LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2021

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 3 — LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table presents the classes of the loan portfolio summarized by risk rating as of December 31, 2021 and 2020:

	Commercial and
(Dollars in thousands)	Industrial				Commercial Real Estate
	December 31,		December 31,		December 31,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	81,561	$	90,906	$	498,565	$	444,119
7    Special Mention		—		—		1,098		814
8    Substandard		796		919		21,248		20,975
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		169		50		743		820
Total loans	$	82,526	$	91,875	$	521,654	$	466,728

	Residential Real Estate
	Including Home Equity				Consumer
	December 31,		December 31,		December 31,		December 31,
	2021		2020		2021		2020
Grade:
1-6 Pass	$	141,983	$	155,698	$	5,210	$	4,934
7    Special Mention		570		225		—		—
8    Substandard		1,020		1,186		5		18
9    Doubtful		—		—		—		—
Add (deduct):  Unearned discount and		—		—		—		—
Net deferred loan fees and costs		(190)		(126)		63		72
Total loans	$	143,383	$	156,983	$	5,278	$	5,024

	Total Loans
	December 31,		December 31,
	2021		2020
Grade:
1-6 Pass	$	727,319	$	695,657
7 Special Mention		1,668		1,039
8 Substandard		23,069		23,098
9 Doubtful		—		—
Add (deduct):  Unearned discount and		—		—
Net deferred loan fees and costs		785		816
Total loans	$	752,841	$	720,610

Commercial and Industrial and Commercial Real Estate include loans categorized as tax-free in the amounts of $24,647,000 and $1,671,000 at December 31, 2021 and $9,337,000 and $1,843,000 at December 31, 2020. Commercial and Industrial loans also included $3,829,000 and $5,128,000 of GGLs and $4,894,000 and $22,976,000 of PPP loans as of December 31, 2021 and 2020, respectively. Loans held for sale amounted to $6,006,000 at December 31, 2021 and $17,300,000 at December 31, 2020.

The activity in the allowance for loan losses, by loan class, is summarized below for the years indicated.

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2021:
Allowance for Loan Losses:
Beginning balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Charge-offs		(13)		(29)		(80)		(36)		—		(158)
Recoveries		—		30		4		11		—		45
Provision (credit)		(93)		645		(28)		15		321		860
Ending Balance	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Ending balance: individually
evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively
evaluated for impairment	$	681	$	5,408	$	1,539	$	84	$	968	$	8,680
Loans Receivable:
Ending Balance	$	82,526	$	521,654	$	143,383	$	5,278	$	—	$	752,841
Ending balance: individually
evaluated for impairment	$	1,017	$	11,803	$	853	$	—	$	—	$	13,673
Ending balance: collectively
evaluated for impairment	$	81,509	$	509,851	$	142,530	$	5,278	$	—	$	739,168

(Dollars in thousands)	Commercial		Commercial		Residential
	and Industrial		Real Estate		Real Estate		Consumer		Unallocated		Total
As of and for the year ended December 31, 2020:
Allowance for Loan Losses:
Beginning balance	$	634	$	4,116	$	1,665	$	114	$	476	$	7,005
Charge-offs		(90)		(141)		(33)		(37)		—		(301)
Recoveries		14		—		8		7		—		29
Provision (credit)		229		787		3		10		171		1,200
Ending Balance	$	787	$	4,762	$	1,643	$	94	$	647	$	7,933
Ending balance: individually
evaluated for impairment	$	—	$	8	$	—	$	—	$	—	$	8
Ending balance: collectively
evaluated for impairment	$	787	$	4,754	$	1,643	$	94	$	647	$	7,925
Loans Receivable:
Ending Balance	$	91,875	$	466,728	$	156,983	$	5,024	$	—	$	720,610
Ending balance: individually
evaluated for impairment	$	1,095	$	12,923	$	1,036	$	—	$	—	$	15,054
Ending balance: collectively
evaluated for impairment	$	90,780	$	453,805	$	155,947	$	5,024	$	—	$	705,556

The outstanding recorded investment of loans categorized as TDRs as of December 31, 2021 and December 31, 2020 was $8,020,000 and $9,563,000, respectively. The decrease in TDRs at December 31, 2021 as compared to December 31, 2020 is mainly attributable to the payoff of a Commercial Real Estate TDR to a real estate holding company which was completed during the third quarter of 2021 in the amount of $1,010,000, as well as regular principal payments on existing TDRs during the year ended December 31, 2021. There were no unfunded commitments on TDRs at December 31, 2021 and 2020.

During the year ended December 31, 2021, four loans with a combined post modification balance of $360,000 were modified as TDRs, compared to the year ended December 31, 2020 when eight loans with a combined post modification balance of $1,536,000 were modified as TDRs. The loan modifications for the year ended December 31, 2021 consisted of two term modifications beyond the original stated term and two payment modifications, compared to December 31, 2020 when the loan modifications consisted of two term modifications beyond the original stated term and six payment modifications.

The following table presents the outstanding recorded investment of TDRs at the dates indicated:

(Dollars in thousands)	December 31,		December 31,
	2021		2020
Non-accrual TDRs	$	1,413	$	1,587
Accruing TDRs		6,607		7,976
Total	$	8,020	$	9,563

At December 31, 2021, three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $708,000, ten Commercial Real Estate loans classified as TDRs with a combined recorded investment of $590,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $14,000 were not in compliance with the terms of their restructure, compared to December 31, 2020 when three Commercial and Industrial loans classified as TDRs with a combined recorded investment of $745,000, seven Commercial Real Estate loans classified as TDRs with a combined recorded investment of $984,000, and one Residential Real Estate loan classified as a TDR with a recorded investment of $18,000 were not in compliance with the terms of their restructure.

Three Commercial Real Estate loans totaling $285,000 that were modified as TDRs within the twelve months preceding December 31, 2021 experienced payment defaults during the year ended December 31, 2021. Of the loans that were modified as TDRs during the twelve months preceding December 31, 2020, two Commercial Real Estate loans totaling $57,000 experienced payment defaults during the year ended December 31, 2020.

The following table presents information regarding the loan modifications categorized as TDRs during the year ended December 31, 2021 and 2020.

(Dollars in thousands)	Year Ended December 31, 2021
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	—	$	—	$	—	$	—
Commercial Real Estate	4		360		360		342
Total	4	$	360	$	360	$	342

(Dollars in thousands)	Year Ended December 31, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Recorded
	Contracts	Investment		Investment		Investment
Commercial and Industrial	2	$	42	$	42	$	40
Commercial Real Estate	6		1,494		1,494		1,486
Total	8	$	1,536	$	1,536	$	1,526

The following table provides detail regarding the types of loan modifications made for loans categorized as TDRs during the year ended December 31, 2021 and 2020 with the total number of each type of modification performed.

	Year Ended December 31, 2021
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	—	—	—
Commercial Real Estate	—	2	2	4
Total	—	2	2	4
	Year Ended December 31, 2020
	Rate	Term	Payment	Number
	Modification	Modification	Modification	Modified
Commercial and Industrial	—	1	1	2
Commercial Real Estate	—	1	5	6
Total	—	2	6	8

In the wake of the COVID-19 pandemic, during the second quarter of 2020, the Corporation began granting loan modification requests to defer principal and/or interest payments or modify interest rates. These loans are not classified as TDRs according to Section 4013 of the CARES Act, as long as the specific criteria set forth in the Act are met. The table below presents information related to the loan modifications made in compliance with Section 4013 of the CARES Act for the year ended December 31, 2021:

(Dollars in thousands)	Commercial and			Commercial				Residential
	Industrial			Real Estate				Real Estate			Consumer			Total
		Recorded				Recorded			Recorded			Recorded			Recorded
	Count	Investment		Count		Investment		Count	Investment		Count	Investment		Count	Investment
Balance at December 31, 2020	7	$	1,012	35		$	15,260	2	$	269	—	$	—	44	$	16,541
Additional modifications granted for the three months ended March 31, 2021	2		190	2			10,414	1		16	1		2	6	$	10,622
Section 4013 CARES Act modifications returned to normal payment status during the three months ended March 31, 2021 (a)	(2)		(612)	(29)			(12,780)	(2)		(130)	—		—	(33)	$	(13,522)
Principal payments net of draws on active deferred loans for the three months ended March 31, 2021 (b)	N/A		—	N/A			—	N/A		—	N/A		—	N/A		—
Balance at March 31, 2021	7	$	590	8		$	12,894	1	$	155	1	$	2	17	$	13,641
Additional modifications granted for the three months ended June 30, 2021	—		—	—			—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended June 30, 2021 (a)	(1)		(143)	(6)			(2,480)	(1)		(155)	(1)		(2)	(9)		(2,780)
Principal payments net of draws on active deferred loans for the three months ended June 30, 2021 (b)	N/A		—	N/A			(293)	N/A		—	N/A		—	N/A		(293)
Balance at June 30, 2021	6	$	447	2		$	10,121	—	$	—	—	$	—	8	$	10,568
Additional modifications granted for the three months ended September 30, 2021	—		—	—			—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended September 30, 2021 (a)	(6)		(447)	(1)			(698)	—		—	—		—	(7)		(1,145)
Principal payments net of draws on active deferred loans for the three months ended September 30, 2021 (b)	N/A		—	N/A			—	N/A		—	N/A		—	N/A		—
Balance at September 30, 2021	—	$	—	1		$	9,423	—	$	—	—	$	—	1	$	9,423
Additional modifications granted for the three months ended December 31, 2021	—		—	—			—	—		—	—		—	—		—
Section 4013 CARES Act modifications returned to normal payment status during the three months ended December 31, 2021 (a)	—		—	—	—		—	—		—	—		—	—		—
Principal payments net of draws on active deferred loans for the three months ended December 31, 2021 (b)	N/A		—	N/A			—	N/A		—	N/A		—	N/A		—
Balance at December 31, 2021	—	$	—	1		$	9,423	—	$	—	—	$	—	1	$	9,423
Percent of Total Section 4013 CARES Act Modifications as of December 31, 2021			0.00%				100.00%			0.00%			0.00%			100.00%
Percent of Total Section 4013 CARES Act Modifications to Total Loans as of December 31, 2021			0.00%				1.25%			0.00%			0.00%			1.25%
Subsequent modifications granted during the three months ended December 31, 2021 for active deferred loans outstanding as of December 31, 2021	—	$	—	—		$	—	—	$	—	—	$	—	—	$	—

The recorded investment, unpaid principal balance, and the related allowance of the Corporation’s impaired loans are summarized below at December 31, 2021 and 2020.

(Dollars in thousands)	December 31, 2021						December 31, 2020
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
Commercial and Industrial	$	1,017	$	1,017	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate		11,803		14,735		—		12,438		15,400		—
Residential Real Estate		853		885		—		1,036		1,120		—
With an allowance recorded:
Commercial and Industrial		—		—		—		—		—		—
Commercial Real Estate		—		—		—		485		485		8
Residential Real Estate		—		—		—		—		—		—
Total	$	13,673	$	16,637	$	—	$	15,054	$	18,100	$	8
Total consists of:
Commercial and Industrial	$	1,017	$	1,017	$	—	$	1,095	$	1,095	$	—
Commercial Real Estate	$	11,803	$	14,735	$	—	$	12,923	$	15,885	$	8
Residential Real Estate	$	853	$	885	$	—	$	1,036	$	1,120	$	—

At December 31, 2021 and 2020, $8,020,000 and $9,563,000 of loans classified as TDRs were included in impaired loans with a total allocated allowance of $0 at both December 31, 2021 and December 31, 2020. The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs. The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Corporation’s impaired loans are summarized below for the years ended December 31, 2021 and 2020.

(Dollars in thousands)	For the Year Ended				For the Year Ended
	December 31, 2021				December 31, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and Industrial	$	1,052	$	9	$	1,082	$	14
Commercial Real Estate		12,571		346		11,463		371
Residential Real Estate		1,107		2		1,026		1
With an allowance recorded:
Commercial and Industrial		—		—		—		—
Commercial Real Estate		198		—		118		5
Residential Real Estate		—		—		13		1
Total	$	14,928	$	357	$	13,702	$	392
Total consists of:
Commercial and Industrial	$	1,052	$	9	$	1,082	$	14
Commercial Real Estate	$	12,769	$	346	$	11,581	$	376
Residential Real Estate	$	1,107	$	2	$	1,039	$	2

Of the $357,000 and $392,000 in interest income recognized on impaired loans for the years ended December 31, 2021 and 2020, respectively, $3,000 and $5,000 in interest income was recognized with respect to non-accrual loans for each respective period.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of December 31, 2021 and 2020 were as follows:

(Dollars in thousands)	December 31,		December 31,
	2021		2020
Commercial and Industrial	$	708	$	745
Commercial Real Estate		5,519		5,315
Residential Real Estate		839		1,018
Total non-accrual loans		7,066		7,078
Foreclosed assets held for resale		—		28
Loans past-due 90 days or more and still accruing interest		—		13
Total non-performing assets	$	7,066	$	7,119

If interest on non-accrual loans had been accrued at original contract rates, interest income would have increased by $1,858,000 in 2021 and $1,461,000 in 2020.

There were no foreclosed assets held for resale at December 31, 2021. The $28,000 in foreclosed assets held for resale at December 31, 2020 was represented by land. At December 31, 2020, all foreclosed assets were held as the result of obtaining physical possession. Consumer mortgage loans secured by residential real estate for which the Corporation has entered into formal foreclosure proceedings but for which physical possession of the property has yet to be obtained amounted to $41,000 at both December 31, 2021 and December 31, 2020. These balances were not included in foreclosed assets held for resale at December 31, 2021 or December 31, 2020.

The following tables present the classes of the loan portfolio summarized by the past-due status at December 31, 2021 and 2020:

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2021:
Commercial and Industrial	$	47	$	—	$	678	$	725	$	81,801	$	82,526	$	—
Commercial Real Estate		116		189		4,891		5,196		516,458		521,654		—
Residential Real Estate		553		191		839		1,583		141,800		143,383		—
Consumer		14		—		—		14		5,264		5,278		—
Total	$	730	$	380	$	6,408	$	7,518	$	745,323	$	752,841	$	—

(Dollars in thousands)													90 Days
													Or Greater
													Past Due
					90 Days					Current-			and Still
	30-59 Days		60-89 Days		or Greater		Total			29 Days	Total		Accruing
	Past Due		Past Due		Past Due		Past Due		Past Due		Loans		Interest
December 31, 2020:
Commercial and Industrial	$	—	$	—	$	745	$	745	$	91,130	$	91,875	$	—
Commercial Real Estate		1,879		968		4,552		7,399		459,329		466,728		—
Residential Real Estate		628		74		1,031		1,733		155,250		156,983		13
Consumer		19		6		—		25		4,999		5,024		—
Total	$	2,526	$	1,048	$	6,328	$	9,902	$	710,708	$	720,610	$	13

At this time, there have been no material fluctuations in past-due loans as a result of the COVID-19 pandemic.

At December 31, 2021 and 2020 commitments to lend additional funds with respect to impaired loans consisted of one irrevocable letter of credit in the amount of $1,249,000 that was associated with a loan to a developer of a residential sub-division.