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Loans

9 Months Ended

Sep. 30, 2020

Note 4—Loans

Loans summarized by category as of September 30, 2020, December 31, 2019 and September 30, 2019 are as follows:

	September 30,		December 31,		September 30,
(Dollars in thousands)	2020		2019		2019
Commercial, financial and agricultural	$	108,006	$	51,805	$	55,169
Real estate:
Construction		89,250		73,512		58,737
Mortgage-residential		49,215		45,357		47,693
Mortgage-commercial		561,932		527,447		534,554
Consumer:
Home equity		27,618		28,891		29,103
Other		8,439		10,016		9,818
Total	$	844,460	$	737,028	$	735,074

Commercial, financial, and agricultural category includes $49.8 million in PPP loans as of September 30, 2020.

Note 4—Loans-continued

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the three months ended and nine months ended September 30, 2020 and September 30, 2019 and for the year ended December 31, 2019 is as follows:

(Dollars in thousands)
							Real estate		Real estate			Consumer
				Real estate			Mortgage		Mortgage			Home		Consumer
	Commercial			Construction			Residential		Commercial			equity		Other			Unallocated			Total
Three months ended September 30, 2020
Allowance for loan losses:
Beginning balance June 30, 2020	$	769		$	165		$	497	$	6,469		$	293	$	132		$	611		$	8,936
Charge-offs		—			(2	)		—		(1	)		—		(22	)		—			(25	)
Recoveries		118			2			—		4			1		15			—			140
Provision for loan losses		(59	)		12			96		982			36		(2	)		(3	)		1,062
Ending balance September 30, 2020	$	828		$	177		$	593	$	7,454		$	330	$	123		$	608		$	10,113

Note 4—Loans-continued

(Dollars in thousands)
						Real estate		Real estate			Consumer
			Real estate			Mortgage		Mortgage			Home		Consumer
	Commercial		Construction			Residential		Commercial			equity		Other			Unallocated			Total
Nine months ended September 30, 2020
Allowance for loan losses:
Beginning balance December 31, 2019	$	427	$	111		$	367	$	4,602		$	240	$	97		$	783		$	6,627
Charge-offs		—		(2	)		—		(1	)		—		(70	)		—			(73	)
Recoveries		121		2			—		13			2		34			—			172
Provision for loan losses		280		66			226		2,840			88		62			(175	)		3,387
Ending balance September 30, 2020	$	828	$	177		$	593	$	7,454		$	330	$	123		$	608		$	10,113

Ending balances:
Individually evaluated for impairment	$	—	$	—		$	—	$	3		$	—	$	—		$	—		$	3

Collectively evaluated for impairment		828		177			593		7,451			330		123			608			10,110

September 30, 2020 Loans receivable:
Ending balance-total	$	108,006	$	89,250		$	49,215	$	561,932		$	27,618	$	8,439		$	—		$	844,460

Ending balances:
Individually evaluated for impairment		—		—			327		2,850			47		—			—			3,224

Collectively evaluated for impairment	$	108,006	$	89,250		$	48,888	$	559,082		$	27,571	$	8,439		$	—		$	841,236

Note 4—Loans-continued

(Dollars in thousands)
						Real estate			Real estate			Consumer
				Real estate		Mortgage			Mortgage			Home			Consumer
	Commercial			Construction		Residential			Commercial			equity			Other			Unallocated			Total
Three months ended September 30, 2019
Allowance for loan losses:
Beginning balance June 30, 2019	$	435		$	77	$	404		$	4,458		$	247		$	101		$	640		$	6,362
Charge-offs		(6	)		—		—			—			—			(30	)		—			(3	)
Recoveries		—			—		—			180			14			15			—			209
Provision for loan losses		30			14		(19	)		(102	)		(20	)		9			(113	)		25
Ending balance September 30, 2019	$	459		$	91	$	385		$	4,536		$	241		$	95		$	753		$	6,560

Note 4—Loans-continued


						Real estate			Real estate			Consumer
				Real estate		Mortgage			Mortgage			Home			Consumer
	Commercial			Construction		Residential			Commercial			equity			Other			Unallocated		Total
Nine months ended September 30, 2019
Allowance for loan losses:
Beginning balance December 31, 2018	$	430		$	89	$	431		$	4,318		$	261		$	88		$	646	$	6,263
Charge-offs		(8	)		—		(7	)		—			(1	)		(96	)		—		(112	)
Recoveries		—			—		—			221			14			35			—		270
Provision for loan losses		37			2		(39	)		(3	)		(33	)		68			107		139
Ending balance September 30, 2019	$	459		$	91	$	385		$	4,536		$	241		$	95		$	753	$	6,560

Ending balances:
Individually evaluated for impairment	$	4		$	—	$	—		$	10		$	—		$	—		$	—	$	14

Collectively evaluated for impairment		455			91		385			4,526			241			95			753		6,546

September 30, 2019 Loans receivable:
Ending balance-total	$	55,169		$	58,737	$	47,693		$	534,554		$	29,103		$	9,818		$	—	$	735,074

Ending balances:
Individually evaluated for impairment		—			—		538			3,541			72			—			—		4,155

Collectively evaluated for impairment	$	55,165		$	58,737	$	47,155		$	531,013		$	29,031		$	9,818		$	—	$	730,919

Note 4—Loans-continued

(Dollars in thousands)
						Real estate			Real estate			Consumer
				Real estate		Mortgage			Mortgage			Home			Consumer
	Commercial			Construction		Residential			Commercial			equity			Other			Unallocated		Total
December 31, 2019
Allowance for loan losses:
Beginning balance December 31, 2018	$	430		$	89	$	431		$	4,318		$	261		$	88		$	646	$	6,263
Charge-offs		(12	)		—		(12	)		—			(1	)		(120	)		—		(145	)
Recoveries		3			—		—			307			15			45			—		370
Provision for loan losses		6			22		(52	)		(23	)		(35	)		84			137		139
Ending balance December 31, 2019	$	427		$	111	$	367		$	4,602		$	240		$	97		$	783	$	6,627

Ending balances:
Individually evaluated for impairment	$	—		$	—	$	—		$	6		$	—		$	—		$	—	$	6

Collectively evaluated for impairment		427			111		367			4,596			240			97			783		6,621

December 31, 2019 Loans receivable:
Ending balance-total	$	51,805		$	73,512	$	45,357		$	527,447		$	28,891		$	10,016		$	—	$	737,028

Ending balances:
Individually evaluated for impairment		400			—		392			3,135			70			—			—		3,997

Collectively evaluated for impairment	$	51,405		$	73,512	$	44,965		$	524,312		$	28,821		$	10,016		$	—	$	733,031

Related party loans and lines of credit are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability. The following table presents related party loan transactions for the nine months ended September 30, 2020 and September 30, 2019:

(Dollars in thousands)	2020		2019
Beginning Balance January 1	$	4,109	$	5,937
New Loans		86		111
Less loan repayments		775		1,804
Ending Balance September 30	$	3,420	$	4,244

The following table presents at September 30, 2020 and December 31, 2019 loans individually evaluated and considered impaired under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings (“TDRs”).

Note 4—Loans-continued

(Dollars in thousands)	September 30,		December 31,
	2020		2019
Total loans considered impaired	$	3,224	$	3,997
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance	$	144	$	256
Related allowance	$	3	$	6
Loans considered impaired and previously written down to fair value	$	2,426	$	2,275
Average impaired loans	$	3,524	$	4,431
Amount of interest earned during period of impairment	$	85	$	263

The following tables are by loan category and present at September 30, 2020, September 30, 2019 and December 31, 2019, loans individually evaluated and considered impaired under FASB ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing TDRs.

(Dollars in thousands)							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
September 30, 2020	Recorded		Principal		Related		Recorded		income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no allowance recorded:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		327		405		—		337		11		323		9
Mortgage-commercial		2,706		5,450		—		3,071		217		3,013		73
Consumer:
Home equity		47		51		—		50		2		46		1
Other		—		—		—		—		—		—		—

With an allowance recorded:
Commercial, financial, agricultural		—		—		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—
Mortgage-commercial		144		144		3		200		9		142		2
Consumer:
Home equity		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—

Total:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		327		405		—		337		11		323		9
Mortgage-commercial		2,850		5,594		3		3,271		226		3,155		75
Consumer:
Home equity		47		51		—		50		2		46		1
Other		—		—		—		—		—		—		—
	$	3,224		6,050	$	3	$	3,658	$	239	$	3,524	$	85

Note 4—Loans-continued

(Dollars in thousands)							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
September 30, 2019	Recorded		Principal		Related		Recorded		income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no allowance recorded:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		538		603		—		594		16		537		12
Mortgage-commercial		3,172		5,867		—		3,259		131		3,092		79
Consumer:
Home equity		72		74		—		76		2		71		1
Other		—		—		—		—		—		—		—

With an allowance recorded:
Commercial, financial, agricultural		4		4		4		4		—		4		—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—
Mortgage-commercial		369		369		10		421		19		326		6
Consumer:
Home equity		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—

Total:
Commercial, financial, agricultural	$	4	$	4	$	4	$	4	$	—	$	4	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		538		603		—		594		16		537		12
Mortgage-commercial		3,541		6,236		10		3,680		150		3,418		85
Consumer:
Home equity		72		74		—		76		2		71		1
Other		—		—		—		—		—		—		—
	$	4,155	$	6,917	$	14	$	4,354	$	168	$	4,030	$	98

Note 4—Loans-continued

(Dollars in thousands)
December 31, 2019			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	400	$	400	$	—	$	600	$	49
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		392		460		—		439		19
Mortgage-commercial		2,879		5,539		—		2,961		170
Consumer:
Home Equity		70		73		—		76		2
Other		—		—		—		—		—

With an allowance recorded:
Commercial		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		—		—		—		—		—
Mortgage-commercial		256		256		6		355		23
Consumer:
Home Equity		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		400		400		—		600		49
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		392		460		—		439		19
Mortgage-commercial		3,135		5,795		6		3,316		193
Consumer:
Home Equity		70		73		—		76		2
Other		—		—		—		—		—
	$	3,997	$	6,728	$	6	$	4,431	$	263

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Note 4—Loans-continued

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered as Pass rated loans. As of September 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below. As of September 30, 2020 and December 31, 2019, no loans were classified as doubtful.

(Dollars in thousands)
September 30, 2020			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	107,813	$	193	$	—	$	—	$	108,006
Real estate:
Construction		89,250		—		—		—		89,250
Mortgage – residential		48,448		197		570		—		49,215
Mortgage – commercial		554,270		4,466		3,196		—		561,932
Consumer:
Home Equity		26,204		98		1,316		—		27,618
Other		8,416		23		—		—		8,439
Total	$	834,401	$	4,977	$	5,082	$	—	$	844,460

(Dollars in thousands)
December 31, 2019			Special
	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	51,166	$	239	$	400	$	—	$	51,805
Real estate:
Construction		73,512		—		—		—		73,512
Mortgage – residential		44,221		509		627		—		45,357
Mortgage – commercial		521,072		2,996		3,379		—		527,447
Consumer:
Home Equity		27,450		1,157		284		—		28,891
Other		9,981		35		—		—		10,016
Total	$	727,402	$	4,936	$	4,690	$	—	$	737,028

At September 30, 2020 and December 31, 2019, non-accrual loans totaled $1.7 million and $2.3 million, respectively.

TDRs that are still accruing and included in impaired loans at September 30, 2020 and at December 31, 2019 amounted to $1.6 million and $1.7 million, respectively.

Loans greater than 90 days delinquent and still accruing interest were $33.7 thousand and $0.3 thousand at September 30, 2020 and December 31, 2019, respectively.

Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30 “Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality,” and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration are considered impaired. Loans acquired through business combinations that do not meet the specific criteria of FASB ASC Topic 310-30, but for which a discount is attributable, at least in part to credit quality, are also accounted for under this guidance. Certain acquired loans, including performing loans and revolving lines of credit (consumer and commercial), are accounted for in accordance with FASB ASC Topic 310-20, where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan.

Note 4—Loans-continued

A summary of changes in the accretable yield for purchased credit-impaired loans for the three months and nine months ended September 30, 2020 and September 30, 2019 follows:

(Dollars in thousands)	Three Months Ended September 30, 2020			Three Months Ended September 30, 2019

Accretable yield, beginning of period	$	108		$	138
Additions		—			—
Accretion		(7	)		(8	)
Reclassification of nonaccretable difference due to improvement in expected cash flows		—			—
Other changes, net		—			—
Accretable yield, end of period	$	101		$	130

(Dollars in thousands)	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019

Accretable yield, beginning of period	$	123		$	153
Additions		—			—
Accretion		(22	)		(23	)
Reclassification of nonaccretable difference due to improvement in expected cash flows		—			—
Other changes, net		—			—
Accretable yield, end of period	$	101		$	130

At September 30, 2020 and December 31, 2019, the recorded investment in purchased impaired loans was $110 thousand and $112 thousand, respectively. The unpaid principal balance was $176 thousand and $190 thousand at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020 and December 31, 2019, these loans were all secured by commercial real estate.

Note 4—Loans-continued

The following tables are by loan category and present loans past due and on non-accrual status as of September 30, 2020 and December 31, 2019:

(Dollars in thousands)					Greater than
	30-59 Days		60-89 Days		90 Days and				Total
September 30, 2020	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans

Commercial	$	19	$	—	$	—	$	1,282	$	1,301	$	106,705	$	108,006
Real estate:
Construction		158		—		—		—		158		89,092		89,250
Mortgage-residential		12		412		34		327		785		48,430		49,215
Mortgage-commercial		—		—		—		—		—		561,932		561,932
Consumer:
Home equity		10		—		—		47		57		27,561		27,618
Other		27		—		—		—		27		8,412		8,439
	$	226	$	412	$	34	$	1,656	$	2,328	$	842,132	$	844,460

(Dollars in thousands)					Greater than
	30-59 Days		60-89 Days		90 Days and				Total
December 31, 2019	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans

Commercial	$	—	$	99	$	—	$	400	$	499	$	51,306	$	51,805
Real estate:
Construction		113		—		—		—		113		73,399		73,512
Mortgage-residential		151		—		—		392		543		44,814		45,357
Mortgage-commercial		39		—		—		1,467		1,506		525,941		527,447
Consumer:
Home equity		2		9		—		70		81		28,810		28,891
Other		40		23		—		—		63		9,953		10,016
	$	345	$	131	$	—	$	2,329	$	2,805	$	734,223	$	737,028

The Company identifies TDRs as impaired under the guidance in ASC 310-10-35. There were no loans determined to be TDRs that were restructured during the three-month periods ended September 30, 2020 and September 30, 2019.

During the nine-month periods ended September 30, 2020 and September 30, 2019, there were no loans determined to be TDRs in the previous twelve months that had payment defaults. Defaulted loans are those loans that are greater than 89 days past due.

In the determination of the allowance for loan losses, all TDRs are reviewed to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to. All non-accrual loans are written down to their corresponding collateral value. All troubled TDR accruing loans that have a loan balance that exceeds the present value of cash flows will have a specific allocation. All nonaccrual loans are considered impaired. Under ASC 310-10, a loan is impaired when it is probable that the Company will be unable to collect all amounts due including both principal and interest according to the contractual terms of the loan agreement. In accordance with interagency guidance issued in March 2020, short term deferrals granted due to the COVID-19 pandemic are not considered TDRs unless the borrower was previously experiencing financial difficulty.