Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2021

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 3.Loans and Allowance for Loan Losses

A summary of loan balances by type follows:

	March 31, 2021						December 31, 2020
(In thousands)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial real estate	$	758,069	$	25,714	$	783,783	$	761,876	$	28,149	$	790,025
Commercial and industrial		272,443		4,178		276,621		271,039		4,295		275,334
Commercial construction		217,819		1,368		219,187		220,845		1,474		222,319
Consumer real estate		128,447		30,770		159,217		133,940		33,932		167,872
Consumer nonresidential		13,566		28		13,594		15,802		33		15,835
	$	1,390,344	$	62,058	$	1,452,402	$	1,403,502	$	67,883	$	1,471,385
Less:
Allowance for loan losses		14,336		85		14,421		14,333		625		14,958
Unearned income and (unamortized premiums), net		5,490		—		5,490		5,302		—		5,302
Loans, net	$	1,370,518	$	61,973	$	1,432,491	$	1,383,867	$	67,258	$	1,451,125

During 2018, as a result of the Company’s acquisition of Colombo Bank (Colombo), the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans).

The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20. The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 are as follows:

(In thousands)	March 31, 2021
Purchased credit impaired acquired loans evaluated individually for credit losses
Outstanding principal balance	$	3,828
Carrying amount		2,955
Other acquired loans
Outstanding principal balance		59,819
Carrying amount		59,103
Total acquired loans
Outstanding principal balance		63,647
Carrying amount		62,058

(In thousands)	December 31, 2020
Purchased credit impaired acquired loans evaluated individually for credit losses
Outstanding principal balance	$	4,010
Carrying amount		3,064
Other acquired loans
Outstanding principal balance		65,656
Carrying amount		64,819
Total acquired loans
Outstanding principal balance		69,666
Carrying amount		67,883

The following table presents changes during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30.

(In thousands)
Balance at January 1, 2021	$	216
Accretion		(40)
Reclassification of nonaccretable difference due to improvement in expected cash flows		23
Other changes, net		17
Balance at March 31, 2021	$	216
(In thousands)
Balance at January 1, 2020	$	371
Accretion		(878)
Reclassification of nonaccretable difference due to improvement in expected cash flows		691
Other changes, net		32
Balance at December 31, 2020	$	216

An analysis of the allowance for loan losses for the three months ended March 31, 2021 and 2020, and for the year ended December 31, 2020, follows:

Allowance for Loan Losses

For the three months ended March 31, 2021

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	9,291	$	2,546	$	1,960	$	690	$	471	$	14,958
Charge-offs		(451)		(117)		—		—		(63)		(631)
Recoveries		24		—		—		3		67		94
Provision		214		(116)		23		(41)		(80)		—
Ending Balance	$	9,078	$	2,313	$	1,983	$	652	$	395	$	14,421

Allowance for Loan Losses

For the three months ended March 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	6,399	$	1,275	$	2,067	$	417	$	73	$	10,231
Charge-offs		—		—		—		(3)		(90)		(93)
Recoveries		—		19		—		1		2		22
Provision		1,208		(124)		(163)		72		73		1,066
Ending Balance	$	7,607	$	1,170	$	1,904	$	487	$	58	$	11,226

Allowance for Loan Losses

For the year ended December 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Beginning Balance	$	6,399	$	1,275	$	2,067	$	417	$	73	$	10,231
Charge-offs		(115)		—		—		(41)		(254)		(410)
Recoveries		9		62		—		2		48		121
Provision		2,998		1,209		(107)		312		604		5,016
Ending Balance	$	9,291	$	2,546	$	1,960	$	690	$	471	$	14,958

The following tables present the recorded investment in loans and impairment method as of March 31, 2021 and 2020, and at December 31, 2020, by portfolio segment:

Allowance for Loan Losses

At March 31, 2021

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	85	$	1,263	$	—	$	23	$	—	$	1,371
Purchased credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		8,993		1,050		1,983		629		395		13,050
	$	9,078	$	2,313	$	1,983	$	652	$	395	$	14,421

Loans Receivable

At March 31, 2021

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	11,976	$	6,466	$	—	$	469	$	—	$	18,911
Purchased credit impaired		2,896		—		—		59		—		2,955
Collectively evaluated for impairment		768,911		270,155		219,187		158,689		13,594		1,430,536
	$	783,783	$	276,621	$	219,187	$	159,217	$	13,594	$	1,452,402

Allowance for Loan Losses

At March 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	298	$	—	$	89	$	—	$	387
Purchased credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		7,607		872		1,904		398		58		10,839
	$	7,607	$	1,170	$	1,904	$	487	$	58	$	11,226

Loans Receivable

At March 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,528	$	4,502		820	$	449	$	—	$	7,299
Purchased credit impaired		3,182		372		—		249		—		3,803
Collectively evaluated for impairment		758,788		101,668		220,973		181,721		10,297		1,273,447
	$	763,498	$	106,542	$	221,793	$	182,419	$	10,297	$	1,284,549

Allowance for Loan Losses

At December 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment		625	$	1,450	$	—	$	25	$	—	$	2,100
Purchased credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		8,666		1,096		1,960		665		471		12,858
	$	9,291	$	2,546	$	1,960	$	690	$	471	$	14,958

Loans Receivable

At December 31, 2020

(In thousands)

	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Real Estate		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	13,379	$	7,086	$	—	$	254	$	—	$	20,719
Purchased credit impaired		3,007		—		—		57		—		3,064
Collectively evaluated for impairment		773,639		268,248		222,319		167,561		15,835		1,447,602
	$	790,025	$	275,334	$	222,319	$	167,872	$	15,835	$	1,471,385

Impaired loans by class excluding purchased credit impaired, at March 31, 2021 and December 31, 2020, are summarized as follows:

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
March 31, 2021
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		4,913		4,913		1,263		4,973		81
Commercial construction		—		—		—		—		—
Consumer real estate		96		96		23		97		1
Consumer nonresidential		—		—		—		—		—
	$	5,009	$	5,009	$	1,286	$	5,070	$	82
March 31, 2021
With no related allowance:
Commercial real estate	$	9,924	$	9,928	$	—	$	9,929	$	121
Commercial and industrial		1,553		1,554		—		1,379		169
Commercial construction		—		—		—		—		—
Consumer real estate		250		250		—		250		7
Consumer nonresidential		—		—		—		—		—
	$	11,727	$	11,732	$	—	$	11,558	$	297

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
March 31, 2021
With an allowance recorded:
Commercial real estate	$	2,052	$	2,969	$	85	$	2,969	$	45
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer real estate		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	2,052	$	2,969	$	85	$	2,969	$	45
March 31, 2021
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer real estate		123		180		—		182		1
Consumer nonresidential		—		—		—		—		—
	$	123	$	180	$	—	$	182	$	1

Impaired Loans – Originated Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2020
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		5,287		5,287		1,450		5,682		358
Commercial construction		—		—		—		—		—
Consumer real estate		97		97		25		99		6
Consumer nonresidential		—		—		—		—		—
	$	5,384	$	5,384	$	1,475	$	5,781	$	364
December 31, 2020
With no related allowance:
Commercial real estate	$	9,926	$	9,930	$	—	$	9,938	$	133
Commercial and industrial		1,799		1,799		—		2,433		148
Commercial construction		—		—		—		—		—
Consumer real estate		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	11,725	$	11,729	$	—	$	12,371	$	281

Impaired Loans – Acquired Loan Portfolio

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2020
With an allowance recorded:
Commercial real estate	$	3,303	$	4,316	$	625	$	4,811	$	267
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer real estate		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	3,303	$	4,316	$	625	$	4,811	$	267
December 31, 2020
With no related allowance:
Commercial real estate	$	150	$	164	$	—	$	164	$	13
Commercial and industrial		157		215		—		215		12
Commercial construction		—		—		—		—		—
Consumer real estate		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	307	$	379	$	—	$	379	$	25

No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass — Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

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.

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 enhanced possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable.

Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans.

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of March 31, 2021 and December 31, 2020:

As of March 31, 2021 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer Real		Consumer
(In thousands)	Estate		Industrial		Construction		Estate		Nonresidential		Total
Grade:
Pass	$	745,831	$	264,380	$	217,819	$	128,010	$	13,566	$	1,369,606
Special mention		2,314		1,596		—		91		—		4,001
Substandard		9,924		6,467		—		346		—		16,737
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	758,069	$	272,443	$	217,819	$	128,447	$	13,566	$	1,390,344

As of March 31, 2021 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer Real		Consumer
(In thousands)	Estate		Industrial		Construction		Estate		Nonresidential		Total
Grade:
Pass	$	23,662	$	4,178	$	1,368	$	30,711	$	28	$	59,947
Special mention		—		—		—		—		—		—
Substandard		2,052		—		—		59		—		2,111
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	25,714	$	4,178	$	1,368	$	30,770	$	28	$	62,058

As of December 31, 2020 – Originated Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer Real		Consumer
(In thousands)	Estate		Industrial		Construction		Estate		Nonresidential		Total
Grade:
Pass	$	741,570	$	262,355	$	220,845	$	133,750	$	15,802	$	1,374,322
Special mention		10,380		1,598		—		93		—		12,071
Substandard		9,926		7,086		—		97		—		17,109
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	761,876	$	271,039	$	220,845	$	133,940	$	15,802	$	1,403,502

As of December 31, 2020 – Acquired Loan Portfolio

	Commercial Real		Commercial and		Commercial		Consumer Real		Consumer
(In thousands)	Estate		Industrial		Construction		Estate		Nonresidential		Total
Grade:
Pass	$	24,696	$	4,295	$	1,474	$	33,844	$	33	$	64,342
Special mention		—		—		—		—		—		—
Substandard		3,453		—		—		88		—		3,541
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	28,149	$	4,295	$	1,474	$	33,932	$	33	$	67,883

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2021, the Company had $4.0 million in loans identified as special mention within the originated loan portfolio, a decrease of $8.1 million from December 31, 2020. Special mention rated loans are loans that have a potential weakness that deserves management’s close attention. These loans do not have a specific reserve and are considered well-secured. At March 31, 2021, the Company had $16.7 million in loans identified as substandard within the originated loan portfolio, a decrease of $0.4 million from December 31, 2020. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, an impairment analysis is completed. As of March 31, 2021 specific reserves on originated and acquired loans totaling $1.4 million, has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

Past due and nonaccrual loans presented by loan class were as follows at March 31, 2021 and December 31, 2020:

As of March 31, 2021 – Originated Loan Portfolio

	30-59 days past		60-89 days past		90 days or more								90 days past due
(In thousands)	due		due		past due		Total past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	—	$	1,754	$	—	$	1,754	$	756,315	$	758,069	$	—	$	—
Commercial and industrial		—		—		—		—		272,443		272,443		—		2,525
Commercial construction		—		—		—		—		217,819		217,819		—		—
Consumer real estate		3,086		71		74		3,231		125,216		128,447		74		250
Consumer nonresidential		150		7		—		157		13,409		13,566		—		—
Total	$	3,236	$	1,832	$	74	$	5,142	$	1,385,202	$	1,390,344	$	74	$	2,775

As of March 31, 2021 – Acquired Loan Portfolio

	30-59 days past		60-89 days past		90 days or more								90 days past due
(In thousands)	due		due		past due		Total past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	—	$	—	$	—	$	—	$	25,714	$	25,714	$	—	$	2,052
Commercial and industrial		—		—		—		—		4,178		4,178		—		—
Commercial construction		—		—		—		—		1,368		1,368		—		—
Consumer real estate		379		—		—		379		30,391		30,770		—		—
Consumer nonresidential		—		—		—		—		28		28		—		122
Total	$	379	$	—	$	—	$	379	$	61,679	$	62,058	$	—	$	2,174

As of December 31, 2020 – Originated Loan Portfolio

	30-59 days past		60-89 days past		90 days or more								90 days past due
(In thousands)	due		due		past due		Total past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	—	$	88	$	—	$	88	$	761,788	$	761,876	$	—	$	—
Commercial and industrial		—		—		—	$	—		271,039		271,039		—		2,883
Commercial construction		—		13		—		13		220,832		220,845		—		—
Consumer real estate		347		76		—		423		133,517		133,940		—		—
Consumer nonresidential		—		—		44		44		15,758		15,802		44		—
Total	$	347	$	177	$	44	$	568	$	1,402,934	$	1,403,502	$	44	$	2,883

As of December 31, 2020 – Acquired Loan Portfolio

	30-59 days past		60-89 days past		90 days or more								90 days past due
(In thousands)	due		due		past due		Total past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	694	$	—	$	—	$	694	$	27,455	$	28,149	$	—	$	2,309
Commercial and industrial		—		—		—		—		4,295		4,295		—		—
Commercial construction		111		—		—		111		1,363		1,474		—		—
Consumer real estate		353		108		228		689		33,243		33,932		228		157
Consumer nonresidential		—		—		—		—		33		33		—		—
Total	$	1,158	$	108	$	228	$	1,494	$	66,389	$	67,883	$	228	$	2,466

As of March 31, 2021 and December 31, 2020, there were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process. There were $169 thousand of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2020.

There were overdrafts of $41 thousand and $72 thousand at March 31, 2021 and December 31, 2020, respectively, which have been reclassified from deposits to loans. At March 31, 2021 and December 31, 2020, loans with a carrying value of $190.1 million and $132.6 million, respectively, were pledged to the Federal Home Loan Bank of Atlanta (FHLB).

There were no defaults of TDRs during the twelve months since restructuring for the three months ended March 31, 2021 and 2020.

The following table presents loans designated as TDRs during the three months ended March 31, 2021:

For the three months ended March 31, 2021

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
Troubled Debt Restructurings	Contracts	Investment		Investment
	(Dollars in thousands)
Commercial real estate	1	$	96	$	96
Total	1	$	96	$	96

There were no TDRs originated during the three months ended March 31, 2020. As of March 31, 2021, and December 31, 2020, the Company has a recorded investment in TDRs of $96 thousand and $97 thousand, respectively.

The concession made in the TDRs were related to the reduction in the stated interest rate for the remaining life of the debt.