Loans And Credit Quality

6 Months Ended

Jun. 30, 2021

Note 6 – Loans and Credit Quality

The Company has presented PPP loans of $42.2 million at June 30, 2021 and $54.3 million at December 31, 2021, respectively, separately from loans receivable on the Consolidated Balance Sheet. As described in Note 3, PPP loans are 100% SBA guaranteed and the Company has determined that no allowance for loan losses is required on PPP loans. All PPP loans are risk rated as pass. PPP loans are not included in the following composition and credit quality tables.

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The following table presents the composition of loans receivable at June 30, 2021 and December 31, 2020, respectively:



	June 30, 2021			December 31, 2020
			Percentage of			Percentage of
	Balance		total Loans	Balance		total Loans

		(Dollars in Thousands)

Commercial real estate	$	453,147	40.93%	$	452,251	41.51%
Commercial construction		10,780	0.97%		12,176	1.12%
Commercial		43,763	3.95%		48,114	4.42%
Residential real estate		598,721	54.09%		576,437	52.90%
Consumer		694	0.06%		640	0.05%
Total loans		1,107,105	100.00%		1,089,618	100.00%
Unearned origination fees		148			291
Allowance for loan losses		(11,160)			(10,570)
Net Loans	$	1,096,093		$	1,079,339

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weaknesses), substandard (well defined weaknesses) and doubtful (full collection unlikely) within the Company's internal risk rating system as of June 30, 2021 and December 31, 2020, respectively:



	Pass		Special Mention		Substandard		Doubtful		Total

June 30, 2021		(In Thousands)
Commercial real estate	$	451,746	$	-	$	1,401	$	-	$	453,147
Commercial construction		10,466		-		314		-		10,780
Commercial		43,763		-		-		-		43,763
Residential real estate		597,086		500		1,135		-		598,721
Consumer		694		-		-		-		694
Total	$	1,103,755	$	500	$	2,850	$	-	$	1,107,105

December 31, 2020
Commercial real estate	$	450,823	$	-	$	1,428	$	-	$	452,251
Commercial construction		11,861		-		315		-		12,176
Commercial		48,114		-		-		-		48,114
Residential real estate		575,344		512		581		-		576,437
Consumer		640		-		-		-		640
Total	$	1,086,782	$	512	$	2,324	$	-	$	1,089,618

At June 30, 2021, the Company had no foreclosed assets and had $259 thousand in recorded investment in two (2) substandard residential real estate mortgage loans collateralized by residential real estate in the process of foreclosure. At December 31, 2020 the Company had no foreclosed assets or recorded investment in consumer mortgage loans collateralized by residential real estate in the process of foreclosure.

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The following table summarizes information in regards to impaired loans by loan portfolio class as of June 30, 2021 and December 31, 2020, respectively:


	June 30, 2021						December 31, 2020
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In Thousands)
With no related allowance recorded:
Commercial real estate	$	829	$	1,069			$	851	$	1,091
Commercial construction		314		314				315		315
Commercial		-		-				-		-
Residential real estate		1,497		1,567				944		1,014
Consumer		-		-				-		-
With an allowance recorded:
Commercial real estate	$	684	$	684	$	9	$	696	$	696	$	21
Commercial construction		-		-		-		-		-		-
Commercial		227		227		20		230		230		23
Residential real estate		589		589		121		604		604		125
Consumer		-		-		-		-		-		-
Total:
Commercial real estate	$	1,513	$	1,753	$	9	$	1,547	$	1,787	$	21
Commercial construction		314		314		-		315		315		-
Commercial		227		227		20		230		230		23
Residential real estate		2,086		2,156		121		1,548		1,618		125
Consumer		-		-		-		-		-		-
	$	4,140	$	4,450	$	150	$	3,640	$	3,950	$	169

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The following tables summarize information regarding the average recorded investment and interest income recognized on impaired loans by loan portfolio for the three and six months ended June 30, 2021 and 2020, respectively:


	Three Months Ended June 30,
	2021				2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
With no related allowance recorded:
Commercial real estate	$	835	$	9	$	883	$	11
Commercial construction		315		2		315		2
Commercial		-		-		-		-
Residential real estate		1,424		17		816		9
Consumer		-		-		-		-
With an allowance recorded:
Commercial real estate	$	687	$	3	$	700	$	5
Commercial construction		-		-		-		-
Commercial		228		3		233		3
Residential real estate		593		6		620		6
Consumer		-		-		1		-
Total:
Commercial real estate	$	1,522	$	12	$	1,583	$	16
Commercial construction		315		2		315		2
Commercial		228		3		233		3
Residential real estate		2,017		23		1,436		15
Consumer		-		-		1		-
	$	4,082	$	40	$	3,568	$	36


	Six Months Ended June 30,
	2021				2020
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In Thousands)
With no related allowance recorded:
Commercial real estate	$	840	$	24	$	1,130	$	24
Commercial construction		315		5		315		5
Commercial		-		-		-		-
Residential real estate		1,264		24		721		16
Consumer		-		-		-		-
With an allowance recorded:
Commercial real estate	$	690	$	10	$	467	$	11
Commercial construction		-		-		-		-
Commercial		228		5		233		5
Residential real estate		596		11		685		11
Consumer		-		-		1		-
Total:
Commercial real estate	$	1,530	$	34	$	1,597	$	35
Commercial construction		315		5		315		5
Commercial		228		5		233		5
Residential real estate		1,860		35		1,406		27
Consumer		-		-		1		-
	$	3,933	$	79	$	3,552	$	72

The following table presents non-accrual loans by classes of the loan portfolio:



	June 30, 2021		December 31, 2020

	(In Thousands)
Commercial real estate	$	-	$	-
Commercial construction		-		-
Commercial		-		-
Residential real estate		839		274
Consumer		-		-
Total	$	839	$	274

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of June 30, 2021 and December 31, 2020, respectively:


					Greater								Loan
					than								Receivables >
	30-59 Days		60-89 Days		90 Days		Total				Total Loan		90 Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing

June 30, 2021	(In Thousands)
Commercial real estate	$	-	$	-	$	-	$	-	$	453,147	$	453,147	$	-
Commercial construction		-		-		-		-		10,780		10,780		-
Commercial		50		-		-		50		43,713		43,763		-
Residential real estate		54		566		259		879		597,842		598,721		-
Consumer		-		-		-		-		694		694		-
Total	$	104	$	566	$	259	$	929	$	1,106,176	$	1,107,105	$	-

December 31, 2020
Commercial real estate	$	514	$	-	$	-	$	514	$	451,737	$	452,251	$	-
Commercial construction		-		-		-		-		12,176		12,176		-
Commercial		-		-		-		-		48,114		48,114		-
Residential real estate		336		-		42		378		576,059		576,437		-
Consumer		2		-		-		2		638		640		-
Total	$	852	$	-	$	42	$	894	$	1,088,724	$	1,089,618	$	-

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The following tables detail the activity in the allowance for loan losses for the three and six months ended June 30, 2021 and 2020:



	Commercial Real Estate		Commercial Construction		Commercial		Residential Real Estate		Consumer		Unallocated		Total

Allowance for loan losses	(In Thousands)
Three Months Ending June 30, 2021
Beginning Balance - March 31, 2021	$	4,687	$	113	$	916	$	4,497	$	12	$	809	$	11,034
Charge-offs		-		-		-		-		-		-		-
Recoveries		-		-		-		1		-		-		1
Provisions		(145)		3		429		89		13		(264)		125
Ending Balance - June 30, 2021	$	4,542	$	116	$	1,345	$	4,587	$	25	$	545	$	11,160

Six Months Ending June 30, 2021
Beginning Balance - December 31, 2020	$	4,379	$	150	$	848	$	4,485	$	14	$	694	$	10,570
Charge-offs		-		-		-		-		(2)		-		(2)
Recoveries		-		-		-		2		-		-		2
Provisions		163		(34)		497		100		13		(149)		590
Ending Balance - June 30, 2021	$	4,542	$	116	$	1,345	$	4,587	$	25	$	545	$	11,160

Three Months Ending June 30, 2020
Beginning Balance - March 31, 2020	$	3,353	$	121	$	817	$	3,627	$	18	$	430	$	8,366
Charge-offs		-		-		-		-		-		-		-
Recoveries		-		-		-		1		-		-		1
Provisions		221		(8)		(55)		(10)		(2)		504		650
Ending Balance - June 30, 2020	$	3,574	$	113	$	762	$	3,618	$	16	$	934	$	9,017

Six Months Ending June 30, 2020
Beginning Balance - December 31, 2019	$	3,221	$	121	$	770	$	3,488	$	19	$	403	$	8,022
Charge-offs		-		-		-		-		-		-		-
Recoveries		24		-		-		1		-		-		25
Provisions		329		(8)		(8)		129		(3)		531		970
Ending Balance - June 30, 2020	$	3,574	$	113	$	762	$	3,618	$	16	$	934	$	9,017

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The following tables represent the allocation for loan losses and the related loan portfolio disaggregated based on impairment methodology at June 30, 2021 and December 31, 2020:



	Commercial Real Estate		Commercial Construction		Commercial		Residential Real Estate		Consumer		Unallocated		Total

	(In Thousands)
June 30, 2021
Allowance for Loan Losses
Ending Balance	$	4,542	$	116	$	1,345	$	4,587	$	25	$	545	$	11,160
Ending balance: individually evaluated for impairment	$	9	$	-	$	20	$	121	$	-	$	-	$	150
Ending balance: collectively evaluated for impairment	$	4,533	$	116	$	1,325	$	4,466	$	25	$	545	$	11,010

Loans receivables:
Ending balance	$	453,147	$	10,780	$	43,763	$	598,721	$	694			$	1,107,105
Ending balance: individually evaluated for impairment	$	1,513	$	314	$	227	$	2,086	$	-			$	4,140
Ending balance: collectively evaluated for impairment	$	451,634	$	10,466	$	43,536	$	596,635	$	694			$	1,102,965

December 31, 2020
Allowance for Loan Losses
Ending Balance	$	4,379	$	150	$	848	$	4,485	$	14	$	694	$	10,570
Ending balance: individually evaluated for impairment	$	21	$	-	$	23	$	125	$	-	$	-	$	169
Ending balance: collectively evaluated for impairment	$	4,358	$	150	$	825	$	4,360	$	14	$	694	$	10,401

Loans receivables:
Ending balance	$	452,251	$	12,176	$	48,114	$	576,437	$	640			$	1,089,618
Ending balance: individually evaluated for impairment	$	1,547	$	315	$	230	$	1,548	$	-			$	3,640
Ending balance: collectively evaluated for impairment	$	450,704	$	11,861	$	47,884	$	574,889	$	640			$	1,085,978

Troubled Debt Restructurings

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider, resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions to maturity, interest only payments, or payment modifications to better coincide the timing of payments due under the modified terms with the expected timing of cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses. Payment accommodations completed since the COVID-19 outbreak are reported in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus as described in Note 3 and are not considered a TDR.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and the evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

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The following table presents TDR’s outstanding:



	Accrual Loans		Non-Accrual Loans		Total Modifications

June 30, 2021	(In Thousands)
Commercial real estate	$	1,100	$	-	$	1,100
Commercial construction		259		-		259
Commercial		227		-		227
Residential real estate		918		14		932
Consumer		-		-		-
	$	2,504	$	14	$	2,518

December 31, 2020
Commercial real estate	$	1,125	$	-	$	1,125
Commercial construction		260		-		260
Commercial		230		-		230
Residential real estate		944		15		959
Consumer		-		-		-
	$	2,559	$	15	$	2,574

As of June 30, 2021, no available commitments were outstanding on TDRs.

There were no newly restructured loans that occurred during the three and six months ended June 30, 2021 and 2020.

There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety days or more past due) during the three and six months ended June 30, 2021 and 2020.