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Non-Performing Assets Including Troubled Debt Restructurings (TDR)

9 Months Ended

Sep. 30, 2022

Non-Performing Assets Including Troubled Debt Restructurings (TDR)

Non-Performing Assets Including Troubled Debt Restructurings (TDR)

10. Non-Performing Assets Including Troubled Debt Restructurings (TDR)

The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):


	September 30, 2022			December 31, 2021
Non-accrual loans:
Commercial and industrial	$	2,045		$	2,165
Commercial loans secured by non-owner occupied real estate		1,623			5
Real estate – residential mortgage		889			1,153
Total		4,557			3,323

Other real estate owned and repossessed assets:
Real estate – residential mortgage		38			—
Consumer		1			—
Total		39			—
Total non-performing assets including TDR	$	4,596		$	3,323
Total non-performing assets as a percent of loans, net of unearned income, other real estate owned and repossessed assets		0.47	%		0.34	%

The Company had no loans past due 90 days or more for the periods presented which were accruing interest.

Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.

The following table details the loan modified as a TDR during the three-month period ended September 30, 2022 (dollars in thousands).


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial loans secured by non-owner occupied real estate	1	$	1,620	Extension of maturity date with an interest only period at below market interest rate

The following table details the loans modified as TDRs during the nine-month period ended September 30, 2022 (dollars in thousands).


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	458	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate
Commercial loans secured by non-owner occupied real estate	1	$	1,620	Extension of maturity date with an interest only period at below market interest rate

The Company had no loans modified as TDRs during the three-month period ended September 30, 2021. The following table details the loan modified as a TDR during the nine-month period ended September 30, 2021 (dollars in thousands).


Loans in non-accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	480	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate

All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDRs was $129,000 and $132,000 as of September 30, 2022 and December 31, 2021, respectively.

The Company had no loans that were classified as TDRs or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2021 and 2020 (nine-month periods) and July 1, 2021 and 2020 (three-month periods), respectively, and that subsequently defaulted during these reporting periods.

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above.

Loan Modifications Related to COVID-19

Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes and reporting the loan as past due. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency so long as the loan was current on payments as of December 31, 2019. The suspension of TDR identification and accounting triggered by the effects of the COVID-19 pandemic was extended by the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020. The period established by Section 4013 of the CARES Act was extended to the earlier of January 1, 2022 or 60 days after the date on which the national COVID-19 emergency terminates. Additionally, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

In response to the COVID-19 pandemic, the Company remains committed to prudently working with and supporting our borrowers that have been hardest hit by the pandemic by granting them loan payment modifications. The following table presents information comparing loans which were subject to a loan modification related to COVID-19, as of

September 30, 2022 and December 31, 2021. Note that the percentage of outstanding loans presented below was calculated based on loan totals excluding PPP loans. Management believes that this method more accurately reflects the concentration of COVID-19 related modifications within the loan portfolio.


	At September 30, 2022				At December 31, 2021
			% of Outstanding				% of Outstanding
	Balance		Non-PPP Loans		Balance		Non-PPP Loans
	(in thousands)				(in thousands)
CRE/Commercial	$	3,919	0.6	%	$	7,488	1.1	%
Home Equity/Consumer		—	—			57	0.1
Residential Mortgage		248	0.1			203	0.1
Total	$	4,167	0.4		$	7,748	0.8

The balance of loan modifications related to COVID-19 at September 30, 2022 represents a decrease of $3.6 million, or 46.2%, from the balance of loans modified for COVID-19 at December 31, 2021. In addition, this current level of borrowers requesting payment deferrals is down sharply from its peak level of approximately $200 million that occurred at June 30, 2020. As a result of these loan modifications, the Company has recorded $503,000 of accrued interest income that has not been received as of September 30, 2022.

Borrower requested modifications primarily consist of the deferral of principal and/or interest payments. The following table presents the composition of the types of payment relief that have been granted.


	At September 30, 2022			At December 31, 2021
	Number of Loans	Balance		Number of Loans	Balance
		(in thousands)			(in thousands)
Type of Payment Relief
Interest only payments	2	$	3,919	6	$	3,768
Complete payment deferrals	2		248	5		3,980
Total	4	$	4,167	11	$	7,748

Management continues to carefully monitor asset quality with a particular focus on customers that have requested payment deferrals during this difficult economic time. Deferral extension requests were considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt, and issued regulatory guidance. At September 30, 2022, the COVID-19 related modifications within the commercial real estate and commercial loan portfolios are to two borrowers in the hospitality and personal care industries, with loans totaling approximately $3.9 million. In order to properly monitor the increased credit risk associated with the modified loans, the Asset Quality Task Force is meeting periodically to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers.