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Loans, net and allowance for loan losses

12 Months Ended

Dec. 31, 2021

Loans, net and allowance for loan losses

Loans, net and allowance for loan losses

4. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at December 31, 2021 and 2020 are summarized as follows. Net deferred loan fees of $1,567 and $2,058 are included in loan balances at December 31, 2021 and 2020, respectively. The decrease in deferred loan fees is due in part to PPP forgiveness during 2021. Net deferred loan origination fees remaining related to PPP loans is $1,659 at December 31, 2021. Included in the commercial balances at December 31, 2021 are PPP loans that had an outstanding balance at December 31, 2021 of $68,893 comprised of $55,252 remaining from those originated during 2021 as part of round two and $13,641 remaining from loans originated during 2020 under round one of the program. 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 December 31, 2021.


December 31	2021		2020
Commercial	$	613,127	$	679,286
Real estate:
Commercial		1,343,539		1,137,990
Residential		297,624		277,414
Consumer		74,883		83,292
Total	$	2,329,173	$	2,177,982

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $3,173 and $5,031 at December 31, 2021and 2020, respectively. The decrease in loans outstanding is due to loan balances related to one former director who retired in 2021. Advances and repayments and other changes during 2021 totaled $4,824 and $6,682, respectively, and during 2020 totaled $3,747 and $5,574, respectively. There were no related party loans that were classified as nonaccrual, past due, or restructured at December 31, 2021 and 2020.

Deposits from related parties amounted to $10.9 million at December 31, 2021 and $9.0 million at December 31, 2020.

At December 31, 2021, the majority of the Company’s loans were at least partially secured by real estate in the markets we operate in. Therefore, a primary concentration of credit risk is directly related to the real estate market in these regions. Changes in the general economy, local economy or in the real estate market could affect the ultimate collectability of this portion of the loan portfolio. Management does not believe there are any other significant concentrations of credit risk that could affect the loan portfolio.

The changes in the allowance for loan losses account by major classification of loan for the year ended December 31, 2021, 2020, and 2019 were as follows:


			Real estate
December 31, 2021	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	8,734	$	14,559	$	3,129	$	922	$	27,344
Charge-offs		(492)		(252)		(24)		(188)		(956)
Recoveries		89		68		7		81		245
Provisions (credits)		122		1,553		97		(22)		1,750
Ending balance	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Ending balance: individually evaluated for impairment		40		109		26				175
Ending balance: collectively evaluated for impairment	$	8,413	$	15,819	$	3,183	$	793	$	28,208
Loans receivable:
Ending balance	$	613,127	$	1,343,539	$	297,624	$	74,883	$	2,329,173
Ending balance: individually evaluated for impairment		199		2,890		1,273				4,362
Ending balance: collectively evaluated for impairment	$	612,928	$	1,340,649	$	296,351	$	74,883	$	2,324,811

The allowance for loan losses increased $1.1 million to $28.4 million at December 31, 2021, from $27.3 million at the end of 2020. The increase resulted from a provision for loan losses of $1.8 million less net loans charged-off of $0.7 million. The allowance for loan losses at December 31, 2021 continued to reflect the provisions added during 2020 from our adjustment of qualitative factors in our allowance for loan losses methodology, due to economic decline and expectation of increased credit losses from COVID-19's adverse impact on economic and business operating conditions. The decrease to charge-offs in 2021 is due to improved credit quality. The 2021 period includes the total charge-off of a fully allocated small-business line of credit originated in our Greater Delaware Valley market totaling $0.4 million. During 2020, $0.9 million was charged-off related to small-business lines of credit originated in our Greater Delaware Valley market offset by $0.2 million of recoveries.


			Real estate
December 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(2,771)		(144)		(247)		(317)		(3,479)
Recoveries		525		16		57		148		746
Provisions		4,092		3,191		93		24		7,400
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				9,795
Ending balance: collectively evaluated for impairment	$	674,989	$	1,134,038	$	275,868	$	83,292	$	2,168,187


			Real estate
December 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(3,314)		(817)		(477)		(459)		(5,067)
Recoveries		69		1		29		166		265
Provisions (credit)		4,617		1,576		(218)		125		6,100
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				9,859
Ending balance: collectively evaluated for impairment	$	518,299	$	1,008,375	$	299,225	$	102,482	$	1,928,381

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 December 31, 2021 and 2020:


			Special
December 31, 2021	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	611,151	$	896	$	1,080	$	$	613,127
Real estate:
Commercial		1,324,646		13,939		4,954			1,343,539
Residential		294,892		333		2,399			297,624
Consumer		74,744				139			74,883
Total	$	2,305,433	$	15,168	$	8,572	$	$	2,329,173


			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 from December 31, 2020 to December 31, 2021 is due primarily 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 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 December 31, 2021 and 2020 is summarized as follows:


		December 31, 2021		December 31, 2020
Commercial	$	185	$	3,822
Real estate:
Commercial		1,793		3,262
Residential		694		922
Consumer		139		111
Total	$	2,811	$	8,117

The major classification of loans by past due status at December 31, 2021 and 2020 are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2021	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	101	$	155	$	158	$	414	$	612,713	$	613,127
Real estate:
Commercial		768		423		834		2,025		1,341,514		1,343,539
Residential		1,552		207		265		2,024		295,600		297,624	$	13
Consumer		477		163		51		691		74,192		74,883
Total	$	2,898	$	948	$	1,308	$	5,154	$	2,324,019	$	2,329,173	$	13


					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			$	2,245	$	2,318	$	676,968	$	679,286
Real estate:
Commercial		414	$	222		2,362		2,998		1,134,992		1,137,990
Residential		2,072		480		732		3,284		274,130		277,414	$	71
Consumer		384		70		67		521		82,771		83,292
Total	$	2,943	$	772	$	5,406	$	9,121	$	2,168,861	$	2,177,982	$	71

The decrease to non-accrual loans from December 31, 2020 was due primarily to a $1.5 million payoff and $1.0 million payoff of two unrelated commercial relationships, a $0.4 million total charge-off of a small business line of credit, a $0.5 million commercial real estate loan transferred to other real estate owned, and a $0.5 restaurant related commercial real estate loan placed back on accrual due to satisfactory repayment and improved operations.

The amount of residential loans in the formal process of foreclosure totaled $285 at December 31, 2021 and $135 at December 31, 2020.

The following tables summarize information concerning impaired loans as of and for the years ended December 31, 2021, 2020 and 2019 by major loan classification:


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2021	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	158	$	481			$	964	$	13
Real estate:
Commercial		2,376		3,120				2,719		22
Residential		873		1,073				1,016		19
Consumer		139		148				100
Total		3,546		4,822				4,799		54
With an allowance recorded:
Commercial		41		41	$	40		1,091		15
Real estate:
Commercial		513		543		109		802		22
Residential		401		401		26		436		13
Consumer
Total		955		985		175		2,329		50
Total impaired loans
Commercial		199		522		40		2,055		28
Real estate:
Commercial		2,889		3,663		109		3,521		44
Residential		1,274		1,474		26		1,452		32
Consumer		139		148				100
Total	$	4,501	$	5,807	$	175	$	7,128	$	104


							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


							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

The amounts of interest income recognized using the cash-basis method on impaired loans for the years ended December 31, 2021, 2020 and 2019 were $100, $142 and $181, respectively.

Included in the commercial loan, commercial real estate and residential real estate categories are troubled debt restructurings that were classified as impaired. Trouble debt restructurings totaled $1,649 and $2,818 at December 31, 2021 and 2020 respectively. The decrease in trouble debt restructured balances is due primarily to a payoff of a $0.5 million commercial credit, and receipt of $0.4 million from the SBA for the guaranteed portion of a commercial loan.

There were no loans modified in 2021 that resulted in trouble debt restructurings (“TDRs”). There were four loans modified in 2020 and one loan modified in 2019 that resulted in TDRs. The four loans modified in 2020 were adversely impacted by COVID-19 and the economic slowdown and did not qualify for the CARES Act exclusion due to current and prior delinquencies. Two of the loans were to one restaurant and two of the loans were to retail related small businesses. The following tables summarize the loans whose terms have been modified resulting in TDRs during the year ended December 31, 2021 and 2020 and 2019.


		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2021	of Contracts	Investment		Recorded Investment		Investment
Commercial		$		$		$
Commercial real estate
Total		$		$		$

		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2020	of Contracts	Investment		Recorded Investment		Investment
Commercial	1	$	12	$	12	$	5
Commercial real estate	3	$	1,073	$	1,073	$	1,046
Total	4	$	1,085	$	1,085	$	1,051

		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
December 31, 2019	of Contracts	Investment		Recorded Investment		Investment
Commercial real estate	1	$	346	$	346	$	241

There were no payment defaults within 12 months of its modification on loans considered TDRs for the years ended December 31, 2021, December 31, 2020 and December 31, 2019.

The Company received a significant number of requests to modify loan terms and/or defer principal and/or interest payments from borrowers affected by COVID-19, and had agreed to many such deferrals. 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 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. The payment modifications granted included principal only payments and principal and interest deferrals and generally ranged from 90 to 180 days. The modified loans were not considered past due unless the modified payment was delinquent. 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. During 2020, the Company made a total of 479 commercial loan and 512 consumer loan temporary modifications with principal balances totaling $330,119. At December 31, 2021, all loans have returned to original payment terms.