during the three and nine months ended September 30, 2021. The following table provides the number of loans modified in a trouble debt restructuring and the pre- and post-modification recorded during the three and nine months ended September 30, 2020.



	For the Three Months Ended September 30, 2020				For the Nine Months Ended September 30, 2020
			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
Commercial and industrial					1		12		12
Total		$		$	4	$	1,085	$	1,085

During the three and nine months ended September 31, 2021, there were no payment defaults on troubled debt restructurings. During the three and nine months ended September 30, 2020, there was one payment default on a residential real estate loan in the amount of $52.

The Company received a significant number of requests to modify loan terms and/or defer principal and/or interest payments, and agreed to many such deferrals during 2020. The federal banking regulators issued guidance and encouraged banks to work prudently with, and provide short-term payment accommodations to borrowers affected by COVID-19. Section 4013 of the CARES Act includes a provision for the Company to opt out of applying the troubled debt restructuring (“TDR”) guidance for certain loan modifications and specified that such modifications made on loans that were current as of December 31, 2019 do not need to be classified as TDRs. Peoples applied this guidance. Similarly, FASB 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 COVID-19 related requests for temporary modifications to the repayment structure for borrower loans. As of September 30, 2021, all loans have returned to original repayment terms.