Allowance For Loan Losses

12 Months Ended

Dec. 31, 2020

ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the activity in the allowance for credit losses, by portfolio loan classification, for the years ended December 31, 2020, 2019 and 2018 (in thousands). The allocation of a portion of the allowance in one portfolio segment does not preclude its availability to absorb losses in other portfolio segments.


	Commercial and industrial		Commercial real estate		Residential real estate		Home equity		Consumer		DDA overdrafts		Total
December 31, 2020
Allowance for loan loss
Beginning balance	$	2,059	$	2,606	$	3,448	$	1,187	$	975	$	1,314	$	11,589
Impact of adopting CECL	1,715		3,254		2,139		(598)		(810)		60		5,760
Charge-offs	(843)		(1,113)		(1,250)		(420)		(192)		(2,345)		(6,163)
Recoveries	91		525		184		136		238		1,467		2,641
Provision for (recovery of) credit losses	622		5,725		3,572		325		(48)		526		10,722
Ending balance	$	3,644	$	10,997	$	8,093	$	630	$	163	$	1,022	$	24,549

December 31, 2019
Allowance for loan loss
Beginning balance	$	4,060	$	4,495	$	4,116	$	1,268	$	319	$	1,708	$	15,966
Charge-offs	(261)		(1,358)		(787)		(294)		(1,177)		(2,777)		(6,654)
Recoveries	764		624		369		—		265		1,505		3,527
(Recovery of) provision for credit losses	(2,504)		(1,155)		(250)		213		1,568		878		(1,250)
Ending balance	$	2,059	$	2,606	$	3,448	$	1,187	$	975	$	1,314	$	11,589

December 31, 2018
Allowance for loan loss
Beginning balance	$	4,571	$	6,183	$	5,212	$	1,138	$	62	$	1,670	$	18,836
Charge-offs	(733)		(369)		(682)		(219)		(769)		(2,701)		(5,473)
Recoveries	2,152		732		367		—		166		1,496		4,913
(Recovery of) provision for credit losses	(1,930)		(2,051)		(781)		349		860		1,243		(2,310)
Ending balance	$	4,060	$	4,495	$	4,116	$	1,268	$	319	$	1,708	$	15,966

Management systematically monitors the loan portfolio and the appropriateness of the allowance for credit losses on a quarterly basis to provide for expected losses inherent in the portfolio. Management assesses the risk in each loan type based on historical trends, the general economic environment of its local markets, individual loan performance and other relevant factors. The provision for credit losses recorded during the year ended December 31, 2020 largely reflects the expected economic impact from the COVID-19 pandemic. The Company's estimate of future economic conditions utilized in its provision estimate is primarily dependent on expected unemployment ranges over a two-year period. Beyond two years, a straight line reversion to historical average loss rates is applied over the life of the loan pool in the migration methodology. The vintage methodology applies future average loss rates based on net losses in historical periods where the unemployment rate was within the forecasted range. As a result of COVID-19, expected unemployment ranges have significantly increased and resulted in an increase in the Company's provision for credit losses.

Individual credits in excess of $1 million are selected at least annually for detailed loan reviews, which are utilized by management to assess the risk in the portfolio and the appropriateness of the allowance.

Non-Performing Loans

The following tables present the amortized cost basis of loans on non-accrual status and loans past due over 90 days still accruing as of December 31, 2020 (in thousands):


	Non-accrual With No		Non-accrual With		Loans Past Due
	Allowance for		Allowance for		Over 90 Days
	Credit Losses		Credit Losses		Still Accruing
Commercial & Industrial	$	172	$	596	$	—

1-4 Family	—		2,056		—
Hotels	—		2,951		—
Multi-family	—		—		—
Non Residential Non-Owner Occupied	—		508		—
Non Residential Owner Occupied	2,297		589		—
Commercial Real Estate	2,297		6,104		—

Residential Real Estate	21		2,947		—
Home Equity	—		95		—
Consumer	—		—		—
Total	$	2,490	$	9,742	$	—

The following table presents the Company's loans on non-accrual status and loans past due over 90 days still accruing as of December 31, 2019 (in thousands):


			Loans Past Due
			Over 90 Days
	Non-accrual		Still Accruing
Commercial and industrial	$	1,182	$	184
Commercial real estate	6,384		—
Residential real estate	3,393		83
Home equity	531		—
Consumer	—		—
Total	$	11,490	$	267

The Company recognized less than $0.1 million of interest income on nonaccrual loans during each of the years ended December 31, 2020 and 2019, respectively.

The following presents the aging of the amortized cost basis in past-due loans as of December 31, 2020 and 2019 by class of loan (in thousands):


	December 31, 2020
	30-59 Past Due		60-89 Past Due		90+ Past Due		Total Past Due		Current Loans		Non-accrual		Total Loans
Commercial and industrial	$	1,213	$	27	$	—	$	1,240	$	370,981	$	768	$	372,989

1-4 Family	484		—		—		484		107,272		2,056		109,812
Hotels	—		—		—		—		291,513		2,951		294,464
Multi-family	—		—		—		—		215,671		—		215,671
Non Residential Non-Owner Occupied	119		—		—		119		640,724		508		641,351
Non Residential Owner Occupied	22		—		—		22		210,576		2,886		213,484
Commercial real estate	625		—		—		625		1,465,756		8,401		1,474,782

Residential real estate	5,177		816		—		5,993		1,578,733		2,968		1,587,694
Home equity	575		—		—		575		135,799		95		136,469
Consumer	63		50		—		113		47,575		—		47,688
Overdrafts	334		7		—		341		2,156		—		2,497
Total	$	7,987	$	900	$	—	$	8,887	$	3,601,000	$	12,232	$	3,622,119

	December 31, 2019
	30-59 Past Due		60-89 Past Due		90+ Past Due		Total Past Due		Current Loans		Non-accrual		Total Loans
Commercial and industrial	$	243	$	31	$	184	$	458	$	306,375	$	1,182	$	308,015
Commercial real estate	1,514		66		—		1,580		1,451,773		6,384		1,459,737
Residential real estate	5,758		1,643		83		7,484		1,629,519		3,393		1,640,396
Home equity	840		116		—		956		147,441		531		148,928
Consumer	156		32		—		188		54,075		—		54,263
Overdrafts	644		86		—		730		4,030		—		4,760
Total	$	9,155	$	1,974	$	267	$	11,396	$	3,593,213	$	11,490	$	3,616,099

The following table presents the amortized cost basis of individually evaluated impaired collateral-dependent loans as of December 31, 2020 (in thousands). Changes in the fair value of the collateral for collateral-dependent loans are reported as credit loss expense or a reversal of credit loss expense in the period of change.


	Secured by
	Real Estate		Equipment
Commercial and industrial	$	173	$	—

1-4 Family	—		N/A
Hotels	2,837		N/A
Multi-family	—		N/A
Non Residential Non-Owner Occupied	—		N/A
Non Residential Owner Occupied	2,296		N/A
Commercial real estate	5,133		N/A
Total	$	5,306	N/A

The following table presents the Company’s individually evaluated impaired loans, by class (in thousands) as of December 31, 2019.


	December 31, 2019
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
With no related allowance recorded:
Commercial and industrial	$	501	$	501	$	—
Commercial real estate	3,546		3,572		—
Total	$	4,047	$	4,073	$	—

With an allowance recorded:
Commercial and industrial	$	—	$	—	$	—
Commercial real estate	2,644		2,644		87
Total	$	2,644	$	2,644	$	87

The following table presents information related to the average recorded investment and interest income recognized on the Company's impaired loans, by class (in thousands), for the years ended December 31, 2019 and 2018.



	December 31, 2019				December 31, 2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With no related allowance recorded:
Commercial and industrial	$	578	$	—	$	845	$	—
Commercial real estate	4,388		41		4,623		39
Total	$	4,966	$	41	$	5,468	$	39

With an allowance recorded:
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	4,261		162		5,043		220
Total	$	4,261	$	162	$	5,043	$	220

If the Company's non-accrual and impaired loans had been current in accordance with their original terms, less than $0.2 million of interest income would have been recognized during the years ended December 31, 2019 and 2018. There were no commitments to provide additional funds on non-accrual or impaired loans at December 31, 2020.

Troubled Debt Restructurings ("TDRs")

The following tables set forth the Company’s TDRs (in thousands):


	December 31, 2020		December 31, 2019
Commercial and industrial	$	—	$	—

1-4 Family	121		N/R
Hotels	2,634		N/R
Multi-family	1,883		N/R
Non Residential Non-Owner Occupied	—		N/R
Non Residential Owner Occupied	—		N/R
Commercial real estate	4,638		4,973

Residential real estate	19,226		21,029
Home equity	2,001		3,628
Consumer	277		—
Total TDRs	$	26,142	$	29,630
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company has allocated $1.6 million and $0.8 million of the allowance for credit losses for these loans as of December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020, the Company has not committed to lend any additional in relation to these loans.

The Company had one TDR that subsequently defaulted in 2019. The loan balance was approximately $3.0 million and the subsequent default resulted in a charge-off of $0.7 million and the remaining balance was transferred to OREO during 2019. The Company has had no significant TDRs that subsequently defaulted in 2020.

The following table presents loans by class, modified as TDRs, that occurred during the years ended December 31, 2020, 2019 and 2018, respectively (dollars in thousands):


	New TDRs					New TDRs					New TDRs
	For the year ended					For the year ended					For the year ended
	December 31, 2020					December 31, 2019					December 31, 2018
		Pre		Post			Pre		Post			Pre		Post
		Modification		Modification			Modification		Modification			Modification		Modification
		Outstanding		Outstanding			Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial and industrial	—	$	—	$	—	—	$	—	$	—	—	$	—	$	—

1-4 Family	—	—		—		N/R	N/R		N/R		N/R	N/R		N/R
Hotels	—	—		—		N/R	N/R		N/R		N/R	N/R		N/R
Multi-family	—	—		—		N/R	N/R		N/R		N/R	N/R		N/R
Non Owner Non-Owner Occupied	—	—		—		N/R	N/R		N/R		N/R	N/R		N/R
Non Owner Owner Occupied	—	—		—		N/R	N/R		N/R		N/R	N/R		N/R
Commercial real estate	—	—		—		—	—		—		—	—		—

Residential real estate	29	2,724		2,720		31	2,531		2,531		33	2,326		2,326
Home equity	3	94		94		10	967		967		10	274		274
Consumer	—	—		—		—	—		—		—	—		—
Total	32	$	2,818	$	2,814	41	$	3,498	$	3,498	43	$	2,600	$	2,600
N/R = Not reported. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The TDRs above increased the allowance for credit losses by less than $0.1 million for each of the years ended of December 31, 2020, 2019 and 2018 and resulted in charge-offs of less than $0.2 million during those same time periods.

Most TDRs above are reported due to filing Chapter 7 banktruptcy. Regulatory guidance requires that loans be accounted for as collateral-dependent loans when borrowers have filed Chapter 7 bankruptcy, the debt has been discharged by the bankruptcy court and the borrower has not reaffirmed the debt. The filing of bankruptcy is deemed to be evidence that the borrower is in financial difficulty and the discharge of debt by the bankruptcy court is deemed to be a concession granted to the borrower.

COVID-19 Pandemic

In March of 2020, in response to the COVID-19 pandemic, regulatory guidance was issued that clarified the accounting for loan modifications. Modifications of loan terms do not automatically result in a TDR. Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extension of repayment terms, or other delays that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time the modification program was implemented. In addition, modifications or deferrals pursuant to the CARES Act do not represent TDRs. However, these deferrals do not absolve the company from performing its normal risk rating and therefore a loan could be current and have a less than satisfactory risk rating.

During the year ended December 31, 2020, the Company granted deferrals of approximately $135 million to its mortgage customers. These deferral arrangements ranged from 30 days to 90 days. As of December 31, 2020, approximately $9 million of these loans were still deferring, while approximately $126 million have resumed making their normal loan payment. As of December 30, 2020, approximately $4 million of these deferrals were previously and currently considered TDRs due to Chapter 7 bankruptcies.

During the year ended December 31, 2020, the Company granted deferrals of approximately $455 million to its commercial customers. These deferral arrangements ranged from one month to six months. As of December 31, 2020, approximately $99 million of these loans were still deferring (including $88 million for hotel and lodging related loans), while approximately $356 million have resumed making their normal loan payment.