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Loans
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Loans

Note 4 - Loans

The following table summarizes the composition of our loan portfolio. Total loans are recorded net of deferred loan fees and costs, which totaled $2.3 million and $1.9 million as of September 30, 2023 and December 31, 2022, respectively. 

   September 30,   December 31, 
(Dollars in thousands)  2023   2022 
Commercial   $78,252   $72,409 
Real estate:          
Construction    115,589    91,223 
Mortgage-residential   86,240    65,759 
Mortgage-commercial   763,538    709,218 
Consumer:          
Home equity    32,500    28,723 
Other    15,526    13,525 
Total loans, net of deferred loan fees and costs  $1,091,645   $980,857 

 

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. Loans not meeting the criteria below that are analyzed individually as part of the analysis are considered as pass rated loans. 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.

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.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of September 30, 2023:

                                     
   Term Loans by year of Origination 
($ in thousands)  2019   2020   2021   2022   2023   Prior   Revolving   Revolving
Converted
to Term		   Total 
Commercial                                             
Pass  $1,366   $1,513   $23,836   $11,137   $9,514   $9,549   $21,237   $—   $78,152 
Special mention   —    —    —    —    —    21    —    —    21 
Substandard   —    —    79    —    —    —    —    —    79 
Total commercial   1,366    1,513    23,915    11,137    9,514    9,570    21,237    —    78,252 
                                              
Current period gross write-offs   —    20    —    —    —    —    —    —    20 
Real estate construction                                             
Pass   6,878    1,107    10,413    47,103    30,689    —    19,399    —    115,589 
Total real estate construction   6,878    1,107    10,413    47,103    30,689    —    19,399    —    115,589 
                                              
Current period gross write-offs   —    —    —    —    —    —    —    —    — 
                                              
Real estate mortgage-residential                                             
Pass   1,952    10,603    6,625    29,772    25,146    8,790    795    2,139    85,822 
Special mention   —    26    —    —    —    392    —    —    418 
Substandard   —    —    —    —    —    —    —    —    — 
Total real estate mortgage-residential   1,952    10,629    6,625    29,772    25,146    9,182    795    2,139    86,240 
                                              
Current period gross write-offs   —    —    —    —    —    —    —    —    — 
                                              
Real estate mortgage-commercial                                             
Pass   49,001    100,621    136,127    193,044    72,201    199,064    13,028    329    763,416 
Special mention   —    —    —    —    —    21    —    —    21 
Substandard   —    —    —    —    —    101    —    —    101 
Total real estate mortgage-commercial   49,001    100,621    136,127    193,044    72,201    199,186    13,028    329    763,538 
                                              
Current period gross write-offs   —    —    —    —    —    —    —    —    — 
                                              
Consumer - home equity                                             
Pass   —    —    —    —    —    —    31,371    —    31,371 
Special mention   —    —    —    —    —    —    70    —    70 
Substandard   —    —    —    —    —    —    1,059    —    1,059 
Total consumer - home equity   —    —    —    —    —    —    32,500    —    32,500 
                                              
Current period gross write-offs   —    —    —    —    —    —    —    —    — 
                                              
Consumer - other                                             
Pass   435    267    542    1,257    1,779    907    10,322    —    15,509 
Special mention   —    10    —    —    —    7    —    —    17 
Substandard   —    —    —    —    —    —    —    —    — 
Total consumer - other   435    277    542    1,257    1,779    914    10,322    —    15,526 
                                              
Current period gross write-offs   —    —    —    —    —    —    50    —    50 

The risk category of loans by class of loans is shown in the table below as of December 31, 2022. As of December 31, 2022, no loans were classified as doubtful.

(Dollars in thousands)      Special             
December 31, 2022  Pass   Mention   Substandard   Doubtful   Total 
Commercial  $72,333   $47   $29   $—   $72,409 
Real estate:   —    —    —           
Construction   91,223    —    —    —    91,223 
Mortgage – residential   65,505    220    34    —    65,759 
Mortgage – commercial   704,357    80    4,781    —    709,218 
Consumer:   —    —    —           
Home Equity   27,531    117    1,075    —    28,723 
Other   13,269    93    163    —    13,525 
Total  $974,218   $557   $6,082   $—   $980,857 

 

The detailed activity in the allowance for credit losses and the recorded investment in loans receivable for the three and nine months ended September 30, 2023 under CECL methodology:

($ in thousands)  Commercial   Real Estate
Construction		   Real Estate
Mortgage
Residential		   Real Estate
Mortgage
Commercial		   Consumer
Home
Equity		   Consumer
Other		   Total
Loans		 
Balance at June 30, 2023  $1,012   $1,127   $861   $7,886   $438   $230   $11,554 
Charge-offs   (20)   —    —    —    —    (14)   (34)
Recoveries   1    1    1    15    13    7    38 
Provision for credit losses   (6)   222    122    (82)   (12)   16    260 
Balance at September 30, 2023  $987   $1,350   $984   $7,819   $439   $239   $11,818 

 

($ in thousands)  Commercial   Real Estate
Construction		   Real Estate
Mortgage
Residential		   Real Estate
Mortgage
Commercial		   Consumer
Home
Equity		   Consumer
Other		   Unallocated   Total
Loans		 
Balance at December 31, 2022  $849   $75   $723   $8,569   $314   $170   $636   $11,336 
Adjustment to allowance for adoption of ASU 2016-13   193    1,075    32    (883)   166    39    (636)   (14)
Charge-offs   (20)   —    —    —    —    (50)   —    (70)
Recoveries   4    2    4    33    19    13    —    75 
Provision for credit losses   (39)   198    225    100    (60)   67    —    491 
Balance at September 30, 2023  $987   $1,350   $984   $7,819   $439   $239    —   $11,818 

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance in the prior periods.

(Dollars in thousands)  Commercial   Real estate
Construction		   Real estate
Mortgage
Residential		   Real estate
Mortgage
Commercial		   Consumer
Home
equity		   Consumer
Other		   Unallocated   Total 
Three months ended September 30, 2022                                        
Allowance for loan losses:                                        
Beginning balance June 30, 2022  $817   $84   $546   $8,639   $315   $202   $617   $11,220 
Charge-offs   —    —    —    —    (1)   (13)   —    (14)
Recoveries   5    —    4    75    3    4    —    91 
Provisions   (19)   (16)   57    (12)   4    (8)   12    18 
Ending balance September 30, 2022  $803   $68   $607   $8,702   $321   $185   $629   $11,315 
                                 
           Real estate   Real estate   Consumer             
       Real estate   Mortgage   Mortgage   Home   Consumer         
(Dollars in thousands)  Commercial   Construction   Residential   Commercial   equity   Other   Unallocated   Total 
Nine months ended September 30, 2022                                        
Allowance for loan losses:                                        
Beginning balance December 31, 2021  $853   $113   $560   $8,570   $333   $126   $624   $11,179 
Charge-offs   —    —    —    —    (1)   (46)   —    (47)
Recoveries   16    —    5    318    10    11    —    360 
Provisions   (66)   (45)   42    (186)   (21)   94    5    (177)
Ending balance September 30, 2022  $803   $68   $607   $8,702   $321   $185   $629   $11,315 

The following tables are by loan category and present September 30, 2022, and December 31, 2022 loans individually evaluated and considered impaired under FASB ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing TDRs.

The following table presents information related to the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the three and nine months ended September 30, 2022.

   Nine months ended   Three months ended 
   Average   Interest   Average   Interest 
(Dollars in thousands)  Recorded   Income   Recorded   Income 
September 30, 2022  Investment   Recognized   Investment   Recognized 
With no allowance recorded:                    
Commercial, financial, agricultural  $—   $—   $—   $— 
Real estate:                    
Construction   —    —    —    — 
Mortgage-residential   45    2    39    1 
Mortgage-commercial   4,795    347    4,747    117 
Consumer:                    
Home equity   169    6    168    2 
Other   —    —    —    — 
                     
With an allowance recorded:                    
Commercial, financial, agricultural   —    —    —    — 
Real estate:                    
Construction   —    —    —    — 
Mortgage-residential   —    —    —    — 
Mortgage-commercial   —    —    —    — 
Consumer:                    
Home equity   —    —    —    — 
Other   —    —    —    — 
                     
Total:                    
Commercial, financial, agricultural  $—   $—   $—   $— 
Real estate:                    
Construction   —    —    —    — 
Mortgage-residential   45    2    39    1 
Mortgage-commercial   4,795    347    4,747    117 
Consumer:                    
Home equity   169    6    168    2 
Other   —    —    —    — 
   $5,009   $355   $4,954   $120 

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2022.

       Unpaid     
(Dollars in thousands)  Recorded   Principal   Related 
December 31, 2022  Investment   Balance   Allowance 
With no allowance recorded:               
Commercial  $29   $29   $— 
Real estate:               
Construction   —    —    — 
Mortgage-residential   34    51    — 
Mortgage-commercial   4,752    5,260    — 
Consumer:               
Home Equity   168    168    — 
Other   —    —    — 
                
With an allowance recorded:               
Commercial   —    —    — 
Real estate:               
Construction   —    —    — 
Mortgage-residential   —    —    — 
Mortgage-commercial   —    —    — 
Consumer:               
Home Equity   —    —    — 
Other   —    —    — 
                
Total:               
Commercial   29    29    — 
Real estate:               
Construction   —    —    — 
Mortgage-residential   34    51    — 
Mortgage-commercial   4,752    5,260    — 
Consumer:               
Home Equity   168    168    — 
Other   —    —    — 
   $4,983   $5,508   $— 

 

The following table shows the amortized cost basis for the nine months ended September 30,2023 of the loans modified for borrowers experiencing financial difficulty after December 31, 2022 segregated by loan category and describes the financial effect of the modification made for a borrower experiencing financial difficulty. There were no loans modified during the three months ended September 30, 2023.

Schedule of Amortized Cost of Loans, by Loan Category, Modified for Borrowers with Financial Difficulty

    Nine Months Ended September 30, 2023  
(Dollars in thousands)   Amortized cost basis     % of Total Loan Type     Financial effect
Real Estate Mortgage Residential     201       0.23 %   Deferred two monthly payments that are added to the end of the original loan term.
Total Loans   $ 201     $ 0.23 %    

 

The following table depicts the performance of loans that have been modified in the last 12 months.

             
(Dollars in thousands)      30-89 Days   Greater than 90 Days 
September 30, 2023  Current   Past Due   Past Due 
Real Estate Mortgage Residential   —    201    — 
Total Loans  $—   $201   $— 

The following tables present an aging analysis of past due loans segregated by loan category as of September 30, 2023 and December 31, 2022.  

Schedule of Loan Category and Aging Analysis of Loans

           Greater than                 
(Dollars in thousands)  30-59 Days   60-89 Days   90 Days and       Total         
September 30, 2023  Past Due   Past Due   Accruing   Non-accrual   Past Due   Current   Total Loans 
Commercial   $69   $—   $—   $24   $93   $78,159   $78,252 
Real estate:                                   
Construction    —    —    —    —    —    115,589    115,589 
Mortgage-residential    56    215    —    34    305    85,935    86,240 
Mortgage-commercial    —    180    —    —    180    763,358    763,538 
Consumer:                                   
Home equity    81    2    —    3    86    32,414    32,500 
Other    11    —    3    —    14    15,512    15,526 
Total  $217   $397   $3   $61   $678   $1,090,967   $1,091,645 
                                    
           Greater than                 
(Dollars in thousands)  30-59 Days   60-89 Days   90 Days and       Total         
December 31, 2022  Past Due   Past Due   Accruing   Non-accrual   Past Due   Current   Total Loans 
Commercial   $87   $—   $—   $29   $116   $72,293   $72,409 
Real estate:                                   
Construction    —    —    —    —    —    91,223    91,223 
Mortgage-residential    327    —    —    34    361    65,398    65,759 
Mortgage-commercial    46    8    —    4,664    4,718    704,500    709,218 
Consumer:                                   
Home equity    —    —    —    168    168    28,555    28,723 
Other    96    —    2    —    98    13,427    13,525 
Total  $556   $8   $2   $4,895   $5,461   $975,396   $980,857 

 

The following table is a summary of the Company’s non-accrual loans by major categories for the periods indicated.

                 
   CECL   Incurred Loss 
   September 30, 2023   December 31, 2022 
(Dollars in thousands)  Non-accrual
Loans with
No Allowance		   Non-accrual
Loans with an
Allowance		   Total
Non-accrual
Loans		   Non-accrual Loans 
Commercial  $24   $—   $24   $29 
Real Estate Construction   —    —    —    — 
Real Estate Mortgage Residential   34    —    34    34 
Real Estate Mortgage Commercial   —    —    —    4,664 
Consumer Home Equity   3    —    3    168 
Consumer Other   —    —    —    — 
Total Loans  $61   $—   $61   $4,895 

 

The Company recognized $5,100 and $93,700 of interest income on non-accrual loans during the three and nine months ended September 30, 2023.

For the three months ended September 30, 2023 less than $1,000 of accrued interest was written off by reversing interest income. 

There were no collateral dependent loans that were individually evaluated for the nine months ended September 30, 2023.

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be cancelled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $643,000 at September 30, 2023 is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended September 30, 2023.

(Dollars in thousands)  Total Allowance for Credit
Losses - Unfunded
Commitments		 
Balance, June 30, 2023  $429 
Provision for unfunded commitments   214 
Balance, September 30, 2023  $643 

 

(Dollars in thousands)  Total Allowance for Credit
Losses - Unfunded
Commitments		 
Balance, December 31, 2022  $— 
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13   398 
Provision for unfunded commitments   245 
Balance, September 30, 2023  $643