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Loans, allowance for loan losses and OREO | 9 Months Ended
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Sep. 30, 2022
Loans, allowance for loan losses and OREO [Abstract] |
Loans, allowance for loan losses and OREO | Note 8 – Loans, allowance for loan losses and OREO Management has an established methodology used to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Bank has segmented certain loans in the portfolio by product type. Within these segments, the Bank has sub-segmented its portfolio into classes, based on the associated risks. The classifications set forth below do not correspond directly to the classifications set forth in the call report (Form FFIEC 041). Management has determined that the classifications set forth below are more appropriate for use in identifying and managing risk in the loan portfolio.
Loan Segments: |  | Loan Classes:
Commercial |  | Commercial and industrial loans
Commercial real estate |  | Commercial mortgages – owner occupied
|  | Commercial mortgages – non-owner occupied
|  | Commercial construction
Consumer |  | Consumer unsecured
|  | Consumer secured
Residential |  | Residential mortgages
|  | Residential consumer construction
A summary of loans, net is as follows (dollars in thousands):
| As of:
| September 30, |  | December 31,
| 2022 |  | 2021
Commercial | $ | 101,225 |  | $ | 105,067
Commercial real estate |  | 357,304 |  |  | 338,149
Consumer |  | 98,507 |  |  | 89,102
Residential |  | 63,475 |  |  | 51,066
Total loans (1) |  | 620,511 |  |  | 583,384
Less allowance for loan losses |  | 6,394 |  |  | 6,915
Net loans | $ | 614,117 |  | $ | 576,469
(1)Includes net deferred costs of $1,156 and $372 as of September 30, 2022 and December 31, 2021, respectively. The Bank’s internal risk rating system is in place to grade commercial and commercial real estate loans. Category ratings are reviewed periodically by lenders and the credit review area of the Bank based on the borrower’s individual situation. Additionally, internal and external monitoring and review of credits are conducted on an annual basis. ‎ Note 8 – Loans, allowance for loan losses and OREO (continued) Below is a summary and definition of the Bank’s risk rating categories:
RATING 1 |  | Excellent
RATING 2 |  | Above Average
RATING 3 |  | Satisfactory
RATING 4 |  | Acceptable / Low Satisfactory
RATING 5 |  | Monitor
RATING 6 |  | Special Mention
RATING 7 |  | Substandard
RATING 8 |  | Doubtful
RATING 9 |  | Loss
We segregate loans into the above categories based on the following criteria and we review the characteristics of each rating at least annually, generally during the first quarter. The characteristics of these ratings are as follows: “Pass.” These are loans having risk ratings of 1 through 4. Pass loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan. “Monitor.” These are loans having a risk rating of 5. Monitor loans have currently acceptable risk but may have the potential for a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history may currently or in the future be characterized by late payments. The Bank’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable. “Special Mention.” These are loans having a risk rating of 6. Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the bank’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. These loans do warrant more than routine monitoring due to a weakness caused by adverse events. “Substandard.” These are loans having a risk rating of 7. Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Bank’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Bank. There is a distinct possibility that the Bank will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provides evidence that it is probable that the Bank will be unable to collect all amounts due. “Doubtful.” These are loans having a risk rating of 8. Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but 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 possibility of loss is extremely high. “Loss.” These are loans having a risk rating of 9. Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off. ‎ Note 8 – Loans, allowance for loan losses and OREO (continued) Loans on Non-Accrual Status (dollars in thousands)
| As of
| September 30, 2022 |  | December 31, 2021
Commercial | $ | — |  | $ | 25
Commercial Real Estate: |  |  |  |  |
Commercial Mortgages-Owner Occupied |  | 502 |  |  | 501
Commercial Mortgages-Non-Owner Occupied |  | 125 |  |  | 138
Commercial Construction |  | — |  |  | —
Consumer |  |  |  |  |
Consumer Unsecured |  | — |  |  | —
Consumer Secured |  | 8 |  |  | 127
Residential: |  |  |  |  |
Residential Mortgages |  | 153 |  |  | 163
Residential Consumer Construction |  | — |  |  | —
Totals | $ | 788 |  | $ | 954
We also classify other real estate owned (OREO) as a nonperforming asset. OREO represents real property owned by the Bank which was acquired through purchase at foreclosure or from the borrower through a deed in lieu of foreclosure. OREO decreased to $566 on September 30, 2022 from $761 on December 31, 2021. The decrease was a result of the write-down of a property by $195 that subsequently went under contract to be sold. The sale is expected to close by April 30, 2023. The following table represents the changes in OREO balance during the nine months ended September 30, 2022 and year ended December 31, 2021. OREO Changes (dollars in thousands)
| Nine Months Ended Year Ended
| September 30, 2022 |  | December 31, 2021
Balance at the beginning of the year (net) | $ | 761 |  | $ | 1,105
Transfers from loans |  | — |  |  | 111
Capitalized costs |  | — |  |  | —
Valuation adjustments |  | (195) |  |  | —
Sales proceeds |  | — |  |  | (368)
Loss on disposition |  | — |  |  | (87)
Balance at the end of the period (net) | $ | 566 |  | $ | 761
At September 30, 2022 and December 31, 2021, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. The Company held no residential real estate properties in other real estate owned as of September 30, 2022 and December 31, 2021. ‎ Note 8 – Loans, allowance for loan losses and OREO (continued) Impaired loans by class as of and for the periods ended September 30, 2022 and December 31, 2021 were as follows:
|  | Impaired Loans
|  | (dollars in thousands)
|  | As of and For the Nine Months Ended September 30, 2022
|  |  |  | Unpaid |  |  |  | Average |  | Interest
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Income
|  | Investment (1) |  | Balance |  | Allowance |  | Investment |  | Recognized
With No Related Allowance Recorded: |  |  |  |  |  |  |  |  |
| Commercial | $ - |  | $ - |  | $ - |  | $ 9 |  | $ -
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | 1,191 |  | 1,413 |  | - |  | 1,892 |  | 43
| Commercial Mortgage Non-Owner Occupied | 521 |  | 522 |  | - |  | 312 |  | 22
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | 253 |  | 253 |  | - |  | 156 |  | 8
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | 1,354 |  | 1,434 |  | - |  | 1,335 |  | 40
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
With an Allowance Recorded: |  |  |  |  |  |  |  |  |
| Commercial | $ - |  | $ - |  | $ - |  | $ - |  | $ -
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | - |  | - |  | - |  | - |  | -
| Commercial Mortgage Non-Owner Occupied | - |  | - |  | - |  | - |  | -
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | - |  | - |  | - |  | - |  | -
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | - |  | - |  | - |  | - |  | -
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
Totals: |  |  |  |  |  |  |  |  |
| Commercial | $ - |  | $ - |  | $ - |  | $ 9 |  | $ -
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | 1,191 |  | 1,413 |  | - |  | 1,892 |  | 43
| Commercial Mortgage Non-Owner Occupied | 521 |  | 522 |  | - |  | 312 |  | 22
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | 253 |  | 253 |  | - |  | 156 |  | 8
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | 1,354 |  | 1,434 |  | - |  | 1,335 |  | 40
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
|  | $ 3,319 |  | $ 3,622 |  | $ - |  | $ 3,704 |  | $ 113
(1)Recorded Investment is net of charge-offs and interest paid while a loan is in nonaccrual status. ‎ Note 8 – Loans, allowance for loan losses and OREO (continued)
|  | Impaired Loans
|  | (dollars in thousands)
|  | As of and For the Year Ended December 31, 2021
|  |  |  | Unpaid |  |  |  | Average |  | Interest
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Income
|  | Investment (1) |  | Balance |  | Allowance |  | Investment |  | Recognized
With No Related Allowance Recorded: |  |  |  |  |  |  |  |  |
| Commercial | $ 17 |  | $ 67 |  | $ - |  | $ 179 |  | $ 5
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | 2,592 |  | 2,971 |  | - |  | 2,368 |  | 154
| Commercial Mortgage Non-Owner Occupied | 102 |  | 102 |  | - |  | 371 |  | 13
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | 59 |  | 60 |  | - |  | 201 |  | 2
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | 1,316 |  | 1,390 |  | - |  | 1,332 |  | 47
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
With an Allowance Recorded: |  |  |  |  |  |  |  |  |
| Commercial | $ - |  | $ - |  | $ - |  | $ 2 |  | $ -
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | - |  | - |  | - |  | - |  | -
| Commercial Mortgage Non-Owner Occupied | - |  | - |  | - |  | - |  | -
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | - |  | - |  | - |  | - |  | -
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | - |  | - |  | - |  | - |  | -
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
Totals: |  |  |  |  |  |  |  |  |
| Commercial | $ 17 |  | $ 67 |  | $ - |  | $ 181 |  | $ 5
| Commercial Real Estate |  |  |  |  |  |  |  |  |
| Commercial Mortgages-Owner Occupied | 2,592 |  | 2,971 |  | - |  | 2,368 |  | 154
| Commercial Mortgage Non-Owner Occupied | 102 |  | 102 |  | - |  | 371 |  | 13
| Commercial Construction | - |  | - |  | - |  | - |  | -
| Consumer |  |  |  |  |  |  |  |  |
| Consumer Unsecured | - |  | - |  | - |  | - |  | -
| Consumer Secured | 59 |  | 60 |  | - |  | 201 |  | 2
| Residential |  |  |  |  |  |  |  |  |
| Residential Mortgages | 1,316 |  | 1,390 |  | - |  | 1,332 |  | 47
| Residential Consumer Construction | - |  | - |  | - |  | - |  | -
|  | $ 4,086 |  | $ 4,590 |  | $ - |  | $ 4,453 |  | $ 221
(1)Recorded Investment is net of charge-offs and interest paid while a loan is in nonaccrual status. ‎ Note 8 – Loans, allowance for loan losses and OREO (continued) The following tables present the activity in the allowance for loan losses for the year-to-date periods ended and the distribution of the allowance by segment as of September 30, 2022 and December 31, 2021.
| Allowance for Loan Losses and Recorded Investment in Loans
| (dollars in thousands)
| As of and For the Nine Months Ended September 30, 2022
|  |  | Commercial |  |  |  |  |  |
| Commercial |  | Real Estate |  | Consumer |  | Residential |  | Total
Allowance for Loan Losses: |  |  |  |  |  |  |  |  |
Beginning Balance | $ 1,471 |  | $ 3,637 |  | $ 860 |  | $ 947 |  | $ 6,915
Charge-Offs | - |  | - |  | (10) |  | - |  | (10)
Recoveries | 96 |  | 207 |  | 15 |  | 71 |  | 389
Provision (Recovery of) | (302) |  | (861) |  | (36) |  | 299 |  | (900)
Ending Balance | 1,265 |  | 2,983 |  | 829 |  | 1,317 |  | 6,394
Ending Balance: Individually evaluated for impairment | - |  | - |  | - |  | - |  | -
Ending Balance: Collectively evaluated for impairment | 1,265 |  | 2,983 |  | 829 |  | 1,317 |  | 6,394
Totals: | $ 1,265 |  | $ 2,983 |  | $ 829 |  | $ 1,317 |  | $ 6,394
Financing Receivables: |  |  |  |  |  |  |  |  |
Ending Balance: Individually evaluated for impairment | - |  | 1,712 |  | 253 |  | 1,354 |  | 3,319
Ending Balance: Collectively evaluated for impairment | 101,225 |  | 355,592 |  | 98,254 |  | 62,121 |  | 617,192
Totals: | $ 101,225 |  | $ 357,304 |  | $ 98,507 |  | $ 63,475 |  | $ 620,511
‎ Note 8 – Loans, allowance for loan losses and OREO (continued)
| Allowance for Loan Losses and Recorded Investment in Loans
| (dollars in thousands)
| As of and For the Year Ended December 31, 2021
|  |  | Commercial |  |  |  |  |  |
| Commercial |  | Real Estate |  | Consumer |  | Residential |  | Total
Allowance for Loan Losses: |  |  |  |  |  |  |  |  |
Beginning Balance | $ 2,001 |  | $ 3,550 |  | $ 868 |  | $ 737 |  | $ 7,156
Charge-Offs | (53) |  | - |  | (38) |  | - |  | (91)
Recoveries | 112 |  | 72 |  | 29 |  | 137 |  | 350
Provision (Recovery of) | (589) |  | 15 |  | 1 |  | 73 |  | (500)
Ending Balance | 1,471 |  | 3,637 |  | 860 |  | 947 |  | 6,915
Ending Balance: Individually evaluated for impairment | - |  | - |  | - |  | - |  | -
Ending Balance: Collectively evaluated for impairment | 1,471 |  | 3,637 |  | 860 |  | 947 |  | 6,915
Totals: | $ 1,471 |  | $ 3,637 |  | $ 860 |  | $ 947 |  | $ 6,915
Financing Receivables: |  |  |  |  |  |  |  |  |
Ending Balance: Individually evaluated for impairment | 17 |  | 2,694 |  | 59 |  | 1,316 |  | 4,086
Ending Balance: Collectively evaluated for impairment | 105,050 |  | 335,455 |  | 89,043 |  | 49,750 |  | 579,298
Totals: | $ 105,067 |  | $ 338,149 |  | $ 89,102 |  | $ 51,066 |  | $ 583,384
‎ Note 8 – Loans, allowance for loan losses and OREO (continued) The following tables present credit quality information by class of loans as of September 30, 2022 and December 31, 2021.
Credit Quality Information - by Class
September 30, 2022
| Pass | Monitor | Special | Substandard | Doubtful | Totals
|  |  | Mention |  |  |
Commercial | $ 92,003 | $ 4,336 | $ 4,829 | $ 57 | $ - | $ 101,225
Commercial Real Estate: |  |  |  |  |  |
Commercial Mortgages-Owner Occupied | 128,090 | 1,973 | - | 1,210 | - | 131,273
Commercial Mortgages-Non-Owner Occupied | 203,267 | 500 | 1,197 | 717 | - | 205,681
Commercial Construction | 20,350 | - | - | - | - | 20,350
Consumer |  |  |  |  |  |
Consumer Unsecured | 3,911 | - | 20 | 1 | - | 3,932
Consumer Secured | 94,225 | - | - | 350 | - | 94,575
Residential: |  |  |  |  |  |
Residential Mortgages | 39,111 | - | - | 1,468 | - | 40,579
Residential Consumer Construction | 22,896 | - | - | - | - | 22,896
Totals | $ 603,853 | $ 6,809 | $ 6,046 | $ 3,803 | $ - | $ 620,511
Credit Quality Information - by Class
December 31, 2021
| Pass | Monitor | Special | Substandard | Doubtful | Totals
|  |  | Mention |  |  |
Commercial | $ 92,789 | $ 7,965 | $ 4,262 | $ 51 | $ - | $ 105,067
Commercial Real Estate: |  |  |  |  |  |
Commercial Mortgages-Owner Occupied | 116,098 | 5,986 | 4,130 | 2,620 | - | 128,834
Commercial Mortgages-Non-Owner Occupied | 176,291 | 2,506 | - | 316 | - | 179,113
Commercial Construction | 30,202 | - | - | - | - | 30,202
Consumer |  |  |  |  |  |
Consumer Unsecured | 2,581 | - | 23 | 1 | - | 2,605
Consumer Secured | 86,265 | - | - | 232 | - | 86,497
Residential: |  |  |  |  |  |
Residential Mortgages | 30,486 | - | - | 1,439 | - | 31,925
Residential Consumer Construction | 19,141 | - | - | - | - | 19,141
Totals | $ 553,853 | $ 16,457 | $ 8,415 | $ 4,659 | $ - | $ 583,384
‎ Note 8 – Loans, allowance for loan losses and OREO (continued) The following tables present an aging analysis of the loan portfolio by class and past due as of September 30, 2022 and December 31, 2021.
Age Analysis of Past Due Loans as of September 30, 2022
|  |  |  |  |  |  | Recorded
|  |  | Greater |  |  |  | Investment
| 30-59 Days | 60-89 Days | than | Total Past |  | Total | > 90 Days &
| Past Due | Past Due | 90 Days | Due | Current | Loans | Accruing
Commercial | $ - | $ - | $ - | $ - | $ 101,225 | $ 101,225 | $ -
Commercial Real Estate: |  |  |  |  |  |  |
Commercial Mortgages-Owner Occupied | - | - | 502 | 502 | 130,771 | 131,273 | -
Commercial Mortgages-Non-Owner Occupied | - | 56 | - | 56 | 205,625 | 205,681 | -
Commercial Construction | - | - | - | - | 20,350 | 20,350 | -
Consumer: |  |  |  |  |  |  |
Consumer Unsecured | - | - | - | - | 3,932 | 3,932 | -
Consumer Secured | 133 | - | - | 133 | 94,442 | 94,575 | -
Residential: |  |  |  |  |  |  |
Residential Mortgages | 519 | - | 96 | 615 | 39,964 | 40,579 | -
Residential Consumer Construction | - | - | - | - | 22,896 | 22,896 | -
Total | $ 652 | $ 56 | $ 598 | $ 1,306 | $ 619,205 | $ 620,511 | $ -
Age Analysis of Past Due Loans as of December 31, 2021
|  |  |  |  |  |  | Recorded
|  |  | Greater |  |  |  | Investment
| 30-59 Days | 60-89 Days | than | Total Past |  | Total | > 90 Days &
| Past Due | Past Due | 90 Days | Due | Current | Loans | Accruing
Commercial | $ - | $ 1 | $ 25 | $ 26 | $ 105,041 | $ 105,067 | $ -
Commercial Real Estate: |  |  |  |  |  |  |
Commercial Mortgages-Owner Occupied | 464 | - | 501 | 965 | 127,869 | 128,834 | -
Commercial Mortgages-Non-Owner Occupied | 1,310 | - | - | 1,310 | 177,803 | 179,113 | -
Commercial Construction | - | - | - | - | 30,202 | 30,202 | -
Consumer: |  |  |  |  |  |  |
Consumer Unsecured | 8 | 1 | - | 9 | 2,596 | 2,605 | -
Consumer Secured | 111 | 3 | 118 | 232 | 86,265 | 86,497 | -
Residential: |  |  |  |  |  |  |
Residential Mortgages | 948 | - | 163 | 1,111 | 30,814 | 31,925 | -
Residential Consumer Construction | - | - | - | - | 19,141 | 19,141 | -
Total | $ 2,841 | $ 5 | $ 807 | $ 3,653 | $ 579,731 | $ 583,384 | $ -
‎ Note 8 – Loans, allowance for loan losses and OREO (continued) Troubled Debt Restructurings (TDR) There was one loan modification that was classified as a TDR during the three and nine months ended September 30, 2022. This loan has had its original terms modified to facilitate payment by the borrower. The loan has been classified as a TDR primarily due to the extension of the maturity date which lowered the borrower’s payment. There were no loan modifications that would have been classified as TDRs during the three and nine months ended September 30, 2021. There were no loan modifications classified as TDRs within the last twelve months that defaulted during the three and nine months Ended September 30, 2022 and 2021. At September 30, 2022 and December 31, 2021, the Bank had no outstanding commitments to disburse additional funds on loans classified as TDRs. At the outset of the COVID-19 pandemic in the spring of 2020, we developed relief programs to assist borrowers in financial need due to the effects of the COVID-19 pandemic. Accordingly, we offered short-term modifications made in response to COVID-19 to certain borrowers who were current and otherwise not past due. These included short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, deferral of principal only (interest only payments), or other delays in payment that are insignificant. The Bank modified a total of 191 loans. As of September 30, 2022 and December 31, 2021, none of the 191 previously modified loans remained in deferment and all such previously deferred loans are current.

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