Loans and Related Allowance for Loan Losses

3 Months Ended

Mar. 31, 2021

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

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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.

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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.

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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, nor were there any payment defaults under existing TDRs. The Bank had no significant commitments to lend additional funds to TDR borrowers.