Loans

9 Months Ended

Sep. 30, 2020

(6) Loans

A summary of loans is as follows:



	At		At
	September 30,		December 31,
(In thousands)	2020		2019
Commercial real estate	$	426,184	$	418,356
Commercial (1)		582,763		451,791
Residential real estate		36,920		45,695
Construction and land development		35,768		46,763
Consumer		7,024		12,737
Mortgage warehouse		275,763		—
		1,364,422		975,342
Allowance for loan losses		(17,788)		(13,844)
Deferred loan fees, net		(5,293)		(2,212)
Net loans	$	1,341,341	$	959,286

(1) Includes $78.0 million in PPP loans at September 30, 2020. There were no PPP loans at December 31, 2019.

The following tables set forth information regarding the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2020 and 2019:



	For the three months ended September 30,
(In thousands)	Commercial Real Estate		Commercial		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Unallocated		Total
Allowance for loan losses:

Balance at June 30, 2020	$	6,758	$	7,925	$	207	$	955	$	851	$	462	$	—	$	17,158
Charge-offs		—		(78)		—		—		(96)		—		—		(174)
Recoveries		—		—		—		—		44		—		—		44
Provision (credit)		106		869		(11)		(376)		(55)		227		—		760
Balance at September 30, 2020	$	6,864	$	8,716	$	196	$	579	$	744	$	689	$	—	$	17,788

Balance at June 30, 2019	$	4,579	$	5,289	$	231	$	649	$	928	$	—	$	114	$	11,790
Charge-offs		—		—		—		—		(240)		—		—		(240)
Recoveries		—		20		3		—		31		—		—		54
Provision (credit)		366		339		(6)		15		63		—		56		833
Balance at September 30, 2019	$	4,945	$	5,648	$	228	$	664	$	782	$	—	$	170	$	12,437



	For the nine months ended September 30,
(In thousands)	Commercial Real Estate		Commercial		Residential ‎Real ‎Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Unallocated		Total
Allowance for loan losses:

Balance at December 31, 2019	$	6,104	$	6,086	$	254	$	749	$	650	$	—	$	1	$	13,844
Charge-offs		(118)		(175)		—		(24)		(609)		—		—		(926)
Recoveries		—		7		4		—		128		—		—		139
Provision (credit)		878		2,798		(62)		(146)		575		689		(1)		4,731
Balance at September 30, 2020	$	6,864	$	8,716	$	196	$	579	$	744	$	689	$	—	$	17,788

Balance at December 31, 2018	$	4,152	$	5,742	$	251	$	738	$	710	$	—	$	87	$	11,680
Charge-offs		—		(2,223)		—		—		(787)		—		—		(3,010)
Recoveries		—		35		7		—		76		—		—		118
Provision (credit)		793		2,094		(30)		(74)		783		—		83		3,649
Balance at September 30, 2019	$	4,945	$	5,648	$	228	$	664	$	782	$	—	$	170	$	12,437

The following table sets forth information regarding the allowance for loan losses and related loan balances by portfolio segment at September 30, 2020 and December 31, 2019:



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Unallocated		Total
September 30, 2020
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment	$	1,160	$	351	$	—	$	—	$	—	$	—	$	—	$	1,511
Ending balance:
Collectively evaluated
for impairment		5,704		8,365		196		579		744		689		—		16,277
Total allowance for loan
losses ending balance	$	6,864	$	8,716	$	196	$	579	$	744	$	689	$	—	$	17,788

Loans:
Ending balance:
Individually evaluated
for impairment	$	21,205	$	4,447	$	163	$	—	$	—	$	—			$	25,815
Ending balance:
Collectively evaluated
for impairment		404,979		578,316		36,757		35,768		7,024		275,763				1,338,607
Total loans ending balance	$	426,184	$	582,763	$	36,920	$	35,768	$	7,024	$	275,763			$	1,364,422



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate		Construction and Land Development		Consumer		Mortgage Warehouse		Unallocated		Total
December 31, 2019
Allowance for loan losses:
Ending balance:
Individually evaluated
for impairment	$	1,508	$	174	$	—	$	—	$	—	$	—	$	—	$	1,682
Ending balance:
Collectively evaluated
for impairment		4,596		5,912		254		749		650		—		1		12,162
Total allowance for loan
losses ending balance	$	6,104	$	6,086	$	254	$	749	$	650	$	—	$	1	$	13,844

Loans:
Ending balance:
Individually evaluated
for impairment	$	20,990	$	3,326	$	182	$	165	$	—	$	—			$	24,663
Ending balance:
Collectively evaluated
for impairment		397,366		448,465		45,513		46,598		12,737		—				950,679
Total loans ending balance	$	418,356	$	451,791	$	45,695	$	46,763	$	12,737	$	—			$	975,342

The following tables set forth information regarding non-accrual loans and loan delinquencies by portfolio segment at September 30, 2020 and December 31, 2019:



													90 Days
					90 Days		Total						or More
	30 - 59		60 - 89		or More		Past		Total		Total		Past Due		Non-accrual
(In thousands)	Days		Days		Past Due		Due		Current		Loans		and Accruing		Loans
September 30, 2020
Commercial real estate	$	—	$	205	$	—	$	205	$	425,979	$	426,184	$	—	$	19,834
Commercial		172		—		291		463		582,300		582,763		—		4,155
Residential real estate		327		176		1,033		1,536		35,384		36,920		—		1,166
Construction and
land development		—		—		—		—		35,768		35,768		—		—
Consumer		77		44		51		172		6,852		7,024		—		51
Mortgage warehouse		—		—		—		—		275,763		275,763		—		—
Total	$	576	$	425	$	1,375	$	2,376	$	1,362,046	$	1,364,422	$	—	$	25,206

December 31, 2019
Commercial real estate	$	473	$	18,256	$	1,368	$	20,097	$	398,259	$	418,356	$	—	$	1,701
Commercial		529		85		484		1,098		450,693		451,791		—		2,955
Residential real estate		715		154		832		1,701		43,994		45,695		—		969
Construction and
land development		—		—		165		165		46,598		46,763		—		165
Consumer		111		58		38		207		12,530		12,737		—		37
Mortgage warehouse		—		—		—		—		—		—		—		—
Total	$	1,828	$	18,553	$	2,887	$	23,268	$	952,074	$	975,342	$	—	$	5,827

The following tables provide information with respect to the Company’s impaired loans:


	September 30, 2020						December 31, 2019
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial real estate	$	1,209	$	1,209	$	—	$	2,070	$	2,082	$	—
Commercial		345		353		—		1,348		1,745		—
Residential real estate		163		163		—		182		182		—
Construction and land development		—		—		—		165		165		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired with no related allowance		1,717		1,725		—		3,765		4,174		—

With an allowance recorded:
Commercial real estate		19,996		20,190		1,160		18,920		18,921		1,508
Commercial		4,102		4,644		351		1,978		2,085		174
Residential real estate		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired with an allowance recorded		24,098		24,834		1,511		20,898		21,006		1,682

Total
Commercial real estate		21,205		21,399		1,160		20,990		21,003		1,508
Commercial		4,447		4,997		351		3,326		3,830		174
Residential real estate		163		163		—		182		182		—
Construction and land development		—		—		—		165		165		—
Consumer		—		—		—		—		—		—
Mortgage warehouse		—		—		—		—		—		—
Total impaired loans	$	25,815	$	26,559	$	1,511	$	24,663	$	25,180	$	1,682



	Three Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial real estate	$	1,383	$	28	$	2,420	$	15
Commercial		354		4		2,119		7
Residential real estate		163		1		282		7
Construction and land development		—		—		216		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with no related allowance		1,900		33		5,037		29
With an allowance recorded:
Commercial real estate		20,354		1		—		—
Commercial		4,178		—		1,927		—
Residential real estate		—		—		—		—
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with an allowance recorded		24,532		1		1,927		—
Total
Commercial real estate		21,737		29		2,420		15
Commercial		4,532		4		4,046		7
Residential real estate		163		1		282		7
Construction and land development		—		—		216		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired loans	$	26,432	$	34	$	6,964	$	29



	Nine Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
(In thousands)	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial real estate	$	1,455	$	56	$	2,442	$	45
Commercial		373		14		2,397		20
Residential real estate		164		6		334		15
Construction and land development		83		—		216		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with no related allowance		2,075		76		5,389		80
With an allowance recorded:
Commercial real estate		20,695		253		—		—
Commercial		4,454		1		3,133		—
Residential real estate		—		—		—		—
Construction and land development		—		—		—		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired with an allowance recorded		25,149		254		3,133		—
Total
Commercial real estate		22,150		309		2,442		45
Commercial		4,827		15		5,530		20
Residential real estate		164		6		334		15
Construction and land development		83		—		216		—
Consumer		—		—		—		—
Mortgage warehouse		—		—		—		—
Total impaired loans	$	27,224	$	330	$	8,522	$	80

Troubled debt restructurings: Loans are considered to be troubled debt restructurings (“TDRs”) when the Company has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status. Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term.

TDRs are reported as such for at least one year from the date of the restructuring. In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is not deemed to be impaired based on the terms specified in the restructuring agreement.

The following tables summarize TDRs entered into during the three and nine months ended September 30, 2020 and 2019:



	Nine Months Ended September 30,
	2020					2019
(Dollars in thousands)	Number of Contracts	Pre- ‎Modification ‎Outstanding ‎Recorded ‎Investment		Post-Modification ‎Outstanding ‎Recorded ‎Investment		Number of Contracts	Pre- ‎Modification ‎Outstanding ‎Recorded ‎Investment		Post-Modification ‎Outstanding ‎Recorded ‎Investment
Troubled debt restructurings:
Commercial real estate	9	$	18,811	$	20,311	—	$	—	$	—
Commercial	1		81		81	1		1,963		1,963
	10	$	18,892	$	20,392	1	$	1,963	$	1,963

There were no new TDRs approved during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company approved 10 TDRs. Of the 10 TDRs, seven were for one commercial real estate loan relationship totaling $20.1 million. The Bank analyzed the relationship and modified the relationship as follows:

$16.5 million was placed on interest-only payments for three years at a reduced rate;

$2.1 million was restructured to amortize and pay out over a 10-year term at a reduced rate; and

$1.5 million was advanced for necessary capital expenditures. The advance was placed on interest-only payments for three years at a reduced rate.

This commercial relationship is currently on non-accrual until satisfactory demonstration of payments.

The Bank approved two TDRs for another commercial real estate relationship totaling $165,000. These loans have a reduced rate for a period of two years. An impairment analysis was performed and a specific reserve of $4,000 was allocated to this relationship. The Bank also approved one TDR for a commercial loan totaling $81,000. This commercial loan was placed on an extended six-month interest-only period with a new term and re-amortization to follow.

There were no TDRs approved during the three months ended September 30, 2019. In the nine months ended September 30, 2019, the Company approved one TDR totaling $1.9 million. This commercial loan was placed on an extended 12-month interest-only period with re-amortization to follow.

As of September 30, 2020, these loan relationships are paying as agreed upon in the modified terms. An impairment analysis was performed and a specific reserves of $1.3 million were allocated to these relationships.

The total recorded investment in TDRs was $23.6 million and $4.2 million at September 30, 2020 and December 31, 2019, respectively. As of September 30, 2020, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured.

The following tables present the Company’s loans by risk rating and portfolio segment at September 30, 2020 and December 31, 2019:



(In thousands)	Commercial Real Estate		Commercial		Residential Real Estate			Construction ‎and Land ‎Development	Consumer		Mortgage Warehouse		Total
September 30, 2020
Grade:
Pass	$	393,589	$	555,693	$	—	$	35,768	$	—	$	275,763	$	1,260,813
Special mention		12,761		19,064		—		—		—		—		31,825
Substandard		19,834		8,006		1,462		—		—		—		29,302
Not formally rated		—		—		35,458		—		7,024		—		42,482
Total	$	426,184	$	582,763	$	36,920	$	35,768	$	7,024	$	275,763	$	1,364,422

December 31, 2019
Grade:
Pass	$	396,217	$	433,076	$	—	$	46,598	$	—	$	—	$	875,891
Special mention		1,936		14,044		—		—		—		—		15,980
Substandard		20,203		4,671		1,379		165		—		—		26,418
Not formally rated		—		—		44,316		—		12,737		—		57,053
Total	$	418,356	$	451,791	$	45,695	$	46,763	$	12,737	$	—	$	975,342

Credit Quality Information

The Company utilizes a seven grade internal loan risk rating system for commercial real estate, construction and land development, and commercial loans as follows:

Loans rated 1-3: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 7: Loans in this category are considered uncollectible “loss” and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and land development, and commercial loans.

For residential real estate and consumer loans, the Company initially assesses credit quality based upon the borrower’s ability to pay and rates such loans as pass. Ongoing monitoring is based upon the borrower’s payment activity.