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Loan and Allowance for Loan Losses
 9 Months Ended
Sep. 30, 2022
Loans And Leases Receivable Disclosure [Abstract]  
Loans and leases receivable disclosure [Text Block]
NOTE 5:
 
LOANS AND
 
ALLOWANCE FOR LOAN
 
LOSSES
.
September
 
30,
December 31,
(Dollars
 
in thousands)
2022
2021
Commercial and
 
industrial
$
70,685
$
83,977
Construction and
 
land development
54,773
32,432
Commercial real estate:
Owner occupied
57,828
63,375
Hotel/motel
33,918
43,856
Multi-family
29,317
42,587
Other
128,967
108,553
Total commercial real estate
250,030
258,371
Residential real estate:
Consumer mortgage
40,207
29,781
Investment
 
property
51,391
47,880
Total residential real estate
91,598
77,661
Consumer installment
7,551
6,682
Total loans
474,637
459,123
Less: unearned income
(602)
(759)
Loans, net of unearned
 
income
$
474,035
$
458,364
Loans secured by
 
real estate were
 
approximately
83.5%
 
of the Company’s
 
total loan
 
portfolio at September 30,
 
2022.
 
At
September 30, 2022, the
 
Company’s
 
geographic
 
loan distribution was
 
concentrated primarily
 
in Lee
 
County, Alabama, and
surrounding areas.
In accordance with
 
ASC 310, a
 
portfolio segment is defined
 
as the
 
level at which an
 
entity develops
 
and documents a
systematic method for determining
 
its allowance
 
for loan losses. As
 
part of the
 
Company’s quarterly assessment of the
allowance, the
 
loan portfolio included the
 
following
 
portfolio segments: commercial
 
and
 
industrial,
 
construction and
 
land
development,
 
commercial real estate, residential
 
real estate,
 
and
 
consumer installment. Where
 
appropriate,
 
the Company’s
loan portfolio segments
 
are further disaggregated
 
into classes. A
 
class is generally
 
determined based
 
on the initial
measurement attribute,
 
risk characteristics
 
of the loan,
 
and an entity’s method
 
for monitoring and
 
determining credit risk.
The following
 
describes
 
the risk
 
characteristics relevant
 
to each of the
 
portfolio segments and
 
classes.
Commercial and industrial (“C&I”)
 
—
includes loans
 
to finance
 
business operations, equipment
 
purchases, or
 
other needs
for small and
 
medium-sized commercial
 
customers. Also
 
included
 
in this category
 
are loans
 
to finance
 
agricultural
production.
 
Generally,
 
the primary
 
source of repayment
 
is the cash
 
flow from business operations
 
and
 
activities of the
borrower.
 
As of September
 
30, 2022, the Company
 
had
1
 
remaining
 
PPP loan outstanding
 
in the amount
 
of $
0.1
 
million,
compared to
138
 
PPP loans with
 
an aggregate principal
 
balance of $
8.1
 
million at
 
December 31, 2021.
 
Construction and land development
 
(“C&D”)
 
—
includes both loans
 
and credit lines for the
 
purpose of purchasing,
carrying, and
 
developing
 
land into commercial developments
 
or residential
 
subdivisions.
 
Also included
 
are loans and
 
credit
lines for construction
 
of residential,
 
multi-family,
 
and
 
commercial buildings.
 
Generally,
 
the primary
 
source of repayment
 
is
dependent upon
 
the sale or refinance of
 
the real
 
estate collateral.
Commercial real estate (“CRE”)
 
—
includes loans
 
disaggregated
 
into four classes: (1) owner
 
occupied, (2) hotel/motel,
 
(3) multifamily and
 
(4)
 
other.
 
●
Owner occupied
 
– includes loans
 
secured by
 
business facilities to finance
 
business operations,
 
equipment
 
and
owner-occupied facilities
 
primarily for small
 
and
 
medium-sized commercial
 
customers.
 
Generally,
 
the primary
source of repayment
 
is the cash
 
flow from
 
business operations and
 
activities of the
 
borrower, who owns
 
the
property.
●
Hotel/motel
– includes loans
 
for hotels and
 
motels.
 
Generally, the primary
 
source of repayment
 
is dependent
 
upon
income generated from
 
the real
 
estate collateral.
 
The
 
underwriting
 
of these loans
 
takes into
 
consideration the
occupancy
 
and rental rates, as
 
well as
 
the financial
 
health of the borrower.
●
Multi-family
 
– primarily
 
includes loans
 
to finance
 
income-producing
 
multi-family properties.
 
Loans
 
in this
 
class
include loans for 5
 
or more unit
 
residential property and
 
apartments
 
leased to residents. Generally,
 
the primary
source of repayment
 
is dependent
 
upon income generated from
 
the real
 
estate collateral.
 
The
 
underwriting of these
loans takes into
 
consideration the
 
occupancy
 
and rental
 
rates,
 
as well as the
 
financial health
 
of the respective
borrowers.
 
●
Other
 
– primarily
 
includes loans
 
to finance
 
income-producing
 
commercial properties other
 
than
 
hotels/motels and
multi-family properties,
 
and
 
which
 
are not owner
 
occupied.
 
Loans in this
 
class include loans
 
for neighborhood
retail centers,
 
medical and
 
professional offices, single retail
 
stores,
 
industrial buildings,
 
and warehouses
 
leased to
local businesses.
 
Generally,
 
the primary
 
source of repayment
 
is dependent
 
upon income generated
 
from the real
estate collateral. The
 
underwriting of these loans
 
takes into
 
consideration the
 
occupancy
 
and rental
 
rates,
 
as well as
the financial
 
health of the
 
borrower.
 
Residential real estate (“RRE”)
 
—
includes loans
 
disaggregated into
 
two classes: (1) consumer mortgage
 
and
 
(2)
investment
 
property.
●
Consumer mortgage
 
– primarily
 
includes
 
first or second
 
lien mortgages
 
and
 
home equity
 
lines of credit to
consumers that
 
are secured by
 
a primary
 
residence or second home.
 
These
 
loans are underwritten
 
in accordance
with the Bank’s general
 
loan policies and
 
procedures which
 
require, among
 
other things, proper
 
documentation of
each borrower’s financial
 
condition, satisfactory
 
credit history,
 
and
 
property value.
 
●
Investment property
 
– primarily
 
includes loans
 
to finance
 
income-producing
 
1-4 family residential properties.
Generally,
 
the primary
 
source of repayment
 
is dependent
 
upon income generated
 
from leasing
 
the property
securing the
 
loan. The underwriting
 
of these loans
 
takes into consideration
 
the rental
 
rates and property
 
value, as
well as the
 
financial health of
 
the borrower.
 
Consumer installment —
includes loans
 
to individuals
 
both secured by
 
personal property
 
and
 
unsecured.
 
Loans include
personal lines of credit,
 
automobile loans,
 
and
 
other retail loans.
 
These loans
 
are underwritten
 
in accordance with
 
the
Bank’s general loan
 
policies and procedures which
 
require, among
 
other things,
 
proper documentation
 
of each
 
borrower’s
financial
 
condition, satisfactory credit history, and,
 
if applicable,
 
property value.
The following
 
is a summary
 
of current, accruing
 
past due,
 
and nonaccrual loans
 
by portfolio segment and
 
class as of
September 30, 2022 and
 
December 31, 2021.
Accruing
Accruing
Total
30-89 Days
Greater than
Accruing
Non-
Total
 
(Dollars
 
in thousands)
Current
Past Due
90 days
Loans
Accrual
Loans
September 30, 2022:
Commercial and
 
industrial
$
70,684
1
—
70,685
—
$
70,685
Construction and
 
land development
54,491
282
—
54,773
—
54,773
Commercial real estate:
Owner occupied
57,828
—
—
57,828
—
57,828
Hotel/motel
33,918
—
—
33,918
—
33,918
Multi-family
29,317
—
—
29,317
—
29,317
Other
128,797
—
—
128,797
170
128,967
Total commercial real estate
249,860
—
—
249,860
170
250,030
Residential real estate:
Consumer mortgage
39,984
46
—
40,030
177
40,207
Investment
 
property
51,351
40
—
51,391
—
51,391
Total residential real estate
91,335
86
—
91,421
177
91,598
Consumer installment
7,543
8
—
7,551
—
7,551
Total
$
473,913
377
—
474,290
347
$
474,637
December 31, 2021:
Commercial and
 
industrial
$
83,974
3
—
83,977
—
$
83,977
Construction and
 
land development
32,228
204
—
32,432
—
32,432
Commercial real estate:
Owner occupied
63,375
—
—
63,375
—
63,375
Hotel/motel
43,856
—
—
43,856
—
43,856
Multi-family
42,587
—
—
42,587
—
42,587
Other
108,366
—
—
108,366
187
108,553
Total commercial real estate
258,184
—
—
258,184
187
258,371
Residential real estate:
Consumer mortgage
29,070
516
—
29,586
195
29,781
Investment
 
property
47,818
—
—
47,818
62
47,880
Total residential real estate
76,888
516
—
77,404
257
77,661
Consumer installment
6,657
25
—
6,682
—
6,682
Total
$
457,931
748
—
458,679
444
$
459,123
Allowance for Loan
 
Losses
The Company
 
assesses the adequacy
 
of its allowance
 
for loan losses prior to the
 
end
 
of each calendar
 
quarter. The level of
the allowance
 
is based upon
 
management’s evaluation
 
of the loan
 
portfolio, past loan
 
loss experience, current asset
 
quality
trends, known and
 
inherent risks in
 
the portfolio, adverse
 
situations that
 
may affect a
 
borrower’s ability
 
to repay (including
the timing of
 
future payment),
 
the estimated value
 
of any underlying
 
collateral, composition
 
of the loan
 
portfolio, economic
conditions, market
 
interest rates, inflation
 
and
 
related expectations, industry
 
and
 
peer bank
 
loan loss rates, and
 
other
pertinent factors, including
 
regulatory recommendations.
 
This
 
evaluation is inherently
 
subjective as it
 
requires material
estimates including
 
the amounts
 
and timing of
 
future cash flows
 
expected to be received
 
on impaired
 
loans that may be
susceptible to significant
 
change.
 
Loans are charged off, in
 
whole or in part, when
 
management
 
believes that
 
the full
collectability of the loan
 
is unlikely. A loan
 
may be partially
 
charged-off after a “confirming
 
event” has occurred, which
serves to validate
 
that full repayment
 
pursuant
 
to the terms of the
 
loan is unlikely.
The Company
 
deems loans
 
impaired
 
when, based on current
 
information and
 
events, it is probable
 
that the Company
 
will
be unable
 
to collect all amounts
 
due according
 
to the contractual
 
terms of the loan
 
agreement. Collection of
 
all amounts
 
due
according to
 
the contractual
 
terms means
 
that both
 
the interest and
 
principal payments
 
of a loan
 
will be collected as
scheduled in
 
the loan agreement.
 
An impairment allowance
 
is recognized if
 
the fair value
 
of the loan
 
is less than the
 
recorded investment in
 
the loan. The
impairment is
 
recognized through
 
the allowance. Loans
 
that are
 
impaired are
 
recorded at the present
 
value of expected
future cash flows
 
discounted at
 
the loan’s effective interest rate, or
 
if the loan
 
is collateral dependent,
 
the impairment
measurement is based
 
on the fair value
 
of the collateral, less estimated
 
disposal costs.
 
The level of allowance
 
maintained is believed
 
by management to
 
be adequate
 
to absorb probable
 
losses inherent in the
portfolio at the
 
balance sheet date.
 
The allowance
 
is increased by provisions
 
charged to
 
expense and
 
decreased by charge-
offs, net of recoveries of amounts
 
previously
 
charged-off.
 
In assessing the
 
adequacy of
 
the allowance,
 
the Company also
 
considers the results of its ongoing
 
internal and
 
independent
loan review
 
processes. The Company’s
 
loan review
 
process assists in determining
 
whether
 
there are loans
 
in the portfolio
whose credit quality
 
has weakened
 
over time and
 
evaluating the
 
risk characteristics of the entire
 
loan portfolio. The
Company’s loan review
 
process includes the judgment
 
of management,
 
the input from our
 
independent loan
 
reviewers, and
reviews conducted
 
by bank regulatory
 
agencies as
 
part of their examination
 
process. The Company
 
incorporates loan
review results in
 
the determination of whether
 
or not it
 
is probable that
 
it will be able
 
to collect all amounts
 
due according
to the contractual terms of
 
a
 
loan.
 
As part of the
 
Company’s quarterly assessment of the
 
allowance,
 
management
 
evaluates the loan
 
portfolio’s five segments:
commercial and
 
industrial,
 
construction and
 
land development,
 
commercial real estate, residential
 
real estate,
 
and
 
consumer
installment. The
 
Company analyzes
 
each segment and
 
estimates an allowance
 
allocation for each
 
loan segment.
 
The allocation of the
 
allowance
 
for loan losses begins with
 
a process of estimating the
 
probable
 
losses inherent for each
loan segment.
 
The estimates for these loans
 
are established
 
by category
 
and based
 
on the Company’s
 
internal system of
credit risk ratings
 
and historical loss data.
 
The estimated loan loss allocation
 
rate for the
 
Company’s
 
internal system of
credit risk grades
 
is based on
 
its experience with
 
similarly graded
 
loans. For loan
 
segments where
 
the Company
 
believes it
does not have
 
sufficient historical loss data,
 
the Company may
 
make adjustments based,
 
in part, on loss rates
 
of peer bank
groups.
 
At September 30,
 
2022 and
 
December 31, 2021, and
 
for the periods then
 
ended, the Company
 
adjusted its
historical loss rates for the
 
commercial real estate
 
portfolio
 
segment based,
 
in part, on loss rates
 
of peer bank
 
groups.
 
The estimated loan
 
loss allocation for all
 
five
 
loan portfolio segments is then
 
adjusted
 
for management’s estimate of
probable
 
losses for several “qualitative
 
and environmental”
 
factors. The allocation
 
for qualitative
 
and environmental
 
factors
is particularly
 
subjective and
 
does not lend
 
itself to exact mathematical
 
calculation. This
 
amount represents estimated
probable
 
inherent credit losses which
 
exist, but have
 
not yet been identified,
 
as of
 
the balance
 
sheet date, and
 
are based
upon quarterly
 
trend assessments in
 
delinquent
 
and nonaccrual
 
loans, credit concentration
 
changes,
 
prevailing
 
economic
conditions, changes
 
in lending personnel
 
experience, changes
 
in lending
 
policies or procedures, and
 
other factors. These
qualitative
 
and environmental
 
factors are considered for each
 
of the five
 
loan segments and
 
the allowance
 
allocation, as
determined by
 
the processes noted above,
 
is increased or decreased
 
based
 
on the incremental
 
assessment of these factors.
 
The Company
 
regularly re-evaluates
 
its practices in determining
 
the allowance
 
for loan losses. The
 
Company’s look-back
period each
 
quarter incorporates the
 
effects of at
 
least one economic downturn
 
in its loss history. The
 
Company believes
this look-back period
 
is appropriate
 
due to the risks inherent
 
in the loan portfolio. Absent
 
this look-back period,
 
the early
cycle periods in
 
which the
 
Company experienced
 
significant losses
 
would
 
be excluded
 
from the determination
 
of the
allowance for loan
 
losses and its
 
balance would
 
decrease.
 
For the
 
quarter ended
 
September 30, 2022, the
 
Company
increased its look-back period
 
to 54 quarters to
 
continue to include
 
losses incurred
 
by the
 
Company beginning
 
with the first
quarter of
 
2009.
 
The
 
Company will
 
likely continue
 
to increase its look-back period
 
to incorporate
 
the effects of
 
at least
 
one
economic downturn
 
in its loss history.
 
During
 
the second quarter
 
of 2021, the Company
 
adjusted
 
certain qualitative
 
and
economic factors, previously
 
downgraded
 
as a result of the
 
COVID-19 pandemic,
 
to reflect improvements in
 
economic
conditions in our
 
primary market
 
area.
 
Further adjustments
 
may be
 
made from time to time
 
in the
 
future as a result of the
waning of
 
COVID-19 as
 
a pandemic and
 
other changes
 
in economic conditions.
The following
 
table details the
 
changes in the
 
allowance for loan
 
losses by portfolio segment for the
 
respective
 
periods.
September
 
30, 2022
(Dollars
 
in thousands)
Commercial
 
and
industrial
Construction
and land
development
Commercial
real estate
Residential
real estate
Consumer
installment
Total
Quarter ended:
Beginning balance
$
761
576
2,523
753
103
$
4,716
Charge-offs
(13)
—
—
—
(3)
(16)
Recoveries
2
—
—
8
6
16
Net (charge-offs) recoveries
(11)
—
—
8
3
—
Provision for loan
 
losses
(18)
213
38
22
(5)
250
Ending balance
$
732
789
2,561
783
101
$
4,966
Nine months ended:
Beginning balance
$
857
518
2,739
739
86
$
4,939
Charge-offs
(17)
—
—
—
(67)
(84)
Recoveries
6
—
22
22
61
111
Net (charge-offs) recoveries
(11)
—
22
22
(6)
27
Provision for loan
 
losses
(114)
271
(200)
22
21
—
Ending balance
$
732
789
2,561
783
101
$
4,966
September
 
30, 2021
(Dollars
 
in thousands)
Commercial
 
and
industrial
Construction
and land
development
Commercial
real estate
Residential
real estate
Consumer
installment
Total
Quarter ended:
Beginning balance
$
829
639
2,704
838
97
$
5,107
Recoveries
1
—
—
7
4
12
Net recoveries
1
—
—
7
4
12
Provision for loan
 
losses
(14)
(49)
119
(46)
(10)
—
Ending balance
$
816
590
2,823
799
91
$
5,119
Nine months ended:
Beginning balance
$
807
594
3,169
944
104
$
5,618
Charge-offs
—
 
—
 
—
 
(1)
 
(5)
(6)
Recoveries
55
—
 
—
 
33
19
107
Net recoveries
55
—
 
—
 
32
14
101
Provision for loan
 
losses
(46)
(4)
(346)
(177)
(27)
(600)
Ending balance
$
816
590
2,823
799
91
$
5,119
The following
 
table presents an
 
analysis of the allowance
 
for loan losses and
 
recorded investment in
 
loans by portfolio
segment and
 
impairment methodology
 
as of
 
September 30, 2022 and
 
2021.
Collectively
 
evaluated (1)
Individually
 
evaluated (2)
Total
Allowance
Recorded
Allowance
Recorded
Allowance
Recorded
for loan
investment
for loan
investment
for loan
investment
(Dollars
 
in thousands)
losses
in loans
losses
in loans
losses
in loans
September 30, 2022:
Commercial and
 
industrial
$
732
70,685
—
—
732
70,685
Construction and
 
land development
789
54,773
—
—
789
54,773
Commercial real estate
2,561
249,860
—
170
2,561
250,030
Residential real estate
783
91,598
—
—
783
91,598
Consumer installment
101
7,551
—
—
101
7,551
Total
$
4,966
474,467
—
170
4,966
474,637
September 30, 2021:
Commercial and
 
industrial (3)
$
816
79,202
—
—
816
79,202
Construction and
 
land development
590
34,890
—
—
590
34,890
Commercial real estate
2,823
252,605
—
193
2,823
252,798
Residential real estate
799
80,112
—
93
799
80,205
Consumer installment
91
7,060
—
—
91
7,060
Total
$
5,119
453,869
—
286
5,119
454,155
(1)
Represents
 
loans collectively
 
evaluated for impairment
 
in accordance
 
with ASC 450-20,
Loss Contingencies
, and
 
pursuant
 
to amendments
 
by ASU 2010-20
 
regarding allowance
 
for non-impaired
 
loans.
(2)
Represents
 
loans individually
 
evaluated for impairment
 
in accordance
 
with ASC 310-30,
Receivables
, and
 
pursuant
 
to amendments
 
by ASU 2010-20
 
regarding allowance
 
for impaired loans.
(3)
Includes $13.3
 
million of PPP
 
loans for which
 
no allowance
 
for loan losses
 
was allocated due to
 
100% SBA
 
guarantee.
See “Impaired
 
Loans” and
 
“Troubled Debt Restructurings”
 
below
 
for additional
 
information about
 
such loans.
Credit Quality Indicators
The credit quality
 
of the loan
 
portfolio is summarized
 
no less frequently
 
than quarterly
 
using categories similar
 
to the
standard asset classification
 
system used
 
by
 
the federal banking
 
agencies.
 
The following
 
table presents credit quality
indicators for the loan
 
portfolio segments and
 
classes. These categories
 
are utilized
 
to develop
 
the associated allowance
 
for
loan losses using historical
 
losses adjusted
 
for qualitative
 
and environmental
 
factors and
 
are defined as follows:
 
●
Pass – loans which
 
are well protected by
 
the current net
 
worth and
 
paying capacity of
 
the obligor (or guarantors,
 
if
any) or by the
 
fair value, less cost to acquire
 
and
 
sell, of any
 
underlying collateral.
●
Special Mention
 
– loans with
 
potential weakness
 
that may, if not reversed
 
or corrected, weaken
 
the credit or
inadequately
 
protect the Company’s
 
position at some
 
future date. These
 
loans are
 
not adversely classified
 
and
 
do
not expose an
 
institution to sufficient risk
 
to warrant
 
an adverse classification.
●
Substandard Accruing
 
– loans that exhibit
 
a well-defined weakness
 
which presently jeopardizes
 
debt repayment,
even though
 
they are currently
 
performing. These
 
loans are characterized
 
by the
 
distinct possibility that
 
the
Company may
 
incur a loss in
 
the future
 
if these weaknesses are
 
not corrected.
●
Nonaccrual –
 
includes loans
 
where management
 
has determined that
 
full payment of
 
principal
 
and interest is not
expected.
(Dollars
 
in thousands)
 
Pass
 
Special
Mention
Substandard
Accruing
Nonaccrual
Total
 
loans
September 30, 2022:
 
Commercial and
 
industrial
$
70,480
11
194
—
$
70,685
Construction and
 
land development
54,773
—
—
—
54,773
Commercial real estate:
Owner occupied
57,424
241
163
—
57,828
Hotel/motel
33,918
—
—
—
33,918
Multi-family
29,317
—
—
—
29,317
Other
128,591
178
28
170
128,967
Total commercial real estate
249,250
419
191
170
250,030
Residential real estate:
Consumer mortgage
38,946
443
641
177
40,207
Investment
 
property
51,096
44
251
—
51,391
Total residential real estate
90,042
487
892
177
91,598
Consumer installment
7,522
—
29
—
7,551
Total
$
472,067
917
1,306
347
$
474,637
December 31, 2021:
Commercial and
 
industrial
$
83,725
26
226
—
$
83,977
Construction and
 
land development
32,212
2
218
—
32,432
Commercial real estate:
Owner occupied
61,573
1,675
127
—
63,375
Hotel/motel
36,162
7,694
—
—
43,856
Multi-family
39,093
3,494
—
—
42,587
Other
107,426
911
29
187
108,553
Total commercial real estate
244,254
13,774
156
187
258,371
Residential real estate:
Consumer mortgage
27,647
452
1,487
195
29,781
Investment
 
property
47,459
98
261
62
47,880
Total residential real estate
75,106
550
1,748
257
77,661
Consumer installment
6,650
20
12
—
6,682
Total
$
441,947
14,372
2,360
444
$
459,123
Impaired loans
The following
 
tables present details
 
related to the
 
Company’s
 
impaired
 
loans. Loans that
 
have been
 
fully charged-off are
not included
 
in the following
 
tables. The
 
related allowance
 
generally represents the
 
following
 
components that
 
correspond
to impaired loans:
●
Individually evaluated
 
impaired
 
loans equal to
 
or greater than
 
$500 thousand
 
secured by real
 
estate (nonaccrual
construction and
 
land development,
 
commercial real estate, and
 
residential real estate loans).
●
Individually evaluated
 
impaired
 
loans equal to
 
or greater than
 
$250 thousand
 
not secured by
 
real estate
(nonaccrual commercial
 
and
 
industrial and
 
consumer installment loans).
The following
 
tables set forth certain
 
information regarding
 
the Company’s
 
impaired
 
loans that were
 
individually evaluated
for impairment
 
at September 30,
 
2022 and
 
December 31, 2021.
September
 
30, 2022
(Dollars
 
in thousands)
Unpaid principal
balance (1)
Charge-offs
 
and
payments applied
(2)
Recorded
investment
 
(3)
Related allowance
With no allowance recorded:
Commercial real estate:
Other
$
197
(27)
170
$
—
Total commercial real estate
197
(27)
170
—
Total impaired loans
$
197
(27)
170
$
—
(1) Unpaid principal
 
balance represents
 
the contractual
 
obligation due
 
from the customer.
(2) Charge-offs
 
and payments
 
applied represents
 
cumulative charge
 
-offs taken,
 
as well as interest
 
payments that have
 
been
applied against
 
the outstanding
 
principal balance subsequent
 
to the loans being placed on
 
nonaccrual status.
(3) Recorded investment
 
represents
 
the unpaid principal
 
balance less
 
charge-offs
 
and payments
 
applied; it is shown
 
before
 
any related allowance
 
for loan losses.
December 31,
 
2021
(Dollars
 
in thousands)
Unpaid principal
balance (1)
Charge-offs
 
and
payments applied
(2)
Recorded
investment
 
(3)
Related allowance
With no allowance recorded:
Commercial real estate:
Other
$
205
(18)
187
$
—
Total commercial real estate
205
(18)
187
—
Residential real estate:
Investment
 
property
68
(6)
62
—
Total residential real estate
68
(6)
62
—
Total impaired loans
$
273
(24)
249
$
—
(1) Unpaid principal
 
balance represents
 
the contractual
 
obligation due
 
from the customer.
(2) Charge-offs
 
and payments
 
applied represents
 
cumulative charge
 
-offs taken,
 
as well as interest
 
payments that have
 
been
applied against
 
the outstanding
 
principal balance subsequent
 
to the loans being placed on
 
nonaccrual status.
(3) Recorded investment
 
represents
 
the unpaid principal
 
balance less
 
charge-offs
 
and payments
 
applied; it is shown
 
before
 
any related allowance
 
for loan losses.
The following
 
table provides
 
the average recorded investment
 
in impaired
 
loans,
 
if any, by portfolio segment, and
 
the
amount of interest income recognized
 
on impaired
 
loans after impairment
 
by portfolio segment and
 
class during the
respective periods.
Quarter ended
 
September
 
30, 2022
Nine months
 
ended September
 
30, 2022
Average
Total
 
interest
Average
Total
 
interest
recorded
income
recorded
income
(Dollars
 
in thousands)
investment
recognized
investment
recognized
Impaired loans:
Commercial real estate:
Other
$
173
—
199
—
Total commercial real estate
173
—
199
—
Residential real estate:
Investment
 
property
—
—
6
—
Total residential real estate
—
—
6
—
Total
 
$
173
—
205
—
Quarter ended
 
September
 
30, 2021
Nine months
 
ended September
 
30, 2021
Average
Total
 
interest
Average
Total
 
interest
recorded
income
recorded
income
(Dollars
 
in thousands)
investment
recognized
investment
recognized
Impaired loans:
Commercial real estate:
Other
$
196
—
202
—
Total commercial real estate
196
—
202
—
Residential real estate:
Investment
 
property
95
—
100
—
Total residential real estate
95
—
100
—
Total
 
$
291
—
302
—
Troubled Debt Restructurings
 
Impaired loans
 
also include
 
troubled debt
 
restructurings (“TDRs”).
 
Section 4013 of the CARES
 
Act, “Temporary Relief
From Troubled Debt
 
Restructurings,” provided
 
banks the option to
 
temporarily suspend
 
certain requirements under
 
ASC
340-10 TDR
 
classifications for a
 
limited period of time
 
to account for the
 
effects of COVID-19.
 
In addition, the
 
Interagency
Statement on COVID-19
 
Loan Modifications, encouraged
 
banks
 
to work prudently
 
with borrowers and
 
describes the
agencies’ interpretation
 
of how
 
accounting
 
rules under ASC
 
310-40, “Troubled
 
Debt Restructurings
 
by
 
Creditors,” apply
 
to
certain COVID-19-related
 
modifications.
 
The
 
Interagency Statement
 
on COVID-19
 
Loan Modifications was
 
supplemented
on June 23, 2020 by
 
the Interagency
 
Examiner Guidance
 
for Assessing Safety
 
and Soundness
 
Considering the
 
Effect of the
COVID-19 Pandemic
 
on Institutions.
 
If a loan
 
modification was
 
eligible, a bank could
 
elect to account for the
 
loan under
section 4013 of the CARES
 
Act. If a loan
 
modification was
 
not eligible under
 
section 4013, or if the
 
bank elected not
 
to
account for the
 
loan modification under
 
section 4013, the
 
Revised
 
Statement
 
included
 
criteria when a
 
bank may presume a
loan modification is not
 
a
 
TDR in accordance with
 
ASC 310-40.
The Company
 
evaluates loan
 
extensions or modifications
 
not qualified
 
under
 
Section 4013 of the CARES
 
Act or under the
Interagency Statement
 
and related regulatory
 
guidance
 
on COVID-19
 
Loan Modifications in
 
accordance with
 
FASB ASC
340-10 with
 
respect to the classification
 
of the loan
 
as a TDR.
 
In the normal
 
course of business, management
 
may grant
concessions to borrowers that
 
are experiencing
 
financial
 
difficulty.
 
A concession
 
may include,
 
but is not limited
 
to, delays
in required payments
 
of principal
 
and interest for a
 
specified period, reduction
 
of the stated
 
interest rate of the
 
loan,
reduction of accrued
 
interest, extension
 
of the maturity
 
date, or reduction
 
of the face
 
amount
 
or maturity amount
 
of the debt.
 
A concession has
 
been granted when,
 
as a result of the restructuring,
 
the Bank
 
does not expect
 
to collect, when
 
due, all
amounts owed,
 
including interest at
 
the original
 
stated rate.
 
A concession may
 
have also
 
been granted if the
 
debtor is not
able to access funds
 
elsewhere at
 
a market rate
 
for debt with
 
risk characteristics similar to
 
the restructured
 
debt.
 
In making
the determination of whether
 
a loan
 
modification is a TDR,
 
the Company considers the
 
individual
 
facts and circumstances
surrounding each
 
modification.
 
As part
 
of the credit approval
 
process, the restructured
 
loans are
 
evaluated
 
for adequate
collateral protection in
 
determining the
 
appropriate accrual
 
status at the time
 
of restructure.
 
Similar to
 
other impaired
 
loans, TDRs are
 
measured for impairment
 
based on the
 
present value of
 
expected payments
 
using
the loan’s original
 
effective interest rate as
 
the discount
 
rate, or the
 
fair value of the
 
collateral, less selling
 
costs if the loan
 
is
collateral dependent.
 
If the recorded investment
 
in the
 
loan exceeds the measure
 
of fair value,
 
impairment is
 
recognized by
establishing a
 
valuation allowance
 
as part of the allowance
 
for loan losses or a
 
charge-off to the allowance
 
for loan losses.
 
In periods subsequent
 
to the modification,
 
all TDRs
 
are evaluated individually,
 
including those that
 
have payment
 
defaults,
for possible impairment.
The following
 
is a summary
 
of accruing and
 
nonaccrual
 
TDRs, which
 
are included
 
in the impaired
 
loan totals, and the
related allowance
 
for loan losses, by
 
portfolio segment and
 
class as of September
 
30, 2022 and
 
December 31, 2021,
respectively.
TDRs
Related
(Dollars
 
in thousands)
Accruing
Nonaccrual
Total
Allowance
September 30, 2022
Commercial real estate:
Other
$
—
170
170
$
—
Total commercial real estate
—
170
170
—
Total
 
$
—
170
170
$
—
TDRs
Related
(In thousands)
Accruing
Nonaccrual
Total
Allowance
December 31, 2021
Commercial real estate:
Other
$
—
187
187
$
—
Total commercial real estate
—
187
187
—
Investment
 
property
—
62
62
—
Total residential real estate
—
62
62
—
Total
 
$
—
249
249
$
—
At September 30,
 
2022 there were no
 
significant outstanding
 
commitments to advance
 
additional
 
funds to customers whose
loans had been
 
restructured.
 
There were no
 
loans
 
modified in
 
a TDR during the
 
quarters and
 
nine months
 
ended
 
September 30, 2022
 
and
 
2021,
respectively.
 
For the
 
same periods,
 
the Company
 
had no loans
 
modified in a
 
TDR within the
 
previous 12 months
 
for which
there was a
 
payment default.