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Loans, net and allowance for loan losses

12 Months Ended

Dec. 31, 2022

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, 2022 and 2021 are summarized as follows. Net deferred loan fees of $0.3 million and $1.6 million are included in loan balances at December 31, 2022 and 2021, respectively. The decrease in deferred loan fees is due in part to PPP forgiveness during 2022. Net deferred loan origination fees remaining related to PPP loans is $0.2 million at December 31, 2022.

Included in the commercial balances at December 31, 2022 are PPP loans that had an outstanding balance at December 31, 2022 of $22.3 million comprised of $10.9 million remaining from those originated during 2021 as part of round two and $11.4 million 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 percent SBA guarantee. The outstanding balance is considered current at December 31, 2022.



(Dollars in thousands)		December 31, 2022	December 31, 2021
Commercial
Taxable	$	377,215	$	424,455
Non-taxable		222,043		188,672
Total		599,258		613,127
Real estate
Commercial		1,709,827		1,343,539
Residential		330,728		297,624
Total		2,040,555		1,641,163
Consumer
Indirect Auto		76,461		65,791
Consumer Other		13,842		9,092
Total		90,303		74,883
Total	$	2,730,116	$	2,329,173

Loans outstanding to directors, executive officers, principal stockholders or to their affiliates totaled $3.2 million at December 31, 2022 and 2021. Advances and new loans during 2022 totaled $1.1 million and $4.8 million during 2021. Payoffs and pay downs totaled $1.1 million and $6.6 million in 2022 and 2021, respectively. There were no related party loans that were classified as nonaccrual, past due, or restructured at December 31, 2022 and 2021.

Deposits from related parties amounted to $6.8 million at December 31, 2022 and $10.9 million at December 31, 2021.

At December 31, 2022, 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, 2022, 2021, and 2020 were as follows:


	December 31, 2022
			Real estate
(Dollars in thousands)	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning balance	$	8,453	$	15,928	$	3,209	$	793	$	28,383
Charge-offs		(161)		(284)		(31)		(311)		(787)
Recoveries		40		110		4		171		325
Provisions (credits)		(2,720)		2,161		(110)		220		(449)
Ending balance	$	5,612	$	17,915	$	3,072	$	873	$	27,472
Ending balance: individually evaluated for impairment		19				21				40
Ending balance: collectively evaluated for impairment	$	5,593	$	17,915	$	3,051	$	873	$	27,432
Loans receivable:
Ending balance	$	599,258	$	1,709,827	$	330,728	$	90,303	$	2,730,116
Ending balance: individually evaluated for impairment		98		2,063		1,760				3,921
Ending balance: collectively evaluated for impairment	$	599,160	$	1,707,764	$	328,968	$	90,303	$	2,726,195


	December 31, 2021
			Real estate
(Dollars in thousands)	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		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


	December 31, 2020
			Real estate
(Dollars in thousands)	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 (credit)		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

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, 2022 and 2021:


	December 31, 2022
			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	590,621	$	7,822	$	815	$	$	599,258
Real estate:
Commercial		1,699,041		7,509		3,277			1,709,827
Residential		329,098				1,630			330,728
Consumer		90,020				283			90,303
Total	$	2,708,780	$	15,331	$	6,005	$	$	2,730,116


	December 31, 2021
			Special
(Dollars in thousands)	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

The increase to special mention commercial loans from December 31, 2022 to December 31, 2021 is primarily the result of the downgrade of one credit with an outstanding balance of $7.8 million, due to insufficient cash flows as the borrower’s operations have not stabilized in the anticipated timeframe. The decrease to special mention commercial real estate loans is due in part to an upgrade of a $3.5 million credit resulting from improved financial performance and satisfactory repayment history and the payoff of a $2.4 million credit. Substandard residential real estate loans decreased $0.7 million primarily due to the payoff of a $0.5 million credit.

Information concerning nonaccrual loans by major loan classification at December 31, 2022 and 2021 is summarized as follows:


(Dollars in thousands)		December 31, 2022		December 31, 2021
Commercial	$	86	$	185
Real estate:
Commercial		1,155		1,793
Residential		562		694
Consumer		232		139
Total	$	2,035	$	2,811

Total nonperforming loans decreased $0.8 million to $2.0 million at December 31, 2022 from $2.8 million at December 31, 2021 as a result of lower nonaccrual commercial real estate loans. The decrease in nonperforming loans was due to the sale of a pool of commercial and residential nonaccrual loans with a book balance of $0.9 million. The sale resulted in a $0.1 million charge to the allowance for loan losses.

The major classification of loans by past due status at December 31, 2022 and 2021 are summarized as follows:


	December 31, 2022
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	137	$	38	$	86	$	261	$	598,997	$	599,258	$
Real estate:
Commercial		102		2		334		438		1,709,389		1,709,827
Residential		1,162		128		988		2,278		328,450		330,728		748
Consumer		690		199		120		1,009		89,294		90,303
Total	$	2,091	$	367	$	1,528	$	3,986	$	2,726,130	$	2,730,116	$	748


	December 31, 2021
					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
(Dollars in thousands)	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

Total past due loans at December 31, 2021 decreased $1.2 million to $4.0 million from $5.2 million the prior year as a result of lower commercial real estate delinquencies.

The amount of residential loans in the formal process of foreclosure totaled $0.6 million at December 31, 2022 and $0.3 million at December 31, 2021.

The following tables summarize information concerning impaired loans as of and for the years ended December 31, 2022, 2021 and 2020 by major loan classification:


	December 31, 2022
							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	78	$	421	$		$	119	$	7
Real estate:
Commercial		2,063		2,654				2,753		59
Residential		1,520		1,733				1,036		28
Consumer		232		244				218
Total		3,893		5,052				4,126		94
With an allowance recorded:
Commercial		20		20		19		27		2
Real estate:
Residential		240		244		21		286		12
Total		260		264		40		313		14
Total impaired loans
Commercial		98		441		19		146		9
Real estate:
Commercial		2,063		2,654				2,753		59
Residential		1,760		1,977		21		1,322		40
Consumer		232		244				218
Total	$	4,153	$	5,316	$	40	$	4,439	$	108


	December 31, 2021
							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	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


	December 31, 2020
							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(Dollars in thousands)	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

The amounts of interest income recognized using the cash-basis method on impaired loans for the years ended December 31, 2022, 2021 and 2020 were $0.1 million, $0.1 million and $0.1 million, respectively.

Included in the commercial loan, commercial real estate and residential real estate categories are troubled debt restructurings (TDRs) that were classified as impaired. TDRs totaled $1.4 million and $1.6 million at December 31, 2022 and 2021, respectively. The decrease in TDR balances is due primarily to $0.2 million in payoffs and pay downs during the year.

There were no loans modified in 2022 or 2021 that resulted in TDRs. There were four loans modified in 2020. 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, 2020.


	December 31, 2020
		Pre-Modification		Post-Modification
	Number	Outstanding Recorded		Outstanding		Recorded
(Dollars in thousands except number of contracts)	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

There were no payment defaults within 12 months of its modification on loans considered TDRs for the years ended December 31, 2022, December 31, 2021 and December 31, 2020.